As filed with the Securities and Exchange Commission on
February 10, 2000.
Registration No. 333-________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CAPITA RESEARCH GROUP, INC.
(Exact name of registrant as specified in its charter)
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Nevada 7372 88-0072350
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification Number)
organization)
591 Skippack Pike
Blue Bell, Pennsylvania 19422
(215) 619-7777
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
----------
David B. Hunter
Chief Executive Officer
Capita Research Group, Inc.
591 Skippack Pike
Blue Bell, Pennsylvania 19422
(215) 619-7777
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Andrew J. Beck, Esq.
Torys
237 Park Avenue
New York, New York 10017
(212) 880-6000
Approximate date of commencement of proposed
sale to the public: As soon as practicable after
this Registration Statement becomes effective.
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ] _______
If this form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] _______
If delivery of the prospectus is expected to be made pursuant
to Rule 434, please check the following box. [ ] ________
CALCULATION OF REGISTRATION FEE
============================ ===================== ===================== ===================== =================
Title of Each Class of Amount To Be Proposed Maximum Proposed Maximum Amount of
Securities To Be Registered Registered Offering Price Aggregate Offering Registration Fee
Per Share(1) Price(1)
- ---------------------------- --------------------- --------------------- --------------------- -----------------
Common Stock
($.001 par value)........... 5,380,000 $.92 $4,949,600.00 $1309.36
============================ ===================== ===================== ===================== =================
(1)......Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) promulgated under the Securities Act of 1933, as
amended.
-----------
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
Subject to Completion
Preliminary Prospectus dated February 10, 2000
PROSPECTUS
----------
CAPITA RESEARCH GROUP, INC.
5,380,000 Shares of Common Stock
- --------------------------------------------------------------------------------
This prospectus:
o Covers the resale of certain shares of our common
stock.
o May be used by the selling security holders or by a
broker-dealer who may participate in sales of the
common stock covered in this prospectus.
The securities covered include:
o 1,600,000 shares of our common stock issuable upon
the conversion of a convertible promissory note o
1,260,000 shares of our common stock issued to
selling security holders in private placements in
January 2000.
o 2,520,000 shares of common stock underlying
warrants issued to selling security holders in the
private placements.
The securities to be resold:
o Represent approximately 20.95 percent of our
currently outstanding common stock (assuming the
conversion of the convertible promissory note and
exercise of all the warrants).
o Are being offered on a continuous basis pursuant to
Rule 415 under the Securities Act of 1933, as
amended.
o Will be sold at prevailing market prices or at
prices negotiated by the selling security holder
and buyer.
Our securities are traded on the OTC Bulletin Board under the
trading symbol "CEEG." The last reported sale price of our common stock on
February 8, 2000 on the OTC Bulletin Board was $1.00 per share.
The resale of the securities:
o Involves no underwriting discounts, commissions or
expenses.
o We will pay any expenses of registering the
securities, which we estimate to be $[ ].
See "Risk Factors" beginning at page 3 to read about certain
factors you should consider before buying common stock.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities or passed
upon the adequacy or accuracy of this prospectus. Any representation to the
contrary is a criminal offense.
================================================================================
The date of this Prospectus is__________, 2000.
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in
this prospectus. This summary is not complete and may not contain all of the
information that investors should consider before investing in our common stock.
Investors should read the entire prospectus carefully.
Capita Research Group, Inc.
Capita Research Group, Inc. was created as the result of an
exchange transaction between Royal American Mining Properties, Ltd. and NextGen
Systems, Inc., a Pennsylvania corporation (our predecessor) on January 30, 1998.
We have the exclusive license with the National Aeronautics and Space
Administration for the CREW software which measures a test respondent's EEG, or
brain wave impulse, when subjected to sound or pictures. This software then
converts the raw brain wave data into an index, which indicates the respondent's
level of interest, or lack of interest, also called "engagement", with the
stimuli. We believe that we have the only commercial operating system of this
nature and are using it for testing services in the media, advertising and
entertainment industries, as well as in pharmaceutical market research. Our goal
is to become the leading commercial provider of customized, high performance
technology systems and services, including analysis and technical support, for
the real-time, objective measurement of engagement for use in multiple markets.
Our principal executive offices are located at 591 Skippack
Pike, Blue Bell, Pennsylvania 19422, and our telephone number is (215) 619-7777.
Our Web site is located at http//:www.capitaresearch.com. Any information that
is included on or linked to our Web site is not a part of this prospectus.
Summary Consolidated Financial Data
(in thousands, except per share data)
The following table sets forth our summary consolidated
financial data. When you read this summary consolidated financial data, it is
important that you also read the historical financial statements and related
notes included in this prospectus, as well as the section of this prospectus
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Statement of Operations Data:
For the nine Years ended December 31,
months ended ------------------------
September 30, 1998 1997 1996
1999 (Consolidated) (Combined) (Combined)
---------- ----------- ---------- ----------
Net revenues.................. $ 55,000 $ 85,500 $ 81,894 $ 360,654
Cost of sales................. 126,063 125,826 96,100 253,175
---------- ----------- ---------- ----------
Gross profit (loss) .......... (71,063) (40,326) (14,206) 107,479
========== =========== ========== ==========
Operating expenses.......... 705,387 1,090,374 655,622 504,741
Loss from operations........ 776,450 1,130,700 669,828 397,262
Non-operating income
(expenses) ............. 3,873 (29,982) (19,452) (1,713)
Provision for taxes........... -- -- -- --
Net loss...................... $ $(1,160,682) $(689,280) $ (398,975)
========== =========== ========== ==========
Net income (loss) per
common share............ (0.05) (0.10) (0.40) (0.39)
========== =========== ========== ==========
Shares used in net income
(loss) per common share
computation............. 16,244,218 11,380,306 1,736,458 1,034,658
========== =========== ========== ==========
As of September As of December
30, 1999 31, 1998
--------------- ----------------
Consolidated Balance Sheet Data:
Total assets $ 400,245 $ 141,414
Current liabilities 470,265 300,333
Long-term debt 25,377 23,895
Total stockholders' equity (deficiency) (95,397) (168,533)
RISK FACTORS
You should carefully consider the risks described below before
making an investment decision. The risks and uncertainties described below are
not the only ones we face. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial may also impair our business
operations.
If any of the following risks actually occur, our business,
results of operations and financial condition could be materially and adversely
affected, the value of our stock could decline and you may lose all or part of
your investment.
We have a limited operating history and are subject to the risks of new
enterprises.
We are a development stage company and have a limited
operating history. Our limited operating history and the uncertain and emerging
nature of our technology and services make it difficult to assess our prospects
or predict our future operating results. Our prospects must be considered in
light of the numerous risks and uncertainties frequently encountered with new
businesses.
We have a history of losses and expect losses will continue.
We have never been profitable, and we anticipate that we will
continue to incur net losses in future periods. For the nine months ended
September 30, 1999 and the fiscal year ended December 31, 1998, we had net
losses of $772,577 and $1,160,682 respectively. There can be no assurance that
we will successfully implement our business strategy in the future or that we
will achieve profitability. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
We face substantial competition from established companies in our industry.
We face substantial competition from other providers of
advertising testing services. Our principal competition consists of companies
within the opinion research industry which provide third party testing services
either to advertising agencies or directly to advertising clients. While we
believe that our technology and testing methodology are not comparable to those
services currently offered by competitors in our industry, we face uncertainty
regarding our ability to compete effectively with established opinion research
companies. Many of our competitors and potential competitors are much larger and
have greater development, marketing and financial resources, making it more
difficult for us to establish name recognition in the marketplace and compete
effectively. See "Business - Competition."
Changes in technology may render our equipment and services obsolete.
We rely on advanced technology and software in the provision
of our advertising testing services. Our success will depend on our ability to
adapt to technological advances. To remain competitive, we must respond quickly
to technological advances in EEG monitoring hardware and software. This could
require us to make substantial investments in new equipment or software that has
made our existing equipment or software obsolete. In addition, other
technologies developed by competitors may significantly reduce demand for our
services or render our services obsolete.
3
We may be unable to meet our future cash requirements.
We require substantial capital to fund the continued
development and operation of our business. From January 1, 1998 through January
24, 2000, we have received net proceeds from offerings of our common stock and
warrants of $1,750,933 and from offerings of our debt of $500,000. As of January
24, 2000, we had approximate working capital of $400,000. We anticipate, based
on current plans and assumptions relating to our operations, that the proceeds
from recent sales of our common stock, together with projected cash flow from
operations, will be sufficient to satisfy our contemplated cash requirements for
at least the next six months. If, however, we have underestimated our cash
requirements, we will require additional debt or equity financing. Our ability
to obtain the necessary financing, and its cost to us, are uncertain.
Accordingly, we may be forced to curtail our planned business development and
may also be unable to fund our ongoing operations. To the extent we raise
additional capital by issuing securities, dilution may result to the investors
in this offering.
Our technology and services may never be accepted for use in advertising
testing.
The use of EEG technology in advertising testing is a
relatively new alternative to traditional advertising testing. Potential clients
may be unwilling to accept our services as an appropriate or effective method to
measure individual responses to advertising. The extent to which the use of EEG
technology in advertising testing is accepted will materially affect our
business, financial condition and results of operations.
We do not pay, and do not anticipate paying, dividends on our common stock.
We have never paid a cash dividend on our common stock.
Whether we pay cash dividends in the future will depend on our earnings,
financial condition and capital needs and on other factors deemed pertinent by
our board of directors. We currently intend to retain any future earnings to
finance our operations. See "Dividend Policy."
We may fail to attract or retain key management personnel, which will adversely
affect our business.
We are highly dependent on the services of current management
such as David Hunter, our president, and Tomas Stenstrom, our chief technology
officer, and Anthony Baratta, our treasurer. The loss of key management
personnel or an inability to attract, retain and motivate sufficiently
experienced management could have a material adverse effect on our businesses,
financial condition or results of operations.
Possible infringement of intellectual property rights could harm our business.
We are in the process of applying for a number of patents
pertaining to our technology. We have a number of trademarks and servicemarks on
trade names used in our operations and marketing. We cannot be certain that the
4
steps we have taken to protect our intellectual property rights will be adequate
or that third parties will not infringe or misappropriate our proprietary
rights, nor can we be sure that competitors will not independently develop
technologies that are substantially equivalent or superior to the proprietary
technologies employed in our services. In addition, we cannot be certain that
our business activities will not infringe on the proprietary rights of others,
or that other parties will not assert infringement claims against us. Any claim
of infringement of proprietary rights of others, even if ultimately decided in
our favor, could result in substantial costs and diversion of resources. If a
claim is asserted that we infringed the intellectual property of a third party,
we may be required to seek licenses to such third-party technology. We cannot be
sure that licenses to third-party technology will be available to us at a
reasonable cost, if at all. If we were unable to obtain such a license on
reasonable terms, we could be forced to cease using the third-party technology.
See "Business--Intellectual Property."
The exercise of outstanding options and warrants and the conversion of an
outstanding convertible promissory note may adversely affect the price of our
securities.
We have granted 234,900 options, each to purchase one share of
our common stock for purchase prices ranging from $.90 to $1.37 per share, to
key employees, officers and directors under our stock option plan. We have also
granted warrants to purchase 2,820,000 shares of our common stock, and have
issued a convertible promissory note convertible into 1,600,000 shares of our
common stock. These outstanding options and warrants and the convertible
promissory note could have a significant adverse effect on the trading price of
our common stock, especially if the note were converted or a significant volume
of the options or warrants were exercised and the stock issued was immediately
sold into the public market.
There are significant consequences associated with our stock trading on the NASD
OTC Bulletin Board rather than a national exchange.
We do not currently meet the requirements for trading in the
Nasdaq SmallCap Market or other national exchanges. We can give you no assurance
that we will achieve the quantitative criteria required by the Nasdaq SmallCap
Market or any other national exchange or that, even if we do, our listing
application would be approved by any such exchange. The effects of not being
able to list our securities on a national exchange include limited release of
the market prices of our securities, limited news coverage of our company,
limited interest by investors in our securities, increased difficulty in selling
our securities in certain states due to "blue sky" restrictions, and limited
ability to issue additional securities or to secure additional financing.
We are subject to the application of the Penny Stock Rules.
Because our common stock is not trading in the Nasdaq SmallCap
Market or some other national exchange, and the trading price of the common
stock is less than $5 per share, we are subject to the Penny Stock Rules under
the Securities Enforcement and Penny Stock Reform Act of 1990. In addition to
the risk of volatility of stock prices, low price stocks are subject to the
5
risks of additional federal and state regulatory requirements and the potential
loss of effective trading markets. In particular, broker-dealers trading in our
common stock are subject to Rule 15g-9 under the Securities Exchange Act of
1934, as amended. Rule 15g-9, among other things, requires that broker-dealers
satisfy special sales practice requirements, including making individualized
written suitability determinations and receiving any purchaser's written consent
prior to any transaction. Broker-dealers handling trades in our securities are
required to make additional disclosure in connection with those trades,
including the delivery of a disclosure schedule explaining the nature and risks
of the penny stock market. Such requirements could severely limit the liquidity
of our securities and your ability to sell your securities in the secondary
market, which could have an adverse impact on the price of our common stock.
SELLING SECURITY HOLDERS
The selling security holders consist of the SoundShore
Investors and the Additional Investors, as defined below and James R. Salim. The
registration statement of which this prospectus is a part is being filed, and
the shares offered in this prospectus are included herein, pursuant to various
registration rights granted by us to the selling security holders. We are unable
to determine the exact amount of securities that will actually be sold pursuant
to this prospectus due to the ability of the selling security holders to
determine individually when and whether they will sell any securities under this
prospectus and uncertainty as to how many of the warrants will be exercised.
The SoundShore Investors
SoundShore Holdings Ltd., SoundShore Opportunity Holding Fund
Ltd. and SoundShore Strategic Holding Fund Ltd. (collectively referred to herein
as the "SoundShore Investors") acquired in a private placement transaction
pursuant to a securities purchase agreement dated as of January 6, 2000 an
aggregate of 1,000,000 units, each unit consisting of one share of our common
stock and two warrants. Each warrant is exercisable for the purchase of one
share of our common stock until January 1, 2005. In each unit, one warrant is
exercisable for $.50 per share and the other warrant is exercisable for $1.00
per share.
The Additional Investors
Andrew Gitlin, John Lepore, Edward Okine, Philip Platek,
Howard Fischer and Michael Hamblett (collectively referred to herein as the
"Additional Investors") acquired in a private placement transaction pursuant to
a securities purchase agreement dated as of January 21, 2000 an aggregate of
260,000 units. These units are identical to the units acquired by the SoundShore
Investors. Each warrant is exercisable for the purchase of one share of our
common stock until January 1, 2005. In each unit, one warrant is exercisable for
$.50 per share and the other warrant is exercisable for $1.00 per share.
James R. Salim
We issued a $400,000 convertible promissory note dated August
5, 1999 to James R. Salim. The note is being converted into 1,600,000 shares of
our common stock.
The following table and accompanying footnotes identify each
selling security holder with respect to the shares beneficially held or
acquirable by, as the case may be, each selling security holder. No selling
6
security holder has had any position, office or other material relationship with
us or any of our predecessors or affiliates within the past three years. The
percentage figures reflected in the table assume the exercise of all warrants
and the convertible promissory note (other than warrants held by James R. Salim
exercisable for 300,000 shares of common stock) into 2,520,000 shares of common
stock.
Total
Common Stock
Number of Shares of Beneficially Number of
Number of Shares Common Stock Owned Shares to
Name of Investor of Common Stock Underlying Warrants Prior to Offering be Offered
---------------- ------------ ------------------- ----------------- ----------
James R. Salim(1) 2,189,237(2) 300,000 2,489,237 1,600,000
SoundShore Holdings
Ltd. 666,750 1,333,500 2,000,250 2,000,250
SoundShore 214,500 429,000 643,500 643,500
SoundShore Strategic 118,750 237,500 356,250 356,250
Andrew Gitlin 30,000 60,000 90,000 90,000
John Lepore 20,000 40,000 60,000 60,000
Edward Okine 10,000 20,000 30,000 30,000
Philip Platek 20,000 40,000 60,000 60,000
Howard Fischer 80,000 160,000 240,000 240,000
Michael Hamblett 100,000 200,000 300,000 300,000
(1) Mr. Salim is not offering the 300,000 shares of common stock issuable upon
the exercise of his warrants. Mr. Salim's 889,237 shares which he will hold
after the offering represent 3.70% of the outstanding shares.
(2) Includes 1,600,000 shares of common stock issuable upon conversion of Mr.
Salim's convertible promissory note.
PLAN OF DISTRIBUTION
The registration statement of which this prospectus forms a
part has been filed pursuant to certain registration rights agreements. To our
knowledge, as of the date hereof, no selling security holder has entered into
any agreement, arrangement or understanding with any particular broker or market
maker with respect to the shares offered hereby, nor do we know the identity of
the brokers or market makers which will participate in the offering.
The shares covered hereby may be offered and sold from time to
time by the selling security holders. The selling security holders will act
7
independently of us in making decisions with respect to the timing, manner and
size of each sale. Each such sale may be made on the OTC Bulletin Board or
otherwise, at prices and on terms then prevailing or at prices related to the
then market price, or in negotiated transactions. The shares may be sold by one
or more of the following methods:
(a) a block trade in which the broker-dealer engaged by the
selling security holder will attempt to sell the shares as
agent but may position and resell a portion of the block
as principal to facilitate the transaction;
(b) purchases by the broker-dealer as principal and resale by
such broker-dealer for its account pursuant to this
prospectus;
(c) ordinary brokerage transactions and transactions in which
the broker-dealer solicits purchasers;
(d) privately negotiated transactions at negotiated prices;
and
(e) directly to market makers acting as principals.
To our knowledge, the selling security holders have not, as of
the date hereof, entered into any arrangement with a broker-dealer for the sale
of shares through a block trade, special offering, or secondary distribution or
a purchase by a broker-dealer. In effecting sales, broker-dealers engaged by the
selling security holders may arrange for other broker-dealers to participate.
Broker-dealers may receive commissions or discounts from the selling security
holders in amounts to be negotiated.
In offering the shares, the selling security holders and any
broker-dealers who execute sales for the selling security holders may be deemed
to be "underwriters" within the meaning of the Securities Act of 1933, as
amended, in connection with such sales, and any profits realized by the selling
security holders and the compensation of such broker-dealers may be deemed to be
underwriting discounts and commissions. In addition, any shares covered by this
prospectus that qualify for sale pursuant to Rule 144 may be sold under Rule 144
rather than pursuant to this prospectus.
Regulation M under the Securities Exchange Act of 1934, as
amended, prohibits participants in a distribution from bidding for or purchasing
for an account in which the participant has a beneficial interest, any of the
securities that are the subject of the distribution. Rule 104 of Regulation M
governs bids and purchases made to stabilize the price of a security in
connection with a distribution of the security.
This offering will terminate as to each selling security
holder on the earlier of (a) the date on which all such selling security holders
shares may be resold pursuant to Rule 144 under the Securities Act; or (b) the
date on which all shares offered hereby have been sold by the selling security
holder. There can be no assurance that any of the selling security holders will
sell any or all of the shares offered hereby.
8
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock commenced trading on the OTC Bulletin Board
on August 3, 1998 under the symbol "CEEG". To date, there has been only sporadic
trading in our common stock. As of December 31, 1999, we had 1,013 holders of
record of our common stock and 15 listed market-makers.
The following table sets forth the high and low bid
information for our common stock for the periods indicated. The quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission,
and may not necessarily represent actual transactions.
High Low
-------- --------
Fiscal Year Ending December 31, 2000
Quarter ended March 31, 2000 (through $ .96875 $.8125
Fiscal Year Ending December 31, 1999
Quarter ended March 31, 1999 $ .375 $.125
Quarter ended June 30, 1999 $ .375 $.0625
Quarter ended September 30, 1999 $2.1875 $.0625
Quarter ended December 31, 1999 $1.9375 $.875
Fiscal Year Ending December 31, 1998
Quarter ended September 30, 1998 $ .03125 $.01
(from August 5, 1998)
Quarter ended December 31, 1998 $ .375 $.03125
DIVIDEND POLICY
We have never paid a cash dividend on our common stock.
Whether we pay cash dividends in the future will depend on the our earnings,
financial condition and capital needs and on other factors deemed pertinent by
the our board of directors. We currently intend to retain any future earnings to
finance our operations.
CAPITALIZATION
The following table sets forth our capitalization as of
September 30, 1999:
o on an actual basis; and
o as adjusted to give effect to the sale of 1,260,000 shares
of common stock in the January 2000 private placements for
$630,000, the exercise of all outstanding warrants for
2,520,000 shares of common stock with an aggregate exercise
price of $1,890,000, and the conversion of the $400,000
convertible promissory note into 1,600,000 shares of common
stock.
This table should be read in conjunction with our financial
statements and related notes included elsewhere in this prospectus.
9
September 30, 1999
Actual As Adjusted
------------------ -----------
Cash and cash equivalents.............................. $ 159,596 $ 2,679,596
=========== ===========
Short-term debt ....................................... $ 300,000 $ 0
=========== ===========
Long-term debt (including capital lease obligations) .. $ 25,377 $ 25,377
----------- -----------
Stockholders' deficit:
Common Stock, $.001 par value per share, 100,000,000 20,295 25,675
Capital in excess of par value................... 3,857,663 6,772,283
Stock Subscription Receivable.................... (837,568) (837,568)
Accumulated deficit.............................. (3,135,787) (3,135,787)
----------- -----------
Total stockholders' equity (deficit)........... (95,397) 2,824,603
=========== ===========
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with
the consolidated financial statements and the notes thereto included elsewhere
in this prospectus. The following discussion contains forward-looking statements
which reflect our plans, estimates and beliefs. Our actual results could differ
materially from those discussed in these forward-looking statements. Factors
that could cause or contribute to such differences include, but are not limited
to, those discussed below and elsewhere in this prospectus, particularly in
"Risk Factors."
General
The discussion and analysis set forth below is for the
following periods:
o the nine months ended September 30, 1999 and September 30,
1998; and
o the twelve months ended December 31, 1998, December 31,
1997, and December 31, 1996.
10
RESULTS OF OPERATIONS
Results of Operations for the Nine Months Ended September 30, 1999 and 1998
We are, and have been, a development stage company during the
nine-month periods ended September 30, 1999 and 1998. As a development stage
company, we have had limited marketing activity, with sales of $55,000 and
$85,500 for the nine-months ended September 30, 1999 and 1998, respectively. The
gross profit (loss) on these sales increased to a $71,063 loss in 1999 from a
$2,702 loss in 1998. This was due to the addition of certain fixed costs in cost
of sales, primarily an increase in the depreciation of testing equipment that
has been acquired since 1998.
The operating costs of $705,387 in 1999 were significantly
less than the operating costs incurred for the nine months ended September 30,
1998 of $947,608. The decrease of $242,221 was due primarily to several
expenditures incurred in 1998 which did not reoccur in 1999, which were offset
in part by higher operating costs in 1999. These expenses included approximately
$105,000 of 1998 expense which was attributable to legal, accounting and other
costs relating to the reverse acquisition into Royal American and the filing of
the Form 10-SB/A with the SEC, and the $100,000 of 1998 product development
services performed by an outside contractor.
Results of Operations for Year Ended December 31, 1998 Compared With Year Ended
December 31, 1997
MediaSolutions International ("MSII") (a predecessor of Capita
Research Group, Inc.) licensed the rights from Media Solutions Inc. (also a
predecessor of Capita) to continue the development and selling of MediaLink.
MediaLink was a software system used by marketers to manage direct response
television ("DRTV") advertising campaigns. During the first half of 1997, MSII
was actively engaged in marketing its product and providing technical support to
its clients. During 1998, having previously sold the MediaLink line of business,
and having obtained the rights to commercialize the NASA software, Media
Solutions was engaged in developing and launching a new line of business
directed towards advertising and media copy testing. In addition to validating
our testing system for commercial use, this involved substantial ongoing
technical development, creation of corporate infrastructure, and initiation of a
sale solicitation program among prospective media and advertising company
prospects.
For these reasons, substantially all of the material changes
from period to period in the respective Consolidated Statements of Operations
for the year ended December 31, 1998, reflect a basic change of business
operations and not a change in comparable operating results. Accordingly, in the
period ended December 31, 1997 Media Solutions and MSII generated revenue of
$81,894 from sales of its MediaLink software product. Total expenses of $751,722
(exclusive of interest) were incurred largely in connection with system sales
and support activities. In the year ended December 31, 1998 we had sales of
$85,500 from our copy testing service. This accounted for the entire
period-to-period change in revenue. The gross margin for the year ended December
11
31, 1998 was a negative ($40,236). Improvements in gross margin are expected
with anticipated sales increases and further technical and operational
improvements to the testing process. Our expenses of $1,216,200 (exclusive of
interest) reflected the technical development of the product, development of our
infrastructure, and the start-up of testing operations. General and
administrative expenses included costs of approximately $104,490 which were
attributable to legal, accounting, and other costs related to the reverse
acquisition into Royal American and the filing of the Form 10-SB/A with the
Securities and Exchange Commission.
Results of Operations for Year Ended December 31, 1997 Compared With Year Ended
December 31, 1996.
In 1996, Media Solutions continued to develop and market the
MediaLink software for the management of television DRTV campaigns. During the
year, the Media Solutions' ongoing product development was funded through system
sales totaling approximately $360,000 and additional investments. In many cases,
to obtain new clients, Media Solutions offered pricing at below the fully
allocated cost of delivering and supporting each new system. Moreover, the Media
Solutions software, once installed at each client site, generally required
greater-than-anticipated technical support resources to maintain stability and
functionality. As a result of these facts and the inadequacy of investment
capital, the company experienced a chronic shortage in working capital, and
results from operations were consistently unprofitable.
In October of 1996, Media Solutions entered into a $100,000
bridge loan agreement with one of its shareholders. Under the terms of the
agreement, the company utilized borrowed funds to satisfy near-term working
capital obligations. Management believed that repayment would come both from
anticipated system sales and from proceeds of an offering of equity securities
to outside investors.
During 1997, MSII, which had licensed the right to use and
market MediaLink, continued to experience strong demand for the product.
However, in addition to the factors mentioned above, operations were
unprofitable because of:
o the heavy investment required to deploy a client/server
application into the media marketplace;
o the lack of the required infrastructure to support the
product;
o the lack of sufficient marketing resources; and
o the inability to obtain venture capital commitments
necessary to finance the company's expansion.
Another major factor contributing to the lack of profits was
the market's inadequate perception of product value in relation to the cost of
developing and supporting a highly complex software application.
12
In May of 1997, MSII had exhausted its sources of investment
capital. At that date, the company had raised approximately $540,000 in equity
investment and $330,000 in stockholder debt. Year to date sales totaled
approximately $80,000 resulting in losses of approximately $690,000. Under these
circumstances, Media Solutions initiated discussions with interested parties
about acquiring MediaLink. In July of 1997, Media Solutions sold the MediaLink
asset to MSII and MSII signed a letter of intent to sell Media Link to Columbine
JDS Systems, Inc., a leading media software company and a subsidiary of Big
Flower, Inc., a NYSE listed company. The purchase agreement was effective as of
August 1, 1997. MSII's receipt of proceeds from the sale, totaling $350,000, was
contingent upon certain profitability tests at Columbine. MSII was merged into
Capita, so any proceeds received would be received by Capita.
In July 1997, under new management, Media Solutions
reorganized its existing investment and focused on the development and launch of
a business centered around a NASA licensing agreement for the CREW software. For
the remainder of the year, Media Solutions, operating under the name Capita
Systems, Inc., significantly modified and improved the NASA software and
instrumentation hardware and engaged in extensive benchmark testing and
preliminary marketing, performing its first revenue test in October. The cost of
these activities was borne by incremental equity investment obtained over the
course of the year.
LIQUIDITY AND CAPITAL RESOURCES AT SEPTEMBER 30, 1999
With losses expected to continue in the foreseeable future,
our ability to sustain operations is dependent on our ability to raise added
investment capital. We have taken the following steps during the nine month
period ended September 30, 1999 to improve our liquidity and capital resources:
o During the nine-month period ended September 30, 1999 we received cash
proceeds of $445,858 from the sale of common stock.
o We converted $100,000 of notes payable, $31,384 of accrued interest,
and $16,000 of other payables into our common stock.
o We issued $271,488 of common stock in consideration of services
rendered, including rent, equipment purchases, and legal and accounting
services.
o In March 1999, we entered into an agreement with Quaker Capital Markets
Group, Inc. in order to attempt to raise a currently estimated
$7,500,000. In connection therewith, we paid Quaker $10,000 in cash,
$15,000 in common stock and agreed to pay it a percentage of capital
raised.
o In August 1999, we entered into an agreement with an investor for
$400,000 in short-term notes, which are convertible to common stock.
Prior to September 30, 1999, we received the first three installments
totaling $300,000 and we received the fourth installment of $100,000 in
October 1999. This loan was obtained to meet our working capital needs
as we seek additional equity financing.
13
At September 30, 1999, our financial condition remained
impaired, with the working capital shortfall being met primarily from the
proceeds of the issuance of common stock and a short-term working capital loan.
The above transactions net of the operating loss had the effect of reducing the
total stockholders' deficiency by $73,136 to a deficiency of $95,397 at
September 30, 1999.
BUSINESS
Capita Research Group, Inc. is a Nevada corporation, which was
created as the result of an exchange transaction between Royal American Mining
Properties, Ltd. and NextGen Systems, Inc., a Pennsylvania corporation (Capita's
Predecessor), on January 30, 1998. We have the exclusive license with the
National Aeronautics and Space Administration for software, which measures a
test respondent's EEG, or brain wave impulse, when subjected to sound or
pictures. This software then converts the raw brain wave data into an index,
which indicates the respondent's level of interest, or lack of interest, also
called "engagement", with the stimuli. We believe that we have the only
commercial operating system of this nature and are using it for testing services
in the media, advertising and entertainment industries, as well as in
pharmaceutical market research.
On January 27, 1998 Royal entered into an Exchange Agreement
under the terms of which on January 30, 1998 Royal acquired all the issued and
outstanding shares of NextGen in exchange for shares of Royal's common stock.
Royal issued 8,622,000 shares (90%) of its common stock to an exchange agent for
the shareholders of NextGen and in return received all the issued and
outstanding shares of NextGen. Under the terms of the Exchange Agreement,
Royal's management and majority shareholders then effected a two for one forward
split of Royal's remaining common stock. Accordingly, Royal's shareholders were
entitled to two shares of our common stock for every one share they owned. Our
name was also changed to Capita Research Group, Inc.
As of January 24, 2000, 21,555,946 shares of our common stock
were issued and outstanding.
To management's knowledge, we have not been subject to
bankruptcy, receivership or any similar proceedings.
Forward-Looking Statements
This prospectus contains forward-looking statements (within
the meaning of Section 21E of the Securities Exchange Act of 1934, as amended),
representing our current expectations and beliefs concerning future events. When
used in this prospectus, the words "believes," "estimates," "plans," "expects,"
"intends," "anticipates," and similar expressions as they relate to us or our
management are intended to identify forward-looking statements. Our actual
results could differ materially from those indicated by the forward-looking
statements because of various risks and uncertainties discussed below and
elsewhere in this prospectus, particularly under "Risk Factors." These risks and
uncertainties are beyond the ability of us to control, in many cases, and we
cannot predict the risks and uncertainties that could cause actual results to
differ materially from those indicated by the forward-looking statements.
14
Business
We are a technology company that designs and markets systems
and services that are used in research to measure communications effectiveness.
We do this by measuring the psycho-physiological engagement of an individual to
various forms of communication. The basic technology is licensed under an
exclusive agreement from NASA to measure electrical activity using an
electroencephalogram (EEG) in the human brain and processing the results through
the computer using an algorithm developed by NASA. Our mission is to become the
leading commercial provider of customized, high performance technology systems
and services, including analysis and technical support, for the real-time,
objective measurement of engagement for use in multiple markets.
We are in the development stage. We are in the process of
obtaining patents for our hardware and software technology. Using this
technology in communications research, we are developing systems to evaluate
individual engagement while watching television and plan to develop systems to
test and measure individual engagement with print media advertising, package
design, and Internet web sites. We will market this technology as a testing
service with particular focus on the television advertising industry. We will
provide our client's test results, which determine whether the test subjects are
mentally engaged by the media being viewed.
This type of testing is referred to as "copy testing" or
"advertising testing" research. In addition to general interviews about consumer
preferences, at present there are two principal methods of conducting such
tests. The first is the use of a meter, or dial, by which the test subject
indicates his positive (or negative) reaction associated with the test material.
The second method of testing is performed by companies specializing in focus
group measurement, whereby a group of demographically selected test subjects
views a program and is then asked a series of questions to determine interest or
lack of interest. A substantial volume of advertising research activity is
conducted with what is referred to as "syndicated research", whereby the
creatives of various advertisers are pooled in common projects, creating
multiple testing slots inside of a single project. Syndicated research is
principally conducted through distributed testing in the home, over unused cable
TV channels or by mailing video cassettes to panel respondents which erase
themselves automatically after a single playing, followed by the administration
of questionnaires delivered to the respondent, or by simultaneous or next day
interview of the respondent by telephone. Some syndicated research is conducted
in central facilities. By doing syndicated research, the cost of a research
project is spread across a number of clients, making the research work more
economical to each client company, and more profitable to the research company.
These forms of testing constitute a well-established industry, although there is
much debate within the media industry about the reliability of these tests due
to the subjective nature of measuring viewer response and the tendency of some
test subjects to follow strong and vocal leaders.
Our method of using brain wave measurement technology differs
from standard industry methods in that it monitors brain activity objectively
during respondents' testing and converts the measured activity into what we call
the Engagement Index(TM). Testing allows an advertiser to evaluate consumer
engagement to its commercials on a second-by-second basis.
15
Based on early marketing results, we believe that we can
stimulate significant demand for our objective and passive form of test subject
measurement. Although other means of psycho-physiological measurement have been
used to test advertising material, management believes that no method comparable
to our EEG measurement exists in the marketplace.
We have been developing line extensions to the technology into
additional industries during the past year. There has been a version of the
Capita ETS(TM) print media system developed for the conduct of pharmaceutical
market research of doctor detail creatives. We are also completing a new system
to manage custom and syndicated research of Internet web creatives, such as web
pages, banners, and other web objects.
We introduced a version of the Capita ETS(TM) in the fall of
1999 which operates in a networked environment, offering the ability to test
multiple respondents during one simultaneous session. This innovation has
greatly improved the economics of the technology from our standpoint, in terms
of utilization of staff time, facilities and working capital.
We intend to offer line extensions of the foundation operating
system, so that the Capita ETS(TM) can function on a variety of computer
operating system platforms. We are also developing an inventory of data modeling
systems and project management methodologies to more closely tailor the
technology to the specific needs of clients.
Over time, we intend to offer additional analyses to the
Engagement Index(TM), to give a more complete view of the findings of a project.
With the introduction of the Capita ETS(TM) networked operating system in the
fall of 1999, which offers the ability to test multiple respondents
simultaneously, the utility and marketability of the technology has improved
significantly.
Marketing
We are primarily marketing our testing services to
o the established research industry, as a complement to that industry's
existing research methods;
o advertising agencies, as a tool to help refine creative content and
strategy;
o advertising clients, principally consumer products companies and
pharmaceutical companies;
o media companies, such as television networks, cable networks, Internet
media companies, and print media companies; and
o commercial, industrial and professional clients who wish to measure
engagement in certain business settings or situations.
We reach prospects through initial phone or mail contact,
referrals, networking, industry publications, public relations, and the hiring
of outside media and marketing consultants, nearly all of which are followed by
presentations directly in client offices, or by visits to the company's
16
headquarters by clients or prospects. In addition, our personnel regularly
attend industry trade shows to develop a network of prospects and generate
broader exposure. We also receive some inquiries from our newly deployed web
site, as well as a flow of RFP's (requests for proposals) from prospective
clients on a regular basis.
During the past two years, we have established a base of
customers in the following categories: beverage companies, principally beer;
pharmaceutical companies; television networks; advertising agencies; small to
mid-sized research companies; media research organizations which operate as
subsidiaries of agencies; Internet advertising agencies and web development
companies; print media companies; and direct response television agencies and
advertisers. There has been relatively little repeat business to date, which we
believe is due to lack of marketing, research and technology infrastructure, as
well as because of the highly advanced nature of our technology as it is being
introduced into a traditionally slow-to-change industry. Most of our projects to
date have been conducted with clients who are characterized as innovators in
their respective companies and industries. It is expected that this will
continue for the foreseeable future.
We have had incidental revenues during the year and a half
that the product has been offered in the market. Many projects conducted for
clients in the early stages were performed without compensation, with us paying
for all costs, in order to get the technology into distribution. During the past
year, more projects have been revenue producing than not. We have gradually been
upgrading the scope of our product and service offerings, as technical
innovations and client feedback have become available. We expect to increase the
ratio of revenue producing projects to total projects conducted over time,
although there is no assurance that this can be achieved. Due to our unique
position in the research industry, we expect to continue conducting non-revenue
producing projects on an ongoing basis, either for R&D purposes, for marketing
promotion to launch the technology into additional fields, or to make available
pro bono engagement research for publication by leading marketing, Internet or
research trade organizations in new fields of use. It is the position of
management that these ongoing non-paid projects help promote the market
penetration of the technology over time.
The limited progress in producing meaningful revenues to date
is generally due to the lack of adequate capital to fund expansion of
operations, marketing and staffing in a highly complex line of business.
We have conducted virtually no advertising to date, other than
limited direct mail, e-mail campaigns and our web site, due to the lack of
available funding. We have recently hired a local agency specializing in
multimedia creative development and distribution to upgrade our presentation
materials, and for placement of trade advertising. We have also recently hired a
public relations firm to increase exposure in trade publications as well as in
mass media outlets. We have an ongoing relationship with a leading web
development company to create and maintain our web site, and to develop new web
sites for targeted marketing. While only limited funds are available for this
purpose at present, we are optimistic that these new initiatives will increase
the awareness of our technology in the research marketplace, although there is
no assurance that this will occur.
17
Competition
We face well-established and well-funded competition. Our
principal competition consists of entities within the opinion research industry
which provide a third party testing service either to advertising agencies or
directly to the advertising client. Often, agencies own their own dedicated
research company. According to Advertising Age, in 1998, combined revenue from
research companies exceeded $4.5 billion in the US and $8.0 billion worldwide.
The top five companies in this group are:
1998 Revenue (Millions)
-----------------------
Company US Worldwide
------- --------- ---------
IMS Health 412.3 $1,084.0
Nielsen Media Research 401.9 401.9
Information Resources Inc. 397.0 511.3
AC Nielsen Corp. 390.4 1,425.4
VNU Marketing Information Services 343.0 428.0
We intend to compete against these established research
entities on the basis of technology differentiation, test reliability and
pricing. As mentioned above, management believes that our technology and testing
methodology are incomparable as to the nature and composition of our test
results. Management further believes that measurements of engagement, developed
with scientific objectivity, will provide a competitive advantage in an industry
seeking more in-depth analysis beyond subjective results.
In addition to established competition, we also face
uncertainty regarding acceptance of, and demand for, our method of advertising
and market research testing. Our method represents a new development in an
established industry. Advertising researchers may be slow to accept our method
of testing, or may reject it.
Research and Development
We are in the development stage. Research and development of
our products and services can be divided into several categories:
o development of the Capita ETS(TM)operating system;
o data modeling and data interpretation of data produced by the technology;
o research project methodology development; and
o development of software and databases to support the Capita ETS(TM).
The Capita ETS(TM) operating system is a series of hardware
and software components, methods and procedures which produce the Engagement
Index(SM) and other measures synchronized with marketing and communications
18
media being tested. This operating system requires ongoing research and
development for ways to enhance, debug, miniaturize, and increase ease of use.
We retain a roster of engineers, scientists, and consulting firms to make such
improvements and modifications, and regularly implement updates to our
technology.
Recently, we embarked on a major effort to substantially
improve the data modeling of information produced by our technology. There is no
assurance that these expenditures will result in increased market penetration or
acceptance of the technology.
NASA License
We were granted two successive modifications to the original
license agreement granted to us by NASA on August 4, 1997. The first
modification in 1998 expanded the field of use to include all forms of
advertising, media and entertainment. The second modification, granted in the
fall of 1999, expanded the field of use to include "all fields." In addition,
the second modification increased the expiration date of the license from five
years from the date of the license, to the greater of the life of the patent (20
years from the date of the patent application, which was in 1996), or in the
event that the patent does not issue, the life of the software copyright, which
in the case of the NASA technology, is 75 years from the filing date of 1996.
We are obligated to pay an annual licensing fee of $15,000 to
NASA upon each annual renewal of the CREW license in July of each year. We have
filed all annual reports and paid all licensing fees to date on a timely basis,
and are in compliance of all contractual provisions under the license.
Production and Manufacturing
We require specialized hardware for our operations. Our
employees and contractors manufacture such hardware. Systems and technology are
built and assembled by our personnel as needed.
Intellectual Property
We are in the process of applying for a number of patents
pertaining to our technology. We have a number of trademarks and servicemarks on
trade names used in our operations and marketing. All such trademarks and
servicemarks are under US Trademark filings applied for. All computer software
code used by us is under software source code copyrights filed with the US
Trademark and Copyright office. Although we believe that such patent,
trademarks, servicemarks and copyrights will be adequate to protect our
business, there can be no assurance that they will do so.
We have a number of patents on technology under development,
and additional intellectual property exceeding patents filed to date. We
maintain a policy of applying for patents, trademarks, and intellectual property
copyrights prior to offering any product or service for sale, in order to retain
worldwide ownership rights. This is necessary because virtually all of our asset
value is in our intellectual property rights and technical know-how. There is no
assurance that these policies will adequately protect our intellectual property.
See also "NASA License," above.
19
Personnel
We employ 12 full time employees in our Blue Bell,
Pennsylvania headquarters. We also do business with several independent
contractors who perform services on an "as needed" basis.
Insurance
We maintain errors and omissions insurance, as well as general
liability insurance, to cover our risk involving general business operations. We
also maintain directors and officers liability insurance to cover risk of
shareholder and other litigation. We have been advised by counsel that coverage
of and claims arising from any current or future litigation involving Michael
Kline (see "Legal Proceedings" below) are excluded under our D&O policy,
inasmuch as this dispute has been classified as a pre-existing condition at the
time of the policy application. At present we do not have any key man insurance
contemplated, applied for or in force for any of our officers or other
personnel.
Investment Banking Relationships
In March 1999, we entered into an agreement with Quaker
Capital Markets Group, Inc. to solicit equity funding on our behalf on a best
efforts basis. Since that time, Quaker has been successful in obtaining bridge
loan financing during the fall of 1999 in an amount totaling $400,000 from a
private investor, as disclosed below. Following that, Quaker has been actively
engaged in discussions with financial institutions, venture capital funds and
high net worth individuals about securing private placement equity funding for
us. At present, we and Quaker are seeking equity funding in the range of
$7,000,000 to $15,000,000, depending on the terms on which such funding may
become available. Additionally, Quaker is actively soliciting joint venture
arrangements with related publicly traded companies interested in our
technology. Under its agreement, Quaker would receive 7% on any equity funding
raised, as well as 4% on the first year's payment under any joint venture
arrangement solicited and closed by them. There can be no assurance that we will
be successful in obtaining any such equity funding or joint venture
arrangements.
Recent Investment Development
We were approached on an unsolicited basis by AIG SoundShore
Funds in late December 1999 regarding an interim equity financing. This
initiative resulted in the closing of a private placement of units for an
initial cash investment of $500,000 on January 6, 2000. The units consisted of
1,000,000 shares of common stock at $.50 per share, 1,000,000 warrants to
purchase shares of common stock at $.50 per share for five years, and 1,000,000
warrants to purchase shares of common stock at $1.00 per share for five years.
In addition, we closed a second private placement of 260,000 units for an
initial cash investment of $130,000 by certain additional investors on January
21, 2000. We were required under these private placements to file this
registration statement to register the common stock and the common stock
underlying the warrants.
Because of piggyback rights granted to a private investor
under the bridge loan secured by Quaker, an additional 1,600,000 shares of
common stock are to be included under this registration statement. The private
20
investor, James R. Salim, has advised us that he intends to convert his bridge
loan into common stock and exercise his registration rights.
Description of Property
Listed below are our principal offices. These properties are
leased under a non-cancellable operating lease providing for minimum future
annual rental payments of $92,712 and $96,765 for 2000 and 2001, respectively.
Location Square Feet Lease Expiration
- -------- ----------- ----------------
591 Skippack Pike, Suite 300 4,939 December 2001
591 Skippack Pike, Suite 100
Blue Bell, Pennsylvania
We believe our facilities are well maintained and are of
adequate size for our present needs and planned expansion in the near future.
Legal Proceedings
Michael Kline, one of our former officers and directors, has
brought an action against us, our subsidiary, Capita Systems, Inc., and David
Hunter, alleging that he was not paid wages which he was due and that he was not
reimbursed for expenses which he incurred in connection with his service to the
Company. Mr. Kline is seeking approximately $90,000 plus interest, fees and
costs. We believe that we have meritorious defenses to this action, and we
intend to vigorously defend against these claims. We have also asserted a
counterclaim against Mr. Kline seeking in excess of $100,000.
MANAGEMENT
Directors and Officers
The following sets forth certain information regarding our
executive officers and directors:
Name Age Position(s) Held with Company
- ---- --- -----------------------------
David B. Hunter 45 President, Chief Executive Officer and Director
Tomas J. Stenstrom 27 Executive Vice President,Chief Technology Officer
and Director&
Anthony J. Baratta 36 Vice President and Treasurer
Steven A. Plisinski 27 Chief Financial Officer
Millard E. Tydings II 41 Secretary and Director
Ralph Anglin 74 Director
21
The following is a brief summary of the business experience of
each of our directors and officers:
David B. Hunter, age 45, has been President and Chief Executive Officer since
January 1998 and a Director since June 1995. Mr. Hunter has been responsible for
designing, deploying, financing and marketing the Capita Engagement Testing
System(TM)since its inception, and originated, negotiated and closed the
licensing agreement with NASA in 1997. From 1989 to 1995 Mr. Hunter was an
independent money manager. From 1980 to 1989 he was a Vice President
successively with regional investment firms Tucker Anthony & RL Day, Inc., Piper
Jaffray & Hopwood, Inc. and W.H. Newbolds Son & Co., Inc. Prior to that, Mr.
Hunter was a consulting actuary and actuarial software specialist with a major
pension actuarial firm for two years. Mr. Hunter earned a B.S. degree in
Accounting from Temple University in 1980.
Tomas J. Stenstrom, age 27, Executive Vice President, Chief Technology Officer,
and Director, has been associated with us since August 1997. From 1992 to 1998
he owned and operated a computer consulting firm providing hardware support,
applications training, and software programming and development. From 1997 to
1998 he was employed by Prescient Systems as an Oracle Database Administrator
and a Graphic User Interface (GUI) developer. From 1994 to 1997 he worked for
IntelliPro Inc. as an Applications Engineer developing educational multimedia
software for both the desktop PC and the Internet. He received a B.S. in
Mechanical - Aerospace Engineering from Rutgers University in 1994.
Anthony J. Baratta, age 36, has been Treasurer since November 1998 and with us
since November 1997, and was promoted to Vice President in January 2000. From
1990 to 1997 he was employed by Pennsylvania Hospital as a cash manager. From
1985 to 1990 he was associated with Merrill Lynch and Co., Inc. and Delaware
Group of Investments in operations. Mr. Baratta received a B.S. in business
administration with a concentration in finance and accounting from Temple
University in 1988.
Steven A. Plisinski, age 27, Chief Financial Officer, began his career with us
in September 1999, and was previously associated with Genesis Health Ventures,
Inc., a NYSE-listed company. At Genesis, he was most recently Supervising Senior
Accountant, in charge of a staff of division level accountants, responsible for
overseeing the accounting functions of 24 divisions and the coordination of
internal and external audits. He spent four years with Genesis, and was promoted
several times during his tenure. Mr. Plisinski, who passed his CPA exam in
Pennsylvania, graduated cum laude with a BS in accounting from West Chester
University. He was named Chief Financial Officer in January 2000.
22
Millard E. Tydings II, age 41, has been a Director since September 1996.
Currently an independent financial consultant and mergers and acquisitions
specialist. Mr. Tydings was formerly a marketing representative with the United
States Chamber of Commerce from 1992 to 1994. He received a B.A. from Johns
Hopkins University in 1992.
Ralph Anglin, age 74, Director, has been a Director since November 1998.
Currently Mr. Anglin is an active consultant with PRA Development and Management
Corporation. From 1980 to 1985 he was the President of Robb Cape Inc. Mr. Anglin
is a graduate of the Massachusetts Institute of Technology with a B.S. in civil
engineering in 1953.
All directors hold office until the next annual stockholders'
meeting or until death, resignation, retirement, removal, disqualification or
until their successors have been elected and qualified. Vacancies in the
existing board may be filled by majority vote of the remaining directors.
Officers serve at the will of the board of directors. There are no written
employment contracts outstanding.
Executive Compensation
The following sets forth the salary and bonus compensation
paid during the fiscal years ended December 31, 1999, 1998 and 1997 to the
President and Chief Executive Officer. No officer or employee received calendar
1999 salary and bonus compensation which exceeded $100,000. Officers currently
do not receive any bonuses. Directors do not receive any type of compensation
for attending the board meetings.
Summary Compensation Table
Name and Fiscal Long Term
Principal Position Year Annual Compensation Compensation
------------------ ---- ------------------- ------------
Other Annual Restricted Securities
Salary($) Bonus($) Compensation ($) Stock Award(s) Underlying All Other Compensation
($) Options (#) ($)
David B. Hunter....... 1999 $61,731 -- -- -- -- --
1998 $55,385 -- -- -- -- --
1997 $24,000 -- -- -- -- --
There are no employment agreements with officers or directors
at the present time.
No options to purchase common stock were granted to Mr. Hunter
during the fiscal year ended December 31, 1999 or held by Mr. Hunter as of
December 31, 1999.
23
1999 Stock Option Plan
Effective July 27, 1999, our board of directors and the
shareholders adopted the Capita Research Group, Inc. 1999 Stock Option Plan to
retain and attract key personnel. The following discussion of the material
features of the stock option plan is qualified by reference to the text of the
stock option plan filed as an exhibit to the registration statement of which
this prospectus forms a part.
Share Reserve and Eligibility. Under the stock option plan,
options to purchase up to an aggregate of 2,500,000 shares of common stock may
be granted to our key employees as sell as of our affiliates or other designees,
and to our officers and directors. As of the date of this prospectus, we have
granted options to purchase 234,900 shares under the stock option plan. The
maximum number of shares covered by options which may be granted to any person
under the stock option plan during any fiscal year is 1,000,000.
Administration. The compensation committee of the board of
directors or a subcommittee of the compensation committee appointed by the
compensation committee (the committee or subcommittee administering the plan is
hereinafter referred to as the "committee") administers the stock option plan
and determines the persons who are to receive options and the number of shares
to be subject to each option. In selecting individuals for options and
determining the terms thereof, the committee may consider any factors it deems
relevant including present and potential contributions to the success of our
business. Options granted under the stock option plan must be exercised within a
period fixed by the committee, which may not exceed ten years from the date of
the option or, in the case of incentive stock options granted to any holder on
the date of grant of more than ten percent of the total combined voting power of
all classes of our stock, five years from the date of grant of the option.
Options may be made exercisable in whole or in installments, as determined by
the committee.
Plan Features. Options generally may not be transferred other
than by will or the laws of descent and distribution and during the lifetime of
an optionee may be exercised only by the optionee. However, the committee may,
in its discretion, provide that during the lifetime of an optionee, the optionee
may transfer his options to or for the benefit of a member of his immediate
family or to a charitable organization exempt from income tax under Section
501(c)(3) of Internal Revenue Code of 1986, as amended. The exercise price may
not be less than the market value of the common stock on the date of grant of
the option. In the case of incentive stock options granted to any holders on the
date of grant of more than ten percent of the total combined voting power of all
classes of our stock or of any of our affiliates, the exercise price may not be
less than 110% of the market value per share of the common stock on the date of
grant. Unless designated as "incentive stock options" intended to qualify under
Section 422 of the Internal Revenue Code, options which are granted under the
stock option plan are intended to be "nonstatutory stock options". The exercise
price may be paid in cash, shares of common stock owned by the optionee, or in a
combination of cash and shares.
Change in Common Stock. The Stock Option Plan provides that,
in the event of changes in our corporate structure or certain events affecting
our common stock, the committee may, in its discretion, make adjustments with
respect to the numbers or kind of shares which may be issued under the Stock
Option Plan or which are covered by outstanding options, or in the option price
per share, or both.
24
Change in Control. The committee may in its discretion provide
that, in connection with any merger or consolidation or any sale or transfer by
us of all or a majority of our assets or any tender offer or exchange offer for
or the acquisition, directly or indirectly, by any person or group of all or a
majority of our then-outstanding voting securities, outstanding options under
the stock option plan will become exercisable in full or in part,
notwithstanding any other provision of the stock option plan or of any
outstanding options granted thereunder, on and after (i) 15 days prior to the
effective date of such merger, consolidation, sale, transfer or acquisition or
(ii) the date of commencement of such tender offer or exchange offer, as the
case may be.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In October of 1996, Media Solutions, a predecessor of the
Company, entered into a $100,000 bridge loan agreement with Margaret W. Long,
one of its shareholders. Under the terms of the agreement, the company utilized
borrowed funds to satisfy near term working capital obligations. Management
believed that repayment would come both from anticipated system sales and from
proceeds of an offering of equity securities to outside investors. This loan was
converted by mutual agreement into common stock, including all accrued interest,
in July 1999, at the rate of $.25 per share, retiring the loan to Ms. Long in
its entirety.
During 1999, we issued 191,340 shares of common stock at $.25
per share to William Hummel, a former Director, as prepaid rent on office space
that we lease and office equipment.
In January 1999, we issued 84,000 shares of common stock at $
.25 per share to Ralph Anglin, a Director, in return for various office
furniture and fixtures at a fair market value of $21,000. In December 1999, Mr.
Anglin loaned us $24,167.35 to cover temporary working capital needs. This loan
was repaid in January 2000.
In June 1999, we issued 3,350,273 shares of common stock to
officers and directors in exchange for notes receivable totaling $837,568.25, at
the rate of $.25 per share.
In August 1999, we issued a bridge loan note totaling $400,000
to James R. Salim, convertible into our common stock at the rate of $.25 per
share, and 300,000 warrants exercisable for the purchase of 300,000 shares of
common stock at an exercise price of $.25 per share.
DESCRIPTION OF SECURITIES
General
Our authorized capital stock consists of 100,000,000 shares of
common stock, par value $.001 per share, of which 25,675,946 shares will be
issued and outstanding (assuming the full exercise of the warrants held by the
SoundShore Investors and the Additional Investors and the conversion of the
convertible promissory note held by James R. Salim) as of the closing of this
offering.
25
Common Stock
The holders of shares of common stock are entitled to one vote
per share in the election of our directors and on all other matters to be voted
on by stockholders. The holders of common stock are entitled to receive ratably
such dividends, if any, as may be declared from time to time by the Board of
Directors out of funds legally available therefor. See "Dividend Policy." In the
event of liquidation, dissolution or winding up of the Company, the holders of
common stock are entitled to share ratably in all assets remaining after payment
of liabilities then outstanding. The common stock has no preemptive or
conversion rights or other subscription rights. There are no redemption or
sinking fund provisions applicable to the common stock. All outstanding shares
of common stock are fully paid and nonassessable.
Warrants
Warrants for the purchase of 2,520,000 shares of our common
stock were issued to certain of the selling security holders in connection with
two private placements covering an aggregate of 1,260,000 units, each unit
consisting of one share of common stock and two warrants. Each warrant is
exercisable for the purchase of one share of common stock for a period of five
years ending January 1, 2005. In each unit, one warrant is exercisable for $.50
per share and one warrant is exercisable for $1.00 per share.
In addition, warrants exercisable for 300,000 shares of common
stock at an exercise price of $.25 per share were issued in August 1999 in
connection with a $400,000 convertible bridge note financing.
Stock Transfer Agent and Registrar
The stock transfer agent and registrar for the common stock is
Nevada Agency and Trust Company, Reno, Nevada.
Stockholder Reports
We furnish our stockholders with annual reports containing
audited financial statements and may furnish our stockholders quarterly or
semi-annual reports containing unaudited financial information.
26
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number and percentage of
shares of our common stock owned of record and beneficially by each person or
entity owning more than 5% of such shares, each director, our Chief Executive
Officer and all our executive officers and directors, as a group at January 24,
2000. Under the rules of the Commission, a person is deemed to be a beneficial
owner of a security if such person has or shares the power to dispose of or to
direct the disposition of, or to vote or to direct the voting of, such security.
In general, a person is also deemed to be a beneficial owner of any securities
of which that person has the right to acquire beneficial ownership within 60
days.
- -----------------------------------------------------------------------------
Number of
Shares Current
Name Owned Percentage
- -----------------------------------------------------------------------------
David B. Hunter (1) 2,994,727 13.89%
591 Skippack Pike, Suite 300
Blue Bell, PA 19422
- -----------------------------------------------------------------------------
Ralph Anglin (2) (3) 2,815,686 13.06%
- -----------------------------------------------------------------------------
James R. Salim (4) 2,489,237 10.35%
- -----------------------------------------------------------------------------
Michael Kline 1,295,432 6.01%
- -----------------------------------------------------------------------------
Tomas J. Stenstrom (1) 800,000 3.71%
275 Camp Hill Road
Fort Washington, PA 19034
- -----------------------------------------------------------------------------
Millard E. Tydings, II (1) 100,000 0.46%
2705 Pocock Road
Monkton, MD 21111
- -----------------------------------------------------------------------------
SoundShore Holdings Ltd. (5) 2,000,250 8.49%
c/o AIG International Management
Company, Inc.
1281 East Main Street
Stamford, Connecticut 06902
- -----------------------------------------------------------------------------
All Executive Officers and 7,030,413 32.61%
Directors as a Group
- -----------------------------------------------------------------------------
(1) Officer and Director.
(2) Director only.
(3) Included in Mr. Anglin's shareholdings are 76,010 shares owned by his
profit-sharing plan and 902,000 shares owned by his personal IRA.
(4) Included in Mr. Salim's shareholdings are 1,600,000 shares issuable
upon the conversion of his convertible promissory note and 300,000
shares issuable upon the exercise of his warrants.
(5) Included in SoundShore Holdings Ltd.'s shareholdings are 1,333,500
shares issuable upon the exercise of its warrants.
27
LEGAL MATTERS
The validity of the shares of common stock offered hereby will
be passed upon for us by Torys, 237 Park Avenue, New York, New York 10017. Torys
owns 260,000 shares of common stock and holds options to purchase 50,000 shares
at an exercise price of $.89 per share.
EXPERTS
Our financial statements for each of the years in the
three-year period ended December 31, 1998 included in this prospectus have been
so included in reliance on the reports of Rudolph, Palitz LLC, our independent
accountants for such periods, given on the authority of said firm as experts in
auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a
registration statement on Form SB-2 under the Securities Act of 1933 with
respect to the shares of common stock being offered in this prospectus. This
prospectus, which forms a part of the registration statement, does not contain
all of the information set forth in the registration statement and the exhibits
and schedules thereto. For further information about us and the common stock
being offered by this prospectus, you should read the registration statement and
its exhibits and schedules, which you may read without charge at the Public
Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the regional offices of the
Commission located at Northwestern Atrium Center, Suite 1400, 500 West Madison
Street, Chicago, Illinois 60661-2511 or Seven World Trade Center, New York, New
York 10048. You can also obtain copies of these materials at prescribed rates
from the Public Reference Section of the Commission in Washington, D.C. 20549.
Any statements contained in the prospectus as to the contents of any contract or
other document referred to are not necessarily complete, and in each instance
reference is made to the copy of such contract or document filed as an exhibit
to the registration statement, each such statement being qualified in all
respects by such reference. We also file annual, quarterly and other reports and
other information with the Commission. These materials may be obtained at any of
the places mentioned above or at the Commission's Web site. The address of such
site is http://www.sec.gov.
28
CAPITA RESEARCH GROUP, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
YEARS ENDED DECEMBER 31, 1998, 1997 and 1996
INDEX TO FINANCIAL STATEMENTS
Table of Contents
PAGE(s)
independent auditors' report F-1
consolidated and combined balance sheets F-2
consolidated and combined statements of operations F-3
consolidated and Combined statements of changes in
stockholders' deficiency
consolidated and combined statements of cash flows F-5
Notes to consolidated and combined financial statements F-6 - F-16
29
Independent Auditors' Report
Directors and Shareholders
Capita Research Group, Inc.
(Formerly NextGen Systems, Inc.)
(A Development Stage Company)
Blue Bell, Pennsylvania
We have audited the accompanying consolidated balance sheet of Capita
Research Group, Inc. and Subsidiary (Formerly NextGen Systems, Inc. and
Subsidiary and Affiliate) (a development stage company) as of December 31, 1998
and the related consolidated statements of operations, changes in stockholders'
deficiency, and cash flows for the year ended December 31, 1998, and the
combined balance sheets of NextGen Systems, Inc. and Subsidiary and Media
Solutions International, Inc. (an affiliate) (development stage companies) as of
December 31, 1997, and the related combined statements of operations, changes in
stockholders' deficiency and cash flows for each of the two years in the period
ended December 31, 1997. These consolidated and combined financial statements
are the responsibility of the Companies' management. Our responsibility is to
express an opinion on these financial statements based on our audits. We did not
audit the December 31, 1996 financial statements of Media Solutions
International, Inc., whose statements reflect total assets and revenues
constituting 37 percent and 5 percent, respectively, of the related combined
totals for that year. Those statements were audited by other auditors whose
report has been furnished to us, and our opinion, insofar as it relates to the
amounts included in Media Solutions International, Inc., is based solely on the
report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of other auditors,
the consolidated and combined financial statements referred to above present
fairly, in all material respects, the financial position of Capita Research
Group, Inc. and Subsidiary (a development stage company), as of December 31,
1998 and 1997 and the results of their operations, and their cash flows for each
of the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 9 to the
financial statements, the Company is a development stage company with no
significant operating results to date and has suffered recurring losses which
raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 9. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/Rudolph, Palitz LLP
- ----------------------
Rudolph Palitz
March 19, 1999
F-1
CAPITA RESEARCH
GROUP, INC. AND
SUBSIDIARY
(A DEVELOPMENT STAGE
COMPANY)
CONSOLIDATED AND COMBINED
BALANCE SHEETS
DECEMBER 31, 1998 AND
1997
ASSETS
1998 1997
CURRENT ASSETS (Consolidated) (Combined)
- -------------- -------------- ----------
Cash $ 19,301 $ 15,190
Prepaid expenses 9,508 -
Accounts and other receivables 1,000 2,000
---------- -----------
Total current assets 29,809 17,190
---------- -----------
EQUIPMENT, NET 92,511 85,083
---------- -----------
OTHER ASSETS
Due from stockholder 15,534 -
Organization costs, net - 19,638
Deposits 3,560 4,929
---------- -----------
Total other assets 19,094 24,567
---------- -----------
$ 141,414 $ 126,840
========== ===========
LIABILITIES AND
STOCKHOLDERS'
DEFICIENCY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 186,052 $ 161,008
Notes payable - 60,000
Current portion of obligations under capital leases 14,281 -
Duc to stockholders 100,000 225,791
---------- -----------
Total current liabilities 300,333 446,799
---------- -----------
LONG-TERM OBLIGATIONS UNDER CAPITAL LEASES,
NET OF CURRENT PORTION 9,614 -
---------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY Common stock, NextGen Systems, Inc.
$1.00 par value, 3,000,000 shares authorized;
issued and outstanding 337,435 in 1997 - 337,435
Common stock, Media Solutions International, Inc.
$.Ol par value, 10,000,000 shares authorized;
issued and outstanding 1,260,100 in 1997 - 12,601
Common stock, Capita Research Group, Inc.
$.001 par value, 100,000,000 shares authorized;
issued and outstanding, 13,562,900, December 31, 1998 13,563 -
Additional paid-in capital 2,181,114 532,533
Deficit accumulated during development stage (2,363,210) (1,202,528)
---------- -----------
Total stockholders' deficiency (168,533) (319,959)
---------- -----------
$ 141,414 $ 126,840
========== ===========
See Notes to Consolidated and Combined Financial Statements.
F-2
CAPITA RESEARCH GROUP, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1998 1997 1996
(Consolidated) (Combined) (Combined)
-------------- ---------- ----------
REVENUES $ 85,500 $ 81,894 $ 360,654
COST OF REVENUES 125,826 96,100 253,175
--------------- --------------- --------------
GROSS PROFIT (LOSS) (40,326) (14,206) 107,479
OPERATING EXPENSES
Selling 47,425 31,947 70,669
Technical 195,189 81,725 66,479
Administrative 405,129 154,365 118,738
Other general and administrative 442,631 387,585 248,855
--------------- --------------- --------------
Total operating expenses 1,090,374 655,622 504,741
--------------- --------------- --------------
LOSS FROM OPERATIONS (1,130,700) (669,828) (397,262)
--------------- --------------- --------------
OTHER INCOME (EXPENSE)
Gain on disposition of asset - - 3,900
Interest expense (29,982) (19,452) (5,613)
--------------- --------------- --------------
Total other income (expense) (29,982) (19,452) (1,713)
--------------- --------------- --------------
LOSS BEFORE INCOME TAXES (1,160,682) (689,280) (398,975)
INCOME TAXES - - -
--------------- --------------- --------------
NET LOSS $ (1,160,682) $ (689,280) $ (398,975)
=============== =============== ==============
NET LOSS PER SHARE, BASIC AND DILUTED $ (0.10) $ (0.40) $ (0.39)
=============== =============== ==============
WEIGHTED AVERAGE SHARES OUTSTANDING
11,380,306 1,736,458 1,034,658
=============== =============== ==============
See Notes to Consolidated and Combined Financial Statements.
F-3
CAPITA RESEARCH GROUP, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED AND COMBINED STATEMENTS OF CHANGES IN
STOCKHOLDERS' DEFICIENCY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
MEDIA SOLUTIONS CAPITA RESEARCH ACCUMULATED
NEXTGEN SYSTEMS, INC. INTERNATIONAL, INC. GROUP, INC. ADDITIONAL DURING
NUMBER OF DOLLAR NUMBER OF DOLLAR NUMBER OF DOLLAR PAID-IN DEVELOPMENT
Balance, SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE PERIOD TOTAL
- -------- ------ ------ ------ ------ ------ ------ ------- ------------ -----
January 1, 1996
Issuance of stock 500 $ 500 - $ - - $ - $ 199,429 $ (114,273) $ 85,656
at inception - - 100,000 1000 - - - - 1,000
Issuance of stock - - 1,826,750 18,268 - - 131,732 - 150,000
Net loss - - - - - - - (398,975) (398,975)
------- ------ --------- ------- ------- ------- ------- ------------ ----------
Balance,
December 31, 1996 500 500 1,926,750 19,268 - - 331,161 (513,248) (162,319)
Issuance of stock 337,350 337,350 - - - - - - 337,350
Issuance of stock - - 38,850 388 - - 193,902 - 194,290
Stock redemption
and retirement - - (705,500) (7,055) - - 7,055 - -
Stock redemption
and retirement (415) (415) - - - - 415 - -
Netloss - - - - - - - (689,280) (689,280)
------- ------ --------- ------- ------- ------- ------- ------------ ----------
Balance,
December 31, 1997 337,435 337,435 1,260,100 12,601 - - 532,533 (1,202,528) (319,959)
Exchange and
reorganization:
Issuance of common
stock in
exchange for
debt obligations
(Note 1) 218,485 218,485 10,000 100 - - 24,900 - 243,485
Issuance of common
stock in
exchange for
shares of MSH in
connection
with the
merger of
January
12, 1998 (Note 1) 1,099,250 1,099,250 (219,850) (2,199) - - 2,199 - 1,099,250
Redemption of
shares in
NextGen and
MSII for no
consideration (Note 1) (85) (85) (1,050,250) (10,502) - - 10,587 - -
Issuance of stock 72,000 72,000 - - - - - - 72,000
Issuance of shares
in Royal in
exchange for
shares of NextGen
in connection
with the
merger of
January29,
1998(Note 1) (1,727,085) (1,727,085) - - 9,580,000 9,580 618,155 - 580
-
Issuance of stock - - - - 3,982,900 3,983 992,740 (1,099,350)
Net loss - - - - - - (1,160,682)(1,160,682)
------- ------ --------- ------- ------- ------- ------- ------------ ----------
Balance,
December 31, 1998 - $ - - $- 13,562,900 $ 13,563 $ 2,181,114 (2,363,210 $ (168,533)
========= ======== ========= ======== ========== ======== =========== ========== ==========
See Notes to Consolidated and Combined Financial
Statements.
F-4
CAPITA RESEARCH GROUP, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1998 1997 1996
(Consolidated) (Combined) (Combined)
-------------- ---------- ----------
OPERATING ACTIVITIES
Net loss $(1,160,682) $(689,280) $(398,975)
Adjustments to reconcile net loss to
net cash used in operating activities:
Common stock issued for salaries and services 460,208 - -
Gain on disposition of asset - - (3,900)
Depreciation 41,627 28,007 20,997
Amortization 19,638 14,370 4,875
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable 1,000 26,201 47,908
Other assets 1,369 (1,126) 197
Prepaid expenses (9,508) - -
Increase (decrease) in:
Accounts payable and accrued expenses 25,044 100,057 12,041
--------- -------- ---------
Net cash used in operating activities (621,304) (521,771) (316,857)
--------- -------- ---------
INVESTING ACTIVITIES
Purchase of equipment (16,255) (34,977) (40,377)
Advances to stockholder (15,534) - -
Organization costs - - (38,883)
--------- -------- ---------
Net cash used in investing activities (31,789) (34,977) (79,260)
--------- -------- ---------
FINANCING ACTIVITIES
Proceeds from issuance of stock 675,075 531,640 151,000
Proceeds from note payable - 60,000 -
Proceeds from (repayment of) stockholder loans (8,966) - 237,832
Proceeds from other loans - - 8,300
Repayment of capital lease obligations (8,905) - -
Repayment of loans - (20,341) (1,000)
--------- -------- ---------
Net cash provided by financing activities 657,204 571,299 396,132
--------- -------- ---------
NET INCREASE IN CASH 4,111 14,551 15
CASH, BEGINNING 15,190 639 624
--------- -------- ---------
CASH, ENDING
$19,301 $15,190 $639
======= ======= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Capital lease obligations incurred related to the
acquisition of equipment $32,800 $ - $ -
======= ======= =========
Conversion of notes payable to
common stock $176,825 $ - $ -
======= ======= =========
See Notes to Consolidated and Combined Financial Statements.
CAPITA RESEARCH GROUP, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED december 31, 1998, 1997 and 1996
NOTE 1. HISTORY AND NATURE OF THE BUSINESSES AND BUSINESS COMBINATIONS
Capita Research Group Inc. and Subsidiaries (the
"Company" or "Capita") (formerly NextGen Systems, Inc., and
Subsidiary and Affiliate ("NextGen")) is in the development
stage of operations.
Capita's predecessor, NextGen (formerly Media
Solutions, Inc., ("Media Solutions" or "MSI")), was
incorporated in Pennsylvania on June 6, 1994, for the purpose
of developing and selling MediaLink, a client/server software
system used by the direct-response advertising industry. From
January 1, 1996 through December 31, 1998, the Company, its
subsidiary Capita Systems, Inc., and their predecessors have
been principally devoted to research and development,
organizational activities, and raising capital. For the years
ended December 31, 1998, 1997 and 1996, the Company had
$85,500, $81,894 and $360,654 of net revenues, respectively.
The ultimate recovery of the Company's investments and costs
is dependent on future profitable operations, which presently
cannot be determined.
In September of 1995, Media Solutions initiated
discussions with the National Aeronautics and Space
Administration ("NASA") in Langley, Virginia about licensing
NASA's software technology known as the "CREW software." This
software measures a test respondent's EEG, or brain wave
impulse, when subjected to aural or visual stimuli. The CREW
software then converts the raw brain wave data into an index,
which indicates the respondent's level of interest in, or
boredom, with the stimuli. In January of 1996, Media Solutions
filed an application with NASA for a license for the
commercial application of the CREW software with the intention
to use it as a testing service in the media and advertising
industries.
In June of 1996, the principal stockholders of NextGen,
along with additional investors formed Media Solutions
International, Inc. ("MSII"), which was incorporated in
Pennsylvania. MSII licensed the rights from Media Solutions to
continue the development and selling of MediaLink.
See Accountants' Review Report and Notes to Financial Statements.
F-6
CAPITA RESEARCH GROUP, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED december 31, 1998, 1997 and 1996
NOTE 1. HISTORY AND NATURE OF THE BUSINESSES AND BUSINESS COMBINATIONS
(CONTINUED)
In May of 1997, NASA approved Media Solutions'
application for the CREW software license and issued a license
agreement in the name of "NextGen Systems, Inc.", a fictitious
name registered by Media Solutions in the Commonwealth of
Pennsylvania in September 1995. Under its license agreement
with NASA, the Company, by means of its predecessor, NextGen,
obtained an exclusive five-year license commencing August 4,
1997. The agreement provides that prior to the expiration of
the five-year period, the Licensee (NextGen) may request this
agreement to be modified to extend the term. NASA has agreed
that such requests will not be unreasonably denied if NextGen
has met all milestones as specified in the contract. The NASA
license agreement permits the Company to offer testing
services for all direct response advertising applications,
including television and print media and the Internet, and
package design. NASA has agreed that the Company may use the
CREW software for all media and advertising applications and
that such use will not be considered an infringement of NASA's
intellectual property rights in the CREW software. The license
agreement requires the Company to pay NASA a royalty equal to
10% of revenues, payable annually, with a minimum guaranteed
annual royalty of fifteen thousand dollars ($15,000).
In June of 1997, Media Solutions formed Capita Systems,
Inc., a Delaware corporation and a wholly owned subsidiary of
Media Solutions, for the purpose of commercializing and
marketing its advertising testing service.
On July 31, 1997, NextGen and MSII agreed to sell the
MediaLink asset and related business to Columbine JDS Systems,
Inc., an unrelated party, for a future payment of $350,000
contingent upon defined levels of profitability. The
transaction was completed in October 1997. Through December
31, 1998, the Company has not received any payments. In
connection with the agreement, and for no consideration,
NextGen's founder relinquished his officer's position and
stock ownership in NextGen and became an employee in Columbine
JDS Systems, Inc.
Since commencing operations in June 1997, Capita
Systems, Inc., has been engaged in significant additional
software research and development. Beginning in August 1997,
the Company initiated development projects to extensively
modify and enhance the original NASA software to tailor its
use to the more specific demands of media and advertising
clients. This included the integration of video technology
into the application. In addition, the Company has continued
to develop proprietary hardware, specifically the EEG
measurement headset, to facilitate high volume and convenience
in the testing process. The Company has developed a completely
"dry and noninvasive" headset and has applied for a US patent
on this hardware and related components.
F-7
CAPITA RESEARCH GROUP, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED december 31, 1998, 1997 and 1996
NOTE 1. HISTORY AND NATURE OF THE BUSINESSES AND BUSINESS COMBINATIONS
(CONTINUED)
As stated previously, the Company performed its first
test of the headset in October 1997, and is in various stages
of negotiation with numerous prospects, including major U.S.
marketing companies and advertising agencies.
On December 30, 1997, MSI changed its legal name to
NextGen Systems, Inc. and increased the number of authorized
common shares to 3,000,000.
The following transactions relate to the mergers, stock
issuance and redemptions occurring within the Companies during
January 1998:
On January 3, 1998, $25,000 of notes payable were
converted into 10,000 shares of MSII's common stock.
On January 8, 1998, 1,050,250 shares of MSII were
redeemed for no consideration.
On January 9, 1998, 85 shares of NextGen were redeemed
for no consideration.
On January 12, 1998, NextGen acquired MSII in exchange
for stock, whereby NextGen was the surviving corporation. As a
result of the merger, each share of MSII common stock was
converted into five shares of NextGen.
On January 13, 1998, $116,825 due to a stockholder was
converted into 183,385 shares of NextGen common stock.
On January 15, 1998, NextGen issued 37,000 shares of
common stock for total consideration of $37,000.
F-8
CAPITA RESEARCH GROUP, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED december 31, 1998, 1997 and 1996
NOTE 1. HISTORY AND NATURE OF THE BUSINESSES AND BUSINESS COMBINATIONS
(CONTINUED)
On January 27, 1998, prior to the transaction explained
below, $35,000 of notes payable were converted into 35,000
shares of NextGen. In addition, the Board of Directors of the
Company approved a transaction with Royal American Mining
Company ("Royal"), a Nevada corporation, whose only activity
had been filing fee expenses during its fiscal year. Royal has
had no significant revenues for the last three fiscal years.
On January 29, 1998, the Exchange was completed as the Company
obtained approval from 100% of its stockholders. On January
30, 1998, the Royal stockholders approved the transaction
between NextGen and Royal, whereby the stockholders of NextGen
exchanged 100% of the outstanding common stock of NextGen for
90% of the outstanding common stock of Royal (the "Exchange").
The Exchange was accounted for as a reverse acquisition
whereby NextGen, in substance, acquired Royal, allocating the
fair value of Royal shares exchanged over the assets and
liabilities of NextGen prior to the merger; therefore, no
goodwill was recognized. Accordingly, the historical financial
statements are those of the accounting acquirer, NextGen and
not the financial statements of the legal acquirer, Royal. No
value was ascribed to Royal's net operating loss carryforwards
as a result of potential decrease and/or limitations in these
carryforwards due to the change in control.
In connection with the Exchange, Royal changed its name
to Capita Research Group, Inc. In addition, the Board of
Directors approved a 2 for 1 stock split whereby the present
stockholders of Royal were entitled to two shares for each
share owned by them in Royal.
In July 1998, the Company filed Form 10-SB with the
Securities and Exchange Commission to register all of its
100,000,000 shares of common stock with a par value of One
Mill ($0.001) per share.
The Company currently employs seven professionals and
two contract consultants. The Company maintains offices in
Blue Bell, Pennsylvania. The Company owns or leases all of its
equipment and software, and has under development, numerous
software and hardware applications to enhance its capabilities
in advertising and media testing. The Company intends to
obtain patents and software copyrights, as products are
developed to protect its intellectual property.
F-9
CAPITA RESEARCH GROUP, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED december 31, 1998, 1997 and 1996
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Combination
For the year ended December 31, 1998, the consolidated
financial statements include the wholly owned subsidiary,
Capita Systems, Inc. For the years ended December 31, 1997 and
1996, the combined financial statements include the accounts
of two entities, which were under common management, NextGen
Systems, Inc. and Subsidiary ("formerly Media Solutions,
Inc.") and Media Solutions International, Inc. The
consolidated financial statements of NextGen included the
accounts of its wholly owned subsidiary, Capita Systems, Inc.
All significant intercompany transactions have been eliminated
in all years presented.
Fair Value of Financial Instruments
The Company's financial instruments consist primarily
of cash, accounts receivable, accrued expenses and debt
instruments. The recorded values of cash, accounts receivable,
accounts payable and accrued expenses are considered to be
representative of their fair values. Based upon the terms of
the Company's debt instruments that are outstanding as of
December 31, 1998 and 1997, the carrying values are considered
to approximate their respective fair values.
Equipment
Equipment, including assets under capital leases, are
stated at cost. Major improvements are capitalized; minor
replacements, maintenance and repairs are charged to current
operations. Depreciation is computed by applying the
straight-line method over the estimated useful lives of the
related assets for financial reporting purposes and an
accelerated method for income tax purposes.
Organization Costs
Expenses were incurred in connection with the formation
of NextGen and MSII, which were capitalized and were being
amortized over a period of five years using the straight-line
method. During the year ended December 31, 1998, the remaining
costs of $19,638 were charged to operations.
F-10
CAPITA RESEARCH GROUP, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED december 31, 1998, 1997 and 1996
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Long-Lived Assets
The Company reviews for the impairment of long-lived
assets and certain identifiable intangibles whenever events or
changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. An impairment loss would be
recognized when estimated future cash flows expected to result
from the use of the asset and its eventual disposition are
less than its carrying amount. The Company has not identified
any such impairment losses.
Software Development Costs
Development costs incurred in the research and
development of new software products are expensed as incurred
until technological feasibility has been established. Software
development expenses incurred for product enhancements after
the product has reached technological feasibility have not
been material and, accordingly, also have been charged to
operations as incurred. As of December 31, 1998 and 1997 no
software development costs have been capitalized.
Advertising and Promotion Costs
Advertising and promotion costs are charged to current
operations when incurred. Advertising and promotion costs for
1998, 1997 and 1996 were $9,824, $9,916 and $26,430,
respectively.
Income Taxes
The Company accounts for income taxes in accordance
with Statement of Financial Accounting Standards ("SFAS") No.
109, "Accounting for Income Taxes," which requires the use of
an asset and liability approach for financial accounting and
reporting for income taxes. Under this method, deferred tax
assets and liabilities are recognized based on the expected
future tax consequences of temporary differences between the
financial statement carrying amounts and tax bases of assets
and liabilities as measured by the enacted tax rates that are
expected to be in effect when taxes are paid or recovered.
F-11
CAPITA RESEARCH GROUP, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED december 31, 1998, 1997 and 1996
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Research and Development
Expenditures for research, development and engineering
of products and manufacturing processes are expensed as
incurred. Cost reimbursements under collaborative research
agreements are recorded as offsets to research and development
expenses. Research and development costs for 1998, 1997 and
1996 were $102,534, $118,241 and $206,188, respectively.
Earnings Per Common Share
In 1997, the Financial Accounting Standards Board
issued SFAS No. 128, "Earnings Per Share." SFAS No. 128
replaced the previously reported primary and fully diluted
earnings per share with basic and diluted earnings per share,
respectively. Earnings per share amounts for all periods
presented are based on the weighted average shares outstanding
during the respective periods.
Estimates
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues and
expenses, and disclosure of contingent assets and liabilities.
Actual results could differ from those estimates.
Reclassifications
Certain items in the 1997 and 1996 financial statements
were reclassified to conform with the 1998 presentation.
NOTE 3. STOCKHOLDER LOANS
The Company was indebted to its stockholders in the
amount of $100,000 and $225,791 at December 31, 1998 and 1997,
respectively. The loans have an interest rate of prime plus
two percent (9.75% at December 31, 1998) and are payable on
demand. Accrued interest on stockholder loans at December 31,
1998 and 1997 was $23,612 and $25,103, respectively.
F-12
CAPITA RESEARCH GROUP, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED december 31, 1998, 1997 and 1996
NOTE 4. Equipment
1998 1997
---------- ----------
(Consolidated) (Combined)
Equipment $197,014 $149,110
Furniture and fixtures 12,034 12,034
---------- ----------
209,048 161,144
Less - accumulated depreciation (116,537) (76,061)
---------- ----------
$ 92,511 $ 85,083
========== ==========
NOTE 5. CONCENTRATION OF CREDIT RISK
The Company maintains cash balances at several
financial institutions. The accounts are insured by the
Federal Deposit Insurance Corporation up to $100,000. The
Company performs periodic evaluations of the relative credit
standing of the financial institutions with which it deals.
The Company has not experienced any losses in such accounts
and believes it is not exposed to any significant credit risk
on cash balances.
NOTE 6. INCOME TAXES
A reconciliation of the differences between the
Company's effective tax rates and the statutory Federal income
tax rate of 34% in 1998, 1997 and 1996 is as follows:
1998 1997 1996
---- ---- ----
(Consolidated) (Combined) (Combined)
-------------- ---------- ----------
Income tax benefit at statutory rate $(394,632) $(234,355) $ (135,652)
Permanent differences 1,210 4,625 715
State income tax benefit,
net of Federal effect (76,605) (44,709) (26,191)
Reduction in income tax benefit
due to valuation allowance 470,027 274,439 161,128
--------- --------- ----------
$ - $ - $ -
========= ========= ==========
F-13
CAPITA RESEARCH GROUP, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED december 31, 1998, 1997 and 1996
NOTE 6. INCOME TAXES (Continued)
The Company, its predecessors and its affiliates have
experienced significant losses since inception. As a result of
the business combinations during 1998, certain of the net
operating loss carryforwards generated by these losses may be
lost and/or substantially limited. Notwithstanding such
effect, any deferred tax asset recorded as a result of
potential net operating loss carryforwards available to offset
future taxable income would be offset by an equivalent
valuation allowance, since Management believes that it is more
likely than not that such deferred tax asset would not be
realized.
The deferred tax assets at December 31, 1997 and 1996
of $443,000 and $168,000, respectively, have been offset by
valuation allowances of an equal amount.
note 7. COMMITMENTS
Capital Leases
During 1998, the Company leased under capital lease
arrangements expiring in February 2001, certain computer
equipment with a total cost of $32,800. The assets and
liabilities under the capital lease are recorded at the lower
of the present value of the minimum lease payments or the fair
market value of the asset. The assets are depreciated over the
shorter of the related lease term or the estimated productive
lives. Amortization of $7,811 related to the assets under
capital lease is included in depreciation expense for the year
ended December 31, 1998. Interest expense related to the
capital lease was $3,651 for the year ended December 31, 1998.
Minimum future obligations under capital leases are:
YEARS ENDING
DECEMBER 31, AMOUNT
------------
1999 $18,470
2000 10,398
2001 192
----------
Total minimum lease payments 29,060
Less - amounts representing interest 5,165
----------
Present value of future minimum lease payments 23,895
Less - current portion 14,281
---------
Long-term portion $ 9,614
=========
F-14
CAPITA RESEARCH GROUP, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED december 31, 1998, 1997 and 1996
NOTE 7. COMMITMENTS (Continued)
Operating Leases
Effective November 1, 1997, the Company entered into an
operating lease for its corporate office located in King of
Prussia, Pennsylvania. The lease agreement was for a term of
six months, thereafter, renewable on a monthly basis. Rent
expense for 1998 and 1997 amounted to approximately $22,000
and $2,400, respectively. On January 1, 1999, the Company
moved its offices to Blue Bell, Pennsylvania and signed a
lease agreement expiring December 2001.
Minimum future rental payments under this
noncancellable operating lease through December 2001 and in
the aggregate are:
YEARS ENDING
DECEMBER 31, AMOUNT
------------ ------
1999 $50,740
2000 74,796
2001 78,849
--------
Total minimum future
rental payments $204,385
========
NOTE 8. DEFICIT ACCUMULATED DURING DEVELOPMENT STAGE
The deficit accumulated during the development stage
was $2,363,210, which includes a loss of $114,273 from the
inception of the Company through December 31, 1995. There were
no transactions, which occurred from the inception of the
Company and its predecessors through December 31, 1995 which
were qualitatively or quantitatively material to the 1998,
1997 or 1996 consolidated and combined financial statements.
F-15
CAPITA RESEARCH GROUP, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED december 31, 1998, 1997 and 1996
NOTE 9. GOING CONCERN
The Company's financial statements are prepared using
generally accepted accounting principles applicable to a going
concern which contemplates the realization of assets and
liquidation of liabilities in the normal course of business.
However, the Company does not have significant cash or other
material assets nor does it have an established source of
revenues sufficient to cover its operating costs and to allow
it to continue as a going concern. It is the intent of the
Company to generate revenue through the sales of its software
and hardware products. The Company continues to focus its
energies on raising capital to begin the manufacturing and
marketing of its products. Toward these ends, the Company
engaged a public relations firm to aid in the raising of
capital and to present seminars on its technology. Management
believes, with successful completion of a financial package,
that delivered sales of the Company's products will occur. In
the opinion of management, sales of the Company's products,
together with the proceeds from the sale of its common stock,
will be sufficient for it to continue as a going concern.
NOTE 10. SUBSEQUENT EVENTS
On January 8, 1999, the Company issued 80,000 shares of
common stock in exchange for $20,000 of rent reduction during
the first quarter of 1999.
On January 8, 1999, the Company issued 84,000 shares of
common stock to a stockholder for various furniture and
fixtures whose fair market value was $21,000.
On January 8, 1999, the Company issued 68,000 shares of
common stock for investor relations services rendered in the
amount of $17,000.
In February and March 1999, the Company issued
approximately 200,000 shares of common stock to two unrelated
parties, for total consideration of $50,000.
On March 10, 1999, the Company issued 50,000 shares of
common stock for legal services rendered in the amount of
$12,500.
On March 10, 1999, the Company entered into an
agreement with Quaker Capital Markets Group, Inc. ("Quaker"),
to render advisory services to the Company in its attempt to
raise up to $5,000,000 in equity capital. In connection
therewith, the Company agreed to pay Quaker $10,000 in cash,
$15,000 in common stock and a percentage of equity capital
raised.
See Accountants' Review Report and Notes to Financial Statements.
F-16
No dealer, salesperson 5,380,000 Shares
or other person is authorized to give
any information or to represent anything
not contained in this prospectus. You CAPITA RESEARCH GROUP, INC.
must not rely on any unauthorized
information or representations. This
prospectus is an offer to sell only the
shares offered hereby, but only under Common Stock
circumstances and in jurisdictions where
it is lawful to do so. The information
contained in this prospectus is current
only as of its date. -----------
---------------
TABLE OF CONTENTS
Prospectus Summary
Risk Factors
Selling Security Holders
Plan of Distribution
Market for Common Equity and Related Stockholder Matters
Dividend Policy
Capitalization
Management's Discussion and Analysis of
Financial Condition and Results of
Operations
Business
Management
Certain Relationships and Related Transactions
Description of Securities
Security Ownership of Certain Beneficial Owners and
Management
Legal Matters
Experts
Where You Can Find Additional Information
Index to Financial Statements
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Section 78.751 of the Nevada General Corporation Law allows the
Company to indemnify any person who was or is threatened to be made a party to
any threatened, or completed action, suit or proceeding by reason of the fact
that he or she is or was a director, officer, employee or agent of the Company
or is or was serving at the request of the Company as a director, officer,
employee or agent of any corporation, partnership, joint venture, trust or other
enterprise. The Company may advance expenses in connection with defending any
such proceeding, provided the indemnitee undertakes to pay any such amounts if
it is later determined that such person was not entitled to be indemnified by
the Company.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, may be permitted to directors, officers and
controlling persons of the Company pursuant to the foregoing provisions, or
otherwise, the Company has been advised that, in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the Company's costs and expenses
expected to be incurred in connection with the distribution of the securities
being registered. Except for the SEC Registration Fee, the amounts listed below
are estimates.
SEC Registration Fee........................ $
Accounting Fees and Expenses................
Legal Fees and Expenses.....................
Miscellaneous Expenses......................
---------
Total..................$
=========
The Company shall bear all expenses shown above.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
Unless otherwise noted, the following sales of securities of
the Registrant were not registered under the Securities Act of 1933 in reliance
on Section 4(2) thereof. Purchase prices were paid in cash, cash equivalents or
services of equivalent value.
On March 31, 1998, the Registrant sold shares of Common Stock
to the persons, in the amounts and for the purchase price set forth below:
II-1
Number Purchase
Name of Shares Price
- ---- --------- -----
Ralph Anglin 130,000 $32,500
Karen Astrella 12,000 $3,000
Anthony Baratta 40,000 $10,000
Debra D. Berthold 20,000 $5,000
Samuel A. Brattini 10,000 $2,500
Samuel V. Brattini 10,000 $2,500
Richard M. Brueggeman 280,000 $70,000
Matthew Carrafiello 20,000 $5,000
Leonard A. Ciccotello 20,000 $5,000
Sandra Dietrich 40,000 $15,000
Kenneth P. Fratto 520,000 $130,00
Harry Gricevics 60,000 $15,000
David Grimes 20,000 $5,000
Harlan I. Gustafson Jr. 100,000 $25,000
Harvey E. Keim 20,000 $5,000
Kenneth McCarraher 20,000 $5,000
Robb Cape Inc. PSP 140,000 $35,000
Peter Stenstrom 20,000 $5,000
Thomas J. & Stenstrom 30,000 $7,500
Ronald B. Seltmann Jr. 40,000 $10,000
On April 30, 1998, the Registrant sold shares of Common Stock
to the persons, in the amounts and for the purchase price set forth below:
Number Purchase
Name of Shares Price
- ---- --------- -----
William C. Davis 20,000 $5,000
Frank F. Huppe 40,000 $10,000
Eduardo Jimenez III 4,000 $1,000
Kostrub Industries Inc. 12,000 $3,000
Harvey E. Keim 56,000 $14,000
Krisztina Farago 5,000 $1,250
James Millard D.O. 40,000 $10,000
Gary Plisinski 108,000 $27,000
Gary & Jerome Plisinski 48,000 $12,000
On May 6, 1998, the Registrant sold 12,000 shares of Common
Stock to Howard K. Stalker for a purchase price of $3,000.
On May 6, 1998, the Registrant sold 12,000 shares of Common
Stock to Michael J. Welsh for a purchase price of $3,000.
II-2
On May 18, 1998, the Registrant sold 20,000 shares of Common
Stock to Frank Dibella for a purchase price of $5,000.
On May 19, 1998, the Registrant sold 60,000 shares of Common
Stock to Ralph Anglin for a purchase price of $15,000.
On May 29, 1998, the Registrant sold 15,000 shares of Common
Stock to Anthony and Michele Baratta for a purchase price of $3,750.
On May 29, 1998, the Registrant sold 2,000 shares of Common
Stock to Eduardo Jimenez, III for a purchase price of $500.
On May 29, 1998 the Registrant sold 50,000 shares of Common
Stock to Jerome and Teresa J. Plisinski for a purchase price of $12,500.
On June 4, 1998, the Registrant sold shares of Common Stock to
the persons, in the amounts and for the purchase price set forth below:
Number Purchase
Name of Shares Price
- ---- --------- -----
Haythe & Curley 50,000 $12,500
Donald R. Peterson 100,000 $25,000
Kamilla Stenstrom 20,000 $5,000
Peter Stenstrom 10,000 $2,500
Jennifer Wichterman 8,000 $2,000
Charles Jobs 30,000 $7,500
On June 5, 1998, the Registrant sold 20,000 shares of Common
Stock to Ted W. Baxter for the purchase price of $5,000.
On June 5, 1998, the Registrant sold 120,000 shares of Common
Stock to Richard M. and Judy Brueggman for the purchase price of $30,000.
On June 5, 1998, the Registrant sold 20,000 shares of Common
Stock to Dominic Cafece for the purchase price of $5,000.
On June 9, 1998, the Registrant sold shares of Common Stock to
the persons, in the amounts and for the purchase price set forth below:
Number Purchase
Name of Shares Price
- ---- --------- -----
Leonard J. Ciccotello 20,000 $5,000
Joseph M. Kwiatkowski, Jr. 50,000 $12,500
Charles & Mary Cooper 10,000 $2,500
Thomas J. & Cindy Stenstrom 10,000 $2,500
II-3
On June 10, 1998, the Registrant sold 20,000 shares of Common
Stock to Randolph C. and Nancy Lindel for the purchase price of $5,000.
On June 17, 1998, the Registrant sold 10,000 shares of Common
Stock to Robert D. and Judith Mlkvy for the purchase price of $2,500.
On June 17, 1998, the Registrant sold 12,000 shares of Common
Stock to Richard Wellbrook for the purchase price of $3,000.
On July 16, 1998, the Registrant sold 80,000 shares of Common
Stock to Ralph Anglin for the purchase price of $20,000.
On July 28, 1998, the Registrant sold 8,000 shares of Common
Stock to Kostrub Industries Inc., for the purchase price of $2,000.
On July 31, 1998, the Registrant sold shares of Common Stock
to the persons, in the amounts and for the purchase price set forth below:
Number of Purchase
Name Shares Price
- ---- ------ -----
Anthony Baratta, II 17,500 $4,375
Krisztina Farago 45,000 $11,250
Henry and Lorraine Gricevics 40,000 $10,000
Tomas J. & Cindy Stenstrom 10,000 $2,500
Richard A. Wescott 10,000 $2,500
On August 10, 1998 the Registrant sold shares of Common Stock
to the persons, in the amounts and for the purchase price set forth below Number
of Purchase Name Shares Price
Number of Purchase
Name Shares Price
- ---- ------ -----
Bradley Billhimer 8,000 $2,000
Joseph Bruno 12,000 $3,000
Gregory C. Cala 8,000 $2,000
Madeleine Franco 32,000 $8,000
Harlan I. Gustafson Jr. 2,400 $600
Robert E. Hayden 3,000 $750
Charles Jobs 3,000 $750
Brian D. & Heather Moyer 25,000 $6,250
David M. Nagle 12,000 $3,000
Joy E. O'Bryon 20,000 $8,000
Raymond K. Ward 10,000 $2,500
Robert B. Warren 8,000 $2,000
Gary J. & Jerome Plisinski 40,000 $10,000
Philip Rosenburg 20,000 $5,000
Aaron R. Schiele 40,000 $10,000
II-4
On August 24, 1998, the Registrant sold 400,000 shares of
Common Stock to Ralph Anglin for the purchase price of $100,000.
On August 25, 1998, the Registrant sold shares of Common Stock
to the persons, in the amounts and for the purchase price set forth below:
Number Purchase
Name of Shares Price
Thomas Aquilante 10,000 $2,500
Harry & Lorraine Gricevics 20,000 $5,000
Hightech Vac Inc. 20,000 $5,000
Kris A. Keim 20,000 $2,000
Jan T. Stenstrom 10,000 $2,500
Richard D'Avanzo 20,000 $5,000
On August 31, 1998, the Registrant sold 20,000 shares of
Common Stock to Eugene F. Zuecca for the purchase price of $5,000.
On August 31, 1998, the Registrant sold 8,000 shares of Common
Stock to Harvey E. Keim for the purchase price of $2,000.
On September 3, 1998, the Registrant sold 65,000 shares of
Common Stock to William T. Hummel for the purchase price of $16,250.
On September 10, 1998, the Registrant sold 10,000 shares of
Common Stock to Thomas and Renee Piermatto for the purchase price of $2,500.
On September 25, 1998, the Registrant sold shares of Common
Stock to the persons, in the amounts and for the purchase price set forth below:
Number Purchase
Name of Shares Price
Richard Astrella 28,000 $7,000
Michael J. & Jessica Doyle 8,000 $2,000
William T. Hummel 35,000 $8,750
II-5
On September 29, 1998, the Registrant sold 10,000 shares of
Common Stock to Barry Rhoads for the purchase price of $2,500.
On October 28, 1998, the Registrant sold 60,000 shares of
Common Stock to Haythe & Curley for the purchase price of $15,000.
On October 28, 1998, the Registrant sold 16,000 shares of
Common Stock to Thomas W. Hummel, Jr., for the purchase price of $4,000.
On December 15, 1998, the Registrant sold 40,000 shares of
Common Stock to William Hummel for the purchase price of $10,000.
On December 15, 1998, the Registrant sold 20,000 shares of
Common Stock to Thomas Acqulante for the purchase price of $5,000.
On December 31, 1998, the Registrant sold 48,000 shares of
Common Stock to William Hummel for the purchase price of $12,000.
On January 6, 1999, the Registrant sold 10,000 shares of
Common Stock to Steven Plisinski for the purchase price of $2,500.
On January 6, 1999, the Registrant sold 12,000 shares of
Common Stock to Jerome Plisinski for the purchase price of $3,000.
On January 6, 1999, the Registrant sold 60,000 shares of Common
Stock to Gary and Jeanette Plisinski for the purchase price of $15,000.
On January 11, 1999, the Registrant sold shares of Common Stock
to the persons, in the amounts and for the purchase price set forth below:
Number Purchase
Name of Shares Price
- ---- --------- -----
William Hummell 80,000 $20,000
Ralph Anglin 84,000 $21,000
Madeleine Franco 68,000 $17,000
Harry Gricevics 12,000 $3,000
On February 9, 1999, the Registrant sold 20,000 shares of
Common Stock to Richard D'Avanzo for a purchase price of $5,000.
On February 9, 1999, the Registrant sold 100,000 shares of
Common Stock to Thomas Mirabile for a purchase price of $25,000.
II-6
On February 9, 1999, the Registrant sold 880 shares of Common
Stock to Dale Allen for a purchase price of $220.
On February 17, 1999, the Registrant sold shares of Common
Stock to the persons, in the amounts and for the purchase price set forth below:
Number Purchase
Name of Shares Price
---- --------- -----
Paul Wolfson 8,000 $2,000
Elizabeth Zeleski 4,000 $1,000
Gary Osting 4,000 $1,000
Karen Longa 20,000 $5,000
John Kovas 20,000 $5,000
Michelle Perry 10,000 $2,500
On March 9, 1999, the Registrant sold shares of Common Stock
to the persons, in the amounts and for the purchase price set forth below:
Number Purchase
Name of Shares Price
- ---- --------- -----
Gerald & Ann Leinenbach 50,000 $12,500
Haythe & Curley 50,000 $12,500
Jerome & Teresa Plisinski 50,000 $5,000
Neil Eklund 20,000 $5,000
On March 23, 1999, the Registrant sold shares of Common Stock
to the persons, in the amounts and for the purchase price set forth below:
Number Purchase
Name of Shares Price
- ---- --------- -----
Charles Freeman 10,000 $2,500
Davis-Trachtenberg 15,000 3,750
Robb Cape, Inc. 12,020 $3,005
Quaker Capital 60,000 $15,000
NABOB Co. 74,000 $18,500
(Ralph Anglin IRA)
On March 30, 1999, the Registrant sold shares of Common Stock
to the persons, in the amounts and for the purchase price set forth below:
Number Purchase
Name of Shares Price
- ---- --------- -----
NABOB Co. 8,000 $2,000
(Ralph Anglin IRA)
Steffen Hauser 8,164 $2,041
II-7
On April 8, 1999, the Registrant sold shares of Common Stock
to the persons, in the amounts and for the purchase price set forth below:
Number Purchase
Name of Shares Price
- ---- --------- -----
Michael Von Gonton 4,000 $1,000
William Hummel 62,736 $15,684
NABOB Co. 120,000 $30,000
(Ralph Anglin IRA)
On April 26, 1999, the Registrant sold shares of Common Stock
to the persons, in the amounts and for the purchase price set forth below:
Number Purchase
Name of Shares Price
- ---- --------- -----
Harvey Keim 20,000 $5,000
John Robbins 100,000 $25,000
On May 4, 1999, the Registrant sold shares of Common Stock to
the persons, in the amounts and for the purchase price set forth below:
Number Purchase
Name of Shares Price
- ---- --------- -----
Steven Plisinksi 10,000 $2,500
Jerome Plisinski 6,000 $1,500
Donald D. Cooley 10,000 $2,500
Suzanne F. Seeley 10,000 $2,500
Deborah J. Steer 10,000 $2,500
On May 18, 1999, the Registrant sold shares of Common Stock to
the persons, in the amounts and for the purchase price set forth below:
Number Purchase
Name of Shares Price
- ---- --------- -----
NABOB Co. 80,000 $20,000
(Ralph Anglin IRA)
Michael Werner 10,800 $2,700
Todd Veeck 14,000 $3,500
Richard Veeck 4,000 $1,000
Andrew Depativo 30,000 $7,500
Nick Centofante 8,000 $2,000
Samuel Cortina 20,000 $5,000
John Ricketti 80,000 $20,000
Joan Rubin 8,000 $2,000
II-8
On May 28, 1999, the Registrant sold shares of Common Stock to
the persons, in the amounts and for the purchase price set forth below:
Number Purchase
Name of Shares Price
- ---- --------- -----
Harry & Lorraine Gricevics 3,000 $750
Jerry Valentini 20,000 $5,000
Denise Hall 40,000 $10,000
On June 3, 1999, the Registrant sold shares of Common Stock to
the persons, in the amounts and for the purchase price set forth below:
Number Purchase
Name of Shares Price
- ---- --------- -----
Michael Von Gonton 10,000 $2,500
Raymond and Donna Wuest 40,000 $10,000
William Hummel 48,604 $12,151
On June 8, 1999, the Registrant sold shares of Common Stock to
the persons, in the amounts and for the purchase price set forth below:
Number Purchase
Name of Shares Price
- ---- --------- -----
John Pravel 5,000 $1,250
Bryan Brahm 5,000 $1,250
Harry Roach 20,000 $5,000
On June 11, 1999, the Registrant sold shares of Common Stock
to the persons, in the amounts and for the purchase price set forth below:
Number Purchase
Name of Shares Price
- ---- --------- -----
Kenneth Yeutter 10,000 $2,500
Robert Rozdzielski 20,000 $5,000
II-9
On June 28, 1999, the Registrant sold shares of Common Stock
to the persons, in the amounts and for the purchase price set forth below:
Number Purchase
Name of Shares Price
- ---- --------- -----
David Hunter 1,500,000 $375,000
Tomas Stenstrom 750,000 $187,500
Ralph Anglin 500,000 $125,000
William Hummel 100,000 $25,000
NABOB Co.
(Ralph Anglin IRA) 100,000 $25,000
Anthony Baratta 200,097 $50,024.25
Millard Tydings 50,176 $12,544
Haythe & Curley 50,000 $12,500
Joseph Kwiatkowski 50,000 $12,500
Donald Peterson 250,000 $62,500
John Fare 10,000 $2,500
On July 8, 1999, the Registrant sold shares of Common Stock to
the persons, in the amounts and for the purchase price set forth below:
Number Purchase
Name of Shares Price
- ---- --------- -----
Harlan Gustafson 10,000 $2,500
Thomas Acquilante 1,168 $292
Gary & Jerome Plisinski 14,000 $3,500
Myron Bloom 40,000 $10,000
John Robbins 80,000 $20,000
Richard Astrella 12,000 $3,000
Harry Gricevics 40,000 $10,000
Brothers Plisinski 24,972 $6,243
Donald Hopper 44,000 $11,000
Michael Zaenglien 2,000 $5,000
Chad Neboer 3,000 $750
Chris Hopper 10,000 $2,500
Haythe & Curley 50,000 $12,500
Erwin Ephron 76,666 $19,166.50
On July 20, 1999, the Registrant sold shares of Common Stock
to the persons, in the amounts and for the purchase price set forth below:
Number Purchase
Name of Shares Price
- ---- --------- -----
John Robbins 120,000 $30,000
John Williams 40,000 $10,000
Thomas Piermatteo 8,000 $2,000
II-10
On July 26, 1999, the Registrant sold shares of Common Stock
to the persons, in the amounts and for the purchase price set forth below:
Number Purchase
Name of Shares Price
- ---- --------- -----
Nevada Agency & Trust Co. 27,426 $6,856.50
William Helmig 8,000 $2,000
Madeleine Franco 50,000 $12,500
On August 2, 1999, the Registrant sold 200,000 shares of
Common Stock to Kenneth Fratto for a purchase price of
$50,000.
On August 3, 1999, the Registrant sold shares of Common Stock
to the persons, in the amounts and for the purchase price set forth below:
Number Purchase
Name of Shares Price
- ---- --------- -----
Steffen Hausner 2,800 $700
Michael Von Gonten 14,000 $3,500
On August 12, 1999, the Registrant sold shares of Common Stock
to the persons, in the amounts and for the purchase price set forth below:
Number Purchase
Name of Shares Price
- ---- --------- -----
Margaret Long 525,537 $131,384.25
Matthew Carrafiello 20,000 $5,000
II-11
On August 19, 1999, the Registrant sold shares of Common Stock
to the persons, in the amounts and for the purchase price set forth below:
Number Purchase
Name of Shares Price
- ---- --------- -----
Donald Hopper 2,000 $500
Kathleen Smith 10,000 $2,500
On September 28, 1999, the Registrant sold 120,000 shares of
Common Stock to NABOB Co. (Ralph Anglin IRA) for a purchase price of $30,000.
On January 6, 2000, the Registrant sold a total of 1,000,000
units (the "Units"), each Unit consisting of (i) one share of the Registrant's
Common Stock, (ii) one of the Registrant's A Common Stock Purchase Warrants to
purchase one share of the Registrant's Common Stock exercisable at a purchase
price of $.50 per share of Common Stock, and (iii) one of the Registrant's B
Common Stock Purchase Warrants to purchase one share of the Registrant's Common
Stock exercisable at a purchase price of $1.00 per share of Common Stock, to the
parties, in the amounts and at the purchase prices as set forth below. These
securities were not registered under the Securities Act in reliance on Rule 506
of Regulation D promulgated thereunder.
Number Purchase
Name of Shares Price
---- --------- -----
SoundShore Holdings Ltd. 666,750 $333,375
SoundShore Opportunity
Holding Fund Ltd. 214,500 107,250
SoundShore Strategic
Holding Fund Ltd.
118,750 $59,375
On January 21, 2000, the Registrant sold a total of 260,000
Units to the parties, in the amounts and at the purchase prices as set forth
below. These securities were not registered under the Securities Act in reliance
on Rule 506 of Regulation D promulgated thereunder.
Number Purchase
Name of Shares Price
---- --------- -----
Michael Hamblett 100,000 $50,000
Howard Fischer 80,000 $40,000
Andrew Gitlin 30,000 $15,000
John Lepore 20,000 $10,000
Philip Platek 20,000 $10,000
Edward Okine 10,000 $5,000
II-12
ITEM 27. EXHIBIT INDEX
3 (i) Articles of Incorporation (Incorporated by reference to Exhibit 3(i) to
the Company's Registration Statement on Form 10-SB).
3(ii) By-laws of the Company (Incorporated by reference to Exhibit 3(ii) to the
Company's Registration Statement on Form 10-SB).
4(a) Capita Research Group, Inc. 1999 Stock Option Plan.
4(b) Warrants dated August 5, 1999 granted to Jim Salim.
4(c) Form of A Warrant
4(d) Form of B Warrant
5 Opinion of Torys (To be filed pursuant to amendment to this Registration
Statement).
10(a) NASA License Agreement (Incorporated by reference to Exhibit 10(c) to the
Company's Registration
10(b) Modification No. 1 to NASA License Agreement 10(c) Modification No. 2 to
NASA License Agreement
10(d) Exchange Agreement dated January 27, 1998 between David B. Hunter,
Exchange Agent for the
10(e) Loan Agreement dated as of August 5, 1999 between the Company and Jim
Salim.
10(f) Securities Purchase Agreement dated as of January 6, 2000 by and among
the Company, SoundShore
10(g) Securities Purchase Agreement dated as of January 21, 2000 by and among
the Company, Andrew Gitlin,
10(h) Registration Rights Agreement dated August 5, 1999 between the Company
and Jim Salim.
10(i) Registration Rights Agreement dated as of January 6, 2000 by and among
the Company, SoundShore
10(j) Registration Rights Agreement dated as of January 21, 2000 by and among
the Company, Andrew Gitlin,
23(a) Consent of Torys (contained in Exhibit 5). 23(b) Consent of Rudolph,
Palitz LLP.
24 Power of Attorney (See "Power of Attorney" in the Registration
Statement).
ITEM 28. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement to:
II-13
(i) include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement; and
(iii) include any additional or changed material information
with respect to the plan of distribution not previously disclosed in the
registration statement or any material change to such information in the
registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or 15(d) or the Securities
Exchange Act of 1934 that are incorporated by reference in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(b) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-14
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing on Form SB-2, and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of Blue
Bell, Commonwealth of Pennsylvania, on the 9th day of February, 2000.
CAPITA RESEARCH GROUP, INC.
By /s/ David B. Hunter
-------------------
David B. Hunter
President and Chief Executive Officer
Each person whose signature appears below constitutes and
appoints David B. Hunter, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution in the premises for him and in his
name, place and stead, and in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement
(or any other Registration Statement for the same offering that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933),
and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent, full power and authority to do and perform each
and every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and agent
or his substitute or substitutes may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ David B. Hunter President, Chief Executive Officer February 9, 2000
------------------- and
(David B. Hunter) Director (principal executive
officer)
/s/Thomas J. Stenstrom Director February 9, 2000
- ----------------------
/s/Steven A. Plisinki Chief Financial Officer February 9, 2000
- --------------------- (principal financial and
accounting officer)
/s/Millard E. Tydings Director February 9, 2000
- ---------------------
/s/ Ralph Anglin Director February 9, 2000
- ----------------
(Ralph Anglin)
II-15