UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-21717
CASCO INTERNATIONAL, INC.
Incorporated - Delaware I.R.S. Identification No. 56-0526145
13900 Conlan Circle, Suite 150, Charlotte, North Carolina 28277
Registrant's Telephone Number (704) 482-9591
Indicate by check mark whether the registrant (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
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of latest practicable date: 1,783,200 common shares
outstanding, each with par value $0.01, as of May 1, 2000.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CASCO INTERNATIONAL, INC.
BALANCE SHEETS
March 31, 2000 and December 31, 1999
Unaudited
ASSETS 2000 1999
------------ ------------
Current Assets:
Cash ........................................ $ 1,797 $ 6,797
Accounts receivable ......................... 2,961,082 4,910,886
Inventory ................................... 4,430,765 4,714,063
Prepaid expenses ............................ 1,006,242 1,033,274
Deferred tax asset .......................... 102,000 102,000
------------ ------------
Total current assets ............ 8,501,886 10,767,020
Buildings and equipment:
Buildings ................................... 2,638,115 2,627,727
Equipment ................................... 3,245,607 3,223,615
------------ ------------
5,883,722 5,851,342
Less accumulated depreciation ............... (2,681,938) (2,540,828)
------------ ------------
3,201,784 3,310,514
Land ............................................. 111,468 111,468
------------ ------------
Total property and equipment, net 3,313,252 3,421,982
Other assets:
Cost in excess of net assets acquired, net of
accumulated amortization of $513,733 and
$479,819 respectively ....................... 2,372,336 2,406,250
Other ............................................ 759,611 748,376
------------ ------------
3,131,947 3,154,626
------------ ------------
TOTAL ASSETS ..................................... $ 14,947,085 $ 17,343,628
============ ============
The accompanying notes are an integral part of the financial statements.
CASCO INTERNATIONAL, INC.
BALANCE SHEETS
March 31, 2000 and December 31, 1999
Unaudited
LIABILITIES AND STOCKHOLDERS' EQUITY 2000 1999
------------ ------------
Liabilities:
Accounts payable ............................ $ 454,780 $ 965,112
Short-term debt obligations ................. 1,230,653 2,500,465
Accrued liabilities ......................... 155,328 304,273
Advanced deposits-current ................... 1,854,785 1,854,785
Accrued taxes payable ....................... -- 355,000
------------ ------------
Total current liabilities........ 3,695,546 5,979,635
------------ ------------
Long-term debt ................................... 2,152,565 2,189,716
Advanced deposits-noncurrent ..................... 2,346,240 2,402,975
Deferred tax liability ........................... 526,375 533,775
------------ ------------
Total Liabilities ................................ 8,720,726 11,106,101
Commitments and contingencies .................... -- --
Stockholders' equity:
Preferred Shares: $.01 par value; authorized
300,000 shares; none issued and outstanding -- --
Common Shares par value $.01, authorized
5,000,000, issued 1,783,200 ............... 17,832 17,832
Capital in excess of par value .............. 6,417,586 6,417,586
Accumulated deficit ......................... (209,059) (197,891)
------------ ------------
Total stockholders' equity ...... 6,226,359 6,237,527
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ....... $ 14,947,085 $ 17,343,628
============ ============
The accompanying notes are an integral part of the financial statements.
CASCO INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
For the three months ended March 31, 2000 and 1999
Unaudited
Three Months
--------------------------
2000 1999
----------- -----------
Revenue ..................................... $ 5,242,964 $ 5,965,523
Operating costs and expenses:
Cost of goods sold ..................... 2,735,951 3,024,033
Selling, general and administrative .... 2,271,797 2,186,339
Depreciation and amortization .......... 188,975 173,525
----------- -----------
Total operating costs and expenses 5,196,723 5,383,897
Operating income ............................ 46,241 581,626
Other income and (expenses)
Interest expense ....................... (64,811) (101,358)
----------- -----------
Total other income and (expenses) . (64,811) (101,358)
Income(loss) before income taxes ............ (18,570) 480,268
Deferred (provision) benefit for income taxes 7,400 (192,100)
----------- -----------
Net Income(loss) ............................ $ (11,170) $ 288,168
=========== ===========
EARNINGS PER SHARE BASIC AND DILUTIVE
Net Income (loss) ........................... $ (0.01) $ 0.16
=========== ===========
Weighted average common shares outstanding .. 1,783,200 1,783,200
=========== ===========
The accompanying notes are an integral part of the financial statements.
CASCO INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
For the three months ended March 31, 2000 and 1999
Unaudited
2000 1999
---------- -----------
Cash flows from operating activities:
Net income(loss) ...............................$ (11,170) $ 288,168
Adjustments to reconcile net income (loss) to cash
provided by operating activities:
Depreciation and amortization ............... 188,975 173,525
Deferred provision (benefit) ................ (7,400) 192,100
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable ...................... 1,949,804 2,064,172
Inventory ................................ 283,298 67,489
Prepaid expenses and other assets ........ 10,793 (6,456)
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities . (659,277) (760,495)
Taxes payable ............................ (355,000) --
Advance deposits ......................... (56,735) (268,070)
----------- -----------
Total adjustments ................ .. 1,354,458 1,462,265
----------- -----------
Net cash provided by operating activities ........ 1,343,288 1,750,433
----------- -----------
Cash flows from investing activities:
Sale of equipment ........................... 17,890 --
Payments for purchases of property and equipment (59,215) (139,226)
----------- -----------
Cash used in investing activities ................ (41,325) (139,226)
Cash flows from financing activities:
Proceeds from debt obligation ............... 4,887,579 5,037,910
Principal payments on debt .................. (6,194,542) (6,688,275)
----------- -----------
Cash used in financing activities ................ (1,306,963) (1,650,365)
Decrease in cash ................................. (5,000) (39,158)
Cash, beginning of period ........................ 6,797 107,482
----------- -----------
Cash, end of period .............................. $ 1,797 $ 68,324
=========== ===========
Other Cash Flow Information:
Cash payments during the year for:
Interest ................................. $ 73,427 $ 81,206
Income taxes, net of refunds ............. 355,000 --
The accompanying notes are an integral part of the financial statements.
CASCO INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
Unaudited
The accompanying financial statements have not been audited, but
reflect all adjustments which, in the opinion of management, are necessary for a
fair presentation of financial position, results of operations and cash flows
for the periods presented. All adjustments are of a normal and recurring nature.
These consolidated financial statements should be read in conjunction with the
Company's audited financial statements and notes thereto for the fiscal year
ended December 31, 1999.
Effective at the close of business on December 31, 1996, a tax free
spin off of the Company's common stock from its former parent, Pages, Inc.
("Pages"), was completed (the "Distribution"). In the Distribution, for every
ten shares of Pages common stock outstanding on the record date, one and
one-half shares of the Company's common stock was distributed to Pages
shareholders.
During the three months ended March 31, 2000, options were granted
under the Company's 1999 Stock Option Plan as shown on the following table. The
ending and average market price of the Company's Stock for the three months
ended March 31, 2000 was $4.469 and $3.592 respectively.
Date Shares
Granted or Reserved and Exercise
Issued Exercisable Price
- ---------------------- ------------------ --------------
1999 STOCK OPTION PLAN
January 19, 2000 ..... 20,000 $ 2.06
February 1, 2000 ..... 20,000 $ 2.13
March 6, 2000 ........ 20,000 $ 3.97
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Quarter Ended March 31, 2000 Compared to Quarter Ended March 31, 1999:
Revenues for the three months ended March 31, 2000 approximated $5.24
million, compared to $5.97 million in revenues for the three months ended March
31, 1999, a decrease of 12.1% or approximately $723,000. The decrease is
attributable to some one-time incentive sales in 1999 coupled with a delay of
sales to current customers in 2000.
Cost of goods sold for the three months ended March 31, 2000
approximated $2.74 million, compared to approximately $3.02 million of cost of
goods sold for the three months ended March 31, 1999, a decrease of 9.5% or
approximately $288,000. The decrease in cost of goods sold was attributable to
the decrease in revenues. As a percentage of revenues, cost of goods sold
increased to 52.2% for the three months ended March 31, 2000, from 50.7% for the
three months ended March 31, 1999. The 1.5% increase in the cost of goods sold
as a percentage of revenues was principally attributable to a change in the
product mix.
Selling, general, and administrative expense for the three months ended
March 31, 2000 approximated $2.27 million, compared to $2.19 million for the
three months ended March 31, 1999, an increase of 3.91% or approximately
$85,000. The increase in selling, general, and administrative expense were
principally attributable to expansion of the internal employed sales force and
the cost associated with preparations to launch the Company's efulfillment
subsidiary. Those costs were in part offset by the consolidation of the
Company's Wisconsin facility into its Shelby facility. As a percentage of
revenues, selling, general and administrative expenses increased to 43.3% for
the three months ended March 31, 2000, from 36.7% for the three months ended
March 31, 1999. The 6.6% increase as a percentage of revenues was principally
attributable to the expansion of the internal employed sales force and the cost
associated with preparations to launch the Company's efulfillment subsidiary.
Interest expense was approximately $65,000 for the three months ended
March 31, 2000, compared to $101,000 for the three months ended March 31, 1999,
a decrease of approximately $36,000. The decrease in interest expense was
primarily due to a decreased average balance on the Company's line of credit.
The average outstanding debt for the first three months in 2000 approximated
$3.14 million compared to $5.2 million for the first three months in 1999.
Additionally, the average interest rate for the first three months in 2000
approximated 8.04% compared to approximately 7.84% for the same period in 1999.
Depreciation and amortization expense was approximately $189,000 for
the three months ended March 31, 2000, compared to $174,000 for the three months
ended March 31, 1999, an increase of 8.9% or approximately $15,000. The increase
in depreciation and amortization expense was principally attributable to the
depreciation of newly acquired assets in 1998.
Income tax benefit was $7,400 for the three months ended March 31,
2000, compared to an income tax provision of $192,100 for the three months ended
March 31, 1999. The provisions for income tax benefit were calculated through
the use of estimated income tax rates based upon the income before taxes.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity have been cash generated
from operating activities and amounts available under its existing credit
facility. The Company's primary uses of funds consist of financing inventory,
receivables and acquisitions.
The Company has adopted a growth strategy which will be accomplished
through increased efforts of the Company's existing highly trained sales force
in order to expand current market share and enter into new markets. The Company
is also preparing to launch the Company's efulfillment subsidiary.
The Company anticipates that operating cash flows during the next twelve
months, coupled with its ability to borrow under the credit facility, will cover
operating expenditures and meet the short-term debt obligations excluding the
Company's efulfillment subsidiary. The Company's credit facility is due and
payable in full on July 30, 2000. Although the lender has not issued a
commitment to do so, the Company's relationship with its lender is favorable and
the Company anticipates that the credit facility will be renewed when due.
On July 30, 1998 the Company entered into an agreement with Awards &
Gifts, Inc. and Richard W. Terlau, Jr., providing for the purchase of
substantially all assets and certain liabilities of Awards & Gifts by the
Company. Under the terms of the Asset Purchase Agreement, the assets included
Awards & Gifts customer list, machinery and equipment, inventories, Awards &
Gifts intellectual property assets, prepaid expenses, and a real property lease.
The purchase price for the assets was $1.5 million with certain adjustments made
for pro-rated items, with $1.3 million paid in cash and a $200,000 promissory
note. The note is secured by an Irrevocable Standby Letter of Credit issued by
Branch Banking & Trust Company. The purchase price under the Asset Purchase
Agreement was determined by arm's length negotiations between the parties based
on the market value of the assets purchased and sold. The goodwill acquired in
this transaction will be amortized over fifteen years using the straight-line
method. The acquisition was financed with proceeds from the Company's revolving
credit facility with Branch Banking & Trust Company.
On October 1, 1998 the Company entered into an agreement with American
Awards & Gifts, Inc. and Frank G. and Judith J. McGinnis, providing for the
purchase of substantially all assets and certain liabilities of American Awards
& Gifts, Inc. by the Company. Under the terms of the Asset Purchase Agreement,
the assets included American Awards & Gifts customer list, machinery and
equipment, tools and dies, inventories, intellectual property assets, and
general intangibles, the liabilities included the assumption of certain accounts
payable. The purchase price for the assets was $255,177 with $100,000 in cash
and a $155,177 promissory note. The purchase price under the Asset Purchase
Agreement was determined by arm's length negotiations between the parties based
on the market value of the assets purchased and sold. The goodwill acquired in
this transaction will be amortized over fifteen years using the straight-line
method.
Management believes that present resources will meet anticipated
requirements for operations of the business.
The Company does not anticipate any material expenditures out of the
ordinary course of business for property and equipment during the next twelve
months, excluding any expenditures required to launch the Company's efulfillment
subsidiary. The Company plans to raise approximately $25 million to fund its
efulfillment subsidiary and has engaged an investment banker for that purpose.
The Company is aware of no trends or demands, commitments or
uncertainties that will result in, or that management believes are reasonably
likely to result in, the Company's liquidity increasing or decreasing in any
material way. The Company is aware of no legal or other contingencies, the
effect of which are believed by management to be reasonably likely to have a
material adverse effect on the Company's financial statements.
SEASONALITY
The Company's business is highly seasonal, with approximately 30% of its
revenues and most of its profits recorded in the months of November, December,
and January. As a result, the Company's working capital requirements are highest
during November and December when the combination of receivables and inventory
are at peak levels. The Company typically experiences losses in its second and
third quarters.
As the results from the Company's growth strategy develop, the effects
of seasonality should be diminished. The business segments on which the Company
has chosen to focus offer steadier revenue flows, as well as more consistent
requirements for working capital.
INFLATION
Although the Company cannot determine the precise effects of inflation,
inflation has an influence on the cost of the Company's products and services,
supplies, salaries, and benefits. The Company attempts to minimize or offset the
effects of inflation through increased sales volumes and sales prices, improved
productivity, alternative sourcing of products and supplies, and reduction of
other costs. The Company generally has been able to offset the impact of price
increases from suppliers by increases in the selling prices of the Company's
products and services.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Form 10-Q under "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
regarding matters that are not historical facts and "forward looking statements"
(as such term is defined in the Private Securities Litigation Reform Act of
1996) and because such statements involve risks and uncertainties, actual
results may differ materially from those expressed or implied by such
forward-looking statements. Those statements include remarks regarding the
intent, belief, or current expectations of the Company, its directors, or its
officers with respect to, among other things: (i) future operating cash flows;
(ii) the Company's financing plans, (iii) the Company's growth strategy,
including the expansion of current market share and the entrance into new
markets, and (iv) the Company's plans to raise funds to capitalize its
efulfillment subsidiary. Prospective investors are cautioned that any such
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties, and that actual results may differ materially from
those projected in the forward-looking statements as a result of various
factors. The accompanying information contained in this Form 10-Q, including
without limitation and information set forth under the heading "Management's
Discussion and Analysis of Financial Condition and Results of Operations",
identifies important factors that could cause such differences.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to the impact of interest rate changes on its
debt obligations. The Company is not exposed to foreign currency exchange rate
risk or investment risk.
Interest Rate Risk. The Company's exposure to market rate risk for
changes in interest rates relates primarily to the Company's short-term debt
obligation line of credit. The interest rate on this line of credit is prime
plus 1/2 percent. The prime interest rate at March 31, 2000 was 9.00 percent.
The Company's line of credit is renewable and negotiable yearly. The fluctuation
of the interest rate may increase interest expense if the prime interest rate
increases before the line of credit could be renegotiated to a fixed rate loan.
PART II - OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
The Company is not involved in any material pending legal proceedings,
other than ordinary, routine litigation incidental to its business.
ITEM 2: CHANGES IN SECURITIES
None
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5: OTHER INFORMATION
The Company has engaged an investment banker to assist it in
raising approximately $25 million in capital to fund a subsidiary
of the Company which will engage in the business of providing
fulfillment services to ecommerce businesses. The terms upon which
the funds will be provided have not been determined, but it is
anticipated that the funds will be invested directly in the
subsidiary. There can be no assurances that the funds will be
available.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8K
Exhibit Method
Number Description of filing
1 Underwriting Agreement 1
2 Agreement and Plan of Merger 1
3 (i) .1 Certificate of Incorporation 1
3 (i) .2 Certificate of Amendment to
Certificate of Incorporation 1
3 (ii) Bylaws 1
4.1 Form of Stock Certificate 1
4.2 Warrant Agreement 1
4.3 Form of Warrant Certificate 1
4.4 Form of Warrant-R.L. Renck & Company 3
*10 .1 1996 Incentive Stock Option Plan 1
*10.2 Employee Stock Option Plan 1
*10 .3 Non-Employee Director Stock Option Plan 1
*10.4 Amendment to 1996 Incentive
Stock Option Plan 2
*10.5 1997 Incentive Stock Option Plan 3
*10.6 Charles R. Davis' Performance
Option Agreement 2
10.7 First National Bank Loan Document 2
10.8 Branch Banking & Trust Loan Document 2
10.9 Asset Purchase Agreement Awards & Gifts 2
*10.10 1999 Stock Option Plan 4
*10.11 2000 Stock Option Plan 5
27 Financial Data Schedule 6
1. Incorporated by reference to the Company's registration statement on Form
10, file number 0-21717, filed in Washington, D.C.
2. Incorporated by reference to the Company's registration statement of Form
10-Q for the quarter ended September 30, 1998, filed in Washington, D.C.
3. Incorporated by reference to the Company's registration statement of Form
10-K for the year ended December 31, 1998 filed in Washington, D. C.
4. Incorporated by reference to the Company's proxy statement, filed in
Washington D.C. on May 10, 1999.
5. Incorporated by reference to the Company's proxy statement, filed in
Washington D.C. on April 24, 2000.
6. Filed herewith.
*Compensatory Plan.
(b) Reports on Form 8-K
None
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
CASCO INTERNATIONAL, INC.
Registrant
Date: May 8, 2000 By: /s/ Jeffrey A. Ross
-------------------
Jeffrey A. Ross
Principal Financial and
Accounting Officer