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

                                    FORM 10-Q

         (Mark One)
[ X]     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
                       OF THE SECURITIES EXCHANGE ACT OF 1934

                    For Quarterly Period Ended June 30, 1999


                                       OR

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

                         Commission File Number 0-21717

                            CASCO INTERNATIONAL, INC.

Incorporated - Delaware                     I.R.S. Identification No. 56-0526145

             4205 East Dixon Boulevard, Shelby, North Carolina 28150

                  Registrant's Telephone Number (704) 482-9591

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed  by  Section  13 or 15 (d) of the  Securities  Exchange  Act of 1934
during the preceding 12 months (or for such shorter  period that the  registrant
was  required  to file such  reports),  and (2) has been  subject to such filing
requirements for the past 90 days.

YES X    NO

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of latest practicable date 1,783,200 common shares outstanding,
each with par value $0.01, as of August 9, 1999.




<PAGE>


<TABLE>
<CAPTION>


ITEM 1.  FINANCIAL STATEMENTS


                                CASCO INTERNATIONAL, INC.
                                      BALANCE SHEETS
                           June 30, 1999 and December 31, 1998
                                        Unaudited



                 ASSETS ........................          1999            1998
                                                   ------------    ------------
<S>                                                <C>             <C>

Current Assets:
     Cash ......................................   $     47,159    $    107,482
     Accounts receivable .......................      3,275,420       5,540,162
     Inventory .................................      4,996,497       5,265,797
     Prepaid expenses ..........................      1,024,241       1,096,277
                                                    ------------    ------------

                 Total current assets ..........      9,343,317      12,009,718

Buildings and equipment:
     Buildings .................................      2,602,793       2,602,793
     Equipment .................................      3,047,469       2,819,104
                                                    ------------    ------------
                                                      5,650,262       5,421,897
     Less accumulated depreciation ..............    (2,249,318)     (1,974,403)
                                                    ------------    ------------
                                                      3,400,944       3,447,494
Land ............................................       111,468         111,468
                                                    ------------    ------------

                 Total property and equipment, net    3,512,412       3,558,962

Other assets:
     Cost in excess of net assets acquired, net of
     accumulated amortization of $413,069 and
     $342,244 respectively .......................    2,474,074       2,541,899
Other ............................................      743,339         732,024
                                                    ------------    ------------
                                                      3,217,413       3,273,923
                                                    ------------    ------------
TOTAL ASSETS ...................................   $ 16,073,142    $ 18,842,603
                                                    ============    ============



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



                             CASCO INTERNATIONAL, INC.
                                   BALANCE SHEETS
                        June 30, 1999 and December 31, 1998
                                     Unaudited


     LIABILITIES AND STOCKHOLDERS' EQUITY .......          1999            1998
                                                    ------------    ------------
<S>                                                  <C>             <C>

Liabilities:
     Accounts payable ...........................  $    277,137    $  1,234,869
     Short-term debt obligations ................     2,274,712       3,882,269
     Accrued liabilities ........................       249,738         360,370
     Advanced deposits-current ..................     1,926,406       1,926,406
                                                    ------------    ------------

                 Total current ..................     4,727,993       7,403,914
                 liabilities                        ------------    ------------

Long-term debt .................................      2,362,626       2,413,154
Advanced deposits-noncurrent....................      2,173,625       2,653,353
Deferred tax liability .........................        666,900         492,150
                                                    ------------    ------------

Total Liabilities ..............................      9,931,144      12,962,571
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 .......................       (293,420)       (555,386)
                                                    ------------    ------------

                 Total stockholders' equity ....      6,141,998       5,880,032
                                                    ------------    ------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .....   $ 16,073,142    $ 18,842,603
                                                    ============    ============



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




<PAGE>

<TABLE>
<CAPTION>


                         CASCO INTERNATIONAL, INC.
                         STATEMENTS OF OPERATIONS
   For the three months and the six months ended June 30, 1999 and 1998
                                Unaudited

                                     Three Months            Six Months
                                     ------------           ------------

                                    1999        1998       1999       1998
                               ------------ ----------- ----------- ----------
<S>                              <C>         <C>          <C>          <C>

Revenue ............            $ 5,869,358 $ 4,666,217 $11,834,881 $9,530,711

Operating costs and expenses:
     Cost of goods sold .......   3,283,242   2,747,126   6,307,275  5,327,014
     Selling, general and
        administrative ...        2,362,687   1,908,107   4,549,026  3,847,542
     Depreciation and amortization  179,230     108,074     352,755    210,584
                               ------------ -----------  ---------- ----------
          Total operating costs
              and expenses ....   5,825,159   4,763,307  11,209,056  9,385,140

Operating income (loss) ....         44,199     (97,090)    625,825    145,571

Other income and (expenses)
     Interest expense .......       (87,751)    (74,751)   (189,109)  (127,086)
     Loss on sale of building .....   --            --        --      (151,144)
                               ------------ -----------  ---------- ----------
          Total other income
               and (expenses)       (87,751)    (74,751)   (189,109)  (278,230)

Income (loss) before income taxes and
     extraordinary item ..........  (43,552)   (171,841)    436,716   (132,659)
Deferred (provision) benefit
     for income taxes .......        17,350      65,300    (174,750)    50,400
                               ------------ ----------- -----------  ---------

Income (loss) before extraordinary gain on
     retirement of debt ...         (26,202)   (106,541)    261,966    (82,259)
                               ------------ ----------- ----------- ----------

Extraordinary gain on retirement of debt (less
     applicable income taxes
     of $570,000) ........           --          --           --       930,000
                               ------------ ----------- ----------- ----------

Net Income (Loss) ... ......   $    (26,202) $ (106,541) $  261,966  $ 847,741
                               ============  ==========  ==========  =========


EARNINGS PER SHARE BASIC AND DILUTIVE
Income (loss) before
      extraordinary item ..    $      (0.01) $    (0.06) $     0.15  $   (0.05)
Extraordinary gain on
      retirement of debt ...   $       --    $      --   $      --   $    0.52
                               ------------  ----------  ----------  ---------
Net Income (Loss) ..........   $      (0.01) $    (0.06) $     0.15  $    0.47
                               ============  ==========  ==========  =========


Weighted average common
      shares outstanding . .      1,783,200   1,783,200   1,783,200  1,783,200
                               ============  ==========   =========  =========


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



<PAGE>
<TABLE>
<CAPTION>



                            CASCO INTERNATIONAL, INC.
                            STATEMENTS OF CASH FLOWS
                For the six months ended June 30, 1999 and 1998
                                    Unaudited


                                                          1999            1998
                                                    ------------    ------------
<S>                                                    <C>             <C>

Cash flows from operating activities:
     Net income ................................   $    261,966         847,741
     Adjustments to reconcile net
        (loss) income to cash
        provided by operating activities:
        Depreciation and amortization ..........        352,755         210,584
        Loss of sale of building ...............           --           151,144
        Extraordinary gain on retirement of debt           --          (930,000)
        Deferred provision (benefit) ............       174,750         519,600
        Changes in assets and liabilities:
        (Increase) decrease in assets:
           Accounts receivable ..................     2,264,742       2,892,725
           Inventory ............................       269,300        (542,346)
           Prepaid expenses and other assets ....        50,706        (209,967)
        Increase (decrease) in liabilities:
           Accounts payable and accrued liabilities  (1,068,364)       (777,181)
           Advance deposits .......................    (479,728)         (5,518)
                                                    ------------    ------------
             Total adjustments ....................   1,564,161       1,309,041
                                                    ------------    ------------

Net cash provided by operating activities .........   1,826,127       2,156,782
                                                    ------------    ------------

Cash flows from investing activities:
     Sale of building .............................        --           421,187
     Payments for purchases of property and equipment  (228,365)       (474,037)
                                                    ------------    ------------
Cash used in investing activities ................     (228,365)        (52,850)

Cash flows from financing activities:
     Proceeds from debt obligation ...............    9,228,645       5,663,767
     Principal payments on debt ..................  (10,886,730)     (7,371,269)
                                                   ------------    ------------
Cash used in financing activities .................  (1,658,085)     (1,707,502)

Increase (decrease) in cash .......................     (60,323)        396,430
Cash, beginning of period .........................     107,482          73,516
                                                   ------------    ------------

Cash, end of period ...............................$     47,159         469,946
                                                   ============    ============

Other Cash Flow Information:
     Cash payments during the year for:
        Interest ................................. $    189,131          74,751
        Income taxes, net of refunds .............         --              --


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



<PAGE>


                            CASCO INTERNATIONAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                    Unaudited

         The  accompanying  financial  statements  have  not been  audited,  but
reflect all adjustments which, in the opinion of management, are necessary for a
fair  presentation of financial  position,  results of operations and cash flows
for the periods presented. All adjustments are of a normal and recurring nature.
These consolidated  financial  statements should be read in conjunction with the
Company's  audited  financial  statements  and notes thereto for the fiscal year
ended December 31, 1998.

         Effective  at the close of business on December  31,  1996,  a tax free
spin off of the  Company's  common  stock from its  former  parent,  Pages,  was
completed (the  "Distribution").  In the  Distribution,  for every ten shares of
Pages common stock  outstanding on the record date,  one and one-half  shares of
the Company's common stock was distributed to Pages shareholders.

         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.

         Also on January  23,  1998,  Huntington  National  Bank  increased  the
Company's line of credit from $2 million to $5.5 million from which funds became
available to redeem the  subordinated  debenture due to Pages. On July 30, 1998,
the Company replaced the line of credit with the Huntington National Bank with a
$5 million line of credit with Branch Banking & Trust.

         On March 4, 1998 the Company  sold its 167,000 sq. ft.  Kings  Mountain
warehouse.  The sale netted the Company approximately $425,000. Also on March 4,
1998 the Company obtained  financing from First National Bank secured by a first
deed of trust on the Shelby facilities.  The loan is in the amount of $2,362,500
at an interest  rate of prime plus 1/2% and will not  increase or decrease  more
than two percent. The term of the loan is fifteen years, callable after 5 years.

     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 general intangibles,  the liabilities included the
assumption of an equipment lease 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  acquisition  was  financed  with
proceeds from its revolving credit facility with Branch Banking & Trust Company.
<PAGE>

     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.

         During the three months ended June 30, 1999, options were granted under
the Company's 1999 Incentive Stock Option Plan as shown on the following  table.
The ending and average market price of the Company's  Stock for the three months
ended June 30, 1999 was $1.938 and $1.555 respectively.


               Date .................               Shares
             Granted or ..............              Reserved and       Exercise
              Issued ................               Exercisable        Price
---------------------------------------------       ------------       ---------

INCENTIVE STOCK OPTION PLAN
May 27, 1999 ................................            575,000       $    1.75



ITEM 2: MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Quarter Ended June 30, 1999 Compared to Quarter Ended June 30, 1998:

         Revenues for the three months  ended June 30, 1999  approximated  $5.87
million,  compared to $4.67  million in revenues for the three months ended June
30, 1998, an increase of 25.8% or  approximately  $1.2 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.

     Revenues  for the six  months  ended  June  30,  1999  approximated  $11.83
million, compared to $9.53 million in revenues for the six months ended June 30,
1998,  an increase  of 24.2% or  approximately  $2.3  million.  The  increase is
attributable  to  strong  retention  of  existing  customers  coupled  with  new
customers in the new markets with employed recognition consultants.

         Cost  of  goods  sold  for  the  three   months  ended  June  30,  1999
approximated $3.28 million,  compared to approximately  $2.75 million of cost of
goods sold for the three  months  ended June 30,  1998,  an increase of 19.5% or
approximately  $536,000.  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 55.9% for the three months ended June 30, 1999,  from 58.9% for the
three months ended June 30, 1998. The 3.0% decrease in the cost of goods sold as
a percentage of revenues was principally attributable to a change in product mix
and improved inventory purchasing strategy.
<PAGE>

         Cost of goods sold for the six months ended June 30, 1999  approximated
$6.31 million, compared to approximately $5.33 million of cost of goods sold for
the six months  ended June 30,  1998,  an  increase  of 18.40% or  approximately
$980,000. 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 53.3% for
the six months ended June 30, 1999, from 55.9% for the six months ended June 30,
1998.  The 2.6%  decrease in the cost of goods sold, as a percentage of revenues
was  principally  attributable  to a change  in  product  mix,  and an  improved
inventory purchasing strategy.

         Selling, general, and administrative expense for the three months ended
June 30, 1999  approximated  $2.36  million,  compared to $1.91  million for the
three months ended June 30, 1998, a increase of 23.8% or approximately $455,000.
The increase in selling,  general,  and administrative  expense were principally
attributable  to  expansion of the  internal  employed  sales force and the cost
associated with the acquisitions in 1998. As a percentage of revenues,  selling,
general and  administrative  decreased  to 40.3% for the three months ended June
30, 1999, from 40.9% for the three months ended June 30, 1998. The 0.6% decrease
as a percentage of revenues were principally  attributable to benefits  obtained
from  aggressive  cost  containment  policies,  and  the  increase  in  revenues
generated by the employed sales force.

         Selling,  general, and administrative  expense for the six months ended
June 30, 1999 approximated $4.55 million,  compared to $3.85 million for the six
months ended June 30, 1998, a increase of 18.23% or approximately $701,000. As a
percentage of revenues,  selling,  general and administrative decreased to 38.4%
for the six months ended June 30, 1999, from 40.4% for the six months ended June
30,  1998.  The 2.0%  decrease  as a  percentage  of revenues  were  principally
attributable to benefits obtained from aggressive cost containment policies.

         Interest expense was  approximately  $88,000 for the three months ended
June 30, 1999,  compared to $75,000 for the three months ended June 30, 1998, an
increase  of  approximately  $13,000.  For the six months  ended June 30,  1999,
interest expense was approximately  $189,000 compared to approximately  $127,000
for the six months ended June 30, 1998,  an increase of  approximately  $62,000.
The increase in interest expense was primarily due to the Company's  mortgage on
the  buildings  obtained  to  complete  the early  redemption  of the  Company's
subordinated  debenture  due to Pages on January 1, 2002.  The increase was also
attributable  to the interest on the Company's  line of credit which was used to
finance the acquisitions in 1998. The average outstanding debt for the first six
months in 1999  approximated  $4.95  million  compared to $2.38  million for the
first six months in 1998. Additionally,  the average interest rate for the first
six months in 1999  approximated  7.83% compared to  approximately  9.0% for the
same period in 1998.

         Depreciation and amortization  expense was  approximately  $179,000 for
the three months ended June 30, 1999,  compared to $108,000 for the three months
ended June 30, 1998, an increase of 65.8% or approximately $71,000. Depreciation
and  amortization  expense was  approximately  $353,000 and $210,600 for the six
months  ended  June 30,  1999 and 1998  respectively,  an  increase  of 67.5% or
approximately  $142,000.  The increase in depreciation and amortization  expense
was  principally  attributable  to the  depreciation of newly acquired assets in
1997 and 1998.

         Income tax  provision  was  $174,750  for the six months ended June 30,
1999, compared to an income tax benefit of $50,400 for the six months ended June
30, 1998. The provisions for income tax benefit were calculated  through the use
of estimated income tax rates based upon the income before taxes.
<PAGE>


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 acquisitions.

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

     The Company  anticipates  that  operating cash flows during the next twelve
months, coupled with its ability to borrow under the credit facility, will cover
operating  expenditures and meet the short-term debt obligations.  The Company's
credit facility is due and payable in full on July 30, 1999. The lender has made
a commitment to renew the credit facility when due. The new credit facility will
be due and payable in full on July 30, 2000.


        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.
<PAGE>

        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.

     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 third 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.
<PAGE>

         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 39% 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.


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

         Certain  statements  contained  in this Form 10-Q  under  "Management's
Discussion  and  Analysis of  Financial  Condition  and  Results of  Operations"
regarding matters that are not historical facts and "forward looking statements"
(as such term is  defined in the  Private  Securities  Litigation  Reform Act of
1996) and  because  such  statements  involve  risks and  uncertainties,  actual
results  may  differ   materially  from  those  expressed  or  implied  by  such
forward-looking  statements.  Those  statements  include  remarks  regarding the
intent,  belief, or current expectations of the Company,  its directors,  or its
officers with respect to, among other things:  (i) future  operating cash flows;
(ii) the Company's  financing  plans,  and (iii) the Company's  growth strategy,
including  the  expansion  of current  market  share and the  entrance  into new
markets.  Prospective  investors  are  cautioned  that any such  forward-looking
statements  are not  guarantees  of future  performance  and  involve  risks and
uncertainties,  and  that  actual  results  may  differ  materially  from  those
projected in the forward-looking  statements as a result of various factors. The
accompanying   information  contained  in  this  Form  10-Q,  including  without
limitation and information set forth under the heading "Management's  Discussion
and  Analysis of  Financial  Condition  and Results of  Operations",  identifies
important factors that could cause such differences.
<PAGE>

ITEM 3.  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 June 30, 1999 was 73/4percent. 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.

                           PART II - OTHER INFORMATION


ITEM 1:   LEGAL PROCEEDINGS

         The Company is not involved in any material pending legal  proceedings,
other than ordinary, routine litigation incidental to its business.

ITEM 2:   CHANGES IN SECURITIES
              None

ITEM 3:   DEFAULTS UPON SENIOR SECURITIES
              None

ITEM 4:   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
              None

ITEM 5:   OTHER INFORMATION
              None

ITEM 6:   EXHIBITS AND REPORTS ON FORM 8K


         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
<PAGE>

         4.1                   Form of Stock Certificate                      1

         4.2                   Warrant Agreement                              1

         4.3                   Form of Warrant Certificate                    1

         4.4                   Form of Warrant-R.L. Renck & Company           1

         10 .1                 1996 Incentive Stock Option Plan               1

         10.2                  Employee Stock Option Plan                     1

         10 .3                 Huntington Loan Documents:

                               10 .3 .1     Loan and Security Agreement       1

                               10 .3 .2     Revolving Note                    1
                               10 .3 .3     Commercial Letter of Credit
                                                Reimbursement Agreement       1
                               10 .3 .4     Deed of Trust, Assignment of
                                                Rents and Security Agreement  1
                               10 .3 .5     Debt Subordination and
                                                Intercreditor Agreement       1
                               10 .3 .6     Third Amendment to Loan
                                                and Security Agreement        1
                               10 .3 .7     Third Note Modification
                                                and Extension Agreement       1


         10 .4                 Non-Employee Director Stock Option Plan        1


          10.5                 Amendment to 1996 Incentive

                               Stock Option Plan                              1

         10.6                  1997 Incentive Stock Option Plan               1


         10.7                  Charles R. Davis' Performance

                               Option Agreement                               1

         10.8                  First National Bank Loan Document              1

         10.9                  Branch Banking & Trust Loan Document           1

         10.10                 1998 Incentive Stock Option Plan               1

         10.11                 Non-Employee Director Stock Option Plan        1

         10.12                 1999 Stock Option Plan                         2

         27                    Financial Data Schedule                        3
<PAGE>


1. Incorporated by reference to the Company's registration statement on Form 10,
file number 0-271717, filed in Washington, D.C.

2.  Incorporated  by reference to the  Company's  proxy  statement,  file number
0-271717, filed in Washington D.C.

3. Filed herewith.

(b)      Reports on Form 8-K

     None.


                                    SIGNATURE

         Pursuant to the  requirements  of the  Securities  and  Exchange Act of
1934,  the  Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.

                                          CASCO INTERNATIONAL, INC.
                                          Registrant

Date:    August 9, 1999                   By:   /s/ Jeffrey A. Ross
                                                -------------------
                                                    Jeffrey A. Ross
                                                    Principal Financial and
                                                    Accounting Officer