<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 DECEMBER 31, 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
<TABLE>
<S> <C>
PART I - FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . 3
Item 1. Condensed Consolidated Financial Statements . . . . . . . . . . 3
Condensed Consolidated Balance Sheets as of
December 31, 1995 and June 30, 1995 . . . . . . . . . . . . 3
Condensed Consolidated Statements of Operations for the
three and six months ended December 31, 1995 and
the three and six months ended December 31, 1994 . . . . . . 4
Condensed Consolidated Statements of Cash Flows for
the six months ended December 31, 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. . . . . . . . . . . . . . . . . . . . . . . . 10
Item 2. Changes in Securities. . . . . . . . . . . . . . . . . . . . . . 10
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . . . . . . 10
Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . 10
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . . . . 10
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . 10
</TABLE>
(2)
<PAGE> 3
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
December 31, June 30,
1995 1995
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<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 2,919 $ 227,818
Accounts receivable 49,512 49,441
Prepaid expenses and other 26,221 44,167
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TOTAL CURRENT ASSETS 78,652 321,426
EQUIPMENT, net of accumulated depreciation of $63,145 and $52,227
at December 31, 1995 and June 30, 1995, respectively 34,720 41,306
------------ ------------
TOTAL ASSETS $ 113,372 $ 362,732
============ ============
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
Shareholder advance payable $ 1,400,000 $ 1,400,000
Short-term borrowings 194,285 878,513
Accounts payable 414,258 371,160
Related-party payable 7,975 13,445
Accrued liabilities 519,216 319,873
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TOTAL CURRENT LIABILITIES 2,535,734 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
December 31, 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 107,194 30,349
Accumulated deficit (4,372,984) (3,629,036)
------------ ------------
TOTAL SHAREHOLDERS' DEFICIT (2,422,362) (2,620,259)
------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' DEFICIT $ 113,372 $ 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 SIX SIX
MONTHS MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1995 1994
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<S> <C> <C> <C> <C>
REVENUES $ 12,483 $ 658,356 $ 87,463 $ 827,994
EXPENSES
Cost of revenues 12,483 175,550 54,547 217,210
Selling, general and
administrative and other 92,988 156,289 176,332 299,995
Research and development 294,233 357,370 603,303 673,178
------------ ------------ ------------ ------------
TOTAL EXPENSES 399,704 689,209 834,182 1,190,383
------------ ------------ ------------ ------------
OPERATING LOSS (387,221) (30,853) (746,719) (362,389)
NONOPERATING INCOME
Interest income 2,771 626 2,771 626
------------ ------------ ------------ ------------
NET LOSS $ (384,450) $ (30,227) $ (743,948) $ (361,763)
============ ============ ============ ============
LOSS PER COMMON SHARE $ (0.03) $ 0.00 $ (0.05) $ (0.03)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING
13,885,000 12,722,000 13,725,000 12,297,000
============ ============ ============ ============
</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>
SIX MONTHS SIX MONTHS
ENDED ENDED
DECEMBER 31, DECEMBER 31,
1995 1994
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (743,948) $ (361,763)
Adjustments to reconcile net loss to net
cash used in operating activities 284,568 (120,323)
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NET CASH USED IN
OPERATING ACTIVITIES (459,380) (482,086)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of equipment, net (6,732) (4,524)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from (repayments of) borrowings, net (666,400) 568,500
Issuance of common stock 865,000 39,722
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NET CASH PROVIDED
BY FINANCING ACTIVITIES 198,600 608,222
EFFECT OF EXCHANGE RATE CHANGES 42,613 83,853
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NET INCREASE (DECREASE) IN CASH (224,899) 205,465
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 227,818 10,146
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,919 $ 215,611
============ ============
</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 December 31, 1995, the results
of its operations for the three and six month periods ended December
31, 1995 and 1994, and its cash flows for the six month periods
ended December 31, 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 December 31, 1995 are
not necessarily indicative of the operating results for the fiscal
year ended June 30, 1996.
NOTE 2 - SHAREHOLDERS' EQUITY
During the six months ended December 31, 1995, shareholders' deficit
decreased approximately $198,000. Net loss for the period was
$743,948. The cumulative translation adjustment increased by
approximately $77,000. During the six months ended December 31,
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 period, $640,000 was collected on the notes. As
of December 31, 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
the 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.
NOTE 4 - RELATED-PARTY TRANSACTIONS
Approximately $5,000 of related-party payable was paid 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 December 31, 1995 there was an accumulated deficit
of approximately $4,373,000. 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 December 31, 1995 and 1994 were approximately $12,000 and
$658,000, respectively, and revenues during the six month periods ended
December 31, 1995 and 1994 were approximately $87,000 and $828,000,
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 and, in the periods ended on December 31, 1994,
from chip sales in connection with product development. 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 December 31, 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.
(7)
<PAGE> 8
The Company's revenues for the three and six month periods ended December 31,
1995 decreased approximately 98% and 89%, respectively, compared to the same
periods in 1994. These decreases were largely attributable to a decrease in
fees from development arrangements and the absence of chip sales during the
periods ended on December 31, 1995.
COST OF REVENUES
Cost of revenues for the three month periods ended December 31, 1995 and 1994
were approximately $12,000 and $176,000, respectively, and for the six-month
periods ended December 31, 1995 and 1994 were approximately $55,000 and
$217,000, respectively. As a percentage of revenues, cost of revenues were
approximately 100% and 27% in the three month periods ended December 31, 1995
and 1994, respectively, and were approximately 62% and 26% in the six month
periods ended December 31, 1995 and 1994, respectively. The cost of revenues
fluctuations are due to variations in gross margins as between chip sales,
support services and development services.
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 December
31, 1995 and 1994, research and development expenses were approximately
$294,000 and $357,000, respectively, and for the six month periods ended
December 31, 1995 and 1994, research and development expenses were
approximately $603,000 and $673,000, respectively. As a percentage of
revenues, research and development expenses were approximately 2357% and 54% in
the three month periods ended December 31, 1995 and 1994, respectively, and
approximately 690% and 81% in the six month periods ended December 31, 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
$93,000 and $156,000 for the three-month periods ended December 31, 1995 and
1994, respectively, and approximately $176,000 and $300,000 for the six-month
periods ended December 31, 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 40% lower in the three month period
ended December 31, 1995 and approximately 41% lower in the six month period
ended December 31, 1995 than the same periods ended in 1994 because of costs
associated with the recapitalization of MSU Corporation by MSU Plc. and 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 six month period ended December 31, 1995,
cash used in operating activities of approximately $459,000 was primarily
attributable to the Company's net loss for the period. Cash used in investing
activities of approximately $7,000 during such period related primarily to
acquisition of electronics equipment. Cash flows from financing activities of
approximately $199,000 during such period were primarily attributable to
aggregate net proceeds of approximately $865,000 from private sales of common
stock offset by net repayments of borrowings of approximately $666,000.
(8)
<PAGE> 9
At December 31, 1995, the Company's principal source of liquidity was
approximately $3,000 in cash.
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.
(9)
<PAGE> 10
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.
27.2 Financial Data Schedule
(10)
<PAGE> 11
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
------------------- ---------------------------------------
KEITH HALL, President
(Principal Financial and Accounting
Officer)
(11)
<PAGE> 12
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27.2 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
DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT
ON FORM 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 2,919
<SECURITIES> 0
<RECEIVABLES> 49,512
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 78,652
<PP&E> 97,865
<DEPRECIATION> 63,145
<TOTAL-ASSETS> 113,372
<CURRENT-LIABILITIES> 2,535,734
<BONDS> 0
0
0
<COMMON> 138,847
<OTHER-SE> (2,561,209)
<TOTAL-LIABILITY-AND-EQUITY> 113,372
<SALES> 87,463
<TOTAL-REVENUES> 90,234
<CGS> 54,547
<TOTAL-COSTS> 834,182
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (743,948)
<INCOME-TAX> 0
<INCOME-CONTINUING> (743,948)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (743,948)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
