Filed Pursuant to Rule 424(b)(3)
with respect to Registration Statement No. 333-30116
CAPITA RESEARCH GROUP, INC.
Supplement No. 3 dated November 30, 2000 to
Prospectus dated May 10, 2000
The Prospectus is hereby supplemented as follows:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations for the Three Months Ended September 30, 2000 and 1999
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
our business plans, the market acceptance of our services and competitive
factors. We wish 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.
We are, and have been, a development stage company during the
three-month periods ended March 31, 2000 and 1999. As a development stage
company, we have been testing and further developing our Engagement Index(TM)
System (EI(TM)), which has been licensed exclusively to us 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.
We are using this EI(TM) System to measure and research communication
effectiveness. Our 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, we have limited marketing activity with
no reported sales for the three month and nine month periods ended September 30,
2000, and sales of $22,750 in the three month ended September 30, 1999 and
$55,000 in the nine month period ended September 30, 1999. We have incurred a
gross loss on sales for the three month and nine month period ended September
30, 2000 due to lack of sales and the inclusion of certain fixed costs
associated with the cost of sales.
We had incidental revenues during the two and a half 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
most of the costs, in order to get the technology into distribution. We have
gradually been upgrading the scope of our product and service offerings, as
technical innovations and client feedback have become available. Due to our
unique position in the research industry, we completed non-revenue producing
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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. We expect 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.
The operating costs of $545,000 for the three months ended September
30, 2000, increased from $301,000 for the same three months in 1999. This
increase of $244,000 over 1999 was due to the increased use of outside marketing
and advertising consultants, increased staff and expenditures for expanded
technical development of the product, research effort, legal protection of
intellectual property, raising of equity capital and development of
infrastructure.
During the three months ended September 30, 2000, we accelerated
development of a wireless version of the Capita Headset, in order to facilitate
large scale distribution of our technology, as well as web deployed Oracle
databases and data modeling of our existing systems. This effort consumed a
substantial amount of staff time from both engineering and management. It is our
belief that the availability of a wireless platform version of our Engagement
Testing System(TM) will cause an increase in the potential success rate of our
marketing efforts, which are targeted to securing recurring business from major
corporate clients, as well as the initiation of joint venture distribution
arrangements with other research providers.
Results of Operations for the Nine Months Ended September 30, 2000 and 1999
We are, and have been, a development stage company during the nine
month periods ended September 30, 2000 and 1999. As a development stage company
we have limited marketing activity with no reported sales in the nine months
ended September 30, 2000 and $55,000 in the nine month period ended September
30, 1999. The gross profit (loss) on sales for the nine month period ended
September 30, 2000, decreased to a loss of $47,000 from a loss of $71,000 for
the same period during 1999. This loss is due to the lack of sales and the
inclusion of certain fixed costs associated with the cost of sales.
The operating costs of $1,805,000 for the nine months ended September
30, 2000 increased from $705,000 for the same period during 1999. This increase
of $1,100,000 over 1999 was due to the increased use of outside marketing and
advertising consultants, increased staff and expenditures for technical
development of the product, research effort, legal protection of intellectual
property, efforts expended in raising equity capital and development of
infrastructure.
Liquidity and Capital Resources at September 30, 2000
With losses expected to continue in the foreseeable future, our ability
to sustain operations is dependent on our ability to raise added investment
capital. We have taken the following steps to improve our liquidity and capital
resources:
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1. During the nine month period ended September 30, 2000, we received
gross proceeds of $1,232,000 from the sale or issuance of 3,840,727
shares of our common stock and the exercise of warrants to purchase
300,000 shares at an exercise price of $.25 per share.
2. During the nine month period ended September 30, 2000, we issued
$408,000 of common stock (676,213 shares) in consideration of services
rendered.
3. In June 2000, we 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. During the nine month period ended
September 30, 2000, we received two installments totaling $195,000.
After the two installments totaling $195,000 were received, both
parties mutually terminated the agreement for the remaining
installments of $405,000. This loan was obtained to meet our working
capital needs as we seek out additional equity financing. In addition,
the investor was granted warrants to purchase 325,000 shares of common
stock at an exercise price of $.60 per share.
4. In September 2000, we entered into three separate agreements with two
investors for $30,000 in demand notes, which can be converted to common
stock at a conversion price of $.26 per share. These loans were
obtained to meet our working capital needs as we seek out additional
equity financing. In addition, the investors were granted warrants to
purchase 128,040 shares of common stock at an exercise price of $.40
per share.
5. As of November 1, 2000, we had 25,427,172 shares of common stock
outstanding. We also had options and warrants outstanding to purchase
an additional 5,770,064 shares at exercise prices from $.40 to $1.375.
At September 30, 2000, our financial condition remained impaired with the
working capital shortfall being met primarily from the proceeds of issuance of
common stock. The above transactions net of the operating loss had the effect of
decreasing the total stockholder deficiency by $148,000 to a deficit of $409,000
at September 30, 2000.
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FINANCIAL STATEMENTS
Capita Research Group, Inc. and Subsidiary
Consolidated Balance Sheets
(Development Stage Company)
ASSETS
September 30, December 31,
Current Assets 2000 1999
-------------- ----------- -----------
(unaudited)
Cash $ 2,429 $ 4,840
Prepaid expenses 21,177 20,424
Receivables 4,143 --
----------- -----------
Total Current Assets 27,749 25,264
----------- -----------
Property and Equipment
Property and Equipment - Net 207,298 209,687
----------- -----------
Other Assets
Due from Stockholders 61,235 40,235
Deposits 17,910 1,493
----------- -----------
Total Other Assets 79,145 41,728
----------- -----------
Total Assets $ 314,192 $ 276,679
=========== ===========
LIABILITIES and STOCKHOLDERS' EQUITY (DEFICIENCY)
-------------------------------------------------
Current Liabilities
Accounts payable and accrued expenses $ 483,785 $ 369,918
Current portion of obligations under capital leases 22,114 20,007
Due to Stockholders 193,812 420,000
----------- -----------
Total Current Liabilities 699,711 809,925
----------- -----------
Long-term obligations under capital leases, 23,282 23,386
net of current portion
Stockholders' Equity (Deficiency)
---------------------------------
Common Stock, Capita Research Group, Inc.
$0.001 par value, 100,000,000 shares authorized;
issued & outstanding, 25,112,886 shares September 30, 2000, 25,113 20,296
20,295,946 shares, December 31, 1999
Additional paid-in capital 6,176,436 3,855,663
Deficit accumulated during
development stage (5,563,369) (3,566,929)
----------- -----------
638,180 309,030
Stock subscription receivable (901,781) (865,662)
Unearned compensation (145,200) --
----------- -----------
Total stockholders' equity (deficiency) (408,801) (556,632)
----------- -----------
Total Liabilities & Stockholders' Equity (Deficiency) $ 314,192 $ 276,679
=========== ===========
See Accompanying notes
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Capita Research Group, Inc. and Subsidiary
Consolidated Statements of Operations
(Development Stage Company)
(Unaudited)
Nine Months Ended
September 30
2000 1999
------------ ------------
Revenue $ -- $ 55,000
Cost of Revenues 46,579 126,063
------------ ------------
Loss before Operating expenses (46,579) (71,063)
------------ ------------
Operating expenses
Selling 112,500 18,716
Technical 299,778 89,940
Production/Research 58,939 33,836
Administrative, General and Other 1,333,964 562,895
------------ ------------
Total Operating expenses 1,805,181 705,387
------------ ------------
Other Income (Expense)
Interest expense, net (144,680) 3,873
------------ ------------
Loss Before Taxes (1,996,440) (772,577)
Provision for Income Taxes -- --
------------ ------------
Net Loss $ (1,996,440) $ (772,577)
============ ============
Net Loss Per Share, Basic and Diluted $ (0.09) $ (0.05)
============ ============
Weighted Average Shares Outstanding 23,209,942 16,244,218
============ ============
See Accompanying notes
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Capita Research Group, Inc. and Subsidiary
Consolidated Statements of Operations
(Development Stage Company)
(Unaudited)
Three Months Ended
September 30
2000 1999
------------ ------------
Revenue $ -- $ 22,750
Cost of Revenues 16,508 67,091
------------ ------------
Loss before Operating expenses (16,508) (44,341)
------------ ------------
Operating expenses
Selling 22,500 5,155
Technical 80,191 45,389
Production/Research 22,099 13,932
Administrative, General and Other 420,369 236,191
------------ ------------
Total Operating expenses 545,159 300,667
------------ ------------
Other Income (Expense)
Interest expense, net (109,525) 11,415
------------ ------------
Loss Before Taxes (671,192) (333,593)
Provision for Income Taxes -- --
------------ ------------
Net Loss $ (671,192) $ (333,593)
============ ============
Net Loss Per Share, Basic and Diluted $ (0.03) $ (0.02)
============ ============
Weighted Average Shares Outstanding 24,749,180 19,821,545
============ ============
See Accompanying notes
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Capita Research Group, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(Development Stage Company)
(Unaudited)
Nine Months Ended
September 30
2000 1999
----------- -----------
Operating Activities
Net Loss $(1,996,440) $ (772,577)
Adjustments to reconcile net loss to
net cash used in operating activities:
Common stock and/or stock options issued for
operating expenses 408,460 271,488
Depreciation and amortization 127,432 55,164
Changes in Operating assets and liabilities:
(Increase) decrease in:
Receivables (4,143) (12,750)
Other assets (16,417) 3,560
Prepaid Expenses (753) (13,030)
Increase (decrease) in:
Accounts payable and accrued expenses 113,867 (10,060)
----------- -----------
Net cash used in operating activities (1,367,994) (478,205)
----------- -----------
Investing Activities
Purchase of equipment (50,994) (81,695)
Advances to stockholder (21,000) (18,901)
----------- -----------
Net cash used in investing activities (71,994) (100,596)
----------- -----------
Financing Activities
Proceeds from issuance of common stock 1,232,223 429,806
Repayment of capital lease obligations (23,646) (10,710)
Proceeds from (repayment of) Stockholder loans 229,000 300,000
----------- -----------
Net cash provided by financing activities 1,437,577 719,096
----------- -----------
Net increase (decrease) in cash (2,411) 140,295
Cash, Beginning 4,840 19,301
----------- -----------
Cash, Ending $ 2,429 $ 159,596
=========== ===========
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 and interest thereon $ 36,119 $ 853,621
Stockholder loans and account payable converted into common stock $ 400,000 $ 128,366
Acquisition of equipment through capital leases $ 25,649 $ 34,831
See Accompanying notes
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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 nine month
periods and its cash flows for the nine month periods ended
September 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. Quaker was 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 provided 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. A second partial
installment of $45,000 was received on August 11, 2000. After
the two installments totaling $195,000 were received, both
parties mutually terminated the agreement for the remaining
installments of $405,000. This loan is convertible into common
stock at a price of $.60 per share. In addition the lender was
granted warrants to purchase 325,000 shares (as adjusted for
the pro rata portion of the original 1,000,000 warrants to be
received) of common stock at a price of $.60 per share.
Interest expense and deferred interest of $91,875 and $44,625,
respectively, related to 325,000 warrants has been 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. This loan was
obtained in order to meet the working capital needs of Capita
as it seeks out additional equity financing.
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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 September 30, 2000.
5. During the three and nine month periods ended September 30,
2000, the Company issued 3,500 and 1,344,500, respectively, of
Stock Options (both incentive and non-incentive) to employees,
officers and/or directors. The exercise price of the options
range from $.45 to $1.08 per share, which was the fair market
value at the date of grant. 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
nine month periods ended September 30, 2000 by approximately
$138,000, or a $.01 loss per share and $391,000, or a $.02
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, and volatility of 100% to 200%.
6. During the three month period ended September 30, 2000, the
Company did not issue non-statutory stock options to outside
consultants in exchange for services. During the nine month
period ended September 30, 2000, the Company issued 201,730
non-statutory stock options with exercise prices of the
options ranging 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 nine
month period ended September 30, 2000, was calculated using
similar assumptions to those disclosed above, with the
exception of a 5 year term. Such expense was approximately
$95,000 and had an immaterial effect on loss per common share.
During the nine month period ended September 30, 2000, 50,000
of the above options were exercised.
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Capita Research Group, Inc. and Subsidiary
(A Development Stage Company)
Notes to Unaudited Consolidated Financial Statements
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,
resulting in unearned compensation of $145,200, net of
amortization, at September 30, 2000. The unearned compensation
has been recorded as an increase in stockholders deficiency
and is being amortized over the one year period. In addition,
the Company shall pay a monthly retainer fee of $7,000 per
month.
8. On September 9, 2000, the Company entered into three separate
agreements for demand notes totaling $30,000 with two
investors. These notes are convertible into common stock at a
price of $.26 per share. In addition the lenders were granted
warrants to purchase 128,040 shares of common stock at a price
of $.40 per share. Interest expense and deferred interest of
$3,521 and $10,563, respectively, related to 128,040 warrants
was recorded using a value of $.11 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.
This loan was obtained in order to meet the working capital
needs of Capita as it seeks out additional equity financing.
In addition, the Company incurred interest expense related to
the issuance of the convertible notes in the amount of $8,077.
2000 Stock Option Plan
Effective July 3, 2000, our board of directors and the shareholders
adopted the Capita Research Group, Inc. 2000 Stock Option Plan, under which we
may grant options to purchase up to 1,000,000 shares of common stock. The 2000
Stock Option Plan is otherwise substantially on the terms and conditions of the
1999 Stock Option Plan, a description of which begins on page 24 of the
Prospectus.
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