U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(MARK ONE)
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of Securities
Exchange Act of 1934 (Fee Required)
For the quarterly period ended September 30, 1998
/_/ Transition report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
(No Fee Required)
For the transition period from _______ to _______.
Commission File No. 333-44393
EUROPEAN MICRO HOLDINGS, INC.
-----------------------------
(Name of Registrant as Specified in Its Charter)
NEVADA 65-0803752
- ------ ----------
(State or Other Jurisdiction of (I.R.S. Employer Identification
Incorporation or Organization) No.)
6073 N.W. 167TH STREET, UNIT C-25, MIAMI, FLORIDA 33015
- ----------------------------------- -----------
(Address of Principal Executive (Zip Code)
Offices)
(305) 825-2458
--------------
(Issuer's Telephone Number, Including Area Code)
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, and (2) has
been subject to such filing requirements for the past 90 days. Yes /X/ No /_/
There were 4,933,900 shares of Common Stock, par value $0.01 per share,
outstanding as of October 31, 1998.
EUROPEAN MICRO HOLDINGS, INC.
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Index to Consolidated Financial Statements
Consolidated Condensed Balance Sheets as of September 30, 1998 and
June 30, 1998...........................................................3
Consolidated Condensed Statements of Earnings for the three
months ended September 30, 1998 and 1997.............................4
Consolidated Statement of Changes in Shareholders' Equity
for the three months ended September 30, 1998........................5
Consolidated Condensed Statements of Cash Flows for the three months
ended September 30, 1998 and 1997....................................6
Notes to Consolidated Condensed Financial Statements....................7
2
EUROPEAN MICRO HOLDINGS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
($ In thousands, except share and per share data)
(unaudited)
Sept. 30, June 30,
1998 1998
ASSETS
CURRENT ASSETS:
Cash $ 3,579 $ 5,012
Trade receivables, net 9,141 7,985
Discounted trade receivables 550 --
Due from related parties 1,340 898
Inventories, net 5,447 1,715
Deferred tax asset 32 26
Prepaid expenses 524 304
Other current assets 105 2,459
------- -------
TOTAL CURRENT ASSETS 20,718 18,399
Property and equipment, net 622 611
Investments 166 194
------- -------
TOTAL ASSETS $21,506 $19,204
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Discount creditor $ 468 $-
Trade payables 2,537 1,638
Other current liabilities 1,324 987
Due to related parties 9 238
Income taxes payable 2,518 2,577
------- -------
TOTAL CURRENT LIABILITIES 6,856 5,440
Long-term borrowings under capital
leases 70 84
------- -------
TOTAL LIABILITIES 6,926 5,524
------- -------
Commitments & contingencies -- --
SHAREHOLDERS' EQUITY:
Preferred stock $0.01 par value
shares: 1,000,000 authorized, no
shares issued and outstanding -- --
Common stock $0.01 par value
shares: 20,000,000 authorized at
September 30 and June 30, 1998,
shares issued and outstanding,
4,933,900 at September 30 and
June 30, 1998 49 49
Additional paid in capital 8,818 8,802
Retained earnings 5,495 4,773
Cumulative foreign currency
translation adjustment 218 56
------- -------
TOTAL SHAREHOLDERS' EQUITY 14,580 13,680
------- -------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $21,506 $19,204
======= =======
3
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
($ In thousands, except per share data)
(Unaudited)
Three months ended
September 30,
1998 1997
SALES:
Net sales $ 27,781 $ 14,767
Net sales to related parties 1,516 9,340
-------- --------
Total net sales 29,297 24,107
-------- --------
COST OF GOODS SOLD:
Cost of goods sold (24,854) (13,022)
Cost of goods sold to
related parties (1,498) (9,246)
-------- --------
Total cost of goods
sold (26,352) (22,268)
-------- --------
GROSS PROFIT 2,945 1,839
OPERATING EXPENSES:
Selling, general and
administrative expenses (1,717) (1,057)
Expenses attributable to
related parties (0) (25)
-------- --------
Total operating
expenses (1,717) (1,082)
-------- --------
OPERATING PROFIT 1,228 757
Interest expense, net (46) (101)
Equity in net income (loss)
of unconsolidated affiliate (28) 35
-------- --------
INCOME BEFORE INCOME TAXES 1,154 691
Income taxes (432) (206)
-------- --------
NET INCOME $ 722 $ 485
======== ========
NET INCOME PER SHARE - BASIC $ 0.15 $ 0.12
======== ========
NET INCOME PER SHARE -
DILUTED $ 0.15 $ 0.12
======== ========
4
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
($ in thousands, except share and per share data)
ACCUMULATED
ADDITIONAL OTHER TOTAL
PAID IN RETAINED COMPREHENSIVE SHAREHOLDERS'
COMMON STOCK CAPITAL EARNINGS INCOME EQUITY
SHARES AMOUNT
Balance at June 30, 1998 4,933,900 $ 49 8,802 4,773 56 $ 13,680
Net income -- -- -- 722 -- 722
Additional Initial Public
Offering Expenses -- -- (25) -- -- (25)
Compensation charge in
relation to share options
issued to non-employees -- -- 41 -- -- 41
Other comprehensive
income, net of tax and
foreign currency
translation adjustment -- -- -- -- 162 162
--------- --------- --------- --------- --------- ---------
Balance at September 30, 1998 4,933,900 $ 49 8,818 5,495 218 $ 14,580
========= ========= ========= ========= ========= =========
5
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
($ in thousands)
(Unaudited)
Three months ended
September 30,
1998 1997
OPERATING ACTIVITIES:
Net income $ 722 $ 485
ADJUSTMENTS TO RECONCILE NET INCOME
TO NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES
Depreciation and other 65 66
Provision for deferred taxes (6) (54)
Equity in net loss (income) of
unconsolidated affiliate 28 (35)
Compensation charge for non-employee
stock options 41 --
CHANGES IN ASSETS AND LIABILITIES
Trade and discounted receivables (1,706) (3,464)
Due from related parties (442) (791)
Inventory (3,732) 402
Other current assets 2,134 (882)
Trade payables 899 840
Due to related parties (229) 1,416
Taxes payable (59) 161
Other net 341 249
------- -------
NET CASH USED IN OPERATING ACTIVITIES (1,944) (1,607)
------- -------
INVESTING ACTIVITIES:
Purchase of fixed assets (54) (20)
Sale of fixed assets -- 12
------- -------
NET CASH USED IN INVESTING ACTIVITIES (54) (8)
------- -------
FINANCING ACTIVITIES:
Dividends paid -- (55)
Additional initial public offering
expenses (25) --
Repayment of capital leases, net (18) (42)
Change in bank line of credit -- (1,034)
Change in discount creditor 468 3,712
------- -------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 425 2,581
------- -------
Exchange rate changes 140 (50)
------- -------
NET (DECREASE) INCREASE IN CASH (1,433) 916
Cash at beginning of period 5,012 288
------- -------
CASH AT END OF PERIOD $ 3,579 $ 1,204
======= =======
Interest paid $ 65 $ 223
======= =======
Taxes paid $ 391 $ 257
======= =======
6
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1 INTERIM FINANCIAL STATEMENTS
The accompanying unaudited interim financial statements have been prepared
pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly,
certain information and notes required by generally accepted accounting
principles for complete financial statements are not included herein. The
interim statements should be read in conjunction with the Company's financial
statements and notes thereto included in the Company's latest annual report on
Form 10-K.
In the Company's opinion, all adjustments necessary for a fair presentation of
these interim statements have been included and are of a normal and recurring
nature.
2 INVENTORY
Inventories comprise ($ in thousands):
SEPT. 30, JUNE 30,
1998 1998
Finished goods and goods for resale $5,454 $1,724
Less: Allowance for inventory
obsolescence (7) (9)
-------- --------
$5,447 $1,715
======== ========
The Company insures its inventory against theft and other damage up to a maximum
of the higher of $9,900,000 or the carrying value of the inventory. On September
30, 1998, the carrying value was $5,447,000.
Obsolescence comprise ($ in thousands):
SEPT. 30, JUNE 30,
1998 1998
Beginning balance $9 $35
Provision for obsolescence 39 248
Amounts written off (41) (274)
-------- --------
Ending balance $7 $9
======== ========
7
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
3 OTHER CURRENT ASSETS
Other current assets comprise ($ in thousands):
SEPT. 30, JUNE 30,
1998 1998
Amounts paid in advance for
inventories $- $2,015
Advanced Corporation Tax
recoverable - 145
Other 105 299
---- ------
$105 $2,459
==== ======
4 OTHER CURRENT LIABILITIES
Other current liabilities comprise ($ in thousands):
SEPT. 30, JUNE 30,
1998 1998
Accrued expenses $561 $710
Value Added Tax payable 502 41
Accrued Payroll Taxes & National Insurance 130 98
Current portion of capital leases 69 70
Others 62 68
------ ---
$1,324 987
====== ===
5 EARNINGS PER SHARE
The number of shares of common stock outstanding at the beginning and ending of
the period was 4,933,900. The weighted average number of shares for basic
earnings per share and diluted earnings per share was 4,933,900. Options to
purchase 294,000 shares of common stock at $10 per share were outstanding during
the quarter, but were not included in the computation of diluted earnings per
share because the options' exercise price was greater than the average market
price of the common shares. The weighted average number of shares used in the
1997 period reflects a retroactive adjustment to assume the 4,000,000 shares
issued in January 1998 in exchange for the shares of European Micro plc were
outstanding for the complete period in 1997.
6 RELATED PARTY TRANSACTIONS
European Micro Plc has belonged to a group of related companies called Micro
Computer Center Group (the "GROUP"). The Group is comprised of European Micro
Plc, Technology Express Inc. located in Nashville, Tennessee ("TECHNOLOGY
EXPRESS"), American Surgical Supply Corp. d/b/a American Micro Computer Center
in Miami, Florida ("AMERICAN MICRO COMPUTER CENTER") and, until August 1, 1997,
Ameritech Exports Inc. located in Miami, Florida ("AMERITECH EXPORTS") and
Ameritech Argentina S.A. located in Buenos Aires, Argentina ("AMERITECH
ARGENTINA"). All members of the Group were owned and controlled by either of the
two primary shareholders of European Micro Plc, John B. Gallagher and/or Harry
D. Shields and their families.
8
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
6 RELATED PARTY TRANSACTIONS (CONTINUED)
The rates charged on related party sales are lower than they would be in arms
length transactions. There are bulk buying arrangements with the related parties
which gives European Micro Plc the benefit that it can buy large job-lots at
more competitive prices than it would otherwise be possible to do and then
immediately sell on part of the purchase to the related parties. In practical
terms, the sales to related parties are to the distributors in a similar trade
to European Micro Plc and these parties would not buy at higher prices.
Related party transactions are summarized as follows ($ in thousands):
Three months ended
September 30,
1998 1997
SALES
American Micro Computer Center $13 $5,836
Technology Express 1,503 $3,504
Ameritech Argentina - -
Ameritech Exports - -
------ ------
$1,516 $9,340
====== ======
PURCHASES
American Micro Computer Center $- $-
Technology Express 12,439 2,545
Ameritech Argentina - -
Ameritech Exports - -
------ ------
$12,439 $2,545
======= ======
Three months ended
September 30,
1998 1997
OPERATING EXPENSES
CONSULTANCY FEES PAID TO:
American Micro Computer Center $- $13
Technology Express - 12
------ ------
$- $25
======= ======
9
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
6 RELATED PARTY TRANSACTIONS (CONTINUED)
Due from related parties comprised the following balances ($ in thousands):
SEPT. 30, JUNE 30,
1998 1998
American Micro Computer
Center $17 $54
Technology Express 1,323 844
Ameritech Argentina - -
Ameritech Exports - -
------ ------
$1,340 898
====== ======
Due to related parties comprised of following balances (in thousands):
SEPT. 30, JUNE 30,
1998 1998
American Micro Computer
Center $- 12
Technology Express 9 226
Ameritech Argentina - -
Ameritech Exports - -
------ ------
$9 238
====== ======
The entities listed above are related to the Company in the following manner:
AMERICAN MICRO COMPUTER CENTER
American Micro Computer Center is a distributor of computer hardware based in
Miami, Florida. John B. Gallagher who is Co-Chairman, Co-President, Director and
shareholder (owning 39% of the outstanding shares after the Offering) of
European Micro Holdings, Inc. is a president of American Micro Computer Center
and owns 33.3% of the stock in that company.
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 Inacomp Computers in 1996.
Concurrently with the sale, Mr. Shields founded a new computer company with the
name Technology Express. This company is a distributor of computer products and
does not sell to end-users. Harry D. Shields who is Co-Chairman, Co-President,
Director and shareholder (owning 39% of the outstanding shares after the
Offering) of European Micro Holdings, Inc. is president of Technology Express
and owns 100% of the outstanding shares of common stock of that company.
10
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
6 RELATED PARTY TRANSACTIONS (CONTINUED)
AMERITECH ARGENTINA
Ameritech Argentina is an authorized distributor of Compaq, Hewlett Packard, IBM
and Acer Computers and accessories in Argentina. Messrs. Shields and Gallagher
were both Directors of Ameritech Argentina and owned 50% of the outstanding
shares of common stock each until its sale on August 1, 1997.
AMERITECH EXPORTS
Ameritech Exports is an authorized distributor of Compaq computers and
accessories into Caribbean and certain parts of Central and South America.
Messrs. Shields and Gallagher were both Directors of Ameritech Exports and owned
50% of the outstanding shares of common stock each until its sale on August 1,
1997.
7 SUBSEQUENT EVENTS
On October 28, 1998, European Micro plc, a wholly-owned subsidiary of European
Micro Holdings, Inc. ("EUROPEAN MICRO HOLDINGS"), completed its acquisition of
all of the outstanding shares of capital stock of Sunbelt (UK) Limited
("SUNBELT"), a company registered in England and Wales, from the shareholders of
Sunbelt for $1,008,684 in cash and an earn-out based on the attainment of
certain performance criteria. At European Micro Holdings' discretion, the
earn-out will be payable in either cash or shares of common stock of European
Micro Holdings. The amount of consideration to be paid for the shares of Sunbelt
was determined based on a multiple of Sunbelt's net earnings and the attainment
of certain performance criteria. The funds used to acquire the shares of Sunbelt
came from the cash generated from the business operations of European Micro plc.
As a result of the acquisition, Sunbelt is a wholly-owned subsidiary of European
Micro plc. The acquisition will be accounted for using the purchase method of
accounting.
Sunbelt, formerly privately held, is a distributor of microcomputer products to
dealers, VARs and mass merchants throughout Western Europe. Sunbelt's trading
operations will be integrated with and into the operations of European Micro
plc. Sunbelt's business of distributing its Nova brand products will operate as
a separate business entity consistent with past practice. Sunbelt was
established in 1992 and is based in Wimbledon, England. For the fiscal year
ended June 30, 1998, Sunbelt had total sales of approximately U.S. $16.5 million
and pre-tax earnings of approximately U.S. $742,500.
11
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
INTRODUCTORY STATEMENTS
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS. THIS QUARTERLY REPORT
CONTAINS FORWARD-LOOKING STATEMENTS, INCLUDING STATEMENTS REGARDING, AMONG OTHER
THINGS, (A) EUROPEAN MICRO HOLDINGS' ("EUROPEAN MICRO HOLDINGS" OR THE
"COMPANY") PROJECTED SALES AND PROFITABILITY, (B) THE COMPANY'S GROWTH
STRATEGIES, (C) ANTICIPATED TRENDS IN THE COMPANY'S INDUSTRY, (D) THE COMPANY'S
FUTURE FINANCING PLANS AND (E) THE COMPANY'S ANTICIPATED NEEDS FOR WORKING
CAPITAL. IN ADDITION, WHEN USED IN THIS QUARTERLY REPORT, THE WORDS "BELIEVES,"
"ANTICIPATES," "INTENDS," "IN ANTICIPATION OF," "EXPECTS," AND SIMILAR WORDS ARE
INTENDED TO IDENTIFY CERTAIN FORWARD-LOOKING STATEMENTS. THESE FORWARD-LOOKING
STATEMENTS ARE BASED LARGELY ON THE COMPANY'S EXPECTATIONS AND ARE SUBJECT TO A
NUMBER OF RISKS AND UNCERTAINTIES, MANY OF WHICH ARE BEYOND THE COMPANY'S
CONTROL. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THESE FORWARD-LOOKING
STATEMENTS AS A RESULT OF CHANGES IN TRENDS IN THE ECONOMY AND THE COMPANY'S
INDUSTRY, REDUCTIONS IN THE AVAILABILITY OF FINANCING AND AVAILABILITY OF
COMPUTER PRODUCTS ON TERMS AS FAVORABLE AS EXPERIENCED BY THE COMPANY IN PRIOR
PERIODS AND OTHER FACTORS. IN LIGHT OF THESE RISKS AND UNCERTAINTIES, THERE CAN
BE NO ASSURANCE THAT THE FORWARD-LOOKING STATEMENTS CONTAINED IN THIS QUARTERLY
REPORT WILL IN FACT OCCUR. THE COMPANY DOES NOT UNDERTAKE ANY OBLIGATION TO
PUBLICLY RELEASE THE RESULTS OF ANY REVISIONS TO THESE FORWARD-LOOKING
STATEMENTS THAT MAY BE MADE TO REFLECT ANY FUTURE EVENTS OR CIRCUMSTANCES.
UNLESS THE CONTEXT OTHERWISE REQUIRES AND EXCEPT AS OTHERWISE SPECIFIED,
REFERENCES HEREIN TO "EUROPEAN MICRO" OR THE "COMPANY" INCLUDE EUROPEAN MICRO
HOLDINGS AND ITS TWO WHOLLY-OWNED SUBSIDIARIES, EUROPEAN MICRO PLC, A COMPANY
ORGANIZED UNDER THE LAWS OF THE UNITED KINGDOM ("EUROPEAN MICRO UK"), AND
NOR'EASTER MICRO, INC., A NEVADA CORPORATION ("NOR'EASTER") (COLLECTIVELY, THE
TWO WHOLLY-OWNED SUBSIDIARIES ARE REFERRED TO AS THE "SUBSIDIARIES").
OVERVIEW
The Company is an independent distributor of microcomputer products,
including personal computers, memory modules, disc drives and networking
products, to customers mainly in Western Europe and to customers and related
parties in the United States. The Company's customers consist of more than 375
value-added resellers, corporate resellers, retailers, direct marketers and
distributors. The Company does not sell to end-users. Substantially all of the
products sold by the Company are manufactured by well-recognized manufacturers
such as IBM, Compaq and Hewlett-Packard, although the Company generally does not
obtain its inventory directly from such manufacturers. The Company monitors the
geographic pricing strategies related to such products, currency fluctuations
and product availability in order to obtain inventory at favorable prices from
other distributors, resellers and wholesalers.
The Company considers itself to be a focused distributor, as opposed to a
broadline distributor, dealing with a limited and select group of products from
a limited and select group of leading manufacturers. The Company believes that
being a focused distributor enables it to respond more quickly to customer
requests and gives it greater availability of products, access to products and
improved pricing. The Company believes that as a focused distributor it has been
able to develop greater expertise in the products which it sells. The Company
places significant emphasis on market awareness and planning and actively shares
this knowledge with its customers in order to further enhance trading relations.
The Company strives to monitor and react quickly to market trends in order to
enable its multilingual sales team to maintain the highest levels of customer
service.
European Micro Holdings was organized under the laws of the State of
Nevada and is the parent of European Micro UK and Nor'easter. Nor'easter was
organized under the laws of the State of Nevada on December 26, 1997, to serve
as an independent distributor of microcomputer products in the United States.
European Micro UK was organized under the laws of the United Kingdom in 1991 to
serve as an independent distributor to customers mainly in Western Europe and to
related parties in the United States. On January 31, 1998, European Micro
Holdings acquired one hundred percent (100%) of the issued and outstanding
shares of ordinary stock of European Micro UK in consideration for the issuance
of 4,000,000 newly issued shares of common stock, par value $0.01 per share (the
12
"COMMON STOCK"), of European Micro Holdings. The 4,000,000 shares of Common
Stock of European Micro Holdings has been issued to the shareholders of European
Micro UK on a pro rata basis in accordance with such shareholders' respective
ownership interest in European Micro UK. As a result of the exchange, the
shareholders of European Micro UK together received all of the issued and
outstanding shares of Common Stock of European Micro Holdings prior to the
consummation of its initial public offering. These shareholders were John B.
Gallagher, Harry D. Shields, Thomas H. Minkoff, as trustee of the Gallagher
Family Trust, and Stuart S. Southard and Robert H. True, as Trustees of the 1997
Henry Daniel Shields Irrevocable Educational Trust. In addition, European Micro
UK became a wholly-owned subsidiary of European Micro Holdings.
European Micro UK is the parent of European Micro GmbH (formerly known as
European Micro Computer Center GmbH) ("EUROPEAN MICRO GERMANY"). European Micro
Germany was organized under the laws of Germany in 1993 and operates as a sales
office in Dusseldorf, Germany. All products sold by European Micro Germany are
procured and shipped from the facilities of European Micro UK. European Micro UK
has a 50% joint venture interest in Big Blue Europe, B.V. ("BIG BLUE EUROPE")
which was formed in January 1997. Big Blue Europe was organized under the laws
of Holland and is a computer parts distributor with offices located near
Amsterdam, Holland. Selling primarily to computer maintenance companies, Big
Blue Europe has experienced growth in sales and the Company believes that Big
Blue Europe is positioned to participate in the relatively high margin parts
after-market industry. Big Blue Europe has no affiliation with International
Business Machines Corporation.
On October 28, 1998, European Micro UK completed its acquisition of all of
the outstanding shares of capital stock of Sunbelt. As a result, Sunbelt became
a wholly-owned subsidiary of European Micro UK. This relationship is depicted in
the organizational chart below. See "Note 7 to the Consolidated Financial
Statements" and "Item 5. Other Information."
European Micro Holdings was formed in December 1997 to serve as a holding
company of the Subsidiaries. European Micro Holdings does not have any
operations of its own. Its headquarters are located at 6073 N.W. 167th Street,
Unit C-25, Miami, Florida 33015, and its telephone number is (305) 825-2458.
13
The following organizational chart summarizes the relationships among
European Micro Holdings, Nor'easter, European Micro UK, European Micro
Germany, Big Blue Europe and Sunbelt.
[GRAPHIC OMITTED]
14
RESULTS OF OPERATIONS
The following table sets forth, for the periods presented, the percentage
of net sales represented by certain items in European Micro's Consolidated
Condensed Statements of Earnings:
PERCENTAGE OF NET SALES
(UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30,
1998 1997
---- ----
Net sales to third parties 94.8% 61.3%
Net sales to related parties 5.2% 38.7%
------- -------
Total net sales 100.0% 100.0%
------- -------
Cost of goods sold to third parties (84.8%) (54.0%)
Cost of goods sold to related parties (5.1%) (38.4%)
------- -------
Total cost of goods sold (89.9%) (92.4%)
------- -------
Total Gross Profit 10.1% 7.6%
Total operating expenses (5.9%) (4.5%)
------- -------
Operating profit 4.2% 3.1%
Interest expense (0.2%) (0.4%)
Share of (loss) / income in the
unconsolidated affiliate (0.1%) 0.1%
------- -------
Income before income taxes 3.9% 2.8%
Provision for income taxes (1.5%) (0.8%)
------- -------
Net Income 2.4% 2.0%
======= =======
THREE-MONTH PERIOD ENDED SEPTEMBER 30, 1998 AND 1997
TOTAL NET SALES. Total net sales increased $5.2 million, or 21.5%, from
$24.1 million in the three-month period ended September 30, 1997 to $29.3
million in the comparable period in 1998. Excluding net sales to related
parties, net sales increased $13.0 million, or 88.1%, from $14.8 million in the
three-month period ended September 30, 1997 to $27.8 million in the comparable
period in 1998. This increase was attributable to general sales growth
(accounting for approximately $6.6 million), the start-up growth of Nor'easter
which started its operations in February 1998 (accounting for approximately $5.2
million) and the growth of the Premier Dealers Club (accounting for
approximately $1.2 million). There can be no assurance that the Company will be
able to maintain the level of sales or sales growth achieved in this period
because of seasonal variations in the demand for the products and services
offered by the Company, the introduction of new hardware and software
technologies and products offering improved features and functionality, the
introduction of new products and services by the Company and its competitors,
the loss or consolidation of a significant supplier or customer, changes in the
level of operating expenses, inventory adjustments, product supply constraints
and competitive conditions, including pricing, interest rate fluctuations, the
impact of acquisitions, currency fluctuations and general economic conditions.
15
Net sales to related parties decreased $7.8 million in the three-month
period ended September 30, 1998 from the comparable period in 1997. This
decrease is primarily attributable to large purchases of computer peripherals
made on behalf of related parties in the three-month period ended September 30,
1997 compared to the same period in 1998. In addition, the Company's purchases
from related parties increased by $9.9 million in the three-month period ended
September 30, 1998 from the comparable period in 1997. The related parties
consist of a group of entities in which an ownership interest is held by either
of the two primary shareholders of the Company, John B. Gallagher or Harry D.
Shields. See "Note 6 to the Consolidated Financial Statements." In order to
facilitate fast and efficient international transactions, each member of the
group has acted as a supplier for, and purchaser from, the other members of the
group. The group has attempted to price inter-group sales at one percent above
the selling group member's cost, although the group has made numerous exceptions
in times of short supply, to cover assembly costs and to reward certain group
members for exceptional low-cost purchases. None of the members of the group are
under any legal obligation to continue to act as a supplier for, or purchaser
from, the other members of the group. If the Company is unable to sell product
to the other members of the group, the Company's revenues will be significantly
reduced and its business, financial condition and results of operations will be
materially adversely affected.
GROSS PROFIT. Gross profit increased $1.1 million, or 60.1 %, from $1.8
million in the three-month period ended September 30, 1997 to $2.9 million in
the comparable period in 1998. Gross profit excluding related party transactions
increased $1.2 million, or 67.7%, from $1.7 million in the three-month period
ended September 30, 1997 to $2.9 million in the comparable period in 1998. This
increase is the result of market conditions which made it advantageous to
purchase from the other group members and sell to third parties during the
period. In the comparable period in 1997, the Company supplied product to the
other group members instead of purchasing product. This shift in market
conditions is due to currency fluctuations, product availability and changes in
geographic pricing strategies of the manufacturers and suppliers of the
Company's products. As discussed above, the mark-up on sales to related parties
is typically one percent over cost. Therefore, the gross profit of sales to
third parties is typically higher than the gross profit earned on sales to
related parties. Gross profit attributable to related party sales was $18,000 in
the three-month period ended September 30, 1998. This represents a margin of
approximately one percent as discussed above. The Company's business and results
of operations will be materially adversely affected if the Company is unable to
purchase product from the other members of the group (including Technology
Express) when such product could be purchased from these group members at prices
lower than available from other sources.
Gross margin increased by 2.5% from 7.6% in the three-month period ended
September 30, 1997 to 10.1% in the comparable period in 1998. Excluding related
party transactions, gross margin decreased from 11.8% in the three-month period
ended September 30, 1997 to 10.5% in the comparable period in 1998. This change
is related to the normal fluctuations in purchasing opportunities and sales
demand from quarter to quarter.
Foreign exchange gains and losses moved from a gain of $23,000 in the
three-month period ended September 30, 1997 to a loss of $132,000 in the
comparable period in 1998. This loss was attributable to the strengthening of
the pound sterling relative to other European currencies.
OPERATING EXPENSES. Operating expenses as a percentage of total net sales
increased from 4.5% in the three-month period ended September 30, 1997 to 5.9%
in the comparable period in 1998. Excluding related party transactions,
operating expenses as a percentage of net sales decreased from 7.2% in the
three-month period ended September 30, 1997 to 6.2% in the comparable period in
1998. Operating expenses increased primarily due to the increase in third party
sales and the decrease in related party sales, resulting in higher gross margins
for the period. This resulted in higher commission and bonus compensation during
the period because the Company's compensation structure rewards employees based
on the Company's profitability. For the reasons set forth above, the Company
achieved higher gross margins in the period which resulted in higher commission
and bonus compensation in the period.
INTEREST EXPENSE. Interest expense decreased by $55,000 from $101,000 in
the three-month period ended September 30, 1997 to $46,000 in the comparable
period in 1998. This was attributable to decreased borrowing during the period
because of the availability of the net proceeds from the Company's initial
public offering.
16
INCOME TAXES. Income taxes as a percentage of earnings before income taxes
increased from 29.8% in the three-month period ended September 30, 1997 to 37.4%
in the comparable period in 1998. The increase was primarily attributable to an
increase in the amount of disallowed expenditures and higher corporate income
tax rates in the United States. The Company's effective income tax rate may
increase in the future as a result of the Company's product mix and variations
in the countries to which the Company sells its products.
INTEREST IN JOINT VENTURE. The Company's share of income or loss from Big
Blue Europe decreased from a gain of $35,000 in the three-month period ended
September 30, 1997 to a loss of $28,000 in the comparable period in 1998. This
reduction in earnings is attributed to an increased provision for inventory
obsolescence and a reduction in total sales.
SEASONALITY
European Micro typically experiences variability in its total net sales
and net income on a quarterly basis as a result of many factors. These include,
but are not limited to, seasonal variations in demand for the products and
services offered by the Company, the introduction of new hardware and software
technologies and products offering improved features and functionality, the
introduction of new products and services by the Company and its competitors,
the loss or consolidation of a significant supplier or customer, changes in the
level of operating expenses, inventory adjustments, product supply constraints
and competitive conditions, including pricing, interest rate fluctuations, the
impact of acquisitions, currency fluctuations and general economic conditions.
Historical operating results have included a reduction in demand in Europe
during the summer months.
LIQUIDITY AND CAPITAL RESOURCES
Short-term working capital requirements are funded by a combination of
short-term revolving lines of credit provided by National Westminster Bank Plc
together with accounts receivable financing provided by Lombard NatWest.
Short-term obligations must be repaid within one year. One line of credit and
the accounts receivable facilities are set and reviewed annually. The interest
rate on these facilities is based on a mark-up over the bank borrowing rate in
the United Kingdom. This line of credit facility was $830,000 in fiscal 1997 and
was increased to $2.0 million during fiscal 1998. The accounts receivable
financing provides financing for up to 85% of trade receivables. In June 1998,
the Company obtained a second short-term line of credit which is secured by the
Company's inventory. This facility allows the Company to borrow up to $5.6
million to assist in the purchase of inventory.
Long-term funding is supplied to the Company in the form of hire purchase
and capital lease agreements. Long-term obligations are due for repayment in
more than one year. These agreements are made through both Lloyds Bowmaker and
NatWest Vehicle Solutions, and are secured by vehicles owned by the Company. The
agreements are usually for 36 months from the date of purchase and are typically
for 80% of the purchase value of the vehicle. As of September 30, 1998, the
borrowings were $139,000, of which $70,000 was due after more than one year.
European Micro's typical principal need for additional working capital in
fiscal 1998 is expected to be for the purchase of additional inventory to
support growth and to take advantage of cash discounts offered by certain of
European Micro's suppliers for early payment. Working capital will also be
needed for expansion purposes, including acquisitions. European Micro expects to
obtain cash for these purposes through its internal cash flow and its existing
bank credit lines, but there can be no assurance that financing will be
available on terms acceptable to European Micro. The unavailability of such
financing could adversely affect the Company's business, financial condition and
results of operations.
Net cash used in operating activities during the three-month period to
September 30, 1998 amounted to $1.9 million. Significant factors in the use of
cash were an increase in trade and discounted receivables of $1.7 million and an
increase in inventory of $3.7 million. The increase in receivables was largely
attributable to the increase in net sales in the three-month period ended
September 30, 1998. The increase in inventory was largely attributable to large
17
quantity purchases of computer products at prices which the Company considered
to be favorable. The amount of cash used in the Company's operations were
partially offset by net income in the period of $722,000, cash generated from an
increase in trade payables of $899,000, a reduction in other current assets
related to the prepayment of inventory at June 30, 1998 of $2.0 million.
Cash used in investing activities amounted to $54,000, consisting of
expenditures on fixtures and fittings of $11,000 and office equipment of
$43,000.
Cash provided by financing activities was $425,000, of which $468,000 was
provided by an increase in the Lombard NatWest debt discounting facility. Cash
was used by repayments of capital leases of $18,000 and additional expenses
associated with the initial public offering of $25,000.
Overall, the Company experienced a net decrease in cash of $1.4 million
for the three-month period ended September 30, 1998 which is after the impact of
exchange rates of $140,000.
ASSET MANAGEMENT
INVENTORY. European Micro's goal is to achieve high inventory turns and
maintain a low level of inventory on hand and thereby reduce European Micro's
working capital requirements. European Micro's strategy to achieve this goal is
to both effectively manage its inventory and achieve high order fill rates.
Inventory levels may vary from period to period, due to many factors, including
increases or decreases in sales levels, European Micro's practice of making
large-volume purchases when it deems such purchases to be attractive, new
products and changes in European Micro's product mix.
ACCOUNTS RECEIVABLE. European Micro sells its products and services to a
customer base of more than 375 value-added resellers, corporate resellers,
retailers and direct marketers. European Micro offers credit terms to qualifying
customers and also sells on a pre-pay and cash-on-delivery basis. With respect
to credit sales, European Micro attempts to control its bad debt exposure by
monitoring customers' creditworthiness and, where practicable, through
participation in credit associations that provide customer credit rating
information for certain accounts. Substantially all of European Micro UK's
accounts receivables are insured and its positive credit results have allowed
European Micro UK to enjoy what it believes to be one of the most competitive
insurance rates in the industry.
CURRENCY RISK MANAGEMENT
REPORTING CURRENCY. European Micro Holdings' and Nor'easter's reporting
and functional currency, as defined by Statement of Financial Accounting
Standards No. 52, is the United States dollar. The functional currency of
European Micro UK is the United Kingdom pound sterling. European Micro UK
translates into the reporting currency by measuring assets and liabilities using
the exchange rates in effect at the balance sheet date and results of operations
using the average exchange rates prevailing during the period.
HEDGING AND CURRENCY MANAGEMENT ACTIVITIES. European Micro Holdings does
not engage in hedging activities to guard against currency fluctuations between
the United Kingdom pound sterling and the United States dollar. Because the
functional currency of European Micro Holdings' main operating subsidiary,
European Micro UK, is the United Kingdom pound sterling, currency fluctuations
of the pound sterling relative to the dollar may have a material adverse affect
on the Company's business, financial condition and results of operations.
European Micro Holdings may engage in hedging activities in the future, although
no assurances can be given that it will engage in such activities and if it does
so that such activities will be successful.
European Micro UK recognizes that it has currency exposure when
transactions are consummated in currency other than the pound sterling. For
example, for the quarter ended September 30, 1998, purchases of inventory by
European Micro UK were in the United Kingdom pound sterling (17%), German Mark
(6%), United States dollar (70%) and other (7%). The most significant currencies
in which sales were made, other than the pound sterling (55%), were the German
Mark (19%), Dutch guilder (9%), French franc (7%) and others (10%).
Additionally, receivables are also significantly spread out over several
currencies. Lastly, to the extent that bank balances are maintained in different
currencies that would also be subject to fluctuations against the pound
sterling.
18
The policy of the Company is not to hedge specifically against individual
daily transactions. Instead, the exposure to a currency is determined every two
to three days. This is done by comparing the bank account balances and account
receivables with accounts payable, all in the same currency to create a
"natural" hedge. Thereafter, to the extent that a bank balance and the account
receivable are not totally offset by the accounts payable, there would be a need
to cover the residual credit balance with a forward currency contract. The
Company tends to concentrate its currency management into four currencies --
United Kingdom pound sterling, United States dollar, Dutch guilder and German
Mark. It normally deems the exposure in other currencies to be minimal. However,
when the Company buys products in other currencies, the Company may, in
conjunction with current market advice, book a forward contract to cover current
and some anticipated future purchases.
ECONOMIC AND MONETARY UNION
On January 1, 1999, eleven of the fifteen member countries of the European
Union are scheduled to establish fixed conversion rates between their existing
sovereign currencies and a new currency called the "euro." These countries have
agreed to adopt the euro as their common legal currency on that date. The euro
will then trade on currency exchanges and be available for non-cash
transactions. Thereafter and until January 1, 2002, the existing sovereign
currencies will remain legal tender in these countries. On January 1, 2002, the
euro is scheduled to replace the sovereign legal currencies of these countries.
Through the operations of European Micro UK, the Company has significant
operations within the European Union, including many of the countries which are
scheduled to adopt to euro. The Company is evaluating the impact the euro will
have on its continuing business operations and no assurances can be given that
the euro will not have a material adverse affect on the Company's business,
financial condition and results of operations. However, the Company does not
expect the euro to have a material affect on its competitive position as a
result of price transparency within the European Union because the Company does
not rely on currency imbalances in purchasing inventory from within the European
Union. Moreover, the Company is evaluating its ability to update its information
technology to accommodate the adoption of the euro but it does not expect to
incur material costs in either evaluating or updating such technology. In
addition, the Company cannot accurately predict the impact the euro will have on
currency exchange rates or the Company's currency exchange rate risk. The
Internal Revenue Service ("IRS") has requested comments on various tax issues
raised by the euro conversion. The IRS is expected to publish guidelines on this
issue soon and, until such time, the Company cannot predict whether the IRS
guidelines will have any tax consequences on the Company.
YEAR 2000 ISSUES
Many existing computer programs use only two digits to identify a year in
the date field. These programs were designed and developed without considering
the impact of the upcoming change in the Year 2000. If not corrected in the
computer applications of the Company or its suppliers and customers, this
problem may cause computer applications to fail or to create erroneous results
by or at the Year 2000. The Company has received informal assurances from the
companies manufacturing the computer applications used in its business
operations that such computer applications are Year 2000 compliant. Although the
Company believes that its computer applications will not be affected by the Year
2000 problem, any failure or erroneous results produced thereby may have a
material adverse affect on the Company's business, financial condition or
results of operations. The Company does not generally sell software products and
therefore the Company does not expect its products to be affected by the Year
2000 problem.
The Company is evaluating the impact the Year 2000 problem will have on
its suppliers and customers, although the Company expects such evaluation to be
made informally through discussions with customers and suppliers. The failure of
the Company's suppliers and customers to correct the Year 2000 problem in their
computer applications may have a material adverse affect on the Company's
business, financial condition and results of operations. As of the date of this
filing, the Company cannot accurately anticipate or quantify the impact on the
Company of its suppliers' and customers' failure to correct this problem. The
Company is formulating contingency plans to implement in the event its
suppliers' and customers' fail to address the Year 2000 problem.
19
INTER-GROUP SALES
In order to achieve attractive prices from suppliers, a large quantity of
a product must be firmly committed to. European Micro polls the other members of
the group for informal commitments to help distribute that product. Thereafter,
the purchasing member of the group, would obtain the product, examine the
product for damage and authenticity, and then supervise the shipping to the
other group members. In such capacity, the purchasing member of the group acts
as a "purchasing agent" for the other group members.
In the three-month period ended September 30, 1998, European Micro UK
benefited from low mark-up purchases from the other members of the group by $9.0
million and Nor'easter by $3.4 million. European Micro Holdings' sales to the
related parties during the three-month period ended September 30, 1998 decreased
$7.8 million from $9.3 million to $1.5 million. The primary reasons for this
reduction in related party sales is due to the availability of product at prices
in the United States more favorable than other sources of supply. While the
average margin on these sales was approximately 1.0% compared to an average
margin of 10.7% on sales to unrelated third parties during the same period, such
margin was sufficient to cover the costs incurred by the Company in purchasing
such products on behalf of the group. Significantly, European Micro was able to
enjoy the marginal benefits from the lower cost of the remaining product for its
sales. See "Note 6 to the Consolidated Financial Statements."
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company utilizes derivative financial instruments in the form of
forward exchange contracts for the purpose of economic hedges of anticipated
sale and purchase transactions. In addition, the Company enters into economic
hedges for the purpose of hedging foreign currency market exposures of
underlying assets, liabilities and other obligations which exist as part of its
ongoing business operations.
Where the foreign currency exposure is covered by a forward foreign
exchange contract, the asset, liability or other obligation is recorded at the
contracted rate each month end and the resultant mark-to-market gains and losses
are recognized as cost of sales in the current period, generally consistent with
the period in which the gain or loss of the underlying transaction is
recognized. Cash flows associated with derivative transactions are classified in
the statement of cash flows in a manner consistent with those of the exposure
being hedged.
The Company places all foreign exchange forward contracts with Global
Financial Markets, a division of the National Westminster Bank Plc, a leading
European bank.
EXCHANGE RATE SENSITIVITY
The table below summarizes information on foreign currency forward
exchange agreements. The table presents the notional amounts and weighted
average exchange rates by expected (contractual) maturity dates ($ in thousands,
except exchange rates).
Expected
maturity or
transaction date Fair value
---------------- ----------
FORWARD EXCHANGE
AGREEMENTS
SEPTEMBER 30, 1998
(Receive $US/Pay(pound)) October 1, 1998
Contract amount $3,500 $3,560
Average contractual
exchange rate $1.674/(pound)1
20
The fair value has been determined by applying the mid-price of the spread
on the buy or sell rates, as appropriate, of the relevant foreign currency at
the balance sheet date. The mid-price used is that quoted by the Financial
Times.
Income and losses in respect of the transaction foreign exchange
transactions were as follows ($ in thousands):
THREE MONTHS ENDED
SEPTEMBER 30,
1998 1997
---------------------
(Loss) income on foreign exchange
transactions ($132) $23
===== ===
PART II
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
(a), (b) and (c). None.
(d) The Company's Registration Statement (the "REGISTRATION STATEMENT")
on Form S-1 filed by the Company on January 16, 1998 (File No. 333-44393) was
declared effective by the Securities and Exchange Commission on April 6, 1998.
As previously reported, European Micro Holdings received net proceeds of
$7,159,156 in the offering. European Micro Holdings has used the net proceeds in
the following manner:
USE OF NET PROCEEDS
NET PROCEEDS $7,159,156
Loaned to Subsidiaries for
Operations:
European Micro UK $3,500,000
Nor'easter 3,659,156
------------------
PROCEEDS UTILIZED IN THE PERIOD 7,159,156
-----------------
NET PROCEEDS STILL AVAILABLE $0
=================
European Micro UK used the $3.5 million of the proceeds received from
European Micro Holdings to pay down approximately $3.5 million its short-term
indebtedness. European Micro Holdings has loaned an aggregate of $3.7 million of
the net proceeds to Nor'easter, all of which has been used by Nor'easter to
purchase inventory. None of the payments of net proceeds were made to directors,
officers or persons owning ten percent or more of the outstanding Common Stock
of European Micro Holdings.
European Micro Holdings indicated in its Registration Statement that
$1.0 million would be used to fund the operations and provide working capital to
Nor'easter and $2.4 million would be used for expansion purposes, including
mergers and acquisitions. As indicated above, European Micro Holdings used $3.7
million to fund the operations of Nor'easter. This change in the anticipated use
of proceeds resulted from the availability of product at prices in the United
States more favorable than other sources of supply.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
21
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
On October 28, 1998, European Micro UK completed its acquisition of all of
the outstanding shares of capital stock of Sunbelt from the shareholders of
Sunbelt for $1,008,684 in cash and an earn-out based on the attainment of
certain performance criteria. At European Micro Holdings' discretion, the
earn-out will be payable in either cash or shares of common stock of European
Micro Holdings. The amount of consideration to be paid for the shares of Sunbelt
was determined based on a multiple of Sunbelt's net earnings and the attainment
of certain performance criteria. The funds used to acquire the shares of Sunbelt
came from the cash generated from the business operations of European Micro plc.
As a result of the acquisition, Sunbelt is a wholly-owned subsidiary of European
Micro UK. The acquisition will be accounted for using the purchase method of
accounting.
Sunbelt, formerly privately held, is a distributor of microcomputer
products to dealers, VARs and mass merchants throughout Western Europe.
Sunbelt's trading operations will be integrated with and into the operations of
European Micro plc. Sunbelt's business of distributing its Nova brand products
will operate as a separate business entity consistent with past practice.
Sunbelt was established in 1992 and is based in Wimbledon, England. For the
fiscal year ended June 30, 1998, Sunbelt had total sales of approximately U.S.
$16.5 million and pre-tax earnings of approximately U.S.
$742,500.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBITS.
Exhibit
No. Description Location
- ------ ----------- --------
2.01 Agreement for the Acquisition of Provided herewith
Sunbelt (UK) Limited by European
Micro Plc dated October 26, 1998
3.01 Articles of Incorporation Incorporated by reference to
Exhibit No. 3.01 to
Registrant's Registration
Statement (the "Registration
Statement") on Form S-1
(Registration Number
333-44393).
3.02 Certificate of Amendment of Incorporated by reference to
Articles of Incorporation Exhibit 3.02 to Registrant's
Form 10-Q for the quarter
ended March 31, 1998
3.03 Bylaws Incorporated by reference to
Exhibit No. 3.02 to the
Registration Statement.
4.01 Form of Stock Certificate Incorporated by reference to
Exhibit No. 4.01 to the
Registration Statement.
4.02 1998 Stock Incentive Plan Incorporated by reference to
Exhibit No. 4.02 to the
Registration Statement.
4.03 1998 Employee Stock Incorporated by reference to
Purchase Plan Exhibit No. 4.03 to the
Registration Statement.
4.04 Form of Lock-up Agreement Incorporated by reference to
Exhibit No. 4.04 to the
Registration Statement.
10.01 Form of Advice of Borrowing Terms Incorporated by reference to
22
with National Westminster Bank Plc Exhibit No. 10.01 to the
Registration Statement.
10.02 Invoice Discounting Agreement Incorporated by reference to
with Lombard NatWest Discounting Exhibit No. 10.02 to the
Limited, dated November 21, 1996 Registration Statement.
10.03 Commercial Credit Insurance, Incorporated by reference to
policy number 60322, with Hermes Exhibit No. 10.03 to the
Kreditversicherungs-AG dated Registration Statement.
August 1, 1995
10.04 Commercial Credit Insurance, Incorporated by reference to
policy number 82692, with Hermes Exhibit No. 10.04 to the
Kreditversicherungs-AG dated Registration Statement.
August 1, 1995
10.05 Consignment Agreement with Incorporated by reference to
European Micro Computer B.V., Exhibit No. 10.05 to the
dated January 1996 Registration Statement.
10.06 Distributor Agreement with Incorporated by reference to
WatchGuard Technologies, Inc., Exhibit No. 10.06 to the
dated November 5, 1997 Registration Statement.
10.07 Shareholders' Cross-Purchase Incorporated by reference to
Agreement by and between Jeffrey Exhibit No. 10.07 to the
Gerard Alnwick, Marie Alnwick, Registration Statement.
European Micro Plc and Big Blue
Europe, B.V. dated August 21, 1997
10.08 Trusteed Shareholders Incorporated by reference to
Cross-Purchase Agreement by and Exhibit No. 10.08 to the
between John B. Gallagher, Harry Registration Statement.
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 and
SunTrust Bank, Nashville, N.A.,
as Trustee dated January 31, 1998
10.09 Executive Employment Agreement Incorporated by reference to
between John B. Gallagher and Exhibit No. 10.09 to the
European Micro Holdings, Inc. Registration Statement.
effective as of January 1, 1998
10.10 Executive Employment Agreement Incorporated by reference to
between Harry D. Shields and Exhibit No. 10.10 to the
European Micro Holdings, Inc. Registration Statement.
effective as of January 1, 1998
10.11 Contract of Employment Agreement Incorporated by reference to
between Laurence Gilbert and Exhibit No. 10.11 to the
European Micro UK dated March 14, Registration Statement.
1998
10.12 Contract of Employment between Incorporated by reference to
Bernadette Spofforth and European Exhibit No. 10.12 to the
Micro UK dated April 30, 1996 Registration Statement.
10.13 Subscription Agreement by and Incorporated by reference to
between John B. Gallagher, Harry Exhibit No. 10.13 to the
D. Shields, Thomas H. Minkoff, Registration Statement.
Trustee of the Gallagher Family
Trust, Robert H. True and Stuart
S. Southard, Trustees of the
Henry Daniel Shields 1997
Irrevocable Educational Trust,
European Micro Holdings, Inc.
effective as of January 31, 1998
10.14 Administrative Services Contract Incorporated by reference to
by and between European Micro Exhibit No. 10.14 to the
23
Holdings, Inc. and European Micro Registration Statement.
Plc effective as of January 1,
1998
10.15 Escrow Agreement between European Incorporated by reference to
Micro Holdings, Inc., Tarpon Exhibit No. 10.15 to the
Scurry Investments, Inc. and The Registration Statement.
Chase Manhattan dated as of March
24, 1998
10.16 Form of Indemnification Incorporated by reference to
Agreements with officers and Exhibit No. 10.16 to the
directors Registration Statement.
10.17 Form of Transfer Agent Agreement Incorporated by reference to
with Chase Mellon Shareholder Exhibit No. 10.17 to the
Services, L.L.C. Registration Statement.
10.18 Form of Credit Agreement by and Incorporated by reference to
between European Micro UK and Exhibit No. 10.17 to the
National Westminster Bank Plc Annual Report on Form 10-K
for the fiscal year ended
June 30, 1998 filed with the
Commission on September 28,
1998
10.19 Consulting Contract dated Provided herewith
September 10, 1998 by and between
European Micro Holdings, Inc. and
The Equity Group
10.20 Service Agreement dated October Provided herewith
28, 1998 by and between European
Micro Holdings, Inc. and Michael
Gesner
10.21 Service Agreement dated October Provided herewith
28, 1998 by and between European
Micro Plc and Gerard O'Rourke
11.01 Statement re: Computation of Provided herewith
Earnings
15.01 Letter re: Unaudited Financial Not applicable
Information
18.01 Letter re Change in Accounting Not applicable
Principles
19.01 Report Furnished to Security Not applicable
Holders
22.01 Published Report Regarding Not applicable
Matters Submitted to Vote of
Security Holders
23.01 Consents of experts and counsel Not applicable
24.01 Power of Attorney Not applicable
27.01 Financial Data Schedule Provided herewith
(B) REPORTS ON FORM 8-K.
None.
24
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: November 13, 1998 EUROPEAN MICRO HOLDINGS, INC.
By: /s/ John B. Gallagher
---------------------
John B. Gallagher, Co-President
25