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 24, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from _____________ to _____________
Commission File Number 1-12873
ASD GROUP, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 14-1483460
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1 INDUSTRY STREET, POUGHKEEPSIE, NEW YORK 12603
(Address of principal executive offices)
(914) 452-3000
(Issuer's telephone number)
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date: The number of shares of the issuer's
Common Stock, $.01 par value per share, outstanding as of February 11, 2000 was
13,675,238.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
<PAGE>
ASD GROUP, INC.
FORM 10-QSB
QUARTERLY REPORT
DECEMBER 24, 1999
INDEX
PART I FINANCIAL INFORMATION PAGE
Item 1. Consolidated Financial Statements
Consolidated Balance Sheet:
December 24, 1999 (unaudited)...............................1
Consolidated Statements of Operations (unaudited):
Three months ended December 24, 1999 and December 25, 1998..2
Consolidated Statements of Cash Flows (unaudited):
Three months ended December 24, 1999 and December 25, 1998..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 3. Defaults Upon Senior Securities.............................9
Item 6. Exhibits and Reports on Form 8-K............................9
SIGNATURES
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
ASD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 24,
1999
------------
<S> <C>
ASSETS
Current assets:
Cash ........................................................ $ 5,043
Accounts receivable, less allowance for doubtful accounts of
$318,000..................................................... 1,862,095
Inventory, less reserve of $203,391 ......................... 1,976,791
Prepaid expenses and other current assets ................... 79,258
Asset held for sale ......................................... 950,000
-----------
Total current assets ..................................... 4,873,187
Property, plant and equipment, net ................................ 2,622,753
Other assets ...................................................... 188,493
-----------
Total assets ............................................. $ 7,684,433
===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Current portion of long-term debt ........................... $ 5,804,682
Accounts payable ............................................ 1,418,120
Accrued expenses ............................................ 588,936
-----------
Total current liabilities ................................ 7,811,738
Long-term debt .................................................... 158,458
-----------
Total liabilities ........................................ 7,970,196
-----------
Stockholders' deficiency:
Preferred stock, $.01 par value, 1,000,000 shares authorized,
74,270 convertible shares issued and outstanding ......... 816,346
Common stock, $.01 par value, 50,000,000 shares authorized,
13,579,012 shares issued and outstanding ................. 135,790
Additional paid-in capital .................................. 7,426,939
Deficit ..................................................... (8,664,838)
-----------
Total stockholders' deficiency ........................... (285,763)
-----------
Total liabilities and stockholders' deficiency .................... $ 7,684,433
===========
</TABLE>
1
<PAGE>
ASD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
----------------------------- -----------------------------
DECEMBER 24, DECEMBER 25, DECEMBER 24, DECEMBER 25,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales ................................. $ 5,697,185 $ 3,816,890 $ 2,784,130 $ 1,788,403
Cost of goods sold ........................ 4,421,165 4,605,486 2,309,701 3,043,544
------------ ------------ ------------ ------------
Gross profit ..................... 1,276,020 (788,596) 474,429 (1,255,141)
------------ ------------ ------------ ------------
Operating expenses:
Sales and marketing ................. 216,274 214,064 81,784 116,097
General and administrative .......... 1,357,174 2,098,920 551,725 1,157,888
------------ ------------ ------------ ------------
Total operating expenses ......... 1,573,448 2,312,984 633,509 1,273,985
------------ ------------ ------------ ------------
Loss from operations ...................... (297,428) (3,101,580) (159,080) (2,529,126)
Other income (expense) .................... (15,975) -- -- --
Interest expense .......................... 283,584 425,717 149,044 197,530
------------ ------------ ------------ ------------
Net Loss ......................... (596,987) (3,527,297) (308,124) (2,726,656)
Preferred Stock Dividend .................. 100,000 -- 100,000 --
------------ ------------ ------------ ------------
Loss applicable to common stockholders .... $ (696,987) $ (3,527,297) $ (408,124) $ (2,726,656)
============ ============ ============ ============
Net loss per basic and diluted common share $ (0.06) $ (1.75) $ (0.04) $ (1.34)
============ ============ ============ ============
Weighted average common shares
Outstanding ......................... 10,726,165 2,010,153 11,163,037 2,040,374
============ ============ ============ ============
</TABLE>
2
<PAGE>
ASD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------------
DECEMBER 24, DECEMBER 25,
1999 1998
----------- -----------
<S> <C> <C>
Operating activities:
Net loss .......................................... $ (696,987) $(3,527,297)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization .................. 176,267 494,740
Provision for doubtful accounts ................ 1,345 14,608
Deferred compensation .......................... -- 18,764
Interest accrued-stockholder advances .......... -- 51,699
Deferred income taxes .......................... -- --
Changes in assets and liabilities:
Accounts receivable ........................ (299,319) (217,852)
Inventory .................................. 335,355 1,094,636
Prepaid expenses and other current assets .. 32,705 4,551
Other assets ............................... 24,369 (26,575)
Accounts payable ........................... (129,228) (59,481)
Accrued expenses ........................... (38,646) (42,089)
----------- -----------
Net cash used in operating activities ... (594,139) (2,194,296)
----------- -----------
Investing activities:
Capital expenditures .............................. -- (22,674)
----------- -----------
Financing activities:
Proceeds from sale of common and preferred stock .. 400,000 2,873,000
Borrowings ........................................ 515,001 390,979
Payments of long-term debt ........................ (253,284) (1,040,483)
----------- -----------
Net cash provided by financing activities 661,717 2,223,496
----------- -----------
Net increase (decrease) in cash ......................... 67,578 6,526
Cash, beginning of period ............................... 4,961 4,904
----------- -----------
Cash, end of period ..................................... $ 72,539 $ 11,430
=========== ===========
Supplemental disclosure:
Cash paid during the period for:
Income taxes ................................... $ -- $ --
=========== ===========
Interest ....................................... $ 233,509 $ 197,058
=========== ===========
</TABLE>
3
<PAGE>
ASD GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - INTERIM FINANCIAL STATEMENTS
The accompanying unaudited interim consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and pursuant to the rules and regulations of
the Securities and Exchange Commission for reporting on Form 10-QSB.
Accordingly, certain information and footnote disclosures required for complete
consolidated financial statements are not included herein. It is recommended
that these consolidated financial statements be read in conjunction with the
consolidated financial statements and related notes of ASD Group, Inc. and
subsidiaries (the "Company") contained in the Company's Annual Report on Form
10-KSB for the fiscal year ended June 25, 1999. In the opinion of management,
all adjustments (consisting of normal recurring adjustments) considered
necessary for a fair presentation of financial position, results of operations
and cash flows at the dates and for the periods presented have been included.
NOTE 2 - INVENTORY
The components of inventory are as follows:
Raw materials...................... $ 1,473,033
Work-in-process.................... 503,758
-----------
$ 1,976,791
===========
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 components and a market characterized
by rapidly changing technology and continuing process development. The Company
is also subject to other risks detailed herein or detailed from time to time in
the Company's filings with the Securities and Exchange Commission.
OVERVIEW
The Company provides comprehensive contract manufacturing and
engineering services to original equipment manufacturers ("OEMs"). The Company
specializes in the fabrication, assembly and testing of complex industrial
products and non-invasive testing equipment. The Company manufactures complete
systems, as well as assemblies, including printed circuit boards, cable and wire
harnesses and other electro-mechanical assemblies. The Company complements its
basic manufacturing services by providing its customers with a broad range of
sophisticated product engineering and design services. Products manufactured by
the Company range from automated test and production systems to less complex
products such as bicycle wheel hubs. Representative customers of the Company
include ENI Technologies (a division of Astec America, Inc.), Karl Suiss
America, Inc., International Business Machines Corporation ("IBM"), Aydin
Corporation and Van Dam Machine Co.
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 24, 1999 AS COMPARED TO THREE MONTHS ENDED
DECEMBER 25, 1998
For the three months ended December 24, 1999, the Company's net sales
increased by $996,000 or 56% to $2,785,000 from $1,788,000 for the three months
ended December 25, 1998. The increase in sales was primarily the result of
increased marketing efforts by management and the Company's sales team.
Notwithstanding the increase in net sales, cost of goods sold for the
three months ended December 24, 1999 decreased by $734,000 or 24% to $2,310,000
from $3,044,000 for the three months ended December 25, 1998. The decrease in
cost of goods sold is primarily the result of better management of the Company's
inventory and direct labor. Cost of goods sold for the three months ended
December 25, 1998 was also higher as a result of an inventory write-down. Gross
profit as a percentage of net sales was 17% for the three months ended
5
<PAGE>
December 24, 1999 as compared to a loss for the three months ended December 25,
1998. However, the cost of goods sold and gross profit margin for the three
months ended December 25, 1998 were negatively impacted by an inventory
write-down. The gross profit percentage for the three months ended December 24,
1999 was also due to an increase in orders and a reduction of the Company's
costs. Moreover, costs of good sold and the gross profit margin for the three
months ended December 24, 1999 benefited from settlements with vendors on past
due amounts and the Company's prior insurance carrier. The increase was
partially offset by a downward inventory adjustment of approximately $275,000.
Selling, general and administrative expenses decreased for the three
months ended December 24, 1999 by $722,000 or 50% to $634,000 from $1,274,000
for the three months ended December 25, 1998. The general and administrative
expenses decreased due to a decrease in professional fees as well as settlements
with some of the Company's professionals.
Interest expense decreased for the three months ended December 24, 1999
by $49,000 or 25% to $149,000 from $198,000 for the three months ended December
25, 1998. The decrease in interest expense results from a net reduction in debt.
The Company incurred a net loss of $308,000 during the three months
ended December 24, 1999, as compared to a net loss of $2,727,000 for the three
months ended December 25, 1998 for the above reasons. The Company recorded a
preferred stock dividend of $100,000 in connection with the conversion of
outstanding shares of convertible preferred stock which resulted in a loss
applicable to common stockholders of $408,000.
SIX MONTHS ENDED DECEMBER 24, 1999 AS COMPARED TO SIX MONTHS ENDED
DECEMBER 25, 1998
For the six months ended December 24, 1999, the Company's net sales
increased by $1,880,000 or 49% to $5,697,000 from $3,817,000 for the three
months ended December 25, 1998. The increase in sales was primarily the result
of increased marketing efforts by management and the Company's sales team.
Notwithstanding the increases in net sales, cost of goods sold for the
six months ended December 24, 1999 decreased by $184,000 or 4% to $4,421,000
from $4,605,000 for the three months ended December 25, 1998. This decrease in
cost of goods sold is primarily the result of better management of the Company's
inventory and direct labor. Cost of goods sold for the six months ended December
25, 1998 was also higher as a result of an inventory write-down. Gross profit as
a percentage of net sales was 22% for the six months ended December 24, 1999 as
compared to a loss for the six months ended December 25, 1998. However, the cost
of goods sold and gross profit margin for the six months ended December 25, 1998
were negatively impacted by an inventory write-down during those six months. The
gross profit percentage for the six months ended December 24, 1999 was also due
to an increase in orders and a reduction of the Company's costs. Moreover, costs
of good sold and the gross profit margin benefited from settlements with vendors
on past due amounts and the Company's prior insurance carrier.
Selling, general and administrative expenses decreased for the six
months ended December 24, 1999 by $740,000 or 32% to $1,357,000 from $2,313,000
for the six months ended December 25, 1998. The general and administrative
expenses decreased due to a decrease in professional fees as well as settlements
with some of the Company's professionals.
Interest expense decreased for the six months ended December 24, 1999
by $142,000 or 33% to $284,000 from $426,000 for the six months ended December
25, 1998. The decrease in interest expense results from a net reduction in debt.
6
<PAGE>
The Company incurred a net loss of $597,000 during the six months ended
December 24, 1999, as compared to a net loss of $3,527,000 for the six months
ended December 25, 1998 for the above reasons. The Company recorded a preferred
stock dividend of $100,000 in connection with the conversion of outstanding
shares of convertible preferred stock which resulted in a loss applicable to
common stockholders of $697,000 for the six months ended December 24, 1999.
LIQUIDITY AND CAPITAL RESOURCES
STATEMENTS OF CASH FLOWS
Net cash used in operations was $594,000 for the six months ended
December 24, 1999 as compared to $2,194,000 used in operations for the six
months ended December 25, 1998. The cash used in operations results from a loss
for the six months ended December 24, 1999. In addition, cash used in operations
for the six months ended December 25, 1998 was higher because of a right-off of
inventory as a result of two customers reducing their orders. Net cash provided
by financing activities during the six months ended December 24, 1999 was
$661,717 as compared to $2,223,000 for the six months ended December 25, 1998.
Working capital decreased to a deficiency of $2,939,000 at December 24, 1999
from a deficiency of $2,428,000 at December 25, 1998. The decrease in working
capital is due to the reclassification to current liabilities of the Bankers
Trust loan as a result of a default on certain outstanding obligations and the
PNC Bank revolving line of credit which has a due date of June 2000.
LINE OF CREDIT
The Company's revolving bank line of credit (the "Line of Credit")
currently permits borrowings of up to $5,700,000. The amount available for
borrowings under the Line of Credit is determined pursuant to a formula based
upon the Company's eligible machinery, equipment, accounts receivable and
inventory plus an overadvance by the bank of $1,400,000. As of December 24,
1999, $4,433,000 was outstanding under the Line of Credit and the Company had no
additional borrowings available. PNC Bank has agreed to keep the Company's
existing credit facility in place at least through June 2000, with a one year
extension, provided that certain conditions are met and no events of default
occur.
YEAR 2000 READINESS
The Year 2000 issue refers to a condition in the computer software
where a two-digit field rather than a four-digit field is used to distinguish a
calendar year. Unless corrected, date-sensitive software may recognize a date
using "00" as the year 1900 rather than the year 2000. This could result in
system failures or miscalculations causing disruptions to various activities and
operations. Such an uncorrected condition could 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 conducted an assessment of the Year 2000 issue and the
potential effect it would have on the Company and its business. The Company
updated most of its existing software for Year 2000 compliance by modifying
existing internally developed software.
7
<PAGE>
While the Company believes it has resolved any Year 2000 issues, the
possibility exists that the Company could inadvertently have failed to correct a
Year 2000 problem. Such problems might continue to appear throughout calendar
year 2000. While the Company can be increasingly confident, there can be no
certainty until the end of the year 2000. The Company believes that the impact
of such an occurrence would be minor. Third-party suppliers of customers who
have not modified their systems to adequately address the Year 2000 issue may
also affect the Company.
Year 2000 readiness cost the Company an estimated $90,000 (including
upgrades to existing systems).
8
<PAGE>
PART II - OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
As part of a settlement in connection with principal and interest owed
to certain Noteholders, the Company was required to make a payment of $110,000
in June 1999. The Company did not make the required payment and is attempting to
renegotiate the terms of the $110,000 payment. As a result of the non-payment to
the Noteholders, the Company's agreements with Bankers Trust and PNC are in
default and the amounts due to Bankers Trust Company and PNC are due. PNC has
issued a waiver for such default.
ITEM 6. EXHIBITS AND REPORTS OF FORM 8-K
(a) Exhibits:
(27) Financial Data Schedule (Edgar version only)
(b) Reports on Form 8-K: none
9
<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: February 12, 2000 By: /s/ PETER C. ZACHARIO
-----------------------------------
Peter C. Zachariou, President
10
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUN-26-1999
<PERIOD-END> DEC-24-1999
<CASH> 5,043
<SECURITIES> 0
<RECEIVABLES> 2,180,095
<ALLOWANCES> 318,000
<INVENTORY> 1,976,791
<CURRENT-ASSETS> 4,872,593
<PP&E> 2,622,753
<DEPRECIATION> 0
<TOTAL-ASSETS> 188,493
<CURRENT-LIABILITIES> 7,811,738
<BONDS> 0
0
816,346
<COMMON> 135,790
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 7,683,839
<SALES> 5,697,185
<TOTAL-REVENUES> 5,697,185
<CGS> 4,421,165
<TOTAL-COSTS> 5,994,613
<OTHER-EXPENSES> 15,975
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 283,584
<INCOME-PRETAX> (596,987)
<INCOME-TAX> 0
<INCOME-CONTINUING> (596,987)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (596,987)
<EPS-BASIC> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
