more 10q
FACTORS AFFECTING OUR BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION
The following is a discussion of certain risks, uncertainties and other factors
that currently impact or might impact the Company's business, operating results
and/or financial condition. Anyone making an investment decision with respect to
the Company's Common Stock or other securities of the Company is cautioned to
carefully consider these factors, along with the disclosures in the Form 10-K
for the year ended June 30, 2000 and our other public filings with the
Securities and Exchange Commission.
The Company's consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. The Company has incurred losses
since inception and may never achieve profitability. At March 31, 2001 there was
an accumulated deficit of approximately $27,410,000. Additionally the Company
has had recurring negative cash flows from operations. The Company expects to
incur significant additional losses and continued negative cash flows from
operations in 2001 and beyond and may never become profitable.
The Company expects that it will incur net losses 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 Company anticipates that if revenues from operations are not generated in
the coming months, it will have to continue to fund its operations, through
private sales of equity or debt securities to and/or borrowings from third
parties, to the extent such sources of capital are available to the Company. The
Company cannot guarantee that it will be able to raise additional capital and
the Company does not know what the terms of any such capital raising would be.
The Company's inability to raise capital could require it to significantly
curtail its operations.
The markets for the Company's products have only recently begun to develop, are
rapidly evolving, and are highly competitive, with many competitors having
greater resources than the Company. The Company and its prospects must be
considered in light of the substantial risks, expenses, and difficulties facing
the Company. There can be no guarantee that the Company will be successful in
addressing any of the foregoing risks and that it will be successful in
implementing its strategy. The market for Internet access devices may never
develop or may develop at a slower rate than we anticipate. In addition, the
Company's success in marketing MSU as an Internet access device solution is
dependent upon developing and maintaining relationships with industry-leading
computer and consumer electronics companies, system, and hardware manufacturers.
The Company may not successfully meet any or all of these challenges. The
Company's failure to meet one or more of these challenges could have a material
adverse effect on our business and prospects.
Results of Operations
Comparison of the three and nine months ended March 31, 2001 to the three and
nine months ended March 31, 2000 follows:
Revenue. Revenues for the three months ended March 31, 2001 were approximately
$298,000, a 25% decrease from the prior year period. Revenues for the three
months ended March 31, 2000 were approximately $397,000. Sales in the three
months ended March 31, 2001 were to two distributors in India and Italy. The
Company recognized this income in the month that it was invoiced.
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Cost of Revenues. Cost of revenues increased substantially for the three months
ended March 31, 2001 due primarily to the provision for inventory obsolescence
recorded as part of the restructuring of the UK operations in the amount of $1.5
million.
Research and Development. Research and development expenses generally consist of
expenditures related to the Company's development of its software and prototype
products. For the three months ended March 31, 2001 research and development
expenses decreased by approximately $249,000 from $448,000 in the corresponding
period in 2000. The Company expects to expend considerable resources in research
and development of the Internet access device and associated software. Generally
the fluctuations from period to period reflect the varying demands for research
and development which are dictated by technological changes and the need for the
Company's products to remain competitive and commercially viable, and the
requirements of the Company's customers.
Selling, general and administrative. Selling, general and administrative and
other expenses for the three months ended March 31, 2001 increased by
approximately $1,442,000 from $593,000 in the same period of 2000. The increase
in the three months ended March 31, 2001 is primarily due to the costs
associated with the US operations, and investment banking and legal fees.
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, occupancy costs and professional fees. In general terms,
the Company continues to develop a structured and professional sales and
marketing framework to exploit the current and future products. Investment in
this area is likely to increase during the next year.
Interest expense for the three months ended March 31, 2001 increased by
approximately $59,000 from $26,000 in the corresponding period in 2000. Interest
expense in the current year represents interest payable on promissory notes and
advances for approximately $3,381,000.
Restructure Charge. Due to insufficient liquidity and product obsolescence
associated with the operation of the Web 2 U Limited subsidiary, the Board in
March 2001 approved the following actions:
1. Cease active trading in the UK in order to minimize the loss to
Web 2 U Limited creditors,
2. Reduce the size of the U.K. workforce, and
3. Attempt to settle with outstanding creditors.
The plan was implemented in March 2001, and a total of thirteen positions of Web
2 U Limited were eliminated principally in the Company's management and research
and development departments. As a result, the Company recorded a restructuring
charge of approximately $241,000 in the third quarter for the restructuring of
the UK operations, which is comprised of involuntary termination benefits and
legal fees associated with the restructuring. In addition, the lease space was
reduced substantially in the Milton Keynes, UK sales office to accommodate the
eight remaining employees.
In accordance with the restructuring of the UK operations, the Company expended
significant effort towards the settlement of obligations with creditors of Web 2
U Limited. The Company made a good faith offer to the Web 2 U Limited creditors,
which was accepted by certain creditors representing approximately $175,000 in
outstanding liabilities of Web 2 U Limited.
With the knowledge that MSU Corporation is the largest creditor and that the new
product line of Internet access devices would be designed, developed and
manufactured as the result of the Company's development efforts in the United
States, the decision was made to refocus the Company's activities and seek the
court's help in the United Kingdom through the issuance of an administration
order in an effort to settle with all creditors.
Liquidity and Capital Resources
The Company has financed its operations through private sales of equity and debt
securities. During the three month period ended March 31, 2001 the Company
received short term funding of $1,044,764 under the Bridge Loan Convertible Note
Purchase Agreement.
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For the nine-month period ended March 31, 2001 cash used in operating activities
was approximately $3,148,000. Cash flows used in investing activities of
approximately $50,000 during such period related mainly to the acquisition of
office and computer equipment.
At March 31, 2001 the Company's principal source of liquidity was approximately
$1,747,000 in cash of which $1,500,000 was deposited as collateral for a standby
letter of credit in favor of Flextronics. In May 2001, MSU was successful in
settling the Web 2 U Limited's outstanding liability to Flextronics through the
cancellation of the standby letter of credit. The funds deposited as collateral
for the standby letter of credit in the amount of $1.4 million were used to meet
the Company's obligations under the terms of the agreement.
The Company believes that cash flows generated by operations through the
remainder of fiscal 2001 will be insufficient to meet its cash needs for working
capital and capital expenditures. The Company is actively pursuing negotiations
for additional capital to fund its operations through private sales of equity or
debt securities and/or borrowings from third parties. The sale of additional
equity or convertible debt securities will result in additional dilution to
the Company's stockholders.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
None
Item 2 - Changes in Securities
As of March 31, 2001, the Company has issued an aggregate principal amount of
$2,034,764 in 10% Convertible Notes (the "Notes") due one year from the date of
issuance (the "Maturity Date") in a private placement without registration under
the Securities Act of 1933, as amended (the "Act"), in reliance on Section 4(2)
of the Act, or Regulation D promulgated thereunder, and Regulation S under the
Act. The Notes were sold only to accredited investors that represented to the
Company their intention to acquire the securities for investment only and not
with a view to or for sale in connection with any distribution thereof and to
certain non-U.S. persons in sales outside the United States within the meaning
of Regulation S under the Act. The following persons purchased Notes:
Pictet Bank & Trust Ltd., Michael Ballensky, Julius Smith Young Jr., Harry
Reddy, Heffner Family Limited Partnership, Darden International, Stewart Evelyn
Coles, Adams Robert Coles, Jeffrey Green, Guy P. Smith, Loyd Leonard, D.J.
Baker, Brian Telfer, Colin Corness, Daniel Timberlake, Ron Andrews and William
Johnston, Jean Belanger, Don McFarlane, Allan Day, Walter Coles, and Mark
Simpson.
The Notes are convertible into Common Stock of the Company at the earlier
of (i) the Company's next equity round financing or (ii) the Maturity Date,
at a conversion price of $0.20 per share, subject to adjustment in certain
events.
Item 3 - Defaults upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
None
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Item 5 - Other information
A winding up petition was filed against Web 2 U Limited pursuant to the
Insolvency Act of 1986 on April 3, 2001 by Eurodis HB Electronics Limited in the
High Court of Justice in the United Kingdom. A notice of support by another
creditor was filed in April 2001. In May 2001, Web 2 U Limited voluntarily
petitioned the High Court in London for an administration order in order to
settle its current outstanding liabilities with all creditors on an equitable
basis. The order was granted on May 15, 2001.
Item 6 -Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 - D. Bruce Walter employment agreement dated January 1, 2001
10.2 - Raymond R. Dittrich employment agreement dated January 29, 2001
10.3 - Pritesh M. Patel employment agreement dated February 1, 2001
10.4 - Patti J. Brown employment agreement dated March 12, 2001
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MSU Corporation
(Registrant)
Date: May 22, 2001
/s/ P.J. Brown
-------------------------------
P.J. Brown
Vice President Finance/CFO
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EXHIBIT INDEX
10.1 - D. Bruce Walter employment agreement dated January 1, 2001
10.2 - Raymond R. Dittrich employment agreement dated January 29, 2001
10.3 - Pritesh M. Patel employment agreement dated February 1, 2001
10.4 - Patti J. Brown employment agreement dated March 12, 2001
TYPE: EX-10.1 OTHERDOC
SEQUENCE: 2
FILENAME: b311722ex10_1.txt
DESCRIPTION: AGREEMENT
OTHERDOC AVAILABLE Series=b311722ex10_1.txt Ver="": Document is copied.
EXHIBIT 10.1 to Form 10-Q March 31, 2001
================================================================================
MSU Corporation
================================================================================
THIS AGREEMENT dated January 1, 2001, by and between MSU Corporation, a Florida
corporation ("MSU" or "Company") and Bruce Walter, resident of Dallas, Texas
("Executive").
In consideration of the promises and the mutual covenants and agreements herein
contained, the parties hereto agree as follows:
1. Subject to the terms and conditions herein, MSU hereby employs Executive as
President & CEO, with the powers and duties customarily assigned to such
position. The Board of MSU may assign other duties from time to time. At
MSU's next annual meeting of shareholders, Executive will be proposed for
election to MSU's Board of Directors.
2. The term of employment shall be three years, commencing on the date of this
Agreement.
3. Executive shall receive the following compensation:
a. Executive's salary shall be $240,000/year, payable in equal monthly
installments;
b. MSU will grant Options to purchase 1,200,000 shares of MSU common
stock. The exercise price shall be $0.60/share. Of these, 600,000 shall
vest upon signing subject to regulatory and Board approvals and 33,333
shall vest on the first day of each month, commencing on February 1,
2001, for a period of 18 consecutive months. The options shall have a
three-year term;
c. Executive will be entitled to four weeks of paid vacation in each
calendar year; and
d. Executive will participate in any incentive compensation plan, pension
or profit sharing plan, medical plan, and other benefits maintained by
MSU for its executives generally.
4. MSU shall reimburse Executive for all reasonable out-of-pocket expenses
incurred by him in the performance of his duties including, but not limited
to, reasonable transportation, accommodation, entertainment and other
expenses incurred on behalf of Company.
5. Executive agrees to devote in good faith his full business time and best
efforts to his services to Company and agrees to travel to the extent
necessary to perform such duties.
1
6. MSU or Executive shall have the right to terminate Executive's employment
by serving 30 days written notice of his or its desire to terminate the
employment relationship, subject to the provisions of paragraph 7 below
permitting MSU to immediately discharge Executive for cause. Upon
termination, MSU shall pay Executive three months severance pay.
7. Company shall have the right to terminate Executive's employment
immediately for cause upon the occurrence of any of the following events:
a. Executive's death or legal incapacity;
b. Executive's failure to perform his services for a period of at least
ninety (90) consecutive days because of any physical or mental health
impairment, subject to applicable laws;
c. MSU's cessation of business;
d. Conduct which would give adequate ground for termination for cause
include, but are not limited to:
- Committing a material breach of any duties, including, but not
limited to, Executive's repeated failure/refusal to diligently
perform the provisions of this Agreement; or
- Conduct in a manner tending to bring Company into disrepute; or
- Being guilty of dishonesty and other acts of misconduct in
rendering of services on behalf of Company; or
- Being convicted of any criminal felony or misdemeanor other than
one which does not affect Company's reputation or Executive's
position with the Company; or
- Refusing or neglecting to comply with any lawful orders or
directions given to Executive by MSU's Board of Directors; or
- Committing an act of gross misconduct, gross negligence or willful
malfeasance during the course of Executive's employment.
8. Upon termination, Executive shall be entitled to receive all compensation
hereunder accrued and unpaid as of the date of termination.
9. This Agreement shall be binding upon, and shall inure to the benefit of,
MSU and Executive, and their respective successors/assigns. MSU shall have
the right to assign the rights hereunder to any successor in interest,
whether by merger or sale of assets or otherwise.
10. On the termination of Executive's employment, howsoever caused, he must
return to MSU all property belonging to MSU in his possession and must not
retain or take any copies thereof without the prior written consent of
Company's Board of Directors.
11. Executive warrants that the execution of this Agreement and the performance
of his duties hereunder will not violate the terms of any other agreement
that he is bound to, or a party to.
12. Company is engaged in designing and selling Internet appliances. Executive
acknowledges that Company's business is highly specialized and the
documents and information regarding the MSU's activities are highly
confidential and constitute trade secrets. Executive acknowledges and
agrees that his services rendered to Company have a value to Company and he
has access to trade secrets and confidential information belonging to the
Company, the loss of which cannot adequately be compensated by damages in
an action at law.
2
13. During the term of Executive's employment, and following the termination of
his employment with the MSU, howsoever caused, Executive shall not use for
any purpose or disclose to any person or entity any confidential
information acquired during the course of employment with MSU. The term
"confidential information" as used in this Agreement includes, but is not
limited to, records, lists and knowledge of the MSU's customers, methods of
operation, processes, and trade secrets, as they may exist from time to
time.
14. During the term of Executive's employment with MSU and for a period of one
(1) year from the termination of his employment with MSU, howsoever caused,
Executive will not directly or indirectly, own, manage, operate, control,
be employed by, perform services for, consult with, solicit business for,
participate in, or be connected with the ownership, management, operation
or control of any business which performs services materially similar or
competitive with those provided by MSU in the State of Texas.
15. During the term of Executive's employment with Company and for a period of
one (1) year from the termination of his employment with Company, howsoever
caused, Executive shall not, either on Executive's own account or for any
person, firm, partnership, corporation or other entity (a) solicit,
interfere with, or endeavor to cause any employee of Company to leave his
or her employment; or (b) induce or attempt to induce any such employee to
breach his or her employment agreement with Company.
16. During the term of Executive's employment with the Company and for a period
of one (1) year from the termination of his employment, howsoever caused,
Executive shall not solicit, induce, or attempt to induce any past or
current customer of the Company with whom he has worked (a) to cease doing
business in whole or in part with or through Company, or (b) to do business
with any other person, firm, partnership, corporation or other entity which
performs services materially similar or competitive with those provided by
Company.
17. Executive acknowledges and agrees that Company will suffer irreparable
injury if Executive breaches any of his obligations under paragraphs 13,
14, 15 and 16 above. Accordingly, in addition to all of the remedies
otherwise available to Company, including but not limited to, recovery from
Executive of damages and reasonable attorneys' fees incurred in the
enforcement of this Agreement, Company shall have the right to injunctive
relief to restrain and enjoins any actual or threatened breach of the
provisions of paragraphs 13, 14, 15 and 16 of this Agreement. All of the
Company's remedies for breach of this Agreement shall be cumulative and the
pursuit of one remedy shall not be deemed to exclude any other remedies.
18. Executive has read the provisions hereof and agrees that the restrictions
set forth herein are fair and reasonable and are reasonably required for
the protection of the interests of MSU.
19. In the event of a violation by Executive of any of the provisions contained
in paragraph 13, 14, 15 and 16 of this Agreement, the term of each and
every covenant so violated shall be automatically extended for a period of
one (1) year from the date on which Executive permanently ceases such
violation, or for a period of one (1) year from the date of entry by a
court of competent jurisdiction of a final order or judgment enforcing such
covenant, whichever period is longer.
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20. It is understood and agreed that the construction and interpretation of
this Agreement shall at all times and in all respects be governed by the
laws of the State of Texas, except its conflict of law rules, which are
deemed to be inapplicable herein. All disputes concerning the application
or enforcement of this Agreement shall, if necessary, be tried in a court
of competent jurisdiction in the State of Texas or the United States
District Court for the Northern District of Texas. The parties hereby
consent to the personal jurisdiction of the courts of the State of Texas
and the United States District Court for the Northern District of Texas.
21. The provisions of this Agreement shall be deemed severable, and the
invalidity or unenforceability of any one or more of the provisions hereof
shall not affect the validity or enforceability of any one or more of the
other provisions hereof.
22. This Agreement contains the entire agreement and understanding by and
between the Company and Executive with respect to the covenants contained
herein, and no representations, promises, agreements or understandings,
written or oral, not herein contained shall be of any force or effect. No
change or modification hereof shall be valid or binding unless the same is
in writing and signed by both parties. No valid waiver of any provision
shall be deemed a waiver of any other provision of this Agreement at such
time or will be deemed a valid waiver of such provision at any other time.
IN WITNESS WHEREOF, Company and Executive have duly executed this Agreement as
of the day and year first written above.
MSU Corporation Executive
By: /s/ Jean J. Belanger By: /s/ Bruce Walter
---------------------------------------------- --------------------------------------------------
Name: Jean J. Belanger Name: Bruce Walter
Date: January 1, 2001 Date: January 1, 2001
---------------------------------------------- --------------------------------------------------
4
TYPE: EX-10.2 OTHERDOC
SEQUENCE: 3
FILENAME: b311722ex10_2.txt
DESCRIPTION: AGREEMENT
OTHERDOC AVAILABLE Series=b311722ex10_2.txt Ver="": Document is copied.
EXHIBIT 10.2 to Form 10-Q March 31, 2001 |
