10-K/A 1 revised10k.txt 10-K/A FOR 2000 YEAR END 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.

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.

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.

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.

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:

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:

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):

SCHEDULE II Valuation and Qualifying Accounts and Reserves for the years ended December 31, 2000, 1999 and 1998

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

CASCO INTERNATIONAL INC 10-K/A