---

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

FORM 10-QSB

| | [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.(Exact name of registrant as specified 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 February 1, 2002, the
issuer had 3,485,516 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 DECEMBER 31, 2001

TABLE OF CONTENTS

|        |  |                                                                                                             | Page
|------- |  | ----------------------------------------------------------------------------------------------------------- | ----
|PART I. |  | FINANCIAL INFORMATION                                                                                       |     
|Item 1. |  | Financial Statements                                                                                        | 3   
|        |  | Consolidated Balance Sheets as of December 31, 2001 and June 30, 2001                                       | 3   
|        |  | Consolidated  Statements of Operations For the Three Months and Six Months Ended
December 31, 2001 and 2000 | 4   
|        |  | Consolidated  Statement  of Changes in  Shareholder's  Equity For the Six Months
Ended December 31, 2001    | 5   
|        |  | Consolidated Statements of Cash Flows For the Six Months Ended December 31, 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                                   | 13
|Item 2.  |  | Changes in Securities                               | 13
|Item 4.  |  | Submission of Matters to a Vote of Security Holders | 14
|Item 6.  |  | Exhibits and Reports on Form 8-K                    | 14

---

# PART I.  
FINANCIAL INFORMATION

## ITEM 1.  
FINANCIAL STATEMENTS

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

`December 31,      June 30,
                                ASSETS                          2001            2001
                                                             (Unaudited)
                                                            ------------    ------------
CURRENT ASSETS :
    Cash and equivalents                                    $     76,845    $    132,144
    Accounts receivable, less allowance
       for doubtful accounts of $35,000                        1,505,238       1,805,272
    Settlement receivable                                        597,914            --
    Inventories, net                                           1,039,800       1,214,358
    Deferred tax asset                                           562,141         982,000
    Prepaid expenses and other current assets                    119,832          83,586
                                                            ------------    ------------
        Total Current Assets                                   3,901,770       4,217,360

PROPERTY AND EQUIPMENT, NET                                    1,766,606       1,870,227

OTHER ASSETS:
    Goodwill and other intangible assets                       4,463,427       4,328,517
    Deferred income taxes                                        300,000         366,000
    Other assets                                                 160,226          65,258
                                                            ------------    ------------
                                                               4,923,653       4,759,775

TOTAL ASSETS                                                $ 10,592,029    $ 10,847,362
                                                            ============    ============

                 LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
    Short-term debt                                         $  2,784,744    $  2,732,582
    Accounts payable                                             978,903       1,391,965
    Accrued expenses and other current liabilities               387,603         241,194
    Accrued product warranty                                     188,936         400,000
    Dividends payable                                            162,116         170,598
    Accrued expense - supplier                                   312,318         225,000
    Deferred revenue                                             208,587         277,833
                                                            ------------    ------------
                                                               5,023,207       5,439,172

OTHER LIABILITIES
    Long-term debt, less current maturities                      671,961         782,271
    Accrued expense - supplier                                   507,485         659,000
                                                            ------------    ------------
                                                               1,179,446       1,441,271

COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
    Common Stock, $.001 par value,
       Authorized 20,000,000 shares; issued 3,485,516              3,486           3,478
       in December and 3,477,805 in June
    Preferred Stock, $.001 par value,
       Authorized 5,000,000 shares; 547,500 shares issued            547             547
    Additional paid-in capital                                 5,608,465       5,599,991
    Cost of 10,564 shares of common stock in treasury            (20,832)        (20,832)
    Retained earnings (deficit)                               (1,202,290)     (1,616,265)
                                                            ------------    ------------
        Total Shareholders' equity                             4,389,376       3,966,919

Total Liabilities and Shareholders' Equity                  $ 10,592,029    $ 10,847,362
                                                            ============    ============`

See accompanying notes to consolidated financial statements.

---

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

`Three Months Ended             Six Months Ended
                                                          December 31,                  December 31,
                                                      2001            2000          2001            2000
                                                   -----------    -----------    -----------     -----------

NET SALES                                          $ 3,798,779    $ 2,909,312    $ 7,623,876    $ 6,324,990
                                                   -----------    -----------    -----------    -----------

OSTS AND EXPENSES :
   Cost of goods sold, excluding depreciation        1,754,485      1,569,668      3,489,203      3,721,670
    Depreciation                                        70,095          4,439        122,256          4,439
                                                   -----------    -----------    -----------    -----------
       Total cost of goods sold                      1,824,580      1,574,107      3,611,459      3,726,109

    Selling, general and administrative expenses     1,138,174      1,236,036      2,329,119      2,396,562
    Depreciation and amortization                      121,493        172,023        247,450        335,895
                                                   -----------    -----------    -----------    -----------
       Total costs and expenses                      3,084,247      2,982,166      6,188,028      6,458,566

INCOME (LOSS) FROM OPERATIONS                          714,532        (72,854)     1,435,848       (133,576)

INTEREST EXPENSE, NET                                  103,243         80,493        221,201        127,154
                                                   -----------    -----------    -----------    -----------

INCOME (LOSS) BEFORE INCOME TAXES (CREDITS)            611,289       (153,347)     1,214,647       (260,730)

INCOME TAXES (CREDITS) :
    Current                                               --             --             --             --
    Deferred                                           278,157        (61,339)       485,859       (104,292)
                                                   -----------    -----------    -----------    -----------
                                                       278,157        (61,339)       485,859       (104,292)

NET INCOME (LOSS)                                  $   333,132    $   (92,008)   $   728,788    $  (156,438)
                                                   ===========    ===========    ===========    ===========

PREFERRED STOCK DIVIDENDS                          $   157,407    $   159,425    $   314,813    $   318,850
                                                   ===========    ===========    ===========    ===========

INCOME (LOSS) APPLICABLE TO COMMON SHAREHOLDERS    $   175,725    $  (251,433)   $   413,975    $  (475,288)
                                                   ===========    ===========    ===========    ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING :
    BASIC                                            3,485,516      3,263,472      3,482,641      3,262,483
                                                   ===========    ===========    ===========    ===========

    DILUTED                                          6,269,123           --        6,289,890           --
                                                   ===========    ===========    ===========    ===========

NET INCOME (LOSS) PER COMMON SHARE :
    BASIC                                          $      0.05    $     (0.08)   $      0.12    $     (0.15)
                                                   ===========    ===========    ===========    ===========
    DILUTED                                        $      0.05    $      --      $      0.12    $      --
                                                   ===========    ===========    ===========    ===========`

See accompanying notes to consolidated financial statements.

---

# CADAPULT GRAPHIC SYSTEMS, INC. AND SUBSIDIARY
 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                    FOR THE SIX
MONTHS ENDED DECEMBER 31, 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 DECEMBER 31, 2001

    Issuance of stock for
       dividend payment               7,711        8         -       -           -         8,474             -          8,482

    Preferred stock dividend,
       11.5%                              -        -         -       -           -             -      (314,813)      (314,813)

    Net income                            -        -         -       -           -             -       728,788        728,788

BALANCES, DECEMBER 31, 2001       3,485,516   $3,486   547,500   $ 547    $(20,832)  $ 5,608,465   $(1,202,290)   $ 4,389,376
                                  =========   ======   =======   ======   ========   ===========   ===========    ===========`

See accompanying notes to consolidated financial statements.

---

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

`Six Months Ended
                                                                   December 31,
                                                                 2001         2000
                                                              ---------    ---------
CASH FLOWS FROM OPERATING ACTIVITIES :
    Net Income (loss)                                         $ 728,788    $(156,438)
    Adjustments to reconcile net income (loss) to net cash
      flows from operating activities :
         Depreciation and amortization                          369,706      335,895
         Deferred income taxes                                  485,859     (104,292)
         Changes in operating assets and liabilities :
             Accounts receivable                                300,034      262,968
             Settlement receivable                             (597,914)           -
             Inventories                                         54,140     (157,048)
             Prepaid expenses and other current assets          (36,246)     (41,020)
             Other assets                                       (94,968)      11,984
             Accounts payable                                  (413,062)     448,307
             Dividends payable                                     --        159,425
             Accrued expenses and other current liabilities     146,409      (91,173)
             Accrued expense - supplier                         (64,197)        --
             Accrued product warranty                          (211,064)        --
             Deferred revenue                                   (69,246)    (181,021)
                                                              ---------    ---------
                 Net cash flows from operating activities       598,239      487,587
                                                              ---------    ---------

CASH FLOWS FROM INVESTING ACTIVITIES :
    Purchases of property and equipment                        (141,033)    (592,102)
    Purchase of intangible assets                              (139,544)    (171,824)
    Deferred acquisition costs                                     --          8,903
                                                              ---------    ---------
                 Net cash flows from investing activities      (280,577)    (755,023)
                                                              ---------    ---------

CASH FLOWS FROM FINANCING ACTIVITIES :
    Advances on short term debt                                 107,162       36,690
    Payments/borrowings on long term debt                      (110,310)     241,086
    Payments/borrowings - officer                               (40,000)     325,000
    Payment of ultrahue note                                    (15,000)    (760,000)
    Preferred stock dividend                                   (314,813)    (318,850)
    Sale of common stock                                           --          8,375
                                                              ---------    ---------
                 Net cash flows from financing activities      (372,961)    (467,699)
                                                              ---------    ---------

NET CHANGE IN CASH                                              (55,299)    (735,135)

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

CASH, END OF PERIOD                                           $  76,845    $ 133,707
                                                              =========    =========

SUPPLEMENTAL CASH FLOW INFORMATION :
    Interest paid                                             $ 217,262    $  77,467
                                                              =========    =========
    Income taxes paid                                         $   6,130    $  33,536
                                                              =========    =========
    Issuance of Common Stock upon partial
      satisfaction of acquisition contingencies               $    --      $  64,642
                                                              =========    =========
                                                              =========    =========
    Issuance of common stock as dividend payment              $   8,482    $    --
                                                              =========    =========
                                                              =========    =========
    Inventories transferred to equipment                      $ 120,417    $    --
                                                              =========    =========`

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 and six months ended December 31, 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 through December 2001,
Cadapult repaid $40,000 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 - PREFERRED STOCK :

| | On December 13, 2001, the rate of conversion of our class A preferred
           stock changed from 3.077 shares of common for each share of preferred
           to five (5) shares of common for each share of preferred.

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 and Xerox. During
the six month period ended December 31, 2001, eight shareholders elected to
receive payment in kind, and Cadapult issued 7,711 shares of common stock with a
fair market value of $8,482 for payment of accrued dividends totaling $8,482.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

NOTE 5 - SETTLEMENT RECEIVABLE :

| | We settled a legal malpractice suit and were awarded approximately $600,000 net
of related legal fees.
| | ------------------------------------------------------------------------------------------------------

---

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

NOTE 6 - 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 and second quarters of fiscal
2001 adjusted to exclude amortization expense (net of taxes) is as follows:
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

`Three Months      Six Months
                                                                Ended            Ended
                                                                   December 31, 2000
                                                             ----------------------------

         Net income (loss) :
             Reported net income (loss)                      $(251,433)         $(475,288)
             Goodwill amortization, net of taxes                54,918            109,099
                                                             ---------          ---------
                 Adjusted net income (loss)                  $(196,515)         $(366,189)

         Basic earnings (loss) per share :
             Reported basic earnings (loss) per share           $(0.08)            $(0.15)
             Goodwill amortization                                0.02               0.04
                                                             ---------          ---------
                 Adjusted basic earnings (loss) per share       $(0.06)            $(0.11)`

| | During
the six months ended December 31, 2001, $139,544 of goodwill related to the
ultraHue acquisition was recorded, and no goodwill was impaired, or written off.
As of December 31, 2001, goodwill was $4,957,517 and accumulated amortization
was $534,488.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | All of Cadapults
acquired intangible assets are subject to amortization. During the first two
quarters of fiscal 2002, we acquired no other intangible assets. Intangible
assets amortization expense for the second 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 other intangible
assets is $97,000, less accumulated amortization of $56,602.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

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

NOTE 7 - 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                Six Months
                                                                  Ended                     Ended
                                                              December 31                December 31
                                                           2001          2000        2001          2000
                                                        -----------   ---------   -----------   -----------

         Numerator :
           Income (loss) applicable to
              common shareholders  - basic              $   175,725   $(251,433)  $   413,975   $  (475,288)
                                                        ===========   =========   ===========   ===========
           Income (loss) applicable to
              common shareholders -- diluted            $   333,132        --     $   728,788          --
                                                        ===========   =========   ===========   ===========

         Denominator :
           Denominator for basic earnings per share :
              Weighted average shares                     3,485,516   3,263,472     3,482,641     3,262,483
                                                        -----------   ---------   -----------   -----------

           Effect of dilutive securities
              Conversion of preferred stock to common     2,737,500        --       2,737,500          --
              Employee stock options and warrants            46,107        --          69,749          --
                                                        -----------   ---------   -----------   -----------
           Denominator for diluted earnings per share     6,269,123   3,263,472     6,289,890     3,262,483
                                                        ===========   =========   ===========   ===========

           Earnings (loss) per share :
              Basic                                     $      0.05   $   (0.08)  $      0.12   $     (0.15)
                                                        ===========   =========   ===========   ===========
              Diluted                                   $      0.05        --     $      0.12          --
                                                        ===========   =========   ===========   ===========`

| | The
conversion of the class A convertible preferred stock has been excluded from the
computation of diluted earnings per share for the three months and six months
ended December 31, 2000. Such conversion when taking into account the additional
net income generated by the elimination of the dividend would have been
anti-dilutive.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
following warrants to purchase common stock were excluded from the computation
of diluted earnings per share for the three months and six months ended December
31, 2001 because the warrants exercise price was greater than the average
market price of the common stock for those periods:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`Three Months         Six Months
                                                           Ended                Ended
                                                      December 31            December 31
                                                       2001     2000         2001     2000
                                                    ---------   ----      ---------   ----

           Anti-dilutive warrants and options       2,578,226      -      2,578,226      -
                                                    =========   ====      =========   ====`

---

## 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
and Six Months Ended December 31, 2001 and 2000

Sales. Our consolidated
sales for the three months ended December 31, 2001, compared to the same period
in 2000, increased approximately 30% to $3,798,779 from $2,909,312. Our
consolidated sales for the six months ended December 31, 2001, compared to the
same period in 2000, increased approximately 20% to $7,623,876 from $6,324,990.
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 December 31, 2001 was $1,824,580, or
approximately 48% of sales, as compared to $1,574,107, or approximately 54% of
sales, for the comparable period in 2000. Our cost of sales for the six months
ended December 31, 2001 was $3,611,459, or approximately 47% of sales, as
compared to $3,726,109, or approximately 59% 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 December 31, 2001 as compared to the
same period in 2000, our selling, general and administrative expenses decreased
to $1,138,174 from $1,236,036, which represents a decrease to 30% of sales from
42% of sales. For the six months ended December 31, 2001 as compared to the same
period in 2000, our selling, general and administrative expenses decreased
slightly to $2,329,119 from $2,396,562, which represents a decrease to 31% of
sales from 38% of sales. The reduction as a percentage of sales is the result of
leveraging our infrastructure costs over greater sales. During the three months
ended December 31, 2001, we settled a legal malpractice suit and recorded a
receivable of approximately $600,000 which we received in January 2002. During
the six months ended December 31, 2001 we incurred approximately $900,000 in
expenses associated with customer warranty claims resulting from a now resolved
raw material issue. A recall was initiated and it is expected that any
associated warranty claims will diminish by June 30, 2002. In addition, a claim
against our products liability insurance has been filed in which we seek
reimbursement for these claims. During the three months ended December 31, 2001,
our products liability insurer advanced us $300,000 against our claim.

Depreciation and
Amortization. For the three months ended December 31, 2001 compared to the same
period in 2000, our depreciation expense increased to $189,271 from $174,145 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 $91,530 to zero as the result of our
adoption of FASB issued SFAS No. 142 as discussed in Note 6 to the financial
statements. For the six months ended December 31, 2001 compared to the same
period in 2000, our depreciation expense increased to $365,072 from $153,868 as
a result of the depreciation of capital leases and equipment purchases during
the last year. Amortization of intangibles was $4,634 for both periods.
Amortization of goodwill decreased from $181,832 to zero as the result of our
adoption of FASB issued SFAS No. 142 as discussed in Note 6 to the financial
statements.

Interest Expense. For the
three months ended December 31, 2001 as compared to the same period in 2000, our
interest expense increased to $103,243 from $80,493. For the six months ended
December 31, 2001 as compared to the same period in 2000, our interest expense
increased to $221,201 from $127,154. The increases in interest expense are a
result of the interest component of the accrued supplier agreement and capital
leases.

---

Income Taxes. For the three
months ended December 31, 2001, we recorded a deferred income tax expense of
$278,157 as compared to a deferred income tax benefit of $61,339 in 2000. For
the six months ended December 31, 2001 we recorded a deferred income tax expense
of $485,859 as compared to a deferred income tax benefit of $104,292 in 2000.

Dividends. For the three
months ending December 31, 2001, we paid $157,407 of stock dividends to our
preferred shareholders. For the six months ending December 31, 2001, we paid
$314,813 of stock dividends to our preferred shareholders.

Net Income (Loss). For the
three month period ended December 31, 2001, we earned $175,725 or $0.05 per
share basic and diluted as compared to a net loss applicable to common
shareholders of $251,433 or $(0.08) per share for the corresponding three month
period ended December 31, 2000. For the six month period ended December 31,
2001, we earned $413,975 or $0.12 per share basic and diluted as compared to a
net loss applicable to common shareholders of $475,288 or $(0.15) per share for
the corresponding three month period ended December 31, 2000.

## Liquidity and
Capital Resources

We experienced negative
cash flow of $55,299 for the six months ended December 31, 2001. Cash used in
operations resulted in positive cash flows of $598,239 primarily due to net
income of $728,788, a non-cash charge of $369,706 for depreciation and
amortization and $485,859 for deferred income taxes, a reduction of accounts
receivable of $300,034, offset by an increase in settlement receivable of
$597,914, a decrease in accounts payable of $413,062 and a decrease in accrued
supplier expenses, accrued product warranty and deferred revenue of $344,507.

The cash we used in
investing activities included the purchase of equipment in the amount of
$141,033 and the purchase of goodwill generated by the ultraHue earn-out in the
amount of $139,544.

Cash used in financing activities included the repayment of $58,148 of debt and the payment of $314,813 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 the Company. As of December 31, 2001, $1,903,749 was
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. Through December 2001, we repaid $40,000 of these loans. These
short-term loans mature in May 2002. There is no representation or assurance 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 an interest rate of 13% per
annum. Through December 2001, we repaid $30,000 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 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.

## Forward
Looking Statements

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

---

# PART II.  
OTHER INFORMATION

## ITEM 1.  
LEGAL PROCEEDINGS

As at February 1, 2002, we
are not a party to any material pending legal proceeding, other than ordinary
routine litigation incidental to our business. We entered settlement agreements
for the net amount of $600,000 to us in connection with the litigation we
commenced 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.

## 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 needed
to fund the costs of the now settled  litigation with Tektronix,  Inc. and Xerox
Corporation.  Our preferred  shareholders  had the option to receive  payment in
kind, through a common stock issuance valued at $1.00 per share, the fair market
value of our  common  stock on that  date.  In  September  2001,  our  preferred
shareholders were permitted the option to receive dividend payment for those two
payments  through  payment in kind,  through a common stock  issuance  valued at
$1.10 per share, the fair market value of our common stock on that date.  Thirty
three  shareholders  elected to receive  their  dividend  payments  through  the
payment in kind,  totaling  $154,134 and  consisting of 148,136 shares of common
stock for the two  periods  ending  March 31, 2001 and June 30,  2001,  of which
7,711  shares were issued in the three month  period  ended  December  31, 2001.
On December 13, 2001,  the series A preferred  stock  conversion  rate
adjusted so that one share of preferred stock is presently convertible into five
shares of common stock.  The conversion rate is subject to a further  adjustment
on December 13, 2003. At that adjusted  conversion rate, the number of shares of
common stock  receivable upon  conversion  shall equal $10 divided by 75% of the
average bid price of our common stock during the 90 days preceding  December 13,
2003,  with a maximum  conversion  rate of one share of series A preferred stock
into five shares of common stock.

---

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

We held our annual meeting
of stockholders on November 15, 2001. The matters voted upon at the meeting were
the election of seven directors and the ratification of the selection of Wiss
& Company, LLP as Cadapults independent certified public accountants
for the fiscal year ending June 30, 2001. On each matter voted upon, the
shareholders of Cadapult representing 1,751,850 shares voted for each of the two
matters with no votes cast against or withheld and with no abstention. All seven
of the then-serving directors, consisting of Michael W. Levin, Frances Blanco,
Paul C. Baker, Edwin Ruzinsky, Donald Gunn, Henry Royer and Stanley Brooks, were
elected to serve for an additional term.

## 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.

---

# 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:  February 13, 2002 | By:      /s/ Michael W. Levin
      Michael W. Levin
      Chief Executive Officer, President
      and Chief Financial Officer
|------------------------- | -------------------------------------------------------------------------------------------------------------------------------

|Dated:  February 13, 2002 | By:      /s/ Frances Blanco
      Frances Blanco
       Vice President and Treasurer
|------------------------- | ------------------------------------------------------------------------------------

---