**UNITED
      STATES 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, 2003**





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





**For
      the transition period from _________ to ________**





**EUROPEAN
      MICRO HOLDINGS, INC.**


(Exact
      name of registrant as specified in charter)





**Nevada**
            **65-0803752**(State
                or other jurisdiction of
            (IRS
                Employerincorporation
                or organization)
            Identification
                Number)**450
                Fairway Drive, Suite 105, Deerfield Beach, Florida
                33441**(Address
                of principal executive offices) (Zip Code)**Issuer’s
                telephone number:**
            **(954)
                596-0249****Securities
                registered pursuant to Section 12(g) of the Act:****Title
                of each class**
            **None****Name
                of each exchange on which registered**
            **None****Securities
                registered pursuant to Section 12(g) of the Act:**
            **Common
                Stock, par value $0.001 per
                share**




**Check
      whether the Issuer (1 ) filed all reports required to be filed by section 13
      or
      15 (d) of the Exchange Act during the past 12 months (or for such shorter period
      that the registrant was required to file such reports), and (2) has been subject
      to such filing requirements for the past 90 days. 1. Yes o** **No x** **2. Yes****o
      No x**




**Check
      if there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B is not contained in this form, and no disclosure will be
      contained, to the best of the registrant’s knowledge, in definitive proxy or
      information statements incorporated by reference in Part III of this Form 10-KSB
      or any amendment to this Form 10-KSB** **x**




**State
      Issuer’s Revenues for its most recent fiscal year:**  **______________**




**State
      the aggregate market value of the voting stock held by nonaffiliates of the
      registrant. The aggregate market value shall be computed by reference to the
      price at which the stock was sold, or the average bid and asked prices of such
      stock, as of a specified date within the past 60 days.**




**The
      market value of shares held by nonaffiliates is $46,478 based on the bid price
      of $0.03 per share at [July 31, 2006].**




**As
      of [July 31, 2006], the Company had 5,029,667 shares of common stock issued
      and
      outstanding.**




**DOCUMENTS
      INCORPORATED BY REFERENCE**


**None**







**Part
      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
      operated as a sales office in Düsseldorf, Germany. As of August 2000, the
      Company closed the sales operations of European Micro Germany. Sunbelt was
      a
      company registered in England and Wales, which was established in 1992 and
      based
      in Wimbledon, England. Sunbelt operated as a distributor of microcomputer
      products to dealers, value-added resellers and mass merchants throughout Western
      Europe. Except for the distribution of its Nova brand products (which was
      discontinued effective January 2000), Sunbelt’s distribution operations were
      integrated with and into the operations of European Micro UK. European Micro
      Holland was organized under the laws of Holland in 1995, and operated as a
      sales
      office near Amsterdam, Holland. Big Blue Europe was organized under the laws
      of
      Holland in January 1997 and was a computer parts distributor with offices
      located near Amsterdam, Holland, selling primarily to computer maintenance
      companies. Big Blue Europe has no affiliation with International Business
      Machines Corporation.




2




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




**Industry**




The
      microcomputer products industry had grown significantly in the late 1990’s,
      primarily due to increasing worldwide demand for computer products and the
      use
      of distribution channels by manufacturers for the distribution of products.
      There are two traditional distribution channels in the microcomputer industry:
      (i) those that sell directly to end-users (“ resellers ”)
      and
      (ii) those that sell to resellers (“ distributors ”).
      Distributors generally purchase a wide range of products in bulk directly from
      manufacturers and then ship products in smaller quantities to many different
      types of resellers, which typically include dealers, value-added resellers,
      system integrators, mail order resellers, computer products superstores and
      mass
      merchants. European Micro was an independent distributor and generally did
      not
      purchase products directly from manufacturers but purchased from other
      distributors.




Most
      manufacturers have implemented direct sales business models and reduced the
      number of distributors to which they distribute product. These efforts have
      been
      facilitated by the use of the Internet, among other things, and reduced the
      availability of products in the surplus or after-market. The Company had
      historically relied upon the surplus or after-market to obtain products for
      resale. In anticipation of these trends continuing for the foreseeable future,
      and the liquidity problems faced by the Company, the Board approved a plan
      of
      liquidation.




**Strategy**




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




**Products
      and Customers**




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




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




3




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




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




**Sources
      of Supply**




The
      Company obtained its products from distributors and other suppliers throughout
      the world in an attempt to obtain products at favorable prices while also
      maintaining continuity of supply. The Company generally made its purchases
      based
      on the most favorable combination of prices, quantities and product selection,
      and therefore its suppliers were constantly changing. The Company did not
      generally obtain products directly from manufacturers and generally did not
      enter into any long-term or distribution agreements with its suppliers. In
      some
      cases suppliers were also customers.




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




**Sales
      and Marketing**




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




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




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




**Competition**




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




**Intellectual
      Property**




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




4




**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.




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




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




European
      Micro’s facilities as of June 30, 2003 are described below:




**Location**
            
            **Square
                Feet**
            
            **Lease
                Expiration**Miami,
                Florida (offices)
            
            
            350
            
            
            2003Nashville,
                Tennessee (offices)
            
            
            350
            
            
            2003




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




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




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




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




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




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




5




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.


6




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


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




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




The
      Company’s high and low bid prices by quarter during fiscal 2003 and 2002 are
      presented as follows:




**Fiscal
                  Year 2003****High**
              
              **Low**First
                  Quarter (July 2002 to September 2002)
              
              $
              0.03
              
              $
              0.01Second
                  Quarter (October 2002 to December 2002)
              
              
              0.03
              
              
              0.01Third
                  Quarter (January 2003 to March 2003)
              
              
              0.03
              
              
              0.01Fourth
                  Quarter (April 2003 to June 2003)
              
              
              0.03
              
              
              0.01




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


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




**Dividends**




During
      the fiscal years ended June 30, 2003 and 2002, 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.




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


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




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




**Critical
      Accounting Estimates**





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




7




**Years
      Ended June 30, 2003 and 2002**




*Total
      Net Sales* .
      Due to
      the operational closures, the last of which was European Micro UK, no sales
      have
      occurred since October 2001. Total net sales were $10.9 million in the year
      ended June 30, 2002. Nor’Easter’s operations were closed in April 2001.
      Colchester’s operations were closed during July 2001. In addition, American
      Micro was transferred back to its original shareholders on September 1, 2001,
      in
      settlement of notes payable. European Micro UK ceased operations in October
      2001. As a result of these closures and transfers, the Company ceased generating
      revenue during the first half of fiscal 2002.




*Operating
      Expenses* .
      Operating expenses were $118,000 in the year ended June 30, 2003 as compared
      to
      $2.6 million in the comparable period in 2002.




*Interest
      Expense* .
      Interest expense decreased by $244,000 from $250,000 in the year ended June
      30,
      2002 to $6,000 in the comparable period in 2003. This
      was
      attributable to short-term borrowings and long-term borrowings having been
      completely repaid by June 30, 2002. Interest expense in the year ended 2003
      was
      interest on related party loans.




*Income
      Taxes* .
      In the
      year ended June 30, 2002, 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. No benefit or expense was recorded in the
      year
      ended June 30, 2003.




**Recent
      Accounting Pronouncements**





*Consolidation
      of Variable Interest Entities*




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




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




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




Interpretation
      No. 46 may be applied prospectively with a cumulative-effect adjustment as
      of
      the date on which it is first applied or by restating previously issued
      financial statements for one or more years with a cumulative-effect adjustment
      as of the beginning of the first year restated. This interpretation has not
      been
      retroactively applied to the June 30, 2002 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.




8




*Accounting
      for Stock-Based Compensation*




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




*Derivative
      Instruments and Hedging Activities*




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




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




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




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




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.


9


*Loan
      Commitments Accounted for as Derivative Instruments*




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




*Share-Based
      Payment*




In
      December 2004, the FASB issued SFAS No. 123 (R), “Share-Based Payment”. SFAS No.
      123 (R) revises SFAS No. 123, “Accounting for Stock-Based Compensation” and
      supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees”. SFAS
      No. 123 (R) focuses primarily on the accounting for transactions in which an
      entity obtains employee services in share-based payment transactions. SFAS
      No.
      123 (R) requires companies to recognize in the statement of operations the
      cost
      of employee services received in exchange for awards of equity instruments
      based
      on the grant-date fair value of those awards (with limited exceptions). SFAS
      No.
      123 (R) is effective as of the first interim or annual reporting period that
      begins after June 15, 2005 for non-small business issuers and after December
      15,
      2005 for small business issuers. Accordingly, the Company adopted 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.




10


*Accounting
      for Certain Hybrid Financial Instruments*




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




**Seasonality**




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




**Liquidity
      and Capital Resources**




The
      Company’s primary cash requirements were for operating expenses, funding
      accounts receivable, the purchase of inventory to support operations, taking
      greater advantage of available cash discounts offered by certain of the
      Company’s suppliers for early payment, acquisitions and debt service. The
      Company had historically funded these cash requirements through a combination
      of
      loans, internally generated cash flow and the net proceeds of its initial public
      offering.




*General.* The
      Company had suffered operating losses in fiscal 2000 and 2001. Ongoing legal
      costs associated with the litigation related to Big Blue Europe, the costs
      associated with the Company’s electronic commerce strategy, increases in general
      overhead costs, and increased interest expense due primarily to increased
      borrowings, coupled with decreasing sales volumes and gross profit margins,
      negatively impacted operating results. These factors resulted in the
      noncompliance of the financial covenants of the Company’s loan agreements. Due
      to these operating results and the covenant violations, the lender on the
      American Micro and Nor'Easter lines of credit and the European Micro Holdings,
      Inc. term loan demanded repayment of the Nor'Easter line of credit before June
      15, 2001 and the American Micro line of credit and the European Micro Holdings
      term loan by August 15, 2001. As a result, during April 2001, the Company
      decided to cease operations at Nor’Easter and during June 2001, the Company
      decided to cease operation at Colchester. The Nor’Easter line of credit was
      repaid on June 15, 2001. The American Micro line of credit was repaid during
      May
      2001. The European Micro Holdings term loan was repaid on August 20, 2001.




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.




11




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. At June 30, 2003, the Company had $258,000 of cash which is a $151,000
      increase from the June 30, 2002 amount of $107,000. The increase was primarily
      due to an increase in cash provided by operating activities. 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.




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




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




On
      July
      1, 1999, the Company acquired AMCC for a purchase price of $1,131,00, 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. The purchase price
      was financed in part by a loan in the amount of 1,312,000 pounds sterling.
      This
      loan called for monthly payments of principal and interest in the amount of
      15,588 pounds sterling and would have matured in July 2009. The mortgage loan
      note bore interest at a fixed rate of 7.6%. The mortgage loan note included
      certain financial and non-financial covenants and restrictions. The agreement
      also contained a provision whereby the lender could have declared a default
      based on subjective criteria. The financial covenants were measured using the
      financial results of European Micro UK as of each fiscal year end. Based upon
      European Micro UK’s fiscal year end operating results, European Micro UK was out
      of compliance with one of the covenant requirements at June 30, 2001. The
      Company was not able to obtain a waiver of this non-compliance. European Micro
      UK sold the office building effective March 31, 2002 for 1,510,000 pounds
      sterling ($2,143,000 at March 31, 2002). Proceeds from the sale were held in
      escrow at March 31, 2002. The proceeds were released from escrow on April 5,
      2002, at which time the mortgage loan note secured by the office building plus
      accrued interest was paid in full in the amount of 1,102,000 pounds sterling.
      The remaining proceeds of 369,000 pounds sterling, after commissions and legal
      fees of 39,000 pounds sterling, were paid down on the related party note payable
      to Harry Shields.




12




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
      Line of Credit. The Company and the investor agreed to terminate the Equity
      Line
      of Credit 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.




**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** **W** **ITH** **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.




**ITEM
      8A. Controls And Procedures**




**(A)**  **Evaluation
      of Disclosure Controls and Procedures:**





The
      Company’s Principal Executive Officer and Principal Financial Officer, after
      evaluating the effectiveness of the Company’s disclosure controls and procedures
      (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of
      the
      end of the period covered by this Report, have concluded that as of such date,
      the Company’s disclosure controls and procedures were adequate and effective to
      ensure that material information relating to the Company that is required to
      be
      disclosed by the Company in reports that it files or submits under the Exchange
      Act, is recorded, processed, summarized and reported within the time periods
      specified in the SEC rules and accumulated and communicated to the Company’s
      management, including its Principal Executive Officer and Principal Financial
      Officer, to allow timely decisions regarding required disclosure.





13




**(B)**  **Changes
      in Internal Controls:**




In
      connection with the evaluation of the Company’s internal controls during the
      Company’s last fiscal quarter, 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 have materially
      affected, or are reasonably likely to materially effect, the Company’s internal
      controls over financial reporting.




**ITEM
      8B. OTHER INFORMATION**




None.


14


**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 and Harry D. Shields, who are listed above, the
      following individual is an executive officer of the Company:





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




15




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




**Executive
      Compensation**




**Summary
      Compensation Table**





The
      following table sets forth compensation information for the three fiscal years
      ended June 30, 2003 for the Company's Chief Executive Officers, the two other
      executive officers of the Company and the most highly compensated executive
      officer 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
            
            
            2003
            
            $
            0
            
            $
            0
            
            $
            0
            
            
            0
            
            $
            0Co-Chairman
                and Co-President
            
            
            2002
            
            $
            17,333
            
            
            0
            
            
            0
            
            
            0
            
            
            02001
            
            $
            329,000(3
            )
            
            0
            
            
            0
            
            
            0
            
            
            0Harry
                D. Shields
            
            
            2003
            
            $
            0
            
            $
            0
            
            $
            0
            
            
            0
            
            $
            0Co-Chairman
                and Co-President
            
            
            2002
            
            $
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            02001
            
            $
            225,000
            
            
            0
            
            
            0
            
            
            0
            
            
            0Jay
                Nash
            
            
            2003
            
            $
            0
            
            $
            0
            
            $
            0
            
            
            0
            
            $
            0Chief
                Financial Officer, Controller,
            
            
            2002
            
            $
            12,500
            
            
            0
            
            
            0
            
            
            0
            
            
            0Secretary
                and Treasurer
            
            
            2001
            
            $
            75,000
            
            
            0
            
            
            0
            
            
            11,000
            
            
            0Frank
                Cruz
            
            
            2003
            
            $
            0
            
            $
            0
            
            $
            0
            
            
            0
            
            $
            0Chief
                Operating Officer (4)
            
            
            2002
            
            $
            16,000
            
            
            0
            
            
            0
            
            
            0
            
            
            02001
            
            $
            111,688(3
            )
            
            0
            
            
            0
            
            
            11,000
            
            
            0Laurence
                Gilbert
            
            
            2003
            
            $
            0
            
            $
            0
            
            $
            0
            
            
            0
            
            $
            0Managing
                Director (5)
            
            
            2002
            
            $
            0
            
            $
            0
            
            $
            0
            
            
            0
            
            
            02001
            
            $
            123,020
            
            $
            46,171
            
            $
            21,270
            
            
            26,000
            
            
            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.
      Mr. Cruz’ salary also includes $29,093 paid by American Micro Computer Center,
      Inc.




(4)
      Mr.
      Cruz was the Chief Operating Officer of European Micro Holdings, Inc. until
      July
      31, 2001. He is no longer employed by European Micro Holdings, Inc.




(5)
      Mr.
      Gilbert was the Managing Director of European Micro Plc until May 31, 2001.
      He
      is no longer employed by European Micro Plc.




16


**Option
      Grants in Fiscal 2003**





During
      Fiscal 2003, the Company did not grant options to any of the named executive
      officers.





**Option
      Exercises and Values for Fiscal 2003**





There
      are
      no outstanding options.





**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.




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




**Directors
      and Executive Officers**





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





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




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




Except
      as
      noted below, based upon a review of filings with the Securities and Exchange
      Commission, the Company believes that all of the Company’s directors and
      executive officers complied during Fiscal 2003 with the reporting requirements
      of Section 16(a) of the Securities Exchange Act of 1934.





17




**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.




**I** **TEM** **12.** **CERTAIN** **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.





During
      Fiscal 2003, the Company borrowed money from Harry D. Shields, Technology
      Express, Inc. and American Micro. Harry D. Shields who is the Co-Chairman,
      Co-President, director and a significant stockholder of the Company, is also
      the
      owner of Technology Express, Inc. John B. Gallagher who is the Co-Chairman,
      Co-President, director and a significant stockholder of the Company, is also
      the
      owner of American Micro. In addition, Jay Nash, who was Chief Financial Officer,
      Controller, Secretary and Treasurer of the Company, has been an officer of
      Technology Express since 1992. Amounts payable to the related parties are listed
      below:




**($
                in thousands)****Fiscal
                2003**Notes
                Payable to Harry D. Shields(1)
            
            $
            192Accounts
                Payable to Technology Express(2)
            
            
            -Accounts
                Payable to American Micro(2)
            
            
            -







(1)  The
      largest aggregate amount of indebtedness owed by the Company to Harry D. Shields
      between July 1, 2002 and June 30, 2003 was approximately $275,000.


(2)  The
      largest aggregate amount of indebtedness owed by the Company to Technology
      Express and American Micro between July 1, 2002 and June 30, 2003 was
      approximately $148,000 and $26,000 respectively. These amounts represent
      advances to the Company in order to pay bills.


18




**I** **TEM** **13. E** **XHIBITS** **AND F** **INANCIAL** **S** **TATEMENT** **S** **CHEDULES** **,
        AND 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.




19


**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.




20




**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.




21




**Exhibit
                No.**
            
            **Description**
            
            **Location**


10.28
            
            Unconditional
                Guaranty given by John Gallagher to SouthTrust Bank Re: American
                Micro
            
            Incorporated
                by reference as Exhibit 10.28 to the Company’s Annual Report on Form
                10-KSB filed on October 11, 2000.10.29
            
            Amended
                and Restated Unlimited Guaranty Agreement dated October 5, 2000 between
                Harry Shields and SouthTrust Bank
            
            Incorporated
                by reference as Exhibit 10.29 to the Company’s Annual Report on Form
                10-KSB filed on October 11, 2000.10.30
            
            Amended
                and Restated Unlimited Guaranty Agreement dated October 5, 2000 between
                John Gallagher and SouthTrust Bank
            
            Incorporated
                by reference as Exhibit 10.30 to the Company’s Annual Report on Form
                10-KSB filed on October 11, 2000.10.31
            
            Unconditional
                Guaranty given by John Gallagher to SouthTrust Bank Re:
                Nor’Easter
            
            Incorporated
                by reference as Exhibit 10.31 to the Company’s Annual Report on Form
                10-KSB filed on October 11, 2000.10.32
            
            Unconditional
                Guaranty given by Harry Shields to SouthTrust Bank Re:
                Nor’Easter
            
            Incorporated
                by reference as Exhibit 10.32 to the Company’s Annual Report on Form
                10-KSB filed on October 11, 2000.10.33
            
            Specific
                Agreement for the Provision of Professional Services dated as of
                March 17,
                2000 between the Company and Cap Gemini UK Plc
            
            Incorporated
                by reference as Exhibit 10.25 to the Company’s Quarterly Report on Form
                10-QSB filed on May 15, 2000.10.34
            
            Equity
                Line of Credit Agreement dated as of August 24, 2000, between the
                Company
                and Spinneret Financial System, Ltd.
            
            Incorporated
                by reference as Exhibit 10.34 to the Company’s Annual Report on Form
                10-KSB filed on October 11, 2000.10.35
            
            Registration
                Rights Agreement dated as of August 24, 2000, between the Company
                and
                Spinneret Financial System, Ltd.
            
            Incorporated
                by reference as Exhibit 10.35 to the Company’s Annual Report on Form
                10-KSB filed on October 11, 2000.10.36
            
            Warrant
                to Purchase Common Stock dated as of August 24, 2000, given by the
                Company
                to Spinneret Financial System, Ltd.
            
            Incorporated
                by reference as Exhibit 10.36 to the Company’s Annual Report on Form
                10-KSB filed on October 11, 2000.10.37
            
            Warrant
                to Purchase Common Stock dated as of August 24, 2000, given by the
                Company
                to the May Davis Group, Inc.
            
            Incorporated
                by reference as Exhibit 10.37 to the Company’s Annual Report on Form
                10-KSB filed on October 11, 2000.10.38
            
            Registration
                Rights Agreement dated as of August 24, 2000, between the Company
                and the
                May Davis Group, Inc.
            
            Incorporated
                by reference as Exhibit 10.38 to the Company’s Annual Report on Form
                10-KSB filed on October 11, 2000.10.39
            
            Placement
                Agent Agreement dated as of August 24, 2000, between the Company
                and the
                May Davis Group, Inc.
            
            Incorporated
                by reference as Exhibit 10.39 to the Company’s Annual Report on Form
                10-KSB filed on October 11, 2000.14.01
            
            Code
                of Ethics
            
            Incorporated
                by reference as Exhibit 14.01 to the Company’s Annual Report on Form
                10-KSB filed on October 12, 2006.





(b)  Reports
      on Form 8-K.




None.




22




**Item
      14. Principal accounting fees and services.**




AUDIT
      FEE




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




2003
            
            $
            15,0002002
            
            $
            33,339





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:




2003
            
            $
            -2002
            
            $
            -





23





**SIGNATURES**




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




Date:
October
              16, 2006.**EUROPEAN
              MICRO HOLDINGS, INC.**By:
            /s/ John
              B.
              GallagherJohn
              B. Gallagher
              Co-President




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




**SIGNATURE**
            
            **TITLE**
            
            **DATE***/s/
                Harry D. Shields*
            
            Co-Chairman;
                Co-President (Principal Executive Officer);
            
            October
                  16, 2006Harry
              D. Shields
            
            Director*/s/
                John B. Gallagher*
            
            Co-Chairman;
                Co-President (Principal Executive Officer);
            
            October
                  16, 2006John
              B. Gallagher
            
            Director*/s/
                Jay P. Nash*
            
            Chief
                Financial Officer and Controller (Principal Financial
            
            October
                  16, 2006Jay
              P. Nash
            
            Officer and
              Controller)




24





**Index
      to the Financial Statements**





**European
      Micro Holdings, Inc. and Subsidiaries**





Report
                of Independent Registered Public Accounting Firm
            
            F-2Consolidated
                Statement of Net Assets in liquidation as of June 30, 2003 (Liquidation
                Basis)
            
            F-3Consolidated
                Statements of Changes in Net Assets for the years ended June 30,
                2003 and
                2002 (Liquidation Basis)
            
            F-4Consolidated
                Statements of Cash Flows for the years ended June 30, 2003 and 2002
                (Liquidation Basis)
            
            F-5Notes
                to Consolidated Financial Statements as of June 30, 2003
            
            F-6









**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**




To
      the
      Board of Directors of


European
      Micro Holdings, Inc. and Subsidiaries:




We
      have
      audited the accompanying consolidated statement of net assets in liquidation
      of
      European Micro Holdings, Inc. and Subsidiaries (the " Company ")
      as of
      June 30, 2003 and the related consolidated statements of changes in net assets
      and cash flows for the years ended June 30, 2003 and 2002. These consolidated
      financial statements are the responsibility of the Company's management. Our
      responsibility is to express an opinion on these consolidated financial
      statements based on our audits.





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





As
      described in Note 2 to the financial statements, the stockholders of the Company
      approved a plan of liquidation on July 1, 2001, and the Company commenced
      liquidation shortly thereafter. As a result, the Company has changed its basis
      of accounting for periods subsequent to June 30, 2001 from the going-concern
      basis to a liquidation basis.





In
      our
      opinion, the consolidated financial statements referred to above, present
      fairly, in all material respects, the financial position of European Micro
      Holdings, Inc. and Subsidiaries as of June 30, 2003, and the results of their
      operations and their cash flows for the years ended June 30, 2003 and 2002,
      in
      conformity with accounting principles generally accepted in the United States
      of
      America applied on the bases described in the preceding paragraph.




WEINBERG
      & COMPANY, P.A.




Boca
      Raton, Florida


June
      15,
      2006


F-2




**European
        Micro Holdings, Inc. and Subsidiaries**


**Consolidated
      Statement of Net Assets in liquidation as of June 30, 2003**


**(Liquidation
      Basis)**


(In
      thousands)




**2003****ASSETS****ASSETS:**Cash
            
            $
            258Income
                taxes receivable
            
            
            1,020***TOTAL
                ASSETS***
            
            $
            1,278**LIABILITIES****LIABILITIES:**Accounts
                payable
            
            $
            43Accrued
                expenses and other liabilities
            
            
            425Due
                to related parties
            
            
            192***TOTAL
                LIABILITIES***
            
            $
            660***COMMITMENT
                AND CONTINGENCIES******NET
                ASSETS IN LIQUIDATION (available to holders of Common
                Stock)***
            
            $
            618




See
      accompanying notes to consolidated financial statements.


F-3




**European
        Micro Holdings, Inc. and Subsidiaries**
  **Consolidated
        Statements of** **Changes in Net Assets** **f** **or
        the years ended**


**June
      30, 2003 and 2002**


**(Liquidation
      Basis)**


(In
      thousands)





**2003**
            
            **2002****SALES:**Net
                sales
            
            $
            -
            
            $
            10,930**COST
                OF GOODS SOLD:**Cost
                of goods sold
            
            
            -
            
            
            (9,555
            )**GROSS
                PROFIT**
            
            
            **-**
            
            
            **1,375****OPERATING
                EXPENSES:**Selling,
                general and administrative expenses
            
            
            (118
            )
            
            (2,631
            )**LOSS
                FROM OPERATIONS**
            
            
            **(118**
            **)**
            
            **(1,256**
            **)****OTHER
                INCOME (EXPENSE)**Interest
                Income
            
            
            36
            
            
            -Interest
                expense
            
            
            (6
            )
            
            (250
            )Forgiveness
                of debt
            
            
            -
            
            
            686Loss
                on rescission of American Micro purchase
            
            
            -
            
            
            (1,345
            )**TOTAL
                OTHER INCOME (EXPENSE)**
            
            
            **30**
            
            
            **(909**
            **)****LOSS
                BEFORE INCOME TAXES**
            
            
            **(88**
            **)**
            
            **(2,165**
            **)**Income
                tax benefit
            
            
            -
            
            
            702**NET
                LOSS**
            
            
            **(88**
            **)**
            
            **(1,463**
            **)****NET
                ASSETS BEGINNING OF PERIOD**
            
            
            **649**
            
            
            **2,067****EFFECT
                OF FOREIGN EXCHANGE RATES**
            
            
            **57**
            
            
            **45****NET
                ASSETS IN LIQUIDATION**
            
            **$**
            **618**
            
            **$**
            **649**




See
      accompanying notes to consolidated financial statements.


F-4




**European
        Micro Holdings, Inc. and Subsidiaries**
  **Consolidated
        Statements of Cash Flows**


**For
      the years ended June 30, 2003 and 2002**


**(Liquidation
      Basis)**


(In
      thousands)





**2003**
            
            **2002****CASH
                FLOWS FROM OPERATING ACTIVITIES:**Net
                loss
            
            $
            (88
            )
            $
            (1,463
            )*Adjustments
                to reconcile net loss to net cash provided by operating
                activities*Forgiveness
                of Debt
            
            
            -
            
            
            (686
            )Loss
                on rescission of American Micro purchase
            
            
            -
            
            
            1,345*Changes
                in assets and liabilities, net of effects from
                dispositions*Accounts
                receivable
            
            
            49
            
            
            5,369Inventories
            
            
            -
            
            
            2,865Prepaid
                expenses and other current assets
            
            
            13
            
            
            (98
            )Income
                taxes receivable
            
            
            554
            
            
            (1,057
            )Accounts
                payable
            
            
            31
            
            
            (1,167
            )Accrued
                expenses and other liabilities
            
            
            (355
            )
            
            (278
            )Due
                to related parties
            
            
            (110
            )
            
            300*Net
                cash provided by operating activities*
            
            
            94
            
            
            5,130**CASH
                FLOWS FROM INVESTING ACTIVITIES:**Sale
                of property and equipment
            
            
            -
            
            
            2,382*Net
                cash provided by investing activities*
            
            
            -
            
            
            2,382**CASH
                FLOWS FROM FINANCING ACTIVITIES:**Decrease
                in short-term borrowings, net
            
            
            -
            
            
            (5,684
            )Repayment
                of long-term borrowings
            
            
            -
            
            
            (2,153
            )*Net
                cash used in financing activities*
            
            
            -
            
            
            (7,837
            )Net
                cash transferred in disposition
            
            
            -
            
            
            (65
            )Effect
                of foreign exchange rates
            
            
            57
            
            
            14**NET
                INCREASE (DECREASE) IN CASH**
            
            
            151
            
            
            (376
            )Cash
                at beginning of year
            
            
            107
            
            
            483**CASH
                AT END OF YEAR**
            
            $
            258
            
            $
            107




See
      accompanying notes to consolidated financial statements.


F-5




**European
        Micro Holdings, Inc. and Subsidiaries**
  **Consolidated
        Statements of Cash Flows**


**For
      the years ended June 30, 2003 and 2002**


**(Liquidation
      Basis)**


(In
      thousands)





**2003**
            
            **2002****Supplemental
              disclosure of non-cash investing and financing
              activities:**On
                September 1, 2001 the notes payable in the amount of $1,318,000 to
                the
                former American Micro shareholders were settled by transfer of all
                American Micro shares from European Micro Holdings to the former
                American
                Micro shareholders. The following represents the assets and liabilities
                transferred by the settlement of the notes payable.Book
                value of assets transferred
            
            
            
            
            $
            2,682Book
                value of liabilities transferred
            
            
            
            
            $
            1,337**Supplemental
                disclosure of cash flow information:**Cash
                paid for interest
            
            $
            6
            
            $
            250Cash
                paid for taxes
            
            $
            -
            
            $
            1




See
      accompanying notes to consolidated financial statements.


F-6




**European
        Micro Holdings, Inc. and Subsidiaries**


**Notes
      to the Consolidated Financial Statements**


**As
      of June 30, 2003**





**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 held a 50% interest in a joint venture company, Big Blue Europe
      BV. Big Blue Europe BV commenced operations in January 1997 and had 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.





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 4). 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.





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.


F-7




**European
        Micro Holdings, Inc. and Subsidiaries**
  **Notes
        to the Consolidated Financial Statements**


**As
      of June 30, 2003** **** *(continued)*





**Summary
      of Significant Accounting Policies and Organization** *(continued)*





During
      August, 2001 the lender on the European Micro Plc’s line of credit demanded
      repayment. European Micro Plc 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
      significant shareholder of European Micro Holdings, Inc., provided for the
      orderly transfer of employees and the purchase of inventory and fixed assets
      from European Micro Plc to Square 1 International, Ltd. In July 2002, the
      Company hired a liquidator to finalize the remaining business. On December
      7,
      2005, European Micro Plc’s liquidation process was finalized.





**(B)
      Principles of Consolidation**





The
                consolidated financial statements include the accounts of the Company
                and
                its wholly owned inactive subsidiaries. All significant intercompany
                balances and transactions are eliminated in
                consolidation.





The
                Company’s investment in Big Blue Europe BV was accounted for under the
                equity method, until the investment was completely written off on
                June 30,
                2001.




**(C)
                Basis of Presentation**





The
                consolidated financial statements are expressed in United States
                dollars
                and have been prepared in accordance with accounting principles generally
                accepted in the United States of America, under the liquidation basis
                of
                accounting since July 1, 2001.





**(D)
      Use of Estimates**





The
      preparation of financial statements in conformity with generally accepted
      accounting principles requires management to make estimates and assumptions
      that
      affect the reported amounts of assets and liabilities and the disclosure of
      contingent assets and liabilities at the dates of the financial statements
      and
      the reported amounts of revenues and expenses during the reporting periods.
      Actual amounts could differ significantly from these estimates.





**(E)
      Revenue and Expense Recognition**




Revenues
      were recognized at the time the goods were shipped. Revenues from related
      parties were recognized when the products were sold by the related parties
      to
      third parties. Discount and customer rebates were deducted from sales revenue
      when earned. Costs of goods sold included material and freight costs. Selling,
      general and administrative costs are charged to expense as incurred. For the
      year ended June 30, 2003, the Company did not have any revenue or related cost
      of goods sold.




**(F)
      Inventories**





Inventories
      were stated at the lower of cost or market value. Cost was determined using
      the
      weighted average cost method. As of June 30, 2002 all inventories had been
      sold
      or liquidated.


F-8




**European
        Micro Holdings, Inc. and Subsidiaries**


**Notes
      to the Consolidated Financial Statements**


**As
      of June 30, 2003** **** *(continued)*





**Summary
      of Significant Accounting Policies and Organization** *(continued)*





**(G)
      Property, Equipment & Impairment of Long-Lived Assets**





Prior
      to
      the adoption of the liquidation basis of accounting, property and equipment
      were
      recorded at cost. Property and equipment held under capital leases were stated
      at the present value of minimum lease payments at the inception of the related
      leases. Depreciation was calculated using the straight line method over their
      estimated useful lives as follows: Furniture, fixtures & equipment, 2-7
      years and motor vehicles and other, 4 years. Property and equipment held under
      capital leases and leasehold improvements to property under operating leases
      were amortized on a straight-line basis over the shorter of the lease term
      or
      estimated useful life of the assets. The cost of additions and betterments
      were
      capitalized, and repairs and maintenance costs were charged to operations in
      the
      period incurred. When depreciable assets were retired or sold, the cost and
      related allowances for depreciation were removed from the accounts and the
      gain
      or loss was recognized. The Company reviews long-lived assets and certain
      identifiable intangibles for impairment whenever events or changes in
      circumstances indicate that the carrying amount of an asset may not be
      recoverable. Based upon a comprehensive review of all liquidity circumstances
      and current market conditions, the Company determined that the value of certain
      property and equipment was impaired. As a result of this determination, for
      the
      year ended June 30, 2001, the Company abandoned, discarded and wrote-off
      $171,440 in property and equipment. The Company also wrote-down $422,123 in
      property and equipment to net realizable value.





As
      a
      result of recording the write-off in the year ended June 30, 2001, no
      adjustments were needed to reflect the change to liquidation basis of
      accounting, as of July 1, 2001. As of June 30, 2002 all property and equipment
      had been sold or liquidated.





**(H)
      Depreciation and Amortization**





Depreciation
      expense was not recorded during the year ended June 30, 2002 because, in
      accordance with Statement of Financial Accounting Standards (“SFAS”) No. 121,
      substantially all of the Company’s long-lived assets were deemed to be held for
      sale. No depreciation expense was recorded in fiscal year ended June 30, 2003,
      because all property and equipment was sold or liquidated in 2002.





**(J)
      Income Taxes**





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





**(K)
      Fair Value of Financial Instruments**





The
      fair
      value of a financial instrument is the amount at which the instrument could
      be
      exchanged in a current transaction between willing parties other than in a
      forced sale or liquidation.





The
      carrying amounts of the Company’s financial instruments, including cash, taxes
      receivable, accounts payable, accrued expenses and other current liabilities
      approximate fair value because of their short maturities.


F-9




**European
        Micro Holdings, Inc. and Subsidiaries**
  **Notes
        to the Consolidated Financial Statements**


**As
      of June 30, 2003** **** *(continued)*





**Summary
      of Significant Accounting Policies and Organization** *(continued)*





During
      prior years, the Company had entered into foreign currency exchange contracts
      to
      reduce exposure to foreign currency fluctuations associated with the settlement
      of inter-company receivables and payables denominated in foreign currencies.
      Foreign exchange contracts generally had maturities of less than one year and
      were accounted for on the fair value method. Gains and losses resulting from
      these instruments were recognized in the same period as the underlying foreign
      currency transaction gains and losses and were included in cost of sales. The
      Company did not use foreign currency exchange contracts or other derivative
      financial instruments for speculative or trading purposes.





**(L)
      Foreign Currency Transaction**





Assets
      and liabilities of foreign subsidiaries, whose functional currency is the local
      currency, were translated into US Dollars at year-end exchange rates. Capital
      accounts were re-measured into US dollars at the acquisition date rates. Income
      and expense items were translated at the average rates of exchange prevailing
      during the year. The adjustments resulting from translating the financial
      statements of such foreign subsidiaries were recorded as a component of
      accumulated other comprehensive income (loss) in stockholders equity. Foreign
      currency transaction and forward exchange contracts gains or losses are reported
      in results of operations.




**(M)
      Stock Option Plans**





The
      Company accounts for its employee stock option plans in accordance with
      Accounting Principals Board (“ APB ”)
      Opinion No. 25, “Accounting for Stock Issued to Employees.” Under APB 25,
      compensation expense would be recorded on the date of grant only if the current
      market price of the underlying stock exceeded the exercise price. In accordance
      with the Statement of Financial Accounting Standards (“ SFAS ”)
      No.
      123, “Accounting for Stock-Based Compensation,” the Company provides pro forma
      net income and pro forma earnings per share disclosures for employee stock
      option grants made in 1998 and subsequent years as if the fair value based
      method defined in SFAS No. 123 had been applied. No
      stock
      options were granted during 2003 or 2002.




**(N)
      Loss Per Common Share**




Since
      the
      adoption of the liquidation basis of accounting on July 1, 2001, loss per share
      was not computed as such amounts are not deemed to be meaningful.





**(O)
      Reclassifications**





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





**(P)
      Recent Accounting Pronouncements**





*Consolidation
      of Variable Interest Entities*





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




F-10




European
      Micro Holdings, Inc. and
      Subsidiaries




**Notes
      to the Consolidated Financial Statements**


**As
      of June 30, 2003** *(continued)*





**Summary
      of Significant Accounting Policies and Organization** *(continued)*





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, 2002 Consolidated Financial
      Statements.





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





*Accounting
      for Stock-Based Compensation*





In
      December 2002, the Financial Accounting Standards Board issued Statement No.
      148, "Accounting for Stock-Based Compensation-Transition and Disclosure - an
      amendment of FASB Statement No. 123," (" SFAS
      148 ").
      SFAS
      148 amends FASB Statement No. 123, "Accounting for Stock Based Compensation"
      (" SFAS
      123 ")
      and
      provides alternative methods for accounting for a change by registrants to
      the
      fair value method of accounting for stock-based compensation. Additionally,
      SFAS
      148 amends the disclosure requirements of SFAS 123 to require disclosure in
      the
      significant accounting policy footnote of both annual and interim financial
      statements of the method of accounting for stock based-compensation and the
      related pro forma disclosures when the intrinsic value method continues to
      be
      used. The statement is effective for fiscal years beginning after December
      15,
      2002, and disclosures are effective for the first fiscal quarter beginning
      after
      December 15, 2002. The Company has not adopted early application of this
      standard and does not believe that early adoption would have a material effect
      on these financial statements.





*Derivative
      Instruments and Hedging Activities*





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


F-11




European
      Micro Holdings, Inc. and
      Subsidiaries




**Notes
      to the Consolidated Financial Statements**


**As
      of June 30, 2003** *(continued)*





**Summary
      of Significant Accounting Policies and Organization** *(continued)*





*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.





*Share-Based
      Payment*





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




F-12




**European
      Micro Holdings, Inc. and Subsidiaries**




**Notes
      to the Consolidated Financial Statements**


**As
      of June 30, 2003** *(continued)*





**Summary
      of Significant Accounting Policies and Organization** *(continued)*




*Accounting
      for Nonmonetary Transactions*




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




*Accounting
      for changes in accounting principles*




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




*Accounting
      for Certain Hybrid Financial Instruments*




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


F-13




European
      Micro Holdings, Inc. and
      Subsidiaries




**Notes
      to the Consolidated Financial Statements**


**As
      of June 30, 2003** *(continued)*




**2**  **Liquidation**





The
      Company had suffered operating losses in fiscal 2000 and 2001. Ongoing legal
      costs associated with the litigation related to Big Blue Europe, (See Note
      4),
      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.





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.





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. This loan to a significant shareholder
      was completely repaid on April 3, 2003.





Hence,
      with the complete termination of all lines of credit available to the Company,
      the closures of Nor’easter and Colchester and the loss of American Micro, the
      Company had no alternative but to proceed with a complete liquidation of all
      assets. On July 12, 2005, the Company declared a cash dividend in the aggregate
      amount of $200,000 on the issued and outstanding shares of Common Stock held
      by
      shareholders of record as of August 1, 2005. The dividend was paid on September
      1, 2005. As
      of
      July 31, 2006, liquidation is almost complete with the only asset being cash
      in
      the approximate amount of $20,000.


F-14




European
      Micro Holdings, Inc. and
      Subsidiaries




**Notes
      to the Consolidated Financial Statements**


**As
      of June 30, 2003** *(continued)*





**3**  **Income
      Tax Receivable and Taxes**





The
                Company has recorded an income tax receivable of $1,020,000. This
                receivable originates from European Micro UK’s net operating loss
                carryback from fiscal 2002. This amount was collected from the United
                Kingdom’s inland revenue during July
                2004.





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





**Years
                ended June 30,****2003**
            
            **2002**CurrentFederal
                and State
            
            $
            -
            
            $
            -Foreign
            
            
            -
            
            
            (702
            )DeferredFederal
                and State
            
            
            -
            
            
            -Foreign
            
            
            -
            
            
            -Total
                income tax benefit
            
            $
            -
            
            $
            (702
            )





Provision
      has not been made for U.S. or additional foreign taxes on approximately
      $3,672,000 at June 30, 2000, of undistributed earnings of foreign subsidiaries,
      as those earnings were intended to be permanently reinvested. The foreign
      subsidiaries incurred substantial losses in excess of undistributed earnings
      for
      the years ended June 30, 2003, 2002 and 2001, and as a result there are no
      longer any undistributed earnings from foreign subsidiaries that could be
      repatriated to the US.





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





**Years
                ended June 30,****2003**
            
            **2002**US
                federal statutory rate on lossbefore
                income taxes
            
            $
            (20
            )
            $
            (279
            )Depreciation
                and Amortization
            
            
            -
            
            
            3Change
                in valuation allowance
            
            
            20
            
            
            844Adjustment
                to reconcile to actual incometax
                refund received
            
            
            -
            
            
            (1,270
            )Income
                tax benefit
            
            $
            -
            
            $
            (702
            )




F-15




European
      Micro Holdings, Inc. and
      Subsidiaries




**Notes
      to the Consolidated Financial Statements**


**As
      of June 30, 2003** *(continued)*





**3**  **Income
      Tax Receivable and Taxes** ( *continued)*





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





**June
                30, 2003***Deferred
                tax assets:*Property
                and equipment, principally due todifferences
                in depreciation and amortization
            
            $
            1,236Net
                operating loss carry forwards
            
            
            1,734Other
            
            
            386Total
                gross deferred tax assets
            
            
            3,356Valuation
                allowance
            
            
            (3,356
            )Net
                deferred tax assets
            
            $
            -0-





The
      Company has U.S. federal net operating loss carryforwards of approximately
      $4,200,000, 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 2003 by $20,000,
      has been provided for deferred tax assets as recoverability in future periods
      is
      not deemed to be more likely than not.




**4**  **Commitments
      and Contingencies**





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





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





Defendants
      moved to dismiss the complaint principally on the basis of forum non-conveniens
      in favor of existing proceedings in the Netherlands (commenced by European
      Micro
      UK), where a Dutch court appointed an independent director to oversee operations
      of the company. Defendants argued that any dispute between the shareholders
      and
      directors of the Dutch company, Big Blue Europe, which operated pursuant to
      Dutch law, should be resolved by a Dutch court. The United States District
      Court
      for the Eastern District of New York dismissed 31 of the 33 claims brought
      against the Company on grounds of "forum non conveniens."


F-16




European
      Micro Holdings, Inc. and
      Subsidiaries




**Notes
      to the Consolidated Financial Statements**


**As
      of June 30, 2003** *(continued)*





**4**  **Commitments
      and Contingencies** *(continued)*





The
      Court
      decided that it would be more appropriate that these claims be adjudicated
      in
      The Netherlands, under Dutch Law. The Judge had granted the Plaintiffs in the
      case (Jeffrey and Marie Alnwick and Big Blue Products) the option to proceed
      with the remaining two allegations in United States District Court. Plaintiffs
      requested that these two counts also be dismissed. On April 19, 2001, the
      Plaintiffs filed a notice of appeal. In October 2003, the Company and its
      affiliated defendants entered into a settlement agreement with the plaintiffs.
      In accordance with the agreement, all parties dismissed all actions and released
      all claims.





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





In
      June
      2002, Nor’Easter and Arlington entered into a settlement agreement whereby on
      June 20, 2002, Arlington paid Nor’Easter the sum of $52,556 and both parties
      discontinued the litigation and released all claims against each other. In
      July
      2002, Nor’Easter and Origin entered into a settlement agreement whereby on July
      29, 2002, Origin paid Nor’Easter the sum of $49,000 and both parties
      discontinued the litigation and released all claims.





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 $177,000 at exchange rate on June 30, 2003). This
      amount is included in due to related parties in the accompanying consolidated
      statement of net assets in liquidation as of June 30, 2003. This amount plus
      interest of 9,483 pounds sterling was repaid by European Micro UK to Harry
      Shields on August 10, 2004.





The
      Company leased offices and certain equipment under non-cancelable operating
      leases and vehicles under capital leases. As of June 30, 2003, all capital
      lease
      agreements had been cancelled or assumed by other entities.





Rental
      expense for the years ended June 30, 2003 and 2002 was $25,000 and $11,000
      respectively.





**5**  **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.




F-17




European
      Micro Holdings, Inc. and
      Subsidiaries




**Notes
      to the Consolidated Financial Statements**


**As
      of June 30, 2003** *(continued)*




**6**  **Related
      Party Information**





There
                have not been any related party sales or purchases since June 2001.
                During
                February 2003, John B. Gallagher was paid $30,000 for his work on
                the Big
                Blue Products, Arlington Computer Products and the former shareholder
                of
                Sunbelt lawsuits. During the same period Harry Shields was paid $32,623
                as
                reimbursement of legal fees related to the negotiation of banking
                terms
                during the period of noncompliance with the loan
                covenants.





**Due
      from/to related parties**





a)
            No
                amounts were due from related parties at June 30, 2003.




b)
            Due
                to related parties consists of a note payable to Harry Shields in
                the
                amount of $192,000.




*Nature
      of related party relationships*





***Technology
      Express***




Until
      1996, Technology Express was a full service authorized reseller of computers
      and
      related products based in Nashville, Tennessee, selling primarily to end-users.
      Technology Express was sold to Inacom Computers in 1996. Concurrently with
      the
      sale, Mr. Shields founded a new computer company with the name Technology
      Express. This company was a distributor of computer products. Harry D. Shields,
      who is Co-Chairman, Co-President, a Director and shareholder (owning 31% of
      the
      outstanding shares) of European Micro Holdings, Inc., was president of
      Technology Express and owned 100% of the outstanding shares of capital stock
      of
      that company. Jay Nash, who is Chief Financial Officer, Treasurer and Secretary
      of European Micro Holdings, Inc., had been an employee of Technology Express
      since 1992.





***Harry
      Shields***




Harry
      D.
      Shields is Co-Chairman, Co-President, a Director and shareholder (owning 31%
      of
      the outstanding shares) of European Micro Holdings, Inc.





***John
      B. Gallagher***





John
      B.
      Gallagher is Co-Chairman, Co-President, Director and shareholder (owning 39%
      of
      the outstanding shares) of European Micro Holdings, Inc. He was also the
      president of American Micro Computer Center and owns 50% of the outstanding
      shares of capital stock in that company.




F-18




European
      Micro Holdings, Inc. and
      Subsidiaries




**Notes
      to the Consolidated Financial Statements**


**As
      of June 30, 2003** *(continued)*


**7**  **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 included 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,****2003**
            
            **2002****Net
                Sales:**North
                America
            
            $
            -
            
            $
            3,153Europe
            
            
            -
            
            
            7,777Other
            
            
            -
            
            
            -Total
            
            $
            -
            
            $
            10,930**Income
                (Loss) From Operations:**North
                America
            
            $
            (121
            )
            $
            (517
            )Europe
            
            
            3
            
            
            (672
            )Other
            
            
            -
            
            
            (67
            )Total
            
            $
            (118
            )
            $
            (1,256
            )**Identifiable
                Assets:**North
                America
            
            $
            71
            
            $
            127Europe
            
            
            1,207
            
            
            1,593Other
            
            
            -
            
            
            23Total
            
            $
            1,278
            
            $
            1,743





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, 2003 and
      2002.





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, 2003 or 2002.




F-19




European
      Micro Holdings, Inc. and
      Subsidiaries


**Notes
      to the Consolidated Financial Statements**


**As
      of June 30, 2003** *(continued)*




**8**  **Stockholders’
      Equity, Stock Options and Incentive Plans**





**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 Line of Credit. On December 20, 2000, the Company raised
      $50,000 by issuing 25,020 shares of common stock under the Equity Line of
      Credit. The Company and the investor agreed to terminate the Equity Line of
      Credit 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.





**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,
      2003.





**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:





**2003**
            
            **2002****Number
                of**
              **Shares**
            
            **Weighted
                Average Exercise Price**
            
            **Number
                of Shares**
            
            **Weighted
                Average Exercise Price**Outstanding
                at beginning of year
            
            
            -
            
            
            
            
            
            317,500
            
            $
            6.84Granted
            
            
            -
            
            
            
            
            
            -Exercised
            
            
            -
            
            
            
            
            
            -Forfeited
            
            
            -
            
            
            
            
            
            (317,500
            )
            
            ($6.84
            )**Outstanding
                at year end**
            
            
            -
            
            
            
            
            
            -Available
                for grant at year end
            
            
            500,000
            
            
            
            
            
            500,000




Warrants
        issued to placement agent are not part of the stock incentive plan and as
        such
        are not included in the above tables.


F-20




European
      Micro Holdings, Inc. and
      Subsidiaries




**Notes
      to the Consolidated Financial Statements**


**As
      of June 30, 2003** *(continued)*




**9**  **Subsequent
      Events**





In
      December 2001, a former shareholder of Sunbelt served a statutory demand upon
      European Micro UK in the sum of 92,710 pounds sterling. This sum was
      subsequently reduced to 73,940 pounds sterling. On April 19, 2002 Judge Kershaw
      QC granted the European Micro UK an injunction preventing the former shareholder
      from presenting a petition in this sum based upon the statutory demand. On
      July
      31, 2002 the Court of Appeal dismissed European Micro UK’s claim and ordered the
      costs to be paid. In August 2003, the debt plus costs and interest owed the
      former shareholder of Sunbelt, was assigned to Harry Shields, a shareholder
      of
      European Micro Holdings, Inc., for the sum of 107,000 pounds sterling. This
      amount is included in due to related parties in the accompanying consolidated
      statement of net assets in liquidation as of June 30, 2003. This amount plus
      interest of 9,483 pounds sterling was repaid by European Micro UK to Harry
      Shields on August 10, 2004.




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 4)




On
      July
      12, 2005, the Company declared a cash dividend in the aggregate amount of
      $200,000 on the issued and outstanding shares of Common Stock held by
      shareholders of record as of August 1, 2005. The dividend was paid on September
      1, 2005. As
      of
      July 31, 2006, liquidation is almost complete with the only asset being cash
      in
      the approximate amount of $20,000.




F-21