- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 25, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from ___________ to __________
Commission File Number 1-12873
ASD GROUP, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 14-1483460
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1 INDUSTRY STREET, POUGHKEEPSIE, NEW YORK 12603
(Address of principal executive offices)
(914) 452-3000
(Issuer's telephone number)
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date: The number of shares of the issuer's
Common Stock, $.01 par value per share, outstanding as of February 5, 1999 was
2,079,934.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
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<PAGE>
ASD GROUP, INC.
- --------------------------------------------------------------------------------
FORM 10-QSB
QUARTERLY REPORT
DECEMBER 25, 1998
INDEX
PART I FINANCIAL INFORMATION PAGE
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheet:
December 25, 1998 (unaudited) .......................... 3
Consolidated Statements of Operations (unaudited):
Six and three months ended December 25, 1998 and
December 26, 1997 ...................................... 4
Consolidated Statements of Cash Flows (unaudited):
Six months ended December 25, 1998 and
December 26, 1997 ...................................... 5
Notes to Consolidated Financial Statements ............. 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .................... 7-12
PART II OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds ............ 12
Item 3. Defaults Upon Senior Securities ...................... 12
Item 6. Exhibits and Reports on Form 8-K ..................... 13
SIGNATURE 14
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
ASD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 25,
1998
------------
<S> <C>
ASSETS
Current assets:
Cash ....................................................................... $ 11,430
Accounts receivable, less allowance for doubtful accounts of
$355,608 ................................................................ 1,100,925
Inventory, less reserve of $203,391 ........................................ 1,948,261
Prepaid expenses and other current assets .................................. 155,084
------------
Total current assets ............................................... 3,215,700
Property, plant and equipment, net ......................................... 4,151,545
Other assets ............................................................... 197,624
------------
Total assets ............................................................... $ 7,564,869
============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Current portion of long-term debt ......................................... $ 3,445,397
Accounts payable .......................................................... 1,392,416
Accrued expenses .......................................................... 805,633
------------
Total current liabilities .......................................... 5,643,446
Long-term debt ............................................................ 4,198,529
Deferred compensation ..................................................... 339,436
------------
Total liabilities .................................................. 10,181,411
------------
Stockholders' deficiency:
Preferred stock, $.01 par value, 1,000,000 shares authorized, 757,994
convertible shares issued and outstanding ............................ 2,882,000
Common stock, $.01 par value, 10,000,000 shares authorized,
2,079,934 shares issued and outstanding .............................. 20,799
Paid-in capital ............................................................ 4,405,672
Deficit .................................................................... (9,925,013)
------------
Total stockholders' deficiency ..................................... (2,616,542)
------------
Total liabilities and stockholders' deficiency .............................. $ 7,564,869
============
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
ASD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
----------------------------- -----------------------------
DECEMBER 25, DECEMBER 26, DECEMBER 25, DECEMBER 26,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales ............................ $ 3,816,890 $ 9,634,806 $ 1,788,403 $ 5,836,874
Cost of goods sold ................... 4,605,486 7,381,081 3,043,544 4,555,591
----------- ----------- ----------- -----------
Gross profit (loss) ............. (788,596) 2,253,725 (1,255,141) 1,281,283
----------- ----------- ----------- -----------
Operating expenses:
Sales and marketing .............. 214,064 134,460 116,097 84,441
General and administrative ....... 2,098,920 2,066,272 1,157,888 1,092,702
----------- ----------- ----------- -----------
Total operating expenses ..... 2,312,984 2,200,732 1,273,985 1,177,143
----------- ----------- ----------- -----------
Income (loss) from operations ........ (3,101,580) 52,993 (2,529,126) 104,140
Interest expense ..................... 425,717 550,924 197,530 276,888
----------- ----------- ----------- -----------
Loss before income taxes ............ (3,527,297) (497,931) (2,726,656) (172,748)
Benefit for income taxes ............ -- (209,431) -- (72,554)
=========== =========== =========== ===========
NET LOSS .................... $(3,527,297) $ (288,500) $(2,726,656) $ (100,194)
=========== =========== =========== ===========
Net loss per basic and diluted common
share ............................. $ (1.75) $ (.18) $ (1.34) $ (.06)
=========== =========== =========== ===========
Weighted average common shares
outstanding ....................... 2,010,153 1,577,917 2,040,374 1,577,917
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
ASD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------------------
DECEMBER 25, DECEMBER 26,
1998 1997
<S> <C> <C>
Operating activities:
Net loss ...................................................... $(3,527,297) $ (288,500)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization ........................... 194,740 260,619
Property asset impairment ............................... 300,000 --
Provision for doubtful accounts ......................... 14,608 100,000
Deferred compensation ................................... 18,764 17,376
Interest accrued-stockholder advances. ................. 51,699 30,361
Deferred income taxes .................................. -- (209,431)
Changes in assets and liabilities:
Accounts receivable ................................. (217,852) (1,263,936)
Inventory ........................................... 1,094,636 (329,698)
Prepaid expenses and other current assets ........... 4,551 (281,335)
Other assets ........................................ (26,575) (7,266)
Accounts payable .................................... (59,481) 636,798
Accrued expenses .................................... (42,089) 349,891
Payments of deferred compensation ................... -- (15,257)
----------- -----------
Net cash used in operating activities .......... (2,194,296) (1,000,378)
----------- -----------
Investing activities:
Capital expenditures .......................................... (22,674) (321,147)
Financing activities:
Proceeds from financial restructuring ......................... 2,873,000 --
Borrowings .................................................... 390,979 7,376,500
Payments of long-term debt ................................... (1,040,483) (6,968,900)
Financing costs ............................................... -- (117,154)
----------- -----------
Net cash provided by financing activities ..... 2,223,496 290,446
----------- -----------
Net increase (decrease) in cash ................................. 6,526 (1,031,079)
Cash, beginning of period ....................................... 4,904 1,099,190
----------- -----------
Cash, end of period ............................................. $ 11,430 $ 68,111
=========== ===========
Supplemental disclosure:
Cash paid during the period for:
Income taxes ................................................ $ -- $ 14,325
=========-- ===========
Interest .................................................... $ 197,058 $ 455,227
=========== ===========
</TABLE>
See notes to consolidated financial statements
5
<PAGE>
ASD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - INTERIM FINANCIAL STATEMENTS
The accompanying unaudited interim consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and pursuant to the rules and regulations of
the Securities and Exchange Commission for reporting on Form 10-QSB.
Accordingly, certain information and footnote disclosures required for complete
consolidated financial statements are not included herein. It is recommended
that these consolidated financial statements be read in conjunction with the
consolidated financial statements and related notes of ASD Group, Inc. and
subsidiaries (the "Company") contained in the Company's Annual Report on Form
10-KSB for the fiscal year ended June 26, 1998. In the opinion of management,
all adjustments (consisting of normal recurring adjustments) considered
necessary for a fair presentation of financial position, results of operations
and cash flows at the dates and for the periods presented have been included.
Certain account balances from the previous year presentation have been
reclassified to conform to the current year's presentation.
NOTE 2 - FINANCIAL RESTRUCTURING
On June 26, 1998, the Company entered into an agreement with an
investor group (the "Investors") for a capital infusion and entered into
agreements with its primary lenders to restructure the Company's debt (the
"Financial Restructuring").
The Investors purchased $2,048,000 of securities consisting of 392,017
unregistered shares of common stock, 352,909 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. Of the capital
raised as part of the Financial Restructuring, $1,910,000 was received in the
three months ended September 25, 1998 and $138,000 was received in the three
months ended December 25, 1998
The Company consummated the sale of an additional 825 shares of
Convertible Preferred Stock ("Series D Stock") to additional investors for
$825,000 in the three months ended December 25, 1998. The Series D Stock will
automatically convert into common stock at the rate of stated value divided by
seventy percent of the average market price of the Common Stock for the five
trading days immediately prior to the conversion date (subject to adjustment
under certain circumstances).
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 with a one-year extension, provided certain conditions are met and no
events of default occur.
2. BT was paid $250,000 for an option to payoff the obligations owed to BT at a
significant discount in 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. The Company also has the option to pay $100,000 in
March 1999 for a six month extension of the option period.
3. Noteholders owed $1,210,000 settled for $220,000, 73,461 shares of Series C
Convertible Preferred Stock and the exchange of warrants.
Concurrent with the Financial Restructuring, the Getzler Group (the
firm providing management service to the Company) purchased 100,000 shares of
restricted common stock at $.358 per share in the three months ended December
25, 1998. The price per share was not below the fair market value at the date of
sale.
NOTE 3 - INVENTORY
The components of inventories are as follows:
Raw materials . . . . . . . . . . . . $ 314,160
Work-in-process . . . . . . . . . . . 1,634,101
-----------
$ 1,948,261
===========
6
<PAGE>
The Company recorded an inventory write-off of approximately $1,500,000 in the
three months ended December 25, 1998, primarily as a result of orders cancelled
by customers.
NOTE 4 - IDLE PROPERTY IMPAIRMENT
During December 1998, the Company made a decision to sell the Grand
Avenue facility which is currently idle, as part of a plan to reduce debt and
increase equity. The Company does not have a written contract for a sale of the
property at this time. However, the Company reduced the carrying value of the
facility by $300,000 and charged operations in the three months ended December
25, 1998 in order to record the facility at its estimated realizable value.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
ASD Group, Inc. (the "Company") cautions readers that certain important
factors may affect the Company's actual results and could cause such results to
differ materially from any forward-looking statements which may be deemed to
have been made in this Report or which are otherwise made by or on behalf of the
Company. For this purpose, any statements contained in this Report that are not
statements of historical fact may be deemed to be forward-looking statements.
Without limiting the generality of the foregoing, words such as "may," "will,"
"expect," "believe," "anticipate," "intend," "could," "would," "estimate," or
"continue" or the negative other variations thereof or comparable terminology
are intended to identify forward-looking statements. Such factors include, but
are not limited to, the risks and uncertainties associated with a contract
manufacturing company which is dependent upon a small number of large companies,
a limited history of profitability, dependence upon key personnel, need for
future and immediate capital and dependence upon certain industries.
Additionally, the Company is subject to the risks and uncertainties associated
with all contract manufacturing companies including variability of customer
requirements and customer financing, limited availability of components and a
market characterized by rapidly changing technology and continuing process
development. The Company is also subject to other risks detailed herein or
detailed from time to time in the Company's filings with the Securities and
Exchange Commission.
OVERVIEW
The Company provides comprehensive contract manufacturing and
engineering services to original equipment manufacturers ("OEMs.") The Company
was formed in 1965 to provide design and engineering services to IBM's main
frame computer development and manufacturing operations in New York's Hudson
Valley ("IBM-Hudson Valley"). Over a 25-year period, the Company's relationship
with IBM-Hudson Valley evolved to the point where by the mid-1980's the Company
assembled, wired and tested a significant portion of IBM-Hudson Valley's main
frame computers. IBM Hudson Valley became the Company's principal customer,
providing over 90% of its revenues. Commencing in 1990, IBM-Hudson Valley's main
frame sales began to decline due to the recession and the shift in technology to
personal computer-based systems. In December 1992, IBM-Hudson Valley eliminated
the use of substantially all main frame assembly vendors, including the Company.
As a result, the Company had significant reductions in revenues and incurred
substantial losses. Accordingly, during 1993 and 1994 the Company undertook a
restructuring of its operations wherein it implemented a significant downsizing,
re-engineered its operations and commenced intensive efforts to market its
contract manufacturing services to other OEMs. While the IBM-Hudson Valley
downsizing greatly affected the Company, management believes that its
relationship with IBM-Hudson Valley permitted the Company to evolve into a
vertically integrated contract manufacturer with a well-disciplined quality
control program.
Notwithstanding what management believes to be a positive climate for
contract manufacturers in the United States generally, the Company's sales were
and continue to be adversely effected by the situation in the Asian markets. The
Company has experienced a reduction in orders from several customers,
principally those effected by the Asian market. These cancellations resulted in
the Company recording an inventory write-off and reserve of $2,200,000,
substantially reducing gross profit for the Company's fiscal year ended June 26,
1998. An additional inventory write-off of approximately $1,500,000 was taken
during the quarter ended December 25, 1998. While management has taken
significant steps to improve the Company's financial condition, the Company's
immediate cash
7
<PAGE>
requirements are significant. Management is currently attempting to obtain
additional financing and intends to raise additional funds within the next 12
months through equity and/or debt financing.
8
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 25, 1998 AS COMPARED TO THREE MONTHS ENDED
DECEMBER 26, 1997
For the three months ended December 25, 1998, the Company's net sales
decreased by $4,049,000 or 69.4% to $1,788,000 from $5,837,000 for the three
months ended December 26, 1997. The decrease in sales was primarily the result
of a continued reduction in volume of orders by several large customers,
principally those affected by the Asian market.
Cost of goods sold for the three months ended December 25, 1998
decreased by $1,512,000 or 33.2% to $3,044,000 from $4,556,000 for the three
months ended December 26, 1997. The decrease in cost of goods sold is primarily
the result of the decrease in sales, which was partially offset by an inventory
adjustment of approximately $1,500,000 as well as the cost ($240,000) associated
with the impairment of the idle facility value. Gross profit as a percentage of
net sales decreased for the three months ended December 25, 1998 primarily as a
result of these adjustments.
Selling, general and administrative expenses increased for the three
months ended December 25, 1998 by $97,000 or 8.2% to $1,274,000 from $1,177,000
for the three months ended December 26, 1997. The increase resulted from
additional efforts and personnel added to the Company's selling and marketing
activities. General and administrative expenses increased primarily due to the
administrative portion of the cost ($60,000) associated with the impairment of
the idle facility value that was recognized in the three months ended December
25, 1998.
Interest expense decreased for the three months ended December 25, 1998
by $79,000 or 28.5% to $198,000 from $277,000 for the three months ended
December 26, 1997. The decrease in interest expense reflects a net reduction in
debt as a result of the restructuring on June 26, 1998.
The Company did not recognize any benefit for income tax for the three
months ended December 25, 1998 as compared to a benefit of $73,000 for the three
months ended December 26, 1997.
The Company incurred a loss before income tax benefit and net loss of
$2,727,000, during the three months ended December 25, 1998, as compared to a
loss before income taxes and a net loss of $173,000 and $100,000, respectively,
during the three months ended December 26, 1997.
9
<PAGE>
SIX MONTHS ENDED DECEMBER 25, 1998 AS COMPARED TO SIX MONTHS ENDED
DECEMBER 26, 1997
For the six months ended December 25, 1998, the Company's net sales
decreased by $5,818,000 or 60.4% to $3,817,000 from $9,635,000 for the six
months ended December 26, 1997. The decrease in sales was primarily the result
of a continued reduction in volume of orders by several large customers,
principally those affected by the Asian market. Management believes the
increased selling and marketing efforts of the Company will have a positive
effect on sales in subsequent quarters.
Cost of goods sold for the six months ended December 25, 1998 decreased
by $2,776,000 or 37.6% to $4,605,000 from $7,381,000 for the six months ended
December 26, 1997. The decrease in cost of goods sold is primarily the result of
the decrease in sales, which was partially offset by an inventory adjustment of
approximately $1,500,000 as well as the cost ($240,000) associated with the
impairment of the idle facility value. Gross profit as a percentage of net sales
decreased for the six months ended December 25, 1998 primarily as a result of
these adjustments.
Selling, general and administrative expenses increased for the six
months ended December 25, 1998 by $112,000 or 5.1% to $2,313,000 from $2,201,000
for the six months ended December 26, 1997. The increase resulted from
additional efforts and personnel added to the Company's selling and marketing
activities. General and administrative expenses increased primarily due to the
administrative portion of the cost ($60,000) associated with the impairment of
the idle facility value that was recognized in the six months ended December 25,
1998.
Interest expense decreased for the six months ended December 25, 1998
by $125,000 or 22.6% to $426,000 from $551,000 for the six months ended December
26, 1997. The decrease in interest expense reflects a net reduction in debt as a
result of the restructuring on June 26, 1998.
The Company did not recognize any benefit for income tax for the six
months ended December 25, 1998 as compared to a benefit of $209,000 for the six
months ended December 26, 1997.
The Company incurred a loss before income tax benefit and a net loss of
$3,527,000 during the six months ended December 25, 1998, as compared to a loss
before income tax and a net loss of $498,000 and $289,000, respectively, during
the six months ended December 26, 1997.
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
STATEMENTS OF CASH FLOWS
Net cash used in operations was $2,194,000 for the six months ended
December 25, 1998 as compared to $1,000,000 used in operations for the six
months ended December 26, 1997. The increase in cash used in operations was
primarily the result of an increase in the net loss for the period December 25,
1998, offset by a decrease in inventory, as a result of the inventory write-off.
Net cash provided by financing activities during the six months ended December
25, 1998 was $2,223,000. During this period, $2,048,000 was provided by the
Financial Restructuring, $825,000 was provided by the sale of additional
preferred stock and $390,000 was provided by additional borrowings, offset by
payments of long-term debt of $1,040,000. Working capital decreased to a
deficiency of $2,428,000 at December 25, 1998 from a positive working capital of
$4,779,000 at December 26, 1997. The decrease in working capital is primarily
due to inventory adjustments totaling $3,700,000 and the reclassification of the
Bankers Trust note due in the amount of $2,500,000 due in March 1999. In
addition, the Company is in default on shareholders loans resulting in $780,000
being reclassified to current liabilities.
LINE OF CREDIT
The Company's revolving bank line of credit (the "Line of Credit")
currently permits borrowings of up to $4,500,000. The amount available for
borrowings under the Line of Credit is determined pursuant to a formula based
upon the Company's eligible machinery, equipment, accounts receivable and
inventory plus an overadvance by the bank of $900,000. As of December 25, 1998,
$4,040,000 was outstanding under the Line of Credit and the Company had $163,000
available for additional borrowings. PNC Bank has agreed to keep the Company's
existing credit facility in place at least through June 2000, with a one-year
extension, provided that certain conditions are met and no events of default
occur.
11
<PAGE>
YEAR 2000 READINESS
The Year 2000 issue refers to a condition in the computer software
where a two-digit field rather than a four-digit field is used to distinguish a
calendar year. Unless corrected, date-sensitive software may recognize a date
using "00" as the year 1900 rather than the year 2000. This could result in
system failures or miscalculations causing disruptions to various activities and
operations. Such an uncorrected condition could significantly interfere with the
conduct of the Company's business, could result in disruption of its operations
and could subject it to potentially significant legal liabilities.
The Company has conducted an assessment of the Year 2000 issue and the
potential effect it will have on the Company and its business. The Company has
also prepared a formal plan for dealing with the Year 2000 issue. The Company is
in the process of updating much of its existing software for Year 2000
compliance by modifying existing internally developed software. The Company
intends to hire outside consultants and acquire new and upgraded third party
software packages to replace those currently used by the Company, which cannot
be modified.
While the Company believes it has made substantial progress in
resolving any Year 2000 issues, sufficient testing to date has not been
completed to fully validate readiness. Additional testing is planned during
Fiscal 1999 to reasonably ensure Year 2000 readiness. The Company is planning to
complete all necessary Year 2000 upgrades of its systems in Fiscal 1999.
The possibility exists that the Company could inadvertently fail to
correct a Year 2000 problem. The Company believes the impact of such an
occurrence would be minor, as substantial Year 2000 compliant equipment
additions and upgrades have occurred in recent years. If such resolution does
not occur, the Company believes it will be able to conduct its business,
possibly at a reduced volume, using its already Year 2000 compliant server, and
personal computer software until resolution occurs.
The Company may also be affected by third-party suppliers and customers
who have not modified their systems to adequately address the Year 2000 issue.
While it has not already done so, the Company intends to survey its major
customers and suppliers regarding their progress on resolving Year 2000 issues.
It is contemplated that this survey will take place during the third and fourth
quarters of Fiscal 1999.
To date, Year 2000 readiness has cost the Company an estimated $40,000
(including upgrades to existing systems) and will cost approximately $100,000 in
the aggregate to complete.
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On June 26, 1998 the Company entered into an agreement with an investor
group (the "Investors") for a $1,900,000 capital infusion and entered into
agreements with its primary lenders to restructure the Company's debt (the
"Financial Restructuring). As part of the Financial Restructuring, the Company
sold 392,017 shares of common stock, 352,909 shares of Series A Convertible
Preferred Stock, 330,799 shares of Series B Convertible Preferred Stock and
Warrants to purchase 4,000,000 shares of Common Stock. In addition, as part of
the Financial Restructuring, the Company issued 73,461 shares of Series C
Convertible Preferred Stock. The shares of Preferred Stock are automatically
convertible into shares of common stock at the rate ten shares of common stock
for each share of Preferred Stock (subject to adjustment under certain
circumstances). The Company did not pay any underwriting discounts or
commissions in connection with such sales. The securities sold to the Investors
were sold pursuant to the private offering exemption described in Section 4(2)
under the Securities Act of 1933, as amended. For the six months ended December
25, 1998 the Company received gross proceeds of $2,048,000 in connection with
this financing.
In June 29, 1998, the Company entered into an agreement with Getzler &
Co., Inc. ("Getzler") pursuant to which Getzler agreed to provide certain
management services to the Company in consideration for, among other things,
150,000 shares of the Company's common stock. In addition, as part of the
Agreement, the Company sold 100,000 shares of Common Stock to Getzler for
$35,800. The shares were issued and sold pursuant to the private offering
exemption described in Section 4(2) under the Securities Act of 1933, as
amended. The Company did not pay any underwriting discounts or commissions in
connection with such sales.
In December 1998, the Company consummated the sale of the 825 shares of
Series D Stock and received $825,000 in gross proceeds. The Series D Stock will
convert into common stock at the rate of the stated value ($1,000 per share)
divided by 70% of the average market price of the common stock for the five
trading days immediately prior to the conversion date (subject to adjustment
under certain circumstances). The securities were sold to accredited investors
pursuant to the private offering exemption described in Section 4(2) under the
Securities Act of 1933, as amended. The Company did not pay any underwriting
discounts or commissions in connection with such sales.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
On August 10, 1998, the Company received notice that it was in default
of the Credit Agreement dated December 18, 1997 between Automatic Systems
Developers, Inc.: High Technology Computers; the Company; the financial
institutions which are now or hereafter become a party to the Credit Agreement
and PNC Bank, National Association, as amended by the Restructuring Agreement
dated as of June 26, 1998. On October 6, 1998 the Company received a Notice of
Cure of Default.
12
<PAGE>
ITEM 6. EXHIBITS AND REPORTS OF FORM 8-K
(a) Exhibits:
(27) Financial Data Schedule (Edgar version only)
(b) Reports on Form 8-K: none
13
<PAGE>
ASD GROUP, INC.
SIGNATURES
In accordance with the requirement of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
/s/ PETER C. ZACHARIOU
----------------------
Peter C. Zachariou
President
/s/ KEVIN E. HOMON
------------------
Kevin E. Homon
Controller
Date: February 8, 1999
14
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> JUN-25-1999 JUN-25-1999
<PERIOD-START> JUN-27-1998 JUN-27-1998
<PERIOD-END> DEC-25-1998 DEC-25-1998
<CASH> 0 11,430
<SECURITIES> 0 0
<RECEIVABLES> 0 1,456,533
<ALLOWANCES> 0 355,608
<INVENTORY> 0 1,948,261
<CURRENT-ASSETS> 0 155,084
<PP&E> 0 4,151,545
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 0 7,564,869
<CURRENT-LIABILITIES> 0 5,643,446
<BONDS> 0 0
0 0
0 2,882,000
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<TOTAL-REVENUES> 1,788,403 3,816,890
<CGS> 3,043,544 4,605,486
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<INTEREST-EXPENSE> 197,530 425,717
<INCOME-PRETAX> (2,726,656) (3,527,297)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (2,726,656) (3,527,297)
<DISCONTINUED> 0 0
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<CHANGES> 0 0
<NET-INCOME> (2,726,656) (3,527,297)
<EPS-PRIMARY> (1.34) (1.75)
<EPS-DILUTED> (1.34) (1.75)
</TABLE>
