U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[x] Quarterly report under Section 13 or 15 (d) of the Securities Exchange Act
of 1934 For the quarterly period ended June 30,2000
or
[ ] Transition report under Section 13 or 15 (d) of the Securities Exchange Act
of 1934 For the transition period from to
Commission file number 1-14025
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CAPITA RESEARCH GROUP, INC.
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(Exact name of Registrant as specified in its charter)
Nevada 88-072350
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(State of incorporation) (IRS Employer ID Number)
591 Skippack Pike, Blue Bell, PA 19422
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(Address of principal executive offices) (Zip Code)
(215) 619-7777
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(Issuer's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the past 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days YES [X] NO [ ]
The number of shares outstanding of the registrant's common stock as of August
1, 2000 was 24,651,187.
1
PART I - FINANCIAL INFORMATION
Capita Research Group, Inc. and Subsidiary
Consolidated Balance Sheets
(Development Stage Company)
ASSETS
June 30, December 31,
Current Assets 2000 1999
(unaudited)
----------- -----------
Cash $ 179,811 $ 4,840
Prepaid expenses 37,004 20,424
Accounts and other receivables 3,278 --
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Total Current Assets 220,093 25,264
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Property and Equipment
Property and Equipment - Net 230,929 209,687
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Other Assets
Due from Stockholders 60,095 40,235
Deposits 17,910 1,493
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Total Other Assets 78,005 41,728
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Total Assets $ 529,027 $ 276,679
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LIABILITIES and STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
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Accounts payable and accrued expenses $ 417,560 $ 369,918
Current portion of obligations under capital leases 22,513 20,007
Due to Stockholders 45,000 420,000
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Total Current Liabilities 485,073 809,925
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Long-term obligations under capital leases, 28,672 23,386
net of current portion ----------- -----------
Stockholders' Equity (Deficit)
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Common Stock, Capita Research Group, Inc.
$0.001 par value, 100,000,000 shares authorized;
issued & outstanding, 24,251,187 shares June 30, 2000, 24,251 20,296
20,295,946 shares, December 31, 1999
Additional paid-in capital 5,772,949 3,855,663
Deficit accumulated during
development stage (4,892,177) (3,566,929)
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905,023 309,030
Stock subscription receivable (889,741) (865,662)
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Total stockholders' equity (deficit) 15,282 (556,632)
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Total Liabilities & Stockholders' Equity (Deficit) $ 529,027 $ 276,679
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See Accompanying notes
2
Capita Research Group, Inc. and Subsidiary
Consolidated Statements of Operations
(Development Stage Company)
(Unaudited)
Six Months Ended
June 30
2000 1999
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Revenue $ -- $ 32,250
Cost of Revenues 30,071 58,972
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Loss before Operating expenses (30,071) (26,722)
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Operating expenses
Selling 90,000 13,561
Technical 219,587 44,551
Production 36,840 19,904
Administrative, General and Other 913,595 326,704
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Total Operating expenses 1,260,022 404,720
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Other Income (Expense)
Interest expense, net (35,155) (7,542)
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Loss Before Taxes (1,325,248) (438,984)
Provision for Income Taxes -- --
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Net Loss $ (1,325,248) $ (438,984)
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Net Loss Per Share, Basic and Diluted $ (0.06) $ (0.03)
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Weighted Average Shares Outstanding 22,396,376 14,433,483
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See Accompanying notes
3
Capita Research Group, Inc. and Subsidiary
Consolidated Statements of Operations
(Development Stage Company)
(Unaudited)
Three Months Ended
June 30
2000 1999
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Revenue $ -- $ 27,500
Cost of Revenues 15,962 40,672
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Loss before Operating expenses (15,962) (13,172)
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Operating expenses
Selling 45,000 3,870
Technical 120,911 24,648
Production 18,263 19,904
Administrative, General and Other 479,934 154,279
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Total Operating expenses 664,108 202,701
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Other Income (Expense)
Interest expense, net (26,498) (3,488)
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Loss Before Taxes (706,568) (219,361)
Provision for Income Taxes -- --
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Net Loss $ (706,568) $ (219,361)
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Net Loss Per Share, Basic and Diluted $ (0.03) $ (0.01)
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Weighted Average Shares Outstanding 23,281,029 15,012,906
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See Accompanying notes
4
Capita Research Group, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(Development Stage Company)
(Unaudited)
Six Months Ended
June 30
2000 1999
---- ----
Operating Activities
Net Loss $(1,325,248) $ (438,984)
Adjustments to reconcile net loss to
net cash used in operating activities:
Common stock and/or stock options issued for
operating expenses and fixed assets 260,899 158,317
Depreciation 50,724 39,532
Changes in Operating assets and liabilities:
(Increase) decrease in:
Accounts and other receivables (27,357) (21,013)
Other assets (36,277) (341)
Prepaid Expenses (16,580) (30,780)
Increase (decrease) in:
Accounts payable and accrued expenses 47,642 60,428
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Net cash used in operating activities (1,046,197) (232,841)
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Investing Activities
Purchase of equipment (46,317) (54,326)
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Net cash used in investing activities (46,317) (54,326)
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Financing Activities
Proceeds from issuance of common stock 1,155,342 310,754
Repayment of capital lease obligations (17,857) (7,140)
Proceeds from (repayment of) Stockholder loans 130,000 --
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Net cash provided by financing activities 1,267,485 303,614
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Net Increase in cash 174,971 16,447
Cash, Beginning 4,840 19,301
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Cash, Ending $ 179,811 $ 35,748
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Supplemental Disclosure of Cash Flow Information:
3,350,273 shares of common stock were sold to Officers
and Directors in exchange for a subscription note receivable $ 837,568
Stockholder loans converted into common stock $ 400,000
Acquisition of equipment through capital leases $ 25,649
5
Capita Research Group, Inc. and Subsidiary
(A Development Stage Company)
Notes to Unaudited Consolidated Financial Statements
The accompanying unaudited consolidated financial statements of Capita
Research Group, Inc. and its subsidiary, reflect all adjustments and
disclosures, which are, in the opinion of management, necessary for a fair
presentation of interim results. The financial information has been prepared in
accordance with Capita's customary accounting practices and has not been
audited.
1. Certain information and footnote disclosures required under
generally accepted accounting principles have been condensed or
omitted pursuant to the Securities and Exchange Commission (SEC)
rules and regulations. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make certain estimates and assumptions that affect
the amount reported in the financial statements and accompanying
notes. Actual results could differ from those estimates. These
interim financial statements should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and
Results of Operations and the financial statements and notes
thereto included in Capita's Annual Report on Form 10-KSB for the
year ended December 31, 1999. Certain items in the balance sheet
as of December 31, 1999 have been reclassified from its previous
presentation.
2. Results of operations for the three month and six month periods
and its cash flows for the six month periods ended June 30, 2000
and 1999, are not necessarily indicative of the results to be
expected for the full year.
3. In March 1999, the Company 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. The
agreement with Quaker expired on March 12, 2000. This agreement
provides that if the Company receives funding within one year of
the termination of the agreement from any investor introduced to
the Company by Quaker, a commission is due on such financing. On
June 23, 2000, an agreement for a demand note in the amount of
$600,000 was executed with an investor that Quaker initially
introduced. The first installment of $150,000 was received on
June 30, 2000. The agreement provides for the remaining three
installments, totaling $450,000, to be received by September 25,
2000. This loan is convertible into common stock at a price of
$.60 per share. In addition the lender was granted warrants to
purchase 1,000,000 shares of common stock at a price of $.60 per
share. Deferred interest totaling $105,000, related to 250,000
warrants (the pro rata portion of total warrant received) was
recorded using a value of $.42 per warrant based on certain
assumptions. The deferred interest, which was netted against the
loan on the accompanying balance sheet, will be amortized into
interest expense over the term of the loan. Additional deferred
interest and interest expense will be recorded upon receipt of
the remaining loan proceeds. This loan was obtained in order to
meet the working capital needs of Capita as it seeks out
additional equity financing.
6
Capita Research Group, Inc. and Subsidiary
(A Development Stage Company)
Notes to Unaudited Consolidated Financial Statements
4. On April 18, 2000, we entered into a one-year agreement with
Charterbridge Financial Group, Inc. ("Charterbridge") 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. Amounts owed to
Charterbridge in the amount of $55,320 are included in accounts
payable and accrued expenses at June 30, 2000.
5. During the three and six month periods ended June 30, 2000, the
Company issued 116,000 and 1,341,000, respectively, of Stock
Options (both incentive and non-incentive) to employees, officers
and/or directors. The exercise price of the options range from
$.66 to $1.08 per share. With respect to stock options granted,
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. Compensation costs
resulting from all applicable option grants, including
non-recourse stock sales to employees, officers and directors,
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 during the
three month and six month periods ended June 30, 2000 by
approximately $138,000, or a $.01 loss per share and $253,000, or
a $.01 loss per share, respectively. The method of determining
proforma compensation cost was based on certain assumptions,
including the past trading ranges of the Company's stock, risk
free interest rates of 6.00 to 6.49%, a three year term, and no
expected dividend payments.
6. During the three month and six month periods ended June 30, 2000,
the Company issued 57,730 and 201,730, respectively,
non-statutory stock options to outside consultants in exchange
for services. The exercise price of the options ranges from $.66
to $.95 per share. With respect to stock options granted to
non-employees, the Company records the appropriate expense as
required by SFAS No. 123. Consulting expense recorded by the
Company during the three month and six month periods ended June
30, 2000, was calculated using similar assumptions to those
disclosed above, with the exception of a 5 year term. Such
expense was approximately $25,000 and $95,000, respectively, and
had an immaterial effect on loss per common share. During the
three month period ended June 30, 2000, 50,000 of the above
options were exercised.
7. On July 5, 2000, the Company entered into a one-year agreement
with Park Avenue Consulting Group, Inc. for consultant marketing
services designed to heighten the brand identity of the Company.
Per the agreement, the Company issued 400,000 restricted shares
of common stock, at $.48 per share. In addition, the Company
shall pay a monthly retainer fee of $7,000 per month.
7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations for the Three Months Ended June 30, 2000 and 1999
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All statements contained herein that are not historical facts are based upon
current expectations. These statements are forward-looking in nature and involve
a number of risks and uncertainties. Actual results may differ materially. Among
the factors that could cause actual results to differ materially are the
following: the availability of sufficient capital to finance Capita's business
plans, the market acceptance of Capita's services and competitive factors.
Capita wishes to caution readers not to place undue reliance on any such
forward-looking statements, which statements are made pursuant to the Private
Litigation Reform Act of 1995 and as a result, are pertinent only as of the date
made.
Capita is, and has been, a development stage company during the three month and
six month periods ended June 30, 2000 and 1999. As a development stage company
it has been testing and further developing its Engagement Index(TM) System
(EI(TM)), which has been licensed exclusively to Capita by the National
Aeronautics and Space Administration (NASA). The system measures electrical
activity using an electroencephalogram (EEG) reading from the human brain and
processing the results through the computer using an algorithm developed by NASA
to correlate those results with the level of "involvement" by the test subject
with measured activity.
Capita is using this EI(TM) System to measure and research communication
effectiveness. Its objective 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
(attentiveness) for use in multiple markets.
As a development stage company it has limited marketing activity with no
reported sales for the three month and six month periods ended June 30, 2000 and
$27,500 in the three month period ended June 30, 1999 and $32,250 in the six
months period ended June 30, 1999. The gross profit (loss) on these sales for
the three month and six month periods ended June 30, 2000, approximates the loss
for the same period during 1999. This loss is due to the lack of adequate sales,
and the inclusion of certain fixed costs associated with the cost of sales.
Capita had incidental revenues during the two years that the product has been
offered in the market. Many projects conducted for clients in these early stages
were performed without compensation, with Capita paying for all costs, in order
to get the technology into distribution. Capita has gradually been upgrading the
scope of its product and service offerings, as technical innovations and client
feedback have become available. Due to its unique position in the research
industry, the Company completed non-revenue producing projects 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. The
Company expects to increase revenue-producing projects conducted over time,
although there is no assurance that this can be achieved. 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.
8
The operating costs of $664,000 for the three months ended June 30, 2000
increased from $203,000 for the same three months in 1999. This increase of
$461,000 over 1999 was due to the increased use of outside marketing and
advertising consultants, increased staff and expenditures for technical
development of the product, the Company's research effort, its legal protection
of intellectual property, its efforts expended in raising equity capital and its
development of infrastructure.
Results of Operations for the Six Months Ended June 30, 2000 and 1999
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Capita is, and has been, a development stage company during the six month
periods ended June 30, 2000 and 1999. As a development stage company it has
limited marketing activity with no reported sales in the six months ended June
30, 2000 and $32,250 in the six month period ended June 30, 1999. The gross
profit (loss) on these sales for the six months ended June 30, 2000,
approximates the loss for the same period during 1999. This loss is due to the
lack of adequate sales, and the inclusion of certain fixed costs associated with
the cost of sales.
The operating costs of $1,260,000 for the six months ended June 30, 2000
increased from $405,000 for the same three months in 1999. This increase of
$855,000 over 1999 was due to the increased use of outside marketing and
advertising consultants, increased staff and expenditures for technical
development of the product, the Company's research effort, its legal protection
of intellectual property, its efforts expended in raising equity capital and its
development of infrastructure.
Liquidity and Capital Resources at June 30, 2000
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With losses expected to continue in the foreseeable future, Capita's ability to
sustain operations is dependent on its ability to raise added investment
capital. The Company has taken the following steps to improve its liquidity and
capital resources:
1. During the six month period ended June 30, 2000, Capita
received gross proceeds of $1,155,000 from the sale of
3,483,227 shares of its common stock and warrants to
purchase 300,000 shares at an exercise price of $.25 per
share.
2. During the six month period ended June 30, 2000, the
Company issued $261,000 of common stock (172,014 shares)in
consideration of services rendered.
3. In June 2000, the Company entered into an agreement with
an investor for $600,000 in demand notes, which can be
converted to common stock at a conversion price of $.60
per share. The Company during the three month period ended
June 30, 2000 received the first of four installments
totaling $150,000. This loan was obtained to meet the
working capital needs of Capita as it seeks out additional
equity financing. In addition the investor was granted
warrants to purchase 1,000,000 shares of common stock at
an exercise price of $.60 per share.
4. As of August 1, 2000 the Company had 24,651,187 shares of
common stock outstanding. It also had options and warrants
outstanding to purchase an additional 5,110,054 shares at
exercise prices from $.50 to $1.375.
At June 30, 2000 the financial condition remained impaired with the working
capital shortfall being met primarily from the proceeds of the issuance of
common stock. The above transactions net of the operating loss had the effect of
increasing the total stockholder deficit by $541,000 to an equity of $15,000 at
June 30, 2000.
9
PART II - OTHER INFORMATION
Item 2. Changes in Securities
(a) Inapplicable.
(b) Inapplicable
(c) For information concerning sales of equity securities of the
Company during the period covered by this report that were not registered under
the Securities Act of 1933 (the "Act"), see "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources at June 30, 2000." All of such securities were issued to
accredited investors (as defined in Rule 501(a) under the Act) pursuant to Rule
506.
(d) Inapplicable
10
SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CAPITA RESEARCH GROUP, INC.
Registrant
Dated: August 18, 2000
By:/s/ David B. Hunter
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David B. Hunter, President
and Chief Executive Officer
11