FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ________ to ___________.
Commission file number 0-21853
CADAPULT GRAPHIC SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 87-0475073
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
110 Commerce Drive, Allendale, New Jersey 07401
(Address of principal executive offices)
(201) 236-1100
(Issuer's telephone number)
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past
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
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: As of November 2, 1999,
the issuer had 3,137,460 shares of common stock, par value $.001 per share,
outstanding, of which 50,000 shares are presently being held in escrow.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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CADAPULT GRAPHIC SYSTEMS, INC.
AND SUBSIDIARIES
FORM 10-QSB FOR THE QUARTER ENDED SEPTEMBER 30, 1999
Cadapult Graphic Systems, Inc., a Delaware corporation, and Media
Sciences, Inc., a wholly-owned New Jersey corporation, are collectively
referred to as "Cadapult" or the "Company" in this Form 10-QSB.
TABLE OF CONTENTS
Page No.
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheets as of September 30, 4
1999 and June 30, 1999
Consolidated Statements of Operation For the Three 5
Months Ended September 30, 1999 and 1998
Consolidated Statement of Changes in Shareholder's 6
Equity For the Three Months Ended September 30, 1999
Consolidated Statements of Cash Flows For the Three 7
Months Ended September 30, 1999 and 1998
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial 11
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceeding 14
Item 2. Changes in Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 16
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Index to Financial Statements:
Consolidated Balance Sheets as of September 30,
1999 and June 30, 1999
Consolidated Statements of Operation For the Three
Months Ended September 30, 1999 and 1998
Consolidated Statement of Changes in Shareholder's
Equity For the Three Months Ended September 30, 1999
Consolidated Statements of Cash Flows For the Three
Months Ended September 30, 1999 and 1998
Notes to Consolidated Financial Statements
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Cadapult Graphic Systems, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
September 30, June 30,
ASSETS 1999 1999
(Unaudited)
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 51,250 $ 33,157
Accounts Receivable, less allowance for doubtful accounts of $35,000 1,548,667 1,950,399
Attorney Escrow Account 50,000 -
Inventories 1,189,127 1,276,621
Prepaid expenses and other current assets 278,736 77,471
------------ ------------
Total Current Assets 3,117,780 3,337,648
PROPERTY AND EQUIPMENT, NET 627,605 627,029
OTHER ASSETS:
Goodwill and other intangible assets 822,341 835,889
Deferred acquisition costs 37,720 34,542
Security Deposits 29,150 33,523
------------ ------------
889,211 903,954
TOTAL ASSETS $ 4,634,596 $ 4,868,631
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable to Bank $ 1,282,380 $ 1,677,024
Current maturities of long-term debt 87,333 87,547
Accounts Payable 1,935,046 1,710,861
Accrued Expenses and other current liabilities 52,769 131,767
Deferred Revenue 316,294 294,089
------------ ------------
3,673,823 3,901,288
OTHER LIABILITIES:
Long-term debt, less current maturities 63,332 69,445
Note payable to related party 20,832 20,832
------------ ------------
84,164 90,277
COMMITMENTS
SHAREHOLDERS' EQUITY
Common Stock, .001 par value,
Authorized 20,000,000 shares; issued 3,137,461
in September and 3,058,308 in June 3,137 3,058
Preferred Stock, .001 par value,
Authorized 5,000,000 shares; no shares issued in September and June
Additional paid-in capital 1,317,594 1,171,782
Retained earnings (deficit) (444,123) (297,774)
------------ ------------
Total Shareholders' equity 876,608 877,066
Total Liabilities and Shareholders' Equity $ 4,634,596 $ 4,868,631
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
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Cadapult Graphic Systems, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
<TABLE>
Three Months Ended
September 30,
1999 1998
------------ ------------
<S> <C> <C>
NET SALES $ 3,149,164 $ 1,943,161
------------ ------------
COSTS AND EXPENSES :
Cost of sales 2,281,196 1,399,500
Selling, general and administrative expenses 950,616 716,171
------------ ------------
LOSS FROM OPERATIONS (82,648) (172,511)
INTEREST EXPENSE, NET 63,701 25,801
------------ ------------
LOSS BEFORE INCOME TAXES (CREDITS) (146,349) (198,312)
INCOME TAXES (CREDITS):
Current - -
Deferred - (39,000)
------------ ------------
- (39,000)
NET LOSS $ (146,349) $ (159,312)
============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 3,078,652 2,704,953
============ ============
NET LOSS PER COMMON SHARE -
BASIC AND DILUTED $ (0.05) $ (0.06)
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
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Cadapult Graphic Systems, Inc. and Subsidiaries
Consolidated Statement of Changes in Shareholders' Equity
For the Three Months Ended September 30, 1999
(Unaudited)
<TABLE>
Common Stock Additional Total
----------------------- Paid-in Retained Shareholders'
Shares Amount Capital Earnings Equity
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCES, JUNE 30, 1999 3,058,308 $ 3,058 $1,171,782 $ (297,774) 877,066
PERIOD ENDED SEPTEMBER 30, 1999
Sale of Common Stock through Private Placement 60,000 60 119,640 - 119,700
Issuance of Common Stock for services 15,000 15 20,985 - 21,000
Exercise of employee stock options 4,153 4 5,187 - 5,191
Net loss - - - (146,349) (146,349)
---------- ---------- ---------- ---------- ----------
BALANCES, SEPTEMBER 30, 1999 3,137,461 $ 3,137 $1,317,594 $ (444,123) $ 876,608
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
Cadapult Graphic Systems, Inc. and Subsidiaries
Statements of Cash Flows
(Unaudited)
<TABLE>
Three Months Ended
September 30,
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (146,349) $ (159,312)
Adjustments to reconcile net loss to net cash
flows from operating activities:
Depreciation and amortization 72,081 31,381
Deferred income taxes - (39,000)
Issuance of Common Stock and Warrants for services 21,000 13,042
Changes in operating assets and liabilities:
Accounts receivable 401,732 466,213
Inventories 87,494 332,155
Prepaid expenses and other current assets (201,265) (14,489)
Security deposits 4,373 -
Accounts payable 224,185 (751,941)
Accrued expenses and other current liabilities (78,998) (76,845)
Deferred revenue 22,205 47,783
------------ ------------
Net cash flows from operating activities 406,460 (151,013)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES -
Purchases of property and equipment (43,109) (53,072)
Costs related to acquisitions (16,090)
Purchase of intangible assets (16,000)
Deferred acquisition costs (3,178)
------------ ------------
Net cash flows from investing activities (62,287) (69,162)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Note payable to bank (394,644) 155,000
Payments on long term debt (6,327) (22,460)
Due to officer - (20,000)
Attorney Escrow Account (50,000) 320,000
Proceeds from exercise of employee stock options 5,191 -
Sale of common stock, Net 119,700 250,000
------------ ------------
Net cash flows from financing activities (326,080) 682,540
------------ ------------
NET CHANGE IN CASH 18,093 462,365
CASH, BEGINNING OF PERIOD 33,157 22,820
------------ ------------
CASH, END OF PERIOD $ 51,250 $ 485,185
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION :
Interest paid $ 63,701 $ 25,801
============ ============
Income taxes paid - -
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
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CADAPULT GRAPHIC SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accounting and reporting policies of Cadapult Graphic Systems, Inc.
("Cadapult" or the "Company") conform to generally accepted accounting
principles. Except for the June 30, 1999 consolidated balance sheet, the
financial statements presented herein are unaudited but reflect all
adjustments which, in the opinion of management, are necessary for the fair
presentation of the consolidated financial position, results of operations
and cash flows for the interim periods presented. All adjustments reflected
in the interim financial statements are of a normal recurring nature. Such
financial statements should be read in conjunction with the financial
statements and notes thereto and the report of independent accountants
included in the Company's Annual Report on Form 10-KSB for the year ended
June 30, 1999. The year end balance sheet data was derived from audited
financial statements, but does not include all disclosures required by
generally accepted accounting principles. The results of operations for the
three months ended September 30, 1999 are not necessarily indicative of the
results to be expected for the full year.
NOTE 2 - ORGANIZATION AND NATURE OF BUSINESS
Pursuant to an Agreement and Plan of Reorganization dated June 5, 1998
(the "Plan"), between the Company; Cadapult Graphic Systems, Inc., a New
Jersey corporation ("CGSI"); all of the stockholders of Cadapult (the
"CGSI Stockholders"); Jenson Services, Inc., a Utah corporation ("Jenson
Services"); and Duane S. Jenson and Jeffrey D. Jenson (collectively, the
"Jensons"), the CGSI Stockholders became the controlling stockholders of
the Registrant in a transaction viewed as a reverse acquisition, and CGSI
became a wholly-owned subsidiary of the Company. The Plan was treated as
a recapitalization of CGSI 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
CGSI'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
September 30 year end to a June 30 year end.
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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
On October 1, 1999, the Company entered into a Managing Dealer
Agreement with a placement agent wherein the placement agent will, on a best
efforts basis, offer up to $5,000,000 of the Company's convertible adjustable
preferred stock to accredited investors. Each unit includes one share of
Series A Preferred Stock ("Series A") and two warrants to purchase a total of
two shares of common stock for $4.50. Dividends on Series A stock will accrue
at the rate of 11.50% per annum and are payable quarterly. Each Series A
share is convertible at the option of the holder beginning 30 days after
closing (no later than December 31, 1999) at a rate of 3.077 shares of common
stock for one share of Series A. The conversion price shall adjust to 75% of
the average bid price for the 90 days preceding the 24th month anniversary of
the closing of the offering and again on the 48th month anniversary. Under no
circumstances can a new conversion price be below $2.00 per share.
The Series A stock will be callable by the Company at $15.00 per share
at any time Holders have the right to convert upon receipt of the call
notice.
The Company has agreed to register all of the shares of common stock
necessary for the conversion of the Series A stock and all shares of common
stock underlying warrants within 90 days of the closing of the offering.
The placement agent's fee will include a commission and a
nonaccountable expense allowance equal to 13% of the proceeds of the
offering, five year warrants to purchase up to 215,000 shares of the
Company's common stock at $1.65 per share and up to 500,000 shares of the
Company's common stock at $3.75 per share. The value of the warrants will be
recognized as a cost of issuance of the Series A shares.
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NOTE 4 - ACQUISITION
On September 7, 1999, Media Sciences, Inc., a newly formed wholly-owned
subsidiary of the Company, entered into an Asset Purchase Agreement
("Agreement") with ultraHue, Inc., a New Mexico corporation. The Company
has agreed to purchase certain assets and assume certain liabilities of
ultraHue for $3,500,000. The obligation of the Company to purchase the
assets is contingent upon the Company obtaining financing not less than
$3,000,000 to fund the purchase. In the event that the Company does not
obtain such financing by December 7, 1999, either party shall have the option
to terminate the Agreement.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
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 10-KSB filed September
27, 1999.
Results of Operations
For the Three Months Ended September 30, 1999 and 1998
Sales. Consolidated sales for the three months ended September 30, 1999
compared to the same period in 1998, increased approximately 62% to
$3,149,164 from $1,943,151. 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 Technical Inc. in January 1999 and
WEB Associates Inc. in June 1999.
Cost of Sales. Cost of Sales for the three months ended September 30, 1999
were $2,281,196, or approximately 72.4% of sales, as compared to $1,399,500
or approximately 72.0% of sales for the comparable period in 1998. The Cost
of Sales in 1999 remained consistent despite the shift in the revenue mix.
Selling, General and Administrative. For the three months ended September
30, 1999, Selling, General and Administrative expenses increased to $950,616
from $716,171, which represents a decrease to 30.2% of sales from 36.9% of
sales. The increase in 1999, can be attributed to amortization of goodwill
resulting from the acquisitions of Tartan Technical in January 1999 and WEB
Associates in June 1999, to increased payroll resulting from an increase in
personnel to 36 employees from 28 employees, and to the legal expenses
associated with the Tektronix lawsuit which amounted to $46,000 for this
three month period. The increase in personnel can be attributed to staff
additions associated with the acquisition of Tartan Technical and WEB
Associates.
Interest Expense. For the three months ended September 30, 1999, Interest
expense increased to $63,701 from $25,801. The increase in 1999 was due
primarily to an increase in borrowings to finance the Company's increased
receivables and inventory due to the acquisitions.
Income Taxes. For the three months ended September 30, 1999, the Company
recorded a tax benefit of $44,000 primarily due to a net operating loss
carryforward offset by a valuation allowance of $44,000.
Net Loss. For the three month period ended September 30, 1999, the Company
had a net loss of $146,349 or $0.05 per share as compared to a net loss of
$159,312 or $0.06 per share, for the corresponding three month period ended
September 30, 1998.
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Liquidity and Capital Resources
The Company experienced positive cash flow of $18,093 for the three months
ended September 30, 1999. Cash used in operations resulted in positive cash
flows of $406,460 primarily due to a loss of $146,349 and an increase in
prepaid expenses and other current assets of $201,265, offset by a non cash
charge to depreciation and amortization of $72,081, a decrease in accounts
receivable of $401,732, a decrease in inventories of $87,494 and a increase
in accounts payable of $224,185. Cash used in investing activities was
primarily comprised of purchase of equipment and the URL
www.freecolorprinter.com. The cash generated by the above, and through the
sale of common stock, was used to repay $394,644 of the credit facility and
for the ultraHue deposit of $50,000.
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
September 30, 1999 the Company had used $1,282,380 of this line.
In September 1999, the Company completed a private placement for $255,500
consisting of 127,750 shares of common stock (of which 50,000 shares are
being held in escrow pending the fulfillment of certain conditions
subsequent) at a purchase price of $2.00. Expenses associated with the
private placement were approximately $15,000, providing the company with net
proceeds of $240,500 of which $100,000 is due to the Company pending the
fulfillment of certain conditions subsequent. The Company used
substantially all of the proceeds to invest in its Internet initiatives
including SamplePrint.com and the upgrade of its accounting system in
preparation for the Cadapult storefront.
On October 1, 1999, the Company entered into a Managing Dealer Agreement with
a placement agent for a proposed private offering of up to $5,000,000. The
proposed private offering is of 500,000 units of the Company's securities,
each unit consisting of one share of convertible adjustable preferred stock
and one warrant to purchase two shares of common stock at $4.50. The
preferred stock will originally be convertible at $3.25 per share. In
addition, the preferred stock will carry a dividend, paid quarterly, of 11.5%
per annum. The offering is to be sold to accredited investors only in states
where permitted. The use of proceeds will be targeted at additional
acquisitions, expansion of Cadapult's "No-Cap Color" printer program and for
working capital. The offering is on a "best efforts" basis, but could
ultimately raise up to $11 million for the Company if fully sold and if the
included warrants are exercised.
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.
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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
The Company has conducted a preliminary review of the Company's internal
programs and has determined that there are no significant Year 2000 issues
within the Company's systems or services. At this time, the Company does not
anticipate any significant expense in ensuring that the Company is Year 2000
compliant. The Company believes that the Company's systems are Year 2000
compliant. The Company utilizes third-party equipment and software and the
Company has been informed that such are or will be Year 2000 compliant. The
Company presently does not have a contingency plan related to Year 2000
issues, and upon further assessment, the Company may create one. The failure
of the Company's contingency plan or the software applications or internal
systems of other companies on which the Company's systems rely or to which
they are connected or of other Internet-related companies, including Internet
web hosting companies, Internet access providers, or Internet root server
operators, none of which the Company controls, to be Year 2000 compliant upon
January 1, 2000 could have a material adverse effect on the operation of the
Internet and/or a material adverse effect on the Company's business,
financial condition and results of operations. Until the Company completes a
thorough evaluation of the Company's Year 2000 issues, the Company is
uncertain of the risks and the costs related to addressing such 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.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDING
In August 1999, Cadapult instituted an action against Tektronix, Inc.
before the Superior Court in New Jersey, which action has been moved before
the United States District Court for the District of New Jersey. In our
lawsuit, we seek certain injunctive relief and an indeterminate amount of
damages, and allege that Tektronix, Inc. violated the New Jersey Franchise
Practices Act, the New Jersey Antitrust Act, federal acts prohibiting
restraints of trade, breach of contract and unfair competition, among other
claims. In our lawsuit, we allege that, in August 1999, Tektronix, Inc.
unilaterally, and without notice, illegally terminated Cadapult's Tektronix
Premier Plus Reseller franchise because we are selling a non-Tektronix
product, Cadapult solid ink that is supplied to us by ultraHue, Inc. We are
informed that Tektronix controls 97% of the U.S. solid ink market for digital
printers (which essentially are only Tektronix printers). The results of our
pending lawsuit could have material positive or material adverse consequences
to our business. We derived 45% of our fiscal year 1999 revenues from sales
and services of Tektronix products. The lawsuit has only recently commenced
and may or may not be resolved in the near future. The loss of all or a part
of this lawsuit could have a material adverse affect on our business and
operations.
ITEM 2. CHANGES IN SECURITIES
On August 13, 1999, we amended our Certificate of Incorporation to
authorize a class of 5,000,000 shares of "blank check" preferred stock with
such designation, rights and preferences as may be determined from time to
time by the Board of Directors. The Board of Directors is empowered, without
stockholder approval, to issue preferred stock with dividend, liquidation,
conversion, voting or other rights that could adversely affect the voting
power or other rights of the holders of common stock. In the event of
issuance, the preferred stock could be utilized, under certain circumstances,
as a method of discouraging, delaying or preventing a change in control of
Cadapult. On October 4, 1999, we filed a certificate of designation to
create a series of 1,000,000 shares of series A preferred stock. The series
A preferred stock bears a fixed 11.5% dividend per year, and it is
convertible into shares of common stock initially at $3.25 per share,
adjusted after 2 years to 75% of the common stock's market price, and
adjusted after 4 years to 75% of the common stock's market price, but in no
case adjusted to less than $2.00 per share. The series A preferred stock can
be called by Cadapult at $15.00 per share. We presently do not have any
shares of series A preferred stock issued and outstanding. We may issue more
shares of preferred stock in the future which may have different
designations, rights and preferences.
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On September 13, 1999, we completed a private placement sale of 127,750
shares of unregistered and restricted common stock and raised gross proceeds
of approximately $255,500 in transactions deemed to be exempt under Rules 505
and 506 of Regulation D under the Securities Act. We are presently holding
50,000 of these shares in escrow until certain conditions are fulfilled.
We applied the net proceeds to development of our Internet-based services,
working capital, and other general corporate purposes. The private placement
was conducted by our officers and directors and was not underwritten.
In September 1999, we issued 15,000 shares of common stock for legal
services valued at $21,000, in a transaction deemed to be exempt under
Section 4(2) of the Securities Act.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
We, as authorized by the necessary approvals of the Board of Directors
and the holders of the majority of our common stock, including certain
members of management and the Board of Directors adopted resolutions
regarding amending our 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 we are 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. The holders of
1,707,500 shares of our common stock, representing approximately 56% of the
outstanding shares 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 actions amending the certificate of incorporation.
ITEM 5. OTHER INFORMATION
On October 1, 1999, we entered into a managing dealer agreement with a
placement agent for a best efforts offering for up to $5,000,000 of unit
securities, consisting of one share of series A preferred stock and two
warrants to purchase a total of two shares of common stock. The terms of the
series A preferred stock are described in Item 2 of this report on Form
10-QSB. Each warrant is exercisable for 5 years at $4.50 per share into one
share of common stock. The placement agent's fees will include commissions
and nonaccountable expense allowances equal to 13% of the proceeds of the
offering, five year warrants to purchase 215,000 shares of our common stock at
$1.65 per share and up to 500,000 shares of our common stock at $3.75 per
share. We have agreed to register all of the shares of common stock necessary
for the conversion of the series A stock and all of the shares of common stock
underlying warrants, including the warrants to the placement agent, within 90
days of the closing of the offering.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
The following exhibits are filed with this report:
Exhibit Number Description of Exhibit
- --------------- ----------------------
Exhibit 3(i)(1) Certificate of Amendment of Certificate of Incorporation of
Cadapult Graphic Systems, Inc. (incorporated by reference
to Exhibit 3(i)(5) 10-KSB filed on September 28, 1999)
Exhibit 3(i)(2) Certificate of Incorporation of Media Sciences, Inc.
(incorporated by reference to Exhibit 3(i)(6) 10-KSB filed
on September 28, 1999)
Exhibit 4 Certificate of Designation
Exhibit 27 Financial Data Schedule for the three months ended
September 30, 1999
(b) Reports on Form 8-K.
On September 22, 1999, we filed a report on Form 8-K reporting under
Item 2 that we entered into an asset purchase agreement with ultraHue, Inc.,
and under Item 5 that we commenced a legal proceeding against Tektronix, Inc.
-16-
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
CADAPULT GRAPHIC SYSTEMS, INC.
Date: November 5, 1999 /s/ Michael W. Levin
-------------------------------------
Michael W. Levin
President and Chief Executive Officer
Date: November 5, 1999 /s/ Frances Blanco
-------------------------------------
Frances Blanco
Vice President and Treasurer
-17-
CERTIFICATE OF DESIGNATION
OF
CADAPULT GRAPHIC SYSTEMS, INC.
Pursuant to Section 151 of the General
Corporation Law of the State of Delaware
SERIES A PREFERRED STOCK
Cadapult Graphic Systems, Inc., a Delaware corporation (the "Company"),
hereby certifies that the following resolution has been duly adopted by the
Board of Directors of the Company:
RESOLVED, that pursuant to the authority expressly granted to and
vested in the board of directors of the Company (the "Board") by the
provisions of the certificate of incorporation of the Company (as amended,
the "Certificate of Incorporation"), there hereby is created, out of the
5,000,000 shares of preferred stock, par value $.001 per share, of the
Company authorized by Article Fourth of the Certificate of Incorporation (the
"Preferred Stock"), a series of the Preferred Stock consisting of 1,000,000
shares, which series shall have the following powers, designations,
preferences and relative, participating, optional and other special rights,
and the following qualifications, limitations and restrictions:
1. Designation. This series of Preferred Stock shall be
designated "Series A Preferred Stock."
2. Dividends.
(a) Amount. The holders of shares of Series A Preferred
Stock shall be entitled to receive dividends on each share of Series A
Preferred Stock held at the annual rate of eleven and one-half percent
(11.5%).
(b) Cash Dividends. Dividends on the Series A Preferred
Stock shall be paid in cash quarterly in arrears, with the first dividend
payment due January 1, 2000. Upon conversion of any share of Series A
Preferred Stock pursuant to Section 4, all accumulated but unpaid dividends
thereon shall be extinguished. Dividends shall accumulate with respect to
any share of Series A Preferred Stock from date of issuance.
1
<PAGE>
(c) Dividends Priority. Unless all dividends shall be
declared and paid in cash in full on all outstanding shares of Series A
Preferred Stock, no dividends shall be declared or paid on, and no assets
shall be distributed or set apart for, any shares of Junior Stock (as defined
below) other than distributions of dividends in shares of the same class and
series of Junior Stock to the holders of Junior Stock in respect of which
such distribution is made.
(d) Junior Stock. "Junior Stock" shall mean (i) each class
of the Company's common stock, par value $.001 per share ("Common Stock"),
and (ii) each other class or series of the Company's capital stock, whether
common, preferred or otherwise, the terms of which do not provide that shares
of such class or series shall rank senior to or on a parity with shares of
the Series A Preferred Stock as to distributions of dividends and
distributions upon the liquidation, winding-up and dissolution of the
Company.
3. Liquidation Rights. Upon the voluntary or involuntary
liquidation, winding-up or dissolution of the Company, the holders of shares
of Series A Preferred Stock shall be entitled to receive out of the assets of
the Company, for each share of Series A Preferred Stock, cash in an amount
equal to the sum of $10.00 (the "Liquidation Value") plus an amount equal to
all accumulated but unpaid dividends per share (whether or not declared)
before any payment or distribution shall be made on Junior Stock, but after
payment of all outstanding indebtedness and all amounts due on liquidation,
dissolution or winding-up in respect of all preferred stock of the Company
which by its terms is senior to the Series A Preferred Stock. After the
payment in cash to the holders of shares of Series A Preferred Stock of the
full preferential amounts set forth above, the holders of shares of Series A
Preferred Stock as such shall have no right or claim to any of the remaining
assets of the Company. If the assets of the Company available for
distribution to the holders of shares of Series A Preferred Stock, upon any
liquidation, dissolution or winding-up of the Company, are insufficient to
pay the full preferential amount to which the holders of Series A Preferred
Stock are entitled, then the holders of Series A Preferred Stock shall share
ratably in such distribution of assets in accordance with the amount that
would be payable on such distribution if the amounts to which the holders of
outstanding shares of Series A Preferred Stock were entitled were paid in
full.
4. Conversion Rights.
(a) Conversion, Per Share Conversion Price. Each share of
Series A Preferred Stock shall be convertible, at the option of the holder
thereof upon exercise in accordance with Section 4(b), without the payment of
additional consideration, into such number of fully paid and nonassessable
shares of the Company's Common Stock as shall be determined by dividing
$10.00 by the amount determined as follows (as such amount may be adjusted
from time to time pursuant to Section 5, the "Per Share Conversion Price"):
(i) Beginning 30 days after the date of closing of
the initial sale of Series A Preferred Stock by the Company (the "Private
Placement Closing"), $3.25;
2
<PAGE>
(ii) Upon the twenty four (24) month anniversary of
the Private Placement Closing, an amount equal to seventy five percent (75%)
of the average bid price of the Common Stock during the 90 days preceding
such anniversary;
(iii) Upon the forty eight month anniversary of the
Private Placement Closing, an amount equal to seventy five percent (75%) of
the average bid price of the Common Stock during the 90 days preceding such
anniversary; and
(iv) Notwithstanding anything else contained herein,
the Per Share Conversion Price shall not be less than $2.00.
(b) Conversion Procedures. The optional conversion of
shares of Series A Preferred Stock in accordance with Section 4(a) may be
effected by a holder of record thereof by making written demand for such
conversion (a "Conversion Demand") upon the Company at its principal
executive offices setting forth therein: (i) the number of shares to be
converted; (ii) the certificate or certificates representing such shares; and
(iii) the proposed date of such conversion, which shall be a business day not
less than 15 nor more than 30 days after the date of such Conversion Demand
(the "Conversion Date"). Within five days of receipt of the Conversion
Demand, the Company shall give written notice (a "Conversion Notice") to such
holder setting forth therein: (i) the address of the place or places at
which the certificate or certificates representing the shares so to be
converted are to be surrendered; and (ii) whether the certificate or
certificates to be surrendered are required to be indorsed for transfer or
accompanied by a duly executed stock power or other appropriate instrument of
assignment and, if so, the form of such indorsement or power or other
instrument of assignment. The Conversion Notice shall be sent by first class
mail, postage prepaid, to such holder at such holder's address as may be set
forth in the Conversion Demand. On or before the Conversion Date, the holder
of Series A Preferred Stock to be converted shall surrender the certificate
or certificates representing such shares, duly indorsed for transfer or
accompanied by a duly executed stock power or other instrument of assignment,
if the Conversion Notice so provides, to the Company at any place set forth
in such notice or, if no such place is so set forth, at the principal
executive offices of the Company. As soon as practicable after the
Conversion Date and the surrender of the certificate or certificates
representing such shares, the Company shall issue and deliver to such holder,
or its nominee, a certificate or certificates for the number of whole shares
of Common Stock issuable upon such conversion in accordance with the
provisions hereof. Upon surrender of certificates of Series A Preferred
Stock to be converted in part, the Company shall issue a balance certificate
representing the number of full shares of Series A Preferred Stock not so
converted.
(c) Reservation of Common Stock. The Company shall at all
times when any shares of Series A Preferred Stock shall be outstanding,
reserve and keep available out of its authorized but unissued stock, such
number of shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding shares of Series A Preferred Stock.
(d) Effect of Conversion. All outstanding shares of Series
A Preferred Stock to be converted pursuant to the Conversion Notice shall, on
the Conversion Date, be converted into Common Stock for all purposes,
notwithstanding the failure of the holder thereof to surrender any
certificate representing such shares on or prior to such date. On and after
3
<PAGE>
the Conversion Date, (i) no such share of Series A Preferred Stock shall be
deemed to be outstanding or be transferable on the books of the Company or
the stock transfer agent, if any, for the Series A Preferred Stock, and (ii)
the holder of such shares, as such, shall not be entitled to receive any
dividends or other distributions, to receive notices or to vote such shares
or to exercise or to enjoy any other powers, preferences or rights in respect
thereof, other than the right, upon surrender of the certificate or
certificates representing such shares, to receive a certificate or
certificates for the number of shares of Common Stock into which such shares
shall have been converted. On the Conversion Date, all such shares shall be
retired and canceled and shall not be reissued.
5. Adjustment of Per Share Conversion Price.
(a) Adjustment in the Event of Stock Splits, Dividends,
Subdivisions, Etc. In case the Company, at any time or from time to time
after the date hereof, shall increase the number of Fully Diluted Shares of
Common Stock (as defined below) by virtue of or in connection with:
(i) any dividend on the Common Stock; or
(ii) any stock split or other subdivision of the
outstanding shares of Common Stock into a greater number of shares of Common
Stock (by reclassification other than by payment of a dividend in Common
Stock);
then the Per Share Conversion Price shall be adjusted, concurrently with such
increase, to a Per Share Conversion Price that would entitle the holder of
such share to receive on conversion thereof the same percentage of the Fully
Diluted Shares of Common Stock that such holder would have received on
conversion thereof immediately prior to such increase.
(b) Adjustments for Combinations, etc. If the outstanding
shares of Common Stock shall be combined or consolidated, by reclassification
or otherwise, into a lesser number of shares of Common Stock (including,
without limitation, pursuant to a reverse stock split), the Per Share
Conversion Price in effect immediately prior to such combination or
consolidation shall, concurrently with the effectiveness of such combination
or consolidation, be proportionately increased.
(c) "Fully Diluted Shares of Common Stock". The term "Fully
Diluted Shares of Common Stock" means the number of shares of Common Stock
after giving effect to the issuance of the shares of Common Stock issuable in
respect of the Series A Preferred Stock upon conversion thereof and all
shares of Common Stock issuable in respect of any and all other shares,
warrants, options and other securities that are convertible, exchangeable or
exercisable for shares of Common Stock.
4
<PAGE>
6. Changes in Capital Stock.
(a) In case at any time the Company shall be a party to any
transaction (including, without limitation, a merger, consolidation, sale of
all or substantially all of the Company's assets, liquidation or
recapitalization) in which previously outstanding Common Stock shall be
changed into or exchanged for different securities of the Company (other than
by subdivision of its outstanding shares of Common Stock by reason of which
an adjustment to the Per Share Conversion Price is made under Section 5(a))
or Common Stock or other securities of another corporation or interests in a
noncorporate entity or other property (including cash) or any combination of
any of the foregoing (each such transaction being hereinafter referred to as
the "Transaction"), then, as a condition to the consummation of the
Transaction, lawful and adequate provisions shall be made so that each holder
of a share of Series A Preferred Stock, upon the conversion thereof, at any
time on or after the consummation of the Transaction, shall be entitled to
receive, and such shares of Series A Preferred Stock shall thereafter
represent the right to receive, in lieu of the Common Stock or other
securities issuable upon such exercise prior to such consummation, the
highest amount of securities, cash or other property to which such holder
would actually have been entitled as a shareholder upon the consummation of
the Transaction if such holder had converted those shares of Series A
Preferred Stock immediately prior thereto.
(b) Notwithstanding anything contained herein to the
contrary, the Company shall not effect any Transaction unless prior to the
consummation thereof each corporation or entity (other than the Company) that
may be required to deliver any securities, cash or other property upon the
conversion of shares of Series A Preferred Stock as provided herein shall
assume, by written instrument delivered to, and reasonably satisfactory to,
the holders of a majority of the outstanding shares of Series A Preferred
Stock, the obligation to deliver to such holder such securities, cash or
other property as to which, in accordance with the foregoing provisions, such
holder may be entitled, and such corporation or entity shall have similarly
delivered to the holder of the shares of Series A Preferred Stock an opinion
of counsel for such corporation or entity, satisfactory to the holders, which
opinion shall state that the shares of Series A Preferred Stock and the
provisions of this certificate of designation, including, without limitation,
the conversion provisions, shall thereafter continue in full force and effect
and shall be enforceable against the Company and such corporation or entity
in accordance with the terms hereof and thereof, together with such other
matters as such holder may reasonably request.
7. Report or Certificate as to Adjustments. In each case of any
adjustment or readjustment in the shares of Common Stock (or other
securities) issuable upon the conversion of a share of Series A Preferred
Stock, the Company at its expense will promptly deliver a certificate of the
Chief Financial Officer showing in reasonable detail the computation of such
adjustment or readjustment in accordance with the terms of this certificate
of designation. The Company shall also cause independent certified public
accountants of recognized national standing (which may be the regular
auditors of the Company) selected by the Company to verify such computation
and prepare a report setting forth such adjustment or readjustment and
showing in detail the method of calculation thereof and the facts upon which
such adjustment or readjustment is based. The Company will forthwith (and in
any event not later than 30 days following the occurrence of the event
requiring such adjustment) furnish a copy of each such
5
<PAGE>
report to each holder, and will, upon the written request at any time of a
holder, furnish to such holder a like report setting forth the Per Share
Conversion Price at the time in effect and showing how it was calculated.
The Company will also keep copies of all such reports at its principal office
and will cause the same to be available for inspection at such office during
normal business hours by each holder or any prospective purchaser of shares
of Series A Preferred Stock designated by the holder thereof.
8. Notices of Corporate Action. In the event of:
(i) any taking by the Company of a record of the holders of
any class of securities for the purpose of determining the holders thereof
who are entitled to receive any dividend or other distribution, or any right
to subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other right; or
(ii) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company, any
consolidation or merger involving the Company and any other person or any
transfer of all or substantially all the assets of the Company to any other
person; or
(iii) any voluntary or involuntary dissolution, liquidation
or winding-up of the Company; or
(iv) any plan or proposal by the Company to register shares
of the Common Stock with the Securities and Exchange Commission;
the Company will deliver to the holder a notice specifying (x) the date or
expected date on which any such record is to be taken for the purpose of such
dividend, distribution or right, and the amount and character of such
dividend, distribution or right, (y) the date or expected date on which any
such reorganization, reclassification, recapitalization, consolidation,
merger, transfer, dissolution, liquidation or winding-up is to take place and
the time, if any such time is to be fixed, as of which the holders of record
of Common Stock (or other securities) shall be entitled to exchange their
shares of Common Stock (or other securities) for the securities or other
property deliverable upon such reorganization, reclassification,
recapitalization, consolidation, merger, transfer, dissolution, liquidation
or winding-up or (z) the date or expected date of the filing of the initial
registration statement with respect to such shares of Common Stock. Such
notice shall be furnished at least 30 days prior to the date therein
specified; provided, however, if such date is prior to a public announcement
relating to the events set forth and on such date the Company is either bound
by an agreement with a third party of confidentiality with respect to the
corporate action the subject of this Section 8, or the Company's securities
are traded or quoted on any recognized national securities exchange or
quotation system, then such notice shall be provided to each holder of a
share of Series A Preferred Stock simultaneously with the notice provided to
the Company's stockholders.
6
<PAGE>
9. Redemption.
(a) The Company may, at its option, redeem all or any
portion of the outstanding shares of Series A Preferred Stock at any time at
an amount equal to $15.00 per share, plus all accrued and unpaid dividends
(the "Redemption Price").
(b) Written notice of any redemption of shares of Series A
Preferred Stock (a "Notice of Redemption"), specifying the time and place of
redemption, shall be mailed by certified mail, return receipt requested, at
least 30, and not more than 45, days prior to the date specified for
redemption (the "Redemption Date"), to each registered holder of the shares
to be redeemed at the holder's last address as it appears on the Company's
books. On or after the Redemption Date, each holder of shares of Series A
Preferred Stock called for redemption shall surrender his certificates for
the shares to the Company at the place specified in the notice and then the
Company shall pay the holder (or shall cause such holder to be paid) the
Redemption Price in cash.
(c) Receipt of a Notice of Redemption shall not prevent a
holder from exercising the conversion rights granted pursuant to Section 4.
Notwithstanding the foregoing, any holder exercising such conversion rights
must make a Conversion Demand (as defined in Section 4(b)) not later than 5
days prior to the Redemption Date.
(d) Unless the Company defaults in the payment in full of
the Redemption Price, dividends on the shares called for redemption shall
cease to accumulate on the Redemption Date, and all rights of the holders of
the shares by reason of their ownership of the shares shall cease on the
Redemption Date, except the right to receive the Redemption Price on
surrender to the Company of the certificates representing the shares. After
the Redemption Date, the shares shall not be deemed to be outstanding and
shall not be transferable on the books of the Company, except to the Company.
(e) Any shares of Series A Preferred Stock redeemed or
purchased by the Company shall be canceled and shall have the status of
authorized and unissued shares of preferred stock, without designation as to
series.
10. Voting Rights. Holders of shares of Series A Preferred Stock
shall not be entitled to vote on any matter, except as otherwise required by
law or as expressly provided in this certificate. With respect to any matter
on which the holders of shares of Series A Preferred Stock shall be entitled
to vote, holders of shares of Series A Preferred Stock shall be entitled to
one vote for each share held.
11. Consents Required of Holders of Series A Preferred Stock. As
long as any shares of Series A Preferred Stock are outstanding, the Company
shall not, by amendment to the Certificate of Incorporation, by resolution of
the Board, by consolidation of the Company with, or merger of the Company
into, another corporation, or in any other manner, without the consent of the
holders of a majority of the outstanding shares of Series A Preferred Stock,
either given by vote in person or by proxy at a meeting called for that
purpose or given in writing, materially and adversely alter any provision of
the Series A Preferred Stock.
7
<PAGE>
Notwithstanding anything to the contrary contained in this
certificate, the Board from time to time without a vote of the holders of the
shares of Series A Preferred Stock, may decrease the number of shares
constituting the Series A Preferred Stock, but not below such number of
shares of Series A Preferred Stock as are actually outstanding at any such
time.
12. Restrictions on Transfer. Each certificate representing
shares of Series A Preferred Stock and each certificate representing shares
of Common Stock issuable upon conversion of any shares of Series A Preferred
Stock shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE AND ANY
SHARES ACQUIRED UPON THE CONVERSION OF THE SHARES
REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM
UNDER SUCH ACT, EXCEPT UNDER CIRCUMSTANCES WHERE
NEITHER SUCH REGISTRATION NOR SUCH AN EXEMPTION IS
REQUIRED BY LAW."
8
<PAGE>
IN WITNESS WHEREOF, the Company has caused this certificate of
designation to be signed by its President this 22nd day of September, 1999.
CADAPULT GRAPHIC SYSTEMS, INC.
By: /s/ Michael W. Levin
---------------------------
Name: Michael W. Levin
Title: President
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRCATED FROM FINANCIAL
STATEMENTS FOR THE THREE-MONTH PERIOD ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> SEP-30-1999
<CASH> 51,250
<SECURITIES> 0
<RECEIVABLES> 1,548,667
<ALLOWANCES> 35,000
<INVENTORY> 1,189,127
<CURRENT-ASSETS> 3,117,780
<PP&E> 1,360,034
<DEPRECIATION> 732,429
<TOTAL-ASSETS> 4,634,596
<CURRENT-LIABILITIES> 3,673,823
<BONDS> 0
0
0
<COMMON> 3,137
<OTHER-SE> 1,317,594
<TOTAL-LIABILITY-AND-EQUITY> 4,634,596
<SALES> 3,149,164
<TOTAL-REVENUES> 3,139,164
<CGS> 2,281,196
<TOTAL-COSTS> 2,281,196
<OTHER-EXPENSES> 950,616
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 63,701
<INCOME-PRETAX> (146,349)
<INCOME-TAX> 0
<INCOME-CONTINUING> (146,349)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (146,349)
<EPS-BASIC> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
