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, 2000

                                       OR

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

                           COMMISSION FILE NO. 0-23949

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

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

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

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

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

                     Common Stock, par value $0.01 per share

                                (Title of Class)

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

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

           The  aggregate  market  value  of the  voting  common  stock  held by
non-affiliates  of the Registrant on September 29, 2000, was $7,994,272 based on
the average bid and asked prices on such date of $5.50.

           The Registrant had 4,933,900  shares of Common Stock, par value $0.01
per share, outstanding on September 29, 2000.

                       DOCUMENTS INCORPORATED BY REFERENCE

           Parts of the definitive  proxy or information  statement for the 2000
Annual Meeting of Stockholders to be filed by the Registrant with the Securities
and Exchange  Commission  under  Regulation 14A are incorporated by reference in
Part III of this Form 10-K Report.


<PAGE>


                                     PART I

ITEM 1.  BUSINESS.

GENERAL DESCRIPTION OF BUSINESS

           FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS. THIS FILING CONTAINS
FORWARD-LOOKING STATEMENTS,  INCLUDING STATEMENTS REGARDING, AMONG OTHER THINGS,
(A)  EUROPEAN  MICRO  HOLDINGS,  INC.'S  ("EUROPEAN  MICRO"  OR  THE  "COMPANY")
PROJECTED SALES AND  PROFITABILITY,  (B) THE COMPANY'S  GROWTH  STRATEGIES,  (C)
ANTICIPATED TRENDS IN THE COMPANY'S INDUSTRY, (D) THE COMPANY'S FUTURE FINANCING
PLANS, (E) THE COMPANY'S  ANTICIPATED  NEEDS FOR WORKING CAPITAL AND ITS ABILITY
TO COMPLY WITH THE  FINANCIAL  COVENANTS  CONTAINED IN LOAN  AGREEMENTS  AND (F)
BENEFITS  RELATED TO THE  ACQUISITIONS  OF AMERICAN  SURGICAL  SUPPLY  CORP.  OF
FLORIDA D/B/A  AMERICAN  MICRO COMPUTER  CENTER  ("AMCC"),  SUNBELT (UK) LIMITED
("SUNBELT") AND H&B TRADING  INTERNATIONAL  ("H&B").  IN ADDITION,  WHEN USED IN
THIS FILING,  THE WORDS "BELIEVES,"  "ANTICIPATES,"  "INTENDS," "IN ANTICIPATION
OF,"   "EXPECTS,"   AND  SIMILAR   WORDS  ARE   INTENDED  TO  IDENTIFY   CERTAIN
FORWARD-LOOKING  STATEMENTS.  THESE FORWARD-LOOKING STATEMENTS ARE BASED LARGELY
ON THE  COMPANY'S  EXPECTATIONS  AND  ARE  SUBJECT  TO A  NUMBER  OF  RISKS  AND
UNCERTAINTIES,  MANY OF WHICH ARE BEYOND THE COMPANY'S  CONTROL.  ACTUAL RESULTS
COULD DIFFER  MATERIALLY  FROM THESE  FORWARD-LOOKING  STATEMENTS AS A RESULT OF
CHANGES IN TRENDS IN THE ECONOMY AND THE COMPANY'S  INDUSTRY,  REDUCTIONS IN THE
AVAILABILITY  OF FINANCING  AND  AVAILABILITY  OF COMPUTER  PRODUCTS ON TERMS AS
FAVORABLE AS EXPERIENCED  BY THE COMPANY IN PRIOR PERIODS AND OTHER FACTORS.  IN
LIGHT OF THESE  RISKS  AND  UNCERTAINTIES,  THERE CAN BE NO  ASSURANCE  THAT THE
FORWARD-LOOKING  STATEMENTS  CONTAINED  IN THIS FILING  WILL IN FACT OCCUR.  THE
COMPANY DOES NOT UNDERTAKE ANY OBLIGATION TO PUBLICLY RELEASE THE RESULTS OF ANY
REVISIONS TO THESE  FORWARD-LOOKING  STATEMENTS  THAT MAY BE MADE TO REFLECT ANY
FUTURE EVENTS OR CIRCUMSTANCES.

           UNLESS  THE  CONTEXT  OTHERWISE  REQUIRES  AND  EXCEPT  AS  OTHERWISE
SPECIFIED,  REFERENCES  HEREIN  TO  "EUROPEAN  MICRO" OR THE  "COMPANY"  INCLUDE
EUROPEAN MICRO HOLDINGS, INC. AND ITS FIVE WHOLLY-OWNED  SUBSIDIARIES,  EUROPEAN
MICRO PLC, A COMPANY  ORGANIZED UNDER THE LAWS OF THE UNITED KINGDOM  ("EUROPEAN
MICRO  UK"),  NOR'EASTER  MICRO,  INC.,  A  NEVADA  CORPORATION  ("NOR'EASTER"),
COLCHESTER ENTERPRISE PTE. LTD., A COMPANY ORGANIZED UNDER THE LAWS OF SINGAPORE
("COLCHESTER),  AMERICAN  MICRO  COMPUTER  CENTER,  INC., A FLORIDA  CORPORATION
("AMERICAN MICRO"),  ENGENIS.COM LTD., A COMPANY ORGANIZED UNDER THE LAWS OF THE
UNITED KINGDOM ("ENGENIS"),  (COLLECTIVELY,  THE FIVE WHOLLY-OWNED  SUBSIDIARIES
ARE REFERRED TO AS THE "SUBSIDIARIES").


OVERVIEW

           The Company is an independent  distributor of microcomputer products,
including  personal  computers,  memory  modules,  disc  drives  and  networking
products,  to customers  mainly in Western  Europe and to customers  and related
parties in the United States and Asia. The Company's  customers  consist of more
than 770 value-added resellers, corporate resellers, retailers, direct marketers
and   distributors.   The  Company   generally   does  not  sell  to  end-users.
Substantially  all of the  products  sold by the  Company  are  manufactured  by
well-recognized manufacturers such as IBM, Compaq and Hewlett-Packard,  although
the  Company  generally  does  not  obtain  its  inventory  directly  from  such
manufacturers. The Company monitors the geographic pricing strategies related to
such products,  currency  fluctuations and product availability in an attempt to
obtain  inventory at favorable  prices from other  distributors,  resellers  and
wholesalers.

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

           European  Micro  Holdings,  Inc. was organized  under the laws of the
State of  Nevada  in  December  1997 and is the  parent  of  European  Micro UK,
Nor'Easter,  Colchester,  American  Micro  and  Engenis.  European  Micro UK was
organized  under  the  laws  of the  United  Kingdom  in  1991  to  serve  as an
independent distributor of microcomputer products to customers mainly in Western
Europe and to related  parties in the United  States.  Nor'Easter  was organized


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under  the laws of the  State of  Nevada  on  December  26,  1997 to serve as an
independent   distributor  of  microcomputer  products  in  the  United  States.
Colchester  was organized  under the laws of Singapore in November 1998 to serve
as an independent  distributor of microcomputer products in Asia. American Micro
was organized under the laws of the State of Florida on June 24, 1999 to acquire
AMCC and now serves as an independent  distributor of microcomputer  products in
the United States.  Premier Pages, Ltd. was formed on January 28, 2000 and later
changed their name to  Engenis.com  Ltd on June 23, 2000.  Engenis.com  Ltd. was
formed under the laws of the United  Kingdom to serve as a  business-to-business
electronic commerce trading company.

           European  Micro UK is the parent of  European  Micro GmbH  ("EUROPEAN
MICRO GERMANY"),  Sunbelt and European Micro B.V. ("EUROPEAN MICRO HOLLAND") and
has a 50% joint venture  interest in Big Blue Europe,  B.V. ("BIG BLUE EUROPE").
European  Micro  Germany  was  organized  under the laws of  Germany in 1993 and
operates  as a sales  office in  Dusseldorf,  Germany.  As of August  2000,  the
Company  closed the sales  operations of European  Micro  Germany.  Customers of
European Micro Germany will be handled  through  European Micro UK. All products
sold by European  Micro Germany were procured and shipped from the facilities of
European Micro UK. Sunbelt is a company  registered in England and Wales,  which
was established in 1992 and is based in Wimbledon,  England. Sunbelt operated as
a distributor of microcomputer  products to dealers,  value-added  resellers and
mass merchants  throughout  Western Europe.  Except for the  distribution of its
Nova brand products (which was discontinued  effective January 2000),  Sunbelt's
distribution operations were integrated with and into the operations of European
Micro UK.  European  Micro  Holland was  organized  under the laws of Holland in
1995, and operates as a sales office near  Amsterdam,  Holland.  Big Blue Europe
was organized  under the laws of Holland in January 1997 and is a computer parts
distributor with offices located near Amsterdam,  Holland,  selling primarily to
computer  maintenance  companies.  Big  Blue  Europe  has  no  affiliation  with
International Business Machines Corporation.

           European Micro Holding's  headquarters are located at 6073 N.W. 167th
Street,  Unit C-25,  Miami,  Florida  33015,  and its telephone  number is (305)
825-2458.

INDUSTRY

           The microcomputer products industry has grown significantly in recent
years,  primarily due to increasing  worldwide demand for computer  products and
the use of  distribution  channels  by  manufacturers  for the  distribution  of
products.  There are two traditional  distribution channels in the microcomputer
industry: (i) those that sell directly to end-users ("RESELLERS") and (ii) those
that sell to resellers ("DISTRIBUTORS").  Distributors generally purchase a wide
range of products in bulk directly from  manufacturers and then ship products in
smaller quantities to many different types of resellers, which typically include
dealers,  value-added  resellers,  system  integrators,  mail  order  resellers,
computer  products  superstores  and  mass  merchants.   European  Micro  is  an
independent  distributor and generally does not purchase  products directly from
manufacturers but purchases from other distributors.

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

           There are a number of emerging trends in the microcomputer  industry.
Some manufacturers have implemented direct sales business models and reduced the
number of distributors to which they distribute product. These efforts have been
facilitated by the use of the Internet, among other things, and have reduced the
availability  of  products  in the  surplus or  after-market.  The  Company  has
historically  relied upon the surplus or  after-market  to obtain  products  for
resale. The Company expects these trends to continue for the foreseeable future.

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


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management  and credit rather than stocking  large  inventories  themselves  and
maintaining credit lines to finance their working capital needs.

STRATEGY

           The Company's  objectives  are to continue to strengthen its position
as a distributor of  microcomputer  products within Western  Europe,  the United
States  and Asia.  It also  proposes  to  diversify  its  international  trading
operations  into  product  lines  outside  the  microcomputer  industry.   These
objectives are constrained by current  liquidity  considerations of the Company.
Therefore,  the  following  strategies  are dependent on obtaining the necessary
funding:

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

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

           BUSINESS TO BUSINESS  ELECTRONIC  COMMERCE STRATEGY.  The Company has
initiated a business to business electronic commerce strategy,  which is focused
on creating a global, value-added,  information technology equipment and service
trading  community.  The  company  has hired  Cap  Gemini,  a  leading  European
management consultancy and information technology services firm, to assist it in
the  implementation  of this plan.  The Company has  incurred the sum of 755,000
pounds  sterling  ($1,143,000 at exchange rate on June 30, 2000) for feasibility
studies  and  business  process  design.  This amount is  reflected  in selling,
general and administrative expenses on the accompanying  consolidated statements
of operations for the year ended June 30, 2000. The Company has  capitalized the
sum of 229,000  pounds  sterling  ($347,000  at exchange  rate on June 30, 2000)
related to the actual software development. This amount is reflected in property
and equipment,  net on the accompanying  consolidated  balance sheet at June 30,
2000. During May 2000, the Company  temporarily  halted the ongoing  development
being performed by Cap Gemini until specific funding is obtained to complete the
project.  There can be no  assurances  that the Company  will be  successful  in
obtaining funding for this project. In the event the project is not continued by
November 30, 2000,  the Company  will incur a  termination  fee to Cap Gemini of
150,000 pounds  sterling  ($226,995 at exchange rate on June 30, 2000). If paid,
this fee would be  credited  against  future  invoices  of Cap  Gemini  upon the
continuation  of the  project.  During the last  calendar  quarter of 2000,  the
Company will re-evaluate and re-define, where necessary, the current assumptions
and propositions,  based on changes in the market over the last few months. This
planning will include  detailing  the project based on the Company's  ability to
fund the project from current working capital, if funding is still not available
at the originally planned project level.

           FOCUSED  DISTRIBUTION.  The  Company'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


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products from leading  manufacturers are in greater demand, the Company believes
that this results in more  efficient  inventory  management by virtue of greater
inventory turns and, therefore, lower working capital requirements.

PRODUCTS AND CUSTOMERS

           The Company's sales consist of computer  hardware  products,  such as
personal computers,  memory modules, disc drives and networking products,  which
are sold to a customer base of more than 770  value-added  resellers,  corporate
resellers, retailers, direct marketers and distributors. The Company's customers
typically  rely on  distributors  as their  principal  source  of  microcomputer
products.

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

           The  Company  finances a  significant  portion of its total  sales by
extending trade credit. The Company attempts to minimize the risk of such credit
by, among other things,  monitoring  the credit  worthiness of its customers and
insuring some of its accounts receivable. European Micro UK has sought to insure
substantially  all  of  its  accounts  receivable.  Nor'Easter,  Colchester  and
American Micro generally do not insure their accounts receivable. For the fiscal
year  ended  June  30,  2000,  no  single  customer   accounted  for  more  than
approximately  4.1% of the  Company's  total net sales.  Technology  Express,  a
company wholly-owned by Harry D. Shields, who is also Co-President,  Co-Chairman
and a Director of the Company, accounted for about 2.1%, 6.0% and 17.2% of total
net sales for the fiscal year ended June 30, 2000, 1999 and 1998,  respectively.
The  Company  does not believe  the loss of any  customer  would have a material
adverse  effect on its business,  financial  condition or results of operations.
The Company's backlog orders are not considered material to its business.

           The  Company's  operations  involve a single  industry  segment,  the
distribution of microcomputer products.  Historically,  the Company has operated
in one geographic  area--the United  Kingdom--and has exported products from the
United Kingdom to other European  countries and to related parties in the United
States. With the addition of Nor'Easter and American Micro in the United States,
and the  addition of  Colchester  in  Singapore,  the  Company's  sales to third
parties in the United States and Asia have increased.

           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.

SOURCES OF SUPPLY

           The  Company  obtains  its  products  from   distributors  and  other
suppliers  throughout  the world in an attempt to obtain  products at  favorable
prices while also maintaining  continuity of supply. The Company generally makes
its purchases based on the most favorable combination of prices,  quantities and
product  selection,  and therefore its suppliers are  constantly  changing.  The
Company  does not  believe  that the loss of any  single  supplier  would have a
material  adverse effect on its  operations.  For the fiscal year ended June 30,
2000,  the Company  obtained  42.2% of its products  from ten  suppliers  (38.4%
excluding  Technology  Express).  For the fiscal year ended June 30,  1999,  the
Company  obtained  58.4% of its products  from ten  suppliers  (45.7%  excluding
Technology  Express).  For the  fiscal  year ended June 30,  1998,  the  Company
obtained 87.2% of its products from ten suppliers  (80.4%  excluding  Technology
Express).  The continued decrease in the percentage of products sourced from the
top  ten  suppliers  in 2000 is the  result  of an  increase  in the  number  of
suppliers attributable to the start-up growth of Nor'Easter and Colchester.  The
Company does not  generally  obtain  products  directly from  manufacturers  and
generally does not enter into any long-term or distribution  agreements with its
suppliers.  In some  cases  suppliers  are also  customers.  Whenever  possible,
products are purchased with the benefit of price  protection so that the Company
will receive the benefit of a price reduction by the manufacturer.


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           Suppliers  deliver  products  against purchase orders tendered by the
Company.  The Company often  requests  specific  delivery  dates in its purchase
orders and lead times for delivery from suppliers are typically short.  Delivery
is, however, subject to availability,  and, while suppliers have no liability to
the Company for failure to meet a delivery  date,  orders may be canceled by the
Company  where  the terms of an order  have not been met.  From time to time the
Company  experiences  delivery  delays  and  inventory  shortages.  The  Company
believes  that these delays and shortages  are common to other  distributors  of
microcomputer products. The Company does not, like many of its competitors, rely
on a single contractual source of product supply.

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

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

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

SALES AND MARKETING

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

           SALES.   The  Company  markets  its  products  to  distributors   and
resellers,  not end-users. As of June 30, 2000, the Company distributed products
to more than 770 value-added resellers,  corporate resellers,  retailers, direct
marketers and  distributors.  The  Company's  customers  typically  place orders
through a sales  representative.  The  Company  maintains  detailed  information
regarding its current inventory levels and pricing. The Company has historically
experienced a reduction in demand during the summer months.

           MARKETING.  The Company's marketing department monitors and evaluates
national market trends,  price movements and changes in product  specifications.
It is also responsible for developing and implementing the Company's advertising
programs. The marketing department routinely queries the Company's customer base
to ascertain  how  customers  value its  products,  services,  sales and support
compared to its  competitors.  The  feedback  allows the  Company to  constantly
tailor its business to its customers' needs. In 1996,  European Micro introduced
the Premier Dealers Club to attract small and medium sized resellers by offering
them  value-added  procurement  services  that they were not enjoying from their


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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

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

<TABLE>
<CAPTION>

TRADEMARK                        CLASS(1)       NO.               APPLICANT            DATE OF FILING          COMMENTS
---------                        --------       ---               ---------            --------------          --------
<S>                                 <C>      <C>             <C>                        <C>                 <C>
European Micro                       9        438689          European Micro UK          12-23-96            U.K. Trademark granted


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


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


Premier Dealers Club & Logo          9        695072          European Micro UK          12-1-97             Community Trademark
                                                                                                             pending

</TABLE>
---------------------

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


                                       7
<PAGE>


EMPLOYEES

           On  September  29,  2000,  the Company and its  subsidiaries  had the
number of full-time employees set forth in the following table:

NAME                                                    NUMBER OF EMPLOYEES
----                                                    -------------------
European Micro Holdings, Inc.                                    5
European Micro UK                                               30
European Micro Germany                                           1
European Micro Holland                                           1
Nor-Easter                                                       8
Big Blue Europe                                                 15
Colchester                                                       3
American Micro                                                  26
                                                                --
           TOTAL                                                89
                                                                ==

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

CERTAIN BUSINESS RISK FACTORS

           The  Company is subject  to various  risks  which may have a material
adverse effect on its business,  financial  condition and results of operations,
and may result in a decline in the  Company's  stock  price.  Certain  risks are
discussed below:

WE DO NOT HAVE LONG-TERM CONTRACTS WITH SUPPLIERS,  WHICH COULD HARM OUR ABILITY
TO OBTAIN INVENTORY IN ADEQUATE QUANTITIES

           We are an independent  distributor of personal  computers and related
products.  We have not  entered  and do not expect to enter  into any  long-term
distribution arrangements with our suppliers.  Rather, we depend almost entirely
on the availability of product in the surplus market. 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
that will adequately  fulfill all of our customer orders on a timely basis.  Our
failure to obtain adequate product in required  quantities would result in lower
sales and harm customer goodwill.  Moreover,  because we do not utilize supplier
contracts,  we do not enjoy the traditional benefits that they provide,  such as
inventory price protection, market development funds or extended payment terms.

A SIGNIFICANT PORTION OF OUR SALES IS DENOMINATED IN FOREIGN  CURRENCIES,  AND A
STRENGTHENING  OF THE U.S. DOLLAR RELATIVE TO FOREIGN  CURRENCIES MAY REDUCE OUR
SALES AND EARNINGS

           A  significant  portion  of  our  sales  is  denominated  in  foreign
currencies (approximately 66.6% at June 30, 2000), such as the British pound and
the European Economic Union's Euro. If the U.S. dollar strengthens  against such
foreign currencies, then our sales and earnings for financial reporting purposes
will be  lower.  Our sales and  earnings  may also be lower due to  fluctuations
between  foreign  currencies  because on many occasions  inventory is bought and
sold in different foreign currencies.  Accordingly, if the foreign currencies in


                                       8
<PAGE>


which a  significant  amount of sales are made  weaken  relative  to the foreign
currencies  in which  inventory  is  purchased,  then our  company's  sales  and
earnings will be lower.

WE ARE DEPENDENT UPON CERTAIN KEY PERSONNEL, THE LOSS OF WHOM WOULD BE DIFFICULT
OR IMPOSSIBLE TO REPLACE

           Our  success  to  date  has  been  significantly   dependent  on  the
contributions of John B. Gallagher and Harry D. Shields, our founders.  The loss
of the services of either  person would be difficult or  impossible  to replace.
Our  success  also  depends to a  significant  extent upon a number of other key
employees, and the loss of the services of one or more other key employees would
be difficult to replace.  We maintain  key-man  life  insurance  policies on the
lives of Messrs.  Gallagher and Shields.  In addition,  our future  success will
depend in part upon our 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 we will be  successful in
attracting,  training  and  retaining  the  personnel  that we  require  for our
business and planned growth.

WE RELY ON KEY  SUPPLIERS,  THE LOSS OF WHICH  MAY HARM OUR  ABILITY  TO  OBTAIN
PRODUCTS FOR RESALE AT FAVORABLE PRICES OR AT ALL

           We do not  manufacture  any of our own  products  but  rather  resell
products purchased from suppliers. For the year ended June 30, 2000, we obtained
42.2% of our products from ten suppliers (38.5% excluding  Technology  Express).
Accordingly,  we are  highly  dependent  upon such  suppliers  and the loss of a
combination of suppliers would harm our ability to obtain products for resale at
favorable prices or at all.

WE RELY ON CERTAIN KEY PRODUCTS AND OUR INABILITY TO OBTAIN ADEQUATE  QUANTITIES
OF SUCH  PRODUCTS AT FAVORABLE  PRICES OR AT ALL WOULD RESULT IN LOWER SALES AND
PROFITS

           For the  fiscal  year  ended  June 30,  2000,  our ten  best  selling
products  accounted  for a large  portion  of its net  sales.  Accordingly,  our
inability to obtain  adequate  supplies of these  products would result in lower
sales and profits.

WE REPLY ON CERTAIN KEY  CUSTOMERS,  THE LOSS OF A COMBINATION OF SUCH CUSTOMERS
WOULD RESULT IN LOWER SALES AND PROFITS

           For the fiscal year ended June 30, 2000,  our ten largest third party
customers accounted for 24.6% of net sales. None of these customers individually
accounted  for more than about 4.1% of such net  sales.  However,  we are highly
dependent  upon such  customers and the loss of a combination  of such customers
would result in lower sales and profits.

THE INTERESTS OF OUR  MANAGEMENT  MAY CONFLICT WITH THE INTERESTS OF OUR COMPANY
AND THE INTERESTS OF OUR OTHER STOCKHOLDERS

           Our directors and executive  officers  beneficially own approximately
71% of our company's  outstanding  common stock.  These  directors and executive
officers,  acting together, have the ability to elect at least a majority of our
directors. They also have the ability to determine the outcome of most corporate
actions  requiring  stockholder  approval,  including  our  merger  with or into
another entity, a sale of substantially  all of our assets and amendments to our
articles of incorporation. The decisions of these stockholders may conflict with
our company's interests or those of our other stockholders.

WE HAVE  NARROW  PROFIT  MARGINS,  WHICH  MEANS  THAT  VARIATIONS  IN SALES  AND
OPERATING COSTS GREATLY IMPACTS OUR PROFITABILITY

           As a  result  of  intense  price  competition  in  the  microcomputer
products industry,  our company 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,  which
greatly impacts our  profitability.  Our gross margin was 9.8% in the year ended
June 30, 2000.


                                       9
<PAGE>


OUR BUSINESS  REQUIRES  ACCESS TO CAPITAL TO PURCHASE  PRODUCT IN BULK TO OBTAIN
FAVORABLE  PRICES,  THE ABSENCE OF SUCH  CAPITAL  WOULD  PROHIBIT US FROM BUYING
PRODUCT AT FAVORABLE PRICES

           Our business often requires the volume buying of discounted products.
This requires us to have sufficient  available cash or financing.  Our inability
to have  available cash or financing  would prevent us from taking  advantage of
such discounted prices on a timely basis.

THERE  ARE RISKS  ASSOCIATED  WITH  INDEBTEDNESS,  INCLUDING  INTEREST  RATE AND
DEFAULT RISKS

           We  have  incurred   substantial   amounts  of  indebtedness  in  our
operations in recent years. Accordingly, we have dedicated an increasing portion
of cash flow to  servicing  such  indebtedness.  Such  indebtedness  exposes our
company to the risk of increasing  interest rates, as well as default risks. Our
company's assets secure such indebtedness.  Moreover,  the indebtedness  imposes
significant  restrictions  on our company and requires  compliance  with certain
financial covenants. As of June 30, 2000, our company was not in compliance with
six of the financial covenants in the loan agreements.  Our company has received
a waiver through July 1, 2001 of three of the covenants  related to the mortgage
loan  and a waiver  as of June  30,  2000 for  three  covenants  related  to the
Nor'Easter  and American  Micro  facilities  and the term loan.  Our company and
lender  have  amended  the term loan  agreement  in  October  2000 to adjust the
financial covenant requirements. In addition, our company entered into new asset
based  revolving  credit  facilities for each of American Micro and  Nor-Easter.
There can be no  assurances  that we will be able to comply  with such  adjusted
covenants.  If funding is insufficient,  we may be required to delay, reduce the
scope of or  eliminate  some or all of our  expansion  plans and it could have a
material adverse effect on our financial condition and results of operations.


                                       10
<PAGE>


ITEM 2.  PROPERTIES.

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

           European Micro's facilities are described below:

<TABLE>
<CAPTION>
                 LOCATION                                                   SQUARE FEET              LEASE EXPIRATION
                 --------                                                   -----------              ----------------
<S>             <C>                                                             <C>                       <C>
                 Manchester,  UK(warehouse)(1)                                    8,000                    2002
                 Manchester,  UK (offices)(1)                                     7,734                    N/A
                 Dusseldorf, Germany (offices)(2)                                 1,360                    2005
                 Amsterdam, Netherlands
                 (offices and warehouse)(3)                                      18,000                    2002
                 Singapore (office)(4)                                              500                    2001
                 Miami, Florida (offices and warehouse)(5 & 6)                     6500                    2002
                 Nashville, Tennessee (offices)(6)                                  350                    2001
                 Wimbledon, UK (offices and warehouse)(7)                         5,813                    2008
                 Portsmouth, New Hampshire
                 (offices and warehouse)(8)                                       7,700                    2005
</TABLE>
             -------------------------
             (1)  European Micro UK
             (2)  European Micro Germany
             (3)  European Micro Holland & Big Blue Europe 50% Joint Venture
             (4)  Colchester
             (5)  American Micro
             (6)  European Micro Holdings, Inc.
             (7)  Sunbelt
             (8)  Nor'Easter

           All properties are leased except as noted below.

           The Company  utilizes  approximately  350 square feet of office space
and certain equipment owned by Technology  Express for which it is not charged a
fee.

           On July 16, 1999,  European Micro UK purchased the office building in
which they had  previously  been leasing  space for  1,705,000  pounds  sterling
($2,580,000 at June 30, 2000). The purchase price was financed in part by a loan
in the amount of 1,312,000  pounds sterling  ($1,985,000 at June 30, 2000) at an
annual interest rate of 7.6%,  payable over ten years.  The total square footage
of the  building  is  11,603,  of which  3,867  square  feet is being  leased to
unrelated  third  parties.  European  Micro UK continues to lease its  warehouse
space.

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

ITEM 3.  LEGAL PROCEEDINGS.

           On November 12, 1999,  Jeffrey and Marie Alnwick (the "ALNWICKS") and
a New York corporation,  Big Blue Products, commenced an action individually and
derivatively for the Dutch company, Big Blue Europe, against the Company and its
founders  and  officers,  John B.  Gallagher  and Harry D. Shields in the United
States District Court,  Eastern District of New York,  Jeffrey Alnwick and Marie
Alnwick v. European Micro Holdings,  Inc.,  Eastern District of New York, Docket
No. 99 CV 7380 (the "ALNWICK LITIGATION").

           The  complaint  alleges  thirty-three  causes of  action.  Plaintiffs
claim,  in  substance,  that  defendants  breached  oral and written  agreements
relating  to  the  management,   operation  and  funding  of  Big  Blue  Europe.
Specifically,  plaintiffs  allege that  defendants  breached  the joint  venture
agreement by which Big Blue Europe was formed, a licensing  agreement for use of


                                       11
<PAGE>


the "Big Blue" service mark in Europe, a  non-competition  agreement  preventing
Big Blue  Europe  from  operating  in the  United  States  and  several  capital
contribution  agreements.  Plaintiffs also claim that defendants  breached their
fiduciary duties to the Alnwicks,  engaged in fraudulent acts, aided and abetted
breaches  of  fiduciary  duties by others,  misappropriated  trade  secrets  and
interfered with the employment  contract of Big Blue Europe's managing director.
The complaint seeks unspecified  compensatory and punitive  damages,  as well as
injunctive relief restraining defendants from acting in violation of the alleged
agreements.

           Defendants  have moved to dismiss the  complaint  principally  on the
basis  of  forum   non-conveniens  in  favor  of  existing  proceedings  in  the
Netherlands  (commenced by European Micro UK), where a Dutch court has appointed
an independent  director to oversee operations of the company.  Defendants argue
that any dispute  between the  shareholders  and directors of the Dutch company,
Big Blue Europe,  which operates  pursuant to Dutch law, should be resolved by a
Dutch court.

           The  Company  and its  affiliated  defendants  intent to contest  the
claims in the  Alnwick  Litigation  vigorously,  whether  asserted in the United
States or in the Netherlands courts.

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

           None.


                                     PART II

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

           The  Company's  shares of Common  Stock  began  trading on the Nasdaq
National  Market on June 12, 1998,  under the symbol  "EMCC." The Company's high
and low bid prices by quarter during fiscal 2000, 1999 and 1998 are presented as
follows:

<TABLE>
<CAPTION>
                                                                       FISCAL YEAR 2000(1)

                                                                              HIGH                 LOW
                                                                              ----                 ---

<S>          <C>                                                          <C>                   <C>
              First Quarter (July 1999 to September 1999)                   $10.25               $6.50
              Second Quarter (October 1999 to December 1999)                 8.875               4.031
              Third Quarter (January 2000 to March 2000)                     16.50                5.00
              Fourth Quarter (April 2000 to June 2000)                      11.625                2.50

                                                                       FISCAL YEAR 1999(1)

                                                                              HIGH                 LOW
                                                                              ----                 ---

              First Quarter (July 1998 to September 1998)                  $11.375               $4.50
              Second Quarter (October 1998 to December 1998)                 15.75                8.00
              Third Quarter (January 1999 to March 1999)                     13.75                8.50
              Fourth Quarter (April 1999 to June 1999)                       10.50                7.00

                                                                       FISCAL YEAR 1998(1)

                                                                              HIGH                 LOW
                                                                              ----                 ---

              Fourth Quarter ( June 1998)                                   $11.00             $9.9375
</TABLE>

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

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

           On September 11, 2000, the Company had  approximately 43 shareholders
of record. The Company believes that it has in excess of 500 beneficial owners.


                                       12
<PAGE>


DIVIDENDS

           During the fiscal  years ended June 30, 2000 and 1999,  no  dividends
were declared or paid. On February 9, 1998, the Company declared and paid a cash
dividend of $550,000 or $0.1375 per share of Common  Stock.  The  dividends  per
share were  calculated  based on 4,000,000  shares of Common Stock  outstanding.
These  dividends  were declared and paid prior to the Company's  initial  public
offering.  The Company  currently  intends to retain future earnings to fund its
operations  and does not expect such earnings to be distributed in the future to
shareholders  as dividends.  The  declaration  and payment by the Company of any
future  dividends and the amount thereof will depend upon the Company's  results
of  operations,  financial  condition,  cash  requirements,   future  prospects,
limitations  imposed by credit agreements or senior securities and other factors
deemed  relevant by the Board of Directors.  The Company's loan  agreements with
SouthTrust  Bank prohibit the payment of dividends.  The declaration and payment
of dividends,  if at all, by the Company will be at the  discretion of the Board
of Directors.

RECENT SALES OF UNREGISTERED SECURITIES

           None.


ITEM 6.  SELECTED FINANCIAL DATA.

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

           The following  statement of operations  and balance sheet data of the
Company is set forth below for each year in the five-year  period ended June 30,
2000.  The  information  presented  is  derived  from the  audited  consolidated
financial  statements of the Company and should be read in conjunction  with the
consolidated  Financial  Statements as of June 30, 2000 and 1999 and each of the
years in the  three-year  period  ended  June 30,  2000  and the  Notes  thereto
included elsewhere in this filing.

<TABLE>
<CAPTION>
                                                                              YEARS ENDED JUNE 30,

                                                         2000              1999              1998             1997            1996
                                            ------------------ ----------------- ----------------- ---------------- ---------------
STATEMENT OF OPERATIONS DATA:
<S>                                                 <C>               <C>               <C>               <C>             <C>
Net Sales                                            $115,493          $132,206          $111,453          $46,655         $40,348
Income (loss) from operations                         (2,699)             1,935             7,232            2,051           1,478
Net income (loss)                                     (3,207)               854             4,485            1,034             845
Net income (loss) per share
(basic and diluted)                                    (0.64)              0.17              1.10             0.26            0.21
Dividends per share                                     $0.00             $0.00             $0.14            $0.14           $0.24
Weighted average common shares
outstanding, basic                                  5,008,151         4,978,614         4,066,524        4,000,000       4,000,000
Weighted average common shares
outstanding, diluted                                5,008,151         4,989,961         4,087,466        4,000,000       4,000,000


                                                                                    JUNE 30,

                                                          2000             1999              1998               1997          1996
                                            ------------------- ---------------- ------------------ ----------------- -------------
BALANCE SHEET DATA:

Working capital                                         $6,206          $11,844           $12,959             $1,976        $1,474
Total assets                                            30,213           30,599            19,204              8,844         7,857
Long-term debt, net of
  current portion                                        2,373               23                84                 45            37
Shareholders' equity                                    11,110           14,343            13,680              2,511         1,769

</TABLE>


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

           The  following  information  should be read in  conjunction  with the
consolidated financial statements of the Company and the notes thereto appearing
elsewhere in this filing.


                                       13
<PAGE>


           Certain statements within this Item and throughout this Annual Report
on  Form  10-K  and  the  documents  incorporated  herein  are  "forward-looking
statements"  as  described  in  the  "safe  harbor"  provision  of  the  Private
Securities  Litigation Reform Act of 1995. These statements  involve a number of
risks and  uncertainties  and actual results could differ  materially from those
projected.

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

                             PERCENTAGE OF NET SALES

<TABLE>
<CAPTION>
                                                                              YEARS ENDING JUNE 30,
                                                                              ---------------------
                                                                    2000                1999                1998
                                                                    ----                ----                ----
<S>                                                                <C>                 <C>                  <C>
Net sales                                                          98.0%               88.4%                73.9%
Net sales to related parties                                         2.0                11.6                 26.1
                                                                 -------             -------             -------
Total net sales                                                    100.0               100.0                100.0
                                                                 -------             -------             -------
Cost of goods sold                                                (88.2)              (80.1)               (61.4)
Cost of goods sold to related parties                              (2.0)              (11.5)               (25.7)
                                                                 -------             -------             -------
Total cost of goods sold                                          (90.2)              (91.6)               (87.1)
                                                                 -------             -------             -------
Gross profit                                                         9.8                 8.4                 12.9
Operating expenses                                                (12.2)               (6.9)                (6.4)
                                                                 -------             -------             -------
Income (loss) from operations                                      (2.4)                 1.5                  6.5

Interest income                                                      0.1                   -                   -
Interest expense                                                   (0.8)               (0.3)                (0.4)
Equity in net income (loss) of
   unconsolidated subsidiaries                                     (0.2)                   -                    -
                                                                 -------             -------             -------
Income (loss) before income taxes                                  (3.3)                 1.2                  6.1
Income tax expense                                                   0.5               (0.6)                (2.1)
                                                                 -------             -------             -------
Net Income (loss)                                                 (2.8)%                0.6%                 4.0%
                                                                 -------             -------             -------

</TABLE>


YEARS ENDED JUNE 30, 2000 AND 1999

           TOTAL NET SALES.  Total net sales decreased $16.7 million,  or 12.6%,
from  $132.2  million in the year ended June 30,  1999 to $115.5  million in the
comparable  period in 2000.  Excluding net sales to related  parties,  net sales
decreased $3.7 million,  or 3.2%, from $116.9 million in the year ended June 30,
1999 to $113.1  million in the  comparable  period in 2000.  This  decrease  was
attributable  to a reduction  of $9.1  million in the Premier  Dealers  Club,  a
reduction of $18 million from  European  Micro UK's sales  (excluding  Sunbelt's
sales) and a reduction of $6.6 million in  Nor'Easter's  sales.  The decrease in
sales at European  Micro UK and  Nor'Easter  is a result of lower  quantities of
product  available in the surplus or aftermarket  supply channel.  This decrease
was mostly offset by the addition of Sunbelt's sales for a full year (accounting
for approximately  $2.3 million),  the addition of Colchester's sales for a full
year  (accounting for  approximately  $7.3 million) and the addition of American
Micro's sales (accounting for approximately $20.4 million).

           Net sales to  related  parties  decreased  $13.0  million  from $15.3
million in the year ended June 30, 1999 to $2.3 million in the comparable period
in 2000.  This decrease is  attributable  to the  acquisition of AMCC on July 1,
1999, and therefore,  net sales to American Micro  subsequent to acquisition are


                                       14
<PAGE>


no longer included in the  consolidated  financial  statements.  Also,  sales to
Technology Express have decreased as product availability decreased.

           GROSS PROFIT.  Gross profit increased  $265,000,  or 2.4%, from $11.1
million  in the year  ended June 30,  1999 to $11.4  million  in the  comparable
period in 2000.  Gross profit  excluding  related party  transactions  increased
$300,000,  or 2.8%,  from $11.0 million in the year ended June 30, 1999 to $11.3
million in the comparable  period in 2000.  This increase is primarily due to an
increase  in  gross  profits  at  American  Micro  ($2.4  million),   Colchester
($350,000)  and  Nor'Easter  ($100,000).  This increase was partially  offset by
decreases in gross profits at European Micro UK ($2.3 million).

           Gross profit attributable to related party sales decreased $47,000 or
49.0%, from $96,000 in the year ended June 30, 1999 to $49,000 in the comparable
period in 2000.  As  discussed  above,  this  decrease  is  attributable  to the
acquisition  of AMCC on July 1, 1999,  resulting in  transactions  with American
Micro being excluded from the consolidated  financial  statements  subsequent to
acquisition.

           Gross margins  increased from 8.4% in the year ended June 30, 1999 to
9.8% in the comparable  period in 2000.  Excluding  related party  transactions,
gross margin increased from 9.4% in the year ended June 30, 1999 to 10.0% in the
comparable  period in 2000.  This  change is related to the  shortage  of memory
products in the quarter  ended  December 31, 1999,  resulting in higher  selling
prices and gross margin.  However,  the increase was  partially  offset by lower
selling  prices and gross margin on most  products  during the  remainder of the
fiscal year.

           Foreign  exchange losses,  net,  decreased from a loss of $579,000 in
the year ended June 30, 1999 to a loss of $325,000 in the  comparable  period in
2000. This favorable  movement was attributable to the strengthening of the U.K.
pound sterling relative to the Euro and the weakening of the U.K. pound sterling
relative to the U.S. dollar.

           OPERATING  EXPENSES.  Operating expenses as a percentage of total net
sales  increased  from  6.9% in the year  ended  June  30,  1999 to 12.2% in the
comparable  period in 2000.  This increase was the result of a decrease in total
net sales  (accounting  for 1.5% increase) and increases in operating  expenses,
primarily  caused by the legal  expenses  incurred by the Company in  connection
with the Big Blue  lawsuit and the expenses  incurred  with the  evaluation  and
feasibility study for the business to business electronic commerce project.

           INTEREST  EXPENSE.   Interest  expense  increased  by  $518,000  from
$446,000 in the year ended June 30, 1999 to $964,000 in the comparable period in
2000. This was attributable to increased borrowings during the period because of
increased average accounts  receivable and inventory  balances,  the purchase of
the office building and the acquisitions of Sunbelt and AMCC.

           INTEREST IN  UNCONSOLIDATED  SUBSIDIARY.  The Company's share of loss
from Big Blue Europe increased from a loss of $32,000 in the year ended June 30,
1999 to a loss of $188,000 in the comparable period in 2000. This increased loss
is  attributed  to the lack of  direction  at Big Blue Europe as a result of the
disagreements of the owners and the accompanying lawsuit.  During the year ended
June 30, 2000,  European  Micro UK made an unsecured  loan to Big Blue Europe in
the amount of  $150,000.  This loan is due on demand and has an annual  interest
rate of 9.25%,  payable  quarterly.  During the year ended  June 30,  1999,  the
Company  made an  unsecured  loan to Big Blue Europe in the amount of  $350,000.
This loan is due on demand  and has an annual  interest  rate of 9.25%,  payable
quarterly.  Due to the  uncertainties  with the Big Blue Europe  lawsuit and the
operating results of Big Blue Europe,  the Company has recorded an allowance for
the loans to Big Blue Europe of $200,000. The associated charge to operations is
included in fiscal 2000 operating expenses.

           INCOME  TAXES.  Income taxes as a percentage  of income (loss) before
income taxes  decreased from 46.8% in the year ended June 30, 1999, to an income
tax benefit of 15.1% in the comparable period in 2000. This change was primarily
attributable  to accruing a tax benefit  related to the losses at European Micro
UK,  however the Company has not accrued a tax benefit for  operating  losses in
the United States or Singapore as realization is not considered more likely than
not.


                                       15
<PAGE>


YEARS ENDED JUNE 30, 1999 AND 1998

           TOTAL NET SALES.  Total net sales increased $20.8 million,  or 18.6%,
from  $111.4  million in the year ended June 30,  1998 to $132.2  million in the
comparable  period in 1999.  Excluding net sales to related  parties,  net sales
increased $34.5 million, or 41.9%, from $82.4 million in the year ended June 30,
1998 to $116.9  million in the  comparable  period in 1999.  This  increase  was
attributable to the start-up  growth of Nor'Easter  which started its operations
in February 1998 (accounting for approximately  $22.3 million),  the addition of
Sunbelt's trading sales (accounting for approximately $10.8 million), the growth
of the Premier Dealers Club (accounting for approximately  $6.6 million) and the
additional   sales  from  Sunbelt's  Nova  line  of  products   (accounting  for
approximately $1.5 million). This increase was offset by a reduction in European
Micro  UK's  trading  sales  of $6.7  million  which  was  primarily  due to the
exceptional  quarter  ended  March 31,  1998 when the  Company  made a  one-time
purchase of computer  peripherals at favorable prices which were later sold at a
significant mark-up.

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

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

           Gross profit  attributable to related party sales decreased $318,000,
or 76.8%,  from  $414,000  in the year  ended  June 30,  1998 to  $96,000 in the
comparable  period in 1999. The mark-up on sales to related parties is typically
one percent over cost. Therefore,  the gross profit on sales to third parties is
typically higher than the gross profit earned on sales to related parties.  This
represents a gross margin of approximately 0.6%.

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

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

           OPERATING  EXPENSES.  Operating expenses as a percentage of total net
sales  increased  from  6.4% in the  year  ended  June  30,  1998 to 6.9% in the
comparable period in 1999. Commissions and bonus payments to employees decreased
as these payments are tied to the Company's gross profit and gross margin.  This
decrease was offset by increased  operating  expenses  related to the opening of
the Singapore office in November 1998 and  administrative  expenses  incurred by
European Micro Holdings,  Inc.,  which began operations in January 1998, but did
not start to incur substantial expenses until April 1998.


                                       16
<PAGE>


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

           INTEREST IN UNCONSOLIDATED  SUBSIDIARY. The Company's share of income
or loss from Big Blue  Europe  changed  from a gain of $3,000 in the year  ended
June 30,  1998 to a loss of  $32,000  in the  comparable  period  in 1999.  This
reduction in earnings is  attributed  to an increased  provision  for  inventory
obsolescence. During the year ended June 30, 1999, the Company made an unsecured
loan to Big Blue  Europe in the amount of  $350,000.  This loan is due on demand
and has an annual interest rate of 9.25%, payable quarterly.

           INCOME TAXES.  Income taxes as a percentage of earnings before income
taxes  increased  from  34.0% in the year  ended  June 30,  1998 to 46.8% in the
comparable  period in 1999.  This  increase was  primarily  attributable  to the
increase in the tax  provision for European  Micro  Germany  related to transfer
pricing from European  Micro UK,  changes in the  valuation  allowance and other
nondeductible  expenses. The Company's effective income tax rate may increase or
decrease in the future as a result of the Company's  product mix and  variations
in the countries to which the Company sells its products.

NEW ACCOUNTING PRONOUNCEMENTS

DERIVATIVE INSTRUMENTS

           SFAS No.  133,  "Accounting  for  Derivate  Instruments  and  Hedging
Activities,"  was  issued  in June  1998  and as  amended  by SFAS No.  137,  is
effective  for  fiscal  years  beginning  after  June 15,  2000.  SFAS  No.  138
"Accounting for Certain Derivative  Instruments and Certain Hedging Activities",
an  amendment  of FASB No. 135,  was issued  June 2000.  These  statements  were
adopted  effective July 1, 2000,  but will not  materially  impact the Company's
consolidated  financial  statements.  These standards  establish  accounting and
reporting standards for derivative instruments and hedging activities.

REVENUE RECOGNITION

           In December 1999, the Securities and Exchange Commission issued Staff
Accounting  Bulletin 101,  "Revenue  Recognition in Financial  Statements."  The
effective  date has been  deferred  with  respect  to the  Company to the fourth
fiscal quarter of 2001 pending additional  interpretive guidance. The Company is
not able to quantify  the impact of SAB 101 at this time.  However,  there is at
least one issue that could have a material impact on the Company's  consolidated
financial  statements.  For  European  Micro  UK  the  standard  practice  is to
recognize  revenue on shipment.  However,  title to the goods is retained  until
full payment is received from the customer to perfect the Company's  interest in
the goods. Under possible  interpretations,  European Micro UK would not be able
to recognize  revenue until full payment is received.  In the  transition  year,
revenues  would be lower as all sales on the net terms not collected by year-end
would not be recognized.

SEASONALITY

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

LIQUIDITY AND CAPITAL RESOURCES

           The Company's primary cash  requirements are for operating  expenses,
funding accounts  receivable,  the purchase of inventory to support  operations,
taking greater  advantage of available cash discounts  offered by certain of the
Company's  suppliers  for early  payment,  acquisitions  and debt  service.  The
Company has historically funded these cash requirements through a combination of


                                       17
<PAGE>


loans, internally generated cash flow and the net proceeds of its initial public
offering.

           GENERAL.  The Company has  suffered  operating  losses in the current
fiscal year.  Ongoing legal costs associated with the litigation  related to Big
Blue  Europe,  the  costs  associated  with the  Company's  electronic  commerce
strategy,  increases in general overhead costs,  and increased  interest expense
due primarily to increased borrowings, coupled with decreasing sales volumes and
gross profit margins, have negatively impacted operating results.  These factors
may continue to impact the Company's operations.

           The  Company  was  not in  compliance  with  certain  loan  agreement
financial  covenants  during  fiscal year 2000.  While the Company has  obtained
waivers  from these  covenant  violations  existing  at June 30,  2000,  in most
instances the waivers only address the covenant reporting period ending thereon.
Management  believes  that  the  Company  will be able to  comply  with its debt
agreements,  including financial  covenants,  during the fiscal year ending June
30, 2001. However,  compliance with these financial covenants during fiscal 2001
will require improved operating results compared to fiscal 2000.  Management has
initiated certain actions to increase the likelihood of attaining these improved
operating results.  Such actions include,  among other things, (i) modifying the
terms of certain financial covenants, (ii) entering into the Equity Credit Line,
(iii)  temporarily  suspending  activities  related to its  electronic  commerce
strategy until specific  funding can be obtained,  (iv) obtaining  extensions of
the due date for payment of  contingent  earn-out  amounts  relating to calendar
year 2000 under the American Micro purchase  agreement,  (v) adjusting  staffing
levels, and (vi) implementing steps to increase sales volume and lower inventory
levels.  No  assurances  can be  given  that  management's  initiatives  will be
successful, and that loan agreement defaults will not occur in the future.

           Another factor that could negatively  impact the Company's  liquidity
is the terms of the  borrowing  arrangements  of European  Micro UK.  Certain of
European Micro UK's  borrowing  capacity is subject to termination by the lender
at lender's sole discretion.  Further, the American Micro and Nor-Easter line of
credit  facilities  and the  European  Micro  Holdings,  Inc.  term loan contain
subjective  acceleration  clauses.  These factors increase the liquidity risk to
the Company.  Management  believes that, based on the projected fiscal year 2001
operating  results of the Company and its relationship  with the creditors,  its
existing credit arrangements will remain effective during fiscal 2001.

           WORKING  CAPITAL.  Working capital  requirements of European Micro UK
are funded by a combination of line of credit facilities, together with accounts
receivable financing. In both cases, the amounts drawn down accrue the same rate
of  interest  based on a  markup  over the  bank  borrowing  rate in the  United
Kingdom.  The bank line of credit was 2.0 million pounds sterling ($3.0 million)
at June 30, 2000.  The accounts  receivable  financing  provides for a borrowing
base of 85% of accounts receivable,  with a limit of 6.2 million pounds sterling
($9.4  million  on June 30,  2000).  The  limit on trade  receivables  financing
increased from a maximum of 5.5 million  pounds  sterling at June 30, 1999 ($8.3
million at June 30,  1999).  This  facility  can be  terminated  by either party
giving three months'  notice.  The finance company which provides the receivable
financing  facility has full  recourse to European  Micro UK with respect to any
doubtful or unrecovered amounts. Interest is charged on the receivable financing
balance at 1.25% above the bank borrowing rate of 6% at June 30, 2000, and 5% at
June 30, 1999.  European Micro UK also had a revolving credit agreement  secured
against  inventory.  The facility  allowed European Micro UK to borrow up to 3.5
million  pounds  sterling  ($5.3  million  at June 30,  2000) to  assist  in the
purchase of inventory.  This revolving credit  agreement  expired in August 2000
and was renewed, through July 1, 2001, by European Micro UK in September 2000 to
allow for borrowings up to 2.0 million pounds sterling ($3.0 million at June 30,
2000) which are secured by the general  corporate  assets of European  Micro UK.
Borrowings  under the bank line of credit and  revolving  credit  agreement  are
capped  at a  maximum  of 2.0  million  pounds  sterling  outstanding  under the
combined facilities at any point in time.

           Working capital requirements of the Company's operations based in the
United States are funded by two lines of credit.  On October 28, 1999,  American
Micro  and  Nor'Easter  each  obtained  a line of  credit  secured  by  accounts
receivable and  inventory.  Amounts  available  under each of the line of credit
agreements are based upon eligible  accounts  receivable and inventory,  up to a
maximum borrowing amount of $1.5 million for each agreement. Each of these lines
of credit were to mature on October 28, 2000.  Interest accrues at 0.5% over the
bank  borrowing  rate of 9.5% at June 30,  2000.  As partial  security for these
loans,  Messrs.  Gallagher and Shields  pledged to the lender a portion of their
shares of common stock of the Company.  In the event the Company defaults on one


                                       18
<PAGE>


or more of these  loans,  the  lender may  foreclose  on all or a portion of the
pledged  securities.  Such an event may cause a change of control in the Company
because  Messrs.  Gallagher  and  Shields  together  own  71% of  the  Company's
outstanding  common  stock.  The  lines of  credit  agreements  include  certain
financial and  non-financial  covenants and  restrictions.  The agreements  also
contain a provision whereby the lender can declare a default based on subjective
criteria. As of June 30, 2000, the Company was not in compliance with certain of
the financial covenants in the agreements.

           On October 5, 2000,  the  Company  received a waiver of the  covenant
violations  for the June 30,  2000  reporting  date for the  American  Micro and
Nor'Easter  lines of credit.  The Company and the bank  terminated  the existing
lines of credit and entered  into a new  borrowing  arrangement  whereby each of
American Micro and Nor'Easter  will have a working  capital line of credit equal
to the lesser of (i) $1.5  million or (ii) the sum of 85% of  eligible  accounts
receivable,  plus the lesser of 50% of eligible inventory or $750,000.  Interest
will be paid monthly at a floating  rate of 50 basis points over the bank's base
rate.  The term of the new  arrangements  is for one year from the closing date.
The new facilities also require the companies to maintain depository accounts at
the bank,  whose daily receipts will be applied against  outstanding  borrowings
under the lines of credit. As a result, the borrowings are classified as current
liabilities  on the Company's  consolidated  balance sheet at June 30, 2000. The
new facilities also place certain  restrictions on the companies' ability to pay
dividends and to make capital  expenditures,  among other things, and includes a
provision whereby the lender can declare a default based on subjective criteria.
Collateral  under the new credit line  facilities  consists of a first  priority
lien on all assets of  American  Micro and  Nor'Easter.  Messrs.  Gallagher  and
Shields guaranteed the borrowings under these arrangements. These borrowings are
cross-collateralized  and cross-defaulted with borrowings under the $1.5 million
term loan to European Micro Holdings, Inc.

           LONG-TERM  CAPITAL.   The  Company's  long-term  capital  needs  have
historically been met from the sales of securities and long-term borrowings.  In
June 1998, the Company  received $9.3 million in gross proceeds from its initial
public  offering of 933,900 shares of common stock.  The Company  incurred total
expenses in connection  with the offering of $2.2 million.  The Company has used
the proceeds to acquire  Sunbelt and American  Micro and to fund  operations and
provide working capital to European Micro UK, Nor'Easter and Colchester.

           Certain  long-term  funding is supplied to the Company in the form of
capital lease  agreements  and term loans.  The lease  agreements are secured by
vehicles owned by the Company. The agreements are usually for 36 months from the
date of purchase and are typically for 80% of the purchase value of the vehicle.
All but two of the agreements are subject to variable rate interest.  As of June
30, 2000, the borrowings were $49,000,  of which $19,000 was due after more than
one year.

           On October 28, 1999,  the Company  obtained a $1.5 million term loan.
The term loan  agreement  is with the same  lender as the  Nor'easter  Micro and
American Micro line of credit facilities discussed above. Further, the term loan
credit agreement contains similar loan covenant  requirements.  The term loan is
to be repaid with quarterly payments of $125,000 over three years. The term loan
bears interest at the one-month LIBOR plus two and one-quarter percentage points
(2.25%).  One-month  LIBOR at June 30, 2000 was 6.67%.  Three payments have been
made, bringing the balance down to $1,125,000 at June 30, 2000. The term loan is
secured by substantially  all of the assets of the Company.  As partial security
for this loan, Messrs.  Gallagher and Shields pledged to the lender a portion of
their  shares of common  stock of the  Company.  In  addition,  Mr.  Shields has
pledged  personal  assets as  additional  collateral  and has further  agreed to
maintain certain personal financial statement liquidity levels. In the event the
Company  defaults on this loan,  the lender may foreclose on all or a portion of
the  pledged  securities.  Such an event may cause a change  of  control  in the
Company because Messrs.  Gallagher and Shields together own 71% of the Company's
outstanding common stock. The term loan agreement includes certain financial and
non-financial  covenants  and  restrictions.   The  agreement  also  contains  a
provision whereby the lender can declare a default based on subjective criteria.
As described  above,  the Company was not in compliance  with loan covenants for
the June 30, 2000  reporting  period.  The Company has  received a waiver of the
non-compliance  with the financial  covenants.  The amended borrowing  agreement
with the lender includes revised financial covenants.

           On July 1, 1999,  the Company  acquired AMCC for a purchase  price of
$1,131,00,  plus an earn-out.  The portion of the purchase price paid at closing
was funded  through the  Company's  working  capital.  The  contingent  earn-out
payment  relating to two times the after tax earnings for calendar  year 1999 of
approximately $600,000 was paid in March 2000. The remaining earn-out portion of
the  purchase  price  relating to two times the after tax  earnings for calendar


                                       19
<PAGE>


year 2000 is expected to be funded through the Company's working capital,  and a
note payable to the former shareholders of AMCC. Pursuant to the original merger
agreement,  the  remaining  earn-out  portion was to be due no later than May 1,
2001. The former  shareholders of AMCC have agreed that,  until July 1, 2001 and
thereafter  for so long as the  repayment of the earn-out is limited by the loan
covenants with SouthTrust  Bank, the Company will pay the  shareholders  $50,000
per month,  plus 8% interest,  commencing  April 1, 2001.  The remaining  unpaid
earn-out  amount will be payable  July 1, 2001 to the extent not limited by such
covenants.

           On July 16, 1999,  European Micro UK purchased the office building in
which it had  previously  been  leasing  space  for  1,705,000  pounds  sterling
($2,580,000 at June 30, 2000). The purchase price was financed in part by a loan
in the amount of 1,312,000 pounds sterling  ($1,985,000 at June 30, 2000).  This
loan calls for  monthly  payments  of  principal  and  interest in the amount of
15,588 pounds sterling  ($23,589 at June 30, 2000) and matures in July 2009. The
mortgage  loan note bears  interest at a fixed rate of 7.6%.  The mortgage  loan
note includes certain  financial and  non-financial  covenants and restrictions.
The agreement also contains a provision whereby the lender can declare a default
based on subjective  criteria.  The financial  covenants are measured  using the
financial  results of European  Micro UK as of each fiscal year end.  Based upon
European Micro UK's fiscal year end operating results, European Micro UK was out
of  compliance  with one of the  covenant  requirements  at June 30,  2000.  The
Company has obtained a waiver through July 1, 2001 of this non-compliance.

           On August 24, 2000,  European Micro  Holdings,  Inc.  entered into an
Equity Line of Credit (the "EQUITY CREDIT LINE").  Pursuant to the Equity Credit
Line,  an  institutional  investor  agreed to acquire  up to $20  million of the
Company's  common stock at a purchase  price equal to 88% of the market price of
such stock, as defined in the agreement.  The timing of each sale and the number
of shares to be sold is at the  discretion  of the  Company,  subject to various
conditions,  including shareholder approval and an effective registration of the
shares. The dollar amount that the Company can request under any individual sale
is subject to the average  trading volume of the Company's  common stock for the
preceding  25-day trading period.  The maximum term of the Equity Credit Line is
30  months  from the  date of the  agreement.  The  agreement  contains  various
representations,  warranties and covenants by the Company, including limitations
on the Company's ability to sell common stock or common stock equivalents,  sell
assets, merge, or enter into certain other transactions.

           FISCAL  YEAR  ENDED  JUNE  30,  2000.  Net  cash  used  in  operating
activities for fiscal 2000 amounted to $1.2 million.  Significant factors in the
use of cash were a net loss in the period of $3.2  million,  a decrease in trade
payables,  net of effects  from  acquisitions,  of $2.4  million,  a decrease in
accrued expenses and other  liabilities,  net of effects from  acquisitions,  of
$1.1  million,  and a decrease  in income  taxes  payable,  net of effects  from
acquisitions  of  $0.4  million.  The  amount  of  cash  used  in the  Company's
operations  was  partially  offset by a decrease  in trade  receivables,  net of
effects from acquisitions, of $2.5 million, a decrease is due from related party
of $1.1 million and a decrease in inventory,  net of effects from  acquisitions,
of $3.0 million.

           Cash used in  investing  activities  amounted to $5.3  million.  This
consisted of expenditures on fixed assets of $3.4 million,  largely the purchase
of European Micro UK's office building, the sale of fixed assets of $56,000, the
acquisitions of American Micro of $1.8 million and an advance to Big Blue Europe
of $150,000.

           Cash provided by financing activities was $4.7 million, of which $2.0
million was provided by an increase in the short-term  borrowings,  net and $3.5
million was provided by proceeds  from  long-term  borrowings.  These  long-term
borrowings  consisted of $2.1 million provided by the proceeds from the mortgage
loan secured by European Micro UK's office building and $1.5 million provided by
a term loan.  Repayments on long-term  borrowings  were $110,000 to pay down the
mortgage loan on the  building,  $375,000 to pay down the term loan and $300,000
to pay down borrowings assumed from the acquisition of AMCC.

           FISCAL  YEAR  ENDED  JUNE  30,  1999.  Net  cash  used  in  operating
activities for fiscal 1999 amounted to $8.8 million.  Significant factors in the
use of cash were a decrease in trade payables, net of effects from acquisitions,
of $1.1 million, an increase in inventories, net of effects from acquisitions of
$5.4  million  and  an  increase  of  trade  receivables,  net of  effects  from
acquisitions  of $3.0  million.  The  decrease  in trade  payables  was  largely
attributable to paying down the large payables  balance that was acquired in the
Sunbelt acquisition. The increase in inventory was largely attributable to large
quantity  purchases of computer products at prices which the Company  considered
to be favorable  and a relatively  low level of inventory at June 30, 1998.  The
increase in trade  receivables is largely  attributable to the increase in third
party sales.  The amount of cash used in the Company's  operations was partially


                                       20
<PAGE>


offset by net income in the period of $854,000,  cash generated from a reduction
in other current assets of $1.8 million,  primarily related to the prepayment of
inventory at June 30, 1998 of $2.0 million.

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

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

           FISCAL  YEAR  ENDED  JUNE  30,  1998.   Cash  provided  by  operating
activities for fiscal 1998 amounted to $1.6 million.  Significant factors in the
generation  of cash were net income for the year of $4.5 million and an increase
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.

ASSET MANAGEMENT

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

           ACCOUNTS RECEIVABLE. The Company sells its products and services to a
customer  base of more  than 770  value-added  resellers,  corporate  resellers,
retailers and direct  marketers.  The Company  offers credit terms to qualifying
customers and also sells on a pre-pay and  cash-on-delivery  basis. With respect
to credit  sales,  the  Company  attempts  to control  its bad debt  exposure by
monitoring   customers'   creditworthiness   and,  where  practicable,   through
participation  in  credit  associations  that  provide  customer  credit  rating
information for certain accounts. Also, substantially all of European Micro UK's
accounts  receivables  are insured.  Nor'Easter,  Colchester  and American Micro
generally do not insure their accounts receivable.

CURRENCY RISK MANAGEMENT

           REPORTING  CURRENCY.  European  Micro  Holding's,   Nor'Easter's  and
American Micro's reporting and functional  currency,  as defined by Statement of
Financial  Accounting  Standards  No.  52, is the U.S.  dollar.  The  functional
currency of European  Micro UK is the U.K.  pound sterling and Colchester is the
Singapore dollar.  European Micro UK and Colchester translate into the reporting
currency by measuring assets and liabilities  using the exchange rates in effect
at the balance sheet date and results of operations  using the average  exchange
rates prevailing during the period.


                                       21
<PAGE>


           HEDGING AND CURRENCY MANAGEMENT ACTIVITIES.  The Company occasionally
hedges to guard against  currency  fluctuations  between the U.K. pound sterling
and the U.S. dollar. Because the functional currency of European Micro Holding's
main  operating  subsidiary,  European  Micro  UK, is the U.K.  pound  sterling,
currency fluctuations of the U.K. pound sterling relative to the U.S. dollar may
have a material adverse effect on the Company's  business,  financial  condition
and results of operations.  The Company may engage in hedging  activities in the
future,  although  no  assurances  can be  given  that  it will  engage  in such
activities and if it does so that such activities will be successful.

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

           ECONOMIC  AND  MONETARY  UNION.  On January  1,  1999,  eleven of the
fifteen member  countries of the European  Union  established  fixed  conversion
rates between their existing sovereign  currencies and a new currency called the
"Euro." These countries  adopted the Euro as their common legal currency on that
date.  The Euro is trading on currency  exchanges  and is available for non-cash
transactions.  Until January 1, 2002,  the existing  sovereign  currencies  will
remain  legal  tender  in these  countries.  On  January  1,  2002,  the Euro is
scheduled to replace the sovereign legal currencies of these countries.  Through
the  operations  of European  Micro UK, the Company has  significant  operations
within the European  Union,  including  many of the countries  which adopted the
Euro.  The Company  continues  to evaluate the impact that the Euro will have on
its continuing  business operations and no assurances can be given that the Euro
will not have a material  adverse  effect on the Company's  business,  financial
condition and results of  operations.  However,  the Company does not expect the
Euro to have a material effect on its competitive  position as a result of price
transparency  within the  European  Union  because the Company  does not rely on
currency  imbalances in purchasing  inventory from within the European Union. In
the first two quarters of trading,  the Euro devalued against sterling by 12.2%,
adversely affecting the value of the Company's trade receivables  denominated in
Euros. Going forward,  the Company cannot accurately predict the impact the Euro
will have on currency  exchange  rates or the Company's  currency  exchange rate
risk. The Internal Revenue Service ("IRS") has requested comments on various tax
issues raised by the Euro conversion.  The IRS is expected to publish guidelines
on this issue and, until such time,  the Company cannot predict  whether the IRS
guidelines will have any tax consequences on the Company.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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

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

EXCHANGE RATE SENSITIVITY

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


                                       22
<PAGE>


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

<TABLE>
<CAPTION>
                                                         EXPECTED
                                                       MATURITY OR
                                                     TRANSACTION DATE                 FAIR VALUE

FOREIGN CURRENCY EXCHANGE CONTRACTS

JUNE 30, 2000

<S>                                            <C>                                <C>
  (Receive $US / pay(pound))                           July 19, 2000
  Contract amount (in thousands)                         $2,000                          $2,012
  Average contractual exchange rate             1.5045 $US /(pound)1

JUNE 30, 1999

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

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

</TABLE>

           Foreign currency losses, net were $325,000 in 2000,  $579,000 in 1999
and $510,000 in 1998.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

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

<TABLE>
<CAPTION>
                     ($ IN THOUSANDS, EXCEPT PER SHARE DATA)


                                                                                                 NET INCOME (LOSS) PER SHARE
JUNE 30, 2000                       NET SALES          GROSS PROFIT          NET INCOME               (BASIC AND DILUTED)
-------------                       ---------          ------------          ----------               -------------------
<S>                                 <C>                   <C>                 <C>                        <C>
First Quarter                        $32,764               3,697                  207                     $ 0.04
Second Quarter                        34,545               3,704                   11                       0.00
Third Quarter                         24,354               1,855               (1,308)                     (0.26)
Fourth Quarter                        23,830               2,095               (2,117)                     (0.42)


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


                                       23
<PAGE>


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

</TABLE>


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 October 30, 2000.

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

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

           (a)(3)  EXHIBITS.

<TABLE>
<CAPTION>

EXHIBIT
NO.            DESCRIPTION                                         LOCATION
---            -----------                                         --------
<S>            <C>                                                 <C>

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

     2.02      Merger Agreement re: AMCC dated June 29, 1999       Incorporated by reference to Exhibit 2.02
                                                                   to Registrant's From 10-K for the year
                                                                   ended June 30, 1999.

     2.03      Plan of 1999 Merger re: AMCC dated June 29, 1999    Incorporated by reference to Exhibit 2.03
                                                                   to Registrant's From 10-K for the year
                                                                   ended June 30, 1999.

     2.04      Articles of Merger re: AMCC dated June 29, 1999     Incorporated by reference to Exhibit 2.04
                                                                   to Registrant's Form 10-K for the year
                                                                   ended June 30, 1999.

     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).



                                                 24
<PAGE>

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

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

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

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

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

     4.03      1998 Stock Employee Stock 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 NatWest  Incorporated by reference to Exhibit No.
               Discounting Limited, dated November 21, 1996        10.02 to the Registration Statement.

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

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

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

    10.06      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

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

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

    10.09      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



                                                 25
<PAGE>

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

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


    10.11      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

    10.12      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

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

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

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

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

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

    10.18      Employment Agreement dated July 1, 1999 between     Incorporated by reference to Exhibit 10.21
               John B. Gallagher and American Micro                to Registrant's Form 10-K for the year
                                                                   ended June 30, 1999.

    10.19      Revolving Loan Agreement dated October 5, 2000      Provided herewith.
               between American Micro and SouthTrust Bank re:
               Line of Credit to American Micro

    10.20      First Amendment to Loan Agreement dated October 5,  Provided herewith.
               2000 among the Company, American Micro, Nor'Easter
               and SouthTrust Bank, N.A. re: Term Loan to the
               Company

    10.21      Revolving Loan Agreement dated October 5, 2000      Provided herewith.
               between Nor'Easter and SouthTrust Bank re: Line of
               Credit to Nor'Easter

    10.22      Loan Agreement dated October 28, 1999 among the     Incorporated by reference to Exhibit 10.23
               Company, American Micro, Nor'Easter and SouthTrust  to Registrant's Form 10-Q for the quarter
               Bank, N.A. re: Term Loan to the Company             ended September 30, 1999.



                                                 26
<PAGE>

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

    10.23      Security Agreement dated October 5, 2000 between    Provided herewith.
               Nor'Easter and SouthTrust Bank

    10.24      Security Agreement dated October 5, 2000 between    Provided herewith.
               American Micro and SouthTrust Bank

    10.25      Line of Credit Note given by Nor'Easter to          Provided herewith.
               SouthTrust Bank

    10.26      Line of Credit Note given by American Micro to      Provided herewith.
               SouthTrust Bank

    10.27      Unconditional Guaranty given by Harry Shields to    Provided herewith.
               SouthTrust Bank Re: American Micro

    10.28      Unconditional Guaranty given by John Gallagher to   Provided herewith.
               SouthTrust Bank Re: American Micro

    10.29      Amended and Restated Unlimited Guaranty Agreement   Provided herewith.
               dated October 5, 2000 between Harry Shields and
               SouthTrust Bank

    10.30      Amended and Restated Unlimited Guaranty Agreement   Provided herewith.
               dated October 5, 2000 between John Gallagher and
               SouthTrust Bank

    10.31      Unconditional Guaranty given by John Gallagher to   Provided herewith.
               SouthTrust Bank Re: Nor'Easter

    10.32      Unconditional Guaranty given by Harry Shields to    Provided herewith.
               SouthTrust Bank Re: Nor'Easter

    10.33      Specific Agreement for the Provision of             Incorporated by reference to Exhibit 10.25
               Professional Services dated as of March 17, 2000    to Registrant's Form 10-Q for the quarter
               between the Company and Cap Gemini UK Plc           ended March 31, 2000.

    10.34      Equity Line of Credit Agreement dated as of August  Provided herewith.
               24, 2000, between the Company and Spinneret
               Financial System, Ltd.

    10.35      Registration Rights Agreement dated as of August    Provided herewith.
               24, 2000, between the Company and Spinneret
               Financial System, Ltd.

    10.36      Warrant to Purchase Common Stock dated as of        Provided herewith.
               August 24, 2000, given by the Company to the May
               Davis Group, Inc.

    10.37      Warrant to Purchase Common Stock dated as of        Provided herewith.
               August 24, 2000, given by the Company to the May
               Davis Group, Inc.

    10.38      Registration Rights Agreement dated as of August    Provided herewith.
               24, 2000, between the Company and the May Davis
               Group, Inc.

    10.39      Placement Agent Agreement dated as of August 24,    Provided herewith.
               2000, between the Company and the May Davis Group,
               Inc.

    11.01      Statement re: Computation of Earnings               Provided herewith.


                                                 27
<PAGE>

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

    15.01      Letter re: Unaudited Financial Information          Not applicable.

    18.01      Letter re Change in Accounting Principles           Not applicable.

    19.01      Report Furnished to Security Holders                Not applicable.

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

    23.01      Consents of experts and counsel                     Provided herewith.

    24.01      Power of Attorney                                   Not applicable.

    27.01      Financial Data Schedule                             Provided herewith.

         (b)      Reports on Form 8-K.

         None.
</TABLE>






                                                 28
<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:  October 11, 2000.

                                       EUROPEAN MICRO HOLDINGS, INC.

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

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

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

/s/ Harry D. Shields
-------------------------------       Co-Chairman;             October 11, 2000
Harry D. Shields                      Co-President
                                      Principal
                                      Executive
                                      Officer);
                                      Director

/s/ John B. Gallagher
-------------------------------       Co-Chairman;             October 11, 2000
John B. Gallagher                     Co-President
                                      (Principal
                                      Executive
                                      Officer);
                                      Director

/s/ Jay Nash
-------------------------------       Chief Financial          October 11, 2000
Jay Nash                              Officer
                                      and Controller
                                      (Principal
                                      Financial
                                      Officer and
                                      Controller)

/s/ Laurence Gilbert
-------------------------------       Director                 October 11, 2000
Laurence Gilbert

/s/ Kyle R. Saxon
-------------------------------       Director                 October 11, 2000
Kyle R. Saxon

/s/ Barrett Sutton
-------------------------------       Director                 October 11, 2000
Barrett Sutton


                                       28

<PAGE>
                        INDEX TO THE FINANCIAL STATEMENTS



EUROPEAN MICRO HOLDINGS, INC.

Independent Auditors' Report                                                 F-2

Consolidated Balance Sheets as of June 30, 2000 and 1999                     F-3

Consolidated Statements of Operations for the years ended
June 30, 2000, 1999 and 1998                                                 F-4

Consolidated Statements of Changes in Shareholders' Equity
for the years ended June 30, 2000, 1999 and 1998                             F-5

Consolidated Statements of Cash Flows for the years ended
June 30, 2000, 1999 and 1998                                                 F-6

Notes to Consolidated Financial Statements                                   F-8


<PAGE>






                          INDEPENDENT AUDITORS' REPORT


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

We have audited the consolidated balance sheets of European Micro Holdings, Inc.
and  subsidiaries  as of June 30, 2000 and 1999,  and the  related  consolidated
statements of operations,  shareholders'  equity, and cash flows for each of the
years in the three-year period ended June 30, 2000. 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 of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the  financial  position of European  Micro
Holdings,  Inc. and subsidiaries as of June 30, 2000 and 1999 and the results of
their  operations  and their cash flows for each of the years in the  three-year
period ended June 30, 2000 in conformity  with accounting  principles  generally
accepted in the United States of America.






/s/ KPMG LLP


Nashville, Tennessee
August 24, 2000, except as to notes 3, 9 and 10,
which are as of October 5, 2000


                                      F-2
<PAGE>


<TABLE>
<CAPTION>
                                     EUROPEAN MICRO HOLDINGS, INC. AND SUBSIDIARIES
                                               CONSOLIDATED BALANCE SHEETS
                                            (In thousands, except share data)

<S>                                                                        <C>                  <C>
                                                                           JUNE 30, 2000        JUNE 30, 1999
                                                                       -----------------------------------------
                          ASSETS
CURRENT ASSETS:
  Cash                                                                            $1,222               $3,168
  Restricted Cash                                                                    364                  379
  Trade receivables, net                                                          13,160               14,938
  Due from related parties                                                             -                1,128
  Inventories, net                                                                 6,194                7,232
  Prepaid expenses                                                                   322                  402
  Income taxes receivable                                                            909                    -
  Other current assets                                                               765                  562

                                                                                ---------            ---------
      TOTAL CURRENT ASSETS                                                        22,936               27,809
  Property and equipment, net                                                      3,927                  612
  Goodwill, net                                                                    2,808                1,675
  Investments in and advances to unconsolidated subsidiaries                         252                  503
  Other assets                                                                       290                    -

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

      TOTAL ASSETS                                                               $30,213              $30,599
                                                                                 =======              -------


                                          LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
  Short-term borrowings                                                          $11,903               $8,614
  Current portion of long-term borrowings                                            678                    -
  Trade payables                                                                   2,256                3,484
  Accrued expenses and other current liabilities                                   1,882                2,851
  Due to related parties                                                              11                  633
  Income taxes payable                                                                 -                  383
                                                                                ---------            ---------

      TOTAL CURRENT LIABILITIES                                                   16,730               15,965
  Long-term borrowings                                                             2,373                   23
  Other liabilities                                                                   -                   268

                                                                                ---------            ---------
      TOTAL LIABILITIES                                                          $19,103              $16,256
                                                                                ---------            ---------

SHAREHOLDERS' EQUITY:
  Preferred stock $0.01 par value shares:  1,000,000 authorized no shares
    issued and outstanding                                                             -                    -
  Common stock $0.01 par value shares:  20,000,000 authorized,
    4,933,900 shares issued and outstanding,                                          49                   49
  Additional paid-in capital                                                       9,191                8,979
  Accumulated other comprehensive loss                                             (550)                (312)
  Retained earnings                                                                2,420                5,627

                                                                                ---------            ---------
      TOTAL SHAREHOLDERS' EQUITY                                                  11,110               14,343
                                                                                ---------            ---------

      COMMITMENTS, CONTINGENCIES AND SUBSEQUENT EVENTS

      TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                 $30,213              $30,599
                                                                                ========             ========
See accompanying notes to consolidated financial statements.

</TABLE>


                                                        F-3
<PAGE>


                                 EUROPEAN MICRO HOLDINGS, INC. AND SUBSIDIARIES

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

<TABLE>
<CAPTION>
<S>                                                     <C>             <C>               <C>

                                                              YEARS ENDED JUNE 30,
                                            ---------------------------------------------------
                                                        2000            1999            1998
                                                        ----            ----            ----
SALES:
  Net sales                                         $113,124        $116,866         $82,361
  Net sales to related parties                         2,369          15,340          29,092
                                                    --------        --------        --------

      Total net sales                                115,493         132,206         111,453
                                                    --------        --------        --------

COST OF GOODS SOLD:
 Cost of goods sold                                (101,822)       (105,876)        (68,380)
 Cost of goods sold to related parties               (2,320)        (15,244)        (28,678)
                                                    --------        --------        --------

     Total cost of goods sold                      (104,142)       (121,120)        (97,058)
                                                    --------        --------        --------
GROSS PROFIT                                          11,351          11,086          14,395

OPERATING EXPENSES:
  Selling, general and administrative
    expenses                                        (14,050)         (9,151)         (7,059)
                                                    --------        --------        --------
  Expenses attributable to related
     parties                                               -               -           (104)
                                                    --------        --------        --------
    Total operating expenses                        (14,050)         (9,151)         (7,163)
                                                    --------        --------        --------

INCOME (LOSS) FROM OPERATIONS                        (2,699)           1,935           7,232

Interest income                                           74             147              22
Interest expense                                       (964)           (446)           (459)
Equity in net (loss) income of
  unconsolidated subsidiaries                          (188)            (32)               3
                                                    --------        --------        --------

INCOME (LOSS) BEFORE INCOME TAXES                    (3,777)           1,604           6,798

  Income tax (expense) benefit                           570           (750)         (2,313)
                                                    --------        --------        --------

NET INCOME (LOSS)                                   $(3,207)            $854          $4,485

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

Net income (loss) per share - basic                  $(0.64)           $0.17           $1.10

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

Net income (loss) per share - diluted                $(0.64)           $0.17           $1.10

                                                    ========        ========        ========
</TABLE>

See accompanying notes to consolidated financial statements.


                                                F-4
<PAGE>


<TABLE>
<CAPTION>                                          EUROPEAN MICRO HOLDINGS, INC. AND SUBSIDIARIES

                                           CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                                   (In thousands, except share data)
<S>                                    <C>                   <C>            <C>                <C>           <C>
                                                                              ACCUMULATED
                                                              ADDITIONAL         OTHER                            TOTAL
                                                                PAID-IN      COMPREHENSIVE      RETAINED      SHAREHOLDERS'
                                          COMMON STOCK          CAPITAL      INCOME (LOSS)      EARNINGS         EQUITY
                                      ----------------------- ------------- ------------------ ------------- ----------------
                                          SHARES      AMOUNT
                                          ------      ------
                                      ---------------------------------------------------------------------------------------
Balance at June 30, 1997               4,000,000         $40        $1,624                $21          $826           $2,511
                                      ---------------------------------------------------------------------------------------
Comprehensive Income:
    Net income                                 -           -             -                  -         4,485            4,485
    Other comprehensive income
       for foreign currency
       translation adjustment                  -           -             -                 35            40               75
                                                                            -------------------------------------------------
    Total comprehensive income                 -           -             -                 35         4,525            4,560

Dividends declared ($0.14 per
    share)                                     -           -             -                  -         (550)            (550)
Issuance of common stock, net of
   $2,180 in offering costs              933,900           9         7,150                  -             -            7,159
Compensation charge in relation
   to share options issued to non-
   employees                                   -           -            28                  -          (28)                -

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

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


Comprehensive Income:
     Net loss                                                                                       (3,207)          (3,207)
    Other comprehensive income
     for foreign currency
      translation adjustment                                                            (238)             -            (238)
                                                                            -------------------------------------------------
    Total comprehensive loss                                                            (238)       (3,207)          (3,445)
Adjustment to accrued offering costs

Compensation charge in relation to                                     156                                               156
   share options issued to
   non-employees                                                        56                                                56
                                      ---------------------------------------------------------------------------------------
Balance at June 30, 2000               4,933,900         $49        $9,191             $(550)        $2,420          $11,110
                                      =======================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.


                                      F-5
<PAGE>

<TABLE>
<CAPTION>
                                   EUROPEAN MICRO HOLDINGS, INC. AND SUBSIDIARIES
                                       CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                   (In thousands)
<S>                                                                   <C>               <C>             <C>
                                                                                   YEARS ENDED JUNE 30,
                                                               --------------------------------------------------
                                                                           2000             1999            1998
                                                                           ----             ----            ----
OPERATING ACTIVITIES:
Net income (loss)                                                      $(3,207)             $854          $4,485
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH (USED
IN) PROVIDED BY OPERATING ACTIVITIES
  Depreciation and amortization                                             553              323             192
  Amortization expense related to contingent
     earn-out provisions                                                     47              112               -
  Deferred income taxes                                                   (194)             (15)            (80)
  Equity in net loss (income) of
     unconsolidated subsidiaries                                            188               32             (3)
  Compensation charge for non-employee stock options                         56              202               -
 Provision for note receivable impairment                                   200                -               -
CHANGES IN ASSETS AND LIABILITIES, NET OF EFFECTS FROM
ACQUISITIONS
  Restricted cash                                                             -            (379)               -
  Trade receivables                                                       2,498          (3,034)         (2,250)
  Due from related parties                                                1,128            (230)           (329)
  Inventories                                                             2,955          (5,407)           (155)
  Prepaid expenses and other current assets                                  38            1,840         (2,651)
  Income taxes receivable                                                 (909)                -               -
  Trade payables                                                        (2,374)          (1,139)           (400)
     Accrued expenses and other liabilities                             (1,127)            (168)             585
  Due to related parties                                                  (622)              395              50
  Income taxes payable                                                    (383)          (2,194)           2,202

                                                                        -------          -------         -------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES                     (1,153)          (8,808)           1,646
                                                                        -------          -------         -------
INVESTING ACTIVITIES:
  Purchase of fixed assets                                              (3,407)            (155)           (596)
  Sale of fixed assets                                                       56                7             175
  Advances to unconsolidated subsidiaries                                 (150)            (350)               -
  Payment for acquisitions, net of cash acquired                        (1,834)            (720)               -

                                                                        -------          -------         -------
NET CASH USED IN INVESTING ACTIVITIES                                   (5,335)          (1,218)           (421)
                                                                        -------          -------         -------
FINANCING ACTIVITIES:
  Short-term borrowings, net                                              2,040            8,614         (3,257)
  Proceeds from long-term borrowings                                      3,485                -               -
  Repayment of long-term borrowings                                       (785)                -               -
  Dividends paid                                                              -                -           (550)
  Issuance of common stock, net                                               -             (25)           7,159
  Repayment of capital leases                                              (72)             (74)              65
                                                                        -------          -------         -------
NET CASH PROVIDED BY FINANCING ACTIVITIES                                 4,668            8,515           3,417
                                                                        -------          -------         -------
Exchange rate changes                                                     (126)            (333)              82
                                                                        -------          -------         -------
NET INCREASE (DECREASE) IN CASH                                         (1,946)          (1,844)           4,724
Cash at beginning of year                                                 3,168            5,012             288
                                                                        -------          -------         -------
CASH AT END OF YEAR                                                      $1,222           $3,168          $5,012
                                                                        =======          =======         =======

</TABLE>


                                                        F-6
<PAGE>

<TABLE>
<CAPTION>

                                  EUROPEAN MICRO HOLDINGS, INC. AND SUBSIDIARIES

<S>                                                                   <C>               <C>             <C>

NON-CASH INVESTING AND FINANCING ACTIVITIES:
Fair value of assets acquired                                           $3,314            $4,302               -
Goodwill                                                                 1,418             1,731               -
Fair value of liabilities assumed                                      (2,817)           (4,103)               -
Notes issued for consideration                                               -           (1,083)               -
                                                                        -------          -------         -------
Cash paid for acquisitions                                              $1,915              $847               -
Less cash acquired                                                        (81)             (127)               -

                                                                        -------          -------         -------
Net cash paid for acquisitions                                          $1,834              $720               -

                                                                        =======          =======         =======
Interest paid                                                             $532              $513            $478

                                                                        =======          =======         =======
Taxes paid                                                              $1,022            $2,637            $191

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

</TABLE>

See accompanying notes to consolidated financial statements.


                                                        F-7
<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. European Micro Holdings,  Inc. and
         its  subsidiaries  are hereinafter  referred to as "European  Micro" or
         "the  Company." The  following  companies'  results of  operations  and
         financial  position  have been included in the  consolidated  financial
         statements as follows:
<TABLE>
<CAPTION>
<S>                                            <C>                 <C>                <C>
                                                                    COMMENCED
         COMPANIES                              INCORPORATED         TRADING           ACQUIRED
                                               --------------- -------------------------------------
         European Micro Holdings, Inc.              1997              1998                -
         Nor'Easter Micro Inc.                      1997              1998                -
         European Micro Plc                         1991              1992                -
         European Micro GmbH                        1993              1993                -
         European Micro BV                          1997              1997                -
         Colchester Enterprise Pte. Ltd.            1998              1999                -
         Sunbelt (UK) Limited                        -                  -          October 26, 1998
         American Micro Computer Center, Inc.        -                  -            July 1, 1999
         Engenis.com Ltd.                           2000                -                 -

</TABLE>

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

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



2        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

         PRINCIPLES OF CONSOLIDATION

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

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

         USE OF ESTIMATES

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


                                      F-8
<PAGE>


                 EUROPEAN MICRO HOLDINGS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         REVENUE AND EXPENSE RECOGNITION

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

         INVENTORIES

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

         PROPERTY & EQUIPMENT

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

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

         IMPAIRMENT OF LONG-LIVED ASSETS

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

         GOODWILL

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

         INCOME TAXES

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


                                      F-9
<PAGE>


                 EUROPEAN MICRO HOLDINGS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         FINANCIAL INSTRUMENTS

         The Company enters into foreign currency  exchange  contracts to reduce
         exposure  to  foreign   currency   fluctuations   associated  with  the
         settlement of  inter-company  receivables  and payables  denominated in
         foreign   currencies.   Foreign  exchange   contracts   generally  have
         maturities  of less  than one year  and are  accounted  for on the fair
         value method.  Gains and losses  resulting from these  instruments  are
         recognized  in the  same  period  as the  underlying  foreign  currency
         transaction  gains and losses and are  included  in cost of sales.  The
         Company  does not use  foreign  currency  exchange  contracts  or other
         derivative  financial  instruments for speculative or trading purposes.
         The notional amount of the Company's foreign exchange contracts at June
         30, 2000 and 1999 was $2,000,000 and $3,225,000, respectively, versus a
         fair value of $2,012,000 and $3,159,000, respectively.

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

         FOREIGN CURRENCY

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

         STOCK OPTION PLANS

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

         The value of stock options granted to  non-employees,  calculated using
         the black scholes option  pricing model,  are expensed over the vesting
         period.

         EARNINGS PER SHARE
         Basic  earnings  per share is computed  based on the  weighted  average
         shares outstanding,  including  contingently  issuable shares for which
         all contingencies  have been met, and excludes any potential  dilution.
         Diluted  earnings per share  reflects the  potential  dilution from the
         exercise or  conversion  of all dilutive  securities  into common stock
         based on the average market price of common shares  outstanding  during
         the period.

         On  incorporation  of European Micro  Holdings,  Inc. in December 1997,
         4,000,000  ordinary  shares were issued with par value $0.01 per share.
         The 4,000,000  shares were issued to the shareholders of European Micro
         Plc in exchange for the entire  issued share capital of that company on
         January 31, 1998.

         RECLASSIFICATIONS

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


                                      F-10
<PAGE>


                 EUROPEAN MICRO HOLDINGS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         NEW ACCOUNTING PRONOUNCEMENTS

         DERIVATIVE INSTRUMENTS

         SFAS  No.  133,   "Accounting  for  Derivate  Instruments  and  Hedging
         Activities," was issued in June 1998 and as amended by SFAS No. 137, is
         effective for fiscal years  beginning after June 15, 2000. SFAS No. 138
         "Accounting  for Certain  Derivative  Instruments  and Certain  Hedging
         Activities",  an amendment of FASB No. 135, was issued June 2000. These
         statements  will be  adopted  effective  July 1,  2000,  but  will  not
         materially  impact the  Company's  consolidated  financial  statements.
         These  standards  establish  accounting  and  reporting  standards  for
         derivative instruments and hedging activities.

         REVENUE RECOGNITION

         In December 1999, the Securities and Exchange  Commission  issued Staff
         Accounting Bulletin 101, "Revenue Recognition in Financial Statements."
         The effective date has been deferred with respect to the Company to the
         fourth fiscal quarter of 2001 pending additional interpretive guidance.
         The Company is not able to quantify the impact of SAB 101 at this time.
         However,  there is at least one issue that could have a material impact
         on the Company's consolidated financial statements.  For European Micro
         UK the standard practice is to recognize revenue on shipment.  However,
         title to the goods is retained  until full payment is received from the
         customer to perfect the Company's interest in the goods. Under possible
         interpretations,  European  Micro  UK  would  not be able to  recognize
         revenue  until  full  payment  is  received.  In the  transition  year,
         revenues  would be lower as all sales on the net terms not collected by
         year-end would not be recognized.

3        LIQUIDITY

         The Company has suffered  operating  losses in the current fiscal year.
         Ongoing legal costs associated with the litigation  related to Big Blue
         Europe,  the costs  associated with the Company's  electronic  commerce
         strategy,  increases in general overhead costs, and increased  interest
         expense due primarily to increased borrowings,  coupled with decreasing
         sales  volumes  and gross  profit  margins,  have  negatively  impacted
         operating  results.  These factors may continue to impact the Company's
         operations.

         The Company was not in compliance with certain loan agreement financial
         covenants  during  fiscal year 2000.  While the  Company  has  obtained
         waivers from these  covenant  violations  existing at June 30, 2000, in
         most instances the waivers only address the covenant  reporting  period
         ending  thereon.  Management  believes that the Company will be able to
         comply with its debt agreements,  including financial covenants, during
         the fiscal year ending June 30, 2001.  However,  compliance  with these
         financial  covenants during fiscal 2001 will require improved operating
         results  compared to fiscal  2000.  Management  has  initiated  certain
         actions  to  increase  the  likelihood  of  attaining   these  improved
         operating  results.  Such  actions  include,  among other  things,  (i)
         modifying the terms of certain financial covenants,  (ii) entering into
         the Equity  Credit  Line (see note 19),  (iii)  temporarily  suspending
         activities  related to its electronic  commerce strategy until specific
         funding can be obtained (see note 12), (iv) obtaining extensions of the
         due date  for  payment  of  contingent  earn-out  amounts  relating  to
         calendar year 2000 under the American  Micro  purchase  agreement  (see
         note 7), (v) adjusting  staffing levels, and (vi) implementing steps to
         increase sales volume and lower inventory  levels. No assurances can be
         given  that  management's  initiatives  will be  successful,  and  loan
         agreement defaults will not occur in the future.

         Another factor that could negatively impact the Company's  liquidity is
         the terms of the  borrowing  arrangements  of  European  Micro Plc.  As
         disclosed  in notes 9 and 10,  certain of this  subsidiary's  borrowing
         capacity is subject to  termination by the lender at such lender's sole
         discretion.  Further,  the American Micro and Nor-Easter line of credit
         facilities  and the European  Micro  Holdings,  Inc.  term loan contain
         subjective  acceleration clauses.  These factors increase the liquidity
         risk to the Company.  Management  believes that, based on the projected
         fiscal year 2001 operating  results of the Company and its relationship
         with the creditors,  that its existing credit  arrangements will remain
         effective during fiscal 2001.


                                      F-11
<PAGE>


                 EUROPEAN MICRO HOLDINGS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4        TRADE RECEIVABLES, NET

         Trade receivables consist of the following (in thousands):

<TABLE>
<CAPTION>
<S>                                                        <C>              <C>
                                                                       JUNE 30,
                                                       -------------------------------
                                                               2000              1999
                                                               ----              ----

         Total trade receivables                             $13,229          $15,017
         Less:  Allowance for doubtful receivables               (69)             (79)
                                                             -------          -------
                                                             $13,160          $14,938
                                                             =======          =======

         At June 30, 2000, trade  receivables are pledged as collateral  against
         borrowings (see note 9).

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

                                                                          JUNE 30,
                                                                ------------------------
                                                                     2000          1999
                                                                     ----          ----
         Balance at beginning of year                                 $79           $23
         Foreign currency translation adjustment                      (3)             -
         Acquisitions                                                 116            11
         Provision for bad debt                                        80            56
         Amounts written off                                        (203)          (11)
                                                                   ------         -----
         Balance at end of year                                       $69           $79
                                                                   ======         =====

5        INVENTORIES

         Inventories consist of the following (in thousands):
                                                                          JUNE 30,
                                                                -------------------------
                                                                     2000          1999
                                                                     ----          ----

         Finished goods and goods for resale                       $6,818        $7,348
         Less:  Allowance for inventory obsolescence                 (624)         (116)

                                                                  -------        ------
                                                                   $6,194        $7,232
                                                                  =======        ======

</TABLE>


                                      F-12
<PAGE>


                 EUROPEAN MICRO HOLDINGS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5        INVENTORIES (CONTINUED)

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

                                                                 JUNE 30,
                                                        ------------------------
                                                            2000          1999
                                                            ----          ----

         Balance at beginning of year                        $116            $9
         Foreign currency translation adjustments             (3)             0
         Provision for obsolescence                           929           602
         Amounts written off                                (418)         (495)
                                                           ------         -----
         Balance at end of year                              $624          $116
                                                           ======         =====


6        PROPERTY AND EQUIPMENT

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

                                                                 JUNE 30,
                                                        ------------------------
                                                               2000        1999
                                                               ----        ----
         Buildings and leasehold improvements               $2,694           $-
         Furniture, fixtures and equipment (note 12)         1,866          994
         Vehicles and other                                    447          416
                                                            ------       ------

                                                              5,007       1,410
         Less:  accumulated depreciation                    (1,080)       (798)
                                                            ------       ------

         NET BOOK VALUE                                      $3,927        $612
                                                            =======      ======

         On July 16, 1999, European Micro Plc, a wholly-owned  subsidiary of the
         Company  ("EUROPEAN MICRO UK"),  purchased the office building in which
         it had previously leased space for a purchase price of 1,705,000 pounds
         sterling  ($2,580,000 at exchange rate on June 30, 2000).  The purchase
         price was  financed  in part by a  mortgage  loan note in the amount of
         1,312,000 pounds sterling (see note 10).

         At June  30,  2000  and  1999,  vehicles  with a cost of  approximately
         $212,000 and $248,000,  and accumulated  depreciation of  approximately
         $129,000 and $117,000, respectively, were held under capital leases.

         Depreciation expense was $405,000,  $267,000 and $192,000 for the years
         ended June 30, 2000, 1999, and 1998, respectively.


                                      F-13
<PAGE>


                 EUROPEAN MICRO HOLDINGS, INC. AND SUBSIDIARIES

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7        GOODWILL

         On October 26, 1998,  European Micro UK acquired all of the outstanding
         shares of  capital  stock of  Sunbelt  (UK)  Limited  ("SUNBELT").  The
         Sunbelt  purchase price (to be settled in pounds sterling) is comprised
         of a  guaranteed  portion and two  contingent  earn-out  payments.  The
         guaranteed  portion  of  the  purchase  price,  which  was  based  upon
         Sunbelt's  net book value at closing  and a multiple of its fiscal year
         1998  pre-tax  earnings,  was 940,000  pounds  sterling  (approximately
         $1,423,000  at  exchange  rate on June 30,  2000).  Of this  guaranteed
         amount,  approximately 360,000 pounds sterling  (approximately $545,000
         at exchange  rate on June 30,  2000) was paid in cash at  closing.  The
         unpaid balance of the guaranteed  consideration includes a note payable
         to the former 40% Sunbelt  shareholder  in the amount of 240,163 pounds
         sterling  ($364,000 at exchange  rate on June 30, 2000) to be repaid in
         November  2005,  subject to early  repayment  at the option of the note
         holder at any time after June 1, 1999.  Such note payable is secured by
         a cash account of equal  amount at June 30, 2000.  The note payable and
         the  cash  balances  are  reflected  on the  accompanying  consolidated
         balance sheet at June 30, 2000,  in accrued  expenses and other current
         liabilities  and  restricted  cash,  respectively.  The Company has the
         option of paying future amounts due to the former Sunbelt  shareholders
         in common stock of European Micro Holdings,  Inc. If the Company elects
         to pay any  portion of the  purchase  price in shares of the  Company's
         common stock,  then  Sunbelt's  shareholders  have fifteen days to make
         arrangements  to sell such shares over the next forty  trading days. If
         the  sale of such  shares  results  in net  proceeds  of less  than the
         purchase  price,  then the Company will pay the  difference  in cash to
         Sunbelt's  shareholders.  The  Company  also  entered  into  employment
         agreements  with the two former  shareholders  of Sunbelt.  The Company
         discontinued  Sunbelt's  Nova line of  products  effective  January 31,
         2000.  With the closure of the Nova line of  products,  the  employment
         agreement with one of the former shareholders was terminated.  Also, in
         July 2000, the employment  agreement with the other former  shareholder
         was terminated.

         During November 1999, purchase accounting  adjustments were made to the
         calculation of the guaranteed  portion and the two contingent  earn-out
         amounts.  These  adjustments  resulted from the recalculation of fiscal
         year 1998  pretax  earnings  of Sunbelt,  resulting  in a reduction  of
         134,000 pounds sterling ($203,000 at exchange rate on June 30, 2000) to
         the guaranteed  portion and 32,000 pounds sterling ($48,000 at exchange
         rate on June 30, 2000) to the contingent consideration.  The portion of
         the  guaranteed  consideration  due at the end of the first  contingent
         earn-out  period,  which ran from November 1, 1998 to October 31, 1999,
         was paid in  November  1999 in the  amount  of 53,708  pounds  sterling
         ($81,276 at exchange rate on June 30, 2000).  Also,  the portion of the
         first contingent earn-out payment related to employee retention and the
         volume of purchases from the Far East, was paid in November 1999 in the
         amount of 190,820  pounds  sterling  ($288,768 at exchange rate on June
         30, 2000).

         The unpaid balance of the  guaranteed  purchase price of 152,656 pounds
         sterling  ($231,014 at exchange rate on June 30, 2000), and the portion
         of the  second  contingent  earn-out  payment  related  to  the  volume
         purchases  from the Far-East of 129,758  pounds  sterling  ($196,363 at
         exchange  rate on June 30,  2000) is  reflected  in  goodwill,  net and
         accrued  expenses and other  current  liabilities  on the  accompanying
         consolidated balance sheet at June 30, 2000 as the contingency has been
         met.  At June 30,  2000 all  contingent  consideration  related  to the
         Sunbelt acquisition has either been paid or accrued. Goodwill from this
         transaction is being amortized on a straight-line basis over 20 years.

         On November  12,  1998,  European  Micro UK acquired  the assets of H&B
         Trading  International BV ("H&B"). The acquisition of H&B was accounted
         for as a purchase.  The base purchase price, subject to adjustment,  of
         approximately  125,000 Dutch guilders ($54,000 at exchange rate on June
         30,  2000)  exceeded  the  estimated  value of net assets  acquired  by
         approximately  85,000 Dutch guilders  ($37,000 at exchange rate on June
         30, 2000),  which is being amortized on a  straight-line  basis over 20
         years.  The  financial  criteria for the period ended June 30, 2000 and
         1999 were not met,  therefore,  the  additional  consideration  was not
         accrued or paid.

         The Company acquired  American  Surgical Supply Corp. of Florida d/b/a/
         American Micro Computer Center  ("AMCC"),  in a merger on July 1, 1999.
         The  transaction  was  structured as a merger of AMCC with and into the
         newly formed, wholly owned subsidiary of the Company. Upon consummation
         of the merger,  the  subsidiary's  name was  changed to American  Micro
         Computer Center, Inc. ("AMERICAN MICRO"). The purchase  price  for AMCC



                                      F-14
<PAGE>


                 EUROPEAN MICRO HOLDINGS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7        GOODWILL (CONTINUED)

         was equal to  $1,131,000,  plus an earn-out  amount  payable in cash or
         shares of the  Company's  common  stock (at the  Company's  discretion)
         equal to two times the after-tax earnings of American Micro in calendar
         year 1999 and two times the  after-tax  earnings of  American  Micro in
         calendar year 2000.  The portion of the purchase  price paid at closing
         was funded  through the Company's  working  capital.  In addition,  the
         Company  assumed  all  outstanding  indebtedness  of AMCC,  including a
         shareholder loan in the approximate  amount of $289,000.  This loan was
         owed to the father of John B.  Gallagher,  the Company's  Co-President,
         Co-Chairman and significant  shareholder.  This note was repaid in full
         in  November  1999.  If the  Company  elects to pay any  portion of the
         purchase  price in shares of the Company's  common  stock,  then AMCC's
         former shareholders have fifteen days to make arrangements to sell such
         shares  over the next forty  trading  days.  If the sale of such shares
         results  in net  proceeds  of less than the  purchase  price,  then the
         Company will pay the difference in cash to AMCC's shareholders.

         The  acquisition  of AMCC was  accounted  for as a  purchase.  The base
         purchase  price,  inclusive  of  transaction  costs,  of  approximately
         $1,315,000  exceeded  the  estimated  fair  market  value of net assets
         acquired by  approximately  $817,000,  which  constitutes  goodwill and
         which is being  amortized on a straight-line  basis over 20 years.  The
         results of operations of American Micro, since  acquisition,  have been
         included  in the  accompanying  financial  statements.  The  contingent
         earn-out  payment  relating  to two times the  after tax  earnings  for
         calendar year 1999 of approximately $600,000 was paid in March 2000 and
         is reflected in goodwill, net. The contingent earn-out payment relating
         to two times the after tax earnings for calendar year 2000 has not been
         recognized  in  the  accompanying   consolidated   condensed  financial
         statements as the  calculation of such amounts are not  determinable at
         this point in time. The second earn-out  payment will be due in monthly
         principal  payments of $50,000,  plus interest at 8% until July 1, 2001
         at which time the amount is due in full subject to  financial  covenant
         restrictions.  Such payment will be offset by a $259,000 receivable due
         from AMCC's previous owners.

         The results of operations  of the above  entities have been included in
         the accompanying  consolidated financial statements from the respective
         dates of acquisition.

         The  following  summarized  unaudited pro forma  financial  information
         assumes the acquisition of Sunbelt and AMCC occurred on July 1, 1998 ($
         in thousands, except share data):

                                                         YEAR ENDED
                                                         ----------
                                                      JUNE 30, 1999
                                                      -------------
                  Total net sales                          $137,960
                  Net income                                 $1,149
                  Earnings per share:
                     Basic                                    $0.23
                     Diluted                                  $0.23

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

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

                                                         YEAR ENDED
                                                         ----------
                                                      JUNE 30, 2000
                                                      -------------
         Balance at beginning of year                        $1,675
         Foreign currency translation adjustment               (84)
         Purchase accounting adjustments                      (251)
         Additions                                            1,616
         Amortization                                         (148)

                                                            -------
         Balance at end of year                              $2,808

                                                            =======


                                      F-15
<PAGE>


                 EUROPEAN MICRO HOLDINGS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8        INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED SUBSIDIARIES

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

                                                                     YEARS ENDED JUNE 30,
                                                                     --------------------
                                                                        2000          1999
                                                                        ----          ----
        <S>                                                            <C>          <C>
         Cost of investment in and advances to unconsolidated
            subsidiaries brought forward                                $503         $194
         Foreign currency translation adjustment                        (13)          (9)
         Equity in net loss of unconsolidated subsidiaries             (188)         (32)
         Advance                                                         150          350
         Allowance for uncollectable advances                          (200)            -
                                                                       -----        -----
         Investment in and advances to unconsolidated
           subsidiaries at end of year                                  $252         $503
                                                                       =====        =====

</TABLE>

         The equity share of loss is based on the results of Big Blue Europe BV.
         Unaudited  earnings  data for Big Blue Europe BV for fiscal years 2000,
         1999 and 1998 is set out below (in thousands):


<TABLE>
<CAPTION>

                                                                              YEARS ENDED
                                                                                JUNE 30,
                                                                   -----------------------------------
                                                                       2000         1999         1998
                                                                       ----         ----         ----
        <S>                                                        <C>          <C>          <C>
         Net sales                                                   $4,219       $4,101       $1,910
         Cost of goods sold                                         (3,310)      (3,068)      (1,394)

                                                                    -------      -------      -------
         Gross profit                                                   909        1,033          516
         Operating expenses                                         (1,198)      (1,133)        (507)
                                                                    -------      -------      -------

         Income (loss) before income taxes                            (289)        (100)            9
         Income tax expense (benefit)                                    87         (36)            3

         NET (LOSS) INCOME                                           $(376)        $(64)           $6
                                                                    -------      -------      -------
         Equity in net (loss) income of unconsolidated
            subsidiary                                               $(188)        $(32)           $3
                                                                    =======      =======      =======
</TABLE>


9        SHORT-TERM BORROWINGS

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

                                                 JUNE 30, 2000     JUNE 30, 1999
                                                 -------------     -------------
         Bank lines of credit:
               European Micro UK Working
                 Capital facility                   $1,959             $1,581
               Nor'Easter Micro facility               975                  -
               American Micro facility                 992                  -

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

         Total bank lines of credit                  3,926              1,581
         Receivable financing                        7,303              7,033
         Other short-term borrowings                   674                  -

                                                   -------             ------
         Total short-term borrowings               $11,903             $8,614
                                                   =======             ======

                                      F-16
<PAGE>


                 EUROPEAN MICRO HOLDINGS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9        SHORT-TERM BORROWINGS (CONTINUED)

         European  Micro UK has a bank line of credit  (the  "EUROPEAN  MICRO UK
         WORKING CAPITAL  FACILITY") which is secured by a mortgage debenture on
         all  the  assets  of  European  Micro  UK  and  is  subordinate  to the
         receivable  financing and the capital  leases.  The facility,  which is
         subject to review in July each year,  has been  extended  to  September
         2001  and is due on  demand.  Maximum  borrowing  capacity  under  this
         facility is 2.0 million pounds  sterling ($3.0 million at exchange rate
         on June 30, 2000). Interest is charged at 1.25% over the bank borrowing
         rate of 6% at June 30, 2000 and 5% at June 30, 1999.

         European Micro UK also had a revolving  credit agreement (the "EUROPEAN
         MICRO UK INVENTORY FACILITY") secured against general corporate assets.
         The  facility  allowed  European  Micro UK to borrow up to 3.5  million
         pounds  sterling  ($5.3  million at exchange  rate on June 30, 2000) to
         assist in the purchase of inventory.  At June 30, 2000, no amounts were
         outstanding  under  the  agreement.  This  revolving  credit  agreement
         expired  in August  2000.  The bank has  agreed to  extend  the  credit
         agreement to July 1, 2001 in the amount of 2.0 million pounds  sterling
         ($3.0  million  at  exchange  rate on June  30,  2000).  The  agreement
         includes various financial covenants.

         Total combined  borrowings  under the European Micro UK Working Capital
         Facility and the European Micro UK Inventory Facility cannot exceed 2.0
         million pounds sterling at any date.

         The Company also  obtained two lines of credit on October 28, 1999,  to
         finance  operations  based in the  United  States.  American  Micro and
         Nor'Easter  each  obtained  a  line  of  credit,  secured  by  accounts
         receivable and inventory.  Amounts  available under each of the line of
         credit  agreements  are based upon  eligible  accounts  receivable  and
         inventory,  up to a maximum  borrowing  amount of $1.5 million for each
         agreement.  Each of these lines of credit were to mature on October 28,
         2000.  Interest accrues at 0.5% over the bank borrowing rate of 9.5% at
         June 30, 2000. As partial security for these loans,  Messrs.  Gallagher
         and Shields  pledged to the lender a portion of their  shares of common
         stock of the Company.  In the event the Company defaults on one or more
         of these  loans,  the lender may  foreclose  on all or a portion of the
         pledged securities.  Such an event may cause a change of control in the
         Company because Messrs.  Gallagher and Shields  together own 71% of the
         Company's  outstanding  common  stock.  The lines of credit  agreements
         include certain financial and non-financial covenants and restrictions.
         The agreements also contain a provision  whereby the lender can declare
         a  default  based on  subjective  criteria.  As of June 30,  2000,  the
         Company was not in compliance  with certain of the financial  covenants
         in the agreements.

         On October  5,  2000,  the  Company  received a waiver of the  covenant
         violations  for the June 30, 2000 reporting date for the American Micro
         and Nor'Easter lines of credit. The Company and the bank terminated the
         existing  lines of credit and entered into a new borrowing  arrangement
         whereby  each of  American  Micro  and  Nor'Easter  will have a working
         capital  line of credit equal to the lesser of (i) $1.5 million or (ii)
         the sum of 85% of eligible accounts receivable,  plus the lesser of 50%
         of eligible  inventory or $750,000.  Interest will be paid monthly at a
         floating rate of 50 basis points over the bank's base rate. The term of
         the new  arrangements  is for one year from the closing  date.  The new
         facilities also require the companies to maintain  depository  accounts
         at the bank,  whose daily receipts will be applied against  outstanding
         borrowings under the lines of credit.  As a result,  the borrowings are
         classified as current liabilities on the Company's consolidated balance
         sheet  at  June  30,  2000.  The  new  facilities  also  place  certain
         restrictions  on the  companies'  ability to pay  dividends and to make
         capital expenditures,  among other things, and also include a provision
         whereby the lender can declare a default based on subjective  criteria.
         Collateral  under the new credit  line  facilities  consists of a first
         priority lien on all assets of American Micro and  Nor'Easter.  Messrs.
         Gallagher   and  Shields   guaranteed   the   borrowings   under  these
         arrangements.  Mr.  Shields has pledged  personal  assets as additional
         collateral  and  has  further  agreed  to  maintain   certain  personal
         financial   statement   liquidity   levels.    These   borrowings   are
         cross-collateralized and cross-defaulted with borrowings under the $1.5
         million term loan to European Micro  Holdings,  Inc.  discussed in note
         10.


                                      F-17
<PAGE>


                 EUROPEAN MICRO HOLDINGS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9        SHORT-TERM BORROWINGS (CONTINUED)

         Receivable  financing  represents  borrowings  secured by various trade
         receivables of European Micro UK totaling $8.6 million at June 30, 2000
         and $8.3 million at June 30, 1999.  The accounts  receivable  financing
         provides  for a borrowing  base of 85% of accounts  receivable,  with a
         limit of 6.2 million pounds  sterling ($9.4 million at exchange rate on
         June 30, 2000). The limit on trade receivables financing increased from
         a maximum of 5.5 million pounds sterling at June 30, 1999 ($8.3 million
         at exchange rate on June 30, 1999).  This facility can be terminated by
         either party giving three  months'  notice.  The finance  company which
         provides  the  receivable  financing  facility  has  full  recourse  to
         European Micro UK with respect to any doubtful or unrecovered  amounts.
         Interest is charged on the receivable  financing balance at 1.25% above
         the  bank  borrowing  rate of 6% at June 30,  2000,  and 5% at June 30,
         1999.

         Other short-term  borrowings  represent various unsecured notes payable
         of American Micro. The maturity dates of the notes range from on demand
         to June 30, 2001. The interest rates range from 11% to 12%.


10       LONG-TERM BORROWINGS

         Long-term borrowings consists of the following (in thousands):


                                                 JUNE 30, 2000     JUNE 30, 1999
                                                 -------------     -------------

         Mortgage loan note                         $1,877                $-
         Term loan                                   1,125                 -
         Other long-term borrowings                     49                23

                                                    ------               ----
                                                    $3,051               $23

         Less current maturities of long-term
           borrowings                                (678)                 -

                                                    ------               ----
         Total long-term borrowings                 $2,373               $23

                                                    ======               ====



         Principal  maturities of long-term debt  (excluding  capitalized  lease
         obligations)  at June 30, 2000 for the succeeding five fiscal years are
         as follows (in thousands):

                                                          2001             $678
                                                          2002              678
                                                          2003              296
                                                          2004              184
                                                          2005              197
                                                    Thereafter            1,018

         European  Micro  UK  purchased  the  office  building  in  which it had
         previously  leased  space  for a  purchase  price of  1,705,000  pounds
         sterling  ($2,580,000 at exchange rate on June 30, 2000).  The purchase
         price was  financed  in part by a  mortgage  loan note in the amount of
         1,312,000  pounds  sterling  ($1,985,000  at exchange  rate on June 30,
         2000).  This mortgage loan note bears interest at a fixed rate of 7.6%,
         calls for monthly  payments of principal  and interest in the amount of
         15,588 pounds sterling ($23,589 at exchange rate on June 30, 2000), and
         matures in July 2009. The mortgage loan note includes certain financial
         and  non-financial  covenants  and  restrictions.  The  agreement  also
         contains a provision  whereby the lender can declare a default based on
         subjective  criteria.  The financial  covenants are measured  using the
         financial  results of  European  Micro UK as of each  fiscal  year end.
         Based upon  European  Micro UK's  fiscal  year end  operating  results,
         European  Micro UK was out of  compliance  with certain of the covenant
         requirements  at June 30,  2000.  The  Company  has  obtained  a waiver
         through July 1, 2001 of this non-compliance.


                                      F-18
<PAGE>


                 EUROPEAN MICRO HOLDINGS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10       LONG-TERM BORROWINGS (CONTINUED)

         The term loan was  obtained by European  Micro  Holdings on October 28,
         1999, in the amount of  $1,500,000.  The term loan is to be repaid with
         quarterly  payments of $125,000  over three years.  The term loan bears
         interest at the  one-month  LIBOR plus two and  one-quarter  percentage
         points  (2.25%).  One-month  LIBOR at June 30, 2000 was 6.7%.  The term
         loan is secured by substantially  all of the assets of the Company.  As
         partial security for this loan,  Messrs.  Gallagher and Shields pledged
         to the lender a portion of their shares of common stock of the Company.
         In addition,  Mr.  Shields has pledged  personal  assets as  additional
         collateral  and  has  further  agreed  to  maintain   certain  personal
         financial statement liquidity levels. In the event the Company defaults
         on this  loan,  the  lender  may  foreclose  on all or a portion of the
         pledged securities.  Such an event may cause a change of control in the
         Company because Messrs.  Gallagher and Shields  together own 71% of the
         Company's outstanding common stock.

         The term loan agreement is with the same lender as the Nor'Easter Micro
         and American Micro line of credit  facilities  discussed in Note 9, and
         is  cross-collateralized  and cross-defaulted with these line of credit
         facilities.  The agreement also contains a provision whereby the lender
         can declare a default based on subjective  criteria.  Further, the term
         loan credit agreement contains loan covenant requirements.  The Company
         was not in compliance with certain financial covenants for the June 30,
         2000 reporting period. On October 5, 2000 the Company received a waiver
         of the non-compliance with the financial covenants as of June 30, 2000.
         The Company also  entered into an amendment to the term loan  agreement
         which among other things, established revised financial covenants.

         In conjunction  with the purchase of AMCC,  the Company  assumed a note
         payable to John P. Gallagher, the father of John B. Gallagher, who is a
         significant shareholder,  co-chairman, and co-president of the Company.
         This note was paid in full during November 1999.

11       TAXES ON INCOME

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

                                                     YEARS ENDED JUNE 30,
                                             -----------------------------------
                                                  2000        1999        1998
                                                  ----        ----        ----
         Current
               Federal and State             $      -       $    -     $    -
               Foreign                           (376)         765      2,393

         Deferred
               Federal and State                    -            -          -
               Foreign                           (194)         (15)       (80)

                                               -------       -------   ------
         Total income tax expense (benefit)     $(570)         $750    $2,313

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

         Provision  has not been made for U.S. or  additional  foreign  taxes on
         approximately $3,672,000,  $5,613,000, and $4,652,000 at June 30, 2000,
         1999,  and 1998  respectively,  of  undistributed  earnings  of foreign
         subsidiaries,   as  those  earnings  are  intended  to  be  permanently
         reinvested.

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



                                      F-19
<PAGE>

                 EUROPEAN MICRO HOLDINGS, INC. AND SUBSIDIARIES

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11       TAXES ON INCOME (CONTINUED)
<TABLE>
<CAPTION>


                                                                   YEAR ENDED JUNE 30,
                                                        -------------------------------------------
                                                              2000        1999        1998
                                                              ----        ----        ----
<S>                                                       <C>             <C>        <C>
         US federal statutory rate on earnings (loss)
             before income taxes                           $(1,284)        $545       $2,311
         State income tax                                      (67)           -            -
         Difference in foreign versus U.S. federal
            income tax rate                                     51           43         (204)
         Change in valuation allowance                         896           74            -
         Foreign non -deductible expenses                     (166)          88          206
                                                           -------       ------       ------

                  Income tax expense (benefit)               $(570)        $750       $2,313

                                                           =======       ======       ======
</TABLE>


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

                                                               JUNE 30,
                                                      --------------------------
                                                           2000        1999
                                                           ----        ----
         DEFERRED TAX ASSETS:
         Property and equipment, principally due to
           differences in depreciation                    $   9       $ 42
         Net operating loss carry forwards                  949         64
         Other                                              247          9
                                                          -----       ----

         Total gross deferred tax assets                  1,205        115
         Valuation allowance                               (970)       (74)

                                                          -----       ----

         Net deferred tax assets                           $235        $41

                                                          =====       ====


         The  Company has U.S.  federal  net  operating  loss  carryforwards  of
         approximately $948,000,  which will begin to expire in 2019. Management
         believes that it is more likely than not that the results of operations
         will generate  sufficient taxable income to realize deferred tax assets
         after giving  consideration to the valuation  allowance.  The valuation
         allowance,  which  increased in fiscal year 2000 by $896,000,  has been
         provided for U.S.  deferred tax assets as  recoverability is not deemed
         to be more likely than not.


12       BUSINESS TO BUSINESS ELECTRONIC COMMERCE STRATEGY

         The Company has  initiated a business to business  electronic  commerce
         strategy,   which  is  focused  on  creating  a  global,   value-added,
         information  technology  equipment and service trading  community.  The
         company has hired Cap Gemini, a leading European management consultancy
         and  information   technology  services  firm,  to  assist  it  in  the
         implementation  of this  plan.  The  Company  has  incurred  the sum of
         755,000 pounds sterling ($1,143,000 at exchange rate on June 30, 2000),
         related to the feasibility  studies and business  process design.  This
         amount is reflected in selling,  general and administrative expenses on
         the  accompanying  consolidated  statements of operations  for the year
         ended June 30,  2000.  The Company has  capitalized  the sum of 229,000
         pounds sterling  ($347,000 at exchange rate on June 30, 2000),  related
         to the  actual  software  development.  This  amount  is  reflected  in
         property and equipment,  net on the accompanying  consolidated  balance
         sheet at June 30, 2000. During May 2000, the Company temporarily halted


                                      F-20
<PAGE>


                 EUROPEAN MICRO HOLDINGS, INC. AND SUBSIDIARIES

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12       BUSINESS TO BUSINESS ELECTRONIC COMMERCE STRATEGY (CONTINUED)

         the ongoing  development  being  performed by Cap Gemini until specific
         funding is obtained to complete the project. There can be no assurances
         that the  Company  will be  successful  in  obtaining  funding for this
         project.  In the event the project is not  continued  by  November  30,
         2000, the Company will incur a termination fee to Cap Gemini of 150,000
         pounds sterling  ($226,995 at exchange rate on June 30, 2000). If paid,
         this fee would be credited  against future  invoices of Cap Gemini upon
         the  continuation of the project.  During the last calendar  quarter of
         2000, the Company will re-evaluate and re-define,  where necessary, the
         current  assumptions and  propositions,  based on changes in the market
         over the last few months.  This  planning  will include  detailing  the
         project based on the Company's ability to fund the project from current
         working capital, if other funding is still not available.

13       COMMITMENTS AND CONTINGENCIES

         On November 12, 1999,  Jeffrey and Marie Alnwick (the "ALNWICKS") and a
         New  York   corporation,   Big  Blue  Products,   commenced  an  action
         individually and  derivatively for the Dutch company,  Big Blue Europe,
         against the Company and its founders and  officers,  John B.  Gallagher
         and Harry D.  Shields  in the United  States  District  Court,  Eastern
         District of New York,  Jeffrey  Alnwick and Marie  Alnwick v.  European
         Micro Holdings,  Inc.,  Eastern District of New York,  Docket No. 99 CV
         7380 (the "ALNWICK LITIGATION").

         The complaint alleges thirty-three causes of action.  Plaintiffs claim,
         in substance,  that  defendants  breached  oral and written  agreements
         relating to the  management,  operation and funding of Big Blue Europe.
         Specifically,  plaintiffs  allege that  defendants  breached  the joint
         venture  agreement  by which Big Blue  Europe was  formed,  a licensing
         agreement  for  use of  the  "Big  Blue"  service  mark  in  Europe,  a
         non-competition  agreement preventing Big Blue Europe from operating in
         the  United  States  and  several  capital   contribution   agreements.
         Plaintiffs also claim that defendants  breached their fiduciary  duties
         to the Alnwicks, engaged in fraudulent acts, aided and abetted breaches
         of  fiduciary  duties by  others,  misappropriated  trade  secrets  and
         interfered with the employment  contract of Big Blue Europe's  managing
         director.  The complaint seeks  unspecified  compensatory  and punitive
         damages,  as well as  injunctive  relief  restraining  defendants  from
         acting in violation of the alleged agreements.

         Defendants have moved to dismiss the complaint principally on the basis
         of  forum  non-conveniens  in  favor  of  existing  proceedings  in the
         Netherlands  (commenced by European  Micro UK), where a Dutch court has
         appointed an independent director to oversee operations of the company.
         Defendants   argue  that  any  dispute  between  the  shareholders  and
         directors  of the  Dutch  company,  Big  Blue  Europe,  which  operates
         pursuant to Dutch law, should be resolved by a Dutch court.

         The Company and its affiliated  defendants intend to contest the claims
         in the Alnwick  Litigation  vigorously,  whether asserted in the United
         States or in the Netherlands  courts. For the year ended June 30, 2000,
         the company has  incurred  approximately  $800,000 in costs  related to
         such lawsuit.  Management does not believe that the ultimate outcome of
         this litigation will result in a material liability to the Company.

         Due to the  uncertainty  of the outcome of the pending  lawsuit and the
         difficulties  of managing the  operations  of Big Blue Europe BV during
         dispute,  the Company has  recorded an  allowance  of $200,000  against
         notes receivable totaling $500,000.

         The Company leases offices and certain  equipment under  non-cancelable
         operating  leases and vehicles  under capital  leases.  Future  minimum
         lease payments under non-cancelable operating leases and capital leases
         as of June 30, 2000 in aggregate for each of the five succeeding  years
         is as follows (in thousands):


                                      F-21
<PAGE>


                 EUROPEAN MICRO HOLDINGS, INC. AND SUBSIDIARIES

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

13       COMMITMENTS AND CONTINGENCIES (CONTINUED)

                                                         CAPITAL       OPERATING
         June 30,
         2001                                                $34            $347
         2002                                                 22             276
         2003                                                  -             200
         2004                                                  -             152
         2005                                                  -             128
         Thereafter                                            -             150

                                                           -----          ------

         Total minimum lease payments                        $56          $1,253

                                                           =====          ======
         Less amount representing interest at rates
            ranging from 4.4% to 5.1%                        (7)


         Present value of net minimum capital                 49
            lease payments                                  (30)
         Current portion, included in accrued expenses      ----
            and other current liabilities

         Total obligations under capital leases              $19
            excluding current portion                       ====

         Rental  expense  for the years ended June 30,  2000,  1999 and 1998 was
         $260,000, $180,000, and $136,000, respectively.


14       FOREIGN EXCHANGE CONTRACTS

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

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

         EXCHANGE RATE SENSITIVITY

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

                                                     EXPECTED
                                                    MATURITY OR
                                                 TRANSACTION DATE    FAIR VALUE
                                                ------------------- ------------
         FOREIGN CURRENCY EXCHANGE CONTRACTS

         JUNE 30, 2000
           (Receive $US/pay(pound))               July 19, 2000
           Contract amount                               $2,000        $2,012
           Average contractual
             exchange rate                 1.5045 $US /(pound)1


                                      F-22
<PAGE>


                 EUROPEAN MICRO HOLDINGS, INC. AND SUBSIDIARIES

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

14       FOREIGN EXCHANGE CONTRACTS (CONTINUED)

         EXCHANGE RATE SENSITIVITY (CONTINUED)

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

         Foreign exchange losses,  net were $325,000,  $579,000 and $510,000 for
         years ending June 30, 2000, 1999 and 1998, respectively.

15       RELATED PARTY INFORMATION

         Until July 1, 1999,  European Micro Holdings,  Inc. belonged to a group
         of  related  companies  (the  "GROUP").  The  Group  was  comprised  of
         Technology Express, Inc. located in Nashville,  Tennessee  ("TECHNOLOGY
         EXPRESS"),  and,  until  July 1,  1999,  AMCC  which was  purchased  by
         European Micro Holdings,  Inc. See Note 7. Technology  Express is owned
         and controlled by Harry D. Shields, who is Co-President and Co-Chairman
         of the  Company.  Prior to its  acquisition  on July 1, 1999,  AMCC was
         owned 50% by John B. Gallagher,  who is a Co-President  and Co-Chairman
         of the Company.

         The rates  charged on related  party sales are lower than they would be
         in arms-length transactions.  The Company has a bulk buying arrangement
         with the remaining related party,  Technology Express,  which gives the
         Company the benefit of buying large job-lots at more competitive prices
         than it would  otherwise  be possible to do and then  immediately  sell
         part of the purchase to the related party.

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

                                                      YEARS ENDED JUNE 30,
                                            ------------------------------------

                                                  2000         1999        1998
                                                  ----         ----        ----
         SALES
         American Micro Computer Center       $      -       $7,356      $9,875
         Technology Express                      2,369        7,984      19,217

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

                                                $2,369      $15,340     $29,092

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

         PURCHASES
         American Micro Computer Center       $      -       $1,339        $507
         Technology Express                      3,986       15,559       8,749
                                              --------      -------     --------

                                                $3,986      $16,898      $9,256

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

         OPERATING EXPENSES

         CONSULTANCY FEES
         American Micro Computer Center              $   -       $   -      $45
         Technology Express                              -           -       45

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

                                                                      -      90

                                              --------       ------      -------
         MANAGEMENT FEES
         Technology Express                          -            -          14

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

                                              $      -       $    -        $104
                                              ========       ======      =======


                                      F-23
<PAGE>


                 EUROPEAN MICRO HOLDINGS, INC. AND SUBSIDIARIES

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

15       RELATED PARTY INFORMATION (CONTINUED)

         DUE FROM/TO RELATED PARTIES

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

                                                           JUNE 30,
                                               --------------------------------

                                                       2000             1999
                                                       ----             ----

        American Micro Computer Center               $    -             $974
        Technology Express                                -              154

                                                    --------         -------
                                                     $    -           $1,128

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


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

                                                           JUNE 30,
                                               ---------------------------------
                                                       2000             1999
                                                       ----             ----

        American Micro Computer Center              $     -            $   3
        Technology Express                               11              630

                                                    --------         -------
                                                    $    11             $633

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


         FACILITIES AND EQUIPMENT

         The Company utilizes  approximately 350 square feet of office space and
         certain  equipment  owned by  Technology  Express  for  which it is not
         charged a fee.

         EMPLOYMENT AGREEMENTS

         The Company has entered into various employment agreements with certain
         officers of the Company.

         NATURE OF RELATED PARTY RELATIONSHIPS

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

         AMCC

         AMCC is a distributor  of computer  hardware  based in Miami,  Florida.
         John B.  Gallagher,  who is Co-Chairman,  Co-President,  a Director and
         shareholder  (owning 39% of the  outstanding  shares) of European Micro
         Holdings, Inc., was until July 1, 1999, the president of AMCC and owned
         50% of the  outstanding  shares of capital stock in that  company.  See
         Note 7. Frank Cruz,  who is Chief  Operating  Officer of European Micro
         Holdings, Inc., has been an employee of AMCC since 1994.

         TECHNOLOGY EXPRESS

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


                                      F-24
<PAGE>


                 EUROPEAN MICRO HOLDINGS, INC. AND SUBSIDIARIES

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

15       RELATED PARTY INFORMATION (CONTINUED)

         Holdings, Inc., has been an employee of Technology Express since 1992.


16       SEGMENT INFORMATION

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

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

                                                      YEARS ENDED JUNE 30,
                                     -------------------------------------------
                                            2000              1999         1998
                                            ----              ----         ----

         NET SALES:
         North America              $     38,560      $   48,994     $     3,559
         Europe                           65,822          70,262         107,894
         Other                            11,111          12,950              -
                                       -----------------------------------------
              Total                 $    115,493      $  132,206     $   111,453
                                       -----------------------------------------

         INCOME (LOSS) FROM
         OPERATIONS:
         North America              $    (1,835)     $   (1,293)     $     (212)
         Europe                            (723)           3,340           7,444
         Other                             (141)           (112)               -
                                       -----------------------------------------
              Total                 $     (2,699)    $     1,935     $     7,232
                                       -----------------------------------------

         IDENTIFIABLE ASSETS:
         North America              $       8,402    $    10,594     $     8,645
         Europe                           20,701          19,334          10,559
         Other                             1,110             671               -
                                       -----------------------------------------
              Total                 $      30,213    $    30,599     $    19,204
                                       -----------------------------------------

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

                                                       YEARS ENDED JUNE 30,
                                              ----------------------------------
                                                2000           1999         1998
                                                ----           ----         ----

         RELATED PARTY
           Technology Express                      -          12.7%            -

         THIRD PARTIES
           Supplier        A                       -          10.3%        38.9%
                           B                       -              -        14.0%
                           C                       -              -        10.0%
                           D                       -          10.9%            -


                                      F-25
<PAGE>


                 EUROPEAN MICRO HOLDINGS, INC. AND SUBSIDIARIES

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

16       SEGMENT INFORMATION (CONTINUED)
         The Company did not have any suppliers  where  purchases were in excess
         of 10% as a percentage of total sales in the years ended June 30, 2000.


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

                                               YEARS ENDED JUNE 30,
                                     ------------------------------------------
                                        2000           1999           1998
                                        ----           ----           ----

         RELATED PARTY
           Technology Express              -              -          17.2%


         The Company did not have any customers with sales in excess of 10% as a
         percentage of total sales in the years ended June 30, 2000 or 1999.


17       EARNINGS PER SHARE

<TABLE>
<CAPTION>

                                                                   YEARS ENDED JUNE 30,
                                                     ----------------------------------------------
                                                               2000            1999           1998
                                                               ----            ----           ----
<S>                                                      <C>             <C>            <C>
         EARNINGS

         Net income (loss) (in thousands)                  $(3,207)            $854         $4,485

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

                  WEIGHTED AVERAGE NUMBER OF SHARES

         Outstanding common stock during the period       4,933,900       4,933,900      4,066,524
         Contingently issuable shares                        74,251          44,714              -

                                                          ---------       ---------      ---------
          BASIC WEIGHTED AVERAGE NUMBER OF SHARES          5,008,151       4,978,614     4,066,524

         Effect of dilutive stock options and other
            contingent shares                                     -          11,347         20,942

                                                          ---------       ---------      ---------
         DILUTED WEIGHTED AVERAGE NUMBER OF SHARES        5,008,151       4,989,961      4,087,466

                                                          =========       =========      =========
         Basic earnings per share                           $(0.64)           $0.17          $1.10

                                                          =========       =========      =========
         Diluted earning per share                          $(0.64)           $0.17          $1.10

                                                          =========       =========      =========
</TABLE>

         During the  year-ended  June 30, 2000,  the Company  issued  options to
         purchase  20,000 shares of its common stock at exercise  prices ranging
         from $7.50 to $9.25. The above dilutive earnings per share calculations
         exclude  the effect of options to  purchase  330,500 and 45,000 for the
         years  ended  June 30,  2000 and 1999,  respectively,  shares of common
         stock at exercise prices ranging from $7.50 to $12.00 because they were
         anti-dilutive.  Also see Note 7 related to contingently issuable shares
         related to an acquisition.  The effect of contingent  shares related to
         the guaranteed  earn-out  amount not paid at the closing of the Sunbelt
         acquisition  and the effect of  satisfactory  completion of part of the
         second  contingent  earn-out  has  been  included  in the  above  basic
         earnings  per  share  calculations.  The  effect of  contingent  shares
         related to the first  earn-out of American  Micro is not  included,  as
         such payment was paid in cash in March 2000.  The effect of  contingent
         shares related to second earn-out of American Micro is not included, as
         the  amount  of such  contingent  shares  to be  issued is unable to be
         determined. See note 19.


                                      F-26
<PAGE>


                 EUROPEAN MICRO HOLDINGS, INC. AND SUBSIDIARIES

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

18       STOCKHOLDERS' EQUITY, STOCK OPTIONS AND INCENTIVE PLANS

         EMPLOYEE STOCK PURCHASE PLAN

         In  January  1998,  European  Micro  Holdings,  Inc.  adopted  the 1998
         Employee Stock Purchase Plan (the "employee  plan").  A total of 50,000
         common  shares have been  reserved  for  issuance  under the plan.  The
         shares  issued  under the  employee  plan will be  purchased  at 85% of
         market value or such higher  percentage  (not in excess of 100%) as may
         be established by the employee plan committee.  The employee plan shall
         remain in effect until  terminated by an action of the Board. No shares
         had been issued at June 30, 2000.

         STOCK INCENTIVE PLAN

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

         The per share  weighted  average  fair value of stock  options  granted
         during 2000 and 1999 were $7.76 and $8.09, respectively.  The preceding
         results   were   calculated   with   the   use  of  the   Black-Scholes
         option-pricing  model.  The  assumptions  were used for the years ended
         June 30, 2000 and 1999,  respectively:  (1) risk-free interest rates of
         5.5% to 6.2% and 4.7%;  (2) dividend  yield of 0.0%; (3) expected lives
         of 7  years;  and (4)  volatility  of 128% and  84%.  Results  may vary
         depending on the assumptions applied within the model.

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

                                                      YEARS ENDED JUNE 30,
                                             -----------------------------------
                                                  2000        1999         1998
                                                  ----        ----         ----

         NET INCOME:
                  As reported                 $(3,207)        $854       $4,485
                  Pro forma                   $(3,551)        $466       $4,431

         EARNINGS PER SHARE - BASIC:
                  As reported                  $(0.64)       $0.17        $1.10
                  Pro forma                    $(0.71)       $0.09        $1.09

         EARNINGS PER SHARE - DILUTED:
                  As reported                  $(0.64)       $0.17        $1.10
                  Pro forma                    $(0.71)       $0.09        $1.08


         Compensation  cost arising during the year ended June 30, 2000 and June
         30, 1999 in relation to stock options granted to  non-employees  during
         the year  amounted to $56,000 and $202,000,  respectively.  The vesting
         period for stock options granted to non-employees  varies between 1 and
         6 years.


                                      F-27
<PAGE>


                 EUROPEAN MICRO HOLDINGS, INC. AND SUBSIDIARIES

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

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

<TABLE>
<CAPTION>

                                                   2000                        1999                        1998
                                                   ----                        ----                        ----

<S>                                        <C>          <C>             <C>          <C>           <C>           <C>
                                                         WEIGHTED                     WEIGHTED                    WEIGHTED
                                             NUMBER       AVERAGE         NUMBER       AVERAGE       NUMBER        AVERAGE
                                                 OF      EXERCISE             OF      EXERCISE           OF       EXERCISE
                                             SHARES         PRICE         SHARES         PRICE       SHARES          PRICE
    Outstanding at beginning of year        339,000        $10.07        294,000       $10.00             -
    Granted                                  20,000         $8.38         45,000       $10.51       294,000         $10.00
    Exercised                                     -                            -                          -
    Forfeited                                28,500        $10.21              -                          -
                                           --------                      -------                    -------

    OUTSTANDING AT YEAR END                 330,500         $9.95        339,000       $10.07       294,000         $10.00

    Available for grant at year end         169,500                      161,000                    206,000

</TABLE>


         OPTIONS OUTSTANDING

         A summary of the  options  outstanding  at June 30,  2000 is  presented
         below:
<TABLE>
<CAPTION>

                                   OPTIONS OUTSTANDING                                       OPTIONS EXERCISABLE
       ----------------------------------------------------------------------------- ------------------------------
                                 NUMBER          WEIGHTED        WEIGHTED              NO.           WEIGHTED
             RANGE OF        OUTSTANDING AT       AVERAGE         AVERAGE        EXERCISABLE AT       AVERAGE
         EXERCISE PRICES         6/30/00       REMAINING LIFE  EXERCISE PRICE      AT 6/30/00      EXERCISE PRICE
<S>      <C>                  <C>               <C>               <C>               <C>               <C>
          $7.50 - $12.00         330,500            8.11           $9.95             60,000            $10.19

</TABLE>


19       SUBSEQUENT EVENTS

         On August 24,  2000,  European  Micro  Holdings,  Inc.  entered into an
         Equity  Line of Credit  (the  "Equity  Credit  Line").  Pursuant to the
         Equity Credit Line, an  institutional  investor agreed to acquire up to
         $20 million of the Company's  common stock at a purchase price equal to
         88% of the market price of such stock, as defined in the agreement. The
         timing  of each  sale and the  number  of  shares  to be sold is at the
         discretion  of the Company,  subject to various  conditions,  including
         shareholder  approval and an effective  registration of the shares. The
         dollar amount that the Company can request under any individual sale is
         subject to the average trading volume of the Company's common stock for
         the preceding  25-day  trading  period.  The maximum term of the Equity
         Credit Line is 30 months from the date of the agreement.  The agreement
         contains  various  representations,  warranties  and  covenants  by the
         Company,  including limitations on the Company's ability to sell common
         stock or common stock equivalents, sell assets, merge, etc.

         In connection  with  entering into the Equity Credit Line,  the Company
         also  entered into a Placement  Agent  Agreement.  Under the  Placement
         Agent Agreement, the agent will receive a commission equal to 7% of the
         gross proceeds from each advance under the Equity Credit Line.


                                      F-28
<PAGE>


                 EUROPEAN MICRO HOLDINGS, INC. AND SUBSIDIARIES

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

19       SUBSEQUENT EVENTS (CONTINUED)

         The Company has issued to the placement  agent two warrants to purchase
         a total of 1,000,000  shares of the Company's common stock. The Class A
         Warrant allows the holder to purchase 500,000 shares of common stock at
         an  exercise   price  of  $7.00   (subject  to  certain   anti-dilution
         adjustments)  commencing with the first advance under the Equity Credit
         Line.   If  the  warrant   shares  are  not  covered  by  an  effective
         registration statement for the resale of the warrant shares, the holder
         can elect a cash-less  exercise  provision.  The  warrants  expire five
         years from the issuance date.  The Company can force  conversion of the
         warrants if the closing  price of its common  stock is $10.00 or higher
         for ten consecutive trading days. The Class B Warrant allows the holder
         to purchase  500,000  shares of common  stock at an  exercise  price of
         $10.00 (subject to similar anti-dilution adjustments).  The other terms
         of the Class B Warrant are similar to the Class A Warrant,  except that
         the  Class B  Warrants  are  exercisable  pro-rate  to the ratio of the
         advances  drawn  under the Equity  Credit  Line,  and  except  that the
         Company can force  conversion  of the warrants if the closing  price of
         its common stock is $15.00 or higher for ten consecutive trading days.

         The  Company  has  granted  the Equity  Credit  Line  investor  and the
         placement   agent  certain   registration   rights.   Pursuant  to  the
         registration  rights  agreements,  the Company is  obligated  to, among
         other things,  register the sale of the  investors  shares sold to such
         investor  under the Equity Credit Line and the sale of shares of common
         stock underlying the warrants.

         On August 8, 2000,  the Company  entered into a consulting  arrangement
         with a third party whereby such party would provide  certain  financing
         and capital market  consultation.  In connection with the  arrangement,
         the Company will pay to the  consultant  $10,000 in cash  compensation.
         The Company also issued to the consultant  options to purchase  100,000
         shares  of  its  common  stock  at an  exercise  price  of  $4.55.  The
         expiration date of the options is August 8, 2010. All options vested on
         the  closing of the Equity  Line of Credit  agreement.  The  consultant
         agreed not to  exercise  any  options  during the first  twelve  months
         following  the grant date.  In  addition,  the Company  will pay to the
         consultant a cash payment and warrants to purchase common shares of the
         Company.  Each cash and  warrant  payment  will equal 1% of the dollars
         amounts drawn by the Company under the Equity Credit Line.


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