As filed with the Securities and Exchange Commission on ___________, 1999
Registration Statement No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CADAPULT GRAPHIC SYSTEMS, INC.
(Name of small business issuer in its charter)
Delaware 5045 84-0475073
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(State or jurisdiction (Primary Standard (I.R.S. Employer
of incorporation Industrial Classification Identification
or organization) Code Number) Number)
110 Commerce Drive
Allendale, New Jersey 07401
(201) 236-1100
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Michael W. Levin
Chief Executive Officer and President
Cadapult Graphic Systems, Inc.
110 Commerce Drive
Allendale, New Jersey 07401
(201) 236-1100
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies of communications to:
Dan Brecher, Esq.
Law Offices of Dan Brecher
99 Park Avenue, 16th Floor
New York New York 10016
(212) 286-0747
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering.[ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering.[ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering.[ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box.[ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Proposed Proposed
Title of each class Dollar Maximum Maximum Amount of
of securities Amount to be Offering Price Aggregate Registration
to Be Registered Registered Per Unit(1) Offering Price(1) Fee
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<S> <C> <C> <C> <C>
common stock, par value
$.001 per share........ 771,750 $2.32 $1,790,460 $497.75
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</TABLE>
(1) Estimated pursuant to Rule 457(c) under the Securities Act solely for
purposes of calculating the Registration Fee. The fee is based upon
the average of the bid and ask price for shares of common stock of the
registrant, $2.375 and $2.25, respectively, reported on the OTC
Bulletin Board on October 1, 1999.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the registration
statement shall become effective on such date as the Commission acting
pursuant to said Section 8(a), may determine.
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SUBJECT TO COMPLETION, DATED _______ __, 1999
PROSPECTUS
Cadapult Graphic Systems, Inc.
771,750 Shares of common stock
This prospectus relates to 771,750 shares of common stock, par value
$.001 per share, of Cadapult Graphic Systems, Inc., a Delaware corporation,
which may be offered and sold, from time to time, by certain stockholders of
Cadapult. We will not receive any of the proceeds from the sale of the
shares of common stock by the selling stockholders.
The selling stockholders may from time to time sell their shares of
common stock to or through one or more underwriters, directly to other
purchasers or through agents, on the OTC Bulletin Board in ordinary brokerage
transactions, in negotiated transactions or otherwise, at market prices
prevailing at the time of sale, at prices related to the then-prevailing
market price or at negotiated prices.
Our common stock is quoted on the OTC Bulletin Board under the
symbol "GRFX".
See "Risk Factors" beginning on page 5 for a discussion of certain
Factors that should be considered by prospective investors.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed on the
adequacy or accuracy of the disclosures in this Prospectus. Any
representation to the contrary is a criminal offense.
We have not authorized any dealer, salesperson or other person to give
any information or to represent anything not contained in this prospectus.
You must not rely upon any unauthorized information.
The information in this prospectus is not complete and may be changed.
The selling stockholders may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective.
This prospectus is not an offer to sell these securities and it is not a
solicitation of an offer to buy these securities in any state where the offer
or sale is not permitted.
The date of this Prospectus is _______ __, 1999.
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TABLE OF CONTENTS
Page
Prospectus Summary 3
Risk Factors 5
Use of Proceeds 13
Management's Discussion and Analysis of Financial Conditions
and Results of Operations 13
About Us 19
Our Management 30
Executive Compensation 32
Ownership of Securities 39
Certain Relationships and Related Transactions 40
Selling Stockholders 41
Plan of Distribution 48
Our Common Stock 49
Legal Matters 51
Experts 52
Indemnification 52
Where You Can Find More Information 52
Index to Financial Statements 53
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PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this
prospectus. This summary is not complete and does not contain all of the
information you should consider before investing in our common stock. You
should read the entire prospectus carefully, including the "Risk Factors"
section and the financial statements and related notes thereto appearing
in the financial statements.
OUR BUSINESS
We provide computer graphics systems, peripherals, supplies and service
to visual communicators and graphics professionals. We operate through three
business units: Reseller Operations, eCadapult and Media Sciences. We are a
leading supplier of computer graphics solutions in the Northeast United
States.
Under our Reseller Operations, we are a systems integrator, value added
dealer or value added reseller of computer graphics equipment and supplies.
Our products include animation and design software and workstations,
publishing software and workstations, file servers, networks, color scanners
and color printers and copiers. Our markets include advertising and
marketing companies, printers, quick print shops, service bureaus, animators,
industrial designers as well as the broad corporate market for color
printers.
We have expanded our business operations through eCadapult, a recently
established division of our company, which provides value added services to
the creative graphics community over the Internet. In June 1999, we
launched SamplePrint.com, a one-stop evaluation resource for buyers of color
printing technology. We intend to offer two new e-commerce services in fall
1999, Cadapult Storefront and GraphicSmart.com, through which customers can
purchase supplies and products from us directly over the Internet.
In August 1999, we formed Media Sciences, Inc., a wholly owned New
Jersey subsidiary, for the purpose of acquiring companies and assets.
Media Sciences has an agreement to acquire and operate the assets of
ultraHue, Inc. ultraHue manufactures color solid ink and remanufactures and
refills color toner cartridges, all for use in Tektronix color printers.
ultraHue distributes these products and transparency media, also for use in
Tektronix color printers, to dealers and distributors internationally. Media
Sciences intends to manufacture and distribute, internationally, these
digital color printer supplies. We intend to grow this business through
expansion of the product line, additional marketing, expansion of the
existing channel and distribution agreements and potentially through joint
ventures. The acquisition of ultraHue may be completed in December 1999, if
our present efforts are successful to secure the funding to complete the
transaction. In the event that we are unable to obtain such financing by
December 7, 1999, either party shall have the option to terminate the asset
purchase agreement.
Our strategy for long-term growth is to continue to acquire other
computer graphics dealers and service providers. Our growth strategy involves
integrating acquired businesses, increasing overall efficiency, providing a
high degree of customer service, and improving and expanding services.
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THE OFFERING
Total shares outstanding 3,137,460 shares of common stock
common stock offered for resale
to the public 771,750 shares of common stock
Price per share to the public Market price at the time of resale
Proceeds from offering We will not receive any of the
proceeds from the sale of the shares
of common stock offered by the
selling stockholders.
Risk Factors The shares of common stock offered by
the selling stockholders are highly
speculative, involve a high degree of
risk and should not be purchased by
an investor who cannot afford the
loss of his or her entire investment.
See "Risk Factors" beginning on page 5.
Trading Symbol for common stock GRFX
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RISK FACTORS
This prospectus contains forward-looking information. Generally, the
words "anticipates," "expects," "believes," "intends," "could," "may," and
similar expressions identify forward looking statements. Forward-looking
statements involve risks and uncertainties, including those described under
"Risk Factors" in this prospectus. We caution you that while we believe any
forward-looking statement are reasonable and made in good faith,
expectations almost always vary from actual results, and the differences
between our expectations and actual results may be significant.
You should carefully consider the risks described below before making
an investment. Although the factors identified below are important factors,
those are not the only ones facing us. If any of the following risks
actually occur, our actual results could differ significantly, and the
trading price of our common stock could decline, and you may lose all or part
of your investment.
WE MAY NOT BE PROFITABLE OR GENERATE CASH FROM OPERATIONS IN THE FUTURE
We may incur operating losses and net losses for the near term as we
incur additional costs associated with the development of our Internet-based
services, acquisition of related businesses, entry into new markets, and the
expansion of our administrative, operational, marketing and sales
organizations. We operated at a loss for our fiscal year ended April 30,
1998. We generated gross sales of $10,227,628 for the one year period ended
June 30, 1999, representing an increase of 44% over the one year period ended
April 30, 1998 (in 1999, we changed our fiscal year end to June 30). For the
one year period ended June 30, 1999, we incurred a net loss of $444,374 or
$0.16 per share as compared to a net loss of $219,242 or $0.14 per share, for
the one year period ended April 30, 1998. We expect our expenses to increase
as we expand our business. We cannot assure you that our revenues will
increase as a result of our increased spending. If revenues grow more slowly
than we anticipate, or if operating expenses exceed our expectations, we may
not become profitable. Even if we become profitable, we may be unable to
sustain our profitability.
WE NEED TO OBTAIN THE CAPITAL NECESSARY TO FUND OUR PROPOSED OPERATIONS.
Our capital resources are not substantial in relationship to other
companies in the industry. In October 1999, we commenced a private placement
offering of our securities to obtain $5,000,000 to fund our No-Cap Color
program and to fund the acquisition of the printer ink business of ultraHue,
Inc. The obligation of Cadapult to purchase the assets of ultraHue is
contingent upon Cadapult obtaining financing of not less than $3,000,000 to
fund the purchase. In the event that we are unable to obtain such financing
by December 7, 1999, either party shall have the option to terminate the asset
purchase agreement. If we do not obtain enough funds from the private
placement, or other sources, we will not be able to enter the printer ink
supply business or to make our No-Cap Color program widely available. Any
financing that we obtain may have a dilutive effect on stockholders and
increase our indebtedness.
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WE HAVE A CREDIT LINE WITH SUMMIT COMMERCIAL WHO HOLDS A SECURITY INTEREST ON
MOST OF OUR ASSETS.
We have a $6,000,000 revolving line of credit with Summit
Commercial/Gibraltar. Michael W. Levin, Cadapult's President and principal
stockholder, has personally guaranteed up to $500,000 of our indebtedness
under the revolving line of credit. He has no obligation to furnish his
guaranty in connection with any extension of such line of credit or any
future financing needs of Cadapult. We may not be able to repay our
outstanding indebtedness under the credit line. If we do not have sufficient
cash flow to repay the credit or cannot refinance the obligation, we will not
be able to implement our business plan, which would have a material adverse
affect on our future viability. Substantially all of our assets are subject
to security interests held by Summit Commercial/Gibraltar and a major
supplier. Unless the security interests are released, assets will not be
available to us to secure future indebtedness, which may adversely affect our
ability to borrow in the future. In the event of default under our
obligations, either of the secured creditors may foreclose on our assets.
WE MAY NOT BE ABLE TO RETAIN THE KEY PERSONNEL WE NEED TO SUCCEED.
We are highly dependent on our present management to implement our
business strategies. As we continue to grow and acquire the assets of other
companies, we will need to add to our management structure. Michael W. Levin
founded our predecessor, Cadapult Graphic Systems Inc. as a New Jersey
corporation in 1987 and served as its President and Chairman of the Board of
Directors from inception until we acquired that company in 1998. He now is
the Chief Executive Officer, President and Chairman of the Board of Directors
of our company. He and the present management have developed our growth
strategies, and we need them to implement our plans. We will need more
personnel in management, technical, sales and marketing, and customer support
positions as our operations increase. Competition for qualified employees is
intense. Consequently, we may not be successful in attracting, training and
retaining the people we need.
OUR BUSINESS IS DEPENDENT ON VENDORS AND SUPPLIERS.
We are a value added dealer or value added reseller of computer
graphics equipment and supplies. We depend on contracts with vendors and
suppliers of computer graphics equipment and supplies. The loss of a
contract with Silicon Graphics, Inc. and Mita Corporation would have a
significant impact on our business operations.
WE COMMENCED A LAWSUIT AGAINST TEKTRONIX, INC. AND MAY INCUR SUBSTANTIAL
COSTS AS A RESULT OF THIS LITIGATION.
In August 1999, we began an action against Tektronix, Inc. before the
United States District Court for the District of New Jersey, seeking certain
injunctive relief and an indeterminate amount of damages because Tektronix
terminated that part of our agreement with Tektronix that is our Tektronix
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Premier Plus Reseller franchise. In the lawsuit, we alleged that Tektronix
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. We derived 45% of our fiscal year
1999 revenues from sales and services of Tektronix products, including
revenues from the Tektronix Premier Plus Reseller franchise. The lawsuit has
only recently commenced and 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 operations.
WE OPERATE IN VERY COMPETITIVE MARKETS
We face intense competition in all of our businesses. We have numerous
competitors, including some large corporations and smaller specialized
businesses. In reseller operations, our primary competitors include
Professional Graphics Systems and Services and Charrette. In the color
printer supply business, our primary competitors include Tektronix, Inc.,
Hewlett-Packard, QMS and Lexmark.
Because we are significantly smaller than our national competitors, we
may lack the financial resources needed to capture increased market share.
Many of our existing competitors and potential new competitors have:
- longer operating histories;
- greater name recognition;
- larger customer bases;
- more and larger facilities; and
- significantly greater financial, technical and marketing
resources.
If we compete with them for the same geographical markets, their
financial strength could prevent us from capturing those markets. Because of
their resources, our competitors may respond more quickly than we can to new
or emerging technologies with new offerings. They may also devote greater
resources than we can to the development, promotion and sale of their
products and services. They may develop Internet products and services that
are superior to or have greater market acceptance than ours. Our competitors
may also conduct more extensive research and development, run more marketing
campaigns, adopt more aggressive pricing policies and provide more attractive
services to our customers than we do.
WE MAY MAKE INVESTMENTS OR ACQUISITIONS THAT ARE NOT SUCCESSFUL.
We may make investments in or acquire complementary businesses,
products, services or technologies, but we have limited experience in these
activities. If we seek to make investments or acquisitions, we will be
subject to the following risks:
- We may not be able to identify suitable investment or acquisition
candidates.
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- If the purchase price for an acquisition consists of cash, we may
need to use all or a portion of our available cash.
- If we do identify suitable candidates, we may not be able to make
investments or acquisitions on commercially acceptable terms.
- Acquisitions may cause a disruption in our ongoing business, distract
our management and other resources and make it difficult to maintain
our standards, controls and procedures.
- We may not be able to successfully integrate the services, products
and personnel of any acquired business into our operations.
- We may not be able to retain key employees of the acquired companies
or maintain good relations with its customers or suppliers.
- We may be required to incur additional debt.
- We may be required to issue equity securities, which may be dilutive
to existing shareholders, to pay for acquisitions.
- We may have to incur significant accounting charges, such as for
goodwill or for acquired in-process research and development, which
may adversely affect our results of operations.
Our growth plans depend, in part, upon the ability to acquire other
businesses. We have an agreement with ultraHue, Inc. to purchase certain of
their assets, which agreement may be completed in December 1999, if our
present efforts are successful to secure the financing to complete the
acquisition. In the event that we are unable to obtain such financing by
December 7, 1999, either party shall have the option to terminate the asset
purchase agreement. If we cannot acquire ultraHue or the businesses of other
companies, our growth plans will suffer, and our operations will be adversely
affected.
BECAUSE WE ARE DEPENDENT ON COMPUTER SYSTEMS, A SYSTEMS FAILURE OR SECURITY
FAILURE COULD CAUSE A SIGNIFICANT DISRUPTION TO OUR BUSINESS.
Our eCadapult division depends on the efficient and uninterrupted
operation of our computer and communications hardware systems and
infrastructure. Interruptions could result from natural disasters as well as
power loss, telecommunications failure and similar events. Our
infrastructure may be vulnerable to physical or electronic break-ins, viruses
or similar problems. Our business, financial condition and results of
operations could be materially and adversely affected by any damage or
failure that interrupts or delays our operations.
OUR BUSINESS IS DEPENDENT ON THE CONTINUED GROWTH IN USE AND IMPROVEMENT OF
THE INTERNET.
Our eCadapult products and services are targeted toward Internet users.
The Internet is subject to a high level of uncertainty and is characterized
by rapidly changing technology, evolving industry standards, and frequent new
product and service introductions. Issues concerning the commercial use of
the Internet remain unresolved and may impact the growth of Internet use.
Despite growing interest in the many commercial uses of the Internet, many
businesses do not use Internet-based products and services for a number of
reasons, including:
- inadequate protection of the confidentiality of stored data
and information moving across the Internet;
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- inconsistent quality of service;
- inability to integrate business applications on the Internet;
and
- lack of availability of cost-effective, high-speed products and
services.
If Internet usage does not grow or if customers do not use our
Internet-based services at the rates which we presently anticipate, our
business, financial condition and results of operations will be materially
and adversely affected.
OUR SUCCESS DEPENDS ON KEEPING UP WITH RAPID TECHNOLOGICAL CHANGES IN OUR
MARKETS.
The market for Internet products and services has only recently begun
to develop and is rapidly evolving. Significant technological changes could
render our existing Internet-based products and services out of date.
Although we are not aware of any immediate technological change, we need to
adapt to changing markets by continually improving the responsiveness,
functionality and features of our products and services to meet our
customer's needs and be successful. If we cannot respond to technological
advances and conform to emerging industry standards in cost-effective and
timely ways, we will not be competitive and our business, financial
condition and results of operations will be materially and adversely
affected.
CHANGES IN GOVERNMENT REGULATION OF THE INTERNET COULD ADVERSELY AFFECT OUR
BUSINESS.
There is an increasing number of laws and regulations governing the
Internet. These laws and regulations relate to liability for information
received from or transmitted over the Internet, online content regulation,
user privacy, taxation and quality of products and services. Whether
existing laws governing property ownership, copyrights, encryption and other
intellectual property laws, taxation, libel, export or import matters,
obscenity and personal privacy apply to the Internet is uncertain. We
cannot predict the impact that future regulation or regulatory changes may
have on our business.
WE MAY BE LIABLE FOR THE MATERIAL OUR CUSTOMERS DISTRIBUTE OVER THE INTERNET.
The law relating to the liability of online service providers, private
network operators and Internet service providers for information carried on
or disseminated through their networks is currently unsettled. We may become
subject to legal claims relating to the content in the web sites we host.
Claims could also involve matters such as defamation, invasion of privacy and
copyright infringement. Providers of Internet products and services have
been sued in the past, sometimes successfully, based on the content of
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material. If we have to take costly measures to reduce our exposure to these
risks, or are required to defend ourselves against such claims, our business,
financial condition and results of operations may be materially and
adversely affected.
OUR MANAGEMENT CONTROLS OUR COMPANY.
Prior to this offering, our officers and directors beneficially own
about 55% of our outstanding shares of common stock. This figure includes
111,229 exercisable options to purchase shares of common stock and excludes
700,000 performance based options granted to management that are not
presently exercisable. Our Certificate of Incorporation does not provide for
cumulative voting. Our officers and directors are in a position to elect all
of Cadapult's directors, appoint its officers, and control Cadapult's affairs
and operations.
FUTURE SALES OF OUR COMMON STOCK BY OUR EXISTING STOCKHOLDERS COULD HAVE
ADVERSE EFFECTS.
We have outstanding 3,137,460 shares of common stock. This number
excludes 239,040 shares held in escrow for possible future issuance. This
number also excludes the shares of common stock that may be issued upon the
exercise of 1,115,393 options and warrants outstanding, of which 292,443
options and warrants are presently exercisable. On June 18, 1999, up to
1,707,000 shares of common stock held by affiliates of Cadapult, including
our executive officers and directors, became eligible for sale under Rule
144, subject to volume limitations. As of August 14, 1999, an additional
524,000 shares of common stock, sold in a private placement conducted in
1998, became eligible for sale under Rule 144. As of October 13, 1999, about
580,517 shares of common stock were eligible for trading over the open
market, and about 2,487,790 of our total outstanding shares are restricted
from immediate resale but may be sold into the market in the near future.
771,750 of the restricted shares may be sold pursuant to this prospectus.
This could cause the market price of our common stock to drop significantly,
even if our business is doing well.
OUR COMMON STOCK DOES NOT TRADE ACTIVELY AND MAY BE SUBJECT TO GREAT PRICE
VOLATILITY.
There is a very limited market for our common stock. Because of our new
services which may generate substantial revenues and increased dilution
caused by our private placement and incentive based options granted to our
employees, we expect to encounter substantially more activity in trading in
our common stock and expect the market price of our common stock to be highly
volatile in the future.
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WE INTEND TO ISSUE PREFERRED STOCK WHICH MAY ALTER THE RIGHTS OF, AND DILUTE,
COMMON STOCK HOLDERS.
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.
The Board of Directors has filed a certificate of designation to create a
series of 1,000,000 shares of series A preferred stock. We may issue more
shares of preferred stock in the future which may have different designations,
rights and preferences. In October 1999, we commenced a private placement to
get capital of $5,000,000 through the sale of series A preferred stock and
warrants to purchase common stock. The 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. Each warrant is exercisable for 5 years at $4.50 per share into one
share of common stock. We are required to register the shares of common
stock into which the preferred stock would be convertible and the warrants
would be exercisable within 90 days following the completion of the private
placement. The more capital we raise from our private placement, the more a
common stock holder will be diluted.
YOU WILL NOT EARN DIVIDENDS ON THE COMMON STOCK.
We have not paid any cash dividends on our common stock and do not
expect to declare or pay any cash dividends in the near future. After paying
our preferred stockholders dividends, we intend to retain any future earnings
for use in our business.
YEAR 2000 ISSUES MAY AFFECT US.
We have completed a review of our internal programs and determined that
there are no significant Year 2000 issues within our internal systems or
services. We use equipment and software supplied by third-parties who have
informed us that their equipment and software are or will be Year 2000
compliant. Based on our review, we believe that our systems are Year 2000
compliant and do not expect to incur any significant expenses in ensuring
that we are Year 2000 compliant. We have asked third parties to inform us of
their Year 2000 review status and expect to complete our investigation of
third party compliance by November 1999. We do not have a contingency plan
for Year 2000 issues, and we will create one if our investigation of third
parties proves to be unsatisfactory. Our reasonable worst case scenario is
that we may experience delays in receipt of purchase orders and delays in
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shipping and may experience computer glitches in our Internet-based services;
however, we do not believe such a scenario will significantly impair our
business because our products are not the type of products for which customers
demand immediate next-day delivery, and our Internet-based services are not
significantly used presently.
PENNY STOCK REGULATION.
If the trading price of our common stock is less than $5.00 per share,
trading in the common stock would also be subject to the requirements of Rule
15g-9 under the Exchange Act. Under this rule, broker/dealers who recommend
low-priced securities to persons other than established customers and
accredited investors must satisfy special sales practice requirements. The
broker/dealer must make an individualized written suitability determination
for the purchaser and receive the purchaser's written consent prior to the
transaction.
SEC regulations also require additional disclosure in connection with
any trades involving a stock defined as a "penny stock" (generally, a stock
with a market price of less than $5.00 per share), including the delivery,
prior to any penny stock transaction, of a disclosure schedule explaining the
penny stock market and its associated risks. Such requirements severely
limit the liquidity of the common stock in the secondary market because few
broker/dealers are likely to undertake such compliance activities.
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USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares of common
stock by the selling stockholders.
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 audited financial statements for the year
ended June 30, 1999, in conjunction with the information set forth in the
unaudited financial statements for the three month period ended September 30,
1999, and in conjunction with the information set forth in the unaudited
financial statements and notes and the audited financial statements and the
notes, included in the Form 8K/A, filed on September 1, 1998. On June 24,
1998, Cadapult elected to change its fiscal year from April 30 to June 30.
For the purposes of this analysis, the results of operations for the year
ended June 30, 1999 are being compared to the results of operations for the
year ended April 30, 1998.
Results of Operations
For the Year Ended June 30, 1999
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Sales. Sales for the year ended June 30, 1999 compared to the year period
ended April 30, 1998 increased approximately 44% to $10,227,628 from
$7,103,906. 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 attributed
to the Tartan and Web acquisitions and to internal growth.
Cost of Sales. Cost of Sales for the year ended June 30, 1999 were
$7,442,239 or approximately 73% of sales, as compared to $5,174,402 or
approximately 73% for the year period ended April 30, 1998. Gross profit
margins remained stable for the year ended June 30, 1999 as compared to the
year ended April 30, 1998 despite the acquisition of businesses that were
previously generating significantly lower margins. This was achieved
primarily through the conversion of manufacturer service agreements to
agreements fulfilled by Cadapult and through the sale of private label
supplies.
Selling, General and Administrative. Selling, General and Administrative
expenses for the year ended June 30, 1999 increased to $3,069,682 from
$2,138,915 for the year ended April 30, 1998. The Selling, General and
Administrative expenses were approximately 30% of sales for both periods.
Selling, General and Administrative expenses for the year ended June 30, 1999
included increased legal, accounting and consulting fees associated with the
merger with Seafoods Plus, Ltd. in June of 1998, with being a publicly held
company, the amortization of goodwill resulting from acquisitions, and to
increase in payroll attributable to the acquisitions and development of the
Company's infrastructure for future growth. Selling, General and
Administrative expenses for the year ended June 30, 1999 includes a one time
expense of $130,000 for the development of SamplePrint.com.
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Interest Expense. Interest Expense for the year ended June 30, 1999
increased to $160,081 from $90,829 incurred for the year ended April 30,
1998. The increase in 1999 was due primarily to an increase in borrowings to
finance Cadapult's increased receivables and inventory due to the
acquisitions.
Income Taxes. For the year ended June 30, 1999, Cadapult recorded a tax
benefit of $217,000 primarily due to a net operating loss carryforward offset
by a valuation allowance of $217,000. For the one year ended April 30, 1998,
Cadapult recorded a tax benefit of $62,498 primarily due to the
utilization of a net operating loss carryback.
Net Income (Loss). For the one year ended June 30, 1999, Cadapult had a
net loss of $444,374 or $0.16 per share as compared to a net loss of $219,242
or $0.14 per share for the year ended April 30, 1998.
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 Cadapult's increased
receivables and inventory due to the acquisitions.
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Income Taxes. For the three months ended September 30, 1999, Cadapult
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, Cadapult
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.
Results of Operations For the Two Months Ended
June 30, 1998 and 1997, and For the Year Ended April 30, 1998
- -------------------------------------------------------------
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. Sales for the year
ended April 30, 1998 compared to the year period ended April 30, 1997
decreased approximately 17% to $7,103,906 from $8,594,082. 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. Cost of Sales
for the year ended April 30, 1998 were $5,174,402 or approximately 73% of
sales, as compared to $6,468,513 or approximately 75% for the year period
ended April 30, 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.
Selling, General and Administrative expenses for the year ended April 30,
1998 increased to $2,138,915 from $1,972,221 for the year ended April 30,
1997. The Selling, General and Administrative expenses were approximately
30% of sales for the year ended April 30, 1998, and approximately 23% for the
year ended April 30, 1997. The increase is attributable to the development of
Cadapult's infrastructure for future growth.
Interest Expense. For the two months ended June 30, 1998, Interest expense
increased to $21,894 from $6,316. Interest Expense for the year ended April
30, 1998 increased to $90,829 from $78,175 incurred for the year ended April
30, 1997. The increase in 1998 is due primarily to the increase in borrowing
due to the acquisition of BBG Technologies in March 1998.
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<PAGE>
Income Taxes. For the two months ended June 30, 1998, Cadapult 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,
Cadapult was able to carry back its net operating losses. For the one year
ended April 30, 1998, Cadapult recorded a tax benefit of $62,498 primarily
due to the utilization of a net operating loss carryback. For the one year
ended April 30, 1997, Cadapult recorded a tax detriment of $18,500.
Net Loss. For the two month period ended June 30, 1998, Cadapult 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. For the one year ended April 30, 1998, Cadapult had a net loss of
$219,242 or $0.14 per share as compared to a net gain of $56,673 or $0.04 per
share for the year ended April 30, 1997.
Liquidity and Capital Resources
- -------------------------------
Cadapult 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 Cadapult. As of
June 30, 1999, Cadapult had used $1,677,024 of this line. As of September
30, 1999, Cadapult had used $1,282,380 of this line. As of June 30, 1998,
Cadapult had 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. As of June 30, 1998, borrowings bore interest at 1% over the
bank's base rate, payable on demand and collateralized by all assets
of Cadapult. As of June 30, 1998, Cadapult had used $695,000 of this line.
Through August of 1998, Cadapult 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, Cadapult had on deposit $320,000 with an
escrow agent, which was subsequently released to Cadapult in August, 1998.
Cadapult used the proceeds for strategic acquisitions complimentary to its
core business.
In August 1998, Cadapult 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 were approximately $35,000,
providing Cadapult with net proceeds of $620,000. Cadapult used
substantially all of the proceeds in the retirement of bank debt assumed in
the acquisition of Tartan in January 1999.
Cadapult 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.
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Cadapult experienced positive cash flow of $10,336 for the year ended June
30, 1999. Cash used in operations resulted in negative cash flows of
$221,653 primarily due to a loss of $444,374 offset by a non cash charge to
depreciation and amortization of $180,494 , a decrease in accounts receivable
of $89,130, a decrease in inventory of $170,259, an increase in deferred
revenue of $149,489, and a decrease in accounts payable of $473,241. Cash
used in investing activities was primarily comprised of purchase of equipment
and the acquisitions of WEB Associates and Tartan Technical. The above uses
of cash were offset by increased borrowing under Cadapult's credit
facility and proceeds from the sale of common stock.
Cadapult 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.
In September 1999, Cadapult 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 Cadapult with net
proceeds of $240,500 of which $100,000 is due to Cadapult pending the
fulfillment of certain conditions subsequent. Cadapult 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, Cadapult 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 Cadapult's securities with a
face value of $10.00 per unit, 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 Cadapult if fully
sold and if the included warrants are exercised.
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Inflation
- ---------
Cadapult has historically offset any inflation in operating costs by a
combination of increased productivity and price increases, where appropriate.
Cadapult does not expect inflation to have a significant impact on its
business in the future.
Seasonality
- -----------
It is anticipated that Cadapult'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 Cadapult's
products. In the event that Cadapult is unable to generate sufficient
cash flows from operations during the seasons of peak operations, Cadapult
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
- --------------------
Cadapult has conducted a preliminary review of Cadapult's internal
programs and has determined that there are no significant Year 2000 issues
within Cadapult's systems or services. At this time, Cadapult does not
anticipate any significant expense in ensuring that Cadapult is Year 2000
compliant. Cadapult believes that Cadapult's systems are Year 2000
compliant. Cadapult utilizes third-party equipment and software and
Cadapult has been informed that such are or will be Year 2000 compliant.
Cadapult presently does not have a contingency plan related to Year 2000
issues, and upon further assessment, Cadapult may create one. The failure
of Cadapult's contingency plan or the software applications or internal
systems of other companies on which Cadapult'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 Cadapult 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 Cadapult's business,
financial condition and results of operations. Until Cadapult completes a
thorough evaluation of Cadapult's Year 2000 issues, Cadapult is
uncertain of the risks and the costs related to addressing such issues.
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ABOUT US
Our Organization History
Cadapult Graphic Systems, Inc. ("Cadapult" or the "Company") is a
Delaware corporation which was originally incorporated under the laws of the
State of Utah on August 11, 1983 under the name Communitra Energy, Inc. On
July 16, 1985, the Company filed with the Secretary of State of the State of
Utah Articles of Amendment to its Articles of Incorporation, which changed
the name of the Company to Seafoods Plus, Ltd. We did not engage in any
substantive business activity from approximately 1988 to June 18, 1998.
On June 18, 1998, we acquired Cadapult Graphic Systems Inc., a
privately-held New Jersey corporation formed on May 1, 1987 ("CGSI"), in a
transaction viewed as a reverse acquisition. CGSI was a provider of computer
graphics systems, peripherals, supplies and services to visual communicators
and graphics professionals. Pursuant to an Agreement and Plan or
Reorganization dated June 5, 1998, between the Company, CGSI, all of the
shareholders of CGSI, Jenson Services, Inc., a Utah corporation, Duane S.
Jenson and Jeffrey D. Jenson, we issued 1,650,000 shares of common stock to
the shareholders of CGSI in exchange for all of the outstanding common stock
of CSGI. Pursuant to the acquisition, the shareholders of CSGI became the
controlling shareholders of the Company, the officers and directors of the
Company resigned and elected the CSGI nominees in their places, and CSGI
became a wholly-owned subsidiary of the Company.
On August 14, 1998, the Company reincorporated under the laws of the
State of Delaware as Cadapult Graphic Systems, Inc. On August 14, 1998,
Cadapult merged with CGSI, our wholly-owned New Jersey subsidiary.
On August 11, 1999, we formed Media Sciences, Inc. as a
wholly-owned New Jersey subsidiary ("Media Sciences"), for the manufacture
and distribution of digital color printer supplies.
In August 1999, we amended our Certificate of Incorporation to change
the authorized capital from 50,000,000 shares of common stock, par value
$.001 per share, to 25,000,000 shares consisting of 20,000,000 shares of
common stock, par value $.001 per share, and 5,000,000 shares of preferred
stock, par value $.001 per share.
Our Business
We provide computer graphics systems, peripherals, supplies and service
to visual communicators and graphics professionals. We operate through three
business units: Reseller Operations, eCadapult and Media Sciences. We are a
leading supplier of computer graphics solutions in the Northeast United
States.
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Under our Reseller Operations, we are a systems integrator, value added
dealer or value added reseller of computer graphics equipment and supplies.
Our products include animation and design software and workstations,
publishing software and workstations, file servers, networks, color scanners
and color printers and copiers. Our markets include advertising and
marketing companies, printers, quick print shops, service bureaus, animators,
industrial designers as well as the broad corporate market for color
printers.
We have expanded our business operations through eCadapult, a recently
established division of our company, which provides value added services to
the creative graphics community over the Internet. In June 1999, we
launched SamplePrint.com, a one-stop evaluation resource for buyers of color
printing technology. We intend to offer two new e-commerce services in fall
1999, Cadapult Storefront and GraphicSmart.com, through which customers can
purchase supplies and products from us directly over the Internet.
In August 1999, we formed Media Sciences, Inc., a wholly owned New
Jersey subsidiary, for the purpose of acquiring companies and assets.
Media Sciences has an agreement to acquire and operate the assets of
ultraHue, Inc. ultraHue manufactures color solid ink and remanufactures and
refills color toner cartridges, all for use in Tektronix color printers.
ultraHue distributes these products and transparency media, also for use in
Tektronix color printers, to dealers and distributors internationally. Media
Sciences intends to manufacture and distribute, internationally, these
digital color printer supplies. We intend to grow this business through
expansion of the product line, additional marketing, expansion of the
existing channel and distribution agreements and potentially through joint
ventures. The obligation of Cadapult to purchase the assets of ultraHue is
contingent upon Cadapult obtaining financing of not less than $3,000,000 to
fund the purchase. In the event that we are unable to obtain such financing
by December 7, 1999, either party shall have the option to terminate the asset
purchase agreement.
Our strategy for long-term growth is to acquire other computer graphics
dealers and service providers. Our growth strategy involves integrating
acquired businesses, increasing overall efficiency, providing a high degree
of customer service, and improving and expanding services.
Operating Strategy
The computer industry is going through a consolidation that stems
from shrinking margins. This consolidation is likely to occur in the
vertical markets in which we operate. We have the objective of becoming a
comprehensive computer graphics services provider throughout the United
States and to provide color printing supplies internationally. We believe
that we are ready to expand our operations, acquire competitors and
consolidate the computer graphics market.
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We currently provide computer graphics services to commercial customers
primarily in the Northeast United States. We have taken steps to grow within
the consolidating computer graphics industry. In October 1996, we began our
expansion plan by opening a sales location in Boston, Massachusetts. In March
1998, we acquired the assets of BBG Technologies, Inc., a computer graphics
products reseller in Boston, Massachusetts with $2 million of annual revenues.
In January 1999, we acquired the assets of Tartan Technical, Inc., a computer
graphics products reseller in Massachusetts with $3.5 million of annual
revenues. In June 1999, we acquired the assets of WEB Associates, Inc., a
computer graphics products reseller in Pennsylvania with $2.7 million of annual
revenues. We intend to acquire additional computer graphics businesses in the
Northeast United States as well as in other regions of the United States. Our
ability to acquire other businesses will depend on available cash flow or other
sources of financing, which we have not have or be able to obtain.
We intend for Media Sciences to become a leading supplier of
alternative supplies for digital color printers. ultraHue, Inc. is currently
the only alternative to high cost ink produced by Tektronix for Tektronix
solid ink printers, and is the only third party provider of toner cartridges
for Tektronix Phaser 560 color laser printers. Media Sciences is planning to
expand its product line to include remanufactured and refilled toner
cartridges for Tektronix color laser printers. We believe that we can
expand Media Sciences' business through a product line expansion, through
alternative applications for its solid ink technology, through an expansion
of its distribution channels and through joint ventures and other
partnerships.
We anticipate that the relationship between Cadapult's reseller
operations and Media Sciences will be synergistic. We expect our reseller
operations will develop and implement marketing and service programs, such as
No-Cap Color, to strengthen Media Sciences' market position.
In September 1999, Media Sciences entered into an asset purchase
agreement with ultraHue, Inc., a New Mexico corporation, and Donald Gunn and
Randy Hooker, shareholders of ultraHue, for the acquisition of certain assets
and the assumption of certain liabilities of ultraHue. At the closing of the
ultraHue acquisition, which is expected to occur in December 1999, Media
Sciences is to acquire certain proprietary information and intellectual
property rights of ultraHue and other assets owned and used by ultraHue in its
operations, including its trade secrets, accounts receivable, inventory,
certain property and equipment, the name ultraHue and any other trademarks,
service marks or any copyrights, customer lists, sales, service and vendor
contracts and security deposits, and on-going business records. In the
ultraHue acquisition, Media Sciences is expected to assume the following
liabilities of ultraHue: accounts payable as of the date of closing; customer
deposits as of the date of closing; warranties on products sold prior to the
date of closing; and leases and contracts to the extent they are to be
performed after the date of closing.
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<PAGE>
The consideration to be given by Media Sciences under the asset
purchase agreement are: payment of $2,340,000 at closing; delivery of a
promissory note, executed by Media Sciences and guaranteed by Cadapult, in
the principal sum of $1,160,000, with interest at the annual rate of 7%, with
the full principal and accrued interest due and payable in full on the first
anniversary of the closing; a sum equivalent to ultraHue's cost for
ultraHue's inventory that is delivered to Media Sciences at closing; the
difference between all accounts receivable collected by Media Sciences less
accounts payable, as collected and paid, respectively; for a period of one
year from the date of closing, payment of a sum equivalent to ten percent of
the quarterly net profits derived by Media Sciences from the first $1,500,000
dollars of gross profits plus thirty percent of the net profits attributable
to gross profits in excess of $1,500,000 dollars (in the event there is a net
loss in any quarter during this one year period, the amount of such loss
shall be set off against the net profits for any subsequent quarter, provided
that if there is no subsequent quarter in this one year period, then a refund
shall be due Media Sciences); and, for a period of two years from the first
anniversary of the date of closing, after certain distributions shall have
terminated, payment of a sum equivalent to ten percent of the quarterly net
profits derived by Media Sciences from the first $1,000,000 of gross profits,
plus thirty percent of the net profits attributable to the gross profits in
excess of $1,000,000 dollars (in the event there is a net loss in any quarter
during this two year period, the amount of such loss shall be set off against
the net profits for any subsequent quarter, provided that if there is no
subsequent quarter in this two year period, then a refund shall be due Media
Sciences). Upon execution of the asset purchase agreement, Media Sciences
deposited $50,000 in escrow pending the closing.
The obligation of Media Sciences under the asset purchase agreement
with ultraHue is conditioned upon Media Sciences obtaining financing of not
less than $3,000,000 to fund the purchase of certain assets of ultraHue. If
Media Sciences does not obtain the financing by the proposed closing date,
either party has the option to terminate the asset purchase agreement, and
all of the rights and obligations of the parties under the asset purchase
agreement shall be deemed null, void and of no further effect, except that
ultraHue shall have the right to retain the $50,000 deposit being held in
escrow as liquidated damages.
Our Principal Products and Services
Reseller Operations
-------------------
Systems. Products sold by our reseller operations business include
publishing software and workstations, file servers, networks, color scanners
and color printers and copiers. We typically purchase directly from the
manufacturer of the equipment or through a distributor of those products.
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Supplies. Approximately one-third of our revenues comes from the
sale of digital color printer and copier supplies. We intend to grow this
revenue stream through aggressive sales and marketing efforts, and by adding
new supplies to our product line.
Hardware and Software Service and Support. Providing servicing of
hardware and software is a growing opportunity for us. We have experienced
that our customers are moving away from manufacturers' services to our own.
We believe that the opportunity to service other products in the computer
graphics market exists. We intend to add service technicians as our business
demands. In addition, we plan to add sales personnel to actively market our
services.
No-Cap Color. We launched a new program called No-Cap Color. Under
this program, a customer will be provided with one or more color printers, at
no charge, in return for a commitment to purchase certain supplies over a two
year period. The printers remain our property. We plan to expand this
program through aggressive marketing, through the creation of an agent
program and through the addition of more printers eligible under the program.
eCadapult: Internet Services
-----------------------------
eCadapult is our interactive division. The mission of the eCadapult
division is to establish an Internet-based market within the creative
graphics industry for our services and computer graphics equipment and
related merchandise. We have developed and launched one new interactive
service, SamplePrint.com, and plan for the development of two e-commerce
sites, Cadapult Storefront and GraphicSmart.com, which are expected to be
introduced in late fall 1999.
SamplePrint.com. SamplePrint.com is a website dedicated to helping
business buyers evaluate color printer and copier products over the Internet.
We expect SamplePrint.com to function as a one-stop evaluation resource for
buyers of color printing technology-an objective resource for buyers by
providing product information, technical benchmarks, sample prints and other
services. A critical decision-making factor for buyers of color printing and
copying equipment is the ability to evaluate the buyers' own images and files
printed from the products. SamplePrint.com allows any buyer to submit files
over the Internet which will be printed on a variety of printer choices. We
expect that the cost of these samples will be borne by the buyer if the
manufacturer of that printer is not a sponsor, or by the manufacturer if it
is a sponsor. Our goal is to provide all samples free to the buyer and have
the manufacturers bear the costs. This service provides a prospective
business buyer with the ability to make a purchase decision based on the
image quality of the print samples and additional information provided on
the web site.
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We plan for SamplePrint.com to support both buyers and manufacturers of
workgroup color printers. With the market for color printers and copiers
growing, the need for generating samples for buyers is about to explode.
International Data Corporation forecasts the market for desktop color
printers in unit shipments is expected to grow at an average growth rate of
42.9% through the year 2001. We anticipate that SamplePrint.com will become
a service to manufacturers by off-loading their sample printing support
requirements while providing an objective resource for the buyers. We
launched SamplePrint.com in June 1999, with initial sponsorship from Hewlett-
Packard and Okidata. We are currently in discussions with several other
leading printer manufacturers to sponsor this site.
Cadapult Storefront. Cadapult Storefront is intended to be an e-
commerce site where existing customers can purchase supplies and products
from Cadapult directly over the Internet, seven days a week, 24 hours a day.
Cadapult intends to integrate Cadapult Storefront with Cadapult's accounting
and order processing system to increase efficiency in the ordering process.
This e-commerce site will echo the products and margins associated with
Cadapult's traditional reseller business. Cadapult Storefront is intended to
be an alternative means of placing orders for existing customers.
GraphicSmart.com. We intend to launch an additional e-commerce site as
an alternative to the Cadapult Storefront and other Internet commerce sites.
This site will offer a broad selection of computer graphics products at
aggressive discounts. The purpose of this site is to capture the price
sensitive customers and businesses that are moving and will be moving to the
Internet as a source of supply.
GraphicAuction.com. We intend to offer an on-line auction site for
computer graphics equipment and related merchandise where buyers and sellers
are brought together in an efficient forum that is available 24 hours a day,
seven days a week to buy and sell computer graphics products. We plan to
design GraphicAuctions.com to permit us, manufacturers and the public to list
items for sale, which may be browsed through in a fully automated, topically
arranged, and easy-to-use format, and allow buyers to bid on and purchase
items of interest. We plan to offer buyers a large selection of list new,
refurbished, reconditioned, used, demonstration, and discontinued items that
can be costly to find and purchase through the traditional marketplace. We
intend to charge the seller a nominal fee for each completed transaction, but
sellers and bidders will not be charged for listing items or for making bids
through GraphicAuction.com. We believe that this auction forum may attract
more potential customers and create more interest in our products and
services, as well as permit us to better gauge market demand for certain
products.
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Marketing and Sales Plans
We intend to increase our marketing and sales efforts. The goal of
these efforts is to increase revenues through increased market awareness
about Cadapult, through the introduction of new products and services to the
customer base and through the increase in the number of salespeople.
Industry and Market Overview
The market for computer graphics, in which Cadapult operates, has grown
over recent years and is expected to continue to expand at a rapid pace.
Cadapult focuses its products and services on the following markets:
- Digital Pre-Press
- Display Graphics
- Presentation Graphics
- Digital Imaging
- Digital Color Printing
Digital Pre-Press
-----------------
Over the last several years, there has been a dramatic shift in the
process printing industry from manual, analog production of printed materials
to the use of computers. Historically, the production of a printed brochure,
magazine or catalog involved numerous manual steps using photographic
materials to produce the final press-ready copy.
With rapid advances in software and hardware, much of today's printed
materials are produced digitally. The print production process now allows a
printed piece to go from concept to imaged printing plate in a fully digital
environment. Copy writing, proofing and revisions all take place on a desktop
computer, increasing the speed and efficiency of the pre-press process, and
streamlining personnel requirements in the process. Cadapult believes this
market is in a period of rapid transition regarding the manner in which
electronics products are delivered to the traditional printing customer.
When digital pre-press systems sold for $200,000 per seat (user), most
manufacturers used a captive direct sales force to sell to the end-user.
Today, the typical seat sells for under $20,000, forcing manufacturers to
utilize a reseller channel to deliver their products.
Display Graphics
----------------
The most rapidly growing segment of the computer graphics output market
is display graphics. Display graphics, or large format graphics, describes a
process that allows computer-generated or captured images to be printed in
sizes up to 60 inches wide.
-25-
<PAGE>
Historically, these images could only be printed on color electrostatic
printers costing over $120,000. However, over the last several years,
significant advances in ink-jet technology, software, specialty inks and
media have placed the cost of entry for display graphics systems at
under $10,000, and market acceptance has been rapid. End-users of this
technology include a wide range of industries and markets, such as:
- Trade-show graphics - production of booth and arcade displays
- Point of Sale graphics - floor displays
- Sign Shops - traditional signage, fleet graphics
- Print-for-Pay (e.g., Kinkos, Sir Speedy)
- Package Design - package prototyping
- Graphic Arts - imposition proofing
Presentation Graphics
---------------------
This segment of the computer graphics market consists of the creation
of visual communication materials such as slides, overhead transparencies,
multimedia presentations and associated hard copy materials. Once a highly
specialized business, presentations can now be created by just about anyone
with a computer and presentation software. The presentation itself is
displayed or printed on digital color printers, film recorders and digital
projectors. These devices range in price from $3,000 to $30,000.
Digital Imaging
---------------
This segment of the computer graphics market consists of the capture,
manipulation, storage, databasing, transfer and output of digital images
(assets). Examples include digital photo restorations and compositing of
images (combining several different images into one new image). As more and
more digital content is created, different technology is required to address
each of the above facets of digital imaging. These include scanners and
digital cameras that capture images, and specialized software that allows the
user to change, manipulate, combine and retouch images. Digital images,
especially color images are inherently large and therefore have specialized
storage requirements such as RAID (Redundant Array of Inexpensive Disks)
technology, CD-ROM and tape storage. A large volume of digital assets
dictates a database, or asset management solution, to manage, search and
retrieve these images. High bandwidth networks are required to transfer
these images within a user environment and to external destinations.
Finally, a variety of digital output devices, as described above, are used to
print these images.
-26-
<PAGE>
Digital Color Printing
----------------------
This broad segment of the computer graphics market includes all
business color printers from desktop color printers to high speed connected
color copiers. Desktop color printers are starting to replace black and
white printers in the office environment as quality and speed improve and
costs are reduced. The market for desktop color printers is expected to grow
at an annual rate of 42.9% in units through the year 2001. These products
range from $3,000 to $10,000. For those who need more volume, higher speeds
or better quality, color copiers can be connected to a network and become
very fast, high quality digital color printers. These solutions range from
$10,000 to $50,000. Also including in the digital color printing market
segment are display graphics and presentation graphics products as discussed
above.
Digital color printers (and copiers) create an ongoing requirement for
service and supplies. This reoccurring business often exceeds the original
cost of the device over its lifetime. Today in the business color printer
market, supplies for these printers are manufactured by, and distributed by,
the printer manufacturer. There exists little or no competition to these
sources of supplies. As adoption of color printing technology continues, we
expect demand for alternative supplies to grow dramatically. In the black
and white printer market, third party supply manufacturers provide
approximately 20-25% of the supplies consumed. We believe that a similar
opportunity exists in the color market.
Distribution Methods of the Products and Services
We sell directly to end users through telesales, outside sales and
Internet sales.
Status of any Publicly Announced New Product or Service
We plan for the development of two e-commerce sites, Cadapult
Storefront and GraphicSmart.com, which are expected to be introduced in late
fall 1999.
Competition
All facets of the computer graphics business are competitive. The
color printer business is becoming increasingly competitive as the products
become commoditized. On the systems side of the business, there are other
systems integrators, valued added resellers and dealers that offer similar
or the same products, some of which are substantially larger and better funded
than we are. On the supplies front, we compete with other supply dealers as
well as supply only companies that are often national and catalog based
companies. Based on the sales volumes of these companies, it is often
difficult to compete on a price basis; therefore, we compete based upon local
delivery and better availability of product.
-27-
<PAGE>
We seek to compete by servicing most of the products that we sell
as opposed to some of our competitors who rely on manufacturer or third party
service. We offer a seven day a week, 24 hours a day premium
service on many products, unlike many of our competitors.
Our principal competitors are larger and better funded than we are,
and our competitors include: Globix Corporation, AOE Ricoh, MCS Canon,
Minolta Business Systems, Professional Graphics Systems and Services, Inc.,
Electronic Business Products, Inc., Charrette, NAPC, and Cambridge
Electronics, Inc.
Media Sciences' primary competitor is Tektronix, Inc. Tektronix is the
leading manufacturer of solid ink for use in digital color printers,
representing approximately ninety seven percent of the United States market
of solid ink.
Major Suppliers
We typically purchase directly from the manufacturer of the equipment
or through a distributor of those products. We currently obtain certain
equipment and supplies from a limited number of sources of supply. Our
vendors include Tektronix, Inc., Silicon Graphics, Inc., Mita Corporation,
Access Graphics, Ricoh, Alias, Merisel, Ingram, and Tekgraf. We have been
and will continue to be dependent on third party vendors for the computer
equipment and supplies that we sell. The loss of any particular vendor
agreement may have a material affect on our business and operations.
Major Customers
We are not dependent on any customer, the loss of which would have a
material adverse affect on our operations.
Employees
We currently have thirty-three full-time employees, including six
management employees.
Office Facilities
Cadapult maintains its executive offices in approximately 7212
square feet, including 1200 square feet of warehouse space, at Allendale, New
Jersey, pursuant to a lease expiring on March 31, 2002. Cadapult also
maintains four sales offices in the eastern United States.
The following table sets forth the location, approximate square
footage, approximate annual rent, use of each location and expiration date of
each lease:
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<PAGE>
<TABLE>
<CAPTION>
APPROX.
APPROX. ANNUAL LEASE
LOCATION SQ. FEET RENT(1) USE EXPIRATION DATE
- --------------------- -------- -------- ---------------- ------------------
<S> <C> <C> <C> <C>
110 Commerce Drive 7,212 $101,993 Executive Office Mar. 31, 2002(2)
Allendale, NY Warehouse
137 Fifth Avenue 1,400 $ 39,690 Sales Office July 14, 2000
New York, NY
125 Wolf Road 923 $ 14,306 Sales Office Feb. 28, 2000(3)
Albany, NY
24 Westech Drive 4,000 $ 28,748 Sales Office Jan. 31, 2002(4)
Tyngsboro, MA
2551 Industry Lane 2,500 $ 12,000 Sales Office June 30, 2000
Norristown, PA
</TABLE>
______
(1) Certain of these leases provide for moderate annual rental increases.
(2) Lease provides for a five year renewal option.
(3) Lease provides for a one year renewal option.
(4) Lease provides for a renewal option for either a three year or five
year term.
We intend to seek corporate executive office, warehousing and
manufacturing facilities of 12,000-15,000 square feet to accommodate our
increased warehouse requirements, expanded service facilities, and to support
the manufacturing requirements of Media Sciences, Inc. We may not find
suitable facilities at reasonable rates.
Legal Proceedings
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.
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<PAGE>
Change in Accountants
On July 6, 1998, we informed Mantyla, McReynolds & Associates that it
has been dismissed as Cadapult's principal accountants. The former principal
accountants' report on the financial statements neither contained an adverse
opinion or disclaimer of opinion, nor was modified as to uncertainty, audit
scope, or accounting principles. Our decision to change its principal
accountant was recommended and approved by Cadapult'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. We have authorized the former accountants to
respond fully to all inquires of the successor accountant concerning any
matter.
On July 6, 1998, we engaged Wiss & Company, LLP as our principal
accountants. Wiss & Company had been the principal accountants for CGSI
since April 23, 1998. Pursuant to a reverse acquisition which was completed
on June 18, 1998, CGSI became a wholly-owned subsidiary of Cadapult.
Following the acquisition, the Board of Directors of Cadapult selected Wiss &
Company to serve as Cadapult's principal accountants.
OUR MANAGEMENT
The following persons are the present directors and executive officers
of Cadapult.
Name Age Position
- ---- --- --------
Michael W. Levin 34 Chief Executive Officer, President and
Chairman of the Board
Frances Blanco 39 Vice President Marketing and Investor
Relations, Treasurer, Secretary and
Director
Duncan Huyler 38 Vice President Technical Services
Paul C. Baker 62 Director
Edwin Ruzinsky(1) 66 Director
(1) Became a director on August 27, 1999.
All directors of Cadapult are elected annually to serve for one year
and hold office until the next annual meeting of the shareholders and until
their successors are elected and qualified. The officers of Cadapult are
elected by the Board of Directors at the first meeting after each annual
meeting of Cadapult's shareholders, and hold office until their death,
resignation or removal from office.
-30-
<PAGE>
MANAGEMENT PROFILES
Michael W. Levin, Chief Executive Officer, President and Chairman of the Board:
- ------------------------------------------------------------------------------
Mr. Levin has served as Chief Executive Officer, President and Chairman
of the Board of Cadapult since June 18, 1998. Before June 1998, he had
served as President, Treasurer, Secretary and Chairman of CGSI since 1987,
when he founded CGSI while attending Lehigh University. He is responsible for
a senior management team as well as merger and acquisition activity and
corporate finance. He earned a Bachelor of Science degree in Mechanical
Engineering from Lehigh University in 1987, graduating summa cum laude.
Frances Blanco, Vice President of Marketing and Investor Relations, Treasurer,
Secretary and Director:
- ----------------------
Ms. Blanco has served as Vice President of Marketing and Investor
Relations, Treasurer, Secretary and a Director of Cadapult since June 18,
1998. From 1993 to June 18, 1998, she served as Vice President of
Marketing and Investor Relations, Treasurer, Secretary and a director of
CGSI. Ms. Blanco manages all aspects of marketing, including brand identity,
demand creation and vendor relationships for Cadapult as well as investor
relations. From 1984 through 1989, Ms. Blanco was a Reseller Account Manager
at Lotus, where she designed and implemented marketing programs. From August
1989 through June 1993, Ms. Blanco served as a Business Development Manager
at Tektronix, Inc., where she was responsible for the development of long
term and strategic customers. She earned a Bachelor of Science degree in
Marketing from Bentley College in 1982 and a Masters of Business
Administration degree from Boston College in 1985.
Duncan Huyler, Vice President of Technical Services:
- ---------------------------------------------------
Mr. Huyler has served as Vice President of Technical Services for
Cadapult since June 18, 1998. From 1993 to June 18, 1998, he served as
Vice President of Technical Services for CGSI. Mr. Huyler manages all
the technical aspects of Cadapult, including running the business under
its own P/L, developing service plans, hiring staff, developing and
implementing training programs and obtaining service authorizations. From
May 1983 through October 1987, Mr. Huyler served in the U.S. Army. From
September 1988 through August 1993, Mr. Huyler worked for Lord & Taylor,
where his positions included Senior Financial Analyst and Director of
Systems. Mr. Huyler graduated from Cornell University in 1983 with a
Bachelor of Science degree in Business and earned a Masters of Business
Administration from the University of Louisville in 1987.
Paul C. Baker, Director:
- -----------------------
Mr. Baker has served as a Director of Cadapult since June 18, 1998.
From 1986 to the present, he has been President of Sherwood Partners, Inc., a
venture capital and management consulting company, which he founded, that
focuses on developing companies with high growth potential. Prior to
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<PAGE>
founding Sherwood Partners, Inc. in 1986, Mr. Baker held numerous positions
during his twenty-five years of employment with American Cyanamid Co.
("Cyanamid"). At Cyanamid, Mr. Baker held several domestic and international
management positions, including President of Domestic Operations from April
1975 through October 1979, President of Shulton Inc. from October 1977
through October 1979 and Group Vice President of Cyanamid from October 1979
through December 1984. Mr. Baker graduated from Lehigh University in 1959
with a Bachelor of Arts degree in Liberal Arts, earned a B.S.I.E. degree in
Engineering in 1960 from Lehigh University, and received a Masters in
Business Administration in 1963 from Fairleigh Dickinson University.
Edwin Ruzinsky, Director:
- ------------------------
Mr. Ruzinsky has served as a Director of Cadapult since August 27,
1999. He is a Certified Public Accountant and a Certified Management
Consultant. Prior to his retirement on June 1, 1996 as a Partner in Deloitte
Consulting LLC, a wholly-owned subsidiary of Deloitte & Touche LLP, he
served for many years as the firm's National Director-Media Industry
Services. He previously served Times Mirror Company (NYSE-TMC) as Vice
President-Finance & Administration/Book Publishing Group and Parents'
Magazine Enterprises, Inc. as Chief Accounting Officer. Mr. Ruzinsky
continues serving as a member of the Pace University/Dyson School of Liberal
Arts & Sciences/Master of Science in Publishing Advisory Board. He is
currently a member of the Board of Dowden Publishing Company, Inc., a
provider of specialized publications and customized communication products
for healthcare professionals and consumers. In addition, he has been a
consultant to The CPA Journal, published by the New York State Society of
Certified Public Accountants, for the past twenty-five years.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the annual and
long-term compensation during Cadapult's last three fiscal years of
Cadapult's Chief Executive Officer and other most highly compensated
employees and all other officers and directors of Cadapult:
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<PAGE>
<TABLE>
Summary Compensation Table
Long Term
Compensation
------------
Annual Compensation Awards
----------------------------------------------- ------
Name and Other Securities
Principal Annual Underlying All Other
Position Year(1) Salary Bonus Compensation Options/SARS Compensation(2)
- -------------------------- ---------------------------------------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Michael W. Levin(3) 1999 $ 130,000 $ 0 $ 0 500,000 $ 2,379
Chief Executive Officer, 1998 $ 141,583 $ 0 $ 0 51,223 $ 2,727
President and Chairman
Of the Board
Frances Blanco(3) 1999 $ 80,000 $ 10,000 $ 0 100,000 $ 2,021
Vice President Marketing 1998 $ 75,000 $ 25,000 $ 0 7,714 $ 2,158
and Investor Relations,
Treasurer, Secretary and
Director
Duncan Huyler(3) 1999 $ 95,000 $ 0 $ 0 100,000 $ 4,630
Vice President Technical 1998 $ 91,000 $ 25,000 $ 0 9,265 $ 3,867
Services
Paul C. Baker 1999 $ 0 $ 0 $ 0 33,000 $ 0
Director 1998 $ 0 $ 0 $ 0 0 $ 0
Kathleen L. Morrison(4) 1998 $ 0 $ 0 $ 1,250(5) 0 $ 0
Former President and 1997 $ 0 $ 0 $ 0 0 $ 0
Director
Jason Osborn(4) 1998 $ 0 $ 0 $ 1,250(5) 0 $ 0
Former Vice President and 1997 $ 0 $ 0 $ 0 0 $ 0
Director
Terry Hardman(4) 1998 $ 0 $ 0 $ 1,250(5) 0 $ 0
Former Secretary, 1997 $ 0 $ 0 $ 0 0 $ 0
Treasurer and Director
</TABLE>
______
(1) In June 1998, each of Cadapult and CGSI changed their fiscal year ends
from December 31 and April 30, respectively, to June 30. The 1998
fiscal year compensation for Mr. Levin, Ms. Blanco, and Mr. Huyler
includes the operations of CGSI, a privately-held company that Cadapult
acquired in June 1998, for the period May 1, 1997 through April 30, 1998.
(2) Includes Cadapult's matching contribution to Cadapult's 401(k) profit
sharing plan.
(3) Became an officer and/or director of Cadapult on June 18, 1998.
(4) Resigned as an officer and director of Cadapult effective June 18, 1998.
(5) Received 1,000 shares of common stock pursuant to a Registration
Statement on Form S-8 filed on or about June 5, 1998, for which the
fair market value cannot be adequately determined. At the time of
issuance, Cadapult's common stock was not quoted on the OTC Bulletin
Board. For purposes of this calculation, the fair market value is
arbitrarily determined to be $1.25 per share, based upon the offering
price of Cadapult's common stock sold in a private placement conducted
in June through August 1998.
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<PAGE>
The following table sets forth information concerning options granted
during the fiscal year ended June 30, 1999 to those persons named in the
preceding Summary Compensation Table:
<TABLE>
Option/SAR Grants in Last Fiscal Year
(Individual Grants)
Number of
Securities Percent of total
Underlying options/SARS granted Exercise or
Options/SARs to employees in base price Expiration
Name Granted (#) fiscal year(1) ($/Sh) Date
- ---------------- ------------ -------------------- ------------ ----------
<S> <C> <C> <C> <C>
Michael W. Levin 500,000(2) 47.7% $1.375 6-18-03
Michael W. Levin 51,223(3) 4.8% $1.375 6-18-03
Frances Blanco 100,000(2) 9.3% $2.00 3-05-04
Frances Blanco 7,714(3) 0.7% $1.25 6-18-08
Duncan Huyler 100,000(2) 9.3% $2.00 3-05-04
Duncan Huyler 9,265(3) 0.9% $1.25 6-18-08
Paul Baker 3,000(2) 0.3% $2.00 6-11-08
Paul Baker 30,000(2) 2.8% $3.31 4-06-09
</TABLE>
______
(1) Based on the aggregate total of options granted to officers, directors,
and employees, including options granted during the two month fiscal
year transition period from May 1 through June 30, 1998. As of June
30, 1999, a total of 1,069,632 options were granted, of which 51,739
options have expired.
(2) Options were granted pursuant to employment agreements and become
exercisable after Cadapult achieves certain defined corporate goals
based on earnings, as further described in the Long-Term Incentive Plan
table. These options have not vested.
(3) Options were granted pursuant to the 1998 Stock Option Plan and are
presently exercisable. No options have been exercised.
None of the options held by those individuals listed in the Summary
Compensation Table were exercised in fiscal year 1998. The following table
sets forth information concerning the value of unexercised stock options at
June 30, 1999 for those individuals named in the Summary Compensation Table.
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<PAGE>
<TABLE>
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
Number of securities
Shares underlying unexercised Value of unexercised
Acquired Value Options/SARs in-the-money options/SARs
on realized at FY-end (#) at FY-end ($)(a)
Name Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------ -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael W. Levin -- -- 51,223 500,000 $ 134,460 $ 1,312,500
Frances Blanco -- -- 7,714 100,000 $ 20,249 $ 262,500
Duncan Huyler -- -- 9,265 100,000 $ 24,321 $ 262,500
Paul Baker -- -- 33,000 -- $ 86,625 $ --
</TABLE>
______
(a) The dollar values were calculated by determining the difference between
the fair market value at fiscal year-end of the common stock underlying
the options and the exercise price of the options. The last sale price
of a share of Cadapult's common stock on June 30, 1999, as reported by
the OTC Bulletin Board, was $2.625.
The following table sets forth information concerning long-term options
granted during the fiscal year ended June 30, 1999 to those persons named in
the preceding Summary Compensation Table. Cadapult has not adopted a formal
long-term incentive option plan. The options presented in the following
table were granted pursuant to employment agreements, as amended, with
Cadapult's executive officers.
<TABLE>
Long-Term Incentive Plans-Awards in Last Fiscal Year
Number Performance
of shares, or other units or
units or period until
other maturation or Estimated Future Payouts under
Name rights (#) payout (1) Non-Stock Price-Based Plans(2)
- ------------------------------------------------------------------------------------------
Threshold Target Maximum
(#) (#) (#)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Michael W. Levin 500,000 5/98 - 4/01 125,000 125,000 500,000
Frances Blanco 100,000 5/99 - 4/01 25,000 25,000 100,000
Duncan Huyler 100,000 5/99 - 4/01 25,000 25,000 100,000
</TABLE>
-35-
<PAGE>
______
(1) The options are exercisable into common stock for a term of five year at
the fair market value on the date of grant, were granted pursuant to
employment agreements, as amended. The performance period refers to
the term of the individual's employment term during which the options
must vest.
(2) The threshold refers to the minimum number of options that may vest
during the performance period. The target refers to the number of
options that may vest in the 2000 fiscal year. The long-term incentive
options are contingent upon attainment of certain corporate earnings
milestones. These options will vest in equal twenty five percent
installments upon each of the following events: (a) the first fiscal
year end in which Cadapult's earnings before interest, taxes,
depreciation and amortization ("EBITDA") exceeds $500,000; (b) the first
fiscal year end in which Cadapult's EBITDA exceeds $1,000,000; (c) the
first fiscal year end in which Cadapult's EBITDA exceeds $1,500,000; and
(d) the first fiscal year end in which Cadapult's EBITDA exceeds
$2,000,000. These options are cumulative and are subject to
anti-dilution rights.
EMPLOYMENT AGREEMENTS WITH NAMED EXECUTIVE OFFICERS AND CHANGE OF CONTROL
Michael W. Levin serves as Chief Executive Officer and President
pursuant to a five year employment agreement, commenced on May 1, 1998, as
amended, at an annual salary of $130,000, with cost-of-living adjustments
tied to the Consumer Price Index, or such greater annual salary as may be
established by Cadapult's Board of Directors. Commencing in the third year
of the employment agreement, Mr. Levin's base annual salary shall be
increased by an amount such that such increase shall be equal to at least one
percent of Cadapult's earnings before interest, taxes, depreciation and
amortization ("EBITDA") in the most recent fiscal year. Mr. Levin has been
granted 5-year options to purchase up to 500,000 shares, proportioned to vest
only after Cadapult's achievement of certain corporate milestones,
exercisable at $1.375 per share. Mr. Levin may purchase 125,000 shares
following the first fiscal year that Cadapult's EBITDA exceeds each of
$500,000, $1,000,000, $1,500,000 and $2,000,000, respectively. These options
are cumulative and are subject to anti-dilution rights. Mr. Levin is also
entitled to death benefits of $100,000, a fifteen year term life insurance
policy with a face amount of benefit of $1,000,000, a luxury automobile,
reimbursement for reasonable travel and other business related expenses, and
other bonuses to be determined by the Board of Directors. In the event of a
"change of control" of Cadapult, Mr. Levin is entitled to receive a golden
parachute payment equal to two hundred and ninety percent (290%) of his "base
amount", as defined in Section 280G(3) of the Internal Revenue Code of 1986,
as amended, and has the right to terminate the agreement. "Change of
control" is defined to be any of the following: (i) a change in the
ownership or management of Cadapult that would be required to be reported in
response to certain provisions of the Exchange Act of 1934; (ii) an
acquisition (other than directly from Cadapult) by a person or entity
(excluding Cadapult) of 25% or more of Cadapult's common stock or Cadapult's
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<PAGE>
then outstanding voting securities; (iii) a change in a majority of the
current Board of Directors (the "Incumbent Board") (excluding any persons
approved by a vote of at least a majority of the Incumbent Board other than
in connection with an actual or threatened proxy contest); (iv) consummation
of a reorganization, merger, consolidation or sale of all or substantially
all of Cadapult's assets (collectively, a "Transaction") other than a
Transaction in which all or substantially all of the shareholders of Cadapult
prior to such transaction own, in the same proportion, more than 50% of the
voting power of the entity resulting from the Transaction, at least a
majority of the board of directors of the resulting entity were members of
the Incumbent Board, and after which no person (other than the resulting
entity and certain affiliates) beneficially owns 25% or more of the voting
power of the resulting entity, except to the extent such ownership existed
prior to the Transaction; or (v) the approval by Cadapult's shareholders of a
complete liquidation or dissolution of Cadapult.
Frances Blanco serves as Vice President of Marketing and Investor
Relations, Treasurer and Secretary pursuant to a three year employment
agreement, commenced on May 1, 1998 and as amended on March 5, 1999, at an
annual salary of $80,000, plus financial bonuses to be determined by the
Board of Directors. Ms. Blanco has been granted 5-year options to purchase
up to 100,000 shares, proportioned to vest only after Cadapult's achievement
of certain corporate milestones, exercisable at $2.00 per share. Ms. Blanco
may purchase 25,000 shares following the first fiscal year that Cadapult's
EBITDA exceeds each of $500,000, $1,000,000, $1,500,000 and $2,000,000,
respectively. These options are cumulative and are subject to anti-dilution
rights.
Duncan Huyler serves as Vice President of Technical Services pursuant
to a three year employment agreement, commenced on May 1, 1998 and as amended
on March 5, 1999, at an annual salary of $95,000, plus financial bonuses to
be determined by the Board of Directors. Mr. Huyler has been granted 5-year
options to purchase up to 100,000 shares, proportioned to vest only after
Cadapult's achievement of certain corporate milestones, exercisable at $2.00
per share. Mr. Huyler may purchase 25,000 shares following the first fiscal
year that Cadapult's EBITDA exceeds each of $500,000, $1,000,000, $1,500,000
and $2,000,000, respectively. These options are cumulative and are subject
to anti-dilution rights.
STOCK OPTION PLAN
Pursuant to Cadapult's incentive stock option plan (the "1998 Stock
Option Plan"), which has been adopted by our Board of Directors and approved
by our shareholders, 500,000 shares of Cadapult's authorized but unissued
common stock has been reserved for issuance pursuant to the 1998 Stock Option
Plan. The 1998 Stock Option Plan is administered by a person designated by
the Board of Directors (the "Administrator"), presently the Chairman of the
Board. Stock option (which may be "incentive stock options" within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended
entitles the holder to purchase shares of common stock during a specified
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<PAGE>
period at a purchase price of not less than the fair market value of the
common stock on the day the option is granted. We filed a Form S-8 to
register the 500,000 shares underlying the stock options. We granted certain
employees options to purchase up to 295,381 shares of common stock,
exercisable for five or ten years at prices of $1.25 to $4.00 per share
pursuant to the 1998 Stock Option Plan, including its officers and directors,
as follows: Michael W. Levin, 5-year options to purchase 51,223 shares at
$1.375; Frances Blanco, 10-year options to purchase 7,741 shares at $1.25;
Duncan Huyler, 10-year options to purchase 9,265 shares at $1.25; and Paul
Baker, 10-year options to purchase 3,000 shares at $2.00.
EMPLOYEE PROFIT SHARING PLAN
We have a tax-qualified employee paired profit sharing plan (the
"401(k) Plan"), sponsored by Kemper Financial Services, Inc., which covers
all of our employees that have been employed for at least six months and meet
other age and eligibility requirements. Under the 401(k) Plan, employees may
elect to reduce their current compensation by up to 15% for the plan year and
have the amount of such reduction contributed to the 401(k) Plan. Under the
401(k) Plan, we make matching contributions, using a discretionary formula,
currently equal to twenty five percent of the employee's contribution. In
our sole discretion, we may contribute an amount which we designate as a
qualified nonelective contribution to designated participants. The 401(k)
Plan is intended to qualify under Section 401 of the Internal Revenue Code,
so that contributions by employees or by Cadapult to the 401(k) Plan, and so
that contributions by Cadapult, if any, will be deductible by Cadapult. The
trustee under the 401(k) Plan, at the direction of each participant, invests
the assets of the 401(k) Plan in any of a number of investment options. All
employee contributions to the 401(k) Plan are fully vested at all times, and
Cadapult's contributions, if any, vest 25% after two years and at the rate of
25% a year thereafter until fully vested.
-38-
<PAGE>
OWNERSHIP OF SECURITIES
The following table sets forth, as of October 28, 1999, the shares of
Cadapult's common stock beneficially owned by each person known to Cadapult
to be the beneficial owner of more than five percent (5%) of the outstanding
shares of common stock, by each officer and director, and by all officers and
directors of Cadapult as a group. This information was determined in
accordance with Rule 13(d)-3 under the Securities Exchange Act of 1934, and
is based upon the information provided by the persons listed below. All
persons named in the table have the sole voting and dispositive power with
respect to common stock beneficially owned.
<TABLE>
Name and Address Amount and Nature Percent
of Beneficial Owner(1) of Beneficial Owner of Class(2)
- ------------------- ------------------- --------
<C> <C> <C>
Michael W. Levin 1,569,673 (3) 49.2%
Frances Blanco 48,516 (4) 1.5%
Duncan Huyler 50,040 (5) 1.6%
Paul Baker 100,500 (6) 3.2%
Edwin Ruzinsky 10,000 (7) 0.3%
All officers and directors as a group (4 persons) 1,778,729 (3)-(7) 54.8%
</TABLE>
______
(1) The address of each of these persons is Cadapult Graphic Systems, Inc.,
110 Commerce Drive, Allendale, New Jersey 07401.
(2) Based upon 3,137,460 shares of common stock outstanding on October 28,
1999, and with respect to each holder of options exercisable within 60
days, the shares represented by such options.
(3) Includes 52,000 shares owned by Mr. Levin's minor children and
exercisable 5-year options to acquire 51,223 shares of common stock.
Excludes 5-year options, subject to future vesting, to acquire 500,000
shares of common stock.
(4) Includes exercisable 10-year options to acquire 7,741 shares of Common
Stock. Excludes 5-year options, subject to future vesting, to acquire
100,000 shares of common stock.
(5) Includes exercisable 10-year options to acquire 9,265 shares of Common
Stock. Excludes 5-year options, subject to future vesting, to acquire
100,000 shares of common stock.
(6) Includes exercisable 10-year options to acquire 33,000 shares of Common
Stock.
(7) Includes exercisable 10-year options to acquire 10,000 shares of Common
Stock.
There are no arrangements which may result in a change in control of
Cadapult.
-39-
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In June 1998, we filed a registration statement on Form S-8 for
66,068 shares of common stock. We issued the shares to four individuals,
including officers and directors of Cadapult, pursuant to written
compensation agreements, as follows: Leonard W. Burningham, 63,068 shares;
Kathleen L. Morrison, 1,000 shares; Jason Osborn, 1,000 shares; and Terry
Hardman, 1,000 shares. Kathleen L. Morrison, Jason Osborn, and Terry Hardman
resigned as directors and officers of Cadapult effective as of June 18, 1998.
On June 18, 1998, we completed the acquisition of CGSI, a privately-
held New Jersey corporation, in a transaction viewed as a reverse
acquisition. Pursuant to an Agreement and Plan or Reorganization dated June
5, 1998, between Cadapult, CGSI, all of the shareholders of CGSI, Jenson
Services, Inc., a Utah corporation, Duane S. Jenson and Jeffrey D. Jenson, we
issued 1,650,000 shares of common stock to the shareholders of CGSI in
exchange for all of the outstanding common stock of CSGI. Pursuant to the
acquisition, the shareholders of CSGI became the controlling shareholders of
Cadapult, the officers and directors of Cadapult resigned and elected the
CSGI nominees in their places, and CSGI became a wholly-owned subsidiary of
Cadapult. Michael W. Levin acquired 300 shares, no par value, of CGSI on May
1, 1987 for $300. Frances Blanco acquired 7.90 shares, no par value, of CSGI
on June 3, 1997 for $15,000. Duncan Huyler acquired 7.90 shares, no par
value, of CSGI on June 3, 1997 for $15,000. Duncan Yates acquired 3.8748
shares, no par value, of CGSI on April 20, 1998 for $15,000. In May 1998,
Mr. Levin made a gift of 3.1 shares to each of their two minor children.
Pursuant to the acquisition, Mr. Levin and his children, Ms. Blanco, Mr.
Huyler and Mr. Yates, representing all the issued and outstanding shares of
CGSI, exchanged their shares of CGSI proportionally for 1,650,000 shares of
Cadapult pursuant to Cadapult's acquisition of CGSI. Michael W. Levin
currently serves as our Chief Executive Officer, President and Chairman of
the Board, and he is Cadapult's largest stockholder. Frances Blanco
currently serves as our Vice President, Secretary, Treasurer and as a
director. Duncan Huyler currently serves as our Vice President and as a
director.
We issued to Mr. Levin under an employment agreement stock options to
purchase up to 500,000 shares of common stock (no options are presently
exercisable) to vest upon Cadapult attaining certain specified corporate
milestones based upon corporate earnings, exercisable for five years at
$1.375. We issued to each of Ms. Blanco and Mr. Huyler under employment
agreements stock options to purchase up to 100,000 shares of common stock
each (no options are presently exercisable) to vest upon Cadapult attaining
certain specified corporate milestones based upon corporate earnings,
exercisable for five years at $2.00.
-40-
<PAGE>
SELLING STOCKHOLDERS
The table below sets forth: (a) the names of the selling stockholders;
(b) the number of shares of common stock beneficially owned by each of the
selling stockholders before this offering; (c) the number of shares of common
stock being offered under this prospectus by each of the selling
stockholders; (d) the number and percentage of shares of stock of common
stock owned by each of the selling stockholder after the completion of the
offering.
Michael W. Levin, a selling stockholder under this prospectus, is
Cadapult's Chief Executive Officer, President, Chairman of the Board of
Director, and Cadapult's largest stockholder. On June 18, 1998, Cadapult
acquired all of the equity of CGSI, in a transaction viewed as a reverse
acquisition. Under Cadapult's acquisition of CGSI, Mr. Levin, who was the
controlling shareholder, President and Chairman of the Board of CSGI,
exchanged his 94% equity of CGSI for beneficial ownership of 1,548,450
shares of Cadapult's common stock, and he became Cadapult's largest
shareholder, President and Chairman of the Board. Duane Jenson, a selling
shareholder under this prospectus, was a controlling shareholder of Cadapult
prior to its acquisition of CGSI. Since Cadapult's acquisition of CGSI in
June 1998, Mr. Jenson has had no control over or involvement in Cadapult's
operations.
The shares of common stock offered by this prospectus may be offered
from time to time by the selling stockholder. Our registration does not
necessarily mean that any selling stockholder will sell all or any of its
shares.
-41-
<PAGE>
<TABLE>
<CAPTION>
Number of Shares Number of Shares Percent
Owned Prior Number of Shares Owned After Owned After
Name of Selling Stockholder to this Offering Being Offered this Offering(1) Offering(2)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Michael W. Levin 1,569,673(3) 150,000 1,419,673 44.5%
David G. Baker 4,000 4,000 0 *
Mitchell K. Baker 7,000 7,000 0 *
Louis Beckerman 8,000 8,000 0 *
Art Beroff 150,000 50,000 100,000 3.2%
Helen Beroff 20,000 20,000 0 *
Frank E. Blanco 13,000 13,000 0 *
Dan Brecher 30,000(4) 30,000 0 *
Jeffory L. Broman 20,000 20,000 0
Willam V. Catellano 16,000 16,000 0 *
Cicero Cinzano Ltd. 20,000 20,000 0 *
Michael J. Doolin 8,000 8,000 0 *
Dufo Ltd. 8,000 8,000 0 *
John Alan and Eileen V. Forrest 8,000 8,000 0 *
Carolyn J. Gazeley 8,000 8,000 0 *
Robin Greitzer 6,000 6,000 0 *
Phillip R. and Kathryn W. Haley 10,000 10,000 0 *
Richard J. Helfman Life
Insurance Trust 13,000 13,000 0 *
Brad P. Herman 15,000 15,000 0 *
Barbara Jenson 20,000 20,000 0 *
Duane S. Jenson 115,919 40,000 75,919 2.4%
John G. Kiernan 8,000 8,000 0 *
Peter J. Kiernan 8,000 8,000 0 *
Stacy S. Kiernan 2,500 2,500 0 *
Andrew Eric Koopman 10,000 10,000 0 *
James Kramer 5,000 5,000 0 *
Harold Kugelman 1,000 1,000 0 *
Daniel M. Landis and Valerie
B. Landis 4,000 4,000 0 *
Diane Levin 8,000 8,000 0 *
Paul Levin and Brenda Levin 40,000 40,000 0 *
Michael F. Manion 4,000 4,000 0 *
Albert Martin 4,000 4,000 0 *
Michael and Susan Meister 5,000 5,000 0 *
New York New York International
Limited 40,000 40,000 0 *
Joan Glenn Rozansky 5,000 5,000 0 *
Joan W. and Glenn Rozansky 16,000 16,000 0 *
Eunice Share and Nacy Share 8,000 8,000 0 *
Joseph A. Stanczyk Jr. 2,000 2,000 0 *
Robert Sydenham 20,000 20,000 0 *
Charles and Debbie A. Thomas 8,000 8,000 0 *
Michele Levitt Tuvel 9,750 9,750 0 *
Robert Scott Yates 2,500 2,500 0 *
Lynn Wiener 26,000 26,000 0 *
Hermine Wiener 5,000 5,000 0 *
Robert A. Wiener Trust 20,000 20,000 0 *
Hermine L. Wiener and Lynn Wiener 16,000 16,000 0 *
</TABLE>
-42-
<PAGE>
<TABLE>
<CAPTION>
Number of Shares Number of Shares Percent
Owned Prior Number of Shares Owned After Owned After
Name of Selling Stockholder to this Offering Being Offered this Offering(1) Offering(2)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alex Allias 100 100 0 *
Matthew Arthur 100 100 0 *
Mark Augustyn 100 100 0 *
Cathy Backman 100 100 0 *
Tracy Backmann 100 100 0 *
Alex Baker 100 100 0 *
Amanda Baker 100 100 0 *
Claudia Baker 100 100 0 *
Danielle Baker 100 100 0 *
Jill Baker 100 100 0 *
Joshua Baker 100 100 0 *
Kenneth Baker 100 100 0 *
Norma Baker 100 100 0 *
Samantha Baker 100 100 0 *
Scott Baker 100 100 0 *
Stephen Baker 100 100 0 *
William Baker 100 100 0 *
Zachary Baker 100 100 0 *
Claire Baldwin 100 100 0 *
Paige Baldwin 100 100 0 *
Sarah Baldwin 100 100 0 *
Elizabeth Beaulieu 100 100 0 *
Madeline Beaulieu 100 100 0 *
Timothy Beaulieu 100 100 0 *
Kevin Benoit 100 100 0 *
Nadine Benoit 100 100 0 *
Brendon Blair 100 100 0 *
Bridget Blair 100 100 0 *
Conner Blair 100 100 0 *
Denise Blair 100 100 0 *
Matthew Blair 100 100 0 *
Edna Blanco 100 100 0 *
Nicholas Bomalaski 100 100 0 *
Rachel Bomalaski 100 100 0 *
Susan Bomalaski 100 100 0 *
Eric Brown 100 100 0 *
William Chadwick 100 100 0 *
James Chippone 100 100 0 *
Garrett Cutler 100 100 0 *
Jordan Cutler 100 100 0 *
Kyle Cutler 100 100 0 *
Taylor Cutler 100 100 0 *
</TABLE>
-43-
<PAGE>
<TABLE>
<CAPTION>
Number of Shares Number of Shares Percent
Owned Prior Number of Shares Owned After Owned After
Name of Selling Stockholder to this Offering Being Offered this Offering(1) Offering(2)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shane Daly 100 100 0 *
Suzanne Daly 100 100 0 *
Tucker Daly 100 100 0 *
Sandy Desmond 100 100 0 *
Tim Desmond 100 100 0 *
Troy Desmond 100 100 0 *
Tyler Desmond 100 100 0 *
Diane DeVincentis 100 100 0 *
David Donaldson 100 100 0 *
Brendan Doyle 100 100 0 *
Susan Doyle 100 100 0 *
Erica Eliott 100 100 0 *
Jocelyn Eliott 100 100 0 *
Mark Eliott 100 100 0 *
Jason Ezra 100 100 0 *
Jennifer Farrissey 100 100 0 *
Stacey Fineburg 100 100 0 *
Christina Finn 100 100 0 *
John Finn 100 100 0 *
Mary Grace Finn 100 100 0 *
Laura Flomm 100 100 0 *
Michael Flomm 100 100 0 *
Andrew Forbes 100 100 0 *
Christie Forbes 100 100 0 *
Claire Forbes 100 100 0 *
Duncan Forbes 100 100 0 *
Helen Forbes 100 100 0 *
Alan Forrest 100 100 0 *
Carol Forrest 100 100 0 *
Eileen Forrest 100 100 0 *
Julie Forrest 100 100 0 *
Marc Forrest 100 100 0 *
Marc Julian Forrest 100 100 0 *
Simon Forrest 100 100 0 *
Jane Gailey 100 100 0 *
Kevin Gailey 100 100 0 *
Leanne Garrison 100 100 0 *
Maria Giammichele 100 100 0 *
Richard Girouard Jr. 100 100 0 *
Caroline Glass 100 100 0 *
Diane Glass 100 100 0 *
Gary Glass 100 100 0 *
Gary Glass, Jr. 100 100 0 *
Megan Glass 100 100 0 *
Adam Greitzer 100 100 0 *
Hallie Greitzer 100 100 0 *
Julia Greitzer 100 100 0 *
</TABLE>
-44-
<PAGE>
<TABLE>
<CAPTION>
Number of Shares Number of Shares Percent
Owned Prior Number of Shares Owned After Owned After
Name of Selling Stockholder to this Offering Being Offered this Offering(1) Offering(2)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kathleen Halley 100 100 0 *
Louise Halley 100 100 0 *
Anne Marie Hartmann 100 100 0 *
David Harris 100 100 0 *
Kristin Harris 100 100 0 *
David Heritage 100 100 0 *
Shannon Heritage 100 100 0 *
Tatum Heritage 100 100 0 *
Priscilla Horn 100 100 0 *
Jonathan Hurd 100 100 0 *
Keelyn Hurd 100 100 0 *
Roger Hurd 100 100 0 *
Connor Huyler 100 100 0 *
Erica Huyler 100 100 0 *
Garrett Huyler 100 100 0 *
Margaret Huyler 100 100 0 *
Peter Huyler 100 100 0 *
Timothy Huyler 100 100 0 *
Todd Huyler 100 100 0 *
Tracey Hurd 100 100 0 *
Julie Jones 100 100 0 *
Gerald Kaplan 100 100 0 *
Rachel Kaplan 100 100 0 *
Jennifer Kaplan 100 100 0 *
Maury Kaplan 100 100 0 *
Adam Kaplin 100 100 0 *
Dana Kaplin 100 100 0 *
Madeline Kaplin 100 100 0 *
Juliett Kasbar 100 100 0 *
Mary Kasbar 100 100 0 *
Michael Kasbar 100 100 0 *
Robert Keogh 100 100 0 *
Darby Kiernan 100 100 0 *
Jack Kiernan 100 100 0 *
Patrick Kiernan 100 100 0 *
Linda Korzelius 100 100 0 *
Carrie Lagg 100 100 0 *
Joanne Lawson 100 100 0 *
Robert Lawson 100 100 0 *
Teresa Lennon 100 100 0 *
Ruth Levin 100 100 0 *
Abigail Lewis 100 100 0 *
Jane Lewis 100 100 0 *
Jasmine Lewis 100 100 0 *
Sean Lewis 100 100 0 *
Joe Lockhart 100 100 0 *
Michael Lynch 100 100 0 *
</TABLE>
-45-
<PAGE>
<TABLE>
<CAPTION>
Number of Shares Number of Shares Percent
Owned Prior Number of Shares Owned After Owned After
Name of Selling Stockholder to this Offering Being Offered this Offering(1) Offering(2)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kevin Martorana 100 100 0 *
Bryan Miskie 100 100 0 *
Jami Miskie 100 100 0 *
Douglas Montgomery 100 100 0 *
Judy Montgomery 100 100 0 *
Emily Morales 100 100 0 *
Eric Morales 100 100 0 *
Tara Morales 100 100 0 *
Kathleen Morande 100 100 0 *
Betsy Morret 100 100 0 *
Adrienne Mortimer 100 100 0 *
Kathie Mortimer 100 100 0 *
George Mortimer, Jr. 100 100 0 *
Lucille R. Mortimer 100 100 0 *
Marsiglia Moscia 100 100 0 *
Brendan Mullen 100 100 0 *
Karen Mullen 100 100 0 *
Michael Mullen 100 100 0 *
Patrick Mullen 100 100 0 *
James Nichols 100 100 0 *
Patty O'Donoghue 100 100 0 *
John O'Donoghue 100 100 0 *
Maureen O'Hara 100 100 0 *
Dave O'Neil 100 100 0 *
Alyssa Palatiello 100 100 0 *
Jenna Palatiello 100 100 0 *
Aran Parillo 100 100 0 *
Matthew Parillo 100 100 0 *
Caroline Pericelli 100 100 0 *
Phillip Pericelli 100 100 0 *
Shannon Reiner 100 100 0 *
Audrey Ritter 100 100 0 *
Edward Ritter 100 100 0 *
Karen Rocasecca 100 100 0 *
Melissa Rogers 100 100 0 *
Robert Rogers 100 100 0 *
Dana Rozansky 100 100 0 *
Jordan Rozansky 100 100 0 *
Arthur Schatz 100 100 0 *
Elizabeth Scipione 100 100 0 *
Brian Shannon 100 100 0 *
Harvey Share 100 100 0 *
Alex Stanczyk 100 100 0 *
Brenna Stanczyk 100 100 0 *
Lonnie Stanczyk 100 100 0 *
</TABLE>
-46-
<PAGE>
<TABLE>
<CAPTION>
Number of Shares Number of Shares Percent
Owned Prior Number of Shares Owned After Owned After
Name of Selling Stockholder to this Offering Being Offered this Offering(1) Offering(2)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tricia Tancredi 100 100 0 *
Janelle Temple 100 100 0 *
Gustavo Torres 100 100 0 *
Alex Towery 100 100 0 *
Eunice Towery 100 100 0 *
Jacob Towery 100 100 0 *
Dr. Owen Brooker Towery III 100 100 0 *
Christine Turso 100 100 0 *
Grace Turso 100 100 0 *
Michael Turso 100 100 0 *
Michael John Turso 100 100 0 *
Brooks S. Yates 100 100 0 *
Jacqui Coffey 100 100 0 *
James S. Yates 100 100 0 *
Kate Yates 100 100 0 *
Marilyn Yates 100 100 0 *
Pauline Yates 100 100 0 *
Samantha Yates 100 100 0 *
Olga Wilson 100 100 0 *
--------- ------- ---------
TOTAL 2,367,342 771,750 1,595,592
========= ======= =========
</TABLE>
______
(1) Based on 3,137,460 shares of common stock issued and outstanding on
October 28, 1999.
(2) The symbol "*" indicates less than 1% ownership of Cadapult's
outstanding shares of common stock after this offering.
(3) Include beneficial ownership of 52,000 shares held by his minor
children and includes exercisable 5-year options to acquire 51,223
shares of common stock. Excludes performance based options to acquire
500,000 shares of common stock, of which no options have vested.
(4) Excludes unexercised warrants to acquire 50,000 shares of common stock.
-47-
<PAGE>
PLAN OF DISTRIBUTION
The shares of common stock may be offered and sold from time to time by
the selling stockholders at various times in transactions:
- in the over-the-counter market;
- to purchasers directly;
- in ordinary brokerage transactions in which the broker solicits
purchasers;
- through purchases by a broker or dealer as principal and resale
by such broker or dealer for its own account pursuant to this
prospectus;
- block trades in which a broker-dealer so engaged will attempt
to sell the shares as agent but may take a position and resell
a portion of the block as principal to facilitate the
transaction;
- in connection with short sales;
- in any combination of one or more of these methods; or
- in any other lawful manner.
Selling stockholders may sell their shares of common stock at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices, at negotiated prices, at fixed prices, or at a
combination of such prices.
Selling stockholders may use dealers, agents or underwriters to
sell its shares. If this happens, the dealers, agents or underwriters may
receive compensation in the form of discounts or commissions from the selling
stockholder or from the purchaser(s) of shares or from both (which
compensation to a particular broker might be in excess of customary
compensation).
Selling stockholder and any dealers, agents or underwriters that
participate with the selling stockholders in the distribution of the shares
may be deemed to be "underwriters" (as this term is defined in the Securities
Act). Any commissions paid or any discounts or concessions allowed to any
such persons, and any profits received on the resale of such shares offered
by this prospectus, may be deemed to be underwriting commissions or discounts
under the Securities Act.
We may be required to file a supplemental prospectus in connection with
any activities involving a seller which may be deemed to be an
"underwriting." In that case, a supplement to this prospectus would contain:
- the name or names of the underwriters;
- whether the underwriters are acting as principals or agents;
- the compensation to be received by an underwriter; and
- the compensation to be received by any other broker-dealer, in
the event the compensation of such other broker-dealers is in
excess of usual and customary commissions.
-48-
<PAGE>
Underwriters may be entitled under agreements with us to
indemnification by us against certain civil liabilities, including
liabilities under the Securities Act, or to contribution from us for payments
the underwriters may be required to make in connection with certain civil
liabilities. These underwriters may engage in transactions with, or perform
services for, us for customary compensation.
We will pay for substantially all of the expenses incident to the offer
and sale of the shares of common stock offered by the selling stockholders
using this prospectus. The selling stockholders will pay applicable stock
transfer taxes, transfer fees and brokerage commissions or underwriting or
other discounts.
To comply with the securities laws of certain states, the shares of
common stock offered by this prospectus may need to be offered or sold in
such jurisdictions only through registered or licensed brokers or dealers.
The offering of the shares of common stock pursuant to this prospectus
will terminate on the earlier of the time when the shares of common stock:
(i) have been sold by the selling stockholders pursuant to this prospectus;
(ii) the time when all of the shares of common stock are eligible to be
sold pursuant to Rule 144(k) under the Securities Act; or (iii) this
prospectus is no longer effective.
In August 1998, we filed a registration statement on Form S-8 for our
1998 Stock Option Plan under which we may issue options that may be exercised
for up to 500,000 shares of common stock. We granted certain employees, 5-
year and 10-year incentive stock options to purchase 295,381 shares, of which
88,229 options are presently exercisable, at prices of $1.25 to $4.00 per
share. Executive officers and directors have been granted the following
options pursuant to the 1998 Stock Option Plan: Michael W. Levin, 5-year
options to purchase 51,223 shares at $1.375; Frances Blanco, 10-year options
to purchase 7,741 shares at $1.25; Duncan Huyler, 10-year options to purchase
9,265 shares at $1.25; and Paul Baker, 10-year options to purchase 3,000
shares at $2.00 and 30,000 shares at $3.31.
OUR COMMON STOCK
General
Our authorized capital consists of 20,000,000 shares of common stock,
par value $.001 per share, and 5,000,000 shares of preferred stock, par value
$.001 per share. As of October 28, 1999, 3,137,460 shares of common stock
were issued and outstanding and there were no issued or outstanding shares of
preferred stock.
-49-
<PAGE>
Common Stock
The holders of the common stock are entitled to cast one vote for each
share held of record on all matters presented to stockholders. The holders
of common stock do not have cumulative voting rights, which means that the
holders of more than 50% of the outstanding shares voting for the election of
Cadapult's directors can elect all of the directors, and in such an event,
the holders of the remaining shares will be unable to elect any of Cadapult's
directors.
The holders of the outstanding shares of common stock are entitled to
receive dividends out of assets legally available at such times and in such
amounts as the Board of Directors may from time to time determine, subject to
the rights of the holders of our preferred stock. Upon the liquidation,
dissolution, or winding up of Cadapult, the assets legally available for
distribution to the stockholders will be distributed equally among the
holders of the shares, subject to the rights of the holders of our preferred
stock.
We have never paid any cash dividends on the common stock. Future
cash dividends, if any, will be at the discretion of our Board of Directors
and will depend upon, among other things, our future operations and earnings,
capital requirements and surplus, general financial condition, contractual
restrictions, and such other factors as the Board of Directors may deem
relevant.
Delaware Law
We are subject to Section 203 of the Delaware General Corporation
Law. This statute generally prohibits a publicly-held Delaware corporation
from engaging, under certain circumstances, in a "business combination" with
an "interested stockholder" for a period of three years after the date of the
transaction in which the person becomes an interested stockholder, unless (i)
prior to the date at which the person became an interested stockholder, the
board of directors approved either the business combination or the
transaction in which the person becomes an interested stockholder; (ii) the
stockholder acquires more than 85% of the outstanding voting stock of the
corporation (excluding shares held by directors who are officers or held in
certain employee stock plans) upon consummation of the transaction in which
the person becomes an interested stockholder; or (iii) the business
combination is approved by the board of directors and by at least 66 2/3% of
the outstanding voting stock of the corporation (excluding shares held by the
interested stockholder) at a meeting of stockholders (and not by written
consent) held on or subsequent to the date such person became an interested
stockholder. An "interested stockholder" is a person who, together with
affiliates and associates, owns (or at any time within the prior three years
did own) 15% or more of the corporation's voting stock. Section 203 defines a
"business combination" to include mergers, consolidations, stock sales,
asset-based transactions and other transactions resulting in a financial
benefit to the interested stockholder.
-50-
<PAGE>
Transfer Agent
Continental Stock & Transfer Company, New York, New York, is our
transfer agent and registrar for our common stock.
Market Information
Beginning July 10, 1998, Cadapult's common stock was quoted on the OTC
Bulletin Board under the symbol "GRFX". The following table sets forth for
the periods indicated, the high and low closing bid prices for a share of the
common stock as reported by the OTC Bulletin Board.
Fiscal Year 1999 Fiscal Year 2000
------------------ ------------------
Quarter Ended High Low High Low
- ------------- ------- ------- ------ -------
September 30 $ 4.00 $ 2.00 $ 2.562 $ 1.937
December 31 $ 3.620 $ 2.125
March 31 $ 3.250 $ 1.75
June 30 $ 3.562 $ 2.50
The foregoing quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission, and may not necessarily represent actual
transactions.
Holders
The approximate number of holders of record of Cadapult's common
stock as of October 28, 1999 was 387. As of that date, there were
approximately 450 beneficial stockholders, including stockholders holding
stock under nominee security position listings.
Dividends
We have never declared any cash dividends on the common stock at any
time. We may pay dividends on our preferred stock, if and when issued, under
such terms as may be set forth in a preferred stock designation. Future cash
dividends on the common stock, if any, will be at the discretion of
Cadapult's Board of Directors and will depend on our future operations and
earnings, capital requirements and surplus, general financial condition,
contractual restrictions, and other factors that the Board of Directors may
consider important.
LEGAL MATTERS
Our counsel, Law Offices of Dan Brecher, New York, New York, is giving
us an opinion on the validity of the shares offered by this prospectus. Dan
Brecher, the sole principal of the law firm, owns 30,000 shares of common
stock and warrants to purchase 50,000 shares of common stock of Cadapult, and
he is a selling stockholder of 30,000 shares under this prospectus.
-51-
<PAGE>
EXPERTS
The financial statements of Cadapult for the year ended June 30, 1999,
the two months ended June 30, 1998, and the year ended April 30, 1998,
included in this prospectus have been audited by Wiss & Company, LLP,
independent auditors, as stated in their report appearing in this prospectus,
and are included in reliance upon such report given on the authority of said
firm as experts in accounting and auditing.
INDEMNIFICATION
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
small business issuer pursuant to the foregoing provisions, or otherwise, the
small business issuer has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by Cadapult of expenses incurred or paid by a director, officer
or controlling person of Cadapult in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, we will, unless in
the opinion of our counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by Cadapult is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission. You may read
and copy any documents we file at the Securities and Exchange Commission's
public reference rooms in Washington, D.C., New York, New York, and Chicago,
Illinois. Please call the SEC at 1-800-SEC-0330 for further information on
the public reference rooms. Our SEC filings are also available on the
Securities and Exchange Commission's web site at http://www.sec.gov.
-52-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
Financial Report - June 30, 1999 F-1
Financial Statements - Quarter Ended September 30, 1999 (Unaudited) F2-1
Financial Statements of Tartan Technical, Inc. (Businesses Acquired) F3-1
and Pro Forma Financial Information
-53-
<PAGE>
CADAPULT GRAPHIC SYSTEMS, INC.
Financial Report - June 30, 1999
Independent Auditors' Report F-2
Balance Sheet F-3
Statement of Operations F-4
Statement of Changes in Shareholders' Equity F-5
Statement of Cash Flows F-6
Notes to Financial Statements F-8
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Cadapult Graphic Systems, Inc.
We have audited the accompanying balance sheets of Cadapult Graphic Systems,
Inc. as of June 30, 1999 and June 30, 1998 and the related statements of
operations, changes in shareholders' equity and cash flows for the year ended
June 30, 1999, the two months ended June 30, 1998 and the year ended April
30, 1998. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cadapult Graphic Systems,
Inc. at June 30, 1999 and 1998, and the results of its operations and its
cash flows for the periods indicated above in conformity with generally
accepted accounting principles.
/s/ Wiss & Company
WISS & COMPANY, LLP
Livingston, New Jersey
August 18, 1999
F-2
<PAGE>
CADAPULT GRAPHIC SYSTEMS, INC.
BALANCE SHEETS
<TABLE>
June 30,
------------------------------
ASSETS 1999 1998
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 33,157 $ 22,821
Accounts receivable, less allowance for doubtful
accounts of $35,000 in 1999 and $22,500 in 1998 1,950,399 1,653,624
Attorney escrow - 320,000
Inventories 1,276,621 1,016,381
Prepaid and refundable income taxes - 46,295
Prepaid expenses and other current assets 77,471 38,591
------------ ------------
Total Current Assets 3,337,648 3,097,712
------------ ------------
PROPERTY AND EQUIPMENT, NET 627,029 232,023
------------ ------------
OTHER ASSETS:
Goodwill and other intangible assets, net 835,889 410,195
Deferred acquisition costs 34,542 -
Security deposits 33,523 31,343
------------ ------------
903,954 441,538
------------ ------------
$ 4,868,631 $ 3,771,273
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable to bank $ 1,677,024 $ 695,000
Current maturities of long-term debt 87,547 89,219
Accounts payable 1,710,861 1,940,770
Accrued expenses and other current liabilities 131,767 131,510
Due to officer - 20,000
Deferred revenues 294,089 144,600
------------ ------------
Total Current Liabilities 3,901,288 3,021,099
------------ ------------
OTHER LIABILITIES:
Long-term debt, less current maturities 69,445 156,992
Notes payable to affiliates 20,832 20,832
------------ ------------
90,277 177,824
------------ ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
common stock, .001 par value,
Authorized 20,000,000 shares; issued 3,058,308
shares in 1999 and 2,583,518 in 1998 3,058 2,583
Additional paid-in capital 1,171,782 423,167
Retained earnings (deficit) (297,774) 146,600
------------ ------------
Total Shareholders' Equity 877,066 572,350
------------ ------------
$ 4,868,631 $ 3,771,273
============ ============
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
CADAPULT GRAPHIC SYSTEMS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
Two Months Year Ended
Year Ended Ended June 30, April 30,
June 30, 1999 1998 1998
------------- -------------- ----------
<S> <C> <C> <C>
NET SALES $10,227,628 $1,623,754 $7,103,906
----------- ---------- ----------
COSTS AND EXPENSES:
Cost of sales 7,442,239 1,282,495 5,174,402
Selling, general and administrative expenses 3,069,682 472,766 2,138,915
----------- ---------- ----------
10,511,921 1,755,261 7,313,317
----------- ---------- ----------
LOSS FROM OPERATIONS (284,293) (131,507) (209,411)
----------- ---------- ----------
OTHER EXPENSE (INCOME):
Interest expense, net 160,081 21,894 90,829
Gain on sale of equipment - - (18,500)
----------- ---------- ----------
160,081 21,894 72,329
----------- ---------- ----------
LOSS BEFORE INCOME TAXES (CREDITS) (444,374) (153,401) (281,740)
----------- ---------- ----------
INCOME TAXES (CREDITS):
Current - - (39,698)
Deferred - - (22,800)
----------- ---------- ----------
- - (62,498)
----------- ---------- ----------
NET LOSS $ (444,374) $ (153,401) $ (219,242)
=========== ========== ==========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 2,844,819 2,019,677 1,622,682
=========== ========== ==========
NET LOSS PER COMMON SHARE -
BASIC AND DILUTED $ (.16) $ (.08) $ (.14)
=========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
CADAPULT GRAPHIC SYSTEMS, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
Additional Retained Total
common stock Paid-in Earnings Shareholders'
----------------------
Shares Amount Capital (Deficit) Equity
---------- -------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCES, APRIL 30, 1997 1,548,450 $ 300 $ - $ 519,243 $ 519,543
YEAR ENDED APRIL 30, 1998:
Sale of common stock to
employees 101,550 102 44,898 - 45,000
Change in par value - 1,248 (1,248) - -
Net loss - - - (219,242) (219,242)
---------- -------- ----------- --------- ---------
BALANCES, APRIL 30, 1998 1,650,000 $ 1,650 $ 43,650 $ 300,001 $ 345,301
TWO MONTHS ENDED JUNE 30, 1998:
Sale of common stock through
private placement 256,000 256 319,744 - 320,000
Issuance of common stock upon
conversion of note payable 40,000 40 49,960 - 50,000
Issuance of common stock in
connection with merger 571,450 571 (571) - -
Issuance of common stock for
services 66,068 66 10,384 - 10,450
Net loss - - - (153,401) (153,401)
---------- -------- ----------- --------- ---------
BALANCES, JUNE 30, 1998 2,583,518 2,583 423,167 146,600 572,350
YEAR ENDED JUNE 30, 1999:
Sale of common stock through
private placement 228,000 228 249,772 - 250,000
Issuance of common stock for
acquisition - Tartan 92,850 93 185,607 - 185,700
Issuance of warrants for legal
services - - 20,510 - 20,510
Sale of common stock through
private placement 67,750 68 120,432 - 120,500
Issuance of common stock for
acquisition - WEB 86,190 86 172,294 - 172,380
Net loss - - - (444,374) (444,374)
---------- -------- ----------- --------- ---------
BALANCES, JUNE 30, 1999 3,058,308 $ 3,058 $ 1,171,782 $(297,774) $ 877,066
========== ======== =========== ========= =========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
CADAPULT GRAPHIC SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
Year Ended Two Months Year Ended
June 30, Ended June 30, April 30,
1999 1998 1998
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (444,374) $ (153,401) $ (219,242)
Adjustments to reconcile net loss to net cash
flows from operating activities:
Depreciation and amortization 180,494 19,063 73,525
Gain on sale of equipment - - (18,500)
Deferred income taxes - (10,000) (22,800)
common stock and warrants for services 20,510 10,450 -
Provision for bad debts 6,000 - -
Changes in operating assets and liabilities:
Accounts receivable 89,130 (538,646) 394,474
Inventories 170,259 (236,454) (7,528)
Prepaid and refundable income taxes 46,295 - (46,295)
Prepaid expenses and other current assets 35,710 11,855 (91,318)
Security deposits (2,180) - (4,852)
Accounts payable (473,241) 914,997 9,523
Accrued expenses and other current liabilities 255 (41,971) 137,596
Deferred revenues 149,489 (11,748) 26,322
----------- ----------- -----------
Net cash flows from operating activities (221,653) (35,855) 230,905
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (303,271) (4,069) (105,703)
Proceeds from sale of equipment - - 18,500
Purchase of intangible assets (102,350) - -
Cost of net assets of acquired business (242,200) - (546,431)
Deferred acquisition costs (34,542) - -
----------- ----------- -----------
Net cash flows from investing activities (682,363) (4,069) (633,634)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Note payable to bank, net 333,071 (305,000) 450,000
Proceeds of long-term debt - - 250,000
Payments on long-term debt (89,219) (14,823) (10,147)
Attorney escrow account 320,000 (320,000) -
Advances from officer (20,000) - 20,000
Sale of common stock 370,500 320,000 45,000
----------- ----------- -----------
Net cash flows from financing activities 914,352 (319,823) 754,853
----------- ----------- -----------
NET CHANGE IN CASH 10,336 (359,747) (352,124)
CASH, BEGINNING OF PERIOD 22,821 382,568 30,444
----------- ----------- -----------
CASH, END OF PERIOD $ 33,157 $ 22,821 $ 382,568
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
CADAPULT GRAPHIC SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(Continued)
<TABLE>
Year Ended Two Months Year Ended
June 30, Ended June 30, April 30,
1999 1998 1998
----------- ------------ -----------
<S> <C> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 155,846 $ 21,894 $ 94,377
=========== =========== ===========
Income taxes paid $ - $ - $ 5,032
=========== =========== ===========
Issuance of common stock upon conversion of
Note payable to related party $ - $ 50,000 $ -
=========== =========== ===========
Non cash investing activity -
Acquisition of business:
Fair value of assets acquired $ 1,459,457 $ - $ 865,115
Fair value of liabilities assumed 859,177 - 318,684
Fair value of common stock issued 358,080 - -
----------- ----------- -----------
Net cash payment $ 242,200 $ - $ 546,431
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE>
CADAPULT GRAPHIC SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:
Nature of the Business - Cadapult Graphic Systems, Inc. (the "Company")
provides computer graphic systems, peripherals, supplies, training and
service to visual communicators and graphics professionals. The Company is a
systems integrator and a value added dealer/reseller of computer graphics
equipment and supplies to customers. The Company has its corporate
headquarters in New Jersey and has offices in Massachusetts, Albany and New
York City, New York and Pennsylvania.
Estimates and Uncertainties (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, as determined at a
later date, could differ from those estimates.
Revenue Recognition - Revenue is recognized at the point of shipment
for goods sold, and ratably through the duration of service contracts.
Deferred revenue consists principally of billings on service contracts prior
to rendering related services.
Concentration of Credit Risk - Financial instruments that potentially
subject the Company to concentration of credit risk consists primarily of
cash and unsecured trade receivables. The Company maintains its cash
balances in financial institutions which are insured by the Federal Deposit
Insurance Corporation up to $100,000 each. At June 30, 1999, the Company has
uninsured balances totalling approximately $150,000.
Concentrations of credit risk with respect to all trade receivables are
considered to be limited due to the quantity of customers comprising the
Company's customer base. The Company performs ongoing credit evaluations of
its customers' financial condition and does not require collateral.
Management feels that credit risk beyond the established allowance at June
30, 1999 is limited.
Inventories - Inventories are stated at the lower of cost (specific
identification method) or market.
F-8
<PAGE>
CADAPULT GRAPHIC SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
Property and Equipment - Property and equipment are stated at cost.
The Company provides for depreciation using the straight-line and accelerated
methods by charges to income at rates based upon the recovery periods of 5 to
7 years for furniture and equipment and over the useful lives or the lease
term, if shorter, for leasehold improvements.
Goodwill and Other Intangible Assets - Goodwill consists of the excess
of cost over fair market value of the net assets of the acquired business.
The intangible assets are being amortized on the straight-line method over
the following years:
Life (Years)
------------
Goodwill $781,670 15
Covenants-not-to-compete 51,000 3-5
Financing costs 74,880 1-3
--------
907,550
Accumulated amortization 71,661
--------
$835,889
========
The carrying value of intangible assets is periodically reviewed by the
Company based on expected future undiscounted operating cash flows. Based
upon its most recent analysis, the Company believes that no material
impairment exists at June 30, 1999.
Income Taxes - Deferred income taxes reflect the net tax effects of
temporary differences between financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss carryforwards.
Employee Benefit Plan - The Company has a 401(k) savings/retirement
plan for all of its eligible employees. The plan allows for employee
contributions to be matched by the Company on a pro-rata basis. Contributions
made by the Company for the year ended June 30, 1999, the two months ended
June 30, 1998 and the year ended April 30, 1998, were $14,502, $1,401 and
$10,461, respectively.
Deferred Acquisition Costs - Acquisition costs have been deferred,
pending the outcome of the negotiations. If the acquisition is completed,
these costs will be capitalized; otherwise they will be charged to expense.
Net Loss Per Share - Basic and diluted loss per share are based upon
the weighted average number of common shares outstanding during the period.
The computation of diluted earnings per share does not assume the conversion,
exercise or contingent issuance of securities that would have a dilutive
effect on loss per share.
F-9
<PAGE>
CADAPULT GRAPHIC SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
Stock Options - The Company accounts for stock option grants using the
intrinsic value based method prescribed by APB Opinion No. 25. Since the
exercise price equaled or exceeded the estimated fair value of the underlying
shares at the date of grant, no compensation was recognized in 1999 and 1998
for stock option grants.
Had compensation cost been based upon fair value of the option on the
date of grants, as prescribed by SFAS No. 123, the Company's proforma net
loss and net loss per share would have been $1,018,000 and $.36 in 1999 and
$288,000 and $.14 for the two months ended June 30, 1998 using the Black-
Scholes option pricing model. The proforma net loss and net loss per share
for the year ended April 30, 1998 would not have been materially different.
The fair value of options granted in 1999 and 1998 were estimated at
the date of grant using a Black-Scholes option pricing model with the
following weighted-average assumptions, respectively: risk-free interest
rates of 6.0%, dividend yield of 0.0%, volatility factors of the expected
market price of the Company's common stock of 108% and a weighted-average
expected life of the options of five years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of normal
publicly traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employees stock options.
Recently Issued Accounting Standards - In June 1998, the Financial
Accounting Standards Board (FASB) issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, and for hedging
activities and will be adopted in the year ended June 30, 2000. The Company
does not engage in, nor does it expect to engage in derivative or hedging
activities, and therefore, the Company anticipates that the adoption of this
statement will have no impact on its financial statements.
Change in Fiscal Year - On June 24, 1998, the Company elected to change
from an April 30 to June 30 fiscal year. Therefore, the accompanying
financial statements include transitional financial statements for the two
months ended June 30, 1998. It is not practicable and cannot be cost
justified to furnish financial statements for the corresponding period of the
prior year; accordingly, unaudited financial data for the two months ended
June 30, 1997 follow which is the corresponding period. There were no
seasonal factors that affect the comparability of information or trends
reflected.
F-10
<PAGE>
CADAPULT GRAPHIC SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
Net sales $ 821,623
=========
Gross profit $ 207,051
=========
Income tax credit $ (47,800)
=========
Net loss $(128,992)
=========
Net loss per share $ (.08)
=======
NOTE 2 - PURCHASE OF BUSINESSES:
On January 7, 1999, the Company issued 185,700 shares of its
unregistered and restricted common stock in exchange for certain assets and
the assumption of certain liabilities of Tartan Technical, Inc. ("Tartan") a
Massachusetts corporation. The assets purchased included accounts
receivable, inventories, property and equipment and the liabilities included
notes payable and accounts payable. The excess of the purchase price and
related costs over the fair value of the net liabilities assumed ($321,789)
was allocated to goodwill. Currently, 92,850 of the shares are held in
escrow pursuant to the resolution of a contingency based on Tartan achieving
certain gross profit levels over the next two years. When the contingency is
resolved, some or all of the 92,850 shares will either be recorded by the
Company as an additional cost of Tartan, or cancelled.
Effective June 18, 1999, the Company acquired for $242,200 in cash and
the issuance of 172,380 shares of its unregistered and restricted common
stock, certain assets and assumed certain liabilities of WEB Associates, Inc.
("WEB") a Pennsylvania corporation. The assets purchased included accounts
receivable, inventories, property and equipment and a covenant not-to-compete
($1,000) and the liabilities included accounts payable. The excess of the
purchase price and related costs over the fair value of net assets ($89,996)
was allocated to goodwill. Currently, 86,190 of the shares are held in
escrow pursuant to the resolution of a contingency based on WEB achieving
certain gross profit levels over the next two years. When the contingency is
resolved, some or all of the 86,190 shares will either be recorded by the
Company as an additional cost of WEB, or cancelled.
The following unaudited pro forma consolidated results of operations
for the years ended June 30, 1999 and April 30, 1998, assumes the Tartan and
WEB acquisition had occurred on May 1, 1997 giving effect to purchase
accounting adjustments and financing. The pro forma results have been
prepared for informational purposes only and do not reflect any benefit from
economies, which might be achieved from combined operations. The pro forma
results do not represent results which would have occurred if the acquisition
had taken place on the basis assumed above, nor are they indicative of the
results of future combined operations.
F-11
<PAGE>
CADAPULT GRAPHIC SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
<TABLE>
Two Months
Year Ended Ended Year Ended
June 30, June 30, April 30,
1999 1998 1998
----------- ---------- -----------
<S> <C> <C> <C>
Net sales $14,250,322 $2,521,860 $15,980,206
=========== ========== ===========
Net loss $ (556,819) $ (195,215) $ (36,617)
=========== ========== ===========
Basic and diluted loss
per share (.19) (.08) (.02)
=========== ========== ===========
</TABLE>
NOTE 3 - PROPERTY AND EQUIPMENT:
Property and equipment are summarized as follows:
<TABLE>
June 30,
----------------------------
1999 1998
----------- -----------
<S> <C> <C>
Office equipment $ 997,359 $ 598,931
Furniture and fixtures 165,213 129,109
Automobiles 65,379 65,379
Leasehold improvements 98,568 18,624
----------- -----------
1,326,519 812,043
Less: Accumulated depreciation and
amortization 699,490 580,020
----------- -----------
$ 627,029 $ 232,023
=========== ===========
</TABLE>
NOTE 4 - NOTE PAYABLE TO BANK:
The Company has an agreement with a bank 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 bank's base rate, are
payable on demand and are collateralized by all assets of the Company.
Advances under the note payable to bank become immediately due
and payable if certain financial covenants, as defined in the loan
agreements, are not met.
F-12
<PAGE>
CADAPULT GRAPHIC SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - LONG-TERM DEBT:
A summary of long-term debt follows:
<TABLE>
Interest June 30,
--------------------------
Description Rate 1999 1998
--------------------------------------- -------- ---------- -----------
<S> <C> <C> <C>
Loan payable in monthly installments of
$6,944 plus interest through April
2001, collateralized by all assets of 1% over
the Company prime $ 152,778 $ 236,111
Loan payable in monthly installments of
principal and interest of $543 through
February 2000, collateralized by an
automobile 8.49% 4,214 10,100
---------- -----------
156,992 246,211
Less: Current maturities 87,547 89,219
---------- -----------
$ 69,445 $ 156,992
========== ===========
</TABLE>
Long-term debt at June 30, 1999 matures as follows:
<TABLE>
Year Ending June 30,
--------------------
<S> <C>
2000 $ 87,547
--------
2001 69,445
$156,992
========
</TABLE>
NOTE 6 - INCOME TAXES:
The components of income taxes are summarized as follows:
<TABLE>
Year Ended Two Months Ended Year Ended
June 30, June 30, April 30,
1999 1998 1998
----------- ---------- -----------
<S> <C> <C> <C>
Current:
Federal $ - $ - $ (45,390)
State and local - - 5,692
----------- ---------- -----------
- - (39,698)
----------- ---------- -----------
Deferred:
Federal - - (15,100)
State and local - - (7,700)
----------- ---------- -----------
- - (22,800)
----------- ---------- -----------
$ - $ - $ (62,498)
=========== ========== ===========
</TABLE>
F-13
<PAGE>
CADAPULT GRAPHIC SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
The Company recognizes deferred tax assets, net of applicable reserves,
related to net operating loss carryforwards and certain temporary
differences. The Company is required to recognize a future tax benefit to
the extent that realization of such benefit is more likely than not.
Otherwise a valuation allowance is applied. At June 30, 1999, the Company
believes that the "more likely than not" criteria have not been met, and
accordingly, a valuation allowance has been recognized.
The Company has available net operating loss carryforwards of
approximately $480,000 which expire through 2019. The Company's utilization
of it net operating loss carryforwards may be limited pursuant to Internal
Revenue Code Section 382 if cumulative changes in ownership are in excess of
50% within a three-year period.
A reconciliation of income tax benefit provided at the federal
statutory rate (34%) to income tax benefit is as follows:
<TABLE>
Year Ended Two Months Ended Year Ended
June 30, June 30, April 30,
1999 1998 1998
----------- ---------- -----------
<S> <C> <C> <C>
Income tax benefit computed at
federal statuary rate $ (151,087) $ (52,156) $ (95,792)
Permanent and other items (17,913) 17,156 20,294
Change in valuation allowance 169,000 35,000 13,000
----------- ---------- -----------
$ - $ - $ (62,498)
=========== ========== ===========
</TABLE>
Significant components of the Company's deferred tax assets are as
follows:
<TABLE>
June 30,
---------------------
1999 1998
-------- --------
<S> <C> <C>
Deferred tax assets
Net operating loss carryforwards $193,000 $ 33,000
Accruals and reserves 24,000 15,000
-------- --------
217,000 48,000
Less: valuation allowance 217,000 48,000
-------- --------
Total deferred tax assets $ - $ -
======== ========
</TABLE>
F-14
<PAGE>
CADAPULT GRAPHIC SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - SHAREHOLDERS' EQUITY:
a) Merger:
Pursuant to an Agreement and Plan of Reorganization dated June 5,
1998, the stockholders of the Company exchanged all their shares of stock
owned for 1,650,000 shares (72%) of $.001 par value common stock of Seafoods
Plus, Ltd. ("SPL"), an inactive public company with nominal assets. Under
the agreement, the Company became a wholly-owned subsidiary of SPL, and then
merged with SPL in 1998. The merger was recorded as a recapitalization of
the Company and an issuance of shares to SPL's shareholders on June 5, 1998.
The Company will continue operating as Cadapult Graphic Systems, Inc.
All references to the Company's common stock in the 1998 balance
sheet, the 1998 statements of operations and notes to the financial
statements retroactively reflect Cadapult's operations and the
recapitalization.
b) Stock Compensation Plan:
The Company has an incentive stock option (the "1998 Plan"),
pursuant to which 500,000 of the Company's authorized but unissued shares of
common stock have been reserved for issuance of stock options. The stock
options (which may be "incentive stock options" within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended) entitle the holder to
purchase shares of the Company's common stock for up to ten years from the
date of grant (five years for persons owning more than 10 percent of the
total combined voting power of the Company) at a price not less than the fair
market value (110% of fair market value for persons owning more than 10% of
the combined voting power of the Company) of the common stock on the date of
grant. In general, any employee, director, officer or exclusive agent of,
advisor or consultant to, the Company or a related entity is eligible to
participate in the Plan. The stock options are nontransferable, except upon
death. Pursuant to the Plan, certain key employees, members of the Board of
Directors and the President were granted five and ten year incentive stock
options to purchase an aggregate total of 317,893 shares, net of forfeitures,
at a weighted average exercise price of $1.93 per share. A total of 174,443
shares with a weighted average exercise price of $1.69 are exercisable at
June 30, 1999.
The Company granted its President five year stock options to
purchase up to 500,000 shares which vest upon the Company attaining certain
specified milestones and are exercisable at $1.375 per share and expire in
June 2003.
The Company granted two employee's five year stock options to
purchase up to 100,000 shares which vest upon the Company attaching certain
specified milestones and are exercisable at $2.00 per share and expire in
March 2004.
F-15
<PAGE>
CADAPULT GRAPHIC SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
c) Private Placements:
In August 1998 the Company completed a private placement through
the sale of 524,000 shares of its common stock for net proceeds of
approximately $620,000, including conversion of a $50,000 note payable to a
related party.
In June 1999, the Company sold 67,750 shares of its common stock
for $2.00 per share for net proceeds of approximately $120,500.
d) Warrants:
In August 1998, and February 1999, the Company issued 105,000
warrants to purchase its common stock at between $4.00-$5.00 per share in
exchange for legal services. The warrants, which had a value of $20,510,
using the Black-Scholes pricing model, expire through February 15, 2004.
e) Amendments to Certificate of Incorporation:
In August 1999, the Company's Board of Directors amended the
certificate of incorporation reducing the number of authorized shares of
$.001 par value common stock to twenty million shares and authorized five
million shares of $.001 par value preferred stock.
NOTE 8 - COMMITMENTS AND CONTINGENCIES:
Leases - The Company leases its premises under lease agreements which
expire through 2002 and an automobile and equipment under operating leases
that expire in 2002. Future minimum lease payments are as follows:
Year Ending June 30,
--------------------
2000 $152,175
2001 108,639
2002 73,370
--------
$334,184
========
Rent expense amounted to $198,199, $31,755 and $176,463 for the year
ended June 30, 1999, the two months ended June 30, 1998 and the year ended
April 30, 1998, respectively.
Employment Agreements - On May 1, 1998, the Company entered into a five
year employment agreement with its President for a base salary of $130,000
per annum subject to certain adjustments and three year employment agreements
with three employees providing for aggregate compensation of $255,000 per
annum. In 1999, the Company entered into two year employment agreements with
three employees providing for aggregate compensation of $142,000 per annum.
F-16
<PAGE>
CADAPULT GRAPHIC SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
Litigation - In August 1999, the Company's attorneys filed a civil
action in the Superior Court of New Jersey on behalf of the Company which
alleges that the supplier referred to in Note 9 improperly cancelled the
Company's participation in certain programs which provided the Company with
preferential pricing, business leads and various additional rebates and
incentives. In part, the action charges the supplier with alleged violation
of the New Jersey Antitrust Act, breach of contract and unfair competition.
NOTE 9 - MAJOR SUPPLIER:
Direct purchases from one supplier accounted for approximately 34% of
total purchases in 1999 and 50% in 1998. At June 30, 1999, this supplier
accounted for approximately 22% of the Company's accounts payable. If the
supplier fails to provide the required inventories, it may have a negative
impact on the Company. (See Note 8).
NOTE 10 - SUBSEQUENT EVENTS (Unaudited):
Private Offering - On August 19, 1999, the Company entered into a
letter of intent 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 will be priced
at $10.00 and include 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.
F-17
<PAGE>
CADAPULT GRAPHIC SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
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.
Purchase of Business - 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 the
Company does not obtain such financing by December 7, 1999, either party
shall have the option to terminate the Agreement.
F-18
<PAGE>
CADAPULT GRAPHIC SYSTEMS, INC.
Financial Statements - Quarter Ended September 30, 1999 (Unaudited)
Consolidated Balance Sheets as of September 30, F2-2
1999 and June 30, 1999
Consolidated Statements of Operation For the Three F2-3
Months Ended September 30, 1999 and 1998
Consolidated Statement of Changes in Shareholder's F2-4
Equity For the Three Months Ended September 30, 1999
Consolidated Statements of Cash Flows For the Three F2-5
Months Ended September 30, 1999 and 1998
Notes to Consolidated Financial Statements F2-6
F2-1
<PAGE>
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.
F2-2
<PAGE>
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.
F2-3
<PAGE>
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.
F2-4
<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.
F2-5
<PAGE>
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.
F2-6
<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
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.
F2-7
<PAGE>
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 of 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.
F2-8
<PAGE>
Financial Statements of Tartan Technical, Inc.
(Businesses Acquired) and Pro Forma Financial Information
Independent Auditor's Report F3-2
Balance Sheets, December 31, 1998 and 1997 F3-3
Statement of Income and Retained Earnings for F3-4
the Years ended December 31, 1998 and 1997
Schedules of Operating Expenses for the Years F3-5
Ended December 31, 1998 and 1997
Statement of Cash Flows for the Years Ended F3-6
December 31, 1998 and 1997
Notes to Financial Statements F3-7
Pro Forma Consolidated Financial Data F3-10
Pro Forma Consolidated Balance Sheet, F3-11
December 31, 1998
Pro Forma Condensed Consolidated Statement of F3-12
Operations for the Six Months Ended December 31, 1998
Pro Forma Condensed Consolidated Statement of F3-13
Operations for the Year Ended April 30, 1998
Notes to Unaudited Pro Forma Consolidated F3-14
Statement of Operations
F3-1
<PAGE>
[Letterhead of Belanger & Company, P.C.]
INDEPENDENT AUDITOR'S REPORT
----------------------------
Board of Directors and Stockholders
Tartan Technical, Inc.
Tyngsboro, Massachusetts
We have audited the accompanying balance sheets of Tartan Technical, Inc.
(an S Corporation) as of December 31, 1998 and 1997, and the related statements
of income and retained earnings, and cash flows for the years then ended. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Tartan Technical, Inc. as of
December 31, 1998 and 1997, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
As discussed in Note 8 to the financial statements, on December 17, 1998,
the Company entered into an asset purchase agreement, effective January 1, 1999,
for the transfer of substantially all assets and the assumption of substantially
all liabilities of the business.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules of operating expenses are
presented for the purposes of additional analysis and are not a required part of
the basic financial statements. Such information has been subjected to the
auditing procedures applied in the audits of the basic financial statements and,
in our opinion, is fairly stated in all material respects in relation to the
basic financial statements taken as a whole.
/s/ Belanger & Company, P.C.
BELANGER & COMPANY, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
Chelmsford, Massachusetts
February 1, 1999
F3-2
<PAGE>
<TABLE>
TARTAN TECHNICAL, INC.
BALANCE SHEET
DECEMBER 31, 1998 AND 1997
<CAPTION>
Assets
------
1998 1997
---------- ----------
<S> <C> <C>
Current Assets:
- --------------
Cash $ 92,288 $ 18,328
Accounts receivable - trade (Notes 2 & 5) 223,086 452,533
Inventory 286,399 385,052
Prepaid expenses 20,027 11,168
---------- ----------
Total Current Assets 621,800 867,081
-------------------- ---------- ----------
Property and Equipment:
- ----------------------
Office furniture and equipment 123,484 98,559
Leasehold improvements 83,770 83,770
---------- ----------
207,254 182,329
Less: Accumulated depreciation 42,462 22,637
---- ---------- ----------
Net Property and Equipment 164,792 159,692
-------------------------- ---------- ----------
Other Assets:
- ------------
Organization costs 426 642
---------- ----------
Total Assets $ 787,018 $1,027,415
------------ ========== ==========
Liabilities and Stockholders' Equity
------------------------------------
Current Liabilities:
- -------------------
Note payable - line of credit (Note 3) $ 145,823 $ 170,000
Note payable - short term (Note 4) 500,000 0
Accounts payable - trade (Note 5) 202,596 396,563
Sales taxes payable 9,026 22,408
Accrued expenses 52,170 54,292
----------- ----------
Total Current Liabilities 909,615 643,263
------------------------- ----------- ----------
Stockholders' Equity
- --------------------
Common stock - 200,000 shares authorized
issued and outstanding 1,000 shares 181,545 181,545
Retained earnings (Note 6) (304,142) 202,607
----------- ----------
Total Stockholders' Equity (122,597) 384,152
-------------------------- ----------- ----------
Total Liabilities and Stockholders' Equity $ 787,018 $1,027,415
------------------------------------------ =========== ==========
See accompanying notes which are an integral part of these financial statements.
</TABLE>
F3-3
<PAGE>
<TABLE>
TARTAN TECHNICAL, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Sales (Note 5) $3,250,026 $4,175,125
- ----- ---------- ----------
Cost of Goods Sold:
- ------------------
Inventory - beginning of year 385,052 309,011
Purchases for resale 2,439,253 3,410,709
Freight in 7,410 11,883
---------- ----------
2,831,715 3,731,603
Inventory - end of year 286,399 385,052
---------- ----------
Total Cost of Goods Sold 2,545,316 3,346,551
------------------------ ---------- ----------
Gross Profit 704,710 828,574
------------
Operating Expenses - Schedule 648,960 673,168
- ----------------------------- ---------- ----------
Income From Operations 55,750 155,406
---------------------- ---------- ----------
Other Income (Expenses):
- -----------------------
Interest income 171 367
Commissions income 1,755 32,619
Interest expense (20,987) (21,285)
Purchase discounts 3,431 13,077
Gain (loss) on sales of property and equipment (3,369) 0
---------- ----------
Other Income (Expenses) - Net (18,999) 24,778
----------------------------- ---------- ----------
Net Income For The Year 36,751 180,184
-----------------------
Retained Earnings - Beginning of Year 202,607 88,611
- -------------------------------------
Distributions to shareholders (543,500) (66,188)
- ----------------------------- ---------- ----------
Retained Earnings - End of year $ (304,142) $ 202,607
- ------------------------------- ========== ==========
See accompanying notes which are an integral part of these financial statements.
</TABLE>
F3-4
<PAGE>
<TABLE>
TARTAN TECHNICAL, INC.
SCHEDULES OF OEPRATING EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Operating Expenses:
- ------------------
Salaries and wages - officers $ 111,693 $ 187,126
Salaries and wages - other 210,998 162,718
Payroll taxes 30,681 27,003
Employee benefits 17,161 17,867
Employee retirement plan (Note 7) 17,815 22,901
Advertising and promotion 37,348 20,891
Auto expenses 18,754 15,979
Bad debts (3,630) 18,867
Bank charges 5,267 4,064
Commissions 3,976 15,435
Depreciation 22,602 12,751
Dues and subscriptions 2,803 3,038
Freight out 24,054 20,089
Insurance 10,704 7,678
Legal and accounting 21,546 14,301
Office supplies and expense 19,024 26,341
Postage 3,439 3,940
Rent - building (Note 5) 29,138 27,991
Repairs and maintenance 1,237 7,564
Selling expenses 30,738 23,600
Taxes - other 1,239 1,433
Telephone 11,899 12,762
Travel and entertainment 9,588 12,260
Utilities 9,375 5,128
Sundry 1,511 1,441
---------- ----------
Total Operating Expenses 648,960 673,168
------------------------ ========== ==========
See accompanying notes which are an integral part of these financial statements.
</TABLE>
F3-5
<PAGE>
<TABLE>
TARTAN TECHNICAL, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 and 1997
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Cash Flows from Operating Activities:
- ------------------------------------
Net income for the year $ 36,751 $ 180,184
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 22,818 12,966
Loss (Gain) on sale of property and equipment 3,369 0
Decrease (Increase) in operating assets:
Accounts receivable - trade 229,447 (21,569)
Accounts receivable - program discounts 0 24,996
Accounts receivable - shareholders 0 127,376
Inventory 98,653 (76,041)
Prepaid expenses (8,859) (2,832)
Increase (Decrease) in operating liabilities:
Accounts payable - trade (193,967) (84,689)
Sales tax payable (13,382) (5,556)
Accrued expenses (2,122) (17,594)
---------- ----------
Net Cash Provided By Operating Activities 172,708 137,241
----------------------------------------- ---------- ----------
Cash Flows From Investing Activities:
- ------------------------------------
Acquisition of property and equipment:
Office furniture and equipment (29,794) (70,350)
Motor vehicles (16,274) 0
Leasehold improvements 0 (83,770)
Proceeds from sales of property and equipment 14,997 0
Distributions to shareholders (543,500) (66,188)
---------- ----------
Net Cash Provided (Used) By
---------------------------
Investing Activities (574,571) (220,308)
-------------------- ---------- ----------
Cash Flows From Financing Activities:
- ------------------------------------
Proceeds from notes payable:
Short-term 525,000 368,000
Payments of notes payable:
Short-term (49,177) (318,000)
Long-term 0 (7,292)
---------- ----------
Net Cash Provided (Used) By
---------------------------
Financing Activities 475,823 42,708
-------------------- ---------- ----------
Net Increase (Decrease) In Cash 73,960 (40,359)
-------------------------------
Cash - Beginning of Year 18,328 58,687
------------------------ ---------- ----------
Cash - End of Year $ 92,288 $ 18,328
------------------ ========== ==========
See accompanying notes which are an integral part of these financial statements.
</TABLE>
F3-6
<PAGE>
TARTAN TECHNICAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
Note 1: Significant Accounting Policies:
-------------------------------
Business Activity:
-----------------
The Company is a value-added reseller of computers, computer
equipment, peripherals and supplies. The Company grants credit to
customers throughout New England and predominantly in Massachusetts.
The largest customer accounted for approximately 13% of total sales
for 1998.
Purchases from the Company's major supplier amounted to
approximately 56% of the total purchases for the year.
Use Of Estimates:
----------------
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 disclosures of contingent assets and liabilities
at the date of the financial statements and reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Inventory:
---------
Merchandise inventory is stated at the lower of cost or
market. Cost is determined using the First-in, First-out (FIFO)
method of costing inventories.
Fixed Assets:
------------
For financial reporting purposes, depreciation and
amortization of fixed assets is computed utilizing the following
methods and estimated useful lives:
Asset Method Useful Life
----- ------ -----------
Office furniture and Straight line and
equipment declining balance 3 - 8 years
Leasehold improvements Straight line 39 years
The modified accelerated cost recovery system is used for
income tax purposes.
Expenditures for major renewals and betterments which extend
the useful lives of property and equipment are capitalized;
expenditures for maintenance and repairs are charged to expense as
incurred.
Corporation Income Taxes:
------------------------
The Company, at inception, elected by unanimous consent of its
shareholders to be taxed under subchapter S of the Internal Revenue
Code. Under those provisions, the Company does not pay corporate
income taxes on its taxable income. Instead, the stockholders are
liable for individual Federal and state income taxes on their
respective shares of the Company's taxable income.
F3-7
<PAGE>
Statement of Cash Flows:
-----------------------
Interest and income taxes paid for the years ended December
31, 1998 and 1997 were as follows:
1998 1997
--------- ---------
Interest $ 18,947 $ 20,029
========= =========
Income taxes $ -0- $ -0-
========= =========
Note 2: Accounts Receivable - Trade:
---------------------------
Accounts receivable - trade are stated net of an allowance for
doubtful accounts in the amount of $2,600 and $6,230 at December 31,
1998 and 1997, respectively.
Note 3: Note Payable - Line of Credit:
-----------------------------
The Company has established a line of credit in the amount of
$200,000 with interest at the bank's prime rate plus 50 basis points
(8.25% at December 31, 1998), secured by all Company assets and by
commercial real estate of the shareholders.
Note 4: Note Payable - Short Term:
-------------------------
Note payable - short term at December 31, 1998 consisted of a
note payable to Family Bank with interest payable monthly at 6.91%,
due on June 9, 1999, secured by a certificate of deposit owned by
the shareholders.
Note 5: Related Party Transactions:
--------------------------
During 1998, sales to a person related to the two shareholders
amounted to $630, sales to an entity that is 30% owned by a
shareholder of the Company amounted to $53,794 and the entity was
billed for reimbursement of Company operating expenses in the amount
of $41,423. The Company purchased equipment from this entity for
$6,250.
Accounts receivable - trade includes amounts due from the
related parties of $13,984 and accounts payable - trade includes
$6,250 due to related parties at December 31, 1998.
Accounts payable - trade also includes amounts due to a share-
holder of $13,403 for Company expenses paid by the shareholder at
December 31, 1997.
During the years ended December 31, 1998 and 1997, expenses
charged to operations include amounts paid to a trust controlled by
the shareholders of the Company for the lease of a building in the
amount of $29,138 and $23,562, respectively.
F3-8
<PAGE>
Note 6: Retained Earnings:
-----------------
The amount reflected in retained earnings at December 31, 1998
is as follows:
Accumulated Adjustments Account:
Balance - January 1, 1998 $ 175,830
Taxable income 21,358
Nondeductible expenses (1,190)
Distributions to shareholders (543,500)
---------
Balance - December 31, 1998 (347,502)
---------
Tax Timing Adjustments:
Balance - January 1, 1998 26,777
Excess tax depreciation 14,645
Accrued expenses - related parties (1,692)
Bad debts 3,630
---------
Balance - December 31, 1998 43,360
---------
$(304,142)
=========
Note 7: Defined Contribution Plan:
-------------------------
The Company sponsors a defined contribution pension plan
covering all eligible employees. Contributions to the plan totaled
$17,815 and $22,051 in 1998 and 1997, respectively.
Note 8: Subsequent Events:
-----------------
On December 17, 1998, the Company entered into an asset
purchase agreement with Catapult Graphic Systems, Inc., effective
January 1, 1999, for the transfer of substantially all assets and
the assumption of substantially all liabilities of the business, in
exchange for shares of unregistered and restricted common stock of
the purchaser.
F3-9
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL DATA
Set forth below is pro forma financial information and related notes which
reflects the acquisition of Tartan Technical, Inc. ("Tartan") that the Company
consummated on January 7, 1999 (the "Acquisition"). Included is an unaudited
pro forma consolidated balance sheet of the Company giving effect to the
Acquisition as if it had occurred on December 31, 1998 and unaudited pro forma
consolidated statements of operations of the Company for the year ended April
30, 1998 and for the six month period ended December 31, 1998 giving effect to
the Acquisition (see Note 1 of Notes to Unaudited Pro Forma Consolidated
Statement of Operations) as if it had occurred on May 1, 1997.
This pro forma financial information is based on the estimates and
assumptions set forth herein and in the notes thereto and has been prepared
utilizing the consolidated financial statements of the Company and notes thereto
previously filed and the financial statements of Tartan and notes thereto
appearing elsewhere herein.
The following unaudited pro forma financial information is presented for
informational purposes only and is not necessarily indicative of (i) the results
of operations of the Company that actually would have occurred had the
Acquisition been consummated on the date indicated or (ii) the results of
operations of the Company that may occur or be obtained in the future. The
following information is qualified in its entirety by reference to and should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Company's consolidated financial
statements, including the notes thereto, and the other historical financial
information previously filed.
F3-10
<PAGE>
<TABLE>
CADAPULT GRAPHIC SYSTEMS, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
(Unaudited)
<CAPTION>
Pro Forma
------------------------------
ASSETS Cadapult Tartan Adjustments Consolidated
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash $ 32,112 $ - $ 51,047(d) $ 83,159
Accounts receivable, net 1,462,082 190,860 - 1,652,942
Attorney escrow account 700,000 - (700,000)(d) -
Inventories 865,791 288,367 - 1,154,158
Other current assets 63,674 72,988 - 136,662
------------ ------------ ------------ ------------
Total Current Assets 3,123,659 552,215 (648,953) 3,026,921
PROPERTY AND EQUIPMENT, LESS
ACCUMULATED DEPRECIATION 243,576 195,862 (9,600)(a,b) 429,838
OTHER ASSETS 483,618 - 269,700(a,b) 753,318
------------ ------------ ------------- ------------
$ 3,850,853 $ 748,077 $ (388,853) $ 4,210,077
============ ============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIENCY)
CURRENT LIABILITIES:
Notes payable to bank $ 800,000 $ 648,953 $ (648,953)(d) $ 800,000
Accounts payable and accrued 1,852,532 213,124 - 2,065,656
expenses
Current maturities of long-term debt 89,478 - - 89,478
Deferred revenue 222,369 - - 222,369
------------ ------------ ------------ ------------
Total Current Liabilities 2,964,379 862,077 (648,953) 3,177,503
------------ ------------ ------------ ------------
OTHER LIABILITIES:
Long-term debt 112,187 - - 112,187
Note payable to related party 20,832 - - 20,832
------------ ------------ ------------ ------------
133,019 - - 133,019
------------ ------------ ------------ ------------
SHAREHOLDERS' EQUITY:
Common stock and paid-in capital 688,793 181,545 4,155(a,b) 874,493
Retained earnings (deficit) 64,662 (295,545) 255,945(a,b) 25,062
------------ ------------ ------------ ------------
Total Stockholders' Equity 753,455 (114,000) 260,100 899,555
------------ ------------ ------------ ------------
$ 3,850,853 $ 748,077 $ (388,853) $ 4,210,077
============ ============ ============ ============
See the accompanying notes to pro forma condensed consolidated financial statements.
</TABLE>
F3-11
<PAGE>
<TABLE>
CADAUPLT GRAPHIC SYSTEMS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 1998
(Unaudited)
<CAPTION>
Pro Forma
------------------------------
Cadapult Tartan Adjustments Consolidated
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $ 4,475,635 $ 1,365,939 $ - $ 5,841,574
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Cost of sales 3,234,814 1,089,846 - 4,324,660
Selling, general and administrative 1,349,057 341,792 13,200(a,b) 1,704,049
------------ ------------ ------------ ------------
4,583,871 1,431,638 13,200 6,028,709
OPERATING LOSS (108,236) (65,699) (13,200) (187,135)
------------ ------------ ------------ ------------
OTHER EXPENSE:
Interest expense, net 57,202 13,765 - 70,967
Loss on sale of equipment - 3,369 - 3,369
------------ ------------ ------------ ------------
57,202 17,134 - 74,336
------------ ------------ ------------ ------------
LOSS BEFORE INCOME TAXES (CREDITS) (165,438) (82,833) (13,200) (261,471)
INCOME TAXES (CREDITS) (39,000) - - (39,000)
------------ ------------ ------------ ------------
NET LOSS $ (126,438) $ (82,833) $ (13,200) $ (222,471)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 2,757,650 - 92,850 2,850,500
============ ============ ============ ============
NET LOSS PER SHARE OF
COMMON STOCK $ (.05) $ (.08)
============ ============
See the accompanying notes to pro forma condensed consolidated financial statements.
</TABLE>
F3-12
<PAGE>
<TABLE>
CADAUPLT GRAPHIC SYSTEMS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED APRIL 30, 1998
(Unaudited)
<CAPTION>
Pro Forma Pro Forma
------------------------------
Cadapult
and SPL Tartan Adjustments Consolidated
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $ 8,982,117 $ 4,057,282 $ - $ 13,039,399
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Cost of sales 6,761,950 3,169,652 - 9,931,602
Selling, general and administrative 2,254,731 730,423 26,400(a,b) 3,011,554
------------ ------------ ------------ ------------
9,016,681 3,900,075 26,400 12,943,156
------------ ------------ ------------ ------------
OPERATING INCOME (LOSS) (34,564) 157,207 (26,400) 96,243
------------ ------------ ------------ ------------
OTHER EXPENSE:
Interest expense, net 132,392 24,011 - 156,403
Gain on sale of equipment (18,500) - - (18,500)
------------ ------------ ------------ ------------
113,892 24,011 - 137,903
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME
TAXES (CREDITS) (148,456) 133,196 (26,400) (41,660)
INCOME TAXES (CREDITS) (2,398) - - (2,398)
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (146,058) $ 133,196 $ (26,400) $ (39,262)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 2,287,500 92,850 2,380,350
============ ============ ============ ============
NET LOSS PER SHARE OF
COMMON STOCK $ (.02) $ (.02)
============ ============
See the accompanying notes to pro forma condensed consolidated financial statements.
</TABLE>
F3-13
<PAGE>
CADAPULT GRAPHIC SYSTEMS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Note 1 - Acquisition:
On January 7, 1999, Cadapult Graphic Systems, Inc. (the "Company")
acquired certain assets and assumed certain liabilities of Tartan
Technical, Inc. ("Tartan"), a Massachusetts corporation for 185,700
shares of the Company's common stock (the "Acquisition").
Currently, 92,850 of these shares are held in escrow pursuant to the
resolution of a contingency based on Tartan achieving certain gross
profit levels over the next two years. The acquisition was
accounted for under the purchase method of accounting. Under the
purchase method of accounting, the results of operations of an
acquired entity are included in the Company's historical financial
statements from its acquisition date. Acquired assets and assumed
liabilities have been recorded based on their fair market values as
of the date of acquisition with the excess of the purchase price
over the fair value of the net assets acquired allocated to
goodwill. The financial information of Tartan reflects the results
of operations of that entity for the interim period July 1, 1998 to
December 31, 1998 and for the fiscal year which began July 1, 1997
and ended June 30, 1998.
Note 2 - Presentation and Pro Forma Adjustments:
The unaudited pro forma consolidated balance sheet at December 31,
1998 presented herein has been prepared as if the Acquisition had
been consummated on December 31, 1998.
The unaudited pro forma condensed consolidated statements of
operations for the year ended April 30, 1998 and for the six months
ended December 31, 1998 presented above have been prepared as if the
Acquisition described in Note 1 had been consummated as of May 1,
1997.
Tartan's results for the year ended June 30, 1998 are being combined
with the Company's results for the year ended April 30, 1998. It
should be noted that the Company changed its year end to June 30;
accordingly, the interim period reported is for the six months ended
December 31, 1998.
F3-14
<PAGE>
Pro forma adjustments have been made for the following:
a) Amortization expense adjustments to reflect amortization of
goodwill over a 15-year period at $20,000 per year ($10,000
for the six months ended December 31, 1998).
b) Depreciation expense adjustments to reflect depreciation over
a five year period of the increase in carrying value of fixed
assets to fair market value at $6,400 per year ($3,200 for the
six months ended December 31, 1998).
c) There was no adjustment for income taxes that would have been
required on Tartan's income as a result of its change from S
Corporation status (under Section 1361 of the Internal Revenue
Code) to a C Corporation, due to the Company's net losses. An
otherwise required benefit for income taxes to reflect pro
forma income taxes (credits) on Tartan losses for the six
months ended December 31, 1998, has been offset by a 100%
valuation allowance.
d) Amount included in escrow ($700,000) was released upon
consummation of the acquisition and utilized to payoff
Tartan's note payable of $648,953. The difference is included
in cash.
Note 3 - Net Earnings (Loss) Per Share:
Net earnings (loss) per share is calculated by treating all shares
of common stock issued to Tartan as outstanding for all periods
reported. The 92,850 shares in escrow will not be included in basic
earnings (loss) per share until the contingency is resolved. The
contingent shares are not required to be included in the calculation
of diluted earnings (loss) per share until the contingency is
resolved and then, only if their inclusion would be dilutive.
F3-15
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Our Certificate of Incorporation provides that to the fullest
extent permitted by the General Corporation Law of Delaware, including,
without limitation, as provided in Section 102(b)(7) of the General
Corporation Law of Delaware, as the same exists or may hereafter be amended,
a director of Cadapult shall not be personally liable to Cadapult or
its stockholders for monetary damages for breach of fiduciary duty as a
director. Section 102(b)(7) of the Delaware General Corporation Law permits
a corporation to provide in its certificate of incorporation that a director
of the corporation shall not be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to
the corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) for payments of unlawful dividends or unlawful stock repurchases or
redemptions, or (iv) for any transaction from which the director derived an
improper personal benefit. If the General Corporation Law of Delaware is
amended to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director of Cadapult
shall be eliminated or limited to the fullest extent permitted by the
General Corporation Law of Delaware, as so amended. Any repeal or
modification of the provision of the Certificate of Incorporation by
Cadapult's stockholders shall not adversely affect any right or protection of
a director of Cadapult existing at the time of such repeal or modification
or with respect to events occurring prior to such time.
Cadapult's Certificate of Incorporation and Bylaws further provide for
the indemnification of Cadapult's directors and officers to the fullest
extent permitted by Section 145 of the Delaware General Corporation Law,
including circumstances in which indemnification is otherwise discretionary.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of Cadapult
pursuant to the foregoing provisions, or otherwise, Cadapult has been advised
that in the opinion of the SEC, such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable.
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify directors and officers as well as other employees
and individuals against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by such
person in connection with any threatened, pending or completed actions, suits
or proceedings in which such person is made a party by reason of such person
being or having been a director, officer, employee of or agent to the
registrant. The statute provides that it is not exclusive of other rights to
which those seeking indemnification may be entitled under any by-law,
agreement, vote of stockholders or disinterested directors or otherwise.
<PAGE>
Cadapult's Certificate of Incorporation provides that (i) Cadapult will
indemnify any director, officer, employee, or agent of Cadapult with respect
to actions, suits, or proceedings relating to Cadapult and (ii) subject to
certain limitations, a director will not be personally liable for monetary
damages for breach of his or her fiduciary duty.
A director or officer of Cadapult (or a person who at the request of
Cadapult serves as a director, officer, employee or agent of another business
entity) shall be indemnified by Cadapult against all expense, liability and
loss (including attorneys' fees, judgments, fines, other expenses and losses)
that is reasonably incurred or suffered in connection with any action, suit
or proceeding or threatened action, suit or proceeding. For a person to
receive indemnification under this provision, the Board of Directors of
Cadapult must authorize the indemnification, and the person seeking
indemnification must agree to repay Cadapult for all amounts advanced to him
or her if a court of law ultimately determines that the person should not
have been indemnified by Cadapult. A person who is entitled to
indemnification may recover from Cadapult, and may sue Cadapult if Cadapult
fails to make timely payment.
Item 25. Other Expenses of Issuance and Distribution.
The following is a statement of the expenses (all of which are
estimated other than the SEC registration fee), other than underwriting
discounts and commissions, to be incurred in connection with the distribution
of the securities registered under this registration statement.
AMOUNT
TO BE PAID
----------
SEC registration fee..........................................$ 498
Legal fees and expenses....................................... 10,000
Blue Sky fees and expenses.................................... . 2,000
Accounting fees and expenses.................................. 500
Printing expenses............................................. 2,000
---------
Total...................................................$ 14,998
=========
Item 26. Recent Sales of Unregistered Securities
On June 18, 1998, Cadapult completed the acquisition of CGSI in a
transaction viewed as a reverse acquisition. Pursuant to the acquisition,
Cadapult issued 1,650,000 unregistered and restricted shares of common stock
to the stockholders of CGSI in exchange for all of the outstanding common
stock of CSGI in transactions deemed to be exempt under Section 4(2) of the
Securities Act.
<PAGE>
Between June and August 1998, Cadapult conducted a private placement
through the sale of 524,000 shares of unregistered and restricted common
stock and raised gross proceeds of $655,000 in a transaction deemed to be
exempt under Rule 505 of Regulation D under the Securities Act. Cadapult
applied the net proceeds to working capital, including the acquisition of
other businesses. The private placement was conducted by Cadapult's officers
and directors and was not underwritten.
In August 1998, Cadapult issued 75,000 warrants to purchase shares of
common stock, exercisable for five years at $4.00 per shares, for legal
services valued at $13,043, in a transaction deemed to be exempt under Section
4(2) of the Securities Act.
On January 7, 1999, Cadapult completed the acquisition of certain
assets of Tartan Technical, Inc. Under the asset purchase agreement,
Cadapult issued 92,850 shares of unregistered and restricted common stock to
Tartan Technical and reserved in escrow an additional 92,850 shares of
unregistered and restricted common stock for possible future issuance to
Tartan Technical in a transaction deemed to be exempt under Section 4(2) of
the Securities Act.
In February 1999, Cadapult issued 30,000 warrants to purchase shares
of common stock, exercisable for five years at $5.00 per shares, for legal
services valued at $7,467, in a transaction deemed to be exempt under Section
4(2) of the Securities Act.
On June 23, 1999, Cadapult completed the acquisition of certain
assets of WEB Associates, Inc. Under the asset purchase agreement,
Cadapult issued 86,190 shares of unregistered and restricted common stock to
WEB Associates and reserved in escrow an additional 86,190 shares of
unregistered and restricted common stock for possible future issuance to WEB
Associates in a transaction deemed to be exempt under Section 4(2) of the
Securities Act.
On September 13, 1999, Cadapult completed a private placement sale
of 77,750 shares of unregistered and restricted common stock and raised
gross proceeds of approximately $155,500 in transactions deemed to be
exempt under Rules 505 and 506 of Regulation D under the Securities Act.
Cadapult applied the net proceeds to development of its Internet-based
services, working capital, and other general corporate purposes. The
private placement was conducted by Cadapult's officers and directors and
was not underwritten.
In September 1999, Cadapult 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.
<PAGE>
Item 27. Exhibits
The following exhibits either are filed herewith or incorporated by
reference to documents previously filed or will be filed by amendment, as
indicated below:
Exhibit Description
- ------- -----------
2.1 Agreement and Plan or Reorganization between Seafoods Plus, Ltd.
and Cadapult Graphic Systems, Inc., a New Jersey corporation,
dated June 5, 1998 (Incorporated by reference to Exhibit 2.1 of
Annual Report on Form 10KSB filed on September 28, 1999).
2.2 Agreement and Plan of Merger between Cadapult Graphic Systems, Inc.
and Seafoods Plus, Ltd. (Incorporated by reference to Exhibit 2.1
of Quarterly Report on Form 10QSB/A filed on September 1, 1998).
2.3 Agreement and Plan of Merger between Cadapult Graphic Systems Inc.,
a New Jersey corporation, and Cadapult Graphic Systems, Inc., a
Delaware Corporation (Incorporated by reference to Exhibit 2.2 of
Quarterly Report on Form 10QSB/A filed on September 1, 1998).
2.4 Asset Purchase Agreement between Cadapult Graphic Systems, Inc. and
BBG Technologies, Inc. (Incorporated by reference to Exhibit 2.4 of
Annual Report on Form 10KSB filed on September 28, 1999).
2.5 Asset Purchase Agreement between Cadapult Graphic Systems, Inc. and
Tartan Technical, Inc. dated December 17, 1998 (Incorporated by
reference to Exhibit 2.5 of Annual Report on Form 10KSB filed on
September 28, 1999).
2.6 Asset Purchase Agreement between Cadapult Graphic Systems, Inc. and
WEB Associates, Inc. dated June 7, 1999 (Incorporated by reference
to Exhibit 2.6 of Annual Report on Form 10KSB filed on September
28, 1999).
3(i)(1) Certificate of Incorporation of Cadapult Graphic Systems, Inc., a
Delaware corporation (Incorporated by reference to Exhibit 3.1 of
Quarterly Report on Form 10QSB/A filed on September 1, 1998).
3(i)(2) Certificate of Merger of Seafoods Plus, Ltd. into Cadapult
Graphic Systems, Inc., a Delaware corporation (Incorporated by
reference to Exhibit 3.1 of Quarterly Report on Form 10QSB filed
on November 9, 1998).
3(i)(3) Certificate of Merger of Domestic and Foreign Corporations into
Cadapult Graphic Systems, Inc.(Incorporated by reference to
Exhibit 3.2 of Quarterly Report on Form 10QSB filed on November 9,
1998).
3(i)(4) Certificate of Ownership and Merger Merging Cadapult Graphic
Systems Inc. into Cadapult Graphic Systems, Inc. (Incorporated by
reference to Exhibit 3.3 of Quarterly Report on Form 10QSB filed
on November 9, 1998).
3(i)(5) Certificate of Amendment of Certificate of Incorporation of
Cadapult Graphic Systems, Inc. (Incorporated by reference to
Exhibit 3(i)(5) of Annual Report on Form 10KSB filed on
September 28, 1999).
3(i)(6) Certificate of Incorporation of Media Sciences, Inc.
(Incorporated by reference to Exhibit 3(i)(6) of Annual Report
on Form 10KSB filed on September 28, 1999).
<PAGE>
3(ii) By-Laws (Incorporated by reference to Exhibit 3.2 of Quarterly
Report on Form 10QSB/A filed on September 1, 1998).
4.1 1998 Incentive Plan (Stock Option Plan) (Incorporated by reference
to Exhibit 4.1 of Annual Report on Form 10KSB filed on September
28, 1999).
4.2 Form of Option Agreement for Management (Incorporated by reference
to Exhibit 4.2 of Annual Report on Form 10KSB filed on September
28, 1999).
4.3 Form of Option Agreement for Employees (Incorporated by reference to
Exhibit 4.3 of Annual Report on Form 10KSB filed on September 28,
1999).
4.4 Form of Warrant Certificate (Incorporated by reference to Exhibit
4.4 of Annual Report on Form 10KSB filed on September 28, 1999).
4.5** Certificate of Designation
5** Opinion of Law Offices of Dan Brecher as to validity of Common
Stock being offered.
10.1 Amended Employment Agreement of Michael W. Levin dated as of
September 1, 1998 (Incorporated by reference to Exhibit 10.4 of
Annual Report on Form 10KSB filed on September 28, 1999).
10.2 Amended Employment Agreement of Duncan Huyler (Incorporated by
reference to Exhibit 3.2 of Quarterly Report on Form 10QSB filed on
May 4, 1999).
10.3 Amended Employment Agreement of Frances Blanco (Incorporated by
reference to Exhibit 3.3 of Quarterly Report on Form 10QSB filed
on May 4, 1999).
10.4 Lease (Incorporated by reference to Exhibit 10.8 of Annual Report
on Form 10KSB filed on September 28, 1999).
16 Letter on change in certifying accountant (Incorporated by
reference to Exhibit 16 of Annual Report on Form 10KSB filed on
September 28, 1999).
21 Subsidiaries of the Registrant (Incorporated by reference to
Exhibit 21 of Annual Report on Form 10KSB filed on September 28,
1999).
23.1** Consent of Wiss & Company LLP
23.2** Consent of Law Offices of Dan Brecher (filed as Exhibit 5
herein)
.
_____
** Filed herewith.
<PAGE>
Item 28. Undertakings.
(A) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
registration statement; and
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(B) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
<PAGE>
(C) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted against the registrant by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form SB-2 and authorized this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Allendale, State of New Jersey, on
November 4, 1999.
CADAPULT GRAPHIC SYSTEMS, INC.
By: /s/ Michael W. Levin
-------------------------------------
Michael W. Levin
Chief Executive Officer and President
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities
and on the dates stated.
<TABLE>
SIGNATURES TITLE DATE
- ---------- ----- ----
<S> <C> <C>
/s/ Michael W. Levin Chairman of the Board, President November 4, 1999
- ---------------------- and Chief Executive Officer
Michael W. Levin
/s/ Frances Blanco Vice President, Secretary, November 4, 1999
- ---------------------- Treasurer and Director
Frances Blanco
/s/ Paul C. Baker Director November 4, 1999
- ----------------------
Paul C. Baker
/s/ Edwin Ruzinsky Director November 4, 1999
- ----------------------
Edwin Ruzinsky
</TABLE>
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.
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<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;
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<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
November 9, 1999
Cadapult Graphic Systems, Inc.
110 Commerce Drive
Allendale, New Jersey 07401
Ladies and Gentlemen:
We have acted as counsel to Cadapult Graphic Systems, Inc., a Delaware
corporation (the "Company"), in connection with the registration of 771,750
shares of the Company's common stock, par value $.001 per share (the
"Shares"), pursuant to a Registration Statement on Form SB-2 (the
"Registration Statement"), to be filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, on or about the date
of this letter. Such Shares will be sold from time to time by the selling
stockholders named in the Registration Statement (the "Selling
Stockholders").
As counsel for the Company, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of such documents,
corporate records, certificates of public officials and other instruments as
we have deemed necessary for the purposes of rendering this opinion. In our
examination, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals and the conformity
with the originals of all documents submitted to us as copies. As to various
questions of fact material to such opinion, we have relied, to the extent we
deemed appropriate, upon representations, statements and certificates of
officers and representatives of the Company and others.
Based upon the foregoing, we are of the opinion that the Shares to be
registered for sale by the Selling Stockholders have been duly authorized by
the Company, are validly issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement, and we consent to the use of our name under the caption "Legal
Matters" in the Prospectus forming a part of the Registration Statement.
/s/ Law Offices of Dan Brecher
Law Offices of Dan Brecher
INDEPENDENT AUDITORS' CONSENT
We hereby consent to the inclusion in the Registration Statement on Form
SB-2 of Cadapult Graphic Systems, Inc., of our report dated August 18, 1999
Relating to the financial statements of Cadapult Graphic Systems, Inc.
We also hereby consent to the reference to us under the heading "Experts"
in such Registration Statement.
/s/ Wiss & Company
WISS & COMPANY, LLP
Livingston, New Jersey
November 9, 1999
