ALL AMERICAN SEMICONDUCTOR INC, 424B4, 1995-06-09

ALL AMERICAN SEMICONDUCTOR INC
424B4, 1995-06-09
ELECTRONIC PARTS & EQUIPMENT, NEC

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<PAGE> 1

PROSPECTUS FILED PURSUANT TO RULE 424(b)(4)
REGISTRATION NO. 33-58661

ALL AMERICAN (LOGO)

4,550,000 SHARES
COMMON STOCK

All American Semiconductor, Inc., a Delaware corporation (the "Company"),
hereby offers (the "Offering") 4,550,000 shares of the Company's common stock,
$.01 par value per share (the "Common Stock") through Lew Lieberbaum & Co., Inc.
(the "Underwriter").

The Company's Common Stock is traded on The Nasdaq Stock Market under the
symbol "SEMI." On June 7, 1995, the last sale price of the Common Stock was
$2.125 per share. See "MARKET INFORMATION."

AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE
OF RISK. PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY
THE DISCUSSION UNDER "RISK FACTORS."

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
UNDERWRITING
DISCOUNTS PROCEEDS TO
PRICE TO THE PUBLIC AND COMMISSIONS(1) THE COMPANY(2)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share......................... $1.875 $.16875 $1.70625
- -------------------------------------------------------------------------------------------------
Total(3).......................... $8,531,250 $767,812 $7,763,438
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
</TABLE>

(1) Does not include additional compensation to be received by the Underwriter
consisting of: (a) a non-accountable expense allowance equal to the product
of three percent of the Price to the Public Per Share multiplied by the
number of shares of Common Stock sold in this Offering, of which $10,000
has been paid to date; (b) warrants entitling the Underwriter to purchase,
for a period of four years commencing one year after the date of this
Prospectus (the "Effective Date"), shares of Common Stock in an amount
equal to ten percent of the Common Stock sold in this Offering at a price
of $2.625 per share (140%

(footnotes continued on page 3)

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

The shares of Common Stock are offered by the Underwriter on a "firm
commitment" basis, when, as and if delivered to and accepted by the Underwriter,
subject to prior sale and certain other conditions and legal matters. The
Underwriter reserves the right to withdraw, cancel, or modify the Offering and
to reject any order in whole or in part. It is expected that delivery of
certificates representing the Common Stock will be made against payment therefor
on or about June 15, 1995, at the offices of Lew Lieberbaum & Co., Inc., 600 Old
Country Road, Suite 518, Garden City, New York 11530.

LEW LIEBERBAUM & CO., INC. (LOGO)

THE DATE OF THIS PROSPECTUS IS JUNE 8, 1995.
<PAGE> 2

[4 COLOR ART]

Color map of the United States showing the Company's Headquarters,
Sales Offices and Field Sales Representatives. Seven photographs show various
employees performing different tasks and the Company's warehouse and ISO 9002
certification. Photograph of Company logos.

2
<PAGE> 3

(footnotes continued)

of the public offering price of the Common Stock (the "Underwriter's
Purchase Warrants"); and (c) a consulting agreement for twenty-four months
after the Effective Date providing for the payment in advance of $66,000 at
the closing of this Offering. Further, the Company has agreed to indemnify
the Underwriter against certain liabilities, including liabilities under
the Securities Act of 1933, as amended (the "Act"). See "UNDERWRITING."
(2) After deducting discounts and commissions payable to the Underwriter, but
before deducting estimated expenses of $258,205 payable by the Company
(excluding the Underwriter's non-accountable expense allowance). See
"UNDERWRITING."
(3) The Company has granted an option to the Underwriter, exercisable within 30
business days from the Effective Date, to purchase up to 682,500 additional
shares of Common Stock on the same terms and conditions as set forth above,
solely to cover over-allotments, if any (the "Over-Allotment Option"). If
the Over-Allotment Option is exercised in full, the total Price to the
Public, Underwriting Discounts and Commissions and Proceeds to the Company
will be $9,810,937, $882,984 and $8,927,953, respectively. See
"UNDERWRITING."

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ STOCK MARKET OR
OTHERWISE. SUCH STABILIZING IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, statements
and other information can be inspected and copied at the public reference
facilities maintained by the Commission at its offices at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices
at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and Seven World Trade Center, New York, New York 10048. Also,
copies of such material can be obtained at prescribed rates from the Public
Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549.

The Company has filed with the Commission a Registration Statement on Form
S-1 under the Act with respect to the shares of Common Stock offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto pursuant to the
Act and the rules and regulations of the Commission thereunder. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement and to the exhibits and
schedules filed as a part thereof. The statements contained in this Prospectus
as to the contents of any contract or other document referred to are not
necessarily complete and, in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each statement being qualified in any and all respects by such
reference. A copy of the Registration Statement, including exhibits and
schedules, may be inspected without charge at the principal reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
and copies of all or any part thereof may be obtained upon payment of fees
prescribed by the Commission from the Public Reference Section of the Commission
at its principal office in Washington, D.C. set forth above.

3
<PAGE> 4

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements (including notes) appearing elsewhere in
this Prospectus. Unless the context indicates otherwise, the "Company" refers to
ALL AMERICAN SEMICONDUCTOR, INC., a Delaware corporation, and its consolidated
subsidiaries. Unless otherwise indicated, the information contained in this
Prospectus assumes that the Underwriter's Over-Allotment Option has not been
exercised and that none of the currently outstanding options, warrants or other
rights have been exercised. Investors should carefully consider the information
set forth under the heading "RISK FACTORS."

THE COMPANY

The Company is a national distributor of electronic components manufactured
by others. The Company distributes a full range of semiconductors (active
components), including transistors, diodes, memory devices and other integrated
circuits, as well as passive components, such as capacitors, resistors,
inductors and electromechanical products, including cable, connectors, filters
and sockets. These components are sold primarily to original equipment
manufacturers in a diverse and growing range of industries, including
manufacturers of consumer goods, satellite and communications products,
computers and computer-related products, robotics and industrial equipment,
radar and air traffic control systems, defense and aerospace equipment and
medical instrumentation. The Company has not in the past derived significant
revenues from the sale of microprocessors. The Company has, however, just
entered into a non-exclusive agreement with NexGen, Inc. to distribute its line
of high-performance processor products for the personal computer industry, which
include Nx586 microprocessors and complete motherboards. There can be no
assurance as to the extent of the revenue and profit, if any, to be derived in
the future by the Company from this new relationship. The average sales invoice
generated by the Company is approximately $600.

The Company has grown rapidly and, as a result, the Company has recently
been recognized by an industry trade publication as the 21st largest distributor
of electronic components in the United States. This ranking is out of an
industry group that numbers more than 1,000 distributors. The Company offers
more than 40,000 different electronic components through distribution agreements
with over 90 suppliers. The products manufactured by these suppliers allow the
Company to offer a broad, well-accepted and competitive line of components. The
Company provides these products and an array of related services to
approximately 10,000 customers. The vast majority of these customers are middle
and emerging market companies which generally are not the focus of the larger
distributors in the industry. The Company currently has 20 offices in 13 states
and retains field sales representatives to market and distribute products in
other territories throughout the United States, Puerto Rico, Canada and Mexico.

The Company has reported record sales in each of the last nine years. Sales
have grown from $11.1 million in 1985 to $101.1 million in 1994. In the first
three months of 1995 a new quarterly sales record of $38.3 million was achieved.
This was a 63.5% increase over sales of $23.4 million for the first three months
of 1994. The Company's order backlog has increased from approximately $24
million at December 31, 1993, to approximately $31 million at December 31, 1994,
and by March 31, 1995, had increased to approximately $39.4 million. The Company
has also succeeded in increasing its net income from $18,000 ($.01 per share) in
1990, to $1.7 million ($.19 per share, $.18 fully diluted) in 1993. Although net
income declined to $352,000 ($.03 per share) in 1994, the Company believes that,
as a result of substantial expansion expenditures incurred in 1994, it has
positioned itself to successfully participate in the dynamics of its rapidly
changing industry and to achieve substantial additional growth in the future. In
May 1994, the Company moved into a new state-of-the-art distribution center
which, coupled with recently expanded computer and communications systems, the
Company believes provides it with excess capacity to accommodate more than $400
million in annual revenues without significant additional fixed costs.

The electronics industry is one of the largest and faster growing
industries in the United States. An industry association forecasts total U.S.
factory sales of electronic products by original equipment manufacturers will
exceed $373 billion in 1995 compared to $276 billion in 1991. Distributors are
an integral part of the electronics industry. During 1995, an estimated $18
billion of electronic components are projected by an

4
<PAGE> 5

industry association to be sold through distribution in the United States, up
from $9 billion in 1991. In recent years there has been a growing trend for
distribution to play an increasing role in the customers' procurement process.
The Company believes that users of electronic components will continue to
increase their service and quality requirements and that this trend will result
in both customers and suppliers becoming more dependent on distributors in the
future. As a result, the Company also believes that there will be increasing
opportunities for those distributors that have expanded their service
capabilities.

The Company expects to take advantage of these opportunities and to
continue its growth by gaining market share, increasing the number of accounts
it services and increasing sales to existing customers. To do so, the Company
has developed and will continue to implement a corporate growth strategy
consisting of the following major elements:

- Developing state-of-the-art distribution technologies. These technologies
have enhanced the Company's operations and have dramatically expanded the
Company's service capabilities by incorporating nationwide access to
real-time inventory and pricing information, electronic order entry, rapid
order processing, just-in-time deliveries, bar coding capabilities,
electronic data interchange, bonded and consigned inventory programs,
automatic inventory replenishment programs, in-plant stores, in-plant
terminals and quality management programs.

- Establishing strategic relationships with additional suppliers to
continue to broaden the Company's product offerings. Since 1980, the
Company has increased the number of suppliers it represents from
approximately 20 to 90.

- Expanding the Company's market recognition as a national distributor
through acquisitions and the opening of additional sales offices. Since
the end of 1992, the Company has completed three acquisitions and has
opened ten new sales offices in the following general areas: Salt Lake
City, Utah; Huntsville, Alabama; San Diego, Orange County and San Fernando
Valley, California; Austin and Houston, Texas; Portland, Oregon; Danbury,
Connecticut; and, most recently, Tampa/St. Petersburg, Florida.

- Creating a technical sales program by hiring electrical engineers at
offices across the country to assist customers at the design and
development stage and to train the Company's sales force.

- Establishing a new semiconductor programming center in San Jose,
California which is expected to become operational during the second
quarter of 1995. This center will enable the Company to participate in the
rapidly growing market for programmable products and to attract new
product lines that require programming capabilities.

- Creating a kitting department which allows the Company to fulfill
increasing customer requirements to provide products that are not part of
the Company's regular product offering.

- Creating an electromechanical value-added center to dramatically expand
the Company's ability to provide connector and cable assemblies, cable
harnessing and terminal block modification services to address the growing
customer demand for outsourcing of these types of work.

While the Company was reincorporated in Delaware in 1987, it and its
predecessors have operated since 1964. The Company's principal executive office
is located at 16115 Northwest 52nd Avenue, Miami, Florida 33014 and its
telephone number is (305) 621-8282.

5
<PAGE> 6

THE OFFERING

COMMON STOCK OFFERED(1)............ 4,550,000 shares

COMMON STOCK TO BE
OUTSTANDING AFTER THE
OFFERING(1)(2)................... 16,996,791 shares

USE OF PROCEEDS.................... Net proceeds will be used initially to
reduce the Company's revolving line of
credit pending its use for continued
expansion of the Company, including
opening new sales offices, inventory
diversification and general working
capital. See "USE OF PROCEEDS."

RISK FACTORS....................... An investment in the securities offered
hereby involves a high degree of risk.
Prospective investors should consider
carefully the factors set forth under
"RISK FACTORS."

THE NASDAQ STOCK MARKET (NASDAQ
NATIONAL MARKET) SYMBOL.......... SEMI
- ---------------

(1) Assumes the Underwriter's Over-Allotment Option is not exercised. See
"UNDERWRITING."
(2) Based on number of shares outstanding as of March 31, 1995, and does not
give effect to the potential issuance of 1,386,274 shares of Common Stock
upon the exercise of outstanding employee and other stock options and
674,875 shares of Common Stock upon the exercise of outstanding warrants
(the "Existing Warrants"). Under certain circumstances the Company may also
be obligated to issue 1,000 shares of Common Stock and incentive stock
options covering an additional 130,000 shares. All of these options, rights
to acquire shares and the Existing Warrants are collectively referred to as
the "Existing Rights." Also excluded are the shares of Common Stock that
may be issuable upon the exercise of the Underwriter's Purchase Warrants.
In addition, in May 1995 the Company entered into new employment agreements
with its executive officers which provide for an aggregate of 1,000,000
stock options (collectively the "New Options") to be granted to them,
subject to obtaining the approval of the Company's shareholders (i) to
certain amendments to the Company's Employees', Officers', Directors' Stock
Option Plan (the "Option Plan"), including increasing the number of shares
of Common Stock reserved for issuance under the Option Plan, and (ii) to
increase the number of shares of Common Stock authorized to be issued by
the Company. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- Acquisitions," "EXECUTIVE
COMPENSATION -- Employees', Officers', Directors' Stock Option Plan" and
"-- Employment Agreements", "DESCRIPTION OF SECURITIES -- Existing
Warrants" and "UNDERWRITING."

6
<PAGE> 7

SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The following summary financial data for the Company for the years ended
December 31, 1990 through 1994 and the three months ended March 31, 1994 and
1995 have been derived from the consolidated financial statements of the
Company. Such information and data should be read in conjunction with the
"SELECTED CONSOLIDATED FINANCIAL DATA" and Consolidated Financial Statements and
related notes included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31 YEARS ENDED DECEMBER 31
------------------- ----------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF INCOME DATA:
Net Sales(1).................................... $ 38,286 $ 23,413 $101,085 $ 67,510 $ 49,015 $ 45,332 $ 41,315
Cost of Sales................................... (29,418) (17,152) (74,632) (49,010) (35,083) (32,001) (29,007)
-------- -------- -------- -------- -------- -------- --------
Gross Profit.................................... 8,868 6,261 26,453 18,500 13,932 13,331 12,308
Selling, General and Administrative Expenses.... (7,259) (5,136) (23,335) (14,821) (11,366) (11,577) (11,177)
Nonrecurring Expenses(2)........................ -- -- (548) (61) (114) (124) --
-------- -------- -------- -------- -------- -------- --------
Income from Operations.......................... 1,609 1,125 2,570 3,618 2,452 1,630 1,131
Interest Expense................................ (665) (275) (1,772) (1,103) (1,153) (1,407) (1,205)
Other Income (Expense) -- Net(3)................ -- (48) (39) 281 (18) 47 149
-------- -------- -------- -------- -------- -------- --------
Income Before Income Taxes...................... 944 802 759 2,796 1,281 270 75
Provision for Income Taxes...................... (406) (321) (407) (1,094) (525) (153) (57)
-------- -------- -------- -------- -------- -------- --------
Net Income...................................... $ 538 $ 481 $ 352 $ 1,702 $ 756 $ 117 $ 18
======== ======== ======== ======== ======== ======== ========
Earnings Per Share(4):
Primary....................................... $ .04 $ .04 $ .03 $ .19 $ .12 $ .03 $ .01
======== ======== ======== ======== ======== ======== ========
Fully Diluted................................. $ .04 $ .04 $ .03 $ .18 $ .12 $ .03 $ .01
======== ======== ======== ======== ======== ======== ========
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
MARCH 31 ----------------------------------------------- 1995 AS
1995 1994 1993 1992 1991 1990 ADJUSTED(5)
----------- ------- ------- ------- ------- ------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working Capital................................ $41,867 $39,800 $27,534 $19,427 $15,112 $14,745 $ 49,117
Total Assets................................... 67,219 57,858 37,968 28,595 24,977 22,806 74,469
Long-Term Debt (including current portion)..... 29,762 27,775 14,928 13,850 13,405 12,149 29,762
Shareholders' Equity........................... 17,518 16,950 15,612 8,517 4,633 4,516 24,768
Book Value Per Common Share.................... $ 1.41 $ 1.37 $ 1.30 $ 1.10 $ 1.24 $ 1.21 $ 1.46
</TABLE>

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

(1) On June 14, 1993, January 24, 1994, and September 9, 1994, the Company,
through its wholly-owned subsidiaries, completed the acquisitions of
substantially all of the assets of All American Transistor Corporation of
D.C., Components Incorporated and GCI Corp., respectively. Net sales
includes the net sales for such companies acquired of $1,952,000,
$10,234,000 and $1,390,000 for the three months ended March 31, 1994, and
for the years ended December 31, 1994 and 1993, respectively. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Acquisitions."
(2) The year ended December 31, 1994 includes a charge for relocation of plant
facilities in the amount of $185,000 and a write-off of the Company's
product development investment of $363,000. See "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
(3) The years ended December 31, 1993 and 1990 include approximately $237,000
and $180,000, respectively, of income from the settlements of the Company's
business interruption claims.
(4) Weighted average shares (including common share equivalents) outstanding for
(i) the years ended December 31, 1994, 1993, 1992, 1991 and 1990 were
13,029,714, 9,166,908, 6,514,481, 3,806,856 and 3,721,791, respectively, on
a primary basis and were 13,029,714, 9,511,500, 6,514,481, 3,962,038 and
3,721,791, respectively, on a fully diluted basis, and (ii) for the three
months ended March 31, 1995 and 1994 were 12,683,546 and 12,763,797,
respectively, on a primary basis and were 12,693,881 and 12,836,308,
respectively, on a fully diluted basis.
(5) As adjusted to reflect as of March 31, 1995, the receipt of the net proceeds
of this Offering in the estimated amount of $7,250,000 before the
application thereof. See "USE OF PROCEEDS" and "CAPITALIZATION."

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RISK FACTORS

Investment in the Common Stock offered hereby is highly speculative and
involves a high degree of risk. It is impossible to foresee and describe all the
risks and business, economic and financial factors which may affect the Company.
Prospective investors should carefully consider the following factors, as well
as all other matters set forth elsewhere in this Prospectus, before making an
investment in the Common Stock offered hereby.

1. CREDIT FACILITY RESTRICTIONS; FUTURE AVAILABILITY. The Company
currently has available a revolving line of credit (the "Line") with an
institutional lender (the "Senior Lender"). On March 28, 1995, the Line was
increased from $25 million to $30 million; provided, however, that the Company
may borrow in excess of $27 million only after (i) the Senior Lender has
reviewed and been satisfied, in its sole discretion, with the Company's audited
consolidated financial statements for the year ended December 31, 1994, and (ii)
the Company has received additional capitalization of not less than $4 million
(after all expenses of issuance and sale) from the issuance of its equity
securities. In May 1995, the Senior Lender completed its review and became
satisfied with the Company's audited consolidated financial statements for the
year ended December 31, 1994. The Company's revolving credit agreement dated
December 29, 1992, as amended (the "Credit Agreement"), governing the Line
contains covenants that impose limitations on the Company and requires the
Company to be in compliance with certain financial ratios. If the Company fails
to make required payments, or if the Company fails to comply with the various
covenants contained in the Credit Agreement, the Senior Lender may be able to
accelerate the maturity of such indebtedness. As of December 31, 1994, the
Company was in compliance with the required financial ratios and other covenants
and the Company believes that it is presently in compliance with the financial
ratios and all other covenants under the Credit Agreement. The receivables,
inventory and equipment of the Company (including its subsidiaries), as well as
the capital stock of its subsidiaries, are pledged to the Senior Lender to
secure the Line. The Credit Agreement expires on May 31, 1997. Borrowings under
the Line bear interest at either one-quarter of one percent (1/4%) below the
prime rate or, at the Company's option, two percent (2%) above certain LIBOR
rates. As of May 1, 1995, $22,549,000 was outstanding under the Line. To the
extent that there is an increase in interest rates, or present borrowing
arrangements are no longer available, the Company could be adversely impacted.
See "USE OF PROCEEDS" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- Liquidity and Capital Resources."

2. DEPENDENCE ON FINANCING FOR FUTURE EXPANSION. In order to continue to
grow its business and achieve its expansion strategy, the Company may require
additional debt or equity financing in amounts exceeding those contemplated to
be provided by this Offering or available, or that may be available, under the
Line. There can be no assurance that the Company will be able to obtain such
additional financing to continue its growth if, as and when required. In that
regard, after this Offering (assuming the issuance of the 4,550,000 shares of
Common Stock offered hereby and the 682,500 shares covered by the Over-Allotment
Option) the Company will only have a nominal amount of authorized and unreserved
shares of Common Stock available for issuance. As a result, the Company expects
to seek the approval of its shareholders to increase the number of shares of
Common Stock and preferred stock authorized to be issued, although no assurance
can be given that such approval will be obtained. See "Lack of Additional
Authorized and Unissued Shares" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Liquidity and Capital
Resources."

3. DECLINING GROSS PROFIT MARGINS. During the past four years the Company
has been experiencing declining gross profit margins as a result of the
competitive environment in the electronics distribution industry, a greater
number of large volume transactions at reduced margins and a change in the
Company's overall sales mix. The Company expects that these trends will
continue, and possibly even accelerate, in the future. Furthermore, as the
Company endeavors to expand its business with existing customers, it expects to
do so at decreasing gross profit margins. In order to obtain profitability while
gross profit margins are declining, the Company will need to expand its sales
while improving operating efficiencies. While the Company believes that its
investments in plant capacity and computer and communications equipment and its
expansion of its sales offices, corporate staff and other infrastructure have
positioned the Company to achieve improvements in operating efficiencies, there
can be no assurance that this goal can be achieved. See "MANAGEMENT'S

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<PAGE> 9

DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --
Results of Operations" and "BUSINESS -- Products."

4. DEPENDENCE ON KEY PERSONNEL. The Company is highly dependent upon the
services of its executive officers, including Paul Goldberg, its Chairman and
Chief Executive Officer, and Bruce M. Goldberg, its President and Chief
Operating Officer. The loss of the services of one or more of the Company's key
executives for any reason could have a material adverse effect upon the business
of the Company. While the Company believes that it would be able to locate
suitable replacements for its executives if their services were lost to the
Company, there can be no assurance it would be able to do so. The Company's
future success will also depend in part upon its continuing ability to attract
and retain highly qualified personnel. The Company owns a $1,000,000 term life
insurance policy on Paul Goldberg's life and a $1,000,000 term life insurance
policy on Bruce M. Goldberg's life, with benefits on both policies payable to
the Company. The Company also has employment agreements with its four executive
officers. See "MANAGEMENT" and "EXECUTIVE COMPENSATION -- Employment
Agreements."

5. RELATIONSHIPS WITH SUPPLIERS. Substantially all of the Company's
inventory has and will be purchased from manufacturers with whom the Company has
entered into non-exclusive distribution agreements, which are typically
cancellable upon 30 to 90 days written notice. While these agreements generally
provide for price protection, stock rotation privileges, obsolescence credit and
return privileges if an agreement is cancelled, there can be no assurance that
the manufacturers will comply with their contractual obligations or that these
agreements will not be cancelled. In 1994 the Company's three largest suppliers
accounted for approximately 14%, 7% and 6% of purchases, respectively. While the
Company does not believe that the loss of any one supplier would have a material
adverse impact upon the Company since most products sold by the Company are
available from multiple sources, the Company's future success will depend in
large part on maintaining relationships with existing suppliers and developing
new relationships. The loss of, or significant disruptions in relationships
with, suppliers could have a material adverse effect on the Company's business
since there can be no assurance that the Company will be able to replace lost
suppliers. See "BUSINESS -- Suppliers."

6. INCREASING EARNINGS BREAK EVEN. In late 1992 the Company embarked upon
an aggressive expansion plan. Since the end of 1992, the Company has opened ten
new sales offices, relocated all existing sales offices into larger facilities,
acquired three distributors and increased its plant capacity, computer and
communications equipment, staff in most corporate departments and service
capabilities. See "BUSINESS -- Corporate Strategy -- Expansion," "-- Corporate
Strategy -- Services" and "-- Facilities and Systems." In order to finance its
growth, the Company has also increased its debt significantly in recent years.
As a result of its expansion and increased debt service, the level of the
Company's revenues required to achieve a break even in earnings has increased
significantly. While the Company believes that its expansion plans will enable
it to achieve substantial growth in revenues, there can be no assurance that
such growth will be obtained or maintained. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and "BUSINESS."

7. FOREIGN MANUFACTURING AND TRADE REGULATION. A significant number of the
components sold by the Company are manufactured outside the United States and
purchased by the Company from United States subsidiaries or affiliates of those
foreign manufacturers. As a result, the Company and its ability to sell at
competitive prices could be adversely affected by increases in tariffs or
duties, changes in trade treaties, currency fluctuations, strikes or delays in
air or sea transportation, and possible future United States legislation with
respect to pricing and import quotas on products from foreign countries. The
Company's ability to be competitive in or with the sales of imported components
could also be affected by other governmental actions and changes in policies
related to, among other things, anti-dumping legislation and currency
fluctuations. Since the Company purchases from United States subsidiaries or
affiliates of foreign manufacturers, the Company's purchases are paid for in
U.S. dollars which does reduce the potential adverse effect of currency
fluctuations. While the Company does not believe that these factors adversely
impact its business at present, there can be no assurance that such factors will
not materially adversely affect the Company in the future. See
"BUSINESS -- Foreign Manufacturing and Trade Regulation."

9
<PAGE> 10

8. COMPETITION. The Company competes with many companies that sell and
distribute semiconductors and passive products. Many of these companies have
greater assets and possess greater financial and personnel resources than those
of the Company. Many of these competitors also carry product lines which the
Company does not carry. There can be no assurance that the Company will be able
to continue to compete successfully with existing or new competitors and failure
to do so could have a material adverse effect on the Company. See
"BUSINESS -- Competition."

9. INDUSTRY CYCLICALITY. The electronics distribution industry has been
affected historically by general economic downturns, which have had an adverse
economic effect upon manufacturers and end-users of electronic components and
electronic component distributors such as the Company. In addition, the
life-cycle of existing electronic products and the timing of new product
development and introduction can affect demand for electronic components. See
"BUSINESS -- Products."

10. DEPENDENCE ON THE COMPUTER INDUSTRY. Many of the products the Company
sells are used in the manufacture or configuration of computers. These products
are characterized by rapid technological change, short product life cycles and
intense competition. The computer industry has experienced significant unit
volume growth over the past two years, which has in turn increased demand for
many of the Company's products. A slowdown in the growth of the computer
industry could adversely affect the Company's ability to continue its recent
growth. See "BUSINESS -- Products."

11. CONTINUED GROWTH. The Company's growth may depend, in part, upon its
ability to acquire other distributors in the future. No assurances can be given
that any such acquisitions will be achieved. Future acquisitions will depend, in
part, on the Company's ability to find suitable candidates for acquisition and
the availability of sufficient internal funds and/or debt or equity financing to
consummate any such acquisition. See "BUSINESS -- Corporate Strategy." There can
be no assurance that the Company will be able to sustain its recent rate of
growth in sales. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS."

12. POTENTIAL PRODUCT LIABILITY. As a result of its value-added services
and as a participant in the distribution chain between the manufacturer and the
end-user, the Company would likely be named as a defendant in any products
liability action brought by an end-user. To date, no material claims have been
asserted against the Company for products liability; there can be no assurance,
however, that such material claims will not arise in the future. In the event
that any products liability claim is not fully funded by insurance or if the
Company is unable to be indemnified by or recover damages from the supplier of
the product that caused such injury, the Company may be required to pay some or
all of such claim from its own funds. Any such payment could have a material
adverse impact on the Company. See "LEGAL PROCEEDINGS."

13. CONTINUED CONTROL BY PRESENT SHAREHOLDERS AND MANAGEMENT. Paul
Goldberg, Bruce M. Goldberg and members of their family and trusts therefor
(collectively, the "Goldberg Group") own 2,051,440 shares of the outstanding
Common Stock, approximating 16.5% of the outstanding shares (and assuming the
sale of the 4,550,000 shares pursuant hereto, 12.1% of the outstanding shares
after the Offering is completed) and, in the event of the exercise of all
outstanding stock options and warrants (but not the New Options), the Goldberg
Group would own approximately 16.7% (and 12.7% after the Offering is completed).
As a result, the Goldberg Group may be in a position to effectively control the
Company. In addition, the executive officers of the Company comprise four of the
six directors of the Company. Accordingly, they are in a position to control the
day to day affairs of the Company without the oversight and controls of a Board
of Directors comprised of a greater percentage of independent (non-employee)
directors. See "PRINCIPAL SHAREHOLDERS" "MANAGEMENT" and "EXECUTIVE
COMPENSATION -- Employment Agreements -- The Goldberg Agreements."

14. LACK OF ADDITIONAL AUTHORIZED AND UNISSUED SHARES. The Company's
Certificate of Incorporation (the "Certificate") authorizes the issuance of
20,000,000 shares of Common Stock and 1,000,000 shares of preferred stock.
Assuming the issuance as of the date hereof of the 4,550,000 shares of Common
Stock offered hereby and the 682,500 shares covered by the Over-Allotment Option
and the exercise of all Existing Rights, only 128,560 (0.6%) of the Company's
authorized shares of Common Stock would remain unissued. As a result of the
limited number of authorized and unissued shares of Common Stock, the Company
expects at its

10
<PAGE> 11

1995 annual meeting of shareholders currently scheduled to be held in July 1995
(the "1995 Annual Meeting") to seek approval of its shareholders to increase the
number of shares of Common Stock and preferred stock authorized to be issued.
Since the current record date for shareholders entitled to vote at the 1995
Annual Meeting is June 5, 1995, purchasers of shares of Common Stock issued
pursuant to this Offering will not be entitled to vote at such meeting on this
matter or any other matter coming before such meeting. At the Company's 1994
annual meeting of shareholders held on July 29, 1994, the shareholders of the
Company did not approve the proposal of the Company's Board of Directors (the
"Board") to increase the number of shares of Common Stock and preferred stock
authorized to be issued to 40,000,000 and 5,000,000, respectively. In the event
that the shareholders of the Company do not approve an increase in the
authorized shares of capital stock of the Company in the future, the continued
growth of the Company could be materially and adversely impaired as a result of
its inability to raise additional equity capital when needed or to be able to
issue shares of its capital stock in connection with future acquisitions or
other corporate purposes including issuance of options to employees including
the New Options. See "DESCRIPTION OF SECURITIES."

15. POSSIBLE ISSUANCE OF ADDITIONAL SHARES. To the extent available for
issuance, the Company's Board has the power to issue any or all authorized and
unissued shares without shareholder approval, including the shares of authorized
preferred stock, which shares can be issued with such rights, preferences and
limitations as are determined by the Board. Any securities issuances may result
in a reduction in the book value or market price of the outstanding shares. If
the Company issues any additional securities, such issuance may reduce the
proportionate ownership and voting power of each existing shareholder. Further,
any new issuances of securities could be used for anti-takeover purposes or
might result in a change of control of the Company. See "DESCRIPTION OF
SECURITIES."

16. NO DIVIDENDS ANTICIPATED. The Company has not paid any cash dividends
on its Common Stock and does not anticipate paying dividends on its shares in
the foreseeable future inasmuch as it expects to employ all available cash in
the continued growth of its business. Further, the Credit Agreement prohibits
the payment of dividends. See "DIVIDEND POLICY."

17. CERTAIN PROVISIONS IN THE CERTIFICATE; ANTI-TAKEOVER PROVISIONS. The
Company's Certificate includes provisions designed to discourage attempts by
others to acquire control of the Company without negotiation with the Board, and
to attempt to ensure that such transactions are on terms favorable to all of the
Company's shareholders. These provisions provide, among other things, that
meetings of shareholders' may only be called by the Board; that an affirmative
vote of two-thirds of the outstanding shares of Common Stock is required to
approve certain business combinations unless 65% of the Board approves such
transaction; for three classes of directors with each class elected for a three
year staggered term; that the Board in evaluating a tender offer or certain
business combinations is authorized to give due consideration to all relevant
factors; and that actions of shareholders may not be taken by written consent of
shareholders in lieu of a meeting. For various reasons, however, these
provisions may not always be in the best interest of the Company or its
shareholders. These reasons include the fact that the provisions of the
Certificate (i) make it difficult to remove directors even if removal would be
in the best interest of the Company and its shareholders; (ii) make it more
difficult for shareholders to approve certain transactions that are not approved
by at least 65% of the Board, even if the transactions would be beneficial to
the Company; and (iii) eliminate the ability of the shareholders to act without
a meeting. Further, the Certificate and the Company's Bylaws include provisions
that are intended to provide for limitation of liabilities of officers and
directors in certain circumstances and for indemnification of officers and
directors against certain liabilities. See "DESCRIPTION OF SECURITIES -- Certain
Provisions of Certificate of Incorporation and Bylaws" and "-- Certain
Provisions Relating to Limitation of Liability and Indemnification of
Directors."

18. POSSIBLE VOLATILITY OF STOCK PRICE. The market price of the Common
Stock could be subject to significant fluctuations in response to such factors
as, among others, variations in the anticipated or actual results of operations
of the Company or of other distributors in the electronics industry and changes
in general conditions in the economy, the financial markets or the electronics
distribution industry. See "MARKET INFORMATION."

11
<PAGE> 12

19. SHARES AVAILABLE FOR FUTURE RESALE. Of the 12,446,791 shares of Common
Stock presently outstanding, approximately 2,081,440 are "restricted securities"
within the meaning of the Act and the rules and regulations promulgated
thereunder and, generally, may be sold only in compliance with Rule 144 under
the Act, pursuant to registration under the Act or pursuant to another exemption
therefrom. Generally, under Rule 144, a person who has held "restricted
securities" for a period of at least two years (including the holding period of
any prior owner except an affiliate) may sell a limited number of such shares in
the public market. Generally, a person is entitled to sell, within any three
month period, in ordinary brokerage transactions a number of those shares that
does not exceed the greater of (i) 1% of the then outstanding shares of Common
Stock (approximately 169,968 shares immediately after the Offering) or (ii) the
average weekly trading volume in the Common Stock during the four calendar weeks
preceding the date on which the Rule 144 notice of the sale is filed with the
Commission. Persons who are not affiliates of the Company, who have not been
affiliated with the Company at any time during the 90-day period prior to the
sale and who have satisfied a three year holding period (including the holding
period of any prior owner except an affiliate) may sell without regard to such
limitations. Substantially all restricted shares of the outstanding Common Stock
are presently eligible for sale under Rule 144. Sales made pursuant to Rule 144
by the Company's existing shareholders may have a depressive effect on the price
of the shares in the public market. Such sales also could adversely affect the
Company's ability to raise capital at that time through the sale of its equity
securities. The Underwriter has, however, obtained an agreement of the Company
and the directors and executive officers of the Company not to sell any of their
Common Stock for a period of 180 days from the date of this Prospectus without
the Underwriter's prior written consent. 30,000 shares of the "restricted
securities," which were recently acquired by the holder thereof pursuant to the
exercise of a warrant of the Company, are being registered concurrently herewith
as a result of registration rights provided in such warrant. None of the other
"restricted securities" have registration rights. See "SHARES ELIGIBLE FOR
FUTURE SALE," "CONCURRENT REGISTRATION OF SHARES FOR FUTURE SALE BY WARRANT
HOLDERS" and "UNDERWRITING."

20. MARKET OVERHANG OF EXISTING RIGHTS. The Company had outstanding as of
the date of this Prospectus the Existing Rights representing options, warrants
and other potential rights to acquire up to 2,192,149 shares of the Company's
Common Stock. All of the shares of Common Stock underlying the Existing Rights
(other than 1,000 shares of Common Stock) either are covered by registration
rights or by the Company's registration statement on Form S-8 filed with the
Commission in order to register shares of Common Stock issuable upon the
exercise of stock options granted under the Option Plan and/or held by employees
of the Company. It is anticipated that the holders of the Existing Rights, from
time to time, will exercise their Existing Rights to acquire shares of the
Company's Common Stock and will offer their shares in the public market place,
which could interfere with the Company's ability to obtain future financing and
could adversely affect the market price of the Common Stock. In addition, under
certain circumstances and events, including obtaining the required shareholder
approvals, the New Options could become exercisable. See "SHARES ELIGIBLE FOR
FUTURE SALE," "CONCURRENT REGISTRATION OF SHARES FOR FUTURE SALE BY WARRANT
HOLDERS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- Acquisitions," "EXECUTIVE COMPENSATION -- Employees',
Officers', Directors' Stock Option Plan" and "-- Employment Agreements" and
"DESCRIPTION OF SECURITIES -- Existing Warrants."

21. BROAD DISCRETION IN APPLICATION OF PROCEEDS. The net proceeds of this
Offering, after being used initially to reduce the Company's Line, may be
applied to working capital and other corporate purposes. Accordingly, management
of the Company will have broad discretion over the use of proceeds. See "USE OF
PROCEEDS."

22. DILUTION. The net tangible book value of the Company at March 31,
1995, was approximately $17.0 million or $1.36 per share of Common Stock. Net
tangible book value per share of Common Stock is determined by dividing the
Company's tangible net worth (total tangible assets less total liabilities) by
the number of shares of Common Stock outstanding. After giving effect, as of
that date, to the sale of 4,550,000 shares of Common Stock offered by the
Company hereby at the public offering price of $1.875 per share and after
deduction of underwriting discounts and commissions, non-accountable expense
allowance and estimated offering expenses payable by the Company and the receipt
by the Company of approximately

12
<PAGE> 13

$7,250,000 of net proceeds, the pro forma net tangible book value would have
been approximately $24.2 million or $1.42 per share of Common Stock. This amount
represents an immediate increase in net tangible book value of $.06 per share to
existing shareholders and an immediate dilution in net tangible book value of
$.46 per share to new investors purchasing shares in the Offering. See
"DILUTION."

23. UNDERWRITER'S PURCHASE WARRANTS. In connection with the Offering, the
Company will sell to the Underwriter, for nominal consideration, the
Underwriter's Purchase Warrants. Subject to the approval by the Company's
shareholders of the authorization of at least 35,000,000 shares of Common Stock
in the future, the Underwriter's Purchase Warrants will be exercisable
commencing 12 months after the date of this Prospectus until five years from the
date of this Prospectus, at an exercise price of $2.625 (140% of the public
offering price of the Common Stock) per share. The Underwriter's Purchase
Warrants will have certain anti-dilution provisions. For the life of the
Underwriter's Purchase Warrants, the holders thereof will be given the
opportunity to profit from a rise in the market price for the underlying shares
with a resulting dilution in the interest of the Company's other shareholders.
The terms on which the Company could obtain additional capital during the life
of the Underwriter's Purchase Warrants may be adversely affected because the
holders of the Underwriter's Purchase Warrants might be expected to exercise
them at a time when the Company would otherwise be able to obtain any needed
additional capital in a new offering of securities at a price per share greater
than the exercise price per share of the Underwriter's Purchase Warrants. The
Company has also agreed to register or qualify, or both, the Underwriter's
Purchase Warrants and/or the shares underlying the Underwriter's Purchase
Warrants on two occasions, the first of which would be at the Company's expense
and the second of which would be at the expense of the holders of the
Underwriter's Purchase Warrants. In addition, the holders of the Underwriter's
Purchase Warrants have the right to "piggyback" on any registration statements
that the Company files during the exercise period. Such obligation could
interfere with the Company's ability to obtain future financing. See
"UNDERWRITING."

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 4,550,000 shares of
Common Stock offered hereby (after deducting the Underwriter's discounts and
commissions and non-accountable expense allowance and the other estimated
expenses of the Offering) are estimated to be approximately $7,250,000
(approximately $8,375,000 if the Over-Allotment Option is exercised in full by
the Underwriter), based on the public offering price of $1.875 per share of
Common Stock. The Company intends initially to use such net proceeds to
temporarily reduce the amount outstanding (approximately $22,549,000 as of May
1, 1995) under the Company's Line, pending the Line's use for the continued
expansion of the Company including opening new sales offices, inventory
diversification and general working capital purposes. On March 28, 1995, the
Line was increased from $25 million to $30 million; provided, however, that the
Company may borrow in excess of $27 million only after (i) the Senior Lender has
reviewed and been satisfied, in its sole discretion, with the Company's audited
consolidated financial statements for the year ended December 31, 1994, and (ii)
the Company has received additional capitalization of not less than $4 million
(after all expenses of issuance and sale) from the issuance of its equity
securities. In May 1995, the Senior Lender completed its review and became
satisfied with the Company's audited consolidated financial statements for the
year ended December 31, 1994. The Company expects that the successful completion
of this Offering will satisfy the increased capitalization condition of the
Senior Lender for the Company to borrow in excess of $27 million. The Line bears
interest at either one-quarter of one percent (1/4%) below the prime rate or,
at the Company's option, two percent (2%) above certain LIBOR rates and expires
on May 31, 1997. See "BUSINESS" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Liquidity and Capital
Resources" and Note 5 to Notes to Consolidated Financial Statements for
discussions of the Line.

13
<PAGE> 14

DIVIDEND POLICY

The Company has never declared or paid cash dividends. In 1989 the Board
declared a 25% stock split effected in the form of a stock dividend. Future
dividend policy will depend on the Company's earnings, capital requirements,
financial condition and other relevant factors. It is not anticipated, however,
that the Company will pay cash dividends on its Common Stock in the foreseeable
future, inasmuch as it expects to employ all available cash in the continued
growth of its business. In addition, the Credit Agreement prohibits the payment
of any dividends without the prior written consent of the Senior Lender. See
Note 5 to Notes to Consolidated Financial Statements.

MARKET INFORMATION

The Company's Common Stock is traded on The Nasdaq Stock Market under the
symbol "SEMI." The Company effected its initial public offering of Common Stock
in 1987. The following table sets forth the range of high and low sale prices
for the Common Stock as reported on The Nasdaq Stock Market during each of the
quarters presented.

<TABLE>
<CAPTION>
QUARTER OF FISCAL YEAR HIGH LOW
- --------------------------------------------------------------------------- ------ -----
<S> <C> <C>
1993
First Quarter............................................................ $ 1 25/32 $ 1 5/16
Second Quarter........................................................... 1 9/16 1 5/32
Third Quarter............................................................ 2 3/4 1 3/8
Fourth Quarter........................................................... 2 25/32 2

1994
First Quarter............................................................ 3 7/8 2 7/16
Second Quarter........................................................... 3 13/16 2 1/2
Third Quarter............................................................ 3 1/4 2 1/8
Fourth Quarter........................................................... 2 3/8 1 1/2

1995
First Quarter............................................................ 2 1/8 1 15/32
Second Quarter (through June 7, 1995).................................... 2 7/16 1 5/8
</TABLE>

As of June 7, 1995, there were approximately 500 holders of record of the
Common Stock based on the stockholders list maintained by the Company's transfer
agent. Many of these record holders hold these securities for the benefit of
their customers. The Company believes that it has over 4,500 beneficial holders
of its Common Stock.

On June 7, 1995, the last sale price, as reported by The Nasdaq Stock
Market, for the Common Stock was $2 1/8 per share.

14
<PAGE> 15

CAPITALIZATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The following table sets forth the capitalization of the Company at March
31, 1995, and as adjusted to give effect to the receipt of the proceeds of the
Offering, net of offering expenses, commissions and discounts and
non-accountable expense allowance (assuming the sale of 4,550,000 shares of
Common Stock at a public offering price of $1.875 per share), but before the
initial use of the net proceeds of the Offering to reduce debt under the Line.
This table should be reviewed in conjunction with the Consolidated Financial
Statements and notes thereto included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
MARCH 31, 1995
-------------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-Term Debt (including current portion)(1)........................ $29,762 $29,762
------- -----------
Shareholders' Equity
Preferred Stock(2)................................................. -- --
Common Stock(3).................................................... 124 170
Capital in Excess of Par Value..................................... 11,794 18,998
Retained Earnings.................................................. 5,660 5,660
Less Treasury Stock, at cost, 19,592 shares........................ (60) (60)
------- -----------
Total Shareholders' Equity......................................... 17,518 24,768
------- -----------
$47,280 $54,530
======= =========
</TABLE>

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

(1) For a description of the Company's long-term debt, see "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Liquidity and Capital Resources" and Note 5 to Notes to
Consolidated Financial Statements.
(2) The Company has 1,000,000 shares of authorized preferred stock, $.01 par
value, none of which is issued.
(3) The Company has 20,000,000 shares of authorized Common Stock, 12,446,791
shares of which were issued and outstanding as of March 31, 1995, and
16,996,791 shares of which are assumed will be issued and outstanding upon
completion of the Offering. Does not include shares issuable upon exercise
of the Over-Allotment Option, the Existing Rights or the New Options. See
"UNDERWRITING" and "DESCRIPTION OF SECURITIES", "EXECUTIVE
COMPENSATION -- Employees', Officers', Directors' Stock Option Plan" and
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Acquisitions."

15
<PAGE> 16

DILUTION

The net tangible book value of the Company at March 31, 1995, was
approximately $17.0 million or $1.36 per share of Common Stock. Net tangible
book value per share of Common Stock is determined by dividing the Company's
tangible net worth (total tangible assets less total liabilities) by the number
of shares of Common Stock outstanding. After giving effect, as of that date, to
the sale of 4,550,000 shares of Common Stock offered by the Company hereby at
the public offering price of $1.875 per share and after deduction of
underwriting discounts and commissions, non-accountable expense allowance and
estimated offering expenses payable by the Company and the receipt by the
Company of approximately $7,250,000 of net proceeds, the pro forma net tangible
book value would have been approximately $24.2 million or $1.42 per share of
Common Stock. This amount represents an immediate increase in net tangible book
value of $.06 per share to existing shareholders and an immediate dilution in
net tangible book value of $.46 per share to new investors purchasing shares in
the Offering. The following table illustrates this per share dilution to be
incurred by the new investors from the public offering price:

<TABLE>
<S> <C> <C>
The public offering price per share.................................. $1.88
Net tangible book value per share before the Offering.............. $1.36
Increase attributable to the Offering.............................. .06
-----
Pro forma net tangible book value per share after the Offering....... 1.42
-----
Dilution in net tangible book value per share to new investors....... $ .46
=====
</TABLE>

The foregoing table assumes that none of the Existing Rights or New Options
will be exercised. To the extent that such Existing Rights or New Options are
eventually exercised, there may be further dilution to new investors. See
"CONCURRENT REGISTRATION OF SHARES FOR FUTURE SALE BY WARRANT HOLDERS,"
"DESCRIPTION OF SECURITIES -- Existing Warrants", "EXECUTIVE
COMPENSATION -- Employees', Officers', Directors' Stock Option Plan" and
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Acquisitions."

16
<PAGE> 17

SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The following selected consolidated financial data for the Company (i) for
and as of the end of each of the years 1990 through 1994 have been derived from
the consolidated financial statements of the Company, which have been audited by
Lazar, Levine and Company LLP, Certified Public Accountants, and (ii) for the
three months ended March 31, 1994 and 1995 and as of the quarter ended March 31,
1995 have been derived from the unaudited consolidated financial statements of
the Company and, in the opinion of the Company's management, include all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly such information. Such information should be read in conjunction
with the Consolidated Financial Statements and related notes included elsewhere
in this Prospectus. See "INDEX TO CONSOLIDATED FINANCIAL STATEMENTS" and
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."

<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
MARCH 31 ----------------------------------------------- 1995
1995 1994 1993 1992 1991 1990 AS ADJUSTED(5)
----------- ------- ------- ------- ------- ------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working Capital............................... $41,867 $39,800 $27,534 $19,427 $15,112 $14,745 $ 49,117
Total Assets.................................. 67,219 57,858 37,968 28,595 24,977 22,806 74,469
Long-Term Debt (including current portion).... 29,762 27,775 14,928 13,850 13,405 12,149 29,762
Shareholders' Equity.......................... 17,518 16,950 15,612 8,517 4,633 4,516 24,768
Book Value Per Common Share................... $ 1.41 $ 1.37 $ 1.30 $ 1.10 $ 1.24 $ 1.21 $ 1.46
</TABLE>

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

17
<PAGE> 18

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

RESULTS OF OPERATIONS

Overview

The following table sets forth for the years ended December 31, 1994, 1993
and 1992 and for the three months ended March 31, 1995 and 1994 (i) certain
items in the Company's consolidated statements of income expressed as a
percentage of net sales and (ii) the percentage change in dollar amounts of such
items as compared to the indicated prior fiscal year or fiscal quarter.

<TABLE>
<CAPTION>
ITEMS AS A PERCENTAGE PERIOD TO PERIOD PERCENTAGE
OF NET SALES INCREASE (DECREASE)
--------------------------------------------- --------------------------------------
THREE MONTHS THREE MONTHS
ENDED YEARS ENDED ENDED YEARS ENDED
MARCH 31 DECEMBER 31 MARCH 31 DECEMBER 31
--------------- ------------------------- ------------ ---------------------
1995 1994 1994 1993 1992 1995-94 1993-94 1992-93
----- ----- ----- ----- ----- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales............................ 100.0% 100.0% 100.0% 100.0% 100.0% 63.5% 49.7% 37.7%
Gross Profit......................... 23.2 26.7 26.2 27.4 28.4 41.6 43.0 32.8
Selling, General and Administrative
Expenses........................... 19.0 21.9 23.1 22.0 23.2 41.3 57.4 30.4
Nonrecurring Expenses................ -- -- .5 .1 .2 -- 798.4 (46.5)
Income from Operations............... 4.2 4.8 2.5 5.4 5.0 43.0 (29.0) 47.6
Interest Expense..................... 1.7 1.2 1.8 1.6 2.4 141.8 60.7 (4.3)
Income Before Income Taxes........... 2.5 3.4 .8 4.1 2.6 17.7 (72.9) 118.3
Net Income........................... 1.4 2.1 .3 2.5 1.5 11.9 (79.3) 125.1
</TABLE>

COMPARISON OF QUARTERS ENDED MARCH 31, 1995 AND 1994

Sales

Net sales for the first three months of 1995 increased significantly to
$38.3 million, a 63.5% increase over net sales of $23.4 million for the first
three months of 1994. This was a new quarterly sales record, exceeding the
previous record by more than $10 million. The dramatic sales increase was
attributable to a general increase in demand for electronic products, an
increase in sales in substantially all territories, revenues generated by new
sales offices and revenues generated by acquired companies which represented
approximately $4.6 million of sales in the first three months of 1995. In
addition, the Company continued to benefit from consolidations within the
industry as customers continued to seek additional sources of supply in order to
minimize supplier dependency and to achieve a higher level of service. See
"BUSINESS -- Corporate Strategy."

Gross Profit

Gross profit was $8.9 million in the first three months of 1995, a $2.6
million or 41.6% increase over gross profit of $6.3 million for the same period
of 1994. The increase was due to the significant growth in sales discussed
above. Gross profit margins as a percentage of net sales were 23.2% for the
first three months of 1995 compared to 26.7% for the first three months of 1994.
The downward trend reflects a decline associated with a greater number of large
volume transactions at reduced margins, the competitive environment in the
electronic distribution marketplace, as well as a change in the Company's
overall sales mix. See "Comparison of Years Ended December 31, 1994 and
1993 -- Gross Profit" and "BUSINESS -- Products" and "-- Competition." This
downward trend may continue if the Company maintains its rapid growth in sales.
See "RISK FACTORS -- Declining Gross Profit Margins."

Selling, General and Administrative Expenses

Selling, general and administrative expenses ("SG&A") increased $2.1
million to $7.3 million for the first three months of 1995 compared to $5.1
million for the first three months of 1994. The increase was primarily the
result of the Company's rapid growth and aggressive expansion. As sales grew by
$14.9 million for the quarter ended March 31, 1995, over the same period of
1994, selling expenses increased including sales commissions and telephone
expenses. As a result of the relocation of the Company's corporate headquarters

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and distribution facility in May 1994, the expansion of the computer and
communications systems, the opening of new sales offices and the relocation of
existing sales offices occurring during 1994, rent (both for realty and
personalty), occupancy expenses and depreciation and amortization costs
increased for the first three months of 1995 as compared to the first three
months of 1994. In addition, the Company expanded its sales personnel, created
and staffed a corporate operations department and a west coast credit department
and increased staffing in almost all corporate departments during 1994. As a
result, SG&A for the first three months of 1995 reflects increased salaries,
payroll taxes and employee benefit costs. See "Comparison of Years Ended
December 31, 1994 and 1993 -- Selling, General and Administrative Expenses" for
a further discussion of the Company's expansion of its facilities, systems,
services, offices and personnel in 1994.

SG&A as a percentage of net sales improved to 19.0% for the quarter ended
March 31, 1995, from 21.9% for the same period of 1994. The improvement in SG&A
as a percentage of net sales reflects increased operating efficiencies and
benefits from economies of scale.

Income from Operations

Income from operations increased 43.0% to $1.6 million for the first three
months of 1995 compared to $1.1 million for the same period of last year. This
increase was attributable to the significant increase in sales and improved
operating efficiencies which more than offset the decline in gross profit
margins and the additional expenses associated with the Company's rapid growth
and aggressive expansion discussed above.

Interest Expense

Interest expense increased to $665,000 for the first three months of 1995,
as compared to $275,000 for the same period of 1994. The increase resulted from
additional borrowings required to fund the Company's continued growth, including
the issuance of subordinated debentures in the amount of $5,150,000 in a private
placement completed in the second quarter of 1994, additional debt incurred in
connection with two acquisitions during 1994 and the financing of tenant
improvements and personal property in connection with the Company's new
corporate headquarters and distribution center. Additionally, an increase in
interest rates more than offset savings associated with the decrease in the rate
charged the Company by its Senior Lender. See "Comparison of Years Ended
December 31, 1994 and 1993 -- Interest Expense."

Net Income

Net income increased to $538,000 ($.04 per share) for the quarter ended
March 31, 1995 from net income of $481,000 ($.04 per share) for the quarter
ended March 31, 1994. The increase in net income for the 1995 period resulted
primarily from the significant increase in sales as well as from the increased
operating efficiencies and benefits from economies of scale discussed above.

COMPARISON OF YEARS ENDED DECEMBER 31, 1994 AND 1993

Sales

Net sales for 1994 increased $33.6 million to $101.1 million, a 49.7%
increase over net sales of $67.5 million for 1993. The sales increase was
attributable to a general increase in demand for electronic products, an
increase in sales in substantially all territories, revenues generated by new
sales offices and revenues generated by acquired companies which represented
approximately $10 million of sales in 1994. In addition, the Company continued
to benefit from consolidations within the industry as customers continued to
seek additional sources of supply in order to minimize supplier dependency and
to achieve a higher level of service. Substantially all of the increase in net
sales is attributable to volume increases and the introduction of new products
as compared to price increases. See "BUSINESS -- Corporate Strategy."

Gross Profit

Gross profit was $26.5 million in 1994, an $8.0 million or 43.0% increase
over gross profit of $18.5 million in 1993. The increase was due predominantly
to the growth in sales discussed above. Gross profit margins as a

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<PAGE> 20

percentage of net sales were 26.2% in 1994 compared to 27.4% in 1993. The
downward trend reflects a decline associated with a greater number of large
volume transactions at reduced margins, the competitive environment in the
electronic distribution marketplace, as well as a change in the Company's
overall sales mix. The overall sales mix has changed as sales of newer
technology products are now playing a greater role in the sales of the Company
than in prior years. Many of the newer technology products result in lower
profit margins than sales of more mature product lines on which the Company has
historically focused and which tend to have less risk inherent in large volume
purchases. By making large volume purchases, the Company decreases its per-unit
cost, thus increasing its potential for higher profit margins upon resale of
these mature products. See "BUSINESS -- Products" and "-- Competition." This
downward trend is expected to continue, and has accelerated, in 1995. See "RISK
FACTORS -- Declining Gross Profit Margins."

Selling, General and Administrative Expenses

SG&A increased $8.5 million to $23.3 million in 1994 compared to $14.8
million in 1993. The increase was primarily the result of the Company's rapid
growth and aggressive expansion. As sales grew by $33.6 million, selling
expenses increased substantially including sales commissions, telephone expenses
and the cost of supplies.

In May 1994 the Company relocated its corporate headquarters and
distribution facility for the second time since 1990. The 1994 move into a
Company designed state-of-the-art facility will accommodate significant future
growth and will enable the Company to expand its service capabilities, enhance
its quality control programs and improve its productivity. Additionally, the
Company expanded its computer and communications systems and equipment. During
1994, the Company also opened seven new sales offices, relocated four existing
sales offices into larger facilities, opened a west coast corporate office and
acquired two electronic components distributors. This resulted in increased SG&A
including increased rent (both for realty and personalty) and related occupancy
expenses, depreciation expenses and amortization costs and the incurrence of
moving and start-up costs and design, consulting and integration expenses.

In order to effectively drive and manage its aggressive expansion, the
Company expanded its sales staff and sales management team, created and staffed
a corporate operations department and a west coast credit department and
increased staffing in almost all corporate departments. The Company also
expanded its service capabilities by staffing its technical sales program,
creating a kitting department and establishing its American Assemblies division
to improve its value-added services. The Company's quality control programs and
traceability procedures were enhanced resulting in the Company obtaining the
international quality standard of ISO 9002. As a result, the Company incurred
consulting expenses and start-up costs and had increased salaries, payroll taxes
and employee benefit costs. See "BUSINESS -- Corporate Strategy -- Expansion",
"-- Facilities and Systems" and "-- Corporate Strategy -- Services" and
"-- Quality Controls and ISO Certification."

SG&A as a percentage of sales increased to 23.1% in 1994 as compared to
22.0% in 1993 due to the increase in expenses discussed above. As a result of
its expansion, the Company believes it now has plant capacity, systems and staff
in place to facilitate substantial increases in revenues without significant
additional fixed costs and expects to realize benefits from improved operating
efficiencies and economies of scale which should result in a decrease in SG&A as
a percentage of sales in the future.

Income from Operations

As a result of the additional SG&A as detailed above and the recording of
nonrecurring expenses consisting of a charge for relocation of plant facilities
in the amount of $185,000 and a write-off of a product development investment in
the amount of $363,000, compared to nonrecurring expenses of $61,000 incurred in
1993, income from operations was impacted and decreased to $2.6 million in 1994
compared to $3.6 million in 1993. See "BUSINESS -- Facilities and Systems" and
"-- Licensed Technology" and Notes 4 and 8 to Notes to Consolidated Financial
Statements. The Company expects that the aggressive expansion discussed above
positions the Company to process dramatic increases in revenues without
significant additional fixed costs.

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<PAGE> 21

Interest Expense

Interest expense increased to $1.8 million in 1994 compared to $1.1 million
in 1993. The increase was due primarily to an increase in borrowings required to
fund the Company's continued growth, including the issuance of subordinated
debentures in the amount of $5,150,000 in a private placement completed in the
second quarter of 1994, additional debt incurred in connection with the
Company's acquisitions in the approximate amount of $3.4 million and
subordinated debt aggregating approximately $2 million relating to purchase
money financing of acquisitions and the financing of tenant improvements and
personal property in connection with the Company's new corporate headquarters
and distribution center. Additionally, an increase in interest rates more than
offset savings associated with the decrease in the rate charged the Company by
the Senior Lender. See "-- Liquidity and Capital Resources" and
"-- Acquisitions" and Note 5 to Notes to Consolidated Financial Statements.

Net Income

For the year ended December 31, 1994, net income was $352,000 ($.03 per
share), as compared to net income of $1.7 million ($.19 per share, $.18 fully
diluted) in 1993. This decrease was primarily attributable to the increase in
SG&A, the increased interest expense and the nonrecurring expenses discussed
above.

COMPARISON OF YEARS ENDED DECEMBER 31, 1993 AND 1992

Net Sales

Net sales for 1993 increased $18.5 million to $67.5 million, a 37.7%
increase over net sales of $49.0 million for 1992. The sales increase was
attributable to a general increase in demand for electronic products, an
increase in sales in substantially all territories, revenues generated by new
sales offices and revenues generated by an acquired company which represented
$1.4 million of sales in 1993. In addition, the Company continued to benefit
from consolidations within the industry.

Gross Profit

Gross profit was $18.5 million in 1993, a $4.6 million or 32.8% increase
over gross profit of $13.9 million in 1992. The increase was due predominantly
to the growth in sales discussed above. Gross profit margins as a percentage of
net sales were 27.4% in 1993 compared to 28.4% in 1992. The downward trend
reflects a decline associated with a greater number of large volume transactions
at reduced margins, the competitive environment in the electronic distribution
marketplace, as well as a change in the Company's overall sales mix. See
"BUSINESS -- Products" and "-- Competition."

Selling, General and Administrative Expenses

SG&A increased $3.5 million, or 30.4%, to $14.8 million in 1993 compared to
$11.4 million in 1992. The increase was the result of the Company's rapid growth
and aggressive expansion. As sales grew by $18.5 million, selling expenses
increased dramatically, including commissions, telephone expenses and supplies.
During 1993, SG&A was impacted by three new sales offices (one opened at the end
of 1992 and two opened during 1993) and the relocation of one existing office
into a larger facility. See "BUSINESS -- Corporate Strategy -- Expansion" and
"-- Sales and Marketing -- Sales Office Locations". This resulted in increased
rent, increased depreciation expenses and moving and start-up costs. The Company
also acquired the assets of an affiliated company resulting in integration
expenses and an increase in all operating expense line items. See
"Acquisitions." Additionally, the increase reflects expenses incurred in
connection with implementing the Company's profit sharing 401(k) plan in June
1993, to which matching contributions were made for all of 1993 and additional
depreciation expenses associated with new computer and communications equipment.

SG&A as a percentage of sales decreased in 1993 to 22.0% down from 23.2% in
1992. The improvement reflects the Company's efforts to improve operating
efficiencies as well as the benefits of economies of scale

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<PAGE> 22

associated with increased sales levels. The improved operating efficiencies as
well as the benefits of economies of scale realized during 1993, more than
offset the increased expenses discussed above.

Income from Operations

Income from operations increased 47.6% in 1993 to $3.6 million compared to
$2.5 million in 1992. This increase, which was achieved despite declining gross
profit margins, resulted from increased sales, improvements in operating
efficiencies, cost savings associated with a 1991 warehouse consolidation, and
the benefits of economies of scale resulting in a decrease in SG&A as a
percentage of sales. Income from operations in 1992 was impacted by a
nonrecurring expense in the amount of $114,000 attributable to employee benefits
incurred from the elimination of duplicate tasks associated with the relocation
and consolidation of the Company's warehouse.

Interest Expense

Interest expense decreased in 1993 to $1.1 million from $1.2 million in
1992. This decrease was primarily a result of the decline in the prime interest
rate during the period as well as a reduction in the percentage over prime
charged by the Company's lender. At the end of 1992, the Company entered into a
new Credit Agreement with the Senior Lender which provided for the lower
percentage over prime. The improvement in the interest rate more than offset the
interest expense associated with increased borrowings required to fund the
Company's growth and the acquisition of its affiliate completed in June 1993.
See "Acquisitions."

Net Income

For the year ended December 31, 1993, net income was $1.7 million ($.19 per
share, $.18 fully diluted), an increase of 125.1% from net income of $756,000
($.12 per share) for 1992. The increase in 1993 reflects the growth in sales,
increased operating efficiencies, reduction in SG&A as a percentage of sales and
the reduction in interest expense. The increase in net income in 1993 also
included income of $237,000 ($144,000 on an after-tax basis) resulting from the
settlement of a business interruption insurance claim which occurred during the
third quarter of 1992. See Note 9 to Notes to Consolidated Financial Statements.
Net income in 1992 also reflected a gain on the extinguishment of debt in the
amount of $36,000 ($21,000 on an after-tax basis) and nonrecurring expenses in
the amount of $114,000 ($67,000 on an after-tax basis) discussed above.

LIQUIDITY AND CAPITAL RESOURCES

Working capital at March 31, 1995, increased to approximately $41.9 million
from working capital of approximately $39.8 million and $27.5 million at
December 31, 1994 and 1993, respectively. The current ratio was 3.03:1 at March
31, 1995, as compared to 3.94:1 and 4.43:1 at December 31, 1994 and 1993,
respectively. Accounts receivable levels at March 31, 1995, were $22.7 million,
up from accounts receivable levels of $16.6 million and $11.5 million at
December 31, 1994 and 1993, respectively. The increases in accounts receivable
reflect the record quarterly and annual levels of sales for the first three
months of 1995 and for the 1994 fiscal year, respectively. However, the average
number of days that accounts receivable were outstanding as of March 31, 1995
and December 31, 1994, was 55 and 56 days, respectively, an improvement from 59
days as of December 31, 1993. Inventory increased to $38.5 million at March 31,
1995, from inventory of $35.0 million and $23.3 million at December 31, 1994 and
1993, respectively. The increase in inventory in the first three months of 1995
was primarily to support the increases in both semiconductor and passive product
sales as well as to support budgeted future growth. The increase in inventory in
fiscal 1994 from fiscal 1993 was also primarily to support the increases in both
semiconductor and passive product sales as well as from acquisitions of Chicago
and Philadelphia-based distributors in 1994. See "Acquisitions." In addition,
the increase in inventory from 1993 to 1994 reflects the initial stocking
packages associated with new product lines obtained during 1994 and increases
made to support 1995 sales budgets. Inventory turns, however, improved to 2.6
times in 1994 compared to 2.4 times in 1993. The increase in accounts payable
and accrued expenses by $6.8 million to $19.8 million at March 31, 1995, as
compared to $13.0 million at December 31, 1994, and by $5.8 million to $13.0
million in 1994 as compared to $7.2 million in 1993, was primarily as a result
of the increase in inventory in the first three months of 1995 over the end of
1994 and in 1994 over 1993, respectively.

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<PAGE> 23

During 1994, as a result of the acquisitions of the assets of two
companies, assets and liabilities increased and the Company's borrowings under
the Line increased to repay certain assumed liabilities. See "Acquisitions" and
Note 3 to Notes to Consolidated Financial Statements. The Company's assets and
liabilities further increased in 1994 in connection with tenant improvements and
related capital expenditures associated with the move of the Company's
headquarters and distribution facility. As of May 1, 1994, the Company executed
a promissory note in the amount of $865,000 in favor of the landlord for the
Company's new headquarters and distribution facility to finance substantially
all of the tenant improvements necessary for the new facility. This $865,000
note has no payments in the first year (interest accrues and is added to the
principal amount), is payable interest only in the second year and has a
repayment schedule with varying monthly payments over the remaining 18 years. At
the same time, the Company entered into another promissory note with such
landlord for $150,000 to finance certain personal property for the new facility.
This $150,000 note is payable interest only for six months and thereafter in 60
equal self-amortizing monthly payments of principal and interest. In addition
certain additional improvements to the new facility aggregating approximately
$90,300 were financed as of May 1, 1995 by the landlord. This $90,300 is
evidenced by a promissory note payable in 240 consecutive, equal self-amortizing
monthly installments of principal and interest. These notes, which are
subordinate to the Company's Line, accrue interest at a fixed rate of 8% per
annum and are payable monthly to the extent payments are required. See
"BUSINESS -- Facilities and Systems" and Note 5 to Notes to Consolidated
Financial Statements.

During the last two fiscal years, the Company's shareholders' equity
doubled from $8.5 million at the end of 1992 to $17.0 million at the end of
1994. This increase resulted primarily from the net income during 1993 and 1994,
and the exercise during 1993 of the Class A and Class B Warrants issued in
connection with the sale by the Company of equity securities in June 1992 (the
"1992 Public Offering"). Upon the exercise of the warrants, which were called by
the Company during 1993, the Company received net proceeds of approximately $5.4
million. In addition, during 1994, the Company received net proceeds of
approximately $465,000 from the exercise of underwriters' warrants issued in
connection with the 1992 Public Offering. The net proceeds from these issuances
of securities were used for continued expansion and general working capital
purposes.

In 1994, the Credit Agreement was amended to increase the Line from $20
million to $25 million. In addition, as a result of the increase in the
Company's equity and subordinated debt through 1994, the interest rate on the
Line was reduced to, at the Company's option, either one-quarter of one percent
(1/4%) below prime or two percent (2%) above certain LIBOR rates. Under the
terms of the 1994 amendment, the Company will pay a nonusage fee of one-tenth of
one percent (1/10%) calculated on the unused portion of the Line, payable
quarterly in arrears, and the termination date of the Line was extended to May
31, 1997. On March 28, 1995, the Credit Agreement was amended whereby the Line
was increased from $25 million to $30 million; provided, however, that the
Company may borrow in excess of $27 million only after (i) the Senior Lender has
reviewed and been satisfied, in its sole discretion, with the Company's audited
consolidated financial statements for the year ended December 31, 1994, and (ii)
the Company has received additional capitalization of not less than $4 million
(after all expenses of issuance and sale) from the issuance of its equity
securities. In May 1995, the Senior Lender completed its review and became
satisfied with the Company's audited consolidated financial statements for the
year ended December 31, 1994. The Company expects that the successful completion
of this Offering will satisfy the increased capitalization condition of the
Senior Lender for the Company to borrow in excess of $27 million. The 1995
amendment to the Credit Agreement permits the Company to request standby letters
of credit to be issued by the Senior Lender on the Company's behalf, with a
sublimit of $5 million available for letters of credit under the Line and such
letters of credit being chargeable as advances against the Line. The Company
will pay the Senior Lender an issuance fee equal to three-quarters of one
percent (.75%) per annum of the aggregate amount of outstanding letters of
credit. See Note 5 to Notes to Consolidated Financial Statements.

The Credit Agreement requires the Company to be in compliance with certain
financial ratios including a minimum amount of tangible net worth and a current
asset support ratio based upon specified percentages of eligible accounts
receivable and inventories. The Company also is required to comply with certain
affirmative and negative covenants. These covenants place limitations on the
Company's future borrowings, dividend

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<PAGE> 24

payments, redemption of certain securities, transactions with affiliates on
other than an arm's-length basis, investments, acquisitions, mergers, capital
expenditures and changes in control and management. As of December 31, 1994, the
Company was in compliance with the required financial ratios and other covenants
and the Company believes that it is presently in compliance with the financial
ratios and other covenants under the Credit Agreement. Outstanding borrowings
under the Line, which are secured by accounts receivable, inventories and
equipment and a pledge of the capital stock of the Company's subsidiaries,
amounted to $19,991,000 at December 31, 1994, $22,129,000 at March 31, 1995, and
$22,549,000 on May 1, 1995.

In June 1994, the Company completed a private placement (the "1994 Private
Placement") of 51.5 units, with each unit consisting of a 9% non-convertible
subordinated debenture due 2004 in the principal amount of $100,000 issuable at
par, together with 7,500 common stock purchase warrants exercisable at $3.15 per
share. The 51.5 units issued represent debentures aggregating $5,150,000
together with an aggregate of 386,250 warrants. The debentures are payable in
semi-annual installments of interest only commencing December 1, 1994, with the
principal amount maturing in full on June 13, 2004. The Company is not required
to make any mandatory redemptions or sinking fund payments. The debentures are
subordinated to the Company's senior indebtedness including the Line and the
notes described above issued to the Company's landlord. Each warrant issued can
be exercised to purchase one share of the Company's Common Stock at any time
between December 14, 1994 and June 13, 1999 at an exercise price equal to $3.15
per share. See "DESCRIPTION OF SECURITIES -- Existing Warrants" and Note 5 to
Notes to Consolidated Financial Statements.

The Company expects that its cash flows from operations and additional
borrowings available under the Credit Agreement will be sufficient to meet its
current financial requirements over the next twelve months. The Company
continues, however, to explore available financing alternatives to fund the
Company's long term growth. This Offering is one of those alternatives. To the
extent that additional funds are required by the Company in the future, the
Company's lack of additional authorized and unissued Common Stock could prevent
it from raising additional equity capital at a time when it is needed for its
operations or further expansion. See "RISK FACTORS."

INFLATION AND CURRENCY FLUCTUATIONS

The Company does not believe that inflation or currency fluctuations
significantly impacted its business during 1994 or the first three months of
1995; however, inflation, changing interest rates and currency fluctuations have
had significant effects on the economy in the past and could adversely impact
the Company's results in the future. See "RISK FACTORS -- Foreign Manufacturing
and Trade Regulations."

ACQUISITIONS

On June 14, 1993, the Company, through a then newly-formed subsidiary (the
"Rockville Subsidiary"), completed the acquisition of substantially all of the
assets of All American Transistor Corporation of D.C. ("DC"), formerly a 45%
owned affiliate of the Company, based in Rockville, Maryland. The consideration
for the acquisition of such assets was the assumption of all of DC's disclosed
liabilities. As a result, the Company's consolidated assets and liabilities each
increased by approximately $1,000,000. At closing, the Company paid off a note
payable to a bank of approximately $503,000 (including accrued interest), which
was part of the $1,000,000 increase in liabilities. As part of such acquisition,
the majority shareholder of the seller entered into a one year employment
agreement with the Rockville Subsidiary at a base salary of $75,000 per annum
plus a bonus based on sales made by such person, which agreement has since
expired.

On January 24, 1994, the Company, through a then newly-formed subsidiary
(the "Illinois Subsidiary"), completed the acquisition of substantially all of
the assets of Components Incorporated, a regional distributor of electronic
components and related products based near Chicago, Illinois ("Components"). As
consideration for this acquisition, the Company paid $599,000 in cash and issued
a promissory note of approximately $399,000. The promissory note bears interest
at 8% per annum and is payable in quarterly installments of interest only for a
term of two years, with the entire principal amount payable in full on January
24, 1996. In addition to the purchase price, the Illinois Subsidiary agreed to
assume and discharge when due, all of

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<PAGE> 25

Components' disclosed liabilities, which were approximately $700,000. As part of
such assumption, Components' bank line in the amount of $400,000 was paid in
full at the closing.

The president and principal stockholder of Components (the "Components
Principal") was hired by the Illinois Subsidiary to conduct the day-to-day
operations of the Illinois Subsidiary pursuant to an employment agreement dated
January 24, 1994. Although the Components Principal was transferred to a staff
marketing position during 1994, the terms of his employment agreement remain the
same. Pursuant to the employment agreement, which may be renewed annually by the
Illinois Subsidiary for up to a maximum term of four years, the Components
Principal will receive annual base compensation of $105,000, plus separate
bonuses based on the net earnings and gross sales of the Illinois Subsidiary. In
addition to the base compensation and bonuses, the Components Principal received
$350,000 of consideration for a covenant not to compete that restricts any
competition with the Illinois Subsidiary and the Company for a period extending
to the later of the third anniversary of the Components Principal's termination
as an employee or January 24, 1999. The $350,000 consideration was in the form
of a grant of 98,160 stock options to the Components Principal to acquire Common
Stock at a price of $1.65 per share (valued at $100,000 as of January 24, 1994),
and the delivery to the Components Principal of a promissory note of the
Illinois Subsidiary in the principal amount of $250,000. The $1.65 options are
exercisable, in whole or in part, at any time during the period commencing July
1, 1994, and ending January 23, 1999, subject to earlier termination on death or
disability. The Company, pursuant to its agreement to register the Common Stock
underlying such options by July 31, 1994, registered such shares in February
1994. The $250,000 promissory note bears interest at 8% per annum, payable
quarterly, with $100,000 of principal due March 10, 1995, $50,000 of principal
due April 24, 1996, and the remaining $100,000 payable in eight equal quarterly
principal installments in the amount of $12,500 over the fourth and fifth years
of such note. In the event the Illinois Subsidiary's net income equals or
exceeds $650,000 in any fiscal year, it must prepay one-half of the then
outstanding principal balance of such note and, in the event the Illinois
Subsidiary's net income again equals or exceeds $650,000 in a subsequent fiscal
year, the Company must prepay the entire then outstanding principal balance of
such note. If the Components Principal resigns or is terminated for cause on or
prior to January 24, 1996, the Components Principal will be obligated to pay to
the Company the sum of $100,000 as liquidated damages, payable at his election
either in cash or by reduction of the then outstanding principal balance of the
$250,000 promissory note. The Company has also agreed to grant to the Components
Principal employee incentive stock options at fair market value on the date of
grant (5,000 on January 24, 1995; 10,000 on January 24, 1996; and 15,000 on
January 24, 1997), each of such three sets of options to be exercisable for a
period of five years, subject to earlier termination in the event of termination
of employment, death or disability. The Company has guaranteed all of the
obligations of the Illinois Subsidiary owed to Components and the Components
Principal in connection with this transaction.

On September 9, 1994, the Company, through a then newly-formed subsidiary
(the "New Jersey Subsidiary"), completed the acquisition of substantially all of
the assets of GCI Corp., a Philadelphia-area distributor of electronic
components based in southern New Jersey. As consideration for this acquisition,
the Company paid $485,000 in cash, issued a promissory note in the approximate
amount of $306,000 and granted stock options covering 117,551 shares of Common
Stock at an exercise price of $1.65 per share (valued at $144,000 as of
September 9, 1994) exercisable between September 9, 1995 and September 8, 1999.
The New Jersey Subsidiary also assumed substantially all of the disclosed
liabilities of approximately $1,930,000, including a $1,400,000 bank note
payable which has been repaid. The $306,000 promissory note is payable interest
only on a quarterly basis for the first two years from closing with the
principal amount (together with accrued interest thereon) payable in equal
quarterly installments over the next three years. One-half of the then
outstanding principal balance of the promissory note is required to be paid if
certain net earnings (as defined) of the New Jersey Subsidiary are attained for
1995 or 1996. GCI Corp. may earn up to an additional $760,000 of contingent
purchase price over the three-year period ending December 31, 1997 if certain
gross profit targets are met.

The three principal stockholders and key employees of GCI Corp. (the "GCI
Principals") each received an employment agreement from the New Jersey
Subsidiary commencing on September 10, 1994, and expiring on December 31, 1997,
and providing for base salary of $122,000, $113,000, and $110,000 per annum,
respectively. In addition to base salary, each of the GCI Principals may earn a
bonus based upon the

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percentage of the net earnings generated in the sales territory, as defined. In
addition to the net earnings bonus, two of the GCI Principals may earn an annual
bonus based upon the gross profit of the Company with respect to all sales made
in Maryland, Virginia and Delaware, if certain minimum gross profit levels are
obtained. The Company has also agreed to grant to each of the GCI Principals
employee incentive stock options at fair market value on the date of grant
(10,000 to each on January 30, 1996; 10,000 to each on January 30, 1997; and
10,000 to each on January 30, 1998), but each such grant is conditional upon
sales in the sales territory, as defined, attaining a minimum gross profit for
the year most recently ended and, if granted, vests ratably over a six year
period. One other key employee of GCI Corp. accepted employment with the New
Jersey Subsidiary and was granted 10,000 employee incentive stock options at an
exercise price of $2.63 per share (the fair market value on the date of grant)
vesting ratably over a six year period, the ability to receive up to 15,000
additional employee incentive stock options (5,000 per year in respect of 1995,
1996 and 1997) if a certain minimum gross profit for sales in the sales
territory, as defined, are attained during each such year, and shall be issued
1,000 shares of Common Stock upon completing his 18th month of service with the
New Jersey Subsidiary. The Company has guaranteed all of the obligations of the
New Jersey Subsidiary to GCI Corp. and the GCI Principals.

The operating results of each of the acquired companies are included in the
consolidated results of operations of the Company from the date of their
respective acquisition. See Notes 3 and 5 to Notes to Consolidated Financial
Statements.

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BUSINESS

OVERVIEW

Over the last 30 years, the electronics industry has grown to be one of the
largest and today is one of the faster growing industries in the United States.
An industry association forecasts total U.S. factory sales of electronic
products to exceed $373 billion in 1995 compared to $276 billion in 1991. The
growth of this industry has been driven by increased demand for new products
incorporating sophisticated electronic components, such as laptop computers and
satellite and communications equipment, as well as the increased utilization of
electronic components in a wide range of industrial, consumer and military
products. The three product groups included in the electronic components
industry are semiconductors, which account for approximately 40% of the
electronic components distribution marketplace, passive/electromechanical
components accounting for approximately 40%, and systems (such as disk drives,
terminals and computer peripherals), accounting for approximately 20%. The
Company, as a distributor of both semiconductors and passive/electromechanical
products, sells two of the three major categories of products generally sold
through distribution. The Company does not presently intend to become a
distributor of systems.

Distributors are an integral part of the electronics industry. During 1995,
an estimated $18 billion of electronic components are projected to be sold
through distribution in the United States up from $9 billion in 1991. Electronic
component manufacturers sell directly to only a small number of the potential
customers. This small segment of the customer base accounts for a large portion
of the total available revenues. It is not economical for the component
manufacturers to provide a broad range of sales support services to handle the
large amount of customers that account for the balance of the available
revenues. Thus, the manufacturers rely on distributors to augment their sales,
marketing and service operations. By offering a broad range of products, it is
more efficient for the distributor to service the large customer base not
addressed directly by the component manufacturers. Furthermore, distributors
offer their customers a broad and growing range of services including the
convenience of immediate or scheduled deliveries to support just-in-time
requirements. Distributors also provide assistance in filling complete order
requirements and a higher level of customer service than that available directly
from component manufacturers. Through the use of distributors, both the
customers and suppliers are able to reduce personnel and other costs associated
with maintaining component inventories. During recent years there has been a
growing trend for distribution to play an increasing role in the customers'
procurement process. The Company believes that users of electronic components
will continue to increase their service and quality requirements and that this
trend will result in both customers and suppliers becoming more dependent on
distributors. This will result in increasing opportunities for those
distributors that have expanded their service capabilities.

THE COMPANY

The Company is a national distributor of electronic components manufactured
by others. These components are sold primarily to original equipment
manufacturers in a diverse and growing range of industries. The Company's
customer base includes manufacturers of consumer goods, satellite and
communications products, computers and computer-related products, robotics and
industrial equipment, radar and air traffic control systems, defense and
aerospace equipment and medical instrumentation.

Approximately 70% of the Company's sales are derived from the sale of
semiconductors (active components), including transistors, diodes, memory
devices and other integrated circuits. The remaining 30% of the Company's sales
are derived from passive products, such as capacitors, resistors, inductors and
electromechanical products, including cable, connectors, filters and sockets.
The Company has not in the past derived significant revenues from the sale of
microprocessors. The Company has, however, just entered into a non-exclusive
agreement with NexGen, Inc. to distribute its line of high-performance processor
products for the personal computer industry, which include Nx586 microprocessors
and complete motherboards. There can be no assurance as to the extent of the
revenue and profit, if any, to be derived in the future by the Company from this
new relationship. The Company's average sales invoice is approximately $600.

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<PAGE> 28

While the Company was reincorporated in Delaware in 1987, it and its
predecessor have operated since 1964. The Company is one of the faster growing
distributors in the industry and, based on 1994 revenues, the Company was
recently recognized by an industry publication as the 21st largest distributor
of electronic components in the United States, up from the 24th largest
distributor in the previous year.

CORPORATE STRATEGY

The Company's strategy is to continue its growth and to gain market share
by increasing the number of customers it sells to through a combination of
expanding existing sales offices, opening new sales offices and making
additional acquisitions. Furthermore, the Company intends to increase sales to
its existing customers. As part of its growth strategies, the Company also
intends to expand its product offerings and service capabilities. While the
Company's aggressive growth plans have caused an adverse effect on
profitability, the Company believes that the investment in future expansion was
necessary to position the Company to participate in the dynamics of its rapidly
growing and changing industry and to achieve greater profitability.

Expansion

The Company has undergone significant expansion over the last few years.
Since the end of 1992, the Company has opened 10 new sales offices, relocated
and expanded all existing offices and acquired three electronic component
distributors in order to increase its presence in the national market. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Acquisitions" and "Sales and Marketing -- Sales Office Locations."
The Company is seeking to further expand and enhance its geographic coverage by
opening or acquiring three to four new sales offices over the next eighteen
months. Although no agreement has been reached as of the date of this
Prospectus, the Company is currently in discussions with acquisition candidates.

In order to effectively drive and manage its aggressive expansion, the
Company restructured, enhanced and expanded its sales staff and sales management
team. The Company also expanded its quality control programs, created and
staffed a corporate operations department and increased staffing in almost all
corporate departments. To better service the large customer base in the western
part of the United States, in 1994 the Company also opened a west coast
corporate office which houses a regional distribution center, a regional credit
department and sales and marketing executives for the Company.

In order to process rapid growth in sales, the Company moved into new
corporate offices and a state-of-the-art distribution center which dramatically
expanded the Company's capacity to service sales. See "Facilities and Systems."
This capacity, combined with the growth expected to be attained in the future as
a result of the aggressive expansion discussed above, is expected to enable the
Company to realize the benefits of improved operating efficiencies and
increasing economies of scale.

Capitalizing on Industry Trends

The Company believes that there are several significant trends occurring
simultaneously within the electronics industry. The first trend is that
customers are reducing their approved vendor base in an effort to place a
greater percentage of their purchases with fewer, more capable distributors. At
the same time, there has been substantial consolidation within the distribution
chain resulting in customers seeking additional sources of supply to minimize
dependency on a single supplier. Additionally, the Company believes that the
larger distributors resulting from consolidations will concentrate on larger
customers causing a growing need for distribution service at the middle and
emerging market customer base as such customers seek to maintain a high level of
service. These trends have put pressure on customers to achieve the proper
balance between relying on fewer distributors while at the same time not
becoming dependent on a single supplier. In an attempt to take advantage of
these trends, the Company has been strategically expanding its product offerings
and service capabilities in order to increase its ability to support more
customer needs. The Company believes that its flexibility and service
capabilities, coupled with its pricing structure and broad product offering,
will enable the Company to continue to take advantage of these growth
opportunities.

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Increasing Product Offerings

The Company intends to continue its effort to increase the number and
breadth of its product offerings, thereby allowing it to attract new customers
and to represent a larger percentage of the purchases being made by its existing
customers. As part of its efforts to attract new suppliers and expand its
product offerings, the Company has opened new sales offices in order to achieve
the geographic coverage necessary to be recognized as a national distributor.
The Company has increased the number of suppliers whose products it offers from
approximately 20 in 1980 to over 90 by 1994. See "Suppliers -- Authorized
Distributorships."

Services

As stated above, customers are reducing their approved vendor base in an
effort to place a greater percentage of their purchases with fewer, more capable
distributors. As part of its overall strategy to increase market penetration,
the Company has endeavored to develop state-of-the-art service capabilities. The
Company refers to these service capabilities as "distribution technology." The
Company believes that it has developed service capabilities comparable to some
of the larger distributors in the industry and which are not yet readily
available at many distributors of comparable size to the Company. The Company
further believes that these capabilities are not generally made available by the
largest distributors to the middle and emerging market customers, which
represent the vast majority of the Company's customers. See "Competition." Thus,
one of the ways the Company differentiates itself from its competition is to
make state-of-the-art distribution technology available to both large and small
customers. Although the Company believes that this differentiation will assist
the Company's growth, there can be no assurance that such differentiation exists
to the extent that the Company currently believes or that it will continue in
the future.

The Company's distribution technology incorporates nationwide access to
real-time inventory and pricing information, electronic order entry and rapid
order processing. During the past 24 months, the Company has dramatically
expanded its services capabilities to include just-in-time deliveries, bar
coding capabilities, bonded and consigned inventory programs, in-plant stores,
in-plant terminals and automatic inventory replenishment programs. In the past
12 months, the Company has also implemented electronic data interchange ("EDI")
programs. EDI programs permit the electronic exchange of information between the
Company and its customers or suppliers and facilitate transactions between them
by reducing paperwork and employee time. The Company currently has approximately
28 customers using at least some aspect of its EDI program.

The Company has also expanded its technical capabilities by creating a
technical sales program. As part of this program the Company has hired
electrical engineers at various sales offices across the country and expects to
continue to increase the number of engineers in the future. The program is
intended to generate more sales by providing customers with increased service at
the design and development stages. The program is also intended to enhance the
technical capabilities of the Company's entire sales force through regular
training sessions.

In an effort to reduce the number of distributors they deal with, and
ultimately reduce their procurement costs, many customers have been selecting
distributors that, in addition to providing their standard components, are also
able to provide products that are not part of the distributors' regular product
offering. This service is referred to as "kitting." In order to expand its
service offerings to address this growing customer requirement, the Company
created a kitting department toward the end of 1994.

Another rapidly growing segment of electronics distribution is the sale of
programmable semiconductor products. Programmable semiconductors enable
customers to reduce the number of components they use by highly customizing one
semiconductor to perform a function that otherwise would require several
components to accomplish. This saves space and enables customers to reduce the
size and cost of their products. In order to effectively sell programmable
products, most major distributors have established their own semiconductor
programming centers. To enable it to participate in this growing segment of the
industry, the Company has decided to open its own semiconductor programming
center. During the second quarter of 1995, the Company expects to have its
programming center fully operational in its new west coast corporate facility.
In addition to

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<PAGE> 30

enabling the Company to address a rapidly growing market for programmable
products, this capability will allow the Company to attract new product lines
that require programming capabilities.

Quality Controls and ISO Certification

In order to properly manage its rapid growth and achieve compliance with
the increasingly stringent quality standards of its customer base, during 1994
the Company created an operations department and embarked upon a Total Quality
Management ("TQM") program. The TQM program creates continuous process
improvement teams empowered to design and direct the ongoing re-engineering of
the Company. The intention of the TQM program is to improve service and, over
time, increase efficiency and productivity and reduce costs. The expansion in
capacity and service capabilities discussed above were done within the confines
of increasing strictness in quality control programs and traceability
procedures. As a result, the Company has successfully completed a procedure and
quality audit resulting in its certification under the international quality
standard of ISO 9002. This quality standard was established by the International
Standards Organization created by the European Economic Community ("EEC"). Such
organization created uniform standards of measuring a company's processes,
traceability procedures and quality control in order to assist and facilitate
trading and business among the EEC. The Company believes that this certification
has currently been obtained by only a few distributors and is becoming a
requirement of an increasing portion of the customer base in the United States.

PRODUCTS

Active and Passive Components

The Company markets both semiconductors and passive products.
Semiconductors, which are active products, respond to or activate upon receipt
of electronic current. Active products include transistors, diodes, memory
devices and other integrated circuits. Passive components, on the other hand,
are designed to facilitate completion of electronic functions. Passive products
include capacitors, resistors, inductors and electromechanical products, such as
cable, connectors, filters and sockets. The Company has not in the past derived
significant revenues from the sale of microprocessors. The Company has, however,
just entered into a non-exclusive agreement with NexGen, Inc. to distribute its
line of high-performance processor products for the personal computer industry,
which include Nx586 microprocessors and complete motherboards. There can be no
assurance as to the extent of the revenue and profit, if any, to be derived in
the future by the Company from this new relationship. Virtually all of the
Company's customers purchase both active and passive products.

While the Company offers many of the latest technology products, its focus
has historically been on mature products that have a more predictable demand,
more stable pricing and more constant sourcing. The Company believes that the
greater predictability in the demand for these products and the fact that
component manufacturers are not likely to invest capital in order to increase
production of older technologies combine to reduce the risks inherent in large
volume purchases of mature product. By making large volume purchases, the
Company decreases its per-unit cost, thus increasing its potential for higher
profit margins upon resale of these mature products. Although the Company
continues to position itself as a leader in the more mature product lines, as
part of its growth strategy, sales of the newer technology products are now
playing a greater role in the overall sales mix of the Company and may play an
even greater role in the overall sales mix as the Company expands its product
offerings. Many of the newer technology products result in lower profit margins
than sales of more mature product lines.

The Company does not offer express warranties with respect to any of its
products, instead passing on only such warranties, if any, as are granted by its
suppliers.

Electromechanical Value-Added Services

In an effort to reduce overhead, a growing number of customers have been
outsourcing certain processes and relying more upon distributors to handle
certain assemblies and modification work. These include connector and cable
assemblies, cable harnessing, terminal block modifications and other services.
These

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<PAGE> 31

electromechanical value-added services offer distributors an opportunity to sell
their components at significantly higher margins when these components become
integrated into an assembly.

The Company began offering electromechanical value-added services in 1989
as a result of its acquisition of a regional passive component distributor which
offered such services. To date, the Company has had only minimal revenues from
such value-added services. Part of the strategy for the acquisition by the
Company of the Chicago, Illinois based distributor (see "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Acquisitions")
in January 1994 was to expand the Company's electromechanical value-added
capabilities as the acquired company derived a substantially higher percentage
of its revenues from these value-added services. In order to further drive the
sales of value-added services, in the second half of 1994 the Company created a
division called American Assemblies & Design operating at its newly acquired
Chicago location. American Assemblies & Design is expected to dramatically
expand the Company's value-added capabilities with respect to electromechanical
products. While there can be no assurance as to the success of this division,
the Company expects American Assemblies & Design will contribute revenues and
profits in the second half of 1995.

SALES AND MARKETING

Overall Strategy

The Company differentiates itself from its competitors in the marketplace
by the combination of products and services that it can provide to its
customers. The Company is a broad-line distributor offering over 40,000
different products representing more than 90 different component manufacturers.
In addition, the Company employs a decentralized management philosophy whereby
branch managers are given latitude to run their operations based on their
experience within their particular regions and the needs of their particular
customer base. This decentralization results in greater flexibility and a higher
level of customer service. Thus, the Company believes it can provide the broad
product offering and competitive pricing normally associated with the largest
national distributors, while still providing the personalized service level
usually associated only with regional or local distributors. Additionally, the
Company brings to the middle and emerging market customers a level of service
capabilities that the smaller distributor cannot provide.

The Company's marketing strategy is to have the geographic coverage,
service capabilities and flexibility and the quality assurance to enable it to
be an expanded source of supply for all middle and emerging market customers by
providing a broad range of products and services to these customers; and to now
become a significant supplier for the top tier customers with a niche of
products supported by the high level of quality, service and technical
capabilities required to do business with these accounts.

Marketing Techniques

The Company uses various techniques in marketing its products. These
include direct marketing through personal visits to customers by management,
salespeople and sales representatives, supported by a staff of inside sales
personnel who handle the accepting, processing and administration of sales
orders; ongoing advertising in various national industry publications and trade
journals as well as general advertising, sales referrals and marketing support
from component manufacturers. The Company also uses its expanded service
capabilities, new technical sales program and its status as an authorized
distributor for certain manufacturers as marketing tools. See "Corporate
Strategy -- Services" and "Suppliers -- Authorized Distributorships."

Sales Personnel

As of May 1, 1995, the Company employed on a full-time basis 82 inside and
96 outside salespeople with approximately 19 more management employees involved
in sales. The Company also had 10 sales representatives covering various
territories where the Company does not have sales offices. In addition, the
Company currently employs 7 electrical engineers in its technical sales program.
Salespeople are generally compensated by a combination of salary and commissions
based upon the profits obtained on their sales. Each branch is run by a general
manager who reports to a regional manager, who in turn reports to an area
manager. In order to minimize management layers, each area and regional manager
acts as the general manager of the branch

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where they are located. All area managers report to the Company's Senior Vice
President of Sales and Marketing. Area, regional and general managers are
compensated by a combination of salary and incentives based upon achieving
various goals including profits from the sales offices in their respective areas
or regions.

Sales Office Locations

The Company currently operates 20 sales offices. The table below shows the
general location (and specific town or city, if different) of each office and
the year it was established.

<TABLE>
<CAPTION>
YEAR
OFFICE ESTABLISHED
- ---------------------------------------------------------------------------------- -----------
<S> <C>
Alabama
Huntsville........................................................................ 1993
California
Orange County (Cypress)(1)........................................................ 1994
San Diego......................................................................... 1993
San Fernando Valley (Calabasas)(2)................................................ 1994
San Jose.......................................................................... 1985
Connecticut
Danbury........................................................................... 1994
Florida
Fort Lauderdale (Deerfield/Sunrise)(3)............................................ 1990
Miami............................................................................. 1973
Tampa/St. Petersburg (Clearwater)................................................. 1995
Illinois
Chicago (Lisle)................................................................... 1994
Maryland
Rockville......................................................................... 1993
Massachusetts
Boston (Bedford).................................................................. 1988
Minnesota
Minneapolis (Eden Prairie)........................................................ 1986
New York
Hauppauge......................................................................... 1984
Oregon
Portland (Beaverton).............................................................. 1994
Pennsylvania
Philadelphia (West Berlin, New Jersey)(4)......................................... 1993
Texas
Austin............................................................................ 1994
Dallas (Richardson)............................................................... 1988
Houston........................................................................... 1994
Utah
Salt Lake City.................................................................... 1992
</TABLE>

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

(1) This office was relocated from Irvine to a larger facility in Cypress in the
second quarter of 1995.
(2) This office was relocated from Simi to a larger facility in Calabasas in the
second quarter of 1995.
(3) This office was moved from Sunrise to Deerfield in 1994.
(4) The original Philadelphia area office was located in Cherry Hill, New Jersey
and was closed in conjunction with the completion of the acquisition by the
Company of a Philadelphia area distributor in September 1994.

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During the second quarter of 1995 the Company relocated its San Fernando
Valley and Orange County, California offices into two much larger facilities in
Calabasas and Cypress, California. As part of such relocations, the Company
closed its office in Torrance, California which was originally opened in 1981.
The Company also retains field sales representatives to market other territories
throughout the United States, Canada and Mexico. The Company may consider
opening branches in these other territories if the representatives achieve
acceptable sales levels. Further, the Company may in the future consider
acquiring more distributors. Although no agreement has been reached as of the
date of this Prospectus, the Company is currently in discussions with
acquisition candidates.

Transportation

All of the Company's products are shipped through third party carriers.
Incoming freight charges are generally paid by the Company, while outgoing
freight charges are typically paid by the customer.

Seasonality

The Company's sales have not historically been materially greater in any
particular season or part of the year.

CUSTOMERS

The Company markets its products primarily to original equipment
manufacturers in a diverse and growing range of industries. The Company's
customer base includes manufacturers of consumer goods, computers and
computer-related products, defense and aerospace equipment, radar and air
traffic control systems, satellite and communications products, robotics and
industrial equipment and medical instrumentation. The Company's customer list
includes approximately 10,000 accounts. During 1994, no customer accounted for
more than 3% of the Company's sales and the Company does not believe that the
loss of any one customer would have a material adverse impact on its business.

Although sales of products to commercial users account for the vast
majority of the Company's sales, approximately 5% of the Company's sales in 1994
were comprised of high reliability products generally sold to companies
servicing the military. High reliability products are required to meet military
specifications and result in additional paperwork and administrative costs to
the Company.

BACKLOG

As is typical of distributors, the Company has a backlog of customer
orders. While these customer orders are cancellable, the Company believes its
backlog is a reliable indicator of future sales. At December 31, 1994, the
Company had a backlog in excess of $31 million, 29% higher than the backlog of
$24 million at December 31, 1993. By March 31, 1995, the Company's backlog had
risen to approximately $39.4 million. The Company believes that a substantial
portion of its backlog represents products due to be delivered within the next
three months. Approximately 50% of the backlog relates to purchase orders which
call for scheduled shipments of inventory over a period of time, with the
balance representing products that are on back-order with suppliers. The
scheduled shipments enable the Company to plan purchases of inventory over
extended time periods to satisfy such requirements.

SUPPLIERS

Authorized Distributorships

The Company generally purchases products from components manufacturers
pursuant to non-exclusive distribution agreements. Such suppliers generally
limit the number of distributors they will authorize in a given territory. As an
authorized distributor, the Company obtains sales referrals, as well as sales,
marketing and engineering support, from components manufacturers. These
referrals and support assist the Company in closing sales and obtaining new
customers. The Company's status as an authorized distributor is also a valuable
marketing tool as the end customers receive greater support from the components
manufacturers.

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The Company believes that an important factor which suppliers consider in
determining whether to grant or to continue to provide distribution rights to a
certain distributor is such distributor's geographic representation. In meeting
its goal of being recognized as a national distributor, the Company has opened
sales offices in a number of markets throughout the United States (see
"Corporate Strategy -- Expansion" and "Sales and Marketing -- Sales Office
Locations") and has advertised in national industry publications to demonstrate
its distribution capabilities to current and potential customers and suppliers.

All distribution agreements are cancellable by either party, typically upon
30 to 90 days' notice. The Company believes its exposure to inventory loss is
significantly reduced by the following provisions typically found in its
distribution agreements: price protection, stock rotation privileges,
obsolescence credit and return privileges. Price protection is typically in the
form of a credit to the Company for any inventory the Company has of products
for which the manufacturer reduces its prices. The stock rotation privileges
typically allow the Company to exchange inventory in an amount up to 5% of a
prior period's purchases. The obsolescence credit allows the Company to return
any products which the manufacturer discontinues. Upon termination of a
distribution agreement, the return privileges typically require the manufacturer
to repurchase the Company's inventory at the Company's adjusted purchase price.
If the Company terminates the distribution agreement, there is typically a 10%
to 15% restocking charge. There can be no assurance that all manufacturers will
comply with their contractual obligations.

Substantially all of the Company's inventory is purchased pursuant to its
distribution agreements. The Company does not generally purchase product for
inventory unless it is a commonly sold product, there is an outstanding customer
order to be filled, a special purchase is available or unless it is an initial
stocking package in connection with a new line of products.

Supplier Base

Over the past 10 years the Company has expanded its supplier base
significantly. Presently, the Company has non-exclusive distribution agreements
with over 90 different suppliers and considers itself to be a broad-line
distributor. The Company does not regard any one supplier as essential to its
operations, since most of the products the Company sells are available from
other sources at competitive prices. In 1994, the Company's three largest
suppliers accounted for approximately 14%, 7% and 6% of consolidated purchases,
respectively. While the Company does not believe that the loss of any one
supplier would have a material adverse impact on its business, the loss of a
significant number of suppliers in a short period of time could have such an
impact. If the Company were to lose its rights to distribute the products of any
one particular supplier, there can be no assurance that the Company would be
able to replace the products which were available from that particular supplier.
The Company, from time to time, eliminates companies and adds new companies to
its list of authorized suppliers in an attempt to provide its customers with a
better product mix. See "RISK FACTORS -- Relationships with Suppliers" and Note
11 to Notes to Consolidated Financial Statements.

FACILITIES AND SYSTEMS

Facilities

As a result of its continued growth, the Company has relocated its
corporate headquarters and distribution facility twice since 1990. In order to
support substantial future growth without another relocation, the Company
entered into a new lease for a 110,800 square foot facility in Miami, Florida to
contain new corporate offices and a state-of-the-art distribution center
designed by the Company. The Company moved into this new facility in May of
1994. The Company presently occupies approximately 75% of the facility, with the
balance being sublet to an unrelated third party. The new lease has a term
expiring in 2014 with three 6-year renewal options. The Company has the right to
terminate this lease at any time after the fifth year of the term upon
twenty-four months prior written notice and the payment of all outstanding debt
owed to the landlord. The lease provides for annual fixed rental payments
totaling approximately $264,000 in the first year, $267,000 in the second year,
$279,000 in each of the third, fourth and fifth years, $300,600 in the sixth
year, $307,800 in the seventh year, and in each year thereafter during the term
the rent shall increase once per year in an amount equal to the annual
percentage increase in the consumer price index not to exceed 4% in any one

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year. The renewal options are at fair market value rental rates. In June 1994,
the Company entered into a sublease with an unrelated third party for
approximately 25% of the new facility for a term of three years ending on July
14, 1997, with no renewal options and the Company having the right to recapture
approximately 13,000 square feet of the sublet space from and after the
eighteenth month of the three year term. The sublease provides for base rent of
$5,000 per month increasing 5% per year and additional rent representing the
subtenant's prorata share of landlord pass through expenses and other expenses
pertaining to the sublet premises. Although continued growth is not assured, the
Company estimates that this new facility (including the space currently sublet)
has capacity to handle over $400 million in annual revenues.

Prior to May 1994, the Company's main corporate offices and warehouse were
also located in Miami, Florida, and consisted of approximately 37,000 square
feet, of which approximately 10,000 square feet was office space and
approximately 27,000 square feet was warehouse space.

As a result of the January 1994 acquisition, the Company leases a 9,700
square foot facility located near Chicago, Illinois, which houses a sales
office, a warehouse and the value-added operations of the Company's American
Assemblies division. Furthermore, the Company occupies approximately 11,000
square feet in Northern California, approximately 5,000 square feet of which is
used for sales, 3,500 square feet of which is used for corporate offices. The
balance of this Northern California facility is being used as a regional
distribution facility and, in the second quarter of 1995, is expected to house
the Company's new semiconductor programming center. In addition, the Company
leases space for its 17 other sales offices (excluding Miami which is located in
the Company's corporate headquarters), which range in size from approximately
1,000 square feet to 6,000 square feet. See "Sales and Marketing -- Sales Office
Locations."

Systems

In 1990, the Company created a management information systems ("MIS")
department and, in 1991, new computer and communications systems were placed
into service. As a result of its rapid expansion and in order to assure that the
Company can continue to grow and provide state-of-the-art distribution
technology in the future, the Company expanded these systems during 1994 and
expects to continue to develop and expand its systems capabilities further. The
Company believes that these systems will assist in increasing sales and in
improving efficiency and the potential for greater profitability in the future
through increased employee productivity, enhanced asset management, improved
quality control capabilities and expanded customer service capabilities. See
"Corporate Strategy -- Services."

The Company's systems and operations are designed to facilitate centralized
warehousing which allows salespeople across the country to have real-time access
to inventory and pricing information and allows a salesperson in any office to
enter orders electronically, which instantaneously print in the Company's
distribution facility for shipping and invoicing. The combination of the
centralized warehouse and the electronic order entry enable the Company to
provide rapid order processing at low costs. The system also provides for
automatic credit checks, which prohibit any product from being shipped until the
customer's credit has been approved. Additionally, its systems provide the
Company with more timely and reliable information, allowing the Company to
enhance asset management. The Company's communications equipment enables
personnel to communicate from office to office over existing data lines, thereby
controlling telephone expenses. Further, the systems allow the Company to
participate with customers and suppliers in electronic data interchange and to
expand customer services, including just-in-time deliveries, kitting programs,
bar-coding, automatic inventory replenishment programs, bonded and consigned
inventory programs, in-plant stores and in-plant terminals.

While the development of the MIS department, the acquisition of new
computer and communications equipment, the development of software for its
systems and the 1991 consolidation of the Company's warehouse operations reduced
the Company's profitability in 1989 through 1992, the Company began to benefit
from these investments in 1993. The Company believes that, with its new
distribution center combined with the expansion of its systems and
infrastructure which began in 1994 and will continue in 1995, the Company will
be positioned to sustain significant sales growth without significant additional
investment in fixed overhead, thereby improving operating margins in the future.

35
<PAGE> 36

FOREIGN MANUFACTURING AND TRADE REGULATION

A significant number of the components sold by the Company are manufactured
outside the United States and purchased by the Company from United States
subsidiaries or affiliates of those foreign manufacturers. As a result, the
Company and its ability to sell at competitive prices could be adversely
affected by increases in tariffs or duties, changes in trade treaties, currency
fluctuations, strikes or delays in air or sea transportation, and possible
future United States legislation with respect to pricing and import quotas on
products from foreign countries. The Company's ability to be competitive in or
with the sales of imported components could also be affected by other
governmental actions and changes in policies related to, among other things,
anti-dumping legislation and currency fluctuations. Since the Company purchases
from United States subsidiaries or affiliates of foreign manufacturers, the
Company's purchases are paid for in U.S. dollars which does reduce the potential
adverse effect of currency fluctuations. While the Company does not believe that
these factors adversely impact its business at present, there can be no
assurance that such factors will not materially adversely affect the Company in
the future.

EMPLOYEES

As of May 1, 1995, the Company employed 361 persons: 34 are involved in
management; 37 are involved in marketing; 178 are involved in sales; 46 are
involved in warehouse and shipping; 23 are involved in operations and kitting;
35 are involved in bookkeeping and clerical; and 8 are involved in MIS. None of
the Company's employees are covered by collective bargaining agreements. The
Company believes that its relations with its employees are good.

COMPETITION

The Company believes that there are over 1,000 electronic components
distributors throughout the United States, ranging in size from less than $1
million in revenues to companies with annual sales exceeding $4 billion
worldwide. These distributors can be divided into global distributors who have
operations around the world, national distributors who have offices throughout
the United States, regional distributors and local distributors. With 20 offices
in 13 states, the Company competes as a national distributor. The Company, which
was recently recognized by an industry publication as the 21st largest
distributor of electronic components in the United States, believes its primary
competition comes from the top 50 distributors in the industry.

The Company competes with many companies that distribute electronic
components and, to a lesser extent, companies that manufacture such products and
sell them directly. Many of these companies have greater assets and possess
greater financial and personnel resources than does the Company. The competition
in the electronics distribution industry can also be segregated by target
customers: major accounts; middle market accounts; and emerging growth accounts.
Competition to be the primary supplier for the major customers is dominated by
the top 10 distributors as a result of the product offerings, pricing and
distribution technology offered by these distributors. The Company competes for
these major industry customers by seeking to provide the very best service and
quality and focusing on fill-in or niche products. The Company believes that it
is able to earn satisfactory margins on this business without competing head-on
with the industry giants. The Company believes competition from the top 10
distributors for the middle and emerging market customer base is not as strong
since the largest distributors focus their efforts on the major account base.
For this reason, the Company has focused its efforts on servicing this middle
and emerging market customer base. The Company competes for this business by
seeking to offer a broader product base, better pricing and more sophisticated
distribution technology than the regional or local distributors, by seeking to
offer more sophisticated distribution technology than comparably sized
distributors and by seeking to offer to such middle and emerging market
companies a higher service level than are offered to them by the major national
distributors. With its expanded service capabilities and quality assurance
procedures in place, the Company believes that it can now compete for a bigger
portion of the business at the top tier customer base, although there can be no
assurance it will be successful in doing so.

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<PAGE> 37

LICENSED TECHNOLOGY

As a result of the rapid growth of the Company's electronic components
distribution business, the Company has decided to no longer pursue its
development of certain licensed technology intended to protect various
electronic equipment and machines from surges and sags in power which can damage
the components within the equipment. See Note 4 to Notes to Consolidated
Financial Statements.

LEGAL PROCEEDINGS

The Company is from time to time involved in litigation relating to claims
arising out of its operations in the ordinary course of business. Such claims
are generally covered by insurance or, if they relate to products which it
distributes, the Company would expect that the manufacturers of such products
would indemnify the Company, as well as defend such claims on the Company's
behalf, although no assurance can be given that any manufacturer would do so.
The Company believes that none of these claims should have a material adverse
impact on its financial condition or results of operations. See "RISK
FACTORS -- Potential Product Liability"

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of the Company are as follows:

<TABLE>
<CAPTION>
NAME CLASS AGE POSITION
------------------------------------ ----- ---- ------------------------------------
<S> <C> <C> <C>
Paul Goldberg(1).................... III 66 Chairman of the Board of Directors
and Chief Executive Officer
Bruce M. Goldberg(1)................ II 39 President and Chief Operating
Officer and Director
Howard L. Flanders.................. II 37 Vice President, Secretary and Chief
Financial Officer and Director
Rick Gordon......................... III 41 Senior Vice President of Sales and
Marketing and Director
S. Cye Mandel(2)(3)................. I 66 Director
Sheldon Lieberbaum(2)(3)............ I 60 Director
</TABLE>

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

(1) member of the Executive Committee
(2) member of the Audit Committee
(3) member of the Compensation Committee

The Company's Certificate of Incorporation provides for a staggered board,
consisting of three classes. The terms of office of Class I, II and III
directors expire in 1995, 1996 and 1997, respectively. See "DESCRIPTION OF
SECURITIES -- Certain Provisions of Certificate of Incorporation and Bylaws."
The Company's executive officers serve at the discretion of the Board; however,
all executive officers have employment agreements with the Company. See
"EXECUTIVE COMPENSATION -- Employment Agreements." The following is a brief
resume of the Company's executive officers and directors.

PAUL GOLDBERG, one of the co-founders of the Company and the father of
Bruce M. Goldberg, has been employed by the Company in various executive
capacities since its predecessor's formation in 1964, and has served as Chairman
of the Board and Chief Executive Officer since 1978. Mr. Goldberg was also
President of the Company until July 1994.

BRUCE M. GOLDBERG, the son of Paul Goldberg, joined the Company in October
1988 as Vice President, in 1990 became Executive Vice President and in July 1994
became President and Chief Operating Officer.

37
<PAGE> 38

Bruce M. Goldberg has served as a Director of the Company since 1987. From 1984
until joining the Company, Bruce M. Goldberg practiced law in his own firm.
Prior thereto, he practiced law while associated with two Miami law firms,
Shutts & Bowen and Shapiro, Hoffman, Lester and Abramson.

HOWARD L. FLANDERS joined the Company in February 1991 as its Vice
President and Chief Financial Officer, and in 1992 became a Director of the
Company and Secretary. Prior to joining the Company, Mr. Flanders, who is a CPA,
was Controller of Reliance Capital Group, Inc., a subsidiary of Reliance Group
Holdings, Inc., where he held various positions since 1982. Prior thereto, Mr.
Flanders was an accountant with the public accounting firm of Coopers & Lybrand.

RICK GORDON has been employed by the Company since January 1986. He was
originally the General Manager of the Company's Northern California office and
Northwest Regional Manager. In March 1990, Mr. Gordon became the Western
Regional Vice President and in 1992 Vice President of North American Sales and a
Director of the Company. In 1994, Mr. Gordon was appointed Senior Vice President
of Sales and Marketing for the Company. Before working for the Company, Mr.
Gordon was Western Regional Vice President for Diplomat Electronics, another
electronic components distributor, from 1975 until 1986.

S. CYE MANDEL is a prominent South Florida businessman who has been an
executive in the food service industry for the past 20 years. Mr. Mandel has
been a principal in the entity which acted from 1989 to 1993 as the manager of
the Miccosukee Indian bingo enterprise located in Miami, Florida. Mr. Mandel has
served as Director of the Company since 1987.

SHELDON LIEBERBAUM is director of corporate finance and a director and
shareholder of Lew Lieberbaum & Co., Inc., an investment banking firm which is
the Underwriter of this Offering and was one of the underwriters of the
Company's 1992 Public Offering. He was also an officer of the underwriter which
took the Company public in 1987. Mr. Lieberbaum has been in the brokerage
business for over 35 years and serves as a director for Unapix Enterprises,
Eastco Industrial Safety Corporation and In-Home Health, Inc. Mr. Lieberbaum
became a Director of the Company in 1992 in connection with an agreement of the
Company with the underwriters of the 1992 Public Offering that until June 18,
1997, the Company would use its best efforts to cause one individual designated
by such underwriters to be elected to the Board or to be an advisor to the
Board. It is contemplated that, in the event that this Offering is successfully
completed, a similar agreement regarding the designation of a director of the
Company will be entered into between the Company and the Underwriter which would
have a term of three years from the Effective Date, but would not be operative
until the expiration of the existing agreement with the underwriters of the 1992
Public Offering so that only one designee of either the Underwriter or the
underwriters of the 1992 Public Offering would serve on the Board at any time.
See "UNDERWRITING." The National Association of Securities Dealers, Inc.
("NASD") recently alleged that the Underwriter and others, including Mr.
Lieberbaum, in 1991 engaged in market manipulation, inaccurately maintained
books and records and failed to adequately supervise the activities of the
Underwriter's personnel in connection with the trading for the Underwriter's
account of warrants which were part of a public offering of units of convertible
preferred stock and warrants of a company for which the Underwriter had acted in
1991 as managing underwriter. In order to expeditiously resolve this matter and
without admitting or denying these allegations, in January 1995 Mr. Lieberbaum
and others voluntarily entered into a Letter of Acceptance, Waiver and Consent
with the NASD pursuant to which Mr. Lieberbaum was censured and fined by the
NASD, agreed to pay with the Underwriter and others restitution to customers and
was suspended from associating with any NASD member for a one month period.

BOARD COMMITTEES

Executive Committee

The Executive Committee is comprised of Paul Goldberg and Bruce M.
Goldberg. During 1994, the Executive Committee did not meet formally, however,
its members met on nearly a daily basis in connection with the operations of the
Company. The Executive Committee possesses substantially all of the powers of
the Board and acts as the Board between Board meetings.

38
<PAGE> 39

Audit Committee

The Audit Committee is comprised of S. Cye Mandel and Sheldon Lieberbaum.
The Audit Committee is responsible for recommending the selection of the
independent auditors (which was done during the last year by the Board as a
whole), reviewing the arrangements and scope of the independent audit, reviewing
internal accounting procedures and controls and reviewing the reports and
recommendations of the independent auditors with respect to internal controls.

Compensation Committee

Prior to March 27, 1993, the Compensation Committee was comprised of Paul
Goldberg and Bruce M. Goldberg. Effective March 27, 1993, the Compensation
Committee consists of S. Cye Mandel and Sheldon Lieberbaum, two independent
non-employee directors of the Company. See "Compensation Committee Interlocks
and Insider Participation" for a discussion of the Compensation Committee's
responsibilities.

Nominating Committee

The Board does not have a Nominating Committee, such function being
performed by the Board as a whole.

BOARD COMPENSATION

The members of the Board do not currently receive compensation from the
Company for acting in their capacity as directors of the Company nor has the
Company adopted any standard arrangement for compensating non-employee directors
of the Company. The Company may decide in the future to compensate directors
and/or to establish a standard compensation arrangement for non-employee
directors.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Prior to March 1993, the Compensation Committee of the Board consisted of
Paul Goldberg, Chairman and Chief Executive Officer, and Bruce M. Goldberg,
Director and then Executive Vice President. At a meeting of the Board held on
March 27, 1993, Paul Goldberg and Bruce M. Goldberg resigned from the
Compensation Committee and the Board reconstituted the Compensation Committee to
consist of S. Cye Mandel and Sheldon Lieberbaum, both being independent,
non-employee Directors of the Company. Prior to the changes effective in March
of 1993, the Compensation Committee reviewed, designed and approved the
compensation of all employees of the Company, except for the members of the
Compensation Committee whose compensation was determined by the Board as a
whole. Effective with the reconstitution of the Compensation Committee in March
1993, the Board decided that management of the Company should make decisions
with respect to the compensation (other than the granting of stock options) of
all employees other than the executive officers of the Company. Furthermore, in
connection with this Offering, the Company has agreed with the Underwriter that
the Company will not increase or authorize an increase in the compensation of
its executive officers without the approval of the Compensation Committee for a
period of three years from the Effective Date. In addition, the Company has
agreed that for three years from the Effective Date it will use its best efforts
to cause one individual designee of the Underwriter to be elected to the
Company's Board and that such designee will also serve as a member of the
Compensation Committee. Currently, Sheldon Lieberbaum, director of corporate
finance and a director and shareholder of the Underwriter, is a member of the
Board and the Compensation Committee. See "UNDERWRITING."

39
<PAGE> 40

EXECUTIVE COMPENSATION

The following table sets forth certain information regarding the
compensation earned during each of the fiscal years ended December 31, 1994,
1993 and 1992 by the Chief Executive Officer and each of the other four most
highly compensated executive officers of the Company whose total annual salary
and bonus exceeded $100,000:

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES ALL OTHER
---------------------- UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS (#) ($)(1)
------------------------------------------ ----- ---------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Paul Goldberg............................. 1994 184,000 -- -- 10,000
Chairman and Chief Executive Officer 1993 178,000 113,000 100,000 8,000
1992 167,000 15,000 -- 5,000
Bruce M. Goldberg......................... 1994 150,000 -- -- 26,000
President and Chief Operating Officer 1993 135,000 98,000 100,000 14,000
1992 114,000 15,000 -- 2,000
Rick Gordon............................... 1994 155,000 20,000 -- 16,000
Senior Vice President of Sales and 1993 135,000 11,000 3,000 12,000
Marketing 1992 123,000 -- -- 2,000
Howard L. Flanders........................ 1994 130,000 -- -- 17,000
Vice President and Chief Financial 1993 105,000 11,000 103,000 14,000
Officer 1992 93,000 -- -- --
</TABLE>

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

(1) All other compensation includes Company contributions to life insurance
policies, where the Company is not the beneficiary, to the Deferred
Compensation Plan and to the 401(k) Plan of the Company and the cost to the
Company of the nonbusiness use of Company automobiles used by executive
officers. See hereinbelow and "Deferred Compensation Plan for Executive
Officers and Key Employees" and "401(k) Plan."

The Company has a $1,000,000 key man term life insurance policy on the life
of Paul Goldberg with benefits payable to the Company. In addition, the Company
pays for a $550,000 universal life insurance policy on the life of Paul Goldberg
with benefits payable to his wife. The current annual premiums on the foregoing
policies insuring the life of Paul Goldberg are approximately $9,300 and $7,700
for the key man and universal life insurance policies, respectively. The Company
owns and is the beneficiary of a $1,000,000 term policy on the life of Bruce M.
Goldberg. The current annual premium on this policy is $1,580. Moreover, during
1994 the Company transferred ownership of a $1,000,000 whole life insurance
policy (the "Whole Life Policy") on the life of Bruce M. Goldberg to Bruce M.
Goldberg to fulfill an obligation under his existing employment arrangement. The
Company intends to make annual advances to Bruce M. Goldberg to cover the annual
premium of the Whole Life Policy currently in the amount of $22,995. Such annual
advances are secured by the cash surrender value of the Whole Life Policy. Since
more than two and one-half years had passed since the date of Bruce M.
Goldberg's existing employment agreement, fifty percent (50%) of the advances
through December 31, 1994, were cancelled and the related security released on
January 1, 1995. The remainder of the existing advances and any future advances
made to pay premiums on the Whole Life Policy through May 31, 1997, will be
cancelled and any remaining security will be released in accordance with a
vesting schedule by May 31, 1997, provided Bruce M. Goldberg continues
employment with the Company through the end of such period. Thereafter the
Company will continue, for the duration of Bruce M. Goldberg's employment, to
pay the annual premium to Bruce M. Goldberg for the Whole Life Policy. If Bruce
M. Goldberg is terminated by the Company for cause prior to May 31, 1997, he
will be entitled to pay off the nonvested advances owed to the Company and
obtain a release of any collateral assignment. If Bruce M. Goldberg is
terminated without cause or upon a change in control, any nonvested advances
owed to the Company will become immediately vested and any remaining security
will be released. In addition, beginning

40
<PAGE> 41

in 1993 the Company has funded, and intends to continue to fund, the premiums
for $1,000,000 flexible premium life insurance policies owned by each of Howard
L. Flanders and Rick Gordon. The Company's advances will be secured by a
collateral assignment of the cash value and death benefit of each of the
policies. The current annual premium on each of these policies is $11,500. The
Company's obligations to make premium payments in connection with Howard L.
Flanders' and Rick Gordon's policies are expected to last for a maximum of ten
years. After Howard L. Flanders and Rick Gordon have been with the Company for a
period of five years from the year in which the policy was acquired (1993) and
provided they each remain in the employ of the Company or they have become
disabled or a change in control has occured during the term of their employment,
the advances will be deemed cancelled and the security released thereafter
ratably over a five year vesting period until such time as all advances are
deemed cancelled. See "Employment Agreements."

OPTION GRANTS IN LAST FISCAL YEAR

The Company did not grant any stock options during its fiscal year ended
December 31, 1994, to any executive officer of the Company.

AGGREGATED OPTION EXERCISES IN LATEST FISCAL YEAR AND FISCAL YEAR-ENDED OPTION
VALUES

The following table sets forth information concerning the aggregate option
exercises in the fiscal year ended December 31, 1994, and the value of
unexercised stock options as of December 31, 1994 for the individual executive
officers named in the Summary Compensation Table:

<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES FY-END(#) FY-END ($)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE(1)
----------- ----------- ------------- ----------------
<S> <C> <C> <C> <C>
Paul Goldberg.................. -- -- 120,000(E) 84,500(E)
80,000(U) --(U)
Bruce M. Goldberg.............. 3,125(2) 6,700(2) 95,000(E) 63,375(E)
80,000(U) --(U)
Rick Gordon.................... -- -- 85,600(E) 79,688(E)
37,400(U) 32,813(U)
Howard L. Flanders............. -- -- 55,600(E) 44,375(E)
77,400(U) 37,500(U)
</TABLE>

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

(1) Value is based upon the difference between the exercise price of the options
and the last reported sale price of the Common Stock on December 31, 1994.
(2) Stock options covering 3,125 shares of Common Stock at an exercise price of
$1.60 per share were exercised by Bruce M. Goldberg during the fiscal year
ended December 31, 1994. The value realized per share is based upon the
difference between the closing sale price of the Company's Common Stock on
The Nasdaq Stock Market on the date of exercise and the exercise price.

EMPLOYEES', OFFICERS', DIRECTORS' STOCK OPTION PLAN

In 1987, the Company established the Option Plan. Unless earlier
terminated, the Option Plan will continue in effect through May 28, 2004, after
which it will expire and no further options could thereafter be granted under
the Option Plan. The Option Plan provides for awards of options to purchase
shares of Common Stock to officers, directors and employees of and independent
contractors associated with the Company. A maximum of 2,250,000 shares of the
Company's Common Stock has previously been reserved for issuance upon the
exercise of options granted under the Option Plan. In order to have a sufficient
number of authorized and unissued shares of Common Stock to undertake this
Offering (assuming the Over-Allotment Option will be exercised in full), the
number of shares of the Company's Common Stock reserved for issuance under the
Option Plan has been reduced by the Board to no more than 1,575,250 shares;
provided, however, that, in the event that the Over-Allotment Option is not
exercised, there will be no reduction in the number of reserved

41
<PAGE> 42

shares or, if not exercised in full, a lesser reduction will be made.
Notwithstanding the foregoing reduction, in May 1995 the Board authorized an
increase in the number of shares of the Company's Common Stock reserved for
issuance under the Option Plan to 3,250,000 shares, subject to obtaining the
approval of the shareholders of the Company to such increase and to an increase
in the number of shares of Common Stock authorized to be issued by the Company
at the 1995 Annual Meeting. See "DESCRIPTION OF SECURITIES" and "RISK FACTORS."
The increases are necessary in order to authorize the aggregate of 1,000,000 New
Options to be granted to the four executive officers of the Company in
connection with their entering into new employment agreements with the Company.
See "Employment Agreements." If approved, such increase would also eliminate any
reduction in the reserved shares under the Option Plan necessitated by this
Offering.

The Option Plan is administered by the Compensation Committee. The
Compensation Committee's functions include recommending persons to whom options
should be granted, the date of each option grant, the number of shares of Common
Stock to be included in each option, any vesting and exercise schedule and the
option price and term (which in no event will be for a period more than ten
years from the date of grant). The Compensation Committee's proposals are based
upon and in recognition of the judgment, initiative, leadership and continued
efforts of eligible participants. Unless the Compensation Committee is comprised
of at least three disinterested persons, meaning that none of such persons are
eligible or have within the previous year been eligible to participate in the
Option Plan, any option granted to a director must satisfy all of the following
requirements: (i) the total number of options granted to directors under the
Option Plan may not exceed 35% of the shares reserved under the Option Plan (the
"35% Limitation"); (ii) no director may be granted options in excess of 30% of
the shares issued under the Option Plan in any one particular issuance; (iii)
options granted to directors may not be exercisable for at least one year after
the date of grant; (iv) the exercise price of options granted to directors may
not be less than the fair market value of the Common Stock on the date of grant,
except that if a director beneficially owns 10% or more of the combined voting
power of the Company, the option price may not be less than 110% of the fair
market value of the Common Stock on the date of grant. In addition, options
granted to directors are subject to all other restrictions set forth in the
Option Plan. Since currently there are only two disinterested directors on the
Compensation Committee, the above limitations relating to grants of options to
directors are currently in effect. As a result of the number of shares of the
Company's Common Stock reserved for issuance under the Option Plan being
required to be reduced by the Board to permit the Company to undertake this
Offering, Paul Goldberg and Bruce M. Goldberg have agreed not to exercise stock
options held by them for an aggregate of up to 50,000 shares each of Common
Stock to enable the Option Plan to remain in compliance with the 35% Limitation.
This agreement would terminate upon the number of shares reserved for issuance
being subsequently increased to an amount sufficient to permit the Option Plan
to be in compliance with the 35% Limitation or the 35% Limitation being
otherwise eliminated. As a result of the New Options to be granted to the four
executive officers of the Company in connection with their entering into new
employment agreements, in May 1995 the Board authorized the elimination of the
above limitations, as well as certain other amendments to the Option Plan,
subject to obtaining the approval of the Company's shareholders. Such approval
is currently expected to be sought at the 1995 Annual Meeting. See "Employment
Agreements."

The exercise price for all options granted under the Option Plan shall not
be less than the fair market value of the Common Stock on the date of grant (or
110% of the fair market value if the beneficiary of the grant beneficially owns
10% or more of the outstanding shares of Common Stock; provided, however, that,
as part of the amendments, to the Option Plan authorized by the Board in May
1995, subject to approval by the shareholders, this 110% provision has been
limited to incentive stock options only). In addition, the aggregate fair market
value of the Common Stock (determined at the date of the option grant) for which
a person may be granted incentive stock options which first become exercisable
in any calendar year under the Option Plan may not exceed $100,000. Options
granted pursuant to the Option Plan are not transferrable during an optionee's
lifetime.

To the extent incentive stock options are granted under the Option Plan,
this generally entitles an optionee who is an employee to defer recognition of
income or loss for federal tax purposes until the shares underlying the options
are sold. Under the Option Plan the Company does not obtain any federal tax
deductions except in unusual circumstances.

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<PAGE> 43

On February 11, 1994, the Company filed a registration statement on Form
S-8 with the Commission in order to register 1,687,914 shares of Common Stock
then issuable under the Option Plan and 98,160 issuable to an employee of the
Company upon the exercise of a stock option granted outside of the Option Plan
in connection with an acquisition by the Company. So long as such registration
statement remains effective under the Act, shares of Common Stock issued upon
the exercise of outstanding options under the Option Plan will be immediately
and freely tradable without restriction under the Act, subject to applicable
volume limitations, if any, under Rule 144 and, in the case of executive
officers and directors of the Company, Section 16 of the Exchange Act. It is
contemplated that the Company will at the appropriate time file an amendment to
its registration statement on Form S-8 in order to register any additional
shares of Common Stock reserved for issuance under the Option Plan.

As of May 18, 1995, a total of 1,316,690 options were granted and had not
expired or been forfeited, of which 146,127 were exercised and 1,170,563 options
were outstanding (of which 631,000 options were held by executive officers and
directors of the Company as a group, see "Aggregated Option Exercises in Last
Fiscal Year and Fiscal Year-Ended Option Values" and 549,412 options are
presently exercisable). These options, which are held by 68 persons, are
exercisable at prices ranging from $.75 per share to $2.63 per share and are
exercisable through various expiration dates from 1995 to 2000. In addition,
certain options were issued to the selling stockholders in connection with the
Company's acquisitions in 1994. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Acquisitions."

DEFERRED COMPENSATION PLAN FOR EXECUTIVE OFFICERS AND KEY EMPLOYEES

Effective January 1, 1988, the Company established a deferred compensation
plan (the "Deferred Compensation Plan") for executive officers and key employees
of the Company. The employees eligible to participate in the Deferred
Compensation Plan (the "Participants") are chosen at the sole discretion of the
Board, upon a recommendation from the Compensation Committee. Pursuant to the
Deferred Compensation Plan, commencing on a Participant's retirement date, he or
she will receive an annuity for ten years. The amount of the annuity shall be
computed at 30% of the Participant's salary, as defined. Any Participant with
less than ten years of service to the Company as of his or her retirement date
will only receive a pro rata portion of the annuity. Retirement benefits paid
under the Deferred Compensation Plan will be distributed monthly. The Company
paid benefits under this plan of approximately $52,000 during 1994, none of
which was paid to any executive officer. The maximum benefit payable to a
Participant (including each of the executive officers) under the Deferred
Compensation Plan is presently $22,500 per annum.

401(K) PLAN

The Company maintains a 401(k) Plan (the "401(k) Plan"), which is intended
to qualify under Section 401(k) of the Internal Revenue Code of 1986, as
amended. All full-time employees of the Company over the age of 21 are eligible
to participate in the 401(k) Plan after completing 90 days of employment. Each
eligible employee may elect to contribute to the 401(k) Plan, through payroll
deductions, up to 15% of his or her salary, limited to $9,240 in 1994. The
Company makes matching contributions and in 1994 its contributions were in the
amount of 25% on the first 6% contributed of each participating employee's
salary.

EMPLOYMENT AGREEMENTS

The Goldberg Agreements

Effective June 1, 1992, the Company entered into employment agreements with
Paul Goldberg, its Chief Executive Officer and Bruce M. Goldberg, its current
President and Chief Operating Officer (collectively, the "1992 Agreements"). The
1992 Agreements are for three-year terms expiring on May 31, 1995. Pursuant to
their 1992 Agreements, Paul Goldberg and Bruce M. Goldberg currently receive a
base salary of $186,000 and $150,000 per annum, respectively. Under the 1992
Agreements, Paul Goldberg and Bruce M. Goldberg are also each entitled to
receive a bonus equal to 5% of the Company's pre-tax income in excess of
$1,000,000 in any calendar year. Such bonus compensation payable under the 1992
Agreements to Paul Goldberg and Bruce M. Goldberg is limited to $150,000 and
$100,000 per annum, respectively. For the calendar year 1994, Paul Goldberg and
Bruce M. Goldberg did not earn a bonus, although they were each paid $100,000
relating to bonuses earned for the Company's 1993 fiscal year.

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<PAGE> 44

In addition, the 1992 Agreements provide for certain additional benefits,
including participation in Company benefit plans, including the Deferred
Compensation Plan, payments to the employee upon his disability, certain life
insurance benefits and the continued use of a Company automobile. See "Summary
Compensation Table." The agreements prohibit Paul Goldberg and Bruce M. Goldberg
from competing with the Company for two years after any voluntary termination of
employment or termination for cause. The agreements further provide that, if
there is a change in control (as defined) of the Company, the Company shall have
the option to either extend the agreements for two additional years or terminate
the agreements upon making a lump sum severance payment equal to two years
compensation. Further, if Paul Goldberg or Bruce M. Goldberg were to be
terminated without cause, each of them would be entitled to receive severance
benefits equal to the greater of two years compensation or the remainder of the
compensation due them under their respective employment agreements.

In May 1995, the Company entered into new employment agreements with each
of Paul Goldberg and Bruce M. Goldberg to take effect as of the expiration of
the 1992 Agreements (collectively the "1995 Agreements"). The 1995 Agreement for
Paul Goldberg extends the term of his employment until December 31, 2000,
subject to earlier termination as a result of his retirement as hereinafter
described, and provides for a base salary effective as of June 1, 1995, of
$250,000 per annum, subject to an annual increase commencing as of January 1,
1996 (which increase shall be prorated for the period between June 1, 1995 and
December 31, 1995) equal to the greater of 4% per annum or the increase in the
cost of living. The 1995 Agreement for Bruce M. Goldberg extends the term of his
employment until December 31, 2000, and provides for a base salary effective as
of June 1, 1995, of $275,000 per annum, subject to the same annual increase
formula as for Paul Goldberg under his 1995 Agreement. Under the 1995
Agreements, Paul Goldberg and Bruce M. Goldberg will each be entitled to receive
an annual cash bonus equal to 3% of the Company's pre-tax income, before
nonrecurring and extraordinary charges, in excess of $1,000,000 in any calendar
year. Such annual bonus compensation for each of Paul Goldberg and Bruce M.
Goldberg is limited in any year to an amount no greater than two times his
respective base salary for the applicable year. In addition, Bruce M. Goldberg
will also receive an additional one time bonus in the amount of $30,000 on
January 15, 1996, in the event that the Company's net sales for calendar year
1995 exceed $135,000,000.

The 1995 Employment Agreements, together with the new employment agreements
between the Company and each of Howard L. Flanders and Rick Gordon described
below, provide for the granting of an aggregate of 1,000,000 stock options
pursuant to the Option Plan as additional incentive compensation for such four
executive officers (collectively, the "New Options"). Paul Goldberg and Bruce M.
Goldberg will be granted New Options covering 250,000 and 450,000 shares of
Common Stock, respectively, out of the aggregate of 1,000,000 New Options. All
of the New Options are to be granted on the earlier to occur of the date that
the registration statement of which this Prospectus is a part becomes effective,
or June 15, 1995. The New Options will be exercisable over a 10 year period from
the date of grant, subject to the vesting schedule set forth below and, in the
case of Messrs. Flanders and Gordon, generally maintaining as many of the New
Options as possible as incentive stock options. Each of the New Options will
have an exercise price equal to 100% of the fair market value of a share of
Common Stock on the date of grant. If the date of grant is the effective date of
the registration statement, the exercise price will be the public offering price
per share of the Common Stock offered hereby. The New Options granted to each of
the executive officers will vest in no event later than 9 years from date of
grant, subject to earlier vesting in the following percentage increments based
upon the Company attaining net earnings per share on a primary basis in any year
between 1995 and 2000 (inclusive) in at least the following amounts:

<TABLE>
<CAPTION>
PERCENTAGE OF NET EARNINGS
OPTIONS VESTED (%) PER SHARE($)
----------------------------------------------------------- ------------
<S> <C>
25%.................................................. $.18
50................................................... .22
75................................................... .28
100................................................... .38
</TABLE>

The granting of the New Options will be void and a nullity in the event
that the Company does not obtain the approval of the Company's shareholders to
(i) the amendments to the Option Plan which are necessary to

44
<PAGE> 45

permit the granting of the New Options, including the increase in the number of
shares reserved for issuance under the Option Plan to 3,250,000 shares (the
"Plan Amendments"), and (ii) an increase in the number of shares of Common Stock
authorized to be issued by the Company to enable the Company to have sufficient
shares of Common Stock available for, among other things, issuance upon the
exercise of the New Options. See "DESCRIPTION OF SECURITIES" and "RISK FACTORS."
In the event that the shareholders of the Company do not approve the Plan
Amendments within the required period of 12 months from the Board's
authorization thereof in May 1995 or do not approve the increase in the number
of authorized shares of Common Stock resulting in the New Options automatically
terminating, the annual cash bonus of each of Paul Goldberg and Bruce M.
Goldberg described above would be increased from 3% to 5% of the Company's
pre-tax income before nonrecurring and extraordinary charges. It is currently
contemplated that the approval of the Company's shareholders will be sought at
the 1995 Annual Meeting.

Under Paul Goldberg's 1995 Agreement, he may elect, in his sole discretion,
to retire at any time on or after January 1, 1999 (the "Retirement Election").
Upon the earlier to occur of the Retirement Election or at the expiration or
earlier termination of the term of the 1995 Agreement, the Company will be
obligated to pay Paul Goldberg (in addition to any other compensation he may be
entitled to upon termination), and his spouse upon his death, a retirement
benefit of $100,000 per annum until the later of the death of Paul Goldberg or
his spouse, provide him and his spouse, without cost, until the later of their
respective deaths, at least the same level of medical and health insurance
benefits as was provided prior to his retirement and continue to pay the
premiums on the life insurance policies covering his and his spouse's lives as
described hereinbelow and under "Summary Compensation Table" above.

The 1995 Agreements also provide certain additional benefits to each of
Paul Goldberg and Bruce M. Goldberg, including participation in the Company
benefit plans, including the Deferred Compensation Plan and the 401(k) Plan, and
the continued use of a Company automobile. In addition, in the event of the
disability of Paul Goldberg, the Company will be obligated to continue all
compensation and other benefits due under his 1995 Agreement for the shorter of
two years or until January 1, 1999, and to thereafter provide the retirement and
health benefits described above. In the event of the disability of Bruce M.
Goldberg, the Company will be obligated to continue all compensation and other
benefits due under his 1995 Agreement for two years thereafter. Furthermore, in
addition to the life insurance policies covering the life of Paul Goldberg and
Bruce M. Goldberg described under "Summary Compensation Table" being funded by
the Company, the Company has agreed to advance the Paul Goldberg Family
Insurance Trust or such other person designated by Paul Goldberg (i) each year
until the insured's death the amount of the annual premium for a new $1,000,000
face value insurance policy on Paul Goldberg's or his spouse's life and (ii)
each year until the later to die of Paul Goldberg or his spouse the amount of
the annual premium for a $1,000,000 face value second to die insurance policy on
the lives of Paul Goldberg and his spouse. Such annual advances (together with
interest to accrue thereon at the rate of 5% per annum) for each policy will be
secured by the respective insurance policy and the higher of the advances
(together with the interest accrued thereon) for and the cash surrender value of
the respective policy will be repaid to the Company upon the death of Paul
Goldberg, the death of his spouse or the death of Paul Goldberg and his spouse
(as applicable) out of the proceeds thereof.

The 1995 Agreements also provide that, in the event of change in control
(as defined) of the Company, each of Paul Goldberg and Bruce M. Goldberg shall
have the option in his sole discretion to terminate his 1995 Agreement. In such
event, Paul Goldberg would be entitled to elect (in lieu of electing to continue
to receive some or all of the compensation, payments and benefits as and when
due under the 1995 Agreement) to receive a lump sum payment equal to the sum of
(i) Paul Goldberg's compensation due through the greater of the end of the term
of the 1995 Agreement or three years after the change in control, (ii) the
present value (assuming a certain discount rate and life expectancy) of the
retirement payments payable to Paul Goldberg commencing from the later of the
end of the term or three years after the change in control until his death,
(iii) an amount sufficient to pay, until the later of his or his spouse's death,
the premium for at least the same level of health insurance benefits as was
provided before the change in control and (iv) an amount sufficient to pay,
until the later of his or his spouse's death (as applicable), the premiums on
the life insurance policies insuring his or his spouse's lives as described in
the previous paragraph. Similarly, under Bruce M. Goldberg's 1995 Agreement, in
the event of a change in control and Bruce M. Goldberg's election to terminate
his 1995

45
<PAGE> 46

Employment Agreement, Bruce M. Goldberg at his option will be entitled to elect
to receive a lump sum payment equal to his compensation due through the later of
the end of the term of his 1995 Agreement or three years after the change in
control or for such period to continue to receive such compensation as and when
due under the 1995 Agreement. In addition, in the event of a change in control,
all unvested options held by Paul Goldberg or Bruce M. Goldberg, as well as any
other executive officer, would vest and become immediately exercisable. These
change in control provisions will replace the change in control provisions of
the 1992 Agreements as of June 1, 1995.

The Flanders Agreement

In May 1995, the Company entered into an employment agreement with Howard
L. Flanders, its Vice President, Secretary and Chief Financial Officer (the
"Flanders Agreement"). The Flanders Agreement continues through December 31,
1998, and provides for a base salary, effective as of March 1, 1995, of $157,500
per annum, subject to an annual increase commencing as of January 1, 1996, equal
to the greater of 5% per annum or the increase in the cost of living. Under the
Flanders Agreement, Mr. Flanders will be entitled to receive an annual cash
bonus equal to 2% of the Company's pre-tax income, before nonrecurring and
extraordinary charges, in excess of $1,000,000 in any calendar year. Such annual
cash bonus compensation is limited in any year to an amount no greater than Mr.
Flanders' base salary for the applicable year. Mr. Flanders will also be granted
150,000 New Options; provided, that, if the shareholders' approvals necessary in
connection with the granting of the New Options as described above is not
obtained, then Mr. Flanders' annual cash bonus percentage will be increased from
2% to 2.5%. In addition, the Flanders Agreement provides for certain additional
benefits, including participation in the Company benefit plans, including the
Deferred Compensation Plan and the 401(k) Plan, payment to Mr. Flanders upon his
disability of his compensation and other benefits for two years thereafter and
the continued use of a Company automobile. The Flanders Agreement prohibits Mr.
Flanders from competing with the Company for two years after any voluntary
termination of employment or termination for cause. Further, if Mr. Flanders
were to be terminated without cause, he would be entitled to receive severance
benefits equal to the greater of two-years compensation or the remainder of the
compensation due under the Flanders Agreement. Additionally, under the Flanders
Agreement, the Company will pay premiums under a life insurance policy with the
beneficiary to be as designated by Mr. Flanders as described under "Summary
Compensation Table" above. The Flanders Agreement also provides that, in the
event of a change in control (as defined) of the Company, Mr. Flanders will have
the option in his sole discretion to terminate the Flanders Agreement. In such
event, Mr. Flanders at his option would be entitled to elect to receive a
lump-sum payment equal to Mr. Flanders' compensation due through the later of
the end of the term of the Flanders Agreement or two years after the change in
control or for such period to continue to receive such compensation as and when
due under the Flanders Agreement.

The Gordon Agreement

In May 1995, the Company entered into an employment agreement with Rick
Gordon, its Senior Vice President of Sales and Marketing (the "Gordon
Agreement"). The Gordon Agreement continues through December 31, 1998, and
provides for a base salary, effective as of March 1, 1995, of $163,000 per
annum, subject to an annual increase commencing as of January 1, 1996, equal to
the greater of 5% per annum or the increase in the cost of living. Under the
Gordon Agreement, Rick Gordon will be entitled to receive an annual cash bonus
equal to 2% of the Company's pre-tax income, before nonrecurring and
extraordinary charges, in excess of $1,000,000 in any calendar year. Such annual
cash bonus compensation is limited in any year to an amount no greater than Mr.
Gordon's base salary for the applicable year. With respect to fiscal 1995, Rick
Gordon will also receive an additional one time bonus in the amount of $15,000
on January 15, 1996, in the event that the Company's net sales for calendar year
1995 exceed $135,000,000. Mr. Gordon will be granted 150,000 New Options;
provided, that, if the shareholders' approvals necessary in connection with the
granting of the New Options as described above is not obtained, then Mr.
Gordon's annual cash bonus percentage will be increased from 2% to 2.5%. In
addition, the Gordon Agreement provides for certain additional benefits,
including participation in the Company benefit plans, including the Deferred
Compensation Plan and the 401(k) Plan, payment to Mr. Gordon upon his disability
of his compensation and other benefits for two years thereafter and the
continued use of a Company automobile. The Gordon Agreement prohibits Mr. Gordon

46
<PAGE> 47

from competing with the Company for two years after any voluntary termination of
employment or termination for cause. Further, if Mr. Gordon were to be
terminated without cause, he would be entitled to receive severance benefits
equal to the greater of two-years compensation or the remainder of the
compensation due under the Gordon Agreement. Additionally, under the Gordon
Agreement, the Company will pay premiums under a life insurance policy with the
beneficiary to be as designated by Mr. Gordon as described under "Summary
Compensation Table" above. The Gordon Agreement also provides that, in the event
of a change in control (as defined) of the Company, Mr. Gordon will have the
option in his sole discretion to terminate the Gordon Agreement. In such event,
Mr. Gordon at his option would be entitled to elect to receive a lump-sum
payment equal to Mr. Gordon's compensation due through the later of the end of
the term of the Gordon Agreement or two years after the change in control or for
such period to continue to receive such compensation as and when due under the
Gordon Agreement.

CERTAIN TRANSACTIONS

Paul Goldberg, a director and executive officer of the Company, owns a
one-third interest in GBG of Maryland, Inc., a corporation that leased office
space to a wholly-owned subsidiary of the Company until December 1994. At such
time, the lease was terminated in connection with the sale to an unrelated third
party of the building in which the office space was located. The Company's
wholly-owned subsidiary currently leases the office space from such unrelated
third party. During fiscal year 1994, such wholly-owned subsidiary paid
approximately $31,000 in rent to lease such office space.

Sheldon Lieberbaum, a director of the Company, is director of corporate
finance and a director and shareholder of the Underwriter. The Underwriter will
receive compensation in connection with this Offering. See "UNDERWRITING."

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<PAGE> 48

PRINCIPAL SHAREHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of May 18, 1995, and after the
consummation of this Offering by: (i) each person known by the Company to be the
beneficial owner of more than five percent (5%) of the Company's Common Stock,
(ii) each director of the Company, (iii) each executive officer of the Company
and (iv) all executive officers and directors of the Company as a group. Except
as indicated in the notes to the following table, the persons named in the table
have sole voting and investment power with respect to all shares shown as
beneficially owned by them. Unless otherwise indicated in the notes to the
table, officers and directors can be reached at the principal office of the
Company.

<TABLE>
<CAPTION>
PERCENT OF
AMOUNT AND NATURE OF OUTSTANDING
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP SHARES(1)
- ------------------------------------- -------------------- --------------------
BEFORE AFTER
OFFERING OFFERING
-------- --------
<S> <C> <C> <C>
Bruce M. Goldberg(2).............................................. 1,006,341 8.1% 5.9%
Paul Goldberg(3).................................................. 817,476 6.6% 4.8%
S. Cye Mandel(4).................................................. 5,625 * *
Howard L. Flanders................................................ 1,000 * *
Rick Gordon....................................................... 1,000 * *
Sheldon Lieberbaum(4)(5).......................................... -- -- --
All executive officers and directors as a group (6 persons)....... 1,831,442 14.7% 10.8%
</TABLE>

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

* Less than 1%
(1) Assumes no exercise of the Underwriter's Over-Allotment Option and excludes
the Underwriter's Purchase Warrants. In addition, excludes outstanding
stock options to purchase 1,386,274 shares, of which 1,170,563 options to
purchase shares were issued pursuant to the Option Plan. Of these
outstanding options, 631,000 options are held by the executive officers and
directors of the Company as a group, including 175,000 options held by
Bruce M. Goldberg, 200,000 options held by Paul Goldberg, 133,000 options
held by Howard L. Flanders and 123,000 options held by Rick Gordon. Further
excludes currently outstanding warrants to purchase 674,875 shares and
other Existing Rights and the New Options. If all currently outstanding
options and warrants were exercised, Bruce M. Goldberg, Paul Goldberg,
Howard L. Flanders, Rick Gordon and all executive officers and directors of
the Company as a group would own 8.1%, 7.0%, .9%, .9% and 17.0%,
respectively, of the Company's outstanding Common Stock (and assuming the
completion of the Offering 6.2%, 5.3%, .7%, .7% and 12.9%, respectively, of
the Company's outstanding Common Stock).
(2) Includes 53,380, 26,000, 69,496, 69,496 and 69,496 shares held of record by
Bruce M. Goldberg as trustee for his sons, Matthew Goldberg and Alec
Goldberg, and for his nieces and nephew, Kimberly Phelan, Tiffany Phelan
and Patrick Phelan, respectively. For federal securities law purposes only,
Bruce M. Goldberg is deemed to be the beneficial owner of these securities.
Does not include 7,500 shares of Common Stock owned by Jayne Goldberg, the
wife of Bruce M. Goldberg, and 27,225 shares held of record by an unrelated
third party as trustee for Matthew Goldberg (18,475 shares) and Alec
Goldberg (8,750 shares). Bruce M. Goldberg disclaims beneficial ownership
over all of such securities.
(3) Includes 319,218 shares owned of record by Paul Goldberg's wife, Lola
Goldberg, and 1,250 and 1,250 shares, respectively, held of record by Paul
Goldberg as custodian for Kimberly Phelan and Tiffany Phelan. For federal
securities law purposes only, Paul Goldberg is deemed to be the beneficial
owner of these securities. Does not include 192,898 shares held of record
by Robin Phelan, the daughter of Paul and Lola Goldberg, over which
securities Paul and Lola Goldberg disclaim beneficial ownership.
(4) Mr. Mandel's address is 1800 Northeast 114th Street, North Miami, Florida
33181. Mr. Lieberbaum's address is 600 Old County Road, Suite 518, Garden
City, New York 11530.
(5) Does not include any Underwriter's Purchase Warrants to be issued in
connection with this Offering.

Each of the Company's executive officers and directors has agreed with the
Underwriter for the benefit of the Company and the Underwriter not to offer,
sell, contract to sell, grant any option, right or warrant with

48
<PAGE> 49

respect to or otherwise dispose of (collectively "Dispositions") any shares of
Common Stock or any securities convertible into, or exchangeable or exercisable
for, shares of Common Stock for 180 days after the Effective Date, without the
prior written consent of the Underwriter. Notwithstanding these lock-up
agreements, such persons may make intra-family Dispositions and Dispositions in
connection with a merger, consolidation, reorganization, exchange offer,
acquisition or similar transaction or under the Option Plan of the Company.

DESCRIPTION OF SECURITIES

GENERAL

The Company currently has 20,000,000 shares of authorized Common Stock,
$.01 par value per share, and 1,000,000 shares of preferred stock, par value
$.01 per share. As of June 7, 1995, 12,446,791 shares of Common Stock were
issued and outstanding and held of record by approximately 500 shareholders. The
Existing Rights cover up to an additional 2,192,149 shares of Common Stock.
After the completion of the Offering and the issuance of the 4,550,000 shares
offered hereby and assuming the exercise of the Over-Allotment Option, the
Company will only have 2,320,709 shares of Common Stock available for issuance,
all of which are currently reserved for issuance upon the exercise of Existing
Rights or under the Option Plan. As a result, the Company expects at the 1995
Annual Meeting to seek approval of its shareholders to substantially increase
the number of shares of Common Stock and preferred stock authorized to be
issued. There is no assurance the Company will obtain such approval. See "RISK
FACTORS."

The following description of the Common Stock and preferred stock are based
on the Company's Certificate and Bylaws and applicable Delaware law and are
qualified in all respects by the provisions thereof. See "AVAILABLE
INFORMATION."

COMMON STOCK

Each shareholder is entitled to one vote for each share owned of record on
all matters submitted to a vote of shareholders. The holders of shares do not
possess cumulative voting rights, which means that the holders of more than
fifty percent of the outstanding shares voting for the election of directors can
elect all of the directors, and, in such event, the holders of the remaining
shares will be unable to elect any of the Company's directors. See "RISK
FACTORS." Holders of outstanding Common Stock are entitled to receive ratably
dividends out of assets legally available therefor at such times and in such
amounts as the Company's Board may from time to time determine, subject to
preferences that may be applicable to any outstanding preferred stock. Upon the
liquidation, dissolution, or winding up of the Company, holders of Common Stock
are entitled to share ratably in all assets remaining after payment of
liabilities and the liquidation preference of any outstanding preferred stock.
Holders of Common Stock have no preemptive, conversion or subscription rights,
and shares are not subject to redemption. All outstanding shares are, and the
shares of Common Stock being offered hereby will be, when issued against the
consideration set forth in this Prospectus, fully paid and non-assessable.

PREFERRED STOCK

Pursuant to the Company's Certificate, the Board has the authority to issue
such preferred stock in one or more series and to fix the powers, designations,
preferences and relative, participating, optional or other rights thereof,
including dividend rights, conversion rights, voting rights, redemption terms,
liquidation preferences and the number of shares constituting any series,
without any further action by the shareholders. The issuance of preferred stock
in certain circumstances may have the effect of delaying, deferring or
preventing a change of control of the Company without further action by the
shareholders, may discourage bids for the Company's Common Stock at a premium
over the market price of the Common Stock and may adversely affect the market
price of, and the voting and other rights of the holders of, the Common Stock.
The Company has no shares of preferred stock outstanding and has no current
plans to issue any such shares. See "RISK FACTORS -- Possible Issuance of
Additional Shares."

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<PAGE> 50

EXISTING WARRANTS

In connection with the 1992 Public Offering, the Company sold to JW Charles
Securities, Inc., Corporate Securities Group, Inc. and Lew Lieberbaum & Co.,
Inc., the underwriters thereof (the "1992 Underwriters"), for nominal
consideration, 175,000 non-redeemable warrants (the "1992 Underwriters'
Warrants") to purchase units (the "1992 Units"), each 1992 Unit consisting of
two shares of Common Stock, one warrant to purchase one share of Common Stock
for $1.10 and one warrant to purchase one share of Common Stock for $1.50. The
1992 Underwriters' Warrants are exercisable until June 18, 1997, at an exercise
price of $3.30 per 1992 Unit, and have certain anti-dilution provisions. At the
date of this Prospectus, only 17,500 of these 1992 Underwriters' Warrants have
not been exercised together with the related warrants comprising part of the
1992 Unit underlying the 1992 Underwriters' Warrants.

In September 1987, the Company issued to its financial public relations
firm (the "PR Firm") a warrant to acquire 90,000 shares of Common Stock at an
exercise price of $1.60 per share (as adjusted to give effect to the 1989 stock
split) relating to a since expired consulting agreement covering financial
public relations/investor relations services. In connection with the 1992 Public
Offering, the Company extended the exercise period of this warrant to June 18,
1994, and, in connection with entering into a new consulting agreement with the
PR Firm as described below, the exercise period was extended again to June 18,
1997. As of the date of this Prospectus, this warrant has not been exercised.

In May 1993, the Company issued to the PR Firm two additional warrants each
to acquire 45,000 shares of Common Stock at an exercise price of $1.35 per share
through May 14, 1998. One of such warrants was issued to induce the PR Firm to
enter into a new consulting agreement with the Company covering financial public
relations/investor relations services and was fully vested and immediately
exercisable and not forfeitable. The other warrant was forfeitable by the PR
Firm if such consulting agreement was not renewed by the Company for a second
year and was only exercisable commencing on May 14, 1994, if the consulting
agreement was renewed for the second year. Such consulting agreement has been
renewed for the second year and thus the second warrant has fully vested and is
exercisable. As of the date of this Prospectus, neither of these warrants has
been exercised.

In June 1994, as part of the 1994 Private Placement, the Company issued
386,250 Common Stock purchase warrants. Each warrant issued can be exercised to
purchase one share of the Company's Common Stock at any time between December
14, 1994 and June 13, 1999, at an exercise price equal to $3.15 per share. As
part of the 1994 Private Placement, RAS Securities Corp., the placement agent
for such offering, was issued warrants to purchase 38,625 shares of Common Stock
at any time between June 14, 1995 and June 13, 1999, at an exercise price equal
to $3.78 per share.

The holders of the Existing Warrants have been granted certain registration
rights. As a consequence thereof, all of the shares of Common Stock underlying
the Existing Warrants (other than the 1993 warrants issued to the PR Firm and
the warrants issued in connection with the 1994 Private Placement) have been
previously registered by the Company in connection with prior public offerings.
The holders of the Existing Warrants issued to the PR Firm in 1987 and 1993 have
elected pursuant to their registration rights to register for future sale the
180,000 shares of Common Stock underlying their warrants as part of the
Registration Statement of which this Prospectus forms a part. See "SHARES
ELIGIBLE FOR SALE" and "CONCURRENT REGISTRATION OF SHARES FOR FUTURE SALE BY
WARRANT HOLDERS."

EXISTING OPTIONS AND OTHER RIGHTS

The Company has outstanding as of this date employee and other stock
options of the Company to acquire up to 1,386,274 shares of Common Stock. In
addition, under certain circumstances and events, the Company may be obligated
to issue 1,000 shares of Common Stock and incentive stock options under the
Option Plan covering an additional 130,000 shares of Common Stock, as well as
the New Options. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- Acquisitions" and "EXECUTIVE
COMPENSATION -- Employees', Officers', Directors' Stock Option Plan" and
"-- Employment Agreements."

50
<PAGE> 51

UNDERWRITER'S PURCHASE WARRANTS

In connection with this Offering, the Underwriter will be issued the
Underwriter's Purchase Warrants. See "UNDERWRITING."

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Company's Common Stock is The
Trust Company of New Jersey, 35 Journal Square, Jersey City, New Jersey 07306.

CERTAIN PROVISIONS OF CERTIFICATE OF INCORPORATION AND BYLAWS

The Certificate and Bylaws of the Company include, among others, the
following provisions:

1. Annual and special meetings of the stockholders may be called only
by the Company's Board.

2. An affirmative vote of at least two-thirds of the outstanding
shares of Common Stock is required to approve or authorize certain business
combinations, unless 65% of the Company's Board approves such transaction,
in which case, a simple majority of the outstanding shares of Common Stock
will be required to approve such transaction.

3. There exist three classes of directors, each class elected for
three-year staggered terms.

4. Officers and directors of the Company will be indemnified to the
fullest extent permitted under Delaware law.

5. The Company has elected not to be governed by Section 203 of the
Delaware General Corporation Law which means that the Company is not
subject to the provisions of Delaware Law which generally provides that
certain transactions between the Company and an "interested stockholder" be
approved by the affirmative vote of two-thirds of the outstanding shares
which are not owned by the interested stockholders. An interested
stockholder ("Interested Stockholder") is (i) an owner of 15% or more of
the outstanding voting stock of the Company; or (ii) an affiliate or
associate of the Company who was the owner of 15% or more of the
outstanding voting stock of the Company at any time within the three year
period prior to the date on which it is sought to be determined whether
such person is an Interested Stockholder, and the affiliates and associates
of such person.

The members of the Goldberg Group will not be considered Interested
Stockholders, as defined in Section 203 and the Certificate, since they
either (i) acquired greater than 15% of the outstanding Common Stock prior
to December 23, 1987, or (ii) acquired their shares of Common Stock by gift
from a person falling within (i) above, both of which are exceptions under
Section 203 and the Certificate to the definition of Interested
Stockholders.

6. The Board when evaluating any offer of another person to make a
tender offer or certain business combinations is authorized, in connection
with the exercise of its judgment in determining what is in the best
interests of the Company as a whole, to give due consideration to all
relevant factors including, among others, the social, legal and economic
effects upon employees, suppliers, customers and others having similar
relationships with the Company and the communities in which the Company
conducts its business.

7. Any action required or permitted to be taken at any annual or
special meeting of shareholders may be taken only upon the vote of the
shareholders at such meeting duly called and may not be taken by written
consent of shareholders.

8. An affirmative vote of at least two-thirds of the outstanding
shares of Common Stock is required to amend certain provisions of the
Certificate including those described in items numbered 2, 3, 5, 6 and 7
above.

The provisions of the Certificate and Bylaws of the Company summarized
above may have certain anti-takeover effects. Such provisions, individually or
in combination, may discourage other persons, or make it

51
<PAGE> 52

more difficult, without the approval of the Company's Board, for other persons
to make a tender offer or acquisitions of substantial amounts of the Common
Stock or from launching other takeover attempts that a shareholder might
consider in such shareholder's best interest, including attempts that might
result in the payment of a premium over the market price of the Common Stock
held by such shareholder.

CERTAIN PROVISIONS RELATING TO LIMITATION OF LIABILITY AND INDEMNIFICATION OF
DIRECTORS

The Company's Certificate contains provisions which would limit the scope
of personal liability of directors to the Company or its shareholders for
monetary damages for breach of fiduciary duty. The provisions are consistent
with Section 102(b)(7) of the Delaware General Corporation Law, which is
designed, among other things, to encourage qualified individuals to serve as
directors of Delaware corporations by permitting a Delaware corporation and its
shareholders to adopt provisions in the corporation's certificate of
incorporation limiting directors' liability for monetary damages for breach of
the duty of care.

Such provisions will protect the Company's directors against personal
liability from breaches of their duty of care in certain circumstances. The
provisions of the Certificate would absolve directors of liability for
negligence in the performance of their duties, including gross negligence.
Directors would remain liable, under current law, for beaches of their duty of
loyalty to the corporation and its shareholders, as well as acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law or a transaction from which a director derives any improper personal
benefit. Also, the provisions would not absolve directors of liability under
Section 174 of the Delaware General Corporation Law, which makes directors
personally liable for unlawful dividends or unlawful stock repurchases or
redemptions and expressly sets forth a negligence standard with respect to such
liability. Further, these provisions would not eliminate or limit liability of
directors arising in connection with causes of action brought under Federal
securities laws.

While the provisions of the Certificate provide directors with protection
from awards of monetary damages for breaches of the duty of care, it does not
eliminate the directors' duty of care. Accordingly, the provisions of the
Certificate would have no effect on the availability of suitable non-monetary
remedies such as an injunction or rescission based upon a director's breach of
the duty of care.

In addition, the Certificate provides that the Company shall indemnify its
directors and officers to the fullest extent permitted by Section 145 of the
Delaware General Corporation Law, as the same may be amended and supplemented.
Such indemnification provision is not exclusive of any other rights to which
those indemnified may be entitled under the Company's Bylaws, agreements, vote
of stockholders or disinterested directors or otherwise.

The Company has also entered into indemnification contracts
("Indemnification Contracts") with its executive officers and directors
("Indemnitees"). The Indemnification Contracts provide that, in the event of
claims against an Indemnitee relating to an Indemnitee's position as an officer,
director, or agent of the Company, the Company shall indemnify such officer or
director to the fullest extent permitted by law against any and all expenses,
judgments, fines, penalties and amounts paid in settlement of such claims and
any taxes imposed on such Indemnitee as a result of payments received pursuant
to the Indemnification Contracts. The obligations of the Company to indemnify an
Indemnitee are subject to review by the Board, or persons appointed by the
Board, that such indemnification would be permissible under applicable law. In
the event of a change in control of the Company which has not been approved by a
majority of the Company's directors, a special independent counsel selected by
the Indemnitee must render its legal opinion to the Company and the Indemnitee
as to whether and to what extent the Indemnitee would be permitted to be
indemnified under applicable law.

The Indemnification Contracts require the Company to advance to Indemnitees
expenses incurred by the Indemnitees in connection with investigating,
defending, or otherwise participating in any indemnification claim, subject to
the condition that if the Board, or the special independent legal counsel in the
event of a change in control of the Company, determines that such Indemnitee
would not be permitted to be indemnified under applicable law, the Company shall
be reimbursed for any amounts advanced to the Indemnitee. In the event of a
potential change in control, the Indemnification Contracts require the Company,
upon written request by an Indemnitee, to create a trust for the benefit of such
Indemnitee. The Company must fund such

52
<PAGE> 53

trust in an amount sufficient to satisfy any and all expenses reasonably related
to any claim anticipated at the time of such request. The trustee must pay to
the Indemnitee all amounts to which Indemnitee is entitled to indemnification
and all unexpended funds are to be returned to the Company.

Insofar as indemnifications for liabilities arising under the Act may be
permitted to directors and officers pursuant to the Certificate and Bylaws or
the Indemnification Contracts, the Company has been advised that in the opinion
of the Commission such indemnification is against public policy and, therefore,
may be unenforceable.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this Offering (assuming the Over-Allotment Option is not
exercised), the Company will have outstanding 16,996,791 shares of Common Stock,
without giving effect to any future grants of options or warrants or exercise of
any outstanding Existing Rights or the New Options to purchase Common Stock
after the date of this Prospectus. Of the shares that will be outstanding after
this Offering, approximately 14,915,351 shares will be freely tradeable without
restriction or further registration under the Act unless purchased by
"affiliates" of the Company, as that term is defined in Rule 144 of the Act.
Substantially all of the remaining 2,081,440 shares of Common Stock to be
outstanding upon completion of the Offering are "restricted securities" as that
term is defined in Rule 144 and, except for 30,000 of such shares, are subject
to the lock-up agreements described below. 30,000 shares of such "restricted
securities," which were acquired by the holder (who is not an officer, director
or affiliate of the Company) pursuant to the exercise in March 1995 of a warrant
of the Company, are being registered concurrently herewith as a result of
registration rights provided in such warrant. None of the other "restricted
securities" have registration rights. See "RISK FACTORS -- Shares Available for
Future Resale" and "CONCURRENT REGISTRATION OF SHARES FOR FUTURE SALE BY WARRANT
HOLDERS."

The Company's executive officers and directors have entered into lock-up
agreements with the Underwriter pursuant to which they have agreed not to make
any Disposition of any shares of Common Stock of the Company, or any securities
convertible into, or exchangeable or exercisable for, shares of Common Stock for
a period of 180 days from the Effective Date, without the prior written consent
of the Underwriter. Notwithstanding these lock-up agreements, such persons may
make intra-family Dispositions and Dispositions in connection with a merger,
consolidation, reorganization, exchange offer, acquisition or similar
transactions or under the Option Plan. An appropriate legend will be marked on
the face of stock certificates representing all such shares of Common Stock. See
"PRINCIPAL SHAREHOLDERS." The Underwriter may waive compliance with the lock-up
agreements or any part thereof without notice to the holders of the Company's
securities or to the market where the securities are traded. In addition, the
Underwriter has received certain registration rights with respect to the shares
of Common Stock issuable upon exercise of the Underwriter's Purchase Warrants.
See "UNDERWRITING."

In addition, the Company had outstanding as of the date of this Prospectus
Existing Rights representing options, warrants and other potential rights to
acquire up to 2,192,149 shares of Common Stock, without giving effect to the New
Options. Certain of the shares underlying the Existing Rights have previously
been registered by the Company and the agreements evidencing the Existing Rights
require the Company to register or qualify, or both, the shares underlying the
Existing Rights on demand of the holders thereof (a "demand registration")
and/or in any future registration statements that the Company files generally
during their respective exercise periods (a "piggyback registration"). See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Acquisitions," "EXECUTIVE COMPENSATION -- Employees', Officers',
Directors' Stock Option Plan" and "-- Employment Agreements" and "DESCRIPTION OF
SECURITIES -- Existing Warrants." In that regard, as part of the Registration
Statement of which this Prospectus forms a part, 180,000 shares of Common Stock
underlying certain Existing Warrants, as well as the 30,000 shares of
"restricted securities" described above, are being registered for future sale by
the holders thereof. See "CONCURRENT REGISTRATION OF SHARES FOR FUTURE SALE BY
WARRANT HOLDERS."

53
<PAGE> 54

No predictions can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sale, or the future exercise of
the Existing Rights or New Options will have on the prevailing market price for
the Common Stock. Sales of substantial amounts of Common Stock, or the
perception that such sales could occur, could adversely affect prevailing market
prices for the Common Stock and could impair the Company's future ability to
obtain capital through an offering of equity securities.

UNDERWRITING

Subject to the terms and conditions set forth in the Underwriting
Agreement, which is filed as an exhibit to the Registration Statement of which
this Prospectus forms a part, the Company has agreed to sell to the Underwriter
and the Underwriter has agreed to purchase from the Company 4,550,000 shares of
Common Stock at the price to the public less the underwriting discounts and
commissions set forth on the cover page of this Prospectus. The Underwriting
Agreement provides that the Underwriter will be obligated to purchase all of the
shares of Common Stock offered hereby on a "firm commitment" basis, if any are
purchased. The Underwriter has informed the Company that it does not expect
discretionary sales to exceed one percent (1%) of the total number of shares of
Common Stock offered hereby.

The Underwriter has advised the Company that it proposes to initially offer
the Common Stock to the public at the public offering price set forth on the
cover page of this Prospectus and to certain dealers at such price less
concessions not in excess of $.05625 per share and such dealers may reallot to
certain other dealers a concession not exceeding $.028125 per share. After the
Offering, the offering price and the concessions may be changed at the
discretion of the Underwriter. The Common Stock is offered subject to receipt
and acceptance by the Underwriter and to certain other conditions, including the
right to reject orders in whole or in part.

The Company has granted to the Underwriter an option exercisable during the
30 business day period after the Effective Date to purchase from the Company on
the same terms and conditions up to an aggregate of 682,500 additional shares of
Common Stock (15% of the number of shares being offered hereby) for the sole
purpose of covering over-allotments, if any.

The Company has agreed to pay to the Underwriter a non-accountable expense
allowance of 3% of the gross proceeds of this Offering, of which $10,000 has
been paid to date. Further, the Company has agreed to reimburse the Underwriter
for certain accountable expenses relating to this Offering.

The Company and all of the Company's executive officers and directors have
agreed not to make a Disposition of any shares of Common Stock or any securities
convertible into, exchangeable or exercisable for, shares of Common Stock for a
period of 180 days after the Effective Date without the prior written consent of
the Underwriter. Notwithstanding these agreements, such persons may make
intra-family Dispositions and Dispositions in connection with a merger,
consolidation, reorganization, exchange offer, acquisition or similar
transaction or under the Option Plan. The Underwriter may waive compliance with
these agreements or any part thereof without notice to the holders of the
Company's securities or to the market where its securities are traded.

The Company has agreed that for three years after the Effective Date, it
will use its best efforts to cause one individual designated by the Underwriter
to be elected to the Company's Board of Directors or to be an advisor to the
Board, which individual may be a director, officer, employee or affiliate of the
Underwriter. The Company has also agreed that such designee will serve as a
member of the Board's Compensation Committee. Currently, Sheldon Lieberbaum, a
director, officer and shareholder of the Underwriter, serves on the Company's
Board pursuant to a similar agreement of the Company with the 1992 Underwriters
in connection with the 1992 Public Offering, which agreement expires on June 18,
1997. Accordingly, the agreement with the Underwriter would become operative
only after the expiration of the similar agreement with the 1992 Underwriters so
that only one designee of either the Underwriter or the 1992 Underwriters would
serve on the Board at any time.

In connection with the Offering, the Company has agreed to sell to the
Underwriter, for nominal consideration, the Underwriter's Purchase Warrants to
purchase from the Company one share of Common Stock for every ten shares of
Common Stock sold pursuant to the Offering. The Underwriter's Purchase

54
<PAGE> 55

Warrants are exercisable at a price equal to 140% of the per share public
offering price of the Common Stock offered hereby ($2.625) for a period (the
"Warrant Exercise Term") of four years commencing one year from the Effective
Date; provided, however, that the Underwriter has acknowledged and agreed that
(i) the Company does not have the authorized and unissued shares of Common Stock
(after taking into account the shares being offered hereby) to be able to issue
any of the shares of Common Stock underlying the Underwriter's Purchase Warrants
upon the exercise thereof and (ii) only in the event and when (if at all) the
number of authorized shares of the Company's Common Stock is increased to at
least 35,000,000 shares will the holders of the Underwriter's Purchase Warrants
have the right to exercise, in whole or in part, the Underwriter's Purchase
Warrants during the Warrant Exercise Term. The Underwriter's Purchase Warrants
provide that for a period of four years commencing one year from the Effective
Date, at the request of the holders of a majority of the Underwriter's Purchase
Warrants, the Company will register, in whole or in part, on up to two occasions
the Underwriter's Purchase Warrants and/or the shares of Common Stock underlying
the Underwriter's Purchase Warrants. The first such requested registration will
be at the expense of the Company and the second such requested registration will
be at the expense of the holders requesting registration. In addition, the
holders of the Underwriter's Purchase Warrants have the right to "piggyback" all
or any part of the Underwriter's Purchase Warrants and/or the shares of Common
Stock underlying the Underwriter's Purchase Warrants on any registration
statement (other than a registration statement on Form S-8, Form S-4 or other
similar registration form) filed by the Company or its principal stockholders at
any time during the stated term of the Underwriter's Purchase Warrants. The
Underwriter's Purchase Warrants contain anti-dilution provisions providing for
adjustment of the exercise price upon the occurrence of certain events,
including the issuance of Common Stock or other securities convertible into or
exercisable for Common Stock at a price per share less than the market price of
the Common Stock at the time of the applicable issuance, or in the event of any
recapitalization, reclassification, stock dividend, stock split, stock
combination or similar transaction.

During the term of the Underwriter's Purchase Warrants, the holders of the
Underwriter's Purchase Warrants are given the opportunity to profit from a rise
in the market price of the Common Stock. To the extent that the Underwriter's
Purchase Warrants are exercised, dilution of the interest of the Company's
stockholders will occur. Further, the terms upon which the Company will be able
to obtain additional equity capital may be adversely affected since the holders
of the Underwriter's Purchase Warrants can be expected to exercise them at a
time when the Company would, in all likelihood, be able to obtain any needed
capital on terms more favorable to the Company than those provided in the
Underwriter's Purchase Warrants.

The Company has engaged the Underwriter as its financial consultant for a
period of 24 months to commence on the Effective Date, in consideration for
which the Underwriter will receive a consulting fee of $66,000 payable in full
at the closing of this Offering, plus reimbursement of out-of-pocket expenses.
Pursuant to this consulting agreement (the "Consulting Agreement") the
Underwriter will render certain financial advisory and investment banking
services to the Company.

The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriter against certain liabilities in connection with
the Registration Statement of which this Prospectus forms a part, including
liabilities under the Act. To the extent that this indemnification may purport
to provide exculpation from possible liabilities arising under the federal
securities laws, it is the opinion of the Commission that such indemnification
is against public policy and is therefore unenforceable.

The foregoing is a summary of the principal terms of the Underwriting
Agreement, the Underwriter's Purchase Warrants and the Consulting Agreement and
does not purport to be complete. Reference is made to the copies of the
Underwriting Agreement, the Underwriter's Purchase Warrants and the Consulting
Agreement, which are filed as exhibits to the Registration Statement of which
this Prospectus forms a part.

CONCURRENT REGISTRATION OF SHARES FOR FUTURE SALE BY WARRANT HOLDERS

Concurrently with this Offering, the Company is registering 180,000 shares
of its Common Stock underlying certain Existing Warrants and 30,000 shares of
"restricted securities" which were acquired by the holder pursuant to the recent
exercise of a warrant issued by the Company (the "Restricted Shares"). None of

55
<PAGE> 56

these Existing Warrants have been exercised to date and none of the shares
underlying these Existing Warrants or the Restricted Shares are being offered by
the Underwriter. The Company is obligated to register these shares because of
registration rights granted to the holders of these warrants when they were
originally issued.

The 180,000 shares of Common Stock being registered underlying the Existing
Warrants are issuable pursuant to (i) a warrant granted to The Equity Group,
Inc. (assigned to Robert D. Goldstein) to purchase 90,000 shares of Common Stock
at an exercise price of $1.60 per share exercisable through June 18, 1997; and
(ii) two additional warrants granted to The Equity Group, Inc. each to acquire
45,000 shares of Common Stock at an exercise price of $1.35 per share
exercisable through May 14, 1998. The Restricted Shares being registered were
issued by the Company pursuant to the exercise on March 23, 1995, by Sam Berman
(who was the Company's landlord for its prior corporate headquarters and
warehouse facility and is the Company's landlord for its new corporate
headquarters and distribution center) of a warrant granted on March 25, 1992, to
Mr. Berman to acquire 30,000 shares of Common Stock at an exercise price of
$1.00 per share exercisable through March 24, 1995. The warrant was granted to
Mr. Berman in connection with his making a $1 million subordinated loan to the
Company (the loan was repaid in June 1992 out of the proceeds of the 1992 Public
Offering). See "DESCRIPTION OF SECURITIES -- Existing Warrants" and "SHARES
ELIGIBLE FOR FUTURE SALE."

The holders of the warrants referred to in (i) and (ii) above have agreed
not to sell their shares in the public marketplace for a period of 180 days from
the date of this Prospectus without the express written consent of the
Underwriter. It is anticipated that the holders of the shares being registered,
from time to time, will offer their shares in the public marketplace.

LEGAL MATTERS

Rubin Baum Levin Constant Friedman & Bilzin, Miami, Florida has acted as
counsel to the Company in connection with this Offering and will render an
opinion as to the legality of the securities being offered hereby. Meltzer,
Lippe, Goldstein, Wolf, Schlissel & Sazer, P.C., Mineola, New York, has acted as
counsel to the Underwriter in connection with this Offering.

EXPERTS

The consolidated balance sheets as of December 31, 1994 and 1993 and the
consolidated statements of income, changes in shareholders' equity and cash
flows for the three years ended December 31, 1994, 1993 and 1992 have been
included in this Prospectus in reliance upon the report of Lazar, Levine and
Company LLP, independent certified public accountants, given on the authority of
such firm as experts in accounting and auditing. See "INDEX TO CONSOLIDATED
FINANCIAL STATEMENTS."

56
<PAGE> 57

ALL AMERICAN SEMICONDUCTOR, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.......................................................... F-2
Consolidated Balance Sheets at March 31, 1995 (unaudited), December 31, 1994 and
December 31, 1993................................................................... F-3
Consolidated Statements of Income for each of the three months ended March 31, 1995
and 1994 (unaudited) and for each of the three years ended December 31, 1994, 1993
and 1992............................................................................ F-4
Consolidated Statements of Changes in Shareholders' Equity for the three months ended
March 31, 1995 (unaudited) and for each of the three years ended December 31, 1994,
1993 and 1992....................................................................... F-5
Consolidated Statements of Cash Flows for each of the three months ended March 31,
1995 and 1994 (unaudited) and for each of the three years ended December 31, 1994,
1993 and 1992....................................................................... F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>

F-1
<PAGE> 58

INDEPENDENT AUDITORS' REPORT

To The Board of Directors
All American Semiconductor, Inc.
Miami, Florida

We have audited the accompanying consolidated balance sheets of All
American Semiconductor, Inc. and subsidiaries as of December 31, 1994 and 1993
and the related consolidated statements of income, changes in shareholders'
equity and cash flows for the three years in the period ended December 31, 1994.
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 audits 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
All American Semiconductor, Inc. and subsidiaries at December 31, 1994 and 1993
and the results of their operations and their cash flows for the three years in
the period ended December 31, 1994, in conformity with generally accepted
accounting principles.

As discussed in Note 1 to the financial statements, the Company adopted
accounting standards that changed its method of accounting for income taxes and
post retirement benefits in 1993.

LAZAR, LEVINE & COMPANY LLP

New York, New York
March 10, 1995, except as to
Note 5, the date of which is
March 28, 1995

F-2
<PAGE> 59

ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31
MARCH 31 -------------------------
1995 1994 1993
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash................................................. $ 172,000 $ 200,000 $ 180,000
Accounts receivable, less allowances for doubtful
accounts of $523,000, $425,000 and $400,000....... 22,730,000 16,615,000 11,498,000
Inventories.......................................... 38,452,000 34,971,000 23,254,000
Other current assets................................. 1,143,000 1,543,000 619,000
----------- ----------- -----------
Total current assets.............................. 62,497,000 53,329,000 35,551,000
Property, plant and equipment -- net................... 2,895,000 2,832,000 1,534,000
Deposits and other assets.............................. 1,276,000 1,178,000 751,000
Excess of cost over fair value of net assets
acquired -- net...................................... 551,000 519,000 132,000
----------- ----------- -----------
$67,219,000 $57,858,000 $37,968,000
=========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.................... $ 691,000 $ 396,000 $ 589,000
Accounts payable and accrued expenses................ 19,794,000 13,007,000 7,239,000
Income taxes payable................................. -- -- 109,000
Other current liabilities............................ 145,000 126,000 80,000
----------- ----------- -----------
Total current liabilities......................... 20,630,000 13,529,000 8,017,000
Long-term debt:
Notes payable........................................ 22,585,000 20,507,000 14,339,000
Subordinated debt.................................... 6,486,000 6,872,000 --
----------- ----------- -----------
49,701,000 40,908,000 22,356,000
----------- ----------- -----------
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares
authorized, none issued........................... -- -- --
Common stock, $.01 par value, 20,000,000 shares
authorized, 12,446,791, 12,416,791 and 12,017,750
shares issued and outstanding..................... 124,000 124,000 120,000
Capital in excess of par value....................... 11,794,000 11,764,000 10,782,000
Retained earnings.................................... 5,660,000 5,122,000 4,770,000
Treasury stock, at cost, 19,592 shares............... (60,000 ) (60,000) (60,000)
----------- ----------- -----------
17,518,000 16,950,000 15,612,000
----------- ----------- -----------
$67,219,000 $57,858,000 $37,968,000
=========== ========== ==========
</TABLE>

See notes to consolidated financial statements

F-3
<PAGE> 60

ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31 YEARS ENDED DECEMBER 31
--------------------------- ------------------------------------------
1995 1994 1994 1993 1992
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET SALES............................ $ 38,286,000 $ 23,413,000 $101,085,000 $ 67,510,000 $ 49,015,000
Cost of sales........................ (29,418,000) (17,152,000) (74,632,000) (49,010,000) (35,083,000)
------------ ------------ ------------ ------------ ------------
Gross profit......................... 8,868,000 6,261,000 26,453,000 18,500,000 13,932,000
Selling, general and administrative
expenses........................... (7,259,000) (5,136,000) (23,335,000) (14,821,000) (11,366,000)
Nonrecurring expenses:
Relocation of plant facilities..... -- -- (185,000) (61,000) (114,000)
Write-off of product development
investment....................... -- -- (363,000) -- --
------------ ------------ ------------ ------------ ------------
INCOME FROM OPERATIONS............... 1,609,000 1,125,000 2,570,000 3,618,000 2,452,000
Interest expense..................... (665,000) (275,000) (1,772,000) (1,103,000) (1,153,000)
Other income (expense) -- net........ -- (48,000) (39,000) 281,000 (18,000)
------------ ------------ ------------ ------------ ------------
Income before income taxes........... 944,000 802,000 759,000 2,796,000 1,281,000
Provision for income taxes........... (406,000) (321,000) (407,000) (1,094,000) (525,000)
------------ ------------ ------------ ------------ ------------
NET INCOME........................... $ 538,000 $ 481,000 $ 352,000 $ 1,702,000 $ 756,000
============= ============= ============= ============= =============
Earnings Per Share:
Primary............................ $ .04 $ .04 $ .03 $ .19 $ .12
============= ============= ============= ============= =============
Fully diluted...................... $ .04 $ .04 $ .03 $ .18 $ .12
============= ============= ============= ============= =============
</TABLE>

See notes to consolidated financial statements

F-4
<PAGE> 61

ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
CAPITAL IN TOTAL
COMMON EXCESS OF RETAINED TREASURY SHAREHOLDERS'
SHARES STOCK PAR VALUE EARNINGS STOCK EQUITY
---------- -------- ----------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1991...................... 3,721,791 $ 37,000 $ 2,344,000 $2,312,000 $(60,000) $ 4,633,000
Sale of equity securities... 4,025,000 40,000 3,088,000 -- -- 3,128,000
Net income.................. -- -- -- 756,000 -- 756,000
---------- -------- ----------- ---------- -------- -------------
Balance, December 31,
1992...................... 7,746,791 77,000 5,432,000 3,068,000 (60,000) 8,517,000
Sale of equity securities... 4,270,959 43,000 5,350,000 -- -- 5,393,000
Net income.................. -- -- -- 1,702,000 -- 1,702,000
---------- -------- ----------- ---------- -------- -------------
Balance, December 31,
1993...................... 12,017,750 120,000 10,782,000 4,770,000 (60,000) 15,612,000
Exercise of stock options
and
warrants.................. 399,041 4,000 545,000 -- -- 549,000
Issuance of options and
warrants.................. -- -- 437,000 -- -- 437,000
Net income.................. -- -- -- 352,000 -- 352,000
---------- -------- ----------- ---------- -------- -------------
Balance, December 31,
1994...................... 12,416,791 124,000 11,764,000 5,122,000 (60,000) 16,950,000
Exercise of warrant......... 30,000 -- 30,000 -- -- 30,000
Net income (unaudited)...... -- -- -- 538,000 -- 538,000
---------- -------- ----------- ---------- -------- -------------
Balance, March 31, 1995
(unaudited)............... 12,446,791 $124,000 $11,794,000 $5,660,000 $(60,000) $ 17,518,000
========= ======== ========== ========= ======== ==========
</TABLE>

See notes to consolidated financial statements

F-5
<PAGE> 62

ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31 YEARS ENDED DECEMBER 31
------------------------- ---------------------------------------
1995 1994 1994 1993 1992
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................... $ 538,000 $ 481,000 $ 352,000 $ 1,702,000 $ 756,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization..................... 170,000 92,000 677,000 384,000 408,000
Non-cash interest expense......................... 18,000 -- 47,000 -- --
Nonrecurring expenses............................. -- -- 363,000 -- (124,000)
Other expense, net................................ -- -- -- 31,000 82,000
Changes in assets and liabilities:
Increase in accounts receivable................. (6,115,000) (2,117,000) (3,019,000) (2,835,000) (1,170,000)
Increase in inventories......................... (3,481,000) (1,834,000) (9,508,000) (5,228,000) (2,850,000)
Decrease (increase) in other current assets..... 360,000 (127,000) (904,000) (411,000) 67,000
Increase (decrease) in accounts payable and
accrued expenses.............................. 6,787,000 2,273,000 4,702,000 708,000 (618,000)
Increase (decrease) in other current
liabilities................................... 19,000 189,000 (63,000) 85,000 31,000
----------- ----------- ----------- ----------- -----------
Net cash used for operating activities........ (1,704,000) (1,043,000) (7,353,000) (5,564,000) (3,418,000)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment............... (173,000) (67,000) (1,618,000) (250,000) (159,000)
Decrease (increase) in other assets................. (150,000) (145,000) (712,000) (134,000) 113,000
Purchases of net assets of acquired companies....... -- (552,000) (1,084,000) -- --
----------- ----------- ----------- ----------- -----------
Net cash used for investing activities........ (323,000) (764,000) (3,414,000) (384,000) (46,000)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of equity securities..... 30,000 532,000 742,000 5,393,000 3,128,000
Increase in notes payable........................... -- -- 6,088,000 -- 1,050,000
Repayments of notes payable......................... (169,000) (546,000) (2,119,000) (964,000) (1,463,000)
Net borrowings under line of credit agreements...... 2,138,000 1,795,000 6,076,000 1,536,000 858,000
----------- ----------- ----------- ----------- -----------
Net cash provided by financing activities..... 1,999,000 1,781,000 10,787,000 5,965,000 3,573,000
----------- ----------- ----------- ----------- -----------
Increase (decrease) in cash......................... (28,000) (26,000) 20,000 17,000 109,000
Cash, beginning of period........................... 200,000 180,000 180,000 163,000 54,000
----------- ----------- ----------- ----------- -----------
Cash, end of period................................. $ 172,000 $ 154,000 $ 200,000 $ 180,000 $ 163,000
========== ========== ========== ========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid....................................... $ 492,000 $ 275,000 $ 1,604,000 $ 1,102,000 $ 1,150,000
========== ========== ========== ========== ==========
Income taxes paid................................... $ 10,000 $ 53,000 $ 1,021,000 $ 1,163,000 $ 306,000
========== ========== ========== ========== ==========
</TABLE>

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:

Capital leases aggregating $634,000 for computer equipment became effective
in August 1994.

In September 1994, the Company acquired substantially all of the assets of
GCI Corporation. The Company paid $485,000 in cash, with the balance by a
combination of a promissory note and stock options. The Company also assumed
substantially all of the seller's disclosed liabilities. In addition, in January
1994, the Company acquired substantially all of the assets of Components
Incorporated. The Company paid $599,000 in cash, with the balance in a
promissory note. The Company also assumed substantially all of the seller's
disclosed liabilities. During 1993, the Company acquired substantially all of
the assets of an affiliated company. The purchase price payable for such assets
was the assumption of liabilities.

See notes to consolidated financial statements

F-6
<PAGE> 63

ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 IS
UNAUDITED)

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company's accounting policies are in accordance with generally accepted
accounting principles. Outlined below are those policies considered particularly
significant.

Basis of Consolidation and Presentation

The consolidated financial statements of the Company include the accounts
of all subsidiaries, all of which are wholly-owned. All material intercompany
balances and transactions have been eliminated in consolidation.

Prior periods' financial statements have been reclassified to conform with
the current period's presentation.

Concentration of Credit Risk

Accounts receivable potentially exposes the Company to concentrations of
credit risk, as defined by Financial Accounting Standards Board Statement No.
105, "Disclosure of Information about Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit
Risk."

Inventories

Inventories, which consist solely of electronic components held for resale,
are stated at the lower of cost (determined on an average cost basis) or market.

Depreciation and Amortization

Fixed assets are reflected at cost. Depreciation of office furniture and
equipment, computer equipment and motor vehicles is provided on straight-line
and accelerated methods over the estimated useful lives of the respective
assets. Amortization of leasehold improvements is provided using the
straight-line method over the term of the related lease or the life of the
respective asset, whichever is shorter. Maintenance and repairs are charged to
expense as incurred; major renewals and betterments are capitalized.

The excess of cost over the fair value of net assets acquired is being
amortized over 40 years using the straight-line method.

Income Taxes

The Company has elected to file a consolidated federal income tax return
with its subsidiaries. Deferred income taxes are provided on transactions which
are reported in the financial statements in different periods than for income
tax purposes. The Company adopted Financial Accounting Standards Board Statement
No. 109, "Accounting for Income Taxes" ("SFAS 109"), for the year ended December
31, 1993. SFAS 109 requires recognition of deferred tax liabilities and assets
for expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax liabilities
and assets are determined based on the difference between the financial
statement and tax basis of assets and liabilities using enacted tax rates in
effect for the year in which the difference is expected to reverse. Under SFAS
109, the effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date. The
effect of the adoption of SFAS 109 was not material. See Note 6 to Notes to
Consolidated Financial Statements.

F-7
<PAGE> 64

ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 IS
UNAUDITED)

Earnings Per Share

Primary earnings per share has been computed based upon the weighted
average number of common and common equivalent shares outstanding during each
period presented. Fully diluted earnings per share has been computed assuming
conversion of all dilutive stock options and warrants.

The following average shares were used for the computation of primary and
fully diluted earnings per share:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31 YEARS ENDED DECEMBER 31
----------------------- ----------------------------------
1995 1994 1994 1993 1992
---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Primary........................ 12,683,546 12,763,797 13,029,714 9,166,908 6,514,481
Fully diluted.................. 12,693,881 12,836,308 13,029,714 9,511,500 6,514,481
</TABLE>

Statements of Cash Flows

For purposes of the statements of cash flows, the Company considers all
investments purchased with an original maturity of three months or less to be
cash.

Postretirement Benefits

In 1993, the Company adopted Financial Accounting Standards Board Statement
No. 106, "Employers' Accounting for Post-Retirement Benefits Other Than
Pensions." The effect of the adoption of this Statement was not material.

Postemployment Benefits

In November 1992, the Financial Accounting Standards Board issued Statement
No. 112, "Employers' Accounting for Postemployment Benefits" which became
effective for fiscal years beginning after December 15, 1993. This standard
requires the expensing, on an accrual basis, of all benefits provided to former
or inactive employees, their beneficiaries and covered dependents after
employment but before retirement. The Company does not provide any
postemployment benefits at this time.

NOTE 2 -- PROPERTY, PLANT AND EQUIPMENT

<TABLE>
<CAPTION>
DECEMBER 31
MARCH 31 ---------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Office furniture and equipment...................... $ 2,263,000 $ 2,210,000 $ 1,793,000
Computer equipment.................................. 1,431,000 1,321,000 1,587,000
Leasehold improvements.............................. 1,065,000 1,058,000 69,000
Motor vehicles...................................... 25,000 25,000 25,000
----------- ----------- -----------
4,784,000 4,614,000 3,474,000
Accumulated depreciation and amortization........... (1,889,000) (1,782,000) (1,940,000)
----------- ----------- -----------
$ 2,895,000 $ 2,832,000 $ 1,534,000
========== ========== ==========
</TABLE>

NOTE 3 -- ACQUISITIONS

On September 9, 1994, the Company completed the acquisition of
substantially all of the assets of GCI Corp., a Philadelphia-area distributor of
electronic components. As consideration for this acquisition, the Company paid
$485,000 in cash, issued a promissory note of approximately $306,000 payable
interest only for

F-8
<PAGE> 65

ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 IS
UNAUDITED)

two years and in quarterly installments over the next three years, and issued
stock options valued at $144,000 at September 9, 1994. The Company also assumed
substantially all of the seller's disclosed liabilities of approximately
$1,930,000, including a $1,400,000 bank note payable which has been repaid. See
Notes 5 and 7 to Notes to Consolidated Financial Statements. The promissory note
is required to be paid down by one-half of the then outstanding principal
balance if certain Net Earnings (as defined) are attained for 1995 or 1996. The
seller may earn up to an additional $760,000 of contingent purchase price over
the three-year period ending December 31, 1997 if certain gross profit targets
are met. The acquisition was accounted for by the purchase method of accounting
which resulted in the recognition of approximately $394,000 of excess cost over
fair value of net assets acquired. The operating results of the acquired company
are included in the consolidated statement of income from the date of
acquisition.

The three principal stockholders and key employees of GCI Corp. (the "GCI
Principals") each received an employment agreement expiring on December 31, 1997
providing for base salary of $122,000, $113,000 and $110,000 per annum,
respectively. In addition to base salary, each of the GCI Principals may earn a
bonus based upon the percentage of the Net Earnings generated in the sales
Territory, as defined. In addition to the net earnings bonus, two of the GCI
Principals may earn an annual bonus based upon the gross profit of the Company
with respect to all sales made in Maryland, Virginia and Delaware, but only if
certain minimum gross profit levels are obtained. The Company has also agreed to
grant to each of the GCI Principals employee incentive stock options at fair
market value on the date of grant (10,000 to each by January 30, 1996; 10,000 to
each by January 30, 1997; and 10,000 to each by January 30, 1998), but each such
grant is conditional upon sales in the sales Territory, as defined, attaining a
minimum gross profit for the year most recently ended. One other key employee of
GCI Corp. accepted employment with the Company and was granted 10,000 employee
incentive stock options at an exercise price of $2.63 per share, the ability to
receive up to 15,000 additional employee incentive stock options (5,000 per year
in respect of 1995, 1996 and 1997) if certain minimum gross profit for sales in
the sales Territory, as defined, are attained during each such year, and shall
be issued 1,000 shares of Common Stock upon completing his 18th month of
service.

On January 24, 1994, the Company completed the acquisition of substantially
all of the assets of Components Incorporated, a Chicago-based distributor of
electronic components ("Components"). As consideration for this acquisition, the
Company paid $599,000 in cash and issued a promissory note of approximately
$399,000 due two years from closing. The Company also assumed substantially all
of the seller's disclosed liabilities of approximately $700,000, including a
$400,000 bank note payable which has been repaid. See Note 5 to Notes to
Consolidated Financial Statements. The president and principal stockholder of
Components (the "Components Principal") received an employment agreement, which
may be renewed annually by the Company for up to a maximum term of four years,
providing for base salary of $105,000 per annum plus separate bonuses based on
specified net earnings and gross sales. In addition to the base salary and
bonuses, the Components Principal received $350,000 of consideration for a
covenant not to compete that restricts any competition with the Company for a
period equal to the later of the third anniversary of the Components Principal's
termination as an employee or January 24, 1999. The $350,000 consideration was
in the form of a grant of stock options valued at $100,000 as of January 24,
1994 and the delivery to the Components Principal of a promissory note in the
principal amount of $250,000. See Notes 5 and 7 to Notes to Consolidated
Financial Statements. The Company has also agreed to grant to the Components
Principal employee incentive stock options at fair market value on the date of
grant (5,000 on January 24, 1995; 10,000 on January 24, 1996; and 15,000 on
January 24, 1997), each of such three sets of options to be for a period of five
years, subject to earlier termination in the event of termination of employment,
death or disability. The acquisition was accounted for by the purchase method of
accounting. The operating results of the acquired company are included in the
consolidated statement of income from the date of acquisition.

F-9
<PAGE> 66

ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 IS
UNAUDITED)

On June 14, 1993, the Company completed the acquisition of substantially
all of the assets of All American Transistor Corporation of D.C. ("D.C."),
formerly a 45% owned affiliate. The consideration for the acquisition was the
assumption of all of D.C.'s disclosed liabilities. As a result, the Company's
assets and liabilities each increased by approximately $1,000,000, including
principal and interest on a bank note payable of approximately $503,000 which
has been paid off in full. The acquisition of D.C. has been accounted for by the
purchase method of accounting and the purchase price approximates the fair value
of the net assets acquired. The operating results of this acquisition are
included in the Company's consolidated statements of income from the date of
acquisition. Prior to this acquisition, the Company sold inventory to D.C. at
cost plus 10%. Sales to D.C. aggregated approximately $91,000 for the year ended
December 31, 1992. In addition, the Company previously accounted for its 45%
investment in this affiliate under the equity method of accounting.

The following unaudited pro forma consolidated income statement data
presents the consolidated results of operations of the Company as if the
acquisitions of GCI Corp., Components and D.C. had occurred at the beginning of
the periods presented:

<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEARS ENDED DECEMBER 31
MARCH 31 ----------------------------------------
1994 1994 1993 1992
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Net sales.......................... $26,055,000 $107,539,000 $81,341,000 $61,617,000
Net income......................... 582,000 578,000 1,879,000 819,000
Primary earnings per share......... $.05 $.04 $.21 $.13
Fully diluted earnings per share... $.05 $.04 $.20 $.13
</TABLE>

The above pro forma information does not purport to be indicative of what
would have occurred had the acquisitions been made as of such date or of the
results which may occur in the future.

NOTE 4 -- PRODUCT DEVELOPMENT INVESTMENT WRITE-OFF

As a result of the rapid growth of the Company's electronic components
distribution business, the Company has decided to no longer pursue the design
and development of certain licensed technology intended to protect various
electronic equipment and machines from surges and sags in power. Accordingly,
the Company has expensed its total investment of $363,000 in 1994, which had
been classified as deferred product development costs within deposits and other
assets in the Consolidated Balance Sheet at December 31, 1993.

NOTE 5 -- LONG-TERM DEBT

Line of Credit

On March 28, 1995, the Company's line of credit agreement was amended to
increase the facility up to $30 million; provided, however, that the Company may
borrow in excess of $27 million only after (i) the senior lender has reviewed
and been satisfied, in its sole discretion, with the Company's audited
consolidated financial statements for the year ended December 31, 1994, and (ii)
the Company has received additional capitalization of not less than $4 million
(after all expenses of issuance and sale) from the issuance of its equity
securities. The amendment to the line of credit agreement permits the Company to
request standby letters of credit to be issued by the senior lender on the
Company's behalf, with a sublimit of $5 million available for letters of credit
under the line and such letters of credit being chargeable as advances against
the line. The Company will pay the senior lender an issuance fee equal to
three-quarters of one percent (.75%) per annum of the aggregate amount of
outstanding letters of credit. Outstanding borrowings under this loan facility,
which are collateralized by accounts receivable, inventories and equipment and a
pledge of the capital stock of the Company's subsidiaries, amounted to
$22,129,000 at March 31, 1995.

F-10
<PAGE> 67

ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 IS
UNAUDITED)

In 1994, the Company's line of credit agreement was amended to increase the
facility to $25 million, extend the maturity to May 31, 1997 and reduce the
Company's borrowing rate from one-quarter of one percent (1/4%) above prime to,
at the Company's option, either one-quarter of one percent (1/4%) below prime
or two percent (2%) above certain LIBOR rates. The Company will pay a nonusage
fee of one-tenth of one percent (1/10%) calculated on the unused portion of the
line of credit, payable quarterly in arrears. At December 31, 1994, outstanding
borrowings under the Company's then $25 million facility were $19,991,000.

Under the line of credit agreement, the Company is required to comply with
certain affirmative and negative covenants. These covenants place limitations on
the Company's future borrowings, dividend payments, redemption of certain
securities and transactions with affiliates on less than an arm's-length basis,
investments, acquisitions, mergers and changes in control and management.
Furthermore, the agreement requires the Company to maintain certain financial
ratios including a current asset support ratio based upon specified percentages
of eligible accounts receivable and inventories. As of March 31, 1995, the
Company was in compliance with the required financial ratios and other
covenants.

At December 31, 1993, outstanding borrowings under the Company's then $20
million facility were $13,915,000.

Notes Payable -- Other

Other notes payable aggregating $114,000 and $133,000, of which $108,000
and $109,000 is classified as long-term at March 31, 1995 and December 31, 1994,
respectively, are payable monthly with interest rates from 9.0% to 12.5% per
annum.

Subordinated Debt

In September 1994, in connection with the acquisition of GCI Corp., the
Company issued a promissory note to the seller bearing interest at 7% per annum
in the approximate amount of $306,000 due in 1999. The promissory note, which is
subordinate to the Company's line of credit, is payable interest only on a
quarterly basis for the first two years with the principal amount, together with
accrued interest thereon, payable in equal quarterly installments over the next
three years. One-half of the then outstanding principal balance of the
promissory note is required to be paid if certain Net Earnings (as defined) are
attained for 1995 or 1996.

In June 1994, the Company completed a private placement (the "1994 Private
Placement") of 51.5 units, with each unit consisting of a non-convertible 9%
subordinated debenture due 2004 in the principal amount of $100,000 issuable at
par, together with 7,500 common stock purchase warrants exercisable at $3.15 per
share. The 51.5 units issued represent debentures aggregating $5,150,000
together with an aggregate of 386,250 warrants. See Note 7 to Notes to
Consolidated Financial Statements. The debentures are payable in semi-annual
payments of interest only in arrears commencing December 1, 1994, with the
principal amount maturing in full on June 13, 2004. The Company is not required
to make any mandatory redemptions or sinking fund payments. The debentures are
subordinated to the Company's senior indebtedness including the Company's line
of credit and certain notes issued to the Company's landlord. The 386,250
warrants were valued at $.50 per warrant as of the date of the 1994 Private
Placement and, accordingly, the Company has recorded the discount in the
aggregate amount of $193,125 as additional paid-in capital. This discount is
being amortized over the ten-year term of the debentures and approximately
$14,000 and $10,000 were expensed during the three months ended March 31, 1995
and the year ended December 31, 1994, respectively.

In May 1994, the Company executed a promissory note in the amount of
$865,000 in favor of the Company's landlord to finance substantially all of the
tenant improvements necessary for the Company's new facility. This $865,000 note
requires no payments in the first year (interest accrues and is added to the
principal balance), is payable interest only in the second year and has a
repayment schedule with varying

F-11
<PAGE> 68

ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 IS
UNAUDITED)

monthly payments over the remaining 18 years. At the same time, the Company
entered into another promissory note with the Company's landlord for up to
$150,000 to finance certain personal property for the new facility. This
$150,000 note is payable interest only for six months and thereafter in 60 equal
self-amortizing monthly payments of principal and interest. It is also
contemplated that certain additional improvements to the new facility related to
various miscellaneous items aggregating approximately $100,000 will be financed
by the landlord and be repayable in 240 consecutive, equal self-amortizing
installments of principal and interest. These notes, which are subordinate to
the Company's line of credit, bear interest at 8% per annum and are payable
monthly. In addition, the Company executed a promissory note in the approximate
amount of $33,000 with the Company's landlord. This note is payable monthly with
interest at 9.5% per annum and matures in April 1997.

In January 1994, in connection with the acquisition of Components, the
Company issued a promissory note to the seller bearing interest at 8% per annum
in the approximate amount of $399,000, payable in quarterly installments of
interest only, for a term of two years, with the entire principal amount payable
in full in January 1996. In addition, as part of the consideration for a
covenant not to compete, the Company issued a promissory note to the principal
of the seller in the amount of $250,000 (the "Non-Compete Note"). The
Non-Compete Note bears interest at 8% per annum, payable quarterly, with
$100,000 of principal due March 10, 1995, $50,000 of principal due April 24,
1996, and the remaining $100,000 payable in eight quarterly principal
installments each in the amount of $12,500 payable over the fourth and fifth
years of such note. One-half of the then outstanding principal balance of the
Non-Compete Note is required to be paid if certain Net Earnings (as defined) are
attained in any fiscal year, with the entire then outstanding principal balance
of the Non-Compete Note required to be paid if at least the same level of Net
Earnings (as defined) are attained in a subsequent fiscal year. If the principal
of the seller resigns or is terminated for cause on or prior to January 24,
1996, he will be obligated to pay the Company $100,000, payable either in cash
or as a reduction of the principal balance of the Non-Compete Note. These notes
are subordinate to the Company's line of credit.

Long-term debt of the Company as of December 31, 1994, other than the line
of credit, matures as follows:

<TABLE>
<S> <C>
1995......................................................... $ 161,000
1996......................................................... 543,000
1997......................................................... 189,000
1998......................................................... 277,000
1999......................................................... 192,000
Thereafter................................................... 5,780,000
----------
$7,142,000
=========
</TABLE>

Obligations under Capital Leases

The Company is the lessee of computer and office equipment under capital
leases expiring in various years through 1997. The assets, aggregating $773,000,
and liabilities under capital leases are recorded at the lower of the present
value of the minimum lease payments or the fair value of the assets. The assets
are depreciated over their estimated productive lives. As of December 31, 1994,
accumulated depreciation of these assets aggregated approximately $154,000.
Depreciation of assets under capital leases is included in depreciation expense.

F-12
<PAGE> 69

ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 IS
UNAUDITED)

Minimum future lease payments under capital leases as of December 31, 1994
and for each of the next five years and in the aggregate are approximately as
follows:

<TABLE>
<S> <C>
1995.......................................................... $ 347,000
1996.......................................................... 292,000
1997.......................................................... 190,000
1998.......................................................... --
1999.......................................................... --
---------
Total minimum lease payments.................................. 829,000
Less amount representing interest............................. (187,000)
---------
Total obligations under capital leases........................ 642,000
Current portion............................................... (235,000)
---------
$ 407,000
=========
</TABLE>

Interest rates on capital leases vary from 11.7% to 13.9% per annum and are
imputed based on the lower of the Company's incremental borrowing rate at the
inception of each lease or the lessor's implicit rate of return. Various capital
leases provide for purchase options.

NOTE 6 -- INCOME TAXES

The tax effects of the temporary differences that give rise to the deferred
tax assets and liabilities as of March 31, 1995, December 31, 1994 and 1993 are
as follows:

<TABLE>
<CAPTION>
DECEMBER 31
MARCH 31 -----------------------
1995 1994 1993
----------- -------- --------
<S> <C> <C> <C>
Deferred tax assets:
Accounts receivable....................... $ 207,000 $168,000 $216,000
Inventory................................. 242,000 222,000 161,000
Other assets.............................. 52,000 51,000 86,000
----------- -------- --------
501,000 441,000 463,000
Deferred tax liabilities:
Fixed assets.............................. 376,000 326,000 352,000
----------- -------- --------
Net deferred tax asset...................... $ 125,000 $115,000 $111,000
=========== ======== ========
</TABLE>

F-13
<PAGE> 70

ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 IS
UNAUDITED)

The components of income tax expense for the three months ended March 31,
1995 and 1994 and for the years ended December 31, 1994, 1993 and 1992 are as
follows:

<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
---------- -------- ----------
<S> <C> <C> <C>
March 31, 1995
Federal........................................... $ 346,000 $ 8,000 $ 354,000
State............................................. 50,000 2,000 52,000
---------- -------- ----------
$ 396,000 $ 10,000 $ 406,000
========= ======== =========
March 31, 1994
Federal........................................... $ 275,000 $ 2,000 $ 277,000
State............................................. 44,000 -- 44,000
========= ======== =========
$ 319,000 $ 2,000 $ 321,000
========= ======== =========
December 31, 1994
Federal........................................... $ 385,000 $ (3,000) $ 382,000
State............................................. 26,000 (1,000) 25,000
---------- -------- ----------
$ 411,000 $ (4,000) $ 407,000
========= ======== =========
December 31, 1993
Federal........................................... $ 962,000 $(11,000) $ 951,000
State............................................. 145,000 (2,000) 143,000
---------- -------- ----------
$1,107,000 $(13,000) $1,094,000
========= ======== =========
December 31, 1992
Federal........................................... $ 404,000 $ 51,000 $ 455,000
State............................................. 64,000 6,000 70,000
---------- -------- ----------
$ 468,000 $ 57,000 $ 525,000
========= ======== =========
</TABLE>

A reconciliation of the difference between the expected income tax rate
using the statutory federal tax rate and the Company's effective tax rate is as
follows:

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31 YEARS ENDED DECEMBER 31
------------- -----------------------
1995 1994 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
U.S. Federal income tax statutory rate.......... 34.0% 34.0% 34.0% 34.0% 34.0%
State income tax, net of federal income tax
benefit....................................... 3.6 3.5 4.6 3.4 3.6
Other -- including non-deductible items......... 5.4 2.5 15.0 1.7 3.4
---- ---- ---- ---- ----
Effective tax rate.............................. 43.0% 40.0% 53.6% 39.1% 41.0%
==== ==== ==== ==== ====
</TABLE>

The high effective tax rate for the year ended December 31, 1994 is
primarily due to non-deductible entertainment expenses.

NOTE 7 -- CAPITAL STOCK, OPTIONS AND WARRANTS

In June 1994, the Company issued an aggregate of 386,250 common stock
purchase warrants in connection with a private placement of subordinated
debentures (see Note 5 to Notes to Consolidated Financial Statements). The
warrants are exercisable at any time between December 14, 1994 and June 13,

F-14
<PAGE> 71

ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 IS
UNAUDITED)

1999 at an exercise price of $3.15 per share. In connection with this private
placement, the placement agent received warrants to purchase 38,625 shares of
the Company's common stock. The placement agent's warrants are exercisable for a
four-year period commencing June 14, 1995 at an exercise price of $3.78 per
share.

During 1992, the Company sold units, each unit consisting of two shares of
common stock and two warrants. In addition, the underwriters of this offering
were issued warrants to purchase 175,000 units at $3.30 per unit. The
underwriters' warrants are exercisable for a four-year period which commenced in
June 1993. During 1993, the Company redeemed its then outstanding warrants. In
addition, during 1993, 78,750 of the underwriters' warrants were exercised. As a
result of these transactions, the Company received aggregate net proceeds of
approximately $5,393,000 in 1993. During 1994, an additional 78,750 of the
underwriters' warrants were exercised, leaving a balance of 17,500 warrants. The
Company received aggregate net proceeds of approximately $465,000 in 1994. The
net proceeds are being used for continued expansion and general working capital
purposes.

In March 1992, the Company issued a warrant to acquire 30,000 shares of its
common stock at $1.00 per share in connection with a $1.0 million subordinated
loan to the Company which was repaid in June 1992. This warrant was exercised in
March 1995.

In September 1987, the Company issued a warrant to acquire 90,000 shares of
its common stock at $1.60 per share (after the 1989 stock split) relating to a
since expired consulting agreement. In connection with the public offering
completed in June 1992, the Company extended the exercise period of this warrant
to June 1994. In May 1993, in connection with a new consulting agreement with
the same party, the Company further extended the exercise period to June 1997
and issued additional warrants to acquire 90,000 shares of its common stock at
$1.35 per share. At March 31, 1995, none of the warrants relating to these
consulting agreements had been exercised.

In June 1987, the Company reserved 375,000 shares of common stock for
issuance under an employee stock option plan. In September 1992, the number of
shares of common stock reserved for issuance under this stock option plan was
increased to 750,000 shares, in 1993 the number of shares of common stock
reserved for issuance under this stock option plan was increased to 1,750,000
shares and in 1994 the number of shares of common stock reserved was increased
to 2,250,000 shares. As of March 31, 1995 outstanding options under this plan
were as follows:

<TABLE>
<CAPTION>
NUMBER OF
OPTIONS
DATE OF GRANT OUTSTANDING OPTION PRICE
----------------------------------------------------------- ------------- ------------
<S> <C> <C>
1991....................................................... 435,000 $ .75 -$1.03
1993....................................................... 469,063 $1.375-$2.53
1994....................................................... 261,500 $2.125-$2.63
1995....................................................... 5,000 $1.84
-------------
Total outstanding.......................................... 1,170,563
Total exercised............................................ 146,127
Total available............................................ 933,310
-------------
2,250,000
==========
</TABLE>

All such options outstanding are exercisable within six years from the date
granted.

In connection with the acquisition of the assets of Components (see Note 3
to Notes to Consolidated Financial Statements), the Company issued 98,160
unqualified stock options exercisable through January 1999 at an exercise price
of $1.65 per share.

F-15
<PAGE> 72

ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 IS
UNAUDITED)

In connection with the acquisition of the assets of GCI Corp. (see Note 3
to Notes to Consolidated Financial Statements), the Company issued 117,551
unqualified stock options exercisable from September 1995 through September 1999
at an exercise price of $1.65 per share.

In addition, under certain circumstances, the Company may be obligated to
issue 1,000 shares of its common stock and 135,000 incentive stock options. See
Note 3 to Notes to Consolidated Financial Statements.

NOTE 8 -- COMMITMENTS/RELATED PARTY TRANSACTIONS

In December 1991, the Company relocated its corporate offices and Miami
warehouse to a 37,000 sq. ft. facility. In addition, a warehouse in New York was
consolidated into this new Miami warehouse. In connection with the relocation
and consolidation, the Company entered into a new lease with an unrelated third
party which was to expire in December 1997. Annual rent payments under this
lease totaled $57,000 in 1994.

In May 1994, the Company terminated its lease covering the 37,000 sq. ft.
facility and entered into a new lease with its then existing landlord to lease a
new 110,800 sq. ft. facility for its corporate headquarters and Miami warehouse.
The Company is utilizing approximately 75% of this new facility, the balance of
which the Company is subleasing to an unrelated third party for a term of three
years ending on July 14, 1997. This sublease has no renewal options and the
Company has the right to recapture approximately 13,000 square feet of the
sublet space from the tenant after the eighteenth month of the three-year term.
The sublease provides for base rent of $5,000 per month increasing 5% per year
and additional rent representing the subtenant's pro rata share of landlord
pass-through expenses and other expenses pertaining to the sublet premises. The
new lease has a term expiring in 2014 (subject to the Company's right to
terminate at any time after the fifth year of term upon twenty-four months prior
written notice and the payment of all outstanding debt owed to the landlord and
without giving effect to the Company's three six-year options to renew at the
fair market value rental rates) and provides for annual fixed rental payments
totaling approximately $264,000 in the first year, $267,000 in the second year,
$279,000 in each of the third, fourth and fifth years, $300,600 in the sixth
year, $307,800 in the seventh year and in each year thereafter during the term,
the rent shall increase once per year in an amount equal to the annual
percentage increase in the consumer price index not to exceed 4% in any one
year.

In addition, a Company executive officer and director owns a one-third
interest in a corporation that leased office space to the Company until December
1994. During 1994, the Company paid approximately $31,000 in rent to lease such
office space.

Approximate minimum future rental payments required under operating leases,
which include 20 sales office locations, equipment under lease and the new
corporate headquarters lease commencing in 1994, that have initial or remaining
noncancellable lease terms in excess of one year as of December 31, 1994, are as
follows for the next five years:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31
-----------------------------------------------------------------
<S> <C>
1995........................................................ $1,307,000
1996........................................................ 1,218,000
1997........................................................ 987,000
1998........................................................ 644,000
1999........................................................ 444,000
</TABLE>

F-16
<PAGE> 73

ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 IS
UNAUDITED)

Total rent expense, including real estate taxes and net of sublease income,
amounted to approximately $235,000 and $158,000 for the three months ended March
31, 1995 and 1994, respectively, and $753,000, $526,000 and $492,000 for the
years ended December 31, 1994, 1993 and 1992, respectively.

Effective June 1, 1992, the Company entered into employment agreements with
Paul Goldberg, its Chief Executive Officer, and Bruce M. Goldberg, its current
President and Chief Operating Officer (collectively, the "1992 Agreements"). The
1992 Agreements are for three-year terms expiring on May 31, 1995. Pursuant to
their 1992 Agreements, Paul Goldberg and Bruce M. Goldberg currently receive a
base salary of $186,000 and $150,000 per annum, respectively. Under the 1992
Agreements, Paul Goldberg and Bruce M. Goldberg are also each entitled to
receive a bonus equal to five percent of the Company's pre-tax income in excess
of $1,000,000 in any calendar year. Such bonus compensation payable under the
1992 Agreements to Paul Goldberg and Bruce M. Goldberg is limited to $150,000
and $100,000 per annum, respectively. For the calendar year 1994, Paul Goldberg
and Bruce M. Goldberg did not earn a bonus, although they were each paid
$100,000 relating to bonuses earned for the Company's 1993 fiscal year.

In addition, the 1992 Agreements provide for certain additional benefits,
including participation in Company benefit plans, including the Deferred
Compensation Plan, payments to the employee upon his disability, life insurance
coverage and the continued use of a Company automobile. The agreements prohibit
Paul Goldberg and Bruce M. Goldberg from competing with the Company for two
years after any voluntary termination of employment or termination for cause.
The agreements further provide that if there is a change in control (as defined)
of the Company, the Company shall have the option to either extend the
agreements for two additional years or terminate the agreements upon making a
lump sum severance payment equal to two years compensation. Further, if Paul
Goldberg or Bruce M. Goldberg were to be terminated without cause, each of them
would be entitled to receive severance benefits equal to the greater of two
years compensation or the remainder of the compensation due them under their
respective employment agreements.

Any Participant with less than ten years of service to the Company as of
his or her retirement date will only receive a pro rata portion of the annuity.
Retirement benefits paid under the Deferred Compensation Plan will be
distributed monthly. The Company paid benefits under this plan of approximately
$52,000 during 1994, none of which was paid to any executive officer. The
maximum benefit payable to a Participant (including each of the executive
officers) under the Deferred Compensation Plan is presently $22,500 per annum.
At March 31, 1995 and December 31, 1994 the cash surrender values of insurance
policies owned by the Company under the Plan, which provide for the accrued
deferred compensation benefits, aggregated approximately $70,000 and $67,000,
respectively.

The Company maintains a 401(k) plan (the "401(k) Plan"), which is intended
to qualify under Section 401(k) of the Internal Revenue Code. All full-time
employees of the Company over the age of 21 are eligible to participate in the
401(k) Plan after completing 90 days of employment. Each eligible employee may
elect to contribute to the 401(k) Plan, through payroll deductions, up to 15% of
his or her salary, limited to $9,240 in 1994. The Company makes matching
contributions and in 1994 its contributions were in the amount of 25% on the
first 6% contributed of each participating employee's salary.

F-17
<PAGE> 74

ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 IS
UNAUDITED)

NOTE 9 -- SETTLEMENT OF INSURANCE CLAIM

In 1993, the Company settled its business interruption claim, which
occurred during the third quarter of 1992, for $237,000. This settlement is
reflected as other income in the Consolidated Statement of Income for the year
ended December 31, 1993.

NOTE 10 -- CONTINGENCIES

From time to time the Company may be named as a defendant in suits for
product defects, breach of warranty, breach of implied warranty of
merchantability, patent infringement or other actions relating to products which
it distributes which are manufactured by others. In each case, the Company
expects that the manufacturer of such products will indemnify the Company, as
well as defend such actions on the Company's behalf although there is no
guarantee that the manufacturers will do so.

NOTE 11 -- ECONOMIC DEPENDENCY

For the three months ended March 31, 1995 and 1994, no supplier accounted
for in excess of 10% of the Company's total purchases.

For the year ended December 31, 1994, purchases from one supplier were in
excess of 10% of the Company's total purchases and aggregated approximately
$12,200,000. The net outstanding accounts payable to this supplier at December
31, 1994 amounted to approximately $246,000.

For the year ended December 31, 1993, purchases from one supplier were in
excess of 10% of the Company's total purchases and aggregated approximately
$9,600,000. The net outstanding accounts payable to this supplier at December
31, 1993 amounted to approximately $178,000.

For the year ended December 31, 1992, purchases from one supplier were in
excess of 10% of the Company's total purchases and aggregated approximately
$6,100,000. The net outstanding accounts payable to this supplier at December
31, 1992 amounted to approximately $300,000.

F-18
<PAGE> 75

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

NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING MADE HEREBY, AND IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THOSE SPECIFICALLY OFFERED HEREBY OR AN OFFER TO SELL, OR
A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SALE WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
ANY OF THE DATES AS OF WHICH INFORMATION IS FURNISHED OR SINCE THE DATE OF THIS
PROSPECTUS.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 3
Prospectus Summary.................... 4
Risk Factors.......................... 8
Use of Proceeds....................... 13
Dividend Policy....................... 14
Market Information.................... 14
Capitalization........................ 15
Dilution.............................. 16
Selected Consolidated Financial
Data................................ 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 18
Business.............................. 27
Legal Proceedings..................... 37
Management............................ 37
Executive Compensation................ 40
Certain Transactions.................. 47
Principal Shareholders................ 48
Description of Securities............. 49
Shares Eligible for Future Sale....... 53
Underwriting.......................... 54
Concurrent Registration of Shares for
Future Sale by Warrant Holders...... 55
Legal Matters......................... 56
Experts............................... 56
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>

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

- ------------------------------------------------------
- ------------------------------------------------------
4,550,000 SHARES

$1.875 PER SHARE

ALL AMERICAN (LOGO)

COMMON STOCK
(PAR VALUE $.01 PER SHARE)

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

LEW LIEBERBAUM & CO., INC. (LOGO)

JUNE 8, 1995
- ------------------------------------------------------
- ------------------------------------------------------