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, 1998

                                       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 
of Incorporation or Organization)                        Identification Number)

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 1, 1998 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 1, 1998. 

                      DOCUMENTS INCORPORATED BY REFERENCE

         Parts of the definitive proxy or information statement for the 1998
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 AND (D) THE COMPANY'S FUTURE
FINANCING PLANS. 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, THE FINANCIAL CONDITION OF THE COMPANY'S CUSTOMERS, THE ABILITY TO
OBTAIN COMPUTER PRODUCTS FROM THE COMPANY'S TRADITIONAL SUPPLIERS, DEMAND FOR
THE COMPANY'S PRODUCTS AND OTHER FACTORS. IN LIGHT OF THESE RISKS AND
UNCERTAINTIES, THERE CAN BE NO ASSURANCE THAT THE FORWARD-LOOKING STATEMENTS
CONTAINED IN THIS ANNUAL REPORT WILL IN FACT OCCUR. THE COMPANY DOES NOT
UNDERTAKE ANY OBLIGATION TO PUBLICLY RELEASE THE RESULTS OF ANY REVISIONS TO
THESE FORWARD-LOOKING STATEMENTS THAT MAY BE MADE TO REFLECT ANY FUTURE EVENTS
OR CIRCUMSTANCES.

         UNLESS THE CONTEXT OTHERWISE REQUIRES AND EXCEPT AS OTHERWISE
SPECIFIED, REFERENCES HEREIN TO "EUROPEAN MICRO" OR THE "COMPANY" INCLUDE
EUROPEAN MICRO HOLDINGS, INC. AND ITS TWO WHOLLY-OWNED SUBSIDIARIES, EUROPEAN
MICRO PLC, A PUBLIC LIMITED COMPANY ORGANIZED UNDER THE LAWS OF THE UNITED
KINGDOM ("EUROPEAN MICRO UK"), AND NOR'EASTER MICRO, INC., A NEVADA CORPORATION
("NOR'EASTER") (COLLECTIVELY, THE TWO WHOLLY-OWNED SUBSIDIARIES ARE REFERRED TO
AS THE "SUBSIDIARIES").

         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 related parties in the
United States. The Company's customers consist of more than 375 value-added
resellers, corporate resellers, retailers, direct marketers and distributors.
The Company does not sell to end-users. Substantially all of the products sold
by the Company are manufactured by well-recognized manufacturers such as IBM,
Compaq and Hewlett-Packard, although the Company generally does not obtain its
inventory directly from such manufacturers. European Micro monitors the
geographic pricing strategies related to such products, currency fluctuations
and product availability in order to obtain inventory at favorable prices from
other distributors, resellers and wholesalers.

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

         European Micro Holdings, Inc. was organized under the laws of the State
of Nevada and is the parent of Nor'easter and European Micro UK. Nor'easter was
organized under the laws of the State of Nevada on December 26, 1997 to serve as
an independent distributor of microcomputer products in the United States.
European Micro UK was organized under the laws of the United Kingdom in 1991 to
serve as an independent distributor to customers mainly in Western Europe and to
related parties in the United States. On January 31, 1998, European Micro
Holdings, Inc. acquired one hundred percent (100%) of the issued and outstanding
shares of ordinary stock of European Micro UK in consideration for the issuance
of 4,000,000 newly issued shares of common stock, par value $0.01 per share (the
"COMMON STOCK"), of European Micro Holdings, Inc. The 4,000,000 shares of Common


                                       2
<PAGE>

Stock of European Micro Holdings, Inc. has been issued to the shareholders of
European Micro UK on a pro rata basis in accordance with such shareholders'
respective ownership interests 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 (formerly known
as European Micro Computer Center GmbH) ("EUROPEAN MICRO GERMANY"). European
Micro Germany was organized under the laws of Germany in 1993 and operates as a
sales office in Dusseldorf, Germany. All products sold by European Micro Germany
are procured and shipped from the facilities of European Micro UK. European
Micro UK has a 50% joint venture interest in Big Blue Europe, B.V. ("BIG BLUE
EUROPE") which was formed in January 1997. Big Blue Europe was organized under
the laws of Holland and is a computer parts distributor with offices located
near Amsterdam, Holland. Selling primarily to computer maintenance companies,
Big Blue Europe has experienced growth in sales and the Company believes that
Big Blue Europe is positioned to participate in the relatively high margin parts
after-market industry. Big Blue Europe has no affiliation with International
Business Machines Corporation.

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

                         EUROPEAN MICRO HOLDINGS, INC.
                              Miami, Florida, USA


                100%                                         100%  
             NOR'EASTER                               EUROPEAN MICRO UK
     Seabrook, New Hampshire, USA                    Manchester, England
     Computer Hardware Distributor              Computer Hardware Distributor

                                           100%     EUROPEAN MICRO GERMANY
                                                      Dusseldorf, Germany
                                                Computer Hardware Distributor

                                            50%         BIG BLUE EUROPE
                                                       Amsterdam, Holland 
      Figures denote                              New and Used Computer Parts
        ownership                                         Distributor


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


                                       3
<PAGE>

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,
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.

         European Micro 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. For comparison purposes, these companies had reported in
recent filing with the Securities and Exchange Commission the following gross
margins. CHS Electronics, Inc. had a gross margin of 7.3% for the year ended
December 31, 1997. Ingram Micro, Inc. had a gross margin of 6.5% for the fiscal
year ended January 3, 1998. Inacom Corp. had a gross margin of 10.3% (including
margins earned from computer and communications services) for the fiscal year
ended December 27, 1997. Tech Data Corporation had a gross margin of 6.6% for
the fiscal year ended January 31, 1998. As discussed more fully in the
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations," the Company had a gross margin of 12.9% in the fiscal year ended
June 30, 1998. There can be no assurance that the Company will be able to
maintain this level of gross margin in any future period.

         The Company believes that the microcomputer products industry is
ideally 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. The Company believes the need for distributors in the
microcomputer industry will continue to grow. It also believes that more
manufacturers are using distributors as declining hardware prices, coupled with
rising selling costs, make it difficult for manufacturers to efficiently deal
directly with resellers.

STRATEGY

         European Micro's objectives are to continue to strengthen its position
as a distributor of microcomputer products within Western Europe. It also
proposes to expand its operations into the United States, Asia, Eastern Europe,
and to a lesser extent, the Middle East and Africa. 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 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 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 focused product
lines. The Company intends that any acquisitions will adopt its policies and
financial reporting procedures but operate as autonomous business units.


                                       4
<PAGE>

         In September 1998, European Micro UK agreed in principle to acquire all
of the issued and outstanding capital stock of Sunbelt (UK) Ltd., a company
registered in England and Wales ("SUNBELT"), from its shareholders, whereby
Sunbelt will become a wholly-owned subsidiary of European Micro UK. The
agreement is conditioned upon the parties negotiating and entering into a
definitive agreement. Sunbelt is an independent distributor of computer products
mainly in the United Kingdom. The shareholders of Sunbelt will receive cash and
newly-issued shares of common stock of European Micro Holdings, Inc. ("EMCC
SHARES"). The purchase price will be payable as follows: (i) a cash payment at
the closing equal to the sum of (a) the book value of Sunbelt on June 30, 1998,
plus (b) one and two-tenths (1.2) times the pre-tax earnings of Sunbelt for the
year ended June 30, 1998; (ii) a cash payment or the issuance of EMCC Shares (at
the Company's discretion) on or before December 31, 1999 equal to the sum of (a)
four-tenths (.4) times the pre-tax earnings of Sunbelt for the year ended June
30, 1998, plus (b) up to one (1) times the pre-tax earnings of Sunbelt for the
year ended June 30, 1998 (subject to the satisfaction of certain performance
criteria); and (iii) a cash payment or the issuance of EMCC Shares (at the
Company's discretion) on or before December 31, 2000 equal to the sum of (a)
four-tenths (.4) times the pre-tax earnings of Sunbelt for the year ended June
30, 1998, plus (b) up to one (1) times the pre-tax earnings of Sunbelt for the
year ended June 30, 1998 (subject to the satisfaction of certain performance
criteria).

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

         FURTHER DEVELOP NEW INTERNATIONAL MARKETS. European Micro has, to date,
focused its activities on the distribution of microcomputer products in Western
Europe and to related parties in the United States. However, the Company
believes that new opportunities are emerging in Asia and Eastern Europe, and to
a lesser extent, the Middle East and Africa as well as more mature markets such
as North America. 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.

         INTERNET PRODUCTS. European Micro plans to address directly the demand
for internet-oriented products. The Company has received distribution rights to
distribute firewall products manufactured by WatchGuard Technologies, Inc.
throughout Europe. The Company intends to seek to acquire distribution rights in
other internet oriented products and to enhance its technical capability by
recruiting qualified personnel.

PRODUCTS AND CUSTOMERS

         European Micro'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 375 value-added resellers, corporate resellers,
retailers, direct marketers and distributors. The Company anticipates the
continued expansion of its customer database as the Premier Dealers Club and
Internet Services Division add new products and services. For the year ended
June 30, 1998, the Company's product mix by category was storage products
(approximately 60%), networking (approximately 11%), memory (approximately 11%),
system units (approximately 6%) and other (approximately 12%). For the year
ended June 30, 1998, the five best selling products accounted for 56% of
European Micro's net sales. These products generally have short life cycles as
technological obsolescence ensures that the end-user must constantly update
hardware for new technology. In order to reduce its exposure to obsolescence,
European Micro strives to achieve a continually high rate of inventory turnover.

         European Micro 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 

                                       5
<PAGE>


manufacturers than the 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.

         European Micro's customers typically rely on distributors as their
principal source of microcomputer products. The Company finances a significant
portion of its total sales on trade credit. In order to minimize the risk
associated with such credit, European Micro UK has sought to insure
substantially all of its accounts receivable. For the fiscal year ended June 30,
1997, no single customer accounted for more than approximately 8.5% of European
Micro's total net sales. For the fiscal year ended June 30, 1998, Technology
Express, Inc. ("TECHNOLOGY EXPRESS"), a company wholly-owned by Harry D.
Shields, Co-President, Co-Chairman and a Director of the Company, accounted for
17.2% of net sales. Other than Technology Express, 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 is
not considered material to its business.

         During the fiscal year ended June 30, 1998, European Micro set up an
Internet Services Division to address the demand for internet oriented products.
It also entered into a Master Distribution Agreement with WatchGuard
Technologies, Inc. to distribute its WatchGuard range of firewall products
throughout Europe. These products have enjoyed extensive press coverage in the
industry. European Micro intends to seek to acquire distribution rights in other
internet-oriented products and to enhance its technical capability by recruiting
qualified personnel.

         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 and Argentina. With the addition of Nor'Easter in the United States, the
Company expects its sales to third parties in the United States to increase. The
following table sets forth the Company's net sales for each of the last three
fiscal years attributable to its geographic area and the amount of export sales:

                                             ($ IN THOUSANDS)
                                           YEAR ENDED JUNE 30,

<TABLE>
<CAPTION>
COUNTRY                 1996               %          1997              %          1998               %
--------                ----               -          ----              -          ----               -

<S>                    <C>                <C>          <C>            <C>         <C>                <C> 
Argentina              $   --              0.0%        $90             0.2%       $   --              0.0%
Austria                    49              0.1          --             0.0           316              0.3
Belgium                   450              1.1       1,496             3.2         1,568              1.4
Germany                11,305             28.0       8,282            17.7        13,476             12.1
Denmark                   977              2.4       1,402             3.0         5,182              4.7
Spain                     185              0.5          35             0.1            14              0.0
Finland                   157              0.4         696             1.5         1,859              1.7
France                  2,700              6.7       4,173             8.9         6,219              5.6
Great Britain          11,876             29.4      21,050            45.1        30,712             27.5
Ireland                   126              0.3         642             1.4         1,132              1.0
Italy                       7              0.0          26             0.1            58              0.0
Luxembourg                 39              0.1          40             0.1           151              0.1
Netherlands             8,230             20.4       4,653            10.0        10,168              9.2
Portugal                  507              1.3          71             0.2           105              0.1
Sweden                  1,246              3.1       1,582             3.4         1,137              1.0
USA                       436              1.1          64             0.1        30,999             27.8
Other                   2,058              5.1       2,353             5.0         8,357              7.5
                        -----            -----       -----           -----         -----            -----

Total Net Sales       $40,348           100.0%     $46,655          100.0%      $111,453           100.0%
                      =======           ======     =======          ======      ========           ======
</TABLE>


                                       6
<PAGE>


         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

         European Micro 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 affect on its operations. 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
(36.2% excluding Technology Express). 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 (except for the Master
Distribution Agreement with WatchGuard Technologies, Inc.). 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 European
Micro. 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 the order have not been met. From time to time the
Company experiences delivery delays and inventory shortages. The Company
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, European Micro has paid for a significant amount of
product on delivery, a practice which leads to lower prices and earlier delivery
dates. European Micro'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 European Micro 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 products in the United States or, if, at that time, the Company is
already selling products in the United States, cease selling products in the
United States.

         Recently, a trademark owner was successful in prohibiting the
importation of trademarked goods into the European Economic Area (the "EEA").
These trademarked goods had been sold by the trademark owner to a 

                                       7
<PAGE>

distributor located outside the EEA on the condition that such goods not be
imported into the EEA. The Company is in the process of evaluating whether this
decision will have any impact on the Company's business. Historically, the
Company has obtained a significant amount of its inventory from outside the EEA.
Any disruption of the Company's ability to source products from outside the EEA
will have a material adverse affect 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 European Micro operates, the Company
employs a sales staff conversant in English, German, Spanish, Italian, French
and Dutch and with a general knowledge of the applicable markets. Oversight and
strategic direction are provided by senior management of the Company.

         SALES. European Micro markets its products to distributors and
resellers, not end-users. As of June 30, 1998, the Company distributed products
to more than 375 value-added resellers, corporate resellers, retailers, direct
marketers and distributors. The Company's customers typically place orders with
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. European Micro'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
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

         European Micro is attempting to build a brand name in the microcomputer
industry. To that end, European Micro 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:


                                       8
<PAGE>

<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          Community
                                                                                                 Trademark
                                                                                                 application

European Micro Plc & Logo       9       2119204     European Micro UK          12-20-96          U.K. Trademark
                                                                                                 granted

Premier Dealers Club &          9       2152310     European Micro UK          11-29-97          U.K. Trademark
Logo                                                                                             application

Premier Dealers Club &          9       695072      European Micro UK          12-1-97           Community
Logo                                                                                             Trademark
                                                                                                 application
</TABLE>

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

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

EMPLOYEES

         On September 1, 1998, European Micro UK had thirty-three full-time
employees in the United Kingdom. European Micro Germany had four full-time
employees in Germany. Nor'easter had four full-time employees in the United
States. Big Blue Europe had eighteen full-time employees in Holland. European
Micro Holdings, Inc. had four employees in the United States. Of the total
number of full-time employees, twenty-eight work in marketing and sales, nine
work in warehousing and delivery and twenty-six 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.

RESEARCH AND DEVELOPMENT

         The Company has not incurred material expenditures on research and
development during any of the last three fiscal years.

ENVIRONMENTAL REGULATION

         The Company did not make any material expenditures in the fiscal year
ended June 30, 1998 in complying with applicable environmental regulations. The
Company believes that compliance with applicable environmental regulations will
not require any material capital expenditures in fiscal 1999.

CERTAIN BUSINESS RISK FACTORS

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


                                       9
<PAGE>

NO CONTRACTS OR DISTRIBUTION AGREEMENTS WITH SUPPLIERS

         The Company is an independent distributor of personal computers and
related products. With only one exception, 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 affect 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, Technology Express in Nashville,
Tennessee, 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. in Miami, Florida ("AMERITECH EXPORTS") and Ameritech
Argentina S.A. in Buenos Aires, Argentina ("AMERITECH ARGENTINA"). Harry D.
Shields is the sole owner of Technology Express and, until August 1, 1997, had
an ownership interest in Ameritech Exports and Ameritech Argentina. John B.
Gallagher has a minority ownership interest in American Micro Computer Center
and, until August 1, 1997, had an ownership interest in Ameritech Exports and
Ameritect 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 amount of these fees is
set forth in the "Certain Relationships and Related Transactions" section of
this filing.

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

<TABLE>
<CAPTION>
                                                          ($ IN THOUSANDS)

                                                        YEAR ENDED JUNE 30,
                                                    1996          1997          1998
                                             ---------------- ------------- -------------
<S>                                                 <C>            <C>        <C>   
SALES TO GROUP MEMBERS
American Micro Computer Center                      $306            66        $9,875
Technology Express                                   104           (2)        19,217
Ameritech Argentina                                    -            90            --
Ameritech Exports                                     26             -            --
                                             ---------------- ------------- -------------
                                                    $436           154       $29,092
                                             ================ ============= =============
</TABLE>

                                       10
<PAGE>

<TABLE>
<CAPTION>
                                                          ($ IN THOUSANDS)

                                                        YEAR ENDED JUNE 30,
                                                    1996          1997          1998
                                             ---------------- ------------- -------------
<S>                                               <C>           <C>            <C> 
PURCHASES FROM GROUP MEMBERS
American Micro Computer Center                    $2,289         1,092          $507
Technology Express                                14,890        20,717         8,749
Ameritech Argentina                                    -             -            --
Ameritech Exports                                  1,116           848            --
                                             ================ ============= =============
                                                 $18,295        22,657        $9,256
                                             ================ ============= =============
</TABLE>

         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 affect on the Company's business, financial condition and
results of operations.

RISKS ASSOCIATED WITH INTERNATIONAL SALES

         European Micro'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 expected expansion
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 could have a material
adverse affect on the Company's business, financial condition and results of
operations.

RISK OF CURRENCY FLUCTUATIONS

         With the exception of the fiscal year ended June 30, 1998, a
significant amount of European Micro's sales has historically been to customers
outside of the United States. A majority 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 affect on the Company's business,
financial condition and results of operations.


                                       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
affect on the Company's business, financial condition and results of operations.
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 affect on the Company. The COMPANY
has key-man life insurance policies with respect to these key employees. 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 affect on the Company's business, financial condition and results of
operations.

RELIANCE ON KEY SUPPLIERS

         European Micro does not manufacture any of its own products but rather
resells products purchased from suppliers. For the year ended June 30, 1998, the
Company obtained 87.2% of its products from ten suppliers (80.4% 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
suppliers would have a material adverse affect on the Company's business,
financial condition and results of operations.

RELIANCE ON KEY PRODUCTS

         For the fiscal year ended June 30, 1998, the Company's five best
selling products accounted for 66.8% of its net sales. Accordingly, the
inability of the Company to obtain adequate supplies of products would have a
material adverse affect on the Company's business, financial condition and
results of operations.

RELIANCE ON KEY CUSTOMERS

         For the fiscal year ended June 30, 1998, European Micro's twenty
largest customers (excluding sales to any member of the Group) accounted for
48.4% of the Company's net sales. None of these customers individually accounted
for more than 4.1% of such net sales. However, the Company is highly dependent
upon such customers and the loss of Technology Express or any other such
customer or customers could have a material adverse affect 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,
approximately 27.5% of net sales were attributable to the markets of the United
Kingdom for the year ended June 30, 1998. Decreases in the volume of sales in
such regions or declines in operating margins could have a material adverse
affect 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
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 (the "SHAREHOLDERS AGREEMENT"), Messrs. Gallagher and Shields
agreed to vote 

                                       12
<PAGE>

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.

INABILITY TO MAINTAIN PROFIT MARGINS

         As a result of intense price competition in the microcomputer products
industry, European Micro has had, and expects to continue to have, narrow gross
profit and operating profit margins. These narrow margins magnify the impact on
operating results of variations in sales and operating costs. The Company's
gross margins have declined from 14.2% for the fiscal year ended 1995 to 11% for
the fiscal year 1996, but have climbed to 11.4% and 12.9% in fiscal years 1997
and 1998 respectively. Also, operating margins have declined from 5.5% for the
fiscal year ended 1995 to 3.7% for the fiscal year 1996, but have climbed to
4.4% and 6.5% in fiscal years 1997 and 1998 respectively. The Company has taken
a number of steps intended to address the computer industry's declining margins
including improving and enhancing its information systems and by increasing
sales and reducing operating expenses as a percentage of sales. Even though the
Company has improved the margin percentages over the last two 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."

CUSTOMER CREDIT EXPOSURE

         European Micro sells its products and services to a customer base of
more than 375 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. In
order to minimize the risk associated with such credit, European Micro UK has
sought to insure substantially all of its 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.

ABILITY TO INSURE INVENTORY AGAINST THEFT

         The Company experienced several thefts of inventory in 1997. The
Company insures its inventory against theft and other damage up to a maximum of
the higher of $8,900,000 or the carrying value of the inventory. On June 30,
1998, the carrying value was $1,715,000 and the maximum coverage was $8,900,000.
See "Note 6 of the Notes to Financial Statements." There can be no assurance
that such insurance coverage will adequately compensate the Company for all
losses incurred as a result of theft or other casualty and there can be no
assurance that the Company will be able to find replacement coverage if such
coverage terminates or is otherwise canceled. There can be no assurance that
such coverage will remain available and, if available, at affordable rates. A
loss in excess of the Company's coverage or for which coverage is not available
could have a material adverse affect on the Company's business, financial
condition and results of operations.


                                       13
<PAGE>

RISKS ASSOCIATED WITH ACQUISITIONS

         In September 1998, European Micro UK agreed in principle to acquire all
of the issued and outstanding capital stock of Sunbelt, from its shareholders,
whereby Sunbelt will become a wholly-owned subsidiary of European Micro UK. The
agreement is conditioned upon the parties negotiating and entering into a
definitive agreement. The shareholders of Sunbelt will receive cash and EMCC
Shares. The purchase price will be payable as follows: (i) a cash payment at the
closing equal to the sum of (a) the book value of Sunbelt on June 30, 1998, plus
(b) one and two-tenths (1.2) times the pre-tax earnings of Sunbelt for the year
ended June 30, 1998; (ii) a cash payment or the issuance of EMCC Shares (at the
Company's discretion) on or before December 31, 1999 equal to the sum of (a)
four-tenths (.4) times the pre-tax earnings of Sunbelt for the year ended June
30, 1998, plus (b) up to one (1) times the pre-tax earnings of Sunbelt for the
year ended June 30, 1998 (subject to the satisfaction of certain performance
criteria); and (iii) a cash payment or the issuance of EMCC Shares (at the
Company's discretion) on or before December 31, 2000 equal to the sum of (a)
four-tenths (.4) times the pre-tax earnings of Sunbelt for the year ended June
30, 1998, plus (b) up to one (1) times the pre-tax earnings of Sunbelt for the
year ended June 30, 1998 (subject to the satisfaction of certain additional 
performance criteria).

         European Micro may use a portion of the net proceeds from its initial
public offering for acquisitions of other companies' assets or product lines
that the Company believes would complement or expand its existing business,
including the acquisition of Sunbelt. 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 (including, without limitation, the acquisition of Sunbelt), 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 European Micro 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
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 affect 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 products in the United States or, if, at that
time, the Company is already selling products in the United States, cause the
Company to cease selling products in the United States. Recently, a trademark
owner was successful in prohibiting the importation of trademarked goods into
the European Economic Area (the "EEA"). These trademarked goods had been sold by
the trademark owner to a distributor located outside the EEA on the condition
that such goods not be imported into the EEA. The Company is in the process of
evaluating whether this decision will have any impact on the Company's 


                                       14
<PAGE>

business. Historically, the Company has obtained a significant amount of its
inventory from outside the EEA. Any disruption of the Company's ability to
source products from outside the EEA will have a material adverse affect on the
Company's business, financial condition and results of operations. See "Business
- Sources of Supply."

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 affect 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 affect 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 affect on the Company's business, financial condition and
results of operations.

RISKS ASSOCIATED WITH HOLDING FOREIGN SUBSIDIARIES

         All 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. European Micro Holdings, Inc.'s available cash
will depend upon the cash flow of its Subsidiaries and the ability of those
Subsidiaries 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, have no obligation, contingent or otherwise, to make
funds available to European Micro Holdings, 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 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 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.

                                       15
<PAGE>

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 affect on the Company's business,
financial condition and results of operations.

NEED FOR ADDITIONAL CAPITAL

         European Micro has historically grown through internal expansion, which
has resulted in the need for significant amounts of capital or financing which
often has been provided by the Company's founding shareholders. To maintain
historical levels of growth, European Micro 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. There can be no assurances that the founding
shareholders will continue to extend credit to the Company. Adequate funds may
not be available when needed or may not be available on terms favorable to
European Micro. 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, European Micro 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 affect 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 affect on the Company's business and financial condition. If funding is
insufficient, European Micro may be required to delay, reduce the scope of or
eliminate some or all of its expansion plans. This would have a material adverse
affect of the Company's business, financial condition and results of operations.

VARIABILITY OF CUSTOMER REQUIREMENTS

         The level and timing of orders placed by European Micro's customers
vary due to a number of factors, including customer attempts to manage
inventory, changes in customers' business strategies and variations in demand
for products. European Micro 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. European Micro does not have long term
contracts with its customers. As such, nothing would prohibit European Micro's
customers from reducing or eliminating their orders with European Micro 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 affect on European Micro's business, financial condition and
results of operations.

COMPETITION

         European Micro 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 European Micro's 


                                       16
<PAGE>

competitors have greater financial, marketing, service and technical support
resources than European Micro and may sell products at prices below those
charged by European Micro. There can be no assurance that European Micro's
resources will be sufficient to allow European Micro to compete effectively in
the future. Continued increases in competition could have a material adverse
affect on European Micro's business, financial condition and results of
operations due to, among other things, potential price reductions and potential
loss of market share.

FLUCTUATIONS IN QUARTERLY RESULTS

         European Micro'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 European Micro's operating
results have included a reduction in demand in Europe during the summer months
and changes in the product cycle of major products. European Micro 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, European Micro 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, European Micro'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 European Micro are characterized by rapidly
changing technology, frequent new product introductions and evolving industry
standards that can render the products marketed by European Micro 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 European Micro's
business does not allow it to enjoy those benefits. See "Business Risk Factors -
No Contracts or Distribution Agreements with Suppliers." European Micro'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. See
"Management - Directors." Therefore, any shareholder (other than Messrs.
Gallagher and Shields) 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
although Messrs. Gallagher and Shields do not have voting power with respect to

                                       17
<PAGE>

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 European Micro. 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 affect on the
Company's business, financial condition and results of operations.

NO ANTICIPATION OF DIVIDENDS

         European Micro 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 European Micro at some future time will depend upon
European Micro'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 European Micro's Board of Directors.
The declaration and payment of dividends, if at all, by European Micro will be
at the discretion of the Board of Directors. See "Dividend Policy."

IMPACT OF THE EUROPEAN MONETARY UNION

         European monetary union is scheduled to commence in 1999, when certain
European countries will adopt a single European currency called the "Euro."
Substantially all of the countries in which the Company currently conducts
business (except for the United States) will be affected by the European
monetary union and the Euro. The Company cannot predict the impact which the
European monetary union or the Euro will have on the Company. Either the
European monetary union or the Euro may have a material adverse affect on the
Company's business, financial condition or results of operations.

LABOR RELATIONS

         European Micro's labor force is not unionized. European Micro, 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 European
Micro are unionized. A labor strike by one of European Micro'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 affect on European
Micro'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 UK operates primarily from facilities located in
Manchester, England. Approximately 4,400 square feet of the facilities in
Manchester are allocated to offices, including management, sales and
administrative areas and the remaining 8,000 square feet is warehousing space.


                                       18
<PAGE>

         European Micro's facilities are described below:

<TABLE>
<CAPTION>
         LOCATION                                       SQUARE FEET                LEASE EXPIRATION
         --------                                       -----------                ----------------

<S>                                                           <C>                              <C> 
         Manchester (warehouse)(1)                            8,000                            2012
         Manchester (offices)(1)                              4,400                            2002
         Germany (offices)(2)                                 1,360                            2004
         Netherlands (offices and warehouse)(3)              18,000                            2002
         Miami, Florida (offices)(4)                            350                              --
         Seabrook, New Hampshire (offices and
            warehouse)(5)                                     2,300                            1998
</TABLE>

         -------------
         (1)      European Micro UK
         (2)      European Micro Germany
         (3)      Big Blue Europe 50% Joint Venture
         (4)      European Micro Holdings, Inc.
         (5)      Nor'easter

         The office in Germany is a sales office with no warehousing facility.
All products are shipped from the Manchester facility directly to the customer.
European Micro considers its existing facilities to be adequate for its
foreseeable needs.

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 stock prices by quarter during 1998 are presented as follows:

                                                             1998(1)

                                                        HIGH              LOW
                                                        ----              ---

            First quarter                                 n/a              n/a
            Second quarter                                n/a              n/a
            Third quarter                                 n/a              n/a
            Fourth quarter                            $11.875            $4.75

            -----------------------
            (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.

         On September 28, 1998, the Company had approximately nine shareholders
of record. The Company believes that it has in excess of 400 beneficial owners.

                                       19
<PAGE>

DIVIDENDS

         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, European Micro 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 European Micro of any future dividends and the amount
thereof will depend upon European Micro'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
of Directors. The declaration and payment of dividends, if at all, by European
Micro will be at the discretion of the Board of Directors.

RECENT SALES OF UNREGISTERED SECURITIES

         On January 31, 1998, the Company issued an aggregate of 4,000,000
shares of Common Stock to John B. Gallagher (1,900,000 shares), Harry D. Shields
(1,602,696 shares), Thomas H. Minkoff, as Trustee of the Gallagher Family Trust
(100,000 shares) and Stuart S. Southard and Robert H. True, Trustees of the 1997
Henry Daniel Shields Irrevocable Educational Trust (397,304 shares) in exchange
for all of their shares of ordinary stock of European Micro UK pursuant to an
exemption from registration under Section 4(2) of the Securities Act of 1933, as
amended (the "SECURITIES ACT"), and Rule 701 promulgated under the Securities
Act. No commissions or other remuneration was paid in connection with the
above-described issuance of securities.

         On May 7, 1998, the Company granted to employees and consultants of the
Company or its Subsidiaries and to other persons instrumental to the success of
the Company options to purchase an aggregate of 294,000 shares of Common Stock
of the Company at an exercise price of $10.00 per share of Common Stock. Of the
options granted, 45,000 options become exercisable on May 6, 1999, and an
additional 62,250 options become exercisable on each of May 6, 2001, 2002, 2003
and 2004. These options were granted pursuant to an exemption from registration
under Section 4(2) of the Securities Act of 1933, as amended. No commissions or
other remuneration was paid in connection with the above-described issuance of
securities.

USE OF PROCEEDS

         The Company's Registration Statement (the "REGISTRATION STATEMENT") on
Form S-1 filed by the Company on January 16, 1998 (File No. 333-44393) was
declared effective by the Securities and Exchange Commission on April 6, 1998.
The offering commenced on April 6, 1998 pursuant to a "best efforts"
underwriting by Tarpon Scurry Investments, Inc. Pursuant to the terms of the
Underwriting Agreement, the offering terminated on June 5, 1998 prior to the
sale of all securities registered. The Registration Statement registered
1,100,000 shares of Common Stock of the Company, of which 1,000,000 shares were
offered by the Company and 100,000 shares were offered by John B. Gallagher and
Harry D. Shields, the Co-Presidents of the Company. The aggregate offering price
of the shares registered was $11,000,000. The Company sold an aggregate of
933,900 shares of Common Stock in the offering for an aggregate offering price
of $9,339,000. As of June 30, 1998, the gross proceeds of the offering were used
as follows:

                                       20
<PAGE>

<TABLE>
<CAPTION>
                       ACTUAL EXPENSES INCURED IN OFFERING
<S>                                                                                     <C>                     <C>
GROSS PROCEEDS                                                                                                  $9,339,000
     Underwriting Commission                                                            $747,120
     Underwriting Expenses                                                               125,000
     Nasdaq National Market Listing Fee                                                   59,000
     Printing and Engraving Expenses                                                      74,146
     Accounting Fees and Expenses                                                        284,808
     Legal Fees and Expenses                                                             432,987
     Transfer Agent Fees and Expenses                                                      7,500
     Travel                                                                              105,584
     Public Communications                                                                26,412
     Stamp Duty                                                                          260,000
     Other                                                                                57,287
TOTAL ACTUAL EXPENSES1                                                                                           2,179,844
                                                                                                  -------------------------
NET PROCEEDS                                                                                                    $7,159,156
                                                                                                  =========================
</TABLE>
---------------------
1 No expenses were paid to directors, officers, shareholders or affiliates of
the Company.

<TABLE>
<CAPTION>
                               USE OF NET PROCEEDS

<S>                                                                                   <C>                       <C>       
NET PROCEEDS                                                                                                    $7,159,156
     Loaned to Subsidiaries for Operations:
     European Micro UK                                                                $3,500,000
     Nor'easter                                                                        1,000,000
                                                                        -------------------------
PROCEEDS UTILIZED IN THE PERIOD                                                                                  4,500,000
                                                                                                  -------------------------
NET PROCEEDS STILL AVAILABLE                                                                                    $2,659,156
                                                                                                  =========================
</TABLE>


ITEM 6. SELECTED FINANCIAL DATA.

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

         The following selected 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, 1998. The information presented as of and for the years ended June 30,
1995, 1996, 1997 and 1998 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, 1997 and 1998 and each of the
years in the three-year period ended June 30, 1998 and the Notes thereto
included elsewhere in this filing. The information presented as of and for the
year ended June 30, 1994 is derived from the Company's unaudited consolidated
financial statements. In the opinion of management, the unaudited financial
statements of the Company have been prepared on the same basis as the audited
financial statements included herein and include all adjustments necessary for
the fair presentation of financial position and results of operations at these
dates and 

                                       21
<PAGE>

for these periods which adjustments are only of a normal recurring nature. The
results of operations for interim periods are not necessarily indicative of
results that may be expected for the full year. See "Index to Financial
Statements."
<TABLE>
<CAPTION>

                     ($ IN THOUSANDS, EXCEPT PER SHARE DATA)

                                                              YEAR ENDED JUNE 30,
                                                     1994        1995          1996         1997         1998
                                 ------------------------------------------------------------------------------
<S>                                               <C>           <C>           <C>          <C>         <C>    
STATEMENT OF OPERATIONS DATA:
Net Sales                                         $29,235       33,864        40,348       46,655      111,453
Income from operations                                986        1,848         1,478        2,051        7,232
Net income                                            524        1,115           845        1,034        4,485
Net income per share                                $0.13         0.28          0.21         0.26         1.10
Dividends per share (basic and diluted)               0.0         0.10          0.24         0.14         0.14
Weighted average common shares
   outstanding, basic                           4,000,000    4,000,000     4,000,000    4,000,000    4,066,524
Weighted average common shares
   outstanding, diluted                         4,000,000    4,000,000     4,000,000    4,000,000    4,087,466
</TABLE>

<TABLE>
<CAPTION>

                     ($ IN THOUSANDS, EXCEPT PER SHARE DATA)

                                                                      JUNE 30,
                                                        1994       1995         1996         1997           1998
                                    -------------------------------------------------------------------------------
<S>                                                    <C>        <C>          <C>           <C>           <C>   
    BALANCE SHEET DATA:
    Working capital(1)                                  $674      1,736        1,474         1,976         12,959
    Total assets                                       3,928      5,873        7,857         8,844         19,204
    Long-term debt, net of
       current portion                                    68         41           37            45             84
    Shareholders' equity                                $843      1,924        1,769         2,511         13,680
</TABLE>

------------------------
(1) Total current assets less total current liabilities.

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

         European Micro is an independent distributor of microcomputer products,
including personal computers, memory modules, disc drives and networking
products, operating primarily in Western Europe. European Micro 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. European Micro's ability to purchase products for
resale in these markets has enabled European Micro to increase net sales and
achieve strong operating results. For the three-year period ended June 30, 1998,
European Micro's total net sales increased from $40.3 million in fiscal 1996 to
$111.4 million in fiscal 1998, and gross profit increased from $4.4 million to
$14.4 million. European Micro attributes these increases in sales to increased
customer demand for European Micro's products and, more recently, to the
expansion of the range of products offered.

         To date, European Micro has derived substantially all 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. 

                                       22
<PAGE>

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 European Micro's
Consolidated Statements of Operations:

                             PERCENTAGE OF NET SALES

<TABLE>
<CAPTION>
                                                                  FISCAL YEARS ENDING JUNE 30,
                                                                  ----------------------------
                                                             1996              1997             1998
                                                             ----              ----             ----
<S>                                                         <C>               <C>              <C>  
Net sales to third parties                                   98.9%             99.7%            73.9%
Net sales to related parties                                  1.1               0.3             26.1
                                                         --------          --------         --------
Total net sales                                             100.0             100.0            100.0
                                                         --------          --------         --------
Cost of goods sold to third parties                         (87.9)            (88.2)           (61.4)
Cost of goods sold to related parties                        (1.1)             (0.4)           (25.7)
                                                         --------          --------         --------
Total cost of goods sold                                    (89.0)            (88.6)           (87.1)
                                                         --------          --------         --------
Gross profit                                                 11.0              11.4             12.9
Operating expenses                                           (7.3)             (7.0)            (6.4)
                                                         --------          --------         --------
Operating profit                                              3.7               4.4              6.5
Interest expense                                             (0.4)             (0.6)            (0.4)
Share of (loss) or income in the
  unconsolidated affiliate                                      -              (0.2)               -
                                                         --------          --------         --------
Income before income taxes                                    3.3               3.6              6.1
Provision for income taxes                                   (1.2)             (1.4)            (2.1)
                                                         --------          --------         --------
Net Income                                                    2.1%              2.2%             4.0%
                                                         ========          ========         ========
</TABLE>


FISCAL 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 $29.1 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.

                                       23
<PAGE>

         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 169.8%, 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
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 gains and losses moved 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 pound sterling relative
to other European currencies, causing a devaluation of many of the Company's
foreign currency accounts receivable. The Company addressed this issue by
introducing more rigorous hedging policies.

         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 $144,000 from $293,000
in the year ended June 30, 1997 to $437,000 in the comparable period in 1998.
This was attributable to increased borrowings by European Micro to fund its
inventory and accounts receivable prior to the receipt of funds from the
Company's initial public offering.

         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. European Micro'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. The Company
expects this trend to continue as Big Blue Europe attracts more customers and
further strengthens existing relationships.

         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 

                                       24
<PAGE>

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.

         A receivable was established in the accounts as it was probable that
the claim would be settled. This claim has now been settled in full following
receipt of the claim in February 1998.

FISCAL YEARS ENDED JUNE 30, 1997 AND 1996

         TOTAL NET SALES. Total net sales increased $6.4 million, or 15.9%, from
$40.3 million in the year ended June 30, 1996 to $46.7 million in the comparable
period in 1997. Excluding net sales to related parties, net sales increased $6.6
million, or 16.5%, from $39.9 million in the year ended June 30, 1996 to $46.5
million in the comparable period in 1997. The increase in net sales was
attributable to the broadening of the product base as a by-product of the new
purchasing department (accounting for approximately $4.2 million) and the
creation of the Premier Dealers Club (accounting for approximately $2.4
million). For the years ended June 30, 1997 and 1996, respectively, customer
rebates and discounts were immaterial.

         Net sales to related parties decreased $282,000 from $436,000 in the
year ended June 30, 1996 to $154,000 in the comparable period in 1997. This did
not have any material affect on the Company's results of operations in the year
ended June 30, 1997.

         GROSS PROFIT. Gross profit increased $0.8 million, or 17.8%, from $4.5
million in the year ended June 30, 1996 to $5.3 million in the year ended June
30, 1997 due to increased sales in the period. Related party transactions did
not have a material affect on gross profit in this period.

         Gross margins increased from 11.0% in the year ended June 30, 1996 to
11.4% in the year ended June 30, 1997. This was attributable to European Micro's
product mix. The gross margins were not materially affected by the related party
transactions in the years ended June 30, 1997 and 1996, respectively. The
Company does not expect to maintain this level of gross margin in future
periods.

         Foreign exchange gains and losses moved from a gain of $21,000 in the
year ended June 30, 1996 to a loss of $157,000 in the comparable period in 1997.
This loss was attributable to the strengthening of the pound sterling relative
to other European currencies.

         OPERATING EXPENSES. Operating expenses as a percentage of total net
sales decreased from 7.4% in the year ended June 30, 1996 to 7.0% in the
comparable period in 1997. Operating expenses consist primarily of fixed costs,
such as salaries, rents and rates. Therefore, while net sales have increased in
the period there has not been a corresponding increase in the fixed cost base.

         INTEREST EXPENSE. Interest expense increased $133,000 from $160,000 in
the year ended June 30, 1996 to $293,000 in the comparable period in 1997. The
increase was attributable to increased borrowings by European Micro to fund the
increased trading activity.

         INCOME TAXES. Income taxes as a percentage of earnings before income
taxes increased from 35.9% in the year ended June 30, 1996 to 38.6% in the
comparable period in 1997. The increase was primarily attributed to the increase
in disallowed travel and entertainment expenditures for corporate income tax
purposes.


                                       25
<PAGE>

         INTEREST IN JOINT VENTURE. European Micro's share of losses from Big
Blue Europe was $73,000 in the year ended June 30, 1997. These losses are
attributed to business start-up costs. Big Blue Europe commenced operations in
January 1997.

         WAREHOUSE BREAK-IN. In January 1997, European Micro UK's warehouse was
broken into and approximately $155,000 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. To attempt to prevent any
additional thefts, the Company took several steps including the addition of
steel bars on all roof vents and skylights.

         A receivable was established in the balance sheet as it was probable
that the claim would be settled. The claim was settled in full minus the
deductible upon receipt of the claim in May 1997.

SEASONALITY

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

LIQUIDITY AND CAPITAL RESOURCES

         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 European Micro's suppliers for early payment.

         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 intends to use the proceeds to fund operations and provide working
capital to European Micro UK and for Nor'easter. The proceeds will also be used
for expansion purposes, including mergers and acquisitions.

         Short-term working capital requirements are funded by a combination of
overdraft facilities provided by National Westminster Bank Plc together with
accounts receivable financing provided by Lombard Natwest. Both of these
facilities are set and reviewed annually. Short-term obligations must be repaid
within one year. In both cases the amounts drawn down attract the same rate of
interest based on a markup over the bank borrowing rate in the United Kingdom.
The overdraft facility was $830,000 in the year ended June 30, 1997, and was
increased to $2 million during fiscal 1998. The accounts receivable financing
provides for draw-down of 85% of trade debtors. Further funding was agreed
between the Company and the National Westminster Bank 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 $5.6 million to assist in the
purchase of inventory.

         Long-term funding is supplied to the Company in the form of hire
purchase and capital lease agreements. Long-term obligations are due for
repayment in more than one year. These agreements are made through both Lloyds
Bowmaker and Natwest Vehicle Solutions, and are secured by vehicles owned by the
Company. The agreements are usually for 36 months from the date of purchase and
are typically for 80% of the purchase value of the vehicle. All but two of the
agreements are subject to variable rate interest. As of June 30, 1998, the
borrowings were $154,000, of which $84,000 was due after more than one year.

                                       26
<PAGE>

         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.

         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 office) 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.

         The net increase in cash was $4.7 million for the year ended June 30,
1998 which is after the impact of exchange rates of $82,000.

         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.


                                       27
<PAGE>

         The overall net decrease in cash was $34,000.

         FISCAL YEAR ENDED JUNE 30, 1996. Cash provided by operating activities
amounting to $170,000 was primarily attributable to net income generated for the
year amounting to $845,000, an increase in amounts due to related parties of
$866,000, reductions in inventory of $661,000 and an increase in other current
liabilities ($425,000). These amounts were partially offset by an increase in
trade receivables of $1,677,000 and increases in the amounts due from related
parties of $611,000. In addition cash was also used to reduce trade payables
($407,000). May 1996 was a particularly strong month for European Micro, the
highest monthly turnover in the Company's history. Certain UK customers had
bought significant volumes and value of product, and with the larger customers
having longer credit terms, some May 1996 debt was still outstanding at the end
of June 1996. Much of the product bought at the end of the 1996 fiscal year was
purchased from related parties, and with the cash used in funding debtors the
level of payables due to related parties was high, while the payables to third
parties were reduced.

         Inventory value decreased by $611,000 in the fiscal year ended June 30,
1996. Such fluctuations are not uncommon given that European Micro typically
purchases large amounts of inventory at a time which is then sold over a period
of weeks. This creates an uneven inventory balance on a monthly basis.

         Cash used in investing activities amounted to $157,000. This amount
consisted of $171,000 (related to the purchase of fixed assets consisting
primarily of $100,000 of vehicles) which was partially offset by sales of fixed
assets ($14,000).

         Cash provided by financing activities of $292,000 primarily resulted
from an increase in the level of the bank overdraft of $1,029,000 and an
increase in the discount creditor of $283,000. Cash was used in the payment of
dividends amounting to $961,000 and $59,000 of payments made on capital leases.

         The net increase in cash was $275,000, which is after the impact of
exchange rates amounting to $30,000.

YEAR 2000 ISSUES

         Many existing computer programs use only two digits to identify a year
in the date field. These programs were designed and developed without
considering the impact of the upcoming change in the Year 2000. If not corrected
in the computer applications of the Company or its suppliers and customers, this
problem may cause computer applications to fail or to create erroneous results
by or at the Year 2000. The Company has received informal assurances from the
companies manufacturing the computer applications used in its business
operations that such computer applications are Year 2000 compliant. Although the
Company believes that its computer applications will not be affected by the Year
2000 problem, any failure or erroneous results produced thereby may have a
material adverse affect on the Company's business, financial condition or
results of operations. The Company does not generally sell software products and
therefore the Company does not expect its products to be affected by the Year
2000 problem.

         The Company is evaluating the impact the Year 2000 problem will have on
its suppliers and customers, although the Company expects such evaluation to be
made informally through discussions with customers and suppliers. The failure of
the Company's suppliers and customers to correct the Year 2000 problem in their
computer applications may have a material adverse affect on the Company's
business, financial condition and results of operations. As of the date of this
filing, the Company cannot accurately anticipate or quantify the impact on the
Company of its suppliers' and customers' failure to correct this problem. The
Company is formulating contingency plans to implement in the event its
suppliers' and customers' fail to address the Year 2000 problem.

ASSET MANAGEMENT

         INVENTORY. European Micro's goal is to achieve high inventory turns and
maintain a low number of stock keeping units and thereby reduce European Micro's
working capital requirements. European Micro's strategy to achieve this goal is
to effectively manage its inventory and to achieve high order fill rates.
Inventory levels may 

                                       28
<PAGE>

vary from period to period, due to factors including increases or decreases in
sales levels, European Micro's practice of making large-volume purchases when it
deems such purchases to be attractive, new products and changes in European
Micro's product mix.

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

CURRENCY RISK MANAGEMENT

         REPORTING CURRENCY. European Micro Holdings, Inc.'s reporting and
functional currency, as defined by Statement of Financial Accounting Standards
No. 52, is the United States dollar. The functional currency of European Micro
UK is the United Kingdom pound sterling. European Micro UK translates into the
reporting currency by measuring assets and liabilities using the exchange rates
in effect at the balance sheet date and results of operations using the average
exchange rates prevailing during the period.

         HEDGING AND CURRENCY MANAGEMENT ACTIVITIES. European Micro attempts to
limit its risk of currency fluctuations through hedging where possible. European
Micro 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, European Micro enters into economic hedges for the
purpose of hedging foreign currency market exposures of underlying assets,
liabilities and other obligations which exist as part of its ongoing business
operations.

         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, 1998, purchases of inventory by European Micro UK,
were in United Kingdom pound sterling (58%), Spanish pesetas (14%), United
States dollars (11%), Finland marks (8%) and other (9%). The most significant
currencies in which sales were made, other than United Kingdom pound sterling
(34%), were the United States dollar (33%), German Mark (12%), and the Dutch
guilder (6%). Additionally, receivables are significantly spread out over
several currencies. Lastly, if bank balances are maintained in different
currencies they would also be subject to currency fluctuations.

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

         The currency instruments used by the Company are always forward
currency contracts with either fixed or optional take up dates. Moreover,
inasmuch as the need is to cover short-term receivables or payables (usually
always less than 45 days), these contracts are usually for periods that do not
exceed 60 days.

         ECONOMIC AND MONETARY UNION. On January 1, 1999, eleven of the fifteen
member countries of the European Union are scheduled to establish fixed
conversion rates between their existing sovereign currencies and a new currency
called the "euro." These countries have agreed to adopt the euro as their common
legal currency on that date. The euro will then trade on currency exchanges and
be available for non-cash transactions. Thereafter and until January 1, 2002,
the existing sovereign currencies will remain legal tender in these countries.
On January 1, 2002, the euro is scheduled to replace the sovereign legal
currencies of these countries. Through the 

                                       29
<PAGE>

operations of European Micro UK, the Company has significant operations within
the European Union, including many of the countries which are scheduled to adopt
to euro. The Company is evaluating the impact the euro will have on its
continuing business operations and no assurances can be given that the euro will
not have a material adverse affect on the Company's business, financial
condition and results of operations. However, the Company does not expect the
euro to have a material affect on its competitive position as a result of price
transparency within the European Union because the Company does not rely on
currency imbalances in purchasing inventory from within the European Union.
Moreover, the Company is evaluating its ability to update its information
technology to accommodate the adoption of the euro but it does not expect to
incur material costs in either evaluating or updating such technology. In
addition, the Company cannot accurately predict the impact the euro will have on
currency exchange rates or the Company's currency exchange rate risk. The
Internal Revenue Service ("IRS") has requested comments on various tax issues
raised by the euro conversion. The IRS is expected to publish guidelines on this
issue soon and, until such time, the Company cannot predict whether the IRS
guidelines will have any tax consequences on the Company.

INTER-GROUP SALES

         In order to achieve attractive prices from suppliers, the Company must
commit to the purchase of a large quantity of inventory. European Micro polls
the other members of the Group for informal commitments to help distribute such
inventory. Thereafter, European Micro, as a member of the Group, would obtain
the product, examine the product for damage and authenticity, and then supervise
the shipping to the other Group members. In that capacity, European Micro acts
as a "purchasing agent" for the other members of the Group. Such sales from
European Micro during fiscal 1997 were immaterial. Note however, that European
Micro benefited from similar low mark-up purchases from the Group to the extent
of over $22 million during that same period.

         Later, when market conditions such as the strengthening of the United
States dollar and an aggressive sales effort from a leading manufacturer changed
the emphasis to European Micro purchasing during the year ended June 30, 1998,
sales from European Micro to related parties increased to over $29 million.

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.

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

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


                                       30
<PAGE>

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).

<TABLE>
<CAPTION>
                                                                         EXPECTED
                                                                        MATURITY OR  
                                                                     TRANSACTION DATE                 FAIR VALUE
                                                                     -----------------            -----------------
<S>                                                                    <C>                              <C>
           FORWARD EXCHANGE
             AGREEMENTS

           JUNE 30, 1998
             (Receive (pound)/pay $US)                                   July 10, 1998
             Contract amount                                                      $700                         $701
             Average contractual
               exchange rate                                           $1.667/(pound)1

             (Receive (pound)/pay PST)                                 August 13, 1998
             Contract amount                                                      $262                         $262
             Average contractual
               exchange rate                                           (pound)1/254.25

           JUNE 30, 1997
             (Receive $US/Pay(pound))                                   June 30, 1998
             Contract amount                                                   $2,006                        $2,006
             Average contractual
               exchange rate                                            $1.66/(pound)1

           (Receive (pound)/pay DM)                                      June 30, 1998
             Contract amount                                                      $430                         $450
             Average contractual
               exchange rate                                            (pound)0.36/DM
</TABLE>

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

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

<TABLE>
<CAPTION>
                                                                               YEAR ENDED JUNE 30,
                                                                       1996            1997              1998
                                                             -------------------------------------------------

<S>                                                                    <C>            <C>                <C>  
           (Loss) income on foreign exchange transactions              $21            (157)              (510)
                                                                   =======         =======            ======= 
</TABLE>


                                       31
<PAGE>


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.

                            ($ IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                                  NET INCOME 
JUNE 30,                                                                          PER SHARE 
                                                                                  (BASIC AND
1998                              NET SALES      GROSS PROFIT       NET INCOME     DILUTED)1 
----                              ---------      ------------       ----------   ---------- 
<S>                                 <C>                 <C>              <C>          <C>  
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
</TABLE>

                            ($ IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                                  NET INCOME 
JUNE 30,                                                                          PER SHARE
                                                                                  (BASIC AND
1997                              NET SALES      GROSS PROFIT       NET INCOME     DILUTED)1
----                              ---------      ------------       ----------    --------- 
<S>                                 <C>                 <C>                <C>        <C>  
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>

---------------------
1 Net income per share is calculated pursuant to Financial Accounting Standards
Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 128
"Earnings Per Share" which was issued in February 1997.

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

         None.

                                    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 16, 1998.


                                       32
<PAGE>

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>
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 No.
            Incorporation                                      3.02    to    Registrant's     Registration
                                                               Statement.

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.

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

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

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

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

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

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

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

</TABLE>

                                       33
<PAGE>
<TABLE>
<CAPTION>

<S>         <C>                                                <C>
10.08       Trusteed Shareholders Cross-Purchase Agreement     Incorporated  by  reference  to Exhibit No.
            by and between John B. Gallagher, Harry D.         10.08 to 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

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

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

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

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

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

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

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

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

10.17       Form of Credit Agreement by and between European   Provided herewith.
            Micro UK and National Westminster Bank Plc

21.01       Subsidiaries of the Registrant                     Provided herewith.

23.01       Consents of experts and counsel                    Provided herewith.

27.01       Financial Data Schedule                            Provided herewith.
</TABLE>

         Management contracts or compensatory plans or arrangements are set
forth as Exhibits 4.02, 4.03, 10.09, 10.10, 10.11 and 10.12 above.


                                       34
<PAGE>

(B)      REPORTS ON FORM 8-K.

         None.



                                       35
<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, 1998

                                            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.
<TABLE>
<CAPTION>

SIGNATURE                               TITLE                                  DATE
---------                               -----                                  ----

<S>                                     <C>                                    <C>
/S/ HARRY D. SHIELDS                    Co-Chairman; Co-President              September 28, 1998
-----------------------------           (Principal Executive Officer); 
Harry D. Shields                        Director

/S/ JOHN B. GALLAGHER                   Co-Chairman; Co-President              September 28, 1998
-----------------------------           (Principal Executive Officer);
John B. Gallagher                       Director

/S/ JAY NASH                            Chief Financial Officer and            September 28, 1998
-----------------------------           Controller (Principal Financial
Jay Nash                                Officer and Controller)
                            
/S/ LAURENCE GILBERT                    Director                               September 28, 1998
----------------------------- 
Laurence Gilbert
/S/ BERNADETTE SPOFFORTH                Director                               September 28, 1998
----------------------------- 
Bernadette Spofforth

/S/ KYLE R. SAXON                       Director                               September 28, 1998
-----------------------------
Kyle R. Saxon

/S/ BARRETT SUTTON                      Director                               September 28, 1998
-----------------------------
Barrett Sutton

</TABLE>


                                       36
<PAGE>


                        INDEX TO THE FINANCIAL STATEMENTS

EUROPEAN MICRO HOLDINGS, INC.

Independent Auditors' Report                                               F-2

Consolidated Balance Sheets as of June 30, 1997 and 1998                   F-3

Consolidated Statements of Operations for the years ended 
     June 30, 1996, 1997 and 1998                                          F-4

Consolidated Statements of Changes in Shareholders' Equity 
     for the years ended June 30, 1996, 1997 and 1998                      F-5

Consolidated Statements of Cash Flows for the years ended 
     June 30, 1996, 1997 and 1998                                          F-6

Notes to Consolidated Financial Statements                                 F-7



                                      F-1
<PAGE>


                          INDEPENDENT AUDITORS' REPORT

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

We have audited the accompanying consolidated balance sheets of European Micro
Holdings, Inc. and its subsidiaries as of June 30, 1997 and 1998, and the
related consolidated statements of earnings, changes in shareholders' equity,
and cash flows for each of the years in the three-year period ended June 30,
1998. 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 auditing standards generally accepted
in the United States. 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 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 its subsidiaries as of June 30, 1997 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, 1998 in conformity with generally accepted accounting
principles in the United States.

                                                                        /s/ KPMG
                                                           ---------------------
                                                                            KPMG
                                                           CHARTERED ACCOUNTANTS
                                                             REGISTERED AUDITORS

                                                             Manchester, England
                                                              September 28, 1998




                                      F-2
<PAGE>
<TABLE>
<CAPTION>

                 EUROPEAN MICRO HOLDINGS, INC. AND SUBSIDIARIES
                           Consolidated Balance Sheets
                      (In thousands, except per share data)

                                                            JUNE 30,       JUNE 30,
                                                                1997           1998
                                                            --------       --------
<S>                                                            <C>            <C>  
                    ASSETS
CURRENT ASSETS:
  Cash                                                          $288          5,012
  Trade receivables, net (Note 5)                              2,956          7,985
  Discounted trade receivables (Note 5)                        2,779              -
  Due from related parties (Note 20)                             569            898
  Inventories, net (Note 6)                                    1,560          1,715
  Deferred tax asset (Note 13)                                     -             26
  Prepaid expenses                                                75            304
  Other current assets (Note 7)                                   37          2,459
                                                              ------         ------
      TOTAL CURRENT ASSETS                                     8,264         18,399
  Property and equipment, net (Note 8)                           389            611
  Investments (Note 9)                                           191            194
                                                              ------         ------
      TOTAL ASSETS                                            $8,844         19,204
                                                              ======         ======

                          LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
  Bank overdraft (Note 10)                                    $1,034              -
  Discount creditor (Note 11 )                                 2,223              -
  Trade payables (Note 12)                                     2,038          1,638
  Other current liabilities (Note 14)                            376            987
  Due to related parties (Note 20)                               188            238
  Income taxes payable (Note 13)                                 375          2,577
  Deferred income taxes (Note 13)                                 54              -
                                                              ------         ------
      TOTAL CURRENT LIABILITIES                                6,288          5,440
  Long term borrowings (Note 15)                                  45             84
                                                              ------         ------
      TOTAL LIABILITIES                                        6,333          5,524
                                                              ------         ------
Commitments & contingencies (Note 18)                              -

SHAREHOLDERS' EQUITY:
  Preferred stock $0.01 par value shares: 1,000,000
    authorized at 1997 and 1997, no shares issued and
    outstanding at 1997 and 1998
  Common stock $0.01 par value shares: 20,000,000
    authorized at, 1997 and 1998, shares issued and
    outstanding, 4,000,000 at 1997 and 4,933,900 at 1998,         40             49
      (Notes 3 and 16)
  Additional paid in capital                                   1,624          8,802
  Retained earnings                                              826          4,773
  Accumulated other comprehensive income                          21             56
                                                              ------         ------
      TOTAL SHAREHOLDERS' EQUITY                               2,511         13,680
                                                              ------         ------
      TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY              $8,844         19,204
                                                              ======         ======
</TABLE>


The accompanying notes are an integral part of the consolidated financial
statements.

                                      F-3
<PAGE>


                 EUROPEAN MICRO HOLDINGS, INC. AND SUBSIDIARIES
                      Consolidated Statement of Operations
                      (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                     YEARS ENDED JUNE 30,
                                              1996           1997          1998
                                              ----           ----          ----
<S>                                          <C>            <C>           <C>   
SALES
  Net sales (Note 3)                         $39,912        46,501        82,361
  Net sales to related parties
      (Note 20)                                  436           154        29,092
                                             -------       -------       -------
      Total net sales                         40,348        46,655       111,453
                                             -------       -------       -------

COST OF GOODS SOLD:
 Cost of goods sold                          (35,475)      (41,163)      (68,380)
 Cost of goods sold to related parties          (417)         (156)      (28,678)
                                             -------       -------       -------
       Cost of goods sold                    (35,892)      (41,319)      (97,058)
                                             -------       -------       -------
GROSS PROFIT                                   4,456         5,336        14,395

OPERATING EXPENSES:
  Selling, general and administrative
    expenses (Note 3)                         (2,884)       (3,230)       (7,059)
  Expenses attributable to
    related  parties (Note 20)                   (94)          (55)         (104)
                                             -------       -------       -------
      Total operating expenses                (2,978)       (3,285)       (7,163)
                                             -------       -------       -------
OPERATING PROFIT                               1,478         2,051         7,232

Interest expense, net                           (160)         (293)         (437)
Equity in net (loss) income of 
  unconsolidated affiliate (Note 9)                -           (73)            3
                                             -------       -------       -------

INCOME BEFORE INCOME TAXES                     1,318         1,685         6,798

  Taxes on income (Note 3 and 13)               (473)         (651)       (2,313)
                                             -------       -------       -------

NET INCOME                                      $845         1,034         4,485
                                             =======       =======       =======

Net income per share - basic
   (Note 3 and Note 23)                        $0.21          0.26          1.10
                                             =======       =======       =======
Net income per share - diluted
   (Note 3 and Note 23)                        $0.21          0.26          1.10
                                             =======       =======       =======
</TABLE>


The accompanying notes are an integral part of the consolidated financial
statements.

                                      F-4
<PAGE>


                 EUROPEAN MICRO HOLDINGS, INC. AND SUBSIDIARIES
                 Consolidated Statements of Shareholders' Equity
                 (In thousands, except share and per share data)

<TABLE>
<CAPTION>
                                                                                                  ACCUMULATED
                                                                                     RETAINED           OTHER
                                                                     ADDITIONAL      EARNINGS   COMPREHENSIVE         TOTAL
                                                                      PAID IN    (ACCUMULATED          INCOME   SHAREHOLDERS'
                                               COMMON STOCK           CAPITAL       LOSSES)                          EQUITY
                                               ------------           -------       -------     -------------        ------
                                           SHARES        AMOUNT
                                           ------        ------
<S>                                       <C>               <C>        <C>          <C>                 <C>       <C>   
Balance at July 1, 1995                   4,000,000         $40          119        1,750               15         1,924
Net income                                        -           -            -          845                -           845
Dividends declared ($0.24 per share)              -           -            -         (961)               -          (961)
Other comprehensive income, net of tax
  - foreign currency translation                  
      adjustment                                  -           -           (4)         (24)             (11)          (39)
                                          ---------     -------     --------    ---------         --------       -------

Balance at June 30, 1996                  4,000,000          40          115        1,610                4         1,769
Capitalisation of retained earnings         
  (Note 3(j))                                     -           -        1,498       (1,498)               -             -
Net income                                        -           -            -        1,034                -         1,034
Dividends declared ($0.14 per share)              -           -            -         (562)               -          (562)
Other comprehensive income, net of tax
  - foreign currency translation            
      adjustment                                  -           -           11          242               17           270
                                          ---------     -------     --------    ---------         --------       -------

Balance at June 30, 1997                  4,000,000          40        1,624          826               21         2,511
Net income                                        -           -            -        4,485                -         4,485
Dividends declared ($0.14 per share)              -           -            -         (550)               -          (550)
Issue of new shares, net proceeds*          933,900           9        7,150            -                -         7,150
Compensation charge in relation to share
   options issued to non-employees                -           -           28          (28)               -             -
Other comprehensive income, net of tax 
   - foreign currency translation                 
        adjustment                                -           -            -           40               35            75
                                          ---------     -------     --------    ---------         --------       -------

Balance at June 30, 1998                  4,933,900         $49        8,802        4,773               56        13,680
                                          =========     =======     ========    =========         ========       =======
</TABLE>

*  The net proceeds from the issue of new shares represent the gross proceeds of
   $9,330 reduced by issue costs of $2,180.

The accompanying notes are an integral part of the consolidated financial
statements.

                                      F-5
<PAGE>

                 EUROPEAN MICRO HOLDINGS, INC. AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                                 (In thousands)

<TABLE>
<CAPTION>
                                                    YEARS ENDED JUNE 30,
                                               1996          1997         1998
                                               ----          ----         ----
<S>                                             <C>          <C>          <C>  
OPERATING ACTIVITIES:
Net income                                      $845         1,034        4,485
ADJUSTMENTS TO RECONCILE NET INCOME
  TO NET CASH (USED IN) PROVIDED BY
  OPERATING ACTIVITIES
  Depreciation and other                         134           163          192
  Provision for deferred taxes                   (17)           87          (80)
  Equity in net loss (income) of
      unconsolidated affiliate                     -            73           (3)
CHANGES IN ASSETS AND LIABILITIES
  Trade receivables                           (1,677)         (672)      (2,250)
  Due from related parties                      (611)          139         (329)
  Inventory                                      661          (540)        (155)
  Other current assets                            39           267       (2,651)
  Trade payables                                (407)        1,011         (400)
  Due to related parties                         866          (956)          50
  Taxes payable                                  (88)          (86)       2,202
     Other net                                   425          (273)         585
                                             -------       -------      -------

NET CASH PROVIDED BY OPERATING
  ACTIVITIES                                     170           247        1,646
                                             -------       -------      -------
INVESTING ACTIVITIES:
  Purchase of fixed assets                      (171)         (195)        (596)
  Sale of fixed assets                            14            47          175
  Investment in unconsolidated affiliate           -          (264)           -
                                             -------       -------      -------

NET CASH USED IN  INVESTING ACTIVITIES          (157)         (412)        (421)
                                             -------       -------      -------
FINANCING ACTIVITIES:
Dividends paid                                  (961)         (562)        (550)
Proceeds from issue of new shares, net             -             -        7,159
Repayment of capital leases                      (59)          (71)          65
Change in bank overdraft                       1,029          (314)      (1,034)
Change in discounting creditor                   283           824       (2,223)
                                             -------       -------      -------

NET CASH PROVIDED BY (USED IN )
 FINANCING ACTIVITIES                            292          (123)       3,417
                                             -------       -------      -------

Exchange rate changes                            (30)          254           82
                                             -------       -------      -------

NET  INCREASE (DECREASE) IN CASH                 275           (34)        4,724
Cash at beginning of period                       47           322          288
                                             -------       -------      -------

CASH AT END OF PERIOD                           $322           288        5,012
                                             =======       =======      =======
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.


                                      F-6
<PAGE>

                 EUROPEAN MICRO HOLDINGS, INC. AND 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 1996 and 1997 are those of European Micro Plc as adjusted to take
         account of the share for share exchange referred to above. The
         consolidated financial statements of European Micro Holdings, Inc.
         includes the results of operations and financial position of its wholly
         owned subsidiaries. European Micro Holdings, Inc. and its subsidiaries
         are hereinafter refereed to as "European Micro" or "the Company". The
         following companies results of operations and financial position have
         been included in the consolidated financial statements based upon the
         relative percentages below.

<TABLE>
<CAPTION>
                                                                           OWNERSHIP
<S>                                                       <C>                     <C>                     <C> 
        COMPANIES                                         1996                    1997                    1998
        European Micro Holdings, Inc.                        -                       -                    100%
        Nor'easter Micro Inc.                               **                      **                    100%
        European Micro Plc                                100%                    100%                    100%
        European Micro GmbH                               100%                    100%                    100%
        European Micro BV *                               100%                    100%                    100%
</TABLE>

         * Company began operations in January 1996 and ceased to trade in
         December 1996. There were no significant operating assets and therefore
         there was no significant accounting effect for the discontinuance of
         European Micro BV. 

         ** Incorporated December 1997; commenced trading January 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 are in Altrincham, England with its subsidiaries
         operating in Germany and Holland. Nor'easter Micro Inc. has its
         operations in Seabrook, New Hampshire.

         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. It has been included in these consolidated financial statements
         under the equity method of accounting: 50% of the net assets and
         results of its operations have been included. Big Blue Europe BV
         operates in the same industry as the Company.

         All consolidated companies have a June 30, fixed accounting period end.

2        ADJUSTMENTS AND RECLASSIFICATIONS TO STATUTORY BOOKS OF ACCOUNTS

         European Micro Holdings, Inc. and the subsidiaries maintain their books
         of accounts and prepare their statutory financial statements in their
         local currencies and in accordance with local commercial practice and
         tax regulations applicable in the countries where they are resident.
         The accompanying consolidated financial statements are based on these
         statutory records with adjustments and reclassifications for the
         purpose of fair presentation in accordance with accounting principles
         generally accepted in the United States.


                                      F-7
<PAGE>


                 EUROPEAN MICRO HOLDINGS, INC. AND SUBSIDIARIES
           Notes to the Consolidated Financial Statements (CONTINUED)

3        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:

     A)  REVENUE AND EXPENSE RECOGNITION

         Revenues are recognised at the time the goods are shipped. Revenues
         from related parties are recognised 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.

    B)   PRINCIPLES OF CONSOLIDATION

         The consolidated results of European Micro include the results of
         operations of its wholly owned subsidiaries which it controls. The
         principles of consolidation are as follows:

         /bullet/  All investments in the subsidiaries are eliminated.

         /bullet/  All significant intercompany balances and transactions have
                   been eliminated in consolidation.

         Investments greater than 20%, in which the Company exercises
         significant influence, however does not control the entity, are
         accounted for under the equity method.

    C)   PRINCIPLES OF TRANSLATION OF THE FINANCIAL STATEMENTS

         The subsidiaries record transactions in their local currencies which
         represent their functional operating currencies. Transactions
         denominated in currencies other than local currencies are recorded at
         the exchange rates ruling at the date of the transactions. Assets and
         liabilities denominated in currencies other than local currencies are
         converted into the local currencies at the exchange rates ruling at
         balance sheet date. Resulting exchange differences are recognised in
         the income for the period.

         The consolidated financial statements have been translated from their
         local currencies into US dollars, the reporting currency.

    D)   PROPERTY AND EQUIPMENT

         Property and equipment are recorded at cost. Depreciation is provided
         to write off the cost less the estimated residual value of tangible
         fixed assets by equal instalments over their estimated useful economic
         lives as follows:

         Office equipment           -        50% per annum on cost

         Fixtures & Fittings        -        15% per annum on cost

         Motor vehicles             -        25% per annum on cost

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

         When assets are otherwise disposed of, the costs and related
         accumulated depreciation are removed from the accounts and resulting
         gain or loss is reflected in net income.


                                      F-8
<PAGE>

                 EUROPEAN MICRO HOLDINGS, INC. AND SUBSIDIARIES
           Notes to the Consolidated Financial Statements (CONTINUED)


3        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

    E)   IMPAIRMENT OF LONG-LIVED ASSETS

         In March 1995, the US Financial Accounting Standards Board ("FASB")
         issued SFAS No. 121, requiring that long-lived assets and certain
         identifiable intangibles held and used by an entity be reviewed for
         impairment whenever events or changes in circumstances indicate that
         the carrying amount of the asset may not be recoverable. The Company
         adopted this standard in 1996. Adoption of this standard did not have a
         material impact on its result of operations or financial position.

    F)   INVENTORIES

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

    G)   INCOME TAXES

         Income taxes are accounted for under the asset and liability method.
         Deferred tax assets and liabilities are recognised for the future tax
         consequences attributable to differences between the financial
         statement carrying amounts of existing assets and liabilities and their
         respective tax bases and operating loss and tax credit carry-forwards.
         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 recognised in income in the period that includes the enactment date.

    H)   STOCK OPTION PLANS

         The Company adopted Statement of Financial Accounting Standards (SFAS)
         No. 123, "Accounting for Stock Based Compensation", which permits
         entities to recognize as expense over the vesting period for the fair
         value of all stock-based awards on the date of grant. Alternatively,
         SFAS No. 123 also allows entities to continue to apply the provisions
         of APB Opinion No. 25 and provide pro forma net income and pro forma
         earnings per share disclosures for employee stock option grants made in
         1998 and future years as if the fair-value based method defined in SFAS
         No. 123 had been applied. The Company has elected to continue to apply
         the provisions of APB Opinion No. 25 and provide the proforma
         disclosure provisions of SFAS No. 123.

    I)   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.

    J)   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
         financial statements in conformity with generally accepted accounting
         principles in the United States. Actual results could differ from those
         estimates. Significant estimates and assumptions include the amounts
         reflected as allowance for doubtful receivable, allowance for obsolete
         inventories, amounts due to customers under incentive programs, and
         deferred tax assets.


                                      F-9
<PAGE>

                 EUROPEAN MICRO HOLDINGS, INC. AND SUBSIDIARIES
           Notes to the Consolidated Financial Statements (CONTINUED)

3        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)

    K)   EARNINGS PER COMMON SHARE AND SHARE CAPITAL REORGANIZATION

         SFAS No. 128 simplifies the earnings per share ("EPS") calculations
         required by Accounting principles Board ("APB") Opinion No. 15, and
         related interpretations, by replacing the presentation of primary EPS
         with a presentation of basic EPS. SFAS No. 128 requires dual
         presentation of basic and diluted EPS by entities with complex capital
         structures. Basic EPS includes no dilution and is computed by dividing
         income available to common stockholders by the weighted-average number
         of common shares outstanding for the period. Diluted EPS reflects the
         potential dilution of securities that could share in the earnings of an
         entity, similar to the fully diluted EPS of APB Opinion No. 15. The
         Company adopted the provisions of SFAS No. 128 and has presented EPS
         for basic earnings per share.

         Basic earnings per share for each year is computed by dividing net
         income by the weighted average number of shares of common stock
         outstanding during the year.

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

         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 current 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 1996 and 1997. The Company has
         only presented the basic earnings per share as diluted earnings per
         share is the same as basic.


                                      F-10
<PAGE>

                 EUROPEAN MICRO HOLDINGS, INC. AND SUBSIDIARIES
           Notes to the Consolidated Financial Statements (CONTINUED)


4        NEW ACCOUNTING PRONOUNCEMENTS

         COMPREHENSIVE INCOME

         SFAS No. 130 "Reporting Comprehensive Income" was issued in June 1997
         and is effective for fiscal years beginning after December 15, 1997.
         Reclassification of financial statements for earlier periods provided
         for comparative purposes is required.

         It requires that all items that are required to be recognised under
         accounting standards as components of comprehensive income be reported
         in a financial statement that is displayed with the same prominence as
         other financial statements. It requires that an enterprise (a) classify
         items of other comprehensive income by their nature in a financial
         statement and (b) display the accumulated balance of other
         comprehensive income separately from retained earnings and additional
         paid-in capital in the equity section of a statement of financial
         position.

         The Company has adopted SFAS No 130, and has included comprehensive
         income within the Statement of Shareholders' Equity.

         SEGMENT INFORMATION

         SFAS No. 131 "Disclosures about Segments of an Enterprise and Related
         Information" was issued in June 1997 and is effective for fiscal years
         beginning after December 15, 1997. In the initial year of application
         comparative information for earlier years is to be restated.

         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.

         The Company is currently reviewing the likely impact on the level of
         disclosure currently provided in its financial statements. However, the
         Company considers that there will be no impact as the company operates
         within a single industry segment upon which management make decisions
         and allocate resources.

         DERIVATIVE INSTRUMENTS

         SFAS No 133 "Accounting for Derivate Instruments and Hedging
         Activities" was issued in June 1998 and is effective for fiscal years
         beginning after June 15, 1999. The standard establishes accounting and
         reporting standards for derivative instruments and hedging activities.

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


                                      F-11
<PAGE>

                 EUROPEAN MICRO HOLDINGS, INC. AND SUBSIDIARIES
           Notes to the Consolidated Financial Statements (CONTINUED)


4        NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)

         COST OF COMPUTER SOFTWARE

         SOP 98-1 "Accounting for the costs of Computer Software Developed or
         Obtained for Internal Use" was issued in January 1998 and is effective
         for fixed years beginning after December 15, 1998. The Company does not
         expect the adoption of SOP 98-1 to have a material impact on the
         Company's financial statements.

         START-UP ACTIVITIES

         SOP 98-5 "Reporting on the Costs of Start-Up Activities" was issued in
         April 1998 and is effective for fiscal years beginning after December
         15, 1998. SOP 98-5 provides guidance on the financial reporting of
         start-up costs and organization costs. It requires costs of start-up
         activities and organization costs to be expensed as incurred. The
         Company is evaluating the impact of the pronouncement.

5        TRADE RECEIVABLES, NET

         Trade receivables consisted of receivables maturing within one year and
         are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                                   JUNE 30,
                                                                                      1997             1998
                                                                                      ----         --------
<S>                                                                                   <C>             <C>  
           Total trade receivables                                                    $5,740          8,008
           Less: Allowance for doubtful receivables                                       (5)           (23)
                                                                                      ------          -----

                                                                                      $5,735          7,985
                                                                                      ======          =====

         Trade receivables include discounted trade receivables as follows (in
thousands):

                                                                                                   JUNE 30,
                                                                                        1997           1998
                                                                                        ----       --------

           Discounted trade receivables (see Note 11)                                 $2,779              -
           Non discounted trade receivables                                            2,956          7,985
                                                                                      ------          -----
                                                                                      $5,735          7,985
                                                                                      ======          =====
</TABLE>


                                      F-12
<PAGE>

                 EUROPEAN MICRO HOLDINGS, INC. AND SUBSIDIARIES
           Notes to the Consolidated Financial Statements (CONTINUED)


5        TRADE RECEIVABLES, NET (CONTINUED)

         The allowance for doubtful trade receivables is constituted as follows
         (in thousands):

<TABLE>
<CAPTION>
                                                                                             JUNE 30,
                                                                            1997                 1998
                                                                            ----             --------
<S>                                                                       <C>                 <C>  
           Beginning balance                                              $    -                   5
           Provision for bad debt                                              5                  18
                                                                          ------               -----
           Ending balance                                                 $    5                  23
                                                                          ======               =====

6        INVENTORIES

         Inventories comprises (in thousands):

                                                                                           JUNE 30,
                                                                          1997                 1998
                                                                          ----             --------

           Finished goods and goods for resale                            $1,595              1,724
           Less: Allowance for inventory obsolescence                        (35)                (9)
                                                                          ------              -----
                                                                          $1,560              1,715
                                                                          ======              =====


         The allowance for obsolescence is constituted as follows (in
         thousands):

                                                                                           JUNE 30,
                                                                          1997                 1998
                                                                          ----             --------

           Beginning balance                                              $  116                 35
           Provision for obsolescence                                        (81)               248
           Amounts written off                                                 -               (274)
                                                                          ------              -----
           Ending balance                                                 $   35                  9
                                                                          ======              =====
</TABLE>




                                      F-13
<PAGE>

                 EUROPEAN MICRO HOLDINGS, INC. AND SUBSIDIARIES
           Notes to the Consolidated Financial Statements (CONTINUED)


7        OTHER CURRENT ASSETS

         Other current assets comprised (in thousands):

<TABLE>
<CAPTION>
                                                                                                  JUNE 30,
                                                                                   1997               1998
                                                                                   ----           --------
<S>                                                                               <C>                <C>  
           Amounts paid in advance for inventories                                $   -              2,015
           ACT recoverable                                                            -                145
           Other                                                                     37                299
                                                                                  -----             ------
                                                                                  $  37              2,459
                                                                                  =====              =====

8        PROPERTY AND EQUIPMENT

         Property and equipment comprised (in thousands):

                                                                                                  JUNE 30,
                                                                                  1997               1998
                                                                                  ----            -------

           Furniture and fixtures                                               $  136                273
           Computers and office equipment                                          365                509
           Vehicles and other                                                      282                328
                                                                                ------              -----
                                                                                   783              1,110
           Less: accumulated depreciation                                         (394)              (499)
                                                                                ------              -----
           NET BOOK VALUE                                                         $389                611
                                                                                ======              =====
         

         The charge for depreciation in each of the three years ended June 30,
         was as follows (in thousands):

                                                                           YEAR ENDED JUNE 30,
                                                                   1996           1997            1998
                                                                   ----           ----            ----

           Depreciation expense                                    $133            167             227
                                                                 ======          =====           =====
</TABLE>


                                      F-14
<PAGE>

                 EUROPEAN MICRO HOLDINGS, INC. AND SUBSIDIARIES
           Notes to the Consolidated Financial Statements (CONTINUED)


9        INVESTMENTS (in thousands)

<TABLE>
<CAPTION>
                                                                                                     YEAR ENDED
                                                                                                       JUNE 30, 
                                                                                     1997                 1998
                                                                                     ----                 ----

<S>                                                                                 <C>                     <C>
           Investments in Big Blue Europe BV                                        $  191                  194
                                                                                    ======                =====


                                                                              PERIOD ENDED           YEAR ENDED
                                                                             JUNE 30, 1997        JUNE 30, 1998
                                                                             -------------        -------------

           Cost of investment/equity investment in
              unconsolidated affiliate brought forward                              $  264                  191
           Equity in net (loss) income of unconsolidated
               affiliate                                                               (73)                   3
                                                                                    ------               ------
           At end of period/year                                                    $  191                  194
                                                                                    ======               ======
</TABLE>


         During the year ended June 30, 1997 European Micro Plc purchased 50% of
         the issued share capital in Big Blue Europe BV at a cost of $264,000.
         Big Blue Europe BV commenced trading in January 1997.

         The equity share of loss is based on the results of Big Blue Europe BV
         during the year ended June 30, 1998. A summarised statement of earnings
         for Big Blue Europe BV for the year is set out below (in thousands):

<TABLE>
<CAPTION>
                                                                           PERIOD ENDED              YEAR ENDED
                                                                          JUNE 30, 1997           JUNE 30, 1998
                                                                          -------------           -------------
<S>                                                                               <C>                     <C>  
           Net sales                                                            $  465                    1,910
           Cost of goods sold                                                     (354)                  (1,394)
                                                                                ------                   ------ 
           Gross profit                                                            111                      516
           Operating expenses                                                     (325)                    (507)
                                                                                ------                   ------ 
           Income before income taxes                                             (214)                       9
           Taxes on income                                                          68                       (3)
                                                                                ------                   ------ 
           NET (LOSS) INCOME                                                      (146)                       6
                                                                                ======                   ======
           Equity in net (loss) income of unconsolidated affiliate              $  (73)                       3
                                                                                ======                   ======

</TABLE>

                                      F-15
<PAGE>

                 EUROPEAN MICRO HOLDINGS, INC. AND SUBSIDIARIES
           Notes to the Consolidated Financial Statements (CONTINUED)


10       BANK OVERDRAFT

         The bank overdraft was as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                                    JUNE 30,
                                                                                      1997              1998
                                                                                      ----          --------
<S>                                                                                 <C>                   <C>
         Bank overdraft                                                             $1,034                -
                                                                                    ======            =====
</TABLE>

         The bank overdraft is secured by a mortgage debenture over the assets
         of the Company. Note, the collateral attaching to the discount creditor
         (Note 11) and the hire purchase and capital leases (Note 15), take
         priority over the mortgage debenture. At June 30, 1997 the bank
         overdraft of $1,034,000 was secured by the mortgage debenture.

         The bank overdraft facility is subject to review in July each year. The
         facility available to the Company at June 30, 1998 was $5,800,000.

         Interest is charged on the bank overdraft at 1.75% over the UK bank
         borrowing rate which was 6% at June 30, 1997 and 7% at June 30, 1998.
         Interest expense in relation to the bank overdraft in each of the three
         years ended June 30, 1998 was as follows (in thousands):
<TABLE>
<CAPTION>

                                                                     YEAR ENDED JUNE 30,
                                                                 1996              1997              1998
                                                                 ----              ----              ----

<S>                                                           <C>                <C>              <C>
         Bank overdraft interest expense                      $   119                133              168
                                                              =======            =======          =======
</TABLE>


                                      F-16
<PAGE>

                 EUROPEAN MICRO HOLDINGS, INC. AND SUBSIDIARIES
           Notes to the Consolidated Financial Statements (CONTINUED)


11       DISCOUNT CREDITOR

         The discount creditor balance was as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                JUNE 30,
                                                                 1997               1998
                                                                 ----           --------

<S>                                                             <C>                    <C>
         Discount creditor                                      $2,223                 -
                                                                ======            ======
</TABLE>

         The discount creditor balance represents the finance obligation to
         various trade receivable balances which have been discounted. The trade
         receivable balances which have been discounted, and are included within
         trade receivables are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                JUNE 30,
                                                                 1997               1998
                                                                 ----           --------
<S>                                                             <C>                     
         Discounted trade receivable balances
           (See Note 5)                                         $2,779                 -
                                                                ======            ======
</TABLE>


         Trade receivables can be financed up to a maximum of 85% of the value
         of the trade receivables balance. The total capacity of the Company to
         discount trade receivable balances at June 30, 1997 amounted to
         $4,133,000 and at June 30, 1998 amounted to $6,388,000 of which
         $2,223,000 and $nil was used respectively. Therefore the unused
         available facility at June 30, 1997 amounted to $1,910,000 and at June
         30, 1998 amounted to $6,388,000.

         The discount creditor balance is secured by a direct interest on the
         trade receivable balances to which it relates. The discount creditor
         facility is reviewed annually in November of each year.

         The finance company which provides the discount creditor facility has
         full recourse to the Company with respect to any doubtful or
         unrecovered amounts.

         Interest is charged at 1.5% above the bank borrowing rate, which was 6%
         at June 30, 1997, and 7% at June 30, 1998, on the discount creditor
         balance. The discount creditor finance charge for each of the years in
         the three-year period ended June 30, 1998 was as follows (in
         thousands):

<TABLE>
<CAPTION>
                                                       YEAR ENDED JUNE 30,
                                                  1996         1997         1998
                                                  ----         ----         ----

<S>                                                <C>          <C>          <C>
         Discount creditor finance charge          $24          149          291
                                                ======       ======       ======
</TABLE>


                                      F-17
<PAGE>

                 EUROPEAN MICRO HOLDINGS, INC. AND SUBSIDIARIES
           Notes to the Consolidated Financial Statements (CONTINUED)


12       TRADE PAYABLES

         At June 30, trade payables consisted principally of balances resulting
         from purchase transactions.

13       TAXES ON INCOME

         Taxes on income is only attributable to income from continuing
         operations and consists of (in thousands):

<TABLE>
<CAPTION>
                                                                        YEAR ENDED JUNE 30,
                                                               1996            1997           1998
                                                               ----            ----           ----

<S>                                                             <C>             <C>           <C>  
         Current taxation                                     $  490            564           2,393
         Deferred taxation                                       (17)            87             (80)
                                                              ------          -----          ------ 
                                                              $  473            651           2,313
                                                              ======          =====          ======
</TABLE>



         The taxes on income represent the statutory rate of tax of 33%/31%*
         adjusted for permanent differences. The income tax expense, which
         arises solely on continuing operations, is reconciled below (in
         thousands):

<TABLE>
<CAPTION>
                                                                     YEAR ENDED JUNE 30,
                                                              1996          1997          1998
                                                              ----          ----          ----
<S>                                                        <C>                <C>            <C>  
         Income before income taxes                        $1,318             1,685          6,798
                                                           ======             =====          =====

         Expected tax charge @ 33%/31%*                    $  435               556          2,107
         Tax on permanently disallowed items                   38                95            206
                                                           ------             -----          -----

         Taxes on income                                   $  473               651          2,313
                                                           ======             =====          =====
</TABLE>

         * Statutory tax rate changed for the year ended June 30, 1998.

         The reconciliation has been completed using the UK statutory taxation
         rate since that is the location of the principal operations.



                                      F-18
<PAGE>

                 EUROPEAN MICRO HOLDINGS, INC. AND SUBSIDIARIES
           Notes to the Consolidated Financial Statements (CONTINUED)


13       TAXES ON INCOME (CONTINUED)

         The tax effects of temporary differences that give rise to significant
         portions of the deferred tax assets and deferred tax liabilities are
         presented below (in thousands):

<TABLE>
<CAPTION>
                                                                                   JUNE 30,
                                                                       1997            1998
                                                                       ----        --------
<S>                                                                 <C>                 <C>
         DEFERRED TAX ASSETS:
         Property and equipment, principally due to
           differences in depreciation                              $    -              26
         Net operating loss carried forward                             11               -
                                                                    ------          ------
         Total deferred tax assets                                      11              26
                                                                    ------          ------
         DEFERRED TAX LIABILITIES:
         Property and equipment, principally due to
           differences in depreciation                                 (65)              -
                                                                    ------          ------
         Total deferred tax liabilities                                (65)              -
                                                                    ------          ------
         Net deferred tax (liabilities) assets                      $  (54)             26
                                                                    ======          ======
</TABLE>


         Net operating losses can be carried forward indefinitely.

         There is no valuation allowance against the deferred tax assets.

14       OTHER CURRENT LIABILITIES

         Other current liabilities consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                                                   JUNE 30,
                                                                       1997            1998
                                                                       ----        --------
<S>                                                                 <C>                <C>
         Accrued expenses                                           $  215             710
         VAT payable                                                    33              41
         PAYE and NIC                                                   63              98
         Hire purchase and capital leases (see Note 15)                 44              70
         Others                                                         21              68
                                                                    ------          ------
                                                                    $  376             987
                                                                    ======          ======
</TABLE>



                                      F-19
<PAGE>

                 EUROPEAN MICRO HOLDINGS, INC. AND SUBSIDIARIES
           Notes to the Consolidated Financial Statements (CONTINUED)


15       HIRE PURCHASE AND CAPITAL LEASES

         Balances outstanding in relation to hire purchase and capital leases
         were as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                   JUNE 30,
                                                                       1997            1998
                                                                       ----        --------
<S>                                                                 <C>                 <C>
         Amounts payable:
         Within one year (*)                                        $   44              70
         After one year                                                 45              84
                                                                    ------           -----
                                                                    $   89             154
                                                                    ======           =====
</TABLE>

         (*) Included within other current liabilities (see Note 14)

         Hire purchase and capital leases are secured by the asset to which they
         relate. At June 30, 1997 and 1998 assets, all of which were motor
         vehicles were pledged as security against the respective hire purchase
         or capital lease agreements. Information in respect of assets held as
         security were as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                    JUNE 30,
                                                                       1997             1998
                                                                       ----         --------
<S>                                                                <C>                   <C>
         Cost                                                      $   232               253
         Less:  accumulated depreciation                               (97)              (52)
                                                                   -------            ------
         NET BOOK VALUE                                            $   135               201
                                                                   =======            ======
</TABLE>

         Hire purchase and capital lease agreements are generally for periods of
         three years and they attract interest at a fixed rate of 7.5%.

         The interest payment is integral within each monthly repayment. The
         interest charge was as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                 YEAR ENDED JUNE 30,
                                                                       1996            1997          1998
                                                                       ----            ----          ----

<S>                                                                 <C>                  <C>            <C>
         Hire purchase and capital lease interest                   $    5               3              19
                                                                    ======          ======           =====
</TABLE>




                                      F-20
<PAGE>

                 EUROPEAN MICRO HOLDINGS, INC. AND SUBSIDIARIES
           Notes to the Consolidated Financial Statements (CONTINUED)


15       HIRE PURCHASE AND CAPITAL LEASES (CONTINUED)

         The present value of the future minimum lease payments of the capital
         leases as of June 30 1998, in aggregate, for each of the five
         succeeding years is as follows (in thousands):

         JUNE 30,
         --------

         1999                                                        70
         2000                                                        84
         2001                                                         -
         2002                                                         -
         2003                                                         -
                                                                   ----
                                                                   $154
                                                                   ====

16       COMMON STOCK

         After adjusting for the share capitalization disclosed in note 3(k) at
         June 30 1997, and June 30, 1998 the Company's authorized common stock
         consists of 20,000,000 shares with par value of $0.01 per share, and
         authorised preferred stock consists of 1,000,000 shares with par value
         of $0.01 per share. Outstanding common stock consisted of 4,000,000 at
         June 30, 1997 and 4,933,900 at June 30, 1998 shares with par value of
         $0.01 per share. The increase in the number of outstanding shares was
         pursuant to the IPO effective on June 5, 1998.

         Dividends are payable at the discretion of the board and the members of
         the Company.

         All common shares carry equal voting rights.




                                      F-21
<PAGE>

                 EUROPEAN MICRO HOLDINGS, INC. AND SUBSIDIARIES
           Notes to the Consolidated Financial Statements (CONTINUED)


17       COMMITMENTS AND CONTINGENCIES

         CONTINGENCIES

         LEGAL PROCEEDINGS

         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.

         LEASES

         The Company's lease agreements comprise:

         OPERATING LEASES

         The future minimum lease payments under non cancellable operating
         leases as of June 30, 1998 in aggregate for each of the five succeeding
         years is as follows (in thousands):

                                                                      LAND AND
                                                    OTHER            BUILDINGS
                                                    -----            ---------
           June 30,
           1999                                      $  7                  142
           2000                                         7                  142
           2001                                         7                  142
           2002                                         7                  142
           2003                                      $  7                  142
                                                     ====                  ===


         The operating leases expire in June 1998.

         CAPITAL LEASES

         The future minimum lease payments of capital leases are disclosed in
         Note 15.


                                      F-22
<PAGE>

                 EUROPEAN MICRO HOLDINGS, INC. AND SUBSIDIARIES
           Notes to the Consolidated Financial Statements (CONTINUED)


18       FOREIGN EXCHANGE CONTRACTS

         The Company utilises 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 recognised as cost of sales in the current period,
         generally consistent with the period in which the gain or loss of the
         underlying transaction is recognised. Cash flows associated with
         derivative transactions are classified in the statement of cash flows
         in a manner consistent with those of the exposure being hedged.

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



                                      F-23
<PAGE>

                 EUROPEAN MICRO HOLDINGS, INC. AND SUBSIDIARIES
           Notes to the Consolidated Financial Statements (CONTINUED)


18       FOREIGN EXCHANGE CONTRACTS (CONTINUED)

         EXCHANGE RATE SENSITIVITY

         The table below summarises 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).

<TABLE>
<CAPTION>
                                                                           EXPECTED
                                                                        MATURITY OR
                                                                        TRANSACTION
                                                                               DATE                   FAIR VALUE
                                                                        -----------                   ----------
<S>                                                                   <C>                                 <C>  
           FORWARD EXCHANGE
             AGREEMENTS

           JUNE 30, 1998
             (Receive (pound)/pay $US)                                   July 10, 1998
             Contract amount                                                      $700                          $701
             Average contractual
               exchange rate                                           $1.667/(pound)1

             (Receive (pound)/pay PST)                                 August 13, 1998
             Contract amount                                                      $262                          $262
             Average contractual
               exchange rate                                           (pound)1/254.25

           JUNE 30, 1997
             (Receive $US/Pay(pound))                                   June 30, 1998
             Contract amount                                                   $2,006                         $2,006
             Average contractual
               exchange rate                                            $1.66/(pound)1

           (Receive (pound)/pay DM)                                      June 30, 1998
             Contract amount                                                      $430                          $450
             Average contractual
               exchange rate                                            (pound)0.36/DM
</TABLE>

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

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

<TABLE>
<CAPTION>
                                                                                 YEAR ENDED JUNE 30,
                                                                       1996            1997              1998
                                                                       ----            ----              ----

<S>                                                                  <C>              <C>                <C>  
           (Loss) income on foreign exchange transactions            $  21            (157)              (510)
                                                                     =====            ====               ==== 
</TABLE>



                                      F-24
<PAGE>

                 EUROPEAN MICRO HOLDINGS, INC. AND SUBSIDIARIES
           Notes to the Consolidated Financial Statements (CONTINUED)

19       FAIR VALUE OF FINANCIAL INSTRUMENTS

         The Company's financial instruments consist of cash and equivalents,
         trade receivables, borrowings and trade payables and foreign exchange
         contracts. The carrying amounts of cash and equivalents, trade
         receivables, borrowings and trade payables approximate their fair
         values because of the short maturity (see Note 18 for fair value of
         forward exchange contracts).

20       RELATED PARTY INFORMATION

         RELATED PARTY TRANSACTIONS

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

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

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

<TABLE>
<CAPTION>
                                                                   YEAR ENDED JUNE 30,
                                                                1996        1997          1998
<S>                                                          <C>           <C>           <C>
           SALES
           American Micro Computer Center                       $306           66         9,875
           Technology Express                                    104           (2)       19,217
           Ameritech Argentina                                     -           90             -
           Ameritech Exports                                      26            -             -
                                                             -------       ------        ------
                                                                $436          154        29,092
                                                             =======       ======        ======
           PURCHASES
           American Micro Computer Center                     $2,289        1,092           507
           Technology Express                                 14,890       20,717         8,749
           Ameritech Argentina                                     -            -             -
           Ameritech Exports                                   1,116          848             -
                                                             -------       ------        ------
                                                             $18,295       22,657         9,256
                                                             =======       ======        ======
</TABLE>

                                      F-25

<PAGE>

                 EUROPEAN MICRO HOLDINGS, INC. AND SUBSIDIARIES
           Notes to the Consolidated Financial Statements (CONTINUED)

20       RELATED PARTY INFORMATION (IN THOUSANDS) (CONTINUED)

<TABLE>
<CAPTION>
                                                                       YEAR ENDED JUNE 30,
                                                                1996           1997         1998
<S>                                                             <C>             <C>          <C>
           OPERATING EXPENSES

           CONSULTANCY FEES
           American Micro Computer Center                        $50             60           45
           Technology Express                                     50             60           45
                                                                 ---            ---          ---
                                                                 100            120           90
                                                                 ---            ---          ---
           MANAGEMENT FEES
           Technology Express                                     37             16           14
                                                                 ---            ---          ---
                                                                  37             16           14
                                                                 ---            ---          ---
           RECHARGED CONSULTANCY FEES
           American Micro Computer Center                        (14)           (27)           -
           Technology Express                                    (14)           (27)           -
           Ameritech Argentina                                    (8)           (13)           -
           Ameritech Exports                                      (7)           (14)           -
                                                                 ---            ---          ---
                                                                 (43)           (81)           -
                                                                 ---            ---          ---
                                                                 $94             55          104
                                                                 ===            ===          ===
</TABLE>

           "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 in respect
           of those related parties.

                                      F-26

<PAGE>

                 EUROPEAN MICRO HOLDINGS, INC. AND SUBSIDIARIES
           Notes to the Consolidated Financial Statements (CONTINUED)

20       RELATED PARTY INFORMATION (CONTINUED)

         DUE FROM/TO RELATED PARTIES

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

<TABLE>
<CAPTION>
                                                          JUNE 30,
                                                   1997               1998
<S>                                                <C>                 <C>
         American Micro Computer Center            $240                 54
         Technology Express                           -                844
         Ameritech Argentina                        329                  -
         Ameritech Exports                            -                  -
                                                   ----                ---
                                                   $569                898
                                                   ====                ===
</TABLE>

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

<TABLE>
<CAPTION>
                                                            JUNE 30,
                                                     1997             1998
<S>                                                <C>                 <C>
         American Micro Computer Center              $-                 12
         Technology Express                         188                226
         Ameritech Argentina                          -                  -
         Ameritech Exports                            -                  -
                                                   ----                ---
                                                   $188                238
                                                   ====                ===
</TABLE>

         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 Offering) in the company is a president of American
         Micro Computer Center and owns 33.3% of the stock in that company.

                                      F-27

<PAGE>

                 EUROPEAN MICRO HOLDINGS, INC. AND SUBSIDIARIES
           Notes to the Consolidated Financial Statements (CONTINUED)

20       RELATED PARTY INFORMATION (CONTINUED)

         NATURE OF RELATED PARTY RELATIONSHIPS (CONTINUED)

         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 Inacomp Computers in 1996. Concurrently with the sale, Mr.
         Shields founded a new computer company with the name Technology
         Express. This company is a distributor of computer products and does
         not sell to end-users. Harry D. Shields who is Co-Chairman,
         Co-President, Director and shareholder (owning 39% of the outstanding
         shares after the Offering) of European Micro 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-28

<PAGE>

                 EUROPEAN MICRO HOLDINGS, INC. AND SUBSIDIARIES
           Notes to the Consolidated Financial Statements (CONTINUED)

21       SEGMENTAL INFORMATION AND CONCENTRATIONS

         The Company's operations involve a single industry segment,
         distribution of microcomputer equipment and software products. The
         Company principally operates in two geographical areas being the UK and
         the US and it exports product to other countries mainly within Europe.
         A geographical analysis of the Company's operating revenues and export
         sales is set out below (in thousands):

<TABLE>
<CAPTION>
                                                        YEAR ENDED JUNE 30,
                                                 1996             1997              1998
<S>                                            <C>               <C>               <C>
           UK                                  $11,876           21,050             30,712
           Germany                              11,305            8,282             13,476
           Netherlands                           8,230            4,653             10,168
           Other EC countries                    6,879           10,163             18,130
           United States                           436              154             30,999
           Other                                 1,622            2,353              7,968
                                               -------           ------            -------
                                               $40,348           46,655            111,453
                                               =======           ======            =======
</TABLE>

         Included within $30,999,000 from the United States is an amount of
         $3,559,000 from the Company's subsidiary operation Nor'easter Micro
         Inc., which is based in the United States, the remaining revenues
         represent export sales.

         While these countries are considered politically stable, there is risk
         that economic difficulties in any of these countries could adversely
         affect the Company's business.

         Most of the Company's sales are made in sterling or US dollars. In some
         countries, certain purchases and the resulting payables are in
         currencies which are different than the functional currency of European
         Micro Holdings, Inc.

                                      F-29

<PAGE>

                 EUROPEAN MICRO HOLDINGS, INC. AND SUBSIDIARIES
           Notes to the Consolidated Financial Statements (CONTINUED)

21       SEGMENTAL INFORMATION AND CONCENTRATIONS  (CONTINUED)

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

<TABLE>
<CAPTION>
                                                     YEAR ENDED JUNE 30,
                                                1996          1997       1998
<S>                                             <C>           <C>        <C>
           RELATED PARTY
             Technology Express                 43.2%         51.1%         -

           THIRD PARTIES
             Supplier        A                  14.1%            -          -
                             B                     -             -       38.9%
                             C                     -             -       14.0%
                             D                     -             -       10.0%
</TABLE>

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

<TABLE>
<CAPTION>
                                                      YEAR ENDED JUNE 30,
                                                 1996        1997        1998
<S>                                              <C>          <C>        <C>
           RELATED PARTY
             Technology Express                     -           -        17.2%

           THIRD PARTY
             Customer        E                   10.2%          -           -
</TABLE>

         The Company and it subsidiaries believe that their relationship with
         the above customers are good and has no reason to believe that its
         distribution arrangement will not be a long-term relationship. Amounts
         outstanding at the end of each year are as follows:

           DEBTOR BALANCE OUTSTANDING (IN THOUSANDS):

<TABLE>
<CAPTION>
                                                          JUNE 30,
                                                1996         1997         1998
<S>                                           <C>            <C>          <C>
           RELATED PARTY
             Technology Express                                           $844

           THIRD PARTY
             Customer        E                $1,168
</TABLE>

                                      F-30

<PAGE>

                 EUROPEAN MICRO HOLDINGS, INC. AND SUBSIDIARIES
           Notes to the Consolidated Financial Statements (CONTINUED)

22       EMPLOYEE STOCK OPTION PLANS

         EMPLOYEE STOCK INCENTIVE PLAN

         In January 1998, European Micro Holdings, Inc. adopted the 1998 Stock
         incentive Plan ("the plan"). The total number of shares initially
         authorized to be issued under the plan is 500,000 shares of common
         stock. The plan will be administered by a committee of the Board ("the
         committee"). 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.

         EMPLOYEE STOCK OPTION PLAN

         In January 1998, European Micro Holdings, Inc. adopted the 1998
         Employee Stock Purchase Plan ("the employee plan"). The purpose of the
         employee plan is to provide a method whereby employees of European
         Micro Holdings, Inc. and its subsidiaries will have an opportunity to
         acquire a proprietary interest in European Micro Holdings, Inc. through
         the purchase of shares of common stock. The Committee, as appointed by
         the Board, will administer the employee plan. The maximum number of
         shares of common stock which shall be issued under the employee plan is
         50,000. The options issued under the employee plan, to eligible
         employees, will be exercisable 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.

         The per share weighted-average fair value of stock options granted
         during 1998 was $6.31 on the date of grant using the Black Scholes
         option-pricing model with the following weighted average assumptions:
         expected dividend yield 0%; risk free interest rate 5.5%; volatility
         57%; and an expected life of 7 years.

         The Company applies APB Opinion No. 25 in accounting for its plan and,
         accordingly, no compensation cost has been recognised for its stock
         options in the 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):

<TABLE>
<CAPTION>
                                                       YEAR ENDED JUNE 30,
                                                  1996        1997         1998
<S>                                              <C>         <C>          <C>
           NET INCOME:       As reported          $845       1,034        4,485
                                                 =====       =====        =====
                             Pro forma            $845       1,034        4,431
                                                 =====       =====        =====
           EPS, BASIC:       As reported         $0.21        0.26         1.10
                                                 =====       =====        =====
                             Pro forma           $0.21        0.26         1.09
                                                 =====       =====        =====
           EPS, DILUTED:     As reported         $0.21        0.26         1.10
                                                 =====       =====        =====
                             Pro forma           $0.21        0.26         1.08
                                                 =====       =====        =====
</TABLE>

                                      F-31

<PAGE>

                 EUROPEAN MICRO HOLDINGS, INC. AND SUBSIDIARIES
           Notes to the Consolidated Financial Statements (CONTINUED)

22       EMPLOYEE STOCK OPTION (CONTINUED)

         The full impact of calculating compensation cost for stock options
         under SFAS No. 123 is not reflected in the pro forma net income amounts
         presented above because compensation cost is reflected over the
         options' vesting period of several years. The vesting period for stock
         options granted to employees is usually 6 years.

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

         A summary of the status of the Company's two fixed stock option plans
         at June 30, 1998 and changes during the year is presented below:

<TABLE>
<CAPTION>
                                                               NUMBER
<S>                                                           <C>
           Granted                                            294,000
           Exercised                                                -
           Forfeited                                                -
                                                              -------
           OUTSTANDING AT JUNE 30, 1998                       294,000
                                                              =======
</TABLE>

         OPTIONS OUTSTANDING

         A summary of the options outstanding of the Company's two fixed stock
         option plans at June 30, 1998 is presented below:

<TABLE>
<CAPTION>
           EXERCISE PRICE                 JUNE 30, 1998        WEIGHTED AVERAGE
                                     NUMBER OUTSTANDING               REMAINING
                                                               CONTRACTUAL LIFE
<S>                                          <C>                     <C>
           $10.00                            294,000                 7 years
                                             =======
</TABLE>

         OPTIONS EXERCISABLE

         A summary of the options exercisable of the Company's two fixed stock
         option plans at June 30, 1998 is presented below:

<TABLE>
<CAPTION>
                                     NUMBER EXERCISABLE AT      WEIGHTED AVERAGE
                                             JUNE 30, 1998        EXERCISE PRICE
<S>                                           <C>                    <C>
           Options exercisable                Nil                    $10.00
                                              ===                    ======
</TABLE>

                                      F-32

<PAGE>

                 EUROPEAN MICRO HOLDINGS, INC. AND SUBSIDIARIES
           Notes to the Consolidated Financial Statements (CONTINUED)

23       EARNINGS PER SHARE

<TABLE>
<CAPTION>
                                                                     YEAR ENDED JUNE 30, ,
           EARNINGS                                              1996            1997             1998
<S>                                                            <C>             <C>             <C>
           Net income (in thousands)                                $845           1,034           4,485
                                                                               =========       =========
           WEIGHTED AVERAGE NUMBER OF SHARES

           Outstanding common stock at beginning of            4,000,000       4,000,000       4,000,000
              year
           New shares issued                                           -               -          66,524
                                                               ---------       ---------       ---------
           BASIC WEIGHTED AVERAGE NUMBER OF SHARES             4,000,000       4,000,000       4,066,524

           Options to subscribe for new stock                          -               -          20,942
                                                               ---------       ---------       ---------
           DILUTED WEIGHTED AVERAGE NUMBER OF SHARES           4,000,000       4,000,000       4,087,466
                                                               =========       =========       =========
           Basic earnings per share                                $0.21           $0.26           $1.10
                                                               =========       =========       =========
           Diluted earning per share                               $0.21           $0.26           $1.10
                                                               =========       =========       =========
</TABLE>

         The impact of the stock options issued during the current period is not
         dilutive.

24       SUPPLEMENTAL CASH FLOW INFORMATION (in thousands)

<TABLE>
<CAPTION>
                                                               YEARS ENDED JUNE 30,
                                                         1996         1997         1998
<S>                                                     <C>           <C>          <C>
           SUPPLEMENTAL CASH FLOW DISCLOSURES:
           Interest paid                                $(156)        (290)        (478)
           Taxes on paid income                          (578)        (584)        (191)
                                                        -----         ----         ----
                                                        $(734)        (874)        (669)
                                                        =====         ====         ==== 
</TABLE>

25       SUBSEQUENT EVENTS (UNAUDITED)

         In September 1998 the Company signed a non-binding letter of intent to
         acquire the entire share capital of a company which operates in the
         same industry. The maximum acquisition price set out in the letter of
         intent is $4.1 million plus an earn out.

                                      F-33

<PAGE>

                                 EXHIBIT INDEX

EXHIBIT              DESCRIPTION
-------              -----------
 10.17       Form of Credit Agreement by and between European Micro Plc and
             National Westminster Bank Plc

 21.01       Subsidiaries of the Registrant

 23.01       Consents of experts and counsel                 

 27.01       Financial Data Schedule