ASD GROUP INC, SB-2, 1999-02-01

ASD GROUP INC
SB-2, 1999-02-01
ENGINEERING SERVICES

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As filed with the Securities and Exchange Commission on February 1, 1999
Registration No.333-______

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

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

FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

-------------------
ASD GROUP, INC.
-----------------------------------------------------
(Name of Small Business Issuer in Its Charter)

<TABLE>
<S> <C> <C>
DELAWARE 8711 14-1483460
- ------------------------------ -------------------------- ---------------------------------------
(State or Jurisdiction of (Primary Standard (I.R.S. Employer Identification Number)
Incorporation or Organization) Industrial Classification
Code Number)
</TABLE>

1 Industry Street
Poughkeepsie, New York 12603
(914) 452-3000
-------------------------------------------------------------
(Address and Telephone Number of Principal Executive Offices)

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

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

COPIES OF COMMUNICATIONS TO:

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

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

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

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

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

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

<PAGE>

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

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

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

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

<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------------
PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TITLE OF SHARES TO BE OFFERING PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PER SHARE (1) PRICE(1) FEE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, 642,017 $.75 $481,512.75 $142.05
$.01 par value shares
- --------------------------------------------------------------------------------------------------------------------------
Common Stock, 9,221,683 $.75 $6,916,262.20 $2,040.30
$.01 par value(2) shares
- --------------------------------------------------------------------------------------------------------------------------
Common Stock, 418,711 $1.50 $628,066.50 $185.28
$.01 par value(3) shares
- --------------------------------------------------------------------------------------------------------------------------
Common Stock, 400,000 $1.50 $600,000.00 $177.00
$.01 par value(4) shares
- --------------------------------------------------------------------------------------------------------------------------
Common Stock, 100,000 $4.50 $450,000.00 $132.75
$.01 par value(5) shares
- --------------------------------------------------------------------------------------------------------------------------
Common Stock, 141,360 $.358 $50,606.88 $14.93
$.01 par value(6) shares
- --------------------------------------------------------------------------------------------------------------------------
Common Stock, 4,000,000 $.75 $3,000,000.00 $885.00
$.01 par value(7) shares
- --------------------------------------------------------------------------------------------------------------------------
Common Stock, 100,000 $1.75 $175,000.00 $51.63
$.01 par value(8) shares
- --------------------------------------------------------------------------------------------------------------------------
Common Stock, 94,500 $1.50 $141,750.00 $41.82
$.01 par value(9) shares
- --------------------------------------------------------------------------------------------------------------------------
Total $3,604.45
- --------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Estimated solely for the purpose of calculating the registration fee
and pursuant to Rule 457.
(2) Represents 3,529,091 shares issued upon the conversion of the Company's
Series A Convertible Preferred Stock 3,307,985 shares issued upon
conversion of the Company's Series B Convertible Preferred Stock,
734,607 shares issued upon conversion of the Company's Series C
Convertible Preferred Stock and 1,650,000 shares issued upon conversion
of the Company's Series D Convertible Preferred Stock.
(3) Represents shares issuable upon the exercise of warrants issued by the
Company having an exercise price of $1.50 per share. Also includes such
additional shares as may be issuable as a result of the anti-dilution
provisions of said warrants.
(4) Represents shares issuable upon the exercise of a warrant issued by the
Company having an exercise price of $1.50 per share. Also includes such
additional shares as may be issuable as a result of the anti-dilution
provisions of said warrant.
(5) Represents shares issuable upon the exercise of warrants issued by the
Company having an exercise price of $4.50 per share. Also includes such
additional shares as may be issuable as a result of the anti-dilution
provisions of said warrants.

<PAGE>

(6) Represents shares issuable upon the exercise of warrants issued by the
Company having an exercise price of $.358 per share. Also includes such
additional shares as may be issuable as a result of the anti-dilution
provisions of said warrants.
(7) Represents shares issuable upon the exercise of warrants issued by the
Company having an exercise price of $.75 per share. Also includes such
additional shares as may be issuable as a result of the anti-dilution
provisions of said warrants.
(8) Represents shares issuable upon the exercise of a warrant issued by the
Company having a maximum exercise price of $1.75 per share. Also
includes such additional shares as may be issuable as a result of the
anti-dilution provisions of said warrant.
(9) Represents shares issuable upon exercise of warrants issued by the
Company having an exercise price of $1.50 per share. Also includes such
additional shares as may be issuable as a result of the anti-dilution
provision of said warrants.
</FN>
</TABLE>

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

<PAGE>

The information contained in this Prospectus is not complete and may be changed.
The selling stockholders may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
Prospectus is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.

SUBJECT TO COMPLETION, DATED FEBRUARY 1, 1999

PROSPECTUS 15,118,271 SHARES OF COMMON STOCK

ASD GROUP, INC.

The selling stockholders are offering for sale up to 15,118,271 shares
of common stock. These securities were all issued as part of our financial
restructuring in Fiscal 1998. We are registering the re-sale of the shares of
common stock pursuant to commitments with these security holders. We will pay
the expenses of registering the re-sale of the shares.

The selling stockholders may sell their shares in public or private
transactions, at prevailing market prices or at privately negotiated prices. We
will not receive any proceeds from the sales of the shares. We are registering
the re-sale of shares that are currently outstanding, shares issuable upon
conversion of preferred stock and shares issuable upon the exercise of
outstanding warrants. We will receive approximately $5,045,424 from the exercise
of the warrants if all of the warrants are exercised and the cashless exercise
provisions of the warrants are not used.

Our common stock is listed on The Nasdaq SmallCap Market under the
symbol "ASDG." On January 29, 1999, the last reported sales price of our common
stock on The Nasdaq SmallCap Market was $.75 per share.

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

YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE 4 OF THIS
PROSPECTUS.

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

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

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

The date of this Prospectus is __________, 1999

<PAGE>

TABLE OF CONTENTS

PAGE

SUMMARY.....................................................................1

FORWARD-LOOKING STATEMENTS..................................................4

RISK FACTORS................................................................4

USE OF PROCEEDS............................................................11

MARKET FOR COMMON STOCK AND STOCKHOLDER MATTERS............................12

CAPITALIZATION.............................................................13

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.........................................14

BUSINESS...................................................................19

MANAGEMENT.................................................................25

PRINCIPAL STOCKHOLDERS.....................................................30

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............................31

SELLING STOCKHOLDERS.......................................................32

PLAN OF DISTRIBUTION.......................................................35

DESCRIPTION OF SECURITES...................................................37

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

LEGAL OPINION..............................................................38

EXPERTS....................................................................39

WHERE YOU CAN FIND MORE INFORMATION........................................39

-i-

<PAGE>

SUMMARY

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

ABOUT US

OUR BUSINESS

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

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

OUR 1998 FINANCIAL RESTRUCTURING

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

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

Pursuant to the Purchase Agreement, the investors purchased shares of
our common stock, shares of our convertible preferred stock and five-year
warrants to purchase additional shares of common stock at an exercise price of
$.75 per share for $2,048,000. Thereafter, we consummated the sale of additional
convertible preferred stock to additional investors for $825,000. Upon approval
of the financial restructuring and an amendment to our Certificate of
Incorporation to increase our authorized capital, the preferred stock will
convert into approximately 8,577,133 shares of common stock. Moreover, the
investors will have the right to purchase an additional 4,000,000 shares of
common stock for a period of five years commencing the date the financial
restructuring and amendment are approved by our stockholders.

As part of the financial restructuring, we reached agreement with PNC
Bank, National Association, Bankers Trust Company and a group of priviate
noteholders, our three primary lenders, to restructure our outstanding
indebtedness to them. As part of the agreement with the noteholder group,
$880,000 in debt was converted into additional shares of convertible preferred
stock. Upon approval of the financial restructuring and amendment, these shares
of preferred stock will automatically convert into approximately 734,610 shares
of common stock.

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

RECENT DEVELOPMENTS

We expect operating losses to continue at least through June 25, 1999.
For the quarter ended December 25, 1998, we expect to report a net loss of
approximately $3,000,000. These losses result from, among other things, an
inventory write-off of approximately $1,500,000 taken for the quarter ended
December 25, 1998 as a result of the cancellation of orders by customers. In
addition, during December 1998, we made a decision to sell the Grand Avenue
facility which is currently idle, as part of our financial plan to reduce debt
and increase equity. However, we do not have any written contract for a sale of
the property at this time. The amount of the impairment in the earnings value of
the Grand Avenue facility will be charged to operations in the second quarter of
the fiscal year ended June 25, 1999. As a result, we will continue to require
additional capital notwithstanding the funds that were raised in the financial
restructuring.

-1-

<PAGE>

ABOUT THE OFFERING

Common stock offered by the
selling stockholders.. 15,118,271 shares.

Common stock outstanding after
the offering.......... 16,706,188 shares(1)

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

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

The Nasdaq SmallCap
Market Symbol.......... ASDG

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

(1) Assumes all of the warrants were exercised.

-2-

<PAGE>

SUMMARY CONSOLIDATED FINANCIAL INFORMATION

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

<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
-------------------------------------- --------------------------------------
JUNE 26, JUNE 27, SEPTEMBER 25, SEPTEMBER 26,
1998 1997 1998 1997
-------------------------------------- --------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales........................... $14,298,745 $15,870,988 $2,028,487 $3,797,932
Income (loss) from operations....... (4,306,657) 124,690 (572,454) (51,147)
Income (loss) before income taxes
and extraordinary gain .......... (5,640,638) (1,341,481) (800,641) (325,183)
Net loss ........................... (6,692,670) (776,897) (800,641) (188,607)
Net loss per basic and diluted
common share..................... $ (4.24) $ (1.03) $ (.40) $ (.12)
Weighted average number
of common shares outstanding...... 1,579,018 751,041 1,979,934 1,577,917
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 25,
1998
----------------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Working capital deficiency........................... $1,410,083
Current assets....................................... 4,139,864
Total assets......................................... 8,839,495
Long-term debt,
net of current portion........................... 3,848,197
Stockholders' deficiency............................. (888,704)
</TABLE>

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<PAGE>

FORWARD-LOOKING STATEMENTS

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

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

RISK FACTORS

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

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

As of September 25, 1998, we had a net working capital deficiency of
$1,410,083. We believe our existing and anticipated capital resources will
enable us to fund operations only through June 1999. Thus, we require
substantial capital in the immediate future. We have been and will continue to
seek equity or debt financing to fund operating losses and working capital. We
cannot assure you that funding will be available upon acceptable terms, if at
all. If we cannot raise funds, our business will be materially harmed.

DEPENDENCE ON A LIMITED NUMBER OF CUSTOMERS

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

-4-

<PAGE>

RECENT LOSSES

We reported net losses of $800,641 for the three months ended September
25, 1998, $6,692,670 for Fiscal 1998, $188,607 for the three months ended
September 26, 1997 and $776,897 for Fiscal 1997. We expect that the net losses
will continue at least through the year ended June 25, 1999 ("Fiscal 1999"). We
cannot be certain that we will achieve sufficient revenues for profitability. If
we do achieve profitability, we cannot be certain that we can sustain or
increase profitability on a quarterly or annual basis in the future. Moreover,
as a result of our recent financial restructuring, utilization of our federal
net operating loss carryforwards will be limited. Thus, if and when we are able
to achieve profitability, we will only be able to offset these losses against
less loss carryforwards.

DEPENDENCE ON MANAGEMENT

Our future success depends to a significant extent on the continued
service of Peter C. Zachariou, our President, and Robert W. Lichtman, the acting
Chief Operating Officer, and other key technical and sales personnel. Although
Mr. Zachariou does not have an employment agreement with us, he has been working
for us pursuant to an agreed upon compensation package. Mr. Lichtman has been
acting Chief Operating Officer since July 1998 pursuant to an agreement with
Getzler & Co., Inc. for his services. The loss of either Mr. Zachariou or Mr.
Lichtman would hurt our business. Our future success will also depend on our
ability to attract and retain other qualified management, administrative and
other personnel.

POTENTIAL NASDAQ DELISTING

Our common stock is currently listed on The Nasdaq SmallCap Market. On
October 12, 1998, we received a letter from The Nasdaq Stock Market advising us
that we failed to meet three requirements for continued listing on The Nasdaq
SmallCap Market and requesting us to provide Nasdaq with our proposal for
achieving compliance. On October 26, 1998, we submitted responses to Nasdaq's
letter along with a request for an extension until April 30, 1999 to achieve
compliance. By letter dated November 9, 1998, Nasdaq denied our request for an
extension until April 1999 and indicated our common stock would be delisted. We
requested an oral hearing to discuss our situation and continued listing on The
Nasdaq SmallCap Market. The oral hearing was held January 22, 1999 at which time
we gave our proposal for achieving compliance with the listing requirements.
Nasdaq is considering our proposal and, as of this date, has not issued a
response. We cannot guarantee that our position will be acceptable to Nasdaq in
which case the common stock may be delisted from The Nasdaq SmallCap Market. If
the common stock is delisted from trading on Nasdaq, then our common stock would
be traded on the OTC Bulletin Board. This may result in a limited trading market
and, consequently, you would likely find it more difficult to dispose of or to
obtain accurate quotations for our common stock. Even if our position is
accepted by Nasdaq and our common stock is not delisted, we cannot assure you
that our common stock will continue to be listed on The Nasdaq SmallCap Market
in the future.

PACIFIC EXCHANGE DELISTING

On December 2, 1998, we received a letter from the Pacific Exchange
indicating that the Equity Listing Committee had voted unanimously in favor of
delisting our common stock. On December 2, 1998, the common stock was suspended
from trading. On December 7, 1998, we responded with a request for a hearing and
answer to the letter from the Pacific Exchange. On January 8, 1999, we received
a letter from the Pacific Exchange affirming the decision of the Equity Listing
Committee. The Pacific Exchange is in the process of setting a date for a
hearing to discuss the appeal. Until after the hearing and a decision is made
about the continued listing of our common stock, our common stock remains
suspended from trading. Our position may

-5-
<PAGE>

not be deemed to warrant continued listing on the Pacific Exchange in which case
the Pacific Exchange may delist our common stock from the Pacific Exchange. We
cannot guarantee that our shares of common stock will continue to be listed on
the Pacific Exchange. Delisting of the common stock from the Pacific Stock
Exchange would limit the trading market and, consequently, you will likely find
it more difficult to dispose of your common stock.

AGED INVENTORY; LIMITED AVAILABILITY OF COMPONENTS

As of June 26, 1998, cancellation of orders resulted in our having to
record an inventory write-off and reserve of $2,200,000. Moreover, management
believes that an additional write-off of approximately $1,500,000 of inventory
is necessary as a result of the cancellation of orders by customers. This
write-off will be reflected in our quarterly report for the quarter ended
December 25, 1998. We cannot assure you that aged or obsolete inventory will not
harm our business in the future. See "Business--Suppliers."

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

DEPENDENCE ON CERTAIN INDUSTRIES

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

POTENTIAL FLUCTUATIONS IN FINANCIAL RESULTS

Our annual and quarterly operating results may be affected by a number
of factors, including:
/bullet/ our ability to manage inventories;
/bullet/ the degree of automation used in the assembly process;
/bullet/ fluctuations in material costs and the mix of material costs
versus labor;
/bullet/ price competition;
/bullet/ the inability to pass on excess costs to customers;
/bullet/ the timing of expenditures in anticipation of increased sales;
and
/bullet/ customer product delivery requirements.

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

VARIABILITY OF CUSTOMER REQUIREMENTS AND CUSTOMER FINANCING

The level and timing of orders placed by our customers vary due to
their attempts to balance inventory, changes in customers' manufacturing
strategies and variations in demand for

-6-
<PAGE>

their products resulting from, among other things, product life cycles,
competitive conditions or general economic conditions. Our profitability could
be adversely affected if we increase our expenditures in anticipation of a
future level of sales which does not materialize. While a majority of our net
sales are derived from several of our customers who provide production
requirements for one year in the form of yearly purchase orders, the remaining
net sales are derived from others who do not commit to firm production schedules
for more than one quarter in advance. We do not assess any additional fee or
charge interest in connection with the financing of any customer orders. Such
financing is funded from and is limited in amount by available cash generated
from operations. Our inability to forecast the level of customer orders with
certainty makes it difficult to schedule production and maximize utilization of
manufacturing capacity.

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

MANAGEMENT OF GROWTH

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

VOLATILITY OF STOCK PRICE

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

TECHNOLOGICAL CHANGE AND PROCESS DEVELOPMENT

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

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<PAGE>

ENVIRONMENTAL COMPLIANCE

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

NO DIVIDENDS ANTICIPATED TO BE PAID

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

CONTROL BY PRINCIPAL STOCKHOLDERS

As of the date of this Prospectus, Peter C. Zachariou and Jay Solomont
beneficially own approximately 25.7% and 20.1% of our common stock,
respectively. Although, there is no agreement between Mr. Zachariou and Mr.
Solomont as to the voting of their shares, they will be able to exercise a
significant influence over and, voting together, control decisions that may
effect our stockholders. In addition, Mr. Zachariou and Mr. Solomont voting
together, will be able to effect certain transactions, including mergers,
acquisition consolidations and sales of substantially all of our assets, without
the consent of any of our other stockholders, subject to applicable laws.

LIMITATION ON USE OF OUR TAX LOSS CARRYFORWARD

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

PENNY STOCK REGULATIONS

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

In addition, if the common stock is not quoted on Nasdaq, or if we do
not meet the other exceptions to the penny stock regulations, trading in the
common stock would be covered by Rule 15g-9 promulgated under the Securities
Exchange Act of 1934 for non-Nasdaq and

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<PAGE>

non-national securities exchange listed securities. Under such rule,
broker-dealers who recommend such securities to persons other than established
customers and accredited investors must make a special written suitability
determination for the purchaser and receive the purchaser's written agreement to
a transaction prior to sale. Securities are also exempt from this rule if the
market price is at least $5.00 per share.

If the common stock becomes subject to the regulations applicable to
penny stocks, the market liquidity for the common stock could be adversely
affected. In such event, the regulations on penny stocks could limit the ability
of broker-dealers to sell the common stock and thus the ability of purchasers of
the common stock to sell their securities in the secondary market.

COMPETITION

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

IMPACT OF THE YEAR 2000

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

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

POTENTIAL ADVERSE MARKET IMPACT OF SHARES ELIGIBLE FOR FUTURE SALE

Our stock price may be hurt by future sales of our shares or the
perception that such sales may occur. As of the date of this Prospectus,
approximately 10,506,617 shares of common stock held by existing stockholders
constitute "restricted shares" as defined in Rule 144 under the Securities Act.
These shares may only be sold if they are registered under the Securities Act or
sold under Rule 144 or another exemption from registration under the Securities
Act. Sales under Rule 144 are subject to the satisfaction of certain holding
periods, volume limitations, manner of sale requirements, and the availability
of current public information about us.

Substantially all of our restricted shares of common stock are either
eligible for sale pursuant to Rule 144 or have been registered under the
Securities Act for resale by the holders,

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<PAGE>

including the common stock covered by this Prospectus. This will permit the sale
of registered shares of common stock in the open market or in privately
negotiated transactions without compliance with the requirements of Rule 144. We
are unable to estimate the amount, timing or nature of future sales of
outstanding common stock. Sales of substantial amounts of the common stock in
the public market may hurt the stock's market price.

EFFECT OF OUTSTANDING OPTIONS AND WARRANTS

As of the date of this Prospectus, we have outstanding options and
warrants to purchase an aggregate of 5,254,631 shares of common stock. As long
as these options and warrants remain unexercised, the terms under which we could
obtain additional capital may be adversely affected. Moreover, the holders of
the options and warrants may be expected to exercise them at a time when we
would, in all likelihood, be able to obtain any needed capital by a new offering
of our securities on terms more favorable than those provided by these
securities.

ANTI-TAKEOVER PROVISIONS

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

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

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<PAGE>

USE OF PROCEEDS

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

NUMBER
WARRANTS OUTSTANDING EXERCISE PRICE PROCEEDS
- -------- ----------- -------------- --------
Investor Warrants 418,771 $1.50 $ 628,067
BlueStone Warrants 400,000 $1.50 600,000
Cameron Warrants 4,000,000 $0.75 3,000,000
Advisor Warrants 141,360 $0.358 50,607
Meyers Warrants 94,500 $1.50 141,750
PNC Warrant 100,000 $1.75 175,000
BT Warrant 100,000 $4.50 450,000
----------
$5,045,424
==========

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

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

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<PAGE>

MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS

Since May 14, 1997 our common stock has been traded under the symbols
"ASDG" on The Nasdaq SmallCap Market. 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 26, 1997........................ $5.125 $2.3125

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

1999
- ----
First Quarter (through January 29, 1999)............... $ .97 $ .53

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

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<PAGE>

HOLDERS

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

DIVIDEND POLICY

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

CAPITALIZATION

The following table sets forth our capitalization as of September 25,
1998. This table should be read in conjunction with our Consolidated Financial
Statements and the Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>

SEPTEMBER 25, 1998
------------------
ACTUAL(1)
----------

<S> <C>
Current portion of long-term debt(1)............................. $ 3,493,826
===========
Long-term debt(1)................................................ 3,848,197
Stockholders' deficiency:
Preferred stock, $.01 par value; 1,000,000 shares authorized;
736,759 convertible shares issued and outstanding............. 1,918,982
Common stock, $.01 par value; 10,000,000 shares authorized;
1,979,934 shares issued and outstanding....................... 19,799
Paid-in capital................................................ 4,370,872
Deficit........................................................ (7,198,357)
-----------
Total stockholders' deficiency................................... (888,704)
-----------
Total capitalization............................................. $ 2,959,493
===========
</TABLE>
- ------------------
(1) See "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and Notes to Consolidated Financial Statements for
information regarding our long-term debt.

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<PAGE>

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

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

RESULTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 25, 1998 AS COMPARED TO THREE MONTHS ENDED
SEPTEMBER 26, 1997

For the three months ended September 25, 1998, our net sales decreased
by $1,770,000 or 46.6% to $2,028,000 from $3,798,000 for the three months ended
September 26, 1997. The decrease in sales was primarily the result of a
continued reduction in volume of orders by several large customers, principally
those affected by the Asian market.

Cost of goods sold for the three months ended September 25, 1998
decreased by $1,263,000 or 44.7% to $1,562,000 from $2,825,000 for the three
months ended September 26, 1997. The decrease in cost of goods sold is primarily
the result of the reduction of sales. Gross profit as a percentage of net sales
decreased by 2.6% from 25.6% for the three months ended September 26, 1997 to
23.0% for the three months ended September 25, 1998. The decreased gross profit
percentage was primarily due to the reduction in orders while a significant
portion of our cost are fixed.

Selling, general and administrative expenses increased for the three
months ended September 25, 1998 by $15,000 or 1.5% to $1,039,000 from $1,024,000
for the three months ended September 26, 1997. Selling expenses increased
$48,000 due to additional sales force added to the staff. This was offset by a
reduction of $33,000 in general and administrative expenses. The general and
administrative expenses decreased slightly due to our attempts to reduce
operations to the minimum core possible.

Interest expense decreased for the three months ended September 25,
1998 by $46,000 or 16.8% to $228,000 from $274,000 for the three months ended
September 26, 1997. The decrease in interest expense results from a net
reduction in debt as a result of the restructuring on June 26, 1998.

We did not recognize any benefit for income tax for the three months
ended September 25, 1998 as compared to a benefit of $137,000 for the three
months ended September 26, 1997.

We incurred a loss before income tax and a net loss of $800,641 during
the three months ended September 25, 1998, as compared to a loss before income
tax and net loss of $325,000 and $189,000, respectively, during the three months
ended September 26, 1997 for the above reasons.

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<PAGE>

FISCAL 1998 AS COMPARED TO FISCAL 1997

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

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

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

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

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

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

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

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

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<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

FINANCIAL RESTRUCTURING

Our sales were adversely affected by the situation in the Asian
markets. We experienced a reduction in orders from several customers,
principally those affected by the Asian markets. The cancellation of orders
resulted in our having to record an inventory write-off and reserve of
$2,200,000 in the fiscal quarter ended June 26, 1998 substantially increasing
our losses for the year and substantially reducing our current assets.

Thus, on June 26, 1998 we entered into a definitive agreement with a
group of investors for a capital infusion and agreements with our primary
lenders to restructure the Company's debt. As a result of the financial
restructuring, we recorded a $1,717,000 tax expense resulting from a one-time
write-off of the previously established deferred tax asset, which may not be
utilized.

However, as a result of the financial restructuring, we received over
$2,800,000 in additional capital, eliminated approximately $1,000,000 in debt
and restructured, on more favorable terms, our remaining debt. Moreover, we
retained Getzler & Co., Inc. ("Getzler") to manage our operations. Through its
executive officers, Getzler has already taken significant steps to reduce
inventory and costs.

STATEMENTS OF CASH FLOW

Net cash used in operations was $930,000 for the three months ended
September 25, 1998 as compared to $1,043,000 used in operations for the three
months ended September 26, 1997. The cash used in operations was the result of a
loss for the three months ended September 25, 1998, a decrease in accounts
payable and accrued expenses and an increase in accounts receivable, offset by a
reduction in inventory. Net cash provided by financing activities during the
three months ended September 25, 1998 was $953,000. During this period,
$1,910,000 was provided from the financial restructuring, offset by payments of
long-term debt of $985,000. Working capital decreased to a deficiency of
$1,410,000 at September 25, 1998 from a positive working capital of $4,810,000
at September 26, 1997. The decrease in working capital is due to the decrease in
inventory and a reclassification of the Bankers Trust note for $2,500,000 due
March 1999 as a current liability. In addition, we are in default on the loans
from Gary Horne resulting in $754,000 being reclassified as current liabilities.

LIQUIDITY

Notwithstanding the steps taken by us to restructure our debt, our
immediate cash requirements are significant. For the quarter ended December 25,
1998, we expect to report a net loss of approximately $3,000,000. These losses
result from, among other things, an inventory write-off of approximately
$1,500,000 taken for the quarter ended December 25, 1998 as a result of the
cancellation of orders by customers. In addition, during December 1998, we made
a decision to sell the Grand Avenue facility which is currently idle, as part of
our financial plan to reduce debt and increase equity. However, we do not have
any written contract for a sale of the property at this time. The amount of the
impairment ($300,000) in the carrying value of the Grand Avenue facility will be
charged to operations in the second quarter of the fiscal year ended June 25,
1999. We expect losses to continue at least through June 25, 1999. We cannot
assure you that we will be able to successfully realize cash flow from
operations or that such cash flow will be sufficient. We believe that our
existing and anticipated capital resources will not enable us to fund our
planned operations through Fiscal 1999. We are currently attempting to obtain
additional financing and intend to raise additional funds within the next three
months through equity and/or debt financings. The group of investors that
participated in the financial restructuring have committed to fund our working
capital requirements through Fiscal 1999.

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

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<PAGE>

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

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

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

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

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

/bullet/ manufacturing and overhead costs price competition;

/bullet/ price competition;

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

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

/bullet/ customer product delivery requirements.

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

In order to help with the negative operating cash flows, we plan a
reduction of inventory and a reduction of costs combined with reduced spending
in direct labor related areas and parts purchased for inventory. To accomplish a
reduction of inventory, we have enhanced the features of the POM manufacturing
software to allow us to parcel a large job into small production runs called
Kits. The POM manufacturing software tracks the status of each Kit and allows us
to modify each Kit in the same manner, as we are able to modify the entire job.
Any modifications to Kits are sent to our purchasing agents, expediters and
suppliers. In addition, our policies with our suppliers have been modified to
require that purchase orders are not to be considered firm until 10 days within
the date the materials are required to be delivered to us. We plan to achieve a
labor cost reduction through improved management efficiencies.

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

NET OPERATING LOSS CARRYFORWARDS

As of June 26, 1998, we had a net operating loss ("NOL") for federal
income tax purposes of approximately $1,731,000 which begins to expire in 2006.
The restructuring resulted in a "change of control" for federal income tax
purposes and limited our ability to utilize such NOL. 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. We monitor the realizability of such assets
and establish a valuation allowance for all amounts that will not be realized.
As of June 26, 1998, the total valuation allowance was $652,941, which reduced
the net deferred tax asset to zero.

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<PAGE>

YEAR 2000 READINESS

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

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

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

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

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

To date, Year 2000 readiness has cost us an estimated $30,000
(including upgrades to existing systems) and will cost approximately $100,000 in
the aggregate to complete.

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<PAGE>

BUSINESS

GENERAL

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

OUR 1998 FINANCIAL RESTRUCTURING

Pursuant to the Purchase Agreement, the investors purchased shares of
our common stock, shares of our convertible preferred stock and five-year
warrants to purchase additional shares of common stock at an exercise price of
$.75 per share for $2,048,000. Thereafter, we consummated the sale of additional
convertible preferred stock to additional investors for $825,000. Upon approval
of the financial restructuring and an amendment to our Certificate of
Incorporation to increase our authorized capital, the preferred stock will
automatically convert into approximately 8,577,133 shares of common stock.
Moreover, the investors will have the right to purchase an additional 4,000,000
shares of common stock for a period of five years commencing the date the
financial restructuring and amendment are approved by our stockholders.

RECENT DEVELOPMENTS

We expect operating losses to continue at least through June 25, 1999.
For the quarter ended December 25, 1998, we expect to report a net loss of
approximately $3,000,000. These losses result from, among other things, an
inventory write-off of approximately $1,500,000 taken for the quarter ended
December 25, 1998 as a result of the cancellation of orders by customers. In
addition, during December 1998, we made a decision to sell the Grand Avenue
facility which is currently idle, as part of our financial plan to reduce debt
and increase equity. However, we do not have any written contract for a sale of
the property at this time. The amount of the impairment ($300,000) in the
carrying value of the Grand Avenue facility will be charged to operations in the
second quarter of Fiscal 1999. As a result, we will continue to require
additional capital notwithstanding the funds that were raised in the financial
restructuring.

INDUSTRY OVERVIEW

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

During the early 1980's, the commercialization of the personal computer
began to fuel substantial growth in the electronics and other industries and,
with it, the growth of contract manufacturers. Despite rapid growth in the
electronics industry, the market soon became characterized by intense price
competition and demands for more frequent product introductions. In an effort to
survive and meet the requirements of the marketplace, OEMs were forced to
restructure and focus their resources on core strategic strengths, such as
product development, software design and marketing, and to outsource capital
intensive manufacturing operations to specialists. Downsizing by American
industry, combined with rapid change, strong competition and increasingly
shorter product life cycles in various industries, had made it

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<PAGE>

considerably less attractive for OEMs to manufacture in-house, particularly low
unit volume products or short cycle electronic products. As contract
manufacturers began to perform more turnkey services, the relationship between
OEMs and contract manufacturers became more strategic in nature, with the two
now linked in a close relationship to deliver cost-effective, high quality
products quickly to the marketplace. We believe that this trend will continue.
According to reports by Technology Forecasters, Inc., growth in this industry is
forecasted at 26% per year through 1999.

OEMs utilize contract manufacturers for the following reasons:

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

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

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

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

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

-20-
<PAGE>

INDUSTRIES AND PRODUCTS

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

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

SERVICES

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

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

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

In implementing our manufacturing approach, we emphasize timely
delivery and accurate and up-to-date documentation for each product. We develop
an appropriate production process and complete set of manufacturing process
instructions, inspection plans and a quality assurance plan for each product. An
analysis of each customer's materials specification is performed to identify
component suppliers. We then plan and execute purchase orders, receive,

-21-
<PAGE>

inspect and warehouse components, expedite critical components and deliver a
complete set of components to the production floor for assembly. We use our POM
manufacturing software to monitor and control all aspects of the manufacturing
process, including material resource planning, shop floor control,
work-in-process tracking, statistical process control and activity based product
costing.

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

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

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

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

CUSTOMERS, SALES AND MARKETING

We serve a wide variety of markets, including the computer, computer
peripherals, telecommunications, postal equipment, semiconductor, environmental,
test equipment, process equipment, industrial equipment and other industries.
Representative customers of ours include General Electric, Gerber Scientific
Products, IBM, Karl Suss America, Inc., Motorola

-22-
<PAGE>

Corporation, Standard Knapp, Texas Instruments, U.S. Surgical and the United
States Postal Service. A majority of our customers are located in the Northeast.

For Fiscal 1998 our five largest customers accounted for approximately
67.1% of net sales. During Fiscal 1998, sales to ENI accounted for approximately
22.4% of our net sales, Spectran accounted for approximately 17.6% of our net
sales, Olin accounted for approximately 13.0% of our net sales, IBM accounted
for approximately 8.0% of our net sales and Noisecom accounted for approximately
6.1% of our net sales. For Fiscal 1997, our five largest customers accounted for
approximately 66% of net sales. During Fiscal 1997, sales to ENI accounted for
approximately 22% of our net sales, Gerber accounted for approximately 13% of
our net sales, Lockheed Martin Corporation accounted for approximately 11% of
our net sales, IBM accounted for approximately 10% of our net sales and S&K
accounted for 10% of our net sales. Accordingly, in addition to expanding
existing relationships, we are pursuing a strategy of diversifying our customer
base. Currently, we contact potential customers through participation at
contract manufacturing shows, strategically placed advertisements, and direct
mail campaigns which are then followed by telephone sales and visits from our
sales representatives. We are expanding our marketing efforts by attending more
trade shows, increasing the number of advertisements in trade journals,
increasing the number of sales personnel, increasing the number of customers who
receive direct mailings, and providing new sales literature and interactive
electronic presentations.

COMPETITION

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

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

BACKLOG

Our backlog at January 13, 1999 was approximately $5,000,000. Backlog
consists of firm purchase orders and commitments, which are to be filled within
the next 12 months. However, since orders and commitments may be rescheduled or
canceled, we believe that backlog is an inconclusive indicator of future
financial performance.

The level and timing of orders placed by our customers may vary due to
the customers' attempts to balance their inventory, changes in customers'
manufacturing strategies and variations in demand for the customers' products
resulting from, among other things, product

-23-
<PAGE>

life cycles, competitive conditions or general economic conditions. Our revenues
are derived from customers who commit to firm purchase orders that provide for
production requirements ranging from one year to one month in advance. We do not
assess any additional fee or charge interest in connection with the financing of
any customer orders other than what is included in our firm price. Our inability
to forecast the level of customer orders with certainty makes it difficult to
schedule production and maximize utilization of manufacturing capacity.

SUPPLIERS

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

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

LEGAL PROCEEDINGS

We are not a party to any material legal proceedings.

-24-
<PAGE>

MANAGEMENT

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

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

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

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

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

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

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

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

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<PAGE>

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

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

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

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

DIRECTOR COMPENSATION

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<PAGE>

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

EXECUTIVE COMPENSATION

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

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

Gary D. Horne(3) 1998 $132,534 $0 $0 0
Chairman and Chief 1977 $139,150 $0 $0 0
Executive Officer

Stanley F. Zuk(4) 1998 $119,380 $0 $0 0
President and Chief 1997 $138,400 $0 $0 0
Operating Officer

</TABLE>
- -------------------------

(1) The table does not include amounts for personal benefits extended to
Mr. Horne and Mr. Zuk by us, such as health or life insurance. We
believe that the incremental cost of such benefits to Mr. Horne or Mr.
Zuk during Fiscal 1998 and Fiscal 1997 did not exceed the lesser of
$50,000 or 10% of his total annual salary and bonuses.

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

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

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

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<PAGE>

EMPLOYMENT AGREEMENTS

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

Each employment agreement provides that the executive officer will
continue to receive his salary for a period of 12 months after termination of
employment if his employment is terminated by us for any reason other than Cause
(as defined in the employment agreement), including death or disability (with
such severance payable in a lump sum in the case of death). The term Cause is
defined in the employment agreement to mean (a) an executive officer's act or
omission which constitutes a willful and material breach of the employment
agreement which is not cured within 30 days after the executive officer's
receipt of notice of such breach, (b) an executive officer's embezzlement or
misappropriation of our assets for property or (c) an executive officer's
conviction for a criminal act that is a felony. Each employment agreement also
prohibits the executive officer from directly or indirectly competing with us
for one year after termination for any reason except Cause.

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

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

Effective June 29, 1998, we entered into an agreement with Getzler &
Co., Inc. ("Getzler") with respect to the services of Robert W. Lichtman to act
as our Chief Operating Officer. Pursuant to the one-year agreement, Getzler will
be paid $200,000.00 per annum payable monthly in advance on the first day of
every month. In addition, as additional compensation for the services to be
provided, we intend to issue 150,000 shares of our common stock to Getzler
and/or its designees. Notwithstanding the foregoing, Getzler has a right to
require Peter Zachariou, individually, to purchase the shares owned by Getzler
at $1.25 per share, and Peter Zachariou has a call with respect to the shares at
$1.50 per share. In addition to the foregoing, Getzler purchased 100,000 shares
of our common stock at a purchase price of $.352 per share. Getzler will also be
reimbursed for all reasonable expenses.

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

OPTIONS GRANTS IN LAST FISCAL YEAR

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

-28-
<PAGE>

STOCK OPTIONS HELD AT END OF FISCAL 1998

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

-29-
<PAGE>

PRINCIPAL STOCKHOLDERS

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

<TABLE>
<CAPTION>
PERCENTAGE
NAME AND ADDRESS NUMBER OF SHARES OF CLASS
OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED(2) OUTSTANDING
- ----------------------- ---------------------- -----------
<S> <C> <C>
Peter C. Zachariou(3) 3,200,002 25.7%
Jay H. Solomont(4) 2,500,000 20.1
Robert W. Lichtman 0 0
Thomas H. Lenagh 0 0
Jan M. Winston 0 0
Mark Karasick 0 0
All directors and executive officers as a 5,700,002 42.4
group (6 persons)(5)

5% OR GREATER HOLDERS

Regina Miller 881,818 7.7
Lubin 17/5 B
Hadera, Israel 38401

Lemsford Limited(6) 700,000 5.8
16 Rue de le Felisserie
Casa Postale #3501
1211 Geneva 3, Switzerland

Corommandel Limited(6) 700,000 5.8
16 Rue de le Felisserie
Casa Postale #3501
1211 Geneva 3, Switzerland

</TABLE>

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

(1) The business address of all our directors and executive officers
is c/o the Company, 1 Industry Street, Poughkeepsie, New York 12603.

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

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

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

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

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

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<PAGE>

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

ADVANCES FROM STOCKHOLDER

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

TRANSACTIONS WITH NETCOMP, INC.

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

APPROVAL OF AFFILIATED TRANSACTIONS

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

-31-
<PAGE>

SELLING STOCKHOLDERS

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

BENEFICIAL OWNERSHIP OF
COMMON STOCK PRIOR OWNERSHIP OF COMPANY
TO OWNERSHIP STOCK AFTER OFFERING
NAME OF SELLING --------------------------------- NUMBER OF SHARES ---------------------------
STOCKHOLDER SHARES(1) PERCENTAGE(1) TO BE REGISTERED SHARES(2) PERCENTAGE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Jacob Benjamin 284,091 2.5% 284,091 0 0

Conrad Consulting Limited 284,091 2.5 284,091 0 0

Gillette International, Ltd. 375,000 3.3 375,000 0 0

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

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

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

Albert Kula 370,000 3.2 370,000 0 0

Jonathon Laurie 244,318 7.7 244,318 0 0

Regina Miller 881,818 7.7 881,818 0 0

Marlene Mordowitz 210,227 1.8 210,227 0 0

Henry Orlinsky 170,455 1.5 170,455 0 0

Benjamin Rabinoviki 284,091 2.5 284,091 0 0

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

Accessible Development Corp. 200,000 1.7 200,000 0 0

Dale N. Steen 50,000 * 50,000 0 0

Tabacalera, Ltd. 800,000 7.0 800,000 0 0

Augustine Fund LP 800,000 7.0 800,000 0 0

Peter Zachariou 3,200,002(3) 25.7 3,200,002(3) 0 0

Cameron Worldwide Ltd. 2,500,000(3) 20.1 2,500,000(3) 0 0

Lemsford Investment Limited 700,000(4) 5.8 700,000(4) 0 0

CN Limited 300,000(4) 2.6 300,000(4)

Corommandel Limited 700,000(4) 5.8 700,000(4) 0 0

NWT Limited 300,000(4) 2.6 300,000(4)

Frederic K. Becker 113,970(3) * 113,970(3) 0 0

</TABLE>

-32-
<PAGE>

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP OF
COMMON STOCK PRIOR OWNERSHIP OF COMPANY
TO OWNERSHIP STOCK AFTER OFFERING
NAME OF SELLING --------------------------------- NUMBER OF SHARES ---------------------------
STOCKHOLDER SHARES(1) PERCENTAGE(1) TO BE REGISTERED SHARES(2) PERCENTAGE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Marjorie Becker, IRA 83,064(3) * 83,064(3) 0 0

Richard Becker 45,588(3) * 45,588(3) 0 0

Alan Jacobs 68,382(3) * 68,382(3) 0 0

Leafland Associates, Inc.

Employee Pension Plan and Trust 398,895(3) 398,895(3) 0 0

Jules L. Marx 53,213(3) * 53,213(3) 0 0

Arnold G. Rifkin 68,382(3) * 68,382(3) 0 0

William J. Becker 315,831(3)(5) 315,831(3)(5) 0 0

William P. Dioguardi 1,362(4) * 1,362(4) 0 0

Laura McNarmara 546(4) * 546(4) 0 0

New Oshkim Limited Partners 817(4) * 817(4) 0 0

Spencer Trask Holdings Incorporated 3,268(4) * 3,268(4) 0 0

Michael Abramowitz 9,092(4) * 9,092(4) 0 0

Atlanta Allergy & Asthma Clinic

Profit Sharing Plan 36,363(4) * 36,363(4) 0 0

Mitch Cohen 18,182(4) * 18,182(4) 0 0

Dr. Arnold Curnyn 18,182(4) * 18,182(4) 0 0

Allen Fish 54,545(4) * 54,545(4) 0 0

FBI Bank (Schweiz) AG 36,363(4) * 36,363(4) 0 0

Per-Erik Hakansson 36,363(4) * 36,363(4) 0 0

Richard Merel 18,182(4) * 18,182(4) 0 0

Alan Parnes 18,182(4) * 18,182(4) 0 0

Irwin Parnes 9,092(4) * 9,092(4) 0 0

Lee Silverstein 18,182(4) * 18,182(4) 0 0

Dennis Spangler 18,182(4) * 18,182(4) 0 0

SUC-TUW Doris Tenebaum

FBO Lori Halberg 18,182(4) * 18,182(4) 0 0

United International Services Est 36,363(4) * 36,363(4) 0 0

Ronald Urman 18,182(4) * 18,182(4) 0 0

Dr. Paul Wolfson 36,363(4) * 36,363(4) 0 0

</TABLE>

-33-
<PAGE>
<TABLE>
<CAPTION>

James S. and Mindy E. Cassel

TBTE 44,530(4) * 44,530(4) 0 0

Christian Panagakos 2,827(4) * 2,827(4) 0 0

Scott E. Salpeter 5,654(4) * 5,654(4) 0 0

Barry E. Steiner 5,654(4) * 5,654(4) 0 0

Michael Bresner 9,800(4) * 9,800(4) 0 0

Glenn Busch 3,450(4) * 3,450(4) 0 0

Ami Horowitz 1,654(4) * 1,654(4) 0 0

William Masucci 3,000(4) * 3,000(4) 0 0

National Securities Corporation 5,000(4) * 5,000(4) 0 0

North Hampton Holdings Corporation III 48,000(4) * 48,000(4) 0 0

Mark O'Keefe 2,008(4) * 2,008(4) 0 0

Thomas Parigian 6,000(4) * 6,000(4) 0 0

Francis Rogers 5,434(4) * 5,434(4) 0 0

Angie Sam-Ma 354(4) * 354(4) 0 0

Robert Seteducati 9,800(4) * 9,800(4) 0 0

Banker's Trust Company 100,000(4) * 100,000(4) 0 0

PNC Bank National Association 100,000(4) * 100,000(4) 0 0

Getzler & Co., Inc. 250,000 2.2 250,000 0 0

</TABLE>

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

* Less than 1%

(1) Except as otherwise indicated, the persons named in this table have
sole voting and investment power with respect to all shares of common
stock listed. Includes shares of common stock that such persons have
the right to acquire a beneficial interest in within 60 days from
January 13, 1999, including shares of issuable upon the exercise of
warrants to purchase our common stock.

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

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

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

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

-34-
<PAGE>

PLAN OF DISTRIBUTION

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

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

/bullet/ Privately negotiated transactions;

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

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

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

/bullet/ Any other legally permitted method.

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

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

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

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

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

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

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

-35-
<PAGE>

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

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

-36-
<PAGE>

DESCRIPTION OF SECURITES

Our authorized capital stock consists of 50,000,000 shares of common
stock, par value $.01 per share, and 1,000,000 shares of preferred stock, par
value $.01 per share. As of the date of this Prospectus, 11,451,617 shares of
common stock and no shares of preferred stock were outstanding.

COMMON STOCK

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

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

PREFERRED STOCK

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

We previously issued shares of convertible preferred stock in
connection with a financial restructuring. On _____________, 1999, our
stockholders approved the financial restructuring and an increase in our
authorized capital to 50,000,000 shares of common stock. Immediately thereafter,
all of the issued and outstanding convertible preferred stock automatically
converted into common stock. As such, there are no shares of preferred stock
outstanding. We have no present intention to issue any shares of preferred
stock.

ANTI-TAKEOVER PROVISIONS

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

-37-
<PAGE>

TRANSFER AGENT

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

SHARES ELIGIBLE FOR FUTURE SALE

As of the date of this Prospectus, approximately 10,506,617 shares of
common stock held by existing stockholders constitute "restricted shares" as
defined in Rule 144 under the Securities Act. These shares may only be sold if
they are registered under the Securities Act or sold under Rule 144 or another
exemption from registration under the Securities Act. Sales under Rule 144 are
subject to the satisfaction of certain holding periods, volume limitations,
manner of sale requirements, and the availability of current public information
about us.

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

In general, under Rule 144, if a period of at least one year has
elapsed since the later of the date the "restricted securities" were acquired
from us or the date they were acquired from an Affiliate (as that term is
defined in Rule 144), then the holder of such restricted securities is entitled
to sell a number of shares of common stock equal to 1% of the issued and
outstanding shares of common stock (approximately 114,516 shares immediately
after this offering) or the average weekly reported volume of trading of the
common stock on The Nasdaq SmallCap Market during the four calendar weeks
preceding such sale. The holder may only sell such shares through unsolicited
brokers' transactions or directly to market makers. Sales under Rule 144 are
also subject to certain requirements pertaining to the manner of such sales,
notices of such sales and the availability of current public information about
us. Affiliates may sell shares not constituting restricted shares in accordance
with the foregoing volume limitations and other requirements but without regard
to the one-year holding period.

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

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

-38-
<PAGE>

LEGAL OPINION

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

EXPERTS

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

WHERE YOU CAN FIND MORE INFORMATION

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

Quotations for the prices of our common stock appear on The Nasdaq
SmallCap Market, and reports, proxy statements and other information about us
can also be inspected at the offices of the National Association of Securities
Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.

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

We will provide, without charge, to each person to whom a copy of this
Prospectus is delivered, upon request, a copy of any or all of the information
incorporated herein by reference. Exhibits to any of the documents, however,
will not be provided unless such exhibits are specifically incorporated by
reference into such documents. The requests should be addressed to: Kevin E.
Homon, Secretary, ASD Group, 1 Industry Street, Poughkeepsie, New York 12603,
telephone number (914) 452-3000.

-39-
<PAGE>
ASD GROUP, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Independent Auditors' Report.............................................. F-2

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

Consolidated Statements of Operations for the years ended
June 26, 1998 and June 25, 1997 and (unaudited)
the three months ended September 25, 1998 and September 26, 1997.......... F-4

Consolidated Statements of Stockholders' Deficiency for the
years ended June 26, 1998 and June 27, 1997 and (unaudited)
the three months ended September 25, 1998 and September 26, 1997.......... F-5

Consolidated Statements of Cash Flows for the years ended
June 26, 1998 and June 27, 1997 and (unaudited) the three months
ended September 25, 1998 and September 26, 1997........................... F-6

Notes to Consolidated Financial Statements................................ F-7

F-1
<PAGE>

INDEPENDENT AUDITORS' REPORT

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

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

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

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

DELOITTE & TOUCHE LLP

Stamford, Connecticut
October 5, 1998

F-2
<PAGE>

ASD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

ASSETS

JUNE 26, SEPTEMBER 25,
1998 1998
---------------------- --------------------
(UNAUDITED)
<S> <C> <C>
Current assets:

Cash.............................................................. $ 4,904 $ 14,310
Accounts receivable, less allowance for doubtful
accounts of $341,000.............................................. 897,681 975,560
Inventory, less reserve of $345,826.............................. 3,042,897 2,951,013
Prepaid expenses and other current assets......................... 159,636 198,981
Capital contribution receivable................................... 1,900,000 -
------------ ------------
Total current assets.......................................... 6,005,118 4,139,864
Property, plant and equipment, net................................ 4,576,889 4,516,567
Other assets...................................................... 205,969 183,064
------------ -----------
Total assets...................................................... $10,787,976 $8,839,495
============ ===========

LIABILITIES AND STOCKHOLDERS' DEFICIENCY

Current liabilities:

Current portion of long-term debt................................. $3,832,238 $3,493,826
Accounts payable.................................................. 1,451,897 1,323,680
Accrued expenses.................................................. 847,721 732,441
------------ -----------
Total current liabilities..................................... 6,131,856 5,549,947
Long-term debt......................................................... 4,433,493 3,848,197
Deferred compensation.................................................. 320,672 330,055
------------ -----------
Total liabilities............................................. 10,886,021 9,728,199
------------ -----------
Commitments and contingencies (See Notes)
Stockholders' deficiency:

Preferred stock, $.01 par value, 1,000,000 shares
authorized, 734,259 and 736,759, respectively,
convertible shares issued and outstanding..................... 1,909,000 1,918,982
Common stock, $.01 par value, 10,000,000 shares
authorized, 1,979,934 shares issued and outstanding.......... 19,799 19,799
Paid-in capital................................................... 4,370,872 4,370,872
Deficit........................................................... (6,397,716) (7,198,357)
------------- -----------
Total stockholders' deficiency................................ (98,045) (888,704)
------------- -----------
Total liabilities and stockholders' deficiency......................... $10,787,976 $8,839,495
============= ===========
</TABLE>

See notes to consolidated financial statements.

F-3

<PAGE>

ASD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED THREE MONTHS ENDED
JUNE 26, JUNE 27, SEPTEMBER 25, SEPTEMBER 26,
1998 1997 1998 1997
----------- ----------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales................................... $14,298,745 $15,870,988 $2,028,487 $3,797,932

Cost of goods sold.......................... 13,988,630 12,086,796 1,561,942 2,825,490
----------- ----------- ------------ -----------

Gross profit........................... 310,115 3,784,192 466,545 972,442
----------- ----------- ------------ -----------

Operating expenses:

Sales and marketing.................... 311,981 186,888 97,967 50,019

General and administrative............. 4,304,791 3,472,614 941,032 973,570
----------- ----------- ------------ -----------

Total operating expenses.................... 4,616,772 3,659,502 1,038,999 1,023,589
----------- ----------- ------------ -----------

(Loss) income from operations............... (4,306,657) 124,690 (572,454) (51,147)

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

Interest expense............................ (1,230,882) (1,534,366) (228,187) (274,036)

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

Loss before income taxes and (5,640,638) (1,341,481) (800,641) (325,183)
extraordinary gain..........................

Income tax (expense) benefit................ (1,717,532) 564,584 - 136,576
----------- ----------- ------------ -----------

Loss before extraordinary gain.............. (7,358,170) (776,897) (800,641) (188,607)

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

Net loss ................................... $(6,692,670) $ (776,897) $ (800,641) (188,607)
=========== =========== ============ ===========

Net loss per basic and diluted common share:

Loss before extraordinary gain......... $ (4.66) $ (1.03) $ (.40) $ (.12)

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

Net loss............................... $ (4.24) $ (1.03) $ (.40) $ (.12)
=========== =========== ============ ===========

Weighted average common shares outstanding.. 1,579,018 751,041 1,979,934 1,577,917
=========== =========== ============ ===========

</TABLE>

See notes to consolidated financial statements

F-4
<PAGE>

ASD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY

PREFERRED STOCK COMMON STOCK RETAINED
----------------------- ---------------------- PAID-IN EARNINGS
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
---------- ---------- --------- ---------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1996 -- $ -- 632,917 6,329 $ -- $ 1,071,851 $1,078,180

Net loss -- -- -- -- -- (776,897) (776,897)
warrants issued -- -- 327,000 -- 327,000 -- 3 27,000
---------- ---------- --------- ---------- ----------- ----------- ---------
Balance, June 27, 1997 -- -- 1,577,917 15,779 4,206,892 294,954 4,517,625
Net loss -- -- -- (6,692,670) (6,692,670)

Financial restructuring

(Note 4) 734,259 1,909,000 402,017 4,020 163,980 -- 2,077,000
---------- ---------- --------- ---------- ----------- ----------- ---------
Balance, June 26, 1998 734,259 1,909,00 1,979,934 19,799 4,370,872 6,397,716) (98,045)

Net loss (unaudited) -- -- -- -- -- (800,641) (800,641)

Financial restructuring 2,500 9,982 9,982
(unaudited) ---------- ---------- --------- ---------- ----------- ----------- ----------

Balance, September 25, 1998 736,759 $1,918,982 1,979,934 $ 19,799 $ 4,370,872 $(7,198,357) $ (888,704)
(unaudited) ========== =========== ========= ========== =========== ============ ==========

</TABLE>

See notes to consolidated financial statements.

F-5
<PAGE>

ASD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED THREE MONTHS ENDED
-------------------------------- ------------------------------
JUNE 26, JUNE 27, SEPTEMBER 25, SEPTEMBER 26,
1998 1997 1998 1997
----------- -------------- -------------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Operating activities:

Net loss................................................... $(6,692,670) $ (776,897) $ (800,641) $ (188,607)
Adjustments to reconcile net loss to net
cash used in operating activities:

Depreciation and amortization....................... 771,431 699,350 96,707 130,907
Provision for doubtful accounts..................... 178,000 10,000 - -
Deferred compensation............................... 34,747 32,171 9,383 8,691
Interest accrued-stockholder advances............... 57,289 50,259 33,430 15,751
Deferred income taxes............................... 1,717,532 (564,584) - (136,576)
Extraordinary gain from financial restructuring..... (665,500) - - -
Inventory reserve................................... 345,826 - - -
Changes in assets and liabilities:
Accounts receivable............................. 1,099,721 551,761 (77,879) (370,657)
Inventory....................................... 1,669,171 896,677 91,884 (164,850)
Prepaid expenses and other current assets....... 42,788 (127,417) (39,345) (145,157)
Other assets.................................... 150,569 68,580 - (38,967)
Accounts payable................................ 216,215 (1,457,770) (128,217) 60,441
Accrued expenses................................ 5,297 (359,804) (115,280) (208,897)
Deferred revenues............................... - (69,666) - -
Payments of deferred compensation............... (23,360) (23,971) - (4,963)
----------- ------------- ---------- -----------
Net cash used in operating activities...... (1,092,944) (1,071,311) (929,958) (1,042,884)
----------- ------------- ---------- -----------

Investing activities:
Capital expenditures ..................................... (97,378) (97,693) (13,480) (302,722)
----------- ------------- ---------- -----------

Financing activities:
Net proceeds from IPO..................................... - 3,889,342 - -
Proceeds from financial restructuring..................... - - 1,909,982 -
Borrowings................................................ 7,135,741 1,250,000 28,000 532,095
Payments of long-term debt................................ (7,114,282) (3,169,626) (985,138) (166,733)
Financing costs........................................... (229,058) (160,433) - (27,646)
Loans - life insurance policies........................... 303,635 - - -
----------- ------------- ---------- -----------
Net cash provided by financing activities............. 96,036 1,809,283 952,844 337,716
----------- ------------- ---------- -----------
Net (decrease) increase in cash............................. (1,094,286) 640,279 9,406 (1,007,890)
Cash, beginning of year..................................... 1,099,190 458,911 4,904 1,099,190
----------- ------------- ---------- -----------
Cash, end of year........................................... $ 4,904 $ 1,099,190 $ 14,310 $ 91,300
=========== ============= ========== ===========

Supplemental disclosures:
Cash paid during the year for:
Income taxes.......................................... $ 3,571 $ 6,484 $ - $ 6,132
=========== ============= ========== ==========
Interest.............................................. $ 927,924 $ 1,132,354 $ 104,863 $ 224,269
=========== ============= ========== ===========
Capital contribution receivable............................ $ 1,900,000 $ - $ - $ -
=========== ============= ========== ===========
Debt converted upon financial restructuring................ $ 880,000 $ - $ -
=========== ============= ========== ===========
Capital leases entered into................................ $ 267,520 $ - $ - $ -
=========== ============= ========== ===========

</TABLE>

See notes to consolidated financial statements

F-6
<PAGE>

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

1. BUSINESS DESCRIPTION

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

2. SIGNIFICANT ACCOUNTING POLICIES

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

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

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

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

INVENTORY--Inventory, consisting of work-in-progress and raw materials
of approximately $2,737,000 and $306,000, respectively, at June 26, 1998 and
$2,647,000 and $304,000 at September 25, 1998, respectively, is stated at the
lower of cost (first-in, first-out method) or market. Inventory that becomes
obsolete because of customer required changes is written-off or reserved at the
time the job is completed or when an engineering change is implemented.

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

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

F-7
<PAGE>

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

<TABLE>
<CAPTION>
YEARS ENDED

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

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

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

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

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

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

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

F-8
<PAGE>

3. PUBLIC OFFERING OF COMMON STOCK AND RECAPITALIZATION

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

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

4. FINANCIAL RESTRUCTURING

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

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

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

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

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

F-9
<PAGE>

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

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

a. Paid $110,000,

b. Agreed to pay an additional $110,000 in June 1999,

c. Issued 73,461 shares of Series C Convertible Preferred
Stock on the same terms as the Series B Stock,

d. Exchanged outstanding warrants to purchase 534,783 shares of
common stock at $2.73 per share for five-year warrants to
purchase 418,711 shares of common stock at $1.50 per share.

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

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

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

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

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

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

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

</TABLE>

F-10
<PAGE>

5. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consists of the following:

<TABLE>
<CAPTION>
JUNE 26, SEPTEMBER 25,
1998 1998
--------------- ----------------
(UNAUDITED)
<S> <C> <C>
Land $ 563,937 $ 563,937
Buildings.............................................. 1,633,327 1,633,327
Leasehold improvements................................. 896,091 896,091
Machinery and equipment................................ 3,103,139 3,116,618
Automobiles............................................ 47,955 47,955
-------------- ------------
6,244,449 6,257,728
Less: accumulated depreciation......................... 3,066,411 3,129,391
-------------- ------------
3,178,038 3,128,537
-------------- ------------
Idle property:
Land and building................................. 1,923,865 1,923,865
Less: accumulated depreciation.................... 525,014 535,835
-------------- ------------
1,398,851 1,388,030
-------------- ------------
Property, plant and equipment, net................ $ 4,576,889 $ 4,516,567
============== ============
</TABLE>

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

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

6. LONG-TERM DEBT

Long term debt consists of the following:

<TABLE>
<CAPTION>
JUNE 26, SEPTEMBER 25,
1998 1998
-------------- ---------------
(UNAUDITED)
<S> <C> <C>
Notes Payable-Noteholders.............................. $ 220,000 $ 110,000
Revolving Line of Credit-PNC........................... 4,252,609 3,682,484
Note Payable-Bankers Trust Company, interest at prime
Plus 1.5%, due March 17, 1999, secured by second
Lien on certain property.......................... 2,751,132 2,501,132
Notes Payable-Stockholder, plus accrued interest at 8% or
9.5%, payable in installments through January 1, 2003,
in Default ....................................... 754,137 777,626
Other, including capital leases of $235,394............ 287,853 270,781
-------------- ------------
8,265,731 7,342,023
-------------- ------------
Less: current position................................. 3,832,238 3,493,826
-------------- ------------
$ 4,433,493 $ 3,848,197
============== ============

</TABLE>

On December 19, 1997, the Company completed a refinancing of its
indebtedness and secured a new credit facility with an increased borrowing limit
to $8,750,000 with PNC Bank ("PNC"). In connection with the refinancing, the
Company issued five year warrants to Bankers Trust Company to purchase 100,000
shares of common stock at $4.50 per share. The fair value of the warrants did
not have a significant effect on the consolidated financial

F-11
<PAGE>

statements (see Note 4). The Company restructured it indebtedness with PNC on
June 26, 1998 permitting borrowings up to $4,500,000 at prime plus .5% which
expires on June 25, 2000 (the "Line of Credit") with a one year extension
option. The Line of Credit is secured by a first lien on accounts receivable,
inventory, and machinery and equipment. The amount available for borrowing under
the Line of Credit is determined pursuant to a formula based upon eligible
accounts receivable, inventory, and machinery and equipment. Included in the
formula is an overadvance of $900,000 which will remain in place until February
26, 1999. Thereafter, $600,000 of the overadvance will be eliminated on a
straight line amortized basis in 12 equal monthly installments and the remaining
balance is payable on June 25, 2000. As of June 26, 1998, based on the
availability formula, the Company did not have any additional availability for
borrowings.

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

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

12 MONTHS ENDING JUNE
---------------------------------------------

1999............................................ $3,832,238
2000............................................ 4,316,121
2001............................................ 47,394
2002............................................ 48,162
2003............................................ 21,816
----------
$8,265,731
==========
The prime rate at June 26, 1998 was 8.5%.

7. DEFERRED COMPENSATION

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

8. STOCKHOLDERS' EQUITY

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

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

F-12
<PAGE>

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

WEIGHTED
NUMBER OF AVERAGE
OPTIONS EXERCISE PRICE
---------- ---------------
<S> <C> <C>
Outstanding at July 1, 1996 -- $ --
Granted 30,000 5.75
----------
Outstanding at June 27, 1997 30,000 5.75
Granted 65,000 1.71
Canceled (45,000) 5.75
----------
Outstanding at June 26, 1998 50,000 $ .50
---------- ---------------
</TABLE>

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

9. INCOME TAXES

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

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

Federal................... 1,310,391 (456,103)
State..................... 407,141 (108,481)
================ ===============
$ 1,717,532 $ (564,584)
================ ===============

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

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

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

F-13
<PAGE>

The net deferred tax asset consists of the following:

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

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

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

10. RELATED PARTY TRANSACTIONS

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

11. PENSION PLAN

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

12. COMMITMENTS AND CONTINGENCIES

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

F-14
<PAGE>

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

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

13. ADOPTION OF SFAS 131

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

14. MANAGEMENT'S PLANS

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

15. FOURTH QUARTER ADJUSTMENTS

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

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

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

F-15
<PAGE>

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

ASD GROUP, INC.

Common Stock

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

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

_____________________, 1998

<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

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

ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

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

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

Total $ 25,000.00
============

ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES

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

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

3. In November 1998, we sold 825 shares of Series D Convertible
Preferred Stock for $825,000. The Series D Convertible Preferred Stock 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). In connection with this transaction, we did not pay underwriting
discounts or commissions.

II-1

<PAGE>

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

ITEM 27. EXHIBITS.
- ------- --------
(a) Exhibits

EXHIBIT NO. DESCRIPTION

3.1 Certificate of Incorporation. (1)
3.2 Bylaws.(1)
4.1 Specimen Certificate of Common Stock. (1)
4.2 Form of Representative's Warrant Agreement including Form
Representative's Warrants.(1)
4.3 Intentionally omitted.
4.4 Form of Special Warrant to Purchase Common Stock of
Registrant.(1)
4.5 Form of 10% Original Issue Discount Promissory Note Issued
to BlueStone Investors.(1)
4.6 Form of Warrant Certificate Issued to BlueStone Investors.
(1)
5.1 Opinion of Broad and Cassel
10.1 1996 Stock Option Plan.(1)
10.2 Restated Line of Credit Loan and Security Agreement
dated as of December 28, 1995 between Automatic Systems
Developers, Inc.; High Technology Computers, Inc. and
Poughkeepsie Savings Bank, FSB.(1)(2)
10.3 Second Amended Modification, Extension, Spreader and
Assumption Agreement dated as of December 28, 1995 between
Automatic Systems Developers, Inc. and Poughkeepsie Savings
Bank, FSB.(1)
10.4 Second Amended Modification, Extension, Spreader and
Assumption Agreement dated as of December 28, 1995 between
the Registrant; Automatic Systems Developers, Inc. and
Poughkeepsie Savings Bank, FSB.(1)
10.5 Option Agreement dated as of May 31, 1996 by and
among Banker's Trust Company and the Registrant.(1)
10.6 Amendment to December 29, 1995 Purchase Agreement.(1)
10.7 Employment Agreement between the Registrant and Gary D.
Horne.(1)(2)
10.8 Employment Agreement between the Registrant and Stanley F.
Zuk.(1)(2)
10.9 Form of Financial Advisory and Consulting Agreement
between the Registrant and the Representative.(1)
10.10 Amendment dated April 2, 1997 to Option Agreement dated as
of May 31, 1996 by and among Bankers Trust Company and the
Registrant.(1)
10.11 Form of Indemnification Agreement dated May 12, 1997
between the Registrant and its executive officers and
directors.(2)

II-2
<PAGE>

EXHIBIT NO. DESCRIPTION

10.12 Securities Purchase Agreement dated as of June 26, 1998 by
and among the Registrant, the parties listed on Schedule 1
to the Agreement and Gary D. Horne.(3)

10.13 Agreement dated as of June 26, 1998 by and among Automatic
Systems Developers, Inc.; High Technology Computers, Inc.;
the Registrant; the financial institutions which are now or
hereafter become a party to the Credit Agreement; and PNC
Bank, National Association.(3)

10.14 Option and Forbearance Agreement dated as of June 26,
1998 by and among Bankers Trust Company; Automatic Systems
Developers, Inc. and the Registrant.(3)
10.15 Form of Agreement with holders of: (i) 10% senior
promissory note due June 19, 1998 and/or (ii) warrants to
purchase Common Stock.(3)
10.16 Form of Letter Agreement with holders of warrants to
purchase an aggregate of 122,750 shares of the Registrant
Common Stock.(3)
10.17 Amendment to Employment Agreement between the Registrant and
Gary D. Horne.(4)
10.18 Amendment to Employment Agreement between the Registrant and
Stanley F. Zuk.(4)
21.1 List of Subsidiaries of the Registrant.(1)
23.1 Consent of Broad and Cassel (filed as part of Exhibit 5.1).
23.2 Consent of Deloitte & Touche LLP, independent auditors.
24.1 Power of Attorney (included in the signature page hereof).
27.1 Financial Data Schedule.
________________

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

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

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

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

(b) Reports on Form 8-K- The Company filed a Current Report on Form 8-K
on July 9, 1998.

ITEM 17. UNDERTAKINGS.

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

II-3
<PAGE>

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

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

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

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

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

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

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

II-4
<PAGE>

SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of
Poughkeepsie, State of Florida, on January 29, 1999.

ASD GROUP, INC.

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

II-5
<PAGE>

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Peter C. Zachariou his true and
lawful attorneys-in-fact, each acting alone, with full powers of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments, including any post-effective
amendments, to this Registration Statement, and to file the same, with exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that said
attorneys-in-fact or their substitutes, each acting alone, may lawfully do or
cause to be done by virtue hereof.

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

<TABLE>

<S> <C> <C>
/s/ Peter C. Zachariou
- --------------------------------
Peter C. Zachariou President and Director January 29, 1999
(Principal Executive Officer)

/s/ Kevin E. Homon
- --------------------------------
Kevin E. Homon Controller (Principal Financial January 29, 1999
and Accounting Officer)

- --------------------------------
Thomas H. Lenagh Director January __, 1999

- --------------------------------
Jan M. Winston Director January __, 1999

/s/ Jay Solomont
- --------------------------------
Jay Solomont Director January 29, 1999

/s/ Mark Karasick
- ---------------------------------
Mark Karasick Director January 29, 1999

</TABLE>

II-6
<PAGE>

EXHIBIT INDEX

EXHIBIT DESCRIPTION
- ------- ------------

5.1 Opinion of Broad and Cassel

23.2 Consent of Deloitte & Touche LLP

EXHIBIT 5.1

BROAD AND CASSEL

ATTORNEYS AT LAW

BOCA RATON /bullet/ FT. LAUDERDALE /bullet/ MIAMI /bullet/ ORLANDO /bullet/
TALLAHASSEE /bullet/ TAMPA /bullet/ WEST PALM BEACH

Suite 3000
MIAMI CENTER
201 SOUTH BISCAYNE BOULEVARD
MIAMI, FLORIDA 33131
(305) 373-9400
FAX (305) 373-9443

February 1, 1999

ASD Group, Inc.
1 Industry Street
Poughkeepsie, NY 12603

Re: ASD Group, Inc. (the "Company")
Registration Statement on Form SB-2

Ladies and Gentlemen:

You have requested our opinion with respect to the shares of the
Company's common stock, $.01 par value (the "Shares"), included in the Company's
registration statement on Form SB-2 (the "Registration Statement"). The
Registration Statement has been filed with the U.S. Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended (the "Securities
Act").

As counsel to the Company, we have examined the original or certified
copies of such records of the Company, and such agreements, certificates of
public officials, certificates of officers or representatives of the Company and
others, and such other documents as we deem relevant and necessary for the
opinion expressed in this letter. In such examination, we have assumed the
genuineness of all signatures on original documents, and the conformity to
original documents of all copies submitted to us as conformed or photostatic
copies. As to various questions of fact material to such opinion, we have relied
upon statements or certificates of officials and representatives of the Company
and others.

Based on, and subject to the foregoing, we are of the opinion that the
shares of Common Stock included in the Registration Statement either (i) in the
case of outstanding Shares, are duly and validly issued, fully paid and
non-assessable or, (ii) in the case of Shares issuable upon exercise of the
Investor Warrants, BlueStone Warrants, Cameron Warrants, Advisor Warrants,
Meyers Warrants, BT Warrant and PNC Warrant, when issued and paid for pursuant
to the terms thereof, will be duly and validly issued, fully paid and
non-assessable.

In rendering this opinion, we advise you that members of this Firm are
members of the Bar of the State of Florida, and we express no opinion herein
concerning the applicability or effect of any laws of any other jurisdiction,
except the securities laws of the United States of America referred to herein.

<PAGE>

This opinion has been prepared and is to be construed in accordance
with the Report on Standards for Florida Opinions, dated April 8, 1991, issued
by the Business Law Section of The Florida Bar (the "Report"). The Report is
incorporated by reference into this opinion.

We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. We also consent to the use of our name in the
Registration Statement, In giving such consent, we do not thereby admit that we
are included within the category of persons whose consent is required under
Section 7 of the Securities Act, or the rules and regulations promulgated
thereunder.

Very truly yours,

/s/ BROAD AND CASSEL
--------------------------------
BROAD AND CASSEL

EXHIBIT 23.2

INDEPENDENT AUDITORS' CONSENT

We consent to the use in this Registration Statement of ASD Group, Inc. on Form
SB-2 of our report dated October 5, 1998, appearing in the Prospectus, which is
part of this Registration Statement. We also consent to the reference to us
under the heading "Experts" in such Prospectus.

DELOITTE & TOUCHE LLP

Stamford, Connecticut
January 29, 1999