SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c)
of the Securities Exchange Act of 1934
(Amendment No. )
Check the appropriate box:
[ ] Preliminary Information Statement [ ] Confidential, For Use of the
Commission Only (as Per-
mitted by Rule 14c-5(d)(2))
[X] Definitive Information Statement
CADAPULT GRAPHIC SYSTEMS, INC.
------------------------------------------------
(Name of Registrant as Specified in its Charter)
Payment of Filing Fee (Check the appropriate box):
[x] No fee Required
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing
fee is calculated and state how it was determined):
----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
(5) Total fee paid:
----------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing:
(1) Amount Previously Paid:
----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
----------------------------------------------------------------------
(4) Date Filed:
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<PAGE>
CADAPULT GRAPHIC SYSTEMS, INC.
110 Commerce Drive
Allendale, New Jersey 07401
INFORMATION STATEMENT
Dated: August 5, 1999
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
GENERAL
This Information Statement is first being furnished, on or about August
5, 1999, to holders of record (the "Stockholders"), as of the close of
business on June 30, 1999, of the common stock, $.001 par value per share
("Common Stock"), of Cadapult Graphic Systems, Inc., a Delaware corporation
(the "Company"), in connection with the previous approval by the Company's
Board of Directors of the corporate action referred to below (the
"Certificate Amendment Actions") and its subsequent adoption by written
consent of the holders of the majority of the Company's Common Stock,
including certain members of Management and the Board of Directors of the
Company (collectively "Majority Stockholders").
Such approval and consent are sufficient under Section 228 of the
Delaware General Corporation Law and the Company's By-Laws to approve the
Certificate Amendment Actions. Accordingly, the Certificate Amendment
Actions will not be submitted to the other stockholders of the Company for a
vote and this Information Statement is being furnished to stockholders solely
to provide them with certain information concerning the Certificate Amendment
Actions in accordance with the requirements of Delaware law and the
Securities Exchange Act of 1934, as amended, and the regulations promulgated
thereunder, including Regulation 14C. WE ARE NOT ASKING YOU FOR A PROXY AND
YOU ARE REQUESTED NOT TO SEND US A PROXY.
CERTIFICATE AMENDMENT ACTIONS TAKEN
The Company, as authorized by the necessary approvals of the Board of
Directors and the Majority Stockholders, has adopted resolutions regarding
amending the Company's Certificate of Incorporation to decrease the number of
authorized capital stock and to authorize a class of preferred stock by
changing the authorized capital stock that the Company is authorized to issue
to twenty five million (25,000,000), consisting of twenty million
(20,000,000) shares of Common Stock with $.001 par value per share and five
million (5,000,000) shares of preferred stock with $.001 par value
("Preferred Stock").
-3-
<PAGE>
The Board of Directors of the Company (the "Board") has approved, and
the Majority Stockholders, who collectively owned 1,707,500 shares
(approximately 56%) of the 3,068,307 shares of Common Stock entitled to vote,
as of June 30, 1999, have delivered written consents in lieu of a meeting of
Stockholders dated June 30, 1999 approving the Certificate Amendment
Actions. Under Delaware law, the affirmative vote of the holders of a
majority of the outstanding Common Stock entitled to vote thereon is required
to approve the Certificate Amendment Actions. Such Certificate Amendment
Actions are sufficient to satisfy the applicable requirements of Delaware law
that such action be approved by Stockholders. Accordingly, Stockholders will
not be asked to take further action on the Certificate Amendment Actions at
any future meeting.
The Certificate Amendment Actions described above will not afford
Stockholders the opportunity to dissent from the Certificate Amendment
Actions and to receive an agreed or judicially appraised value for their
shares.
The Certificate Amendment Actions will be effective on the date that a
Certificate of Amendment of the Certificate of Incorporation with respect to
the Certificate Amendment Actions is filed with the Secretary of State of the
State of Delaware. This filing will occur on or after the 20th day following
the date of this Information Statement.
DESCRIPTION OF SECURITIES
Giving effect to the amendment to the Certificate of Incorporation, the
Company will be authorized to issue twenty five million (25,000,000) shares,
consisting of twenty million (20,000,000) shares of common stock with $.001
par value per share and five million (5,000,000) shares of preferred stock
with $.001 par value.
Preferred Stock
- ---------------
Certain terms of the Preferred Stock, including, without limitation,
dividend, liquidation and conversion rights have not be designated, and may
be designated by the Board of Directors at its sole discretion. The
amendment to the Certificate of Incorporation provides that the Company's
Board of Directors is expressly authorized to provide for the issue of all or
any shares of the Preferred Stock, in one or more series, and to fix for each
such series such voting powers, full or limited, and such designations,
preferences and relative, participating, optional or other special rights and
such qualifications, limitations or restrictions thereof as shall be stated
and expressed in the resolution or resolutions adopted by the Board of
Directors providing for the issue of such series (a "Preferred Stock
Designation") and as may be permitted by the Delaware General Corporation
Law.
-4-
<PAGE>
FINANCIAL AND OTHER INFORMATION
The following financial information contains the Company's financial
statements as set forth in the Company's 1997 Annual Report on Form 10-KSB/A,
Quarterly Report on Form 10-QSB/A for the Transition Period ending June 30,
1998, filed on or about September 1, 1998, and in the Company's Quarterly
Report on Form 10-QSB, filed on or about May 4, 1999.
-5-
<PAGE>
MANTYLA, McREYNOLDS
AND ASSOCIATES, C.P.A.'S
A Professional Corporation
Board of Directors and Stockholders
Seafoods Plus, LTD.
Salt Lake City, Utah
We have audited the accompanying balance sheets of Seafoods Plus, LTD. [a
development stage, Utah corporation] as of December 31, 1997 and December 31,
1996, and the related statements of stockholders' equity/(deficit), operations,
and cash flows for the years then ended and for the period from reactivation
[December 31, 1994] through December 31, 1997. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Seafoods Plus, LTD. as of
December 31, 1997, and December 31, 1996, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that Seafoods
Plus, LTD. will continue as a going concern. As discussed in note D to the
financial statements, the Company has accumulated losses from inception totaling
$47,022 and presently has no prospects for commencing operations or generating
revenue. These issues raise substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are also described
in note D. The financial statements do not include any adjustment that might
result from the outcome of this uncertainty.
/S/ MANTYLA, McREYNOLDS & ASSOCIATES
Mantyla, McReynolds & Associates
February 27, 1998
Salt Lake City, Utah
-6-
<PAGE>
<TABLE>
<CAPTION>
SEAFOODS PLUS, LTD.
[A Development Stage Company]
Balance Sheets
December 31, 1997 and 1996
1997 1996
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash - note B $ 583 $ 653
---------- -------
Total Current Assets 583 653
---------- -------
TOTAL ASSETS $ 583 $ 653
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Current Liabilities
Accounts payable $ 401 $ 401
Shareholder Loan - Note F 7,777 4,236
Income taxes payable - Notes A & C 100 100
---------- --------
Total Current Liabilities 8,278 4,737
---------- -------
TOTAL LIABILITIES 8,278 4,737
---------- --------
STOCKHOLDERS' EQUITY
Capital stock - 50,000,000 shares authorized at $0.001 par;
2,000,012 post-split shares issued and outstanding 2,000 2,000
Additional paid-in capital 37,327 37,327
Deficit accumulated during development stage (47,022) (43,411)
-------- --------
TOTAL STOCKHOLDERS' EQUITY (7,695) (4,084)
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 553 $ 653
=========== =========
</TABLE>
See accompanying notes to financial statements
-7-
<PAGE>
<TABLE>
<CAPTION>
SEAFOODS PLUS, LTD.
[A Development Stage Company]
Statements of Stockholders' Equity/(Deficit)
For the Period from Reactivation [December 31, 1994] through December 31, 1997
Deficit
Accumulated
Additional During Total
Number of Common Paid-in Development Stockholders'
Shares Stock Capital Stage Equity
--------------- -------------- -------------- ---------------- -------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $ 350,012 $ 350 $ 28,977 $ (30,030) $ (703)
Issued 1,650,000 shares for cash 1,650,000 1,650 8,350 10,000
Net loss for the year ended
December 31, 1995 (8,577) (8,577)
--------------- -------------- -------------- ---------------- -------------------
Balance, December 31, 1995 2,000,012 2,000 37,327 (38,607) 720
--------------- -------------- -------------- ---------------- -------------------
Net loss for the year ended
December 31, 1996 (4,804) (4,804)
--------------- -------------- -------------- ---------------- -------------------
Balance, December 31, 1996 2,000,012 2,000 37,327 (43,411) (4,084)
Net loss for the year ended
December 31, 1997 (3,611) (3,611)
-------------- --------------- -------------- ---------------- -------------------
Balance, December 31, 1997 2,000,012 $ 2,000 $ 37,327 $ (47,022) $ (7,695)
=============== ============== ============== ================ ===================
</TABLE>
See accompanying notes to financial statements
-8-
<PAGE>
<TABLE>
<CAPTION>
SEAFOODS PLUS, LTD.
[A Development Stage Company]
Statements of Operations
For the Years Ended December 31, 1997 and 1996, and for
the Period from Reactivation [December 31, 1994] through December 31, 1997
For the Period
For the Year Ended For the Year Ended from Reactivation to
December 31, 1997 December 31, 1996 December 31, 1997
<S> <C> <C> <C>
Revenues $ -0- $ -0- $ -0-
Expenses 3,511 4,704 16,692
--------------------- -------------- -------------
Loss Before Income Tax (3,511) (4,704) (16,692)
Income taxes- notes A & C 100 100 300
--------------------- --------------- ---------------
Net Loss $ (3,611) $ (4,804) $ (16,992)
==================== =============== ===============
Net Loss Per Share $ (.01) $ (.01) $ (.01)
=================== =============== ===============
Weighted Average
Shares Outstanding 2,000,012 2,000,012 1,505,765
=================== =============== ===============
</TABLE>
See accompanying notes to financial statements
-9-
<PAGE>
<TABLE>
<CAPTION>
SEAFOODS PLUS, LTD.
[A Development Stage Company]
Statements of Cash Flows
For the Years Ended December 31, 1997 and 1996, and for
the Period from Reactivation [December 31, 1994] through December 31, 1997
For the Period
For the Year Ended For the Year Ended from Reactivation to
December 31, 1997 December 31, 1996 December 31, 1997
<S> <C> <C> <C>
Cash Flows From Operating Activities
- - ------------------------------------
Net Loss $ (3,611) $ (4,804) $ (16,992)
Adjustments to reconcile net income to net
cash provided by operating activities:
Increase/(decrease) in:
Accounts payable -0- -0- 401
Income taxes payable -0- -0- (603)
Shareholder loan 3,541 4,236 7,777
----------------- --------------- -----------------
Net Cash Used For Operating Activities (70) (568) (9,417)
----------------- --------------- -----------------
Cash Flows From Financing Activities
- - ------------------------------------
Issuance of common stock -0- -0- 10,000
---------------- -------------- ----------------
Net Cash Provided By Financing Activities -0- -0- 10,000
----------------- -------------- ----------------
Net Increase (Decrease) in Cash (70) (568) 583
Beginning Cash Balance 653 1,221 -0-
----------------- -------------- ----------------
Ending Cash Balance $ 583 $ 653 $ 583
================== ============== ================
Supplemental Disclosure of Cash Flow Information:
Cash paid for the period for interest $ -0- $ -0- $ -0-
Cash paid for the period for income taxes $ -0- $ 100 $ 890
</TABLE>
See accompanying notes to financial statements
-10-
<PAGE>
SEAFOODS PLUS, LTD.
Notes to Financial Statements
December 31, 1997
NOTE A Summary of Significant Accounting Policies
Company Background
The Company originally incorporated under the laws of the State of
Utah on August 11, 1983 using the name Communitra Energy, Inc., with a
stated principal business activity of investing in oil, gas and
mineral leases, and/or products. By agreement of the shareholders of
the Company on July 16, 1985, the name of the Company officially
changed to Seafoods Plus, LTD. and expanded the purpose of the Company
to include the processing and canning of seafoods.
Seafoods Plus, LTD., a development stage company, has yet to commence
its planned principal operations and has been in an essentially
dormant status for the last nine years.
Income Taxes
In February 1992, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standard (SFAS) No. 109,
"Accounting For Income Taxes," which is effective for fiscal years
beginning after December 15, 1992. SFAS No. 109 requires the asset and
liability method of accounting for income taxes. The asset and
liability method requires that the current or deferred tax
consequences of all events recognized in the financial statements are
measured by applying the provisions of enacted tax laws to determine
the amount of taxes payable or refundable currently or in future
years. The Company adopted SFAS No. 109 for financial reporting
purposes in 1993. See note C below.
Net Loss Per Common Share
Net loss per common share is based on the weighted average number of
shares outstanding.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make 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 and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
-11-
<PAGE>
NOTE B Cash
Cash is comprised of cash on deposit in the trust account of the
corporate attorney.
NOTE C Change in Accounting Principle -- Accounting for Income Taxes
During 1993, the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." The cumulative
effect of this change in accounting for income taxes as of January 1,
1993 is $0, due to operating losses carried forward from prior years
and unlikely nature of future earnings. For the years ended December
31, 1997 and 1996, the Company had no significant income tax expenses
due to operating losses during those periods. Any deferred tax benefit
arising from the operating losses carried forward would be offset
entirely by a valuation allowance since it is not likely that the
Company will be sufficiently profitable in the future to take
advantage of the losses carried forward. The Company has no timing
differences.
The amount shown on the balance sheet for income taxes payable
represents the annual minimum amount due to the State of Utah.
NOTE D Liquidity
The Company has accumulated losses from inception totaling $47,022,
nominal assets and no operations at December 31, 1997. Financing for
the Company's limited activities to date has been primarily provided
by borrowing from shareholders and the issuance of common stock. The
Company's ability to achieve a level of profitable operations and/or
additional financing impacts the Company's ability to continue as it
is presently organized. Management is currently seeking a
well-capitalized merger candidate in order to re-commence its
operations. Should management be unsuccessful in its merger
activities, it will have a material adverse effect on the Company.
-12-
<PAGE>
NOTE E Reverse Stock Split
The Company filed Articles of Amendment to the Articles of
Incorporation of Seafoods Plus, LTD. with the State of Utah,
Department of Commerce on October 5, 1995 which included provisions
for a reverse split of the outstanding shares of common stock at the
ratio of one new share for every 16.17 shares issued and outstanding
as of September 5, 1995, [the date of adoption by the stockholders at
a meeting held on that same date] reducing the outstanding shares to
350,000, provided that no stockholder's holdings shall be reduced to
less than one share as a result of the reverse split, with all
fractional shares being rounded up to the nearest whole share. The
rounding resulted in 350,012 shares of stock outstanding after the
reverse split. All disclosures in the financial statements, with
respect to the number of shares outstanding, are presented in
post-split denominations.
NOTE F Stockholder Loan
A stockholder has paid expenses on behalf of the Company in the amount
of $3,541 during the year ended December 31, 1997 and $4,236 during
the year ended December 31, 1996. The Company has recorded a liability
for these expenses to the stockholder. The unsecured loan bears no
interest and is due on demand.
-13-
<PAGE>
Cadapult Graphic Systems, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
ASSETS June 30, 1998 (Unaudited) April 30, 1998
<S> <C> <C>
CURRENT ASSET
Cash $ 22,820 $ 382,568
Accounts Receivable, less allowance for doubtful accounts of $22,500 1,653,624 1,114,978
Attorney Escrow Account 320,000 -
Inventories 1,057,084 779,927
Prepaid and refundable income taxes 46,295 46,295
Prepaid expenses and other current assets 38,591 50,446
--------------------------- -------------
--------------------------- -------------
Total Current Assets 3,138,414 2,374,214
PROPERTY AND EQUIPMENT, NET 232,024 241,416
OTHER ASSETS:
Goodwill and other intangible assets 410,195 415,797
Security Deposits 31,343 31,343
---------------------------- -------------
441,538 447,140
TOTAL ASSETS $ 3,811,976 $ 3,062,770
========================= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable to bank $ 695,000 $ 1,000,000
Current maturities of long-term debt 89,220 89,136
Accounts Payable 1,936,974 1,025,775
Accrued Expenses and other current liabilities 131,510 173,481
Due to officer 20,000 20,000
Deferred Revenue 144,600 156,348
Deferred income taxes - 10,000
---------------------------- ------------
3,017,304 2,474,740
OTHER LIABILITIES
Long-term debt, less current maturities 156,990 171,897
Notes payable to related party 20,832 70,832
---------------------------- ------------
177,822 242,729
COMMITMENTS
SHAREHOLDERS EQUITY
Common Stock, .001 par value, Authorized 50,000,000 shares, issued 2,583,518 in 2,583 1,650
June and 1,650,000 in April
Additional paid-in capital 423,167 43,650
Retained Earnings 191,100 300,001
---------------------------- ------------
Total Shareholder's equity 616,850 345,301
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,811,976 $ 3,062,770
========================= ===============
</TABLE>
See accompanying notes to consolidated financial statements.
-14-
<PAGE>
Cadapult Graphic Systems, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Two Months Ended June 30,
1998 1997
---------------------- -------------------
<S> <C> <C>
NET SALES $ 1,623,754 $ 821,633
------------------ --------------
COSTS AND EXPENSES:
Cost of sales 1,237,942 614,582
Selling, general and administrative expenses 482,819 377,527
------------------ --------------
LOSS FROM OPERATIONS (97,007) (170,476)
INTEREST EXPENSE 21,894 6,316
------------------ --------------
LOSS BEFORE INCOME TAXES (CREDITS) (118,901) (176,792)
INCOME TAX (CREDITS):
Current - (25,000)
Deferred (10,000) (22,800)
------------------ --------------
(10,000) (47,800)
NET LOSS $ (108,901) $ (128,992)
================== =============
WEIGHTED AVEERAGE COMMON SHARES OUTSTANDING 1,799,940 1,587,220
================== =============
NET LOSS PER COMMON SHARE - BASIC AND DILUTED $ (0.06) $ (0.08)
================== =============
</TABLE>
See accompanying notes to consolidated financial statements.
-15-
<PAGE>
Cadapult Graphic Systems, Inc. and Subsidiaries
Consolidated Statement of Changes in Shareholders' Equity
For the Two Months Ended June 30, 1998
(Unaudited)
Common Stock
<TABLE>
<CAPTION>
Additional Total
Paid-in Retained Shareholders'
Shares Amount Capital Earnings equity
--------- ---------- ----------- -------- ------------
<S> <C> <C> <C> <C> <C>
BALANCES, APRIL 30, 1998 1,650,000 $ 1,650 $ 43,650 $ 300,001 $ 345,301
YEAR ENDED JUNE 30, 1998
Sale of Common Stock and shares
to be issued through
Private Placement 256,000 256 319,744 - 320,000
Issuance of Common Stock to
former Seafoods Plus Ltd.
Shareholders in exchange
for net assets 571,450 571 (571) - -
Issuance of Common Stock for
services 66,068 66 10,384 - 10,450
Issuance of Common Stock upon
conversion of note payable to related
party 40,000 40 49,960 - 50,000
Net loss - - - (108,901) (108,901)
--------- ---------- ----------- ------------- ------------
BALANCES, JUNE 30, 1998 2,583,518 $ 2,584 $ 423,167 $ 191,100 $ 616,850
========= ========== =========== ============ ==========
</TABLE>
See accompanying notes to consolidated financial statements.
-16-
<PAGE>
Cadapult Graphic Systems, Inc. and Subsidiaries
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
------------------ ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (108,901) $ (128,992)
Adjustments to reconcile net loss to net cash flows from operating activities
Depreciation and amortization 19,063 -
Deferred income taxes (10,000) (22,800)
Common Stock issued for services 10,450 -
Changes in operating assets and liabilities:
Accounts receivable (538,646) 456,899
Inventories (277,157) (190,085)
Prepaid and refundable income taxes - (25,000)
Prepaid expenses and other current assets 11,855 (1,338)
Security deposits - (6,000)
Accounts payable 911,199 (23,127)
Accrued expenses and other current liabilities (41,971) 4,662
Deferred revenue (11,748) 64,918
------------------ ----------------
Net Cash flows from operating activities (35,856) 129,138
------------------ ----------------
CASH FLOWS FROM INVESTING ACTIVITIES -
Purchases of property and equipment (4,069) (9,769)
CASH FLOWS FROM FINANCING ACTIVITIES: ------------------ ----------------
Note payable to bank (305,000) 100,000
Payments on long term debt (14,823) (2,017)
Advances from officer - 40,000
Sale of common stock - 30,000
------------------ ----------------
Net cash flows from financing activities (319,823) 167,983
------------------ ----------------
NET CHANGE IN CASH (359,748) 287,351
CASH, BEGINNING OF PERIOD 382,568 30,444
CASH, END OF PERIOD $ 22,820 $ 317,795
=========== ==============
SUPPLEMENTAL, CASH FLOW INFORMATION:
Interest paid $ 21,894 $ 6,316
============= ================
Income taxes paid - -
============== ================
Proceeds from issuance of Common Stock in Escrow $ 320,000 $ -
============== ================
Issuance of Common Stock upon conversion of Note payable to related party $ 50,000 $ -
============== ================
</TABLE>
See accompanying notes to consolidated financial statements.
-17-
<PAGE>
CADAPULT GRAPHIC SYSTEMS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION:
The consolidated balance sheet as of April 30, 1998 has been derived from
the audited balance sheet that will be included in the Company's Form 8K/A
to be filed on or about August 31, 1998 and is presented for comparative
purposes. All other financial statements are unaudited. All material
intercompany accounts and transactions have been eliminated. In the opinion
of management, all adjustments, which include only normal recurring
adjustments necessary to present fairly the financial position, results of
operations and cash flows for all periods presented, have been made. The
results of operations for interim periods are not necessarily indicative of
the operating results for the full year.
Footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted
in accordance with the published rules and regulations of the Securities
and Exchange Commission. These financial statements should read in
conjunction with the financial statements and notes thereto included in the
Company's 8K/A.
NOTE 2 - ORGANIZATION AND NATURE OF BUSINESS:
Pursuant to an Agreement and Plan of Reorganization dated June 5, 1998 (the
"Plan"), between the Registrant; Cadapult Graphic Systems, Inc., a New
Jersey corporation ("Cadapult"); all of the stockholders of Cadapult (the
"Cadapult Stockholders"); Jenson Services, Inc., a Utah corporation
("Jenson Services"); and Duane S. Jenson and Jeffrey D. Jenson
(collectively, the "Jensons"), the Cadapult Stockholders became the
controlling stockholders of the Registrant in a transaction viewed as a
reverse acquisition, and Cadapult became a wholly-owned subsidiary of the
Registrant. The Plan was treated as a recapitalization of Cadapult for
accounting purposes, and the closing date of the Plan was June. 18, 1998.
The historical financial statements of Seafoods Plus Ltd. prior to the
merger will no longer be reported, as Cadapult's financial statements are
now considered the financial statements of the ongoing reporting entity.
On August 10, 1998, the shareholders approved an amendment to the
Certificate of Incorporation of the Company to change the Company's name
from Seafoods Plus, Ltd. to Cadapult Graphic Systems, Inc. The shareholders
also approved the reincorporation of the Company as a Delaware corporation
and a related Agreement and Plan of Merger pursuant to which the Company
will be merged into a wholly-owned Delaware subsidiary. The Board of
Directors of the Company and its New Jersey Subsidiary have authorized a
Parent/Subsidiary merger of the two companies.
-18-
<PAGE>
On June 24, 1998 the Company elected to change its fiscal year from a
December 31 year end to a June 30 year end. The transition period is
included herein.
The Company is engaged in the business of providing computer graphics
systems, peripherals, supplies, training and service to graphics
professionals. The Company is a value-added dealer of computer graphics
equipment and supplies, including animation and design software and
workstations, publishing software and workstations, file servers, networks,
color scanners and color printers and copiers. The Company's markets
include advertising and marketing companies, printers, quick print shops,
services bureaus, animators and industrial designers, as well as the broad
market for color printers.
NOTE 3 - PRIVATE PLACEMENT
In August 1998, the Company completed a private placement through the sale
of 524,000 shares of its Common stock for $655,000. Expenses associated
with the private placement are estimated at $35,000, providing the Company
with net proceeds of $620,000.
-19-
<PAGE>
Cadapult Graphic Systems, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
ASSETS March 31, June 30,
1999 1998
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 223,263 $ 22,820
Accounts Receivable, Net 1,802,187 1,653,624
Attorney Escrow Account - 320,000
Inventories 1,022,882 1,057,084
Prepaid and refundable income taxes - 46,295
Prepaid expenses and other current assets 94,163 38,591
------------ -----------
Total Current Assets $ 3,142,496 3,138,414
PROPERTY AND EQUIPMENT, NET 437,096 232,024
OTHER ASSETS:
Goodwill and other intangible assets, Net 705,894 410,195
Deferred Income Taxes 39,000 -
Security Deposits 31,343 31,343
------------ ------------
776,237 441,538
TOTAL ASSETS $ 4,355,829 $ 3,811,976
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable to Bank $ 1,196,500 $ 695,000
Current maturities of long-term debt 89,065 89,220
Accounts Payable 1,668,887 1,936,974
Accrued Expenses and other current liabilities 67,821 131,510
Due to officer - 20,000
Deferred Revenue 239,781 144,600
------------ ------------
3,262,055 3,017,304
OTHER LIABILITIES:
Long-term debt, less current maturities 90,278 156,990
Note payable to related party 20,832 20,832
------------ ------------
111,110 177,822
COMMITMENTS
SHAREHOLDERS' EQUITY
Common Stock, .001 par value,
Authorized 50,000,000 shares, issued 2,904,368
in March and 2,583,518 in June 2,905 2,583
Additional paid-in capital 879,055 423,167
Retained Earnings 100,704 191,100
---------- -----------
Total Shareholders' equity 982,664 616,850
Total Liabilities and Shareholders' Equity $ 4,355,829 $ 3,811,976
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
-20-
<PAGE>
Cadapult Graphic Systems, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $ 2,995,803 $ 1,976,501 $ 7,471,438 $ 5,670,032
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Cost of sales 2,115,523 1,468,441 5,350,337 4,127,783
Selling, general and administrative expenses 803,143 536,417 2,152,200 1,516,605
----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS 77,137 (28,357) (31,099) 25,664
INTEREST EXPENSE, NET 41,095 20,334 98,297 61,664
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES (CREDITS) 36,042 (48,691) (129,396) (36,020)
INCOME TAXES (CREDITS):
Current - (4,000) - -
Deferred - (12,000) (39,000) (12,000)
----------- ----------- ----------- -----------
- (16,000) (39,000) (12,000)
NET INCOME (LOSS) $ 36,042 $ (32,691) $ (90,396) $ (24,020)
=========== =========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
BASIC 2,904,368 1,630,000 2,788,600 1,630,000
=========== =========== =========== ===========
DILUTED 2,997,566 - - -
=========== =========== =========== ===========
NET INCOME (LOSS) PER COMMON SHARE:
BASIC $ 0.01 $ (0.02) $ (0.03) $ (0.01)
=========== =========== =========== ===========
DILUTED $ 0.01 $ - $ - $ -
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
-21-
<PAGE>
Cadapult Graphic Systems, Inc. and Subsidiaries
Consolidated Statement of Changes in Shareholders' Equity
Nine Months Ended March 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Additional Total
Common Stock Paid-in Retained Shareholders'
Shares Amount Capital Earnings Equity
---------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
BALANCES, JUNE 30, 1998 2,583,518 $ 2,583 $ 423,167 $ 191,100 616,850
Sale of Common Stock issued through
Private Placement 228,000 229 $ 249,771 - 250,000
Issuance of Stock for Acquisition 92,850 93 185,607 - 185,700
Issuance of Warrants for services - - 20,510 - 20,510
Net loss - - - (90,396) (90,396)
---------- ---------- ---------- ---------- -------------
BALANCES, MARCH 31, 1999 2,904,368 $ 2,905 $ 879,055 $ 100,704 $ 982,664
========== ========== ========== ========== =============
</TABLE>
See accompanying notes to consolidated financial statements.
-22-
<PAGE>
Cadapult Graphic Systems, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (90,396) $ (24,020)
Adjustments to reconcile net loss to net cash
flows from operating activities:
Depreciation and amortization 108,540 56,419
Deferred income taxes (39,000) (35,177)
Issuance of Warrants for services 20,510 -
Changes in operating assets and liabilities:
Accounts receivable 67,288 (353,492)
Inventories 322,569 70,838
Prepaid and refundable income taxes 46,295 25,000
Prepaid expenses and other current assets (40,685) (27,659)
Security deposits - 1,148
Accounts payable (448,101) 136,913
Accrued expenses and other current liabilities (63,689) 11,334
Deferred revenue 95,181 (39,883)
------------ ------------
Net cash flows from operating activities (21,487) (178,578)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Costs related to acquisition (19,885) -
Costs of net assets of acquired business - (546,431)
Purchases of property and equipment (93,865) (93,015)
------------ ------------
Net cash flows from investing activities (113,750) (639,446)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Note payable to bank (147,453) 365,000
Proceeds of long term debt - 250,000
Payments on long term debt (66,867) (7,430)
Due to officer (20,000) (20,000)
Attorney Escrow Account 320,000 -
Sale of common stock, Net 250,000 -
------------ ------------
Net cash flows from financing activities 335,679 587,570
------------ ------------
NET CHANGE IN CASH 200,443 (230,454)
CASH, BEGINNING OF PERIOD 22,820 317,796
------------ ------------
CASH, END OF PERIOD $ 223,263 $ 87,342
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 98,297 $ 61,664
============ ============
Income taxes paid - -
============ ============
Noncash investing activity-
Acquisition of business:
Fair value of assets acquired $ 1,014,667 $ 865,115
Fair value of liabilities assumed 828,967 318,684
Fair value of common stock issued 185,700 -
------------ ------------
Met cash payment $ - $ 546,431
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
-23-
<PAGE>
CADAPULT GRAPHIC SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION:
The consolidated balance sheet as of June 30, 1998 has been derived from
the unaudited balance sheet that was included in the Company's transition report
filed on Form 10-QSB/A for the two month transition period ended June 30, 1998
and is presented for comparative purposes. All other financial statements are
unaudited. All material intercompany accounts and transactions have been
eliminated. In the opinion of management, all adjustments, which include only
normal recurring adjustments necessary to present fairly the financial position,
results of operations and cash flows for all periods presented, have been made.
The results of operations for interim periods are not necessarily indicative of
the operating results for the full year.
Footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted in
accordance with the published rules and regulations of the Securities and
Exchange Commission. These financial statements should be read in conjunction
with the financial statements and notes thereto included in the Company's form
8K/A filed August 27, 1998.
NOTE 2 - ORGANIZATION AND NATURE OF BUSINESS:
Pursuant to an Agreement and Plan of Reorganization dated June 5, 1998
(the "Plan"), between the Registrant; Cadapult Graphic Systems, Inc., a New
Jersey corporation ("Cadapult"); all of the stockholders of Cadapult (the
"Cadapult Stockholders"); Jenson Services, Inc., a Utah corporation ("Jenson
Services"); and Duane S. Jenson and Jeffrey D. Jenson (collectively, the
"Jensons"), the Cadapult Stockholders became the controlling stockholders of the
Registrant in a transaction viewed as a reverse acquisition, and Cadapult became
a wholly-owned subsidiary of the Registrant. The Plan was treated as a
recapitalization of Cadapult for accounting purposes, and the closing date of
the Plan was June 18, 1998. The historical financial statements of Seafoods
Plus Ltd. prior to the merger will no longer be reported, as Cadapult's
financial statements are now considered the financial statements of the ongoing
reporting entity.
On August 10, 1998, the stockholders approved an amendment to the
Certificate of Incorporation of the Company to change the Company's name from
Seafoods Plus Ltd. to Cadapult Graphic Systems, Inc. The stockholders also
approved the reincorporation of the Company as a Delaware corporation and a
related Agreement and Plan of Merger pursuant to which the Company will be
merged into a wholly-owned Delaware subsidiary. The Board of Directors of the
Company and its New Jersey Subsidiary have authorized a Parent/Subsidiary merger
of the two companies.
On June 24, 1998 the Company elected to change its fiscal year from a
March 31 year end to a June 30 year end.
-24-
<PAGE>
The Company is engaged in the business of providing computer graphics
systems, peripherals, supplies, training and service to graphics professionals.
The Company is a value-added dealer of computer graphics equipment and supplies,
including animation and design software and workstations, publishing software
and workstations, file servers, networks, color scanners and color printers and
copiers. The Company's markets include advertising and marketing companies,
printers, quick print shops, services bureaus, animators and industrial
designers, as well as the broad market for color printers.
NOTE 3 - PRIVATE PLACEMENT
From June 1998 through August 1998, the Company completed a private
placement through the sale of 524,000 shares of its Common stock for $655,000.
Expenses associated with the private placement were approximately $35,000,
providing the Company with net proceeds of $620,000.
NOTE 4 - COMMITTMENT
On September 4, 1998, the Company entered into a Lease Modification
Agreement for its New Jersey headquarters facility, to extend its current lease
to March 31, 2002. The Annual Base Rental was reduced to $79,332 from $91,232
effective March 31, 1999.
On April 9, 1999, the Company entered into a Loan and Security Agreement
with a lending institution. Under the Loan and Security Agreement, the lender
will advance up to 85% against eligible receivables and 50% against eligible
inventory, not to exceed an aggregate of $6 million. The term of the Agreement
is two years, and it carries an interest rate of the lender's base rate plus 2%.
NOTE 5 - EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earning Per Share." SFAS No.
128 replaced the calculation of primary and fully diluted earnings per share
with basic and diluted earnings per share. Basic earnings per share is computed
using the weighted average number of shares outstanding. Diluted earnings per
common share is computed using the weighted average number of shares outstanding
adjusted for the incremental share attributed to outstanding options and
warrants to purchase common stock. All earnings per share amount for all
periods have been presented in accordance with SFAS No. 128 requirements.
-25-
<PAGE>
The following table sets forth the computation of basic and diluted
earnings per share :
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
March 31, 1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) $36,042 $(32,691) $(90,396) $(24,020)
========== ========== ========== ==========
Denominator:
Denominator for basic earnings per share:
Weighted average shares 2,904,368 1,630,000 2,788,600 1,630,000
---------- ---------- ---------- ----------
Effect of dilutive securities
Employee stock options 93,198 - - -
---------- ---------- ---------- ----------
Denominator for diluted earnings per share 2,997,566 1,630,000 2,788,600 1,630,000
========== ========== ========== ==========
Earnings (loss) per share:
Basic $0.01 $(0.02) $(0.03) $(0.01)
========== ========== ========== ==========
Diluted $0.01 - - -
========== ========== ========== ==========
</TABLE>
The following warrants to purchase common stock were excluded from the
computation of diluted earnings per share for the three and nine months ended
March 31, 1999 and 1998 because the warrants' exercise price was greater than
the average market price of the common stock:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
March 31, 1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Anti-dilutive warrants 105,000 - 105,000 -
========== ========== ========== ==========
</TABLE>
-25-
<PAGE>
NOTE 6 - ACQUISITION
On January 7, 1999, the registrant completed the closing of the
acquisition of certain assets of Tartan Technical, Inc., a Massachusetts
corporation ("Tartan"), pursuant to an Asset Purchase Agreement dated December
17, 1998 (the "Purchase Agreement"). The registrant acquired certain assets of
Tartan, including, but not limited to, accounts receivable; inventory; certain
property and equipment; corporate name; its customer lists and other intangible
assets. The consideration given by the registrant pursuant to the Purchase
Agreement was the issuance of 185,700 shares of unregistered and restricted
common stock of registrant, of which 92,850 shares were placed in escrow to be
released pending the acquired business' achievement of certain gross profit
goals on the first and second anniversary of the close, and the assumption of
certain liabilities. Until the gross profit contingency is resolved, 92,850
shares will be considered outstanding. An 8K/A filed March 18, 1999 included
financial statements, notes and proforma financial statements relating to the
Tartan acquisition.
-26-
<PAGE>
MANAGEMENT'S DISCSSION AND ANALYSIS OR PLAN OF OPERATIONS
The following contains the Company's management's discussion and
analysis as statements as set forth in the Company's Quarterly Report on Form
10-QSB/A for the Transition Period ending June 30, 1998, filed on or about
September 1, 1998, and in the Company's Quarterly Report on Form 10-QSB,
filed on or about May 4, 1999.
Discussion for the Transition Period Ending June 30, 1998
- ---------------------------------------------------------
The following discussion and analysis should be read in conjunction with the
information set forth in the unaudited financial statements and notes thereto,
included elsewhere herein, and the audited financial statements and the notes
thereto, included in the Form 8K/A, to be filed on or about August 31, 1998.
Results of Operations
For the Two Months Ended June 30, 1998 and 1997
Sales. Consolidated sales for the two months ended June 30, 1998 compared to the
same period in 1997, increased approximately 100% to $1,623,754 from $821,633.
This increase was due to additional sales of $238,877 generated from the
acquisition of BBG Technologies, which was completed in March 1998, and from
increased sales to existing and new customers. The revenue mix in 1998 between
systems, supplies and services has remained comparable to the same period in
1997.
Cost of Sales. Cost of Sales for the two months ended June 30, 1998 were
$1,237,942, or approximately 76% of sales, as compared to $614,582 or
approximately 75% of sales for the comparable period in 1997. The Cost of
Revenues in 1998 have remained consistent from the same period in 1997, along
with the revenue mix.
Selling, General and Administrative. For the two months ended June 30, 1998,
Selling, General and Administrative expenses increased to $482,819 from
$377,527, which represents a drop to 30% of sales from 46% of sales. The dollar
increase in 1998 is due mainly to an increase in legal, accounting and
consulting fees associated with the merger and being a publicly held company,
and to amortization of goodwill resulting from the acquisition of BBG
Technologies in March 1998. The percentage decrease can be attributed to the
increase in sales as described above.
Interest Expense. For the two months ended June 30, 1998, Interest expense
increased to $21,894 from $6,316. The increase in 1998 is due primarily to the
increase in borrowing due to the acquisition of BBG Technologies in March 1998.
Income Taxes. For the two months ended June 30, 1998, the Company has not
recorded a tax benefit of a net operating loss carryforward due to the
uncertainty of its future utilization. For the two months ended June 1997, the
Company was able to carry back its net operating losses.
-27-
<PAGE>
Net Loss. For the two month period ended June 30, 1998, the Company incurred a
net loss of $108,901 or $0.06 per share as compared to a net loss of $128,992 or
$0.08 per share for the corresponding two month period ended June 30, 1997.
Liquidity and Capital Resources
The Company has an agreement with a bank under which it can borrow up to
$1,200,000 under a revolving line of credit, subject to availability of
collateral. Borrowings bear interest at 1% over the bank's base rate, are
payable on demand and are collateralized by all assets of the Company. As of
June 30, 1998 the Company had used $695,000 of this line.
Through August of 1998, the Company successfully completed a private offering
for $655,000 consisting of 524,000 shares of Common Stock at a purchase price of
$1.25. As of June 30, 1998, the Company had on deposit $320,000 with an escrow
agent, which was subsequently released to the Company in August, 1998. The
Company plans to use the proceeds for strategic acquisitions complimentary to
its core business.
The Company had a negative cash flow of $359,748 for the two months ended June
30, 1998. This resulted primarily from the repayment of $305,000 from the credit
line and $14,823 on long term debt. Cash used in operations resulted in negative
cash flows of $35,856 which consists of an increase in accounts receivable of
$538,646 and an increase in inventory of $277,157, offset by an increase in
accounts payable of $911,199.
Seasonality
It is anticipated that the Company's cash flow from operations will be
significantly greater in the fall and winter months than in the spring and
summer months due to the purchasing cycles associated with the Company's
products. In the event that the Company is unable to generate sufficient cash
flows from operations during the seasons of peak operations, the Company may be
required to utilize other cash reserves (if any) or seek additional equity/debt
financing to meet operating expenses, and there can be no assurance that there
will be any other cash reserves or that additional financing will be available
or, if available, on reasonable terms.
Year 2000 Discussion
Many computer programs were designed to perform data computations on the last
two digits of the numerical value of the year. When computations referencing
the year 2000 are performed, these program may interpret -00- as the year 1900
and could either corrupt the date-related computations or not process them at
all. As a result, many software and computer systems may need to be upgraded
or replaced in order comply with such year 2000 requirements.
The Company has reviewed all its computer systems, which are provided by
third-party manufacturers. The manufacturers have represented to the Company
that their systems are or will be year 2000 compliant. However, the Company
could be adversely impacted by year 2000 issues faced by significant customers,
vendors, suppliers, financial service organizations and other third parties
-28-
<PAGE>
with whom the Company conducts business. The Company still needs to determine
the degree of its customers, vendors, suppliers, and financial service
organizations' preparedness and whether alternate vendors, suppliers, and
financial service organizations will be needed or available in the event of any
disruption in the supply of goods or services to the Company. The Company still
needs to assess its potential liability to such third parties if the Company is
not year 2000 compliant. The Company still needs to assess the potential costs
related to addressing year 2000 issues. The Company does not presently have a
contingency plan related to year 2000 issues and may create a contingency plan
upon further assessment of the issues.
Forward Looking Statements
The foregoing management discussion and analysis contains forward-looking
statements and information that are based on management's beliefs, as well as
assumptions made by, and information currently available to, management. These
forward-looking statements are based on many assumptions and factors, and are
subject to many conditions, including the Company's continuing ability to obtain
additional financing, dependence on contracts with suppliers, competitive
pricing for the Company's products, demand for the Company's products which
depends upon the condition of the computer industry, and the effects of
increased indebtedness as a result of the Company's business acquisitions.
Except for the historical information contained in this new release, all
forward-looking information are estimates by the Company's management and are
subject to various risks, uncertainties and other factors that may be beyond the
Company's control and may cause results to differ from management's current
expectations, which may cause actual results, performance or achievements of the
Company to be materially different from future results, performance or
achievements expressed or implied by such forward-looking statements.
Discussion for the Period Ending March 31, 1999
- -----------------------------------------------
The following discussion and analysis should be read in conjunction with
the information set forth in the unaudited financial statements and notes
thereto, included elsewhere herein, and the audited financial statements and the
notes thereto, included in the Form 8K/A filed August 27, 1998.
Results of Operations
For the Three Months and Nine Months Ended March 31, 1999 and 1998
Sales. Consolidated sales for the three months ended March 31, 1999 compared to
the same period in 1998, increased approximately 52% to $2,995,803 from
$1,976,501. Consolidated sales for the nine months ended March 31, 1999 compared
to the same period in 1998, increased approximately 32% to $7,471,438 from
$5,670,032. The revenue mix in 1999 has shifted with supplies revenue
increasing as a percentage of total sales, while systems revenue has decreased
as a percentage of total sales. Service revenues, as a percentage of sales have
remained consistent. The increase in sales can be primarily attributed to the
acquisition of Tartan in January 1999.
-29-
<PAGE>
Cost of Sales. Cost of Sales for the three months ended March 31, 1999 were
$2,115,523, or approximately 70.6% of sales, as compared to $1,468,441 or
approximately 74.3% of sales for the comparable period in 1998. Cost of Sales
for the nine months ended March 31, 1999 were $5,350,337, or approximately 71.6%
of sales, as compared to $4,127,783 or approximately 72.8% of sales for the
comparable period in 1998. The Cost of Sales in 1999 has decreased slightly due
to the sale of private label supplies at significantly higher margins.
Selling, General and Administrative. For the three months ended March 31, 1999,
Selling, General and Administrative expenses increased to $803,143 from
$536,417, which represents a decrease to 26.8% of sales from 27.1% of sales.
For the nine months ended March 31, 1999, Selling, General and Administrative
expenses increased to $2,152,200 from $1,516,605, which represents a increase to
28.8% of sales from 26.7% of sales. The increase in 1999 is due mainly to an
increase in legal, accounting and consulting fees associated with the merger
and being a publicly held company, to amortization of goodwill resulting from
the acquisition of BBG Technologies in March 1998, and Tartan in January 1999,
and to increased payroll resulting from an increase in personnel to 36 employees
from 22 employees. The increase in personnel can be attributed to staff
additions associated with the acquisition of Tartan.
Interest Expense. For the three months ended March 31, 1999, Interest expense
increased to $41,095 from $20,334. For the nine months ended March 31, 1999,
Interest expense increased to $98,297 from $61,664. The increase in 1999 is due
primarily to the increase in borrowing due to the acquisition of BBG
Technologies in March 1998, and to the acquisition of Tartan in January 1999.
Income Taxes. For the three months ended March 31, 1999, the Company has
recorded no income tax expense, as it had previously recorded a tax benefit of a
net operating loss carryforward of $39,000, net of a valuation allowance of
$26,600. For the three months ended March 31, 1999, the Company effectively
reduced its valuation allowance. For the nine months ended March 31, 1999, the
Company has recorded a tax benefit of a net operating loss carryforward of
$39,000. For the three months ended March 1998, the Company recorded a $4,000
current income tax credit and a $12,000 deferred income tax credit. For the nine
months ended March 1998, the Company recorded a tax benefit of a net operating
loss carryforward of $12,000.
Net Income (Loss). For the three month period ended March 31, 1999, the Company
had net income of $36,042 or $0.01 per basic and diluted share as compared to a
net loss of $32,691 or $0.02 per share, for the corresponding three month period
ended March 31, 1998. For the nine month period ended March 31, 1999, the
Company incurred a net loss of $90,396 or $0.03 per share as compared to a net
loss of $24,020 or $0.01 per share for the corresponding nine month period ended
March 31, 1998.
-30-
<PAGE>
Liquidity and Capital Resources
The Company has an agreement with a lender under which it can borrow up to
$6,000,000 under a revolving line of credit, subject to availability of
collateral. Borrowings bear interest at 2% over the lender's base rate, are
payable on demand and are collateralized by all assets of the Company. As of
March 31, 1999 the Company had used $1,196,500 of this line.
In August of 1998, the Company successfully completed a private placement for
$655,000 consisting of 524,000 shares of Common Stock at a purchase price of
$1.25. Expenses associated with the private placement are estimated at $35,000,
providing the Company with net proceeds of $620,000. The Company used
substantially all of the proceeds in the retirement of bank debt assumed in the
acquisition of Tartan in January 1999.
The Company had positive cash flow of $200,443 for the nine months ended March
31, 1999. Cash used in operations resulted in negative cash flows of $21,487
which primarily consists of a decrease in accounts receivable of $67,288 and a
decrease in inventory of $322,569 and a increase in deferred revenue of $95,181,
offset by a decrease in accounts payable and accrued liabilities of $551,790.
Inflation
The Company has historically offset any inflation in operating costs by a
combination of increased productivity and price increases, where appropriate.
The Company does not expect inflation to have a significant impact on its
business in the future.
Seasonality
It is anticipated that the Company's cash flow from operations will be
significantly greater in the fall and winter months than in the spring and
summer months due to the purchasing cycles associated with the Company's
products. In the event that the Company is unable to generate sufficient cash
flows from operations during the seasons of peak operations, the Company may be
required to utilize other cash reserves (if any) or seek additional equity/debt
financing to meet operating expenses, and there can be no assurance that there
will be any other cash reserves or that additional financing will be available
or, if available, on reasonable terms.
Year 2000 Discussion
Many computer programs were designed to perform data computations on the last
two digits of the numerical value of the year. When computations referencing
the year 2000 are performed, these program may interpret -00- as the year 1900
and could either corrupt the date-related computations or not process them at
all. As a result, many software and computer systems may need to be upgraded or
replaced in order comply with such year 2000 requirements.
-31-
<PAGE>
The Company has reviewed all its computer systems, which are provided by
third-party manufacturers. The manufacturers have represented to the Company
that their systems are or will be year 2000 compliant. The Company at this time
does not anticipate incurring significant additional costs to address the year
2000 issue, although the effectiveness of the Company's present efforts to
address the issues cannot be assured. However, the Company could be adversely
impacted by year 2000 issues faced by significant customers, vendors, suppliers
and financial service organizations with whom the Company conducts business.
The Company still needs to determine the degree of its customers, vendors,
suppliers and financial service organizations preparedness and whether alternate
vendors, suppliers and financial service organizations will be needed or
available in the event of any disruption in the supply of goods or services to
the Company. The Company presently does not have a contingency plan related to
Year 2000 issues, and upon further assessment, the Company may create one.
Forward Looking Statements
The foregoing management discussion and analysis contains forward-looking
statements and information that are based on management's beliefs, as well as
assumptions made by, and information currently available to, management. These
forward-looking statements are based on many assumptions and factors, and are
subject to many conditions, including the Company's continuing ability to obtain
additional financing, dependence on contracts with suppliers, competitive
pricing for the Company's products, demand for the Company's products which
depends upon the condition of the computer industry, and the effects of
increased indebtedness as a result of the Company's business acquisitions.
Except for the historical information contained in this new release, all
forward-looking information are estimates by the Company's management and are
subject to various risks, uncertainties and other factors that may be beyond the
Company's control and may cause results to differ from management's current
expectations, which may cause actual results, performance or achievements of the
Company to be materially different from future results, performance or
achievements expressed or implied by such forward-looking statements.
-32-
<PAGE>
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
On July 6, 1998, the Company informed Mantyla, McReynolds & Associates
that it had been replaced as the Company's principal accountants. The former
principal accountants' report on the financial statements for either of the past
two years neither contained an adverse opinion or disclaimer of opinion, nor was
modified as to uncertainty, audit scope, or accounting principles. The
Company's decision to change its principal accountant was recommended and
approved by the Company's Board of Directors. There were no disagreements
with the former accountants on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure. The Company
has authorized the former accountants to respond fully to all inquires of the
successor accountant concerning any matter.
On July 6, 1998, the Company engaged Wiss & Company, LLP as its
principal accountants. Wiss & Company, LLP has been the principal accountants
for Cadapult Graphic Systems Inc., a New Jersey corporation ("Cadapult"), since
April 23, 1998. Pursuant to a reorganization which was completed on June 18,
1998, Cadapult became a wholly-owned subsidiary of the Company. The Board of
Directors of the Company has selected Wiss & Company to serve as the
Company's principal accountants.
By Order of the Board of Directors
/s/ Michael W. Levin
President and Chief Executive Officer
June 30, 1999
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<PAGE>
EXHIBIT A
CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION
OF
CADAPULT GRAPHIC SYSTEMS, INC.
It is hereby certified that:
1. The name of the corporation (hereinafter called the
"corporation") is Cadapult Graphic Systems, Inc.
2. The certificate of incorporation of the corporation is hereby
amended by striking out Article Fourth thereof and by substituting in lieu of
said Article the following new Article:
"FOURTH: The total number of shares of stock that this
corporation is authorized to issue is twenty five million (25,000,000),
consisting of twenty million (20,000,000) shares of common stock with $.001
par value per share and five million (5,000,000) shares of preferred stock
with $.001 par value.
A. Preferred Stock. The Board of Directors is expressly
authorized to provide for the issue of all or any shares of the preferred
stock, in one or more series, and to fix for each such series such voting
powers, full or limited, and such designations, preferences and relative,
participating, optional or other special rights and such qualifications,
limitations or restrictions thereof as shall be stated and expressed in the
resolution or resolutions adopted by the Board of Directors providing for the
issue of such series (a "Preferred Stock Designation") and as may be
permitted by the Delaware General Corporation Law. The number of authorized
shares of preferred stock may be increased or decreased (but not below the
number of shares thereof then outstanding) by the affirmative vote of the
holders of a majority of the voting power of all of the then outstanding
shares of the capital stock of the corporation entitled to vote generally in
the election of directors (the "Voting Stock"), voting together as a single
class, without a separate vote of the holders of the Preferred Stock, or any
series thereof, unless a vote of any such holders is required pursuant to any
Preferred Stock Designation.
B. Common Stock. Except as otherwise required by law or as
otherwise provided in any Preferred Stock Designation, the holders of the
Common Stock shall exclusively possess all voting power and each share of
common stock shall have one vote."
3. The amendment of the certificate of incorporation herein
certified has been duly adopted and written consent has been given in
accordance with the provisions of Sections 228 and 242 of the General
Corporation Law of the state of Delaware.
IN WITNESS WHEREOF, the undersigned, being the President and Chairman
of the Board of Directors of the corporation, does make and file this
Certificate of Amendment to the Certificate of Incorporation, hereby
declaring and certifying that the facts stated herein are true, and
accordingly hereunto has set his hand and seal this __th of August, 1999.
___________________________________
Michael W. Levin
President and Chairman of the Board
