<PAGE> 1
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 June 30, 1997
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.
(formerly CA Short Company)
Incorporated - Delaware I.R.S. Identification No. 56-0526145
4205 East Dixon Boulevard, Shelby, North Carolina 28150
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 1,003,431 common shares outstanding,
each with par value $0.01, as of August 4, 1997.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
CASCO INTERNATIONAL, INC.
(formerly CA SHORT COMPANY)
BALANCE SHEETS
June 30, 1997 and December 31, 1996
Unaudited
<TABLE>
<CAPTION>
1997 1996
------------ ------------
ASSETS
<S> <C> <C>
Current assets:
Cash $ 144,986 $ 130,971
Accounts receivable 1,553,287 4,644,027
Inventory 5,461,493 6,968,365
Prepaid expenses 844,573 818,108
------------ ------------
Total current assets 8,004,339 12,561,471
------------ ------------
Buildings and equipment:
Buildings 3,194,058 3,194,058
Equipment 1,903,892 1,866,122
------------ ------------
5,097,950 5,060,180
Less accumulated depreciation (1,496,913) (1,339,848)
------------ ------------
3,601,037 3,720,332
Land 211,468 211,468
------------ ------------
Total property and equipment, net 3,812,505 3,931,800
------------ ------------
Other assets:
Cost in excess of net assets acquired, net of accumulated
amortization of $250,526 and $233,444 respectively 1,115,941 1,133,023
Other 634,256 622,256
------------ ------------
1,750,197 1,755,279
------------ ------------
TOTAL ASSETS $ 13,567,041 $ 18,248,550
============ ============
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE> 3
CASCO INTERNATIONAL, INC.
(formerly CA SHORT COMPANY)
BALANCE SHEETS
June 30, 1997 and December 31, 1996
Unaudited
<TABLE>
<CAPTION>
1997 1996
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Liabilities:
Accounts payable $ 344,650 $ 1,572,020
Short-term debt obligations 1,404,015 3,669,746
Short-term subordinated debenture 100,000 --
Accrued liabilities 225,692 342,156
Advanced deposits-current 2,222,998 1,952,317
------------ ------------
Total current liabilities 4,297,355 7,536,239
------------ ------------
Due Pages -- 4,124,975
Advanced deposits-noncurrent 2,223,755 2,935,626
Subordinated debenture 4,900,000 --
Deferred tax liability 82,650 323,650
------------ ------------
Total Liabilities: 11,503,760 14,920,490
Commitments and contingencies -- --
Stockholders' equity:
Preferred Shares: $.01 par value; authorized
300,000 shares; none issued and outstanding -- --
Common shares $.01 par value; authorized 5,000,000;
issued 929,103 and 334.91 shares respectively 9,291 3
Capital in excess of par value 3,273,669 4,157,982
Accumulated deficit (1,219,679) (829,925)
------------ ------------
Total stockholders' equity 2,063,281 3,328,060
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 13,567,041 $ 18,248,550
============ ============
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE> 4
CASCO INTERNATIONAL, INC.
(formerly CA SHORT COMPANY)
STATEMENTS OF OPERATIONS
For the three months and the six months ended June 30, 1997
Unaudited
<TABLE>
<CAPTION>
Three Months Six Months
1997 1996 1997 1996
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 4,227,065 $ 4,227,434 $ 8,443,149 $ 10,052,824
Costs and Expenses:
Cost of goods sold 2,524,362 2,559,529 4,780,213 5,962,436
Selling, general and administrative 1,874,555 1,859,165 3,861,680 3,811,809
Interest 119,032 26,807 257,863 32,961
Depreciation and amortization 87,825 84,171 174,147 167,092
Management fee paid to Pages -- 125,000 -- 250,000
----------- ----------- ------------ ------------
4,605,774 4,654,672 9,073,903 10,224,298
Loss from continuing operations before income taxes
and cumulative effect of change in accounting
principle (378,709) (427,238) (630,754) (171,474)
Benefit for income taxes 144,700 3,500 241,000 57,300
----------- ----------- ------------ ------------
Loss before cumulative effect of change in accounting
principle $ (234,009) $ (423,738) $ (389,754) $ (114,174)
Cumulative effect of change in accounting principle net
of income tax of $397,850
-- -- -- 596,814
----------- ----------- ------------ ------------
NET INCOME (LOSS) $ (234,009) $ (423,738) $ (389,754) $ 482,640
=========== =========== ============ ============
INCOME (LOSS) PER COMMON SHARE:
Loss before cumulative effect of change in
accounting principle $ (0.23) $ (0.43) $ (0.39) $ (0.11)
Cumulative effect of change in accounting principle -- -- -- $ 0.59
----------- ----------- ------------ ------------
Net income (loss) $ (0.23) $ (0.43) $ (0.39) $ 0.48
=========== =========== ============ ============
Weighted average common shares outstanding
1,003,431 1,003,431
=========== ============
Proforma common shares outstanding 1,003,431 1,003,431
=========== ============
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE> 5
CASCO INTERNATIONAL, INC.
(formerly CA SHORT COMPANY)
STATEMENTS OF CASH FLOWS
For the six months end June 30, 1997 and 1996
Unaudited
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (389,754) $ 482,640
Adjustments to reconcile net (loss) income to cash
provided by operating activities:
Depreciation and amortization 174,147 167,092
Deferred provision (241,000) (57,300)
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable 3,090,740 4,040,514
Inventory 1,506,872 1,159,583
Prepaid expenses and other assets (38,465) (121,615)
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities (1,343,834) (1,162,132)
Advance deposits (441,190) (951,690)
------------ ------------
Total adjustments 2,707,270 3,074,452
------------ ------------
Net cash provided by operating activities 2,317,516 3,557,092
Cash flows from investing activities
Payments for purchases of property and equipment (37,770) (219,615)
------------ ------------
Cash used in investing activities (37,770) (219,615)
Cash flows from financing activities:
Proceeds from debt obligation 10,573,563 11,712,321
Principal payments on debt $(12,839,294) $(15,234,621)
------------ ------------
Cash used in financing activities (2,265,731) (3,522,300)
Increase (decrease) in cash 14,015 (184,823)
Cash, beginning of period 130,971 226,678
------------ ------------
Cash, end of period $ 144,986 $ 41,855
============ ============
Other Cash Flow Information:
Cash payments during the year for:
Interest $ 170,363 $ 68,952
Income taxes, net of refunds -- --
Noncash Financing Activities:
Subordinated debenture with Pages assumed at spin-off $ 5,000,000 $ --
Due to Pages replaced with subordinated debenture $ 4,124,975 $ --
Decrease in capital in excess of par value and common stock
from spin-off $ 870,025 $ --
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE> 6
CASCO INTERNATIONAL, INC.
(formerly CA SHORT COMPANY)
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, 1996.
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, 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.
NEW BANK AGREEMENT
On June 30, 1997, the Company renewed its credit facility in the form
of a $4.5 million revolving line of credit. The credit facility has an
expiration date of June 30, 1998 and bears interest at the lender's prime rate
of interest plus one percent floating daily. All business assets of the Company
are pledged as collateral for the credit facility.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Quarter and Six Months Ended June 30, 1997 Compared to Quarter and Six Months
Ended June 30, 1996:
Revenues for the three months ended June 30, 1997 approximated $4.23
million, compared to $4.23 million in revenues for the three months ended June
30, 1996.
Revenues for the six months ended June 30, 1997 approximated $8.44
million, compared to $10.05 million in revenues for the six months ended June
30, 1996, a decrease of 16.02% or approximately $1.61 million. The decline in
revenue was due to disappointing holiday sales and a decrease in volume on
certain existing customers coupled with delayed redemptions on new accounts.
Cost of goods sold for the three months ended June 30, 1997
approximated $2.52 million, compared to approximately $2.56 million of cost of
goods sold for the three months ended June 30, 1996, a decrease of 1.6% or
approximately $40,000. The decrease in cost of goods sold was attributable to
the decrease in revenues. As a percentage of revenues, cost of goods sold
decreased to 59.72% for the three months ended June 1997, from 60.55% for the
three months ended June 30, 1996. The 0.83% decrease in the cost of goods sold,
as a percentage of revenues was principally attributable to a change in product
mix, and an improved inventory purchasing strategy.
Cost of goods sold for the six months ended June 30, 1997 approximated
$4.78 million, compared to approximately $5.96 million of cost of goods sold for
the six months ended June 30, 1996, a decrease of 19.80% or approximately $1.18
million. The decrease in cost of goods sold was attributable to the decrease in
revenues. As a percentage of revenues, cost of goods sold decreased to 56.62%
for the six months ended June 30, 1997, from 59.31% for the six months ended
June 30, 1996. The 2.69% decrease in the cost of goods sold, as a percentage of
revenues was principally attributable to a change in product mix, and an
improved inventory purchasing strategy.
<PAGE> 7
Selling, general, and administrative expense for the three months ended
June 30, 1997 approximated $1.87 million, compared to $1.86 million for the
three months ended June 30, 1996, an increase of approximately $10,000. The
increase in selling, general, and administrative expense was primarily due to a
restructuring of the Company's sales force.
Selling, general, and administrative expense for the six months ended
June 30, 1997 approximated $3.86 million, compared to $3.81 million for the six
months ended June 30, 1996, an increase of 1.3% or approximately $50,000. The
increase in selling, general, and administrative expense was primarily due to a
restructuring of the Company's sales force.
Interest expense was approximately $119,000 for the three months ended
June 30, 1997, compared to $27,000 for the three months ended June 30, 1996, an
increase of approximately $92,000. For the six months ended June 30, 1997
interest expense approximated $258,000, compared to approximately $33,000 for
the six months ended June 30, 1996 an increase of approximately $225,000. The
increase was primarily due to the new subordinated debenture, which was entered
into effective January 1, 1997. The average outstanding debt for the first six
months in 1997 approximated $1.65 million compared to $1.52 million for the
first three months in 1996. Additionally, the average interest rate for the
first six months in 1997 approximated 9.38% compared to approximately 9.04% for
the same period in 1996.
Depreciation and amortization expense was approximately $88,000 for the
three months ended June 30, 1997, compared to $84,000 for the three months ended
June 30, 1996, an increase of 4.76% or approximately $4,000. Depreciation and
amortization expense was approximately $174,000 and $167,000 for the six months
ended June 30, 1997 and 1996 respectively, an increase of 4.2%, or approximately
$7,000. The increase in depreciation and amortization expense was principally
attributable to the depreciation of newly acquired assets in 1996.
Income tax benefit was $241,000 for the six months ended June 30, 1997,
compared to $57,300 for the six months ended June 30, 1996. The provisions for
income tax benefit were calculated through the use of estimated income tax rates
based upon the loss 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 and
receivables, and the expansion of the sales force.
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 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 June 30, 1998. 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.
<PAGE> 8
The Company also entered into a $5 million, 7% subordinated debenture
with Pages simultaneously with the Distribution in satisfaction of amounts due
to Pages by the Company. Any excess of the amount due to Pages, as of the
Distribution over the $5 million subordinated debenture, was recorded as capital
in excess of par. Principal payments are $100,000 per year for the first four
years, and a final payment due at the end of the fifth year for the remaining
principal balance. Interest is at 7% per annum, payable quarterly.
The Company does not anticipate any material expenditures for property
and equipment during the next twelve months.
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
effects 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 40 percent
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 highly diminished. The business categories 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, and (iii) the Company's growth strategy,
including the expansion of current market share and the entrance into new
markets.
<PAGE> 9
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.
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
Effective August 1, 1997 CA Short Company changed its name to CASCO
INTERNATIONAL, INC. The Company will still conduct business under the
CA Short Company name.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8K
Exhibit Method
Number Description of Filing
- ------ ----------- ---------
*10.3 Amendment to 1996 Incentive Stock Option Plan 2
27 Financial Data Schedule 2
1. Incorporated by reference to the Company's registration statement on
Form 10, file number 0-271717, filed in Washington, D.C.
2. Filed herewith.
* Indicates a management contract or compensatory plan or arrangement
required to be filed herewith.
(b) Reports on Form 8-K
A report on Form 8K was dated and filed on July 23, 1997, under Item 4
dismissing Deloitte & Touche LLP as its principal independent
accountant, and the engagement of Hausser + Taylor as its new
independent accountants.
<PAGE> 10
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.
(formerly CA Short Company)
Registrant
Date: August 5, 1997
By: /s/ Jeffrey A. Ross
------------------------------------------
Jeffrey A. Ross
Principal Financial and Accounting Officer
<PAGE> 1
EXHIBIT 10.3
CA SHORT COMPANY
AMENDMENT TO 1996 STOCK INCENTIVE STOCK OPTION PLAN
Paragraph 2 of the 1996 Incentive Stock Option Plan shall be amended in
its entirety to read as follows:
2. Shares Subject to the Plan. Subject to the provisions
of Section 5(g) of the Plan, 85,000 shares of the common stock
of the Corporation shall be reserved and may be optioned under
the Plan. The reserved shares may be authorized and unissued
shares or treasury shares of the Corporation or any combination
of both as determined by the Board of Directors of the Corporation.
If an option granted under the Plan ceases to be exercisable in
whole or in part, the shares representing such option shall be
available under the Plan for the grant of options in the future.
Dated March 12, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 144,986
<SECURITIES> 0
<RECEIVABLES> 1,553,287
<ALLOWANCES> 0
<INVENTORY> 5,461,493
<CURRENT-ASSETS> 8,004,339
<PP&E> 5,309,418
<DEPRECIATION> 1,496,913
<TOTAL-ASSETS> 13,567,041
<CURRENT-LIABILITIES> 4,297,355
<BONDS> 0
0
0
<COMMON> 9,291
<OTHER-SE> 2,053,990
<TOTAL-LIABILITY-AND-EQUITY> 13,567,041
<SALES> 8,443,149
<TOTAL-REVENUES> 8,443,149
<CGS> 4,780,213
<TOTAL-COSTS> 9,073,903
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 257,863
<INCOME-PRETAX> 630,754
<INCOME-TAX> 241,000
<INCOME-CONTINUING> 389,754
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 389,754
<EPS-PRIMARY> (0.39)
<EPS-DILUTED> (0.39)
</TABLE>
