As filed with the Securities and Exchange Commission on May 10, 2000.
Registration No. 333-30116
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
AMENDMENT NO. 1 TO FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------
CAPITA RESEARCH GROUP, INC.
(Exact name of registrant as specified in its charter)
----------
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 May 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 19.58 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 May
5, 2000 on the OTC Bulletin Board was $0.88 per share.
The resale of the securities:
o Involves no underwriting discounts, commissions or
expenses.
We will pay any expenses of registering the securities, which
we estimate to be approximately $30,000.
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 May 10, 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: Years ended December 31,
1999 1998 1997 1996
(Consolidated) (Consolidated) (Combined) (Combined)
Net revenues.................. $ 64,500 $ 85,500 $ 81,894 $ 360,654
Cost of sales................. 129,154 125,826 96,100 253,175
---------- ---------- --------- ---------
Gross profit (loss) .......... (64,654) (40,326) (14,206) 107,479
========== ========== ========= =========
Operating expenses.......... 1,119,269 1,090,374 655,622 504,741
---------- ---------- --------- ---------
Loss from operations........ 1,183,923 1,130,700 669,828 397,262
Non-operating income
(expenses) ............. (19,796) (29,982) (19,452) (1,713)
---------- ---------- --------- ---------
Provision for taxes........... -- -- -- --
Net loss...................... $(1,203,719) $(1,160,682) $(689,280) $ (398,975)
========== ========== ========= =========
Net income (loss) per
common share............ (0.07) (0.10) (0.40) (0.39)
========== ========== ========= =========
Shares used in net income
(loss) per common share
computation............. 17,307,956 11,380,306 1,736,458 1,034,658
========== ========== ========= =========
As of December As of December
31, 1999 31, 1998
-------- --------
Consolidated Balance Sheet Data:
Total assets............................. $ 304,773 $ 141,414
Current liabilities...................... 809,925 300,333
Long-term debt........................... 23,386 9,614
Total stockholders' equity (deficiency).. (528,538) (168,533)
2
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 fiscal years ended
December 31, 1999 and December 31, 1998, we had net losses of $1,203,719 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 May 1,
2000, we have received net proceeds from offerings of our common stock and
warrants of $2,223,833 and from offerings of our debt of $500,000. As of May 1,
2000, we had approximate working capital of $100,000. 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 three 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.
4
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
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 1,529,100 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 and other designees under our stock option
plan. To date, options to purchase 50,000 shares have been exercised for an
aggregate purchase price of $44,500. We have also granted warrants to purchase
3,593,227 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
risks of additional federal and state regulatory requirements and the potential
loss of effective trading markets. In particular, broker-dealers trading in our
5
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.
6
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
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.
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) 1,600,000(2) 300,000 1,900,000 1,600,000
SoundShore Holdings
Ltd. 666,750 1,333,500 2,000,250 2,000,250
SoundShore
Opportunity Holding
Fund Ltd. 214,500 429,000 643,500 643,500
SoundShore Strategic
Holding Fund Ltd. 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 107,778 187,778 295,556(3) 240,000
Michael Hamblett 120,000 200,000 320,000 300,000
(1) Mr. Salim is not offering the 300,000 shares of common stock issuable
upon the exercise of his warrants. Mr. Salim's 300,000 shares which he
will hold after the offering represent 1.20% of the outstanding shares.
(2) Common stock issuable upon conversion of Mr. Salim's convertible
promissory note.
(3) Mr. Fischer is not offering 27,778 shares of common stock and 27,778
shares of common stock underlying warrants issued to him in April 2000.
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.
7
The shares covered hereby may be offered and sold from time to
time by the selling security holders. The selling security holders will act
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 $ 2.4375 $.5625
Quarter ended June 30, 2000 $ 1.375 $.6875
(through May 5, 2000)
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
December 31, 1999:
o on an actual basis; and
o as adjusted to give effect to:
9
o issuance of 50,578 shares of common stock in April 2000 in
exchange for $47,417 of services;
o the exercise of options to purchase 50,000 shares of common
stock in April 2000 in exchange for $44,5000 of services;
o the sale of 1,883,227 shares of common stock in January,
March and April 2000 private placements for $1,130,900;
o the exercise of all outstanding warrants for 3,593,227
shares of common stock with an aggregate exercise price of
$2,828,853; and
o 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.
December 31, 1999
Actual As Adjusted
------------- ------------
Cash and cash equivalents.............................. $ 4,840 $ 3,964,593
============= ============
Accounts payables and accrued expenses................. $ 369,918 $ 325,182
============= ============
Short-term debt ....................................... $ 420,000 $ 20,000
============= ============
Long-term debt (including capital lease obligations) .. $23,386 $ 23,386
============= ============
Stockholders' deficit:
Common Stock, $.001 par value per share,
100,000,000 shares authorized;
20,295,946 shares issued and outstanding
actual; 27,472,972 shares issued and
, outstanding as adjusted.......................... 20,296 27,473
Capital in excess of par value................... 3,855,663 8,300,156
Stock Subscription Receivable.................... (837,568) (837,568)
Accumulated deficit.............................. (3,566,929) (3,614,110)
------------- ------------
Total stockholders' equity (deficit)........... $ (528,538) $ 3,875,951
============= ============
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 twelve months ended December 31, 1999, and December
31, 1998.
10
RESULTS OF OPERATIONS
Results Of Operations: Year Ended December 31, 1999, Compared With Year Ended
December 31, 1998
We have been a development stage company since our inception.
As a development stage company, we have had limited marketing activity with
sales of $64,500 and $85,500 for the twelve-months ended December 31, 1999 and
1998, respectively. The sales in both periods were to "early adopters" of our
technology to measure the effectiveness of advertising materials. These "early
adopters" received our product at an aggressive price, in return for the
competitive advantage of being the first to use the product. The gross profit
(loss) on these sales increased to a $64,700 loss in 1999 from a $40,300 loss in
1998. This was due to lower sales and the addition of certain fixed costs
included in cost of sales, primarily due to an increase in the depreciation of
testing equipment that was acquired since 1998.
The operating costs of $1,119,300 in 1999 were greater by
$28,900 than the operating costs incurred for the twelve months ended December
31, 1998. The increase was attributable to research and development expense of
$133,600 due to the introduction of the Capita ETS(TM) operating system during
1999, which operates in a networked environment, offering the ability to test
multiple respondents during one simultaneous session. Research and development
for the twelve months ended December 31, 1999 was $236,100, as compared to
$102,500 for the comparable period of 1998. Operating costs also increased due
to investor relations, financing fees, and depreciation expense, which were
partially offset by several expenditures incurred in 1998, which did not reoccur
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.
Results Of Operations: Year Ended December 31, 1998, Compared With Year Ended
December 31, 1997
As disclosed in our Form 10-SB/A filed in July 1998, Media
Solutions International (MSII) (a predecessor of Capita) licensed the rights
from Media Solutions Inc. (also a predecessor of Capita) to continue the
development and selling of MediaLink. MediaLink is a software system used by
marketers to manage direct response television advertising campaigns. The
MediaLink product line was sold to Columbine/JDS Systems, Inc. ("Columbine") in
July 1997, for a contract which would pay out potential future profits to us
from the sale of products and services marketed with the MediaLink software that
Columbine acquired. To date, no revenues have been paid to us by Columbine,
which claims that MediaLink has not been profitable for it.
During the first half of 1997, MSII was actively engaged in
marketing its product and providing technical support to its clients. As also
disclosed in the Form 10-SB/A, 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 its 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.
11
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 of our copy testing service. This accounts for the entire
period-to-period change in revenue. The gross margin for the year ended December
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) reflect the technical development of the product, development of an
infrastructure, and the start-up of testing operations. General and
administrative expenses include costs of approximately $104,490 which are
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.
LIQUIDITY AND CAPITAL RESOURCES AT DECEMBER 31, 1999
With losses expected to continue in the near future, our
ability to sustain operations is dependent on our ability to raise added
investment capital. We have taken the following steps during the twelve months
ended December 31, 1999, to improve our liquidity and capital resources:
1. During the twelve months ended December 31, 1999 we
received cash proceeds of $417,858 from the sale of common
stock.
2. We converted $100,000 of notes payable and $31,384 of
other payables into our common stock.
3. The Company issued $297,488 of common stock in
consideration of services rendered, including rent and
equipment purchases.
4. In March 1999, we entered into a one year agreement with
Quaker Capital Markets Group, Inc. ("Quaker") in our
attempt to raise a then currently estimated $7,500,000. In
connection therewith, we paid Quaker $10,000 in cash,
$15,000 in common stock and agreed to pay them a
percentage of capital raised. We decided not to renew the
agreement with Quaker in light of the unsolicited funds
received in January. We are currently in talks with a
number of investment banking firms for a possible equity
funding or joint venture arrangement.
5. In August 1999, we entered into an agreement with an
investor for $400,000 in short-term notes, which can be
converted to common stock. This loan was obtained to meet
our working capital needs as we seek out additional equity
financing. On January 27, 2000, the same investor
12
indicated that he intends to convert his convertible
promissory note into 1,600,000 shares of common stock at a
purchase price of $0.25 per share. On March 10, 2000, the
investor also indicated his intent to exercise his 300,000
stock warrants for common stock for an aggregate purchase
price of $75,000.
At December 31, 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 increasing
the total stockholders' deficiency by $360,005 to a deficiency of $528,538 at
December 31, 1999.
Year 2000 Compliance Disclosure
On January 1, 2000, we did not incur any impact on our
products, equipment, computer systems and applications as a result of the Year
2000 issue. We attribute this to our Year 2000 readiness efforts. Although we
did not experience any problems related to the Year 2000 issue, there can be no
assurance that problems relating to the Year 2000 issue will not manifest
themselves in the future.
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 May 1, 2000, 22,279,751 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.
13
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.
Business
We are a technology company that designs and markets systems
and services that are used in research to measure communication 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
14
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 due to 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.
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 of 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 conducting 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;
15
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
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.
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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.
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:
17
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
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 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, extending it 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 are
also required to pay 50% of any consideration received from any sublicensees in
consideration for any sublicense granted for the licensed product. We have filed
all annual reports and paid all licensing fees to date on a timely basis, and
are in compliance with 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
18
code used by us is under software source code copyrights filed with the US
Trademark and Copyright office. Although we believe that such patents,
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.
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. The agreement with Quaker had a term of
one year expiring on March 12, 2000. We decided not to renew the agreement with
Quaker in light of the unsolicited funds received in January. On April 18, 2000,
we entered into a one-year agreement with Charterbridge Financial Group, Inc. to
solicit equity funding and joint venture arrangements. There can be no assurance
that we will be successful in obtaining any such equity funding or joint venture
arrangements.
Recent Investment Developments
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
19
1,000,000 shares of common stock at $.50 per share, 1,000,000 class "A" warrants
to purchase shares of common stock at $.50 per share for five years, and
1,000,000 class "B" 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. The second private placement also consisted of
260,000 class "A" warrants to purchase shares of common stock at $.50 per share
for five years, and 260,000 class "B" warrants to purchase shares of common
stock at $1.00 per share for five years. We were required under these private
placements to file a registration statement to register the common stock and the
common stock underlying the warrants. We also completed two additional private
placements of 150,000 units for initial cash investments of $75,000 by certain
additional investors in March 2000. The units consisted of 150,000 shares of
common stock at $.50 per share, 150,000 class "A" warrants to purchase shares of
common stock at $.50 per share for five years, and 150,000 class "B" warrants to
purchase shares of common stock at $1.00 per share for five years. The investors
in the March 2000 private placements received "piggyback" registration rights
with respect to the common stock and the common stock underlying the warrants.
In April 2000, we completed three private placements of
473,227 units for initial cash investments totaling $425,900 by certain
additional investors. The units consisted of 473,227 shares of common stock at
$.90 per share and 473,227 warrants to purchase shares of common stock at $1.35
per share for five years. The investors in the April 2000 private placements
received "piggyback" registration rights with respect to the common stock and
the common stock underlying the warrants.
All securities sold during January, March and April 2000
private placements were issued in transactions not involving any "public
offering" within the meaning of Section 4(2) of the Securities Act of 1933, as
amended (the "Securities Act"), in reliance on Rule 506 under the Securities
Act. We obtained representations from all investors to the effect that they are
"accredited investors" as defined in Rule 501(a) under the Securities Act.
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 were included under this registration statement. The private
investor, James R. Salim, has advised us that he intends to convert his bridge
loan into common stock and exercise his registration rights. The same investor
also indicated that he intends to exercise his 300,000 stock warrants for common
stock.
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 $96,745 for 2000 and 2001, respectively.
Location Square Feet Lease Expiration
- -------- ----------- ----------------
591 Skippack Pike, Suite 300 4,939 December 2001
593 Skippack Pike, Suite 100
Blue Bell, Pennsylvania
20
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
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
21
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.
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.
22
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 $100,000. Officers currently
do not receive any bonuses. Directors do not receive any type of compensation
for attending the board meetings.
Summary Compensation Table
Name and Fiscal Long Term
Principal Position Year Annual Compensation Compensation
------------------ ---- ------------------- ------------
Other Annual Restricted Securities All Other
Salary($) Bonus($) Compensation ($) Stock Award(s) Underlying Compensation ($)
($) Options (#)
David B. Hunter....... 1999 $61,731 -- -- -- -- --
President and
Chief Executive
Officer
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.
The following table sets forth certain information regarding
options to purchase common stock granted to named executive officers and
directors in February 2000. All options were granted at or above fair market
value as of the date of grant.
Number of Securities
Name Underlying Options Granted
---- --------------------------
David B. Hunter 500,000
Ralph Anglin 350,000
Tomas Stenstrom 250,000
Millard Tydings 20,000
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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 well as those 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 1,529,100 shares under the stock option
plan, of which options to purchase 50,000 shares have been exercised. 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 rent and in return for 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 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 non-recourse notes receivable totaling
$837,568, 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 1,600,000 shares of 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. Mr. Salim
has advised us of his intention to convert his note into 1,600,000 shares of
common stock, and to exercise his warrants to purchase 300,000 shares of common
stock for an aggregate purchase price of $75,000.
DESCRIPTION OF SECURITIES
General
Our authorized capital stock consists of 100,000,000 shares of
common stock, par value $.001 per share, of which 26,399,751 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 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. The holder of the warrants has
advised us that he intends to exercise his warrants to purchase 300,000 shares
of common stock for an aggregate purchase price of $75,000.
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 (hereinafter
referred to as the "A Units"), each A Unit consisting of one share of common
stock and two warrants. Warrants for the purchase of 300,000 shares of our
common stock were issued in connection with the sale of 150,000 A Units to two
additional investors. Each warrant issued in connection with the A Units is
exercisable for the purchase of one share of common stock for a period of five
years ending January 1, 2005. In each A Unit, one warrant is exercisable for
$.50 per share and one warrant is exercisable for $1.00 per share.
Warrants for the purchase of 433,227 shares of common stock
were issued to certain investors in connection with three private placements
covering an aggregate of 433,227 units (hereinafter referred to as the "B
Units"), each B Unit consisting of one share of common stock and one warrant.
Each warrant issued in connection with the B Unit is exercisable for the
purchase of one share of common stock for a period of five years ending in April
2005. In each B Unit, the warrant is exercisable for $1.35 per share.
Stock Transfer Agent and Registrar
The stock transfer agent and registrar for the common stock is
Nevada Agency and Trust Company, Reno, Nevada.
26
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.
27
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 April 28,
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
Name and Address Shares Percent of
Of Beneficial Owner Owned Class
- --------------------------------------------------------------------------------
David B. Hunter (1) 2,994,727 13.44%
591 Skippack Pike, Suite 300
Blue Bell, PA 19422
- --------------------------------------------------------------------------------
Ralph Anglin (2) (3) 2,785,686 12.50%
111 S. Independence Mall E., Suite 100
Philadelphia, PA 19106
- --------------------------------------------------------------------------------
James R. Salim (4) 1,900,000 7.86%
3510 Turtle Creek Boulevard, #2D
Dallas, TX 75219
- --------------------------------------------------------------------------------
Michael Kline (5) 1,295,432 5.81%
P.O. Box 314
Sharon, CT 06069
- --------------------------------------------------------------------------------
Tomas J. Stenstrom (1) 800,000 3.59%
275 Camp Hill Road
Fort Washington, PA 19034
- --------------------------------------------------------------------------------
Millard E. Tydings, II (1) 100,000 0.45%
2705 Pocock Road
Monkton, MD 21111
- --------------------------------------------------------------------------------
SoundShore Holdings Ltd. (6) 2,000,250 8.47%
c/o AIG International Management
Company, Inc.
1281 East Main Street
Stamford, Connecticut 06902
- --------------------------------------------------------------------------------
All Executive Officers and 7,000,413 31.42%
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) The number of shares owned is as of January 24, 2000.
(6) Included in SoundShore Holdings Ltd.'s shareholdings are 1,333,500
shares issuable upon the exercise of its warrants.
28
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 250,000 shares of our common stock.
EXPERTS
Our financial statements for each of the years in the
three-year period ended December 31, 1999 included in this prospectus have been
so included in reliance on the report 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.
FINANCIAL STATEMENTS
The Company's financial statements for the years ended December 31,
1999, 1998 and 1997 are attached to this report commencing with page F-1.
29
CAPITA RESEARCH GROUP, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
TABLE OF CONTENTS
PAGE(s)
-------
INDEPENDENT AUDITORS' REPORT F-1
CONSOLIDATED BALANCE SHEETS F-2
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS F-3
CONSOLIDATED AND COMBINED STATEMENTS OF CHANGES IN
STOCKHOLDER'S DEFICIENCY
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS F-5
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
F-6 - F-21
INDEPENDENT AUDITORS' REPORT
Directors and Shareholders
Capita Research Group, Inc.
(A Development Stage Company)
Blue Bell, Pennsylvania
We have audited the accompanying consolidated balance sheets of Capita
Research Group, Inc. and Subsidiary (Formerly NextGen Systems, Inc. and
Subsidiary and Affiliate) (a development stage company) as of December 31, 1999
and 1998 and the related consolidated statements of operations, changes in
stockholders' deficiency, and cash flows for each of the two years then ended,
and the combined statements of operations, changes in stockholders' deficiency
and cash flows for NextGen Systems, Inc. and Subsidiary and Media Solutions
International, Inc. (an affiliate) (development stage companies) for the year
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 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 provide a reasonable basis for our opinion.
In our opinion, 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, 1999 and 1998 and the results of their operations,
and their cash flows for each of the three years in the period ended December
31, 1997, 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 their 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.
By:/s/Rudolph, Palitz LLC
-------------------------
RUDOLPH, PALITZ LLC
February 25, 2000
Blue Bell, Pennsylvania
F-1
CAPITA RESEARCH GROUP, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
ASSETS
1999 1998
----------- -----------
CURRENT ASSETS
Cash $ 4,840 $ 19,301
Prepaid expenses 20,424 9,508
Accounts and other receivables 28,094 1,000
----------- -----------
Total current assets 53,358 29,809
----------- -----------
PROPERTY AND EQUIPMENT, NET 209,687 92,511
----------- -----------
OTHER ASSETS
Due from stockholder 40,235 15,534
Deposits 1,493 3,560
----------- -----------
Total other assets 41,728 19,094
----------- -----------
$ 304,773 $ 141,414
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 369,918 $ 186,052
Current portion of obligations under capital leases 20,007 14,281
Due to stockholders 420,000 100,000
----------- -----------
Total current liabilities 809,925 300,333
----------- -----------
LONG-TERM OBLIGATIONS UNDER CAPITAL LEASES,
NET OF CURRENT PORTION 23,386 9,614
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY
Common stock, Capita Research Group, Inc.
$.001 par value, 100,000,000 shares authorized;
20,295,946, and 13,562,900 issued and outstanding
at December 31, 1999 and 1998, respectively 20,296 13,563
Additional paid-in capital 3,855,663 2,181,114
Deficit accumulated during development stage (3,566,929) (2,363,210)
----------- -----------
309,030 (168,533)
Stock subscription receivable (837,568) --
----------- -----------
Total stockholders' deficiency (528,538) (168,533)
----------- -----------
$ 304,773 $ 141,414
=========== ===========
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 31,1999,1998 AND 1997
1999 1998 1997
(Consolidated) (Consolidated) (Combined)
------------ ------------ ------------
REVENUES $ 64,500 $ 85,500 $ 81,894
COST OF REVENUES 129,154 125,826 96,100
------------ ------------ ------------
GROSS LOSS (64,654) (40,326) (14,206)
OPERATING EXPENSES
Selling 88,616 47,425 31,947
Technical 135,345 195,189 81,725
Production 55,357 -- --
Administrative and general 204,982 405,129 154,365
Other 634,969 442,631 387,585
------------ ------------ ------------
Total operating expenses 1,119,269 1,090,374 655,622
------------ ------------ ------------
LOSS FROM OPERATIONS (1,183,923) (1,130,700) (669,828)
------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest income 29,263 -- --
Interest expense (49,059) (29,982) (19,452)
------------ ------------ ------------
Total other income (expense) (19,796) (29,982) (19,452)
------------ ------------ ------------
LOSS BEFORE INCOME TAXES (1,203,719) (1,160,682) (689,280)
INCOME TAXES -- -- --
------------ ------------ ------------
NET LOSS $ (1,203,719) $ (1,160,682) $ (689,280)
============ ============ ============
NET LOSS PER SHARE, BASIC AND DILUTED $ (0.07) $ (0.10) $ (0.40)
============ ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 17,307,956 11,380,306 1,736,458
============ ============ ============
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 31,1999,1998 AND 1997
MEDIA SOLUTIONS CAPITA RESEARCH
NEXTGENSYSTEMS,INC. INTERNATIONAL,INC. GROUP,INC.
NUMBER OF DOLLAR NUMBER OF DOLLAR NUMBER OF DOLLAR
. SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ---------- ---------- ---------- ---------- ----------
Balance,
January 1,1997 500 $ 500 1,926,750 $ 19,268 -- $ --
Issuance of stock 337,350 337,350 -- -- -- --
Issuance of stock -- -- 38,850 388 -- --
Stock redemption
and retirement -- -- (705,500) (7,055) -- --
Stock redemption
and retirement (415) (415) -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Net loss
Balance,
December 3l, 1997 337,435 337,435 1,260,100 12,601 -- --
Exchange and reorganization:
issuance of common stock
in exchange for
debt obligations (Note 1) 218,485 218,485 10,000 100 -- --
Issuance of common stock
in exchange for
shares of M Sll in
connection wth the
merger of January
12, 1998 (Note 1) 1,099,250 1,099,250 (219,850) (2,199) -- --
Redemption of shares
in NextGen and
MSII for no consideration
(Note l) (85) (85) (1,050,250) (10,502) -- --
Issuance of stock 72,000 72,000 -- -- -- --
Issuance of shares in Royal
in exchange for
shares of NextGen in
connection with the
merger of January
29,1998 (Note 1) (1,727,085) (1,727,085) -- -- 9,580,000 9,580
Issuance of stock -- -- -- -- 3,982,900 3,983
---------- ---------- ---------- ---------- ---------- ----------
Net loss
Balance,
December 3l , 1998 -- -- -- -- 13,562,900 13,563
Issuance of common
stock in exchange for
debt obligations (Note 1) -- -- -- -- 525,537 525
Issuance of stock -- -- -- -- 6,207,509 6,208
Issuance of warrants (Note 10) -- -- -- -- -- --
Common stock subscribed -- -- -- -- -- --
Net loss -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Balance,
December 31,1999 -- $ -- -- $ -- 20,295,946 $ 20,296
========== ========== ========== ========== =========== =========
F-3A
DEFICIT
ACCUMULATED
ADDITIONAL STOCK DURING
PAID-IN SUBSCRIPTION DEVELOPMENT
CAPITAL RECEIVABLE STAGE PERIOD TOTAL
------- ---------- ------------ -----
Balance,
January 1,1997 $ 331,161 $ -- $ (513,248) $ (162,319)
Issuance of stock -- -- -- 337,350
Issuance of stock 193,902 -- -- 194,290
Stock redemption
and retirement 7,055 -- -- --
Stock redemption
and retirement 415 -- -- --
Net loss -- -- (689,280) (689,280)
Balance,
December 3l, 1997 532,533 -- (1,202,528) (319,959)
Exchange and reorganization:
issuance of common stock
in exchange for
debt obligations (Note 1) 24,900 -- -- 243,485
Issuance of common stock
in exchange for
shares of M Sll in
connection wth the
merger of January
12, 1998 (Note 1 2,199 -- -- 1,099,250
Redemption of shares
in NextGen and
MSII for no consideration
(Note l) 10,587 -- -- --
Issuance of stock -- -- -- 72,000
Issuance of shares in Royal
in exchange for
shares of NextGen in
connection with the
merger of January
29,1998 (Note 1) 618,155 -- -- (1,099,350)
Issuance of stock 992,740 -- -- 996,723
Net loss -- -- (1,160,682) (1,160,682)
- -------- -- -- ----------- -----------
Balance,
December 3l , 1998 2,181,114 -- (2,363,210) (168,533)
Issuance of common
stock in exchange for
debt obligations (Note 1) 130,859 -- -- 131,384
Issuance of stock 1,517,690 -- -- 1,523,898
Issuance of warrants (Note 10) 26,000 -- -- 26,000
Common stock subscribed -- (837,568) -- (837,568)
Net loss -- -- (1,203,719) (1,203,719)
- -------- -- -- ----------- ----------
Balance,
December 31,1999 $ 3,855,663 $ (837,568) $(3,566,929) $ (528,538)
======= =========== =========== =========== ===========
F-4
CAPITA RESEARCH GROUP, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997
(Consolidated) (Consolidated) (Combined)
------------ ------------ -----------
OPERATING ACTIVITIES
Net loss $(1,203,719) $(1,160,682) $ (689,280)
Adjustments to reconcile net loss to
net cash used in operating activities:
Stock and warrants issued for salaries and services 297,488 460,208 --
Depreciation 73,999 33,816 28,007
Amortization 14,980 27,449 14,370
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts and other receivables (27,093) 1,000 26,201
Other assets 2,067 1,369 (1,126)
Prepaid expenses (10,916) (9,508) --
Increase (decrease) in:
Accounts payable and accrued expenses 212,233 25,044 100,057
----------- ----------- -----------
Net cash used in operating activities (640,961) (621,304) (521,771)
----------- ----------- -----------
INVESTING ACTIVITIES
Purchase of equipment (169,449) (16,255) (34,977)
Advances to stockholder (24,701) (15,534 --
----------- ----------- -----------
Net cash used in investing activities (194,150) (31,789) (34,977)
----------- ----------- -----------
FINANCING ACTIVITIES
Proceeds from issuance of stock 417,858 675,075 531,640
Proceeds from note payable -- -- 60,000
Proceeds from (repayment of) stockholder loans, net 420,000 (8,966) --
Repayment of capital lease obligations (17,208) (8,905) --
Repayment of loans -- -- (20,341)
----------- ----------- -----------
Net cash provided by financing activities 820,650 657,204 571,299
----------- ----------- -----------
NET (DECREASE) INCREASEIN CASH (14,461) 4,111 14,551
CASH, BEGINNING 19,301 15,190 639
----------- ----------- -----------
CASH, ENDING $ 4,840 $ 19,301 $ 15,190
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Capital lease obligations incurred related to the
acquisition of equipment $ 36,706 $ 32,800 $ --
=========== =========== ===========
Conversion of notes payable to
common stock $ 131,384 $ 176,825 $ --
=========== =========== ===========
3,350,273 shares of common stock were sold
to Officers and Directors in exchange for
subscription notes receivable $ 837,568 $ -- $ --
=========== =========== ===========
See Notes to Consolidated and Combined Financial Statements.
F-5
CAPITA RESEARCH GROUP, INC. AND SUBSIDIARY
(a development stage company)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
NOTE 1. HISTORY AND NATURE OF THE BUSINESSES AND BUSINESS COMBINATIONS
Capita Research Group Inc. and Subsidiary (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, 1999, 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, 1999, 1998 and 1997, the Company had
$64,500, $85,500 and $81,894 of net revenues, respectively.
The ultimate recovery of the Company's investments and costs
is dependent on future profitable operations and continued
funding, 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 ("engagement"), 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.
F-6
CAPITA RESEARCH GROUP, INC. AND SUBSIDIARY
(a development stage company)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
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); and 50%
of any consideration received from any sublicensees in
consideration for any sublicense granted for the licensed
product.
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, 1999, 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)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
NOTE 1. HISTORY AND NATURE OF THE BUSINESSES AND BUSINESS COMBINATIONS
(CONTINUED)
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,
pharmaceutical companies, internet advertising agencies, 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)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
NOTE 1. HISTORY AND NATURE OF THE BUSINESSES AND BUSINESS COMBINATIONS
(CONTINUED)
On January 27, 1998, prior to the transaction
described 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 twelve professionals
and several independent contractors who provide services on an
"as needed" basis. 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)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
NOTE 1. HISTORY AND NATURE OF THE BUSINESSES AND BUSINESS COMBINATIONS
(CONTINUED)
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 equity capital. In connection therewith, the Company
agreed to pay Quaker $10,000 in cash, $15,000 in common stock
and a percentage of any equity capital raised. As of the year
ended December 31, 1999, Quaker raised approximately $400,000
in equity capital. In connection therewith the Company paid a
commission in the amount of $28,000.
On August 12, 1999 a note payable, including accrued
interest, due to a Stockholder, was converted into 525,537
shares of common stock.
On September 28, 1999, the Company was granted a
modification to the original license agreement granted by NASA
on August 4, 1997. The modification expanded the field of use
to include "all fields." In addition, the 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 is not
issued, the life of the software copyright, which in the case
of the NASA technology, is 75 years from the filing date of
1996.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Combination
For the years ended December 31, 1999 and 1998, the
consolidated financial statements include the wholly owned
subsidiary, Capita Systems, Inc. For the year ended December
31, 1997, the combined financial statements include the
accounts of two entities, which were under common control and
management, MSI and MSII. 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.
F-10
CAPITA RESEARCH GROUP, INC. AND SUBSIDIARY
(a development stage company)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Production
During 1999 the Company started a new division to
plan and conduct primary market and advertising research on
behalf of clients to process and analyze data, and to write
and present reports to clients. This division works with other
Company divisions to develop pricing proposals and in the
implementation of research tools. Costs associated with
Production are included under operating expenses in the
Statement of Operations.
Stock-Based Compensation
Capita adopted the disclosure-only provisions of SFAS
No. 123 "Accounting for Stock-Based Compensation," but elected
to continue to utilize the "intrinsic value" method of
accounting for recording stock-based compensation expense for
employees, as provided for in Accounting Principles Board No.
25, "Accounting for Stock Issued to Employees."
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, 1999 and 1998, 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-11
CAPITA RESEARCH GROUP, INC. AND SUBSIDIARY
(a development stage company)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
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, 1999 and 1998 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 1999, 1998 and 1997 were $29,872, $9,824 and $9,916,
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-12
CAPITA RESEARCH GROUP, INC. AND SUBSIDIARY
(a development stage company)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
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. Since the Company is in the development
stage, all the work performed by its non-administrative
personnel is considered research and development. The cost of
servicing customers who contract for the Company's services
are applied to research and development which are costs borne
directly by the customer. During 1999, significant research
and development is included in selling, technical, and
research costs. It is estimated that half of the Company's
effort or the equivalent of three man-years has been expensed
on research and development. Research and development costs
for 1999, 1998 and 1997 were $236,093, $102,534 and $118,241,
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 (loss) per share with basic and diluted earnings
(loss) per share, respectively. Basic earnings (loss) per
common share is computed by dividing net income (loss) by the
weighted average number of common shares. Diluted earnings
(loss) per share considers common stock equivalents such as
options, warrants, etc. The exercise of existing options
and/or warrants has not been considered in the determination
of diluted earnings (loss) per share, since such exercise
would be anti-dilutive.
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 1998 and 1997 financial
statements were reclassified to conform with the 1999
presentation.
F-13
CAPITA RESEARCH GROUP, INC. AND SUBSIDIARY
(a development stage company)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
NOTE 3. STOCKHOLDER LOANS
The Company is indebted to its stockholders as
follows:
1999 1998
---- ----
Loan payable, Stockholder, due on
demand, interest rate of Prime + 2%
(9.75% at December 31, 1998). This debt
was converted into common stock of the
Company in August 1999 (Note 1) $ - $100,000
Loan payable due Stockholder, payable on
demand. This debt was satisfied in
January 2000 (Note 12). 20,000 -
Loan payable, Stockholder. Due in installments
of $100,000 in August 2000, $200,000 in September
2000 and $100,000 in October 2000. 300,000
warrants were granted in connection with the loan
(Note 10). Interest is payable at prime (8.5% at
December 31, 1999). The loan is convertible at
$.25 per share of common stock, exercisable into
1,600,000 shares of common stock (Note 12). 400,000 -
-------- --------
$420,000 $100,000
======== ========
Interest expense on stockholder loans for 1999 and
1998 was $19,044 and $23,612 respectively. Accrued interest on
stockholder loans at December 31, 1999 and 1998 was $11,272
and $23,612.
NOTE 4. PROPERTY AND EQUIPMENT
1999 1998
---- ----
Equipment $221,738 $197,014
-------- --------
Furniture and fixtures 31,589 12,034
-------- --------
Leasehold improvements 24,565 --
-------- --------
277,892 209,048
-------- --------
Less - accumulated depreciation
and amortization (68,205) (116,537)
-------- --------
$209,687 $92,511
======== =======
F-14
CAPITA RESEARCH GROUP, INC. AND SUBSIDIARY
(a development stage company)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
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 1999, 1998 and 1997 is as follows:
1999 1998 1997
(Consolidated) (Consolidated) (Combined)
-------------- -------------- ----------
Income tax benefit at statutory rate ($409,264) ($394,632) ($234,355)
Permanent differences 435 1,210 4,625
State income tax benefit, net of
Federal effect (79,445) (76,605) (44,709)
Reduction in income tax benefit
due to valuation allowance 488,274 470,027 274,439
---------- ----------- ---------
$ - $ - $ -
========== =========== =========
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
accumulated net operating loss carryforwards generated by
these losses, which total approximately $2.5 million, may be
lost and/or substantially limited. Notwithstanding such
effect, any deferred tax asset recorded as a result of
potential net operating loss carryforwards which would be
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
will not be realized.
The deferred tax asset at December 31, 1999 and 1998
of approximately $1,003,000 and $527,000, respectively has
been offset by valuation allowances of equal amounts.
F-15
CAPITA RESEARCH GROUP, INC. AND SUBSIDIARY
(a development stage company)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
NOTE 7. COMMITMENTS
Capital Leases
During 1999 and 1998, the Company leased, under
various capital lease arrangements expiring through August
2002, certain computer equipment with a total cost of $69,506.
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 value of the asset. The assets are
depreciated over the shorter of the related lease term or the
estimated productive lives. Amortization of $14,980 and $7,811
related to the assets under capital lease was incurred for the
years ended December 31, 1999 and 1998, respectively. Interest
expense related to the capital lease was $4,868 and $3,651 for
the years ended December 31, 1999 and 1998.
Minimum future obligations under capital leases are:
YEARS ENDING
DECEMBER 31, AMOUNT
------------ ------
2000 $25,907
2001 15,349
2002 13,411
------
Total minimum lease payments 54,667
Less - amounts representing interest 11,274
------
Present value of future minimum lease payments 43,393
Less - current portion 20,007
------
Long-term portion $23,386
=======
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. Effective
January 1, 1999 the Company entered into an operating lease
for its corporate office located in Blue Bell, Pennsylvania.
The lease agreement was for a term of three years, expiring
December 2001. In October 1999, the Company entered into a
lease agreement for additional space; the lease will run
concurrent with the existing lease at Blue Bell. Rent expense
for 1999 and 1998 amounted to approximately $79,800 and
$22,000, respectively.
F-16
CAPITA RESEARCH GROUP, INC. AND SUBSIDIARY
(a development stage company)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
NOTE 7. COMMITMENTS (CONTINUED)
Operating Leases (Continued)
Minimum future rental payments under noncancellable
operating leases through December 2001 and in the aggregate
are:
YEARS ENDING
DECEMBER 31, AMOUNT
------------ ------
2000 $92,712
2001 96,745
--------
Total minimum future
rental payments $189,457
========
Litigation
The Company is a party to litigation with a
Stockholder/former Director/Officer of the Company. The
lawsuit seeks back wages of approximately $90,000 plus fees
and costs from the Company. The Company has filed a
counterclaim for amounts in excess of $100,000. The Company
believes that it has meritorious defenses to this action and
intends to vigorously defend these claims. Management does not
believe that the outcome of this litigation will have a
material adverse effect on its financial condition.
NOTE 8. DEFICIT ACCUMULATED DURING DEVELOPMENT STAGE
The deficit accumulated during the development stage
was $3,566,929, which includes a loss of $513,248 from the
inception of the Company through December 31, 1996. There were
no transactions, which occurred from the inception of the
Company and its predecessors through December 31, 1996 which
were qualitatively or quantitatively material to the 1999,
1998 or 1997 consolidated and combined financial statements.
F-17
CAPITA RESEARCH GROUP, INC. AND SUBSIDIARY
(a development stage company)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
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. STOCKHOLDERS' EQUITY
Warrants
At December 31, 1999, the Company had 300,000
detachable stock warrants outstanding, which were issued in
connection with a loan of $400,000 borrowed from a Stockholder
(Note 3). These warrants have an exercise price of $0.25 per
share of common stock, and are exercisable into 300,000 shares
of common stock. These warrants expire on August 5, 2002 (Note
12). In connection with the issuance of the warrants, the
Company recorded interest expense of $26,000 in 1999,
representing additional interest expense attributable to the
$400,000 loan borrowed from the Stockholder at a below market
rate of interest.
Stock Option Plan
Capita has stock-based incentive compensation plans,
approved by its stockholders in 1999, the terms of which
provide that up to 2,500,000 shares may be granted to
directors, officers, key employees, consultants and other
individuals who perform services for the Company. The plans
provide for certain options granted to qualify as Incentive
Stock Options under the Internal Revenue Code and other
options to be considered "non-statutory stock options." Awards
under the plans were made to six employees and/or consultants
in 1999. All stock options granted through December 31, 1999
have an exercise price equal to 100 percent of the market
value of the common stock at the date of grant.
F-18
CAPITA RESEARCH GROUP, INC. AND SUBSIDIARY
(a development stage company)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
NOTE 10. STOCKHOLDERS' EQUITY (CONTINUED)
Stock Option Plan (Continued)
The following table presents stock option activity
during 1999:
Price at which Number of Options Vesting
Exercisable Outstanding Term Period
----------- ----------- ---- ------
Granted to employees $1.38 54,500 10 years 3 Years
===== ====== ======== =======
Granted to Consultants $1.38 10,400 10 years 1 Year
===== ====== ======== ======
No options were exercised or cancelled in 1999.
With respect to stock options granted to employees,
the Company has adopted the disclosure only provisions of SFAS
No. 123, "Accounting for Stock-based compensation," but
applies APB Opinion No. 25 ("Accounting for Stock Issued to
Employees") in accounting for its stock compensation plan.
Accordingly, no compensation cost has been recognized with
respect to stock options granted to employees in 1999.
Compensation cost that would have been recognized in
accordance with the basis of fair value pursuant to SFAS No.
123, if the Company had so elected, would have increased the
Company's net loss for 1999 by approximately $4,000 (with an
immaterial effect on loss per share). The method of
determining proforma compensation cost for 1999 was based on
certain assumptions, including the past trading ranges of the
Company's stock, a risk free interest rate of 6.5%, expected
life of options of 3 years and no expected payments of
dividends.
With respect to stock options granted to
non-employees, the Company records the appropriate expense as
required by SFAS 123. Consulting expense recorded by the
Company in 1999, relating to options granted to consultants,
was calculated using similar assumptions to those disclosed
above. Such expense was approximately $2,000 and had an
immaterial effect on loss per common share.
F-19
CAPITA RESEARCH GROUP, INC. AND SUBSIDIARY
(a development stage company)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
NOTE 10. STOCKHOLDERS' EQUITY (CONTINUED)
Stock Subscription receivable
On June 21, 1999 the Company approved the issuance of
approximately 3,350,000 shares of the Company's common stock
at a purchase price of $0.25 per share to five directors
and/or officers of the Company. In exchange for the stock in
the Company, the individuals issued non-recourse notes to the
Company at an interest rate of 5.75%. Accrued interest on the
stock subscription receivable at December 31, 1999 was
$28,093. The stock subscription receivable is shown as a
reduction in Stockholders' equity as of December 31, 1999.
NOTE 11. OTHER RELATED PARTY TRANSACTIONS
In January 1999, a Director was issued 84,000 shares
of common stock at $0.25 per share in return for various
office furniture and fixtures at a fair value of $21,000.
During 1999, a Director was issued a total of 191,340
shares of common stock at $0.25 per share as rent and in
return for office equipment.
NOTE 12. SUBSEQUENT EVENTS
On January 6, 2000, the Company completed a private
placement. In exchange for $500,000 in equity capital, the
Company issued 1,000,000 shares of common stock, 1,000,000 of
the Company's class "A" common stock warrants providing for
purchase of the Company's common stock at a purchase price of
$0.50 per share and 1,000,000 of the Company's class "B"
common stock warrants providing for purchase of the Company's
common stock at a purchase price of $1.00 per share. Each
warrant is exercisable until January 1, 2005.
On January 6, 2000, the Company granted 170,000 stock
options, at $0.89 per common share to certain consultants of
the Company. These options have a term of ten years. The
majority of the options vest immediately while the remainder
of the options vest after certain services have been performed
for the Company.
On January 10, 2000, the Company repaid a note
payable to a Stockholder in the amount of $20,000 plus other
reimbursable expenses in the amount of $4,167.
F-20
CAPITA RESEARCH GROUP, INC. AND SUBSIDIARY
(a development stage company)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
NOTE 12. SUBSEQUENT EVENTS (CONTINUED)
On January 21, 2000, the Company completed a private
placement. In exchange for $130,000 in equity capital, the
Company issued 260,000 shares of common stock, 260,000 of the
Company's class "A" common stock warrants providing for
purchase of the Company's common stock at a purchase price of
$0.50 per share and 260,000 of the Company's class "B" common
stock warrants providing for purchase of the Company's common
stock at a purchase price of $1.00 per share. Each warrant is
exercisable until January 1, 2005.
On January 27, 2000, a Stockholder indicated his
intent to convert his convertible promissory note into
1,600,000 shares of common stock at a purchase price of $.25
per share. On March 10, 2000, the Stockholder indicated his
intent to exercise his 300,000 stock warrants into common
stock for an aggregate purchase price of $75,000 (Note 10).
On February 11, 2000, the Company granted 1,225,000
incentive stock options and nonqualified stock options, at
$.98 per common share to seven directors and/or officers of
the Company. These options have a term of ten years. The
options will vest over a three year period.
F-21
No dealers, salesperson or other person is authorized
to give any information or to represent anything not
contained in this prospectus. You must not rely on any
unauthorized information or representations. This
prospectus is an offer to sell only the shares offered
hereby, but only under circumstances and in
jurisdictions where it is lawful to do so. The
information contained in this prospectus is current
only as of its date. 5,380,000 Shares
--------------- CAPITA
RESEARCH GROUP, INC.
TABLE OF CONTENTS
Page Common Stock
---- ------------
Prospectus Summary...................................1
Risk Factors.........................................3
Selling Security Holders.............................6
Plan of Distribution.................................7
Market for Common Equity and
Related Stockholder Matters..........................9
Dividend Policy......................................9
Capitalization.......................................9
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................................10
Business............................................13
Management..........................................21
Certain Relationships and Related Transactions......25
Description of Securities...........................25
Security Ownership of Certain Beneficial Owners and
Management........................................28
Legal Matters.......................................29
Experts.............................................29
Where You Can Find Additional Information...........29
Index to Financial Statements..................... F-1
31
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........................ $ 1,309.36
Accounting Fees and Expenses................ 8,000.00
Legal Fees and Expenses..................... 18,000.00
Miscellaneous Expenses...................... 2,500.00
Total............................... $29,809.36
==========
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:
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 $13,000
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.
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
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 Purchase
Name of 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 Purchase
Name of 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
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
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.
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
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
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
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
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
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 "A Units"), each A 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 A Units 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 A
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 A Units 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
On March 6, 2000, the Registrant sold 100,000 A Units to David
Sandelovsky for a purchase price of $50,000. On March 9, 2000, the Registrant
sold 50,000 A Units to Dwight Nelson for a purchase price of $25,000. The
securities were not registered under the Securities Act in reliance on Rule 506
of Regulation D promulgated thereunder.
On April 19, 2000, the Registrant sold 394,447 units (the "B
Units"), each B Unit consisting of (i) one share of the Registrant's Common
Stock, and (ii) one of the Registrant's Warrants to purchase one share of the
Registrant's Common Stock, exercisable at a purchase price of $1.35 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.
Name Number of B Units Purchase Price
---- ----------------- --------------
Page Chapman, III 27,778 $25,000
Larry Dinkin 27,778 $25,000
Howard Fischer 27,778 $25,000
Rich Greenstein 33,333 $30,000
Michael Levy 27,778 $25,000
Eric Pai 27,778 $25,000
Rob Reiner 27,778 $25,000
Greg Silvershein 27,778 $25,000
David Sandelovsky 27,778 $25,000
William Tai 55,556 $50,000
Mark Van Fossan 55,556 $50,000
Cyril Visovsky 27,778 $25,000
On April 20, 2000, in connection with the exercise of options
to purchase 50,000 shares of Common Stock, the Registrant issued 50,000 shares
of Common Stock to Torys in consideration for $44,500 of services.
On April 26, 2000, the Registrant issued 49,418 shares of
Common Stock to Prose & Pictures, Inc. in consideration for $46,329 of services
and 1,160 shares of Common Stock to Scott Touchton in consideration for $1,088
of services.
On April 28, 2000, the Registrant sold a total of 78,780 B
Units to the parties, in the amounts and at the purchase prices set forth below.
These securities were not registered under the Securities Act in reliance on
Rule 506 of Regulation D promulgated thereunder.
Name Number of B Units Purchase Price
---- ----------------- --------------
William Brown 5,556 $ 5,000
Susan Gress 556 $ 500
Michael Lauria 6,000 $ 5,400
Michael Loia 10,000 $ 9,000
Laura Smith 5,556 $ 5,000
Anthony Spatacco, Jr. 5,556 $ 5,000
Anthony Spatacco, Sr. 5,556 $ 5,000
Richard D'Avanzo 40,000 $36,000
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
4(e) Form of Warrants granted to investors in April 2000 private
placements
5 Opinion of Torys
10(a) NASA License Agreement (Incorporated by reference to Exhibit
10(c) to the Company's Registration Statement on Form 10-SB)
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 stockholders of NextGen Systems,
Inc., and Royal American Mining Properties, Ltd. (Incorporated
by reference to Exhibit 10(b) to the Company's Registration
Statement on Form 10-SB)
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 Holdings Ltd., SoundShore
Opportunity Holding Fund Ltd. and SoundShore Strategic Holding
Fund Ltd.
10(g)* Securities Purchase Agreement dated as of January 21, 2000 by
and among the Company, Andrew Gitlin, John Lepore, Edward Okine,
Philip Platek, Howard Fischer and Michael Hamblett
10(h) Securities Purchase Agreement dated as of March 6, 2000 between
the Company and David G. Sandelovsky
10(i) Securities Purchase Agreement dated as of March 9, 2000 between
the Company and Dwight Nelson
10(j) Securities Purchase Agreement dated as of April 19, 2000 by and
among the Company, Page Chapman, III, Larry Dinkin, Howard
Fischer, Rich Greenstein, Michael Levy, Eric Pai, Rob Reiner,
David Sandelovsky, Greg Silvershein, William Tai, Mark Van
Fossan and Cyril Visovsky
10(k) Securities Purchase Agreement dated as of April 28, 2000 by and
among the Company, William Brown, Susan Gress, Michael Lauria,
Michael Loia, Laura Smith, Anthony Spatacco, Jr. and Anthony
Spatacco, Sr.
10(l) Securities Purchase Agreement dated as of April 28, 2000 between
the Company and Richard D'Avanzo
10(m)* Registration Rights Agreement dated August 5, 1999 between the
Company and Jim Salim
10(n)* Registration Rights Agreement dated as of January 6, 2000 by and
among the Company, SoundShore Holdings Ltd., SoundShore
Opportunity Holding Fund Ltd. and SoundShore Strategic Holding
Fund Ltd.
10(o)* Registration Rights Agreement dated as of January 21, 2000 by
and among the Company, Andrew Gitlin, John Lepore, Edward Okine,
Philip Platek, Howard Fischer and Michael Hamblett
10(p) Registration Rights Agreement dated as of March 6, 2000 between
the Company and David G. Sandelovsky
10(q) Registration Rights Agreement dated as of March 9, 2000 between
the Company and Dwight Nelson
10(r) Registration Rights Agreement dated as of April 19, 2000 by and
among the Company, Page Chapman, III, Larry Dinkin, Howard
Fischer, Rich Greenstein, Michael Levy, Eric Pai, Rob Reiner,
David Sandelovsky, Greg Silvershein, William Tai, Mark Van
Fossan and Cyril Visovsky
10(s) Registration Rights Agreement dated as of April 28, 2000 by and
among the Company, William Brown, Susan Gress, Michael Lauria,
Michael Loia, Laura Smith, Anthony Spatacco, Jr. and Anthony
Spatacco, Sr.
10(t) Registration Rights Agreement dated as of April 28, 2000 between
the Company and Richard D'Avanzo
10(u) Agreement for Financial Public Support / Retail Support dated as
of April 18, 2000 between the
Company and Charterbridge Financial Group, Inc.
10(v) Investment Banking Rider dated as of April 18, 2000 between the
Company and Charterbridge Financial Group, Inc.
23(a) Consent of Torys (contained in Exhibit 5)
23(b) Consent of Rudolph, Palitz LLP.
24* Power of Attorney
* Previously filed by the Registrant with the Commission.
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:
(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.
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 Amendment
No. 1 to Registration Statement to be signed on its behalf by the undersigned,
in the City of Blue Bell, Commonwealth of Pennsylvania, on the 10th day of May,
2000.
CAPITA RESEARCH GROUP, INC.
By: /s/ David B. Hunter
-----------------------
David B. Hunter
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933,
this Amendment No. 1 to 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 May 10, 2000
- ------------------- Officer and Director
(David B. Hunter) (principal executiveofficer)
/s/ Tomas J. Stenstrom* Director May 10, 2000
- ----------------------- -------- -----------
(Tomas J. Stenstrom)
/s/ Steven A. Plisinski* Chief Financial Officer May 10, 2000
- ------------------------ (principal financial and -----------
(Steven A. Plisinski) accounting officer)
/s/ Millard E. Tydings II* Director May 10, 2000
- -------------------------- -------- -----------
(Millard E. Tydings II)
/s/ Ralph Anglin* Director May 10, 2000
- ----------------- -------- -----------
(Ralph Anglin)
*By:/s/ David B. Hunter
----------------------
David B. Hunter
(Attorney in Fact)