<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 MARCH 31, 1996
[ ] 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)
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
FLORIDA 22-274288
- ---------------------------- ------------------------------
(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
- --------------------------------------------------------------------------------
(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
March 31, 1996 and June 30, 1995 . . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Operations for the
three and nine months ended March 31, 1996 and
the three and nine months ended March 31, 1995 . . . . . . . 4
Condensed Consolidated Statements of Cash Flows for the
nine months ended March 31, 1996 and 1995 . . . . . . . . . 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
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
March 31, 1996 June 30, 1995
--------------- ---------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 178,418 $ 227,818
Accounts receivable 58,853 49,441
Prepaid expenses and other 122,796 44,167
--------------- ---------------
TOTAL CURRENT ASSETS 360,067 321,426
EQUIPMENT, net of accumulated depreciation of $69,143 and $52,227 33,338 41,306
at March 31, 1996 and June 30, 1995, respectively
--------------- ---------------
TOTAL ASSETS $ 393,405 $ 362,732
=============== ===============
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
Shareholder advance payable $ 1,400,000 $ 1,400,000
Short-term borrowings -- 878,513
Accounts payable 247,296 371,160
Accrued and other liabilities 248,494 333,318
--------------- ---------------
TOTAL CURRENT LIABILITIES 1,895,790 2,982,991
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' DEFICIT
Common stock, $0.01 par value; 50,000,000 shares authorized;
15,534,722 and 12,934,722 shares issued and outstanding at
March 31, 1996 and June 30, 1995, respectively 155,347 129,347
Additional paid-in capital 2,984,081 1,074,081
Stock subscriptions receivable -- (225,000)
Cumulative translation adjustments 141,029 30,349
Accumulated deficit (4,782,842) (3,629,036)
--------------- ---------------
TOTAL SHAREHOLDERS' DEFICIT (1,502,385) (2,620,259)
--------------- ---------------
TOTAL LIABILITIES AND
SHAREHOLDERS' DEFICIT $ 393,405 $ 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
(UNAUDITED)
<TABLE>
<CAPTION>
THREE THREE NINE NINE
MONTHS MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES $ 77,885 $ 329,513 $ 165,348 $ 1,157,508
EXPENSES
Cost of revenues 2,337 130,604 56,884 347,813
Selling, general and
administrative and other 174,241 108,050 350,572 408,047
Research and development 311,165 323,792 914,469 996,970
------------ ------------ ------------ ------------
TOTAL EXPENSES 487,743 562,446 1,321,925 1,752,830
------------ ------------ ------------ ------------
OPERATING LOSS (409,858) (232,933) (1,156,577) (595,322)
NONOPERATING INCOME
Interest income -- -- 2,771 626
------------ ------------ ------------ ------------
NET LOSS $ (409,858) $ (232,933) $ (1,153,806) $ (594,696)
============ ============ ============ ============
LOSS PER COMMON SHARE $ (0.03) $ (0.02) $ (0.08) $ (0.05)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
14,991,000 12,722,000 14,144,000 12,436,000
============ ============ ============ ============
</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
(UNAUDITED)
<TABLE>
<CAPTION>
NINE NINE
MONTHS MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
1996 1995
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (1,153,806) $ (594,696)
Adjustments to reconcile net loss to net
cash used in operating activities (234,677) (88,508)
------------ ------------
NET CASH USED IN
OPERATING ACTIVITIES (1,388,483) (683,204)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of equipment, net (13,413) (6,627)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from (repayments of) borrowings, net (861,938) 607,642
Issuance of common stock 2,139,500 39,722
------------ ------------
NET CASH PROVIDED
BY FINANCING ACTIVITIES 1,277,562 647,364
EFFECT OF EXCHANGE RATE CHANGES 74,934 172,867
------------ ------------
NET INCREASE (DECREASE) IN CASH (49,400) 130,400
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 227,818 10,146
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 178,418 $ 140,546
============ ============
</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
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 March 31, 1996, the results of
its operations for the three and nine month periods ended March 31,
1996 and 1995, and its cash flows for the nine month periods ended
March 31, 1996 and 1995.
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 March 31, 1996 are
not necessarily indicative of the operating results for the fiscal
year ended June 30, 1996.
NOTE 2 - SHAREHOLDERS' EQUITY
During the nine-months ended March 31, 1996, shareholders' deficit
decreased approximately $1,118,000. Net loss for the period was
$1,153,806. The cumulative translation adjustment increased by
approximately $111,000. The Company issued in private transactions
an aggregate of 2,600,000 shares of its common stock in exchange for
proceeds of $2,359,500. Of this amount $1,297,500 was received in
the form of notes receivable, which were originally recorded as
stock subscriptions receivable, reducing shareholders' equity.
Subsequent collections on the notes receivable amounted to $852,500.
The $445,000 balance of the notes receivable has not been collected
and the notes are in default. As a result, the balance of the notes
representing stock subscriptions have been charged to additional
paid in capital.
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 March 31, 1996, there was an accumulated deficit of
approximately $4,783,000. 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 March 31, 1996 and 1995 were approximately $78,000 and $330,000,
respectively; and revenues during the nine month periods ended March 31, 1996
and 1995 were approximately $165,000 and $1,158,000, 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 March 31, 1995, 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 March 31, 1996, 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 and nine month periods ended March 31,
1996 decreased
(7)
<PAGE> 8
approximately 76% and 86%, respectively, compared to the same periods in 1995.
These decreases were largely attributable to a decrease in fees from
development arrangements and the absence of chip sales during the periods ended
on March 31, 1996.
COST OF REVENUES
Cost of revenues for the three month periods ended March 31, 1996 and 1995 were
approximately $2,000 and $131,000, respectively, and for the nine month periods
ended March 31, 1996 and 1995 were approximately $57,000 and $348,000,
respectively. As a percentage of revenues, cost of revenues were approximately
3% and 40% in the three month periods ended March 31, 1996 and 1995,
respectively, and were approximately 34% and 30% in the nine month periods
ended March 31, 1996 and 1995, 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 March 31,
1996 and 1995, research and development expenses were approximately $311,000
and $324,000, respectively, and for the nine month periods ended March 31, 1996
and 1995, research and development expenses were approximately $914,000 and
$997,000, respectively. As a percentage of revenues, research and development
expenses were approximately 400% and 98% in the three month periods ended March
31, 1996 and 1995, respectively, and were approximately 553% and 86% in the
nine month periods ended March 31, 1996 and 1995, 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
$174,000 and $108,000 for the three month periods ended March 31, 1996 and
1995, respectively, and approximately $351,000 and $408,000 for the nine month
periods ended March 31, 1996 and 1995, 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 61% higher in the three month period
ended March 31, 1996 compared to the same period in 1995 because of
professional fees relating to the preparation of delinquent Exchange Act
periodic reports, and was approximately 16% lower in the nine month period
ended March 31, 1996 compared to the same period in 1995 because of personnel
and overhead expense reductions.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations almost exclusively through private
sales of equity securities. For the nine month period ended March 31, 1996,
cash used in operating activities of approximately $1,388,000 was primarily
attributable to the Company's net loss for the period. Cash used in investing
activities of approximately $13,000 during such period related primarily to
acquisition of electronics equipment. Cash flows from financing activities of
approximately $1,278,000 during such period were primarily attributable to
aggregate net proceeds of approximately $2,140,000 from private sales of common
stock and net repayments of borrowings of approximately $862,000.
(8)
<PAGE> 9
At March 31, 1996, the Company's principal source of liquidity was
approximately $178,000 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 credit
facilities, 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.
27.3 Financial Data Schedule
(10)
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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
------------------ --------------------------------------
KEITH HALL, President
(Principal Financial and Accounting
Officer)
(11)
<PAGE> 12
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27.3 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 MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
REPORT ON FORM 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 178,418
<SECURITIES> 0
<RECEIVABLES> 58,853
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 360,067
<PP&E> 102,481
<DEPRECIATION> 69,143
<TOTAL-ASSETS> 393,405
<CURRENT-LIABILITIES> 1,895,790
<BONDS> 0
0
0
<COMMON> 155,347
<OTHER-SE> (1,657,732)
<TOTAL-LIABILITY-AND-EQUITY> 393,405
<SALES> 165,348
<TOTAL-REVENUES> 168,119
<CGS> 56,884
<TOTAL-COSTS> 1,321,925
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,153,806)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,153,806)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,153,806)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
