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Filed pursuant to Rule 424(b)(4)
Registration No. 333-32897
PROSPECTUS
750,000 UNITS
CASCO INTERNATIONAL, INC.
EACH UNIT CONSISTING OF ONE SHARE OF COMMON STOCK
AND TWO REDEEMABLE CLASS A WARRANTS
---------------------
This Prospectus relates to the offering (the "Offering") of 750,000 units
(the "Units") by CASCO INTERNATIONAL, INC., a Delaware corporation (the
"Company"), each Unit consisting of one share (each a "Share" and collectively,
the "Shares") of common stock, $0.01 par value per share (the "Common Stock"),
and two Redeemable Class A Warrants (each a "Warrant" and, collectively, the
"Warrants"). The Units, the Shares and the Warrants are sometimes hereinafter
collectively referred to as the "Securities." The Shares and the Warrants
included in the Units are detachable and will trade separately twelve months
after issuance, subject to earlier separability in the discretion of the
Underwriter. Each Warrant entitles the registered holder thereof (a
"Warrantholder") to purchase one share of Common Stock at an initial exercise
price equal to $5.50 at any time during the period commencing one (1) year after
the effective date of this Prospectus and terminating four (4) years thereafter
(the "Warrant Exercise Period"). The Warrant exercise price is subject to
adjustment under certain circumstances. All, but not less than all, of the
Warrants are subject to redemption by the Company, at $0.05 per Warrant, at any
time during the Warrant Exercise Period on thirty (30) days prior written notice
to the Warrantholders if the per share closing bid price of the Common Stock as
reported by NASDAQ equals or exceeds $8.75 for any twenty (20) consecutive
trading days ending within five (5) days of the notice of redemption.
The Company's Common Stock is traded on the Nasdaq SmallCap Market under
the symbol CASC. The Units and the Warrants have been approved for trading on
the Nasdaq SmallCap Market under the symbols CASCU and CASCW, respectively.
There can be no assurance that a public market for the Units or the Warrants
will develop after completion of the offering or, if developed, that it will be
sustained. Additionally, if the active trading of the Units and Warrants
develops, continued quotation will be conditioned upon the Company maintaining
certain minimum criteria established by Nasdaq and there can be no assurance
that the Company will be able to continue to fulfill such criteria. See "Risk
Factors."
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK
AND IMMEDIATE SUBSTANTIAL DILUTION OF THE BOOK VALUE OF THE SHARES AND SHOULD BE
CONSIDERED ONLY BY PERSONS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT.
SEE "RISK FACTORS," WHICH BEGINS ON PAGE 6.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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========================================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
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Per Unit................ $5.00 $.50 $4.50
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Total(3)................ $3,750,000 $375,000 $3,375,000
========================================================================================================================
</TABLE>
(1) Does not include additional compensation payable to Biltmore Securities,
Inc. (the "Underwriter") in the form of (i) a non-accountable expense
allowance of $112,500 (or $129,375 if the Underwriter's Overallotment Option
(as defined below) is fully exercised and (ii) an option (exercisable for a
period of four years commencing one year after the Effective Date) entitling
the Underwriter to purchase 75,000 Units at $6.00 per Unit ("Underwriter's
Purchase Option"). See "Underwriting" for information concerning
indemnification and contribution arrangements with, and compensation payable
to, the Underwriter.
(2) Before deducting estimated expenses of approximately $397,500 payable by the
Company, including the non-accountable expense allowance payable to the
Underwriter.
(3) The Company has granted to the Underwriter an option (the "Over-Allotment
Option"), exercisable within 30 days after the date of this Prospectus, to
purchase up to an aggregate of 112,500 additional Units upon the same terms
and conditions as set forth above, solely to cover over-allotments, if any.
If the Over-Allotment Option is exercised in full, the total Price to
Public, Underwriting Discount and Proceeds to Company will be $4,312,500,
$431,250 and $3,881,250, respectively. See "Underwriting."
The Units are being offered by the Underwriter, subject to prior sale,
when, as and if delivered to and accepted by the Underwriter, and subject to
approval of certain legal matters by its counsel and subject to certain other
conditions, including the right of the Underwriter to withdraw, cancel or modify
the Offering and to reject any order in whole or in part. It is expected that
delivery of the certificates representing the Units offered hereby will be made
against payment at the offices of Biltmore Securities, Inc., Ft. Lauderdale,
Florida, on or about September 19, 1997.
BILTMORE SECURITIES, INC.
THE DATE OF THIS PROSPECTUS IS SEPTEMBER 15, 1997
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IN CONNECTION WITH THE OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
ALTHOUGH OTHER BROKER-DEALERS HAVE EXPRESSED AN INTENTION TO PARTICIPATE IN
THE OFFERING, ALL OR A SIGNIFICANT NUMBER OF THE SECURITIES TO BE SOLD IN THIS
OFFERING MAY BE SOLD, IN THE ORDINARY COURSE OF BUSINESS, TO CUSTOMERS OF THE
UNDERWRITER WHICH MAY AFFECT THE MARKET FOR AND LIQUIDITY OF THE COMPANY'S
SECURITIES IN THE EVENT THAT ADDITIONAL BROKER-DEALERS DO NOT MAKE A MARKET IN
THE COMPANY'S SECURITIES. ALTHOUGH OTHER BROKER-DEALERS HAVE EXPRESSED AN
INTENTION TO MAKE A MARKET IN THE COMPANY'S SECURITIES FOLLOWING THE OFFERING,
THERE CAN BE NO ASSURANCE THAT ANY OF SUCH BROKER-DEALERS WILL ACTUALLY COMMENCE
SUCH MARKET-MAKING ACTIVITIES OR, IF COMMENCED, THAT SUCH ACTIVITIES WILL BE
MAINTAINED. BASED UPON THE UNDERWRITER'S EXPERIENCE IN PAST OFFERINGS, IT IS
EXPECTED THAT SUCH CUSTOMERS SUBSEQUENTLY MAY ENGAGE IN TRANSACTIONS FOR THE
SALE OR PURCHASE OF THE SECURITIES COVERED THEREBY THROUGH AND/OR WITH THE
UNDERWRITER. NO AGREEMENTS OR UNDERSTANDINGS, WRITTEN OR ORAL, EXIST WITH
RESPECT TO THE PURCHASE OR RESALE OF THE SECURITIES TO BE SOLD IN THIS OFFERING
THROUGH OR WITH THE UNDERWRITER AND/OR ITS AFFILIATES.
ALTHOUGH IT HAS NO OBLIGATION TO DO SO, THE UNDERWRITER MAY FROM TIME TO
TIME ACT AS A MARKET MAKER AND OTHERWISE EFFECT TRANSACTIONS IN THE COMPANY'S
SECURITIES. THE UNDERWRITER, IF IT PARTICIPATES IN THE MARKET, MAY BECOME A
DOMINATING INFLUENCE IN THE MARKET FOR THE SHARES AND CLASS A WARRANTS. HOWEVER,
THERE IS NO ASSURANCE THAT THE UNDERWRITER WILL OR WILL CONTINUE TO BE A
DOMINATING INFLUENCE. THE PRICES AND LIQUIDITY OF THE SECURITIES OFFERED
HEREUNDER MAY BE SIGNIFICANTLY AFFECTED BY THE DEGREE OF THE UNDERWRITER'S
PARTICIPATION IN SUCH MARKET. THE UNDERWRITER MAY DISCONTINUE SUCH ACTIVITIES AT
ANY TIME OR FROM TIME TO TIME. SEE "RISK FACTORS -- LACK OF PRIOR MARKET FOR
SECURITIES OF THE COMPANY" AND "UNDERWRITER'S INFLUENCE ON THE MARKET MAY HAVE
ADVERSE CONSEQUENCES."
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. Except as otherwise specified, all
information in this Prospectus assumes no exercise of any Warrants or options to
purchase shares of Common Stock described herein. Investors should carefully
consider the information set forth under "Risk Factors" prior to making an
investment in the Securities.
THE COMPANY
The Company creates, markets, and administers recognition programs which
address specific needs in employee recognition. Programs offered by the Company
include safety, years of service recognition, and a host of other programs using
merchandise and jewelry as the principal means for the reinforcement of employee
behavior. The common objective of all the Company's programs is to increase
employee productivity through recognition, to create a critical link between
performance and the clients' overall business objectives.
The Company was organized under the laws of the State of North Carolina in
1950. In November, 1996, the Company reincorporated in the State of Delaware.
The Company was a wholly-owned subsidiary of Pages, Inc., a Delaware corporation
("Pages") until the close of business on December 31, 1996, when Pages
distributed all of the shares of Company Common Stock to the Pages shareholders.
Until July 28, 1997, the Company's name was CA Short Company. The Company's
executive offices are located at 4205 East Dixon Boulevard, Shelby, North
Carolina 28150. Its telephone number is (800) 535-5690.
THE OFFERING
Securities offered
hereby..................... 750,000 Units, each Unit consisting of one Share
and two Warrants, at an initial public offering
price of $5.00 per Unit. The Shares and the
Warrants included in the Units are detachable and
will trade separately twelve months after
issuance subject to earlier separability in the
discretion of the Underwriter. Each Warrant
entitles the registered holder thereof to
purchase at any time during the Warrant exercise
Period one share of Common Stock at an exercise
price of $5.50 per share. The Warrants are
subject to redemption by the Company for $0.05
per Warrant at any time during the Warrant
Exercise Period, on 30 days written notice,
provided that the closing bid price of the Common
Stock equals or exceeds $8.75 per share for any
20 consecutive trading days ending within five
(5) days of the notice of redemption to the
Warrantholders.
Outstanding Securities before the Offering:
Units................. None
Common Stock(1)....... 1,003,431 Shares
Outstanding Securities after the Offering:(2)
Units................. 750,000 Units
Common Stock(1)....... 1,753,431 Shares
Warrants.............. 1,500,000 Warrants
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Symbols:
Common Stock.......... CASC
Units................. CASCU
Warrants.............. CASCW
Use of Proceeds............ The net proceeds (after payment of underwriting
discounts and a non-accountable expense allowance
to the Underwriter and other expenses of the
Offering) to the Company from the sale of the
Units offered hereby at a public offering price
of $5.00 per Unit are expected to be
approximately $2,977,500. Such net proceeds will
be used principally for hiring additional sales
representatives, the purchase of computer
hardware and software, the development of the
Company's internet presence, warehouse
automation, the reduction of the Company's
revolving credit facility, general corporate
purposes and for working capital. See "Use of
Proceeds."
Risk Factors............... An investment in the Securities offered hereby
involves risk. This Prospectus contains
forward-looking information which involves risks
and uncertainties. The Company's actual results
could differ materially from those anticipated by
such forward-looking information as a result of
various factors, including those discussed under
"Risk Factors" in this Prospectus. See "Risk
Factors."
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(1) Does not include shares of Common Stock issuable upon the exercise of (i)
the Warrants; (ii) the Over-Allotment Option; (iii) options granted to the
Underwriter to purchase up to 75,000 Units (the "Underwriter's Option");
(iv) options to purchase 85,000 shares of Common Stock reserved for issuance
under the Company's 1996 Incentive Stock Option Plan (the "Incentive Option
Plan"); and (v) options to purchase 40,000 shares of Common Stock reserved
for issuance under the Company's Non-Employee Director Stock Option Plan
(the "Director Option Plan").
(2) Common Stock and Warrants outstanding after the Offering includes the Shares
and Warrants which are part of the Units. The Shares and the Warrants
included in the Units will be detachable and will trade separately twelve
months after issuance, subject to earlier separability in the discretion of
the Underwriter.
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SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The summary financial information set forth below is derived from the
Company's more detailed financial statements appearing elsewhere in this
Prospectus. This information should be read in conjunction with such financial
statements and the notes thereto and Management's Discussion and Analysis of
Financial Condition and Results of Operations appearing elsewhere in this
Prospectus.
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YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
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1995 1996 1996 1997
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(UNAUDITED) (UNAUDITED)
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STATEMENTS OF OPERATIONS DATA:
Revenues........................................ $ 22,620 $ 21,959 $ 10,053 $ 8,443
Income (loss) before income taxes and cumulative
effect of change in accounting principle...... (676) (583) (171) (631)
(Provision) benefit for income taxes............ 249 195 57 241
Cumulative effect of change in accounting
principle..................................... -- 597 597 --
---------- ---------- ---------- ----------
Net Income (Loss)............................... (427) 209 483 (390)
Pro forma net income (loss) per dollar(1)(2).... $ (.43) $ .20 $ .48 $ (.39)
Weighted average common and equivalent shares
outstanding(1)................................ 1,003,431 1,003,431 1,003,431 1,003,431
</TABLE>
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JUNE 30, 1997
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PRO FORMA
HISTORICAL AS ADJUSTED(3)
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BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 145 $ 1,923
Working capital............................................. 3,707 5,485
Total assets................................................ 13,567 15,345
Total stockholders' equity.................................. 2,063 5,041
</TABLE>
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(1) Adjusted to give effect to an 8% stock dividend paid to stockholders of
record on July 16, 1997.
(2) Represents pro forma earnings per common and common equivalent shares both
on a primary and a fully diluted basis.
(3) Adjusted to reflect (i) the sale of the Units offered hereby and the net
proceeds therefrom (at an initial public offering price of $5.00 per Unit
and after deducting the underwriting discounts and commissions and estimated
expenses of the Offering totaling approximately $772,500 and assuming no
exercise of the Over-Allotment Option) and (ii) the repayment of certain
indebtedness from the proceeds of this offering. See "Use of Proceeds." Does
not include the proceeds from the sale of shares of Common Stock pursuant to
the exercise of any Warrants, the Underwriter's Option, and any options
granted pursuant to the Incentive Option Plan and the Director Option Plan.
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RISK FACTORS
An investment in the Securities offered hereby involves risk. In addition
to the other information contained in this Prospectus, the following factors
should be considered carefully in evaluating the Company and its business before
purchasing the Securities offered hereby. This Prospectus contains
forward-looking information which involves risks and uncertainties. The
Company's actual results could differ materially from those anticipated by such
forward-looking information as a result of various factors, including those set
forth in the following risk factors and elsewhere in this Prospectus.
Net Losses; Accumulated Deficit. The Company experienced net losses of
$427,674 and $283,954 for the years ended December 31, 1995, and 1994,
respectively. Although the Company experienced net income of $208,733 for the
year ended December 31, 1996, it experienced a net loss of $389,754 for the six
months ended June 30, 1997. At June 30, 1997, the Company had an accumulative
deficit of $1,219,679. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Continuing Control of the Company by Management. Upon completion of the
Offering, the Company's executive officers and directors will beneficially own
approximately 21% of the outstanding Common Stock (approximately 20% if the
Over-Allotment Option is exercised in full), assuming that they do not purchase
Units in the Offering. As a result of their holdings, the Company's executive
officers and directors currently exert, and are likely to continue to exert,
significant control over the Company.
Broad Discretion in Application of Proceeds; Unspecified
Acquisitions. Approximately $1.78 million (60%) of the estimated net proceeds
from the Offering has been allocated to an investment in the Company's sales
organization, an investment in information technology, system upgrades and
automation, and working capital and general corporate purposes. Accordingly, the
Company will have broad discretion as to the application of such proceeds
without prior stockholder approval. In addition, the management of the Company
has broad discretion to adjust the application and allocation of the net
proceeds of the Offering, including funds received upon exercise of the
Warrants, in order to address changed circumstances and business opportunities.
Such business opportunities may include the acquisition of other companies or
their businesses. Investors in the Securities will not have the opportunity to
evaluate any of such future acquisitions. As a result of the foregoing, the
business of the Company will be substantially dependent upon the discretion and
judgment of the management of the Company with respect to the application and
allocation of the net proceeds hereof. See "Use of Proceeds."
Immediate and Substantial Dilution. The Company had a net tangible book
value of $947,340 or $.94 per share, derived from the Company's June 30, 1997
balance sheet and based upon 1,003,431 shares (adjusted for a subsequent stock
dividend) being outstanding immediately prior to the closing of this offering.
After projecting the effect of the sale of the Units offered hereby at an
offering price of $5.00 per Unit, after deducting underwriting discounts and
estimated offering expenses, adjusted net tangible book value will be $3,924,840
or $2.24 per share. The result will be an immediate increase in net tangible
book value per share of $1.30 to existing shareholders and an immediate dilution
to new investors of $2.76 per share (55%). See "Dilution."
Dependence Upon Key Personnel. The Company's future success depends to a
significant degree upon the continued service of key senior management
personnel, none of whom is covered by an employment agreement or an insurance
policy of which the Company is the beneficiary. The Company's future success
also depends on its continuing ability to attract, retain and motivate highly
qualified, managerial and sales personnel. Competition for such personnel is
intense, and there can be no assurance that the Company will be able to retain
its existing employees or attract, retain and motivate highly qualified
personnel in the future. If the Company is unable to retain or hire the
necessary personnel, its operating results could be adversely effected. See
"Management."
Restrictions Imposed by Credit Facility. The Company's credit facility
contains a number of significant covenants that restrict the ability of the
Company to dispose of assets, merge, incur debt, pay dividends, repurchase or
redeem capital stock and indebtedness, create liens, make capital expenditures
and make certain investments or acquisitions and otherwise restrict corporate
activities. In addition, the credit facility contains,
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among other covenants, requirements that the Company maintain specified
financial ratios, including a minimum capital base, and minimum pre-tax profits
from operations. The ability of the Company to comply with such provisions may
be affected by events beyond the Company's control. The breach of any of these
covenants could result in a default under the credit facility. In the event of
any such default, the lender could elect to declare all amounts borrowed under
the credit facility, together with accrued interest and other fees, to be due
and payable. If the indebtedness under the credit facility were to be
accelerated, there can be no assurance that the assets of the Company would be
sufficient to pay such indebtedness in full. See "Business -- Financing."
Fluctuations in Quarterly Operating Results. The Company's quarterly
operating results may fluctuate significantly in the future as a result of a
variety of factors, some of which are outside of the Company's control. These
factors include seasonal factors (including the level of sales related to the
Company's holiday gift programs), general economic conditions, capital
expenditures and other costs relating to the expansion of operations, and
changes in marketing strategies by the Company or its competitors. These factors
could also have an adverse effect on the Company's annual results of operations
and financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
The Company's Dividend Policy. In addition to the restrictions contained
in the Company's credit facility on the payment of dividends, the payment and
level of cash dividends, if any, by the Company is at the discretion of the
Company's Board of Directors, based primarily upon the earnings, cash flow and
financial requirements of its business. The Company currently does not
anticipate paying cash dividends on its Common Stock in the foreseeable future.
The future dividend policy will be determined on the basis of various factors,
including the Company's results of operations, financial condition, capital
requirements, and investment opportunities. See "Dividend Policy."
Short Term Customer Contracts. All of the contracts the Company has with
its customers are cancelable by them upon ninety-days notice. Accordingly, the
Company is vulnerable to competition from other providers of similar services.
See "Business -- Customer Contracts."
Competition. The Company's business is highly competitive. Many of the
Company's competitors are significantly larger and better capitalized than the
Company. See "Business -- Competition."
Seasonality. The Company's business is highly seasonal, with approximately
40% 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. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Litigation Involving Underwriter May Affect Securities. The Company has
been advised by the Underwriter, that on or about May 22, 1995, the Underwriter
and Elliot Loewenstern and Richard Bronson, principals of the Underwriter, and
the Securities and Exchange Commission (the "Commission") agreed to an offer of
settlement (the "Offer of Settlement") in connection with a complaint filed by
the Commission in the United States District Court for the Southern District of
Florida alleging violations of the federal securities laws, Section 17(a) of the
Securities Act of 1933, as amended (the "Securities Act"), Section 10(b) and
15(c) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and Rules 10b-5, 10b-6 and 15cl-2 promulgated thereunder. The complaint also
alleged that in connection with the sale of securities in three (3) initial
public offerings ("IPOs") in 1992 and 1993, the Underwriter engaged in
fraudulent sales practices. The proposed Offer of Settlement was consented to by
the Underwriter and Messrs. Loewenstern and Bronson without admitting or denying
the allegations of the complaint. The Offer of Settlement was approved by Judge
Gonzales on June 6, 1995. Pursuant to the final judgment (the "Final Judgment"),
the Underwriter:
- was required to disgorge $1,000,000 to the Commission, which amount was
paid in four (4) equal installments on or before June 22, 1995;
- agreed to the appointment of an independent consultant ("Consultant").
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Such Consultant was obligated, on or before November 1, 1996:
- to review the Underwriter's policies, practices and procedures in six (6)
areas relating to compliance and sales practices;
- to formulate policies, practices and procedures for the Underwriter that
the Consultant deems necessary with respect to the Underwriter's
compliance and sales practices;
- to prepare a report devoted to and which details the aforementioned
policies, practices and procedures (the "Report");
- to deliver the Report to the President of the Underwriter and to the
staff of the Southeast Regional office of the Commission;
- to prepare, if necessary, a supervisory procedures and compliance manual
for the Underwriter, or to amend the Underwriter's existing manual; and
- to formulate policies, practices and procedures designed to provide
mandatory on-going training to all existing and newly hired employees of
the Underwriter. The Final Judgment further provides that, within thirty
(30) days of the Underwriter's receipt of the Report, unless such time is
extended, the Underwriter shall adopt, implement and maintain any and all
policies, practices and procedures set forth in the Report.
On or about December 19, 1996, the Consultant completed the Report which
was thereafter delivered to the Underwriter. The Report addresses the areas
relating to compliance and sales practices referred to above. The Underwriter is
reviewing the Report and undertaking steps to implement the recommendations and
procedures in the Report, in accordance with the provisions of the Final
Judgment.
The Final Judgment also provides that an independent auditor ("Auditor")
shall conduct four (4) special reviews of the Underwriter's policies, practices
and procedures, the first such review to take place six (6) months after the
Report has been delivered to the Underwriter and thereafter at six-month
intervals. The Auditor is also authorized to conduct a review, on a random basis
and without notice to the Underwriter, to certify that any persons associated
with the Underwriter who have been suspended or barred by any Commission order
are complying with the terms of such orders.
On July 10, 1995, the action against Messrs. Loewenstern and Bronson was
dismissed with prejudice. Mr. Bronson agreed to a suspension from associating in
any supervisory capacity with any broker, dealer, municipal securities dealer,
investment advisor or investment company for a period of twelve (12) months,
dating from the beginning of such suspension. Mr. Loewenstern agreed to a
suspension from associating in any supervisory capacity with any broker, dealer,
municipal securities dealer, investment advisor or investment company for a
period of twelve (12) months commencing upon the expiration of Mr. Bronson's
suspension. Both the suspensions have been completed.
In the event that the requirements of the foregoing judgment adversely
affect the Underwriter's ability to act as a market maker for the Securities,
and additional broker-dealers do not make a market in the Company's Securities,
the market for, and the liquidity of, the Company's securities may be adversely
affected. In the event that other broker-dealers fail to make a market in the
Company's securities, the possibility exists that the market for and the
liquidity of the Company's securities may be adversely affected to such an
extent that public security holders may not have anyone to purchase their
securities when offered for sale at any price. In such event, the market for,
liquidity and prices of the Company's securities may not exist. For additional
information regarding the Underwriter, investors may call the National
Association of Securities Dealers, Inc. at (800) 289-9999. See "Underwriting."
Recent State Action Involving the Underwriter -- Possible Loss of
Liquidity. The State of Indiana commenced an action seeking, among other
things, to revoke the Underwriter's license to do business in such state. The
action was settled and the Underwriter agreed to, among other things, resolve
certain customer claims, the payment of a fine and costs and restrictions with
respect to the sale of securities to Indiana residents. Specifically, the
Underwriter agreed that it will not sell any securities to Indiana residents (i)
which
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are not listed on the New York Stock Exchange, the American Stock Exchange or
Nasdaq; (ii) for which the Underwriter has served as lead underwriter or as a
member of the selling syndicate; or (iii) for which the Underwriter is a market
maker. Under the terms of the settlement agreement, the Underwriter continues to
maintain its license in the State of Indiana. The Company does not intend to
seek qualification for the sale of the Securities in the state of Indiana.
On July 18, 1997, the State of Arkansas, Securities Department issued a
consent order in lieu of the filing of a complaint as settlement of all claims
against Biltmore Securities and Elliot A. Loewenstern. The claims related to
activities during the period February 1992 to October 1993. Biltmore and Mr.
Loewenstern consented to the entry of the order without admitting or denying any
wrongdoing or violation. The consent order censured Biltmore Securities and
Elliot A. Loewenstern and required that they pay the amount of $25,000 for costs
and expenses relating to the proceedings. The consent order also required that
Biltmore deliver to the Commissioner of Securities a copy of the final report
prepared by the independent consultant. All terms of the consent order have been
fully complied with.
On September 10, 1997, the State of California issued a Notice of Intention
to Issue Order Revoking Biltmore's Broker-Dealer Certificate. The accusation
alleges that it is appropriate for Biltmore's broker-dealer license to be
revoked in the public interest as a result of Biltmore being subject to
enforcement orders issued by the Securities and Exchange Commission, the
Arkansas Securities Department and the Indiana Securities Division. The
Underwriter, Biltmore, intends to request a hearing and contest the accusation.
Such proceeding, if ultimately successful may adversely effect the market for
and liquidity of the Company's securities if additional broker-dealers do not
make a market in the Company's securities. Biltmore is the sole Underwriter of
this firm commitment underwriting.
According to the records of the Central Register Depository maintained by
the National Association of Securities Dealers Regulation, Inc. ("NASDR"),
Messrs. Loewentstern and Bronson, the principals of Biltmore, have 46 and 44
recorded incidents respectively, some of which are disciplinary complaints. See
"Underwriting".
Limitation on Director Liability. As permitted by the Delaware General
Corporation Law ("DGCL"), the Company's Restated Certificate of Incorporation
limits the liability of its directors to the Company or to its stockholders for
monetary damages for breach of a director's fiduciary duty, including breaches
which constitute gross negligence, subject to certain limitations imposed by the
DGCL. As a result, under certain circumstances, neither the Company nor the
stockholders will be able to recover damages, even if directors take action
which harms the Company. See "Management" and "Underwriting."
Indemnification of Directors and Officers. The Company's Certificate of
Incorporation and Bylaws provide for the indemnification of the Company's
directors and officers to the fullest extent authorized by law. The Company has
entered into indemnification agreements with its directors and executive
officers. The indemnification agreements may require the Company, among other
things, to indemnify such directors and officers against certain liabilities
that may arise by reason of their status as directors and officers (other than
liabilities arising from willful misconduct of a culpable nature), and to
advance their expenses as a result of any proceeding against them as to which
they could be indemnified. As a result of these provisions, under certain
circumstances, neither the Company nor the Stockholders will be able to recover
damages, even if the directors and officers take action which harms the Company.
See "Management."
Thinly Traded Market for Common Stock; Lack of Public Market for Units and
Warrants. Although the Common Stock is traded on the Nasdaq SmallCap Market,
only 646,087 shares are held by non-affiliates of the Company and the Company
had only approximately 550 shareholders as of July 15, 1997. As a result, the
Common Stock is thinly traded and the holders of Common Stock might not be able
to liquidate their shares in a short period of time at prevailing market prices.
See "Market Matters."
Although the Units and the Warrants have been approved for trading on the
Nasdaq SmallCap Market under the symbols CASCU and CASCW, respectively, there
can be no assurance that an active public market for the Securities will develop
or will be sustained after the Offering. Since the Units are not detachable and
will not trade separately until twelve months after issuance (subject to earlier
separability in the discretion of
9
<PAGE> 10
the Underwriter), investors might not be able to liquidate their investment in a
short period of time. In addition, trading prices of the Securities could be
subject to wide fluctuations in response to variations in the Company's
operating results, announcements by the Company or others, developments
affecting the Company or its competitors, suppliers or customers and other
events or factors. In addition, the over-the-counter stock market has
experienced extreme price and volume fluctuations in recent years. These
fluctuations have had a substantial impact on the market prices of many
companies, often unrelated to their performance, and may adversely affect the
market prices for any or all of the Securities. See "Underwriting."
Current Prospectus and State Registration Required to Exercise
Warrants. The Company will be able to issue shares of Common Stock upon
exercise of the Warrants only if there is a current prospectus relating to such
Common Stock under an effective registration statement filed with the Commission
and only if such shares of Common Stock are qualified for sale or exempt from
qualification under applicable state securities laws of the jurisdictions in
which the various Warrantholders reside. Although the Company has agreed to use
its best efforts to meet such regulatory requirements, there can be no assurance
that the Company will be able to do so. Although the Warrants will not knowingly
be sold to purchasers in jurisdictions in which the Warrants are not registered
or otherwise qualified for sale, purchasers may buy Warrants in the after market
or may move to jurisdictions in which the Common Stock issuable upon exercise of
the Warrants is not so registered or qualified. In this event, the Company would
be unable to issue shares of Common Stock to those Warrantholders upon exercise
of the Warrants unless and until the Common Stock issuable upon exercise of the
Warrants are qualified for sale or exempt from qualification in jurisdictions in
which such holders reside. Accordingly, the Warrants may be deprived of any
value if a then current prospectus covering the Common Stock issuable upon
exercise of the Warrants is not effective pursuant to an effective registration
statement or if such Common Stock is not qualified or exempt from qualification
in the jurisdictions in which the Warrantholders reside. There is no assurance
that the Company will be able to effect any required registration or
qualification.
Potential Adverse Effect of Redemption of Warrants; Market
Overhang. During the Warrant Exercise Period the Company may redeem all, but
not less than all, of the Warrants for $0.05 per Warrant on thirty (30) days
prior written notice to the Warrantholders if the per share closing bid price of
the Common Stock as reported by NASDAQ equals $8.75 for any twenty (20)
consecutive trading days ending within five (5) days of the notice of
redemption. Redemption of the Warrants could force the Warrantholders to
exercise the Warrants and pay the exercise price at a time when it may be
disadvantageous for them to do so, to sell the Warrants at the then current
market price when they might otherwise wish to hold the Warrants for possible
additional appreciation, or to accept the redemption price, which is likely to
be substantially less than the market value of the Warrants at the time of
redemption. Any Warrantholder who does not exercise its Warrants prior to their
expiration or redemption, as the case may be, will forfeit such holder's right
to purchase the shares of Common Stock underlying the Warrants.
Delaware Anti-Takeover Statute; Issuance of Preferred Stock; Barriers to
Takeover. The Company is a Delaware corporation and thus, upon the consummation
of the Offering, will become subject to the prohibitions imposed by Section 203
of the DGCL, which is generally viewed as an anti-takeover statute. In general,
this statute will prohibit the Company from entering into certain business
combinations without the approval of its Board of Directors and, as such, could
prohibit or delay mergers or other attempted takeovers or changes in control
with respect to the Company. Such provisions may discourage attempts to acquire
the Company. In addition, the Company's authorized capital consists of 5,300,000
shares of capital stock of which 5,000,000 shares are designated as Common Stock
and 300,000 shares are designated as preferred stock. No class other than the
Common Stock is currently designated and there is no current plan to designate
or issue any such securities. The Board of Directors, without any action by the
Company's stockholders, is authorized to designate and issue shares in such
classes or series (including classes or series of preferred stock) as it deems
appropriate and to establish the rights, preferences and privileges of such
shares, including dividends, liquidation and voting rights. The rights of
holders of preferred stock and other classes of Common Stock that may be issued
may be superior to the rights granted to the holders of the existing classes of
Common Stock. Further, the ability of the Board of Directors to designate and
issue such undesignated shares could impede or deter an unsolicited tender offer
or takeover proposal regarding the Company and the issuance of additional
10
<PAGE> 11
shares having preferential rights could adversely affect the voting power and
other rights of holders of Common Stock. Issuance of preferred stock, which may
be accomplished though a public offering, or a private placement, may dilute the
voting power of holders of Common Stock (such as by issuing preferred stock with
super voting rights) and may render more difficult the removal of current
management, even if such removal may be in the stockholders' best interests. Any
such issuance of preferred stock could prevent the holders of Common Stock from
realizing a premium on their shares. See "Description of Securities."
Potential Adverse Impact on Market Price of Securities; Shares Eligible for
Future Sale; Additional Registered Securities. Sale of substantial amounts of
the Company's securities in the public market after the Offering or the
perception that such sales may occur could materially adversely affect the
market price of the Securities and may impair the Company's ability to raise
additional capital by the sale of its equity securities. Upon consummation of
the Offering, there will be a total of 1,753,431 shares of Common Stock issued
and outstanding and 1,500,000 Warrants issued and outstanding. In addition, the
Company has reserved for issuance 2,050,000 shares of Common Stock issuable upon
the exercise of outstanding options and warrants. After the exercise of all the
Warrants and the options, the Company will have 3,803,431 shares of Common stock
outstanding. Any issuance of additional shares of Common Stock may cause current
stockholders of the Company to suffer significant dilution which may adversely
affect the market price of the Company's securities. The sale or availability
for sale of significant quantities of the Company's securities could materially
adversely affect the market price of the Securities.
Of the 1,753,431 shares of Common Stock and the 1,500,000 Warrants to be
outstanding upon completion of the Offering 750,000 Shares and 1,500,000
Warrants which are part of the Units will, when they are detachable, be
immediately freely tradable without restriction under the Securities Act. See
"Shares Eligible for Future Sale."
S. Robert Davis, the Company's Chairman of the Board and Charles R. Davis,
a Director and President of the Company, will execute an agreement ("Lock-Up
Agreement") relating to securities beneficially owned as of the date of this
Prospectus pursuant to which they agree not to, directly or indirectly, issue,
offer, agree to offer to sell, sell or grant an option for the purchase or sale
of, transfer, pledge, assign, hypothecate, distribute or otherwise dispose of or
encumber such securities or options, rights, warrants or other securities
convertible into, exchangeable or exercisable for or evidencing any right to
purchase or subscribe for shares of Common Stock (whether or not beneficially
owned by such person) or any beneficial interest therein for a period of
eighteen (18) months after the date of this Prospectus without the consent of
the Underwriter. However, S. Robert Davis is permitted to sell 15,000 of his
shares during the first twelve months after the date of this Prospectus and an
additional 10,000 shares during the following six months, and Charles R. Davis
is permitted to sell 10,000 of his shares during the first twelve months after
the date of this Prospectus and an additional 5,000 shares during the following
six months. Accordingly, approximately 272,309 shares of Common Stock subject to
the Lock-up Agreement will become eligible for sale beginning in September 1999.
See "Shares Eligible For Future Sale."
Underwriter's Potential Influence on the Market. A significant number of
the Securities offered hereby may be sold to customers of the Underwriter. Such
customers may engage in transactions for the sale or purchase of such Securities
through or with the Underwriter. Although it has no obligation to do so, the
Underwriter intends to make a market in the Securities and may otherwise effect
transactions in such securities. If it participates in such market, the
Underwriter may influence the market, if one develops, for the Securities. Such
market-making activity may be discontinued at any time. Moreover, if the
Underwriter sells the Securities issuable upon exercise of the Underwriter's
Option or acts as warrant solicitation agent for the Warrants, it may be
required under the Exchange Act, to temporarily suspend its market-making
activities. The prices and liquidity of the Securities may be significantly
affected by the degree, if any, of the Underwriter's participation in such
market.
No Assurance of Public Market. The Company's Common Stock is traded on the
Nasdaq SmallCap Market, but has been thinly traded. There can be no assurance
that a more liquid trading market for any of the Securities will develop after
the completion of the Offering. If a more liquid trading market does in fact
11
<PAGE> 12
develop, there can be no assurance given that it will be sustained. In
connection with the Offering, application has been made to list the Units and
the Warrants on the Nasdaq SmallCap Market under the symbols CASCU and CASCW,
respectively. If, for any reason, a more liquid trading market does not develop,
purchasers of such Securities may have difficulty selling their securities
should they desire to do so. See "Market Matters."
"Penny Stock" Regulations May Impose Certain Restrictions on Marketability
of Securities. The Commission has adopted regulations which generally define
"penny stock" to be any equity security that has a market price (as defined) of
less than $5.00 per share, subject to certain exceptions. Initially, it is
anticipated that the Securities offered hereby will not fall within the
definition of a "penny stock" both because of the initial offering price of the
Units, the current trading price of the Common Stock and because the Common
Stock is traded on the Nasdaq SmallCap Market. However, there can be no
assurance that the Securities will continue to remain exempt from the "penny
stock" rules. If the Securities offered hereby are subject to the "penny stock"
rules, such Securities will become subject to rules that impose additional sales
practice requirements on broker-dealers who sell such Securities to persons
other than established customers and accredited investors (generally, those
persons with assets in excess of $1,000,000 or annual income exceeding $200,000,
or $300,000 together with their spouse). For transactions covered by these
rules, the broker-dealer must make a special suitability determination for the
purchase of the Securities and have received the purchaser's written consent to
the transaction prior to the purchase. Additionally, for any transaction
involving a "penny stock", unless exempt, the rules require the delivery, prior
to the transaction, of a risk disclosure document mandated by the Commission
relating to the penny stock market. The broker-dealer also must disclose the
commissions payable to both the broker-dealer and the registered representative,
current quotations for the securities and, if the broker-dealer is the sole
market-maker, the broker-dealer must disclose this fact and the broker-dealer's
presumed control over the market. Finally, monthly statements must be sent
disclosing recent price information for the "penny stock" held in the account
and information on the limited market in "penny stocks." Consequently, the
"penny stock" rules may restrict the ability of broker-dealers to sell the
Securities and may affect the ability of purchasers in the Offering to sell the
Securities in the secondary market. In such event, holders of the Securities may
encounter substantially greater difficulty in disposing of them; securities
and/or in obtaining accurate quotations as to the prices of the Securities.
Benefits of Offering to Underwriter. The Underwriter will receive
substantial benefits from the Company in connection with the Offering. These
benefits include underwriting discounts/commissions, a non-accountable expense
allowance, and the Underwriter's Option to purchase 75,000 Units. The
Underwriter has been granted certain rights under the Underwriter's Options,
which rights include the ability to require the Company to include the
securities underlying the Underwriter's Option in a registration statement under
the Securities Act. The exercise of these rights will result in the Company
incurring substantial expenses and may cause the Company to register an offering
of its securities at a time which is detrimental to the Company's plans.
Finally, the Company has entered into a five (5) year agreement with the
Underwriter pursuant to which the Underwriter will be paid a finder's fee
ranging from 1% to 5% of the transaction amount if the Company completes a
merger, acquisition, joint venture, and/or any other capital business
transaction for the Company in which the Underwriter introduces the Company to
the other party. At the present time, the Company has no plans to enter into any
such transactions. See "Underwriting."
Risks Associated with Forward-Looking Statements Included in this
Prospectus. This Prospectus contains certain forward-looking statements
regarding the plans and objectives of management for future operations. The
forward-looking statements included herein are based on current expectations
that involve numerous risks and uncertainties. The Company's plans and
objectives are based, in part, on assumptions involving that there will be no
unanticipated material adverse change in the Company's business. Assumptions
relating to the foregoing involve judgments with respect to, among other things,
future economic, competitive and market conditions and future business
decisions, all of which are difficult or impossible to predict accurately and
many of which are beyond the control of the Company. Although the Company
believes that its assumptions underlying the forward-looking statements are
reasonable, any of the assumptions could prove inaccurate and, therefore, there
can be no assurance that the forward-looking statements included in this
Prospectus will prove to be accurate. In light of the significant uncertainties
inherent in the forward-looking
12
<PAGE> 13
statements included herein, the inclusion of such information should not be
regarded as a representation by the Company or any other person that the
objectives and plans of the Company will be achieved.
MARKET MATTERS
Prior to January 1, 1997, the Company was a wholly-owned subsidiary of
Pages. From that time until May 30, 1997, the Common Stock was traded on the OTC
Bulletin Board under the symbol "CASC." On June 2, 1997, the Common Stock began
trading on the Nasdaq SmallCap Market under the same symbol. During the first
quarter of 1997, bids for the Common Stock ranged from $3.50 per share to $4.50
per share. Those quotations reflect inter-dealer prices without retail mark-up,
mark-down or commissions and may not represent actual transactions. During the
period commencing on April 1, 1997 and continuing through May 30, 1997, bids for
the Common Stock ranged from $3.27 to $4.50 per share. During the period
commencing on June 2, 1997 and continuing through June 30, 1997, the high and
low sales prices for the Common Stock were $5.25 and $4.25, respectively. The
sales prices have been retroactively adjusted to reflect an 8% stock dividend
payable to shareholders of record on July 16, 1997.
As of July 15, 1997, there were approximately 550 holders of record of the
Common Stock.
The Company has not paid any cash dividends since it ceased to be a
wholly-owned subsidiary of Pages, and anticipates that, for the foreseeable
future, it will not pay any cash dividends but will retain earnings in order to
finance the expansion and development of its business. Furthermore, the
Company's ability to pay dividends is restricted by the terms of its revolving
credit facility.
13
<PAGE> 14
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 750,000 Units being
offered hereby, after deduction of underwriting discounts and estimated offering
expenses totaling $772,500, are estimated to be approximately $2,977,500
($3,596,250 if the Over-Allotment Option is exercised in full). The Company
intends to apply the net proceeds as follows:
<TABLE>
<CAPTION>
AMOUNT PERCENTAGE
---------- ----------
<S> <C> <C>
Investment in employee sales organization(1)................ $1,000,000 33.6%
Investment in information technology, system upgrades and
automation................................................ 750,000 25.2
Reduce balance of revolving credit facility(2).............. 1,200,000 40.3
Working capital and general corporate purposes.............. 27,500 .9
---------- -----
$2,977,500 100.0%
</TABLE>
- ---------------
(1) Includes the payroll expense of hiring additional employees as sales
representatives.
(2) The reduction will be effected by wire transfer of funds to The Huntington
National Bank, to be applied toward the outstanding balance of the line of
credit.
The investment in the Company's sales organization includes the expense of
hiring additional sales representatives in strategic markets and associated
marketing expenses. The investment in technology includes the purchase of
computer hardware and software, the development of the Company's internet
presence, and warehouse automation. The uses of proceeds described above are
estimates and approximations only and do not represent firm commitments by the
Company.
It is anticipated that at the date of this Prospectus, the aggregate
outstanding principal balance of the Company's revolving credit facility (the
"Credit Facility") and accrued interest thereon will be approximately
$1,200,000. Indebtedness under the Credit Facility matures on June 30, 1998,
accrues interest at a floating rate based on the prime lending rate of The
Huntington National Bank (8.5% at July 15, 1997) plus 1% per annum and was
incurred to fund the operations of the Company. Following the completion of the
Offering, the Company expects to draw down amounts under the Credit Facility as
needed to support its operations and possibly to fund future acquisitions or for
other corporate purposes. The Company has no specific commitments regarding any
future material acquisitions.
The foregoing represents the Company's best estimate of its expected use of
the net proceeds of the Offering. The amounts actually expended for certain
purposes described above may vary significantly depending on numerous factors,
including, but not limited to, the success of the Company's expansion strategy
and changed circumstances and business opportunities, which may include the
acquisition of other companies or their businesses. The Company's cash
requirements may vary because of the timing of its expansion into additional
territories and the success of the Company's sales representatives in expanding
the Company's client base. The Company reserves the right to reallocate the net
proceeds among the foregoing uses.
Pending the use of any net proceeds, the Company intends to invest the net
proceeds from the Offering in short-term, investment-grade, interest-bearing
securities. Any net proceeds from the exercise of the Over-Allotment Option or
the Warrants, will be added to working capital.
14
<PAGE> 15
CAPITALIZATION
The following table sets forth the capitalization of the company as of June
30, 1997, and as adjusted to reflect the sale of the Securities offered hereby
and the application of the net proceeds therefrom as described under "Use of
Proceeds." The table should be read in conjunction with the Financial
Statements, the notes thereto and the pro forma financial information included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
--------------------------------
AS
ACTUAL ADJUSTED(1)(2)(3)
----------- -----------------
<S> <C> <C>
Debt:
Short-term debt........................................... $ 1,404,015 $ 204,015
Short-term subordinated debenture......................... 100,000 100,000
Subordinated Debenture.................................... 4,900,000 4,900,000
----------- -----------
Total Debt........................................ 6,404,015 5,204,015
----------- -----------
Stockholders' Equity:
Preferred shares: $.01 par value, 300,000 authorized;
non-issued............................................. 0 0
Common shares: $.01 par value; 5,000,000 authorized;
929,103 shares outstanding and 1,753,431 shares
outstanding, as adjusted............................... 9,291 17,534
Capital in excess of par value............................ 3,273,669 6,242,926
Accumulated deficit....................................... (1,219,679) (1,219,679)
----------- -----------
Total Stockholders' Equity........................ 2,063,281 5,050,781
----------- -----------
Total Capitalization........................................ $ 8,467,296 $10,244,796
=========== ===========
</TABLE>
- ---------------
(1) Adjusted to reflect (i) the sale of 750,000 Units, each Unit consisting of
one Share and two Warrants by the Company and the net proceeds therefrom and
the uses thereof (after deducting the underwriting discounts and commissions
and expenses of this offering estimated at $772,500 and (ii) the reduction
of certain indebtedness from the net proceeds. Does not include the proceeds
from the sale of shares pursuant to the exercise of any Warrants or the
exercise of the Underwriter's Purchase Option. See "Underwriting."
(2) Assumes no exercise of (i) the Warrants; (ii) the Underwriter's
Over-Allotment Option to purchase up to 112,500 Units; and (iii) the
Underwriter's option to purchase up to 75,000 Units. See "Description of
Securities" and "Underwriting."
(3) Adjusted to give retroactive effect to the 8% stock dividend paid to
stockholders of record July 16, 1997.
DIVIDEND POLICY
The Company has not declared or paid any cash dividend on its Common Stock
and does not anticipate paying any such dividends in the foreseeable future. The
Company intends to retain future earnings, if any, to fund ongoing operations
and future capital requirements of its business.
15
<PAGE> 16
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected financial data of the Company presented below have been
derived from the financial statements of the Company, which have been audited by
Hausser + Taylor, independent public accountants. The following selected
financial information should be read in conjunction with the financial
statements and the related notes thereto and with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
------------------ --------------------------
1995 1996 1996 1997
------- ------- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues........................................ $22,620 $21,959 $10,053 $8,443
Costs and expenses.............................. 23,296 22,542 10,224 9,074
Income (loss) before income taxes and
cumulative effect of change in accounting
principle.................................. (676) (583) (171) (631)
(Provision) benefit for income taxes.......... 249 195 57 241
Income (loss) before cumulative effect of
change in accounting principle............. (427) (388) (114) (390)
Cumulative effect of change in accounting
principle, net of tax of $398.............. -- 597 597 --
Net income (loss)............................... $ (427) $ 209 $ 483 $ (390)
PRO FORMA PER SHARE DATA(1):
Income (loss) before cumulative effect of
change in accounting principle............. $ (.43) $ (.39) $ (.11) $ (.39)
Cumulative effect of change in accounting
principle.................................. -- .59 .59 --
Income (loss) per common share(2)............. $ (.43) $ .20 $ .48 $ (.39)
Weighted average common and common equivalent
shares..................................... 1,003,431 1,003,431 1,003,431 1,003,431
</TABLE>
<TABLE>
<CAPTION>
AT
AT JUNE 30, 1997
DECEMBER 31, ----------------------------
----------------- PRO FORMA
1995 1996 HISTORICAL AS ADJUSTED(3)
------- ------- ---------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital..................................... $ 3,774 $ 5,025 $ 3,707 $ 5,485
Total assets........................................ 19,512 18,249 13,567 15,345
Stockholders' equity................................ 3,119 3,328 2,063 5,041
</TABLE>
- ---------------
(1) Adjusted to give effect to 8% stock dividend paid to stockholders of record
on July 16, 1997.
(2) Represents pro forma earnings per common and common equivalent shares both
on a primary and a fully diluted basis.
(3) Adjusted to reflect (i) the sale of the Units offered hereby and the net
proceeds therefrom (at an initial public offering price of $5.00 per Unit
and after deducting the underwriting discounts and commissions and estimated
expenses of the Offering totaling approximately $772,500 and assuming no
exercise of the Over-Allotment Option) and (ii) the repayment of certain
indebtedness from the proceeds of this offering. See "Use of Proceeds." Does
not include the proceeds from the sale of shares of Common Stock pursuant to
the exercise of any Warrants, the Underwriter's Option, and any options
granted pursuant to the Incentive Option Plan and the Director Option Plan.
16
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
financial statements and notes thereto appearing elsewhere in this Prospectus.
In addition to the historical information contained herein, the discussion in
this Prospectus contains certain forward-looking statements that involve risks
and uncertainties, such as statements of the Company's plans, objectives,
expectations and intentions. The cautionary statements made in this Prospectus
should be read as applicable to all forward-looking statements wherever they
appear in this Prospectus. The Company's actual results could differ materially
from those discussed herein. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in this section and
in "Risk Factors."
CAUTIONARY STATEMENT
Statements included in this Management's Discussion and Analysis of
Financial Condition and Results of Operations, and in other sections of this
Prospectus, which are not historical or current facts 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 could
adversely impact sales and erode gross margins; (ii) 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 pre-tax profits from operations;
and (iii) the inability of the Company to carry out its marketing and sales
plans would have a material adverse affect 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.
ACCOUNTING CHANGE
Effective January 1, 1996, the Company changed its method of accounting for
the recognition of revenues relating to advanced deposits. Previously, the
Company recognized such deferred revenue at the conclusion of the respective
prepaid safety award programs. Effective with the change, revenues are
recognized over the course of the programs based on the Company's historical and
expected redemption percentages. The corresponding deferred commission costs
have also been recognized in association with this change in the same direct
proportion as the revenue recognition.
17
<PAGE> 18
RESULTS OF OPERATIONS
The table below sets forth certain financial data expressed as a percentage
of revenues (percentage may not total 100% due to rounding):
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUES
----------------------------------------------
SIX MONTHS
TWELVE MONTHS TWELVE MONTHS ENDED
ENDED ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, --------------
1995 1996 1996 1997
------------- ------------- ----- -----
<S> <C> <C> <C> <C>
Total revenue............................... 100.0% 100.0% 100.0% 100.0%
Cost of goods sold.......................... 61.3 61.6 59.3 56.6
----- ----- ----- -----
Gross profit................................ 38.7 38.4 40.7 43.4
Selling, general, and administration........ 36.1 36.7 37.9 45.7
Interest.................................... 1.8 0.6 0.3 3.1
Depreciation and amortization............... 1.6 1.5 1.7 2.1
Management fee.............................. 2.2 2.3 2.5 --
----- ----- ----- -----
Loss from continuing operations before
income taxes.............................. (3.0)% (2.7)% (1.7)% (7.5)%
===== ===== ===== =====
</TABLE>
Six Months Ended June 30, 1997 Compared to the Six 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 from certain
existing customers coupled with delayed redemptions on new accounts.
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 improved
inventory purchasing strategy.
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.
For the six months ended June 30, 1997 interest expense approximated
$258,00, 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 six 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 $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.
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<PAGE> 19
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Revenues for the year ended December 31, 1996, approximated $22.0 million,
compared to $22.6 million in revenues for the year ended December 31, 1995, a
decrease of 3% or approximately $600,000. The decline in revenue was due to
disappointing year-end holiday sales and a decrease in volume on certain
existing customers coupled with delayed redemption on new accounts.
Cost of goods sold for the year ended December 31, 1996, approximated $13.5
million, compared to approximately $13.9 million of cost of goods sold for the
year ended December 31, 1995, a decrease of 3% or approximately $400,000. 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 61.6% in 1996 from
61.3% in 1995. The 0.3% increase in cost of goods sold was principally
attributable to a change in product mix.
Selling, general, and administrative expense for the year ended December
31, 1996 approximated $8.1 million compared to approximately $8.2 million for
the year ended December 31, 1995, a decrease of 1% or approximately $100,000.
The decrease in selling, general and administrative expenses was due to
decreased sales and continued cost reduction efforts implemented by the Company.
Interest expense was approximately $129,000 for the year ended December 31,
1996, compared to $416,200 for the year ended December 31, 1995, a decrease of
69% or approximately $287,200. The average outstanding debt by month in 1996
approximated $1.9 million compared to $3.9 million for 1995. Additionally, the
average interest rate for 1996 approximated 9.15% compared to approximately 9.3%
for 1995.
Depreciation and amortization expense was approximately $338,200 for the
year ended December 31, 1996, compared to $362,500 for the year ended December
31, 1995, a decrease of 7% or approximately $24,300. The decrease in
depreciation and amortization expense is principally attributable to the
amortization of the remaining deferred loan costs during 1996.
Income tax benefit was $195,100 for the year ended December 31, 1996,
compared to $248,600 for the year ended December 31, 1995. 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 its credit facility, will cover
operating expenditures and meet the short-term debt obligations. The Company's
credit facility was renewed on June 30, 1997 and is due and payable on June 30,
1998.
The Company also entered into a $5 million, 7% subordinated debenture with
Pages simultaneously with the distribution by Pages of all of its shares of
common stock of the Company, in satisfaction of amounts due to Pages by the
Company. The $875,025 excess of the $5,000,000 subordinated debenture over the
amount due Pages at the time of distribution was recorded as a reduction of
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
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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 forty 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 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.
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BUSINESS
The following discussion contains forward-looking information which
involves risks and uncertainties. The Company's actual results could differ
materially from those anticipated by such forward-looking information as a
result of various factors, including those set forth under "Risk Factors" and
elsewhere in this Prospectus.
General. The Company creates, markets, and administers recognition
programs which address specific needs in associate recognition. Programs offered
by the Company include safety, years of service recognition, and a host of other
programs using merchandise and jewelry as the principal means for the
reinforcement of associate behavior. The common objective of all the Company's
programs is to increase associate productivity through recognition, to create a
critical link between performance and the client's overall business objectives.
The Company begins a typical assignment by determining realistic
performance goals and establishing an appropriate budget. Next, the Company and
the client select from one of the industry's largest selections of merchandise
and jewelry, carefully matching the Company's programs with the demographic
composition of the client. The Company is, to the best of the Company's
knowledge, the only company in the recognition industry that has no product bias
with regard to the type of items incorporated in the client's programs. This
distinctive competitive advantage allows the Company to build custom programs
with flexibility and allows the client to choose items their associates truly
value. Upon approval, the Company publishes and distributes all materials
(including appealing, full color catalogues and brochures) necessary to execute
the program. As the client's associates become eligible to receive awards, the
Company processes their requests and, in most cases, ships the items directly to
the associates from the Company's distribution center in Shelby, North Carolina.
The Company then invoices the client as the items are shipped.
Program Categories. The Company's programs fall into two broad categories;
length of service, and safety incentive and recognition. They include safety,
sales incentive, quality control, production, service recognition, attendance,
birthday, and corporate holiday gift programs. Virtually every program employs
general merchandise or jewelry, or both, depending on the clients' needs. The
common objective of all of the Company's programs is to design a custom program
to satisfy these specific needs.
Over the past three years, the recognition programs industry has changed
significantly, requiring the Company to redefine its strategies, focus on
specific product lines, and exploit certain niches within its market. The
Company has made adjustments to accommodate changes in its industry, including
the installment of a total quality management program, the development of a
strategic marketing group, the implementation of an aggressive cash management
program, and the development of new core capabilities necessary to promote
growth. The Company believes that with intense marketing and the employment of a
skilled, well-managed field sales organization, the Company will be able to
increase the brand recognition of its products and increase its penetration into
specific markets.
Years of Service Recognition Programs. Most business people agree that
their greatest challenge is attracting and retaining competent people. Most
business people also agree that recognition is perhaps the single most important
element in retaining these precious resources. As companies downsize,
re-engineer and reorganize they are realizing that in order to retain market
share and increase shareholder value they must take care of their most valuable
assets -- their human assets and earn their loyalty back. In the past, there was
a deeply ingrained corporate paradigm stating "longevity-equals-seniority." For
decades, years of service awards programs were designed to reinforce this
paradigm.
Today, the paradigm has changed to "longevity-equals-individual
performance." Companies are leaner, and management must constantly balance the
contemporary reality of achieving more with less. In order for an associate to
endure the period between recognition periods they must perform and perform
well. With this in mind the entire recognition industry is changing. Different
types of programs are required to maintain the same levels of recognition. The
Company helps its clients develop their own custom program with this new
paradigm in mind. The Company, having no "product bias", is able to truly listen
to the client and deliver exactly what the client's associates want. The
Company's goal is to increase the "Recognitional Impact"(TM) of each of its
clients.
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Safety Awareness/Incentive and Recognition Programs. Accidents in the
workplace injure thousands of workers each year and cost billions of dollars in
worker's compensation premiums, health care costs, and lost productivity. The
Company designs, implements and administers safety programs to reduce the direct
and indirect costs associated with accidents or lack of safety awareness.
Coupled with worker safety training and work place safety initiatives, safety
incentive and recognition programs have proven to be an essential contributor to
overall safety awareness. By increasing awareness and recognizing those in the
workplace who have safe work habits, the successful clients can achieve
significant returns on their incentive investments. Because each client has its
own unique set of safety concerns, the Company designs each safety awareness and
recognition program to meet the specific needs and goals of the client. A
typical safety program would grant an award for each recipient who met the
client's specific goal. As a consequence of the present regulatory environment,
clients are placing increasing emphasis on safety and the Company has received a
number of client testimonials regarding the efficiency of the safety programs it
has designed. The Company's market share of this industry is minimal.
Other Programs. The Company utilizes its reputation in both outstanding
merchandise selection and the timely delivery of such merchandise to design,
administer and fulfill numerous types of customer specific programs for its
clients. These ancillary programs include attendance, holiday, birthday, sales
incentives, and generic points programs that add incremental revenue without
diluting the Company's focus on its core businesses. In developing close ties
with the Company's clients many opportunities for these types of programs become
apparent. The Company intends to continue to work in these ancillary markets as
long as its client's needs demand its services.
Merchandise Selection and Brochures. The Company markets its merchandise
and jewelry in full-color catalogs and brochures. All are designed and produced
in-house by the Company's marketing group. The merchandise offered by the
Company includes the most popular items found in a cross section of America's
most popular department stores and mail order catalogs, including branded
consumer electronics, housewares, hardware, lawn and garden merchandise,
sporting goods, costume jewelry, manufactured fine jewelry, porcelain and fine
crystals. The Company monitors the quality and increases the value perception of
its programs by including name brand products such as Sony, RCA, Waterford,
Lladro, Howard Miller and Hamilton. Unlike its competitors in the service award
business which bear the financial burden and lack of flexibility ascribed to
some manufacturing environments, the Company has no "product bias," allowing it
to find the most reasonably priced, highest quality supplier of merchandise for
its programs. The items are separated into various price levels thus allowing
the client to select price levels which fit their budget. The items in each of
the price levels selected by the client are presented to associates in separate
brochures corresponding to the applicable award level. The selection of
merchandise within each price level is carefully chosen to appeal to a wide
segment of the industry workforce. Products are grouped by the Company within a
particular price level based on the Company's determination of the relative
value of all merchandise offered by the Company, rather than on the Company's
cost of those items. This results in different markups over the Company's cost
for each item, and greatly reduces, and in some cases eliminates, costs
associated with product obsolescence.
Sales and Marketing. The Company has redefined the way in which it goes to
market. It has made a transition from independent sales reps to full-time
company employees. Further, the Company has clearly defined and identified
target prospects in strategic metropolitan statistical areas across the country.
In addition to prospecting activities, the marketing and sales group has
developed an aggressive account initiative involving account retention. This
change in the Company's philosophy was needed due to a significant change in its
mission: "To have the best trained, most responsive, performance based sales
force in America." The Company realized the existing sales force would be unable
to take the Company to the next level of performance. In the past eighteen
months the Company has identified major markets and replaced 90% of its
independent sales staff with employed full-time sales people. The Company has
prepared for any short term ramifications by developing a fully staffed inside
sales group to assist in regulating the change to an employed field sales group,
and will utilize independent field representatives in special situations.
The hiring of additional sales representatives is expected to increase the
Company's selling, general and administrative expenses in the third and fourth
quarters of 1997. Since the training period for sales
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representatives is approximately six months, the anticipated increase in
selling, general and administrative expenses during those and possibly
subsequent periods could adversely affect earnings until sales increase as a
result of the additional sales representatives.
Internet Website. Recently, the Company has established a website on the
internet at www.cashort.com. The website has three primary sales and marketing
objectives. First, the site provides detailed information about Company history
and strategic intent, and a comprehensive account of the Company's product and
service offerings. Second, the website facilitates the transfer of timely
contemporary articles and other publications through its "research library"
function, and provides linkages to notable industry resources such as the
National Safety Council and the Society of Human Resource Managers. Finally, the
website provides customers the ease and flexibility of communicating with the
Company electronically; whether it be for order entry, the transfer of points or
other administrative information, order status, or a host of other customer
inquiries necessary in the day-to-day interaction between the Company and its
customer base. The Company is also in the process of developing other websites
for selling merchandise to the general public.
Growth Strategy. The Company has divided the Country into specific
territories. The territories were defined by existing accounts and target
prospects within each area. Each territory is serviced by a full-time Company
employed territory manager. Within each territory area the Company has segmented
the potential clients into specific prospect groups based on size and type of
program. Each prospect group will be marketed in the method proven most likely
to engage the client. All territory managers receive intense training and are
measured on a number of criteria including sales performance and territory
market share penetration. For the first time in the Company's history, the
Company will work the markets on a proactive, systematic basis and each
territory manager's employment will be based on his or her individual
performance and market penetration. The Company has also developed a marketing
plan and strategy to exploit the changes in the Company's markets.
Competition. The recognition industry includes two completely different
markets -- the recognition awards market and the safety incentive awards
market -- which must be sold and managed individually. Both markets are highly
fragmented. The years of service award market is approaching a billion dollar
industry with three major competitors, O.C. Tanner, Jostens, and The Robbins
Company, which have combined annual sales of $400 - $500 million. All three of
these competitors are strong, well-capitalized companies with large jewelry
manufacturing facilities. The service award market is highly competitive. The
safety incentive industry is estimated to be a billion dollar industry, but is
fragmented with no dominant market force. The Company is not aware of any
competitor in the safety incentive industry possessing the same core
competencies as the Company. The Company competes in both the recognition awards
and in the safety incentive awards markets on the basis of program design,
customer service, product quality, full program administration and flexibility.
Employees. As of July 15, 1997, the Company employed a total of 130
regular employees. The number of seasonal employees fluctuated during 1996 from
a high of 302 to a low of 9 due to the seasonal nature of the Company's
business. The Company's employees are not represented by a union and no work
stoppages have occurred since the purchase of the Company by Pages in 1990.
Properties. The Company's principal properties are its 134,000 square foot
warehouse and offices located in Shelby, North Carolina and its 163,700 square
foot warehouse located in Kings Mountain, North Carolina, both of which are
owned by the Company.
Financing. The Company has a revolving credit facility from The Huntington
National Bank in the maximum principal amount of $4.5 million. Borrowings under
the credit facility are limited to the sum of (i) the lesser of 60% of the
Company's eligible inventory or an inventory cap which is up to the sum of $3.5
million for the months of January through and including May each calendar year
and $4.5 million for the months of June through and including December of each
calendar year, plus (ii) up to 75% of eligible real estate. The foregoing
percentages are subject to increase or decrease by the lender upon thirty days
notice. 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. The credit facility also includes certain financial covenants,
including covenants that the Company maintain certain financial ratios including
a minimum tangible capital base and a minimum pre-tax profit from
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<PAGE> 24
operations. In addition, the credit facility contains limitations on capital
expenditures, fixed asset sales, loans and/or advances to shareholders, payment
of dividends, and employees and restrictions on operating leases.
Customer Contracts. Although it is difficult for the Company's customers
to discontinue a program once it has been initiated by the Company, all of the
contracts the Company has with its customers are cancelable by the customer upon
ninety-days notice.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the directors
and executive officers of the Company:
<TABLE>
<CAPTION>
DIRECTOR OR
NAME AGE POSITION EXECUTIVE OFFICER SINCE
- ---- --- -------- -----------------------
<S> <C> <C> <C>
S. Robert Davis(1)............ 58 Chairman of the Board 1990(2)
Charles R. Davis(1)........... 35 President and Director 1990(2)
Robert V. Boylan.............. 34 Chief Operating Officer and 1997
Director
Jeffrey A. Ross............... 30 Chief Financial Officer and 1996
Secretary
David J. Richards............. 45 Director 1997
Michael P. Beauchamp.......... 51 Director 1997
</TABLE>
- ---------------
(1) S. Robert Davis is the father of Charles R. Davis.
(2) Including the period prior to the Company's domicile change merger in 1996.
Executive officers serve at the pleasure of the Board of Directors.
Directors are elected at the annual meeting of shareholders to serve for one
year and until their successors are duly elected and qualify, or until their
earlier resignation, removal from office, or death. The remaining directors may
fill any vacancy in the Board of Directors for an unexpired term.
BUSINESS EXPERIENCE OF DIRECTORS AND EXECUTIVE OFFICERS
S. Robert Davis has been the Chairman of the Board and President of Pages,
Inc., a Company with a class of securities registered pursuant to Section 12 of
the Securities Exchange Act of 1934 ("Pages") for the past five years. Until
December 31, 1996, the Company was a wholly-owned subsidiary of Pages. Mr. Davis
was a founder of Arthur Treacher's Fish & Chips, Inc. He also was one of three
original shareholders and directors of Wendy's International, was a founder,
shareholder and director of Orange-Co., Inc., a manufacturer of frozen orange
juice concentrate, and is a former Chairman of the Board of Buckeye Financial
Corporation and a former member of the Board of Directors of Buckeye Federal
Savings & Loan Association. Except for the Company and Pages, Mr. Davis no
longer serves as a director of any of the aforementioned entities.
Charles R. Davis has served as the President of the Company since
September, 1992. From 1978 until 1980, Mr. Davis was Vice President of Real
Estate of Orange & Co., Inc. and from 1983 until 1996, he was a director and
executive officer of Pages, Inc. Mr. Davis received his bachelor's degree in
business administration from Franklin University.
Robert V. Boylan joined the Company in August, 1996, as Executive Vice
President of Sales, and was promoted to Chief Operating Officer in March of
1997. From April 1987 until August, 1996, Mr. Boylan served in various sales and
marketing capacities with Certainteed Corporation, a diversified building
products manufacturer. Certainteed is not a parent, subsidiary, or other
affiliate of the Company. Mr. Boylan has also served as a contract consultant
for the American Management Association from 1992 through 1995, and from 1992
until August, 1996, for Beauvestco Consulting, specializing in sales development
and sales management. Mr. Boylan received his MBA from Wake Forest University.
Jeffrey A. Ross is a certified public accountant. He joined the Company as
its controller in June, 1993 and was promoted to Chief Financial Officer in
November, 1996. Mr. Ross was employed as an accountant by a large public
accounting and consulting firm from September, 1989, until June, 1993.
David J. Richards has been the President and a director of NetMed, Inc. for
over five years. NetMed is not a parent, subsidiary or other affiliate of the
Company. NetMed is a company with a class of securities registered pursuant to
section 12 of the Securities Exchange Act of 1934.
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<PAGE> 26
Michael P. Beauchamp has been the President of Beauvestco, a management
consulting firm, since 1989. Beauvestco is not a parent, subsidiary, or other
affiliate of the Company.
LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 145(a) of the DGCL provides in relevant part that "a corporation
shall have power to indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the corporation) by reason of the fact that he
is or was a director, officer, employee or agent of the corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful." With respect to derivative actions, Section 145(b) of the
DGCL provides in relevant part that "[a] corporation shall have power to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor . . . [by reason of his service
in one of the capacities specified in the preceding sentence] against expenses
(including attorney's fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the corporation unless and only to the extent that
the Court of Chancery or the court in which such action or suit was bought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper." The Company's Certificate of Incorporation
provides for such indemnification to the fullest extent provided for by the
DGCL.
The Company's Certificate of Incorporation provides that no director of the
Company shall be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director except as limited by
the DGCL. The Certificate of Incorporation also provides that no amendment or
repeal of such provision shall apply to or have any effect on the right to
indemnification permitted thereunder with respect to claims arising from acts or
omissions occurring in whole or in part before the effective date of such
amendment or repeal whether asserted before or after such amendment or repeal.
The Company's Bylaws provide that the Company shall indemnify to the
fullest extent authorized by law each of its directors and officers against
expenses incurred in connection with any proceeding arising by reason of the
fact that such person is or was an agent of the corporation.
The Company has entered into indemnification agreements with Messrs. S.
Robert Davis, Charles Davis, Richards, Beauchamp, Boylan and Ross. The Company
may enter into separate indemnification agreements with other officers and
directors containing provisions which are in some respects broader than the
specific indemnification provisions contained in the Company's Amended and
Restated Certificate of Incorporation and Bylaws. The indemnification agreements
may require the Company, among other things, to indemnify such directors and
officers against certain liabilities that may arise by reason of their status as
directors and officers (other than liabilities arising from willful misconduct
of a culpable nature) and to advance their expenses as a result of any
proceeding against them as to which they could be indemnified. The Company
believes these agreements are necessary to attract and retain qualified persons
as directors and officers. Insofar as indemnification for liabilities under the
Securities Act may be provided to officers, directors or persons controlling the
Company, the Company has been informed that in the opinion of the Commission,
such indemnification is against public policy and is therefore unenforceable.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened litigation
or proceeding which may result in a claim for such indemnification.
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<PAGE> 27
CERTAIN TRANSACTIONS
In connection with the distribution on December 31, 1996, by Pages of all
of the Company Common Stock owned by it, Pages and the Company entered into a
Distribution Agreement. The form of the Distribution Agreement was filed by the
Company with the Securities and Exchange Commission as an Exhibit to the
Company's Form 10. S. Robert Davis is the Chairman of the Board of Pages and he
and Charles R. Davis are substantial shareholders of Pages. The following is in
summary of the terms of the Distribution Agreement, which is qualified in its
entirety by reference to Distribution Agreement.
The Distribution Agreement provides, among other things, for the
indemnification by each party of the other against certain liabilities,
including certain tax liabilities. In addition, the Distribution Agreement
provides for the execution and delivery by the Company to Pages of a
subordinated debenture in the principal amount of $5 million bearing interest at
7% per annum payable quarterly, with principal payments of $100,000 each due at
the end of each of the first four years, and a final payment of $4,600,000 due
at the end of the fifth year. The Distribution Agreement also provides that
Pages and the Company is granted access to certain records and information in
the possession of the other, and requires the retention by each for a period of
five years following the Distribution of all such information in its possession.
The Distribution Agreement also provides for the allocation of certain
taxes. In general, Pages is responsible for filing all tax returns and paying
all taxes relating to the Company for periods through the Distribution Date, and
the Company is responsible for filing all such tax returns and paying all such
taxes for period beginning after the Distribution Date. Pages and the Company
agree to cooperate with one another and to share information in preparing such
tax returns and in dealing with other tax matters.
DIRECTOR COMPENSATION
Each director who is not an officer of the Company receives a fee of $500
for attendance at each Board meeting, a fee of $250 for attendance at each
telephonic Board meeting, and a fee of $250 for attendance at each meeting of a
Board committee of which he is a member. Directors who are also officers of the
Company receive no additional compensation for their services as directors. The
Company has adopted a Non-Employee Director Stock Option Plan (the "Director
Option Plan"), which provides for the grant, at the discretion of the Company's
Board of Directors, of options to purchase up to 40,000 shares of Common Stock
upon such terms as are determined by the Board in its discretion. In June, 1997,
options to purchase 10,000 shares of Common Stock at a purchase price of $4.50
per share were granted under the Director Option Plan.
EXECUTIVE COMPENSATION
The Company's President, Charles R. Davis, was paid a salary of $132,315,
$147,896 and $140,000 in each of the 1996, 1995, and 1994 fiscal years,
respectively. Mr. Davis exercised options to purchase Pages common stock during
1996 and 1995, the difference between the fair market value of the Pages common
stock received and the option exercise price of which was $134,040 and $103,389,
respectively. He did not receive any other compensation from the Company in
those years and he did not receive any grants of options to purchase Pages
common stock in those years. In March, 1997, the Company granted to Mr. Davis
options under its 1996 Incentive Stock Option Plan to purchase 35,000 shares of
Common Stock at a purchase price of $3.50 per share. On July 17, 1997, the
Company agreed to grant to Mr. Davis performance options to purchase 200,000
shares of Company Common Stock, 50,000 of which will be granted if the Company
has pre-tax earnings of at least $1 million in any fiscal year, 75,000 of which
will be granted if the Company has pre-tax earnings of at least $1.5 million in
any fiscal year, and 75,000 of which will be granted if the Company has pre-tax
earnings of at least $2 million in any fiscal year, in each case as long as Mr.
Davis was employed by the Company at the end of the applicable fiscal year. The
performance options are exercisable at the market price of the Common Stock at
the date of the grant, which will be the date that the Company files its Form
10-K with its audited financial statements showing that the required earnings
plateau is satisfied. Mr. Davis' compensation is established by the Board of
Directors. No other executive officer of the Company received compensation
exceeding $100,000 during fiscal years 1996, 1995, and 1994.
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1996 INCENTIVE STOCK OPTION PLAN
The Company has adopted a 1996 Incentive Stock Option Plan (the "Incentive
Plan") which provides for the grant, at the discretion of the Board of
Directors, of options to purchase up to 85,000 shares of Common Stock to key
employees of the Company. It is intended that options granted under the
Incentive Plan qualify as incentive stock options under Section 422 of the
Internal Revenue Code of 1986, as amended. The selection of participants,
allotment of shares, determination of exercise price and other considerations
relating to the grant of options under the Incentive Plan is determined by the
Board of Directors, at its discretion. Options granted under the Incentive Plan
are exercisable for a period of up to ten years after the date of grant at an
exercise price which is not less than the fair market value of the shares on the
date of grant, except that the term of an incentive stock option granted under
the Incentive Plan to a shareholder owning more than 10% of the outstanding
shares may not exceed five years and its exercise price may not be less than
110% of the fair market value of the shares on the date of grant. In January,
1997, the Company granted options under the Incentive Plan to purchase 29,500
shares of Common Stock at a purchase price of $4.00 per share and on two
different occasions in March, 1997, the Company granted options under the
Incentive Plan to purchase 40,000 shares of Common Stock at a purchase price of
$3.50 per share and 5,000 shares of Common Stock at a purchase price of $4.00
per share. Options currently outstanding under the Incentive Plan are not
exercisable until the expiration of one year after the date of grant.
PRINCIPAL STOCKHOLDERS
The table below sets forth the number and percentage of outstanding shares
of the Company's Common Stock beneficially owned by (i) each person who
beneficially owns more than 5% of the outstanding Common Stock, (ii) each
director of the Company, (iii) the President of the Company (the only executive
officer of the Company whose cash and non-cash compensation for services
rendered to the Company for the year ended December 31, 1996, exceeded $100,000)
and (iv) all directors and executive officers of the Company as a group:
<TABLE>
<CAPTION>
PERCENT OF
CLASS(2)
-------------------
AMOUNT AND NATURE OF BEFORE AFTER
NAME AND ADDRESS BENEFICIAL OWNERSHIP(1) OFFERING OFFERING
- ---------------- ----------------------- -------- --------
<S> <C> <C> <C>
S. Robert Davis................................... 213,020(3) 21% 12%
801 94th Avenue North
St. Petersburg, FL 33702
Charles R. Davis.................................. 105,016(4) 10% 6%
4205 E. Dixon Blvd.
Shelby, NC 28150
All directors and executive officers as a group
(6 persons)..................................... 367,344(5) 37% 21%
</TABLE>
- ---------------
(1) Represents sole voting and investment power unless otherwise indicated.
(2) Based on 1,003,431 shares of Common Stock outstanding as of July 15, 1997,
plus, as to each person listed, that portion of unissued shares of Common
Stock subject to outstanding options which may be exercised by such person
within the next 60 days, and as to all directors and executive officers as a
group, unissued shares of Common Stock as to which the members of such group
have the right to acquire beneficial ownership upon the exercise of stock
options within the next 60 days. Assumes no exercise of the Warrants, the
Over-Allotment Option, or the Underwriter's Option. See "Shares Eligible for
Future Sale."
(3) Includes 4,066 shares owned by Mr. Davis' wife as to which Mr. Davis
disclaims beneficial ownership.
(4) Includes 936 shares owned by Mr. Davis' wife and 725 shares owned by Mr.
Davis' children as to which Mr. Davis disclaims beneficial ownership.
(5) The number of shares of Common Stock beneficially owned by all directors and
executive officers as a group includes all the shares of Common Stock listed
above including 10,000 unissued shares of Common
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<PAGE> 29
Stock as to which the Company's two non-employee directors have the right to
acquire beneficial ownership upon the exercise of stock options within the next
60 days, 26,709 shares of Common Stock owned by Mr. Richards, a director of the
Company, and 5,967 shares of Common Stock owned by Mr. Beauchamp, a
director of the Company, 4,536 shares of Common Stock owned by Robert V.
Boylan, an executive officer of the Company, and 2,095 shares of Common
Stock owned by Jeffrey A. Ross, an executive officer of the Company.
DESCRIPTION OF SECURITIES
The Company is authorized to issue 5,000,000 shares of Common Stock and
300,000 shares of Preferred Stock. At July 15, 1997, there are 1,003,341 shares
of Common Stock outstanding held of record by approximately 550 stockholders and
no shares of Preferred Stock outstanding. There can be no assurance given that a
more liquid trading market for the Common Stock will develop or that a regular
trading market for any of the Securities will develop after the completion of
the Offering. If a more liquid or regular trading market does in fact develop,
there can be no assurance given that it will be sustained. The Units and the
Warrants have been approved for trading on the Nasdaq SmallCap Market under the
symbols CASCU and CASCW, respectively. If, for any reason, a liquid or regular
trading market does not develop, purchasers of such Securities may have
difficulty selling their securities should they desire to do so.
UNITS
Each Unit offered hereby consists of one share of Common Stock and two
Warrants. The Shares and the Warrants included in the Units will be detachable
and will trade separately twelve (12) months after issuance. Should the Warrants
included in the Units be exercised, of which there is no assurance, the Company
will receive the proceeds therefrom, aggregating up to an additional $9.49
million.
COMMON STOCK
There are no preemptive, subscription, conversion or redemption rights
pertaining to the Common Stock. The absence of preemptive rights could result in
a dilution of the interest of the existing stockholders should additional shares
of Common Stock be issued. In addition, the rights of holders of the shares of
Common Stock may become subject in the future to prior and superior rights and
preferences in the event the Board of Directors establishes one or more
additional classes of Common Stock or one or more series of Preferred Stock. The
Board of Directors has no present plan to establish any such additional class or
series. See "Risk Factors -- Delaware Anti-Takeover Statute; Issuance of
Preferred Stock; Barriers to Takeover." Holders of the Common Stock are entitled
to receive such dividends, if any, as may be declared by the Board of Directors
out of assets legally available therefor and to share ratably in the assets of
the Company available upon liquidation.
Each share of Common Stock is entitled to one vote for all purposes and
cumulative voting is not permitted in the election of directors. Accordingly,
the holders of more than 50% of all of the outstanding shares of Common Stock
can elect all of the directors. Significant corporate transactions, such as most
amendments to the certificate of incorporation, mergers, sales of assets and
dissolution or liquidation require approval by the affirmative vote of a
majority of the outstanding shares of Common Stock. Other matters to be voted
upon by the holders of Common Stock normally require the affirmative vote of a
majority of the shares present or represented by proxy at the particular
stockholders' meeting. Prior to the completion of this Offering, the Company's
directors, officers and greater than 5% stockholders as a group beneficially own
approximately 37% of the outstanding Common Stock of the Company. Upon
completion of this Offering, such persons will beneficially own approximately
21% of the outstanding shares (20% if the Over-Allotment Option is exercised in
full). See "Principal Stockholders." Accordingly, such persons will continue to
be able to control the Company's affairs, including, without limitation, the
sale of equity or debt securities of the Company, the appointment of officers,
the determination of officers' compensation and the determination whether to
cause a registration statement to be filed.
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<PAGE> 30
PREFERRED STOCK
The Board of Directors of the Company is authorized (without any further
action by the stockholders) to issue preferred stock in one or more series and
to fix the voting rights, liquidation preferences, dividend rates, conversion
rights, redemption rights and terms, including sinking fund provisions, and
certain other rights and preferences. Satisfaction of any dividend preferences
of outstanding preferred stock would reduce the amount of funds available for
the payment of dividends, if any, on the Common Stock. Also holders of the
preferred stock would normally be entitled to receive a preference payment in
the event of any liquidation, dissolution or winding up of the Company before
any payment is made to the holders of Common Stock. In addition, under certain
circumstances, the issuance of preferred stock may render more difficult or tend
to discourage a merger, tender offer or proxy contest, the assumption of control
by a holder of a large block of the Company's securities, or the removal of
incumbent management. The Board of Directors of the Company, without stockholder
approval, may issue preferred stock with voting and conversion rights which
could adversely affect the holders of Common Stock. On the date of this
Prospectus, none of the 300,000 authorized shares of preferred stock are
outstanding and the Company has no present intention to issue any shares of
preferred stock.
REDEEMABLE CLASS A WARRANTS
The Units being offered hereby include 1,500,000 Warrants. Warrants will be
issued under and governed by the provisions of a Warrant Agreement (the "Warrant
Agreement") between the Company and American Stock Transfer & Trust Company, as
warrant agent (the "Warrant Agent") and will be evidenced by warrant
certificates in registered form. The following summary of the Warrant Agreement
is not complete and is qualified in its entirety by reference to the Warrant
Agreement, a copy of which has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part.
Each Warrant entitles the holder thereof to purchase one share of Common
Stock at an initial price of $5.50 per share during the Warrant Exercise
Period -- the period commencing one year after the date of this Prospectus and
terminating four years thereafter. The shares of Common Stock underlying the
Warrants will, upon exercise of the Warrants, be validly issued, fully paid and
nonassessable. The Warrants are redeemable by the Company at any time during the
Warrant Exercise Period for $0.05 per Warrant if the average closing price or
bid price of a share of Common Stock, as reported by NASDAQ, equals or exceeds
$8.75 for any twenty (20) consecutive trading days ending within five (5) day
prior to the date of the notice of redemption.
The Warrants can only be exercised when there is a current effective
registration statement covering the shares of Common Stock underlying the
Warrants. If the Company does not or is unable to maintain a current effective
registration statement, the Warrantholders will be unable to exercise the
Warrants and the Warrants may become valueless. Moreover, if the shares of
Common Stock underlying the Warrants are not registered or qualified for sale in
the state in which a Warrantholder resides, such holder might not be permitted
to exercise the Warrants. In the event that the Warrants are called for
redemption, the Warrantholders may not be able to exercise their Warrants in the
event that the Company has not updated this Prospectus in accordance with the
requirements of the Securities Act or the Warrants have not been qualified for
sale under the laws of the state where the Warrantholder resides. In addition,
in the event that the Warrants have been called for redemption, such call for
redemption could force the Warrantholder to either (i) assuming the necessary
updating to the Prospectus and state blue sky qualifications have been effected,
exercise the Warrants and pay the exercise price at a time when, in the event of
a decrease in market price from the period preceding the issuance of the call
for redemption, it may be less than advantageous economically to do so, or (ii)
accept the redemption price, which, in the event of an increase in the price of
the Common Stock, could be substantially less than the market value thereof at
the time of redemption. See "Risk Factors -- Current Prospectus and State
Registration Required to Exercise Warrants" and "Potential Adverse Effect of
Redemption of Warrants; Market Overhang."
The Warrantholders are not entitled to vote, receive dividends, or exercise
any of the rights of holders of shares of Common Stock for any purpose. The
Warrants are in registered form and may be presented for transfer, exchange or
exercise at the office of the Warrant Agent.
30
<PAGE> 31
Assuming there is a current effective registration statement covering the
shares of Common Stock underlying such Warrants, each Warrant may be exercised
by surrendering the Warrant certificate, with the form of election to purchase
on the reverse side of the Warrant certificate properly completed and executed,
together with payment of the exercise price to the Warrant Agent. The Warrants
may be exercised from time to time in whole or in part. If less than all of the
Warrants evidenced by a Warrant certificate are exercised, a new Warrant
certificate will be issued for the remaining number of Warrants.
The Warrant Agreement provides for adjustment of the exercise price and the
number of shares of Common Stock purchasable upon exercise of the Warrants to
protect Warrantholders against dilution in the event of stock dividends and
distributions, stock splits, recapitalizations, mergers, consolidations and
similar transactions.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Securities of the Company is
American Stock Transfer & Trust Company, 40 Wall Street, New York, New York
10005.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no market for the Units, the Common
Stock or the Warrants and no predictions can be made for the effect, if any,
that market sales of the Units, the Common Stock or the Warrants, or the
availability of any of such Securities for sale will have on the market price
prevailing from time to time. Sales of substantial amounts of the Units, the
Common Stock and the Warrants in the public market could adversely affect
prevailing market prices for the Units, the Common Stock and the Warrants and
impair the Company's ability to raise equity capital in the future.
Upon completion of the Offering, there will be 1,753,431 shares of Common
Stock issued and outstanding (1,865,931 if the Over-Allotment Option is
exercised in full) and 1,500,000 Warrants (1,725,000 if the Over-Allotment
Option is exercised in full). Of these securities, the 1,003,431 currently
outstanding Shares and the 750,000 Shares and 1,500,000 Warrants which are part
of the Units offered hereby (862,500 Shares and 1,725,000 Warrants if the
Over-Allotment Option is exercised in full) will be freely tradable without
registration or other restriction under the Securities Act, except for any
shares held or purchased by an "affiliate" (as defined in the Securities Act) of
the Company. Shares of Common Stock purchased by an "affiliate" of the Company
will be subject to Rule 144.
In general, under Rule 144 as amended, persons deemed to be affiliates may
sell such securities in brokers' transactions or directly to market makers,
provided that the number of shares sold in any three-month period does not
exceed the greater of 1% of the then outstanding shares of Common Stock or the
average weekly trading volume of the shares of Common Stock in the
over-the-counter market during the four calendar weeks preceding the sale. Sales
under Rule 144 are also subject to certain notice requirements and the
availability of current public information about the Company. S. Robert Davis
and Charles R. Davis will enter into a Lock-Up Agreement relating to securities
beneficially owned as of such date pursuant to which they agree not to, directly
or indirectly, issue, offer, agree to offer to sell, sell or grant an option for
the purchase of, sale, transfer, pledge, assign, hypothecate, distribute or
otherwise dispose of or encumber such securities or options, rights, warrants or
other securities convertible into, exchangeable or exercisable for or evidencing
any right to purchase or subscribe for shares of Common Stock (whether or not
beneficially owned by such person) or any beneficial interest therein for a
period of eighteen (18) months after the date of this Prospectus without the
consent of the Underwriter. However, S. Robert Davis is permitted to sell 15,000
of his shares during the first twelve months after the date of this Prospectus
and an additional 10,000 shares during the following six months, and Charles R.
Davis is permitted to sell 10,000 of his shares during the first twelve months
after the date of this Prospectus and an additional 5,000 shares during the
following six months, in each case, with the timing of the sale of such shares
subject to the approval of the Underwriter.
31
<PAGE> 32
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, a copy
of which is filed as an exhibit to the Registration Statement of which this
Prospectus is a part, the Underwriter has agreed to purchase from the Company
750,000 Units offered hereby on a "firm commitment" basis. The Units are being
offered to the public at a price of $5.00 per Unit. The Underwriter had advised
the Company that sales to certain dealers who are NASD members may be made at
the public offering price less concessions not to exceed $0.18 per Unit. After
the public offering, the public offering prices, concessions and reallowances
may be changed by the Underwriter. The Underwriter does not intend to sell any
of the Units to accounts over which it exercises discretionary authority.
The Company has granted an option to the Underwriter, exercisable during
the 30-day period from the date of this Prospectus, to purchase up to a maximum
of 112,500 additional Units at the offering price, less the underwriting
discount, to cover over-allotments, if any.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriter against certain liabilities in connection with
the Registration Statement, including liabilities under the Securities Act.
The Company has agreed to pay to the Underwriter a non-accountable expense
allowance of $112,500 equal to three percent (3%) of the aggregate offering
price of the Units offered hereby (or $129,375 assuming exercise of the
Over-Allotment Option). The Underwriter's expenses in excess of the stated
expense allowance will be borne by the Underwriter. To the extent that the
expenses of the Underwriter are less than the stated expense allowance, the
difference may be deemed compensation to the Underwriter in addition to the
sales commission payable to the Underwriter.
The Company has agreed to grant to the Underwriter, or its designees, an
option to purchase up to an aggregate of 75,000 Units ("Underwriter's Option")
which are being registered in connection with this Offering. The Underwriter's
Option shall be exercisable during the four-year period commencing one (1) year
after the date of this Prospectus. The Underwriter's Option may not be assigned,
transferred, sold or hypothecated by the Underwriter after the date of this
Prospectus, except to officers or partners of the Underwriter or any of the
underwriters and selling group members in the Offering. Any profits realized by
the Underwriter upon the sale of the securities issuable upon exercise of the
Underwriter's Option may be deemed to be additional underwriting compensation.
The exercise price of the Units issuable upon exercise of the Underwriter's
Option during the period of exercisability shall be 120% of the initial public
offering price of such Units. The exercise price of the Underwriter's Option and
the number of shares of Common Stock underlying the Underwriter's Option are
subject to adjustment in certain events to prevent dilution. The holders of the
Underwriter's Option are given, at a nominal cost, the opportunity to profit
from a rise in the market price of the Company's Common Stock and Warrants with
a resulting dilution in the interest of other stockholders. The Company may find
it more difficult to raise capital for its business if the need should arise
while the Underwriter's Option is outstanding. At any time when the holders of
the Underwriter's Option might be expected to exercise it, the Company would
probably be able to obtain additional capital on more favorable terms.
The Company has agreed to pay the Underwriter a warrant solicitation fee of
4% of the exercise price of any of the Warrants exercised beginning one year
after the effective date of the Registration Statement (not including Warrants
exercised by the Underwriter) if (a) the market price of the Company's Common
Stock on the date the Warrant is exercised is greater than the exercise price of
the Warrant, (b) the exercise of the Warrant was solicited by the Underwriter
and the holder of the Warrant designates the Underwriter in writing as having
solicited such Warrant, (c) the Warrant is not held in a discretionary account,
(d) disclosure of the compensation arrangement is made upon the sale and
exercise of the Warrants, (e) soliciting the exercise is not in violation of
Registration M under the Securities Exchange Act of 1934, and (f) solicitation
of the exercise is in compliance with the NASD Notice to Members 81-38
(September 22, 1981).
S. Robert Davis and Charles R. Davis have agreed in writing not to sell,
assign or transfer any of the Company's securities without the Underwriter's
prior written consent for a period of eighteen (18) months
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<PAGE> 33
after the date of this Prospectus. However, S. Robert Davis is permitted to sell
15,000 of his shares during the first twelve months after the date of this
Prospectus and an additional 10,000 shares during the following six months, and
Charles R. Davis is permitted to sell 10,000 of his shares during the first
twelve months after the date of this Prospectus and an additional 5,000 shares
during the following six months, in each case, with the timing of the sale of
such shares subject to the approval of the Underwriter, which approval must be
given within 30 days after a request for same.
The Company has also agreed that, if it enters into a transaction
(including a merger, joint venture or the acquisition of another entity)
introduced to the Company by the Underwriter within five (5) years after the
date of this Prospectus, the Company will pay the Underwriter a fee equal to
five percent of the first $3 million of consideration received by the Company,
four percent of the next $3 million, three percent of the next $2 million, two
percent of the next $2 million and one percent of the excess, if any, over $10
million. At the present time, the Company has no plans to enter into any such
transaction.
Following the consummation of the Offering, the Underwriter intends to seek
others to make a market in the Company's Securities in addition to the
Underwriter.
LITIGATION INVOLVING UNDERWRITER MAY AFFECT SECURITIES.
The Company has been advised by the Underwriter, that on or about May 22,
1995, the Underwriter and Elliot Loewenstern and Richard Bronson, principals of
the Underwriter, and the Securities and Exchange Commission (the "Commission")
agreed to an offer of settlement (the "Offer of Settlement") in connection with
a complaint filed by the Commission in the United States District Court for the
Southern District of Florida alleging violations of the federal securities laws,
Section 17(a) of the Securities Act of 1933, as amended (the "Securities Act"),
Section 10(b) and 15(c) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and Rules 10b-5, 10b-6 and 15cl-2 promulgated thereunder. The
complaint also alleged that in connection with the sale of securities in three
(3) initial public offerings ("IPOs") in 1992 and 1993, the Underwriter engaged
in fraudulent sales practices. The proposed Offer of Settlement was consented to
by the Underwriter and Messrs. Loewenstern and Bronson without admitting or
denying the allegations of the complaint. The Offer of Settlement was approved
by Judge Gonzales on June 6, 1995. Pursuant to the final judgment (the "Final
Judgment"), the Underwriter:
- was required to disgorge $1,000,000 to the Commission, which amount was
paid in four (4) equal installments on or before June 22, 1995;
- agreed to the appointment of an independent consultant ("Consultant").
Consultant was obligated, on or before November 1, 1996:
- to review the Underwriter's policies, practices and procedures in six (6)
areas relating to compliance and sales practices;
- to formulate policies, practices and procedures for the Underwriter that
the Consultant deems necessary with respect to the Underwriter's
compliance and sales practices;
- to prepare a report devoted to and which details the aforementioned
policies, practices and procedures (the "Report");
- to deliver the Report to the President of the Underwriter and to the
staff of the Southeast Regional office of the Commission;
- to prepare, if necessary, a supervisory procedures and compliance manual
for the Underwriter, or to amend the Underwriter's existing manual; and
- to formulate policies, practices and procedures designed to provide
mandatory on-going training to all existing and newly hired employees of
the Underwriter. The Final Judgment further provides that, within thirty
(30) days of the Underwriter's receipt of the Report, unless such time is
extended, the Underwriter shall adopt, implement and maintain any and all
policies, practices and procedures set forth in the Report.
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<PAGE> 34
On or about December 19, 1996, the Consultant completed the Report which
was thereafter delivered to the Underwriter. The Report addresses the areas
relating to compliance and sales practices referred to above. The Underwriter is
reviewing the Report and undertaking steps to implement the recommendations and
procedures in the Report, in accordance with the provisions of the Final
Judgment.
The Final Judgment also provides that an independent auditor ("Auditor")
shall conduct four (4) special reviews of the Underwriter's policies, practices
and procedures, the first such review to take place six (6) months after the
Report has been delivered to the Underwriter and thereafter at six-month
intervals. The Auditor is also authorized to conduct a review, on a random basis
and without notice to the Underwriter, to certify that any persons associated
with the Underwriter who have been suspended or barred by any Commission order
are complying with the terms of such orders.
On July 10, 1995, the action against Messrs. Loewenstern and Bronson was
dismissed with prejudice. Mr. Bronson agreed to a suspension from associating in
any supervisory capacity with any broker, dealer, municipal securities dealer,
investment advisor or investment company for a period of twelve (12) months,
dating from the beginning of such suspension. Mr. Loewenstern agreed to a
suspension from associating in any supervisory capacity with any broker, dealer,
municipal securities dealer, investment advisor or investment company for a
period of twelve (12) months commencing upon the expiration of Mr. Bronson's
suspension. Both suspensions have been completed.
In the event that the requirements of the foregoing judgment adversely
affect the Underwriter's ability to act as a market maker for the Securities,
and additional broker-dealers do not make a market in the Company's Securities,
the market for, and the liquidity of, the Company's securities may be adversely
affected. In the event that other broker-dealers fail to make a market in the
Company's securities, the possibility exists that the market for and the
liquidity of the Company's securities may be adversely affected to such an
extent that public security holders may not have anyone to purchase their
securities when offered for sale at any price. In such event, the market for,
liquidity and prices of the Company's securities may not exist. For additional
information regarding the Underwriter, investors may call the National
Association of Securities Dealers, Inc. at (800) 289-9999.
RECENT STATE ACTION INVOLVING THE UNDERWRITER-POSSIBLE LOSS OF LIQUIDITY.
The State of Indiana commenced an action seeking, among other things, to
revoke the Underwriter's license to do business in such state. The complaint
alleged that Biltmore offered and/or sold securities that were neither
registered nor exempt, engaged in dishonest or unethical practices in the
securities business, failed to reasonably supervise its agents and violated the
antifraud provisions of the Indiana Securities Act. The action was settled
without any admission, finding or judgment against Biltmore of any violation of
the Indiana Securities Act and the Underwriter agreed to, among other things,
resolve certain customer claims, the payment of a fine and costs and
restrictions with respect to the sale of securities to Indiana residents.
Specifically, the Underwriter agreed that it will not sell any securities to
Indiana residents (i) which are not listed on the New York Stock Exchange, the
American Stock Exchange or Nasdaq; (ii) for which the Underwriter has served as
lead underwriter or as a member of the selling syndicate; or (iii) for which the
Underwriter is a market maker. Under the terms of the settlement agreement, the
Underwriter continues to maintain its license in the State of Indiana. The
Company does not intend to seek qualification for the sale of the Securities in
the state of Indiana.
On July 18, 1997, the State of Arkansas, Securities Department issued a
consent order in lieu of the filing of a complaint as settlement of all claims
against Biltmore Securities and Elliot A. Loewenstern. The claims related to
certain practices constituting violations of the Arkansas Securities Act
including promising customers price appreciation, failing to disclose negative
information regarding stocks, representing that they knew of "inside
information" and using high pressure sales tactics during the period February
1992 to October 1993. Biltmore and Mr. Loewenstern consented to the entry of the
order without admitting or denying any wrongdoing or violation. The consent
order censured Biltmore Securities and Elliot A. Loewenstern and required that
they pay the amount of $25,000 for costs and expenses relating to the
proceedings. The consent
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<PAGE> 35
order also required that Biltmore deliver to the Commissioner of Securities a
copy of the final report prepared by the independent consultant. All terms of
the consent order have been fully complied with.
On September 10, 1997, the State of California issued a Notice of Intention
to Issue Order Revoking Biltmore's Broker-Dealer Certificate. The accusation
alleges that it is appropriate for Biltmore's broker-dealer license to be
revoked in the public interest as a result of Biltmore being subject to
enforcement orders issued by the Securities and Exchange Commission, the
Arkansas Securities Department and the Indiana Securities Division. The
Underwriter, Biltmore, intends to request a hearing and contest the accusation.
Such proceeding, if ultimately successful may adversely effect the market for
and liquidity of the Company's securities if additional broker-dealers do not
make a market in the Company's securities. Biltmore is the sole Underwriter of
this firm commitment underwriting.
According to the records of the Central Register Depository maintained by
the National Association of Securities Dealers Regulation, Inc. ("NASDR"),
Messrs. Loewenstern and Bronson, the principals of Biltmore, have 46 and 44
recorded incidents respectively, some of which are disciplinary complaints.
LEGAL MATTERS
The validity of the Securities being offered hereby will be passed upon for
the Company by Johnson, Blakely, Pope, Bokor, Ruppel & Burns, P.A., Tampa,
Florida. Certain legal matters will be passed upon for the Underwriter by
Bernstein & Wasserman, LLP, 950 Third Avenue, New York, New York 10022.
CHANGE OF ACCOUNTANTS
On July 17, 1997, the Company dismissed Deloitte & Touche LLP as its
principal independent accountant. The reports of Deloitte & Touche LLP on the
Company's financial statements for the past two fiscal years contained no
adverse opinion or disclaimer of opinion and were not qualified or modified as
to uncertainty or audit scope. The report dated March 3, 1997 of Deloitte &
Touche LLP on the Company's 1996 and 1995 financial statements expressed an
unqualified opinion, and included an explanatory paragraph for a change in
accounting principle. The Company's Board of Directors participated in and
approved the decision to change independent accountants. In connection with its
audits for the two most recent fiscal years and through July 17, 1997, there
have been no disagreements with Deloitte & Touche LLP on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements if not resolved to the satisfaction of
Deloitte & Touche LLP would have caused them to make reference thereto in their
report on the financial statements for such years. During the two most recent
fiscal years and through July 17, 1997, there have been no reportable events by
Deloitte & Touche LLP.
The Company engaged Hausser + Taylor as its new independent accountants as
of July 18, 1997. During the two most recent fiscal years and through July 18,
1997, the Company has not consulted with Hausser + Taylor on items which were or
should have been subject to Statement on Auditing Standards No. 50 or which
concerned the subject matter of a disagreement or reportable event with the
former auditors.
EXPERTS
The Company's balance sheet as of December 31, 1996 and the Company's
statements of operations, stockholders' equity and cash flows for the years
ended December 31, 1996 and 1995 have been included herein and in the
Registration Statement in reliance upon the report of Hausser + Taylor,
independent auditors, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed a Registration Statement on Form SB-2 under the
Securities Act with the Commission with respect to the Securities offered
hereby. This Prospectus filed as a part of the Registration Statement does not
contain all of the information contained in the Registration Statement and the
exhibits
35
<PAGE> 36
thereto, certain portions of which have been omitted in accordance with the
rules and regulations of the Commission. For further information with respect to
the Company and the Securities offered hereby, reference is made to such
Registration Statements including the exhibits and schedules thereto. Statements
contained in this Prospectus as to the contents of any contract, agreement or
other documents are not necessarily complete, and in each instance, reference is
made to such contract, agreement or other documents filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements, and other
information with the Commission. Such reports, proxy statements, and other
information filed by the Company and the Registration Statement and exhibits may
be inspected without charge and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W, Washington, D.C. 20549, as well as at the New York regional office of the
Commission at Seven World Trade Center, 14th Floor, New York, New York 10048 and
Northwest Atrium Center, 500 West Madison Sheet, Suite 1400, Chicago, Illinois
60661. Registration statements transmitted throughout the Commission's
Electronic Data Gathering Analysis and Retrieval System are also publicly
available through the Commission's Internet site on the Web
(http://www.sec.gov). Copies of such material can also be obtained from the
Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W, Washington, D.C. 20549. Application has been made to list the
Units, the Common Stock and the Warrants in the Bulletin Board. The foregoing
material also should be available for inspection at the National Association of
Securities Dealers, Inc., 1735 K Street, N.W, Washington, D.C. 20006.
36
<PAGE> 37
CASCO INTERNATIONAL, INC.
(FORMERLY CA SHORT COMPANY)
INDEX TO FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Audited Financial Statements:
Statements of Operations --
Six Months Ended June 30, 1997 and 1996 (unaudited),
and Years ended December 31, 1996 and December 31,
1995.................................................. F-3
Balance Sheets --
June 30, 1997 (unaudited) and December 31, 1996........ F-4
Statements of Cash Flows --
Six Months Ended June 30, 1997 and 1996 (unaudited),
and Years ended December 31, 1996 and 1995............ F-5
Statements of Stockholders' Equity --
Six Months Ended June 30, 1997 (unaudited), and Years
ended December 31, 1996 and 1995...................... F-6
Notes to Financial Statements............................. F-7
</TABLE>
F-1
<PAGE> 38
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
CASCO INTERNATIONAL, INC.
Shelby, North Carolina
We have audited the accompanying balance sheet of CASCO INTERNATIONAL, INC.
(the "Company") (formerly CA Short Company) as of December 31, 1996, and the
related statements of operations, stockholders' equity, and cash flows for the
years ended December 31, 1996 and 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements based upon 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, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
31, 1996, and the results of its operations and its cash flows for the years
ended December 31, 1996 and 1995 in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the financial statements, effective January 1,
1996, the Company changed its method of accounting for the recognition of
referred revenue for the prepaid safety award programs.
/s/ HAUSSER + TAYLOR
--------------------------------------
Columbus, Ohio
July 29, 1997
F-2
<PAGE> 39
CASCO INTERNATIONAL, INC.
(FORMERLY CA SHORT COMPANY)
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
JUNE 30, 1997 JUNE 30, 1996 1996 1995
------------- ------------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues.................................... $8,443,149 $10,052,824 $21,959,396 $22,620,011
---------- ----------- ----------- -----------
Costs and Expenses:
Cost of goods sold........................ 4,780,213 5,962,436 13,523,932 13,862,313
Selling, general and administrative....... 3,861,680 3,811,809 8,051,446 8,155,260
Interest.................................. 257,863 32,961 128,965 416,189
Depreciation and amortization............. 174,147 167,092 338,234 362,523
Management fee paid to Pages.............. -- 250,000 500,000 500,000
---------- ----------- ----------- -----------
9,073,903 10,224,298 22,542,577 23,296,285
---------- ----------- ----------- -----------
Loss before income taxes and cumulative
effect of change in accounting
principle.............................. (630,754) (171,474) (583,181) (676,274)
Benefit for income taxes.................. 241,000 57,300 195,100 248,600
---------- ----------- ----------- -----------
Loss before cumulative effect of change in
accounting principle................... (389,754) (114,174) (388,081) (427,674)
Cumulative effect of change in accounting
principle, net of tax of $397,850...... -- 596,814 596,814 --
---------- ----------- ----------- -----------
NET INCOME (LOSS)................. $ (389,754) $ 482,640 $ 208,733 $ (427,674)
========== =========== =========== ===========
PRO FORMA INCOME (LOSS) PER COMMON SHARE:
Loss before cumulative effect of change in
accounting principle................... $ (.39) $ (.11) $ (0.39) $ (0.43)
Cumulative effect of change in accounting
principle.............................. -- .59 .59 --
---------- ----------- ----------- -----------
NET INCOME(LOSS).................. $ (.39) $ .48 $ 0.20 $ (0.43)
========== =========== =========== ===========
PRO FORMA AMOUNTS ASSUMING THE NEW
ACCOUNTING METHOD IS APPLIED
RETROACTIVELY:
Net Loss.................................. $ -- $ -- $ (388,081) $ (169,802)
========== =========== =========== ===========
Loss per common share..................... $ -- $ -- $ (0.39) $ (0.17)
========== =========== =========== ===========
Pro forma weighted average common and
common equivalent shares............... 1,003,431 1,003,431 1,003,431 1,003,431
========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 40
CASCO INTERNATIONAL, INC.
(FORMERLY CA SHORT COMPANY)
BALANCE SHEETS
JUNE 30, 1997 (UNAUDITED) AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
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
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable.......................................... $ 344,650 $ 1,572,020
Short-term debt........................................... 1,404,015 3,669,746
Short-term subordinate debenture.......................... 100,000 --
Accrued liabilities....................................... 225,692 342,156
Advanced deposits......................................... 2,222,998 1,952,317
----------- -----------
Total current liabilities......................... 4,297,355 7,536,239
----------- -----------
Due to Pages................................................ -- 4,124,975
Advanced deposits........................................... 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, 300,000 authorized, none
issued and outstanding................................. -- --
Common shares(1).......................................... 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>
- ---------------
(1) At June 30, 1997 and December 31, 1996 -- par value $.01,
authorized -- 5,000,000, issued and outstanding -- 929,103 and 334.91,
respectively.
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 41
CASCO INTERNATIONAL, INC.
(FORMERLY CA SHORT COMPANY)
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31,
1997 1996 1996 1995
------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)..................... $ (389,754) $ 482,640 $ 208,733 $ (427,674)
Adjustments to reconcile net income
(loss) to cash provided by
operating activities:
Depreciation and amortization...... 174,147 167,092 338,234 362,523
Deferred provision................. (241,000) (57,300) 202,750 (248,600)
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable.............. 3,090,740 4,040,514 1,457,602 1,176,556
Inventory........................ 1,506,872 1,159,583 (187,953) 2,929,577
Prepaid expenses and other
assets........................ (38,465) (121,615) (18,377) (22,151)
Increase (decrease) in liabilities:
Accounts payable and accrued
liabilities................... (1,343,834) (1,162,132) 243,124 (2,151,502)
Advance deposits................. (441,190) (951,690) (760,164) 1,433,220
------------ ------------ ------------ ------------
Total adjustments............. 2,707,270 3,074,452 1,275,216 3,479,623
------------ ------------ ------------ ------------
Net cash provided by operating
activities............................ 2,317,516 3,557,092 1,483,949 3,051,949
------------ ------------ ------------ ------------
Cash flows from investing activities:
Payments for purchases of property and
equipment.......................... (37,770) (219,615) (421,740) (161,676)
------------ ------------ ------------ ------------
Cash used in investing activities....... (37,770) (219,615) (421,740) (161,676)
------------ ------------ ------------ ------------
Cash flows from financing activities:
Due to Pages.......................... -- -- -- (2,488,397)
Proceeds from debt obligation......... 10,573,563 11,712,321 24,813,186 30,982,347
Principle payments on debt............ (12,839,294) (15,234,621) (25,971,102) (31,170,959)
------------ ------------ ------------ ------------
Cash used in financing activities....... (2,265,731) (3,522,300) (1,157,916) (2,677,009)
------------ ------------ ------------ ------------
Increase (decrease) in cash............. 14,015 (184,823) (95,707) 213,264
Cash beginning of period................ 130,971 226,678 226,678 13,414
------------ ------------ ------------ ------------
Cash end of period...................... $ 144,986 $ 41,855 $ 130,971 $ 226,678
============ ============ ============ ============
Other cash flow information:
Cash payments during the year for:
Interest........................... $ 170,363 $ 68,952 $ 166,657 $ 442,638
Income taxes, net of refunds....... -- -- $ 18,100 --
Non cash 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.
F-5
<PAGE> 42
CASCO INTERNATIONAL, INC.
(FORMERLY CA SHORT COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
CAPITAL IN
COMMON EXCESS OF ACCUMULATED
SHARES STOCK PAR VALUE DEFICIT TOTAL
------- ------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1994................ 334.91 $33,491 $4,124,494 $ (610,984) $3,547,000
Net loss................................. (427,674) (427,674)
------- ------- ---------- ----------- ----------
Balance December 31, 1995................ 334.91 33,491 4,124,494 (1,038,658) 3,119,327
Change in par value of common stock...... (33,488) 33,488
Net income............................... 208,733 208,733
------- ------- ---------- ----------- ----------
Balance December 31, 1996................ 334.91 3 4,157,982 (829,925) 3,328,060
------- ------- ---------- ----------- ----------
Spin Off from Pages (unaudited).......... 929,768 9,288 (884,313) (875,025)
Net loss (unaudited)..................... (389,754) (389,754)
------- ------- ---------- ----------- ----------
Balance June 30, 1997 (unaudited)........ 929,103 $ 9,291 $3,273,669 $(1,219,679) $2,063,281
======= ======= ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE> 43
CASCO INTERNATIONAL, INC.
(FORMERLY CA SHORT COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
The Company is engaged in the design, implementation, and fulfillment of
incentive awards and recognition programs for businesses throughout the United
States. The Company's corporate headquarters is located in Shelby, North
Carolina.
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.
Effective at the close of business on December 31, 1996, a tax free spin
off of the Company's common stock from its 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' stockholders.
UNAUDITED FINANCIAL STATEMENTS
In the opinion of management, the accompanying interim financial statements
reflect all adjustments (consisting of normal recurring adjustments) considered
necessary for a fair presentation of the Company's unaudited financial
statements as of June 30, 1997 and for the six months ended June 30, 1997 and
1996. Operating results for the six month periods are not necessarily indicative
of the results for the entire year.
USE OF MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires that management make certain estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. The reported amounts of revenues and expenses during the reporting
period may be affected by the estimates and assumptions management is required
to make. Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenues from the sale of incentive awards are generally recognized upon
shipment and delivery of the related merchandise except for revenue recognized
relating to advanced deposits. Revenues from services are insignificant. Returns
from the sales of incentive awards and from services are insignificant.
Effective January 1, 1996, the Company changed its method of accounting for
the recognition of revenues relating to advanced deposits to more appropriately
recognize revenue and related expenses over the contract period. Previously, the
Company recognized such deferred revenue at the conclusion of the respective
prepaid safety award programs. Effective with the change, revenues are
recognized over the course of the programs based on the Company's historical and
expected redemption percentages. The corresponding deferred commission costs
have also been recognized in association with this change in the same direct
proportion as the revenue recognition.
The effect of this accounting change in 1996 was to increase income before
income taxes and cumulative effect of change in accounting principle by $120,947
and $209,190, net of associated commission expense of
F-7
<PAGE> 44
CASCO INTERNATIONAL, INC.
(FORMERLY CA SHORT COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
$16,352 and $32,704 for the six months ended June 30, 1996 and the year ended
December 31, 1996, respectively.
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.
INVENTORY
Inventory consists of general retail merchandise. Inventory is valued at
the lower of cost or market using the first-in, first-out (FIFO) method.
PREPAID EXPENSES
Prepaid expenses at June 30, 1997 and December 31, 1996 include $654,272
and $701,021, respectively, of prepaid selling costs that include costs for
commissions paid to salespeople that relate to advanced deposits for the sales
of incentive and recognition awards programs. Such costs are directly
attributable to obtaining specific future commitments and are expensed in direct
proportion to the revenue recognition.
Deferred loan costs are amortized using the straight line method over the
terms of the related contracts which are short term in nature. Amortization
expense totaled $0, $1,239, $1,239 and $50,107 for the six months ended June 30,
1997 and 1996 and years ended December 31, 1996 and 1995, respectively.
BUILDINGS AND EQUIPMENT
Buildings and equipment are recorded at cost and depreciated over their
estimated useful life on the straight-line method. Estimated useful lives range
from three to thirty-one years. Major repairs and betterments are capitalized;
minor repairs are expensed as incurred. Depreciation expense for the six months
ended June 30, 1997 and 1996 and the years ended December 31, 1996 and 1995
totaled $174,147, $167,092, $302,832 and $278,254, respectively.
COST IN EXCESS OF NET ASSETS ACQUIRED AND OTHER ASSETS
Cost in excess of net assets acquired are amortized on a straight line
basis over 40 years. Management periodically evaluates its accounting for cost
in excess of net assets acquired by considering such factors as historical
performance, current operating results and future operating income. At each
balance sheet date, the Company evaluates the realizability of cost in excess of
net assets acquired based upon estimated nondiscounted cash flows. Based upon
its most recent analysis, the Company believes that no material impairment of
cost in excess of net assets acquired exists at December 31, 1996 or June 30,
1997. Based on this periodic review, management believes that the carrying value
of cost in excess of net assets acquired is reasonable and the amortization
period is appropriate. Amortization expense on cost in excess of net assets
acquired for the six months ended June 30, 1997 and 1996 and years ended
December 31, 1996 and 1995 totaled $17,082, $17,082, $34,162 and $34,162,
respectively.
Other assets include cash surrender value of life insurance.
DUE TO PAGES
Amounts due to Pages are net borrowings which occurred in the ordinary
course of business. No interest has been recorded on the outstanding balance
(See Notes 2 and 5).
F-8
<PAGE> 45
CASCO INTERNATIONAL, INC.
(FORMERLY CA SHORT COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES
The Company employs SFAS No. 109, "Accounting for Income Taxes". Under SFAS
No. 109, the liability method is used in accounting for income taxes. Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes, and are measured using the enacted tax
rates and laws that will be in effect when the differences are expected to
reverse. As noted above, the Company was a wholly-owned subsidiary of Pages
through December 31, 1996 when a tax-free spin off was completed. The Company
was included in Pages consolidated income tax returns for 1996 and 1995.
PER SHARE DATA
Per share amounts have been computed based on the weighted average number
of common shares outstanding during the period, and have been adjusted to give
retroactive effect to the distribution of shares to Pages' stockholders and to
the 8% stock dividend paid to stockholders of record on July 16, 1997. The
common stock equivalents (stock options) outstanding would be anti-dilutive for
the six months ended June 30, 1997. No options were outstanding at December 31,
1996.
PROFIT SHARING PLANS
The Company has a noncontributory profit sharing retirement plan (the
"Plan"), covering a significant number of employees for which accrued costs are
funded. Company contributions to the Plan are discretionary. There were no
Company contributions for the six months ended June 30, 1997 and 1996 and years
ended December 31, 1996 and 1995.
COMMON AND PREFERRED STOCK
The Company increased its common shares authorized from 334.91 to 5,000,000
on November 12, 1996 while decreasing par value from $100.00 to $.01 per share.
Additionally, 300,000 shares of preferred stock $.01 par value was authorized.
On May 21, 1997, the Company declared an 8% stock dividend to stockholders of
record on July 16, 1997 and all stock related data reflects the stock dividend
for all periods presented. The stock dividend excluded all stock option plans.
PUBLIC OFFERING
On July 7, 1997, the Board of Directors authorized the Company to proceed
with an offering of 862,500 Units (750,000 Units to the public and 112,500 Units
to the underwriter as an "Over-allotment Option"). Additionally, the Underwriter
was granted an option (the "Underwriter's Option") to purchase 75,000 Units. A
unit consists of one share of Common Stock and two Class A Warrants to purchase
one share per Warrant of common stock.
STOCK OPTIONS
The Company has adopted a 1996 Incentive Stock Option Plan ("Incentive
Plan") effective January 1, 1997 and amended on March 12, 1997 which provides
for the grant, at the discretion of the Board of Directors, of options to
purchase up to 85,000 shares of common stock to key employees of the Company. It
is intended that options granted under such Plan qualify as incentive stock
options under Section 422 of the Internal Revenue Code of 1986, as amended.
The Company has also adopted a Non-Employee Director Stock Option Plan
("Director Plan"), which provides for the grant, at the discretion of the
Company's Board of Directors, of options to purchase up to 40,000 shares of
common stock upon such terms as are determined by the Board in its discretion.
F-9
<PAGE> 46
CASCO INTERNATIONAL, INC.
(FORMERLY CA SHORT COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
During the six months ended June 30, 1997, options were granted under the
Incentive Plan and under the Director Plan as shown on the following table. The
ending and average market price of the Company's stock for the six months ended
June 30, 1997 was $5.25 and $3.91, respectively.
INCENTIVE PLAN
<TABLE>
<CAPTION>
SHARES RESERVED EXERCISE
DATED GRANTED OR ISSUED AND EXERCISABLE PRICE
- ----------------------- --------------- --------
<S> <C> <C>
January 17, 1997............................................ 29,500 $4.00
March 12, 1997.............................................. 40,000 $3.50
March 26, 1997.............................................. 5,000 $4.00
------
Total Incentive Plan Options...................... 74,500
======
</TABLE>
DIRECTOR PLAN
<TABLE>
<CAPTION>
DATED GRANTED OR ISSUED
- -----------------------
<S> <C> <C>
June 25, 1997............................................... 10,000 $4.50
======
Total Director Plan Options....................... 10,000
------
Total Options Outstanding June 30, 1997........... 84,500
======
</TABLE>
On July 17, 1997, the Company agreed to grant to Mr. Davis, President,
performance options to purchase 200,000 shares of Company Common Stock, 50,000
of which will be granted if the Company has pre-tax earnings of at least $1
million in any fiscal year, 75,000 of which will be granted if the Company has
pre-tax earnings of at least $1.5 million in any fiscal year, and 75,000 of
which will be granted if the Company has pre-tax earnings of at least $2 million
in any fiscal year, in each case as long as Mr. Davis was employed by the
Company at the end of the applicable fiscal year. The performance options are
exercisable at the market price of the Common Stock at the date of the grant,
which will be the date that the Company files its Form 10-K with its audited
financial statements showing that the required earnings plateau is satisfied.
LONG-LIVED ASSETS
The Financial Accounting Standards Board has issued SFAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" which requires adoption in 1996. The general requirements of
SFAS No. 121 apply to the fixed and intangible assets of the Company and require
impairment to be considered whenever assets are disposed of or whenever events
or change in circumstances indicate that the carrying amount of the asset will
not be recoverable based on expected future cash flows of the asset. The
adoption of SFAS No. 121 in 1996 did not have any impact on the Company's
financial position or results of operations at December 31, 1996 or June 30,
1997.
STOCK BASED COMPENSATION
The Company has adopted the provisions of Accounting Principles Board
("APB") No. 25, "Accounting for Stock Issued to Employees" which utilizes the
intrinsic value based method. The Financial Accounting Standards Board ("FASB")
Statement No. 123, "Accounting for Stock-Based Compensation", which utilizes a
fair value based method is effective for the Company's year beginning January 1,
1996. The FASB requires disclosure for new employee stock options of the impact
to the financial statements of utilizing the intrinsic value versus the fair
value based method.
F-10
<PAGE> 47
CASCO INTERNATIONAL, INC.
(FORMERLY CA SHORT COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company utilizes the intrinsic value method under APB No. 25 to account
for employee stock options. If the Company had utilized the fair value based
method under FASB No. 123, the impact would not be significant to the financial
statements.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of amounts reported in the financial statements
have been determined using available market information and valuation
methodologies, as applicable. The carrying value of all current assets and
liabilities approximates the fair value because of their short term nature. The
fair values of non-current assets and liabilities approximate their carrying
value based on current market prices.
RECLASSIFICATIONS
Certain prior years' amounts have been reclassified to conform with the
current year's presentation.
2. DEBT OBLIGATIONS
Short-term debt obligations consisted of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
---------- ------------
<S> <C> <C>
Line of credit with interest at prime plus 1 percent;
interest payable monthly, maturing on June 30, 1998 after
amendment on June 30, 1997, collateralized by
substantially all assets of the Company ($3,095,985
available at June 30, 1997)............................... $1,404,015 $3,669,746
Subordinated Debenture...................................... $ 100,000 --
</TABLE>
The interest rate for the line as of June 30, 1997 and 1996 and December
31, 1996 was prime plus 1 percent. As of December 31, 1996, the line was due in
full by June 30, 1997, subject to annual renewals.
The prime interest rate at June 30, 1997 and 1996 and December 31, 1996 was
8 1/2, 8 1/4 and 8 3/4 percent, respectively.
Effective December 31, 1996, and as amended June 30, 1997, the Company has
obtained a revolving line of credit for $4.5 million. Under the credit facility,
borrowings are limited to the sum of 80% of the Company's accounts receivable
less than 90 days old plus 60% of eligible inventory, plus 75% of the appraised
value of the Company's real estate. Eligible inventory is limited to $3.5
million from January through May, and $4.5 million from June through December.
To the extent that the Company has unused availability on this total borrowing
base, which may exceed the $4.5 million without limit, Pages may utilize up to
$5 million of the unused total availability. Therefore, the Company's access to
it's full line will be limited to the extent of the difference between the
Company's total borrowing base and Pages' usage of the total availability. As of
June 30, 1997, the entire $4.5 million borrowing base was available to the
Company.
The credit facility has an expiration date of June 30, 1998 and will bear
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. The credit facility also includes certain financial covenants,
including covenants the Company maintain certain financial ratios including a
minimum tangible capital base and a minimum net profit from operations. In
addition, the credit facility contains limitations on capital expenditures,
dividends, fixed asset sales, loans and/or advances to shareholders and
employees and restrictions on operating leases.
Effective January 1, 1997, the Company also entered into a $5 million 7%
subordinated debenture with Pages subsequent to the Distribution in satisfaction
of amounts due to Pages by the Company. The $875,025 excess of the $5,000,000
subordinated debenture over the amount due Pages at the time of distribution was
recorded as a reduction of capital in excess of par. Principal payments will be
$100,000 per year for the first
F-11
<PAGE> 48
CASCO INTERNATIONAL, INC.
(FORMERLY CA SHORT COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
four years, with a balloon payment due at the end of the fifth year for the
remaining principle balance. Interest will be 7% per annum and the interest will
be payable quarterly.
3. COMMITMENTS AND CONTINGENCIES
The Company is obligated under various noncancelable operating leases.
Operating leases are principally for office and warehouse facilities, equipment
and vehicles. Rent expense under operating leases amounted to $84,541, $82,137,
$144,719 and $151,608, for the six months ended June 30, 1997 and 1996 and years
ended December 31, 1996 and 1995, respectively. The approximate future minimum
rentals under non-cancelable operating leases during subsequent fiscal years are
as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- -----------------------
<S> <C>
1997........................................................ $ 94,130
1998........................................................ 24,988
1999........................................................ 9,109
--------
$128,227
========
</TABLE>
The Company is also involved in certain legal proceedings in the ordinary
course of its business which, if determined adversely to the Company would, in
the opinion of management, not have a material adverse effect on the Company or
its operations.
4. INCOME TAXES
As discussed in Note 1, the Company was included in Pages consolidated
income tax return for 1996 and 1995.
Temporary differences between income for financial reporting purposes and
tax reporting purposes relate primarily to accounting methods for inventory
costs, accrued and prepaid expenses and reserves, and depreciation.
For the years presented, the (benefit) provision for income taxes consisted
of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Current..................................................... -- --
Deferred
Federal................................................... $(165,850) $(211,300)
State and Local........................................... (29,250) (37,300)
--------- ---------
Net deferred benefit.............................. $(195,100) (248,600)
--------- ---------
Net benefit for taxes............................. $(195,100) $(248,600)
========= =========
</TABLE>
F-12
<PAGE> 49
CASCO INTERNATIONAL, INC.
(FORMERLY CA SHORT COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
For the years presented, a reconciliation of income taxes based upon the
application of the federal statutory tax rate is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Benefit for taxes at statutory rate......................... $(198,300) $(229,000)
Change in effective tax rate.............................. -- --
Goodwill amortization..................................... 13,650 13,650
State taxes net of federal benefit........................ (34,950) (40,550)
Other..................................................... 24,500 8,200
--------- ---------
Total benefit for income taxes.................... $(195,100) $(248,600)
========= =========
</TABLE>
The components of net deferred taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Assets:
Inventory costs capitalized for tax purposes.............. $ 101,150
Accruals and reserves to be expensed as paid for tax
purposes............................................... 85,200
Other..................................................... 7,850
Net operating loss carryforwards.......................... 207,850
---------
Deferred tax asset................................ 402,050
Liabilities:
Excess of tax over financial accounting depreciation and
amortization........................................... (725,700)
---------
Net deferred tax liability........................ $(323,650)
=========
</TABLE>
At December 31, 1996, the Company has operating loss carryforwards of
approximately $520,000 available, which will expire, if unused, beginning in
2010.
5. RELATED PARTY TRANSACTIONS
For the years ended 1996 and 1995 Pages has provided services to and
incurred costs on behalf of the Company. Prior to the Distribution, Pages'
management fee was intended to encompass the element of Pages' financing costs
to provide non-interest bearing advances to the Company. Such element
approximated $450,000 and $450,000, respectively, based on the prime interest
rate as applied to the average outstanding balance due to Pages for the years
ended December 31, 1996 and 1995. The remaining costs are for certain services,
including, but not limited to, administrative services, transportation, tax
services, accounting and reporting, management consultation, legal services, and
general corporate expenses, which have also been allocated to the Company. The
allocation of costs and expenses for these services were based on methods that
management believes are reasonable. The portion of such costs which management
believes will continue to be incurred subsequent to the Distribution
approximates $30,000 annually. The balance of nonrecurring costs relates to
duplicative management responsibilities for financing and operating activities,
as well as other transportation and administrative costs eliminated by the
Distribution. See note 2 regarding additional changes as a result of the
Distribution.
Pages allocated general corporate expenses to the Company for the six
months ended June 30, 1996 and the years ended December 31, 1996 and 1995 in the
amounts of $250,000, $500,000 and $500,000, respectively.
F-13
<PAGE> 50
======================================================
NO UNDERWRITER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER MADE HEREBY. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER
THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO ANY PERSON IN ANY
JURISDICTION IN WHICH SUCH AN OFFER WOULD BE UNLAWFUL. ANY MATERIAL MODIFICATION
OF THE OFFERING WILL BE ACCOMPLISHED BY MEANS OF AN AMENDMENT TO THE
REGISTRATION STATEMENT. IN ADDITION, THE RIGHT IS RESERVED BY THE COMPANY TO
CANCEL ANY CONFIRMATION OF SALE PRIOR TO THE RELEASE OF FUNDS, IF, IN THE
OPINION OF THE COMPANY, COMPLETION OF SUCH SALE WOULD VIOLATE FEDERAL OR STATE
SECURITIES LAWS OR A RULE OR POLICY OF THE NATIONAL ASSOCIATION OF SECURITIES
DEALERS, INC., WASHINGTON, D.C. 20006.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
Market Matters........................ 13
Use of Proceeds....................... 14
Capitalization........................ 15
Dividend Policy....................... 15
Selected Financial Data............... 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 17
Business.............................. 21
Management............................ 25
Principal Stockholders................ 28
Description of Securities............. 29
Shares Eligible for Future Sale....... 31
Underwriting.......................... 32
Legal Matters......................... 35
Change of Accountants................. 35
Experts............................... 35
Available Information................. 35
Index to Financial Statements......... F-1
</TABLE>
======================================================
======================================================
750,000 UNITS
EACH UNIT CONSISTING OF
ONE SHARE OF COMMON STOCK
AND TWO REDEEMABLE CLASS A WARRANTS
CASCO
INTERNATIONAL,
INC.
-------------------------
PROSPECTUS
-------------------------
BILTMORE
SECURITIES, INC.
SEPTEMBER 15, 1997
======================================================
