<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(MARK ONE)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________________ TO ________________
Commission File Number: 33-28622-A
MSU CORPORATION (FORMERLY CAPITAL ACQUISITION COMPANY)
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(Exact name of Registrant as specified in its charter)
FLORIDA 22-274288
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(State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
ELDER HOUSE, 526-528 ELDER GATE, CENTRAL MILTON KEYNES, MK91LR, ENGLAND
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(Address of principal executive offices)
011441908232100
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(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such report(s), and (2) has been subject to
such filing requirements for the past 90 days. Yes [ ] No [ X ]
The number of shares of common stock of the Registrant outstanding as of
October 9, 1996 was 15,509,722 according to the Company's transfer agent. The
Company's internal records indicate that there were 15,534,722 shares of its
common stock outstanding as of October 9, 1996. After significant due
diligence, the Company has been unable to account for the 25,000 share
discrepancy.
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FORM 10-Q INDEX
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PART I - FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . 3
Item 1. Condensed Consolidated Financial Statements . . . . . . . . . . 3
Condensed Consolidated Balance Sheets as of
September 30, 1995 and June 30, 1995 . . . . . . . . . . . 3
Condensed Consolidated Statements of Operations for the
three months ended September 30, 1995 and and 1994 . . . . . 4
Condensed Consolidated Statements of Cash Flows for the
three months ended September 30, 1995 and 1994 . . . . . . . 5
Notes to Condensed Consolidated Financial Statements . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . . 7
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . 9
Item 2. Changes in Securities. . . . . . . . . . . . . . . . . . . . . . 9
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . . . . . . 9
Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . 9
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . . . . 9
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . 9
</TABLE>
(2)
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PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MSU CORPORATION (FORMERLY CAPITAL ACQUISITION COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS
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(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
September 30, June 30,
1995 1995
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<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 185 $ 227,818
Accounts receivable 49,460 49,441
Prepaid expenses and other 446,974 44,167
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TOTAL CURRENT ASSETS 496,619 321,426
EQUIPMENT, net of accumulated depreciation of $57,863 and
$52,227 at September 30, 1995 and June 30, 1995, respectively 37,574 41,306
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TOTAL ASSETS $ 534,193 $ 362,732
============ ============
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
Shareholder advance payable $ 1,400,000 $ 1,400,000
Short-term borrowings 345,173 878,513
Accounts payable 441,242 371,160
Accrued and other liabilities 445,255 333,318
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TOTAL CURRENT LIABILITIES 2,631,670 2,982,991
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' DEFICIT
Common stock, $0.01 par value; 50,000,000 shares authorized;
13,884,722 and 12,934,722 shares issued and outstanding at
September 30, 1995 and June 30, 1995, respectively 138,847 129,347
Additional paid-in capital 1,917,081 1,074,081
Stock subscriptions receivable (212,500) (225,000)
Cumulative translation adjustments 47,629 30,349
Accumulated deficit (3,988,534) (3,629,036)
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TOTAL SHAREHOLDERS' DEFICIT (2,097,477) (2,620,259)
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TOTAL LIABILITIES AND
SHAREHOLDERS' DEFICIT $ 534,193 $ 362,732
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
(3)
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MSU CORPORATION (FORMERLY CAPITAL ACQUISITION COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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(UNAUDITED)
<TABLE>
<CAPTION>
THREE THREE
MONTHS MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1995 1994
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<S> <C> <C>
REVENUES $ 74,980 $ 169,639
EXPENSES
Cost of revenues 42,064 41,660
Selling, general and administrative and other 83,344 143,706
Research and development 309,070 315,809
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TOTAL EXPENSES 434,478 501,175
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OPERATING LOSS (359,498) (331,536)
NONOPERATING INCOME -- --
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NET LOSS $ (359,498) $ (331,536)
============ ============
LOSS PER COMMON SHARE $ (0.03) $ (0.03)
============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 13,565,000 11,871,000
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
(4)
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MSU CORPORATION (FORMERLY CAPITAL ACQUISITION COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1995 1994
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (359,498) $ (331,536)
Adjustments to reconcile net loss to net
cash used in operating activities (207,171) 196,056
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NET CASH USED IN
OPERATING ACTIVITIES (566,669) (235,480)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of equipment, net (2,463) (4,413)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from (repayments of) borrowings, net (521,134) 266,748
Issuance of common stock 865,000 39,722
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NET CASH PROVIDED
BY FINANCING ACTIVITIES 343,866 306,470
EFFECT OF EXCHANGE RATE CHANGES (2,367) 659
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NET INCREASE (DECREASE) IN CASH (227,633) 67,236
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 227,818 10,146
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 185 $ 77,382
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
(5)
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MSU CORPORATION (FORMERLY CAPITAL ACQUISITION COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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NOTE 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all normal recurring
adjustments necessary to present fairly the financial position of
MSU Corporation and Subsidiaries at September 30, 1995 and the
results of its operations and cash flows for the three month periods
ended September 30, 1995 and 1994.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These
condensed financial statements should be read in conjunction with
the Company's annual report on Form 10-K for the fiscal year ended
June 30, 1995. This quarterly report on Form 10-Q was filed with
the Securities and Exchange Commission on November 29, 1996 and,
accordingly, should also be read in conjunction with the Company's
annual report on Form 10-K for the fiscal year ended June 30, 1996.
The results of operations for the period ended September 30, 1995
are not necessarily indicative of the operating results for the
fiscal year ended June 30, 1996.
NOTE 2 - SHAREHOLDERS' EQUITY
During the three months ended September 30, 1995, shareholders'
deficit decreased approximately $523,000. Net loss for the period
was $359,498. The cumulative translation adjustment increased by
approximately $17,000. During the quarter ended September 30, 1995,
the Company issued 950,000 shares of its common stock for three
noninterest-bearing promissory notes in the aggregate principal
amount of $1,297,500 due December 31, 1995. During such quarter,
$640,000 was collected on the notes. As of September 30, 1995,
$212,500, relating to the notes, was recorded as a stock
subscription receivable, which $212,500 was subsequently collected.
The $445,000 balance due on the notes was not collected as of the
date this Form 10-Q was filed and was charged to additional paid in
capital. The Company also collected $225,000 of stock subscriptions
that were receivable as of June 30, 1995.
NOTE 3 - LOSS PER COMMON SHARE
Loss per common share is computed based upon the weighted average
number of shares outstanding during the period.
(6)
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW OF BUSINESS OPERATIONS AND SIGNIFICANT RISKS
On October 3, 1994, MSU Corporation, formerly Capital Acquisition Company,
acquired the outstanding capital stock of MSU Plc., a private company based in
the United Kingdom, which owns all of the capital stock of MSU (UK) Limited
(MSU PLC and MSU (UK) Limited together referred to as 'MSU') through the
issuance of 9,422,222 shares of its common stock. This transaction has been
accounted for as a recapitalization of MSU, with MSU as the acquirer (a reverse
acquisition) and, accordingly, the historical consolidated financial statements
through the date of the transaction are those of MSU. Shareholders' equity
reflects the equivalent number of common shares received in the
recapitalization and all references in the financial statements with regard to
number of shares of common stock have been restated to give retroactive effect
to the transaction.
The Company operates primarily through MSU (UK) Limited, which is engaged in
the design and development of computer chips and chipsets for use in consumer
electronic products.
The consolidated financial statements include the accounts of MSU Corporation,
MSU Plc. and MSU (UK) Limited (collectively the "Company"). All significant
intercompany accounts have been eliminated in the consolidated financial
statements.
The Company's consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company has incurred
losses since inception. At September 30, 1995, there was an accumulated
deficit of approximately $3,989,000. Additionally, the Company has had
recurring negative cash flows from operations. These factors raise substantial
doubt about the Company's ability to achieve profitability and/or to continue
as a going concern.
RESULTS OF OPERATIONS
REVENUES
The Company has no customers to date that frequently and systematically
purchase its products or retain its services. Revenues during the three month
periods ended September 30, 1995 and 1994 were approximately $75,000 and
$170,000, respectively. These revenues were derived principally through
development arrangements in which the Company performed engineering and design
work for its customers for a development fee. Typically, the Company's
development arrangements also provide for royalty and/or license fees to be
paid to the Company if the customer sells products developed in conjunction
with the Company and/or incorporating the Company's proprietary technology. To
date, none of these arrangements have resulted in royalty or license fee
revenue to the Company. The Company could be materially adversely affected if
its customers fail to manufacture, market and sell products developed in
conjunction with the Company.
During the quarter ended September 30, 1995, the Company's revenues were
concentrated in a small number of customers. The loss of any one customer
could have a material adverse effect on the Company's business.
The Company's revenues for the three month period ended September 30, 1995
decreased approximately 56% compared to the same period in 1994. This decrease
was largely attributable to a decrease in fees from development arrangements.
COST OF REVENUES
Cost of revenues for the three month periods ended September 30, 1995 and 1994
were approximately $42,000 and $42,000, respectively. As a percentage of
revenues, cost of revenues were approximately 56% and 25% in the three month
periods ended September 30, 1995 and 1994, respectively. The cost of revenues
fluctuations are due to variations in gross margins as between support services
and development services.
(7)
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RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses generally consist of expenditures related to
the Company's independent development of its chips and prototype products and
specific research and development performed pursuant to development
arrangements with third parties. For the three month periods ended September
30, 1995 and 1994, research and development expenses were approximately
$309,000 and $316,000, respectively. As a percentage of revenues, research and
development expenses were approximately 410% and 186% in the three month
periods ended September 30, 1995 and 1994, respectively. The fluctuations from
period to period reflect the varying demands for research and development which
are dictated by technological changes and the need for the Company's products
to remain competitive and commercially viable, and the requirements of the
Company's customers.
SELLING, GENERAL AND ADMINISTRATIVE AND OTHER EXPENSES
Selling, general and administrative and other expenses were approximately
$83,000 and $144,000 for the three month periods ended September 30, 1995 and
1994, respectively. Selling, general and administrative and other expenses
principally consist of advertising and promotional costs, which are charged to
operations as incurred; telephone, rent and occupancy costs; professional fees;
interest; and depreciation. This category of expenses was approximately 42%
lower in the three-month period ended September 30, 1995 compared to the same
period ended in 1994 because of costs associated with the recapitalization of
MSU Plc. by MSU (UK) Limited.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations almost exclusively through private
sales of equity securities. For the three month period ended September 30,
1995, cash used in operating activities of approximately $567,000 was primarily
attributable to the Company's net loss for the period. Cash used in investing
activities of approximately $2,400 during such period related primarily to
acquisition of electronics equipment. Cash flows from financing activities of
$344,000 during such period were primarily attributable to aggregate net
proceeds of $865,000 from private sales of common stock offset by net
repayments of borrowings of approximately $521,000.
At September 30, 1995, the Company's principal source of liquidity was
approximately $50,000 in cash and accounts receivable.
The Company believes that cash on hand and cash flows expected to be generated
by operations will be insufficient to meet its anticipated cash needs for
working capital and capital expenditures for the remainder of fiscal 1996. To
satisfy the balance of its liquidity requirements, the Company will attempt to
sell additional equity or debt securities and/or obtain additional bank credit,
to the extent the Company is able to do so, for which there can be no
assurance. The sale of additional equity or convertible debt securities will
result in additional dilution to the Company's stockholders. There can be no
assurance that the Company's liquidity requirements will be met or that the
Company will be able to continue as a going concern.
FINANCIAL CONDITION AT AND RESULTS OF OPERATIONS FOR 1996
This amended quarterly report on Form 10-Q was filed with the Securities and
Exchange Commission on November 29, 1996 and, accordingly, should be read in
conjunction with the annual report of MSU Corporation (formerly Capital
Acquisition Company) and Subsidiaries on Form 10-K for the fiscal year ended
June 30, 1996.
(8)
<PAGE> 9
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
27.1 Financial Data Schedule.
(9)
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MSU CORPORATION
(Registrant)
Date: November 27, 1996 /s/ Keith Hall
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KEITH HALL, President
(Principal Financial and Accounting
Officer)
(10)
<PAGE> 11
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
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<S> <C>
27.1 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AND THE CONDENSED CONSOLIDATED STATEMENT OF
INCOME FILED AS PART OF THE QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED
SEPTEMBER 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT
ON FORM 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 185
<SECURITIES> 0
<RECEIVABLES> 49,460
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 496,619
<PP&E> 95,437
<DEPRECIATION> 57,863
<TOTAL-ASSETS> 534,193
<CURRENT-LIABILITIES> 2,631,670
<BONDS> 0
0
0
<COMMON> 138,847
<OTHER-SE> (2,236,324)
<TOTAL-LIABILITY-AND-EQUITY> 534,193
<SALES> 74,980
<TOTAL-REVENUES> 74,980
<CGS> 42,064
<TOTAL-COSTS> 434,478
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (359,498)
<INCOME-TAX> 0
<INCOME-CONTINUING> (359,498)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (359,498)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
