FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ________ to ___________.
Commission file number 0-21853
CADAPULT GRAPHIC SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 87-0475073
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
110 Commerce Drive, Allendale, New Jersey 07401
(Address of principal executive offices)
(201) 236-1100
(Issuer's telephone number)
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past
12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [ X ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: As of February 7, 1999,
the issuer had 3,197,775 shares of common stock outstanding.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
-1-
<PAGE>
CADAPULT GRAPHIC SYSTEMS, INC.
AND SUBSIDIARIES
FORM 10-QSB FOR THE QUARTER ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheets as of December 31, 1999 and 4
June 30, 1999
Consolidated Statements of Operations 5
For the Three Months and Six Months Ended
December 31, 1999 and 1998
Consolidated Statement of Changes in Shareholder's 6
Equity For the Six Months Ended December 31, 1999
Consolidated Statements of Cash Flows 7
For the Six Months Ended December 31, 1999 and 1998
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial 10
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 2. Changes in Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 15
-2-
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Index to Financial Statements:
Consolidated Balance Sheets as of December 31, 1999 and
June 30, 1999
Consolidated Statements of Operations
For the Three Months and Six Months Ended
December 31, 1999 and 1998
Consolidated Statement of Changes in Shareholder's
Equity For the Six Months Ended December 31, 1999
Consolidated Statements of Cash Flows
For the Six Months Ended December 31, 1999 and 1998
Notes to Consolidated Financial Statements
-3-
<PAGE>
Cadapult Graphic Systems, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
December 31, June 30,
ASSETS 1999 1999
(Unaudited)
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 570,093 $ 33,157
Accounts Receivable, less allowance
for doubtful accounts of $35,000 1,982,548 1,950,399
Attorney Escrow Account - -
Inventories 1,342,762 1,276,621
Prepaid and refundable Income Taxes - -
Deferred tax asset 307,000 -
Prepaid expenses and other current assets 49,722 77,471
------------ ------------
Total Current Assets 4,252,125 3,337,648
PROPERTY AND EQUIPMENT, NET 638,703 627,029
OTHER ASSETS:
Goodwill and other intangible assets, NET 4,411,964 835,889
Deferred acquisition costs 13,265 34,542
Security Deposits 30,567 33,523
------------ ------------
4,455,796 903,954
TOTAL ASSETS $ 9,346,624 $ 4,868,631
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable to Bank $ 1,325,165 $ 1,677,024
Note payable 1,160,000 -
Current maturities of long-term debt 101,463 87,547
Accounts Payable 1,354,876 1,710,861
Accrued Expenses and other current liabilities 44,693 131,767
Due to Seller 533,253 -
Due to officer - -
Deferred Revenue 364,732 294,089
------------ ------------
4,884,182 3,901,288
OTHER LIABILITIES:
Long-term debt, less current maturities 27,778 69,445
Note payable to related party 20,832 20,832
------------ ------------
48,610 90,277
COMMITMENTS
SHAREHOLDERS' EQUITY
Common Stock, .001 par value,
Authorized 20,000,000 shares; issued
3,197,775 in December and 3,058,308
in June 3,198 3,058
Preferred Stock, .001 par value,
Authorized 5,000,000 shares; issued
388,500 in December 389 -
Additional paid-in capital 4,626,221 1,171,782
Retained earnings (deficit) (215,976) (297,774)
------------ ------------
Total Shareholders' equity 4,413,832 877,066
Total Liabilities and Shareholders' Equity $ 9,346,624 $ 4,868,631
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
-4-
<PAGE>
Cadapult Graphic Systems, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
<TABLE>
Three Months Ended Six Months Ended
December 31, December 31,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $ 2,961,405 $ 2,532,474 $ 6,110,569 $ 4,475,635
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Cost of sales 2,025,858 1,835,314 4,307,053 3,234,814
Selling, general and administrative
expenses 959,620 632,886 1,910,237 1,349,057
----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS (24,073) 64,275 (106,722) (108,236)
INTEREST EXPENSE, NET 54,780 31,400 118,481 57,202
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES (CREDITS) (78,853) 32,874 (225,202) (165,438)
INCOME TAXES (CREDITS):
Current - - - -
Deferred (307,000) - (307,000) (39,000)
----------- ----------- ----------- -----------
(307,000) - (307,000) (39,000)
NET INCOME (LOSS) $ 228,147 $ 32,874 $ 81,798 $ (126,438)
=========== =========== =========== ===========
PREFERRED STOCK DIVIDEND $ (20,112) $ - $ (20,112) $ -
=========== =========== =========== ===========
NET INCOME (LOSS) ATTRIBUTED TO
COMMON STOCK $ 208,035 $ 32,874 $ 61,686 $ (126,438)
=========== =========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING:
BASIC 3,184,652 2,811,518 3,166,114 2,757,650
=========== =========== =========== ===========
DILUTED 3,409,734 2,903,897 3,278,655 -
=========== =========== =========== ===========
NET INCOME (LOSS) PER COMMON SHARE:
BASIC $ 0.07 $ 0.01 $ 0.02 $ (0.05)
=========== =========== =========== ===========
DILUTED $ 0.07 $ 0.01 $ 0.02 $ -
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
-5-
<PAGE>
Cadapult Graphic Systems, Inc. and Subsidiaries
Consolidated Statement of Changes in Shareholders' Equity
Six Months Ended December 31, 1999
(Unaudited)
<TABLE>
Additional Total
Common Stock Preferred Stock Paid-in Retained Shareholders'
----------------------- ------------------- ----------- ---------- -------------
Shares Amount Shares Amount Capital Earnings Equity
------------ -------- -------- -------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, JUNE 30, 1999 3,058,308 $ 3,058 - $ - $ 1,171,782 $ (297,774) 877,066
PERIOD ENDED DECEMBER 31, 1999
Sale of Common Stock through
Private Placement, NET 60,000 60 - - 119,640 - 119,700
Sale of Preferred Stock
through Private Placement,
NET - - 388,500 389 3,198,368 - 3,198,757
Issuance of Common Stock
for services 25,435 25 - - 50,975 - 51,000
Issuance of Stock for
Acquisition 34,818 35 - - 81,570 - 81,605
Exercise of employee stock
options 19,214 20 - - 23,998 - 24,018
Preferred Stock Dividend, 11.5% - - - - (20,112) - (20,112)
Net Income - - - - - 81,798 81,798
------------ -------- -------- -------- ----------- ---------- -------------
BALANCES, DECEMBER 31, 1999 3,197,775 $ 3,198 388,500 $ 389 $ 4,626,221 $ (215,976) $ 4,413,832
============ ======== ======== ======== =========== ========== =============
</TABLE>
See accompanying notes to consolidated financial statements.
-6-
<PAGE>
Cadapult Graphic Systems, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
Six Months Ended
December 31,
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (loss) $ 81,798 $ (126,438)
Adjustments to reconcile net Income (loss) to net cash
flows from operating activities:
Depreciation and amortization 157,055 60,446
Deferred income taxes (307,000) (39,000)
Issuance of common stock and warrants for services 51,000 13,042
Changes in operating assets and liabilities:
Accounts receivable 379,294 191,542
Inventories 130,482 191,293
Prepaid and refundable income taxes - 46,295
Prepaid expenses and other current assets 27,749 (25,083)
Security deposits 2,956 -
Accounts payable (457,577) (143,383)
Accrued expenses and other current liabilities (87,074) (72,569)
Deferred revenue 70,643 77,769
------------ ------------
Net cash flows from operating activities 49,326 173,914
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES -
Purchases of property and equipment (48,723) (55,192)
Purchase of intangible assets (16,000) (19,885)
Cost of net assets of acquired business (2,438,477) -
Deferred acquisition costs 21,277 -
------------ ------------
Net cash flows from investing activities (2,481,923) (75,077)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Note payable to bank, net (351,859) 105,000
Payments on long term debt (27,751) (44,545)
Advances from officer - (20,000)
Attorney escrow account - (380,000)
Due to seller 26,780 -
Preferred Stock Dividend (20,112) -
Sale of preferred stock 3,198,757 -
Sale of common stock 143,718 250,000
------------ ------------
Net cash flows from financing activities 2,969,533 (89,545)
------------ ------------
NET CHANGE IN CASH 536,936 9,292
CASH, BEGINNING OF PERIOD 33,157 22,820
------------ ------------
CASH, END OF PERIOD $ 570,093 $ 32,112
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 118,481 $ 57,202
============ ============
Income taxes paid - -
============ ============
Non cash investing activities -
Acquisition of business:
Fair value of assets acquired $ 4,104,950 $ -
Due to seller $ (506,473) $ -
Less Note payable $ (1,160,000) $ -
------------ ------------
Net cash payment $ 2,438,477 $ -
============ ============
Issuance of Common Stock upon partial
satisfaction of Tartan acquisition contingency $ 81,605 $ -
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
-7-
<PAGE>
CADAPULT GRAPHIC SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION:
Our accounting and reporting policies 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 our opinion, 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. You
should read these financial statements in conjunction with the financial
statements and notes thereto and the report of independent accountants
included in our 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 six months
ended December 31, 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 us; Cadapult Graphic Systems, Inc., a New Jersey
corporation ("Cadapult"); all of the stockholders of Cadapult (the "Cadapult
Stockholders"); Jenson Services, Inc., a Utah corporation ("Jenson
Services"); and Duane S. Jenson and Jeffrey D. Jenson (collectively, the
"Jensons"), the Cadapult Stockholders became our controlling stockholders in
a transaction viewed as a reverse acquisition, and Cadapult became a wholly-
owned subsidiary. The Plan was treated as a recapitalization of Cadapult for
accounting purposes, and the closing date of the Plan was June 18, 1998. The
historical financial statements of Seafoods Plus Ltd. prior to the merger
will no longer be reported, as Cadapult's financial statements are now
considered the financial statements of the ongoing reporting entity.
On August 10, 1998, our stockholders approved an amendment to our
Certificate of Incorporation to change our name from Seafoods Plus Ltd. to
Cadapult Graphic Systems, Inc. The stockholders also approved our
reincorporation as a Delaware corporation and a related Agreement and Plan of
Merger pursuant to which we merged into a wholly-owned Delaware subsidiary.
Our Board of Directors and the Board of Directors of our New Jersey
Subsidiary authorized a Parent/Subsidiary merger of the two companies.
On June 24, 1998, we elected to change our fiscal year from a September
30 year end to a June 30 year end.
We are engaged in the business of providing computer graphics systems,
peripherals, supplies, training and service to graphics professionals. We
are a value-added dealer of computer graphics equipment and supplies,
including 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, services bureaus, animators and industrial designers, as
well as the broad market for color printers. Through our wholly owned
subsidiary Media Sciences, we manufacture and distribute solid ink and toner
products for use in workgroup color printers.
NOTE 3 - PRIVATE PLACEMENT
On October 1, 1999, we 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 units of our securities to accredited investors. In
December 1999, our Board of Directors approved an amendment to the managing
dealer agreement reflecting an increase in the offering from $5,000,000 to
$5,500,000. Each unit is priced at $10.00 and includes one share of series
A preferred stock and two warrants to purchase a total of two
shares of common stock for $4.50. Dividends on series A preferred stock
accrue at the rate of 11.50% per annum and are payable quarterly. Each series
A preferred share is convertible at the option of the holder beginning 30 days
after closing, which shall be no later than March 31, 2000, at a rate of 3.077
shares of common stock for one share of series A preferred. 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 discount, if any, resulting from allocation of the proceeds to the
beneficial conversion feature is analogous to a dividend and will be
recognized as a return to preferred shareholders over the minimum period from
the date of issuance through the date of earliest conversion using the
effective yield method.
We have the right to call the series A preferred stock at $15.00 per
share at any time. Holders have the right to convert upon receipt of the call
notice.
We have agreed to register all of the shares of common stock necessary
for the conversion of the series A preferred stock and all shares of common
stock underlying warrants within 90 days of the closing of the private
placement.
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 236,500 shares of our
common stock at $1.65 per share and up to 550,000 shares of our common
stock at $3.75 per share. The value of the warrants will be recognized as a
cost of issuance of the series A preferred shares.
As of December 31, 1999, we sold 388,500 units, representing 388,500
shares of series A preferred stock and 777,000 warrants to purchase common
stock for $4.50, providing us with net proceeds of $3,198,757.
-8-
<PAGE>
NOTE 4 - ACQUISITION
On December 13, 1999, our wholly owned subsidiary, Media Sciences,
Inc., completed the acquisition of substantially all of the assets of
ultraHue, Inc. We paid $2,340,000 at closing, entered into a note, carrying
an interest rate of 7%, for $1,160,000 due on December 13, 2000, and agreed
to pay the value of the acquired receivables and inventory, less the assumed
trade payables, as those receivables were collected and inventory sold. In
addition, the Asset Purchase Agreement provides for an additional purchase
price of 10-30% of the Media Sciences' profits for three years.
NOTE 5 - EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." SFAS
No. 128 replaced the calculation of primary and fully diluted earnings per
share with basic and diluted earnings per share. Basic earnings per share is
computed using the weighted average number of shares outstanding. Diluted
earnings per common share is computed using the weighted average number of
shares outstanding adjusted for the incremental shares attributed to
outstanding options and warrants to purchase common stock, and other
potentially dilutive securities. All earnings per share amount for all
periods have been presented in accordance with SFAS No. 128 requirements.
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
Three Months Six Months
Ended Ended
December 31, 1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) - basic $ 208,035 $ 32,874 $ 61,686 $ (126,438)
========== ========== ========== ==========
Net income (loss) - diluted $ 228,147 $ 32,874 $ 81,798 $ (126,438)
========== ========== ========== ==========
Denominator :
Denominator for basic earnings
per share:
Weighted average shares 3,184,652 2,811,518 3,166,114 2,757,650
---------- ---------- ---------- ----------
Effect of dilutive securities
Conversion of Preferred Class A Stock 139,219 - 36,279 -
Employee stock options 85,863 92,379 76,262 -
---------- ---------- ---------- ----------
Denominator for diluted earnings per
share 3,409,734 2,903,897 3,278,655 2,757,650
========== ========== ========== ==========
Earnings (loss) per share :
Basic $ 0.07 $ 0.01 $ 0.02 $ (0.05)
========== ========== ========== ==========
Diluted $ 0.07 $ 0.01 $ 0.02 -
========== ========== ========== ==========
</TABLE>
The following warrants to purchase common stock were excluded from the
computation of diluted earnings per share for the three and six months ended
December 31, 1999 and 1998 because the warrants' exercise price was greater
than the average market price of the common stock:
<TABLE>
Three Months Six Months
Ended Ended
December 31, 1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Anti-dilutive warrants and options 1,009,200 75,000 1,009,200 75,000
========== ========== ========== ==========
</TABLE>
-9-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
You should read the following discussion and analysis in conjunction
with the information set forth in the unaudited financial statements and
notes thereto, included elsewhere herein, and the audited financial
statements and the notes thereto, included in our Form 10-KSB filed September
27, 1999.
Results of Operations
For the Three Months and Six Months Ended December 31, 1999 and 1998
Sales. Our consolidated sales for the three months ended December 31, 1999
compared to the same period in 1998, increased approximately 17% to
$2,961,405 from $2,532,474. Our consolidated sales for the six months ended
December 31, 1999 compared to the same period in 1998, increased
approximately 37% to $6,110,569 from $4,475,635. The increase in our sales
can be attributed to the acquisitions of Tartan Technology, WEB Associates
and ultraHue, offset by a decrease in the sales of our non-acquired
businesses. For the three months ending December 31, 1999, the acquisitions
contributed $1,405,115 in sales and for the six months ended December 31,
1999, the acquisitions contributed $2,572,969 in sales. The decrease in
sales of our non-acquired businesses can be attributed to delays in large
system purchases by many of our clients until the passing of the Y2K
turnover.
Cost of Sales. Our cost of sales for the three months ended December 31,
1999 were $2,025,858, or approximately 68.4% of sales, as compared to
$1,835,314, or approximately 72.5% of sales for the comparable period in
1998. Cost of sales for the six months ended December 31, 1999 were
$4,307,054, or approximately 70.5% of sales, as compared to $3,234,814, or
approximately 72.3% of sales for the comparable period in 1998. The decrease
in our cost of sales can be attributed to the high margin business generated
by our Media Sciences subsidiary.
Selling, General and Administrative. For the three months ended December 31,
1999, our selling, general and administrative expenses increased to $959,620
from $632,886, which represents a increase to 32% of sales from 25% of sales.
For the six months ended December 31, 1999, our selling, general and
administrative expenses increased to $1,910,236 from $1,349,057, which
represents an increase to 31% of sales from 30% of sales. The increase in our
selling, general and administrative expenses can be attributed to the
additional overhead created by our acquisitions and in preparation for our
continued growth.
Interest Expense. For the three months ended December 31, 1999, our Interest
expense increased to $54,780 from $31,400. For the six months ended December
31, 1999, Interest expense increased to $118,481 from $57,202. The increase
in 1999 is due primarily to the increase in borrowing due to our acquisitions
and to the increased costs of our new lending facility.
Income Taxes. For the three months ended December 31, 1999, we have recorded
a deferred income tax benefit of $307,000. This benefit results from the
elimination of the valuation allowance that offset net operating loss tax
benefits from prior periods, and from a tax benefit of a net operating loss
carryforward for the three months ending December 31, 1999. We are required
to recognize future tax benefits to the extent that realization of such
benefits is more likely than not. Based upon the historical earnings of
ultraHue, we believe that the "more likely than not" criteria have been met,
and accordingly, the valuation allowance has been eliminated. For the six
months ended December 31, 1999, we have recorded the deferred income tax
benefit of $307,000 described above.
Dividends. For the three months ending December 31, 1999, we accrued $20,112
of stock dividends to be paid to our preferred shareholders of record as of
December 31, 1999.
Net Income (Loss). For the three month period ended December 31, 1999, we
earned a net profit of $228,147 or $0.07 per share basic and diluted as
compared to a net profit of $32,874 or $0.01 per share, basic and diluted,
for the corresponding three month period ended December 31, 1998. For the
six month period ended December 31, 1999, we earned a net profit of $81,798
or $0.02 per share basic and diluted as compared to a net loss of $126,438 or
$0.05 per share for the corresponding six month period ended December 31,
1998.
-10-
<PAGE>
Liquidity and Capital Resources
We experienced positive cash flow of $536,936 for the six months ended
December 31, 1999. Cash used in operations resulted in positive cash flows
of $49,326 primarily due to a profit of $81,798, non cash charges for
depreciation, amortization and issuance of our securities for services of
$208,005, a decrease in accounts receivables of $379,294, a decrease in
inventory of $130,482 and an increase in deferred revenue of $70,643 offset
by the non-cash income tax benefit of $307,000 and decrease in accounts
payable and accrued expenses of $544,663.
The cash we used in investing activities included the purchase of equipment,
a URL and the net assets of ultraHue for a total of $2,481,923.
In September 1999, we completed a private placement for $255,500 consisting
of 127,750 shares of common stock at a purchase price of $2.00. Expenses
associated with the private placement were approximately $15,000, providing
us with net proceeds of $240,500. We used substantially all of the proceeds
to invest in our Internet initiatives including SamplePrint.com and the
upgrade of our accounting system in preparation for our Internet storefront
service.
On October 1, 1999, we entered into a managing dealer agreement with a
placement agent for a proposed private offering of up to $5,000,000. The
private placement is of 500,000 units of our 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 is originally convertible at $3.25 per share.
In addition, the preferred stock carries a dividend, paid
quarterly, of 11.5% per annum. The private placement is 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 us if fully sold and
if the included warrants are exercised. In December 1999, our Board of
Directors approved an increase of the private placement to $5,500,000.
We generated cash from the sale of our common and preferred stock of
$3,342,475 for the six months ended December 31, 1999. With these proceeds,
we executed the ultraHue acquisition and repaid $379,610 in bank debt.
We have an agreement with a lender under which we 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 of our assets. As of December
31, 1999, we had used $1,325,165 of this line.
Inflation
We have historically offset any inflation in operating costs by a combination
of increased productivity and price increases, where appropriate. We do not
expect inflation to have a significant impact on our business in the future.
Seasonality
We anticipate that our 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 our products. In the event that
we are unable to generate sufficient cash flows from operations during the
seasons of peak operations, we 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.
-11-
<PAGE>
Year 2000 Discussion
We completed a review of Year 2000 issues that may affect us in November
1999. We have determined that there are no significant Year 2000 issues
within our internal systems or services. In our internal operations, 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. Although we
periodically purchase new computer equipment and upgrade our software
programs in our normal business operations, we did not spend any
significant expense for the specific purpose of being Year 2000 compliant,
and we do not expect to incur any significant expenses in ensuring that we
are Year 2000 compliant. We use and rely upon third parties to conduct our
business. All of the significant third parties that we rely upon, including
our vendors, have provided us written assurances that they have conducted a
Year 2000 review and reasonably believe that Year 2000 issues will not affect
them. We believe that our reasonable worst case scenario is that we may
experience delays in receipt of purchase orders and delays in 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 at this time. Because we believe our Year 2000
investigation provided reasonable assurance that we would not encounter
significant Year 2000 problems, we did not create a contingency plan. To
date, we have not experienced any Year 2000 problems that have disrupted our
business, although we cannot assure you that Year 2000 problems will not
arise in the future. We will continue to monitor how Year 2000 issues may
affect us through June 2000, and we will create a contingency plan if we
begin to encounter Year 2000 problems.
Forward Looking Statements
The foregoing management discussion and analysis contains forward-looking
statements and information that are based on management's beliefs, as well as
assumptions made by, and information currently available to, management.
These forward-looking statements are based on many assumptions and factors,
and are subject to many conditions, including Cadapult's continuing ability
to obtain additional financing, dependence on contracts with suppliers,
competitive pricing for Cadapult's products, demand for Cadapult's products
which depends upon the condition of the computer industry, and the effects of
increased indebtedness as a result of Cadapult's business acquisitions.
Except for the historical information contained in this new release, all
forward-looking information are estimates by Cadapult's management and are
subject to various risks, uncertainties and other factors that may be beyond
Cadapult's control and may cause results to differ from management's current
expectations, which may cause actual results, performance or achievements of
Cadapult to be materially different from future results, performance or
achievements expressed or implied by such forward-looking statements.
-12-
<PAGE>
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
On September 13, 1999, we completed a private placement sale
of 127,750 shares of unregistered and restricted common stock, of which
50,000 shares were held in escrow and released in December 1999, and raised
gross proceeds of approximately $255,500 in transactions deemed to be
exempt under Rules 505 and 506 of Regulation D under the Securities Act.
We applied the net proceeds to development of our Internet-based
services, working capital, and other general corporate purposes. The
private placement was conducted by our officers and directors and
was not underwritten. We did not engage in general solicitation and
advertising for the private placement. We sold these shares of common stock
to 11 accredited persons and 7 nonaccredited persons. We provided all of
them with all material information about us, as would normally be provided in
a registration statement, including copies of our most recent 10-KSB and
10-QSB reports. We provided them access to, and responded to any questions
and requests for, documents.
On December 13, 1999, as part of our acquisition of ultraHue, Inc.,
Donald Gunn became an employee of our Media Sciences division. Under a three
year employment agreement, we issued to him options to purchase 50,001 shares
of our common stock. The exercise price of the options is $3.125 per share.
One-third of the options vest on each of the three anniversary dates of
employment. As an officer, director and a controlling shareholder of
ultraHue, we provided to him, or he had access to, all material information
about us in connection with the asset purchase agreement between us and
ultraHue. On December 23, 1999, he was elected to our Board of Directors.
On December 13, 1999, as part of our acquisition of ultraHue, Inc.,
Randy Hooker became an employee of our Media Sciences division. Under a three
year employment agreement, we issued to him options to purchase 50,001 shares
of our common stock. The exercise price of the options is $3.125 per share.
One-third of the options vest on each of the three anniversary dates of
employment. As an officer, director and a controlling shareholder of
ultraHue, we provided to him, or he had access to, all material information
about us in connection with the asset purchase agreement between us and
ultraHue.
In December 1999, we issued 10,435 shares of common stock to our
litigation counsel, Norris, McLaughlin & Marcus, P.A., for legal services
valued at $30,000, in a transaction deemed to be exempt under Section 4(2)
of the Securities Act. We did not provide nor was asked to provide any
specific information in connection with the transaction.
In December 1999, we conducted a private placement of 388,500 units of
our securities and raised gross proceeds of approximately $3,885,000. Each
unit consisted of one share of convertible preferred stock and warrants to
purchase two shares of common stock. Each warrant is exercisable for one
share of common stock at a price of $4.50 per share for a five year period.
The private placement was conducted by a placement agent on a best efforts
basis. The placement agent is receiving as compensation up to 8% of the
total gross sales as commission, 2% of the total gross sales as non-
accountable expenses, and 3% of the total gross sales as non-accountable
marketing expenses. The placement agent will also receive a number of five-
year warrants, exercisable at $1.65 per share, equal to 4.3% of the total
gross sales and a number of five-year warrants, exercisable at $3.75, equal
to 10% of the total gross sales We sold these units of our securities to 75
accredited persons. We provided all of them with all material information
about us, as would normally be provided in a registration statement,
including copies of our most recent 10-KSB. We provided them access to
information, and responded to questions any requests for documents
asked of us. The units must be held by the purchaser for a minimum of one
year. We agreed to file a registration statement, at our expense, for the
sale of common stock underlying the units within 90 days of the closing of
the private placement so that the purchaser can sell its shares in the public
market immediately after the one year holding period.
-13-
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On December 15, 1999, we held our annual meeting of stockholders. Only
the stockholders of record of our common stock at the close of business on
October 28, 1999 were entitled to notice of and to vote at the annual meeting.
As at the close of business on October 28, 1999, we had 3,137,460 shares of
common stock outstanding and entitled to vote.
The annual meeting was attended by our stockholders who held 1,754,450
shares of our common stock. Our stockholders in attendance approved the two
proposals presented at the annual meeting:
(1) election of the following directors:
- Michael W. Levin;
- Frances Blanco;
- Paul C. Baker; and
- Edwin Ruzinsky.
(2) ratification of Wiss & Company LLP as our independent
accountants.
The stockholders in attendance cast 1,754,450 for the election of each of
nominee for director and the ratification of the independent accountants,
with no votes against and no votes withheld.
ITEM 5. OTHER INFORMATION
On October 1, 1999, we entered into a managing dealer agreement with a
placement agent for a best efforts offering for up to $5,000,000 of unit
securities, consisting of one share of series A preferred stock and two
warrants to purchase a total of two shares of common stock. In December
1999, our Board of Directors approved an amendment to the managing dealer
agreement increasing the total offering amount from $5,000,000 to $5,500,000.
The placement agent's fee includes a commission and a nonaccountable expense
allowance equal to 13% of the proceeds of the offering, five year warrants
to purchase up to 236,500 shares of our common stock at $1.65 per share and
five year warrants to purchase up to 550,000 shares of our common stock at
$3.75 per share.
On December 23, 1999, our Board of Directors approved the elections of
Donald Gunn and Henry Royer to serve as directors until the next annual
meeting of our stockholders.
In our report on Form 8-K, filed on or about July 13, 1998, we reported
that we dismissed Mantyla McReynolds & Associates as our principal
accountants. In the Form 8-K, we reported that the following:
- Mantyla McReynolds & Associates' report on the financial statements
for either of the two years ended December 31, 1996 and 1997
neither contained an adverse opinion or disclaimer of opinion, nor
was modified as to uncertainty, audit scope, or accounting
principles;
- our decision to change our principal accountant was recommended and
approved by our Board of Directors;
- there were no disagreements with Mantyla McReynolds & Associates on
any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure; and
- we authorized Mantyla McReynolds & Associates to respond fully to
all inquires of the successor accountant concerning any matter.
As an exhibit to the Form 8-K, we filed a letter from Mantyla McReynolds
& Associates stating that it agreed with our disclosure statements with
respect to its being dismissed as our principal accountants and its audit
reports.
On or about February 9, 2000, we filed an amendment to the Form 8-K,
which includes a letter from Mantyla McReynolds & Associates, to clarify that
Mantyla McReynolds & Associates agreed with our disclosure that there were no
disagreements on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure.
-14-
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
The following exhibits are filed with this report:
Exhibit Number Description of Exhibit
Exhibit 11 Statement Concerning Computation of Per Share Earnings is
hereby incorporated by reference to "Financial Statements"
of Part I - Financial Information, Item 1 - Financial
Statements, contained in this Form 10-QSB.
Exhibit 16 Letter on change in certifying accountant
Exhibit 27 Financial Data Schedule for the six months ended December
31, 1999
(b) Reports on Form 8-K.
On December 20, 1999, we filed a report on Form 8-K reporting under
Item 2 that we completed the acquisition of ultraHue, Inc. pursuant to an
asset purchase agreement dated September 7, 1999.
-15-
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
CADAPULT GRAPHIC SYSTEMS, INC.
Date: February 9, 2000 /s/ Michael W. Levin
-------------------------------------
Michael W. Levin
President and Chief Executive Officer
Date: February 9, 2000 /s/ Frances Blanco
-------------------------------------
Frances Blanco
Vice President and Treasurer
-16-
MANTYLA, McREYNOLDS AND ASSOCIATES, C.P.A's
A Professional Corporation
December 27, 1999
United State Securities and Exchange Commission
Washington, D.C. 20549
To whom it may concern:
We hereby agree with the disclosure statements made by Cadapult Graphic
Systems, Inc., a corporation formerly known as Seafoods Plus, Ltd., with
respect to our being dismissed as the principal accountants and our audit
reports on the financial statements for the years ended December 31, 1996 and
1997. We further agree with the Company's disclosure that there were no
disagreements with us on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure.
/s/ Mantyla, McReynolds & Assoc.
Mantyla, McReynolds & Associates
Certified Public Accountants
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRCATED FROM FINANCIAL
STATEMENTS FOR THE THREE-MONTH PERIOD ENDED DECEMBER 31, 1999 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 570,093
<SECURITIES> 0
<RECEIVABLES> 2,017,548
<ALLOWANCES> 35,000
<INVENTORY> 1,342,762
<CURRENT-ASSETS> 4,252,125
<PP&E> 1,425,243
<DEPRECIATION> 786,539
<TOTAL-ASSETS> 9,346,624
<CURRENT-LIABILITIES> 4,884,182
<BONDS> 0
0
389
<COMMON> 3,198
<OTHER-SE> 4,626,221
<TOTAL-LIABILITY-AND-EQUITY> 9,346,624
<SALES> 2,961,405
<TOTAL-REVENUES> 2,961,405
<CGS> 2,025,858
<TOTAL-COSTS> 2,025,858
<OTHER-EXPENSES> 959,620
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 54,780
<INCOME-PRETAX> (78,853)
<INCOME-TAX> (307,000)
<INCOME-CONTINUING> 228,147
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 228,147
<EPS-BASIC> 0.07
<EPS-DILUTED> 0.07
</TABLE>
