SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   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 30, 2000

                                       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)

                                 (845) 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: $12,302,665.

The aggregate market value of the issuer's Common Stock, $.01 par value, held by
non-affiliates on September 24, 2000 was $3,605,270.

As of September 24, 2000, there were 17,621,081 shares of the issuer's Common
Stock, $.01 par value, outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE
                                      NONE

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                                 ASD Group, Inc.

                                Table of Contents

                                     Part I

Item 1.  Description of Business ..........................................  1
Item 2.  Description of Property ..........................................  7
Item 3.  Legal Proceedings.................................................  8
Item 4.  Submission of Matters to a Vote of Security Holders...............  8

                                     Part II

Item 5.  Market for Common Equity and Related Stockholder Matters..........  8
Item 6.  Management's Discussion and Analysis or Plan of Operation......... 11
Item 7.  Financial Statements.............................................. 13
Item 8.  Changes In and Disagreements with Accountants on Accounting
         and Financial Disclosure.......................................... 13

                                    Part III

Item 9.  Directors, Executive Officers, Promoters and Control Persons;
         Compliance with Section 16(a) of the Exchange Act................. 14
Item 10. Executive Compensation............................................ 17
Item 11. Security Ownership of Certain Beneficial Owners and Management.... 19
Item 12. Certain Relationships and Related Transactions.................... 19
Item 13. Exhibits and Reports on Form 8-K.................................. 20

                           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. Such factors include, but
are not limited to, the risks and uncertainties associated with a contract
manufacturing company which is dependent on a small number of large companies,
upon key personnel and upon certain industries as well as a company which has a
limited history of profitability and need for additional capital. Additionally,
the Company is subject to risks and uncertainties associated with all contract
manufacturing companies including variability of customer requirements and
customer financing, limited availability of components and a market
characterized by rapidly changing technology and continuing process development.
The Company is also subject to other risks detailed herein or detailed from time
to time in the Company's filings with the Securities and Exchange Commission.

<PAGE>

                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

GENERAL

         ASD Group, Inc. (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, Inc., Karl Suss America,
Inc., L3 Communications 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 during the fiscal years ended
June 30, 2000 ("Fiscal 2000") and 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. 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
(845) 452-3000.

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

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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 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 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.

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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.

INDUSTRIES AND PRODUCTS

         The following table lists the industries in which the Company expects
to continue to conduct significant business during Fiscal 2001 and the products
for which the Company expects to provide manufacturing services (based on net
sales for Fiscal 2000).

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:

         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
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

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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.

         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.

         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.

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         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 assemblies are manufactured to UL 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,
Inc., Karl Suss America, Inc., L3 Communications and Van Dam Machine Co. A
majority of the Company's customers are located in the Northeast United States.

         For Fiscal 2000, the Company's three largest customers accounted for
approximately 59% of net sales. Sales to these three customers accounted for
approximately 30%, 16% and 13%, respectively, of the Company's net sales. For
Fiscal 1999, the Company's four largest customers accounted for approximately
59% 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 30, 2000 was approximately $12,500,000.
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 Yarde 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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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 October 2, 2000, the Company employed 115 full time employees.
The Company employs 37 people in finance, sales and administration; 72 people in
manufacturing operations and 6 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 currently not used and unoccupied (the "Plant"). These
facilities are mortgaged in the amount of $550,000 as of June 30, 2000. 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.

         Effective July 17, 2000, the Company entered into a contract to sell
the Plant. However, since entering into the original agreement, management has
had discussions with the purchasers of the Plant regarding reducing the purchase
price in light of certain findings from the environmental and general
inspections. Management has written-down the carrying value of this asset held
for sale to $760,000 to reflect the expected net realizable value of the Plant.
It is currently contemplated that this transaction will close on or before
October 31, 2000.

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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.

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

         During Fiscal 2000, the Company has not conducted any annual meetings
of its stockholders or submitted any matters to a vote of its stockholders.

                                     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 OTC Electronic
Bulletin Board under the symbol "ASDG.OB." The following table sets forth the
high and low sale prices as furnished by The Nasdaq Stock Market, Inc. for the
calendar quarter indicated in the last two fiscal years:

1999                                       High                     Low
----                                       ----                     ---
Quarter ended September 25, 1998          $1.375                  $ .50
Quarter ended December 25, 1998            1.1875                   .375
Quarter ended March 26, 1999               1.1562                   .5938
Quarter ended June 25, 1999                1.1875                   .5938

2000
----
Quarter ended September 24, 1999          $ .9375                 $ .4375
Quarter ended December 24, 1999             .5938                   .2188
Quarter ended March 24, 2000               2.125                    .25
Quarter ended June 30, 2000                1.0625                   .25

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

HOLDERS

         As of August 7, 2000, there were approximately 17 holders of record of
the common stock. The Company believes that the common stock is held by in
excess of 350 beneficial holders.

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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.

RECENT SALES OF UNREGISTERED SECURITIES

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

         1.       In December 1998, the Company sold to three investors 825
                  shares of Series D Convertible Preferred Stock in
                  consideration for $825,000. 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 (the "Securities Act").

         2.       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.

         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.

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

         6.       Effective June 25, 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
                  $1,210,000 in principal and unpaid interest pursuant to
                  promissory notes due in June 1998.

         7.       In April 1999, the Company issued 100,000 shares of common
                  stock in connection with the exercise of warrants to purchase
                  100,000 shares of common stock. The warrants were exercisable
                  at a price of $.75 per share and the Company received $75,000
                  in connection with such exercise.

         8.       In April 1999, the Company issued 2,827 shares of common stock
                  in connection with the exercise of warrants to purchase 2,827
                  shares of common stock. The warrants were exercisable at a
                  price of $.358 per share and the Company received $1,012.07 in
                  connection with such exercise.

         9.       In December 1999, the Company sold 200 shares of Series F
                  Convertible Preferred Stock in consideration for $200,000. The
                  investor was an

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                  accredited investor and the shares were sold pursuant to Rule
                  506 of Regulation D promulgated under the Securities Act.

         10.      In December 1999, the Company sold 400 shares of Series G
                  Convertible Preferred Stock in consideration for $400,000. The
                  investors were accredited investors and the shares were sold
                  pursuant to Rule 506 of Regulation D promulgated under the
                  Securities Act.

         11.      In April 2000, the Company issued 44,794 shares of common
                  stock in connection with the cashless exercise of warrants to
                  purchase 55,838 shares of common stock. The warrants were
                  exercisable at a price of $.358 per share.

         12.      From February through June 2000, the Company sold 500 shares
                  of Series H Convertible Preferred Stock in consideration for
                  $500,000. The investors were accredited investors and the
                  shares were sold pursuant to Rule 506 of Regulation D
                  promulgated under the Securities Act.

         In connection with each of these transactions, the Company did not pay
underwriting discounts or commissions. These shares were all issued without
registration under 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.

         During Fiscal 2000, (i) 350 shares of Series D Convertible Preferred
Stock were converted into 911,208 shares of the Company's common stock, (ii) 384
shares of Series E Convertible Preferred Stock were converted into 1,082,861
shares of the Company's common stock, (iii) 400 shares of Series G Convertible
Preferred Stock were converted into 2,133,332 shares of common stock, and (iv)
100 shares of Series H Convertible Preferred Stock were converted into 355,556
shares of the Company's common stock.

         In July 2000 and August 2000, 500 shares of Series E and Series H
Convertible Preferred Stock were converted into 2,688,348 shares of the
Company's common stock.

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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 2000 AS COMPARED TO FISCAL 1999

         For Fiscal 2000, the Company's net sales increased by $2,692,000 or
28.0% to $12,303,000 from $9,611,000 for Fiscal 1999. The increase in sales was
the result of sales and marketing efforts which resulted in increased sales to
existing customers and sales to several large new customers.

         Costs of goods sold for Fiscal 2000 increased by $834,000 or 9.0% to
$10,117,000 from $9,283,000 for Fiscal 1999. The increase in cost of goods sold
is primarily the result of increased sales. Increases in costs of goods sold
were offset by lower overhead costs and an overall reduction in the average
number of production employees as compared to the previous year. In addition,
included in Fiscal 1999 costs of goods sold is a $1,500,000 write-down of
inventory. Gross profit as a percentage of net sales increased by 14.3% from
3.5% for Fiscal 1999 to 17.8% for Fiscal 2000.

         Total operating expenses decreased for Fiscal 2000 by $1,536,000 or
30.2% to $3,549,000 from $5,085,000 for Fiscal 1999. The decrease in operating
expenses is primarily the result of decreases in administrative functions at
both the management and staff level. Also contributing to the reduction were
lower professional fees and better overall management of operating expenses.

         Interest expense decreased in Fiscal 2000 by $121,000 or 19.5% to
$498,000 from $619,000 for Fiscal 1999. The decrease in interest expense results
from a net reduction in debt related to the debt repayments and restructurings
during Fiscal 2000 and Fiscal 1999.

         During Fiscal 2000, the Company increased its deferred income tax
valuation allowance by $782,000. The total valuation allowance at June 30, 2000
of $2,541,000 reduces the net deferred tax asset to zero. This reduction was
made in light of the significant loss recognized by the Company in Fiscal 2000
and the limitations on the usage of the net operating loss carryforwards
resulting from the capital infusion by investors in prior years.

         The extraordinary gain in Fiscal 1999 of $2,836,000 was the result of
debt restructuring with the Company's lenders and two original founders of the
Company.

         During Fiscal 2000 and Fiscal 1999, the Company issued shares of
convertible preferred stock to raise additional capital. The shares of preferred
stock are convertible into shares of common stock based on a formula which
includes a percentage of the average market price of the Company's common stock.
As a result, the holders of these shares of convertible preferred stock will
receive shares of the Company's common stock for equivalent to less than the
current market price for the common stock. The Company recorded dividends of
$386,000 and $943,000 to record the beneficial conversion features of the
convertible preferred stock issued during Fiscal 2000 and Fiscal 1999,
respectively.

                                       11
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

         GENERALLY

         STATEMENTS OF CASH FLOW

         Net cash used in operating activities was $1,668,000 for Fiscal 2000 as
compared to $4,281,000 for Fiscal 1999. The decrease in cash used in operating
activities was primarily the result of the decrease in the loss before the
extraordinary gain from restructuring, offset by an increase in accounts
receivable and inventory. Increases in accounts payable also provided an
additional $810,000 to offset cash used in operating activities. Net cash
provided by financing activities during Fiscal 2000 was $1,743,000 as compared
to $4,309,000 in Fiscal 1999. The decrease results from less sales of common and
preferred stock in Fiscal 2000 offset partially by increased bank borrowings.
The Company had a working capital deficit of $2,952,000 at June 30, 2000 as
compared to working capital of $204,000 at June 25, 1999. Working capital is
significantly lower, in large part, because the PNC Bank revolving line of
credit and the note payable to Bankers Trust Company are being classified as
current liabilities at June 30, 2000.

         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 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 2001. 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 2001.

         The Company's line of credit with PNC Bank, which expires October 31,
2000, 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.

         As of June 30, 2000, the Company did not meet certain covenants with
respect to the line of credit with PNC Bank. The Company's failure to meet these
covenants constitutes a default on the line of credit. In addition, default on
the PNC Bank line of credit constitutes a default under the Company's Option
Agreement with Bankers Trust Company. Notwithstanding the foregoing, neither PNC
Bank nor Bankers Trust Company has declared an event of default under the line
of credit or the Option Agreement or attempted to exercise their rights under
these agreements. Moreover, as part of the Company's negotiation with PNC Bank
for an extension of the expiration date to the line of credit, the Company will
also negotiate a waiver of the covenant violations.

         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
approximately $300,000 during Fiscal 2001. Such expenditures will be primarily
for additional manufacturing and test equipment designed to increase both
capacity and efficiency. The Company intends to

                                       12
<PAGE>

finance these capital expenditures through funds raised or existing and
anticipated capital resources.

NET OPERATING LOSS CARRYFORWARDS

         As of June 30, 2000, the Company had a net operating loss carry
forwards ("NOLs") for federal income tax purposes of approximately $5,700,000
which begins to expire in 2006. The restructuring in Fiscal 1999 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 30, 2000, the total valuation allowance was $2,541,000, which reduced the
net deferred tax asset to zero.

IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

         The impact of recently issued accounting standards is discussed in Note
2 of the Notes to Consolidated Financial Statements.

ITEM 7.  FINANCIAL STATEMENTS

         The response to this item is incorporated by reference to pages F-1
through F-16 herein.

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

         None.

                                       13
<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(1).......   44    Co-Chairman of the Board and Director
Benjamin Rabinovici......   78    Co-Chairman of the Board, Treasurer and
                                  Director
Peter C. Zachariou(2)....   39    President, Chief Executive Officer, Secretary
                                  and Director
William Courchaine.......   38    Chief Operating Officer
Thomas H. Lenagh(1)(2)...   75    Director
Jan M. Winston1(2).......   64    Director
William Foote ...........   49    Chief Financial Officer

(1)   Member of Audit Committee.
(2)   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
became Treasurer of the Company in December 1999. 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.

                                       14
<PAGE>

         Peter C. Zachariou became the President and a director of the Company
in June 1998, Chief Executive Officer in March 1999 and Secretary in December
1999. From June 1995 through January 2000, Mr. Zachariou also held various
positions with JR Consulting, Inc., a company now known as Providential
Holdings, Inc. with a class of securities traded on the OTC Electronic Bulletin
Board(R); most recently as Chairman of the Board, President and Treasurer. For
at least the preceding five years, Mr. Zachariou has been a private investor.

         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 is currently Chairman of the Board of Inrad Inc. 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 Directors 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.

         William Foote joined the Company in March 2000 as Chief Financial
Officer. Prior to that, Mr. Foote was employed by Benjamin Moore & Co. From 1990
to 1995, he held the position of Treasurer and served as the Chief Financial
Officer for Benjamin Moore & Co. in Canada before relocating to the U.S.
corporate office. In the U.S., Mr. Foote held the positions of Director of
Financial Planning and Vice-President until 1999. Mr. Foote has over 15 years
experience in financial management in the manufacturing area. He is a CPA in the
United States and an accredited public accountant in Canada

         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. The Audit Committee met on
one occasion during Fiscal 2000. The Compensation Committee did not meet during
Fiscal 2000.

         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
annual grants of stock options under the 1996 Stock Option Plan (the "1996
Plan") to purchase 7,500 shares of

                                       15
<PAGE>

common stock. The options will be exercisable at the greater of fair market
value on the date of grant or $.50, will vest at the end of each full year of
service and will be exercisable for a period of ten years from the date of
grant.

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 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 2000, its executive officers, directors and greater than 10% beneficial
owners did not timely comply with such filing requirements. The Form 3s for
William Courchaine, Benjamin Rabinovici and William Foote and the Form 5s for
the other executive officers, directors and significant stockholders for Fiscal
2000 have not been filed.

                                       16
<PAGE>

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, Chief Operating Officer and
Chief Financial Officer (collectively, the "Named Executive Officers") in all
their capacities for Fiscal 2000, 1999 and 1998. No other executive officer of
the Company received salary and bonus compensation in Fiscal 2000, 1999 and 1998
in excess of $100,000.

<TABLE>
<CAPTION>
                                                             Summary Compensation Table
                                                             --------------------------
                                                                                                        Long Term
                                                                                                   Compensation Awards
                                                 Annual Compensation                               -------------------
                                              --------------------------         Other Annual       Shares Underlying
Name and Principal Position                   Year     Salary      Bonus        Compensation(1)        Options(#)
---------------------------                   ----     ------      -----        ---------------        ----------
<S>                                           <C>     <C>            <C>              <C>                   <C>
Peter C. Zachariou,                           2000    $ 84,000       $0               $0                    0
President and Chief Executive Officer (2)     1999    $ 84,000       $0               $0                    0
                                              1998       $0          $0               $0                    0

William Courchaine,                           2000    $115,000       $0               $0                    0
Chief Operating Officer                       1999    $ 74,400       $0               $0                    0
                                              1998    $ 77,171       $0               $0                    0

William Foote,                                2000    $ 36,700       $0               $0                    0
Chief Financial Officer (3)

<FN>
----------
(1)      The table does not include amounts for personal benefits extended to
         Mr. Zachariou, Mr. Courchaine or Mr. Foote by the Company, such as
         health or life insurance. The Company believes that the incremental
         cost of such benefits to Named Executive Officers during Fiscal 1998
         through Fiscal 2000 did not exceed the lesser of $50,000 or 10% of
         total annual salary and bonuses.

(2)      Mr. Zachariou was appointed President of the Company on June 25, 1999.
         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.

(3)      Mr. Foote began his employment with the Company in March 2000.
</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.

         Effective June 2, 1999, the Company entered into an Employment
Agreement with William Courchaine, Chief Operating Officer of the Company.
Pursuant to this agreement, Mr. Courchaine receives a base salary of $115,000
per annum and reimbursement of all reasonable and necessary business expenses.

                                       17
<PAGE>

         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 Fiscal 2000 to the
Company's Named Executive Officers.

STOCK OPTIONS HELD AT END OF FISCAL 2000

         No stock options are currently held by the Company's Named Executive
Officers as of June 30, 2000. No options were exercised by the Named Executive
Officers during Fiscal 2000.

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.

         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 30, 2000, the Company has outstanding options under the 1996
Plan to purchase 240,000 shares of common stock to five persons. None of such
options were granted to the Named Executive Officers.

                                       18
<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..................................                  15,000                  *
Peter C. Zachariou ..................................               3,200,002               17.18%
William R. Courchaine................................                       0                  0
Thomas H. Lenagh.....................................                  30,000 (4)              *
Jan M. Winston.......................................                  30,000 (4)              *
Jay Solomont.........................................                  15,000 (4)              *
William Foote .......................................                       0                  0
Cameron Worldwide Ltd................................               1,492,500                8.47
Sheldon M. Rabinovici................................               1,325,361                7.52
Cheryl Epstein.......................................               1,374,603                7.80
All directors and named executive officers
as a group (7 persons)...............................               3,290,002               17.60%

<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>

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

LOAN FROM PETER ZACHARIOU

         During Fiscal 2000 and Fiscal 1999, Peter C. Zachariou, the Company's
President and Chief Executive Officer and a director of the Company, advanced to
the Company $812,000, of which $145,000 was repaid. Such advances are evidenced
by a promissory note bearing interest at the rate of 8% per annum and payable on
July 1, 2001. The outstanding balance of the loan and accrued interest at June
30, 2000, was $668,000 and $26,000, respectively. The outstanding loan balance
at June 25, 1999 was $118,000.

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.

                                       19
<PAGE>

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits

Exhibit No.     Description
-----------     -----------
    3.1         Certificate of Incorporation, as amended. (1)(2)
    3.2         Bylaws.(1)
    4.1         Specimen Certificate of Common Stock. (1)
   10.1         1996 Stock Option Plan, as amended (2)
   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.(1)
   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.(1)
   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.(1)
   10.5         Option Agreement dated as of May 31, 1996 by and among Banker's
                Trust Company and the Registrant.(1)
   10.6         Amendment dated December 20, 1996 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 25, 1999 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 25, 1999 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 25, 1999 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
   10.18        Third Amendment Agreement dated as of March 1, 2000 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

                                       20
<PAGE>

Exhibit No.     Description
-----------     -----------
                the Credit Agreement and PNC Bank, National Association
   10.19        Employment Agreement dated as of June 2, 1999 between ASD Group,
                Inc. and William Courchaine.
   21.1         List of Subsidiaries of the Registrant.(2)
   27.1         Financial Data Schedule.

----------
(1)     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).
(2)     Incorporated by reference to the exhibits filed with the Company's
        Annual Report on Form 10-KSB for the year ended June 25, 1999.
(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)      Current Reports on Form 8-K

         None

                                       21
<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 13, 2000            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.

       Signature                         Title                        Date
---------------------------   -----------------------------    -----------------

/s/ Peter C. Zachariou        President and Chief Executive    October 13, 2000
---------------------------   Officer and Director
Peter C. Zachariou

/s/ William Courchaine        Chief Operating Officer          October 13, 2000
---------------------------
William Courchaine

/s/ William Foote             Chief Financial Officer          October 13, 2000
---------------------------   (Principal Financial and
William Foote                 Accounting Officer)

/s/ Thomas H. Lenagh          Director                         October 13, 2000
---------------------------
Thomas H. Lenagh

/s/ Jan M. Winston            Director                         October 13, 2000
---------------------------
Jan M. Winston

                              Co-Chairman of the Board and     October __, 2000
---------------------------   Director
Jay Solomont

/s/ Benjamin Rabinovici       Co-Chairman of the Board and     October 12, 2000
---------------------------   Director
Benjamin Rabinovici

                                       22
<PAGE>

                                 ASD GROUP, INC.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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

Consolidated Balance Sheet as of June 30, 2000.........................   F-3

Consolidated Statements of Operations for the Years Ended June 30, 2000
and June 25, 1999......................................................   F-4

Consolidated Statements of Stockholders' Deficiency for the Years Ended
June 30, 2000 and June 25, 1999........................................   F-5

Consolidated Statements of Cash Flows for the Years Ended June 30, 2000
and June 25, 1999......................................................   F-6

Notes to Consolidated Financial Statements............................. F-7-F-16

                                      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 30, 2000, and the related consolidated
statements of operations, stockholders' deficiency, and cash flows for each of
the two years in the period ended June 30, 2000. 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 auditing standards generally
accepted in the United States of America. 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 30, 2000, and the results of their operations and their
cash flows for each of the two years in the period ended June 30, 2000 in
conformity with accounting principles generally accepted in the United States of
America.

DELOITTE & TOUCHE LLP

Stamford, Connecticut
September 26, 2000

                                      F-2
<PAGE>

                        ASD GROUP, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
                                     ASSETS

                                                                                 June 30, 2000
                                                                                 -------------
<S>                                                                              <C>
Current assets:
  Cash .......................................................................   $     63,996
  Accounts receivable, less allowance for doubtful accounts of
    $350,171 .................................................................      2,416,093
  Inventory, less reserve of  $229,814........................................      2,497,346
  Prepaid expenses and other current assets...................................         27,589
  Asset held for sale.........................................................        760,000
                                                                                 ------------
         Total current assets.................................................      5,765,024
Property, plant and equipment, net............................................      3,195,473
Other assets..................................................................         97,909
                                                                                 ------------
Total assets .................................................................   $  9,058,406
                                                                                 ============

                    LIABILITIES AND STOCKHOLDERS' DEFICIENCY

Current liabilities:
  Current portion of long-term debt ..........................................   $  5,683,813
  Accounts payable............................................................      2,356,996
  Accrued expenses............................................................        675,871
                                                                                 ------------
         Total current liabilities............................................      8,716,680
Long-term debt................................................................      1,024,989
                                                                                 ------------
         Total liabilities....................................................      9,741,669
                                                                                 ------------
Contingencies (See Notes)
Stockholders' deficiency:
   Preferred stock, $.01 par value, 1,000,000 shares authorized, 74,986
     convertible shares issued and outstanding................................      2,341,420
   Common stock, $.01 par value, 50,000,000 shares authorized,
     14,932,733 shares issued and outstanding.................................        149,328
  Paid-in capital.............................................................      7,625,560
  Deficit.....................................................................    (10,799,571)
                                                                                 ------------
         Total stockholders' deficiency.......................................       (683,263)
                                                                                 ------------
Total liabilities and stockholders' deficiency ...............................   $  9,058,406
                                                                                 ============
</TABLE>

                 See notes to consolidated financial statements.

                                      F-3
<PAGE>

<TABLE>
<CAPTION>
                        ASD GROUP, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                                                        Years Ended
                                                                 --------------------------
                                                                   June 30,       June 25,
                                                                     2000           1999
                                                                 -----------    -----------
<S>                                                              <C>            <C>
Net sales.....................................................   $12,302,665    $ 9,610,801
Cost of goods sold............................................    10,117,355      9,282,961
                                                                 -----------    -----------
         Gross profit.........................................     2,185,310        327,840
                                                                 -----------    -----------
Operating expenses:
     Sales and marketing......................................       471,888        453,501
     General and administrative...............................     3,077,276      4,631,640
                                                                 -----------    -----------
         Total operating expenses.............................     3,549,164      5,085,141
                                                                 -----------    -----------
         Loss from operations.................................    (1,363,854)    (4,757,301)

Interest expense..............................................      (497,756)      (618,509)
                                                                 -----------    -----------
         Loss before extraordinary gain.......................    (1,861,610)    (5,375,810)

Extraordinary gain............................................            --      2,835,565
                                                                 -----------    -----------
         Net loss.............................................    (1,861,610)    (2,540,245)

Preferred stock dividend......................................       385,714        942,857
                                                                 -----------    -----------
Loss applicable to common stockholders........................   $(2,247,324)   $(3,483,102)
                                                                 ===========    ===========
Amounts applicable to common stockholders per basic and
diluted common share:
Loss before extraordinary gain................................   $      (.17)   $     (1.72)
Extraordinary gain............................................            --            .77
                                                                 -----------    -----------
Loss applicable to common stockholders........................   $      (.17)   $      (.95)
                                                                 ===========    ===========
Weighted average common shares outstanding....................    12,962,435      3,684,611
                                                                 ===========    ===========
</TABLE>

                 See notes to consolidated financial statements

                                      F-4
<PAGE>

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

<TABLE>
<CAPTION>
                                      Preferred Stock              Common Stock
                                  -----------------------    -----------------------      Paid-In
                                    Shares       Amount        Shares        Amount       Capital         Deficit          Total
                                  --------    -----------    ----------     --------   -----------    ------------      ----------
<S>                               <C>         <C>
Balance, June 27, 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)    (2,571,971)    7,772,221       77,723     2,494,248              --              --

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      2,577,886    10,404,982      104,050     6,334,372      (8,937,961)         78,347

Net loss.......................         --             --            --           --            --      (1,861,610)     (1,861,610)

Preferred stock conversion.....     (1,234)    (1,722,180)    4,482,957       44,830     1,677,350              --              --

Preferred stock issued.........      1,100      1,100,000            --           --            --              --       1,100,000

Warrants exercised.............         --             --        44,794          448          (448)             --              --

Preferred stock dividend.......         --        385,714            --           --      (385,714)             --              --
                                  --------    -----------    ----------     --------    ----------    ------------      ----------
Balance, June 30, 2000.........     74,986    $ 2,341,420    14,932,733     $149,328    $7,625,560    $(10,799,571)     $ (683,263)
                                  ========    ===========    ==========     ========    ==========    ============      ==========
</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 30,          June 25,
                                                                                   2000              1999
                                                                                   ----              ----
<S>                                                                             <C>              <C>
Operating activities:
 Net loss.............................................................          $(1,861,610)     $(2,540,245)
 Adjustments to reconcile net loss to net
      cash used in operating activities:
       Depreciation and amortization..................................              333,478          392,293
       Provision (benefit) for doubtful accounts......................               33,184          (24,013)
       Common stock issued for services...............................                   --           53,700
       Deferred compensation..........................................                   --           18,764
       Interest accrued-stockholder advances..........................               25,899           33,317
       Extraordinary gain from restructuring..........................                   --       (2,835,565)
       Inventory reserve..............................................               26,423         (142,435)
       Asset held for sale-writedown..................................              190,000          405,565
       Changes in assets and liabilities:
           Accounts receivable........................................             (885,156)        (642,427)
           Inventory..................................................             (415,014)       1,076,577
           Prepaid expenses and other current assets..................               84,373           47,674
           Other assets...............................................              (31,807)             944
           Accounts payable...........................................              809,648           95,451
           Accrued expenses...........................................               22,389         (220,139)
                                                                                -----------      -----------
                Net cash used in operating activities.................           (1,668,193)      (4,280,539)
                                                                                -----------      -----------
Investing activities:
 Capital expenditures ................................................              (15,822)         (28,892)
                                                                                -----------      -----------
Financing activities:
 Net proceeds from sale of common and preferred stock.................            1,100,000        4,309,812
 Borrowings...........................................................              983,545          525,652
 Payments of long-term debt...........................................             (340,495)        (476,918)
 Financing costs......................................................                   --          (49,058)
                                                                                -----------      -----------
                Net cash provided by financing activities.............            1,743,050        4,309,488
                                                                                -----------      -----------
Net increase in cash..................................................               59,035               57
Cash, beginning of year...............................................                4,961            4,904
                                                                                -----------      -----------
Cash, end of year.....................................................          $    63,996      $     4,961
                                                                                ===========      ===========
Supplemental disclosures:
  Cash paid during the year for:
     Income taxes.....................................................          $        --      $     5,819
                                                                                ===========      ===========
     Interest.........................................................          $   453,395      $   595,602
                                                                                ===========      ===========
  Debt converted upon debt restructurings.............................          $        --      $ 3,088,690
                                                                                ===========      ===========
  Capital leases entered into.........................................          $   364,329      $   102,895
                                                                                ===========      ===========
</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") operates in one business segment and 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.

         Fiscal Year--The Company's fiscal year is the 52 or 53 week period
which ends on the last Friday in June. The 2000 and 1999 fiscal years were the
53 and 52 week periods which ended June 30, 2000 ("Fiscal 2000") and June 25,
1999 ("Fiscal 1999"), respectively.

         Revenue Recognition--Sales are recorded as products are shipped or when
services are rendered.

         Financing Costs--During Fiscal 1999, the Company incurred $49,058 in
connection with debt financings (see Note 5). No costs were incurred during
Fiscal 2000. Amortization of financing costs for Fiscal 2000 and Fiscal 1999
were $93,517 and $94,464, respectively. Such costs have been fully amortized as
of June 30, 2000.

         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.

         Earnings (Loss) Per Share--Basic earnings (loss) per share ("EPS") is
computed by dividing net income (loss) by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock. Stock options granted but not yet
exercised under the Company's stock option plans, warrants and the effects of
convertible preferred stock would be included in the diluted EPS calculations
under the treasury stock method in the event such effects were dilutive.

         Inventory--Inventory, consisting of work-in-progress and raw materials
of $668,156 and $1,829,190, 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 that was expected to be shipped
pursuant

                                      F-7
<PAGE>

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.

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

                                                              Years Ended
                                                         ---------------------
                                                         June 30,     June 25,
         Customer                                          2000         1999
         --------                                          ----         ----
         Customer A ...................................     30%          19%
         Customer B....................................     16           10
         Customer C....................................     13           11
         Customer D....................................      5           19
                                                            --           --
                                                            64%          59%
                                                            ==           ==

         As of June 30, 2000, the Company had accounts receivable of 27%, 22%
and 18%, or 67% in the aggregate, from three of its customers.

         Management Estimates--The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of
America 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 1998, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"). This statement, as amended by SFAS Nos. 137 and 138,
establishes standards for the accounting and reporting for derivative
instruments and for hedging activities and requires the recognition of all
derivatives as assets or liabilities measured at their fair value. Gains or
losses resulting from changes in the fair value of derivatives would be
recognized in earnings in the period of change unless certain hedging criteria
are met. The Company does not expect SFAS 133 to have a material impact on the
consolidated financial statements and will implement it effective in the first
quarter of Fiscal 2001.

         Revenue Recognition in Financial Statements--In December 1999, the
Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No.
101 ("SAB 101"), "Revenue Recognition in Financial Statements." SAB 101
summarizes certain of the SEC's views in applying generally accepted accounting
principals to revenue recognition in financial

                                      F-8
<PAGE>

statements. On June 26, 2000, the SEC issued SAB 101B to defer the effective
date of implementation of SAB 101 until no later than the fourth quarter of
fiscal years beginning after December 31, 1999. The Company is required to adopt
SAB 101 by June 29, 2001. The Company does not expect the adoption of SAB 101 to
have a material impact on the consolidated financial statements.

         Disclosure about Fair Value of Financial Instruments--The carrying
value for all current assets and current liabilities approximates fair value
because of their short-term nature. The carrying value of the Company's
long-term debt also approximates its fair value based on prevailing interest
rates.

3.       RESTRUCTURING AND FINANCINGS

         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.

         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:

         1.       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.

         2.       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 previously issued to BT were
                  cancelled.

         3.       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,

                                      F-9
<PAGE>

                  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.

         4.       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 1999.

         5.       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.

         The Company paid an investment banking firm that advised the Investors
$118,000 and issued to the investment banking firm five-year warrants to
purchase 141,360 shares of common stock at $.358 per share.

         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

                                      F-10
<PAGE>

                  31, 1999 and the balance of $550,000 is payable February 2001
                  without interest. As a result of this transaction, the Company
                  recorded an extraordinary gain of $1,962,000.

         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.

         During Fiscal 2000, the Company issued (i) 200 shares of Series F
Convertible Preferred Stock with a stated value of $1,000 per share for
$200,000, (ii) 400 shares of Series G Convertible Preferred Stock with a stated
value of $1,000 per share for $400,000, and (iii) 500 shares of Series H
Convertible Preferred Stock with a stated value of $1,000 per share for
$500,000. The Series F Stock is convertible 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). The Series G and Series H
Stock are convertible into common stock at the rate of stated value divided by
seventy-five percent (75%) 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). During Fiscal 2000, a dividend of
$386,000 for the Series F, G and H Stock issuances was recorded to record the
beneficial conversion feature.

         During Fiscal 2000, (i) 350 shares of Series D Convertible Preferred
Stock were converted into 911,208 shares of the Company's common stock, (ii) 384
shares of Series E Convertible Preferred Stock were converted into 1,082,861
shares of the Company's common stock (iii) 400 shares of Series G Convertible
Preferred Stock were converted into 2,133,332 shares of common stock, and (iv)
100 shares of Series H Convertible Preferred Stock were converted into 355,556
shares of the Company's common stock.

         In April 2000, the Company issued 44,794 shares of common stock in
connection with the cashless exercise of warrants to purchase 55,838 shares of
common stock. The warrants were exercisable at a price of $.358 per share.

         In July 2000 and August 2000, 500 shares of Series E and Series H
Convertible Preferred Stock were converted into 2,688,348 shares of the
Company's common stock.

                                      F-11
<PAGE>

4.       PROPERTY, PLANT AND EQUIPMENT

         Property, plant and equipment consists of the following:

                                                                    June 30,
                                                                      2000
                                                                  -----------
         Land..................................................   $   563,937
         Buildings.............................................     1,633,327
         Leasehold improvements................................       896,091
         Machinery and equipment...............................     3,615,078
         Automobiles...........................................        47,955
                                                                  -----------
                                                                    6,756,388
         Less: accumulated depreciation........................     3,560,915
                                                                  -----------
         Property, plant and equipment, net....................    $3,195,473
                                                                  ===========

         Machinery and equipment includes property under capital leases of
$737,294. Amortization of assets under capital leases in Fiscal 2000 and Fiscal
1999 was $36,801 and $26,649, respectively, and is included in depreciation and
amortization expense. Depreciation and amortization of property, plant and
equipment was $239,960 and $254,543 during Fiscal 2000 and Fiscal 1999,
respectively.

5.       LONG-TERM DEBT

         Long-term debt consists of the following:

                                                                       June 30,
                                                                         2000
                                                                     -----------
         Revolving Line of Credit - PNC...........................   $ 4,938,151
         Note Payable - Bankers Trust Company,
              due February 26, 2001, no interest (See Note 3).....       550,000
         Note Payable - President.................................       667,988
         Other, including capital leases of $549,484..............       552,663
                                                                     -----------
                                                                       6,708,802
         Less: current portion....................................     5,683,813
                                                                     -----------
                                                                     $ 1,024,989
                                                                     ===========

         The Company has a revolving line of credit with PNC. The Company and
PNC have amended the terms of the line of credit. Currently, the maximum
borrowing limit is $5,000,000 and the interest rate on such borrowings is the
prime rate plus 1.0% 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 upon the sale of
the Company's asset held for sale (see Note 11). The line of credit is due to
expire on October 31, 2000. The Company is currently in negotiation with PNC for
an extension of the expiration date. 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 30, 2000, based on the availability formula, the
Company had approximately $62,000 additional availability for borrowing.

         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. As of June 30, 2000, the
Company did not meet certain covenants contained in the documents memorializing
the line of credit with PNC. The Company's failure to meet these covenants
constitutes a default on the line of credit. In addition, default on the PNC
line of credit constitutes a default under the Company's agreement with BT.
Notwithstanding the foregoing, neither PNC nor BT has declared an event of
default under the line of credit or the BT agreement or attempted to exercise
their rights under these agreements. Moreover, as part of the Company's
negotiation with PNC for an extension of the expiration date to the line of
credit, the Company will also negotiate a waiver of the covenant violations.

         The Company has an outstanding note payable of $667,988 to Peter C.
Zachariou, the Company's President and Chief Executive Officer, at an interest
rate of 8%, due on July 1, 2001. Interest expense on this borrowing was $25,899
and $33,317 in Fiscal 2000 and Fiscal 1999,

                                      F-12
<PAGE>

respectively. In addition, the Company has a liability to Peter C. Zachariou of
$158,000 for unpaid compensation which is included in accrued expenses.

         Annual principal payments of long-term debt are as follows:

                           12 Months Ending June
                 ------------------------------------------
                 2001......................................   $5,683,813
                 2002......................................      779,119
                 2003......................................      102,068
                 2004......................................       79,432
                 2005......................................       64,370
                                                              ----------
                                                              $6,708,802
                                                              ==========

         The prime rate at June 30, 2000 was 9.5%.


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.

         During Fiscal 2000, the Company granted options to purchase 60,000
shares. Of such options, 30,000 shares are exercisable at $.50 per share and
vest in June 2001, and 30,000 shares are exercisable at $.6875 per share and
vest in June 2000. 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 5,000 shares were cancelled
as a result of the termination of one employee's employment.

         During Fiscal 1999, the Company granted options to purchase 150,000
shares exercisable at $.625 per share which vest 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.


                                      F-13

<PAGE>

         The following table sets forth the activity of the 1996 Plan for the
years ended June 30, 2000 and June 25, 1999:

                                                                    Weighted
                                              Number of              Average
                                               Options           Exercise Price
                                               -------           --------------
         Outstanding at June 27, 1998           50,000                 $.50
                 Granted                       150,000                  .625
                 Cancelled                     (15,000)                 .50
                                               -------                 ----
         Outstanding at June 25, 1999          185,000                  .60
                 Granted                        60,000                  .59
                 Cancelled                      (5,000)                 .50
                                               -------                 ----
         Outstanding at June 30, 2000          240,000                 $.60
                                               =======                 ====

         The following table summarizes information about stock options
outstanding at June 30, 2000:

<TABLE>
<CAPTION>
                                Options Outstanding               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                 60,000          9.0          $.50           30,000        $.50
 .6875                30,000          9.0           .6875         30,000         .6875
 .625                150,000          9.0           .625         100,000         .625
------               -------          ---          ------        -------        ------
$.50 - .6875         240,000          9.0          $.60          160,000        $.61
============         =======          ===          ======        =======        ======
</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 $35,000 ($.01 loss per share) in Fiscal 2000 and $31,000 ($.01 loss per
share) in Fiscal 1999.

         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 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.

                                      F-14
<PAGE>

7.       INCOME TAXES

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

                                                              Years Ended
                                                       ------------------------
                                                        June 30,      June 25,
                                                          2000          1999
                                                       ----------    ----------
         Income tax at statutory rate.............     $ (632,947)   $ (863,683)
         State income taxes and other (net of
             Federal benefit).....................       (148,929)     (242,208)
         Increase in valuation allowance..........        781,876     1,105,891
                                                       ----------    ----------
                                                       $       --    $       --
                                                       ==========    ==========

         The net deferred tax asset consists of the following:

                                                     June 30,        June 25,
                                                       2000            1999
                                                   -----------     -----------
         Net operating loss carryforwards.......   $ 2,396,757     $ 1,848,237
         Capital loss carryforwards.............       224,489         224,489
         Allowance for doubtful accounts........       147,072         128,620
         Inventory..............................        96,522          85,260
         Accrued compensation...................        66,360              --
         Other..................................        83,713          (5,914)
         Asset held for sale write-down.........       250,320         170,520
         Depreciation...........................      (724,526)       (692,380)
                                                   -----------     -----------
                                                     2,540,707       1,758,832
         Valuation allowance....................    (2,540,707)     (1,758,832)
                                                   -----------     -----------
                                                   $        --     $        --
                                                   ===========     ===========

         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.

         As of June 30, 2000, the Company has Federal net operating loss
carryforwards, after limitation, of approximately $5,700,000 which begin to
expire in 2006. During Fiscal 2000 and Fiscal 1999, the Company increased the
valuation allowance by $781,876 and $1,105,891, respectively, 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.       PROFIT SHARING PLAN

         The Company has a profit sharing 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. No contributions were made
by the Company in Fiscal 2000 or Fiscal 1999.

9.       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.

10.      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

                                      F-15
<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 2001. 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 2001.

11.      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. Effective July 17, 2000, the Company has entered into a
contract to sell this facility and anticipates that a closing will occur on or
before October 31, 2000. The Company has classified this as a current asset at
its estimated net realizable value of $760,000, after write-downs of $190,000
and $405,000 in Fiscal 2000 and Fiscal 1999, respectively.

                                      F-16
<PAGE>

                                INDEX TO EXHIBITS

EXHIBIT NO.                 DESCRIPTION
-----------                 -----------

  10.18           Third Amendment Agreement dated as of March 1, 2000 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

  10.19           Employment Agreement dated as of June 2, 1999 between ASD
                  Group, Inc. and William Courchaine.

  27.1            Financial Data Schedule