SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

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

                     FOR THE FISCAL YEAR ENDED JUNE 30, 1999

                                       OR

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

                           COMMISSION FILE NO. 0-23949

                          EUROPEAN MICRO HOLDINGS, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

            Nevada                                      65-0803752
  (State or Other Jurisdiction           (I.R.S. Employer Identification Number)
of Incorporation or Organization)

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

        Registrant's telephone number, including area code (305) 825-2458

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

                     Common Stock, par value $0.01 per share
                                (Title of Class)

         Indicate  by check  mark  whether  the  registrant:  (1) has  filed all
reports  required to be filed by Section 13 or 15(d) of the Securities  Exchange
Act of 1934 during the  preceding  12 months,  and (2) has been  subject to such
filing requirements for the past 90 days. Yes X No ___

         Indicate by check mark if disclosure of delinquent  filers  pursuant to
Item 405 of Regulation S-K is not contained  herein,  and will not be contained,
to the best of  registrant's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. ___

         The  aggregate  market  value  of  the  voting  common  stock  held  by
non-affiliates  of the Registrant on September 21, 1999 was $12,880,836 based on
the average bid and asked prices on such date of $9.00.

         The  Registrant had 4,933,900  shares of Common Stock,  par value $0.01
per share, outstanding on September 21, 1999.

                       DOCUMENTS INCORPORATED BY REFERENCE

         Parts of the  definitive  proxy or  information  statement for the 1999
Annual Meeting of Stockholders to be filed by the Registrant with the Securities
and Exchange  Commission  under  Regulation 14A are incorporated by reference in
Part III of this Form 10-K Report.
<PAGE>


                                     PART I


ITEM 1.  BUSINESS.


GENERAL DESCRIPTION OF BUSINESS

         FORWARD-LOOKING  STATEMENTS AND ASSOCIATED  RISKS. THIS FILING 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, (E) THE COMPANY'S  ANTICIPATED NEEDS FOR WORKING CAPITAL AND (F) BENEFITS
RELATED TO THE  ACQUISITIONS OF AMERICAN  SURGICAL SUPPLY CORP. OF FLORIDA D/B/A
AMERICAN MICRO COMPUTER CENTER  ("AMCC"),  SUNBELT (UK) LIMITED  ("SUNBELT") AND
H&B TRADING  INTERNATIONAL  ("H&B"). IN ADDITION,  WHEN USED IN THIS FILING, 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 FILING 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 THREE WHOLLY-OWNED SUBSIDIARIES,  EUROPEAN
MICRO PLC, A COMPANY  ORGANIZED UNDER THE LAWS OF THE UNITED KINGDOM  ("EUROPEAN
MICRO UK"),  NOR'EASTER MICRO,  INC., A NEVADA CORPORATION  ("NOR'EASTER"),  AND
COLCHESTER ENTERPRISE PTE. LTD., A COMPANY ORGANIZED UNDER THE LAWS OF SINGAPORE
("COLCHESTER")  (COLLECTIVELY,  THE THREE 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 480
value-added  resellers,  corporate  resellers,  retailers,  direct marketers and
distributors.  The Company  generally 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 an attempt 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.


                                       2
<PAGE>

         European Micro Holdings, Inc. was organized under the laws of the State
of Nevada in December  1997 and is the parent of European  Micro UK,  Nor'Easter
and  Colchester.  European Micro  Holdings,  Inc. is also the parent of American
Micro Computer Center, Inc. ("AMERICAN MICRO") which was formed on June 24, 1999
to acquire AMCC.  This  transaction  was structured as a merger of AMCC with and
into American  Micro, a  newly-formed,  wholly-owned  subsidiary of the Company.
This  transaction  was  consummated on July 1, 1999,  which is subsequent to the
reporting  period contained in this report.  As such, the financial  information
contained  in this report  excludes  the  financial  results of American  Micro.
American Micro is an independent  distributor of  microcomputer  products in the
United States. A detailed  discussion of the acquisition of AMCC is contained in
the  section  entitled  "Related  Party  Transactions."  European  Micro  UK was
organized  under  the  laws  of the  United  Kingdom  in  1991  to  serve  as an
independent distributor of microcomputer products to customers mainly in Western
Europe and to related  parties in the United  States.  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.
Colchester  was organized  under the laws of Singapore in November 1998 to serve
as an independent  distributor of microcomputer products in Asia. 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.  were
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  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 ("EUROPEAN MICRO
GERMANY"),  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.  Sunbelt
continues  to  distribute  its Nova line of  products  in  accordance  with past
practice.  European  Micro Holland was formed in 1995 and acquired the assets of
H&B.  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  Holding's  headquarters  are located at 6073 N.W. 167th
Street,  Unit C-25,  Miami,  Florida  33015,  and its telephone  number is (305)
825-2458.


INDUSTRY

         The microcomputer  products industry has grown  significantly in recent
years,  primarily due to increasing  worldwide demand for computer  products and
the use of  distribution  channels  by  manufacturers  for the  distribution  of
products.  There are two traditional  distribution channels in the microcomputer
industry: (i) those that sell directly to end-users ("RESELLERS") and (ii) those
that sell to resellers ("DISTRIBUTORS").  Distributors generally purchase a wide
range of products in bulk directly from  manufacturers and then ship products in
smaller quantities to many different types of resellers, which typically include
dealers,  value-added  resellers,  system  integrators,  mail  order  resellers,



                                       3
<PAGE>

computer  products  superstores  and  mass  merchants.   European  Micro  is  an
independent  distributor and generally does not purchase  products directly from
manufacturers but purchases from other distributors.

         The Company operates in a fragmented industry, where little information
is available  regarding its  competitors  and which the Company  believes is not
dominated by one or a small number of  competitors.  As a result,  the Company's
competitive  position is not known or reasonably  ascertainable.  Information is
available,  however,  for other distributors of computer products,  although the
Company does not compete directly with these companies. These companies include:
CHS  Electronics,  Inc.,  Ingram  Micro,  Inc.,  Inacom  Corp.,  and  Tech  Data
Corporation.

         There are a number of emerging  trends in the  microcomputer  industry.
Some manufacturers have implemented direct sales business models and reduced the
number of distributors to which they distribute product. These efforts have been
facilitated by the use of the Internet, among other things, and have reduced the
availability  of products in the surplus or  after-market.  The Company  expects
these trends to continue for the foreseeable  future. See "Certain Business Risk
Factors - Declining Margins" and "-- Competition."

         Despite the recent  difficulties in the industry,  the Company believes
that the  microcomputer  products industry is still well suited for distributors
because  of the large  number of  fragmented  resellers  in the  industry.  As a
result,  it is cost efficient for  manufacturers to outsource a portion of their
distribution,  credit, inventory, marketing and customer support requirements to
distributors.  In  addition,  resellers  traditionally  have  not  been  able to
efficiently  establish direct  purchasing  relationships  with each manufacturer
because of the large number of manufacturers in the industry. Instead, resellers
have  traditionally  relied on distributors to satisfy a significant  portion of
their product,  financing,  marketing and technical  support needs.  The Company
believes that resellers rely on distributors for inventory management and credit
rather than stocking large inventories  themselves and maintaining  credit lines
to finance their working capital needs.


STRATEGY

         The Company's  objectives are to continue to strengthen its position as
a distributor of microcomputer products within Western Europe, the United States
and Asia.  It also proposes to diversify its  international  trading  operations
into product lines outside the microcomputer  industry. In attempting to achieve
these objectives, the Company intends to implement the following strategies:

         GROWTH THROUGH START-UPS AND ACQUISITIONS.  The Company hopes to expand
into new markets and products  through a combination  of start-up  companies and
acquisitions of existing  distributors,  although there can be no assurance that
any  acquisitions can be consummated on terms  satisfactory to the Company.  The
Company intends to evaluate  acquisition  candidates  outside the  microcomputer
industry to diversify  its  operations  and to take  advantage of its ability to
source inventory worldwide.  The Company expects to seek acquisition  candidates
which have strong entrepreneurial  management teams with experience in the local
markets  and the  potential  to  benefit  from the  economies  of scale that the
Company could provide through its existing  infrastructure.  The Company intends
that any acquisitions will adopt its policies and financial reporting procedures
but operate as autonomous  business units. During the last two fiscal years, the
Company has formed Nor'Easter located in New Hampshire and Colchester located in
Singapore. Also, the Company has acquired Sunbelt located in Wimbledon, England,
H&B located near Amsterdam, Holland and AMCC located in Miami, Florida.

         FURTHER DEVELOP NEW  INTERNATIONAL  MARKETS.  The Company has, to date,
focused its activities on the distribution of  microcomputer  products mainly in
Western  Europe and the United  States.  More  recently,  the  Company  has been
working on new  opportunities  in Asia and Eastern  Europe.  During Fiscal 1999,
Colchester began operations in Singapore. Colchester will source product for the
Company and will act as an independent  distributor throughout Asia. The Company
believes that its success in the culturally and  linguistically  diverse markets
of Western  Europe will be  advantageous  to the Company in  expanding  into new
regions.

         FOCUSED DISTRIBUTION. The Company's strategy is to operate as a focused
distributor  by  addressing  each  national  market in which it operates  with a

                                       4
<PAGE>

limited  and select  group of products  from a limited and select  group of high
quality  manufacturers.  The Company  believes this strategy  helps it achieve a
degree of strength  within its chosen  markets.  The Company also  believes that
this strategy will further enhance its relationships with both its suppliers and
customers.  In addition,  the Company intends to seek new products and suppliers
that will reflect the  requirements  of the  marketplace  while at the same time
remaining a focused distributor. The Company believes that this focused approach
also results in more effective  asset  management.  Generally,  because  popular
products from leading  manufacturers are in greater demand, the Company believes
that this results in more  efficient  inventory  management by virtue of greater
inventory turns and, therefore, lower working capital requirements.


PRODUCTS AND CUSTOMERS

         The  Company's  sales  consist of  hardware  products  such as personal
computers, memory modules, disc drives and networking products which are sold to
a customer base of more than 480  value-added  resellers,  corporate  resellers,
retailers,  direct  marketers  and  distributors.  The Company  anticipates  the
continued  expansion  of its  customer  database  through the growth of start-up
companies and the addition of the acquired companies' customer lists.

         The Company  typically  purchases  its products from  distributors  and
other  suppliers  in large  quantities.  As a focused  distributor,  the Company
focuses on a limited  and select  group of  products  from a limited  and select
group of high quality  manufacturers.  As a result,  the Company  carries  fewer
individual  products from fewer manufacturers than broadline  distributors.  The
Company  believes that this policy enables it to better  understand the products
it sells and the geographical areas in which it operates.

         The  Company's  customers  typically  rely  on  distributors  as  their
principal source of microcomputer  products.  The Company finances a significant
portion of its total sales by extending  trade credit.  The Company  attempts to
minimize the risk of such credit by, among other things,  monitoring  the credit
worthiness  of its  customers  and  insuring  some of its  accounts  receivable.
European  Micro  UK has  sought  to  insure  substantially  all of its  accounts
receivable.  Nor'Easter,  Colchester and American Micro  generally do not insure
their  accounts  receivable.  For the fiscal year ended June 30, 1999, no single
customer  accounted for more than  approximately  6% of the Company's  total net
sales.  Technology Express, a company  wholly-owned by Harry D. Shields,  who is
also Co-President,  Co-Chairman and a Director of the Company, was the Company's
largest customer  accounting for about 6% of total net sales and AMCC, a company
previously  owned  50% by John B.  Gallagher,  Co-President,  Co-Chairman  and a
Director  of the  Company  which was  acquired  by the  Company on July 1, 1999,
accounted  for  approximately  5.6% of the  Company's  total net sales.  For the
fiscal year ended June 30, 1998,  Technology Express accounted for approximately
17.2% of the Company's total net sales. For the fiscal year ended June 30, 1997,
no single customer  accounted for more than  approximately 8.5% of the Company's
total net sales.  The Company  does not believe the loss of any  customer  would
have a material adverse effect on its business,  financial  condition or results
of operations.  The Company's backlog orders are not considered  material to its
business.

         The  Company's  operations  involve  a  single  industry  segment,  the
distribution of microcomputer products.  Historically,  the Company has operated
in one geographic  area--the United  Kingdom--and has exported products from the
United Kingdom to other European  countries and to related parties in the United
States.  With the addition of  Nor'Easter  in the United  States,  the Company's
sales to third  parties  in the  United  States  have  increased.  This trend is
expected to continue with the addition of American  Micro.  The following  table
sets  forth the  Company's  net sales for each of the last  three  fiscal  years
attributable to geographic areas:



                                       5
<PAGE>

<TABLE>

                                      ($ IN THOUSANDS)
<CAPTION>

                                     YEARS ENDED JUNE 30,
COUNTRY                       1999             %             1998            %           1997             %
--------                      ----             -             ----            -           ----             -
<S>                           <C>              <C>           <C>             <C>        <C>              <C>

Argentina                     $-----            0.0%          $----           0.0%         $90            0.2%
Austria                          125            0.1             316           0.3          ---            0.0
Belgium                        1,286            1.0           1,568           1.4        1,496            3.2
Canada                         2,202            1.7             ---           ---          ---            ---
Denmark                        2,254            1.7           5,182           4.7        1,402            3.0
Finland                        1,357            1.0           1,859           1.7          696            1.5
France                         7,891            5.9           6,219           5.6        4,173            8.9
Germany                       12,910            9.8          13,476          12.1        8,282           17.7
Great Britain                 47,753           36.1          30,712          27.5       21,050           45.1
Greece                            66            0.0             ---           ---          ---            ---
Ireland                        1,918            1.5           1,132           1.0          642            1.4
Italy                            580            0.4              58           0.0           26            0.1
Luxembourg                       266            0.2             151           0.1           40            0.1
Netherlands                    7,673            5.8          10,168           9.2        4,653           10.0
Portugal                           5            0.0             105           0.1           71            0.2
Spain                             70            0.1              14           0.0           35            0.1
Sweden                           224            0.2           1,137           1.0        1,582            3.4
USA                           36,727           27.8          30,999          27.8           64            0.1
Other                          8,899            6.7           8,357           7.5        2,353            5.0
                             -------         ------         -------        ------       ------         ------
Total Net Sales             $132,206         100.0%        $111,453        100.0%      $46,655         100.0%
                            ========         ======        ========        ======      =======         ======
</TABLE>


         The Company's net sales from  operations  outside the United States are
primarily   denominated   in  currencies   other  than  United  States   dollar.
Accordingly,  the  Company's  operations  outside the United States impose risks
upon its business as a result of exchange rate  fluctuations.  See "Management's
Discussion  and  Analysis of  Financial  Condition  and Results of  Operations -
Currency Risk Management."


SOURCES OF SUPPLY

         The Company obtains its products from  distributors and other suppliers
throughout the world in an attempt to obtain products at favorable  prices while
also maintaining continuity of supply. The Company generally makes its purchases
based on the most  favorable  combination  of  prices,  quantities  and  product
selection,  and  therefore its suppliers  are  constantly  changing.  Other than
Technology  Express,  the Company  does not believe  that the loss of any single
supplier would have a material adverse effect on its operations.  For the fiscal
year ended June 30, 1999,  the Company  obtained  58.4% of its products from ten
suppliers (45.7% excluding Technology  Express).  For the fiscal year ended June
30, 1998, the Company  obtained 87.2% of its products from ten suppliers  (80.4%
excluding  Technology  Express).  For the fiscal year ended June 30,  1997,  the
Company  obtained  86.5% of its products  from ten  suppliers  (35.4%  excluding
Technology Express). The decrease in the percentage of products sourced from the
top  ten  suppliers  in 1999 is the  result  of an  increase  in the  number  of
suppliers attributable to the start-up growth of Nor'Easter and Colchester.  The
Company does not  generally  obtain  products  directly from  manufacturers  and
generally does not enter into any long-term or distribution  agreements with its
suppliers.  In some  cases  suppliers  are also  customers.  Whenever  possible,
products are purchased with the benefit of price  protection so that the Company
will  receive a credit in the event  the price of a product  is  reduced  by the
manufacturer.

         Suppliers  deliver  products  against  purchase  orders tendered by the
Company.  The Company often  requests  specific  delivery  dates in its purchase
orders and lead times for delivery from suppliers are typically short.  Delivery
is, however, subject to availability,  and, while suppliers have no liability to
the Company for failure to meet a delivery  date,  orders may be canceled by the
Company  where  the terms of an order  have not been met.  From time to time the
Company  experiences  delivery  delays  and  inventory  shortages.  The  Company


                                       6
<PAGE>


believes  that these delays and shortages  are common to other  distributors  of
microcomputer products. The Company does not, like many of its competitors, rely
on a single contractual source of product supply.

         Historically,  the Company has paid for a significant amount of product
on delivery,  a practice which leads to lower prices and earlier delivery dates.
The Company's  suppliers have increased  available credit  commensurate with its
growth  and the  Company  expects  to  continue  to  take  advantage  of  credit
purchases.

         Substantially  all  of  the  products  purchased  by  the  Company  are
trademarked or copyrighted  products which may have been sold to distributors by
the  manufacturers  and resold to the Company.  From time to time,  trademark or
copyright  owners and their  licensees  and trade  associations  have  initiated
litigation or administrative  agency proceedings seeking to halt the importation
of such products into many of the countries in which the Company operates. There
can be no assurance that future judicial,  legislative or administrative  agency
action in such countries,  including  possible import,  export,  tariff or other
trade restrictions, will not limit or eliminate some of the Company's sources of
supply or other business activities. In addition, there can be no assurance that
the  Company's  business  activities  will not  become  the  subject of legal or
administrative actions brought by manufacturers, distributors or others based on
violations  of  trademark  or  copyright  rights or other laws.  Such  judicial,
legislative,  administrative  or legal  actions  could have a  material  adverse
effect on the Company's business, financial condition and results of operations.
The Company sells products in the United States and expects to continue to do so
in the future.  United States trademark and copyright owners and their licensees
and  trade  associations  in  other  industries  have  initiated  litigation  or
administrative  agency  proceedings  seeking  to halt the  importation  into the
United States of foreign  manufactured  or previously  exported  trademarked  or
copyrighted products.  Such actions in the United States may prevent the Company
from selling certain products in the United States.

         The  Company  continues  to  closely  monitor  European  and  UK  legal
decisions in respect of the  importation of trademarked  goods into the European
Economic Area ("EEA"). The approach of the European Courts has allowed trademark
owners to prevent re-importation without consent.  However, a recent decision of
an English  Court has  placed  the  strictest  possible  interpretation  on that
approach.  The Company has  historically  not  encountered any problems from its
suppliers  as a result of these legal  decisions  but the Company has obtained a
significant  amount of its inventory from outside the EEA. Any disruption in the
Company's  ability  to source  goods from  outside  the EEA will have a material
adverse  effect on the Company's  business,  financial  condition and results of
operations.


SALES AND MARKETING

         In order to address the  individual  customs,  practices  and  business
conventions in the countries in which the Company operates,  the Company employs
a sales staff conversant in Chinese, Dutch, English, French, German, Italian and
Spanish and with a general  knowledge of the applicable  markets.  Oversight and
strategic direction are provided by senior management of the Company.

         SALES.  The Company markets its products to distributors and resellers,
not  end-users.  As of June 30, 1999, the Company  distributed  products to more
than 480 value-added resellers, corporate resellers, retailers, direct marketers
and distributors. The Company's customers typically place orders through a sales
representative. The Company maintains detailed information regarding its current
inventory  levels and  pricing.  The  Company  has  historically  experienced  a
reduction in demand during the summer months.  See "Management's  Discussion and
Analysis of Financial Condition and Results of Operations - Seasonality."

         MARKETING.  The Company's  marketing  department monitors and evaluates
national market trends,  price movements and changes in product  specifications.
It is also responsible for developing and implementing the Company's advertising
programs. The marketing department routinely queries the Company's customer base
to ascertain  how  customers  value its  products,  services,  sales and support
compared to its  competitors.  The  feedback  allows the  Company to  constantly
tailor its business to its customers' needs. In 1996,  European Micro introduced
the Premier Dealers Club to attract small and medium sized resellers by offering
them  value-added  procurement  services  that they were not enjoying from their
current  broadline  distributors.  Members of the Premier  Dealers Club agree to
purchase a target  amount of products  from the  Company for a given  period and
those members  achieving  such goals earn rebates.  Members also enjoy  priority

                                       7
<PAGE>

access to  products  in short  supply,  expedited  shipment  of orders,  monthly
analysis  of  purchases  and  rebates  earned,   internet  ordering,   marketing
information and purchasing and outsourcing assistance.


COMPETITION

         The Company  operates in an industry which is  characterized by intense
competition  based on  price,  product  availability  and  delivery  times.  Its
competitors   include   manufacturers  and  international   distributors.   Some
competitors  have  greater  financial  and  administrative  resources  than  the
Company.  The Company  believes  availability  of the right product at the right
price is the key element of competitiveness and attempts to differentiate itself
from its  competitors  by providing a select  number of products from a few name
brand  manufacturers  and  maintaining a sufficient  inventory of such products.
Furthermore,  the Company believes that it enhances its competitive  position by
providing   responsible  and  responsive  customer  service  through  its  sales
personnel.


INTELLECTUAL PROPERTY

         The Company is  attempting  to build a brand name in the  microcomputer
industry.  To that end, the Company has applied for trademark protection both in
the United Kingdom and within the European  Community.  The Company is currently
evaluating  and will  continue  to  evaluate  the need to  apply  for  trademark
protection in the United States and in other  countries as the Company  expands.
The following is a summary of the  trademarks  which the Company has applied for
and their current status:

<TABLE>
<CAPTION>

TRADEMARK                     CLASS(1)     NO.             APPLICANT          DATE OF FILING       COMMENTS
---------                     --------     ---             ---------          --------------       --------
<S>                              <C>     <C>           <C>                        <C>           <C>

European Micro                   9       438689        European Micro UK          12-23-96      U.K. Trademark
                                                                                                granted
European Micro Plc & Logo        9       2119204       European Micro UK          12-20-96      U.K. Trademark
                                                                                                granted
Premier Dealers Club & Logo      9       2152310       European Micro UK          11-29-97      U.K. Trademark
                                                                                                granted
Premier Dealers Club & Logo      9       695072        European Micro UK          12-1-97       Community
                                                                                                Trademark
                                                                                                application
</TABLE>


---------------------

(1)  Class  9  covers  computer  software,   computer  peripherals,   parts  and
accessories for all such goods.



                                       8
<PAGE>

EMPLOYEES

         On September 1, 1999, the Company and its  subsidiaries  had the number
of full-time employees set forth in the following table:

NAME                                                     NUMBER OF EMPLOYEES
----                                                     -------------------

European Micro Holdings, Inc.                                     5
European Micro UK                                                50
European Micro Germany                                            2
European Micro Holland                                            1
Nor-easter                                                        5
Big Blue Europe                                                  20
Colchester                                                        3
American Micro                                                   22
                                                                ---
     TOTAL                                                      108

         Of  the  total  number  of  full-time  employees,  forty-four  work  in
marketing  and sales,  twenty in  warehousing  and delivery and  forty-four  are
employed in administrative  and other support  positions.  None of the Company's
employees are represented by unions.  There has been no disruption of operations
due to a labor dispute. Management considers its relations with its employees to
be good.


CERTAIN BUSINESS RISK FACTORS

         The  Company  is subject  to  various  risks  which may have a material
adverse effect on its business,  financial  condition and results of operations.
Certain risks are discussed below:


NO CONTRACTS OR DISTRIBUTION AGREEMENTS WITH SUPPLIERS

         The Company is an  independent  distributor  of personal  computers and
related products.  The Company has not entered and does not expect to enter into
any long-term distribution arrangements with its suppliers.  Rather, the Company
depends  almost  entirely  on the  availability  of  product  in the  surplus or
aftermarket.  The microcomputer products industry is characterized by periods of
severe product  shortages and customer  backlog due to suppliers'  difficulty in
projecting  demand.  There can be no assurance  that  suppliers  will be able to
maintain an adequate supply of products which will adequately fulfill all of the
Company's customer orders on a timely basis.  Failure to obtain adequate product
in required  quantities  would have a material  adverse  effect on the Company's
business,  financial condition and results of operations.  Moreover, because the
Company does not utilize supplier  contracts,  it does not enjoy the traditional
benefits  that  they  provide,  such  as  inventory  price  protection,   market
development funds or payment terms.


RELATED PARTY PURCHASES AND SALES

         Since its  formation  in 1991,  the Company has  belonged to a group of
related  companies  called the Micro Computer  Center Group (the  "GROUP").  The
Group is  comprised  of European  Micro  Holdings,  Inc.  and its  subsidiaries,
Technology Express in Nashville, Tennessee, and, until August 1, 1997, Ameritech
Exports,  Inc., in Miami, Florida ("AMERITECH  EXPORTS") and Ameritech Argentina
S.A., in Buenos, Argentina ("AMERITECH ARGENTINA"). Harry D. Shields is the sole
owner of Technology Express and, until August 1, 1997, had an ownership interest

                                       9
<PAGE>


in  Ameritech  Exports  and  Ameritech  Argentina.  Until July 1, 1999,  John B.
Gallagher had a 50% ownership interest in AMCC and, until August 1, 1997, had an
ownership  interest in Ameritech  Exports and Ameritech  Argentina.  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. Such factors as country supply,  currency  fluctuation and manufacturer's
geographic pricing strategy lead to a constantly  changing model where purchases
and sales to other  members  of the Group  depend on the then  current  economic
balance. 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.  This low mark-up has enabled each
Group  member to buy product  quickly  and  efficiently  in the others'  primary
territories  and  to  take  advantage  of  quantity  purchasing,  financing  and
logistics of the other members of the Group. Additionally,  the Company has paid
certain management and consulting fees to the other members of the Group.

         The following table  describes the inter-Group  sales and purchases for
the time periods specified:

                                                 ($ IN THOUSANDS)
                                              YEARS ENDED JUNE 30,
                                        1999           1998           1997
                                   -------------- -------------- -------------
SALES TO GROUP MEMBERS
AMCC                                  $7,356            $9,875          $66
Technology Express                     7,984            19,217          (2)
Ameritech Argentina                       --                --           90
                                   -------------- -------------- -------------
                                     $15,340           $29,092         $154
                                   ============== ============== =============

                                                  YEARS ENDED JUNE 30,
                                        1999           1998           1997
                                   -------------- -------------- -------------
PURCHASES FROM GROUP MEMBERS
AMCC                                  $1,339              $507       $1,092
Technology Express                    15,559             8,749       20,717
Ameritech Exports                         --                --          848
                                   ============== ============== =============
                                     $16,898            $9,256      $22,657
                                   ============== ============== =============

         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.  Any  member  of the Group  could at its sole  discretion  terminate  its
relationship  with the other members of the Group. In the event that the Company
were unable to purchase  product from the United States  members of the Group in
accordance with the inter-Group  pricing structure,  the Company's margins would
be significantly  reduced and its business,  financial  condition and results of
operations would be materially  adversely affected.  Moreover,  in the event the
Company is unable to sell product to 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.

         The Group  pricing  structure  is subject  to review by the  applicable
taxing agency,  including the Internal  Revenue Service in the United States and
Inland  Revenue in the United  Kingdom.  An adverse  decision by any such taxing
agency with respect to the  inter-Group  pricing  structure  could result in the
imposition of additional income taxes, interest or penalties.  This would have a
material  adverse  effect on the  Company's  business,  financial  condition and
results of operations.


RISKS ASSOCIATED WITH INTERNATIONAL SALES

         The Company's existing and planned international operations are subject
to  political  and  economic  uncertainties,   including,   without  limitation,
inflation,  hyperinflation,  risk of  renegotiation  or modification of existing
agreements  or  arrangements  with  governmental  authorities,   transportation,
tariffs,  export  controls,   foreign  exchange  restrictions  which  limit  the
repatriation  of  investments  and  earnings  therefrom,  changes  in  taxation,
governmental  challenges  to  the  Company's  tax  strategies,  hostilities  and
confiscation or  nationalization  of property.  The Company's  current expansion

                                       10
<PAGE>


into certain markets, such as Asia and Eastern Europe where, among other things,
the financial,  economic,  legal systems and infrastructures are less developed,
poses a  greater  degree of these and other  risks  than the  Company's  current
business operations in Western Europe and the United States. A material increase
in the risks  posed by these  and other  considerations  would  have a  material
adverse  effect on the Company's  business,  financial  condition and results of
operations.


RISK OF CURRENCY FLUCTUATIONS

         A  significant  amount  of the  Company's  sales  were  denominated  in
currencies other than the United States dollar.  Changes in the value of foreign
currencies  relative to the United  States  dollar  could  adversely  affect the
Company's  results of operations and financial  position,  and transaction gains
and  losses  could  contribute  to  fluctuations  in the  Company's  results  of
operations and cash position.  When  possible,  the Company  engages in currency
hedging transactions primarily through the purchase and sale of forward exchange
contracts  intended to reduce  these risks.  See  "Management's  Discussion  and
Analysis  of  Financial  Condition  and  Results  of  Operations  Currency  Risk
Management."  There can be no assurance that  fluctuations  in foreign  currency
rates  will  not have a  material  adverse  effect  on the  Company's  business,
financial condition and results of operations.


DECLINING MARGINS

         As a result of intense price competition in the microcomputer  products
industry,  the Company has had, and expects to continue to have,  narrower gross
profit and operating  profit margins than in prior years.  Such margins  magnify
the impact on operating  results of variations in sales and operating costs. The
Company's  gross margins  increased from 11.4% for the fiscal year ended 1997 to
12.9% for the fiscal year 1998.  In the fiscal year ended June 30,  1999,  gross
margin declined to 8.4%. Also, operating margins for the last three fiscal years
were 1.5% in 1999,  6.5% in 1998 and 4.4% in 1997.  These narrower  margins have
resulted from a lack of availability of products at favorable prices,  resulting
in lower  margins than in prior  years.  The Company has taken a number of steps
intended  to  address  the  computer  industry's  declining  margins,  including
improving and enhancing its information  systems.  In addition,  the Company has
attempted  to  diversify  its sources of supply to locate  product at  favorable
prices.  Even though the Company  has seen margin  percentages  move up and down
over the last three  years,  there can be no  assurance  that the  Company  will
maintain or increase sales or further reduce operating  expenses as a percentage
of sales in the future.  Moreover,  there can be no  assurance  that these steps
will prevent  these  margins  from  continuing  to decline.  Future gross profit
margins  may be  adversely  affected  by changes in  product  mix,  manufacturer
pricing actions and competitive and economic  pressures.  While the Company will
continue to explore ways to improve gross margins and reduce operating  expenses
as a percentage  of sales,  there can be no  assurance  that the Company will be
successful in such efforts or that the Company's margins will not decline in the
future.  See  "Management's  Discussion and Analysis of Financial  Condition and
Results of Operations."


COMPETITION

         The Company operates in a highly competitive environment.  The computer
wholesale  distribution industry is characterized by intense competition,  based
primarily  on  product  availability,   credit  availability,  price,  speed  of
delivery,  quality and range of product lines,  service and support.  Certain of
the  Company's  competitors  have  greater  financial,  marketing,  service  and
technical  support  resources  than the Company and may sell  products at prices
below those charged by the Company. In addition,  several computer manufacturers
have  expanded  their  channels of  delivery,  pricing and product  positioning,
including  selling  direct to  consumers.  These  efforts have been  facilitated
through the use of the Internet and are expected to continue for the foreseeable
future.  There  can  be no  assurance  that  the  Company's  resources  will  be
sufficient to allow the Company to compete effectively in the future.  Continued
increases in competition  could have a material  adverse effect on the Company's
business,  financial  condition  and results of  operations  due to, among other
things, potential price reductions and potential loss of market share.

                                       11
<PAGE>

DEPENDENCE ON KEY PERSONNEL

         The Company's success to date has been  significantly  dependent on the
contributions  of John B.  Gallagher and Harry D.  Shields,  the founders of the
Company. The loss of the services of either person would have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company has key-man life insurance policies with respect to Harry D. Shields
and John B.  Gallagher.  The  Company's  success also  depends to a  significant
extent upon a number of its other key employees, and the loss of the services of
one or more other key employees could also have a material adverse effect on the
Company.  In addition,  the Company believes that its future success will depend
in part  upon its  ability  to  attract  and  retain  additional  highly-skilled
professional,  managerial,  sales and marketing personnel.  Competition for such
personnel  is  intense.  There  can be no  assurance  that the  Company  will be
successful in attracting,  training and retaining the personnel that it requires
for its  business  and  planned  growth,  and the  failure to do so could have a
material  adverse  effect on the  Company's  business,  financial  condition and
results of operations.


RELIANCE ON KEY SUPPLIERS

         The Company  does not  manufacture  any of its own  products but rather
resells products purchased from suppliers. For the year ended June 30, 1999, the
Company  obtained  58.4% of its products  from ten  suppliers  (45.7%  excluding
Technology  Express).  Accordingly,  the Company is highly  dependent  upon such
suppliers  and the loss of Technology  Express or the loss of a  combination  of
other suppliers would have a material adverse effect on the Company's  business,
financial condition and results of operations.


RELIANCE ON KEY PRODUCTS

         For the fiscal year ended June 30, 1999, the Company's ten best selling
products accounted for the majority of its net sales. Accordingly, the inability
of the  Company  to obtain  adequate  supplies  of these  products  would have a
material  adverse  effect on the  Company's  business,  financial  condition and
results of operations.


RELIANCE ON KEY CUSTOMERS

         For the fiscal year ended June 30, 1999,  the Company's  twenty largest
third party  customers  accounted for 35.3% of the Company's net sales.  None of
these  customers  individually  accounted  for more than  about 3.0% of such net
sales. However, the Company is highly dependent upon such customers and the loss
of a combination of such customers  could have a material  adverse effect on the
Company's business, financial condition and results of operations.


RELIANCE ON KEY MARKETS

         Certain  markets  within  which the Company  operates  represent a high
percentage of its total operating  earnings and net sales. For example,  for the
year ended June 30, 1999,  approximately 36.1% of net sales were attributable to
the markets of the United Kingdom and 27.8% for the United States.  Decreases in
the volume of sales in such regions or declines in operating  margins could have
a material  adverse  effect on the Company's  business,  financial  condition or
results of operations.


CONTROL BY MANAGEMENT

         John B.  Gallagher  and  Harry D.  Shields  together  beneficially  own
approximately 71% of the outstanding shares of Common Stock of the Company. As a
result, these shareholders,  acting together,  have the voting power required to
approve all matters requiring approval by the Company's shareholders,  including
the election of directors of the Company,  transactions  involving the potential
sale or merger of the Company,  the issuance of additional  equity,  warrants or
options or the incurrence of significant indebtedness. Moreover, two trusts (the
"TRUST  SHAREHOLDERS")  created  by  Messrs.   Gallagher  and  Shields  together


                                       12
<PAGE>

beneficially own approximately 10% of the outstanding  shares of Common Stock of
the Company. Pursuant to a Trusteed Shareholders  Cross-Purchase Agreement dated
January 31, 1998,  Messrs.  Gallagher  and Shields  agreed to vote all shares of
Common Stock owned or controlled by them together on all matters  submitted to a
vote of the shareholders of the Company, including the election of directors. In
the event that Messrs. Gallagher and Shields cannot agree on the manner in which
to vote their respective shares,  then neither may vote his shares. In addition,
the Trust  Shareholders  have agreed to vote all shares of Common Stock owned or
controlled  by  them  together  on  all  matters  submitted  to a  vote  of  the
shareholders of the Company,  including the election of directors.  In the event
that the Trust  Shareholders  cannot  agree on the manner in which to vote their
respective shares, neither Trust Shareholder may vote its shares.


CUSTOMER CREDIT EXPOSURE

         The Company  sells its products and services to a customer base of more
than 480 value-added resellers, corporate resellers, retailers, direct marketers
and  distributors.  The Company finances a significant  portion of such sales by
extending trade credit. As a result,  the Company's  business could be adversely
affected in the event of the  deterioration  of the  financial  condition of its
customers,  resulting in the  customers'  inability  to repay the  Company.  The
Company  attempts to minimize  the risk of such credit by,  among other  things,
monitoring  the  creditworthiness  of its  customers  and  insuring  some of its
accounts receivable. European Micro UK has sought to insure substantially all of
its accounts receivable.  Nor'Easter, Colchester and American Micro generally do
not insure their accounts  receivable.  No assurances can be given that European
Micro UK will maintain such insurance or, if such insurance is maintained,  that
it will be  maintained  in an  amount  equal to the  aggregate  amount of credit
extended by European Micro UK. In addition, no assurances can be given that such
insurance will be available in the future on terms  acceptable to European Micro
UK, if at all. Moreover,  the deterioration of the financial condition of one or
more of its customers may make future sales to such customers uninsurable.


RISKS ASSOCIATED WITH ACQUISITIONS

         During fiscal year 1999, the Company  acquired two businesses,  Sunbelt
and H&B. In addition,  on July 1, 1999,  the Company  acquired AMCC. The Company
may acquire other businesses that it believes would compliment and expand
its  existing  business.  Acquisitions  in  other  lines  of  business  are also
possible. Acquisitions involve a number of risks that could adversely affect the
Company's  operating  results,  including:  (i) the  diversion  of  management's
attention;  (ii) the difficulty of  assimilation of the operations and personnel
of the acquired companies; (iii) the amortization of acquired intangible assets;
(iv)  the  assumption  of  potential  liabilities,   disclosed  or  undisclosed,
associated  with the  businesses  acquired,  which  may  exceed  the  amount  of
indemnification  available  from  the  seller,  if any;  (v) the  risk  that the
financial and accounting  systems  utilized by the businesses  acquired will not
meet the Company's  standards;  (vi) the risk that the businesses  acquired will
not maintain the quality of services that the Company has historically provided;
(vii)  the  dilutive  effect  of the  use  of  the  Company's  Common  Stock  as
consideration for  acquisitions;  and (viii) the inability to attract and retain
qualified local  management.  There can be no assurance that the Company will be
able to consummate any future  acquisitions  on  satisfactory  terms, if at all,
that adequate  financing  will be available on terms  acceptable to the Company,
that any  acquired  operations  will be  successfully  integrated  or that  such
operations will  ultimately  have a positive  impact on the Company's  business,
financial condition and results of operations.


TRADE RESTRICTIONS ON CROSS-BORDER SALES

         Substantially  all  of  the  products  purchased  by  the  Company  are
trademarked or copyrighted  products which may have been sold to distributors by
the  manufacturers  and resold to the Company.  From time to time,  trademark or
copyright  owners and their  licensees  and trade  associations  have  initiated
litigation or administrative  agency proceedings seeking to halt the importation
of such products into many of the countries in which the Company operates. There
can be no assurance that future judicial,  legislative or administrative  agency
action in such countries,  including  possible import,  export,  tariff or other
trade restrictions,  will not limit or eliminate some of the Company's secondary

                                       13
<PAGE>

sources of supply or other  business  activities.  In addition,  there can be no
assurance that the Company's business  activities will not become the subject of
legal or administrative actions brought by manufacturers, distributors or others
based on  violations  of  trademark  or  copyright  rights or other  laws.  Such
judicial,  legislative,  administrative  or legal  actions could have a material
adverse  effect on the Company's  business,  financial  condition and results of
operations.  The  Company  sells  products  in the United  States and expects to
continue to do so in the future.  United States  trademark and copyright  owners
and their licensees and trade  associations  in other  industries have initiated
litigation or administrative  agency proceedings seeking to halt the importation
into  the  United  States  of  foreign   manufactured  or  previously   exported
trademarked  or  copyrighted  products.  Such  actions in the United  States may
prevent the Company  from selling  certain  products in the United  States.  The
Company  continues to closely monitor European and UK legal decisions in respect
of the importation of trademarked goods into the European Economic Area ("EEA").
The  approach of the  European  Courts has allowed  trademark  owners to prevent
re-importation  without consent.  However, a recent decision of an English Court
has placed the strictest possible  interpretation on that approach.  The Company
has not  encountered  any  problems  from its  suppliers  as a  result  of these
decisions but the Company has historically  obtained a significant amount of its
inventory  from  outside the EEA. Any  disruption  on the  Company's  ability to
source goods from outside the EEA will have an adverse  effect on the  Company's
business, financial condition and results of operations.


MANAGEMENT OF GROWTH

         The rapid growth of the Company's  business has required the Company to
make  significant  additions in personnel  and has  significantly  increased its
working  capital  requirements.  Such growth has  resulted in new and  increased
responsibilities  for management personnel and has placed and continues to place
a  significant  strain upon the  Company's  management,  operating and financial
systems and other  resources.  There can be no assurance  that the strain placed
upon the  Company's  management,  operating  and  financial  systems  and  other
resources  will not have a material  adverse  effect on the Company's  business,
financial  condition and results of  operations,  nor can there be any assurance
that the  Company  will be able to attract  or retain  sufficient  personnel  to
continue the planned expansion of its operations.  Also crucial to the Company's
success in  managing  its growth  will be its  ability to achieve  economies  of
scale,  such as  enhanced  purchasing  power,  the  ability to purchase a higher
percentage  of  product on credit and the  ability to obtain  product  which the
Company  might not otherwise be able to obtain.  There can be no assurance  that
the Company will be able to achieve such economies of scale,  and the failure to
do so could have a material adverse effect on the Company's business,  financial
condition  and results of  operations.  Although  the  Company  has  experienced
significant  sales  growth,  such growth may not be  indicative  of future sales
growth.

         To  manage  the   expansion  of  its   operations,   the  Company  must
continuously  evaluate the adequacy of its management structure and its existing
systems and procedures,  including,  without  limitation,  its data  processing,
financial and internal  control systems.  When entering new geographic  markets,
the Company will be required to implement its policies and  financial  reporting
procedures,  recruit  personnel,  and adapt its distribution  systems to varying
cultural,  economic and  governmental  systems.  There can be no assurance  that
management  will adequately  anticipate all of the changing  demands that growth
could impose on the Company's  systems,  procedures and structure.  In addition,
the Company will be required to react to changes in its industry,  and there can
be no  assurance  that it will be  able  to do so  successfully  or at all.  Any
failure to adequately anticipate and respond to such changing demands may have a
material  adverse  effect on the  Company's  business,  financial  condition and
results of operations.


RISKS ASSOCIATED WITH HOLDING FOREIGN SUBSIDIARIES

         Most of the operations of European Micro Holdings, Inc. are and will be
conducted through its direct or indirect subsidiaries,  some of which are formed
outside of the United States. Periodically,  European Micro Holdings, Inc. loans
money  to  its  subsidiaries  to  finance  their  operations.  These  loans  are
unsecured.  European Micro Holdings,  Inc.'s available cash will depend upon the
cash flow of its  subsidiaries  and the ability of those  subsidiaries  to repay
these loans and to make funds available to European Micro Holdings,  Inc. in the
form of loans, dividends,  intercompany advances,  management fees or otherwise.
The  subsidiaries  are separate and distinct legal entities and,  except for the
payment of management  fees and the repayment of the loans,  have no obligation,
contingent or otherwise,  to make funds  available to European  Micro  Holdings,

                                       14
<PAGE>

Inc.,  whether  in the  form  of  loans,  dividends,  intercompany  advances  or
otherwise.  The applicable law in certain countries may limit the ability of the
Company's  foreign  subsidiaries  to repay the loans or to pay  dividends in the
absence of sufficient  withholding  taxes,  distributable  reserves or for other
reasons.  None of European  Micro  Holdings,  Inc.'s  current  subsidiaries  are
subject to any currency exchange controls. However, future exchange controls, or
the  existence  of such  controls in other  countries  in which  European  Micro
Holdings, Inc. establishes or acquires subsidiaries, could limit or restrict the
ability  of  European  Micro  Holdings,  Inc.  to get  repaid or  obtain  loans,
dividends,  intercompany advances or otherwise access the financial resources of
such  subsidiaries.  In addition,  the subsidiaries may from time to time in the
future become parties to financing  arrangements,  which may contain limitations
on the  ability  of such  subsidiaries  to pay  dividends  or to make  loans  or
advances  to  European  Micro  Holdings,  Inc.  In the event of any  insolvency,
bankruptcy or similar proceedings, creditors of the subsidiaries would generally
be entitled to priority  over  European  Micro  Holdings,  Inc.  with respect to
assets of the affected subsidiaries. Such an event may adversely affect European
Micro Holdings,  Inc.'s ability to collect the loans from its  subsidiaries  and
would have a material  adverse effect on its business,  financial  condition and
results of operations.


AVAILABLE CAPITAL FOR OBTAINING PRODUCTS IN BULK

         The Company's  business  often requires the volume buying of discounted
products.  This  requires  the  Company  to have  sufficient  available  cash or
financing  to be able to take  advantage of such  discounted  prices on a timely
basis.  There  can be no  assurance  that  the  Company  will  continue  to have
available  cash or  financing.  A shortage of available  cash or  financing  may
prevent the Company from being able to purchase  inventory  at favorable  prices
and  therefore  have  a  material  adverse  effect  on the  Company's  business,
financial condition and results of operations.


NEED FOR ADDITIONAL CAPITAL

         The Company has grown  through  internal  expansion  and  acquisitions,
which has resulted in the need for  significant  amounts of capital or financing
which prior to the initial  public  offering had been  provided by the Company's
founding shareholders.  To maintain historical levels of growth, the Company may
need to seek additional  funding through a secondary  public offering or private
financing and may, when attractive sources of capital become available, elect to
obtain  capital  in  anticipation  of  such  needs.  Adequate  funds  may not be
available when needed or may not be available on terms favorable to the Company.
If  additional  funds are  raised by  issuing  equity  securities,  dilution  to
existing shareholders may result. If funding is insufficient, the Company may be
required to delay, reduce the scope of or eliminate some or all of its expansion
plans.


RISK OF INDEBTEDNESS

         The  Company  may incur  substantial  amounts  of  indebtedness  in its
operations.  In such event, the Company would dedicate an increasing  portion of
its cash flow to servicing such  indebtedness,  thereby exposing it to the risks
inherent in a highly leveraged company,  including, among other things, interest
rate and  default  risks.  An  increase  in  interest  rates  charged by lending
institutions  will increase the cost of servicing the Company's  indebtedness as
well as increase the cost of financing future  acquisitions.  Additionally,  the
Company  anticipates  that such  indebtedness  will be  secured  by liens on the
Company's assets, and a default on such indebtedness may result in the Company's
lenders foreclosing such liens. The occurrence of any of these things could have
a material  adverse effect on the Company's  business,  financial  condition and
results  of  operations.  Loan  agreements  also  typically  impose  substantial
restrictions  on borrowers and normally  require strict  compliance with certain
financial ratios and other criteria, all of which may significantly restrict the
Company's  business or financial  flexibility and have a material adverse effect
on the Company's business and financial  condition.  If funding is insufficient,
the Company may be required to delay,  reduce the scope of or eliminate  some or
all of its expansion  plans.  This would have a material  adverse  effect of the
Company's business, financial condition and results of operations.


VARIABILITY OF CUSTOMER REQUIREMENTS

         The level and timing of orders placed by the Company's  customers  vary
due to a number of factors,  including  customer  attempts to manage  inventory,

                                       15
<PAGE>

changes in customers' business strategies and variations in demand for products.
The Company  relies on its estimate of  anticipated  future  volumes when making
commitments  regarding the quantities and the mix of products that it intends to
carry in  inventory.  The  Company  does not have long term  contracts  with its
customers. As such, nothing would prohibit the Company's customers from reducing
or eliminating their orders with the Company which would result in a decrease in
sales  and an  increase  in  inventory  carrying  costs  and  obsolescence.  Any
significant reduction in customer orders could have a material adverse effect on
the Company's business, financial condition and results of operations.


FLUCTUATIONS IN QUARTERLY RESULTS

         The Company's  quarterly  net sales and  operating  results have varied
significantly in the past and will likely continue to do so in the future,  as a
result of such factors as 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,
competitive conditions including pricing, interest rate fluctuations, the impact
of acquisitions, currency fluctuations and general economic conditions.

         Specific  historical  seasonal  variations in the  Company's  operating
results have  included a reduction in demand in Europe  during the summer months
and changes in the product cycle of major products. The Company may be unable to
adjust spending sufficiently in a timely manner to compensate for any unexpected
sales  shortfall,  which could materially  adversely affect quarterly  operating
results.  Accordingly, the Company believes that period-to-period comparisons of
its  operating  results  should not be relied  upon as an  indication  of future
performance. In addition, the results of any quarterly period are not indicative
of results to be expected for a full fiscal year.  In certain  future  quarters,
the Company's  operating  results may be below the expectations of public market
analysts or investors. In such event, the market price of the Common Stock would
be materially adversely affected.


EFFECTS OF TECHNOLOGICAL CHANGE

         The products sold by the Company are  characterized by rapidly changing
technology,  frequent new product  introductions and evolving industry standards
that can render the products marketed by the Company obsolete or unmarketable in
a  relatively  short  period  of  time.  Although  it  is  the  policy  of  most
manufacturers of microcomputer  products to protect  distributors in the form of
price  protection  and/or stock rotation,  the nature of the Company's  business
does not allow it to enjoy those benefits.  See "Certain Business Risk Factors -
No Contracts or Distribution  Agreements with  Suppliers." The Company's  future
success  will depend upon its ability to limit its exposure to  obsolescence  in
its inventory and to gain access to its vendors' new product  lines,  as well as
product  lines  of  any  additional  vendors  that  release  new  and  desirable
technology.


ANTI-TAKEOVER CONSIDERATIONS

         The  Company's  Board of  Directors  has the  authority  to issue up to
1,000,000 shares of preferred stock in one or more series and to fix the powers,
designations,  preferences  and relative rights thereof without any further vote
or action by the Company's  shareholders.  The issuance of preferred stock could
dilute the voting  power of holders of Common Stock and could have the effect of
delaying,  deferring  or  preventing  a change in  control of the  Company.  The
Company's  Articles of  Incorporation  provide that the holders of a majority of
the preferred  stock,  voting  separately  from the holders of the Common Stock,
must approve  certain  transactions.  The Company's  Board of Directors has been
divided  into three  equal size  classes  serving  staggered  three-year  terms.
Therefore,  any shareholder interested in gaining control of the Company will be
precluded  from  electing a majority of directors  in any single  year.  Certain
change of  control  transactions  such as  mergers,  share  exchange  or sale of
substantially  all of the assets of the Company require an affirmative vote of a
majority  of the  holders of the  Company's  Common  Stock and a majority of the
holders of the Company's preferred stock.

         In  addition,   Messrs.   Gallagher   and  Shields   together   control
approximately  71% (81% if the  Shares of the Trust  Shareholders  are  included

                                       16
<PAGE>

although Messrs.  Gallagher and Shields do not have voting power with respect to
the shares held by the Trust  Shareholders) of the outstanding  shares of Common
Stock,  and the  voting  power of these  shareholders  could  have the effect of
delaying or  preventing a change in control of the Company.  These,  and certain
other provisions of the Company's  Articles of Incorporation and Bylaws, as well
as Nevada  law,  may operate in a manner  that could  discourage  or render more
difficult a takeover of the Company or the removal of management or the Board of
Directors.


FOREIGN CORRUPT PRACTICES ACT

         The Company, like other companies operating internationally, is subject
to the United States Foreign Corrupt Practices Act ("FCPA") and other laws which
prohibit improper payments to foreign  governments and their officials by United
States and other business entities. The FCPA also requires companies to maintain
accurate record keeping and systems of internal control to ensure that funds are
not  misappropriated.  The Company's  operations in certain countries create the
risk of an  unauthorized  payment by an employee  or agent of the Company  which
would be in violation of such laws,  including the FCPA.  Violations of the FCPA
or these other laws may result in severe criminal  penalties against the Company
and its officers and directors which could have a material adverse effect on the
Company's business, financial condition and results of operations.


NO ANTICIPATION OF DIVIDENDS

         The Company anticipates that for the foreseeable future,  earnings,  if
any,  will be  retained  for the  development  of its  business  and will not be
distributed  to  shareholders  as  dividends.  The  declaration  and  payment of
dividends,  if any,  by the  Company at some  future  time will  depend upon the
Company's results of operations, financial condition, cash requirements,  future
prospects, limitations imposed by credit agreements or senior securities and any
other  factors  deemed  relevant  by  the  Company's  Board  of  Directors.  The
declaration  and payment of dividends,  if at all, by the Company will be at the
discretion of the Board of Directors. See "Dividends."


IMPACT OF THE EUROPEAN 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
continues  to  evaluate  the  impact  that 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. In the first
two quarters of trading, the Euro devalued against sterling by 8.55%,  adversely
affecting the value of the Company's trade receivables denominated in Euros, and
on an ongoing basis 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.


LABOR RELATIONS

         The Company's labor force is not unionized. The Company,  however, does
business in certain foreign countries where labor disruption is more common than
in the United States.  The majority of the freight  carriers used by the Company

                                       17
<PAGE>

are  unionized.  A labor  strike by one of the  Company's  freight  carriers  or
vendors, a general strike by civil service employees, a governmental shutdown or
any type of  labor  disruption  could  have a  material  adverse  effect  on the
Company's business, financial condition and results of operation.


ITEM 2.  PROPERTIES.

         The corporate headquarters of European Micro Holdings,  Inc. is located
in Miami,  Florida.  Approximately  350 square feet is dedicated  to  management
offices.

         European Micro's facilities are described below:
<TABLE>
<CAPTION>
              LOCATION                                     SQUARE FEET     LEASE EXPIRATION
              --------                                     -----------     ----------------
              <S>                                             <C>                <C>
              Manchester,  UK(warehouse)(1)                    8,000             2012
              Manchester,  UK (offices)(1)                     5,800             2002
              Dusseldorf, Germany (offices)(2)                 1,360             2004
              Amsterdam, Netherlands
              (offices and warehouse)(3)                      18,000             2002
              Singapore (office) (4)                             500             2001
              Miami, Florida (offices)(5)                        350             2002
              Nashville, Tennessee (offices) (5)                 350             1999
              Wimbledon, UK (offices and warehouse)(6)         5,813             2008
              Seabrook, New Hampshire
              (offices and warehouse)(7)                       4,500             1999

</TABLE>

           -------------------------
           (1)  European Micro UK
           (2)  European Micro Germany
           (3)  European Micro Holland & Big Blue Europe 50% Joint Venture
           (4)  Colchester
           (5)  European Micro Holdings, Inc.
           (6)  Sunbelt
           (7)  Nor'Easter

         European  Micro UK  operates  from  facilities  located in  Manchester,
England.  Approximately  5,800 square feet of the  facilities in Manchester  are
offices,  including management,  sales and administrative areas and 8,000 square
feet is warehouse space.

         The Company utilizes  approximately 700 square feet of office space and
certain equipment owned or leased by Technology Express and AMCC for which it is
not charged a fee.

         The office in Germany is a sales office with no  warehousing  facility.
All products are shipped from the Manchester facility directly to the customer.

         The office in the  Netherlands  houses both European  Micro Holland and
Big Blue Europe.

         The  office in  Singapore  is a sales  and  purchasing  office  with no
warehousing  facility.  All products are shipped from suppliers  directly to the
Company's other warehouses.

         On July 16, 1999,  European  Micro UK purchased the office  building in
which they had  previously  been leasing  space for  1,705,000  pounds  sterling
($2,693,000 at June 30, 1999). The purchase price was financed in part by a loan
in the amount of 1,300,000  pounds  sterling($2,053,000  at June 30, 1999) at an
annual interest rate of 7.6%,  payable over ten years.  The total square footage
of the  building  is  11,603,  of which  5,816  square  feet is being  leased to
unrelated  third  parties.  European  Micro UK continues to lease its  warehouse
space.

         The Company  considers  its existing  facilities to be adequate for its
foreseeable needs.



                                       18
<PAGE>

ITEM 3.  LEGAL PROCEEDINGS.

         None.


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

         None.


                                     PART II


ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

         The  Company's  shares of Common  Stock  began  trading  on the  Nasdaq
National  Market on June 12, 1998,  under the symbol  "EMCC." The Company's high
and low bid prices by quarter  during  fiscal 1999 and 1998 are  presented as
follows:

                                                        FISCAL YEAR 1999(1)
                                                     HIGH              LOW

      First quarter                                $11.375           $4.50
      Second quarter                                15.75             8.00
      Third quarter                                 13.75             8.50
      Fourth quarter                                10.50             7.00

                                                      FISCAL YEAR 1998(1)
                                                     HIGH              LOW

      First quarter                                   n/a              n/a
      Second quarter                                  n/a              n/a
      Third quarter                                   n/a              n/a
      Fourth quarter                               $11.00             $9.9375
-------------------------

(1)  The  Company  was not  listed  on any  national  exchange  or  inter-dealer
quotation  system  until June 12, 1998,  subsequent  to the close of its initial
public offering. Therefore, the stock prices for the quarter ended June 30, 1998
reflect  approximately 12 trading days. These  quotations  reflect  inter-dealer
prices, without retail mark-up, mark-down or commission, and may not necessarily
represent actual transactions.

         On September 16, 1999, the Company had approximately 34 shareholders of
record. The Company believes that it has in excess of 400 beneficial owners.


DIVIDENDS

         During the fiscal year ended June 30, 1999, no dividends  were declared
or paid. On February 9, 1998,  the Company  declared and paid a cash dividend of
$550,000 or $0.1375 per share of Common Stock. During the fiscal year ended June
30, 1997, the Company declared and paid a cash dividend of $562,000 or $0.14 per
share of  Common  Stock.  The  dividends  per  share  were  calculated  based on
4,000,000 shares of Common Stock outstanding.  These dividends were declared and
paid prior to the  Company's  initial  public  offering.  The Company  currently
intends to retain  future  earnings to fund its  operations  and does not expect
such earnings to be distributed in the future to shareholders as dividends.  The
declaration  and payment by the Company of any future  dividends  and the amount
thereof  will  depend  upon  the  Company's  results  of  operations,  financial
condition,  cash requirements,  future prospects,  limitations imposed by credit
agreements or senior  securities and other factors deemed  relevant by the Board

                                       19
<PAGE>

of  Directors.  The  declaration  and  payment of  dividends,  if at all, by the
Company will be at the discretion of the Board of Directors.


RECENT SALES OF UNREGISTERED SECURITIES

         None.


ITEM 6.  SELECTED FINANCIAL DATA.


                      SELECTED CONSOLIDATED FINANCIAL DATA
                     ($ IN THOUSANDS, EXCEPT PER SHARE DATA)

         The  following  statement of  operations  and balance sheet data of the
Company is set forth below for each year in the five-year  period ended June 30,
1999.  The  information  presented  is  derived  from the  audited  consolidated
financial  statements of the Company and should be read in conjunction  with the
consolidated  Financial  Statements as of June 30, 1999 and 1998 and each of the
years in the  three-year  period  ended  June 30,  1999  and the  Notes  thereto
included elsewhere in this filing.

<TABLE>
<CAPTION>

                                                                YEARS ENDED JUNE 30,
                                                 1999          1998            1997           1996         1995
                                      --------------------------------------------------------------------------
<S>                                          <C>           <C>              <C>            <C>          <C>

STATEMENT OF OPERATIONS DATA:
Net Sales                                    $132,206      $111,453         $46,655        $40,348      $33,864
Income from operations                          1,935         7,232           2,051          1,478        1,848
Net income                                        854         4,485           1,034            845        1,115
Net income per share
(basic and diluted)                              0.17          1.10            0.26           0.21         0.28
Dividends per share                             $0.00         $0.14           $0.14          $0.24        $0.10
Weighted average common shares
outstanding, basic                          4,978,614     4,066,524       4,000,000      4,000,000    4,000,000
Weighted average common shares
outstanding, diluted                        4,989,961     4,087,466       4,000,000      4,000,000    4,000,000

                                                                       JUNE 30,
                                                 1999           1998            1997           1996         1995
                                      ---------------------------------------------------------------------------
BALANCE SHEET DATA:
Working capital                                11,844         12,959           1,976          1,474        1,736
Total assets                                   30,599         19,204           8,844          7,857        5,873
Long-term debt, net of
  current portion                                  23             84              45             37           41
Shareholders' equity                           14,343         13,680           2,511          1,769        1,924


</TABLE>

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

         THE  FOLLOWING  INFORMATION  SHOULD  BE READ IN  CONJUNCTION  WITH  THE
CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AND THE NOTES THERETO APPEARING
ELSEWHERE IN THIS FILING.


OVERVIEW

         The Company is an independent  distributor of  microcomputer  products,
including  personal  computers,  memory  modules,  disc  drives  and  networking
products,  operating  primarily  in Western  Europe and the United  States.  The

                                       20
<PAGE>

Company has  pursued and expects to continue to pursue a strategy of  purchasing
product  for  resale on the  worldwide  surplus  or  aftermarket  as  opposed to
purchasing  products  for resale  directly  from  manufacturers.  The  Company's
ability to purchase products for resale in these markets has enabled the Company
to increase  net sales.  For the  three-year  period  ended June 30,  1999,  the
Company's  total net sales increased from $46.7 million in fiscal 1997 to $132.2
million in fiscal 1999,  and gross profit  increased from $5.3 million in fiscal
1997 to $11.1 million in fiscal 1999. The Company  attributes these increases in
sales  to  increased  customer  demand  for the  Company's  products  and,  more
recently,  to the  expansion of the range of products  offered and  geographical
markets served.

         To date,  the Company has derived the majority of its operating  income
and cash flow from European Micro UK. Generally, European Micro UK purchases and
sells its products in currencies  other than the United States dollar.  European
Micro UK seeks to limit its exposure to currency  fluctuations  through hedging.
See "Management's  Discussion and Analysis of Financial Condition and Results of
Operations - Currency Risk Management."


RESULTS OF OPERATIONS

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

                             PERCENTAGE OF NET SALES
                                                        YEARS ENDING JUNE 30,
                                                   1999         1998        1997
                                                   ----         ----        ----

Net sales                                         88.4%        73.9%       99.7%
Net sales to related parties                       11.6         26.1         0.3
                                                -------      -------     -------
Total net sales                                   100.0        100.0       100.0
                                                -------      -------     -------
Cost of goods sold                               (80.1)       (61.4)      (88.2)
Cost of goods sold to related parties            (11.5)       (25.7)       (0.4)
                                                -------      -------     -------
Total cost of goods sold                         (91.6)       (87.1)      (88.6)
                                                -------      -------     -------
Gross profit                                        8.4         12.9        11.4
Operating expenses                                (6.9)        (6.4)       (7.0)
                                                -------      -------     -------
Income from operations                              1.5          6.5         4.4

Interest income                                       -            -           -
Interest expense                                  (0.3)        (0.4)       (0.6)
Equity in net income (loss) of
   unconsolidated subsidiaries                        -            -       (0.2)
                                                -------      -------     -------
Income before income taxes                          1.2          6.1         3.6
Income tax expense                                (0.6)        (2.1)       (1.4)
                                                -------      -------     -------
Net Income                                         0.6%         4.0%        2.2%
                                                =======      =======     =======

YEARS ENDED JUNE 30, 1999 AND 1998

         TOTAL NET SALES.  Total net sales  increased  $20.8 million,  or 18.6%,
from  $111.4  million in the year ended June 30,  1998 to $132.2  million in the
comparable  period in 1999.  Excluding net sales to related  parties,  net sales
increased $34.5 million, or 41.9%, from $82.4 million in the year ended June 30,
1998 to $116.9  million in the  comparable  period in 1999.  This  increase  was

                                       21
<PAGE>

attributable to the start-up  growth of Nor'Easter  which started its operations
in February 1998 (accounting for approximately  $22.3 million),  the addition of
Sunbelt's trading sales (accounting for approximately $10.8 million), the growth
of the Premier Dealers Club (accounting for approximately  $6.6 million) and the
additional   sales  from  Sunbelt's  Nova  line  of  products   (accounting  for
approximately $1.5 million). This increase was offset by a reduction in European
Micro  UK's  trading  sales  of $6.7  million  which  was  primarily  due to the
exceptional  quarter  ended  March 31,  1998 when the  Company  made a  one-time
purchase of computer  peripherals at favorable prices which were later sold at a
significant mark-up.  There can be no assurance that the Company will be able to
maintain  the level of sales or sales  growth  achieved  in this period or prior
periods  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.
For the years ended June 30, 1999 and 1998,  respectively,  customer rebates and
discounts were immaterial.

         Net sales to related parties  decreased $13.8 million from $29.1 in the
year ended June 30, 1998 to $15.3 million in the comparable period in 1999. This
decrease is primarily  attributable to large  purchases of computer  peripherals
made on behalf of related  parties in the year ended June 30,  1998  compared to
the same period in 1999.  In  addition,  the  Company's  purchases  from related
parties  increased  by $7.6  million in the year  ended  June 30,  1999 from the
comparable period in 1998.

         GROSS PROFIT. Gross profit decreased $3.3 million, or 22.9%, from $14.4
million  in the year  ended June 30,  1998 to $11.1  million  in the  comparable
period in 1999. Gross profit excluding related party  transactions  decreased to
$11.0  million for the year ended June 30,  1999 from $14.0  million in the same
period of the prior year.  This  decrease  is  primarily  due to a large  volume
purchase of computer  peripherals  in the prior year period which were purchased
by the Company on exceptional terms and later sold at a significant  mark-up. In
addition, this decrease is partially the result of a shift in market conditions,
resulting  in 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  was
unusually high in the period ended June 30, 1998 due to the purchase of computer
peripherals  on favorable  terms.  As indicated  in its  previous  filings,  the
Company  expected its gross profit to be  significantly  lower in periods  after
fiscal 1998 because it did not expect to be able to regularly  purchase computer
peripherals  and other  products on terms as favorable as achieved in the period
ended June 30, 1998.

         Gross profit attributable to related party sales decreased $318,000, or
76.8%,  from  $414,000  in the  year  ended  June  30,  1998 to  $96,000  in the
comparable  period in 1999. 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 0.6%.

         Gross margins  decreased  from 12.9% in the year ended June 30, 1998 to
8.4% in the comparable  period in 1999.  Excluding  related party  transactions,
gross margin decreased from 17.0% in the year ended June 30, 1998 to 9.4% in the
comparable  period in 1999.  The decrease in gross margins was  attributable  to
higher than usual margins caused by the purchase of computer peripherals in 1998
which  were  purchased  by  the  Company  on   exceptional   trading  terms  and
subsequently sold at significant mark-ups.

         Foreign exchange losses,  net, increased from a loss of $510,000 in the
year ended June 30, 1998 to a loss of $579,000 in the comparable period in 1999.
This increase was attributable to a strengthening of the U.S. dollar relative to
the U.K.  pound  sterling and a weakening of the Euro relative to other European
currencies.   These  movements  created   unfavorable   purchasing  and  selling
conditions. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Currency Risk Management."

         OPERATING  EXPENSES.  Operating  expenses as a percentage  of total net
sales  increased  from  6.4% in the  year  ended  June  30,  1998 to 6.9% in the
comparable period in 1999. Commissions and bonus payments to employees decreased
as these payments are tied to the Company's gross profit and gross margin.  This

                                       22
<PAGE>

decrease was offset by increased  operating  expenses  related to the opening of
the Singapore office in November 1998 and  administrative  expenses  incurred by
European Micro  Holdings,  Inc. which began  operations in January 1998, but did
not start to incur substantial expenses until April 1998.

         INTEREST  EXPENSE.  Interest expense decreased by $13,000 from $459,000
in the year ended June 30, 1998 to $446,000  in the  comparable  period in 1999.
This  was  attributable  to  decreased  borrowings  by the  Company  to fund its
inventory and accounts  receivable after the receipt of funds from the Company's
initial public offering.

         INCOME TAXES.  Income taxes as a percentage  of earnings  before income
taxes  increased  from  34.0% in the year  ended  June 30,  1998 to 46.8% in the
comparable  period in 1999.  This  increase was  primarily  attributable  to the
increase in the tax  provision for European  Micro  Germany  related to transfer
pricing from European  Micro UK,  changes in the  valuation  allowance and other
nondeductible  expenses. 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 changed from a gain of $3,000 in the year ended June 30, 1998 to
a loss of $32,000 in the comparable  period in 1999.  This reduction in earnings
is attributed to an increased provision for inventory  obsolescence.  During the
year ended June 30, 1999,  the Company made an unsecured loan to Big Blue Europe
in the amount of $350,000. This loan is due on demand and has an annual interest
rate of 9.25%, payable quarterly.


YEARS ENDED JUNE 30, 1998 AND 1997

         TOTAL NET SALES. Total net sales increased $64.8 million, or 139%, from
$46.6  million  in the  year  ended  June  30,  1997 to  $111.4  million  in the
comparable period in 1998. The increase in net sales was primarily  attributable
to sales to related parties  (accounting for approximately  $28.9 million),  the
purchase of computer peripherals on favorable terms and subsequently sold in the
period  (accounting  for  approximately  $13.8  million),  the broadening of the
Company's product base (accounting for approximately  $6.0 million),  the return
of some key personnel from temporary leave  (accounting for  approximately  $4.0
million)  and  the  growth  of  the  Premier   Dealers  Club   (accounting   for
approximately $2.6 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 the Company does not expect to be able to regularly purchase peripherals
and other  products on terms as  favorable  as achieved in the period ended June
30,  1998.  For the years ended June 30, 1998 and 1997,  respectively,  customer
rebates and discounts were immaterial.

         Excluding  net sales to  related  parties,  net sales  increased  $35.8
million,  or 77%,  from $46.5  million in the year ended June 30,  1997 to $82.3
million in comparable period in 1998.

         Net sales to related  parties  increased $28.9 million from $154,000 in
the year ended June 30, 1997 to $29.1 million in the comparable  period in 1998.
This  increase is  attributable  to Group  purchases  by the Company of computer
peripherals  made on behalf of  related  parties  and  subsequently  by  related
parties to third parties.

         GROSS PROFIT. Gross profit increased $9.1 million, or 171.7%, from $5.3
million  in the year  ended June 30,  1997 to $14.4  million  in the  comparable
period in 1998. Gross profit excluding related party  transactions  increased to
$14 million the year ended June 30, 1998 from $5.3 million in the same period of
the prior  year.  Gross  profit  was  unusually  high in the  period  due to the
purchase of computer  peripherals on favorable  terms during the year ended June
30,  1998.  The Company  expects its gross profit to be  significantly  lower in
future  periods  because  it does not  expect to be able to  regularly  purchase
computer peripherals and other products on terms as favorable as achieved in the
period ended June 30, 1998.

         Gross margins  increased  from 11.4% in the year ended June 30, 1997 to
12.9% in the comparable period in 1998.  Excluding  related party  transactions,
gross  margin  increased  from 11.5% in the year ended June 30, 1997 to 17.0% in
the comparable period in 1998. The increase in gross margins was attributable to
higher than usual margins caused by the purchase of computer  peripherals in the

                                       23
<PAGE>

period which were  purchased  by the Company on  exceptional  trading  terms and
subsequently  sold.  The Company  expects its gross  margin to be  significantly
lower in future  periods  because  it does not  expect  to be able to  regularly
purchase products on as favorable terms as that experienced in the period.

         Foreign exchange losses,  net, increased from a loss of $157,000 in the
year ended June 30, 1997 to a loss of $510,000 in the comparable period in 1998.
During the second  quarter of fiscal  1997,  the Company  suffered  considerable
exchange  losses as a result of the  strengthening  of the U.K.  pound  sterling
relative to other  European  currencies,  causing a  devaluation  of many of the
Company's foreign currency accounts receivable.

         OPERATING  EXPENSES.  Operating  expenses as a percentage  of total net
sales  decreased  from  7.0% in the  year  ended  June  30,  1997 to 6.4% in the
comparable  period  in 1998 due  primarily  to the  increase  in total net sales
relative to operating  expenses.  Operating  expenses consist primarily of fixed
costs,  such as  wages,  salaries,  rents and  rates.  Excluding  related  party
transactions,  operating  expenses as a percentage of net sales  increased  from
6.9% in the year ended June 30,  1997 to 8.6% in the  comparable  period in 1998
due to higher  commissions and bonus  compensation  paid during the period.  The
Company's  commission  and bonus  compensation  is based on the Company's  gross
margin.  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 increased by $150,000 from $309,000
in the year ended June 30, 1997 to $459,000  in the  comparable  period in 1998.
This  was  attributable  to  increased  borrowings  by the  Company  to fund its
inventory and accounts  receivable due to the large increase in sales during the
period.

         INCOME TAXES.  Income taxes as a percentage  of earnings  before income
taxes  decreased  from  38.6% in the year  ended  June 30,  1997 to 34.0% in the
comparable  period in 1998.  This  decrease was  primarily  attributable  to the
increase in income before income taxes relative to disallowed  expenditures  for
corporate income tax purposes.  The effective rate of income tax may increase in
the future  periods as a result of the change in structure  and the mix of sales
across the various countries to which the Company sells its products.

         INTEREST IN JOINT VENTURE.  The Company's  share of income or loss from
Big Blue Europe increased from a loss of $73,000 in the year ended June 30, 1997
to a gain of  $3,000  in the  comparable  period  in 1998.  These  earnings  are
attributable to the business maturing past the start-up stage.

         WAREHOUSE BREAK-IN. In November 1997, European Micro UK's warehouse was
broken into and  approximately  $503,000 of inventory was stolen.  All inventory
was insured and the Company was reimbursed by its insurance company for the cost
of the inventory  less an $8,000  standard  deductible.  In order to prevent any
additional thefts, the Company has implemented the following steps:

         (1) The Company has relocated  its warehouse  facility to a more secure
location.

         (2) The Company consulted with a security  specialist and expended over
$40,000 in security  measures,  including  direct radio  communication  with law
enforcement.

         (3) The Company implemented new procedures  regarding occupancy and the
opening and closing of the warehouse facility.


SEASONALITY

         The Company typically experiences variations 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,
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.



                                       24
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

         The Company's  primary cash  requirements  are for operating  expenses,
funding  accounts  receivable  and for the purchase of  additional  inventory to
support growth and to take greater advantage of available cash discounts offered
by  certain  of  the   Company's   suppliers  for  early  payment  and  to  make
acquisitions.  The  Company  has  historically  funded  these cash  requirements
through a  combination  of  loans,  internally  generated  cash flow and the net
proceeds of its initial public offering.

         Short-term working capital  requirements are funded by a combination of
line of credit facilities together with accounts receivable  financing.  Both of
these facilities are set and reviewed annually. In both cases, the amounts drawn
down accrue the same rate of interest  based on a markup over the bank borrowing
rate in the United  Kingdom.  The  overdraft  facility  was 1.2  million  pounds
sterling  ($1.9  million) at June 30,  1999 and 1998.  The  accounts  receivable
financing  provides for a borrowing base of 85% of accounts  receivable,  with a
limit of 5.5 million pounds sterling  ($8.69 million on June 30, 1999).  Further
funding was obtained in June 1998 in the form of a short term  revolving  credit
agreement,  secured against inventory. The facility allows the Company to borrow
up to 3.5 million  pounds  sterling ($5.5 million on June 30, 1999) to assist in
the purchase of inventory.  In addition, in June 1998, the Company received $9.3
million in gross proceeds from its initial public  offering of 933,900 shares of
common  stock.  The  Company  incurred  total  expenses in  connection  with the
offering of $2.2 million.  The Company has used the proceeds to fund  operations
and provide  working  capital to European Micro UK and Nor'Easter and to acquire
Sunbelt.

         Long-term  funding is  supplied  to the  Company in the form of capital
lease agreements. These agreements 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.  All but two of the
agreements  are subject to variable  rate  interest.  As of June 30,  1999,  the
borrowings were $80,000, of which $23,000 was due after more than one year.

         Subsequent  to the  Company's  fiscal  year  ended June 30,  1999,  the
Company  acquired AMCC for a purchase price of $940,660,  plus an earn-out.  See
"Related Party Tranasactions." The portion of the purchase price paid at closing
was funded through the Company's  working  capital.  The earn-out portion of the
purchase price is expected to be funded through the Company's working capital or
the issuance of the shares of Common Stock.

         On July 16, 1999,  European  Micro UK purchased the office  building in
which they had  previously  been leasing  space for  1,705,000  pounds  sterling
($2,693,000 at June 30, 1999). The purchase price was financed in part by a loan
in the amount of 1,300,000  pounds  sterling($2,053,000  at June 30, 1999) at an
annual interest rate of 7.6%, payable over ten years.

         FISCAL YEAR ENDED JUNE 30, 1999. Net cash used in operating  activities
for fiscal 1999 amounted to $8.8 million. Significant factors in the use of cash
were an decrease in trade payables,  net of effects from  acquisitions,  of $1.1
million,  an increase in inventories,  net of effects from  acquisitions of $5.4
million and an increase of trade  receivables,  net of effects from acquisitions
of $3.0  million.  The decrease in trade  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  and a relatively  low level of inventory at June 30, 1998.  The
increase in trade  receivables is largely  attributable to the increase in third
party sales.  The amount of cash used in the Company's  operations was partially
offset by net income in the period of $854,000,  cash generated from a reduction
in other current assets of $1.8 million,  primarily related to the prepayment of
inventory at June 30, 1998 of $2.0 million.

         Cash  used in  investing  activities  amounted  to $1.2  million.  This
consisted of expenditures on fixed assets of $155,000,  the sale of fixed assets
of $7,000, the acquisitions of Sunbelt and H&B of $720,000 and an advance to Big
Blue Europe of $350,000.

         Cash provided by financing  activities was $8.5 million,  of which $7.0
million  was  provided  by an  increase  in the  accounts  receivable  financing
facility  and $1.6  million  was  provided  by an  increase  in the bank line of
credit.

         FISCAL YEAR ENDED JUNE 30, 1998. Cash provided by operating  activities
for fiscal 1998 amounted to $1.6 million.  Significant factors in the generation
of cash were net  income for the year of $4.5  million  and  increases  in taxes
payable of $2.2 million.  The cash provided by operations  was partially  offset
primarily by the increases in trade  receivables  of $2.3  million,  which was a
result of the  considerable  increase in business  during the period,  including
significant  UK sales with longer  credit terms and an advance  payment made for
the purchase of inventory of $2.0 million.  The advance payment was made to take
advantage  of  favorable  pricing.  Further,  cash was  used to pay  down  trade
payables by $400,000 and an increase in due from related parties of $329,000.

                                       25
<PAGE>

         Cash  used in  investing  activities  amounted  to  $421,000.  This was
attributed  to the purchase of fixed assets  amounting to $596,000 less the sale
of fixed assets of $175,000. The purchase of fixed assets consisted primarily of
expenditures  for office  improvements  (as the Company moved onto an additional
floor at their  Manchester,  England)  of  $150,000,  new  computers  and office
equipment of $103,000, a forklift for the warehouse of $22,000, and new vehicles
of $286,000.  The sale of fixed  assets  consisted  primarily  of used  vehicles
traded for the purchase of new vehicles.

         Cash provided by financing  activities  amounted to $3.4 million.  This
was  primarily  the  result of the  receipt  of net  proceeds  from the  initial
offering of $7.1 million ($9.3 million  proceeds less expenses of $2.2 million).
Cash  used in  financing  activities  amounted  to $3.8  million  to  repay  the
short-term  financing  facilities and the payment of a cash dividend of $550,000
prior to the Company's initial public offering.

         FISCAL YEAR ENDED JUNE 30, 1997. Cash provided by operating  activities
during the year amounted to $247,000.  Significant  factors in the generation of
cash were net income for the year  amounting  to $1.0  million and  increases in
trade  payables of $1.0 million.  This was due  primarily to a significant  move
towards third party  suppliers as opposed to related party  purchases  which had
been  particularly high in 1996. Cash was also provided by reductions in amounts
due from  related  parties  ($139,000)  and a decrease in other  current  assets
($267,000).  The cash provided by operations was partially  offset  primarily by
the  decrease in amounts due to related  parties of $956,000 (as a result of the
high third party purchases), an increase in trade receivables of $672,000 and an
increase in inventory of $540,000.  The increase in trade receivables was due to
both a  movement  away from  central  European  sales  towards  UK sales,  which
traditionally  have longer  credit  terms and the  continuing  pressure to offer
longer credit terms to the maturing marketplace.

         Cash  used in  investing  activities  amounted  to  $412,000  which was
primarily attributed to the purchase of fixed assets amounting to $195,000 which
was  partially   offset  by  disposals   ($47,000)  and  the  investment  in  an
unconsolidated  affiliate,  Big Blue Europe of $264,000.  The larger fixed asset
purchases included the addition of two cars ($69,000) and computer equipment for
additional staff, network upgrades and laptop computers ($86,000).  Fixtures and
fittings purchases during the year of $40,000 included additional  furniture for
the increase in employees and $15,000 for warehouse security measures.

         Cash  used in  financing  activities  amounting  to  $123,000  was used
primarily for the payment of dividends amounting to $562,000,  reductions in the
bank overdraft amounting to $314,000 and repayment of capital leases of $71,000.
The  generation of $824,000  through trade  receivable  discounting  was brought
about partially  through the increase in trade receivables and partially through
a change in  banking  policy  in  December  1996.  While  the  Company  had only
discounted UK  receivables up to December 1996, the change in policy allowed the
Company to additionally  discount  central European trade  receivables.  Against
this increase in the  discounting  creditor the level of the bank  overdraft was
reduced  and  this is  reflected  by the  $314,000  adverse  change  in the bank
overdraft.

         Exchange  movements  of $254,000 had a favorable  effect on cash.  This
arises as a result of the year end sterling to dollar  exchange rate moving from
(pound)1:$1.5538  as of June 30, 1996, to  (pound)1:$1.6643  as of June 30, 1997
and the resulting effect on translating the balance of net assets as of June 30,
1996 together with the retained earnings for the year ended June 30, 1997.


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  microprocessors.  The
Company  has  divided the Plan into five major  phases -  assessment,  planning,

                                       26
<PAGE>

conversion, implementation and testing. The Company completed the assessment and
planning  phases in fiscal 1998.  During fiscal 1999,  the Company has addressed
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 and Colchester  were
Year 2000  compliant  when  purchased and therefore the costs of conversion  and
remediation were minimal. European Micro UK and Sunbelt have obtained assurances
from  manufacturers  of  all of  its  computer  equipment,  software  and  other
non-information technology equipment as to whether they are Year 2000 compliant.
The Company  believes  that all  non-compliant  software and hardware  have been
upgraded or  replaced.  The Company  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 has evaluated 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 (except  Technology  Express) 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  believes  that  Technology
Express  is Year  2000  complaint.  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  has  formulated
contingency  plans to implement  in the event these  parties fail to address the
Year 2000 problem.

         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.


ASSET MANAGEMENT

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

         ACCOUNTS  RECEIVABLE.  The Company sells its products and services to a
customer  base of more  than 480  value-added  resellers,  corporate  resellers,
retailers and direct  marketers.  The Company  offers credit terms to qualifying
customers and also sells on a pre-pay and  cash-on-delivery  basis. With respect
to credit  sales,  the  Company  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. Also, substantially all of European Micro UK's
accounts  receivables  are insured.  Nor'Easter,  Colchester  and American Micro
generally do not insure their accounts receivable.


CURRENCY RISK MANAGEMENT

         REPORTING CURRENCY. European Micro Holding's and Nor'Easter's reporting
and  functional  currency,  as  defined by  Statement  of  Financial  Accounting
Standards No. 52, is the U.S. dollar. The functional  currency of European Micro
UK is the U.K. pound sterling and Colchester is the Singapore  dollar.  European
Micro UK and  Colchester  translate  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.  The Company  occasionally
hedges to guard against  currency  fluctuations  between the U.K. pound sterling

                                       27
<PAGE>

and the U.S. dollar. Because the functional currency of European Micro Holding's
main  operating  subsidiary,  European  Micro  UK, is the U.K.  pound  sterling,
currency fluctuations of the U.K. 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.  The Company 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 manages its currency  exposure when  transactions are
consummated in currency other than United Kingdom pound  sterling.  For example,
in the year ended June 30, 1999,  purchases  of inventory by European  Micro UK,
were in United  States  dollars  (55%),  United  Kingdom pound  sterling  (30%),
Swedish Krona (3%), Euro (9%) and other (3%). The most significant currencies in
which sales were made, other than United Kingdom pound sterling (52%),  were the
Euro (30%) United  States  dollar  (10%),  Swiss  Francs  (3%),  and other (5%).
Additionally,  receivables  are  also  significantly  spread  out  over  several
currencies. In addition, European Micro UK has exposure to currency fluctuations
to the extent it maintains bank deposits in foreign currencies.

         Generally,  the Company's policy 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 seven  currencies:
Euro,  U.K.  pound  sterling,  U.S.  dollar,  Dutch  guilder,  Canadian  dollar,
Singapore  dollar 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  continues  to evaluate the impact that 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. In
the first two quarters of trading,  the Euro devalued against sterling by 8.55%,
adversely affecting the value of the Company's trade receivables  denominated in
Euros. Going forward,  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.


RELATED PARTY TRANSACTIONS

         In order to achieve attractive prices from suppliers,  the Company must
commit to purchasing  large  quantities  of product.  To  accomplish  this,  the
Company  polls  all  the  subsidiaries  and  Technology   Express  for  informal
commitments to help distribute that product.  Thereafter, the purchasing entity,
would obtain the product,  examine the product for damage and authenticity,  and
then supervise the shipping to the other  subsidiaries and the related party. In
such capacity,  the purchasing entity acts as a "purchasing agent" for the other
subsidiaries  and the related party.  In the periods ending June 30, 1999,  1998

                                       28
<PAGE>

and 1997,  the Company  benefited  from low mark-up  purchases  from the related
parties  totaling $16.9 million,  $9.3 million and $22.7 million,  respectively.
During the same periods,  the Company's  sales to the related parties were $15.3
million,  $29.1 million,  and $154,000.  These fluctuations are primarily due to
currency  fluctuations,  product  availability and changes in geographic pricing
strategies of manufacturers and suppliers of the Company's products.

         On  February  2,  1999,  the  Company's  Board of  Directors  formed a
a special committee consisting  solely of independent directors to evaluate and
determine whether the Company should acquire AMCC and, if so, on what terms. The
members of the  committee  are Kyle R. Saxon and Barrett  Sutton.  The committee
members  were  compensated  at $150  per  hour  each for  their  service  on the
committee. John B. Gallagher, who is a significant shareholder,  Co-Chairman and
Co-President of the Company,  was the President and a Director of AMCC and owned
fifty  percent  of its  outstanding  capital  stock.  Frank  Cruz,  who is Chief
Operating  Officer of the  Company,  was an employee  of AMCC since 1994.  He is
currently  an  employee  of  American  Micro,  the  newly-formed,   wholly-owned
subsidiary  of the  Company  formed to acquire  AMCC.  The  committee's  charter
authorized  it to take any action it deemed  necessary to properly  evaluate and
determine whether the Company should acquire AMCC,  including hiring independent
advisors and ensuring that any such  transaction is entirely fair to the Company
and its  shareholders.  The  committee  hired  independent  legal counsel and an
independent  financial  advisor.  Prior to consummating  this  transaction,  the
Company  received an opinion  from the  independent  financial  advisor that the
consideration  paid in connection with the transaction was fair from a financial
point  of view to the  Company's  shareholders.  On July 1,  1999,  the  Company
acquired AMCC.

         The  transaction  was  structured  as a  merger  of AMCC  with and into
American Micro, a  newly-formed,  wholly-owned  subsidiary of the Company.  Upon
consummation of the merger, this subsidiary's name was changed to American Micro
Computer Center, Inc. The purchase price for AMCC was equal to $940,660, plus an
earn-out amount payable in cash or shares of the Company's  Common Stock (at the
Company's  discretion)  equal to two times the  after-tax  earnings  of American
Micro in  calendar  year 1999 and two times the  after-tax  earnings of American
Micro in calendar year 2000.  The portion of the purchase  price paid at closing
was funded through the Company's  working capital.  The earn-out portion  of the
purchase price is expected to be funded through the Company's working capital or
the issuance of shares of Common  Stock.  In addition,  the Company  assumed all
outstanding   indebtedness  of  AMCC,   including  a  shareholder  loan  in  the
approximate  amount  of  $289,000.  This  loan is owed to the  father of John B.
Gallagher.  If the Company  elects to pay any portion of the  purchase  price in
shares of the Company's Common Stock, then AMCC's shareholders have fifteen days
to make  arrangements  to sell such shares over the next forty  trading days. If
the sale of such shares results in net proceeds of less than the purchase price,
then the Company will pay the difference in cash to AMCC's shareholders.


ITEM 7A.  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  purposes  of  hedging  foreign  currency  market  exposures  of
underlying assets,  liabilities and other obligations which exist as part of its
ongoing business operations. See "Currency Risk Management."

         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.


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).  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.


                                       29
<PAGE>


                                                  EXPECTED
                                                MATURITY OR
                                              TRANSACTION DATE      FAIR VALUE
                                              ----------------      ----------

FOREIGN CURRENCY EXCHANGE CONTRACTS

JUNE 30, 1999
  (Receive (pound)/pay euro)                     July 9, 1999
  Contract amount                                (pound)1,000       (pound)1,027
  Average contractual exchange rate          1.5635 euro /(pound)1

  (Receive (pound)/pay euro)                     July 12, 1999
  Contract amount                                (pound)1,000       (pound)1,015
  Average contractual exchange rate          1.546 euro /(pound)1

         Foreign  currency losses,  net were $579,000 in 1999,  $510,000 in 1998
and $157,000 in 1997. See  "Management's  Discussion and Analysis - Fiscal Years
Ended June 30,  1999 and 1998" and  "Fiscal  Years Ended June 30, 1998 and 1997"
for discussion on the changes:


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

         The consolidated  financial  statements of the Company appear beginning
at page F-1. Certain quarterly financial data is set forth below.

<TABLE>
<CAPTION>

                                  ($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                            <C>             <C>               <C>               <C>
                                                                                   NET INCOME PER SHARE
JUNE 30, 1999                  NET SALES       GROSS PROFIT      NET INCOME         (BASIC AND DILUTED)
-------------                  ---------       ------------      ----------         -------------------
First Quarter                   $29,297           2,945             722                   $0.15
Second Quarter                  29,011            2,258              24                    0.00
Third Quarter                   38,465            2,929              22                    0.00
Fourth Quarter                  35,433            2,954              86                    0.02

                                                                                   NET INCOME PER SHARE
JUNE 30, 1998                  NET SALES       GROSS PROFIT      NET INCOME         (BASIC AND DILUTED)
-------------                  ---------       ------------      ----------         -------------------
First Quarter                   $24,107           1,839              485                  $0.12
Second Quarter                  22,002            2,541              669                   0.16
Third Quarter                   39,130            6,581             2,380                  0.59
Fourth Quarter                  26,214            3,434              951                   0.23

                                                                                   NET INCOME PER SHARE

                                       30
<PAGE>

JUNE 30, 1997                  NET SALES       GROSS PROFIT      NET INCOME         (BASIC AND DILUTED)
-------------                  ---------       ------------      ----------         -------------------
First Quarter                   $ 8,696           1,231              287                  $0.07
Second Quarter                  10,963            1,025               94                   0.02
Third Quarter                   13,571            1,454              291                   0.07
Fourth Quarter                  13,425            1,627              362                   0.10


</TABLE>

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

         None.



                                       31
<PAGE>

                                    PART III


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.


ITEM 11.  EXECUTIVE COMPENSATION.


ITEM 12.  SECURITY OWNERSHIP  OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         The information  called for by Items 10, 11, 12 and 13 of this Part III
is  incorporated  herein by reference to the Company's  Proxy  Statement for its
Annual Meeting of Stockholders to be held on November 15, 1999.


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

         (a)(1)(2)  FINANCIAL  STATEMENTS.  See index to consolidated  financial
statements and supporting schedules.

         (a)(3)  EXHIBITS.

<TABLE>
<CAPTION>

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

<S>           <C>                                                                   <C>

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

    2.02      Merger  Agreement  dated June 29,  1999 by and   Provided  herewith
              among the Company, American Micro, AMCC
              and the  shareholders of AMCC

    2.03      Plan of Merger dated June 29, 1999               Provided herewith

    2.04      Articles of Merger dated June 29, 1999           Provided herewith

    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 Articles of          Incorporated by reference to Exhibit 3.02 to
              Incorporation                                    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 Purchase Plan          Incorporated by reference to 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.


                                       32
<PAGE>
  EXHIBIT
    NO.                         DESCRIPTION                                         LOCATION
    ---                         -----------                                         --------


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

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

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

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

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

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

   10.07      Trusteed Shareholders Cross-Purchase Agreement   Incorporated by reference to Exhibit No. 10.08 to
              by and between John B. Gallagher, Harry D.       the Registration Statement.
              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

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

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

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

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

   10.12      Subscription Agreement by and between John B.    Incorporated by reference to Exhibit No. 10.13 to
              Gallagher, Harry D. Shields, Thomas H.           the Registration Statement.
              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. effective as of January 31, 1998


<PAGE>

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

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

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

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

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

   10.17      Form of Credit Agreement by and between          Incorporated by reference to Exhibit No. 10.17 to
              European Micro UK and National Westminster       the Annual  Report on Form 10-K for the fiscal year
              Bank Plc                                         ended June 30, 1998 filed with the Commission on
                                                               September 28, 1998.

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

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

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

   10.21      Employment Agreement dated July 1, 1999 by and   Provided herewith.
              between American Micro and John B. Gallagher

   11.01      Statement re: Computation of Earnings            Not applicable.

   15.01      Letter re: Unaudited Financial Information       Not applicable.

   18.01      Letter re Change in Accounting Principles        Not applicable.

   19.01      Report Furnished to Security Holders             Not applicable.

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

   23.01      Consents of Independent Accountants              Provided herewith

   24.01      Power of Attorney                                Not applicable.

   27.01      Financial Data Schedule                          Provided herewith.

         (b)      REPORTS ON FORM 8-K.

         None.
</TABLE>

                                       34
<PAGE>


                                   SIGNATURES

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

         Date:  September 28, 1999

                                              EUROPEAN MICRO HOLDINGS, INC.


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

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
registrant and in the capacities and on the dates indicated.

SIGNATURE                     TITLE                                 DATE

/s/ Harry D.Shieldss          Co-Chairman; Co-President       September 28, 1999
-------------------------     (Principal Executive Officer);
Harry D.Shieldss              Director

/s/ John B. Gallagher         Co-Chairman; Co-President       September 28, 1999
-------------------------     (Principal Executive Officer);
John B. Gallagher             Director

/s/ Jay Nash                  Chief Financial Officer and     September 28, 1999
-------------------------     Controller (Principal Financial
Jay Nash                      Officer and Controller)

/s/ Laurence Gilbert          Director                        September 28, 1999
-------------------------
Laurence Gilbert

/s/ Bernadette Spofforth      Director                        September 28, 1999
-------------------------
Bernadette Spofforth

/s/ Kyle R. Saxon             Director                        September 28, 1999
-------------------------
Kyle R. Saxon

/s/ Barrett Sutton            Director                        September 28, 1999
-------------------------
Barrett Sutton

<PAGE>

                        INDEX TO THE FINANCIAL STATEMENTS



EUROPEAN MICRO HOLDINGS, INC.

Independent Auditors' Report                                                 F-2

Consolidated Balance Sheets as of June 30, 1999 and 1998                     F-3

Consolidated Statements of Operations for the years ended June 30, 1999,
1998 and 1997                                                                F-4

Consolidated Statements of Changes in Shareholders' Equity for the years
ended June 30, 1999, 1998 and 1997                                           F-5

Consolidated Statements of Cash Flows for the years ended June 30, 1999,
     1998 and 1997                                                           F-6

Notes to Consolidated Financial Statements                                   F-7


<PAGE>



                          INDEPENDENT AUDITORS' REPORT





The Board of Directors and the Shareholders of
European Micro Holdings, Inc.


We have audited the consolidated balance sheets of European Micro Holdings, Inc.
and  subsidiaries  as of June 30, 1999 and 1998,  and the  related  consolidated
statements of operations,  shareholders'  equity, and cash flows for each of the
years in the three-year period ended June 30, 1999. These consolidated financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the  financial  position of European  Micro
Holdings,  Inc. and subsidiaries as of June 30, 1999 and 1998 and the results of
their  operations  and their cash flows for each of the years in the  three-year
period ended June 30, 1999 in  conformity  with  generally  accepted  accounting
principles.



/s/ KPMG LLP
--------------------
KPMG LLP
Nashville, Tennessee
August 20, 1999





                                       F-2
<PAGE>


               EUROPEAN MICRO HOLDINGS, INC. AND ITS SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                        (In thousands, except share data)

                                                JUNE 30, 1999    JUNE 30, 1998
                                                -----------------------------
                    ASSETS
CURRENT ASSETS:
  Cash                                                $3,168        $5,012
  Restricted Cash                                        379             -
  Trade receivables, net                              14,938         7,985
  Due from related parties                             1,128           898
  Inventories, net                                     7,232         1,715
  Prepaid expenses                                       402           304
  Other current assets                                   562         2,485
                                                      ------        ------
      TOTAL CURRENT ASSETS                            27,809        18,399
  Property and equipment, net                            612           611
  Goodwill, net                                        1,675             -
  Investments in and advances to unconsolidated          503           194
    subsidiaries                                      ------        ------

      TOTAL ASSETS                                   $30,599       $19,204
                                                     =======       =======

            LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
  Short term borrowings                               $8,614           $-
  Trade payables                                       3,484        1,638
  Accrued expenses and other current                   2,851          987
    liabilities
  Due to related parties                                 633          238
  Income taxes payable                                   383        2,577
                                                      ------       ------
      TOTAL CURRENT LIABILITIES                       15,965        5,440
  Long term borrowings                                    23           84
  Other liabilities                                      268            -
                                                      ------       ------
      TOTAL LIABILITIES                              $16,256       $5,524
                                                      ------       ------
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, shares issued and              49           49
    outstanding, 4,933,900 at 1999 and 1998
  Additional paid-in capital                           8,979        8,802
  Accumulated other comprehensive income (loss)        (312)           56
  Retained earnings                                    5,627        4,773
                                                      ------       ------
      TOTAL SHAREHOLDERS' EQUITY                      14,343       13,680
                                                      ------       ------
      COMMITMENTS, CONTINGENCIES AND SUBSEQUENT
      EVENTS

     TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY      $30,599      $19,204
                                                     =======      =======
See accompanying notes to consolidated financial statements.


                                      F-3

<PAGE>
               EUROPEAN MICRO HOLDINGS, INC. AND ITS SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF OPERATIONS
                      (In thousands, except per share data)



                                      YEARS ENDED JUNE 30,
                              -----------------------------------
                                    1999       1998        1997
SALES:
  Net sales                      $116,866    $82,361     $46,501
  Net sales to related parties     15,340     29,092         154
                                  -------    -------      ------

      Total net sales             132,206    111,453      46,655
                                  -------    -------      ------

COST OF GOODS SOLD:
 Cost of goods sold              (105,876)   (68,380)    (41,163)
 Cost of goods sold to            (15,244)   (28,678)       (156)
   related parties                -------    -------      ------

     Total cost of goods sold    (121,120)   (97,058)    (41,319)

GROSS PROFIT                       11,086     14,395       5,336
                                  --------   -------      ------

OPERATING EXPENSES:
  Selling, general and
   administrative expenses         (9,151)    (7,059)     (3,230)
  Expenses attributable to
   related parties                     -       (104)        (55)
                                  -------     ------      ------

    Total operating expenses      (9,151)    (7,163)     (3,285)
                                  -------     ------      ------

INCOME FROM OPERATIONS              1,935      7,232       2,051
                                  -------     ------      ------

Interest income                       147         22          16
Interest expense                    (446)      (459)       (309)
Equity in net (loss) income of
  unconsolidated subsidiaries        (32)          3        (73)
                                  -------     ------      ------

INCOME BEFORE INCOME TAXES          1,604      6,798       1,685
                                  -------     ------      ------

  Income tax expense                (750)    (2,313)       (651)
                                  -------     ------      ------

NET INCOME                           $854     $4,485      $1,034
                                  =======     ======      ======

Net income per share - basic        $0.17      $1.10       $0.26
                                  =======     ======      ======

Net income per share -              $0.17      $1.10       $0.26
 diluted                          =======     ======      ======




See accompanying notes to consolidated financial statements.




                                       F-4
<PAGE>
               EUROPEAN MICRO HOLDINGS, INC. AND ITS SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                        (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>

                                                                             ACCUMULATED
                                                              ADDITIONAL         OTHER                            TOTAL
                                                                PAID-IN      COMPREHENSIVE      RETAINED      SHAREHOLDERS'
                                          COMMON STOCK          CAPITAL      INCOME (LOSS)      EARNINGS         EQUITY
                                      ----------------------- ------------- ------------------ ------------- ----------------
                                           Shares     Amount
<S>                                     <C>              <C>          <C>                  <C>       <C>              <C>

Balance at June 30, 1996                4,000,000        $40          $115                 $4        $1,610           $1,769
Comprehensive Income:
    Net income                                  -          -             -                  -         1,034            1,034
    Other comprehensive income for
       foreign currency translation
       adjustment                               -          -            11                 17           242              270
                                                              ------------- ------------------ ------------- ----------------
    Total comprehensive income                  -          -            11                 17         1,276            1,304
Dividends declared
   ($0.14 per share)                            -          -             -                  -         (562)            (562)
Capitalization of retained
   earnings                                     -          -         1,498                  -       (1,498)                -

                                      ------------ ---------- ------------- ------------------ ------------- ----------------
Balance at June 30, 1997                4,000,000        $40        $1,624                $21          $826           $2,511
                                      ------------ ---------- ------------- ------------------ ------------- ----------------
Comprehensive Income:
    Net income                                  -          -             -                  -         4,485            4,485
    Other comprehensive income
       for foreign currency
       translation adjustment                   -          -             -                 35            40               75
                                                                            ------------------ ------------- ----------------
    Total comprehensive income                  -          -             -                 35         4,525            4,560
Dividends declared ($0.14 per share)
                                                -          -             -                  -         (550)            (550)
Issuance of common stock, net of
   $2,180 in offering costs               933,900          9         7,150                  -             -            7,159
Compensation charge in relation to
   share options issued to
   non-employees                                -          -            28                  -          (28)                -
                                      ------------ ---------- ------------- ------------------ ------------- ----------------
Balance at June 30, 1998                4,933,900        $49        $8,802                $56        $4,773          $13,680
                                      ------------ ---------- ------------- ------------------ ------------- ----------------

Comprehensive Income:
     Net income                                 -          -             -                  -           854              854
    Other comprehensive income
     for foreign currency
      translation adjustment                    -          -             -              (368)             -            (368)
                                                                            ------------------ ------------- ----------------
    Total comprehensive income                  -          -             -              (368)           854              486
Additional offering costs                       -          -          (25)                  -             -             (25)
Compensation charge in relation to
   share options issued to
   non-employees                                -          -           202                  -             -              202
                                      ============ ========== ============= ================== ============= ================
Balance at June 30, 1999                4,933,900        $49        $8,979             $(312)        $5,627          $14,343
                                      ============ ========== ============= ================== ============= ================

See accompanying notes to consolidated financial statements.


</TABLE>



                                       F-5
<PAGE>
               EUROPEAN MICRO HOLDINGS, INC. AND ITS SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)

                                                       YEARS ENDED JUNE 30,
                                            -----------------------------------
                                                   1999        1998       1997
                                                   ----        ----       ----
OPERATING ACTIVITIES:
Net income                                         $854      $4,485     $1,034
ADJUSTMENTS TO RECONCILE NET INCOME
  TO NET CASH (USED IN) PROVIDED BY
  OPERATING ACTIVITIES
  Depreciation and amortization                     323         192        163
 Amortization of expense related to
 contingent earn-out provisions                     112          -           -
  Deferred income taxes                             (15)        (80)        87
  Equity in net loss (income) of
      unconsolidated subsidiaries                    32          (3)        73
  Compensation charge for non-employee              202          -           -
      stock options
CHANGES IN ASSETS AND LIABILITIES, NET OF
EFFECTS FROM ACQUISITIONS
  Restricted cash                                  (379)         -          -
  Trade receivables                              (3,034)    (2,250)       (672)
  Due from related parties                         (230)      (329)        139
  Inventories                                    (5,407)      (155)       (540)
  Prepaid expenses and other current assets       1,840     (2,651)        267
  Trade payables                                (1,139)       (400)      1,011
  Due to related parties                            395          50       (956)
  Income taxes payable                          (2,194)       2,202        (86)
  Accrued expenses and other liabilities          (168)         585       (273)
                                                 ------      ------     ------

NET CASH (USED IN) PROVIDED BY OPERATING        (8,808)       1,646        247
                                                ------       ------     ------

INVESTING ACTIVITIES:
  Purchase of fixed assets                        (155)        (596)      (195)
  Sale of fixed assets                               7          175         47
  Investment in / advance to                      (350)          -        (264)
    unconsolidated subsidiaries
  Payment for acquisitions, net of cash           (720)          -          -
    acquired                                     ------      ------     ------

NET CASH USED IN  INVESTING ACTIVITIES          (1,218)        (421)      (412)
                                                ------       ------     ------
FINANCING ACTIVITIES:
 Short term borrowings                           8,614       (3,257)       510
 Dividends paid                                      -         (550)      (562)
 Issuance of common stock, net                     (25)       7,159         -
 Repayment of capital leases, net                  (74)          65        (71)
                                                ------       ------     ------
NET CASH PROVIDED BY (USED IN) FINANCING         8,515        3,417       (123)
  ACTIVITIES                                     ------      ------     ------

Exchange rate changes                            (333)           82        254
                                                ------       ------     ------

NET  INCREASE (DECREASE) IN CASH               (1,844)        4,724        (34)
Cash at beginning of year                       5,012           288        322
                                                ------       ------     ------

CASH AT END OF YEAR                             3,168        $5,012       $288
                                                ------       ------     ------




                                       F-6
<PAGE>
               EUROPEAN MICRO HOLDINGS, INC. AND ITS SUBSIDIARIES


Non-cash investing and financing activities:

Fair value of assets acquired                  $4,302            -         -

Goodwill                                        1,731            -         -

Fair value of liabilities assumed              (4,103)           -         -
Notes issued for consideration                                   -         -
                                               (1,083)
                                               -------       ------     ------
Cash paid for acquisitions                       $847            -         -

Less cash acquired                               (127)           -         -
                                               -------       ------     ------
Net cash paid for acquisitions                   $720            -         -
                                               =======       ======     ======
Interest paid                                    $513         $478      $290
                                               =======       ======     ======
Taxes paid                                     $2,637         $191      $584
                                               =======       ======     ======

See accompanying notes to consolidated financial statements.



                                       F-7
<PAGE>

               EUROPEAN MICRO HOLDINGS, INC. AND ITS SUBSIDIARIES

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1     DESCRIPTION OF BUSINESS

      On December 23, 1997,  European Micro Holdings,  Inc. was incorporated and
      4,000,000  shares of common stock with a par value of $0.01 per share were
      issued.  The 4,000,000  shares were issued to the shareholders of European
      Micro Plc in exchange for the entire  issued share capital of that Company
      on January 31, 1998. The accounts  presented in relation to 1997 are those
      of European Micro Plc as adjusted to account  retroactively  for the share
      exchange  referred  to  above.  European  Micro  Holdings,  Inc.  and  its
      subsidiaries  are  hereinafter  referred  to as  "European  Micro" or "the
      Company." The  following  companies'  results of operations  and financial
      position have been included in the  consolidated  financial  statements as
      follows:

                                                  COMMENCED
      COMPANIES                    INCORPORATED    TRADING     ACQUIRED
                                   ---------------------------------------
      European   Micro   Holdings,     1997         1998          -
      Inc.
      Nor'Easter Micro Inc.            1997         1998          -
      European Micro Plc               1991         1992          -
      European Micro GmbH              1993         1993          -
      European Micro BV                1997         1997          -
      Colchester  Enterprise  Pte.     1998         1999          -
      Ltd.
      Sunbelt (UK) Limited               -            -      October 26, 1998

      European Micro operates in a single industry trading computer  components.
      In  principle  the  Company   purchases   components  from   international
      suppliers, including related parties, and sells them in local markets. The
      main trading company,  European Micro Plc, has its principal operations in
      Altrincham, England with its subsidiaries operating in Wimbledon, England,
      Germany and Holland. Nor'Easter Micro Inc. has its operations in Seabrook,
      New  Hampshire.  Colchester  Enterprise  Pte.  Ltd. has its  operations in
      Singapore.

      The parent  company holds a 50% interest in a joint venture  company,  Big
      Blue Europe BV. Big Blue Europe BV  commenced  operations  in January 1997
      and has been included in these consolidated financial statements under the
      equity  method of  accounting.  Big Blue  Europe BV  operates  in the same
      industry as the Company.



2     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      The  major  accounting   policies  followed  in  the  preparation  of  the
      consolidated financial statements referred to above are set out below:

      PRINCIPLES OF CONSOLIDATION

      The consolidated  results of the Company are in accordance with accounting
      principles generally accepted in the United States and include the results
      of  operations  of its wholly owned  subsidiaries  which it controls.  All
      significant  intercompany  balances and  transactions  are  eliminated  in
      consolidation.

      The Company's  investment in Big Blue Europe BV is accounted for under the
      equity method.



                                       F-8
<PAGE>
               EUROPEAN MICRO HOLDINGS, INC. AND ITS SUBSIDIARIES

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

      PROPERTY AND EQUIPMENT

      Property and equipment are recorded at cost.  Property and equipment  held
      under  capital  leases are stated at the  present  value of minimum  lease
      payments  at  the  inception  of  the  related  leases.   Depreciation  is
      calculated  using the  straight  line method over their  estimated  useful
      lives as follows:  Furniture,  fixtures &  equipment,  2-7 years and motor
      vehicles and other,  4 years.  Property and  equipment  held under capital
      leases are  amortized  on a  straight-line  basis over the  shorter of the
      lease term or estimated useful life of the assets.

      The costs of  ordinary  maintenance  and repairs are charged to expense as
      incurred.

      IMPAIRMENT OF LONG-LIVED ASSETS

      The Company reviews long-lived assets and certain identifiable intangibles
      for impairment  whenever events or changes in circumstances  indicate that
      the carrying amount of an asset may not be recoverable.  Recoverability of
      assets to be held and used is measured  by a  comparison  of the  carrying
      amount of an asset to future net cash flows  expected to be  generated  by
      the asset. If such assets are considered to be impaired, the impairment to
      be  recognized  is measured by the amount by which the carrying  amount of
      the assets  exceed the fair value of the assets.  Assets to be disposed of
      are reported at the lower of the carrying  amount or fair value less costs
      to sell.

      INVENTORIES

      Inventories  are  stated  at the lower of cost or  market  value.  Cost is
      determined using the weighted average cost method.

      GOODWILL

      Goodwill, which represents the excess of purchase price over fair value of
      net  assets  acquired,  is  amortized  on a  straight-line  basis over the
      expected periods to be benefited, generally 20 years. The Company assesses
      the  recoverability  of this intangible  asset by determining  whether the
      amortization  of the  goodwill  balance  over  its  remaining  life can be
      recovered through undiscounted future operating cash flows of the acquired
      operation. The amount of goodwill impairment, if any, is measured based on
      projected  discounted  future  operating  cash flows using a discount rate
      reflecting  the  Company's  average cost of funds.  The  assessment of the
      recoverability  of goodwill will be impacted if estimated future operating
      cash flows are not achieved.

      INCOME TAXES

      Income  taxes are  accounted  for under  the asset and  liability  method.
      Deferred  tax assets and  liabilities  are  recognized  for the future tax
      consequences  attributable to differences  between the financial statement
      carrying  amounts of existing assets and liabilities and their  respective
      tax bases.  Deferred tax assets and liabilities are measured using enacted
      tax rates  expected to apply to taxable income in the years in which those
      temporary  differences are expected to be recovered or settled. The effect
      on  deferred  tax  assets  and  liabilities  of a change  in tax  rates is
      recognized in income in the period that includes the enactment date.

      FINANCIAL INSTRUMENTS

      The Company  enters into  foreign  currency  exchange  contracts to reduce
      exposure to foreign currency  fluctuations  associated with the settlement
      of   inter-company   receivables  and  payables   denominated  in  foreign
      currencies.  Foreign exchange contracts  generally have maturities of less
      than one year and are accounted  for on the fair value  method.  Gains and
      losses resulting from these  instruments are recognized in the same period
      as the underlying  foreign currency  transaction  gains and losses and are
      included  in cost of sales.  The  Company  does not use  foreign  currency
      exchange   contracts  or  other  derivative   financial   instruments  for
      speculative or trading  purposes.  The fair value of the Company's foreign
      exchange  contracts  at June 30,  1999 was  $3,225,000  versus a  notional
      amount of $3,159,000.


                                      F-9
<PAGE>
               EUROPEAN MICRO HOLDINGS, INC. AND ITS SUBSIDIARIES

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

      FINANCIAL INSTRUMENTS  (CONTINUED)

      The Company has other  financial  instruments  consisting of cash and cash
      equivalents, trade receivables, accounts payable, and borrowings. The fair
      value of the  Company's  financial  instruments  based on  current  market
      indicators or quotes from brokers approximates their carrying amount.

      FOREIGN CURRENCY

      Revenues,  costs and expenses of the  Company's  international  operations
      denominated  in  foreign  currencies  are  translated  to U.S.  dollars at
      average  rates of  exchange  prevailing  during  the  year.  Realized  and
      unrealized gains and losses on foreign  currency  transactions and forward
      exchange  contracts are included in cost of sales.  Assets and liabilities
      are translated at the exchange rate on the balance sheet date. Translation
      adjustments  resulting from this process are  accumulated  and reported in
      shareholders' equity.

      STOCK OPTION PLANS

      The  Company  accounts  for its  compensation  and stock  option  plans in
      accordance  with the  provisions  of Accounting  Principals  Board ("APB")
      Option No. 25,  Accounting  for Stock  Issued to  Employees,  and  related
      interpretations.  As such,  compensation  expense would be recorded on the
      date of grant only if the current  market  price of the  underlying  stock
      exceeded  the  exercise  price.  In  accordance  with the  SFAS  No.  123,
      Accounting for Stock-Based  Compensation,  the Company  provides pro forma
      net income and pro forma earnings per share disclosures for employee stock
      option grants made in 1998 and subsequent years as if the fair value based
      method defined in SFAS No. 123 had been applied.

      RELATED PARTY TRANSACTIONS

      For the purpose of the  accompanying  consolidated  financial  statements,
      shareholders  and all  companies  in which  there is  direct  or  indirect
      ownership by the shareholders of the consolidated companies are considered
      as related parties.

      REVENUE AND EXPENSE RECOGNITION

      Revenues are  recognized at the time the goods are shipped.  Revenues from
      related  parties are recognized  when the products are sold by the related
      parties to third parties.  Discount and customer rebates are deducted from
      sales  revenue when earned.  Costs of goods sold  include  material  costs
      only. Selling,  general and administrative costs are charged to expense as
      incurred.

      COMPREHENSIVE INCOME

      Effective  July 1,  1997,  the  Company  adopted  Statement  of  Financial
      Accounting  Standards No. 130,  "Reporting  Comprehensive  Income"  ("SFAS
      130").  SFAS 130  establishes  standards for  reporting the  components of
      comprehensive  income and requires that all items which are required to be
      recognized  under  accounting  standards as  components  of  comprehensive
      income be included in a financial  statement  that is  displayed  with the
      same  prominence  as  other  financial  statements.  Comprehensive  income
      includes net income as well as certain  items that are  reported  directly
      within a separate component of shareholders' equity and bypass net income.
      The  adoption  of  SFAS  130  had no  impact  on the  Company's  financial
      condition or results of operation.

      USE OF ESTIMATES

      Management of the Company has made a number of estimates  and  assumptions
      relating to the reporting of assets and  liabilities and the disclosure of
      contingent assets and liabilities to prepare these consolidated  financial
      statements in conformity with generally  accepted  accounting  principles.
      Actual results could differ from those estimates.


                                      F-10
<PAGE>
               EUROPEAN MICRO HOLDINGS, INC. AND ITS SUBSIDIARIES

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

      EARNINGS PER SHARE
      Basic earnings per share is computed based on the weighted  average shares
      outstanding  and excludes any  potential  dilution.  Diluted  earnings per
      share  reflects the potential  dilution from the exercise or conversion of
      all  dilutive  securities  into common  stock based on the average  market
      price of common shares outstanding during the period.

      On  incorporation  of European  Micro  Holdings,  Inc.  in December  1997,
      4,000,000  ordinary shares were issued with par value $0.01 per share. The
      4,000,000  shares were issued to the shareholders of European Micro Plc in
      exchange for the entire  issued  share  capital of that company on January
      31,  1998.  The  weighted  average  number of shares  used in  calculating
      earnings per share has been  retroactively  adjusted to reflect the issued
      and  outstanding  ordinary  shares of  European  Micro  Holdings,  Inc. as
      4,000,000 shares for 1997.

      RECLASSIFICATIONS

      Certain  prior  year  amounts  have been  reclassified  to  conform to the
      current year presentation.

      NEW ACCOUNTING PRONOUNCEMENTS

      SEGMENT INFORMATION

      The  Company  adopted  SFAS No.  131  "Disclosures  about  Segments  of an
      Enterprise and Related  Information" in 1999. The statement  requires that
      companies  disclose  segment data based on how  management  make decisions
      about  allocating  resources to segments and measuring their  performance.
      The statement also requires entity-wide disclosures about the products and
      services an entity  provides,  the  material  countries  in which it holds
      assets and reports revenues and its major customers.

      DERIVATIVE INSTRUMENTS

      SFAS  No.  133,   "Accounting   for  Derivate   Instruments   and  Hedging
      Activities,"  was issued in June 1998 and as amended by SFAS No.  137,  is
      effective  for fiscal years  beginning  after June 15, 2000.  The standard
      establishes  accounting and reporting standards for derivative instruments
      and hedging activities.

      The Company is currently  reviewing the likely financial  statement impact
      and  the  level  of  disclosure   currently   provided  in  its  financial
      statements.

3     TRADE RECEIVABLES, NET

      Trade receivables consist of the following (in thousands):

                                                 JUNE 30,
                                        ------------------------
                                             1999         1998
                                             ----         ----
      Total trade receivables             $15,017      $8,008
      Less: Allowance for doubtful            (79)        (23)
      receivables                            ----        ----
                                          $14,938      $7,985
                                          -------      ------

      Trade  receivables  in the amount of $8,274,000  are pledged as collateral
      against borrowings (see note 9).



                                      F-11
<PAGE>
               EUROPEAN MICRO HOLDINGS, INC. AND ITS SUBSIDIARIES

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3     TRADE RECEIVABLES, NET (CONTINUED)

  A   roll forward of the allowance for doubtful trade receivables is as follows
      (in thousands):

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

      Balance at beginning of year                    $23             $5
      Sunbelt acquisition                              11              -
      Provision for bad debt                           56             18
      Amounts written off                             (11)             -
                                                   ------         -------
      Balance at end of year                          $79            $23
                                                   ======         =======

4     INVENTORIES

      Inventories consist of the following (in thousands):

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

      Finished goods and goods for resale          $7,348         $1,724
      Less: Allowance for inventory                  (116)            (9)
        obsolescence                               ------         -------
                                                   $7,232         $1,715
                                                   ======         =======

      A roll forward of allowance for obsolescence is as follows (in thousands):

                                                          JUNE 30,
                                                -----------------------------
                                                    1999           1998
                                                    ----           ----

      Balance at beginning of year                     $9            $35
      Provision for obsolescence                      602            248
      Amounts written off                            (495)          (274)
                                                   ------         -------
      Balance at end of year                         $116             $9
                                                   ======         =======

5     OTHER CURRENT ASSETS

      Other current assets consists of the following (in thousands):

                                                         JUNE 30,
                                                 ------------------------------
                                                     1999          1998
                                                     ----          ----

      Amounts paid in advance for                      $0         $2,015
      inventories
      Other                                           562            470
                                                   ------         -------
      Total other current assets                     $562         $2,485
                                                   ======         =======



                                      F-12
<PAGE>
               EUROPEAN MICRO HOLDINGS, INC. AND ITS SUBSIDIARIES

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


6     PROPERTY AND EQUIPMENT

      Property and equipment consists of the following (in thousands):

                                                            JUNE 30,
                                                   ------------------------
                                                        1999        1998
                                                        ----        ----

      Furniture, fixtures and equipment                 $994        $782
      Vehicles and other                                 416         328
                                                      ------      ------
                                                       1,410       1,110
      Less: accumulated depreciation                    (798)       (499)

      NET BOOK VALUE                                    $612        $611
                                                      ======      ======

      At June 30, 1999 and 1998, vehicles with a cost of approximately  $248,000
      and $253,000,  and accumulated  depreciation of approximately $117,000 and
      $52,000 respectively, were held under capital leases.

      Depreciation  expense was  $267,000,  $192,000  and $163,000 for the years
      ended June 30, 1999, 1998, and 1997, respectively.

7     GOODWILL

      On October 26, 1998,  European  Micro Plc acquired all of the  outstanding
      shares of capital stock of Sunbelt (UK) Limited  ("Sunbelt").  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 940,000 pounds sterling  (approximately $1.48 million at exchange rate
      on June 30, 1999). Of this guaranteed amount, approximately 360,000 pounds
      sterling  (approximately  $569,000 at exchange  rate on June 30, 1999) 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 240,163 pounds sterling ($379,000 at exchange
      rate on June 30,  1999) to be repaid in  November  2005,  subject to early
      repayment at the option of the note holder at any time after June 1, 1999.
      Such note payable is secured by a cash account of equal amount at June 30,
      1999.  The  note  payable  and the  cash  balances  are  reflected  on the
      accompanying  consolidated  balance  sheet at June 30, 1999, in restricted
      cash and accrued expenses and other current liabilities, respectively. 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  remainder of the unpaid  guaranteed  consideration  of  approximately
      339,614 pounds sterling ($536,000 at exchange rate on June 30, 1999), plus
      accrued interest, is to be paid in equal installments within nineteen (19)
      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 accrued  expenses  and other  current  liabilities  and other
      liabilities  on the  accompanying  consolidated  balance sheet at June 30,
      1999.




                                      F-13
<PAGE>

               EUROPEAN MICRO HOLDINGS, INC. AND ITS SUBSIDIARIES

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



7     GOODWILL  (CONTINUED)

      The maximum  contingent  earn-out  payments in the aggregate are two times
      Sunbelt's  fiscal year 1998 pre-tax  earnings of 424,518  pounds  sterling
      ($1.3  million at exchange rate on June 30,  1999).  The first  contingent
      payment of up to 424,518  pounds  sterling  ($670,000 at exchange  rate on
      June 30, 1999) 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 424,518 pounds sterling  ($670,000
      at  exchange  rate on June 30,  1999)  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
      106,130 pounds  sterling  ($168,000 at exchange rate on June 30, 1999), is
      being  recognized  by the Company over the course of the first  contingent
      earn-out  period  as  compensation  expense.  That  portion  of the  first
      contingent  earn-out  payment  related to the volume of purchases from the
      Far East has been  met.  This  portion  of  approximately  106,130  pounds
      sterling ($168,000 at exchange rate on June 30, 1999), has been recognized
      by the Company, and is reflected in goodwill, net and accrued expenses and
      other current  liabilities.  The remaining portion of the first contingent
      earn-out  payment of  approximately  212,260 pounds sterling  ($335,000 at
      exchange rate on June 30, 1999) and the second contingent earn-out payment
      have  not  been  recognized  in the  accompanying  consolidated  financial
      statements  as the  payment of such  amounts  are not,  in the  opinion of
      management, determinable beyond a reasonable doubt.

      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  1,072,000  pounds sterling plus the
      earned portion of the contingent earn-out of approximately  106,000 pounds
      sterling for a total of 1,178,000 pounds sterling  ($1,748,000 at exchange
      rate on June 30,  1999)  exceeded the  estimated  fair market value of net
      assets acquired by approximately $1,657,000, which is being amortized on a
      straight-line  basis over 20 years.  The results of  operations of Sunbelt
      have been included in the accompanying  financial statements from the date
      of acquisition.  Purchase accounting adjustments are preliminary as actual
      1998 pre-tax earnings have not been finalized.

      On  November  12,  1998,  European  Micro Plc  acquired  the assets of H&B
      Trading International BV ("H&B"). The acquisition of H&B was accounted for
      as a  purchase.  The  base  purchase  price,  subject  to  adjustment,  of
      approximately 125,000 Dutch guilders ($72,000 at exchange rate on June 30,
      1999) exceeded the estimated value of net assets acquired by approximately
      85,000 Dutch guilders  ($53,000 at exchange rate on June 30, 1999),  which
      is being  amortized  on a  straight-line  basis over 20 years.  If certain
      financial performance criteria are met for the fiscal years ended June 30,
      1999 and 2000,  additional  consideration  of  approximately  50,000 Dutch
      guilders  ($24,000 at  exchange  rate on June 30,  1999) and 75,000  Dutch
      guilders ($35,000 at exchange rate on June 30, 1999),  respectively,  will
      be paid. The financial criteria for the period ended June 30, 1999 was not
      met,  therefore,  the  additional  consideration  was not accrued or paid.
      Also, the year 2000 contingent consideration has not been reflected in the
      accompanying  consolidated  condensed  financial  statements  either.  The
      results  of  operations  of H&B have  been  included  in the  accompanying
      financial statements from the date of acquisition.


                                      F-14
<PAGE>
               EUROPEAN MICRO HOLDINGS, INC. AND ITS SUBSIDIARIES

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7     GOODWILL  (CONTINUED)

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

                                        YEARS ENDED JUNE 30,
                                 --------------------------------
                                        1999           1998
                                        ----           ----

      Total net sales               $137,960       $128,291
      Net income                      $1,149         $4,645
      Earnings per share:
         Basic                         $0.23          $1.14
         Diluted                       $0.23          $1.14

      The pro forma 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.

      A roll forward of goodwill is as follows (in thousands):

                                       Year Ended
                                      June 30, 1999
                                      --------------
      Balance at beginning of year             $-
      Additions                             1,731
      Amortization                           (56)
                                           ------
      Balance at end of year               $1,675
                                           ======


8     INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED SUBSIDIARIES

      During the year  ended  June 30,  1997 the  Company  purchased  50% of the
      issued  share  capital in Big Blue Europe BV. Big Blue Europe BV commenced
      trading in January  1997. A roll forward of the  investment  is as follows
      (in thousands):

                                                           YEARS ENDED JUNE 30,
                                                        ------------------------
                                                            1999         1998
                                                            ----         ----
      Cost of investment in and advances to
        unconsolidated                                      $194        $191
        subsidiaries brought forward
      Foreign currency translation adjustment                 (9)          -
      Equity in net (loss) income of                         (32)          3
      unconsolidated subsidiaries
      Advance                                                350           -
                                                            ----        ----
      Investment in and advances to unconsolidated
      subsidiaries  at end of year                          $503        $194
                                                            ====        ====

      The  equity  share of (loss)  income is based on the  results  of Big Blue
      Europe BV. A  summarized  statement of earnings for Big Blue Europe BV for
      fiscal  years 1999 and 1998 and the period  ended June 30, 1997 is set out
      below (in thousands):




                                      F-15
<PAGE>

               EUROPEAN MICRO HOLDINGS, INC. AND ITS SUBSIDIARIES

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8     INVESTMENTS (CONTINUED)

                                                                         PERIOD
                                                  YEARS ENDED             ENDED
                                                    JUNE 30,           JUNE 30,
                                              ----------------------
                                                    1999      1998        1997
                                                    ----      ----        ----

      Net sales                                   $4,101    $1,910        $465
      Cost of goods sold                          (3,068)   (1,394)       (354)
                                                  -------   -------       -----

      Gross profit                                 1,033       516         111
      Operating expenses                          (1,133)     (507)       (325)
                                                  -------   -------       -----

      Income before income taxes                    (100)        9        (214)
      Taxes on income                                 36        (3)         68
                                                  -------   -------       -----

      NET (LOSS) INCOME                             $(64)        $6       (146)
                                                  -------   -------       -----

      Equity in net (loss) income of                $(32)        $3       $(73)
      unconsolidated subsidiary                   =======   =======       =====


9     SHORT TERM BORROWINGS

      Short term borrowings consists of the following (in thousands):

                                                               JUNE 30,
                                                      -------------------------
                                                           1999        1998
                                                           ----        ----

      Bank Line of Credit                                $1,581          $-
      Receivable Financing                                7,033           -
                                                         ------      ------
      Total short term borrowings                        $8,614          $-
                                                         ======      ======

      The bank line of credit is  secured  by a  mortgage  debenture  on all the
      assets of the Company and is subordinate  to the receivable  financing and
      the capital  leases.  The bank line of credit is subject to review in July
      each year.  The  facility  available  to the  Company at June 30, 1999 was
      $1,900,000.  The Company is currently negotiating an extension of the line
      of  credit.  Interest  is charged on the bank line of credit at 1.25% over
      the bank borrowing rate of 5% at June 30, 1999 and 7% at June 30, 1998.

      The  Company  also  had a  revolving  credit  agreement,  secured  against
      inventory.  The facility allowed the Company to borrow up to $5,500,000 to
      assist in the purchase of  inventory.  To date,  no  borrowings  have been
      drawn down on the $5,500,000 line. The Company is currently negotiating an
      extension of the revolving credit agreement.

      Receivables' financing represents the amount borrowed, which is secured by
      various trade  receivables  totaling  $8,274,000  at June 30, 1999.  Trade
      receivables  can be  financed  up to the  lower of 85% of the value of the
      trade receivables balance or $8,686,000 at June 30, 1999 and $6,388,000 at
      June 30, 1998. The facility is reviewed annually in November of each year.
      The finance company which provides the receivable  financing  facility has
      full  recourse to the Company with respect to any doubtful or  unrecovered
      amounts.  Interest is charged on the receivable financing balance at 1.25%
      above the bank  borrowing  rate of 5% at June 30, 1999, and 7% at June 30,
      1998.


                                      F-16
<PAGE>
               EUROPEAN MICRO HOLDINGS, INC. AND ITS SUBSIDIARIES

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



10    TAXES ON INCOME

      Income tax expense consists of the following (in thousands):

                                             YEARS ENDED JUNE 30,
                                      -------------------------------
                                            1999      1998     1997
                                            ----      ----     ----
      Current
            Federal and State                -           -        -
            Foreign                        765       2,393      564
      Deferred
            Federal and State                -           -        -
            Foreign                        (15)        (80)      87
                                           ----      -----      ---
      Total income tax expense             750       2,313      651
                                           ====      =====      ===


      Provision  has not been  made for U.S.  or  additional  foreign  taxes on
      approximately  $4,652,000  and  $5,613,000  at June  30,  1998  and  1999,
      respectively,  of undistributed earnings of foreign subsidiaries, as those
      earnings are intended to be permanently reinvested.

       A  reconciliation  between  actual  income taxes and amounts  computed by
      applying the federal statutory rate of 34% to earnings before income taxes
      is summarized as follows (in thousands):


                                             YEAR ENDED JUNE 30,
                                        -----------------------------
                                            1999   1998      1997
                                            ----   ----      ----
      US federal statutory rate on
        earnings before income taxes        545   2,311       573
          before income taxes
      Difference in foreign versus
        U.S. federal income tax rate         43    (204)      (17)
      Change in valuation allowance          74       -         -
      Foreign non -deductible expenses       88     206        95
                                            ---   -----       ---
      Income tax expense                    750   2,313       651
                                            ===   =====       ===


                                      F-17
<PAGE>
               EUROPEAN MICRO HOLDINGS, INC. AND ITS SUBSIDIARIES

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10.   TAXES ON INCOME  (CONTINUED)

      Sources of deferred tax assets are as follows (in thousands):


                                                         JUNE 30,
                                                ------------------------
                                                    1999       1998

      DEFERRED TAX ASSETS:
      Property and equipment, principally
        due to differences in depreciation           42           26
      Net operating loss carry forwards              64           --
      Other                                           9           --
                                                    ----         ----
      Total gross deferred tax assets               115           26
      Valuation allowance                           (74)          --
                                                    ----         ----

      Net deferred tax assets                        41           26
                                                    ====         ====

      The  Company  has  U.S.  federal  net  operating  loss   carryforwards  of
      approximately  $161,000  which  will  begin to expire in 2019.  Management
      believes  that it is more likely  than not that the results of  operations
      will generate  sufficient  taxable  income to realize  deferred tax assets
      after giving  consideration  to the  valuation  allowance.  The  valuation
      allowance has been provided for U.S. deferred tax assets as recoverability
      is not deemed to be more likely than not.


11    COMMITMENTS AND CONTINGENCIES

      The Company is involved in various claims and legal actions arising in the
      ordinary  course of business.  In the opinion of management,  the ultimate
      disposition  of these matters will not have a material  adverse  effect on
      the Company's consolidated financial position,  results of operations,  or
      liquidity.

      The Company  leases  offices and certain  equipment  under  non-cancelable
      operating  leases and vehicles under capital leases.  Future minimum lease
      payments under  non-cancelable  operating  leases and capital leases as of
      June 30, 1999 in  aggregate  for each of the five  succeeding  years is as
      follows (in thousands):

<TABLE>
<CAPTION>
                                                                   CAPITAL   OPERATING
                                                                   -------   ---------
      <S>                                                              <C>        <C>

      2000                                                             $62         $93
      2001                                                              26          78
      2002                                                               -          78
      2003                                                               -          55
      2004 and thereafter                                                -         215
                                                                    ------      ------
      Total minimum lease payments                                     $88        $519
                                                                    ------      ======
      Less amount representing                                         (8)
      interest at rates ranging
      from 7.0% to 9.9%
                                                                    ------


</TABLE>

                                      F-18
<PAGE>
               EUROPEAN MICRO HOLDINGS, INC. AND ITS SUBSIDIARIES

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11    COMMITMENTS AND CONTINGENCIES  (CONTINUED)


      Present value of net minimum capital lease payments           80
      Current portion, included in accrued expenses and            (57)
        other current liabilities                                  ----
      Total obligations under capital leases excluding             $23
      current portion                                              ====


       Rental  expense  for the years  ended  June 30,  1999,  1998 and 1997 was
       $180,000, $136,000, and $78,000, respectively.


12    FOREIGN EXCHANGE CONTRACTS

      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 purposes 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.

      EXCHANGE RATE SENSITIVITY

      The table  below  summarizes  information  on  foreign  currency  exchange
      contracts.  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
                                       ----------------           ----------

      FOREIGN CURRENCY EXCHANGE
      CONTRACTS

      JUNE 30, 1999
        (Receive(pound)/pay Euro)      July 9, 1999
        Contract amount                (pound)1,000              (pound)1,027
        Average contractual
          exchange rate                1.5635 Euro/(pound)1

        (Receive(pound)/pay Euro)      July 12, 1999
        Contract amount                (pound)1,000              (pound)1,015
        Average contractual
          exchange rate                1.546 Euro/ (pound)1





                                      F-19
<PAGE>
               EUROPEAN MICRO HOLDINGS, INC. AND ITS SUBSIDIARIES

                 Notes to the Consolidated Financial Statements (continued)

12    FOREIGN EXCHANGE CONTRACTS (CONTINUED)

      EXCHANGE RATE SENSITIVITY (CONTINUED)

      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.

      Foreign  exchange  losses,  net were  $579,000,  $510,000 and $157,000 for
      years ending June 30, 1999, 1998 and 1997, respectively.

13    RELATED PARTY INFORMATION

      RELATED PARTY TRANSACTIONS

      The Company  has  belonged to a group of related  companies  called  Micro
      Computer Center Group (the "Group"). The Group is comprised of the Company
      and its  subsidiaries,  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 the  Company,  John B.  Gallagher  and/or  Harry D.  Shields  and their
      families.

      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 the Company 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 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 the  Company  and these  parties  would not buy at
      higher prices.

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

                                            YEARS ENDED JUNE 30,
                                      -------------------------------
                                          1999      1998       1997
                                          ----      ----       ----
      SALES
      American Micro Computer Center   $7,356    $9,875         $66
      Technology Express                7,984    19,217          (2)
      Ameritech Argentina                   -         -          90
                                        ------    ------     ------
                                       $15,340   $29,092       $154
                                        ======    ======     ======
      PURCHASES
      American Micro Computer Center   $1,339      $507      $1,092
      Technology Express               15,559     8,749      20,717
      Ameritech Exports                     -         -         848
                                        ------    ------     ------

                                       $16,898    $9,256    $22,657
                                        ======    ======     ======




                                      F-20
<PAGE>
               EUROPEAN MICRO HOLDINGS, INC. AND ITS SUBSIDIARIES

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



13    RELATED PARTY INFORMATION (CONTINUED)

      RELATED PARTY TRANSACTIONS (CONTINUED)

      OPERATING EXPENSES

      CONSULTANCY FEES
      American Micro Computer Center          $-      $45       $60
      Technology Express                       -       45        60
                                          ------   ------    ------
                                               -       90       120
                                          ------   ------    ------
      Management fees
      Technology Express                       -       14        16
                                          ------   ------    ------

      Recharged consultancy fees
      American Micro Computer Center           -        -      (27)
      Technology Express                       -        -      (27)
      Ameritech Argentina                      -        -      (13)
      Ameritech Exports                        -        -      (14)
                                          ------   ------    ------
                                               -        -      (81)
                                          ------   ------    ------
                                              $-     $104       $55
                                          ======   ======    ======


      "Recharged consultancy fees" represent the consultancy fees charged by Mr.
      Gilbert to European  Micro Plc,  before he was  appointed as a director of
      the same, which have been recharged to the related  companies on the basis
      of the work  completed  by Mr.  Gilbert  with  respect  to  those  related
      parties.

      DUE FROM/TO RELATED PARTIES

      a) Due from related parties consists of the following (in thousands):

                                                JUNE 30,
                                         -----------------------
                                             1999       1998
                                             ----       ----

      American Micro Computer Center         $974         $54
      Technology Express                      154         844
                                           ------        ----
                                           $1,128        $898
                                           ======        ====




                                      F-21
<PAGE>
               EUROPEAN MICRO HOLDINGS, INC. AND ITS SUBSIDIARIES

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

13    RELATED PARTY INFORMATION (CONTINUED)

      DUE FROM/TO RELATED PARTIES (CONTINUED)

      b) Due to related parties consists of following (in thousands):

                                                JUNE 30,
                                        -------------------------
                                            1999       1998
                                            ----       ----

      American Micro Computer Center         $3          $12
      Technology Express                    630          226
                                           ----         ----
                                           $633         $238
                                           ====         ====


      FACILITIES AND EQUIPMENT

      The Company  utilizes  approximately  700 square feet of office  space and
      certain equipment owned or leased by Technology Express and American Micro
      Computer Center for which it is not charged a fee.

      NATURE OF RELATED PARTY RELATIONSHIPS

      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
      Company's  initial public  offering  ("Offering"))  in the company was the
      president of American Micro Computer  Center and owned 50% of the stock in
      that company. See note 17.

      TECHNOLOGY EXPRESS, INC.

      Until  1996,  Technology  Express,  Inc.  was a  full  service  authorized
      reseller of computers and related products based in Nashville,  Tennessee,
      selling  primarily  to  end-users.  Technology  Express,  Inc. 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  after the  Offering)  of European
      Micro is president of Technology  Express and owns 100% of the outstanding
      shares of common stock of that company.

      AMERITECH ARGENTINA SA

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

      AMERITECH EXPORTS INC.

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




                                      F-22
<PAGE>
               EUROPEAN MICRO HOLDINGS, INC. AND ITS SUBSIDIARIES

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


14    SEGMENT INFORMATION

      The  Company  operates  predominately  in a single  industry  segment as a
      wholesale distributor of computer-based  technology products and services.
      Geographic  areas in which the  Company  operates  include  North  America
      (United States and Canada), Europe (Austria,  Belgium,  Denmark,  Finland,
      France,  Germany,  Great  Britain,   Greece,   Holland,   Ireland,  Italy,
      Luxembourg,  the  Netherlands,  Portugal,  Spain,  and Sweden),  and Other
      (Singapore).  The  Company's  reportable  operating  segments are based on
      geographic  location  generating  the revenue,  and the measure of segment
      profit is income from operations.  The accounting policies of the segments
      are the  same  as  those  described  in Note 2 -  Summary  of  Significant
      Accounting Policies.

      Financial information by geographic segments is as follows (in thousands):

                                             YEARS ENDED JUNE 30,
                               --------------------------------------------
                                        1999         1998           1997
                                        ----         ----           ----
      NET SALES:

      North America            $     48,994    $    3,559    $          -
      Europe                         70,262       107,894          46,655
      Other                          12,950             -               -
                                  -----------------------------------------
           Total               $    132,206   $   111,453   $      46,655
                                  -----------------------------------------

      INCOME (LOSS) FROM
      OPERATIONS:
      North America            $     (1,293)  $     (212)   $          -
      Europe                          3,340        7,444          2,051
      Other                            (112)            -              -
                                  -----------------------------------------
           Total               $      1,935  $     7,232   $      2,051
                                  -----------------------------------------

      IDENTIFIABLE ASSETS:
      North America            $     10,594  $     8,645   $          -
      Europe                         19,334       10,559          8,844
      Other                             671            -              -
                                  -----------------------------------------
           Total               $     30,599  $    19,204   $      8,844
                                  -----------------------------------------

      The following table summarizes purchases from major suppliers in excess of
      10% for the period as a percentage of total purchases:

                                           YEARS ENDED JUNE 30,
                                      ------------------------------
                                         1999      1998      1997
                                         ----      ----      ----

      Related party
        Technology Express               12.7%         -     51.1%

      Third parties
        Supplier  A                      10.3%     38.9%         -
                  B                          -     14.0%         -
                  C                          -     10.0%         -
                  D                      10.9%         -         -



                                      F-23
<PAGE>
               EUROPEAN MICRO HOLDINGS, INC. AND ITS SUBSIDIARIES

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


14    SEGMENT INFORMATION  (CONTINUED)

      The following table  summarizes  sales to major customers (sales in excess
      of 10% for the period) as a percentage of total sales:

                                         YEARS ENDED JUNE 30,
                                     ------------------------------
                                       1999      1998      1997
                                       ----      ----      ----

      RELATED PARTY
        Technology Express                -      17.2%        -

      The  Company did not have any  customers  with sales in excess of 10% as a
      percentage of total sales in the years ended June 30, 1999 or 1997.

15    STOCKHOLDERS' EQUITY, STOCK OPTIONS AND INCENTIVE PLANS

      CAPITALIZATION OF RETAINED EARNINGS

      In  December  1996  retained   earnings   amounting  to  $1,498,000   were
      capitalized as Additional paid-in capital, pursuant to the requirements to
      re-register the main trading  company  European Micro Plc as a plc company
      in the United Kingdom.

      EMPLOYEE STOCK PURCHASE PLAN

      In January 1998,  European Micro Holdings,  Inc. adopted the 1998 Employee
      Stock Purchase Plan ("the employee plan"). A total of 50,000 common shares
      have been  reserved for issuance  under the plan.  The shares issued under
      the employee  plan will be purchased at 85% of market value or such higher
      percentage  (not in excess of 100%) as may be  established by the employee
      plan committee.  The employee plan shall remain in effect until terminated
      by an action of the Board. No shares had been issued at June 30, 1999.

      STOCK INCENTIVE PLAN

      In January 1998,  European  Micro  Holdings,  Inc.  adopted the 1998 Stock
      Incentive  Plan (the "Plan").  A total of 500,000  common shares have been
      reserved  for issuance  under the Plan.  The  committee  may grant to such
      participants   as  the   committee  may  select   options   entitling  the
      participants  to purchase  shares of common  stock for the Company in such
      numbers,  at such prices and on such terms and subject to such conditions,
      consistent  with  the  terms of the  Plan,  as may be  established  by the
      committee.  The Plan shall remain in effect until  terminated by an action
      of the Board.

      The per share weighted  average fair value of stock options granted during
      1999 and 1998 were $8.09 and $6.31,  respectively.  The preceding  results
      were calculated with the use of the  Black-Scholes  option-pricing  model.
      The  assumptions  were used for the years  ended  June 30,  1999 and 1998,
      respectively: (1) risk-free interest rates of 4.68% and 5.5%; (2) dividend
      yield of 0.0%;  (3) expected  lives of 7 years;  and (4) volatility of 84%
      and 57%. Results may vary depending on the assumptions  applied within the
      model.

      The Company  applies APB  Opinion No. 25 in  accounting  for its plan and,
      accordingly,  no  compensation  cost has  been  recognized  for its  stock
      options issued to employees with a stock price at market value on the date
      of  grant  in the  consolidated  financial  statements.  Had  the  Company
      determined  compensation cost based on the fair value of the date of grant
      for its stock  options  under SFAS No. 123, the Company's net income would
      have been reduced to the pro forma amounts  indicated below (in thousands,
      except per share data):




                                      F-24
<PAGE>
               EUROPEAN MICRO HOLDINGS, INC. AND ITS SUBSIDIARIES

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


15    STOCKHOLDERS' EQUITY, STOCK OPTIONS AND INCENTIVE PLANS (CONTINUED)

      STOCK INCENTIVE PLAN (CONTINUED)

                                                   YEARS ENDED JUNE 30,
                                    -----------------------------------------
                                            1999          1998          1997
                                            ----          ----          ----
      NET INCOME:
            As reported                     $854        $4,485        $1,034
            Pro forma                       $466        $4,431        $1,034

      EARNINGS PER SHARE - BASIC:
            As reported                    $0.17         $1.10         $0.26
            Pro forma                      $0.09         $1.09         $0.26

      EARNINGS PER SHARE - DILUTED:
            As reported                    $0.17         $1.10         $0.26
            Pro forma                      $0.09         $1.08         $0.26


      Compensation cost arising during the year ended June 30, 1999 and June 30,
      1998 in relation to stock options granted to non-employees during the year
      amounted to $202,000 and  $28,000,  respectively.  The vesting  period for
      stock options granted to non-employees varies between 1 and 6 years.

      A summary of the Company's stock option plan is as follows:

                                                  1999                 1998
                                   ------------------------------------------
                                               WEIGHTED            WEIGHTED
                                               AVERAGE    NUMBER   AVERAGE
                                    NUMBER OF  EXERCISE   OF       EXERCISE
                                       SHARES     PRICE    SHARES     PRICE

      Outstanding  at beginning of    294,000    $10.00         -
        year
      Granted                          45,000    $10.51   294,000    $10.00
      Exercised                             -                   -
      Forfeited                             -                   -
                                      -------             -------
      OUTSTANDING AT YEAR END         339,000    $10.07   294,000    $10.00

      Available  for grant at year    161,000             206,000
        end





                                      F-25
<PAGE>
               EUROPEAN MICRO HOLDINGS, INC. AND ITS SUBSIDIARIES

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

15    STOCKHOLDERS' EQUITY, STOCK OPTIONS AND INCENTIVE PLANS  (CONTINUED)

      OPTIONS OUTSTANDING (CONTINUED)

      A summary of the options outstanding at June 30, 1999 is presented below:

                     OPTIONS OUTSTANDING                    OPTIONS EXERCISABLE
     ---------------------------------------------------------------------------
                      NUMBER     WEIGHTED      WEIGHTED       NO.       WEIGHTED
        RANGE OF    OUTSTANDING   AVERAGE      AVERAGE    EXERCISABLE   AVERAGE
        EXERCISE    AT 6/30/99   REMAINING     EXERCISE   AT 6/30/99    EXERCISE
         PRICES                    LIFE         PRICE                    PRICE

  $9.1875 - $12.00     339,000         8.9       $10.07        45,000     $10.00


16    EARNINGS PER SHARE

                                             YEARS ENDED JUNE 30,
                                        --------------------------------
      EARNINGS                                1999       1998      1997
                                              ----       ----      ----

      Net income (in thousands)              $854      $4,485    $1,034
                                             ====      ======    ======



      WEIGHTED AVERAGE NUMBER OF SHARES

      Outstanding common stock during    4,933,900  4,066,524 4,000,000
        the period
      Contingently issuable shares          44,714          -         -
                                         ---------  --------- ---------
      Basic weighted average number of   4,978,614  4,066,524 4,000,000
      shares

      Effect of dilutive stock options
      and other contingent shares           11,347     20,942         -
                                         ---------  --------- ---------
      DILUTED WEIGHTED AVERAGE NUMBER    4,989,961  4,087,466 4,000,000
      OF SHARES                         ========== ========== =========

      Basic earnings per share               $0.17      $1.10    $0.26
                                        ========== ========== =========

      Diluted earning per share              $0.17      $1.10    $0.26
                                        ========== ========== =========


      During  the  year-ended  June 30,  1999,  the  Company  issued  options to
      purchase 45,000 shares of its common stock at exercise prices ranging from
      $9.19 to $12.00. The above dilutive earnings per share calculations in the
      year-ended  June 30, 1999 exclude the effect of options to purchase 30,000
      shares of common  stock at exercise  prices  ranging from $10.25 to $12.00
      per share  because  they were  anti-dilutive.  Also see Note 7 related  to
      contingently  issuable  shares  related to an  acquisition.  The effect of
      contingent  shares related to the guaranteed  earn-out  amount not paid at
      the  closing of the  Sunbelt  acquisition  and the effect of  satisfactory
      completion of part of the first  contingent  earn-out has been included in
      the above basic earnings per share calculations. However, the remainder of
      the first contingent  earn-out and all of the second  contingent  earn-out
      are not included,  as the conditions  necessary for such contingent shares
      to be issued have not been met as of June 30, 1999.


                                      F-26
<PAGE>
               EUROPEAN MICRO HOLDINGS, INC. AND ITS SUBSIDIARIES

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

17    SUBSEQUENT EVENTS (UNAUDITED)

      On  February  2,  1999,  the  Company's  Board  of  Directors   formed  an
      Acquisition  Committee  consisting  solely  of  independent  directors  to
      evaluate and determine  whether the Company should acquire  American Micro
      Computer  Center and, if so, on what terms.  The members of the  committee
      are  Kyle  R.  Saxon  and  Barrett  Sutton.  John B.  Gallagher,  who is a
      significant shareholder,  Co-Chairman and Co-President of the Company, was
      the President and a Director of American Micro  Computer  Center and owned
      fifty percent of its outstanding  capital stock.  Frank Cruz, who is Chief
      Operating  Officer of the  Company,  was an  employee  of  American  Micro
      Computer   Center  since  1994.   He  is  currently  an  employee  of  the
      newly-formed,  wholly-owned  subsidiary  of the Company  formed to acquire
      American Micro Computer Center.  The committee's  charter authorized it to
      take any action it deemed  necessary to properly  evaluate  and  determine
      whether  the  Company  should  acquire  American  Micro  Computer  Center,
      including  hiring   independent   advisors  and  ensuring  that  any  such
      transaction  is entirely  fair to the Company  and its  shareholders.  The
      committee  hired  independent  legal counsel and an independent  financial
      advisor.  Prior to consummating this transaction,  the Company received an
      opinion from the independent financial advisor that the consideration paid
      in connection with the transaction was fair from a financial point of view
      to the  Company's  shareholders.  Effective  July  1,  1999,  the  Company
      acquired American Micro Computer Center.

      The  transaction  was  structured as a merger of American  Micro  Computer
      Center  with and into the  newly-formed,  wholly-owned  subsidiary  of the
      Company and was  accounted  for as a purchase.  Upon  consummation  of the
      merger,  this  subsidiary's  name was changed to American  Micro  Computer
      Center,  Inc. The purchase price for American  Micro  Computer  Center was
      equal to $940,660,  plus an earn-out  amount  payable in cash or shares of
      the  Company's  Common Stock (at the  Company's  discretion)  equal to two
      times the after-tax  earnings of American Micro Computer  Center,  Inc. in
      calendar year 1999 and two times the after-tax  earnings of American Micro
      Computer  Center,  Inc. in calendar year 2000. The portion of the purchase
      price paid at closing was funded  through the Company's  working  capital.
      The  earn-out  portion  of the  purchase  price is  expected  to be funded
      through the Company's  working capital or the issuance of shares of common
      stock. In addition,  the Company  assumed all outstanding  indebtedness of
      American  Micro  Computer  Center,  including  a  shareholder  loan in the
      approximate amount of $289,000. This loan is owed to the father of John B.
      Gallagher.  If the Company elects to pay any portion of the purchase price
      in shares of the Company's  Common Stock,  then  American  Micro  Computer
      Center's  shareholders have fifteen days to make arrangements to sell such
      shares  over the  next  forty  trading  days.  If the sale of such  shares
      results in net proceeds of less than the purchase price,  then the Company
      will  pay the  difference  in cash to  American  Micro  Computer  Center's
      shareholders. The Company is in the process of determining the fair market
      value of the assets and  liabilities  acquired  and the amount of goodwill
      has not been determined.

      On July 16, 1999, European Micro UK purchased the office building in which
      they had  previously  been leasing  space for  1,705,000  pounds  sterling
      ($2,693,000 at June 30, 1999).  The purchase price was financed in part by
      a loan in the amount of 1,300,000 pounds  sterling($2,053,000  at June 30,
      1999) at an annual interest rate of 7.6%, payable over ten years.




                                      F-27
<PAGE>


                                 EXHIBIT INDEX


EXHIBIT           DESCRITPION
-------           -----------

2.02              Merger Agreement dated June 29, 1999 by and among the Company,
                  American Micro, AMCC and the shareholders of AMCC

2.03              Plan of Merger dated June 29, 1999

2.04              Articles of Merger dated June 29, 1999

10.21             Employment  Agreement  dated  July  1,  1999  by  and  between
                  American Micro and John B. Gallagher

23.01             Consents of Independent Accountants

27.01             Financial Data Schedule