ASD SYSTEMS INC, 424B4, 1999-11-12

ASD SYSTEMS INC
424B4, 1999-11-12
BUSINESS SERVICES, NEC

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<PAGE>

Filed pursuant to Rule 424(b)(4)
SEC File No. 333-85983
PROSPECTUS
5,000,000 Shares

[ASD SYSTEMS, INC. LOGO]

Common Stock

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

This is an initial public offering of shares of our common stock. We are
offering 5,000,000 shares of our common stock.

Our common stock has been approved for listing on the Nasdaq National Market
under the symbol "ASDS."

Investing in our common stock involves a high degree of risk. See "Risk
Factors" beginning on page 7 to read about certain risks that you should
consider before buying shares of our common stock.

Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.

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

<TABLE>
<CAPTION>
Per Share Total
--------- -----------
<S> <C> <C>
Public offering price.................................... $8.00 $40,000,000
Underwriting discounts and commissions................... $0.56 $ 2,800,000
Proceeds, before expenses, to us......................... $7.44 $37,200,000
</TABLE>

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

The underwriters may purchase up to an additional 750,000 shares of common
stock from us at the initial public offering price, less the underwriting
discount, to cover over-allotments.

The underwriters are severally underwriting the shares being offered in this
prospectus on a firm commitment basis. The underwriters expect to deliver the
shares in New York, New York on November 16, 1999.

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

Bear, Stearns & Co. Inc.

Prudential Securities

Friedman Billings Ramsey

E*OFFERING

The date of this prospectus is November 10 , 1999.
<PAGE>

INSIDE FRONT FACING PAGE:

[Company Logo]

FROM CLICK TO CONSUMER(SM)

[star-burst across center of page]

They found your Web site.
They placed an order.
NOW WHAT?

We provide the proprietary software and comprehensive fulfillment service
solutions that support the complete commerce-related operations of Internet
retailers and direct marketing companies.

We use our systems to integrate and manage our clients' commerce-related
operations, including their Web sites, call centers, fulfillment centers and
vendors.

Our clients can also outsource their operations to our scalable network of
call centers and strategically located fulfillment centers. We integrate and
manage each service center, thus providing a consistently high standard of
service.

Our solution is an alternative to the complexities and risks of developing
and maintaining commerce-related operations in house.

Our entire solution is priced on a per-transaction basis, reducing our
clients' initial costs and speeding their time to market, while providing
us with a recurring revenue stream.
<PAGE>

INSIDE FRONT COVER FOLD OUT:

[Title] The Ultimate Shopping Experience(SM)

[FLOW CHART GENERALLY DEPICTING FLOW OF CUSTOMER ORDER THROUGH
FULFILLMENT USING ASD SYSTEMS, INC.'S SERVICE OFFERING AND PROPRIETARY SOFTWARE
(as more particularly described below)]

[Company Logo]

From Click to Consumer(SM)

[ICON "WEB SITES" with line to larger ICON located at center of page "ASD'S
PROPRIETARY SOFTWARE"]

WEB SITES

The client's customer has access to real-time inventory and order
status through the web site, even if the order was placed through the
call center only seconds prior.

[ICON "CALL CENTERS" with line to larger ICON located at center of page "ASD'S
PROPRIETARY SOFTWARE"]

CALL CENTERS

Our call center network, which includes call centers in multiple
cities, can supplement or support a client's entire call center needs.

A customer service representative in any call center can provide
immediate and accurate customer service regardless of where or when
the order was placed.

[ICON "FULLFILLMENT CENTERS" with line to larger ICON located at center of page
"ASD'S PROPRIETARY SOFTWARE"]

FULLFILLMENT CENTERS

Our integrated fulfillment network, which currently includes eight
company-owned and third-party warehouses, can be scaled to meet the
needs of our clients, both today and as they grow.

[map of United States showing general location of eight warehouses with semi-
circles generally indicating area served by each warehouse]
<PAGE>

[ICON "VENDORS" with line to larger ICON located at center of page "ASD'S
PROPRIETARY SOFTWARE"]

VENDORS

Our systems also integrate suppliers and manufacturers into the
fulfillment network.

[ICON "RETAIL STORES" with line to larger ICON located at center of page "ASD'S
PROPRIETARY SOFTWARE"]

RETAIL STORES

We are expanding the functionality of our systems to further enhance
the shopping experience by integrating the client's retail stores to
its Web site and call centers, allowing the customer to confirm
product availability and price at the closest retail store.

CLIENT BENEFITS:

<PAGE>

PROSPECTUS SUMMARY

Because this is only a summary, it does not contain all the information that
may be important to you. You should read the entire prospectus before deciding
to invest in shares of our common stock.

Our Business

Our proprietary software and comprehensive service solutions enable Internet
retailers and direct marketing businesses to outsource their order management
and fulfillment operations. Fulfillment operations, which are conducted at
warehouses and other types of facilities, include all of the activities
necessary to pick, pack and ship a customer's order. Our systems automate and
integrate in real-time Web sites, call centers, fulfillment centers and
vendors. We operate and manage a network of call centers and fulfillment
centers which currently consists of one company-owned call center, four third-
party call centers, one company-owned fulfillment center and seven third-party
fulfillment centers. Our network can increase or decrease in size and services
offered to meet the specific needs of our clients. Our systems and services
offer our clients an alternative to the costs, complexities and risks
associated with developing and maintaining these commerce-related operations
in-house. Our systems and services are priced on a per-transaction basis,
reducing our clients' initial infrastructure costs and speeding their time to
market, while providing us with recurring revenue.

Our systems differentiate us by integrating multiple sales channels,
including Web sites and call centers, thus giving our clients' customers
greater control over their shopping experience. For clients that have retail
stores, we are currently expanding the functionality of our systems to further
enhance the shopping experience by integrating these stores into our systems.
We anticipate that this integration will give our clients' customers the added
option of confirming availability and price at the closest retail store.

We believe that we are well positioned to meet the needs of the rapidly
growing number of Internet retailers and direct marketing companies. Our
founders each have over 14 years of experience in systems development and
operations in the direct marketing industry. Our business was originally
developed to manage the commerce-related operations of direct marketing
companies. However, we have transitioned our business to meet the growing
demands of electronic commerce businesses. Our clients currently include Sears
Roebuck, EDS for Sony's Metreon.com, Toys "R" Us, HoneyBaked Ham of Georgia and
King World Direct.

Our Market Opportunity

The Internet is quickly becoming an important communications medium and sales
channel for both consumers and businesses worldwide. International Data
Corporation projects that total worldwide commerce conducted on the Internet
will grow from an estimated $50 billion in 1998 to an estimated $1.3 trillion
in 2003. International Data Corporation also projects that the number of Web
buyers worldwide will increase from 31 million in 1998 to approximately 183
million in 2003.

The acceptance of electronic commerce has spurred the growth in the number of
Internet retailers and spending on established Internet commerce operations.
Forrester Research predicts that 82% of U.S. companies with over 1,000
employees will be doing business online by the year 2002. In addition,
International Data Corporation estimates that the market for Internet commerce
application software alone is expected to grow from approximately $444 million
in 1998 to approximately $10.1 billion in 2002.

Store based retailers are increasingly adopting electronic commerce
strategies to remain competitive. According to the Boston Consulting Group and
Shop.org, 62% of online retail revenues in 1998 were from retailers who had
business pre-existing the Web. According to International Data Corporation,
Internet-related spending among large retailers is expected to increase from an
estimated $4.2 billion in 1998 to an estimated $17.5 billion in 2002.

1
<PAGE>

Historically, Internet retailers and direct marketing companies have had two
choices when deciding how to handle their order management and fulfillment
operations. They could either:

. Establish and maintain the required operations in-house leading to:
significant initial and continuing costs; delayed time to market; lack
of real-time systems integration among the various commerce-related
components; and lack of an expandable infrastructure; or

. Outsource specific components of their operations to multiple service
providers that specialize in providing specific services and do not
typically have the capability to offer an integrated, comprehensive
solution. Services typically offered by these providers include software
development, systems integration, call center operations, or fulfillment
center operations.

The ASD Systems Solution

We believe that our solutions offer the following benefits to Internet
retailers and direct marketing companies for outsourcing their commerce-related
operations:

. Cost savings and faster time to market;

. Comprehensive and reliable outsourced operations;

. Capacity that can expand and contract with the clients' changing needs;
and

. High levels of customer service.

Our Growth Strategy

Our objective is to be a leading provider of comprehensive order management
and fulfillment systems and services to Internet retailers and direct marketing
companies. We intend to pursue this objective by:

. Capitalizing on Internet commerce growth. We intend to aggressively
market our solutions to the growing number of Internet retailers, which
we expect will provide the greatest opportunity for our growth.

. Expanding our sales and marketing efforts. We have significantly
increased our sales and marketing team from three to eight individuals
since June 1, 1999, and we will continue expanding our sales and
marketing efforts in the future.

. Building on our strategic relationships. We intend to grow our client
base by capitalizing on our strategic relationships with Web developers,
systems integrators, Internet consultants, technology companies, call
centers and fulfillment centers. We believe that these relationships
will provide us with increased market recognition, access to new sales
opportunities and the ability to provide our clients with additional
services.

. Leveraging expandable systems and third-party infrastructure. We intend
to continue enhancing our third-party call center and fulfillment center
network as necessary to provide our clients with the ability to expand
their businesses.

. Developing and supporting systems functionality. We will continue
working closely with our new and existing clients to develop advanced
features required by them to meet the changing needs of their
businesses.

. Maintaining high levels of client satisfaction. We intend to continue
providing high levels of client service, which we expect will result in
long-term client relationships.
----------------
Our principal executive offices are located at 3737 Grader Street, Suite 110,
Garland, Texas 75041, and our telephone number at this location is
214.348.7200. Our Web site address is www.asdsystems.com. The information
contained in our Web site does not constitute part of this prospectus.

2
<PAGE>

The Offering

Common stock being
offered.................... 5,000,000 shares
Common stock to be
outstanding after the
offering................... 17,750,000 shares
Use of proceeds............. We have no current specific allocations for the
net proceeds of this offering. We generally
intend to use the net proceeds of this offering
to: expand our sales and marketing activities;
fund capital expenditures, software development
activities and technical support; make possible
acquisitions; and for general corporate purposes,
including working capital. See "Risk Factors--
Risks Related to This Offering--Management could
spend or invest the proceeds of this offering in
ways with which the shareholders may not agree."
Nasdaq National Market
symbol..................... ASDS

Additional shares may be issued after this offering.

The common stock to be outstanding after this offering is based on and
includes:

. 10,500,000 shares outstanding as of September 30, 1999; and

. 2,250,000 shares of common stock issuable upon the mandatory conversion
of our Series A convertible preferred stock.

This calculation excludes:

. 1,616,000 shares of common stock issuable to our employees, officers,
consultants and outside directors upon the exercise of outstanding
options. The weighted average exercise price of these options is $1.65.

. 541,500 shares reserved for future issuance under our Long-Term
Incentive Plan.

. 1,000,000 shares of common stock issuable to certain parties affiliated
with an advisor retained by us in connection with a common stock
financing closed in January and February of 1999 upon the exercise of
outstanding common stock purchase warrants. The weighted average
exercise price of these warrants is $1.70 per share.

. 2,925,000 shares of common stock issuable to the investors in our
preferred stock financing closed in August 1999 upon the exercise of
outstanding common stock purchase warrants. The exercise price of these
warrants is $2.94 per share.

Please see "Certain Transactions" and "Description of Capital Stock."

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

3
<PAGE>

Unless we indicate otherwise, all information in this prospectus:

. Reflects the conversion of all outstanding shares of our Series A
convertible preferred stock into 2,250,000 shares of our common stock
contemporaneously with the closing of this offering.

. Reflects the redemption of all outstanding shares of our Series B
redeemable preferred stock for an aggregate cash payment by us of $6.0
million contemporaneously with the closing of this offering.

. Assumes the underwriters do not exercise their option to purchase
additional shares of common stock after the closing of this offering and
that no other person exercises any other outstanding stock option or
stock purchase warrant after September 30, 1999.

. Reflects the following reclassifications of our capital stock, each
effective as of August 23, 1999:

. our Series A voting common stock was reclassified into our sole class
of common stock; and

. our Series B non-voting common stock was reclassified into our Series
C non-voting preferred stock.

The outstanding shares of Series C non-voting preferred stock will be
converted into common stock contemporaneously with the closing of this
offering.

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

The ASD Systems name and logo, "From Click to Consumer," "The Ultimate
Shopping Experience" and the names of products and services offered by ASD
Systems are trademarks, registered trademarks, service marks or registered
service marks of ASD Systems. All other trademarks appearing in this prospectus
are the property of their respective holders.

4
<PAGE>

Summary Financial Data

The following table sets forth summary financial data for ASD Systems, Inc.
and its predecessors. The following summary financial data has been derived
from our audited and unaudited financial statements and the notes to those
statements included in this prospectus beginning on page F-1. You should read
this information together with the information under "Selected Financial Data"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" beginning on page 20. You should not assume that the summary
financial data is indicative of our future performance. The summary financial
data for all periods ending on or prior to December 31, 1997, include
information derived from the order management and fulfillment business of our
predecessors Athletic Supply of Dallas, Inc. (which operated the business from
January 1, 1995 to December 20, 1996), Athletic Supply of Dallas, LLC (which
operated the business from December 21, 1996 to October 13, 1997) and ASD
Partners, Ltd. (which operated the business from October 14, 1997 to December
31, 1997). The unaudited pro forma net income (loss) information for the
periods ended December 31, 1995, December 20, 1996, October 13, 1997 and
December 31, 1997 reflect a tax provision computed by applying the anticipated
effective tax rate of approximately 37% to pretax income. The unaudited pro
forma basic and diluted net income (loss) per share information for the periods
ended on or prior to December 31, 1997 have been calculated as if based on the
number of shares of common stock outstanding at January 1, 1998. The
information for the periods ended December 31, 1995, September 30, 1998 and
September 30, 1999 have been derived from our unaudited financial statements
which, in the opinion of management, include all adjustments, consisting of
only normal recurring adjustments necessary for a fair presentation of the
results of operations for such periods.

<TABLE>
<CAPTION>
Nine Months
Ended
Predecessors September 30,
--------------------------------------------------------- ----------------
Period from
January 1, 1995 Period from Period from Period from
(Inception) January 1, 1996 December 21, October 14, Year
through through 1996 through 1997 through Ended
December 31, December 20, October 13, December 31, December 31,
1995 1996 1997 1997 1998 1998 1999
--------------- --------------- ------------ ------------ ------------ ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statements of Operations
Data:
Revenues................ $5,279 $6,826 $4,882 $2,574 $ 8,020 $ 4,962 $ 7,894
Cost of revenues........ 1,308 2,094 2,686 1,248 5,051 3,458 6,305
------ ------ ------ ------ ------- ------- -------
Gross profit............ 3,971 4,732 2,196 1,326 2,969 1,504 1,589
Operating expenses:
Selling, general, and
administrative
expenses.............. 2,616 2,819 2,649 1,074 4,258 2,967 5,694
Depreciation and
amortization.......... 121 517 367 252 1,084 771 1,014
------ ------ ------ ------ ------- ------- -------
Total operating
expenses.............. 2,737 3,336 3,016 1,326 5,342 3,738 6,708
------ ------ ------ ------ ------- ------- -------
Operating income
(loss)................. 1,234 1,396 (820) -- (2,373) (2,234) (5,119)
Interest expense, net... -- -- -- 27 233 151 152
Interest expense related
to stock warrants...... -- -- -- -- -- -- 636
------ ------ ------ ------ ------- ------- -------
Net income (loss)....... $1,234 $1,396 $ (820) $ (27) $(2,606) $(2,385) $(5,907)
====== ====== ====== ====== ======= ======= =======
Basic and diluted net
loss per share......... $ (0.43) $ (0.40) $ (0.59)
======= ======= =======
Unaudited Pro Forma
Data:
Net income (loss)....... $ 777 $ 879 $ (820) $ (27)
====== ====== ====== ======
Basic and diluted net
income (loss) per
share.................. $ 0.13 $ 0.15 $(0.14) $(0.01)
====== ====== ====== ======
Shares used in computing
basic and diluted net
income (loss) per
share.................. 6,000 6,000 6,000 6,000 6,000 6,000 9,993
====== ====== ====== ====== ======= ======= =======
</TABLE>

5
<PAGE>

The balance sheet data is shown:

. on an actual basis; and

. on an as adjusted basis reflecting (1) our receipt of the estimated net
proceeds from the 5,000,000 shares of common stock we are selling in
this offering at an initial public offering price of $8.00 per share,
after deducting underwriting discounts and estimated expenses, (2) the
conversion of all Series A convertible preferred stock into 2,250,000
shares of our common stock upon consummation of this offering, (3) the
deemed $6.0 million non-cash preferred stock dividend related to the
embedded beneficial conversion feature of the Series A convertible
preferred stock, and (4) the redemption of all Series B redeemable
preferred stock upon consummation of this offering for $6.0 million.

<TABLE>
<CAPTION>
At September 30, 1999
------------------------
Actual As Adjusted
---------- -------------
(in thousands)
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents............................. $ 9,197 $ 39,297
Working capital....................................... 6,659 36,759
Total assets.......................................... 15,053 45,153
Long-term debt (including current maturities)......... 2,923 2,923
Series B mandatorily redeemable preferred stock....... 5,745 --
Shareholders' equity.................................. 2,974 38,820
</TABLE>

6
<PAGE>

RISK FACTORS

You should consider carefully the following risk factors and all other
information contained in this prospectus before you decide whether to purchase
our common stock. Investing in our common stock is speculative and involves a
high degree of risk. Any of the following risks, as well as other risks and
uncertainties that are not yet identified or that we currently believe are
immaterial, could harm our business, financial condition and operating results,
could cause the trading price of our common stock to decline and could result
in a complete loss of your investment. Please see the "Special Note Regarding
Forward-Looking Statements; Market Data" immediately following this section of
the prospectus.

Risks Related to Our Business

We have a history of losses and negative cash flow and anticipate continued
losses.

Since our formation on January 1, 1998, we have incurred operating losses and
negative cash flow. As of September 30, 1999, we had an accumulated deficit of
approximately $8.5 million. In addition, for the periods ended October 13, 1997
and December 31, 1997, predecessors to the company also experienced net losses.
We have not achieved profitability and expect to continue to incur operating
losses for the foreseeable future. We anticipate that our business will
generate operating losses until we are successful in generating significant
additional revenues to support our level of operating expenses. We cannot
assure you that we will ever achieve or sustain profitability or that our
operating losses will not increase in the future. 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. To the extent we
are unable to achieve profitability in the future, our business, prospects,
financial condition and results of operations will suffer.

Our business is difficult to evaluate because we have an extremely limited
operating history.

We were formed in January 1998 to acquire the order management and
fulfillment business of an affiliated predecessor entity. This business,
although significantly different in focus and scale, was originally commenced
in January 1995 by another predecessor to service the fulfillment needs of a
single client. Accordingly, our business has had an extremely limited operating
history, which makes evaluation of our prospects difficult. In addition, our
business prospects and market are relatively unproven. An investor in our
common stock must consider the risks, uncertainties and difficulties frequently
encountered by companies in their early stages of development, particularly
companies in new and rapidly evolving markets, including the market of
outsourced order management systems and services. These risks and difficulties
include our ability to:

. increase awareness of our systems and services;

. offer compelling solutions to our clients' order management
requirements;

. maintain and expand our network of third-party call centers and
fulfillment centers;

. implement and improve operational, financial and management information
systems;

. respond effectively to the offerings of competitors;

. expand the scale of our operations to meet client demands;

. continue to develop and upgrade our technology; and

. attract, retain and motivate qualified personnel.

If we fail to adequately address any of these risks or difficulties, our
business would likely suffer and it is likely that we would not meet our
financial projections. We would expect our business, prospects, operating
results and financial condition to be materially adversely affected if our
revenues do not meet our projections and, in such event, our net losses in a
given quarter would be even greater than expected. Please see "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our financial statements for detailed information on our extremely limited
operating history.

7
<PAGE>

Sears currently represents a significant majority of our business and our
success depends in part on our ability to retain them as a client.

If Sears, our largest client, was to substantially reduce or stop its use of
our services prior to the time we were able to obtain significant additional
clients and thereby reduce our reliance on it, our business, operating results
and financial condition would be materially adversely affected. Sears, Roebuck
and Co. and Sears Wish Book, Inc., a subsidiary of Sears, Roebuck and Co.,
collectively accounted for approximately 84% of our gross revenues during the
year ended December 31, 1998 and for approximately 55% in the first nine months
of 1999. We have used the term "Sears" throughout this prospectus to refer to
both of these affiliated Sears entities. "Sears Roebuck" has been used to refer
to Sears, Roebuck and Co. which operates the Craftsman Power and Hand Tool and
Home Healthcare catalogs and "Sears Wish Book" has been used to refer to Sears
Wish Book, Inc., which operates the annual holiday catalog. Our contract with
Sears Roebuck expires July 1, 2001, unless earlier terminated. Our arrangement
to provide Sears Wish Book with services is generally renewed on a year to year
basis, and was last renewed on July 2, 1999 for a period expiring August 31,
2000. We presently anticipate that our agreement with Sears Roebuck and our
arrangement with Sears Wish Book will be extended upon their scheduled
termination dates; however, our loss of Sears as a client would have a material
adverse effect on our business, prospects, financial condition and results of
operations and may affect our relationship with King World Direct, Inc., which
is a distributor of Sears merchandise. A termination by Sears would result in
significant lost revenues and the loss of an important client reference that,
we believe, will be instrumental in securing future clients. Moreover, to the
extent that Sears' financial performance does not meet expectations and our
revenues attributable to Sears consequently decline, our prospects and
financial performance would also be negatively impacted, perhaps materially. We
cannot assure you that Sears will be a client of ours in future periods.

Our significant client contracts are either short-term or terminable with
minimal notice.

Each of our clients has the option to terminate its contract with us for any
reason after giving us 180 or fewer days prior written notice. King World
Direct and Toys "R" Us may terminate their contracts after giving as few as 30
and 60 days prior written notice. The Sears Wish Book arrangement is governed
by a course of conduct between the parties and a letter agreement which
provides that the arrangement is immediately terminable by Sears Wish Book at
any time and will automatically terminate if we do not negotiate a definitive
contract by August 31, 2000. The terms of our client contracts typically range
from six months to three years. We presently only have seven continuing
clients. The termination by one or any number of these clients, or the failure
by these clients to renew the terms of their contracts, may have a material
adverse effect on our business and prospects including our financial
performance and revenue stream or may result in the loss of an important client
reference.

If we fail to properly manage our growth, our business could be adversely
affected.

Our business is growing at a relatively rapid pace, and we intend to continue
the expansion of our operations in the foreseeable future to pursue existing
and potential market opportunities. If we do not manage the growth of our
business effectively, our results of operations or financial conditions would
be materially adversely affected. Our growth places significant demands on our
management and operational resources. In order to manage our growth
effectively, we must continue to invest in our systems and internal and third-
party call centers and fulfillment centers, and continue to expand, train and
manage our work force.

Our business is seasonal and we expect our quarterly revenues and operating
results to fluctuate.

Our revenues and business are seasonal. We expect to continue to experience
seasonal fluctuation of revenues and operating results in the future which, we
believe, will cause period-to-period comparisons of our results of operations
to be inappropriate as indicators of future performance. Many retail
businesses, including Sears and other clients, sell more products during the
holiday season than in any other portion of the year. For example, the Sears
Wish Book catalog is mailed only twice per year during the third and fourth
calendar quarters. Accordingly, because we generate the vast majority of our
revenue on a per-transaction basis, we recognize a disproportionate portion of
our annual revenue in the last three months of the year. As a result of our
seasonal business, we also have additional risks in processing a large volume
of transactions in short time periods.

8
<PAGE>

The loss of e4L as a client will result in the loss of recurring revenue from
this client.

We have agreed with management of e4L to mutually terminate our business
relationship effective October 1, 1999, subject only to a short period of
transition. The loss of e4L as a client will result in the loss of recurring
revenues previously expected from this client. For the nine months ended
September 30, 1999, revenues generated from e4L accounted for approximately 27%
of total revenues during that period.

We may not be able to satisfy the unique and sophisticated requirements of
our clients.

If we experience difficulties in meeting the needs of our clients, our
business will suffer. Our target market, consisting of Internet retailers and
direct marketing companies, has unique and sophisticated requirements. In
addition, some clients have pre-existing complex infrastructures consisting of
call centers, fulfillment centers and other business processes. Accordingly,
our software application rarely fits exactly into a new client's operations and
we must be able to customize the software accordingly and generally within a
relatively short time frame. Although we believe that we have generally been
successful in the timely modification of our systems to meet the specific needs
of our clients, there may be situations where we are unable or unwilling to
customize our systems to meet these requirements. We were unwilling to modify
our systems to meet the unique requirements of e4L. This was one of several
factors that led to the mutual termination of our relationship with e4L. If we
encounter similar situations in the future, other clients could elect to
terminate their relationships, which could have a material adverse effect on
our business, prospects, financial condition and results of operations.

Failure of our computer and communications systems could result in our
failure to provide timely and error-free services to our clients.

Our success largely depends on the efficient and uninterrupted operation of
our computer and communications hardware and software systems. Our systems and
operations may be vulnerable to damage or interruption from fire, flood, power
loss, telecommunications failure, break-ins, the occurrence of significant
human error and similar events. We do not currently have a formal disaster
recovery plan or carry sufficient business interruption insurance to compensate
us for losses that may occur. We generally do not maintain redundant systems.
Servers are vulnerable to computer viruses, physical or electronic break-ins
and similar disruptions, which could lead to interruptions, delays, loss of
data or our inability to provide timely and error-free services to our clients.
The occurrence of any of the foregoing risks could have a material adverse
effect on our business, prospects, financial condition and results of
operations.

We may be exposed to potential liability for actual or perceived failure to
provide required services.

Because our clients rely on our services to satisfy their customer order
requirements, we may be exposed to potential claims for damages caused to an
enterprise, including special or consequential damages, as a result of an
actual or perceived failure of our services. Our failure or inability to meet a
client's expectations in the performance of our services or to do so in the
time frame required by the client, regardless of our responsibility for the
failure, could:

. result in a claim for substantial damages against us by the client;

. discourage other clients from engaging us for these services;

. damage our business reputation, and

. have a material adverse effect on our business, prospects, financial
condition and results of operations.

We cannot predict the outcome of any potential legal claims.

If we are unable to respond to rapid changes in technology, our systems could
become obsolete and revenues could be lost.

The market for our order management systems and services is characterized by
rapid technological change, frequent new systems enhancements, evolving
industry standards and rapidly changing client requirements. The introduction
of systems incorporating new technologies and the emergence of new industry
standards could render existing systems obsolete which could ultimately result
in lost revenues. Our future

9
<PAGE>

success will depend, in part, on our ability to anticipate changes, enhance our
current systems, develop and introduce new systems that keep pace with
technological advancements and address the increasingly sophisticated needs of
our clients. New systems or enhancements to existing systems may not adequately
meet the requirements of our current and prospective clients and may never
achieve any degree of significant market acceptance.

Our development of a next-generation browser-based software application may
not be successful and may cause business disruption.

We are currently developing a next-generation browser-based application of
our proprietary software that is intended to serve as our sole platform in
providing an outsourced order management and fulfillment solution for our
clients. We can provide no assurance that we will be successful in deploying
the new browser-based software system. To date, we have expended approximately
$1.6 million on software development, a significant majority of which has been
expended on the development of this browser-based application. Software
development of the browser-based application has been in progress for over 20
months and has experienced numerous delays. To complete this development, we
must, among other things, ensure that this technology will function efficiently
at high volumes, integrate properly with the Internet and our client and third-
party service providers, offer all the functionality demanded by our clients
and assimilate all of the sales, reporting and other functions currently
offered by the current version of our software. This development effort could
fail technologically or could take more time or be more costly than expected.
Even if we successfully address all of these challenges, we must then work with
our current clients to transition them to our new system, which could also
create a risk of business disruption.

Our failure to timely increase the capacity of our service provider network
may reduce demand for our services.

Due to the limited deployment of our services to date, the ability of our
network of company-owned facilities and third-party service providers to
connect to and manage a substantially larger number of clients is as yet
unknown. Our network may not be expandable to expected client levels while
maintaining adequate service quality. Upgrading our infrastructure may cause
delays or failures in our systems. As a result, we may be unable to develop a
network of third-party service providers capable of supporting outsourced
operations at a commercially viable level. Failure to achieve or maintain such
a network could significantly reduce demand for our services and our business
and prospects could suffer.

We depend on third-party relationships, many of which are short-term or
terminable, to perform services for our clients.

We currently operate only one call center and one fulfillment center. In
addition, three of the third-party call centers and one of the third-party
fulfillment centers used by us is currently dedicated to servicing the needs of
our largest client. Accordingly, we depend, and will continue to depend, on a
number of third-party service providers to perform services for our clients. We
cannot assure you that we will be able to maintain relationships with third-
parties that provide services to our clients or that we will be able to locate
or secure additional relationships as demanded by future business. In addition,
we cannot assure you that the services provided by these third-parties will
meet the needs or expectations of our clients. Outside parties on which we
depend include:

. fulfillment centers;

. call centers;

. Web designers; and

. shipping companies.

As the demand for these services grows, we believe that there will be
increasing competition for the best third-party service providers, which could
result in significantly higher fees payable to such parties or the inability to
maintain such relationships altogether.

10
<PAGE>

Many of our arrangements with third-party service providers are not exclusive
and are short-term or may be terminated at the convenience of either party. In
addition, certain of our clients maintain the relationships with the third
party service providers directly. We cannot assure you that third-parties
regard our relationship with them as important to their own respective
businesses and operations. They may reassess their commitment to us at any time
in the future and may develop their own competitive services or products.

Our success depends on our ability to protect our proprietary technology.

We rely on a combination of copyright, trademark, service mark and trade
secret laws and contractual restrictions to establish and protect the
proprietary rights in our software and services. However, we will not be able
to protect our intellectual property if we are unable to enforce our rights or
if we do not detect unauthorized use of our intellectual property. In addition,
these legal protections only provide us with limited protection. If we litigate
to enforce our rights, it would be expensive, divert management resources and
may not be adequate to protect our business. Our inability to protect our
proprietary technology could have a material adverse effect on our business,
prospects, financial condition and results of operations.

We have not filed any United States patent applications with respect to our
order management systems, nor do we have any patent applications pending. As a
result, we currently do not have patented technology that would preclude or
inhibit competitors from entering our market. Moreover, none of our technology
is patented abroad, nor do we currently have any international patent
applications pending. As of the date of this prospectus, we have not secured
registration on any of our service marks in the United States nor have we
pursued registration in any foreign country. We cannot be certain that future
patents, registered trademarks or registered service marks, if any, will be
granted or that any future patent, trademark or service mark will not be
challenged, invalidated or circumvented, or that rights granted under any
patents, trademarks or service marks that may be issued in the future will
actually provide a competitive advantage to us.

We generally enter into confidentiality agreements with our employees and
consultants and with our clients and corporations with whom we have strategic
relationships. We attempt to maintain control over access to and distribution
of our software documentation and other proprietary information. However, the
steps we have taken to protect our technology and intellectual property may be
inadequate. Our competitors may independently develop technologies that are
substantially equivalent or superior to ours or may have jointly developed such
technologies under agreements giving them co-equal rights to exploit those
technologies.

Our success depends on retaining our current key personnel and attracting
additional personnel, particularly in the areas of client support and technical
services.

Our success will depend largely on the continuing efforts of our executive
officers and senior management, especially those of Norman Charney, our
President and Chief Executive Officer, and Paul M. Jennings, our Chief
Technology Officer. Our business may be adversely affected if the services of
these officers or any of our other key personnel become unavailable to us. We
have not entered into employment agreements with any employees other than
Messrs. Charney and Jennings. Even with these employment agreements, there is a
risk that these individuals will not continue to serve for any particular
period of time. While we have obtained a key person life insurance policy on
the life of Mr. Charney and Mr. Jennings in the amount of $1.0 million each,
these amounts may not be sufficient to offset the loss of their services.

We are currently expanding our client support and technical services
organizations and will need to increase our staff further to support expected
new clients and the expanding needs of existing clients. The initiation of new
clients, the anticipated use of a browser-based order management and
fulfillment software application, the customization of our software, the
integration of these solutions into existing fulfillment systems and the
ongoing client support can be complex. Accordingly, we need highly trained
client support, technical personnel and outside consultants. Hiring client
support and technical personnel is very competitive in our industry due to the
limited number of people available with the necessary technical skills and
understanding of our systems and services. Our inability to attract, train or
retain the number of highly qualified client support and technical services
personnel that our business needs, or the inability to hire qualified outside
consultants to perform these tasks, may cause our business and prospects to
suffer.

11
<PAGE>

The integration of key new employees and officers into our management team
may interfere with our operations.

We have recently hired a number of key employees and officers, each of whom
has been with us for less than six months. In addition, we intend to hire
additional key employees and officers to support our business growth. To
integrate into our company, such individuals must spend a significant amount of
time learning our business model and management system, in addition to
performing their regular duties. If we fail to complete this integration in an
efficient manner, our business and prospects will suffer.

Risks Related to Our Industry

We cannot accurately predict the size of our market, and if our market is not
as large as we expect, our business prospects will suffer.

Our business was originally developed to manage the commerce-related
operations of direct marketing companies. However, we have transitioned our
business to meet the growing demands of electronic commerce businesses.
Accordingly, our growth will largely depend on the development and widespread
acceptance of the Internet as a medium for commerce. Use of the Internet by
consumers is at an early stage of development, and market acceptance of the
Internet as a medium for commerce is subject to a high level of uncertainty.
The growth projections for Internet-related activities that we have cited in
this prospectus are only estimates by industry analysts and may not prove to be
accurate. Accordingly, our estimates of the size of our market or the potential
demand for our services may turn out to be inaccurate. If use of the Internet
as a medium for commerce stops growing, our business prospects will be harmed.

Predicting market size is also complicated by the fact that not all potential
clients will outsource their order management and fulfillment operations.
Potential clients may resist outsourcing for a number of reasons including:

. risks or perceived risks of providing third-party service providers with
access to their proprietary technology or information;

. a desire to retain control over inventory, customer service, shipping
and related order processing functions;

. concerns associated with warehousing large amounts of inventory with a
third-party; and

. concerns over the level of service to be expected from a third-party
service provider and the ability to properly measure acceptable levels
of service.

If the Internet retailing or direct marketing industries, or any significant
existing or potential client, concludes that the disadvantages of outsourcing
order management and fulfillment operations outweigh the advantages, our
business and prospects will suffer.

Our systems and services will need to achieve widespread market acceptance
for us to succeed.

Even if the Internet grows at the rate we anticipate, our systems and
services must achieve widespread market acceptance for us to succeed. We
believe that our potential to grow and increase our market acceptance depends
principally on the following factors, some of which are beyond our control:

. the differentiation and quality of our systems and services;

. the extent of our third-party service provider network coverage;

. our ability to provide timely and effective client support;

. our pricing strategies as compared to our competitors;

. our industry reputation;

12
<PAGE>

. the effectiveness of our marketing strategy;

. concerns about transaction security; and

. general economic conditions, such as downturns in the systems markets.

The failure of our systems and services to achieve widespread market
acceptance could have a material adverse effect on our business, prospects,
financial condition and results of operation.

The relationships with our clients would likely be compromised if our
security measures were to fail.

The relationships with our clients may be adversely affected if the security
measures that we use to protect their proprietary or confidential information,
such as sales information, or the confidential information of their customers,
such as credit card numbers, are ineffective. We may be required to expend
significant capital and other resources to protect against the threat of
security breaches or to alleviate problems caused by breaches. In addition,
security breaches could expose us to a risk of litigation and possible
liability. Our security measures may be inadequate to prevent security
breaches, and our business would be harmed if we do not prevent them.

Problems related to the "Year 2000 Issue" could adversely affect our
business.

We are exposed to various risks arising out of the change of the millennium
which could adversely affect our business, prospects, financial condition and
operating results. Risks are posed if, despite our investigation and
remediation efforts, one or more of the following occurs:

. our proprietary software contains undetected errors or defects
associated with the Year 2000 problem;

. third-party hardware and software used with our software experiences
problems that are wrongly attributed to us;

. our internal information technology systems or non-information
technology systems, including telecommunications systems and utilities,
experience problems; and

. our third-party service providers or other suppliers experience Year
2000 problems.

The occurrence of any of the foregoing could result in delays or loss of
revenue, diversions of our development resources, damage to our reputation,
increased service costs and litigation expenses. In addition, regardless of
whether we experience Year 2000 problems, enterprises may reduce their spending
on systems and related services during the latter part of 1999 and into 2000 in
connection with the potential effects of the Year 2000 or to concentrate their
resources on remediation.

Government regulation and legal uncertainties could increase the cost and add
additional burdens to our doing business on the Internet.

Due to the increasing popularity of the Internet, laws and regulations
applicable to Internet communications, commerce, advertising and direct
marketing are becoming more prevalent. The adoption or modification of such
laws or regulations could inhibit the growth of Internet use and decrease the
acceptance of the Internet as a communications and commercial medium, which
could have a material adverse effect on our business, results of operations and
financial condition.

Further, due to the global nature of the Internet, governments of states or
foreign countries may attempt to regulate Internet transmissions. We cannot be
certain that violations of domestic or foreign laws or regulations will not be
alleged by applicable governments or that we will not violate such laws or
regulations or new laws or regulations will not be enacted in the future.
Moreover, the applicability of existing laws or regulations governing issues
such as intellectual property ownership, libel, consumer protection, personal
privacy, taxation, quality of services, and distribution is uncertain with
regards to the Internet. Legal compliance may prove difficult for us and may
harm our business, operating results and financial condition.

Purchasing on the Internet could decrease if retailers become subject to
sales and other taxes.

If one or more states or any foreign country successfully asserts that
retailers should collect sales or other taxes on the sale of products made over
the Internet, use of the Internet as a sales channel is likely to decrease.

13
<PAGE>

In addition, retailers with operations in several states may already be subject
to state sales taxes for shipments into such states. Some customers may be
discouraged from purchasing products on the Internet if they become required to
pay sales tax in connection with such purchases. If this were to occur, the
demand for our systems and services would likely decrease.

Risks Related to This Offering

Our stock will likely be subject to substantial price and volume fluctuations
due to a number of factors, some of which are beyond our control.

Stock prices and trading volumes for many Internet-related companies
fluctuate widely for a number of reasons, including some reasons that may be
unrelated to their businesses or results of operations. This market volatility,
as well as general domestic or international economic, market and political
conditions, could materially adversely affect the price of our common stock
without regard to our operating performance. In addition, our operating results
may be below the expectations of public market analysts and investors. If this
were to occur, the market price of our common stock could significantly
decrease.

We are at risk of securities class action litigation due to our expected
stock price volatility.

In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. In the future we may be the target of similar litigation.
Securities litigation may result in substantial costs and divert management's
attention and resources, which may seriously harm our business, prospects,
financial condition and results of operations and may also harm our reputation.

Management could spend or invest the proceeds of this offering in ways with
which the shareholders may not agree.

We have no current specific allocations for the net proceeds from this
offering. Consequently, our board of directors and management will have
substantial flexibility and broad discretion in applying the net proceeds of
this offering, and investors will be relying on the judgment of our management
regarding the application of these proceeds. The failure of management to apply
such funds effectively could have a material adverse effect on our business and
financial condition. We generally intend to use the net proceeds of this
offering to fund the expansion of our sales and marketing activities and to
fund capital expenditures and software development. In addition, we may use a
portion of the net proceeds to make possible acquisitions and for general
corporate purposes. Pending such uses, we intend to invest the net proceeds of
this offering in short-term, investment-grade instruments, certificates of
deposit or direct or guaranteed obligations of the United States. See "Use of
Proceeds."

After this offering, our executive officers, directors, and their affiliates,
in the aggregate, will control approximately 59% of our voting stock, or
approximately 57% if the over-allotment option is exercised.

Our executive officers, directors and their affiliates own a large enough
stake in us to have an influence on the matters presented to shareholders. As a
result, these shareholders may have the ability to control all matters
requiring shareholder approval, including the election and removal of
directors, the approval of significant corporate transactions, such as any
merger, consolidation or sale of all or substantially all of ASD Systems'
assets, and the control of the management and affairs of ASD Systems.
Accordingly, such concentration of ownership may have the effect of delaying,
deterring or preventing a change in control of ASD Systems, impede a merger,
consolidation, takeover or other business combination involving ASD Systems or
discourage a potential acquirer from making a tender offer or otherwise
attempting to obtain control of ASD Systems, which in turn could have an
adverse effect on the market price of ASD Systems' common stock.

14
<PAGE>

We have anti-takeover defenses that could delay or prevent a takeover that
shareholders may consider favorable.

Certain provisions of our amended and restated articles of incorporation and
bylaws and the provisions of Texas law could have the effect of delaying,
deterring or preventing an acquisition of ASD Systems. For example, our board
of directors is divided into three classes to serve staggered three-year terms,
we may authorize the issuance of up to 7,500,000 shares of "blank check"
preferred stock, our shareholders may take action only by a vote at a meeting
or by unanimous written consent and our shareholders are limited in their
ability to make proposals at shareholder meetings. See "Description of Capital
Stock" for a further discussion of these provisions.

Shares eligible for future sale in the open market could depress our stock
price.

Sales of substantial amounts of our common stock, including shares issued
upon the exercise of outstanding options and warrants, in the public market
following this offering, or the appearance that a large number of shares is
available for sale, could depress the market price for our common stock. The
number of shares of common stock available for sale in the public market will
be limited by agreements under which the holders of our outstanding shares of
common stock have agreed not to sell or otherwise dispose of any of their
shares for a period of 180 days after the date of this prospectus, subject to
certain consents and exceptions. Bear, Stearns & Co. Inc. may, in its sole
discretion and at anytime without notice, release all or any portion of the
shares subject to such agreements. In addition to the adverse effect a price
decline could have on holders of our common stock, that decline would likely
impede our ability to raise capital through the issuance of additional shares
of common stock or other equity securities. In addition, the holders of
approximately 9,675,000 restricted shares of our common stock are entitled to
certain rights with respect to registration of such shares for sale in the
public market. If these holders sell in the public market, such sales could
have a material adverse effect on the market price of our common stock. See
"Shares Eligible for Future Sale."

The liquidity of our common stock is uncertain since it has not been publicly
traded.

There has not been a public market for our common stock. We cannot predict
the extent to which investor interest in our company will lead to the
development of an active, liquid trading market. Active trading markets
generally result in lower price volatility and more efficient execution of buy
and sell orders for investors. The initial public offering price will be
determined by negotiations between us and the representatives of the
underwriters and may bear no relationship to the price at which the common
stock will trade upon completion of this offering. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price.

15
<PAGE>

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS; MARKET DATA

This prospectus contains forward-looking statements. These statements relate
to future events or our future financial performance. In some cases, you can
identify forward-looking statements by terminology such as "may," "will,"
"should," "expects," "plans," "anticipates," "believes," "estimates,"
"predicts," "potential" or "continue" or the negative of such terms or other
comparable terminology. Forward-looking statements are speculative and
uncertain and not based on historical facts. Because forward-looking statements
involve risks and uncertainties, there are important factors that could cause
actual results to differ materially from those expressed or implied by these
forward-looking statements, including those discussed under "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business."

Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance, or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of such
statements. We are under no duty to update any of the forward-looking
statements after the date of this prospectus or to conform such statements to
actual results.

This prospectus contains market data related to the Internet generally and
our industry segment specifically. This data was derived from reports generated
by the research firms of Boston Consulting Group, Forrester Research, Inc. and
International Data Corporation. In preparing these reports, the research firms
assumed certain events, trends and activities will occur and/or continue and
these firms project information based, in part, on those assumptions. If the
market research firms are wrong about any of their assumptions, then these
projections may also be wrong. We have retained Forrester Research to act as an
outside consultant to us on a number of matters, including the industry
generally, market trends and matters involving ASD Systems specifically. As of
the date of this prospectus, we have paid Forrester Research an aggregate of
$36,000 for such services.

16
<PAGE>

USE OF PROCEEDS

The net proceeds from the sale of 5,000,000 shares of common stock sold in
this offering are estimated to be approximately $36.1 million, after deducting
underwriting discounts and $1.1 million for estimated offering expenses payable
by us. This is based on an initial public offering price of $8.00 per share. If
the underwriters' over-allotment option is exercised in full, the net proceeds
are estimated to be approximately $41.7 million on this same basis.

We have no current specific allocations for the net proceeds from this
offering. We generally intend to use the proceeds of this offering for the
following:

. expand our sales and marketing activities;

. fund capital expenditures, software development activities and technical
support; and

. fund working capital and other general corporate purposes.

In addition, we may use a portion of the net proceeds of this offering to
acquire or invest in businesses, products, services or technologies
complementary to our current business, through mergers, acquisitions, joint
ventures or otherwise. However, we have no specific agreements or commitments
and are not currently engaged in any negotiations with respect to these
transactions.

We have also elected to pursue our initial public offering at this time for
the following secondary reasons:

. to facilitate future access by us to the public equity markets;

. to enhance our ability to use our common stock as a means of attracting,
retaining and motivating employees, senior managers and others; and

. to provide liquidity to our shareholders.

As indicated, we have not yet determined the actual expected expenditures,
and thus cannot estimate the amounts to be used for each purpose discussed
above. The amounts and timing of these expenditures will vary significantly
depending on a number of factors, including such factors as the amount, if any,
of cash generated by our operations and the market response to our service
offerings. Accordingly, our management will have broad discretion in the
application of the net proceeds. You will not have the opportunity to evaluate
the economic, financial or other information on which we base our decisions on
how to use the proceeds. Pending such uses, the net proceeds will be primarily
invested in short-term, investment-grade instruments, certificates of deposit
or direct or guaranteed obligations of the United States. See "Risk Factors--
Risks Related to this Offering--Management could spend or invest the proceeds
of this offering in ways with which the shareholders may not agree."

We have reserved a portion of the funds received in connection with our
preferred stock financing occurring on August 23, 1999 to fund the redemption
of our outstanding shares of Series B redeemable preferred stock. Accordingly,
none of the proceeds received from this offering will be necessary to fund that
redemption which will occur simultaneously with the closing of this offering.

DIVIDEND POLICY

We have not declared or paid any dividends on our capital stock since our
inception and do not anticipate declaring or paying dividends in the
foreseeable future. Our current policy is to retain earnings, if any, to
finance the expansion of our business. The future payment of dividends will
depend on the results of operations, financial condition, capital expenditure
plans and other factors that we deem relevant and will be at the sole
discretion of our board of directors. Our credit facility with Comerica Bank-
Texas currently restricts our ability to pay dividends.

17
<PAGE>

CAPITALIZATION

The following table sets forth our capitalization as of September 30, 1999:

. on an actual basis; and

. on an as adjusted basis reflecting (1) our receipt of the estimated net
proceeds from the 5,000,000 shares of common stock we are selling in
this offering at an initial public offering price of $8.00 per share,
after deducting estimated underwriting discounts and expenses, (2) the
conversion of all Series A convertible preferred stock into 2,250,000
shares of our common stock upon consummation of this offering, (3) the
deemed $6.0 million non-cash preferred stock dividend related to the
embedded beneficial conversion feature of the Series A convertible
preferred stock, and (4) the redemption of all Series B redeemable
preferred stock upon consummation of this offering for $6.0 million.

This information should be read in conjunction with the more detailed
financial statements and notes thereto included elsewhere in this prospectus.
See "Use of Proceeds."

<TABLE>
<CAPTION>
September 30, 1999
-------------------------------
Actual As Adjusted
------------- ----------------
(in thousands, except share
and per share amounts)
<S> <C> <C>
Long-term obligations, less current portion.... $ 2,583 $ 2,583
Series B mandatorily redeemable preferred
stock, $.0001 par value; 1,111,111 shares
authorized actual and as adjusted; 1,111,111
shares issued and outstanding actual; and none
issued and outstanding on an as adjusted
basis......................................... 5,745 --
Shareholders' equity:
Series A convertible preferred stock, $.0001
par value; 1,111,111 shares authorized actual
and as adjusted; 1,111,111 shares issued and
outstanding actual; and none issued and
outstanding on an as adjusted basis.......... 5,745 --
Series C non-voting preferred stock, $.0001
par value; 3,200,000 authorized actual and as
adjusted; none issued and outstanding actual;
and none issued and outstanding on an as
adjusted basis............................... -- --
Common stock, $.0001 par value; 50,000,000
shares authorized actual and as adjusted;
10,500,000 shares issued and outstanding
actual; and 17,750,000 issued and outstanding
on an as adjusted basis...................... 1 2
Additional paid-in capital..................... 5,741 53,841
Accumulated deficit............................ (8,513) (15,023)
------------- -------------
Total shareholders' equity................. 2,974 38,820
------------- -------------
Total capitalization..................... $ 11,302 $ 41,403
============= =============
</TABLE>

18
<PAGE>

DILUTION

As of September 30, 1999, our pro forma net tangible book value was
approximately $3.0 million in the aggregate, or $0.23 per share. Pro forma net
tangible book value per share represents our total tangible assets less total
liabilities, divided by the pro forma number of outstanding shares of common
stock outstanding as of September 30, 1999, after giving effect to the
conversion of all of the outstanding shares of Series A convertible preferred
stock into common stock. Tangible assets can be calculated by subtracting
intangible assets from total assets. Dilution per share represents the
difference between the amount per share paid by investors in this offering and
the net tangible book value per share after the offering. After giving effect
to the sale of 5,000,000 shares of common stock and after our application of
the estimated net proceeds from the offering, our pro forma net tangible book
value as of September 30, 1999 would have been $39.1 million in the aggregate,
or $2.20 per share. This represents an immediate increase in pro forma net
tangible book value of $1.97 per share to existing shareholders and an
immediate dilution in pro forma net tangible book value of $5.80 per share to
new investors purchasing shares of common stock in the offering. The following
table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Initial public offering price per share............................ $8.00
Pro forma net tangible book value per share before the offering.. $0.23
Increase in pro forma net tangible book value per share
attributable to new investors................................... 1.97
Pro forma net tangible book value per share after the offering... 2.20
-----
Dilution in pro forma net tangible book value per share to new
investors....................................................... $5.80
=====
</TABLE>

The following table summarizes, on a pro forma basis as of September 30,
1999, the total number of shares of common stock purchased from us, the total
consideration paid to us and the average price per share paid by existing
shareholders and by new investors purchasing shares in this offering:

<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ ------------------- Price Per
Number Percent Amount Percent Share
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders.......... 12,750,000 71.8% $11,510,000 22.3% $0.90
New investors.................. 5,000,000 28.2% $40,000,000 77.7% $8.00
---------- ----- ----------- -----
Total........................ 17,750,000 100.0% $51,510,000 100.0%
========== ===== =========== =====
</TABLE>

If the underwriters' over-allotment is exercised in full, the number of
shares of common stock held by existing shareholders will be reduced to 68.9%
of the total number of shares of common stock to be outstanding after this
offering and will increase the number of shares of common stock held by the new
investors to 5,750,000, or 31.1% of the total number of shares of common stock
to be outstanding immediately after this offering. See "Principal
Shareholders."

The calculations above assume no exercise of options or warrants outstanding
on the date hereof. However, if the holders of our various common stock
purchase warrants were to exercise these warrants in full, the number of shares
of common stock held by existing shareholders will be increased to 76.9% of the
total number of shares of common stock to be outstanding after this offering
and will reduce the number of shares of common stock held by the new investors
to 23.1% of the total number of shares of common stock to be outstanding
immediately after this offering.

19
<PAGE>

SELECTED FINANCIAL DATA

The following selected financial data should be read in conjunction with the
financial statements, the notes to such statements and the information under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" beginning on page 22 of this prospectus. The statement of
operations data for the period from January 1, 1996 through December 20, 1996;
the period from December 21, 1996 through October 13, 1997; the period from
October 14, 1997 through December 31, 1997 and the year ended December 31, 1998
and the balance sheet data at December 20, 1996; October 13, 1997; December 31,
1997; and December 31, 1998 are derived from our audited financial statements
included elsewhere in this prospectus. The statement of operations for the year
ended December 31, 1995 and the interim results for the periods ended September
30, 1998 and 1999 are derived from our unaudited statements which reflect all
adjustments necessary for a fair presentation of that data.

The selected financial data for all periods ending on or prior to December
31, 1997, include information derived from the order management and fulfillment
business of our predecessors Athletic Supply of Dallas, Inc. (which operated
the business from January 1, 1995 to December 20, 1996), Athletic Supply of
Dallas, LLC (which operated the business from December 21, 1996 to October 13,
1997) and ASD Partners, Ltd. (which operated the business from October 14, 1997
to December 31, 1997). The unaudited pro forma net income (loss) information
for the periods ended December 31, 1995, December 20, 1996, October 13, 1997
and December 31, 1997 reflect a tax provision computed by applying the
anticipated effective tax rate of approximately 37% to pretax income. The
unaudited pro forma basic and diluted net income (loss) per share information
for the periods ended on or prior to December 31, 1997 have been calculated as
if based on the number of shares of common stock outstanding at January 1,
1998.

20
<PAGE>

<TABLE>
<CAPTION>
December 31, December 20, October 13, December 31, December 31, September 30,
1995 1996 1997 1997 1998 1998
------------ ------------ ----------- ------------ ------------ -------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents............ $ -- $ -- $ -- $ 97 $ -- $ 59
Working capital
(deficit).............. (219) 1,126 (1,629) (442) (2,551) (2,273)
Total assets............ 1,801 2,693 1,262 3,624 3,266 3,065
Long-term debt
(including current
maturities)............ 935 -- -- 1,754 1,414 1,445
Division equity
(deficit).............. (866) 2,263 820 -- -- --
Partners' capital....... -- -- -- 943 -- --
Shareholders' equity
(deficit).............. -- -- -- -- (1,664) (2,386)
</TABLE>

The September 30, 1999 balance sheet data set forth below is shown:

. on an actual basis;

21
<PAGE>

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

The following discussion of the financial condition and results of operations
of our company should be read in conjunction with the financial statements and
the notes to those statements included elsewhere in this prospectus. This
discussion contains forward-looking statements that involve risks and
uncertainties. Please see "Risk Factors" and "Special Note Regarding Forward-
Looking Statements; Market Data" elsewhere in this prospectus.

Overview

Our proprietary software and comprehensive service solutions enable Internet
retailers and direct marketing businesses to outsource their order management
and fulfillment operations. Our systems automate and integrate in real-time Web
sites, call centers, fulfillment centers and vendors. We operate and manage a
network of call centers and fulfillment centers which currently consists of one
company-owned call center, four third-party call centers, one company-owned
fulfillment center and seven third-party fulfillment centers. Our network can
increase or decrease in size and services offered to meet the specific needs of
our clients.

We derive our revenues from systems services, call center services,
fulfillment services and, to a much lesser extent, other services, consisting
of client management services, Web site related services and consulting
services. We typically charge on a per-transaction basis for systems
processing, on a per-minute basis for call center services and on a per-item
basis for fulfillment services. Additional fees are billed for other services.
We price our services based on a variety of factors including the depth and
complexity of the services provided, the amount of required systems
customization, length of contract and other factors. Our revenues are
recognized as our services are rendered and the majority of our clients are
billed on a weekly basis. Our client contracts can be cancelled on 180 or fewer
days notice.

Our expenses are comprised of:

. cost of revenues, which consists primarily of compensation and related
expenses for our call center and fulfillment center and the variable
costs of third-party call center and fulfillment center services;

. selling, general and administrative, which consists primarily of
compensation and related expenses for sales and marketing staff, client
service and administrative personnel and software development
technicians; occupancy costs; software development costs; marketing
programs; and bad debt expense; and

. depreciation and amortization expense.

The order management and fulfillment business currently operated by us was
commenced in January 1995 by Athletic Supply of Dallas, Inc. Athletic Supply of
Dallas, Inc. was a direct marketing cataloger for a variety of sports
merchandise, including licensed sports products of the NFL, NHL, NBA and Major
League Baseball and the Sears "My Team" catalogs. In January 1995, Athletic
Supply of Dallas began providing order management and fulfillment services
relating to the Craftsman Power and Hand Tool and Home Healthcare catalogs
using the proprietary software that had been developed for its own catalog
operations. On December 20, 1996, Athletic Supply of Dallas, Inc. was sold, in
its entirety, to Genesis Direct, Inc. On October 14, 1997, ASD Partners, Ltd.,
a limited partnership controlled by Norman Charney, acquired all of the
software, the call center and fulfillment center assets and the Sears contracts
previously owned by Athletic Supply of Dallas from Genesis Direct, Inc.
Effective January 1, 1998, ASD Partners, Ltd. transferred this business to ASD
Systems, Inc. in connection with our conversion into a corporation.

According to applicable reporting procedures and policies, the "Summary
Financial Data" and "Selected Financial Data" included in this prospectus
correspond to these differing periods of predecessor ownership. However, we
believe that period-to-period comparisons of revenues and operating results,
particularly of incongruent periods, are not necessarily meaningful. We have
therefore included as supplemental disclosure below a comparison of certain
selected financial data derived from audited financial statements for the year
ended December 31, 1998 to certain unaudited, internally prepared selected
financial data for the year ended December 31, 1997. See "--Supplemental
comparison of the years ended December 31, 1998 and December 31, 1997
(unaudited)."

22
<PAGE>

Results of Operations

Comparison of the nine months ended September 30, 1999 to the nine months
ended September 30, 1998.

Revenues. Our revenues increased 59% to $7.9 million for the nine months
ended September 30, 1999 from $5.0 million for the nine months ended September
30, 1998. The increase in revenue over the period was due primarily to an
increase in the number of clients from 5 to 8. Sears accounted for 55% of total
revenues for the nine months ended September 30, 1999 and 85% of total revenues
for the nine months ended September 30, 1998. For the nine months ended
September 30, 1999, e4L accounted for approximately 27% of our gross revenues.
Due to the mutual termination of our relationship with this client, these
revenues are not expected to continue in future periods.

Cost of Revenues. Cost of revenues increased 82% to $6.3 million for the nine
months ended September 30, 1999 from $3.5 million for the nine months ended
September 30, 1998. The increase in cost of revenues was primarily due to the
addition of call center, fulfillment center and technical service personnel to
support our anticipated growth. As a percentage of revenues, cost of revenues
was 80% for the period ended September 30, 1999 and 70% for the period ended
September 30, 1998.

Sales, General and Administrative Expense. For the nine months ended
September 30, 1999, our selling, general and administrative, or SG&A, expense
was $5.7 million compared to $3.0 million for the same period of 1998, an
increase of 92%. Approximately $600,000 of this increase in total SG&A expense
was associated with the salaries and related benefits of additional personnel
such as executive, financial, sales and marketing, not included in cost of
revenues. In addition, approximately $703,000 of this increase in total SG&A
expense was associated with increased professional and consulting fees,
approximately $594,000 in increased bad debt expense and approximately $174,000
in increased rent charges. We anticipate that the amount of SG&A expense, in
absolute dollars, will continue to increase in subsequent periods as we are
required to hire additional personnel to meet our growth strategies and comply
with our obligations as a public company. As a percentage of revenues, SG&A
expense increased to 72% in the first nine months of 1999 from 60% for the same
period of 1998 due to an increase in expenses to expand our sales and
marketing, administrative and systems infrastructure in anticipation of future
revenue growth.

Operating Loss. For the nine months ended September 30, 1999, our operating
loss was $5.1 million compared with $2.2 million for the nine months ended
September 30, 1998. The significant majority of this increase in loss is
attributable to increased salaries and related benefits expense. The total
increase in expenses was partially offset by decreases in certain other
expenses and the effect of capitalizing software development costs.

Comparison of periods ended December 31, 1998, December 31, 1997, October 13,
1997 and December 20, 1996.

For purposes of this comparison:

. the period ended December 31, 1998 represents a 365-day period from
January 1, 1998 through December 31, 1998;

. the period ended December 31, 1997 represents a 79-day period from
October 14, 1997 through December 31, 1997;

. the period ended October 13, 1997, represents a 297-day period from
December 21, 1996 through October 13, 1997; and

. the period ended December 20, 1996 represents a 355-day period from
January 1, 1996 through December 20, 1996.

These periods correspond to the different periods of our predecessors'
ownership of the business currently operated by us. As a result, these periods
necessarily reflect inconsistent management regimes and cost structures. In
addition, interim periods were affected by the seasonal nature of our business.
See "--Overview" and "--Seasonality."

23
<PAGE>

Prior to October 1997, our business was part of larger operations that were
focused principally on direct marketing of sports licensed products. We did not
begin to focus on expanding the clients of our order management and fulfillment
business or transition our business to meet the demands of Internet retailers
until January 1998. Consequently, we believe that period-to-period comparisons
of revenues and operating results, particularly in light of the incongruent
periods, are not necessarily meaningful.

Revenues. Prior to January 1998, our predecessors were not focused on growing
the revenues related to the order management and fulfillment business now
comprising our business. For the period ended December 31, 1998, our revenues
were $8.0 million compared to $2.6 million for the period ended December 31,
1997, $4.9 million for the period ended October 13, 1997 and $6.8 million for
the period ended December 20, 1996. The general increase in revenue over this
period was due primarily to an increase in the number of clients from 2 at
December 20, 1996 to 6 at December 31, 1998.

Cost of Revenues. For the period ended December 31, 1998, our cost of
revenues was $5.1 million compared to $1.2 million for the period ended
December 31, 1997, $2.7 million for the period ended October 13, 1997 and $2.1
million for the period ended December 20, 1996. As a percentage of revenues,
cost of revenues was 63% for the period ended December 31, 1998, 48% for the
period ended December 31, 1997, 55% for the period ended October 13, 1997 and
31% for the period ended December 20, 1996. This general increase in the cost
of revenues, as a percentage of revenues, was due to an increase in expenses to
expand our sales and marketing, administrative and systems infrastructure in
anticipation of future revenue growth.

Sales, General and Administrative Expense. For the period ended December 31,
1998, our total SG&A expense was $4.3 million compared to $1.1 million for the
period ended December 31, 1997, $2.6 million for the period ended October 13,
1997 and $2.8 million for the period ended December 20, 1996. As a percentage
of revenues, SG&A expense was 53% for the period ended December 31, 1998, 42%
for the period ended December 31, 1997, 54% for the period ended October 13,
1997 and 41% for the period ended December 20, 1996. As a general trend, SG&A
expense as a percentage of revenues increased modestly due to an increase in
expenses to expand our sales and marketing, administrative and systems
infrastructure in anticipation of future revenue growth. In addition, we
increased our software development activities in 1998 in connection with the
development of our browser-based application. Interim periods were affected by
the seasonal nature of our business.

Operating Income (Loss). For the period ended December 31, 1998, our
operating loss was $2.4 million compared to operating income for the period
ended December 31, 1997 of $1,000, operating loss for the period ended October
13, 1997 of $820,000 and operating income for the period ended December 20,
1996 of $1.4 million. As a general trend, our operating results were negatively
impacted by the expansion of our software development efforts and an expanded
sales and marketing, administrative and systems infrastructure in anticipation
of future growth.

Supplemental comparison of years ended December 31, 1998 and December 31,
1997 (unaudited).

The following table sets forth selected financial data for the 365-day period
ended December 31, 1998 and the 365-day period ended December 31, 1997.
Management prepared the financial data for the year ended December 31, 1997 by
combining the historical financial data for the period from December 21, 1996
through October 13, 1997 with the historical financial data for the period from
October 14, 1997 through December 31, 1997 and subtracting the internally
prepared results for the period from December 21, 1996 through December 31,
1996. Although the resulting information has not been audited by our
independent auditors, we believe that the preparation and inclusion of this
data provides a basis upon which a more meaningful comparison can be made to
the financial data for the year ended December 31, 1998. The financial data for
the period ended December 31, 1997 has been prepared on substantially the same
basis as the historical statements, consisting of only normal recurring
adjustments necessary for a fair presentation of the results of operations for
such period.

24
<PAGE>

This financial information should be read in conjunction with the audited
financial statements and the notes attached to those financial statements
included elsewhere in this prospectus. In view of the rapidly evolving nature
of our business and our limited operating history, we believe that period-to-
period comparisons of revenues and operating results are not necessarily
meaningful and should not be relied upon as indications of future performance.

Due to the changes in ownership of the business occurring in 1996 and 1997
and the consequential differences in management and cost structure applicable
to each such owner, we have elected to set forth below only a comparison of
gross revenues, cost of revenues, gross profit, total SG&A expenses and
operating income (loss) before depreciation and amortization.

<TABLE>
<CAPTION>
Year Ended
-------------------------
December 31, December 31,
1997 1998
------------ ------------
(in thousands)
<S> <C> <C>
Revenues............................................ $7,328 $ 8,020
Cost of revenues.................................... 3,866 5,051
------ -------
Gross profit........................................ 3,462 2,969
Selling, general and administrative expenses........ 3,442 4,258
------ -------
Operating income (loss) before depreciation and
amortization....................................... $ 20 $(1,289)
====== =======
</TABLE>

Revenues. Our revenues increased 9% to $8.0 million for the year ended
December 31, 1998 from $7.4 million for the year ended December 31, 1997. The
increase in revenue was due primarily to an increase in the number of clients
from 2 to 6. Most of the clients we added in 1998 began generating revenue in
the fourth quarter.

Cost of Revenues. Cost of revenues increased 28% to $5.1 million for the year
ended December 31, 1998 from $3.9 million for the year ended December 31, 1997.
As a percentage of revenues, cost of revenues were 63% for the year ended
December 31, 1998 and 53% for the year ended December 31, 1997. The increase in
the cost of revenues was primarily due to the increased salaries and related
benefits expense of additional call center and fulfillment center personnel
required in order to support additional client service volume.

Sales, General and Administrative Expense. For the year ended December 31,
1998, our total SG&A expense increased 24% to $4.3 million from $3.4 million
for the year ended December 31, 1997. As a percentage of revenues, SG&A expense
increased to 53% for the year ended December 31, 1998 from 47% for the year
ended December 31, 1997, primarily due to the expansion of our software
development and an expanded sales and marketing, administrative and systems
infrastructure in anticipation of future growth.

Operating Income (Loss) Before Depreciation and Amortization. Operating
income (loss) before depreciation and amortization for the year ended December
31, 1998 was $(1.3) million compared to $20,000 for the year ended December 31,
1997. This loss was due to the expansion of our software development efforts
and an expanded sales and marketing, administrative and systems infrastructure
in anticipation of future growth.

25
<PAGE>

Quarterly Results of Operational Data

The following table sets forth selected unaudited statements of operations
data for each of the previous seven quarters ended September 30, 1999. The
financial information for each quarter has been prepared on substantially the
same basis as the audited statements included in other parts of this prospectus
and, in the opinion of management, includes all adjustments, consisting of only
normal recurring adjustments necessary for a fair presentation of the results
of operations for such periods. This financial information should be read in
conjunction with the audited financial statements and the notes attached to
those financial statements included elsewhere in this prospectus.

<TABLE>
<CAPTION>
Quarter Ended
-------------------------------------------------------------------------------
March 31, June 30, September 30, December 31, March 31, June 30, September 30,
1998 1998 1998 1998 1999 1999 1999
--------- -------- ------------- ------------ --------- -------- -------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $1,945 $1,421 $1,596 $3,058 $ 2,200 $ 2,479 $ 3,215
Cost of revenues........ 1,281 1,143 1,034 1,593 1,669 1,993 2,643
------ ------ ------ ------ ------- ------- -------
Gross profit............ 664 278 562 1,465 531 486 572
Operating expenses:
Selling, general and
administrative
expenses.............. 1,035 925 1,007 1,291 1,291 1,376 3,027
Depreciation and
amortization.......... 216 232 323 313 321 253 440
------ ------ ------ ------ ------- ------- -------
Total operating
expenses............ 1,251 1,157 1,330 1,604 1,612 1,629 3,467
------ ------ ------ ------ ------- ------- -------
Operating loss.......... (587) (879) (768) (139) (1,081) (1,143) (2,895)
Interest expense, net... 37 33 81 82 38 30 84
Interest expense related
to stock warrants...... -- -- -- -- -- -- 636
------ ------ ------ ------ ------- ------- -------
Net loss................ $ (624) $ (912) $ (849) $ (221) $(1,119) $(1,173) $(3,615)
====== ====== ====== ====== ======= ======= =======
</TABLE>

Factors Affecting Operating Results

We have experienced significant fluctuations in our results of operations
from quarter to quarter. As a result of these fluctuations, period-to-period
comparison of our operating results is not necessarily meaningful and should
not be relied upon as an indicator of future performance. We expect our future
operating results to fluctuate. Factors that could cause these fluctuations
include:

. demand for and market acceptance of our order management and fulfillment
systems and services;

. client retention;

. fluctuations in third-party call center and fulfillment center costs;

. timing and magnitude of capital expenditures;

. costs relating to the expansion of our operations and the development of
our browser-based application;

. introduction of new systems and services or enhancements by us or our
competitors;

. the ability to meet the technological demands of our clients;

. changes in our pricing policies or those of our competitors; and

. economic conditions specific to the order management and fulfillment
industry, as well as generally.

As a result of these and other factors, our future operating results may fall
below the expectations of securities analysts and investors. In this event, the
price of our common stock could decrease significantly.

26
<PAGE>

Seasonality

Liquidity and Capital Resources

Since inception during January 1998, we have financed our operations
principally through funds from the private placement of equity securities. Such
funds have historically been supplemented with short-term borrowings under a
credit facility maintained with Comerica Bank-Texas. As of September 30, 1999,
we had working capital of approximately $6.7 million.

For the nine months ended September 30, 1999, net cash used in operating
activities was approximately $4.0 million compared to approximately $1.6
million for the nine months ended September 30, 1998. Significant uses of cash
in operations for the nine months ended September 30, 1999 include costs
associated with increased sales and marketing activities to promote our
services and capital expenditures in connection with systems infrastructure.

Our capital expenditures amounted to approximately $3.2 million for the nine
months ended September 30, 1999, $180,000 for the year ended December 31, 1998
and $126,000 for the 79-day period ended December 31, 1997. For the nine months
ended September 30, 1999, capital expenditures included the purchase of
technical equipment, including the replacement of a significant portion of call
center workstations, data center servers and the upgrading of our
telecommunications switches. In addition, we consolidated all of our technical
development and programming personnel into a new facility requiring upgraded
equipment.

Effective August 23, 1999, we completed an additional round of equity
financing with VantagePoint Venture Partners III (Q), L.P. and VantagePoint
Communications Partners, L.P., affiliated venture capital funds, through the
issuance of our Series A convertible preferred stock, Series B redeemable
preferred stock and common stock purchase warrants exercisable for 2,925,000
shares of our common stock. This transaction resulted in aggregate cash
proceeds to us of approximately $11.5 million, after deducting estimated
expenses. The net proceeds from the preferred stock financing are available for
general corporate purposes. We used a portion of the net proceeds from the
preferred stock financing to repay some of our credit facility with Comerica
Bank-Texas. In addition, we intend to use $6.0 million of the net proceeds from
the preferred stock financing to redeem our Series B redeemable preferred stock
upon the closing of this offering.

We maintain a $4.0 million credit facility with Comerica Bank consisting of a
$2.0 million revolving line of credit and a $2.0 million term note. The
revolving credit line matures on May 13, 2000 and borrowings are limited to a
borrowing base defined as $750,000 plus 80% of eligible accounts receivable.
Borrowings under our revolving credit facility bear interest at the bank's
prime rate plus .75%, which was 9.0% at September 30, 1999. At September 30,
1999, our outstanding debt under the revolving credit facility was
approximately $1.6 million. Until November 13, 1999, we can borrow up to $2.0
million under the term note for the purchase of property and equipment. At
September 30, 1999, our outstanding debt under the term note was approximately
$1.8 million. As of the date of this prospectus, we do not anticipate borrowing
additional funds under this term facility. The borrowings outstanding under the
term note on November 13, 1999 will become fixed and principal will be payable
monthly commencing December 13, 1999. The term note matures November 13, 2002
and bears interest at prime plus .75%, which is payable monthly. All borrowings
under our combined credit facility with Comerica Bank are collateralized by our
assets. Our credit agreement requires us to comply with some standard financial
covenants such as a minimal amount of tangible net worth, a minimal quick ratio
and a maximum amount of debt to tangible net worth. We pay a quarterly
commitment fee under the terms of our credit agreement equal to 0.25% of the
daily available borrowings thereunder. Prior to September 2, 1999, Mr. Charney
was the guarantor of up to $2.5 million borrowed under our credit facility and
received a fee from us as an inducement to do so.

27
<PAGE>

We believe that the remaining net proceeds from the preferred stock financing
closed in August 1999 and the proceeds from this offering will be sufficient to
meet our working capital and capital expenditure requirements for at least the
next 12 months. However, the execution of our business plan will require
substantial additional capital to fund our operating losses, working capital
needs, sales and marketing expenses, lease payments and capital expenditures
thereafter. In the event our plans or assumptions change or prove to be
inaccurate, or if we consummate any unplanned acquisitions of businesses or
assets, we may be required to seek additional sources of capital. Sources of
additional capital may include public and private equity and debt financings,
sales of nonstrategic assets and other financing arrangements.

While we have no material commitments for capital expenditures, we anticipate
making up to approximately $2.2 million of capital expenditures for technical
equipment in the next 12 months. Actual capital requirements may vary based
upon the timing and success of the expansion of our operations. Our capital
requirements may change based upon technological and competitive developments.
In addition, several factors may affect our capital requirements, including:

. Demand for our systems and services or our anticipated negative cash
flows from operations being more than anticipated;

. Our projections relating to the development of the browser-based
application of our software proves to have been inaccurate;

. We engage in acquisitions or other strategic transactions; or

. We accelerate or otherwise alter the schedule of our expansion plans.

At December 31, 1998, we had approximately $2.1 million of federal net
operating loss carryforwards available to offset future taxable income which,
if not utilized, will expire in 2018. The future benefit of our net operating
loss carryforwards may be limited as a result of the various ownership changes
that have occurred during 1999. Our total deferred tax assets have been fully
reserved due to the uncertainty of future taxable income. Accordingly, no tax
benefit has been recognized in the periods presented.

Contingency

As of September 30, 1999, accounts receivable attributable to e4L were
approximately $815,000, of which approximately $425,000 was current. While
management of e4L has provided us with verbal assurances regarding the payment
of amounts due from them, we believe that there is a risk that the account may
not be collected in whole or in part. If the account is uncollectible, this
could have a material adverse effect upon our financial position. In addition,
our collection efforts could include resort to litigation if necessary which
could entail considerable cost and the diversion of management.

Quantitative and Qualitative Disclosures About Market Risk

We currently do not engage in commodity futures trading or hedging activities
and do not enter into derivative financial instrument transactions for trading
or other speculative purposes. We also do not currently engage in transactions
in foreign currencies or in interest rate swap transactions that could expose
us to market risk.

Our exposure to market risk relates to changes in interest rates for
borrowings under our bank credit facility. These borrowings bear interest at
variable rates. At September 30, 1999, the outstanding principal balance under
our combined credit facility was approximately $3.4 million and during the
period from acquisition of the credit facility through September 30, 1999, the
average outstanding daily principal balance was approximately $2.1 million. If
interest rates were to increase immediately by 10% from levels on September 30,
1999, the resultant increase in interest expense would not have a material
impact on our results of operations as a whole.

28
<PAGE>

Year 2000 Issues

Impact of the Year 2000. The Year 2000 issue refers to the potential for
computer programs or systems which store or process date-related information
using two digits rather than four to represent the year. These programs or
systems may not be able to properly distinguish between a year in the 1900's
and a year in the 2000's. Failure of these programs or systems to make such a
distinction between the two centuries could cause the programs or systems to
yield erroneous results or even fail to perform normal business activities.

State of Readiness. We developed a Year 2000 program that was structured to
address our Year 2000 exposure. Our Year 2000 program focused on certain tasks
that address critical Year 2000 issues. These tasks included assessing each of
the following:

. Our computer hardware and proprietary software, including data,
networks, servers and workstations;

. Third-party hardware and software used with our software;

. Our telecommunications systems, utilities, computer room systems and
office equipment;

. The Year 2000 compliance of our third-party service providers and
vendors.

We also conducted a letter survey of landlords requesting information as to
the readiness and reliability of building systems including security access and
environmental control systems.

We have completed the process of determining the Year 2000 readiness of our
computer systems and software, including the internal hardware and software
that enable us to provide and deliver our order management and fulfillment
solutions as well as the third party hardware and software used in our
business. We believe that our systems, as a whole, are Year 2000 compliant. In
order to become fully Year 2000 ready, however, we must upgrade our internal
accounting systems. This process will be complete by November 30, 1999.

As of the date of this prospectus, we have also completed our assessment of
the Year 2000 readiness of substantially all of our third party service
providers and network vendors. We have received written or oral assurances from
the respondents to our Year 2000 compliance inquiry which we believe to be
adequate under the circumstances. Of the various third party service providers
and vendors not responding to our inquiry, we believe that none of such third
parties are deemed critical or reasonably necessary to the continued operation
of our business. Accordingly, we are not currently aware of any Year 2000
problems that would have a material adverse effect on our business, financial
condition or results of operations.

Costs. As of September 30, 1999, we had incurred approximately $2.15 million
in costs in connection with Year 2000 compliance efforts. We estimate that the
total remaining cost of our Year 2000 compliance efforts will be immaterial.
Costs associated with time spent by employees in the evaluation and
implementation phases of Year 2000 compliance matters have been incurred in the
normal course of our business. If we encounter unexpected difficulties, we may
need to spend additional amounts to ensure that our systems are Year 2000
compliant.

Risks. The most reasonably likely worst case Year 2000 scenario would involve
an outside system failure which would be beyond our control. Examples of these
risks inherent in our business are as follows:

. Significant and continuing interruption of electrical power to our data
center operations could materially and negatively effect our ability to
provide such data center operations. In an attempt to manage the
possible impact of this risk, we have installed back-up generator power
systems at our data center.

. Significant and continuing interruption of telecommunications and data
network services in our data center could materially and negatively
impact our ability to provide data center operations. We have conducted
detailed assessments of the components of our telecommunications
infrastructure and have added upgraded and additional telecommunications
equipment.

29
<PAGE>

. If a service provided by us is found to cause damage to a client because
of Year 2000 noncompliance causing business interruptions of a material
nature, claims of mismanagement, misrepresentation or breach of contract
could be filed against us. We cannot predict the outcome of any
potential legal claims.

Contingency Plan. After a review of the results of our assessments and the
responses received from third-party service providers and others, we have
determined that a contingency plan to address the worst-case risks that might
occur if technologies we are dependent on are not Year 2000 compliant is not
necessary. Accordingly, we do not anticipate developing such a contingency
plan.

New Accounting Pronouncements

As of January 1, 1998, we have adopted Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income," which requires
additional disclosures with respect to certain changes in assets and
liabilities that previously were not required to be reported as results of
operations for the period.

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivatives
and Similar Financial Instruments and Hedging Activities," which provides a
comprehensive and consistent standard for the recognition and measurement of
derivatives and hedging activities. We will be required to adopt SFAS 133 at
the beginning of fiscal year 2000. SFAS 133 is not expected to have a
significant impact on us.

In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed for or Obtained for Internal Use." SOP 98-1 requires all costs
related to the development of internal use of software other than those
incurred during the application development stage to be expensed as incurred.
Costs incurred during the application development stage are required to be
capitalized and amortized over the estimated useful life of the software. SOP
98-1 is effective for our fiscal year ending December 31, 1999. Prior to this
date, we will expense such costs as incurred. As a result of adopting SOP 98-1,
we expect to capitalize approximately $1.1 million relating to internal use of
software development projects in 1999 that otherwise would have been expensed
as incurred.

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BUSINESS

Overview

Our systems differentiate us by integrating multiple sales channels,
including Web sites and call centers, thus giving our clients' customers
greater control over their shopping experience. The customer can research
products, access real-time item availability and pay for the order through
either a Web site or by calling a customer service representative in any of our
integrated call centers. The customer can then either visit the Web site or
call an 800 number for customer service or real-time order status, regardless
of how the order was originally entered. Once the order is placed, our systems
instantly and automatically route the order to the fulfillment center closest
to the customer or drop-ship vendor, reducing shipping costs and time-in-
transit. For clients that have retail stores, we are expanding the
functionality of our systems to further enhance the shopping experience by
integrating the stores into our systems. We anticipate that this integration
will give our clients' customers the added option of confirming availability
and price at the closest retail store.

Industry Background

Growth of Electronic Commerce

The Internet is quickly becoming an important communications medium and sales
channel for both consumers and businesses worldwide. International Data
Corporation projects that the number of Internet users worldwide will grow from
approximately 142 million in 1998 to approximately 502 million in 2003.
International Data Corporation also projects that total worldwide commerce
conducted on the Internet will grow from an estimated $50 billion in 1998 to an
estimated $1.3 trillion in 2003 and the number of Web buyers worldwide will
increase from 31 million in 1998 to approximately 183 million in 2003.

The acceptance of electronic commerce has spurred the growth in the number of
Internet retailers and spending on establishing Internet commerce operations.
Forrester Research predicts that 82% of U.S. companies with over 1,000
employees will be doing business online by the year 2002. In addition,
International Data Corporation estimates that the market for Internet commerce
application software alone is expected to grow from approximately $444 million
in 1998 to approximately $10.1 billion in 2002.

Store based retailers are increasingly adopting electronic commerce
strategies to remain competitive. According to the Boston Consulting Group and
Shop.org, 62% of online retail revenues in 1998 were from retailers who had
business pre-existing the Web. While many traditional brick-and-mortar
retailers have already

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established a presence on the Internet, we expect that the increased pressure
to maintain market share will motivate traditional store-based retailers to
further enhance their electronic commerce operations.

Store-based retailers face numerous hurdles in competing with pure Internet
retailers. These hurdles include traditional retailers' physical and
geographical constraints and their reduced flexibility to adjust merchandising,
pricing and sales strategies compared to Internet retailers. We believe that
the competition faced by traditional store-based retailers in competing with
pure Internet retailers will result in an increased focus on their electronic
commerce operations including Web site functionality and integration of Web
sites, order management systems, call center operations and fulfillment
operations. According to International Data Corporation, Internet-related
spending among large retailers is expected to increase from an estimated $4.2
billion in 1998 to an estimated $17.5 billion in 2002.

Growth of the Outsourcing Industry

The trend toward outsourcing business processes is growing. According to a
survey conducted by Forrester Research, companies are motivated to outsource
one or more discrete business processes in order to gain better technical
expertise, cut costs, focus on core competencies, and solve IT staffing
problems. We believe that the proliferation of the Internet as a sales channel
will result in additional growth in the outsourcing of business processes. This
growth is being driven by: the increasing need to service a highly dispersed
customer base; the increasing technological complexity of modern business
processes and the relative lack of skilled personnel trained in such
technology; the need to integrate, on a real-time basis, an ever growing number
of components, including Web sites, call centers, fulfillment centers, vendors
and retail outlets; and the trend toward focusing on core competencies.

Industry Challenges

Internet retailers and other direct marketing companies traditionally have
had two choices when deciding how to handle their order management and
fulfillment operations, each of which has presented unique challenges:

In-House Alternative

Retailers choosing to retain order management and fulfillment operations in-
house have faced a variety of challenges, including:

. Significant initial and continuing costs. Developing in-house
application software and maintaining an in-house call center, data
center and fulfillment service can be expensive and difficult to manage,
especially for start-up enterprises. Given the significant initial costs
and economies of scale inherent in commerce-related operations, it is
difficult for many distributors to justify the costs of maintaining
these functions in-house.

. Delayed time to market. Establishing the necessary commerce-related
infrastructure in-house can significantly delay market entry for both
Internet retailers and direct marketing companies. However, the rapid
rise of the Internet as a sales channel and the actual or perceived
threat of new competitors eroding market share has motivated many
retailers to attempt to establish or extend their presence on the Web in
an accelerated fashion. To establish this type of infrastructure,
retailers are required to:

. internally develop or customize software to manage the various order
processes, including fulfillment operations, call center operations,
inventory management, payment processing, shipping and tracking,
returns processing, accounting and other specialized functions;

. establish call centers, fulfillment facilities and data centers;

. integrate each of the discrete software applications and facilities;
and

. hire and train technology professionals, qualified call center and
fulfillment center staff and other support personnel.

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. Need to provide real-time systems integration. Real-time systems
integration among all of the various commerce-related components is
critical to a successful back end operation because it reduces the time
required to process an order, facilitates superior customer service,
reduces human error and permits management to track and analyze data at
all stages of the order life cycle. We believe that a significant
majority of electronic commerce customer support functions are basic and
not linked with existing systems. For example, only a relatively small
percentage of Web sites permit their customers to check account or order
status on line. We believe that many companies do not possess the
necessary expertise to design and implement a solution to this problem.

. Need for an infrastructure that can expand or contract on
demand. Retailers electing to establish operations in-house face the
continual challenge of sizing their infrastructure to efficiently meet
changing customer demands. To remain competitive, these companies must
reconcile current, anticipated and seasonal buying patterns with
available warehouse and call center capacity. While excess capacity
results in costly operating inefficiencies, insufficient capacity can
lead to customer dissatisfaction and missed sales opportunities.

Traditional Outsourcing Alternative

Internet retailers and direct marketing companies choosing to outsource their
commerce-related operations have traditionally sought solutions from a variety
of service providers including software companies, technology consultants, call
centers, fulfillment centers and Web developers. However, the ability to
provide and integrate these functions has typically been beyond the
capabilities of most single-function service providers and has therefore
required companies to outsource their operations to multiple nonintegrated
providers.

The ASD Systems Solution

We believe that our solutions offer the following benefits to Internet
retailers and direct marketing companies for outsourcing their commerce-related
operations:

. Cost savings and faster time to market. By outsourcing their commerce-
related operations to us, our clients avoid the significant initial and
ongoing capital investments associated with acquiring and maintaining
the necessary systems and facilities. Because our clients pay for our
services as they are needed, their operating costs are generally lower
and more predictable. Furthermore, our network of strategically located
fulfillment centers allows our clients to reduce shipping costs and
decrease time in transit by shipping from multiple locations. Lastly,
our systems and services permit businesses to expand their existing
operations or enter into new markets on an accelerated time frame by
eliminating the time they would require to develop their own commerce-
related operations.

. Comprehensive and reliable outsourced operations. Using our proprietary
systems, we actively manage and integrate in real-time Web sites, call
centers, fulfillment centers and vendors. We believe that a single
source solution provides our clients with greater efficiency, higher
customer service levels and greater management control. We believe that
the comprehensive nature of our solution allows our clients to remain
focused on their core competencies.

. Capacity that can expand and contract with the clients' changing
needs. Both our systems and network of call centers and fulfillment
centers can increase or decrease in size and services offered to meet
our clients' changing requirements. We currently maintain relationships
with multiple third-party call centers and fulfillment centers that have
been integrated with our systems to provide our clients with the ability
to expand and contract their operations as necessary. We enhance this
network of service providers as necessary to support the requirements of
our clients. We also ship from additional warehouses that are owned by,
or under contract with, our clients. Our systems can also be expanded to
support our network as needed. We believe that our clients directly
benefit from our flexible solution because they are ensured of the
appropriate processing capacity at each stage of their business life
cycle.

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<PAGE>

. High levels of customer service. One of our service objectives is to
differentiate our clients by enabling them to provide high levels of
customer service. Our systems allow our clients' customers to instantly
access inventory availability, order status details and delivery
information through either a call center representative or the client's
Web site. Similarly, our clients have the ability to monitor all aspects
of their commerce-related operations online. At engagement, each client
is assigned an account team consisting of technical, systems and
customer support personnel. That account team actively works with the
client to customize our services and systems in order to create a
feature set that increases the client's ability to control inventory,
service its customers and maintain the efficiency of their commerce-
related operations.

Our Growth Strategy

. Capitalizing on Internet commerce growth. We intend to aggressively
market our solutions to the growing number of Internet retailers. We
believe these companies can significantly benefit from our solutions and
will provide us with the greatest opportunity for growth.

. Expanding our sales and marketing efforts. We plan to actively market
our solutions to both Internet retailers and direct marketing companies.
To accomplish this objective, we have significantly increased our sales
and marketing team from three to eight individuals since June 1, 1999.
We anticipate using a portion of the net proceeds derived from this
offering to further enhance our sales and marketing capabilities. We
believe that our investment in sales and marketing will enable us to
compete effectively for larger contracts.

. Building on our strategic relationships. We intend to grow our client
base by leveraging our strategic relationships with Web developers,
systems integrators, Internet consultants, technology companies, call
centers and fulfillment centers. In addition to providing us with
increased market recognition and access to new sales channels, we
believe that these alliances will allow us to provide our clients with
additional services.

. Leveraging expandable systems and third-party infrastructure. Our
flexible systems and integrated network of third-party call centers and
fulfillment centers provides us with the ability to support our clients'
needs as our business grows. These third-party relationships allow us to
increase our revenues without investing in additional facilities and
personnel.

. Developing and supporting systems functionality. We plan to continue to
work closely with our clients to develop advanced features required by
them to meet the needs of their businesses. We believe that by
developing these specialized features for our clients, we will become an
increasingly important part of their businesses and will solidify long-
term relationships. In addition, we intend to continue leveraging the
knowledge gained and functionality created for particular clients to
expand the depth of our solution for other clients.

. Maintaining high levels of client satisfaction. We work closely with our
clients to understand and address their technical requirements and
business objectives. In doing so, we seek to optimize the efficiency of
our services, ensure a smooth transition to our outsourced solution and
identify those additions that may need to be made to our services or
systems as clients' needs change over time. We continually monitor
numerous metrics of operations including order abandonment rates,
customer satisfaction levels, on-time delivery performance, returns
processing, inventory accuracy, credit card settlement and daily
balancing.

Our growth strategy involves substantial risk. We cannot provide any
assurance that we will be successful in implementing our strategy or that it
will lead to the achievement of our objectives. If we are unable to implement
our growth strategy effectively, our business, results of operations and
financial condition would be materially adversely affected.

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Our Services

Our systems and services allow our clients to outsource some or all of their
commerce-related operations. We typically charge on a per-transaction basis for
systems processing, on a per-minute basis for call center services and on a
per-item basis for fulfillment services. Additional fees are billed for other
services.

Systems Services

Our systems support and integrate order capturing, processing and
fulfillment. We do not sell or license our software on a stand-alone basis;
rather, we install and operate our systems as a service. Our systems services
include customizing our proprietary software, integrating applications,
managing data centers and supporting networks for our clients. Our systems also
form the foundation for our expandable call center and fulfillment center
services. While some of our clients use their own call center services or
fulfillment center services, all of our clients use our systems services.

We have invested significant resources in developing and improving our
proprietary software to automate and integrate each of the key commerce-related
operations. Our proprietary software consists of the following three modules:

<TABLE>
<CAPTION>
Order-entry module Processing module Fulfillment module
- -------------------------- ----------------------- ----------------------------
<S> <C> <C>
. Order entry through .Order routing . Inventory control and
both Web sites and call .Credit card processing replenishment
centers .Back order processing . Purchase order management
. Customer service from .Payment settlement . Invoice generation
both Web sites and call .Forecasting . Pick, pack and ship
centers processing
. Manifest generation
. Returns processing
</TABLE>

Our systems also integrate vendors using online or electronic data
interchange capabilities. As a result, our systems provide access to both order
and inventory status. In addition, our systems generate summary reports for our
clients that are posted on the Internet so that they may be retrieved from
remote and multiple locations.

Our payment processing services support both traditional call center payment
processing as well as Web site payment processing. We also handle credit
denials. We provide the systems module and conduct and manage the payment
processing function.

Our data center supports around-the-clock systems hosting and maintenance and
has a help desk for clients' inquiries. Certain systems installations also have
built-in redundancy that enables remote call centers and fulfillment centers to
remain fully operable should connectivity be lost.

Call Center Services

Our call center services include both order acquisition and post-sale
customer support. Our call center network is comprised of one company-owned
call center and four third-party call centers. Three of the third-party call
centers in our network are currently dedicated to servicing the needs of our
largest client. We contract with third-party call centers that meet our
criteria of service standards, financial stability, available capacity and
systems compatibility. The third-party call centers use our call center
software and are integrated into our network. As a result, our third-party call
centers are able to provide customers with real-time customer support--
regardless of whether the order originated in that call center, in another call
center or over the Web. Each third-party call center is evaluated, trained and
continuously monitored by us to ensure that it adheres to the standards
established by us and our clients. The involvement of our third-party call
centers in servicing a client is transparent because each is fully integrated
and each provides the same high standards of service.

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<PAGE>

Our third-party call center network currently includes four call centers,
which can provide access to thousands of call center representatives. This
network can be expanded and customized to meet the particular service needs and
capacity requirements of Internet retailers and direct marketing companies. Our
network can either provide supplementary call center services for clients whose
centers are running at capacity or can support the entire call center needs for
our clients. Our call center services are available 24 hours per day, 365 days
per year.

Our internal call center handled approximately 41% of all calls received
during the 12-month period ended June 30, 1999, and our network of third-party
call centers handled the remaining 59% of calls received during that period. We
anticipate that the percentage of calls handled by our internal call center
will decrease over time as the demand for our services increases and we add
additional third-party call centers to our network.

Fulfillment Services

Our fulfillment center network is comprised of one company-owned fulfillment
center and a network of seven third-party fulfillment centers. One of the
third-party fulfillment centers in our network is currently dedicated to
servicing the needs of our largest client. We contract with third-party
fulfillment centers that meet our criteria of service standards, financial
stability, available capacity and system compatibility. Our third-party
fulfillment network can expand as our clients' needs grow. At present, the
fulfillment centers are located in Sparks, Nevada; Indianapolis, Indiana;
Harrisburg, Pennsylvania; Atlanta, Georgia; Dallas, Texas; Los Angeles,
California; and two centers in Chicago, Illinois. This network of third-party
fulfillment centers allows our clients to reduce shipping costs and decrease
time in transit by shipping from multiple locations. When an order is entered
either through a Web site or call center, our systems locate the fulfillment
center closest to the customer that has the item in stock. Consequently, the
customer gets the order more quickly without paying a premium for delivery.

Our third-party fulfillment centers are fully integrated into our systems.
Therefore, these fulfillment centers are capable of facilitating real-time
fulfillment, order status, inventory allocations and physical inventory counts.
Each third-party fulfillment center is evaluated, trained and continuously
monitored by us to ensure that it adheres to the standards established by us
and our clients. As with our network of third-party call centers, a third-party
fulfillment center's involvement in servicing a client is transparent because
each is fully integrated and each provides the same high standards of service.

Our third-party fulfillment center network can be expanded and customized to
meet the particular service needs and capacity requirements of our clients. Our
fulfillment centers:

. Facilitate real-time order tracking;

. Accommodate semi- and fully-automated picking methods;

. Offer specialized services such as customized packaging, gift wrapping
and product personalization;

. Integrate with various shipping carriers; and

. Provide inventory management services such as purchasing, receiving,
returns processing and replenishment.

Our fulfillment services are designed to assist our clients in achieving
their objectives for inventory levels and initial fill rates. Initial fill
rates are the rates at which inventory is in stock when a customer first orders
the item. Our solutions provide access to a team of experienced inventory
managers who are available to ensure that product is available for order
fulfillment. The account managers use our systems to streamline inventory
replenishment, thereby minimizing back orders.

Our internal fulfillment center handled approximately 47% of all items
shipped during the 12-month period ended June 30, 1999, and our network of
third-party fulfillment centers handled the remaining 53% of items shipped
during that period. We anticipate that the percentage of items shipped by our
internal fulfillment center will decrease over time as the demand for our
services increases and we add additional third-party fulfillment centers to our
network.

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<PAGE>

Other Services

Client management. Each client is assigned an account team consisting of
account managers, data administrators, programmers and one or more help desk
representatives. In addition, technical support is provided by our data center,
which monitors network operations 24 hours per day, 365 days per year. This
team ensures that client requests are met promptly and issues are resolved as
quickly as possible. Our account team is responsible for meeting with clients'
management on strategic planning issues, such as improving inventory turns and
generating cross-sell opportunities. Our client services team is experienced in
direct marketing operations and applies its collective experience and knowledge
to improving each client's operations.

Web site related services. We also provide Web site design and hosting
services in addition to our systems services. Traditionally, we have partnered
with a third-party Web design firm when necessary.

Consulting services. We offer consulting services on an as-needed basis to
potential clients to help them understand and define their order management and
fulfillment needs and to demonstrate how our services and systems could support
those needs.

Client Relationships

Following is a chart illustrating the various services we currently provide
to our continuing clients, listed alphabetically.

<TABLE>
<CAPTION>
Fulfillment
Call Center Center Other
Systems Services Services Services Services
-------------------------------------------------------------------------------------------------------------
Fulfillment Inventory Web Site
Web Site Call Center Center Payment Order Customer Replenish- Client Related
Integration Integration Integration Processing Acquisition Support Fulfillment ment Management Services
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EDS for Sony's X X X X X
Metreon.com
- ----------------------------------------------------------------------------------------------------------------------------------
HoneyBaked Ham X X X X X
of Georgia
- ----------------------------------------------------------------------------------------------------------------------------------
King World
Direct X X X X X X
- ----------------------------------------------------------------------------------------------------------------------------------
Music In Motion X X X X X X X
- ----------------------------------------------------------------------------------------------------------------------------------
Sears Craftsman X X X X X X X X X
Tools
- ----------------------------------------------------------------------------------------------------------------------------------
Sears Healthcare X X X X X X X X
- ----------------------------------------------------------------------------------------------------------------------------------
Sears Wish Book X X X X X X
- ----------------------------------------------------------------------------------------------------------------------------------
Toys "R" Us X X X X X X X
- ----------------------------------------------------------------------------------------------------------------------------------
United Media X X X X X X X
</TABLE>

For the fiscal year ended December 31, 1998 and in the first nine months of
1999, Sears, our largest client, accounted for approximately 84% and 55% of our
gross revenues, respectively. The termination by one or any number of our
clients, or the failure by our clients to renew the terms of their contracts,
may have a material adverse effect on our business, including our financial
performance and revenue stream, or may result in the loss of an important
client reference. See "Risk Factors--Risks Related to Our Business--Sears
currently represents a significant majority of our business and our success
depends in part on our ability to retain them as a client" and "--Our
significant client contracts are either short-term or terminable with minimal
notice."

As of October 1, 1999, we have agreed with management of e4L to mutually
terminate our business relationship, subject only to a short period of
transition. For the first nine months of 1999, e4L accounted for approximately
27% of our gross revenues. See "Risk Factors--Risks Related to Our Business--
The loss of e4L as a client will result in the loss of recurring revenue from
this client" and "--We may not be able to satisfy the unique and sophisticated
requirements of our clients."

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<PAGE>

Select Client Case Studies

We have described below three of our client relationships that illustrate the
comprehensive and diverse range of our systems and services.

Sears Roebuck's Craftsman Power and Hand Tools

Sears Roebuck markets a broad line of power and hand tools through its
Craftsman Power and Hand Tools catalog and Web site. Our relationship with the
Craftsman Power and Hand Tools catalog and Web site demonstrates the
expandability and comprehensive nature of our systems and services. In addition
to providing the commerce-related operations for the Craftsman catalog, we also
provide services to Sears Roebuck in connection with its Home Healthcare
catalog. Sears Roebuck was our first client in 1995 and, together with Sears
Wish Book, continues to remain our largest client.

We began supporting the commerce-related operations of the Craftsman Power
and Hand Tool catalog in 1995. Currently, we provide call center services,
including order acquisition and customer support, as well as payment processing
and fulfillment services for the catalog. Fulfillment is now provided from
multiple warehouses, one of which is specially equipped to process large, heavy
items. We have also integrated certain vendors into the Craftsman fulfillment
network, allowing such vendors to ship directly to the customer. In addition,
we manage the Craftsman catalog inventory by replenishing depleting stock. In
1996, Sears Roebuck elected to expand its direct marketing activities to
include electronic commerce. Accordingly, Sears Roebuck retained ASD Systems to
integrate a Craftsman Web site into the back-office infrastructure previously
established for its catalog operations.

As a result of the ASD Systems solution, Craftsman's customers now have
access to current inventory availability and order status and are able to place
orders and receive customer support from either the 800 number or the Web site.
Customers placing orders through either channel can contact a customer service
representative only seconds after placing the order and that representative
will know exactly who the customer is and what was ordered.

We have incorporated numerous customized features into the Sears Roebuck
service offering including features that facilitate warranty exchanges,
multiple pricing methods and customer service agents that are trained in the
use of various Craftsman products.

The HoneyBaked Ham Company of Georgia

The HoneyBaked Ham Company of Georgia is a nationally recognized retailer and
direct marketer of gourmet hams and other specialty foods. Our relationship
with HoneyBaked Ham demonstrates our ability to integrate various sales
channels and facilities, including a catalog, an electronic commerce Web site,
over 100 company-owned retail stores, multiple warehouses, a customer support
center and a substantial business-to-business operation. We are implementing
our solution for HoneyBaked Ham in three phases.

The first phase, which has been completed, involved the integration of our
order management systems with HoneyBaked Ham's existing customer service center
and refrigerated fulfillment centers. Using our systems, we integrated the
HoneyBaked Ham warehouse, three third-party fulfillment centers and our own
call center, which is responsible for taking catalog orders. We are also
providing HoneyBaked Ham with payment processing and customized activity
reporting.

During the second phase, we intend to integrate HoneyBaked Ham's commerce-
enabled Web site into the commerce-related operations established for it during
the first phase. As with our other multi-channeled clients, we believe that
this real-time integration will allow HoneyBaked Ham to realize greater
efficiencies and control over its direct marketing operations. In addition,
HoneyBaked Ham expects to improve customer service by enabling its customers to
receive immediate and accurate inventory and order status through either the
Web site

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<PAGE>

or a call center representative. The systems are expected to support
personalized cross sells and up sells through both the Web site and call
center.

During the third and final phase, we anticipate integrating HoneyBaked Ham's
direct marketing operation with its participating retail stores. This
integration will give HoneyBaked Ham's customers the choice of either picking
the product up from the closest store or having it shipped from the appropriate
fulfillment center. Upon completion of the third phase, we expect that our
systems will provide HoneyBaked Ham and its customers with real-time
connectivity among their catalog operation, Web site and retail stores as well
as their back-office services, such as customer support and fulfillment.

EDS for Sony's Metreon.com

Electronic Data Systems, sometimes referred to as EDS, contracted with us to
provide its client Metreon, Sony's new entertainment center in San Francisco,
with the order management and fulfillment systems and services for its
commerce-enabled Web site, Metreon.com. Our involvement in this project
illustrates our ability to work with technology partners to deliver an
electronic commerce solution to the client's entire commerce related operation.
This particular implementation was built using Microsoft's Site Server Commerce
Edition, and Microsoft took an active role in consulting on the implementation
of this project.

While EDS' E.Solutions division developed the online storefront and marketing
strategy, we provided the site with real-time integration to our
infrastructure, including payment processing, call center and fulfillment
services. The real-time nature of this integration ensures that the Metreon.com
customer receives up-to-the-moment information, including inventory
availability and order status. The customer knows when a product is out of
stock, and his or her credit card transaction is not processed unless the item
is in stock.

Through our systems and services, Metreon.com has gained access to the
necessary electronic commerce infrastructure without incurring the substantial
expenses associated with facilities, software and staff. We believe that our
per-transaction pricing model accelerated Metreon's time to market and will
ease its growth.

Sales and Marketing

Sales Strategy

Direct sales channel. A majority of our sales and marketing efforts are
focused on our direct sales channel, which we have identified to include
Internet retailers and direct marketing companies. Within this channel, we
believe that Internet retailers will provide us with the greatest opportunity
for growth. Accordingly, since June 1, 1999, we hired a total of five sales and
marketing personnel, including two additional sales executives and one
additional marketing coordinator who are responsible for marketing our
solutions to Internet retailers, Web developers and others directly involved in
Internet commerce. We intend to add up to three additional sales professionals
to our sales organization by the end of 1999. As of September 30, 1999, we had
a sales organization consisting of seven sales professionals with an average of
more than 10 years of sales experience. As of September 30, 1999, we also
maintained two additional senior outside sales consultants to supplement our
sales force.

Indirect sales channel. We are also committed to expanding our indirect sales
channel by forming additional relationships with Web developers, systems
integrators, Internet consultants, technology companies, call centers and
fulfillment centers:

. Web developers. We believe that our comprehensive service offering
strongly complements a Web developer's efforts and capabilities. While a
Web developer specializes in front-end Web design and marketing, we
specialize in providing the order management and fulfillment systems and
services supporting the commerce-related operations.

. Systems integrators and Internet consultants. We believe that systems
integrators and Internet consultants are actively seeking outsourcing
solutions to support their clients' operations. As a result, we
anticipate that these entities will find our comprehensive service
offering an attractive alternative.

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<PAGE>

For example, we intend to capitalize on our existing relationship with
EDS, which provided us with the opportunity to partner on a project for
Sony's Metreon.com.

. Technology companies. We believe that there are numerous software
companies, Web-hosting companies, Internet service providers and value-
added resellers targeting our potential clients. We believe that we can
assist these enterprises in differentiating themselves from their
competitors by providing additional services to complete their proposed
solutions.

. Call centers and fulfillment centers. We anticipate that our network of
call centers and fulfillment centers will provide us with significant
opportunities for expanding sales in the future. Because each of our
third-party service providers is familiar with our proprietary systems
and level of service, we believe that they will be more likely to
recommend our complete set of services to their clients.

Marketing Strategy

Our primary marketing goal is to identify and target executives of potential
clients that have authority over their respective company's electronic
commerce initiatives and order management and fulfillment operations. Initial
sales activities typically include a demonstration of our capabilities
followed by one or more detailed technical reviews.

We use a variety of marketing programs to build market awareness of our
brand name and our systems and services. A broad mix of programs are used to
accomplish these goals, including:

. advertising;

. direct mail campaigns;

. technology and strategy updates with industry analysts;

. public relations activities;

. relationship marketing programs;

. seminars, trade shows and speaking engagements; and

. Web site marketing.

Software Development

We have made substantial investments in the development of our proprietary
software. To date, our software development activity has been directed towards
extending the functionality of our current systems as well as developing a
next-generation browser-based version of our systems. Development input is
obtained primarily through discussions with the users of our systems, as well
as professional consultants, employees and prospective clients.

We are designing the next-generation of our system to be a component,
browser-based system that will encompass some of the technological advances
offered by companies such as Microsoft, IBM, Sun Microsystems and Lucent
Technologies. These advances include integration of telephony technology for
call center operations, distributed component technologies for improved data
processing and the latest in software engineering tools and techniques. Our
next-generation system is expected to make use of Java, Distributed Network
Architecture, on-line transaction processing, application messaging and XML.
The architecture of our browser-based application is designed on a multi-
tiered open platform using layers representing presentation, business logic
and database services.

The systems will not only use the Internet to facilitate information
exchange, but as a browser-based application, will run within the confines of
a Web browser. One benefit of this application is that access to our systems
will only require a connection to the Internet and the applicable Web address
and password. The more

40
<PAGE>

universal browser-based system is also expected to considerably speed up and
simplify the integration between the client's commerce-related operations and
our solutions. In addition, this system is expected to allow for a more rapid
and straightforward deployment of a client's particular feature requests. The
systems should also simplify and speed up any necessary maintenance. This
browser-based application should benefit Internet retailers by giving them
customized, flexible and quick access to our commerce-related order management
systems and services. See "Risk Factors--Risks Related to Our Business--Our
development of a next-generation browser-based software application may not be
successful and may cause business disruption."

For the year ended December 31, 1998 we incurred approximately $1.0 million
of software development expense and for the nine months ended September 30,
1999, we incurred an additional $588,000 of such costs which have been
capitalized in 1999. We expect that we will continue to commit significant
resources to software development in the future including over the course of
the next 12 months. Prior to January 1, 1999, all software development costs
were expensed as incurred.

As of September 30, 1999, five full-time employees were engaged in software
development. In addition, most of our technical staff and management team and
certain outside consultants contribute to design and development activities. We
plan to increase our technical services organization by up to an additional
eight employees by the end of 1999. We believe that recruiting and retaining
highly trained technical personnel and consultants is essential to our success.
To the extent we are unable to successfully attract and retain our technical
staff, or to the extent we are unable to hire qualified outside consultants to
perform these tasks, our business and results of operations may be harmed. See
"Risk Factors--Risks Related to Our Business--Our success depends on retaining
our current key personnel and attracting additional personnel, particularly in
the areas of client support and technical services."

Competition

The markets in which we operate are characterized by intense competition from
several types of service providers, including call centers (such as West
TeleServices Corporation; Matrixx Marketing, Inc.; and APAC TeleServices,
Inc.); systems integrators (such as EDS; Perot Systems Corporation and Andersen
Consulting); software providers (such as Smith Gardner and Associates, Inc.;
CommercialWare, Inc.; Ariba, Inc.; Commerce One, Inc.; and IBM); traditional
fulfillment companies (such as GENCO Distribution System and ODC Integrated
Logistics); outsourcing divisions of direct marketing companies (such as
Keystone Fulfillment, Inc. and Fingerhut Companies, Inc.); order processing
companies (such as OrderTrust) and electronic commerce service providers (such
as ComAlliance; Digital River, Inc.; Pandesic LLC and INTERSHOP Communications,
Inc.). Our competitors may also operate in areas not identified above. We
expect there are other competitors that we have not identified. We believe that
we compete with these and our other competitors on the basis of our technical
capabilities, scope of service, industry experience, past contract performance,
service level and price.

We expect to face further competition from new market entrants and possible
alliances between competitors in the future. In particular, we believe that
traditional catalog companies looking to fully utilize excess capacity by
outsourcing may enter the market and provide competition in the future. Certain
of our current and potential future competitors have greater financial,
technical, market and other resources than we do. As a result, these
competitors may be able to respond more quickly to new or emerging technologies
and changes in client requirements or to devote greater resources to the
development, promotion and sales of their services than we can.

There can be no assurance that we will be able to compete successfully with
existing or new competitors or that competition will not have a material
adverse effect on our business, financial condition and operating results.

Intellectual Property

Our success and ability to compete is dependent on our ability to develop and
maintain the proprietary aspects of our technology and operate without
infringing on the proprietary rights of others. We rely on a

41
<PAGE>

combination of copyrights, trademark, service mark and trade secret laws and
contractual restrictions to establish and protect the proprietary rights of our
software and services. However, we will not be able to protect our intellectual
property if we are unable to enforce our rights or if we do not detect
unauthorized use of our intellectual property. In addition, these legal
protections only provide us with limited protection. If we litigate to enforce
our rights, it would be expensive, divert management resources and may not be
adequate to protect our business. Our inability to protect our proprietary
technology could have a material adverse effect on our business, prospects,
financial condition and results of operations.

We have not filed any United States patent applications with respect to our
order management systems, nor do we have any patent applications pending. As a
result, we currently do not have patented technology that would preclude or
inhibit competitors from entering our market. Moreover, none of our technology
is patented abroad, nor do we currently have any international patent
applications pending. As of the date of this prospectus, we have not secured
registration on any of our service marks in the United States nor have we
pursued registration in any foreign country. We cannot be certain that any
future patents, registered trademark or registered service marks, if any, will
be granted or that any future patent, trademark or service mark will not be
challenged, invalidated or circumvented, or that rights granted under any
patents, trademarks or service marks that may be issued in the future will
actually provide a competitive advantage to us.

Employees

As of September 30, 1999, we had a total of 493 employees. Of the total
employees, 7 were in sales and marketing, 255 were in call center operations,
21 were in finance and administration, 97 were in software development and
support and 113 were in fulfillment. Our employees are not represented by any
collective bargaining unit, and we have never experienced a work stoppage. We
believe our relations with our employees to be good. From time to time we also
employ independent contractors to support our professional services, product
development, sales, marketing and business development organizations.

Our future success will depend, in part, on our ability to attract, retain
and motivate highly qualified technical and management personnel for whom
competition is intense. As part of our retention efforts, we seek to minimize
turnover of key employees by emphasizing our industry experience, the nature of
our work, our work environment, our encouragement of technical enhancements and
our competitive compensation packages.

Facilities

Our headquarters are currently located at a leased facility in Garland,
Texas, consisting of approximately 100,000 square feet of fulfillment center
space and 13,000 square feet of office space under a lease expiring in March
2003. Our call center and systems operation center is located in Dallas, Texas
within one mile of our corporate offices in a 20,000 square foot building owned
by Norm Charney, our President and Chief Executive Officer. This facility is
the subject of a lease expiring May 2000. See "Certain Transactions." We have
also leased an aggregate of 29,000 square feet of additional space in Dallas,
Texas near our headquarters building for our data processing personnel and
additional warehouse space.

Legal Matters

From time to time we may be involved in litigations that arise through the
normal course of business operations. As of the date of this prospectus, we are
not a party to any litigation we believe could reasonably be expected to have a
material adverse affect on our business or results of operation.

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<PAGE>

MANAGEMENT

Executive Officers and Directors

The executive officers and directors and their ages are as follows:

<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Norman Charney.......... 49 Chairman of the Board, Chief Executive Officer and President
Paul M. Jennings........ 45 Chief Technology Officer and Director
David E. Bowe........... 40 Executive Vice President and Chief Financial Officer
James P. Cormier........ 41 Chief Operating Officer
Stace S. Hunt........... 34 Senior Vice President--Sales
James H. McAlister...... 42 Vice President--Finance, Treasurer and Secretary
Jonathan R. Bloch....... 45 Director
Alan E. Salzman......... 46 Director
Paul G. Sherer.......... 41 Director
Kevin P. Yancy.......... 47 Director
</TABLE>

Norman Charney is a co-founder of ASD Systems and has served as Chairman of
the Board, Chief Executive Officer and President since inception and in similar
capacities for ASD Partners, Ltd. (a predecessor of ASD Systems) from October
1997 through December 1997. Mr. Charney was President and a director of
Athletic Supply of Dallas, Inc. (a prior predecessor of ASD Systems) from 1981
through December 1996 when this entity was sold, in its entirety, to Genesis
Direct, Inc. From December 1996 through October 1997, Mr. Charney was employed
in various executive capacities by Athletic Supply of Dallas. Mr. Charney is a
Certified Public Accountant and received his B.Com. in business from McGill
University in Montreal, Canada.

Paul M. Jennings is a co-founder of ASD Systems and served as our Chief
Information Officer and Chief Operating Officer from inception until September
15, 1999 when he was elected as our Chief Technology Officer. Mr. Jennings has
served as a director of ASD Systems since inception. Mr. Jennings served in
similar capacities with ASD Partners, Ltd. from October 1997 through December
1997. For more than ten years prior to joining ASD Partners, Ltd., Mr. Jennings
served as director of MIS for Athletic Supply of Dallas. Mr. Jennings received
a B.S. in finance from the University of Texas at Dallas.

David E. Bowe became our Executive Vice President and Chief Financial Officer
in September 1999. Before joining us, Mr. Bowe served as President of U.S.
Housewares Corporation, a privately held consumer products holding company,
from September 1998 to September 1999. Prior to that, Mr. Bowe was Executive
Vice President of Heartland Capital Partners L.P., a private equity firm, from
1993 to 1997 where he was responsible for making private equity investments.
From 1987 to 1992, Mr. Bowe served in various executive capacities for The
Thompson Company, a private investment firm where he participated in the
acquisition, development and operation of several portfolio companies. From
1980 to 1987, Mr. Bowe held various executive positions with Brown Brothers
Harriman & Co., a Wall Street private bank. Mr. Bowe is a Chartered Financial
Analyst and received a BSBA in Finance from Georgetown University. Mr. Bowe has
also served as an Advisory Director of ASD Systems since March 1999.

James P. Cormier joined us in June 1999 as Vice President--Operations,
responsible for call center logistics, client services training and system
operations and became our Chief Operating Officer on September 15, 1999. Prior
to joining us, Mr. Cormier was Senior Vice President for Connextions
International (a fulfillment, call center and database management company) from
May 1998 through April 1999, where he was responsible for a start-up division
focused on call center and fulfillment business. From November 1993 through May
1998, Mr. Cormier was the Senior Vice President of Operations for NEST
Entertainment (a direct sales, consumer entertainment products company), where
he was responsible for systems operations including management information
systems, distribution and inbound/outbound telemarketing.

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<PAGE>

Stace S. Hunt has served as our Senior Vice President--Sales since June 1999.
Prior to joining us, Mr. Hunt was employed for one month by IBM as a principal
in the national accounts program of the e-business division. From June 1991 to
July 1992, Mr. Hunt was a sales manager with RGB Systems (a multimedia and
computer display systems company). From December 1989 to June 1991 and then
from August 1992 to April 1999 Mr. Hunt was employed by EDS in various
capacities, including sales executive, manager, service line manager and
project manager. Mr. Hunt received his B.A. in communications from Stephen F.
Austin University.

James H. McAlister has served as our Vice President--Finance since joining us
in April 1999. Mr. McAlister was also elected our Treasurer and Secretary
effective September 10, 1999. From July 1993 through August 1998, Mr. McAlister
was the Controller for MilBrands, Inc., a privately held military food broker,
where he was responsible for supervising that company's accounting, computer
systems and customer service departments. MilBrands was sold in August 1998.
From the date of sale through February 1999, Mr. McAlister was responsible for
the transition of the business of Milbrands to the new owner. Mr. McAlister is
a Certified Public Accountant and received a B.B.A. degree from the University
of Iowa.

Jonathan R. Bloch has served as a director of ASD Systems since March 10,
1999. Since June 1997, Mr. Bloch has served as a Senior Vice President and is
now Managing Director of the technology division of Chanin Capital Partners (an
investment bank and financial advisor). He has served as the Chairman of the
Board of Directors of Old Tucson Co. (an amusement park) since January 1997.
From September 1995 to June 1997, Mr. Bloch served as Chief Executive Officer
of Resource Recovery Techniques of Arizona (a water treatment company), where
he was responsible for general administration. From August 1995 to June 1997,
Mr. Bloch was the Managing Member and General Manager of Santa Monica
Amusements, Inc. (an amusement park on the Santa Monica pier). From April 1992
to August 1995, Mr. Bloch was Chief Executive Officer of the California
Fertility Associates (a medical clinic), where he was responsible for general
administration and management. He received a B.A. from the University of
California at Berkeley and a J.D. from the University of San Diego School of
Law.

Alan E. Salzman has served as a director of ASD Systems since August 23,
1999. Mr. Salzman is a founder and managing partner of VantagePoint Venture
Partners, a venture capital firm focused on the Internet, data networking and
communications services. From March 1995 to March 1998, Mr. Salzman was a
general partner with Canaan Partners, a venture capital firm. Prior to that,
Mr. Salzman was a partner with Brobeck, Phleger & Harrison, LLP, a law firm.
Mr. Salzman received a B.A. from the University of Toronto, a J.D. from
Stanford Law School and an L.L.M. from the University of Brussels. Mr. Salzman
is a member of the board of directors of Cybergold, Inc.

Paul G. Sherer has served as a director of ASD Systems since August 23, 1999.
Mr. Sherer is a partner of VantagePoint Venture Partners. Prior to joining
VantagePoint, Mr. Sherer was Managing Director, Investment Banking and Head of
Telecom and Enterprise Communication Technology for Robertson, Stephens &
Company from May 1990 to June 1998, where he was responsible for worldwide
relationship management. Prior to that, Mr. Sherer was Robertson, Stephens'
Senior Research Analyst for Telecom and Enterprise Communication Technology.
Mr. Sherer received an A.B. from Duke University and an MBA from Stanford
Graduate School of Business.

Kevin P. Yancy has served as a director of ASD Systems since March 10, 1999.
Mr. Yancy has served as President of Spyglass Equities, Inc. (a private equity
investments affiliate of The Staubach Company) since June 1999. From July 1997
through June 1999, he served as Senior Vice President of Staubach Financial
Services, Inc. (a real estate financial services firm) where he specialized in
private equity investments. From November 1995 through June 1997, Mr. Yancy
managed his personal investments. From 1991 through October 1995, Mr. Yancy
served as Chairman, CEO and President of InterNational Bank of McAllen, Texas.
Mr. Yancy currently serves on the board of directors of Aeris Communications,
Inc. of San Jose, California; HyperGraphics Corporation of Denton, Texas; Lone
Star Bank of Dallas, Texas and Mouse Products, Inc. of Dallas, Texas. Mr. Yancy
earned his B.B.A. in accounting from Baylor University, Waco, Texas and
practiced as a Certified Public Accountant with Coopers and Lybrand from 1975
through 1983.

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<PAGE>

Each officer serves at the discretion of the board of directors of ASD
Systems. There are no family relationships among any of our officers or
directors.

Board of Directors

Classified Board. We currently have authorized six directors. Our board is
divided into three classes: Class A, whose term will expire at the annual
meeting of the shareholders to be held in 2000, Class B, whose term will expire
at the annual meeting of the shareholders to be held in 2001, and Class C,
whose term will expire at the annual meeting of the shareholders to be held in
2002. The Class A directors are Paul Jennings and Paul Sherer; the Class B
directors are Kevin Yancy and Jonathan Bloch and the Class C directors are
Norman Charney and Alan Salzman. At each annual meeting of the shareholders
after the initial classification, the successors to directors whose term will
expire will be elected to serve from the time of election and qualification
until the third annual meeting following election or until that director's
earlier resignation or removal. This classification of the board of directors
may have the effect of delaying or preventing changes of control or management
of ASD Systems. See "Description of Capital Stock--Anti-Takeover, Limited
Liability and Indemnification Provisions."

Board Committees. The audit committee consists of Mr. Yancy and Mr. Sherer.
The audit committee makes recommendations to the board of directors regarding
the selection of independent accountants, reviews the results and scope of
audit and other services provided by our independent accountants and reviews
and evaluates our audit and control functions. The compensation committee
consists of Mr. Salzman and Mr. Bloch. The compensation committee makes
recommendations to the board of directors concerning salaries and incentive
compensation for our senior management. The compensation committee also reviews
our benefit plans. We have not currently elected a Long-Term Incentive Plan
committee to administer the stock incentive plan.

Compensation Committee Interlocks and Insider Participation. Prior to August
25, 1999, we did not have a compensation committee or other committee of the
board of directors performing similar functions. Decisions concerning
compensation of executive officers generally have been made by Mr. Charney in
consultation with the other members of the board of directors. None of the
executive officers or directors, other than Mr. Yancy, currently serves on the
compensation committee of another entity or on any other committee of the board
of directors of another entity performing similar functions.

Director Compensation. Directors currently do not receive any cash
compensation from us for their services as members of the board of directors,
although members are reimbursed for actual and reasonable out of pocket
expenses in connection with attendance at board of directors and committee
meetings. Directors are eligible to participate in our 1999 Long-Term Incentive
Plan. See "--Long-Term Incentive Plan."

Designations. As part of the shareholders agreement executed in connection
with the common stock financing closed in January and February 1999, Messrs.
Bloch and Yancy have been nominated and appointed to serve on our board of
directors. In addition, as part of the amended and restated shareholders
agreement executed in connection with the preferred stock financing closed in
August 1999, Messrs. Salzman and Sherer have been nominated and appointed to
serve on our board of directors. Although these provisions terminate upon the
closing of our initial public offering, we expect Messrs. Bloch, Yancy, Salzman
and Sherer to continue to serve as directors.

Employment Agreements

Norman Charney. On December 14, 1998, we entered into an employment agreement
with Norman Charney to serve as our Chief Executive Officer and President. The
agreement is effective through December 31, 2001 and will automatically renew
for successive one-year periods unless either Mr. Charney or we give written
notice of termination at least 30 days prior to the expiration date of the
agreement. Under the agreement, Mr. Charney receives a base salary of $250,000
per year plus an automatic annual increase of $10,000 effective each December
14. Mr. Charney is also eligible to receive other salary increases and bonus
awards at the discretion of the board of directors.

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<PAGE>

Pursuant to the agreement, Mr. Charney may be terminated by us at any time
for cause. "Cause" generally is defined in the agreement to include (1) the
gross negligence or willful misconduct by Mr. Charney in the performance of his
services, (2) the failure by Mr. Charney to perform his duties as assigned to
him by the board of directors, (3) any violation by Mr. Charney of the
confidentiality and non-interference provisions of the agreement and (4) Mr.
Charney's mental or physical incapacitation to such an extent that he is unable
to perform his duties for an extended period of time.

Paul M. Jennings. On October 14, 1997, ASD Partners, Ltd., one of our
predecessor entities, entered into an employment agreement with Paul M.
Jennings, our Chief Technology Officer. This agreement was assigned to us on
January 1, 1998. ASD Partners, Ltd. currently exists as a holding company for
the shares of ASD Systems, Inc. owned by its partners.

The employment agreement with Mr. Jennings is effective through October 14,
2002 and will automatically renew for successive one-year periods unless either
Mr. Jennings or we give written notice of termination at least 30 days prior to
the expiration date of the agreement. Under the agreement, Mr. Jennings
receives a base salary of $150,000 per year plus an automatic annual increase
of $12,500 effective each October 14. Mr. Jennings is also eligible to receive
other salary increases and bonus awards at the discretion of the board of
directors. Pursuant to the agreement, Mr. Jennings may be terminated by us at
any time for cause. The definition of "cause" in Mr. Jennings' agreement is
similar to the definition used in Mr. Charney's agreement described above.

In connection with Mr. Jennings' employment agreement, he and ASD Partners
entered into a Right of Repurchase and Option Agreement giving ASD Partners,
its general partner, and the limited partners of ASD Partners, other than Mr.
Jennings, the right to repurchase all or a portion of Mr. Jennings' interest in
ASD Partners upon the termination of Mr. Jennings' employment agreement for any
reason. The purchase price payable for Mr. Jennings' interest in ASD Partners
varies depending on Mr. Jennings' then applicable base salary as follows:

<TABLE>
<CAPTION>
Exercise date Total purchase price
------------- --------------------
<S> <C>
January 1, 1999--December 31,
1999........................ 66% of annual base salary.
January 1, 2000--December 31,
2002........................ 100% of annual base salary.
January 1, 2003--thereafter.. As agreed between the parties, or, to the extent
agreement has not been reached, the last
stipulated purchase price plus or minus the net
earnings or losses attributable to Mr. Jennings'
interest in ASD Partners, Ltd. from the date of
expiration of the last stipulated purchase price
until the termination date.
</TABLE>

The board of directors can, among other things, provide for accelerated
vesting of the shares of common stock subject to outstanding options held by
any executive officer or director of ASD Systems, including Messrs. Charney and
Jennings, in connection with certain changes of control of ASD Systems. See "--
Long-Term Incentive Plan."

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<PAGE>

Executive Compensation

Summary compensation. The following table provides summary information
concerning compensation paid by us to our named executive officers, which are
our Chief Executive Officer and our one other executive officer who earned more
than $100,000 in salary and bonus for all services rendered in all capacities
during the fiscal year ended December 31, 1998. We may refer to these officers
as our named executive officers in other parts of this prospectus. For a list
of our current executive officers, see "--Executive Officers and Directors."

<TABLE>
<CAPTION>
Annual Compensation
--------------------- All Other
Name and Position Salary Bonus Compensation
----------------- ---------------------------------
<S> <C> <C> <C>
Norman Charney,
Chief Executive Officer and President........ $ 247,500 -- $625
Paul M. Jennings,
Chief Technology Officer..................... $ 153,125 -- --
</TABLE>

"All Other Compensation" consists of matching 401(k) contributions made by
ASD Systems on behalf of the named executive officers.

In accordance with the rules of the SEC, other compensation in the form of
perquisites and other personal benefits has been omitted for the named
executive officers because the aggregate amount of these perquisites and other
personal benefits was less than the lesser of $50,000 or 10% of the total of
annual salary and bonuses for each of the named executive officers in 1998.
James P. Cormier, our Chief Operating Officer, joined us in June 1999. His
annual base salary is $135,000. David E. Bowe, our Executive Vice President and
Chief Financial Officer, joined us in September 1999. His annual base salary is
$150,000. In addition, Messrs. Cormier and Bowe have been granted significant
stock option awards in connection with their employment. See "--Long-Term
Incentive Plan."

Stock options granted in the year ended December 31, 1998. No stock options
were granted to the named executive officers during the year ended December 31,
1998.

Year-end option values. Neither of the named executive officers exercised any
stock options during the year ended December 31, 1998 and neither of these
individuals held any options as of that date. On February 10, 1999, Mr.
Jennings was granted an option to acquire 957,500 shares of our common stock
outside of our Long-Term Incentive Plan with an exercise price of $1.00 per
share. Mr. Charney currently does not hold any stock options.

Long-Term Incentive Plan

Benefits; Purpose; Shares. Our 1999 Long-Term Incentive Plan, approved by the
board of directors on May 12, 1999, and amended on August 22, 1999, provides
for the issuance to qualified participants of up to 1,200,000 shares of our
common stock pursuant to the grant of stock options. The purpose of our Long-
Term Incentive Plan is to promote our interests and the interests of our
shareholders by using investment interests in ASD Systems to attract, retain
and motivate eligible persons, to encourage and reward their contributions to
the performance of ASD Systems and to align their interests with the interests
of our shareholders. As of September 30, 1999, options to purchase 658,500
shares of common stock had been awarded, having a weighted average exercise
price of $2.59 per share, under the Long-Term Incentive Plan. Of these, options
to purchase 608,500 shares of common stock have been awarded to employees and
are intended to qualify as Incentive Stock Options, or ISOs, under Section 422
of the Internal Revenue Code. The remaining options to purchase 50,000 shares
of common stock are nonqualified stock options, or NQSOs. As of September 30,
1999, options exercisable for 25,000 shares had vested under the terms of the
Long-Term Incentive Plan and the applicable option agreements.

Eligibility. Our employees, officers, directors, consultants and advisors are
eligible to be granted awards under the plan. However, only our employees are
eligible to receive ISOs.

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<PAGE>

Administration. Our board of directors, or to the extent we subsequently
elect a Long-Term Incentive Plan committee, that committee, is authorized to
administer the plan and has discretion to determine which eligible persons will
be granted stock options, the number of shares subject to options, the period
of exercise of each option and the terms and conditions of such options.
Generally, the administrators of the plan have broad authority to amend the
plan to take into account changes in applicable securities and tax laws and
accounting rules, as well as other developments.

Stock options. Under our plan, we may grant ISO's or NQSO's. A stock option
may have a term of not more than ten years. The administrators of our Long-Term
Incentive Plan determine the exercise price per share for each option which
cannot be less than the fair market value of our common stock on the date of
the grant. In the case of an ISO granted to an employee who, at the time of the
grant, owns common stock with more than 10% of the total combined voting power
of our outstanding common stock, the price per share of common stock cannot be
less than 110% of the fair market value of our common stock on the date of
grant. Once listed, the fair market value of our common stock is its closing
price on the Nasdaq National Market.

Effect of termination. Generally, if a participant's service to us is
terminated for reasons other than just cause dismissal, retirement, permanent
disability or death, then the participant's options, whether or not vested,
shall expire and become unexercisable as of the earlier of the date the options
would expire in accordance with their terms had the participant remained in our
service, or 30 days after the date of employment or relationship termination.
Upon retirement, permanent disability or death, the participant's unexercised
options shall, whether or not vested, expire and become unexercisable as of the
earlier of the date the options would expire in accordance with their terms had
the participant remained in our service, or 90 days after the date of
employment or relationship termination. In the event of a just cause dismissal
of a participant, all of such participant's options, whether or not vested,
shall expire and become unexercisable as of the date of such just cause
dismissal.

Federal income tax consequences-ISO. The federal income tax consequences, in
general, of the grant and exercise of an ISO under our Long-Term Incentive Plan
are as follows:

. In general, an employee will not recognize taxable income upon the grant
or exercise of an ISO and we will not be entitled to any business
expense deduction with respect to the grant or exercise of an ISO.

. If the employee holds the shares for at least two years after the date
of grant and for at least one year after the date of exercise, the
difference, if any, between the sales price of the shares and the
exercise price of the option will be treated as long-term capital gain
or loss upon subsequent disposition of the shares.

. If the employee disposes of the shares prior to satisfying the holding
period requirements, the employee will recognize ordinary income at the
time of the disposition, generally in an amount equal to the excess of
the fair market value of the shares at the time the option was exercised
over the exercise price of the option. Generally, we will be allowed a
business expense deduction to the extent an employee recognizes ordinary
income. The balance of the gain realized, if any, will be short-term or
long-term capital gain, depending upon whether the shares have been held
for at least one year after the date of exercise.

Federal income tax consequences-NQSO. The federal income tax consequences, in
general, of the grant and exercise of an NQSO under our Long-Term Incentive
Plan are as follows:

. In general, a recipient who receives a NQSO will recognize no income at
the time of the grant of the option.

. Upon exercise of an NQSO, a recipient will recognize ordinary income in
an amount equal to the excess of the fair market value of the shares on
the date of exercise over the exercise price of the option. Generally,
we will be entitled to a business expense deduction in the amount and at
the time the recipient recognizes ordinary income.

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<PAGE>

. The basis in shares acquired upon exercise of an NQSO will equal the
fair market value of such shares at the time of exercise, and the
holding period of the shares, for capital gain purposes, will begin on
the date of exercise.

Effect of a change in control. Our Long-Term Incentive Plan provides that, in
the event of certain changes of control involving the liquidation of ASD
Systems, the disposition of substantially all of our assets, certain
reorganizations, mergers or consolidations of ASD Systems or the acquisition by
any person (other than the Staubach affiliated shareholders or any person
currently controlling more than 50% of ASD Systems' combined voting power), one
of the following shall occur with respect to the plan and any unexercised
options:

. they may be assumed or substituted by the successor corporation;

. our board of directors may provide for adjustments in the terms and
conditions of the unexercised options, such as acceleration of their
vesting or their automatic conversion into the underlying shares or
other consideration; or

. they shall automatically terminate, provided that any unexercised
options shall be immediately exercisable prior to the change of control.

Termination. The Long-Term Incentive Plan will terminate on May 12, 2009.

401(k) Plan

Our employees are eligible to participate in the ASD Systems 401(k) plan
adopted by us in October of 1998. Pursuant to the 401(k) plan, employees may
elect to reduce their current compensation by up to the lesser of 20% of
eligible compensation or the statutorily prescribed annual limit and contribute
this amount to the 401(k) plan. For the year ending December 31, 1999, the
statutorily prescribed annual limit is $10,000. The trustee under the 401(k)
plan, at the direction of each participant, invests the assets of the 401(k)
plan in up to 20 different investment funds. The 401(k) plan is intended to
qualify under Section 401(a) of the Internal Revenue Code of 1986 so that
contributions by employees to the 401(k) plan, and income earned on plan
contributions, are not taxable to employees until withdrawn, and so that the
contributions by employees will be deductible by us when made. We will make
matching contributions to the 401(k) plan in an amount equal to 25% of the
first 4% of an employee's pretax contributions. An employee becomes eligible
for the matching contribution only if he or she makes a pretax contribution.
Additionally, we may make annual discretionary profit sharing contributions in
amounts to be determined annually by our board of directors.

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<PAGE>

CERTAIN TRANSACTIONS

Common Stock Financing

We issued 4,500,000 shares of common stock in a private placement which
closed in two tranches in January and February of 1999 raising an aggregate of
$4,500,000 in working capital for ASD Systems. Of these shares, 2,375,000 were
purchased by a group of persons affiliated with Staubach Financial Services. We
refer to this group as the Staubach affiliated shareholders. We engaged CKM
Capital, LLC to assist us with that private placement and paid CKM a commission
of $281,250, or 6.25% of the aggregate amount raised, as consideration for
their services. In addition, we issued various affiliates of CKM common stock
purchase warrants which, after this offering, will be exercisable for an
aggregate of 1,000,000 shares of our common stock at the following exercise
prices: 500,000 shares of common stock exercisable for $1.00 per share; 300,000
shares of common stock exercisable for $2.00 per share; and 200,000 shares of
common stock exercisable for $3.00 per share. These warrants expire on February
5, 2004. Prior to July 31, 1999, we also paid CKM a financial advisory fee of
$5,000 per month, plus reasonable out-of-pocket expenses. We paid CKM an
aggregate of approximately $32,500 under this arrangement.

As part of our private placement, we executed a shareholders' agreement with
each of our then current shareholders. Mr. Bloch and Mr. Yancy were nominated
and appointed to the board of directors of ASD Systems under the terms of this
agreement. Mr. Bloch is Senior Vice President and Managing Director of an
affiliate of CKM and Mr. Yancy is President of Spyglass Equities, Inc., a
private equity investments affiliate of The Staubach Company. Mr. Yancy is also
a member of the Staubach affiliated shareholders. The shareholders' agreement
was amended and restated as part of the preferred stock financing described
below and, although the provisions of the amended and restated shareholders'
agreement concerning appointment to the board terminate upon the closing of our
initial public offering, we expect Messrs. Bloch and Yancy to continue to serve
as directors.

Preferred Stock Financing

Securities. On August 23, 1999, we issued (1) 1,111,111 shares of our Series
A convertible preferred stock, (2) 1,111,111 shares of our Series B redeemable
preferred stock and (3) common stock purchase warrants exercisable for
2,925,000 shares of our common stock, in a private placement generating net
proceeds of $11,490,000 for additional working capital. VantagePoint Venture
Partners III (Q), L.P. acquired two-thirds of the aggregate securities placed
in the preferred stock financing and VantagePoint Communications Partners, L.P.
acquired the remaining one-third of the securities placed. We refer to these
entities collectively as the VantagePoint funds. We sold the securities
pursuant to a securities purchase agreement under which we made standard
representations, warranties and covenants among other provisions we deem
customary in venture capital financings of this nature. Upon completion of this
offering, the Series A convertible preferred stock will automatically convert
into 2,250,000 shares of our common stock. The number of shares into which the
Series A preferred stock is convertible was determined in part by reference to
the initial public offering price of our common stock.

Upon completion of this offering, the Series B redeemable preferred stock
will automatically be redeemed by us for an aggregate redemption price of $6.0
million. In addition, we issued to the VantagePoint funds common stock purchase
warrants exercisable for 130% of the number of shares of common stock received
upon conversion of the Series A preferred stock at a per share exercise price
equal to 110% of the conversion price. Accordingly, the warrants will be
exercisable for 2,925,000 shares of common stock at a per share exercise price
of $2.94. The warrants vested immediately and, after this offering, will remain
exercisable until the third anniversary of the closing of this offering.

Registration Rights. According to the terms of the amended and restated
shareholders' agreement executed in connection with the preferred stock
financing, the VantagePoint funds and the original parties to the

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<PAGE>

shareholders' agreement executed in connection with our January/February 1999
common stock financing, acquired certain registration rights with respect to
their capital stock of ASD Systems. See "Description of Capital Stock--
Registration Rights."

Director Arrangements. As part of the preferred stock financing, the
VantagePoint funds acquired the right to have two designees appointed to our
board of directors. Accordingly, we have added to our board of directors
effective August 23, 1999 Messrs. Salzman and Sherer. Mr. Salzman is a managing
member of the general partner of the VantagePoint funds, and Mr. Sherer is a
partner of the VantagePoint funds. Although the provisions of the amended and
restated shareholders' agreement concerning appointment to the board terminate
upon closing of our initial public offering, we expect Messrs. Salzman and
Sherer to continue to serve as directors.

Arrangement with CKM. We engaged CKM to assist us with the preferred
securities financing and paid CKM a commission of $420,000, or 3.5% of the
aggregate amount raised, as consideration for its services. Mr. Bloch, a
director of ASD Systems, is Senior Vice President and Managing Director of an
affiliate of CKM.

Call Center/Data Center Facility

We presently lease a 20,000 square foot facility from our Chief Executive
Officer and President, Norman Charney, that we use as our internal call center
and data center. Our annual rental expense for this facility is $100,000 and
our lease expires on May 15, 2000. We presently intend to renew this lease upon
expiration for a term and rental to be negotiated between Mr. Charney and the
unaffiliated members of the board of directors at an appropriate time after an
independent real estate appraisal.

Guarantees of Indebtedness and Guarantee Fees

Prior to September 2, 1999, Mr. Charney was the guarantor of up to $2.5
million borrowed under our credit facility with Comerica Bank-Texas. Pursuant
to the terms of our arrangement with Mr. Charney, we agreed to pay him a
guarantee fee equal to 1% of the average daily outstanding principal amount of
the loan in each 30 day period. Mr. Charney was paid an aggregate of
approximately $52,000 under this arrangement. Mr. Charney has also executed a
limited guarantee with respect to amounts that we owe under our lease for our
corporate headquarters and fulfillment center. Mr. Charney presently guarantees
up to $400,000 of amounts due under such lease, with such guarantee decreasing
by the amount of $100,000 each year. Mr. Charney receives no compensation for
this guarantee.

Employment and Indemnification Agreements

We have entered into employment agreements and indemnification agreements
with Messrs. Charney and Jennings, who are directors and named executive
officers. We have also entered into indemnification agreements with the
remainder of our directors. See "Description of Capital Stock--Anti-Takeover,
Limited Liability and Indemnification Provisions."

We believe that each of the transactions described above was made on terms no
less favorable to us than could have been obtained from unaffiliated third-
parties.

Promoters of ASD Systems

Each of Norman Charney, our Chief Executive Officer and President, and Paul
Jennings, our Chief Technology Officer is a co-founder of ASD Systems and may
be deemed a promoter for purposes of federal securities laws. In connection
with our incorporation in January 1998, we acquired the assets and liabilities
comprising our business from ASD Partners, Ltd., a Texas limited partnership
controlled by Messrs. Charney and Jennings, for 6,000,000 shares of our common
stock. ASD Partners, Ltd., acquired these assets and

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<PAGE>

liabilities from Athletic Supply of Dallas, LLC., a wholly-owned subsidiary of
Genesis Direct, Inc., on October 14, 1997 for approximately $2.7 million. ASD
Partners, Ltd. funded the acquisition by (1) issuing a promissory note for $1.7
million to Genesis Direct and (2) causing Mr. Charney to forgive $1.0 million
otherwise payable under a note from Genesis Direct. The note was originally
issued to Mr. Charney in connection with the sale by Mr. Charney of his stock
in Athletic Supply of Dallas, Inc., a predecessor to our business, to Genesis
Direct in December 1996. All other material transactions with such persons are
described in this section or elsewhere in this prospectus. See "Management."

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<PAGE>

PRINCIPAL SHAREHOLDERS

The following table sets forth information with respect to the beneficial
ownership of our common stock as of September 30, 1999, and as adjusted to
reflect the sale of the shares of common stock offered by this prospectus, by:

. each of our named executive officers and directors;

. all of our executive officers and directors as a group; and

. each person, or group of affiliated persons, known to us to own
beneficially more than 5% of our common stock.

In accordance with the rules of the SEC, the table gives effect to the shares
of common stock that could be issued upon the exercise of outstanding options
and common stock purchase warrants within 60 days of September 30, 1999. In
addition, "Number of shares beneficially owned" and "Percentage of ownership--
Before this offering" reflects the conversion of all of our shares of Series A
convertible preferred stock into 2,250,000 shares of common stock upon the
consummation of this offering. Unless otherwise noted in the footnotes to the
table and subject to community property laws where applicable, the following
individuals have sole voting and investment control with respect to the shares
beneficially owned by them. The address of each executive officer and director
is c/o ASD Systems, Inc., 3737 Grader Street, Suite 110, Garland, Texas 75041.

We have calculated the percentages of shares beneficially owned based on
12,750,000 shares of common stock outstanding before this offering and
17,750,000 shares of common stock outstanding after the offering.

<TABLE>
<CAPTION>
Percentage of ownership
----------------------------
Number of shares Before this After this
Person or group beneficially owned offering offering
--------------- ------------------ ------------ -----------
<S> <C> <C> <C>
Named Executive Officers
and Directors:
Norman Charney(1)(7)...... 6,000,000 47.1% 33.8%
Paul M. Jennings(2)....... 957,500 7.0 5.1
Jonathan R. Bloch(3)...... 805,000 5.9 4.3
Alan E. Salzman(4)........ 5,175,000 33.0 25.0
Paul G. Sherer(4)......... 5,175,000 33.0 25.0
Kevin P. Yancy(5)......... 343,087 2.7 1.9
All executive officers and
directors as a group (10
persons)(6).............. 13,285,587 76.1 59.2
Beneficial Owners of 5% or
More of
Our Outstanding Common
Stock
ASD Partners, Ltd.(7)..... 6,000,000 47.1% 33.8%
CKM Software Partners(8).. 800,000 5.9 4.3
Staubach affiliated
shareholders(9).......... 2,375,000 18.6 13.4
VantagePoint Venture
Partners III (Q),
L.P.(10)................. 3,450,000 23.5 17.5
VantagePoint
Communications Partners,
L.P.(10)................. 1,725,000 12.6 9.2
</TABLE>

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<PAGE>

- --------
(1) Represents shares of common stock held by ASD Partners, Ltd., a Texas
limited partnership.
(2) Represents options to purchase 957,500 shares of common stock at an
exercise price of $1.00 per share. Does not include shares of common stock
held by ASD Partners, Ltd., in which Mr. Jennings owns a 5% limited
partnership interest.
(3) Includes 800,000 shares of common stock acquirable upon exercise of
warrants held by CKM Software Partners discussed in Note 8 and options to
purchase an additional 5,000 shares of common stock at an exercise price
of $1.00 per share. Mr. Bloch's address is 11100 Santa Monica Blvd., Suite
830, Los Angeles, California 90025.
(4) Represents the shares held by the VantagePoint funds described in note 10.
Mr. Salzman is the managing member of the general partner of the
VantagePoint funds and Mr. Sherer is a partner of the VantagePoint Funds.
Each of Messrs. Salzman and Sherer disclaim beneficial ownership of the
shares held by the VantagePoint funds other than those in which he may own
a pecuniary interest.
(5) Includes net options to purchase 263,087 shares of common stock from the
Staubach affiliated shareholders at an exercise price equal to $1.00 plus
interest at the rate of 10% compounded annually from January 29, 1999 per
share and options to purchase an additional 5,000 shares of common stock
at an exercise price of $1.00 per share. Excludes the shares of common
stock held by the Staubach affiliated shareholders (other than those held
by Mr. Yancy directly) discussed in note 9.
(6) Includes the shares of common stock acquirable upon exercise of the stock
options and warrants discussed in notes 2, 3, 4 and 5 above as well as an
additional 5,000 shares of common stock to certain other officers of ASD
Systems at an exercise price of $1.00 per share.
(7) The general partner of ASD Partners, Ltd. is ASD GP, Inc. Mr. Charney is
the sole shareholder and President of ASD GP, Inc. The address of ASD
Partners, Ltd. and ASD GP, Inc. is c/o ASD Systems, Inc., 3737 Grader
Street, Suite 110, Garland, Texas 75041.
(8) Includes warrants to purchase 800,000 shares of common stock at the
following exercise prices: 400,000 shares of common stock exercisable for
$1.00 per share; 240,000 shares of common stock exercisable for $2.00 per
share; and 160,000 shares of common stock exercisable for $3.00 per share.
CKM Software Partners is a California general partnership held by Jonathan
Bloch and Larry Barels. The address of CKM Software Partners is c/o
Jonathan Bloch, 11100 Santa Monica Blvd., Suite 830, Los Angeles,
California 90025.
(9) Represents shares held by 44 persons and entities affiliated with Staubach
Financial Services, an affiliate of The Staubach Company. Each of these
persons and entities acquired their shares in connection with our private
placement closed in January and February of 1999 and, as part of such
transaction, most executed a voting agreement providing a voting committee
with the power to vote their shares. The voting committee consists of Mr.
Yancy, James C. Leslie and A. Brant Bryan. The voting committee has voting
power over (but no pecuniary interest in) the shares held by the other
persons and entities comprising the Staubach affiliated shareholders.
After this offering, Messrs. Yancy, Leslie and Bryan will not have the
right to vote the shares held by the Staubach affiliated shareholders. The
address of Messrs. Yancy, Leslie and Bryan is c/o The Staubach Company,
15601 Dallas Parkway, Suite 400, Addison, Texas 75001.
(10) Includes 2,250,000 shares of common stock that will be issued to the
VantagePoint funds upon the closing of this offering in connection with
the conversion of the Series A convertible preferred stock. Also includes
2,925,000 shares of common stock issuable upon exercise of the common
stock purchase warrants issued to the VantagePoint funds in connection
with the preferred stock financing. The general partner of VantagePoint
Venture Partners III(Q), L.P. is VantagePoint Venture Associates III,
L.L.C. The general partner of VantagePoint Communications Partners, L.P.
is VantagePoint Communications Associates, L.L.C. Mr. Salzman is a
managing member of the general partner of each of the VantagePoint funds.
The address for the VantagePoint funds is c/o VantagePoint Venture
Partners, 1001 Bayhill Drive, Suite 100, San Bruno, California 94066.

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<PAGE>

DESCRIPTION OF CAPITAL STOCK

Our authorized capital stock consists of 50,000,000 shares of common stock,
par value $.0001 per share, and 7,500,000 shares of preferred stock, $.0001 par
value per share. Our preferred stock has been divided into three series;
namely, the Series A convertible preferred stock and the Series B redeemable
preferred stock issued in connection with our August 1999 preferred stock
financing and the Series C non-voting preferred stock which, prior to the
offering made hereby, was available for issuance upon exercise of employee
stock options and certain purchase warrants issued in connection with our
January/February 1999 common stock financing. As of the date of this
prospectus, there are outstanding:

. 10,500,000 shares of common stock, held of record by 60 shareholders;

. warrants to purchase 2,925,000 shares of common stock at an exercise
price of $2.94 per share;

. 1,111,111 shares of Series A convertible preferred stock, all of which
will be automatically converted into 2,250,000 shares of our common
stock upon completion of this offering;

. 1,111,111 shares of Series B redeemable preferred stock, all of which
will be automatically redeemed for cash upon completion of this
offering;

. no shares of our Series C non-voting preferred stock;

. options to purchase an aggregate of 1,616,000 shares of our Series C
non-voting preferred stock at a weighted average exercise price of $1.65
per share which, upon completion of this offering, will be deemed to
represent options to acquire a like number of shares of our common stock
without modification to the exercise price thereof; and

. warrants to purchase 1,000,000 shares of our Series C non-voting
preferred stock at a weighted average exercise price of $1.70 per share
which, upon completion of this offering, will be deemed to represent
warrants to acquire a like number of shares of our common stock without
modification to the exercise price thereof.

There will be 17,750,000 shares of common stock outstanding after giving
effect to the sale of the shares of common stock to the public in this offering
assuming:

. no exercise of the underwriters' over-allotment option; and

. no exercise of outstanding stock options or warrants.

The following summary of the material provisions of our common stock,
preferred stock, amended and restated articles of incorporation and bylaws is
qualified by reference to the provisions of applicable law and to our amended
and restated articles of incorporation and bylaws included as exhibits to the
registration statement of which this prospectus is a part.

Common Stock

The holders of common stock are entitled to one vote per share on all matters
to be voted upon by the shareholders. Subject to preferences that may be
applicable to any outstanding preferred stock, the holders of common stock are
entitled to receive ratably such dividends, if any, that may be declared from
time to time by the board of directors out of funds legally available therefor.
In the event of our liquidation, dissolution or winding-up, the holders of
common stock are entitled to share ratably in all assets remaining after
payment of liabilities, subject to prior distribution rights of holders of
preferred stock, if any. The common stock has no preemptive or conversion
rights or other subscription rights. There are no redemption or sinking fund
provisions applicable to the common stock.

Prior to August 23, 1999, we had two classes of common stock, namely, the
Series A voting common stock and Series B non-voting common stock. We
reclassified our Series A voting common stock as our only

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<PAGE>

class of common equity and our Series B non-voting common stock as Series C
non-voting preferred stock effective August 23, 1999 to facilitate this
offering.

Preferred Stock

"Blank Check" Preferred. Our board of directors has the authority to issue
preferred stock in one or more series and to fix the rights, preferences,
privileges and restrictions thereof, including dividend rights, dividend rates,
conversion rights, voting rights, terms of redemption, redemption prices,
liquidation preferences and the number of shares constituting any series or the
designation of such series, without further vote or action by the shareholders.
The issuance of preferred stock may have the effect of delaying, deferring or
preventing a change in control of ASD Systems without further action by our
shareholders and may adversely affect the voting, dividend and other rights of
the holders of common stock. As further discussed below, the issuance of
preferred stock with voting and conversion rights may adversely affect the
voting power of the holders of common stock, including the loss of voting
control to others. At present, we have no plans to issue any shares of
preferred stock after this offering.

Series A Convertible Preferred Stock. We issued 1,111,111 shares of our
Series A convertible preferred to the VantagePoint funds in connection with our
August 1999 preferred stock financing. Upon consummation of this offering, all
of the shares of Series A convertible preferred stock will be converted into
2,250,000 shares of our common stock. The number of shares into which the
Series A preferred stock is convertible was determined in part by reference to
the initial public offering price of our common stock.

We will not have any shares of Series A convertible preferred stock
outstanding after this offering.

Series B Redeemable Preferred Stock. We issued 1,111,111 shares of our Series
B redeemable preferred stock to the VantagePoint funds in connection with our
August 1999 preferred stock financing. Upon completion of this offering, the
Series B redeemable preferred stock will be redeemed by us for an aggregate
redemption price of $6.0 million.

We will not have any shares of Series B redeemable preferred stock
outstanding after this offering.

Series C Non-Voting Preferred Stock. The Series C non-voting preferred stock
was created for purposes of permitting the participants under our Long-Term
Incentive Plan and the holders of certain other options and warrants to
participate as shareholders of ASD Systems upon exercise of their respective
instruments without granting such holders the right to vote on matters
submitted to the shareholders of ASD Systems generally. Our shares of common
stock and the shares of Series C non-voting preferred stock have similar
rights, preferences, privileges and restrictions thereof, including dividend
rights and liquidation rights, except, however, the Series C non-voting
preferred stock is non-voting. In connection with the filing of our amended and
restated articles of incorporation we elected to convert our Series C non-
voting preferred stock into common stock effective upon the closing of this
offering. As a result of this conversion, all outstanding options and warrants
to acquire Series C non-voting preferred stock will be deemed to represent
instruments to acquire the same number of shares of our common stock, without
modification to the applicable exercise price, upon closing. The board of
directors believes that this action preserves the value and purpose of the
options granted under the Long-Term Incentive Plan and the warrants granted as
partial compensation in connection with our January/February 1999 common stock
financing.

We will not have any shares of Series C non-voting preferred stock
outstanding after this offering.

Stock Purchase Warrants

In connection with the common stock financing closed in January/February
1999, we issued to various affiliates of CKM common stock purchase warrants
which, after this offering, will be exercisable for an aggregate of 1,000,000
shares of our common stock at the following exercise prices: 500,000 shares of
common stock exercisable for $1.00 per share; 300,000 shares of common stock
exercisable for $2.00 per share; and 200,000 shares of common stock exercisable
for $3.00 per share. These warrants expire on February 5, 2004.

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<PAGE>

On August 23, 1999, as part of our preferred stock financing, we issued to
the VantagePoint funds, common stock purchase warrants exercisable for 130% of
the number of shares of common stock received upon conversion at a per share
exercise price equal to 110% of the conversion price. Accordingly, these
warrants will be exercisable for 2,925,000 shares of common stock at a per
share exercise price of $2.94. The warrants vested immediately and will remain
exercisable until the third anniversary of the closing date of this offering.

Registration Rights

Pursuant to the amended and restated shareholders' agreement, after this
offering, the holders of approximately 9,675,000 shares of common stock will be
entitled to certain rights with respect to the registration of such shares
under the Securities Act, including shares acquirable upon exercise of
outstanding options. Under these registration rights, in the event we elect to
register any of our shares of common stock for purposes of effecting any public
offering after the completion of the offering described in this prospectus, the
holders of the shares are entitled to include their shares of common stock in
the registration. Such holders are also entitled to certain demand registration
rights within one year of this offering under certain circumstances pursuant to
which they may require us to file a registration statement under the Securities
Act with respect to their shares of common stock, and we are required to use
our best efforts to effect such registration. All of these registration rights
are subject to conditions and limitations, among them the right of the
underwriters of an offering to limit the number of shares included in such
registration and our right not to effect a demand registration within 90 days
prior to, and 120 days subsequent to, an offering of our securities. All
expenses in connection with any registration, other than underwriting discounts
and commissions, will be paid by us.

Anti-Takeover, Limited Liability and Indemnification Provisions

Articles of Incorporation and Bylaws. Pursuant to our amended and restated
articles of incorporation, our board of directors may issue additional shares
of common stock or establish one or more series of preferred stock having the
number of shares, designations, relative voting rights, dividend rates,
liquidation and other rights, preferences and limitations that the board of
directors may fix without shareholder approval. Any additional issuance of
common stock or designation of rights, preferences, privileges and limitations
with respect to preferred stock could have the effect of impeding or
discouraging the acquisition of control of us by means of a merger, tender
offer, proxy contest or otherwise, including a transaction in which our
shareholders would receive a premium over the market price for their shares,
and thereby protects the continuity of our management. Specifically, if in the
due exercise of its fiduciary obligations, the board of directors were to
determine that a takeover proposal was not in our best interest, shares could
be issued by the board of directors without shareholder approval in one or more
transactions that might prevent or render more difficult or costly the
completion of the takeover by:

. diluting the voting or other rights of the proposed acquiror or
insurgent shareholder group;

. putting a substantial voting block in institutional or other hands that
might undertake to support the incumbent board of directors; or

. effecting an acquisition that might complicate or preclude the takeover.

Our amended and restated articles of incorporation and bylaws provide that,
conteporoneously with the closing of this offering, the board of directors
shall be divided into three classes of one or more directors each, with each
class elected for three-year terms expiring in successive years. Our amended
and restated articles of incorporation also allow the board of directors to fix
the number of directors in the bylaws with no minimum or maximum number of
directors required. Cumulative voting in the election of directors is
specifically denied in the amended and restated articles of incorporation. The
effect of these provisions may be to delay or prevent a tender offer or
takeover attempt that a shareholder might consider to be in his or her best
interest, including attempts that might result in a premium over the market
price for the shares held by the shareholders.

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<PAGE>

Our amended and restated articles of incorporation and bylaws provide that
special meetings of shareholders generally can be called only by the President,
Chief Executive Officer or the board of directors or by holders of at least 25%
of our voting stock and provide for an advance notice procedure for the
nomination, other than by or at the direction of the board of directors or a
committee of the board of directors of candidates for election as directors as
well as for other shareholder proposals to be considered at annual meetings of
shareholders. In general, we must receive notice of intent to nominate a
director or raise business at such meetings not less than 30 nor more than 60
days before the meeting. The notice must contain certain information concerning
the person to be nominated or the matters to be brought before the meeting and
concerning the shareholder submitting the proposal. These provisions of the
bylaws:

. may preclude a nomination for the election of directors or preclude the
conduct of business at a particular annual meeting if the proper
procedures are not followed; and

. may discourage or deter a third-party from conducting a solicitation of
proxies to elect its own slate of directors or otherwise attempting to
obtain control of us, even if the conduct of such solicitation or
attempt might be beneficial to us and our shareholders.

Texas Takeover Statute. Upon completion of this offering, we will be subject
to Part Thirteen of the Texas Business Corporation Act, which became effective
on September 1, 1997. Subject to certain exceptions, Part Thirteen prohibits a
Texas corporation which is an issuing public corporation from engaging in any
business combination with any affiliated shareholder for a period of three
years following the date that such shareholder became an affiliated
shareholder, unless:

. prior to such date, the board of directors of the corporation approved
either the business combination or the transaction that resulted in the
shareholder becoming an affiliated shareholder; or

. the business combination is approved by at least two-thirds of the
outstanding voting shares that are not beneficially owned by the
affiliated shareholder or an affiliate or associate of the affiliated
shareholder at a meeting of shareholders called not less than six months
after the affiliated shareholder's share acquisition date.

In general, Part Thirteen defines an affiliated shareholder as any entity or
person beneficially owning 20% or more of the outstanding voting stock of the
issuing public corporation and any entity or person affiliated with or
controlling or controlled by such entity or person. Part Thirteen defines a
business combination to include, among other similar types of transactions, any
merger, share exchange, or conversion of an issuing public corporation
involving an affiliated shareholder.

Part Thirteen may have the effect of inhibiting a non-negotiated merger or
other business combination that we may be involved in.

Limited Liability and Indemnification. Our amended and restated articles of
incorporation limit the liability of our directors for monetary damages for an
act or omission in the director's capacity as a director, except to the extent
otherwise required by the Texas Business Corporation Act. Such limitation of
liability does not affect the availability of equitable remedies such as
injunctive relief or rescission. Our amended and restated articles of
incorporation permit us to indemnify our directors and officers to the fullest
extent permitted by Texas law, including in circumstances in which
indemnification is otherwise discretionary under Texas law.

Under Texas law, a corporation may indemnify a director or officer or other
person who was, is, or is threatened to be made a named defendant or respondent
in a proceeding because the person is or was a director, officer, employee or
agent of the corporation, if it is determined that such person:

. conducted himself or herself in good faith;

. reasonably believed, in the case of conduct in his or her official
capacity as a director or officer of the corporation, that his or her
conduct was in the corporation's best interests, and, in all other
cases, that his or her conduct was at least not opposed to the
corporation's best interests; and

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<PAGE>

. in the case of any criminal proceeding, had no reasonable cause to
believe that his or her conduct was unlawful.

Any such person may be indemnified against judgments, penalties (including
excise and similar taxes), fines, settlements and reasonable expenses actually
incurred by the person in connection with the proceeding. If the person is
found liable to the corporation or is found liable on the basis that personal
benefit was improperly received by the person, the indemnification is limited
to reasonable expenses actually incurred by the person in connection with the
proceeding, and must not be made in respect of any proceeding in which the
person is found liable for willful or intentional misconduct in the performance
of his or her duty to the corporation. Insofar as indemnification for
liabilities under the Securities Act may be permitted to directors, officers or
persons controlling ASD Systems pursuant to the foregoing provisions, ASD
Systems has been informed that, in the opinion of the SEC, such indemnification
is against public policy as expressed in the Securities Act and is therefore
unenforceable.

We have entered into indemnification agreements with each of our directors
that provide for indemnification and expense advancement in addition to the
indemnification provided by the amended and restated articles and bylaws. We
believe that these provisions and agreements are necessary to attract and
retain qualified directors.

Market Information

Prior to this offering, there was no established public market for our common
stock. After this offering, however, our common stock will be listed on the
Nasdaq National Market under the symbol "ASDS."

Transfer Agent and Registrar

The Bank of New York will be the transfer agent and registrar for the common
stock.

59
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has not been any public market for our common
stock, and no prediction can be made as to the effect, if any, that market
sales of shares of common stock or the availability of shares of common stock
for sale will have on the market price of the common stock prevailing from time
to time. Nevertheless, sales of substantial amounts of common stock in the
public market, or the perception that such sales could occur, could adversely
affect the market price of the common stock and could impair our future ability
to raise capital through the sale of equity securities. See "Risk Factors--
Risks Related to this Offering--The liquidity of our common stock is uncertain
since it has not been publicly traded."

Upon the closing of this offering, we will have an aggregate of 17,750,000
shares of common stock outstanding, assuming (1) no exercise of the
underwriters' over-allotment option and (2) no exercise of outstanding options
or warrants. To the extent that the underwriters elect to exercise the over-
allotment option, there will be 18,500,000 shares of common stock outstanding
after this offering. Of the outstanding shares, all of the shares sold in this
offering will be freely tradable, except that any shares acquired by
"affiliates" (as that term is defined in Rule 144 promulgated under the
Securities Act) may only be sold in compliance with the resale limitations of
Rule 144 described below. The remaining 12,750,000 outstanding shares will be
"restricted securities" within the meaning of Rule 144, and will be eligible
for sale in the public market pursuant to Rule 144 as follows:

<TABLE>
<CAPTION>
Number
of Shares Date
--------- ----
<C> <S>
10,500,000 Beginning 180 days from the date of this prospectus
2,250,000 Beginning August 23, 2000
</TABLE>

In general, under Rule 144, as currently in effect, a person (or persons
whose shares are required to be aggregated), including an affiliate, who has
beneficially owned shares for at least one year is entitled to sell, within any
three-month period commencing 90 days after the date of this prospectus, a
number of shares that does not exceed the greater of:

. 1% of the then outstanding shares of common stock; or

. the average weekly trading volume in the common stock during the four
calendar weeks preceding the date on which notice of such sale is filed,
subject to restrictions.

In addition, a person who is not deemed to have been an affiliate at any time
during the 90 days preceding a sale and who has beneficially owned the shares
proposed to be sold for at least two years would be entitled to sell such
shares under Rule 144(k) without regard to the requirements described above. To
the extent that shares were acquired from an affiliate, such person's holding
period for the purpose of effecting a sale under Rule 144 commences on the date
of transfer from the affiliate.

Our directors, officers and shareholders who hold an aggregate of 10,500,000
common shares, together with the holders of options and warrants to purchase
4,932,500 shares of common stock and the holders of our Series A convertible
preferred stock convertible into 2,250,000 common shares, have agreed that they
will not offer, sell or agree to sell, directly or indirectly, or otherwise
dispose of any shares of common stock without the prior written consent of
Bear, Stearns & Co. Inc. for a period of 180 days from the date of this
prospectus. Please see "Underwriting."

As of the date of this prospectus, we have granted options to purchase up to
1,616,000 shares of common stock including options exercisable for 658,500
shares of common stock granted to certain employees, officers, directors and
consultants under the Long-Term Incentive Plan. Of the total number of shares
subject to outstanding options, 982,500 had vested as of the date of this
prospectus. Within 180 days after the date of this prospectus, we intend to
file a registration statement on Form S-8 under the Securities Act to register
the shares of common stock reserved for issuance upon exercise of options
granted and to be granted under the Long-Term Incentive Plan to our employees,
officers, directors and consultants. Upon the effective date of this

60
<PAGE>

registration statement, shares of common stock issued upon exercise of options
granted under our Long-Term Incentive Plan will, subject to vesting provisions
and Rule 144 volume limitations applicable to our affiliates, be eligible for
sale in the open market beginning 180 days from the date of this prospectus,
except for 66,000 shares which will be exercisable and eligible for sale in
March of 2000.

Upon completion of this offering, the holders of approximately 9,675,000
shares of our common stock will be entitled to rights with respect to the
registration of their shares under the Securities Act, including shares
acquirable upon exercise of outstanding warrants. Registration of their shares
under the Securities Act would result in the shares becoming freely tradable
without restriction under the Securities Act, except for shares purchased by
affiliates, immediately upon the effectiveness of this registration.

61
<PAGE>

UNDERWRITING

Subject to the terms and conditions set forth in an underwriting agreement
among the underwriters and us, each of the underwriters named below, through
their representatives Bear, Stearns & Co. Inc.; Prudential Securities
Incorporated; Friedman, Billings, Ramsey & Co., Inc. and E*OFFERING Corp. has
severally agreed to purchase from us the aggregate number of shares of common
stock set forth opposite its name below:

<TABLE>
<CAPTION>
Number
Underwriter of Shares
----------- ---------
<S> <C>
Bear, Stearns & Co. Inc............................................ 1,975,000
Prudential Securities Incorporated................................. 1,304,000
Friedman, Billings, Ramsey & Co., Inc.............................. 355,000
E*OFFERING Corp.................................................... 316,000
Banc of America Securities LLC..................................... 100,000
Donaldson, Lufkin & Jenrette Securities Corporation................ 100,000
Hambrecht & Quist LLC.............................................. 100,000
Lehman Brothers Inc................................................ 100,000
SoundView Technology Group, Inc.................................... 100,000
Axiom Partners Inc................................................. 50,000
Joseph Charles & Associates, Inc................................... 50,000
First Southwest Company............................................ 50,000
Gaines, Berland Inc................................................ 50,000
Harris Webb & Garrison, Inc........................................ 50,000
Hoak Breedlove Wesneski & Co....................................... 50,000
Josephthal & Co. Inc............................................... 50,000
Needham & Company, Inc............................................. 50,000
Sanders Morris Mundy Inc........................................... 50,000
The Seidler Companies Incorporated................................. 50,000
Southwest Securities, Inc.......................................... 50,000
---------
Total............................................................ 5,000,000
=========
</TABLE>

We have granted a 30-day over-allotment option to the underwriters to
purchase up to an aggregate of 750,000 additional shares of our common stock
exercisable at the public offering price less the underwriting discounts and
commissions, each as set forth on the cover page of this prospectus. If the
underwriters exercise this option in whole or in part, then each of the
underwriters will be severally committed, subject to certain conditions,
including the approval of certain matters by their counsel, to purchase the
additional shares of common stock in proportion to their respective purchase
commitments as indicated in the preceding table.

At our request, the underwriters have reserved for sale at the initial public
offering price up to 450,000 of the shares, or 9%, of our common stock to be
sold in this offering for sale to our employees and directors, friends and
family of our directors, officers and employees. The number of shares available
for sale to the general public will be reduced to the extent that any reserved
shares are purchased. Any reserved shares not purchased will be offered by the
underwriters on the same basis as the other shares offered.

E*OFFERING Corp. is the exclusive Internet distributor for this offering.
E*OFFERING has agreed to allocate a portion of the shares that it purchases to
E*TRADE Securities, Inc. E*OFFERING and E*TRADE will allocate shares to their
respective customers in accordance with usual and customary industry practices.
A prospectus in electronic format will be made available on Internet sites
maintained by E*OFFERING and E*TRADE. Other than the prospectus in electronic
format, the information on these Internet sites is not part of this prospectus
or the registration statement of which the prospectus forms a part.

The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares included in this
offering are subject to approval of certain legal matters by their

62
<PAGE>

counsel and to customary conditions, including the effectiveness of the
registration statement, the continuing correctness of our representations to
them, the delivery of legal opinions by our counsel, the receipt of a "comfort
letter" from our accountants and no occurrence of an event that would have a
material adverse effect on our business. The underwriters are obligated to
purchase and accept delivery of all the shares, other than those covered by the
over-allotment option described below, if they purchase any of the shares.

The underwriters propose to offer the shares of common stock directly to the
public at the public offering price set forth on the cover page of this
prospectus and at such price less a concession not in excess of $0.34 per share
of common stock to other dealers who are members of the National Association of
Securities Dealers, Inc. The underwriters may allow, and such dealers may
reallow, concessions not in excess of $0.10 per share of common stock to
certain other dealers. After this offering, the offering price, concessions and
other selling terms may be changed by the underwriters. The common stock is
offered subject to receipt and acceptance by the underwriters and to certain
other conditions, including the right to reject orders in whole or in part.

The following table summarizes the compensation to be paid to the
underwriters by us and the expenses payable by us, at a public offering price
of $8.00 per share.

<TABLE>
<CAPTION>
Total
-----------------------------
Per Without With
Share Over-allotment Over-allotment
----- -------------- --------------
<S> <C> <C> <C>
Public offering price..................... $8.00 $40,000,000 $46,000,000
Underwriting discounts and commissions
payable by us............................ $0.56 $ 2,800,000 $ 3,220,000
Expenses payable by us.................... $0.22 $ 1,100,000 $ 1,100,000
</TABLE>

The underwriting discount and commission per share is equal to the public
offering price per share of common stock less the amount paid by the
underwriters to us per share of common stock. The underwriting commissions and
fees are expected to represent 7.0% of the public offering price per share of
common stock.

The following table indicates the expenses payable by us in the offering. All
amounts are estimates other than the Securities and Exchange Commission
registration fee, the NASD fee and Nasdaq National Market listing fee.

<TABLE>
<S> <C>
Securities Exchange Commission registration fee............... $ 15,985
NASD fee...................................................... 6,250
Nasdaq National Market listing fee............................ 95,000
Accounting fees and expenses.................................. 250,000
Legal fees and expenses....................................... 355,000
Printing and engraving expenses............................... 250,000
Transfer Agent and Registrar fees and expenses................ 15,000
Miscellaneous................................................. 112,765
----------
Total....................................................... $1,100,000
==========
</TABLE>

The underwriters do not expect to confirm sales of common stock to any
accounts over which they exercise discretionary authority.

The underwriting agreement provides that we will indemnify the underwriters
against liabilities specified in the underwriting agreement under the
Securities Act or will contribute to payments that the underwriters may be
required to make in respect of those liabilities. The underwriting agreement
provides that we must indemnify the underwriters against liabilities arising
out of any alleged misstatements of fact or omissions in this prospectus and
the registration statement, including liabilities under the Securities Act, and
contribute to payments that the underwriters may be required to make in respect
of those liabilities.

63
<PAGE>

We, our stockholders, derivative securityholders and all of our directors and
various officers have agreed that, subject to certain exceptions, for a period
of 180 days from the date of this prospectus, without the prior written consent
of Bear, Stearns & Co. Inc., we will not, directly or indirectly, issue, sell,
offer or agree to sell, grant any option for the sale of, pledge, make any
short sale, establish an open "put equivalent position" within the meaning of
Rule 16a-1(h) under the Exchange Act or otherwise dispose of any shares of our
common stock (or securities convertible into, exercisable for or exchangeable
for our common stock) of our company.

We have applied to list our common stock on the Nasdaq National Market under
the symbol "ASDS."

Prior to this offering, there has been no public market for our common stock.
Consequently, the initial offering price for the common stock will be
determined by negotiations between us and the underwriters. Among the factors
to be considered in these negotiations will be:

. our results of operations in recent periods;

. our financial condition;

. estimates of our prospects and the industry in which we compete;

. an assessment of our management;

. the general state of the securities markets at the time of this
offering; and

. the prices of similar securities of generally comparable companies.

We cannot assure you that an active or orderly trading market will develop
for the common stock or that the common stock will trade in the public markets
subsequent to this offering at or above the public offering price.

In order to facilitate this offering, certain persons participating in this
offering may engage in transactions that stabilize, maintain or otherwise
affect the price of the common stock during and after this offering.
Specifically, the underwriters may over-allot or otherwise create a short
position in the common stock for their own account by selling more shares of
common stock than we have sold to them. The underwriters may elect to cover any
short position by purchasing shares of common stock in the open market or by
exercising the over-allotment option granted to the underwriters. In addition,
the underwriters may stabilize or maintain the price of the common stock by
bidding for or purchasing shares of common stock in the open market and may
impose penalty bids, under which selling concessions allowed to syndicate
members or other broker-dealers participating in this offering are reclaimed if
shares of common stock previously distributed in this offering are repurchased
in connection with stabilization transactions or otherwise. The effect of these
transactions may be to stabilize or maintain the market price at a level above
that which might otherwise prevail in the open market. The imposition of a
penalty bid may also affect the price of the common stock to the extent that it
discourages resales of common stock. No representation is made as to the
magnitude or effect of any of these activities. These activities may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.

An affiliate of Bear, Stearns & Co. Inc. owns a 2% limited partnership
interest in the VantagePoint funds, and, as a result, maintains an indirect
interest in a portion of the Series A convertible preferred stock, Series B
redeemable preferred stock and common stock purchase warrants acquired by the
VantagePoint funds in August 1999. See "Certain Transactions--Preferred Stock
Financing."

From time to time, our underwriters have or may provide financial advisory
services to us for which they will receive customary fees.

64
<PAGE>

LEGAL MATTERS

The validity of the shares of common stock offered in this offering will be
passed upon for us by Arter & Hadden LLP, Dallas, Texas. Certain other legal
matters in connection with this offering will be passed upon for the
underwriters by Jenkens & Gilchrist, a Professional Corporation, Dallas, Texas.

EXPERTS

The financial statements of ASD Systems, Inc. as of December 31, 1998 and for
the year ended December 31, 1998, the financial statements of ASD Partners,
Ltd. as of December 31, 1997 and for the period October 14, 1997 to December
31, 1997, the financial statements of the fulfillment division of Athletic
Supply of Dallas, LLC as of October 13, 1997 and for the period December 21,
1996 to October 13, 1997 and the financial statements of the fulfillment
division of Athletic Supply of Dallas, Inc. as of December 20, 1996 and for the
period January 1, 1996 to December 20, 1996 appearing in this prospectus and
registration statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given on the authority of such firm
as experts in accounting and auditing.

ADDITIONAL INFORMATION

We have filed with the Securities and Exchange Commission a Registration
Statement on Form S-1 under the Securities Act with respect to the common stock
offered in this offering. This prospectus does not contain all of the
information set forth in the registration statement and the exhibits and
schedules thereto. For further information with respect to ASD Systems and the
common stock offered in this offering, reference is made to such registration
statement, schedules and exhibits. Statements contained in this prospectus
regarding the contents of any contract or any other document are not
necessarily complete and, in each instance, reference is hereby made to the
copy of such contract or other document filed as an exhibit to the registration
statement. As a result of this offering, we will be subject to the
informational requirements of the Securities Exchange Act of 1934 and,
consequently, will be required to file annual and quarterly reports, proxy
statements and other information with the SEC. These reports, proxy statements
and other information may also be inspected at the offices of Nasdaq
Operations, 1735 K Street, N.W., Washington, D.C. 20006. The registration
statement, including exhibits, may be inspected without charge at the SEC's
principal office in Washington, D.C., and copies of all or any part thereof may
be obtained from the Public Reference Section, Securities and Exchange
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 upon payment of the
prescribed fees. You may obtain information on the operation of the Public
Reference Room by calling the SEC at 1.800.SEC.0330. The SEC maintains a Web
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with it. The address
of the SEC's Web site is http://www.sec.gov.

65
<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Index to Financial Statements............................................. F-1
ASD Systems, Inc.
Report of Independent Auditors............................................ F-2
Balance Sheets as of December 31, 1997 and 1998 and September 30, 1999
(Unaudited).............................................................. F-3
Statements of Operations for the Period from October 14, 1997 to December
31, 1997, for the Year Ended December 31, 1998 and for the Nine Months
Ended September 30, 1998 and 1999 (Unaudited)............................ F-4
Statement of Partners' Capital and Stockholders' Equity (Net Capital
Deficiency) for the Period from October 14, 1997 to December 31, 1997,
for the Year ended December 31, 1998 and for the Nine Month Period Ended
September 30, 1999 (Unaudited)........................................... F-5
Statements of Cash Flows for the Period from October 14, 1997 to December
31, 1997, for the Year Ended December 31, 1998 and for the Nine Month
Period Ended September 30, 1999 (Unaudited).............................. F-6
Notes to Financial Statements............................................. F-7
Fulfillment Division of Athletic Supply of Dallas, LLC
Report of Independent Auditors............................................ F-17
Balance Sheet as of October 13, 1997...................................... F-18
Statement of Operations and Division Deficit for the Period from December
21, 1996 to October 13, 1997............................................. F-19
Statement of Cash Flows for the Period from December 21, 1996 to October
13, 1997................................................................. F-20
Notes to Financial Statements............................................. F-21
Fulfillment Division of Athletic Supply of Dallas, Inc.
Report of Independent Auditors............................................ F-24
Balance Sheet as of December 20, 1996..................................... F-25
Statement of Income and Division Equity for the Period from January 1,
1996 to December 20, 1996................................................ F-26
Statement of Cash Flows for the Period from January 1, 1996 to December
20, 1996................................................................. F-27
Notes to Financial Statements............................................. F-28
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT AUDITORS

Stockholders and Board of Directors
ASD Systems, Inc.

We have audited the accompanying balance sheets of ASD Systems, Inc. (the
"Company") as of December 31, 1997 and 1998, and the related statements of
operations and cash flows for the period from October 14, 1997 to December 31,
1997 and for the year ended December 31, 1998, statement of partner's capital
for the period from October 14, 1997 to December 31, 1997, and statement of
stockholders' equity for the year ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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, the financial statements referred to above present fairly, in
all material respects, the financial position of ASD Systems, Inc. at December
31, 1997 and 1998, and the results of its operations and its cash flows and for
the period October 14, 1997 to December 31, 1997 and for the year ended
December 31, 1998, in conformity with generally accepted accounting principles.

Ernst & Young LLP

Dallas, Texas
August 5, 1999
(except for Note 11, as to which the
date is August 23, 1999)

F-2
<PAGE>

ASD SYSTEMS, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
December 31,
--------------------- September 30,
1997 1998 1999
---------- ---------- -------------
(unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents............... $ 96,852 $ 280 $ 9,197,230
Accounts receivable, less allowance of
doubtful accounts of $0 at December 31,
1997, $50,000 at December 31, 1998 and
$632,000 at September 30, 1999......... 757,945 1,334,226 1,212,663
---------- ---------- -----------
Total current assets.................. 854,797 1,334,506 10,409,893
Property and equipment, net............... 2,738,347 1,868,097 4,086,937
Other assets.............................. 31,043 63,350 556,079
---------- ---------- -----------
Total assets.............................. $3,624,187 $3,265,953 $15,052,909
========== ========== ===========
Liabilities, Partners' Capital, and
Stockholders' Equity (Net Capital
Deficiency)
Current liabilities:
Revolving credit line................... $ -- $2,400,000 $ 1,600,000
Accounts payable........................ 407,202 643,111 1,359,942
Accrued liabilities..................... 520,050 472,842 426,510
Current portion of long term debt....... 340,000 340,000 340,000
Current portion of capital lease
obligations............................ 29,130 29,319 24,317
---------- ---------- -----------
Total current liabilities............. 1,296,382 3,885,272 3,750,769
Capital lease obligations................. 24,888 24,220 --
Long term debt............................ 1,360,000 1,020,000 2,582,914
Series B mandatorily redeemable preferred
stock, $.0001 par value:
Authorized shares--1,111,111
Issued and outstanding--none at December
31, 1998 and 1,111,111 at September 30,
1999..................................... -- -- 5,744,870
Commitments and contingencies
Partners' capital......................... 942,917 -- --
----------
Total liabilities and partners'
capital.............................. $3,624,187 -- --
==========
Stockholders' equity
Series A convertible preferred stock,
$.0001 par value:
Authorized shares--1,111,111
Issued and outstanding--none at
December 31, 1998 and 1,111,111 at
September 30, 1999..................... -- -- 5,744,870
Series A Common stock, $0.0001 par
value:
Authorized shares--15,000,000
Issued and outstanding--6,000,000 at
December 31, 1998 and 10,500,000 at
September 30, 1999..................... 600 1,050
Series B Common stock, $0.0001 par
value:
Authorized shares--5,000,000
Issued and outstanding-- none.......... -- --
Additional paid-in capital.............. 941,818 5,741,346
Accumulated deficit..................... (2,605,957) (8,512,910)
---------- -----------
Total stockholders' equity (net
capital deficiency).................. (1,663,539) 2,974,356
---------- -----------
Total liabilities and stockholders'
equity (net capital deficiency)...... $3,265,953 $15,052,909
========== ===========
</TABLE>

See accompanying notes.

F-3
<PAGE>

ASD SYSTEMS, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
Nine Months Ended
Period from Year Ended September 30,
October 14, 1997 to December ------------------------
December 31, 1997 31, 1998 1998 1999
------------------- ----------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues................ $2,574,467 $ 8,020,021 $ 4,962,283 $ 7,893,834
Cost of revenues........ 1,248,232 5,051,297 3,458,952 6,304,939
---------- ----------- ----------- -----------
Gross profit............ 1,326,235 2,968,724 1,503,331 1,588,895
Operating expenses:
Selling, general, and
administrative ex-
penses................. 1,074,096 4,257,780 2,967,218 5,694,435
Depreciation and amorti-
zation................. 251,722 1,083,994 771,396 1,013,936
---------- ----------- ----------- -----------
Total operating ex-
penses................. 1,325,818 5,341,774 3,738,614 6,708,371
Operating income
(loss)................ 417 (2,373,050) (2,235,283) (5,119,476)
Interest expense, net... (27,500) (232,907) (150,512) (151,922)
Interest expense related
to stock warrants...... -- -- -- (635,555)
---------- ----------- ----------- -----------
Net loss................ $ (27,083) $(2,605,957) $(2,385,795) $(5,906,953)
========== =========== =========== ===========
Basic and diluted net
loss per share......... $ -- $ (0.43) $ (0.40) $ (0.59)
========== =========== =========== ===========
Shares used in computing
basic and diluted net
loss per share......... -- 6,000,000 6,000,000 9,992,674
========== =========== =========== ===========
Pro forma basic and di-
luted net loss per
share.................. $ (0.01)
==========
Shares used in computing
pro forma basic and di-
luted net loss per
share.................. 6,000,000
==========
</TABLE>

See accompanying notes.

F-4
<PAGE>

ASD SYSTEMS, INC.

STATEMENT OF PARTNERS' CAPITAL AND STOCKHOLDERS' EQUITY
(NET CAPITAL DEFICIENCY)

<TABLE>
<CAPTION>
Stockholders' Equity (Net Capital Deficiency)
----------------------------------------------------------------------------------
Total
Common Stock Common Stock Stockholders'
Series A Class A Class B Additional Equity
Partners' Convertible ----------------- ------------- Paid-in Accumulated (Net Capital
Capital Preferred Stock Shares Amount Shares Amount Capital Deficit Deficiency)
---------- --------------- ---------- ------ ------ ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at October 14,
1997.................. $ -- -- -- $ -- -- $ -- $ -- $ -- $ --
Contribution of a
note receivable to
the partnership...... 1,000,000 -- -- -- -- -- -- -- --
Contribution of cash
to the partnership... 10,000 -- -- -- -- -- -- -- --
Distribution to the
partners............. (40,000) -- -- -- -- -- -- --
Net loss............. (27,083) -- -- -- -- -- -- -- --
---------- ---------- ---------- ------ --- ----- ---------- ----------- ----------
Balance at December
31, 1997.............. $ 942,917 -- -- -- -- -- -- -- --
==========
Conversion from a
partnership to a
corporation through
the issuance of
common stock......... -- 6,000,000 600 -- -- 941,818 -- 942,418
Net loss............. -- -- -- -- -- -- (2,605,957) (2,605,957)
---------- ---------- ------ --- ----- ---------- ----------- ----------
Balance at December
31, 1998.............. -- 6,000,000 600 -- -- 941,818 (2,605,957) (1,663,539)
Issuance of common
stock................ -- 4,500,000 450 -- -- 4,163,973 -- 4,164,423
Issuance of series A
convertible preferred
stock................ 5,744,870 -- -- -- -- -- -- 5,744,870
Issuance of
warrants............. -- -- -- -- -- 635,555 -- 635,555
Net loss
(unaudited).......... -- -- -- -- -- -- (5,906,953) (5,906,953)
---------- ---------- ------ --- ----- ---------- ----------- ----------
Balance at September
30, 1999 (unaudited).. $5,744,870 10,500,000 $1,050 -- $ -- $5,741,346 $(8,512,910) $2,974,356
========== ========== ====== === ===== ========== =========== ==========
</TABLE>

See accompanying notes.

F-5
<PAGE>

ASD SYSTEMS, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Period from Nine Months Ended
October 14, 1997 Year Ended September 30,
to December ------------------------
December 31, 1997 31, 1998 1998 1999
----------------- ----------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Operating Activities
Net loss................ $ (27,083) $(2,605,957) $(2,385,795) $(5,906,953)
Adjustments to reconcile
net loss to net cash
provided by (used in)
operating activities:
Depreciation and
amortization......... 251,722 1,083,994 771,396 1,013,936
Provision for doubtful
accounts............. -- 50,000 -- 632,159
Interest expense
related to stock
warrants............. -- -- -- 635,555
Changes in operating
assets and
liabilities:
Accounts
receivable......... (337,300) (626,281) 158,533 (510,596)
Other assets........ (31,043) (32,806) (34,055) (492,729)
Accounts payable.... 407,202 235,909 201,154 716,831
Accrued
liabilities........ 10,599 (47,209) (301,684) (46,332)
--------- ----------- ----------- -----------
Net cash provided by
(used in) operating
activities............. 274,097 (1,942,350) (1,590,451) (3,958,129)
Investing Activities
Purchases of property
and equipment.......... (126,015) (180,776) (375,264) (3,232,776)
Cash acquired through
stock issuance......... -- 96,852 96,852 --
--------- ----------- ----------- -----------
Net cash used in
investing activities... (126,015) (83,924) (278,412) (3,232,776)
Financing Activities
Borrowings on revolving
line of credit......... -- 2,400,000 2,225,000 2,000,000
Payments on revolving
line of credit......... -- -- -- (2,800,000)
Contributions from
partners............... 10,000 -- -- --
Distributions to
partners............... (40,000) -- -- --
Proceeds from issuance
of Common Stock........ -- -- -- 4,164,423
Proceeds from issuance
of Series A Convertible
Preferred Stock........ -- -- -- 5,744,870
Proceeds from issuance
of Series B Mandatorily
Redeemable Preferred
Stock.................. -- -- -- 5,744,870
Borrowings of long-term
debt................... -- -- -- 1,902,914
Payments of long-term
debt................... -- (340,000) (255,000) (340,000)
Payments of capital
lease obligations...... (21,230) (33,446) (42,001) (29,222)
--------- ----------- ----------- -----------
Net cash provided by
(used in) financing
activities............. (51,230) 2,026,554 1,927,999 16,387,855
--------- ----------- ----------- -----------
Net increase in cash and
cash equivalents....... 96,852 280 59,136 9,196,950
Cash and cash
equivalents at
beginning of year...... -- -- -- 280
--------- ----------- ----------- -----------
Cash and cash
equivalents at end of
year................... $ 96,852 $ 280 $ 59,136 $ 9,197,230
========= =========== =========== ===========
Noncash Investing and
Financing Activities
Assets acquired under
capital leases......... $ -- $ 32,968 $ 32,968 $ --
========= =========== =========== ===========
</TABLE>

See accompanying notes.

F-6
<PAGE>

ASD SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS

(Information as of September 30, 1999 and for the nine months ended
September 30, 1999 and 1998 is unaudited)

1. Description of Business and Basis of Presentation

Description of Business

ASD Systems, Inc. (the "Company") provides comprehensive order management and
fulfillment services to internet retailers and traditional direct marketing
companies in the United States. The Company is headquartered in Garland, Texas.

At September 30, 1999, the Company had an accumulated deficit of $8,512,910.
Management believes the cash on hand at September 30, 1999, availability under
its line of credit, and additional funding received subsequent to year end (see
Note 11) will enable the Company to continue to meet its current debt and other
obligations.

Basis of Presentation

As of December 31, 1998, the Company is wholly-owned by ASD Partners, Ltd., a
Texas limited partnership (the "Partnership"). The Partnership was formed
effective October 14, 1997 to purchase certain assets (including software, call
center and fulfillment facilities) and assume certain liabilities of Athletic
Supply of Dallas, LLC, a wholly owned subsidiary of Genesis Direct, Inc.
("Genesis"), for $2,700,000. The Partnership funded the acquisition by (1)
issuing a promissory note for $1,700,000 to Genesis and (2) causing the
majority partner of the Partnership and former employee of Athletic Supply of
Dallas, LLC to forgive $1,000,000 of a note receivable due from Genesis. The
original note due to the majority partner of the Partnership was for
approximately $3,400,000 with an interest rate of 6.35%. The forgiveness of the
$1,000,000 represents the forgiveness of the September 1997, June 1998 and
March 1999 payments due on the note. The forgiveness was recorded as a
contribution to the Partnership. This acquisition was accounted for as a
purchase.

On January 1, 1998, the Company was formed as a Texas corporation and issued
6,000,000 shares of Series A Common Stock to the Partnership in exchange for
substantially all of the assets and liabilities of the Partnership. The
transaction was accounted for as a merger of companies under common control
similar to a pooling. The recorded value of the total assets acquired and
liabilities assumed amounted to $3,624,187 and $2,681,270 respectively.

On December 20, 1996, Genesis purchased all the outstanding common stock of
Athletic Supply of Dallas, Inc. ("Athletic Supply") for $10,000,000, consisting
of $5,000,000 in cash and a $5,000,000 promissory note due to the Athletic
Supply common stockholders. The acquisition was accounted for as a purchase.
Athletic Supply was a catalog sales company that sold sports apparel and
provided fulfillment services to retailers and direct marketing companies.

Cash and Cash Equivalents

The Company classifies all highly liquid investments with original maturties
of three months or less to be cash equivalents. Cash equivalents are stated at
cost, which approximates fair value.

Accounts Receivable and Concentration of Credit Risk

Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist primarily of its accounts receivable
from customers. At December 31, 1997 and 1998 42% and 28%, respectively, of
accounts receivable were due from one customer. At September 30, 1999, 22% and
60% of accounts receivable were due from two customers. The Company generally
does not require collateral. The Company maintains an allowance for doubtful
accounts for potential credit losses. The Company's allowance for doubtful
accounts was $50,000 at December 31, 1998 and $632,000 at September 30, 1999,
respectively.

F-7
<PAGE>

ASD SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

During the year ended December 31, 1998, the Company recorded a provision for
uncollectible accounts of $50,000. During the nine months ended September 30,
1999, the Company recorded a provision for uncollectible accounts of $632,000
and wrote off $50,000 of bad debts. During the period from October 14, 1997 to
December 31, 1997, the Company did not record a provision for uncollectible
accounts nor write off any bad debts.

Property and Equipment

Property and equipment are stated at cost. Equipment acquired under capital
leases is stated at the lower of the present value of future minimum lease
payments or fair value of the equipment at the inception of the lease.
Depreciation and amortization of property and equipment, other than leasehold
improvements, are provided over the estimated useful lives of the assets
(ranging from three to seven years) using the straight-line method. Leasehold
improvements are amortized on a straight-line basis over the shorter of the
respective lease term or estimated useful life of the asset.

Revenue Recognition

Revenues relate primarily to order management and fulfillment services and
are recognized on a per transaction basis as the services are rendered.

Cost of revenues consists primarily of direct labor costs for providing order
management and fulfillment services and, to a lesser extent, the cost of
contracting for third party call center and fulfillment center services.

The Company has two major customers, Sears, Roebuck, and Co. and Sears Wish
Book, Inc. (collectively "Sears"). These affiliated entities accounted for 94%,
84% and 85% of the Company's revenues for the period from October 14, 1997 to
December 31, 1997, the year ended December 31, 1998 and the nine months ended
September 30, 1998, respectively. For the nine months ended September 30, 1999,
the Company had three major customers that accounted for approximately 82% of
the Company's revenue for the nine month period. The Company has contracted
with Sears to provide services relating to the Craftsman Power and Hand Tools
and Home Healthcare catalogs until July 1, 2001 and certain other services
relating to the Sears Wish Book catalog on a year to year basis. The Sears Wish
Book contract was last renewed on July 2, 1999 for a period expiring August 31,
2000. Each of the Company's agreements with Sears may be terminated by Sears
prior to their scheduled termination dates.

Advertising Costs

Advertising costs are expensed as incurred. Amounts expensed were
approximately $18,000 for the period from October 14, 1997 to December 31,
1997, $100,000 for the year ended December 31, 1998, $76,000 for the nine month
period ended September 30, 1998 and $87,000 for the nine month period ended
September 30, 1999.

Software Development

Software development costs were expensed as incurred through December 31,
1998. Amounts expensed were approximately $1,000,000 and $800,000 for the year
ended December 31, 1998 and the nine month period ended September 30, 1998,
respectively. There were no software development costs incurred during the
period from October 14, 1997 to December 31, 1997. Effective January 1, 1999,
with the adoption of SOP 98-1 as discussed below, software development costs
are being capitalized.

Use of Estimates

The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported financial statements and accompanying
notes. Actual results could differ from those estimates.

Income Taxes

For the period October 14, 1997 through December 31, 1997, the Company was a
partnership and was not subject to federal income taxes. The losses were
included in the partner's individual federal and state tax returns, and as
such, no provision for income taxes has been recorded on an historical basis in
the accompanying

F-8
<PAGE>

ASD SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

statement of operation for the period October 14, 1997 to December 31, 1997. On
January 1, 1998, the Partnership transferred the assets and liabilities of the
Partnership to ASD Systems, Inc. a C Corporation. Subsequently, the Company has
accounted for taxes under the liability method, which gives consideration to
the future tax consequences associated with differences between the financial
accounting and tax basis of assets and liabilities.

A benefit for income taxes on a pro forma basis as if the Company were liable
for federal and state income taxes as a taxable corporate entity for the period
from October 14, 1997 to December 31, 1997 is not presented, due to the
uncertainty of utilization of the loss carryforwards in future periods.

Long-Lived Assets

The Company evaluates the carrying value of its long-lived assets under
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived assets to be Disposed of,"
which requires impairment losses to be recognized for long-lived assets used in
operations when indicators of impairment are present and when the future
estimated undiscounted cash flows generated by those assets are not sufficient
to recover the assets' carrying amount. The evaluation of an impairment loss is
determined by comparing the amount of undiscounted cash flows to be generated
by the asset to the asset's carrying amount.

Net Loss Per Share and Pro Forma Net Loss Per Share

Basic and diluted net loss per share is computed based on the loss applicable
to common shareholders divided by the weighted average number of shares of
common stock outstanding during each period. Potentially dilutive securities
consisting of warrants and stock options were not included in the calculation
as their effect is antidulitive. If the Company had reported net income for the
nine months ended September 30, 1999, the dilutive shares calculation would
have included additional shares of 1,824,719. The number of dilutive shares
representing warrants and stock options was determined by using the treasury
stock method. The number of dilutive shares representing convertible preferred
stock was determined by using the if converted method.

The pro forma basic and diluted net loss per share when the Company was a
partnership is computed based on net loss divided by the number of shares
outstanding when the Partnership sold assets to the Company.

Stock Based Compensation

The Company has elected to follow Accounting Principles Board Opinion No. 25
(APB 25), "Accounting for Stock Issued to Employees," in accounting for its
employee stock options and stock based awards. Under APB 25, if the exercise
price of an employee's stock option equals or exceeds the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
The additional disclosures required under Statement of Financial Accounting
Standards No. 123 (SFAS 123), "Accounting for Stock Based Compensation," are
not included as there were no options granted as of December 31, 1998.

Fair Value of Financial Investments

The Company's financial instruments, including accounts receivables, accounts
payable, and borrowings under its revolving credit line and term loan debt
approximate fair value due to their short term value. Based on prevailing
interest rates at December 31, 1998, management believes that the fair value of
long-term debt approximates its book value.

F-9
<PAGE>

ASD SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

Accounting Pronouncements

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 130 (SFAS 130), "Reporting Comprehensive
Income," which requires disclosure of total comprehensive income in interim and
annual financial statements. The Company adopted SFAS 130 during 1998. The
Company had no items of other comprehensive income in the period from October
14, 1997 to December 31, 1997 and for the year ended December 31, 1998.

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivatives
and Similar Financial Instruments and Hedging Activities," which provides a
comprehensive and consistent standard for the recognition and measurement of
derivatives and hedging activities. The Company will be required to adopt SFAS
133 at the beginning of fiscal year 2000. SFAS 133 is not expected to have a
significant impact on the Company.

In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1 (SOP 98-1), "Accounting For the Costs of Computer
Software Developed For or Obtained For Internal Use." SOP 98-1 requires all
costs related to the development of internal use software, other than those
incurred during the application development stage, to be expensed as incurred.
Costs incurred during the application development stage are required to be
capitalized and amortized over the estimated useful life of the software. SOP
98-1 is effective for the Company's fiscal year ending December 31, 1999. Prior
to January 1, 1999, the Company expensed such costs as incurred. As a result of
adopting SOP 98-1, the Company capitalized approximately $588,000 related to
internal use software development projects during the nine month period ended
September 30, 1999.

Unaudited Interim Financial Statements

The unaudited interim financial statements as of September 30, 1999, and for
the nine months ended September 30, 1998 and 1999, have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with Rule 10-01 of Regulation S-X. Accordingly, they do not
include the information and footnotes required by generally accepted accounting
principles for complete financial statements. They do reflect all adjustments
(consisting of only normal recurring entries) which, in the opinion of the
Company's management, are necessary for a fair presentation of the results for
the interim periods presented.

The results of operations for the nine month period ended September 30, 1999
are not necessarily indicative of the results that may be expected for any
other interim period or for the full year.

2. Detail of Certain Balance Sheet Accounts

Property and equipment consist of the following:

<TABLE>
<CAPTION>
December 31,
--------------------- September 30,
1997 1998 1999
---------- ---------- -------------
(unaudited)
<S> <C> <C> <C>
Software............................... $1,164,054 $1,164,054 $1,722,938
Furniture, fixtures, and equipment..... 1,713,208 1,767,805 3,782,074
Other.................................. 112,807 140,748 490,335
---------- ---------- ----------
2,990,069 3,072,607 5,995,347
Less accumulated depreciation and
amortization.......................... 251,722 1,204,510 1,908,410
---------- ---------- ----------
Net property and equipment............. $2,738,347 $1,868,097 $4,086,937
========== ========== ==========
</TABLE>

The cost and accumulated amortization of assets acquired under capital leases
were $140,304 and $12,716 respectively at December 31, 1997 and $149,304 and
$54,655 respectively at December 31, 1998.

F-10
<PAGE>

ASD SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

Accrued liabilities consist of the following:

<TABLE>
<CAPTION>
December 31,
----------------- September 30,
1997 1998 1999
-------- -------- -------------
(unaudited)
<S> <C> <C> <C>
Accrued vacation expense..................... $164,054 $181,824 $255,238
Accrued salary expense....................... 128,152 152,902 66,482
Accrued property taxes....................... 161,542 36,622 73,000
Other........................................ 66,302 101,494 31,790
-------- -------- --------
Total accrued liabilities.................. $520,050 $472,842 $426,510
======== ======== ========
</TABLE>

3. Revolving Line of Credit

On July 21, 1998, the Company entered into a credit agreement with a bank
which provides for a $2,500,000 revolving credit line which is payable on
demand. At December 31, 1998, there were $2,400,000 in borrowings outstanding.
Borrowings under the agreement bear interest at the lender's prime rate plus 1%
(9.5% at December 31, 1998) and accrued interest is payable monthly. The
weighted average interest rate on the revolving line of credit was 8.25% for
the year ended December 31, 1998. Borrowings are also collateralized by
substantially all the assets of the Company, and are guaranteed up to a maximum
of $500,000 by the President and primary stockholder of the Company. There was
no fee or remuneration for this agreement with the President to guarantee the
indebtedness under the revolving credit agreement.

4. Long-term Debt

Long term debt relates to a long-term note due to Genesis (see Note 1) for
$1,700,000. The note bears interest at a rate of 6% and principal and interest
payments are due quarterly beginning January 14, 1998. The note is collaterized
by all the assets acquired from Genesis. The note matures on October 14, 2002.
The scheduled maturities of this note are as follows:

<TABLE>
<S> <C>
1999............................................................. $ 340,000
2000............................................................. 340,000
2001............................................................. 340,000
2002............................................................. 340,000
----------
Total scheduled maturities..................................... $1,360,000
==========
</TABLE>

Interest expense under the revolving line of credit and long-term debt was
approximately $214,000 for the year ended December 31, 1998 and $97,000 and
$159,000 for the nine month periods ended September 30, 1998 and 1999,
respectively. There was no interest expense for the period from October 14,
1997 to December 31, 1997.

5. Income taxes

The provision for income taxes is reconciled with the federal statutory rate
for the year ended December 31, 1998 is as follows:

<TABLE>
<S> <C>
Provision computed at federal statutory rate..................... $(886,025)
State income taxes, net of federal tax effect.................... (76,166)
Change in deferred tax assets valuation allowance................ 946,835
Other............................................................ 15,356
---------
$ --
=========
</TABLE>

F-11
<PAGE>

ASD SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

Significant components of the deferred tax asset at December 31, 1998 are as
follows:

<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryforward................................. $ 793,185
Property and equipment.......................................... 128,595
Accrued expenses................................................ 6,570
Allowance for doubtful accounts................................. 18,485
---------
Total deferred tax assets......................................... 946,835
Less valuation allowance.......................................... (946,835)
---------
Net deferred taxes................................................ $ --
=========
</TABLE>

The Company has federal net operating loss carryforwards of $2,145,483 at
December 31, 1998, which if not utilized, will expire in 2018. The Company's
total deferred tax assets have been fully reserved due the uncertainty of
future taxable income. Accordingly, no tax benefit has been recognized in the
accompanying financial statement.

6. Leases

As of December 31, 1998, the Company was obligated under various capital
leases and noncancelable operating lease agreements for facilities and
equipment. The major capital leases contain various bargain purchase options. A
summary of future minimum lease payments follows:

<TABLE>
<CAPTION>
Capital Operating
Leases Leases
-------- ----------
<S> <C> <C>
1999................................................... $ 36,226 $ 481,507
2000................................................... 10,126 410,007
2001................................................... 8,705 372,507
2002................................................... 8,705 372,507
2003................................................... 2,902 62,085
-------- ----------
Total payments due................................... 66,664 $1,698,613
==========
Less amounts representing interest..................... 13,125
--------
Present value of minimum lease payments................ 53,539
Less current portion................................... (29,319)
--------
Noncurrent portion..................................... $ 24,220
========
</TABLE>

Rental expense under noncancelable operating leases for facilities and
equipment approximated $75,000 for the period from October 14, 1997 to December
31, 1997, $503,000 for the year ended December 31, 1998, $410,000 for the nine
months ended September 30, 1998 and $581,000 for the nine month period ended
September 30, 1999.

The Company leases an office/warehouse building from its President and
significant shareholder for annual rental expense of $100,000. The lease
expires on May 15, 2000.

In connection with the Company's lease of its corporate office and warehouse
facility, the significant shareholder has executed a limited guaranty with
respect to payments by the Company under such lease. Such guaranty is presently
for a maximum amount of $500,000 but decreases by $100,000 increments on
January 1 of each year, commencing January 1, 1999. The President is not
entitled to receive a fee or any other remuneration for his agreement to
guaranty this obligation.

F-12
<PAGE>

ASD SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

7. Common Stock

The Series A common stockholders are entitled to vote on all matters
submitted to a vote of the Company's stockholders, and are entitled to certain
preemptive rights with respect to subsequent issues by the Company of all
equity securities or securities convertible into equity securities. The Series
B common stockholders are not entitled to any such voting or preemptive rights.
The Series A and Series B common stockholder are entitled to ratably receive
dividends, if any are declared by the Board of Directors. Upon liquidation,
dissolution or winding up of the Company, the Series A and Series B common
stockholders are entitled to share ratably any distribution of the Company's
assets and surplus funds.

8. Legal Proceedings

The Company is involved in various claims and legal actions arising from the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial condition, results of operations or cash flows.

9. Employee Benefit Plan

On October 1, 1998, the Company adopted a plan known as the ASD Systems
Employees Profit Sharing Plan & Trust (the "401k Plan") to provide retirement
and incidental benefits for its employees. The 401k Plan covers substantially
all employees who meet minimum age and service requirements. Employees vest at
20% per year, for five years of service, to share in the Company's matching
contribution. As allowed under Section 401(k) of the Internal Revenue Code, the
401k Plan provides tax deferred salary deductions for eligible employees.

Employees may contribute from 1% to 19% of their annual compensation to the
401k Plan, limited to a maximum amount as set by the Internal Revenue Service.
The Company matches employee contributions at the rate of $0.25 per each $1.00
of contribution on the first 4% of deferred compensation. Company matching
contributions to the 401k Plan were approximately $6,000 for the year ended
December 31, 1998 and $15,000 for the nine month period ended September 30,
1999. There were no contributions for the nine month period ended September 30,
1998.

F-13
<PAGE>

ASD SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

10. Computations of Basic and Diluted Net Loss Per Common Share

<TABLE>
<CAPTION>
Period from
October 14, 1997 Nine months ended September 30,
to December 31, --------------------------------
December 31, 1997 1998 1998 1999
------------------ ------------ --------------- ---------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Numerator:
Numerator for basic
and diluted net loss
per common share..... $(27,083) $(2,605,957) $ (2,385,795) $ (5,906,953)
========= =========== =============== ===============
Denominator:
Denominator for basic
net loss per common
share--weighted-
average shares....... 6,000,000 6,000,000 6,000,000 9,992,674
Effect of dilutive
securities:
Employee stock
options.............. -- -- -- --
Warrants.............. -- -- -- --
--------- ----------- --------------- ---------------
Basic and diluted net
loss per common share.. $ (0.01) $ (0.43) $ (0.40) $ (0.59)
========= =========== =============== ===============
</TABLE>

The Company was a partnership during the period from October 14, 1997 to
December 31, 1997. The net loss per common share--basic and diluted for the
period ended December 31, 1997 was calculated based on the number of shares of
common stock outstanding at January 1, 1998.

11. Subsequent Events

Private Placement

On January 29, 1999 and February 5, 1999, the Company sold, respectively,
2,750,000 and 1,750,000 shares of Series A Common Stock at $1.00 per share to a
group of third party accredited investors for total gross proceeds of
$4,500,000. As a condition of investment each investor was required to execute
a Shareholder Agreement which generally restricts any transfers of shares of
the Company's Series A Common Stock and provides rights of first refusal to the
Company and certain of the Company's other shareholders.

The Company also issued warrants, exercisable for up to 1,000,000 shares of
Series B Common Stock to an affiliate of the placement agent providing services
to the Company in the private placement. The warrants are exercisable at any
time at the following prices: 500,000 shares at $1.00 per share, 300,000 shares
at $2.00 per share, and 200,000 shares at $3.00 per share, and the warrants
expire five years from the date of grant. The majority of the net proceeds of
the offering were used to repay the then outstanding revolving line balance of
$2,500,000 under the credit agreement described in Note 3.

Amended Credit Agreement

On June 24, 1999, the credit agreement described in Note 3 was amended to
provide the Company with a $4,000,000 credit facility consisting of a
$2,000,000 revolving line of credit and a $2,000,000 term note. The revolving
credit line matures on May 13, 2000 and borrowings are limited to a borrowing
base defined as $750,000 plus 80% of eligible accounts receivable. Any
borrowings under the revolving line of credit bear interest at the bank's prime
rate plus .75% (9.00% at September 30, 1999) and accrued interest is payable
monthly starting July 13, 1999. Until November 13, 1999, the Company can borrow
up to a maximum of

F-14
<PAGE>

ASD SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

$2,000,000 under the term note for the purchases of property and equipment. On
November 13, 1999, the borrowings outstanding under the term note are set and
the principal payments are payable monthly starting December 13, 1999 and until
the note matures on November 13, 2002. At any time borrowings are outstanding,
the term note bears interest at prime plus 1% and accrued interest is payable
monthly starting July 13, 1999. All borrowings under the amended credit
agreement are collaterized by all the Company's assets and are guaranteed by
the President and majority shareholder under a guaranty agreement up to a
maximum $2,500,000. In June 1999, the Board of Directors approved a plan to pay
the President and majority shareholder a fee of 1% of the average amount
guaranteed by him each month under the bank facility. The fee is to be computed
and paid each month commencing July 1999. The amended credit agreement also
requires the Company to comply with financial covenants such as a minimal
amount of tangible net worth, a minimal quick ratio, a maximum amount of debt
to tangible net worth, and a minimal amount of net income, as defined.

Stock Options

On May 12, 1999, the Company adopted the 1999 Long-Term Incentive Plan (the
"Plan") to provide for the grant of stock options to management, directors, and
other persons, as determined by the Board of Directors of the Company.
Currently, under the Plan, an aggregate of 1,200,000 shares of Series B common
stock are authorized for issuance, and no one employee may be granted more than
50,000 options in one calendar year. Additionally, the Plan provides for the
grant of incentive stock options (ISOs) and non-qualified stock options (NQSOs)
at an exercise price equal to the fair market value of the Series B common
stock on the date of the grant. The option vesting periods per grant as
determined by the Board of the Directors and expire 10 years from the date of
grant.

On March 12, 1999 and April 30, 1999, options exercisable for 410,000 and
40,000 shares of Series B Common Stock, respectively were granted to employees
at an exercise price of $1.00 per share in accordance with the Plan. As
determined by the Board of Directors, the options vest ratably over five years.

On March 12, 1999, options exercisable for 50,000 shares of Series B Common
Stock were issued to directors and a consultant at an exercise price of $1.00
per share. As determined by the Board of Directors, 50% of the options vested
immediately and 50% vest on the first anniversary of the grant date.

On February 10, 1999 in a separate transaction outside of the Plan, an
executive of the Company was granted an option exercisable for 957,500 shares
of Series B Common Stock. The stock options are exercisable at any time at a
price of $1.00 per share which equaled the fair value of the Series B common
stock on the date the grant. The term of the options is five years.

On September 7, 1999, options exercisable for 238,500 shares of Series C
Preferred Stock were issued to employees at an exercise price of $5.40 per
share in accordance with the Plan. As determined by the Board of Directors, the
options vest ratably over five years.

During 1999, options exercisable for 80,000 shares for Series B Common Stock
were forfeited.

Preferred Stock

On August 23, 1999, the Company sold to outside investors, 1,111,111 shares
of its Series A and 1,111,111 shares of Series B Preferred Stock for gross
proceeds of approximately $12,000,000. The Series A Preferred Stock is
convertible into Common Stock at an initial conversion price of $5.40 per
share. In the event of an initial public offering (IPO), or an acquisition of
the Company prior to January 1, 2000, the conversion price will be the lesser
of $5.40 per share or one third of the issue price of the stock in the IPO or
acquisition. In the event of an IPO, the Company may be required to record a
preferred stock dividend equivalent to the difference between $5.40 per share
and one third of the IPO price. After January 1, 2000, the conversion price
will be $2.93 per share. The Series A Preferred Stock is not redeemable by the
Company.

F-15
<PAGE>

ASD SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

The Series B Preferred Stock is redeemable by the Company at any time at
$5.40 per share plus any declared and accrued dividends. The Stock is
manditorily redeemable upon an acquisition or IPO at $5.40 per share.

In connection with the transaction, the investors were issued warrants to
purchase additional shares of common stock equal to 1.3 times the number of
shares of common stock which is issuable with respect to Series A Preferred
Stock at an exercise price equal to 110% of the conversion price in effect
above.

Also in connection with the sale of the Series A and B Preferred Stock, the
Company amended and restated its Articles of Incorporation to establish Series
A voting common stock into the sole class of common stock, and to convert
Series B non-voting Common Stock into shares of Series C non-voting Preferred
Stock.

As part of the sale of the Series A and B Preferred Stock, the Company paid
$420,000 to an entity affiliated with a director of the Company in
consideration for commissions on the sale of the preferred stock.

Other

Effective October 1, 1999, management and a customer that accounted for 27%
of the Company's revenue for the period ended September 30, 1999 mutually
agreed to terminate their business relationship.

F-16
<PAGE>

REPORT OF INDEPENDENT AUDITORS

Stockholders and Board of Directors
Athletic Supply of Dallas, LLC

We have audited the accompanying balance sheet of the Fulfillment Division of
Athletic Supply of Dallas, LLC (the "Division") as of October 13, 1997 and the
related statements of operations and division deficit and cash flows for the
period from December 21, 1996 to October 13, 1997. These financial statements
are the responsibility of the division's management. Our responsibility is to
express an opinion on these financial statements based on our audit.

We conducted our audit 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 audit provides a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Fulfillment Division of
Athletic Supply of Dallas, LLC at October 13, 1997, and the results of its
operations and its cash flows for the period December 21, 1996 to October 13,
1997, in conformity with generally accepted accounting principles.

Ernst & Young LLP

Dallas, Texas
August 5, 1999

F-17
<PAGE>

FULFILLMENT DIVISION OF ATHLETIC SUPPLY OF DALLAS, LLC

BALANCE SHEET

October 13, 1997

<TABLE>
<S> <C>
Assets
Current assets
Accounts receivable............................................... $ 454,166
----------
Total current assets............................................ 454,166
Property and equipment, net....................................... 782,648
Other assets...................................................... 25,582
----------
Total assets.................................................... $1,262,396
==========
Liabilities and Division Deficit
Current liabilities
Accounts payable.................................................. $ 35,378
Accrued liabilities............................................... 563,681
Due to Athletic Supply of Dallas, LLC............................. 1,483,745
----------
Total current liabilities....................................... 2,082,804
Commitments and contingencies.......................................
Division deficit.................................................... (820,408)
----------
Total liabilities and division deficit.......................... $1,262,396
==========
</TABLE>

See accompanying notes.

F-18
<PAGE>

FULFILLMENT DIVISION OF ATHLETIC SUPPLY OF DALLAS, LLC

STATEMENT OF OPERATIONS AND DIVISION DEFICIT

<TABLE>
<CAPTION>
Period from
December 21, 1996
to
October 13, 1997
-----------------
<S> <C>
Revenues...................................................... $4,881,787
Cost of revenue............................................... 2,685,838
----------
Gross profit.................................................. 2,195,949
Selling, general, and administrative expenses................. 3,016,357
----------
Net loss...................................................... (820,408)
Division deficit, December 21, 1996........................... --
----------
Division deficit, October 13, 1997............................ $ (820,408)
==========
</TABLE>

See accompanying notes.

F-19
<PAGE>

FULFILLMENT DIVISION OF ATHLETIC SUPPLY OF DALLAS, LLC

STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
Period from
December 21, 1996
to
October 13, 1997
-----------------
<S> <C>
Operating Activities
Net loss.................................................... $ (820,408)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation.............................................. 367,300
Changes in operating assets and liabilities:
Accounts receivable..................................... 1,092,308
Accounts payable........................................ (110,617)
Accrued liabilities..................................... 279,182
----------
Net cash provided by operating activities................... 807,765
Investing Activities
Purchases of property and equipment......................... (38,665)
----------
Net cash used in investing activities....................... (38,665)
Financing Activities
Financing provided to Athletic Supply LLC................... (769,100)
----------
Net cash used in financing activities....................... (769,100)
Net change in cash and cash equivalents..................... --
Cash and cash equivalents at beginning of year.............. --
----------
Cash and cash equivalents at end of year.................... $ --
==========
Net assets acquired by parent allocated to the division..... $2,252,845
==========
</TABLE>

See accompanying notes.

F-20
<PAGE>

FULFILLMENT DIVISION OF ATHLETIC SUPPLY OF DALLAS, LLC

NOTES TO FINANCIAL STATEMENTS

1. Description of the Business, Basis of Presentation, and Summary of
Significant Accounting Policies

Basis of Presentation and Description of Business

The Fulfillment Division (the "Division") of Athletic Supply of Dallas LLC
(the "Parent") provides comprehensive order management and fulfillment services
to internet retailers and traditional direct marketing companies in the United
States. The Parent is a subsidiary of Genesis Direct Inc. ("Genesis") which
acquired the Parent on December 20, 1996 by purchasing all the common stock of
Athletic Supply of Dallas Inc. ("Athletic Supply") for $10,000,000, consisting
of $5,000,000 in cash and $5,000,000 promissory note due to the Athletic Supply
common stockholders. On October 14, 1997, certain assets and liabilities of the
Division were sold by Genesis to ASD Partners Ltd. for $2,700,000, consisting
of (1) a $1,700,000 promissory note due to Genesis and (2) causing the majority
partner and executive of the Parent and Athletic Supply to forgive a $1,000,000
note receivable from Genesis.

The accompanying financial statements reflect the financial position and
results of operations of the Fulfillment Division of Athletic Supply of Dallas,
LLC for the period December 21, 1996 to October 13, 1997. The balance sheet as
of October 13, 1997 has been prepared using the historical basis of accounting
and includes all of the assets and liabilities specifically identifiable to the
Division. Only specific assets and liabilities could be included because
corporate accounting systems of the Parent were not designed to track cash
receipts and payments on a division specific basis.

The statement of operations for the period December 21, 1996 to October 13,
1997 includes all revenue and costs directly attributable to the Division,
including the allocation of facilities, salaries and employee benefits.
Specifically, the Division was allocated rent expense of approximately $242,000
for the period December 21, 1996 to October 13, 1997.

All of the allocations reflected in the financial statements are based on
assumptions that management believes are reasonable under the circumstances.
However, these allocations and estimates are not necessarily indicative of the
costs that would have resulted if the division had been operated on a stand-
alone basis during the period December 21, 1996 to October 13, 1997 nor are
they necessarily indicative of future costs to support the operations of the
division.

Accounts Receivable and Concentration of Credit Risk

Financial instruments, which potentially subject the division to
concentrations of credit risk, consist primarily of its accounts receivable
from customers. At October 13, 1997, 97% of accounts receivable were due from
one customer. The Company generally does not require collateral. During the
period from December 21, 1996 to October 13, 1997, the Division did not record
a provision for uncollectible accounts nor write off any bad debts.

Property and Equipment

Property and equipment are stated at cost. Equipment allocated to the
Division and acquired under capital leases by the Parent is stated at the lower
of the present value of future minimum lease payments or fair value of the
equipment at the inception of the lease. Depreciation and amortization of
property and equipment, other than leasehold improvements, are provided over
the estimated useful live of the assets (ranging from three to seven years)
using the straight-line method. Leasehold improvements allocated to the
Division are amortized on a straight-line basis over the shorter of the
respective lease term or estimated useful life of the asset.

F-21
<PAGE>

FULFILLMENT DIVISION OF ATHLETIC SUPPLY OF DALLAS, LLC

NOTES TO FINANCIAL STATEMENTS--(Continued)

Revenue Recognition

Revenues relate primarily to order management and fulfillment services and
are recognized on a per transaction basis as the services are rendered.

Cost of revenues consist of direct labor costs for providing order management
and fulfillment services and, to a lesser extent, the cost of contracting for
third party call center and fulfillment center services.

The Division had one major customer, Sears, Roebuck, and Co ("Sears"), a
major national retailer that accounted for 95% of its revenues for the period
from December 21, 1996 to October 13, 1997.

Advertising Costs

Advertising costs are expensed as incurred. Amounts expensed were
approximately $18,000 for the period from December 21, 1996 to October 13,
1997.

Use of Estimates

Income Taxes

During the period from December 21, 1996 to October 13, 1997, the Division
was not a taxable entity and was part of the taxable entity of the Parent. A
provision for income taxes on a pro forma basis, as if the Division were liable
for federal and state income taxes as a taxable corporate entity for the period
December 21, 1996 to October 13, 1997, is not presented as the Parent had zero
tax expense due to the loss carryforward being fully reserved.

2. Detail of Certain Balance Sheet Accounts

Property and equipment are stated at cost and consist of the following at
October 13, 1997:

<TABLE>
<S> <C>
Furniture, fixtures, and equipment............................... $2,535,335
Leasehold improvements........................................... 113,218
----------
2,648,553
Less accumulated depreciation and amortization................... 1,865,905
----------
Net property and equipment....................................... $ 782,648
==========

Accrued liabilities consists of the following at October 13, 1997:

Accrued vacation expense......................................... $ 164,054
Accrued salary expense........................................... 347,712
Accrued property taxes........................................... 51,915
Other............................................................ --
----------
Total accrued liabilities........................................ $ 563,681
==========
</TABLE>

F-22
<PAGE>

FULFILLMENT DIVISION OF ATHLETIC SUPPLY OF DALLAS, LLC

NOTES TO FINANCIAL STATEMENTS--(Continued)

3. Due to Athletic Supply of Dallas, LLC

The Division utilized the Parent's centralized cash management services and
processes related to receivables, payables, payroll, and other activities. The
amounts due the Parent represent funding supplied by the Parent for capital
expenditures, payment of operating and capital lease obligations, and other
working capital needs. There were no intercompany transfers and no amounts were
paid to the Parent in repayment of the financing provided.

F-23
<PAGE>

REPORT OF INDEPENDENT AUDITORS

Stockholders and Board of Directors
Athletic Supply of Dallas, Inc.

We have audited the accompanying balance sheet of the Fulfillment Division of
Athletic Supply of Dallas, Inc. (the "Division") as of December 20, 1996 and
the related statements of operations and division equity and cash flows for the
for the period from January 1, 1996 to December 20, 1996. These financial
statements are the responsibility of the division's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Fulfillment Division of
Athletic Supply of Dallas, Inc. at December 20, 1996, and the results of its
operations and its cash flows for the period January 1, 1996 to December 20,
1996, in conformity with generally accepted accounting principles.

Ernst & Young LLP

Dallas, Texas
August 5, 1999

F-24
<PAGE>

FULFILLMENT DIVISION OF ATHLETIC SUPPLY OF DALLAS, INC.

BALANCE SHEET

December 20, 1996

<TABLE>
<S> <C>
Assets
Current assets:
Accounts receivable............................................... $1,546,474
Due from Athletic Supply of Dallas, Inc........................... 9,775
----------
Total current assets............................................ 1,556,249
Property and equipment, net......................................... 1,111,283
Other assets........................................................ 25,582
----------
Total assets.................................................... $2,693,114
==========
Liabilities and Division Equity
Current liabilities:
Accounts payable.................................................. $ 145,995
Accrued liabilities............................................... 284,499
----------
Total current liabilities....................................... 430,494
Commitments and contingencies
Division equity..................................................... 2,262,620
----------
Total liabilities and division equity........................... $2,693,114
==========
</TABLE>

See accompanying notes.

F-25
<PAGE>

FULFILLMENT DIVISION OF ATHLETIC SUPPLY OF DALLAS, INC.

STATEMENT OF INCOME AND DIVISION EQUITY

<TABLE>
<CAPTION>
Period from
January 1, 1996
to
December 20, 1996
-----------------
<S> <C>
Revenues...................................................... $6,825,743
Cost of revenue............................................... 2,093,727
----------
Gross profit.................................................. 4,732,016
Selling, general, and administrative expenses................. 3,335,800
----------
Net income.................................................... 1,396,216
Division equity, January 1, 1996.............................. 866,404
----------
Division equity, December 20, 1996............................ $2,262,620
==========
Pro forma information:
Net income as presented....................................... $1,396,216
Pro forma income taxes........................................ 516,600
----------
Pro forma net income.......................................... $ 879,616
==========
</TABLE>

See accompanying notes.

F-26
<PAGE>

FULFILLMENT DIVISION OF ATHLETIC SUPPLY OF DALLAS, INC.

STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
Period from
January 1, 1996
to
December 20, 1996
-----------------
<S> <C>
Operating Activities
Net income.................................................. $1,396,216
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation.............................................. 517,162
Changes in operating assets and liabilities:
Accounts receivable..................................... (831,272)
Accounts payable........................................ 85,964
Accrued liabilities..................................... 284,500
----------
Net cash provided by operating activities................. 1,452,570
Investing Activities
Purchases of property and equipment......................... (568,215)
----------
Net cash used in investing activities....................... (568,215)
Financing Activities
Financing provided to parent................................ (884,355)
----------
Net cash used in financing activities....................... (884,355)
----------
Net increase in cash and cash equivalents...................
Cash and cash equivalents at beginning of year.............. $ --
----------
Cash and cash equivalents at end of year.................... $ --
==========
</TABLE>

See accompanying notes.

F-27
<PAGE>

FULFILLMENT DIVISION OF ATHLETIC SUPPLY OF DALLAS, INC.

NOTES TO FINANCIAL STATEMENTS

1. Description of the Business, Basis of Presentation, and Summary of
Significant Accounting Policies

Basis of Presentation and Description of Business

The Fulfillment Division (the "Division") of Athletic Supply of Dallas, Inc.
(the "Parent") was formed in January 1995 to provide comprehensive order
management systems and fulfillment services to internet retailers and
traditional direct marketing companies in the United States. On December 20,
1996, all outstanding common stock of the Parent was sold to Genesis Direct
Inc. ("Genesis") for $10,000,000, consisting of $5,000,000 in cash and
$5,000,000 promissory note due to the common stockholders.

The accompanying financial statements reflect the financial position and
results of operations of the Fulfillment Division for the period January 1,
1996 to December 20, 1996. The balance sheet as of December 20, 1996 has been
prepared using the historical basis of accounting and includes all of the
assets and liabilities specifically identifiable to the Division. Only specific
assets and liabilities were included because the Parent's corporate accounting
systems were not designed to track cash receipts and payments on a division
specific basis.

The statement of operations for the period January 1, 1996 to December 20,
1996 includes all revenue and costs directly attributable to the Division,
including an allocation of the costs of facilities, salaries, and employee
benefits. Specifically, the Division was allocated rent expense of $272,000 for
the period from January 1, 1996 to December 20, 1996.

All of the allocations reflected in the financial statements are based on
assumptions that management believes are reasonable under the circumstances.
However, these allocations and estimates are not necessarily indicative of the
costs that would have resulted if the Division had been operated on a stand-
alone basis during the period January 1, 1996 to December 20, 1996 nor are they
necessarily indicative of future costs to support the operations of the
Division.

Accounts Receivable and Concentration of Credit Risk

Financial instruments, which potentially subject the division to
concentrations of credit risk, consist primarily of its accounts receivable
from customers. At December 20, 1996, 83% of accounts receivable was due from
one customer. The Division generally does not require collateral from
customers. During the period from January 1, 1996 to December 20, 1996, the
Division did not record a provision for uncollectible accounts nor write off
any bad debts.

Property and Equipment

Revenue Recognition

Revenues relate primarily to order management and fulfillment services and
are recognized on a per transaction basis as the services are rendered.

F-28
<PAGE>

FULFILLMENT DIVISION OF ATHLETIC SUPPLY OF DALLAS, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

The Division had one major customer, Sears, Roebuck, and Co ("Sears"), a
major national retailer that accounted for 98% of its revenues for the period
from January 1, 1996 to December 20, 1996.

Advertising Costs

Advertising costs are expensed as incurred. Amounts expensed were
approximately $43,000 for the period from January 1, 1996 to December 20, 1996.

Use of Estimates

Income Taxes

During the period from January 1, 1996 to December 20, 1996, the Division was
not a taxable entity and was part of the taxable entity of the Parent. A
provision for income taxes on a pro forma basis as if the Division were liable
for federal and state income taxes as a taxable corporate entity for the period
January 1, 1996 to December 20, 1996 is presented. The pro forma income tax
provision has been computed by applying the anticipated effective tax rate of
approximately 37% to pretax income.

2. Detail of Certain Balance Sheet Accounts

Property and equipment are stated at cost and consist of the following at
December 20, 1996:

<TABLE>
<S> <C>
Furniture, fixtures, and equipment.............................. $ 2,496,670
Leasehold improvements.......................................... 113,218
-----------
2,609,888
Less accumulated depreciation and amortization.................. (1,498,605)
-----------
Net property and equipment...................................... $ 1,111,283
===========
</TABLE>

Accrued liabilities consists of the following at December 20, 1996:

<TABLE>
<S> <C>
Accrued salary expense............................................. $156,470
Accrued property taxes............................................. 55,145
Other.............................................................. 72,884
--------
Total accrued liabilities.......................................... $284,499
========
</TABLE>

3. Due from Athletic Supply of Dallas, LLC

The Division utilized the Parent's centralized cash management services and
processes related to receivables, payables, payroll, and other activities. The
amounts due from the Parent represent funding supplied to the Parent out of
excess working capital of the Division. There were no intercompany transfers
and no amounts were paid to the Parent in repayment of the financing previously
provided.

F-29
<PAGE>

[Company logo at center of page]
<PAGE>

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

Prospective investors may rely only on the information contained in this pro-
spectus. Neither ASD Systems, Inc. nor any underwriter has authorized anyone to
provide prospective investors with different or additional information. This
prospectus is not an offer to sell nor is it seeking an offer to buy these se-
curities in any jurisdiction where the offer or sale is not permitted. The in-
formation contained in this prospectus is correct only as of the date of this
prospectus, regardless of the time of the delivery of this prospectus or any
sale of these securities.

No action is being taken in any jurisdiction outside the United States to per-
mit a public offering of the common stock or possession or distribution of this
prospectus in any such jurisdiction. Persons who come into possession of this
prospectus in jurisdictions outside the United States are required to inform
themselves about and to observe the restrictions of that jurisdiction related
to this offering and the distribution of this prospectus.

------------------
TABLE OF CONTENTS
------------------

<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 7
Special Note Regarding Forward-Looking Statements; Market Data........... 16
Use of Proceeds.......................................................... 17
Dividend Policy.......................................................... 17
Capitalization........................................................... 18
Dilution................................................................. 19
Selected Financial Data.................................................. 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 22
Business................................................................. 31
Management............................................................... 43
Certain Transactions..................................................... 50
Principal Shareholders................................................... 53
Description of Capital Stock............................................. 55
Shares Eligible for Future Sale.......................................... 60
Underwriting............................................................. 62
Legal Matters............................................................ 65
Experts.................................................................. 65
Additional Information................................................... 65
Index to Financial Statements............................................ F-1
</TABLE>

Until December 5, 1999 (25 days after the date of this Prospectus), all
dealers effecting transactions in these securities, whether or not
participating in this distribution, may be required to deliver a prospectus.
This is in addition to the obligation of dealers to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.

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

5,000,000 Shares

[ASD SYSTEMS LOGO APPEARS HERE]

Common Stock

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

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

Bear, Stearns & Co. Inc.
Prudential Securities
Friedman Billings Ramsey
E*OFFERING

November 10, 1999

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