SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 8-K/A2
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
------------------
Date of Report: October 26, 1998
EUROPEAN MICRO HOLDINGS, INC.
(Exact Name of Registrant as Specified in Charter)
NEVADA 0-23949 65-0803752
------ ------- ----------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
6073 N.W. 167TH STREET, UNIT C-25, MIAMI, FLORIDA 33015
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (305) 825-2458
--------------
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On November 10, 1998, the Company filed its original Form 8-K ("FORM 8-K")
with the Securities and Exchange Commission with respect to the acquisition of
Sunbelt (UK) Limited ("SUNBELT"), a company registered in England and Wales. In
the Form 8-K, the Company stated its intention to provide the financial
information of Sunbelt required by Item 7 of Form 8-K in an amendment to be
filed within sixty days. Subsequently, the Company determined that the financial
information required by Item 7 of Form 8-K would not be required and filed an
amendment to the Form 8-K to that effect. The Company has since determined that
the financial information required by Item 7 of Form 8-K would be required
because it had incorrectly excluded approximately $1.2 million in advances made
to Sunbelt in order to pay dividends to its former shareholders. When such
advances are taken into account, Sunbelt is a "significant" business under Rule
11-01(b) of Regulation S-X. As a result, the Company hereby amends Form 8-K to
provide the financial information of Sunbelt pursuant to Item 7 thereof. The
following is a description of the Sunbelt acquisition.
On October 26, 1998, European Micro Plc, a wholly-owned subsidiary of
European Micro Holdings, Inc. (the "COMPANY"), acquired all of the outstanding
shares of capital stock of Sunbelt from the shareholders of Sunbelt for the
consideration described below. As a result of the acquisition, Sunbelt is a
wholly-owned subsidiary of European Micro Plc. The Sunbelt purchase price (to be
settled in pounds sterling) is comprised of a guaranteed portion and two
contingent earn-out payments. The guaranteed portion of the purchase price,
which was based upon Sunbelt's net book value at closing and a multiple of its
fiscal year 1998 pre-tax earnings, was approximately $1.56 million. Of this
guaranteed amount, approximately $600,000 was paid in cash at closing.
The unpaid balance of the guaranteed consideration includes a note payable
to the former 40% Sunbelt shareholder in the amount of approximately $400,000 to
be repaid in November 2005, subject to early repayment at the option of the
noteholder at any time after June 1, 1999. Such note payable is secured by a
cash account totaling $400,000 at December 31, 1998. The remainder of the unpaid
guaranteed consideration of approximately $565,000, plus accrued interest, is to
be paid in equal installments within ninety (90) days of the end of the first
and second contingent earn-out periods as discussed below.
The purchase agreement also contains contingent purchase price provisions.
The maximum contingent earn-out payments in the aggregate are two (2) times
Sunbelt's fiscal year 1998 pre-tax earnings of approximately 424,000 pounds
sterling (approximately $1.4 million). The first contingent payment of up to
approximately $700,000 will be made if certain financial parameters are attained
during the first contingent earn-out period which runs from November 1, 1998 to
October 31, 1999, and if certain of the Sunbelt executives are still employed
with the Company at the end of the first earn-out period. The second contingent
payment of up to approximately $700,000 will be made if certain financial
parameters are attained during the second contingent earn-out period which runs
from November 1, 1999 to October 31, 2000. That portion of the first contingent
earn-out payment related to employee retention, approximately $175,000, is being
recognized by the Company over the course of the first contingent earn-out
period as compensation expense. The remaining portion of the first contingent
earn-out payment of approximately $525,000 and the second contingent earn-out
payment have not been recognized, as the payment of such amounts are not, in the
opinion of management, determinable beyond a reasonable doubt.
Within ninety (90) days of the end of first and second contingent earn-out
periods, the first and second purchase price installment payments will be made.
Such installment payments will each include one-half of the remaining 40%
guaranteed purchase price amounts, plus any amounts due under the first and
second contingent earn-out payment provisions. The amounts due to the former 40%
shareholder of Sunbelt will be satisfied by the issuance of a convertible loan
note due six years after the date of issue, and subject to early prepayment at
the option of the noteholder on any date after eight months from the date of
issuance. The Company has the option of paying all future amounts due to the
former Sunbelt shareholders in common stock of the Company. The Company also
entered into employment agreements with the two former shareholders of Sunbelt.
The acquisition of Sunbelt was accounted for as a purchase. The purchase
price, subject to adjustment as described above and inclusive of transaction
costs of approximately $1.66 million, exceeded the estimated fair market value
of net assets acquired by approximately $1.48 million, which is being amortized
on a straight-line basis over 25 years. The allocation of the purchase price and
the determination of the estimated life of goodwill are preliminary.
Sunbelt, formerly privately held, is a distributor of microcomputer
products to dealers, value-added resellers and mass merchants throughout Western
Europe. Sunbelt's trading operations were integrated with and into the
operations of European Micro Plc. Sunbelt's business of distributing its Nova
brand products operates as a separate business entity consistent with past
practice. Sunbelt was established in 1992 and is based in Wimbledon, England.
- 2 -
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
The audited financial statements of Sunbelt for the year ended June
30, 1998 are attached hereto as Attachment 7(a) and are incorporated herein by
this reference.
(b) PRO FORMA FINANCIAL INFORMATION.
The unaudited pro forma condensed consolidated financial statements
of the Company for the six months ended December 31, 1998 and for the twelve
months ended June 30, 1998 are attached hereto as Attachment 7(b) and are
incorporated herein by this reference.
(c) EXHIBITS.
Exhibit 2.1 to this Report is the Agreement for the Acquisition of
Sunbelt (UK) Limited by European Micro Plc, dated October 26, 1998, is
incorporated herein by reference to Exhibit 2.1 of the Company's Form 8-K as
filed with the Securities and Exchange Commission on November 10, 1998.
Exhibit 23.1 to this Report is the consent to include within the
financial statements attached hereto the auditors' report of Windsor Stebbing
Marsh, the independent auditors of Sunbelt.
- 3 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
EUROPEAN MICRO HOLDINGS, INC.
Date: March 12, 1999 By:/S/ JOHN B. GALLAGHER, JR.
-------------------------------
Name: John B. Gallagher, Jr.
Its: Co-Chairman
- 4 -
<PAGE>
ATTACHMENT 7(A)
Company No. 2743684
SUNBELT (UK) LTD
FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 1998
- 5 -
<PAGE>
SUNBELT (UK) LTD
CONTENTS OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 1998
- --------------------------------------------------------------------------------
PAGE
Officers and Financial Advisors 1
Directors' Report 2-3
Auditors' Report 4
Profit and Loss Account 5
Balance Sheet 6
Cash Flow Statement 7-8
Notes to the Financial Statements 9-15
- 6 -
<PAGE>
SUNBELT (UK) LTD
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 1998
- --------------------------------------------------------------------------------
SUNBELT (UK) LTD
DIRECTORS' REPORT
FOR THE YEAR ENDED 30 JUNE 1998
- --------------------------------------------------------------------------------
DIRECTORS G. O'Rourke
M. Gesner
SECRETARY R. G. Millman
REGISTERED OFFICE 15 Bolton Street
Piccadilly
London
W1Y 8AR
AUDITORS Windsor Stebbing Marsh
Pinnacle House
17-25 Hartfield Road
SW19 3SE
BANKERS Lloyds Bank plc
3 St Georges Road
London
SW19 4DR
COMPANY NUMBER 2743684
- 7 -
<PAGE>
SUNBELT (UK) LTD
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 1998 - CONTINUED
- --------------------------------------------------------------------------------
SUNBELT (UK) LTD
DIRECTORS' REPORT
FOR THE YEAR ENDED 30 JUNE 1998
- --------------------------------------------------------------------------------
The directors present their report and the financial statements for the year
ended 30 June 1998.
PRINCIPAL ACTIVITIES AND REVIEW OF THE BUSINESS
The company's principal activity continued to be that of distribution of
computer equipment.
The directors consider the profit achieved on ordinary activities before
taxation to be satisfactory and they expect continued growth in the current
year.
RESULTS AND DIVIDENDS
The results for the year are set out on page 5.
The company has paid dividends in the year amounting to (pound)249,561 as set
out in note 10.
The directors recommend the following dividends for the year:
1. In respect of the `A' Preference Shares a final dividend of (pound)24.31p per
share making a total dividend of (pound)43,758 on all the `A' Preference shares.
The members will please note that an interim dividend of (pound)25.0364p per
share was voted by your directors on 30th June 1998 resulting in the payment of
a dividend of (pound)45,065.52. Thus a repayment is due to your company by the
holder of these shares (Mr. O'Rourke) in the sum of (pound)1,307.52. Mr.
O'Rourke has agreed that this sum should be deducted from any future dividend in
respect of any `A' Preference shares or Ordinary Shares which is payable to him.
2. In respect of the ordinary shares a second interim dividend of (pound)37.153p
per share, making a total final dividend for the year of (pound)38.579p (made up
of a first interim dividend of U.S.$2.315 voted by your directors on 29 January
1998 and the second interim dividend of (pound)37.153p per share recommended
above). The sums payable in respect of the second interim dividend are:
Mr. Gesner (pound)401,252.40
==========
Mr. O'Rourke (pound)267,501.60
less: (POUND)1,307.52 (refund on `A' Preference Shares)
Balance (pound)266,194.08
==========
- 8 -
<PAGE>
SUNBELT (UK) LTD
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 1998 - CONTINUED
- --------------------------------------------------------------------------------
SUNBELT (UK) LTD
DIRECTORS' REPORT
FOR THE YEAR ENDED 30 JUNE 1998 - CONTINUED
- --------------------------------------------------------------------------------
DIRECTORS AND THEIR INTERESTS
The directors who served during the year and their interests in the company were
as stated below.
CLASS OF SHARE NUMBER OF SHARES
1998 1997
G. O'Rourke Ordinary shares 7,200 7,200
"A" Non-voting Pref. --
shares 1,800
M. Gesner Ordinary shares 10,800 10,800
AUDITORS
Windsor Stebbing Marsh were appointed auditors to the company and in accordance
with Section 385 of the Companies Act 1985, a resolution proposing that they be
re-appointed will be put to the Annual General Meeting.
DIRECTORS RESPONSIBILITIES
Company law requires the directors to prepare financial statements for each
financial year which give a true and fair view of the state of affairs of the
company and of the profit or loss of the company for that period. In preparing
those financial statements, the directors are required to:
- - select suitable accounting policies and then apply them consistently;
- - make judgments and estimates that are reasonable and prudent;
- - prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the company will continue in business.
The directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
company and to enable them to ensure that the financial statements comply with
the Companies Act 1985. They are also responsible for safeguarding the assets of
the company and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
This report was approved by the Board on 21 October 1998.
/s/ R G Millman
R G Millman
Secretary
- 9 -
<PAGE>
SUNBELT (UK) LTD
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 1998 - CONTINUED
- --------------------------------------------------------------------------------
SUNBELT (UK) LTD
AUDITORS' REPORT TO THE MEMBERS
- --------------------------------------------------------------------------------
We have audited the financial statements on pages 5 to 15 which have been
prepared under the historical cost convention and the accounting policies set
out on page 9.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
As described on page 3 the company's directors are responsible for the
preparation of financial statements. It is our responsibility to form an
independent opinion, based on our audit, on those statements and to report our
opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements. It
also includes an assessment of the significant estimates and judgments made by
the directors in the preparation of the financial statements, and of whether the
accounting policies are appropriate to the company's circumstances, consistently
applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
OPINION
In our opinion the financial statements give a true and fair view of the state
of the company's affairs as at 30 June 1998 and of its profit for the year then
ended and have been properly prepared in accordance with the provisions of the
Companies Act 1985.
/s/ Windsor Stebbing Marsh
Windsor Stebbing Marsh Date: 22 October 1998
Chartered Accountants Pinnacle House
Registered Auditor 17-25 Hartfield Road
London
SW19 3SE
- 10 -
<PAGE>
SUNBELT (UK) LTD
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 1998 - CONTINUED
- --------------------------------------------------------------------------------
SUNBELT (UK) LTD
PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 30 JUNE 1998
- --------------------------------------------------------------------------------
1998 1997
---- ----
NOTES (pound) (pound)
-----
TURNOVER 2 10,073,322 5,953,502
COST OF SALES (8,630,369) (4,971,879)
------------- -------------
GROSS PROFIT 1,442,953 981,623
Distribution costs (31,865) (30,661)
Administrative expenses (834,975) (619,459)
------------- -------------
OPERATING PROFIT 3 576,113 331,503
Other interest receivable and 7 755 1,082
similar income
Interest payable and similar 8 (139,350) (63,028)
charges ------------- -------------
PROFIT ON ORDINARY ACTIVITIES
BEFORE TAXATION 437,518 269,557
Tax on profit on ordinary 9 (130,934) (89,018)
activities -------------- -------------
PROFIT ON ORDINARY ACTIVITIES
AFTER TAXATION 306,584 180,539
Dividends 10 (249,561) (46,573)
-------------- -------------
RETAINED PROFIT FOR THE YEAR 16 (pound)57,023 (pound)133,786
================= ================
There are no recognised gains and losses other than those passing through the
profit and loss account.
- 11 -
<PAGE>
SUNBELT (UK) LTD
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 1998 - CONTINUED
- --------------------------------------------------------------------------------
SUNBELT (UK) LTD
BALANCE SHEET
AS AT 30 JUNE 1998
- --------------------------------------------------------------------------------
1998 1997
---- ----
NOTES (pound) (pound) (pound) (pound)
FIXED ASSETS
Tangible assets 11 35,298 44,157
CURRENT ASSETS
Stocks 12 63,959 42,631
Debtors 13 1,584,361 1,345,789
Cash at bank and in hand 338,642 10,104
--------- ---------
1,986,962 1,398,524
CREDITORS: AMOUNTS FALLING
DUE WITHIN ONE YEAR (1,336,796) (814,258)
----------- ---------
NET CURRENT ASSETS 650,166 584,266
------- -------
TOTAL ASSETS LESS
CURRENT LIABILITIES (pound)685,464 (pound)628,423
======= =======
CAPITAL AND RESERVES
Called up share capital 15 18,018 18,000
Profit and loss account 16 667,446 610,423
------- -------
SHAREHOLDERS' FUNDS 17 685,464 628,423
------- -------
Equity interests 685,446 628,423
Non-equity interests 18 --
-------- -------
(pound)685,464 (pound)628,423
======= =======
The financial statements were approved by the Board on 21 October 1998.
/s/ G. O'Rourke
G. O'Rourke
Director
- 12 -
<PAGE>
SUNBELT (UK) LTD
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 1998 - CONTINUED
- --------------------------------------------------------------------------------
SUNBELT (UK) LTD
CASH FLOW STATEMENT
FOR THE YEAR ENDED 30 JUNE 1998
- --------------------------------------------------------------------------------
1998 1997
(pound) (pound) (pound) (pound)
------- ------- ------- -------
NET CASH IN/OUTFLOW FROM
OPERATING ACTIVITIES 809,977 181,942
RETURNS ON INVESTMENTS AND
SERVICING OF FINANCE
Interest received 755 1,082
Interest paid (139,350) (63,028)
--------- --------
NET CASH IN/OUTFLOW FROM
RETURNS ON INVESTMENTS AND
SERVICING OF FINANCE (138,595) (61,946)
TAXATION
Corporation tax paid
(including advance (84,712) (64,306)
Corporation tax repaid 618 --
--------- --------
TAX PAID (84,094) (64,306)
CAPITAL EXPENDITURE
Payments to acquire
intangible assets (9,208) (40,059)
Receipts from sales of --- 4,599
tangible assets --------- --------
NET CASH IN/OUTFLOW FROM
CAPITAL EXPENDITURE (9,208) (35,460)
-------- --------
NET CASH IN/OUTFLOW BEFORE
MANAGEMENT OF LIQUID
RESOURCES AND FINANCING 578,080 20,230
Equity dividends paid (249,561) (46,753)
--------- --------
NET CASH IN/OUTFLOW BEFORE 328,519 (26,523)
MANAGEMENT OF LIQUID
RESOURCES AND FINANCING
Issue of preference share 18 --
capital
NET CASH IN/OUTFLOW FROM
FINANCING 18 --
--------- ---------
IN/DECREASE IN CASH AND CASH
EQUIVALENTS (pound)328,537 (pound)(26,523)
=============== ==============
- 13 -
<PAGE>
SUNBELT (UK) LTD
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 1998 - CONTINUED
- --------------------------------------------------------------------------------
SUNBELT (UK) LTD
NOTES TO THE CASH FLOW STATEMENT
FOR THE YEAR ENDED 30 JUNE 1998
- --------------------------------------------------------------------------------
1. RECONCILIATION OF OPERATING PROFIT TO 1998 1997
------------------------------------- ---- ----
NET CASH IN/OUTFLOW FROM OPERATING ACTIVITIES (pound) (pound)
----------------------------------------------
Operating profit 576,113 331,503
Depreciation of tangible assets 18,067 20,066
Profit on disposal of tangible assets -- 3,733
Increase in stocks (21,328) 10,793
Increase in debtors (238,572) (651,820)
Increase in creditors due within one year 475,697 467,667
NET CASH IN/OUTFLOW FROM OPERATING ACTIVITIES (pound)809,977 (pound)181,942
--------------------------------------------- ============== ==============
2. ANALYSIS OF NET DEBT/FUNDS OTHER NON
-------------------------- 1997 CASH FLOW CASH CHANGES 1998
---- ----
pound) (pound) (pound) (pound)
Net cash:
Cash at bank and in hand 10,104 328,538 -- 338,642
--------- --------- -------- ----------
10,104 328,538 -- 338,642
--------- --------- -------- ----------
Debt:
Finance leases -- -- -- --
Debt due within one year -- -- -- --
Debt due after one year -- -- -- --
--------- --------- -------- ----------
-- -- -- --
Current asset investments -- -- -- --
--------- --------- -------- ----------
Balance at
30 June 1998 (pound)10,104(pound)328,538 (pound)-- (pound)338,642
============= ============= ============ =============
3. RECONCILIATION OF NET CASH FLOW 1998 1997
-------------------------------- ---- ----
TO MOVEMENT IN NET DEBT (pound) (pound)
------------------------
In/Decrease in cash in the year 328,538 (26,523)
Change in net debt resulting from cash flows 328,538 (26,523)
Movement in net funds in the year 328,538 (26,523)
Opening net debt 10,104 36,627
-------------- -------------
Closing net funds (pound)338,642 (pound)10,104
============== =============
- 14 -
<PAGE>
SUNBELT (UK) LTD
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 1998 - CONTINUED
- --------------------------------------------------------------------------------
1. ACCOUNTING POLICIES
1.1 ACCOUNTING CONVENTION
The financial statements are prepared under the historical cost convention
and include the results of the company's operations as indicated in the
directors' report, all of which are continuing.
1.2 TURNOVER
Turnover represents amounts receivable for goods and services provided
stated net of Value Added Tax and trade discounts.
1.3 TANGIBLE FIXED ASSETS AND DEPRECIATION
Tangible fixed assets are stated at cost less depreciation. Depreciation
is provided at rates calculated to write off the cost less estimated
residual value of each asset over its expected useful life, as follows:
Leasehold properties - Straight line over the life of the lease
Computer equipment - 33% Straight line
Fixtures, fittings and 25% Reducing balance
equipment
Motor vehicles 25% Reducing balance
1.4 LEASING AND HIRE PURCHASE COMMITMENTS
Rentals payable under operating leases are charged against income on a
straight line basis over the lease term.
1.5 STOCK
Stock is valued at the lower of cost and net realizable value.
1.6 PENSIONS
The pension costs charged in the financial statements represent the
contributions payable by the company during the year in accordance with
SSAP 24.
1.7 FOREIGN CURRENCY TRANSLATION
Monetary assets and liabilities denominated in foreign currencies are
translated into sterling at the rates of exchange ruling at the accounting
date. Transactions in foreign currencies are recorded at the rate ruling
at the date of the transaction. All differences are taken to profit and
loss account.
- 15 -
<PAGE>
SUNBELT (UK) LTD
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 1998 - CONTINUED
- --------------------------------------------------------------------------------
2. TURNOVER
The total turnover of the company for the year has been derived from its
principal activity undertaken as follows:
TURNOVER
1998 1997
(pound) (pound)
GEOGRAPHICAL MARKET
United Kingdom 9,116,356 4,703,267
Rest of the World 956,966 1,250,235
------------------ --------------------
(pound)10,073,322 (pound)5,953,502
================== ====================
3. OPERATING PROFIT
1998 1997
(pound) (pound)
Operating profit is stated after
charging:
Depreciation of tangible assets 18,067 20,066
Hire of equipment - operating leases 728 --
Loss on disposal of tangible assets -- 3,733
Auditor's remuneration 9,183 7,250
================== ====================
4. EMPLOYEES
NUMBER OF EMPLOYEES
The average weekly number of employees
(including directors) during the year was:
1998 1997
NUMBER NUMBER
Management 3 3
Selling and distribution 11 8
------------------ --------------------
14 11
================== ====================
EMPLOYMENT COSTS
(pound) (pound)
Wages, salaries and commission 476,749 336,813
Social security costs 47,202 33,153
Other pension costs 7,300 5,750
Other costs -- 2,508
------------------ --------------------
(pound)531,251 (pound)378,224
================== ====================
5. DIRECTORS' EMOLUMENTS
1998 1997
(pound) (pound)
Directors' emoluments 31,800 34,985
Company pension contributions
to money purchase schemes 7,300 5,750
------------------- --------------------
(pound)39,100 (pound)40,735
=================== ====================
- 16 -
<PAGE>
SUNBELT (UK) LTD
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 1998 - CONTINUED
- --------------------------------------------------------------------------------
6. PENSION COSTS
The company operates a defined contribution pension scheme for the benefit
of the director Gerry O'Rourke. The assets of the scheme are administered
by trustees in a fund independent from those of the company.
The total contributions paid in the year amount to (pound)7,300 (1997
(pound)5,760)
7. OTHER INTEREST RECEIVABLE
AND SIMILAR INCOME
1998 1997
(pound) (pound)
Bank interest received 755 1,082
================ ===============
8. INTEREST PAYABLE 1998 1997
(pound) (pound)
On bank loans and overdrafts 1,031 --
Factoring charges and interest 135,172 62,808
On overdue tax 3,147 220
----------------- ---------------
(pound)139,350 (pound)63,028
================ ================
9. TAXATION 1998 1997
(pound) (pound)
U.K. CURRENT YEAR TAXATION
U.K. Corporation tax at 31% (1997 - 32%) 131,552 89,018
Overprovision in prior year (618) --
(pound)130,934 (pound)89,018
--------------- --------------
=============== ==============
10. DIVIDENDS 1998 1997
(pound) (pound)
Preference:
Interim paid 30 June 1998 45,066 --
Ordinary:
Final paid in respect
of 30 June 1997 178,827 --
Interim paid in respect
of 30 June 1998 25,668 46,753
--------------- -------------
(pound)249,561 (pound)46,753
=============== =============
- 17 -
<PAGE>
SUNBELT (UK) LTD
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 1998 - CONTINUED
- --------------------------------------------------------------------------------
11. TANGIBLE ASSETS
SHORT
LEASEHOLD FIXTURES,
LAND AND FITTINGS AND MOTOR
BUILDINGS EQUIPMENT VEHICLES TOTAL
(pound) (pound) (pound) (pound)
COST
At 1 July 1997 8,680 55,224 8,323 72,227
Additions -- 9,208 -- 9,208
At 30 June 1998 8,680 64,432 8,323 81,435
DEPRECIATION -- -- -- --
At 1 July 1997 5,786 20,202 2,082 28,070
Charge for year 2,894 13,613 1,560 18,067
At 30 June 1998 8,680 33,815 3,642 46,137
NET BOOK VALUES
At 30 June 1998 (pound)-- (pound)30,617 (pound)4,681 (pound)35,298
============= ============= ============= ==============
At 30 June 1997 (pound)2,894 (pound)35,022 (pound)6,241 (pound)44,157
============= ============= ============= ==============
12. STOCKS
1998 1997
(pound) (pound)
Finished goods and goods for resale 63,959 42,631
=============== ==============
13. DEBTORS
1998 1997
(pound) (pound)
Trade debtors 1,483,021 1,118,983
Directors' loan accounts -- 5,196
Other debtors 63,998 176,228
Prepayments and accrued income 37,342 45,382
--------------- --------------
(pound)1,584,361 (pound)1,345,789
================= ================
14. CREDITORS: AMOUNTS FALLING
DUE WITHIN ONE YEAR
1998 1997
(pound) (pound)
Trade creditors 836,426 486,177
Corporation tax 131,552 84,712
Other taxes and social security costs 110,859 129,915
Directors' current accounts 7,538 6,008
Other creditors 242,651 36,153
Accruals and deferred income 7,770 71,293
---------------- --------------
(pound)1,336,796 (pound)814,258
================ ==============
- 18 -
<PAGE>
SUNBELT (UK) LTD
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 1998 - CONTINUED
- --------------------------------------------------------------------------------
15. SHARE CAPITAL
1998 1997
(pound) (pound)
AUTHORISED
18,000 Ordinary shares of
(pound)1 each 18,000 18,000
1,800 `A' Non-voting Preference
shares of 1p each 18 --
---------------- --------------
(pound)18,018 (pound)18,000
================ ==============
ALLOTTED, CALLED UP AND FULLY PAID
18,000 Ordinary shares
of (pound)1 each 18,000 18,000
1,800 `A' Non-voting Preference
shares of 1p each 18 --
---------------- --------------
(pound)18,018 (pound)18,000
================ ==============
During the year 1,800 `A' non-voting preference shares of (pound)0.01 each were
authorised. These shares were allotted by the directors to G. O'Rourke on 22
December 1997.
The `A' ordinary preference shares carry the right to a preference dividend
equal to 0.00556% (net of tax credit) per annum of the audited net profits of
the company before tax. On winding up the holders of the shares have the right
to repayment of their paid up share capital prior to the repayment of ordinary
shares, plus any arrears of dividends on the `A' shares held by them. The `A'
shares hold no right to vote, or receive notice of, or speak at general
meetings.
16. PROFIT AND LOSS ACCOUNT
0 1998 1997
(pound) (pound)
Retained profits at 1 July 1997 610,423 476,637
Retained profit for the year 57,023 133,786
---------------- --------------
Retained profits at 30 June 1998 (pound)667,446 (pound)610,423
================ ==============
17. RECONCILIATION OF MOVEMENTS
IN SHAREHOLDERS' FUNDS
1998 1997
(pound) (pound)
Profit for the year 306,584 180,539
Dividends (249,561) (46,753)
---------------- --------------
57,023 133,786
New share capital subscribed 18 --
---------------- --------------
Net addition to shareholders' funds 57,041 133,786
---------------- --------------
Opening shareholders' funds 628,423 494,637
---------------- --------------
Closing shareholders' funds (pound)685,464 (pound)628,423
================ ==============
18. FINANCIAL COMMITMENTS
The company has taken on a lease on new premises from 17 August 1998 at an
annual rent of(pound)35,000 per annum.
- 19 -
<PAGE>
SUNBELT (UK) LTD
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 1998 - CONTINUED
- --------------------------------------------------------------------------------
19. TRANSACTIONS WITH DIRECTORS
The following directors had interest free loans during the year. The
movement on these loans are as follows:
AMOUNT OUTSTANDING MAXIMUM
1998 1997 IN YEAR
(pound) (pound) (pound)
G. O'Rourke -- 5,196 48,871
20. RELATED PARTY TRANSACTIONS
During the year PC Wise Inc., a company controlled by the director M.
Gesner, made the following transactions with Sunbelt (UK) Ltd on an arms-length
basis:
1998 1997
(pound) (pound)
Management charges -- 742
Purchases 29,694 300,257
---------------- -------------
29,694 300,999
================ =============
Other debtors includes a balance owed by PC Wise Inc. of (pound)63,998
(1997 (pound)119,518).
- 20 -
<PAGE>
ATTACHMENT 7(B)
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The unaudited pro forma condensed consolidated statement of operations of
the Company for the year ended June 30, 1998 and the six month period ended
December 31, 1998 give effect to the acquisition of Sunbelt Limited as if such
transaction had occurred on June 30, 1997.
<TABLE>
<CAPTION>
EUROPEAN MICRO HOLDINGS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED 06/30/98
($ in thousands, except per share data)
TWELVE MONTHS ENDED SUNBELT PRO FORMA PRO FORMA
6/30/98 COMPANY ACQUISITION ADJUSTMENTS NOTES CONSOLIDATED
<S> <C> <C> <C> <C> <C>
Sales:
Net sales 82,361 16,838 - 99,199
Net sales to related parties 29,092 - - 29,092
---------- ------------ ------------ -----------
Total net sales 111,453 16,838 - 128,291
Cost of goods sold:
Cost of goods sold 68,380 14,426 - 82,806
Cost of goods sold to 28,678 - - 28,678
related parties ---------- ------------ ------------ -----------
Gross profit 14,395 2,412 - 16,807
Operating expenses:
Selling, general and
administrative expenses 7,059 1,449 237 (a) & (c) 8,745
Expenses attributable to 104 - - 104
related parties ---------- ------------ ------------ ----------
Total operating expenses 7,163 1,449 237 8,849
---------- ------------ ------------ -----------
Operating profit 7,232 963 (237) 7,958
Interest expense, net 437 233 97 (b) & (d) 767
Equity in income of
unconsolidated affiliate 3 - - 3
---------- ------------ ------------ -----------
Income before income taxes 6,798 730 (334) 7,194
Income taxes 2,313 219 22 (e) 2,554
---------- ------------ ------------ -----------
Net income 4,485 511 (356) 4,640
========== ============ ============ ===========
Net income per share - basic 1.10 N/A N/A 1.14
========== ============= ============ ===========
Net income per share - diluted 1.10 N/A N/A 1.14
========== ============= ============ ===========
- 21 -
<PAGE>
EUROPEAN MICRO HOLDINGS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED 12/31/98
($ in thousands, except per share data)
SIX MONTHS ENDED SUNBELT PRO FORMA PRO FORMA
2/31/98 COMPANY ACQUISITION ADJUSTMENTS NOTES CONSOLIDATED
Sales:
Net sales 55,720 5,854 - 61,574
Net sales to related parties 2,588 - - 2,588
----------- ----------- ----------- ------------
Total net sales 58,308 5,854 - 64,162
Cost of goods sold:
Cost of goods sold 50,539 5,207 - 55,746
Cost of goods sold to 2,566 - - 2,566
related parties
----------- ----------- ----------- ------------
Gross profit 5,203 647 - 5,850
Operating expenses:
Selling, general and
administrative expenses 3,867 306 79 (a) & (c) 4,252
Expenses attributable to - - - -
related parties
----------- ----------- ----------- ------------
Total operating expenses 3,867 306 79 4,252
----------- ----------- ----------- ------------
Operating profit 1,336 341 (79) 1,598
Interest expense, net 73 65 49 (b) & (d) 187
Equity in loss of
unconsolidated affiliate (47) - - (47)
----------- ----------- ----------- ------------
Income before income taxes 1,216 276 (128) 1,364
Income taxes 470 49 42 (e) 561
----------- ----------- ----------- ------------
Net income 746 227 (170) 803
=========== =========== =========== ============
Net income per share - basic 0.15 N/A N/A 0.16
=========== =========== =========== ============
Net income per share - diluted 0.15 N/A N/A 0.16
=========== =========== =========== ============
</TABLE>
- 22 -
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited pro forma condensed consolidated statements of
operations presents the pro forma consolidated results of operations of the
Company as if the acquisition of Sunbelt Limited and the financing thereof had
occurred on July 1, 1997. The pro forma condensed consolidated statements of
operations for the year ended June 30, 1998 and the six month period ended
December 31, 1998, have been derived form the historical statements of
operations of the Company and Sunbelt prior to the acquisition. The historical
statements of operations have been translated from pounds sterling to dollars
using the rates of 1.6716 and 1.6644 for the twelve months ended June 30, 1998
and the six month ended December 31, 1998, respectively. These rates represent
the average exchange rates for the respective periods. The results of operations
of Sunbelt subsequent to the acquisition have been included in the historical
statement of operations of the Company. The actual acquisition date of Sunbelt
was October 26, 1998. The acquisition has been accounted for in the pro forma
condensed consolidated statement of operations using the purchase method of
accounting. The total purchase price has been allocated to the assets and
liabilities acquired based upon their estimated fair values on the effective
date of the acquisition. The allocation of the purchase price and the
determination of the estimated life of goodwill are preliminary. The pro forma
data presented herein do not purport to represent what the Company's financial
results of operations would have been had the acquisition in fact occurred on
July 1, 1997 nor to project the Company's results of operations for any future
period.
2. PRO FORMA ACQUISITION ADJUSTMENTS
(a) To record the amortization ($60,000 annually) of goodwill ($1.5
million) arising as a result of applying purchase accounting to the acquisition
over a 25 year estimated life, net of goodwill amortization previously recorded
by the Company.
(b) To record the interest expense related to the unpaid balance of the
guaranteed consideration to be paid in connection with the acquisition, net of
expense previously recorded by the Company.
(c) To record compensation expense related to the contingent
consideration in connection with the acquisition, net of expense previously
recorded by the Company.
(d) To record the effect of reduction in interest income due to cash
outlay for the acquisition.
(e) To record the income tax effect of the pro forma adjustments; income
taxes are provided at a combined 33% rate, reflecting federal and state taxes at
the estimated statutory rates adjusted for nondeductible goodwill.
- 23 -
EXHIBIT 23.1
[Letterhead of Windsor Stebbing Marsh]
March 10, 1999
The Board of Directors
European Micro Holdings, Inc.
c/o 808 Third Avenue South
Nashville, Tennessee 37210
Dear Sirs:
We consent to the inclusion of our report dated 22 October 1998, with respect to
the financial statements of Sunbelt (UK) Limited as of and for the years ended
30 June 1998 and 1997, which report appears in the Form 8-K of European Micro
Holdings, Inc. dated March 1999.
Yours faithfully
For and on behalf of
WINDSOR STEBBING MARSH
/s/ PJ Windsor
PJ WINDSOR
