---

FORM 10-QSB

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

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

For the quarterly period ended September 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, New Jersey 07401
(Address of principal executive offices)

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

---

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 [  ]

As of September 30, 2001, the issuer had 3,479,766 shares of common stock
outstanding.

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

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CADAPULT GRAPHIC SYSTEMS, INC. AND SUBSIDIARY

FORM 10-QSB FOR THE QUARTER ENDED MARCH 31, 2001

TABLE OF CONTENTS

|        |  |                                                                                                         | Page
|------- |  | ------------------------------------------------------------------------------------------------------- | ----
|PART I. |  | FINANCIAL INFORMATION                                                                                   |     
|Item 1. |  | Financial Statements                                                                                    | 3   
|        |  | Consolidated Balance Sheets as of September 30, 2001 and June 30, 2001                                  | 3   
|        |  | Consolidated Statements of Operations For the Three Months Ended September 30, 2001 and 2000            | 4   
|        |  | Consolidated Statement of Changes in Shareholder's Equity For the Three Months Ended September 30, 2001 | 5   
|        |  | Consolidated Statements of Cash Flows For the Three Months Ended September 30, 2001 and 2000            | 6   
|        |  | Notes to Consolidated Financial Statements                                                              | 7   
|Item 2. |  | Management's Discussion and Analysis of Financial Condition and
         Results of Operations          | 10  

|         |  |                                  |   
|-------- |  | -------------------------------- | --
|PART II. |  | OTHER INFORMATION                |   
|Item 1.  |  | Legal Proceedings                | 12
|Item 2.  |  | Changes in Securities            | 12
|Item 6.  |  | Exhibits and Reports on Form 8-K | 13

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# PART I.  
FINANCIAL INFORMATION

## ITEM 1.  
FINANCIAL STATEMENTS

# CADAPULT GRAPHIC SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

`September 30,     June 30,
                              ASSETS                                    2001           2001
                                                                    (Unaudited)
                                                                   ------------    ------------
CURRENT ASSETS :
    Cash and equivalents                                           $    137,861    $    132,144
    Accounts Receivable, less allowance for doubtful
       accounts of $35,000                                            1,915,328       1,805,272
    Inventories, net                                                  1,022,004       1,214,358
    Deferred tax asset                                                  774,298         982,000
    Prepaid expenses and other current assets                           119,516          83,586
                                                                   ------------    ------------
        Total Current Assets                                          3,969,008       4,217,360

PROPERTY AND EQUIPMENT, NET                                           1,779,209       1,870,227

OTHER ASSETS:
    Goodwill and other intangible assets                              4,382,044       4,328,517
    Deferred income taxes                                               366,000         366,000
    Other Assets                                                         58,383          65,258
                                                                   ------------    ------------
                                                                      4,806,427       4,759,775

TOTAL ASSETS                                                       $ 10,554,644    $ 10,847,362
                                                                   ============    ============

               LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
    Short-term debt                                                $  2,558,184    $  2,732,582
    Accounts Payable                                                  1,292,582       1,391,965
    Accrued Expenses and other current liabilities                      179,601         241,194
    Accrued product warranty                                            188,936         400,000
    Dividends payable                                                   325,847         170,598
    Accrued expense - supplier                                          274,908         225,000
    Deferred Revenue                                                    210,523         277,833
                                                                   ------------    ------------
                                                                      5,030,581       5,439,172

OTHER LIABILITIES
    Long-term debt, less current maturities                             732,536         782,271
    Accrued expense - supplier                                          584,202         659,000
                                                                   ------------    ------------
                                                                      1,316,738       1,441,271

COMMITMENTS AND CONTIGENCIES
SHAREHOLDERS' EQUITY
    Common Stock, $.001 par value,
       Authorized 20,000,000 shares; issued 3,479,766
       in September and 3,477,805 in June                                 3,480           3,478
    Preferred Stock, $.001 par value,
       Authorized 5,000,000 shares; 547,500 shares issued                   547             547
    Additional paid-in capital                                        5,602,146       5,599,991
    Cost of 10,564 shares of common stock in treasury                   (20,832)        (20,832)
    Retained earnings (deficit)                                      (1,378,015)     (1,616,265)
                                                                   ------------    ------------
        Total Shareholders' equity
                                                                      4,207,326       3,966,919

Total Liabilities and Shareholders' Equity                         $ 10,554,644    $ 10,847,362
                                                                   ============    ============`

See accompanying notes to consolidated financial statements.

---

# CADAPULT GRAPHIC SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

`Three Months Ended
                                                                       September 30,
                                                                  2001           2000
                                                               -----------    -----------

NET SALES                                                      $ 3,825,097    $ 3,415,678
                                                               -----------    -----------

COSTS AND EXPENSES :
    Cost of sales (includes $52,161 of depreciation in 2001)     1,786,879      2,152,002
    Selling, general and administrative expenses                 1,190,945      1,160,527
    Depreciation and amortization                                  125,957        163,872
                                                               -----------    -----------
                                                                 3,103,781      3,476,401

INCOME (LOSS) FROM OPERATIONS                                      721,316        (60,723)

INTEREST EXPENSE, NET                                              117,958         46,661
                                                               -----------    -----------

INCOME (LOSS) BEFORE INCOME TAXES (CREDITS)                        603,358       (107,384)

INCOME TAXES (CREDITS) :
    Current                                                             --             --
    Deferred                                                       207,702        (42,953)
                                                               -----------    -----------
                                                                   207,702        (42,953)

NET INCOME (LOSS)                                              $   395,656    $   (64,431)
                                                               ===========    ===========

PREFERRED STOCK DIVIDENDS                                      $   157,406    $   159,425
                                                               ===========    ===========

INCOME (LOSS) APPLICABLE TO COMMON SHAREHOLDERS                $   238,250    $  (223,856)
                                                               ===========    ===========


WEIGHTED AVERAGE COMMON SHARES OUTSTANDING :
    BASIC                                                        3,479,744      3,261,124
                                                               ===========    ===========
    DILUTED                                                      3,570,214             --
                                                               ===========    ===========

NET INCOME (LOSS) PER COMMON SHARE :
    BASIC                                                      $      0.07    $     (0.07)
                                                               ===========    ===========
    DILUTED                                                    $      0.07    $        --
                                                               ===========    ===========`

See accompanying notes to consolidated financial statements.

---

# CADAPULT GRAPHIC SYSTEMS, INC. AND SUBSIDIARY
 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                    FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001
(UNAUDITED)

`Common Stock       Preferred Stock              Additional                       Total
                                     ------------------   ----------------   Treasury     Paid-in      Retained      Shareholders'
                                       Shares    Amount    Shares   Amount    Stock       Capital      Earnings         Equity
                                     ---------   ------   -------   ------   --------   -----------   -----------    -------------
BALANCES, JUNE 30, 2001              3,477,805   $3,478   547,500   $  547   $(20,832)  $ 5,599,991   $(1,616,265)   $   3,966,919

PERIOD ENDED SEPTEMBER 30, 2001

    Issuance of stock for
    dividend payment                     1,961        2        --       --         --         2,155            --            2,157

    Preferred stock
    dividend, 11.5%                         --       --        --       --         --            --      (157,406)        (157,406)

    Net income                              --       --        --       --         --            --       395,656          395,656

BALANCES, SEPTEMBER 30, 2001         3,479,766   $3,480   547,500   $  547   $(20,832)  $ 5,602,146   $(1,378,015)   $   4,207,326
                                     =========   ======   =======   ======   ========   ===========   ===========    =============`

See accompanying notes to consolidated financial statements.

---

# CADAPULT GRAPHIC SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

`Three Months Ended
                                                                   September 30,
                                                                 2001         2000
                                                              ---------    ---------
CASH FLOWS FROM OPERATING ACTIVITIES :
    Net income (loss)                                         $ 395,656    $ (64,431)
    Adjustments to reconcile net income (loss) to net cash
      flows from operating activities :
         Depreciation and amortization                          178,118      163,872
         Deferred income taxes                                  207,702      (42,953)
         Changes in operating assets and liabilities :
             Accounts receivable                               (110,056)    (304,989)
             Inventories                                        192,354      195,696
             Prepaid expenses and other current assets          (35,930)     (61,868)
             Other assets                                         6,875      (95,823)
             Dividends payable                                  157,406           --
             Accounts payable                                   (99,383)     403,781
             Accrued expenses and other current liabilities     (61,593)     (56,350)
             Accrued expense - supplier                         (24,890)          --
             Accrued product warranty                          (211,064)          --
             Deferred revenue                                   (67,310)     (93,075)
                                                              ---------    ---------
                 Net cash flows from operating activities       527,885       43,860
                                                              ---------    ---------

CASH FLOWS FROM INVESTING ACTIVITIES :
    Purchases of property and equipment                         (84,782)     (83,178)
    Purchase of intangible assets                               (55,844)    (103,680)
    Deferred acquisition costs                                       --        8,903
                                                              ---------    ---------
                 Net cash flows from investing activities      (140,626)    (177,955)
                                                              ---------    ---------

CASH FLOWS FROM FINANCING ACTIVITIES :
    Payments on short term debt                                (165,740)      73,472
    Payments on long term debt                                  (48,396)       2,685
    Advances from officer                                       (10,000)     325,000
    Preferred stock dividends                                  (157,406)    (159,425)
    Proceeds from exercise of employee stock options                 --        1,250
                                                              ---------    ---------
                 Net cash flows from financing activities      (381,542)     242,982
                                                              ---------    ---------

NET CHANGE IN CASH AND EQUIVALENTS                                5,717      108,887

CASH AND EQUIVALENTS, BEGINNING OF PERIOD                       132,144      868,842
                                                              ---------    ---------

CASH AND EQUIVALENTS, END OF PERIOD                           $ 137,861    $ 977,729
                                                              =========    =========

SUPPLEMENTAL CASH FLOW INFORMATION :
    Interest paid                                             $ 127,027    $  60,130
                                                              =========    =========
    Income taxes paid                                         $   5,980    $  33,536
                                                              =========    =========
    Issuance of common stock upon partial satisfaction
        of WEB acquisition contingency                        $      --    $  64,642
                                                              =========    =========
    Issuance of common stock as dividend payment              $   2,157    $      --
                                                              =========    =========`

See accompanying notes to consolidated financial statements.

---

# CADAPULT GRAPHIC SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - BASIS OF PRESENTATION :

| | Our accounting and reporting policies conform to generally accepted
accounting principles. Except for the June 30, 2001 consolidated balance
sheet, the financial statements presented herein are unaudited but reflect
all adjustments which, in our opinion, are necessary for the fair
presentation of the consolidated financial position, results of operations
and cash flows for the interim periods presented. All adjustments reflected
in the interim financial statements are of a normal recurring nature. You
should read these financial statements in conjunction with the financial
statements and notes thereto and the report of independent accountants
included in our Annual Report on Form 10-KSB for the year ended June 30,
2001. The year end balance sheet data was derived from audited financial
statements, but does not include all disclosures required by generally
accepted accounting principles. The results of operations for the three
months ended September 30, 2001 are not necessarily indicative of the
results to be expected for the full year.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

NOTE 2 - NATURE OF BUSINESS :

| | We are engaged in the business of manufacturing and distributing
supplies for workgroup, or business, color printers. Our products
include solid ink, color toner and transparency media. We distribute
our products through an international network of dealers and
distributors. We also sell directly to end users through programs
designed to foster our supplies business.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

NOTE 3 - LOAN FROM OFFICER :

| | Between August 17, 2000 and September 14, 2000, Cadapult borrowed an
aggregate of $325,000 from our President, Michael W. Levin. Cadapult
used the funds as bridge financing for printers acquired for
Cadapult's No-Cap Color printer program, until larger quantities of
printers are accumulated and financed through lease or other debt
financing. In September, 2001 Cadapult repaid $10,000 of these loans.
These loans are unsecured, payable on demand, and carry a 10%
interest rate. These short-term loans mature in May 2002. There is no
representation or assurance is made that Mr. Levin will make any
further loans to Cadapult.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

NOTE 4 - DIVIDENDS :

| | 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 now settled litigation with Tektronix, Inc. and
Xerox Corporation. At that time, we 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. In
September, we again offered 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. During the
three month period ended September 30, 2001, two shareholders elected to
receive payment in kind, and the company issued 1,961 shares of common
stock for payment of accrued dividends totaling $2,157.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

# CADAPULT GRAPHIC SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 - ACCOUNTING CHANGES :

| | Effective July 1, 2001, Cadapult adopted SFAS 141 and SFAS 142. SFAS
141 requires business combinations initiated after June 30, 2001 to
be accounted for using the purchase method of accounting. It also
specifies the types of acquired intangible assets that are required
to be recognized and reported separate from goodwill. SFAS 142
requires that goodwill and certain intangibles no longer be
amortized, but instead tested for impairment at least annually. There
was no impairment of goodwill upon adoption of SFAS 142.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Net income (loss) and earnings (loss) per share for the first quarter of
fiscal 2001 adjusted to exclude amortization expense (net of taxes)
is as follows:
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------

`Three Months
                                                                   Ended
                                                             September 30, 2000
                                                             ------------------

           Net income (loss) :
               Reported net income (loss)                             $(223,856)
               Goodwill amortization                                     45,849
                                                             ------------------
                   Adjusted net income (loss)                         $(178,007)
                                                             ==================

           Basic earnings (loss) per share :
               Reported basic earnings (loss) per share                  $(0.07)
               Goodwill amortization                                       0.02
                                                             ------------------
                   Adjusted basic earnings (loss) per share              $(0.05)
                                                             ==================`

| | During the first quarter of fiscal 2002, $55,844 of goodwill related to the
ultraHue acquisition was acquired, and no goodwill was impaired, or written off.
As of September 30, 2001, goodwill was $4,877,579 and accumulated amortization
was $540,698.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | All of Cadapult's acquired intangible assets are subject to amortization. During
the first quarter of fiscal 2002, we acquired no intangible assets. Intangible
assets amortization expense for the first quarter of fiscal 2002 was $2,317. The
components of intangible assets include a covenant not to compete associated
with an acquisition, and two acquired URLs. The value of our intangible assets
is $96,000, less accumulated amortization of $50,837.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

# CADAPULT GRAPHIC SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 - EARNINGS (LOSS) PER SHARE :

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

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

`Three Months
                                                                           Ended
                                                                        September 30,
                                                                    2001          2000
                                                                 -----------   -----------

Numerator :
    Income (loss) applicable to common shareholders - basic      $   395,656   $   (64,431)
                                                                 ===========   ===========
    Income (loss) applicable to common shareholders - diluted    $   395,656            --
                                                                 ===========   ===========

Denominator :
    Denominator for basic earnings per share :
        Weighted average shares                                    3,479,744     3,261,124
                                                                 -----------   -----------

    Effect of dilutive securities
        Employee stock options and warrants                           90,470            --
                                                                 -----------   -----------
    Denominator for diluted earnings per share                     3,570,214     3,261,124
                                                                 ===========   ===========

    Earnings (loss) per share :
        Basic                                                    $      0.07   $     (0.07)
                                                                 ===========   ===========
       Diluted                                                   $      0.07            --
                                                                 ===========   ===========`

| | The following warrants to purchase common stock were excluded from the
computation of diluted earnings per share for the three months ended September
30, 2001 because the warrants' exercise price was greater than the average
market price of the common stock for those periods:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`Three Months
                                                            Ended
                                                         September 30,
                                                      2001          2000
                                                  -----------   -----------

Anti-dilutive warrants and options                  2,254,700            --
                                                  ===========   ===========`

| | The conversion of the Class A convertible preferred stock has been excluded from
the computation of diluted earnings per share for the three months ended
September 30, 2001. Such conversion when taking into account the additional net
income generated by the elimination of the dividend would be anti-dilutive.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

## ITEM 2.  
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                  RESULTS OF OPERATIONS

You should read the following discussion and analysis in conjunction with the
information set forth in the unaudited financial statements and notes thereto,
included elsewhere herein, and the audited financial statements and the notes
thereto, included in our Form 10-KSB filed September 28, 2001.

## Results of
Operations

## For the Three Months Ended September 30, 2001 and 2000

Sales. Our consolidated sales for the three months ended September 30, 2001
compared to the same period in 2000, increased approximately 12% to $3,825,097
from $3,415,678. The increase in our sales can be attributed to the growth of
our Media Sciences color printer supply business, offset by a reduction in our
legacy reseller business.

Cost of Sales. Our cost of sales for the three months ended September 30, 2001
were $1,786,879, or approximately 47% of sales, as compared to $2,152,002, or
approximately 63% of sales for the comparable period in 2000. The decrease in
our cost of sales can be attributed to the high margin business generated by our
Media Sciences subsidiary.

Selling, General and Administrative. For the three months ended September 30,
2001 compared to the same period in 2000, our selling, general and
administrative expenses increased to $1,190,945 from $1,160,527, which
represents a decrease to 31% of sales from 34% of sales. The reduction as a
percentage of sales is the result of leveraging our infrastructure costs over
greater sales.

Depreciation and Amortization. For the three months ended September 30, 2001
compared to the same period in 2000, our depreciation expense increased to
$175,801 from $85,140 as a result of the depreciation of capital leases and
equipment purchases during the last year. Amortization of intangibles was $2,317
for both periods. Amortization of goodwill decreased from $76,415 to zero as the
result of our adoption of SFAS No. 142 as discussed in the above
Note 5.

Interest Expense. For the three months ended September 30, 2001 compared to the
same period in 2000, our Interest expense increased to $117,958 from $46,661 as
a result of the interest component of the our accrued supplier agreement and
capital leases.

Income Taxes. For the three months ended September 30, 2001, we recorded a
deferred income tax expense of $207,702. For the three months ended September
30, 2000 we recorded a deferred income tax benefit of $64,431.

Dividends.  For the three months ending September 30, 2001, we accrued $157,406 of stock dividends to our
preferred shareholders.

Net Income (Loss). For the three month period ended September 30, 2001, we
earned $238,250 or $0.07 per share basic and diluted as compared to a net loss
applicable to common shareholders of $223,856 or $(0.07) per share for the
corresponding three month period ended September 30, 2000.

---

## Liquidity and
Capital Resources

We experienced positive cash flow of $5,717 for the three months ended September
30, 2001. Cash used in operations resulted in positive cash flows of $527,885
primarily due to net income of $395,656, a non cash charge of $178,118 for
depreciation and amortization and $207,702 for deferred income taxes, a
reduction in inventory of $192,354 and an increase in dividends payable of
$157,406 offset by an increase in accounts receivable of $110,056, an increase
in prepaid expenses of $35,930, a decrease in accounts payable of $99,383, a
decrease in accrued expenses of $297,547.

The cash we used in investing activities included the purchase of equipment in
the amount of $84,782 and the purchase of intangible assets generated by the
ultraHue earn-out in the amount of $55,844.

Cash used in financing activities included the repayment of $224,136 of debt and
the accrual of $157,406 of preferred stock dividends.

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.
Borrowings bear interest at 0.5% over the lender's base rate, are payable on
demand and are collateralized by all assets of Cadapult. As of September 30,
2001, borrowings of $1,553,003 were outstanding under this line.

Between August 17, 2000 and September 14, 2000, Cadapult borrowed an aggregate
of $325,000 from our President, Michael W. Levin. Cadapult used the funds as
bridge financing for printers acquired for Cadapult's No-Cap Color printer
program, until larger quantities of printers are accumulated and financed
through lease or other debt financing. These loans are unsecured, payable on
demand, and carry a 10% interest rate. In September 2001, we repaid $10,000 of
these loans. These short-term loans mature in May 2002. No representation or assurance is made that Mr. Levin will make any further loans
to Cadapult.

In December 2000, the note payable to ultraHue came due and was satisfied with a
cash payment of $760,000 and a demand note in the amount of $400,000 bearing
interest at a rate of 13% per annum. In August 2001, we repaid $15,000 of this
note.

## Inflation

We have historically offset any inflation in operating costs by a combination of
increased productivity and price increases, where appropriate. We do not expect
inflation to have a significant impact on its business in the future.

## Seasonality

We anticipate that our cash flow from operations will be significantly greater
in the fall and winter months than in the spring and summer months due to the
purchasing cycles associated with our products. In the event that we are unable
to generate sufficient cash flows from operations during the seasons of peak
operations, we may be required to utilize other cash reserves, if any, or seek
additional equity/debt financing to meet operating expenses, and there can be no
assurance that there will be any other cash reserves or that additional
financing will be available or, if available, on reasonable terms.

## Forward
Looking Statements

The foregoing management discussion and analysis contains forward-looking
statements and information that are based on our management's beliefs, as well
as assumptions made by, and information currently available to our management.
These forward-looking statements are based on many assumptions and factors, and
are subject to many conditions, including our continuing ability to obtain
additional financing, dependence on contracts with suppliers, competitive
pricing for our products, demand for our products which depends upon the
condition of the computer industry, and the effects of increased indebtedness as
a result of our business acquisitions. Except for the historical information
contained in this new release, all forward-looking information are estimates by
our management and are subject to various risks, uncertainties and other factors
that may be beyond our control and may cause results to differ from our
management's current expectations, which may cause our actual results,
performance or achievements to be materially different from future results,
performance or achievements expressed or implied by such forward-looking
statements.

---

# PART II.  
OTHER INFORMATION

## ITEM 1.  
LEGAL PROCEEDINGS

As at September 30, 2001, we are not a party to any material pending legal
proceeding, other than ordinary routine litigation incidental to our business,
except for an action we filed in July 2001 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 previously had
acquired, in prior litigation against Tektronix, Inc. and Xerox Corporation. In
the complaint, we alleged claims of negligence and breach of contract. We have
been served with an answer to our complaint contesting our claims and seeking
counterclaims for unpaid fees for which we have already accrued in our financial statements. We have recently commenced the discovery stage
of the proceeding.

## ITEM 2.  
CHANGES IN SECURITIES

In March 2000, we completed a private placement of 550,000 units of our
securities and raised gross proceeds of approximately $5,500,000 in transactions
deemed to be exempt under Section 4(2) of the Securities Act and under Rule 506
of Regulation D promulgated under the Securities Act. Each purchaser represented
to us that the purchaser was an accredited person who had financial, tax and
business sophistication to evaluate the merits and risks of the investment and
agreed that the purchaser has no right to demand that the units be registered.
We made a determination that each purchaser was an accredited investor and that
each purchaser was a sophisticated investor with enough knowledge and experience
in business to evaluate the risks and merits of the investment. Each unit
consisted of one share of convertible preferred stock and warrants to purchase
two shares of common stock. The preferred stock has rights to quarterly
dividends of 11.5%. 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 now settled litigation with Tektronix, Inc.
and Xerox Corporation. At that time, we 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. In September, we
again offered 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. Berthal SBIC elected to receive 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.During the
three month period ended September 30, 2001, two other shareholders elected to
receive payment in kind, and we issued 1,961 shares of common stock for
payment of accrued dividends totaling $2,157. We may file a registration
statement for the resale of these shares at a later time. Shareholders had until
November 11, 2001 to elect to receive payment in kind. If we did 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.

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## ITEM 6.  
EXHIBITS AND REPORTS ON FORM 8-K

(a)        Exhibits.

The following exhibits are filed with this report:

|Exhibit Number | Description of Exhibit
|-------------- | ----------------------

|Exhibit 11 | Statement Concerning Computation of Per Share Earnings is hereby incorporated
by reference to Financial Statements of Part I - Financial
Information, Item 1  Financial Statements, contained in this Form 10-QSB.
|---------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(b)        Reports on Form 8-K.

Not applicable.

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# SIGNATURES

In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.

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

|Dated:  November 13, 2001 | By:      /s/ Michael W. Levin
      Michael W. Levin
      Chief Executive Officer and President
|------------------------- | ------------------------------------------------------------------------------------------------

|Dated:  November 13, 2001 | By:      /s/ Frances Blanco
      Frances Blanco
       Vice President and Treasurer
|------------------------- | ------------------------------------------------------------------------------------

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