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EMH – ‘ability to continue is materially impaired’

Distie close to biting the dustie

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European Micro Holdings, the broker of top brand computer hardware, has announced it is unlikely to be able to continue trading as a going concern.

This is because major shareholder John P Gallagher wants the $659,139 he loaned EMH back. And if he wants his money back, then so does John B Gallagher, co-chairman and major shareholder of EMH, who has also loaned the distie $659,139.

The loans relate to the purchase of American Micro Computer Center (AMCC) by EMH. EMH doesn't have the money to pay up and so is likely to default. If it defaults then the Gallaghers would, under the terms of a pledge agreement, be entitled to take back their shares of stock in AMCC. This would result in EMH no longer owning an interest in AMCC and EMH being stuffed.

In a statement the company said: "The combination of the events described above will materially impair European Micro Holdings ability to continue as a going concern."

This kick in the goolies follows NatWest bank's decision to cut its exposure to the distie. NatWest used to lend EMH the entire amount it needed to buy its stock. The bank has now cut this back to 25 per cent of the value of inventory.

On Friday, August 3, EMH issued a press release in which it said the NatWest loan restructure would materially impair the firm's "ability to finance its operations and to purchase inventory".

The timing of today's statement is interesting. In July, CW360.com reported that EMH faced the threat of legal action from South Trust Bank for the repayment a loan. The distie had failed to comply with covenants attached to the loan, the site said. The deadline for the repayment is August 15 - yesterday. The company said that, if all else fails, Gallagher and co-chairman Harry Shields would personally repay the loan.

Headquartered in Miami, European Micro Holdings operates in Europe only. The company hoovers up surplus inventory and also tries to exploit arbitrage opportunities i.e. it buys stock where it is cheap and sells it in a country where it is more expensive.

EMH sells through resellers, at cheaper prices than they could buy through official distribution. And the company claims better margins than traditional disties. ®

Related Story

Natwest loan cut floors EMH

Related Link

EMH statement

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