**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**FORM
      10-KSB**





x
      ANNUAL REPORT PURSUANT
      TO SECTION 13 OR 15(d)


OF
      THE
      SECURITIES EXCHANGE ACT OF 1934





**For
      the Fiscal Year Ended June 30, 2002**





OR





o
      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)450
                Fairway Drive, Suite 105, Deerfield Beach, Florida
            33441(Address
                of Principal Executive Offices)
            (Zip
                Code)




Registrant’s
      telephone number, including area code  (954)
      596-0249




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 o No x




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. o




The
      aggregate market value of the voting common stock held by non-affiliates of
      the
      Registrant on [July 31, 2006] was $46,478 based on the average bid and
      asked prices on such date of $0.03.




The
      Registrant had 5,029,667 shares of Common Stock, par value $0.01 per share,
      outstanding on [July 31, 2006].




**DOCUMENTS
      INCORPORATED BY REFERENCE**




**None**







**P** **ART** **I**




**I** **TEM** **1. D** **ESCRIPTION** **** **OF** **B** **USINESS** **.**




**G** **ENERAL** **D** **ESCRIPTION** **** **OF** **B** **USINESS**




*Forward-Looking
      Statements and Associated Risks. This filing contains forward-looking
      statements, including statements regarding  European Micro Holdings, Inc.’s
      (“* *European
      Micro* *”
or
      the “* *Company* *”)
      projections on the amount and timing of liquidating distribution. 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. 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 was 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 consisted of value-added
      resellers, corporate resellers, retailers, direct marketers and distributors.
      The Company generally did not sell to end-users. The Company monitored 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.




As
      described in more detail below, during July, 2001 the management approved a
      plan
      for the liquidation and eventual sale or dissolution of the Company.
      Accordingly, we are engaged in an ongoing orderly liquidation of our
      assets.




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 and Nor’Easter. European
      Micro Holdings, Inc. was formerly the parent of 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 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 to serve 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 was formerly 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 Düsseldorf, Germany. As of August 2000, the
      Company closed the sales operations of European Micro Germany. Sunbelt was
      a
      company registered in England and Wales, which was established in 1992 and
      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 operated as a
      sales
      office near Amsterdam, Holland. Big Blue Europe was organized under the laws
      of
      Holland in January 1997 and was 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.




2




European
      Micro Holding’s headquarters are located at 450 Fairway Drive, Suite 105,
      Deerfield Beach, Florida 33441, and its telephone number is (954)
      596-0249.




**Industry**




The
      microcomputer products industry had grown significantly in the late 1990’s,
      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 was an independent distributor and generally did
      not
      purchase products directly from manufacturers but purchased from other
      distributors.




Most
      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 reduced the
      availability of products in the surplus or after-market. The Company had
      historically relied upon the surplus or after-market to obtain products for
      resale. In anticipation of these trends continuing for the foreseeable future,
      and the liquidity problems faced by the Company, the Board approved a plan
      of
      liquidation.




**Strategy**




The
      Company’s objectives are to proceed with an orderly liquidation of all assets.
      On September 1, 2001 the notes payable to the former American Micro shareholders
      were settled by transfer of all American Micro shares from European Micro
      Holdings to the former American Micro shareholders. The Company has to date
      liquidated Nor’Easter and Colchester and European Micro UK.




**Products
      and Customers**




The
      Company’s sales consisted of computer hardware products, such as personal
      computers, memory modules, disc drives and networking products, which were
      sold
      to value-added resellers, corporate resellers, retailers, direct marketers
      and
      distributors. The Company’s customers typically relied on distributors as their
      principal source of microcomputer products.




The
      Company typically purchased its products from distributors and other suppliers
      in large quantities. As a focused distributor, the Company focused on a limited
      and select group of products from a limited and select group of high quality
      manufacturers. As a result, the Company carried fewer individual products from
      fewer manufacturers than broadline distributors. The Company financed a
      significant portion of its total sales by extending trade credit. The Company
      attempted 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 had sought to insure substantially all of its
      accounts receivable. Nor’Easter, Colchester and American Micro generally did not
      insure their accounts receivable.




3




The
      Company’s operations involved a single industry segment, the distribution of
      microcomputer products. Historically, the Company operated in one geographic
      area—the United Kingdom—and 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 increased.




The
      Company’s net sales from operations outside the United States were primarily
      denominated in currencies other than United States dollar. Accordingly, the
      Company’s operations outside the United States imposed risks upon its business
      as a result of exchange rate fluctuations.




**Sources
      of Supply**




The
      Company obtained 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 made its purchases
      based
      on the most favorable combination of prices, quantities and product selection,
      and therefore its suppliers were constantly changing. The Company did not
      generally obtain products directly from manufacturers and generally did not
      enter into any long-term or distribution agreements with its suppliers. In
      some
      cases suppliers were also customers.




Suppliers
      delivered products against purchase orders tendered by the Company. The Company
      often requested specific delivery dates in its purchase orders and lead times
      for delivery from suppliers are typically short. Delivery was, however, subject
      to availability. From time to time the Company experienced delivery delays
      and
      inventory shortages.




**Sales
      and Marketing**




In
      order
      to address the individual customs, practices and business conventions in the
      countries in which the Company operated, the Company employed 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 were provided by senior management of the Company.




*Sales* .
      The
      Company marketed its products to distributors and resellers, not end-users.
      The
      Company’s customers typically placed orders through a sales
      representative




*Marketing* .
      The
      Company’s marketing department monitored and evaluated national market trends,
      price movements and changes in product specifications. It was also responsible
      for developing and implementing the Company’s advertising programs.




4




**Competition**




The
      Company operated in an industry which is characterized by intense competition
      based on price, product availability and delivery times. Its competitors
      included manufacturers and international distributors. Some competitors had
      greater financial and administrative resources than the Company.






**Intellectual
      Property**




The
      Company was attempting to build a brand name in the microcomputer industry.
      To
      that end, the Company had applied for trademark protection both in the United
      Kingdom and within the European Community. The following is a summary of the
      trademarks which the Company has applied for:




**Trademark**
            
            **Class(1)**
            
            **No.**
            
            **Applicant**
            
            **Date
                of Filing**
            
            **Comments**European
                Micro
            
            
            9
            
            
            438689
            
            
            European
                Micro UK
            
            
            12-23-96
            
            
            U.K.
                Trademark grantedEuropean
                Micro [Plc] & Logo
            
            
            9
            
            
            2119204
            
            
            European
                Micro UK
            
            
            12-20-96
            
            
            U.K.
                Trademark grantedPremier
                Dealers Club & Logo
            
            
            9
            
            
            2152310
            
            
            European
                Micro UK
            
            
            11-29-97
            
            
            U.K.
                Trademark granted





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




**Employees**




On
      July 31, 2006 the Company had three employees.




5




**I** **TEM** **2. D** **ESCRIPTION** **** **OF** **P** **ROPERTIES** **.**




The
      corporate headquarters of European Micro Holdings, Inc. is located in Deerfield
      Beach, Florida.




European
      Micro’s facilities as of June 30, 2002 are described below:




**Location**
            
            **Square
                Feet**
            
            **Lease
                Expiration**Miami,
                Florida (offices)(1)
            
            
            350
            
            
            2002Nashville,
                Tennessee (offices)(1)
            
            
            350
            
            
            2002Portsmouth,
                New Hampshire (offices and warehouse)(2)
            
            
            7,700
            
            
            2005




1.
        European Micro Holdings, Inc.


2.
      Nor’Easter





During
      the liquidation process, all leased properties have been vacated and the lease
      expired or a settlement was reached with the lessor.




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 ($2,405,000 at
      June
      30, 2001). The purchase price was financed in part by a loan in the amount
      of
      1,312,000 pounds sterling ($1,851,000 at June 30, 2001) at an annual interest
      rate of 7.6%, payable over ten years. The total square footage of the building
      was 11,603, of which approximately one-fourth of the building was being leased
      to unrelated third parties at June 30, 2001. European Micro UK sold the office
      building effective March 31, 2002 for 1,510,000 pounds sterling ($2,143,000
      at
      March 31, 2002). The proceeds were released from escrow on April 5, 2002, at
      which time the mortgage loan note secured by the office building plus accrued
      interest was paid in full in the amount of 1,102,000 pounds sterling ($1,573,000
      at April 6, 2002). The remaining proceeds of 369,000 pounds sterling ($527,000
      at April 6, 2002), after commissions and legal fees of 39,000 pounds sterling,
      were paid down on the related party note payable to Harry Shields.




**I** **TEM** **3. L** **EGAL** **P** **ROCEEDINGS** **.**




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 ”).




In
      October 2003, the Company and its affiliated defendants entered into a
      settlement agreement whereby the plaintiffs discontinued the litigation and
      released all claims against the defendants. The parties bore their own legal
      costs and expenses and exchanged mutual releases.




In
      January 2001, Nor’Easter sued Arlington Computer Products, Inc. (“ Arlington ”)
      in the
      Superior Court of Rockingham County, New Hampshire, for breach of an agreement
      to pay for the purchase of laptop computers. Nor’Easter subsequently sued
      Arlington in the Circuit Court of Lake County, Illinois, to enforce a judgment
      obtained in the New Hampshire Litigation. In addition, Arlington sued Nor’Easter
      in the United States District Court for the Northern District of Illinois for
      breach of an agreement to sell Compaq computer memory modules. Nor’Easter filed
      a third party complaint in the Federal Litigation against Origin Micro, Inc.
      (“ Origin ”)
      for
      breach of an agreement to sell Compaq computer memory modules.




In
      June
      2002, Nor’Easter and Arlington entered into a settlement agreement whereby
      Arlington paid Nor’Easter the sum of $52,556 and both parties discontinued the
      litigation and released all claims against each other. In July 2002, Nor’Easter
      and Origin entered into a settlement agreement whereby Origin paid Nor’Easter
      the sum of $49,000 and both parties discontinued the litigation and released
      all
      claims.




6




In
      December 2001, a former shareholder of Sunbelt served a statutory demand upon
      European Micro Plc in the sum of 92,710 pounds sterling. This sum was
      subsequently reduced to 73,940 pounds sterling. On April 19, 2002 Judge Kershaw
      QC granted the European Micro Plc an injunction preventing the former
      shareholder from presenting a petition in this sum based upon the statutory
      demand. On July 31, 2002 the Court of Appeal dismissed European Micro Plc’s
      claim and ordered the costs to be paid. In August 2003, the debt plus costs
      and
      interest owed the former shareholder of Sunbelt was assigned to Harry Shields,
      a
      shareholder of European Micro Holdings, Inc., for the sum of 107,000 pounds
      sterling.




**I** **TEM** **4. S** **UBMISSION** **** **OF** **M** **ATTERS** **** **TO
      A** **V** **OTE** **** **OF** **S** **ECURITY** **H** **OLDERS** **.**




None.




**P** **ART** **II**




**I** **TEM** **5. M** **ARKET** **** **FOR** **R** **EGISTRANT’S** **C** **OMMON** **E** **QUITY** **** **AND** **R** **ELATED** **S** **TOCKHOLDER** **M** **ATTERS** **.**




The
      Company’s shares of Common Stock began trading on the Nasdaq National Market on
      June 12, 1998, under the symbol “EMCC.” On April 20, 2001, the Company
      received a Nasdaq Staff Determination Letter stating that the Company's common
      stock failed to maintain a minimum market value of public float of $5.0 million.
      As a result, the Company's common stock was delisted from the Nasdaq Stock
      Market on April 27, 2001. The Company's common stock is now quoted on the pink
      sheets.




The
      Company’s high and low bid prices by quarter during fiscal 2002 and 2001 are
      presented as follows:




**Fiscal
                Year 2002****High**
            
            **Low**First
                Quarter (July 2001 to September 2001)
            
            $
            0.35
            
            $
            0.01Second
                Quarter (October 2001 to December 2001)
            
            
            0.06
            
            
            0.01Third
                Quarter (January 2002 to March 2002)
            
            
            0.06
            
            
            0.01Fourth
                Quarter (April 2002 to June 2002)
            
            
            0.04
            
            
            0.02





**Fiscal
                Year 2001****High**
            
            **Low**First
                Quarter (July 2000 to September 2000)
            
            $
            9.125
            
            $
            3.00Second
                Quarter (October 2000 to December 2000)
            
            
            6.00
            
            
            1.0625Third
                Quarter (January 2001 to March 2001)
            
            
            3.625
            
            
            0.84Fourth
                Quarter (April 2001 to June 2001)
            
            
            1.1
            
            
            0.10





On
      July 31, 2006, the Company had approximately 117 shareholders of record.




**Dividends**




During
      the fiscal years ended June 30, 2002 and 2001, no dividends were declared or
      paid. The Company declared a dividend in the aggregate amount of $200,000 on
      the
      outstanding shares of Common Stock of record as of August 1, 2005. The dividend
      was paid on September 1, 2005. The Company currently intends to proceed with
      the
      orderly liquidation of its assets.




**Recent
      Sales of Unregistered Securities**




None.




7




**I** **TEM** **6. M** **ANAGEMENT’S** **D** **ISCUSSION** **** **AND** **A** **NALYSIS** **** **OF** **F** **INANCIAL** **C** **ONDITION** **** **AND** **R** **ESULTS** **** **OF** **O** **PERATIONS** **.**




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.




Certain
      statements within this Item and throughout this Annual Report on Form 10-KSB
      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.




**Critical
      Accounting Estimates**





The
      Company’s only critical accounting estimate pertains to fair value measurement
      in applying the liquidation basis of accounting. Management’s estimate of fair
      value is based upon the actual amounts collected from the liquidation of the
      assets and liabilities. Management does not believe these estimates could
      significantly change in the future.




**Years
      Ended June 30, 2002 and 2001**




*Total
      Net Sales* .
      Total
      net sales decreased $83.2 million, or 88.4%, from $94.1 million in the year
      ended June 30, 2001 to $10.9 million in the comparable period in 2002. Excluding
      net sales to related parties, net sales decreased $82.9 million, or 88.4%,
      from
      $93.9 million in the year ended June 30, 2001 to $10.9 million in the comparable
      period in 2002. The decrease in sales was a result of liquidity problems and
      closures of the Company’s operations. Nor’Easter’s operations were closed in
      April 2001. Colchester’s operations were closed during July 2001. In addition,
      American Micro was transferred back to its original shareholders on September
      1,
      2001, in settlement of notes payable. European Micro UK ceased operations in
      October 2001. As a result of these closures and transfers, the Company ceased
      generating revenue during the first half of fiscal 2002.




*Gross
      Profit* .
      Gross
      profit decreased $6.6 million or 82.8%, from $8.0 million in the year ended
      June 30, 2001 to $1.4 million in the comparable period in 2002. This
      decrease was primarily due to lower sales volume due to the closings of the
      Company’s operating subsidiaries.




Gross
      margins increased from 8.5% in the year ended June 30, 2001 to 12.6% in the
      comparable period in 2002. This
      increase was related to above normal margins obtained at American Micro during
      the two months, July and August 2001, in which American Micro results were
      included.




*Operating
      Expenses* .
      Operating expenses as a percentage of total net sales increased from 17% in
      the
      year ended June 30, 2001 to 24% in the comparable period in 2002. This increase
      was attributable to an increase in operating expenses as a percentage of total
      net sales from 10.6% to 15.2% at American Micro, which was due to an increase
      in
      sales commissions and payroll expense. This increase was also attributable
      to an
      increase in operating expenses as a percentage of total net sales from 7.8%
      to
      9.5% at European Micro UK, which was due to a decrease in sales due to liquidity
      problems.




*Interest
      Expense* .
      Interest expense decreased by $807,000 from $1,057,000 in the year ended June
      30, 2001 to $250,000 in the comparable period in 2002. This
      was
      attributable to a decrease in short-term borrowings and long-term borrowings
      due
      to loans being called by the lenders.




*Income
      Taxes* .
      The
      Company recorded 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.




8


**Recent
      Accounting Pronouncements**




*Consolidation
      of Variable Interest Entities*




In
      January 2003, (as revised in December 2003) The Financial Accounting Standards
      Board (" FASB ")
      issued
      Interpretation No. 46, "Consolidation of Variable Interest Entities", an
      interpretation of Accounting Research Bulletin (" ARB ")
      No.
      51, "Consolidated Financial Statements". Interpretation No. 46 addresses
      consolidation by business enterprises of variable interest entities, which
      have
      one or both of the following characteristics: (i) the equity investment at
      risk
      is not sufficient to permit the entity to finance its activities without
      additional subordinated support from other parties, which is provided through
      other interest that will absorb some or all of the expected losses of the
      entity; (ii) the equity investors lack one or more of the following essential
      characteristics of a controlling financial interest: the direct or indirect
      ability to make decisions about the entities activities through voting rights
      or
      similar rights; or the obligation to absorb the expected losses of the entity
      if
      they occur, which makes it possible for the entity to finance its activities;
      the right to receive the expected residual returns of the entity if they occur,
      which is the compensation for the risk of absorbing the expected
      losses.




Interpretation
      No. 46, as revised, also requires expanded disclosures by the primary
      beneficiary (as defined) of a variable interest entity and by an enterprise
      that
      holds a significant variable interest in a variable interest entity but is
      not
      the primary beneficiary.




Interpretation
      No. 46, as revised, applies to small business issuers no later than the end
      of
      the first reporting period that ends after December 15, 2004. This effective
      date includes those entities to which Interpretation 46 had previously been
      applied. However, prior to the required application of Interpretation No. 46,
      a
      public entity that is a small business issuer shall apply Interpretation 46
      or
      this Interpretation to those entities that are considered to be special-purpose
      entities no later than as of the end of the first reporting period that ends
      after December 15, 2003




Interpretation
      No. 46 may be applied prospectively with a cumulative-effect adjustment as
      of
      the date on which it is first applied or by restating previously issued
      financial statements for one or more years with a cumulative-effect adjustment
      as of the beginning of the first year restated. This interpretation has not
      been
      retroactively applied to the June 30, 2001 Consolidated Financial
      Statements.




In
      June
      2003, the FASB issued an Exposure Draft for proposed SFAS entitled "Qualifying
      Special Purpose Entities (" QSPE ")
      and
      Isolation of transferred Assets", an amendment of SFAS No. 140 (" The
      Exposure Draft ").
      The
      Exposure Draft is a proposal that is subject to change and as such, is not
      yet
      authoritative. If the proposal is enacted in its current form, it will amend
      and
      clarify SFAS 140. The Exposure Draft would prohibit an entity from being a
      QSPE
      if it enters into an agreement that obliged a transferor of financial assets,
      its affiliates, or its agents to deliver additional cash or other assets to
      fulfill the special-purposes entity's obligation to beneficial interest
      holders.




*Accounting
      for Asset Retirement Obligations*




Statement
      No. 143 “Accounting for Asset Retirement Obligations” establishes standards for
      the initial measurement and subsequent accounting for obligations associated
      with the sale, abandonment, or other type of disposal of long-lived tangible
      assets arising from the acquisition, construction, or development and/or normal
      operation of such assets. SFAS No. 143 is effective for fiscal years beginning
      after June 15, 2002, with earlier application encouraged.




*Debt
      extinguishments*




In
      April
      2002, the FASB issued SFAS 145, Rescission of FASB Statements No. 4, 44, and
      64,
      Amendment of FASB Statement No. 13, and Technical Corrections. SFAS 145 rescinds
      the provisions of SFAS No. 4 that requires companies to classify certain gains
      and losses from debt extinguishments as extraordinary items, eliminates the
      provisions of SFAS No. 44 regarding transition to the Motor Carrier Act of
      1980
      and amends the provisions of SFAS No. 13 to require that certain lease
      modifications be treated as sale leaseback transactions. The provisions of
      SFAS
      145 related to classification of debt extinguishments are effective for fiscal
      years beginning after May 15, 2002. Earlier application is encouraged. The
      Company has not adopted early application of this standard and does not believe
      that early adoption would have a material effect on these financial
      statements.




9


*Accounting
      for Restructuring Costs*




In
      July
      2002, the FASB issued SFAS No. 146, "Accounting for Restructuring Costs." SFAS
      146 applies to costs associated with an exit activity (including restructuring)
      or with a disposal of long-lived assets. Those activities can include
      eliminating or reducing product lines, terminating employees and contracts
      and
      relocating plant facilities or personnel. Under SFAS 146, the Company will
      record a liability for a cost associated with an exit or disposal activity
      when
      that liability is incurred and can be measured at fair value. SFAS 146 will
      require the Company to disclose information about its exit and disposal
      activities, the related costs, and changes in those costs in the notes to the
      interim and annual financial statements that include the period in which an
      exit
      activity is initiated and in any subsequent period until the activity is
      completed. SFAS 146 is effective prospectively for exit or disposal activities
      initiated after December 31, 2002, with earlier adoption encouraged. Under
      SFAS
      146, a company cannot restate its previously issued financial statements and
      the
      new statement grandfathers the accounting for liabilities that a company had
      previously recorded under Emerging Issues Task Force Issue 94-3.




*Accounting
      for Stock-Based Compensation*




In
      December 2002, the Financial Accounting Standards Board issued Statement No.
      148, "Accounting for Stock-Based Compensation-Transition and Disclosure - an
      amendment of FASB Statement No. 123," (" SFAS
      148 ").
      SFAS
      148 amends FASB Statement No. 123, "Accounting for Stock Based Compensation"
      (" SFAS
      123 ")
      and
      provides alternative methods for accounting for a change by registrants to
      the
      fair value method of accounting for stock-based compensation. Additionally,
      SFAS
      148 amends the disclosure requirements of SFAS 123 to require disclosure in
      the
      significant accounting policy footnote of both annual and interim financial
      statements of the method of accounting for stock based-compensation and the
      related pro forma disclosures when the intrinsic value method continues to
      be
      used. The statement is effective for fiscal years beginning after December
      15,
      2002, and disclosures are effective for the first fiscal quarter beginning
      after
      December 15, 2002.




*Derivative
      Instruments and Hedging Activities*




In
      April
      2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative
      Instruments and Hedging Activities". SFAS 149 amends and clarifies financial
      accounting and reporting for derivative instruments, including certain
      derivative instruments embedded in other contracts (collectively referred to
      as
      derivatives) and for hedging activities under SFAS No. 133, "Accounting for
      Derivative Instruments and Hedging Activities". The changes in SFAS No. 149
      improve financial reporting by requiring that contracts with comparable
      characteristics be accounted for similarly. This statement is effective for
      contracts entered into or modified after June 30, 2003 and all of its provisions
      should be applied prospectively.




*Accounting
      For Certain Financial Instruments with Characteristics of both Liabilities
      and
      Equity*




In
      May
      2003, the Financial Accounting Standards Board (“ FASB ”)
      issued
      Statement of Financial Accounting Standards (“ SFAS ”)
      No.
      150, “Accounting For Certain Financial Instruments with Characteristics of both
      Liabilities and Equity”. SFAS No. 150 changes the accounting for certain
      financial instruments with characteristics of both liabilities and equity that,
      under previous pronouncements, issuers could account for as equity. The new
      accounting guidance contained in SFAS No. 150 requires that those instruments
      be
      classified as liabilities in the balance sheet.




SFAS
      No.
      150 affects the issuer’s accounting for three types of freestanding financial
      instruments. One type is mandatorily redeemable shares, which the issuing
      company is obligated to buy back in exchange for cash or other assets. A second
      type includes put options and forward purchase contracts, which involves
      instruments that do or may require the issuer to buy back some of its shares
      in
      exchange for cash or other assets. The third type of instruments that are
      liabilities under this Statement is obligations that can be settled with shares,
      the monetary value of which is fixed, tied solely or predominantly to a variable
      such as a market index, or varies inversely with the value of the issuers’
shares. SFAS No. 150 does not apply to features embedded in a financial
      instrument that is not a derivative in its entirety.




10




Most
      of
      the provisions of Statement 150 are consistent with the existing definition
      of
      liabilities in FASB Concepts Statement No. 6, “Elements of Financial
      Statements”. The remaining provisions of this Statement are consistent with the
      FASB’s proposal to revise that definition to encompass certain obligations that
      a reporting entity can or must settle by issuing its own shares. This Statement
      shall be effective for financial instruments entered into or modified after
      May
      31, 2003 and otherwise shall be effective at the beginning of the first interim
      period beginning after June 15, 2003, except for mandatorily redeemable
      financial instruments of a non-public entity, as to which the effective date
      is
      for fiscal periods beginning after December 15, 2004.




*Loan
      Commitments Accounted for as Derivative Instruments*




In
      March
      2004, the U.S. Securities and Exchange Commission’s Office of the Chief
      Accountant and the Division of Corporate Finance released Staff Accounting
      bulletin (“ SAB ”)
      No.
      105, “Loan Commitments Accounted for as Derivative Instruments”. This bulletin
      contains specific guidance on the inputs to a valuation-recognition model to
      measure loan commitments accounted for at fair value, and requires that
      fair-value measurement include only differences between the guaranteed interest
      rate in the loan commitment and market interest rate, excluding any expected
      future cash flows related to the customer relationship or loan servicing. In
      addition, SAB105 requires the disclosure of the accounting policy for loan
      commitments, including methods and assumptions used to estimate the fair value
      of loan commitments, and any associated hedging strategies. SAB 105 is effective
      for derivative instruments entered into subsequent to March 31, 2004 and should
      also be applied to existing instruments as appropriate. The Company has not
      yet
      completed its evaluation of SAB 105, but does not anticipate a material impact
      on the financial statements.




*Share-Based
      Payment*




In
      December 2004, the FASB issued SFAS No. 123 (R), “ Share-Based
      Payment ”.
      SFAS
      No. 123 (R) revises SFAS No. 123, “Accounting for Stock-Based Compensation” and
      supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees”. SFAS
      No. 123 (R) focuses primarily on the accounting for transactions in which an
      entity obtains employee services in share-based payment transactions. SFAS
      No.
      123 (R) requires companies to recognize in the statement of operations the
      cost
      of employee services received in exchange for awards of equity instruments
      based
      on the grant-date fair value of those awards (with limited exceptions). SFAS
      No.
      123 (R) is effective as of the first interim or annual reporting period that
      begins after June 15, 2005 for non-small business issuers and after December
      15,
      2005 for small business issuers. Accordingly, the Company will adopt SFAS No.
      123 (R) in its quarter ending March 31, 2006. The Company has evaluated the
      provisions of SFAS No. 123 (R) and has determined that SFAS No. 123 (R) will
      not
      have any impact on its financial statement presentation or
      disclosures.




*Accounting
      for*  *Nonmonetary
      Transactions*





In
      December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets,
      an amendment of APB No. 29”. The guidance in APB Opinion No. 29, *Accounting
      for*  *Nonmonetary
      Transactions* ,
      is
      based on the principle that exchanges of nonmonetary assets should be measured
      based on the fair value of the assets exchanged. The guidance in that Opinion,
      however, included certain exceptions to that principle. SFAS No. 153 amends
      Opinion 29 to eliminate the exception for nonmonetary exchanges of similar
      productive assets and replaces it with a general exception for exchanges of
      nonmonetary assets that do not have commercial substance. A nonmonetary exchange
      has commercial substance if the future cash flows of the entity are expected
      to
      change significantly as a result of the exchange. This statement is effective
      for nonmonetary exchanges occurring in fiscal periods beginning after June
      15,
      2005, earlier application is permitted. The Company has determined that SFAS
      No.
      153 did not have any impact on its financial statement presentation or
      disclosures.




*Accounting
      for changes in accounting principles*




In
      May
      2005, the FASB issued SFAS No. 154 that establishes new standards on accounting
      for changes in accounting principles. Pursuant to the new rules, all such
      changes must be accounted for by retrospective application to the financial
      statements of prior periods unless it is impracticable to do so. SFAS No. 154
      completely replaces Accounting Principles Bulletin (APB) Opinion 20 and SFAS
      3,
      though it carries forward the guidance in those pronouncements with respect
      to
      accounting for changes in estimates, changes in the reporting entity, and the
      correction of errors. This statement is effective for accounting changes and
      corrections of errors made in fiscal years beginning after December 15, 2005.
      Management does not believe the adoption of SFAS No. 154 will have a material
      impact on the Company’s financial condition or results of operations.




11




*Accounting
      for Certain Hybrid Financial Instruments*




In
      February 2006, the FASB issued SFAS No. 155 “Accounting for Certain Hybrid
      Financial Instruments - an amendment of FASB Statements No. 133 and 140” This
      Statement resolves issues addressed in Statement 133 Implementation Issue No.
      D1, “Application of Statement 133 to Beneficial Interests in Securitized
      Financial Assets.” This Statement permits fair value re-measurement for any
      hybrid financial instrument that contains an embedded derivative that otherwise
      would require bifurcation, clarifies which interest-only strips and
      principal-only strips are not subject to the requirements of Statement 133,
      establishes a requirement to evaluate interests in securitized financial assets
      to identify interests that are freestanding derivatives or that are hybrid
      financial instruments that contain an embedded derivative requiring bifurcation,
      clarifies that concentrations of credit risk in the form of subordination are
      not embedded derivatives, amends Statement 140 to eliminate the prohibition
      on a
      qualifying special-purpose entity from holding a derivative financial instrument
      that pertains to a beneficial interest other than another derivative financial
      instrument. This statement is effective for fiscal years beginning after
      September 15, 2006. Management does not believe the adoption of SFAS No. 155
      will have a material impact on the Company’s financial condition or results of
      operations.




**Seasonality**




The
      Company typically experienced variations in its total net sales and net income
      on a quarterly basis as a result of many factors. These included, but were
      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 included a reduction in demand in Europe during
      the
      summer months.




**Liquidity
      and Capital Resources**




The
      Company’s primary cash requirements were 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 had historically funded these cash requirements through a combination
      of
      loans, internally generated cash flow and the net proceeds of its initial public
      offering.




*General.* The
      Company had suffered operating losses in fiscal 2000 and 2001. 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,
      negatively impacted operating results. These factors resulted in the
      noncompliance of the financial covenants of the Company’s loan agreements. Due
      to these operating results and the covenant violations, the lender on the
      American Micro and Nor'Easter lines of credit and the European Micro Holdings,
      Inc. term loan demanded repayment of the Nor'Easter line of credit before June
      15, 2001 and the American Micro line of credit and the European Micro Holdings
      term loan by August 15, 2001. As a result, during April 2001, the Company
      decided to cease operations at Nor’Easter and during June 2001, the Company
      decided to cease operation at Colchester. The Nor’Easter line of credit was
      repaid on June 15, 2001. The American Micro line of credit was repaid during
      May
      2001. The European Micro Holdings term loan was repaid on August 20, 2001.




12




The
      contingent earn-out payment of the American Micro acquisition relating to two
      times the after tax earnings for calendar year 2000 of approximately $1,839,000
      was due to the former American Micro shareholders. As a result of financial
      restrictions imposed by the lender on the American Micro and Nor’Easter lines of
      credit, on February 20, 2001, the Company delivered two Secured Promissory
      Notes
      (“ Notes ”)
      to the
      former American Micro shareholders in the original amount of $823,712 each.
      The
      Notes called for monthly principal payments of $50,000, plus interest at 8%
      commencing April 1, 2001, subject to financial covenant restrictions. Each
      Note
      was due in full within (30) days of the satisfaction of the American Micro
      and
      Nor’Easter lines of credit. On July 15, 2001, the Company notified the former
      American Micro shareholders that it would be unable to meet its obligations
      under each Note. After the repayment of the American Micro and Nor’Easter lines
      of credit along with the repayment of the European Micro Holdings, Inc. term
      loan, the Company was no longer restricted from performing its obligations
      to
      the American Micro shareholders. On August 22, 2001 the former American Micro
      shareholders demanded full payment of the Notes. On September 1, 2001 the notes
      payable to the former American Micro shareholders were settled by transfer
      of
      all American Micro shares from European Micro Holdings to the former American
      Micro shareholders.




Another
      factor that negatively impacted the Company’s liquidity was the terms of the
      borrowing arrangements of European Micro UK. European Micro UK’s borrowing
      capacity was subject to termination by the lender at the lender’s sole
      discretion. During August, 2001 the lender on the European Micro UK’s line of
      credit demanded repayment. European Micro UK was able to repay the line of
      credit with a loan from a significant shareholder.




Hence,
      with the complete termination of all lines of credit available to the Company,
      the closures of Nor’easter and Colchester and the loss of American Micro, the
      Company had no alternative but to proceed with a complete liquidation of all
      assets. On July 12, 2005, the Company declared a cash dividend in the aggregate
      amount of $200,000 on the issued and outstanding shares of Common Stock held
      by
      shareholders of record as of August 1, 2005. The dividend was paid on September,
      2005. As of July 30, 2006, liquidation is almost complete with the only asset
      being cash in the approximate amount of $20,000.




*Long-Term
      Capital.* The
      Company’s long-term capital needs were historically met from the sales of
      securities and long-term borrowings. Certain long-term funding was supplied
      to
      the Company in the form of capital lease agreements and term loans. The lease
      agreements were secured by vehicles owned by the Company. As of June 30, 2002,
      all borrowings had been repaid .




On
      October 28, 1999, the Company obtained a $1.5 million term loan. The
      term loan agreement was with the same lender as the Nor’easter Micro and
      American Micro line of credit facilities discussed above. Further, the term
      loan
      credit agreement contained similar loan covenant requirements . The
      term
      loan was to be repaid with quarterly payments of $125,000 over three years.
      The
      term loan bore interest at the one-month LIBOR plus two and one-quarter
      percentage points (2.25%). The term loan was 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 pledged personal assets as additional
      collateral and further agreed to maintain certain personal financial statement
      liquidity levels. As described above, the Company was not in compliance with
      loan covenants for the June 30, 2001 reporting period. This term loan was
      repaid on August 20, 2001.




On
      July
      1, 1999, the Company acquired AMCC for a purchase price of $1,131,000 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. Pursuant to the original merger agreement, the remaining
      earn-out portion was to be due no later than May 1, 2001.




13




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. The purchase price
      was financed in part by a loan in the amount of 1,312,000 pounds sterling.
      This
      loan called for monthly payments of principal and interest in the amount of
      15,588 pounds sterling and would have matured in July 2009. The mortgage loan
      note bore interest at a fixed rate of 7.6%. The mortgage loan note included
      certain financial and non-financial covenants and restrictions. The agreement
      also contained a provision whereby the lender could have declared a default
      based on subjective criteria. The financial covenants were 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, 2001. The
      Company was not able to obtain a waiver of this non-compliance. European Micro
      UK sold the office building effective March 31, 2002 for 1,510,000 pounds
      sterling ($2,143,000 at March 31, 2002). Proceeds from the sale were held in
      escrow at March 31, 2002. The proceeds were released from escrow on April 5,
      2002, at which time the mortgage loan note secured by the office building plus
      accrued interest was paid in full in the amount of 1,102,000 pounds sterling.
      The remaining proceeds of 369,000 pounds sterling, after commissions and legal
      fees of 39,000 pounds sterling, were paid down on the related party note payable
      to Harry Shields.




On
      August
      24, 2000, European Micro Holdings, Inc. entered into an Equity Line of Credit
      (the “ Equity
      Credit Line ”).
      The
      Company raised $50,000 by issuing 25,020 shares of common stock under the Equity
      Credit Line. The Company and the investor agreed to terminate the Equity Credit
      Line effective May 15, 2001. In connection with such termination, all
      outstanding warrants held by the investor and the placement agent were
      terminated. The Company agreed to issue the placement agent warrants to purchase
      500,000 shares of common stock at $5.00 per share, which warrants become
      exercisable only if the closing bid price of such common stock is $4.00 per
      share or more for ten consecutive trading days. These warrants expired on August
      23, 2005. Since the closing bid price of the common stock was never $4.00 for
      ten consecutive trading days, the warrants never became exercisable, and as
      such
      no expense was recognized.





On
      May
      15, 2001, the Company also terminated a consulting agreement that was entered
      into in connection with the Equity Credit Line. On August 8, 2000, under the
      consulting arrangement, the Company issued to the consultant options to purchase
      100,000 shares of its common stock at an exercise price of $4.55. In connection
      with the termination, the options issued to this consultant were terminated.
      The
      Company expensed $105,000 of the value in the year ended June 30,
      2001.


14




**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, was the U.S. dollar. The functional currency of European Micro UK
      was the U.K. pound sterling and Colchester was the Singapore dollar. European
      Micro UK and Colchester translate into the reporting currency by measuring
      assets and liabilities using the exchange rates in effect at the balance sheet
      date and results of operations using the average exchange rates prevailing
      during the period.




*Hedging
      and Currency Management Activities* .
      The
      Company occasionally hedged to guard against currency fluctuations between
      the
      U.K. pound sterling and the U.S. dollar. **




**I** **TEM** **7. F** **INANCIAL** **S** **TATEMENTS** **** **AND** **S** **UPPLEMENTARY** **D** **ATA** **.**




The
      consolidated financial statements of the Company appear beginning at
      page F-1.




**I** **TEM** **8. C** **HANGES** **** **IN** **** **** **AND** **D** **ISAGREEMENTS** **** **WITH** **A** **CCOUNTANTS** **** **ON** **A** **CCOUNTING** **** **AND** **F** **INANCIAL** **D** **ISCLOSURE** **.**




On
      December 28, 2000, KPMG was dismissed as the independent certified public
      accountants for the Company. On the same day, BDO Seidman was engaged as the
      Company’s independent certified public accountants. On
      January 5, 2001, the Company filed a Form 8-K, which disclosed that the Company
      dismissed KPMG LLP as its independent certified public accountant effective
      December 28, 2000.




On
      February 12, 2004, the Company chose to engage the accounting firm of Weinberg
      and Company, P.A. to serve as independent certified public accountants. On
      November 11, 2005, the Company filed a Form 8-K, which disclosed that the
      Company dismissed BDO Seidman as its independent certified public accountant
      effective February 12, 2004. The
      dismissal of KPMG and BDO Seidman was not in connection with any dispute over
      accounting practices or the Company's financial statements or reporting;
      management believed that it would be more economical and in their best interest
      to retain a local independent registered public accounting firm.




**I** **TEM** **8A.
      Controls And Procedures**




**(A)**  **Evaluation
      Of Disclosure Controls And Procedures**




As
      of the
      end of the period covered by this report, the Company carried out an evaluation,
      under the supervision and with the participation of the Company’s Principal
      Executive Officer and Principal Financial Officer of the effectiveness of the
      design and operation of the Company’s disclosure controls and procedures. The
      Company’s disclosure controls and procedures are designed to provide a
      reasonable level of assurance of achieving the Company’s disclosure control
      objectives. The Company’s Principal Executive Officer and Principal Financial
      Officer have concluded that the Company’s disclosure controls and procedures
      are, in fact, effective at this reasonable assurance level as of the period
      covered. In addition, the Company reviewed its internal controls, and there
      have
      been no significant changes in its internal controls or in other factors that
      could significantly affect those controls subsequent to the date of their last
      evaluation or from the end of the reporting period to the date of this
      Form 10-KSB.




**(B)**  **Changes
      In Internal Controls Over Financial Reporting**




In
      connection with the evaluation of the Company’s internal controls during the
      Company’s fourth fiscal quarter ended June 30, 2002, the Company’s Principal
      Executive Officer and Principal Financial Officer have determined that there
      are
      no changes to the Company’s internal controls over financial reporting that has
      materially affected, or is reasonably likely to materially effect, the Company’s
      internal controls over financial reporting.




15




**ITEM
      8B. OTHER INFORMATION**




None.




**PART
      III**




**ITEM
      9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
      WITH
      SECTION 16(A) OF THE EXCHANGE ACT**




The
      Board
      of Directors of the Company consists of six seats, divided into three classes
      of
      two members each. The terms of office of the three classes of directors (Class
      I, Class II and Class III) end in successive years. Currently there are four
      vacancies, two in Class I and two in Class II. Pursuant to the Company’s bylaws,
      a majority of the remaining two members of the Board may appoint successors
      to
      fill the vacancies.




**Class
                III Directors—Present Term****John
                B. Gallagher**
              Age
                51
            Mr.
                Gallagher is co-founder of the Company and European Micro Plc, a
                wholly-owned subsidiary of the Company. He has served as Co-Chairman,
                Co-President and Director of the Company since it was formed in December
                1997. Mr. Gallagher has also served as Co-Chairman and Director of
                European Micro Plc since it was formed in 1991 and as President,
                Secretary, Treasurer and Director of American Micro Computer Center,
                Inc.,
                a computer distributor, since 1999. Between 1989 and 1999, Mr. Gallagher
                served as President of American Surgical Supply Corp. of Florida
                d/b/a
                American Micro Computer Center until it was acquired by the Company
                in
                1999 and changed its name to American Micro Computer Center, Inc.
                He was a
                Director and President of Ameritech Exports, a computer distributor,
                from
                1992 to 1997. Mr. Gallagher is an attorney with a Bachelor of Arts
                and a
                Juris Doctorate from the University of Florida.**Harry
                D. Shields**
              Age
                56
            Mr.
                Shields is co-founder of the Company and European Micro Plc, a
                wholly-owned subsidiary of the Company. He has served as Co-Chairman,
                Co-President and Director of the Company since it was formed in December
                1997. Mr. Shields has also served as Co-Chairman and Director of
                European
                Micro Plc since it was formed in 1991. Mr. Shields had been Vice
                President
                and a Director of American Micro Computer Center, Inc. from its
                acquisition in 1999 to August 31, 2001. He served as President of
                Technology Express, a computer distributor, from 1986 to 2003, and
                was a
                Director of Ameritech Exports, a computer distributor, from 1992
                to 1997.
                Mr. Shields has a Bachelor of Arts from DePaul University and a Masters
                of
                Science from the University of
                Tennessee.




16


**Executive
        Officer**
  In
        addition to John B. Gallagher and Harry D. Shields, who are listed above,
        the
        following individual is an executive officer of the
        Company:


**Jay
                Nash**
              Age
                44
            Mr.
                Nash has been Chief Financial Officer, Controller, Secretary and
                Treasurer
                of the Company since January 1998. He had also been Assistant Secretary
                and a Director of American Micro Computer Center, Inc. since 1999.
                He had
                served as Vice President of Technology Express, Inc., a computer
                distributor, since 1992 and was an accountant with Jacques Miller,
                a real
                estate firm, from 1986 to 1992 and KPMG LLP, an accounting firm,
                from 1983
                to 1986. Mr. Nash is a Certified Public Accountant with a Bachelor
                of
                Science in Accounting from the University of
                Tennessee.




17




**I** **TEM** **** **10.
      E** **XECUTIVE** **C** **OMPENSATION** **.**




**Executive
      Compensation**




**Summary
      Compensation Table**





The
      following table sets forth compensation information for the three fiscal years
      ended June 30, 2002 for the Company's Chief Executive Officers, the two other
      executive officers of the Company and two most highly compensated executive
      officers of European Micro Plc for Fiscal 2001 and 2002.








**Annual
                Compensation**
            
            **Long-Term****Compensation****Name
                and Principal Position(s)**
            
            **Fiscal
                Year**
            
            **Salary**
            
            **Bonus**
            
            **Other
                Annual**
              **Compensation**
              **(1)**
            
            **No.
                of Stock Options**
              **Granted
                (2)**
            
            **All
                Other****Compensation**John
                B. Gallagher
            
            
            2002
            
            $
            17,333
            
            $
            0
            
            $
            0
            
            
            0
            
            $
            0Co-Chairman
                and Co-President
            
            
            2001
            
            $
            329,000(3
            )
            
            0
            
            
            0
            
            
            0
            
            
            02000
            
            
            370,667(3
            )
            
            0
            
            
            0
            
            
            0
            
            
            0Harry
                D. Shields
            
            
            2002
            
            $
            0
            
            $
            0
            
            $
            0
            
            
            0
            
            $
            0Co-Chairman
                and Co-President
            
            
            2001
            
            $
            225,000
            
            
            0
            
            
            0
            
            
            0
            
            
            02000
            
            
            266,667
            
            
            0
            
            
            0
            
            
            0
            
            
            0Jay
                Nash
            
            
            2002
            
            $
            12,500
            
            $
            0
            
            $
            0
            
            
            0
            
            $
            0Chief
                Financial Officer, Controller,
            
            
            2001
            
            $
            75,000
            
            
            0
            
            
            0
            
            
            11,000
            
            
            0Secretary
                and Treasurer
            
            
            2000
            
            
            54,167
            
            
            5,000
            
            
            0
            
            
            0
            
            
            0Frank
                Cruz
            
            
            2002
            
            $
            16,000
            
            $
            0
            
            $
            0
            
            
            0
            
            $
            0Chief
                Operating Officer
            
            
            2001
            
            $
            111,688(3
            )
            
            0
            
            
            0
            
            
            11,000
            
            
            02000
            
            
            100,310(3
            )
            
            15,000
            
            
            0
            
            
            0
            
            
            0Laurence
                Gilbert
            
            
            2002
            
            $
            0
            
            $
            0
            
            $
            0
            
            
            0
            
            $
            0Managing
                Director (4)
            
            
            2001
            
            $
            123,020
            
            $
            46,171
            
            $
            21,270
            
            
            26,000
            
            
            02000
            
            
            95,592
            
            
            159,650
            
            
            21,374
            
            
            0
            
            
            0Bernadette
                Spofforth
            
            
            2002
            
            $
            0
            
            $
            0
            
            $
            0
            
            
            0
            
            $
            0Director
                of Sales (5)
            
            
            2001
            
            $
            0
            
            $
            0
            
            $
            0
            
            
            0
            
            
            02000
            
            
            95,592
            
            
            208,383
            
            
            23,858
            
            
            0
            
            
            0








(1)
      This
      consists primarily of employee benefits, including the use of a company owned
      car, pension plan and medical insurance.





(2)
      Options to purchase shares of common stock granted pursuant to the 1998
      Incentive Plan. Messrs. Nash, Cruz and Gilbert were granted options to purchase
      shares of the Company’s common stock on August 21, 2000 and January 13,
      2001.




(3)
      Mr.
      Gallagher’s salary includes an annual salary of $104,000 paid by American Micro
      Computer Center, Inc., a wholly-owned subsidiary of the Company, in Fiscal
      2001
      and 2000. Mr. Cruz’ salary also includes $29,093 paid by American Micro Computer
      Center, Inc.




(4)
      Mr.
      Gilbert was the Managing Director of European Micro Plc until May 31, 2001.
      He
      is no longer employed by European Micro Plc.




(5)
      Ms.
      Spofforth was the Director of Sales of European Micro Plc until June 25, 2000.
      She is no longer employed by European Micro Plc.




18


**Option
      Grants in Fiscal 2002**





During
      Fiscal 2002, the Company did not grant options to any of the named executive
      officers.





**Option
      Exercises and Values for Fiscal 2002**





During
      Fiscal 2002, all outstanding options were forfeited by all former employees
      and
      all named executive officers.





**Employment
      Agreements**





***Employment
      Agreements with the Chief Executive Officers*** *.* The
      Company entered into five-year employment agreements with each of Messrs.
      Gallagher and Shields. Pursuant to the agreements, each executive was employed
      as Co-Chairman and Co-President of the Company. These agreements were effective
      as of January 1, 1998, and each provided for initial annual base salaries of
      $175,000, plus annual cost of living adjustments and other increases to be
      determined at any time or from time to time by the Board of Directors or any
      committee thereof. On January 31, 1999, the annual base salaries for each of
      Messrs. Gallagher and Shields were increased to $275,000. Effective May 1,
      2000,
      Messrs. Gallagher and Shields voluntarily decreased their annual base salaries
      from $275,000 to $225,000. Effective July 1, 2001, Messrs. Gallagher and Shields
      voluntarily waived payment of their base salaries. Furthermore, effective August
      31, 2001, Messrs. Gallagher and Shields terminated their employment agreements
      and permanently released the Company from its obligation to pay past due
      compensation for the prior two months.





On
      July
      1, 1999, Mr. Gallagher entered into a two-year employment agreement with
      American Micro Computer Center, Inc., a wholly-owned subsidiary of the Company
      (“ American
      Micro ”).
      Pursuant to this agreement, Mr. Gallagher was employed as President of American
      Micro. This agreement provided for an annual base salary of $104,000, which
      was
      in addition to the annual base salary paid by the Company. Effective August
      31,
      2001, Mr. Gallagher terminated the employment agreement with American
      Micro.





***Employment
      Agreements with Other Named Executive Officers*** *.* European
      Micro Plc entered into an employment agreement with Mr. Laurence Gilbert.
      Pursuant to the agreement, Mr. Gilbert was employed as Managing Director of
      European Micro Plc. Mr. Gilbert’s agreement was effective January 1, 1998, and
      was terminated on May 31, 2001. Neither Jay Nash nor Frank Cruz had employment
      agreements with the Company.


19




**I** **TEM** **11.
      S** **ECURITY** **O** **WNERSHIP** **** **OF** **C** **ERTAIN** **B** **ENEFICIAL** **O** **WNERS** **** **AND** **M** **ANAGEMENT** **.**




**Directors
      and Executive Officers**





The
      following table shows the amount of common stock of the Company beneficially
      owned by the Company’s directors, the executive officers named in the Summary
      Compensation Table below and by all directors and executive officers as a group
      as of July 31, 2006. Unless otherwise indicated, beneficial ownership is direct
      and the person indicated has sole voting and investment power. As of July 31,
      2006, the Company had 5,029,667 shares of common stock outstanding.





**Name
                and Address**
            
            **Shares
                Beneficially Owned**
            
            **Percent
                of**
              **Class**John
                B. Gallagher
            
            
            1,900,000
            
            
            37.8
            %Harry
                D. Shields
            
            
            1,577,696
            
            
            31.4
            %All
                officers and directors as a group
            
            
            3,477,696
            
            
            69.2
            %




**Section
      16(a) Beneficial Ownership Reporting Compliance**




Except
      as
      noted below, based upon a review of filings with the Securities and Exchange
      Commission, the Company believes that all of the Company’s directors and
      executive officers complied during Fiscal 2002 with the reporting requirements
      of Section 16(a) of the Securities Exchange Act of 1934.




**Stockholders
      Agreement**




Pursuant
      to a stockholders agreement, each of Messrs. Gallagher and Shields have agreed
      to vote his shares in concert on all matters submitted to a vote of stockholders
      of the Company, including the election of all directors. In the event that
      either Messrs. Gallagher or Shields cannot agree to vote his shares in concert
      with the other, neither shall vote his shares.




**Code
      Of Ethics**




On
      August
      28, 2006, our Board of Directors adopted a Code of Business Conduct and Ethics
      that applies to all of our officers, directors and employees.




20




**I** **TEM** **12. C** **ERTAIN** **R** **ELATIONSHIPS** **** **AND** **R** **ELATED** **T** **RANSACTIONS** **.**




On
      February 2, 1999, the Company’s Board formed an Acquisition Committee consisting
      solely of independent directors to evaluate and determine whether the Company
      should acquire American Surgical Supply Corp. of Florida d/b/a American Micro
      Computer Center (“ AMCC ”)
      and,
      if so, on what terms. The members of the committee were Kyle R. Saxon and
      Barrett Sutton. John B. Gallagher, who is a significant shareholder, Co-Chairman
      and Co-President of the Company, was the President and a Director of AMCC and
      owned fifty percent of its outstanding capital stock. Frank Cruz, who was the
      Chief Operating Officer of the Company, had been an employee of AMCC since
      1994.
      He was an employee of American Micro, the newly-formed, wholly-owned subsidiary
      of the Company formed to acquire AMCC. The remaining fifty percent of AMCC’s
      outstanding capital stock was owned by Mr. Gallagher’s father. The committee’s
      charter authorized it to take any action it deemed necessary to properly
      evaluate and determine whether the Company should acquire AMCC, including hiring
      independent advisors and ensuring that any such transaction was fair to the
      Company and its stockholders from a financial point of view. The committee
      hired
      independent legal counsel and an independent financial advisor to render a
      fairness opinion. On July 1, 1999, the Company acquired AMCC.




The
      contingent earn-out payment of the American Micro acquisition relating to two
      times the after tax earnings for calendar year 2000 of approximately $1,839,000
      was due to the former American Micro shareholders. As a result of financial
      restrictions imposed by the lender on the American Micro and Nor’Easter lines of
      credit, on February 20, 2001, the Company delivered two Secured Promissory
      Notes
      (“ Notes ”)
      to the
      former American Micro shareholders in the original amount of $823,712 each.
      The
      Notes called for monthly principal payments of $50,000, plus interest at 8%
      commencing April 1, 2001, subject to financial covenant restrictions. Each
      Note
      was due in full within (30) days of the satisfaction of the American Micro
      and
      Nor’Easter lines of credit. On July 15, 2001, the Company notified the former
      American Micro shareholders that it would be unable to meet its obligations
      under each Note. After the repayment of the American Micro and Nor’Easter lines
      of credit along with the repayment of the European Micro Holdings, Inc. term
      loan, the Company was no longer restricted from performing its obligations
      to
      the American Micro shareholders. On August 22, 2001 the former American Micro
      shareholders demanded full payment of the Notes. On September 1, 2001 the notes
      payable to the former American Micro shareholders were settled by transfer
      of
      all American Micro shares from European Micro Holdings to the former American
      Micro shareholders.




During
      Fiscal 2002, the Company borrowed money from Harry D. Shields, Technology
      Express, Inc. and American Micro. Harry D. Shields who is the Co-Chairman,
      Co-President, director and a significant stockholder of the Company, is also
      the
      owner of Technology Express, Inc. John B. Gallagher who is the Co-Chairman,
      Co-President, director and a significant stockholder of the Company, is also
      the
      owner of American Micro. In addition, Jay Nash, who was Chief Financial Officer,
      Controller, Secretary and Treasurer of the Company, has been an officer of
      Technology Express since 1992. Amounts payable to the related parties are listed
      below:





**($
                in
                thousands)****Fiscal
                2002**Notes
                Payable to Harry D. Shields(1)
            
            $
            249Accounts
                Payable to Technology Express(2)
            
            
            27Accounts
                Payable to American Micro(2)
            
            
            26







(1)  The
      largest aggregate amount of indebtedness owed by the Company to Harry D. Shields
      between July 1, 2001 and June 30, 2002 was approximately $1,813,000. These
      amounts represent a note payable secured by a second mortgage on the office
      building used by European Micro UK.




(2)  The
      largest aggregate amount of indebtedness owed by the Company to Technology
      Express and American Micro between July 1, 2001 and June 30, 2002 was
      approximately $27,000 and $26,000 respectively. These amounts represent advances
      to the Company in order to pay bills.




21




**I** **TEM** **13. E** **XHIBITS** **** **AND** **F** **INANCIAL** **S** **TATEMENT** **S** **CHEDULES** **,** ****A**ND** **R** **EPORTS** **** **ON** **F** **ORM** **8-K.**




(a)(1)(2) **Financial
      Statements.** See
      index to consolidated financial statements and supporting
      schedules.




(a)(3) **Exhibits.**




**Exhibit
                No.**
            
            **Description**
            
            **Location**2.01
            
            Agreement
                for the Acquisition of Sunbelt (UK) Limited by European Micro Plc
                dated
                October 26, 1998
            
            Incorporated
                by reference as Exhibit 2.01 to the Company’s Quarterly Report on
                Form 10-QSB filed on November 13, 1998.2.02
            
            Merger
                Agreement re: AMCC dated June 29, 1999
            
            Incorporated
                by reference as Exhibit 2.02 to the Company’s Annual Report on Form 10-KSB
                filed on September 28, 1999.2.03
            
            Plan
                of 1999 Merger re: AMCC dated June 29, 1999
            
            Incorporated
                by reference as Exhibit 2.03 to the Company’s Annual Report on Form 10-KSB
                filed on September 28, 1999.2.04
            
            Articles
                of Merger re: AMCC dated June 29, 1999
            
            Incorporated
                by reference as Exhibit 2.04 to the Company’s Annual Report on Form 10-KSB
                filed on September 28, 1999.2.05
            
            Amendment
                to Merger Agreement re: AMCC dated October 2, 2000
            
            Incorporated
                by reference as Exhibit 2.05 to the Company’s Registration Statement on
                Form S-1 filed on October 27, 2000.3.01
            
            Articles
                of Incorporation
            
            Incorporated
                by reference as Exhibit No. 3.01 to the Company’s Registration Statement
                on Form S-1 filed on January 16, 1998.3.02
            
            Certificate
                of Amendment of Articles of Incorporation
            
            Incorporated
                by reference as Exhibit 3.02 to the Company’s Quarterly Report on Form
                10-QSB filed on May 13, 1998.3.03
            
            Bylaws
            
            Incorporated
                by reference as Exhibit No. 3.02 to the Company’s Registration Statement
                on Form S-1 filed on January 16, 1998.4.01
            
            Form
                of Stock Certificate
            
            Incorporated
                by reference as Exhibit No. 4.01 to the Company’s Registration Statement
                on Form S-1/A filed on March 6, 1998.4.02
            
            1998
                Stock Incentive Plan
            
            Incorporated
                by reference as Exhibit No. 4.02 to the Company’s Registration Statement
                on Form S-1 filed on January 16, 1998.4.03
            
            1998
                Stock Employee Stock Purchase Plan
            
            Incorporated
                by reference as Exhibit No. 4.03 to the Company’s Registration Statement
                on Form S-1 filed on January 16, 1998.4.04
            
            Form
                of Lock-up Agreement
            
            Incorporated
                by reference as Exhibit No. 4.04 to the Company’s Registration Statement
                on Form S-1/A filed on March 24, 1998.10.01
            
            Form
                of Advice of Borrowing Terms with National Westminster Bank
                Plc
            
            Incorporated
                by reference as Exhibit No. 10.01 to the Company’s Registration Statement
                on Form S-1/A filed on March 6,
                1998.




22




**Exhibit
                No.**
            
            **Description**
            
            **Location**10.02
            
            Invoice
                Discounting Agreement with Lombard NatWest Discounting Limited, dated
                November 21, 1996
            
            Incorporated
                by reference as Exhibit No. 10.02 to the Company’s Registration Statement
                on Form S-1/A filed on March 6, 1998.10.03
            
            Commercial
                Credit Insurance, policy number 60322, with Hermes Kreditversicherungs-AG
                dated August 1, 1995
            
            Incorporated
                by reference as Exhibit No. 10.03 to the Company’s Registration Statement
                on Form S-1/A filed on March 6, 1998.10.04
            
            Commercial
                Credit Insurance, policy number 82692, with Hermes Kreditversicherungs-AG
                dated August 1, 1995
            
            Incorporated
                by reference as Exhibit No. 10.04 to the Company’s Registration Statement
                on Form S-1/A filed on March 6, 1998.10.05
            
            Consignment
                Agreement with European Micro Computer B.V., dated January
                1996
            
            Incorporated
                by reference as Exhibit No. 10.05 to the Company’s Registration Statement
                on Form S-1/A filed on March 6, 1998.10.06
            
            Stockholders’
                Cross-Purchase Agreement by and between Jeffrey Gerard Alnwick, Marie
                Alnwick, European Micro Plc and Big Blue Europe, B.V. dated August
                21,
                1997
            
            Incorporated
                by reference as Exhibit No. 10.07 to the Company’s Registration Statement
                on Form S-1/A filed on March 6, 1998.10.07
            
            Trusteed
                Stockholders Cross-Purchase Agreement by and between John B. Gallagher,
                Harry D. Shields, Thomas H. Minkoff, Trustee of the Gallagher Family
                Trust, Robert H. True and Stuart S. Southard, Trustees of the Henry
                Daniel
                Shields 1997 Irrevocable Educational Trust, European Micro Holdings,
                Inc.
                and SunTrust Bank, Nashville, N.A., as Trustee dated January 31,
                1998
            
            Incorporated
                by reference as Exhibit No. 10.08 to the Company’s Registration Statement
                on Form S-1/A filed on March 6, 1998.10.08
            
            Executive
                Employment Agreement between John B. Gallagher and European Micro
                Holdings, Inc. effective as of January 1, 1998
            
            Incorporated
                by reference as Exhibit No. 10.09 to the Company’s Registration Statement
                on Form S-1/A filed on March 6, 1998.10.09
            
            Executive
                Employment Agreement between Harry D. Shields and European Micro
                Holdings,
                Inc. effective as of January 1, 1998
            
            Incorporated
                by reference as Exhibit No. 10.10 to the Company’s Registration Statement
                on Form S-1/A filed on March 6, 1998.10.10
            
            Contract
                of Employment Agreement between Laurence Gilbert and European Micro
                UK
                dated March 14, 1998
            
            Incorporated
                by reference as Exhibit No. 10.11 to the Company’s Registration Statement
                on Form S-1/A filed on March 6, 1998.10.11
            
            Subscription
                Agreement by and between John B. Gallagher, Harry D. Shields, Thomas
                H.
                Minkoff, Trustee of the Gallagher Family Trust, Robert H. True and
                Stuart
                S. Southard, Trustees of the Henry Daniel Shields 1997 Irrevocable
                Educational Trust, European Micro Holdings, Inc. effective as of
                January
                31, 1998
            
            Incorporated
                by reference as Exhibit No. 10.13 to the Company’s Registration Statement
                on Form S-1/A filed on March 6, 1998.10.12
            
            Administrative
                Services Contract by and between European Micro Holdings, Inc. and
                European Micro Plc effective as of January 1, 1998
            
            Incorporated
                by reference as Exhibit No. 10.14 to the Company’s Registration Statement
                on Form S-1/A filed on March 6, 1998.10.13
            
            Escrow
                Agreement between European Micro Holdings, Inc., Tarpon Scurry
                Investments, Inc. and The Chase Manhattan dated as of March 24,
                1998
            
            Incorporated
                by reference as Exhibit No. 10.15 to the Company’s Registration Statement
                on Form S-1/A filed on March 6,
                1998.




23





**Exhibit
                No.**
            
            **Description**
            
            **Location**10.14
            
            Form
                of Indemnification Agreements with officers and directors
            
            Incorporated
                by reference as Exhibit No. 10.16 to the Company’s Registration Statement
                on Form S-1/A filed on March 6, 1998.10.15
            
            Form
                of Transfer Agent Agreement with Chase Mellon Stockholder Services,
                L.L.C.
            
            Incorporated
                by reference as Exhibit No. 10.17 to the Company’s Registration Statement
                on Form S-1/A filed on March 6, 1998.10.16
            
            Form
                of Credit Agreement by and between European Micro UK and National
                Westminster Bank Plc
            
            Incorporated
                by reference as Exhibit No. 10.17 to the Company’s Annual Report on Form
                10-KSB filed on September 28, 1998.10.17
            
            Consulting
                Contract dated September 10, 1998 by and between European Micro Holdings,
                Inc. and The Equity Group
            
            Incorporated
                by reference as Exhibit 10.19 to the Company’s Quarterly Report on
                Form 10-QSB filed on November 13, 1998.10.18
            
            Employment
                Agreement dated July 1, 1999 between John B. Gallagher and American
                Micro
            
            Incorporated
                by reference as Exhibit 10.21 to the Company’s Annual Report on Form
                10-KSB filed on September 28, 1999.10.19
            
            Revolving
                Loan Agreement dated October 5, 2000 between American Micro and
                SouthTrust Bank re: Line of Credit to American Micro
            
            Incorporated
                by reference as Exhibit 10.19 to the Company’s Annual Report on Form
                10-KSB filed on October 11, 2000.10.20
            
            First
                Amendment to Loan Agreement dated October 5, 2000 among the Company,
                American Micro, Nor’Easter and SouthTrust Bank, N.A. re: Term Loan to the
                Company
            
            Incorporated
                by reference as Exhibit 10.20 to the Company’s Annual Report on Form
                10-KSB filed on October 11, 2000.10.21
            
            Revolving
                Loan Agreement dated October 5, 2000 between Nor’Easter and
                SouthTrust Bank re: Line of Credit to Nor’Easter
            
            Incorporated
                by reference as Exhibit 10.21 to the Company’s Annual Report on Form
                10-KSB filed on October 11, 2000.10.22
            
            Loan
                Agreement dated October 28, 1999 among the Company, American Micro,
                Nor’Easter and SouthTrust Bank, N.A. re: Term Loan to the
                Company
            
            Incorporated
                by reference as Exhibit 10.23 to the Company’s Quarterly Report on
                Form 10-QSB filed on November 15, 1999.10.23
            
            Security
                Agreement dated October 5, 2000 between Nor’Easter and SouthTrust
                Bank
            
            Incorporated
                by reference as Exhibit 10.23 to the Company’s Annual Report on Form
                10-KSB filed on October 11, 2000.10.24
            
            Security
                Agreement dated October 5, 2000 between American Micro and SouthTrust
                Bank
            
            Incorporated
                by reference as Exhibit 10.24 to the Company’s Annual Report on Form
                10-KSB filed on October 11, 2000.10.25
            
            Line
                of Credit Note given by Nor’Easter to SouthTrust Bank
            
            Incorporated
                by reference as Exhibit 10.25 to the Company’s Annual Report on Form
                10-KSB filed on October 11, 2000.10.26
            
            Line
                of Credit Note given by American Micro to SouthTrust Bank
            
            Incorporated
                by reference as Exhibit 10.26 to the Company’s Annual Report on Form
                10-KSB filed on October 11, 2000.10.27
            
            Unconditional
                Guaranty given by Harry Shields to SouthTrust Bank Re: American
                Micro
            
            Incorporated
                by reference as Exhibit 10.27 to the Company’s Annual Report on Form
                10-KSB filed on October 11, 2000.




24





**Exhibit
                No.**
            
            **Description**
            
            **Location**10.28
            
            Unconditional
                Guaranty given by John Gallagher to SouthTrust Bank Re: American
                Micro
            
            Incorporated
                by reference as Exhibit 10.28 to the Company’s Annual Report on Form
                10-KSB filed on October 11, 2000.10.29
            
            Amended
                and Restated Unlimited Guaranty Agreement dated October 5, 2000 between
                Harry Shields and SouthTrust Bank
            
            Incorporated
                by reference as Exhibit 10.29 to the Company’s Annual Report on Form
                10-KSB filed on October 11, 2000.10.30
            
            Amended
                and Restated Unlimited Guaranty Agreement dated October 5, 2000 between
                John Gallagher and SouthTrust Bank
            
            Incorporated
                by reference as Exhibit 10.30 to the Company’s Annual Report on Form
                10-KSB filed on October 11, 2000.10.31
            
            Unconditional
                Guaranty given by John Gallagher to SouthTrust Bank Re:
                Nor’Easter
            
            Incorporated
                by reference as Exhibit 10.31 to the Company’s Annual Report on Form
                10-KSB filed on October 11, 2000.10.32
            
            Unconditional
                Guaranty given by Harry Shields to SouthTrust Bank Re:
                Nor’Easter
            
            Incorporated
                by reference as Exhibit 10.32 to the Company’s Annual Report on Form
                10-KSB filed on October 11, 2000.10.33
            
            Specific
                Agreement for the Provision of Professional Services dated as of
                March 17,
                2000 between the Company and Cap Gemini UK Plc
            
            Incorporated
                by reference as Exhibit 10.25 to the Company’s Quarterly Report on Form
                10-QSB filed on May 15, 2000.10.34
            
            Equity
                Line of Credit Agreement dated as of August 24, 2000, between the
                Company
                and Spinneret Financial System, Ltd.
            
            Incorporated
                by reference as Exhibit 10.34 to the Company’s Annual Report on Form
                10-KSB filed on October 11, 2000.10.35
            
            Registration
                Rights Agreement dated as of August 24, 2000, between the Company
                and
                Spinneret Financial System, Ltd.
            
            Incorporated
                by reference as Exhibit 10.35 to the Company’s Annual Report on Form
                10-KSB filed on October 11, 2000.10.36
            
            Warrant
                to Purchase Common Stock dated as of August 24, 2000, given by the
                Company
                to Spinneret Financial System, Ltd.
            
            Incorporated
                by reference as Exhibit 10.36 to the Company’s Annual Report on Form
                10-KSB filed on October 11, 2000.10.37
            
            Warrant
                to Purchase Common Stock dated as of August 24, 2000, given by the
                Company
                to the May Davis Group, Inc.
            
            Incorporated
                by reference as Exhibit 10.37 to the Company’s Annual Report on Form
                10-KSB filed on October 11, 2000.10.38
            
            Registration
                Rights Agreement dated as of August 24, 2000, between the Company
                and the
                May Davis Group, Inc.
            
            Incorporated
                by reference as Exhibit 10.38 to the Company’s Annual Report on Form
                10-KSB filed on October 11, 2000.10.39
            
            Placement
                Agent Agreement dated as of August 24, 2000, between the Company
                and the
                May Davis Group, Inc.
            
            Incorporated
                by reference as Exhibit 10.39 to the Company’s Annual Report on Form
                10-KSB filed on October 11, 2000.14.01
            
            Code
                of Ethics
            
            Incorporated
                by reference as Exhibit 14.01 to the Company’s Annual Report on Form
                10-KSB filed on October 12, 2006.





(b)  Reports
      on Form 8-K.




(1) On
      August 18, 2005, the Company filed a Form 8-K, which disclosed a one-time
      cash dividend distribution in the aggregate amount of $200,000 to be paid on
      the
      outstanding shares of the Company’s common stock of record on August 1, 2005
      (the “Record Date”).




25




(2) On
      November 11, 2005, the Company filed a Form 8-K, which disclosed that the
      Company dismissed BDO Seidman as its independent certified public accountant
      effective February 12, 2004.




**I** **TEM** **14. P** **RINCIPAL** **** **ACCOUNTING
        FEES** **** **AND
        SERVICES** **.**




AUDIT
      FEE




The
      aggregate fees billed for each of the last two fiscal years for professional
      services rendered by the principal accountant for our audit of annual financial
      statements and review of financial statements included in our Form 10-KSB and
      10-Q or services that are normally provided by the accountant in connection
      with
      statutory and regulatory filings or engagements for those fiscal years
      were:




2002
            
            $
            33,3392001
            
            $
            202,638




ALL
      OTHER
      FEES





The
      aggregate fees billed in each of the last two fiscal years for the products
      and
      services provided by the principal accountant other than the services reported
      in the above paragraph were:





2002
            
            $
            -2001
            
            $
            -




26




**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
              16, 2006.**EUROPEAN
              MICRO HOLDINGS, INC.**By:
            /s/
              John B.
              GallagherJohn
                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;
                Co-President
            
            October
                  16, 2006Harry
                D. Shields
            
            (Principal
                Executive Officer); Director*/s/
                John B. Gallagher*
            
            Co-Chairman;
                Co-President
            
            October
                  16, 2006John
                B. Gallagher
            
            (Principal
                Executive Officer); Director*/s/
                Jay P. Nash*
            
            Chief
                Financial Officer and
            
            October
                  16, 2006Jay
                P. Nash
            
            Controller
                (Principal Financial Officer and Controller)




27




**Index
          to the Financial Statements**
 
 **European
                    Micro Holdings, Inc. and Subsidiaries**Report
                    of Independent Registered Public Accounting Firm
                F-2Consolidated
                    Statement of Net Assets in Liquidation as of June 30, 2002 (Liquidation
                    Basis)
                F-3Consolidated
                    Statement of Changes in Net Assets for the Year Ended June 30,
                    2002
                    (Liquidation Basis) and Consolidated Statement of Operations
                    for the Year
                    Ended June 30, 2001 (Going Concern Basis)
                F-4Consolidated
                    Statement of Changes in Shareholders’ Equity for the year ended June 30,
                    2001
                F-5Consolidated
                    Statements of Cash Flows for the Year Ended June 30, 2002 (Liquidation
                    Basis) and for the Year Ended June 30, 2001 (Going Concern
                    Basis)
                F-6Notes
                    to Consolidated Financial Statements as of June 30, 2002
                F-8
  
  **REPORT
          OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
  To
          the
          Board of Directors of
 European
          Micro Holdings, Inc. and Subsidiaries:
  We
          have
          audited the accompanying consolidated statement of net assets in liquidation
          of
          European Micro Holdings, Inc. and Subsidiaries (the “ Company ”)
          as of
          June 30, 2002 and the related consolidated statements of changes in net
          assets
          and cash flows for the year ended June 30, 2002 and the consolidated statements
          of operations, changes in stockholders' equity and cash flows for the year
          ended
          June 30, 2001. 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 the standards of the Public Company
          Accounting Oversight Board (United States). Those standards require that
          we plan
          and perform the audits to obtain reasonable assurance about whether the
          consolidated financial statements are free of material misstatement. An
          audit
          includes examining, on a test basis, evidence supporting the amounts and
          disclosures in the consolidated 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.
 
 As
          described in Note 2 to the financial statements, the stockholders of the
          Company
          approved a plan of liquidation on July 1, 2001, and the Company commenced
          the
          liquidation shortly thereafter. As a result, the Company has changed its
          basis
          of accounting for periods subsequent to June 30, 2001 from the going-concern
          basis to a liquidation basis.
 
 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, 2002, and the results of
          their
          operations and their cash flows for the years ended June 30, 2002 and 2001,
          in
          conformity with accounting principles generally accepted in the United
          States of
          America applied on the bases described in the preceding paragraph.
 
 WEINBERG
          & COMPANY, P.A.
  Boca
          Raton, Florida
 April
          21,
          2006
  F-2
 
 **European
          Micro Holdings, Inc. and Subsidiaries**
 **Consolidated
          Statement of Net Assets in Liquidation as of June 30, 2002**
 **(Liquidation
          Basis)**
 (In
          thousands)
  **2002****ASSETS****ASSETS:**Cash
                
                $
                107Accounts
                    receivable, net
                
                
                49Income
                    taxes receivable
                
                
                1,574Other
                    assets
                
                
                13***TOTAL
                    ASSETS***
                
                $
                1,743**LIABILITIES****LIABILITIES:**Accounts
                    payable
                
                $
                12Accrued
                    expenses and other liabilities
                
                
                780Due
                    to related parties
                
                
                302***TOTAL
                    LIABILITIES***
                
                $
                1,094***NET
                    ASSETS IN LIQUIDATION (available to holders of Common
                    Stock)***
                
                $
                649
  See
          accompanying notes to consolidated financial statements.
  F-3
 **European
            Micro Holdings, Inc. and Subsidiaries**
  **Consolidated
          Statement of** **Changes in Net Assets** **f** **or
          the Year Ended June 30, 2002** **(Liquidation
          Basis)**
 **and
          Consolidated Statement of Operations for the Year Ended June 30, 2001 (Going
          Concern Basis)**
 (In
          thousands, except share and per share data)
 
 **2002**
                
                **2001****SALES:**Net
                    sales to unrelated parties
                
                $
                10,930
                
                $
                93,879Net
                    sales to related parties
                
                
                -
                
                
                214Total
                    net sales
                
                
                10,930
                
                
                94,093**COST
                    OF GOODS SOLD:**Cost
                    of goods sold to unrelated parties
                
                
                (9,555
                )
                
                (85,916
                )Cost
                    of goods sold to related parties
                
                
                -
                
                
                (202
                )Total
                    cost of goods sold
                
                
                (9,555
                )
                
                (86,118
                )**GROSS
                    PROFIT**
                
                
                **1,375**
                
                
                **7,975****OPERATING
                    EXPENSES:**Selling,
                    general and administrative expenses
                
                
                (2,631
                )
                
                (10,969
                )Impairment
                    of property and equipment
                
                
                -
                
                
                (593
                )Goodwill
                    impairment
                
                
                -
                
                
                (4,387
                )Total
                    operating expenses
                
                
                (2,631
                )
                
                (15,949
                )**LOSS
                    FROM OPERATIONS**
                
                
                **(1,256**
                **)**
                
                **(7,974**
                **)****OTHER
                    INCOME (EXPENSE)**Interest
                    expense, net
                
                
                (250
                )
                
                (1,057
                )Forgiveness
                    of debt
                
                
                686
                
                
                -Loss
                    on rescission of American Micro purchase
                
                
                (1,345
                )
                
                -**TOTAL
                    OTHER INCOME (EXPENSE)**
                
                
                **(909**
                **)**
                
                **(1,057**
                **)****LOSS
                    BEFORE INCOME TAXES**
                
                
                **(2,165**
                **)**
                
                **(9,031**
                **)**Income
                    tax benefit
                
                
                702
                
                
                55**NET
                    LOSS**
                
                
                **(1,463**
                **)**
                **$**
                **(8,976**
                **)****NET
                    ASSETS BEGINNING OF PERIOD**
                
                
                **2,067****EFFECT
                    OF FOREIGN EXCHANGE RATES**
                
                
                **45****NET
                    ASSETS IN LIQUIDATION**
                
                **$**
                **649**Net
                    loss per common share - basic and diluted
                
                
                
                
                $
                (1.80
                )Weighted
                    average number of shares outstanding - basic and diluted
                
                
                
                
                
                4,977,280
 
 See
          accompanying notes to consolidated financial statements.
  F-4
  **European
            Micro Holdings, Inc. and Subsidiaries**
 **Consolidated
          Statement of Shareholders’ Equity For the year ended June 30,
          2001**
 (In
          thousands, except share data)
 
 **Common
                    Stock**
                
                **Additional
                    Paid-In Capital**
                
                **Accumulated
                    Other Comprehensive Loss**
                
                **Retained**
                  **Earnings**
                  **(Deficit)**
                
                **Total**
                  **Shareholders’
                    Equity**Shares
                
                AmountBalance
                    at June 30, 2000
                
                
                4,933,900
                
                $
                49
                
                $
                9,191
                
                $
                (550
                )
                $
                2,420
                
                $
                11,110Comprehensive
                    Income (Loss):Net
                    loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (8,976
                )
                
                (8,976
                )Other
                    comprehensive income (loss) from foreign currencytranslation
                    adjustment
                
                
                
                
                
                
                
                
                
                
                
                (239
                )
                
                -
                
                
                (239
                )Total
                    comprehensive loss
                
                
                
                
                
                
                
                
                
                
                
                (239
                )
                
                (8,976
                )
                
                (9,215
                )Issuance
                    of common stock for repayment of debt and under the equity line
                    of credit,
                    net of $217,000 in offering costs
                
                
                95,767
                
                
                1
                
                
                49
                
                
                -
                
                
                -
                
                
                50Compensation
                    charge for stock options issued to non-employees
                
                
                -
                
                
                -
                
                
                122
                
                
                -
                
                
                -
                
                
                122Balance
                    at June 30, 2001
                
                
                5,029,667
                
                $
                50
                
                $
                9,362
                
                $
                (789
                )
                $
                (6,556
                )
                $
                2,067
  See
          accompanying notes to consolidated financial statements.
  F-5
  **European
            Micro Holdings, Inc. and Subsidiaries**
 **Consolidated
          Statements of Cash Flows**
 **For
          the Years Ended June 30, 2002 and 2001**
 (In
          thousands)
  **2002**
                
                **2001****(Liquidation
                    Basis)**
                
                **(Going
                    Concern Basis)****CASH
                    FLOWS FROM OPERATING ACTIVITIES:**Net
                    loss
                
                $
                (1,463
                )
                $
                (8,976
                )*Adjustments
                    to reconcile net loss to net cash provided by operating
                    activities*Depreciation,
                    amortization and impairment of property
                  and
                    equipment
                
                
                -
                
                
                1,533Goodwill
                    impairment
                
                
                -
                
                
                4,387Deferred
                    income taxes
                
                
                -
                
                
                235Forgiveness
                    of Debt
                
                
                (686
                )
                
                -Loss
                    on rescission of American Micro purchase
                
                
                1,345
                
                
                -Compensation
                    charge for non-employee stock options
                
                
                -
                
                
                122Provision
                    for note receivable impairment
                
                
                -
                
                
                252*Changes
                    in assets and liabilities, net of effects from
                    dispositions*Restricted
                    cash
                
                
                -
                
                
                364Accounts
                    receivable
                
                
                5,369
                
                
                7,285Inventories
                
                
                2,865
                
                
                2,045Prepaid
                    expenses and other current assets
                
                
                (98
                )
                
                664Income
                    taxes receivable
                
                
                (1,057
                )
                
                392Accounts
                    payable
                
                
                (1,167
                )
                
                (1,063
                )Accrued
                    expenses and other liabilities
                
                
                (278
                )
                
                (1,904
                )Due
                    to related parties
                
                
                300
                
                
                649*Net
                    cash provided by operating activities*
                
                
                5,130
                
                
                5,985**CASH
                    FLOWS FROM INVESTING ACTIVITIES:**Purchases
                    of property and equipment
                
                
                -
                
                
                (393
                )Sale
                    of property and equipment
                
                
                2,382
                
                
                183*Net
                    cash provided by (used in) investing activities*
                
                
                2,382
                
                
                (210
                )**CASH
                    FLOWS FROM FINANCING ACTIVITIES:**Decrease
                    in short-term borrowings, net
                
                
                (5,684
                )
                
                (5,655
                )Repayment
                    of long-term borrowings
                
                
                (2,153
                )
                
                (765
                )Issuance
                    of common stock, net
                
                
                -
                
                
                50Repayment
                    of capital leases
                
                
                -
                
                
                (85
                )*Net
                    cash used in financing activities*
                
                
                (7,837
                )
                
                (6,455
                )Net
                    cash transferred in disposition
                
                
                (65
                )
                
                -Effect
                    of foreign exchange rates
                
                
                14
                
                
                (59
                )**NET
                    DECREASE IN CASH**
                
                
                (376
                )
                
                (739
                )Cash
                    at beginning of year
                
                
                483
                
                
                1,222**CASH
                    AT END OF YEAR**
                
                $
                107
                
                $
                483
 
 See
          accompanying notes to consolidated financial statements.
  F-6
  **European
            Micro Holdings, Inc. and Subsidiaries**
 **Consolidated
          Statements of Cash Flows**
 **For
          the Years Ended June 30, 2002 and 2001**
 (In
          thousands)
 
 **2002**
                
                **2001****(Liquidation
                    Basis)**
                
                **(Going
                    Concern Basis)****Supplemental
                    disclosure of non-cash investing and financing
                    activities:**Equipment
                    purchased under capital leases
                
                $
                -
                
                $
                358Common
                    stock issued for payment of debt
                
                $
                -
                
                $
                217Goodwill
                
                $
                -
                
                $
                1,839Notes
                    issued for consideration
                
                $
                -
                
                $
                (1,839
                )On
                    September 1, 2001 the notes payable in the amount of $1,318,000
                    to the
                    former American Micro shareholders were settled by transfer of
                    all
                    American Micro shares from European Micro Holdings to the former
                    American
                    Micro shareholders. The following represents the assets and liabilities
                    transferred by the settlement of the notes payable.Book
                    value of assets transferred
                
                $
                2,682Book
                    value of liabilities transferred
                
                $
                1,337**Supplemental
                    disclosure of cash flow information:**Cash
                    paid for interest
                
                $
                250
                
                $
                1,081Cash
                    paid for taxes
                
                $
                1
                
                $
                20
  See
          accompanying notes to consolidated financial statements.
  F-7
  **European
            Micro Holdings, Inc. and Subsidiaries**
 **Notes
          to the Consolidated Financial Statements**
 **As
          of June 30, 2002**
 
 **Note
          1**  **Summary
          of Significant Accounting Policies and Organization**
  **(A)
                    Organization**
  On
          December 23, 1997, European Micro Holdings, Inc. was incorporated, in the
          state
          of Nevada, 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:
  **Companies**
                
                **Incorporated**
                
                **Commenced
                    Operations**
                
                **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, 1998American
                    Micro Computer Center, Inc.
                
                
                -
                
                
                -
                
                
                July
                    1, 1999Engenis.com
                    Ltd.
                
                
                2000
                
                
                -
                
                
                -
 
  European
          Micro operated in a single industry trading computer components. In principle
          the Company purchased components from international suppliers, including
          related
          parties, and sold them in local markets. The main operating company, European
          Micro Plc, had its principal operations in Altrincham, England with its
          subsidiaries operating in Germany and Holland. Nor’Easter Micro Inc. had its
          operations in Portsmouth, New Hampshire. Colchester Enterprise Pte. Ltd.
          had its
          operations in Singapore. American Micro Computer Center, Inc. had 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 operated in the same industry as the Company.
          Big
          Blue Europe BV ceased operations in 2001 and the investment was written-off
          at
          June 30, 2001. See Note 7 for further details.
  Due
          to
          sales slowdown and liquidity problems resulting from the Company’s primary
          lender demanding repayment of their loans, the Company decided to cease
          operations at Nor’Easter. During May and June 2001, the remaining inventory was
          sold or written off. All fixed assets were sold or written off except for
          a
          vehicle which was sold in July 2001. All accounts receivable were collected
          except for the Arlington receivable (See Note 12). All accounts payable
          were
          paid and the bank accounts were closed. Nor’Easter’s parent European Micro
          Holdings paid off the remaining balance on Nor’Easter’s Line of Credit on June
          15, 2001 and paid all remaining liabilities as they came due.
  Due
          to
          the same liquidity problems, during June 2001, the Company decided to cease
          operations at Colchester. During July 2001, Colchester terminated all employees
          and hired a liquidator to finalize the remaining business. On September
          4, 2003,
          Colchester’s liquidation process was finalized.
  F-8
  **European
            Micro Holdings, Inc. and Subsidiaries**
 **Notes
          to the Consolidated Financial Statements**
 **As
          of June 30, 2002** **** *(continued)*
  **Summary
          of Significant Accounting Policies and Organization** *(continued)*
  Since
          the
          Company was unable to meet the requirements of the notes payable due to
          the
          former American Micro Computer Center, Inc. (“ AMCC ”)
          shareholders, on September 1, 2001, the Company entered into a Settlement
          and
          Stock Purchase Agreement whereby all AMCC shares were transferred back
          to the
          former AMCC shareholders in order to satisfy the notes payable.
  During
          August, 2001 the lender on the European Micro UK’s line of credit demanded
          repayment. European Micro UK was able to repay the line of credit with
          a loan
          from a majority shareholder. On October 5, 2001, an agreement between European
          Micro Plc and Square 1 International, Ltd, a company majority owned by
          a
          majority shareholder of European Micro Holdings, Inc., provided for the
          orderly
          transfer of employees and the purchase of inventory and fixed assets from
          European Micro Plc to Square 1 International, Ltd. In July 2002, the Company
          hired a liquidator to finalize the remaining business. On December 7, 2005,
          European Micro Plc’s liquidation process was finalized.
  **(B)
          Principles of Consolidation**
  The
                    consolidated financial statements include the accounts of the
                    Company and
                    its wholly owned inactive subsidiaries. All significant intercompany
                    balances and transactions are eliminated in
                    consolidation.
  The
                    Company’s investment in Big Blue Europe BV was accounted for under the
                    equity method.
 **(C)
                    Basis of Presentation**
 
 The
                    consolidated financial statements are expressed in United States
                    dollars
                    and have been prepared in accordance with accounting principles
                    generally
                    accepted in the United States of America, under the liquidation
                    basis of
                    accounting since July 1, 2001.
 
 **(D)
          Use of Estimates**
  The
          preparation of financial statements in conformity with generally accepted
          accounting principles requires management to make estimates and assumptions
          that
          affect the reported amounts of assets and liabilities and the disclosure
          of
          contingent assets and liabilities at the dates of the financial statements
          and
          the reported amounts of revenues and expenses during the reporting periods.
          Actual amounts could differ significantly from these estimates.
  **(E)
          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.
  **(F)
          Inventories**
  Inventories
          were stated at the lower of cost or market value. Cost was determined using
          the
          weighted average cost method. As of June 30, 2002 all inventories had been
          sold
          or liquidated.
  F-9
  **European
            Micro Holdings, Inc. and Subsidiaries**
 **Notes
          to the Consolidated Financial Statements**
 **As
          of June 30, 2002** **** *(continued)*
  **Summary
          of Significant Accounting Policies and Organization** *(continued)*
  **(G)
          Property, Equipment & Impairment of Long-Lived Assets**
  Prior
          to
          the adoption of the liquidation basis of accounting, property and equipment
          were
          recorded at cost. Property and equipment held under capital leases were
          stated
          at the present value of minimum lease payments at the inception of the
          related
          leases. Depreciation was 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
          were amortized on a straight-line basis over the shorter of the lease term
          or
          estimated useful life of the assets. The cost of additions and betterments
          were
          capitalized, and repairs and maintenance costs were charged to operations
          in the
          period incurred. When depreciable assets were retired or sold, the cost
          and
          related allowances for depreciation were removed from the accounts and
          the gain
          or loss was recognized. 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. Based upon a comprehensive review of all liquidity circumstances
          and current market conditions, the Company determined that the value of
          certain
          property and equipment was impaired. As a result of this determination,
          for the
          year ended June 30, 2001, the Company abandoned, discarded and wrote-off
          $171,440 in property and equipment. The Company also wrote-down $422,123
          in
          property and equipment to net realizable value. The total impairment of
          $593,563
          was included in operating expenses in the accompanying consolidated statement
          of
          operations for the year ended June 30, 2001.
  As
          a
          result of recording the write-off in the year ended June 30, 2001, no
          adjustments were needed to reflect the change to liquidation basis of
          accounting, as of July 1, 2001.
  **(H)
          Depreciation and Amortization**
  Depreciation
          expense was not recorded during the year ended June 30, 2002 because, in
          accordance with Statement of Financial Accounting Standards (“ SFAS ”)
          No.
          121, substantially all of the Company’s long-lived assets are deemed to be held
          for sale.
  **** **(I)
          Goodwill**
  Goodwill,
          which represents the excess of purchase price over fair value of net assets
          acquired, was 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,
          was 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 was impacted if estimated future operating
          cash
          flows were not achieved. In the fourth quarter of fiscal 2001, the Company
          recorded an impairment loss of $4,387,000 representing the entire amount
          of
          goodwill from the acquisitions of AMCC, Sunbelt and H&B. The impairment loss
          was included in operating expenses in the accompanying consolidated statement
          of
          loss for the year ended June 30, 2001.
  F-10
  **European
            Micro Holdings, Inc. and Subsidiaries**
 **Notes
          to the Consolidated Financial Statements**
 **As
          of June 30, 2002** **** *(continued)*
  **Summary
          of Significant Accounting Policies and Organization** *(continued)*
  **(J)
          Income Taxes**
  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.
  **(K)
          Fair Value of Financial Instruments**
  The
          fair
          value of a financial instrument is the amount at which the instrument could
          be
          exchanged in a current transaction between willing parties other than in
          a
          forced sale or liquidation.
  The
          carrying amounts of the Company’s financial instruments, including cash,
          accounts receivable, taxes receivable, accounts payable, accrued expenses
          and
          other current liabilities approximate fair value because of their short
          maturities.
  During
          prior years, the Company had entered 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 had maturities of less than one year
          and
          were accounted for on the fair value method. Gains and losses resulting
          from
          these instruments were recognized in the same period as the underlying
          foreign
          currency transaction gains and losses and were included in cost of sales.
          The
          Company did not use foreign currency exchange contracts or other derivative
          financial instruments for speculative or trading purposes.
  **(L)
          Foreign Currency Transaction**
  Assets
          and liabilities of foreign subsidiaries, whose functional currency is the
          local
          currency, were translated into US Dollars at year-end exchange rates. Capital
          accounts were re-measured into US dollars at the acquisition date rates.
          Income
          and expense items were translated at the average rates of exchange prevailing
          during the year. The adjustments resulting from translating the financial
          statements of such foreign subsidiaries were recorded as a component of
          accumulated other comprehensive income (loss) in stockholders equity. Foreign
          currency transaction and forward exchange contracts gains or losses are
          reported
          in results of operations.
  F-11
  **European
            Micro Holdings, Inc. and Subsidiaries**
 **Notes
          to the Consolidated Financial Statements**
 **As
          of June 30, 2002** *(continued)*
  **Summary
          of Significant Accounting Policies and Organization** *(continued)*
  **(M)
          Stock Option Plans**
  The
          Company accounts for its employee stock option plans in accordance with
          Accounting Principals Board (“ APB ”)
          Opinion No. 25, “Accounting for Stock Issued to Employees.” Under APB 25,
          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 Statement of Financial Accounting Standards (“ 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.
  No
          stock
          options were granted during 2002. The per share weighted average fair value
          of
          stock options granted during 2001 was $3.44 . The
          preceding results were calculated with the use of the Black-Scholes
          option-pricing model. The assumptions were used for the year ended June
          30,
          2001: (1) risk-free interest rates of 5.99% to 6.23%; (2) dividend yield
          of
          0.0%; (3) expected lives of 5 to 7 years; and (4) volatility of 144%. 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):
  **Year
                    ended**
                  **June
                    30, 2001****Net
                    loss:**As
                    reported
                
                $
                (8,976
                )Pro
                    forma
                
                $
                (9,411
                )**Loss
                    per Share - basic:**As
                    reported
                
                $
                (1.80
                )Pro
                    forma
                
                $
                (1.88
                )**Loss
                    per Share - diluted:**As
                    reported
                
                $
                (1.80
                )Pro
                    forma
                
                $
                (1.88
                )
  Compensation
          cost arising during the year ended June 30, 2001 in relation to stock options
          granted to non-employees during the year amounted to $122,000. The vesting
          period for stock options granted to non-employees varied between 0 and
          6
          years.
  F-12
  **European
            Micro Holdings, Inc. and Subsidiaries**
 **Notes
          to the Consolidated Financial Statements**
 **As
          of June 30, 2002** *(continued)*
  **Summary
          of Significant Accounting Policies and Organization** *(continued)*
  **(N)
          Loss Per Common Share**
  Basic
          loss per common 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 loss per share
          does
          not reflect 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, because such effect would
          be
          anti-dilutive. Therefore, basic and diluted loss per common share are the
          same.
  Since
          the
          adoption of the liquidation basis of accounting on July 1, 2001, loss per
          share
          was not computed as such amounts are not deemed to be meaningful.
  **(O)
          Reclassifications**
  Certain
          prior year amounts have been reclassified to conform to the current year
          presentation.
  **(P)
          Recent Accounting Pronouncements**
  *Consolidation
          of Variable Interest Entities*
  In
          January 2003, (as revised in December 2003) The Financial Accounting Standards
          Board (“ FASB ”)
          issued
          Interpretation No. 46, “Consolidation of Variable Interest Entities”, an
          interpretation of Accounting Research Bulletin (“ARB”) No. 51, “Consolidated
          Financial Statements”. Interpretation No. 46 addresses consolidation by business
          enterprises of variable interest entities, which have one or both of the
          following characteristics: (i) the equity investment at risk is not sufficient
          to permit the entity to finance its activities without additional subordinated
          support from other parties, which is provided through other interest that
          will
          absorb some or all of the expected losses of the entity; (ii) the equity
          investors lack one or more of the following essential characteristics of
          a
          controlling financial interest: the direct or indirect ability to make
          decisions
          about the entities activities through voting rights or similar rights;
          or the
          obligation to absorb the expected losses of the entity if they occur, which
          makes it possible for the entity to finance its activities; the right to
          receive
          the expected residual returns of the entity if they occur, which is the
          compensation for the risk of absorbing the expected losses.
  Interpretation
          No. 46, as revised, also requires expanded disclosures by the primary
          beneficiary (as defined) of a variable interest entity and by an enterprise
          that
          holds a significant variable interest in a variable interest entity but
          is not
          the primary beneficiary.
  Interpretation
          No. 46, as revised, applies to small business issuers no later than the
          end of
          the first reporting period that ends after December 15, 2004. This effective
          date includes those entities to which Interpretation 46 had previously
          been
          applied. However, prior to the required application of Interpretation No.
          46, a
          public entity that is a small business issuer shall apply Interpretation
          46 or
          this Interpretation to those entities that are considered to be special-purpose
          entities no later than as of the end of the first reporting period that
          ends
          after December 15, 2003.
  Interpretation
          No. 46 may be applied prospectively with a cumulative-effect adjustment
          as of
          the date on which it is first applied or by restating previously issued
          financial statements for one or more years with a cumulative-effect adjustment
          as of the beginning of the first year restated. This interpretation has
          not been
          retroactively applied to the June 30, 2001 Consolidated Financial
          Statements.
  F-13
  **European
            Micro Holdings, Inc. and Subsidiaries**
 **Notes
          to the Consolidated Financial Statements**
 **As
          of June 30, 2002** *(continued)*
  **Summary
          of Significant Accounting Policies and Organization** *(continued)*
  In
          June
          2003, the FASB issued an Exposure Draft for proposed SFAS entitled “Qualifying
          Special Purpose Entities (“ QSPE ”)
          and
          Isolation of transferred Assets”, an amendment of SFAS No. 140 (“ The
          Exposure Draft ”).
          The
          Exposure Draft is a proposal that is subject to change and as such, is
          not yet
          authoritative. If the proposal is enacted in its current form, it will
          amend and
          clarify SFAS 140. The Exposure Draft would prohibit an entity from being
          a QSPE
          if it enters into an agreement that obliged a transferor of financial assets,
          its affiliates, or its agents to deliver additional cash or other assets
          to
          fulfill the special-purposes entity's obligation to beneficial interest
          holders.
  *Goodwill
          and Other Intangible Assets*
  Statement
          No. 142, “Goodwill and Other Intangible Assets” supercedes APB Opinion 17 and
          related interpretations. Statement No. 142 establishes new rules on accounting
          for the acquisition of intangible assets not acquired in a business combination
          and the manner in which goodwill and all other intangibles should be accounted
          for subsequent to their initial recognition in a business combination accounted
          for under SFAS No. 141. Under SFAS No. 142, intangible assets should be
          recorded
          at fair value. Intangible assets with finite useful lives should be amortized
          over such period and those with indefinite lives should not be amortized.
          All
          intangible assets being amortized as well as those that are not, are both
          subject to review for potential impairment under SFAS No. 121, “Accounting for
          the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
          of”. SFAS No. 142 also requires that goodwill arising in a business combination
          should not be amortized but is subject to impairment testing at the reporting
          unit level to which the goodwill was assigned to at the date of the business
          combination.
  SFAS
          No.
          142 is effective for fiscal years beginning after December 15, 2001 and
          must be
          applied as of the beginning of such year to all goodwill and other intangible
          assets that have already been recorded in the balance sheet as of the first
          day
          in which SFAS No. 142 is initially applied, regardless of when such assets
          were
          acquired. Goodwill acquired in a business combination whose acquisition
          date is
          on or after July 1, 2001, should not be amortized, but should be reviewed
          for
          impairment pursuant to SFAS No. 121, even though SFAS No. 142 has not yet
          been
          adopted. However, previously acquired goodwill should continue to be amortized
          until SFAS No. 142 is first adopted. The Company has impaired 100% of the
          goodwill from its acquisitions as of June 30, 2001. See Note 6 for details.
  *Accounting
          for Asset Retirement Obligations*
  Statement
          No. 143 “Accounting for Asset Retirement Obligations” establishes standards for
          the initial measurement and subsequent accounting for obligations associated
          with the sale, abandonment, or other type of disposal of long-lived tangible
          assets arising from the acquisition, construction, or development and/or
          normal
          operation of such assets. SFAS No. 143 is effective for fiscal years beginning
          after June 15, 2002, with earlier application encouraged. The Company has
          not
          adopted early application of this standard and does not believe that early
          adoption would have a material effect on these financial
          statements.
  *Debt
          extinguishments*
  In
          April
          2002, the FASB issued SFAS 145, Rescission of FASB Statements No. 4, 44,
          and 64,
          Amendment of FASB Statement No. 13, and Technical Corrections. SFAS 145
          rescinds
          the provisions of SFAS No. 4 that requires companies to classify certain
          gains
          and losses from debt extinguishments as extraordinary items, eliminates
          the
          provisions of SFAS No. 44 regarding transition to the Motor Carrier Act
          of 1980
          and amends the provisions of SFAS No. 13 to require that certain lease
          modifications be treated as sale leaseback transactions. The provisions
          of SFAS
          145 related to classification of debt extinguishments are effective for
          fiscal
          years beginning after May 15, 2002. The Company has not adopted early
          application of this standard and does not believe that early adoption would
          have
          a material effect on these financial statements.
  F-14
  **European
            Micro Holdings, Inc. and Subsidiaries**
 **Notes
          to the Consolidated Financial Statements**
 **As
          of June 30, 2002** *(continued)*
  **Summary
          of Significant Accounting Policies and Organization** *(continued)*
  *Accounting
          for Restructuring Costs*
  In
          July
          2002, the FASB issued SFAS No. 146, “Accounting for Restructuring Costs.” SFAS
          146 applies to costs associated with an exit activity (including restructuring)
          or with a disposal of long-lived assets. Those activities can include
          eliminating or reducing product lines, terminating employees and contracts
          and
          relocating plant facilities or personnel. Under SFAS 146, the Company will
          record a liability for a cost associated with an exit or disposal activity
          when
          that liability is incurred and can be measured at fair value. SFAS 146
          will
          require the Company to disclose information about its exit and disposal
          activities, the related costs, and changes in those costs in the notes
          to the
          interim and annual financial statements that include the period in which
          an exit
          activity is initiated and in any subsequent period until the activity is
          completed. SFAS 146 is effective prospectively for exit or disposal activities
          initiated after December 31, 2002, with earlier adoption encouraged. Under
          SFAS
          146, a company cannot restate its previously issued financial statements
          and the
          new statement grandfathers the accounting for liabilities that a company
          had
          previously recorded under Emerging Issues Task Force Issue 94-3. The Company
          has
          not adopted early application of this standard and does not believe that
          early
          adoption would have a material effect on these financial
          statements.
  *Accounting
          for Stock-Based Compensation*
  In
          December 2002, the Financial Accounting Standards Board issued Statement
          No.
          148, “Accounting for Stock-Based Compensation-Transition and Disclosure - an
          amendment of FASB Statement No. 123,” (“ SFAS
          148 ”).
          SFAS
          148 amends FASB Statement No. 123, “Accounting for Stock Based Compensation”
(“ SFAS
          123 ”)
          and
          provides alternative methods for accounting for a change by registrants
          to the
          fair value method of accounting for stock-based compensation. Additionally,
          SFAS
          148 amends the disclosure requirements of SFAS 123 to require disclosure
          in the
          significant accounting policy footnote of both annual and interim financial
          statements of the method of accounting for stock based-compensation and
          the
          related pro forma disclosures when the intrinsic value method continues
          to be
          used. The statement is effective for fiscal years beginning after December
          15,
          2002, and disclosures are effective for the first fiscal quarter beginning
          after
          December 15, 2002. The Company has not adopted early application of this
          standard and does not believe that early adoption would have a material
          effect
          on these financial statements.
  *Derivative
          Instruments and Hedging Activities*
  In
          April
          2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative
          Instruments and Hedging Activities”. SFAS 149 amends and clarifies financial
          accounting and reporting for derivative instruments, including certain
          derivative instruments embedded in other contracts (collectively referred
          to as
          derivatives) and for hedging activities under SFAS No. 133, “Accounting for
          Derivative Instruments and Hedging Activities”. The changes in SFAS No. 149
          improve financial reporting by requiring that contracts with comparable
          characteristics be accounted for similarly. This statement is effective
          for
          contracts entered into or modified after June 30, 2003 and all of its provisions
          should be applied prospectively.
  *Accounting
          For Certain Financial Instruments with Characteristics of both Liabilities
          and
          Equity*
  In
          May
          2003, the Financial Accounting Standards Board (“ FASB ”)
          issued
          Statement of Financial Accounting Standards (“ SFAS ”)
          No.
          150, “Accounting For Certain Financial Instruments with Characteristics of both
          Liabilities and Equity”. SFAS No. 150 changes the accounting for certain
          financial instruments with characteristics of both liabilities and equity
          that,
          under previous pronouncements, issuers could account for as equity. The
          new
          accounting guidance contained in SFAS No. 150 requires that those instruments
          be
          classified as liabilities in the balance sheet.
  F-15
  **European
            Micro Holdings, Inc. and Subsidiaries**
 **Notes
          to the Consolidated Financial Statements**
 **As
          of June 30, 2002** *(continued)*
  **Summary
          of Significant Accounting Policies and Organization** *(continued)*
  SFAS
          No.
          150 affects the issuer’s accounting for three types of freestanding financial
          instruments. One type is mandatorily redeemable shares, which the issuing
          company is obligated to buy back in exchange for cash or other assets.
          A second
          type includes put options and forward purchase contracts, which involves
          instruments that do or may require the issuer to buy back some of its shares
          in
          exchange for cash or other assets. The third type of instruments that are
          liabilities under this Statement is obligations that can be settled with
          shares,
          the monetary value of which is fixed, tied solely or predominantly to a
          variable
          such as a market index, or varies inversely with the value of the issuers’
shares. SFAS No. 150 does not apply to features embedded in a financial
          instrument that is not a derivative in its entirety.
  Most
          of
          the provisions of Statement 150 are consistent with the existing definition
          of
          liabilities in FASB Concepts Statement No. 6, “Elements of Financial
          Statements”. The remaining provisions of this Statement are consistent with the
          FASB’s proposal to revise that definition to encompass certain obligations that
          a reporting entity can or must settle by issuing its own shares. This Statement
          shall be effective for financial instruments entered into or modified after
          May
          31, 2003 and otherwise shall be effective at the beginning of the first
          interim
          period beginning after June 15, 2003, except for mandatorily redeemable
          financial instruments of a non-public entity, as to which the effective
          date is
          for fiscal periods beginning after December 15, 2004.
  *Loan
          Commitments Accounted for as Derivative Instruments*
  In
          March
          2004, the U.S. Securities and Exchange Commission’s Office of the Chief
          Accountant and the Division of Corporate Finance released Staff Accounting
          bulletin (“ SAB ”)
          No.
          105, “Loan Commitments Accounted for as Derivative Instruments”. This bulletin
          contains specific guidance on the inputs to a valuation-recognition model
          to
          measure loan commitments accounted for at fair value, and requires that
          fair-value measurement include only differences between the guaranteed
          interest
          rate in the loan commitment and market interest rate, excluding any expected
          future cash flows related to the customer relationship or loan servicing.
          In
          addition, SAB 105 requires the disclosure of the accounting policy for
          loan
          commitments, including methods and assumptions used to estimate the fair
          value
          of loan commitments, and any associated hedging strategies. SAB 105 is
          effective
          for derivative instruments entered into subsequent to March 31, 2004 and
          should
          also be applied to existing instruments as appropriate. The Company has
          not yet
          completed its evaluation of SAB 105, but does not anticipate a material
          impact
          on the financial statements.
  *Share-Based
          Payment*
  In
          December 2004, the FASB issued SFAS No. 123 (R), “ Share-Based
          Payment ”.
          SFAS
          No. 123 (R) revises SFAS No. 123, “Accounting for Stock-Based Compensation” and
          supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees”. SFAS
          No. 123 (R) focuses primarily on the accounting for transactions in which
          an
          entity obtains employee services in share-based payment transactions. SFAS
          No.
          123 (R) requires companies to recognize in the statement of operations
          the cost
          of employee services received in exchange for awards of equity instruments
          based
          on the grant-date fair value of those awards (with limited exceptions).
          SFAS No.
          123 (R) is effective as of the first interim or annual reporting period
          that
          begins on or after June 15, 2005 for non-small business issuers and on
          or after
          December 15, 2005 for small business issuers. Accordingly, the Company
          will
          adopt SFAS No. 123 (R) in its quarter ending March 31, 2006. The Company
          has
          evaluated the provisions of SFAS No. 123 (R) and has determined that SFAS
          No.
          123 (R) will not have any impact on its financial statement presentation
          or
          disclosures.
  F-16
  **European
            Micro Holdings, Inc. and Subsidiaries**
 **Notes
          to the Consolidated Financial Statements**
 **As
          of June 30, 2002** *(continued)*
  **Summary
          of Significant Accounting Policies and Organization** *(continued)*
  *Accounting
          for Nonmonetary Transactions*
  In
          December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets,
          an amendment of APB No. 29”. The guidance in APB Opinion No. 29, Accounting for
          Nonmonetary Transactions, is based on the principle that exchanges of
          nonmonetary assets should be measured based on the fair value of the assets
          exchanged. The guidance in that Opinion, however, included certain exceptions
          to
          that principle. SFAS No. 153 amends Opinion 29 to eliminate the exception
          for
          nonmonetary exchanges of similar productive assets and replaces it with
          a
          general exception for exchanges of nonmonetary assets that do not have
          commercial substance. A nonmonetary exchange has commercial substance if
          the
          future cash flows of the entity are expected to change significantly as
          a result
          of the exchange. This statement is effective for nonmonetary exchanges
          occurring
          in fiscal periods beginning after June 15, 2005, earlier application is
          permitted. The Company has determined that SFAS No. 153 did not have any
          impact
          on its financial statement presentation or disclosures.
  *Accounting
          for changes in accounting principles*
  In
          May
          2005, the FASB issued SFAS No. 154 that establishes new standards on accounting
          for changes in accounting principles. Pursuant to the new rules, all such
          changes must be accounted for by retrospective application to the financial
          statements of prior periods unless it is impracticable to do so. SFAS No.
          154
          completely replaces Accounting Principles Bulletin (APB) Opinion 20 and
          SFAS 3,
          though it carries forward the guidance in those pronouncements with respect
          to
          accounting for changes in estimates, changes in the reporting entity, and
          the
          correction of errors. This statement is effective for accounting changes
          and
          corrections of errors made in fiscal years beginning after December 15,
          2005.
          Management does not believe the adoption of SFAS No. 154 will have a material
          impact on the Company’s financial condition or results of operations.
  *Accounting
          for Certain Hybrid Financial Instruments*
  In
          February 2006, the FASB issued SFAS No. 155 “Accounting for Certain Hybrid
          Financial Instruments - an amendment of FASB Statements No. 133 and 140” This
          Statement resolves issues addressed in Statement 133 Implementation Issue
          No.
          D1, “Application of Statement 133 to Beneficial Interests in Securitized
          Financial Assets.” This Statement permits fair value re-measurement for any
          hybrid financial instrument that contains an embedded derivative that otherwise
          would require bifurcation, clarifies which interest-only strips and
          principal-only strips are not subject to the requirements of Statement
          133,
          establishes a requirement to evaluate interests in securitized financial
          assets
          to identify interests that are freestanding derivatives or that are hybrid
          financial instruments that contain an embedded derivative requiring bifurcation,
          clarifies that concentrations of credit risk in the form of subordination
          are
          not embedded derivatives, amends Statement 140 to eliminate the prohibition
          on a
          qualifying special-purpose entity from holding a derivative financial instrument
          that pertains to a beneficial interest other than another derivative financial
          instrument. This statement is effective for fiscal years beginning after
          September 15, 2006. Management does not believe the adoption of SFAS No.
          155
          will have a material impact on the Company’s financial condition or results of
          operations.
  F-17
  **European
            Micro Holdings, Inc. and Subsidiaries**
 **Notes
          to the Consolidated Financial Statements**
 **As
          of June 30, 2002** *(continued)*
  **2**  **Liquidation**
 
 The
          Company had suffered operating losses in fiscal 2000 and 2001. Ongoing
          legal
          costs associated with the litigation related to Big Blue Europe, (See Note
          12),
          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 resulted
          in
          the noncompliance of the financial covenants of the Company’s loan agreements.
          Due to these operating results and the covenant violations, the lender
          on the
          American Micro and Nor'Easter lines of credit and the European Micro Holdings,
          Inc. term loan demanded repayment of the Nor'Easter line of credit before
          June
          15, 2001 and the American Micro line of credit and the European Micro Holdings
          term loan by August 15, 2001. As a result, during April 2001, the Company
          decided to cease operations at Nor’Easter and during June 2001, the Company
          decided to cease operations at Colchester. The Nor’Easter line of credit was
          repaid on June 15, 2001. The American Micro line of credit was repaid during
          May
          2001. The European Micro Holdings term loan was repaid on August 20, 2001.
          See
          Note 8 and 9 for details.
  The
          contingent earn-out payment of the American Micro acquisition relating
          to two
          times the after tax earnings for calendar year 2000 of approximately $1,839,000
          was due to the former American Micro shareholders. As a result of financial
          restrictions imposed by the lender on the American Micro and Nor’Easter lines of
          credit, on February 20, 2001, the Company delivered two Secured Promissory
          Notes
          (“ Notes ”)
          to the
          former American Micro shareholders in the original amount of $823,712 each.
          The
          Notes called for monthly principal payments of $50,000, plus interest at
          8%
          commencing April 1, 2001, subject to financial covenant restrictions. Each
          Note
          was due in full within (30) days of the satisfaction of the American Micro
          and
          Nor’Easter lines of credit. On July 15, 2001, the Company notified the former
          American Micro shareholders that it would be unable to meet its obligations
          under each Note. After the repayment of the American Micro and Nor’Easter lines
          of credit along with the repayment of the European Micro Holdings, Inc.
          term
          loan, the Company was no longer restricted from performing its obligations
          to
          the American Micro shareholders. On August 22, 2001 the former American
          Micro
          shareholders demanded full payment of the Notes. On September 1, 2001 the
          Notes
          to the former American Micro shareholders were settled by transfer of all
          American Micro shares from European Micro Holdings to the former American
          Micro
          shareholders. See Note 6 for additional details.
  Another
          factor that negatively impacted the Company’s liquidity was the terms of the
          borrowing arrangements of European Micro UK. European Micro UK’s borrowing
          capacity was subject to termination by the lender at lender’s sole discretion
          and during August, 2001 the lender on the European Micro UK’s line of credit
          demanded repayment. European Micro UK was able to repay the line of credit
          with
          a loan from a significant shareholder. The balance of this loan as of June
          30,
          2002 in the amount of $85,100 is included in due to related parties in
          the
          accompanying consolidated statement of net assets in liquidation as of
          June 30,
          2002. See Notes 8 and 9 for additional details.
  Hence,
          with the complete termination of all lines of credit available to the Company,
          the closures of Nor’easter and Colchester and the loss of American Micro, the
          Company had no alternative but to proceed with a complete liquidation of
          all
          assets. On July 12, 2005, the Company declared a cash dividend in the aggregate
          amount of $200,000 on the issued and outstanding shares of Common Stock
          held by
          shareholders of record as of August 1, 2005. The dividend was paid on September
          1, 2005. As
          of
          July 31, 2006, liquidation is almost complete with the only asset being
          cash in
          the approximate amount of $20,000.
  F-18
  **European
            Micro Holdings, Inc. and Subsidiaries**
 **Notes
          to the Consolidated Financial Statements**
 **As
          of June 30, 2002** *(continued)*
  **3**  **Accounts
          Receivable, Net**
  At
          June
          30, 2002, the only remaining accounts receivable was $49,000 due from Origin
          Micro. See additional details in Note 12.
  **4**  **Inventories**
 
 At
          June
          30, 2002, all inventories had been sold, discarded or wrote-off.
  **5**  **Property
          and Equipment**
  At
          June
          30, 2002, all property and equipment had been sold.
 
 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.
          The
          purchase price was financed in part by a mortgage loan note. European Micro
          UK
          sold the office building effective March 31, 2002 for 1,510,000 pounds
          sterling ($2,143,000 at March 31, 2002). The proceeds were released from
          escrow
          on April 5, 2002, at which time the mortgage loan note secured by the office
          building plus accrued interest was paid in full in the amount of 1,102,000
          pounds sterling ($1,573,000 at April 6, 2002). The remaining proceeds of
          369,000
          pounds sterling ($527,000 at April 6, 2002), after commissions and legal
          fees of
          39,000 pounds sterling, were paid down on the related party note payable
          to
          Harry Shields. See additional details in Note 9.
 
 For
          the
          year ended June 30, 2001, the Company abandoned, discarded and wrote-off
          $171,440 in property and equipment. The Company also wrote-down $422,123
          in
          property and equipment to net realizable value. The total impairment of
          $593,563
          was included in operating expenses in the accompanying consolidated statement
          of
          operations for the year ended June 30, 2001.
 
 At
          June
          30, 2001, vehicles with a cost of approximately $241,000, and accumulated
          depreciation of approximately $107,000, were held under capital leases.
          During
          the year ended June 30, 2002, all leased vehicles were returned under the
          lease
          agreement or the lease was transferred to former employees.
 
 Depreciation
          expense was not recorded during the year ended June 30, 2002 because, in
          accordance with Statement of Financial Accounting Standards (“ SFAS ”)
          No.
          121, substantially all of the Company’s long-lived assets are deemed to be held
          for sale. Depreciation expense
          was $783,000 for the year ended June 30, 2001.
  F-19
  **European
            Micro Holdings, Inc. and Subsidiaries**
 **Notes
          to the Consolidated Financial Statements**
 **As
          of June 30, 2002** *(continued)*
  **6**  **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 (settled in pounds sterling) was 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. Of this guaranteed amount, approximately 360,000 pounds sterling
          was
          paid in cash at closing. The unpaid balance of the guaranteed consideration
          included a note payable to the former 40% Sunbelt shareholder in the amount
          of
          240,163 pounds sterling with terms 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 was secured by a cash account of equal amount. The former
          40%
          Sunbelt shareholder exercised his repayment option during the 3rd quarter
          of
          fiscal year 2001. The portion of the second contingent earn-out payment
          related
          to the volume purchases from the Far-East of 129,758 pounds sterling has
          been
          paid by a cash payment in the amount of 112,966 pounds sterling to the
          former
          40% Sunbelt shareholder on November 20, 2000 and by the issuance
          of 37,754 and 32,993 shares of the Company's common stock to the former
          60%
          Sunbelt shareholder on December 12, 2000 and on March 12, 2001 (See Note
          17).
          The Company had the option of paying amounts due to the former Sunbelt
          shareholders in common stock of European Micro Holdings, Inc.
  At
          June
          30, 2001 the goodwill from the Sunbelt transaction was considered to be
          100%
          impaired and as such was written-off.
  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 exceeded
          the estimated value of net assets acquired by approximately 85,000 Dutch
          guilders. At June 30, 2001 the goodwill from the H&B transaction was
          considered to be 100% impaired and as such was written-off.
  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 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.
  F-20
  **European
            Micro Holdings, Inc. and Subsidiaries**
 **Notes
          to the Consolidated Financial Statements**
 **As
          of June 30, 2002** *(continued)*
  **6**  **Goodwill** *(continued)*
  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 was being amortized on a straight-line
          basis over 20 years. 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 was reflected in goodwill. The contingent earn-out payment
          relating to two times the after tax earnings for calendar year 2000 of
          approximately $1,839,000 was added to goodwill. The second earn-out payment
          was
          due in monthly principal payments of $50,000, plus interest at 8% commencing
          April 1, 2001, subject to financial covenant restrictions. This amount
          was
          secured by a pledge of the shares of common stock of American Micro held
          by the
          Company. On September 1, 2001 the notes payable to the former American
          Micro
          shareholders were settled by transfer of all American Micro shares from
          European
          Micro Holdings to the former American Micro shareholders, hence the goodwill
          from the American Micro transaction was considered to be 100% impaired
          and as
          such was written-off at June 30, 2001.
  The
          results of operations of American Micro, since acquisition through August
          31,
          2001, have been included in the accompanying consolidated financial
          statements.
  The
          following unaudited pro forma consolidated results of operations are presented
          as if the transfer of the American Micro shares had been made at the beginning
          of 2001 ($ in thousands, except share data):
  **Year
                    Ended June 30, 2002**
                
                **Year
                    Ended June 30, 2001****Net
                    sales**
                
                **$**
                **7,498**
                
                **$**
                **75,823****Net
                    loss**
                
                
                **($934**
                **)**
                
                **($10,399**
                **)****Basic
                    and diluted loss per share**
                
                
                **($0.19**
                **)**
                
                **($2.08**
                **)**
 
  In
          the
          fourth quarter of fiscal 2001, the Company recorded an impairment loss
          of
          $4,387,000 representing the entire amount of goodwill from the acquisitions
          of
          AMCC, Sunbelt and H&B. The impairment loss was included in operating
          expenses in the accompanying consolidated statement of loss for the year
          ended
          June 30, 2001.
  **7**  **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 operations
          in
          January 1997. During December 2000, the Company and the other 50% shareholder
          entered into a liquidation agreement in which Big Blue Europe BV would
          cease
          operations and liquidate all assets and liabilities. As of December 31,
          2000,
          all operations ceased and a liquidator was appointed by the court. As part
          of
          the liquidation the Company and the other 50% shareholder both advanced
          $85,000
          to the liquidator. As of June 30, 2001, the Company believed the $85,000
          that
          was advanced will not be recovered and, therefore, a valuation allowance
          was
          established for the $85,000.
  During
          the year ended June 30, 2001 the remaining loan advance to Big Blue Europe
          BV in
          the amount of $252,000 plus the $85,000 advanced to the liquidator was
          considered to be 100% impaired and as such was written-off. These write-offs
          from fiscal year 2001 were included in selling, general and administrative
          expenses in the accompanied consolidated statement of loss for the year
          ended
          June 30, 2001. See Note 12 for additional details.
  F-21
  **European
            Micro Holdings, Inc. and Subsidiaries**
 **Notes
          to the Consolidated Financial Statements**
 **As
          of June 30, 2002** *(continued)*
  **8**  **Short-Term
          Borrowings**
  Short-term
          borrowings were completely repaid during the year ended June 30, 2002.
          Short-term borrowings represented borrowings secured by various accounts
          receivable of European Micro UK. Since the closure of European Micro UK
          during
          October, 2001, accounts receivable were collected and the corresponding
          borrowings were repaid.
  European
          Micro UK had a bank line of credit (the “ European
          Micro UK Working Capital Facility ”)
          which
          was secured by a mortgage debenture on all the assets of European Micro
          UK and
          was subordinated to the receivable financing and the capital leases. The
          facility, which was subject to review in July each year, had been extended
          to
          September 2001 and was due on demand. During August, 2001 the lender on
          the
          European Micro UK’s line of credit demanded repayment. European Micro UK was
          able to repay the line of credit with a loan from a significant shareholder.
          The
          balance of this loan as of June 30, 2002 in the amount of $85,100 is included
          in
          due to related parties in the accompanying consolidated statement of net
          assets
          in liquidation as of June 30, 2002.
  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 were 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 was 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 defaulted on one or more of these loans, the lender
          may
          have foreclosed on all or a portion of the pledged securities. Such an
          event
          could have caused a change of control in the Company because Messrs. Gallagher
          and Shields together owned 71% of the Company’s outstanding common stock. The
          lines of credit agreements included certain financial and non-financial
          covenants and restrictions. The agreements also contained a provision whereby
          the lender could 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 had 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 was paid monthly at
          a
          floating rate of 50 basis points over the bank’s base rate. The term of the new
          arrangements was for one year from the closing date. The new facilities
          also
          required the companies to maintain depository accounts at the bank, whose
          daily
          receipts were applied against outstanding borrowings under the lines of
          credit.
          The new facilities also placed certain restrictions on the companies’ ability to
          pay dividends and to make capital expenditures, among other things, and
          also
          included a provision whereby the lender could declare a default based on
          subjective criteria. Collateral under the new credit line facilities consisted
          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 pledged personal assets as additional collateral and further agreed
          to
          maintain certain personal financial statement liquidity levels. These borrowings
          were cross-collateralized and cross-defaulted with borrowings under the
          $1.5
          million term loan to European Micro Holdings, Inc. discussed in Note 9.
  F-22
  **European
            Micro Holdings, Inc. and Subsidiaries**
 **Notes
          to the Consolidated Financial Statements**
 **As
          of June 30, 2002** *(continued)*
  **8**  **Short-Term
          Borrowings**  *(continued)*
  The
          Company was again not in compliance with the new loan agreement financial
          covenants during fiscal year 2001. The Company was not able to obtain waivers
          from these covenant violations existing at March 31, 2001 and June 30,
          2001. Due to the poor operating results and the covenant violations, the
          lender
          on the American Micro and Nor'Easter lines of credit and the European Micro
          Holdings, Inc. term loan agreed to waive the covenant violations subject
          to the
          Nor'Easter line of credit being repaid before June 15, 2001 and the American
          Micro line of credit and the European Micro Holdings term loan being repaid
          by
          August 15, 2001. The Nor’Easter line of credit was repaid on June 15, 2001. The
          American Micro line of credit was repaid during April 2001. The European
          Micro
          Holdings term loan was repaid on August 21, 2001 (See Note 9).
  **9**  **Long-Term
          Borrowings**
  Long-term
          borrowings were completely repaid during the year ended June 30, 2002.
  European
          Micro UK purchased the office building in which it had previously leased
          space.
          The purchase price was financed in part by a mortgage loan note. This mortgage
          loan note bore interest at a fixed rate of 7.6%, called for monthly payments
          of
          principal and interest in the amount of 15,588 pounds sterling, and had
          a
          maturity date of July 2009. The mortgage loan note included certain financial
          and non-financial covenants and restrictions. The agreement also contained
          a
          provision whereby the lender could declare a default based on subjective
          criteria. The financial covenants were 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, 2001. The Company was
          not able
          to obtain a waiver of this non-compliance. Therefore, the total amount
          outstanding under the mortgage loan note was reflected in current maturities
          of
          long term debt at June 30, 2001. European Micro UK sold the office building
          effective March 31, 2002 for 1,510,000 pounds sterling ($2,143,000 at March
          31,
          2002). The proceeds were released from escrow on April 5, 2002, at which
          time
          the mortgage loan note secured by the office building plus accrued interest
          was
          paid in full in the amount of 1,102,000 pounds sterling ($1,573,000 at
          April 5,
          2002). The remaining proceeds of 369,000 pounds sterling ($527,000 at April
          5,
          2002), after commissions and legal fees of 39,000 pounds sterling, were
          paid
          down on the related party note payable to Harry Shields.
 
 A
          term
          loan was obtained by European Micro Holdings on October 28, 1999, in the
          amount
          of $1,500,000. The term loan was to be repaid with quarterly payments of
          $125,000 over three years. The term loan bore interest at the one-month
          LIBOR
          plus two and one-quarter percentage points (2.25%). The term loan was 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 pledged
          personal
          assets as additional collateral and further agreed to maintain certain
          personal
          financial statement liquidity levels. In the event the Company defaulted
          on this
          loan, the lender could foreclose on all or a portion of the pledged securities.
          Such an event could have caused a change of control in the Company because
          Messrs. Gallagher and Shields together owned 71% of the Company’s outstanding
          common stock.
 
 This
          term
          loan agreement was with the same lender as the Nor’Easter Micro and American
          Micro line of credit facilities discussed in Note 8 and was cross-collateralized
          and cross-defaulted with these line of credit facilities. The agreement
          also
          contained a provision whereby the lender could declare a default based
          on
          subjective criteria. Further, the term loan credit agreement contained
          loan
          covenant requirements. The Company was not in compliance with certain financial
          covenants for the June 30, 2001 reporting period .
          Therefore, the total amount outstanding under the term loan agreement was
          reflected in current maturities of long term debt at June 30, 2001. This
          term
          loan was repaid in full on August 21, 2001 .
  F-23
 
 **European
            Micro Holdings, Inc. and Subsidiaries**
 **Notes
          to the Consolidated Financial Statements**
 **As
          of June 30, 2002** *(continued)*
  **10**  **Taxes**
 
 Income
                    tax benefit consists of the following (in
                    thousands):
 
 **Years
                    ended June 30,****2002**
                
                **2001**CurrentFederal
                    and State
                
                $
                -
                
                $
                -Foreign
                
                
                (702
                )
                
                (55
                )DeferredFederal
                    and State
                
                
                -
                
                
                -Foreign
                
                
                -
                
                
                -Total
                    income tax benefit
                
                $
                (702
                )
                $
                (55
                )
 
 Provision
          has not been made for U.S. or additional foreign taxes on approximately
          $3,672,000 at June 30, 2000, of undistributed earnings of foreign subsidiaries,
          as those earnings were intended to be permanently reinvested. The foreign
          subsidiaries incurred substantial losses in excess of undistributed earnings
          for
          the years ended June 30, 2002 and 2001, and as a result there are no longer
          any
          undistributed earnings from foreign subsidiaries that could be repatriated
          to
          the US.
 
 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):
 
 **Years
                    ended June 30,****2002**
                
                **2001**US
                    federal statutory rate on lossbefore
                    income taxes
                
                $
                (279
                )
                $
                (3,071
                )State
                    income tax
                
                
                -
                
                
                (183
                )Depreciation
                    and Amortization
                
                
                3
                
                
                1,258Difference
                    in foreign versus U.S. federalincome
                    tax rate
                
                
                -
                
                
                175Change
                    in valuation allowance
                
                
                844
                
                
                1,522Adjustment
                    to reconcile to actual incometax
                    refund received
                
                
                (1,270
                )
                
                -Foreign
                    non-deductible expenses
                
                
                -
                
                
                244Income
                    tax benefit
                
                $
                (702
                )
                $
                (55
                )
   F-24
  **European
            Micro Holdings, Inc. and Subsidiaries**
 **Notes
          to the Consolidated Financial Statements**
 **As
          of June 30, 2002** *(continued)*
  **10**  **Taxes** *(continued)*
 
 Sources
          of deferred tax assets are as follows (in thousands):
 
 **June
                    30, 2002***Deferred
                    tax assets:*Property
                    and equipment, principally due todifferences
                    in depreciation and amortization
                
                $
                1,236Net
                    operating loss carry forwards
                
                
                1,714Other
                
                
                386Total
                    gross deferred tax assets
                
                
                3,336Valuation
                    allowance
                
                
                (3,336
                )Net
                    deferred tax assets
                
                $
                -0-
 
 The
          Company has U.S. federal net operating loss carryforwards of approximately
          $3,867,000, which will begin to expire in 2018.  The
          use
          of this net operating loss in future years may be restricted under Section
          382
          of the Internal Revenue Code. The valuation allowance, which increased
          in fiscal
          year 2002 by $844,000, has been provided for deferred tax assets as
          recoverability in future periods is not deemed to be more likely than
          not.
  **11**  **Business
          to Business Electronic Commerce Strategy**
  The
          Company initiated a business to business electronic commerce strategy,
          which
          focused on creating a global, value-added, information technology equipment
          and
          service trading community. The Company hired Cap Gemini, a leading European
          management consultancy and information technology services firm, to assist
          it in
          the implementation of this plan. The Company incurred the sum of 755,000
          pounds
          sterling ($1,065,000 at exchange rate on June 30, 2001), related to the
          feasibility studies and business process design. This amount was reflected
          in
          selling, general and administrative expenses on the accompanying consolidated
          statements of operations for the year ended June 30, 2000 .
          During
          the year ended June 30, 2000, the Company had capitalized the sum of 229,000
          pounds sterling ($346,000 at exchange rate on June 30, 2000), related to
          the
          actual software development. This capitalized amount was written off and
          was
          included in operating expenses in the accompanying consolidated statement
          of
          operations for the year ending June 30, 2001.
  During
          May 2000, the Company halted the ongoing development being performed by
          Cap
          Gemini until specific funding could be obtained to complete the project.
          Since
          the project was not continued by November 30, 2000, the Company incurred
          a
          termination fee to Cap Gemini of 150,000 pounds sterling ($212,000 at exchange
          rate on June 30, 2001). This fee had the option to be credited against
          future
          invoices of Cap Gemini upon the continuation of the project. However, since
          the
          project was never continued the termination fee was expensed and was included
          in
          selling, general and administrative expenses in the accompanying consolidated
          statement of loss for the year ending June 30, 2001.
  F-25
  **European
            Micro Holdings, Inc. and Subsidiaries**
 **Notes
          to the Consolidated Financial Statements**
 **As
          of June 30, 2002** *(continued)*
  **12**   **Commitments
          and Contingencies**
  On
          November 12, 1999, a New York corporation, Big Blue Products, and its owners
          Jeffrey and Marie Alnwick (the “ Alnwicks ”),
          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 alleged thirty-three causes of action. Plaintiffs claimed, in
          substance, that defendants breached oral and written agreements relating
          to the
          management, operation and funding of Big Blue Europe. Specifically, plaintiffs
          alleged 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 claimed 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 seeked
          unspecified compensatory and punitive damages, as well as injunctive relief
          restraining defendants from acting in violation of the alleged
          agreements.
  Defendants
          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 appointed an independent director to oversee operations
          of the company. Defendants argued that any dispute between the shareholders
          and
          directors of the Dutch company, Big Blue Europe, which operated pursuant
          to
          Dutch law, should be resolved by a Dutch court. The United States District
          Court
          for the Eastern District of New York dismissed 31 of the 33 claims brought
          against the Company on grounds of “forum non conveniens.” The Court decided that
          it would be more appropriate that these claims be adjudicated in The
          Netherlands, under Dutch Law. The Judge had granted the Plaintiffs in the
          case
          (Jeffrey and Marie Alnwick and Big Blue Products) the option to proceed
          with the
          remaining two allegations in United States District Court. Plaintiffs requested
          that these two counts also be dismissed. On April 19, 2001, the Plaintiffs
          filed
          a notice of appeal. In October 2003, the Company and its affiliated defendants
          entered into a settlement agreement with the plaintiffs. In accordance
          with the
          agreement, all parties dismissed all actions and released all claims.
  In
          January 2001, Nor’Easter sued Arlington Computer Products, Inc. (“ Arlington ”)
          in the
          Superior Court of Rockingham County, New Hampshire, for breach of an agreement
          to pay for the purchase of laptop computers. Nor’Easter subsequently sued
          Arlington in the Circuit Court of Lake County, Illinois, to enforce a judgment
          obtained in the New Hampshire Litigation. In addition, Arlington sued Nor’Easter
          in the United States District Court for the Northern District of Illinois
          for
          breach of an agreement to sell Compaq computer memory modules. Nor’Easter filed
          a third party complaint in the Federal Litigation against Origin Micro,
          Inc.
          (“ Origin ”)
          for
          breach of an agreement to sell Compaq computer memory modules.
  In
          June
          2002, Nor’Easter and Arlington entered into a settlement agreement whereby on
          June 20, 2002, Arlington paid Nor’Easter the sum of $52,556 and both parties
          discontinued the litigation and released all claims against each other.
          In July
          2002, Nor’Easter and Origin entered into a settlement agreement whereby on July
          29, 2002, Origin paid Nor’Easter the sum of $49,000 and both parties
          discontinued the litigation and released all claims. This amount is included
          in
          accounts receivable in the accompanying consolidated
          statement of net assets in liquidation as
          of
          June 30, 2002.
  F-26
  **European
            Micro Holdings, Inc. and Subsidiaries**
 **Notes
          to the Consolidated Financial Statements**
 **As
          of June 30, 2002** *(continued)*
  **12**   **Commitments
          and Contingencies** *(continued)*
  In
          December 2001, a former shareholder of Sunbelt served a statutory demand
          upon
          European Micro Plc in the sum of 92,710 pounds sterling. This sum was
          subsequently reduced to 73,940 pounds sterling. On April 19, 2002 Judge
          Kershaw
          QC granted the European Micro Plc an injunction preventing the former
          shareholder from presenting a petition in this sum based upon the statutory
          demand. On July 31, 2002 the Court of Appeal dismissed European Micro Plc’s
          claim and ordered the costs to be paid. In August 2003, the debt plus costs
          and
          interest owed the former shareholder of Sunbelt was assigned to Harry Shields,
          a
          shareholder of European Micro Holdings, Inc., for the sum of 107,000 pounds
          sterling, (approximately $164,000 at exchange rate on June 30, 2002). This
          amount is included in due to related parties in the accompanying consolidated
          statement of net assets in liquidation as of June 30, 2002. This amount
          plus
          interest of 9,483 pounds sterling was repaid by European Micro UK to Harry
          Shields on August 10, 2004.
  The
          Company leased 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, 2002,
          (after
          giving effect to terminated leases for discontinued subsidiaries during
          fiscal
          year ending June 30, 2003) in aggregate for each of the five succeeding
          years is
          as follows (in thousands):
  **Capital**
                
                
                **Operating**June
                    30,2003
                
                $
                -
                
                $
                252004
                
                
                -
                
                
                -2005
                
                
                -
                
                
                -2006
                
                
                -
                
                
                -2007Total
                    minimum lease payments
                
                $
                -
                
                $
                25
 
 
 Rental
          expense for the years ended June 30, 2002 and 2001 was $11,000 and $358,000
          respectively .
  F-27
  **European
            Micro Holdings, Inc. and Subsidiaries**
 **Notes
          to the Consolidated Financial Statements**
 **As
          of June 30, 2002** *(continued)*
  **13**   **Foreign
          Exchange Contracts**
  The
          Company utilized 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 entered 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 was covered by a forward foreign
                    exchange
                    contract the asset, liability or other obligation was recorded
                    at the
                    contracted rate each month end and the resultant mark-to-market
                    gains and
                    losses were recognized as cost of sales in the current period,
                    generally
                    consistent with the period in which the gain or loss of the underlying
                    transaction was recognized. Cash flows associated with derivative
                    transactions were classified in the statement of cash flows in
                    a manner
                    consistent with those of the exposure being
                    hedged.
 
 **14**   **Related
          Party Information**
  Related
          party transactions are summarized as follows (in thousands):
 
 **Year
                    ended June 30,****2002**
                
                **2001****Sales**Technology
                    Express
                
                $
                -
                
                $
                214**Purchases**Technology
                    Express
                
                $
                -
                
                $
                4,672
  **Due
          from/to related parties**
  a)
              No
                  amounts were due from related parties at June 30, 2002.  b)
              Due
                  to related parties consists of following (in
                  thousands): 
 **June
                    30, 2002**Harry
                    Shields
                
                $
                249Technology
                    Express
                
                
                27American
                    Micro
                
                
                26$
                302
  F-28
  **European
            Micro Holdings, Inc. and Subsidiaries**
 **Notes
          to the Consolidated Financial Statements**
 **As
          of June 30, 2002** *(continued)*
  **14**   **Related
          Party Information** *(continued)*
  *Nature
          of related party relationships*
  ***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 was a
                    distributor
                    of computer products. Harry D. Shields, who is Co-Chairman, Co-President,
                    a Director and shareholder (owning 31% of the outstanding shares)
                    of
                    European Micro Holdings, Inc., was president of Technology Express
                    and
                    owned 100% of the outstanding shares of capital stock of that
                    company. Jay
                    Nash, who is Chief Financial Officer, Treasurer and Secretary
                    of European
                    Micro Holdings, Inc., had been an employee of Technology Express
                    since
                    1992.
 
 ***Harry
          Shields***
  Harry
          D.
          Shields is Co-Chairman, Co-President, a Director and shareholder (owning
          31% of
          the outstanding shares) of European Micro Holdings, Inc.
  ***American
          Micro Computer Center***
  American
          Micro Computer Center was a distributor of computer hardware based in Miami,
          Florida. John B. Gallagher who is Co-Chairman, Co-President, Director and
          shareholder (owning 39% of the outstanding shares) of European Micro Holdings,
          Inc., was the president of American Micro Computer Center and owns 50%
          of the
          outstanding shares of capital stock in that company.
  *Facilities
          and equipment*
  The
          Company utilized approximately 350 square feet of office space and certain
          equipment owned by Technology Express for which it was not charged a
          fee.
  F-29
  **European
            Micro Holdings, Inc. and Subsidiaries**
 **Notes
          to the Consolidated Financial Statements**
 **As
          of June 30, 2002** *(continued)*
  **15**  **Segment
          Information**
 
 The
                    Company operated predominately in a single industry segment as
                    a wholesale
                    distributor of computer-based technology products and services.
                    Geographic
                    areas in which the Company operated 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 were based on geographic location
                    generating the revenue, and the measure of segment profit was
                    income from
                    operations. The accounting policies of the segments were the
                    same as those
                    described in Note 1 - Summary of Significant Accounting Policies
                    and
                    Organization.
 
 Financial
          information by geographic segments is as follows (in
          thousands):
 **Year
                      Ended June 30,****2002**
                  
                  **2001****Net
                      Sales:**North
                      America
                  
                  $
                  3,153
                  
                  $
                  31,695Europe
                  
                  
                  7,777
                  
                  
                  42,859Other
                  
                  
                  -
                  
                  
                  19,539Total
                  
                  **$**
                  **10,930**
                  ****
                  **$**
                  **94,093****Loss
                      From Operations:**North
                      America
                  
                  $
                  (517
                  )
                  $
                  (4,134
                  )Europe
                  
                  
                  (672
                  )
                  
                  (3,611
                  )Other
                  
                  
                  (67
                  )
                  
                  (229
                  )Total
                  
                  **$**
                  **(1,256**
                  **)**
                  **$**
                  **(7,974**
                  **)****Identifiable
                      Assets:**North
                      America
                  
                  $
                  127
                  
                  $
                  2,987Europe
                  
                  
                  1,593
                  
                  
                  10,798Other
                  
                  
                  23
                  
                  
                  283Total
                  
                  **$**
                  **1,743**
                  ****
                  **$**
                  **14,068**
 
 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, 2002 and
          2001.
  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, 2002 or 2001.
  F-30
  **European
            Micro Holdings, Inc. and Subsidiaries**
 **Notes
          to the Consolidated Financial Statements**
 **As
          of June 30, 2002** *(continued)*
  **16**   **Loss
          per share**
  Since
          the
          adoption of the liquidation basis of accounting on July 1, 2001, loss per
          share
          was not computed as such amounts are not deemed to be meaningful.
  **Year
                        ended****June
                        30, 2001**Net
                        loss (in thousands)
                    
                    $
                    (8,976
                    )**Weighted
                        average number of shares**Outstanding
                        common stock during the period
                    
                    
                    4,977,280Contingently
                        issuable shares
                    
                    
                    -*Basic
                        weighted average number of shares*
                    
                    
                    4,977,280Effect
                        of dilutive stock options and othercontingent
                        shares
                    
                    
                    -*Diluted
                        weighted average number of shares*
                    
                    
                    4,977,280Basic
                        loss per share
                    
                    $
                    (1.80
                    )Diluted
                        loss per share
                    
                    $
                    (1.80
                    )
  During
          the year-ended June 30, 2001, the Company issued options to purchase
          223,500 shares of its common stock at exercise prices ranging from $2.00
          to
          $7.06. The above dilutive earnings per share calculations exclude the effect
          of
          options to purchase 1,054,500 for the year ended June 30, 2001, shares
          of common
          stock at exercise prices ranging from $2.00 to $12.00 because they were
          anti-dilutive. Also, see Note 6 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
          was
          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 was not
          included,
          as such payment was reflected in a note payable to original shareholders
          of
          American Micro.
  F-31
  **European
            Micro Holdings, Inc. and Subsidiaries**
 **Notes
          to the Consolidated Financial Statements**
 **As
          of June 30, 2002** *(continued)*
  **17**   **Stockholders’
          Equity, Stock Options and Incentive Plans**
  **Issuance
          of Common Stock**
  On
          December 12, 2000, the Company issued 37,754 shares of the Company’s common
          stock having a fair value of $150,789 to the former 60% Sunbelt shareholder
          for
          payment of the remaining 20% of the guaranteed portion of the purchase
          price and
          the portion of the second contingent earn-out payment related to the volume
          purchases from the Far-East. The number of shares to be issued was calculated
          based on the average traded price of the stock over the previous 30 days,
          which
          was $3.994. On March 12, 2001, the Company issued another 32,993 shares
          of the
          Company’s common stock having a fair value of $65,788 to the former 60% Sunbelt
          shareholder, based on a renegotiation of the amount due. The additional
          amount
          due was calculated based on the average traded price of the stock over
          the
          previous 30 days, which was $1.994.
  **Equity
          Line of Credit**
  On
          August
          24, 2000, European Micro Holdings, Inc. entered into an Equity Line of
          Credit
          (the “ Equity
          Credit Line ”).
          The
          Company incurred costs of $217,000 to obtain and execute the Equity Credit
          Line.
          On December 20, 2000, the Company raised $50,000 by issuing 25,020 shares
          of
          common stock under the Equity Credit Line. The Company and the investor
          agreed
          to terminate the Equity Credit Line effective May 15, 2001. In connection
          with
          such termination, all outstanding warrants held by the investor and the
          placement agent were terminated. The Company agreed to issue the placement
          agent
          warrants to purchase 500,000 shares of common stock at $5.00 per share,
          which
          warrants become exercisable only if the closing bid price of such common
          stock
          is $4.00 per share or more for ten consecutive trading days. These warrants
          expired on August 23, 2005. Since the closing bid price of the common stock
          was
          never $4.00 for ten consecutive trading days, the warrants never became
          exercisable, and as such no expense was recognized.
  On
          May
          15, 2001, the Company also terminated a consulting agreement that was entered
          into in connection with the Equity Credit Line. On August 8, 2000, under
          the
          consulting arrangement, the Company issued to the consultant options to
          purchase
          100,000 shares of its common stock at an exercise price of $4.55. In connection
          with the termination, the options issued to this consultant were terminated.
          The
          Company expensed $105,000 of the value in the year ended June 30,
          2001.
  **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 as of June
          30,
          2002.
   F-32
  **European
            Micro Holdings, Inc. and Subsidiaries**
 **Notes
          to the Consolidated Financial Statements**
 **As
          of June 30, 2002** *(continued)*
 
 **17**   **Stockholders’
          Equity, Stock Options and Incentive Plans** *(Continued)*
  **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.
  A
          summary
          of the Company’s stock incentive plan is as follows:
  **2002**
                
                **2001****Number
                    of**
                  **Shares**
                
                **Weighted
                    AverageExercise Price**
                
                **Number
                    of Shares**
                
                **Weighted
                    AverageExercise Price**Outstanding
                    at beginning of year
                
                
                317,500
                
                $
                6.84
                
                
                330,500
                
                $
                9.95Granted
                
                
                -
                
                
                
                
                
                379,000
                
                $
                4.07Exercised
                
                
                -
                
                
                
                
                
                -Forfeited
                
                
                (317,500
                )
                
                ($6.84
                )
                
                (392,000
                )
                
                ($6.79
                )**Outstanding
                    at year end**
                
                
                -
                
                
                
                
                
                317,500
                
                $
                6.84Available
                    for grant at year end
                
                
                500,000
                
                
                
                
                
                182,500
  Warrants
                    issued to placement agent are not part of the stock incentive
                    plan and as
                    such are not included in the above
                    tables.
   F-33
  **European
            Micro Holdings, Inc. and Subsidiaries**
 **Notes
          to the Consolidated Financial Statements**
 **As
          of June 30, 2002** *(continued)*
  **18**  **Subsequent
          Events**
 
 In
          December 2001, a former shareholder of Sunbelt served a statutory demand
          upon
          European Micro UK in the sum of 92,710 pounds sterling. This sum was
          subsequently reduced to 73,940 pounds sterling. On April 19, 2002 Judge
          Kershaw
          QC granted the European Micro UK an injunction preventing the former shareholder
          from presenting a petition in this sum based upon the statutory demand.
          On July
          31, 2002 the Court of Appeal dismissed European Micro UK’s claim and ordered the
          costs to be paid. In August 2003, the debt plus costs and interest owed
          the
          former shareholder of Sunbelt, was assigned to Harry Shields, a shareholder
          of
          European Micro Holdings, Inc., for the sum of 107,000 pounds sterling. This
          amount is included in due to related parties in the accompanying consolidated
          statement of net assets in liquidation as of June 30, 2002. This amount
          plus
          interest of 9,483 pounds sterling was repaid by European Micro UK to Harry
          Shields on August 10, 2004.
  In
          July
          2002, Nor’Easter and Origin entered into a settlement agreement whereby Origin
          paid Nor’Easter the sum of $49,000 and both parties discontinued the litigation
          and released all claims. (See Note 12)
  In
          October 2003, the Company and its affiliated defendants entered into a
          settlement agreement with Big Blue Products whereby the plaintiffs discontinued
          the litigation and released all claims against the defendants. The parties
          bore
          their own legal costs and expenses and exchanged mutual releases. (See
          Note
          12)
  On
          July
          12, 2005, the Company declared a cash dividend in the aggregate amount
          of
          $200,000 on the issued and outstanding shares of Common Stock held by
          shareholders of record as of August 1, 2005. The dividend was paid September
          1,
          2005. As
          of
          July 31, 2006, liquidation is almost complete with the only asset being
          cash in
          the approximate amount of $20,000.
  F-34