SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, D.C. 205
                                   FORM 10-KSB

[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
         OF THE SECURITIES EXCHANGE ACT OF 1934

                  For the fiscal year ended June 25, 1999

                                       OR

[_]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934
                  For the Transaction period from ______ to _______

                         Commission File Number 1-12873

                                 ASD GROUP, INC.
                                 ---------------
             (Exact name of registrant as specified in its charter)

                  Delaware                                 14-1483460
     -------------------------------           ---------------------------------
     (State or other jurisdiction of           (IRS Employer Identification No.)
      incorporation or organization)

                 1 INDUSTRY STREET, POUGHKEEPSIE, NEW YORK 12603
                 -----------------------------------------------
          (Address of principal executive offices, including Zip Code)

                                 (914) 452-3000
                                 --------------
              (Registrant's telephone number, including area code)

      Securities registered pursuant to Section 12(b) of the Exchange Act:
                          Common Stock, $.01 par value
      Securities registered pursuant to Section 12(g) of the Exchange Act:
                          Common Stock, $.01 par value

         Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.

         Yes      [X]               No      [_]

         Check if there is no disclosure of delinquent filers pursuant to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or any
amendment to this Form 10-KSB. [_]

State issuer's revenues for its most recent fiscal year:   $9,610,801

The aggregate market value of the issuer's Common Stock, $.01 par value, held by
non-affiliates on October 4, 1999 was $2,582,656.

As of October 4, 1999, there were 10,587,085 shares of the issuer's Common
Stock, $.01 par value, outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE
                                      NONE


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                                 ASD GROUP, INC.

                                      INDEX

                                TABLE OF CONTENTS

                                     PART I

Item 1.  Description of Business ........................................     1
Item 2.  Description of Property ........................................     8
Item 3.  Legal Proceedings...............................................     8
Item 4.  Submission of Matters to a Vote of Security Holders.............     9

                                     PART II

Item 5.  Market for Common Equity and Related Stockholder Matters........    10
Item 6.  Management's Discussion and Analysis or Plan of Operation.......    12
Item 7.  Financial Statements............................................    15
Item 8.  Changes In and Disagreements with Accountants on Accounting
         and Financial Disclosure........................................    15

                                    PART III

Item 9.  Directors, Executive Officers, Promoters and Control Persons;
         Compliance with Section 16(a) of the Exchange Act...............    16
Item 10. Executive Compensation..........................................    18
Item 11. Security Ownership of Certain Beneficial Owners and Management..    21
Item 12. Certain Relationships and Related Transactions..................    22
Item 13. Exhibits and Reports on Form 8-K................................    23

                           FORWARD LOOKING STATEMENTS

         ASD Group, Inc. (the "Company") cautions readers that certain important
factors may affect the Company's actual results and could cause such results to
differ materially from any forward-looking statements that may be deemed to have
been made in this Form 10-KSB or that are otherwise made by or on behalf of the
Company. For this purpose, any statements contained in the Form 10-KSB that are
not statements of historical fact may be deemed to be forward-looking
statements. Without limiting the generality of the foregoing, words such as
"may," "expect," "believe," "anticipate," "intend," "could," "estimate," or
"continue" or the negative other variations thereof or comparable terminology
are intended to identify forward-looking statements. Factors that may affect the
Company's results include, but are not limited to, the Company's limited history
of profitability, its need for additional financing, its dependence on a limited
number of customers and key personnel and its dependence on certain industries.
The Company is also subject to other risks detailed herein or detailed from time
to time in the Company's filings with the Securities and Exchange Commission.


<PAGE>

                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

GENERAL

         The Company provides comprehensive contract manufacturing and
engineering services to original equipment manufacturers ("OEMs.") The Company
specializes in the fabrication, assembly and testing of complex industrial
products and non-invasive testing equipment. The Company manufactures complete
systems, as well as assemblies, including printed circuit boards, cable and wire
harnesses and other electro-mechanical assemblies. The Company complements its
basic manufacturing services by providing its customers with a broad range of
sophisticated product engineering and design services. Products manufactured by
the Company range from automated test and production systems to less complex
products such as bicycle wheel hubs. Representative customers of the Company
include ENI Technologies (a division of Astec America, Inc.), Karl Suiss
America, Inc., International Business Machines Corporation ("IBM"), Aydin
Corporation and Van Dam Machine Co.

         Downsizing by American industry, combined with rapid change, strong
competition and increasingly shorter product life cycles in various industries,
have made it considerably less attractive for OEMs to manufacture in-house,
particularly low unit volume products or short cycle electronic products. As a
result, many OEMs have adopted and are becoming increasingly reliant upon
manufacturing outsourcing strategies and on contract manufacturers to satisfy
their mainstream manufacturing requirements. Management of the Company believes
that this trend will continue. Moreover, the Company believes that its ability
to produce high quality products and deliver them on a timely basis, combined
with sophisticated engineering and manufacturing capabilities, will result in an
expansion of its relationships with existing customers and the addition of new
customers.

         Notwithstanding what management believes to be a positive climate for
contract manufacturers in the United States, the Company's sales were adversely
affected by the situation in the Asian markets, particularly during the
first-half of the fiscal year ended June 25, 1999 ("Fiscal 1999"). The Company
experienced reductions in and cancellations of orders from several customers,
principally those related to the semi-conductor market. These reductions and
cancellations resulted in the Company recording an additional inventory
write-off of $1,500,000 in the second quarter of Fiscal 1999, substantially
reducing gross profit for the year. During Fiscal 1999, investors contributed
$2,500,000 of cash as additional equity to cover operating losses, to reduce
debt and accounts payable and to increase inventory. In addition, the Company
negotiated significant reductions of debt and conversion of debt to equity. As a
result, the Company recorded an extraordinary gain of $2,836,000 in Fiscal 1999.

         While management has taken significant steps to improve the Company's
financial condition, the Company's immediate cash requirements are significant.
Management is currently attempting to obtain additional financing and intends to
raise additional funds within the next 12 months through equity and/or debt
financing.

         The Company was incorporated in New York in May 1965 under the name
Dutchess Design & Development, Inc. In July 1996, the Company was reincorporated
in Delaware under its present name. The Company maintains its executive offices
at 1 Industry Street, Poughkeepsie, New York 12603 and its telephone number is
(914) 452-3000.

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INDUSTRY OVERVIEW

         OEMs originally utilized contract manufacturing sources primarily to
reduce labor costs in the production of electronic assemblies and to provide for
additional manufacturing capacity in times of peak demand. These early contract
manufacturers typically were employed on a consignment basis in which the OEM
provided the circuit and production designs, procured all components and
performed the final product listing.

         During the early 1980's, the commercialization of the personal computer
began to fuel substantial growth in the electronics and other industries and,
with it, the growth of contract manufacturers. Despite rapid growth in the
electronics industry, the market soon became characterized by intense price
competition and demands for more frequent product introductions. In an effort to
survive and meet the requirements of the marketplace, OEMs were forced to
restructure and focus their resources on core strategic strengths, such as
product development, software design and marketing, and to outsource capital
intensive manufacturing operations to specialists. As contract manufacturers
began to perform more turnkey services, the relationship between OEMs and
contract manufacturers became more strategic in nature, with the two now linked
in a close relationship to deliver cost-effective, high quality products quickly
to the marketplace.

         OEMs utilize contract manufacturers for the following reasons:

         REDUCE TIME TO MARKET. Due to intense competitive pressures in the
electronics, industrial products and communication industries, OEMs are faced
with increasingly shorter product lifecycles and therefore have a growing need
to reduce the time required to bring a product to market. OEMs can generally
reduce their time to market by using the established manufacturing expertise and
infrastructure of contract manufacturers.

         REDUCE CAPITAL INVESTMENT. As electronics, industrial products and
communication equipment have become more technologically advanced, the
manufacturing process has become increasingly automated requiring a greater
level of investment in capital equipment. Contract manufacturers enable OEMs to
gain access to advanced manufacturing facilities, thereby reducing the OEMs'
overall capital equipment requirements.

         FOCUS RESOURCES. Because the electronics, industrial products and
communication equipment industries are experiencing greater levels of
competition and more rapid technological change, many OEMs are increasingly
seeking to focus their resources on activities and technologies in which they
add the greatest value. By offering comprehensive design, assembly and turnkey
manufacturing services, contract manufacturers allow OEMs to focus on core
technologies and activities such as product development, marketing and
distribution.

         ACCESS LEADING MANUFACTURING TECHNOLOGY. Products and manufacturing
technology have become increasingly sophisticated and complex, making it
difficult for OEMs to maintain the necessary technological expertise in process
development and control. OEMs are motivated to work with a contract manufacturer
in order to gain access to the contract manufacturer's process expertise and
manufacturing know-how.

         IMPROVE INVENTORY MANAGEMENT AND PURCHASING POWER. OEMs are faced with
increasing difficulties in planning, procuring and managing their inventories
efficiently due to frequent



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design changes, short product lifecycles, large investments in electronic
components, component price fluctuations and the need to achieve economies of
scale in materials procurement. OEMs can generally reduce production costs by
using the procurement capabilities of the contract manufacturer. By utilizing a
contract manufacturer's expertise in inventory management, OEMs can generally
better manage inventory costs and increase their return on assets.

BUSINESS STRATEGY

         The Company focuses on servicing OEMs who produce complex, high dollar
value industrial products where high quality manufacturing is extremely
important. Management of the Company believes that such products tend to
generate higher gross profit margins. The Company's objective is to become a
prime outsource for midsize and large OEMs and to redirect its strategic focus
to system integration. This includes subsystem and system assembly, wiring and
testing. The Company intends to realize its objective by implementing the
following strategies:

         INCREASE SALES FROM EXISTING CUSTOMERS AND ADD NEW CUSTOMERS. The
Company plans to expand existing relationships and seek new customers in the
markets it currently serves and in additional markets. The Company plans to
increase the amount of sales to existing customers by devoting more time to
these customers through a large force and by offering improved and expanded
services such as faster metal cutting machining centers, faster sheet metal
punching equipment, expanded painting facilities and more rapid and less
expensive testing procedures and equipment. While the Company has an on-going
quality improvement program, the Company will intensify its efforts in educating
its employees on the Company's quality requirements and in measuring its
employees' conformance to these requirements. Additionally, the Company will
improve on its monthly quality assurance technical audits in conformance with
the international quality process specification and have an outside-certified
auditor audit the quality management system every six months. The Company plans
to diversify its customer base by increasing its marketing efforts. The Company
intends to do this by attending more trade shows, expanding the number of
advertisements in trade journals, expanding the number of sales personnel,
expanding the number of customers who receive direct mailings, providing new
sales literature, conducting interactive electronic presentations and enhancing
its presentation on the Internet. The Company's objective is to obtain multiple
customers in the markets it currently serves and in additional markets. The
sales and marketing strategy has been refocused with emphasis on medium to high
volume OEMs that have requirements to sub-contract the manufacturing of system
integrated equipment or products. In addition, the efforts of sales and
marketing is redirected to work with potential customers on equipment that have
a need for design engineering with multi-system manufacturing opportunities.

         INCREASE PROFITS BY REDUCING COSTS. The Company has reduced costs by
reducing indirect labor and streamlining the manufacturing reporting and
tracking system. Additional cost reduction is planned through greater efficiency
in purchasing and plant productivity. Limited capital investment in new
equipment is expected to result in substantial cost reduction and quality
improvement. The significant debt restructuring that took place in the third and
fourth quarters of Fiscal 1999, replacing $253,000 of debt with equity and
forgiveness of an additional $2,836,000 in debt is expected to reduce interest
expense in the fiscal year ended June 30, 2000 ("Fiscal 2000") by $330,000.

         FACILITATE GROWTH OF THE COMPANY THROUGH ACQUISITIONS. The contract
manufacturing industry is now going through consolidation. The Company may
acquire other contract

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manufacturers if management determines that such acquisitions will enable the
Company to improve net sales and profits. These acquisitions may allow the
Company to expand to other regions of the country and possibly abroad. The
Company has no current commitment or understanding with, and has not entered
into any negotiations with, any acquisition candidates.

INDUSTRIES AND PRODUCTS

         The following table lists the industries in which the Company expects
to continue to conduct significant business during Fiscal 2000 and the products
for which the Company expects to provide manufacturing services (based on net
sales for Fiscal 1999).

INDUSTRY                 SPECIFIC PRODUCT OR PRODUCT COMPONENT
--------                 -------------------------------------
Computer................ Chassis, frames, panels, wire harness and cables,
                         jumpers, test equipment, process equipment Information
                         Processing.. Test equipment for copiers
Instrumentation......... Printed circuit cards for laser measurement instruments
Medical................. Power components for medical equipment; automated
                         process equipment
Semiconductor........... Coating equipment; power components for semiconductor
                         equipment; test equipment
Sign-making............. Sub-systems for plotters
Transportation.......... Airport control components
Other................... Parcel drop system, control systems for power
                         distribution; printed circuit boards for elevator
                         control systems, assembly of color printing presses.

SERVICES

         The Company provides comprehensive contract manufacturing and
engineering services to OEMs. Such services include:

         PRODUCT ENGINEERING AND DESIGN SERVICES. The Company assists its
customers in designing or evaluating designs of products. The Company designs or
evaluates designs for ease and quality of manufacture and, when appropriate,
recommends changes to reduce manufacturing costs or lead times or to increase
the quality of finished assemblies. The Company supports its customers with
sophisticated product engineering and design services using computer aided
design equipment with computer aided machinery software. Product engineering and
design includes electrical design, electronic circuit design, mechanism design,
electro-mechanical design, printed circuit board design and software
engineering. The Company also assists its customers with overall product
redesign with the objective of reducing manufacturing costs. The goal of the
Company's engineering and product design services is to create a more stable
volume of turnkey manufacturing and an elevated level of strategic partnering
with principal customers.

         MANUFACTURING. The Company custom manufactures complete systems,
printed circuit board assemblies, cable and wire harnesses and other
electro-mechanical assemblies. Manufacturing services offered by the Company
include sourcing and procurement of raw materials and parts, precision metal
fabrication, welding, precision machine parts, painting, silk screening,
assembly and testing. In order to achieve high levels of performance in its

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manufacturing operations, the Company combines advanced manufacturing
technology, such as computer-aided manufacturing and testing, with
state-of-the-art manufacturing techniques.

         In implementing its manufacturing approach, the Company emphasizes
timely delivery and accurate and up-to-date documentation for each product. The
Company develops an appropriate production process and complete set of
manufacturing process instructions, inspection plans and a quality assurance
plan for each product. An analysis of each customer's materials specification is
performed to identify component suppliers. The Company then plans and executes
purchase orders, receives, inspects and warehouses components, expedites
critical components and delivers a complete set of components to the production
floor for assembly. The Company uses its proprietary manufacturing software to
monitor and control all aspects of the manufacturing process, including material
resource planning, shop floor control, work-in-process tracking, statistical
process control and activity based product costing.

         Responsiveness to customers, particularly as to engineering changes
once manufacturing has commenced, is an important component of the Company's
manufacturing approach. Many products manufactured by the Company are in the
early stages of their product life cycle and therefore may have ongoing design
or engineering changes. Upon receiving an engineering change notice, the Company
identifies the impact of such changes in the production process, current
inventory and open purchase orders. To support continuous production flow while
minimizing excess and obsolete inventory costs for the customer, the Company
restructures bills of material and expedites orders for new components, as
authorized. The Company also identifies and implements changes to manufacturing
instructions and test plans. In order to assure prompt customer service, the
Company assigns each project a product manager, quality assurance engineer,
product engineer, test engineer and customer service representative. The Company
maintains regular contact with its customers to assure adequate information
exchange, document control and activities coordination necessary to support a
high level of quality and on-time delivery.

         SYSTEM ASSEMBLY. The Company's assembly activities range from assembly
of higher level sub-systems and systems to printed circuit board assembly and
assembly of complex electro-mechanical components. The Company specializes in
printed circuit board assembly, cable and wire harness assembly and
electro-mechanical assembly, all utilizing specialized tools and techniques.

         QUALITY ASSURANCE. The Company's quality assurance procedures are an
integral part of providing customers with turnkey manufacturing solutions. The
Company provides computer-aided in-circuit and functional testing, which
contributes significantly to the Company's ability to deliver high quality
products on a consistent basis. The Company has developed specific strategies
and routines to test printed circuit boards and other assemblies. In-circuit
tests verify that all components have been properly inserted and that electrical
circuits are complete. Functional tests determine if the assembly is performing
to customer specifications. The Company either designs and procures test
fixtures and develops its own test software or utilizes the customer's existing
test fixtures and test software. In addition, the Company provides environmental
stress tests of the printed circuit board or system assemblies, when required by
its customers.

         The Company's quality management system has been certified under ISO
9002, an international quality standard. The Company has been certified by
Underwriters Laboratories ("UL") as a UL approved panel manufacturer. The
Company's cable and wire harnesses and

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assemblies are manufactured to Underwriters Laboratories and Canadian Standards
Association specifications. The Company's printed circuit board manufacturing
process has been certified by BBAC (a British communications equipment
manufacturing quality specification).

CUSTOMERS, SALES AND MARKETING

         The Company serves a wide variety of markets, including the computer,
computer peripherals, telecommunications, postal equipment, semiconductor,
environmental, test equipment, process equipment, industrial equipment and other
industries. Representative customers of the Company include ENI Technologies (a
division of Astec America, Inc.), Karl Suiss America, Inc., International
Business Machines Corporation ("IBM"), Aydin Corporation and Van Dam Machine Co.
A majority of the Company's customers are located in the Northeast United
States.

         For Fiscal 1999, the Company's four largest customers accounted for
approximately 59% of net sales. Sales to Van Dam Machine Co., ENI Technologies,
Aydin Corporation and Karl Suiss America, Inc. accounted for approximately 19%,
19%, 11% and 10%, respectively, of the Company's net sales. For the fiscal year
ended June 26, 1998 ("Fiscal 1998"), the Company's three largest customers
accounted for approximately 53% of net sales. Accordingly, in addition to
expanding existing relationships, the Company is pursuing a strategy of
diversifying its customer base. Currently, the Company contacts potential
customers through participation at contract manufacturing shows, strategically
placed advertisements, and direct mail campaigns which are then followed by
telephone sales and visits from the Company's sales representatives. The Company
also advertises over the Internet at its own website (asdgroup.com). The Company
is expanding its marketing efforts by attending more trade shows, increasing the
number of advertisements in trade journals, increasing the number of sales
personnel, increasing the number of customers who receive direct mailings, and
providing new sales literature and interactive electronic presentations. The
Company's objective is to obtain multiple customers in the markets it currently
serves and in additional markets.

COMPETITION

         The Company operates in a highly competitive environment and competes
against numerous domestic and foreign manufacturers. The Company's competitors
include U. S. Assembly, The Gem City Engineering Co., Jabil Circuit, Inc., Avex
Electronics Inc. (a privately held company, and DII GROUP, INC. formerly known
as DOVatron International, Inc., IEC Electronics Corp., Sanmina Corporation and
Benchmark Electronics, Inc. In addition, the Company may encounter competition
in the future from other large electronic manufacturers that are selling, or may
begin to sell, contract manufacturing services. The Company may also face
competition from the manufacturing operations of its current and prospective
customers which the Company believes continually evaluate the merits of
manufacturing products internally versus the merits of contract manufacturing.

         The Company believes that the primary basis of competition in its
targeted markets are time to market, capability, price, manufacturing quality,
advanced manufacturing technology and reliable delivery. Management believes
that it generally competes favorably with respect to each of these factors. To
remain competitive, the Company must continue to provide technologically
advanced manufacturing services, maintain quality levels, offer flexible
delivery schedules, deliver finished products on a reliable basis, and compete
favorably on the basis of price. There

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can be no assurance that the Company can compete effectively with respect to
these factors in the future.

BACKLOG

         The Company's backlog at June 25, 1999 was approximately $7,900,000.
Backlog consists of firm purchase orders and commitments, which are to be filled
within the next 12 months. However, since orders and commitments may be
rescheduled or canceled, management of the Company believes that backlog is an
inconclusive indicator of future financial performance.

         The level and timing of orders placed by the Company's customers may
vary due to the customers' attempts to balance their inventory, changes in
customers' manufacturing strategies and variations in demand for the customers'
products resulting from, among other things, product life cycles, competitive
conditions or general economic conditions. The Company's revenues are derived
from customers who commit to firm purchase orders that provide for production
requirements ranging from one year to one month in advance. The Company does not
assess any additional fee or charge interest in connection with the financing of
any customer orders other than what is included in its firm price. The Company's
inability to forecast the level of customer orders with certainty makes it
difficult to schedule production and maximize utilization of manufacturing
capacity.

SUPPLIERS

         The Company procures components from a broad group of suppliers,
determined on an assembly-by-assembly basis. Some of the products and assemblies
manufactured by the Company require one or more components that may be available
from only a single source. Some of these components are allocated in response to
supply shortages. The Company attempts to ensure the continuity of supply of
these components. In cases where unanticipated customer demand or supply
shortages occur, the Company attempts to arrange for alternative sources of
supply, where available, or defers planned production to meet the anticipated
availability of the critical components. In some cases, supply shortages could
substantially curtail production of all assemblies using a particular component.
While the Company has not experienced material shortages in the recent past,
such shortages could produce significant short-term interruptions of the
Company's future operations. Some of the Company's material suppliers are Arrow
Electronics, Avnet Group, Chapin & Bangs, Future Electronics, Simcona Electric
Corp, and Yard Metals. The Company currently has access to number of alternative
suppliers if any such suppliers were to cease or materially decrease their
business dealings with the Company.

         The Company does not maintain a large inventory of materials and does
not place orders for materials unless required in response to a specific
customer purchase order. If the Company does have any obsolete inventory, it is
written-off or reserved immediately.

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<PAGE>

INTELLECTUAL PROPERTY RIGHTS

         The Company regards its manufacturing processes, proprietary software
and circuit designs as proprietary trade secrets and confidential information.
To maintain the trade secrecy of its proprietary software, the Company relies
largely upon a combination of trade secret laws, copyright laws, internal
security systems and confidentiality procedures. Third parties may attempt to
exercise alleged rights in any of the copyrights or other intellectual property
rights established by the Company, and the Company's failure or inability to
establish appropriate copyrights or to adequately protect any of its
intellectual property rights may have a material adverse affect on the Company.

GOVERNMENT REGULATION

         The Company's operations are subject to certain federal, state and
local regulatory requirements relating to environmental, waste management and
health and safety matters. Management believes that the Company's business is
operated in compliance with applicable regulations promulgated by the
Occupational Safety and Health Administration and the Environmental Protection
Agency and corresponding state agencies which, respectively, pertain to health
and safety in the work-place and the use, discharge and storage of chemicals
employed in the manufacturing process. Current costs of compliance are not
material to the Company. However, new or modified requirements, not presently
anticipated, could be adopted creating additional expenses for the Company.

EMPLOYEES

         As of September 30, 1999, the Company employed 111 full time employees.
The Company employs 35 people in finance, sales and administration; 68 people in
manufacturing operations and 8 people handling various engineering functions.
Currently none of the Company's employees are members of a union. Management
considers its relationships with its employees to be good.

ITEM 2.  DESCRIPTION OF PROPERTY

         The Company's principal operations are conducted in Poughkeepsie, New
York, in an approximately 75,000 square foot plant situated on a 5.5-acre parcel
of land. In addition, the Company owns a second 65,000 square foot plant in
Poughkeepsie, which is presently up for sale. These facilities are mortgaged in
the amount of $550,000 as of June 25, 1999. The Company also owns approximately
55.76 acres of vacant land in Poughkeepsie. Management of the Company believes
that the Company's facilities are sufficient for its current and reasonably
anticipated operations.

ITEM 3.  LEGAL PROCEEDINGS

         The Company is involved in pending and threatened legal actions and
proceedings arising in the ordinary course of its business. In the opinion of
management, the outcome of such legal actions and proceedings will not have a
material adverse effect on the Company.

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ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

         On March 15, 1999, the Company conducted an annual meeting of its
stockholders. At this meeting, the stockholders voted on the matters described
below:

         1.       The stockholders approved the terms of a financial
                  restructuring pursuant to which the Company restructured
                  certain indebtedness and obtained a capital infusion. There
                  were 837,202 votes cast in favor, 0 votes cast against and 0
                  votes withheld. There were 392,017 shares abstaining. There
                  were no broker non-votes.

         2.       The stockholders approved an amendment to the Company's
                  Certificate of Incorporation to increase the number of
                  authorized shares of the Company's common stock from
                  10,000,000 shares to 50,000,000 shares. There were 1,229,219
                  votes cast in favor, 0 votes cast against and 0 votes
                  withheld. There were no abstentions or broker non-votes.

         3.       The stockholders elected the following directors to the Board
                  of Directors: Jay H. Solomont, Peter C. Zachariou, Mark
                  Karasick, Thomas H. Lenagh and Jan M. Winston. For each of the
                  directors there were 1,229,219 votes cast in favor, 0 votes
                  cast against and 0 votes withheld. There were no abstentions
                  or broker non-votes.

         4.       The stockholders approved an amendment to the Company's 1996
                  Stock Option Plan to increase the number of shares of the
                  Company's common stock reserved for issuance thereunder from
                  60,000 shares to 350,000 shares. There were 1,229,219 votes
                  cast in favor, 0 votes cast against and 0 votes withheld.
                  There were no abstentions or broker non-votes.

         5.       The stockholders ratified the appointment of Deloitte & Touche
                  LLP as the Company's auditors for Fiscal 1999. There were
                  1,229,219 votes cast in favor, 0 votes cast against and 0
                  votes withheld. There were no abstentions or broker non-votes.

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                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

MARKET INFORMATION

         From May 14, 1997 through February 23, 1999, the Company's common stock
was traded on the Nasdaq SmallCap Market under the symbol "ASDG". Since February
24, 1999, the Company's common stock has been trading on the Nasdaq OTC
Electronic Bulletin Board under the symbol "ASDG." The following table sets
forth the high and low sale prices as furnished by The Nasdaq Stock Market, Inc.
for the calendar quarter indicated:

1997
----
                                                          HIGH           LOW

Quarter ended June 27, 1997 (commencing May 14, 1997)    $5.75          $4.80
Quarter ended September 26, 1997                          6.125          4.00
Quarter ended December 25, 1997                           5.125          2.3125

1998

Quarter ended March 27, 1998                             $3.625         $1.25
Quarter ended June 26, 1998                               1.875            .3125
Quarter ended September 25, 1998                          1.375            .50
Quarter ended December 25, 1998                           1.1875           .375

1999

Quarter ended March 26, 1999                             $1.1562        $ .5938
Quarter ended June 25, 1999                               1.1875           .5938

         These bid prices are inter-dealer prices without retail markup,
markdown or commission, and may not represent actual transactions.

HOLDERS

         As of October 4, 1999, there were approximately 58 holders of record of
the common stock. The Company believes that the common stock is held by in
excess of 350 beneficial holders.

DIVIDEND POLICY

         The Board of Directors does not currently contemplate the payment of
cash dividends. Any decisions as to the payment of cash dividends on the common
stock will depend on the Company's ability to generate earnings, its need for
capital, its overall financial condition and such other factors, as the Board of
Directors deems relevant.

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RECENT SALES OF UNREGISTERED SECURITIES

         The Company has effected the following sales of unregistered securities
in the last three fiscal years:

         1.       Effective June 26, 1998, the Company paid $110,000 in cash,
                  issued $110,000 in promissory notes and issued 73,461 shares
                  of Series C Convertible Preferred Stock in satisfaction for
                  $1,210,00 in principal and unpaid interest pursuant to
                  promissory notes due in June 1998.

         2.       In December 1998, the Company sold to three investors 825
                  shares of Series D Convertible Preferred Stock in
                  consideration for $825,000 in aggregate. The investors were
                  accredited investors and the shares were sold pursuant to Rule
                  506 of Regulation D promulgated under the Securities Act of
                  1933, as amended.

         3.       In connection with a restructuring of its credit facility with
                  PNC Bank, in March 1999, the Company issued to PNC Bank
                  warrants to purchase 100,000 shares of common stock at an
                  exercise price of $1.75 per share.

         4.       In March 1999, the Company sold 1,325 shares of Series E
                  Convertible Preferred Stock in consideration for $1,325,000.
                  The investors were accredited investors and the shares were
                  sold pursuant to Rule 506 of Regulation D promulgated under
                  the Securities Act of 1933, as amended.

         5.       By letter agreement dated February 9, 1999, the Company agreed
                  to issue 75,000 shares of common stock to each of two original
                  founders in consideration for the forgiveness of $339,000 of
                  deferred compensation.

         6.       By letter agreement dated March 4, 1999, the Company agreed to
                  issue to Gary Horne 150,000 shares, to release 85,718 shares
                  being held in escrow and to exchange releases consideration
                  for the forgiveness of $707,000.

         In connection with each these transaction, the Company did not pay
underwriting discounts or commissions. These shares were all issued without
registration under the Securities Act of 1933, as amended (the "Securities
Act"), by reason of the exemption from registration afforded. Except as
otherwise noted, the shares were issued pursuant to the provisions of Section
4(2) thereof, as transactions by an issuer not involving a public offering. Each
recipient of shares delivered appropriate investment representations to the
Company with respect thereto and consented to the imposition of restrictive
legends upon the certificates evidencing the shares.

                                       11
<PAGE>

ITEM 6.           MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

         The following discussion and analysis should be read in conjunction
with the Company's consolidated financial statements and the notes thereto
included in Part II, Item 7 of this report.

RESULTS OF OPERATIONS

         FISCAL 1999 AS COMPARED TO FISCAL 1998

         For Fiscal 1999, the Company's net sales decreased by $4,688,000 or
32.8% to $9,611,000 from $14,300,000 for Fiscal 1998. The decrease in sales was
due to a continued slowdown experienced by several large customers, principally
those affected by the Asian market, which resulted in the reduction of orders
placed with the Company. Additionally, the financial position of the Company
during Fiscal 1999 resulted in the Company not being successful in obtaining a
greater portion of the jobs for which it bid.

         Costs of goods sold for Fiscal 1999 decreased by $5,011,000 or 35.8% to
$8,977,000 from $13,989,000 for Fiscal 1998. The decrease in cost of goods sold
is primarily the result of a decrease in net sales. This was partially offset by
the write-down of approximately $400,000 on assets held for sale. Gross profit
as a percentage of net sales increased by 4.4% from 2.2% for Fiscal 1998 to 6.6%
for Fiscal 1999. This was primarily due to improved management of the Company's
inventory.

         Selling, general and administrative expenses increased for Fiscal 1999
by $394,000 or 8.6% to $4,990,000 from $4,596,000 for Fiscal 1998. The increase
in selling, general and administrative expenses is primarily the result of
increased resources expended in selling and marketing of $142,000, an increase
in the professional fees to manage the Company and financial services of
$359,000 offset by management decreases in administrative functions.

         Interest expense decreased in Fiscal 1999 by $517,000 or 42% to
$714,000 from $1,231,000 for Fiscal 1998. The decrease in interest expense
results from a net reduction in debt related to the debt restructurings during
Fiscal 1999 and Fiscal 1998.

         During Fiscal 1999, the Company reduced its net deferred tax asset by
$1,106,000. The total valuation allowance at June 25, 1999 of $1,759,000 reduces
the net deferred tax asset to zero. This reduction was made in light of the
significant loss recognized by the Company in Fiscal 1999 and the limitations on
the usage of the net operating loss carryforwards resulting from the capital
infusion by investors in Fiscal 1998.

         Extraordinary gains in Fiscal 1999 and Fiscal 1998 of $2,836,000 and
$666,000, respectively, were the result of debt restructuring with the Company's
lenders and two original founders of the Company.

         The Company recorded a dividend of $943,000 to record the beneficial
conversion feature of the Series D Convertible Preferred Stock and Series E
Convertible Preferred Stock during Fiscal 1999.

                                       12
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

         GENERALLY

         During Fiscal 1999, the Company reached agreements with PNC Bank
("PNC"), Bankers Trust Company ("BT"), two original founders of the Company (the
"Founders") and Gary D. Horne, the Company's former Chief Executive Officer and
Chairman of the Board ("GH"). The terms of the agreements are as follows:

         1.       As of March 10, 1999, PNC agreed to increase the Company's
                  revolving credit line from $4,500,000 to $5,700,000 through
                  June 25, 2000.

         2.       Effective February 26, 1999, the Company entered into an
                  agreement with BT pursuant to which the Company's obligation
                  was reduced from $2,501,000 plus accrued interest of $261,000
                  to $800,000. The Company paid $250,000 on March 31, 1999 and
                  the balance of $550,000 is payable in 24 months without
                  interest. As a result of this transaction, the Company
                  recorded an extraordinary gain of $1,962,000. As a result of
                  the non-payment to the Noteholders of the amount due in June
                  1999, amounts due to PNC and BT are in default. PNC has issued
                  a waiver for such default.

         3.       By letter agreement dated February 9, 1999, the Founders
                  agreed to accept 75,000 shares of common stock each in lieu of
                  the existing deferred compensation agreement, resulting in an
                  extraordinary gain of $246,000.

         4.       By letter agreement dated March 4, 1999, GH agreed to forgive
                  indebtedness of $707,000 plus accrued interest in
                  consideration for 150,000 shares of common stock and the
                  release of 85,718 shares of common stock held in escrow along
                  with other non-financial concessions. This forgiveness of debt
                  resulted in an extraordinary gain of $628,000.

         The Company incurred a net loss of $2,235,000 for Fiscal 1999. Sales
for this period were significantly less compared to the previous year due to a
continued slow down experienced by several large customers primarily affected by
the situation in Asia.

         STATEMENTS OF CASH FLOW

         Net cash used in operations was $4,281,000 for Fiscal 1999 as compared
to $1,093,000 used in operations for Fiscal 1998. The increase in cash used in
operations was primarily the result of the net loss and increase in accounts
receivable offset by a decrease in inventory. The inventory reduction was
primarily the result of a write-off of inventory which resulted from two large
customers reducing orders. Net cash provided by financing activities during
Fiscal 1999 was $4,309,000 as compared to $96,000 in Fiscal 1998. This was
primarily from the net proceeds from the sale of common and preferred stock.
Working capital increased to $204,000 at June 25, 1999 from a deficiency of
$127,000 at June 26, 1998.

         LIQUIDITY

         Notwithstanding the significant steps taken by management to
restructure the Company's debt, the Company's immediate cash requirements are
significant. No assurance can be given that the Company will be able to
successfully realize cash flow from operations or that such cash

                                       13
<PAGE>

flow will be sufficient. Management believes that the Company's existing and
anticipated capital resources will not enable it to fund its planned operations
through Fiscal 2000. Management is currently attempting to obtain additional
financing and intends to raise additional funds within the next 12 months
through equity and/or debt financings. The investors have committed to the
Company to fund the Company's working capital requirements through Fiscal 2000.

         The Company's line of credit with PNC Bank places restrictions on the
Company's ability to obtain financing either through the offering of equity or
incurrence of additional debt. No assurances can be given that additional funds
will be available to the Company on acceptable terms, if at all. Additional
financings may result in dilution to existing stockholders.

         In addition, the Company's annual and quarterly operating results may
be affected by a number of factors, including the Company's ability to manage
inventories, shortages of components or labor, the degree of automation used in
the assembly process, fluctuations in material costs and the mix of material
costs versus labor. Manufacturing and overhead costs are also significant
factors affecting the annual and quarterly operating results of the Company.
Other factors include price competition, the ability to pass on excess costs to
customers, the timing of expenditures in anticipation of increased sales and
customer product delivery requirements. Any one of these factors, or a
combination thereof, could adversely affect the Company. The Company's primary
pricing method is a fixed price, however, any costs in excess of original
quotation or resulting from customer changes are typically passed on to the
customer.

         The Company anticipates that it will incur capital expenditures of
$190,000 during Fiscal 2000. Such expenditures will be primarily for facility
upgrades including a clean room and computer upgrades for Year 2000 compliance.
The Company intends to finance these capital expenditures through the funds
raised or existing and anticipated capital resources.

NET OPERATING LOSS CARRYFORWARDS

         As of June 25, 1999, the Company had a net operating loss carryforwards
("NOLs") for federal income tax purposes of approximately $4,500,000 which
begins to expire in 2006. The restructuring in Fiscal 1998 resulted in a "change
of control" for federal income tax purposes and limited the Company's ability to
utilize such NOLs. Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," requires that deferred tax assets be reduced by a
valuation allowance if, based on the weight of available evidence, it is more
likely than not that some portion or all of such assets will not be realized.
The Company monitors the realizability of such assets and establishes a
valuation allowance for all amounts that are not likely to be realized. As of
June 25, 1999, the total valuation allowance was $1,759,000, which reduced the
net deferred tax asset to zero.

YEAR 2000 READINESS

         The Year 2000 issue refers to a condition in computer software where a
two-digit field rather than a four-digit field is used to distinguish a calendar
year. Unless corrected, date-sensitive software may recognize a date using "00"
as the year 1900 rather than the year 2000. This could result in system failures
or miscalculations causing disruptions to various activities and operations.
Such an uncorrected condition could significantly interfere with the conduct of
the Company's business, could result in disruption of its operations and could
subject it to potentially significant legal liabilities.

                                       14
<PAGE>

         The Company has conducted an assessment of the Year 2000 issue and the
potential effect it will have on the Company and its business. The Company has
also prepared a formal plan for dealing with the Year 2000 issue. The Company is
in the process of updating much of its existing software for Year 2000
compliance by modifying existing internally developed software. The Company
intends to hire outside consultants and acquire new and upgraded third party
software packages to replace those currently used by the Company which cannot be
modified.

         While the Company believes it has made substantial progress in
resolving any Year 2000 issues, sufficient testing to date has not been
completed to fully validate readiness. Additional testing is planned during
Fiscal 2000 to reasonably ensure Year 2000 readiness. The Company is planning to
complete all necessary Year 2000 upgrades of its systems by December 31, 1999.

         The possibility exists that the Company could inadvertently fail to
correct a Year 2000 problem. The Company believes the impact of such an
occurrence would be minor, as substantial Year 2000 compliant equipment
additions and upgrades have occurred in recent years. If such resolution does
not occur, the Company believes it will be able to conduct its business,
possibly at a reduced volume, using its already Year 2000 compliant server, and
personal computer software until resolution occurs.

         The Company may also be affected by third-party suppliers or customers
who have not modified their systems to adequately address the Year 2000 issue.
Management believes that the Company's third-party suppliers and customers have
made appropriate modifications to their systems or that any such failure to
modify will not adversely effect the Company. However, there can be no assurance
of these facts.

         To date, Year 2000 readiness has cost the Company an estimated $90,000
(including upgrades to existing systems) and will cost approximately $100,000 in
the aggregate to complete.

ITEM 7.  FINANCIAL STATEMENTS

         The response to this item is incorporated by reference to pages F-1
through F-15 herein.

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

         None.

                                       15
<PAGE>

                                    PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

DIRECTORS AND EXECUTIVE OFFICERS

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

NAME                      AGE    POSITIONS
----                      ---    ---------
Jay H. Solomont *......   43     Co-Chairman of the Board and Director
Benjamin Rabinovici....   77     Co-Chairman of the Board and Director
Peter C. Zachariou.....   38     President, Chief Executive Officer and Director
William Courchaine.....   37     Chief Operating Officer
Thomas H. Lenagh* **...   74     Director
Jan M. Winston* **.....   63     Director
Kevin E. Homon.........   44     Controller and Secretary

*     Member of Audit Committee.
**    Member of Compensation Committee

         JAY SOLOMONT became a director and Chairman of the Board of the Company
in June 1998. Mr. Solomont has been a private investor for at least the past
five years. Prior to that, Mr. Solomont held various executive and general
management positions with A/D/S group, one of the premier nursing home companies
in the northeast region of the United States, until this company was sold to the
multi-care group. Mr. Solomont, along with his brothers, continues to own a
group of assisted living facilities. Mr. Solomont's private investments include,
but are not limited to, part ownership of a decorative art factory in the United
States, ownership of several real estate properties in the United States and,
along with his partners, ownership of the exclusive rights to develop IMAX
Theaters in Israel.

         BENJAMIN RABINOVICI became a director and the Co-Chairman of the Board
in July 1999 when Mark Karasick, another director, resigned. Dr. Rabinovici is a
private investor in real estate and several electronics companies. He is a
director of Parlex Corporation and I.M. Corp. From 1980 to 1996, Dr. Rabinovici
was Chairman of the Board, Chief Executive Officer and President of Typanium
Corporation and from 1983 to 1989 he was Chairman of the Board, Chief Executive
Officer and President of International Microwave Corporation. From 1968 to 1974,
Dr. Rabinovici was a Professor of Electrical Engineering at Northeastern
University in Boston, Massachusetts.

         PETER C. ZACHARIOU became the President and a director of the Company
in June 1998 and became Chief Executive Officer in March 1999. Since June 23,
1995 Mr. Zachariou has also held various positions with JR Consulting, Inc., a
company with a class of securities traded on the Nasdaq OTC Electronic Bulletin
Board(R); most recently Mr. Zachariou serves as the Chairman of the Board,
President and Treasurer. For at least the preceding five years, Mr. Zachariou
has been a private investor.

                                       16
<PAGE>

         WILLIAM COURCHAINE has been Chief Operating Officer of the Company
since June 1, 1999. Prior to that, Mr. Courchaine was Vice President of
Operations of Company from September 15, 1997 through May 31, 1999. During the
past five years with the Company, Mr. Courchaine also held the position of
Director of Quality Assurance for the Company. Over the past five years, Mr.
Courchaine has managed many facets of the Company's operations.

         THOMAS H. LENAGH has been a director of the Company since August 1997.
Mr. Lenagh was the Chairman and Chief Executive Officer of Greiner Engineering
from 1984 to 1986. He also served as the Chairman of the Executive Committee of
SCI Systems, Inc., from 1985 to 1994. Mr. Lenagh, an independent financial
advisor since 1984, has also served in financial management positions of the
Aspen Institute and Ford Foundation as well as on the Board of several
corporations.

         JAN M. WINSTON has been a director of the Company since August 1997.
Mr. Winston was employed by IBM Corporation from 1963 to 1997. He has held
executive and general management positions in computer development, marketing
and finance. He has extensive experience in developing and marketing
minicomputers, personal computers and software and frequently represented IBM in
external negotiations. Mr. Winston was one of six senior managers who launched
IBM's personal computer activity in the early 1980's. Most recently he led IBM
activities in the development and sales of speech recognition systems.

         KEVIN E. HOMON has been the Controller of the Company since July 1997
and the Secretary of the Company since July 1998. Prior to joining the Company,
Mr. Homon was Controller of York Hunter, Inc., a large construction management
firm, from 1986 to 1997.

         Directors of the Company hold their offices until the next annual
meeting of the Company's stockholders and until their successors have been duly
elected and qualified or their earlier resignation, removal from office or
death. The Company has established audit and compensation committees, each
consisting of a majority of non-employee directors.

         Officers of the Company serve at the pleasure of the Board of Directors
and until the first meeting of the Board of Directors following the next annual
meeting of the Company's stockholders and until their successors have been
chosen and qualified.

         The Company's annual compensation to non-employee directors consists of
the lesser of $1,000 per meeting or $4,000 per year. In addition, non-employee
directors will receive annual grants of stock options under the 1996 Plan to
purchase 7,500 shares of common stock. The options will be exercisable at the
greater of fair market value on the date of grant or $1.00, will vest at the end
of each full year of service and will be exercisable for a period of ten years
thereafter.

INDEMNIFICATION AGREEMENTS

         The Company has entered into or will enter into an indemnification
agreement with each of its directors and executive officers. Each
indemnification agreement provides or will provide that the Company will
indemnify such person against certain liabilities (including settlements) and
expenses actually and by him in connection with any threatened or pending legal
action, proceeding or investigation (other than actions brought by or in the
right of the Company) to which he is, or is threatened to be, made a party by
reason of his status as a director, officer or

                                       17
<PAGE>

agent of the Company, provided that such director or executive officer acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Company and, with respect to any criminal proceedings, had
no reasonable cause to believe his or her conduct was unlawful. With respect to
any action brought by or in the right of the Company, a director or executive
officer will also be indemnified, to the extent not prohibited by applicable
law, against expenses and amounts paid in settlement, and certain liabilities if
so determined by a court of competent jurisdiction, actually and reasonably
incurred by him in connection with such action if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests of
the Company.

COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934

         Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's executive officers, directors and
holders of more than 10% of the Company's common stock, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Such persons are required to furnish the Company with copies of all Section
16(a) forms they file.

         Based solely on its review of the copies of such forms received by it
or oral or written representations from certain reporting persons that no Forms
5 were required for those persons, the Company believes that, with respect to
Fiscal 1999, its executive officers, directors and greater than 10% beneficial
owners did not timely comply with such filing requirements. The Form 3s for
William Courchaine and Benjamin Rabinoviki and the Form 5s for the other
executive officers, directors and significant stockholders for Fiscal 1999 have
not been filed.

ITEM 10.  EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

         The following table provides information with respect to the
compensation paid or accrued by the Company and all its subsidiaries to the
Company's Chief Executive Officer and President (collectively, the "Named
Executive Officers") in all their capacities for Fiscal 1999, 1998 and 1997. No
other executive officer of the Company received salary and bonus compensation in
Fiscal 1999, 1998 and 1997 in excess of $100,000.

<TABLE>
<CAPTION>
                                                             SUMMARY COMPENSATION TABLE
                                                             --------------------------
                                                                                                        LONG TERM
                                                   ANNUAL COMPENSATION                             COMPENSATION AWARDS
                                                   -------------------                             -------------------
                                                                                 OTHER ANNUAL       SHARES UNDERLYING
NAME AND PRINCIPAL POSITION                   YEAR     SALARY      BONUS        COMPENSATION(1)        OPTIONS(#)
---------------------------                   ----     ------      -----        ---------------        ----------
<S>                                           <C>     <C>            <C>              <C>                   <C>
Peter C. Zachariou,                           1999    $84,000        $0               $0                    0
President and Chief Executive Officer (2)     1998       $0          $0               $0                    0
                                              1997       $0          $0               $0                    0

William Courchaine,                           1999    $74,400        $0               $0                    0
Chief Operating Officer                       1998    $77,171        $0               $0                    0
                                              1997    $60,280        $0               $0                    0

<FN>
----------

                                       18
<PAGE>

(1)      The table does not include amounts for personal benefits extended to
         Mr. Zachariou or Mr. Courchaine by the Company, such as health or life
         insurance. The Company believes that the incremental cost of such
         benefits to Mr. Zachariou and Mr. Courchaine during Fiscal 1999 through
         Fiscal 1997 did not exceed the lesser of $50,000 or 10% of his total
         annual salary and bonuses.

(2)      Mr. Zachariou was appointed President of the Company on June 26, 1998.
         To date, Mr. Zachariou's salary has accrued and not been paid. Mr.
         Zachariou has orally agreed to allow his salary to accrue until such
         time as the Company has sufficient cash flow to pay Mr. Zachariou.
</FN>
</TABLE>

EXECUTIVE EMPLOYMENT AGREEMENTS

         On July 24, 1998, the Company agreed to compensate Mr. Zachariou for
his services as President and Chief Executive Officer of the Company. Although
no formal written agreement exists, the Board of Directors agreed that Mr.
Zachariou would be paid $7,000 per month while serving as President of the
Company. As described above, this salary has not been paid but is being accrued.

         The Company is in the process of obtaining key man insurance on the
life of Mr. Zachariou. No assurance can be given that this insurance will be
obtained or that it will be in sufficient amount to protect the Company in the
event of the death of Mr. Zachariou.

OPTION GRANTS IN LAST FISCAL YEAR

         There were no grants of stock options made during the Fiscal 1999 to
the Company's Named Executive Officers.

STOCK OPTIONS HELD AT END OF FISCAL 1999

         No stock options are currently held by the Company's Named Executive
Officers as of June 25, 1999. No options were exercised by the Named Executive
Officers during Fiscal 1999.

STOCK OPTION PLAN

         The Company's Board of Directors, or a committee thereof, administers
and interprets the 1996 Plan and is authorized to grant options thereunder to
all eligible employees of the Company, including directors and executive
officers (whether current or former employees) of the Company, as well as
consultants and independent contractors. The 1996 Plan provides for the granting
of both "incentive stock options" (as defined in Section 422 of the Internal
Revenue Code of 1986, as amended) and nonstatutory stock options. Incentive
stock options may only be granted, however, to employees. Options can be granted
under the 1996 Plan on such terms and at such prices as determined by the Board,
or a committee thereof, except that the per share exercise price of incentive
stock options granted under the 1996 Plan will not be less than the fair market
value of the common stock on the date of grant and, in the case of an incentive
stock option granted to a 10% stockholder, the per share exercise price will not
be less than 110% of such fair market value as defined in the 1996 Plan. In any
case, the exercise price of any stock option granted under the 1996 Plan will
not be less than 85% of the fair market value of the common stock on the date of
grant.

         Options granted under the 1996 Plan that would otherwise qualify as
incentive stock options will not be treated as incentive stock options to the
extent that the aggregate fair market value of the shares covered by the
incentive stock options which are exercisable for the first time by any
individual during any calendar year exceeds $100,000.

                                       19
<PAGE>

         Options granted under the 1996 Plan will be exercisable after the
period or periods specified in the option agreement. Options granted under the
1996 Plan are not exercisable after the expiration of ten years from the date of
grant and are not transferable other than by will or by the laws of descent and
distribution. Adjustments in the number of shares subject to options granted
under the 1996 Plan can be made by the Board of Directors or the appropriate
committee in the event of a stock dividend or recapitalization resulting in a
stock split-up, combination or exchange of shares. Under the 1996 Plan, options
may become immediately exercisable in the event of change in control. The 1996
Plan also authorizes the Company to make loans to optionees to enable them to
exercise their options.

         As of June 25, 1999, the Company has outstanding options under the 1996
Plan to purchase 215,000 shares of common stock to six persons, including
options to purchase 5,000 shares of common stock to Gregory Horne and options to
purchase 7,500 shares of common stock to Mark Karasick which were subsequently
cancelled. None of such options were granted to the Named Executive Officers.

                                       20
<PAGE>

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth information regarding beneficial
ownership of the common stock as of the date hereof, by (i) each person who owns
beneficially more than 5% of the outstanding common stock, (ii) each of the
Company's directors and executive officers, and (iii) all directors and Named
Executive Officers as a group.

<TABLE>
<CAPTION>
                                                                                           PERCENT
NAME AND ADDRESS                                            NUMBER OF SHARES            BENEFICIALLY
OF BENEFICIAL OWNER (1)                                BENEFICIALLY OWNED (2)(3)            OWNED
-----------------------                                -------------------------            -----
<S>                                                                 <C>                     <C>
Benjamin Rabinovici..................................                       0                  0%
Peter C. Zachariou ..................................               3,200,002               27.6
William R. Courchaine................................                       0                0
Thomas H. Lenagh.....................................                  15,000 (4)            0
Jan M. Winston.......................................                  15,000 (4)            0
Jay Solomont.........................................               2,500,000               23.6
All directors and named executive officers
as a group (6 persons)...............................               5,730,002               45.4%

<FN>
----------
*        Less than 1%

(1)      The business address of all directors and executive officers of the
         Company is c/o the Company, 1 Industry Street, Poughkeepsie, New York
         12603.

(2)      The Company believes that all persons named in the table have sole
         voting and investment power with respect to all shares of common stock
         beneficially owned by them.

(3)      For purposes of calculating beneficial ownership and voting power,
         shares of common stock underlying options, warrants and other rights to
         acquire common stock exercisable within 60 days are included.

(4)      Represents currently exercisable options to purchase shares of common
         stock. Does not include additional options to purchase shares of common
         stock which are not exercisable within 60 days.
</FN>
</TABLE>

                                       21
<PAGE>

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

LOAN FROM PETER ZACHARIOU

         During Fiscal 1999, Peter C. Zachariou, the Company's President and
Chief Executive Officer and a director of the Company, advanced to the Company
$118,988. Such advance is evidenced by a promissory note bearing interest at the
rate of 8% per annum and is payable on June 15, 2000.

TRANSACTIONS WITH NETCOMP, INC.

         The Company purchases computers, computer supplies and services from
Netcomp, Inc., which operates the ComputerLand franchise in Poughkeepsie, New
York. Netcomp, Inc. is owned by Gary D. Horne and Stanley F. Zuk, two former
executive officers of the Company. Purchases from Netcomp, Inc. aggregated
$52,000 in Fiscal 1999 and $134,000 in Fiscal 1998.

APPROVAL OF AFFILIATED TRANSACTIONS

         All transactions between the Company and its directors, executive
officers and principle stockholders will be on terms no less favorable than
could be obtained from unaffiliated third parties and have been and will be
approved by a majority of the independent outside directors of the Company.

                                       22
<PAGE>

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

   EXHIBIT NO.      DESCRIPTION
   -----------      -----------
        3.1         Certificate of Incorporation, as amended. (1)
        3.2         Bylaws.(2)
        4.1         Specimen Certificate of Common Stock. (2)
       10.1         1996 Stock Option Plan, as amended (1)
       10.2         Restated Line of Credit Loan and Security  Agreement dated
                    as of December 28, 1995 between Automatic Systems
                    Developers, Inc.; High Technology Computers, Inc. and
                    Poughkeepsie Savings Bank, FSB.(2)(3)
       10.3         Second Amended Modification, Extension, Spreader and
                    Assumption Agreement dated as of December 28, 1995 between
                    Automatic Systems Developers, Inc. and Poughkeepsie Savings
                    Bank, FSB.(2)
       10.4         Second Amended Modification, Extension, Spreader and
                    Assumption Agreement dated as of December 28, 1995 between
                    the Registrant; Automatic Systems Developers, Inc. and
                    Poughkeepsie Savings Bank, FSB.(2)
       10.5         Option Agreement dated as of May 31, 1996 by and among
                    Banker's Trust Company and the Registrant.(2)
       10.6         Amendment to December 29, 1995 Purchase Agreement.(2)
       10.7         Intentionally deleted
       10.8         Intentionally deleted
       10.9         Intentionally deleted.
       10.10        Intentionally deleted.
       10.11        Form of Indemnification Agreement dated May 12, 1997 between
                    the Registrant and its executive officers and directors.(3)
       10.12        Securities Purchase Agreement dated as of June 26, 1998 by
                    and among the Registrant, the parties listed on Schedule 1
                    to the Agreement and Gary D. Horne.(4)
       10.13        Agreement dated as of June 26, 1998 by and among Automatic
                    Systems Developers, Inc.; High Technology Computers, Inc.;
                    the Registrant; the financial institutions which are now or
                    hereafter become a party to the Credit Agreement; and PNC
                    Bank, National Association.(4)
       10.14        Option and Forbearance Agreement dated as of June 26, 1998
                    by and among Bankers Trust Company; Automatic Systems
                    Developers, Inc. and the Registrant.(4)
       10.15        Form of Agreement with holders of: (I) 10% senior promissory
                    note due June 19, 1998 and/or (ii) warrants to purchase
                    Common Stock.(4)
       10.16        Form of Letter Agreement with holders of warrants to
                    purchase an aggregate of 122,750 shares of the Registrant
                    Common Stock.(4)
       10.17        Second Amendment Agreement dated as of September 7, 1999 by
                    and among Automatic Systems Developers, Inc.; High
                    Technology Computers, Inc.; the Registrant; the financial
                    institutions which are not or hereafter become a party to
                    the Credit Agreement and PNC Bank, National Association
       21.1         List of Subsidiaries of the Registrant.(1)
       27.1         Financial Data Schedule.

----------
(1)      To be filed by Amendment.
(2)      Incorporated by reference to the exhibit of the same number filed with
         the Company's Registration Statement on Form SB-2 (File No. 333-7731).

                                       23
<PAGE>

(3)      Incorporated by reference to the exhibits filed with the Company's
         Annual Report on Form 10-KSB for the year ended June 27, 1997.
(4)      Incorporated by reference to the exhibits filed with the Company's
         Current Report on Form 8-K filed July 9, 1998

         (b) Reports on Form 8-K- The Company filed a Current Report on Form 8-K
             on July 9, 1998.

                                       24
<PAGE>

         In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

Date:  October 8, 1999              ASD GROUP, INC.

                                    By: /s/ PETER C. ZACHARIOU
                                        ----------------------------------------
                                        Peter C. Zachariou, President and Chief
                                        Executive Officer

         In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the registrant in the capacities and on the dates
indicated.

<TABLE>
<CAPTION>
                SIGNATURE                                      TITLE                                 DATE
---------------------------------------        --------------------------------------    -----------------------------
<S>                                            <C>                                            <C>
/s/ PETER C. ZACHARIOU                         President and Chief Executive                  October 8, 1999
---------------------------------------        Officer and Director
Peter C. Zachariou

/s/ WILLIAM COURCHAINE                         Chief Operating Officer                        October 8, 1999
---------------------------------------
William Courchaine

/s/ KEVIN HOMON                                Controller (Principal Financial and            October 8, 1999
---------------------------------------        Accounting Officer)
Kevin Homon

                                               Director                                       October  , 1999
---------------------------------------
Thomas H. Lenagh

                                               Director                                       October  , 1999
---------------------------------------
Jan M. Winston

/s/ JAY SOLOMONT                               Co-Chairman of the Board and Director          October 8, 1999
---------------------------------------
Jay Solomont

/s/ BENJAMIN RABINOVICI                        Co-Chairman of the Board and Director          October 8, 1999
---------------------------------------
Benjamin Rabinovici
</TABLE>

                                       25
<PAGE>

                                 ASD GROUP, INC.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Independent Auditors' Report............................................F-2

Consolidated Balance Sheet as of June 25, 1999..........................F-3

Consolidated Statements of Operations for the Years Ended June 25, 1999
and June 26, 1998.......................................................F-4

Consolidated Statements of Stockholders' Equity for the Years Ended June
25, 1999 and June 26, 1998..............................................F-5

Consolidated Statements of Cash Flows for the Years Ended June 25, 1999
and June 26, 1998.......................................................F-6

Notes to Consolidated Financial Statements..............................F-7-F-15

                                      F-1
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

Board of Directors
ASD Group, Inc.
Poughkeepsie, New York

         We have audited the accompanying consolidated balance sheet of ASD
Group, Inc. and subsidiaries as of June 25, 1999, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
two years in the period ended June 25, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

         We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

         In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of ASD Group, Inc. and
subsidiaries as of June 25, 1999, and the results of their operations and their
cash flows for each of the two years in the period ended June 25, 1999 in
conformity with generally accepted accounting principles.

DELOITTE & TOUCHE LLP

Stamford, Connecticut
October 5, 1999

                                      F-2
<PAGE>

                        ASD GROUP, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
                                     ASSETS

                                                                                  JUNE 25, 1999
                                                                                  -------------
<S>                                                                               <C>
Current assets:
  Cash......................................................................      $     4,961
  Accounts receivable, less allowance for doubtful accounts of
    $316,987................................................................        1,564,121
  Inventory, less reserve of  $203,391......................................        2,108,755
  Prepaid expenses and other current assets.................................          111,962
  Asset held for sale.......................................................          950,000
                                                                                  -----------
         Total current assets...............................................        4,739,799
Property, plant and equipment, net..........................................        3,055,282
Other assets................................................................          159,619
                                                                                  -----------
Total assets................................................................      $ 7,954,700
                                                                                  ===========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Current portion of long-term debt.........................................      $ 2,360,521
  Accounts payable..........................................................        1,547,348
  Accrued expenses..........................................................          627,582
                                                                                  -----------
         Total current liabilities..........................................        4,535,451
Long-term debt..............................................................        3,340,902
                                                                                  -----------
         Total liabilities..................................................        7,876,353
                                                                                  -----------
Contingencies (See Notes)
Stockholders' equity:
   Preferred stock, $.01 par value, 1,000,000 shares authorized, 75,120
     Convertible shares issued and outstanding..............................        2,792,857
   Common stock, $.01 par value, 50,000,000 shares authorized,
     10,404,982 shares issued and outstanding...............................          104,050
  Paid-in capital...........................................................        7,062,258
  Deficit...................................................................       (9,880,818)
                                                                                  -----------
         Total stockholders' equity.........................................           78,347
                                                                                  -----------
Total liabilities and stockholders' equity..................................      $ 7,954,700
                                                                                  ===========
</TABLE>

                 See notes to consolidated financial statements.

                                      F-3
<PAGE>

                        ASD GROUP, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                            YEARS ENDED
                                                                  ------------------------------
                                                                     JUNE 25,          JUNE 26,
                                                                       1999              1998
                                                                  ------------      ------------
<S>                                                               <C>               <C>
Net sales ...................................................     $  9,610,801      $ 14,298,745
Cost of goods sold ..........................................        9,282,961        13,988,630

         Gross profit .......................................          327,840           310,115
                                                                  ------------      ------------
Operating expenses:
     Sales and marketing ....................................          453,501           311,981
     General and administrative .............................        4,536,264         4,283,890
                                                                  ------------      ------------
         Total operating expenses ...........................        4,989,765         4,595,871
                                                                  ------------      ------------
         Loss from operations ...............................       (4,661,925)       (4,285,756)

Interest expense ............................................         (713,885)       (1,230,882)

Financial restructuring costs ...............................               --          (124,000)
                                                                  ------------      ------------
         Loss before income taxes and extraordinary gain ....       (5,375,810)       (5,640,638)

Income tax expense ..........................................               --        (1,717,532)
                                                                  ------------      ------------
         Loss before extraordinary gain .....................       (5,375,810)       (7,358,170)

Extraordinary gain ..........................................        2,835,565           665,500
                                                                  ------------      ------------
         Net loss ...........................................       (2,540,245)       (6,692,670)

Preferred stock dividend ....................................          942,857                --
                                                                  ------------      ------------
Loss applicable to common stockholders ......................     $ (3,483,102)     $ (6,692,670)
                                                                  ============      ============
Amounts applicable to common stockholders per basic and
diluted common share:

Loss before extraordinary gain ..............................     $      (1.71)     $      (4.66)
Extraordinary gain ..........................................              .77               .42
                                                                  ------------      ------------
Loss applicable to common stockholders ......................     $       (.94)     $      (4.24)
                                                                  ============      ============
Weighted average common shares outstanding ..................        3,684,611         1,579,018
                                                                  ============      ============
</TABLE>

                 See notes to consolidated financial statements

                                      F-4
<PAGE>

                        ASD GROUP, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                 PREFERRED STOCK                 COMMON STOCK                              RETAINED
                             -------------------------    --------------------------       PAID-IN         EARNINGS
                               SHARES         AMOUNT         SHARES          AMOUNT        CAPITAL         (DEFICIT)       TOTAL
                               ------         ------         ------          ------        -------         ---------       -----
<S>                          <C>           <C>            <C>               <C>          <C>             <C>            <C>
Balance, June 28, 1997 ...         --      $        --     1,577,917        $ 15,779     $ 4,206,892     $   294,954    $ 4,517,625

Net loss .................         --               --            --              --              --      (6,692,670)    (6,692,670)

Financial restructuring
(Note 3) .................    734,259        1,909,000       402,017           4,020         163,980              --      2,077,000
                             --------      -----------    ----------        --------      ----------     -----------    -----------
Balance, June 26, 1998 ...    734,259        1,909,000     1,979,934          19,799       4,370,872      (6,397,716)       (98,045)

Net loss .................         --               --            --              --              --      (2,540,245)    (2,540,245)

Debt restructuring
(Note 3) .................         --               --       300,000           3,000         250,125              --        253,125

Common stock issued ......         --               --       250,000           2,500          87,000              --         89,500

Preferred stock conversion   (684,199)      (2,357,000)    7,772,221          77,723       2,279,277              --             --

Preferred stock issued ...     25,060        2,298,000            --              --              --              --      2,298,000

Warrants exercised .......         --               --       102,827           1,028          74,984              --         76,012

Preferred stock dividend .         --          942,857            --              --              --        (942,857)            --
                             --------      -----------    ----------        --------      ----------     -----------    -----------
Balance, June 25, 1999 ...     75,120      $ 2,792,857    10,404,982        $104,050      $7,062,258     $(9,880,818)   $    78,347
                             ========      ===========    ==========        ========      ==========     ===========    ===========
</TABLE>

                 See notes to consolidated financial statements.

                                      F-5
<PAGE>

                        ASD GROUP, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                            YEARS ENDED
                                                                    ----------------------------
                                                                      JUNE 25,         JUNE 26,
                                                                        1999             1998
                                                                    -----------      -----------
<S>                                                                 <C>              <C>
Operating activities:
  Net loss ....................................................     $(2,540,245)     $(6,692,670)
  Adjustments to reconcile net loss to net
       Cash used in operating activities:
        Depreciation and amortization .........................         392,293          771,431
       (Benefit) provision for doubtful accounts ..............         (24,013)         178,000
        Common stock issued for services ......................          53,700               --
        Deferred compensation .................................          18,764           34,747
        Interest accrued-stockholder advances .................          33,317           57,289
        Deferred income taxes .................................              --        1,717,532
        Extraordinary gain from restructuring .................      (2,835,565)        (665,500)
        Inventory reserve .....................................        (142,435)         345,826
        Asset held for sale-writedown .........................         405,565               --
        Changes in assets and liabilities:
            Accounts receivable ...............................        (642,427)       1,099,721
            Inventory .........................................       1,076,577        1,669,171
            Prepaid expenses and other current assets .........          47,674           42,788
            Other assets ......................................             944          150,569
            Accounts payable ..................................          95,451          216,215
            Accrued expenses ..................................        (220,139)           5,297
            Payments of deferred compensation .................              --           23,360
                                                                    -----------      -----------
                 Net cash used in operating activities ........      (4,280,539)      (1,092,944)
                                                                    -----------      -----------
Investing activities:
  Capital expenditures ........................................         (28,892)         (97,378)
                                                                    -----------      -----------
Financing activities:
  Net proceeds from sale of common and preferred stock ........       4,309,812               --
  Borrowings ..................................................         525,652        7,135,741
  Payments of long-term debt ..................................        (476,918)      (7,114,282)
  Financing costs .............................................         (49,058)        (229,058)
  Loans - life insurance policies .............................              --          303,635
                                                                    -----------      -----------
                 Net cash provided by financing activities ....       4,309,488           96,036
                                                                    -----------      -----------
Net increase (decrease) in cash ...............................              57       (1,094,286)
Cash, beginning of year .......................................           4,904        1,099,190
                                                                    -----------      -----------
Cash, end of year .............................................     $     4,961      $     4,904
                                                                    ===========      ===========
Supplemental disclosures:
 Cash paid during the year for:
      Income taxes ............................................     $     5,819      $     3,571
                                                                    ===========      ===========
      Interest ................................................     $   595,602      $   927,924
                                                                    ===========      ===========
 Capital contribution receivable ..............................     $        --      $ 1,900,000
                                                                    ===========      ===========
 Debt converted upon debt restructurings ......................     $ 3,088,690      $   880,000
                                                                    ===========      ===========
 Capital leases entered into ..................................     $   102,895      $   267,520
                                                                    ===========      ===========
</TABLE>

                 See notes to consolidated financial statements

                                      F-6
<PAGE>

                        ASD GROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.       BUSINESS DESCRIPTION

         ASD Group, Inc. ("ASD") and its wholly-owned subsidiaries (the
"Company") is a provider of contract manufacturing and engineering services to
domestic original equipment manufacturers. The Company provides a wide range of
services including product engineering and design, procurement, precision
fabrication of sheet metal and machined parts, printed circuit board assembly,
electro-mechanical assembly and functional testing.

2.       SIGNIFICANT ACCOUNTING POLICIES

         PRINCIPLES OF CONSOLIDATION--The accompanying consolidated financial
statements include the consolidated accounts of ASD Group, Inc. and its
subsidiaries. All significant intercompany balances and transactions have been
eliminated.

         REVENUE RECOGNITION--Sales are recorded as products are shipped or when
services are rendered.

         FINANCING COSTS--During the years ended June 25, 1999 and June 26,
1998, the Company incurred $49,058 and $229,058, respectively, in connection
with debt financings (see Note 5). These costs have been capitalized in other
assets and are being amortized over the terms of the financings. Amortization
and write-off of financing costs for the years ended June 25, 1999 and June 26,
1998 were $94,464 and $422,296, respectively.

         PROPERTY, PLANT, AND EQUIPMENT--Property, plant and equipment are
stated at cost. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets which range from 5 to 40 years.

         INVENTORY--Inventory, consisting of work-in-progress and raw materials
of $1,470,409 and $638,346, respectively, is stated at the lower of cost
(first-in, first-out method) or market. Inventory that becomes obsolete because
of customer required changes is written-off or reserved at the time the job is
completed or when an engineering change is implemented. During Fiscal 1999, the
Company wrote-off $1,500,000 of inventory and that was expected to be shipped
pursuant to orders from customers. However, the requirements with respect to
such purchase orders were either reduced or cancelled by customers.

         INCOME TAXES--Deferred income taxes are provided for the temporary
differences between the financial reporting and tax basis of the Company's
assets and liabilities using presently enacted tax rates.

         CONCENTRATION OF CREDIT RISK--Financial instruments which potentially
subject the Company to concentrations of credit risk consist principally of
trade receivables. The Company performs ongoing credit evaluations of its
customers' financial conditions and generally does not require collateral.
Additionally, the Company maintains insurance for bad debts for certain rated
customers. The insurance policy assures a minimum recovery of 80% of the maximum
established by the insurer per customer insured.

                                      F-7
<PAGE>

         Customers that accounted for 10% or more of the Company's net sales are
as follows:

                                                                  YEARS ENDED
                                                            --------------------
                                                            JUNE 25,    JUNE 26,
         CUSTOMER                                             1999        1998
         --------                                             ----        ----

         ENI Technologies...........................           19%         22%
         Spectran Corporation......................             -          18
         Van Dam Machine Co.......................             19           -
         Aydin Corporation........................             11           -
         Karl Suiss America, Inc..............                 10           -
         Olin Microelectronics......................            -          13
                                                               ---         ---
                                                               59%         53%
                                                               ===         ===

         MANAGEMENT ESTIMATES--The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those estimates.

         ADOPTION OF FINANCIAL ACCOUNTING STANDARDS--In June 1997, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"), and Statement
of Financial Accounting Standards No. 131 "Disclosures About Segments of an
Enterprise and Related Information," ("SFAS 131"). SFAS 130 requires that
comprehensive income, which includes net income as well as certain changes in
assets and liabilities recorded in stockholders' equity, be reported in the
financial statements. There were no components of comprehensive income other
than net income for the years ended June 25, 1999 and June 26, 1998. SFAS 131
requires disclosure of certain information about operating segments and about
products and services, geographic areas in which a company operates, and their
major customers. The Company has determined that it operates in only one
segment.

         DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS--The carrying
value of the Company's credit facilities approximates fair value and is
estimated based on the quoted market prices for the same or similar issues or on
the current rates offered to the Company for debt of the same remaining
maturities.

3.       RESTRUCTURING

         On June 26, 1998, the Company entered into an agreement with an
investor group (the "Investors") for a $1,900,000 capital infusion and entered
into agreements with its primary lenders to restructure the Company's debt (the
"Financial Restructuring").

         The Investors purchased $1,900,000 of equity consisting of 392,017
unregistered shares of common stock, 329,999 shares of Series A Convertible
Preferred Stock ("Series A Stock"), 330,799 shares of Series B Convertible
Preferred Stock ("Series B Stock") and five-year warrants to purchase 4,000,000
shares of common stock at an exercise price of $.75 per share. The Investors
purchased an additional 22,910 shares of Series A Stock for $148,000 during
Fiscal 1999. On March 15, 1999, the stockholders approved the Financial
Restructuring upon which the shares of Series A Stock and Series B Stock
converted into 6,837,071 shares of Common Stock at the rate of 10 shares of
common stock for each share of preferred stock.



                                      F-8
<PAGE>

         As part of the Financial Restructuring, the Company reached agreements
with its three primary lenders: PNC Bank ("PNC"), Bankers Trust Company ("BT"),
and a group of private noteholders (the "Noteholders") to restructure its debt
as follows:

         2.       PNC agreed to maintain the Company's existing line of credit
                  through June 25, 2000 (see Note 5), with a one-year extension,
                  provided certain conditions are met and no events of default
                  occur. In consideration for the above, PNC received five-year
                  warrants to purchase 100,000 shares of common stock at $1.75
                  per share. The line of credit places restrictions on the
                  Company's ability to obtain financing through either the
                  offering of equity or by incurring additional debt.

         3.       BT was paid $250,000 to defer the outstanding principal amount
                  owed to BT for nine months until March 1999. The Company would
                  not make principal and interest payments to BT during this
                  period, although the amounts owed would continue to accrue
                  interest. The 100,000 warrants to previously issued to BT were
                  cancelled.

         4.       The Company settled $1,210,000 principal and interest owed to
                  Noteholders. The Company:

                  a.       Paid $110,000,
                  b.       Agreed to pay an additional $110,000 in June 1999,
                  c.       Issued 73,461 shares of Series C Convertible
                           Preferred Stock on the same terms as the Series B
                           Stock,
                  d.       Exchanged outstanding warrants to purchase 534,783
                           shares of common stock at $2.73 per share for
                           five-year warrants to purchase 418,711 shares of
                           common stock at $1.50 per share.

                  The difference between the amount owed to the Noteholders and
                  the fair value of the settlement is recorded as a $792,000
                  extraordinary gain in Fiscal 1998.

                  The Company did not make the required payments to the
                  Noteholders in June 1999. The Company is currently attempting
                  to renegotiate the terms of this $110,000 payment.

         5.       In addition, holders of outstanding warrants to purchase
                  123,750 shares of common stock at $2.69 per share agreed to
                  exchange these warrants for five-year warrants for the
                  purchase of 400,000 shares of common stock at $1.50 per share
                  during Fiscal 1998.

         6.       With respect to the Financial Restructuring, the Company
                  obtained a fairness opinion from the underwriter of the
                  Company's initial public offering (the "Underwriter"). In
                  exchange, the Company paid a $25,000 fee and amended the
                  warrants to purchase 94,500 shares of common stock currently
                  held by the underwriter to lower the exercise price from
                  $8.3375 per share to $1.50 per share. In addition, the
                  Underwriter received 10,000 shares of common stock.

         7.       The Company paid an investment banking firm that advised the
                  Investors $118,000 and issued to the investment banking firm
                  five-year warrants to

                                      F-9
<PAGE>

                  purchase 141,360 shares of common stock at $.35 per share. The
                  total value of the amounts paid to this investment banking
                  firm ($126,500) reduced the extraordinary gain in Fiscal 1998.

         The Company obtained an independent appraisal with respect to the
securities that were issued pursuant to the Financial Restructuring. Based on
the findings of the appraisal, all securities issued by the Company have been
recorded at fair value.

         During Fiscal 1999, the Company issued 825 shares of Series D
Convertible Preferred Stock with a stated value of $1,000 per share for $825,000
and 1,325 shares of Series E Convertible Preferred Stock with a stated value of
$1,000 per share for $1,325,000. The Series D and Series E Convertible Preferred
Stock will convert into common stock at the rate of stated value divided by
seventy percent (70%) of the average market price of the common stock for the
five trading days immediately prior to the conversion date (subject to
adjustment under certain circumstances). A dividend of $375,000 for the Series D
Convertible Preferred Stock and $567,857 for the Series E Convertible Preferred
Stock was recorded for Fiscal 1999 to record the beneficial conversion feature.
During Fiscal 1999, 100 shares of Series D Convertible Preferred Stock had
converted into 238,636 shares of common stock and 391 shares of Series E
Convertible Preferred Stock had converted into 696,508 shares of common stock.

         During Fiscal 1999, warrants to purchase 102,827 common shares were
exercised. As a result, 2,827 shares of common stock were issued in
consideration for $.358 per share and 100,000 shares of common stock were issued
in consideration for $.75 per share.

         During Fiscal 1999, the Company reached agreements with PNC, BT, two
original founders of the Company (the "Founders") and Gary D. Horne, the
Company's former Chief Executive Officer and Chairman of the Board ("GH"). The
terms of the agreements are as follows:

         1.       As of March 10, 1999, PNC agreed to increase the Company's
                  revolving credit line from $4,500,000 to $5,700,000 through
                  June 25, 2000.

         2.       Effective February 26, 1999, the Company entered into an
                  agreement with BT pursuant to which the Company's obligation
                  was reduced from $2,501,000 plus accrued interest of $261,000
                  to $800,000. The Company paid $250,000 on March 31, 1999 and
                  the balance of $550,000 is payable in 24 months without
                  interest. As a result of this transaction, the Company
                  recorded an extraordinary gain of $1,962,000. As a result of
                  the non-payment to the Noteholders of the amount due in June
                  1999, amounts due to PNC and BT are in default. PNC has
                  issued a waiver for such default.

         3.       By letter agreement dated February 9, 1999, the Founders
                  agreed to accept 75,000 shares of common stock each in lieu of
                  the existing deferred compensation agreement, resulting in an
                  extraordinary gain of $246,000.

         4.       By letter agreement dated March 4, 1999, GH agreed to forgive
                  indebtedness of $707,000 plus accrued interest in
                  consideration for 150,000 shares of common stock and the
                  release of 85,718 shares of common stock held in escrow along
                  with other non-financial concessions. This forgiveness of debt
                  resulted in an extraordinary gain of $628,000.

                                      F-10
<PAGE>

4.       PROPERTY, PLANT AND EQUIPMENT

         Property, plant and equipment consists of the following:

                                              JUNE 25,
                                                1999
                                            ----------
Land ..................................     $  563,937
Buildings .............................      1,633,327
Leasehold improvements ................        896,091
Machinery and equipment ...............      3,234,926
Automobiles ...........................         47,955
                                             6,376,236
Less: accumulated depreciation ........      3,320,954
                                            ----------
Property, plant and equipment, net ....     $3,055,282
                                            ==========

         Machinery and equipment includes property under capital leases of
$370,415. Amortization of assets under capital leases in Fiscal 1999 and Fiscal
1998 was $26,649 and $24,077, respectively, and is included in depreciation and
amortization expense. Depreciation and amortization of property, plant and
equipment was $254,543 and $349,135 during the years ended June 25, 1999 and
June 26, 1998, respectively.

5.       LONG-TERM DEBT

         Long-term debt consists of the following:

                                                                     JUNE 25,
                                                                       1999

Notes Payable-Noteholders.....................................      $  110,000
Revolving Line of Credit-PNC..................................       4,648,606
Note Payable-Bankers Trust Company, due February 26, 2001,
   no interest (see Note 3)...................................         550,000
Notes Payable-Stockholder.....................................         118,988
Other, including capital leases of $266,389...................         273,829
                                                                    ----------
                                                                     5,701,423

Less: current portion.........................................       2,360,521
                                                                    -----------
                                                                    $3,340,902
                                                                    ===========

         On December 19, 1997, the Company completed a refinancing of its
indebtedness and secured a new credit facility with PNC Bank. The Company
restructured its indebtedness with PNC on March 10, 1999 increasing its
borrowing limit to $5,700,000 through June 25, 2000. The interest rate on such
borrowing amount is the prime rate plus .5% per annum. PNC also increased the
over-advance from $900,000 to $1,500,000 which is included in the formula used
to determine the credit line availability. The over-advance is to be paid down
at the rate of $100,000 per month commencing September 1, 1999. No payments of
the over-advance have been made as of October 5, 1999. All proceeds from the
asset held for sale (see Note 12) are to be used to repay the over-advance. The
line of credit is secured by a first lien on accounts receivable, inventory and
machinery and equipment. The amount available for borrowing is determined
pursuant to a formula based upon eligible accounts receivable, inventory and
machinery and equipment plus the over-advance. As of June 25, 1999, based on the
availability formula, the Company did not have any additional availability for
borrowing.

                                      F-11
<PAGE>

         The Line of Credit agreement contains certain restrictive covenants
with respect to among others, capital expenditures, mergers and acquisitions,
dividends, and additional indebtedness. In addition, the agreement requires that
the Company satisfy certain financial covenants. On August 18, 1999, the Company
received a Notice of Default from PNC indicating that the Company was in default
of certain non-financial items. PNC has since waived the default. In addition,
on October 8, 1999 PNC waived the default caused by the non-payment of the
Noteholders of the amount due in June 1999. See Note 3.

         The Company has borrowed $118,988 from Peter C. Zachariou, the
Company's President and Chief Executive Officer, at an interest rate of 8%, due
on June 15, 2000.

         Annual principal payments, as adjusted for the amended maturities are
as follows:

                           12 MONTHS ENDING JUNE
                 ------------------------------------------
                 2000......................................   $2,360,521
                 2001......................................    3,214,883
                 2002......................................       89,028
                 2003......................................       18,468
                 2004......................................       18,523
                                                              ----------
                                                              $5,701,423
                                                              ==========

         The prime rate at June 25, 1999 was 8.0 %.

6.       STOCKHOLDERS' EQUITY

         In June 1996, the Company adopted the 1996 Stock Option Plan (the "1996
Plan"). The 1996 Plan provided for the issuance of a maximum of 60,000 shares of
common stock pursuant to the future grant to employees and others of incentive
stock options and nonqualified stock options.

         On March 15, 1999, at the Company's annual meeting of stockholders, the
stockholders voted to increase the number of authorized shares of the Company's
common stock from 10,000,000 to 50,000,000 shares and the number of shares of
common stock reserved for issuance under the 1996 Plan from 60,000 to 350,000
shares.

         In August 1997, the Company granted options to purchase 15,000 shares
at $5.75 per share. In June 1998, the Company cancelled all existing options
which were issued at $5.75 per share and granted options to purchase 50,000
shares at $.50 per share.

                                      F-12
<PAGE>

         During Fiscal 1999, the Company granted options to purchase 180,000
shares. Of such options, options to purchase 30,000 shares are exercisable at
$1.00 share and vest March 14, 2000. Options to purchase 150,000 shares are
exercisable at $.625 per share and vested 1/3 immediately, 1/3 on June 1, 2000
and 1/3 on June 1, 2001. All of the options were granted at not less than fair
market value of the Company's common stock at the date of grant and are
exercisable for a ten-year period. In addition, options to purchase 15,000
shares were cancelled as a result of the termination of one employee's
employment. The following table sets forth the activity of the 1996 Plan for the
years ended June 25, 1999 and June 26, 1998:

                                            NUMBER OF         WEIGHTED AVERAGE
                                             OPTIONS           EXERCISE PRICE
                                             -------           --------------
Outstanding at June 28, 1997                  30,000                $5.75
          Granted                             65,000                 1.71
          Cancelled                          (45,000)                5.75
                                             -------                -----
Outstanding at June 26, 1998                  50,000                  .50
        Granted                              180,000                  .69
        Cancelled                            (15,000)                 .50
                                             -------                -----
Outstanding at June 25, 1999                 215,000                $ .66
                                             =======                =====


         The following table summarizes information about stock options
outstanding at June 25, 1999:

<TABLE>
<CAPTION>
                                          OPTIONS GRANTED                     OPTIONS EXERCISABLE
                             ---------------------------------------       -----------------------
                                             WEIGHTED       WEIGHTED                      WEIGHTED
RANGE OF                                      AVERAGE       AVERAGE                        AVERAGE
 EXERCISE                       NUMBER       REMAINING      EXERCISE         NUMBER       EXERCISE
  PRICES                     OUTSTANDING       LIFE          PRICE         EXERCISABLE     PRICE
---------                    -----------     ---------      --------       -----------    --------
<S>                             <C>             <C>           <C>            <C>            <C>
$  .50                          35,000          9.0           $.50           30,000         $.50
  1.00                          30,000          9.8           1.00             -               -
   .625                        150,000          9.9           .625           50,000          .625
------------                   -------          ---           ----           ------         -----
$.50 - $1.00                   215,000          9.7           $.66           80,000         $.58
============                   =======          ===           ====           ======         =====
</TABLE>

         The Company utilizes the provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation ("SFAS
123"). SFAS 123 encourages, but does not require, companies to record at fair
value compensation costs for stock-based compensation plans. The Company has
chosen to account for stock-based compensation using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" and related interpretations. Accordingly, compensation cost
for stock options is measured as the excess, if any, of the quoted market price
of the Company's common stock at the date of grant over the amount an employee
must pay to acquire the stock. The Company has determined that the proforma
effect of the common stock options on compensation expense, determined using the
fair value of such options at the dates of grant, as required by SFAS No. 123
was $58,000 ($.02 loss per share) in Fiscal 1999 and was less than $.01 per
share in Fiscal 1998.

         Effective June 29, 1998, the Company entered into a one-year agreement
with a management company to provide management assistance to the Company. The
management

                                      F-13
<PAGE>

company was paid $200,000 and received 150,000 shares of the Company's common
stock. The fair value of the common stock ($53,700) was expensed in Fiscal 1999.
In addition, the management company purchased 100,000 shares of Company's common
stock at $.358 per share.

7.       INCOME TAXES

         The provision for income taxes consists of the following:

                                                      YEARS ENDED
                                                -----------------------
                                                JUNE 25,       JUNE 26,
                                                  1999           1998
                                                --------    -----------
Deferred:
    Federal.............................             -        1,310,391
    State...............................             -          407,141
                                                ------      -----------
                                                     -      $ 1,717,532
                                                ======      ===========

         A reconciliation of the income tax provision (benefit) to the amount
computed using the Federal statutory rate follows:

                                                       YEARS ENDED
                                               -----------------------------
                                                JUNE 25,           JUNE 26,
                                                  1999               1998
                                               ----------        -----------
Income tax at statutory rate.............      $ (863,683)       $(1,691,547)
State income taxes and other (net of
    Federal benefit).....................        (242,208)           402,606
Limitation on use of Federal NOL.........               -          2,581,865
Increase in valuation allowance..........       1,105,891            424,608
                                               ----------        -----------
                                               $        -        $ 1,717,532
                                               ==========        ===========


         The net deferred tax asset consists of the following:

                                                     JUNE 25,        JUNE 26,
                                                       1999            1998
                                                   -----------     -----------
Net operating loss carryforwards...........        $ 2,018,757     $   588,416
Capital loss carryforwards.................            224,489         228,333
Allowance for doubtful accounts............            128,620         143,220
Inventory..................................             85,260         145,247
Deferred compensation......................                  -         134,682
Accrued interest...........................                  -          94,700
Other......................................             (5,914)        (36,312)
Depreciation...............................           (692,380)       (645,345)
                                                   -----------     -----------
                                                     1,758,832         652,941
Valuation allowance........................         (1,758,832)       (652,941)
                                                   -----------     -----------
                                                   $         -     $         -
                                                   ===========     ===========

         Deferred taxes result from temporary differences in the recognition of
revenues and expenses for income tax and financial statement purposes. As a
result of the financial restructuring (see Note 3), annual utilization of the
Federal net operating loss carryforwards will be limited. At June 26, 1998, the
Company wrote-down the deferred tax asset to the maximum realizable value of
$652,941. In addition, the Company increased the valuation allowance by $424,608
to $652,941 to fully reserve the deferred tax asset.

                                      F-14
<PAGE>

         As of June 25, 1999, the Company has Federal net operating loss
carryforwards, after limitation, of approximately $4,500,000 which begin to
expire in 2006. During Fiscal 1999, the Company increased the valuation
allowance by $1,105,891 to $1,758,832 to fully reserve the deferred tax asset.
Realization of the deferred tax asset is dependent upon sufficient future
taxable income during the period that temporary differences and carryforwards
are expected to be available to reduce taxable income.

8.       RELATED PARTY TRANSACTIONS

         The Company purchases computers, computer supplies and services from
Netcomp, Inc., which operates the ComputerLand franchise in Poughkeepsie, New
York. Netcomp, Inc. is owned by Gary D. Horne and Stanley F. Zuk, two former
executive officers of the Company. Purchases from Netcomp, Inc. aggregated
$52,000 in Fiscal 1999 and $134,000 in Fiscal 1998.

9.       PENSION PLAN

         The Company has a defined contribution plan covering all full time
employees who have worked at least 1,000 hours during the plan year, who have
one year of service, and are age twenty-one or older. The Plan is subject to
provisions of the Employee Retirement Income Security Act of 1974. There was no
pension expense attributed to this plan for Fiscal 1999 and Fiscal 1998.

CONTINGENCIES

         The Company is involved in pending and threatened legal actions and
proceedings in the ordinary course of business. In the opinion of management,
the outcome of such legal actions and proceedings will not have a material
effect on the Company.

11.      MANAGEMENT'S PLANS

         Notwithstanding the significant steps taken by management to
restructure the Company's debt, the Company's immediate cash requirements are
significant. No assurance can be given that the Company will be able to
successfully realize cash flow from operations or that such cash flow will be
sufficient. Management believes that the Company's existing and anticipated
capital resources will not enable it to fund its planned operations through
Fiscal 2000. Management is currently attempting to obtain additional financing
and intends to raise additional funds within the next 12 months through equity
and/or debt financings. The Investors have committed to the Company to fund the
Company's working capital requirements through Fiscal 2000.

12.      ASSET HELD FOR SALE

         During Fiscal 1999, the Company made a decision to sell the Grand
Avenue facility which is currently idle, as part of a plan to reduce debt and
increase equity. The Company does not have a written contract for a sale of the
property at this time, however, the facility is on the market and a sale is
anticipated in Fiscal 2000. The Company has classified this asset at its
estimated net realizable value, after a $405,000 write-down, as a current asset.

                                      F-15
<PAGE>

                                INDEX TO EXHIBITS

EXHIBIT NO.          DESCRIPTION
-----------          -----------
21.1                 List of Subsidiaries
27.1                 Financial Data Schedule