SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 205
FORM 10-KSB/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 25, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transaction period from ______ to _______
Commission File Number 1-12873
ASD GROUP, INC.
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(Exact name of registrant as specified in its charter)
Delaware 14-1483460
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1 INDUSTRY STREET, POUGHKEEPSIE, NEW YORK 12603
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(Address of principal executive offices, including Zip Code)
(914) 452-3000
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
Common Stock, $.01 par value
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, $.01 par value
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 [_]
Check if there is no disclosure of delinquent filers pursuant to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or any
amendment to this Form 10-KSB. [_]
State issuer's revenues for its most recent fiscal year: $9,610,801
The aggregate market value of the issuer's Common Stock, $.01 par value, held by
non-affiliates on October 4, 1999 was $2,582,656.
As of October 4, 1999, there were 10,587,085 shares of the issuer's Common
Stock, $.01 par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
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ASD GROUP, INC.
INDEX
TABLE OF CONTENTS
PART I
Item 1. Description of Business ........................................ 1
Item 2. Description of Property ........................................ 8
Item 3. Legal Proceedings............................................... 8
Item 4. Submission of Matters to a Vote of Security Holders............. 9
PART II
Item 5. Market for Common Equity and Related Stockholder Matters........ 10
Item 6. Management's Discussion and Analysis or Plan of Operation....... 12
Item 7. Financial Statements............................................ 15
Item 8. Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure........................................ 15
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act............... 16
Item 10. Executive Compensation.......................................... 18
Item 11. Security Ownership of Certain Beneficial Owners and Management.. 21
Item 12. Certain Relationships and Related Transactions.................. 22
Item 13. Exhibits and Reports on Form 8-K................................ 23
FORWARD LOOKING STATEMENTS
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 that may be deemed to have
been made in this Form 10-KSB or that are otherwise made by or on behalf of the
Company. For this purpose, any statements contained in the Form 10-KSB 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," "expect," "believe," "anticipate," "intend," "could," "estimate," or
"continue" or the negative other variations thereof or comparable terminology
are intended to identify forward-looking statements. Factors that may affect the
Company's results include, but are not limited to, the Company's limited history
of profitability, its need for additional financing, its dependence on a limited
number of customers and key personnel and its dependence on certain industries.
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.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
The Company provides comprehensive contract manufacturing and
engineering services to original equipment manufacturers ("OEMs.") The Company
specializes in the fabrication, assembly and testing of complex industrial
products and non-invasive testing equipment. The Company manufactures complete
systems, as well as assemblies, including printed circuit boards, cable and wire
harnesses and other electro-mechanical assemblies. The Company complements its
basic manufacturing services by providing its customers with a broad range of
sophisticated product engineering and design services. Products manufactured by
the Company range from automated test and production systems to less complex
products such as bicycle wheel hubs. Representative customers of the Company
include ENI Technologies (a division of Astec America, Inc.), Karl Suiss
America, Inc., International Business Machines Corporation ("IBM"), Aydin
Corporation and Van Dam Machine Co.
Downsizing by American industry, combined with rapid change, strong
competition and increasingly shorter product life cycles in various industries,
have made it considerably less attractive for OEMs to manufacture in-house,
particularly low unit volume products or short cycle electronic products. As a
result, many OEMs have adopted and are becoming increasingly reliant upon
manufacturing outsourcing strategies and on contract manufacturers to satisfy
their mainstream manufacturing requirements. Management of the Company believes
that this trend will continue. Moreover, the Company believes that its ability
to produce high quality products and deliver them on a timely basis, combined
with sophisticated engineering and manufacturing capabilities, will result in an
expansion of its relationships with existing customers and the addition of new
customers.
Notwithstanding what management believes to be a positive climate for
contract manufacturers in the United States, the Company's sales were adversely
affected by the situation in the Asian markets, particularly during the
first-half of the fiscal year ended June 25, 1999 ("Fiscal 1999"). The Company
experienced reductions in and cancellations of orders from several customers,
principally those related to the semi-conductor market. These reductions and
cancellations resulted in the Company recording an additional inventory
write-off of $1,500,000 in the second quarter of Fiscal 1999, substantially
reducing gross profit for the year. During Fiscal 1999, investors contributed
$2,500,000 of cash as additional equity to cover operating losses, to reduce
debt and accounts payable and to increase inventory. In addition, the Company
negotiated significant reductions of debt and conversion of debt to equity. As a
result, the Company recorded an extraordinary gain of $2,836,000 in Fiscal 1999.
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.
The Company was incorporated in New York in May 1965 under the name
Dutchess Design & Development, Inc. In July 1996, the Company was reincorporated
in Delaware under its present name. The Company maintains its executive offices
at 1 Industry Street, Poughkeepsie, New York 12603 and its telephone number is
(914) 452-3000.
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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. 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.
OEMs utilize contract manufacturers for the following reasons:
REDUCE TIME TO MARKET. Due to intense competitive pressures in the
electronics, industrial products and communication industries, OEMs are faced
with increasingly shorter product lifecycles 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.
REDUCE CAPITAL INVESTMENT. As electronics, industrial products and
communication 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
communication 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
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design changes, short product lifecycles, 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.
BUSINESS STRATEGY
The Company focuses on servicing OEMs who produce complex, high dollar
value industrial products where high quality manufacturing is extremely
important. Management of the Company believes that such products tend to
generate higher gross profit margins. The Company's objective is to become a
prime outsource for midsize and large OEMs and to redirect its strategic focus
to system integration. This includes subsystem and system assembly, wiring and
testing. The Company intends to realize its objective by implementing the
following strategies:
INCREASE SALES FROM EXISTING CUSTOMERS AND ADD NEW CUSTOMERS. The
Company plans to expand existing relationships and seek new customers in the
markets it currently serves and in additional markets. The Company plans to
increase the amount of sales to existing customers by devoting more time to
these customers through a large force and by offering improved and expanded
services such as faster metal cutting machining centers, faster sheet metal
punching equipment, expanded painting facilities and more rapid and less
expensive testing procedures and equipment. While the Company has an on-going
quality improvement program, the Company will intensify its efforts in educating
its employees on the Company's quality requirements and in measuring its
employees' conformance to these requirements. Additionally, the Company will
improve on its monthly quality assurance technical audits in conformance with
the international quality process specification and have an outside-certified
auditor audit the quality management system every six months. The Company plans
to diversify its customer base by increasing its marketing efforts. The Company
intends to do this by attending more trade shows, expanding the number of
advertisements in trade journals, expanding the number of sales personnel,
expanding the number of customers who receive direct mailings, providing new
sales literature, conducting interactive electronic presentations and enhancing
its presentation on the Internet. The Company's objective is to obtain multiple
customers in the markets it currently serves and in additional markets. The
sales and marketing strategy has been refocused with emphasis on medium to high
volume OEMs that have requirements to sub-contract the manufacturing of system
integrated equipment or products. In addition, the efforts of sales and
marketing is redirected to work with potential customers on equipment that have
a need for design engineering with multi-system manufacturing opportunities.
INCREASE PROFITS BY REDUCING COSTS. The Company has reduced costs by
reducing indirect labor and streamlining the manufacturing reporting and
tracking system. Additional cost reduction is planned through greater efficiency
in purchasing and plant productivity. Limited capital investment in new
equipment is expected to result in substantial cost reduction and quality
improvement. The significant debt restructuring that took place in the third and
fourth quarters of Fiscal 1999, replacing $253,000 of debt with equity and
forgiveness of an additional $2,836,000 in debt is expected to reduce interest
expense in the fiscal year ended June 30, 2000 ("Fiscal 2000") by $330,000.
FACILITATE GROWTH OF THE COMPANY THROUGH ACQUISITIONS. The contract
manufacturing industry is now going through consolidation. The Company may
acquire other contract
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manufacturers if management determines that such acquisitions will enable the
Company to improve net sales and profits. These acquisitions may allow the
Company to expand to other regions of the country and possibly abroad. The
Company has no current commitment or understanding with, and has not entered
into any negotiations with, any acquisition candidates.
INDUSTRIES AND PRODUCTS
The following table lists the industries in which the Company expects
to continue to conduct significant business during Fiscal 2000 and the products
for which the Company expects to provide manufacturing services (based on net
sales for Fiscal 1999).
INDUSTRY SPECIFIC PRODUCT OR PRODUCT COMPONENT
- -------- -------------------------------------
Computer................ Chassis, frames, panels, wire harness and cables,
jumpers, test equipment, process equipment 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, assembly of color printing presses.
SERVICES
The Company provides comprehensive contract manufacturing and
engineering services to OEMs. Such services include:
PRODUCT ENGINEERING AND DESIGN SERVICES. The Company assists its
customers in designing or evaluating designs of products. The Company designs or
evaluates designs for ease and quality of manufacture and, when appropriate,
recommends changes to reduce manufacturing costs or lead times or to increase
the quality of finished assemblies. The Company supports its customers with
sophisticated product engineering and design services using computer aided
design equipment with computer aided machinery software. Product engineering and
design includes electrical design, electronic circuit design, mechanism design,
electro-mechanical design, printed circuit board design and software
engineering. The Company also assists its customers with overall product
redesign with the objective of reducing manufacturing costs. The goal of the
Company's 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. The Company custom manufactures complete systems,
printed circuit board assemblies, cable and wire harnesses and other
electro-mechanical assemblies. Manufacturing services offered by the Company
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 its
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manufacturing operations, the Company combines advanced manufacturing
technology, such as computer-aided manufacturing and testing, with
state-of-the-art manufacturing techniques.
In implementing its manufacturing approach, the Company emphasizes
timely delivery and accurate and up-to-date documentation for each product. The
Company develops 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. The Company then plans and executes
purchase orders, receives, inspects and warehouses components, expedites
critical components and delivers a complete set of components to the production
floor for assembly. The Company uses its proprietary 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 the Company's
manufacturing approach. Many products manufactured by the Company 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, the Company
identifies 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, the Company
restructures bills of material and expedites orders for new components, as
authorized. The Company also identifies and implements changes to manufacturing
instructions and test plans. In order to assure prompt customer service, the
Company assigns each project a product manager, quality assurance engineer,
product engineer, test engineer and customer service representative. The Company
maintains regular contact with its 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. The Company's assembly activities range from assembly
of higher level sub-systems and systems to printed circuit board assembly and
assembly of complex electro-mechanical components. The Company specializes in
printed circuit board assembly, cable and wire harness assembly and
electro-mechanical assembly, all utilizing specialized tools and techniques.
QUALITY ASSURANCE. The Company's quality assurance procedures are an
integral part of providing customers with turnkey manufacturing solutions. The
Company provides computer-aided in-circuit and functional testing, which
contributes significantly to the Company's ability to deliver high quality
products on a consistent basis. The Company has 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. The Company either designs and procures test
fixtures and develops its own test software or utilizes the customer's existing
test fixtures and test software. In addition, the Company provides environmental
stress tests of the printed circuit board or system assemblies, when required by
its customers.
The Company's quality management system has been certified under ISO
9002, an international quality standard. The Company has been certified by
Underwriters Laboratories ("UL") as a UL approved panel manufacturer. The
Company's cable and wire harnesses and
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assemblies are manufactured to Underwriters Laboratories and Canadian Standards
Association specifications. The Company's printed circuit board manufacturing
process has been certified by BBAC (a British communications equipment
manufacturing quality specification).
CUSTOMERS, SALES AND MARKETING
The Company serves 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 the Company include ENI Technologies (a
division of Astec America, Inc.), Karl Suiss America, Inc., International
Business Machines Corporation ("IBM"), Aydin Corporation and Van Dam Machine Co.
A majority of the Company's customers are located in the Northeast United
States.
For Fiscal 1999, the Company's four largest customers accounted for
approximately 59% of net sales. Sales to Van Dam Machine Co., ENI Technologies,
Aydin Corporation and Karl Suiss America, Inc. accounted for approximately 19%,
19%, 11% and 10%, respectively, of the Company's net sales. For the fiscal year
ended June 26, 1998 ("Fiscal 1998"), the Company's three largest customers
accounted for approximately 53% of net sales. Accordingly, in addition to
expanding existing relationships, the Company is pursuing a strategy of
diversifying its customer base. Currently, the Company contacts 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 the Company's sales representatives. The Company
also advertises over the Internet at its own website (asdgroup.com). The Company
is expanding its 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. The
Company's objective is to obtain multiple customers in the markets it currently
serves and in additional markets.
COMPETITION
The Company operates in a highly competitive environment and competes
against numerous domestic and foreign manufacturers. The Company's competitors
include U. S. Assembly, The Gem City Engineering Co., Jabil Circuit, Inc., Avex
Electronics Inc. (a privately held company, and DII GROUP, INC. formerly known
as DOVatron International, Inc., IEC Electronics Corp., Sanmina Corporation and
Benchmark Electronics, Inc. In addition, the Company may encounter competition
in the future from other large electronic manufacturers that are selling, or may
begin to sell, contract manufacturing services. The Company may also face
competition from the manufacturing operations of its current and prospective
customers which the Company believes continually evaluate the merits of
manufacturing products internally versus the merits of contract manufacturing.
The Company believes that the primary basis of competition in its
targeted markets are time to market, capability, price, manufacturing quality,
advanced manufacturing technology and reliable delivery. Management believes
that it generally competes favorably with respect to each of these factors. To
remain competitive, the Company 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
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can be no assurance that the Company can compete effectively with respect to
these factors in the future.
BACKLOG
The Company's backlog at June 25, 1999 was approximately $7,900,000.
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, management of the Company believes that backlog is an
inconclusive indicator of future financial performance.
The level and timing of orders placed by the Company's 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. The Company's 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. The Company does not
assess any additional fee or charge interest in connection with the financing of
any customer orders other than what is included in its firm price. The Company's
inability to forecast the level of customer orders with certainty makes it
difficult to schedule production and maximize utilization of manufacturing
capacity.
SUPPLIERS
The Company procures components from a broad group of suppliers,
determined on an assembly-by-assembly basis. Some of the products and assemblies
manufactured by the Company 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. The Company attempts to ensure the continuity of supply of
these components. In cases where unanticipated customer demand or supply
shortages occur, the Company attempts to arrange for alternative sources of
supply, where available, or defers 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 the Company has not experienced material shortages in the recent past,
such shortages could produce significant short-term interruptions of the
Company's future operations. Some of the Company's material suppliers are Arrow
Electronics, Avnet Group, Chapin & Bangs, Future Electronics, Simcona Electric
Corp, and Yard Metals. The Company currently has access to number of alternative
suppliers if any such suppliers were to cease or materially decrease their
business dealings with the Company.
The Company does not maintain a large inventory of materials and does
not place orders for materials unless required in response to a specific
customer purchase order. If the Company does have any obsolete inventory, it is
written-off or reserved immediately.
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INTELLECTUAL PROPERTY RIGHTS
The Company regards its manufacturing processes, proprietary software
and circuit designs as proprietary trade secrets and confidential information.
To maintain the trade secrecy of its proprietary software, the Company relies
largely upon a combination of trade secret laws, copyright laws, internal
security systems and confidentiality procedures. Third parties may attempt to
exercise alleged rights in any of the copyrights or other intellectual property
rights established by the Company, and the Company's failure or inability to
establish appropriate copyrights or to adequately protect any of its
intellectual property rights may have a material adverse affect on the Company.
GOVERNMENT REGULATION
The Company's operations are subject to certain federal, state and
local regulatory requirements relating to environmental, waste management and
health and safety matters. Management believes that the Company's business is
operated in compliance with applicable regulations promulgated by the
Occupational Safety and Health Administration and the Environmental Protection
Agency and corresponding state agencies which, respectively, pertain to health
and safety in the work-place and the use, discharge and storage of chemicals
employed in the manufacturing process. Current costs of compliance are not
material to the Company. However, new or modified requirements, not presently
anticipated, could be adopted creating additional expenses for the Company.
EMPLOYEES
As of September 30, 1999, the Company employed 111 full time employees.
The Company employs 35 people in finance, sales and administration; 68 people in
manufacturing operations and 8 people handling various engineering functions.
Currently none of the Company's employees are members of a union. Management
considers its relationships with its employees to be good.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's principal operations are conducted in Poughkeepsie, New
York, in an approximately 75,000 square foot plant situated on a 5.5-acre parcel
of land. In addition, the Company owns a second 65,000 square foot plant in
Poughkeepsie, which is presently up for sale. These facilities are mortgaged in
the amount of $550,000 as of June 25, 1999. The Company also owns approximately
55.76 acres of vacant land in Poughkeepsie. Management of the Company believes
that the Company's facilities are sufficient for its current and reasonably
anticipated operations.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in pending and threatened legal actions and
proceedings arising in the ordinary course of its business. In the opinion of
management, the outcome of such legal actions and proceedings will not have a
material adverse effect on the Company.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On March 15, 1999, the Company conducted an annual meeting of its
stockholders. At this meeting, the stockholders voted on the matters described
below:
1. The stockholders approved the terms of a financial
restructuring pursuant to which the Company restructured
certain indebtedness and obtained a capital infusion. There
were 837,202 votes cast in favor, 0 votes cast against and 0
votes withheld. There were 392,017 shares abstaining. There
were no broker non-votes.
2. The stockholders approved an amendment to the Company's
Certificate of Incorporation to increase the number of
authorized shares of the Company's common stock from
10,000,000 shares to 50,000,000 shares. There were 1,229,219
votes cast in favor, 0 votes cast against and 0 votes
withheld. There were no abstentions or broker non-votes.
3. The stockholders elected the following directors to the Board
of Directors: Jay H. Solomont, Peter C. Zachariou, Mark
Karasick, Thomas H. Lenagh and Jan M. Winston. For each of the
directors there were 1,229,219 votes cast in favor, 0 votes
cast against and 0 votes withheld. There were no abstentions
or broker non-votes.
4. The stockholders approved an amendment to the Company's 1996
Stock Option Plan to increase the number of shares of the
Company's common stock reserved for issuance thereunder from
60,000 shares to 350,000 shares. There were 1,229,219 votes
cast in favor, 0 votes cast against and 0 votes withheld.
There were no abstentions or broker non-votes.
5. The stockholders ratified the appointment of Deloitte & Touche
LLP as the Company's auditors for Fiscal 1999. There were
1,229,219 votes cast in favor, 0 votes cast against and 0
votes withheld. There were no abstentions or broker non-votes.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET INFORMATION
From May 14, 1997 through February 23, 1999, the Company's common stock
was traded on the Nasdaq SmallCap Market under the symbol "ASDG". Since February
24, 1999, the Company's common stock has been trading on the Nasdaq OTC
Electronic Bulletin Board under the symbol "ASDG." The following table sets
forth the high and low sale prices as furnished by The Nasdaq Stock Market, Inc.
for the calendar quarter indicated:
1997
- ----
HIGH LOW
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 25, 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 1.375 .50
Quarter ended December 25, 1998 1.1875 .375
1999
Quarter ended March 26, 1999 $1.1562 $ .5938
Quarter ended June 25, 1999 1.1875 .5938
These bid prices are inter-dealer prices without retail markup,
markdown or commission, and may not represent actual transactions.
HOLDERS
As of October 4, 1999, there were approximately 58 holders of record of
the common stock. The Company believes 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 the Company's ability to generate earnings, its need for
capital, its overall financial condition and such other factors, as the Board of
Directors deems relevant.
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RECENT SALES OF UNREGISTERED SECURITIES
The Company has effected the following sales of unregistered securities
in the last three fiscal years:
1. Effective June 26, 1998, the Company paid $110,000 in cash,
issued $110,000 in promissory notes and issued 73,461 shares
of Series C Convertible Preferred Stock in satisfaction for
$1,210,00 in principal and unpaid interest pursuant to
promissory notes due in June 1998.
2. In December 1998, the Company sold to three investors 825
shares of Series D Convertible Preferred Stock in
consideration for $825,000 in aggregate. The investors were
accredited investors and the shares were sold pursuant to Rule
506 of Regulation D promulgated under the Securities Act of
1933, as amended.
3. In connection with a restructuring of its credit facility with
PNC Bank, in March 1999, the Company issued to PNC Bank
warrants to purchase 100,000 shares of common stock at an
exercise price of $1.75 per share.
4. In March 1999, the Company sold 1,325 shares of Series E
Convertible Preferred Stock in consideration for $1,325,000.
The investors were accredited investors and the shares were
sold pursuant to Rule 506 of Regulation D promulgated under
the Securities Act of 1933, as amended.
5. By letter agreement dated February 9, 1999, the Company agreed
to issue 75,000 shares of common stock to each of two original
founders in consideration for the forgiveness of $339,000 of
deferred compensation.
6. By letter agreement dated March 4, 1999, the Company agreed to
issue to Gary Horne 150,000 shares, to release 85,718 shares
being held in escrow and to exchange releases consideration
for the forgiveness of $707,000.
In connection with each these transaction, the Company 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. Except as
otherwise noted, the shares were issued pursuant to 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.
11
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis should be read in conjunction
with the Company's consolidated financial statements and the notes thereto
included in Part II, Item 7 of this report.
RESULTS OF OPERATIONS
FISCAL 1999 AS COMPARED TO FISCAL 1998
For Fiscal 1999, the Company's net sales decreased by $4,688,000 or
32.8% to $9,611,000 from $14,300,000 for Fiscal 1998. The decrease in sales was
due to a continued slowdown experienced by several large customers, principally
those affected by the Asian market, which resulted in the reduction of orders
placed with the Company. Additionally, the financial position of the Company
during Fiscal 1999 resulted in the Company not being successful in obtaining a
greater portion of the jobs for which it bid.
Costs of goods sold for Fiscal 1999 decreased by $4,706,000 or 33.7% to
$9,283,000 from $13,989,000 for Fiscal 1998. The decrease in cost of goods sold
is primarily the result of a decrease in net sales. This was partially offset by
the write-down of approximately $400,000 on the asset held for sale to reduce
the asset to its net realizeable value. Gross profit as a percentage of net
sales increased by 1.3% from 2.2% for Fiscal 1998 to 3.5% for Fiscal 1999. This
was primarily due to improved management of the Company's inventory offset by
the write-down of the asset held for sale.
Selling, general and administrative expenses increased for Fiscal 1999
by $394,000 or 8.6% to $4,990,000 from $4,596,000 for Fiscal 1998. The increase
in selling, general and administrative expenses is primarily the result of
increased resources expended in selling and marketing of $142,000, an increase
in the professional fees to manage the Company and financial services of
$359,000 offset by management decreases in administrative functions.
Interest expense decreased in Fiscal 1999 by $517,000 or 42% to
$714,000 from $1,231,000 for Fiscal 1998. The decrease in interest expense
results from a net reduction in debt related to the debt restructurings during
Fiscal 1999 and Fiscal 1998.
During Fiscal 1999, the Company reduced its net deferred tax asset by
$1,106,000. The total valuation allowance at June 25, 1999 of $1,759,000 reduces
the net deferred tax asset to zero. This reduction was made in light of the
significant loss recognized by the Company in Fiscal 1999 and the limitations on
the usage of the net operating loss carryforwards resulting from the capital
infusion by investors in Fiscal 1998.
Extraordinary gains in Fiscal 1999 and Fiscal 1998 of $2,836,000 and
$666,000, respectively, were the result of debt restructuring with the Company's
lenders and two original founders of the Company.
The Company recorded a dividend of $943,000 to record the beneficial
conversion feature of the Series D Convertible Preferred Stock and Series E
Convertible Preferred Stock during Fiscal 1999.
12
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
GENERALLY
During Fiscal 1999, the Company reached agreements with PNC Bank
("PNC"), Bankers Trust Company ("BT"), two original founders of the Company (the
"Founders") and Gary D. Horne, the Company's former Chief Executive Officer and
Chairman of the Board ("GH"). The terms of the agreements are as follows:
1. As of March 10, 1999, PNC agreed to increase the Company's
revolving credit line from $4,500,000 to $5,700,000 through
June 25, 2000.
2. Effective February 26, 1999, the Company entered into an
agreement with BT pursuant to which the Company's obligation
was reduced from $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.
As a result of the non-payment to the Noteholders of the
amount due in June 1999, amounts due to PNC and BT are in
default. PNC has issued a waiver for such default.
3. By letter agreement dated February 9, 1999, the Founders
agreed to accept 75,000 shares of common stock each in lieu of
the existing deferred compensation agreement, resulting in an
extraordinary gain of $246,000.
4. By letter agreement dated March 4, 1999, GH agreed to forgive
indebtedness of $707,000 plus accrued interest in
consideration for 150,000 shares of common 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.
The Company incurred a net loss of $2,235,000 for Fiscal 1999. Sales
for this period were significantly less compared to the previous year due to a
continued slow down experienced by several large customers primarily affected by
the situation in Asia.
STATEMENTS OF CASH FLOW
Net cash used in operations was $4,281,000 for Fiscal 1999 as compared
to $1,093,000 used in operations for Fiscal 1998. The increase in cash used in
operations was primarily the result of the net loss and increase in accounts
receivable offset by a decrease in inventory. The inventory reduction was
primarily the result of a write-off of inventory which resulted from two large
customers reducing orders. Net cash provided by financing activities during
Fiscal 1999 was $4,309,000 as compared to $96,000 in Fiscal 1998. This was
primarily from the net proceeds from the sale of common and preferred stock.
Working capital increased to $204,000 at June 25, 1999 from a deficiency of
$127,000 at June 26, 1998.
LIQUIDITY
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
13
<PAGE>
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 2000. 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 2000.
As part of a settlement in connection with principal and interest owed
to the Noteholders, the Company was required to make a payment of $110,000 in
June 1999. The Company did not make the required payment and is attempting to
renegotiate the terms of the $110,000 payment. As a result of the non-payment to
the Noteholders, the amounts due PNC and BT are in default. PNC has issued a
waiver for such default.
The Company's line of credit with PNC Bank places restrictions on the
Company's ability to obtain financing either through the offering of equity or
incurrence of additional debt. No assurances can be given that additional funds
will be available to the Company on acceptable terms, if at all. Additional
financings may result in dilution to existing stockholders.
In addition, the Company's annual and quarterly operating results may
be affected by a number of factors, including the Company's ability to manage
inventories, shortages of components or labor, the degree of automation used in
the assembly process, fluctuations in material costs and the mix of material
costs versus labor. Manufacturing and overhead costs are also significant
factors affecting the annual and quarterly operating results of the Company.
Other factors include price competition, the ability to pass on excess costs to
customers, the timing of expenditures in anticipation of increased sales and
customer product delivery requirements. Any one of these factors, or a
combination thereof, could adversely affect the Company. The Company's primary
pricing method is a fixed price, however, any costs in excess of original
quotation or resulting from customer changes are typically passed on to the
customer.
The Company anticipates that it will incur capital expenditures of
$190,000 during Fiscal 2000. Such expenditures will be primarily for facility
upgrades including a clean room and computer upgrades for Year 2000 compliance.
The Company intends to finance these capital expenditures through the funds
raised or existing and anticipated capital resources.
NET OPERATING LOSS CARRYFORWARDS
As of June 25, 1999, the Company had a net operating loss carryforwards
("NOLs") for federal income tax purposes of approximately $4,500,000 which
begins to expire in 2006. The restructuring in Fiscal 1998 resulted in a "change
of control" for federal income tax purposes and limited the Company's ability to
utilize such NOLs. Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," requires that deferred tax assets be reduced by a
valuation allowance if, based on the weight of available evidence, it is more
likely than not that some portion or all of such assets will not be realized.
The Company monitors the realizability of such assets and establishes a
valuation allowance for all amounts that are not likely to be realized. As of
June 25, 1999, the total valuation allowance was $1,759,000, which reduced the
net deferred tax asset to zero.
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
the Company's business, could result in disruption of its operations and could
subject it to potentially significant legal liabilities.
14
<PAGE>
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 acquire new and upgraded third party
software packages to replace those currently used by the Company which cannot 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 2000 to reasonably ensure Year 2000 readiness. The Company is planning to
complete all necessary Year 2000 upgrades of its systems by December 31, 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 or customers
who have not modified their systems to adequately address the Year 2000 issue.
Management believes that the Company's third-party suppliers and customers have
made appropriate modifications to their systems or that any such failure to
modify will not adversely effect the Company. However, there can be no assurance
of these facts.
To date, Year 2000 readiness has cost the Company an estimated $90,000
(including upgrades to existing systems) and will cost an estimated $100,000 in
the aggregate to complete.
ITEM 7. FINANCIAL STATEMENTS
The response to this item is incorporated by reference to pages F-1
through F-15 herein.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
15
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
NAME AGE POSITIONS
- ---- --- ---------
Jay H. Solomont *...... 43 Co-Chairman of the Board and Director
Benjamin Rabinovici.... 77 Co-Chairman of the Board and Director
Peter C. Zachariou..... 38 President, Chief Executive Officer and Director
William Courchaine..... 37 Chief Operating Officer
Thomas H. Lenagh* **... 74 Director
Jan M. Winston* **..... 63 Director
Kevin E. Homon......... 44 Controller and Secretary
* Member of Audit Committee.
** Member of Compensation Committee
JAY SOLOMONT became a director and Chairman of the Board of the Company
in June 1998. Mr. Solomont has been a private investor for at least the past
five years. 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. Mr. Solomont, along with his brothers, continues to own a
group of assisted living facilities. Mr. Solomont's private investments include,
but are not limited to, part ownership of a decorative art factory in the United
States, ownership of several real estate properties in the United States and,
along with his partners, ownership of the exclusive rights to develop IMAX
Theaters in Israel.
BENJAMIN RABINOVICI became a director and the Co-Chairman of the Board
in July 1999 when Mark Karasick, another director, resigned. Dr. Rabinovici is a
private investor in real estate and several electronics companies. He is a
director of Parlex Corporation and I.M. Corp. From 1980 to 1996, Dr. Rabinovici
was Chairman of the Board, Chief Executive Officer and President of Typanium
Corporation and from 1983 to 1989 he was Chairman of the Board, Chief Executive
Officer and President of International Microwave Corporation. From 1968 to 1974,
Dr. Rabinovici was a Professor of Electrical Engineering at Northeastern
University in Boston, Massachusetts.
PETER C. ZACHARIOU became the President and a director of the Company
in June 1998 and became Chief Executive Officer in March 1999. Since June 23,
1995 Mr. Zachariou has also held various positions with JR Consulting, Inc., a
company with a class of securities traded on the Nasdaq OTC Electronic 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.
16
<PAGE>
WILLIAM COURCHAINE has been Chief Operating Officer of the Company
since June 1, 1999. Prior to that, Mr. Courchaine was Vice President of
Operations of Company from September 15, 1997 through May 31, 1999. During the
past five years with the Company, Mr. Courchaine also held the position of
Director of Quality Assurance for the Company. Over the past five years, Mr.
Courchaine has managed many facets of the Company's operations.
THOMAS H. LENAGH has been a director of the Company since August 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 Ford Foundation as well as on the Board of several
corporations.
JAN M. WINSTON has been a director of the Company since August 1997.
Mr. Winston was employed by 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 led IBM
activities in the development and sales of speech recognition systems.
KEVIN E. HOMON has been the Controller of the Company since July 1997
and the Secretary of the Company since July 1998. Prior to joining the Company,
Mr. Homon was Controller of York Hunter, Inc., a large construction management
firm, from 1986 to 1997.
Directors of the Company hold their offices until the next annual
meeting of the Company's stockholders and until their successors have been duly
elected and qualified or their earlier resignation, removal from office or
death. The Company has established audit and compensation committees, each
consisting of a majority of non-employee directors.
Officers of the Company serve at the pleasure of the Board of Directors
and until the first meeting of the Board of Directors following the next annual
meeting of the Company's stockholders and until their successors have been
chosen and qualified.
The Company's annual compensation to non-employee directors consists of
the lesser of $1,000 per meeting or $4,000 per year. In addition, non-employee
directors will receive annual grants of stock options under the 1996 Stock
Option Plan (the "1996 Plan") to purchase 7,500 shares of common stock. The
options will be exercisable at the greater of fair market value on the date of
grant or $1.00, will vest at the end of each full year of service and will be
exercisable for a period of ten years thereafter.
INDEMNIFICATION AGREEMENTS
The Company has entered into or will enter into an indemnification
agreement with each of its directors and executive officers. Each
indemnification agreement provides or will provide that the Company will
indemnify such person against certain liabilities (including settlements) and
expenses actually and by him in connection with any threatened or pending legal
action, proceeding or investigation (other than actions brought by or in the
right of the Company) to which he is, or is threatened to be, made a party by
reason of his status as a director, officer or
17
<PAGE>
agent of the Company, provided that such director or executive officer acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Company and, with respect to any criminal proceedings, had
no reasonable cause to believe his or her conduct was unlawful. With respect to
any action brought by or in the right of the Company, a director or executive
officer will also be indemnified, to the extent not prohibited by applicable
law, against expenses and amounts paid in settlement, and certain liabilities if
so determined by a court of competent jurisdiction, actually and reasonably
incurred by him in connection with such action if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests of
the Company.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's executive officers, directors and
holders of more than 10% of the Company's common stock, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Such persons are required to furnish the Company with copies of all Section
16(a) forms they file.
Based solely on its review of the copies of such forms received by it
or oral or written representations from certain reporting persons that no Forms
5 were required for those persons, the Company believes that, with respect to
Fiscal 1999, its executive officers, directors and greater than 10% beneficial
owners did not timely comply with such filing requirements. The Form 3s for
William Courchaine and Benjamin Rabinoviki and the Form 5s for the other
executive officers, directors and significant stockholders for Fiscal 1999 have
not been filed.
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table provides information with respect to the
compensation paid or accrued by the Company and all its subsidiaries to the
Company's Chief Executive Officer and President (collectively, the "Named
Executive Officers") in all their capacities for Fiscal 1999, 1998 and 1997. No
other executive officer of the Company received salary and bonus compensation in
Fiscal 1999, 1998 and 1997 in excess of $100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
--------------------------
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------- -------------------
OTHER ANNUAL SHARES UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) OPTIONS(#)
- --------------------------- ---- ------ ----- --------------- ----------
<S> <C> <C> <C> <C> <C>
Peter C. Zachariou, 1999 $84,000 $0 $0 0
President and Chief Executive Officer (2) 1998 $0 $0 $0 0
1997 $0 $0 $0 0
William Courchaine, 1999 $74,400 $0 $0 0
Chief Operating Officer 1998 $77,171 $0 $0 0
1997 $60,280 $0 $0 0
<FN>
- ----------
18
<PAGE>
(1) The table does not include amounts for personal benefits extended to
Mr. Zachariou or Mr. Courchaine by the Company, such as health or life
insurance. The Company believes that the incremental cost of such
benefits to Mr. Zachariou and Mr. Courchaine during Fiscal 1997 through
Fiscal 1999 did not exceed the lesser of $50,000 or 10% of his total
annual salary and bonuses.
(2) Mr. Zachariou was appointed President of the Company on June 26, 1998.
To date, Mr. Zachariou's salary has accrued and not been paid. Mr.
Zachariou has orally agreed to allow his salary to accrue until such
time as the Company has sufficient cash flow to pay Mr. Zachariou.
</FN>
</TABLE>
EXECUTIVE EMPLOYMENT AGREEMENTS
On July 24, 1998, the Company agreed to compensate Mr. Zachariou for
his services as President and Chief Executive Officer of the Company. Although
no formal written agreement exists, the Board of Directors agreed that Mr.
Zachariou would be paid $7,000 per month while serving as President of the
Company. As described above, this salary has not been paid but is being accrued.
The Company is in the process of obtaining key man insurance on the
life of Mr. Zachariou. No assurance can be given that this insurance will be
obtained or that it will be in sufficient amount to protect the Company in the
event of the death of Mr. Zachariou.
OPTION GRANTS IN LAST FISCAL YEAR
There were no grants of stock options made during the Fiscal 1999 to
the Company's Named Executive Officers.
STOCK OPTIONS HELD AT END OF FISCAL 1999
No stock options are currently held by the Company's Named Executive
Officers as of June 25, 1999. No options were exercised by the Named Executive
Officers during Fiscal 1999.
STOCK OPTION PLAN
The Company's Board of Directors, or a committee thereof, administers
and interprets the 1996 Plan and is authorized to grant options thereunder to
all eligible employees of the Company, including directors and executive
officers (whether current or former employees) of the Company, as well as
consultants and independent contractors. The 1996 Plan provides for the granting
of both "incentive stock options" (as defined in Section 422 of the Internal
Revenue Code of 1986, as amended) and nonstatutory stock options. Incentive
stock options may only be granted, however, to employees. Options can be granted
under the 1996 Plan on such terms and at such prices as determined by the Board,
or a committee thereof, except that the per share exercise price of incentive
stock options granted under the 1996 Plan will not be less than the fair market
value of the common stock on the date of grant and, in the case of an incentive
stock option granted to a 10% stockholder, the per share exercise price will not
be less than 110% of such fair market value as defined in the 1996 Plan. In any
case, the exercise price of any stock option granted under the 1996 Plan will
not be less than 85% of the fair market value of the common stock on the date of
grant.
Options granted under the 1996 Plan that would otherwise qualify as
incentive stock options will not be treated as incentive stock options to the
extent that the aggregate fair market value of the shares covered by the
incentive stock options which are exercisable for the first time by any
individual during any calendar year exceeds $100,000.
19
<PAGE>
Options granted under the 1996 Plan will be exercisable after the
period or periods specified in the option agreement. Options granted under the
1996 Plan are not exercisable after the expiration of ten years from the date of
grant and are not transferable other than by will or by the laws of descent and
distribution. Adjustments in the number of shares subject to options granted
under the 1996 Plan can be made by the Board of Directors or the appropriate
committee in the event of a stock dividend or recapitalization resulting in a
stock split-up, combination or exchange of shares. Under the 1996 Plan, options
may become immediately exercisable in the event of change in control. The 1996
Plan also authorizes the Company to make loans to optionees to enable them to
exercise their options.
As of June 25, 1999, the Company has outstanding options under the 1996
Plan to purchase 215,000 shares of common stock to six persons, including
options to purchase 5,000 shares of common stock to Gregory Horne and options to
purchase 7,500 shares of common stock to Mark Karasick which were subsequently
cancelled. None of such options were granted to the Named Executive Officers.
20
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding beneficial
ownership of the common stock as of the date hereof, by (i) each person who owns
beneficially more than 5% of the outstanding common stock, (ii) each of the
Company's directors and executive officers, and (iii) all directors and Named
Executive Officers as a group.
<TABLE>
<CAPTION>
PERCENT
NAME AND ADDRESS NUMBER OF SHARES BENEFICIALLY
OF BENEFICIAL OWNER (1) BENEFICIALLY OWNED (2)(3) OWNED
- ----------------------- ------------------------- -----
<S> <C> <C>
Benjamin Rabinovici.................................. 0 0%
Peter C. Zachariou .................................. 3,200,002 27.6
William R. Courchaine................................ 0 0
Thomas H. Lenagh..................................... 15,000 (4) *
Jan M. Winston....................................... 15,000 (4) *
Jay Solomont......................................... 2,500,000 23.6
All directors and named executive officers
as a group (6 persons)............................... 5,730,002 45.4%
<FN>
- ----------
* Less than 1%
(1) The business address of all directors and executive officers of the
Company is c/o the Company, 1 Industry Street, Poughkeepsie, New York
12603.
(2) The Company believes 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.
(3) 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.
(4) Represents currently exercisable options to purchase shares of common
stock. Does not include additional options to purchase shares of common
stock which are not exercisable within 60 days.
</FN>
</TABLE>
21
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
LOAN FROM PETER ZACHARIOU
During Fiscal 1999, Peter C. Zachariou, the Company's President and
Chief Executive Officer and a director of the Company, advanced to the Company
$118,988. Such advance is evidenced by a promissory note bearing interest at the
rate of 8% per annum and is payable on June 15, 2000.
TRANSACTIONS WITH NETCOMP, INC.
The Company purchases computers, computer supplies and services from
Netcomp, Inc., which operates the ComputerLand franchise in Poughkeepsie, New
York. Netcomp, Inc. is owned by Gary D. Horne and Stanley F. Zuk, two former
executive officers of the Company. Purchases from Netcomp, Inc. aggregated
$52,000 in Fiscal 1999 and $134,000 in Fiscal 1998.
APPROVAL OF AFFILIATED TRANSACTIONS
All transactions between the Company and its directors, executive
officers and principle 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 the independent outside directors of the Company.
22
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBIT NO. DESCRIPTION
----------- -----------
3.1 Certificate of Incorporation, as amended. (1)
3.2 Bylaws.(2)
4.1 Specimen Certificate of Common Stock. (2)
10.1 1996 Stock Option Plan, as amended (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.(2)(3)
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.(2)
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.(2)
10.5 Option Agreement dated as of May 31, 1996 by and among
Banker's Trust Company and the Registrant.(2)
10.6 Amendment to December 29, 1995 Purchase Agreement.(2)
10.7 Intentionally deleted
10.8 Intentionally deleted
10.9 Intentionally deleted.
10.10 Intentionally deleted.
10.11 Form of Indemnification Agreement dated May 12, 1997 between
the Registrant and its executive officers and directors.(3)
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.(4)
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.(4)
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.(4)
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.(4)
10.16 Form of Letter Agreement with holders of warrants to
purchase an aggregate of 122,750 shares of the Registrant
Common Stock.(4)
10.17 Second Amendment Agreement dated as of September 7, 1999 by
and among Automatic Systems Developers, Inc.; High
Technology Computers, Inc.; the Registrant; the financial
institutions which are not or hereafter become a party to
the Credit Agreement and PNC Bank, National Association
21.1 List of Subsidiaries of the Registrant.(1)
27.1 Financial Data Schedule.(1)
- ----------
(1) Filed herewith.
(2) 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).
23
<PAGE>
(3) Incorporated by reference to the exhibits filed with the Company's
Annual Report on Form 10-KSB for the year ended June 27, 1997.
(4) Incorporated by reference to the exhibits filed with the Company's
Current Report on Form 8-K filed July 9, 1998
(b) Reports on Form 8-K- The Company filed a Current Report on Form 8-K
on July 9, 1998.
24
<PAGE>
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Date: October 15, 1999 ASD GROUP, INC.
By: /s/ PETER C. ZACHARIOU
----------------------------------------
Peter C. Zachariou, President and Chief
Executive Officer
In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the registrant in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------- -------------------------------------- -----------------------------
<S> <C> <C>
/s/ PETER C. ZACHARIOU President and Chief Executive October 15, 1999
- --------------------------------------- Officer and Director
Peter C. Zachariou
/s/ WILLIAM COURCHAINE Chief Operating Officer October 15, 1999
- ---------------------------------------
William Courchaine
/s/ KEVIN HOMON Controller (Principal Financial and October 15, 1999
- --------------------------------------- Accounting Officer)
Kevin Homon
Director October , 1999
- ---------------------------------------
Thomas H. Lenagh
Director October , 1999
- ---------------------------------------
Jan M. Winston
/s/ JAY SOLOMONT Co-Chairman of the Board and Director October 15, 1999
- ---------------------------------------
Jay Solomont
/s/ BENJAMIN RABINOVICI Co-Chairman of the Board and Director October 15, 1999
- ---------------------------------------
Benjamin Rabinovici
</TABLE>
25
<PAGE>
ASD GROUP, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report............................................F-2
Consolidated Balance Sheet as of June 25, 1999..........................F-3
Consolidated Statements of Operations for the Years Ended June 25, 1999
and June 26, 1998.......................................................F-4
Consolidated Statements of Stockholders' Equity for the Years Ended June
25, 1999 and June 26, 1998..............................................F-5
Consolidated Statements of Cash Flows for the Years Ended June 25, 1999
and June 26, 1998.......................................................F-6
Notes to Consolidated Financial Statements..............................F-7-F-15
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 25, 1999, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
two years in the period ended June 25, 1999. 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 25, 1999, and the results of their operations and their
cash flows for each of the two years in the period ended June 25, 1999 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Stamford, Connecticut
October 5, 1999
F-2
<PAGE>
ASD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS
JUNE 25, 1999
-------------
<S> <C>
Current assets:
Cash...................................................................... $ 4,961
Accounts receivable, less allowance for doubtful accounts of
$316,987................................................................ 1,564,121
Inventory, less reserve of $203,391...................................... 2,108,755
Prepaid expenses and other current assets................................. 111,962
Asset held for sale....................................................... 950,000
-----------
Total current assets............................................... 4,739,799
Property, plant and equipment, net.......................................... 3,055,282
Other assets................................................................ 159,619
-----------
Total assets................................................................ $ 7,954,700
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt......................................... $ 2,360,521
Accounts payable.......................................................... 1,547,348
Accrued expenses.......................................................... 627,582
-----------
Total current liabilities.......................................... 4,535,451
Long-term debt.............................................................. 3,340,902
-----------
Total liabilities.................................................. 7,876,353
-----------
Contingencies (See Notes)
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized, 75,120
Convertible shares issued and outstanding.............................. 2,792,857
Common stock, $.01 par value, 50,000,000 shares authorized,
10,404,982 shares issued and outstanding............................... 104,050
Paid-in capital........................................................... 7,062,258
Deficit................................................................... (9,880,818)
-----------
Total stockholders' equity......................................... 78,347
-----------
Total liabilities and stockholders' equity.................................. $ 7,954,700
===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
ASD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED
------------------------------
JUNE 25, JUNE 26,
1999 1998
------------ ------------
<S> <C> <C>
Net sales ................................................... $ 9,610,801 $ 14,298,745
Cost of goods sold .......................................... 9,282,961 13,988,630
------------ ------------
Gross profit ....................................... 327,840 310,115
------------ ------------
Operating expenses:
Sales and marketing .................................... 453,501 311,981
General and administrative ............................. 4,536,264 4,283,890
------------ ------------
Total operating expenses ........................... 4,989,765 4,595,871
------------ ------------
Loss from operations ............................... (4,661,925) (4,285,756)
Interest expense ............................................ (713,885) (1,230,882)
Financial restructuring costs ............................... -- (124,000)
------------ ------------
Loss before income taxes and extraordinary gain .... (5,375,810) (5,640,638)
Income tax expense .......................................... -- (1,717,532)
------------ ------------
Loss before extraordinary gain ..................... (5,375,810) (7,358,170)
Extraordinary gain .......................................... 2,835,565 665,500
------------ ------------
Net loss ........................................... (2,540,245) (6,692,670)
Preferred stock dividend .................................... 942,857 --
------------ ------------
Loss applicable to common stockholders ...................... $ (3,483,102) $ (6,692,670)
============ ============
Amounts applicable to common stockholders per basic and
diluted common share:
Loss before extraordinary gain .............................. $ (1.72) $ (4.66)
Extraordinary gain .......................................... .77 .42
------------ ------------
Loss applicable to common stockholders ...................... $ (.95) $ (4.24)
============ ============
Weighted average common shares outstanding .................. 3,684,611 1,579,018
============ ============
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
ASD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK RETAINED
------------------------- -------------------------- PAID-IN EARNINGS
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
------ ------ ------ ------ ------- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, June 28, 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 3) ................. 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 ................. -- -- -- -- -- (2,540,245) (2,540,245)
Debt restructuring
(Note 3) ................. -- -- 300,000 3,000 250,125 -- 253,125
Common stock issued ...... -- -- 250,000 2,500 87,000 -- 89,500
Preferred stock conversion (684,199) (2,357,000) 7,772,221 77,723 2,279,277 -- --
Preferred stock issued ... 25,060 2,298,000 -- -- -- -- 2,298,000
Warrants exercised ....... -- -- 102,827 1,028 74,984 -- 76,012
Preferred stock dividend . -- 942,857 -- -- -- (942,857) --
-------- ----------- ---------- -------- ---------- ----------- -----------
Balance, June 25, 1999 ... 75,120 $ 2,792,857 10,404,982 $104,050 $7,062,258 $(9,880,818) $ 78,347
======== =========== ========== ======== ========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
ASD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED
----------------------------
JUNE 25, JUNE 26,
1999 1998
----------- -----------
<S> <C> <C>
Operating activities:
Net loss .................................................... $(2,540,245) $(6,692,670)
Adjustments to reconcile net loss to net
Cash used in operating activities:
Depreciation and amortization ......................... 392,293 771,431
(Benefit) provision for doubtful accounts .............. (24,013) 178,000
Common stock issued for services ...................... 53,700 --
Deferred compensation ................................. 18,764 34,747
Interest accrued-stockholder advances ................. 33,317 57,289
Deferred income taxes ................................. -- 1,717,532
Extraordinary gain from restructuring ................. (2,835,565) (665,500)
Inventory reserve ..................................... (142,435) 345,826
Asset held for sale-writedown ......................... 405,565 --
Changes in assets and liabilities:
Accounts receivable ............................... (642,427) 1,099,721
Inventory ......................................... 1,076,577 1,669,171
Prepaid expenses and other current assets ......... 47,674 42,788
Other assets ...................................... 944 150,569
Accounts payable .................................. 95,451 216,215
Accrued expenses .................................. (220,139) 5,297
Payments of deferred compensation ................. -- 23,360
----------- -----------
Net cash used in operating activities ........ (4,280,539) (1,092,944)
----------- -----------
Investing activities:
Capital expenditures ........................................ (28,892) (97,378)
----------- -----------
Financing activities:
Net proceeds from sale of common and preferred stock ........ 4,309,812 --
Borrowings .................................................. 525,652 7,135,741
Payments of long-term debt .................................. (476,918) (7,114,282)
Financing costs ............................................. (49,058) (229,058)
Loans - life insurance policies ............................. -- 303,635
----------- -----------
Net cash provided by financing activities .... 4,309,488 96,036
----------- -----------
Net increase (decrease) in cash ............................... 57 (1,094,286)
Cash, beginning of year ....................................... 4,904 1,099,190
----------- -----------
Cash, end of year ............................................. $ 4,961 $ 4,904
=========== ===========
Supplemental disclosures:
Cash paid during the year for:
Income taxes ............................................ $ 5,819 $ 3,571
=========== ===========
Interest ................................................ $ 595,602 $ 927,924
=========== ===========
Capital contribution receivable .............................. $ -- $ 1,900,000
=========== ===========
Debt converted upon debt restructurings ...................... $ 3,088,690 $ 880,000
=========== ===========
Capital leases entered into .................................. $ 102,895 $ 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 25, 1999 and June 26,
1998, the Company incurred $49,058 and $229,058, respectively, in connection
with debt financings (see Note 5). These costs have been capitalized in other
assets and are being amortized over the terms of the financings. Amortization
and write-off of financing costs for the years ended June 25, 1999 and June 26,
1998 were $94,464 and $422,296, 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.
INVENTORY--Inventory, consisting of work-in-progress and raw materials
of $1,470,409 and $638,346, 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. During Fiscal 1999, the
Company wrote-off $1,500,000 of inventory and that was expected to be shipped
pursuant to orders from customers. However, the requirements with respect to
such purchase orders were either reduced or cancelled by customers.
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
--------------------
JUNE 25, JUNE 26,
CUSTOMER 1999 1998
-------- ---- ----
ENI Technologies........................... 19% 22%
Spectran Corporation...................... - 18
Van Dam Machine Co....................... 19 -
Aydin Corporation........................ 11 -
Karl Suiss America, Inc.............. 10 -
Olin Microelectronics...................... - 13
--- ---
59% 53%
=== ===
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 FINANCIAL ACCOUNTING STANDARDS--In June 1997, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"), and Statement
of Financial Accounting Standards No. 131 "Disclosures About Segments of an
Enterprise and Related Information," ("SFAS 131"). SFAS 130 requires that
comprehensive income, which includes net income as well as certain changes in
assets and liabilities recorded in stockholders' equity, be reported in the
financial statements. There were no components of comprehensive income other
than net income for the years ended June 25, 1999 and June 26, 1998. SFAS 131
requires disclosure of certain information about operating segments and about
products and services, geographic areas in which a company operates, and their
major customers. The Company has determined that it operates in only one
segment.
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.
3. 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").
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 Investors
purchased an additional 22,910 shares of Series A Stock for $148,000 during
Fiscal 1999. On March 15, 1999, the stockholders approved the Financial
Restructuring upon which the shares of Series A Stock and Series B Stock
converted into 6,837,071 shares of Common Stock at the rate of 10 shares of
common stock for each share of preferred stock.
F-8
<PAGE>
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:
2. PNC agreed to maintain the Company's existing line of credit
through June 25, 2000 (see Note 5), 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 through either the
offering of equity or by incurring additional debt.
3. BT was paid $250,000 to defer the outstanding principal amount
owed to BT for nine months until March 1999. The Company would
not make principal and interest payments to BT during this
period, although the amounts owed would continue to accrue
interest. The 100,000 warrants to previously issued to BT were
cancelled.
4. The Company settled $1,210,000 principal and interest owed to
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 a $792,000
extraordinary gain in Fiscal 1998.
The Company did not make the required payments to the
Noteholders in June 1999. The Company is currently attempting
to renegotiate the terms of this $110,000 payment.
5. In addition, holders of outstanding warrants to purchase
123,750 shares of common stock at $2.69 per share agreed to
exchange these warrants for five-year warrants for the
purchase of 400,000 shares of common stock at $1.50 per share
during Fiscal 1998.
6. With respect to the Financial 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.
7. The Company paid an investment banking firm that advised the
Investors $118,000 and issued to the investment banking firm
five-year warrants to
F-9
<PAGE>
purchase 141,360 shares of common stock at $.35 per share. The
total value of the amounts paid to this investment banking
firm ($126,500) reduced the extraordinary gain in Fiscal 1998.
The Company obtained an independent appraisal with respect to the
securities that were issued pursuant to the Financial Restructuring. Based on
the findings of the appraisal, all securities issued by the Company have been
recorded at fair value.
During Fiscal 1999, the Company issued 825 shares of Series D
Convertible Preferred Stock with a stated value of $1,000 per share for $825,000
and 1,325 shares of Series E Convertible Preferred Stock with a stated value of
$1,000 per share for $1,325,000. The Series D and Series E Convertible Preferred
Stock will convert into common stock at the rate of stated value 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). A dividend of $375,000 for the Series D
Convertible Preferred Stock and $567,857 for the Series E Convertible Preferred
Stock was recorded for Fiscal 1999 to record the beneficial conversion feature.
During Fiscal 1999, 100 shares of Series D Convertible Preferred Stock had
converted into 238,636 shares of common stock and 391 shares of Series E
Convertible Preferred Stock had converted into 696,508 shares of common stock.
During Fiscal 1999, warrants to purchase 102,827 common shares were
exercised. As a result, 2,827 shares of common stock were issued in
consideration for $.358 per share and 100,000 shares of common stock were issued
in consideration for $.75 per share.
During Fiscal 1999, the Company reached agreements with PNC, BT, two
original founders of the Company (the "Founders") and Gary D. Horne, the
Company's former Chief Executive Officer and Chairman of the Board ("GH"). The
terms of the agreements are as follows:
1. As of March 10, 1999, PNC agreed to increase the Company's
revolving credit line from $4,500,000 to $5,700,000 through
June 25, 2000.
2. Effective February 26, 1999, the Company entered into an
agreement with BT pursuant to which the Company's obligation
was reduced from $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. As a result of
the non-payment to the Noteholders of the amount due in June
1999, amounts due to PNC and BT are in default. PNC has
issued a waiver for such default.
3. By letter agreement dated February 9, 1999, the Founders
agreed to accept 75,000 shares of common stock each in lieu of
the existing deferred compensation agreement, resulting in an
extraordinary gain of $246,000.
4. By letter agreement dated March 4, 1999, GH agreed to forgive
indebtedness of $707,000 plus accrued interest in
consideration for 150,000 shares of common 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.
F-10
<PAGE>
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
JUNE 25,
1999
----------
Land .................................. $ 563,937
Buildings ............................. 1,633,327
Leasehold improvements ................ 896,091
Machinery and equipment ............... 3,234,926
Automobiles ........................... 47,955
6,376,236
Less: accumulated depreciation ........ 3,320,954
----------
Property, plant and equipment, net .... $3,055,282
==========
Machinery and equipment includes property under capital leases of
$370,415. Amortization of assets under capital leases in Fiscal 1999 and Fiscal
1998 was $26,649 and $24,077, respectively, and is included in depreciation and
amortization expense. Depreciation and amortization of property, plant and
equipment was $254,543 and $349,135 during the years ended June 25, 1999 and
June 26, 1998, respectively.
5. LONG-TERM DEBT
Long-term debt consists of the following:
JUNE 25,
1999
Notes Payable-Noteholders (see Note 3)........................ $ 110,000
Revolving Line of Credit-PNC.................................. 4,648,606
Note Payable-Bankers Trust Company, due February 26, 2001,
no interest (see Note 3)................................... 550,000
Notes Payable-Stockholder..................................... 118,988
Other, including capital leases of $266,389................... 273,829
----------
5,701,423
Less: current portion......................................... 2,360,521
-----------
$3,340,902
===========
On December 19, 1997, the Company completed a refinancing of its
indebtedness and secured a new credit facility with PNC Bank. The Company
restructured its indebtedness with PNC on March 10, 1999 increasing its
borrowing limit to $5,700,000 through June 25, 2000. The interest rate on such
borrowing amount is the prime rate plus .5% per annum. PNC also increased the
over-advance from $900,000 to $1,500,000 which is included in the formula used
to determine the credit line availability. The over-advance is to be paid down
at the rate of $100,000 per month commencing September 1, 1999. No payments of
the over-advance have been made as of October 5, 1999. All proceeds from the
asset held for sale (see Note 12) are to be used to repay the over-advance. The
line of credit is secured by a first lien on accounts receivable, inventory and
machinery and equipment. The amount available for borrowing is determined
pursuant to a formula based upon eligible accounts receivable, inventory and
machinery and equipment plus the over-advance. As of June 25, 1999, based on the
availability formula, the Company did not have any additional availability for
borrowing.
F-11
<PAGE>
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. On August 18, 1999, the Company
received a Notice of Default from PNC indicating that the Company was in default
of certain non-financial items. PNC has since waived the default. In addition,
on October 8, 1999 PNC waived the default caused by the non-payment of the
Noteholders of the amount due in June 1999. See Note 3.
The Company has borrowed $118,988 from Peter C. Zachariou, the
Company's President and Chief Executive Officer, at an interest rate of 8%, due
on June 15, 2000.
Annual principal payments, as adjusted for the amended maturities are
as follows:
12 MONTHS ENDING JUNE
------------------------------------------
2000...................................... $2,360,521
2001...................................... 3,214,883
2002...................................... 89,028
2003...................................... 18,468
2004...................................... 18,523
----------
$5,701,423
==========
The prime rate at June 25, 1999 was 8.0 %.
6. STOCKHOLDERS' EQUITY
In June 1996, the Company adopted the 1996 Stock Option Plan (the "1996
Plan"). The 1996 Plan provided 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 nonqualified stock options.
On March 15, 1999, at the Company's annual meeting of stockholders, the
stockholders voted to increase the number of authorized shares of the Company's
common stock from 10,000,000 to 50,000,000 shares and the number of shares of
common stock reserved for issuance under the 1996 Plan from 60,000 to 350,000
shares.
In August 1997, the Company granted options to purchase 15,000 shares
at $5.75 per share. In June 1998, the Company cancelled all existing options
which were issued at $5.75 per share and granted options to purchase 50,000
shares at $.50 per share.
F-12
<PAGE>
During Fiscal 1999, the Company granted options to purchase 180,000
shares. Of such options, options to purchase 30,000 shares are exercisable at
$1.00 share and vest March 14, 2000. Options to purchase 150,000 shares are
exercisable at $.625 per share and vested 1/3 immediately, 1/3 on June 1, 2000
and 1/3 on June 1, 2001. All of the options were granted at not less than fair
market value of the Company's common stock at the date of grant and are
exercisable for a ten-year period. In addition, options to purchase 15,000
shares were cancelled as a result of the termination of one employee's
employment. The following table sets forth the activity of the 1996 Plan for the
years ended June 25, 1999 and June 26, 1998:
NUMBER OF WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
------- --------------
Outstanding at June 28, 1997 30,000 $5.75
Granted 65,000 1.71
Cancelled (45,000) 5.75
------- -----
Outstanding at June 26, 1998 50,000 .50
Granted 180,000 .69
Cancelled (15,000) .50
------- -----
Outstanding at June 25, 1999 215,000 $ .66
======= =====
The following table summarizes information about stock options
outstanding at June 25, 1999:
<TABLE>
<CAPTION>
OPTIONS GRANTED OPTIONS EXERCISABLE
--------------------------------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED
RANGE OF AVERAGE AVERAGE AVERAGE
EXERCISE NUMBER REMAINING EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- --------- ----------- --------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ .50 35,000 9.0 $.50 30,000 $.50
1.00 30,000 9.8 1.00 - -
.625 150,000 9.9 .625 50,000 .625
- ------------ ------- --- ---- ------ -----
$.50 - $1.00 215,000 9.7 $.66 80,000 $.58
============ ======= === ==== ====== =====
</TABLE>
The Company utilizes the provisions of 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 costs 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 common stock at the date of grant over the amount an employee
must pay to acquire the stock. The Company has determined that the proforma
effect of the common stock options on compensation expense, determined using the
fair value of such options at the dates of grant, as required by SFAS No. 123
was $58,000 ($.02 loss per share) in Fiscal 1999 and was less than $.01 per
share in Fiscal 1998.
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
F-13
<PAGE>
company was paid $200,000 and received 150,000 shares of the Company's common
stock. The fair value of the common stock ($53,700) was expensed in Fiscal 1999.
In addition, the management company purchased 100,000 shares of Company's common
stock at $.358 per share.
7. INCOME TAXES
The provision for income taxes consists of the following:
YEARS ENDED
-----------------------
JUNE 25, JUNE 26,
1999 1998
-------- -----------
Deferred:
Federal............................. $ - $ 1,310,391
State............................... - 407,141
------ -----------
$ - $ 1,717,532
====== ===========
A reconciliation of the income tax provision (benefit) to the amount
computed using the Federal statutory rate follows:
YEARS ENDED
-----------------------------
JUNE 25, JUNE 26,
1999 1998
---------- -----------
Income tax at statutory rate............. $ (863,683) $(1,691,547)
State income taxes and other (net of
Federal benefit)..................... (242,208) 402,606
Limitation on use of Federal NOL......... - 2,581,865
Increase in valuation allowance.......... 1,105,891 424,608
---------- -----------
$ - $ 1,717,532
========== ===========
The net deferred tax asset consists of the following:
JUNE 25, JUNE 26,
1999 1998
----------- -----------
Net operating loss carryforwards........... $ 1,848,237 $ 588,416
Capital loss carryforwards................. 224,489 228,333
Allowance for doubtful accounts............ 128,620 143,220
Inventory.................................. 85,260 145,247
Deferred compensation...................... - 134,682
Accrued interest........................... - 94,700
Other...................................... (5,914) (36,312)
Asset held for sale write-down............. 170,520 -
Depreciation............................... (692,380) (645,345)
----------- -----------
1,758,832 652,941
Valuation allowance........................ (1,758,832) (652,941)
----------- -----------
$ - $ -
=========== ===========
Deferred taxes result from temporary differences in the recognition of
revenues and expenses for income tax and financial statement purposes. As a
result of the financial restructuring (see Note 3), annual utilization of the
Federal net operating loss carryforwards will be limited. At June 26, 1998, the
Company wrote-down the deferred tax asset to the maximum realizable value of
$652,941. In addition, the Company increased the valuation allowance by $424,608
to $652,941 to fully reserve the deferred tax asset.
F-14
<PAGE>
As of June 25, 1999, the Company has Federal net operating loss
carryforwards, after limitation, of approximately $4,500,000 which begin to
expire in 2006. During Fiscal 1999, the Company increased the valuation
allowance by $1,105,891 to $1,758,832 to fully reserve the deferred tax asset.
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.
8. RELATED PARTY TRANSACTIONS
The Company purchases computers, computer supplies and services from
Netcomp, Inc., which operates the ComputerLand franchise in Poughkeepsie, New
York. Netcomp, Inc. is owned by Gary D. Horne and Stanley F. Zuk, two former
executive officers of the Company. Purchases from Netcomp, Inc. aggregated
$52,000 in Fiscal 1999 and $134,000 in Fiscal 1998.
9. 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 Fiscal 1999 and Fiscal 1998.
10. CONTINGENCIES
The Company is involved in pending and threatened legal actions and
proceedings in the ordinary course of business. In the opinion of management,
the outcome of such legal actions and proceedings will not have a material
effect on the Company.
11. 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 2000. 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 2000.
12. ASSET HELD FOR SALE
During Fiscal 1999, 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 Fiscal 2000. The Company has classified this asset at its
estimated net realizable value, after a $406,000 write-down which is included in
costs of goods sold, as a current asset.
F-15
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3.1 Certificate of Incorporation, as amended
10.1 1996 Stock Option Plan, as amended
21.1 List of Subsidiaries
27.1 Financial Data Schedule
EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
ASD GROUP, INC.
ARTICLE I
The name of the corporation is ASD GROUP, INC. (hereinafter called the
"Corporation").
ARTICLE II
The address of the Corporation's registered office in the State of
Delaware is 1013 Centre Road, City of Wilmington, County of New Castle, and the
name of its registered agent at such address is Corporation Service Company.
ARTICLE III
The purpose for which the corporation is formed is to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of Delaware.
ARTICLE IV
(a) The total number of shares of all classes of stock which the
corporation shall have authority to issue is 61,000,000 shares
of wit:
(1) 50,000,000 shares shall be designated as Common
Stock, having a par value of $.01 per share; and
(2) 1,000,000 shares shall be designated as Preferred
Stock, having a par value of $.01 per share.
(b) A statement of the designations and powers, preferences and
rights, and the qualifications, limitations or restrictions
thereof, of the shares of stock of each class, is as follows:
(i) Except as otherwise provided by law or by paragraph
(b) (ii) of this ARTICLE IV, the entire voting right
shall be vested in the holders of the Common Stock.
(ii) (A) The Board of Directors is expressly authorized at
any time and from time to time, to provide for the
issuance of shares of Preferred Stock in one or more
series, with such voting powers, full or limited but
not to exceed one vote per share, or without
<PAGE>
voting powers, and with such designations,
preferences and relations, participating, optional or
other special rights, qualifications, limitations or
restrictions thereof, as shall be stated and
expressed in the resolution or resolutions providing
for the issue thereof adopted by the Board of
Directors, and as are not stated and expressed in
this Certificate of Incorporation, or any amendment
thereto, including, but without limiting the
generality of the foregoing the following:
(i) the designation of such series;
(ii) the dividend rate of such series, the conditions and
dates upon which such dividends shall be payable, the
preference or relation which such dividends shall
bear is the dividends payable on any other class or
classes or of any other series at capital stock, and
whether such dividends shall be cumulative or
noncumulative;
(iii) whether the shares of such series shall be subject to
redemption by the corporation and if made subject to
such redemption, the times, prices and other terms
and conditions of such redemption;
(iv) the terms and amount of any sinking fund provided for
the purchase or redemption of the shares of such
series;
(v) whether or not the shares of such series shall be
convertible into or exchangeable for shares of any
other class or classes of capital stock of the
corporation, and, if provision be made for conversion
or exchange, the times, prices, rates, adjustments
and other terms and conditions of such conversion or
exchange;
(vi) the extent, if any, to which the holders of such
series shall be entitled to vote as a class or
otherwise with respect to the election of the
directors or otherwise; provided, however, that in no
event shall any holder of any series of Preferred
Stock be entitled to more than one vote for each
share of such Preferred Stock held by him;
(vii) the restrictions, if any, on the issue or reissue of
any additional shares or series of Preferred Stock;
(viii) the rights of the holders of the shares of such
series upon the dissolution of, or upon the
distributions of assets of, the corporation.
2
<PAGE>
(B) Except as otherwise required by law and except
for such voting powers with respect to the election
of directors or other matters as may be stated in the
resolutions of the Board of Directors creating any
series of Preferred Stock, the holders of any such
series shall not have any voting power whatsoever.
(iii) No holder of any stock of the corporation of any
class now or hereafter authorized shall, as such
holder, be entitled as of right to purchase or
subscribe for any shares of stock of the corporation
of any class or any series now or hereafter
authorized, or any securities convertible into or
exchangeable for any of such shares, or any warrants,
options, rights or other instruments evidencing
rights to subscribe for, or purchase, any such
shares, whether such shares, securities, warrants,
options, rights or other instruments be unissued or
issued and thereafter acquired by the corporation.
(iv) Without action by the stockholders, the shares of any
class of capital stock may be issued by the
corporation from time to time for such consideration
as may be fixed by the Board of Directors, provided
that such consideration shall be not less than par
value in the case of any class of stock having par
value. Any and all shares so issued, the full
consideration for which has been paid or delivered
shall be deemed fully paid stock and shall not be
liable to any further call or assessment thereon, and
the holders of such shares shall not be liable for
any further payment thereon.
ARTICLE V
The name of the Incorporator, is Dale S. Bergman and the address of the
Incorporator is Miami Center, Suite 3000, 201 South Biscayne Boulevard, Miami,
Florida 33131.
ARTICLE VI
The following provisions are inserted for the management of the
business and for the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and shareholders:
(1) The number of directors of the Corporation shall be such as
from time to time shall be fixed by, or in the manner provided
in the bylaws. Election of the directors need not be by ballot
unless the bylaws so provide.
(2) The Board of Directors shall have the power without the assent
or vote of the stockholders:
3
<PAGE>
(a) To make, alter, amend, change, add to or repeal the bylaws of
the Corporation, to fix and vary the amount to be reserved for
any proper purpose; to authorize and cause to be executed
mortgages and liens upon all or any part of the property of
the Corporation; to determine the use and disposition of any
surplus or net profits; and to fix the items for the
declaration and payment dividends.
(b) To determine from time to time whether, and to what times and
places, and under what conditions the accounts and books of
the Corporation (other than the stockledger) or any of them,
shall be open to the inspection of the stockholders.
(3) The directors in their discretion may submit any contract or
act for approval or ratification at any annual meeting of the
stockholders or any meeting of the stockholders called for the
purpose of considering any such act or contract, and any
contract or act that shall be approved or be ratified by the
vote of the holders of the majority of the stock of the
Corporation which is represented in person or by proxy at such
meeting and entitled to vote thereat (provided that a lawful
quorum of stockholders be there represented in person or by
proxy) shall be as valid and as binding upon the Corporation
and upon all the stockholders as though it had been approved
or ratified by every stockholder of the Corporation, whether
or not the contract or act would otherwise be open to legal
attack because of the directors' interest, or for any other
reason.
(4) In addition to the powers and authorities hereinbefore or by
statute expressly conferred upon them, the directors are
hereby empowered to exercise all such powers and do all such
acts and things as may be exercised or done by the
Corporation; subject, nevertheless, to the provisions of the
statutes of Delaware, of this certificate, and to any bylaws
from time to time made by the stockholders; provided, however,
that no bylaws so made shall invalidate any prior act of the
directors which would have been valid if such bylaw had not
been made.
ARTICLE VII
No director of the Corporation shall be liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or that involve intentional misconduct or knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv)
for any transaction from which the director derived an improper personal
benefit. It is the intent that this provision be interpreted to provide the
maximum protection against liability afforded to directors under the Delaware
General Corporation Law in existence either now or hereafter.
4
<PAGE>
ARTICLE VIII
Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware, may, on the application in any
summary way of this Corporation or of any creditor or stockholder thereof or on
the application of any receiver or receivers appointed for this Corporation
under the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths (3/4) in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement of the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
5
EXHIBIT 10.1
- --------------------------------------------------------------------------------
ASD GROUP, INC.
AMENDED AND RESTATED 1996 STOCK OPTION PLAN
- --------------------------------------------------------------------------------
1. PURPOSE. The purpose of this Plan is to advance the interests of ASD
Group, Inc., a Delaware corporation (the "Company"), by providing an additional
incentive to attract, retain and motivate highly qualified and competent persons
who are key to the Company, including key employees, consultants, independent
contractors, Officers and Directors, and upon whose efforts and judgment the
success of the Company and its Subsidiaries is largely dependent, by authorizing
the grant of options to purchase Common Stock of the Company to persons who are
eligible to participate hereunder, thereby encouraging stock ownership in the
Company by such persons, all upon and subject to the terms and conditions of
this Plan.
2. DEFINITION. As used herein, the following terms shall have them
indicated:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Cause" shall mean any of the following:
(i) a determination by the Company that there has
been a willful, reckless and grossly negligent failure by the Optionee to
perform his or her duties as an employee of the Company;
(ii) a determination by the Company that there has
been a willful breach by the Optionee of any of the material terms or provision
of any employment agreement between such Optionee and the Company;
(iii) any conduct by the Optionee that either results
in his or her conviction of a felony under the laws of the United States of
America or any state thereof, or of an equivalent crime under the laws of any
other jurisdiction;
(iv) a determination by the Company that the Optionee
has committed an act or acts involving fraud, embezzlement, misappropriation,
theft, breach of fiduciary duty or material dishonesty against the Company, its
properties or personnel;
(v) any act by the Optionee that the Company
determines to be in willful or wanton disregard of the Company's best interests,
or which results, or is intended to result, directly or indirectly, in improper
gain or personal enrichment of the Optionee at the expense of the Company;
(vi) a determination by the Company that there has
been a willful, reckless or grossly negligent failure by the Optionee to comply
with any rules,
<PAGE>
regulations, policies or procedures of the Company, or that the Optionee has
engaged in any act, behavior or conduct demonstrating a deliberate and material
violation or disregard of standards of behavior that the Company has a right to
expect of its employees; or
(vii) if the Optionee, while employed by the Company
and for two years thereafter, violates a confidentiality and/or noncompete
agreement with the Company, or fails to safeguard, divulges, communicates, uses
to the detriment of the Company or for the benefit of any person or persons, or
misuses in any way, and Confidential Information.
PROVIDED, HOWEVER, that, if the Optionee has entered into a written employment
agreement with the Company which remains effective and which expressly provides
for a termination of such Optionee's employment for "cause", the term "Cause" as
used herein shall have the meaning as set forth in the Optionee's employment
agreement in lieu of the definition of "Cause" set forth in this Section 2(b).
(c) "Change of Control" shall mean the acquisition by any
person or group (as that term is defined in the Securities Exchange Act of 1934
(the "Exchange Act"), and the rules promulgated pursuant to that act) in a
single transaction or a series of transactions of thirty percent (30%) or more
in voting power of the outstanding stock of the Company and a change of the
composition of the Board of Directors so that, within two years after the
acquisition took place, a majority of the members of the Board of Directors of
the Company, or of any corporation with which the Company may be consolidated or
merged, are persons who were not directors or officers of the Company or one of
its Subsidiaries immediately prior to the acquisition, or to the first of a
series of transactions which resulted in the acquisition of thirty percent (30%)
or more in voting power of the outstanding stock of the Company.
(d) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(e) "Committee" shall mean the stock option committee
appointed by the Board of, if not appointed, the Board.
(f) "Common Stock" shall mean the Company's Common Stock, par
value $.01 per share.
(g) "Confidential Information" shall mean any and all
information pertaining to the Company's financial condition, clients, customers,
prospects, sources of prospects, customer lists, trademarks, trade names,
service marks, service names, "know how", trade secrets, products, services,
details of client or consulting contracts, management agreements, pricing
policies, operational methods, site selection, results of operations, costs and
methods of doing business, owners and ownership structure, marketing practices,
marketing plans or strategies, product development techniques or plans,
procurement and sales activities, promotion and pricing techniques, credit and
2
<PAGE>
financial data concerning customers and business acquisition plans, that is not
generally available to the public.
(h) "Director" shall mean a member of the Board.
(i) "Employee" shall mean any person, including officers,
directors, consultants and independent contractors employed by the Company or
any parent or Subsidiary of the Company within the meaning of Section 3401(C) of
the regulations promulgated thereunder.
(j) "Fair Market Value" of a Share on any date of reference
shall be the Closing Price of a share of Common Stock on the business day
immediately preceding such date, unless the Committee in its sole discretion
shall determine otherwise in a fair and uniform manner. For this purpose, the
"Closing Price" of the Common Stock on any business day shall be (i) if the
Common Stock is listed or admitted for trading on any United States national
securities exchange, or if actual transactions are otherwise reported on a
consolidated transaction reporting system, the last reported sales price of the
Common Sock on such exchange or reporting system, as reported in any newspaper
of general circulation, (ii) if the Common Stock is quoted on the National
Association of Securities Dealers Automated Quotation System ("NASDAQ"), or any
similar system of automated dissemination of quotations or securities prices in
common use, the mean between the closing high bid and low asked quotations for
such day of the Common Stock on such system, or (iii) if neither clause (i) nor
(ii) is applicable, the mean between the high bid and low asked quotations for
the Common Stock as reported by the National Quotation Bureau, Incorporated if
at least two securities dealers have inserted both bid and asked quotations for
the Common Stock on at least five of the 10 preceding days. If the information
set forth in clauses (i) through (iii) above is unavailable or inapplicable to
the Company (e.g. if the Company's Common Stock is not then publicly traded or
quoted), then the "Fair Market Value" of a Share shall be the fair market value
(i.e., the price at which a willing seller would sell a Share to a willing buyer
when neither is acting under compulsion and when both have a reasonable
knowledge of all relevant facts) of a share of the Common Stock on the business
day immediately preceding such date as the Committee in its sole discretion
shall determine in a fair and uniform manner.
(k) "Incentive Stock Option" shall mean an incentive stock
option as defined in Section 422 of the Code.
(l) "Non-Employee Directors" shall have the meaning set forth
in Rule 16b-3(b)(3)(i) (17 C.F.R. Section 240.16(b)-3(b)(3)(i)) under the
Securities Exchange Act of 1934, as amended.
(m) "Non-Statutory Stock Option" or "Nonqualified Stock
Option" shall mean an option which is not an Incentive Stock Option.
(n) "Officer" shall mean the Company's chairman, president,
principal financial officer, principal accounting officer (or, if there is no
such accounting officer,
3
<PAGE>
the controller), any vice-president of the Company in charge of a principal
business unit, division or function (such as sales, administration or finance),
any other officer who performs a policy-making function, or any other person who
performs similar policy-making functions for the Company. Officers of
Subsidiaries shall be deemed Officers of the Company if they perform such
policy-making functions for the Company. As used in this paragraph, the phrase
"policy-making function" does not include policy-making functions that are not
significant. Unless specified otherwise in a resolution by the Board, an
"executive officer" pursuant to Item 401(b) of Regulation S-K (17 C.F.R. Section
229.401(b)) shall be only such person designated as an "Officer" pursuant to the
foregoing provisions of this paragraph.
(o) "Option" (when capitalized) shall mean any stock option
granted under this Plan.
(p) "Optionee" shall mean a person to whom an Option is
granted under this Plan or any person who succeeds to the rights of such person
under this Plan by reason of the death of such person.
(q) "Plan" shall mean this 1996 Stock Option Plan of the
Company, which Plan shall be effective upon approval by the Board, subject to
approval, within 12 months of the date thereof by holders of a majority of the
Company's issued and outstanding Common Stock.
(r) "Securities Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended.
(s) "Share" or "Shares" shall mean a share or shares, as the
case may be, of the Common Stock, as adjusted in accordance with Section 10 of
this Plan.
(t) "Subsidiary" shall mean any corporation (other than the
Company) in any unbroken chain of corporations beginning with the Company if, at
the time of granting of the Option, each of the corporation other than the last
corporation in the unbroken chain owns stock possessing 50 percent or more of
the total combined voting power of all classes of stock in one of the
corporations in such chain.
3. SHARES AND OPTIONS. Subject to adjustment in accordance with Section
10 hereof, the Company may grant to Optionees from time to time Options to
purchase an aggregate of up to Three Hundred and Fifty Thousand (350,000) Shares
from Shares held in the Company's treasury or from authorized and unissued
Shares. If any Option granted under this Plan shall terminate, expire, or be
cancelled, forfeited or surrendered as to any Shares, the Shares relating to
such lapsed Option shall be available for issuance pursuant to new Options
subsequently granted under this Plan. Upon the grant of any Option hereunder,
the authorized and unissued Shares to which such Option relates shall be
reserved for issuance to permit exercise under this Plan. Subject to the
provisions of Section 14 hereof, an Option granted hereunder shall be either an
Incentive Stock Option or a Non-Statutory Stock Option as determined by the
Committee at the time of grant of
4
<PAGE>
such Option and shall clearly state whether it is an Incentive Stock Option or
Non-Statutory Stock Option. All Incentive Stock Options shall be granted within
10 years from the effective date of this Plan.
4. LIMITATIONS. Options otherwise qualifying as Incentive Stock Options
hereunder will not be treated as Incentive Stock Options to the extent that the
aggregate Fair Market Value (determined at the time the Option is granted) of
the Shares, with respect to which Options meeting the requirements of Code
Section 422(b) are exercisable for the first time by any individual during any
calendar year (under all stock option or similar plans of the Company and any
Subsidiary), exceeds $100,000.
5. CONDITIONS FOR GRANT OF OPTIONS.
(a) Each Option shall be evidenced by an option agreement that
may contain any term deemed necessary or desirable by the Committee, provided
such terms are not inconsistent with this Plan or any applicable law. Optionees
shall be those persons selected by the Committee from the class of all regular
Employees of the Company or its Subsidiaries, including Employee Directors and
Officers who are regular or former regular employees of the Company, as well as
consultants to the Company. Any person who files with the Committee, in a form
satisfactory to the Committee, a written waiver of eligibility to receive any
Option under this Plan shall not be eligible to receive any Option under this
Plan for the duration of such waiver.
(b) In granting Options, the Committee shall take into
consideration the contribution the person has made, or is expected to make, to
the success of the Company or its Subsidiaries and such factors as the Committee
shall determine. The Committee shall also have the authority to consult with and
receive recommendations from Officers and other personnel of the Company and its
Subsidiaries with regard to these matters. The Committee may from time to time
in granting Options under this Plan prescribe such terms and conditions
concerning such Options as it deems appropriate, including, without limitation
(i) the exercise price or prices of the Option or any installments thereof, (ii)
prescribing the date or dates on which the Option becomes and/or remains
exercisable, (iii) providing that the Option vests or becomes exercisable in
installments over a period of time, and/or upon the attainment of certain stated
standards, specifications or goals, (iv) relating an Option to the continued
employment of the Optionee for a specified period of time, or (v) conditions or
termination events with respect to the exercisability of any Option, provided
that such terms and conditions are not more favorable to an Optionee than those
expressly permitted herein; provided, however, that to the extent not cancelled
pursuant to Section 9(b) hereof, upon a Change of Control, any Options that are
not yet vested, shall vest upon such Change of Control.
(c) The Options granted to employees under this Plan shall be
in addition to regular salaries, pension, life insurance or other benefits
related to their employment with the Company or its Subsidiaries. Neither this
Plan nor any Option granted under this Plan shall confer upon any person any
right to employment or
5
<PAGE>
continuance of employment (or related salary and benefits) by the Company or its
Subsidiaries.
6. EXERCISE PRICE. The exercise price per Share of any Option shall be
any price determined by the Committee but shall not be less than the par value
per Share; PROVIDED, HOWEVER, that in no event shall the exercise price per
Share of any Incentive Stock Option be less than the Fair Market Value of the
Shares underlying such Option on the date such Option is granted and, in the
case of an Incentive Stock Option granted to a 10% shareholder, the per Share
exercise price will not be less than 110% of the Fair Market Value in accordance
with Section 14 of this Plan. Re-granted Options, or Options which are cancelled
and then re-granted covering such cancelled Options, will, for purposes of this
Section 6, be deemed to have been granted on the date of the re-granting.
7. EXERCISE OF OPTIONS.
(a) An Option shall be deemed exercised when (i) the Company
has received written notice of such exercise in accordance with the terms of the
Option, (ii) full payment of the aggregate option price of the Shares as to
which the Option has been exercised is made, (iii) the Optionee has agreed to be
bound by the terms, provisions and conditions of any applicable shareholders'
agreement, and (iv) arrangements that are satisfactory to the Committee in its
sole discretion have been made for the Optionee's payment to the Company of the
amount that is necessary for the Company or the Subsidiary employing the
Optionee to withhold in accordance with applicable Federal and state tax
withholding requirements. Unless further limited by the Committee in any Option,
the exercise price of any Shares pursuant to the exercise of such Option shall
be paid in cash, by certified or official bank check, by money order, with
Shares or by a combination of the above; PROVIDED, HOWEVER, that the Committee
in its sole discretion may accept a personal check in full or partial payment of
any Shares. If the exercise price is paid in whole or in part with Shares, the
value of the Shares surrendered shall be their Fair Market Value on the date the
Option is exercised. The Company in its sole discretion may, on an individual
basis or pursuant to a general program established by the Committee in
connection with this Plan, lend money to an Optionee to exercise all or a
portion of the Option granted hereunder. If the exercise price is paid in whole
or part with the Optionee's promissory note, such note shall (i) provide for
full recourse to the maker, (ii) be collateralized by the pledge of the Shares
that the Optionee purchasing upon exercise of such Option, (iii) bear interest
at a rate no less than the rate of interest payable by the Company to its
principal lender, and (iv) contain such other terms as the Committee in its sole
discretion shall require. No Optionee shall be deemed to be a holder of any
shares subject to an Option unless and until a stock certificate or certificates
for such shares are issued to the person(s) under the terms of this Plan. No
adjustments shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or property) or distributions or other rights for which the
record date is prior to the date such stock certificate is issued, except as
expressly provided in Section 10 hereof.
(b) No Optionee shall be deemed to be a holder of any Shares
subject to an Option unless and until a stock certificate or certificates for
such Shares are issued
6
<PAGE>
to such person(s) under the terms of this Plan. No adjustment shall be made for
dividends (ordinary or extraordinary, whether in cash, securities or other
property) or distributions or other rights for which the record date is prior to
the date such stock certificate is issued, except as expressly provided in
Section 10 hereof.
8. EXERCISABILITY OF OPTIONS. Any Option shall become exercisable in
such amounts, at such intervals, upon such events or occurrences and upon such
other terms and conditions as shall be provided in an individual Option
Agreement evidencing such Option, except as otherwise provided in Section 5(b)
or this Section 8.
(a) The expiration date(s) of an Option shall be determined by
the Committee at the time of grant, but in no event shall an Option be
exercisable after the expiration of 10 years from the date of grant of the
Option.
(b) Unless otherwise expressly provided in any Option as
approved by the Committee, notwithstanding the exercise schedule set forth in
any Option, each outstanding Option, may, in the sole discretion of the
Committee, become fully exercisable upon the date of the occurrence of any
Change of Control, but, unless, otherwise expressly provided in any Option, no
earlier than six months after the date of grant, and if and only if the Optionee
is in the employ of the Company on such date.
(c) The Committee may in its sole discretion accelerate the
date on which any Option may be exercised and may accelerate the vesting of any
Shares subject to an Option or previously acquired by the exercise of any
Option.
9. TERMINATION OF OPTION PERIOD.
(a) Unless otherwise expressly provided in any Option, the
unexercised portion of any Option shall automatically and without notice
immediately terminate and become forfeited, null and void at the time of the
earliest to occur of the following:
(i) three months after the date on which the
Optionee's employment is terminated for any reason other than by reason of (A)
Cause, (B) the termination of the Optionee's employment with the Company by such
Optionee following less than 90 days' prior written notice to the Company of
such termination (an "Improper Termination"), (C) a mental or physical
disability (within the meaning of Section 22(e) of the Code) as determined by a
medical doctor satisfactory to the Committee, or (D) death;
(ii) immediately upon (A) the termination by the
Company of the Optionee's employment for Cause, or (B) an Improper Termination;
(iii) one year after the date on which the Optionee's
employment is terminated for reason of a mental or physical disability (within
the
7
<PAGE>
meaning of Code Section 22(e) as determined by a medical doctor satisfactory to
the Committee; or
(iv) the later of (A) twelve months after the date of
termination of the Optionee's employment by reason of death of the employee, or
(B) three months after the date on which the Optionee shall die if such death
shall occur during the one year period specified in Subsection 9(a)(iii) hereof.
(b) The Committee in its sole discretion may, by giving
written notice ("Cancellation Notice"), cancel effective upon the date of the
consummation of any corporate transaction described in Section 10(d) hereof, any
Option that remains unexercised on such date. Such cancellation notice shall be
given a reasonable period of time prior to the proposed date of such
cancellation and may be given either before or after approval of such corporate
transaction.
(c) Upon Optionee's termination of employment as described in
this Section 9, or otherwise, any Option (or portion thereof) not previously
vested or not yet exercisable pursuant to Section 8 of this Plan or the vesting
schedule set forth in such Option shall be immediately cancelled.
10. ADJUSTMENT OF SHARES.
(a) If at any time while this Plan is in effect or unexercised
Options are outstanding, there shall be any increase or decrease in the number
of issued and outstanding Shares through the declaration of a stock dividend or
through any recapitalization resulting in a stock split, combination or exchange
of Shares (other than any such exchange or issuance of Shares through which
Shares are issued to effect an acquisition of another business or entity or the
Company's purchase of Shares to exercise a "call" purchase option), then and in
such event:
(i) appropriate adjustment shall be made in the
maximum number of Shares available for grant under this Plan, so that the same
percentage of the Company's issued and outstanding Shares shall continue to be
subject to being so optioned;
(ii) appropriate adjustment shall be made in the
number of Shares and the exercise price per Share thereof then subject to any
outstanding Option, so that the same percentage of the Company's issued and
outstanding Shares shall remain subject to purchase at the same aggregate
exercise price; and
(iii) such adjustments shall be made by the
Committee, whose determination in that respect shall be final, binding and
conclusive.
(b) Subject to the specific terms of any Option, the Committee
may change the terms of Options outstanding under this Plan, with respect to the
option price or the number of Shares subject to the Options, or both, when, in
the Committee's sole
8
<PAGE>
discretion, such adjustments become appropriate by reason
of a corporate transaction described in Subsection 10(d) hereof, or otherwise.
(c) Except as otherwise expressly provided herein, the
issuance by the Company of shares of its capital stock of any class, or
securities convertible into or exchangeable for shares of its capital stock of
any class, either in connection with a direct or unwritten sale or upon the
exercise of rights or warrants to subscribe therefore or purchase such Shares,
or upon conversion of shares or obligations of the Company convertible into such
shares or other securities, shall not affect, and no adjustment by reason
thereof shall be made with respect to the number of or exercise price of Shares
then subject to outstanding Options granted under this Plan.
(d) Without limiting the generality of the foregoing, the
existence of outstanding Options granted under this Plan shall not affect in any
manner the right or power of the Company to make, authorize or consummate (i)
any or all adjustments, reclassifications, recapitalizations, reorganizations or
other changes in the Company's capital structure or its business; (ii) any
merger or consolidation of the Company or to which the Company is party; (iii)
any issuance by the Company of debt securities, or preferred or preference stock
that would rank senior to or above the Shares subject to outstanding Options;
(iv) any purchase or issuance by the Company of Shares or other classes of
common stock or common equity securities; (v) the dissolution or liquidation of
the Company; (vi) any sale, transfer, encumbrance, pledge or assignment of all
or any part of the assets or business of the Company; or (vii) any other
corporate act or proceeding, whether of a similar character or otherwise.
(e) The Optionee shall receive written notice within a
reasonable time prior to the consummation of such action advising the Optionee
of any of the foregoing. The Committee may, in the exercise of its sole
discretion, in such instances declare that any Option shall terminate as of a
date fixed by the Board and give each Optionee the right to exercise his or her
Option.
11. TRANSFERABILITY OF OPTIONS. No Option granted hereunder shall be
sold, pledged, assigned, hypothecated, disposed or otherwise transferred by the
Optionee other than by will or the laws of descent and distribution, unless
otherwise authorized by the Board, and no Option shall be exercisable during the
Optionee's lifetime by any person other than the Optionee.
12. ISSUANCE OF SHARES. As a condition of any sale or issuance of any
Shares upon exercise of any Option, the Committee may require such agreements or
undertakings, if any, as the Committee may deem necessary or advisable to assure
compliance with any such law or regulation including, but not limited to, the
following:
(i) a representation and warranty by the Optionee to
the Company, at the time any Option is exercised, that he is acquiring the
Shares to be issued to him for investment and not with a view to, or for sale in
connection with, the distribution of any such Shares; and
9
<PAGE>
(ii) (A) an agreement and understanding to comply
with all of the terms, restrictions and provisions set forth in any then
applicable shareholders' agreement relating to the Shares, including, without
limitation, any restrictions on transferability, any rights of first refusal and
any option of the Company to "call" or purchase such Shares under then
applicable agreements, and
(B) any restrictive legend or legends, to be
embossed or imprinted on Share certificates, that are, in the discretion of the
Committee, necessary or appropriate to comply with the provisions of any
securities laws or other restriction applicable to the issuance of the Shares.
13. ADMINISTRATION OF THIS PLAN.
(a) This Plan shall be administered by the Committee, which
shall consist of not less than two Non-Employee Directors. The Committee shall
have all of the powers of the Board with respect to this Plan. Any member of the
Committee may be removed at any time, with or without cause, by resolution of
the Board any vacancy occurring in the membership of the Committee may be filled
by appointment by the Board.
(b) Subject to the provisions of this Plan, the Committee
shall have the authority, in its sole discretion, to: (i) grant Options, (ii)
determine the exercise price per Share at which Options may be exercised, (iii)
determine the Optionees to whom, and time or times at which, Options shall be
granted, (iv) determine the number of Shares to be represented by each Option,
(v) determine the terms, conditions, and provisions of each Option granted
(which need not be identical) and, with the consent of the holder thereof,
modify or amend each Option, (vi) defer (with the consent of the Optionee) or
accelerate the exercise date of any Option, and (vii) make all other
determinations deemed necessary or advisable for the administration of the Plan,
including repricing, canceling and re-granting Options.
(c) The Committee, from time to time, may adopt rules and
regulations for carrying out the purposes of this Plan. The Committee's
determinations and its interpretation and construction of any provision of this
Plan shall be final, conclusive and binding upon all Optionees and any holders
of any Options granted under this Plan.
(d) Any and all decisions or determinations of the Committee
shall be made either (i) by a majority vote of the members of the Committee at a
meeting of the Committee or (ii) without a meeting by the unanimous written
approval of the members of the Committee.
(e) No member of the Committee, or any Officer or Director of
the Company or its Subsidiaries, shall be personally liable for any act or
omission made in good faith in connection with this Plan.
10
<PAGE>
14. INCENTIVE OPTIONS FOR 10% SHAREHOLDERS. Notwithstanding any
provisions of this Plan to the contrary, an Incentive Stock Option shall not be
granted to any person owning directly or indirectly (through attribution under
Section 424(d) of the Code) at the date of grant, stock possessing more than 10%
of the total combined voting power of all classes of stock of the Company (or of
its Subsidiary) at the date of grant unless the exercise price of such Option is
at least 110% of the Fair Market Value of the Shares subject to such Option on
the date the Option is granted, and such Option by its terms is not exercisable
after the expiration of 10 years from the date such Option is granted.
15. INTERPRETATION.
(a) This Plan shall be administered and interpreted so that
all Incentive Stock Options granted under this Plan will qualify as Incentive
Stock Options under Section 422 of the Code. If any provision of this Plan
should be held invalid for the granting of Incentive Stock Options or illegal
for any reason, such determination shall not affect the remaining provisions
hereof, and this Plan shall be construed and enforced as if such provision had
never been included in this Plan.
(b) This Plan shall be governed by the laws of the State of
Delaware.
(c) Headings contained in this Plan are for convenience only
and shall in no manner be construed as part of this Plan or affect the meaning
or interpretation of any part of this Plan.
(d) Any reference to the masculine, feminine, or neuter gender
shall be a reference to such other gender as is appropriate.
(e) Time shall be of the essence with respect to all time
periods specified for the giving of notices to the company hereunder, as well as
all time periods for the expiration and termination of Options in accordance
with Section 9 hereof (or as otherwise set forth in an option agreement).
16. AMENDMENT AND DISCONTINUATION OF THIS PLAN. Either the Board or the
Committee may from time to time amend this Plan or any Option without the
consent or approval of the shareholders of the Company; PROVIDED, HOWEVER, that,
except to the extent provided in Section 9, no amendment or suspension of the
Plan or any Option issued hereunder shall substantially impair any Option
previously granted to any Optionee without the consent of such Optionee.
17. TERMINATION. This Plan shall terminate ten years after the adoption
by the Board of Directors.
11
EXHIBIT 21.1
LIST OF SUBSIDIARIES
Automatic Systems Developers, Inc., a New York corporation
High Technology Computers, Inc., a New York corporation
iNetWare Inc., a New York corporation
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<FISCAL-YEAR-END> JUN-25-1999
<PERIOD-START> JUN-27-1998
<PERIOD-END> JUN-25-1999
<CASH> 4,961
<SECURITIES> 0
<RECEIVABLES> 1,881,108
<ALLOWANCES> (316,987)
<INVENTORY> 2,108,755
<CURRENT-ASSETS> 4,739,799
<PP&E> 6,376,236
<DEPRECIATION> (3,320,954)
<TOTAL-ASSETS> 7,954,700
<CURRENT-LIABILITIES> 4,535,451
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2,792,857
<COMMON> 104,050
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<TOTAL-LIABILITY-AND-EQUITY> 7,954,700
<SALES> 9,610,801
<TOTAL-REVENUES> 9,610,801
<CGS> 9,282,961
<TOTAL-COSTS> 9,282,961
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<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 713,885
<INCOME-PRETAX> (5,375,810)
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