Same Hype, Different Year - See how ya like this ! nice write up on the company
by Lynn N. Duke, staff writer
When MSU Corporation recently popped up on the radar, it struck a familiar chord. Let's see, television-top Internet access cheaper and more flexible than WebTv, hmmm. That's right. It's the same outfit that was hawking this identical product three years ago.
In fact, at times it was hard to discern which press release was from which era:
"MSU Corporation announced today that it has signed a manufacturing and distribution agreement…to manufacture for worldwide customers and to distribute in China, MSU's affordable Internet set-top box…"
"MSU Corporation is pleased to announce it has received an order…to purchase $3.1 million of MSU's Internet Access Device…together with forecasts of a further $31.6 million in orders…."
The first one is just a couple of months old, the second from August 1996.
That's right, when last we heard from our intrepid pitchmen, almost three years ago, they were poised to complete a $34 million deal and begin shipping MSU's Slipstream Internet access device.
But, let's check the books. Nope, the deal wasn't consummated in 1997, when revenue was a mere $1.4 million. Nor does it appear they collected on it in 1998, when revenues totaled $4.1 million.
Wynford P. Holloway, MSU Corp.'s president and CEO, did not return phone calls or respond to an e-mail requesting an interview for this story.
The 1998 10K from which that information was culled contains some other interesting information, which might help clear up just exactly what MSU's been doing all this time. Apparently not much.
"The Company has no customers, to date, that frequently and systematically purchase its products," the form reads at one point. In fact, MSU has only four significant customers, and the loss of any one them could doom the company.
Add to this the fact that MSU freely admits its field is becoming increasingly crowded with better-funded competitors, and it might make investors wonder why shares in the company recently spiked at more than $7 from a low of $0.95 two months earlier.
Look a little further and even more questions pop up.
According to the company's SEC filings, it had negative revenues for the quarter ended March 31, 1999. Negative revenues? And MSU's been issuing new stock at a furious pace - almost 7 million shares since Jan. 1.
In all, the new shares raised a little more than $1 million in cash. The rest was used to earn forgiveness on more than $1.5 million worth of loans (1.7 million shares) and 2.5 million shares were issued upon conversion of almost $2 million in promissory notes and the interest due on them.
There's also been a rash of insider selling. Since Jan. 1, at least 45 people have registered for sale more than 2 million shares restricted under SEC Rule 144.
Keepin' the faith
It's not clear why investors should believe this go round will be any different from the last one in 1996, when the $34 million deal disappeared and the company's business plan seemed to go up in smoke.
Certainly not for lack of trying on the part of MSU Corp.
One of the company's strongest, yet ambiguous, projections is that it will "meet its production capacity target of 25,000 units per week by September 1999."
Production. Capacity. Target. Does that mean that the company wants to be able to produce that many units per week, or that it will produce that many units per week? Again, Mr. Holloway's input would be invaluable here.
Another curious bit of hype was the announcement in April that MSU Corp. had signed a manufacturing and distribution agreement with a Chinese firm, Shanghai Thakral. The announcement was eerily similar to the one in 1996 boasting about the $34 million deal, although this one put no dollar value on the agreement.
Now no one doubts that China represents a seemingly endless Internet market. But when that market will truly begin to develop, and to what extent the government will allow people access to the outside world, is an unknown.
As of November 1998, there were as many people using the Internet in China - 1.5 million adults - as there were in Norway, Finland or Italy, according to HeadCount.com, a division of International Communications. If MSU Corp. is counting on China to play a significant part in its growth, it may have to wait awhile.
The question is, can it?
Aside from competition from better-heeled firms, MSU Corp.'s core technology also appears vulnerable on several other fronts. According to an agreement MSU entered into with IBM in 1993, Big Blue still has first dibs on any enhancements to MSU technology, even though IBM has consistently rejected MSU's products.
"Additionally any major enhancements to and replacement of such intellectual property as other technology developed by the Company must be offered first to IBM in writing. The Company has offered its Internet Access Device and related ISP Chip technology to IBM and IBM has advised the Company of its rejection of such offer."
And if MSU Corp's SlipStream technology is so unique, and so valuable, why no patent? The company's SEC filing seems to scream for a patent and pooh-pooh the idea all in the same breath.
"The Company'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. The Company has no issued patents, other than its pending patent with respect to its Envoy CD Controller (see below), but relies on a combination of trade secret protection, confidentiality agreements and licensing agreements with strategic partners, employees, consultants, vendors and licensees. The Company 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….."
Whether China actually is the market it's cracked up to be is also in doubt. According to a report published by Bloomberg News, Thakral Corp. LTD. parent company to Shanghai Thakral - "said it's pessimistic about its prospects in China because of a sales slump and plans to slash inventories as well as penetrate new markets."
More than 94 percent of Thakral's revenues come from the distribution of consumer electronics in China, according to the Bloomberg story. Sales during the six months ended last Sept. 30 dropped more than 20 percent, and one company official is quoted characterizing expected year-end figures as "dull and bad."
Many investors who bought into MSU's story three years ago got a bad bounce. Folks who signed on in 1999 didn't do their homework.
-The Stock Detective
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