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                       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 27, 1997

                                       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 small business issuer in its charter)

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

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

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

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

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

         Yes      [X]               No      [ ]

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

State issuer's revenues for its most recent fiscal year:   $15,870,988

The aggregate market value of the issuer's Common Stock, $.01 par value, held by
non-affiliates on October 6, 1997, was $4,843,125.

As of October 6, 1997, there were 1,577,917 shares of the issuer's Common Stock,
$.01 par value, outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE
                                      NONE
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<TABLE>
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                                 ASD GROUP, INC.

                                      INDEX

                                Table of Contents
                                     Part I
<S>                                                                                     <C>
Item 1.       Description of Business. . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2.       Description of Property . . . . . . . . . . . . . . . . . . . . . . . . . 10
Item 3.       Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Item 4.       Submission of Matters to a Vote of Security Holders . . . . . . . . . . . 10

                                              Part II
Item 5.       Market for Common Equity and Related Stockholder Matters . . . . . .      11
Item 6.       Management's Discussion and Analysis or Plan of Operation . . . . . .     11
Item 7.       Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Item 8.       Changes In and Disagreements with Accountants on Accounting and
              Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . .15

                                              Part III
Item 9.       Directors, Executive Officers, Promoters and Control Persons;
              Compliance with Section 16(a) of the Exchange Act . . . . . . . . . . . . 15
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. . . . . . . . . . . . . . . . . . . . . 21
</TABLE>


<PAGE>

                           FORWARD LOOKING STATEMENTS

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

                                     PART-I

ITEM 1.   DESCRIPTION OF BUSINESS

GENERAL

         The Company provides comprehensive contract manufacturing and
engineering services to original equipment manufacturers ("OEMs.") The Company
specializes in the fabrication, assembly and testing of complex industrial
products and non-invasive medical 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 highly sophisticated atomic force microscopes (which
measure the electrical field of an atom) to less complex products such as sign
plotting devices. Representative customers of the Company include ENI
Technologies (a division of Astec America, Inc.), General Electric, Gerber
Scientific Products, International Business Machines Corporation ("IBM"),
Lockheed Martin Corporation (formerly Loral Federal Systems Company), Materials
Research Corporation (a division of Sony Corporation), Motorola Corporation and
the United States Postal Service.

         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. According to reports by Technology Forecasters,
Inc., contract manufacturers were expected to do nearly $25 billion of business
in the United States and Canada in 1996. In addition, growth in this industry is
forecasted at 26% a year through 1999. Moreover, according to these reports,
electronics contract manufacturing worldwide was expected to be a $50 billion
business in 1996 and will nearly double by 1999.

         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 has resulted in an expansion of its relationships
with existing customers and the addition of new customers. In addition, the
Company's proprietary Production Operation Management ("POM") manufacturing
software is an integral part of the Company's services as it assists the Company
in controlling its manufacturing operations from estimating to shipping to
billing. The POM manufacturing software is a real time system which allows the
Company to track specific projects as they move through the production cycle and
to make adjustments as necessary in order to control costs and achieve higher
levels of quality control and efficiencies.

         In May 1997, the Company completed an initial public offering 
(the "Offering") of 945,000 shares of Common Stock at $5.75 per share. The net
proceeds of the Offering have been and are being used for repayment of
indebtedness, increase in staffing, purchase of materials to fill backlog
requirements, capital expenditures, sales and marketing activities, working
capital and other general corporate purposes.

         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. The Company's telephone
number is (914) 452-3000.

                                       3
<PAGE>

INDUSTRY OVERVIEW

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

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

         OEMs utilize contract manufacturers for the following reasons:

         REDUCE TIME TO MARKET. Due to intense competitive pressures in the
electronics, industrial products and medical equipment industries, OEMs are
faced with increasingly shorter product life-cycles 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
medical equipment have become more technologically advanced, the manufacturing
process has become increasingly automated requiring a greater level of
investment in capital equipment. Contract manufacturers enable OEMs to gain
access to advanced manufacturing facilities, thereby reducing the OEMs' overall
capital equipment requirements.

         FOCUS RESOURCES. Because the electronics, industrial products and
medical equipment industries are experiencing greater levels of competition and
more rapid technological change, many OEMs increasingly are 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 life-cycles, 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 manufacturers expertise in inventory
management, OEMs can generally better manage inventory costs and increase their
return on assets.

BUSINESS STRATEGY

         The Company focuses on servicing OEMs who produce complex, high dollar
value industrial products where high quality manufacturing is extremely
important. Management of the Company believes that profits for such products
tend to generate higher gross profit margins. The Company's objective is to
create revenues and improve profitability by utilizing its POM manufacturing
software and sophisticated manufacturing, engineering and design services to
offer customers comprehensive manufacturing solutions. The Company intends to
realize its objective by implementing the following strategies:

         INCREASE SALES FROM EXISTING CUSTOMERS AND ADD NEW CUSTOMERS. The
Company plans to expand existing relationships and seek new customers in the
markets it currently serves and in additional markets. The Company plans to
increase the amount of sales to existing customers by devoting more time to
these customers through an increased sales force and by offering improved and
expanded services such as faster metal cutting machining centers, faster sheet
metal punching equipment, expanded painting facilities and more rapid and less
expensive testing procedures and equipment. While the Company has an on-going
quality improvement program, the Company will intensify its efforts in educating
its

                                       4
<PAGE>

employees on the Company's quality requirements and in measuring its employees
conformance to these requirements. Additionally, the Company will improve on its
monthly quality assurance technical audits in conformance with the international
quality process specification and have an outside certified auditor audit the
quality management system every six months. The Company also intends to increase
the frequency of its customer satisfaction surveys from quarterly to monthly.
The Company is also planning to publish a newsletter quarterly to be mailed to
customers. The Company plans to diversify its customer base by increasing its
marketing efforts. The Company intends to do this by attending more trade shows,
expanding the number of advertisements in trade journals, expanding the number
of sales personnel, expanding the number of customers who receive direct
mailings, and providing new sales literature, conducting CD-ROM based
interactive electronic presentations and enhancing its presentation on the
Internet World Wide Web. During the fiscal year ending June 26, 1998 ("Fiscal
1998"), the Company plans to refurbish a currently idle second plant owned by
the Company which will enable the Company to handle the requirements of
additional customers. The Company's objective is to obtain multiple customers in
the markets it currently serves and in additional markets.

         INCREASE PROFITS BY REDUCING COSTS. The Company plans to reduce costs
by enhancing the POM manufacturing software to augment its real time
productivity and quality measurement system using bar codes and adding a feature
to the POM manufacturing software which will allow each customer a window into
the POM manufacturing software to monitor via the Internet the status of
purchase orders relating to their jobs. Management of the Company believes that
the utilization of bar codes will reduce the labor costs associated with the
present manual entry method of reporting. Although customers will not have the
ability to modify existing jobs or place new orders through the Internet,
management believes that allowing customers to access information themselves
will also enable the Company to reduce overhead.

         MARKETING OF POM MANUFACTURING SOFTWARE. Once the POM manufacturing
software has been upgraded, management of the Company plans to generate revenues
through the licensing of the POM manufacturing software initially, to contract
manufacturers and ultimately, to other concerns engaged in manufacturing
operations, in return for monthly usage fees. Management believes that its
knowledge of the needs of contract manufacturers, its historical experience in
marketing software and its experience developing the POM manufacturing software
will enable it to market and license the POM manufacturing software. However, no
assurance can be given that the Company will be able to successfully market and
license the POM manufacturing software.

         FACILITATE GROWTH OF THE COMPANY THROUGH ACQUISITIONS. The contract
manufacturing industry is now going through consolidation. The Company may
acquire other contract manufacturers if management determines that such
acquisitions will enable the Company to improve net sales and profits. These
acquisitions may allow the Company to expand to other regions of the country and
possibly abroad. Management of the Company believes that the Company's
proprietary POM manufacturing software will enable the Company to realize
greater efficiencies with respect to any such acquisitions. The Company has no
current commitment or understanding with, and has not entered into any
negotiations with, any acquisition candidates.

POM MANUFACTURING SOFTWARE

         The Company's proprietary POM manufacturing software is integral to the
Company's operations. The POM manufacturing software tracks all of the Company's
operations on a real time basis. As a result, the POM manufacturing software
assists the Company in controlling costs and achieving higher levels of quality
control and efficiencies.

         Specifically, after an order is placed, the POM manufacturing software
allows the Company's industrial engineers and estimators to create a
hierarchical data base of the components of a customer's product in order to
estimate the total cost of the product and to produce a priced bill of materials
("BOM") which includes purchased items and labor broken down into sequenced
tasks. Thereafter, the POM manufacturing software automatically produces printed
requests for quotations to the appropriate supplier. As a result, the Company
can provide the customer with a printed BOM broken down by each assembly and
fabricated part which breakdown includes price of labor, raw materials and
purchased components.

         When the Company releases the product for manufacturing, the software
provides the Company's purchasing department with electronic purchase
requisitions automatically generated from the BOM. Once the purchasing
department negotiates final prices and selects the suppliers, the POM
manufacturing software automatically prints and sends purchase orders to the
suppliers and automatically prints lists of raw materials and components
("Kits") for each work center so that the Company's materials management
department can supply these items to the manufacturing department when
scheduled. The POM manufacturing software provides the purchasing department
lists of purchased items that must be expedited in order to satisfy the delivery
dates. If necessary, the POM manufacturing software will also provide the
purchasing department printed amendments to purchase orders to change the
quantity and delivery dates of Kits that have had delivery dates or quantities
to be manufactured which are altered by the Company's production management
department in response to customer demand. The POM manufacturing software
automatically prints bar-coded work 
                                       5
<PAGE>

orders listing sequenced labor tasks to be performed for each work center in
response to a production lot defined by the Kit. As purchased items are received
and entered into the POM manufacturing software, the POM manufacturing software
updates the appropriate Kit, updates work-in-process values and electronically
compares quantities to the POM purchase orders. As labor is expended on each
work order and recorded each day, the POM manufacturing software updates the
work-in-process values and compares the actual labor hours per task to the
estimated labor hours and then produces reports to management of estimated
compared to actual results to date for each job showing purchasing efficiency
and labor efficiency compared to the estimating standard.

         If requested, for a specified job, the POM manufacturing software can
produce a detailed report showing each purchase order received, each invoice
sent to the customer, each labor transaction and each receiving transaction. On
demand from production administration as verified by its shipping department,
the POM manufacturing software prints an invoice for services rendered or
product shipped. When an invoice is printed, the POM manufacturing software
updates the accounts receivable in the financial system and deducts the dollar
amount of parts and labor from the work-in-process in labor and dollars in
purchased part for each active job, prints a statement for each customer showing
the invoices that are projected to become due through the next week, prints
projected accounts receivable collections by customer by week, prints a rating
letter to each supplier informing the supplier of its quality rating based on
comparison of purchase order quantity and delivery date requirements compared to
receiving transactions, and prints the productivity performance measurement of
each employee involved in this process.

         There are numerous advantages to the Company and its customers through
utilization of the POM manufacturing software. First, the priced bill of
materials sent to the customer insures customer confidence in the Company as the
customer realizes the Company understands the customer's product and the
customer can evaluate the Company's pricing strategy in detail. In addition,
because POM manufacturing software automatically produces requests for
quotations, purchase requisitions and purchase orders, overhead costs are
reduced. Since the POM manufacturing software provides timely comparison of
actual costs to estimated costs as each job progresses, the Company's production
management team is more likely to spot inefficiencies early in the production
cycle and then take corrective action thereby maximizing profit. Moreover,
because POM manufacturing software evaluates, on a daily basis, the productivity
levels of all direct employees, management believes that greater productivity is
achieved. Finally, because the POM manufacturing software is used to provide
weekly statements to its customers, management believes that accounts receivable
collection is faster thereby enhancing cash flow.

         The Company is developing upgrades for its POM manufacturing software
on an ongoing basis. Most recently, the Company enhanced the features of the POM
manufacturing software to allow management to parcel a large job into small
production runs called Kits. The POM manufacturing software tracks the status of
each Kit and allows management to modify each Kit in the same way as it is able
to modify the entire job. Any modifications to Kits are sent to the Company's
purchasing agents, expediters and suppliers.

         The Company is currently in the process of having the POM manufacturing
software upgraded to provide for the use of bar code tracking, which will
enhance the Company's ability to provide real time productivity analysis of each
direct worker and to provide the status of each order being processed in the
plant. The Company also plans to upgrade the POM manufacturing software to add a
feature which will allow each customer a window into the POM manufacturing
software to monitor via the Internet the status of each purchase order relating
to such customer's job and a cost breakdown of each of the customer's products
including a cost breakdown of each sub-assembly. As a result, the Company's
customers will have immediate access to information regarding each purchase
order relating to such customer's job. Management of the Company believes that
none of the Company's competitors have similar capabilities.

         The Company initially plans to market its POM manufacturing software to
other contract manufacturers and ultimately, to other concerns engaged in
manufacturing operations. From 1979 to 1989, the Company's management was
involved in the development of a major software system. At the peak of these
development efforts, approximately 30 programmers were employed by the Company
for this project. The system was ultimately marketed and sold to large
publishing companies. The Company has since focused its energies on the
development of the POM manufacturing software. The Company has recently hired
two additional programmers. The Company believes that its software development
staff will be able to provide sufficient customer support during the initial
phases of marketing the POM manufacturing software. The Company also intends to
enter into a joint venture with a partner for the marketing and licensing of the
POM manufacturing software. There are currently no ongoing discussions with
respect to establishment of any such joint venture. Management of the Company
believes it will take approximately two years to achieve revenues from the
marketing of the POM manufacturing software. However, there can be no assurance
that the Company will be able to successfully enter into a joint venture or
otherwise market and license the POM manufacturing software.

                                       6
<PAGE>

INDUSTRIES AND PRODUCTS

         The following table lists the industries in which the Company expects
to continue to conduct significant business during Fiscal 1998 and the products
for which the Company expects to provide manufacturing services (based on net
sales for the fiscal year ended June 27, 1997 ("Fiscal 1997")).
<TABLE>
<CAPTION>

INDUSTRY                          SPECIFIC PRODUCT OR PRODUCT COMPONENT
--------                          -------------------------------------
<S>                               <C>
Communications . . . . . . . .    Cellular telephone automated assembly components
Computer . . . . . . . . . . .    Chassis, frames, panels, wire harness and cables, jumpers, test equipment,
                                  process equipment
Environmental. . . . . . . . .    Cleaning equipment using environmentally friendly chemicals
Information Processing . . . .    Test equipment for copiers
Instrumentation. . . . . . . .    Printed circuit cards for laser measurement instruments
Medical. . . . . . . . . . . .    Power components for medical equipment; automated process equipment
Semiconductor  . . . . . . . .    Sputtering equipment components; power components for semiconductor equipment;
                                  atomic force microscope inspection equipment; test equipment
Sign-Making  . . . . . . . . .    Sub-systems for plotters; sub-systems for four color process sign making
Transportation . . . . . . . .    Airport control components
Other  . . . . . . . . . . . .    Letter sorting and handling components; parcel drop system; electronic voting
                                  machine components; control systems for power distribution; printed circuit
                                  boards for elevator control systems
</TABLE>

SERVICES

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

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

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

         In implementing its manufacturing approach, the Company emphasizes
timely delivery and accurate and up-to-date documentation for each product. The
Company develops an appropriate production process and complete set of
manufacturing process instructions, inspection plans and a quality assurance
plan for each product. An analysis of each customer's materials specification is
performed to identify component suppliers. The Company then plans and executes
purchase orders, receives, inspects and warehouses components, expedites
critical components and delivers a complete set of components to the production
floor for assembly. The Company uses its POM 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

                                       7
<PAGE>
for the customer, the Company restructures bills of material and expedites
orders for new components, as authorized. The Company also identifies and
implements changes to manufacturing instructions and test plans. In order to
assure prompt customer service, the Company assigns each project a product
manager, quality assurance engineer, product engineer, test engineer and
customer service representative. The Company maintains regular contact with its
customers to assure adequate information exchange, document control and
activities coordination necessary to support a high level of quality and on-time
delivery.

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

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

         The Company's quality management system has been certified under ISO
9002, an international quality standard. The Company's cable and wire harnesses
and assemblies are manufactured to Underwriters Laboratories and Canadian
Standards Association specifications and the Company has been certified by both
organizations. 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,
General Electric Co., Gerber Scientific Products, International Business
Machines, Lockheed Martin Corporation (formerly Loral Federal Systems Company),
Materials Research Corporation (a division of Sony Corporation), Motorola
Corporation and the United States Postal Service. A majority of the Company's
customers are located in the Northeast.

         For Fiscal 1997 the Company's five largest customers accounted for
approximately 66% of net sales. Sales to ENI Technologies, Gerber Scientific
Products, Lockheed Martin Corporation, International Business Machines and S&K
Products International, Inc. ("S&K") accounted for approximately 22%, 13%, 11%,
10%, and 10%, respectively, of the Company's net sales during Fiscal 1997. For
the fiscal year ended June 30, 1996 ("Fiscal 1996"), the Company's five largest
customers accounted for approximately 73% of net sales. Sales to ENI
Technologies, Gerber Scientific Products, S&K, Lockheed and Bruce Technologies
International accounted for approximately 20%, 16%, 14%, 13% and 10%,
respectively, of the Company's net sales during Fiscal 1996. 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. The Company is beginning
to expand 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 CD-ROM based 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 SCI Systems, Inc., Solectron Corporation, Jabil Circuit, Inc., Avex
Electronics Inc. (a privately-held company), Plexus Corp., 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 which 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.

                                       8
<PAGE>

         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 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 27, 1997 was approximately $12,100,000.
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. While a majority of the Company's
total revenues are derived from several of the Company's customers who provide
production requirements in the form of yearly purchase orders, the Company's
remaining revenues are derived from customers who do not commit to firm
production schedules for more than one quarter 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
Madison Cable Corporation, Bishop-Wisecarever, Marshall Industries, Intest
Corporation, Apollo Display Technologies and Dutchess Metal Supply Corporation.
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 aged or obsolete
inventory, it is written-off immediately. Historically, aged or obsolete
inventory has not had a material adverse effect on the Company.

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 or any appropriate 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,
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 workplace 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,

                                       9
<PAGE>

could be adopted creating additional expenses for the Company.

EMPLOYEES

         As of September 15, 1997, the Company employed 169 full time employees.
The Company employs 43 people in finance, sales and administration, 115 people
in manufacturing operations and 11 people in 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. The facility, which is owned by the Company, is subject to a $1,846,000
mortgage as of June 27, 1997. In addition, the Company owns a second 65,000
square foot plant in Poughkeepsie, which is subject to a mortgage in the amount
of $1,371,000 as of June 27, 1997. During Fiscal 1998 the Company intends to
refurbish and commence using this second plant, which is situated on a 4.9 acre
parcel of land and which is currently inactive, that can be used for future
expansion. The Company also owns approximately 55.76 acres of vacant land zoned
for light industrial use in Poughkeepsie. Management of the Company believes
that the Company's facilities are sufficient for its current and reasonably
anticipated operations.

ITEM 3.   LEGAL PROCEEDINGS

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

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

         None.


                                       10
<PAGE>

                                     PART II

ITEM 5.   MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET INFORMATION

         Since May 14, 1997 the Company's Common Stock has been traded under the
symbols "ASDG" on the Nasdaq SmallCap Market. The high and low prices as
furnished by The Nasdaq Stock Market, Inc. for the Company's Common Stock for
the period from May 14, 1997 to June 27, 1997 were $5.75 and $4.80,
respectively, and for period from June 28, 1997 to October 6, 1997 were $4.80
and $5.125, respectively. These bid prices are inter-dealer prices without
retail markup, mark-down or commission, and may not represent actual
transactions.

HOLDERS

         As of October 7, 1997 there were approximately 31 holders of record
of the Common Stock. The Company believes that the Common Stock is held by in
excess of 350 beneficial holders.

DIVIDEND POLICY

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

SALES OF UNREGISTERED SECURITIES

         None.

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 1997 AS COMPARED TO FISCAL 1996

         For Fiscal 1997, the Company's net sales decreased by $10,241,000 or
39.2% to $15,871,000 from $26,112,000 for Fiscal 1996. The decrease in sales
was due, in part, to a reduction in volume of orders by two of the Company's
largest customers, due to their inventory backlog. Another major customer of the
Company reduced its orders due to softness in the semi-conductor industry.
Additionally, a delay in the Company's raising equity capital adversely affected
the Company's ability to obtain and fund new orders.

         Costs of goods sold for Fiscal 1997 decreased by $8,548,000 or 41.4% to
$12,087,000 from $20,635,000 for Fiscal 1996. The decrease in cost of goods sold
is primarily the result of the reduction of sales. Gross profit as a percentage
of net sales increased by 2.8% from 21.0% for Fiscal 1996 to 23.8% for Fiscal
1997. The improvement in gross profit percentage reflects the efficiencies
achieved by management through cost reduction and selected price increases,
which offset the negative impact of the write-off in the fourth quarter of
Fiscal 1997 of residual inventory for low volume non-recurring jobs.

         Selling, general and administrative expenses decreased for Fiscal 1997
by $635,000 or 14.8% to $3,660,000 from $4,295,000 for Fiscal 1996. The decrease
in selling, general and administrative expenses is primarily the result of
reductions to support staff.

         Interest expense increased for Fiscal 1997 by $557,000 or 57.1% to
$1,534,000 from $977,000 for Fiscal 1996. The increase in interest expense
reflects both an increase in interest rates and in amounts borrowed, including
the $2,000,000 of Notes, $1,100,000 raised from the issuance of the Bridge Notes
(as described in "Liquidity and Capital Resources-Private Debt Offerings" below)
and $210,000 of amortization related to warrants issued in connection with
privately placed debt as more fully described below. The Fiscal 1997 interest
expense of $1,534,000 includes $430,000 of interest related to debt that was
repaid from the proceeds of the Initial Public Offering.

         Other income decreased for Fiscal 1997 by $131,000 or 65.8% to $68,000
from $199,000 for Fiscal 1996. Other income in Fiscal 1996 included a gain of
$167,000 on the August 1995 sale of a North Carolina facility owned by the

                                       11
<PAGE>

Company.

         Benefit for income tax increased for Fiscal 1997 by $562,000 to
$565,000 from $3,000 for Fiscal 1996 as a result of the carryfoward tax benefits
of the Fiscal 1997 loss. The tax benefit provided during Fiscal 1996 included a
reduction of the previously established deferred tax asset valuation allowance
relating to the utilization of a capital loss carryforward of $172,000,
resulting from the sale of the Company's North Carolina facility in August 1995.
The Company realized a tax benefit from the loss for Fiscal 1997.

LIQUIDITY AND CAPITAL RESOURCES

Statements of Cash Flows

         Net cash used in operations was $1,047,000 for Fiscal 1997 as compared
to $1,944,000 used in operations for Fiscal 1996. The decrease in cash used in
operations was the result of a decrease in accounts receivable and inventory
offset by decreases in accounts payable and accrued expenses. The inventory
reduction was primarily a result of implementation of a new feature in the POM
manufacturing software and a change of policy in the Company's purchasing
department. Net cash provided by financing activities during Fiscal 1997 was
$1,785,000. During this period $1,100,000 was provided from the issuance of 10%
Original Issue Discount Promissory Notes (the "Bridge Notes"), $3,889,000 was
provided from the Offering, $3,170,000 of long-term debt was
repaid, and $160,000 of financing costs were incurred. Working capital increased
to $4,767,000 at June 27, 1997 from $4,482,000 at June 30, 1996.

Line of Credit

         The Company's revolving bank line of credit ("Line of Credit") with
Bankers Trust Company (the "Bank") currently permits borrowings of up to
$3,730,000 and is due July 1, 1998 (extended from September 30, 1997). The
amount available for borrowings under the Line of Credit is determined pursuant
to a formula based upon the Company's eligible accounts receivable and
inventory. As of June 27, 1997 $3,129,000 was outstanding under the Line of
Credit and the Company had $601,000 available for additional borrowings.

         The Line of Credit currently bears interest at the rate of 10.0% (prime
plus 1 1/2%). The Line of Credit is secured by a first lien on substantially all
of the Company's assets other than a second lien on inventory. In addition, the
Bank holds mortgages on two of the Company's properties, which mortgages had an
aggregate principal balance of approximately $3,217,000 as of June 27, 1997. The
Bank has extended to the Company a line of credit secured by the Company's
equipment (the "Equipment Line") with an outstanding principal balance as of
June 27, 1997 of $358,000. The Equipment Line is due December 31, 1997 (extended
from Septebmer 30, 1997). The Company intends to refinance such indebtedness
with a new credit facility to be negotiated. There can be no assurance that the
Company will be able to refinance the Line of Credit and Equipment Line.

         The Company intends to refinance its indebtedness to the Bank and
secure a new credit facility with increased borrowing limit. On May 31, 1996,
the Company entered into an agreement (as amended) with the Bank which will
permit the Company to repay its existing indebtedness to the Bank at a discount
of approximately $460,000, provided such option is exercised on or before
October 31, 1997 (extended from September 30, 1997). Management of the Company
believes that the Bank agreed to accept repayment of the Line of Credit at a
discount in order to encourage the Company to find another source for its
financial needs as the Bank no longer provides commercial lending on a
short-term basis. There are no continuing obligations or conditions imposed upon
the Company in connection with repayment of the Line of Credit. The Company is
negotiating with a number of financial institutions to refinance its existing
credit facility. There can be no assurance that the Company will be able to
successfully do so.

Private Debt Offerings

         In December 1995 and February 1996, the Company sold an aggregate of
$2,000,000 in principal amount of 10% Senior Secured Notes due June 30, 1999
(the "Notes") to certain investors (the "Noteholders") in a private placement.
The proceeds of this private placement were used for purchase of inventory and
repayment of indebtedness. Interest on the Notes accrues at the rate of 10% per
annum and is payable quarterly. A portion of the Notes, which were secured by a
first lien on the Company's inventory, were due and payable upon consummation of
the Offering. A portion of the net proceeds of the Offering were used to effect
such repayment. The Agreement under which the Notes were issued (the "Note
Purchase Agreement") provided that the Noteholders would receive, upon
consummation of the initial public offering by the Company, such number of
shares of Common Stock of the Company determined by dividing the aggregate
principal amount of the Notes by the public offering price per share (the
"Noteholder Shares") and Noteholder Warrants to purchase an equal number of
shares of Common Stock at an exercise price equal to such public offering price
per share (the "Noteholder Warrants"). In December 1996, the Company and the
Noteholders amended the Note Purchase Agreement to,

                                       12
<PAGE>

among other matters, (i) provide that $900,000 in principal amount of Notes was
paid upon consummation of the Offering, (ii) release the Noteholders' security
interest in the Company's inventory upon consummation of the Offering, although
the Notes will continue to be senior to all indebtedness of the Company other
than bank or similar debt, (iii) eliminate the Noteholders' rights to receive
the Noteholder Shares and (iv) issue to Noteholders 500,000 Noteholder Warrants.
Moreover, the Company and the Noteholders agreed that the Noteholder Warrants
will be exercisable at $2.73 per share for a ten year period from consummation
of the Offering. In addition to the foregoing, the investment banking firm that
assisted the Company in connection with the placement of the Notes, and its
assignees (which include the Noteholders), received warrants to purchase 34,783
shares at a price equal to $5.75 per share, exercisable for a five-year period
from consummation of the Offering (the "Placement Agent Warrants").

         In August 1996, the Company sold an aggregate of $1,100,000 in
aggregate principal amount of Bridge Notes to several investors in a private
placement. Interest on the Bridge Notes accrued at the rate of 10% per annum,
subject to certain events described in the Bridge Notes which would result in
interest accruing at a higher rate. The proceeds of this private offering were
used for purchase of inventory and repayment of indebtedness. The Bridge Notes
were paid upon consummation of the Offering. Holders of the Bridge Notes
received warrants to purchase an aggregate of 112,500 shares of Common Stock
(the "Bridge Warrants"). In addition, the investment banking firm which assisted
in the placement of the Bridge Notes received Bridge Warrants to purchase 11,250
shares of Common Stock. The Bridge Warrants are exercisable at a price equal to
$2.96 per share for a five-year period commencing six months after consummation
of the Offering. The holders of the Bridge Warrants have been accorded
registration rights under the Securities Act of 1993, as amended (the
"Securities Act"), with respect to the Bridge Warrants and the shares of Common
Stock underlying the Bridge Warrants. Officers and directors of the Company have
agreed not to sell 250,000 of their shares prior to May 13, 1999 without the
prior written consent of H.J. Meyers & Co., Inc., the representative of the
underwriters participating in the Offering (the "Representative"). Such period
will be reduced to two years, however, if the Company's cumulative net income,
without giving effect to any acquisitions or mergers subsequent to May 13, 1997,
equals or exceeds $2,800,000 for the two fiscal year period ending June 30,
1998. Holders of an additional 313,872 outstanding shares of Common Stock have
agreed not to sell their shares prior to May 13, 1999 without the prior written
consent of the Representative. The Representative does not have any general
policy with respect to the release of shares prior to the expiration of the
lock-up period.

LIQUIDITY

         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.

         In order to remedy the negative operating cash flows, management of the
Company plans a reduction of inventory and a reduction of costs combined with
reduced spending in direct labor related areas and parts purchased for
inventory. Also impacting the growth in inventory was a shift in scheduled
shipments for a major customer. Once normal scheduling resumes, the Company
intends to liquidate the excess inventory related to this customer. To
accomplish a reduction of inventory, management of the Company has enhanced the
features of the POM manufacturing software to allow management to parcel a large
job into small production runs called Kits. The POM manufacturing software
tracks the status of each Kit and allows management to modify each Kit in the
same manner as it is able to modify the entire job. Any modifications to Kits
are sent to the Company's purchasing agents, expediters and suppliers. In
addition, the Company's policies with its suppliers have been modified to
require that purchase orders are not to be considered firm until 10 days within
the date the materials are required to be delivered to the Company. The Company
plans to achieve a labor cost reduction through improved efficiencies expected
to result from improvements to the POM manufacturing software and new equipment
to be purchased or leased.

         The Company anticipates that it will incur capital expenditures of
approximately $300,000 during Fiscal 1998. Such expenditures will be primarily
for the acquisition of additional assembly and manufacturing equipment and for
refurbishment of the Company's currently idle second plant.

         Management of the Company believes that the Company's existing and
anticipated capital resources, including the net proceeds of the Offering, will
enable it to fund its planned operations through July 1, 1998 when the existing
line of credit expires. However, management is currently in the process of
obtaining a new credit facility. This new credit facility, along with the
Company's existing capital resources, will enable the Company to fund its
planned operations through 1999.

                                       13
<PAGE>

There can be no assurance that the Company will be able to successfully
negotiate a new credit facility, realize cash flow from operations or that such
cash flow will be sufficient, in which case the Company may require additional
financing, and may seek to raise funds through subsequent equity or debt
financings, or through other sources. Moreover, the Line of Credit places
restrictions on the Company's ability to obtain financing either through the
offering of equity or incurrence of additional debt. No assurance can be given
that additional funds will be available to the Company to finance its
development on acceptable terms, if at all. Additional financings may result in
dilution to existing stockholders. If funds are needed but are not available in
adequate amounts from additional financing sources or from operations, the
Company's business may be adversely affected.


NET OPERATING LOSS CARRYFORWARDS

         As of June 27, 1997, the Company had a net operating loss ("NOL") for
federal income tax purposes of approximately $5,200,000 which begins to expire
in 2008, and no NOL for state income tax purposes. Although the Offering
resulted in a "change of control" for federal tax purposes, the limitation on
the Company's ability to utilize such NOL will not be significant. 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 will
not be realized. As of June 27, 1997, the total valuation allowance was
$228,000.

ITEM 7. FINANCIAL STATEMENTS

         The response to this item is incorporated by reference to pages F1-F13
herein.

                                       14
<PAGE>

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

         None.


                                    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:
<TABLE>
<CAPTION>

NAME                           AGE                 POSITIONS
----                           ---                 ---------
<S>                           <C>      <C>
Gary D. Horne **............  61       Chairman of the Board, Chief Executive Officer and Director
Stanley F. Zuk..............  60       President, Chief Operating Officer and Director
Robert Lettieri.............  50       Chief Financial Officer and Director
Gregory Horne...............  36       Vice President-Information Systems and Director
Thomas J. Lenagh *  **......  72       Director
Jan M. Winston *  **........  61       Director
*  Member of audit committee.
** Member of compensation committee
</TABLE>

         GARY D. HORNE is a co-founder of the Company and has served as Chief
Executive Officer since the inception of the Company in 1965. Prior to joining
the Company, Mr. Horne worked from 1956 through 1957, serving IBM as a design
draftsman and then worked from 1957 through 1960 for Graphics Techniques, Inc.,
an IBM design engineering contractor, as a design engineer. From 1960 to 1965,
Mr. Horne worked for International Design, Inc., an IBM design engineering
contractor, as branch manager.

         STANLEY F. ZUK is a co-founder of the Company and has served as Chief
Operation Officer since the inception of the Company in 1965. He is responsible
for all aspects of manufacturing. Prior to joining the Company, Mr. Zuk worked
for two years at General Electric and six years as design/drafting manager at
International Design, Inc.

         ROBERT LETTIERI has been with the Company since 1995 as Chief Financial
Officer and has been a director since November 1, 1996. From 1987 to 1995, Mr.
Lettieri served as Chief Financial Officer for two mid-sized companies, Fine
Host Corporation, a concessionaire of food service and souvenirs at stadiums,
race tracks and other sports facilities; and S&S companies, a distributor and
property manager of tobacco, confectionery and other products typically sold in
vending machines. From 1979 to 1987, Mr. Lettieri was Operations Controller for
the Cosmetic and Fragrance Division of Revlon and Group Director of Analysis and
Control of the Health Care Group of Revlon. Mr. Lettieri began his career at the
accounting firm of Deloitte & Touche LLP.

         GREGORY HORNE was employed by the Company from 1979 to 1982 and has
been with the Company from 1991 to the present. He has served as Vice
President-Information Systems since January 1995. Mr. Horne was elected to the
Board of Directors in January 1994. Prior to this position, Mr. Horne served as
a software programmer, systems analyst and Network Administrator for the
Company. From 1982 to 1990, Mr. Horne was employed by Watchtower Bible and Tract
Society of New York Inc. as a network operating system programmer.

         THOMAS H. LENAGH has been director of the Company since August 1997.
Mr. Lenagh was the Chairman and Chief Executive Officer of Greiner Engineering
from 1984 to 1986. He also served as the Chairman of the Executive Committee of
SCI Systems, Inc., from 1985 to 1994. Mr. Lenagh, an independent financial
advisor since 1984, has also served in financial management positions of the
Aspen Institute and Ford Foundation. Mr. Lenagh is also a Director of CML, Inc.,
Gintel Funds, Adams Express and Petroleum Resources, Clemente Growth Fund, ICN
Pharmaceutical, Inc. and Franklin Quest.

         JAN M. WINSTON has been a director of the Company since August 1997.
Mr. Winston was employed by the 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 lead IBM
activities in the development and sales of speech recognition systems.

         GREGORY HORNE is Gary D. Horne's son. There are no other family
relationships among the Company's directors and executive officers.

                                       15
<PAGE>

         In connection with the Offering, the Company granted the Representative
the right, for a period of three years from May 13, 1997, to designate an
observer to the Company's Board of Directors, which individual may be a
director, officer, employee or affiliate of the Representative.

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

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

         The Company's compensation to non-employee directors consists of a fee
of $1,000 per meeting of the Board of Directors and to provide non-employee
directors with annual grants of stock options under the 1996 Plan to purchase
7,500 shares of Common Stock that will be vested at the end of each full year of
service.

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 or her 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 or she is, or is threatened to be, made a
party by reason of his or her 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 or she 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 or her in connection with such action if he or she acted in good
faith and in a manner he or she 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 1997, its executive officers, directors and greater than 10% beneficial
owners complied with all such filing requirements.

                                       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, Chief Operating Officer
and the Chief Financial Officer (collectively, the "Named Executive Officers")
in all their capacities for Fiscal 1997 and 1996. No other executive officer of
the Company received salary and bonus compensation in Fiscal 1997 and Fiscal
1996 in excess of $100,000.
<TABLE>
<CAPTION>
                                                                SUMMARY COMPENSATION TABLE

                                                                                                                   LONG TERM
                                                      ANNUAL COMPENSATION                                     COMPENSATION AWARDS
                                            ------------------------------------                              -------------------
                                                                                            OTHER ANNUAL        SHARES UNDERLYING
NAME AND PRINCIPLE POSITION                     YEAR       SALARY          BONUS          COMPENSATION(1)           OPTIONS(#)
---------------------------                     ----       ------          -----          ---------------       -----------------
<S>                                             <C>       <C>               <C>                 <C>                     <C>
Gary D. Horne,                                  1997      $139,150          $0                  $0                      0
Chairman and Chief Executive Officer            1996      $143,520          $0                  $0                      0

Stanley F. Zuk,                                 1997      $138,400          $0                  $0                      0
President and Chief Operating Officer           1996      $135,320          $0                  $0                      0

Robert A. Lettieri,                             1997      $110,013          $0                  $0                    10,000
Chier Financial Officer                         1996      $ 57,720          $0                  $0                      0
</TABLE>
-----------------
(1) The table does not include amounts for personal benefits extended to Mr.
Horne, Mr. Zuk, or Mr. Lettieri by the Company, such as health or life
insurance. The Company believes that the incremental cost of such benefits to
Mr. Horne, Mr. Zuk, or Mr. Lettieri during Fiscal 1997 and fiscal 1996 did not
exceed the lesser of $50,000 or 10% of his total annual salary and bonuses.

         EXECUTIVE EMPLOYMENT AGREEMENTS. Effective December 1, 1996, the
Company entered into three-year employment agreements with each of Gary D.
Horne, the Company's Chairman and Chief Executive Officer, and Stanley F. Zuk,
the Company's President and Chief Operating Officer. The terms of the employment
agreements will automatically be extended for successive one year terms unless
the Company or the executive officer gives written notice to the other at least
90 days prior to the then-scheduled expiration date. The employment agreements
provide for annual salaries initially set at $160,000 and $140,000 (subject to
annual cost-of-living adjustments) for Messrs. Horne and Zuk, respectively.

         Each employment agreement provides that the executive officer who is a
party thereto (the "Executive Officer") will continue to receive his salary for
a period of 12 months after termination of employment, if his employment is
terminated by the Company for any reason other than Cause (as defined in the
employment agreement), including death or disability (with such severance
payable in a lump sum in the case of death). The term Cause is defined in the
employment agreement to mean (a) an Executive Officer's act or omission which
constitutes a willful and material breach of the employment agreement which is
not cured within 30 days after the Executive Officer's receipt of notice of such
breach, (b) an Executive Officer's embezzlement or misappropriation of the
Company's assets for property or (c) an Executive Officer's conviction for a
criminal act that is a felony. Each employment agreement also prohibits the
Executive Officer from directly or indirectly competing with the Company for one
year after termination for any reason except Cause. If a Change of Control (as
defined in the employment agreement) occurs, the employment agreement provides
for the continued employment of the Executive Officer for a period of two years
following the Change of Control. The term Change of Control, as used in the
employment agreement, is defined to mean (a) any person's or group's acquisition
of 15% or more of the combined voting power of the Company's outstanding
securities, or (b) in the event of any cash tender or exchange, offer, merger or
other business combination sale of assets or contested election, the persons who
were directors of the Company prior to such transaction ceasing to constitute a
majority of the Board of Directors following the transaction. In addition,
following the Change of Control, if the Executive Officer's employment is
terminated by the Company or by the Executive Officer for certain specified
reasons (such as a reduction of compensation or a diminution of duties), the
Executive Officer will receive a lump sum cash payment equal to the cash
compensation received by the Executive Officer during the 12 calendar months
prior to termination.

         The Company has obtained key man insurance in the amount of $1,000,000
on the lives of each of Messrs. Horne and Zuk.

                                       17
<PAGE>
         OPTION GRANTS IN LAST FISCAL YEAR. Under the Company's 1996 Stock
Option Plan (the "1996 Plan"), 60,000 shares of Common Stock are reserved for
issuance upon exercise of the options. The 1996 Plan is designed to serve as an
incentive for retaining qualified and competent directors, employees,
consultants and independent contractors of the Company. The following table sets
forth information concerning individual grants of stock options made during the
fiscal year ended June 27, 1997 to the Company's Named Executive Officers.
<TABLE>
<CAPTION>
                                         OPTION GRANTS IN LAST FISCAL YEAR
                                         ---------------------------------
                               NUMBER OF           % OF TOTAL OPTIONS
                                SHARES                  GRANTED               EXERCISE OF
                          UNDERLYING OPTIONS        TO EMPLOYEES IN            BASE PRICE              EXPIRATION
         NAME                 GRANTED (1)             FISCAL YEAR              ($/SHARE)                  DATE
         ----             ------------------        -----------------         -----------              ----------
<S>                             <C>                       <C>                    <C>                      <C> <C> 
  Robert A. Lettieri            10,000                    33%                    $5.75                May 13, 2007
</TABLE>
--------------------
(1)      Represents options granted under the Company's 1996 Plan.

         STOCK OPTIONS HELD AT END OF FISCAL 1997. The following table indicates
the total number and value of exercisable and unexercisable stock options held
by the Company's Named Executive Officers as of June 3l, 1997. No options were
exercised by the Named Executive Officers during Fiscal 1997.
<TABLE>
<CAPTION>

                                                                                  VALUE OF UNEXERCISED
                                    NUMBER OF UNEXERCISED                          IN-THE-MONEY OPTION
                                 OPTIONS AT FISCAL YEAR END                      AT FISCAL YEAR END (1)
                                 --------------------------                      ----------------------
         NAME                 EXERCISABLE            UNEXERCISABLE            EXERCISABLE            UNEXERCISABLE
         ----                 -----------            -------------            -----------            -------------
<S>                             <C>                        <C>                     <C>                     <C>
  Robert A. Lettieri            10,000                     0                       0                       0
</TABLE>
---------------------
(1)      Based on a closing price on June 27, 1997 of $4.80 per share.

         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.

         The Company has granted options under the 1996 Plan to purchase 30,000
shares of Common Stock to three persons, including options to purchase 10,000
shares of Common Stock to Robert Lettieri and options to purchase 5,000 shares
of common Stock to Gregory S. Horne. Such options will vest in three annual
installments commencing one year from the date of grant, will be exercisable at
a price equal to the initial public offering price per share of the shares of
Common Stock offered hereby and will expire ten years from the date of grant. In
addition, exercise of the options is contingent on the optionee's continued
employment by the Company.

                                       18
<PAGE>

ITEM 11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
<TABLE>
<CAPTION>

         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.

                                                                                               PERCENT
NAME AND ADDRESS                                              NUMBER OF SHARES               BENEFICIALLY
OF BENEFICIAL OWNER (1)                                  BENEFICIALLY OWNED (2)(3)              OWNED
-----------------------                                  -------------------------              -----
<S>                                                             <C>                             <C>  
Gary D. Horne (4) . . . . . . . . . . . . . . . . . . . . . . . . 197,407                       12.5%
Stanley F. Zuk  . . . . . . . . . . . . . . . . . . . . . . . . . 109,322                        6.9%
Gregory Horne (5) . . . . . . . . . . . . . . . . . . . . . . . . 178,104                       11.3%
Robert Lettieri . . . . . . . . . . . . . . . . . . . . . . . . .   3,333                         *
William Becker
P.O. Box 170
Convent Station, NJ 07961  . . . . . . . . . . . . . . . .         82,704                        5.2%
Marion L. Horne Turcot(6). . . . . . . . . . . . . . . . .         85,706                        5.4%
Thomas J. Lenagh . . . . . . . . . . . . . . . . . . . . .              0                          0%
Jan M. Winston . . . . . . . . . . . . . . . . . . . . . .              0                          0%
All directors and Named Executive Officers
as a group (four persons) . . . . . . . . . . . . . . . . .       488,166                       30.8%
</TABLE>
--------------------
*        Less than 1%

(1)      The business address of all directors and executive officers of the
         Company and Marion L. Turcot 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 30 days are included

(4)      Represents shares of Common Stock held by Horne Associates LLC. Gary D.
         Horne Disclaims beneficial ownership of the shares of Common Stock
         beneficially owned by Gregory Horne, his son and Marion L. Horne
         Turcot, his daughter.

(5)      Gregory Horne disclaims beneficial ownership of the shares of Common
         Stock beneficially owned by Gary D. Horne, his father, and Marion L.
         Horne Turcot, his sister.

(6)      Marion L. Horne Turcot disclaims beneficial ownership of the shares of
         Common Stock beneficially owned by Gary D. Horne, her father, and
         Gregory Horne, her brother.

ITEM 12.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

ACQUISITION OF AFFILIATED ENTITY

         On June 4, 1996, the Company acquired all the outstanding capital stock
of High Technology Computers, Inc. (HTC) from Gary D. Horne and Stanley F. Zuk
in exchange for 155,352 and 40,277 shares of the Company's Common Stock,
respectively. The aggregate value of the shares of the Company's Common Stock
issued in exchange for all of the outstanding capital stock of HTC was
$2,566,808. HTC has conducted the Company's cable harness and other wire
technology product contract manufacturing operations for non-IBM customers since
1983. Management of the Company believes that this transaction was consummated
on terms no less favorable than could have been obtained from unaffiliated third
parties.

ADVANCES FROM STOCKHOLDER

         In order to assist the Company with meeting its working capital needs,
Gary D. Horne has periodically advanced funds to the Company. Such advances,
including interest at the rate of 8% per annum, aggregated approximately
$782,000 at June 27, 1997. Such advances are unsecured and repayable on demand;
however, Mr. Horne has agreed with the Company not to make demand until at least
July 1, 1998. The Company intends to repay such advances as cash flow permits.
No further advances from stockholders are contemplated after the consummation of
the Offering.

                                       19
<PAGE>

DEFERRED COMPENSATION AGREEMENTS

         In January 1993, the Company entered into Deferred Compensation
Agreements with John Halik and James Yesian, two co-founders and former
employees of the Company. Pursuant to the Deferred Compensation Agreements, the
Company agreed to pay $450,000 in deferred compensation over a 15-year period.

TRANSACTIONS WITH NETCOMP, INC.

         The Company purchases computers, computer supplies and services from
Netcomp, which operates the ComputerLand franchise in Poughkeepsie, New York.
Netcomp is owned by Gary D. Horne and Stanley F. Zuk. Purchases from Netcomp
aggregated approximately $135,000 and $82,000 during Fiscal 1997 and Fiscal
1996, respectively.

TRANSACTION WITH GREGORY HORNE

         In December 1995, the Company entered into an agreement with Gregory
Horne to sell 24 shares of the Company's Common Stock to Mr. Horne for $100,000,
of which $30,000 was paid upon execution of the agreement and the balance was
payable at the rate of $10,000 per year, without interest. In June 1996, the
Company and Mr. Horne mutually agreed to rescind the transaction, whereupon Mr.
Horne surrendered his stock certificates to the Company and the Company refunded
the $30,000 payment to Mr. Horne.

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.

                                       20
<PAGE>

ITEM 13.  EXHIBITS, AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>

  EXHIBIT
    NO.       DESCRIPTION
  -------     -----------
<S>           <C>
    3.1       Certificate of Incorporation. (1)
    3.2       Bylaws.(1)
    4.1       Specimen Certificate of Common Stock. (1)
    4.2       Form of Representative's Warrant Agreement including Form Representative's Warrants. (1)
    4.3       Intentionally ommitted.
    4.4       Form of Special Warrant to Purchase Common Stock of Registrant.(1)
    4.5       Form of 10% Original Issue Discount Promissory Note Issued to BlueStone Investors.(1)
    4.6       Form of Warrant Certificate Issued to BlueStone Investors.(1)
   10.1       1996 Stock Option Plan.(1)
   10.2       Restated Line of Credit Loan and Security Agreement dated as of December 28, 1995 between
              Automatic Systems Developers, Inc.; High Technology Computers, Inc. and Poughkeepsie Savings
              Bank, FSB.(1)(2)
   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 to December 29, 1995 Purchase Agreement.(1)
   10.7       Employment Agreement between the Company Registrant and Gary D. Horne.(1)(2)
   10.8       Employment Agreement between the Company Registrant and Stanley F. Zuk.(1)(2)
   10.9       Form of Financial Advisory and Consulting Agreement between the Registrant and the
              Representative. (1)
   10.10      Amendment dated April 2, 1997 to Option Agreement dated as of May 31, 1996 by and among
              Bankers Trust Company and the Registrant.(1)
   10.11      Form of Indemnification Agreement dated May 12, 1997 between Company and its executive officers and directors.(2)
   21.1       List of Subsidiaries of the Registrant.(1)
   27.0       Financial Data Schedule
</TABLE>
-------------------
(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) Management compensation plan or arrangement.

         (b) Reports on Form 8-K- The Company did not file any Reports on Form
8-K during the fourth quarter of the year ended June 27, 1997

                                       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.

                                           ASD GROUP, INC.



Date: October 9, 1997                      By:/s/ GARY D. HORNE
                                              ---------------------------------
                                           Gary D. Horne, Chairman of the Board
                                            and Chief Executive Officer
<TABLE>
<CAPTION>

         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>                                         <C>                                          <C>
/s/ GARY D. HORNE                           Chairman of the Board                        October 9, 1997
---------------------------                 And Chief Executive Officer
Gary D. Horne                               (Principle Executive Officer)


/s/ ROBERT LETTIERI                         Chief Financial Officer and Director         October 9, 1997   
---------------------------                 (Principle Financial and
Robert Lettieri                              Accounting Officer)


/s/ STANLEY F. ZUK                          President, Chief Operating Officer           October 9, 1997
---------------------------                  and Director
Stanley F. Zuk


/s/ GREGORY D. HORNE                        Vice President-Information Systems           October 9, 1997 
---------------------------                  and Director
Gregory D. Horne                             


/s/ THOMAS H. LENAGH                        Director                                     October 9, 1997
---------------------------
Thomas H. Lenagh


/s/ JAN M. WINSTON                          Director                                     October 9, 1997
---------------------------
Jan M. Winston

</TABLE>

                                       22
<PAGE>

                                 ASD GROUP, INC.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>

<S>                                                                                              <C>
Independent Auditors' Report.....................................................................F-2

Consolidated Balance Sheet as of June 27, 1997...................................................F-3

Consolidated Statements of Operations for the Years Ended June 27, 1997 and June 30, 1996....... F-4

Consolidated Statements of Stockholders' Equity for the Years Ended June 27, 1997 and
June 30,1996.....................................................................................F-5

Consolidated Statements of Cash Flows for the Years Ended June 27 1997, and June 30, 1996......  F-6

Notes to Consolidated Financial Statements.......................................................F-7-F-13

</TABLE>


<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 27, 1997, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
two years in the period ended June 27, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

         In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of ASD Group, Inc. and
subsidiaries as of June 27, 1997, and the results of their operations and their
cash flows for each of the two years in the period ended June 27, 1997 in
conformity with generally accepted accounting principles.



DELOITTE & TOUCHE LLP


Stamford, Connecticut
September 5, 1997
(October  7, 1997 as to Note 13)

                                       F-2
<PAGE>

                        ASD GROUP, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>

                                                                                JUNE 27,
                                                                                  1997
                                                                               --------
                                    ASSETS

<S>                                                                                <C>
Current assets:
  Cash ........................................................................$ 1,099,190
  Accounts receivable, less allowance for doubtful accounts of
    $163,000...................................................................  2,175,402
  Inventory ...................................................................  5,057,894
  Prepaid expenses and other current assets....................................    183,789
  Deferred tax asset ..........................................................    500,453
                                                                                ----------
         Total current assets .................................................  9,016,728
Property, plant and equipment, net ............................................  4,561,127
Deferred tax asset ............................................................  1,337,079
Other assets  .................................................................    630,583
                                                                                ----------
Total assets  .................................................................$15,545,517
                                                                                ==========
                  LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Current portion of long-term debt  ..........................................$ 1,828,770
  Accounts payable ............................................................  1,235,682
  Accrued expenses  ...........................................................    842,424
                                                                                ----------
         Total current liabilities  ...........................................  3,906,876
Long-term debt  ...............................................................  6,976,731
Deferred compensation  ........................................................    309,285
                                                                                ----------
         Total liabilities  ................................................... 11,192,892
                                                                                ==========
Contingencies (Note 11)
Stockholders' equity:
   Preferred stock, $.01 par value, 1,000,000 shares authorized,
     none issued...............................................................          -
  Common stock, $.01 par value, 10,000,000 shares authorized,
     1,577,917 shares issued and outstanding...................................     15,779
  Paid-in capital  ............................................................  4,206,892
  Retained earnings  ..........................................................    129,954
                                                                                ----------
         Total stockholders' equity  ..........................................  4,352,625
                                                                                ----------
Total liabilities and stockholders' equity  ...................................$15,545,517
                                                                                ==========
</TABLE>

                 See notes to consolidated financial statements.

                                       F-3


<PAGE>

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

                                                                                         YEARS ENDED
                                                                             -----------------------------------
                                                                               JUNE 27,                 JUNE 30,
                                                                                1997                     1996
                                                                             ----------               ---------


<S>                                                                        <C>                     <C>         
Net sales.................................................................. $ 15,870,988           $ 26,111,896

Cost of goods sold.........................................................   12,086,796             20,635,397
                                                                              ----------             ----------

 Gross profit..............................................................    3,784,192              5,476,499
                                                                              ----------             ----------

Operating expenses:

   Sales and marketing.....................................................      186,888                251,036

   General and administrative..............................................    3,472,614              4,043,331
                                                                              ----------             ----------

     Total operating expenses..............................................    3,659,502              4,294,367
                                                                              ----------             ----------

     Income  from operations...............................................      124,690              1,182,132

Other income...............................................................       68,195                199,118

Interest expense...........................................................   (1,534,366)              (976,850)
                                                                              ----------             ----------

   Income (loss) before income taxes.......................................   (1,341,481)               404,400

Benefit for income taxes...................................................     (564,584)                (3,000)
                                                                              ----------             ----------

   NET INCOME (LOSS).......................................................  $  (776,897)            $  407,400
                                                                              ==========             ==========

Net income (loss) per common share.........................................  $     (1.03)            $      .64
                                                                              ==========             ==========

Weighted average common shares
    outstanding............................................................      751,041                632,917
                                                                              ==========             ==========
</TABLE>

                 See notes to consolidated financial statements

                                       F-4
<PAGE>

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

<TABLE>
<CAPTION>

                                               PREFERRED STOCK              COMMON STOCK          PAID-IN     RETAINED
                                             SHARES      AMOUNT        SHARES         AMOUNT     CAPITAL      EARNINGS     TOTAL
                                             ------      ------        ------         ------     -------     ----------    -----
<S>                                           <C>    <C>               <C>           <C>        <C>            <C>        <C>
Balance, July 1, 1995....................       -     $     -          632,917       $  6,329   $      -        $499,451   $505,780

Net income...............................       -           -             -              -             -         407,400    407,400
                                             ----      ---------      --------         ------     --------       -------    -------

Balance, June 30, 1996...................       -           -          632,917          6,329          -         906,851    913,180

Net loss.................................       -           -             -              -             -        (776,897)  (776,897)

Issuance of IPO shares...................       -           -          945,000          9,450     3,879,892         -     3,889,342

Fair value of warrants issued............       -           -             -              -          327,000         -       327,000
                                             ----     ----------     ---------        -------    ----------     -------- ----------
Balance, June 27, 1997...................       -     $     -        1,577,917        $15,779    $4,206,892     $129,954 $4,352,625
                                             ====     ==========     =========        =======    ==========     ======== ==========
</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 27,          JUNE 30,
                                                                                      1997               1996
                                                                                      ----               ----
<S>                                                                             <C>                  <C>        
Operating activities:
  Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . .       $    (776,897)     $    407,400
  Adjustments to reconcile net income (loss) to net
      cash used in operating activities:
        Depreciation and amortization  . . . . . . . . . . . . . . . . . .              699,350          383,449
        Provision (benefit) for doubtful accounts . . . . . . . . . . .  .               10,000         (45,030)
        Deferred compensation  . . . . . . . . . . . . . . . . . . . . . .               32,171           29,790
        Interest accrued-stockholder advances  . . . . . . . . . . . . . .               50,259           43,117
        Deferred income taxes  . . . . . . . . . . . . . . . . . . . . . .            (564,584)         (26,594)
        Gain on sale of plant  . . . . . . . . . . . . . . . . . . . . . .                    -        (166,734)
        Changes in assets and liabilities:
            Accounts receivable  . . . . . . . . . . . . . . . . . . . . .              551,761          532,293
            Inventory  . . . . . . . . . . . . . . . . . . . . . . . . . .              896,677      (1,776,803)
            Prepaid expenses and other current assets. . . . . . . . . . .            (127,417)          125,309
            Other assets . . . . . . . . . . . . . . . . . . . . . . . . .               68,580        (112,668)
            Accounts payable . . . . . . . . . . . . . . . . . . . . . . .          (1,457,770)        (288,111)
            Accrued expenses . . . . . . . . . . . . . . . . . . . . . . .            (359,804)        (323,192)
            Deferred revenues. . . . . . . . . . . . . . . . . . . . . . .             (69,666)        (725,899)
                                                                                    -----------      -----------
                 Net cash used in operating activities . . . . . . . . . .          (1,047,340)      (1,943,673)
                                                                                    -----------      -----------
Investing activities:
  Net proceeds from sale of plant. . . . . . . . . . . . . . . . . . . . .                    -          591,781
  Capital expenditures   . . . . . . . . . . . . . . . . . . . . . . . . .             (97,693)        (171,790)
                Net cash (used in) provided by investing activities                    (97,693)          419,991
                                                                                    -----------      -----------
Financing activities:
  Net proceeds from IPO  . . . . . . . . . . . . . . . . . . . . . . . . .            3,889,342                -
  Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .            1,250,000        3,464,355
  Payments of long-term debt   . . . . . . . . . . . . . . . . . . . . . .          (3,169,626)      (1,312,206)
  Financing costs  . . . . . . . . . . . . . . . . . . . . . . . . . . . .            (160,433)        (502,644)
  Payments of deferred compensation  . . . . . . . . . . . . . . . . . . .             (23,971)         (23,834)
                                                                                    -----------      -----------
                Net cash provided by financing activities  . . . . . . . .            1,785,312        1,625,671
                                                                                    -----------      -----------
Net increase in cash . . . . . . . . . . . . . . . . . . . . . . . . . . .              640,279          101,989
Cash, beginning of year  . . . . . . . . . . . . . . . . . . . . . . . . .              458,911          356,922
                                                                                    -----------      -----------
Cash, end of year  . . . . . . . . . . . . . . . . . . . . . . . . . . . .          $ 1,099,190     $    458,911
                                                                                    ===========      ===========
Supplemental disclosure:
  Cash paid during the year for:
      Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . .          $     6,484     $     32,631
                                                                                    ===========      ===========
      Interest  . . . . . . . . . . . . . . . . . . . .. . . . . . . . . .          $ 1,132,354     $  1,268,799
                                                                                    ===========      ===========
  Notes exchanged for amounts owed to vendors  . . . . . . . . . . . . . .          $         -     $    198,403
                                                                                    ===========      ===========
</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") operate in one business segment. The Company is a provider of
contract manufacturing and engineering services to domestic original equipment
manufacturers. The Company provides a wide range of services including product
engineering and design, procurement, precision fabrication of sheet metal and
machined parts, printed circuit board assembly, electro-mechanical assembly and
functional testing.

         On June 4, 1996, ASD acquired all of the outstanding capital stock of
High Technology Computers, Inc. ("HTC") for 195,629 shares of the Company's
common stock. ASD and HTC were under common ownership. HTC conducts certain
manufacturing operations for ASD. The transaction has been accounted for similar
to a pooling of interests and the accompanying consolidated financial statements
include the historical accounts of HTC for all periods presented.

2.  SIGNIFICANT ACCOUNTING POLICIES

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

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

         FINANCING COSTS--During the years ended June 27, 1997 and June 30,
1996, the Company incurred $160,433 and $373,851, respectively, in connection
with debt financings (see Note 5). These costs have been capitalized and are
being amortized over the terms of the financings. Amortization of the financing
costs for the years ended June 27, 1997 and June 30, 1996 was $203,948 and
$22,500, respectively. In addition, the Company capitalized $128,793 during the
year ended June 30, 1996 in connection with the initial public offering. These
costs were charged to paid-in capital during the year ended June 27, 1997 upon
consummation of the initial public offering. All of the above costs are included
in other assets.

         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. The net
realizable value of the idle property approximates its carrying value.

         INVENTORY--Inventory, consisting of work-in-progress and raw materials
($4,532,373 and $525,521, respectively), is determined under the lower of cost
(first-in, first-out method) or market. The Company does not maintain a reserve
for inventory impairment. Inventory that becomes obsolete because of customer
required changes of residual inventory is written-off at the time the job is
completed or when an engineering change is implemented.

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

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

                                       F-7
<PAGE>

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

                                                          YEARS ENDED
                                                  ----------------------------
                                                  JUNE 27,            JUNE 30,
         CUSTOMER                                  1997                 1996
         --------                                  ----                 ----
         Gerber Scientific Products.........        13%                  16%
         ENI Technologies...................        22                   20
         International Business Machines....        10                   --
         S & K Products International, Inc..        10                   14
         Lockheed Martin Corporation........        11                   13
         Bruce Technologies International...        --                   10
                                                    --                   --
                                                    66%                  73%
                                                    ===                  ===

         NET INCOME (LOSS) PER COMMON SHARE--Net income (loss) per common share
is computed using the weighted average number of common and common equivalent
shares (when dilutive) outstanding during each year.

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

         ADOPTION OF STATEMENT OF FINANCIAL STANDARD ACCOUNTING NO. 123--In
1997, the Company adopted 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 cost 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 stock at the date of the grant over the amount an employee must pay to
acquire the stock.

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

         RECLASSIFICATIONS--Certain reclassifications were made to the prior
year's financial statements to conform to the current year's presentation.

3.  PUBLIC OFFERING OF COMMON STOCK AND RECAPITALIZATION

         In May 1997, the Company completed an initial public offering of
945,000 shares of common stock at $5.75 per share ( the "Offering"). Prior to
the Offering, there was no public market for the Company's common stock. The net
proceeds of the Offering, after deducting applicable issuance costs and
expenses, were $3,889,342.

         In connection with the Offering, the Company (a) increased its
authorized common stock to 10,000,000 shares, (b) effected a split of its common
stock, resulting in 632,917 shares outstanding, and (c) authorized 1,000,000
shares of new $.01 par value preferred stock. Designations, rights and
preference of the preferred stock will be determined by the Board of Directors.
No shares of preferred stock have been issued.

                                       F-8
<PAGE>

4.       PROPERTY, PLANT AND EQUIPMENT

         Property, plant and equipment consists of the following:

                                                          JUNE 27,
                                                            1997
                                                          --------
      Land.............................................$   563,937
      Buildings........................................  1,633,327
      Leasehold improvements...........................    892,025
      Machinery and equipment..........................  2,742,306
      Automobiles......................................     47,955
                                                        ----------
                                                         5,879,550
      Less: accumulated depreciation................... (2,760,562)
                                                        ----------
                                                         3,118,988
                                                        ----------
      Idle property:
         Land and building.............................  1,923,865
         Less: accumulated depreciation................   (481,726)
                                                        ----------
                                                         1,442,139
                                                        ----------
         Property, plant and equipment, net............$ 4,561,127
                                                        ==========


            Depreciation of property, plant and equipment was $273,382 and
$332,373 during the years ended June 27, 1997 and June 30, 1996, respectively.

         Idle property represents facilities that are temporarily not being used
in the Company's operations. The Company intends to use these facilities
commencing in fiscal 1998.

         On August 1, 1995, the Company sold its North Carolina facility for net
cash proceeds of $591,781, which was used to repay outstanding borrowings. The
sale resulted in a net gain of $166,734 for financial statement purposes which
is included in other income in the accompanying consolidated statement of
operations for the year ended June 30, 1996.


                                       F-9
<PAGE>

5.       LONG-TERM DEBT

         Long term debt consists of the following:
<TABLE>
<CAPTION>

                                                                                    JUNE 27,
                                                                                      1997
                                                                                    --------
<S>                                                                             <C>          
Senior Secured Notes-interest at 10%, interest only through
    December 31, 1997, due June 18, 1998, secured by inventory.............     $   1,100,000
Notes Payable-Bank of New York, interest at 60 % of prime,
    due July 1, 1997, secured by real property.............................             4,194
Notes Payable-Key Bank, interest at prime plus 1%, due
    December 1, 1998, secured by equipment.................................           103,637
Notes Payable-Bankers Trust Company, interest at prime plus
    1.5%, due December 31, 1997, secured by equipment......................           357,626
Revolving Line of Credit-Bankers Trust Company, interest at prime
    plus 1.5%, due July 1, 1998, collateralized by accounts receivable,
    equipment and inventory...............................................          3,129,388
Mortgage Payable-Bankers Trust Company, interest at prime
    plus 1.5%, due September 1, 1998, secured by real property.............         1,846,169
Mortgage Payable-Bankers Trust Company, interest at prime
    plus 1.5%, due December 1, 1998, secured by real property..............         1,371,213
Advances From Stockholder, plus accrued interest of $182,371-
    interest at 8%, repayable no earlier than July 1, 1998.................           782,340
Notes Payable to Vendors-interest at various rates, secured by
    certain assets.........................................................            95,582
Other......................................................................            15,352
                                                                                 ------------
                                                                                    8,805,501
Less: current portion......................................................         1,828,770
                                                                                 ------------
                                                                                $   6,976,731
                                                                                 ============
</TABLE>

         The Company has a revolving line of credit of $3,730,000 with an
extended maturity date of December 31, 1997 (see Note 13). The amount available
for borrowings under the line of credit is determined pursuant to a formula
based upon eligible accounts receivable and inventory.

         On December 29, 1995, the Company issued $1,000,000 of senior secured
notes (the "Notes") to a group of investors. Interest at 10% is payable
quarterly commencing March 31, 1996. The Notes were secured by a first lien on
the Company's inventory. Monthly principal payments will commence January 1998
until paid in full in June 1999. As a result of this financing, the Company was
required to pay 10% of the proceeds, or $100,000, in additional interest to the
bank. On February 16, 1996, the Company obtained an additional $1,000,000 from
notes issued to the same group of investors. The $100,000 additional interest
due to the bank as a result of this financing is being charged to expense during
the term of the debt. The Notes were due and payable upon consummation of an
initial public offering of not less than $5,000,000. In addition, the investors
were to receive upon consummation of an initial public offering, $2,000,000 in
shares of common stock (347,826 shares at an offering price of $5.75 per share)
exercisable over a five year period. In connection with the issuance of the
Notes, the investment banking firm which assisted in the placement of the Notes
received warrants to purchase $200,000 in shares of common stock (34,783 shares
at an offering price of $5.75 per share) exercisable over a five year period.

                                      F-10

<PAGE>

         On December 20, 1996, the terms of the Notes were amended to eliminate
the issuance of the $2,000,000 in shares of common stock to the investors. The
amended agreement provides, among other things, that $900,000 in principal
amount of the Notes was payable upon consummation of the initial public
offering, with the remaining $1,100,000 of the Notes, plus accrued interest
thereon, payable by June 18, 1998. In addition, the first lien on the Company's
inventory was released. In connection with the amended agreement, the Company
issued warrants to the investors to purchase 500,000 shares of common stock. The
warrants have an exercise price of 47.5% of the initial public offering price
per share ($2.73 at the offering price of $5.75 per share). The warrants are
exercisable over a ten-year period: provided however, the warrants are not
exercisable and may not be sold for 12 months following the initial public
offering. In addition, for the subsequent 12 month period the warrants are not
exercisable and may not be sold without prior written consent of the Company and
the representative of the underwriters of the Company's public offering. The
fair value of the warrants in excess of the underlying common stock ($245,000)
at the date issuance is being amortized over the term that the underlying debt
is outstanding. Amortization expense was $128,216 during the year ended June 27,
1997.

         On August 29, 1996, the Company issued $1,100,000 10% Original Issue
Discount Promissory Notes (the "OID Notes") to investors. The OID Notes were due
at the earliest of 150 days from the date of issuance, the closing date of an
initial public offering or upon the sale of the Company. To satisfy a certain
covenant that was in default, the interest rate on the OID Notes increased to
12.5% retroactively as of the date of issuance. In connection with the issuance
of the OID Notes, the Company issued 112,500 and 11,250 warrants to purchase
shares of common stock to the investors and the placement agent, respectively.
The warrants have an exercise price of 51.5% of the initial public offering
price per share ($2.96 at the offering price of $5.75 per share) and are
exercisable during the five year period commencing six months after the closing
of the initial public offering; provided, however, the warrants are not
exercisable and may not be sold for 18 months following the initial public
offering. The fair value of the warrants ($82,000) at the date of issuance was
recorded as paid-in-capital with a corresponding reduction to the OID Notes'
balance. The OID Notes were repaid from the proceeds of the initial public
offering and the discount was charged to interest expense.

         In April 1996, the bank notified the Company that it had sold the
Company's outstanding loan portfolio ($6,704,396 at June 27, 1997) to Bankers
Trust Company ("BTCo."). On May 31, 1996, the Company purchased an option for
$76,748 from BTCo. that will allow the Company to buy-out the outstanding loans
at a discount of up to $460,487, as well as the exclusion of any additional
interest payable at the date of the exercise of the option. The option expires
October 31, 1997 (see Note 13) and if exercised, the cost of the option will
reduce the total indebtedness.

         Annual principal payments, as adjusted for the amended maturities (see
Note 13) are as follows:

                12 MONTHS ENDING
                      JUNE
                ----------------
                      1998  ..............................      $1,828,770
                      1999  ..............................       6,968,980
                      2000  ..............................           4,279
                      2001  ..............................           3,472
                                                             -------------
                                                                $8,805,501
                                                             =============
                  The prime rate at June 27, 1997 was 8.50 %.

6.       DEFERRED COMPENSATION

         The Company has a deferred compensation agreement with two former
employees. The agreement requires the payment of $450,000 over a 15 year period.
The obligations have been recorded at their net present value using a discount
rate of 8%.

                                      F-11

<PAGE>

7.       STOCKHOLDERS' EQUITY

         On June 25, 1996, the Company adopted the 1996 Stock Option Plan (the
"1996 Plan"). The 1996 Plan provides 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 nonstatutory stock options. In connection with the
Offering, the Company granted options to purchase 30,000 shares of common stock
at $5.75 per share. The stock options vest in three annual installments
commencing one year from the date of grant and will expire ten years from the
date of grant.

8.       INCOME TAXES

                  The provision (benefit) for income taxes consists of the
following:

                                                   YEARS ENDED
                                           ------------------------
                                           JUNE 27,        JUNE 30,
                                            1997             1996
                                           --------        --------
Current:
  Federal.............................   $        -       $  19,111
  State...............................            -           4,483
                                          ---------        --------
                                                  -          23,594
                                          ---------        --------
Deferred:
  Federal.............................     (456,103)        (21,541)
  State...............................     (108,481)         (5,053)
                                          ---------        --------
                                           (564,584)        (26,594)
                                          ---------        --------
                                         $ (564,584)      $  (3,000)
                                          =========        ========


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

                                                        YEAR ENDED JUNE 30,
                                                  ----------------------------
                                                  JUNE 27,            JUNE 30,
                                                    1997                1996
                                                  --------            --------
Income tax at statutory rate................$    (456,103)      $      137,496
State income taxes and other (net of
    Federal benefit)........................     (108,481)              31,504
Release of valuation allowance..............            -             (172,000)
                                             ------------        -------------
                                            $    (564,584)      $       (3,000)
                                             ============        =============


         The net deferred tax asset consists of the following:

                                                JUNE 27,              JUNE 30,
                                                  1997                 1996
                                             ------------        -------------
Net operating loss carry forward........    $   2,170,197       $    1,490,582
Capital loss carryforward...............          228,333              228,333
Allowance for doubtful accounts.........           68,499              160,847
Deferred compensation...................          129,899              126,456
Accrued vacation........................           19,359               46,729
Accrued interest........................           76,595               55,487
Other...................................           44,471               77,122
Depreciation...... .....................         (671,488)            (684,275)
                                             ------------        -------------
                                                2,065,865            1,501,281
Valuation allowance.....................         (228,333)            (228,333)
                                             ------------        -------------
                                            $   1,837,532       $    1,272,948
                                             ============        =============

                                      F-12

<PAGE>

         Deferred taxes result from temporary differences in the recognition of
revenues and expenses for income tax and financial statement purposes. Deferred
tax assets are reduced by a valuation allowance relating to the utilization of a
capital loss carryforward which management believes more than likely will not be
realized. During the year ended June 30, 1996, the Company sold its North
Carolina facility (see Note 4) thereby generating a capital gain for income tax
purposes of $528,000 on the sale. Therefore, the Company reduced the valuation
allowance by approximately $172,000 relating to the utilization of tax benefits
from this sale.

         As of June 27, 1997, the Company has a Federal net operating loss
carryforward of approximately $5,200,000 which begins to expire in 2008.

9.       RELATED PARTY TRANSACTIONS

         The Company purchases computers, computer supplies and services from
Netcomp, Inc., a company under common ownership. Purchases during the years
ended June 27, 1997 and June 30, 1996 were approximately $135,000 and $82,000,
respectively.

10.      PENSION PLAN

         The Company has a defined contribution plan covering all full time
employees who have worked at least 1,000 hours during the plan year, who have
one year of service, and are age twenty-one or older. The Plan is subject to
provisions of the Employee Retirement Income Security Act of 1974. There was no
pension expense attributed to this plan for the years ended June 27, 1997 and
June 30, 1996.

11.      CONTINGENCIES

         The Company is a defendant in various lawsuits which arose in the
normal course of business. In the opinion of management, none of the cases are
expected to have a material effect on the consolidated financial statements of
the Company.

12.      ADOPTION OF SFAS 128 AND SFAS 131

         The Company will adopt the Statement of Financial Accounting Standards
No. 128 "Earnings Per Share" ("SFAS 128") during fiscal 1998, as required. The
Company will continue to apply APB Opinion No. 15, "Earnings Per Share" until
the adoption of SFAS 128. The new standard specifies the computation,
presentation and disclosure requirements for earnings per share. The proforma
earnings (loss) per common share computed under the provisions of SFAS 128 would
not be materially different as the amounts reported.

         In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments
of an Enterprise and Related Information", which will be effective for the
Company beginning July 1, 1998. SFAS No. 131 redefines how operating segments
are determined and requires disclosure of certain financial and descriptive
information about a company's operating segments. The Company has not yet
completed its analysis of which operating segments it will report on.

13.      SUBSEQUENT EVENTS

         On October 7, 1997, BTCo. agreed to extend the maturities of the
revolving line of credit and the notes payable to July 1, 1998 and December 31,
1997, respectively. The Company is currently negotiating with a major commercial
bank to provide a new credit facility that will replace all the credit
facilities currently with BTCo. The amended maturities of the debt have been
reflected in the accompanying consolidated balance sheet as of June 27, 1997. In
connection with the above agreement, the maturity of the buy-out option was
extended to October 31, 1997.

                                      F-13

<PAGE>

                               INDEX TO EXHIBITS

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

   10.11            Form of Indemnification Agreement dated May 12, 1997 
                    between Company and its executive officers and directors.

   27               Financial Data Schedule