---

U.S. SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-KSB

| | [x] | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| | --- | ------------------------------------------------------------------------------------

For the fiscal year ended June 30, 2001

| | [  ] | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
                  EXCHANGE ACT OF 1934
| | ---- | ----------------------------------------------------------------------------------------------------

For the transition period from __________ to __________.

Commission file number: 0-21853

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CADAPULT GRAPHIC SYSTEMS, INC.(Name of small business issuer in its charter)

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| | DELAWARE
(State or other jurisdiction ofincorporation or organization) |  | 87-0475073
(I.R.S. Employer
Identification No.) | 
| | ---------------------------------------------------------------------- |  | ----------------------------------------------- | 

| | 40 Boroline Road, Allendale, NJ
(Address of principal executive offices) |  | 07401
(Zip Code) | 
| | ------------------------------------------------------------------------ |  | ---------------- | 

Issuer's telephone number: (201) 236-1100

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Securities registered pursuant to Section 12(b) of the Exchange Act:

| | Title of each class
Common Stock |  | Name of each exchange on which registered
AMEX | 
| | -------------------------------- |  | ---------------------------------------------- | 

Securities registered pursuant to Section 12(g) of the Exchange Act: Common Stock(Title of Class)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act
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 90 past days.  YES [X] NO [  ]

Check if there is no
disclosure of delinquent filers in response to Item 405 of Regulation S-B is not
contained in this form, and no disclosure will be contained, to the best of
registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]

State issuer's revenues for its most recent fiscal year:  $12,523,041.

The aggregate market value of voting and non-voting stock of the issuer held by
non-affiliates on June 30, 2001 was $3,550,010.

APPLICABLE ONLY TO CORPORATE REGISTRANTS

As of June 30, 2001, we had 3,550,010 shares of common stock issued and
outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None.

Transitional Small Business Disclosure Format (check one): YES [  ] NO [X]

---

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CADAPULT GRAPHIC SYSTEMS, INC.

TABLE OF CONTENTS

|         |  |                                                                                                                                     | Page
|-------- |  | ----------------------------------------------------------------------------------------------------------------------------------- | ----
|PART I   |  |                                                                                                                                     |     
|         |  |                                                                                                                                     |     
|Item 1.  |  | Description of Business                                                                                                             | 4   
|Item 2.  |  | Description of Property                                                                                                             | 8   
|Item 3.  |  | Legal Proceedings                                                                                                                   | 8   
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                                                                 | 8   
|         |  |                                                                                                                                     |     
|PART II  |  |                                                                                                                                     |     
|         |  |                                                                                                                                     |     
|Item 5.  |  | Market for Common Stock and Related Stockholder Matters                                                                             | 9   
|Item 6.  |  | Management's Discussion and Analysis or Plan of Operation                                                                           | 11  
|Item 7.  |  | Financial Statements                                                                                                                | 15  
|Item 8.  |  | Changes In and Disagreements With Accountants on Accounting and
                    Financial Disclosure                            | 35  
|         |  |                                                                                                                                     |     
|PART III |  |                                                                                                                                     |     
|         |  |                                                                                                                                     |     
|Item 9.  |  | Directors, Executive Officers, Promoters and Control Persons;
                    Compliance With Section 16(a) of the Exchange Act | 36  
|Item 10. |  | Executive Compensation                                                                                                              | 39  
|Item 11. |  | Security Ownership of Certain Beneficial Owners and Management                                                                      | 43  
|Item 12. |  | Certain Relationships and Related Transactions                                                                                      | 45  
|Item 13. |  | Exhibits and Reports on Form 8-K                                                                                                    | 48  
|         |  |                                                                                                                                     |     

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# PART I

## ITEM 1.  
DESCRIPTION OF BUSINESS

## Our
Organization History

We are a Delaware
corporation named Cadapult Graphic Systems, Inc. We originally incorporated
under the laws of the State of Utah on August 11, 1983 under the name Communitra
Energy, Inc. On July 16, 1985, we filed with the Secretary of State of the State
of Utah Articles of Amendment to our Articles of Incorporation, changing our
name 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
us, 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 CGSI. Pursuant to the acquisition, the shareholders
of CGSI became the controlling shareholders of our company, our officers and
directors resigned and elected the CGSI nominees in their places, and CGSI
became our wholly owned subsidiary.

On August 14, 1998, we
reincorporated under the laws of the State of Delaware as Cadapult Graphic
Systems, Inc. On August 14, 1998, CGSI, our wholly owned New Jersey subsidiary,
merged into Cadapult.

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.

On August 11, 1999, we formed Media Sciences, Inc., as a wholly owned New Jersey subsidiary, 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.

In December 1999, Media Sciences acquired the assets of ultraHue, Inc., a New Mexico corporation, a manufacturer of workgroup color
printer supplies.

As of June 30, 2001, we had 3,477,805 shares of common stock issued and outstanding and 547,500 shares of preferred stock
issued and outstanding.

We have not been subject to bankruptcy, receivership or any similar proceedings.

---

## Our Business

We are a manufacturer of supplies for digital workgroup color printers.

Our wholly owned
subsidiary, Media Sciences, manufactures and distributes printer supplies,
including solid ink, toner and transparency material for use in Tektronix color
printers by Xerox and other color printers. Media Sciences distributes these
products internationally through a network of dealers and distributors. We
intend to grow this business through an expansion of our product line, expansion
of our distribution channels and through demand creation marketing programs.

While we primarily sell our
supplies through a distribution channel, we also sell supplies directly to
certain end users through our No-Cap Color program and to those with whom we
have a historical relationship.

## Operating
Strategy

We have a strategic
objective of becoming the leading independent manufacturer of supplies for
digital color business printers. We intend to achieve this objective through an
expansion of our product line, and of our distribution and sales programs.

The opportunity to sell
Media Sciences supplies exists in the installed base of workgroup, or business,
color printers. The installed base are those printers that have been acquired by
end-users and are being used today. Almost all of these end users are using OEM
(Original Equipment Manufacturer) supplies, or those being produced by, and sold
under the label of, the printer manufacturer such as Tektronix, Xerox or QMS. We
believe that as color printers become more common in the workplace, a subset of
these users will seek alternative supplies to the OEM brand, primarily as a cost
savings. If we look at the color market as being analogous to the monochrome
printer and supply market, an opportunity exists for independent supply
manufacturers to achieve a 20% market share in the aggregate. Our objective is
to be the leader within this market space by providing high quality, less
expensive color printer supplies through the same distribution channels as the
OEM supplies are sold.

In addition to penetrating the installed base, we intend to create a significant
new set of color printer users who are contractually committed to our supplies.
We are striving to achieve this objective through our sales programs including
our No-Cap Color printer program. We believe this program provides a unique
opportunity for end users who are not currently using color-printing technology
to migrate to color without the cost and technology risk of buying a printer
outright.

---

## Principal Products and Services and Programs

## Products

Solid Ink Sticks. We manufacture and
distribute solid ink sticks for use in the Tektronix Phaser 340, 350, 360, 840
and Phaser 850 color printers. Our ink is sold under the Media Sciences label,
and the labels of many of our dealers and distributors. We offer flexible,
custom packaging to meet the needs of our distribution partners. Our solid ink
is typically sold to end-users at prices that are 20% to 50% less than those of
the Xerox/Tektronix brand.

Toner Cartridges. We offer
three lines of toner cartridges; Identicals, Remanufactured, and our recently
introduced Clearcase line of toner cartridges. As with our ink, our toner
cartridges are sold under the Media Sciences label and the labels of our
distributors. We plan to expand our toner cartridges offerings both within the
Tektronix line of color printers and to other color printer manufacturers as
well.

|o | Identicals  Our Identical line of toner cartridges include toner
cartridges for the Tektronix Phaser 560 and 780 color printers. These are new
cartridges offered at a discount to those of the OEM.                                                              
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|o | Remanufactured  Our Remanufactured line of toner cartridges are for use in
Tektronix 780 color printers. We refill and repackage empty toner cartridges and
offer them at a substantial discount to those of the OEM.                                             
|o | Clearcase  Our Clearcase line of toner cartridges are for use in Tektronix
Phaser 560, 740 and 750 color printers. These are newly manufactured toner
cartridges, featuring a unique clear case, allowing the user to see the colored
toner within the cartridges.

Media.            We distribute transparency material for use in solid ink and color laser printers.

## Sales Programs

No-Cap Color. Our No-Cap
Color program provides a customer with one or more workgroup color printers, at
no charge, in return for a monthly or bi-monthly commitment to purchase certain
supplies from us. These printers have retail values of up to $6,000 and include
service throughout the duration of the program. We offer several printers under
this program, including two business printers, one solid ink, one laser, and one
graphic arts printer. We target the broad corporate market with this program, as
well as certain vertical markets. The printer remains the property of Cadapult
or its assignees at all times.

Our No-Cap Color program
offers benefits to both the end user and Cadapult. The end user benefits by
obtaining a color printer without a capital investment and without service
costs. End user costs are limited to the purchase of supplies that they would
need to purchase anyway. We benefit by creating new customers with an obligation
to purchase our supplies, thereby creating a high-margin reoccurring revenue
stream.

Printers for our No-Cap
Color program are purchased outright and/or leased to us by third party leasing
companies.

---

## 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 of our products and programs.

We are expanding our Media
Sciences distribution channels through outside sales efforts and direct mail. We
intend to strengthen these channels through performance based sales incentive
programs. We plan to build end-user awareness and demand for our supplies
through advertising and marketing campaigns.

We continue to aggressively
market our No-Cap Color program. The goal of this effort is to drive potential
customers to our No-Cap Color web site where they prequalify themselves for the
program. Leads generated through this site are followed up by inside sales
people. We presently use a combination of direct mail and e-mail marketing and
banner advertising, and we plan to also use affiliate marketing, to drive
traffic to www.nocapcolor.com.

## Industry and
Market Overview

The office environment has
been dominated by monochrome (black and white) printers and color monitors. Over
the last several years, color printers have been introduced to the office
environment for mission critical applications where color is a must. Today,
however, with the ever-increasing quality and speed of color printers and lower
costs of acquisition and ownership, color is migrating into the broad office
environment. This migration has led to flat monochrome printer sales and growing
color printer sales as monochrome printers are being replaced with color.
Industry data shows a compound annual growth rate in unit placements of 45% to
60% through the year 2004, with 1.4 million units, including ink-jet, being
placed next year alone. The U.S. workgroup color printer installed base alone is
forecasted to be in excess of 13 million units by the end of 2004.

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 and distributed by the printer manufacturer (OEM).
There exists little to no competition to these sources of supplies. As adoption
of color printing technology continues, we expect the 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 through an
international network of dealers and distributors. We also sell supplies
directly to certain end users through our No-Cap Color program and to those with
whom we have a historical relationship. These direct sales are conducted through
telephone and Internet sales efforts.

## Competition

We primarily compete with
the Original Equipment Manufacturer (OEM) of the printers for which we provide
supplies, including Xerox, which sells printers under the Tektronix label. Other
than the OEMs, we are not aware of any other significant competitor that
provides solid ink or toner for use in these printers.

Approximately 90 days after
we announced our No-Cap Color free color printer program, Tektronix announced
its own free color printer program. The Tektronix program has continued since
Xerox acquired the color printer division from Tektronix in 2000. The Xerox
program is structured differently from ours, and we believe there exists an
opportunity for both programs to be successful.

---

## Principal
Suppliers

We did not have any supplier who represented 10% or more of our revenues in our
fiscal year ended June 30, 2001.

## Dependence on
Major Customers

We did not have any customer who represented 10% or more of our revenues in our
fiscal year ended June 30, 2001.

## Intellectual
Property

We regard our trademarks, trade secrets, and proprietary technology and similar
intellectual property as critical to our success, and rely on trademark,
copyright and patent law, trade secret protection and confidentiality and other
agreements with our employees, customers, partners and others to protect our
proprietary rights. We have applied for the registration of trademarks in the
United States.

## Need for
Government Approval

Not applicable.

## Government
Regulation

Not applicable.

## Research and
Development

Not applicable.

## Compliance
with Environmental Laws

Not applicable.

## Employees

We currently have 34 full-time employees, including seven management level employees.

---

## ITEM 2.
DESCRIPTION OF PROPERTY

We maintain our executive
offices at Allendale, New Jersey, pursuant to a lease expiring on May 31, 2011.
We also maintain a sales office in Redmond, Washington. Our offices are adequately
covered by insurance for claims arising out of such occupancies.

In May 2001, we moved our
corporate offices from occupancy of approximately 7,212 square feet to occupancy
of approximately 15,400 square feet, including warehousing and manufacturing
facilities, to accommodate our increased warehousing requirements, expanded
service facilities, and to support the manufacturing requirements of Media
Sciences. We believe that our present facilities will be suitable to accommodate
our growth for the foreseeable future.

The table below sets forth
the location, approximate square footage, approximate annual rent, use of each
location and expiration date of each lease, including the lease for our new
corporate facility. Some of the leases summarized in the table provide for
moderate annual rental increases.

`---------------------------- ----------------- ------------------- --------------------------- ---------------------
                               Approximate        Approximate                                         Lease
Location                       Square Feet        Annual Rent                 Use                Expiration Date
---------------------------- ----------------- ------------------- --------------------------- ---------------------

40 Boroline Road,                 15,400            $184,800       Executive Offices,          May 31, 2011
Allendale, NJ 07401                                                Warehouse, and
                                                                   Manufacturing Facility

201 MJL Center                     1,500             $26,400       Sales                       month to month lease
16398 NE 85th Street
Redmond, Washington 98052
---------------------------- ----------------- ------------------- --------------------------- ---------------------`

## ITEM 3. LEGAL
PROCEEDINGS

On May 4, 2001, we entered into a settlement agreement with Xerox Corporation that resolved three litigations:
Cadapult Graphic Systems, Inc. v. Tektronix, Inc., et al., an action before the United States District Court,
District of Oregon; ultraHue, Inc. v. Tektronix, Inc., et al., an action before the United States District Court,
Western District of Washington at Seattle; and Xerox Corporation v. Media Sciences, Inc. et al.

As at June 30, 2001, we are
not a party to any material pending legal proceeding, other than ordinary
routine litigation incidental to our business. In July 2001, we filed an action
in the United States District Court, Western District of Washington at Seattle
against one of the law firms that had represented us and ultraHue, Inc., a
company whose assets we acquired, in prior litigation with Tektronix, Inc. and
Xerox Corporation. In the complaint, we allege claims of negligence and breach
of contract. As of September 24, 2001, we have not been served with an answer to
our complaint.

## ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

---

# PART II

## ITEM 5.    MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED
           STOCKHOLDER MATTERS

## Market
Information

Beginning August 9, 2000,
our common stock was quoted on the American Stock Exchange under the symbol
GFX. From July 10, 1998 to August 8, 2000, our common stock was
quoted on the OTC Bulletin Board under the symbol GRFX. Before July
10, 1998, our common stock was listed in the pink sheets of the
National Quotation Bureau, Inc. and on the OTC Bulletin Board under the symbol
SEUS. Before the time periods indicated above, an active trading
market for our common stock did not exist.

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 and the American Stock
Exchange. The quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission, and may not necessarily represent actual transactions.

`Fiscal Year                  Quarter Ended                                High                       Low
---------------------------- ---------------------------------- ------------------------- --------------------------

2000                         September 30, 1999                          $2.562                    $1.937
                             December 31, 1999                           $3.250                    $2.000
                             March 31, 2000                              $4.375                    $2.250
                             June 30, 2000                               $3.000                    $2.062
---------------------------- ---------------------------------- ------------------------- --------------------------

2001                         September 30, 2000                          $3.000                    $1.937
                             December 31, 2000                           $3.125                    $1.750
                             March 31, 2001                              $2.125                    $2.200
                             June 30, 2001                               $2.000                    $0.850
---------------------------- ---------------------------------- ------------------------- --------------------------`

## Holders

The approximate number of
holders of record of our common stock as of June 30, 2001 was 385. As
of that date, there were approximately 569 beneficial stockholders, including
stockholders holding common stock under nominee security position listings.

## Dividends

We have never declared any
cash dividends on the common stock at any time. Future cash dividends on the
common stock, if any, will be at the discretion of our 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.

Our series A preferred
stock bears a fixed dividend at an annual rate of 11.5%. Dividends are paid in
cash each quarter in arrears. The first dividend payment occurred on January 1,
2000. Unless we have fully paid all dividends on the outstanding shares of
series A preferred stock, we cannot declare or pay cash dividends, or distribute
or set aside assets, for any of our other securities.

In March 2001, our Board of Directors voted to defer, until fiscal year 2002,
the payment of the preferred stock dividend for the periods ending March 31,
2001 and June 30, 2001 in order to conserve cash for the Tektronix/Xerox
litigation, which has since been settled. We anticipated significant legal
expenses related to litigation with Xerox in the matter of ultraHue v.
Tektronix, and we expected that the majority of these legal expenses would be
substantially completed by the end of the fiscal year ended June 30, 2001. We
offered preferred shareholders the option to wait for the dividends to be paid
in cash in fiscal year 2002, or to receive payment in kind through a common
stock issuance at $1.00 per share. The offer expired on May 15, 2001.

---

In September 2001, our Board of Directors voted to again offer preferred
shareholders the option to receive payment in kind for the dividend periods
ending March 31, 2001 and June 30, 2001, through a common stock issuance at
$1.10 per share. Shareholders have until November 11, 2001 to elect to receive
payment in kind. If we do not receive notice by that date, those shareholders
who have elected not to receive payment in kind will receive their cash dividend
for these two periods at a later date.

## Transfer Agent

The transfer agent for our
common stock is Continental Stock Transfer & Trust Company, New York, New
York.

## Recent Sales
of Unregistered Securities

In connection with preferred stock dividends, our Board of Directors voted to
defer, until fiscal year 2002, the payment of the preferred stock dividend for
the periods ending March 31, 2001 and June 30, 2001 in order to conserve cash
for the Tektronix/Xerox litigation, which has since been settled. We also
offered our preferred shareholders the option to receive payment in kind,
through a common stock issuance at $1.00 per share, the fair market value of our
common stock on that date. The offer expired on May 15, 2001. As of May 15,
2001, thirty shareholders elected to receive their dividend payment through the
payment in kind, totaling $88,152 and consisting of 88,152 shares of stock for
the two periods ending March 31, 2001 and June 30, 2001. On September 11, 2001,
our Board of Directors voted to again offer our preferred shareholders the
option to receive payment in kind, through a common stock issuance at $1.10 per
share, the fair market value of our common stock on that date. As of September
17, 2001, one shareholder elected to receive their dividend payment through the
payment in kind, totaling $57,500 and consisting of 52,273 shares of stock for
the two periods ending March 31, 2001 and June 30, 2001.

On May 29, 2001, we issued a $105,000 six-month convertible promissory note to
Hawkwood Investments Limited in a transaction deemed to be exempt under Section
4(2) of the Securities Act. The note matures on November 29, 2001 and bears
simple interest at the rate of 10% per year. Hawkwood may have the option to
extend the maturity date for an additional six month period. Hawkwood has the
right to convert the full unpaid principal and interest into fully paid and
nonassessable shares of our unregistered and restricted common stock at a
conversion price of $1.00 per share. In the event of default on repayment, as
penalty, the simple interest rate shall be increased to a rate of 15% per year
commencing from the date of default. We made a determination that Hawkwood was
an accredited investor and sophisticated person with enough knowledge and
experience in business to evaluate the risks and merits of the transaction.

On May 31, 2001, we
issued warrants to purchase up to 200,000 shares of our common stock at $1.00
per share to Consonant Services Group in consideration for consulting services
in a transaction deemed to be exempt under Section 4(2) of the Securities Act.
The warrants, which were valued at $25,000, based on the value of consulting
services received, expire on May 31, 2006. Consonant Services Group is a joint
venture consisting of Stephen Yannalfo, Harold Kugelman, Neil Hanley, Leon
Steinberg, Andrew Lesnak, David E. Danna, Mitchell K. Baker and Paul C.
Baker. We made a determination that Consonant Services Group was an accredited
investor and sophisticated person with enough knowledge and experience in
business to evaluate the risks and merits of the transaction.

---

## ITEM 6.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                  RESULTS OF OPERATIONS

## Forward-looking
Information

This report on Form 10-KSB
contains certain forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended (the
Exchange Act), which represent our expectations and beliefs,
including, but not limited to statements concerning Cadapults expected
growth. The words believe, expect,
anticipate, estimate,: project, and similar
expressions identify forward-looking statements, which speak only as of the date
such statement was made. These statements by their nature involve substantial
risks and uncertainties, certain of which are beyond our control, and actual
results may differ materially depending on a variety of important factors.

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, 2001.

## Results of
Operations For The Year Ended June 30, 2001

Sales. Sales for the year
ended June 30, 2001 compared to the year period ended June 30, 2000 decreased
approximately 7% to $12,523,401 from $13,489,839. Media Sciences sales increased
approximately 92% to $5,145,964 from $2,678,980. While Media Sciences
sales increased due to a full year of sales versus six months of sales for the
year ended June 30, 2000, and to increased distribution of our products, the
sales decreased overall due to the continued transition from our legacy reseller
business to that of the higher margin Media Sciences supply business.

Cost of Sales. Cost of
sales for the year ended June 30, 2001 were $7,135,266 or approximately 57% of
sales, as compared to $8,522,972 or approximately 63% for the year period ended
June 30, 2000. Cost of sales for Media Sciences increased to approximately 37%
of sales from 27% of sales reflecting a higher percentage of toner sales versus
solid ink sales. Overall, gross profit margins increased significantly in the
year ended June 30, 2001 due to the transition of the business from our legacy
reseller business to that of the higher margin Media Sciences supply business.

Selling, General and
Administrative. Selling, general and administrative expenses for the year ended
June 30, 2001 increased to $7,221,280 or 58% of sales from $3,974,762 or 29% of
sales for the year ended June 30, 2000. Our selling, general and administrative
expenses for the year ended June 30, 2001 increased significantly due to several
significant non-reoccurring expenses including approximately $1.1 million in
legal fees, associated with the now settled litigation with Tektronix and Xerox,
the present value of future payments under a supplier agreement in the amount of
$884,000, an accrual of warranty expenses in the amount of $400,000 and expenses
associated with the move and consolidation of our facility of approximately
$150,000.

Depreciation and
Amortization. Depreciation and amortization expense for the year ended June 30,
2001 increased to $771,461, including $100,489 included in Cost of Sales, from
$449,062 for the year ended June 30, 2000. The increase in depreciation and
amortization can primarily be attributed to an additional six months of
amortizing the goodwill created by the ultraHue acquisition in December of 1999.

Interest Expense. Interest
expense for the year ended June 30, 2001 increased to $265,012 from $238,502
incurred for the year ended June 30, 2000.

Income Taxes. For the year
ended June 30, 2001, we recorded an income tax benefit of $1,153,224 versus an
income tax benefit of $144,000 for the year ended June 30, 2000. We recognized
an income tax benefit because we determined that it was more likely than
not that we would be able to fully utilize our deferred tax assets.

---

Dividends. For the year
ended June 30, 2001, we paid or accrued $632,500 of stock dividends to our
preferred shareholders. Our board of directors voted to defer the payment of the
preferred stock dividend for the periods ending March 31, 2001 and June 30, 2001
in order to conserve cash for the Tektronix/Xerox litigation. We also offered
our preferred shareholders the option to receive payment in kind, through a
common stock issuance at $1.00 per share, the fair market value of our common
stock on that date. Shareholders had until May 15, 2001 to elect to
receive payment in kind. As of May 15, 2001, 30 shareholders elected to receive
their dividend payment through the payment in kind, totaling $88,152 and
consisting of 88,152 shares of stock for the two periods ending March 31, 2001
and June 30, 2001. On September 11, 2001, our board of directors again voted to
offer our preferred shareholders the option to receive payment in kind, through
a common stock issuance at $1.10 per share, the fair market value of our common
stock on that date. As of September 17, 2001, one shareholder elected to receive
their dividend payment through the payment in kind, totaling $57,500 and
consisting of 52,273 shares of stock for the two periods ending March 31, 2001
and June 30, 2001. Shareholders have until November 11, 2001 to elect to
receive payment in kind. If we do not receive notice by that date, those
shareholders who have elected not to receive payment in kind will receive their
cash dividend for these two periods at a later date.

Net Income (Loss). For the
year ended June 30, 2001, we incurred a loss applicable to common shareholders
of $2,248,765 or $0.68 per share as compared to the year ended June 30, 2000
where we earned $146,769 or $0.05 basic and $0.04 diluted earnings per share.
The conversion of the Series A convertible preferred stock has been excluded
from the computation of diluted earnings per share for the year ended June 30,
2000, as the conversion would be anti-dilutive after adding back preferred stock
dividends to net income.

## Results of
Operations For The Year Ended June 30, 2000

Sales. Sales for the year
ended June 30, 2000 compared to the year period ended June 30, 1999 increased
approximately 32% to $13,489,839 from $10,227,628. The increase in sales
resulted from a contribution from the ultraHue acquisition of approximately
$2,448,000, a contribution from the WEB acquisition of approximately $1,768,200
and a decrease in our hardware and end-user supply sales of approximately
$954,000

Cost of Sales. Cost of
sales for the year ended June 30, 2000 were $8,522,972 or approximately 63% of
sales, as compared to $7,442,239 or approximately 73% for the year period ended
June 30, 1999. Gross profit margins increased significantly in the year ended
June 30, 2000 due to six months of contribution from the ultraHue acquisition.
Our reseller margins have remained stable despite margin pressure in the areas
of color printers and other low end graphics hardware and supplies.

Selling, General and
Administrative. Selling, general and administrative expenses for the year ended
June 30, 2000 increased to $3,974,762 or 29.5% of sales from $2,889,200 or 28.2%
of sales for the year ended June 30, 1999. Selling, general and administrative
expenses for the year ended June 30, 2000 included approximately $200,000 of
legal expenses associated with our litigation with Tektronix.

Depreciation and
Amortization. Depreciation and amortization expenses for the year ended June 30,
2000 increased to $449,062 from $180,482 for the year ended June 30, 1999.
Approximately $135,000 of the increase in depreciation and amortization can be
attributed to the acquisition of ultraHue with the balance attributable to the
amortization of goodwill resulting from the acquisitions of Tartan Technical and
WEB Associates and depreciation resulting from increased infrastructure
investments.

Interest Expense. Interest
expense for the year ended June 30, 2000 increased to $238,502 from $160,081
incurred for the year ended June 30, 1999. The increase in 1999 was due
primarily to an increase in borrowings to finance our infrastructure
investments.

Income Taxes. For the year
ended June 30, 2000, we recorded an income tax benefit of $144,000. We incurred
a Federal and State income tax expense of $73,000, offset by the elimination of
the valuation allowance totaling $217,000 that had been recognized at June 30,
1999. For the year ended June 30, 1999, we recorded no tax income tax benefit or
expense due to a tax benefit of $217,000 resulting from a net operating loss
carryforwards offset by a valuation allowance of $217,000.

---

Dividends. For the year ended June 30, 2000, we paid $301,772 of stock dividends to our preferred shareholders of record as of June
30, 2000.

Net Income (Loss). For the
year ended June 30, 2000, we earned $146,769 or $0.05 basic and $0.04 diluted
earnings per share, applicable to common shareholders as compared to a net loss
of $444,374 or $0.16 per share for the year ended June 30, 1999. At June 30,
2000, there were 3,176,090 basic weighted average shares outstanding and
3,508,134 diluted weighted average shares outstanding. The conversion of the
Series A convertible preferred stock has been excluded from the computation of
diluted earnings per share for the year ended June 30, 2000, as the conversion
would be anti-dilutive after adding back preferred stock dividends to net
income.

## Liquidity and
Capital Resources

We experienced negative
cash flow of $736,698 for the year ended June 30, 2001. Cash used in operations
resulted in positive cash flows of $157,519 primarily due to the loss of
$1,616,265 and non-cash income tax benefits and reduction in deferred revenue of
$1,167,000 and $188,600 respectively, offset by non-cash charges for
depreciation and amortization of $771,461, a reduction in accounts receivable of
$380,197, an increase in dividends payable of $170,598, an increase in accounts
payable of $316,137, an increase in other accrued expenses of $350,198 and the
accrual of supplier expense in the amount of $884,000.

For the year ended June 30,
2001, the cash we used in investing activities was primarily for the purchase of
tools and molds and for leasehold improvements associated with our new facility.

For the year ended June 30,
2001, we generating cash from financing activities in the amount of $113,726
primarily due to proceeds of debt of approximately $1,400,000 offset by debt
repayments of approximately $800,000 and payments of preferred stock dividends
of approximately $500,000.

We experienced positive
cash flow of $835,685 for the year ended June 30, 2000. Cash used in operations
resulted in positive cash flow of $580,844, primarily due to a profit of
$448,541, non cash charges for depreciation, amortization and issuance of our
securities for services of $520,062, a decrease in inventory of $211,024, a
decrease in accounts receivable of $160,641, an increase in deferred revenue of
$172,344 and an increase in accrued expenses and other current liabilities of
$172,344 offset by the non-cash income tax benefit of $181,000, a decrease in
accounts payable $736,626 and an increase in pre-paid expenses and security
deposits of $183,708.

For the year ended June 30, 2000, the cash we used in investing activities included the purchase of equipment, two URLs and the net
assets of ultraHue for a total of $2,892,714.

We generated cash from the
sale of our common and preferred stock of $4,715,520 for the year ended June 30,
2000. With these proceeds, we executed the ultraHue acquisition and repaid
$738,888 in bank debt.

We have an agreement with a
lender under which we can borrow up to $4,000,000 under a revolving
line-of-credit, subject to availability of collateral. Under the line-of-credit,
the available credit is 50% of eligible inventory, which available credit cannot
exceed $1,000,000 plus 85% of eligible receivables. Borrowings bear interest at
0.5% over the lenders base rate, are payable on demand and are
collateralized by all of our assets. As of June 30, 2001, we had used $1,703,741
of this line. As of June 30, 2000, we had used $1,025,683 of this line.

On June 5, 2001, we issued
a $400,000 promissory note. The note matures on June 5, 2003 and bears simple
interest at the rate of 12% per year. The note is secured by a security
agreement which is subordinate to our line of credit and which covers all
corporate assets. In the event of default on repayment, as penalty, the simple
interest rate shall be increased to a rate of 20% per year commencing from the
date of default.

---

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
$240,200. 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.

On October 1, 1999, we
entered into a managing dealer agreement with a placement agent for a proposed
private offering of $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 consisted of one
share of convertible adjustable preferred stock and one warrant to purchase two
shares of common stock at $4.50. For two years, each share of series A preferred
stock is convertible into 3.077 shares of common stock. After each of two and
four years from the date of closing, the conversion rate of one share of series
A preferred stock into shares of common stock adjusts. At the adjusted
conversion rate, the number of shares of common stock received equals $10
divided by 75% of the average bid price of our common stock during the 90 days
preceding each of the two and four year anniversary dates. A maximum of five
shares of common stock will be issued upon conversion of a share of series A
preferred stock. In addition, the preferred stock will carry a dividend, paid
quarterly, of 11.5% per annum. The offering was sold to accredited investors
only in states where permitted. The proceeds of the offering were used to fund
the ultraHue acquisition, for the expansion of our No-Cap Color printer program
and for working capital. In December 1999, our Board of Directors approved an
increase of the private placement 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 $4,566,549.

## Capital
Expenditures

We plan to acquire at least
$1,000,000 of color printers for our No-Cap Color printer program. Further, we
anticipate committing to additional color toner development and tooling
programs. Costs of these programs during the next twelve months are estimated to
be up to $750,000.

## 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. If 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 or 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.

---

## ITEM 7.
FINANCIAL STATEMENTS

## Financial
Report - June 30, 2001

`Independent Auditors' Report                                                                       F-1

Consolidated Balance Sheets                                                                        F-2
Consolidated Statements of Operations                                                              F-3
Consolidated Statements of Changes in Shareholders' Equity                                         F-4
Consolidated Statements of Cash Flows                                                              F-5
Notes to Consolidated Financial Statements                                                         F-7`

---

# INDEPENDENT
AUDITORS REPORT

To the Board of Directors and Shareholders of
Cadapult Graphic Systems, Inc.

We have audited the accompanying consolidated balance sheets of Cadapult Graphic
Systems, Inc. and subsidiary as of June 30, 2001 and 2000, and the related
consolidated statements of operations, changes in shareholders' equity and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Cadapult Graphic Systems, Inc. and subsidiary at June 30, 2001 and 2000, and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with accounting principles generally accepted in the United
States of America.

| | /S/ WISS & COMPANY, LLPWISS & COMPANY, LLP
| | ------------------------------------------

Livingston, New Jersey
August 6, 2001

---

# CADAPULT
GRAPHIC SYSTEMS, INC.

# AND
SUBSIDIARY

# CONSOLIDATED
BALANCE SHEETS

`June 30,
                                                        ------------------------
                                                           2001          2000
                                                        -----------   ----------

                                     ASSETS

CURRENT ASSETS:
  Cash and equivalents                                   $  132,144   $  868,842
  Accounts receivable, less allowance for doubtful
   accounts of $35,000                                    1,805,272    2,190,903
  Inventories                                             1,214,358    1,262,219
  Deferred income taxes                                     982,000      181,000
  Prepaid expenses and other current assets                  83,586       66,901
                                                        -----------   ----------
     Total Current Assets                                 4,217,360    4,569,865
                                                        -----------   ----------

PROPERTY AND EQUIPMENT, NET                               1,870,227      761,133
                                                        -----------   ----------

OTHER ASSETS:
  Goodwill and other intangible assets, net               4,328,517    4,408,815
  Deferred income taxes                                     366,000           --
  Other assets                                               65,258      134,952
                                                        -----------   ----------
                                                          4,759,775    4,543,767
                                                        -----------   ----------
                                                        $10,847,362   $9,874,765
                                                        ===========   ==========

                      LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
  Short-term debt                                       $ 2,732,582   $2,255,128
  Accounts payable                                        1,391,965    1,075,828
  Accrued expenses and other current liabilities            241,194      290,996
  Accrued product warranty                                  400,000           --
  Dividends payable                                         170,598           --
  Accrued expense - supplier                                225,000           --
  Deferred revenues                                         277,833      360,853
                                                        -----------   ----------
     Total Current Liabilities                            5,439,172    3,982,805
                                                        -----------   ----------

OTHER LIABILITIES:
  Long-term debt, less current maturities                   782,271           --
  Accrued expense - supplier                                659,000           --
                                                        -----------   ----------
                                                          1,441,271           --
                                                        -----------   ----------

COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
  Common stock, $.001 par value,
   Authorized 20,000,000 shares;
   issued and outstanding 3,477,805
   shares in 2001 and 3,228,451 in 2000                       3,478        3,228
  Series A Convertible Preferred stock,
   $.001 par value, Authorized 1,000,000
   shares; issued and outstanding 547,500 shares
   in 2001 and 550,000 in 2000                                  547          550
  Additional paid-in capital                              5,599,991    5,888,182
  Cost of 10,564 shares of common stock in treasury         (20,832)          --
  Retained earnings (deficit)                            (1,616,265)          --
                                                        -----------   ----------
     Total Shareholders' Equity                           3,966,919    5,891,960
                                                        -----------   ----------
                                                        $10,847,362   $9,874,765
                                                        ===========   ==========`

See accompanying notes to consolidated financial statements.

---

# CADAPULT
GRAPHIC SYSTEMS, INC.

# AND
SUBSIDIARY

# CONSOLIDATED
STATEMENTS OF OPERATIONS

`Year Ended June 30,
                                                   ----------------------------
                                                       2001            2000
                                                   ------------    ------------

NET SALES                                          $ 12,523,041    $ 13,489,839
                                                   ------------    ------------
COSTS AND EXPENSES:
  Cost of sales (includes depreciation
    of $100,489 in 2001)                              7,135,266       8,522,972
  Selling, general and administrative expenses        7,221,280       3,974,762
  Depreciation and amortization                         670,972         449,062
                                                   ------------    ------------
                                                     15,027,518      12,946,796
                                                   ------------    ------------

INCOME (LOSS) FROM OPERATIONS                        (2,504,477)        543,043

INTEREST EXPENSE, NET                                   265,012         238,502
                                                   ------------    ------------

INCOME (LOSS) BEFORE INCOME TAXES (CREDITS)          (2,769,489)        304,541

INCOME TAX CREDIT                                    (1,153,224)       (144,000)
                                                   ------------    ------------

NET INCOME (LOSS)                                  $ (1,616,265)   $    448,541
                                                   ============    ============

PREFERRED STOCK DIVIDENDS                          $    632,500    $    301,772
                                                   ============    ============

INCOME (LOSS) APPLICABLE TO COMMON SHAREHOLDERS    $ (2,248,765)   $    146,769
                                                   ============    ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
  Basic                                               3,297,575       3,176,090
                                                   ============    ============
  Diluted                                                    --       3,508,134
                                                   ============    ============

NET INCOME (LOSS) PER COMMON SHARE:
  Basic                                            $      (0.68)   $        .05
                                                   ============    ============
  Diluted                                          $         --    $        .04
                                                   ============    ============`

See accompanying notes to consolidated financial statements.

---

# CADAPULT
GRAPHIC SYSTEMS, INC.

# AND
SUBSIDIARY

# CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY

`Common Stock      Preferred Stock               Additional    Retained        Total
                                    ------------------   ----------------   Treasury    Paid-in      Earnings     Shareholders'
                                     Shares     Amount   Shares    Amount    Stock      Capital      (Deficit)       Equity
                                    ---------   ------   -------   ------   --------   ----------   -----------   -------------

BALANCES, JUNE 30, 1999             3,058,308   $3,058        --   $   --   $     --   $1,171,782   $  (297,774)  $     877,066

YEAR ENDED JUNE 30, 2000:
  Sale of common stock through
    private placement, net             60,000       60        --       --         --      119,640            --         119,700
  Sale of preferred stock
    through private placement, net -        --      --   550,000      550         --    4,565,999            --       4,566,549
  Issuance of common stock for
    services                           35,435       35        --       --         --       70,965            --          71,000
  Issuance of stock for
    acquisition contingency            34,818       35        --       --         --       81,570            --          81,605
  Issuance of stock for
    purchase price adjustment          16,473       17        --       --         --          (17)           --              --
  Exercise of employee stock
    options                            23,417       23        --       --         --       29,248            --          29,271
  Preferred stock dividend,
    11.5%                                  --       --        --       --         --     (151,005)     (150,767)       (301,772)
  Net income                               --       --        --       --         --           --       448,541         448,541
                                    ---------   ------   -------   ------   --------   ----------   -----------   -------------
BALANCES, JUNE 30, 2000             3,228,451    3,228   550,000      550         --    5,888,182            --       5,891,960

YEAR ENDED JUNE 30, 2001:
  Issuance of stock for
    acquisition contingencies          88,737       89        --      --         --       156,690            --         156,779
  Exercise of employee stock
    options                            12,500       12        --      --    (20,832)       17,113            --          (3,707)
  Issuance of stock for
    dividend payment                  140,425      141        --      --         --       145,511            --         145,652
  Conversion of preferred
    stock to common stock               7,692        8    (2,500)     (3)        --            (5)           --              --
  Issuance of common stock for
    services                               --       --        --      --         --        25,000            --          25,000
  Preferred stock dividend, 11.5%          --       --        --      --         --      (632,500)           --        (632,500)
  Net loss                                 --       --        --      --         --            --    (1,616,265)     (1,616,265)
                                    ---------   ------   -------   ------   --------   ----------   -----------   -------------
BALANCES, JUNE 30, 2001             3,477,805   $3,478   547,500    $547    $(20,832)  $5,599,991   $(1,616,265)  $   3,966,919
                                    =========   ======   =======    ====    ========   ==========   ===========   =============`

See accompanying notes to consolidated financial statements.

---

# CADAPULT
GRAPHIC SYSTEMS, INC.

# AND
SUBSIDIARY

# CONSOLIDATED
STATEMENTS OF CASH FLOWS

`Year Ended June 30,
                                                        --------------------------
                                                           2001           2000
                                                        -----------    -----------

  Net income (loss)                                     $(1,616,265)   $   448,541
  Adjustments to reconcile net income (loss) to
   net cash flows from operating activities:
   Depreciation and amortization                            771,461        449,062
   Deferred income taxes                                 (1,167,000)      (181,000)
   Issuance of common stock and warrants for services        25,000         71,000
   Provision for bad debts                                    5,434         10,298
   Loss on sale of fixed asset                               28,812             --
   Changes in operating assets and liabilities:
     Accounts receivable                                    380,197        160,641
     Inventories                                             47,861        211,024
     Prepaid expenses and other current assets               88,895        (95,010)
     Other assets                                            60,791        (88,698)
     Dividends payable                                      170,598             --
     Accounts payable                                       316,137       (736,626)
     Accrued expenses and other current liabilities         350,198        159,268
     Accrued expense - supplier                             884,000             --
     Deferred revenues                                     (188,600)       172,344
                                                        -----------    -----------
        Net cash flows from operating activities            157,519        580,844
                                                        -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property and equipment                      (877,173)      (144,631)
  Purchase of intangible assets                            (139,673)      (267,401)
  Cost of net assets of acquired businesses                      --     (2,502,493)
  Deferred acquisition costs                                  8,903         21,811
                                                        -----------    -----------
        Net cash flows from investing activities         (1,007,943)    (2,892,714)
                                                        -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Note payable to bank, net                                 678,058       (651,341)
  Payments on long-term debt                                361,223        (87,547)
  Note payable - purchase of business                      (760,000)            --
  Advances from officer                                     325,000             --
  Note payable to affiliate                                      --        (20,832)
  Due to seller                                                  --       (506,473)
  Preferred stock dividends                                (486,848)      (301,772)
  Purchase of treasury stock                                 (5,582)            --
  Sale of common stock                                        1,875        148,971
  Sale of preferred stock                                        --      4,566,549
                                                        -----------    -----------
        Net cash flows from financing activities            113,726      3,147,555
                                                        -----------    -----------

NET CHANGE IN CASH AND EQUIVALENTS                         (736,698)       835,685

CASH AND EQUIVALENTS, BEGINNING OF YEAR                     868,842         33,157
                                                        -----------    -----------

CASH AND EQUIVALENTS, END OF YEAR                       $   132,144    $   868,842
                                                        ===========    ===========`

See accompanying notes to consolidated financial statements.

---

# CADAPULT
GRAPHIC SYSTEMS, INC.

# AND
SUBSIDIARY

# CONSOLIDATED
STATEMENTS OF CASH FLOWS

(Continued)

`Year Ended June 30,
                                                        --------------------------
                                                           2001           2000
                                                        -----------    -----------

SUPPLEMENTAL CASH FLOW INFORMATION:
  Interest paid                                         $   239,925    $   174,982
                                                        ===========    ===========

  Income taxes paid                                     $    39,913    $        --
                                                        ===========    ===========

  Inventories transferred to equipment                  $        --    $   174,907
                                                        ===========    ===========

  Issuance of common stock upon satisfaction
  of acquisition contingency                            $   156,779    $    81,605
                                                        ===========    ===========

  Issuance of common stock as dividend payment          $   145,652    $        --
                                                        ===========    ===========

  Purchase of treasury stock                            $    15,250    $        --
                                                        ===========    ===========

Non cash investing activities:
  Acquisition of business:
   Fair value of assets acquired                        $        --    $ 4,168,966
   Due to seller                                                 --       (506,473)
   Note payable to seller                                        --     (1,160,000)
                                                        -----------    -----------
     Net cash payment                                   $        --    $ 2,502,493
                                                        ===========    ===========

  Acquisition of equipment by capital leases            $   655,444    $        --
                                                        ===========    ===========`

See accompanying notes to consolidated financial statements.

---

# CADAPULT
GRAPHIC SYSTEMS, INC.

# AND
SUBSIDIARY

# NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

## NOTE 1     -   NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Nature
of the Business-Cadapult Graphic Systems,
Inc. and subsidiary, collectively referred to as the Company,
manufacture and distribute supplies, including solid ink sticks and toner
cartridges, for color workgroup printers. The Companys Media Sciences
subsidiary sells these supplies internationally through a network of dealers,
distributors and OEMs. The Company also sells directly to end users through
programs designed to foster the supplies business. The Company has its corporate
headquarters in New Jersey and has offices in Redmond, Washington.

Principles
of Consolidation-The consolidated financial statements include
the accounts of Cadapult and its wholly-owned subsidiary Media Sciences, Inc.
All significant intercompany balances and transactions have been eliminated in
consolidation.

Estimates
and Uncertainties-The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of
America 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.

Revenue
 Cash Equivalents 
        Cash equivalents include all highly liquid short term investments purchased with
original maturities of three months or less.

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, 2001, the Company has uninsured
balances totaling approximately $120,000.

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, 2001 is limited.

Inventories 
Inventories, consisting of raw materials and finished goods, are stated at the lower of
cost (specific identification method) or market.

Property
and Equipment  Property and equipment are stated at cost.
The Company provides for depreciation using straight-line and accelerated
methods by charges to income at rates based upon the recovery periods of 3 to 7
years for furniture and equipment and over the useful lives or the lease term,
if shorter, for leasehold improvements.

---

# CADAPULT GRAPHIC
SYSTEMS, INC.

# AND
SUBSIDIARY

# NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

Goodwill
and Other Intangible Assets  Goodwill and other intangible
assets are stated at cost and are amortized on a straight-line basis over
periods ranging from one to fifteen years.

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, 2001.

Advertising
Expense  Advertising costs are expensed as incurred.
Advertising expense for the years ended June 30, 2001 and 2000 amounted to
approximately $242,118 and $93,542, respectively.

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. Contributions made by the Company
for the years ended June 30, 2001 and 2000 were $19,000, and $14,889,
respectively.

Deferred
Acquisition Costs Acquisition costs have been deferred, pending
the outcome of negotiations. If the acquisition is completed, these costs will
be capitalized; otherwise they will be charged to expense.

Earnings
(Loss) Per Share  Basic earnings (loss) per share is based
upon net income (loss) less preferred dividends divided by the weighted average
number of common shares outstanding during the period. Diluted earnings per
share is based on the weighted average number of shares outstanding adjusted for
the incremental shares attributable to outstanding options, dilutive securities,
warrants and other potentially dilutive securities.

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 expense was recognized in 2001 and
2000 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 $(2,750,000) and $(.83) in 2001 and
$(242,000) and $(.08) in 2000, using the Black-Scholes option pricing model.

The
fair value of options granted in 2001 and 2000 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 180% in 2001 and 198% in 2000 and a
weighted-average expected life of the options of five years.

---

# CADAPULT GRAPHIC
SYSTEMS, INC.

# AND
SUBSIDIARY

# NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

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 Pronouncements  In June 2001, the FASB
issued SFAS No. 141,Business Combinations, which supercedes APB
Opinion No. 16, Business Combinations, and FASB Statement No. 38
Accounting for Preacquisition Contingencies of Purchased
Enterprises. The scope of this Statement requires all business
combinations to be accounted for using one method  the purchase method,
and applies to all business combinations initiated after June 30, 2001. This
Statement will be adopted by the Company for all combinations entered into after
June 30, 2001, and is not expected to have an impact of the Companys
financial statements.

In
June 2001, the FASB issued SFAS No. 142, Goodwill and other Intangible
Assets, which supercedes APB No. 17, Intangible Assets. This
Statement addresses how acquired intangible assets shall be accounted for in
financial statements upon acquisition and how goodwill and other intangible
assets should be accounted for after they have been initially recognized in the
financial statements. This Statement is required to be adopted in the first
interim financial statement starting with fiscal years beginning after December
15, 2001. The Company expects to adopt this Statement in the first interim
financial statement for the year ending June 30, 2002. The Company is currently
assessing the effect the adoption of this Statement will have on its
financial statements.

## 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 assumed 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. As of June 30, 1999, 92,850 of the shares were held in escrow pursuant
to the resolution of a contingency based on Tartan achieving certain gross
profit levels over the next two years. During the year ended June 30, 2000,
Tartan earned 34,818 shares (valued at $81,605) and forfeited 11,607 shares.
During the year ended June 30, 2001, Tartan earned 34,868 shares (valued at
$69,737) and forfeited the remaining 11,557 shares.

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 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. As of June 30, 1999, 86,190 of the shares were held in escrow pursuant
to the resolution of a contingency based on WEB achieving certain gross profit
levels. As of June 30, 2001, WEB earned 53,869 shares (valued at $87,042) and
forfeited the remaining 32,321 shares.

---

# CADAPULT
GRAPHIC SYSTEMS, INC.

# AND
SUBSIDIARY

# NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

On
December 13, 1999, Media Sciences, Inc. (Media) completed the
acquisition of substantially all of the assets of ultraHue, Inc. for $2,340,000
in cash, and a note payable for $1,160,000 bearing interest at 7% per annum, due
on December 13, 2000 (Note 6). Media also agreed to acquire accounts receivable
and inventories, and assume accounts payable and reimburse ultraHue, as those
receivables are collected and inventory sold. In addition, the Asset Purchase
Agreement provides for an additional purchase price of 10-30% of Media
Sciences profits (as defined) for three years.

The
following unaudited pro forma consolidated results of operations for the years
ended June 30, 2001 and 2000, assume the ultraHue acquisition had occurred on
July 1, 1999, 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.

`Year Ended June 30,
                                                            -----------------------------
                                                               2001              2000
                                                            -----------       -----------

    Net sales                                               $12,523,041       $14,752,396
                                                            ===========       ===========

    Net income (loss) applicable to common shareholders     $(2,248,765)      $    58,269
                                                            ===========       ===========

    Basic and diluted income (loss) per share                     $.(68)            $(.02)
                                                                  =====             =====`

## NOTE
3   INVENTORIES:

Inventories are summarized as follows:

`June 30,
                                                            -----------------------------
                                                               2001              2000
                                                            -----------       -----------

    Raw materials                                           $   165,673       $    35,811
    Finished goods                                            1,048,685         1,226,408
                                                            -----------       -----------

                                                            $ 1,214,358       $ 1,262,219
                                                            ===========       ===========`

---

# CADAPULT
GRAPHIC SYSTEMS, INC.

# AND
SUBSIDIARY

# NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

## NOTE
4   PROPERTY AND EQUIPMENT:

Property and equipment are summarized as follows:

`June 30,
                                                            -----------------------------
                                                               2001              2000
                                                            -----------       -----------
         Equipment                                          $ 1,393,584       $ 1,311,404
         Equipment at customers                                 655,444                --
         Furniture and fixtures                                 306,044           205,646
         Automobiles                                             91,415            60,980
         Leasehold improvements                                 240,093            98,568
         Tooling and molds                                      442,691                --
                                                            -----------       -----------
                                                              3,129,271         1,676,598
         Less: Accumulated depreciation and amortization      1,259,044           915,465
                                                            -----------       -----------

                                                            $ 1,870,227       $   761,133
                                                            ===========       ===========`

## NOTE 5  
GOODWILL AND OTHER INTANGIBLE ASSETS:

Goodwill and other intangible assets are summarized as follows:

`Life                    June 30,
                                                                 -----------------------------
                                                  (Years)           2001               2000
                                                  -------        ----------         ----------
         Goodwill                                   15           $4,863,973         $4,567,521
         Other                                      1-5             165,880            165,880
                                                                 ----------         ----------
                                                                  5,029,853          4,733,401
         Less: Accumulated amortization                             701,336            324,586
                                                                 ----------         ----------

                                                                 $4,328,517         $4,408,815
                                                                 ==========         ==========`

---

# CADAPULT
GRAPHIC SYSTEMS, INC.

# AND
SUBSIDIARY

# NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

## NOTE
6   DEBT:

The Company's borrowings consisted of the following:

`June 30,
                                                                  ---------------------------
                                                                    2001              2000
                                                                  ----------       ----------
         Short-term debt:
           Revolving line-of-credit with bank                     $1,703,741       $1,025,683
           Note payable relating to acquisition of ultraHue          400,000        1,160,000
           Note payable to officer                                   325,000               --
           Convertible note payable                                  105,000               --
           Current maturities of long-term debt                      198,841           69,445
                                                                  ----------       ----------

                                                                  $2,732,582       $2,255,128
                                                                  ==========       ==========

         Long-term debt:
           Long-term debt, less current maturities                $  382,271       $       --
           Note payable                                              400,000               --
                                                                 -----------       ----------

                                                                 $   782,271       $
                                                                 ===========       ==========`

The
Company has an agreement with a bank under which it can borrow up to $4,000,000
under a revolving line-of-credit, subject to availability of collateral.
Borrowings bear interest at .50% over the banks base rate, are payable on
demand and are collateralized by all assets of the Company.

Note payable  relating to acquisition of ultraHue,  Inc.  consists of the remaining  $400,000  balance due
under a $1,160,000  note payable to ultraHue,  Inc. which matured on December 13, 2000. The Company  entered into a
new note with ultraHue, Inc. which bears interest at a rate of 13% per annum and is due on demand.

The
$325,000 note payable to officer bears interest at 10% per annum and is due on
demand.

The
$105,000 convertible note payable bears interest at 10% per annum, is
convertible into the Companys common stock at $1.00 per share, and is due
in November 2001.

Long-term
debt consists primarily of various capital leases, totalling $561,622. The
capital leases bear interest at between 10% and 14% per annum and mature through
June 30, 2005 (Note 9). The Company has a $400,000 note payable to an investor
which bears interest at 12% per annum and is payable in quarterly installments
of interest only through June 2003.

---

# CADAPULT
GRAPHIC SYSTEMS, INC.

# AND
SUBSIDIARY

# NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

Long-term debt at June 30, 2001 matures as follows:

`Year Ending June 30,
                     --------------------

                               2002                                $198,841
                               2003                                 623,918
                               2004                                 136,556
                               2005                                  21,797
                                                                   --------

                                                                   $981,112
                                                                   ========`

## NOTE
7   INCOME TAXES:

The components of the income tax credit are summarized as follows:

`Year Ended June 30,
                                                               ---------------------------
                                                                  2001            2000
                                                               -----------     -----------

             Current:
               Federal                                         $        --     $        --
               State                                                13,776          37,000
                                                               -----------     -----------
             Total Current                                          13,776          37,000
                                                               -----------     -----------

             Deferred:
               Federal                                            (922,000)        (94,000)
               State                                              (245,000)        (87,000)
                                                               -----------     -----------
             Total Current                                      (1,167,000)       (181,000)
                                                               -----------     -----------

             Income Tax Expense (Credit)                       $(1,153,224)    $  (144,000)
                                                               ===========     ===========`

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, 2001, the Company believes that the more likely than
not criteria have been met, and accordingly, the Company has recorded a
deferred tax asset to recognize a future tax benefit. The valuation allowance
totaling $217,000 that had been recognized at June 30, 1999, was removed during
the year ended June 30, 2000.

The Company has available federal net operating loss carryforwards of approximately $1,800,000 which
expire through 2020.

---

# CADAPULT GRAPHIC
SYSTEMS, INC.

# AND
SUBSIDIARY

# NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

A
reconciliation of income tax expense (benefit) provided at the federal statutory
rate (34%) to income tax expense (benefit) is as follows:

`Year Ended June 30,
                                                                         --------------------------
                                                                             2001            2000
                                                                         -------------    ---------

         Income tax expense (benefit) computed at federal statutory
           rate                                                            $(941,626)     $ 103,544
         State income taxes (net of federal benefit)                        (153,324)       (36,197)
         Other                                                               (58,274)         5,653
         Change in valuation allowance                                            --       (217,000)
                                                                         -----------      ---------

                                                                         $(1,153,224)     $(144,000)
                                                                         ===========      =========`

Significant
components of the Companys deferred tax assets are as follows:

`June 30,
                                                                         --------------------------
                                                                             2001            2000
                                                                         -----------      ---------

           Net operating loss carryforwards                              $   803,000      $ 160,000
           Accruals and reserves                                             545,000         21,000
                                                                         -----------      ---------
                                                                           1,348,000        181,000
              Less: valuation allowance                                           --             --
                                                                         -----------      ---------

                  Total deferred tax assets                              $ 1,348,000      $ 181,000
                                                                         ===========      =========`

## NOTE
8   SHAREHOLDERS EQUITY:

## a)     Stock Compensation Plan:

| | The
Company has an incentive stock option (the 1998 Plan), pursuant to
which 500,000 shares of common stock have been reserved. 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.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

# CADAPULT GRAPHIC
SYSTEMS, INC.

# AND
SUBSIDIARY

# NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

Share option activity for the Plan since July 1, 1999, follows:

`Weighted
                                                                         Average
                                                    Outstanding      Exercise Price
                                                    -----------      --------------


             Balance at July 1, 1999                  317,893            $1.95

             Year ended June 30, 2000:
                 Granted                               67,452             2.59
                 Exercised                            (23,417)            1.25
                 Cancelled                            (81,000)            2.36
                                                    ---------            -----

             Balance at June 30, 2000                 280,928             2.04

             Year ended June 30, 2001:
                 Granted                               64,502             2.17
                                                                          ----
                 Exercised                            (12,500)            1.37
                 Cancelled                            (57,204)            2.38
                                                     --------            -----

             Balance at June 30, 2001                 275,726            $2.03
                                                     ========            =====`

The following table summarizes information about outstanding and exercisable options at June 30,
                2001:

`Options Outstanding                                                          Options Exercisable
  ---------------------------------------------------------------------------         --------------------------------
                                                                   Weighted
                                                                   Average
                                               Weighted            Remaining                              Weighted
  Range of                Number                Average           Contractual           Number          Average
  Exercise Prices         Outstanding       Exercise Price        Life-Years          Exercisable       Exercise Price
  ---------------         -----------       --------------        -----------         -----------       --------------
  $0.00 to $2.00              159,076           $1.55                7.59               131,076             $1.50

  $2.01 to $3.00               75,450            2.37                9.50                49,450              2.29

  $3.01 to $4.00               41,200            3.28                8.24                41,200              3.28
                               ------            ----                ----               -------             -----

                              275,726           $2.03                6.93               221,726             $2.01
                              =======           =====                ====               =======             =====`

| | During the year ended 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. A total of 250,000 options are vested at June 30,
                2001.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The Company granted two employees five-year stock options to
                purchase up to 100,000 shares each which vest upon the Company
                attaining certain specified milestones and are exercisable at
                $1.25 per share and expire in March 2005. A total of 100,000
                options are vested at June 30, 2001.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

# CADAPULT
GRAPHIC SYSTEMS, INC.

# AND
SUBSIDIARY

# NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

| | In December 1999, the
Company granted two employees five year stock options to purchase up to 50,000
shares each which vest ratably over three years, are exercisable at $3.00 per
share and expire in December 2004. A total of 33,333 options are vested at June
30, 2001.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During the year ended June
30, 2001 the Company granted an employee a five year stock option to purchase up
to 100,000 shares of which 50,000 vested immediately. The remaining shares vest
upon the Company attaining certain specified milestones. The options are
exercisable at $1.25 per share and expire in July 2005.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

## b)     Common Stock:

| | In
September 1999, the Company sold 60,000 shares of its common stock for $2.00 per
share for net proceeds of $119,700.
| | -----------------------------------------------------------------------------------------------------------------------

| | During
the year ended June 30, 2000, the Company issued 35,435 shares of its common
stock for services valued at $71,000.
| | -------------------------------------------------------------------------------------------------------------------------

| | During
the year ended June 30, 2001, the Company issued 140,425 shares of its common
stock valued at $145,652 in lieu of cash payments for dividends on its Series A
Preferred Stock.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

## c)     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
which were subsequently capitalized. The warrants, which had a value of $20,510,
using the Black-Scholes pricing model, expire through February 15, 2004.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
October 1999, the Company issued 30,000 warrants to purchase its common stock at
between $3.00 - $4.00 per share in exchange for investor relation services which
were subsequently capitalized. The warrants, which were valued at approximately
$100,000 using the Black-Scholes pricing model, were recognized as a cost of
issuance of the Series A Preferred shares and expire on September 29, 2004.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In June 2001, the Company
issued 200,000 warrants to purchase its common stock at $1.00 per share in consideration for
consulting services. The warrants, which were valued at $25,000, based on the
value of consulting services received, expire on May 31, 2006.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

## d)     Amendments to Certificate of Incorporation:

| | In August 1999, the Companys Board of Directors amended its 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.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

# CADAPULT
GRAPHIC SYSTEMS, INC.

# AND
SUBSIDIARY

# NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

## e)     Preferred Stock:

| | The
Companys Certificate of Incorporation authorizes the issuance of up to
5,000,000 shares of Preferred Stock. The Board of Directors is authorized to
issue shares of Preferred Stock from time to time in one or more series and to
establish and designate any such series and to fix the number of shares and the
relative conversion rights, voting rights, terms of redemption and liquidation.
In December 1999, the Board authorized the issuance of up to 1,000,000 shares of
Series A Preferred Stock.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
March 10, 2000, the Company completed a private placement wherein it sold
550,000 units for $10.00 per unit representing 550,000 shares of its Series A
Preferred Stock and 1,100,000 warrants exercisable for five years to purchase
one share of common stock for $4.50 per share. Net proceeds received from the
sale totalled $4,566,549.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Dividends
on the Series A Preferred Stock accrue at a rate of 11.5% per annum and are
payable quarterly. Each Series A share is convertible at the option of the
holder at a rate of 3.077 shares of common stock for one Series A share. 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.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company has the right to call the Series A shares at $15.00 per share, at any
time. Holders have the right to convert upon receipt of the call notice.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
connection with the private placement, the placement agent received a commission
and non accountable expense allowance equal to 13% of the proceeds of the
offering, five year warrants to purchase up to 236,500 shares of the
Companys common stock at $1.65 per share and up to 590,000 shares of the
Companys common stock at $3.75 per share. The value of the warrants was
recognized as a cost of issuance of the Series A shares.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
the year ended June 30, 2001, holders of 2,500 shares of Series A Preferred
Stock converted the Series A Preferred Stock into 7,692 shares of the
Companys common stock.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

## f)     Treasury Stock:

| | During
the year ended June 30, 2001, the Company purchased 10,564 shares of its common
stock, valued at $20,832, in connection with the cashless exercise of employee stock
options.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

## NOTE
9   COMMITMENTS AND CONTINGENCIES:

Leases
 The Company leases its premises under lease agreements which expire
through 2011 and an automobile and equipment under operating leases that expire
through 2003. As of June 30, 2001, the Companys property under capital
leases, which is included in property and equipment, has a cost of $655,444 and
accumulated depreciation of $64,913 and consists primarily of printers placed at
customer locations.

---

# CADAPULT
GRAPHIC SYSTEMS, INC.

# AND
SUBSIDIARY

# NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

Future minimum lease payments are as follows:

`Capital Leases
                                                                             Included
                                                                            in Property          Operating
                 Year Ending June 30,                                      and Equipment          Leases
                 --------------------                                      -------------        -----------

                      2002                                                  $   251,320         $   543,944
                      2003                                                      251,320             490,848
                      2004                                                      139,000             360,510
                      2005                                                       21,352             252,712
                      2006                                                           --             252,712
                      2007 and thereafter                                            --           1,127,421
                                                                            -----------         -----------

         Total future minimum lease payments                                    662,992         $ 3,028,147
                                                                                                ===========
         Less: Amount representing interest                                     101,370
                                                                            -----------
         Present value of minimum lease payments (Note 6)                       561,622
         Less:  Current maturities                                              193,170
                                                                            -----------
         Non-current                                                        $   368,452
                                                                            ===========`

Rent
expense amounted to $232,296 and $216,764 for the years ended June 30, 2001 and
2000, 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. In 1999, the Company entered into
three-year employment agreements with two employees providing for aggregate
compensation of $160,000 per annum.

LitigationThe Company is a defendant in legal proceedings arising in the
ordinary course of its business activities. Although the ultimate disposition of
these proceedings is not presently determinable, management does not expect the
outcome to have a material adverse effect on the Companys financial
position.

## NOTE
10  SUPPLIER AGREEMENT:

On
May 4, 2001, the Company entered into an agreement with a supplier, whereby,
beginning May 1, 2001, the Company is required to pay $.50 per ink stick sold,
increasing to $.75 on May 1, 2002, $1.00 on May 1, 2003 and $1.50 on May 1,
2004. The present value, $884,000, of the maximum commitment under the
agreement, $1,000,000, has been recorded as a liability at June 30, 2001.

---

# CADAPULT
GRAPHIC SYSTEMS, INC.

# AND
SUBSIDIARY

# NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

## NOTE
11   EARNINGS (LOSS) PER COMMON SHARE:

Basic
earnings per common share is computed using the weighted average number of
common shares outstanding. Diluted earnings per common share is computed using
the weighted average number of shares outstanding as adjusted for the
incremental shares attributed to outstanding options and warrants to purchase
common stock , and other potentially dilutive securities.

The
following table sets forth the computation of basic and diluted earnings per
common share:

`Year Ended June 30,
                                                                           ------------------------------
                                                                               2001               2000
                                                                           ------------         ---------
             Numerator:
               Net income (loss) - basic                                   $ (2,248,765)        $ 146,769
                                                                           ============         =========

               Net income (loss) - diluted                                 $ (2,248,765)        $ 146,769
                                                                           ============         =========

             Denominator:
               Denominator for basic earnings per
                 common share:
                 Weighted average shares                                      3,297,575         3,176,090

               Effect of dilutive securities-
                 Employee stock options and warrants                                 --           332,044
                                                                           ------------         ---------

               Denominator for diluted earnings per
                  common share                                                3,297,575         3,508,134
                                                                           ============         =========

               Earnings (loss) per common share:
                 Basic                                                            $(.68)             $.05
                                                                                  =====              ====
                 Diluted                                                          $  --              $.04
                                                                                  =====              ====`

The
following warrants and options to purchase common stock were excluded from the
computation of diluted earnings per share for the year ended June 30, 2001
because their inclusion would be anti-dilutive and for the year ended June 30,
2000 because their exercise price was greater than the average market price of
the common stock:

`Year Ended June 30,
                                                                           ------------------------------
                                                                               2001               2000
                                                                           ------------         ---------

             Anti-dilutive warrants and options                               3,437,226         1,884,200
                                                                           ============         =========`

The
conversion of the Series A convertible preferred stock has been excluded from
the computation of diluted earnings per share for the years ended June 30, 2001
and 2000 as the conversion would be anti-dilutive after adding back preferred
stock dividends to net income (loss).

---

## ITEM 8.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
                  AND FINANCIAL DISCLOSURE

Not applicable.

---

# PART III

## ITEM 9.    DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
           COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

## Our Management

The persons listed in the table below are our present directors and executive officers.

`---------------------------------------- ----------- ---------------------------------------------------------------
Name                                     Age         Position
---------------------------------------- ----------- ---------------------------------------------------------------
Michael W. Levin                         36          Chief Executive Officer, President and Chairman of the Board
Frances Blanco                           40          Vice President Marketing and Investor Relations, Treasurer,
                                                          Secretary and Director
Duncan Huyler                            40          Vice President Technical Services
Duncan Yates                             31          Vice President Sales
Paul C. Baker                            63          Director
Edwin Ruzinsky                           67          Director
Donald Gunn                              49          Director and Vice President of Media Sciences
Henry Royer                              69          Director
Stanley Brooks                           53          Director
---------------------------------------- ----------- ---------------------------------------------------------------`

Our directors 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. Our Board of
Directors may increase the size of the Board of Directors. Any director who
fills a position created by the Board of Directors serve until the next annual
meeting of the shareholders. Our officers are elected by the Board of Directors
at the first meeting after each annual meeting of our shareholders, and hold
office until their death, resignation or removal from office.

## Management
Profile

Michael W. Levin, Chief Executive Officer, President and Chairman of the Board:

Michael W. Levin has served as our Chief Executive Officer, President and
Chairman of the Board since June 18, 1998. Before June 1998, he had served as
President, Treasurer, Secretary and Chairman of Cadapult's predecessor, Cadapult
Graphic Systems Inc. ("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:

Frances Blanco has served
as our Vice President of Marketing and Investor Relations, Treasurer, Secretary
and a Director 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. Blanco manages all aspects of marketing, including brand
identity, demand creation and vendor relationships for us as well as investor
relations. From 1984 through 1989, Blanco was a Reseller Account Manager at
Lotus, where she designed and implemented marketing programs. From August 1989
through June 1993, 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:

Duncan Huyler has served as
our Vice President of Technical Services since June 18, 1998. From 1993 to June
18, 1998, he served as Vice President of Technical Services for CGSI. Huyler
manages all the technical aspects for us, 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, Huyler served in the U.S. Army. From September 1988 through August
1993, Huyler worked for Lord & Taylor, where his positions included Senior
Financial Analyst and Director of Systems. 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.

Duncan Yates, Vice President of Sales:

Duncan Yates has served as
Vice President of Sales since July 15, 2000. Prior to July 15, 2000, Yates
served as the Regional Sales Manager for Cadapult, which he joined in 1993.
Yates manages all aspects of direct sales for Cadapults value added
reseller business, including achieving quarterly revenue and gross profit
targets, developing sales plans and strategies, hiring and training sales staff,
and implementing vertical market pilot programs. Yates is a 1992 graduate of
Western Maryland College with a Bachelor of Science degree in Political Science.

Paul C. Baker, Director:

Paul C. Baker has served as
a Director 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 founding Sherwood Partners, Inc. in 1986, Baker held
numerous positions during his twenty-five years of employment with American
Cyanamid Co. At Cyanamid, 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. 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 from Lehigh
University in 1960, and received a Masters in Business Administration from
Fairleigh Dickinson University in 1963.

Edwin Ruzinsky, Director:

Edwin Ruzinsky has served
as a Director 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 as Vice President
of Finance & Administration/Book Publishing Group and Parents Magazine
Enterprises, Inc. as Chief Accounting Officer. 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, for the past twenty-five years, he has been a consultant to The CPA
Journal, published by the New York State Society of Certified Public
Accountants.

Donald Gunn, Director:

Donald Gunn has served as a Director since December 23, 1999. Since December 13,
1999, he has served as Vice President of Media Sciences. He founded ultraHue,
Inc., a manufacturer of ink and toner products for computer printers in March
1996. He served as President and Chief Executive Officer of ultraHue until we
acquired ultraHue on December 13, 1999. From June 1997 to November 1998, he
served as the Western Sales Manager for Invention Machine Corporation, a Boston
based provider of software designed to aid engineers in the development of
engineering solutions. From August 1995 to May 1997, he worked as Regional
Manager for the Pacific Northwest for 3D Systems, located in Valencia,
California, a company that produces stereo lithography machines. From October
1987 to August 1995, he worked for the Color Printer Division of Tektronix,
Inc., located in Wilsonville, Oregon, in various sales and marketing positions,
including Major Account Manager and VAR Account Manager for the Western United
States. From July 1986 to October 1987, he worked as a sales manager for Silma,
Inc., located in Santa Clara, California, a company that produced software for
industrial equipment. From January 1985 to June 1986, he was the Western Area
Sales Manager for AAB Robotics, located in Fort Collins, Colorado, a company
that produced equipment for the welding industry. He received a Bachelors of
Science degree in Electrical Engineering from the University of Illinois in
1974.

---

Henry Royer, Director:

Henry Royer has served as a
Director since December 23, 1999. From 1965 to 1983, Royer held several
positions at First National Bank of Duluth in 1965, including Assistant Cashier,
Assistant Vice President, Assistant Manager of the Commercial Loan Department
and Senior Vice President in Charge of Loans, and served as Executive Vice
President/Loans when he left First National Bank. He then joined The Merchants
National Bank of Cedar Rapids, now named Firstar Bank Cedar Rapids, N.A., where
he served as Chairman and President until August 1994. From September 1994
through December 31, 1997, he served as the President and Chief Executive
Officer of River City Bank, Sacramento, California. He served as an Independent
Trustee of Berthel Growth & Income Trust I from its date of inception in
1995 through February 5, 1999, when he resigned to join Berthel Fisher &
Company Planning Inc., and was elected President of Berthel Trust in July 1999.
He was elected President of Berthel SBIC, LLC in August 1999. He graduated in
1953 from Colorado College with a B.A. in Money and Banking.

Stanley Brooks, Director:

Stanley Brooks has served
as a Director since September 7, 2000. He is the Chairman and President of
Brookstreet Securities Corporation. He has served in this capacity for the past
11 years. Brookstreet is a nationally recognized full service investment banking
and corporate finance firm, based in Irvine, California, with memberships in the
NASD, BSE, NFA, RIBA, and SIPC. Founded in 1990, Brookstreet has in excess of
110 branch offices throughout the 50 states. Prior to his development of
Brookstreet, Stanley Brooks held both Executive and Senior Vice President
Positions from 1976 to 1990 with three independent regional brokerage firms.

## Board
Committees and Meetings

During the fiscal year that ended on June 30, 2001, the Board of Directors held
four meetings. During this period, six of the directors serving on the Board at
the time attended or participated in more than 75% of the aggregate of the total
number of meetings of the Board of Directors.

We have an Audit Committee consisting of the following members of the Board of
Directors: Paul Baker, Edwin Ruzinsky and Stanley Brooks. The function of the
Audit Committee includes reviewing internal financial information, monitoring
cash flow, budget variances and credit arrangements, reviewing the audit program
of Cadapult, reviewing with Cadapult's independent accounts the results of all
audits upon their completion, annually selecting and recommending independent
accountants, overseeing the quarterly unaudited reporting process and taking
such other action as may be necessary to assure the adequacy and integrity of
all financial information distribution by Cadapult. The Audit Committee consists
of non-employee directors whom Cadapult has determined are free of any
relationship that could influence their judgement as a committee member and are
not associated with a major vendor to, or a customer of, Cadapult.

We have a Compensation
Committee consisting of the following member of the Board of Directors: Paul
Baker, Stanley Brooks and Michael W. Levin. The function of the Compensation
Committee is to make determinations concerning salaries and incentive
compensation for our officers and employees.

## Section 16(a)
Beneficial Ownership Reporting Compliance

Section 16(a) of the
Securities Exchange Act of 1934 requires Cadapults directors and executive
officers, and persons who own more than ten percent of Cadapults common
stock, to file with the SEC initial reports of beneficial ownership and reports
of changes in beneficial ownership of Cadapults common stock. Such persons
are also required by SEC regulations to furnish Cadapult with copies of all such
Section 16(a) forms they file. Based solely on a review of the copies of such
reports furnished to Cadapult, Cadapult is not aware of any delinquencies in the
filing of such reports.

---

## ITEM 10.  
EXECUTIVE COMPENSATION

## Summary
Compensation Table

The table below sets forth information concerning the annual and long-term
compensation during our last three fiscal years of our Chief Executive Officer
and all of our other officers ("Named Executive Officers"). In reviewing the
Summary Compensation Table below, consider that:

|o | Donald Gunn became a director of Cadapult and an officer of Media Sciences on
December 23, 1999. His reported fiscal year 2000 compensation covers a six-month
period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|o | Duncan Yates became an officer on July 15, 2000. His reported fiscal year 2001
compensation covers the entire twelve-month period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|o | On March 3, 1999, we issued to each of Blanco and Huyler five-year stock options
to purchase up to 100,000 shares of common stock, subject to vesting only after
we achieve certain corporate levels of earnings: stock options to acquire 25,000
shares can be exercised following the first fiscal year that our earnings before
interest, taxes, depreciation and amortization exceed each of $500,000,
$1,000,000, $1,500,000 and $2,000,000. For each of Blanco and Huyler, stock options to purchase 50,000 shares
vested based upon the achievements of the first two vesting criteria in the 2000
fiscal year. As of May 6, 2001, our Board of Directors approved the repricing of
stock options from an exercise price of $2.00 per share to $1.25 per share. For
purposes of the Summary Compensation Table, the initial grants of the stock
options are reported as awarded in fiscal year 1999, and the repriced options
are reported as awarded in fiscal year 2001.
|o | On July 1, 2000, we issued to Duncan Yates stock options to
purchase up to 100,000 shares of common stock, of which stock options to acquire
50,000 shares vested immediately and stock options to acquire an additional
50,000 shares subject to vesting only after we achieve certain corporate levels
of earnings: stock options to acquire 25,000 shares can be exercised following
the first fiscal year that our earnings before interest, taxes, depreciation and
amortization exceed each of $1,500,000 and $2,000,000. As of May 6, 2001, our
Board of Directors approved the repricing of stock options from an exercise
price of $2.00 per share to $1.25 per share.                                                                                                                                                                                                                                                                                                  
|o | Our matching contributions to employees 401(k) plan are included in the
table as all other compensation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

`--------------------------------------- ------------------------------------- ------------------------ --------------
                                                                              Long Term Compensation
                                                                              ------------------------
                                                Annual Compensation                   Awards
                                        ------------------------------------- ------------------------
                                                                               Securities Underlying     All Other
Name and Principal Position               Year       Salary         Bonus        Options/SARS (#)      Compensation
--------------------------------------- --------- -------------- ------------ ------------------------ --------------

Michael W. Levin                          2001         $150,490           $0                        0         $2,490
Chief Executive Officer and President     2000         $131,717           $0                        0         $2,503
                                          1999         $130,000           $0                  500,000         $2,379

Frances Blanco                            2001          $90,000           $0                  100,000         $2,625
Vice President, Treasurer and             2000          $85,493       $9,920                        0         $2,554
Secretary                                 1999          $80,000      $10,000                  100,000         $2,021

Duncan Huyler                             2001         $105,485           $0                  100,000         $2,637
Vice President                            2000          $96,725           $0                        0         $1,765
                                          1999          $95,000      $25,000                  100,000         $4,630

Duncan Yates                              2001         $110,000      $10,000                  100,000           $938
Vice President

Donald Gunn                               2001          $80,000           $0                        0          $1681
Vice President of Media Sciences          2000          $43,333           $0                   50,001             $0
--------------------------------------- --------- -------------- ------------ ------------------------ --------------`

---

## Option/SAR
Grants in Last Fiscal Year - Individual Grants

The table below sets forth information concerning stock options granted during
the fiscal year ended June 30, 2001 to Named Executive Officers. The percentage
of total stock options is based 164,502 stock options granted to officers,
directors, and employees during the 2001 fiscal year. The table below excludes
options to purchase up to 200,000 shares held by officers, which options were
originally granted in fiscal year 1999 and repriced in fiscal year 2001.

`---------------------------- ------------------------- -------------------------- ---------------- -----------------
                               Number of Securities        Percent of Total
                             Underlying Options/SARs    Options/SARs Granted to     Exercise of
                                   Granted (#)               Employees in           Base Price     Expiration Date
           Name                                               Fiscal Year             ($/Sh)
---------------------------- ------------------------- -------------------------- ---------------- -----------------
Michael W. Levin                        0                                                -                -
Frances Blanco                          0                                                -                -
Duncan Huyler                           0                                                -                -
Duncan Yates                         100,000                      61%                  $1.25           7-1-05
Donald Gunn                             0                                                -                -
---------------------------- ------------------------- -------------------------- ---------------- -----------------`

## Aggregated
Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values

There were no option exercises in the fiscal year ended December 31, 2000 by any person named in the preceding Summary Compensation
Table.

The following table sets
forth information concerning the value of unexercised stock options at June 30,
2001 for the Named Executive Officers. We calculated the dollar values in the
table by multiplying the number of stock options by the difference between the
fair market value of a share of common stock underlying an option and the
exercise price of the option. The last sale price of a share of our common stock
on June 29, 2001 was $2.00, as reported by the American Stock Exchange.

`------------------------- ----------------- ----------- ------------------------------ -------------------------------
                                                            Number of Unexercised           Value of Unexercised
                                                            Securities Underlying        In-the-Money Options/SARs
                             Number of                      Options/SARs at FY-end                 at FY-end
                          Shares Acquired      Value    ------------------------------ -------------------------------
Name                        on Exercise      Realized     Exercisable   Unexercisable    Exercisable    Unexercisable
------------------------- ----------------- ----------- -------------- --------------- --------------- ---------------
Michael W. Levin                 0              0             301,223         250,000        $188,264        $156,250
Frances Blanco                   0              0              57,741          50,000         $43,306         $37,500
Duncan Huyler                    0              0              59,265          50,000         $44,449         $37,500
Duncan Yates                     0              0              75,430          50,000         $43,883         $37,500
Donald Gunn                      0              0              16,667          33,334              $0              $0
------------------------- ----------------- ----------- -------------- --------------- --------------- ---------------`

## Report on
Repricing of Certain Stock Options

The Board of Directors
approved, effective May 6, 2001, the repricing of certain outstanding stock
options held by certain Named Executive Officers. Each of Frances Blanco, Duncan
Huyler and Duncan Yates held stock options to acquire up to 100,000 shares of
common stock, of which options to acquire 50,000 shares were vested and options
to acquire an additional 50,000 shares have not vested as of June 30, 2001 and
are subject to vesting upon Cadapult achieving certain financial criteria. For
each of Frances Blanco, Duncan Huyler and Duncan Yates, the exercise price of
these previously granted stock options were repriced from $2.00 per share to
$1.25 per share. The price to which the options were repriced exceeded the fair
market value of a share of our common stock as of the date of repricing. The
closing bid price of our common stock on May 4, 2001 was $0.85 per share. The
Board of Directors recognized that certain events had significantly reduced the
incentive those options were intended to create. It was the expectation of the
Board of Directors that, by reducing the exercise price of these options, the
intended incentive would be restored in part.

---

## Director
Compensation

We have a compensation plan for our independent directors. Eligible outside
directors are paid $3,000 per year, payable quarterly, for attendance at regular
and special meetings and may be reimbursed for their reasonable out-of-pocket
expenses incurred in connection with their attendance at meetings of the Board
of Directors and for other expenses incurred in their capacity as directors of
Cadapult. Outside directors are also granted five-year stock options to purchase
10,000 shares of common stock, exercisable at the fair market value on the date
of appointment to the Board, and will be granted, annually, additional stock
options to purchase 5,000 shares of common stock in each July for continued
service on the Board.

## Employment
Agreements with Named Executive Officers

Michael W. Levin

Michael W. Levin serves as
our Chief Executive Officer and President pursuant to a five year employment
agreement that began on May 1, 1998, as amended September 1, 1998. His current
annual salary is $150,000. His salary increases annually by the cost-of-living
adjustments tied to the Consumer Price Index. We may increase his salary at any
time. Commencing in his third year of employment and each year thereafter, his
annual salary increases, each quarter, by one percent of our earnings before
interest, taxes, depreciation and amortization in the prior fiscal year. We
granted him 500,000 five-year stock options to purchase 500,000 shares of common
stock. These stock options vest only after we achieve certain corporate levels
of earnings. The exercise price for the stock options is $1.375 per share. He
may exercise 125,000 stock options following the first fiscal year that our
earnings before interest, taxes, depreciation and amortization exceeds each of
$500,000, $1,000,000, $1,500,000 and $2,000,000. Stock options to purchase
250,000 shares vested due to the achievement of the first two vesting criteria
in the 2000 fiscal year. These stock options are cumulative and are subject to
anti-dilution rights.

He also receives:

|o | death benefits of $100,000,                                             
|- | ------------------------------------------------------------------------
|o | a fifteen-year term life insurance policy for $1,000,000,               
|o | a luxury automobile, and                                                
|o | reimbursement for reasonable travel and other business related expenses.

We may also award him
financial or other bonuses as determined by the Board of Directors.

If we undergo a
change of control, we must pay him an amount equal to 290% of his
salary and his incentive based stock options shall vest immediately. He has the
right to terminate his employment if we undergo a change in control. As defined
in his employment agreement, a change of control refers to:

|o | the acquisition, other than directly from Cadapult, of 25% or more of our common
stock or our voting securities by persons other than Cadapult or Levin;                                                                                                                                                                                
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|o | a change in a majority of our Board of Directors of which our Board does not approve or that results
              from a proxy contest;                                                                                                                                                                                                
|o | a reorganization, merger, consolidation or sale of substantially all of our
assets after which our shareholders do not own, in the same proportion, more
than 50% of the voting power, after which a majority of the board of directors
changes, and after which a new shareholder beneficially owns 25% or more of the
voting power; or
|o | shareholder approval of  our liquidation or dissolution.                                                                                                                                                                                                                                                                                

---

## Stock Option
Plan

Under our incentive stock
option plan for employees, which was adopted by our Board of Directors and
approved by our shareholders, we reserved 500,000 shares of our common stock. An
incentive stock option entitles the holder to purchase a share of our common
stock at a purchase price equal to the fair market value of the common stock on
the day of grant. As of June 30, 2001, we had outstanding incentive stock
options to purchase approximately 275,726 shares of common stock, exercisable
for five or ten years from the date of grant at prices of $1.25 to $4.00. If we
undergo a change of control, the incentive based stock options shall
vest immediately.

## Employee
Profit Sharing Plan

We have a tax-qualified
employee paired profit sharing plan sponsored by Kemper Financial Services, Inc.
This 401(k) plan 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 choose to reduce their current compensation by up to
15% each year and have that amount contributed to the 401(k) plan. We make
matching contributions equal to 25% of the employees contribution. In our
discretion, we may contribute unmatched contributions. The 401(k) plan qualifies
under Section 401 of the Internal Revenue Code, so that we can deduct
contributions by employees or by us. Employee contributions to the 401(k) plan
are fully vested at all times, and our contributions, if any, vest at the rate
of 25% after two years and after two years at the rate of 25% a year until fully
vested.

---

## ITEM 11.  
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

## Security Ownership
of Certain Beneficial Owners

The table below sets forth,
as of June 30, 2001, the shares of our common stock beneficially owned by each
person known to us to be the beneficial owner of more than five percent of our
outstanding shares of common stock, except that the security ownership of
management is provided in a separate table. 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.

You should consider the following factors when reviewing the table:

|o | For each person listed, shares of common stock that can be acquired upon the
conversion of preferred stock and the exercise of stock options or warrants
within 60 days are included in the calculation of percent of class.                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|o | Berthel SBICs beneficial ownership includes shares of common stock which
may be acquired upon the conversion of 100,000 series A preferred stock shares,
at an assumed conversion rate of one preferred stock share into 3.077 shares of
common stock, the exercise of options to acquire 15,000 shares of common stock,
and the exercise of warrants to acquire 323,000 shares of common stock. The
beneficial owners of Berthel SBIC are: Thomas J. Berthel, Chief Executive
Officer and Chairman; Ronald O. Brendengen, Chief Financial Officer and Chief
Operation Officer; Henry Royer, President; Leslie D. Smith, Secretary; and Julie
K. Driscoll, Assistant Secretary.
|o | David L. Rosiers beneficial ownership includes shares of common stock
which may be acquired upon the exercise of warrants to acquire 263,850 shares of
common stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|o | Charles C. and Charles F. Bearoffs beneficial ownership includes shares of
common stock which may be acquired upon the conversion of 50,000 series A
preferred stock shares, at an assumed conversion rate of one preferred stock
share into 3.077 shares of common stock, and the exercise of warrants to acquire
100,000 shares of common stock.                                                                                                                                                                                                                                                                                                                             
|o | Brookstreet Securities Corporations beneficial ownership includes shares
of common stock which may be acquired upon the exercise of stock options to
acquire 10,000 shares and the exercise of warrants to acquire 255,900 shares.
The beneficial owner of Brookstreet Securities Corporation is Stanley Brooks.                                                                                                                                                                                                                                                                                                                                                               
|o | General Conference Corp. of Seventh-Day Adventists beneficial ownership
includes shares of common stock which may be acquired upon the conversion of
50,000 series A preferred stock shares, at an assumed conversion rate of one
preferred stock share into 3.077 shares of common stock, and the exercise of
warrants to acquire 100,000 shares of common stock.                                                                                                                                                                                                                                                                                                             

`---------------------------------------------    -------------------    -----------------    --------
Name and Address                                  Amount and Nature     Acquirable Within    Percent
of Beneficial Owner                              of Beneficial Owner         60 days         of Class
---------------------------------------------    -------------------    -----------------    --------
Berthel SBIC, LLC                                                  0              645,692       15.7%
100 Second Street SE,
Cedar Rapids, Iowa 52407

David L. Rosier                                                    0              263,850        7.1%
c/o Brookstreet Securities Corporation
2361 Campus Drive #210
Irvine, CA 92612

Charles C. and Charles F. Bearoff                                  0              253,846        6.8%
P.O. Box 37
Bridgeport, PA 19405

Brookstreet Securities Corporation                                 0              265,900        7.1%
2361 Campus Drive #210
Irvine, CA 92612

General Conference Corp. of Seventh-Day Adventists            28,750              253,846        6.8%
12501 Old Columbia Pike
Silver Springs, MD 20904
---------------------------------------------    -------------------    -----------------    --------`

---

## Security
Ownership of Management

The table below sets forth,
as of June 30, 2001, the shares of our common stock beneficially owned by each
of our officers and directors, and by all of our officers and directors 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.

|o | For each person listed, shares of common stock that can be acquired upon the
exercise of stock options or warrants within 60 days are included in the
calculation of percent of class.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|o | Henry Royers
reported beneficial ownership refers to the beneficial ownership of Berthel
SBIC.                                                                                       
|o | Stanley Brooks reported beneficial ownership refers to the
beneficial ownership of Brookstreet Securities Corporation.                                                               

The address of each of the
persons named in the table is Cadapult Graphic Systems, Inc., 40 Boroline Road, Allendale, New Jersey 07401, except for Henry Royer whose address is c/o
Berthal SBIC, 100 Second Street SE, Cedar Rapids, Iowa 52407, and Stanley Brooks
whose address is c/o Brookstreet Securities Corporation, 2361 Campus Drive #210,
Irvine, CA 92612.

`---------------------------------------------    -------------------    -----------------    --------
Name and Address                                  Amount and Nature     Acquirable Within    Percent
of Beneficial Owner                              of Beneficial Owner         60 days         of Class
---------------------------------------------    -------------------    -----------------    --------
Michael W. Levin                                           1,508,450             301,223        47.9%
Frances Blanco                                                40,775              57,741         2.8%
Duncan Huyler                                                 40,775              59,265         2.8%
Duncan Yates                                                  20,300              75,430         2.7%
Paul Baker                                                    67,500              63,000         3.7%
Edwin Ruzinsky                                                     0              15,000         0.4%
Donald Gunn                                                   25,000              16,667         1.2%
Henry Royer                                                        0             645,692        15.7%
Stanley Brooks                                                     0             265,900         7.1%
---------------------------------------------    -------------------    ----------------     --------
All present officers and directors as a group              1,702,800           1,499,918        64.3%
(9 persons)
---------------------------------------------    -------------------    ----------------     --------`

## Changes in
Control

We do not have any arrangements that may result in a change in control.

---

## ITEM 12.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Pursuant to a five year
employment agreement that
began on May 1, 1998, as amended September 1, 1998, we issued to Michael Levin
under an employment agreement stock options to purchase up to 500,000 shares of
common stock, subject to vesting upon us attaining certain specified corporate
milestones based upon corporate earnings. The stock options are exercisable for
five years from the date of grant at an exercise price of $1.375 per share.
Options to purchase 250,000 shares vested due to the achievement of the first
two vesting criteria in the 2000 fiscal year.

Pursuant to three year
employment agreements that began on May 1, 1998 and were amended on March 5,
1999, we issued to each of Frances Blanco and Duncan Huyler stock options to
purchase up to 100,000 shares of common stock, subject to vesting upon us
attaining certain specified corporate milestones based upon corporate earnings.
The stock options are exercisable from the date of grant for five years. The
exercise prices for each was $2.00 per share at the time of grant. On May 6,
2001, we repriced the exercise prices to $1.25 per share. For each of Blanco and
Huyler, options to purchase 50,000 shares vested due to the achievements of the
first two vesting criteria in the year ended June 30, 2000.

On August 27, 1999, we
granted Edwin Ruzinsky stock options to purchase 10,000 shares of common stock,
exercisable at $2.06 per share and expiring on August 27, 2005.

On September 30, 1999, we
granted Duncan Yates stock options to purchase 3,000 shares of common stock,
exercisable at $2.00 per share and expiring on September 30, 2009.

On December 10, 1999, we
granted Berthel SBIC stock options to purchase 10,000 shares of common stock,
exercisable at $3.13 per share and expiring on December 8, 2004.

On December 13, 1999, we
completed, through our subsidiary Media Sciences, the acquisition of certain
assets and the assumption of certain liabilities of ultraHue, Inc., a New Mexico
corporation, pursuant to an asset purchase agreement dated September 7, 1999. We
acquired certain proprietary information and intellectual property rights of
ultraHue and other assets used in its business operations, including its trade
secrets, accounts receivable less allowances, inventory, rights to the name
ultraHue, customer lists, sales, service and vendor contracts, and security
deposits. We assumed certain of ultraHues liabilities, including its
accounts payable as of the closing date, customer deposits as of the closing
date, and leases and contracts. The purchase price we paid at closing included
$2,340,000 at closing, a promissory note for $1,160,000, with 7% annual interest
rate payable in one year, and a sum equal to ultraHues cost for its
inventory delivered to us at the closing date. The purchase price also included:
the sum of accounts receivables as of the closing date that we collect; for the
first year from closing, 10% of the net profits that Media Sciences derives from
the first $1,500,000 dollars of Media Sciences gross profits; for the
first year from closing, 30% of the net profits of Media Sciences that is
attributable to its gross profits in excess of $1,500,000; for the second and
third years from closing, 10% of the quarterly net profits derived by Media
Sciences from the first $1,000,000 of gross profits; and for the second and
third years from closing, 30% of the net profits of Media Sciences that is
attributable to its gross profits in excess of $1,000,000 dollars.

On December 13, 1999,
Donald Gunn, an officer,
director and controlling shareholder of ultraHue, became Vice President of Media
Sciences. Under a three-year employment agreement, we issued him stock options
to purchase 50,001 shares of common stock, exercisable at $3.00 per share and
expiring on December 13, 2004. One-third of the stock options vest on each of
the three anniversary dates of employment. On December 23, 1999, Gunn was
elected to serve on our Board of Directors.

---

On December 13, 1999, Randy
Hooker, an officer, director and controlling shareholder of ultraHue, became an
employee of Media Sciences. Under a three-year employment agreement, we issued
him stock options to purchase 50,001 shares of our common stock, exercisable at
$3.00 per share and expiring on December 13, 2004. One-third of the stock
options vest on each of the three anniversary dates of employment.

In December 1999, Charles
C. and Charles F. Bearoff purchased 50,000 units of our securities in a private
placement at $10 per unit. The Bearoffs beneficially owns 253,846 shares of
common stock which may be acquired upon the conversion of 50,000 shares of
series A preferred stock, at the current conversion rate of one preferred stock
share into 3.077 common stock shares, and the exercise of five-year warrants to
acquire 100,000 shares of common stock at $4.50 per share which underlie the
50,000 units.

In December 1999 and March
2000, General Conference Corp. of Seventh-Day Adventists purchased an aggregate
of 50,000 units of our securities in a private placement at $10 per unit.
General Conference Corp. of Seventh-Day Adventists beneficially owns 253,846
shares of common stock which may be acquired upon the conversion of 50,000
shares of series A preferred stock, at the current conversion rate of one
preferred stock share into 3.077 common stock shares, and the exercise of
five-year warrants to acquire 100,000 shares of common stock at $4.50 per share
which underlie the 50,000 units.

In December 1999, Berthel
SBIC purchased 100,000 units of our securities in a private placement at $10 per
unit. Berthel SBIC beneficially owns 507,692 shares of common stock which may be
acquired upon the conversion of 100,000 shares of series A preferred stock, at
the current conversion rate of one preferred stock share into 3.077 common stock
shares, and the exercise of five-year warrants to acquire 200,000 shares of
common stock at $4.50 per share which underlie the 100,000 units. Berthel SBIC
also received five-year warrants to acquire 40,000 shares of common stock at
$3.75 per share.

On January 14, 2000, Henry Royer purchased 10,000 shares of our common stock in the public market at $3.25 per
share.

On March 10, 2000, Henry
Royer purchased 10,000 units of our securities in our private placement
conducted from December 1999 through March 10, 2000. Units sold in the private
placement were offered at $10.00 per unit and consisted of one share of series A
preferred stock and warrants to purchase two shares of common stock.

Henry Royer sold all of his
shares and units of our securities in May 2000 to attempt to comply with the
internal policies of Berthel SBIC of which he is President. He sold his 10,000
shares of common stock in the public market at a loss in several transactions in
May 2000 at prices ranging from $2.125 to $3.00. Henry Royer also sold his
10,000 units of our securities at the same price of $10.00 per unit he paid for
the units in a private transaction to one individual who represented that he was
an accredited and sophisticated person with whom he has had prior business
relationships, and who accepted all of the same conditions of purchase as had
Royer when he purchased said securities.

On March 10, 2000, we
completed a private placement of 550,000 units of our securities, consisting of
preferred stock and warrants to purchase common stock, to accredited investors.
Brookstreet Securities Corporation acted as the managing placement agent.
Brookstreets fee included 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. Subsequently, David L.
Rosier, an affiliate of Brookstreet, acquired warrants to purchase 263,850
shares of our common stock from Brookstreet, and, Berthal SBIC acquired warrants
to purchase 83,000 shares of our common stock from Brookstreet.

On July 3, 2000, we granted Paul Baker stock options to purchase 5,000 shares of common stock, exercisable at
$2.19 per share and expiring on July 3, 2005.

On July 3, 2000, we granted Edwin Ruzinsky stock options to purchase 5,000 shares of common stock, exercisable at
$2.19 per share and expiring on July 3, 2005.

---

On July 3, 2000, we granted Berthel SBIC stock options to purchase 5,000 shares of common stock, exercisable at
$2.19 per share and expiring on July 3, 2005.

Pursuant to an oral
employment agreement effective as of July 15, 2000, and as amended September 7,
2000, we issued to Duncan Yates stock options to purchase up to 100,000 shares
of common stock, of which stock options to acquire 50,000 shares vested
immediately and stock options to acquire an additional 50,000 shares are subject
to vesting upon us attaining certain specified corporate milestones. The
exercise price was $2.00 per share at the time of grant. On May 6, 2001, we
repriced the exercise price to $1.25 per share. The stock options expire on
July 1, 2005.

On July 28, 2000, we
granted Brookstreet Securities Corporation stock options to purchase 10,000
shares of common stock, exercisable at $2.25 per share and expiring on July 28,
2005.

On May 31, 2001, we issued
warrants to purchase up to 200,000 shares of our common stock at $1.00 per share
to Consonant Services Group in consideration for consulting services. Consonant
Services Group a joint venture of which Paul Baker, a director of Cadapult, is a
member and the beneficial owner of 25,000 warrants issued to Consonant Services
Group. The warrants, which were valued at $25,000, based on the value of
consulting services received, expire on May 31, 2006.

On June 5, 2001, we issued
a $400,000 promissory note and warrants to purchase up to 200,000 shares of our
common stock at $1.00 per share to Consonant Services Group, a joint venture of
which Paul Baker, a director of Cadapult, is a member. The note matures on June
5, 2003 and bears simple interest at the rate of 12% per year. The note is
secured by a security agreement which covers all corporate assets. In the event
of default on repayment, as penalty, the simple interest rate shall be increased
to a rate of 20% per year commencing from the date of default.

On July 2, 2001, we granted
options to purchase 5,000 shares of common stock, exercisable for five years at
$2.00 per share to each of Paul Baker, Berthel SBIC, Brookstreet Securities
Corporation, and Ed Ruzinsky in connection with their services on the Board of
Directors.

On September 11, 2001, our
Board of Directors voted to offer our preferred shareholders the option to
receive payment in kind, through a common stock issuance at $1.10 per share, the
fair market value of our common stock on that date. On September 17, 2001,
Berthal SBIC elected to its dividend payment through the payment in kind,
totaling $57,500 and consisting of 52,273 shares of stock for the two periods
ending March 31, 2001 and June 30, 2001.

---

## ITEM 13.            EXHIBITS AND REPORTS ON FORM 8-K

## Exhibits

Exhibits required to be
filed by Item 601 of Regulation SB are included in Exhibits to this Report as
follows:

`Exhibit             Description
-------             -----------

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 Amendment of Certificate of Incorporation of Cadapult Graphic Systems, Inc.
                    (Incorporated by reference to Exhibit 3(i)(5) of Annual Report on Form 10-KSB filed on
                    September 28, 1999).
3(i)(3)             Certificate of Incorporation of Media Sciences, Inc. (Incorporated by reference to Exhibit
                    3(i)(6) of Annual Report on Form 10-KSB filed on September 28, 1999).
3(ii)               By-Laws (Incorporated by reference to Exhibit 3.2 of Quarterly Report on Form
                    10-QSB/A filed on September 1, 1998).
4.1                 Specimen of common stock certificate (Incorporated by reference to Exhibit 4.7 of Form 8-A
                    filed on August 8, 2000)
4.2                 Specimen of preferred stock certificate (Incorporated by reference to Exhibit 4.8 of Form 8-A
                    filed on August 8, 2000)
4.3                 1998 Incentive Plan (Incentive Stock Option Plan) (Incorporated by reference to
                    Exhibit 4.1 of Annual Report on Form 10-KSB filed on September 28, 1999).
4.4                 Certificate of Designation (Incorporated by reference to Exhibit 4.5 of
                    Registration Statement on Form SB-2, Registration Number 333-91005, originally
                    filed on November 15, 1999).
4.5                 Form of Warrant Certificate for Purchasers of Units (Incorporated by reference
                    to Exhibit 4.6 of Registration Statement on Form SB-2, Registration Number
                    333-91005, originally filed on November 15, 1999).
10.1                Lease Agreement (Incorporated by reference to Exhibit 10.13 of Annual Report on
                    Form 10-KSB filed on or about September 28, 2000.
11*                 Statement Concerning Computation of Per Share Earnings is hereby incorporated by
                    reference to Financial Statements of Part II - Item 7, contained in
                    this Form 10-KSB.
21*                 Subsidiaries of the Registrant
__________

*    Filed herewith.`

## Report on Form
8-K

We filed a report on Form
8-K on April 6, 2001 reporting under Item 5 the deferral of preferred stock
dividends.

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# SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused
this  report to be  signed  on its  behalf  by the  undersigned  thereunto  duly
authorized.

| | CADAPULT GRAPHIC SYSTEMS, INC
| | -----------------------------

| | By:      /s/ Michael W. Levin
      Michael W. Levin
      Chief Executive Officer and President
| | ------------------------------------------------------------------------------------------------

| | Dated:  September 27, 2001
| | --------------------------

In accordance with the Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities indicated:

|SIGNATURES | TITLE | DATE
|---------- | ----- | ----

|/s/ Michael W. LevinMichael W. Levin | Chairman of the Board, President,  Chief Executive Officer,  Principal Financial
Officer, and Principal Accounting Officer | September 27, 2001
|------------------------------------ | -------------------------------------------------------------------------------------------------------------------------- | ------------------

|/s/ Frances BlancoFrances Blanco | Director, Vice President, Secretary and Treasurer | September 27, 2001
|-------------------------------- | ------------------------------------------------- | ------------------

|/s/ Paul C. BakerPaul C. Baker | Director | September 27, 2001
|------------------------------ | -------- | ------------------

|/s/ Donald GunnDonald Gunn | Director | September 27, 2001
|-------------------------- | -------- | ------------------

---