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                             FORM 10-K
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                SECURITIES AND EXCHANGE COMMISSION
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                      WASHINGTON, D.C. 20549

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            For the fiscal year ended December 31, 1998
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                  Commission File Number 0-21717
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                     CASCO INTERNATIONAL, INC.
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      (Exact Name of Registrant as specified in its charter)
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            Delaware                         56-0526145   
(State or other jurisdiction of           (I.R.S. Employer
incorporation or organization)            Identification No.)

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      4205 East Dixon Boulevard, Shelby, North Carolina 28150
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        (Address of principal executive offices)(Zip Code)
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Registrant's  telephone  number,  including area code (704) 482-9591  
Securities registered  pursuant to Section  12(b) of the Act:  None  
Securities  registered pursuant to Section 12(g) of the Act:

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                   Common Stock, $0.01 par value
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                         (Title of Class)
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     Indicate  by check mark  whether the  Registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
Registrant was required to file such reports),  and (2) has been subject to such
filing  requirements  for the past 90 days. YES X NO .

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of  Registrant's  knowledge in definitive  proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

The aggregate  market value of the voting shares held by  non-affiliates  of the
Registrant  as of March 18, 1999 was  $1,615,395  (computed  by reference to the
average bid and asked prices of such shares on such date).

Number  of  Common  Shares,  each  with  $0.01  par  value,  of  the  Registrant
outstanding as of date: March 18, 1999: 1,783,200 Common Shares.
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<PAGE>


                              PART I
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ITEM 1.  BUSINESS.


GENERAL

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     CASCO  INTERNATIONAL,  INC., (the "Company") was formed as a North Carolina
corporation in 1950. Pages, Inc., a Delaware Corporation ("Pages"), acquired all
of the issued and outstanding common stock of the Company in February,  1990. In
November,  1996, the Company  reincorporated in the State of Delaware by merging
into Clyde A. Short Incorporated, a Delaware corporation which was the surviving
corporation in the merger and which, in conjunction with the merger, changed its
name to CA Short  Company.  Effective  at the close of business on December  31,
1996,  Pages  distributed  all of the  Company's  common  stock  $.01 par  value
("common  stock") to its  shareholders.  From January 1, 1997 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. The Company's common stock and warrants are traded on The
Nasdaq  SmallCap  Market  under the symbols  "CASC" and  "CASCW".  In 1997,  the
Company changed its name from CA Short Company to CASCO INTERNATIONAL, INC., but
the Company does business under the CA Short Company name.
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      The Company designs,  administers,  and fulfills  innovative and effective
associate recognition programs.  Programs offered by the Company include safety,
service  recognition,  and a host of other programs that feature merchandise and
jewelry in a full color  catalog.  The  Company  is in the  business  of helping
clients maximize the efforts of their most valuable resource - their people.

     The Company partners with clients to determine realistic  performance goals
and  establish an  appropriate  budget.  Then,  the Company and client  select a
program that meets the client's unique needs. The Company is, to the best of its
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  program.  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 catalogs and brochures)  necessary to execute
the program.  As the client's  associates become eligible to receive awards, the
Company processes their requests.  In most cases, the items are shipped 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.
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THE BUSINESS

      The Company's programs fall into two broad categories; service recognition
and safety  incentive and  recognition.  They include safety,  sales  incentive,
quality control,  production,  service recognition,  attendance,  birthday,  and
corporate  holiday gift  programs.  The common  objective  of all the  Company's
programs  is to  satisfy a  client's  specific  needs.  Changes  in the  premium
incentive industry have permitted the Company to redefine its strategies,  focus
on specific  product lines,  and exploit  certain niches within its market.  The
Company's  adjustments  include the  installment  of a total quality  management
program,  the development of a strategic  marketing group, the implementation of
an aggressive cash management program,


<PAGE>


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 it's products and increase it's  penetration into specific
markets.

MERCHANDISE SELECTION AND BROCHURES

      The  Company's  programs  feature  brand name  merchandise  from  industry
leading  manufacturers  such as  Sony,  RCA,  Waterford,  Bulova,  Minolta,  and
Bushnell.  The items in a client's  program are  separated  into  various  price
levels,  thus  allowing the client to select price levels that fit their budget.
Featured in full color brochures, items are presented by award level.

      The Company  partners  with clients to design and produce  brochures  that
reflect the  client's  corporate  identity.  These  brochures  are  designed and
produced  in-house by the Company's  creative services  department.  The Company
also produces a catalog of pre-selected  merchandise,  arranged in various price
levels, from which clients may build programs.

SERVICE RECOGNITION PROGRAMS

      In the  past,  there was a deeply  ingrained  corporate  standard  stating
"longevity-equals-seniority" -- the idea that the longer you work for a company,
the more  seniority you earn.  For decades,  service  recognition  programs were
designed to reinforce this paradigm.

      Today,  as companies  re-engineer  and reorganize they realize that it has
never been more  important to recognize  their  associates for their loyalty and
hard work. The standard has changed to "individual performance-equals-longevity"
-- the better an  associate  performs,  the more  valuable he or she is to their
company.  With this in mind, the entire  recognition  industry is changing,  and
different  types of programs are required to redefine  recognition.  As more and
more companies  outsource the handling of recognition  programs,  the Company is
strategically  positioning  itself  as  the  leader  for  the  complete  design,
administration,   and  fulfillment  of  innovative  and  effective   recognition
programs.  The Company's primary goal as it partners with its clients to develop
their own custom program is to increase "Recognitional Impact(TM)" --- the level
of  satisfaction  each  client  experiences  with their  program.  Recognitional
Impact(TM)  establishes a  performance  index that allows the Company to measure
the added  value it  provides  both  existing  clients,  as well as  prospective
clients.

SAFETY AWARENESS/INCENTIVE AND RECOGNITION PROGRAMS

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     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 huge 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
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<PAGE>


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 incentive, and
generic  points  programs  that add  incremental  revenue  without  diluting the
Company's  focus  on its  core  business.  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.

CLIENTS

      The Company's client list represents a wide spectrum of performance driven
organizations  throughout  the United  States.  The  Company's  cross section of
industry  representation  minimizes  cyclical downturns  traditionally  found in
industry  specific  business models.  The client list includes  DuPont,  Pfizer,
Huntington Bank and Intel.

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  recognition
consultant.  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 recognition consultants receive intense training and are measured on
a number of criteria  including  sales  performance  and territory  market share
penetration. The Company continues to work markets on a proactive, well planned,
systematic  basis.  The  Company  intends to  augment  internal  growth  through
value-added   acquisitions   and  strategic   alliances   designed  to  increase
penetration in key market areas.

SALES AND MARKETING

     In 1997, the Company redefined the way in which it markets its services. It
made a transition from independent sales reps to full-time  company  associates.
Further,  the  Company  clearly  defined  and  identified  target  prospects  in
strategic markets across the country. In addition to prospecting activities, the
marketing and sales group 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  never be able to take  the  Company  to the  next  level of
performance.  In the past 30 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.


<PAGE>


COMPETITION

      The recognition  industry  includes two completely  different markets that
must be sold  and  managed  individually.  The  service  recognition  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 companies with large jewelry
manufacturing  facilities.  The safety recognition industry is estimated to be a
billion-dollar  industry.  The industry is  fragmented  and there is no dominant
player in this  industry.  The  Company  is not aware of any  competitor  in the
safety  industry  possessing  the same core  competencies  as the  Company.  The
Company  competes  on the basis of program  design,  customer  service,  product
quality, full program administration and flexibility.
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EMPLOYEES

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     As of  February  18,  1999 the  Company  employed  a total  of 126  regular
employees.  The number of seasonal employees  fluctuated during 1998 from a high
of 80 in the months of November, December and January when the Company generates
approximately forty percent of its revenues and all of its profits to a low of 5
due to the seasonal nature of the Company's business.  As a result the Company's
working capital  requirements are highest during November and December.  None of
the Company's  employees are represented by a labor union. The Company considers
its  relationship  with its employees to be excellent.  As of February 18, 1999,
the Company's health care plan covered 93 of its employees.
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ITEM 2.   PROPERTIES.

                                                                Owned
      Location                   Use              Size          Leased
----------------------    ------------------   -------------    ------
Shelby, North Carolina    Warehouse & Office   134,000 sq.ft.   Owned

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     These facilities are located in appropriately  designed buildings which are
kept in good repair.  All of the properties  owned by the Company are pledged to
various  lenders.  On March 4, 1998,  the Company  sold its 167,000  square foot
Kings Mountain warehouse for approximately $425,000.
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ITEM 3.      LEGAL PROCEEDINGS.
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     The Company is not  involved in any  material  pending  legal  proceedings,
other than ordinary, routine litigation incidental to its business.
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ITEM 4.      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

      None.
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<PAGE>


                              PART II
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ITEM 5.    MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED
           STOCKHOLDER MATTERS.
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     The Company was a wholly-owned  subsidiary of Pages, Inc. until Pages, Inc.
distributed  all of the  shares of  Company  Common  Stock to its  stockholders,
effective at the close of business on December 31, 1996.  The  distribution  was
made pursuant to a Securities and Exchange Commission  no-action letter stating,
among  other  things,  that the  Securities  and  Exchange  Commission  will not
recommend  enforcement  action  if  the  Common  Stock  is  distributed  without
registration under the Securities Act of 1933.
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     Effective January 14, 1997, the Company's common stock began trading on the
NASD OTC Bulletin  Board service under the symbol  "CASC".  On June 2, 1997, the
common stock began trading on the Nasdaq SmallCap market under the same symbol.
On September 19, 1997, the Company completed a public offering of 780,000 units,
each unit  consisting  of one share of common stock and two  redeemable  Class A
Warrants.  The units traded under the symbol CASCU from September 19, 1997 until
October 21, 1997.  On October 21, 1997 the units  separated and the common stock
continued to trade under the symbol CASC and the warrants  began  trading  under
the symbol CASCW. The following table sets forth, for the periods  indicated the
high and the low sale prices for shares of the common stock, units and warrants.
Bulletin Board prices represent inter-dealer quotations,  without adjustment for
retail   markup,   markdown  or  commissions   and  may  not  represent   actual
transactions.
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<TABLE>
<CAPTION>

                                          Trade Price
Calendar Year Ended December        1998                 1997
                            -------------------  -------------------
                              High      Low        High      Low
     <S>                      <C>       <C>        <C>       <C>            
     Fourth Quarter
          CASC                 1.625    1.594       6 7/16    2 5/8
          CASCW                 .406     .406            3      5/8
          CASCU                  N/A      N/A            9    8 1/4
     Third Quarter
          CASC                 1.594    1.594        5 5/8    4 5/8
          CASCW                 .188     .188          N/A      N/A
          CASCU                  N/A      N/A        8 1/4    7 7/8
     Second Quarter
          CASC                  2.50    2.375         4.83     2.99
          CASCW                 .438     .438          N/A      N/A
          CASCU                  N/A      N/A          N/A      N/A
     First Quarter
          CASC                 4.063    4.063         4.14     3.22
          CASCW                 .688     .688          N/A      N/A
          CASCU                  N/A      N/A          N/A      N/A
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</TABLE>

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      As of March 18, 1999, the Company had  approximately 551 holders of record
of its Common Stock.
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<PAGE>


     The Company has not declared or paid any cash dividends on the Common Stock
since it was acquired by Pages,  Inc. in 1990. The Company  anticipates that for
the foreseeable future it will retain earnings in order to finance the expansion
and  development  of its  business,  and no cash  dividends  will be paid on its
Common Stock. The Loan Agreement  between the Company and Branch Banking & Trust
(the "Loan  Agreement")  does not allow the Company to pay cash dividends  which
total in excess of $100,000  on its Common  Stock and only then when the Company
is not in default under the Loan Agreement.
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<PAGE>



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ITEM 6.  SELECTED FINANCIAL DATA.
(In thousands, except per share data)
<TABLE>
<CAPTION>

                               Year     Year     Year    Year      Year
                              Ended    Ended    Ended   Ended     Ended
                             December December December December December
                               31,     31,      31,     31,        31,
                              -----------------------------------------
                               1998    1997     1996    1995      1994
                              -----------------------------------------
<S>                           <C>      <C>      <C>     <C>       <C>  
STATEMENT OF OPERATIONS DATA:
Revenues                     $21,718 $19,333  $21,959 $22,620  $25,158                                
Cost and expenses             22,102  20,007   22,542  23,296   25,635
                              ------- -------  ------- ------- --------

Loss before income taxes
  and cumulative
  effect of change in           (384)   (674)    (583)   (676)    (477)
  accounting principle
Benefit for income taxes         146     256      195     249      193
                              ------- -------  ------- ------- --------

Loss before extraordinary
  gain and cumulative effect 
  of change in accounting       (238)   (418)    (388)   (427)    (284)
  principle
Cumulative effect of
  change in accounting         -----   -----      597   -----    -----
  principle
Extraordinary gain on            930   -----    -----   -----    -----
  retirement of debt
                              ------- -------  ------- ------- --------

Net income (loss)            $   692  $(418)   $  209  $ (427) $  (284)                                 
                              ======= =======  ======= ======= ========


PRO FORMA PER SHARE DATA:
Income (loss) before
  cumulative effect          $ (0.13)  (0.34) $ (0.39)  (0.43)   (0.28)                              
  of change in
  accounting principle
Cumulative effect of change
  in accounting principle      -----   -----     0.59   -----    -----
Extraordinary gain on           0.52   -----    -----   -----    -----
  retirement of debt         ------- -------  ------- ------- --------

Income (loss) per common     $  0.39  $(0.34)  $ 0.20  $(0.43) $ (0.28)                              
  share                      ======= =======  ======= ======= ========

Weighted average common and
  common equivalent       1,783,200 1,225,447 1,003,431 1,003,431 1,003,431
  shares                     ======= =======  ======= ======= ========


BALANCE SHEET
DATA:
Working capital (deficiency) $ 4,216  $7,202   $5,025  $3,774  $(1,790)                               
Total assets                  18,533  16,148   18,249  19,512   23,584

Long-term debt                 2,413   4,900    4,125   4,125    4,125

Stockholders' equity           5,748   5,188    3,328   3,119    3,547

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</TABLE>



<PAGE>


ITEM 7.    MANAGEMENT'S   DISCUSSION   AND  ANALYSIS  OF  FINANCIAL
           CONDITION AND RESULTS OF OPERATIONS
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      The following  discussion  should be read in conjunction with the Selected
Financial  Data and the  Financial  Statements  and  Notes  contained  elsewhere
herein.  The Company's results of operations have been, and in certain cases are
expected to continue to be, affected by certain general factors.
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CAUTIONARY STATEMENT
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     Statements  included  in  this  Management's  Discussion  and  Analysis  of
Financial Condition and Results of Operations,  in other sections of this Annual
Report,  and in future  filings by the Company with the  Securities and Exchange
Commission, in the Company's press releases and in oral statements made with the
approval of an authorized  executive officer which are not historical or current
facts  are  "forward-looking  statements"  made  pursuant  to  the  safe  harbor
provisions  of the  Private  Securities  Litigation  Reform  Act of 1995 and are
subject to certain risks and  uncertainties  that could cause actual  results to
differ  materially  from historical  results and those presently  anticipated or
projected.  Readers  are  cautioned  not to  place  undue  reliance  on any such
forward-looking statements,  which speak only as of the date made. The following
important  factors,  among others, in some cases have affected and in the future
could affect the Company's  actual results and could cause the Company's  actual
financial   performance  to  differ   materially  from  that  expressed  in  any
forward-looking  statement:  (i) the competitive conditions that currently exist
in the Company's  industry,  which could adversely  impact sales and erode gross
margins;  (ii) many of the Company's  competitors are  significantly  larger and
better capitalized than the Company; (iii) the Company's loan agreement contains
a number of  significant  covenants  that restrict the ability of the Company to
engage in certain  activities,  including  the payment of dividends and requires
that the  Company  maintain  specified  financial  ratios,  including  a minimum
capital base, and minimum pretax profits from operations; and (iv) the inability
to carry out marketing and sales plans would have a materially adverse impact on
the  Company's  profitability.  The  foregoing  list should not be  construed as
exhaustive and the Company disclaims any obligations  subsequently to revise any
forward-looking  statements to reflect events or circumstances after the date of
such  statements or to reflect the occurrence of  anticipated  or  unanticipated
events.

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<PAGE>


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
                        -----------------------------------

                          Twelve      Twelve     Twelve
                          Months      Months     Months
                           Ended       Ended      Ended
                          December    December   December
                            31,         31,        31,
                           1998        1997       1996
                        -----------------------------------
<S>                         <C>        <C>          <C>

Total revenue              100.0%      100.0%     100.0%
Cost of goods sold          58.6%       59.1%      61.6%
                          --------    --------   --------


Gross profit                41.4%       40.9%      38.4%
Selling, general, and       38.6%       40.1%      36.7%
  administrative
Interest                     1.6%        2.4%       0.6%
Depreciation and             2.4%        1.9%       1.5%
  amortization
Loss on Sale of Building     0.7%         ---        ---
Management Fee                ---         ---       2.3%
                          --------    --------   --------

Loss from continuing operations before
income taxes                (1.7%)      (3.5%)     (2.7%)
                          ========    ========   ========
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</TABLE>

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YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997.
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     Revenues for the year ended December 31, 1998  approximated  $21.7 million,
compared to $19.3  million in revenues for the year ended  December 31, 1997, an
increase of 12.4% or approximately $2.4 million. The increase is attributable to
strong  retention of existing  customers  coupled with new  customers in the new
markets with employed  recognition  consultants and the acquisitions made by the
Company in 1998.
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     Cost of goods sold for the year ended December 31, 1998 approximated  $12.7
million,  compared to approximately  $11.4 million of cost of goods sold for the
year ended  December  31,  1997,  an  increase  of 11.4% or  approximately  $1.3
million.  The increase in cost of goods sold was attributable to the increase in
revenues. As a percentage of revenues,  cost of goods sold decreased to 58.6% in
1998  from  59.1%  in  1997.  The  0.50%  decrease  in cost of  goods  sold  was
principally attributable to a change in product mix.
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     Selling,  general,  and administrative  expense for the year ended December
31,  1998  approximated  $8.4  million  for the year ended  December  31,  1998,
compared to approximately  $7.8 million for the year ended December 31, 1997, an
increase of 7.9% or approximately $600,000. The increase in selling, general and
administrative  expenses  was due to  increased  sales and the  expansion of the
employee based sales force.  As a percentage of revenues,  selling,  general and
administrative  decreased to 38.6% in 1998 from 40.1% in 1997. The 1.5% decrease
as a percentage of revenues was principally  attributable  to benefits  obtained
from aggressive cost containment policies.
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<PAGE>


     Interest expense was approximately $336,000 for the year ended December 31,
1998,  compared to $469,000 for the year ended  December 31, 1997, a decrease of
28% or  approximately  $133,000.  The average  outstanding debt by month in 1998
approximated  $3.4  million  compared  to $1.1  million  for 1997.  The  average
outstanding  balance  on the  subordinated  debenture  by  month  in 1998 was $0
compared to $5 million in 1997. Additionally, the average interest rate for 1998
approximated  8.91%  compared to  approximately  9.42% for 1997 on the debt. The
interest rate on the subordinated  debenture for 1998 and 1997  approximated 7%.
The decrease in interest was mainly attributable to the interest paid in 1997 on
a subordinated debenture given to Pages, Inc. when the Company was spun off.
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     Depreciation and amortization  expense was  approximately  $520,000 for the
year ended  December 31, 1998,  compared to $359,000 for the year ended December
31,  1997,  an  increase of 44.9% or  approximately  $161,000.  The  increase in
depreciation  and  amortization  expense  was  principally  attributable  to the
depreciation  of newly  acquired  assets in 1997 and 1998. The increase was also
attributable to the amortization of the goodwill on the acquisitions made by the
Company in 1998.
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-------------------------------------------------------------------
     Income tax benefit  was  $145,500  for the year ended  December  31,  1998,
compared to $256,000 for the year ended  December 31, 1997.  The  provisions for
income tax benefit were calculated through the use of estimated income tax rates
based upon the loss before taxes.
-------------------------------------------------------------------
-------------------------------------------------------------------

-------------------------------------------------------------------

-------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996.
-------------------------------------------------------------------
-------------------------------------------------------------------

-------------------------------------------------------------------
-------------------------------------------------------------------
     Revenues for the year ended December 31, 1997  approximated  $19.3 million,
compared to $22.0  million in revenues  for the year ended  December 31, 1996, a
decrease of 12% or approximately $2.7 million. 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,  as well as
the Company repositioning itself in more profitable business segments.
-------------------------------------------------------------------

     Cost of goods sold for the year ended December 31, 1997 approximated  $11.4
million,  compared to approximately  $13.5 million of cost of goods sold for the
year ended December 31, 1996, a decrease of 15.6% or approximately $2.1 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 59.1% in 1997 from
61.6%  in 1996.  The  2.51%  decrease  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,  1997  approximated  $7.8  million  for the year ended  December  31,  1998,
compared to  approximately  $8.1 million for the year ended December 31, 1996, a
decrease of 3.7% or approximately $300,000. 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 $469,000 for the year ended December 31,
1997,  compared to $129,000 for the year ended December 31, 1996, an increase of
264% or  approximately  $340,000.  The  average  outstanding  debt on the credit
facility by month in 1997 approximated $1.1 million compared to $1.9 million for
1996. The average outstanding balance on the subordinated  debenture by month in
1997 approximated $5 million compared to $0 in 1996.  Additionally,  the average
interest rate for 1997  approximated  9.42% compared to approximately  9.15% for
1996 on the credit facility. The interest rate on the subordinated debenture for
1997 approximated 7% compared to 0% in 1996. The increase in interest was
-------------------------------------------------------------------


<PAGE>



-------------------------------------------------------------------
mainly  attributable  to the interest paid on a subordinated  debenture given to
Pages, Inc. when the Company was spun off.
-------------------------------------------------------------------
-------------------------------------------------------------------

-------------------------------------------------------------------
-------------------------------------------------------------------
     Depreciation and amortization  expense was  approximately  $359,000 for the
year ended  December 31, 1997,  compared to $338,200 for the year ended December
31,  1996,  an  increase  of 6.2% or  approximately  $21,000.  The  increase  in
depreciation  and  amortization  expense  was  principally  attributable  to the
depreciation of newly acquired assets in 1996.
-------------------------------------------------------------------
-------------------------------------------------------------------

-------------------------------------------------------------------
-------------------------------------------------------------------
     Income tax benefit  was  $256,000  for the year ended  December  31,  1997,
compared to $195,100 for the year ended  December 31, 1996.  The  provisions for
income tax benefit were calculated through the use of estimated income tax rates
based upon the loss before taxes.
-------------------------------------------------------------------

-------------------------------------------------------------------

-------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES

-------------------------------------------------------------------
     The Company's  primary  sources of liquidity  have been cash generated from
operating  activities and amounts  available  under its existing credit facility
and proceeds  from the public  offering of units  consisting of common stock and
warrants  during the third quarter of 1997. The Company's  primary uses of funds
consist of financing inventory, receivables and for acquisitions.
-------------------------------------------------------------------
-------------------------------------------------------------------

-------------------------------------------------------------------
-------------------------------------------------------------------
     Net working  capital  decreased to  $4,206,000 as of December 31, 1998 from
net working  capital of  $7,202,000  as of December 31,  1997.  The decrease was
primarily  attributed  to  increased  borrowings  in 1998 in  order  to fund the
acquisitions made by the Company.
-------------------------------------------------------------------
-------------------------------------------------------------------

-------------------------------------------------------------------
-------------------------------------------------------------------
     The  Company  has  adopted a growth  strategy  which  will be  accomplished
through increased  efforts of the Company's  existing highly trained sales force
in order to expand current market share and enter into new markets.
-------------------------------------------------------------------
-------------------------------------------------------------------

-------------------------------------------------------------------
-------------------------------------------------------------------
     The Company  anticipates  that  operating cash flows during the next twelve
months,  coupled  with its ability to borrow  under the credit  facility and the
proceeds from the sale of the Kings Mountain  facility of $425,000 and the first
deed of trust  on the  Shelby  facility  of  $2,362,500,  will  cover  operating
expenditures  and meet the short-term  debt  obligations.  The Company's  credit
facility is due and payable in full on July 30,  1999.  Although  the lender has
not issued a commitment to do so, the Company's relationship with it's lender is
favorable and the Company  anticipates  that the credit facility will be renewed
when due.
-------------------------------------------------------------------

     Current assets increased approximately $1,374,000 due mostly from increases
in accounts receivable  ($497,000),  inventory ($595,000),  and prepaid expenses
($123,000)  offset by increases in cash of  ($34,000).  The increase in accounts
receivable is due to the increase in revenues.  The increase in inventory is due
to year  end  inventory  build  up.  The  increase  in  cash is due to the  cash
generated  from  the  continuing   operations  of  the   acquisitions.   Current
liabilities  increased  approximately  $4,000,000  due mostly from  increases in
short-term debt obligations  ($3,900,000) and accounts payable ($173,000) offset
by a decrease in short-term  subordinated debenture ($100,000).  The increase in
short-term debt obligations was due to the funding of the Company's acquisitions
from the line of credit and the increase in inventory.  The increase in accounts
payable was due to the increase in the inventory.

     Cash  increased  approximately  $34,000.  Net use of funds  from  operating
activities was approximately $697,000. Net cash used in investing activities was
approximately $310,000 due to payments for purchases of the information systems.
Net cash provided by financing activities was approximately $1,041,000 which was
due to proceeds obtained from the line of credit.
-------------------------------------------------------------------
-------------------------------------------------------------------
<PAGE>

-------------------------------------------------------------------
     On July 30, 1998 the Company entered into an agreement with Awards & Gifts,
Inc. and Richard W. Terlau, Jr., providing for the purchase of substantially all
assets and certain liabilities of Awards & Gifts by the Company. Under the terms
of the Asset Purchase  Agreement,  the assets  included  Awards & Gifts customer
list, machinery and equipment, inventories, Awards & Gifts intellectual property
assets,  prepaid expenses, and a real property lease. The purchase price for the
assets was $1.5 million with certain  adjustments made for pro-rated items, with
$1.3 million paid in cash and a $200,000 promissory note. The note is secured by
an  Irrevocable  Standby  Letter  of Credit  issued  by  Branch  Banking & Trust
Company. The purchase price under the Asset Purchase Agreement was determined by
arm's length  negotiations  between the parties based on the market value of the
assets  purchased and sold. The goodwill  acquired in this  transaction  will be
amortized over fifteen years using the straight-line method. The acquisition was
financed with proceeds from the Company's  revolving credit facility with Branch
Banking & Trust Company.

     On October 1, 1998 the Company  entered  into an  agreement  with  American
Awards & Gifts,  Inc.  and Frank G. and Judith J.  McGinnis,  providing  for the
purchase of substantially all assets and certain  liabilities of American Awards
& Gifts, Inc. by the Company.  Under the terms of the Asset Purchase  Agreement,
the  assets  included  American  Awards & Gifts  customer  list,  machinery  and
equipment,  tools and  dies,  inventories,  intellectual  property  assets,  and
general intangibles, the liabilities included the assumption of certain accounts
payable.  The purchase  price for the assets was $255,177  with $100,000 in cash
and a $155,177  promissory  note.  The purchase  price under the Asset  Purchase
Agreement was determined by arm's length negotiations  between the parties based
on the market value of the assets  purchased and sold. The goodwill  acquired in
this  transaction  will be amortized over fifteen years using the  straight-line
method.

     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.  The Company  entered into a $5
million,   7%  subordinated   debenture  with  Pages   simultaneously  with  the
Distribution in satisfaction of amounts due to Pages by the Company.  The excess
of the  amount  due  to  Pages  as of  the  Distribution  over  the  $5  million
subordinated debenture was recorded as paid in capital.  Principal payments will
be $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.  Based  on  the  consummation  of  the  Distribution
effective  January 1, 1997,  the  amounts  due to Pages  previously  recorded as
current have been reclassified to long term, thus  significantly  increasing the
Company's net working capital, as described earlier in this section. The Company
discharged  the debenture in full in January 1998 for $3.5 million.  The Company
realized an  extraordinary  gain on  retirement  of debt of $1.5 million on this
transaction.

     Management   believes  that  present   resources   will  meet   anticipated
requirements for operations of the business.

     The Company does not anticipate any material  expenditures for property and
equipment during the next twelve months, out of the ordinary course of business.
-------------------------------------------------------------------
<PAGE>

-------------------------------------------------------------------
-------------------------------------------------------------------
     The Company is aware of no trends or demands,  commitments or uncertainties
that will result in, or that management believes are reasonably likely to result
in, the  Company's  liquidity  increasing or decreasing in any material way. The
Company  is aware of no legal or other  contingencies,  the  effect of which are
believed by management to be reasonably likely to have a material adverse effect
on the Company's financial statements.
-------------------------------------------------------------------

      A potential problem exists for all companies that rely on computers as the
year 2000 approaches. The "Year 2000" problem is the result of the past practice
in the  computer  industry of using two digits  rather than four to identify the
applicable  year.  This  practice  could  result in  incorrect  results when the
company's  computers or those of the third  parties with which it deals  perform
arithmetic  operations,  comparisons or data field sorting involving years later
than 1999.

      The Company has conducted a preliminary assessment of its computer systems
to identify  items that could be impacted by the Year 2000 issue and  formulated
the  following   course  of  action.   The  Company  will  begin  reviewing  its
non-information  technology  systems in mid-1999.  Although the Company does not
anticipate that non-information technology systems will pose a major problem, as
its reliance on such systems is  relatively  small;  non-information  technology
systems are more  difficult to evaluate and repair than  information  technology
systems and may require replacement. The Company has already begun its review of
its information  technology systems and will make necessary software upgrades in
1999. In addition,  the Company has been  separately  evaluating  its accounting
software  and is  currently  in the  process of  implementing  a new system with
implementation anticipated to be complete during the second quarter of 1999.

      The most  reasonably  likely  worst case  scenario  the  Company  faces in
regards to Year 2000  problems is a lack of  compliance on the part of the third
parties  with  which it deals.  Though not highly  dependent  on any  particular
vendor,  the failure on the part of its vendors  could result in the Company not
being  able to get those  supplies  it needs to  administer  its  business.  The
Company is prepared to find  alternative  vendors should this problem result and
is considering building up an inventory of any necessary supplies to prevent any
shortage if such an eventuality were to occur.

      The Company will utilize both internal and external resources to reprogram
or replace and test all of its  software.  The Company  preliminarily  estimates
that it will cost  $5,000 to  evaluate,  reprogram  and  replace  equipment  and
software  to ensure  Year 2000  compliance,  of which all $5,000  will likely be
spent on outside  consultants.  In addition,  as discussed above, the Company is
going to spend $40,000 to replace its existing accounting system. Such costs are
being  financed  through an existing line of credit and will not have a material
adverse effect on the Company's financial condition or results of operations.

     The Company is addressing its Year 2000 compliance  needs by implementing a
new Enterprise Resource Planning (ERP) application on a new IBM AS/400 platform.
Since its custom  written  software  will be  modified  to work with its new ERP
system,  the Company will design and test its systems to be Year 2000  compliant
during 1999.

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.
-------------------------------------------------------------------
-------------------------------------------------------------------


<PAGE>


     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.
-------------------------------------------------------------------
-------------------------------------------------------------------
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

-------------------------------------------------------------------
     The Company is exposed to the impact of interest  rate  changes on its debt
obligations.  The Company is not exposed to foreign currency  exchange rate risk
or investment risk.

Interest Rate Risk.  The  Company's  exposure to market rate risk for changes in
interest rates relates  primarily to the Company's  short-term  debt  obligation
line of  credit.  The  interest  rate on this line of  credit is prime  plus 1/2
percent.  The prime  interest  rate at December 31, 1998 was 7 3/4 percent.  The
Company's line of credit is renewable and negotiable  yearly. The fluctuation of
the  interest  rate may increase  interest  expense if the prime  interest  rate
increases before the line of credit could be renegotiated to a fixed rate loan.
-------------------------------------------------------------------

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

-------------------------------------------------------------------
        See Index to Financial Statements and Financial Statement
        schedule.

-------------------------------------------------------------------

-------------------------------------------------------------------
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
         ACCOUNTING AND FINANCIAL DISCLOSURE.

-------------------------------------------------------------------
-------------------------------------------------------------------
      None.
-------------------------------------------------------------------
-------------------------------------------------------------------

-------------------------------------------------------------------

-------------------------------------------------------------------
                             PART III
-------------------------------------------------------------------
-------------------------------------------------------------------

-------------------------------------------------------------------
-------------------------------------------------------------------
ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
-------------------------------------------------------------------

-------------------------------------------------------------------
     The following table sets forth certain information concerning the directors
and executive officers of the Company:
-------------------------------------------------------------------
-------------------------------------------------------------------

-------------------------------------------------------------------
                                                           Director or
                                                            Executive
       Name            Age                 Position       Officer Since
S. Robert Davis(1)      60          Chairman of the Board     1990 (2)

Charles R. Davis(1)     37          President and Director    1990 (2)

Robert V. Boylan(3)     35          Chief Operating Officer   1997
                                    and Director

Jeffrey A. Ross         31          Chief Financial Officer   1996
                                    and Secretary

David J. Richards       46          Director                  1997

Michael P. Beauchamp    52          Director                  1997
-------------------------------------------------------------------

-------------------------------------------------------------------


<PAGE>



(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.

(3)  Mr. Boylan  resigned his position as Chief  Operating  Officer and Director
     effective January 28, 1999.
-------------------------------------------------------------------
-------------------------------------------------------------------

-------------------------------------------------------------------
Executive  officers are elected by the Board of Directors  and serve until their
successors are duly elected and qualify, subject to earlier removal by the Board
of Directors.  Directors are elected at the annual  meeting of  shareholders  to
serve for one year and until their  respective  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 is 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"). Prior to his election to the Board of
Directors  of Pages,  he served as  Assistant  to the  President  of Pages  from
January,  1988, to March, 1990, on a part-time basis.  Additionally,  during the
past five years Mr. Davis has operated several private businesses  involving the
developing, sale, and/or leasing of real estate.
-------------------------------------------------------------------
-------------------------------------------------------------------

-------------------------------------------------------------------
-------------------------------------------------------------------
     CHARLES R. DAVIS was elected  President of the Company in September,  1992.
Additionally,  during the past five years Mr. Davis has operated several private
businesses  involving  the  developing,  sale and/or  leasing of real estate but
devotes substantially all of his business time to the Company.
-------------------------------------------------------------------

     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
and was elected to the board of directors in May, 1997. Mr. Boylan  resigned his
position with the Company  effective January 1999. Prior to joining the Company,
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, as well
as  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. Mr. Ross was employed as an accountant by Hausser
+ Taylor,  LLP 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.

-------------------------------------------------------------------
     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.
-------------------------------------------------------------------
-------------------------------------------------------------------

-------------------------------------------------------------------


<PAGE>



SECTION 16 (a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

-------------------------------------------------------------------
     Section  16(a) of the  Securities  Exchange  Act of 1934,  as amended  (the
"Exchange Act") requires the Company's  officers and directors,  and persons who
own  more  than ten  percent  of a  registered  class  of the  Company's  equity
securities,  to file  reports of  ownership  and changes in  ownership of equity
securities of the Company with the Securities and Exchange  Commission  ("SEC").
Officers,  directors,  and greater than ten percent shareholders are required by
SEC  regulations  to furnish the Company with copies of all Section 16 (a) forms
they file.
-------------------------------------------------------------------
-------------------------------------------------------------------

-------------------------------------------------------------------
-------------------------------------------------------------------
     Based solely upon a review of such forms furnished to the Company  pursuant
to Rule16a-3  under the Exchange  Act, the Company  believes that all such forms
required to be filed  pursuant to Section 16 (a) of the Exchange Act were timely
filed, as necessary, by the officers, directors and security holders required to
file the same.
-------------------------------------------------------------------
-------------------------------------------------------------------

-------------------------------------------------------------------

ITEM 11.  EXECUTIVE COMPENSATION.

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,  which provides
for the grant, at the discretion of the Company's Board of Directors, of options
to purchase up to 90,000  shares of Company  common stock upon such terms as are
determined by the Board in its discretion.  In June,  1997,  options to purchase
10,800  shares  of common  stock at a  purchase  price of $4.17  per share  were
granted under the Director Option Plan.
-------------------------------------------------------------------
-------------------------------------------------------------------

-------------------------------------------------------------------
     In January 1998 and  September  1998  options to purchase  10,000 and 5,000
shares of common stock,  respectively at a purchase price of $2.8125 and $2.000,
respectively were granted under the Non-Employee Director Stock Option Plan.

EXECUTIVE COMPENSATION

-------------------------------------------------------------------
     The following  table shows,  for the fiscal years ended  December 31, 1998;
1997;  and 1996 the cash  compensation  paid by the Company,  as well as certain
other  compensation  paid for those years to the Company's  President and C.E.O.
and to the Chief Operating Officer. No other executive officers had total salary
and bonus that  exceeded  $100,000  during the years ended 1998,  1997 and 1996.
None of the Company's  executive  officers have  employment  agreements with the
Company.
-------------------------------------------------------------------
-------------------------------------------------------------------

-------------------------------------------------------------------


<PAGE>


<TABLE>
<CAPTION>

-------------------------------------------------------------------
                           Summary Compensation Table
-------------------------------------------------------------------
                   Annual Compensation                Long-Term Compensation
                 ------------------------             ----------------------
     Name and                            Other Annual        Number of
Principal Position  Year  Salary  Bonus  Compensation    Options Awarded(1)
------------------  ----  ------  -----  ------------    ------------------
<S>                 <C>  <C>         <C>      <C>              <C>   
Charles R. Davis    1998 $178,325    $0       $0               80,000
President and       1997 $155,000 $25,000     $0               37,800(3)
Chief Executive     1996 $132,315    $0    $134,040(2)              0
Officer                                        

Robert V. Boylan    1998 $109,000    $0       $0               20,000
Chief Operating     1997 $107,000  $1,000     $0               12,500
Officer
-------------------------------------------------------------------
</TABLE>

-------------------------------------------------------------------
(1)  Stock  options  previously  granted  to the  named  Executive
     Officers,  by their  terms,  automatically  adjust to  reflect
     certain  changes  in  the  outstanding  Common  Shares  of the
     Company, including stock dividends.
-------------------------------------------------------------------
-------------------------------------------------------------------

-------------------------------------------------------------------
(2)  Reflects the difference  between the fair market value of the
     Common Shares  received and the stock option  exercise price on the date of
     exercise.
-------------------------------------------------------------------
-------------------------------------------------------------------

-------------------------------------------------------------------
(3)  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  grant,  which  will be the  date  the
     Company  files  its  Form  10-K  with  its  audited  financial
     statements  showing  that the  required  earnings  plateau  is
     satisfied.
-------------------------------------------------------------------
-------------------------------------------------------------------
<TABLE>
<CAPTION>

-------------------------------------------------------------------
                     Stock Option Grants in Last Fiscal Year
--------------------------------------------------------------------------
                      Individual Grants
             -------------------------------------
                                                        Potential Realized
        Number of Percent of Total             at Assumed Annual Rate of Stock
         Options  Options Granted Exercise or  Price Appreciation for Option
         Granted     to Employees Base Price Expiration       Term(1)                                    
Name     in 1998      in 1998     per share    Date        5%         10%
----     -------      -------    ----------    ----       ---         ---

<S>        <C>         <C>       <C>         <C>         <C>         <C>   
Charles R. 50,000(2)   26.5%     $2.8750     01/20/03    39,715      87,760
Davis            
           30,000(3)   15.9%      2.0000     09/02/03    16,576      36,631

Robert V.   5,000(2)    2.6%      2.8750     01/20/03     3,972       8,776
Boylan           
           10,000(2)    5.3%      2.8125     03/03/03     7,770      17,171

            5,000(3)    2.6%      2.0000     09/02/03     2,763       6,105

-------------------------------------------------------------------
</TABLE>

-------------------------------------------------------------------


<PAGE>



(1)   These assumed  appreciation  rates are not derived from the  historical or
      projected prices of the Company's Common Stock or results of operations or
      financial  condition  and they  should  not be viewed as a  prediction  of
      possible prices of value for the Company's Common Stock in the future.
-------------------------------------------------------------------
-------------------------------------------------------------------

-------------------------------------------------------------------
(2)   The stock options were granted under the Company's  1997  Incentive  Stock
      Option Plan, and are exercisable  commencing  July 20, 1998,  September 3,
      1998 and March 2, 1999.
-------------------------------------------------------------------
-------------------------------------------------------------------

-------------------------------------------------------------------
(3)   The stock  options  were  granted  under the  Company's  1997
      Incentive Stock Option Plan, and are exercisable  commencing March 2, 1999
      and April 10, 1999.
-------------------------------------------------------------------
-------------------------------------------------------------------

-------------------------------------------------------------------
<TABLE>
<CAPTION>

      Aggregated Options/SAR Exercises with Last Fiscal Year
              And Fiscal Year End Options/SAR Values

                                 Number of Shares       Value of Unexercised
           Shares            Underlying Unexercised          In-the-Money
         Acquired     Value Options/SAR's at FY End     Options/SAR's at FY End
Name   or Exercised  Realize Exercisable Unexercisable Exercisable Unexercisable
----   ------------  ------- ----------- ------------- ----------- -------------
<S>           <C>    <C>        <C>          <C>           <C>         <C>                        
Charles R.    None    N/A      117,800         0            N/A        N/A
Davis

Robert V.     None    N/A       33,500         0            N/A        N/A
Boylan
-------------------------------------------------------------------
</TABLE>
-------------------------------------------------------------------
No options at year end were in the money options.

1996, 1997 AND 1998 INCENTIVE STOCK OPTION PLANS

-------------------------------------------------------------------
     The Company has adopted a 1996  Incentive  Stock Option Plan and a 1997 and
1998 Employee Stock Option Plan (the "Incentive Plans") which provide for the
grant, at the discretion of the Board of Directors, of options to purchase up to
85,000 and 150,000  and 100,000  shares,  respectively,  of Common  Stock to key
employees  of the  Company.  It is  intended  that  options  granted  under  the
Incentive  Plans  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  Plans is determined by the
Board of Directors, at its discretion. Options granted under the Incentive Plans
are  exercisable  for a period of up to ten years and five years,  respectively,
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 Plans 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
1996  Incentive  Plan to purchase  29,500  shares of Common  Stock at a purchase
price of $3.7037 per share,  on two  different  occasions  in March,  1997,  the
Company  granted  options under the 1997 Employee 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 $3.7037 per share.  In December,  1997, the
Company  granted  options under the Incentive Plan to purchase  13,000 shares of
Common  Stock at a  purchase  price of  $3.0625  per  share.  On four  different
occasions in 1998 the Company  granted  options under the 1997  Incentive  Stock
Option Plan. In January 1998, the Company  granted 70,000 shares of Common Stock
at a purchase price of $2.875 per share.  On March 3, 1998, the Company  granted
40,000 shares of Common Stock at a purchase price of $2.8125 per share. On March
10, 1998, the Company granted 3,000 shares of Common Stock at a purchase price
of $3.00 per share.  On two  different  occasions  in 1998 the  Company  granted
options under the 1998  Incentive  Stock Option Plan. In September,  the Company
granted 65,000 shares of Common Stock at a purchase price of $2.00 per share. In
October, the Company granted 5,000 shares of Common Stock at a purchase price of
$1.00 per share. Options currently outstanding under the 1996 Incentive Plan are
not  exercisable  until  the  expiration  of one year  after  the date of grant.
Options  currently  outstanding  under the 1997 Incentive  Plan are  exercisable
based on the following schedule.
-------------------------------------------------------------------
-------------------------------------------------------------------

-------------------------------------------------------------------
                                Cumulative Percentage of Aggregate
                                 Number of Shares of Stock Covered
Exercise Period                by an Option Which May be Exercised
Beginning on the one year 
anniversary date from date of grant             33%*

Beginning on the second 
anniversary date from date of grant             33%*

Beginning on the third
anniversary date from date of grant             33%*

-------------------------------------------------------------------
-------------------------------------------------------------------
     *less, in the case of each exercise period,  the number of Shares,  if any,
     previously purchased under the Option.
-------------------------------------------------------------------

     Options  currently  outstanding  under the 1998 Incentive Plan
     are not  exercisable  until the expiration of six months after
     the date of grant.
-------------------------------------------------------------------

-------------------------------------------------------------------
COMMITTEES OF THE BOARD OF DIRECTORS

-------------------------------------------------------------------
     In May 1997 the Company formed a compensation  committee.  The Compensation
Committee  consisted  of S.  Robert  Davis,  David J.  Richards,  and Michael P.
Beauchamp  during the last fiscal year.  Neither Mr. Davis,  Mr. Richards or Mr.
Beauchamp serves as an employee of the Company.
-------------------------------------------------------------------

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     None

BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

     Under the Rules of the Securities and Exchange  Commission,  the Company is
required to provide certain information concerning  compensation provided to the
Company's Chief  Executive  Officer and its executive  officers.  The disclosure
requirements for the executive officers include the use of tables in a report of
the committee  responsible  for  compensation  decisions for the named executive
officers,  explaining  the  rationale  and  considerations  that  lead to  those
compensation decisions.  Therefore,  the Executive Compensation Committee of the
Board of Directors has prepared the following report for inclusion in this Proxy
Statement.

     The Compensation Committee has designed its executive compensation policies
to provide  incentives to its  executives to focus on both current and long-term
Company  goals,  with  an  overriding  emphasis  on the  ultimate  objective  of
enhancing  stockholder  value.  The  Compensation   Committee  has  followed  an
executive compensation program,  comprised of cash and equity-based  incentives,
which recognizes  individual  achievement and encourages  executive  loyalty and
initiative.  The  Compensation  Committee  considers  equity  ownership to be an
important  factor  in  providing  executives  with a closer  orientation  to the
Company and its shareholders. Accordingly, the Compensation Committee encourages
equity  ownership  by its  executives  through  the grant of options to purchase
Common Stock.

     The Company believes that providing attractive  compensation  opportunities
is necessary to assist the Company in  attracting  and  retaining  competent and
experienced  executives.   Base  salaries  for  the  Company's  executives  have
historically been established on a case-by-case  basis by the Board,  based upon
current market  practices and the  executive's  level of  responsibility,  prior
experience,  breadth of knowledge, and salary requirements. The base salaries of
executive  officers  have  historically  been  reviewed  annually  by the Board.
Adjustments  to such base salaries have been made  considering:  (a)  historical
compensation levels; (b) the overall competitive environment for executives; and
(c) the level of compensation  necessary to attract and retain executive talent.
Stock options have  historically been awarded upon hiring,  promotion,  or based
upon merit  considerations.  The  Compensation  Committee,  formed in 1997,  has
assumed the Board's  functions with respect to the matters  described  above. As
the value of a stock  option is  directly  related  to the  market  price of the
Company's Common Stock, the Compensation  Committee  believes the grant of stock
options to executives  encourages executives to take a view toward the long-term
performance of the Company.  Other benefits  offered to executives are generally
the same as those offered to the Company's other employees.

     The  Compensation  Committee  utilizes the same policies and  consideration
enumerated above with respect to compensation decisions regarding the President,
Charles R. Davis and the Chief Operating  Officer,  Robert V. Boylan. Mr. Davis'
and Mr.  Boylan's 1997 base salaries were  determined  primarily by reference to
historical  compensation,  scope of responsibility,  and the Company's desire to
retain their services.  The  Compensation  Committee  believes its  compensation
policies with respect to the Company's  executive officers promote the interests
of the Company and its shareholders  through current motivation of the executive
officers coupled with an emphasis on the Company's long-term success.

Compensation Committee: S. Robert Davis 
                        David J. Richards 
                        Michael P. Beauchamp



<PAGE>



-------------------------------------------------------------------
Stock Price Performance Graph
-------------------------------------------------------------------

      The  following  graph  represents a  comparison  of the  cumulative  total
shareholder return on the Common Stock, assuming dividend reinvestment, with The
NASDAQ Composite Index and The NASDAQ  Industrial Index. This graph assumes that
$100 was  invested  on January  15,  1997,  the first day of  trading  after the
effective date of the spin-off of the Company from Pages,  Inc. The Company paid
and 8 percent stock  dividend on August 1, 1997,  which was included in the 1997
total  shareholder  return.  The  stock  price  performance  shown  below is not
necessarily indicative of future performance.



-------------------------------------------------------------------

-------------------------------------------------------------------
<TABLE>
<CAPTION>

                   1/15/97 3/31/97 6/30/97  9/30/97 12/31/97  3/31/98 6/30/98  
<S>                  <C>    <C>    <C>      <C>       <C>     <C>      <C>     
CASCO                100    27.000 149.000  172.000   90.000  133.000  80.000  
Nasdaq Composite     100    91.604 108.096  126.387  117.691  137.631 142.054 
Nasdaq Industrials   100    88.986 103.409  120.192  106.731  119.056 116.608  

</TABLE>
<TABLE>
<CAPTION>

                         9/30/98  12/31/98
<S>                       <C>       <C>   
CASCO                     52.000    52.000
Nasdaq Composite         126.987   164.393
Nasdaq Industrials        90.210   113.986
</TABLE>

<PAGE>             



ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
-------------------------------------------------------------------
           MANAGEMENT.
-------------------------------------------------------------------
-------------------------------------------------------------------

-------------------------------------------------------------------
-------------------------------------------------------------------
     The following  table sets forth,  to the best of the  Company's  knowledge,
certain  information  with respect to the beneficial  ownership of shares of the
Company's  common stock owned  beneficially by (i) each person who  beneficially
owns more than 5% of the  outstanding  Common  Stock,  (ii) each director of the
Company,  (iii) the  President and Chief  Operating  Officer of the Company (the
only executive officers of the Company whose cash and non-cash  compensation for
services rendered to the Company for the year ended December 31, 1998,  exceeded
$100,000)  and (iv) all  directors  and  executive  officers of the Company as a
group: -------------------------------------------------------------------

                        Amount and Nature of   Percent of
Name and Address            Beneficial         Class (2)
----------------            -----------        ---------
                           Ownership (1)
                           -------------
S. Robert Davis             270,354 (3)          13.4%
801 94th Avenue North
St. Petersburg, Florida 33702

Charles R. Davis            231,316 (4)          11.5%
4205 East Dixon Blvd.
Shelby, North Carolina 28150

Robert V. Boylan             39,036               2%
4205 East Dixon Blvd.
Shelby, North Carolina 28150

All directors and           646,113 (5)          32%
executive officers as
a group (6 persons)
-------------------------------------------------------------------

-------------------------------------------------------------------
(1)       Represents   sole  voting  and  investment   power  unless   otherwise
          indicated.
-------------------------------------------------------------------
-------------------------------------------------------------------

-------------------------------------------------------------------
(2)  Based on  1,783,200  shares  of  Company  common  stock  outstanding  as of
     December  31, 1998,  plus,  as to each person  listed,  that portion of the
     233,580  unissued  shares of Company  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.
-------------------------------------------------------------------
-------------------------------------------------------------------

-------------------------------------------------------------------
(3)  Includes  4,066  shares  owned by Mr.  Davis'  wife as to which  Mr.  Davis
     disclaims  beneficial  ownership  and includes  15,000  unissued  shares of
     Company  Common  Stock as to  which  Mr.  Davis  has the  right to  acquire
     beneficial  ownership upon the exercise of stock options within the next 60
     days.
-------------------------------------------------------------------
-------------------------------------------------------------------


<PAGE>



-------------------------------------------------------------------
(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 and includes  117,800 unissued shares of
     Company  common  stock as to which Mr.  Davis has the right to
     acquire beneficial  ownership upon the exercise of stock options within the
     next 60 days.
-------------------------------------------------------------------
-------------------------------------------------------------------

-------------------------------------------------------------------
-------------------------------------------------------------------
(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  40,800
     unissued  shares of Common 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,  27,709 shares of Common Stock owned by Mr. Richards,
     a director of the  Company,  and 8,323  shares of Common Stock
     owned by Mr.  Beauchamp,  a  director  of the  Company,  5,536
     shares  of  Common  Stock  owned  by  Robert  V.  Boylan,   an
     executive  officer and director of the  Company,  and includes
     33,500  unissued  shares of Company  Common  Stock as to which
     Mr. Boylan has the right to acquire beneficial  ownership upon
     the  exercise  of stock  options  within  the next 60 days and
     2,095  shares of Common  Stock  owned by Jeffrey  A. Ross,  an
     executive  officer of the Company and includes 26,480 unissued
     shares of Company  Common  Stock as to which Mr.  Ross has the
     right to acquire  beneficial  ownership  upon the exercise of stock options
     within the next 60 days.
-------------------------------------------------------------------
-------------------------------------------------------------------

-------------------------------------------------------------------

ITEM 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

-------------------------------------------------------------------
      As of  December  31,  1997,  the  Company  was  indebted  to  Pages in the
principal  amount of  $5,000,000  pursuant  to a  subordinated  debenture  dated
December 31, 1996 executed by the Company in conjunction  with the  distribution
by Pages of the common stock of the Company to the Pages shareholders. S. Robert
Davis is a director,  officer and shareholder of Pages. On January 23, 1998, the
Company purchased the subordinated debenture in the original principal amount of
$5 million for $3.5 million.
-------------------------------------------------------------------
-------------------------------------------------------------------
                             PART IV
-------------------------------------------------------------------

ITEM 14.  EXHIBITS,  FINANCIAL  STATEMENT  SCHEDULES,  AND  REPORTS
          ON FORM 8-K.

(a)  1.   Financial Statements:
-------------------------------------------------------------------

-------------------------------------------------------------------
            See  Index  to  Financial   Statements   and  Financial
      Statement Schedule.
-------------------------------------------------------------------

-------------------------------------------------------------------
       2.   Financial Statement Schedule:

-------------------------------------------------------------------
      See Index to Financial  Statements  and  Financial  Statement
Schedule.
-------------------------------------------------------------------
-------------------------------------------------------------------


<PAGE>



-------------------------------------------------------------------
        3.   Exhibits:

-------------------------------------------------------------------
      Exhibit                                               Method
-------------------------------------------------------------------
      Number    Description                               of filing
-------------------------------------------------------------------
      1         Underwriting Agreement                           1
-------------------------------------------------------------------

-------------------------------------------------------------------
      2         Agreement and Plan of Merger                     1
-------------------------------------------------------------------

-------------------------------------------------------------------
      3 (i) .1  Certificate of Incorporation                     1
-------------------------------------------------------------------
-------------------------------------------------------------------
      3 (i) .2  Certificate  of  Amendment to  Certificate  of
                Incorporation                                    1
-------------------------------------------------------------------

      3 (ii)    Bylaws                                           1
-------------------------------------------------------------------
-------------------------------------------------------------------
      4.1       Form of Stock Certificate                        1
-------------------------------------------------------------------

      4.2       Warrant Agreement                                1

      4.3       Form of Warrant Certificate                      3

      4.4       Form of Warrant-R.L. Renck & Company             3
-------------------------------------------------------------------

-------------------------------------------------------------------
    *10.1       1996 Incentive Stock Option Plan                 1

    *10.2       Employee Stock Option Plan                       1

-------------------------------------------------------------------
    *10.3       Non-Employee Director Stock Option Plan          1
-------------------------------------------------------------------

    *10.4       Amendment to 1996 Incentive Stock Option Plan    2

    *10.5       1997 Incentive Stock Option Plan                 3

    *10.6       Charles R. Davis' Performance Option Agreement   2

     10.7       First National Bank Loan Document                2

     10.8       Branch Banking and Trust Loan Document           2

    *10.9       1998 Incentive Stock Option Plan                 2

    *10.10      Non-Employee Director Stock Option Plan          2

     10.11      Asset Purchase Agreement Awards and Gifts        2

      27        Financial Data Schedule                          3
-------------------------------------------------------------------


<PAGE>



-------------------------------------------------------------------
1.   Incorporated by reference to the Company's  registration  statement on Form
     10, file number 0-21717, filed in Washington, D.C.

2.   Incorporated  by  reference  to  the  Company's  registration
     statement of Form 10-Q for the quarter ended  September 30, 1998,  filed in
     Washington, D.C.
-------------------------------------------------------------------
3. Filed herewith. 

Compensatory Plan
(b) Reports on Form 8-K
-------------------------------------------------------------------
    A report on Form 8-K was dated and filed on August 14, 1998,
    under item 2 on the  acquisition  of all the assets of Awards &
    Gifts, Inc.
-------------------------------------------------------------------
-------------------------------------------------------------------

-------------------------------------------------------------------
      A report on Form 8-K was dated and filed on July 23, 1997,
under Item 4  dismissing  Deloitte & Touche,  LLP as its  principal
independent  accountant,  and the  engagement  of Hausser + Taylor,
LLP as its new independent accountants.
-------------------------------------------------------------------


<PAGE>



-------------------------------------------------------------------
-------------------------------------------------------------------
                            SIGNATURES
-------------------------------------------------------------------
-------------------------------------------------------------------
      Pursuant  to the  requirements  of Section 13 or 15(d) of the
Securities  and  Exchange  Act of  1934,  the  Registrant  has duly
caused this  Report to be signed on its behalf by the  undersigned,
thereunto duly authorized.
-------------------------------------------------------------------

                                      CASCO INTERNATIONAL, INC.
-------------------------------------------------------------------
-------------------------------------------------------------------

(Registrant)

-------------------------------------------------------------------

Dated: March 30, 1999                By:  /s/ Charles R. Davis
       ----------------                  -----------------------------
                                         Charles R. Davis
                                         President
-------------------------------------------------------------------


-------------------------------------------------------------------
-------------------------------------------------------------------
      Pursuant to the  requirements of the Securities  Exchange Act
of 1934,  this  Report  has  been  signed  below  by the  following
persons on behalf of the  Registrant  and in the  capacities and on
the dates indicated.
-------------------------------------------------------------------
-------------------------------------------------------------------

-------------------------------------------------------------------

Dated: March 30, 1999                By:   /s/ S. Robert Davis
       ----------------                  -----------------------------
                                         S. Robert Davis
                                         Chairman  of the Board,  and
                                         Director


Dated: March 30, 1999                By:  /s/ Charles R. Davis
       ----------------                  -----------------------------
                                         Charles R. Davis
                                         President, and Director
                                         (Principal Executive
                                         Officer)



Dated: March 30, 1999                By:  /s/ Jeffrey A. Ross
       ----------------                  -----------------------------
                                         Jeffrey A. Ross
                                         Chief Financial Officer,
                                         and Secretary
                                         (Principal Accounting and
                                         Financial Officer)
-------------------------------------------------------------------

-------------------------------------------------------------------
-------------------------------------------------------------------

-------------------------------------------------------------------
-------------------------------------------------------------------

-------------------------------------------------------------------
-------------------------------------------------------------------


<PAGE>



-------------------------------------------------------------------



<PAGE>


-------------------------------------------------------------------
                     CASCO INTERNATIONAL, INC.
-------------------------------------------------------------------
                    (formerly CA Short Company)

                   INDEX TO FINANCIAL STATEMENTS
-------------------------------------------------------------------

-------------------------------------------------------------------

-------------------------------------------------------------------
                                                            Page
-------------------------------------------------------------------
-------------------------------------------------------------------
Independent Auditors' Report--                               25
      Hausser + Taylor LLP - for the years ended  
      December  31,  1998,  1997 and 1996.
-------------------------------------------------------------------
-------------------------------------------------------------------

-------------------------------------------------------------------
Statements of operations--                                   26
      Years ended December 31, 1998, 1997 and 1996.
-------------------------------------------------------------------
-------------------------------------------------------------------

-------------------------------------------------------------------
Balance sheets--                                             27
      December 31, 1998 and December 31, 1997.
-------------------------------------------------------------------
-------------------------------------------------------------------

-------------------------------------------------------------------
Statements of cash flows--                                   29
      Years ended December 31, 1998, 1997 and 1996.
-------------------------------------------------------------------
-------------------------------------------------------------------

-------------------------------------------------------------------
Statements of stockholders'  equity--                        30 
      Years ended December 31, 1998, 1997 and 1996.
-------------------------------------------------------------------
-------------------------------------------------------------------

-------------------------------------------------------------------
Notes to the financial statements--                          31
      Years ended December 31, 1998, 1997 and 1996.
-------------------------------------------------------------------
-------------------------------------------------------------------

-------------------------------------------------------------------
-------------------------------------------------------------------
      All schedules for which  provision is made in the  applicable
accounting  regulations of the  Securities and Exchange  Commission
are  not   required   under  the   related   instructions   or  are
inapplicable, and therefore have been omitted.
-------------------------------------------------------------------
-------------------------------------------------------------------

-------------------------------------------------------------------


<PAGE>


-------------------------------------------------------------------
                  REPORT OF INDEPENDENT AUDITORS
-------------------------------------------------------------------
-------------------------------------------------------------------

-------------------------------------------------------------------

To the Board of Directors and Stockholders of
CASCO INTERNATIONAL, INC.
Shelby, North Carolina

We have audited the accompanying  balance sheets of CASCO  INTERNATIONAL,  INC.,
(the "Company"), as of December 31, 1998 and 1997, and the related statements of
operations,  stockholders' equity, and cash flows for each of the three years in
the  period  ended  December  31,  1998.  These  financial  statements  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on the financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our  opinion,  such  financial  statements  present  fairly,  in all material
respects,  the  financial  position of the  Company as of December  31, 1998 and
1997, and the results of its operations and its cash flows for each of the three
years in the  period  ended  December  31,  1998 in  conformity  with  generally
accepted accounting principles.


-------------------------------------------------------------------
                                          /s/ Hausser +  Taylor LLP
-------------------------------------------------------------------
-------------------------------------------------------------------

-------------------------------------------------------------------
Columbus, Ohio
March 4, 1999
-------------------------------------------------------------------

-------------------------------------------------------------------



<PAGE>

<TABLE>
<CAPTION>


                  CASCO INTERNATIONAL, INC.
                   STATEMENT OF OPERATIONS
    For the years ended December 31, 1998, 1997 and 1996



                                          1998          1997           1996
                                        --------      --------        -------

<S>                                  <C>            <C>            <C>         
Revenue ...........................  $ 21,718,213   $ 19,332,922   $ 21,959,396

Operating costs and expenses:
   Cost of goods sold..............    12,716,740     11,417,111     13,523,932
   Selling, general and ...........     8,377,665      7,761,328      8,051,446
   administrative
   Depreciation and amortization...       520,027        358,855        338,234
                                      -----------    -----------    -----------
        Total operating costs .....    21,614,432     19,537,294     21,913,612
        and expenses

Operating income (loss)............       103,781       (204,372)        45,784

Other expense:
   Interest expense................       335,871        469,355        128,965
   Management fee paid to Pages....          --             --          500,000
   Loss on sale of building........       151,144           --             --
                                      -----------    -----------    -----------
        total other expenses ......       487,015        469,355        628,965

Loss before income taxes and
   extraordinary item and change in
      accounting principle ........      (383,234)      (673,727)      (583,181)
Benefit for income taxes ..........       145,500        256,000        195,100
                                      -----------    -----------    -----------

Loss before extraordinary gain on
   retirement of debt and change in
   accounting principle ...........      (237,734)      (417,727)      (388,081)
                                      -----------    -----------    -----------

Extraordinary gain on retirement of debt 
   (less income taxes of $570,000)        930,000           --             --
Cumulative effect of a change in 
   accounting principle (less
   income taxes of $397,850)                 --             --          596,814
                                      -----------    -----------    -----------

Net Income (Loss)..................   $   692,266    $  (417,727)   $   208,733
                                      ===========    ===========    ===========


EARNINGS PER SHARE BASIC AND DILUTIVE
Loss before extraordinary
item and change in ................   $     (0.13)   $     (0.34)   $     (0.39)
   accounting principle
Cumulative effect of a change in....          --             --            0.59
   accounting principle
Extraordinary gain on .............     
   retirement of debt .............          0.52            --              --
                                      -----------    -----------    -----------
Net Income (Loss)..................   $      0.39    $     (0.34)   $      0.20
                                      ===========    ===========    ===========


Weighted average common shares ....     1,783,200      1,225,447      1,003,200
outstanding
                                      ===========    ===========    ===========


               The accompanying notes are an integral part of the
                              financial statements.
</TABLE>


-------------------------------------------------------------------


<PAGE>

<TABLE>
<CAPTION>


                 CASCO INTERNATIONAL, INC.
                      BALANCE SHEETS
                December 31, 1998 and 1997




           ASSETS                                      1998             1997
                                                   ---------          ---------

Current Assets:
<S>                                             <C>                <C>         
    Cash .................................      $    107,482       $     73,516
    Accounts receivable...................         5,540,162          5,043,423
    Inventory ............................         5,265,797          4,545,752
    Prepaid expenses......................         1,096,277            973,329
                                                ------------       ------------

           Total current assets...........        12,009,718         10,636,020
                                                ------------       ------------

Buildings and equipment:
    Buildings ............................         2,602,793          3,194,058
    Equipment ............................         2,819,104          2,025,552
                                                ------------       ------------
                                                   5,421,897          5,219,610
    Less accumulated depreciation.........        (1,974,403)        (1,664,540)
                                                ------------       ------------
                                                   3,447,494          3,555,070
Land .....................................           111,468            211,468
                                                ------------       ------------

           Total property and ............         3,558,962          3,766,538
           equipment, net
                                                ------------       ------------

Other assets:
    Cost in excess of net assets
      acquired, net of accumulated 
      amortization of $342,244 and
      $267,608 respectively                        2,541,899          1,098,859
    Other ................................           732,024            646,256
                                                ------------       ------------
                                                   3,273,923          1,745,115
                                                ============       ============
TOTAL ASSETS .............................      $ 18,842,603       $ 16,147,673
                                                ============       ============


               The accompanying notes are an integral part of the
                              financial statements.
</TABLE>

-------------------------------------------------------------------

-------------------------------------------------------------------



<PAGE>
<TABLE>
<CAPTION>



                    CASCO INTERNATIONAL, INC.
                          BALANCE SHEETS
                    December 31, 1998 and 1997



    LIABILITIES AND STOCKHOLDERS' EQUITY                1998            1997
                                                    ---------        ---------

Liabilities:
<S>                                              <C>               <C>         
    Accounts payble ........................     $  1,234,869      $  1,062,112
    Short-term debt obligations.............        3,882,269              --
    Short-term subordinated debenture.......             --             100,000
    Accrued liabilities.....................          360,370           320,157
    Advanced deposits-current...............        1,926,406         1,951,471
                                                 ------------      ------------

           Total current liabilities........        7,403,914         3,433,740
                                                 ------------      ------------

Long-term debt  .............................        2,413,154              --
Advanced deposits-noncurrent.................        2,653,353         2,558,517
Subordinated debenture.......................             --           4,900,000
Deferred tax liabilitiy......................          492,150            67,650
                                                  ------------      ------------

Total Liabilities ........... ...............       12,962,571        10,959,907
                                                  ------------      ------------

Commitments and contingencies.. .............             --                --

Stockholders' equity:
    Preferred shares:  $.01 par value;
      authorized 300,000 shares; none issued 
      and outstanding                                     --                --
    Common shares par value $.01, authorized
      5,000,000, issued 1,783,200 ...........           17,832            17,832
    Capital in excess of par value...........        6,417,586         6,417,586
    Accumulated deficit.....................         (555,386)       (1,247,652)
                                                 ------------      ------------

           Total stockholders' equity........        5,880,032         5,187,766
                                                  ------------      ------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ..     $ 18,842,603      $ 16,147,673
                                                  ============      ============


               The accompanying notes are an integral part of the
                              financial statements.
</TABLE>

<PAGE>

<TABLE>
<CAPTION>




                   CASCO INTERNATIONAL, INC.
                    STATEMENTS OF CASH FLOWS
      For the years ended December 31, 1998, 1997 and 1996

                                            1998            1997         1996
                                           --------       ---------     --------

Cash flows from operating activities:
<S>                                     <C>            <C>            <C>                                                
   Net income (loss)                    $   692,266    $  (417,727)   $  208,733                                         
   Adjustments to reconcile net income 
      (loss) to cash provided by
      operating activities:
      Depreciation and amortization         520,027        358,855       338,234 
      Loss of sale of building              151,144           --            --
      Extraordinary gain on retirement   (1,500,000)          --            --
      of debt
      Deferred provision (benefit)          424,500       (256,000)      202,750
      Changes in assets and liabilities:
      (Increase) decrease in assets:
         Accounts receivable               (496,739)      (399,396)    1,457,602
   Inventory                               (595,713)     2,422,613     (187,953)
         Prepaid expenses and other assets (174,792)      (179,221)     (18,377)
      Increase (decrease)in liabilities:
         Accounts payable and accrued 
            liabilities                     212,970       (531,907)      243,124
         Advance deposits                    69,771       (377,955)    (760,164)
                                            --------      ---------     --------
           Total adjustments             (1,388,832)     1,036,989     1,275,216
                                            --------      ---------     --------

Net cash provided by (used in)             (696,566)       619,262     1,483,949
operating activities                        --------      ---------     --------

Cash flows from investing activities:
   Sale of building                         421,187           --            --
   Payments for purchases of               (731,436)      (159,430)    (421,740)
   property and equipment                   --------      ---------     --------
Cash used in investing activities          (310,249)      (159,430)    (421,740)

Cash flows from financing activities:
   Proceeds from debt obligation         13,759,044     14,905,007    24,813,186
   Principal payments on debt           (12,718,263)   (18,574,753) (25,971,102)
   Issuance of Common Stock Units              --        3,152,459          --
                                            --------      ---------     --------
Cash provided by (used in)
financing activities                      1,040,781       (517,287)  (1,157,916)

Increase (decrease) in cash                  33,966        (57,455)     (95,707)
Cash, beginning of year                      73,516        130,971       226,678
                                            --------      ---------     --------

Cash, end of year                       $   107,482    $    73,516   $   130,971                                               
                                            ========      =========     ========

Other Cash Flow Information:
   Cash payments during the year for:    
     Interest                           $   307,156    $   469,355   $   166,657                                         
     Income taxes, net of refunds              --             --            --

Noncash Financing Activities:
   Payment of subordinated debt         $ 3,500,000    $      --     $      --                                                
   Subordinated debt replaced with      $ 3,500,000    $      --     $      --                                               
     line of credit
   Acquisitions of assets and           $ 1,745,642    $      --     $      --                                             
   Increase in line of credit for       $ 1,745,642    $      --     $      --                                               
     acquisitions
   Subordinated debenture with          $      --      $ 5,000,000   $      -- 
     Pages assumed at spin-off
   Due to Pages replaced with           $      --      $ 4,124,975   $      --      
     subordinated debenture
   Decrease in capital in excess        $      --      $   875,025   $      --                   
     of par value and common stock from
     spin-off

               The accompanying notes are an integral part of the
                              financial statements.
</TABLE>
-------------------------------------------------------------------

-------------------------------------------------------------------


<PAGE>

<TABLE>
<CAPTION>


                        CASCO INTERNATIONAL, INC.
                   STATEMENT OF STOCKHOLDERS' EQUITY
          For the years ended December 31, 1998, 1997 and 1996


                                              Capital in
                                     Common   Excess of   Accumulated
                           Shares    Stock    Par Value    Deficit      Total
                           --------  -------  -------     ----------   --------

<S>                           <C>    <C>      <C>         <C>          <C>       
Balance December 31, 1995    334.91 $ 33,491 $4,124,494  $(1,038,658) $3,119,327
Change in par value of               (33,488)    33,488
  common stock
Net income                                                   208,733     208,733
                           --------  -------  -------     ----------   --------

Balance December 31, 1996    334.91        3  4,157,982     (829,925)  3,328,060

Spinoff from Pages          (334.91)      (3)  (884,313)       -----   (884,316)

Distribution to Pages       929,103    9,291      -----        -----       9,291
  stockholders

Stock Dividend               74,097      741       (741)       -----       -----

Offering                    780,000    7,800  3,144,658        -----   3,152,458

Net loss                      -----    -----      -----     (417,727)  (417,727)
                           --------  -------    -------   ----------    --------

Balance December 31, 1997 1,783,200   17,832  6,417,586   (1,247,652)  5,187,766

Net Income                    -----    -----      -----      692,266     692,266
                           --------  -------    -------   ----------    --------

Balance December 31, 1998 1,783,200  $17,832 $6,417,586  $  (555,386) $5,880,032
                           ========  =======    =======   ==========    ========

The accompanying notes are an integral part of the financial statements.
-------------------------------------------------------------------
</TABLE>

-------------------------------------------------------------------



<PAGE>


--------------------------------------------------------------------------
                        CASCO INTERNATIONAL, INC.
--------------------------------------------------------------------------
                       (formerly CA Short Company)
-------------------------------------------------------------------

-------------------------------------------------------------------
                   NOTES TO FINANCIAL STATEMENTS
       FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
-------------------------------------------------------------------

-------------------------------------------------------------------

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.
-------------------------------------------------------------------
-------------------------------------------------------------------

-------------------------------------------------------------------
-------------------------------------------------------------------
     On July 30, 1998 the Company entered into an agreement with Awards & Gifts,
Inc. and Richard W. Terlau, Jr., providing for the purchase of substantially all
assets and certain  liabilities  of Awards & Gifts by the  Company.  The Company
utilized purchase accounting for this acquisition.  Under the terms of the Asset
Purchase Agreement,  the assets included Awards & Gifts customer list, machinery
and equipment, inventories, Awards & Gifts intellectual property assets, prepaid
expenses,  and a real property lease. The purchase price for the assets was $1.5
million with certain  adjustments made for pro-rated items, with $1.3 million in
cash and a $200,000  promissory  note.  The note is  secured  by an  Irrevocable
Standby Letter of Credit issued by Branch Banking & Trust Company.  The purchase
price  under  the  Asset  Purchase  Agreement  was  determined  by arm's  length
negotiations  between  the  parties  based on the  market  value  of the  assets
purchased and sold. The goodwill  acquired in this transaction will be amortized
over fifteen years using the straight-line  method. The acquisition was financed
with  proceeds from its revolving  credit  facility with Branch  Banking & Trust
Company.
-------------------------------------------------------------------

     On October 1, 1998 the Company  entered  into an  agreement  with  American
Awards & Gifts,  Inc.  and Frank G. and Judith J.  McGinnis,  providing  for the
purchase of substantially all assets and certain  liabilities of American Awards
& Gifts, Inc. by the Company.  The Company utilized purchase accounting for this
acquisition.  Under  the  terms of the  Asset  Purchase  Agreement,  the  assets
included American Awards & Gifts customer list,  machinery and equipment,  tools
and dies,  inventories,  intellectual  property assets, and general intangibles,
the  liabilities  included  the  assumption  of certain  accounts  payable.  The
purchase  price for the assets was $255,177 with $100,000 in cash and a $155,177
promissory  note.  The purchase  price under the Asset  Purchase  Agreement  was
determined by arm's length negotiations  between the parties based on the market
value  of  the  assets  purchased  and  sold.  The  goodwill  acquired  in  this
transaction will be amortized over fifteen years using the straight-line method.
-------------------------------------------------------------------


<PAGE>



-------------------------------------------------------------------
-------------------------------------------------------------------
     Effective  at the close of business on December  31,  1996, a tax free spin
off of the Company's  common stock from it's 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.
-------------------------------------------------------------------
-------------------------------------------------------------------

-------------------------------------------------------------------
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.  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
$209,190,  net of  associated  commission  expense of $32,704 for the year ended
December 31, 1996.
-------------------------------------------------------------------
-------------------------------------------------------------------


<PAGE>


-------------------------------------------------------------------

-------------------------------------------------------------------
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  December  31, 1998 and 1997  include  $694,338  and
$651,359,  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 the
year the related revenue is recorded.
-------------------------------------------------------------------
-------------------------------------------------------------------


<PAGE>



-------------------------------------------------------------------
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 years ended
December 31,  1998,  1997 and 1996,  totaled  $438,681,  $324,691 and  $302,832,
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 and 15 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, 1998. 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 years
ended  December 31, 1998,  1997 and 1996 totaled  $77,274,  $34,162 and $34,162,
respectively.
-------------------------------------------------------------------
-------------------------------------------------------------------

-------------------------------------------------------------------
-------------------------------------------------------------------
     Other assets include cash surrender value of life insurance,  deferred loan
costs and  non-compete  agreements.  The deferred loan costs are amortized using
the straight line method over the terms of the related  contracts.  Amortization
expense  totaled $7,071,  $0 and $1,240,  for the years ended December 31, 1998,
1997 and 1996, respectively.
-------------------------------------------------------------------
-------------------------------------------------------------------

-------------------------------------------------------------------
INCOME TAXES

-------------------------------------------------------------------
     The Company employs Statement of Financial  Accounting  Statements ("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  tax
returns for 1996.
-------------------------------------------------------------------
-------------------------------------------------------------------

-------------------------------------------------------------------
-------------------------------------------------------------------
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
potential  common  stock  outstanding  at  December  31,  1998 and 1997 would be
antidilutive  for the years then ended.  There was no  potential  common  stock
outstanding for the year ended December 31, 1996. Therefore,  basic earnings per
share equal earnings per share as previously recorded.
-------------------------------------------------------------------
-------------------------------------------------------------------


<PAGE>



-------------------------------------------------------------------
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 years ended December 31, 1998, 1997 and 1996.
-------------------------------------------------------------------
-------------------------------------------------------------------

-------------------------------------------------------------------
LONG-LIVED ASSETS

-------------------------------------------------------------------
      The  Company  utilizes  SFAS No. 121  "Accounting  for the  Impairment  of
Long-Lived  Assets and for  Long-Lived  Assets to be Disposed of" which required
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 Company periodically  evaluates the
recoverability  of  long-lived  assets and measures the amount of  impairment if
any. There were no impairment adjustments at December 31, 1998, 1997 and 1996.
-------------------------------------------------------------------
-------------------------------------------------------------------

-------------------------------------------------------------------
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.  (Refer  to  Note 8 for  purchase  of
subordinated debenture after December 31, 1998.)
-------------------------------------------------------------------
-------------------------------------------------------------------

-------------------------------------------------------------------
STOCK-BASED COMPENSATION

      The Company has elected to follow Accounting  Principles Board Opinion No.
15,   "Accounting   for  Stock  Issued  to  Employees"   (APB  25)  and  related
interpretations  in accounting  for its employee  stock  options.  Under APB 25,
because the exercise prices of employee stock options equals the market price of
the underlying stock on the date of grant, no compensation  expense is recorded.
The  company  has  adopted  the  disclosure-only  provisions  of SFAS  No.  123,
"Accounting for Stock-Based Compensation" (Statement 123).

2.    STOCK OPTIONS AND WARRANTS
-------------------------------------------------------------------
-------------------------------------------------------------------

-------------------------------------------------------------------
-------------------------------------------------------------------
     At December 31, 1998,  335,000  common  shares of the Company were reserved
for issuance under the incentive stock option plans, 90,000 shares were reserved
under the  non-employee  director  stock option plans and 1,560,000  shares were
reserved under outstanding warrants. Additionally,  200,000 common shares of the
Company were reserved under a performance option plan for the President.
-------------------------------------------------------------------
-------------------------------------------------------------------


<PAGE>


<TABLE>
<CAPTION>

-------------------------------------------------------------------
                                                     December 31,   December 31,
                                                         1998           1997
Incentive Stock Option Plan                        --------------  -------------
<S>                                                       <C>            <C>
  Outstanding, beginning of year ...............          93,460               0
  Granted ......................................         189,000          93,460
  Canceled .....................................           9,320            None
  Exercised ....................................            None            None
                                                         -------         -------

Outstanding, end of year .......................         273,140          93,460
                                                         -------         -------

Exercise price range of ........................         $1.0000         $3.0625
options outstanding ............................              to              to
                                                         $3.7037         $3.7037

Non-Employee Director Option Plan
  Outstanding, beginning of year ...............          10,800               0
  Granted ......................................          45,000          10,800
  Canceled .....................................            None            None
  Exercised ....................................            None            None
                                                         -------         -------

Outstanding, end of year .......................          55,800          10,800
                                                         -------         -------

Exercise price range of ........................         $  2.00         $  4.17
options outstanding ............................              to              to
                                                         $  4.17         $  4.17
-------------------------------------------------------------------
</TABLE>

-------------------------------------------------------------------
   There were no options granted at December 31, 1996.
-------------------------------------------------------------------

-------------------------------------------------------------------
-------------------------------------------------------------------
      The incentive  stock options are  exercisable  at the fair market value on
the date of grant,  and were available from the 1996, 1997 and 1998 stock option
plans.  The options  outstanding  at December 31, 1998 are  exercisable  through
January 17, 2002, December 29, 2002 and September 2, 2003 respectively.
-------------------------------------------------------------------
-------------------------------------------------------------------

-------------------------------------------------------------------
     The non-employee  Director options are exercisable at the fair market value
on the date of grant. The non-employee  Director options outstanding at December
31, 1998 are exercisable through October 12, 2003.
-------------------------------------------------------------------

-------------------------------------------------------------------
-------------------------------------------------------------------
      Warrants to purchase 1,560,000 shares of CASCO INTERNATIONAL,  INC. common
stock were issued in September 1997 as part of the unit  offering.  The warrants
are exercisable for five years from the date of issuance at $5.50 per share.
-------------------------------------------------------------------
-------------------------------------------------------------------


<PAGE>

<TABLE>
<CAPTION>
                                                           Proceeds
              Date Granted           Shares   Exercise    to Company
               or Issued          Exercisable  Price     Upon Exercise
Incentive     ------------        -----------  ------    -------------
Stock Options:
<S>                   <C>            <C>      <C>           <C>     
1996 Plan     January 17, 1997       27,540   $3.7037       $102,000
1996 Plan     March 26, 1997          5,400    3.7037         20,000
1996 Plan     March 12, 1997         43,200    3.2407        139,998
1997 Plan     December 29, 1997       9,000    3.0625         27,563
1997 Plan     January 20, 1998       70,000    2.8750        201,250
1997 Plan     March 3, 1998          40,000    2.8125        112,500
1997 Plan     March 10, 1998          3,000    3.0000          9,000
1997 Plan     April 1, 1998           5,000    3.5000         17,500
1998 Plan     September 2, 1998      65,000    2.0000        130,000
1998 Plan     October 12, 1998        5,000    1.0000          5,000
</TABLE>

<TABLE>
<CAPTION>


                                                            Proceeds
              Date Granted          Shares     Exercise    to Company
                or Issued         Exercisable   Price     Upon Exercise
Non-Employee  ------------        -----------  --------   -------------
Director
Options:
<S>                <C>              <C>      <C>             <C>   
1996 Plan     June 25, 1997          10,800   $4.1667         45,000
1996 Plan     January 20, 1998       30,000    2.8750         86,250
1998 Plan     September 2, 1998      15,000    2.0000         30,000


Warrants:     September 19, 1997  1,560,000     $5.50      8,580,000
                                  ---------             ------------

Total                             1,888,940               $9,506,061
                                  =========             ============
-------------------------------------------------------------------
</TABLE>

-------------------------------------------------------------------
-------------------------------------------------------------------
     Pro forma  information  regarding  net  income  and  earnings  per share is
required by SFAS 123, and has been  determined  as if the Company had  accounted
for its employee  stock options  under the fair value method of that  Statement.
The fair value for these  options  was  estimated  at the date of grant  using a
Black-Scholl's   option  pricing  model  with  the  following  weighted  average
assumptions for 1998 and 1997. There were no options outstanding at 1996.
-------------------------------------------------------------------
-------------------------------------------------------------------

-------------------------------------------------------------------
                                 1998      1997
                                -----     -----
Risk-free interest rate           6%        6%
Dividend yield                    0%        0%
Volatility factor               107.7%     82.7%
Weighted average expected         5          5
life in years
-------------------------------------------------------------------

-------------------------------------------------------------------


<PAGE>



-------------------------------------------------------------------
     For  purposes of pro forma  disclosures,  the  estimated  fair value of the
options is amortized to expense over the options' vesting period.  The Company's
pro forma net income (loss) and earnings per share were as follows:
-------------------------------------------------------------------
-------------------------------------------------------------------
<TABLE>
<CAPTION>

-------------------------------------------------------------------
                                             1998        1997
<S>                                    <C>               <C>      
Net income (loss) as reported          $  692,266        (417,727)
Net income (loss)-pro forma               677,866        (430,727)
Income (loss) per
   common share-as reported            $       39    $      (0.34)
Income (loss) per              
   common share-pro forma                     .38            (.35)
Weighted average fair value of         $     2.04    $        2.60
   options granted during the year
-------------------------------------------------------------------
</TABLE>

-------------------------------------------------------------------
-------------------------------------------------------------------
     The pro forma effect of these options on net loss and loss per common share
was not material.  These pro forma calculations only include the effects of 1998
and 1997 grants.  As such,  the impacts are not  necessarily  indicative  of the
effects on reported net income of future years.
-------------------------------------------------------------------
-------------------------------------------------------------------

-------------------------------------------------------------------
-------------------------------------------------------------------
3.  STOCK DIVIDENDS
-------------------------------------------------------------------

-------------------------------------------------------------------
      On June 1, 1997,  the Company  declared an 8% stock dividend on its common
stock for  stockholders  of record on July 16,  1997.  The payment  date for the
stock  dividend was August 1, 1997.  As a result of the stock  dividend,  74,097
additional  shares  were  issued,  capital in excess of par value was reduced by
$741. There was no distribution or cash payment relating to fractional shares.
-------------------------------------------------------------------
-------------------------------------------------------------------

-------------------------------------------------------------------
-------------------------------------------------------------------
4.    DEBT OBLIGATIONS
-------------------------------------------------------------------

-------------------------------------------------------------------
           Debt obligations consisted of the following:
-------------------------------------------------------------------
<TABLE>
<CAPTION>
                                       December 31,        December 31,
                                          1998                 1997
                                       -----------         -----------   
<S>                                    <C>                 <C>    
Line of  credit  with  interest  
at prime  plus 1/2  percent;  
interest  payable monthly, maturing 
on July 30, 1999, collateralized
by accounts receivable and             
inventory of the Company
($1,355,508 available at 
December 31,1998).                     $3,644,492           ------

Subordinated  debenture  due to Pages,  $5  million 7%  subordinated  debenture,
principle  payments  will be $100,000 per year for the first four years,  with a
balloon payment due at the end of the fifth year for the remaining principle
balance. (See Note 9.)                    -------          $5,000,000

<PAGE>

First  National  Bank first deed of trust on the Shelby  facilities.  Payable in
monthly installments of $24,088 including interest (7 1/2 percent) through March
of 2013. The term of the loan is fifteen years, callable after five years
and guaranteed by the President.        2,302,460           ------

Promissory  note  payable  with  interest  at 8  percent,  payable in two annual
installments through July 30, 2000. Collateralized by letter of credit at
Branch Banking & Trust.                   200,000           -------

Promissory note payable with
interest at 6 percent, payable in
monthly installments through              
October 1, 2003.                          148,471           -------
                                     -------------     -------------
                                        6,295,423         5,000,000
Current portion                         3,882,269           100,000
                                     =============     =============
Long term portion                      $2,413,154        $4,900,000
                                     =============     =============
-------------------------------------------------------------------
</TABLE>

-------------------------------------------------------------------
-------------------------------------------------------------------
      The interest  rate for the line as of December 31, 1998 and 1997 was prime
plus 1/2 percent and prime plus 1 percent, respectively.
-------------------------------------------------------------------
-------------------------------------------------------------------

-------------------------------------------------------------------
   The prime  interest  rate at  December  31, 1998 and 1997 was 7 3/4 and 8 1/2
percent,  respectively.  The carrying  amount of the  Company's  short term debt
obligations approximates fair value.
-------------------------------------------------------------------

-------------------------------------------------------------------
-------------------------------------------------------------------
     The line of credit  facility also  includes  certain  financial  covenants,
including  covenants that the Company  maintain  certain  financial  ratios.  In
addition,  the credit  facility  contains  limitations on capital  expenditures,
fixed  asset  sales,  loans  and/or  advances  to  shareholders  and  employees,
restrictions  on operating  leases and  limitation  on dividends  paid on common
stock to $100,000 annually.  As of December 31, 1998, the Company was in default
of several of the  covenants.  The  Company  received a waiver  letter for these
defaults as of December 31, 1998.
-------------------------------------------------------------------
-------------------------------------------------------------------

-------------------------------------------------------------------

5.    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 $152,128, $125,570
and  $144,719,   for  the  years  ended  December  31,  1998,   1997  and  1996,
respectively.  The future minimum rentals under non-cancelable  operating leases
during subsequent fiscal years are as follows:
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                   YEARS ENDING
                   DECEMBER 31,
                     1999           $  102,709
                     2000               63,678
                     2001                1,431
                                 -------------
                                    $  167,818
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<PAGE>



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      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.
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6.    INCOME TAXES

      As  discussed  in Note 1, the Company was  included in Pages  consolidated
income tax return for 1996.

-------------------------------------------------------------------
      Temporary  differences between income for financial reporting purposes and
tax reporting  purposes  relate  primarily to  accounting  methods for inventory
costs,  revenues  earned,   accrued  and  prepaid  expenses  and  reserves,  and
depreciation.
-------------------------------------------------------------------

      For the years  presented,  the  benefit for income  taxes from  continuing
operations consisted of the following.
<TABLE>
<CAPTION>

                          December 31,     December 31,   December 31,      
                             1998            1997            1996
Current                     -----            -----           -----

Deferred
<S>                       <C>              <C>             <C>       
   Federal                $(130,300)       $(217,000)      $(165,850)
   State and Local          (15,200)         (39,000)        (29,250)
                          -----------     ------------     -----------
Net deferred benefit      $(145,500)       $(256,000)      $(195,100)

Net benefit for taxes     $(145,500)       $(256,000)      $(195,100)
                          ===========     ============     ===========
</TABLE>


      For the years presented,  a reconciliation of income taxes from continuing
operations  based upon the  application of the federal  statutory tax rate is as
follows: <TABLE> <CAPTION>

                          December 31,    December 31,   December 31,
                             1998            1997             1996
                          -----------     -----------    -----------
<S>                       <C>             <C>             <C>        
Benefit for taxes at      $(145,700)      $ (229,100)     $ (198,300)
  statutory rate                                         
Goodwill amortization         13,650           13,650          13,650
State taxes net of          (15,300)         (40,400)        (34,950)
  federal benefit
Other                          1,850            (150)          24,500
                          -----------     ------------     -----------

   Total benefit for      $(145,500)      $ (256,000)      $ (195,100)
       income taxes                                               
                          ===========     ============     ===========

</TABLE>




<PAGE>



The components of net deferred taxes are as follows:
<TABLE>
<CAPTION>

                                                  December 31,      December 31,
                                                      1998              1997
                                                  ------------      -----------
Assets:
<S>                                                <C>              <C>        
   Inventory costs capitalized for tax .......     $    73,100      $    67,900
      purposes
   Accruals and reserves to be expensed
      as paid for tax purposes .............            81,500          150,000
   Other .....................................          27,850            3,050
   Net operating loss carry forwards .........         296,400          727,300
                                                   -----------      -----------
Deferred tax assets ..........................         478,850          948,250


Liabilities:
   Revenues to be earned net of cost .........        (301,000)        (316,900)
   Excess of tax over financial
      accounting depreciation and ............        (670,000)        (699,000)
      amortization
                                                   -----------      -----------
Deferred tax liability .......................        (971,000)      (1,015,900)
                                                   -----------      -----------

Net deferred tax liability ...................     $  (492,150)     $   (67,650)
                                                   ===========      ===========
</TABLE>

     The Company  changed its effective rate to 38% in 1998 from 40% in 1997. At
December 31, 1998,  operating loss  carryforwards of approximately  $780,000 are
available, which will expire, if unused, beginning in 2010. The Company utilized
approximately $1,065,000 and $647,000 of net operating loss carryforward for the
years ended December 31, 1998 and 1997,  respectively.  The Company was included
in Pages consolidated federal tax return for the year ended December 31, 1996.
-------------------------------------------------------------------
7.    RELATED PARTY TRANSACTIONS
-------------------------------------------------------------------

-------------------------------------------------------------------
     For all periods presented prior to 1997, Pages had 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,  based on the  prime  interest  rate as  applied  to the
average  outstanding balance due to Pages the years ended December 31, 1996. 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 continued to be
incurred  subsequent to the Distribution  approximates  $30,000.  The balance of
nonrecurring  costs  relates  to  duplicative  management  responsibilities  for
financing  and  operating  activities,  as  well  as  other  transportation  and
administrative costs which were eliminated by the Distribution.
-------------------------------------------------------------------
-------------------------------------------------------------------

-------------------------------------------------------------------
-------------------------------------------------------------------
      Pages  allocated  general  corporate  expenses to the Company
for the years ended  December 31, 1998,  1997, and 1996 in the amounts of $0, $0
and $500,000, respectively.
-------------------------------------------------------------------
-------------------------------------------------------------------

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8.    LOSS ON SALE OF BUILDING
-------------------------------------------------------------------
-------------------------------------------------------------------

-------------------------------------------------------------------
-------------------------------------------------------------------
     On March 4, 1998 the  Company  sold its  167,000  sq.  ft.  Kings  Mountain
Warehouse.  The sale  netted the  Company  approximately  $425,000.  The Company
recorded a loss on the sale which totaled $151,144.
-------------------------------------------------------------------
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<PAGE>



-------------------------------------------------------------------
9.    EXTRAORDINARY GAIN ON RETIREMENT OF DEBT
-------------------------------------------------------------------
-------------------------------------------------------------------

-------------------------------------------------------------------
      On January 23, 1998, the Company redeemed at a discount,  the subordinated
debenture  due to Pages on  January  1,  2002.  The  debenture  in the  original
principal  amount of $5 million  was  redeemed  for $3.5  million.  The  Company
replaced  the  Pages  debt  with  proceeds  from  the line of  credit.  The debt
retirement resulted in an extraordinary gain of $930,000 after tax of $570,000.

For the year ended  December 31, 1998, the impact of the  extraordinary  gain on
basic and diluted earnings (loss) per share was as follows:
<TABLE>
<CAPTION>

                                                    Basic    Diluted
<S>                                   <C>          <C>      <C>     
 Loss before extraordinary gain       $ (237,734)  $ (.13)  $  (.13)
 Extraordinary gain on retirement
   of debt (less applicable
   income taxes of $570,000)             930,000      .52       .52
                                      -----------------------------
 Net income                           $  692,266   $  .39   $   .39
                                      -----------------------------
----</TABLE>
--------------------------------------------------------------

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<PAGE>



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DIRECTORS:                                COMPANY OFFICES:

S. Robert Davis, Chairman of the Board    Headquarters and Distribution Center:
                                          4205 East Dixon Boulevard
Charles R. Davis, President and CEO       Shelby, North Carolina 28150

Robert V. Boylan, Chief Operating Officer

David J. Richards, Director

Michael P. Beauchamp, Director



-------------------------------           -------------------------------

CORPORATE OFFICERS:                       AVAILABILITY OF EXHIBITS TO
                                          FORM 10-K:
Charles R. Davis, President              
                                          Exhibits to Form 10-K Report are on  
Robert V. Boylan, Chief Operating         file with the Securities and 
Officer                                   Exchange Commission and are
                                          referenced on the Exhibit Index
Jeffrey A. Ross, Chief Financial          contained hereinabove.  Exhibits are
Officer and Secretary                     available  upon request,  at $0.25  
                                          per  page, representing  the 
                                          Registrant's reasonable expenses in
                                          furnishing  such   exhibit(s).
                                          Exhibits  may be  obtained  by
                                          writing  to  Jeffrey  A. Ross,
                                          Secretary, CASCO INTERNATIONAL, INC.
-------------------------------

STOCK   TRANSFER   AGENT   AND
REGISTRAR:

American Stock Transfer &
Trust Company
40 Wall Street
New York, New York 10005








-------------------------------

AUDITORS:

Hausser + Taylor LLP
471 East Broad Street
Suite 1200
Columbus, Ohio 43215
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