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
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ..................to........................
For the quarter ended March 31, 2001
Commission File Number 0-21717
CASCO INTERNATIONAL, INC.
(Exact Name of Registrant as specified in its charter)
Delaware 56-0526145
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13900 Conlan Circle, Suite 150, Charlotte, NC 28277
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code (704) 482-9591
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
(Title of Class)
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 __.
The aggregate market value of the voting shares held by non-affiliates of the
Registrant as of May 11, 2001 was $3,388,695 (computed by reference to the
average bid and asked prices of such shares on such date).
Number of Common Shares, each with $0.01 par value, of the Registrant
outstanding as of date: May 11, 2001: 1,774,186 Common Shares.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CASCO INTERNATIONAL, INC.
BALANCE SHEETS
March 31, 2001 and December 31, 2000
ASSETS 2001 2000
----------- -----------
(unaudited)
Current Assets:
Cash ...................................... $ 581,073 $ 4,551
Accounts receivable ....................... 2,824,678 4,955,595
Inventory ................................. 4,178,431 4,316,076
Prepaid expenses .......................... 1,046,386 959,623
Deferred tax asset ........................ 102,000 102,000
---------- ----------
Total current assets .......... 8,732,568 10,337,845
Buildings and equipment:
Buildings ................................. 2,657,263 2,657,263
Equipment ................................. 3,557,813 3,537,335
---------- ----------
6,215,076 6,194,598
Less accumulated depreciation ............. (3,288,013) (3,137,550)
---------- ----------
2,927,063 3,057,048
Land ........................................... 111,468 111,468
---------- ----------
Total property and equipment, net 3,038,531 3,168,516
Other assets:
Cost in excess of net assets acquired, net of
accumulated amortization of $649,384 and
$615,471 respectively ....................... 2,236,685 2,270,598
Other ............................................ 774,715 767,167
--------- ----------
3,011,400 3,037,765
---------- ----------
TOTAL ASSETS ..................................... $ 14,782,499 16,544,126
========== ==========
The accompanying notes are an integral part of the financial statements.
CASCO INTERNATIONAL, INC.
BALANCE SHEETS
MARCH 31, 2001 AND DECEMBER 31, 2000
LIABILITIES AND STOCIHOLDERS' EQUITY 2001 2000
------------ ------------
(unaudited)
Liabilities:
Accounts payable .......................... $ 766,226 $ 488,726
Short-term debt obligations ............... 144,020 1,858,485
Accrued liabilities ....................... 150,867 329,858
Advanced deposits-current ................. 2,615,550 2,615,550
Accrued taxes payable ..................... -- 125,000
------------ ------------
Total current liabilities ..... 3,676,663 5,417,619
------------ ------------
Long-term debt ................................. 2,022,947 2,054,236
Advanced deposits-noncurrent ................... 1,945,932 1,966,003
Deferred tax liability ......................... 559,075 545,775
------------ ------------
Total Liabilities .............................. 8,204,617 9,983,633
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
Retained earings (deficit) .................. 160,492 143,103
----------- -----------
6,595,910 6,578,521
Less treasury stock, at cost 9,014 shares ... (18,028) (18,028)
----------- -----------
Total stockholders' equity ...... 6,577,882 6,560,493
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ....... $ 14,782,499 16,544,126
=========== ===========
The accompanying notes are an integral part of the financial statements.
CASCO INTERNATIONAL, INC.
STATEMENT OF OPERATIONS
For the three months ended March 31, 2001 and 2000
Unaudited
Three Months
--------------------
2001 2000
---------- -----------
Revenue .................................... $ 5,336,315 $ 5,242,964
Operating costs and expenses:
Cost of goods sold .................... 2,617,167 2,735,951
Selling, general and administrative ... 2,452,016 2,271,797
Depreciation and amortization ......... 189,384 188,975
----------- -----------
Total operating costs and expenses 5,258,567 5,196,723
Operating income (loss) .................... 77,748 46,241
Other income and (expenses)
Interest expense ...................... (47,059) (64,811)
----------- -----------
Total other income and (expenses) (47,059) (64,811)
Income (loss) before income taxes .......... 30,689 (18,570)
Benefit (provision) for income taxes ....... (13,300) 7,400
----------- -----------
Net Income (loss) .......................... $ 17,389 $ (11,170)
=========== ===========
EARNINGS PER SHARE BASIC
Net Income (loss) .......................... $ 0.01 $ (0.01)
=========== ===========
EARNINGS PER SHARE DILUTIVE
Net Income (loss)........................... $ 0.01 $ (0.01)
=========== ============
Weighted average common shares outstanding .
basic 1,774,186 1,783,200
=========== ============
Weighted average common shares outstanding .
dilutive 1,775,890 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, 2001 and 2000
Unaudited
2001 2000
---------- ----------
Cash flows from operating activities:
Net (loss) income ............................ $ 17,389 $ (11,170)
Adjustments to reconcile net (loss) income to cash
provided by operating activities:
Depreciation and amortization .............. 189,384 188,975
Deferred provision (benefit) ............... 13,300 (7,400)
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable ..................... 2,130,917 1,949,804
Inventory ............................... 137,645 283,298
Prepaid expenses and other assets ..... (99,319) 10,793
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities 98,509 (659,277)
Taxes Payable ........................... (125,000) (355,000)
Advance deposits ........................ (20,071) (56,735)
---------- ----------
Total adjustments .................... 2,325,365 1,354,458
---------- ----------
Net cash provided by operating activities ........ 2,342,754 1,343,288
---------- ----------
Cash flows from investing activities:
Sale of equipment ........................... -- 17,890
Payments for purchases of property and equipment (20,478) (59,215)
---------- ----------
Cash used in investing activities ................ (20,478) (41,325)
Cash flows from financing activities:
Proceeds from debt obligation ............... 2,195,964 4,887,579
Principal payments on debt .................. (3,941,718) (6,194,542)
---------- ----------
Cash used in financing activities ................ (1,745,754) (1,306,963)
Increase (decrease) in cash ...................... 576,522 (5,000)
Cash, beginning of period ........................ 4,551 6,797
---------- ---------
Cash, end of period .............................. $ 581,073 1,797
========== =========
Other Cash Flow Information:
Cash payments during the year for:
Interest ................................. $ 51,677 73,427
Income taxes, net of refunds ............. 279,200 355,000
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
financial statements should be read in conjunction with the Company's audited
financial statements and notes thereto for the fiscal year ended December 31,
2000.
During the three months ended March 31, 2001, no options were granted under
the Company's 2000 Incentive Stock Option Plan.
Effects of Recent Accounting Pronouncements - In December 1999, the
Securities and Exchange Commission issued Staff Accounting Bulletin ("SAB") No.
101, "Revenue Recognition in Financial Statements." The guidance in SAB 101 must
be adopted during the fourth quarter of fiscal 2000 and the effects, if any, are
required to be recorded through a retroactive, cumulative-effect adjustment as
of the beginning of the fiscal year, with a restatement of all prior interim
quarters in the year. Management has reviewed their policies for revenue
recognition in comparison to the requirements in SAB 101and no change occurred
to its income statement presentation, operating results or financial position as
a result of implementing SAB 101.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Quarter Ended March 31, 2001 Compared to Quarter Ended March 31, 2000:
Revenues for the three months ended March 31, 2001 approximated $5.34
million, compared to $5.24 million in revenues for the three months ended March
31, 2000, an increase of 1.78% or approximately $93,000. The increase is
attributable to new customers in the new markets with employed account managers.
Cost of goods sold for the three months ended March 31, 2001 approximated
$2.62 million, compared to approximately $2.74 million of cost of goods sold for
the three months ended March 31, 2000, a decrease of 4.34% or approximately
$119,000. The decrease in cost of goods sold was attributable to the increase in
the number of new accounts sold at the current price level and the continued
exiting of low margin custom accounts. As a percentage of revenues, cost of
goods sold decreased to 49.04% for the three months ended March 31, 2001, from
52.18% for the three months ended March 31, 2000. The 3.14% decrease in the cost
of goods sold, as a percentage of revenues was principally attributable to the
Company's decision to implement yearly price increases to existing customers, as
well as an increase in the number of new accounts sold at the current price
level and the continued exiting of low margin custom accounts.
Selling, general, and administrative expense for the three months ended
March 31, 2001 approximated $2.45 million, compared to $2.27 million for the
three months ended March 31, 2000, an increase of 7.93% or approximately
$180,200. The increase in selling, general, and administrative expense was
principally attributable to the increased marketing of the company's programs as
well as costs associated with the potential merger with Davis Holdings of North
Carolina. As a percentage of revenues, selling, general and administrative
increased to 45.95% for the three months ended March 31, 2001, from 43.33% for
the three months ended March 31, 2000. The 2.62% increase as a percentage of
revenues was principally attributable to the increased marketing of the
company's programs as well as costs associated with the potential merger with
Davis Acquisition of North Carolina (the "Davis Group").
Interest expense was approximately $47,000 for the three months ended March
31, 2001, compared to $65,000 for the three months ended March 31, 2000, a
decrease of approximately $18,000. The decrease in interest expense was
primarily due to a decreased average balance on the Company's line of credit and
the reduction of the Company's long-term debt.
Depreciation and amortization expense was approximately $189,000 for the
three months ended March 31, 2001, compared to $189,000 for the three months
ended March 31, 2000.
Income tax provision was $13,300 for the three months ended March 31, 2001,
compared to an income tax benefit of $7,400 for the three months ended March 31,
2000. The provisions for income tax 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 focuses on increased
efforts of the Company's existing sales force and the use of independent field
representatives in order to expand current market share and enter into new
markets.
The Company anticipates that operating cash flows during the next twelve
months, coupled with its ability to borrow under its credit facility, will cover
operating expenditures and meet short-term debt obligations. The Company's
credit facility is due and payable in full on July 30, 2001. 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.
The Company does not anticipate any material expenditures out of the
ordinary course of business for property and equipment during the next twelve
months. Management believes that present resources will meet anticipated
requirements.
On May 8, 2001 the Company announced that it has entered into an Agreement
and Plan of Merger with Davis Holdings of North Carolina, Inc. and Davis
Acquisition of North Carolina, Inc. The completion of the merger could have an
effect on the Company's liquidity and capital structure. The Company is
concerned with the uncertainty of the economy and the uncertainty of the
increased unemployment rates in recent months. If these trends would continue it
could affect the liquidity in an adverse way over an extended period of time.
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 36% 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 of 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.
CAUTIONARY STATEMENT
Statements included in this Management's Discussion and Analysis of
Financial Condition and Results of Operations, in other sections of this Annual
Report, and in future filings by the Company with the Securities and Exchange
Commission, in the Company's press releases and in oral statements made with the
approval of an authorized executive officer which are not historical or current
facts including, without limitation, not discussed its ability to grow through
acquisition and strategic alliances and through expanding its current market
share and entering new markets, the adequacy of the company's cash resources to
fund its current operations, the anticipated renewal of the Company's credit
facility, the Company's expectation with respect to expenditures for property
and equipment, and the Company's expectations with respect to the diminished
effect of seasonality on its business are "forward-looking statements" made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995 and are subject to certain risks and uncertainties that could
cause actual results to differ materially from historical results and those
presently anticipated or projected. Readers are cautioned not to place undue
reliance on any such forward-looking statements, which speak only as of the date
made. The following important factors, among others, in some cases have affected
and in the future could affect the Company's actual results and could cause the
Company's actual financial performance to differ materially from that expressed
in any forward-looking statement: (i) the competitive conditions that currently
exist in the Company's industry, which could adversely impact sales and erode
gross margins; (ii) many of the Company's competitors are significantly larger
and better capitalized than the Company; (iii) the Company's loan agreement
contains a number of significant covenants that restrict the ability of the
Company to engage in certain activities, including the payment of dividends and
requires that the Company maintain specified financial ratios, including a
minimum capital base, and minimum pretax profits from operations; and (iv) the
inability to carry out marketing and sales plans would have a materially adverse
impact on the Company's profitability. The foregoing list should not be
construed as exhaustive and the Company disclaims any obligations subsequently
to revise any forward-looking statements to reflect events or circumstances
after the date of such statements or to reflect the occurrence of anticipated or
unanticipated events.
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 1/4
percent. The prime interest rate at March 31, 2001 was 8.0 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
A group headed by the Davis Group has offered to acquire all of the
outstanding shares of the Company not currently held by them. A Special
Committee of the outside directors was formed to consider the offer and has
indicated that it will recommend for approval the latest offer of $2.10 per
share for the outstanding shares of common stock.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8K
(a) Exhibits.
None
(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 15, 2001 By: /s/ Jeffrey A. Ross
-------------------------
Jeffrey A. Ross
Principal Financial and
Accounting Officer