**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, 2001**





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, 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.


3


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.




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.




**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.




4




**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**.** DESCRIPTION
        OFPROPERTIES.


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




European
      Micro’s facilities as of June 30, 2001 are described below:




**Location**
            
            **Square
                Feet**
            
            **Lease
                Expiration**Manchester,
                UK(warehouse)(1)
            
            
            8,000
            
            
            2002Manchester,
                UK (offices)(1)
            
            
            7,734
            
            
            N/ADüsseldorf,
                Germany (offices)(2)
            
            
            1,360
            
            
            2005Amsterdam,
                Netherlands(offices
                and warehouse)(3)
            
            
            18,000
            
            
            2002Singapore
                (office)(4)
            
            
            500
            
            
            2001Miami,
                Florida (offices and warehouse)(5 & 6)
            
            
            6,500
            
            
            2002Nashville,
                Tennessee (offices)(6)
            
            
            350
            
            
            2001Wimbledon,
                UK (offices and warehouse)(7)
            
            
            5,813
            
            
            2008Portsmouth,
                New Hampshire(offices
                and warehouse)(8)
            
            
            7,700
            
            
            2005







(1)
            European
                Micro UK




(2)
            European
                Micro Germany




(3)
            European
                Micro Holland & Big Blue Europe 50% Joint
                Venture




(4)
            Colchester




(5)
            American
                Micro




(6)
            European
                Micro Holdings, Inc.




(7)
            Sunbelt




(8)
            Nor’Easter





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 ”).




6





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.




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.


7




**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. In the chart below all quarterly high and low figures are from the
      Nasdaq Stock Market except for the fourth quarter (April 2001 to June 2001),
      which is from the Over-the-Counter Bulletin Board and the quotations reflect
      inter-dealer prices, without retail mark-up, mark-down or commission and may
      not
      represent actual transactions.




The
      Company’s high and low bid prices by quarter during fiscal 2001and 2000 are
      presented as follows:


**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


**Fiscal
                  Year 2000****High**
              
              **Low**First
                  Quarter (July 1999 to September 1999)
              
              $
              10.25
              
              $
              6.50Second
                  Quarter (October 1999 to December 1999)
              
              
              8.875
              
              
              4.031Third
                  Quarter (January 2000 to March 2000)
              
              
              16.50
              
              
              5.00Fourth
                  Quarter (April 2000 to June 2000)
              
              
              11.625
              
              
              2.50


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




**Dividends**




During
      the fiscal years ended June 30, 2001 and 2000, 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.


**ITEM
                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.


8


**Critical
      Accounting Estimates**




The
      following is a discussion of the accounting estimates that we believe (1) are
      most important to the portrayal of our financial condition and results of
      operations and (2) require our most difficult, subjective or complex judgments,
      often as a result of the need to make estimates about the effect of matters
      that
      are inherently uncertain.




*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.




*Impairment
      of Long-Lived Assets*




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




*Goodwill*




Goodwill,
      which represents the excess of purchase price over fair value of net assets
      acquired, is amortized on a straight-line basis over the expected periods to
      be
      benefited, generally 20 years. The Company assesses the recoverability of this
      intangible asset by determining whether the amortization of the goodwill balance
      over its remaining life can be recovered through undiscounted future operating
      cash flows of the acquired operation. The amount of goodwill impairment, if
      any,
      is measured based on projected discounted future operating cash flows using
      a
      discount rate reflecting the Company’s average cost of funds. The assessment of
      the recoverability of goodwill will be impacted if estimated future operating
      cash flows are not achieved. The Company recognized an impairment of goodwill
      and intangible assets of $4,387,000, for the year ended June 30, 2001.




**Years
      Ended June 30, 2001 and 2000**




*Total
      Net Sales* .
      Total
      net sales decreased $21.4 million, or 18.5%, from $115.5 million in the year
      ended June 30, 2000 to $94.1 million in the comparable period in 2001. Excluding
      net sales to related parties, net sales decreased $19.2 million, or 17%, from
      $113.1 million in the year ended June 30, 2000 to $93.9 million in the
      comparable period in 2001. This decrease was attributable to a reduction of
      $13
      million from European Micro UK’s sales, a reduction of $2.0 million in
      Nor’Easter’s sales, a reduction of $2.0 million in Colchester’s sales and a
      reduction of $2.2 million in American Micro’s sales. The decrease in sales is a
      result of lower quantities of product available in the surplus or aftermarket
      supply channel and the closure of Nor’Easter’s operations in April 2001. Due to
      liquidity problems, operations at European Micro UK and Colchester were
      terminated during the first half of fiscal 2002. In addition, American Micro
      was
      transferred back to its original shareholders on September 1, 2001, in
      settlement of notes payable. As a result of these closures and transfers, the
      Company ceased generating revenue during the first half of fiscal
      2002.




Net
      sales
      to related parties decreased $2.2 million from $2.4 million in the year ended
      June 30, 2000 to $213,000 in the comparable period in 2001. This decrease
      is attributable to sales to Technology Express decreasing as product
      availability decreased.




*Gross
      Profit* .
      Gross
      profit decreased $3.4 million or 29.7%, from $11.4 million in the year ended
      June 30, 2000 to $8.0 million in the comparable period in 2001. Gross
      profit excluding related party transactions decreased $3.3 million or 29.5%,
      from $11.3 million in the year ended June 30, 2000 to $8.0 million in the
      comparable period in 2001. This decrease is primarily due to lower sales volume
      accompanied with lower margins and inventory write-off due to the closing of
      Nor’Easter Micro.




9




Gross
      margins decreased from 9.8% in the year ended June 30, 2000 to 8.5% in the
      comparable period in 2001. This decrease is primarily due to lower selling
      prices and gross margin on most products during the fiscal year.




*Operating
      Expenses* .
      Operating expenses as a percentage of total net sales increased from 12.2%
      in
      the year ended June 30, 2000 to 17% in the comparable period in 2001. This
      increase was the result of a decrease in total net sales and increases in
      operating expenses, primarily caused by the legal expenses incurred by the
      Company in connection with the Big Blue lawsuit and the write-off of goodwill

      related to the Sunbelt and American Micro acquisitions.




*Interest
      Expense* .
      Interest expense increased by $119,000 from $964,000 in the year ended June
      30,
      2000 to $1.1 million in the comparable period in 2001. This was attributable
      to
      increased borrowings during the period because of increased average accounts
      receivable and inventory balances, the purchase of the office building and
      the
      acquisitions of Sunbelt and AMCC. **




*Interest
      in Unconsolidated Subsidiary* .
      Due to
      the continued uncertainty of the outcome of the lawsuit and the difficulties
      of
      managing operations of Big Blue Europe during the dispute, the Company recorded
      during the three-month period ended September 30, 2000 an additional $252,000
      provision for doubtful accounts related to the notes receivable owed to the
      Company. During December 2000, the Company and the Alnwicks entered into a
      liquidation agreement in which Big Blue Europe 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 Alnwicks had both advanced $85,000 to the liquidator. As
      of
      June 30, 2001, the Company believes the $85,000 that was advanced will not
      be
      recovered and, therefore, a valuation allowance was established for the
      $85,000.





*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.




**Recent
      Accounting Pronouncements**




*Derivative
      instruments*




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




*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.




10




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.




*Business
      Combinations*




Statement
      No. 141, “Business Combinations” supersedes APB Opinion 16 and various related
      pronouncements. Pursuant to the new guidance in Statement No. 141, all business
      combinations must be accounted for under the purchase method of accounting;
      the
      pooling-of-interests method is no longer permitted. SFAS 141 also establishes
      new rules concerning the recognition of goodwill and other intangible assets
      arising in a purchase business combination and requires disclosure of more
      information concerning a business combination in the period in which it is
      completed. This statement is generally effective for business combinations
      initiated on or after July 1, 2001.




*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 recognized impairment
      of
      100% of the goodwill from its acquisitions as of June 30, 2001. See Note 6
      for
      details.




11




*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.




*Accounting
      for the Impairment or Disposal of Long-Lived Assets*




In
      August
      2001, the FASB issued SFAS 144, "Accounting for the Impairment or Disposal
      of
      Long-Lived Assets". This statement addresses financial accounting and reporting
      for the impairment or disposal of long-lived assets and supercedes FASB
      Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and
      for
      Long-Lived Assets to be Disposed Of". The provisions of the statement are
      effective for financial statements issued for the fiscal years beginning after
      December 15, 2001. The Company has impaired long lived assets as of June 30,
      2001 per the provisions established by SFAS 144. See Note 5 for
      details.




*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.




*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.




12




*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.




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.


13


*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 is currently
      evaluating the provisions of SFAS No. 123 (R) and has not yet determined the
      impact, if any, that SFAS No. 123 (R) will have 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.




*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.





14




**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.




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
      1, 2005. As
      of
      July 31, 2006, liquidation is almost complete with the only asset being cash
      in
      the approximate amount of $20,000.




15




*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, 2001,
      the borrowings were $161,000, of which $94,000 was due after more than one
      year.




On
      October 28, 1999, the Company obtained a $1.5 million term loan. The
      term loan agreement 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%). One-month LIBOR at June 30, 2001 was 3.8625%.
      Seven payments were made, bringing the balance down to $625,000 at June 30,
      2001. 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 $1,131,00, plus
      an
      earn-out. The portion of the purchase price paid at closing was funded through
      the Company’s working capital. The contingent earn-out payment relating to two
      times the after tax earnings for calendar year 1999 of approximately $600,000
      was paid in March 2000. Pursuant to the original merger agreement, the remaining
      earn-out portion was to be due no later than May 1, 2001.




On
      July
      16, 1999, European Micro UK purchased the office building in which it had
      previously been leasing space for 1,705,000 pounds sterling ($2,405,000 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). This loan called for
      monthly payments of principal and interest in the amount of 15,588 pounds
      sterling ($21,988 at June 30, 2001) 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. Therefore,
      the total amount outstanding under the mortgage loan note was reflected in
      current maturities of long term debt at June 30, 2001.





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.




16




**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.




17




**I** **tem
          8A.** **C** **ontrols** **A** **nd** **P** **rocedures**




**(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, 2001, 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.





**I** **tem
          8B.** **O** **ther** **I** **nformation**




None.


18


**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.




**Executive
      Officer**




In
      addition to John B. Gallagher, Harry D. Shields, and Laurence Gilbert, 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.




19
 
  **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, 2001 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.





**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
            
            
            2001
            
            $
            329,000(3
            )
            $
            0
            
            $
            0
            
            
            0
            
            $
            0Co-Chairman
                and Co-President
            
            
            2000
            
            
            370,667(3
            )
            
            0
            
            
            0
            
            
            0
            
            
            01999
            
            
            225,000
            
            
            100,000
            
            
            0
            
            
            0
            
            
            0Harry
                D. Shields
            
            
            2001
            
            $
            225,000
            
            $
            0
            
            $
            0
            
            
            0
            
            $
            0Co-Chairman
                and Co-President
            
            
            2000
            
            
            266,667
            
            
            0
            
            
            0
            
            
            0
            
            
            01999
            
            
            225,000
            
            
            100,000
            
            
            0
            
            
            0
            
            
            0Jay
                Nash
            
            
            2001
            
            $
            75,000
            
            $
            0
            
            $
            0
            
            
            11,000
            
            $
            0Chief
                Financial Officer, Controller,
            
            
            2000
            
            
            54,167
            
            
            5,000
            
            
            0
            
            
            0
            
            
            0Secretary
                and Treasurer
            
            
            1999
            
            
            50,000
            
            
            5,000
            
            
            0
            
            
            0
            
            
            0Frank
                Cruz
            
            
            2001
            
            $
            111,688(3
            )
            $
            0
            
            $
            0
            
            
            11,000
            
            $
            0Chief
                Operating Officer
            
            
            2000
            
            
            100,310(3
            )
            
            15,000
            
            
            0
            
            
            0
            
            
            01999
            
            
            45,000
            
            
            10,000
            
            
            28,030
            
            
            0
            
            
            0Laurence
                Gilbert
            
            
            2001
            
            $
            123,020
            
            $
            46,171
            
            $
            21,270
            
            
            26,000
            
            $
            0Managing
                Director (4)
            
            
            2000
            
            
            95,592
            
            
            159,650
            
            
            21,374
            
            
            0
            
            
            01999
            
            
            98,154
            
            
            178,136
            
            
            20,450
            
            
            0
            
            
            0Bernadette
                Spofforth
            
            
            2001
            
            $
            0
            
            $
            0
            
            $
            0
            
            
            0
            
            $
            0Director
                of Sales (5)
            
            
            2000
            
            
            95,592
            
            
            208,383
            
            
            23,858
            
            
            0
            
            
            01999
            
            
            49,077
            
            
            322,987
            
            
            23,329
            
            
            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.




20




(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.





**Option
      Grants in Fiscal 2001**





On
      August 21, 2000, Messrs. Nash, Cruz and Gilbert received options to
      purchase 5,000, 5,000 and 20,000 shares, respectively, at an exercise price
      of
      $7.0625 per share. These options vested 25% on August 21, 2000, 25% on February
      21, 2001, 25% on August 21, 2001 and 25% on February 21, 2002. These
      options have a ten-year term. On January 13, 2001, Messrs. Nash, Cruz and
      Gilbert received options to purchase 6,000 shares each, at an exercise price
      of
      $2.00 per share.





**Option
      Exercises and Values for Fiscal 2001**





The
      following table sets forth information with respect to option exercises during
      Fiscal 2001 by each of the named executive officers who hold options and the
      status of their options at June 30, 2001.





**No.
                of Unexercised Options at June 30, 2001**
            
            **Value
                of Unexercised In-The-Money Options at June 30,
                2001****Name**
            
            **Shares
                Acquired on Exercise (#)**
            
            **Value
                Realized**
            
            **Exercisable**
            
            **Unexercisable**
            
            **Exercisable**
            
            **Unexercisable(1)**Jay
                Nash
            
            
            -0-
            
            
            -0-
            
            
            11,000
            
            
            10,000
            
            
            -0-
            
            $
            0Frank
                Cruz
            
            
            -0-
            
            
            -0-
            
            
            11,000
            
            
            10,000
            
            
            -0-
            
            
            0Laurence
                Gilbert
            
            
            -0-
            
            
            -0-
            
            
            22,250
            
            
            28,750
            
            
            -0-
            
            
            0





(1)
      None
      of the options were in-the-money as of June 30, 2001.





**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.





21




**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**
            
            **Acquirable
                Within 60 Days(1)**
            
            **Percent
                of****Class**John
                B. Gallagher
            
            
            1,900,000
            
            
            —
            
            
            37.8
            %Harry
                D. Shields
            
            
            1,577,696
            
            
            —
            
            
            31.4
            %Jay
                Nash
            
            
            —
            
            
            11,000
            
            
            *Frank
                Cruz
            
            
            —
            
            
            11,000
            
            
            *Laurence
                Gilbert
            
            
            —
            
            
            22,250
            
            
            *Kyle
                Saxon
            
            
            2,700
            
            
            21,250
            
            
            *Barrett
                Sutton
            
            
            —
            
            
            21,250
            
            
            *All
                officers and directors as a group
            
            
            3,480,396
            
            
            86,750
            
            
            69.2
            %





*  Indicates
        that the ownership percent is less than one percent (1%).





(1)
            Reflects
                the number of shares that could be purchased by exercise of options
                within
                60 days thereafter under the Company’s 1998 Stock Incentive Plan.




**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 2001 with the reporting requirements
      of Section 16(a) of the Securities Exchange Act of 1934. Pursuant to the 1998
      Stock Incentive Plan, non-employee directors receive options to purchase 5,000
      shares of common stock on each anniversary of their election to the Board.
      Messrs. Sutton and Saxon, non-employee directors, received option agreements
      evidencing these options on May 1, 2000 and filed a Statement of Changes in
      Beneficial Ownership on Form 4 on May 2, 2000 and May 3, 2000, respectively.
      Messrs. Sutton and Saxon were entitled to such options on February 13, 2000
      and
      January 13, 2000, respectively. As such, Messrs. Sutton and Saxon may have
      been
      required to file a Statement of Changes in Beneficial Ownership on Form 4 by
      March 10, 2000 and February 10, 2000, respectively. In addition, Mr. Saxon
      purchased a total of 1,700 shares of common stock between December 23, 1999
      and
      April 28, 2000. A Statement of Changes in Beneficial Ownership on Form 4 was
      filed but not timely.




**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. A copy of the
      Code
      of Ethics has been attached hereto as Exhibit 14.01.


22




**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 2001, the Company and its subsidiaries had acted as a supplier for,
      and
      purchaser from, Technology Express, Inc. Harry D. Shields, who is the
      Co-Chairman, Co-President, director and a significant stockholder (owning
      approximately 31.4% of the outstanding shares of common stock) of the Company,
      was President of Technology Express, and owned all of the outstanding capital
      stock of that company. 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. Sales between the Company and its subsidiaries
      and Technology Express were typically priced at one percent above cost. Related
      party purchases and sales during Fiscal 2001 are as follows:





**($
                in
                thousands)****Fiscal
                2001**Sales
                to Technology Express
            
            $
            214Purchases
                from Technology Express
            
            
            4,672Accounts
                Receivable from Technology Express(1)
            
            
            0Accounts
                Payable to Technology Express(2)
            
            
            1





(1)  The
      largest aggregate amount of indebtedness owed from Technology Express to the
      Company between July 1, 2000 and June 30, 2001 was approximately $100,000.
      These
      amounts represent receivables incurred in the ordinary course of business for
      sales of product by the Company to the related parties.




(2)  The
      largest aggregate amount of indebtedness owed by the Company to Technology
      Express between July 1, 2000 and June 30, 2001 was approximately $2,000,000.
      These amounts represent payables incurred in the ordinary course of business
      of
      business for sales of product by the related parties to the
      Company.


23




**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.




24




**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.




25




**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.




26




**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
            
            Provided
                Herewith.





(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”).




(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.




27




**I** **TEM** **14.** **** **P** **RINCIPAL** **A** **CCOUNTING** **F** **EES
        AND** **S** **ERVICES.**




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-QSB or services that are normally provided by the accountant in connection
      with statutory and regulatory filings or engagements for those fiscal years
      were:




2001
            
            $
            202,6382000
            
            $
            196,240





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:




2001
            
            $
            -2000
            
            $
            61,775





28




**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 12, 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 12, 2006Harry
              D. Shields
            
            (Principal
              Executive
              Officer); Director*/s/
                John B. Gallagher*
            
            Co-Chairman;
                Co-President
            
            October 12, 2006John B.
              Gallagher
            
            (Principal
              Executive
              Officer); Director*/s/
                Jay P. Nash*
            
            Chief
                Financial Officer and Controller
            
            October 12, 2006Jay P. Nash
            
            (Principal
              Financial
              Officer and Controller)




29




**Index
        to the Financial Statements**
  **European
                  Micro Holdings, Inc. and Subsidiaries**Reports
                  of Independent Registered Public Accounting Firms
              
              F-2
                  & F-3Consolidated
                  Balance Sheet as of June 30, 2001
              
              F-4Consolidated
                  Statements of Operations for the years ended June 30, 2001 and
                  2000
              
              F-5Consolidated
                  Statements of Changes in Shareholders’ Equity for the years ended June
                  30, 2001 and 2000
              
              F-6Consolidated
                  Statements of Cash Flows for the years ended June 30, 2001 and
                  2000
              
              F-7Notes
                  to Consolidated Financial Statements as of June 30, 2001
              
              F-9
 
 
  **Report
        of Independent Registered Public Accounting Firm**
  To
        the
        Board of Directors and Shareholders of:
 European
        Micro Holdings, Inc. and Subsidiaries
 
 We
        have
        audited the accompanying consolidated balance sheet of European Micro Holdings,
        Inc. and subsidiaries (the “Company”) as of June 30, 2001, and the related
        consolidated statements of operations, shareholders’ equity and cash flows for
        the year then ended. 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
        audit.
 
 We
        conducted our audit in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audit 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 consolidated financial statement
        presentation. We believe that our audit provides a reasonable basis for our
        opinion.
 
 In
        our
        opinion, the consolidated financial statements referred to above present
        fairly,
        in all material respects, the consolidated financial position of European
        Micro
        Holdings, Inc. and subsidiaries as of June 30, 2001 and the consolidated
        results
        of their operations and cash flows for the year then ended in conformity
        with
        accounting principles generally accepted in the United States of
        America.
 
 The
        accompanying consolidated financial statements have been prepared assuming
        that
        the Company will continue as a going concern. As described in Note 18 to
        the
        consolidated financial statements, the
        Company had a net loss of $8,976,000, for the year ended June 30, 2001, a
        working capital deficiency of $499,000 and an accumulated deficit of $6,556,000
        at June 30, 2001. These
        matters raise substantial doubt about its ability to continue as a going
        concern. Management’s plans in regard to these matters are also described in
        Note 18. The consolidated financial statements do not include any adjustments
        that might result from the outcome of this uncertainty.
  Weinberg
        & Company P.A.
 Boca
        Raton, Florida
  
 August
        29, 2005
 
 F-2
  **European
          Micro Holdings, Inc. and Subsidiaries**
  **Report
        of Independent Registered Public Accounting Firm**
 
 The
        Board
        of Directors and Stockholders
 European
        Micro Holdings, Inc.:
 
 We
        have
        audited the accompanying consolidated statements of operations, stockholders’
equity, and cash flows of European Micro Holdings, Inc. and subsidiaries
        for the
        year ended June 30, 2000. These consolidated financial statements are the
        responsibility of the Company’s management. Our responsibility is to express an
        opinion on these consolidated financial statements based on our
        audit.
 
 We
        conducted our audit in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audit to obtain reasonable assurance about whether the financial
        statements are free of material misstatement. An audit includes examining,
        on a
        test basis, evidence supporting the amounts and disclosures in the financial
        statements. An audit also includes assessing the accounting principles used
        and
        significant estimates made by management, as well as evaluating the overall
        financial statement presentation. We believe that our audit provides a
        reasonable basis for our opinion.
 
 In
        our
        opinion, the consolidated financial statements referred to above present
        fairly,
        in all material respects, the results of operations and the cash flows of
        European Micro Holdings, Inc. and subsidiaries for the year ended June 30,
        2000,
        in conformity with U.S. generally accepted accounting principles.
  KPMG LLP
 
 Nashville,
        Tennessee
 
 August
        24, 2000
 
 F-3
  **European
          Micro Holdings, Inc. and Subsidiaries**
 **Consolidated
        Balance Sheet**
 **As
        of June 30, 2001**
 (In
        thousands, except share data)
 **2001****ASSETS****CURRENT
                      ASSETS:**Cash
                  
                  $
                  483Accounts
                      receivable, net
                  
                  
                  5,875Inventories,
                      net
                  
                  
                  4,149Prepaid
                      expenses
                  
                  
                  249Income
                      taxes receivable
                  
                  
                  517Other
                      current assets
                  
                  
                  229***TOTAL
                      CURRENT ASSETS***
                  
                  
                  11,502**PROPERTY
                      AND EQUIPMENT, NET**
                  
                  
                  2,566***TOTAL
                      ASSETS***
                  
                  $
                  14,068**LIABILITIES
                      AND SHAREHOLDERS’ EQUITY****CURRENT
                      LIABILITIES:**Short-term
                      borrowings
                  
                  $
                  6,248Current
                      portion of long-term borrowings
                  
                  
                  2,153Accounts
                      payable
                  
                  
                  1,192Accrued
                      expenses and other current liabilities
                  
                  
                  1,747Due
                      to related parties
                  
                  
                  661***TOTAL
                      CURRENT LIABILITIES***
                  
                  
                  12,001***COMMITMENT
                      AND CONTINGENCIES*****SHAREHOLDERS’
                      EQUITY:**Preferred
                      stock, $0.01 par value, 1,000,000 authorized, no shares issued
                      and
                      outstanding
                  
                  
                  -Common
                      stock, $0.01 par value, 20,000,000 authorized, 5,029,667 shares
                      issued and
                      outstanding
                  
                  
                  50Additional
                      paid-in capital
                  
                  
                  9,362Accumulated
                      other comprehensive loss
                  
                  
                  (789
                  )Accumulated
                      deficit
                  
                  
                  (6,556
                  )***TOTAL
                      SHAREHOLDERS’ EQUITY***
                  
                  
                  2,067***TOTAL
                      LIABILITIES AND SHAREHOLDERS’ EQUITY***
                  
                  $
                  14,068
 
 See
        accompanying notes to consolidated financial statements.
 
 F-4
  **European
          Micro Holdings, Inc. and Subsidiaries**
 **Consolidated
        Statements of Operations**
 **For
        the years ended June 30, 2001 and 2000**
 (In
        thousands, except share and per share data)
 
 **2001**
              
              **2000****SALES:**Net
                  sales to unrelated parties
              
              $
              93,879
              
              $
              113,124Net
                  sales to related parties
              
              
              214
              
              
              2,369Total
                  net sales
              
              
              94,093
              
              
              115,493**COST
                  OF GOODS SOLD:**Cost
                  of goods sold to unrelated parties
              
              
              (85,916
              )
              
              (101,822
              )Cost
                  of goods sold to related parties
              
              
              (202
              )
              
              (2,320
              )Total
                  cost of goods sold
              
              
              (86,118
              )
              
              (104,142
              )**GROSS
                  PROFIT**
              
              
              **7,975**
              
              
              **11,351****OPERATING
                  EXPENSES:**Selling,
                  general and administrative expenses
              
              
              (10,969
              )
              
              (14,050
              )Impairment
                  of property and equipment
              
              
              (593
              )
              
              -Goodwill
                  impairment
              
              
              (4,387
              )
              
              -Total
                  operating expenses
              
              
              (15,949
              )
              
              (14,050
              )**LOSS
                  FROM OPERATIONS**
              
              
              **(7,974**
              **)**
              
              **(2,699**
              **)****OTHER
                  INCOME (EXPENSE)**Interest
                  expense, net
              
              
              (1,057
              )
              
              (890
              )Equity
                  in net loss ofunconsolidated
                  subsidiaries
              
              
              -
              
              
              (188
              )**TOTAL
                  OTHER INCOME (EXPENSE)**
              
              
              **(1,057**
              **)**
              
              **(1,078**
              **)****LOSS
                  BEFORE INCOME TAXES**
              
              
              **(9,031**
              **)**
              
              **(3,777**
              **)**Income
                  tax benefit
              
              
              55
              
              
              570**NET
                  LOSS**
              
              **$**
              **(8,976**
              **)**
              **$**
              **(3,207**
              **)**Net
                  loss per common share - basic and diluted
              
              $
              (1.80
              )
              $
              (0.64
              )Weighted
                  average number of shares outstanding - basic and diluted
              
              
              4,977,280
              
              
              5,008,151
  See
        accompanying notes to consolidated financial statements.
 
 F-5
  **European
          Micro Holdings, Inc. and Subsidiaries**
 **Consolidated
        Statements of Shareholders’ Equity**
 **For
        the years ended June 30, 2001 and 2000**
 (In
        thousands, except share data)
 **Common
                    Stock**
                
                **Additional
                    Paid-In**
                
                **Accumulated
                    Other Comprehensive**
                
                **Retained
                    Earnings**
                
                **Total
                    Shareholders’**Shares
                
                Amount
                
                **Capital**
                
                **Loss**
                
                **(Deficit)**
                
                **Equity**Balance
                    at June 30, 1999
                
                
                4,933,900
                
                $
                49
                
                $
                8,979
                
                $
                (312
                )
                $
                5,627
                
                $
                14,343Comprehensive
                    Income (Loss):Net
                    loss
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (3,207
                )
                
                (3,207
                )Other
                    comprehensive income (loss) from foreign currencytranslation
                    adjustment
                
                
                -
                
                
                -
                
                
                -
                
                
                (238
                )
                
                -
                
                
                (238
                )Total
                    comprehensive loss
                
                
                -
                
                
                -
                
                
                -
                
                
                (238
                )
                
                (3,207
                )
                
                (3,445
                )Adjustment
                    to accrued offering costs
                
                
                -
                
                
                -
                
                
                156
                
                
                -
                
                
                -
                
                
                156Compensation
                    charge in relation to share options issued to
                    non-employees
                
                
                -
                
                
                -
                
                
                56
                
                
                -
                
                
                -
                
                
                56Balance
                    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-6
 **European
          Micro Holdings, Inc. and Subsidiaries**
 **Consolidated
        Statements of Cash Flows**
 **For
        the years ended June 30, 2001 and 2000**
 (In
        thousands)
  **2001**
              
              **2000****CASH
                  FLOWS FROM OPERATING ACTIVITIES:**Net
                  loss
              
              $
              (8,976
              )
              $
              (3,207
              )*Adjustments
                  to reconcile net loss to net cash provided by (used in) operating
                  activities*Depreciation,
                  amortization and impairment of propertyand
                  equipment
              
              
              1,533
              
              
              553Goodwill
                  impairment
              
              
              4,387
              
              
              -Amortization
                  expense related to contingentearn-out
                  provisions
              
              
              -
              
              
              47Deferred
                  income taxes
              
              
              235
              
              
              (194
              )Equity
                  in net loss of unconsolidated subsidiaries
              
              
              -
              
              
              188Compensation
                  charge for non-employee stock options
              
              
              122
              
              
              56Provision
                  for note receivable impairment
              
              
              252
              
              
              200*Changes
                  in assets and liabilities, net of effects from
                  acquisitions*Restricted
                  cash
              
              
              364
              
              
              -Accounts
                  receivable
              
              
              7,285
              
              
              2,498Due
                  from related parties
              
              
              -
              
              
              1,128Inventories
              
              
              2,045
              
              
              2,955Prepaid
                  expenses and other current assets
              
              
              664
              
              
              38Income
                  taxes receivable
              
              
              392
              
              
              (909
              )Accounts
                  payable
              
              
              (1,063
              )
              
              (2,374
              )Accrued
                  expenses and other liabilities
              
              
              (1,904
              )
              
              (1,127
              )Due
                  to related parties
              
              
              649
              
              
              (622
              )Income
                  taxes payable
              
              
              -
              
              
              (383
              )*Net
                  cash provided by (used in) operating activities*
              
              
              5,985
              
              
              (1,153
              )**CASH
                  FLOWS FROM INVESTING ACTIVITIES:**Purchases
                  of property and equipment
              
              
              (393
              )
              
              (3,407
              )Sale
                  of property and equipment
              
              
              183
              
              
              56Advances
                  to unconsolidated subsidiaries
              
              
              -
              
              
              (150
              )Payment
                  for acquisitions, net of cash acquired
              
              
              -
              
              
              (1,834
              )*Net
                  cash used in investing activities*
              
              
              (210
              )
              
              (5,335
              )**CASH
                  FLOWS FROM FINANCING ACTIVITIES:**(Decrease)
                  Increase in short-term borrowings, net
              
              
              (5,655
              )
              
              2,040Proceeds
                  from long-term borrowings
              
              
              -
              
              
              3,485Repayment
                  of long-term borrowings
              
              
              (765
              )
              
              (785
              )Issuance
                  of common stock, net
              
              
              50
              
              
              -Repayment
                  of capital leases
              
              
              (85
              )
              
              (72
              )*Net
                  cash (used in) provided by financing activities*
              
              
              (6,455
              )
              
              4,668Effect
                  of foreign exchange rates
              
              
              (59
              )
              
              (126
              )**NET
                  DECREASE IN CASH**
              
              
              (739
              )
              
              (1,946
              )Cash
                  at beginning of year
              
              
              1,222
              
              
              3,168**CASH
                  AT END OF YEAR**
              
              $
              483
              
              $
              1,222
 
 See
        accompanying notes to consolidated financial statements.
 
 F-7
 **European
          Micro Holdings, Inc. and Subsidiaries**
  **Consolidated
        Statements of Cash Flows**
 **For
        the years ended June 30, 2001 and 2000**
 (In
        thousands)
  **Supplemental
                  disclosure of non-cash investing and financing
                  activities:**
              
              **2001**
              
              **2000**Equipment
                  purchased under capital leases
              
              $
              358
              
              
              -Common
                  stock issued for payment of debt
              
              $
              217
              
              
              -Fair
                  value of assets acquired
              
              $
              -
              
              $
              3,314Goodwill
              
              
              -
              
              
              1,418Fair
                  value of liabilities assumed
              
              
              -
              
              
              (2,817
              )Cash
                  paid for acquisitions
              
              $
              -
              
              $
              1,915Less
                  cash acquired
              
              
              
              
              
              (81
              )Net
                  cash paid for acquisitions
              
              $
              -
              
              $
              1,834**Supplemental
                  disclosure of cash flow information:**Cash
                  paid for interest
              
              $
              1,081
              
              $
              532Cash
                  paid for taxes
              
              $
              20
              
              $
              1,022
  See
        accompanying notes to consolidated financial statements.
 
 F-8
  **European
          Micro Holdings, Inc. and Subsidiaries**
 **Notes
        to the Consolidated Financial Statements**
 **As
        of June 30, 2001**
 
 **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-9
 
 **European
          Micro Holdings, Inc. and Subsidiaries**
 **Notes
        to the Consolidated Financial Statements**
 **As
        of June 30, 2001** **** *(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 subsidiaries. All significant intercompany balances and
        transactions are eliminated in consolidation.
  The
        Company’s investment in Big Blue Europe BV is accounted for under the equity
        method.
 
 **(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.
 
 **(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
        are stated at the lower of cost or market value. Cost is determined using
        the
        weighted average cost method.
 
 F-10
 
 **European
          Micro Holdings, Inc. and Subsidiaries**
 **Notes
        to the Consolidated Financial Statements**
 **As
        of June 30, 2001** **** *(continued)*
  **Summary
        of Significant Accounting Policies and Organization** *(continued)*
  **(G)
        Property & Equipment**
  Property
        and equipment are recorded at cost. Property and equipment held under capital
        leases are stated at the present value of minimum lease payments at the
        inception of the related leases. D epreciation
        is calculated using the straight line method over their estimated useful
        lives
        as follows: Furniture, fixtures & equipment, 2-7 years and motor vehicles
        and other, 4 years. Property and equipment held under capital leases and
        leasehold improvements to property under operating leases are amortized on
        a
        straight-line basis over the shorter of the lease term or estimated useful
        life
        of the assets. The cost of additions and betterments are capitalized, and
        repairs and maintenance costs are charged to operations in the period incurred.
        When depreciable assets are retired or sold, the cost and related allowances
        for
        depreciation are removed from the accounts and the gain or loss is
        recognized. ****
  **(H)
        Impairment of Long-Lived Assets**
  The
        Company reviews long-lived assets and certain identifiable intangibles for
        impairment whenever events or changes in circumstances indicate that the
        carrying amount of an asset may not be recoverable.
  Recoverability
        of assets to be held and used is measured by a comparison of the carrying
        amount
        of an asset to future net cash flows expected to be generated by the asset.
        If
        such assets are considered to be impaired, the impairment to be recognized
        is
        measured by the amount by which the carrying amount of the assets exceed
        the
        fair value of the assets. Assets to be disposed of are reported at the lower
        of
        the carrying amount or fair value less costs to sell. See Note 5 for additional
        details.
  **(I)
        Goodwill**
  Goodwill,
        which represents the excess of purchase price over fair value of net assets
        acquired, is amortized on a straight-line basis over the expected periods
        to be
        benefited, generally 20 years. The Company assesses the recoverability of
        this
        intangible asset by determining whether the amortization of the goodwill
        balance
        over its remaining life can be recovered through undiscounted future operating
        cash flows of the acquired operation. The amount of goodwill impairment,
        if any,
        is measured based on projected discounted future operating cash flows using
        a
        discount rate reflecting the Company’s average cost of funds. The assessment of
        the recoverability of goodwill will be impacted if estimated future operating
        cash flows are not achieved. The Company recognized an impairment of goodwill
        and intangible assets of $4,387,000, for the year ended June 30, 2001. See
        Note
        6 for additional details.
  **(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.
 
 F-11
 
 **European
          Micro Holdings, Inc. and Subsidiaries**
  **Notes
        to the Consolidated Financial Statements**
 **As
        of June 30, 2001** **** *(continued)*
  **Summary
        of Significant Accounting Policies and Organization** *(continued)*
  **(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, accounts payable, accrued liabilities, taxes payable
        and
        other current liabilities approximate fair value because of their short
        maturities. The carrying amount of the Company’s short term borrowings
        approximates fair value because the interest rates of the short term borrowings
        are based on floating rates identified by reference to market rates. The
        carrying amounts of the Company’s loans and notes payable and capital lease
        obligations approximate the fair value of such instruments based upon
        management’s best estimate of interest rates that would be available to the
        Company for similar debt obligations.
  The
        Company enters into foreign currency exchange contracts to reduce exposure
        to
        foreign currency fluctuations associated with the settlement of inter-company
        receivables and payables denominated in foreign currencies. Foreign exchange
        contracts generally have maturities of less than one year and are accounted
        for
        on the fair value method. Gains and losses resulting from these instruments
        are
        recognized in the same period as the underlying foreign currency transaction
        gains and losses and are included in cost of sales. The Company does not
        use
        foreign currency exchange contracts or other derivative financial instruments
        for speculative or trading purposes.
  **(L)
        Foreign Currency Transaction**
  Assets
        and liabilities of foreign subsidiaries, whose functional currency is the
        local
        currency, are translated into US Dollars at year-end exchange rates. Capital
        accounts are re-measured into US dollars at the acquisition date rates. Income
        and expense items are translated at the average rates of exchange prevailing
        during the year. The adjustments resulting from translating the financial
        statements of such foreign subsidiaries are 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.
  **(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.
  The
        per
        share weighted average fair value of stock options granted during 2001 and
        2000
        were $3.44  and
        $7.76, respectively. The preceding results were calculated with the use of
        the
        Black-Scholes option-pricing model. The assumptions were used for the years
        ended June 30, 2001 and 2000 respectively: (1) risk-free interest rates of
        5.99%
        to 6.23% and 5.5% to 6.2%; (2) dividend yield of 0.0%; (3) expected lives
        of 5
        to 7 years; and (4) volatility of 144% and 128%. Results may vary depending
        on
        the assumptions applied within the model.
 
 F-12
 
 **European
          Micro Holdings, Inc. and Subsidiaries**
 **Notes
        to the Consolidated Financial Statements**
 **As
        of June 30, 2001** *(continued)*
  **Summary
        of Significant Accounting Policies and Organization** *(continued)*
  The
        Company applies APB Opinion No. 25 in accounting for its plan and, accordingly,
        no compensation cost has been recognized for its stock options issued to
        employees with a stock price at market value on the date of grant in the
        consolidated financial statements. Had the Company determined compensation
        cost
        based on the fair value of the date of grant for its stock options under
        SFAS
        No. 123, the Company’s net income would have been reduced to the pro forma
        amounts indicated below (in thousands, except per share data):
  **Years
                  ended June 30,****2001**
              
              **2000****Net
                  loss:**As
                  reported
              
              $
              (8,976
              )
              $
              (3,207
              )Pro
                  forma
              
              $
              (9,411
              )
              $
              (3,551
              )**Loss
                per Share - basic:**As
                  reported
              
              $
              (1.80
              )
              $
              (0.64
              )Pro
                  forma
              
              $
              (1.88
              )
              $
              (0.71
              )**Loss
                  per Share - diluted:**As
                  reported
              
              $
              (1.80
              )
              $
              (0.64
              )Pro
                  forma
              
              $
              (1.88
              )
              $
              (0.71
              )
  Compensation
        cost arising during the year ended June 30, 2001 and June 30, 2000 in relation
        to stock options granted to non-employees during the year amounted to $122,000
        and $56,000, respectively. The vesting period for stock options granted to
        non-employees varies between 0 and 6 years.
  **(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 earnings per
        share
        reflects the potential dilution from the exercise or conversion of all dilutive
        securities into common stock based on the average market price of common
        shares
        outstanding during the period.
  On
        incorporation of European Micro Holdings, Inc. in December 1997, 4,000,000
        ordinary shares were issued with par value $0.01 per share. The 4,000,000
        shares
        were issued to the shareholders of European Micro Plc in exchange for the
        entire
        issued share capital of that company on January 31, 1998.
  **(O)
        Recent Accounting Pronouncements**
  *Derivative
        instruments*
  SFAS
        No.
        133, “Accounting for Derivative Instruments and Hedging Activities,” was issued
        in June 1998 and as amended by SFAS No. 137, is effective for fiscal years
        beginning after June 15, 2000. SFAS No. 138 “Accounting for Certain Derivative
        Instruments and Certain Hedging Activities”, an amendment of FASB No. 135, was
        issued June 2000. These statements have been adopted effective July 1, 2000,
        but
        have not materially impacted the Company’s consolidated financial statements.
        These standards establish accounting and reporting standards for derivative
        instruments and hedging activities.
  F-13
 **European
            Micro Holdings, Inc. and Subsidiaries**
 **Notes
        to the Consolidated Financial Statements**
 **As
        of June 30, 2001** *(continued)*
  **Summary
        of Significant Accounting Policies and Organization** *(continued)*
  *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.
  *Business
        Combinations*
  Statement
        No. 141, “Business Combinations” supersedes APB Opinion 16 and various related
        pronouncements. Pursuant to the new guidance in Statement No. 141, all business
        combinations must be accounted for under the purchase method of accounting;
        the
        pooling-of-interests method is no longer permitted. SFAS 141 also establishes
        new rules concerning the recognition of goodwill and other intangible assets
        arising in a purchase business combination and requires disclosure of more
        information concerning a business combination in the period in which it is
        completed. This statement is generally effective for business combinations
        initiated on or after July 1, 2001.
  F-14
 **European
            Micro Holdings, Inc. and Subsidiaries**
 **Notes
        to the Consolidated Financial Statements**
 **As
        of June 30, 2001** *(continued)*
  **Summary
        of Significant Accounting Policies and Organization** *(continued)*
  *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.
  *Accounting
        for the Impairment or Disposal of Long-Lived Assets*
  In
        August
        2001, the FASB issued SFAS 144, “Accounting for the Impairment or Disposal of
        Long-Lived Assets”. This statement addresses financial accounting and reporting
        for the impairment or disposal of long-lived assets and supercedes FASB
        Statement No. 121, “Accounting for the Impairment of Long-Lived Assets and for
        Long-Lived Assets to be Disposed Of”. The provisions of the statement are
        effective for financial statements issued for the fiscal years beginning
        after
        December 15, 2001. The Company has impaired long lived assets as of June
        30,
        2001 per the provisions established by SFAS 144. See Note 5 for
        details.
 
 F-15
 **European
            Micro Holdings, Inc. and Subsidiaries**
 **Notes
        to the Consolidated Financial Statements**
 **As
        of June 30, 2001** *(continued)*
  **Summary
        of Significant Accounting Policies and Organization** *(continued)*
  *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.
  *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.
 
 F-16
  **European
            Micro Holdings, Inc. and Subsidiaries**
  **Notes
        to the Consolidated Financial Statements**
 **As
        of June 30, 2001** *(continued)*
  **Summary
        of Significant Accounting Policies and Organization** *(continued)*
  *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.
  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.
 
 F-17
 **European
            Micro Holdings, Inc. and Subsidiaries**
 **Notes
        to the Consolidated Financial Statements**
 **As
        of June 30, 2001** *(continued)*
  **Summary
        of Significant Accounting Policies and Organization** *(continued)*
  *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.
  *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.
 
 F-18
 **European
            Micro Holdings, Inc. and Subsidiaries**
 **Notes
        to the Consolidated Financial Statements**
 **As
        of June 30, 2001** *(continued)*
  **Summary
        of Significant Accounting Policies and Organization** *(continued)*
  *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.
  **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 Notes 6 and 19 for additional
        details.
  F-19
 **European
            Micro Holdings, Inc. and Subsidiaries**
 **Notes
        to the Consolidated Financial Statements**
 **As
        of June 30, 2001** *(continued)*
  **2**
              **Liquidation***(continued)*
  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. See Notes 8 and 9 for
        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. The consolidated financial statements in Form 10-QSB for September
        30,
        2001 will be presented under liquidation basis of accounting.
  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.
  **3**
              **Accounts
                  Receivable, Net**
  Accounts
        receivable consist of the following (in thousands):
 
 **June
                  30, 2001**Total
                  accounts receivable
              
              $
              5,992Less:
                  Allowance for doubtful receivables
              
              
              (117
              )$
              5,875
 
 At June 30,
        2001, accounts receivable are pledged as collateral against borrowings (See
        Note
        8).
  **4**
              **Inventories**
 
 Inventories
        consist of the following (in thousands):
  **June
                  30, 2001**Finished
                  goods and goods for resale
              
              $
              4,967Less:
                  Allowance for inventory obsolescence
              
              
              (818
              )$
              4,149
  F-20
 **European
            Micro Holdings, Inc. and Subsidiaries**
 **Notes
        to the Consolidated Financial Statements**
 **As
        of June 30, 2001** *(continued)*
  **5**
              **Property
                  and Equipment**
 
 Property
        and equipment consists of the following (in thousands):
 
 **June
                  30, 2001**Buildings
                  and leasehold improvements
              
              $
              2,514Furniture,
                  fixtures and equipment (note 11)
              
              
              1,776Vehicles
                  and other
              
              
              4734,763Less:
                  accumulated depreciation
              
              
              (2,197
              )**Property
                  and equipment, net**
              
              $
              2,566
 
 On
        July
        16, 1999, European Micro Plc, a wholly-owned subsidiary of the Company
        (“ European
        Micro UK ”),
        purchased the office building in which it had previously leased space for
        a
        purchase price of 1,705,000 pounds sterling ($2,405,000 at exchange rate
        on June
        30, 2001). The purchase price was financed in part by a mortgage loan note
        in
        the amount of 1,312,000 pounds sterling (see Note 9). 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. 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
        is included in operating expenses in the accompanying consolidated statement
        of
        operations for the year ended June 30, 2001.
 
 At
        June
        30, 2001 and 2000, vehicles with a cost of approximately $241,000 and $212,000,
        and accumulated depreciation of approximately $107,000 and $129,000,
        respectively, were held under capital leases.
 
 Depreciation expense
        was $783,000 and $405,000 for the years ended June 30, 2001 and 2000
        respectively.
 
 F-21
 **European
            Micro Holdings, Inc. and Subsidiaries**
  **Notes
            to the Consolidated Financial Statements**
 **As
            of June 30, 2001** *(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 (approximately
        $1,326,000 at exchange rate on June 30, 2001). Of this guaranteed amount,
        approximately 360,000 pounds sterling (approximately $508,000 at exchange
        rate
        on June 30, 2001) 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 ($339,000 at exchange
        rate
        on June 30, 2001) 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 ($183,000
        at exchange rate on June 30, 2001) has been paid by a cash payment in the
        amount
        of 112,966 pounds sterling ($159,000 at exchange rate on June 30, 2001) to
        the
        former 40% Sunbelt shareholder on November 20, 2000 and by the issuance
        of 37,754 and 32,993 shares of the Company's common stock to the former 60%
        Sunbelt shareholder on December 12, 2000 and on March 12, 2001 (See Note
        17).
        The Company had the option of paying amounts due to the former Sunbelt
        shareholders in common stock of European Micro Holdings, Inc. See Note
        12.
  On
        November 12, 1998, European Micro UK acquired the assets of H&B Trading
        International BV (“ H&B ”).
        The
        acquisition of H&B was accounted for as a purchase. The base purchase price,
        subject to adjustment, of approximately 125,000 Dutch guilders ($ 48,000
        at
        exchange rate on June 30, 2001) exceeded the estimated value of net assets
        acquired by approximately 85,000 Dutch guilders ($33,000 at exchange rate
        on
        June 30, 2001). 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-22
 **European
          Micro Holdings, Inc. and Subsidiaries**
  **Notes
          to the Consolidated Financial Statements**
 **As
        of June 30, 2001** *(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 is being amortized on a straight-line
        basis
        over 20 years. The results of operations of American Micro, since acquisition,
        have been included in the accompanying consolidated financial statements.
        The
        contingent earn-out payment relating to two times the after tax earnings
        for
        calendar year 1999 of approximately $600,000 was paid in March 2000 and is
        reflected in goodwill, net. The contingent earn-out payment relating to two
        times the after tax earnings for calendar year 2000 of approximately $1,839,000
        was added to goodwill, net and 50% of the amount included in accrued expenses
        and other current liabilities and 50% of the amount included in due to related
        parties, since John B. Gallagher was considered a related party. (See Note
        14)
        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 the above acquired entities have been included in
        the
        accompanying consolidated financial statements from the respective dates
        of
        acquisition.
  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 is included in operating expenses
        in the accompanying consolidated statement of operations for the year ended
        June
        30, 2001.
  A
        roll
        forward of goodwill is as follows (in thousands):
  **June
                  30, 2001**Balance
                  at beginning of year
              
              $
              2,808Foreign
                  currency translation adjustment
              
              
              (119
              )Purchase
                  accounting adjustments
              
              
              50Additions
              
              
              1,839Amortization
              
              
              (191
              )Impairment
                  of Goodwill
              
              
              (4,387
              )Balance
                  at end of year
              
              $
              -0-
 
 **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.
 
 F-23
 **European
          Micro Holdings, Inc. and Subsidiaries**
  **Notes
          to the Consolidated Financial Statements**
 **As
        of June 30, 2001** *(continued)*
 
 **7**
              **Investments
                  In and Advances To Unconsolidated Subsidiaries***(continued)*
  For
        the
        year ended June 30, 2000, Big Blue Europe recorded a net loss of $376,000.
        The
        Companies 50% share of Big Blue Europe BV’s loss of $188,000 was included in
        equity in net loss of unconsolidated subsidiaries in the accompanied
        consolidated statement of operations for the year ended June 30, 2000. Also
        during the year ended June 30, 2000, the Company reserved an allowance for
        uncollectible advances to Big Blue Europe BV in the amount of $200,000. 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 and the reserve made in fiscal year 2000 and are
        included in selling, general and administrative expenses in the accompanied
        consolidated statement of operations for the year ended June 30, 2001 and
        2000
        respectively. See Note 12 for additional details.
  **8**
              **Short-Term
                  Borrowings**
  Short-term
        borrowings consist of the following (in thousands):
  **June
                  30, 2001**Bank
                  lines of credit
              
              $
              2,463Receivable
                  financing
              
              
              3,219Other
                  short-term borrowings
              
              
              566Total
                  short-term borrowings
              
              $
              6,248
 
 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. Maximum borrowing capacity under this
        facility was 2.0 million pounds sterling ($2.8 million at exchange rate on
        June
        30, 2001). Interest was charged at 1.25% over the bank borrowing rate of
        5.25%
        at June 30, 2001. Subsequent to year end, 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.
  Until
        December 31, 2000, European Micro UK also had a revolving credit agreement
        collateralized against general corporate assets. European Micro UK never
        borrowed against this facility and the facility was terminated effective
        December 31, 2000.
  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.
  F-24
 **European
          Micro Holdings, Inc. and Subsidiaries**
 **Notes
        to the Consolidated Financial Statements**
 **As
        of June 30, 2001** *(continued)*
  **8**
              **Short-Term
                  Borrowings***(continued)*
  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.
  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).
  Receivable
        financing represents borrowings secured by various trade receivables of European
        Micro UK totaling $3.8 million at June 30, 2001. The accounts receivable
        financing provides for a borrowing base of 85% of accounts receivable, with
        a
        limit of 4.5 million pounds sterling ($6.3 million at exchange rate on June
        30,
        2001). The finance company which provides the receivable financing facility
        has
        full recourse to European Micro UK with respect to any doubtful or unrecovered
        amounts. Interest is charged on the receivable financing balance at 1.25%
        above
        the bank borrowing rate of 5.25% at June 30, 2001. This facility can be
        terminated by either party giving three months’ notice.
  Other
        short-term borrowings represent various unsecured notes payable of American
        Micro. The maturity dates of the notes range from on demand to June 30,
        2001 . The
        interest rates range from 11% to 12%.
 
 F-25
 **European
          Micro Holdings, Inc. and Subsidiaries**
 **Notes
        to the Consolidated Financial Statements**
 **As
        of June 30, 2001** *(continued)*
  **9**
              **Long-Term
                  Borrowings**
  Long-term
        borrowings consist of the following (in thousands):
  **June
                  30, 2001**Mortgage
                  loan note
              
              $
              1,434Term
                  loan
              
              
              625Other
                  long-term borrowings
              
              
              94$
              2,153Less
                  current maturities of long-term borrowings
              
              
              (2,153
              )Total
                  long-term borrowings
              
              $
              -0-
 
 European
        Micro UK purchased the office building in which it had previously leased
        space
        for a purchase price of 1,705,000 pounds sterling ($2,405,000 at exchange
        rate
        on June 30, 2001). The purchase price was financed in part by a mortgage
        loan
        note in the amount of 1,312,000 pounds sterling ($1,851,000 at exchange rate
        on
        June 30, 2001). 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 ($21,988 at exchange rate on June 30, 2001), 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
        on
        April 5, 2002 for 1,510,000 pounds sterling ($2,156,000 at April 5, 2002).
        At
        closing the loan secured by the office building was paid in full in the amount
        of 1,102,000 pounds sterling ($1,573,000 at April 5, 2002).
  The
        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%). One-month
        LIBOR at June 30, 2001 was 3.8625%. 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 own 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-26
 **European
          Micro Holdings, Inc. and Subsidiaries**
 
 **Notes
        to the Consolidated Financial Statements**
 **As
        of June 30, 2001** *(continued)*
  **10**
              **Taxes
                  on Income**
  Income
        tax benefit consists of the following (in thousands):
 
 **Years
                  ended June 30,****2001**
              
              **2000**CurrentFederal
                  and State
              
              $
              -
              
              $
              -Foreign
              
              
              (55
              )
              
              (376
              )DeferredFederal
                  and State
              
              
              -
              
              
              -Foreign
              
              
              -
              
              
              (194
              )Total
                  income tax benefit
              
              $
              (55
              )
              $
              (570
              )
 
 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 year ended June 30, 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,****2001**
              
              **2000**US
                  federal statutory rate on lossbefore
                  income taxes
              
              $
              (3,071
              )
              $
              (1,284
              )State
                  income tax
              
              
              (183
              )
              
              (67
              )Depreciation
                  and Amortization
              
              
              1,258Difference
                  in foreign versus U.S. federalincome
                  tax rate
              
              
              175
              
              
              51Change
                  in valuation allowance
              
              
              1,522
              
              
              896Foreign
                  non-deductible expenses
              
              
              244
              
              
              (166
              )Income
                  tax benefit
              
              $
              (55
              )
              $
              (570
              )
  F-27
 **European
          Micro Holdings, Inc. and Subsidiaries**
 **Notes
        to the Consolidated Financial Statements**
 **As
        of June 30, 2001** *(continued)*
  **10**
              **Taxes
                  on Income***(continued)*
 
 Sources
        of deferred tax assets are as follows (in thousands):
 
 **June
                  30, 2001***Deferred
                  tax assets:*Property
                  and equipment, principally due todifferences
                  in depreciation and amortization
              
              $
              1,234Net
                  operating loss carry forwards
              
              
              1,060Other
              
              
              198Total
                  gross deferred tax assets
              
              
              2,492Valuation
                  allowance
              
              
              (2,492
              )Net
                  deferred tax assets
              
              $
              -0-
 
 The
        Company has U.S. federal net operating loss carryforwards of approximately
        $1,964,000, 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 2001 by $1,522,000, 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 ($323,000 at exchange rate on June 30, 2001), related to
        the
        actual software development. This capitalized amount was written off and
        is
        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 is included
        in
        selling, general and administrative expenses in the accompanying consolidated
        statement of operations for the year ending June 30, 2001.
 
 F-28
 **European
          Micro Holdings, Inc. and Subsidiaries**
 **Notes
        to the Consolidated Financial Statements**
 **As
        of June 30, 2001** *(continued)*
  **12**
              **Commitmentsand 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. For the years ended
        June
        30, 2001 and June 30, 2000, the Company incurred approximately $514,000 and
        $800,000 respectfully, in costs related to such lawsuit.
  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. These amounts are included
        in accounts receivable in the accompanying consolidated balance sheets as
        of
        June 30, 2001.
 
 F-29
 **European
          Micro Holdings, Inc. and Subsidiaries**
 **Notes
        to the Consolidated Financial Statements**
 **As
        of June 30, 2001** *(continued)*
  **12**
              **Commitmentsand 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 $147,267 at exchange rate on June 30, 2001). This
        amount is included in accrued expenses and other current liabilities in the
        accompanying consolidated balance sheets as June 30, 2001.
  The
        Company leases offices and certain equipment under non-cancelable operating
        leases and vehicles under capital leases. Future minimum lease payments under
        non-cancelable operating leases and capital leases as of June 30, 2001, (after
        giving effect to terminated leases for discontinued subsidiaries during fiscal
        year ending June 30, 2002) in aggregate for each of the five succeeding years
        is
        as follows (in thousands):
 June
                    30,
                
                **Capital**
                
                **Operating**2002
                
                $
                67
                
                $
                702003
                
                
                94
                
                
                252004
                
                
                -
                
                
                -2005
                
                
                -
                
                
                -2006
                
                
                -
                
                
                -Total
                    minimum lease payments
                
                $
                161
                
                $
                95Less
                    amount representing interest at ratesranging
                    from 4.4% to 5.1%
                
                
                (10
                )Present
                    value of net minimum capital lease payments
                
                
                151Current
                    portion, included in accrued expenses and other current
                    liabilities
                
                
                (151
                )Total
                    obligations under capital leases excluding current portion
                
                $
                -0-
 
 Rental
        expense for the years ended June 30, 2001 and 2000 was $358,000 and $260,000
        respectively .
 
 F-30
 **European
          Micro Holdings, Inc. and Subsidiaries**
  **Notes
        to the Consolidated Financial Statements**
 **As
        of June 30, 2001** *(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.
 
 **Exchange
        rate sensitivity**
 
 The
        table
        below summarizes information on foreign currency exchange contracts. The
        table
        presents the notional amounts and weighted average exchange rates by expected
        (contractual) maturity dates (in thousands except exchange rates).
 
 **Expected**
                **maturity
                  or**
                **transaction
                  date**
              
              **Fair
                  value*****Foreign
                  currency exchange contracts****June
                  30, 2001**No
                  contracts at June 30, 2001**June
                  30, 2000*(Receive
                  $US / pay £)
              
              
              July
                  19, 2000Contract
                  amount
              
              $
              2,000
              
              $
              2,012Average
                  contractualexchange
                  rate
              
              
              1.5045
                  $US / £1
 
 The
        fair
        value has been determined by applying the mid-price of the spread on the
        buy or
        sell rates as appropriate, of the relevant foreign currency at the balance
        sheet
        date. The mid-price used was that quoted by the Financial Times.
 
 F-31
 **European
          Micro Holdings, Inc. and Subsidiaries**
  **Notes
        to the Consolidated Financial Statements**
 **As
        of June 30, 2001** *(continued)*
  **14**
              **Related
                  Party Information**
  Technology
        Express was owned and controlled by Harry D. Shields, who is Co-President
        and
        Co-Chairman of the Company.
  Related
        party transactions are summarized as follows (in thousands):
 
 **Year
                  ended June 30,****2001**
              
              **2000****Sales**Technology
                  Express
              
              $
              214
              
              $
              2,369**Purchases**Technology
                  Express
              
              $
              4,672
              
              $
              3,986
  **Due
        from/to related parties**
  a)
                No
                    amounts were due from related parties at June 30, 2001.
  b)
                Due
                    to related parties consists of following (in
                    thousands):
 
 **June
                  30, 2001**John
                  B. Gallagher
              
              $
              660Technology
                  Express
              
              
              1$
              661
 
 **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.
  **Nature
        of related party relationships**
  The
        entities listed above were related to the company in the following
        manner:
  ***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.
  F-32
 **European
          Micro Holdings, Inc. and Subsidiaries**
  **Notes
        to the Consolidated Financial Statements**
 **As
        of June 30, 2001** *(continued)*
  **14**
              **Related
                  Party Information*(continued)***
  ***J*** ***ohn
        B. Gallagher***
  John
        B.
        Gallagher is a Co-President, Co-Chairman of the Company and a significant
        shareholder. He was also a former 50% shareholder of AMCC.
  
 **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,****2001**
              
              **2000****Net
                  Sales:**North
                  America
              
              $
              31,695
              
              $
              38,560Europe
              
              
              42,859
              
              
              65,822Other
              
              
              19,539
              
              
              11,111Total
              
              $
              94,093
              
              $
              115,493**Loss
                  From Operations:**North
                  America
              
              $
              (4,134
              )
              $
              (1,835
              )Europe
              
              
              (3,611
              )
              
              (723
              )Other
              
              
              (229
              )
              
              (141
              )Total
              
              $
              (7,974
              )
              $
              (2,699
              )**Identifiable
                  Assets:**North
                  America
              
              $
              2,987
              
              $
              8,402Europe
              
              
              10,798
              
              
              20,701Other
              
              
              283
              
              
              1,110Total
              
              $
              14,068
              
              $
              30,213
 
 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, 2001 and
        2000.
  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, 2001 or 2000.
 
 F-33
 **European
          Micro Holdings, Inc. and Subsidiaries**
 **Notes
        to the Consolidated Financial Statements**
 **As
        of June 30, 2001** *(continued)*
  **16**
              **Loss
                  per share**
  **Years
                    ended June 30,****2001**
                
                **2000**Net
                    loss (in thousands)
                
                $
                (8,976
                )
                $
                (3,207
                )**Weighted
                    average number of shares**Outstanding
                    common stock during the period
                
                
                4,977,280
                
                
                4,933,900Contingently
                    issuable shares
                
                
                -
                
                
                74,251*Basic
                    weighted average number of shares*
                
                
                4,977,280
                
                
                5,008,151Effect
                    of dilutive stock options and othercontingent
                    shares
                
                
                -
                
                
                -*Diluted
                    weighted average number of shares*
                
                
                4,977,280
                
                
                5,008,151Basic
                    loss per share
                
                $
                (1.80
                )
                $
                (0.64
                )Diluted
                    loss per share
                
                $
                (1.80
                )
                $
                (0.64
                )
  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 and 330,500 for the years ended June 30, 2001
        and
        2000, respectively, 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
        is
        not included, as such payment was paid in cash in March 2000. The effect
        of
        contingent shares related to second earn-out of American Micro is not included,
        as such payment was reflected in a note payable to original shareholders
        of
        American Micro. See Note 19.
 
 F-34
 **European
          Micro Holdings, Inc. and Subsidiaries**
 **Notes
        to the Consolidated Financial Statements**
 **As
        of June 30, 2001** *(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,
        2001.
  F-35
 **European
          Micro Holdings, Inc. and Subsidiaries**
 **Notes
        to the Consolidated Financial Statements**
 **As
        of June 30, 2001** *(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:
  **2001**
              
              **2000****Number
                  of**
                **Shares**
              
              **Weighted
                  Average Exercise Price**
              
              **Number
                  of Shares**
              
              **Weighted
                  Average Exercise Price**Outstanding
                  at beginning of year
              
              
              330,500
              
              $
              9.95
              
              
              339,000
              
              $
              10.07Granted
              
              
              379,000
              
              $
              4.07
              
              
              20,000
              
              $
              8.38Exercised
              
              
              -
              
              
              
              
              
              -Forfeited
              
              
              (392,000
              )
              
              ($6.79
              )
              
              (28,500
              )
              
              ($10.21
              )**Outstanding
                  at year end**
              
              
              317,500
              
              $
              6.84
              
              
              330,500
              
              $
              9.95Available
                  for grant at year end
              
              
              182,500
              
              
              
              
              
              169,500
  **Options
        outstanding**
  A
        summary
        of the options outstanding at June 30, 2001 is presented below:
  **Options
                  Outstanding**
              
              **Options
                  Exercisable****Range
                  of Exercise Prices**
              
              **Number**
                **Outstanding
                  at 6/30/01**
              
              **Weighted
                  Average Remaining Life**
              
              **Weighted
                  Average**
                **Exercise
                  Price**
              
              **No.
                  Exercisable at 6/30/01**
              
              **Weighted
                  Average Exercise Price**$2.00
                  - $12.00
              
              317,500
              
              8.53
              
              $6.84
              
              140,500
              
              $4.14
 
 Warrants
        issued to placement agent are not part of the stock incentive plan and as
        such
        are not included in the above tables.
 
 F-36
 **European
          Micro Holdings, Inc. and Subsidiaries**
 
 **Notes
        to the Consolidated Financial Statements**
 **As
        of June 30, 2001** *(continued)*
  **18**
              **Going
                  Concern**
 
 The
        accompanying consolidated financial statements have been prepared in conformity
        with principles generally accepted in the United States, which contemplates
        continuation of the Company as a going concern. The Company had a net loss
        of
        $8,976,000, for the year ended June 30, 2001, a working capital deficiency
        of
        $499,000 and an accumulated deficit of $6,556,000 at June 30, 2001 which
        raises
        substantial doubt about its ability to continue as a going concern. The
        consolidated financial statements do not include any adjustments that might
        result from the outcome of this uncertainty. Management is currently engaged
        in
        an ongoing orderly liquidation of the Company assets, and its plan to continue
        operations is to seek a suitable operating company to merge with.
  In
        view
        of these matters, realization of certain of the assets in the accompanying
        financial statements is dependent upon continued operations of the Company,
        which in turn is dependent upon the Company’s ability to meet its financial
        requirements, raise additional capital, and the success of its future
        operations. Management believes that through its ongoing orderly liquidation
        of
        its assets and its future plan to merge with another operating company provides
        the opportunity for the Company to continue as a going concern.
  **19**
              **Subsequent
                  Events**
 
 During
        July, 2001 the management approved a plan for the complete liquidation of
        the
        Company. Accordingly, the Company is engaged in an ongoing orderly liquidation
        of its assets.
  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. Also during August 2001, the term loan of European
        Micro Holdings was repaid. (See Notes 8 and 9).
  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. See Notes 2 and 6 for
        further details. 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, 2001****Net
                  sales**
              
              **$**
              **75,823****Net
                  loss**
              
              
              **($10,399**
              **)****Basic
                  and diluted loss per share**
              
              
              **($2.08**
              **)**
  F-37
 **European
          Micro Holdings, Inc. and Subsidiaries**
 **Notes
        to the Consolidated Financial Statements**
 **As
        of June 30, 2001** *(continued)*
  **19**
              **Subsequent
                  Events***(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, which is included in accrued
        expenses and other current liabilities, was assigned to Harry Shields, a
        shareholder of European Micro Holdings, Inc., for the sum of 107,000 pounds
        sterling. This amount plus interest of 9,483 pounds sterling was repaid by
        European Micro UK to Harry Shields on August 10, 2004.
  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. (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-38