U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 24, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to
Commission File Number 1-12873
ASD GROUP, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 14-1483460
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1 INDUSTRY STREET, POUGHKEEPSIE, NEW YORK 12603
-----------------------------------------------
(Address of principal executive offices)
(914) 452-3000
--------------
(Issuer's telephone number)
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes [X] No [_]
State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date: The number of shares of the issuer's
Common Stock, $.01 par value per share, outstanding as of May 11, 2000 was
13,675,238.
Transitional Small Business Disclosure Format (check one):
Yes No
<PAGE>
ASD GROUP, INC.
FORM 10-QSB
QUARTERLY REPORT
MARCH 24, 2000
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Consolidated Financial Statements
Consolidated Balance Sheet:
March 24, 2000 (unaudited)...................................... 1
Consolidated Statements of Operations (unaudited):
Nine Months and three months ended March 24, 2000 and March 26,
1999............................................................ 2
Consolidated Statements of Cash Flows (unaudited):
Nine months ended March 24, 2000 and March 26, 1999............. 3
Notes to Financial Statements................................... 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................... 5
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................ 8
SIGNATURES
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
ASD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
MARCH 24, 2000
------------
ASSETS
Current assets:
Cash $ 74,932
Accounts receivable, less allowance for doubtful
accounts of $318,000 1,485,322
Inventory, less reserve of $203,391 1,925,315
Prepaid expenses and other current assets 99,193
Asset held for sale 850,000
-----------
Total current assets 4,434,762
Property, plant and equipment, net 2,864,618
Other assets 119,482
-----------
Total assets $ 7,418,862
===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Current portion of long-term debt $ 5,946,340
Accounts payable 1,406,336
Accrued expenses 462,596
-----------
Total current liabilities 7,815,272
Capital lease obligations -non-current 131,347
-----------
Total liabilities 7,946,619
-----------
Stockholders' deficiency:
Preferred stock, $.01 par value, 1,000,000 shares authorized,
75,210 convertible shares issued and outstanding 1,600,735
Common stock, $.01 par value, 50,000,000 shares authorized,
13,675,238 shares issued and outstanding 136,752
Additional paid-in capital 8,821,678
Deficit (11,086,922)
-----------
Total stockholders' deficiency (527,757)
-----------
Total liabilities and stockholders' deficiency $ 7,418,862
===========
See Notes to Consolidated Financial Statements
1
<PAGE>
ASD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
---------------------------- ----------------------------
MARCH 24, MARCH 26, MARCH 24, MARCH 26,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net sales $ 8,403,079 $ 6,724,392 $ 2,705,894 $ 2,907,502
Cost of goods sold 6,610,219 6,387,128 2,189,054 1,781,642
----------- ----------- ----------- -----------
Gross profit 1,792,860 337,264 516,840 1,125,860
----------- ----------- ----------- -----------
Operating expenses:
Sales and marketing 353,555 320,410 137,281 106,346
General and administrative 2,110,563 3,137,620 753,389 1,038,700
----------- ----------- ----------- -----------
Total operating expenses 2,464,118 3,458,030 890,670 1,145,046
----------- ----------- ----------- -----------
(Loss) income from operations (671,258) (3,120,766) (373,830) 19,186
Other (expense) income (15,128) -- 847 --
Interest expense 419,718 587,672 136,134 161,955
----------- ----------- ----------- -----------
Loss before extraordinary gain (1,106,104) (3,708,438) (509,117) (181,141)
Extraordinary gain from debt restructuring -- 2,835,565 -- 2,835,565
----------- ----------- ----------- -----------
Net (loss) income (1,106,104) (872,873) (509,117) 2,654,424
Preferred stock dividend 100,000 942,857 -- 942,857
----------- ----------- ----------- -----------
(Loss) income applicable to common stockholders $(1,206,104) $(1,815,730) $ (509,117) $ 1,711,567
=========== =========== =========== ===========
Net (loss) income per basic and diluted
common share $ (0.10) $ (0.77) $ (0.04) $ 0.55
=========== =========== =========== ===========
Weighted average common shares
outstanding 11,923,658 2,371,307 13,675,238 3,140,877
=========== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
2
<PAGE>
ASD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------------
MARCH 24, MARCH 26,
2000 1999
---- ----
<S> <C> <C>
Operating activities:
Net loss................................................. $ (1,206,104) $ (872,873)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization......................... 282,044 391,461
Asset held for sale writedown......................... 100,000 --
Provision for doubtful accounts....................... -- (66,012)
Deferred compensation................................. -- 18,764
Interest accrued-stockholder advances................. -- 67,312
Extraordinary gain from debt restructuring............ -- (2,835,565)
Inventory reserves.................................... -- (142,435)
Changes in assets and liabilities:
Accounts receivable............................... 78,799 (563,912)
Inventory......................................... 183,440 812,049
Prepaid expenses and other current assets......... 12,769 37,913
Other assets...................................... 40,137 (37,467)
Accounts payable.................................. (141,012) 145,098
Accrued expenses.................................. (164,986) (400,008)
------------ ----------
Net cash used in operating activities.......... (814,913) (3,445,675)
------------ ----------
Investing activities:
Capital expenditures..................................... (3,600) (22,673)
------------ ----------
Financing activities:
Proceeds from sale of common and preferred stock......... 500,000 4,198,000
Borrowings............................................... 515,000 73,556
Payments of long-term debt............................... (138,738) (790,931)
------------ ----------
Net cash provided by financing activities 876,263 3,480,625
------------ ----------
Net increase in cash........................................... 57,751 12,277
Cash, beginning of period...................................... 17,181 4,904
------------ ----------
Cash, end of period............................................ $ 74,932 $ 17,181
============ ==========
Supplemental disclosure:
Cash paid during the period for:
Interest.............................................. $ 334,540 $ 471,407
============ ==========
Debt converted upon financial restructuring.................... -- $3,088,690
============ ==========
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
ASD GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - INTERIM FINANCIAL STATEMENTS
The accompanying unaudited interim consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and pursuant to the rules and regulations of
the Securities and Exchange Commission for reporting on Form 10-QSB.
Accordingly, certain information and footnote disclosures required for complete
consolidated financial statements are not included herein. It is recommended
that these consolidated financial statements be read in conjunction with the
consolidated financial statements and related notes of ASD Group, Inc. and
subsidiaries (the "Company") contained in the Company's Annual Report on Form
10-KSB for the fiscal year ended June 25, 1999. In the opinion of management,
all adjustments (consisting of normal recurring adjustments) considered
necessary for a fair presentation of financial position, results of operations
and cash flows at the dates and for the periods presented have been included.
NOTE 2 - INVENTORY
The components of inventory are as follows:
Raw materials...................... $1,363,856
Work-in-process.................... 561,459
----------
$1,925,315
==========
4
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company cautions readers that certain important factors may affect
the Company's actual results and could cause such results to differ materially
from any forward-looking statements which may be deemed to have been made in
this Report or which are otherwise made by or on behalf of the Company. For this
purpose, any statements contained in this Report that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the generality of the foregoing, words such as "may," "will," "expect,"
"believe," "anticipate," "intend," "could," "would," "estimate," or "continue"
or the negative other variations thereof or comparable terminology are intended
to identify forward-looking statements. Such factors include, but are not
limited to, the risks and uncertainties associated with a contract manufacturing
company which is dependent upon a small number of large companies, upon key
personnel and upon certain industries as well as a company which has a limited
history of profitability and a need for additional capital. 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
specializes in the fabrication, assembly and testing of complex industrial
products and non-invasive testing equipment. The Company manufactures complete
systems, as well as assemblies, including printed circuit boards, cable and wire
harnesses and other electro-mechanical assemblies. The Company complements its
basic manufacturing services by providing its customers with a broad range of
sophisticated product engineering and design services. Products manufactured by
the Company range from automated test and production systems to less complex
products such as bicycle wheel hubs. Representative customers of the Company
include ENI Technologies (a division of Astec America, Inc.), Karl Suss America,
Inc., International Business Machines Corporation ("IBM"), L3 Communications and
Van Dam Machine Co.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 24, 2000 AS COMPARED TO THREE MONTHS ENDED MARCH 26,
1999
For the three months ended March 24, 2000, the Company's net sales
decreased by $202,000 or 6.9% to $2,706,000 from $2,908,000 for the three months
ended March 26, 1999. The Company experienced longer lead times and tight supply
conditions for electronic components used in its semiconductor and
telecommunications businesses.
Cost of goods sold for the three months ended March 24, 2000 increased
by $407,000 or approximately 22.8% to $2,189,000 from $1,782,000 for the three
months ended March 26, 1999. This was primarily the result of an increase in the
proportion of sales with a higher percentage of parts to labor and higher
material and shipping costs arising from material shortages.
Total operating expenses decreased for the three months ended March 24,
2000 by $255,000 or 22.2% to $891,000 from $1,145,000 for the three months ended
March 26, 1999. Sales and marketing expenses increased by $31,000 or 29% as the
Company increased its marketing efforts to target new business. However, general
and administrative expenses decreased by $286,000 or 27.5% to $753,000 from
$1,039,000. Lower professional fees, reduced staffing levels and tighter control
on general and administrative expenditures were major factors in the reduction.
5
<PAGE>
Interest expense decreased for the three months ended March 24, 2000 by
$26,000 or 16% to $136,000 from $162,000 for the three months ended March 26,
1999. The decrease in interest expense results from a net reduction in borrowing
levels over the period.
The Company incurred a loss before extraordinary gain of $509,000
during the three months ended March 24, 2000, as compared to a loss of $181,000
for the three months ended March 26, 1999. Cost savings from reduced expenses
were offset by lower sales volumes and decreased profit margins, during the
latest quarter.
Net loss per share for the three months ended March 24, 2000 was $0.04
compared to net income per share of $0.55 for the three months ended March 26,
1999. The income in 1999 resulted from an extraordinary gain from debt
restructuring of $2,836,000, net of preferred stock dividends of $943,000, in
the three months ended March 26, 1999.
NINE MONTHS ENDED MARCH 24, 2000 AS COMPARED TO NINE MONTHS ENDED MARCH 26, 1999
For the nine months ended March 24, 2000, the Company's net sales
increased by $1,679,000 or 25% to $8,403,000 from $6,724,000 for the nine months
ended March 26, 1999. The increase in sales was primarily the result of
increased sales efforts and additional marketing expenditures by management and
the Company's sales team during the last nine months.
Cost of goods sold for the nine months ended March 24, 2000 increased
by $223,000 or 3% to $6,610,000 from $6,387,000 for the nine months ended March
26, 1999. Increased raw material costs and tight supply conditions in the third
quarter of 2000 negatively affected the year to date cost of goods sold. Despite
this, gross profit margin improved favorable from 5% of net sales for the nine
months ended March 26, 1999 to 21.3% of sales over the comparable nine month
period of this year. This resulted in an overall increase in gross profit of
$1,456,000. The gross profit for the nine months ended March 26, 1999 was
negatively affected by a write down of inventory. During the latest period,
management has tightly monitored inventory levels and direct labor efficiencies
in a continued effort to improve profitability. The Company continues to benefit
from settlements with vendors on past due amounts and the Company's former
insurance carrier.
Total operating expenses decreased for the nine months ended March 24,
2000 by $994,000 or 28.7% to $2,464,000 from $3,458,000 for the nine months
ended March 26, 1999. The general and administrative expenses decreased due to a
decrease in professional fees as well as settlements with some of the Company's
professionals as well as management efforts in controlling expenditures in all
other general and administrative areas.
Interest expense decreased for the nine months ended March 24, 2000 by
$168,000 or 29% to $420,000 from $588,000 for the nine months ended March 26,
1999. The decrease in interest expense results from reduced borrowing levels by
the Company over the latest nine month period.
The Company incurred a loss before extraordinary gain of $1,106,000
during the nine months ended March 24, 2000 compared to a loss before
extraordinary gain of $3,708,000 for the nine months ended March 26, 1999.
Loss applicable to common stockholders improved by $610,000 or 33.6% to
$1,206,000 from $1,816,000 after an extraordinary gain from debt restructuring
of $2,836,000 during the nine months ended March 26, 1999 and preferred stock
dividends of $100,000 and $943,000 during the respective periods. The dividends
arose to record the beneficial conversion feature relating to the convertible
preferred stock.
Net loss per basic and diluted common shares was $0.10 for the nine
months ended March 24, 2000 compared to a loss of $0.77 in the nine months ended
March 26, 1999.
LIQUIDITY AND CAPITAL RESOURCES
STATEMENTS OF CASH FLOWS
Net cash used in operations was $815,000 for the nine months ended
March 24, 2000 as compared to $3,446,000 used in operations for the nine months
ended March 26, 1999. Cash was used to fund operating losses in both periods.
After accounting for non-cash items, net cash used in operations decreased
primarily as a result of reduced inventory levels.
6
<PAGE>
Net cash provided by financing activities during the nine months ended
March 24, 2000 was $876,000 as compared to $3,481,000 for the nine months ended
March 26, 1999. Overall, the Company generated a net increase in cash of
$58,000.
Working capital showed a deficiency of $3,381,000 at March 24, 2000
from a deficiency of $2,841,000 at March 26, 1999. Working capital is lower, in
part, because the PNC Bank revolving line of credit which has a due date of
October 30, 2000, is being classified as a current liability in the latest
period.
LINE OF CREDIT
The Company's revolving bank line of credit (the "Line of Credit")
currently permits borrowings of up to $5,000,000. 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 $1,500,000. As of March 24, 2000,
$4,613,000 was outstanding under the Line of Credit and the Company had no
additional borrowings available. PNC Bank has agreed to keep the Company's
existing credit facility in place at least through October 30, 2000, with a one
year extension, provided that certain conditions are met and no events of
default occur.
7
<PAGE>
PART II - OTHER INFORMATION
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
8
<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.
ASD GROUP, INC.
Date: May 18, 2000 By: /S/ PETER C. ZACHARIOU
--------------------------------
Peter C. Zachariou, President
9
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUN-26-1999
<PERIOD-END> MAR-24-1999
<CASH> 74,932
<SECURITIES> 0
<RECEIVABLES> 1,803,522
<ALLOWANCES> 318,000
<INVENTORY> 1,925,315
<CURRENT-ASSETS> 4,434,762
<PP&E> 2,864,618
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,418,862
<CURRENT-LIABILITIES> 7,815,272
<BONDS> 0
0
1,600,735
<COMMON> 136,752
<OTHER-SE> 8,821,678
<TOTAL-LIABILITY-AND-EQUITY> 7,518,862
<SALES> 8,403,079
<TOTAL-REVENUES> 8,403,079
<CGS> 6,610,219
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,464,118
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 419,718
<INCOME-PRETAX> (1,106,104)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,106,104)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,106,104)
<EPS-BASIC> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
