UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(AMENDMENT NO. 1)
--------------------------------------------
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ..................to.........................
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 .
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting shares held by non-affiliates of the
Registrant as of March 29, 2001 was $3,009,150 (computed by reference to the
average bid and asked prices of such shares on such date).
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT MARCH 29, 2001
----- -----------------------------
Common Stock, par value $0.01 per share 1,774,186
DOCUMENTS INCORPORATED BY REFERENCE
None.
Note: The purpose of this amendment is due to SEC Staff comments to a Proxy
Statement filed by the Company.
ITEM 6. SELECTED FINANCIAL DATA.
(In thousands, except per share data)
Year Year Year Year Year
Ended Ended Ended Ended Ended
December December December December December
31, 31, 31, 31, 31,
2000 1999 1998 1997 1996
-------- -------- ------- -------- -------
STATEMENT OF OPERATIONS DATA:
Revenues $ 23,545 $ 24,199 $ 21,718 $ 19,333 $ 21,959
Costs and expenses 22,952 23,549 22,102 20,007 22,542
---------- --------- -------- --------- --------
Income (loss) before income taxes and
cumulative effect of change in
accounting principle 593 650 (384) (674) (583)
Benefit (Provision) for
income taxes (252) (293) 146 256 195
------- ------- ------- ------ -------
Income (loss) before extraordinary gain and
cumulative effect of change in
accounting principle 341 357 (238) (418) (388)
Cumulative effect of change in
accounting principle * ----- ----- ----- ----- 597
Extraordinary gain on
retirement of debt ----- ----- 930 ----- -----
-------- -------- ------- -------- -------
Net income (loss) $ 341 $ 357 $ 692 $ (418) $ 209
============ ========== ======== ========== ========
PER SHARE DATA:
Income (loss) before cumulative effect of
change in accounting
principle $ 0.19 $ 0.20 $(0.13) $ (0.34) $(0.39)
Cumulative effect of change in accounting
principle ----- ----- ----- ----- 0.59
Extraordinary gain on
retirement of debt ----- ----- 0.52 ----- -----
--------- ------- ------- ---------- --------
Income (loss) per
common share $ 0.19 $ 0.20 $ 0.39 $ (0.34) $ 0.20
========= ======= ======= ========== ========
Weighted average common and common
equivalent shares 1,782,237 1,783,200 1,783,200 1,225,447 1,003,431
========= ========= ========== =========== ===========
*In 1996, the Company changed its method of accounting for the recognition of
revenues relating to advanced deposits. Effective with the change, revenues are
recognized over the course of the programs based on the Company's historical and
expected redemption percentages. The effect of the accounting change in 1996 was
to increase income before income taxes and cumulative effect of change in
accounting principle by $209,190.
The Company has not declared or paid any cash dividends on the Common Stock
since it was spun off from Pages, Inc. at the close of business on December 31,
1996.
BALANCE SHEET DATA:
Working capital $ 4,920 $ 4,787 $4,606 $7,202 $5,025
Total assets 16,544 17,344 18,843 16,148 18,249
Long-term debt 2,054 2,190 2,413 4,900 4,125
Stockholders' equity 6,560 6,237 5,880 5,188 3,328
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 and
receivables.
Net working capital increased to $4,920,000 as of December 31, 2000 from
net working capital of $4,787,000 as of December 31, 1999. The increase was
primarily attributed to the Company's ability to pay down its line of credit
during 2000.
The Company has adopted a growth strategy which will be accomplished
through increased efforts of the Company's existing highly trained sales force
and the use of independent field representatives in order to expand current
market share and enter into new markets. As a result of a change in market
conditions, the Company discontinued its efforts to enter the e-fulfillment
business.
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. 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.
Current assets decreased approximately $429,000 due mostly from decreases
in inventory ($398,000). The decrease in inventory is due to an improved
purchasing strategy coupled with an improved processing and inventory ordering
system. Current liabilities decreased approximately $562,000 due mostly from
decreases in short-term debt obligations ($642,000), and accounts payable and
accrued liabilities ($451,000), and taxes payable ($230,000) offset by an
increase of advance deposits ($760,765). The decrease in short-term debt
obligations was due to the pay down of the line of credit from the excess cash
generated from operations. The decrease in accounts payable was due to the
decreased inventory purchases. The increase in advance deposits was due to the
change in the mix of prepaid deposits from noncurrent to current.
Cash decreased approximately $2,200. Net cash provided from operating
activities was approximately $1,145,000. Net cash used in investing activities
was approximately $352,000 due to payments for purchases of new information
systems. Net cash used by financing activities was approximately $795,000, which
was due to the reduction on the line of credit and the purchase of 9,014 shares
of Company stock at $2 per share. The Company does not anticipate any material
expenditures for property and equipment during the next twelve months, out of
the ordinary course of business. Management believes that present resources will
meet anticipated requirements for its current operations.
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 in the
short term. 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.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
Note 1 - Nature of Business and Summary of Significant Accounting Policies
BASIS OF PRESENTATION
On February 28, 1990, in a transaction accounted for as a purchase, all of
the outstanding stock of the Company was acquired by Pages, Inc. ("Pages").
These financial statements were prepared under the resulting new basis of
accounting that reflects the fair values of assets acquired and liabilities
assumed.
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. The Company
utilized purchase accounting for this acquisition. 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 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 its revolving credit facility with Branch Banking & Trust
Company. The Buyer and the Seller mutually agreed on the following allocation of
the purchase price among the Assets:
Inventory $122,832
Computer Equipment 10,000
Office Equipment 10,000
Furniture and Fixtures 30,000
Goodwill 1,326,633
None of the Seller's liabilities were assumed by the Buyer. There were no
adjustments between the Seller's financial statements and the Company's
financial statements.
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. The Company utilized purchase accounting for this
acquisition. 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.
The Buyer and the Seller mutually agreed on the following allocation of the
purchase price among the Assets:
Furniture and Fixtures $10,000
Tools & Dies 12,000
Inventory 1,500
Non-Competition Agreement 36,000
Goodwill 195,677
None of the Seller's liabilities were assumed by the Buyer. There were no
adjustments between the Seller's financial statements and the Company's
financial statements.
REVENUE RECOGNITION
Revenues from the sale of incentive awards are generally recognized upon
shipment and delivery of the related merchandise except for revenue recognized
for advanced deposits for certain programs. Advance deposits are recognized upon
shipment and delivery of the related goods. Additionally, management has
estimated, based on prior experience, the percentage of programs that will never
ship. These revenues are recognized as revenue over the contract period.
Revenues from services are insignificant. Returns from the sales of incentive
awards and from services are insignificant.
ACCOUNTS RECEIVABLE
The Company sells its products to numerous commercial and industrial
customers across the United States and Canada. The accounts receivable are well
diversified and are expected to be repaid in the normal course of business. The
Company has not provided any allowance for sales, returns and allowances based
on management's estimates of collection. Returns from the sales of incentive
awards and from services are insignificant. The Company has elected to record
bad debts using the direct write-off method. Generally Accepted Accounting
Principles require that the allowance method be used to recognize bad debts;
however, Management believes that the amounts of accounts receivable that are
directly written off are not material. The amount of direct write-offs were
$46,872 and $13,990 at December 31, 2000 and December 31, 2001 respectively.
Note 2 - STOCK OPTIONS AND WARRANTS
At December 31, 2000, 935,000 common shares of the Company were reserved
for issuance under the incentive stock option plans, 40,000 shares were reserved
under the non-employee director stock option plans and 1,620,000 shares were
reserved under outstanding warrants. The 2000 option plan of 100,000 shares
includes both employees and directors. The 1999 option plan of 600,000 shares
includes both employees and directors. Additionally, 200,000 common shares of
the Company were reserved under a performance option plan for the President.
December 31, 2000 December 31, 1999
-------------------------- --------------------------
Weighted Average Weighted Average
Incentive Stock
Option Plan Number Exercise Price Number Exercise Price
- --------------- -------- ---------------- -------- ---------------
Outstanding, beginning
of year 601,140 $2.0212 273,140 $2.8001
Granted 66,000 $2.7347 421,500 $1.7649
Canceled 117,360 $2.1302 93,500 $2.3529
Exercised None ----- None -----
--------------------------- -------------------------
Outstanding, end
of year 549,780 $2.2177 601,140 $2.1438
--------------------------- -------------------------
Exercise price range of
options outstanding $1.0000 $1.0000
to to
$4.2400 $3.7037
Non-Employee Director Option Plan
- ---------------------------------
Outstanding, beginning
of year 220,800 $2.0212 55,800 $2.8094
Granted 10,000 $4.1250 180,000 $1.7500
Canceled None ----- 15,000 $2.0000
Exercised None ----- None -----
--------------------------- ------------------------
Outstanding, end
of year 230,800 2.1124 220,800 $2.0212
--------------------------- ------------------------
Exercise price
range of options
outstanding $1.75 $1.75
to to
$4.17 $4.17
The weighted average remaining life on options outstanding at December 31,
2000 is 4.19 years.
The incentive stock options are exercisable at the fair market value on the
date of grant, and were available from the 1996, 1997, 1999 and 2000 stock
option plans. The options outstanding at December 31, 2000 are exercisable from
January 17, 2002, through July 31, 2005.
The non-employee Director options are exercisable at the fair market value
on the date of grant. The non-employee Director options outstanding at December
31, 2000 are exercisable through October 12, 2003.
Warrants to purchase 1,560,000 shares of CASCO INTERNATIONAL, INC. common
stock were issued in September 1997 as part of the unit offering. The warrants
are exercisable for five years from the date of issuance at $5.50 per share.
Warrants to purchase 30,000 shares of CASCO International, Inc., common
stock were issued February 28, 1998 to R. L. Renck & Co., Inc. The Warrants vest
at 2,500 per month commencing on February 28, 1998 and continuing through
January 31, 1999 at an exercise price of $3.00 per share. The warrants are
exercisable for five years from the date of issuance. The warrants are valued at
the fair market value of the common stock at the date of grant.
Additional warrants to purchase 30,000 shares of CASCO International, Inc.,
common stock were issued June 27, 1999 to R. L. Renck & Co., Inc. The warrants
vest at 10,000 shares on June 27, 1999 then at a rate of 2,500 shares per month
from June 27, 1999 to February 26, 2000 at an exercise price of $2.75 per share.
The warrants are exercisable for five years from the date of issuance. The fair
market value of common stock at the date of grant was $1.94.
Proceeds
Date Granted or Shares Exercise to Company
Issued Exercisable Price Upon Exercise
-------- ----------- ------- -------------
Incentive
Stock Options:
- -------------
1996 Plan January 17, 1997 14,580 $3.7037 $54,000
1996 Plan March 26, 1997 5,400 3.7037 20,000
1996 Plan March 12, 1997 37,800 3.2407 122,498
1997 Plan December 29, 1997 7,000 3.0625 21,438
1997 Plan January 20, 1998 60,000 2.8750 172,500
1997 Plan March 3, 1998 20,000 2.8125 56,250
1997 Plan April 1, 1998 5,000 3.5000 17,500
1997 Plan October 12, 1998 5,000 1.0000 5,000
1997 Plan May 27, 1999 349,000 1.7500 610,750
1999 Plan January 19, 2000 20,000 2.0600 41,200
1999 Plan February 1, 2000 20,000 2.1300 42,600
1999 Plan April 25, 2000 1,000 4.2400 4,240
2000 Plan July 31, 2000 5,000 2.6100 13,050
Non-Employee
Director Options:
- ----------------
1996 Plan June 25, 1997 10,800 $4.1667 45,000
1996 Plan January 20, 1998 30,000 2.8750 86,250
1997 Plan May 27, 1999 180,000 1.7500 315,000
1999 Plan April 5, 2000 10,000 4.1300 41,300
Warrants:
- --------
September 19, 1997 1,560,000 $5.50 8,580,000
February 28, 1998 30,000 3.00 90,000
June 27, 1999 30,000 2.75 82,500
--------- ---------
Total 2,400,580 $10,421,076
========= ===========
Pro forma information regarding net income and earnings per share is
required by SFAS 123, and has been determined as if the Company had accounted
for its employee stock options under the fair value method of that Statement.
The fair value for these options was estimated at the date of grant using a
Black-Scholl's option pricing model with the following weighted average
assumptions for 2000, 1999, and 1998.
2000 1999 1998
---- ---- ----
Risk-free interest rate 6% 6% 6%
Dividend yield 0% 0% 0%
Volatility factor 105.0% 104.4% 107.7%
Weighted average expected life in years 3.3 5 5
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma net income (loss) and earnings per share were as follows:
2000 1999 1998
-------- -------- --------
Net income as reported $340,994 $357,495 $692,266
Net income-pro forma 240,594 357,495 623,266
Income per common share -
as reported $ .19 $ .20 $ .39
Income per common shares -
pro forma $ .13 $ .13 $ .35
Weighted average fair value of
options granted during the year $ 2.73 $ 1.76 $ 2.53
These pro forma calculations only include the effects of 2000, 1999, and
1998 grants. As such, the impacts are not necessarily indicative of the effects
on reported net income of future years.
Note 3 - DEBT OBLIGATIONS
Debt obligations consisted of the following:
December 31, December 31,
2000 1999
----------- ------------
Line of credit with interest at
prime plus 1/4 percent; interest
payable monthly, maturing on
July 30, 2001, collateralized by
accounts receivable and
inventory of the Company
($3,280,226 available at
December 31,2000). $1,719,774 $2,262,189
First National Bank first deed of trust
on the Shelby facilities. Payable in
monthly installments of $24,088 including
interest (7 1/2 percent) through March of
2013. The term of the loan is fifteen years,
callable after five years and guaranteed
by the President. 2,101,892 2,209,767
Promissory note payable with interest at 8
percent, payable in two annual installments
through July 30, 2000. Collateralized by
letter of credit at Branch Banking & Trust. ----- 100,000
Promissory note payable with interest at 6
percent, payable in monthly installments
through October 1, 2003. 91,055 118,225
---------- ----------
Current portion 3,912,721 4,690,181
Long term portion 1,858,485 2,500,465
---------- ----------
$2,054,236 $2,189,716
========== ==========
The interest rate for the line as of December 31, 2000 and 1999 was prime
plus 1/4 percent and prime plus 1/2 percent, respectively.
The prime interest rate at December 31, 2000 and 1999 was 9.5 percent and
8.5 percent, respectively. The carrying amount of the Company's short-term debt
obligations approximates fair value.
The line of credit facility also includes certain financial covenants,
including covenants that the Company maintain certain financial ratios. In
addition, the credit facility contains limitations on capital expenditures,
fixed asset sales, loans and/or advances to shareholders and employees,
restrictions on operating leases and limitation on dividends paid on common
stock to $100,000 annually. The Company was in violation of one covenant
pertaining to purchase of its common stock. The Company has received a waiver
for this violation for the year ended December 31, 2000. The treasury stock was
purchased from a third-party stockholder at the fair market value at the date of
the purchase. The bank waiver was a one-time waiver for the year ended December
31, 2000 and when the line of credit was renegotiated in July 2001, this loan
covenant was removed from the loan agreement. As the line of credit was due in
July 2001, it was included in the current portion of long-term debt in the
financial statements.
The aggregate long-term debt payments as of December 31, 2000 for each of the
next three years are:
2001 1,858,485
2002 152,266
2003 1,901,970
Total $3,912,721
=========
Note 4 - COMMITMENTS AND CONTINGENCIES
The Company is obligated under various non-cancelable operating leases.
Operating leases are principally for office and warehouse facilities, equipment
and vehicles. Rent expense under operating leases amounted to $248,571, $269,962
and $152,128, for the years ended December 31, 2000, 1999 and 1998,
respectively. The future minimum rentals under non-cancelable operating leases
during subsequent fiscal years are as follows:
YEARS ENDING
DECEMBER 31,
2001 $ 236,910
2002 123,518
----------
$ 360,428
==========
Note 10 - Quarterly Results (Unaudited)
Summary data relating to the results of operations for each quarter of the
years ended December 31, 2000 and 1999 follows (in thousands except per share
amounts):
Three Months Ended
Mar. 31 Jun. 30 Sept. 30 Dec. 31
- -------------------------------------------------------------------------------
Fiscal year 2000
Net Revenue $5,243 $5,355 $4,551 $8,397
Gross profit 2,507 2,529 2,228 3,646
Income (loss) from
continuing operations 46 49 (244) 1,044
Net income (loss) (11) (11) (197) 560
Income (loss) from
continuing operations
per common share
Basic $ .03 $ .03 $ (.14) $ .59
Diluted $ .03 $ .03 $ (.14) $ .52
Net income
Basic $ (.01) $ .00 $ (.11) $ .31
Diluted $ (.01) $ .00 $ (.11) $ .28
Fiscal year 1999
Net Revenue $5,966 $5,869 $4,268 $8,095
Gross profit 2,942 2,586 2,010 3,343
Income (loss) from
continuing operations 582 44 (348) 745
Net income (loss) 288 (26) (269) 365
Basic and diluted
income (loss) from
continuing operations
per common share $ .33 $ .02 $ (.20) $ .42
Net income
Basic $ .16 $ (.01) $ (.15) $ .20
Diluted $ .16 $ (.01) $ (.15) $ .20
- -------------------------------------------------------------------------------
SCHEDULE II
Valuation and Qualifying Accounts and Reserves
for the years ended December 31, 2000, 1999 and 1998
Additions
---------------------------
Charged to
Balance at Charged to other Balance at
Beginning costs and accounts- Deductions- End of
Description of period expenses describe describe period
- --------------------------------------------------------------------------------
2000 Inventory Reserve 90,656 0 0 0 90,656
1999 Inventory Reserve 90,656 0 0 0 90,656
1998 Inventory Reserve 90,656 0 0 0 90,656
CASCO INTERNATIONAL, INC.
INDEX TO FINANCIAL STATEMENTS
Page
Independent Auditors' Report-- 29
Hausser + Taylor LLP - for the years ended December 31, 2000, 1999 and 1998.
Statements of operations-- 30
Years ended December 31, 2000, 1999 and 1998.
Balance sheets-- 31
December 31, 2000 and December 31, 1999.
Statements of cash flows-- 33
Years ended December 31, 2000, 1999 and 1998.
Statements of stockholders' equity-- 34
Years ended December 31, 2000, 1999 and 1998.
Notes to the financial statements-- 35
Years ended December 31, 2000, 1999 and 1998.
Financial Statement Schedule 27
Schedule II - Valuation and Qualifying Accounts and Reserves
All other schedules are omitted, not applicable under the related
instructions, and therefore have been omitted.
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
CASCO INTERNATIONAL, INC.
Shelby, North Carolina
We have audited the accompanying balance sheets of CASCO INTERNATIONAL, INC.,
(the "Company"), as of December 31, 2000 and 1999, and the related statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 2000. Our audits also included the financial
statement schedule listed in the Index to the Financial Statements. These
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on the
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 financial statements and financial statement schedule
present fairly, in all material respects, the financial position of the Company
as of December 31, 2000 and 1999, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2000 in
conformity with generally accepted accounting principles.
/s/ Hausser + Taylor LLP
Columbus, Ohio
March 19, 2001