ASD GROUP INC, SB-2/A, 1999-03-25

ASD GROUP INC
SB-2/A, 1999-03-25
ENGINEERING SERVICES

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As filed with the Securities and Exchange Commission on March 25, 1999
Registration No. 333-71535

================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

-------------------------

ASD GROUP, INC.
-----------------------------------------------------------
(Name of Small Business Issuer in Its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 8711 14-1483460
- ------------------------------ ------------------------- ---------------------------------------
(State or Jurisdiction of (Primary Standard (I.R.S. Employer Identification Number)
Incorporation or Organization) Industrial Classification
Code Number)
</TABLE>
1 Industry Street
Poughkeepsie, New York 12603
(914) 452-3000
(Address and Telephone Number of Principal Executive Offices)

1 Industry Street, Poughkeepsie, New York 12603
(Address of Principal Place of Business or Intended Principal Place of Business)

Peter C. Zachariou
President
ASD Group, Inc.
1 Industry Street
Poughkeepsie, New York 12603
(914) 452-3000
(Name, Address and Telephone Number of Agent for Service)

COPIES OF COMMUNICATIONS TO:

Dale S. Bergman, P.A.
Broad and Cassel
201 South Biscayne Boulevard, Suite 3000
Miami, Florida 33131
Telephone: (305) 373-9400
Facsimile: (305) 373-9443

-------------------------------

Approximate date of commencement of proposed sale to the public:
From time to time after this Registration Statement becomes effective.

---------------------------

If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
================================================================================
<PAGE>

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]

<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
--------------------------------------------------------------------------------------------------------------------------
PROPOSED
PROPOSED MAXIMUM MAXIMUM
AMOUNT OFFERING PRICE AGGREGATE AMOUNT OF
TITLE OF SHARES TO BE PER SHARE (1) OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PRICE(1) FEE
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, 7,906,477 $1.00 $7,906,477.00 $2,332.41
$.01 par value shares
--------------------------------------------------------------------------------------------------------------------------
Common Stock, 3,806,039 $1.00 $3,806,039.00 $1,122.78
$.01 par value(2) shares
--------------------------------------------------------------------------------------------------------------------------
Common Stock, 1,063,211 $1.50 $1,594,816.50 $470.47
$.01 par value(3) shares
--------------------------------------------------------------------------------------------------------------------------
Common Stock, 50,000 $1.75 $87,500.00 $25.82
$.01 par value(4) shares
--------------------------------------------------------------------------------------------------------------------------
Common Stock, 141,360 $ .358 $50,606.88 $14.93
$.01 par value(5) shares
--------------------------------------------------------------------------------------------------------------------------
Common Stock, 4,000,000 $ .75 $3,000,000.00 $885.00
$.01 par value(6) shares
--------------------------------------------------------------------------------------------------------------------------
Common Stock, 50,000 $2.00 $100,000.00 $29.50
$.01 par value(7) shares
--------------------------------------------------------------------------------------------------------------------------
Common Stock, 100,000 $1.25 $125,000.00 $36.88
$.01 par value(8) shares
--------------------------------------------------------------------------------------------------------------------------
Common Stock, 50,000 $2.50 $125,000.00 $36.88
$.01 par value(9) shares
--------------------------------------------------------------------------------------------------------------------------
Total $4,954.67(10)
--------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Estimated solely for the purpose of calculating the registration fee and
pursuant to Rule 457.

(2) Represents 734,607 shares issuable upon conversion of the Company's Series
C Convertible Preferred Stock, 1,178,572 shares issuable upon conversion of
the Company's Series D Convertible Preferred Stock (based on a market price
of $1.00 per share) and 1,892,860 shares issuable upon conversion of the
Company's Series E Convertible Preferred Stock (based on a market price of
$1.00 per share).

(3) Represents shares issuable upon the exercise of warrants issued by the
Company having an exercise price of $1.50 per share. Also includes such
additional shares as may be issuable as a result of the anti-dilution
provisions of said warrants.

(4) Represents shares issuable upon the exercise of a warrant issued by the
Company having an exercise price of $1.75 per share. Also includes such
additional shares as may be issuable as a result of the anti-dilution
provisions of said warrant.

(5) Represents shares issuable upon the exercise of warrants issued by the
Company having an exercise price of $.358 per share. Also includes such
additional shares as may be issuable as a result of the anti-dilution
provisions of said warrants.

(6) Represents shares issuable upon the exercise of warrants issued by the
Company having an exercise price of $.75 per share. Also includes such
additional shares as may be issuable as a result of the anti-dilution
provisions of said warrants.

(7) Represents shares issuable upon the exercise of a warrant issued by the
Company having a maximum exercise price of $2.00 per share. Also includes
such additional shares as may be issuable as a result of the anti-dilution
provisions of said warrant.

(8) Represents shares issuable upon the exercise of warrants issued by the
Company having an exercise price of $1.25 per share. Also includes any
additional shares as may be issuable as a result of the anti-dilution
provisions of said Warrants.

(9) Represents shares issuable upon exercise of warrants issued by the Company
having an exercise price of $2.50 per share. Also includes such additional
shares as may be issuable as a result of the anti-dilution provision of
said warrants.

(10) Of this amount, $3,604.45 has previously been paid and $1,350.22 is being
transmitted herewith.

The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.

<PAGE>

SUBJECT TO COMPLETION, DATED MARCH 25, 1999

PROSPECTUS
17,167,087 SHARES OF COMMON STOCK

ASD GROUP, INC.

The selling stockholders are offering for sale up to 17,167,087 shares
of common stock. We are registering the re-sale of the shares of common stock
pursuant to commitments to the holders of the securities. We will pay the
expenses of registering the re-sale of the shares.

The selling stockholders may sell their shares in public or private
transactions, at prevailing market prices or at privately negotiated prices. We
will not receive any proceeds from the sales of the shares. We are registering
the re-sale of shares that are currently outstanding, shares issuable upon
conversion of preferred stock and shares issuable upon the exercise of
outstanding warrants. We will receive approximately $5,083,000 from the exercise
of the warrants if all of the warrants are exercised and the cashless exercise
provisions of the warrants are not used.

Our common stock is quoted on the OTC Bulletin Board under the symbol
"ASDG." On March 24, 1999, the last reported sales price of our common stock on
the OTC Bulletin Board was $.94 per share.

-----------------------------------

YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE 7 OF THIS
PROSPECTUS.
-----------------------------------

THESE SHARES HAVE NOT BEEN APPROVED BY THE SEC OR ANY STATE SECURITIES
COMMISSION NOR HAVE THESE ORGANIZATIONS DETERMINED WHETHER THIS PROSPECTUS IS
COMPLETE OR ACCURATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

YOU SHOULD ONLY RELY ON THE INFORMATION INCORPORATED BY REFERENCE OR
PROVIDED IN THIS PROSPECTUS OR ANY SUPPLEMENT. WE HAVE NOT AUTHORIZED ANYONE
ELSE TO PROVIDE YOU WITH DIFFERENT INFORMATION. OUR COMMON STOCK IS NOT BEING
OFFERED IN ANY STATE WHERE THE OFFER IS NOT PERMITTED. YOU SHOULD NOT ASSUME
THAT THE INFORMATION IN THIS PROSPECTUS OR ANY SUPPLEMENT IS ACCURATE AS OF ANY
DATE OTHER THAN THE DATE ON THE FRONT OF THOSE DOCUMENTS.

The date of this Prospectus is __________, 1999

<PAGE>

TABLE OF CONTENTS

PAGE
----
SUMMARY....................................................................1

FORWARD-LOOKING STATEMENTS.................................................7

RISK FACTORS...............................................................7

USE OF PROCEEDS...........................................................14

MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS...................15

CAPITALIZATION............................................................17

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS..............................................18

BUSINESS..................................................................23

MANAGEMENT................................................................32

PRINCIPAL STOCKHOLDERS....................................................36

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................38

SELLING STOCKHOLDERS......................................................39

PLAN OF DISTRIBUTION......................................................43

DESCRIPTION OF SECURITIES.................................................45

SHARES ELIGIBLE FOR FUTURE SALE...........................................47

LEGAL OPINION.............................................................48

EXPERTS...................................................................48

WHERE YOU CAN FIND MORE INFORMATION.......................................48

-i-
<PAGE>
SUMMARY

THIS IS ONLY A SUMMARY AND DOES NOT CONTAIN ALL THE INFORMATION THAT
MAY BE IMPORTANT TO YOU. YOU SHOULD READ THE MORE DETAILED INFORMATION CONTAINED
LATER IN THIS PROSPECTUS AND ALL OTHER INFORMATION, INCLUDING THE FINANCIAL
INFORMATION AND STATEMENTS WITH NOTES, INCORPORATED BY REFERENCE INTO THIS
PROSPECTUS AS DISCUSSED IN THE "WHERE YOU CAN FIND MORE INFORMATION" SECTION OF
THIS PROSPECTUS.

ABOUT US

OUR BUSINESS

We provide comprehensive contract manufacturing and engineering
services to original equipment manufacturers. We specialize in the fabrication,
assembly and testing of complex industrial products and non-invasive medical
equipment. We also manufacture complete systems, as well as assemblies,
including printed circuit boards, cable and wire harnesses and other
electro-mechanical assemblies. We also provide our customers with a broad range
of sophisticated product engineering and design services. Our manufactured
products range from automated test and production systems to less complex
products such as sign plotting devices. Our representative customers include ENI
Technologies (a division of Astec America, Inc.), General Electric, Gerber
Scientific Products, International Business Machines Corporation, U.S. Surgical,
Motorola, Inc. and the United States Postal Service.

We were incorporated in New York in May 1965 under the name Dutchess
Design & Development, Inc. In July 1996, we were reincorporated in Delaware
under our present name. We maintain our executive offices at 1 Industry Street,
Poughkeepsie, New York 12603, and our telephone number is (914) 452-3000.

OUR FINANCIAL RESTRUCTURING

In May 1997, we completed our initial public offering and in December
1997, restructured our bank debt. Although we believe there is a positive
climate for contract manufacturers in the United States, generally, beginning in
1998, our sales were and continue to be adversely affected by the situation in
the Asian markets. We have experienced a reduction in orders from several
customers, principally those affected by Asian market conditions. These
cancellations caused us to record an inventory write-off and reserve of
$2,200,000 for the year ended June 26, 1998 and an additional inventory
write-off of $1,500,000 for the quarter ended December 25, 1998.

As a result of the reduction in orders and resulting decrease in
working capital, on June 26, 1998, we entered into a purchase agreement with a
group of investors for a capital infusion and agreements with our primary
lenders to restructure our debt. As a result of the financial restructuring, we
recorded a $1,718,000 tax expense resulting from a one-time write-off of the
previously established deferred tax asset, which may not be utilized. However,
we also received over $2,800,000 in additional capital, eliminated approximately
$1,000,000 in debt and restructured, on more favorable terms, our remaining
debt. Moreover, Getzler & Co., Inc. was retained to manage our operations.
Through its executive officers, Getzler has taken steps to reduce inventory and
costs.

-1-
<PAGE>

Pursuant to a Purchase Agreement dated as of June 26, 1998 between the
company, certain investors and Gary D. Horne (the "Purchase Agreement"), the
investors purchased, in a private offering, shares of our common stock, shares
of our convertible preferred stock and five-year warrants to purchase additional
shares of common stock at an exercise price of $.75 per share for $2,048,000.

As part of the financial restructuring, we reached agreement with PNC
Bank, National Association, Bankers Trust Company and a group of private
noteholders, our three primary lenders, to restructure our outstanding
indebtedness to them. As part of the agreement with the noteholder group,
$880,000 in debt was converted into additional shares of convertible preferred
stock.

In addition to the foregoing, holders of outstanding warrants to
purchase an aggregate of 118,126 shares of common stock at $2.69 per share
agreed to exchange these warrants for new warrants to purchase 381,818 shares at
$1.50 per share. The financial restructuring would have triggered the
anti-dilution provisions of the outstanding warrants resulting in such warrants
representing the right to purchase at least 478,198 shares at an exercise price
of less than $.75 per share.

As a result of continued losses, by November 1998, we required an
additional capital infusion. Accordingly, in November we raised an additional
$825,000 through a private offering of shares of our convertible preferred
stock. In addition, in March 1999 we raised an additional $1,325,000 through a
private offering of shares of our convertible preferred stock.

RECENT DEVELOPMENTS

CONTINUING LOSSES

We expect operating losses to continue at least through June 25, 1999.
For the quarter ended December 25, 1998, we reported a net loss of approximately
$2,700,000. These losses result from, among other things, an inventory write-off
of approximately $1,500,000 taken in the quarter ended December 25, 1998 as a
result of the cancellation of orders by customers. In addition, during December
1998, as part of our financial plan to reduce debt and increase equity, we made
a decision to sell our currently idle manufacturing facility. Although we do not
have any written contract for a sale of the property at this time, the amount of
the impairment in the carrying value of the manufacturing facility ($300,000)
was charged to operations in the quarter ended December 25, 1998. As a result of
our continuing losses and the impairment in capital, we will require additional
capital notwithstanding the funds that were raised in the financial
restructuring.

AGREEMENT WITH FOUNDERS

On February 9, 1999, we entered into a letter agreement with two of our
original founders to which we agreed to pay deferred compensation in the amount
of $30,000 and provide health insurance benefits until the year 2008. By letter
agreement dated as of February 9, 1999, the founders agreed to accept, in lieu
of any further pension payments, 75,000 restricted shares of our common stock
and continuation of the medical, dental and prescription drug benefits currently
provided to the founders until the founders died or reached the age of 65.

-2-
<PAGE>

NASDAQ DELISTING

On February 23, 1999, we received notice from The Nasdaq Stock Market,
that the Nasdaq Listings Qualifications Panel determined to delist our common
stock from The Nasdaq Stock Market effective February 23, 1999. We have
requested a review of this decision by the Nasdaq Listing and Hearing Review
Council and our request for a hearing has been granted although a date has not
been set. In the interim, the common stock is being quoted on the OTC Bulletin
Board and management continues its efforts to reduce liabilities and increase
stockholders' equity. Management hopes to be able to demonstrate compliance with
The Nasdaq SmallCap Market maintenance requirements and have a plan for
sustained compliance by the time this decision is reviewed by the Hearing Review
Council. However, no assurance can be given that we will be able to achieve
compliance or that the Nasdaq Hearing Review Council will agree to re-list our
common stock on The Nasdaq Stock Market.

BANKERS TRUST AGREEMENT

As of February 26, 1999, we were indebted to Bankers Trust Company
("BTC") in the amount of $2,501,132.64, plus all accrued but unpaid interest.
Effective February 26, 1999, we entered into the Second Restructuring Agreement
(the "Second Restructuring Agreement") with BTC pursuant to which our
obligations to BTC will be reduced to $800,000. Pursuant to the Second
Restructuring Agreement, upon receipt of a $250,000 payment, BTC will reduce our
indebtedness to $550,000, which amount will be payable in 24 months. We
anticipate consummating the Second Restructuring Agreement in March 1999,
however, it is subject to certain conditions including payment by us of
$250,000.

AGREEMENT WITH GARY HORNE

As of March 4, 1999, we were indebted to Gary D. Horne, former Chief
Executive Officer and Chairman of the Board, in the aggregate principal amount
of $707,492.91, plus accrued and unpaid interest. By letter agreement dated
March 4, 1999, Gary Horne agreed to forgive such indebtedness in exchange for:
(i) 150,000 shares our common stock (the "Additional Shares"); (ii) release of
the 85,718 shares of our common stock (the "Escrow Shares") owned by Gary Horne
currently being held in escrow, to secure Mr. Horne's indemnifications under the
Purchase Agreement; (iii) registration of the resale of the Additional Shares
and Escrow Shares; (iv) consent to the assignment by Mr. Horne of all insurance
policies on the life of Gary Horne from which we and/or Gary Horne borrowed the
cash value along with accumulated interest and an assumption of any liabilities
with respect to these insurance policies and the loans outstanding thereunder;
(v) providing Gary D. Horne with life insurance for executives according to the
benefits of our group insurance plan and providing Gary D. Horne and his wife
health and dental insurance according to the benefits of our group insurance
plan continuously through September 1, 2001; and (vi) releasing Mr. Horne from
certain liabilities arising from his acting as an officer and/or director from
June 26, 1998 through the date hereof, and arising from the Purchase Agreement.
Consummation of this agreement is subject to a number of conditions including
the company using its best efforts to obtain a general release from each of the
purchasers listed on Schedule A to the Purchase Agreement.

-3-
<PAGE>

REVOLVING CREDIT FACILITY WITH PNC BANK

On March 10, 1999, we amended the terms of our revolving credit
facility with PNC Bank pursuant to which our credit line was increased from
$4,500,000 to $5,700,000. As of March 10, 1999, we had an over advance to PNC
Bank under the credit facility in the amount of approximately $1,575,000.
Pursuant to the terms of the amendment, we agreed to begin repaying this over
advance upon the earliest to occur of (i) sale of our currently idle
manufacturing facility, (ii) refinancing of certain of our real property, or
(iii) August 29, 1999.

ANNUAL STOCKHOLDERS MEETING

On March 15, 1999, we held an annual meeting of our stockholders. At
the annual meeting, the stockholders took the following action:

/bullet/ approved the terms of the financial restructuring;

/bullet/ approved an amendment to our Certificate of Incorporation
increasing the number of authorized shares of common stock
from 10,000,000 shares to 50,000,000 shares;

/bullet/ elected the following directors to our Board of Directors for
the ensuing year: Jay H. Solomont, Peter C. Zachariou, Mark
Karasick, Thomas J. Lenagh, and Jan M. Winston;

/bullet/ approved an amendment to our 1996 Stock Option Plan to
increase the number of shares of common stock reserved for
issuance under the plan from 60,000 shares to 350,000 shares;
and

/bullet/ ratified the appointment of Deloitte & Touche, LLP as our
auditors for the fiscal year ended June 25, 1999.

Consequently, on March 17, 1999, we filed a Certificate of Amendment to
our Certificate of Incorporation increasing the number of authorized shares of
our common stock from 10,000,000 shares to 50,000,000 shares. In addition, as a
result of the approval of the financial restructuring and amendment to our
Certificate of Incorporation, approximately 683,708 shares of our Series A
Convertible Preferred Stock and Series B Convertible Preferred Stock
automatically converted into 6,837,076 shares of common stock.

-4-
<PAGE>

ABOUT THE OFFERING

Common stock outstanding................ 9,808,676 shares.(1)

Common stock offered by the
selling stockholders....................17,427,798 shares.(2)

Use of Proceeds.........................We will not receive any proceeds from
the sale of the shares of common stock
by the selling stockholders. We will
only receive proceeds upon the exercise
of the warrants if the warrants are
exercised and the cashless exercise
provisions of the warrants are not used.
Those proceeds, if any, will be used for
working capital requirements and other
general corporate purposes. See "Use of
Proceeds."

Risk Factors............................The securities offered hereby involve a
high degree of risk. See "Risk Factors."

OTC Bulletin Board......................ASDG

- ------------
(1) Does not include shares of common stock issuable upon conversion of
outstanding shares of convertible preferred stock and upon exercise of
outstanding options and warrants to purchase shares of common stock.

(2) Includes shares issuable upon exercise of outstanding warrants, and
conversion of our outstanding Series C Convertible Preferred Stock,
Series D Convertible Preferred Stock and Series E Convertible Preferred
Stock.

-5-
<PAGE>

SUMMARY CONSOLIDATED FINANCIAL INFORMATION

The following is a summary of our Consolidated Financial Statements,
which are included elsewhere in this Prospectus, and should be read in
conjunction therewith.

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
-------------------------------------- --------------------------------------
JUNE 26, JUNE 27, DECEMBER 25, DECEMBER 26,
1998 1997 1998 1997
----------------- ----------------- ---------------- -----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales........................... $14,298,745 $15,870,988 $ 3,816,890 $9,634,806
Income (loss) from operations....... (4,306,657) 124,690 (3,101,580) (52,993)
Loss before income taxes and
extraordinary gain .............. (5,640,638) (1,341,481) (3,527,297) (497,931)
Net loss ........................... (6,692,670) (776,897) (3,527,297) (288,500)
Net loss per basic and diluted
common share..................... $ (4.24) $ (1.03) $ (1.75) $ (.18)
Weighted average number
of common shares outstanding...... 1,579,018 751,041 2,079,934 1,577,917
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 25,
1998
----------------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:

Working capital deficiency........................... $(2,427,746)
Current assets....................................... 3,215,700
Total assets......................................... 7,564,869
Long-term debt, net of current portion............... 4,198,529
Stockholders' deficiency............................. (2,616,542)
</TABLE>

-6-
<PAGE>
FORWARD-LOOKING STATEMENTS

Certain important factors may affect our actual results and could cause
those results to differ materially from any forward-looking statements made in
this Prospectus or that are otherwise made by us or on our behalf.
"Forward-looking statements" are not based on historical facts and are typically
phrased using words such as "may," "will," "expect," "believe," "anticipate,"
"intend," "could," "estimate" or "continue" and similar expressions or
variations.

Differences in actual results may be caused by factors such as those
discussed in the "Risk Factors" below as well as those discussed elsewhere in
this Prospectus and in our filings with the SEC.

RISK FACTORS

THE SHARES OFFERED ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK.
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING MATTERS, AS WELL AS THE OTHER
INFORMATION IN THIS PROSPECTUS, BEFORE INVESTING.

WE REQUIRE ADDITIONAL FINANCING AND WE MIGHT NOT BE ABLE TO OBTAIN IT

As of December 25, 1998, we had a working capital deficiency of
$2,427,746. We believe our existing and anticipated capital resources will
enable us to fund operations only through June 1999. Thus, we require
substantial capital in the immediate future. We have been and will continue to
seek equity or debt financing to fund operating losses and working capital. We
cannot assure you that funding will be available upon acceptable terms, if at
all. If we cannot raise funds, our business will be materially harmed.

DEPENDENCE ON A LIMITED NUMBER OF CUSTOMERS

For the fiscal year ended June 26, 1998 ("Fiscal 1998") our five
largest customers accounted for approximately 67.1% of net sales. During Fiscal
1998, sales to ENI Technologies, a division of Astec America, Inc. ("ENI"),
accounted for approximately 22.4% of our net sales, Spectran Corporation
("Spectran") accounted for approximately 17.6% of our net sales, Olin
Microelectronics ("Olin") accounted for approximately 13.0% of our net sales,
IBM accounted for approximately 8.0% of our net sales and Noisecom accounted for
approximately 6.1% of our net sales. For the fiscal year ended June 27, 1997
("Fiscal 1997"), our five largest customers accounted for approximately 66% of
net sales. During Fiscal 1997, sales to ENI accounted for approximately 22% of
our net sales, Gerber Scientific Products ("Gerber") accounted for approximately
13% of our net sales, Lockheed Martin Corporation accounted for approximately
11% of our net sales, IBM accounted for approximately 10% of our net sales and
S&K Products International, Inc. ("S&K") accounted for 10% of our net sales.
While our goal is to diversify our customer base, we expect to continue to
depend upon a relatively small number of customers for a significant percentage
of our revenues for the foreseeable future. Significant reductions in sales to
any of our large customers have had and may in the future have a material
adverse effect on us. We cannot guarantee that present or future customers will
not terminate their manufacturing arrangements with us or significantly change,
reduce or delay the amount of manufacturing services ordered from us. A
termination of a manufacturing relationship or change, reduction or delay in
orders could harm us.

-7-
<PAGE>

RECENT LOSSES

We reported net losses of $3,527,297 for the six months ended December
25, 1998 and $6,692,670 for Fiscal 1998. We expect that the net losses will
continue at least through the year ended June 25, 1999 ("Fiscal 1999"). We
cannot be certain that we will achieve sufficient revenues for profitability. If
we do achieve profitability, we cannot be certain that we can sustain or
increase profitability on a quarterly or annual basis in the future. Moreover,
as result of our recent financial restructuring, utilization of our federal net
operating loss carryforwards will be limited. Thus, if and when we are able to
achieve profitability, we will only be able to offset these losses against less
loss carryforwards.

DEPENDENCE ON MANAGEMENT

Our future success depends to a significant extent on the continued
service of Peter C. Zachariou, our President, and other key technical and sales
personnel. Although Mr. Zachariou does not have an employment agreement with us,
he has been working for us pursuant to an agreed upon compensation package. The
loss of Mr. Zachariou would hurt our business. Our future success will also
depend on our ability to attract and retain other qualified management,
administrative and other personnel.

NASDAQ DELISTING

Our common stock was listed on The Nasdaq SmallCap Market. However, on
February 23, 1999, we received a letter from The Nasdaq Stock Market advising us
that the Nasdaq Listings Qualifications Panel determined to delist our common
stock from The Nasdaq Stock Market effective February 23, 1999. We have
requested a review of this decision and our request for a hearing has been
granted although a date has not been set. In the interim, our common stock is
quoted on the OTC Bulletin Board. The delisting of our common stock from The
Nasdaq Stock Market combined with the suspension in trading on the Pacific
Exchange has limited the trading market for the common stock. Thus, you may find
it more difficult to dispose of or to obtain accurate quotations for our common
stock.

PACIFIC EXCHANGE DELISTING

On December 2, 1998, we received a letter from the Pacific Exchange
indicating that the Equity Listing Committee had voted unanimously in favor of
delisting our common stock. On December 2, 1998, the common stock was suspended
from trading. On December 7, 1998, we responded with a request for a hearing and
an answer to the letter from the Pacific Exchange. On January 8, 1999, we
received a letter from the Pacific Exchange affirming the decision of the Equity
Listing Committee. The Pacific Exchange is in the process of setting a date for
a hearing to discuss the appeal. Until after the hearing and a decision is made
about the continued listing of our common stock, our common stock remains
suspended from trading. Our position may not be deemed to warrant continued
listing on the Pacific Exchange in which case the Pacific Exchange may delist
our common stock from the Pacific Exchange. We cannot guarantee that our shares
of common stock will continue to be listed on the Pacific Exchange. Delisting of
the common stock from the Pacific Stock Exchange would limit the trading market
and, consequently, you will likely find it more difficult to dispose of your
common stock.

-8-
<PAGE>

AGED INVENTORY

During the fiscal year ended June 26, 1998 and the second quarter of
1999, cancellation of orders resulted in our having to record inventory
write-offs and reserves of $3,700,000. We cannot assure you that additional
write-offs will not be necessary or that aged or obsolete inventory will not
harm our business in the future.

LIMITED AVAILABILITY OF COMPONENTS

A substantial part of our revenues is derived from turnkey
manufacturing in which we provide materials sourcing, procurement, assembly and
testing. In turnkey manufacturing, we could be exposed to the risk of component
price increases, which could hurt our gross profit margins. Some of the products
and assemblies manufactured by us require one or more components that are
ordered from, or which may be available from, only one source. Some of these
components are allocated in response to supply shortages. In some cases, supply
shortages could substantially decrease production of all assemblies using a
particular component. While we have not experienced material shortages of
components in the recent past, we cannot be sure that shortages will not occur
in the future. Any shortages will hurt our business.

DEPENDENCE ON CERTAIN INDUSTRIES

We are dependent upon the continued growth, viability and financial
stability of our customers, who are in turn substantially dependent upon the
growth of the industries in which they operate. These industries have been
characterized by rapid technological change and short product life cycles and
have recently experienced pricing and margin pressures. In addition, many of our
customers are affected by general economic conditions. The factors affecting our
customers and/or the industries in which they operate could harm our business.

POTENTIAL FLUCTUATIONS IN FINANCIAL RESULTS

Our annual and quarterly operating results may be affected by a number
of factors, including:

/bullet/ our ability to manage inventories;

/bullet/ the degree of automation used in the assembly process;

/bullet/ fluctuations in material costs and the mix of material costs
versus labor;

/bullet/ price competition;

/bullet/ the inability to pass on excess costs to customers;

/bullet/ the timing of expenditures in anticipation of increased sales;
and

/bullet/ customer product delivery requirements.

Any one of the foregoing factors or a combination thereof may hurt our
business.

VARIABILITY OF CUSTOMER REQUIREMENTS AND CUSTOMER FINANCING

The level and timing of orders placed by our customers vary due to
their attempts to balance inventory, changes in customers' manufacturing
strategies and variations in demand for their products resulting from, among
other things, product life cycles, competitive conditions or general economic
conditions. Our profitability could be adversely affected if we increase our
expenditures in anticipation of a future level of sales which does not
materialize. While a majority of our net sales are derived from several of our
customers who provide production

-9-
<PAGE>

requirements for one year in the form of yearly purchase orders, the remaining
net sales are derived from others who do not commit to firm production schedules
for more than one quarter in advance. We do not assess any additional fee or
charge interest in connection with the financing of any customer orders. Such
financing is funded from and is limited in amount by available cash generated
from operations. Our inability to forecast the level of customer orders with
certainty makes it difficult to schedule production and maximize utilization of
manufacturing capacity.

In the past, we have been required to increase staffing and other
expenses in order to meet the demands of firm purchase orders from our
customers. In addition, the total quantity requirements of purchase orders from
some of our customers have been decreased and/or delivery schedules have been
deferred as a result of changes in the customer's business needs, thereby
adversely affecting us. On other occasions, customers have required rapid
increases in production which have placed extensive burdens on our resources. If
a customer cancels an order, the customer is required to pay for all materials
purchased and labor expended to the date of cancellation. We do not assess any
additional fees or penalties. Such customers' order fluctuations and deferrals
have from time to time hurt our business and may do so in the future.

MANAGEMENT OF GROWTH

One of our strategies is to expand our relationships with our existing
customers and increase our customer base. In order to do this, we will need to
increase staff and capital equipment. We, however, must manage our staff and
capital properly to ensure that the increased costs of staffing and capital
expenditures do not increase at a faster rate than sales. In addition, as our
business and customer base grows, our accounts receivable may increase. While we
maintain accounts receivable insurance on certain of our customers, if one or
more of our principal customers became insolvent, or otherwise were unable to
pay for our services, our business will be hurt.

VOLATILITY OF STOCK PRICE

The trading price of our common stock has been, and in the future is
expected to be, volatile and we expect to experience further market fluctuations
as a result of a number of factors, including, but not limited to, current and
anticipated operating results as well as changes in our business, operations or
financial results, prospects of general market and economic conditions and other
factors.

TECHNOLOGICAL CHANGE AND PROCESS DEVELOPMENT

The market for our manufacturing services is characterized by rapidly
changing technology and continuing process development. We believe that our
future success will depend in large part upon our ability to develop and market
manufacturing services which meet changing customer needs, maintain
technological leadership and successfully anticipate or respond to technological
changes in manufacturing processes on a cost-effective and timely basis. We
cannot guarantee that our process development efforts will be successful.

-10-
<PAGE>

ENVIRONMENTAL COMPLIANCE

We are subject to a variety of environmental regulations relating to
the use, storage, discharge and disposal of hazardous chemicals used during the
manufacturing process. While we believe that we are in compliance with all
environmental regulations, if we fail to comply with present and future
regulations we could be subject to future liabilities or the suspension of
production. In addition, these regulations could restrict our ability to expand
our facilities or could require us to acquire costly equipment or to incur other
significant expenses to comply with governmental regulations. Historically, our
costs of compliance with environmental regulations have not been material.

COMPETITION

Competition is intense in our business. We have numerous competitors
which include international and national companies and many of them have
significantly more financial resources than we do. We also face competition from
our current and prospective customers as they evaluate the need to manufacture
products internally instead of outsourcing that function. Increased competition
could result in price reductions, reduced profit margins or the inability to
obtain sufficient market share to be successful, any of which could harm our
business. We are not sure we will be able to compete successfully in this
market.

NO DIVIDENDS ANTICIPATED TO BE PAID

We have never paid any cash dividends on our common stock and we do not
anticipate paying cash dividends on our common stock in the future. The future
payment of dividends is directly dependent upon our future earnings, capital
requirements, financial requirements and other factors to be determined by our
Board of Directors. It is anticipated that future earnings, if any, which may be
generated from our operations will be used to finance our growth, and that cash
dividends will not be paid to our stockholders.

CONTROL BY PRINCIPAL STOCKHOLDERS

As of the date of this Prospectus, Peter C. Zachariou and Jay H.
Solomont beneficially own approximately 29.6% and 23.1% of our common stock,
respectively. Although there is no agreement between Mr. Zachariou and Mr.
Solomont as to the voting of their shares, they will be able to exercise a
significant influence over and, voting together, control decisions that may
effect our stockholders. In addition, Mr. Zachariou and Mr. Solomont voting
together, will be able to effect certain transactions, including mergers,
acquisition consolidations and sales of substantially all of our assets, without
the consent of any of our other stockholders, subject to applicable laws.

LIMITATION ON USE OF OUR TAX LOSS CARRYFORWARD

As of June 26, 1998, we had a net operating loss carryforward of
approximately $1,731,000 for federal income tax purposes. The financial
restructuring resulted in a "change of control" for federal income tax purposes
and limited our ability to utilize net operating losses. The effect of such
limitation could be material depending on our future taxable income.

-11-
<PAGE>

PENNY STOCK REGULATIONS

The Securities Enforcement and Penny Stock Reform Act of 1990 requires
additional disclosure relating to the market for penny stocks in connection with
trades in any stock defined as a penny stock. The SEC Regulations generally
define a penny stock to be an equity security that has a market price of less
than $5.00 per share, subject to certain exceptions. Unless an exception is
available, the regulations require the delivery, prior to any transaction
involving a penny stock, of a disclosure schedule explaining the penny stock
market and the risks associated therewith.

In addition, since the common stock is not quoted on Nasdaq and we do
not meet the other exceptions to the penny stock regulations, trading in the
common stock would be covered by Rule 15g-9 promulgated under the Securities
Exchange Act of 1934 for non-Nasdaq and non-national securities exchange listed
securities. Under such rule, broker-dealers who recommend such securities to
persons other than established customers and accredited investors must make a
special written suitability determination for the purchaser and receive the
purchaser's written agreement to a transaction prior to sale. The regulations on
penny stocks limit the ability of broker-dealers to sell the common stock and
thus the ability of purchasers of the common stock to sell their securities in
the secondary market.

POTENTIAL ADVERSE MARKET IMPACT OF SHARES ELIGIBLE FOR FUTURE SALE

Our stock price may be hurt by future sales of our shares or the
perception that such sales may occur. As of the date of this Prospectus,
approximately 8,863,676 shares of common stock held by existing stockholders
constitute "restricted shares" as defined in Rule 144 under the Securities Act.
These shares may only be sold if they are registered under the Securities Act or
sold under Rule 144 or another exemption from registration under the Securities
Act. Sales under Rule 144 are subject to the satisfaction of certain holding
periods, volume limitations, manner of sale requirements, and the availability
of current public information about us.

Substantially all of our restricted shares of common stock are either
eligible for sale pursuant to Rule 144 or have been registered under the
Securities Act for resale by the holders, including the common stock covered by
this Prospectus. This will permit the sale of registered shares of common stock
in the open market or in privately negotiated transactions without compliance
with the requirements of Rule 144. We are unable to estimate the amount, timing
or nature of future sales of outstanding common stock. Sales of substantial
amounts of the common stock in the public market may hurt the stock's market
price.

EFFECT OF OUTSTANDING CONVERTIBLE PREFERRED STOCK, OPTIONS, AND WARRANTS

As of the date of this Prospectus, we have outstanding preferred stock
convertible into and options and warrants to purchase an aggregate of 9,310,610
shares of common stock. As long as these shares of convertible preferred stock
remain outstanding and the options and warrants remain unexercised, the terms
under which we could obtain additional capital may be adversely affected.
Moreover, the holders of the convertible preferred stock, options and warrants
may be expected to exercise them at a time when we would, in all likelihood, be
able to obtain any needed capital by a new offering of our securities on terms
more favorable than those provided by these securities.

-12-
<PAGE>

ANTI-TAKEOVER PROVISIONS

Our Certificate of Incorporation authorizes the issuance of "blank
check" preferred stock with such designations, rights and preferences as may be
determined by our Board of Directors. Accordingly, the Board of Directors can,
without stockholder approval, issue shares of preferred stock with dividend,
liquidation, conversion, voting or other rights that could adversely affect the
voting power or other rights of the holders of our common stock. Preferred stock
could also be issued to discourage, delay or prevent a change in our control,
although we do not currently intend to issue any additional series of our
preferred stock.

Additionally, certain provisions of the Delaware General Corporation
Law could delay, defer or impede the removal of incumbent directors and could
make more difficult a merger, tender offer or proxy contest involving us, even
if such events could be beneficial to our stockholders. Such provisions could
also limit the price that certain investors might be willing to pay in the
future for our common stock. In addition, Delaware has laws that may deter or
frustrate takeovers of Delaware corporations.

IMPACT OF THE YEAR 2000

The Year 2000 issue is the result of computer programs and other
business systems being written using two digits rather than four to represent
the year. Many of our time-sensitive applications and business systems and those
of our vendors may recognize a date using "00" as the year 1900 rather than the
year 2000, which could result in system failure or disruption of operations.

The Year 2000 problem will impact us. We have assessed our Year 2000
exposure and plans to resolve these issues are in process. We plan to ask our
significant vendors to ensure us that our operations are not disrupted and that
their Year 2000 issues are resolved in a timely manner. We believe that we will
satisfactorily resolve all significant Year 2000 problems and that the related
costs will not be material. Estimates of Year 2000 related costs are based on
numerous assumptions, including the continued availability of certain resources,
the ability to correct all relevant applications and third party remediation
plans. We cannot guarantee that the estimates will be accurate and that actual
costs will not differ materially from those anticipated.

-13-
<PAGE>

USE OF PROCEEDS

We will receive no proceeds from the sale of the shares being offered
by the selling stockholders under this Prospectus. We will receive proceeds only
upon the exercise of the warrants for which we are registering the underlying
shares of common stock, if the "cashless" exercise provisions of the warrants
are not used. Following is a description of the maximum proceeds that could be
generated from the exercise of the warrants assuming all of the warrants were
exercised:

<TABLE>
<CAPTION>
NUMBER
WARRANTS OUTSTANDING EXERCISE PRICE PROCEEDS
- -------- ----------- -------------- ----------
<S> <C> <C> <C>
Investor Warrants 418,711 $1.50 $ 628,067
BlueStone Warrants 400,000 1.50 600,000
Cameron Warrants 4,000,000 0.75 3,000,000
Advisor Warrants 141,360 0.358 50,607
Meyers Warrants 94,500 1.50 141,750
PNC Warrant 100,000 1.50 150,000
PNC Warrant 100,000 1.25 125,000
Mazer Warrants 50,000 1.50 75,000
Mazer Warrants 50,000 1.75 87,500
Mazer Warrants 50,000 2.00 100,000
Mazer Warrants 50,000 2.50 125,000
----------
$5,082,924
==========
</TABLE>

There can be no assurance as to when, if ever, any or all of such
warrants will be exercised. Proceeds, if any, received from the exercise of the
warrants will be used for working capital requirements and other general
corporate purposes.

We estimate we will spend $25,000 in registering the shares under this
Prospectus.

-14-
<PAGE>

MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS

From May 14, 1997 through February 23, 1999, our common stock was
traded under the symbol "ASDG" on The Nasdaq SmallCap Market. Since February 24,
1999, our common stock has been quoted under the symbol "ASDG" on the OTC
Bulletin Board. The following table sets forth the high and low sale prices as
furnished by The Nasdaq Stock Market, Inc. for the calendar quarter indicated:
<TABLE>
<CAPTION>
HIGH LOW
------ -------
<S> <C> <C>
1997
Quarter ended June 27, 1997 (commencing May 14, 1997).... $5.75 $4.80
Quarter ended September 26, 1997......................... $6.125 $4.00
Quarter ended December 26, 1997.......................... $5.125 $2.3125

1998
Quarter ended March 27, 1998............................. $3.625 $1.25
Quarter ended June 26, 1998.............................. $1.875 $ .3125
Quarter ended September 25, 1998......................... $1.44 $ .38
Quarter ended December 25, 1998.......................... $1.25 $ .31

1999
First Quarter (through March 24, 1999)................... $2.25 $ .3125
</TABLE>

These bid prices are inter-dealer prices without retail markup,
markdown or commission, and may not represent actual transactions.

ANNUAL STOCKHOLDERS MEETING

On March 15, 1999, we held an annual meeting of our stockholders. At
the annual meeting, the stockholders took the following action:

/bullet/ approved the terms of the financial restructuring;

/bullet/ approved an amendment to our Certificate of Incorporation
increasing the number of authorized shares of common stock
from 10,000,000 shares to 50,000,000 shares;

/bullet/ elected the following directors to our Board of Directors for
the ensuing year: Jay H. Solomont, Peter C. Zachariou, Mark
Karasick, Thomas J. Lenagh, and Jan M. Winston;

/bullet/ approved an amendment to our 1996 Stock Option Plan to
increase the number of shares of common stock reserved for
issuance under the plan from 60,000 shares to 350,000 shares;
and

/bullet/ ratified the appointment of Deloitte & Touche, LLP as our
auditors for the fiscal year ended June 25, 1999.

-15-
<PAGE>

HOLDERS

As of March 9, 1999, there were approximately 30 holders of record of
the common stock. We believe that the common stock is held by in excess of 350
beneficial holders.

DIVIDEND POLICY

The Board of Directors does not currently contemplate the payment of
cash dividends. Any decisions as to the payment of cash dividends on the common
stock will depend on our ability to generate earnings, our need for capital, our
overall financial condition and such other factors, as the Board of Directors
deems relevant.

-16-
<PAGE>

CAPITALIZATION

The following table sets forth our capitalization as of December 25,
1998. This table should be read in conjunction with our Consolidated Financial
Statements and the Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 25,
1998
-----------
ACTUAL (1)
-----------
<S> <C> <C>
Current portion of long-term debt(1) ..................................... $ 3,445,397
===========
Long-term debt(1) ........................................................ 4,198,529
Stockholders' deficiency:
Preferred stock, $.01 par value; 1,000,000 shares authorized; 757,994
convertible shares issued and outstanding ....................... 2,882,000
Common stock, $.01 par value; 10,000,000 shares authorized; 2,079,934
shares issued and outstanding ................................... 20,799
Paid-in capital ..................................................... 4,405,672
Deficit ............................................................. (9,925,013)
-----------
Total stockholders' deficiency ........................................... (2,616,542)
===========
Total capitalization ..................................................... $ 1,581,987
===========
</TABLE>

- ------------
(1) See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Notes to Consolidated Financial Statements
for information regarding our long-term debt.

-17-
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction
with our consolidated financial statements and the notes thereto.

RESULTS OF OPERATIONS

SIX MONTHS ENDED DECEMBER 25, 1998 AS COMPARED TO SIX MONTHS ENDED
DECEMBER 26, 1997

For the six months ended December 25, 1998, our net sales decreased by
$5,818,000 or 60.4% to $3,817,000 from $9,635,000 for the six months ended
December 26, 1997. The decrease in sales was primarily the result of a continued
reduction in volume of orders by several large customers, principally those
affected by the Asian market. Management believes our increased selling and
marketing efforts will have a positive effect on sales in subsequent quarters.

Cost of goods sold for the six months ended December 25, 1998 decreased
by $2,776,000 or 37.6% to $4,605,000 from $7,381,000 for the six months ended
December 26, 1997. The decrease in cost of goods sold is primarily the result of
the reduction of sales, which was partially offset by an inventory adjustment of
approximately $1,500,000 as well as the cost ($240,000) associated with the
impairment of the idle facility value. Gross profit as a percentage of net sales
decreased for the six months ended December 25, 1998 primarily as a result of
these adjustments.

Selling, general and administrative expenses increased for the six
months ended December 25, 1998 by $112,000 or 5.1% to $2,313,000 from $2,201,000
for the six months ended December 26, 1997. The increase resulted from
additional efforts and personnel added to our selling and marketing activities.
General and administrative expenses increased primarily due to the
administrative portion of the cost ($60,000) associated with the impairment of
the idle facility value that was recognized in the six month ended December 25,
1998.

Interest expense decreased for the six months ended December 25, 1998
by $125,000 or 22.6% to $426,000 from $551,000 for the six months ended December
26, 1997. The decrease in interest expense reflects a net reduction in debt as a
result of the restructuring on June 26, 1998.

We did not recognize any benefit for income tax for the six months
ended December 25, 1998 as compared to a benefit of $209,000 for the six months
ended December 26, 1997.

We incurred a loss before income tax and a net loss of $3,527,000
during the six months ended December 25, 1998, as compared to a loss before
income tax and net loss of $498,000 and $289,000, respectively, during the six
months ended December 26, 1997.

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<PAGE>

FISCAL YEAR ENDED JUNE 26, 1998 ("FISCAL 1998") AS COMPARED TO FISCAL
YEAR ENDED JUNE 27, 1997 ("FISCAL 1997")

For Fiscal 1998, our net sales decreased by $1,572,000 or 9.9% to
$14,299,000 from $15,871,000 for Fiscal 1997. The decrease in sales was due to a
recent slowdown experienced by several large customers, principally those
effected by the Asian market, which resulted in the reduction of orders placed
with us. Additionally, the lack of capital in the fourth quarter adversely
affected our ability to obtain and fund new orders as well as existing orders.

Costs of goods sold for Fiscal 1998 increased by $1,902,000 or 15.7% to
$13,989,000 from $12,087,000 for Fiscal 1997. The increase in cost of goods sold
is primarily the result of an inventory adjustment of $2,100,000 as a result of
two large customers reducing orders. We were carrying inventory that we expected
to ship pursuant to purchase orders from customers. However, the requirements
with respect to such purchase orders were either reduced or cancelled by the
customers. Gross profit as a percentage of net sales decreased by 21.6% from
23.8% for Fiscal 1997 to 2.2% for Fiscal 1998 primarily as a result of the
inventory adjustments and reserves as well as a decrease in orders.

Selling, general and administrative expenses increased for Fiscal 1998
by $957,000 or 26.1% to $4,617,000 from $3,660,000 for Fiscal 1997. The increase
in selling, general and administrative expenses is primarily the result of
increased resources expended in selling and marketing, an increase in the
allowance for doubtful accounts, and professional and public company related
fees and other expenditures not incurred in Fiscal 1997. The accounts receivable
allowance increase is primarily due to credits issued to three major customers
for returned merchandise as well as an increase in aged receivables.

Interest expense decreased for Fiscal 1998 by $303,000 or 19.8% to
$1,231,000 from $1,534,000 for Fiscal 1997. The decrease in interest expense
reflects a net reduction in debt as a result of a portion of the proceeds of the
initial public offering being used to repay debt.

Other income decreased for Fiscal 1998 by $47,000 or 69.1% to $21,000
from $68,000 for Fiscal 1997. The decrease in other income was primarily due to
vendor refunds in Fiscal 1997 related to the prior year.

Financial restructuring costs of $124,400 were incurred in Fiscal 1998
as a result of restructuring agreements entered into with our three primary
lenders. No such costs were incurred during Fiscal 1997.

During Fiscal 1998, we reduced our Fiscal 1997 net deferred tax asset
by $1,717,532. The total valuation allowance at June 26, 1998 of $652,941
reduces the net deferred tax asset to zero. This reduction was made in light of
the significant loss recognized by us in Fiscal 1998 and the limitations on the
usage of the existing net operating loss carry forwards resulting from the
capital infusion.

An extraordinary gain from the financial restructuring was realized in
Fiscal 1998 as a result of a settlement with certain noteholders who accepted
$220,000 in cash and shares of convertible preferred stock and warrants in
exchange for $1,210,000 in principal and interest owed. The difference between
the amount owed to the noteholders and fair value of settlement was recorded as
an extraordinary gain.

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<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

FINANCIAL RESTRUCTURING

Our sales were adversely affected by the situation in the Asian
markets. We experienced a reduction in orders from several customers,
principally those affected by Asian market conditions. As a result of the
reduction in orders and resulting decrease in working capital, on June 26, 1998
we entered into a purchase agreement with a group of investors for a capital
infusion and agreements with our primary lenders to restructure our debt. As a
result of the financial restructuring, we recorded a $1,718,000 tax expense
resulting from a one-time write-off of the previously established deferred tax
asset, which may not be utilized. However, as a result of the financial
restructuring, we received over $2,800,000 in additional capital, eliminated
approximately $1,000,000 in debt and restructured, on more favorable terms, our
remaining debt. Moreover, we retained Getzler & Co., Inc. ("Getzler") to manage
our operations. Through its executive officers, Getzler has taken steps to
reduce inventory and costs.

STATEMENTS OF CASH FLOW

Net cash used in operations was $2,194,000 for the six months ended
December 25, 1998 as compared to $1,000,000 used in operations for the six
months ended December 26, 1997. The increase in cash used in operations was
primarily the result of an increase in the net loss for the period ended
December 25, 1998, offset by a decrease in inventory, as a result of the
inventory write-off. Net cash provided by financing activities during the six
months ended December 25, 1998 was $2,223,000. During this period, $2,048,000
was provided from the financial restructuring, $825,000 was provided by the sale
of additional preferred stock and $390,000 was provided by additional
borrowings, offset by payments of long-term debt of $1,040,000. Working capital
decreased to a deficiency of $2,428,000 at December 25, 1998 from a positive
working capital of $4,779,000 at December 26, 1997. The decrease in working
capital is primarily due to inventory adjustments totaling $3,700,000 and the
reclassification of the Bankers Trust note for $2,500,000 due March 1999 as a
current liability. In addition, we are in default on stockholders loans
resulting in $780,000 being reclassified as current liabilities.

LIQUIDITY

Notwithstanding the steps taken by us to restructure our debt and raise
additional capital, our immediate cash requirements are significant. We cannot
assure you that we will be able to successfully realize cash flow from
operations or that such cash flow will be sufficient. We believe that our
existing and anticipated capital resources will not enable us to fund our
planned operations through Fiscal 1999. We are currently attempting to obtain
additional financing and intend to raise additional funds within the next three
months through equity and/or debt financings. The group of investors that
participated in the financial restructuring have committed to fund our working
capital requirements through Fiscal 1999.

Our line of credit with PNC Bank places restrictions on our ability to
obtain financing either through the offering of equity or incurrence of
additional debt. We cannot assure you that

-20-
<PAGE>

additional funds will be available to us on acceptable terms, if at all.
Additional financings may result in dilution to existing stockholders.

In addition, our annual and quarterly operating results may be affected
by a number of factors, including the following:

/bullet/ our ability to manage inventories, shortages of components or
labor;

/bullet/ the degree of automation used in the assembly process;

/bullet/ fluctuations in material costs and the mix of material costs
versus labor;

/bullet/ manufacturing and overhead costs price competition;

/bullet/ price competition;

/bullet/ the inability to pass on excess costs to customers;

/bullet/ the timing of expenditures in anticipation of increased sales;
and

/bullet/ customer product delivery requirements.

Any one of these factors, or a combination thereof, could adversely
affect us.

We anticipate that we will incur capital expenditures of approximately
$250,000 during Fiscal 1999. Such expenditures will be primarily for facility
upgrades including a clean room and computer upgrades for Year 2000 compliance.
We intend to finance these capital expenditures through the funds raised or
existing and anticipated capital resources.

YEAR 2000 READINESS

The Year 2000 issue refers to a condition in computer software where a
two-digit field rather than a four-digit field is used to distinguish a calendar
year. Unless corrected, date-sensitive software may recognize a date using "00"
as the year 1900 rather than the year 2000. This could result in system failures
or miscalculations causing disruptions to various activities and operations.
Such an uncorrected condition could significantly interfere with the conduct of
our business, could result in disruption of our operations and could subject us
to potentially significant legal liabilities.

We have conducted an assessment of the Year 2000 issue and the
potential effect it will have on us and our business. We have also prepared a
formal plan for dealing with the Year 2000 issue. We are in the process of
updating much of our existing software for Year 2000 compliance by modifying
existing internally developed software. We intend to hire outside consultants
and acquire new and upgraded third party software packages to replace those
currently used by us which cannot be modified.

While we believe we have made substantial progress in resolving any
Year 2000 issues, sufficient testing to date has not been completed to fully
validate readiness. Additional testing is planned during Fiscal 1999 to
reasonably ensure Year 2000 readiness. We are planning to complete all necessary
Year 2000 upgrades of our systems in Fiscal 1999.

The possibility exists that we could inadvertently fail to correct a
Year 2000 problem. We believe the impact of such an occurrence would be minor,
as substantial Year 2000 compliant equipment additions and upgrades have
occurred in recent years. If such resolution does not occur, we believe we will
be able to conduct our business, possibly at a reduced

-21-
<PAGE>

volume, using our already Year 2000 compliant server, and personal computer
software until resolution occurs.

We may also be affected by third-party suppliers or customers who have
not modified their systems to adequately address the Year 2000 issue. While we
have not already done so, we intend to survey our major customers and suppliers
regarding their progress on resolving Year 2000 issues. It is contemplated that
this survey will take place during the third and fourth quarters of Fiscal 1999.

To date, Year 2000 readiness has cost us an estimated $40,000
(including upgrades to existing systems) and will cost approximately $100,000 in
the aggregate to complete.

-22-
<PAGE>
BUSINESS

GENERAL

We provide comprehensive contract manufacturing and engineering
services to original equipment manufacturers ("OEMs.") We specialize in the
fabrication, assembly and testing of complex industrial products and
non-invasive medical equipment. We manufacture complete systems, as well as
assemblies, including printed circuit boards, cable and wire harnesses and other
electro-mechanical assemblies. We complement our basic manufacturing services by
providing our customers with a broad range of sophisticated product engineering
and design services. Our manufactured products range from automated test and
production systems to less complex products such as sign plotting devices. Our
representative customers include ENI Technologies (a division of Astec America,
Inc.), General Electric, Gerber Scientific Products, IBM, U.S. Surgical,
Motorola Inc. and the United States Postal Service.

OUR FINANCIAL RESTRUCTURING

In May 1997, we completed our initial public offering and in December
1997, restructured our bank debt. Although we believe there is a positive
climate for contract manufacturers in the United States generally, our sales
were and continue to be adversely effected by the situation in the Asian
markets. We have experienced a reduction in orders from several customers,
principally those effected by Asian market conditions. These cancellations
caused us to record an inventory write-off and reserve of $2,200,000 for Fiscal
1998 and an additional inventory write-off of $1,500,000 for the quarter ended
December 25, 1998.

Pursuant to the Purchase Agreement, the investors purchased shares of
our common stock, shares of our convertible preferred stock and five-year
warrants to purchase additional shares of common stock at an exercise price of
$.75 per share for $2,048,000.

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<PAGE>

RECENT DEVELOPMENTS

CONTINUING LOSSES

We expect operating losses to continue at least through June 25, 1999.
For the quarter ended December 25, 1998, we reported a net loss of approximately
$2,700,000. These losses result from, among other things, an inventory write-off
of approximately $1,500,000 taken in the quarter ended December 25, 1998 as a
result of the cancellation of orders by customers. In addition, during December
1998, as part of our financial plan to reduce debt and increase equity, we made
a decision to sell our currently idle manufacturing facility. Although we do not
have any written contract for a sale of the property at this time, the amount of
the impairment in the carrying value of the manufacturing facility ($300,000)
was charged to operations in the quarter ended December 25, 1998. As a result of
our continuing losses and the impairment in capital, we will continue to require
additional capital notwithstanding the funds that were raised in the financial
restructuring.

AGREEMENT WITH FOUNDERS

Pursuant to an original letter agreement dated January 4, 1993, we
agreed to provide two of our original founders with deferred compensation in the
amount of $30,000 per year and health insurance benefits until the year 2008. We
also agreed that if the founders should die during this period, the pension
would be paid to such founder's wife or children. By letter agreement dated as
of February 9, 1999, the founders agreed to accept, in lieu of any further
pension payments, 75,000 restricted shares of our common stock and continuation
of the medical, dental and prescription drug benefits currently provided to the
founders until the founders died or reached the age of 65.

NASDAQ DELISTING

On February 23, 1999, we received notice from The Nasdaq Stock Market,
that the Nasdaq Listings Qualifications Panel determined to delist our Common
Stock from The Nasdaq Stock Market effective February 23, 1999. We failed to
meet two requirements for continued listing on The Nasdaq SmallCap Market. We
have requested a review of this decision by the Nasdaq Listing and Hearing
Review Council and our request for a hearing has been granted although a date
has not been set. In the interim, the Common Stock is being quoted on the OTC
Bulletin Board and management continues its efforts to reduce liabilities and
increase stockholders' equity. Management hopes to be able to demonstrate
compliance with The Nasdaq SmallCap Market maintenance requirements and have a
plan for sustained compliance by the time this decision is reviewed by the
Hearing Review Council. However, no assurance can be given that we will be able
to achieve compliance or that the Nasdaq Hearing Review Council will agree to
re-list our Common Stock on The Nasdaq Stock Market.

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<PAGE>

BANKERS TRUST AGREEMENT

As of February 26, 1999, we were indebted to BTC in the amount of
$2,501,132.64, plus all accrued but unpaid interest. Effective February 26,
1999, we entered into the Second Restructuring Agreement with BTC pursuant to
which our obligations to BTC will be reduced from approximately $2,500,000, plus
all accrued but unpaid interest, to $800,000. Pursuant to the Second
Restructuring Agreement, upon receipt of a $250,000 payment, BTC will reduce our
indebtedness to $550,000, which amount will be payable in 24 months. We
anticipate consummating the Second Restructuring Agreement in March 1999,
however, it is subject to certain conditions including payment by us of
$250,000.

AGREEMENT WITH GARY HORNE

As of March 4, 1999, we were indebted to Gary D. Horne, former Chief
Executive Officer and Chairman of the Board, in the aggregate principal amount
of $707,492.91, plus accrued and unpaid interest. By letter agreement dated
March 4, 1999, Gary Horne agreed to forgive such indebtedness in exchange for:
(i) 150,000 shares of our common stock (the "Additional Shares"); (ii) release
of the 85,718 shares of our common stock (the "Escrow Shares") owned by Gary
Horne currently being held in escrow, to secure Mr. Horne's indemnifications
under the Purchase Agreement; (iii) registration of the resale of the Additional
Shares and Escrow Shares; (iv) consent to the assignment by Mr. Horne of all
insurance policies on the life of Gary Horne from which we and/or Gary Horne
borrowed the cash value along with accumulated interest and an assumption of any
liabilities with respect to these insurance policies and the loans outstanding
thereunder; (v) providing Gary D. Horne with life insurance for executives
according to the benefits of our group insurance plan and providing Gary D.
Horne and his wife health and dental insurance according to the benefits of our
group insurance plan continuously through September 1, 2001; and (vi) releasing
Mr. Horne from certain liabilities arising from his acting as an officer and/or
director from June 26, 1998 through the date hereof, and arising from the
Purchase Agreement. Consummation of this agreement is subject to a number of
conditions including the company using its best efforts to obtain a general
release from each of the purchasers listed on Schedule A to the Purchase
Agreement.

REVOLVING CREDIT FACILITY WITH PNC BANK

On March 10, 1999, we amended the terms of our revolving credit
facility with PNC Bank pursuant to which our credit line was increased from
$4,500,000 to $5,700,000. We currently have an over advance to PNC Bank under
the credit facility in the amount of approximately $1,575,000. Pursuant to the
terms of the amendment, we agreed to begin repaying this over advance upon the
earliest to occur of (i) sale of our currently idle manufacturing facility, (ii)
refinancing of certain of our real property, or (iii) August 29, 1999.

ANNUAL STOCKHOLDERS MEETING

On March 15, 1999, we held an annual meeting of our stockholders. At
the annual meeting, the stockholders took the following action:

/bullet/ approved the terms of the financial restructuring;

/bullet/ approved an amendment to our Certificate of Incorporation
increasing the number of authorized shares of common stock
from 10,000,000 shares to 50,000,000 shares;

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<PAGE>

/bullet/ elected the following directors to our Board of Directors for
the ensuing year: Jay H. Solomont, Peter C. Zachariou, Mark
Karasick, Thomas J. Lenagh, and Jan M. Winston;

/bullet/ approved an amendment to our 1996 Stock Option Plan to
increase the number of shares of common stock reserved for
issuance under the plan from 60,000 shares to 350,000 shares;
and

/bullet/ ratified the appointment of Deloitte & Touche, LLP as our
auditors for the fiscal year ended June 25, 1999.

INDUSTRY OVERVIEW

OEMs originally utilized contract manufacturing sources primarily to
reduce labor costs in the production of electronic assemblies and to provide for
additional manufacturing capacity in times of peak demand. These early contract
manufacturers typically were employed on a consignment basis in which the OEM
provided the circuit and production designs, procured all components and
performed the final product listing.

During the early 1980's, the commercialization of the personal computer
began to fuel substantial growth in the electronics and other industries and,
with it, the growth of contract manufacturers. Despite rapid growth in the
electronics industry, the market soon became characterized by intense price
competition and demands for more frequent product introductions. In an effort to
survive and meet the requirements of the marketplace, OEMs were forced to
restructure and focus their resources on core strategic strengths, such as
product development, software design and marketing, and to outsource capital
intensive manufacturing operations to specialists. Downsizing by American
industry, combined with rapid change, strong competition and increasingly
shorter product life cycles in various industries, had made it considerably less
attractive for OEMs to manufacture in-house, particularly low unit volume
products or short cycle electronic products. As contract manufacturers began to
perform more turnkey services, the relationship between OEMs and contract
manufacturers became more strategic in nature, with the two now linked in a
close relationship to deliver cost-effective, high quality products quickly to
the marketplace. We believe that this trend will continue. According to reports
by Technology Forecasters, Inc., growth in this industry is forecasted at 26%
per year through 1999.

OEMs utilize contract manufacturers for the following reasons:

REDUCE TIME TO MARKET. Due to intense competitive pressures in the
electronics, industrial products and medical equipment industries, OEMs are
faced with increasingly shorter product life-cycles and therefore have a growing
need to reduce the time required to bring a product to market. OEMs can
generally reduce their time to market by using the established manufacturing
expertise and infrastructure of contract manufacturers.

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<PAGE>

REDUCE CAPITAL INVESTMENT. As electronics, industrial products and
medical equipment have become more technologically advanced, the manufacturing
process has become increasingly automated requiring a greater level of
investment in capital equipment. Contract manufacturers enable OEMs to gain
access to advanced manufacturing facilities, thereby reducing the OEMs' overall
capital equipment requirements.

FOCUS RESOURCES. Because the electronics, industrial products and
medical equipment industries are experiencing greater levels of competition and
more rapid technological change, many OEMs are increasingly seeking to focus
their resources on activities and technologies in which they add the greatest
value. By offering comprehensive design, assembly and turnkey manufacturing
services, contract manufacturers allow OEMs to focus on core technologies and
activities such as product development, marketing and distribution.

ACCESS LEADING MANUFACTURING TECHNOLOGY. Products and manufacturing
technology have become increasingly sophisticated and complex, making it
difficult for OEMs to maintain the necessary technological expertise in process
development and control. OEMs are motivated to work with a contract manufacturer
in order to gain access to the contract manufacturer's process expertise and
manufacturing know-how.

IMPROVE INVENTORY MANAGEMENT AND PURCHASING POWER. OEMs are faced with
increasing difficulties in planning, procuring and managing their inventories
efficiently due to frequent design changes, short product life-cycles, large
investments in electronic components, component price fluctuations and the need
to achieve economies of scale in materials procurement. OEMs can generally
reduce production costs by using the procurement capabilities of the contract
manufacturer. By utilizing a contract manufacturer's expertise in inventory
management, OEMs can generally better manage inventory costs and increase their
return on assets.

INDUSTRIES AND PRODUCTS

The following table lists the industries in which we expect to continue
to conduct significant business during fiscal year ended June 25, 1999 ("Fiscal
1999") and the products for which we expect to provide manufacturing services
(based on net sales for Fiscal 1998).

INDUSTRY SPECIFIC PRODUCT OR PRODUCT COMPONENT
- -------- -------------------------------------

Communication...........................Internet server components
Computer................................Chassis, frames, panels, wire harness
and cables, jumpers, test equipment,
process equipment
Defense.................................Test systems
Information Processing..................Test equipment for copiers
Instrumentation.........................Printed circuit cards for laser
measurement instruments
Medical.................................Power components for medical equipment;
automated process equipment
Semiconductor...........................Coating equipment; power components for
semiconductor equipment; test equipment
Sign-Making.............................Sub-systems for plotters
Transportation..........................Airport control components
Other...................................Parcel drop system, control systems for
power distribution; printed circuit
boards for elevator control systems

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<PAGE>

SERVICES

We provide comprehensive contract manufacturing and engineering
services to OEMs. Such services include:

PRODUCT ENGINEERING AND DESIGN SERVICES. We assist our customers in
designing or evaluating designs of products. We design or evaluate designs for
ease and quality of manufacture and, when appropriate, recommend changes to
reduce manufacturing costs or lead times or to increase the quality of finished
assemblies. We support our customers with sophisticated product engineering and
design services using computer aided design equipment with computer aided
machinery software. We also assist our customers with overall product redesign
with the objective of reducing manufacturing costs. The goal of our engineering
and product design services is to create a more stable volume of turnkey
manufacturing and an elevated level of strategic partnering with principal
customers.

MANUFACTURING. We custom manufacture complete systems, printed circuit
board assemblies, cable and wire harnesses and other electro-mechanical
assemblies. Manufacturing services offered by us include sourcing and
procurement of raw materials and parts, precision metal fabrication, welding,
precision machine parts, painting, silk screening, assembly and testing. In
order to achieve high levels of performance in our manufacturing operations, we
combine advanced manufacturing technology, such as computer-aided manufacturing
and testing, with state-of-the-art manufacturing techniques.

In implementing our manufacturing approach, we emphasize timely
delivery and accurate and up-to-date documentation for each product. We develop
an appropriate production process and complete set of manufacturing process
instructions, inspection plans and a quality assurance plan for each product. An
analysis of each customer's materials specification is performed to identify
component suppliers. We then plan and execute purchase orders, receive, inspect
and warehouse components, expedite critical components and deliver a complete
set of components to the production floor for assembly. We use our POM
manufacturing software to monitor and control all aspects of the manufacturing
process, including material resource planning, shop floor control,
work-in-process tracking, statistical process control and activity based product
costing.

Responsiveness to customers, particularly as to engineering changes
once manufacturing has commenced, is an important component of our manufacturing
approach. Many products manufactured by us are in the early stages of their
product life cycle and therefore may have ongoing design or engineering changes.
Upon receiving an engineering change notice, we identify the impact of such
changes in the production process, current inventory and open purchase orders.
To support continuous production flow while minimizing excess and obsolete
inventory costs for the customer, we restructure bills of material and expedite
orders for new components, as authorized. We also identify and implement changes
to manufacturing instructions and test plans. In order to assure prompt customer
service, we assign each project a product manager, quality assurance engineer,
product engineer, test engineer and customer service representative. We maintain
regular contact with our customers to assure adequate information exchange,
document control and activities coordination necessary to support a high level
of quality and on-time delivery.

SYSTEM ASSEMBLY. Our assembly activities range from assembly of higher
level sub-systems and systems to printed circuit board assembly and assembly of
complex electro-mechanical components. We specialize in printed circuit board
assembly, cable and wire

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<PAGE>

harness assembly and electro-mechanical assembly, all utilizing specialized
tools and techniques.

QUALITY ASSURANCE. Our quality assurance procedures are an integral
part of providing customers with turnkey manufacturing solutions. We provide
computer-aided in-circuit and functional testing, which contributes
significantly to our ability to deliver high quality products on a consistent
basis. We have developed specific strategies and routines to test printed
circuit boards and other assemblies. In-circuit tests verify that all components
have been properly inserted and that electrical circuits are complete.
Functional tests determine if the assembly is performing to customer
specifications. We either design and procure test fixtures and develop our own
test software or utilize the customer's existing test fixtures and test
software. In addition, we provide environmental stress tests of the printed
circuit board or system assemblies, when required by our customers.

Our quality management system has been certified under ISO 9002, an
international quality standard. We are certified by Underwriters Laboratories
("UL") as a UL approved panel manufacturer. Our cable and wire harnesses and
assemblies are manufactured to Underwriters Laboratories and Canadian Standards
Association specifications. Our printed circuit board manufacturing process has
been certified by BBAC (a British communications equipment manufacturing quality
specification).

CUSTOMERS, SALES AND MARKETING

We serve a wide variety of markets, including the computer, computer
peripherals, telecommunications, postal equipment, semiconductor, environmental,
test equipment, process equipment, industrial equipment and other industries.
Representative customers of ours include General Electric, Gerber Scientific
Products, IBM, Karl Suss America, Inc., Motorola Corporation, Standard Knapp,
Texas Instruments, U.S. Surgical and the United States Postal Service. A
majority of our customers are located in the Northeast.

For Fiscal 1998 our five largest customers accounted for approximately
67.1% of net sales. During Fiscal 1988, sales to ENI accounted for approximately
22.4% of our net sales, Spectran accounted for approximately 17.6% of our net
sales, Olin accounted for approximately 13.0% of our net sales, IBM accounted
for approximately 8.0% of our net sales and Noisecom accounted for approximately
6.1% of our net sales. During Fiscal 1997, sales to ENI accounted for
approximately 22% of our net sales, Gerber accounted for approximately 13% of
our net sales, Lockheed Martin Corporation accounted for approximately 11% of
our net sales, IBM accounted for approximately 10% of our net sales and S&K
accounted for 10% of our net sales. Accordingly, in addition to expanding
existing relationships, we are pursuing a strategy of diversifying our customer
base. Currently, we contact potential customers through participation at
contract manufacturing shows, strategically placed advertisements, and direct
mail campaigns which are then followed by telephone sales and visits from our
sales representatives. We are expanding our marketing efforts by attending more
trade shows, increasing the number of advertisements in trade journals,
increasing the number of sales personnel, increasing the number of customers who
receive direct mailings, and providing new sales literature and interactive
electronic presentations.

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<PAGE>

COMPETITION

We operate in a highly competitive environment and compete against
numerous domestic and foreign manufacturers. Our competitors include SCI
Systems, Inc., Solectron Corporation, Jabil Circuit, Inc., Avex Electronics Inc.
(a privately-held company), Plexus Corp., DOVatron International, Inc., IEC
Electronics Corp., Sanmina Corporation and Benchmark Electronics, Inc. In
addition, we may encounter competition in the future from other large electronic
manufacturers that are selling, or may begin to sell, contract manufacturing
services. We may also face competition from the manufacturing operations of our
current and prospective customers which we believe continually evaluate the
merits of manufacturing products internally versus the merits of contract
manufacturing.

We believe that the primary basis of competition in our targeted
markets are time to market, capability, price, manufacturing quality, advanced
manufacturing technology and reliable delivery. We believe that we generally
compete favorably with respect to each of these factors. To remain competitive,
we must continue to provide technologically advanced manufacturing services,
maintain quality levels, offer flexible delivery schedules, deliver finished
products on a reliable basis, and compete favorably on the basis of price. There
can be no assurance that we can compete effectively with respect to these
factors in the future.

BACKLOG

Our backlog at March 19, 1999 was approximately $6,600,000. Backlog
consists of firm purchase orders and commitments, which are to be filled within
the next 12 months. However, since orders and commitments may be rescheduled or
canceled, we believe that backlog is an inconclusive indicator of future
financial performance.

The level and timing of orders placed by our customers may vary due to
the customers' attempts to balance their inventory, changes in customers'
manufacturing strategies and variations in demand for the customers' products
resulting from, among other things, product life cycles, competitive conditions
or general economic conditions. Our revenues are derived from customers who
commit to firm purchase orders that provide for production requirements ranging
from one year to one month in advance. We do not assess any additional fee or
charge interest in connection with the financing of any customer orders other
than what is included in our firm price. Our inability to forecast the level of
customer orders with certainty makes it difficult to schedule production and
maximize utilization of manufacturing capacity.

SUPPLIERS

We procure components from a broad group of suppliers, determined on
an assembly-by-assembly basis. Some of the products and assemblies we
manufacture require one or more components that may be available from only a
single source. Some of these components are allocated in response to supply
shortages. We attempt to ensure the continuity of supply of these components. In
cases where unanticipated customer demand or supply shortages occur, we attempt
to arrange for alternative sources of supply, where available, or defer planned
production to meet the anticipated availability of the critical components. In
some cases, supply shortages could substantially curtail production of all
assemblies using a particular component. While we have not experienced material
shortages in the recent past, such shortages could produce significant
short-term interruptions of our future operations. Some of our material
suppliers are Arrow Electronics, Avnet Group, Chapin & Bangs, Future
Electronics, Simeona and Yard Metals. We currently have access to number of
alternative suppliers if any such suppliers were to cease or materially decrease
their business dealings with us.

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<PAGE>

We do not maintain a large inventory of materials and do not place
orders for materials unless required in response to a specific customer purchase
order. If we do have any aged or obsolete inventory, it is written-off or
reserved immediately.

LEGAL PROCEEDINGS

We are not a party to any material legal proceedings.

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<PAGE>
MANAGEMENT

The following table sets forth the names, ages and positions held with
respect to our directors and executive officers.

NAME AGE POSITION
- ---- --- --------

Peter C. Zachariou(1) 37 President and Director
Robert W. Lichtman 69 Chief Operating Officer
Mark Karasick 49 Director
Thomas J. Lenagh(1)(2) 73 Director
Jay H. Solomont(2) 42 Chairman of the Board and Director
Jan M. Winston(1)(2) 62 Director
Kevin E. Homon 43 Secretary and Controller

- ------------
(1) Member of Compensation Committee
(2) Member of the Audit Committee

PETER C. ZACHARIOU became our President and a director in June 1998
upon consummation of the restructuring. Mr. Zachariou has also held various
positions with JR Consulting, Inc., a company with a class of securities traded
on the OTC Bulletin Board(R); most recently Mr. Zachariou serves as the Chairman
of the Board, President and Treasurer. For at least the preceding five years,
Mr. Zachariou has been a private investor.

ROBERT W. LICHTMAN has been acting as our Chief Operating Officer since
July 1998 pursuant to an agreement with Getzler & Co., Inc., a management
consulting firm ("Getzler"). Mr. Lichtman is also a Senior Vice President of
Getzler, and has been for over five years.

MARK KARASICK became one of our directors in June 1998 upon
consummation of the restructuring. Mr. Karasick has been a private investor and
syndicator, primarily in the real estate area, for at least the past five years.
Mr. Karasick was initially involved ten years ago as a developer in Orange and
Dutchess counties in New York. When the market declined, Mr. Karasick
represented a number of individuals and entities on working out their troubled
loans with their lenders and in managing their properties on an interim basis.
During the past four years, Mr. Karasick has entered the real estate market as a
principal and syndicator acquiring properties or mortgages, primarily office
buildings in midtown Manhattan.

THOMAS J. LENAGH has been one of our directors since September 1997.
Mr. Lenagh was the Chairman and Chief Executive Officer of Greiner Engineering
from 1984 to 1986. He also served as the Chairman of the Executive Committee of
SCI Systems, Inc., from 1985 to 1994. Mr. Lenagh, an independent financial
advisor since 1984, has also served in financial management positions of the
Aspen Institute and the Ford Foundation as well as on the Board of Directors of
several corporations.

JAY H. SOLOMONT became one of our directors in June 1998 upon
consummation of the restructuring. Mr. Solomont has been a private investor for
at least the past five years. Mr. Solomont invests in real estate and emerging
technology companies in the U.S. and abroad. Prior to that, Mr. Solomont held
various executive and general management positions with A/D/S Group, one of the
premier nursing home companies in the northeast region of the United States,
until this company was sold to The Multi-Care Group in the end of 1996.

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<PAGE>

JAN M. WINSTON has been one of our directors since September 1997. Mr.
Winston was employed by the IBM Corporation from 1963 to 1997. He has held
executive and general management positions in computer development, marketing
and finance. He has extensive experience in developing and marketing
minicomputers, personal computers and software and frequently represented IBM in
external negotiations. Mr. Winston was one of six senior managers who launched
IBM's personal computer activity in the early 1980's. Most recently, he lead IBM
activities in the development and sales of speech recognition systems.

KEVIN E. HOMON has been our Controller since July 1997 and our
Secretary since July 1998. Prior to joining us, Mr. Homon was Controller of York
Hunter, Inc., a large construction management firm, from 1986 to 1997.

Our directors hold office until the next annual meeting of stockholders
and until their successors have been duly elected and qualified or their earlier
resignation, removal from office or death. Our officers are elected annually by
the Board of Directors and serve at the discretion of the Board. Mr. Lichtman
became our Chief Operating Officer upon entering into an agreement with Getzler
& Co., Inc. for his services. Mr. Lichtman will no longer serve as Chief
Operating Officer if the agreement is terminated.

There are no family relationships among our directors and executive
officers.

DIRECTOR COMPENSATION

Compensation for non-employee directors consists of a fee of $1,000 per
meeting of the Board of Directors and annual grants of stock options under our
1996 Stock Option Plan (the "1996 Plan") to purchase 7,500 shares of common
stock that will be vested at the end of each full year of service. All directors
will be reimbursed for travel and lodging expenses in connection with their
attendance at meetings.

EXECUTIVE COMPENSATION

The following table provides information with respect to the
compensation paid or accrued by us and all our subsidiaries to our Chief
Executive Officer, Chief Operating Officer and the Chief Financial Officer
(collectively, the "Named Executive Officers") in all their capacities for
Fiscal 1998 and Fiscal 1997. No other executive officer received salary and
bonus compensation in Fiscal 1998 and Fiscal 1997 in excess of $100,000.

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<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE

LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------- -------------
SHARES
NAME AND OTHER ANNUAL UNDERLYING
PRINCIPLE POSITION YEAR SALARY BONUS COMPENSATION(1) OPTIONS (#)
------------------ ---- --------- ----- --------------- -------------
<S> <C> <C> <C> <C> <C>
Peter C. Zachariou(2) 1998 $ 0 $0 $0 0
President 1997 $ 0 $0 $0 0

Gary D. Horne(3) 1998 $132,534 $0 $0 0
Chairman and Chief Executive 1997 $139,150 $0 $0 0
Officer

Stanley F. Zuk(4) 1998 $119,380 $0 $0 0
President and Chief Operating 1997 $138,400 $0 $0 0
Officer
</TABLE>
- ------------
(1) The table does not include amounts for personal benefits extended to
Mr. Horne and Mr. Zuk by us, such as health or life insurance. We
believe that the incremental cost of such benefits to Mr. Horne or Mr.
Zuk during Fiscal 1998 and Fiscal 1997 did not exceed the lesser of
$50,000 or 10% of his total annual salary and bonuses.

(2) Mr. Zachariou became President effective June 26, 1998. On July 24,
1998, the Board agreed to compensate Mr. Zachariou in the amount of
$7,000 per month. To date, compensation to Mr. Zachariou has not been
paid and is accruing.

(3) Mr. Horne resigned as our Chairman of the Board and Chief Executive
Officer on November 5, 1998. He continues to be an employee of the
Company as Vice President of Engineering.

(4) Mr. Zuk resigned from his position as President and Chief Operating
Officer effective June 26, 1998. Mr. Zuk continues to be employed by us
as Vice President of Manufacturing Engineering.

EMPLOYMENT AGREEMENTS

Effective December 1, 1996, we entered into three-year employment
agreements with each of Gary D. Horne, our former Chairman and Chief Executive
Officer, and Stanley F. Zuk, our Vice President of Manufacturing Engineering.
The terms of the employment agreements will automatically be extended for
successive one year terms unless we or the executive officer gives written
notices to the other at least 90 days prior to the then-scheduled expiration
date. The employment agreements provide for annual salaries initially set at
$160,000 and $140,000 (subject to annual cost-of-living adjustments) for Messrs.
Horne and Zuk, respectively. However, in connection with the financial
restructuring, the employment agreements for Messrs. Horne and Zuk were amended
to reduce their salaries by 50% until the earlier of (a) the conversion of the
Series A Stock, Series B Stock and Series C Stock or (b) we have three
consecutive profitable months.

Each employment agreement provides that the executive officer will
continue to receive his salary for a period of 12 months after termination of
employment if his employment is terminated by us for any reason other than Cause
(as defined in the employment agreement), including death or

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<PAGE>

disability (with such severance payable in a lump sum in the case of death). The
term Cause is defined in the employment agreement to mean (a) an executive
officer's act or omission which constitutes a willful and material breach of the
employment agreement which is not cured within 30 days after the executive
officer's receipt of notice of such breach, (b) an executive officer's
embezzlement or misappropriation of our assets for property or (c) an executive
officer's conviction for a criminal act that is a felony. Each employment
agreement also prohibits the executive officer from directly or indirectly
competing with us for one year after termination for any reason except Cause.

On July 24, 1998, the Board voted (with Mr. Zachariou abstaining) on
and approved a compensation package for Mr. Zachariou, which includes a
compensation payment of $7,000 per month. To date, Mr. Zachariou has not
received any compensation and instead has agreed to waive compensation until the
Board of Directors determines we have the ability to compensate him.

We maintain key man insurance in the amount of $1,000,000 on the lives
of each of Messrs. Horne and Zuk.

Effective June 29, 1998, we entered into an agreement with Getzler &
Co., Inc. ("Getzler") with respect to the services of Robert W. Lichtman to act
as our Chief Operating Officer. Pursuant to the one-year agreement, Getzler will
be paid $200,000 per annum payable monthly in advance on the first day of every
month. In addition, as additional compensation for the services to be provided,
we have issued 150,000 shares of our common stock to Getzler and/or its
designees. Notwithstanding the foregoing, Getzler has a right to require Peter
Zachariou, individually, to purchase the shares owned by Getzler at $1.25 per
share, and Peter Zachariou has the right to purchase the shares at $1.50 per
share, under certain circumstances. In addition to the foregoing, Getzler
purchased 100,000 shares of our common stock at a purchase price of $.358 per
share. Getzler will also be reimbursed for all reasonable expenses.

Mr. Horne resigned as our Chairman of the Board and Chief Executive
Officer on November 5, 1998. He continues to be one of our employees.

OPTIONS GRANTS IN LAST FISCAL YEAR

Under the 1996 Plan, 60,000 shares of Common Stock are reserved for
issuance upon exercise of the options. The 1996 Plan is designed to serve as an
incentive for our retaining qualified and competent directors, employees,
consultants and independent contractors. There were no grants of stock options
made during Fiscal 1998 to our Named Executive Officers.

STOCK OPTIONS HELD AT END OF FISCAL 1998

No stock options are held by our Named Executive Officers as of June
26, 1998.

-35-
<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth information with respect to the
beneficial ownership of our common stock by (i) each person who is known by us
to beneficially own 5% or more of our outstanding common stock, (ii) our Chief
Executive Officer and each of the other Named Executive Officers, (iii) each of
our directors, and (iv) all our directors and executive officers as a group. We
are not aware of any beneficial owner of more than 5% of the outstanding common
stock other than as set forth in the following table.

<TABLE>
<CAPTION>
PERCENTAGE
NAME AND ADDRESS NUMBER OF SHARES OF CLASS
OF BENEFICIAL OWNER (1) BENEFICIALLY OWNED (2) OUTSTANDING
- ----------------------- ---------------------- -----------
<S> <C> <C>
Peter C. Zachariou (3) 3,200,002 29.6%
Jay H. Solomont (4) 2,500,000 23.1
Robert W. Lichtman 0 0
Thomas J. Lenagh 0 0
Jan M. Winston 0 0
Mark Karasick 0 0
All directors and executive officers as a group 5,700,002 48.3
(6 persons)(5)

5% OR GREATER HOLDERS

Regina Miller 881,818 8.9
Lubin 17/5 B
Hodera, Israel 38401

Lemsford Limited(6) 700,000 6.7
16 Rue de le Felisserie
Casa Postale #3501
1211 Geneva 3, Switzerland

Corommandel Limited(6) 700,000 6.7
16 Rue de le Felisserie
Casa Postale #3501
1211 Geneva 3, Switzerland

Augustine Fund, L.P.(7) 928,572 8.6%
141 West Jackson, #2182
Chicago, Illinois 60604
</TABLE>
- ------------
(1) The business address of all our directors and executive officers is c/o
the Company, 1 Industry Street, Poughkeepsie, New York 12603.

(2) We believe that all persons named in the table have sole voting and
investment power with respect to all shares of common stock
beneficially owned by them. For purposes of calculating beneficial
ownership and voting power, shares of common stock underlying options,
warrants and other rights to acquire common stock exercisable within 60
days are included.

(3) Includes shares of common stock issuable upon exercise of warrants held
by Mr. Zachariou.

(4) Includes shares of common stock issuable upon exercise of warrants held
by Cameron Worldwide Ltd. ("Cameron").

-36-
<PAGE>

(5) Includes shares of common stock issuable upon exercise of warrants
described in Notes (3) and (4).

(6) Represents shares of common stock issuable upon exercise of warrants.

(7) Represents shares issuable upon conversion of convertible preferred
stock.

-37-
<PAGE>

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

ADVANCES FROM STOCKHOLDER

In order to assist us with meeting our working capital needs, Gary D.
Horne has periodically advanced funds to us. Such advances, including interest
at the rate of 8% per annum, aggregated $754,000 at June 26, 1998. Such advances
are unsecured. $672,000 of the advances are payable as follows: interest only
commencing January 1, 1998; principal plus interest payable monthly commencing
January 1, 2001 with the entire balance due January 1, 2003. $82,000 of the
advances are repayable as follows: principal and interest payments of $10,000
are payable monthly commencing July 15, 1998 and until the month after we have
three consecutive quarters of profitability (i.e. has income before income taxes
as opposed to a loss before income taxes); thereafter, the balance of the
principle sum and interest due under the note shall be payable in equal monthly
installments over a three year period.

We are currently in default with respect to these obligations. However,
on March 4, 1999, we entered into an agreement with Mr. Horne with respect to
these obligations. Pursuant to this agreement, Mr. Horne would agree to forgive
this indebtedness and release us from any and all responsibility with respect to
this indebtedness provided, among other things, we: (i) issued to Mr. Horne an
additional 150,000 shares of common stock, (ii) released from escrow 85,718
shares of common stock owned by Mr. Horne currently being held in escrow
pursuant to the terms of an escrow agreement entered into with Mr. Horne, (iii)
register the re-sale of the 235,718 shares, and (iv) release Mr. Horne from
certain liability he may have as a result of the Purchase Agreement entered into
in connection with the financial restructuring and from his service as an
officer and director, (v) permit the transfer to us of Mr. Horne's rights and
responsibilities under certain life insurance policies, and (vi) provide Mr.
Horne and his wife with insurance and health and dental insurance benefits.
Consummation of this agreement is subject to certain conditions; however, we
expect that this agreement will be consummated in March 1999.

TRANSACTIONS WITH NETCOMP, INC.

We purchase computers, computer supplies and services from Netcomp,
which operates the ComputerLand franchise in Poughkeepsie, New York. Netcomp is
owned by Gary D. Horne and Stanley F. Zuk. Purchases from Netcomp aggregated
approximately $134,000 and $135,000 during Fiscal 1998 and Fiscal 1997,
respectively.

APPROVAL OF AFFILIATED TRANSACTIONS

All transactions between us and our directors, executive officers and
principal stockholders will be on terms no less favorable than could be obtained
from unaffiliated third parties and have been and will be approved by a majority
of our independent outside directors.

-38-
<PAGE>

SELLING STOCKHOLDERS

The following table sets forth certain information regarding the
beneficial ownership of the common stock by each selling stockholder as of the
date of this Prospectus, based on information made available to us by the
selling stockholder:

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP OF
COMMON STOCK PRIOR OWNERSHIP OF COMPANY
TO OWNERSHIP STOCK AFTER OFFERING
NAME OF SELLING --------------------------------- NUMBER OF SHARES ---------------------------
STOCKHOLDER SHARES(1) PERCENTAGE(1) TO BE REGISTERED SHARES(2) PERCENTAGE
- ------------------------------------------------ ---------------- ---------------- --------------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Jacob Benjamin 284,091 2.9% 284,091 0 0

Conrad Consulting Limited 284,091 2.9 284,091 0 0

Gillette International, Ltd. 375,000 3.8 375,000 0 0

Matthew Holstein Pension Plan 57,500 * 57,500 0 0

Phillip M. Holstein, Jr. 62,500 * 62,500 0 0

Russell C. Kraus 75,000 * 75,000 0 0

Albert Kula 370,000 3.8 370,000 0 0

Jonathon Laurie 244,318 2.5 244,318 0 0

Regina Miller 881,818 8.9 881,818 0 0

Marlene Mordowitz 210,227 2.3 210,227 0 0

Henry Orlinsky 170,455 1.7 170,455 0 0

Benjamin Rabinoviki 284,091 2.9 284,091 0 0

Taurus Enterprises, LLC 30,000 * 30,000 0 0

Accessible Development Corp. 200,000 2.0 200,000 0 0

Dale N. Steen 35,714 * 35,714 0 0

Tabacalera, Ltd. 571,429 5.5 571,429 0 0

Augustine Fund, LP 928,572(3) 8.6 928,572(3) 0 0

Peter Zachariou 3,200,002(4) 29.6 3,200,002(4) 0 0

Cameron Worldwide Ltd. 2,500,000(4) 23.1 2,500,000(4) 0 0

Lemsford Investment Limited 700,000(5) 6.7 700,000(5) 0 0

CN Limited 300,000(5) 3.0 300,000(5) 0 0

Corommandel Limited 700,000(5) 6.7 700,000(5) 0 0

NWT Limited 300,000(5) 3.0 300,000(5) 0 0

Frederic K. Becker 133,970(6) 1.4 113,970(6) 20,000 *

Marjorie Becker, IRA 103,064(6) 1.0 83,064(6) 20,000 *
</TABLE>

-39-
<PAGE>
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP OF
COMMON STOCK PRIOR OWNERSHIP OF COMPANY
TO OWNERSHIP STOCK AFTER OFFERING
NAME OF SELLING --------------------------------- NUMBER OF SHARES ---------------------------
STOCKHOLDER SHARES(1) PERCENTAGE(1) TO BE REGISTERED SHARES(2) PERCENTAGE
- ------------------------------------------------ ---------------- ---------------- --------------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Richard Becker 45,588(6) * 45,588(6) 0 0

Alan Jacobs 68,382(6) * 68,382(6) 0 0

Sanford I. Feld 137,017(6) 1.4 137,017(6) 0 0

Leafland Associates, Inc.
Employee Pension Plan and Trust 261,878(6) 2.6 261,878(6) 0 0

Jules L. Marx 53,213(6) * 53,213(6) 0 0

Arnold G. Rifkin 68,382(6) * 68,382(6) 0 0

William J. Becker 345,831(6)(7) 3.4 315,831(6)(7) 30,000 *

William P. Dioguardi 1,362(5) * 1,362(5) 0 0

Laura McNarmara 546(5) * 546(5) 0 0

New Oshkim Limited Partners 817(5) * 817(5) 0 0

Spencer Trask Holdings Incorporated 3,268(5) * 3,268(5) 0 0

Michael Abramowitz 9,092(5) * 9,092(5) 0 0

Atlanta Allergy & Asthma Clinic
Profit Sharing Plan 36,363(5) * 36,363(5) 0 0

Mitch Cohen 18,182(5) * 18,182(5) 0 0

Dr. Arnold Curnyn 18,182(5) * 18,182(5) 0 0

Allen Fish 54,545(5) * 54,545(5) 0 0

FBI Bank (Schweiz) AG 36,363(5) * 36,363(5) 0 0

Per-Erik Hakansson 36,363(5) * 36,363(5) 0 0

Richard Merel 18,182(5) * 18,182(5) 0 0

Alan Parnes 18,182(5) * 18,182(5) 0 0

Irwin Parnes 9,092(5) * 9,092(5) 0 0

Lee Silverstein 18,182(5) * 18,182(5) 0 0

Dennis Spangler 18,182(5) * 18,182(5) 0 0

SUC-TUW Doris Tenebaum
FBO Lori Halberg 18,182(5) * 18,182(5) 0 0

United International Services Est 36,363(5) * 36,363(5) 0 0

Ronald Urman 18,182(5) * 18,182(5) 0 0

Dr. Paul Wolfson 36,363(5) * 36,363(5) 0 0
</TABLE>

-40-
<PAGE>
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP OF
COMMON STOCK PRIOR OWNERSHIP OF COMPANY
TO OWNERSHIP STOCK AFTER OFFERING
NAME OF SELLING --------------------------------- NUMBER OF SHARES ---------------------------
STOCKHOLDER SHARES(1) PERCENTAGE(1) TO BE REGISTERED SHARES(2) PERCENTAGE
- ------------------------------------------------ ---------------- ---------------- --------------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Steven N. Bronson 82,695(5) * 82,695(5) 0 0

James S. and Mindy E. Cassel

TBTE 44,530(5) * 44,530(5) 0 0

Christian Panagakos 2,827(5) * 2,827(5) 0 0

Scott E. Salpeter 5,654(5) * 5,654(5) 0 0

Barry E. Steiner 5,654(5) * 5,654(5) 0 0

Michael Bresner 9,800(5) * 9,800(5) 0 0

Glenn Busch 3,450(5) * 3,450(5) 0 0

Ami Horowitz 1,654(5) * 1,654(5) 0 0

William Masucci 3,000(5) * 3,000(5) 0 0

National Securities Corporation 5,000(5) * 5,000(5) 0 0

North Hampton Holdings Corporation III 48,000(5) * 48,000(5) 0 0

Mark O'Keefe 2,008(5) * 2,008(5) 0 0

Thomas Parigian 6,000(5) * 6,000(5) 0 0

Francis Rogers 5,434(5) * 5,434(5) 0 0

Angie Sam-Ma 354(5) * 354(5) 0 0

Robert Seteducati 9,800(5) * 9,800(5) 0 0

PNC Bank National Association 200,000(5) 2.0 200,000(5) 0 0

Getzler & Co., Inc. 250,000 2.6 250,000 0 0

EMERGINGGROWTHSTOCK.COM.INC. 416,666 4.2 166,666 250,000 2.5

Gary D. Horne 347,407 3.5 235,718 111,689 *

Barry Seidman 428,572(3) 4.2 428,572 0 0

C. Jesse Reggio 107,143(3) 1.1 107,143(3) 0 0

Brad Blumenthal 71,429(3) * 71,429(3) 0 0

Andy Typaldos 428,572(3) 4.2 428,572(3) 0 0

Cheryl Epstein 142,858(3) 1.4 142,858(3) 0 0

Pegasus Investment Holdings Ltd. 357,143(3) 3.5 357,143(3) 0 0

Keith A. Mazer 225,000(4) 2.2 225,000(4) 0 0
</TABLE>
- ------------
* Less than 1%

-41-
<PAGE>

(1) Except as otherwise indicated, the persons named in this table have
sole voting and investment power with respect to all shares of common
stock listed. Includes shares of common stock that such persons have
the right to acquire a beneficial interest in within 60 days from the
date of this Prospectus, including shares of issuable upon the exercise
of warrants to purchase our common stock.

(2) Assumes that all shares of common stock registered for the account of
the selling stockholders are sold.

(3) Represents shares of common stock issuable upon conversion of
outstanding convertible preferred stock.

(4) Includes shares of common stock issuable upon exercise of outstanding
warrants to purchase shares of common stock.

(5) Represents shares issuable upon exercise of warrants to purchase shares
of common stock.

(6) Represents shares of common stock issuable upon exercise of outstanding
warrants to purchase shares of common stock and shares of common stock
issuable upon conversion of outstanding shares of convertible preferred
stock.

(7) Includes securities held by Mr. Becker individually and in an IRA for
the benefit of Mr. Becker.

-42-
<PAGE>

PLAN OF DISTRIBUTION

The selling stockholders may sell their shares of common stock in
various ways and at various prices. Some of the methods by which the selling
stockholders may sell their shares include:

/bullet/ Ordinary brokerage transactions and transactions in which the
broker solicits purchasers;

/bullet/ Privately negotiated transactions;

/bullet/ Block trades in which the broker or dealer and resale by such
broker or dealer for the selling stockholder's account
pursuant to this Prospectus;

/bullet/ Sales under Rule 144 rather than by using this Prospectus;

/bullet/ A combination of any such methods of sale; and

/bullet/ Any other legally permitted method.

The applicable sales price may be affected by the type of transaction.

The selling stockholders may also pledge their shares pursuant to the
margin provisions of their customer agreements with their brokers. If there is a
default by the selling stockholders, the brokers may offer and sell the pledged
shares.

Brokers or dealers may receive commissions or discounts from the
selling stockholders (or, if the broker-dealer acts as agent for the purchaser
of the shares, from such purchaser) in amounts to be negotiated which are not
expected to exceed those customary in the types of transactions involved.

We cannot estimate at the present time the amount of commissions or
discounts, if any, that will be paid by the selling stockholders in connection
with sales of the shares.

The selling stockholders and any broker-dealers or agents that
participate with the selling stockholders in sales of the shares may be deemed
to be "underwriters" within the meaning of the Securities Act in connection with
such sales. In that event, any commissions received by such broker-dealers or
agents and any profit on the resale of the shares purchased by them may be
deemed to be underwriting commissions or discounts under the Securities Act.

Under the securities laws of certain states, the shares may be sold in
those states only through registered or licensed broker-dealers or pursuant to
available exemptions from such requirements. In addition, in certain states the
shares may not be sold therein unless the shares have been registered or
qualified for sale in such state or an exemption from such requirement is
available and is complied with.

We have agreed to pay all fees and expenses incident to the
registration of the shares, including certain fees and disbursements of counsel
to the selling stockholders. We have agreed to indemnify the selling
stockholders against certain losses, claims, damages and liabilities, including
liabilities under the Securities Act.

-43-
<PAGE>

The selling stockholders have also agreed to indemnify us, our
directors, officers, agents and representatives against certain liabilities,
including certain liabilities under the Securities Act.

The selling stockholders and other persons participating in the
distribution of the shares offered hereby are subject to the applicable
requirements of Regulation M promulgated under the Securities Exchange Act of
1934 in connection with the sales of the shares.

-44-
<PAGE>

DESCRIPTION OF SECURITIES

Our authorized capital stock consists of 50,000,000 shares of common
stock, par value $.01 per share, and 1,000,000 shares of preferred stock, par
value $.01 per share. As of the date of this Prospectus, 9,808,676 shares of
common stock and 75,611 shares of preferred stock are outstanding.

COMMON STOCK

Each share of common stock entitles the holder to one vote on all
matters submitted to a vote of the stockholders and to a pro rata share of any
dividends declared by the Board of Directors from legally available funds. Upon
our liquidation, each stockholder is entitled to share ratably in any assets
available for distribution after payment of all debts.

Stockholders have no preemptive, conversion or other subscription
rights and there are no redemption rights or sinking fund provisions applicable
to the common stock. All outstanding shares of common stock are, and the shares
to be sold in this offering will be, when issued and paid for, fully paid and
nonassessable.

PREFERRED STOCK

We are authorized to issue up to 1,000,000 shares of preferred stock
with such designations, rights and preferences as may be determined from time to
time by the Board of Directors. Accordingly, the Board of Directors is
empowered, without stockholder approval, to issue preferred stock with dividend,
liquidation, conversion, voting or other rights which could adversely affect the
voting power or other rights of the holders of our common stock. In the event of
issuance, the preferred stock could be utilized, under certain circumstances, as
a method of discouraging, delaying or preventing a change in control.

SERIES A AND SERIES B CONVERTIBLE PREFERRED STOCK

Of the 1,000,000 shares authorized, 400,000 shares were designated
Series A Convertible Preferred Stock ("Series A Stock") and 400,000 shares were
designated Series B Convertible Preferred Stock ("Series B Stock"), of which
352,909 shares of Series A Stock were outstanding and 330,799 shares of Series B
Stock were outstanding. Pursuant to the Certificate of Designations,
Preferences, Rights and Limitations for the Series A Stock and Series B Stock,
the shares automatically converted into 6,837,076 shares of common stock, in the
aggregate, on March 18, 1999, the first business day following approval by our
stockholders of (i) our financial restructuring and (ii) an amendment to our
Certificate of Incorporation increasing the authorized number of shares of
common stock. Consequently, there are currently no shares of Series A Stock or
Series B Stock outstanding.

SERIES C CONVERTIBLE PREFERRED STOCK

Of the 1,000,000 shares of Preferred Stock authorized, 100,000 shares
are designated Series C Stock, of which there are currently 73,461 shares issued
and outstanding. Holders of Series C Stock do not have any voting rights. The
stated value of each share of Series C Stock is $10.00. Each share of Series C
Stock is convertible into a number of shares of our common stock equal to $10.00
for each share of Series C Preferred Stock held divided by the conversion price
which is currently $1.00. Based on the current conversion price, the shares of
Series C Preferred Stock may be converted into 734,610 shares of common stock.
The conversion price is subject to adjustment under certain circumstances,
including any dividend, distribution,

-45-
<PAGE>

subdivision, combination, capital reorganization, merger, consolidation, or we
issue or sell any shares of common stock for consideration less than $1.00 per
share. Any shares of Series C Stock which remain outstanding on June 24, 2001
will automatically convert into shares of common stock. Holders of Series C
Stock are entitled to receive dividends when, if and as declared by the Board of
Directors at the rate of 4% per annum. Upon the voluntary or involuntary
liquidation, dissolution or winding up, the holders of Series C Stock shall be
entitled to receive, out of our assets available for distribution $10.00 per
share, subject to adjustment. The re-sale of the shares of common stock issuable
upon conversion of the Series C Stock is being registered by the Registration
Statement of which this Prospectus forms a part.

SERIES D CONVERTIBLE PREFERRED STOCK

Of the 1,000,000 shares of Preferred Stock authorized, 5,000 shares are
designated Series D Stock, of which there are currently 825 shares issued and
outstanding. Holders of Series D Stock do not have any voting rights. The stated
value of each share of Series D Stock is $1,000. Each share of Series D Stock is
convertible into shares of our common stock at the conversion rate, as the same
may be adjusted from time to time. The initial conversion rate shall be a number
of shares of common stock equal to $1,000 divided by 70% of the average market
price of the common stock for the five trading days immediately prior to the
conversion. Based on the current conversion rate, the outstanding shares of
Series D Stock may convert into 1,178,572 shares of common stock. The conversion
rate is subject to adjustment for many reasons, including any dividend,
distribution, subdivision, combination, capital reorganization, merger, or
consolidation. Moreover, we agreed to file a registration statement registering
the re-sale of the shares of common stock issuable upon conversion of the Series
D Stock within 45 days of the date the shares of Series D Stock were acquired.
This registration statement was not filed. As a result, the conversion rate is
adjusted to increase the number of shares issuable upon conversion of the Series
D Stock by 5%. Holders of Series D Stock are entitled to receive dividends when,
if and as declared by the Board of Directors at the rate of 3% per annum. Upon
the voluntary or involuntary liquidation, dissolution or winding up, the holders
of Series D Stock shall be entitled to receive, out of our assets available for
distribution $1,000 per share, subject to adjustment. The re-sale of the shares
of common stock issuable upon conversion of the Series D Stock is being
registered by the Registration Statement of which this Prospectus forms a part.

SERIES E CONVERTIBLE PREFERRED STOCK

Of the 1,000,000 shares of preferred stock authorized, 5,000 shares are
designated Series E Stock, of which there are currently 1,325 shares issued and
outstanding. Holders of Series E Stock do not have any voting rights. The stated
value of each share of Series E Stock is $1,000. Each share of Series E Stock is
convertible into shares of our common stock at the conversion rate. The initial
conversion rate, which is subject to adjustment under certain circumstances,
shall be a number of shares of common stock equal to $1,000 divided by 70% of
the average market price of the common stock for the five trading days
immediately prior to the conversion. Based on the current conversion rate, the
outstanding shares of Series E Stock may convert into 1,892,860 shares of common
stock. The conversion rate is subject to adjustment for many reasons, including
any dividend, distribution, subdivision, combination, capital reorganization,
merger, or consolidation. Holders of Series E Stock are entitled to receive
dividends when, if and as declared by the Board of Directors at the rate of 3%
per annum. Upon the voluntary or involuntary liquidation, dissolution or winding
up, the holders of Series E Stock shall be entitled to receive, out of our
assets available for distribution $1,000 per share, subject to adjustment. The
re-sale of the shares of common stock issuable upon conversion of the Series E
Stock is being registered by the Registration Statement of which this Prospectus
forms a part.

-46-
<PAGE>

ANTI-TAKEOVER PROVISIONS

Our Board of Directors has the authority to issue up to 1,000,000
shares of preferred stock and to determine the price, rights, preferences and
privileges of those shares without any further vote or action by the
stockholders. The rights of holders of common stock will be subject to, and may
be adversely affected by, the rights of holders of any preferred stock that may
be issued in the future. Although we have no present intention to issue any
additional shares of preferred stock, any issuance of preferred stock, while
potentially providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire a majority of our outstanding voting
stock. Additionally, we are subject to the anti-takeover provisions of Section
203 of the DGCL, which prohibits us from engaging in a "business combination"
win an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. Section 203 could have
the effect of delaying or preventing a change of control.

TRANSFER AGENT

American Stock Transfer & Trust Company, New York, New York, has been
appointed as the transfer agent for our common stock.

SHARES ELIGIBLE FOR FUTURE SALE

As of the date of this Prospectus, we have 9,808,676 shares of common
stock issued and outstanding. Substantially, all of these shares of common stock
are either eligible for sale pursuant to Rule 144 or have been registered under
the Securities Act for resale by the holders, including the common stock covered
by this Prospectus. This will permit the sale of registered shares of common
stock in the open market or in privately negotiated transactions without
compliance with the requirements of Rule 144. We are unable to estimate the
amount, timing or nature of future sales of outstanding common stock. Sales of
substantial amounts of the common stock in the public market may hurt the
stock's market price.

In general, under Rule 144, if a period of at least one year has
elapsed since the later of the date the "restricted securities" were acquired
from us or the date they were acquired from an Affiliate (as that term is
defined in Rule 144), then the holder of such restricted securities is entitled
to sell a number of shares of common stock equal to 1% of the issued and
outstanding shares of common stock (approximately 98,087 shares immediately
after this offering) or the average weekly reported volume of trading of the
common stock on The Nasdaq SmallCap Market during the four calendar weeks
preceding such sale. The holder may only sell such shares through unsolicited
brokers' transactions or directly to market makers. Sales under Rule 144 are
also subject to certain requirements pertaining to the manner of such sales,
notices of such sales and the availability of current public information about
us. Affiliates may sell shares not constituting restricted shares in accordance
with the foregoing volume limitations and other requirements but without regard
to the one-year holding period.

Under Rule 144(k), if a period of at least two years has elapsed between
the later of the date restricted shares were acquired from us or the date they
were acquired from an Affiliate, as applicable, a holder of such restricted
shares who is not an Affiliate at the time of the sale and has not been an
Affiliate for at least three months prior to the sale would be entitled to sell
the shares immediately without regard to the volume limitations and other
conditions described below.

-47-
<PAGE>

We cannot make any predictions as to the effect, if any, that sales of
shares or the availability of shares for sale will have on the market price
prevailing from time to time. Nevertheless, sales of significant amounts of the
common stock in the public market, or the perception that such sales may occur,
could adversely affect prevailing market prices.

LEGAL OPINION

Broad and Cassel, a partnership including professional associations,
201 South Biscayne Boulevard, Suite 3000, Miami, Florida 33131, is giving an
opinion regarding the validity of the offered shares.

EXPERTS

Our consolidated financial statements as of June 26, 1998 and for the
years ended June 26, 1998 and June 27, 1997 are included in this Prospectus and
have been audited by Deloitte & Touche LLP, our auditors, as indicated in their
report that accompanies the financial statements, and are incorporated in this
Prospectus in reliance on the firm of Deloitte & Touche LLP as experts in
accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any report or document we
file at the public reference facilities maintained by the SEC at 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549 and at the SEC's regional
offices located at Seven World Trade Center, Suite 1300, New York, New York
10048, and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Please
call the SEC at 1-800-SEC-0880 for more information about the public reference
rooms. Our SEC filings are also available from the SEC's web site located at
http://www.sec.gov.

We have filed with the SEC a Registration Statement on Form SB-2 under
the Securities Act with respect to the common stock covered by this Prospectus.
This Prospectus, which is a part of the Registration Statement, does not contain
all the information set forth in, or annexed as exhibits to, the Registration
Statement, as permitted by the SEC's rules and regulations. For further
information with respect to us and the common stock offered under this
Prospectus, please refer to the Registration Statement, including the exhibits.
Copies of the Registration Statement, including exhibits, may be obtained from
the SEC's public reference facilities listed above upon payment of the fees
prescribed by the SEC, or may be examined without charge at these facilities.
Statements concerning any document filed as an exhibit are not necessarily
complete and, in each instance, we refer you to the copy of the document filed
as an exhibit to the Registration Statement.

We are subject to the reporting requirements of the Exchange Act and,
in accordance therewith, file reports, proxy statements and other information
with the SEC. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities of the SEC set forth
above, and copies of such materials can be obtained from the SEC's Public
Reference Section at prescribed rates. We furnish our stockholders with annual
reports containing audited financial statements and such other periodic reports
as we deem appropriate or as may be required by law.

-48-
<PAGE>
ASD GROUP, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Independent Auditors' Report....................................................................F-2

Consolidated Balance Sheets as of June 26, 1998
and (unaudited) December 25, 1998...............................................................F-3

Consolidated Statements of Operations for the Years Ended June 26, 1998 and June
25, 1997 and (unaudited) the six months ended December 25, 1998 and December 26, 1997...........F-4

Consolidated Statements of Stockholders' Deficiency for the Years Ended June 26,
1998 and June 27, 1997 and (unaudited) the six months ended December 25, 1998 and
December 26, 1997...............................................................................F-5

Consolidated Statements of Cash Flows for the Years Ended June 26, 1998 and June
27, 1997 and (unaudited) the six months ended December 25, 1998 and December 26, 1997...........F-6

Notes to Consolidated Financial Statements......................................................F-7
</TABLE>

F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT

Board of Directors
ASD Group, Inc.
Poughkeepsie, New York

We have audited the accompanying consolidated balance sheet of ASD
Group, Inc. and subsidiaries as of June 26, 1998, and the related consolidated
statements of operations, stockholders' deficiency, and cash flows for each of
the two years in the period ended June 26, 1998. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

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

In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of ASD Group, Inc. and
subsidiaries as of June 26, 1998, and the results of their operations and their
cash flows for each of the two years in the period ended June 26, 1998 in
conformity with generally accepted accounting principles.

DELOITTE & TOUCHE LLP

Stamford, Connecticut
October 5, 1998

F-2
<PAGE>
<TABLE>
<CAPTION>
ASD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

ASSETS

JUNE 26, DECEMBER 25,
1998 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash ................................................................... $ 4,904 $ 11,430
Accounts receivable, less allowance for doubtful accounts of
$341,000 and $355,608, respectively ................................. 897,681 1,100,925
Inventory, less reserve of $345,826 and $203,391, respectively
3,042,897 1,948,261
Prepaid expenses and other current assets .............................. 159,636 155,084
Capital contribution receivable ........................................ 1,900,000 --
------------ ------------
Total current assets ............................................... 6,005,118 3,215,700
Property, plant and equipment, net ..................................... 4,576,889 4,151,545
Other assets ........................................................... 205,969 197,624
------------ ------------
Total assets ........................................................... $ 10,787,976 $ 7,564,869
============ ============

LIABILITIES AND STOCKHOLDERS' DEFICIENCY

Current liabilities:
Current portion of long-term debt ...................................... $ 3,832,238 $ 3,445,397
Accounts payable ....................................................... 1,451,897 1,392,416
Accrued expenses ....................................................... 847,721 805,633
------------ ------------
Total current liabilities .......................................... 6,131,856 5,643,446
Long-term debt .............................................................. 4,433,493 4,198,529
Deferred compensation ....................................................... 320,672 339,436
------------ ------------
Total liabilities .................................................. 10,886,021 10,181,411
------------ ------------
Commitments and contingencies (See Notes)
Stockholders' deficiency:
Preferred stock, $.01 par value, 1,000,000 shares
authorized, 734,259 and 757,994 convertible
shares, respectively, issued and outstanding ....................... 1,909,000 2,882,000
Common stock, $.01 par value, 10,000,000 shares
authorized, 1,979,934 and 2,079,934 shares
respectively, issued and outstanding ............................... 19,799 20,799
Paid-in capital ........................................................ 4,370,872 4,405,672
Deficit ................................................................ (6,397,716) (9,925,013)
------------ ------------
Total stockholders' deficiency ..................................... (98,045) (2,616,542)
------------ ------------
Total liabilities and stockholders' deficiency .............................. $ 10,787,976 $ 7,564,869
============ ============
</TABLE>
See notes to consolidated financial statements.

F-3
<PAGE>
<TABLE>
<CAPTION>
ASD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED SIX MONTHS ENDED
JUNE 26, JUNE 27, DECEMBER 25, DECEMBER 26,
1998 1997 1998 1997
------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales ....................................... $ 14,298,745 $ 15,870,988 $ 3,816,890 $ 9,634,806

Cost of goods sold .............................. 13,988,630 12,086,796 4,605,486 7,381,081
------------ ------------ ------------ ------------

Gross profit (loss) ........................ 310,115 3,784,192 (788,596) 2,253,725
------------ ------------ ------------ ------------
Operating expenses:

Sales and marketing ........................ 311,981 186,888 214,064 134,460

General and administrative ................. 4,304,791 3,472,614 2,098,920 2,066,272
------------ ------------ ------------ ------------

Total operating expenses ........................ 4,616,772 3,659,502 2,312,984 2,200,732
------------ ------------ ------------ ------------

(Loss) income from operations ................... (4,306,657) 124,690 (3,101,580) (52,993)

Other income .................................... 20,901 68,195 -- --

Interest expense ................................ 1,230,882 1,534,366 425,717 550,924

Financial restructuring costs ................... (124,000) -- -- --
------------ ------------ ------------ ------------

Loss before income taxes and .................... (5,640,638) (1,341,481) (3,527,297) (497,931)
extraordinary gain

Income tax (expense) benefit .................... (1,717,532) 564,584 -- 209,431
------------ ------------ ------------ ------------

Loss before extraordinary gain .................. (7,358,170) (776,897) (3,527,297) (288,500)

Extraordinary gain from financial ............... 665,500 -- -- --
------------ ------------ ------------ ------------
restructuring

Net loss ........................................ $ (6,692,670) $ (776,897) $ (3,527,297) (288,500)
============ ============ ============ ============

Net loss per basic and diluted common share:

Loss before extraordinary gain ............. $ (4.66) $ (1.03) $ (1.75) $ (.18)

Extraordinary gain ......................... .42 -- -- --
------------ ------------ ------------ ------------

Net loss ................................... $ (4.24) $ (1.03) $ (1.75) $ (.18)
============ ============ ============ ============

Weighted average common shares outstanding ...... 1,579,018 751,041 2,010,153 1,577,917
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements

F-4
<PAGE>
<TABLE>
<CAPTION>
ASD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY

PREFERRED STOCK COMMON STOCK RETAINED
--------------------- --------------------- PAID-IN EARNINGS
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
------- ---------- --------- ------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1996........ - $ 632,917 $ 6,329 $ - $ 1,071,851 $ 1,078,180
Net loss..................... - - - - - (776,897) (776,897)
Warrants issued.............. - - 327,000 - 327,000 - 327,000
Balance, June 27, 1997....... - - 1,577,917 15,779 4,206,892 294,954 4,517,625
Net loss..................... - - - - - (6,692,670) (6,692,670)
Financial restructuring
(Note 4)..................... 734,259 1,909,000 402,017 4,020 163,980 2,077,000
-
Balance, June 26, 1998....... 734,259 1,909,000 1,979,934 19,799 4,370,872 (6,397,716) (98,045)
Net loss (unaudited)......... -- -- -- -- -- (3,527,297) (3,527,297)
Financial restructuring
(unaudited).................. 23,735 973,000 100,000 1,000 34,800 -- 1,008,800

Balance, December 25,
1998 (unaudited)............. 757,994 $2,882,000 2,079,934 $20,799 $4,405,672 $(9,925,013) $(2,616,542)
======= ========== ========= ======= ========== =========== ===========
</TABLE>
See notes to consolidated financial statements.

F-5
<PAGE>

<TABLE>
<CAPTION>
ASD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED SIX MONTHS ENDED
----------------------------- ---------------------------------
JUNE 26, JUNE 27, DECEMBER 25, DECEMBER 26,
1998 1997 1998 1997
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Operating activities:
Net loss................................................... $(6,692,670) $ (776,897) $(3,527,297) $ (288,500)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization........................ 771,431 699,350 194,740 260,619
Property asset impairment............................ - - 300,000 -
Provision for doubtful accounts...................... 178,000 10,000 14,608 100,000
Deferred compensation................................ 34,747 32,171 18,764 17,376
Interest accrued-stockholder advances................ 57,289 50,259 51,699 30,361
Deferred income taxes................................ 1,717,532 (564,584) - (209,431)
Extraordinary gain from financial restructuring...... (665,500) - - -
Inventory reserve.................................... 345,826 - - -
Changes in assets and liabilities:
Accounts receivable.............................. 1,099,721 551,761 (217,852) (1,263,936)
Inventory........................................ 1,669,171 896,677 1,094,636 (329,698)
Prepaid expenses and other current assets........ 42,788 (127,417) 4,551 (281,335)
Other assets..................................... 150,569 68,580 (26,575) (7,266)
Accounts payable................................. 216,215 (1,457,770) (59,481) 636,798
Accrued expenses................................. 5,297 (359,804) (42,089) 349,891
Deferred revenues................................ - (69,666) - -
Payments of deferred compensation................ (23,360) (23,971) - (15,257)
----------- ----------- ----------- -----------
Net cash used in operating activities....... (1,092,944) (1,071,311) (2,194,296) (1,000,378)
----------- ----------- ----------- -----------
Investing activities:
Capital expenditures ...................................... (97,378) (97,693) (22,674) (321,147)
----------- ----------- ----------- -----------
Financing activities:
Net proceeds from IPO...................................... - 3,889,342 - -
Proceeds from financial restructuring...................... - - 2,873,000 -
Borrowings................................................. 7,135,741 1,250,000 390,979 7,376,500
Payments of long-term debt................................. (7,114,282) (3,169,626) (1,040,483) (6,968,900)
Financing costs............................................ (229,058) (160,433) - (117,154)
Loans - life insurance policies............................ 303,635 - - -
----------- ----------- ----------- -----------
Net cash provided by financing activities.............. 96,036 1,809,283 2,223,496 290,446
----------- ----------- ----------- -----------
Net (decrease) increase in cash.............................. (1,094,286) 640,279 6,526 (1,031,079)
Cash, beginning of year...................................... 1,099,190 458,911 4,904 1,099,190
----------- ----------- ----------- -----------
Cash, end of year............................................ $ 4,904 $ 1,099,190 $ 11,430 $ 68,111
=========== =========== =========== ===========
Supplemental disclosures:
Cash paid during the year for:
Income taxes........................................... $ 3,571 $ 6,484 $ - $ 14,325
=========== =========== =========== ===========
Interest............................................... $ 927,924 $ 1,132,354 $ 197,058 $ 455,227
=========== =========== =========== ===========
Capital contribution receivable............................. $ 1,900,000 $ - $ - $ -
=========== =========== =========== ===========
Debt converted upon financial restructuring................. $ 880,000 $ - $ - $ -
=========== =========== =========== ===========
Capital leases entered into................................. $ 267,520 $ - $ - $ -
=========== =========== =========== ===========
</TABLE>

See notes to consolidated financial statements

F-6
<PAGE>

ASD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BUSINESS DESCRIPTION

ASD Group, Inc. ("ASD") and its wholly-owned subsidiaries ( the
"Company") is a provider of contract manufacturing and engineering services to
domestic original equipment manufacturers. The Company provides a wide range of
services including product engineering and design, procurement, precision
fabrication of sheet metal and machined parts, printed circuit board assembly,
electro-mechanical assembly and functional testing.

2. SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION--The accompanying consolidated financial
statements include the consolidated accounts of ASD Group, Inc. and its
subsidiaries. All significant intercompany balances and transactions have been
eliminated.

REVENUE RECOGNITION--Sales are recorded as products are shipped or when
services are rendered.

FINANCING COSTS--During the years ended June 26, 1998 and June 27,
1997, the Company incurred $229,058 and $160,433, respectively, in connection
with debt financings (see Note 6). These costs have been capitalized in other
assets and are being amortized over the terms of the financings. Amortization of
financing costs and the write-off of other long-term assets for the years ended
June 26, 1998 and June 27, 1997 were $422,296 and $203,948, respectively.

PROPERTY, PLANT, AND EQUIPMENT--Property, plant and equipment are
stated at cost. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets which range from 5 to 40 years. The net
realizable value of the idle property approximates its carrying value.

INVENTORY--Inventory, consisting of work-in-progress and raw materials
of approximately $2,737,000 and $306,000, respectively, at June 26, 1998 and
$1,634,000 and $314,160 at December 25, 1998, respectively, is stated at the
lower of cost (first-in, first-out method) or market. Inventory that becomes
obsolete because of customer required changes is written-off or reserved at the
time the job is completed or when an engineering change is implemented.

INCOME TAXES--Deferred income taxes are provided for the temporary
differences between the financial reporting and tax basis of the Company's
assets and liabilities using presently enacted tax rates.

CONCENTRATION OF CREDIT RISK--Financial instruments which potentially
subject the Company to concentrations of credit risk consist principally of
trade receivables. The Company performs ongoing credit evaluations of its
customers' financial conditions and generally does not require collateral.
Additionally, the Company maintains insurance for bad debts for certain rated
customers. The insurance policy assures a minimum recovery of 80% of the maximum
established by the insurer per customer insured.

F-7
<PAGE>

Customers that accounted for 10% or more of the Company's net sales are as
follows:

YEARS ENDED
----------------------------------
CUSTOMER JUNE 26, 1998 JUNE 27, 1997
-------- ------------- -------------
ENI Technologies.................... 22% 22%
Spectran Corporation................ 18 --
Olin Microelectronics............... 13 --
International Business Machines..... -- 10
S&K Products International, Inc..... -- 10
Lockheed Martin Corporation......... -- 11
Gerber Scientific Products.......... -- 13
-- --
53% 66%
-- --

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

ADOPTION OF STATEMENT OF ACCOUNTING STANDARD NO. 123--In 1997, the
Company adopted Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123"). SFAS 123 encourages, but does not
require companies to record at fair value compensation cost for stock-based
compensation plans. The Company has chosen to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and
related interpretations. Accordingly, compensation cost for stock options is
measured as the excess, if any, of the quoted market price of the Company's
stock at the date of the grant over the amount an employee must pay to acquire
the stock.

ADOPTION OF STATEMENT OF ACCOUNTING STANDARD NO. 128--In 1998, the
Company adopted Statement of Financial Accounting Standards No. 128 ("SFAS
128"), "Earnings Per Share". SFAS 128 replaces the presentation of primary
earnings per share with a presentation of basic earnings per share. It also
requires dual presentation of basic and diluted earnings per share on the face
of the income statement. Diluted earnings per share is computed by dividing net
income (loss) by the weighted average number of common shares outstanding and
dilutive common equivalent shares (common stock options and warrants)
outstanding.

DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS--The carrying
value of the Company's credit facilities approximates fair value and is
estimated based on the quoted market prices for the same or similar issues or on
the current rates offered to the Company for debt of the same remaining
maturities.

OTHER ASSETS--Included in other assets at June 26, 1998 is $5,391 cash
surrender value of life insurance policies, net of outstanding loans in Fiscal
1998 of $303,635.

INTERIM FINANCIAL STATEMENTS--The accompanying consolidated balance
sheet as of December 25, 1998 and the statements of operations, stockholders'
deficiency and cash flows for the six months ended December 25, 1998 and
December 26, 1997 are unaudited but, in the opinion of management, include all
adjustments (consisting of normal, recurring adjustments) necessary for a fair
presentation of results for these interim periods.

F-8
<PAGE>

3. PUBLIC OFFERING OF COMMON STOCK AND RECAPITALIZATION

In May 1997, the Company completed an initial public offering of
945,000 shares of common stock at $5.75 per share (the "Offering"). Prior to
the Offering, there was no public market for the Company's common stock. The net
proceeds of the Offering, after deducting applicable issuance costs and
expenses, were $3,889,342.

In connection with the Offering, the Company (a) increased its
authorized common stock to 10,000,000 shares, (b) effected a split of its common
stock, resulting in 632,917 shares outstanding, and (c) authorized 1,000,000
shares of new $.01 par value preferred stock. Designations, rights and
preference of the preferred stock will be determined by the Board of Directors.

4. FINANCIAL RESTRUCTURING

On June 26, 1998, the Company entered into an agreement with an
investor group (the "Investors") for a $1,900,000 capital infusion and entered
into agreements with its primary lenders to restructure the Company's debt.

The Investors purchased $1,900,000 of equity consisting of 392,017
unregistered shares of common stock, 329,999 shares of Series A Convertible
Preferred Stock ("Series A Stock"), 330,799 shares of Series B Convertible
Preferred Stock ("Series B Stock"), and five year warrants to purchase 4,000,000
shares of common stock at an exercise price of $.75 per share. The Series A
Stock and Series B Stock will automatically convert, upon stockholder approval
of the restructuring and an amendment to the Company's certificate of
incorporation, into common stock at the rate of 10 shares of common stock for
each share of preferred stock. Upon conversion of the Series A Stock and Series
B Stock, the Investors will own 7,000,000 shares of common stock. Holders of the
Series A Stock and Series B Stock will be entitled to receive dividends, when,
as and if declared by the Company's Board of Directors, at a rate of 6% and 4%
per annum, respectively. Holders of the Series A Stock and Series B Stock have
no voting rights. The Series A Stock and Series B Stock each has a liquidation
preference of $10.00 per share.

As part of the financial restructuring, the Company reached agreements
with its three primary lenders; PNC Bank ("PNC"), Bankers Trust Company ("BT"),
and a group of private noteholders (the "Noteholders") to restructure its debt
as follows:

1. PNC agreed to maintain the Company's existing line of credit through
June 2000 (see Note 6), with a one year extension, provided certain conditions
are met and no events of default occur. In consideration for the above, PNC
received five year warrants to purchase 100,000 shares of common stock at $1.75
per share. The line of credit places restrictions on the Company's ability to
obtain financing either through the offering of equity or by incurring
additional debt.

2. BT was paid $250,000 to defer the outstanding principal amount owed to
BT for nine months until March 1999. The Company will not make principal and
interest payments to BT during this period, although the amounts owed will
continue to accrue interest. In nine months, BT will either (i) be paid
$1,500,000 in satisfaction of all amounts due, or (ii) in exchange for a payment
of $100,000, grant the Company another extension to 15 months until September
1999 at which time the Company will be required to pay $1,550,000 in
satisfaction for all amounts due. If BT is not paid in full by such time, the
total outstanding indebtedness reverts back to

F-9
<PAGE>

approximately $2,751,000, the amount owed at June 26, 1998, plus any accrued but
unpaid interest. Upon exercise of the option, the 100,000 warrants previously
issued to BT (see Note 6) will be canceled.

3. In settlement of $1,210,000 principal and interest owed to the
Noteholders, the Company:

a. Paid $110,000,
b. Agreed to pay an additional $110,000 in June 1999,
c. Issued 73,461 shares of Series C Convertible Preferred Stock
on the same terms as the Series B Stock,
d. Exchanged outstanding warrants to purchase 534,783 shares of
common stock at $2.73 per share for five-year warrants to
purchase 418,711 shares of common stock at $1.50 per share.

The difference between the amount owed to the Noteholders and the fair
value of the settlement is recorded as an extraordinary gain.

In addition, holders of outstanding warrants to purchase 123,750 shares
of common stock at $2.69 per share have agreed to exchange these warrants for
five-year warrants for the purchase of 400,000 shares of common stock at $1.50
per share.

With respect to this restructuring, the Company obtained a fairness
opinion from the underwriter of the Company's initial public offering (the
"Underwriter"). In exchange, the Company paid a $25,000 fee and amended the
warrants to purchase 94,500 shares of common stock currently held by the
Underwriter to lower the exercise price from $8.3375 per share to $1.50 per
share. In addition, the Underwriter received 10,000 shares of common stock.

The Company paid an investment banking firm that advised the Investors
$118,000 and issued five year warrants to purchase 141,360 shares of common
stock at $.35 per share.

The above financial restructuring was fully funded by September 22,
1998 and has been given effect to in the accompanying consolidated financial
statements. The Company obtained an independent appraisal with respect to the
securities that were issued pursuant to the financial restructuring. Based on
the findings of that appraisal, all securities issued by the Company have been
recorded at fair value.

The effect of the financial restructuring on the consolidated financial
statements for the year ended June 26, 1998 is as follows:

<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK FINANCIAL
------------------- --------------------- PAID-IN RESTRUCTURING EXTRAORDINARY
SHARES AMOUNT SHARES AMOUNT CAPITAL COSTS GAIN (LOSS)
------- ---------- ------- ------ -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investors 660,798 $1,718,000 392,017 $3,920 $178,080 $ - $ -
Noteholders 73,461 191,000 - - 7,000 - 792,000
BT - - - - - - -
Warrantholders - - - - 1,900 1,900 -
PNC - - - - 500 29,000 -
Underwriter - - 10,000 100 3,000 28,100 -
Investment Banker - - - - 8,500 - (126,500)
Expenses (35,000) 65,000 -
------- ---------- ------- ------ -------- -------- ---------
734,259 $1,909,000 402,017 $4,020 $163,980 $124,000 $ 665,500
======= ========== ======= ====== ======== ======== =========
</TABLE>

F-10
<PAGE>

5. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consists of the following:

<TABLE>
<CAPTION>
JUNE 26, DECEMBER 25,
1998 1998
----------- -------------
(UNAUDITED)
<S> <C> <C>
Land...................................... $ 563,937 $ 563,937
Buildings................................. 1,633,327 1,633,327
Leasehold improvements.................... 896,091 896,091
Machinery and equipment................... 3,103,139 3,125,811
Automobiles............................... 47,955 47,955
----------- -----------
6,244,449 6,267,121
Less: accumulated depreciation............ 3,066,411 3,192,785
----------- -----------
3,178,038 3,074,336
----------- -----------
Idle property:
Land and building.................... 1,923,865 1,923,865
Less: accumulated depreciation....... 525,014 846,656
----------- -----------
1,398,851 1,077,209
----------- -----------
Property, plant and equipment, net... $ 4,576,889 $ 4,151,545
=========== ===========
</TABLE>

Machinery and equipment includes property under capital leases of
$267,520. Amortization of assets under capital leases in Fiscal 1998 was $24,077
and is included in depreciation and amortization expense. Depreciation and
amortization of property, plant and equipment was $349,135 and $273,382 during
the years ended June 26, 1998 and June 27, 1997, respectively.

Idle property represents facilities that are temporarily not being used
in the Company's operations. The carrying value of idle property is reviewed
when facts and circumstances suggest that it may be impaired. The Company
assesses its recoverability by determining whether the amortization of the idle
property balance over its remaining life can be recovered through undiscounted
projected future cash flows. The Company may use these facilities commencing in
Fiscal 1999.

6. LONG-TERM DEBT

Long term debt consists of the following:

<TABLE>
<CAPTION>
JUNE 26, DECEMBER 25,
1998 1998
----------- -------------
(UNAUDITED)
<S> <C> <C>
Notes Payable-Noteholders................................... $ 220,000 $ 110,000
Revolving Line of Credit-PNC................................ 4,252,609 4,039,712
Note Payable-Bankers Trust Company, interest at prime
Plus 1.5%, due March 17, 1999, secured by second
Lien on certain property............................... 2,751,132 2,501,132
Notes Payable-Stockholder, plus accrued interest at 8% or
9.5%, payable in installments through January 1, 2003,
in Default............................................. 754,137 771,958
Other, including capital leases of $235,394................. 287,853 221,124
----------- -----------
8,265,731 7,643,926
----------- -----------
Less: current position...................................... 3,832,238 3,445,397
----------- -----------
$ 4,433,493 $ 4,198,529
=========== ===========
</TABLE>

F-11
<PAGE>

On December 19, 1997, the Company completed a refinancing of its
indebtedness and secured a new credit facility with an increased borrowing limit
to $8,750,000 with PNC Bank ("PNC"). In connection with the refinancing, the
Company issued five year warrants to Bankers Trust Company to purchase 100,000
shares of common stock at $4.50 per share. The fair value of the warrants did
not have a significant effect on the consolidated financial statements (see Note
4). The Company restructured it indebtedness with PNC on June 26, 1998
permitting borrowings up to $4,500,000 at prime plus .5% which expires on June
25, 2000 (the "Line of Credit") with a one year extension option. The Line of
Credit is secured by a first lien on accounts receivable, inventory, and
machinery and equipment. The amount available for borrowing under the Line of
Credit is determined pursuant to a formula based upon eligible accounts
receivable, inventory, and machinery and equipment. Included in the formula is
an overadvance of $900,000 which will remain in place until February 26, 1999.
Thereafter, $600,000 of the overadvance will be eliminated on a straight line
amortized basis in 12 equal monthly installments and the remaining balance is
payable on June 25, 2000. As of June 26, 1998, based on the availability
formula, the Company did not have any additional availability for borrowings.

The Line of Credit agreement contains certain restrictive covenants
with respect to among others, capital expenditures, mergers and acquisitions,
dividends, and additional indebtedness. In addition, the agreement requires that
the Company satisfy certain financial covenants. As a result of the Company's
results of operations for Fiscal 1998, the Company failed to satisfy certain
financial covenants. However, the bank provided the Company a waiver of the
existing and future financial covenant defaults.

Annual principal payments, as adjusted for the amended maturities are
as follows:

12 MONTHS ENDING JUNE
-------------------------------------
1999.................................. $3,832,238
2000.................................. 4,316,121
2001.................................. 47,394
2002.................................. 48,162
2003.................................. 21,816
----------
$8,265,731
==========

The prime rate at June 26, 1998 was 8.5%.

7. DEFERRED COMPENSATION

The Company has a deferred compensation agreement with two former
employees. The agreement requires the payment of $450,000 over a 15 year period.
The obligations have been recorded at their net present value using a discount
rate of 8%.

8. STOCKHOLDERS' EQUITY

In June 1996, the Company adopted the 1996 Stock Option Plan (the "1996
Plan"). The 1996 Plan provides for the issuance of a maximum of 60,000 shares of
common stock pursuant to the future grant to employees and others of incentive
stock options and nonstatutory stock options. In connection with the Offering,
the Company granted options to purchase 30,000 shares of common stock at $5.75
per share. The stock options vest in three annual installments commencing one
year from the date of grant and will expire ten years from the date of grant.

F-12
<PAGE>

In August 1997, the Company granted 15,000 options at $5.75 per share.
In June 1998, the Company canceled all existing options which were issued at
$5.75 per share and granted 50,000 options at $ .50 per share. No options are
exercisable at June 26, 1998.

The following table sets forth the activity of the 1996 Plan for the
years ended June 26, 1998 and June 27, 1997:

NUMBER OF WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE

Outstanding at July 1, 1996 - $ -
Granted 30,000 5.75
------ ------
Outstanding at June 27, 1997 30,000 5.75
Granted 65,000 1.71
Canceled (45,000) 5.75
------
Outstanding at June 26, 1998 50,000 $ .50
------ ------

The Company has determined that the proforma effect of the common stock
options on compensation expense as required by SFAS No. 123 was less than $.01
per share.

9. INCOME TAXES

The provision (benefit) for income taxes consists of the following:

YEARS ENDED
-------------------------------
JUNE 26, JUNE 27,
1998 1997
----------- ----------
Deferred:
Federal................... $ 1,310,391 $ (456,103)
State..................... 407,141 (108,481)
----------- ----------
$ 1,717,532 $ (564,584)
=========== ==========

A reconciliation of the income tax provision (benefit) to the amount
computed using the Federal statutory rate as follows:

YEARS ENDED
------------------------------
JUNE 26, JUNE 27,
1998 1997
----------- ----------

Income tax at statutory rate.......... $(1,691,547) $ (456,103)
State income taxes and other
(net of Federal benefit)......... 402,606 (108,481)
Limitation on use of Federal NOL...... 2,581,865 --
Increase in valuation allowance....... 424,608 --
----------- ----------
$ 1,717,532 $ (564,584)
=========== ==========

F-13
<PAGE>

The net deferred tax asset consists of the following:

YEARS ENDED
-----------------------------
JUNE 26, JUNE 27,
1998 1997
---------- -----------
Net operating loss carryforwards...... $ 588,416 $ 2,050,197
Capital loss carryforwards............ 228,333 228,333
Allowance for doubtful accounts....... 143,220 68,499
Inventory............................. 145,247 --
Deferred compensation................. 134,682 129,899
Accrued interest...................... 94,700 76,595
Other................................. (36,312) 63,830
Depreciation.......................... (645,345) (671,488)
652,941 1,945,865
Valuation allowance................... (652,941) (228,333)
---------- -----------
$ - $ 1,717,532
========= ===========

Deferred taxes result from temporary differences in the recognition of
revenues and expenses for income tax and financial statement purposes. Deferred
tax assets at June 27, 1997 was reduced by a valuation allowance relating to the
utilization of a capital loss carryforward which management believes more than
likely will not be realized. As a result of the financial restructuring (see
Note 4), annual utilization of the Federal net operating loss carryforwards will
be limited. As of June 26, 1998, the Company has Federal net operating loss
carryforwards, after limitation, of approximately $1,731,000 which begin to
expire in 2006. The Company wrote down the deferred tax asset to the maximum
realizable value of $652,941. In addition, the Company also increased the
valuation allowance by $424,608 to $652,941. Realization of the deferred tax
asset is dependent upon sufficient future taxable income during the period that
temporary differences and carryforwards are expected to be available to reduce
taxable income.

10. RELATED PARTY TRANSACTIONS

The Company purchases computers, computer supplies and services from
Netcomp, Inc., a company owned by certain stockholders of the Company. Purchases
during the years ended June 26, 1998 and June 27, 1997 were approximately
$134,000 and $135,000, respectively.

11. PENSION PLAN

The Company has a defined contribution plan covering all full time
employees who have worked at least 1,000 hours during the plan year, who have
one year of service, and are age twenty-one or older. The Plan is subject to
provisions of the Employee Retirement Income Security Act of 1974. There was no
pension expense attributed to this plan for the years ended June 26, 1998 and
June 27, 1997.

12. COMMITMENTS AND CONTINGENCIES

Effective June 29, 1998, the Company entered into a one year agreement
with a management company to provide management assistance to the Company. The
management company will be paid $200,000 per year and receive 150,000 shares of
the Company's common

F-14
<PAGE>

stock. In addition, the management company agreed to purchase 100,000 shares of
the Company's common stock at $.358 per share.

The Company is a defendant in various lawsuits which arose in the
normal course of business. In the opinion of management, none of the cases are
expected to have a material effect on the consolidated financial statements of
the Company.

13. ADOPTION OF SFAS 131

In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments
of an Enterprise and Related Information", which will be effective for the
Company beginning in Fiscal 1999. SFAS No. 131 redefines how operating segments
are determined and requires disclosure of certain financial and descriptive
information about a company's operating segments. The Company has not yet
completed its analysis of which operating segments, if any, it will be required
to disclose as a result of this statement.

14. MANAGEMENT'S PLANS

Notwithstanding the significant steps taken by management to
restructure the Company's debt, the Company's immediate cash requirements are
significant. No assurance can be given that the Company will be able to
successfully realize cash flow from operations or that such cash flow will be
sufficient. Management believes that the Company's existing and anticipated
capital resources will not enable it to fund its planned operations through
Fiscal 1999. Management is currently attempting to obtain additional financing
and intends to raise additional funds within the next 12 months through equity
and/or debt financings. The Investors have committed to the Company to fund the
Company's working capital requirements through Fiscal 1999.

15. FOURTH QUARTER ADJUSTMENTS

During the fourth quarter of Fiscal 1998, the Company recorded the
following expense adjustments:

Inventory reserves and write-off $2,152,754
Deferred tax asset write-off and valuation allowance $2,221,455

The Company was carrying inventory that it expected to ship pursuant to
purchase orders from customers. However, the requirements with respect to such
purchase orders were either reduced or cancelled by the customers. The accounts
receivable allowance increase is primarily due to credits issued to three major
customers for returned merchandise as well as an increase in aged receivables.

F-15
<PAGE>

================================================================================

No dealer, salesperson or any other person has been authorized to give any
information or to make any representation not contained or incorporated by
reference in this Prospectus in connection with the offering made hereby, and
any information or representation not contained or incorporated herein must not
be relied upon as having been authorized by us. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any securities
other than the shares described in the cover page hereof, or an offer to sell or
a solicitation of an offer to buy the shares offered hereby in any jurisdiction
where, or to any person to whom, it is unlawful to make such offer or
solicitation. Neither the delivery of this Prospectus nor any sales made
hereunder shall, under any circumstances, create any implication that there has
been no change in our affairs since the date hereof or that the information
contained herein is correct as of any time subsequent to its date.

ASD GROUP, INC.

Common Stock

--------------------------
PROSPECTUS
--------------------------

March ____, 1999

================================================================================

<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

We have authority under the Delaware General Corporation Law (the
"DGCL") to indemnify our directors and officers to the extent provided for in
the DGCL. Our Amended and Restated Certificate of Incorporation provides that we
shall indemnify and may insure our officers and directors to the fullest extent
permitted by law. We have also entered into agreements with each of our
directors and executive officers wherein it has agreed to indemnify each of them
to the fullest extent permitted by law.

ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

We estimate that our expenses in connection with this registration
statement will be as follows:

Securities and Exchange Commission registration fee $ 3,604.39
Legal fees and expenses 15,000.00
Accounting fees and expenses 2,000.00
Miscellaneous 4,395.61
-----------
Total $ 25,000.00
===========

ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES

1. On June 26, 1998, we entered into a definitive agreement with an
investor group for the sale of 392,017 shares of common stock, 352,909 shares of
Series A Convertible Preferred Stock, 330,779 shares of Series B Convertible
Preferred Stock and five-year warrants to purchase an additional 4,000,000
shares at an exercise price of $.75 per share. The Series A and Series B
Convertible Preferred Stock convert into shares of Common Stock at the rate of
ten shares of Common Stock for each share of Series A Stock and Series B Stock
(subject to adjustment under certain circumstances). The purchase price paid by
the investor group was $1,969,597 in aggregate. In connection with this
transaction, we did not pay any underwriting discounts or commissions.

2. As part of our financial restructuring, we reached agreements with
PNC Business Credit Bank, Bankers Trust Company and a group of private
noteholders (the "Noteholder Group"), our three primary lenders, to restructure
our outstanding indebtedness. As part of the agreement with the Noteholder
Group, $990,000 in debt was converted into 73,461 shares of Series C Convertible
Preferred Stock. The Series C Convertible Preferred Stock converts into shares
of Common Stock at the rate of ten shares of Common Stock for each share of
Series C Convertible Preferred Stock (subject to adjustment under certain
circumstances).

3. In November 1998, we sold 825 shares of Series D Convertible
Preferred Stock for $825,000. The Series D Convertible Preferred Stock is
convertible into Common Stock at the rate of stated value of $1,000 divided by
seventy percent (70%) of the average market price of the Common Stock for the
five trading days immediately prior to the conversion date (subject

II-1
<PAGE>

to adjustment under certain circumstances). In connection with this transaction,
we did not pay underwriting discounts or commissions.

4. In February 1999 and March 1999, we sold 1,325 shares of Series E
Convertible Preferred Stock. The Series E Convertible Preferred Stock are
convertible into shares of common stock at the rate of their stated value of
$1,000 per share divided by seventy percent (70%) of the average market price of
the Common Stock for the five trading days immediately prior to the conversion
date (subject to adjustment under certain circumstances). In addition with this
transaction, we did not pay underwriting discounts or commissions.

These shares were all issued without registration under the Securities
Act of 1933, as amended (the "Securities Act"), by reason of the exemption from
registration afforded by the provisions of Section 4(2) thereof, as transactions
by an issuer not involving a public offering. Each recipient of shares delivered
appropriate investment representations to the Company with respect thereto and
consented to the imposition of restrictive legends upon the certificates
evidencing the shares.

ITEM 27. EXHIBITS.

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
3.1 Certificate of Incorporation. (1)
3.2 Bylaws.(1)
4.1 Specimen Certificate of Common Stock. (1)
4.2 Form of Representative's Warrant Agreement including Form Representative's Warrants.(1)
4.3 Intentionally omitted.
4.4 Form of Special Warrant to Purchase Common Stock of Registrant.(1)
4.5 Form of 10% Original Issue Discount Promissory Note Issued to BlueStone Investors.(1)
4.6 Form of Warrant Certificate Issued to BlueStone Investors.(1)
5.1 Opinion of Broad and Cassel(1)
10.1 1996 Stock Option Plan.(1)
10.2 Restated Line of Credit Loan and Security Agreement dated as of December 28, 1995 between
Automatic Systems Developers, Inc.; High Technology Computers, Inc. and Poughkeepsie Savings
Bank, FSB.(1)(2)
10.3 Second Amended Modification, Extension, Spreader and Assumption Agreement dated as of December
28, 1995 between Automatic Systems Developers, Inc. and Poughkeepsie Savings Bank, FSB.(1)
10.4 Second Amended Modification, Extension, Spreader and Assumption Agreement dated as of December
28, 1995 between the Registrant; Automatic Systems Developers, Inc. and Poughkeepsie Savings
Bank, FSB.(1)
10.5 Option Agreement dated as of May 31, 1996 by and among Banker's Trust Company and the
Registrant.(1)
10.6 Amendment to December 29, 1995 Purchase Agreement.(1)
10.7 Employment Agreement between the Registrant and Gary D. Horne.(1)(2)
10.8 Employment Agreement between the Registrant and Stanley F. Zuk.(1)(2)
10.9 Form of Financial Advisory and Consulting Agreement between the Registrant and the
Representative.(1)
10.10 Amendment dated April 2, 1997 to Option Agreement dated as of May 31, 1996 by and among Bankers
Trust Company and the Registrant.(1)
</TABLE>

II-2
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
10.11 Form of Indemnification Agreement dated May 12, 1997 between the Registrant and its executive
officers and directors.(2)
10.12 Securities Purchase Agreement dated as of June 26, 1998 by and among the Registrant, the parties
listed on Schedule 1 to the Agreement and Gary D. Horne.(3)
10.13 Agreement dated as of June 26, 1998 by and among Automatic Systems Developers, Inc.; High Technology
Computers, Inc.; the Registrant; the financial institutions which are now or hereafter become a
party to the Credit Agreement; and PNC Bank, National Association.(3)
10.14 Option and Forbearance Agreement dated as of June 26, 1998 by and among Bankers Trust Company;
Automatic Systems Developers, Inc. and the Registrant.(3)
10.15 Form of Agreement with holders of: (i) 10% senior promissory note due June 19, 1998 and/or (ii)
warrants to purchase Common Stock.(3)
10.16 Form of Letter Agreement with holders of warrants to purchase an aggregate of 122,750 shares of
the Registrant Common Stock.(3)
10.17 Amendment to Employment Agreement between the Registrant and Gary D. Horne.(4)
10.18 Amendment to Employment Agreement between the Registrant and Stanley F. Zuk.(4)
21.1 List of Subsidiaries of the Registrant.(1)
23.1 Consent of Broad and Cassel (filed as part of Exhibit 5.1).
23.2 Consent of Deloitte & Touche LLP, independent auditors.
24.1 Power of Attorney (included in the signature page hereof).
27.1 Financial Data Schedule.

<FN>
- ----------
(1) Incorporated by reference to the exhibit of the same number filed with
the Company's Registration Statement on Form SB-2 (File No. 333-7731).

(2) Incorporated by reference to the exhibits filed with the Company's
Annual Report on Form 10-KSB for the year ended June 27, 1997.

(3) Incorporated by reference to the exhibits filed with the Company's
Current Report on Form 8-K filed July 9, 1998

(4) Incorporated by reference to the exhibits filed with the Company's
Annual Report on Form 10-KSB for the year ended June 26, 1998.
</FN>
</TABLE>

ITEM 28. UNDERTAKINGS.

(a) RULE 415 OFFERING. The undersigned Registrant hereby
undertakes to:

(1) File, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement to:

(i) Include any prospectus required by Section
10(a)(3) of the Securities Act.

II-3
<PAGE>

(ii) Reflect in the prospectus any facts or events
which, individually or together, represent a fundamental change in the
information in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total dollar value
of securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range may
be reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent no
more than a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration statement.

(iii) Include any additional or changed material
information on the plan of distribution.

(2) For determining liability under the Securities Act, treat
each post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial BONA
FIDE offering.

(3) File a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.

(b) REQUEST FOR ACCELERATION OF EFFECTIVE DATE. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

II-4
<PAGE>

SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of
Poughkeepsie, State of New York, on March 25, 1999.

ASD GROUP, INC.

By: /s/ Peter C. Zachariou
------------------------------
Peter C. Zachariou, President

In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the dates indicated.

<TABLE>
<S> <C> <C>
/s/ Peter C. Zachariou
- ---------------------------------
Peter C. Zachariou President and Director March 25, 1999
(Principal Executive Officer)

/s/ Kevin E. Homon
- ---------------------------------
Kevin E. Homon Controller (Principal Financial and March 25, 1999
Accounting Officer)

/s/ Thomas J. Lenagh
- ---------------------------------
Thomas J. Lenagh Director March 25, 1999

- ---------------------------------
Jan M. Winston Director March 25, 1999

/s/ Jay H. Solomont
- ---------------------------------
Jay H. Solomont Director March 25, 1999

*
- ---------------------------------
Mark Karasick Director March 25, 1999

- ----------------------
*By: /s/ Peter C. Zachariou
----------------------
Peter C. Zachariou,
Attorney In Fact
</TABLE>

II-5

<PAGE>

EXHIBIT INDEX

EXHIBIT NO. DESCRIPTION
----------- -----------

23.2 Consent of Deloitte & Touche LLP, independent auditors.

27.1 Financial Data Schedule.

EXHIBIT 23.2

INDEPENDENT AUDITORS' CONSENT

We consent to the use in this Amendment No. 1 to Registration Statement No.
333-71535 of ASD Group, Inc. on Form SB-2 of our report dated October 5, 1998,
appearing in the Prospectus, which is part of this Registration Statement. We
also consent to the reference to us under the heading "Exports" in such
Prospectus.

DELOITTE & TOUCHE LLP

Stamford, Connecticut
March 23, 1999

<ARTICLE> 5

<S> <C> <C>
<PERIOD-TYPE> 12-MOS 6-MOS
<FISCAL-YEAR-END> JUN-26-1998 JUN-25-1999
<PERIOD-START> JUN-27-1997 JUN-27-1997
<PERIOD-END> JUN-26-1998 DEC-25-1998
<CASH> 4,904 11,430
<SECURITIES> 0 0
<RECEIVABLES> 1,238,681 1,456,533
<ALLOWANCES> (341,000) 355,608
<INVENTORY> 3,042,897 1,948,261
<CURRENT-ASSETS> 2,059,636 155,084
<PP&E> 8,168,314 4,151,545
<DEPRECIATION> (3,591,425) 0
<TOTAL-ASSETS> 10,787,976 7,564,869
<CURRENT-LIABILITIES> 3,832,238 5,643,446
<BONDS> 0 0
0 0
1,909,000 2,882,000
<COMMON> 19,799 20,799
<OTHER-SE> (2,026,844) (5,519,341)
<TOTAL-LIABILITY-AND-EQUITY> 10,787,976 7,564,869
<SALES> 14,298,745 3,816,890
<TOTAL-REVENUES> 14,298,745 3,816,890
<CGS> 13,988,630 4,605,486
<TOTAL-COSTS> 4,616,772 2,312,984
<OTHER-EXPENSES> (20,901) 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,230,882 425,717
<INCOME-PRETAX> 5,640,638 (3,527,297)
<INCOME-TAX> 1,717,532 0
<INCOME-CONTINUING> (7,325,170) (3,527,297)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 665,500 0
<CHANGES> 0 0
<NET-INCOME> 6,692,670 (3,527,297)
<EPS-PRIMARY> (4.24) (1.75)
<EPS-DILUTED> (4.24) (1.75)

</TABLE>