FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2000
[ ] 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 [ ]
As of November 2, 2000, the issuer had 3,261,772 shares of common stock
outstanding.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
1
<PAGE>
CADAPULT GRAPHIC SYSTEMS, INC. AND SUBSIDIARY
FORM 10-QSB FOR THE QUARTER ENDED SEPTEMBER 30, 2000
TABLE OF CONTENTS
Page No.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements 3
Consolidated Balance Sheets as of September 30, 2000 3
and June 30, 2000
Consolidated Statements of Operations 4
For the Three Months Ended September 30, 2000 and 1999
Consolidated Statements of Changes in Shareholders' Equity 5
For the Three Months Ended September 30, 2000
Consolidated Statements of Cash Flows 6
For the Three Months Ended September 30, 2000 and 1999
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition 8
and Results of Operations
PART II - OTHER INFORMATION
Item 2. Changes in Securities 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CADAPULT GRAPHIC SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
September 30, June 30,
ASSETS 2000 2000
(Unaudited)
------------ ------------
<S> <C> <C>
CURRENT ASSETS :
Cash $ 977,728 $ 868,842
Accounts Receivable, less allowance for doubtful accounts of $35,000 2,495,892 2,190,903
Inventories 1,066,523 1,262,219
Deferred tax asset 223,953 181,000
Prepaid expenses and other current assets 234,349 172,481
------------ ------------
Total Current Assets 4,998,445 4,675,445
PROPERTY AND EQUIPMENT, NET 774,991 761,133
OTHER ASSETS:
Goodwill and other intangible assets 4,482,585 4,408,815
Deferred acquisition costs 3,829 12,731
Security Deposits 218,044 122,221
------------ ------------
4,704,458 4,543,767
TOTAL ASSETS $ 10,477,894 $ 9,980,345
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable to Bank $ 1,099,155 $ 1,025,683
Note payable relating to acquired business 1,160,000 1,160,000
Current maturities of long-term debt 52,678 69,445
Accounts Payable 1,479,609 1,075,828
Accrued Expenses and other current liabilities 234,646 290,996
Due to officer 325,000 --
Deferred Revenue 373,357 466,433
------------ ------------
4,724,445 4,088,385
LONG-TERM DEBT, LESS CURRENT MATURITIES 19,452 --
COMMITMENTS
SHAREHOLDERS' EQUITY
Common Stock, .001 par value,
Authorized 20,000,000 shares; issued 3,261,772
in September and 3,228,451 in June 3,261 3,228
Preferred Stock, .001 par value,
Authorized 5,000,000 shares; 550,000 shares issued in
September and June 550 550
Additional paid-in capital 5,794,616 5,888,182
Retained earnings (deficit) (64,430) --
------------ ------------
Total Shareholders' equity 5,733,997 5,891,960
Total Liabilities and Shareholders' Equity $ 10,477,894 $ 9,980,345
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
CADAPULT GRAPHIC SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
Three Months Ended
September 30,
2000 1999
----------- -----------
<S> <C> <C>
NET SALES $ 3,415,678 $ 3,149,164
----------- -----------
COSTS AND EXPENSES :
Cost of sales 2,152,002 2,281,196
Selling, general and administrative expenses 1,160,527 878,534
Depreciation and amortization 163,872 72,082
----------- -----------
LOSS FROM OPERATIONS (60,723) (82,648)
INTEREST EXPENSE, NET 46,661 63,701
----------- -----------
LOSS BEFORE INCOME TAXES (CREDITS) (107,384) (146,349)
INCOME TAXES (CREDITS) :
Current -- --
Deferred (42,953) --
----------- -----------
(42,953) --
NET LOSS $ (64,430) $ (146,349)
=========== ===========
PREFERRED STOCK DIVIDENDS $ 159,425 $ --
=========== ===========
LOSS APPLICABLE TO COMMON SHAREHOLDERS $ (223,855) $ (146,349)
=========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 3,261,124 3,078,652
=========== ===========
NET LOSS PER COMMON SHARE -
BASIC AND DILUTED $ (0.07) $ (0.05)
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
CADAPULT GRAPHIC SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000
(UNAUDITED)
<TABLE>
Common Stock Preferred Stock Additional Retained Total
------------------ --------------- Paid-in Earning Shareholders'
Shares Amount Shares Amount Capital (Deficit) Equity
--------- ------- ------- ------ ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, JUNE 30, 2000 3,228,451 $ 3,228 550,000 $ 550 $ 5,888,182 $ - 5,891,960
PERIOD ENDED SEPTEMBER 30, 2000
Issuance of common stock for
acquisition - Web 32,321 32 - - 64,610 - 64,642
Exercise of employee stock options 1,000 1 - - 1,249 - 1,250
Preferred stock dividend, 11.5% - - - - (159,425) - (159,425)
Net loss - - - - - (64,430) (64,430)
--------- ------- ------- ------ ----------- --------- -------------
BALANCES, SEPTEMBER 30, 2000 3,261,772 $ 3,261 550,000 $ 550 $ 5,794,616 $ (64,430) $ 5,733,997
========= ======= ======= ====== =========== ========= =============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
CADAPULT GRAPHIC SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
Three Months Ended
September 30,
2000 1999
--------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (64,430) $(146,349)
Adjustments to reconcile net loss to net cash
flows from operating activities :
Depreciation and amortization 163,872 72,082
Deferred income taxes (42,953) --
Issuance of Common Stock and Warrants for services -- 21,000
Changes in operating assets and liabilities :
Accounts receivable (304,989) 401,732
Inventories 195,696 87,494
Prepaid expenses and other current assets (61,868) (201,265)
Security deposits (95,823) 4,373
Accounts payable 403,781 224,185
Accrued expenses and other current liabilities (56,350) (78,998)
Deferred revenue (93,076) 22,205
--------- ---------
Net cash flows from operating activities 43,860 406,460
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES -
Purchases of property and equipment (83,178) (43,109)
Purchase of intangible assets (103,680) (16,000)
Deferred acquisition costs 8,903 (3,178)
--------- ---------
Net cash flows from investing activities (177,956) (62,287)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES :
Note payable to bank 73,472 (394,644)
Payments on long term debt 2,685 (6,327)
Due to officer 325,000 --
Attorney Escrow Account -- (50,000)
Preferred stock dividends (159,425) --
Proceeds from exercise of employee stock options 1,250 5,191
Sale of common stock, Net -- 119,700
--------- ---------
Net cash flows from financing activities 242,982 (326,080)
--------- ---------
NET CHANGE IN CASH 108,886 18,093
CASH, BEGINNING OF PERIOD 868,842 33,157
--------- ---------
CASH, END OF PERIOD $ 977,728 $ 51,250
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION :
Interest paid $ 60,130 $ 63,701
========= =========
Income taxes paid $ 33,536 $ --
========= =========
Issuance of common stock upon partial satisfaction
of WEB acquisition contingency $ 64,642 $ --
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
CADAPULT GRAPHIC SYSTEMS, INC. AND SUBSIDIARY
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, 2000 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, 2000. 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, 2000 are not necessarily indicative of the results to be
expected for the full year.
NOTE 2 - NATURE OF BUSINESS :
We are engaged in the business of manufacturing and distributing
supplies for workgroup, or business, color printers. Our products
include solid ink, color toner and transparency media. We distribute
our products through an international network of dealers and
distributors. Through our reseller operations, we develop and
implement programs that foster our supplies business including our
No-Cap Color free color printer program. In addition we provide
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.
NOTE 3 - LOAN FROM OFFICER :
Between August 17, 2000 and September 14, 2000, Cadapult borrowed an
aggregate of $325,000 from Michael Levin. Cadapult used the funds as
bridge financing for printers acquired for Cadapult's No-Cap Color
printer program, until larger quantities of printers are accumulated
and financed through lease or other debt financing. The loans are
unsecured and carry interest at a rate of 10% simple interest per
year. The principal and interest are payable upon demand. There can be
no representation or assurance that Mr. Levin will make any further
loans to Cadapult, on these or any other terms.
7
<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 28, 2000.
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
Sales. Our consolidated sales for the three months ended September 30, 2000
compared to the same period in 1999, increased approximately 8.5% to $3,415,678
from $3,149,164. The increase in our sales can be attributed to the acquisition
of ultraHue by our Media Sciences subsidiary, offset by a decrease in the sales
of our reseller business. For the three months ending September 30, 2000, the
acquisition contributed incremental sales of $822,338. The decrease in sales of
our non-acquired businesses can be attributed to competition from Internet based
resellers, the continuing deflationary environment in which the reseller
business operates and a shift in the reseller business focusing on our No-Cap
Color free color printer program.
Cost of Sales. Our cost of sales for the three months ended September 30, 2000
were $2,152,002, or approximately 63% of sales, as compared to $2,281,196, or
approximately 72.4% of sales for the comparable period in 1999. 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 September 30,
2000 compared to the same period in 1999, our selling, general and
administrative expenses increased to $1,160,527 from $878,534, which represents
a increase to 34% of sales from 28% of sales. The increase in our selling,
general and administrative expenses can be attributed to the additional overhead
created by the ultrahue acquisition and an almost four fold increase in
advertising expense associated with an expansion of our No-Cap Color program.
Depreciation and Amortization. For the three months ended September 30, 2000
compared to the same period in 1999, our depreciation and amortization expense
increased to $163,872 from $72,082 reflecting the additional amortization
expense created by the ultraHue acquisition.
Interest Expense. For the three months ended September 30, 2000 compared to the
same period in 1999, our Interest expense decreased to $46,661 from $63,701
primarily as a result of interest income resulting from cash accumulated in
Media Sciences in anticipation of the $1,160,000 note due in December 2000.
Income Taxes. For the three months ended September 30, 2000, we recorded a
deferred income tax benefit of $42,953. For the three months ended September 30,
1999 we did not record an income tax benefit as the future utilization of such a
benefit was in doubt at that time.
Dividends. For the three months ending September 30, 2000, we paid $159,425 of
stock dividends to our preferred shareholders of record as of June 30, 2000.
Net Loss. For the three month period ended September 30, 2000, we incurred a net
loss applicable to common shareholders of $223,855 or $(0.07) per share as
compared to a net loss of $146,349 or $(0.05) per share for the corresponding
three month period ended September 30, 1999.
8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
We experienced positive cash flow of $108,886 for the three months ended
September 30, 2000. Cash used in operations resulted in positive cash flows of
$43,860 primarily due to a loss of $64,430, an increase in accounts receivable
of $304,989, an increase in prepaid expenses of $61,868, an increase in Security
Deposits of $95,823, a decrease in accrued expenses of $56,350 and a decrease in
deferred revenue of $93,076 off set by a non cash charge for depreciation and
amortization of $163,872, a decrease in inventory of $195,696 and an increase in
accounts payable of $403,781.
The cash we used in investing activities included the purchase of equipment in
the amount of $83,178, purchase of intangible assets generated by the ultraHue
earn-out in the amount of $103,680 and the writeoff of certain deferred
acquisition costs associated with acquisitions we are no longer pursuing.
On October 1, 1999, we entered into a Managing Dealer Agreement with a placement
agent for a private offering of up to $5,000,000. The private offering was 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
will originally be convertible at $3.25 per share. In addition, the preferred
stock carries a dividend, paid quarterly, of 11.5% per annum. The offering was
sold to accredited investors only in states where permitted. The proceeds were
used for the ultraHue acquisition, expansion of our "No-Cap Color" printer
program and for working capital. The offering was on a "best efforts" basis, but
could ultimately raise up to $11 million for the Company if the included
warrants are exercised. In December 1999, our Board of Directors approved an
increase of the private offering to $5,500,000.
We closed this offering on March 10, 2000 having sold 550,000 units,
representing 550,000 shares of Series A Preferred Stock and 1,100,000 warrants
to purchase common stock for $4.50, providing us with net proceeds of
$4,577,758.
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 0.5% over the lender's base rate, are payable on
demand and are collateralized by all assets of the Company. As of September 30,
2000 we had used $1,099,155 of this line.
Between August 17, 2000 and September 14, 2000, Cadapult borrowed an aggregate
of $325,000 from Michael Levin. Cadapult used the funds as bridge financing for
printers acquired for Cadapult's No-Cap Color printer program, until larger
quantities of printers are accumulated and financed through lease or other debt
financing. The loans are unsecured and carry interest at a rate of 10% simple
interest per year. The principal and interest are payable upon demand. There can
be no representation or assurance that Mr. Levin will make any further loans to
Cadapult, on these or any other terms.
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 its 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.
9
<PAGE>
FORWARD LOOKING STATEMENTS
The foregoing management discussion and analysis contains forward-looking
statements and information that are based on our management's beliefs, as well
as assumptions made by, and information currently available to our management.
These forward-looking statements are based on many assumptions and factors, and
are subject to many conditions, including the our continuing ability to obtain
additional financing, dependence on contracts with suppliers, competitive
pricing for our products, demand for our products which depends upon the
condition of the computer industry, and the effects of increased indebtedness as
a result of our business acquisitions. Except for the historical information
contained in this new release, all forward-looking information are estimates by
our management and are subject to various risks, uncertainties and other factors
that may be beyond the our control and may cause results to differ from our
management's current expectations, which may cause our actual results,
performance or achievements to be materially different from future results,
performance or achievements expressed or implied by such forward-looking
statements.
10
<PAGE>
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
We issued to Duncan Yates, an officer of Cadapult, under an oral employment
agreement, effective July 15, 2000, stock options to purchase up to 100,000
shares of common stock in a transaction deemed to be exempt under Section 4(2)
of the Securities Act. These options vest only after we achieve certain
corporate levels of earnings. The options are exercisable for five years at
$2.00 per share. He may exercise 25,000 options following the first fiscal year
that our earnings before interest, taxes, depreciation and amortization exceed
$1,500,000, and a further 25,000 options after the fiscal year in which such
earnings exceed $2,000,000. He may exercise up to 50,000 options following the
end of the 2001 fiscal year if certain sales targets established by the Board of
Directors are achieved. If we undergo a "change of control", the incentive based
options shall vest immediately.
On June 23, 1999, we completed the acquisition of certain assets of WEB
Associates, Inc. Under the asset purchase agreement, we 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. Effective as of July 1, 2000,
WEB Associates was entitled to 32,321 shares out of the shares reserved in
escrow.
ITEM 5. OTHER INFORMATION
Between August 17, 2000 and September 14, 2000, Cadapult borrowed an aggregate
of $325,000 from Michael Levin. Cadapult used the funds as bridge financing for
printers acquired for Cadapult's No-Cap Color printer program, until larger
quantities of printers are accumulated and financed through lease or other debt
financing. The loans are unsecured and carry interest at a rate of 10% simple
interest per year. The principal and interest are payable upon demand. There can
be no representation or assurance that Mr. Levin will make any further loans to
Cadapult, on these or any other terms.
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 27
Financial Data Schedule
(b) Reports on Form 8-K.
None.
11
<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
Dated: November 14, 2000 By: /s/ Michael W. Levin
--------------------
Michael W. Levin
Chief Executive Officer and President
Dated: November 14, 2000 By: /s/ Frances Blanco
------------------
Frances Blanco
Vice President and Treasurer
12
