================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 24, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from ______ to ______
Commission File Number 1-12873
ASD GROUP, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 14-1483460
------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1 INDUSTRY STREET, POUGHKEEPSIE, NEW YORK 12603
-----------------------------------------------
(Address of principal executive offices)
(914) 452-3000
--------------
(Issuer's telephone number)
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date: The number of shares of the issuer's
Common Stock, $.01 par value per share, outstanding as of November 15, 1999 was
10,587,085.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
================================================================================
<PAGE>
ASD GROUP, INC.
================================================================================
FORM 10-QSB
QUARTERLY REPORT
SEPTEMBER 24, 1999
INDEX
PART I FINANCIAL INFORMATION PAGE
Item 1. Consolidated Financial Statements................. 1
Consolidated Balance Sheet: 1
September 24, 1999 (unaudited)....................
Consolidated Statements of Operations (unaudited): 2
Three months ended September 24, 1999 and
September 25, 1998 ...............................
Consolidated Statements of Cash Flows (unaudited): 3
Three months ended September 24, 1999 and
September 25, 1998 ...............................
Notes to Financial Statements .................... 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
PART II OTHER INFORMATION
Item 3. Defaults Upon Senior Securities .................. 10
Item 6. Exhibits and Reports on Form 8-K ................. 10
SIGNATURE
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
ASD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 24,
1999
------------
ASSETS
<S> <C>
Current assets:
Cash .................................................................. $ 41,101
Accounts receivable, less allowance for doubtful accounts
of $316,987 ......................................................... 1,856,043
Inventory, less reserve of $203,391 ................................... 1,909,477
Prepaid expenses and other current assets ............................. 100,730
Asset held for sale ................................................... 950,000
------------
Total current assets .............................................. 4,857,351
Property, plant and equipment, net ......................................... 2,990,528
Other assets ............................................................... 136,240
------------
Total assets ...................................................... $ 7,984,119
============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Current portion of long-term debt ..................................... $ 5,697,448
Accounts payable ...................................................... 1,652,307
Accrued expenses ...................................................... 652,607
------------
Total current liabilities ......................................... 8,002,362
Long-term debt ............................................................. 176,167
------------
Total liabilities ................................................. 8,178,529
------------
Stockholders' deficiency:
Preferred stock, $.01 par value, 1,000,000 shares authorized, 72,120
convertible shares issued and outstanding ........................... 2,792,857
Common stock, $.01 par value, 50,000,000 shares authorized, 10,587,085
shares issued and outstanding ....................................... 105,871
Paid-in capital ............................................................ 7,062,258
Deficit .................................................................... 10,155,396
Total stockholders' deficiency .................................... (194,410)
------------
Total liabilities and stockholders' deficiency ............................. $ 7,984,119
============
</TABLE>
1
<PAGE>
ASD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------
SEPTEMBER 24, SEPTEMBER 25,
1999 1998
------------ ------------
<S> <C> <C>
Net sales .................................................... $ 2,913,055 $ 2,028,487
Cost of goods sold ........................................... 2,111,464 1,561,942
------------ ------------
Gross profit ............................................ 801,591 466,545
------------ ------------
Operating expenses:
Sales and marketing ..................................... 134,490 97,967
General and administrative .............................. 805,449 941,032
------------ ------------
Total operating expenses ..................................... 939,939 1,038,999
------------ ------------
Loss from operations ......................................... (138,348) (572,454)
Interest expense ............................................. 134,540 228,187
------------ ------------
NET LOSS .......... ................................. (272,888) (800,641)
============ ============
Net loss per basic and diluted common share .................. $ (.03) $ (.40)
============ ============
Weighted average common shares
outstanding ............................................. 10,587,085 1,979,934
============ ============
</TABLE>
2
<PAGE>
ASD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPT. 24, SEPT. 25,
1999 1998
<S> <C> <C>
Operating activities:
Net loss ............................................ $ (272,888) $ (800,641)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization ................... 66,922 96,707
Deferred compensation ........................... -- 9,383
Interest accrued-stockholder advances ........... -- 33,430
Changes in assets and liabilities:
Accounts receivable ......................... (291,922) (77,879)
Inventory ................................... 199,278 91,884
Prepaid expenses and other current
assets ...................................... 11,232 (39,345)
Other assets ................................ 23,379 --
Accounts payable ............................ 100,114 (128,217)
Accrued expenses ............................ 25,025 (115,280)
----------- -----------
Net cash used in operating activities .. (138,860) (929,958)
----------- -----------
Investing activities:
Capital expenditures ................................ -- (13,480)
----------- -----------
Financing activities:
Proceeds from financial restructuring ............... -- 1,909,982
Borrowings .......................................... 175,000 28,000
Payments of long-term debt .......................... -- (985,138)
----------- -----------
Net cash provided by financing
activities ............................. 175,000 952,844
----------- -----------
Net increase (decrease) in cash .......................... 36,140 9,406
Cash, beginning of period ................................ 4,961 4,904
----------- -----------
Cash, end of period ...................................... $ 41,101 $ 14,310
=========== ===========
Supplemental disclosure:
Cash paid during the period for:
Income taxes .................................... $ -- $ 6,132
=========== ===========
Interest ........................................ $ 100,760 $ 224,269
=========== ===========
</TABLE>
3
<PAGE>
ASD GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - INTERIM FINANCIAL STATEMENTS
The accompanying unaudited interim consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and pursuant to the rules and regulations of
the Securities and Exchange Commission for reporting on Form 10-QSB.
Accordingly, certain information and footnote disclosures required for complete
consolidated financial statements are not included herein. It is recommended
that these consolidated financial statements be read in conjunction with the
consolidated financial statements and related notes of ASD Group, Inc. and
subsidiaries (the "Company") contained in the Company's Annual Report on Form
10-KSB for the fiscal year ended June 25, 1999. In the opinion of management,
all adjustments (consisting of normal recurring adjustments) considered
necessary for a fair presentation of financial position, results of operations
and cash flows at the dates and for the periods presented have been included.
4
<PAGE>
NOTE 2 - INVENTORY
The components of inventory are as follows:
Raw materials ....................... $ 672,352
Work-in-process ..................... 1,237,125
-----------
$ 1,909,477
===========
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company cautions readers that certain important factors may affect
the Company's actual results and could cause such results to differ materially
from any forward-looking statements which may be deemed to have been made in
this Report or which are otherwise made by or on behalf of the Company. For this
purpose, any statements contained in this Report that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the generality of the foregoing, words such as "may," "will," "expect,"
"believe," "anticipate," "intend," "could," "would," "estimate," or "continue"
or the negative other variations thereof or comparable terminology are intended
to identify forward-looking statements. Such factors include, but are not
limited to, the risks and uncertainties associated with a contract manufacturing
company which is dependent upon a small number of large companies, a limited
history of profitability, dependence upon key personnel, need for future capital
and dependence upon certain industries. Additionally, the Company is subject to
the risks and uncertainties associated with all contract manufacturing companies
including variability of customer requirements and customer financing, limited
availability components and a market characterized by rapidly changing
technology and continuing process development. The Company is also subject to
other risks detailed herein or detailed from time to time in the Company's
filings with the Securities and Exchange Commission.
OVERVIEW
The Company provides comprehensive contract manufacturing and
engineering services to original equipment manufacturers ("OEMs."). The Company
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
6
<PAGE>
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.
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.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 24, 1999 AS COMPARED TO THREE MONTHS ENDED
SEPTEMBER 25, 1998
For the three months ended September 24, 1999, the Company's net sales
increased by $885,000 or 43.6% to $2,913,000 from $2,028,000 for the three
months ended September 25, 1998. The increase in sales was primarily the result
of increased marketing efforts by management.
Cost of goods sold for the three months ended September 24, 1999
increased by $550,000 or 35.2% to $2,111,000 from $1,562,000 for the three
months ended September 25, 1998. The increase in cost of goods sold is primarily
the result of the increase of sales. Gross profit as a percentage of net sales
increased by 4.5% from 23.0% for the three months ended September 26, 1998 to
27.5% for the three months ended September 24, 1999. The increased gross profit
percentage was primarily due to the increase in orders while a significant
portion of the Company's cost are fixed. Moreover, the gross profit margin
benefitted from settlements with vendors on past due amounts.
Selling, general and administrative expenses decreased for the three
months ended September 24, 1999 by $99,000 or 9.5% to $940,000 from $1,039,000
for the three months ended September 25, 1998. Selling expenses increased
$37,000 due to additional sales force added to the staff. This was offset by a
reduction of $136,000 in general and administrative expenses. The general and
administrative expenses decreased due to a decrease in professional fees which
was offset somewhat by an increase in payroll from the hiring of a full-time
Chief Operating Officer.
7
<PAGE>
Interest expense decreased for the three months ended September 24,
1999 by $94,000 or 40.8% to $135,000 from $228,000 for the three months ended
September 25, 1998. The decrease in interest expense results from a net
reduction in debt.
The Company incurred a net loss of $273,000 during the three months
ended September 24, 1999, as compared to a net loss of $801,000 during the three
months ended September 25, 1998 for the above reasons.
LIQUIDITY AND CAPITAL RESOURCES
STATEMENTS OF CASH FLOWS
Net cash used in operations was $139,000 for the three months ended
September 24, 1999 as compared to $930,000 used in operations for the three
months ended September 25, 1998. The cash used in operations results from a loss
for the three months ended September 24, 1999. Net cash provided by financing
activities during the three months ended September 24, 1999 was $175,000 as
compared to $953,000 for the three months ended September 25, 1998. Working
capital decreased to a deficiency of $3,145,000 at September 24, 1999 from a
deficiency of $1,410,000 at September 25, 1998. The decrease in working capital
is due to the reclassification to current liabilities of the Bankers Trust loan
as a result of a default on certain outstanding obligations and the PNC Bank
revolving line of credit which has a due date of June 2000.
LINE OF CREDIT
The Company's revolving bank line of credit (the "Line of Credit")
currently permits borrowings of up to $5,700,000. The amount available for
borrowings under the Line of Credit is determined pursuant to a formula based
upon the Company's eligible machinery, equipment, accounts receivable and
inventory plus an over advance by the bank of $1,900,000. As of September 24,
1999, $4,787,000 was outstanding under the Line of Credit and the Company had no
additional borrowings available. PNC Bank has agreed to keep the Company's
existing credit facility in place at least through June 2000, with a one-year
extension, provided that certain conditions are met and no events of default
occur.
YEAR 2000 READINESS
The Year 2000 issue refers to a condition in the computer software
where a two-digit field rather than a four-digit field is used to distinguish a
calendar year. Unless corrected, date-sensitive software may recognize a date
using "00" as the year 1900 rather than the year 2000. This could result in
system failures or miscalculations causing disruptions to various activities and
operations. Such an uncorrected condition could
8
<PAGE>
significantly interfere with the conduct of the Company's business, could result
in disruption of its operations and could subject it to potentially significant
legal liabilities.
The Company has conducted an assessment of the Year 2000 issue and the
potential effect it will have on the Company and its business. The Company has
also prepared a formal plan for dealing with the Year 2000 issue. The Company
has completed the updating of most its existing software for Year 2000
compliance by modifying existing internally developed software.
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 the
first half of 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.
To date, Year 2000 readiness has cost the Company an estimated $90,000
(including upgrades to existing systems) and will cost approximately $100,000 in
the aggregate to complete.
9
<PAGE>
PART II - OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
As part of a settlement in connection with principal and interest owed
to certain 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 to Bankers Trust Company are due. PNC has
issued a waiver for such default.
ITEM 6. EXHIBITS AND REPORTS OF FORM 8-K
(a) Exhibits:
(27) Financial Data Schedule (Edgar version only)
(b) Reports on Form 8-K: none
10
<PAGE>
ASD GROUP, INC.
SIGNATURES
In accordance with the requirement of the Securities Exchange Act of
1934, the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
/s/ PETER C. ZACHARIOU
-----------------------------
Peter C. Zachariou, President
/s/ KEVIN HOMON
-----------------------------
Kevin E. Homon, Controller
Date: November 17, 1999
11
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUN-26-1999
<PERIOD-END> SEP-24-1999
<CASH> 41,101
<SECURITIES> 0
<RECEIVABLES> 2,173,030
<ALLOWANCES> (316,987)
<INVENTORY> 2,112,868
<CURRENT-ASSETS> 4,857,351
<PP&E> 3,057,450
<DEPRECIATION> (66,922)
<TOTAL-ASSETS> 7,984,119
<CURRENT-LIABILITIES> 8,002,362
<BONDS> 0
0
2,792,857
<COMMON> 105,871
<OTHER-SE> (3,093,138)
<TOTAL-LIABILITY-AND-EQUITY> 7,984,119
<SALES> 2,913,055
<TOTAL-REVENUES> 2,913,055
<CGS> 2,111,464
<TOTAL-COSTS> 2,111,464
<OTHER-EXPENSES> 939,939
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 134,540
<INCOME-PRETAX> (272,888)
<INCOME-TAX> 0
<INCOME-CONTINUING> (272,888)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (272,888)
<EPS-BASIC> (.03)
<EPS-DILUTED> (.03)
</TABLE>
