UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                  FORM 10-K/A
                               (AMENDMENT NO. 2)
                  --------------------------------------------
                                   (Mark One)

        [ X ]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

                                             OR

        [     ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                OF THE SECURITIES EXCHANGE ACT OF 1934

  For the transition period from ..................to.........................

                         Commission File Number 0-21717

                           CASCO INTERNATIONAL, INC.
             (Exact Name of Registrant as specified in its charter)

            Delaware                                 56-0526145
(State or other jurisdiction of                     (I.R.S. Employer
incorporation or organization)                       Identification No.)

              13900 Conlan Circle, Suite 150, Charlotte, NC 28277
              ---------------------------------------------------
               (Address of principal executive offices)(Zip Code)

Registrant's telephone number, including area code  (704) 482-9591
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:

                         Common Stock, $0.01 par value
                         -----------------------------
                                (Title of Class)

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

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

The aggregate  market value of the voting shares held by  non-affiliates  of the
Registrant  as of March 29, 2001 was  $3,009,150  (computed  by reference to the
average bid and asked prices of such shares on such date).

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practicable date.

                CLASS                   OUTSTANDING AT MARCH 29, 2001
                -----                   -----------------------------
Common Stock, par value $0.01 per share           1,774,186


                      DOCUMENTS INCORPORATED BY REFERENCE

None.
<PAGE>


Note:  The  purpose of this  amendment  is due to SEC Staff  comments to a Proxy
Statement filed by the Company.
<TABLE>
<CAPTION>

ITEM 6.  SELECTED FINANCIAL DATA.
(In thousands, except per share data)

                                Year      Year      Year      Year      Year
                                Ended     Ended     Ended     Ended     Ended
                               December  December  December  December  December
                                 31,        31,       31,       31,       31,
                               ------------------------------------------------
                                2000       1999      1998      1997      1996
                               ------------------------------------------------
                              (Restated)(Restated)
                                  **        **
<S>                                <C>      <C>         <C>      <C>      <C>
STATEMENT OF OPERATIONS DATA:
Revenues                      $  23,545  $ 24,199  $ 21,718  $ 19,333  $ 21,959
Costs and expenses               22,989    23,579    22,102    20,007    22,542
                              ---------  --------  --------  --------  --------

Income (loss) before income
  taxes and cumulative effect
  of change in accounting
  principle                         556       620      (384)     (674)     (583)
Benefit (Provision) for
  income taxes                     (238)     (281)      146       256       195
                              ---------  --------   -------   -------  --------

Income (loss) before extraordinary gain and
     cumulative effect of change in
     accounting principle           318       339      (238)    (418)      (388)
Cumulative effect of change in
     accounting principle *       -----     -----     -----    -----        597
Extraordinary gain on retirement
     of debt                      -----     -----       930    -----      -----
                              ---------  --------    ------   ------    -------
Net income (loss)             $     318  $    339  $    692  $  (418)  $    209
                              =========  ========   =======  =======   ========

PER SHARE DATA:
Income (loss) before cumulative effect of
     change in accounting
     principle                $    0.18  $   0.19  $  (0.13) $ (0.34)  $  (0.39)
Cumulative effect of change in accounting
     principle                    -----     -----     -----    -----       0.59
Extraordinary gain on
     retirement of debt           -----     -----      0.52    -----      -----
                               --------   -------   -------  -------    -------

Income (loss) per common
     share                    $    0.18  $   0.19  $   0.39  $ (0.34)  $   0.20
                              =========  ========  ========  ========  ========

Weighted average common and common
     equivalent shares        1,782,237 1,783,200 1,783,200 1,225,447 1,003,431
                              ========= ========= ========= ========= =========
</TABLE>

*In 1996, the Company  changed its method of accounting  for the  recognition of
revenues relating to advanced deposits.  Effective with the change, revenues are
recognized over the course of the programs based on the Company's historical and
expected redemption percentages. The effect of the accounting change in 1996 was
to  increase  income  before  income  taxes and  cumulative  effect of change in
accounting principle by $209,190.

**The financial  statements  have been restated for the effect of warrants.  See
financial statement notes for additional information.

The Company  has not  declared or paid any cash  dividends  on the Common  Stock
since it was spun off from Pages,  Inc. at the close of business on December 31,
1996.

BALANCE SHEET DATA:

Working capital               $  4,920  $  4,787  $   4,606 $  7,202  $   5,025

Total assets                    16,544    17,344     18,843   16,148     18,249

Long-term debt                   2,054     2,190      2,413    4,900      4,125

Stockholders' equity             6,586     6,250      5,880    5,188      3,328

<PAGE>


ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

     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.

CAUTIONARY STATEMENT

     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 including,  without limitation,  not discussed its ability to grow through
acquisition  and strategic  alliances and through  expanding its current  market
share and entering new markets,  the adequacy of the company's cash resources to
fund its current operations,  the decreased effect of seasonality on the Company
the  anticipated  renewal  of  the  Company's  credit  facility,  the  Company's
expectation  with respect to  expenditures  for property and equipment,  and the
Company's  expectations  with respect to the diminished effect of seasonality on
its business 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.
<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,
                                     2000          1999           1998
                                  --------------------------------------
                                  (RESTATED)    (RESTATED)
<S>                                 <C>             <C>           <C>

Total revenue                       100.0%        100.0%        100.0%
Cost of goods sold                   53.7%         55.0%         58.6%
                                   -------        ------        ------

Gross profit                         46.3%         45.0%         41.4%
Selling, general, and administrative 39.5%         37.9%         38.6%
Interest                              1.3%          1.5%          1.6%
Depreciation and amortization         3.2%          3.0%          2.4%
Loss on Sale of Building              ---            ---          0.7%
                                   -------        ------        ------

Income (loss) from continuing operations
  before income taxes                 2.5%          2.6%         (1.7%)
                                   =======        ======        ======

</TABLE>



YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999.

     Revenues for the year ended December 31, 2000  approximated  $23.5 million,
compared to $24.2  million in revenues  for the year ended  December 31, 1999, a
decrease of 2.7% or  approximately  $654,000.  The decrease is  attributable  to
one-time  incentive  sales in 1999  that did not  repeat  in 2000 as well as the
Company's  strategic decision to exit some low margin specialty accounts and the
continued decline in the holiday revenue.

     Cost of goods sold for the year ended December 31, 2000 approximated  $12.6
million,  compared to approximately  $13.3 million of cost of goods sold for the
year ended December 31, 1999, a decrease of 5.1% or approximately  $683,000. The
decrease in cost of goods sold was attributable to the decrease in revenues.  As
a percentage of revenues,  cost of goods sold  decreased to 54% in 2000 from 55%
in 1999. The 1.0% decrease in cost of goods sold was principally attributable to
a change in product mix, as well as increased sales in new programs.

     Selling,  general,  and administrative  expense for the year ended December
31, 2000 approximated $9.3 million,  compared to approximately  $9.2 million for
the year ended December 31, 1999, an increase of 1.4% or approximately $124,000.
The  increase in selling,  general and  administrative  expenses  was due to the
expansion  of the  employee  based sales force as well as the  expansion  of the
marketing  department.  As  a  percentage  of  revenues,  selling,  general  and
administrative  increased to 39.5% in 2000 from 37.9% in 1999. The 1.6% increase
as a percentage of revenues was principally attributable to the expansion of the
employee based sales force into new markets .
<PAGE>

     Interest expense was approximately $302,000 for the year ended December 31,
2000,  compared to $372,000 for the year ended  December 31, 1999, a decrease of
18.9% or approximately $70,500. The decrease was attributable to a lower average
outstanding debt by month in 2000. The average outstanding debt by month in 2000
approximated $3.6 million compared to $4.7 million for 1999.  Additionally,  the
average  interest rate for 2000  approximated  8.39%  compared to  approximately
7.94% for 1999.

     Depreciation and amortization  expense was  approximately  $761,300 for the
year ended  December 31, 2000,  compared to $722,100 for the year ended December
31,  1999,  an  increase  of 5.43% or  approximately  $39,200.  The  increase in
depreciation  and  amortization  expense  was  principally  attributable  to the
depreciation of newly acquired assets in 1999 and 1998.

     Income tax  provision  was $238,000  for the year ended  December 31, 2000,
compared to an income tax provision of $281,000 for the year ended  December 31,
1999. The provisions for income tax were calculated through the use of estimated
income tax rates based upon the income before income taxes.

YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998.

     Revenues for the year ended December 31, 1999  approximated  $24.2 million,
compared to $21.7  million in revenues for the year ended  December 31, 1998, an
increase of 11.4% or approximately $2.5 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.

     Cost of goods sold for the year ended December 31, 1999 approximated  $13.3
million,  compared to approximately  $12.7 million of cost of goods sold for the
year ended December 31, 1998, an increase of 4.7% or approximately $601,000. 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 55% in 1999 from 58.6%
in 1998. The 3.6% decrease in cost of goods sold was principally attributable to
a change in product mix, an improved purchasing strategy and systems, as well as
the increased sales in new programs.

     Selling,  general,  and administrative  expense for the year ended December
31,  1999  approximated  $9.2  million  for the year ended  December  31,  1999,
compared to approximately  $8.4 million for the year ended December 31, 1998, an
increase of 9.4% or approximately $789,000. 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 37.9% in 1999 from 38.6% in 1998. The 0.9% decrease
as a percentage of revenues was principally  attributable  to benefits  obtained
from aggressive cost containment  policies and efficiencies  gained from the new
computer processing system.
<PAGE>

     Interest expense was approximately $372,000 for the year ended December 31,
1999,  compared to $336,000 for the year ended December 31, 1998, an increase of
10.9% or approximately $36,000. The increase was attributable to the interest on
the Company's line of credit which was used to finance the acquisitions in 1998.
The average outstanding debt by month in 1999 approximated $4.7 million compared
to $3.4  million  for 1998.  Additionally,  the average  interest  rate for 1999
approximated 7.94% compared to approximately 8.91% for 1998 on the debt.

     Depreciation and amortization  expense was  approximately  $722,100 for the
year ended  December 31, 1999,  compared to $520,000 for the year ended December
31,  1998,  an  increase of 38.9% or  approximately  $202,100.  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.

     Income tax  provision  was $281,000  for the year ended  December 31, 1999,
compared to an income tax benefit of $145,500  for the year ended  December  31,
1998. The provisions for income tax were calculated through the use of estimated
income tax rates based upon the income (loss) before income taxes.


LIQUIDITY AND CAPITAL RESOURCES

     The Company's  primary  sources of liquidity  have been cash generated from
operating  activities and amounts  available under its existing credit facility.
The  Company's  primary  uses  of  funds  consist  of  financing  inventory  and
receivables.

     Net working  capital  increased to  $4,920,000 as of December 31, 2000 from
net working  capital of  $4,787,000  as of December 31,  1999.  The increase was
primarily  attributed  to the  Company's  ability to pay down its line of credit
during 2000.

     The  Company  has  adopted a growth  strategy  which  will be  accomplished
through increased  efforts of the Company's  existing highly trained sales force
and the use of  independent  field  representatives  in order to expand  current
market  share  and  enter  into new  markets.  As a result of a change in market
conditions,  the Company  discontinued  its  efforts to enter the  e-fulfillment
business.

     The Company  anticipates  that  operating cash flows during the next twelve
months,  coupled with its ability to borrow under the credit facility will cover
operating  expenditures and meet the short-term debt obligations.  The Company's
credit facility is due and payable in full on July 30, 2001. Although the lender
has not issued a commitment to do so, the Company's relationship with its lender
is  favorable  and the  Company  anticipates  that the credit  facility  will be
renewed when due.

     Current assets decreased  approximately  $429,000 due mostly from decreases
in  inventory  ($398,000).  The  decrease  in  inventory  is due to an  improved
purchasing  strategy coupled with an improved  processing and inventory ordering
system.  Current liabilities  decreased  approximately  $562,000 due mostly from
decreases in short-term debt  obligations  ($642,000),  and accounts payable and
accrued  liabilities  ($451,000),  and  taxes  payable  ($230,000)  offset by an
increase  of advance  deposits  ($760,765).  The  decrease  in  short-term  debt
obligations  was due to the pay down of the line of credit  from the excess cash
generated  from  operations.  The  decrease in  accounts  payable was due to the
decreased inventory  purchases.  The increase in advance deposits was due to the
change in the mix of prepaid deposits from noncurrent to current.
<PAGE>

     Cash  decreased  approximately  $2,200.  Net cash provided  from  operating
activities was approximately  $1,145,000.  Net cash used in investing activities
was  approximately  $352,000  due to payments for  purchases of new  information
systems. Net cash used by financing activities was approximately $795,000, which
was due to the  reduction on the line of credit and the purchase of 9,014 shares
of Company stock at $2 per share.  The Company does not  anticipate any material
expenditures  for property and equipment  during the next twelve months,  out of
the ordinary course of business. Management believes that present resources will
meet anticipated requirements for its current operations.

     The Company is aware of no trends or demands,  commitments or uncertainties
that will result in, or that management believes are reasonably likely to result
in, the Company's liquidity  increasing or decreasing in any material way in the
short term. The Company is concerned with the uncertainty of the economy and the
uncertainty  of the  increased  unemployment  rates in recent  months.  If these
trends would  continue it could  affect the  liquidity in an adverse way over an
extended   period  of  time.   The  Company  is  aware  of  no  legal  or  other
contingencies,  the effect of which are believed by  management to be reasonably
likely to have a material adverse effect on the Company's financial statements.

SEASONALITY

     The Company's  business is highly seasonal,  with  approximately 36% of its
revenues and most of its profits  recorded in the months of November,  December,
and January. As a result, the Company's working capital requirements are highest
during  November and December when the  combination of receivables and inventory
are at peak levels.  The Company typically  experiences losses in its second and
third quarters.

     As the results from the Company's growth strategy  develop,  the effects of
seasonality should be diminished. The business segments on which the Company has
chosen  to  focus  offer  steadier  revenue  flows,  as well as more  consistent
requirements for working capital.

INFLATION

     Although the Company  cannot  determine  the precise  effects of inflation,
inflation has an influence on the cost of the  Company's  products and services,
supplies, salaries, and benefits. The Company attempts to minimize or offset the
effects of inflation through increased sales volumes and sales prices,  improved
productivity,  alternative  sourcing of products and supplies,  and reduction of
other costs.  The Company  generally has been able to offset the impact of price
increases  from  suppliers by increases in the selling  prices of the  Company's
products and services.
<PAGE>




                           CASCO INTERNATIONAL, INC.

                         INDEX TO FINANCIAL STATEMENTS


                                                                    Page
Independent Auditors' Report--                                       29
Hausser + Taylor LLP - for the years ended December 31, 2000, 1999 and 1998.

Statements of operations--                                           30
Years ended December 31,  2000, 1999 and 1998.

Balance sheets--                                                     31
December 31, 2000 and December 31, 1999.

Statements of cash flows--                                           33
Years ended December 31, 2000, 1999 and 1998.

Statements of stockholders' equity--                                 34
Years ended December 31, 2000, 1999 and 1998.

Notes to the financial statements--                                  35
Years ended December 31, 2000, 1999 and 1998.

Financial Statement Schedule                                         27
        Schedule II - Valuation and Qualifying Accounts and Reserves

     All  other  schedules  are  omitted,   not  applicable  under  the  related
instructions, and therefore have been omitted.
<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, 2000 and 1999, and the related statements of
operations,  stockholders' equity, and cash flows for each of the three years in
the period  ended  December  31, 2000.  Our audits also  included the  financial
statement  schedule  listed  in the  Index to the  Financial  Statements.  These
financial  statements and financial statement schedule are the responsibility of
the Company's  management.  Our  responsibility  is to express an opinion on the
financial statements based on our audits.

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

In our opinion,  such  financial  statements  and financial  statement  schedule
present fairly, in all material respects,  the financial position of the Company
as of December 31, 2000 and 1999, and the results of its operations and its cash
flows for each of the three  years in the  period  ended  December  31,  2000 in
conformity with accounting  principles generally accepted in the United Sates of
America.

As discussed in Note 11 to the financial statements,  these financial statements
have been restated for the accounting for warrants issued to a non-employee.



                                                /s/ Hausser +  Taylor LLP

Columbus, Ohio
March 19, 2001, except for Note 11 as to which the date is October 18, 2001


<PAGE>
<TABLE>
<CAPTION>


                           CASCO INTERNATIONAL, INC.
                            STATEMENT OF OPERATIONS
              For the years ended December 31, 2000, 1999 and 1998

                                        2000            1999            1998
                                    -----------    -----------     -----------
                                     (RESTATED)     (RESTATED)
<S>                                  <C>                 <C>           <C>

Revenue                             $23,545,410    $ 24,199,483    $ 21,718,213

Operating costs and expenses:
Cost of goods sold .............     12,634,959      13,318,115      12,716,740
Selling, general and administrative   9,290,735       9,166,905       8,377,665
Depreciation and amortization ......    761,347         722,104         520,027
     Total operating costs and       ----------      ----------      ----------
        expenses                     22,687,041      23,207,124      21,614,432

Operating income ............           858,369         992,359         103,781

Other expense:
Interest expense ...............        301,859         372,378         335,871
Loss on sale of building .......           --              --           151,144
                                     ----------      ----------      ----------
     Total other expenses .......       301,859         372,378         487,015

Income (loss) before income taxes and
extraordinary item ..............       556,510         619,981        (383,234)
Benefit (provision) for income taxes   (238,000)       (281,000)        145,500
                                     ----------      ----------      ----------
Income (loss) before extraordinary gain on
retirement of debt .................    318,510         338,981        (237,734)

Extraordinary gain on retirement of debt (less
      income taxes of $570,000)            --              --           930,000
                                     ----------      ----------      ----------
Net Income (Loss) ..............   $    318,510    $    338,981    $    692,266
                                     ==========     ===========    ============
EARNINGS PER SHARE - BASIC
Income (loss) before extraordinary
   item                            $       0.18    $       0.19    $      (0.13)
Extraordinary gain on retirement
   of debt                                 --              --              0.52
                                   ------------    ------------    ------------
Net Income (Loss) ..............   $       0.18    $       0.19    $       0.39
                                   ============    ============    ============
EARNINGS PER SHARE - DILUTIVE
Income (loss) before extraordinary
   item ..........                 $       0.16    $       0.19    $      (0.13)
Extraordinary gain on retirement of debt   --              --              0.52
                                   ------------    ------------    ------------
                                   $       0.16    $       0.19    $       0.39
                                   ============    ============    ============
Weighted average common shares outstanding
  Common .......................      1,782,237       1,783,200       1,783,200
                                   ============    ============    ============
  Diluted ......................      1,972,400       1,826,442       1,783,200
                                   ============    ============    ============
</TABLE>


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


                           CASCO INTERNATIONAL, INC.
                                 BALANCE SHEETS
                           December 31, 2000 and 1999




        ASSETS                                       2000           1999
                                                 -----------    -----------
                                                  (RESTATED)     (RESTATED)

<S>                                                 <C>                <C>
Current Assets:
Cash ........................................   $      4,551    $      6,797
Accounts receivable .........................      4,955,595       4,910,886
Inventory ...................................      4,316,076       4,714,063
Prepaid expenses ............................        959,623       1,033,274
Deferred tax asset ..........................        102,000         102,000
                                                  ----------      ----------
Total current assets ........................     10,337,845      10,767,020
                                                  ----------      ----------
Buildings and equipment:
Buildings ...................................      2,657,263       2,627,727
Equipment ...................................      3,537,335       3,223,615
                                                  ----------      ----------
                                                   6,194,598       5,851,342
Less accumulated depreciation ...............     (3,137,550)     (2,540,828)
                                                  ----------      ----------
                                                   3,057,048       3,310,514
Land ........................................        111,468         111,468
                                                  ----------      ----------
Total property and equipment, net ...........      3,168,516       3,421,982
                                                  ----------      ----------
Other assets:
Cost in excess of net assets acquired, net of
   accumulated amortization of $615,471 and
   $479,819 respectively ....................      2,270,598       2,406,250
Other .......................................        767,167         748,376
                                                  ----------      ----------
                                                   3,037,765       3,154,626
                                                ------------    ------------
TOTAL ASSETS ................................   $ 16,544,126    $ 17,343,628
                                                ============    ============

</TABLE>

    The accompanying notes are an integral part of the financial statements.

<PAGE>
<TABLE>
<CAPTION>



                           CASCO INTERNATIONAL, INC.
                                 BALANCE SHEETS
                           December 31, 2000 and 1999



LIABILITIES AND STOCKHOLDERS' EQUITY                 2000            1999
                                                ------------    ------------
                                                  (RESTATED)      (RESTATED)
<S>                                                  <C>            <C>


Liabilities:
  Accounts payable ..........................   $    488,726    $    965,112
  Short-term debt obligations................      1,858,485       2,500,465
  Accrued liabilities .......................        329,858         304,273
  Advanced deposits-current .................      2,615,550       1,854,785
  Accrued taxes payable .....................        125,000         355,000
                                                ------------    ------------
        Total current liabilities ...........      5,417,619       5,979,635
                                                ------------    ------------
Long-term debt ..............................      2,054,236       2,189,716
Advanced deposits-noncurrent ................      1,966,003       2,402,975
Deferred tax liability ......................        519,775         521,775
                                                ------------    ------------
        Total Liabilities ...................      9,957,633      11,094,101
                                                ------------    ------------
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..............      6,484,584       6,448,100
 Retained earnings (deficit).................        102,105        (216,405)
                                                ------------    ------------
                                                   6,604,521       6,249,527
 Less treasury stock, at cost 9,014 shares ..        (18,028)           --
                                                ------------    ------------
        Total stockholders' equity ..........      6,586,493       6,249,527
                                                ------------    ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ..   $ 16,544,126    $ 17,343,628
                                                ============    ============

</TABLE>


    The accompanying notes are an integral part of the financial statements.

<PAGE>

<TABLE>
<CAPTION>


                           CASCO INTERNATIONAL, INC.
                            STATEMENTS OF CASH FLOWS
              For the years ended December 31, 2000, 1999 and 1998



                                        2000            1999            1998
                                      ---------      ---------       ---------
                                      (RESTATED)      (RESTATED)
<S>                                      <C>              <C>             <C>
Cash flows from operating activities:
Net income (loss)  .............   $    318,510    $    338,981    $    692,266
Adjustments to reconcile net income (loss) to cash
   provided by operating activities:
   Depreciation and amortization        761,347         722,104         520,027
   Loss of sale of building .....          --              --           151,144
   Extraordinary gain on retirement of
    debt                                   --              --        (1,500,000)
   Deferred provision (benefit)          (2,000)        (74,000)        424,500
   Warrant compensation cost ...         36,484          30,514            --
   Changes in assets and liabilities:
   (Increase) decrease in assets:
      Accounts receivable ......        (44,709)        629,276        (496,739)
      Inventory ................        397,987         551,734        (595,713)
      Prepaid expenses and other assets  34,830          28,246        (174,792)
   Increase (decrease) in liabilities:
      Accounts payable and accrued
       liabilities ....                (680,801)         29,146         212,970
      Advanced deposits ..........      323,793        (321,999)         69,771
                                   ------------    ------------   -------------
        Total adjustments .........     826,931       1,595,021      (1,388,832)
                                   ------------    ------------   -------------
Net cash provided by (used in)
  operating activities                1,145,441       1,934,002        (696,566)
                                   ------------    ------------   -------------
Cash flows from investing activities:
Sale of building ................          --              --           421,187
Sale of equipment ...............        17,890            --              --
Payments for purchases of property
  and equipment ..                     (370,089)       (429,445)       (731,436)
                                   ------------    ------------   -------------
Cash used in investing activities      (352,199)       (429,445)       (310,249)

Cash flows from financing activities:
Proceeds from debt obligation ...    20,082,765      18,677,466      13,759,044
Principal payments on debt ......   (20,860,225)    (20,282,708)    (12,718,263)
Payment for purchase of common stock    (18,028)           --              --
Cash provided by (used in) financing ----------    ------------    ------------
  activities ...                       (795,488)     (1,605,242)      1,040,781

Increase (decrease) in cash .....        (2,246)       (100,685)         33,966
Cash, beginning of year .........         6,797         107,482          73,516
                                   ------------    ------------    ------------
Cash, end of year ...............  $      4,551    $      6,797    $    107,482
                                   ============    ============    ============
Other Cash Flow Information:
Cash payments during the year for:
   Interest .....................  $    298,805    $    386,069    $    307,156
   Income taxes, net of refunds .       545,678           7,000            --

Noncash Financing Activities:
Payment of subordinated debt ....  $      -----    $       --      $  3,500,000
Subordinated debt replaced with
 line of credit ....               $      -----    $       --      $  3,500,000
Acquisitions of assets and
 goodwill ..............           $      -----    $       --      $  1,745,642
Increase in line of credit for
 acquisitions .......              $      -----    $       --      $  1,745,642



</TABLE>


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

                           CASCO INTERNATIONAL, INC.
                       STATEMENT OF STOCKHOLDERS' EQUITY
              For the years ended December 31, 2000, 1999 and 1998


                                Capital in Retained
                       Common   Excess of  Earnings      Treasury
             Shares     Stock   Par Value  (Deficit)       Stock      Total
            -------    ------   ---------  ---------     ---------    ------
<S>              <C>    <C>       <C>          <C>          <C>         <C>

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

Warrant Compensation Cost          30,514                                30,514

Net Income (RESTATED)
                --         --       --         338,981      --          338,981

Balance December 31, 1999
(RESTATED) .1,783,200   17,832  6,448,100     (216,405)     --        6,249,527

Net Income(RESTATED)
                --         --        --        318,510      --          318,510

Warrant Compensation Cost          36,484                                36,484

Purchase of 9,014 shares
               (9,014)     --        --            --    (18,028)       (18,028)
            ----------  --------   -------     -------  ----------    ---------
Balance December 31, 2000
(RESTATED)  1,774,186  $17,832 $6,484,584   $ 102,105  $(18,028)   $ 6,586,493
            =========  ======= ==========   =========  =========   ===========

</TABLE>

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

                           CASCO INTERNATIONAL, INC.

                         NOTES TO FINANCIAL STATEMENTS
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

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  identified in the
agreements  in  accordance  with  Accounting  Principles  Board  ("APB") No. 16,
"Business Combination".

     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  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,  and an assumption of a real property  operating 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
fair market value of the assets  purchased  and sold.  The goodwill  acquired in
this  transaction  will be amortized over fifteen years using the  straight-line
method.  The  acquisition  was financed with proceeds from its revolving  credit
facility with Branch Banking & Trust Company.  The Buyer and the Seller mutually
agreed on the following allocation of the purchase price among the Assets:


                        Seller (1)      Adjustments (2)         Buyer (3)
Inventory               $335,944        $   (213,112)               $122,832
Computer Equipment        28,572             (18,572)                 10,000
Office Equipment           ---                10,000                  10,000
Furniture and Fixtures     ---                30,000                  30,000
Goodwill                   ---             1,326,633               1,326,633

(1)  Represents Awards & Gifts financial statement

(2)  Represents  adjustments  to record assets  acquired at fair market value at
     date of acquisition.  Goodwill was recorded for the difference  between the
     purchase price and the fair market value of assets acquired.

(3)  Represents the Company.
<PAGE>

None of the Seller's liabilities were assumed by the Buyer.


     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 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, and inventories.
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
fair market value of the assets  purchased  and sold.  The goodwill  acquired in
this  transaction  will be amortized over fifteen years using the  straight-line
method. The Buyer and the Seller mutually agreed on the following  allocation of
the purchase price among the Assets:

                                Seller (4)      Adjustments (5)      Buyer (6)
Inventory                       $    ---            $1,500            $1,500
Tools & Dies                         ---            12,000            12,000
Furniture and Fixtures               ---            30,000            30,000
Non-Competition Agreement            ---            36,000            36,000
Goodwill                             ---           195,677           195,677

(4)  Represents  American  Awards  &  Gifts  financial   statements  which  were
     maintained on a cash basis.

(5)  Represents  adjustments  to record assets  acquired at fair market value at
     date of acquisition.  Goodwill was recorded for the difference  between the
     purchase price and the fair market value of assets acquired.

(6)  Represents the Company.


None of the Seller's liabilities were assumed by the Buyer.

USE OF MANAGEMENT ESTIMATES

     The  preparation  of financial  statements  in conformity  with  accounting
principles  generally  accepted in the United  States of America  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.
<PAGE>

REVENUE RECOGNITION

     Revenues from the sale of incentive  awards are generally  recognized  upon
shipment and delivery of the related  merchandise  except for revenue recognized
for advanced deposits for certain programs. Advance deposits are recognized upon
shipment  and  delivery  of the  related  goods.  Additionally,  management  has
estimated, based on prior experience, the percentage of programs that will never
ship.  These  revenues  are  recognized  as revenue  over the  contract  period.
Revenues  from services are  insignificant.  Returns from the sales of incentive
awards and from services are insignificant.

ADVANCE DEPOSITS

     The Company  receives cash advance  deposits from  customers for several of
its incentive programs.  These advance deposits represent deferred revenue which
will be recorded in  accordance  with the  revenue  recognition  policy as noted
above. The following summarizes the activity in the advance deposit accounts for
the years ended December 31, 2000, 1999 and 1998, respectively:

                                     2000             1999           1998

Balance beginning of year         $4,257,760       $4,579,759     $4,509,988

Cash receipts                      3,608,635        3,629,535      3,529,062

Revenue recognized                (3,284,842)      (3,951,534)    (3,459,291)
                                  ----------       ----------     -----------
Balance end of year               $4,581,553       $4,257,769     $4,579,759
                                  ==========       ==========     ==========
Advance deposits, end of year:
  Current                         $2,615,550       $1,854,785     $1,926,406
  Long-term                        1,966,003        2,402,975      2,653,353
     Total                        $4,581,553       $4,257,760     $4,579,759


ACCOUNTS RECEIVABLE

     The  Company  sells its  products  to numerous  commercial  and  industrial
customers across the United States and Canada. The accounts  receivable are well
diversified and are expected to be repaid in the normal course of business.  The
Company has not provided any allowance for sales,  returns and allowances  based
on  management's  estimates of  collection.  Returns from the sales of incentive
awards and from  services are  insignificant.  The Company has elected to record
bad debts  using the direct  write-off  method.  Generally  Accepted  Accounting
Principles  require that the  allowance  method be used to recognize  bad debts;
however,  Management  believes that the amounts of accounts  receivable that are
directly  written off are not  material.  The amount of direct  write-offs  were
$46,872, $13,990 and $28,958 at December 31, 2000, 1999 and 1998 respectively.
<PAGE>

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,  2000 and 1999  include  $651,076  and
$629,263,  respectively,  of  prepaid  selling  costs  that  include  costs  for
commissions paid to sales people 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.

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, 2000,  1999 and 1998,  totaled  $605,667,  $566,424,  and $438,681,
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, 2000. 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, 2000,  1999 and 1998 totaled  $135,650  $135,650 and $77,274,
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 $20,030,  $20,030,  and $7,071, for the years ended December 31,
2000, 1999 and 1998, respectively.

INCOME TAXES

     The Company utilizes 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.
<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, 2000, 1999 and 1998.

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, 2000, 1999 and 1998.

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.

STOCK-BASED COMPENSATION

     The Company has elected to follow  Accounting  Principles Board Opinion No.
25,   "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".  For stock based  compensation other
than  employees,  the Company  utilizes the fair value method as provided for in
FASB #123.

EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS

     In December  1999,  the  Securities  and Exchange  Commission  issued Staff
Accounting   Bulletin  ("SAB")  No.  101,  "Revenue   Recognition  in  financial
Statements."  The guidance in SAB 101 must be adopted  during the fourth quarter
2000 and the effects, if any, are required to be recorded through a retroactive,
cumulative-effect  adjustment  as of the  beginning of the fiscal  year,  with a
restatement of all prior interim  quarters in the year.  Management has reviewed
their policies for revenue  recognition in comparison to the requirements in SAB
101 and no change  occurred  to its  income  statement  presentation,  operating
results or financial position as a result of implementing SAB 101.
<PAGE>


2.      STOCK OPTIONS AND WARRANTS

     At December 31, 2000,  935,000  common  shares of the Company were reserved
for issuance under the incentive stock option plans, 40,000 shares were reserved
under the  non-employee  director  stock option plans and 1,620,000  shares were
reserved  under  outstanding  warrants.  The 2000 option plan of 100,000  shares
includes both  employees and  directors.  The 1999 option plan of 600,000 shares
includes both  employees and directors.  Additionally,  200,000 common shares of
the Company were reserved under a performance option plan for the President.


                                   December 31, 2000       December 31, 1999
                                ------------------------ ----------------------
                                        Weighted Average        Weighted Average
Incentive Stock Option Plan     Number  Exercise Price   Number  Exercise Price
  Outstanding, beginning        ------  --------------   ------  --------------
        of year                 601,140     $2.0212     273,140      $2.8001
  Granted                        66,000     $2.7347     421,500      $1.7649
  Canceled                      117,360     $2.1302      93,500      $2.3529
  Exercised                       None       -----        None        -----
                                ----------------------  -----------------------
Outstanding, end of year        549,780     $2.2177     601,140      $2.1438
                                ----------------------  -----------------------
Exercise price range of options
outstanding                     $1.0000                 $1.0000
                                     to                      to
                                $4.2400                 $3.7037

Non-Employee Director Option Plan
  Outstanding, beginning
        of year                 220,800     $2.0212      55,800      $2.8094
  Granted                        10,000     $4.1250     180,000      $1.7500
  Canceled                        None        -----      15,000      $2.0000
  Exercised                       None        -----       None         -----
                                ----------------------  -----------------------
Outstanding, end of year        230,800      2.1124     220,800      $2.0212
                                ----------------------  -----------------------
Exercise price range of options
outstanding                       $1.75                 $1.75
                                     to                    to
                                  $4.17                 $4.17




     The weighted average remaining life on options  outstanding at December 31,
2000 is 4.19 years.

     The incentive stock options are exercisable at the fair market value on the
date of grant,  and were  available  from the 1996,  1997,  1999 and 2000  stock
option plans. The options  outstanding at December 31, 2000 are exercisable from
January 17, 2002, through July 31, 2005.

     The non-employee  Director options are exercisable at the fair market value
on the date of grant. The non-employee  Director options outstanding at December
31, 2000 are exercisable through October 12, 2003.
<PAGE>

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

     Warrants to purchase  30,000 shares of CASCO  International,  Inc.,  common
stock were issued February 28, 1998 to R. L. Renck & Co., Inc. The Warrants vest
at 2,500 per month  commencing  on  February  28,  1998 and  continuing  through
January 31,  1999 at an  exercise  price of $3.00 per share.  The  warrants  are
exercisable for five years from the date of issuance. The warrants are valued at
the fair market value of the common stock at the date of grant.

     Additional warrants to purchase 30,000 shares of CASCO International, Inc.,
common  stock were issued June 27, 1999 to R. L. Renck & Co.,  Inc. The warrants
vest at 10,000  shares on June 27, 1999 then at a rate of 2,500 shares per month
from June 27, 1999 to February 26, 2000 at an exercise price of $2.75 per share.
The warrants are exercisable for five years from the date of issuance.  The fair
market value of common stock at the date of grant was $1.94.

     For the R. L. Renck & Co., Inc. warrants, compensation cost, net of tax, of
$22,484 and $18,864 was recorded for the years ended December 31, 2000 and 1999,
respectively.



                                                                   Proceeds
                     Date Granted or    Shares      Exercise       to Company
                          Issued      Exercisable     Price       Upon Exercise
                     ---------------  -----------   --------      -------------
Incentive
Stock Options:
--------------
1996 Plan           January 17, 1997    14,580       $3.7037         $54,000
1996 Plan           March 26, 1997       5,400        3.7037          20,000
1996 Plan           March 12, 1997      37,800        3.2407         122,498
1997 Plan           December 29, 1997    7,000        3.0625          21,438
1997 Plan           January 20, 1998    60,000        2.8750         172,500
1997 Plan           March 3, 1998       20,000        2.8125          56,250
1997 Plan           April 1, 1998        5,000        3.5000          17,500
1997 Plan           October 12, 1998     5,000        1.0000           5,000
1997 Plan           May 27, 1999       349,000        1.7500         610,750
1999 Plan           January 19, 2000    20,000        2.0600          41,200
1999 Plan           February 1, 2000    20,000        2.1300          42,600
1999 Plan           April 25, 2000       1,000        4.2400           4,240
2000 Plan           July 31, 2000        5,000        2.6100          13,050


Non-Employee
Director Options:
----------------
1996 Plan           June 25, 1997       10,800      $4.1667          45,000
1996 Plan           January 20, 1998    30,000       2.8750          86,250
1997 Plan           May 27, 1999       180,000       1.7500         315,000
1999 Plan           April 5, 2000       10,000       4.1300          41,300


Warrants:
---------
                 September 19, 1997  1,560,000        $5.50       8,580,000
                 February 28, 1998      30,000         3.00          90,000
                 June 27, 1999          30,000         2.75          82,500
                                     ---------      -------       ---------

Total                                2,400,580                  $10,421,076
                                     =========                  ===========

     Pro forma  information  regarding  net  income  and  earnings  per share is
required by SFAS 123, and has been  determined  as if the Company had  accounted
for its employee  stock options  under the fair value method of that  Statement.
The fair value for these  options  was  estimated  at the date of grant  using a
Black-Scholl's   option  pricing  model  with  the  following  weighted  average
assumptions for 2000, 1999, and 1998.


                               2000            1999            1998
                               ----            ----            ----
Risk-free interest rate         6%               6%              6%
Dividend yield                  0%               0%              0%
Volatility factor             105.0%           104.4%          107.7%
Weighted average expected
  life in years                 3.3              5               5


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



                                2000            1999            1998
                                ----            ----            ----
                             (Restated)      (Restated)

Net income as reported        $318,510        $338,981        $692,266
Net income-pro forma           299,813         315,253         623,266
Income per common share -
   as reported                $  .18          $    .19        $   .39
Income per common shares -
   pro forma                  $  .17          $    .18        $   .35
Weighted average fair value of
   options granted during
   the year                   $ 2.73          $   1.76        $  2.53
<PAGE>

     These pro forma  calculations  only include the effects of 2000,  1999, and
1998 grants. As such, the impacts are not necessarily  indicative of the effects
on reported net income of future years.


3.      DEBT OBLIGATIONS

        Debt obligations consisted of the following:

                                                December 31,      December 31,
                                                   2000               1999
                                                   ----               ----

Line of credit with interest at prime
plus 1/4 percent;  interest payable
monthly, maturing on July 30, 2001,
collateralized by accounts receivable and
inventory of the Company  ($3,280,226 available
at December 31,2000).                           $1,719,774        $2,262,189

First National Bank first deed of trust
on the Shelby facilities.  Payable in monthly
installments of $24,088 including interest
(7 1/2 percent) through March of 2013.  The term
of the loan is fifteen years, callable after
five years and guaranteed by the President.      2,101,892         2,209,767

Promissory note payable with interest at 8
percent, payable in two annual installments
through July 30, 2000.  Collateralized by
letter of credit at Branch Banking & Trust.        -----             100,000

Promissory note payable with interest at 6
percent, payable in monthly installments
through October 1, 2003.                            91,055           118,225
                                                ----------       -----------
                                                 3,912,721         4,690,181
Current portion                                  1,858,485         2,500,465
                                                ----------       -----------
Long term portion                               $2,054,236        $2,189,716
                                                ==========        ==========

     The  interest  rate for the line as of December 31, 2000 and 1999 was prime
plus 1/4 percent and prime plus 1/2 percent, respectively.

     The prime  interest  rate at December 31, 2000 and 1999 was 9.5 percent and
8.5 percent,  respectively. The carrying amount of the Company's short-term debt
obligations approximates fair value.
<PAGE>

     The line of credit  facility also  includes  certain  financial  covenants,
including  covenants that the Company  maintain  certain  financial  ratios.  In
addition,  the credit  facility  contains  limitations on capital  expenditures,
fixed  asset  sales,  loans  and/or  advances  to  shareholders  and  employees,
restrictions  on operating  leases and  limitation  on dividends  paid on common
stock to  $100,000  annually.  The  Company  was in  violation  of one  covenant
pertaining  to purchase of its common  stock.  The Company has received a waiver
for this  violation for the year ended December 31, 2000. The treasury stock was
purchased from a third-party stockholder at the fair market value at the date of
the purchase.  The bank waiver was a one-time waiver for the year ended December
31, 2000 and when the line of credit was  renegotiated  in July 2001,  this loan
covenant was removed from the loan  agreement.  As the line of credit was due in
July 2001,  it was  included in the  current  portion of  long-term  debt in the
financial statements.

The  aggregate  long-term  debt payments as of December 31, 2000 for each of the
next three years are:

                2001             1,858,485
                2002               152,266
                2003             1,901,970
                Total           $3,912,721


4.      COMMITMENTS AND CONTINGENCIES

     The Company is obligated  under various  non-cancelable  operating  leases.
Operating leases are principally for office and warehouse facilities,  equipment
and vehicles. Rent expense under operating leases amounted to $248,571, $269,962
and  $152,128,   for  the  years  ended  December  31,  2000,   1999  and  1998,
respectively.  The future minimum rentals under non-cancelable  operating leases
during subsequent fiscal years are as follows:

                           YEARS ENDING
                            DECEMBER 31,
                                2001                     $  236,910
                                2002                        123,518
                                                         ----------
                                                         $  360,428


5.      INCOME TAXES

     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,  depreciation
and compensation expense rewarded for warrants issued.

     For the years  presented,  the  expense  (benefit)  for  income  taxes from
continuing operations consisted of the following.

<PAGE>


                                   December 31,    December 31,    December 31,
                                      2000             1999            1998
                                      ----             ----            ----
                                   (RESTATED)       (RESTATED)
Current                             $240,000         $355,000           -----

Deferred
   Federal                            (4,000)         (68,000)        (130,300)
   State and Local                     2,000           (6,000)         (15,200)
                                   ----------       ----------      -----------
Net deferred expense (benefit)        (2,000)         (74,000)        (145,500)

Net deferred expense (benefit)
  for taxes                         $238,000         $281,000        $(145,500)
                                   ==========       ==========       ==========

     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:


                                    December 31,    December 31,   December 31,
                                        2000            1999            1998
                                        ----            ----            ----
Income tax expense (benefit) at
        statutory rate               $218,000         $238,000      $(145,700)
Goodwill amortization                  13,000           13,000         13,650
State taxes net of federal benefit     26,000           26,000        (15,300)
Other                                 (19,000)          (4,000)         1,850
                                     ---------        --------       ---------
       Total income tax expense
          (benefit)                  $238,000         $281,000      $(145,500)

The components of net deferred taxes are as follows:

                                      December 31,              December 31,
                                         2000                       1999
                                         ----                       ----
Assets:
   Inventory costs capitalized
      for tax purposes                 $68,000                     $68,000
   Accruals and reserves to be expensed as paid for
       tax purposes                     34,000                      34,000
                                      --------                    --------
Deferred tax assets, current           102,000                     102,000


Liabilities:
   Warrant compensation cost            26,000                      12,000
                                      --------                    --------
   Excess of tax over financial accounting depreciation
       and amortization               (545,775)                   (533,775)
                                      ---------                   --------
Deferred tax liability, long-term     (519,775)                   (521,775)
                                      ---------                   --------

Net deferred tax liability           $(417,775)                  $(419,775)
                                     ==========                  ==========

     The Company  changed its  effective  rate to 42.5% in 2000 from 38% in 1999
from 40% in 1997. The Company utilized approximately $0, $780,000 and $1,065,000
of net operating loss carry forward for the years ended December 31, 2000,  1999
and 1998, respectively.

6.      EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE

     Earnings per common and common  equivalent  share were computed by dividing
net income by the weighted average number of shares of common stock  outstanding
during the year. At December 31, 2000 and 1999,  the number of common shares was
increased by the number of shares issuable on the exercise of outstanding  stock
options  and  warrants  when the market  price of the common  stock  exceeds the
exercise  price of the  options  and  warrants.  This  increase in the number of
common  shares was  reduced by the number of common  shares  that are assumed to
have been  purchased  with the proceeds from the exercise of the options;  those
purchases  were  assumed  to have been made at the  average  price of the common
stock  during  that part of the year when the market  price of the common  stock
exceeded the exercise price of the options.

     The  following  data show the amounts used in computing  earnings per share
(EPS) and the  effect on income  and the  weighted  average  number of shares of
dilutive potential common stock.


                                                December 31,

                                        2000                    1999


Income available to common
stockholders used in basic EPS
and diluted EPS                          $318,510                $338,981
                                         ========                ========

Weighted average number
of common shares used in
Basic EPS                               1,782,237               1,783,200


Effect of dilutive securities:
   Stock options and warrants             190,163                  43,242
                                        ---------               ---------

Weighted number of common
Shares and dilutive potential
Common stock used in diluted
EPS                                     1,972,400               1,826,442
                                        =========               =========


     Options and warrants on 1,807,080 and 1,353,940  shares,  respectively,  of
common  stock were not  included  in  computing  diluted EPS for the years ended
December 31, 2000, 1999 and 1998 because their effects were antidilutive.

     The common  equivalent  stock  outstanding  at  December  31, 1998 would be
antidilutive for the year due to the net operating loss.

7. 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.

8. 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:


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


Options and warrants on 1,807,080, 1,461,815 and 1,353,940 shares, respectively,
of common stock were not included in computing EPS for the years ended  December
31, 2000, 1999 and 1998 because their effects were antidilutive.

The common equivalent outstanding at December 31, 1998 would be antidilutive for
the year due to the net loss before extraordinary items.
<PAGE>

9. STOCK ACQUISITION PROPOSAL BY RELATED PARTIES

     The  Chairman of the Board and  President  of the Company  have  offered to
acquire all of the outstanding shares of the Company not currently held by them.
A Special  Committee of the outside  directors  was formed to consider the offer
and has indicated  that it will recommend for approval the latest offer of $2.10
per share for the outstanding shares of common stock.

10.     QUARTERLY RESULTS (Unaudited)

     Summary data relating to the results of operations  for each quarter of the
years ended  December 31, 2000 and 1999 follows (in  thousands  except per share
amounts):
<TABLE>
<CAPTION>

                                        Three Months Ended
                       Mar. 31         Jun. 30         Sept. 30        Dec. 31
-------------------------------------------------------------------------------
                      (Restated)     (Restated)       (Restated)      (Restated)
<S>                       <C>            <C>              <C>             <C>

Fiscal year 2000
  Net Revenue           $5,243          $5,355          $4,551          $8,397
  Gross profit           2,507           2,529           2,228           3,646
  Income (loss) from
    continuing operations   37              40            (253)          1,035
  Net income (loss)        (16)            (16)           (203)            554
  Income (loss) from
    continuing operations
    per common share
      Basic             $  .02          $  .02           $(.14)          $ .58
      Diluted           $  .02          $  .02           $(.14)          $ .51
  Net income
     Basic              $ (.01)         $ (.01)          $(.11)          $ .31
     Diluted            $ (.01)         $ (.01)          $(.11)          $ .28

Fiscal year 1999
  Net Revenue           $5,966          $5,869          $4,268          $8,095
  Gross profit           2,942           2,586           2,010           3,343
  Income (loss) from
    continuing operations  575              37            (356)            737
  Net income (loss)        284             (30)           (274)            360
  Basic and diluted
    income (loss) from
    continuing operations
    per common share    $  .32          $  .02          $ (.20)         $  .41
  Net income
     Basic              $  .16          $ (.01)         $ (.15)         $  .20
     Diluted            $  .16          $ (.01)         $ (.15)         $  .20
------------------------------------------------------------------------------
</TABLE>

11.     PRIOR PERIOD ADJUSTMENT

     The  financial  statements  and related notes have been restated to reflect
compensation expense, net of tax for warrants issued to R.L. Renck and Co., Inc.
for the years  ended  December  31, 2000 and 1999.  The impact to the  financial
statements is as follows:
<PAGE>

                                  2000                          1999
                        As filed        Restated        As filed      Restated
                        --------        --------        --------      --------
Operating Income        $894,369        $858,369        $1,022,873    $992,359
Net income              $340,994        $318,510        $  357,495    $338,981
Earnings Per Share:
  Basic                  $  0.19         $  0.18         $  0.20       $  0.19
  Diluted                $  0.17         $  0.16         $  0.20       $  0.19


Deferred tax liability  $545,775        $519,775        $533,775       $521,775
Capital in excess  of
    Par value         $6,417,586      $6,484,584      $6,417,586     $6,448,100
Retained earnings
  (deficit)             $143,103        $102,105       $(197,891)     $(216,405)






                                  SCHEDULE II

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



                                  Additions
                               -----------------------
                                          Charged to
                     Balance at  Charged to  other                   Balance at
                      Beginning  costs and  accounts-   Deductions-    End of
Description           of period   expenses  describe      describe     period
-------------------------------------------------------------------------------
2000 Inventory Reserve   90,656    200,000      0       200,000(1)      90,656
1999 Inventory Reserve   90,656     85,000      0        85,000(1)      90,656
1998 Inventory Reserve  260,656     30,000      0       200,000(1)      90,656

(1)  Slow moving inventory identified in reserve sold at net realizable value.