MSU CORP, S-1, 2000-08-04

MSU CORP
S-1, 2000-08-04
SEMICONDUCTORS & RELATED DEVICES

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As Filed with the Securities and Exchange Commission on August 4, 2000.
Registration No.:
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
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MSU CORPORATION
(Exact Name of Registrant as Specified in its Charter)

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<CAPTION>
<S> <C> <C>
Florida 6770 22-274288
(State or Other Jurisdiction (Primary Standard (I.R.S. Employer
Of Incorporation or Industrial Classification Identification No.)
Organization) Code Number)
</TABLE>

Elder House, 526-528 Eldergate, Central Milton Keynes, MK9 1LR, England
011 44 1908 232100
(Address, Including Zip Code, and Telephone Number,
Including Area Code, Registrant's Principal Executive Offices)

Darran H. Evans
Elder House, 526-528 Eldergate, Central Milton Keynes, MK9 1LR, England
011 44 1908 232100
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, Of Agent for Service)

Copies To:
Gerald A. Adler, Esq.
Mary P. O'Hara, Esq.
Bondy & Schloss LLP
6 East 43rd Street
New York, NY 10017
Phone: (212) 661-3535
Fax: (212) 972-1677

Approximate Date of Commencement of Proposed Sale to the Public: As soon
as practicable after this Registration Statement becomes effective.

If any of the securities being registered on the form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/

If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /

If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
---------------------
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with section 8(a) of
the securities act of 1933 or until the registration statement shall become
effective on such date as the commission, acting pursuant to said section 8(a),
may determine.
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CALCULATION OF REGISTRATION FEE

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<S> <C> <C> <C> <C>
Proposed Proposed
Dollar Maximum Maximum Amount of
Title of Each Class of Securities Amount to be Offering Price Aggregate Registration
to be Registered Registered Per Share(1) Offering Price(1) Fee(2)
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Common Stock, par value $.01 ...... 75,000 Shares $ 2.00 150,000 40
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Common Stock, par value $.01 ...... 3,370,000 Shares $ 1.00 3,370,000 890
-------------------------------------------------------------------------------------------------------------
Common Stock, par value $.01 ...... 23,250 Shares $ 3.00 69,750 18
-------------------------------------------------------------------------------------------------------------
Common Stock, par value $.01(3) ... 168,333 Shares $ 3.00 504,999 133
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Common Stock, par value $.01(4) ... 250,000 Shares $ 3.00 750,000 198
-------------------------------------------------------------------------------------------------------------
Common Stock, par value $.01(5) ... 45,833 Shares $ 1.50 68,749 18
-------------------------------------------------------------------------------------------------------------
Common Stock, par value $.01(6) ... 1,000,000 Shares $ 0.50 500,000 132
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Common Stock, par value $.01(7) ... 301,000 Shares $ 3.38 1,017,380 269
-------------------------------------------------------------------------------------------------------------
Common Stock, par value $.01(7) ... 60,000 Shares $ 3.13 187,500 50
-------------------------------------------------------------------------------------------------------------
Common Stock, par value $.01(7) ... 347,500 Shares $ 2.50 868,750 229
-------------------------------------------------------------------------------------------------------------
Common Stock, par value $.01(8) ... 300,000 Shares $ 3.00 900,000 238
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Common Stock, par value $.01(9) ... 3,397,900 Shares $ 3.00 10,193,700 2,691
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Total ................................................................. $18,580,828 $4,906
=============================================================================================================
</TABLE>

-------------------
(1) Estimated solely for the purpose of computing the amount of the
registration fee. The estimate is made pursuant to Rule 357(i) of the
Securities Act of 1933, as amended.

(2) Estimated solely for the purpose of calculating the registration fee.

(3) Represents Common Stock reserved for issuance upon conversion of 8% and 6%
Convertible Promissory Notes.

(4) Represents Common Stock reserved for issuance upon conversion of 10%
Convertible Promissory Notes.

(5) Represents Common Stock payable by Registrant as interest on outstanding
notes.

(6) Represents Common Stock reserved for issuance upon exercise of common stock
purchase warrants issued December 1998.

(7) Represents Common Stock reserved for issuance upon exercise of options.

(8) Represents Common Stock reserved for issuance upon exercise of common stock
purchase warrants issued January 2000.

(9) Represents Common Stock reserved for issuance upon exercise of common stock
purchase warrants issued May and June 2000.

<PAGE>

The information in this preliminary prospectus is not complete and may be
changed. These securities may not be sold until the registration statement filed
with the Securities and Exchange Commission is effective. This preliminary
prospectus is not an offer to sell nor does it seek an offer to buy these
securities in any jurisdiction where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED AUGUST 4, 2000

Prospectus

MSU CORPORATION

9,338,816 Shares of Common Stock
Offered by MSU Shareholders

Certain shareholders of MSU Corporation are using this prospectus to offer
9,338,816 shares of common stock of MSU. MSU is not selling these shares itself
and will not receive any of the proceeds of their sale. MSU will bear all costs
relating to the offer and sale of the shares, which it expects will be
approximately $65,000. However, the selling shareholders will pay any
commissions, fees and discounts of underwriters, brokers, dealers or agents.

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Timing and Price: The selling shareholders will sell the shares
whenever they choose to do so at the market
price for MSU's common stock at the time of
each sale.

Closing bid and ask prices of MSU's
common stock on July 28, 2000: 1-1/4 and 1-5/16

Market: OTC Bulletin Board

Trading symbol: "MUCP:OB,"
</TABLE>

The selling shareholders may sell these shares directly to or through
broker-dealers, who may receive compensation in the form of discounts,
concessions or commissions from either the selling shareholders or the
purchasers of the shares or both of them.

Look carefully at the risk factors beginning on page 6 of this prospectus.

Neither the SEC nor any other regulatory body has approved these shares or
determined that this prospectus is accurate or complete. It is illegal for
anyone to tell you otherwise.

The Securities may be offered by the selling shareholders from time to
time in transactions (which may include block transactions) on any exchange or
market on which such Securities are listed or quoted, as applicable, in
negotiated transactions, through a combination of such methods of sale, or
otherwise, at fixed prices that may be changed, at market prices prevailing at
the time of the sale, at prices related to the prevailing market prices or at
negotiated prices.

THE DATE OF THIS PROSPECTUS IS AUGUST , 2000
<PAGE>

AVAILABLE INFORMATION

The Company is subject to certain informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and in
accordance therewith files reports and other information with the Securities
and Exchange Commission (the "Commission"). Such reports and other information
filed by the Company can be inspected at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, as well as the regional offices of the Commission located in New
York at Seven World Trade Center, 13th Floor, New York, New York 10048 and in
Los Angeles at 5670 Wiltshire Blvd., 11th Floor, Los Angeles, CA 90036. Copies
of such material can be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 upon payment of
certain fees prescribed by the Commission. In addition, the Commission
maintains a web site that contains reports and other information filed through
the Electronic Data Gathering, Analysis and Retrieval by the Company which can
be accessed over the Internet at http://www.sec.gov.

This prospectus constitutes a part of a Registration Statement on Form S-1
(the "Registration Statement") which MSU filed with the SEC on August 4, 2000.
MSU will likely amend the Registration Statement and this prospectus. This
prospectus omits certain of the information contained in the Registration
Statement, and we are incorporating that information by reference to the
Registration Statement and to the exhibits contained in it. This means that the
information contained in the Registration Statement is legally a part of this
document although it is not actually contained in it. For further information
with respect to MSU and the shares being offered you may obtain a copy of the
Registration Statement from the Commission. Statements contained herein
concerning the provisions of any document are not necessarily complete and, in
each instance, reference is made to a copy of such document filed as an exhibit
to the Registration Statement or otherwise filed with the Commission. Each such
statement is qualified in its entirety by such reference.

MSU will provide without charge to each person to whom a copy of this
prospectus has been delivered, upon request of such person, a copy of any and
all of the information incorporated herein by reference, other than the
exhibits to such information (unless such exhibits are specifically
incorporated by reference into such information). Requests should be directed
to MSU Corporation at its principal executive offices, Elder House, 526/528
Elder Gate, Central Milton Keynes MK9 1LR, England.

MSU intends to furnish its shareholders with annual reports containing its
audited financial statements after the end of each fiscal year and make
available such other periodic reports as it may deem appropriate or as may be
required by law.

2
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PROSPECTUS SUMMARY

The following summary should be read together with the more detailed
information, MSU's consolidated financial statements and the notes to those
statements appearing elsewhere in this prospectus.

The Company

MSU Corporation, formerly Capital Acquisition Company, was incorporated in
Florida in 1986. MSU Corporation conducted no substantive business until
October 1994 when all of the outstanding shares of MSU Public Limited Company,
an England and Wales company formed under the Companies Act of 1985 ('MSU
PLC'), were exchanged for Capital Acquisition shares. The exchange was treated
for financial reporting purposes as a reverse acquisition, or purchase of
Capital Acquisition by MSU PLC. MSU PLC owns all of the outstanding shares of
Web2u Limited, formerly called MSU (UK) Limited ('Web2u Limited'), an England
and Wales company formed under the Companies Act of 1985. Web2u Limited was
formed in March 1991 and began operating in March 1992. MSU's business is based
in the United Kingdom and is conducted almost exclusively by Web2u Limited, its
second tier subsidiary. In February 1997, MSU US Operations Inc., a North
Carolina corporation and a wholly owned subsidiary of MSU Corporation ('MSU
US'), was formed to act as a sales company in the United States, marketing and
selling products developed by MSU. However, it has remained dormant since its
incorporation.

In this prospectus, unless we state otherwise, when we refer to "MSU", we
are usually referring to MSU Corporation, MSU PLC, Web2u Limited, and MSU US as
a group.

MSU operates primarily through Web2u Limited which is principally engaged
in the design and development of software, computer chips and chipsets
principally for use in high volume consumer electronic products. Most of the
Company's chips incorporate multiple functions, thereby eliminating the need for
multiple chips and permitting a more efficient printed circuit board design and
a diminished risk of malfunction and error, at a lower cost. The current focus
of MSU is on the sale and further development of its set top Internet Access
Device, or IAD, to be used in conjunction with televisions and telephones.

The IAD is a low cost, easy to use, small set top device which provides
access to the Internet and on-line services via a telephone connection,
standard television set and wireless keyboard. Currently, most users access the
Internet and on-line services via personal computers, which represent both a
cost and technology barrier to many consumers. Version 2 of the IAD is
currently in production. The next generation of the IAD, the Version 3 product,
is currently being developed and is based upon MSU's proprietary ISP
Chip-version 3.

In 2000, MSU started to generate revenues from sales of IADs which, it
believes, should result in further revenues accruing to MSU in subsequent
periods. However, prior to December 31, 1999 most of MSU's revenues came from
development arrangements and no paid royalties.

To date, MSU has developed several consumer electronic products on its own
behalf as a result of development contracts or arrangements with manufacturers
based in China, Taiwan, Germany, the United States, Hong Kong and the United
Kingdom. These contracts have typically provided for payment of development
and/or license fees to MSU and royalties on sales of products utilizing MSU's
chips or chipsets.

MSU was incorporated in June 1986. MSU's executive offices are located at
Elder House, 526/528 Elder Gate, Central Milton Keynes MK9 1LR, England and its
telephone number is 011 44 1908 232100.

3
<PAGE>

The Offering

Securities............... The securities being registered hereby include
9,338,816 shares of common stock, of which 3,468,250
shares of common stock are already issued; 464,166
shares underlie the conversion rights of certain
convertible notes previously sold by MSU; and
5,406,400 shares underlie warrants and options
issued by MSU.

Common Stock............. MSU is authorized to issue 50,000,000 shares of
common stock, of which approximately 29,051,000
shares are currently outstanding. Holders of common
stock are entitled to receive dividends as the Board
of Directors may, from time to time, declare out of
funds legally available therefor. To date, MSU has
not declared or paid any cash dividends with respect
to its common stock. Holders of common stock are
entitled to one vote per share on each matter
submitted to a vote at any meeting of shareholders.
Upon any liquidation, winding up or dissolution,
holders of common stock are entitled to receive pro
rata, all assets of MSU available for distribution
after payment of debts and other liabilities of MSU.

Risk Factors............. An investment in the shares of MSU involves a high
degree of risk, and therefore, anyone who cannot
afford a loss of their entire investment should not
purchase them. The factors set forth under "Risk
Factors" should be carefully reviewed, as well as
other information in this Prospectus, before
purchasing any of the shares. See "Risk Factors."

4
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SUMMARY HISTORICAL FINANCIAL DATA

The following table presents summary historical consolidated financial
information for the nine months ended March 31, 2000 (unaudited) and March 31,
1999 (unaudited) and the fiscal years ended June 30, 1999, 1998 1997 and 1996
and certain balance sheet information, which information has been derived from
and should be read in conjunction with MSU's Report on Form 10-Q for the nine
months ended March 31, 2000 and the audited Consolidated Financial Statements
and the notes thereto for the year ended June 30, 1999.

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Nine months
ended March 31,
--------------------------
2000 1999
(In thousands, except for share data)
<S> <C> <C>
Income Statement data
Total revenue ............................. $ 398 $ 10
Cost of revenues .......................... (395) (7)
(Loss) income from operations ............. (3,025) (2,343)
Net (loss) income ......................... (3,434) (2,341)
Earnings deficiency ....................... (3,434) (2,341)
Net (loss) income per common
Share -- basic and fully diluted ......... $ (0.13) $ (0.12)
Balance Sheet data
Working capital (deficiency) .............. (1,117) (1,282)
Cash and cash equivalents ................. 206 68
Total assets .............................. 1,440 1,402
Total current liabilities ................. 2,255 1,439
Long term debt ............................ 505 690
Total Shareholders Equity
(Deficit) ................................ (1,321) (726)

<CAPTION>
Year ended June 30
-----------------------------------------------------------------
1999 1998 1997 1996 1995
(In thousands, except for share data)
<S> <C> <C> <C> <C> <C>
Income Statement data
Total revenue ............................. $ 32 $ 4,179 $ 1,480 $ 393 $ 1,596
Cost of revenues .......................... (53) (8) (651) (66) (604)
(Loss) income from operations ............. (3,496) 286 (2,113) (1,402) (882)
Net (loss) income ......................... (9,685) 292 (2,107) (1,397) (878)
Earnings deficiency ....................... (9,685) -- (2,107) (1,397) (878)
Net (loss) income per common
Share -- basic and fully diluted ......... $ (0.47) $ 0.02 $ (0.13) $ (0.10) $ (0.07)
Balance Sheet data
Working capital (deficiency) .............. 1,521 (4,401) (1,556) (1,896) (2,662)
Cash and cash equivalents ................. 2,604 166 859 55 228
Total assets .............................. 3,341 2,573 2,086 164 363
Total current liabilities ................. 1,294 4,646 2,677 1,980 2,983
Long term debt ............................ 505 -- 1,830 -- --
Total Shareholders Equity
(Deficit) ................................ 1,542 (2,074) (2,421) (1,816) (2,620)
</TABLE>

5
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RISK FACTORS

The following risk factors should be carefully considered together with
the other information presented in this prospectus, including the financial
statements and notes thereto, before investing in the shares.

Risks Associated with Our Financial Position

We have incurred significant operating losses, have an accumulated deficit
and are uncertain about MSU's future operating results. MSU has never earned
significant revenues, and, prior to December 31, 1999, any revenues it earned
were primarily from development and licensing arrangements. Since the
establishment of its business, MSU has incurred significant losses. In the nine
month period ended March 31, 2000, MSU incurred a net loss of approximately
$3,434,000 of which approximately $441,000 arose through non-operating expenses.
At March 31, 2000, there was an accumulated deficit of $19,960,000 and a deficit
of shareholders equity of $1,321,000. For the fiscal year ended June 30, 1999,
MSU incurred a net loss of approximately $9,685,000, of which $6,189,000 arose
through non-operating expenses, and while there was an accumulated deficit of
$16,526,000 on June 30, 1999, it had total shareholders' equity of $1,542,000 at
that date. Also, for the fiscal year 1997, MSU incurred a net loss of
$2,107,000. Although MSU experienced a net profit of $292,000 in fiscal 1998, it
had an accumulated deficit of approximately $2,073,000 on June 30, 1998.

MSU will likely lose more money at least through fiscal 2000 and possibly
into fiscal 2001 as it further develops, upgrades and markets its products and
spends additional capital to develop its infrastructure and organization to
support anticipated operations. We cannot be certain whether the products
developed by MSU will be marketed or sold, or if sold, whether such products
will be accepted by consumers. Because of this, we cannot be certain whether
MSU will ever earn a significant amount of revenues or profit, or, if it does,
that it will be able to continue earning such revenues or profit. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

Our auditors have expressed doubt about MSU's viability as a going
concern. MSU's independent accountants have included an explanatory paragraph
in their report on MSU's financial statements for the years ended June 30,
1999, 1998, 1997 and 1996, which states that (i) MSU has suffered and continues
to suffer significant losses from its operations; (ii) MSU has an accumulated
deficit; (iii) MSU continues to have negative cash flows from operations; and
(iv) MSU has a very limited client base. These factors, among others, raise
substantial doubt about MSU's ability to continue as a going concern. See
"Financial Statements and Report of Independent Certified Public Accountants"
included elsewhere in this prospectus.

Business Factors that May Adversely Affect Our Operations

Only a limited number of products that employ MSU's chips have been sold.
Products that incorporate MSU's chips or chipsets were initially manufactured,
under development contracts and other special arrangements, in relatively small
quantities which were intended to be used as samples or prototypes prior to any
actual production for distribution purposes. In previous years, approximately
18,500 of MSU's earlier version IADs were sold through agreements with Mitac,
Inc., a Taiwanese Corporation ("Mitac") and Zilog Corporation.

In fiscal 2000, commercial production commenced and to date approximately
46,000 IADs have been ordered from Shanghai Thakral Industrial Corp. of which
approximately 10,000 have been manufactured (there is an approximate three
month lead time) and approximately 8,000 sold to 8 customers. We cannot however
assure our investors that any more products using MSU's software will ever be
manufactured, marketed or sold to the public.

We depend heavily on third parties to develop, manufacture and distribute
products using MSU's chips. MSU depends upon the manufacturing, marketing,
financial, technological and other abilities of third parties with which we
have established, or are attempting to establish, commercial relations, to
develop, manufacture and market products using our chips or chipsets. If we are
unable to maintain or establish the requisite third party commercial relations,
additional products using our chips or chipsets may not be successfully
manufactured, marketed or sold. If any such third party fails to commit
sufficient resources to

6
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maintain the proper development, manufacturing or marketing of our products,
MSU's reputation, business relationships, and product acceptance could be hurt.
In addition, MSU will have little, if any, control over the timing or methods
employed in the manufacture, marketing or sale of such products.

We may not have adequate insurance to cover against losses caused by third
parties using our products. If any products utilizing MSU's chips or chipsets
perform poorly, are inferior in quality or do not achieve market success, such
flaws may become associated with MSU's chips and chipsets. Presently, we
believe that our insurance coverage may be inadequate in light of current and
prospective trading agreements. However, we are currently determining the
extent of insurance coverage needed and, once this is established, we will seek
to put appropriate coverage in place. However, we cannot assure investors that
we will be able to obtain adequate coverage.

We depend heavily on our ability to develop new products and respond to
rapid technological changes. The multimedia, consumer electronics, computer and
hardware and software industries are characterized by rapidly changing
telecommunications technology, evolving industry standards and frequent
introductions of new products. The broad array of competing and incompatible
emerging technologies may lead consumers to postpone buying decisions until one
or more of such technologies gain widespread acceptance. MSU's success will
depend upon our ability to anticipate such technological changes, adapt our
products, introduce competitive products with features that meet changing
customer requirements, and remain competitive in terms of price and product
performance. We cannot assure our investors that we will be able to meet any of
these demands. Any material failure of MSU to meet any of these demands would
adversely affect the use and acceptance of our chips and chipsets and the
introduction and sale of products using our chips or chipsets, and would
increase the likelihood that competitive products would become broadly
accepted. We cannot assure our investors that we will successfully anticipate
technological changes or that products developed by others will not render
obsolete or commercially unviable our chips and chipsets and the products using
such chips and chipsets.

We depend heavily on certain key personnel and on our ability to attract
qualified personnel. MSU depends heavily on the experience of certain key
personnel including certain of its executive officers, software programmers,
designers and engineers who contribute to the development and production of our
chips, chipsets and products. If we were to lose the services of one or more of
these key employees, before a qualified replacement could be obtained, this
could have a material adverse effect on our business, financial condition or
results of operations.

MSU has entered into an employment agreement with Darran Evans, the Chief
Executive Officer which provides for three months notice of termination of
employment. This agreement does not contain covenants restricting Mr. Evans's
activities during or after his employment. MSU Corporation has also entered
into employment contracts with three directors, Messrs. Holloway, Snowdon and
Phillips, and with six employees which do restrict certain of their activities
for one year, in respect of the directors, and six months, in respect of the
employees, after their departure from MSU. MSU does not have key-man life
insurance on any key personnel, and does not believe that it can presently
afford to purchase such insurance.

The multimedia, telecommunications, consumer electronics and computer
industries are characterized by a high level of employee mobility and
aggressive recruiting of skilled personnel. Our current employees may not
continue to work for MSU and, if they do not, we may not be able to obtain the
services of additional personnel, whether for replacement purposes or for new
positions, necessary for MSU's growth and success.

We face the pressures of a competitive industry. The market for
multimedia, consumer electronics, computer, telecommunication and Internet
products is highly competitive. Numerous competitors have commercialized, are
developing or are expected to introduce hardware, software and other products
that are or may be directly competitive with MSU's products. Some of MSU's
current and potential competitors have substantially greater financial,
technical, manufacturing, marketing, distribution and other resources than MSU
as well as substantially larger research and development staffs and facilities.
These companies also have greater name recognition and market presence, longer
operating histories and larger customer bases than MSU.

MSU expects that as this market rapidly develops, brand name companies
will attempt to develop and launch their own product into the direct
competitive market. MSU will also face competition from PCs as they decline in
price, WAP (wireless application protocol) phones as the technology progresses,
together with numerous other products that offer a variant of connectivity to
the Internet.

7
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Competitive factors could result in price reductions or increased spending
on product development, marketing and sales that would adversely affect MSU's
ability to compete and to be profitable. Accordingly, MSU may not be able to
compete successfully against its present competitors or potential competitors,
and such competition could have a material adverse effect on MSU's business,
financial condition or results of operations. In addition, to the extent that
any of MSU's competitors are able to develop products similar to MSU's
products, such competitor may have a competitive advantage over MSU.

MSU's ability to compete successfully depends, in part, on our ability to
protect our intellectual property and proprietary technology in the United
Kingdom, the United States and other countries. MSU has no issued patents but
we rely on a combination of trade secret protection, confidentiality agreements
and licensing agreements with strategic partners, employees, consultants,
vendors and licensees. We believe that the two dimensional design
representation prepared for each of MSU's chips is protected under the UK
Copyright, Designs and Patent Act of 1988, which requires no registration with
respect to such technology, and that the three dimensional aspects of each of
our chips, including the electronic routes in the silicon, are protected under
the UK Topography Rights. We believe that MSU's chip technology is entitled to
comparable protection under the US Copyright Act of 1976 and the Semiconductor
Chip Protection Act of 1984. Although the Semiconductor Chip Protection Act
does not require registration, the failure to register results in the loss of
benefits after the passage of two years from the first commercial sale of a
chip. We have not registered any of MSU's chips under such Act; however we
intend to do so within the prescribed period. We believe that patents for ASIC
Chip technology are rarely granted because of rapid technology changes and the
relative ease of designing around such patents.

MSU cannot assure its investors that any patent will be issued as a result
of any application that may be filed, or that if a patent is issued, the claims
will be sufficiently broad to provide effective legal protection or monopoly.
In addition, any patent issued to MSU may be challenged, invalidated or avoided
by design around efforts. Moreover, the rights granted under any such patent
may not provide the desired competitive advantages to MSU, and MSU's
competitors may independently develop or patent technologies that are
substantially equivalent or superior to MSU's technologies. Such patents may
also be subservient to other dominant patents. Accordingly, MSU may be unable
to protect certain technology relating to its chips.

MSU's license agreements prohibit unauthorized disclosure of its technology
to third parties. In cases where MSU has contracted with third parties in
foreign countries, these provisions may be difficult to enforce in such
countries despite the existence of any applicable international treaties or
conventions designed to protect rights to technology. MSU is aware that third
parties may attempt to reverse engineer MSU's technology. There can be no
assurance that MSU's confidentiality agreements will not be breached, or that
MSU would have adequate remedies for any such breach. There can be no assurance
that MSU's technology may not otherwise become known or be independently
discovered by competitors. Under United Kingdom law, copyrights and mask rights
related to technology designed and developed by independent contractors, while
commissioned by MSU for such purpose, remain the property of MSU, unlike in the
United States where an assignment of such rights from the independent contractor
would be necessary to attain ownership of all such rights.

MSU has registered trademarks for the names: (i) Wynpeg in the United
Kingdom, Hong Kong, Taiwan and the United States; (ii) Slipstream in the United
Kingdom; and (iii) Web2u (applications) in the United Kingdom, China, the
European Union, Hong Kong, Japan, Singapore, Taiwan, and the United States. In
addition, applications have been filed for the registration of the Envoy
trademark in the United Kingdom, China, Hong Kong, Europe, Japan, Taiwan,
Singapore and in the United States. There can be no assurance that these
trademark registrations will be accepted or, if accepted, will later not be
canceled or invalidated or that MSU's rights will not be subject to rights of
prior users. MSU relies heavily on trademark protection under common law. There
can be no assurance that such common law rights will not be limited or
invalidated by third parties.

8
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their domestic laws. In Japan, protection is secured by the 1985 & 1986
amendments to the Copyright Act which expressly provides for protection for
computer programs. Similar laws exist in other international jurisdictions for
the protection of computer programs whereby states have subscribed to the 1987
Berne Convention and the "1996 WIPO (World Intellectual Property Organization)
Copyright Treaty". Such laws may not protect MSU from development of software
which is similar to MSU's or from copying and modifying MSU's source or object
code for another purpose.

We have very few customers who purchase our products. To date we have had
only a limited number of customers through whom we have generated most of the
revenues we have earned. Prior to December 31, 1999, MSU had no customers that
frequently and systematically purchased its products. MSU's revenue for the
fiscal year ended June 30, 1997 was largely attributable to four companies, and
for the year ended June 30, 1998 it was virtually all attributable to a
licensing arrangement with one customer, American Interactive Media Inc. For the
year ended June 30, 1999, there were no significant sales and in the year ending
June 30, 2000, and to date, while a number of sales and marketing agreements
have been signed, revenues have been generated from only eight customers. Unless
the products developed or to be developed in conjunction with customers, are
manufactured, marketed and sold, no future revenues are likely to be received
from existing arrangements. MSU could be materially adversely affected if no
products developed in conjunction with the companies with which it has
arrangements are ultimately manufactured, marketed and sold.

Our operating results may fluctuate. If MSU is able to generate
significant revenues, MSU expects that its operating results will fluctuate as
a result of changes in composition of its revenues, the occurrence and timing
of new product introductions, if any, by MSU or by third parties that MSU
develops products with, and MSU's expenditures on research and development.
Should MSU derive revenue from sales of its products, chips and chipsets to
and/or royalties or licence fees from third parties, based on the sale of
products utilizing MSU's chips and chipsets, MSU's revenue will vary with
demand for such products. Any revenue may be affected by the seasonal nature of
the market for consumer electronics, multimedia and computer products. Such
demand may increase or decrease as a result of a number of factors that cannot
be predicted and which are not within MSU's control, such as consumer
preferences and product announcements by competitors.

We engage in international agreements and operations and could be
adversely affected by changes in exchange rates. MSU has entered into contracts
with manufacturers and distributors located in the United States, India,
Australia, Taiwan and the Peoples Republic of China. MSU's international
operations will subject it to various government regulations, export controls
and the normal risks involved in international operations and sales. A majority
of MSU's revenue to date have been received in US dollars; however, MSU's main
operating subsidiary conducts business in pounds sterling. Any decline in the
value of pounds sterling against the US dollar will have the effect of
decreasing MSU's earnings when stated in US dollars. MSU currently does not
engage in any hedging transactions that might have the effect of minimizing the
consequences of currency fluctuations and does not intend to do so in the
immediate future.

All of the manufacturing of our IADs is currently undertaken in China. At
present, Thakral is the only manufacturer of customized IADs using MSU's chips
and software. Should Thakral cease to manufacture the IADs, MSU's business,
financial condition or results of operation could be adversely affected.
However, in June 2000 MSU concluded a manufacturing agreement with a second
supplier, Flex International UK Limited. ('Flextronics'), for the manufacture of
the Version 3 IAD in Scotland, although no production has yet begun.

Peoples Republic of China. MSU's interests may be adversely affected by the
political and economic environment in China. China is a communist country which
since 1949 has been, and is expected to continue to be, controlled by the
Communist Party of China. Changes in the top political leadership of the
Chinese government may have a significant impact on policy and the political
and economic environment in China. The economy of China differs significantly
from the economy of the United States and western Europe in such respects as
structure, level of development, gross national product, growth rate, capital
reinvestment, resource allocation, self sufficiency, rate of inflation and
balance of payments position, among others. Only recently has the Chinese
government encouraged substantial private economic activities. Moreover,
economic reforms and growth in China have been more successful in certain
provinces than in others, and the continuation or increase of such disparities
could affect political or social stability. All of this could adversely affect
Thakral's business or its arrangement with MSU and, thereby, the manufacture of
IADs using MSU's chips and software.

9
<PAGE>

China does not have a well developed consolidated body of laws governing
enterprises with foreign investments. As a result, the administration of laws
and regulations by government agencies may be subject to considerable
discretion. Any adverse legal change or decision could affect MSU's
relationship with Thakral and/or Thakral's ability to manufacture IADs using
MSU's chips and software.

Factors that May Adversely Affect Our Financial Results

Our stock price can be highly volatile. The price of MSU's common stock
could fluctuate significantly in response to variations in operating results
and other factors. Our common stock has demonstrated this kind of volatility in
the past. In addition, the stock markets in the United States have, from time
to time, experienced significant price and volume fluctuations that are
unrelated or disproportionate to the operating performance of individual
companies. Such fluctuations may adversely affect the price of MSU's common
stock.

MSU has issued many options, warrants and convertible notes which are
currently outstanding. As of the date of this prospectus, we had outstanding
stock options, warrants and convertible notes relating to an approximate
aggregate of 10,503,000 shares of Common Stock at exercise or conversion prices
ranging from $0.35 to $5.00 per share. Of this amount, approximately 8,975,000
shares are subject to immediate exercise or conversion. Conversion or exercise
of such options, warrants and notes will dilute the equity interest of each of
MSU's shareholders. Moreover, this could adversely affect the terms upon which
MSU will be able to obtain additional equity capital, since the holders of such
options, warrants and notes can be expected to exercise or convert them at a
time when MSU would likely be able to obtain any needed capital on terms more
favorable to MSU than the exercise or conversion terms provided in such
securities.

We do not plan to pay dividends. MSU has never declared or paid any cash
dividends on its common stock, and we do not expect to pay dividends in the
short term. We expect to retain our earnings, if any, and use them to finance
the growth and development of our business.

We are unable to locate certain of MSU's corporate records. For the period
from approximately September 1994 through December 1995, MSU has no access to a
significant portion of its corporate records, other than drafts and copies of
certain documents, making it difficult to conclude that certain corporate
matters were properly effected. We believe matters were effected properly;
however we cannot confirm this with total certainty.

The so called "Penny Stock Rule" could make it cumbersome for brokers and
dealers to trade in our common stock, making the market for our common stock
less liquid. Trading in MSU's securities is conducted on the OTC Bulletin Board
and/or the "pink sheets." As long as the common stock is not quoted on Nasdaq
or at any time that MSU has less than $2,000,000 in net tangible assets,
trading in the common stock is covered by Rule 15g-9 under the Securities
Exchange Act for non-Nasdaq and non-exchange listed securities. Under that
rule, broker-dealers who recommend covered securities to persons other than
established customers and accredited investors must make a special written
suitability determination for the purchaser and receive the purchaser's written
agreement to a transaction prior to sale. Securities are exempt from this rule
if the market price is at least $5.00 per share.

The SEC has adopted regulations that generally define a penny stock to be
any equity security that has a market price of less than $5.00 per share,
subject to certain exemptions. Such exemptions include an equity security
listed on Nasdaq and an equity security issued by an issuer that has (i) net
tangible assets of at least $2,000,000, if such issuer has been in continuous
operation for three (3) years; (ii) net tangible assets of at least $5,000,000,
if such issuer has been in continuous operation for less than three (3) years;
or (iii) average revenue of at least $6,000,000 for the preceding three (3)
years. Unless such an exemption is available, the regulations require the
delivery of a disclosure schedule explaining the penny stock market and the
risks associated therewith prior to any transaction involving a penny stock.
MSU's Common Stock is presently subject to the regulations on penny stocks,
which could have a severe adverse effect on the market liquidity for its common
stock due to these limitations on the ability of broker-dealers to sell the
common stock in the public market.

Many outstanding shares of MSU Corporation's common stock will be eligible
for public sale in the near future. As of the date of this Prospectus, MSU had
approximately 29,051,000 shares of Common Stock

10
<PAGE>

issued and outstanding. Of these shares, approximately 14,743,000 are freely
tradable without restriction or registration under the Securities Act. The
remaining shares of outstanding Common Stock were issued by MSU in private
transactions in reliance upon exemptions from registration under the Securities
Act. Such shares may be sold only pursuant to an effective registration
statement filed by MSU or an applicable exemption, including the exemption
contained in Rule 144 promulgated under the Securities Act. In general, under
Rule 144 as currently in effect, a shareholder, including an affiliate of MSU,
may sell shares of Common Stock after at least one year has elapsed since such
shares were acquired from MSU or an affiliate of MSU. The number of shares of
Common Stock which may be sold within any three-month period is limited to the
greater of one percent of the then outstanding Common Stock or the average
weekly trading volume in the Common Stock during the four calendar weeks
preceding the date on which notice of such sale was filed under Rule 144.
Certain other requirements of Rule 144 concerning availability of public
information, manner of sale and notice of sale must also be satisfied. In
addition, a shareholder who is not an affiliate of MSU (and who has not been an
affiliate of MSU for 90 days prior to the sale) and who has beneficially owned
shares acquired from MSU or an affiliate of MSU for over two years may resell
the shares without compliance with the foregoing requirements under Rule 144.

MSU cannot predict the effect, if any, of future sales of shares, or the
availability of shares for future sale, on the market price of the common stock
prevailing from time to time. Nevertheless, sales of substantial amounts of
common stock, or the perception that such sales may occur, could have a
material adverse effect on prevailing market prices. See "Description of
Securities."

Forward Looking Statements. This prospectus and the information
incorporated into it by reference contains various "forward-looking statements"
within the meaning of federal and state securities laws, including those
identified or predicated by the words "believes," "anticipates," "expects,"
"plan" or similar expressions. Such statements are subject to a number of
uncertainties that could cause the actual results to differ materially from
those projected. Such factors include, but are not limited to, those described
under "Risk Factors." Given these uncertainties, prospective purchasers are
cautioned not to place undue reliance upon such statements.

USE OF PROCEEDS

MSU will not receive any proceeds from the sale of the shares by the
selling shareholders.

DIVIDEND POLICY

MSU has not paid cash dividends on its Common Stock and does not
anticipate paying dividends in the foreseeable future. MSU currently intends to
retain future earnings, if any, to fund the development and growth of its
business. The payment of future cash dividends by MSU on its Common Stock will
be at the discretion of the Board of Directors and will depend on MSU's
earnings (if any), financial condition, cash flows, capital requirements, and
contractual prohibitions with respect to the payment of dividends and other
consideration as the Board of Directors may consider relevant.

11
<PAGE>

CAPITALIZATION

The following table sets forth the actual capitalization of MSU as of
March 31, 2000 (unaudited) and June 30, 1999.

<TABLE>
<CAPTION>
March 31, June 30,
2000 1999
----------- ------------
$000 $000
<S> <C> <C>
Debt:
Short-term debt ............................................ 825 75
Long-term debt ............................................. 505 505
Shareholder's equity
Common Stock, $0.01 par value; 50,000,000 shares authorized;
25,631,202 and 25,364,262 shares issued and outstanding at
March 31, 2000 and June 30, 1999 respectively ............. 256 254
Additional paid-in capital ................................. 8,644 17,854
Other ...................................................... (261) (40)
Accumulated deficit ........................................ (19,960) (16,526)
Total shareholders' equity (deficit) .................... (1,321) 1,542
Total capitalization .......................................... 9 2,122
</TABLE>

The above table does not reflect the sale of 3,290,000 shares of common
stock in May and June 2000 at $1.00 per share for cash.

MARKET PRICE OF COMMON STOCK

Since May 24, 1995, bid and ask quotations of MSU's Common Stock have been
reported by the National Association of Securities Dealers ("NASD") Electronic
Bulletin Board under the symbol "MUCP." The following table sets forth the
range of high and low bid quotations for the years indicated without adjustment
for retail markups, markdowns or commissions and do not necessarily represent
actual transactions.

Range of Bid Information

<TABLE>
<CAPTION>
High Low
----------- -----------
<S> <C> <C>
Fiscal year ended June 30, 2000:
Quarter ended June 30, 2000 .............. $2.94 $1.34
Quarter ended March 31, 2000 ............. $5.00 $2.44
Quarter ended December 31, 1999 .......... $3.69 $2.03
Quarter ended September 30, 1999 ......... $5.63 $2.94

Fiscal Year ended June 30, 1999:
Quarter ended June 30, 1999 .............. $7.12 $1.30
Quarter ended March 31, 1999 ............. $2.94 $1.00
Quarter ended December 31, 1998 .......... $1.56 $0.40
Quarter ended September 30, 1998 ......... $1.56 $0.34

</TABLE>

On July 28, 2000, the closing bid and asked prices were $1-1/4 and $1-5/16
per share, respectively and there were approximately 300 holders of MSU
Corporation's common stock, excluding those shares of common stock held in
street name.

12
<PAGE>

SELECTED FINANCIAL DATA

The following selected financial data has been derived from the financial
statements of MSU. The financial statements for the nine month periods ended
March 31, 2000 and 1999 are unaudited. The financial statements for each of the
fiscal years in the five-year period ended June 30, 1999 have been audited by
Moore Stephens Lovelace, P.A., independent certified public accountants. The
following selected financial data should be read in conjunction with and are
qualified in their entirety by the MSU Corporation consolidated Financial
Statements and the notes thereto included elsewhere in this Registration
Statement.

The following table presents summary historical consolidated financial
information for the nine months ended March 31, 2000 and March 31, 1999
(unaudited) and the fiscal years ended June 30, 1999, 1998, 1997, 1996 and 1995
and certain balance sheet information, which information has been derived from
and should be read in conjunction with MSU's Report on Form 10-Q for the nine
months ended March 31, 2000 and the Consolidated Financial Statements and the
notes thereto for the year ended June 30, 1999.

<TABLE>
<CAPTION>
Nine months
ended March 31,
--------------------------
2000 1999
----------- -------------
(In thousands, except share data)
<S> <C> <C>
Income Statement data
Total revenue ....................... $ 398 $ 10
Cost of revenues .................... (395) (7)
(Loss) income from operations ....... (3,025) (2,343)
Net (loss) income ................... (3,434) (2,341)
Earnings deficiency ................. (1,397) (878)
Net (loss) income per common
Share -- basic and fully diluted ... $(0.13) $(0.12)
Balance Sheet data
Working capital ..................... (1,117) (1,282)
Cash and cash equivalents ........... 206 88
Total assets ........................ 1,440 1,402
Total current liabilities ........... 2,255 1,439
Long term debt ...................... 505 690
Total Shareholders Equity
(Deficit) .......................... (1,321) (726)

<CAPTION>
Year ended June 30,
-----------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ------------- ----------- ----------- -----------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Income Statement data
Total revenue ....................... $ 32 $4,179 $1,480 $ 393 $1,596
Cost of revenues .................... (53) (8) (651) (66) (604)
(Loss) income from operations ....... (3,496) 286 (2,113) (1,402) (882)
Net (loss) income ................... (9,695) 292 (2,108) (1,397) (878)
Earnings deficiency ................. (9,685) -- (2,107) (1,397) (878)
Net (loss) income per common
Share -- basic and fully diluted ... $(0.47) $0.02 $(0.13) $(0.10) $(0.07)
Balance Sheet data
Working capital ..................... 1,521 (4,401) (1,556) (1,896) (2,662)
Cash and cash equivalents ........... 2,604 166 859 55 228
Total assets ........................ 3,341 2,573 2,086 164 363
Total current liabilities ........... 1,294 4,646 2,677 1,980 2,983
Long term debt ...................... 505 -- 1,830 -- --
Total Shareholders Equity
(Deficit) .......................... 1,542 (2,074) (2,421) (1,816) (2,620)
</TABLE>

<PAGE>

Exchange Rates

MSU PLC and Web2u Limited conduct a significant amount of their operations
in pounds sterling. References to $ in this prospectus are to US dollars and in
many instances represent translations of pounds sterling into dollars at
specified rates. These translations should not be construed as representations
that the pound sterling amounts actually represent such dollar amounts. Unless
otherwise stated, the translations of pounds sterling into dollars have been
made at the average rate for the year indicated. The following table sets
forth, for the periods indicated, certain information concerning the rates of
pounds sterling per dollar:

Fiscal Year At End Average
Ended June 30 Of Period Rate(1) High(2) Low(2)
--------------- ----------- --------- --------- -------
1996 .......... .65 .65 .69 .61
1997 .......... .60 .62 .64 .59
1998 .......... .60 .60 .62 .60
1999 .......... .63 .61 .63 .60
2000 .......... .66 .63 .66 .61

------------
(1) Represents the average of the rates on the last day of each month during
the relevant period.
(2) Represents the highest and lowest rates used in the average rate
calculation

13
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This prospectus contains forward looking statements that involve risks and
uncertainties. The statements contained in this prospectus that are not purely
historical are forward-looking statements within the meaning of Section 27A of
the Securities Act and 21E of the Exchange Act, including without limitation
statements regarding MSU's expectations, beliefs, intentions or strategies
regarding the future. All forward-looking statements included in this
prospectus are based on information available to MSU at the date of this
prospectus, and MSU assumes no obligation to update any such forward-looking
statements. MSU's actual results could differ materially from those anticipated
in these forward-looking statements as a result of certain factors, including
those set forth under 'Risk Factors' and elsewhere in this prospectus. The
following discussion and analysis should be read in conjunction with the
financial statements and notes thereto appearing elsewhere in this prospectus.

Overview

The consolidated financial statements include the accounts of MSU
Corporation, MSU PLC, Web2u Limited and MSU US Operations Inc. All significant
inter-company accounts have been eliminated in the consolidated financial
statements.

MSU operates primarily through Web2u Limited which is principally engaged
in the design and development of software, computer chips and chipsets
principally for use in high volume consumer electronic products. Most of MSU's
chips incorporate multiple functions, thereby eliminating the need for multiple
chips and permitting a more efficient printed circuit board design and a
diminished risk of malfunction and error at a lower cost. The current focus of
the Company is on the development and sale of the IAD to be used in conjunction
with television and telephones.

During the nine month period ended March 31, 2000, significant software
and hardware modifications to the IAD were completed and MSU has commenced
production, through Shanghai Thakral Electronic Industries Corp. of the latest
4 megabyte version of the proprietary IAD. MSU is continuing to develop the
software, which will provide enhanced Internet features.

The nine month period to March 31, 2000 saw significant change in the
management of MSU as it began to place greater focus on production and sales.
The appointment of Darran H. Evans as Chief Executive Officer and a member of
the Board of Directors and further appointments into executive positions
reflected the objectives of MSU in commercializing the products that have
already been successfully developed. In addition to changes in the executive
team, MSU welcomed Jeffrey N. Green and Stephen W. Coles to the Board of
Directors. Messrs. Green and Coles provide more depth and add an American
presence to the Board, reflecting the importance of international markets to
the success of MSU. The Board now is comprised of eight members.

Management believes that initial revenues arising from the more aggressive
sales and marketing strategies that are now being pursued will continue to be
seen during the current quarter.

Through January and February 2000, MSU sold $750,000 of its 10%
convertible promissory notes. The notes are due on the earlier of December 31,
2000 or out of the proceeds of an offering made by MSU that raises a minimum of
$5,000,000 prior to that date. The notes are convertible into shares of common
stock at $3.00 per share but if at any time during the term of the notes, the
closing market bid price of the common stock equals or exceeds $6.00 per share
for a period of 30 consecutive days, the notes shall be automatically
converted. Attached to each $50,000 of the notes are warrants to purchase
20,000 shares of common stock at $3.00 per share on or before December 31,
2001. In the event that the noteholders do not elect to convert their notes
into shares of common stock, MSU may not have sufficient funds available to
repay the notes. Interest is payable on the notes on June 30 and December 31
with MSU having the option to pay interest in the form of common stock at a 10%
discount to the closing bid price on the day before each interest payment is
due.

14
<PAGE>

Through December 1998 and January 1999, MSU issued $505,000 of its
convertible promissory notes which are collateralized by 500,000 shares of
common stock in American Interactive Media, Inc. and by pledges of over
3,000,000 shares of common stock in MSU owned by the Trustees of The MSU
Employees Discretionary Trust and 250,000 shares owned by William D. Snowdon.
These promissory notes are convertible at any time at a conversion price of
$3.00 per share on or before December 2001. To the extent that the loans are not
converted they will be repayable at par in December 2001. Interest is due on
these notes at between 6% and 8% per annum and has been paid up to December 2001
through the issuance of common stock at a price of between $0.72 and $0.75 per
share. In the event that the noteholders do not elect to convert their
promissory notes into shares of common stock, MSU may not have sufficient funds
available to repay the promissory notes.

MSU expects that it is likely to incur net losses through fiscal 2000 and
possibly into fiscal 2001 as it attempts to further develop, upgrade and market
its products and to develop its infrastructure and organization to support
anticipated operations, including anticipated product demand. The foregoing
statement is a forward looking statement that involves risks and uncertainties.
MSU is likely to incur net losses beyond fiscal 2000 if anticipated revenues
from orders of customized IADs are not realized. Such orders in respect of the
IADs assume, without limitation, approval of final production samples by
potential purchasers; acceptance by and demand for the customised IADs by
consumers; satisfactory product performance, including chip and software
performance; modem approval from the local or national telephone company, and
the ability of the products to compete successfully in an extremely competitive
marketplace. MSU believes such assumptions are reasonable, however should any
one of such assumptions prove to be unfounded, MSU could incur net losses
beyond fiscal 2000 and/or be unable to continue as a going concern. The
foregoing factors raise substantial doubt about MSU's ability to continue as a
going concern without sufficient funds to meet its cash requirements. There can
be no assurance that MSU will be able to obtain sufficient funds to enable it
to continue as a going concern.

MSU anticipates that if revenues from trading operations are not generated
in the coming months, it will, at least in the short term, have to continue to
fund a significant portion of its operations through private sales of equity
securities to and/or borrowings from third parties, to the extent such sources
of capital are available to MSU. MSU also intends to further develop its
infrastructure and organization to support its anticipated operations activity,
although it has limited funds to address these concerns presently.

The markets for MSU's products have only recently begun to develop, are
rapidly evolving and are highly competitive, with some competitors having
greater resources than MSU. MSU and its prospects must be considered in light
of the substantial risks, expenses and difficulties facing MSU. There can be no
assurance that MSU will be successful in addressing any of the foregoing risks,
that it will be successful in implementing its strategy, that it will ever
achieve profitability or that it will be able to continue as a going concern.
See Report of Independent Auditors and Company's financial statements referred
to elsewhere in this prospectus.

Results of Operations

Revenues

MSU has only recently commenced sales of its IAD and consequently,
currently has only a limited number of customers which frequently and
systematically purchase its products or retain its services.

Sales in the nine months ended March 31, 2000 of approximately $397,000
were to eight customers, most of which were based in the United Kingdom.
Revenues reported to the end of March 2000 relate only to the selling price of
the IAD, and MSU expects in the future to report on-going revenues relating to
these sales.

Revenues during the years ended June 30, 1999, 1998 and 1997 were
approximately $32,000, $4,179,000 and $1,480,000, respectively. Comparison of
revenues during the year ended June 30, 1999 with previous years is not
meaningful as in fiscal 1999, apart from the sale of a small number of samples,
there was no revenue generated as MSU continued to concentrate its efforts on
further software and hardware developments of its IAD. In fiscal 1998, the
revenues derived almost entirely from the license fees received from American
Interactive Media, Inc. In fiscal 1997, the revenues derived principally from
chip sales, license and development fees, and royalty fees

15
<PAGE>

paid in connection with the sale of IADs. Typically MSU's development
arrangements provide for royalties and/or license fees to be paid to MSU if
the customer sells products developed in conjunction with MSU and/or
incorporating MSU's proprietary technology. To date, apart from the license
fees and royalties receivable in 1998 from American Interactive Media, Inc. and
in 1997 in connection with the sale of the earlier version IADs, none of these
development arrangements have resulted in royalty or continuing license revenue
to MSU. MSU would be materially adversely effected if customers fail to
manufacture, market or sell products developed in conjunction with MSU.

During the years ended June 30, 1999, 1998 and 1997, MSU's revenues were
principally derived from none, one (AIM) and four customers (American
Interactive Media, Inc., Zilog, C Cube and Mitac), respectively. A concentration
of revenues in such a small number of customers, where the loss of one customer
could have a material adverse effect on the business, could be of concern.
However MSU is not currently contemplating any further sales to these companies
and, as mentioned above, current sales are to other companies.

MSU's revenues by geographic region during the nine months ended March 31,
2000 and the years ended June 30 1999, 1998 and 1997 were approximately as
follows:

Location 2000($) 1999($) 1998($) 1997($)
------------------------ --------- --------- ------------ ----------
Europe ................. 297,000 2,000 8,000 --
Far East ............... 100,000 17,000 -- 730,000
North America .......... -- 13,000 4,171,000 750,000

Revenues in 1998 increased by approximately 182% compared to 1997, but
because the 1998 revenues were derived principally from one source, comparison
between the years is not meaningful. Other significant revenues were not
generated in 1999 or in 1998 (other than the license revenue from American
Interactive Media, Inc.) as MSU concentrated its efforts on further software
developments of its proprietary IAD and the Envoy chip.

Cost of Revenues

Reported costs of revenues in the nine months ended March 31, 2000 of
approximately $395,000 at 99% of revenues are significantly higher than would
be expected to be reported on an ongoing basis due to costs involved with the
initial production run.

The cost of revenues for the years ended June 30, 1999, 1998 and 1997 were
approximately $53,000, $8,000 and $651,000 respectively. Cost of sales in the
year ended June 30, 1999 mostly related to the direct production cost of
samples which have been expensed to the extent that MSU considers such cost is
not recoverable. As a percentage of revenues, cost of revenues were
approximately 168% in 1999, 0.2% in 1998 and 44% in 1997.

The cost of revenue fluctuations in 1999, 1998 and 1997 are due to
variations in gross margins as between license fees, chip sales, support
services and development services. The gross margin on license fees is 100%,
that on development and support services is usually approximately 90% to 95%
while the gross margin on chip sales until 1997 was usually approximately 48%
to 54% depending on the number and type of chips purchased. However in fiscal
1997 most of the chip sales (approximately $600,000) were to Mitac and were
sold at cost.

Research and Development Expenses

Research and development expenses generally consist of expenditure related
to the Company's development of its chips and prototype products, such as the
ISP Chip, the Envoy Chip, and the television set top Internet Access Device and
specific research and development performed pursuant to development
arrangements with third parties. It excludes all overhead costs other than
employee, independent contractor, development tool and prototyping costs. All
research and development costs have been fully expensed.

For the nine months ended March 31, 2000 research and development expenses
increased by approximately $286,000 over $1,132,000 for the nine months ended
March 31, 1999 which reflects the significant increase in resources which MSU
has been able to deploy in this area following the successful raising of
additional capital in the fourth quarter of fiscal 1999. The fluctuations from
period to period reflect

16
<PAGE>

the varying demands for research and development which are dictated by
technological changes and the need for MSU's products to remain competitive and
commercially viable, and the requirements of MSU's customers. MSU has been
focused on the development of 'Version 3' of its IAD which is now in the
prototype stage and which will begin to be produced commercially during the
next fiscal quarter. Additionally MSU will continue to develop its proprietary
software. The nature of the IAD enables software downloads to be provided to
customers upon release.

For the years ended June 30 1999, 1998 and 1997, research and development
costs were approximately $1,556,000, $1,409,000 and $1,386,000, respectively.
As a percentage of revenues, research and development expenses were
approximately 490% in 1999, 34% in 1998 94% in 1997 and 318% in 1996.

Selling General and Administrative Expenses

Selling, general and administrative and other expenses principally consist
of the cost of employees (other than those dedicated to research and
development) advertising and promotional costs, which are charged to operations
as incurred, communication, rent and occupancy costs; and professional fees.

Selling, general and administrative and other expenses for the nine months
ended March 31, 2000 increased by approximately $412,000 from $1,050,000 in the
same period of 1999. The increase in the nine months ended March 31, 2000 is
primarily due to an increase in personnel, marketing and promotional costs in
this period during which the Company announced the formation of a business
alliance in the United States; distribution and support agreements in the
United Kingdom; and a licensing agreement in India, all of which are referred
to in more detail above. In general terms, MSU has begun to develop during the
nine months ended March 31, 2000 a structured and professional sales and
marketing framework to exploit the current product. Investment in this area is
likely to increase during the next year.

Selling general and administrative expenses were approximately $1,686,000,
$1,211,000 and $1,486,000 for the years ended June 30, 1999, 1998 and 1997,
respectively. The 39% increase in expenses in 1999 is primarily due to the
non-recurring costs of an external review of MSU's objectives and strategy and
to the consequent management reorganization of approximately $250,000. The 18%
decrease in such expenses in 1998 compared to 1997 is primarily due to a
reduction in personnel, marketing and promotional costs in this year during
which MSU was concentrating on the development of its products.

Depreciation Expense

Depreciation is calculated using the straight line method over the
estimated useful lives of MSU's depreciable assets which consist principally of
electronics equipment used in the design and testing of MSU's products.

Depreciation expense was approximately $65,000 for the nine month period
ended March 31, 2000 and was approximately $74,000, $50,000 and $44,000 for the
fiscal years ended June 30, 1999, 1998, 1997, respectively.

Interest Expense

Interest expense for the nine months ended March 31, 2000 decreased by
approximately $24,000 from $106,000 in the corresponding period in 1999.
Interest expense in the current year represents interest payable on promissory
notes totaling $580,000 through the first two quarters, and on a further
$750,000 of promissory notes that were issued in the third quarter of fiscal
2000.

Interest expense was approximately $158,000, $298,000 and $26,000 for the
fiscal years ended June 30, 1999, 1998 and 1997, respectively. The interest
expense in 1999 is mainly attributable to the interest on the $2.3 million 10%
convertible promissory notes issued in 1997 which were either converted or
repaid in fiscal 1999, together with interest on the 6% and 8% convertible
promissory notes issued in December 1998 and January 1999. The interest expense
in 1998 was principally due to an interest cost of approximately $230,000 in
respect of the 10% convertible promissory notes and $68,000 in respect of short
term loan financing received during the year. The interest expense in 1997 was
principally due to the interest of $17,600 paid in respect of certain bridge
financing.

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Loan Cost Amortization and Registration Costs

Amortization of deferred financing costs approximated $918,000 for the
year ended June 30, 1998. These costs were incurred in connection with the sale
of the 10% convertible promissory notes between June and September 1997 and
include the costs associated with the preparation, filing and subsequent
withdrawal of a Registration Statement on Form S-1 in connection with the
shares underlying the notes. All such costs have now been fully expensed.

Non-Operating Income (expense)

In the nine months ended March 31, 2000 MSU capitalized and immediately
charged to expense approximately $441,000 of discount associated with
convertible note issuances during the period.

In 1999 MSU recorded an impairment loss on its investment of approximately
$2,500,000 in shares of AIM common stock which declined in market value as MSU
believes that the decline in market value to be permanent. Additionally during
1999 MSU capitalized and immediately charged to expense approximately
$3,670,000 of discount associated with convertible note issuances during fiscal
1999.

Liquidity and Capital Resources

MSU has financed its current operations primarily through private sales of
unregistered equity and debt securities.

For the nine-month period ended March 31, 2000 cash used in operating
activities of approximately $3,406,000 was attributable to MSU's net loss for
the period of approximately $3,434,000. Cash flows used in investing activities
of approximately $106,000 during such period related mainly to the acquisition
of computer equipment.

Cash flows from financing activities of approximately $1,073,000 for the
nine months ended March 31, 2000 were attributable to an issue of new
convertible notes of $150,000 which were later converted into shares of common
stock at a conversion price of $2 per share; an issue of $750,000 of new
convertible notes in January and February 2000; and to the sale of 175,750
shares of common stock for $169,125 (mostly as a result of a former director
exercising options).

At March 31, 2000 MSU's principal source of liquidity was approximately
$206,000 in cash.

For the year ending June 30, 1999 cash used in operating activities of
approximately $2,512,000 was primarily attributed to MSU's net loss for the
year of approximately $9,685,000. Cash flows from financing activities of
approximately $4,996,000 were mainly attributable to (i) the sale of new
convertible promissory notes of $3,670,000 in May 1999, which were converted at
$2.00 per share in June 1999; (ii) the sale of common stock during the year for
approximately $1,014,000; and (iii) the proceeds from the sale of 6% and 8%
secured convertible promissory notes for $505,000.

Capital expenditures were approximately $107,000 for the fiscal 1999 which
mainly relates to the acquisition of electronic equipment. MSU currently
estimates that capital expenditures for fiscal 2000 will be approximately
$1,000,000. MSU has no material commitments, other than an operating lease and
six employment agreements, of which four are with directors.

The sale of 3,290,000 shares of common stock, which realized cash of
$3,290,000 million in May and June 2000, (of which $1.5 million has been
applied towards a standby letter of credit with Flextronics), together with the
cash flows generated by operations, has been sufficient to meet MSU's working
capital requirements through to June 30, 2000. MSU anticipates that further
cash will be required for its working capital and capital expenditure through
fiscal 2001. The preceding statement is a forward looking statement which
assumes the realization of revenue from conditional and forecasted purchase
orders. Such forward looking statement is subject to certain risks and
uncertainties which could cause actual results to differ

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materially from those set forth but not limited to approval of final production
samples of the IADs by potential customers; acceptance by and demand for such
product by consumers; satisfactory product performance; and the ability of such
products to successfully compete in an extremely competitive market place. To
satisfy the balance of any future liquidity requirements, MSU will attempt to
sell additional equity or debt securities and/or obtain additional credit
facilities to the extent it 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 MSU's stockholders. There can be no assurance
that MSU's liquidity requirements will be met or that it will be able to
continue as a going concern.

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BUSINESS

Business Development

MSU Corporation, formerly Capital Acquisitions Company ("Capital
Acquisition"), was incorporated in Florida in 1986. MSU Corporation conducted
no substantive business until October 1994 when all of the outstanding shares
of MSU Public Limited Company, an England and Wales company formed under the
Companies Act of 1985 ("MSU PLC") were exchanged for Capital Acquisition shares
(the "Exchange"). The Exchange was treated for financial reporting purposes as
a reverse acquisition or purchase of Capital Acquisition by MSU PLC. MSU PLC in
turn owns all of the outstanding shares of Web2u Limited, formerly called MSU
(UK) Limited ("Web 2 Limited"), an England and Wales company formed under the
Companies Act of 1985. Web2u Limited was formed in March 1991 and commenced
operations in March 1992. MSU's business is based in the United Kingdom and is
conducted almost exclusively by Web2u Limited, its second tier subsidiary. In
February 1997, MSU US Operations Inc., a North Carolina corporation and a
wholly owned subsidiary of MSU Corporation ("MSU US") was formed to act as a
sales company, in the United States, marketing and selling products developed
by MSU. However it has remained dormant since its incorporation.

Unless the context otherwise requires, references in this prospectus to
'MSU' refer to MSU Corporation, MSU PLC, Web2u Limited and MSU US.

General Overview

MSU operates primarily through Web2u Limited which is principally engaged
in the design and development of software, computer chips and chipsets
principally for use in high volume consumer electronic products. Most of the
Company's chips incorporate multiple functions, thereby eliminating the need
for multiple chips and permitting a more efficient printed circuit board design
and a diminished risk of malfunction and error at a lower cost. The current
focus of MSU is on the sale and further development of the IAD to be used in
conjunction with television and telephones.

The IAD is a low cost, easy to use, small set top device which provides
access to the Internet and on-line services via a telephone connection,
standard television set and wireless keyboard. Access to the Internet and
on-line services is conventionally via PCs, which represent both a cost and
technology barrier to many consumers. Version 2 of the IAD is currently in
production. The next generation of the IAD, the Version 3 product, is currently
being developed and is based upon MSU's proprietary ISP Chip-version 3.

In 2000 MSU has started to generate revenues from sales of its IADs which,
it believes, should result in further revenues accruing to MSU in subsequent
years. However, prior to December 31, 1999 most of MSU's revenues came from
development arrangements and licensing agreements.

MSU has also developed prototype electronic products with particular
emphasis on prototype consumer electronic products. Prototype electronic
products developed by MSU are almost exclusively based on MSU's proprietary
chips and chipsets. These prototype products are used for demonstrations and
marketing presentations to consumer electronic manufacturers and others with an
interest in MSU's chip technology and products.

To date, MSU has developed numerous consumer electronic products on its own
behalf as a result of development contracts or arrangements with manufacturers
and distributors based in China, Taiwan, India, Australia, the United States and
the United Kingdom. These contracts have typically provided for payment of
development and/or license fees to MSU and royalties on sales of products
utilizing MSU's chips or chipsets.

Other than in the very limited circumstances as described more fully
herein no products developed pursuant to development contracts have been sold
and no royalties have been received. In most instances, MSU has no control over
a third party's manufacturing, marketing or purchasing decisions, and
accordingly their can be no assurance that any developed products will be
manufactured, marketed or sold. In fiscal 1998, MSU's revenues were derived
almost entirely from license fees. In fiscal 1999, apart from a very small
amount of income mostly derived from sample sales, MSU had no income.

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In October 1993, MSU Limited entered into several agreements with IBM
pertaining to the development of software and hardware for consumer multimedia
units using the Slipstream ASIC Chip -- version 4.5. See "MSU -- Chip
Technology." In April 1995, after all development projects contemplated by the
agreements had been completed IBM advised MSU that it had determined not to
pursue, at that time, the consumer multimedia product market and that it would
not announce prior to July 1995 a product using the intellectual property
developed by MSU in conjunction with and licensed to IBM. IBM retains a
non-exclusive license to use such intellectual property. Additionally any major
enhancements to and replacement of such intellectual property as well as other
technology developed by MSU must be offered first to IBM in writing. MSU has
offered its Internet Access Device, Web2u, and related ISP Chip technology to
IBM and IBM has advised MSU of its rejection of such offer. MSU has not yet
offered the Envoy Chip or the Wynpeg Chipset to IBM.

Chip Technology

Slipstream Application Specified Integrated Circuit ("Slipstream ASIC
Chip"). The Slipstream ASIC Chip is a multi-function chip which provides
graphics capability and high quality sound for multimedia systems. The
Slipstream ASIC Chip incorporates (i) a video generator, that generates the
video signal from digital information; (ii) a graphics accelerator, that
controls memory and access to digital information allowing the manipulation and
control of images; and (iii) digital signal processors, that allow the
compression and decompression of data from CDs permitting the storage of
massive amounts of data necessary for the storage and retrieval of images.
These functions are typically achieved through the use of a group of chips in
series.

Computer image creation begins with the creation of pixels. Pixels are
individual picture elements that make up a video display such as a computer or
television screen. Each pixel contains information that is defined by the
signal or program, such as a movie or video game, that it is displaying. The
more information that may be held in each unit, the sharper and the more
defined the image. As computer hardware is able to process the information in a
signal or program with greater speed, the information projected in each pixel
may be changed more quickly, creating an improved illusion of motion, animation
and shading of images on the computer screen. The Slipstream ASIC Chip
generates and processes the pixel information necessary for image creation and
movement. Because conventional computer discs and storage devices are unable to
store efficiently the additional amount of data necessary in each pixel and
within each time frame to generate images adequately, MSU's Slipstream ASIC
Chip makes use of CD technology and uses a CD interface and a graphics
accelerator for enhanced retrieval. The Slipstream Chip further enhances
retrieval from the CD using a digital signal processor that interfaces to a
digital-to-analog converter and makes use of the advanced CD compression
techniques. The signals are compressed to allow for more effective and
efficient storage. The Slipstream ASIC Chip also includes algorithms which
eliminate unimportant or redundant data so that storage space is not wasted.

The Slipstream ASIC Chip-version 4.5 is available in silicon. MSU's
prototype generic (Video) CD Player is based upon the Slipstream ASIC Chip. See
"Products."

Internet Services Processor ("ISP Chip"). The ISP Chip is a version of the
Slipstream ASIC Chip designed for use in Internet products such as MSU's IAD.
See "Products." Prior prototype Consumer Internet Access Devices used the
Slipstream ASIC Chip. The ISP Chip provides more Internet related features (at
a lower cost) than the Slipstream ASIC Chip. The ISP Chip is a graphics and
sound processor which also provides interfacing and logic for the CPU and
system memory. The ISP3 Chip is available in Silicon.

CD Services Chip ("Envoy Chip"). The Envoy Chip reduces the complexity in
compact disc drive systems and the cost of interfacing to compact disc drives
in both PC's and consumer CD products. The Envoy Chip replaces six chips
typically used within a CD mechanism. The three principal electronic components
of a compact disc player are the servo processor, signal processor and micro
controller. The Envoy Chip provides the servo, signal and control functions.
The Envoy Chip is also suitable for CD ROM applications as it can replace
principal components along the data path. The Envoy Chip is available in
Silicon.

M-Peg Chipsets ("Wynpeg Chipsets"). The Wynpeg Chipset incorporates the
Slipstream ASIC Chip and another non-proprietary chip that implements the
decoding standards of the Motion Picture Experts Group. M-PEG is an
international standards body that defined a world-wide standard for the
compression of video data called Philips White Book Video M-PEG Standard. MSU's
Wynpeg chipset is capable of decompressing video signals in accordance with
such standard.

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Products

Internet Access Device. MSU's Internet Access Device, Web2u, is a low
cost, easy to use, small set top device which provides access to the Internet
and on-line services via a telephone connection, standard television set and
wireless keyboard. Access to the Internet and on-line services is
conventionally via PCs, which represent both a cost and technology barrier to
many consumers. Version 2 of MSU's Internet Access Device is currently in
production. The next generation Version 3 product is based upon the ISP
Chip-version 3.

MSU has developed and is continuing to modify the software contained in
its IAD. The software is stored on memory chips and hard coded in the IAD. The
software enables users to interact with the Internet via its e-mail and browser
functions. Significant software modifications to the IAD have been completed
since its conception. MSU can deliver, and has delivered, software updates to
IADs sold and in use which is accomplished by downloading software via the
Internet or from a licensed on-line or Internet service provider. It is
anticipated that software development will continue, and updates and
improvements will be made available via the Internet to existing users.
Although steps will be taken by MSU to protect its software from unauthorized
modifications, there can be no assurance that unauthorized modifications will
not occur.

MSU's IAD has been demonstrated internationally to manufacturers and
others and has experienced significant interest in the IAD and related
technology.

During fiscal 1997 and 1998 approximately 15,000 devices were manufactured
and either sold to commercial customers or were purchased from Mitac by MSU and
sold as production samples to other potential customers.

In 1999, 5,000 devices incorporating the latest software release were
manufactured by Thakral, many of which are currently being used as production
samples by a number of potential customers. Further production orders have been
placed with Thakral in 2000, and of these, approximately 5,000 units have been
delivered so far, and further deliveries are pending.

MSU had an agreement with Mitac which granted a non-exclusive license to
Mitac to manufacture and sell MSU's IAD, including the ISP Chipset and
software. The agreement also provided for a royalty payment by Mitac in
addition to sharing the profits from product sales. The agreement was mutually
rescinded during fiscal 1999 and MSU no longer licenses to Mitac

On May 6, 1998 MSU entered into a licensing agreement with American
Interactive Media Inc. ("AIM") whereby MSU granted to AIM a world-wide
non-exclusive license in respect of the MSU proprietary intellectual property
relating to the IAD. The consideration for the license was $1,150,000 in cash
and 560,000 restricted shares of common stock in AIM of which 60,000 shares
were issued directly to Capitol Bay Securities and Daybreak Fund LLC in
settlement of short term funding received of $314,985, together with accrued
interest and other fees owing.

This agreement, which supersedes all previous agreements with AIM, grants
AIM a non-exclusive world wide license to make, use, modify, have made, sell,
market and distribute the software embedded or used by MSU in the development
or manufacture of its proprietary IAD. The agreement also grants MSU, a
non-exclusive world-wide license from AIM to make, have made, copy, sell and
market AIM's Frames software for incorporation into Internet access browsers
including the Frames software and to sub license others to do so.

The manufacturing agreement with Thakral grants a non-exclusive license to
Thakral to manufacture and sell MSU's Internet Access Device using the ISP
chipset, the related software and all related intellectual property. The
agreement provides for the sale by Thakral of the finished and packaged IADs to
MSU and/or its OEM customers. MSU is to make payment for the supply of the IADs
to it or its OEM customers by issuing an irrevocable letter of credit in favour
of Thakral in the value of each purchase order. MSU has agreed to supply
Thakral with ISP Chipsets at a fixed price per set during the term of the
agreement.

In January 2000, MSU signed a licensing agreement with JadooNet.com Ltd.
("JadooNet"), a joint venture between Salora International Ltd. and Infoquest
E-Commerce Pvt Ltd., for the license, manufacture

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and sale of the Web2u Internet Set Top Box in India. JadooNet will exclusively
manufacture and market the IAD in India and also sell it into Bangladesh, Nepal
and Sri Lanka. MSU will receive a license fee per unit produced and will sell
certain components of the IAD to JadooNet. MSU will also help customize the
product for the markets covered by the Agreement. As part of this agreement,
each of MSU and JadooNet will receive options to purchase shares in the other,
in an agreed upon amount of 3.5 percent of the outstanding capital stock of
each company. JadooNet is incorporated in India with its registered office in
Bombay. It is a strategic partner of Salora International Ltd., which is a
manufacturer and marketer of a variety of electronic products. Salora began
introducing television sets into the Indian market in 1977. It presently
manufactures and/or markets television sets, speakers, Panasonic fax machines,
printers, and digital cameras. It also sells color monitors and cordless phones
under its own brand. An on-going strategy for Salora has been to introduce new
technology into the Indian market with foreign partners. Salora possesses three
manufacturing facilities in India and has its own research and development
staff. Infoquest E-Commerce Pvt Ltd. is an Internet incubator with business
interests in innovative Internet access devices, Internet payment portals, an
IT retail chain, and IT-enabled services.

The June 2000 manufacturing agreement with Flextronics grants a
non-exclusive license to Flextronics to manufacture and sell to MSU its IAD
using the ISP chipset, the related software and all related intellectual
property for a period of one year following which the agreement is
automatically renewed for separate but successive one year terms; although the
agreement does permit termination on 90 days written notice by either party.
The agreement provides for the sale by Flextronics of the finished and packaged
IADs to MSU and payment is to be made by MSU within 30 days from the date of
the invoice. As part of the agreement, in order to minimize the financial risk
to Flextronics, MSU has been required to issue a standby documentary credit to
Flextronics for $1.5 million which expires May 30, 2002.

Generic (Video) CD Player. A prototype Generic CD Player, based on the
Slipstream ASIC Chip, is a multi media product capable of use as a video CD
player, audio CD player, and for a photo CD and Karaoke. This CD based multi
media product consists of a conventional CD player equipped with an internal
audio amplifier; a karaoke function which has the ability to run stereo sound
track and produce graphics on the screen with overlaying text for lyrics; and a
photo CD compatible with standard photo CDs and capable of supporting Kodak
multi session-photo CDs. The prototype Generic CD Player operates with a
standard television set.

MSU has utilized the prototype Generic CD Player for demonstration
purposes only. Specific products were designed and developed in connection with
development contracts with two manufacturers in Taiwan and China, respectively.
To date, no products have been manufactured for sale.

Consumer PC. The Consumer PC is a CD based consumer product compatible
with most PC software and providing Internet connection capability but
operating via a standard television set. The Consumer PC resembles a VCR or CD
player in both appearance and operation but serves in many capacities including
as a video CD player and a PC CD ROM software disc player. The Consumer PC is
not currently based on chip technology, but is based on system software
designed by MSU. MSU has participated in a Consumer PC product development
arrangement with a German manufacturer. Development of the product has been
completed, however, to date, no products have been manufactured for sale.

Strategy

MSU's strategy can be segmented into three specific areas: people,
processes, and products. MSU anticipates that this three-fold focus will enable
it to attack the Internet related products market aggressively.

People

The early focus of MSU was driven more by product design than by
organizational structure. MSU has begun to reshape its organization to make it
function more in line with successful technology based companies. In fiscal
2000 MSU has strengthened its management team and will continue to do so by
adding key members as circumstances permit. It will strengthen three areas:
overall management of MSU, product development and market understanding and
product positioning.

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Process

Secondly, MSU has instituted, and is continuing to review, critical
processes around management controls and product development. Such management
controls enable MSU to clearly define its financial and technology development
targets. Formalized product development processes allow MSU to routinize its
existing product development process, leading to increased utilization of its
innovation resources.

Product

Finally, MSU has decided to focus its products around Internet based
communication devices. The strategy here is two-fold: firstly, to continue to
develop MSU's next generation IAD, and secondly, to drive down the existing
price level. MSU believes that it has an advantage from the use of its
proprietary technology, and in particular its Internet related software
technology. MSU intends to pursue further development of the software
technology as it believes that this is an increasingly important aspect of its
business.

In order to support this strategy, MSU anticipates that if revenues from
operations are not generated in the coming months, it will, at least in the
short term, have to continue to fund a significant portion of its operations
through private sales of equity securities to and/or borrowing from third
parties, to the extent such sources of capital are available to MSU. In the
event these sources of capital are not available to MSU, it would hamper the
Company's progress and have a material adverse effect on its financial
condition.

The markets for MSU's products have only recently begun to develop, are
rapidly evolving and are highly competitive, with some of the competitors
having significantly greater resources than MSU. MSU and its prospects must be
considered in light of the substantial risks, expenses and difficulties facing
MSU. There can be no assurance that MSU will be successful in addressing any of
the foregoing risks, that it will be successful in implementing its strategy,
that it will ever achieve profitability or that it will be able to continue as
a going concern. See Report of Independent Auditors and Company's financial
statements appearing elsewhere in this prospectus.

Support Services

MSU has provided and will, if requested, continue to provide consulting
and other development services pursuant to contracts entered into with consumer
electronic manufacturers and others. Company employees assist in, among other
matters, identifying trends in consumer preference and generating new product
ideas. MSU is involved in the development of software compatible with certain
of its products and intends to offer technical support to consumers of its
products and hardware and software engineers; however, there can be no
assurance that such activities will result in profits to MSU.

Supply and Manufacturing

United Micro Corporation, a Taiwanese chip manufacturer, has manufactured
all of the ISP Chip -- version 2 and ISP Chip --version 3 used in the IAD
manufactured by Thakral to date, as well as the Envoy chip. MSU has no written
agreement with United Micro Corporation. See "Products -- Internet Access
Device." To date MSU has not experienced any significant problems obtaining the
requisite number of chips for its operations although its demands have been
relatively small. MSU has commenced discussions with other manufacturers for the
production of additional chips and chipsets should the need arise. Should demand
for MSU's chips and chipsets increase significantly, there can be no assurance
that MSU will be able to meet such demand, which could have a material adverse
effect on MSU. Arrangements with new manufacturers could result in substantial
delays, engineering charges and additional expense.

MSU has set up manufacturing with Thakral in China. Should this not
continue, MSU could be adversely affected in the short term, although there are
other companies which can manufacture the product. Thakral is a major Asian
consumer company, and sales in China are only possible with local manufacturing
facilities.

In May 2000 MSU announced that it had signed an agreement with Flextronics
to manufacture its version 3 IADs in Hamilton, Scotland.

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Research and Development

Since 1992, MSU has been engaged in developing its own chips and prototype
products. It has done so independently and pursuant to research and development
arrangements. Research is conducted at MSU's facilities located in Milton
Keynes and Cambridge, England through engineers and programmers employed by it
as well as independent contractors. During the fiscal years ended June 30,
1997, 1998 and 1999, MSU expended approximately $1.4 million, $1.4 million and
$1.6 million, respectively on unreimbursed research and development (which
excludes all overhead costs other than employee, independent contractor,
development tool and prototyping cost), all of which has been expensed. In the
nine month period ended March 31, 2000 the amount expended on research and
development was $1.4 million

The multimedia, consumer electronics, computer and hardware and software
industries are characterized by rapidly changing technology, evolving industry
standards and frequent introductions of new products. The broad array of
competing and incompatible emerging technologies may lead consumers to postpone
buying decisions until one or more such technologies gain widespread
acceptance. MSU's success will depend upon its ability to anticipate such
technological changes, adapt its products, introduce competitive products with
features that meet changing customer requirements, and remain competitive in
terms of price and product performance, and there can be no assurance that MSU
will be able to meet any of these demands. Any material failure of MSU to meet
any of these demands would adversely affect the use and acceptance of MSU's
products, chips and chipsets and the introduction and sale of products using
MSU's chips or chipsets, and would increase the likelihood that competitive
products would become broadly accepted. There can be no assurance that MSU will
successfully anticipate technological changes or that products developed by
others will not render obsolete or commercially unviable MSU's chips and
chipsets and the products using such chips and chipsets.

Intellectual Property and Proprietary Rights

MSU's ability to compete successfully depends, in part, on its ability to
protect its intellectual property and proprietary technology in the United
Kingdom, the United States and other countries. MSU has no issued patents but
relies on a combination of trade secret protection, confidentiality agreements
and licensing agreements with strategic partners, employees, consultants,
vendors and licensees. MSU believes that the two dimensional design
representation prepared for each of its chips is protected under the UK
Copyright, Designs and Patent Act of 1988, which requires no registration with
respect to such technology, and that the three dimensional aspects of each of
its chips, including the electronic routes in the silicon, are protected under
the UK Topography Rights. MSU believes that its chip technology is entitled to
comparable protection under the US Copyright Act of 1976 and the Semiconductor
Chip Protection Act of 1984. Although the Semiconductor Chip Protection Act
does not require registration, the failure to register results in the loss of
benefits after the passage of two years from the first commercial sale of a
chip. MSU has not registered any of its chips under such Act. It is MSU's
belief that patents for ASIC Chip technology are rarely granted because of
rapid technology changes and the relative ease of designing round such patents.
Despite this, MSU filed patent applications in the United Kingdom and the
United States directed to the Slipstream ASIC Chip technology. MSU elected not
to continue with the prosecution of these applications, due in large part to a
lack of working capital, and the applications have been abandoned.

A UK Patent application (No. 9706198.0) in respect of the Envoy CD
Controller was filed on March 25, 1997. It is MSU's intention to complete the
filing of the necessary information to support this application.

No assurance can be given that any patent will issue from any application
that may be filed, or that if a patent does issue, the claims will be
sufficiently broad to provide effective legal protection or monopoly. In
addition, no assurance can be given that any patent issued to MSU will not be
challenged, invalidated or avoided by design-around efforts, that the rights
granted under any such patent will provide competitive advantages to MSU or
that MSU's competitors will not independently develop or patent technologies
that are substantially equivalent or superior to MSU's technologies or that
such patents will not be subservient to other dominant patents. Accordingly,
MSU may be unable to protect certain technology relating to its chips.

MSU's license agreements prohibit unauthorized disclosures of MSU's
technology to third parties. In cases where MSU has contracted with third
parties in foreign countries, these provisions may be difficult to

25
<PAGE>

enforce in such foreign countries despite the existence of any applicable
international treaties or conventions designed to protect rights to technology.
MSU is aware that third parties may attempt to reverse engineer MSU's
technology. There can be no assurance that MSU's confidentiality agreements
will not be breached, or that MSU would have adequate remedies for any such
breach. There can be no assurance that MSU's technology may not otherwise
become known or be independently discovered by competitors. Under United
Kingdom law, copyrights and mask rights related to technology designed and
developed by independent contractors, while commissioned by MSU for such
purpose, remain the property of MSU, unlike in the United States where an
assignment of such rights from the independent contractor would be necessary to
attain ownership of all such rights.

MSU has registered trademarks for the names:

(i) Wynpeg in the United Kingdom (Reg. No. 1572811, effective May 21,
1994), Hong Kong (Reg. No. 06937/96, effective December 20, 1994),
Taiwan (Reg. No. 00708445, effective April 1, 1996) and the United
States (Reg. No. 74/718836, effective March 25, 1997).

(ii) Slipstream in the United Kingdom (Reg. No. 2114009).

(iii) Web2u (applications) in the United Kingdom (App. No. GB219254) dated
23 March, 1999, China (App. No. CN99000 4550) dated April 29, 1999,
European Union (App. No. EM1138221), dated April 10, 1999, Hong Kong
(App. No.HK99/04522) dated April 13, 1999, Japan (App. No.
JP44644/99) dated May 24, 1999, Singapore (App. No. T99/038960)
dated April 21, 1999, Taiwan (App. No. TW88023575) dated May 18,
1999, and the United States (App. No. US75/694832) dated April 30,
1999.

In addition, applications have been filed for the registration of the
Envoy trademark in the United Kingdom (Application No. 217809 which MSU is
informed by its Patent Attorneys is proceeding to acceptance), China
(Application No. 970055064) and Hong Kong (Application No. 97/07465).
Applications have also been filed to register the Envoy trademark in the
European Community (Application No. 586107), the United States of America
(Application No. 75/304,571), Japan (Application No. 124075/97), Taiwan
(Application No. 86027777) and Singapore (Application No. s/6442/97).

There can be no assurance that these trademark registrations will be
accepted or, if accepted, will later not be canceled or invalidated or that
MSU's rights will not be subject to rights of prior users. MSU relies heavily
on trademark protection under common law. There can be no assurance that such
common law rights will not be limited or invalidated by third parties.

The IAD browser software consists of a program which is proprietary to MSU.
Copyright exists in computer programs and, copying by any customer or competitor
of either the source code, object code or "look and feel" of the program will be
an infrigment of MSU's proprietary rights. In the United States, such protection
is governed by the the Copyright Act Title 17 of the US Code. In Europe, the
provisions of the 1991 Directive on the Legal Protection of Computer Programs
has been implemented by member states in their domestic laws. In Japan,
protection is secured by the 1985 & 1986 amendments to the Copyright Act which
expressly provides for protection for computer programs. Similar laws exist in
other international jurisdictions for the protection of computer programs
whereby states have subscribed to the 1987 Berne Convention and the "1996 WIPO
(World Intellectual Property Organisation) Copyright Treaty". Such laws may not
protect MSU from development of software which is similar to MSU's or from
copying and modifying MSU's source or object code for another purpose.

Employees

MSU has 21 employees, including three business development personnel,
sixteen technical personnel and two administrators. MSU uses independent
contractors for certain research and development matters.

MSU is highly dependent on the experience of certain key personnel
including certain of its executive officers and computer programmers, designers
and engineers who contribute to the development and production of MSU's chips,
chipsets and other products. If MSU were to lose the services of one or more of
these key employees, before a qualified replacement could be obtained, its
business could be materially adversely affected.

26
<PAGE>

The multimedia, consumer electronics and computer industries are
characterized by a high level of employee mobility and aggressive recruiting of
skilled personnel. There can be no assurance that MSU's current employees will
continue to work for MSU or that MSU will be able to obtain the services of
additional personnel, whether for replacement purposes or for new positions,
necessary for MSU's growth and success. MSU has no current plans to obtain
key-man insurance on its key personnel.

Marketing

MSU markets its products, chips and prototype electronic products through
exhibitions (such as Comdex Fall, CES and CeBit) at trade shows (such as ISP
Con and Internet World), distributors, strategic partners and potential
licensees of its technologies and products. MSU targets corporations in the
consumer electronic, telecommunications, multimedia, computer hardware and
software industries.

The period to March 31, 2000 saw substantive progress in positioning MSU
to enter its chosen markets. Within the UK, Argos, the largest UK catalogue
retailer, listed the IAD in its Spring Summer catalogue from January 30, 2000.
Catalogue circulation is forecast at approximately 16 million for the Spring
Summer edition. The IAD product has additionally been included in some
specialized in store catalogues within the 438 stores operated by Argos.
Additionally, within the UK market, Tandy stores, which specialize in consumer
electronic products, began offering the IAD in a majority of their stores from
February. Tandy, owned by Carphone Warehouse in the UK, operates 228 town
center stores in the UK. Tandy also is expected to include the IAD in is its
catalogue to be available later in 2000. To ready MSU for these and further
incursions into the UK retail market, MSU has established agreements with a
distribution and logistics company, Doro Audioline, as well as a product
support specialist, Infoteam Managed Services. MSU has entered into an
agreement with Doro Audioline to distribute the IAD in selected UK retail and
mail order accounts. Doro Audioline is a 25-year old telecommunications firm
with extensive experience in the UK markets. Doro Audioline will also provide
general warehousing and other distribution services to MSU. The Company has
also achieved an agreement with Infoteam to provide consumer and technical
support for the IAD product in the UK. Infoteam currently also supports the
Sony Playstation\R as well as other electronic products in UK markets.

Outside the UK market, MSU has chosen to pursue partnering strategies with
companies that can provide MSU with immediate commercial advantages.

In January 2000 agreements were signed with JadooNet.com to provide for
the license, manufacture and sale of the Internet set top boxes in India, Sri
Lanka, Bangladesh and Nepal details of which are set out under Products --
Internet Access Devices.

Within the territories of North and South America MSU has entered into a
sales agency agreement with Corstar Business Computing Co. Inc., of Hawthorne
New York, and McLaughlin International Inc., in San Antonio, Texas to promote
and sell MSU's products. Mark McLaughlin is a principal shareholder in MSU, is
the controlling principal of McLaughlin International, Inc. MSU has agreed to
pay these companies a fee, to be divided equally between them, plus a
commission per unit of MSU's products sold. MSU, as additional consideration,
granted these companies warrants, and has also agreed to issue additional
warrants based upon the sale of additional units of MSU's products See
"Products -- Internet Access Devices".

In May 2000, MSU entered into a memorandum of understanding with African
Lakes Corporation PLC for an initial five year exclusive sales and distribution
agreement for the IADs in Africa.

Products that incorporate MSU's chips or chipsets have only been
manufactured in limited quantities. There can be no assurance that significant
numbers of these products will ever be manufactured, marketed and sold to the
public. In connection with the manufacture and sale of such products, MSU is
and will continue to be dependent upon the manufacturing, marketing, financial,
technological and other abilities of third parties with which it has
established, or is attempting to establish commercial relations to develop,
manufacture and market products using MSU's chips or chipsets. If MSU is unable
to establish the requisite third party commercial relations, products using its
chips or chipsets may never be successfully manufactured, marketed or sold. If
any such third party fails to commit sufficient resources to complete the
proper development, manufacturing or marketing of such products, MSU's
reputation, business relationships, and product

27
<PAGE>

acceptance could be adversely affected. In addition, MSU will have little, if
any, control over the timing or methods employed in the manufacture marketing
or sale of such products. Accordingly, if any products using MSU's chips or
chipsets, perform poorly, are inferior in quality or do not achieve market
success, poor performance may be associated with MSU's chips and chipsets. MSU
continues to review the adequacy of its insurance coverage. Presently, MSU
believes that its insurance coverage may be inadequate in light of current and
prospective trading agreements. However, it continues to endeavor to obtain
adequate coverage, although no assurance can be given that adequate insurance
will be obtained.

Service Provider

The company has reached an agreement with British Telecommunications Plc
("BT") in that BTClick, a division of BT, will provide Internet access on IADs
supplied to the UK domestic market. As part of this agreement BTClick will
provide MSU with a percentage share of all ongoing call revenues that BT
receive from calls generated by the product. This agreement does not preclude
MSU from discussions with other Internet Service Providers either in the UK or
in the other markets in which it wishes to operate. It is anticipated that
other service provider agreements will be completed on an ongoing basis.

MSU is also in discussion with prospective partners who will provide MSU
with either a 'Portal Site' or content in various markets that can be utilised
on its IAD. These 'Portals' or 'content' will be separate to any Internet
Service Provider agreement that may be reached. MSU is also in discussion with
a partner who can provide MSU with a 'Search Engine' facility that can be
utilised on its products. This search engine will also be separate to any
Internet Service Provider and Portal agreement that may be reached.

Initially the Service Provider, Portal and Search Engine agreements are
likely to apply to the UK market, but could be offered to distributors and
potential distributors around the world.

MSU has also recently entered into an agreement with Infoteam Managed
Services in UK for them to provide first line technical and consumer help line
facilities through their call centre for the UK domestic market

Other than as referred to above in respect of the UK market, MSU has no
agreement with an Internet or on-line service provider. If IADs using MSU's ISP
Chip are manufactured and sold to consumers outside of the UK market,
arrangements with service providers will be required to ensure that a direct
connection between a customized IAD and the Internet can be effected. Such
arrangements will be between the service provider and either MSU, the
manufacturer or purchasers of the IAD. There can be no assurance that
satisfactory arrangements will be entered into with one or more service
providers in any or all of the territories in which MSU wishes to operate, or
that MSU will enter into any agreement directly with a service provider in
these territories, which MSU believes would be preferable. A service provider
may agree to use MSU's developed software, as is, or with minimal
modifications; jointly to develop new software with MSU, or to develop its own
software. It is possible that a service provider could elect to use MSU's
software and retain the services of MSU for software, technical and development
support. It is also possible that a service provider will purchase the IAD from
MSU, the manufacturer or other party, develop and incorporate its own software
and sell the IAD to consumers at a significantly lower price. Large service
providers will likely prefer to have less dependence on MSU and others. There
can be no assurance that a service provider will agree to use MSU's software
and retain MSU's services for support which would likely result in greater
potential revenues to MSU.

Competition

The market for Internet access devices, other than PC's is currently
underdeveloped, but will become highly competitive over the next few years.
Numerous competitors have commercialized, are developing or are expected to
introduce either directly competitive or indirectly competitive products.

For direct competitive product WebTV is the strongest competitor in North
American market together with Websurfer. Netgem provides a competitive product
in Europe as does Met@box and Easy@TV. There are also numerous Set Top Boxes
available on an FOB basis from the Far East.

28
<PAGE>

MSU expects that as this market rapidly develops that brand name companies
will attempt to develop and launch their own product into the direct
competitive market. MSU will also face competition from PC's as they reduce in
price, WAP phones as the technology progresses, together with numerous other
products that offer a variant of connectivity to the Internet.

Many of MSU's current and potential competitors have greater financial,
technical, manufacturing, marketing, distribution and other resources than MSU
as well as larger research and development staffs and facilities. Some of these
companies also have greater name recognition and market presence, longer
operating histories, lower cost structures and larger customer bases than MSU.
In addition, to the extent that any of MSU's competitors are able to develop
products similar to MSU's products which become the industry standard, such
competitor will have a competitive advantage over MSU.

Significant Customers

Prior to December 31, 1999 MSU had no customers that frequently and
systematically purchase its products. MSU's revenue for the fiscal year ended
June 30, 1997 was largely attributable to four companies, and for the year ended
June 30, 1998 it was virtually all attributable to a licensing arrangement with
one customer, AIM. For the year ended June 30, 1999 there were no significant
sales and in the year ending June 30, 2000 while a number of sales and marketing
agreements have been signed, revenues have been generated from eight customers.
Unless the products developed or to be developed in conjunction with customers,
are manufactured, marketed and sold, no future revenues are likely to be
received from existing arrangements. MSU could be materially adversely affected
if no products developed in conjunction with the companies with which it has
arrangements are ultimately manufactured, marketed and sold

MSU now has agreements with customers to distribute the IAD in the UK
(Doro Audioline), India, Sri Lanka, Bangladesh, Nepal (JadooNet), Australia
(SurfTV) and Africa (African Lakes). It also has an agreement with a strategic
alliance partner (Corstar) for North and South America.

The agreement with Doro Audioline allows for them to distribute the IAD to
specific retail and mail order channels in the UK marketplace. Doro Audioline
also provide a warehousing and distribution facility the company uses in the UK

The agreement with JadooNet provides for license fees and royalty payments
to the company by JadooNet for the grant of an exclusive license to
manufacture, market and sell the IAD in India, Sri Lanka, Bangladesh and Nepal.
MSU also has a cross equity participation agreement with JadooNet.

The agreement with SurfTV provides them with the right to distribute the
IAD throughout all market channels in Australia. There is also the provision
that the two companies will work together to look at ongoing revenue sharing
opportunities as well as joint product development.

The agreement with African Lakes provides them with the right to
distribute the IAD throughout all market channels in the continent of Africa.
This exclusive agreement is for an initial term of five years. It is intended
that as the relationship progresses that African Lakes will be provided with a
license to manufacture and assemble the IAD in Africa. This will provide MSU
with ongoing revenue from royalties and license fees.

The agreement with Corstar provides MSU with a 'Strategic Alliance
Partner' in North, Central and South America

MSU has also signed agreements with Samuelson Corporation (Spain and
Canary Islands) and Millennium Telecom Stores SA (Greece) with a view to their
distributing MSU's products in their relevant markets.

MSU will continue to work closely with these potential distributors and
will research other markets that they wish to operate in together with
identifying potential new distributors.

MSU would prefer to work with companies whereby it can participate with
them on ongoing revenue opportunities, rather then just supplying the IAD.

29
<PAGE>

Properties

MSU presently leases:

(i) Approximately 2,900 square feet of office space at Elder House,
526-528 Eldergate, Central Milton Keynes, MK9 1LR, England. The lease
is for a five year term expiring March 21, 2001 and provides for an
annual rental of $45,700. MSU is also responsible for taxes, insurance
and service charges which should approximate, in the aggregate, to
$36,000 annually. Management believes that this leased facility is
suitable and adequate for its intended use, although as MSU grows
further facilities will be sought.

(ii) Approximately 900 square feet of office and laboratory space at 51 St
Andrews Road, Cambridge, England. The lease is for a two year term
expiring December 25, 2001 and provides for an annual rent of $20,794.

30
<PAGE>

MANAGEMENT

Directors and Executive Officers

The following table sets forth certain information with respect to the
directors and executive officers of MSU:

<TABLE>
<CAPTION>
Name Age Position
--------------------------------- ----- -----------------------------------------
<S> <C> <C>
Jeremy Miles Simpson ............ 66 Chairman and Director
Darran Huw Evans ................ 36 President and Chief Executive Officer
Richard Horby Phillips .......... 54 Principal Financial Officer and Director
William Derek Snowdon ........... 45 Secretary and Director
Wynford Peter Holloway .......... 51 Director
Fred Kashkooli .................. 59 Director
Jeffery Nelson Green ............ 57 Director
Stephen Walter Coles ............ 43 Director
</TABLE>

Jeremy Miles Simpson MA (Cantab) was appointed a director and Deputy
Chairman of MSU with effect from 1 July 1997 and Chairman from November 1999.
Mr. Simpson, who is a freeman of the City of London, was executive chairman of
Gordon Russell Plc., a UK publicly quoted company, from 1986 to 1989, prior to
the company being sold. Since that date Mr. Simpson has held a number of
non-executive directorships with smaller growing and developing companies in
the UK and Europe.

Darran Huw Evans MBA, BSc. was appointed Chief Executive Officer and
Director of MSU in November 1999. Mr. Evans background includes senior
positions at Midland Bank Group and Thomas Cook Group where he became director
of the UK foreign exchange business. Most recently he headed the SWALEC branded
electricity business of the Hyder Group as it entered the newly competitive UK
energy market. Mr. Evans holds an MBA from Harvard University and a BSc. from
Loughborough University.

Richard Horby Phillips FCA has served as principal financial officer of
MSU since January 2, 1997 and also as a director of MSU PLC and Web2u Limited
since that date. He was appointed Treasurer and a director of MSU US Operations
Inc. on its incorporation in February 1997. Mr. Phillips is a chartered
accountant who was with Coopers & Lybrand for 25 years. Mr. Phillips was a
partner in their London office from April 1983, providing advisory and audit
services to both public and private companies until August 1994 when he formed
his own firm to continue providing financial advice to emerging growth
companies in the US and UK. Mr. Phillips also currently serves on the Board of
six other UK companies.

William Derek Snowdon LLB has served as secretary and a director of MSU
since October 1994 and as secretary of MSU PLC and Web2u Limited since June
1994 and March 1991 respectively. He was appointed a director and secretary of
MSU US Operations Inc. on its incorporation in February 1997. Mr. Snowdon is a
solicitor who was a partner with the firm of Phoenix Walters for 15 years
before moving to and becoming a partner in Hugh James Ford Simey, solicitors,
in 1999. Mr. Snowdon's practice focuses on commercial contracts and
intellectual property law. In addition Mr. Snowdon is a non-executive director
of two Regional Enterprise Agencies in the United Kingdom.

Wynford Peter Holloway served as Chief Executive Officer of MSU from
October 1994 to November 1999. He has been a director of MSU since October
1994. He was Chairman of MSU PLC between June 1994 and November 1999 and
Chairman of Web2u Limited between March 1991 and November 1999. He has been
president of MSU US Operations Inc. since its incorporation in February 1997.
Mr. Holloway is the founder of MSU Limited. From 1991 through 1992, Mr.
Holloway was a self-employed design consultant providing professional design
services to clients in the computer peripherals business.

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<PAGE>

Fred Kashkooli has served as a director of MSU since August 1997 and since
November 1997 has been chief executive officer of Telegen Inc. Mr Kashkooli has
been an independent management consultant since 1991 and has over thirty years
of experience in the areas of microprocessors, memory, logic, analog design,
manufacturing, CAD design packaging, testing and marketing. From 1984 to 1991
Mr Kashkooli was Senior Vice President of Research and Development at GB
Intersil, responsible for design, manufacturing and strategic marketing for
analog and digital products. Additionally Mr Kashkooli was managing design
centers in Singapore, New Jersey, North Carolina and Florida. From 1980 to 1984
Mr Kashkooli was a director of the microprocessor and memory divisions of GE
Intersil. Prior to this he worked ten years at Sygenetics, a corporation
engaged in the manufacture of semi conductor chips. Mr. Kashkooli holds a BS in
Electrical Engineering from California State University.

Jeffrey Nelson Green was appointed a director of MSU in November 1999. Mr.
Green is chairman and Chief Executive Officer of Paradigm Capital Inc. which is
a Toronto, Ontario based investment company focused on the telecommunications,
technology, industrial technology and niche brands areas. Formerly he was
Chairman and managing partner of Gordon capital, a major investment dealer in
Canada until is purchase by HSBC Securities.

Stephen Walter Coles was appointed a director of MSU Corporation in
November 1999 and is an attorney with and Director of the law firm of Brinkley
Walser PLLC in North Carolina, specializing in litigation. Mr. Coles has been
with Brinkley Walser since 1981 and has been a partner there since 1983.

Each director serves for a term of one year from election or until his
successor is elected and qualified. Each officer serves for a term as set forth
in their respective employment agreements.

EXECUTIVE COMPENSATION

The following table sets forth certain information concerning the
compensation earned during MSU's last three fiscal years by MSU's Chief
Executive Officer and MSU's other executive officers receiving in excess of
$100,000 in total annual salary and bonus (collectively the "named executive
officers"):

ANNUAL COMPENSATION

<TABLE>
<CAPTION>
Other Annual
Fiscal Salary Bonus Compensation
Name and Principal Position Year ($) (1) ($) ($) (2)
-------------------------------- -------- ---------------- ------- ---------------
<S> <C> <C> <C> <C>
Wynford Peter Holloway ......... 2000 181,500 -- 40,792
1999 195,300(3) -- 38,604
1998 199,200 -- 35,778
*Darran Huw Evans .............. *2000 95,242 -- 4,727
</TABLE>

* Part of the year; from date of appointment

(1) All salaries and other annual compensation were paid by Web2u Limited.

(2) Represents personal benefits in addition to salary. Of Mr. Holloway's
personal benefits, the 1998 amount represents $29,520 in respect of a car
allowance and $6,258 in respect of contributions to a personal retirement
plan; the 1999 amount represents $29,295 in respect of a car allowance and
$9,309 in respect of contributions to a personal retirement plan; and the
2000 amount represents $27,225 in respect of a car allowance and $13,567
in respect of contributions to a personal retirement plan. Of Mr. Evans
personal benefits the 2000 amount represents a car allowance.

(3) At the date of this prospectus approximately $88,000 of the salary due to
W.P. Holloway for the years ended June 30, 1998 and June 30, 1999 had not
been paid.

32
<PAGE>

Long Term Compensation

Other than in respect of the stock options, details of which are set out
elsewhere in this prospectus, there were no long term compensation awards or
payouts in any of the years ended June 30, 1999, 1998 or 1997.

Employment Agreements

In 1994, MSU entered into employment agreements with each of Wynford Peter
Holloway and William Derek Snowdon, providing for annual base salaries (subject
to annual increases within the discretion of the Board) of $189,600 and
$31,600, respectively. The employment agreements are rolling term agreements
and automatically renew for a further three year term at the expiration of each
year. MSU renegotiated the contract with Mr. Holloway in each of the years
ended June 30, 1997, 1996 and 1995 which resulted in a reduction in his annual
minimum base salary of approximately $79,000 for each of the years ended June
30, 1997, 1996 and 1995, respectively. The renegotiations were due to lower
than expected operating performance and cash flows. In the years ended June 30,
1998 and June 30, 1999 the full salary has been expensed for Mr. Holloway
although as at the date of this prospectus, $88,000 has not yet been paid to
him for the years ended June 30, 1998 and 1999. On July 1, 1999 Mr. Snowdon's
salary was increased to $41,000.

Effective January 2, 1997, MSU entered into an employment agreement with
Richard Horby Phillips to serve as MSU's Chief Financial Officer in
consideration for an annual base salary of approximately $108,000, subject to
annual increases within the discretion of the Board. As part of the employment
contract Mr. Phillips also received stock options to purchase 100,000 shares of
MSU's common stock at a price equal to the market value of the stock at the
date of the grant. During an initial period Mr. Phillips was to receive a lower
base salary at the annual rate of $83,000 until he was able to devote all of
his time to MSU's affairs. From March 1, 1998, the Board and Mr. Phillips
mutually agreed to reduce his time commitment to MSU, until such time as
activity levels increase, and he is currently devoting approximately one day a
week to MSU's affairs and during this period is receiving a salary at the
annual rate of $30,000. On July 1, 1999 this was increased to $38,000 per
annum.

By correspondence dated August 6 and November 10, 1999, MSU entered into
an employment agreement with Darran H. Evans to serve as MSU's Chief Executive
Officer at an annual base salary of approximately $114,000, subject to annual
increases within the discretion of the Board. As part of the employment
contract, Mr. Evans also received stock options to purchase 300,000 shares of
MSU's common stock at a price equal to the market value of the stock at the
date of the grant. This agreement continues in effect until three months notice
of cancellation is given by either party.

All of the above agreements with Messrs. Evans, Holloway, Snowdon and
Phillips, also provide for a car allowance or use of an automobile, including
reimbursement of any automobile expenses, and participation in bonus plans when
and if formulated by MSU PLC or Web2u Limited. MSU is also obligated to provide
private medical coverage and life insurance. Messrs Holloway, Snowdon and
Phillips, for one year after termination, are restricted from holding a
material interest in any competitor, seeking or receiving orders for any
products or services produced or marketed by MSU PLC or Web2u Limited six
months prior to termination of the executive.

The agreements with Messrs Holloway, Snowdon and Phillips each provide for
automatic termination once the employee reaches 65 years of age. MSU has the
right under each agreement to terminate the agreement immediately for cause and
then has the option to pay the employee his base salary for the remainder of
the term. Each agreement contains a non-competition clause, restricting the
employee from soliciting MSU's customers and employees and from holding an
interest in a competing firm.

Compensation of Directors

Directors are reimbursed for all reasonable expenses in attending each
Board Meeting.

Stock Option Grant Table

The following table sets forth certain information concerning options
granted to the named executive officers during MSU's fiscal year ended June 30,
1999:

33
<PAGE>
Options Granted in Fiscal Year ended June 30, 1999

<TABLE>
<CAPTION>
Individual Grants
--------------------------------
Potential Realizable
Value at
Assumed Annual Rates
of Stock
Number of Price Appreciation
Securities Percent of Total for
Underlying Options Granted Exercise Market Option Term (3)
Options to Employees in or Base Price on Expiration -------------------
Name Granted Fiscal Year Price Grant Date 5%($) 10%($)
----------------------------------- ------------ ------------------ ---------- ---------- ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
William Derek Snowdon(1) .......... 150,000 7.8% $ 0.65 $ 0.65 7/29/03 124,437 157,025
125,000(4) 6.5% $ 0.50 $ 0.50 - - -
Richard Horby Phillips(1) ......... 50,000 2.6% $ 0.65 $ 0.65 7/29/03 41,479 52,342
Jeremy Miles Simpson(2) ........... 105,857 5.5% $ 0.35 $ 0.35 9/24/03 47,286 59,669
Wynford Peter Holloway............. 1,000,000(4) 52.3% $ 0.50 $ 0.50 - - -
300,000(4) 15.7% $ 0.65 $ 0.65 - - -
</TABLE>
------------
(1) Of the stock options granted to Mr. Snowdon and Mr. Phillips on July 29,
1998, half were exercisable on the date of the grant and half became
exercisable on July 29, 1999 provided that they were still in the
employment of MSU.

(2) The stock options granted to Mr. Simpson were in consideration for his
making a loan of $33,200 to MSU in September 1998. In accordance with the
agreement with Mr. Simpson the loan was subsequently converted into 95,857
shares of common stock of MSU.

(3) As required by the rules of the Securities and Exchange Commission,
potential values stated are based on the assumption that MSU's common
stock will appreciate in value from the date of the grant to the end of
the option term (five years from the date of the grant) at annualized
rates of 5% and 10% (total appreciation of approximately 28% and 61%),
respectively, and therefore are not intended to forecast possible future
appreciation, if any, in the price of the common stock.

(4) The stock options granted to Mr. Holloway and 125,000 of the stock options
granted to Mr. Snowdon were compensation for their agreement to pledge
certain shares owned by them as collateral for a loan to MSU. These options
are no longer outstanding.

Since June 30, 1999, the following options have been granted to directors:

1. On August 5, 1999, Mr. Evans, who was then a consultant MSU, was granted
stock options to purchase 1,000 shares of MSU's common stock, with an
expiration date of August 5, 2002, at an exercise price of $3.38, being
the market value of the stock at the date of the grant. On November 5,
1999 as part of his employment contract Mr. Evans was granted stock
options to purchase 300,000 shares of MSU's common stock at the same price
of $3.38 of which 100,000 become exercisable on August 5, 2000; 100,000 on
August 5, 2000; and 100,000 on August 5, 2001. The options only become
exercisable if Mr. Evans is employed by MSU at the relevant dates and they
will all lapse if not exercised on 5 August 2004.

2. On November 4, 1999, Mr. Coles was granted options to purchase 150,000
shares of common stock at a price of $2.75 which become exercisable as to
50,000 shares on November 4, 2000; 50,000 shares on November 4, 2001; and
50,000 shares on November 4, 2002 provided that Mr. Coles is still a
director of MSU at the relevant dates. All of the options expire on
November 4, 2004.

3. On November 4, 1999 Mr. Green was granted options over 150,000 shares of
common stock at a price of $2.75 which become exercisable as to 50,000
shares on November 4, 2000; 50,000 shares on November 4, 2001; and 50,000
shares on November 4, 2002 provided that Mr. Green is still a director of
MSU at the relevant dates. All of the options expire on November 4, 2004.

4. In March 2000, in consideration for his agreeing to subscribe for 23,250
shares of common stock, Mr. Simpson received options to purchase 27,900
shares of common stock at a price of $3.00. These options expire on
December 31, 2001.

5. In April 2000, in consideration for his agreeing to subscribe for 80,000
shares of common stock, Mr. Simpson received options to purchase 80,000
shares of common stock at a price of $3.00. These options expire on May
31, 2001.

6. In May 2000, in accordance with the terms of his subscription for 100,000
shares of MSU's common stock, Mr. Coles also received warrants to purchase
100,000 shares of common stock at $3.00 per share. These warrants expire
on May 31, 2001.
34
<PAGE>

Stock Option Exercises and Holdings Table

The following table provides information concerning the values of
unexercised options held by the executive officers and directors at June 30,
1999. No options were exercised by such officers during MSU's fiscal year ended
June 30, 1999:

June 30, 1999 Option Values

<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Options In-the-Money Options
at Fiscal Year End (#) at Fiscal Year End ($)(1)
---------------------------------- ------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
-------------------------------- ---------------- --------------- ------------- --------------
<S> <C> <C> <C> <C>
Wynford Peter Holloway ......... 270,000(2) -- $ 275,750 $--
William Derek Snowdon .......... 270,000 -- 496,250 --
Richard Horby Phillips ......... 150,000 -- 336,750 --
Jeremy Miles Simpson ........... 490,003 -- 1,442,437 --
</TABLE>

(1) Values stated are based on the average bid and ask prices of $3.875 per
share of MSU's common stock as reported by Bloomberg Financial Inc. on
June 30, 1999, the last trading day of the fiscal year, and equal the
aggregate amount by which the market value of the option shares exceeds
the exercise price of such options at the end of the fiscal year. No value
is attributed to option shares where the option price is higher than the
market value.

(2) The Stock options above attributed to Mr. Holloway include 100,000 granted
during the year ended June 30, 1997 to a Trust in which Mr. Holloway has
an interest.

MSU has no compensation committee. During fiscal 2000, MSU's directors and
executive officers participated in deliberations at meetings of the Board of
Directors concerning executive officer compensation.

35
<PAGE>

PRINCIPAL AND SELLING SHAREHOLDERS

Principal Shareholders

The table below sets forth certain information concerning the beneficial
ownership of MSU's common stock as of the date of this prospectus, by (i) each
person known by MSU to be the beneficial owner of more than 5% of its common
stock, (ii) each named executive officer of MSU, (iii) each director of MSU,
and (iv) all directors and executive officers as a group. Unless otherwise
indicated, each of the stockholders has sole voting and investment power with
respect to the shares beneficially owned.

<TABLE>
<CAPTION>
Amount and Nature
of Beneficial
Ownership as of
Name of Beneficial Owner Address of Beneficial Owner June 30, 2000 Percent of Class
--------------------------------- --------------------------------- ------------------------------ -----------------
<S> <C> <C> <C>
Wynford Peter Holloway Elder House, 526-528 Elder Gate 5,202,777(1)(2)(3) 17.74%
Central Milton Keynes
MK9 1LR ENGLAND
William Derek Snowdon " 667,277(3) 2.28%
Jeremy Miles Simpson " 1,809,976(3) 6.10%
Richard Horby Phillips " 150,000(3) *
Darran Huw Evans " 1,000(3)(4) *
Jeffrey Nelson Green " 71,500(4) *
Stephen Walter Coles " 264,663(3)(4) *
Fred Kashkooli " 2,393 *
Peter Brian Weber and Vivian 48 The Parade, Cardiff
George Bines as Trustees for CF2 3AB, ENGLAND
The Holloway Settlement 2,824,444(2)(3) 9.69%
Mark W McLaughlin 13750 US 281 North #660
San Antonio, Texas 78232 4,218,547(6) 14.81%
All Directors and Officers as a
Group 8,169,586 26.84%
</TABLE>

------------
* Less than one percent.

(1) Mr. Holloway owns 2,208,333 shares of record. Pursuant to an unwritten
agreement and understanding, Mr. Holloway shares voting and dispositive
power with respect to the shares held by The Holloway Settlement.

(2) The Holloway Settlement constituted by a Trust Deed dated May 24, 1994 (of
which Wynford Peter Holloway was the Settlor), is in favor of all past,
present and future employees of MSU Limited and MSU PLC and any subsequent
companies and their spouses and children. No allocations under the Trust
have been made. Under the Trust Deed and so long as Mr. Holloway is
living, his consent, as Settlor, is required for the appointment of
beneficiaries and the appointment of new trustees. The Trustees also have
the authority to delegate powers to Mr. Holloway. Pursuant to an unwritten
agreement and understanding, Mr. Holloway has voting and dispositive
powers with respect to the shares held by the Settlement.

(3) For the purpose of the above table, a person or group of persons is deemed
to have 'beneficial ownership' of any shares which such person has the
right to acquire within 60 days. For purposes of computing the percentage
of outstanding shares held by each person or group of persons named above,
any security which such person or group of such persons has the rights to
acquire within 60 days after such date is

36
<PAGE>
deemed to be outstanding for the purpose of computing ownership for such
person or persons, but is not deemed to be outstanding for the purpose of
computing the percentage of ownership of any other person. Accordingly, the
above table includes the following shares issuable pursuant to options which
are now exercisable, or are exercisable within 60 days hereof.

Name No. of Shares
---- --------------
Wynford Peter Holloway ............................. 170,000
William Derek Snowdon .............................. 270,000
Jeremy Miles Simpson ............................... 597,903
Peter Brian Weber and Vivian George Bines .......... 100,000
Richard Horby Phillips ............................. 150,000
Darran Huw Evans ................................... 1,000
Stephen Walter Coles ............................... 103,333
Mark McLaughlin .................................... 1,176,000

(4) Excludes the following shares issuable pursuant to options which are not
currently exercisable (or exercisable within 60 days).

Name No. of Shares
---- --------------
Darran Huw Evans .............. 300,000
Jeffrey Nelson Green .......... 150,000
Stephen Walter Coles .......... 150,000

(5) See "Executive Compensation--Compensation Committee Interlocks and Insider
Participation" regarding a pledge arrangement with Noteholders covering
shares held by Mr. Holloway and Mr. Snowdon.

(6) Includes 361,500 shares issuable pursuant to a currently exercisable
warrant to purchase 361,500 shares of Company common stock at $1 each and
271,000 shares issuable pursuant to a currently exercisable warrant to
purchase 271,000 shares at $0.50 each and 70,000 shares at $1.50. Also
includes shares beneficially held by family members and affiliates of Mr.
McLaughlin.

Selling Shareholders

The shares of common stock may be offered and sold from time to time by
the shareholders or by their transferees, pledgees, donees or their successors
pursuant to this prospectus. The following table sets forth certain information
about the selling shareholders. Except as otherwise provided, none of the
selling shareholders has, or within the past three years has had, any position,
office or other material relationship with MSU or any of its predecessors or
affiliates. Because some of the selling shareholders may offer all or some
portion of the shares pursuant to this Prospectus, no estimate can be given as
to the number of shares of common stock that will be held by the selling
shareholders upon termination of any such sales.

37
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Number of Shares Beneficially
Name Owned Prior to Offering shares offered Owned After Offering
-------------------------------------------- ------------------------------ ---------------- -----------------------
Number Percent Number Percent
------------------ --------- ------------ --------
<S> <C> <C> <C> <C> <C>
Ronald L. Andrews .......................... 200,000(1) * 200,000 0 --
Thomas P. Boyer ............................ 83,333(2) * 83,000 0 --
Robert J. Brinkworth ....................... 100,000(3) * 100,000 0 --
Wendy Bunston .............................. 100,000(4) * 100,000 0 --
Timothy A. Chisolm ......................... 156,500 * 50,000 106,500 *
Allan R. Day ............................... 55,000 * 50,000 5,000 *
Fred Dalley ................................ 100,000(5) * 50,000 50,000 *
James De Lisa .............................. 65,800(6) * 65,800 0 --
Darran Huw Evans ........................... 301,000(7) * 301,000(*) 0 --
Express Cat, Inc. .......................... 160,000(8) * 150,000 100,000 *
Gerry Gravina .............................. 100,000(9) * 100,000 0 --
Jeffrey Green .............................. 773,500(10) 2.7 50,000 623,500 2.1
Katherine Green ............................ 773,500(11) 2.7 200,000 623,500 2.1
Alex Grigonis .............................. 50,000(12) * 50,000 0 --
Heffner Family Limited Partnership ......... 781,833(13) 2.7 100,000 681,833 2.3
Oren J. Heffner ............................ 1,097,833(14) 3.8 150,000(*) 947,833 3.3
Jane C. Hester ............................. 43,500(15) * 30,000 13,500 *
John R. Koestner and
Jeanette L. Koestner ..................... 33,334(16) * 33,334 0 --
John R. Koestner ........................... 52,428(17) * 52,428 0 --
David Larkin ............................... 50,000 * 25,000 25,000 *
George W. Liles, Jr. ....................... 110,000(18) * 50,000 60,000 *
Jamie Massie ............................... 100,000(19) * 50,000 100,000 *
Donald S. McFarlane ........................ 858,500(20) 3.0 412,500 446,000 1.5
McGreen Partnership ........................ 420,000 1.4 400,000 20,000 *
Mark L. McLaughlin ......................... 4,218,747(21) 1,981,247 2,237,500 6.8
</TABLE>

<TABLE>
<CAPTION>
Shares Beneficially Number of Shares Beneficially
Name Owned Prior to Offering shares offered Owned After Offering
-------------------------------------------- ------------------------------ ---------------- -----------------------
Number Percent Number Percent
------------------ --------- ------------ --------
<S> <C> <C> <C> <C> <C>
Denis Leigh Metherell and
Eileen L. Metherell JTWROS ............... 39,613(22) * 39,613 0 --
Simcoe Coachlines .......................... 120,000(23) * 100,000 20,000 *
Terrance L. Sims ........................... 37,702(24) * 37,702 0 --
Robert P. Stearns .......................... 36,666(25) * 36,666 0 --
Harold Tabone .............................. 200,000(26) * 200,000 0 --
George Vallas .............................. 93,333(27) * 83,333 10,000 *
Ida R. Wickham ............................. 1,023,600(28) 3.5 50,000 948,600 3.3
Charles L. Wickham, Jr. .................... 1,023,600(29) 3.5 350,000 648,600 2.2
R. Mitchell Wickham ........................ 1,023,600(30) 3.5 50,000 973,600 3.4
Clarence E. Williams Jr. ................... 525,000(31) 1.8 400,000 125,000 *
Julius Smith Young, Jr. .................... 1,541,534(32) 5.3 100,000 1,441,534 5.0
P. Feist ................................... 30,000(33) * 30,000 0 --
Chris Green ................................ 100,000(33) * 100,000 0 --
R. Kent .................................... 90,000(33) * 90,000 0 --
C. Pennycate ............................... 90,000(33) * 90,000 0 --
G. Phillips ................................ 37,500(33) * 37,500 0 --
Mark Thomas ................................ 60,000(33) * 60,000 0 --
</TABLE>
------------
* Less than one percent.

(1) Includes 100,000 shares underlying warrants exercisable at $3.00 per share
which expire on May 31, 2001.

(2) Includes 40,000 shares underlying warrants exercisable at $3.00 per share
which expire on December 31, 2000, 333,333 shares issuable on conversion of
a Convertible Note and approximately 10,000 shares payable by MSU as
interest on the note.

(3) Includes 50,000 shares underlying warrants exercisable at $3.00 per share
which expire on May 31, 2001.

(4) Includes 50,000 shares underlying warrants exercisable at $3.00 per share
which expire on May 31, 2001.

<PAGE>

(5) Includes 50,000 shares underlying warrants exercisable at $3.00 per share
which expire on May 31, 2001.

(6) Includes 60,000 shares underlying warrants exercisable at $3.00 per share
which expire on May 31, 2001.

(7) Includes 300,000 shares underlying employee options exercisable at $3.38
per share, which are not presently exercisable.

(8) Includes 75,000 shares underlying warrants exercisable at $3.00
per share which expire on May 31, 2001 as well as 10,000 freely trading
shares purchased on the open market.

(9) Includes 50,000 shares underlying warrants exercisable at $3.00 per share
which expire on May 31, 2001.

(10) Includes 200,000 shares owned by Katherine Green, Mr. Green's wife (100,000
of which underlie warrants exercisable at $3.00 per share which expire on
May 31, 2001), and 420,000 shares owned by the McGreen Partnership (200,000
of which underlie warrants exercisable at $3.00 per share which expire on
May 31, 2001).

(11) Includes 623,500 shares beneficially owned by Jeffrey Green, Ms. Green's
husband as reflected in the preceding footnote.

(12) Includes 25,000 shares underlying warrants exercisable at $3.00 per share
which expire on May 31, 2001.

(13) Includes 433,333 shares underlying warrants exercisable at $3.00 per share
333,333 of which expire on January 14, 2002 and 100,000 of which expire on
April 29, 2001 as well as 47,000 freely trading shares purchased on the
open market. Both Mr. and Mrs. Oren J. Heffner share voting and dispositive
power over the Heffner Family Limited Partnership.

(14) Includes 781,833 shares beneficially owned by the Heffner Family Limited
Partnership of which Mr. Heffner is the President of the General Partner as
well as 60,000 shares underlying warrants exercisable at $.50 per share
which expire on November 29, 2003 and 50,000 shares underlying warrants
exercisable at $3.00 per share which expire on April 29, 2001.

(15) Includes 15,000 shares underlying warrants exercisable at $3.00 per share
which expire on May 31, 2001.

(16) Includes 16,667 shares obtainable on conversion of a $50,000 note and
16,667 shares payable as interest on such note.

(17) Includes 10,000 shares underlying warrants exercisable at $3.00 per share,
8,333 shares obtainable on conversion of a $25,000 note, 761 shares payable
as interest on such note, 16,667 shares obtainable- on conversion of a
$50,000 note and 16,667 shares payable as interest on such note. 33,334 of
these shares are held jointly with Ms. Jeanette L. Koestner.

(18) Includes 50,000 shares underlying warrants exercisable at $3.00 per share
which expire on May 31, 2001.

(19) Includes 50,000 shares underlying warrants exercisable at $3.00 per share
which expire on May 31, 2000.

(20) Includes 150,000 shares underlying warrants exercisable at $3.00 per share
which expire on May 31, 2001, 26,000 shares owned in the aggregate by Mr.
McFarlane's wife, Marie, and children and 420,000 held by the McGreen
partnership

(21) See note 6 under Principal Shareholders.

39
<PAGE>

(22) Includes 16,667 shares underlying a $50,000 note convertible at $3.00 per
share, 20,000 shares underlying warrants exercisable at $3.00 per share
(both of which expire on December 31, 2000) and approximately 2,946 shares
payable by MSU as interest on the convertible note.

(23) Includes 20,000 shares held by Isetam Management, Simcoe's affiliate.

(24) Includes 16,667 shares underlying a $50,000 note convertible at $3.00 per
share and 20,000 shares underlying warrants exercisable at $3.00 per share
(both of which expire on December 31, 2000)

(25) Includes 16,666 shares underlying a $50,000 note convertible at $3.00 per
share and 20,000 shares underlying warrants exercisable at $3.00 per share
(both of which expire on December 31, 2000).

(26) Includes 100,000 shares underlying warrants exercisable at $3.00 per share
which expire on May 31, 2001.

(27) Includes 33,333 shares underlying a $100,000 note convertible at $3.00 per
share, 40,000 shares underlying warrants exercisable at $3.00 per share
(both of which expire on December 31, 2000) and approximately 10,000 shares
payable by MSU as interest on the convertible note.

(28) Includes 825,000 shares benefically owned by Charles L. Wickham, Ms.
Wickham's husband (175,000 of which underlie warrants), and 118,600 share
beneficially owned by R. Mitchell Wickham. Also includes 25,000 shares
underlying warrants exercisable at $3.00 per share which expire on May 31,
2001.

(29) Includes 80,000 shares beneficially owed by Ida Wickham, Mr. Wickham's wife
and 118,600 share benefically owned by R. Mitchell Wickham. Also includes
175,000 shares underlying warrants exercisable at $3.00 per share which
expire on May 31, 2001.

(30) Includes 905,000 shares beneficially owned by Charles L. Wickham and Ida
Wickham as reflected above, (200,000 of which underlie warrants). Also
includes 25,000 shares underlying warrants exercisable at $3.00 per share
which expire on May 31, 2001.

(31) Includes 200,000 shares underlying warrants exercisable at $3.00 per share
which expire on May 31, 2001.

(32) Includes 300,000 shares underlying warrants exercisable at $.50 per share
which expire on November 30, 2003.

(33) All such shares underlie employee stock options.

CERTAIN TRANSACTIONS

Between October 1994 and March 1999, the law firm of Phoenix Walters,
Solicitors, regularly rendered legal services as counsel to MSU. W. D. Snowdon,
a director and executive officer of MSU, was a partner of Phoenix Walters,
Solicitors, until March 1999. MSU incurred $122,000 in legal fees to Phoenix
Walters during fiscal 1998 and $81,000 during fiscal 1999.

Since March 1999, the law firm of Hugh James Ford Simey, Solicitors,
regularly rendered legal services as counsel to MSU. W. D. Snowdon, a director
and executive officer of MSU, is a partner of Hugh James Ford Simey,
Solicitors. MSU incurred $34,000 in legal fees to Hugh James Ford Simey during
fiscal 1999.

Between September 1994 and March 1995, Mr. Phillips provided consultancy
services to MSU for which he rendered invoices for $16,500. Payment for these
services has not yet been effected by MSU.

TXC Corporation was a principal stockholder of MSU and holds a
non-exclusive licence to use the Wynpeg Chipset technology in connection with
the manufacture of video CD players. Such licence was granted to TXC
Corporation in connection with a development contract entered into in July
1994. Of the $2,159,910 aggregate capital contribution made to MSU by TXC
Corporation, $1,400,000 was represented by an unsecured, interest free loan
payable to TXC Corporation at such time as MSU was reasonably able to do
so without jeopardizing its financial condition, and the balance was an equity
contribution. During the year ended June 30, 1999 1,400,000 shares of common
stock were issued by MSU to TXC Corporation in full and final settlement of
this liability.

40
<PAGE>

In June 1996, MSU Limited obtained a $76,000 credit facility from National
Westminster Bank Plc. The credit facility was secured by a floating debenture
on all of MSU's assets and the personal guarantees of each of Messrs Holloway,
Hall and Snowdon. The Guarantees of Messrs Hall and Snowdon were secured by a
pledge of the pledgor's shares of MSU's common stock. In consideration of the
benefit derived by MSU as a result of the guarantees provided by these
directors, each of the directors concerned was granted, effective June 7, 1996,
an option to acquire 100,000 shares of Company common stock at an exercise
price of $5.00. The options are exercisable in full commencing on June 7, 1997
and expire on June 6, 2001. The credit facility expired in August 1996 at which
time there were no amounts outstanding under the facility. The debentures and
personal guarantees remain in place with the Bank to serve as collateral for
additional credit facilities requested by MSU and approved by the Bank. The
pledged shares have been released, but the Bank is likely to require that such
shares be pledged again in connection with any credit facility.

In September 1996, an amount of $160,000 was loaned to MSU by The Holloway
Settlement. This loan was unsecured, interest free with no date fixed for
repayment. In July 1997, $33,200 was repaid and in January and February 1998,
amounts totaling approximately $44,000 were loaned to MSU on the same basis as
above resulting in an amount of $170,980 owing to the Settlement at June 30,
1998. During the year ended June 30, 1999, $18,250 was repaid, and in September
1998, an additional $40,000 was loaned to MSU on the same basis as above. In
October 1998, MSU issued 322,500 shares of common stock in consideration for
the Settlement foregiving $161,250 of the loan. The conversion price of $0.50
was the market price at the date the agreement to the conversion was made. An
amount of $20,500 remained owing to the Settlement at June 30, 1999 which has
since been repaid.

In August 1996, Direct International Limited, a Taiwanese company, loaned
$300,000 to the Holloway Settlement. Such loan is secured by 250,000 shares of
MSU's common stock owned by the Settlement and was originally due on October
21, 1996. The loan was then to be repaid in 37,500 shares of MSU's common stock
owned by the Settlement no later than December 31, 1996 with Direct
International Limited also receiving on December 31, 1996, 10,000 shares of
MSU's common stock owned by the Settlement as consideration for the advance of
the loan. On June 4, 1997 it was agreed that the loan would be repaid with
88,000 shares of MSU's common stock owned by the Settlement and this transfer
was effected in September 1997. The $300,000 received by the Settlement was
loaned by it to Mr. Holloway ($140,000) and MSU ($160,000). Such loans are
unsecured, interest free, due and payable on an as yet to be determined date,
and are not evidenced by written agreements. In July 1997, $33,200 of the
amount loaned to MSU was repaid to the Settlement. During the year ended June
30, 1999 $18,250 was repaid, and in September 1998, an additional $40,000 was
loaned to MSU on the same basis as above. In October 1998, MSU issued 322,500
shares of common stock in consideration for the Settlement foregiving $161,250
of the loan. The conversion price of $0.50 was the market price at the date the
agreement to the conversion was made. An amount of $20,500 remained owing to
the Settlement at June 30, 1999 which has since been repaid.

Mark McLaughlin, a member of McLaughlin Group LLC, is president and a
principal stockholder of McLaughlin International, Inc. ("MII"). MII served as
a consultant to MSU pursuant to an agreement dated February 10, 1999 which
terminated August 9, 1999. Under the agreement MII received a monthly fee of
$7,500 and further consideration of 100,000 warrants to subscribe for shares of
MSU's common stock at a price of $1.50 at any time between February 10, 1999
and February 9, 2004.

On November 15,1999, MSU entered into a sales agency agreement with
Corstar Business Computing Co., Inc. of Hawthorne, New York and McLaughlin
International, Inc., ("the Agents") to promote and sell MSU's products. MSU has
agree to pay the Agents, to be divided equally, a fee of $25,000 per month,
plus a commission per unit of the Company's products sold by them. MSU, as
additional consideration has also granted the Agents warrants to purchase
100,000 shares of common stock in MSU at $3.00 per share for a period of five
years from the date of execution of the agreements. MSU has also agreed to
issue additional warrants, on the same terms as set out above, upon the sale of
additional units of MSU's products. The agreement is terminable on 90 days
prior written notice before the end of any one-year term or it continues for
another year.

Effective May 7, 1997, June 4, 1997 and September 5, 1997 Jeremy Miles
Simpson acquired from MSU, in private transactions, 79,126, 48,042 and 26,900
shares respectively of MSU's common stock. Consideration

41
<PAGE>

for the common stock was, approximately respectively, $162,000, $114,000 and
$79,000 in cash. The price paid for the shares of common stock in each case was
the market price prevailing on the respective dates. In addition, Mr. Simpson
was granted options to acquire 50,000 shares of common stock at a price of $2.12
per share in respect of the May 7, 1997 transaction and 12,500 shares of common
stock at a price of $2.37 per share in respect of the June 4, 1997 transaction.
In both cases the options are exercisable at any time after six months from the
date of the respective grants. The end of the option term in each case is five
years from the date of the grant.

Effective October 26, 1997 and February 23, 1998 Jeremy Miles Simpson
acquired from MSU, in private transactions, 67,800 and 253,846 shares
respectively of MSU's common stock. Consideration for the common stock was
respectively $169,000 and $165,000 in cash. The price paid for the common
shares in each case was the market price prevailing on the respective dates. In
addition, Mr. Simpson was granted options to acquire 67,800 shares of common
stock at a price of $1.75 per share in respect of the October 27, 1997
transaction and 253,846 shares of common stock at a price of $0.65 per share in
respect of the February 23, 1998 transaction. In both cases the options are
exercisable immediately. The end of the option term in each case is five years
from the date of the grant.

In November 1998, Mr. McLaughlin and parties related to Mr. McLaughlin
acquired 752,000 shares of common stock in MSU for $376,000 cash and warrants to
subscribe for a further 376,000 shares of common stock at $0.50 per share at any
time up to October 2003.

In January 1999, McLaughlin Group LLC who had purchased $330,560 of the
10% convertible promissory notes from the original subscribers, exercised their
right of conversion in respect of these notes into 440,747 shares of common
stock in MSU at the conversion price of $0.75 per share.

In May 1999, Jeremy Miles Simpson and parties related to Mr. Simpson
acquired $800,000 in convertible promissory notes which, in June 1999, were
converted into 400,000 shares of common stock at $2.00 per share.

In September 1998, Mr. Simpson made a loan to MSU of approximately
$33,200. In December 1998, Mr. Simpson exercised his right under the loan
agreement to convert the loan into 95,857 shares of common stock at the market
price prevailing on the date of the loan (September 25, 1998). In addition, as
further consideration for the loan, Mr. Simpson was granted an option to
subscribe for a further 105,857 shares of common stock at $0.35 per share at
any time up to September 24, 2003.

In October 1998, the Holloway Settlement sold shares of common stock in
MSU and transferred the proceeds of $44,000 from the sale to MSU. It was agreed
that in consideration for this, the Company would put the Settlement back in
the same position as it was immediately prior to such sale. A claim has not yet
been received from the Settlement.

In December 1998, January 1999 and May 1999 MSU issued collateralized
convertible promissory notes. The collateral security included pledges over
3,000,000 shares of common stock in MSU owned by Mr. Holloway and 250,000
shares owned by Mr. Snowdon.

Effective March 30, 2000 and April 18, 2000 Jeremy Miles Simpson acquired
from MSU, in private transactions, 23,250 and 80,000 shares respectively of
MSU's common stock. Consideration for the common stock was respectively $69,750
and $80,000 in cash. The price paid for the common shares in each case was the
same price as shares were sold to unconnected third parties in similar
transactions on or about the same dates. In addition, Mr. Simpson was granted
options to acquire 27,900 shares of common stock at a price of $3.00 per share
in respect of the March, 2000 transaction and 80,000 shares of common stock at
a price of $3.00 per share in respect of the April 2000 transaction. In both
cases the options are exercisable immediately. The end of the option term in
respect of the March transaction is December 31, 2001, and in respect of the
April transaction, May 31, 2001.

In May 2000, Stephen W. Coles acquired 100,000 shares of common stock in
MSU for $100,000 cash and warrants to subscribe for a further 100,000 shares of
common stock at $3.00 per share which expire on May 31, 2001.

42
<PAGE>

MSU believes that all transactions with officers, directors or affiliates
to date are on terms no less favorable than those available from unaffiliated
third parties. It is MSU's policy that all future transactions with officers,
directors, or affiliates will be approved by members of MSU's Board of
Directors not having an interest in the transaction and will be on terms no
less favorable than could be obtained from unaffiliated third parties.

PLAN OF DISTRIBUTION

MSU will not receive any of the proceeds of the sale of the shares. MSU
will bear all costs relating to the offer and sale of the shares, which are
estimated to be approximately $65,000, except that the selling shareholders
will pay any commissions, fees and discounts of underwriters, brokers, dealers
or agents. The shares may be sold from time to time to purchasers directly by
the selling shareholders. Alternatively, the selling shareholders may from time
to time offer their shares through brokers, dealers or agents, who may receive
compensation in the form of discounts, concessions or commissions from the
selling shareholders and/or the purchasers of the shares for whom they may act
as agent. The selling shareholders and any such brokers, dealers or agents who
participate in the distribution of the shares may be deemed to be
"underwriters," and any profits on the sale of the shares by them and any
discounts, commissions or concessions received by any such brokers, dealers or
agents might be deemed to be underwriting discounts and commissions under the
Securities Act. To the extent the selling shareholders may be deemed to be
underwriters, the selling shareholders may be subject to certain statutory
liabilities of, including, but not limited to, Sections 11, 12 and 17 of the
Securities Act and Rule 10b-5 under the Exchange Act.

The shares offered hereby may be sold from time to time in one or more
transactions at fixed prices, at prevailing market prices at the time of sale,
at varying prices determined at the time of sale or at negotiated prices. The
shares may be sold by one or more of the following methods, without limitation:
(a) a block trade in which the broker or dealer so engaged will attempt to sell
the Securities as agent but may position and resell a portion of the block as
principal to facilitate the transactions; (b) purchases by a broker or dealer
as principal and resale by such broker or dealer for its account pursuant to
this Prospectus; (c) ordinary brokerage transactions and transactions in which
the broker solicits purchasers; (d) an exchange distribution in accordance with
the rules of such exchange, if any; (e) face-to-face transactions between
sellers and purchasers without a broker-dealer; (f) through the writing of
options; and (g) other. At any time a particular offer of the Securities is
made, a revised prospectus or prospectus supplement, if required, will be
distributed which will set forth the aggregate amount and type of Securities
being offered and the terms of the offering, including the name or names of any
underwriters, dealers or agents, any discounts, commissions, concessions and
other items constituting compensation from the Selling Shareholders and any
discounts, commissions or concessions allowed or reallowed or paid to dealers.
Such revised prospectus or prospectus supplement and, if necessary, a
post-effective amendment to the Registration Statement of which this Prospectus
is a part, will be filed with the Commission to reflect the disclosure of
additional information with respect to the distribution of the Securities. In
addition, the Securities covered by this Prospectus may be sold in private
transactions or under Rule 144 rather than pursuant to this Prospectus.

Except as otherwise described herein, to the best knowledge of MSU, there
are currently no plans, arrangements or understandings between any selling
shareholders and any broker, dealer, agent or underwriter regarding the sale of
the shares by the selling shareholders. There is no assurance that any selling
shareholder will sell any or all of the shares offered by such holder hereunder
or that such selling shareholder will not transfer, devise or gift such
Securities by other means not described herein.

The selling shareholders and any other person participating in such
distribution will be subject to applicable provisions of the Exchange Act and
the rules and regulations thereunder, including without limitation Regulation M
which may limit the timing of purchases and sales of any of the shares by the
selling shareholders and other such persons. Furthermore, Regulation M of the
Exchange Act may restrict the ability of any person engaged in the distribution
of the shares to engage in market-making activities with respect to the
particular shares being distributed for a period of up to five business days
prior to the commencement of such distribution. All of the foregoing may affect
the marketability of the shares and the ability of any person or entity to
engage in market-making activities with respect to the shares.

43
<PAGE>

DESCRIPTION OF SECURITIES

General

The authorized capital stock of MSU consists of 50,000,000 shares of
Common Stock, $.01 par value.

Common Stock

As of August 1, 2000 there were approximately 29,051,000 shares of Common
Stock outstanding and approximately 300 shareholders of record, excluding those
held in street name.

Holders of MSU's common stock are entitled to one vote for each share held
of record on all matters submitted to a vote of the shareholders. Holders of
the common stock do not have any cumulative voting rights for the election of
directors. Holders of common stock are entitled to receive ratably such
dividends, if any, as may be prescribed by the Board of Directors from time to
time out of funds legally available for that purpose. Upon any liquidation,
dissolution or winding up of MSU, whether voluntary or involuntary, holders of
common stock are entitled to receive pro rata all assets of MSU available for
distribution to its shareholders after payment or provision for payment of
debts and other liabilities of MSU. The shares of common stock are neither
redeemable nor convertible. All of the outstanding shares of common stock are
fully paid and non-assessable.

Notes

In December 1998, MSU issued an aggregate of $175,000 convertible
promissory notes bearing interest at the rate of 8% per annum and maturing on
December 31, 2001. The Notes are convertible at the rate of one share of Common
stock per $3.00 of promissory note principal at any time after the effective
date of the Registration Statement.

In January 1999, MSU issued an aggregate of $330,000 convertible
promissory notes bearing interest at the rate of 6% per annum and maturing on
December 31, 2001. The Notes are convertible at the rate of one share of Common
stock per $3.00 of promissory note principal at any time after the effective
date of the Registration Statement.

In January 2000, MSU issued an aggregate of $750,000 convertible
promissory notes bearing interest at the rate of 10% per annum and maturing on
December 31, 2000. The Notes are convertible at the rate of one share of Common
stock per $3.00 of promissory note principal at any time after the effective
date of the Registration Statement.

Options

The following options which MSU issued to certain employees to purchase
shares of common stock are currently outstanding:

20,000 at $2.50 until January 2001
20,000 at $3.56 until June 2002
16,500 at $0.9375 until June 2003
15,000 at $0.75 until November 2003
50,000 at $2.25 until November 2004
100,000 at $2.50 until December 2004
60,000 at $3.125 until January 2005
247,500 at $2.50 to November 2005

TRANSFER AGENT

The transfer agent for the Common Stock is Computer Share Investor
Services, Inc, 12039 W. Alameda Parkway, Lakewood, Colorado 80228.

44
<PAGE>

DISCLOSURE OF COMMISSION POSITION OF
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES

It is the position of the Commission that insofar as indemnification for
liabilities arising under the Securities Act may be permitted to directors,
officers and controlling persons of MSU, that such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable.

SHARES ELIGIBLE FOR FUTURE SALE

As of July 28, 2000, MSU has outstanding an aggregate of 29,051,202 shares
of common stock of which 14,308,169 are "restricted securities" as that term is
defined under Rule 144 under the Securities Act of 1933, as amended (the
"Securities Act"), in that such Common Stock was purchased or acquired by such
stockholders of MSU in transactions not involving a public offering.

In general, these restricted shares may be sold only pursuant to a
registration statement under the Securities Act or an applicable exemption,
including the exemption provided by Rule 144. Under Rule 144 as currently in
effect, a shareholder, including an affiliate of MSU may sell shares of Common
Stock after at least one year has elapsed since such shares were acquired from
MSU or an affiliate of MSU. The number of shares of Common Stock which may be
sold within any three-month period is limited to the greater of one percent of
the then outstanding Common Stock or the average weekly trading volume in the
Common Stock during the four calender weeks preceding the date on which notice
of such sale was filed under Rule 144. Certain other requirements of Rule 144
concerning availability of public information, manner of sale and notice of
sale must also be satisfied. In addition, a shareholder who is not an affiliate
of MSU (and who has not been an affiliate of MSU for 90 days prior to the sale)
and who has beneficially owned shares acquired from MSU or an affiliate of MSU
for over two years may resell the shares of Common Stock without compliance
with the foregoing requirements of Rule 144.

No predictions can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the market
price of the Common Stock prevailing from time to time. Nevertheless, sales of
substantial amounts of Common Stock or the perception that such sales may
occur, could have a material adverse effect on prevailing market prices and
could impair MSU's ability to raise capital through the sale of its equity
securities.

LEGAL MATTERS

The validity of the Securities offered hereby will be passed upon for MSU
by Bondy & Schloss LLP, New York, New York. Gerald A. Adler, a partner of Bondy
& Schloss LLP, is the beneficial holder of 12,000 shares of MSU's common stock,
including 4,000 shares underlying warrants.

EXPERTS

The Consolidated Financial Statements of MSU as of June 30, 1997, 1998 and
1999 included in this Prospectus have been audited by Moore Stephens Lovelace,
P.A., independent certified public accountants, as indicated in their report
included herein. Such Consolidated Financial Statements have been included in
reliance upon the authority of said firm as experts in accounting and auditing.

<PAGE>

INDEX TO FINANCIAL STATEMENTS FOR
THREE YEARS ENDED JUNE 30, 1999
----------------

<TABLE>
<CAPTION>
Page
Number
-------
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ................... F-2
FINANCIAL STATEMENTS
Consolidated Balance Sheets ......................................... F-3
Consolidated Statements of Operations ............................... F-4
Consolidated Statements of Changes in Shareholders' Equity (Deficit) F-5
Consolidated Statements of Cash Flows ............................... F-6
Notes to Consolidated Financial Statements .......................... F-7
</TABLE>
<PAGE>

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors
MSU Corporation
Central Milton Keynes, England

We have audited the accompanying consolidated balance sheets of MSU Corporation
and subsidiaries as of June 30, 1999 and 1998, and the related consolidated
statements of operations, changes in shareholders' equity (deficit) and cash
flows for each of the three years in the period ended June 30, 1999. These
financial statements are the responsibility of the Company's 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 financial statements referred to above present
fairly, in all material respects, the financial position of MSU Corporation and
subsidiaries as of June 30, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1999 in conformity with generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to
the consolidated financial statements, the Company has suffered, and continues
to suffer, significant losses from its operations, has an accumulated deficit,
continues to have negative cash flow from operations and currently has a very
limited client base. These factors, among others, raise substantial doubt about
its ability to continue as a going concern. Management's plans with regard to
these matters are also described in Note 1. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.

Certified Public Accountants

Orlando, Florida
September 30, 1999

F-2
<PAGE>

MSU CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 1999 and 1998

ASSETS
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents ............................................ $ 2,604,504 $ 166,040
Accounts receivable .................................................. 566 --
Inventory ............................................................ 39,500 --
Prepaid expenses and other ........................................... 170,457 79,411
---------- -----------
TOTAL CURRENT ASSETS .............................................. 2,815,027 245,451
EQUIPMENT, net of accumulated depreciation of $152,279 and
$84,544 in 1999 and 1998, respectively .............................. 134,959 108,647
INVESTMENTS .......................................................... 390,625 2,218,500
---------- -----------
TOTAL ASSETS ...................................................... $3,340,611 $2,572,598
========== ===========

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Current portion of debt .............................................. $ 75,000 $ 2,299,750
Shareholder advance payable .......................................... -- 1,400,000
Accounts payable and accrued liabilities ............................. 1,032,947 767,711
Related-party notes, advances and payables ........................... 185,811 178,661
------------ -----------
TOTAL CURRENT LIABILITIES ......................................... 1,293,758 4,646,122
LONG-TERM DEBT ....................................................... 505,000 --
COMMITMENTS AND CONTINGENCIES SHAREHOLDERS'
EQUITY (DEFICIT)
Common stock, $0.01 par value; 50,000,000 shares authorized;
25,364,262 and 16,590,237 shares issued and outstanding at June 30,
1999 and 1998, respectively ......................................... 253,642 165,902
Additional paid-in capital ........................................... 17,854,174 5,287,790
Stock subscription receivable ........................................ (148,750) --
Accumulated other comprehensive income (loss) ........................ 108,820 (686,454)
Accumulated deficit .................................................. (16,526,033) (6,840,762)
------------ -----------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) .............................. 1,541,853 (2,073,524)
------------ -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT) ........................................................ $ 3,340,611 $ 2,572,598
============ ===========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-3
<PAGE>

MSU CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
JUNE 30, 1999, 1998 and 1997

<TABLE>
<CAPTION>
1999 1998 1997
------------ ----------- -----------
<S> <C> <C> <C>
REVENUES ............................................... $ 31,746 $ 4,179,203 $ 1,479,911
EXPENSES
Cost of revenues ....................................... 53,374 7,796 650,790
Selling, general and administrative .................... 1,686,286 1,211,334 1,485,577
Depreciation ........................................... 74,082 49,556 43,709
Amortization of deferred financing and
registration costs .................................... -- 917,891 --
Interest expense ....................................... 157,675 297,706 26,380
Research and development ............................... 1,555,918 1,408,664 1,386,340
----------- ----------- -----------
TOTAL EXPENSES ...................................... 3,527,335 3,892,947 3,592,796
----------- ----------- -----------
OPERATING INCOME (LOSS) ............................. (3,495,589) 286,256 (2,112,885)
NON-OPERATING INCOME (EXPENSE)
Interest income ........................................ 4,693 5,488 6,176
Amortization of discount on convertible notes .......... (3,670,000) -- --
Impairment loss on carrying value of
investments ........................................... (2,524,375) -- --
----------- ----------- -----------
TOTAL NON-OPERATING INCOME
(EXPENSE) .......................................... (6,189,682) 5,488 6,176
----------- ----------- -----------
NET INCOME (LOSS) ................................... $(9,685,271) $ 291,744 $(2,106,709)
=========== =========== ===========
BASIC AND DILUTED INCOME (LOSS)
PER COMMON SHARE ...................................... $ (0.47) $ 0.02 $ (0.13)
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING ............................. 20,550,000 16,245,000 15,700,000
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.

F-4
<PAGE>

MSU CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY (DEFICIT)
Years Ended June 30, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Common Stock
Comprehensive $0.01 Par Value Additional
Income ---------------------- Paid-In
(Loss) Shares Amount Capital
------------ ---------- -------- -----------
<S> <C> <C> <C> <C>
Balance -- June 30, 1996 ..................... $ -- 15,534,722 $155,347 $ 2,984,081
Issuance of Common Shares .................... -- 452,169 4,522 1,472,479
Translation Adjustments ...................... 24,050 -- -- --
Net Loss ..................................... (2,106,709) -- -- --
-----------
Comprehensive Loss ........................... $(2,082,659)
=========== ---------- -------- -----------
Balance -- June 30, 1997 ..................... $ -- 15,986,891 159,869 4,456,560
Issuance of Common Shares .................... -- 603,346 6,033 769,384
Issuance of Options to Purchase 903,846
Shares of Common Stock ...................... -- -- -- 61,846
Translation Adjustments ...................... (84,655) -- -- --
Change in Market Value of Investments
Available for Sale .......................... (696,500) -- -- --
Net Income ................................... 291,744 -- -- --
-----------
Comprehensive Loss ........................... $ (489,411)
=========== ---------- -------- -----------
Balance -- June 30, 1998 ..................... $ -- 16,590,237 165,902 5,287,790
Issuance of Common Shares .................... -- 8,774,025 87,740 8,797,946
Issuance of Options to Purchase 112,500
Shares of Common Stock ...................... -- -- -- 98,438
Translation Adjustments ...................... 98,774 -- -- --
Reclassification of Change in Market Value
of Investments Available for Sale to
Account for Permanent Impairment ............ 696,500 -- -- --
Charge for Discount on Convertible Notes
Issued ...................................... -- -- -- 3,670,000
Net Loss ..................................... (9,685,271)
----------- ---------- -------- -----------
Comprehensive Loss ........................... $(8,889,997)
===========
Balance -- June 30, 1999 ..................... -- 25,364,262 $253,642 $17,854,174
========== ======== ===========
</TABLE>
<PAGE>
[RESTUBED FOR TABLE ABOVE]
<TABLE>
<CAPTION>
Accumulated
Other Total
Stock Comprehensive Shareholders'
Subscription Accumulated Income Equity
Receivable Deficit (Loss) (Deficit)
------------ ------------- ------------- ------------
<S> <C> <C> <C> <C>
Balance -- June 30, 1996 ..................... $ -- $ (5,025,797) $ 70,651 $(1,815,718)
Issuance of Common Shares .................... -- -- -- 1,477,001
Translation Adjustments ...................... -- -- 24,050 24,050
Net Loss ..................................... -- (2,106,709) -- (2,106,709)
Comprehensive Loss ...........................
--------- ------------ --------- -----------
Balance -- June 30, 1997 ..................... -- (7,132,506) 94,701 (2,421,376)
Issuance of Common Shares .................... -- -- -- 775,417
Issuance of Options to Purchase 903,846
Shares of Common Stock ...................... -- -- -- 61,846
Translation Adjustments ...................... -- -- (84,655) (84,655)
Change in Market Value of Investments
Available for Sale .......................... -- -- (696,500) (696,500)
Net Income ................................... -- 291,744 -- 291,744
Comprehensive Loss ...........................
--------- ------------ --------- -----------
Balance -- June 30, 1998 ..................... -- (6,840,762) (686,454) (2,073,524
Issuance of Common Shares .................... (148,750) -- -- 8,736,936
Issuance of Options to Purchase 112,500
Shares of Common Stock ...................... -- -- -- 98,438
Translation Adjustments ...................... -- -- 98,774 98,744
Reclassification of Change in Market Value
of Investments Available for Sale to
Account for Permanent Impairment ............ -- -- 696,500 696,500
Charge for Discount on Convertible Notes
Issued ...................................... -- -- -- 3,670,000
Net Loss ..................................... -- (9,685,271) -- (9,685,271
--------- ------------ --------- -----------
Comprehensive Loss ........................... --
===========
Balance -- June 30, 1999 ..................... $(148,750) $(16,526,033) $ 108,820 $ 1,541,853
========= ============ ========= ===========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-5
<PAGE>

MSU CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
June 30, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) ................................................ $(9,685,271) $ 291,744 $(2,106,709)
Adjustments to reconcile net income (loss) to net
cash used in operating activities
Depreciation ..................................................... 74,082 49,556 43,709
Amortization of deferred costs ................................... -- 917,891 --
Amortization of discount on convertible notes .................... 3,670,000 -- --
Impairment loss on carrying value of investments ................. 2,524,375 -- --
Non-cash expense related to issuance of
stock purchase options .......................................... 98,438 61,846 --
Issuance of stock for debt forgiveness, services
and settlements ................................................. 172,213 -- --
Issuance of stock for relief of interest ......................... 153,049 -- --
Conversion loss on issuance of common stock under market ......... 142,546 -- --
Non-cash revenue related to sale of license ...................... -- (2,915,000) --
(Increase) decrease in accounts receivable, net .................. (566) 105,842 (93,495)
(Increase) decrease in inventories ............................... (40,749) 12,325 (12,325)
(Increase) decrease in prepaid expenses and other ................ (87,737) 35,332 (970,478)
Increase in accounts payable and accrued liabilities ............. 304,852 54,249 216,329
Increase (decrease) in related-party advances payable ............ 163,000 (12,558) 12,013
----------- ----------- -----------
TOTAL ADJUSTMENTS ............................................. 7,173,503 (1,690,517) (804,247)
----------- ----------- -----------
NET CASH USED IN OPERATING ACTIVITIES ........................ (2,511,768) (1,398,773) (2,910,956)

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of equipment, net ................................... (106,628) (81,900) (77,299)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from (repayments of) borrowings under
short-term credit facilities, net ............................... -- (131,595) 131,595
Proceeds from issuance of convertible promissory notes ........... 4,175,000 470,008 1,829,742
Repayment of convertible promissory notes ........................ (326,939) -- --
Proceeds from issuance of note payable ........................... 75,000 -- 250,000
Repayment of note payable ........................................ -- (250,000) --
Proceeds from issuance of note to related party .................. 77,200 41,500 162,680
Repayment of note to related party ............................... (18,250) (33,200) --
Issuance of common stock ......................................... 1,013,650 775,417 1,477,001
----------- ----------- -----------
NET CASH PROVIDED BY FINANCING
ACTIVITIES ................................................... 4,995,661 872,130 3,851,018

EFFECT OF EXCHANGE RATE CHANGES .................................. 61,199 (84,655) (58,330)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS ......................................... 2,438,464 (693,198) 804,433
CASH AND CASH EQUIVALENTS AT BEGINNING OF
YEAR ............................................................ 166,040 859,238 54,805
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR ......................... $ 2,604,504 $ 166,040 $ 859,238
============ =========== ===========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-6
<PAGE>

MSU CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended June 30, 1999, 1998 and 1997

NOTE 1 -- ORGANIZATION, BASIS OF PRESENTATION AND SIGNIFICANT RISKS

Organization and Basis of Presentation

In October 1994, MSU Corporation, formerly Capital Acquisition Company,
acquired, through the issuance of 9,422,222 shares of its common stock, the
outstanding capital stock of MSU Public Limited Company (MSU Plc.), a private
company organized and based in the United Kingdom, which owns all of the
capital stock of Web2u Limited, formerly MSU UK Limited.

MSU Corporation operates primarily through Web2u Limited, which is
principally engaged in the design and development of computer chips and
chipsets for use in consumer electronic products. In February 1997, MSU US
Operations, Inc. was incorporated in North Carolina to act as a sales company
marketing and selling products developed by Web2U Ltd. The activity of MSU US
Operations has not been significant since its inception. All of the outstanding
common stock of this company is owned by MSU Corporation.

The consolidated financial statements include the accounts of MSU
Corporation, MSU Plc., Web2u Limited and MSU US Operations, Inc. (collectively,
the Company). All significant intercompany accounts have been eliminated in the
consolidated financial statements.

Significant Risks

The Company's consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. During the years
ended June 30, 1999, 1998 and 1997, the Company generated net income (losses)
of approximately $(9,685,000), $292,000 and $(2,107,000), respectively. At June
30, 1999, the Company had an accumulated deficit of approximately $16,526,000.
Additionally, the Company has had recurring negative cash flows from operations
and currently has a very limited client base (see Note 10). These factors raise
substantial doubt about the Company's ability to continue as a going concern.

Management's plans with regard to these matters include increased cash
flows from operations through further development, upgrade and marketing of its
chips and products, the issuance of additional shares of the Company's common
stock or debt securities in exchange for proceeds, which may be used to provide
the working capital needed to commercially exploit the Company's core
technologies. The Company will have to expend significant amounts of cash on
research and development in order to potentially produce revenues in the
future, and it anticipates the initial source of such funds to be derived from
the issuance of additional debt and/or equity securities. The issuance of any
additional securities would further dilute the current ownership structure. The
Company also intends to develop its infrastructure and organization to support
its enhanced operations as funds become available. However, there can be no
assurance that management will be successful in the implementation of its
plans. The accompanying consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash Equivalents

Cash equivalents include all highly liquid investments convertible into
known amounts of cash with an original maturity, when purchased, of three
months or less.

Investments

Investments consist of publicly traded stock of a U.S.-based company. This
stock was conveyed to the Company in partial payment of fees due under a
licensing agreement dated May 6, 1998 (see Note 3). In accordance with FASB
Statement No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," these investments are accounted for as available for sale
securities. Consequently, the unrealized

F-7
<PAGE>

MSU CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Years Ended June 30, 1999, 1998 and 1997

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)

holding loss on these securities is reported as a separate component of
shareholders' equity (deficit), unless a determination is made that the holding
loss is other than temporary. Upon the sale of the underlying securities, the
unrealized loss included in equity will be recognized in the statements of
operations. If the holding loss is determined to be permanent, the loss is
recognized in the year such a determination is made.

Equipment

Equipment is stated at cost. Depreciation is provided using the
straight-line method over the estimated useful lives of the equipment,
generally four years.

Inventory

Inventory is stated at the lower of cost or market. Cost is determined
using the first-in, first-out method. Inventory is generally comprised of
Internet Access Devices, which are available for sale as production samples.

Income Taxes

The Company recognizes deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Deferred tax assets and liabilities are
determined based on the difference between the financial statement and tax
bases of assets and liabilities using enacted tax rates in effect for the year
in which the differences are expected to reverse (see Note 5).

Revenue Recognition

The Company enters into development arrangements with certain customers to
design computer chips and chipsets using existing and enhanced technology,
which are suitable for use in the customer's application. The Company's
development arrangements are generally performed under contractual arrangements
which stipulate the Company's fee as certain performance criteria are met. The
Company recognizes these development fees when its customers acknowledge that
the fee has been earned by accepting the Company's work product. Development
fees and related support services fees revenue recognized by the Company
amounted to approximately $544,000 for the year ended June 30, 1998. None of
the arrangements resulted in development fees or related support service fees
in the years ended June 30, 1999 and 1997.

Certain arrangements provide for the customer to pay a royalty or
licensing fee. Royalty fees are to be paid to the Company if the customer uses
the Company's work product in commercial applications. Royalty and licensing
fees earned by the Company in the year ended June 30, 1998, amounted to
approximately $4,170,000. In the years ended June 30, 1999 and 1997, none of
the arrangements resulted in royalty or licensing revenue to the Company.

Revenue from the sale of chipset products to customers is recognized at
the time the products are shipped.

Deferred Financing Costs

The costs attributable to the issuance of certain convertible promissory
notes were deferred and amortized over the term of the notes. The 10%
convertible notes matured on July 1, 1998 (see Note 9), therefore, all deferred
financing costs related to that issuance had been amortized as of June 30,
1998.

F-8
<PAGE>

MSU CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Years Ended June 30, 1999, 1998 and 1997

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)

Deferred Registration Costs

Legal, accounting and other costs related to the Company's proposed
registration of shares (see Note 11) were capitalized as deferred registration
costs. These costs were expensed in fiscal 1998 when the Company chose to forgo
the registration of the stock.

Research and Development Costs

Research and development costs consist of expenditures incurred during the
course of planned search and investigation aimed at discovery of new knowledge,
which will be useful in developing new products or processes, or significantly
enhancing existing products, and the implementation of such through design,
building and testing of prototypes. The Company expenses all research and
development costs as they are incurred.

Net Income (Loss) Per Share

During the fiscal year ended June 30, 1998, the Company adopted "Statement
of Financial Accounting Standards No. 128 -- Earnings Per Share" (SFAS 128),
which requires presentation of both basic and diluted earnings per share. Basic
earnings per share is based on the weighted average number of common shares
outstanding during each year. Diluted earnings per share is based on the sum of
the weighted average number of common shares outstanding plus common stock
equivalents arising out of stock options and convertible debt. Earnings per
share information for all periods have been restated to conform to the
requirements of SFAS 128.

Common share equivalents were not considered in the earnings per share
calculation for 1999 and 1997 because their effect would have been
anti-dilutive. As a result, both basic and diluted earnings per share for 1999
and 1997 were calculated based on 20,550,000 and 15,700,000 weighted average
common shares outstanding during the years, respectively.

The following table is a reconciliation of the numerators and denominators
of the basic and diluted earnings per share computations for the fiscal year
ended June 30, 1998:
<TABLE>
<CAPTION>
For the Fiscal Year Ended June 30, 1998
-------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
Basic EPS
Net income .................................. $291,744 16,245,000 $ 0.02
======== ======
Effect of Dilutive Securities
Common stock options ........................ 47,000
----------
Diluted EPS
Net income plus assumed conversions ......... $291,744 16,292,000 $ 0.02
======== ========== ======
</TABLE>

Options to purchase 1,562,500 shares of common stock were outstanding
during the fiscal year ended June 30, 1998, but were not included in the
computation of diluted EPS because the options' exercise price was greater than
the average market price of the common shares.

Translation of Foreign Currency

The financial position and results of operations of the Company's foreign
subsidiaries are measured using local currency as the functional currency.
Assets and liabilities of these subsidiaries are translated at the

F-9
<PAGE>

MSU CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Years Ended June 30, 1999, 1998 and 1997

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)

exchange rate in effect at each year end. Income statement accounts are
translated at the average rate of exchange prevailing during the year.
Translation adjustments arising from differences in exchange rates from period
to period are included in the cumulative translation adjustments account in
shareholders' equity.

Comprehensive Income (Loss)

Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," requires companies to report an additional measure of
income (loss) on the statements of operations or to create a new financial
statement that shows the new measure of income (loss). Other comprehensive
income (loss) includes foreign currency translation gains and losses and
unrealized gains and losses on equity securities that are excluded from net
income. Comprehensive income (loss) includes net income (loss) and other
comprehensive income (loss).

Concentrations of Credit Risk and Fair Value of Financial Instruments

Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash deposited in a
financial institution and investments in publicly traded equity securities. The
Company primarily maintains its cash in bank deposit accounts in the United
Kingdom, which are not insured. The Company has not experienced any losses in
such bank deposit accounts and believes that it is not exposed to any
significant credit risk on cash and cash equivalents.

The Company's equity security holdings consists of an investment in one
company (see Note 3). As a result, the Company has a significant credit risk
related to its investment and is subject to the concentrated market risk
related to not having a diversified portfolio. Volatility in the investment's
stock price or low trading volume may have an adverse impact on the Company's
financial position.

Financial instruments reflected in the Company's balance sheets at June
30, 1999 and 1998 include cash and cash equivalents, subscription receivable,
notes payable, and other borrowings. The carrying amount of cash and cash
equivalents, subscription receivable, notes payable and other short-term
borrowings approximates fair value because of the short maturity of those
instruments. Because of the circumstances and the nature of the Company's
relationship with its creditors, it was not practical to estimate the fair
value of the $1,400,000 shareholder advance payable (see Note 4) and other
borrowings.

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 and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Reclassifications

Certain amounts in the June 30, 1998 financial statements have been
reclassified to conform to the June 30, 1999 presentation.

NOTE 3 -- LICENSING AGREEMENT

On May 6, 1998, the Company entered into a licensing agreement with
American Interactive Media, Inc. (AIM), whereby the Company granted to AIM a
worldwide, non-exclusive license in respect of the MSU proprietary intellectual
property relating to the Internet Access Device. The consideration for the
license was

F-10
<PAGE>

MSU CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Years Ended June 30, 1999, 1998 and 1997

NOTE 3 -- LICENSING AGREEMENT -- (Continued)

$1,150,000 in cash and 560,000 restricted shares of common stock in AIM, of
which 60,000 shares were issued directly to Capital Bay Securities and Daybreak
Fund LLC in settlement of certain short-term funding received by the Company of
$314,985, together with accrued interest and other fees owing to Capital Bay
Securities and Daybreak Fund LLC. In fiscal 1999, the trading value of the
Company's investment in AIM declined significantly. The Company determined the
loss to be permanent and, accordingly, recognized an impairment loss on
carrying value of investments of approximately $2,500,000 in the accompanying
financial statements.

At June 30, 1999, the Company's investment serves as collateral on certain
borrowings (see Note 9).

NOTE 4 -- RELATED-PARTY TRANSACTIONS

Prior to June 30, 1994, the Company was advanced a total of $2,159,910
from a previously unrelated third party, of which $759,910 was contributed to
capital when the Company agreed to accept this amount as consideration for the
issuance of 2,208,333 shares of its common stock pursuant to a March 1994
agreement. As of June 30, 1998, the $1,400,000 remaining balance of the advance
remained unpaid. The advance was repaid by the Company in December 1998 through
the issuance of 1,400,000 shares of restricted common stock of the Company.

The Company has received services from law firms in which a director of
the Company was employed. Amounts charged to operations for these legal
services during the years ended June 30, 1999, 1998 and 1997, approximated
$115,000, $122,000 and $117,000, respectively.

The Company has also entered into a marketing agreement with an individual
who is a director of a principal shareholder of the Company. The agreement
provides, among other things, for the individual to receive compensation based
upon revenue attained by the Company, as a result of transactions attributable
to the individual's efforts. Compensation under the agreement is to consist of
from 5% to 10% of such revenue plus warrants to acquire 75,000 shares of the
Company's common stock for each $1 million of revenue attained, with an
exercise price of 50% of market value at the time the warrants are issued, up
to a maximum of 300,000 shares. No expense has been incurred under this
agreement through June 30, 1999.

In September 1996, a trust in which a director has an interest (the
Employee Trust) loaned the Company approximately $163,000. The loan is
unsecured, bears no interest, and has no defined terms for repayment. As
consideration for this, the Company has granted to the trustees an option over
a five-year period to subscribe for 100,000 shares of the Company's common
stock with an exercise price of $2.12, being the market value of the Company's
common stock at the date of grant of the options. During the fiscal year ended
June 30, 1999, a further $40,000 was advanced on similar terms, and
approximately $18,000 was repaid in cash. In October 1998, approximately
$161,000 of this note was repaid through the issuance of 322,500 shares of
restricted common stock of the Company.

In September 1998, a director loaned the Company approximately $33,000.
The loan was unsecured, bore no interest, and had no defined terms for
repayment. As consideration for this, the Company granted to the director an
option over a five-year period to subscribe for approximately 106,000 shares of
the Company's common stock with an exercise price of $0.35, being the market
value of the Company's common stock at the date of grant of the options. During
December 1998, this note was repaid through the issuance of approximately
96,000 shares of restricted common stock of the Company.

Amounts due under related party notes, advances and payables as of June
30, 1999 and 1998, amounted to approximately $186,000 and $179,000,
respectively. The June 30, 1999 and 1998 balances consist of primarily
approximately $158,000 and $79,000 due to a director for unpaid salaries and
approximately $21,000 and $171,000 due to the Employee Trust, respectively.

F-11
<PAGE>

MSU CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Years Ended June 30, 1999, 1998 and 1997

NOTE 5 -- INCOME TAXES

As of June 30, 1999, 1998 and 1997, the Company had a U.S. net operating
loss carryforward of approximately $2.5 million, $2 million and $460,000,
respectively, available to offset future taxable income. The net operating loss
carryforward expires through the year 2019. Under U.S. federal tax laws,
certain changes in ownership of a company may cause a limitation on future
utilization of these loss carryforwards.

As of June 30, 1999, 1998 and 1997, the Company's subsidiaries had a
United Kingdom net operating loss carryforward of approximately $7.2 million,
$4.2 million and $6.0 million, respectively. Under United Kingdom tax laws,
operating losses carry forward indefinitely.

Deferred tax assets resulting from the Company's United Kingdom income tax
loss carryforwards were approximately $2.1 million, $1.3 million and $1.8
million at June 30, 1999, 1998 and 1997, respectively. The Company has
established a valuation allowance to fully offset all deferred tax assets and
carryforwards, as their future realization is uncertain.

NOTE 6 -- STOCKHOLDERS' DEFICIT

During the year ended June 30, 1997, the Company issued, in private
transactions, an aggregate of 452,169 shares of common stock in exchange for
net consideration of approximately $1,477,000. Gross proceeds of approximately
$1,527,000 were offset by $50,000 of legal fees relating to the stock
issuances. Of this amount, approximately $1,027,000 was received in cash at the
time of the transactions, approximately $50,000 was received in the form of
consulting services, and $450,000 of stock was issued to the placement agent as
partial compensation for the issuance of the 10% convertible notes (see Note
9).

During the year ended June 30, 1998, the Company issued, in private
transactions, an aggregate of 603,346 shares of unregistered common stock in
exchange for net consideration of approximately $451,000 cash at the time of
the transactions, and approximately $324,000 as forgiveness of interest on
certain notes payable.

During the year ended June 30, 1999, the Company issued, in private
transactions, an aggregate of 8,774,025 shares of unregistered common stock in
exchange for net consideration of approximately $8,737,000. Approximately
$1,021,000 was received in cash for the issuance of 2,027,500 shares of common
stock at the time of the transactions. Stock subscriptions receivable in the
amount of approximately $149,000 relate to the issuance of 150,000 shares of
common stock. Common stock representing 1,923,607 shares was issued to various
parties for settlement of approximately $1,782,000 of certain advances, notes
and settlements payable. Accrued interest payable approximating $153,000 was
relieved through the issuance of 207,500 shares of common stock. Convertible
notes payable in the amount of approximately $5,638,000 were converted into
4,465,418 shares of common stock during the year ended June 30, 1999.
Conversion cost of securities issued below market during the fiscal year ended
June 30, 1999 approximated $143,000, of which approximately $40,000 was as a
result of related-party transactions, and was recorded as additional paid-in
capital in the accompanying statements of changes in shareholders' equity
(deficit) (see Note 4).

NOTE 7 -- STOCK OPTIONS AND WARRANTS

In connection with the private placement of 1,600,000 shares of its common
stock in 1996, the Company issued a warrant, which was exercisable through
September 1, 1997, to purchase 3.5% of the then outstanding shares (calculated
on a fully diluted basis) of the Company's common stock for consideration of
$1,000,000. The warrant was subject to certain anti-dilution provisions. In
July 1997, in consideration for the cancellation of the warrant and
anti-dilutive provisions relating to the private placement of 1,600,000 shares
of the Company's common stock, the Company issued a new warrant to purchase
650,000 shares of the Company's common stock for $650,000. This warrant is
exercisable through July 2002.

In February 1997, the Company entered into a "Placement Agent Agreement
and a Bridging Loan Agreement," which provided for the issuance to the Company
of a bridge loan of $600,000 in advance of the

F-12
<PAGE>

MSU CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Years Ended June 30, 1999, 1998 and 1997

NOTE 7 -- STOCK OPTIONS AND WARRANTS -- (Continued)

offering of approximately $2,000,000 of convertible notes (see Note 9). In
accordance with these agreements, the Company has issued warrants to the
placement agent for 10,000 shares of the Company's common stock, exercisable
from May 1997 to May 2000 at a price of $3.00 per share and to the bridge loan
noteholders for 60,000 shares of the Company's common stock exercisable at
$3.00 per share through January 2000.

In May 1997, the Company issued to a consultant a warrant to purchase up
to 150,000 shares of the Company's restricted common stock at an exercise price
of $2.00 per share. No compensation expense was recorded for these options, as
management believes the restrictions associated with any shares received by the
option grantees on exercise will subject those shares to a discount from
unrestricted market value.

In July 1997, the Company granted options to nine of its employees to
acquire an aggregate of 50,000 shares of the Company's common stock at an
exercise price of $3.56 per share. The option terms are as follows: options
relating to 25,000 shares were exercisable on June 30, 1998; options relating
to 25,000 shares were exercisable on June 30, 1999. During the year ended June
30, 1998, 10,000 of these options were canceled. The remaining options expire
in June 2002.

Pursuant to an employment agreement, in August 1997 and May 1998, the
Company granted options to a director to acquire an aggregate of 600,000 shares
of the Company's common stock at exercise prices as follows: 300,000 options
exercisable at $2.25 per share and 300,000 options exercisable at $0.65 per
share. Options relating to 250,000 shares of common stock have expired due to
the director's termination of employment. The remaining options are exercisable
as follows: options relating to 200,000 shares are exercisable in equal amounts
in August 1998 and 1999, and options relating to the remaining 150,000 shares
became exercisable in May 1998. These options expire three years after their
respective dates of issuance.

In February 1998, the Company granted options to a director to acquire an
aggregate of 321,646 shares of the Company's common stock at exercise prices
ranging from $1.75 to $0.65. These options are immediately exercisable and
expire in February 2003.

In July and August 1998, the Company granted options to ten of its
employees to acquire an aggregate of 88,000 shares of the Company's common
stock at an exercise price of $0.94 per share. These options are exercisable in
equal amounts in June 1999 and 2000. As of June 30, 1999, 11,500 of these
options have lapsed due to termination of the respective employees.

In August 1998, options to purchase 145,000 shares of the Company's common
stock were granted to an investment broker as consideration to extend the due
date for the payment of interest on certain convertible promissory notes (see
Note 9). These options are exercisable immediately at an exercise price of
$1.00.

In September 1998, the Company granted options to three directors to
acquire an aggregate of 500,000 shares of the Company's common stock at an
exercise price of $0.65. These options are exercisable in equal amounts in
September 1998 and 1999 and expire in September 2003.

In connection with the private placement of 2,000,000 shares of its common
stock in November and December 1998, the Company issued warrants, which are
exercisable immediately, to purchase 1,000,000 shares of the Company's common
stock for consideration of $500,000.

As consideration for a loan to the Company in September 1998, a director
of the Company was granted options to purchase 105,857 shares of common stock
at an exercise price of $0.35 per share. These options are immediately
exercisable and expire in September 2003.

In connection with the issuance of collateralized, convertible promissory
notes (see Note 9) in the fiscal year ended June 30, 1999, two directors of the
Company offered as security for the loan an aggregate of

F-13
<PAGE>

MSU CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Years Ended June 30, 1999, 1998 and 1997

NOTE 7 -- STOCK OPTIONS AND WARRANTS -- (Continued)

2,250,000 shares of the Company's common stock owned by the directors. As
consideration for pledging the collateral for the notes, the directors were
granted options to purchase an aggregate of 1,125,000 shares of common stock at
an exercise price of $0.50 per share. These options are immediately exercisable
and expire in November 2003.

In November 1998, the Company granted options to eight of its employees to
acquire an aggregate of 65,000 shares of the Company's common stock at an
exercise price of $0.75 per share. These options are immediately exercisable.
As of June 30, 1999, 25,000 of these options have lapsed due to termination of
the respective employees.

In January 1999, the Company issued options to a consultant to purchase
25,000 shares of the Company's common stock at an exercise price of $2.94 per
share. These options are immediately exercisable and expire in January 2004.

In January 1999, the Company issued options to a consultant to purchase
112,500 shares of the Company's common stock at an exercise price of $1.50 per
share. These options are immediately exercisable and expire in January 2004.

Compensation expense recorded for stock options granted in the years ended
June 30, 1999, 1998 and 1997, approximated $98,000, $230,000, and $-0-,
respectively, and is included in selling, general and administrative expenses.

Activity related to the Company's stock options during the years ended
June 30, 1997, 1998 and 1999, was as follows:
<TABLE>
<CAPTION>
Outstanding Options
-------------------------------------
Weighted Average
Number of Shares Exercise Price
---------------- ----------------
<S> <C> <C>
June 30, 1996 ................................ 380,000 $4.47
Grants ....................................... 1,622,500 $1.70
Exercises .................................... -- --
Cancellations ................................ -- --
---------
June 30, 1997 ................................ 2,002,500 $2.22
Grants ....................................... 1,121,646 $1.39
Exercises .................................... (37,000) $1.00
Cancellations ................................ (320,000) $2.18
---------
June 30, 1998 ................................ 2,767,146 $1.86
Grants ....................................... 3,166,357 $0.61
Exercises .................................... (172,500) $0.96
Cancellations ................................ (316,500) $1.54
---------
June 30, 1999 ................................ 5,444,503 $1.18
=========
Options exercisable at June 30, 1999 ......... 5,031,253 $1.20
========= =====
</TABLE>

F-14
<PAGE>

MSU CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Years Ended June 30, 1999, 1998 and 1997

NOTE 7 -- STOCK OPTIONS AND WARRANTS -- (Continued)

The range of exercise prices for options outstanding at June 30, 1999 was
$0.35 to $5.00. The following table summarizes information about options
outstanding at June 30, 1999:

Outstanding Options
---------------------------------------------------
Weighted
Number Average
of Contractual Weighted Average
Range of Exercise Prices Shares Life (in years) Exercise Price
-------------------------- --------- --------------- ----------------
$0.35 to $2.50 ........... 5,079,503 3.7 $ 0.93
$3.00 to $5.00 ........... 365,000 2.2 $ 4.71
---------
5,444,503 3.6 $ 1.18
=========

Exercisable Options
-------------------------------------
Weighted Average
Range of Exercise Prices Number of Shares Exercise Price
-------------------------- ---------------- ----------------
$0.35 to $2.50 ........... 4,666,253 $0.93
$3.00 to $5.00 ........... 365,000 $4.71
---------
5,031,253 $1.20
=========

SFAS No. 123, "Accounting for Stock-Based Compensation" (SFAS 123)
establishes financial accounting and reporting standards for stock-based
employee compensation plans. It encourages, but does not require, companies to
recognize compensation expense for grants of stock, stock options and other
equity instruments to employees based on new fair value accounting rules.
Companies that choose not to adopt the new fair value accounting rules are
required to disclose net income and earnings per share under the new method on
a pro forma basis. The Company accounts for its options and warrants according
to APB No. 25 and follows the disclosure provisions of SFAS 123. Accordingly,
if options or warrants are granted to employees or others for services and
other consideration with an exercise price below the fair market value on the
date of the grant, the difference between the exercise price and the fair
market value is charged to operations. The fair value of the options granted
during the fiscal years ended June 30, 1999, 1998 and 1997 reported below, has
been estimated at the dates of grant using the Black-Scholes option-pricing
model with the following assumptions:

1999 1998 1997
---- ---- ----
Expected life (in years) .......... 5 5 5
Risk-free interest rate ........... 7.5% 6.5% 6.0%
Volatility ........................ 131% 130% 135%
Dividend yield .................... 0.0% 0.0% 0.0%

The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions, including the expected stock price
volatility. Because the Company's options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in the opinion
of management, the existing models do not necessarily provide a reliable single
measure of the fair value of its options.

F-15
<PAGE>

MSU CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Years Ended June 30, 1999, 1998 and 1997

NOTE 7 -- STOCK OPTIONS AND WARRANTS -- (Continued)

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information is approximately as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Pro forma net loss ................ $(11,259,000) $(1,310,000) $(3,430,000)
Pro forma loss per share .......... $ (0.55) $ (0.08) $ (0.22)
</TABLE>
The effects on pro forma disclosures of applying SFAS 123 are not
necessarily indicative of the effects on pro forma disclosures of future years.

NOTE 8 -- SHORT-TERM BORROWINGS

The Company has borrowed funds from time to time for working capital under
various credit facilities with its principal bank. These borrowings have
generally provided for interest on outstanding amounts at a rate of 3% above
the financial institution's prime rate. All such borrowings, including bank
overdrafts, are subject to the bank's discretion and are collateralized by a
floating debenture on substantially all of the assets of the Company and are
payable on demand. At June 30, 1999 and 1998, there were no borrowings
outstanding under this arrangement.

NOTE 9 -- LONG-TERM DEBT

During the year ended June 30, 1997, the Company issued approximately
$1,830,000 of 10% convertible promissory notes (the old 10% Notes). Interest
was payable quarterly and the old 10% Notes matured July 1, 1998. The old 10%
Notes were collateralized by the assets of the Company and were originally
convertible into shares of the Company's common stock at a rate of one share of
common stock for each $3.00 of old 10% Notes principal converted. Proceeds
received by the Company, net of offering costs, approximated $1,524,000. During
the year ended June 30, 1998, the Company issued an additional $470,000 of the
old 10% Notes. The Company used approximately $600,000 of the proceeds to repay
certain bridge financing that it incurred during the year ended June 30, 1997
(see Note 7).

Capital Bay Securities, as agent for the noteholders, issued a Notice of
Default on the Company, as interest had not been paid on the promissory notes
on the due dates. On May 6, 1998, the noteholders agreed that in consideration
for the issuance of 168,000 shares of common stock, representing interest
through July 31, 1998, the notes would not be declared in default at any time
prior to July 31, 1998 for any reason whatsoever. In August 1998, the
noteholders agreed that in consideration for a reduction of the conversion
price to $0.75, they would release all of their collateral security over the
assets of the Company, except for the security of the 500,000 shares of common
stock of AIM, and extend the period over which they would not declare the notes
to be in default to September 30, 1998, which was subsequently extended through
December 15, 1998. As of June 30, 1999, all of the 10% convertible notes were
paid or converted into shares of the Company's common stock.

In December 1998, the Company issued $175,000 of 8% convertible promissory
notes (the 8% Notes). Interest was prepaid on the 8% Notes through December
2001, with an issuance of approximately 58,000 shares of the Company's common
stock. The 8% Notes are collateralized by certain assets of the Company and two
directors (see Note 7), mature in December 2001, and are convertible into
shares of the Company's common stock at a rate of one share of common stock for
each $3.00 of the 8% Notes principal converted. Proceeds received by the
Company, net of offering costs, approximated $156,000. In the event of the
noteholders not electing to convert their promissory notes into shares of
common stock, there can be no guarantee that the Company will have sufficient
funds available to repay the promissory notes.

F-16
<PAGE>

MSU CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Years Ended June 30, 1999, 1998 and 1997

NOTE 9 -- LONG-TERM DEBT -- (Continued)

In January 1999, the Company issued $330,000 of 6% convertible promissory
notes (the 6% Notes). Interest was prepaid on the 6% Notes through December
2001, with an issuance of approximately 80,000 shares of the Company's common
stock. The 6% Notes are collateralized by certain assets of the Company and two
directors (see Note 7), mature in December 2001, and are convertible into
shares of the Company's common stock at a rate of one share of common stock for
each $3.00 of the 6% Notes principal converted. Proceeds received by the
Company, net of offering costs, approximated $307,000. In the event of the
noteholders not electing to convert their promissory notes into shares of
common stock, there can be no guarantee that the Company will have sufficient
funds available to repay the promissory notes.

In May 1999, the Company issued $3,670,000 of new 10% convertible
promissory notes (the new 10% Notes). Interest was payable on these Notes
quarterly. The new 10% Notes were collateralized by certain assets of the
Company and two directors (see Note 7) and, in June 1999, were converted into
shares of the Company's common stock at a rate of one share of common stock for
each $2.00 of the new 10% Notes principal converted. Proceeds received by the
Company from the issuance of the new 10% Notes, net of offering costs,
approximated $3,376,000 in cash and $160,000 in forgiveness of non-convertible
promissory notes. Since the conversion price of these notes was below the
market price of the Company's stock at the date of issuance, a discount
relating to this beneficial conversion feature in the amount of $3,670,000 was
recorded in the year ended June 30, 1999. Due to the conversion of the new 10%
Notes, this discount was fully amortized as of June 30, 1999 and appears in the
accompanying statements of operations.

The Company signed notes payable with three individuals in March 1999 for
consideration of $235,000. Two of these notes were subsequently paid by the
issuance of $160,000 of new 10% convertible notes to the respective
noteholders. The note related to the remaining $75,000 of principal outstanding
at June 30, 1999, is unsecured and was due at June 30, 1999.

In 1999 and 1998, the Company received loans in the amount of
approximately $40,000 and $8,000, respectively, from its employee trust (see
Note 10). The loans are unsecured, bear no interest, and have no defined terms
for repayment.

Long-term debt consists of the following at June 30, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
-------- -----------
<S> <C> <C>
Convertible 10% promissory notes, interest payable quarterly, maturing
July 1, 1998, collateralized by assets of the Company, convertible into
shares of the Company's common stock at a rate of one share for each
$0.75 of note principal converted ..................................... $ -- $ 2,299,750
Convertible 8% promissory notes, interest payable quarterly, maturing
December 2001, collateralized by assets of the Company, convertible
into shares of the Company's common stock at a rate of one share for
each $3.00 of note principal converted ................................ 175,000 --
Convertible 6% promissory notes, interest payable quarterly, maturing
December 2001, collateralized by assets of the Company, convertible
into shares of the Company's common stock at a rate of one share for
each $3.00 of note principal converted ................................ 330,000 --
Unsecured, noninterest-bearing notes payable, no specified date for
repayment ............................................................. 75,000 --
-------- -----------
580,000 2,299,750
Less current portion ................................................... (75,000) (2,299,750)
-------- -----------
Total long-term debt ................................................. $505,000 $ --
======== ===========
</TABLE>

F-17
<PAGE>

MSU CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Years Ended June 30, 1999, 1998 and 1997

NOTE 9 -- LONG-TERM DEBT -- (Continued)

Maturities on long-term debt obligations are as follows:

Year Ending
June 30, Principal
----------- ---------
2000 $ 75,000
2001 $ --
2002 $505,000

Cash paid for interest was approximately $-0-, $230,000 and $26,000 for
the fiscal years ended June 30, 1999, 1998 and 1997, respectively.

NOTE 10 -- COMMITMENTS AND CONTINGENCIES

Leases

The Company leases office space under operating leases entered into during
1997 and 1998, which expire through March 2001. Future minimum rental payments
and service charges required under the leases at June 30, 1999, are
approximately as follows:

Year Ending
June 30, Amount
----------- ------
2000 $88,000
2001 $61,000

For the years ended June 30, 1999, 1998 and 1997, rent expense totaled
approximately $115,000, $68,000 and $54,000, respectively.

Pension Plan

The Company has a defined contribution pension plan for the benefit of its
employees. The plan requires an employee contribution of 2.5% of the employee's
salary to participate and fixes the employer contribution at 6.5% of the salary
for all participating employees. For each of the years ended June 30, 1999,
1998 and 1997, the Company made contributions of approximately $54,000, $36,000
and $37,000 to the plan, respectively.

Employment Agreements

The Company currently has employment agreements with four of its executive
officers requiring the payment of aggregate minimum annual salaries of
approximately $279,000, along with certain other benefits.

Concentrations

The Company has no customers to date that frequently and systematically
purchase its products or retain its services.

Revenues for the years ended June 30, 1999, 1998 and 1997 were generated
from a small number of customers, the loss of any one of which could have a
material adverse affect on the Company's business. In fiscal 1998, substantially
all of its revenues were derived from one transaction with one customer (see
Note 3).

The Company presently has only one supplier manufacturing customized
Internet Access Devices using its chips and software. Should the supplier cease
production, the Company could be adversely affected.

F-18
<PAGE>

MSU CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Years Ended June 30, 1999, 1998 and 1997

NOTE 10 -- COMMITMENTS AND CONTINGENCIES -- (Continued)

The Company's revenue, by geographical region, during the years ended June
30, were approximately as follows:

Location 1999 1998 1997
-------- ------- ---------- ----------
Europe ................. $ 2,000 $ 8,000 $ --
Far East ............... 17,000 -- 730,000
North America .......... 13,000 4,171,000 750,000
------- ---------- ----------
$32,000 $4,179,000 $1,480,000
======= ========== ==========

Contested Liability

In November 1994, the Company received a written demand from a third party
for $75,000, plus additional unspecified amounts based upon an alleged breach
of contract. The Company has advised the third party that it does not believe
that it has any liability since the third party failed to perform in accordance
with the contract and that the contract was of no further effect. The ultimate
outcome of this matter and the amount of damages, if any, that may ultimately
be incurred cannot presently be determined, and no provision for liability has
been made in the accompanying consolidated financial statements.

Employee Trust

As of June 30, 1999 and 1998, 2,914,444 and 2,591,944 shares of the
Company's common stock were held by an employee trust (the Trust), whose
beneficiaries are substantially all of the employees of the Company.
Contributions to the Trust are at the discretion of the Company's Board of
Directors. During the years ended June 30, 1999 and 1998, the Company made no
contributions to the Trust.

Other

The Company does not have access to certain of its corporate records,
other than drafts and copies of certain documents, for the period from
approximately September 1994 through December 1995, making it difficult for the
Company to conclude that certain corporate matters were properly effected.
Current management believes that all matters during this period were effected
properly, including approval of the reverse acquisition of Capital Acquisition
Corporation by MSU Plc. (see Note 1). The corporate records for the
aforementioned period are in the possession of one of the Company's former law
firms, which has refused to release such records until amounts allegedly due
such firm are paid. The Company is contesting the amount allegedly due that
firm based on the Company's belief that it was billed for services that were
not authorized by the Company. The ultimate outcome of these matters and the
amount of damages, if any, that may ultimately be incurred cannot presently be
determined. The accompanying financial statements contain no provision or
adjustments related to the ultimate outcome of these uncertainties.

In December 1997, the Company received a complaint demanding approximately
$113,000 for unpaid public relations and consulting services. The Company filed
an answer to the lawsuit stating that the Plaintiff failed to fulfill its
contractual obligations and, accordingly, the Company believed it was not
liable for the claimed damages. In January 1999, this matter was settled by the
Company agreeing to issue to the complainant 55,000 shares of the Company's
common stock, resulting in settlement expense of approximately $96,000.

The Company continues to review the adequacy of its insurance coverage.
Presently, the Company believes that its insurance coverage may be inadequate
in light of current and/or prospective agreements. However, management
continues to endeavor to obtain adequate coverage, although no assurance can be
given that adequate insurance will be obtained.

F-19
<PAGE>

MSU CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Years Ended June 30, 1999, 1998 and 1997

NOTE 10 -- COMMITMENTS AND CONTINGENCIES -- (Continued)

Year 2000 Issues (Unaudited)

Because many computerized systems use only two digits to record the year
in date fields (for example, the year 1998 is recorded as "98"), such systems
may not be able to process dates accurately in the year 2000 and after.

The Company's management has made efforts to determine the possible
effects of Year 2000 issues on its operations and is implementing remedial
actions. Management will also attempt to determine if its significant
customers, vendors and other third parties upon which it relies have addressed
or will be able to address any affected systems on a timely basis. Management
does not expect the potential disruption from Year 2000 issues to have a
material effect on the Company's business operations, but the outcome remains
uncertain. The accompanying financial statements contain no provision or
adjustments related to the ultimate outcome of this uncertainty.

NOTE 11 -- REGISTRATION OF SHARES

The Company intended to file a Registration Statement on Form S-1 under
the Securities Act of 1933, as amended, for the purpose of registering shares
of common stock that are issuable upon the conversion of the Company's 10%
convertible promissory notes (see Note 9) and to register 218,000 shares of
common stock to be sold by certain selling shareholders. In 1998, the Company
chose to withdraw the Registration Statement.

F-20
<PAGE>

INDEX TO FINANCIAL STATEMENTS FOR
NINE MONTHS ENDED MARCH 31, 2000

<TABLE>
<CAPTION>
Page No.
------------
<S> <C>
Condensed Consolidated Financial Statements
Condensed Consolidated Balance sheets as at March 31, 2000 and June 30, 1999 ............. F-21
Condensed Consolidated statements of Operations for the three and nine months ended
March 31, 2000 and the three and nine months ended March 31, 1999 ....................... F-22
Condensed Consolidated statements of Cash Flows for the nine months ended March 31, 2000
and 1999 ................................................................................ F-23
Notes to Condensed Financial Statements .................................................. F-24 -- F-25
</TABLE>

F-21
<PAGE>

Condensed Consolidated Financial Statements
MSU Corporation
Condensed Consolidated Balance Sheets (Unaudited)

<TABLE>
<CAPTION>
March 31, June 30,
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents ........................................... $ 205,975 $ 2,604,504
Accounts receivable ................................................. 125,979 566
Inventory ........................................................... 446,091 39,500
Prepaid expenses and other .......................................... 360,053 170,457
------------ ------------
TOTAL CURRENT ASSETS ................................................ 1,138,098 2,815,027
EQUIPMENT, net of accumulated depreciation of $218,710 and
$152,279 at March 31, 2000 and June 30, 1999, respectively ......... 176,544 134,959
INVESTMENTS ......................................................... 125,000 390,625
------------ ------------
TOTAL ASSETS ........................................................ $ 1,439,642 $ 3,340,611
============ ============
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
Current portion of debt ............................................. $ 825,000 $ 75,000
Accounts payable and accrued liabilities ............................ 1,345,484 1,032,947
Related-party notes, advances and payables .......................... 84,720 185,811
------------ ------------
TOTAL CURRENT LIABILITIES ........................................... 2,255,204 1,293,758
LONG-TERM DEBT ...................................................... 505,000 505,000
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY/(DEFICIT)
Common stock, $0.01 par value; 50,000,000 shares authorized;
25,631,202 and 25,364,262 shares issued and outstanding at March
31, 2000 and June 30, 1999, respectively ........................... 256,312 253,642
Additional paid-in capital .......................................... 18,643,881 17,854,174
Stock subscriptions receivable ...................................... (145,000) (148,750)
Accumulated other comprehensive income .............................. 149,770 108,820
Net unrealized loss ................................................. (265,625) --
Accumulated deficit ................................................. (19,959,900) (16,526,033)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY/(DEFICIT) ................................ (1,320,562) 1,541,853
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY/(DEFICIT) ................................................... $ 1,439,642 $ 3,340,611
============ ============
</TABLE>
See notes to condensed consolidated financial statements.

F-22
<PAGE>

MSU Corporation
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
----------------------------- ----------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES .............................. $ 397,013 $ -- $ 397,517 $ 9,808
EXPENSES
Cost of revenues ...................... 394,995 2,587 394,995 6,895
Selling, general and administrative and
other ................................ 592,796 546,181 1,462,207 1,050,181
Depreciation .......................... 18,217 19,806 64,875 57,517
Interest expense ...................... 25,584 10,450 81,985 106,283
Research and development .............. 447,594 443,045 1,418,170 1,132,416
----------- ----------- ----------- -----------
TOTAL EXPENSES ........................ 1,479,186 1,022,069 3,422,232 2,352,292
----------- ----------- ----------- -----------
OPERATING LOSS ........................ (1,082,173) (1,022,069) (3,024,715) (2,343,484)
NON-OPERATING INCOME
Interest income ....................... (81) (27) 32,098 2,634
Amortization of discount on convertible
notes ................................ (291,251) -- (441,251) --
----------- ----------- ----------- -----------
TOTAL NON-OPERATING INCOME
(EXPENSE) ............................ (291,332) (27) (409,153) 2,634
----------- ----------- ----------- -----------
NET LOSS .............................. $(1,373,506) $(1,022,096) $(3,433,868) $(2,340,850)
=========== =========== =========== ===========
BASIC AND DILUTED NET LOSS
PER COMMON SHARE ..................... $ (0.05) $ (0.04) $ (0.13) $ (0.12)
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING .......................... 25,558,230 23,105,043 25,448,784 19,374,838
=========== =========== =========== ===========
</TABLE>
See notes to condensed consolidated financial statements.

F-23
<PAGE>

MSU Corporation
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
------------------------------
March 31, March 31,
2000 1999
----------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss .................................................................. $(3,433,868) $(2,340,850)
Adjustments to reconcile net loss to net cash used in operating activities 27,972 985,412
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES ..................................... (3,405,896) (1,355,438)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of equipment (net) ........................................... (106,460) (69,429)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings .................................................. 900,000 720,270
Repayment of promissory notes in cash ..................................... 3,750 (373,439)
Issuance of common stock for cash ......................................... 169,125 1,035,075
Costs directly related to financing activities ............................ (81,570)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES ................................. 1,072,875 1,300,330
----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ........................................... 40,952 46,892
----------- -----------
NET DECREASE IN CASH ...................................................... (2,398,529) (77,645)
CASH AT BEGINNING OF PERIOD ............................................... 2,604,504 166,040
----------- -----------
CASH AT END OF PERIOD ..................................................... $ 205,975 $ 88,395
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.

F-24
<PAGE>

MSU Corporation
Notes to 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 its
subsidiaries (collectively, the "Company") at March 31, 2000, the results of
its operations for three and nine months ended March 31, 2000 and 1999, and its
cash flows for the nine months ended March 31, 2000 and 1999.

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, 1999. The results of the operations for the
three and nine months ended March 31, 2000 are not necessarily indicative of
the operating results that may be expected for the fiscal year ending June 30,
2000.

NOTE 2 -- SHAREHOLDERS' EQUITY

During the nine months ended March 31, 2000, there was a decrease in
shareholders' equity of approximately $2,862,000. Net loss for the nine-month
period was $3,434,000 and the cumulative translation adjustment increased by
approximately $41,000.

During the three-month period ended March 31, 2000, the Company issued
152,500 shares of its common stock following the exercise of stock options, of
which 150,000 of these shares was to a former director. In addition, 23,250
shares of common stock were sold to a director, J. M. Simpson at $3.00 per
share.

NOTE 3 -- NEW CONVERTIBLE PROMISSORY NOTES

In January through February 2000, the Company issued $750,000 new
convertible promissory notes. These notes are due on the earlier of December
31, 2000 or out of the proceeds of an offering by the Company that raises a
minimum of $5,000,000 prior to that date. The notes are convertible into shares
of common stock at $3.00 per share, but, if at any time during the term of the
notes, the closing market bid price of the common stock equals or exceeds $6.00
per share for a period of thirty consecutive days, the notes shall
automatically be converted. Attached to each $50,000 of the notes are warrants
to purchase 20,000 shares of common stock at $3.00 per share on or before
December 31, 2001.

The Company has chosen to amortize the whole of the discount on the
convertible notes of $291,000 in this quarter.

NOTE 4 -- LOSS PER COMMON SHARE

The basic and diluted net loss per common share are computed based upon
the weighted average of the shares outstanding during the period. Dilutive net
loss per common share is the same as basic net loss per common share since the
inclusion of all potentially dilutive common shares that would be issuable upon
the exercise of outstanding stock options and warrants or upon the conversion
of convertible debt would be anti-dilutive.

F-25

<PAGE>

MSU CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Years Ended June 30, 1999, 1998 and 1997

NOTE 5 -- SUBSEQUENT EVENTS -- (Continued)

The following significant events occurred subsequent to June 30, 1999:

1. In May and June 2000, MSU sold in private transactions 3,290,000 shares
of its common stock for cash of $3,290,000. In addition the acquirors of the
shares were granted warrants entitling them to subscribe for an additional
3,290,000 shares of common stock at $3.00 per share at any time up to May 31,
2001.

2. Between January 2000 and March 2000 MSU offered an aggregate of
$750,000 of its 10% convertible promissory notes to 10 accredited investors, as
that term is defined by Rule 501 of Regulation D.

3. In January 2000, MSU signed a licensing agreement with JadooNet.com
Ltd. ('JadooNet'), a joint venture between Salora International Ltd. and
Infoquest E-Commerce Pvt Ltd., for the license, manufacture and sale of the IAD
in India. JadooNet will exclusively manufacture and market the IAD in India and
also sell it into Bangladesh, Nepal and Sri Lanka. MSU will receive a license
fee per unit produced and will sell certain components of the IAD to JadooNet.
MSU will also help customize the product for the markets covered by the
Agreement. As part of this agreement, each of MSU and JadooNet will receive
options to purchase shares in the other, in an agreed upon amount of 3.5
percent of the outstanding capital stock of each company.

4. A manufacturing agreement dated June 16, 2000 was concluded with Flex
International UK Limited, ('Flextronics') which grants a non-exclusive license
to Flextronics to manufacture and sell to MSU the IAD using the ISP chipset,
the related software and all related intellectual property for a period of one
year following which the agreement is automatically renewed for separate but
successive one year terms; although the agreement does permit termination on 90
days written notice by either party. The agreement provides for the sale by
Flextronics of the finished and packaged IADs to MSU and payment is to be made
by MSU within 30 days from the date of the invoice. As part of the agreement,
in order to minimize the financial risk to Flextronics, MSU has been required
to issue a standby documentary credit to Flextronics for $1.5 million which
expires May 30, 2002

5. On November 15,1999, MSU entered into a sales agency agreement with
Corstar Business Computing Co., Inc. of Hawthorne, New York and McLaughlin
International, Inc., (the "Agents") to promote and sell

F-26
<PAGE>

MSU CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Years Ended June 30, 1999, 1998 and 1997

NOTE 5 -- SUBSEQUENT EVENTS -- (Continued)

MSU's products. MSU has agreed to pay the Agents, to be divided equally, a fee
of $25,000 per month, plus a commission per unit of the Company's products sold
by them. MSU, as additional consideration has also granted the Agents warrants
to purchase 100,000 shares of common stock in MSU at $3.00 per share for a
period of five years from the date of execution of the agreements. MSU has also
agreed to issue additional warrants, on the same terms as set out above, upon
the sale of additional units of MSU's products. The agreement is terminable on
90 days prior written notice before the end of any one-year term or it
continues for another year.

6. Since 30 June, 1999 the following options have been granted to
directors:

a) On August 5, 1999 Mr. Evans, who was then a consultant to MSU, was
granted stock options to purchase 1,000 shares of MSU's common stock, with
an expiration date of August 5, 2002, at an exercise price of $3.38, being
the market value of the stock at the date of the grant. On November 5, 1999
as part of his employment contract Mr. Evans was granted stock options to
purchase 300,000 shares of MSU's common stock at the same price of $3.38 of
which 100,000 become exercisable on August 5, 2000; 100,000 on August 5,
2000; and 100,000 on August 5, 2001. The options only become exercisable if
Mr. Evans is employed by MSU at the relevant dates and they will all lapse
if not exercised by August 5, 2004.

b) On November 4, 1999 Mr. Coles was granted options to purchase 150,000
shares of common stock at a price of $2.75 which become exercisable as to
50,000 shares on November 4, 2000; 50,000 shares on November 4, 2001; and
50,000 shares on November 4, 2002 provided that Mr. Coles is still a
director of MSU at the relevant dates. All of the options expire on
November 4, 2004.

c) On November 4, 1999 Mr. Green was granted options over 150,000 shares
of common stock at a price of $2.75 which become exercisable as to 50,000
shares on November 4, 2000; 50,000 shares on November 4, 2001; and 50,000
shares on November 4, 2002 provided that Mr. Green is still a director of
MSU at the relevant dates. All of the options expire on November 4, 2004.

d) In March 2000, in consideration for his agreeing to subscribe for
23,250 shares of common stock, Mr. Simpson received options to purchase
27,900 shares of common stock at a price of $3.00. These options expire on
December 31, 2001.

e) In April 2000, in consideration for his agreeing to subscribe for
80,000 shares of common stock, Mr. Simpson received options to purchase
80,000 shares of common stock at a price of $3.00. These options expire on
May 31, 2001.

f) In May 2000, in accordance with the terms of his subscription for
100,000 shares of MSU's common stock, Mr. Coles also received warrants to
purchase 100,000 shares of common stock at $3.00 per share. These warrants
expire on May 31, 2001.

7. The following share options which were reflected in the June 30, 1999
financial statements are no longer outstanding:

a) 1,125,000 options at $0.50 originally granted in fiscal 1999 as
consideration for the personal security put up by Mr. Holloway and Mr.
Snowdon to colleralize certain promissory notes; and

b) 300,000 options granted to Mr. Holloway in September 1998 at $0.65.

F-27
<PAGE>

================================================================================
We have not authorized any underwriter, dealer, salesperson or other
person to give any information or represent anything not contained in this
prospectus. You must not rely on any unauthorized information. This prospectus
does not offer to sell or buy any Units in any jurisdiction where it is
unlawful to do so.

-----------------------------------
TABLE OF CONTENTS

Page
----
Available Information ................................................... 2
Prospectus Summary ...................................................... 3
Summary Historical Financial Data ....................................... 5
Risk Factors ............................................................ 6
Use of Proceeds ......................................................... 11
Dividend Policy ......................................................... 11
Capitalization .......................................................... 12
Market Price of Common Stock ............................................ 12
Selected Financial Data ................................................. 13
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ........................................................... 14
Business ................................................................ 20
Management .............................................................. 31
Executive Compensation .................................................. 32
Annual Compensation ..................................................... 32
Principal and Selling Shareholders ...................................... 36
Certain Transactions .................................................... 40
Plan of Distribution .................................................... 43
Description of Securities ............................................... 44
Disclosure of Commission Position of
Indemnification for Securities Act
Liabilities .......................................................... 45
Shares Eligible for Future Sale ......................................... 45
Legal Matters ........................................................... 45
Experts ................................................................. 45
Index to Financial Statements and
Supplementary Data ................................................... F-1

-----------------------------------

Until ________, 2000 (25 days after the date of this prospectus) all
dealers that buy, sell or trade the shares and warrants included in these
Units, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealers' obligations to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
================================================================================

================================================================================

MSU CORPORATION

9,338,816 Shares of Common Stock,
$.01 par value

--------------------------------------------
PROSPECTUS
--------------------------------------------

_____________ ___, 2000

================================================================================
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance And Distribution.

The following table sets forth the estimated expenses to be borne by MSU
(also referred to herein as the Registrant) in connection with the Securities
offered hereby:

SEC registration fee .................... $ 4,777
Legal fees and expenses ................. 30,000
Accounting fees ......................... 8,000
Printing and engraving expenses ......... 12,000
Miscellaneous ........................... 10,223
-------
Total fees and expenses ............... $65,000

Item 14. Indemnification of Directors and Officers.

The Florida Business Corporation Act (the "FBCA"), in general, allows
corporations to indemnify their directors and officers against expenses
actually and reasonable incurred in connection with a proceeding, if the person
acted in good faith and in a manner the person reasonably believed to be in, or
not opposed to, the best interests of the corporation. In the case of a
criminal action or proceeding, the director or officer must have had no
reasonable cause to believe that the person's conduct was unlawful. The FBCA
also provides that indemnification is not exclusive, and a corporation may make
any other or further indemnification under any bylaw, agreement, vote of
shareholders or disinterested directors or otherwise, however no
indemnification may be made if a judgement or other final adjudication
establishes that such director or officers' actions or omissions to act, were
material to the cause of action so adjudicated and constitute: (a) a violation
of the criminal law, unless the director or officer had reasonable cause to
believe his/her conduct was lawful or had no reasonable cause to believe
his/her conduct was unlawful; (b) a transaction from which the director or
officer derived an improper personal benefit; (c) in the case of a director, a
director held liable for an unlawful distribution, as defined by the FBCA; or
(d) willful misconduct or a conscious disregard for the best interests of the
corporation in a proceeding by or in the right of the corporation to procure a
judgment in its favor or in a proceeding by or in the right of a shareholder.

Item 15. Recent Sales of Unregistered Securities.

The following paragraphs set forth certain information with respect to all
securities sold by MSU within the past three years without registration under
the Securities Act of 1933, as amended (the "Securities Act"). The information
includes the names of the purchasers, the date of issuance, the title and
number of securities sold and the consideration received by MSU for the
issuance of these shares.

The following shares of Common Stock were issued by MSU without
registration under the Securities Act by reason of the exemption from
registration afforded by the provisions of Section 4(2) thereof, as
transactions by an issuer not involving a public offering:

In May 1998 the Company issued 168,000 shares in lieu of interest
payable to the holders of the 10% convertible promissory notes. Similarly
in August 1998 and December 1998 7,629 and 61,236 shares respectively were
issued.

In August 1998, MSU issued 21,750 shares of Common Stock to Capitol Bay
Securities for investment banking services rendered.

II-1
<PAGE>

Between August 1998 and December 1998 the Company issued 2,630,418
shares on common stock on conversion of $1,972,281 of 10% convertible
secured promissory notes.

In October 1998 the Company issued 322,500 shares of common stock to W P
Holloway and the Employee Trust in consideration for forgiveness of loans
of $161,250.

In November 1998, the Company issued 2,000,000 shares of its common
stock for cash of $1,000,000 to fifteen subscribers. In addition the
acquirers of the shares were granted warrants entitling them to subscribe
for a further 1,000,000 shares of common stock at $0.50 per share at any
time up to October 2003.

In December 1998 the Company issued 1,400,000 shares of common stock to
TXC Corporation in consideration of forgiveness of loans amounting to
$1,400,000.

In January 1999 the Company issued 5,000 shares of its common stock to
Capitol Bay Securities in consideration for a twelve month promissory note
for $3,750.

In January 1999 the Company issued 25,000 shares to Barry Jordan in
consideration for consulting services rendered.

In January 1999 the Company issued 55,000 shares of common stock to
Forte Communications Inc. for promotional services rendered.

In January 1999 the Company issued 2,500 shares of common stock to
Stephen Kircher for $1,750 on his exercising a warrant.

In January 1999 the Company issued 138,635 shares of common stock to
twelve individuals in lieu of interest payable through to December 2001 on
$330,000 6% convertible promissory notes and $175,000 8% convertible
promissory notes.

In March 1999 the Company issued 145,000 shares of its common stock to
Daybreak Fund LLC in consideration for a twelve month promissory note for
$145,000.

In March 1999 the Company issued 3,500 shares of common stock to Walter
Coles as consideration for his incurring certain hotel and travel costs on
behalf of the company.

In June 1999 the Company issued 1,835,000 shares of common stock to 35
Individuals on conversion of $3,670,000 of its 10% secured convertible loan
stock.

In July 1999 the Company issued 16,000 shares to two individuals in
consideration for interest payable on some short term unsecured promissory
notes.

In November 1999 the Company issued 75,000 shares of common stock to two
individuals on conversion of $150,000 of their 10% secured convertible loan
stock.

In January 2000 the Company issued 5,000 shares of common stock to
Richard From for $3,750 on his exercising warrants.

In March 2000 the Company issued 2,500 shares of common stock to S
Hunter for $1,750 on his exercising warrants.

The following securities were issued by MSU without registration under the
Securities Act in accordance with Rule 506 of Regulation D of the Securities
Act:

In December 1998 MSU offered an aggregate of $175,000 of its 8% secured
convertible promissory notes to 4 accredited investors, as that term is
defined by Rule 501 of Regulation D.

In January 1999 MSU offered an aggregate of $330,000 of its 6% secured
convertible promissory notes to 8 accredited investors, as that term is
defined by Rule 501 of Regulation D.

In May 1999 MSU offered an aggregate of $3,670,000 of its 10% secured
convertible promissory notes to 35 accredited investors', as that term is
defined by Rule 501 of Regulation D, all of which was subsequently
converted into shares of common stock at $2.00 per share.

II-2
<PAGE>

In September 1999 MSU offered an aggregate of $150,000 of its 10%
secured convertible promissory notes to 2 'accredited investors', as that
term is defined by Rule 501 of Regulation D, all of which were subsequently
converted into shares of common stock at $2.00 per share.

Between January 2000 and March 2000 MSU offered an aggregate of $750,000
of its 10% convertible promissory notes to 10 accredited investors, as that
term is defined by Rule 501 of Regulation D.

Effective February 23, 1998 Jeremy Miles Simpson acquired from MSU
pursuant to Regulation S of the Securities Act, in a private transaction
253,846 shares of MSU's common stock. Consideration for the common stock
was $165,000 in cash. The price paid for the common shares was the market
price prevailing on the respective dates. In addition, Mr. Simpson was
granted an option to acquire 253,846 shares of common stock at a price of
$0.65 per share, which expires five years from the date of the grant.

In November 1998, the Company sold in private transactions 2,000,000
shares of its common stock for cash of $1,000,000. In addition the
acquirers of the shares were granted warrants entitling them to subscribe
for 1,000,000 shares of common stock at $0.50 per share at any time up to
October 2003.

In May 1999, the Company sold in private transactions $3,670,000 10%
convertible promissory notes for cash of $3,670,000.

In May and June 2000, the Company sold in private transactions 3,290,000
shares of its common stock for cash of $3,290,000. In addition the
acquirors of the shares were granted warrants entitling them to subscribe
for a further 3,290,000 shares of common stock at $3.00 per share at any
time up to May 31, 2001.

Item 16. Exhibits and Financial Statement Schedules.

<TABLE>
<S> <C>
10.10 Form of Director Option granted to each Director in consideration of the Guarantee to National
Westminster Bank Plc. credit facility. (4)
10.11 Development and licensing Agreement with TXC Corporation. Confidential treatment has been
requested for specific portions of the License Agreement. (4)
10.12 Agreement with Mitac, Inc. Confidential treatment has been requested for specific portions of the
Agreement. (4)
10.13 Letter Agreement, dated February 15, 1997, with Forte Communications, Inc., as public relations
consultants to MSU, together with letter amending such Letter Agreement. (5)
10.14 License Agreement, dated January 29, 1997, with Zilog Inc. a California corporation. Confidential
treatment has been requested for specific portions of the License Agreement. (5)
10.15 License Agreement, dated August 18, 1997, with C-Cube Microsystems Inc., a Delaware corporation.
Confidential treatment has been requested for specific portions of the License Agreement. (5)
10.16 Service Agreement with Keith Edward Peirson. (5)
10.17 Service Agreement with Richard Horby Phillips. (5)
10.18 Service Agreement with Gerald J. Capaci. (5)
10.19 Advisory and Investment Banking Agreement dated January 29, 1999 with May Davis Group Inn.
(terminated). (6)
10.20 Agreement with Barry Jordan. (6)
10.21 Agreement with Thakral Electronics Industrial Corp Limited. (6)
10.22 Consulting Agreement with McLaughlin Group (expired). (6)
10.23 Agreement with HSBC. (6)
10.24 Form of 6% Convertible Secured Promissory Notes. (6)
10.25 Form of 8% Convertible Secured Promissory Notes. (6)
10.26 Form of 10% Convertible Secured Promissory Notes. (6)
10.27 Product Know-how Agreement with JadooNet.com Limited. (7)
10.28 Software License Agreement with JadooNet.com Limited. (7)
10.29 Strategic Investment Agreement with JadooNet.com Limited. (7)
10.30 Swap Agreement Agreement with JadooNet.com Limited. (7)
10.31 Sales Representative Agreement with Costar Computing Co. Inc. and McLaughlin International
Inc. (7)
10.32 Form of 10% Convertible promissory Notes -- January 2000. (9)
10.33 Darran H. Evans employment contract (8).
10.34 Agreement by and between the Company and Stephen Coles.
10.35 Agreement by and between the Company and Jeff Green.
10.36 Manufacturing Agreement by and between the Company and Flex International UK Ltd. (8)
16.1 Letter re change in certifying accountant from Coopers & Lybrand LLP. (4)
21.1 Subsidiaries of Registrant. (5)
23.1 Consent of Moore Stephens Lovelace P.A. (8)
23.2 Consent of Bondy & Schloss LLP. (9)
24.1 Power of Attorney (reference is made to the signature page of this Registration Statement).
27.1 Financial Data Schedule. (6)
</TABLE>
------------
(1) Contained in exhibits to the Registration Statement on Form S-18 (File No.
33-07861-A), declared effective by the Securities and Exchange Commission
on November 6, 1986.
(2) Contained in exhibits to the Annual Report on Form 10-K for the fiscal year
ended February 28, 1990, filed with the Securities and Exchange Commission
in May 1990.
(3) Contained in exhibits to the Report on Form 8-K filed with the Securities
and Exchange Commission in October 1994.
(4) Contained in exhibits to the Annual Report on Form 10-K for the fiscal year
ended June 30, 1995, filed with the Securities and Exchange Commission on
November, 29 1996.
(5) Contained in exhibits to the Annual Report on Form 10-K for the fiscal year
ended June 30, 1997, filed with the Securities and Exchange Commission on
September 25, 1997.
(6) Contained in exhibits to the Annual Report on Form 10-K for the fiscal year
ended June 30, 1999, filed with the Securities and Exchange Commission on
October 5, 1999.
(7) Contained in exhibits to the Quarterly Report on Form 10-Q for the quarter
ended December 31, 1999, filed with the Securities and Exchange Commission
on February 14, 2000.

II-4
<PAGE>

(8) Filed herewith

(9) To be filed by amendment.

The Consent of Bondy & Schloss is contained in Exhibit 5.1.

Item 17. Undertakings.

(a) The undersigned Registrant hereby undertakes:

(1) To file, during any period in which it offers or sales are being
made, a post-effective amendment to this registration statement to:

(i) include any prospectus required by Section 10(a)(3) of the
Securities Act;

(ii) reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if
the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than 20
percent change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
Statement.

(iii) include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.

(2) For the purpose of determining any liability under the Securities
Act of 1933, treat each post-effective amendment as a new registration
statement of the securities offered, and the offering of the securities at
that time to be the initial bona fide offering.

(3) Registrant will remove from registration by means of a
post-effective amendment any of the securities being registered which
remain unsold at the termination of the offering.

(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registration the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.

For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of Prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof. The Registrant further undertakes to remove from
registration by means of a post-effective amendment any of the securities being
registered which remain unsold at the termination of the Offering.

II-5
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Central Milton Keynes, United
Kingdom, on August 3, 2000.

MSU Corporation

By: /s/ Darran H Evans
------------------------------------
Darran H Evans
Chief Executive Officer

Each person whose signature appears below authorizes Richard Horby
Phillips or William Derek Snowdon or either of them, each who may act without
joinder of the other, to execute in the name of such person who is an officer
or director of the Registrant and to file any amendments to this Registration
Statement on Form S-1 necessary or advisable to enable the Registrant to comply
with the Securities Act of 1933, as amended, and the Securities and Exchange
Act of 1934, as amended, including any rules, regulations and requirements of
the Securities and Exchange Commission in respect thereof, which amendments may
make such changes in such Registration Statement as such attorney-in-fact may
deem appropriate.

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<S> <C> <C>
/s/ Darran H Evans Chief Executive Officer, Director August 3, 2000
---------------------------
Darran H Evans

/s/ William Derek Snowdon Secretary, Director August 3, 2000
---------------------------
William Derek Snowdon

/s/ Richard Horby Phillips Chief Financial and Accounting Officer, August 3, 2000
--------------------------- Director
Richard Horby Phillips

/s/ Wynford Peter Holloway Director August 3, 2000
---------------------------
Wynford Peter Holloway

/s/ Jeremy Miles Simpson Director August 3, 2000
---------------------------
Jeremy Miles Simpson

--------------------------- Director August ___, 2000
Fred Kashkooli

/s/ Jeffrey Nelson Green Director August 3, 2000
---------------------------
Jeffrey Nelson Green
---------------------------

--------------------------- Director August ___, 2000
Stephen Walter Coles
</TABLE>

II-6
<PAGE>

EXHIBIT INDEX

Item 16. Exhibits and Financial Statement Schedules.

<TABLE>
<S> <C>
2 Exchange Agreement among Capital Acquisition Company and the shareholders of MS PLC. (3)
3.1 Articles of Incorporation. (1)
3.2 Amendment to Articles of Incorporation. (4)
3.3 Bylaws. (1)
3.4 Amendment to Bylaws. (2)
4.1 Common Stock Purchase Agreement with McLaughlin Group LLC. (4)
4.2 Amendment to Common Stock Purchase Agreement with McLaughlin Group LLC. (4)
4.3 Warrant issued to McLaughlin Group LLC. (4)
5.1 Opinion and Consent of Bondy & Schloss LLP. (9)
10.1 Service Agreement with Wynford Peter Holloway. (4)
10.2 Service Agreement with Keith Charles Hall. (4)
10.3 Service Agreement with William Derek Snowdon. (4)
10.4 Placement Agreement with Millport Limited as amended and confirmed. (4)
10.5 Employee Trust. (4)
10.6 Office Lease Agreement with Brixton Estates Plc. (4)
10.7 Manufacturing, Distribution and Joint Venture Agreement with American Interactive Media, Inc.
Confidential treatment has been requested for specific portions of the Manufacturing, Distribution and
Joint Venture Agreement. Confidential treatment has been requested for specific portions of the
Manufacturing, Distribution and Joint venture Agreement(4)
10.8 Engagement letter, dated November 8, 1995 as amended with McLaughlin International, Inc. (4)
10.9 Engagement letter, dated May 17, 1996 with McLaughlin International, Inc. (4)
10.10 Form of Director Option granted to each Director in consideration of the Guarantee to National
Westminster Bank Plc. credit facility. (4)
10.11 Development and licensing Agreement with TXC Corporation. Confidential treatment has been
requested for specific portions of the License Agreement. (4)
10.12 Agreement with Mitac, Inc. Confidential treatment has been requested for specific portions of the
Agreement. (4)
10.13 Letter Agreement, dated February 15, 1997, with Forte Communications, Inc., as public relations
consultants to MSU, together with letter amending such Letter Agreement. (5)
10.14 License Agreement, dated January 29, 1997, with Zilog Inc. a California corporation. Confidential
treatment has been requested for specific portions of the License Agreement. (5)
10.15 License Agreement, dated August 18, 1997, with C-Cube Microsystems Inc., a Delaware corporation.
Confidential treatment has been requested for specific portions of the License Agreement. (5)
10.16 Service Agreement with Keith Edward Peirson. (5)
10.17 Service Agreement with Richard Horby Phillips. (5)
10.18 Service Agreement with Gerald J. Capaci. (5)
10.19 Advisory and Investment Banking Agreement dated January 29, 1999 with May Davis Group Inn.
(terminated). (6)
10.20 Agreement with Barry Jordan. (6)
10.21 Agreement with Thakral Electronics Industrial Corp Limited. (6)
10.22 Consulting Agreement with McLaughlin Group (expired). (6)
10.23 Agreement with HSBC. (6)
10.24 Form of 6% Convertible Secured Promissory Notes. (6)
10.25 Form of 8% Convertible Secured Promissory Notes. (6)
10.26 Form of 10% Convertible Secured Promissory Notes. (6)
10.27 Product Know-how Agreement with JadooNet.com Limited. (7)
10.28 Software License Agreement with JadooNet.com Limited. (7)
10.29 Strategic Investment Agreement with JadooNet.com Limited. (7)
10.30 Swap Agreement Agreement with JadooNet.com Limited. (7)
10.31 Sales Representative Agreement with Costar Computing Co. Inc. and McLaughlin International
Inc. (7)
10.32 Form of 10% Convertible promissory Notes -- January 2000. (9)
10.33 Darran H. Evans employment contract. (8)
</TABLE>

I-1
<PAGE>

<TABLE>
<S> <C>
10.34 Agreement by and between the Company and Stephen Coles.
10.35 Agreement by and between the Company and Jeff Green.
10.36 Manufacturing Agreement by and between the Company and Flex International UK Ltd. (8)
16.1 Letter re change in certifying accountant from Coopers & Lybrand LLP. (4)
21.1 Subsidiaries of Registrant. (5)
23.1 Consent of Moore Stephens Lovelace P.A. (8)
23.2 Consent of Bondy & Schloss LLP. (9)
24.1 Power of Attorney (reference is made to the signature page of this Registration Statement).
27.1 Financial Data Schedule. (6)
</TABLE>
------------
(1) Contained in exhibits to the Registration Statement on Form S-18 (File No.
33-07861-A), declared effective by the Securities and Exchange Commission
on November 6, 1986.
(2) Contained in exhibits to the Annual Report on Form 10-K for the fiscal year
ended February 28, 1990, filed with the Securities and Exchange Commission
in May 1990.
(3) Contained in exhibits to the Report on Form 8-K filed with the Securities
and Exchange Commission in October 1994.
(4) Contained in exhibits to the Annual Report on Form 10-K for the fiscal year
ended June 30, 1995, filed with the Securities and Exchange Commission on
November, 29 1996.
(5) Contained in exhibits to the Annual Report on Form 10-K for the fiscal year
ended June 30, 1997, filed with the Securities and Exchange Commission on
September 25, 1997.
(6) Contained in exhibits to the Annual Report on Form 10-K for the fiscal year
ended June 30, 1999, filed with the Securities and Exchange Commission on
October 5, 1999.
(7) Contained in exhibits to the Quarterly Report on Form 10-Q for the quarter
ended December 31, 1999, filed with the Securities and Exchange Commission
on February 14, 2000.
(8) Filed herewith
(9) To be filed by amendment.

The Consent of Bondy & Schloss is contained in Exhibit 5.1.

I-2