U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 26, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to
Commission File Number 1-12873
ASD GROUP, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 14-1483460
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1 INDUSTRY STREET, POUGHKEEPSIE, NEW YORK
12603 (Address of principal executive offices)
(914) 452-3000
(Issuer's telephone number)
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date: The number of shares of the issuer's
Common Stock, $.01 par value per share, outstanding as of May 10, 1999 was
9,217,005.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
<PAGE>
ASD GROUP, INC.
FORM 10-QSB
QUARTERLY REPORT
MARCH 26, 1999
INDEX
<TABLE>
<S> <C> <C> <C>
PART I FINANCIAL INFORMATION PAGE
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheet:
March 26, 1999 (unaudited)........................................3
Consolidated Statements of Operations (unaudited):
Nine and three months ended March 26, 1999 and March 27, 1998.....4
Consolidated Statements of Cash Flows (unaudited):
Nine months ended March 26, 1999 and March 27, 1998................5
Notes to Consolidated Financial Statements........................6-7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................7-11
PART II OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds........................11
Item 6. Exhibits and Reports on Form 8-K..................................11
SIGNATURES 12
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
ASD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 26,
1999
-----------
<S> <C>
ASSETS
Current assets:
Cash ..................................................................... $ 17,181
Accounts receivable, less allowance for doubtful accounts of
$274,988 ............................................................... 1,527,605
Inventory, less reserve of $203,391 ...................................... 2,373,283
Prepaid expenses and other current assets ................................ 121,723
Asset held for resale .................................................... 1,266,386
-----------
Total current assets .............................................. 5,306,178
Property, plant and equipment, net ......................................... 3,011,344
Other assets ............................................................... 174,719
-----------
Total assets ............................................................. $ 8,492,241
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt ........................................ $ 420,082
Accounts payable ......................................................... 1,596,995
Accrued expenses ......................................................... 447,714
-----------
Total current liabilities ......................................... 2,464,791
Long-term debt ............................................................. 4,411,443
-----------
Total liabilities ................................................. 6,876,234
-----------
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized,
75,611 convertible shares issued and outstanding ..................... 3,180,260
Common stock, $.01 par value, 50,000,000 shares authorized,
9,217,005 shares issued and outstanding ............................. 92,170
Paid-in capital .......................................................... 6,557,023
Deficit .................................................................. (8,213,446)
-----------
Total stockholders' equity ........................................ 1,616,007
-----------
Total liabilities and stockholders' equity ............................... $ 8,492,241
===========
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
ASD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
------------------------------ ------------------------------
MARCH 26, MARCH 27, MARCH 26, MARCH 27,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales ............................. $ 6,724,392 $ 12,799,107 $ 2,907,502 $ 3,164,301
Cost of goods sold ..................... 6,387,128 9,999,724 1,781,642 2,618,643
------------ ------------ ------------ ------------
Gross profit .................... 337,264 2,799,383 1,125,860 545,658
------------ ------------ ------------ ------------
Operating expenses:
Sales and marketing .............. 320,410 247,595 106,346 113,135
General and administrative ....... 3,137,620 2,923,229 1,038,700 856,957
------------ ------------ ------------ ------------
Total operating expenses ..... 3,458,030 3,170,824 1,145,046 970,092
------------ ------------ ------------ ------------
Loss from operations ............... (3,120,766) (371,441) (19,186) (424,434)
Interest expense ...................... 587,672 828,377 161,955 277,453
------------ ------------ ------------ ------------
Loss before income taxes and
extraordinary gain ................. (3,708,438) (1,199,818) (181,141) (701,887)
Income tax benefit .................. -- (503,923) -- (294,492)
------------ ------------ ------------ ------------
Loss before extraordinary gain ...... (3,708,438) (695,895) (181,141) (407,395)
Extraordinary gain from debt
restructuring ..................... 2,835,565 -- 2,835,565 --
------------ ------------ ------------ ------------
NET (LOSS) INCOME ........... (872,873) (695,895) 2,654,424 (407,395)
Preferred stock dividend ........... 942,857 -- 942,857 --
------------ ------------ ------------ ------------
Income (loss) applicable to common
stockholders ....................... $ (1,815,730) $ (695,895) $ 1,711,567 $ (407,395)
============ ============ ============ ============
Net income (loss) per basic and diluted
common share ....................... $ (.77) $ (.44) $ .55 $ (.26)
============ ============ ============ ============
Weighted average common shares
outstanding ........................ 2,371,307 1,577,917 3,104,877 1,577,917
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
ASD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------------------
MARCH 26, MARCH 27,
1999 1998
----------- -----------
<S> <C> <C>
Operating activities:
Net loss ...................................................... $ (872,873) $ (695,895)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization ......................... 391,461 403,405
(Benefit) provision for doubtful accounts ............. (66,012) 100,000
Deferred compensation .................................. 18,764 26,061
Interest accrued-stockholder advances ................. 67,312 43,700
Deferred income taxes ................................. -- (503,923)
Extraordinary gain from debt restructuring ............. (2,835,565) --
Inventory reserves .................................... (142,435) --
Changes in assets and liabilities:
Accounts receivable ................................ (563,912) 503,835
Inventory ........................................... 812,049 (168,526)
Prepaid expenses and other current assets .......... 37,913 (148,046)
Other assets ....................................... (37,467) (14,287)
Accounts payable ................................... 145,098 (533,724)
Accrued expenses ................................... (400,008) 131,427
Payments of deferred compensation .................. -- (21,886)
----------- -----------
Net cash used in operating activities .......... (3,445,675) (877,859)
----------- -----------
Investing activities:
Capital expenditures ......................................... (22,673) (349,366)
----------- -----------
Financing activities:
Sale of common and preferred stock............................. 4,198,000 --
Borrowings .................................................... 73,556 7,574,969
Payments of long-term debt ................................. (790,931) (7,061,513)
Financing costs .............................................. -- (223,063)
----------- -----------
Net cash provided by financing activities ..... 3,480,625 290,393
----------- -----------
Net increase (decrease) in cash ............................... 12,277 (936,832)
Cash, beginning of period ..................................... 4,904 1,099,190
----------- -----------
Cash, end of period ........................................... $ 17,181 $ 162,358
=========== ===========
Supplemental disclosure:
Cash paid during the period for:
Income taxes ............................................. $ -- $ 14,758
=========== ===========
Interest .................................................. $ 471,407 $ 598,511
=========== ===========
Debt converted upon financial restructuring .................. $ 3,088,690 $ --
=========== ===========
</TABLE>
See notes to consolidated financial statements
5
<PAGE>
ASD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - INTERIM FINANCIAL STATEMENTS
The accompanying unaudited interim consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and pursuant to the rules and regulations of
the Securities and Exchange Commission for reporting on Form 10-QSB.
Accordingly, certain information and footnote disclosures required for complete
consolidated financial statements are not included herein. It is recommended
that these consolidated financial statements be read in conjunction with the
consolidated financial statements and related notes of ASD Group, Inc. and
subsidiaries (the "Company") contained in the Company's Annual Report on Form
10-KSB for the fiscal year ended June 26, 1998. In the opinion of management,
all adjustments (consisting of normal recurring adjustments) considered
necessary for a fair presentation of financial position, results of operations
and cash flows at the dates and for the periods presented have been included.
Certain account balances from the previous year presentation have been
reclassified to conform to the current year's presentation.
NOTE 2 - 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
"Financial Restructuring"). As part of the Financial Restructuring, the Company
sold 392,017 shares of common stock, 352,909 shares of Series A Convertible
Preferred Stock, 330,799 shares of Series B Convertible Preferred Stock and
Warrants to purchase 4,000,000 shares of common stock. In addition, as part of
the Financial Restructuring, the Company issued 73,461 shares of Series C
Convertible Preferred Stock. On March 15, 1999, the Stockholders approved the
Financial Restructuring upon which the shares of Series A Convertible Preferred
Stock and Series B Convertible Preferred Stock were automatically converted into
6,837,071 shares of common stock at the rate of 10 shares of common stock for
each share of preferred stock. The Company did not pay any underwriting
discounts or commissions in connection with such sale. The securities sold to
the Investors were sold pursuant to the private offering exemption described in
Section 4(2) under the Securities Act of 1933, as amended. For the nine months
ended March 26, 1999 the Company received proceeds on $2,048,000 in connection
with the Financial Restructuring.
During the quarter ended March 26, 1999 the Company issued 1,325 shares
of Series E Convertible Preferred Stock with a stated value of $1,000 per share
for $1,325,000. During the quarter ended December 25, 1998 the Company issued
825 shares of Series D Convertible Preferred Stock with a stated value of $1,000
per share for $825,000. The Series E Convertible Preferred Stock and the Series
D Convertible Preferred Stock will convert into common stock at the rate of
stated value divided by seventy percent 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). A dividend of $375,000 for
the Series D Convertible Preferred Stock and $567,857 for the Series E
Convertible Preferred Stock was recorded in the quarter ended March 26, 1999 to
record the beneficial conversion festure.
The Company reached agreements with its primary lenders, PNC Bank,
(PNC), Bankers Trust Company ("BT"), two original founders ("Founders") and Gary
Horne, former Chief Executive Officer and Chairman of the Board ("GH"). The
terms of the agreements were as follows:
1.) As of March 10, 1999, PNC agreed to increase the Company's
revolving credit line from $4,500,000.00 to $5,700,000 through June 2000.
2.) Effective February 26, 1999 the Company entered an agreement with
BT in which the Company's obligation was reduced from approximately $2,501,000
plus accrued interest of $261,000 to $800,000. The Company paid $250,000 on
March 31, 1999 and the balance of $550,000 is payable in 24 months without
interest. As a result of this transaction, the Company recorded an extraordinary
gain of $1,962,000 during the quarter ended March 26, 1999.
3.) By letter agreement dated February 9, 1999 the Founders agreed to
accept 75,000 shares of common stock each in lieu of the of the existing
deferred compensation agreement, resulting in an extraordinary gain of $246,000.
6
<PAGE>
4.) By letter agreement dated March 4, 1999 GH agreed to forgive
indebtedness of $707,000 plus accrued interest in consideration of 150,000
shares of commons stock and the release of 85,718 shares of common stock held in
escrow along with other non-financial concessions. This forgiveness of debt
resulted in an extraordinary gain of $628,000.
NOTE 3 - INVENTORY
The components of inventories are as follows:
Raw materials........................ $ 371,975
Work-in-process...................... 2,001,308
---------
$2,373,283
==========
NOTE 4 - ASSET HELD FOR RESALE
During the quarter ended December 1998, the Company made a decision to
sell the Grand Avenue facility which is currently idle, as part of a plan to
reduce debt and increase equity. The Company does not have a written contract
for a sale of the property at this time, however, the facility is on the market
and a sale is anticipated in the near future and the Company has reclassed the
asset at its net realizable value to a current asset.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
ASD Group, Inc. (the "Company") cautions readers that certain important
factors may affect the Company's actual results and could cause such results to
differ materially from any forward-looking statements which may be deemed to
have been made in this Report or which are otherwise made by or on behalf of the
Company. For this purpose, any statements contained in this Report that are not
statements of historical fact may be deemed to be forward-looking statements.
Without limiting the generality of the foregoing, words such as "may," "will,"
"expect," "believe," "anticipate," "intend," "could," "would," "estimate," or
"continue" or the negative other variations thereof or comparable terminology
are intended to identify forward-looking statements. Such factors include, but
are not limited to, the risks and uncertainties associated with a contract
manufacturing company which is dependent upon a small number of large companies,
a limited history of profitability, dependence upon key personnel, need for
future and immediate capital and dependence upon certain industries.
Additionally, the Company is subject to the risks and uncertainties associated
with all contract manufacturing companies including variability of customer
requirements and customer financing, limited availability of components and a
market characterized by rapidly changing technology and continuing process
development. The Company is also subject to other risks detailed herein or
detailed from time to time in the Company's filings with the Securities and
Exchange Commission.
OVERVIEW
The Company provides comprehensive contract manufacturing and
engineering services to original equipment manufacturers ("OEMs.") The Company
was formed in 1965 to provide design and engineering services to IBM's main
frame computer development and manufacturing operations in New York's Hudson
Valley ("IBM-Hudson Valley"). Over a 25-year period, the Company's relationship
with IBM-Hudson Valley evolved to the point where by the mid-1980's the Company
assembled, wired and tested a significant portion of IBM-Hudson Valley's main
frame computers. IBM Hudson Valley became the Company's principal customer,
providing over 90% of its revenues. Commencing in 1990, IBM-Hudson Valley's main
frame sales began to decline due to the recession and the shift in technology to
personal computer-based systems. In December 1992, IBM-Hudson Valley eliminated
the use of substantially all main frame assembly vendors, including the Company.
As a result, the Company had significant reductions in revenues and incurred
substantial losses. Accordingly, during 1993 and 1994 the Company undertook a
restructuring of its operations wherein it implemented a significant downsizing,
re-engineered its operations and commenced intensive efforts to market its
contract manufacturing services to other OEMs. While the IBM-Hudson Valley
downsizing greatly affected the Company, management believes
7
<PAGE>
that its relationship with IBM-Hudson Valley permitted the Company to evolve
into a vertically integrated contract manufacturer with a well-disciplined
quality control program.
Notwithstanding what management believes to be a positive climate for
contract manufacturers in the United States generally, the Company's sales were
effected by the situation in the Asian markets. The Company has experienced a
reduction in orders from several customers, principally those effected by the
Asian market. However, sales have increased in the three months ended March 26,
1999 compared to the three months ended December 25, 1998 and September 26,
1998. The Company's backlog at May 1, 1999 was approximately $8.2 million.
Backlog consists of firm purchase orders and commitments which are to be filled
within the next twelve months. However, since orders and commitments may be
rescheduled or cancelled, management of the Company believes that backlog is an
inconclusive indicator of future financial performance. While management has
taken significant steps to improve the Company's financial condition, the
Company's immediate cash requirements are significant. Management is currently
attempting to obtain additional financing and intends to raise additional funds
within the next 12 months through equity and/or debt financing, specifically,
management intends to raise $1,000,000 during the quarter ending June 25, 1999.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 26, 1999 AS COMPARED TO THREE MONTHS ENDED
MARCH 27, 1998
For the three months ended March 26, 1999, the Company's net sales
decreased by $257,000 or 8.1% to $2,908,000 from $3,164,000 for the three months
ended March 27, 1998. The decrease in sales was primarily the result of a
continued reduction in volume of orders by several large customers.
Cost of goods sold for the three months ended March 26, 1999 decreased
by $837,000 or 32.0% to $1,782,000 from $2,619,000 for the three months ended
March 27, 1998. The decrease in cost of goods sold was principally attributed to
the fact that approximately 30% of sales recorded during the quarter represented
labor intensive work, with low material cost and high gross margins. Gross
profit as a percentage of net sales increased for the three months ended March
26, 1999 primarily as a result of the reasons noted above.
Operating expenses increased for the three months ended March 26, 1999
by $175,000 or 18.0% to $1,145,000 from $970,000 for the three months ended
March 27, 1998. The increase primarily resulted from additional efforts and
personel added to the Company's selling and marketing activities combined with
increases in legal and consulting expenses.
Interest expense decreased for the three months ended March 26, 1999 by
$115,000 or 41.6% to $162,000 from $277,000 for the three months ended March 27,
1998. The decrease in interest expense reflects a net reduction in debt as a
result of the restructuring on June 26, 1998, and the debt restructured during
the quarter ended March 26, 1999.
The Company did not recognize any benefit for income tax for the three
months ended March 26, 1999 as compared to a benefit of $294,000 for the three
months ended March 27, 1998.
The Company recorded an extraordinary gain of $2,836,000 during the
three months ended March 26, 1999 as a result of debt restructuring with Bankers
Trust, the former Chief Executive Officer and two original founders of the
Company.
The Company recorded a dividend of $943,000 to record the beneficiary
conversion feature on the Series D Convertible Preferred Stock and the Series E
Convertible Preferred Stock.
The Company incurred a loss before income tax benefit and extraordinary
gain, and net income of $(181,000) and $2,654,000, respectively, during the
three months ended March 26, 1999 as compared to a loss before income tax
benefit and extraordinary gain and a net loss of $702,000 and $407,000,
respectively, during the three months ended March 27,1998.
8
<PAGE>
NINE MONTHS ENDED MARCH 26, 1999 AS COMPARED TO NINE MONTHS ENDED MARCH 27,1998
For the nine months ended March 26,1999, the Company's net sales
decreased by $6,075,000 or 47.5% to 6,724,000 from $12,799,000 for the nine
months ended March 27, 1998. 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 the increased selling
and marketing efforts of the Company will have a positive effect on sales in
subsequent periods.
Cost of goods sold for the nine months ended March 26, 1999 decreased
by $3,613,000 or 36.1% to $6,387,000 from $10,000,000 for the nine months ended
March 27, 1998. The decrease in cost of goods sold is primarily the result of
the decrease in sales, which was partially offset by an inventory write-down of
approximately $1,500,000. Gross profit as a percentage of net sales decreased
for the nine months ended March 26, 1999 primarily as a result of the inventory
write-down.
Operating expenses increased for the nine months ended March 26, 1999
by $287,000 or 9.1% to $3,458,000 from $3,171,000 for the nine months ended
March 27, 1998. The increase primarily resulted from additional efforts and
personnel added to the Company's selling and marketing activities combined with
increases in legal and consulting expenses capital raised.
Interest expense decreased for the nine months ended March 26, 1999 by
$241,000 or 29.1% to $588,000 from $828,000 for the nine months ended March 27,
1998. The decrease in interest expense reflects a net reduction in debt as a
result of the restructuring on June 26, 1998, as well as the debt restructuring
during the quarter ended March 26,1999.
The Company did not recognize any benefit for income tax for the nine
months ended March 26, 1999 as compared to a benefit of $504,000 for the nine
months ended March 27, 1998.
The Company recorded an extraordinary gain of $2,836,000 during the
nine months ended March 26, 1999 as a result of debt restructuring with Bankers
Trust, the former Chief Executive Officer and two original founders of the
Company.
The Company recorded a dividend of $942,857 to record the beneficiary
conversion feature on the Series D Convertible Preferred Stock and the Series E
Convertible Preferred Stock.
The Company incurred a loss before income tax benefit and extraordinary
gain, and a net loss of $3,708,000 and $873,000, respectively, during the nine
months ended March 26, 1998, as compared to a loss before income tax and
extraordinary gain, and a net loss of $1,200,000 and $696,000, respectively,
during the nine months ended March 27, 1998.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
STATEMENTS OF CASH FLOWS
Net cash used in operations was $3,446,000 for the nine months ended
March 26, 1999 as compared to $878,000 used in operations for the nine months
ended March 27, 1999. The increase in cash used in operations was primarily the
result of an increase in the net loss from operations as well as the reduction
of accrued expenses for the period ended March 26, 1999. Net cash provided by
financing activities during the nine months ended March 26, 1999 was $3,480,625.
During this period $2,048,000 was provided by the financial restructuring of
June 26, 1998, $825,000 was provided by the sale of Series D Convertible
Preferred Stock and $1,325,000 was provided by the sale of Series E Convertible
Preferred Stock, offset by payments of long term-debt of $791,000. Working
capital increased to $2,841,000 at March 26, 1999 from a deficiency of
$2,150,297 at March 26, 1998. The increase in working capital is primarily due
to the $1,325,000 raised from the Series E Convertible Preferred Stock, and from
the effects of the Company's decision to dispose of the idle facility
valued at $1,266,000 reclassification to a current asset.
LINE OF CREDIT
The Company's revolving bank line of credit (the "Line of Credit")
currently permits borrowings of up to $5,700,000. The amount available for
borrowings under the Line of Credit is determined pursuant to a formula based
upon the Company's eligible machinery, equipment, accounts receivable and
inventory plus an over-advance by the bank of $1,575,000. As of March 26, 1999,
$3,713,000 was outstanding under the Line of Credit and the Company had $495,000
available for additional borrowings. PNC Bank has agreed to keep the Company's
existing credit facility in place at least through June 2000, with a one-year
extension, provided that certain conditions are met and no events of default
occur.
10
<PAGE>
YEAR 2000 READINESS
The Year 2000 issue refers to a condition in the 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 un-corrected condition could significantly interfere with
the conduct of the Company's business, could result in disruption of its
operations and could subject it to potentially significant legal liabilities.
The Company has conducted an assessment of the Year 2000 issue and the
potential effect it will have on the Company and its business. The Company has
also prepared a formal plan for dealing with the Year 2000 issue. The Company is
in the process of updating much of its existing software for Year 2000
compliance by modifying existing internally developed software. The Company
intends to hire outside consultants and has acquired new and upgraded third
party software packages to replace those used by the Company, which could not be
modified.
While the Company believes it has 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. The Company is planning to
complete all necessary Year 2000 upgrades of its systems in Fiscal 1999.
The possibility exists that the Company could inadvertently fail to
correct a Year 2000 problem. The Company believes 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, the Company believes it will be able to conduct its business,
possibly at a reduced volume, using its already Year 2000 compliant server, and
personal computer software until resolution occurs.
The Company may also be affected by third-party suppliers and customers
who have not modified their systems to adequately address the Year 2000 issue.
While it has not already done so, the Company intends to survey its major
customers and suppliers regarding their progress on resolving Year 2000 issues.
It is contemplated that this survey will take place during the fourth quarter of
Fiscal 1999.
To date, Year 2000 readiness has cost the Company an estimated $75,000
(including upgrades to existing systems) and will cost approximately $100,000 in
the aggregate to complete.
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In March 1999, the Company consummated the sale of the 1,325 shares of
Series E Convertible Preferred Stock and received $1,325,000 in proceeds.
The Series E Convertible Preferred Stock will convert into common stock at the
rate of the stated value ($1,000 per share) divided by 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). The
securities were sold to accredited investors pursuant to the private offering
exemption described in Section 4(2) under the Securities Act of 1933, as
amended. The Company did not pay any underwriting discounts or commissions in
connection with such sales.
.
ITEM 6. EXHIBITS AND REPORTS OF FORM 8-K
(a) Exhibits:
(27) Financial Data Schedule (Edgar version only)
(b) Reports on Form 8-K:
Form 8-K filed March 12, 1999 reporting recent agreements pursuant to
Item 5 of the Form 8-K.
11
<PAGE>
ASD GROUP, INC.
SIGNATURES
In accordance with the requirement of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
/s/ PETER C. ZACHARIOU
----------------------
Peter C. Zachariou
President
/s/ KEVIN E. HOMON
----------------------
Kevin E. Homon
Controller
Date: May 17, 1999
12
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> JUN-25-1999 JUN-25-1999
<PERIOD-START> DEC-26-1998 JUN-27-1998
<PERIOD-END> MAR-26-1999 MAR-26-1999
<CASH> 17,181 17,181
<SECURITIES> 0 0
<RECEIVABLES> 1,802,593 1,802,593
<ALLOWANCES> 274,988 274,988
<INVENTORY> 2,373,283 2,373,283
<CURRENT-ASSETS> 5,306,178 5,306,178
<PP&E> 6,267,122 6,267,122
<DEPRECIATION> 3,255,778 3,255,778
<TOTAL-ASSETS> 8,492,241 8,492,241
<CURRENT-LIABILITIES> 2,464,791 2,464,791
<BONDS> 0 0
0 0
3,180,260 3,180,260
<COMMON> 92,170 92,170
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 8,492,241 8,492,241
<SALES> 2,907,502 6,724,392
<TOTAL-REVENUES> 2,907,502 6,724,392
<CGS> 1,781,642 6,387,128
<TOTAL-COSTS> 1,145,046 3,458,030
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 161,955 587,672
<INCOME-PRETAX> (181,141) (3,704,438)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (181,141) (3,708,438)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 2,835,565 2,835,565
<CHANGES> 0 0
<NET-INCOME> (2,654,424) (872,873)
<EPS-PRIMARY> (.55) (.77)
<EPS-DILUTED> (.54) (.76)
</TABLE>
