U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 or 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission file number
December 31, 1999 1-14025
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CAPITA RESEARCH GROUP, INC.
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(Exact name of Registrant as specified in its charter)
Nevada 88-0072350
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(State of incorporation) (IRS Employer ID Number)
591 Skippack Pike, Blue Bell, PA 19422 19422
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 619-7777
Securities registered pursuant to Section 12 (b) of the Exchange Act:
None
Securities registered pursuant to Section 12 (g) of the Exchange Act:
Title of Class Number of Shares Outstanding as of
March 16, 2000
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Common Stock, $.001 par value 21,705,946
Check whether the issuer (1) 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 [ ]
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB [X].
Issuer's revenues for its most recent fiscal year: $64,500.
The aggregate market value of the voting stock held by non-affiliates of the
registrant, based on the last sale price on March 16, 2000 is approximately
$23,227,080.
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PART I
ITEM I - DESCRIPTION OF BUSINESS
Capita Research Group, Inc., ("Capita" or the "Company") 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 ("NextGen")(Capita's Predecessor) on January 30, 1998. The Company
has the exclusive license with the National Aeronautics and Space Administration
("NASA") 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. The
Company believes that it has the only commercial operating system of this nature
and is using it for testing services in the media, advertising and entertainment
industries, as well as in pharmaceutical market research.
On January 27, 1998 the Company known as Royal American Mining
Properties, Ltd. ("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 this 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 the Company's common stock for every Royal share they
owned. The Company's name also was changed to Capita Research Group, Inc.
As of March 16, 2000, 21,705,946 shares of the Company's authorized
common stock were issued and outstanding.
To management's knowledge, the Company has not been subject to
bankruptcy, receivership or any similar proceedings.
Forward - Looking Statements
This report contains forward-looking statements (within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended), representing
the Company's current expectations and beliefs concerning future events. When
used in this report, the words "believes," "estimates," "plans," "expects,"
"intends," "anticipates," and similar expressions as they relate to the Company
or its management are intended to identify forward-looking statements. The
actual results of the Company could differ materially from those indicated by
the forward-looking statements because of various risks and uncertainties
related to and including, without limitation, the Company's ability to obtain
sufficient financing, market acceptance of the Company's technology, competition
from well-established and well-funded competitors, the recruitment and retention
of qualified personnel, general economic conditions, changes in governmental
rules and regulations applicable to the Company, and other risks set forth in
this report and in the Company's other filings with the Securities and Exchange
Commission. These risks and uncertainties are beyond the ability of the Company
to control, in many cases, and the Company cannot predict the risks and
uncertainties that could cause actual results to differ materially from those
indicated by the forward-looking statements.
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Business of Issuer
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
clients test results, which determine whether the test subjects are mentally
engaged by the media being viewed.
This type of testing is referred to as "copy testing" or "advertising
testing" research. In addition to general interviews about consumer preferences,
at present there are two principal methods of conducting such tests. The first
is the use of a meter, or dial, by which the test subject indicates his positive
(or negative) reaction associated with the test material. The second method of
testing is performed by companies specializing in focus group measurement,
whereby a group of demographically selected test subjects views a program and is
then asked a series of questions to determine interest or lack of interest. A
substantial volume of advertising research activity is conducted with what is
referred to as "syndicated research", whereby the creatives of various
advertisers are pooled in common projects, creating multiple testing slots
inside of a single project. Syndicated research is principally conducted through
distributed testing in the home, over unused cable TV channels or by mailing
video cassettes to panel respondents which erase themselves automatically after
a single playing, followed by the administration of questionnaires delivered to
the respondent, or by simultaneous or next day interview of the respondent by
telephone. Some syndicated research is conducted in central facilities. By doing
syndicated research, the cost of a research project is spread across a number of
clients, making the research work more economical to each client company, and
more profitable to the research company. These forms of testing constitute a
well-established industry, although there is much debate within the media
industry about the reliability of these tests due to the subjective nature of
measuring viewer response and 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.
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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 the Company's 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 the Company's standpoint, in terms
of utilization of staff time, facilities and working capital.
We intend to offer line extensions of the foundation operating system,
so that the Capita ETS(TM) can function on a variety of computer operating
system platforms. We are also developing an inventory of data modeling systems
and project management methodologies to more closely tailor the technology to
the specific needs of clients.
Over time, we intend to offer additional analyses to the Engagement
Index(TM), to give a more complete view of the findings of a project. With the
introduction of the Capita ETS(TM) networked operating system in the fall of
1999, which offers the ability to test multiple respondents simultaneously, the
utility and marketability of the technology has improved significantly.
Marketing
We are primarily marketing our testing services to:
o the established research industry, as a complement to that
industry's existing research methods;
o advertising agencies, as a tool to help refine creative content and
strategy;
o advertising clients, principally consumer products companies and
pharmaceutical companies;
o media companies, such as television networks, cable networks,
Internet media companies, and print media companies; and
o commercial, industrial and professional clients who wish to measure
engagement in certain business settings or situations.
We reach prospects through initial phone or mail contact, referrals,
networking, industry publications, public relations, and the hiring of outside
media and marketing consultants, nearly all of which are followed by
presentations directly in client offices, or by visits to the company's
headquarters by clients or prospects. In addition, our personnel regularly
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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 the Company believes
is due to lack of marketing, research and technology infrastructure, as well as
because of the highly advanced nature of the Company's technology as it is being
introduced into a traditionally slow-to-change industry. Most of the Company's
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, the Company paying for all
costs, in order to get the technology into distribution. During the past year,
more projects have been revenue producing than not. We have gradually been
upgrading the scope of our product and service offerings, as technical
innovations and client feedback have become available. We expect to increase the
ratio of revenue producing projects to total projects conducted over time,
although there is no assurance that this can be achieved. Due to our unique
position in the research industry, we expect to continue conducting non-revenue
producing projects on an ongoing basis, either for R&D purposes, for marketing
promotion to launch the technology into additional fields, or to make available
pro bono engagement research for publication by leading marketing, Internet or
research trade organizations in new fields of use. It is the position of
management that these ongoing non-paid projects help promote the market
penetration of the technology over time.
The limited progress in producing meaningful revenues to date is
generally due to the lack of adequate capital to fund expansion of operations,
marketing and staffing in a highly complex line of business.
We have conducted virtually no advertising to date, other than limited
direct mail, email 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.
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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)
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Company US Worldwide
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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 the Company's 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 the Company's method of
testing, or may reject it.
Research and Development
We are in the development stage. Research and development of our
products and services can be divided into several categories:
o development of the Capita ETS(TM)operating system;
o data modeling and data interpretation of data produced by the
technology;
o research project methodology development; and
o development of software and databases to support the Capita
ETS(TM).
The Capita ETS(TM) operating system is a series of hardware and
software components, methods and procedures which produce the Engagement
Index(SM) and other measures synchronized with marketing and communications
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.
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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 company personnel as needed.
Intellectual Property
We are in the process of applying for a number of patents pertaining to
our technology. We have a number of trademarks and servicemarks on trade names
used in our operations and marketing. All such trademarks and servicemarks are
under US Trademark filings applied for. All computer software code used by us is
under software source code copyrights filed with the US Trademark and Copyright
office. Although we believe that such 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.
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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 any 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. ("Quaker") to solicit equity funding on our behalf on a best efforts
basis. Since that time, Quaker was 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. The Company 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. There can be no assurance that we will be successful in
obtaining any such equity funding or joint venture arrangements.
Recent Investment Development
We were approached on an unsolicited basis by AIG SoundShore Funds in
late December 1999 regarding an interim equity financing. This initiative
resulted in the closing of a private placement of units for an initial cash
investment of $500,000 on January 6, 2000. The units consisted of 1,000,000
shares of common stock at $.50 per share, 1,000,000 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. All such securities 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. The Company 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.
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ITEM 2 - DESCRIPTION OF PROPERTY
Listed below are our principal offices. These properties are leased
under a non-cancelable 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
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591 Skippack Pike, Suite 300 4,939 December 2001
593 Skippack Pike, Suite 100
Blue Bell, Pennsylvania
We believe our facilities are well maintained and are of adequate size
for our present needs and planned expansion in the near future.
ITEM 3 - 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.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
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PART II
ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company commenced trading on the OTC Electronic Bulletin Board on
August 3, 1998 under the symbol "CEEG", to date, there has been only sporadic
trading in the Company's common stock. As of December 31, 1999, the Company had
1,013 holders of record of its common stock. The Company has 15 listed
market-makers, and the trading ranges by quarter for the year were as follows:
Calendar Year High Low
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1999
First Quarter $0.38 $0.13
Second Quarter $0.38 $0.06
Third Quarter $2.19 $0.06
Fourth Quarter $1.94 $0.88
1998
Third Quarter(from Aug 3, 1998) $0.31 $0.01
Fourth Quarter $0.38 $0.03
See Item 1 "Description of Business - Recent Investment Development" for a
description of recent sales of unregistered securities.
ITEM 6- SELECTED FINANCIAL DATA
The following selected consolidated financial data have been derived
from the audited financial statements of Capita Research Group, Inc. The
selected financial data should be read in conjunction with the consolidated
financial statements and related notes included elsewhere in this Form 10-KSB.
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------
1999 1998 1997 1996
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<S> <C> <C> <C> <C>
Net sales $ 64,500 $ 85,500 $ 81,894 $ 360,654
Net loss $ (1,203,719) $ (1,160,682) $ (689,280) $ (398,975)
Loss per share $ (0.07) $ (0.10) $ (0.40) $ (0.39)
Weighted average 17,307,956 11,380,306 1,736,458 1,034,658
number of shares
outstanding
</TABLE>
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<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------
1999 1998 1997 1996
---- ---- ---- ----
BALANCE SHEET DATA:
<S> <C> <C> <C> <C>
Total assets $ 304,773 $ 141,414 $ 126,840 $ 144,764
Working capital $ (756,567) $ (270,524) $ (429,609) $ (278,243)
Long-term debt $ 43,393 $ 23,895 $ -- $ --
(including current
portion)
Stockholders' $ (528,538) $ (168,533) $ (319,959) $ (162,319)
deficiency
</TABLE>
ITEM 7- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS: YEAR ENDED DECEMBER 31, 1999, COMPARED WITH YEAR ENDED
DECEMBER 31, 1998
Capita has been a development stage company since its inception. As a
development stage company, it has 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 Capita's
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.
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RESULTS OF OPERATIONS: YEAR ENDED DECEMBER 31, 1998, COMPARED WITH YEAR ENDED
DECEMBER 31, 1997
As disclosed in the Company's 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 the
Company from the sale of products and services marketed with the MediaLink
software that Columbine acquired. To date, no revenues have been paid to the
Company 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.
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 Capita had sales of $ 85,500 of
its 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. Capita's 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, Capita's ability
to sustain operations is dependent on its ability to raise added investment
capital. The Company has taken the following steps during the twelve months
ended December 31, 1999, to improve its liquidity and capital resources:
1. During the twelve months ended December 31, 1999 Capita received cash
proceeds of $417,858 from the sale of common stock.
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2. The Company converted $100,000 of notes payable and $ 31,384 of other
payables into its common stock.
3. The Company issued $297,488 of common stock in consideration of
services rendered, including rent, equipment purchases, etc.
4. In March 1999, Capita entered into a one year agreement with Quaker
Capital Markets Group, Inc. ("Quaker") in its attempt to raise a then
currently estimated $7,500,000. In connection therewith, the Company
paid Quaker $10,000 in cash, $15,000 in common stock and agreed to pay
them a percentage of capital raised. The Company 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 arrangements.
5. In August 1999, the Company 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 the working capital needs of
Capita as it seeks out additional equity financing. On January 27,
2000, the same investor 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, the financial condition of the Company 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, the Company did not incur any impact on its
products, equipment, computer systems and applications as a result of the Year
2000 issue. The Company attributes this to its Year 2000 readiness efforts.
Although the Company 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.
ITEM 8- 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.
<PAGE>
CAPITA RESEARCH GROUP, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
YEARS ENDED
DECEMBER 31, 1999, 1998 AND 1997
<PAGE>
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
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS F-5
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
F-6 - F-21
<PAGE>
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
<PAGE>
CAPITA RESEARCH GROUP, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
ASSETS
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
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
=========== ===========
</TABLE>
See Notes to Consolidated and Combined Financial Statements.
F-2
<PAGE>
CAPITA RESEARCH GROUP, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,1999,1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
(Consolidated) (Consolidated) (Combined)
------------ ------------ ------------
<S> <C> <C> <C>
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
============ ============ ============
</TABLE>
See Notes to Consolidated and Combined Financial Statements.
F-3
<PAGE>
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
<TABLE>
<CAPTION>
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
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
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
========== ========== ========== ========== =========== =========
</TABLE>
F-3A
<PAGE>
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
ADDITIONAL STOCK DURING
PAID-IN SUBSCRIPTION DEVELOPMENT
CAPITAL RECEIVABLE STAGE PERIOD TOTAL
------- ---------- ------------ -----
<S> <C> <C> <C> <C>
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)
---------- ---------- ---------- ----------
alance,
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)
======= =========== =========== =========== ===========
</TABLE>
F-4
<PAGE>
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
<TABLE>
<CAPTION>
1999 1998 1997
(Consolidated) (Consolidated) (Combined)
------------ ------------ -----------
<S> <C> <C> <C>
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 $ -- $ --
=========== =========== ===========
</TABLE>
See Notes to Consolidated and Combined Financial Statements.
F-5
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
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
======== ========
</TABLE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
1999 1998 1997
(Consolidated) (Consolidated) (Combined)
-------------- -------------- ----------
<S> <C> <C> <C>
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
---------- ----------- ---------
$ - $ - $ -
========== =========== =========
</TABLE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31, AMOUNT
------------ ------
<S> <C>
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
=======
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
Price at which Number of Options Vesting
Exercisable Outstanding Term Period
----------- ----------- ---- ------
<S> <C> <C> <C> <C>
Granted to employees $1.38 54,500 10 years 3 Years
===== ====== ======== =======
Granted to Consultants $1.38 10,400 10 years 1 Year
===== ====== ======== ======
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
ITEM 9- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE -
Not applicable.
13
<PAGE>
PART III
ITEM 10- DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16 ( A ) OF THE EXCHANGE ACT
The Executive Officers and Directors of the Company are as follows:
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 35 Vice President and Treasurer
Steven A. Plisinski 27 Chief Financial Officer
Millard E. Tydings, II 41 Secretary and Director
Ralph Anglin 74 Director
14
<PAGE>
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS (Continued)
Brief biographies of the Executive Officers and Directors of the
Company are set forth below. 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 of the Company serve at the will of the Board of Directors.
There are no written employment contracts outstanding.
David B. Hunter, age 45, has been President and Chief Executive Officer since
January 1998. He has been with the Company since 1995 as General Manager and
Director. Mr. Hunter has been responsible for designing, deploying, financing
and marketing the Capita Engagement Testing System(TM) since its inception, and
originated, negotiated and closed the licensing agreement with NASA in 1997.
From 1989 to 1995 Mr. Hunter was an independent money manager. From 1980 to 1989
he was a Vice President successively with regional investment firms Tucker
Anthony & RL Day, Piper Jaffray & Hopwood, and WH Newbolds' Son & Co. 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 the Company 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 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 35, has been Treasurer since November 1998 and with the
Company 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 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.
15
<PAGE>
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS (Continued)
Millard E. Tydings II, age 41, has been a Director of the Company 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 1992-1994. He received a B.A.
from Johns Hopkins University in 1992.
Ralph Anglin, age 74, Director, has been a Director of the Company 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.
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely upon a review of Forms 3, 4 and 5 furnished to the
Company, no director, officer or beneficial owner of ten percent or more of the
Company's common stock failed to file on a timely basis any of the reports
required by Section 16(a) of the Securities Exchange Act of 1934, as amended,
during 1999.
ITEM 11 - EXECUTIVE COMPENSATION
The following table 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 of the Company. No officer or employee of the
Company received calendar 1999 salary and bonus compensation which exceeded
$100,000. Officers currently do not receive any bonuses. Directors do not
receive any type of compensation for attending the board meetings.
<TABLE>
<CAPTION>
Summary Compensation Table
Name and Fiscal Long Term Compensation
Principal Position Year Annual Compensation
------------------ ---- ------------------- ----------------------
Other Annual Restricted Securities
Salary($) Bonus($) Compensation Stock Award(s) Underlying All Other Compensation
($) ($) Options (#) ($)
<S> <C> <C> <C> <C> <C> <C> <C>
David B. Hunter....... 1999 $61,731 -- -- -- -- --
President and
Chief Executive
Officer
1998 $55,385 -- -- -- -- --
1997 $24,000 -- -- -- -- --
</TABLE>
There are no management contracts issued or outstanding to 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.
16
<PAGE>
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICAL OWNERS AND MANAGEMENT
The following table sets forth the number and percentage of shares of
our common stock owned of record and beneficially by each person or entity
owning more than 5% of such shares, each director, our Chief Executive Officer
and all our executive officers and directors, as a group at January 24, 2000.
Under the rules of the Commission, a person is deemed to be a beneficial owner
of a security if such person has or shares the power to dispose of or to direct
the disposition of, or to vote or to direct the voting of, such security. In
general, a person is also deemed to be a beneficial owner of any securities of
which that person has the right to acquire beneficial ownership within 60 days.
================================================================================
Number of
Shares Current
Name Owned Percentage
- --------------------------------------------------------------------------------
David B. Hunter (1) 2,994,727 13.79%
591 Skippack Pike, Suite 300
Blue Bell, PA 19422
- --------------------------------------------------------------------------------
Ralph Anglin (2) (3) 2,815,686 12.97%
111 S. Independence Mall E., Suite 100
Philadelphia, PA 19106
- --------------------------------------------------------------------------------
James R. Salim (4) 2,489,237 10.54%
3510 Turtle Creek Boulevard, #2D
Dallas, TX 75219
- --------------------------------------------------------------------------------
Michael Kline 1,295,432 5.97%
P.O. Box 314
Sharon, CT 06069
- --------------------------------------------------------------------------------
Tomas J. Stenstrom (1) 800,000 3.69%
275 Camp Hill Road
Fort Washington, PA 19034
- --------------------------------------------------------------------------------
Millard E. Tydings, II (1) 100,000 0.46%
2705 Pocock Road
Monkton, MD 21111
- --------------------------------------------------------------------------------
SoundShore Holdings Ltd. (5) 2,000,250 8.68%
c/o AIG International Management
Company, Inc.
1281 East Main Street
Stamford, Connecticut 06902
- --------------------------------------------------------------------------------
All Executive Officers and 7,030,413 32.39%
Directors as a Group
================================================================================
(1) Officer and Director.
(2) Director only.
(3) Included in Mr. Anglin's shareholdings are 76,010 shares owned by his
profit-sharing plan and 902,000 shares owned by his personal IRA.
(4) Included in Mr. Salim's shareholdings are 1,600,000 shares issuable
upon the conversion of his convertible promissory note and 300,000
shares issuable upon the exercise of his warrants.
(5) Included in SoundShore Holdings Ltd.'s shareholdings are 1,333,500
shares issuable upon the exercise of its warrants.
17
<PAGE>
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In October of 1996, Media Solutions, a predecessor of the Company,
entered into a $100,000 bridge loan agreement with Margaret W. Long, one of its
shareholders. Under the terms of the agreement, the company utilized borrowed
funds to satisfy near term working capital obligations. Management believed that
repayment would come both from anticipated system sales and from proceeds of an
offering of equity securities to outside investors. This loan was converted by
mutual agreement into common stock, including all accrued interest, in July
1999, at the rate of $.25 per share, retiring the loan to Ms. Long in its
entirety.
During 1999, we issued 191,340 shares of common stock at $.25 per share
to William Hummel, a former Director, as prepaid rent on office space that we
lease and office equipment.
In January 1999, we issued 84,000 shares of common stock at $ .25 per
share to Ralph Anglin, a Director, in return for various office furniture and
fixtures at a fair market value of $21,000. In December 1999, Mr. Anglin loaned
us $24,167 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 a non-recourse note 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 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.
18
<PAGE>
PART IV
ITEM 14- EXHIBITS AND REPORTS ON FORM 8-K
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 10SB).
4(a) Capita Research Group, Inc. 1999 Stock Option Plan (Incorporated by
reference to Exhibit 4(a) to the Company's Registration Statement on
Form SB-2 (file No. 333-30116)).
4(b) Warrants dated August 5, 1999 granted to Jim Salim (Incorporated by
reference to Exhibit 4(b) to the Company's Registration Statement on
Form SB-2 (file No. 333-30116)).
4(c) Form of A Warrant (Incorporated by reference to Exhibit 4(c) to the
Company's Registration Statement on Form SB-2 (file No. 333-30116)).
4(d) Form of B Warrant (Incorporated by reference to Exhibit 4(d) to the
Company's Registration Statement on Form SB-2 (file No. 333-30116)).
10(a) NASA License Agreement (Incorporated by reference to Exhibit 10(c) to
the Company's Registration Statement on Form 10SB).
10(b) Modification No. 1 to NASA License Agreement (Incorporated by reference
to Exhibit 10(b) to the Company's Registration Statement on Form SB-2
(file No. 333-30116)).
10(c) Modification No. 2 to NASA License Agreement (Incorporated by reference
to Exhibit 10(c) to the Company's Registration Statement on Form SB-2
(file No. 333-30116)).
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(Incorporated by reference to Exhibit 10(e) to the Company's
Registration Statement on Form SB-2 (file No. 333-30116)).
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. (Incorporated by
reference to Exhibit 10(f) to the Company's Registration Statement on
Form SB-2 (file No. 333-30116)).
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 (Incorporated by reference to
Exhibit 10(g) to the Company's Registration Statement on Form SB-2
(file No. 333-30116)).
10(h) Securities Purchase Agreement dated as of March 6, 2000 between the
Company and David G. Sandelovsky (Incorporated by reference to Exhibit
10(h) to the Company's Registration Statement on Form SB-2 (file No.
333-30116)).
10(i) Securities Purchase Agreement dated as of March 9, 2000 between the
Company and Dwight Nelson (Incorporated by reference to Exhibit 10(i)
to the Company's Registration Statement on Form SB-2 (file No.
333-30116)).
10(j) Registration Rights Agreement dated August 5, 1999 between the Company
and Jim Salim (Incorporated by reference to Exhibit 10(j) to the
Company's Registration Statement on Form SB-2 (file No. 333-30116)).
19
<PAGE>
10(k) 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. (Incorporated by
reference to Exhibit 10(k) to the Company's Registration Statement on
Form SB-2 (file No. 333-30116)).
10(l) 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 (Incorporated by reference to
Exhibit 10(l) to the Company's Registration Statement on Form SB-2
(file No. 333-30116)).
10(m) Registration Rights Agreement dated as of March 6, 2000 between the
Company and David G. Sandelovsky (Incorporated by reference to Exhibit
10(m) to the Company's Registration Statement on Form SB-2 (file No.
333-30116)).
10(n) Registration Rights Agreement dated as of March 9, 2000 between the
Company and Dwight Nelson (Incorporated by reference to Exhibit 10(n)
to the Company's Registration Statement on Form SB-2 (file No.
333-30116)).
a. The Company did not file any reports on Form 8-K during the quarter
ended December 31, 1999.
20
<PAGE>
SIGNATURES
In accordance with Section 13 or 15 (d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CAPITA RESEARCH GROUP, INC.
By:/s/David B. Hunter
------------------------------
David B. Hunter
President & Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant in the capacities and on the dates
indicated.
Signatures Titles Date
By:/s/David B. Hunter Mar. 29, 2000
- --------------------- -------------
David B. Hunter President, Chief Executive
Officer and Director
By:/s/Tomas J. Stenstrom Mar. 29, 2000
- ------------------------ -------------
Tomas J. Stenstrom Executive Vice President,
Chief Technology Officer and
Director
By:/s/Steven A. Plisinski Mar. 29, 2000
- ------------------------- -------------
Steven A. Plisinski Chief Financial Officer
By:/s/Millard E. Tydings, II Mar. 29, 2000
- ---------------------------- -------------
Millard E. Tydings, II Secretary and Director
By:/s/Ralph Anglin Mar. 29, 2000
- ------------------ -------------
Ralph Anglin Director
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