November 18, 2002


United States Securities and Exchange Commission
Washington, D.C. 20549

Ladies/Gentlemen:

This is a letter of transmittal accompanying the filing of the Form 10-K for the
fiscal year ended June 30, 2002, of MSU Devices, Inc.

We wish to advise you:

1. The financial statements included in the Form 10-K do not reflect a change
from the preceding year in any accounting principles or practices, or in the
method of applying any such principles or practices.

2. No annual report or proxy material has yet been sent to security holders for
a meeting of shareholders to be held this year. However, we contemplate calling
and holding a meeting in the near future, and undertake to furnish to the
Commission copies of the annual report or proxy material when it is sent to
security holders.

                                                Very truly yours,


                                                MSU DEVICES, INC.


                                                By:  /s/ Robert L. George
                                                   ------------------------
                                                    Chief Executive Officer

<PAGE>





                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                                    FORM 10-K

                        FOR ANNUAL AND TRANSITION REPORTS
                     PURSUANT TO SECTIONS 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                                   (Mark One)

     |X|  ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
          OF 1934.

                     For the fiscal year ended June 30, 2002

                                       OR

     |_|  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
          ACT OF 1934.

          For the transition period from __________ to _____________

                       Commission file number: 033-28622-A

                   MSU DEVICES INC. (formerly MSU Corporation)
                   -------------------------------------------
             (Exact Name of Registrant as Specified in Its Charter)

   Delaware                                                    22-2748288
   ----------------------------------------------------------------------
   (State or Other Jurisdiction of                          (I.R.S. Employer
   Incorporation or Organization)                          Identification No.)

                            2901 North Dallas Parkway
                                    Suite 460
   Plano, Texas                                                     75093
   ----------------------------------------------------------------------
               (Address of Principal Executive Offices) (Zip Code)

                                 (972) 473-7543
              ----------------------------------------------------
              (Registrant's telephone number, including area code)

       Securities registered under Section 12(b) of the Exchange Act: None

       Securities registered under Section 12(g) of the Exchange Act: None


<PAGE>



                  Indicate by check mark whether the registrant: (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Exchange Act
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
                                       -----     -----

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|

State the aggregate market value of the voting and non-voting common stock held
by non-affiliates of the registrant. The aggregate market value shall be
computed by reference to the price at which the common equity was sold, or the
average bid and asked prices of such common equity, as of a specified date
within 60 days prior to the date of filing.

         Aggregate market value as of November 15, 2002    $ 326,815

                  Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of the latest practicable date.

         Common stock, $.01 par value, as of November 15, 2002  66,270,754

                       DOCUMENTS INCORPORATED BY REFERENCE

                  List hereunder the documents incorporated by reference herein
and the Part of the Form 10-K into which the document is incorporated:

         None

ITEM 1.  BUSINESS.

Overview

MSU Devices Inc. (also referred to as "we", "us", the "Company" or "MSU")
designs, markets and sells affordable Windows CE-based devices that allow
customers to access the Internet via narrowband or broadband networks. In
addition, the Company is in the process of entering the software development
business by undertaking work-for-hire contracts for software development for
third-party hardware and software companies. The Company has already been
developing software for Windows CE for customers purchasing the MSU V5 including
applications such as a complete terminal-based SmartCard application for a
customer in Italy.

The Company's products enable customers such as consumer and business end-users
to communicate simply and easily by using e-mail and the World Wide Web without
the necessity of technical or personal computer knowledge or expertise. In
December 2001, we began early production runs of our MSU/Version 5 ("MSU V5")
Internet access device. In February 2002, we started receiving our first
commercial production of MSU V5 devices. In April 2002 the Company introduced
several new variations of the MSU V5 targeted at specific niche markets.

The market for Internet access devices was very negatively impacted in the past
14 months by the events of September 11, 2001 in New York and Washington, and by
major disruptions in foreign exchange markets. Companies such as MSU Devices
that were introducing new technology and new products in the third calendar
quarter of 2001 were especially disadvantaged, not only in the United States,
but also internationally. The events of September 11, 2001 significantly
extended the Company's sales cycles and led to major deferrals of purchases by
potential customers. Since September 2001 the Company has not been successful in
obtaining customers purchasing significant quantities of MSU V5s. The company
did sign two large purchase commitments in the past 12 months, 40,000 units in
South Africa and 60,000 units in Argentina, however, both were deferred
indefinitely due to foreign exchange problems in each respective country. MSU
Devices did obtain orders from customers who purchased smaller quantities to
seed their markets.

In order for MSU Devices to continue in business the Company will have to raise
additional capital in the fiscal year ended June 30, 2003, and potentially
beyond this period as well. If successful in raising sufficient capital to
sustain its business, the Company will upgrade the MSU V5 to Windows CE.NET,
Microsoft's newest version of their Windows CE operating system and will
continue to market the MSU V5. The Company will also continue to offer our new
contract software development services which requires relatively less capital
investment than our MSU V5 product business. As per our Consolidated Statement
of Cashflow for the fiscal year ended June 30, 2002, we had "Net Cash Used in
Operating Activities" of $3.7 million and as per our Consolidated Balance Sheet
as of June 30, 2002, our "Current Liabilities" exceeded our "Current Assets" and
we had a "Total Shareholders Deficit" of $2.8 million. If we do not generate and
sustain greater revenues from the sale of our products and services in the
future we will not achieve profitability and our losses will continue and as a
result our independent accountants have expressed doubt about our viability as a
going concern. They have included an explanatory paragraph in their report on
our financial statements which states that (i) we have suffered and continue to
suffer significant losses from our operations; (ii) we have an accumulated
deficit; (iii) we continue to have negative cash flows from operations; and (iv)
we have a very limited client base. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Financial Statements and
Report of Independent Certified Public Accountants."

If successful in raising sufficient resources to sustain its business, the
Company will continue to market the MSU V5 and will also upgrade the MSU V5 to
Windows CE.NET, Microsoft's newest version of their Windows CE operating system.

Industry

The Growth In The Internet

The Internet is an increasingly significant global electronic mass medium for
conducting business, collecting and exchanging information, facilitating
communications and providing education and entertainment. According to
International Data Corporation's (IDC) report entitled, "The Global Market
Forecast for Internet Usage and Commerce", the number of Internet users
worldwide was 500 million in 2001 and is expected to increase at a compounded
average growth rate of 16% to reach more than one billion in 2006. In its
report, IDC estimated that there were 145 million Internet users in the U.S. in
2001, which is expected to increase to 232 million in 2006.

Pervasive Computing and Intelligent Computing Devices

The widespread use of electronic communications, including the Internet, is
enabling networks of businesses and consumers to collaborate, access information
and conduct business and personal interactions more effectively. As the number
of Internet users grows, so does the diversity of content, services and
applications available via the Internet. With this growth, there is an emerging
class of devices defined as intelligent computing devices, or information
appliances. They feature sophisticated processing power designed for specific
computing and communications applications, and may include, among others, the
following: Internet access devices used in the home and business; television
set-top boxes; handheld and palm-size PCs; gaming systems; handheld industrial
data collectors; e-mail appliances; kiosk terminals; navigational devices for
cars and trucks; thin clients for corporate computing; web-pads; and e-books.

Compared to traditional computers, intelligent computing devices are usually
less expensive and more adaptable in terms of size, weight, shape and mobility,
while still providing sophisticated computing and communications capabilities.
Intelligent computing devices are at the root of emerging markets, delivering
access to data at the point of use in a wide variety of scenarios, from the
factory floor to the mobile workforce to the home. Supermarkets deploy
intelligent computing devices as mobile, wireless barcode scanners facilitating
inventory control. Factories use intelligent computing devices as remote
equipment monitors or sophisticated man-machine interfaces. Cable operators
deploy and manage sophisticated intelligent computing devices such as Web-pads
and set-top boxes, offering advanced services for the home.

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<PAGE>

Personal Computers and the Personal Computer-Like Experience

Today, most people who access the Internet do so using Intel-based personal
computers ("PCs") that typically run one of the Windows operating systems
developed and sold by Microsoft. The PC platform is the dominant
hardware/software configuration for accessing the Internet today because of its
near-universal adoption on a worldwide basis as the tabletop or "personal"
computer of choice. Almost all Internet-related World Wide Web sites and e-mail
programs are tailored for use on PCs first and foremost. While the PC has
achieved near universal status as an Internet access device, the search for
alternative means of accessing the Internet has continued. Alternative Internet
access devices attempt to address principal PC user complaints, including:

Ease-of-Use: Given the universal nature of the PC, it must be designed in such a
fashion as to appeal to the widest possible number of users. In the calendar
year 2001, worldwide PC shipments totaled over 100 million units. From
accounting to zoology, the PC accomplishes many tasks using an incredible
variety of software and hardware configurations, and thus its near universality.
With so many users to appeal to, the PC is by definition harder to use when
accessing the Internet than would otherwise be the case if the PC were designed
specifically for this task.

Lower System Cost: The PC has inherited many features over its 20-year existence
and thus must support a number of legacy software and hardware features. In
addition, the PC must feature relatively very high-speed processors, large
amounts of memory, and other features that are not required for an acceptable
Internet experience.

We believe that while users of new Internet access devices want easier to use
devices and lower overall system costs, they do not want to leave behind the
richness and variety of the PC-like Internet experience. This means that, in our
opinion, for any new Internet access device to be successful in the marketplace,
it must offer a third and critical feature which is:

PC-Like Experience: The PC's near-dominance to date over accessing the Internet
has set consumer and business user expectations as to what an Internet
experience should look and feel like. Most PC users access the Internet via the
World Wide Web using a software application called a "browser". The dominant
browser in use today on PCs is "Internet Explorer" from Microsoft. While having
a relatively simple browser was acceptable for experiencing the World Wide Web a
few short years ago, this is no longer the case. Today, there are tens of
millions of documents on the World Wide Web available to users that exist in
many different formats. Reading and downloading such a wide variety of documents
and document formats requires the use of increasingly sophisticated software
applications called "browser plug-ins". In order to obtain a PC-like experience
today, a browser must include browser plug-ins for viewing:

Compound Documents: Acrobat Portable Document Format ("PDF") from Adobe or a
suitable clone is needed for viewing the increasing number of compound documents
found on the World Wide Web featuring text and graphics; Multimedia Files: Real
Audio/Video from Real Networks or the Windows Media Player from Microsoft is
needed for viewing multimedia audio and video files; Web Animations: Flash from
Macromedia is needed for viewing low-bandwidth animations featured on a wide
variety of popular World Wide Web sites; and Java: A Java virtual machine is
needed for viewing Java-based applets found on many World Wide Web sites and is
also needed if programmers need to program the device using the Java programming
language, one of the most popular programming languages used for writing custom
software for deployment in Internet-centric applications. Java virtual machines
are available from Sun Microsystems, Java's originator, and clone vendors such
as Insignia Solutions that specialize in developing Java virtual machines for
non-PC hardware.

We believe these are the essential plug-ins for experiencing the World Wide Web.

Our History

MSU has been developing Internet access devices since 1994. The Company
developed four versions of its Internet access devices up to January 2001.

During this period, we incurred significant losses. In January 2001, the company
began a major restructuring of its activities:

In January 2001, a new management team was recruited;

In January 2001, we moved our headquarters from the United Kingdom to Plano,
Texas, a suburb of Dallas. Milton Keynes continued to market and support our
products internationally;

In February 2001, we developed the specifications for the new MSU V5 and we
discontinued development efforts on the MSU V4 Internet access device. We also
stopped actively commercializing the MSU V3;

In March 2001, we implemented a financial restructuring plan whereby most of our
liabilities were converted into equity and we raised $4.5 million from the sale
of convertible debentures;

In April 2001, we began work on the MSU V5;

In July 2001, MSU reincorporated in Delaware from Florida;

In July 2001, we came to an agreement with the creditors of Web 2U Limited, our
subsidiary in the United Kingdom, to settle their liabilities for cash and
convertible promissory notes;

In October 2001, we signed a joint marketing agreement with EarthLink;

                                       2
<PAGE>


During the second half 2001, we established distribution arrangements to sell
our product in eight countries;

In the last calendar quarter of 2001, we raised $1.2 million through the sale of
special warrants in Canada;

In the first half of calendar year 2002, we raised $1.5 million through the
issuance of 11.5% secured convertible bridge loan notes (the 11.5% Secured
Notes.)

Events Subsequent to June 30, 2002

September 2002 Financing and Re-structuring

In light of the continuing difficulties of selling the Company's Internet access
devices, subsequent to June 30, 2002, the Company continued to make changes to
its financial strategy:

From July through November 2002, the Company raised a total of $509,667 in its
11.5% Secured Notes. Of this amount, $350,000 was raised from September to
November 2002 as part of the "September 2002 Financing and Re-structuring".
Monies from the September 2002 Financing and Re-structuring were invested as
part of the 11.5% Secured Notes financing, subject to terms of the 11.5% Secured
Notes being amended as follows:

    1. The due date of the 11.5% Secured Notes was extended to December 31, 2002
and the Company will continue to market the 11.5% Secured Note issue so long as
the maximum amount of the 11.5% Secured Notes allowed under the 11.5% Secured
Note Purchase Agreement of $3 million has not been reached. The due date of the
11.5% Secured Notes may be extended past December 31, 2002 a total of 30 days if
deemed necessary. This extension can only be granted twice.

    2. The Company's 11.5% Secured Notes and Paid Equity Warrants sold to
investors since December 2001 will be convertible into common shares of the
Company at $0.02 per common share, or 50 common shares per $1.00 invested,
pursuant to anti-dilution clauses and pursuant to at least 80% of the 11.5%
Secured Notes in the current $250,000 round and previous $150,000 round of
financing being raised from holders of Paid Equity Warrants and 11.5% Secured
Notes. Since a total of $350,000 of the September 2002 Financing and
Re-structuring monies raised to date has been raised from 11.5% Secured Note
holders and Paid Equity Warrant holders this requirement has been met.

    3. The 11.5% Secured Notes are convertible into commons shares at the option
of MSU Devices if the Company successfully completes the following:

        -- Conversion of the Paid Equity Warrants at the conversion price
described above.

        -- Conversion of at least 70% of the Company's current accounts payables
outstanding and current long-term debt of approximately $1,900,000 into common
shares at a price of no lower than $0.02 per common share, or 50 common shares
per $1.00 of indebtedness.

        -- Convenes a shareholder meeting no later than December 31, 2002 or on
such date as may be agreed upon by the Company and by the 11.5% Secured Note
Holders, and obtains shareholder approval to: (i) increase the authorized
capital of the company to allow for the conversions outlined above, and (ii)
reverse split the common stock of the Company such that after the reverse split,
assuming all accounts payables, 11.5% Secured Notes, long-term debt and Paid
Equity Warrants are converted into common shares of the Company, there will be
no more than 5,000,000 outstanding common shares

        -- Obtains shareholder approval for an employee stock option plan for a
maximum of 750,000 share options.


If the Company's accounts payables, 11.5% Secured Notes, long-term debt and Paid
Equity Warrants are converted into common shares, the Company will have on a
fully diluted basis between 300 and 360 million common shares outstanding which
would indicate a reverse split ratio of approximately 60-70 existing shares for
every common share in order to arrive at a maximum of 5 million shares
outstanding after the reverse split outlined above.


In the event of a default by the Company under the terms and conditions of the
11.5% Secured Note Purchase Agreement the holders of the 11.5% Secured Notes can
accelerate the maturity of the 11.5% Secured Notes and can elect to exercise
their first priority lien on the assets of the Company, including intangible
assets and intellectual property. The security pledged to the 11.5% Secured
Notes will remain in effect until the Company has satisfied all the terms and
conditions of the 11.5% Secured Note Purchase Agreement.


New Management and Changes to the Board of Directors:

On November 17, 2002, the Board of Directors of the Company approved the
following as the Company's new management team:

--       Robert L. George; President, CEO, and Member of the Board of Directors
--       Matt Vacaro; Vice President Sales
--       Douglas Dillhoff; Vice President R&D and Chief Technology Officer
--       Judson Fortner; Vice President of Engineering
--       Kwok H. Phoon; Acting CFO

                                       3

<PAGE>

Robert George joined MSU in September 2002 and was promoted to President and
Chief Executive Officer on November 17, 2002. Prior to joining MSU he was a
Founder and President of AirCell Inc., an entrepreneurial startup company that
developed airborne telecommunications systems. He holds nine patents related to
that endeavor. Mr. George has over 25 years of executive management experience
in various companies including Communications Technology Corporation, North
American Philips' Medical Ultrasound, Aerojet-General and Xerox Electro-Optical
Systems. Mr. George earned his MBA from Stanford University and holds a Master's
degree in Aerospace Sciences from the University of Washington and a Bachelor of
Aeronautical Engineering from the University of Minnesota.

Matt Vacaro joined MSU in October 2002 and was named Vice President of Sales on
November 17, 2002. Prior to joining MSU he was District Sales Manager for 3D
Systems, a stereo lithography company. He has over 20 years of sales experience
in various technology companies including EDS, BPM Technology Incorporated and
Metrowerks Inc. As Vice President of Sales at Metrowerks, Mr. Vacaro increased
sales $4,500,000 in his first 9 months at the company. Prior to Metrowerks, he
spent ten years in the manufacturing automation business. Mr. Vacaro has
extensive experience in generating sales opportunities at start-up and business
turn-around ventures. Mr. Vacaro holds a Bachelor of Science degree from Salem
State College.

Doug Dillhoff joined MSU as Director of Engineering in March, 2002 and was
promoted to Vice President of Research and Development and Chief Technical
Officer on November 17, 2002. Prior to joining MSU he was Director of Software
Development for HomeAccess MicroWeb, a California based e-commerce technology
company. His experience includes over 20 years of software development and
engineering management in various technology companies including DSC
Communications Corporation (acquired by Alcatel), NEC and Tandy Corporation.
While at HomeAccess he helped developed a secure client/server process for
upgrading firmware on Internet Access Devices and was responsible for the
network architecture of various LAN/WAN projects. As Director of Software
Engineering at DSC Corporation, Mr. Dillhoff's responsibilities included
managing over 70 engineers who were responsible for the software/hardware
development environment for DSC's telecommunications products. At NEC he worked
on the NEAX61E Class 5 Telephone Switch and developed a NEAX61E
simulation/development environment, which was adopted worldwide at various NEC
development centers. Mr. Dillhoff holds a Bachelor of Science degree from the
University of Texas at Arlington.

Jud Fortner joined MSU as Principal Engineer in March, 2002 and was promoted to
Vice President of Engineering on November 17th of 2002. Prior to joining MSU he
was Principal Engineer at California based HomeAccess MicroWeb an e-commerce
technology company. His experience includes over 20 years of software
development in various technology companies including Samsung, NEC and Sprint.
While at HomeAccess, he developed EFT (electronic funds transfer) processes and
various SmartCard applications. At NEC he was involved in the development of the
Network Management System for NEC's M10/20 ATM Switch and the call processing
software for the NEAX61E Class 5 Telephone Switch. Mr. Fortner holds a Master of
Science degree in Computer Science from the University of Texas at Arlington and
a Bachelor of Science degree from Delaware Valley College.

Kwok H. Phoon joined MSU as Controller in June, 2002 and was named Acting CFO on
November 17, 2002. Prior to joining the Company, he was the Controller for
EngineX Network, Inc. in Richardson, Texas. Mr. Phoon was Director of Cost
Accounting at Amkor Technology Inc. and its subsidiary and Director of Internal
Audit at AdvaCare, Inc.. He also held senior management positions with Archive
Corporation, Nestar Systems Inc., VLSI Technology, Inc., UTC Mostek Corporation
and Texas Instruments, Inc. Mr. Phoon holds a Bachelor of Mechanical Engineering
from the University of Auckland, New Zealand and a Master of Arts in
International Management Studies from The University of Texas at Dallas. He is a
Certified Internal Auditor and a Certified Public Accountant in the State of
Texas, and a member of the AICPA and IMA.

Currently our Board of Directors consists of Jean Belanger, Stephen W. Coles,
Robert L. George, D. Bruce Walter and Jeremy M. Simpson. Fred Kashkooli and
Jeffery N. Green resigned from the Company's Board of Directors in August, 2002.
Reference is made to "ITEM 10": Directors And Executive Officers Of The
Registrant:, outlined below, for further details on the Board of Directors of
the Company.

Our Strategy - MSU V5 Product Positioning

We are engaged in the Internet access device market running the Windows CE
family of operating systems. Our strategy is to provide highly valued,
differentiated hardware products and software and systems integration services
for our targeted consumer and business markets. We design, market and sell
affordable Internet access devices and provide software and systems integration
services for the Windows CE family of operating systems that enable consumers
and business end-users to communicate simply and easily by using e-mail and over
the World Wide Web via the Internet without the necessity of technical or
personal computer knowledge or expertise.

Simplicity: Our MSU V5 product family offers users a new level of simplicity.
The device hides the complexities of system configurations, software maintenance
and the dial-up process to access the Internet and e-mail.

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<PAGE>

Affordability: The MSU V5 product family is intended to serve as a low-cost
programmable Internet access device platform.

PC-Like Experience: The MSU V5 product family provides a PC-like World Wide Web
browsing and e-mail experience, and is programmable using the Java and XML
programming languages. The MSU V5 can also be programmed in C++ and Visual
Basic. The MSU V5's browser supports the most popular software plug-ins
including: Java, Flash, Windows Media Player and PDF. The MSU V5 features
Microsoft Pocket Word and can be administered remotely by MSU and its partners
and customers.

Security: The MSU V5 product family is a diskless device and thus immune from
computer "viruses" which can corrupt hard drives. The MSU V5 also includes
Microsoft's Internet Explorer that provides for 128-bit encryption. In addition,
MSU makes available an optional smart card reader from GemPlus used in
conjunction with a smart card for both device and application specific access
control, user authentication, secure messaging and secure application
processing.

Flexibility: The MSU V5 product family has been designed to provide a high
degree of flexibility from the user's perspective with regards to dial-up or
broadband connectivity, various television or computer monitor display options
and potential future hardware upgrade options using select PCMCIA- and
USB-enabled peripherals with drivers for the MSU V5.

Programmability: With full Java, C++ and embedded Visual Basic programming
language support, MSU V5s fully programmable, allowing users to write custom
applications for the MSU V5.

Server-Based Computing: Using software from Citrix Systems Inc. or Microsoft
Corporation, the MSU V5 can establish a session with a server, allowing users of
the MSU V5 and other devices to view and work with an application as if it were
running locally.

In summary, we sell affordable Windows CE-based Internet access devices and
provide software and systems integration services that enable consumers and
business end-users to communicate simply and easily by using e-mail and over the
World Wide Web via the Internet without the necessity of technical or personal
computer knowledge or expertise. Our mission is to empower consumers and
business users to communicate simply and easily over the Internet without
necessity of technical or personal computer knowledge or expertise. When using
our products and services, end-users have access to an Internet service
provider, e-mail hosting and content in a single, easy to use hardware/software
appliance.

Sales and Marketing

In our fiscal year ended June 30, 2002, MSU Devices Ltd., our wholly owned
subsidiary, and Netherland's CPS Broadcast Products B.V. jointly dissolved a
sales and distribution agreement. MSU Devices Ltd. Now deals with Leaderman for
the Benelux Countries and Equadoor in South Africa

In our fiscal year ended June 30, 2002, our UK Subsidiary sold 1,033 units of
the older MSU V3 and 759 units of the current MSU V5. The majority of our UK
subsidiary's sales of the MSU V3 were in Tunisia and El Salvador, and the
majority of its sales of the MSU V5 were primarily in Italy. Sales in the United
States were limited to 307 units of the MSU V5.


Customers

MSU Devices Ltd., (our wholly-owned UK subsidiary) and Netherlands's CPS
Broadcast Products B.V. jointly dissolved a sales and distribution agreement.
MSU Devices Ltd. now deals with Leaderman for the Benelux Countries and Equadoor
in South Africa.

During the year, our UK subsidiary sold 1,033 units of the older MSU V3 and 759
units of the current MSU V5. The majority of MSU V3 sales were in Tunisia and El
Salvador. MSU V5 sales were primarily to Eknoware in Italy. sales IN THE united
States were limited to 307 units of the msu V5.


MSU V5 Product Platform

Prior to 2001, MSU was known primarily as a manufacturer of television-based
Internet set-top boxes. The first four versions of the Company's hardware
devices comprised proprietary software and hardware designed for television
connection and targeted at the V.90-based dial-up Internet market. In 2001, the
Company moved beyond this strategy by adopting the Microsoft Windows CE family
of operating systems and other important software applications and by
integrating the MSU V5 into narrowband and broadband-centric deployments via
Ethernet. The Company's priority in building the MSU V5 was to expand the
hardware and software capabilities included in the new MSU V5 Internet computer
by:

changing the central processing units to the faster National Semiconductor Geode
GX1 x86 processor running at 266 MHz;

increasing memory to 16MB of Flash and 64MB of SDRAM to facilitate access to
heavily visited web sites, such as CNN.com, ESPN.com, ABCNews.com and others
rich with pictures or graphics;

adding Ethernet support to easily integrate into broadband environments and to
enable users to deploy Ethernet-based LANs to add more than one user to their
high-speed connections;

deploying VGA support to allow users the option of using standard PC monitors
and flat panel displays in addition to using television as the display medium;

                                       5
<PAGE>

changing to Microsoft's Windows CE operating system and Internet Explorer and
adding Microsoft's Pocket Inbox Email and Pocket Word applications;

adding support for Microsoft's Windows Media Player, Personal Java, Macromedia
Flash and PDF viewer, providing users a more PC-like experience when accessing
the worldwide web;

and deploying more secure technology including SSL 3.0 from Microsoft and an
optional secure smart card reader from GemPlus.

MSU V5 Hardware Specifications


The most important hardware supplier for the MSU V5 is National Semiconductor.
The MSU V5 features eleven separate parts supplied by National Semiconductor,
including the National Geode GX1 processor with MMX support that integrates
fully accelerated 2D graphics. Along with the processor, other board-level
components include the Geode CS5530A I/O companion device and its fast Ethernet
controller. We chose the Geode microprocessor to power our MSU V5 device because
it is an integrated x86 processor, which we believe is optimized for power,
performance, and price for the target markets of the MSU V5.

The general hardware specifications for the MSU V5 product family include those
described below:

Enclosure: The MSU V5 unit is black with a weighted base for proper balance and
solid build, featuring a lens for infrared communication and four LED lights on
the front panel. The four LED-based lights indicate power on or off, any modem
activity taking place, any Ethernet-based LAN activity taking place, and if any
unread email messages have been received. In addition, the front panel allows
access to an optional Smart Card reader, an open PCMCIA slot and a USB
connector. The back panel includes video connectors for TV and computer
monitors, a USB connector, an Ethernet connector, a dial-up modem telephone
jack, a PC ATA/IDE connector, and connectors for audio speakers.

Processor: The MSU V5 features an x86 National Semiconductor Geode GX1 processor
running at 266MHz, plus the companion chip CS5530A.

Memory:  The minimum memory configuration for the MSU V5 is 16MB of Flash memory
and 64MB of SDRAM.

VGA or TV Display: The MSU V5 allows users to output their Internet data on
either a standard television monitor or a standard computer monitor. By plugging
in the supplied cables to the SCART connector on the rear panel, the MSU V5
supports RGB, CVBS or composite and S-Video outputs to the NTSC television
format used in the United States and Canada and the PAL television format used
throughout most of the rest of the world. The MSU V5 also supports standard
computer monitors with 800x600 resolution and standard computer flat panels with
800x600 resolution. Due to the variability in viewing quality, MSU generally
recommends the use of a VGA monitor in the United States, unless used with a
newer, high quality television with at least a 27" screen.

Keyboard: The MSU V5 includes a regular wired PC keyboard and mouse or a
wireless infrared keyboard with a built-in eight directional pointing device for
cursor navigation. It includes connectors on the rear panel to plug in a
standard computer industry "PS/2-compatible" keyboard and mouse. The four
LED-based lights indicate power on or off, any modem activity taking place, any
Ethernet-based LAN activity taking place, and if any unread email messages have
been received.

PCMCIA Slot: The MSU V5's PCMCIA slot provides connectivity for Type III PCMCIA
peripherals. PCMCIA is a popular PC industry connector and form factor used to
add memory and functionality via PCMCIA cards. One popular PCMCIA-based feature
is wireless connectivity using the 802.11b standard. The MSU V5 currently
supports only a few select Hewlett-Packard printers, as we, together with our
partners, will need to write specific software drivers for any peripherals to be
supported by the MSU V5.

Modem & Ethernet: The MSU V5's 56k V.90 standard dial-up modem uses a chipset
from Conexant Systems, Inc. The MSU V5 also supports standard 10 Megabit per
second ("Mbps") and 100 Mbps Fast Ethernet, otherwise known as 10/100 Base-T
Ethernet. Most users of advanced broadband services, such as cable modems and
DSL, connect devices in their homes or businesses via standard Ethernet. With
support for standard Ethernet and dial-up, the MSU V5 allows users to connect to
the Internet using the 56k V.90 modem or faster broadband modems that they
purchase separately and connect to the MSU V5 via the Ethernet port.

Smart Card Reader: The MSU V5 supports an optional ISO7816 smart card reader
using the Gemplus GemCore Lite(TM) chipset. Smart cards are especially popular
in Europe and have been recently adopted for wide scale deployment by the United
States Department of Defense.

USB/IDE Connectors: The PC industry has moved to standard USB connectors for
most of its popular peripherals. The MSU V5 features one USB connector on the
front panel of the device and one USB connector on the rear panel. The MSU V5
does not currently contain the software drivers necessary to support USB-based
PC peripherals at large, and as such, support for USB-based peripherals will be
added on as needed basis. In addition to USB, the MSU V5 includes on the rear
panel of the device the older standard PC ATA/IDE connector.

                                       6
<PAGE>

Audio Support: The MSU V5 features stereo audio output so users can add standard
PC stereo speakers to the device and also supports audio out for stereo
headphones as well as standard audio microphone input via a separate connector
on the rear panel of the device.

Power: The MSU V5 does not have a power switch but rather is powered on when
plugged in. The MSU V5 features advanced power management capabilities to power
down the device into standby mode when it is not in use. This power management
approach increases the average useful life of the Flash memory included in the
MSU V5.


MSU V5 Software Specifications

Operating System: The MSU V5 features the consumer electronics embedded systems
version of the Windows operating system, Windows CE 3.0, designed and developed
by Microsoft. The Windows CE family of operating systems is built around an
application programming interface that is consistent with Microsoft's other
32-bit Windows-based operating systems and allows devices to communicate with
each other, share information with Windows-based PCs, and connect to the
Internet.

Browser: Internet Explorer 4.0 ("IE4.0"): The MSU V5 features the world's most
popular PC-based software browser for browsing the World Wide Web. IE 4.0
running on Windows CE 3.0 includes support for most of the important Internet
standards including: HTML 4.0, Jscript, Caching, Cookie Management, GIF, JPEG, &
BMP Formats, and Offline Browsing, and 40- and 128-bit SSL.

Browser Plug-ins:

Windows Media Player ("WMP"): The MSU V5 supports streaming and static audio and
video media with WMP by Microsoft. We include WMP in the device in lieu of
support for Real Audio and Real Video from Real Networks, the other widely used
audio and video browser plug-in on the PC, because there is no free version of
the Real-based software plug-in for non-PC hardware. WMP supports all the
popular streaming and static audio and video standards including: AVI, MIDI,
MPEG, MPEG-4, MP3, WAV and WMA.

Macromedia Flash Player 5.0 ("MFP"): Macromedia's MFP is the most widely
distributed software on the World Wide Web. MFP 5.0 is distributed by Microsoft,
AOL, Netscape, Apple and Intel and thus 96% of online personal computer users
can view Macromedia Flash animations in Web sites without having to download MFP
5.0. Macromedia Flash is used across the Internet to design and deliver
low-bandwidth animations and presentations and offer scripting capabilities and
server-side connectivity.

Ansyr Primer 3.1 PDF Viewer: Adobe's Portable Document Format is the PC industry
standard for preparing and viewing large complex documents on the World Wide
Web. These files can contain color, graphics, links and navigation features and
are used for applications such as user and service manuals, help files, annual
reports, and product brochures and data sheets. Ansyr Technology's Primer 3.1
PDF Viewer allows Windows CE-based products to use PDF documents in the same
manner they are used on a PC.

Insignia Java Virtual Machine: Sun Microsystems' Java programming language and
Java virtual machine technology are synonymous with the World Wide Web and the
Internet. Insignia Solutions' Jeode Java Virtual Machine ("EVM") offers complete
compatibility with Sun's PersonalJava 1.2 and EmbeddedJava 1.0.3 specifications,
which specifications are roughly equivalent to Sun's PC-based implementation of
the Java JDK 1.1.8. Insignia's EVM was the first independently developed virtual
machine to pass Sun's PersonalJava and EmbeddedJava test suites, thus ensuring
full compliance with Sun's specifications. As a result, Insignia's EVM is a
Sun-authorized Java virtual machine, which allows us to use the Sun Java logo in
marketing and selling the MSU V5. Our substantial commitment to Java ensures
that the MSU V5 supports World Wide Web sites that use Java extensively, and
that programmers will be able to write custom applications to run on the MSU V5
using the Java programming language.

Applications: MSU Custom User Interface: Certain aspects of the user interface
such as the logo, help pages, device settings, and home pages are configurable
by the customer; Microsoft Outlook Express Email Client: standard email client
that allows storage and viewing of email on the local machine; and Microsoft
Pocket Word: A reduced version of Microsoft Word that will allow customers to
edit and update Microsoft Word-based documents.

Internet Protocols: The MSU V5 supports dial-up communications via its on-board
modem and cable- and DSL-based broadband communications via Ethernet. Over such
communications backbones, the MSU V5 supports all the commonly used Internet
protocols including: TCP/IP, PPP, SLIP, SNMP, NDIS For LAN, and RDP 5.0.

Device Driver Support: Supports USB and PCMCIA Devices. Drivers will be added
for USB Devices (printers, for example) and PCMCIA (storage devices, for
example) devices as indicated by the customer. It will also be based on memory
availability and driver availability.

                                       7
<PAGE>

Thin Client Software: Citrix Independent Computing Architecture ("ICA") Client:
Citrix ICA is used for server-based computing that enables applications to
execute 100 percent on a server, and not the terminal device used by the
end-user. The client component of ICA establishes a session with a Citrix
server, allowing users of the MSU V5 and other devices to view and work with an
application as if it were running locally. Citrix ICA transmits screen changes,
keystrokes, and mouse movements between client and server over the network. By
integrating ICA client software with the Windows CE operating system running on
MSU V5, we give software developers "built-in" server-based computing
capability. This makes it easier for developers to launch products that are
compatible with the server-based computing model, which has been widely adopted
by enterprises and Application Service Providers. The benefits of what is called
"thin-client" computing include (i) extending the reach of business-critical
applications to MSU V5 users over any Internet network connection; (ii)
seamlessly providing access to applications running on a Citrix server together
with access to local resources like local printers and local drives; (iii)
providing a rich user interface while reducing bandwidth consumption and
minimizing congestion on corporate Internet-based networks; (iv) reducing the
total cost of ownership through centralized application management and the
ability to leverage existing computing infrastructure as well as the relatively
inexpensive MSU V5; and (v) enhancing data security by keeping all application
processing on the server.

Microsoft Remote Display Protocol ("RDP") Client: The Remote Desktop Protocol
also allows for the use of "thin clients" in corporate computing but interfaces
only with Windows NT-based server applications, and not Windows NT- and
UNIX-based server applications which Citrix allows for.

Remote Administration: BSQUARE Remote Device Administrator ("RDA") Client Server
Application: The BSQUARE Remote Device Administrator is a client-server
application for updating, managing, and monitoring MSU V5 devices in remote
locations. When the RDA client is installed in an MSU V5, we together with our
partners and customers are then able to: (i) manage multiple MSU V5 devices
through a single interface, centrally or from a central location. Companies can
push local content and program updates to the MSU V5 devices in the field; (ii)
deploy, track and monitor enterprise-wide deployments of custom applications
written specifically for deployment on the MSU V5 and initiate or schedule
updates to MSU V5 remote devices. Companies can also clone client configurations
and push the templates to clients during deployments; (iii) update and create
flexible update schedules for clients and groups of clients, including triggered
updates. Group devices logically and easily manage each group separately,
enabling customers to customize devices based on a group's needs; and (iv)
configure, display, set, and modify client configurations, including settings,
current operating status, events, and MSU V5 device hardware inventory. MSU V5
devices managed by RDA appear maintenance free to end users, who automatically
receive updates even while working in the field. The advanced remote management
capabilities in RDA save time and reduce maintenance and support costs for
corporate IT departments, Application Service Providers, and Cable and Network
Operators.

Manufacturing and Purchasing

We entered into a contract manufacturing relationship to outsource the hardware
design and production of the MSU V5 to BioStar Microtech International
Corporation and related subsidiaries in Taipei, Taiwan ("Biostar"). BioStar is
one of the leading PC-motherboard manufacturers in Taiwan and utilizes
state-of-the-art manufacturing equipment and strong inventory management
practices to achieve rapid inventory turnover and maintain reduced inventory
levels. Biostar's manufacturing methods provide rapid pass-through of material
cost decreases in its products.

Our product manufacturing agreement with Biostar was entered into as of August
21, 2001 for a term of one year with automatic one-year renewal periods. Either
party may terminate the agreement upon certain termination events including
material breach and bankruptcy. Biostar may terminate this agreement if we do
not order a minimum amount of MSU V5 units annually or if we utilize a third
party to manufacture MSU V5 units.

Our product design and development agreement was entered into as of June 14,
2001 for a term of one year. Pursuant to the terms of this agreement, we paid
Biostar in the aggregate a development fee of $118,000. The Company does not
have any material on-going obligations pursuant to the terms of this agreement.

We expect that Biostar will be able to obtain the necessary hardware components
for the MSU V5 from suppliers in a timely manner to meet our production goals.
Most of the components used in the MSU V5 are available from multiple sources;
however, certain components are typically obtained from single sources. It is
possible that Biostar may experience difficulties in obtaining certain hardware
components from time to time, which difficulties could affect Biostar's ability
to meet our orders. Management believes that in the event Biostar is unable to
meet our orders, the Company will be able in a timely manner to secure another
third party to outsource the production of the MSU V5.


Engineering


The engineering team has been focused on expanding the functionality of the MSU
V5 to satisfy the requirements of various prospects and customers. The primary
emphasis was on development applications to exploit the Gemplus (R) Smart Card
reader which is standard in the MSU V5. When supplied with an optional Gemplus
Smart Card and appropriate software applications, the MSU V5 has the ability to
support secure access and/or secure transaction processing. This capability is a
key differentiator of the MSU V5 from most competing Internet appliances, and
PCs in general, as most do not come equipped with a Smart Card reader as
standard equipment.

                                       8
<PAGE>

The first Smart Card application developed last year uses a Gemplus Smart Card
as a key to unlock the MSU V5 and store customer specific data. When a valid
Smart Card is present, the MSU V5 keyboard and mouse can be used to navigate
within the MSU V5 environment. Without a valid Smart Card, the keyboard and
mouse locks and a screen saver occupies the screen directing the user to insert
a valid Smart Card. Only a valid Smart Card can unlock the system. A valid Smart
Card is one programmed specific to the MSU V5 Smart Card application (i.e. the
file structure of the Smart Card is written in a format unique to the MSU V5
Smart Card application). The client company wanted the ability to render a Smart
Card invalid in the event an account went delinquent. MSU engineers developed
means for the connected server to download a trigger to a specific user's MSU V5
whereby the MSU V5 could disable the Smart Card on demand, and in turn, lock the
MSU V5. Additional Smart Card applications are under evaluation and development.


The engineering team also worked to `localize' the MSU V5 for various
International markets including: Italy, Germany, France, and Mexico. This
initiative resulted in country specific environments whereby both the desktop
icons and the MSU proprietary applications were rewritten in the languages of
the target country.


Several core improvements were made to the product including: an improved dialer
which simplified dial-access configuration settings, auto
configuration/detection for TV output versus VGA monitor, user configurable
control for 640x480, 800x600, and 1024x760 resolution settings.


Product evolution:

The engineering team is now working to port the MSU V5 from Windows CE 3.0 to
Windows CE.NET. By migrating to this new version of Microsoft's operating system
for thin client devices (e.g., diskless computers), the MSU V5 user will enjoy
the latest desktop experience including the latest versions of Internet
Explorer, Windows Media Player, etc. Additionally, Windows CE.NET comes standard
with additional viewers that enable the user to view several file formats
including Microsoft Excel, Microsoft Word, Microsoft PowerPoint and Adobe
Acrobat PDF file types. The MSU V5 will also enjoy the performance benefits
derived from the OS enhancements of Windows CE.NET.

Expanding services:

MSU has spent the last year improving and customizing the MSU V5 to satisfy
various market opportunities. As a result, MSU's engineering team has developed
and refined valuable skills in the Windows CE domain that can now be exploited
for other companies. Specifically, MSU can now offer development services to
other companies with the Windows CE family and other operating systems based
products.


Technical Support and Customer Service

Our distributors and resellers provide front-line technical support for
end-users of the prior versions of our products and we intend to arrange for
similar support for end-users of our MSU V5 device. Our technical analysts
answer technical support calls from distributors and resellers. Our technical
support group intends to implement a fax-on-demand system providing installation
tips and technical documents to customers via fax. We maintain a home page on
the World Wide Web to provide customer support and information.

Sales and Marketing

Given our limited resources, our sales and marketing efforts to date have
focused on large volume opportunities in vertical markets, such as the
education, retirement communities and assisted living facilities, government and
banking sectors. MSU's sales and marketing strategy is to utilize its direct
sales force; develop strategic relationships and alliances with distributors,
independent agents, system integrators and value added resellers ("VARs"); and
focus on obtaining marketing agreements with large Internet Service Providers
("ISPs").

MSU Direct Sales Force.  Currently, four of the 10 MSU employees, are engaged in
sales and marketing efforts.

The Company's Vice President of Sales is responsible for sales and marketing
activities in North America.


Its United Kingdom Managing Director is responsible for sales and marketing
activities internationally.

                                       9
<PAGE>

Distribution/Sales Channels/Strategic Partnerships. MSU intends to distribute
the MSU V5 Internet computer using a variety of channels including:

distributors in the United States, Argentina, Netherlands, England, Italy, and
Mexico; strategic partners such as ISPs and their strategic marketing partners;
and through our own web site.

EarthLink Strategic Marketing Alliance. In October 2001, we entered into a
one-year joint marketing agreement with EarthLink whereby each company agreed to
market the other company's products and/or services. The agreement is
automatically renewed for successive one-year periods unless terminated by
either party on 30 days written notice to the other party prior to the
expiration at the relevant term. In addition, either party may terminate the
agreement for any reason upon 60 days written notice to the other party. Since
the execution of this agreement, no significant sales have resulted.




The Competition

The Internet access marketplace is very competitive. Competition is based on
price, product quality, reliability and availability, credit terms, name
recognition, delivery time, service and support. The MSU V5 has competitors in
the set-top-box, Internet appliance, and thin client markets, and, to a certain
extent, competes directly with PCs.

Set-Top-Boxes. These products are designed to provide an end-user with broadcast
programming, web surfing, and email through a single device connected to a TV.
Although these devices typically are more expensive to produce than the MSU V5,
some digital broadcast service providers can "buy down" the cost of the device
and provide them to the consumer at a price below that of the MSU V5. The
Company believes that each of these products falls short of the Internet
capabilities provided by the MSU V5 as many cannot access all web sites, few are
programmable, and even fewer can use a monitor as its view option. Competition
from set-top-box manufacturers includes the following:

WebTV from RCA along with similar TV set-top-boxes that offer limited web
surfing and email using the TV as their viewing medium are plentiful, especially
in Europe and Asia. AOL sells AOLTV using a hardware product from Phillips.
Net@Home markets a TV set-top-box on the Home Shopping Network.

Internet Appliances and Internet Computers. Probably the most similar to the MSU
V5, Internet appliances are products designed primarily to access the Internet.
Although some of these devices can perform other specific functions, they do not
offer the full capabilities of a traditional PC. Products developed in this area
include:

IPAQ IA-1 and IA-2 developed by Compaq Computer Corporation;
NIC developed by New Internet Computer Co., which offers an optional VGA PC
monitor or flat panel display at additional cost; and other stand-alone Internet
appliance platforms developed by other manufacturers and suppliers, such as the
NetGem 4.0 interactive television platform from NetGem SA and the eVilla Network
Entertainment Center from Sony Corporation.

We believe the MSU V5 is superior to these Internet appliance products based on
its cost, functionality and available features.

Thin Client Workstations. Some companies are reverting to a centralized
computing solution (versus distributed processing) , which uses a thin client
workstation to access its processing capabilities from a central server. The MSU
V5 can function as a thin client workstation, generally defined as a desktop
device with little or no local storage that exists only on a corporate or
industry specific network. A server on the network provides applications and
data storage. Manufacturers of other thin clients include:

Wyse Technology Inc. with its Wise Wintern thin client products; and
Neoware Systems Inc. with its EOM computing appliances.

PCs and Discounted "White Box" PCs. The MSU V5 competes with name-brand PCs,
such as those manufactured by Apple Computer, Inc., Dell Computer Corporation,
Gateway, Inc., Hewlett-Packard Company and IBM Corporation, as well as "white
box" PC manufacturers which assemble "no brand" PC's, selling them for less than
their branded competitors.

As the market for Internet access devices develops, we expect that brand name
companies will attempt to develop and launch their own intelligent computing
devices. We also expect to face increased competition from PCs as they decline
in price and from numerous other products that offer connectivity to the
Internet.

Additionally, companies with significant market presence in the computer
hardware, software and networking industry may enter the markets in which we
compete and further intensify competition. These competitors and other potential
competitors may have significantly greater financial, technical, sales,
marketing, support and other resources than we do. There is no assurance that we
will be able to establish and maintain a market position in the face of
increased competition.

Additionally, the announcement of the release, and the actual release, of
products competitive with our existing and future product lines, could cause our
existing and potential customers to postpone or cancel plans to purchase any of
our existing and future product offerings, which would adversely impact our
business, results of operations, and financial condition. As markets for our
products continue to develop, additional companies, including companies with
significant market presence in the computer hardware, software and networking
industries, may enter the markets in which we compete and further intensify
competition. These competitors and other potential competitors may have
significantly greater financial, technical, sales, marketing, support and other
resources than we do. There is no assurance that we will be able to establish
and maintain a market position in the face of increased competition.

                                       10
<PAGE>

Proprietary Rights, Licenses and Trademarks

In 2001, we discontinued our own custom TV-video processor development work and
decided to focus on using off-the-shelf standard video processors in conjunction
with our products due to cost reductions available when using standard parts and
time-to-market advantages. As a result, we do not derive any substantial value
from any of our patents related to this previously undertaken custom video
processor activity, including the patents listed below. Unless otherwise
indicated, all names referred to in this Annual Report on Form 10-K are
trademarks and/or registered trademarks of their respective owners.

We have patents and registered trademarks and pending applications including:

Web 2 U Limited in the United Kingdom (Reg. No. 2192548,  effective May 19,
2000), China (Reg. No. 1477701,  effective November 21, 2000),  European Union
(Reg. No. 1138221,  effective June 8, 2000),  Hong Kong (Reg.  No.B13772/2000,
effective October 17, 2000), Singapore  (Reg.  No.  T99/03896D,  effective
December 20, 2000),  Taiwan (App.  No.  8023575)  dated May 18, 1999, and the
United States (App. No. 75/694832) dated April 30, 1999;

Web 2 U logo in the United Kingdom (Reg. No.  2241140,  effective  February 9,
2001),  European  Community (App. No. 2077824) dated January 31, 2001, United
States (App. No. 76/203920) dated February 1, 2001;

WYNPEG in the United  Kingdom (Reg. No.  1572811,  effective July 14, 1995),
Hong Kong (Reg.  No.  06937/1996,  effective July 26, 1996), Taiwan  (Reg. No.
00708445, effective March 1, 1996);

Slipstream in the United Kingdom (Reg. No. 2121511, effective December 1997);

and ENVOY in the United Kingdom (Reg. No. 2117809,  effective November 14,
1997), China (Reg No. 1244930,  effective February 7, 1999), Hong Kong (Reg.
No. 07060/99,  effective June 7, 1999),  European Community (Reg. No. 586107,
effective January 26, 1999),  Taiwan (Reg. No. 816504, effective September 16,
1998) and Singapore (Reg. No. T97/06442I, effective November 30, 1999).

Employees

As of September 30, 2002, we had a total of 10 full-time employees - three in
research and development, four in sales and marketing, and three in general
administration. Of these employees, eight are located in the United States and
two in the United Kingdom. Our future success depends in part, on our continuing
ability to attract, train and retain highly qualified technical, sales,
marketing and managerial personnel. Our employees are not covered by any
collective bargaining agreement, and we have never experienced a work stoppage.
We believe that our employee relations are good.


ITEM 2.  PROPERTIES.

                  Our headquarters are located in a leased facility in Plano,
Texas, consisting of 3,000 square feet of office space under a two-year lease,
which expires in February 2003. This facility houses all functions of the
organization, with the exception of a sales office located in the United
Kingdom. Our UK facility comprises 1,260 square feet of office space in Milton
Keynes, England. The lease for this facility expires on June 27, 2005.

ITEM 3.  LEGAL PROCEEDINGS.

                  Due to insufficient liquidity and product obsolescence
associated with the operation of Web 2 U Limited, our Board in March of 2001
approved a plan to restructure our UK operations and settle with outstanding
creditors. With the knowledge that MSU Devices Inc. is the largest creditor of
Web 2 U Limited and that our new product line of Internet access devices would
be designed, developed and manufactured as the result of our development efforts
in the United States, the decision was made to seek the court's help in the UK
through the issuance of an administration order in an effort to settle with all
creditors.

                                       11
<PAGE>

                  On May 15, 2001, Web 2 U Limited filed a company voluntary
arrangement (the "CVA") pursuant to Part 1 of The Insolvency Act 1986, as
amended (the "Insolvency Act"). The substance of the CVA proposal was as
follows:

--   Claims of preferential creditors (as defined under the Insolvency Act)
     would be discharged in full in priority to the claims of unsecured
     creditors;

--   After the claims of preferential creditors have been satisfied, unsecured
     creditors whose admitted claims are less than or equal to (pound)2,500
     would be paid in full; and

--   Unsecured creditors whose admitted claims are greater than(pound)2,500
     would be issued convertible promissory notes (the "CVA Notes") by the
     Company for the principal sum of the individual unsecured creditors
     admitted claim. The principal amount of the CVA Notes will be paid in three
     equal installments: the first on the third anniversary of the issue date,
     the second on the fourth anniversary and the third on the fifth
     anniversary. Interest will accrue on the CVA Notes at a rate of 5% per
     annum and be payable annually by the Company, with the first interest
     payment due on the first year anniversary of the issue date. At any time
     after the Company's stock price closes at $1.25 for five consecutive
     trading days, the Company will have the option to automatically convert the
     outstanding balance and accrued and unpaid interest of the CVA Notes into
     shares of common stock at a conversion rate of one share of common stock
     per $1.00 owed.

                  The CVA was approved by Web 2 U Limited's creditors at a
meeting of those creditors held in the United Kingdom on July 16, 2001. On
August 20, 2001, Web 2 U Limited was discharged from the administration order.

         We have finalized the financial restructuring of Web 2 U Limited. A
settlement was reached with Web 2 U Limited's significant creditors in July
2001, in which the significant creditors were issued 5% convertible promissory
notes of MSU (the 5% Notes) with five year terms for amounts due to them,
interest payable annually and with repayments of principal commencing after
three years. The Company has the right to convert the notes into common stock at
$1.00 per share in the event the Company's stock price closes at or above $1.25
per share for five consecutive business days. These notes totaling
(pound)587,916 ((pound)= British Pounds), translate to $901,157 at the June
closing. The Notes were issued to Web 2 U Ltd's significant creditors on
December 31, 2001. On April5, 2002, all assets, liabilities and employees of Web
2 U Ltd. were transferred to the UK parent, MSU plc. Subsequent to the transfer,
the Company changed the name of MSU plc to MSU Devices Ltd. As a result the
active international sales office operations are now being conducted from MSU
Devices Ltd. On April 11, 2002, a Notice of Completion was filed on the High
Court of Justice, London, England to finalize the Company Voluntary Arrangement
of the Company's subsidiary, Web 2 U Limited.



                  Darran Evans, Web 2 U Limited's former President and Chief
Executive Officer, resigned on March 1, 2001 and worked through the period of
notice given by him until April of 2001. Mr. Evans brought a claim against the
Company in the High Court of England and Wales for a termination payment of
(pound)100,000, which he alleged to be owed to him pursuant to the terms of
certain correspondence, together with unpaid salary of approximately
(pound)10,000 allegedly due to him. On July 11, 2002, the High Court ruled that
Judgment be entered in favor of the Claimant for the sum of $75,000.

ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
                  None

                                     PART II



ITEM 5.           MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
                  STOCKHOLDER MATTERS.

                  Since May 24, 1995, bid and ask quotations of our common stock
have been reported by the Nasdaq OTC Bulletin Board under the symbol "MUCP." The
following table sets forth the range of high and low closing bid quotations
without adjustment for retail mark-ups, mark-downs or commissions and do not
necessarily represent actual transactions for the period indicated.

                            RANGE OF BID INFORMATION


                                                             High        Low
Fiscal year ended June 30, 2002:
Quarter ended June 30, 2002.............................     $0.25      $0.05
Quarter ended March 31, 2002............................     $0.25      $0.05
Quarter ended December 31, 2001.........................     $0.75      $0.17
Quarter ended September 30, 2001........................     $0.60      $0.34
Fiscal year ended June 30, 2001:
Quarter ended June 30, 2001.............................     $0.70      $0.22
Quarter ended March 31, 2001............................     $0.69      $0.19
Quarter ended December 31, 2000.........................     $1.06      $0.30
Quarter ended September 30, 2000........................     $1.56      $1.00
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

         Trading in our stock is sporadic. On November 15, 2002, the bid price
quoted for our common stock was $0.01 per share. As of November 15, 2002, there
were 66,270,754 shares outstanding, held by approximately 423 shareholders of
record with 18,523,266 shares being held in "street name".

Dividend Policy

         We have never paid any dividends on our common stock, and we do not
intend to pay any dividends on our common stock in the foreseeable future.



Recent Sales of Unregistered Securities

         Between October 1, 2000 and June 30, 2001, the Company issued $4.5
million aggregate principal amount of 10% Convertible Notes (the "10% Notes") at
par due one year from the date of issuance in a private placement. The 10% Notes
were convertible into shares of common stock at a conversion rate of $0.20 per
share.

In December, 2001, the notes were converted into 13,310,123 shares of stock and
10,774,936 Special Warrants. These shares and special warrants were issued under
Section 3(a)(9)of the Securities Act of 1933.


During the year ended June 30, 2002, the Company sold special warrants covering
5.1 million shares of the Company's common stock for $1.275 million cash.
Special warrants covering 600,000 shares of the Company's common stock and a
cash commission of approximately $86,000 were paid as placement fees.

The special warrants are convertible into common stock at no additional cost to
the holder. The special warrants were issued 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.

Between March 2002 and June 2002, the Company issued approximately $1,488,000 in
11.5% convertible promissory notes (11.5% Promissory Notes") to accredited
investors, which mature September 30, 2002. On September 23, 2002, the maturity
of the 11.5% Promissory Notes was extended to December 31, 2002. Of the amount
issued, a total of $825,000 were issued to four directors and $49,000 to an
individual for services rendered in the Company's financing.

The 11.5% Promissory Notes are presently convertible at any time at the option
of the holders into shares of common stock at a rate of 50 shares per $1 loaned,
subject to adjustment in certain events.


In July 2001, a settlement was reached with the significant creditors of Web 2 U
Limited, a U.K. subsidiary of the Company, whereby the Company agreed to issue
them 5% convertible promissory notes of the Company, with interest payable
annually, maturing December 2006, collateralized by assets of the Company,
convertible at the option of the Company into shares of common stock at a rate
of one share for each $1.00 of note principal converted in the event that the
Company's stock price closes at or above $1.25 per share for five consecutive
business days.


Item 6.           SELECTED FINANCIAL DATA

The following selected consolidated financial data are derived from our
financial statements. The financial statements for each of the fiscal years in
the four-year period ended June 30, 2001 have been audited by Moore Stephens
Lovelace, P.A., independent certified public accountants. The financial
statements for the fiscal year ended June 30, 2002 was audited by King Griffin &
Adamson P.C., independent certified public accountants.You should read the
following data in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our consolidated financial
statements and the notes to those statements included elsewhere in this Report
on Form 10-K.

<TABLE>
<CAPTION>

                                                                         Year Ended June 30
                                                  2002             2001           2000           1999            1998
(in thousands, except share data)
Income statement data:
<S>                                         <C>                <C>            <C>            <C>            <C>
Total revenue ..........................    $     277          $    1,394     $      905     $       32     $    4,179
Cost of revenues .......................          216               3,782            928             53              8
(Loss) income from operations ..........       (4,267)             (9,401)        (4,334)        (3,338)           (11)
Net (loss) income ......................       (6,755)            (10,232)        (4,906)        (9,685)             -
Net (loss) income per common share
  basic and fully diluted ..............    $   (0.15)         $    (0.35)    $    (0.19)    $    (0.47)    $     0.02

                                                                              June 30,
                                                  2002             2001           2000           1999            1998
Balance sheet data:
Working capital ........................    $  (2,228)         $   (3,185)    $    1,310     $    1,521     $   (4,401)
Cash and cash equivalents ..............          106               1,280          1,190          2,604            166
Total assets ...........................          344               1,905          4,345          3,341          2,573
Total current liabilities ..............           47               4,953          2,660          1,294          4,646
Long-term debt .........................          901                  --            505            505             --
Total shareholders' equity (deficit) ...    $  (3,033)         $   (3,048)    $    1,180     $    1,542     $   (2,074)

</TABLE>

                                       13
<PAGE>

Exchange Rates

                  Our subsidiary, MSU Devices Ltd. conducts 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 those dollar
amounts. Unless otherwise stated, the translations of pounds sterling into US
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 US dollar:

                                             Ended June
                                 30 Of Period
Fiscal Year     At End Average     Rate(1)        High(2)         Low(2)

1997                 .60             .62             64            .59
1998                 .60             .60            .62            .60
1999                 .63             .61            .63            .60
2000                 .66             .63            .66            .61
2001                 .69             .71            .71            .67
2002                 .69             .69            .72            .65


(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.


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

Forward Looking Statements

THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS THAT HAVE BEEN MADE PURSUANT TO
THE PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH
FORWARD-LOOKING STATEMENTS ARE BASED ON CURRENT EXPECTATIONS, ESTIMATES AND
PROJECTIONS ABOUT THE COMPANY'S BUSINESS, MANAGEMENT'S BELIEFS AND ASSUMPTIONS
MADE BY MANAGEMENT. WORDS SUCH AS "ANTICIPATES," "EXPECTS," "INTENDS," "PLANS,"
"BELIEVES," "SEEKS," "ESTIMATES," "LIKELY" AND VARIATIONS OF SUCH WORDS AND
SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS.
THESE STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND ARE SUBJECT TO
CERTAIN RISKS, UNCERTAINTIES AND ASSUMPTIONS THAT ARE DIFFICULT TO PREDICT.
THEREFORE, ACTUAL RESULTS AND OUTCOMES MAY DIFFER MATERIALLY FROM WHAT IS
EXPRESSED OR FORECASTED IN ANY SUCH FORWARD-LOOKING STATEMENTS. SUCH RISKS AND
UNCERTAINTIES INCLUDE THOSE SET FORTH IN THIS SECTION UNDER "FACTORS AFFECTING
OUR BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION" AND ELSEWHERE IN THIS
REPORT AND OUR OTHER PUBLIC FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION.
THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE PUBLICLY ANY FORWARD-LOOKING
STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.


Overview

     We design, market and sell affordable Internet access devices that enable
consumer and business end-users to communicate simply and easily by using e-mail
and over the World Wide Web via the Internet without the necessity of technical
or personal computer knowledge or expertise. When using our products and
services, end-users have access to an Internet service provider, e-mail hosting
and content in a single, easy to use hardware/software device. Additionally, we
have taken the skills used to develop the device and are utilizing them to
establish a business in software development services.

     We have been in business since 1994. In undertaking our business activities
since 1994, we have realized an accumulated deficit of $38 million. Beginning in
January of 2001, the Company undertook a complete review of our strategic
direction. As a result of this review, the Board of Directors agreed to (1)
remain in the Internet access device business, (2) undergo several significant
changes in strategy, and (3) begin restructuring the activities of the Company.
In the third calendar quarter of 2001, we launched our new Internet access
device product, the MSU V5. The MSU V5 sells in volume for under $200 per
device.


Significant Risks


     The Company's consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. During the year ended June
30, 2002, the Company incurred a net loss of approximately $6.8 million. The
Company expects that it is likely to incur net losses into fiscal 2003. The
Company will incur net losses beyond 2003 if anticipated revenues from
orders for MSU V5 are not realized and if revenues from its contract software
development services are not realized Orders for the MSU V5 require, without
limitation, approval of final production samples, customer acceptance,
satisfactory product performance, and the ability of the products to compete
successfully in a highly competitive market. Should any one of these assumptions
fail, the Company could incur net losses beyond 2003 in its Internet access
device business and may not be unable to continue as a going concern.


Results of Operations

Revenues

     Revenues during the years ended June 30, 2002, 2001 and 2000 were
approximately $277,000, $1,394,000 and $905,000, respectively. The Company
commenced sales of its new product MSU V5 in 2002 and consequently, has only a
limited number of customers. A limited amount of revenue resulted from sales of
the MSU V5.

<PAGE>


     Sales in the year ended June 30, 2002 of approximately $277,000 were to
customers, which were primarily based outside of the United States, 87 % of
total revenues reported related to sales of the MSU V5.



     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 is a
risk. The Company is focused on a number of trial opportunities worldwide to
increase its customer base. The Company's revenues by geographic region during
the years ended June 30 2002, and 2001 were approximately as follows:

    Location                     2002            2001          2000
-----------------             ---------       ----------     ---------
Europe                        $ 203,000       $ 618,000      $ 343,000
Asia                               --           610,000        562,000
North America                    74,000         166,000          --
                              ---------       ----------     ---------
                              $ 277,000       $1,394,000     $ 905,000
                              =========       ==========     =========


Cost of Revenues

     The cost of revenues for the years ended June 30, 2002, 2001 and 2000 were
approximately $216,000, $3,782,000 and $928,000, respectively. The cost of
revenues in 2002 was 78% of revenues; down from 271% in prior year. For the year
ended June 30, 2001, the high cost of revenues was due to the costs involved
with the production of ISP3 and a reserve for obsolescence of the ISP3 product
in the amount of $1,920,000. The cost of revenues in the year ended June 30,
2000, at 103% of revenues were significantly higher than expected due to the
high costs involved with the initial production run of ISP 2.

Research and Development Expenses

     Research and development expenses generally consist of expenditures related
to the Company's development of its hardware and software. We have excluded all
overhead costs other than employee, independent contractor, development tool and
prototype costs. All research and development costs have been fully expensed.
The Company incurred limited research and development expenses during the fourth
quarter of 2002 due to the completion and market introduction of the MSU V5.

     For the years ended June 30, 2002, 2001 and 2000, research and development
costs were approximately $1,267,000, $1,111,000 and $2,036,000, respectively. As
a percentage of revenues, research and development expenses were approximately
457% in 2002, 80% in 2001 and 225% in 2000.

     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. The management team was
successful in leveraging outside contractors to assist in the design and
development of the MSU V5 at significantly lower costs than in the past. This
was achieved through the integration of off-the-shelf software and OEM
components, which resulted in lower costs to the Company.
<PAGE>

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, promotional costs, communication, occupancy costs,
and professional fees.


     Selling general and administrative expenses were approximately $2,856,000,
$5,542,000 and $2,190,000 for the years ended June 30, 2002, 2001 and 2000,
respectively. The decrease in the year ended June 30, 2002 is primarily due to a
decrease in personnel in the United States and decreases in other related
expenses in order to manage cash flows due to the Company's current financial
situation. The increase over the year ended June 30, 2001 is primarily due to an
increase in personnel in the United States and in investment banking and
professional fees resulting from the Company's fund raising activities.


     The management team intends to decrease selling, general and administrative
expenses as a percent of revenues during the 2003 fiscal year.

Depreciation Expense

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

     Depreciation expense was approximately $115,000, $71,000 and $83,000 for
the fiscal years ended June 30, 2002, and 2001, respectively.

Interest Expense

     Interest expense was approximately $293,000, $297,000 and $113,000 for the
fiscal years ended June 30, 2002, 2001 and 2000, respectively. Interest expense
in 2002 represents interest payable on the convertible bridge loans and
long-term debt arising from a settlement in which certain creditors balances
were converted into notes payable. Interest expense in 2001 represents interest
payable on promissory notes totaling $1,330,000 issued prior to fiscal year
2001, and on the bridge loan promissory notes of $4,500,000 that were issued in
the second, third, and fourth quarters of fiscal 2001. The interest expense in
2000 is attributable to promissory notes in the amount of $1,330,000.

Other Income (expense)

     In 2002, the Company expensed approximately $2,201,000 in amortization of
deferred financing costs, with over 87% of this cost relating to the 10% bridge
loans issued in 2001 and the remainder totaling the conversion of the 8% bridge
loans and the 11.5% bridge loans issued in the second half of fiscal year 2002.
<PAGE>

     In the year ended June 30, 2001, the Company expensed approximately
$228,000 in deferred financing costs associated with the bridge loan convertible
notes during the year. These costs were incurred in connection with the sale of
the $4,500,000 10% convertible promissory notes between October of 2000 and July
of 2001. In addition, the Company expensed approximately $382,000 in relation to
its investment in American Interactive Media which the Company has deemed to be
unrecoverable.

            In the year ended June 30, 2000, the Company capitalized and
immediately charged to expense approximately $56,000 with respect to common
stock sold at less than market value. Similarly, there was a $441,000 discount
associated with the issuance of convertible notes during the year.


Restructuring Charges

     Due to insufficient liquidity and product obsolescence associated with the
operation of the Web 2 U Limited subsidiary, the Board in March of 2001 approved
the following actions in accordance with the restructuring plan:

     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 UK workforce; and

     3.  Attempt to settle the outstanding creditors.

     The plan was implemented in March of 2001, and a total of fourteen
positions at Web 2 U Limited were eliminated, principally in the Company's
management and research development departments. The decision was also made to
relocate the accounting system and accounting operations to the U.S. As a
result, the Company recorded a restructuring charge of approximately $91,000 and
$289,000 in fiscal years 2002 and 2001 for the restructuring of the UK
operations, which is comprised of involuntary termination benefits and legal
fees.

     On May 15, 2001, Web 2 U Limited filed a company voluntary arrangement (the
"CVA") pursuant to Part 1 of The Insolvency Act 1986, as amended (the
"Insolvency Act"). The substance of the CVA proposal was as follows:

     -- Claims of preferential creditors (as defined under the Insolvency Act)
        would be discharged in full in priority to the claims of unsecured
        creditors;

     -- After the claims of preferential creditors have been satisfied,
        unsecured creditors whose admitted claims are less than or equal to
        pound)2,500 would be paid in full; and
<PAGE>


     -- Unsecured creditors whose admitted claims are greater than 2,500 pounds
        would be issued convertible promissory notes (the "CVA Notes") by the
        Company for the principal sum of the individual unsecured creditors
        admitted claim. The principal amount of the CVA Notes will be paid in
        three equal installments: the first on the third anniversary of the
        issue date, the second on the fourth anniversary and the third on the
        fifth anniversary. Interest will accrue on the CVA Notes at a rate of 5%
        per annum and be payable annually by the Company, with the first
        interest payment due on the first year anniversary of the issue date. At
        any time after the Company's stock price closes at $1.25 for five
        consecutive trading days, the Company will have the option to
        automatically convert the outstanding balance and accrued and unpaid
        interest of the CVA Notes into shares of common stock at a conversion
        rate of one share of common stock per $1.00 owed.

     A settlement was reached with Web 2 U's significant creditors in July 2001,
in which the significant creditors were issued 5% convertible promissory notes
for amounts due to them with five-year terms, interest payable annually and with
repayments of principal commencing after three years. The Company will have the
right to convert the notes at $1.00 per share in the event that the Company's
stock trades close at or above $1.25 per share for five consecutive business
days. Web 2 U successfully emerged from administration on August 20, 2001.

     On April 5, 2002, all assets, liabilities and employees of Web 2U Limited
were transferred to its UK parent, MSU plc. Subsequent to the transfer, the
Company changed the name of MSU plc to MSU Devices Ltd. MSU Devices Ltd. Remains
an active international sales office of MSU Devices, Inc. On April 11, 2002, a
Notice of Completion was filed with the High Court of Justice, London, England
to finalize the Company Voluntary Arrangement of the Company's subsidiary, Web 2
U Ltd.

Liquidity and Capital Resources

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

     For the year ended June 30, 2002, cash used in operating activities of
approximately $3,800,000 was mainly attributable to the Company's net loss for
the year of $6,500,000 offset by non-cash depreciation and amortization expense
of $2,316,000 and net changes in operating assets and liabilities of $515,000.
For the year ended June 30, 2001, cash used in operating activities of
approximately $6,044,000, mainly attributable to the Company's net loss of
$10,232,000 offset mainly by stock issued for services and settlements of
$1,158,000 and net changes in operating assets and liabilities of $1,878,000.

            Cash flows used in investing activities of approximately $74,000,
$54,000 and $111,000 during fiscal 2002, 2001 and 2000 related primarily to the
acquisition of computer equipment.

            Cash flows from financing activities of approximately $2,600,000 for
fiscal year 2002 were primarily attributable to proceeds from the issuance of
convertible bridge loans and special warrants of $2,590,000. Cash flows from
financing activities of approximately $4,067,000 for the year ended June 30,
2001 were primarily attributable to an issue of new convertible bridge loan
notes of $4.25 million and to the repayment, in cash, of $150,000 of convertible
notes.
<PAGE>


         On September 6, 2002, the Company announced the completion of the $4.5
million 10% Convertible Bridge Loan conversion. The Company approved the
issuance of restricted common stock to the holders of the Special Warrants
issued in December 2001. The issuance of the additional shares was the final
transaction under the terms of the loan. The total number of shares approved was
12,832,073, which included each Special Warrant exchanged for one share of
common stock, plus 10% additional shares authorized for issuance to each Bridge
Loan holder to offset the reduced liquidity provided relative to the original
terms of the loan. In approving the issuance, all Directors of the Company
waived their participation in the 10% additional issuance.


         The Company issued approximately $1,488,000 in 11.5% convertible
promissory notes to accredited investors between February and June 2002, which
mature December 31, 2002. On September 23, 2002, the maturity date of the 11.5%
Secured Notes was extended to December 31, 2002.


In light of the continuing difficulties of selling the Company's Internet access
devices, subsequent to June 30, 2002, the Company continued to make changes to
its financial strategy:

In July through November 2002, the Company raised an additional total of
$509,667 in its 11.5% Secured Notes. Of this amount, $350,000 was raised from
September to November 2002 as part of the "September 2002 Financing and
Re-structuring". Monies from the September 2002 Financing and Re-structuring
were invested as part of the 11.5% Secured Notes financing, subject to terms of
the 11.5% Secured Notes being amended as follows:

    1. The due date of the 11.5% Secured Notes was amended to be extended to
December 31, 2002. The Company can continue to market the 11.5% Secured Note
issue so long as the maximum amount of the 11.5% Secured Notes allowed under the
11.5% Secured Note Purchase Agreement of $3 million has not been reached. The
due date of the 11.5% Secured Notes may be extended past December 31, 2002 a
total of 30 days if deemed necessary. This extension can only be granted twice.

    2. The Company's 11.5% Secured Notes and Paid Equity Warrants sold since
December 2001 are convertible into common shares of the Company at $0.02 per
common share, or 50 common shares per $1.00 invested, pursuant to anti-dilution
clauses and pursuant to at least 80% of the 11.5% Secured Notes in the current
$250,000 round and previous $150,000 round of financing being raised from
holders of Paid Equity Warrants and 11.5% Notes. Since a total of $350,000 of
the September 2002 Financing and Re-structuring monies raised to date has been
raised from 11.5% Secured Note holders and Paid Equity Warrant holders this
requirement has been met.
<PAGE>


    3. The 11.5% Secured Notes are convertible into commons shares at the option
of MSU Devices if the Company successfully completes the following:

        -- Conversion of the Paid Equity Warrants at the conversion price
described above.

        -- Conversion of at least 70% of the Company's current accounts payables
outstanding and current long-term debt of approximately $1,900,000 into common
shares at a price not lower than $0.02 per common share, or 50 common shares per
$1.00 of indebtedness.

        -- Convenes a shareholder meeting no later than December 31, 2002 and
obtains shareholder approval to: (i) increase the authorized capital of the
company to allow for the conversions outlined above, and (ii) reverse split the
common stock of the Company such that after the reverse split, assuming all
accounts payables, 11.5% Secured Notes, long-term debt and Paid Equity Warrants
are converted into common shares of the Company, there will be no more than
5,000,000 outstanding common shares

        -- Obtains shareholder approval for an employee stock option plan for a
maximum of 750,000 share options.


If the Company's accounts payables, 11.5% Secured Notes, long-term debt and Paid
Equity Warrants are converted into common shares, the Company will have on a
fully diluted basis between 300 and 360 million common shares outstanding which
would indicate a reverse split ratio of approximately 60-70 existing shares for
every common share in order to arrive at a maximum of 5 million shares
outstanding after the reverse split outlined above.


In the event of a default by the Company under the terms and conditions of the
11.5% Secured Note Purchase Agreement the holders of the 11.5% Secured Notes can
accelerate the maturity of the 11.5% Secured Notes and can elect to exercise
their first priority lien on the assets of the Company, including intangible
assets and intellectual property. The security pledged to the 11.5% Secured
Notes will remain in effect until the Company has satisfied all the terms and
conditions of the 11.5% Secured Note Purchase Agreement.



     At June 30, 2002, the Company's principal source of liquidity was
approximately $106,000 in cash and cash equivalents. The Company will need
additional funds for working capital in the calendar first quarter of 2003 and
on an on-going basis. The sale of additional equity or convertible debt
securities will result in additional dilution to the Company's stockholders.
There can be no assurance that the Company's liquidity requirements will be met
or that it will be able to continue as a going concern.



Market Risk

     We are exposed to market risk from changes in interest rates that may
adversely affect our results of operations and financial conditions. We seek to
minimize the risks from these interest rate fluctuations through our regular
operating and financing activities. Our policy is not to use financial
instruments for trading or other speculative purposes. We are not currently a
party to any financial instruments.
<PAGE>


Goodwill and Intangible Assets

     None

CRITICAL ACCOUNTING POLICIES

The discussion and analysis of our financial condition and results are based on
our financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States of America (GAAP). The
preparation of these financial statements requires us to make estimates and
judgments that affect the reported amount of assets, liabilities, revenues and
expenses, and related disclosures of contingent assets and liabilities. We base
our estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of certain assets and
liabilities. Actual results may differ from these estimates under different
assumptions or conditions.

We have identified below the accounting policies, deferred financing costs and
stock based compensation, related to what we believe are most critical to our
business operations and are discussed throughout Management's Discussion and
Analysis of Financial Condition and Results of Operations where such policies
affect our reported and expected financial results.


Deferred Financing Costs

The costs attributable to the issuance of certain convertible promissory notes,
including debt discounts, resulting from warrants issued with the notes and or
beneficial conversion features are generally amortized over the earliest period
during which conversion may occur.


Stock Based Compensation

The Company accounts for employee stock options in accordance with Accounting
Principles Board Opinion No. 25, under which the Company recognizes no
compensation expense related to employee stock options when options are granted
with exercise prices at or above the estimated fair value of the stock on the
date of the grant. The Company provides the supplemental disclosures required by
FAS 123 for equity instruments granted to employees.

The Company accounts for common stock issued to non-employees using Financial
Accounting Standard No. 123 ("FAS 123"), "Accounting for Stock-Based
Compensation" and the provisions of Emerging Issues Task Force No. 96-18 ("EITF
96-18"), "Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring or in Conjunction with Selling Goods or Services." All
transactions in which goods or services are the consideration received for the
issuance of equity instruments are accounted for based on the fair value of the
consideration received or the fair value of the equity instrument issued,
whichever is a more reliable measurement. The measurement date of the fair value
of the equity instrument issued is the earlier of the date on which the counter
party's performance is complete or the date on which it is probably that
performance will occur.








ITEM 8.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


        For information concerning this Item, See "Item 15, Exhibits, Financial
Statement Schedules, and Reports on Form 8-K"





ITEM 9.           CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE

        None



                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Directors and Executive Officers

                  Certain information as of June 30, 2002 with respect to the
executive officers and directors of the Company is set forth below:

                   Name                       Age              Position

Jean Belanger..........................        48      Chairman and President
D. Bruce Walter........................        59      Director
David Craig............................        58      Vice President and
                                                        Chief Financial Officer
Cliff Johnson..........................        40      Vice President and
                                                        Chief Technology Officer
Raymond R. Dittrich....................        53      Vice President - Sales
                                                        and Market Development
Jeremy Miles Simpson...................        67       Director
Fred Kashkooli.........................        60       Director
Jeffery Nelson Green...................        58       Director
Stephen Walter Coles...................        44       Director

                                       14
<PAGE>

Subsequent to June 30, 2002, Fred Kashkooli and Jeffery N. Green resigned from
the Company's Board of Directors and David Craig, Cliff Johnson and Ray Dittrich
resigned as Vice President and Chief Financial Officer, Vice President and Chief
Technology Officer and Vice President, Sales and Market Development,
respectively. On November 17, 2002, the Board of Directors was expanded to
include Robert L. George, the Company's newly appointed President and Chief
Executive Officer. On November 17, 2002, the Board of Directors also approved
the appointments of Douglas Dillhoff as Vice President R&D and Chief Technology
Officer; Judson Fortner as Vice President of Engineering; Kwok Phoon as Acting
CFO; and Matt Vacaro as Vice President, Sales.

The Company's Board of Directors currently consists of Jean Belanger, Stephen W.
Coles, Robert L. George, D. Bruce Walter and Jeremy M. Simpson. Reference is
made to "Events Subsequent to June 30, 2002 - New Management and Changes to the
Board of Directors".

Jean Belanger was appointed Vice Chairman of MSU Corporation in January of 2001
and Chairman in June of 2001. Mr. Belanger has been with Reddline Ventures since
November of 2000. From September 1999 to October of 2000, Mr. Belanger was Vice
President of Business Development of Motorola, Inc.'s Semiconductor Products
Sector. Mr. Belanger joined Motorola SPS in 1999 following Motorola's successful
acquisition of Metrowerks, Inc. Mr. Belanger was Chairman of Metrowerks from
1991 to 1999 and CEO from 1996 to 1999. Prior to 1991, Mr. Belanger was
President and CEO of Micro Temus, Inc., a mainframe software company. From 1986
to 1989, Mr. Belanger was Chairman and CEO of MontRoyal Capital Inc., a high
tech start-up venture capital company, and prior to 1986, he was Vice President
of Wood Gundy, Inc., an investment banking company. Mr. Belanger obtained a B.
Comm. From the University of Ottawa and an M.SC. (Finance) from the London
School of Economics.

D. Bruce Walter joined MSU as President and CEO in January of 2001. He was
formerly President of CompuTrac, Inc., a Dallas-based software company. Prior to
that he was Chairman and CEO of RadioMail Corporation in San Mateo, California,
an internet communications company. His experience includes ten years with Grid
Systems, a manufacturer of portable and handheld computers. Following the sale
of Grid Systems to Tandy Corporation, Mr. Walter was a member of Tandy's
executive management. Mr. Walter has also served as CEO of Coactive Computing
Corporation in San Mateo, California and was with Xerox Corporation for twelve
years. Mr. Walter is a graduate of Waynesburg College in Pennsylvania and
attended the MBA program at Duguesne University.

Raymond R. Dittrich has been Vice President Sales and Market Development of MSU
since January of 2001. From June 1998 to January of 2001, he was Vice President,
Business Development of Laser Tech Corporation. Mr. Dittrich was a member of the
mergers and acquisition committee of Laser Tech. His experience includes Senior
Vice President, Sales and Marketing at American Color; Executive Vice President
at VMX, a leader in voice messaging; Vice President at Datapoint Corp a $300
million manufacturer of computers. Mr. Dittrich also held management positions
at Phillips Information Systems and Xerox Corp. Mr. Dittrich is a graduate of
Fordham University, New York in Marketing Management.

Jeremy Miles Simpson MA (Cantab) was appointed Deputy Chairman of MSU effective
November 4, 1999 and transferred the Chairman's role to J Belanger at the Annual
Shareholders' Meeting on June 15, 2001. 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. Mr. Simpson has held a number of
non-executive directorships with smaller growing and developing companies in the
UK and Europe.

Fred 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 GE Intersil and was 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 semiconductor chips. Mr.
Kashkooli holds a BS in Electrical Engineering from California State University.

Jeffrey Nelson 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 Corporation, a
major investment dealer in Canada until its purchase by HSBC Securities.

                                       15
<PAGE>

Stephen Walter Coles is an attorney and Director of the law firm of Brinkley
Walser PLLC in North Carolina, specializing in corporate law. Mr. Coles has been
with Brinkley Walser since 1981 and has been a partner with the firm since 1983.

Each director serves for a term of one year from election or until his successor
is elected and qualified.


Committees of the Board

COMPENSATION COMMITTEE. The Compensation Committee is composed of Messrs.
Simpson, Coles and Walter. Its functions are to review our general compensation
strategy; establish salaries and review benefits programs; review, approve,
recommend and administer incentive and compensation plans; and approve certain
employment agreements.

NOMINATING COMMITTEE. The Nominating Committee is composed of Messrs. Walter,
Simpson and Cole. Its functions are to solicit recommendations for candidates
for the Board of Directors; develop and review background information for
candidates; make recommendations to the Board of Directors regarding such
candidates; and review and make recommendations to the Board of Directors
concerning candidates for directors proposed by stockholders.

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth certain information concerning the compensation
earned during our last three fiscal years by our Chief Executive Officer and the
Company's other executive officers receiving in excess of $100,000 in total
annual compensation. Although compensation may have been paid in currencies
other than U.S. dollars, all amounts set forth in the following table are stated
in U.S. dollars.

<TABLE>
<CAPTION>

                               ANNUAL COMPENSATION

                                                                                       Other Annual
                                                    Fiscal       Salary         Bonus  Compensation
Name and Principal Position                         Year         ($) (1)        ($)      ($)(2)
---------------------------                         ----         -------        ---      ------
<S>                                                 <C>          <C>                     <C>
Wynford Peter Holloway, CEO (3)...............      2000         181,500        --       40,972
...............................................      1999         195,300        --       38,604
Darren Huw Evans, CEO(4)......................      2001          81,416        --       20,007
...............................................      2000          95,242        --        4,727
D. Bruce Walter, CEO (5)......................      2002         187,500        --       27,085
...............................................      2001         120,000        --           --
...............................................      2000              --        --           --
Jean J. Belanger, Chairman....................      2002         170,833        --       10,415
Raymond R. Dittrich, V.P Sales................      2002         145,000        --       16,665
Pritesh M. Patel, V.P. Technology.............      2002         130,208        --        9,374
Patti J. Brown, V.P. CFO......................      2002         125,000        --        9,374

---------------
</TABLE>


       (1) The salaries and other annual compensation paid to Wynford Peter
       Holloway and Darren Huw Evans were paid by Web 2 U Limited All remaining
       compensation was paid by MSU Devices. (2) Represents personal benefits in
       addition to salary. Of Mr. Holloway's personal benefits, the 1999 amount
       represents $29,295 with respect to a car allowance and $9,309 with
       respect to contributions to a personal retirement plan; and the 2000
       amount represents $27,225 with respect to a car allowance and $13,567
       with respect to contributions to a personal retirement plan. Mr. Evans'
       personal benefits in 2000 represent a car allowance and in 2001 represent
       a car allowance of $5,428 and contributions to a personal retirement plan
       of $14,579. All "Other Compensation" paid in Fiscal Year 2002 represents
       the contemporaneous value of stock issued in lieu of salary.

       (3) Mr. Holloway resigned as Chief Executive Officer in November of 1999.

       (4) Mr. Evans served as Chief Executive Officer of Web 2 U Limited from
       November of 1999 to January of 2001.

       (5) Mr. Walter became President and Chief Executive Officer in January of
       2001.

                                       16
<PAGE>

Long Term Compensation

     Other than the employee stock options, which are described below, there
were no long-term compensation awards or payouts in any of the fiscal years
ended June 30, 2002, 2001, or 2000.

Employment Agreements

During the fiscal year ended June 30, 2001, the Company entered into employment
agreements with D. Bruce Walter, the new President and Chief Executive Officer,
Raymond R. Dittrich, Vice President of Sales and Market Development, Patti J.
Brown, Vice President of Finance and Chief Financial Officer, and Pritesh M.
Patel, Vice President, Technology and Chief Technology Officer.
Subsequently, Mr. Walter and Mr Dittrich resigned in July 2002, Ms. Brown and
Mr. Patel resigned in May 2002. Mr. Walter remains as a Director of the Company

Each of the agreements with Mr. Walter, Mr. Dittrich, Mr. Patel, and Ms. Brown
contains a non-competition clause, restricting the employee from soliciting our
customers and employees and from holding an interest in a competing firm during
employment and for a specified period of years thereafter.

By correspondence dated August 6 and November 10, 1999, we entered into an
employment agreement with Darran H. Evans to serve as our Chief Executive
Officer of Web 2 U Limited at an annual base salary of approximately
(pound)75,000, subject to annual increases within the discretion of the Board of
Directors. As part of the employment contract, Mr. Evans also received stock
options to purchase 300,000 shares of common stock at a price equal to the
market value of the common stock at the date of the grant. In April 2001, Mr.
Evans resigned as President and CEO of Web 2 U. Mr. Evans has since brought a
claim in the High Court of England and Wales for a termination payment of
(pound)100,000 which he alleges to be owed to him pursuant to the terms of
certain correspondence, together with unpaid salary of approximately
(pound)10,000 allegedly due to him. On July 11, 2002, the High Court ruled that
Judgment be entered in favor of the Claimant for the sum of $75,000 (US
Dollars).


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 named in the "Annual Compensation" table during our
fiscal year ended June 30, 2002

              None.

              The total number of options granted to an employee in the fiscal
              year ended June 30, 2002 was 412,000 at an average weighted
              exercise price of $0.25 per share.

              As required by the rules of the Securities and Exchange
              Commission, potential values stated are based on the assumption
              that our common stock will appreciate in value from the date of
              the grant to the end of the option term at annualized rates of 5%
              and 10%, respectively, and therefore are not intended to forecast
              possible future appreciation, if any, in the price of the common
              stock.


Stock Option Exercises and Holdings Table

The following table provides information concerning the values of unexercised
options held by the named executive officers at June 30, 2002. No such officers
exercised their options during the Company's fiscal year ended June 30, 2002.

June 30, 2002 Option Values

<TABLE>
<CAPTION>

                                    Number of Unexercised Options at     Value of Unexercised In-the-Money Options at
                                    --------------------------------     --------------------------------------------
                                          Fiscal Year End (#)                          Fiscal Year End
Name                                Exercisable        Unexercisable         Exercisable           Unexercisable
----                                -----------        -------------         -----------           -------------

<S>                                   <C>                   <C>
Jean Belanger                         1,250,000             250,000               --                     --
Chairman
D. Bruce Walter,                      1,250,000             250,000               --                     --
President and CEO
Wynford Holloway, former                300,000                  --               --                     --
President and CEO
Darren Evans, former President               --                  --               --                     --
and CEO
</TABLE>

                                       17
<PAGE>

We have a Compensation Committee made up of three members of the Board of
Directors. During fiscal 2002, our directors and executive officers participated
in deliberations at meetings of the Board of Directors concerning executive
officer compensation.

ITEM 12.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                  MANAGEMENT.

The table below sets forth certain information concerning the beneficial
ownership of our common stock as of November 15, 2002, by (i) each person known
by us to be the beneficial owner of more than 5% of our common stock, (ii) each
of our named executive officers, (iii) each of our directors, and (iv) all of
our 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
                                                                            -----------------------------------------
                                        Address of Beneficial Owner                                           Percentage
Name of Beneficial Owner                Holding  5%                    Amount of Common Stock                     (%)
------------------------                -----------                    ----------------------                     ---

Wynford Peter Holloway...........       Elder House, 526-528 Elder
                                        Gate
                                        Central Milton Keynes
<S>                                       <C>                                 <C>                                  <C>
                                        MK9 1LR ENGLAND                       3,138,333                            2.8
Jeremy Miles Simpson.............       C/0 MSU Devices Inc.                  2,979,854                            2.6
                                        2901 North Dallas Parkway
                                        Suite 460, Dallas Texas
                                        75093
Jeffrey Nelson Green.............                                             1,169,664                            1.0
Stephen Walter Coles.............                                               792,831                            0.7
                                        C/0 MSU Devices Inc.
                                        2901 North Dallas Parkway
                                        Suite 460, Dallas Texas
Jean Belanger....................       75093                                22,469,095                           19.5
D. Bruce Walter..................                                             2,896,247                            2.5
Mark W McLaughlin................       San Antonio, Texas 78232              6,539,356                            5.7
All directors and officers as a Group                                        30,931,035                           26.9
</TABLE>

Options exercisable within 60 days of November 15,2002

Wynford Peter Holloway     272,712
Jeremy Miles Simpson       405,954
Jeffrey Nelson Green        95,918
Stephen Walter Coles       181,260
Jean Belanger              536,712
D. Bruce Walter            575,507
Mark W McLaughlin          388,647


<TABLE>
<CAPTION>
                      Equity Compensation Plan Information

------------------------------- ---------------------------- ---------------------------- ----------------------------
                                Number of securities to be    Weighted average exercise      Number of securities
        Plan Category             issued upon exercise of       price of outstanding        remaining available for
                                   outstanding options,         options, warrants and           future issuance
                                    warrants and rights                rights
------------------------------- ---------------------------- ---------------------------- ----------------------------
Equity compensation plans
<S>                                          <C>                          <C>                          <C>
 approved by security holders                0                            0                            0
------------------------------- ---------------------------- ---------------------------- ----------------------------
Equity compensation plans not
 approved by security holders            6,662,503                      $0.55                          0
------------------------------- ---------------------------- ---------------------------- ----------------------------
            Total                        6,662,503                      $0.55                          0
------------------------------- ---------------------------- ---------------------------- ----------------------------
</TABLE>

(1)  The company has separate agreements with 19 present and former Directors,
     officers and employees and no formal plan.

(2)  As to the options on 3,120,000 shares, the material features of each
     arrangement are set forth in note 9 to the financial statements.

(3)  As to the other 3,542,503 options, there are 19 individual arrangements
     with persons. The option prices range from $0.25 to $2.75. All have five
     year terms expiring from 8/01/02 to 5/15/06. The vesting schedules vary
     with the majority vesting in equal monthly installments over 36 months.

                                       18
<PAGE>


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

                  For information regarding options to purchase common stock
issued to directors and officers see "Executive Compensation".



                  In March of 2001, we entered into a consultant agreement with
our former Chief Executive Officer, Wynford Holloway. Pursuant to the terms of
the settlement we agreed to engage Mr. Holloway as a consultant until February
28, 2005 for an annual fee of (pound)71,200 and the issuance to Mr. Holloway of
120,000 shares of common stock. In addition as part of the settlement we were in
the process of finalizing with Mr. Holloway the grant of an option to acquire
1,500,000 shares of common stock at an exercise price of $1.00. Mr. Holloway's
option would expire on February 28, 2003. A final "Release Agreement" dated
March 21, 2002 provided a payment of $62,500 to Mr Holloway and agreement to the
cancellation of the option.

                  In May and June of 2002, we issued shares of common stock in
payment of unpaid salary for the following individuals:

                       Jean J. Belanger          73,344 Shares
                       Patti J. Brown            65,012
                       Raymond R. Dittrich      117,358
                       Pritesh M. Patel          65,012
                       D. Bruce Walter          190,737

Three directors of the Company were issued 10% convertible bridge loan notes
(see Note 10) totaling approximately $703,000 during the year ended June 30,
2001. These notes carry a one-year term. The principal plus accrued interest on
these notes was converted during the fiscal year 2002. The two Non-Canadian
Directors received common shares, and the Canadian director received special
warrants, as did all other converting Canadian note holders. The conversion
price in both cases was one common share or Special Warrant, convertible into
one common share, per $0.20 loaned to the Company

For each Non-Canadian Director, the combined amount of principal and interest
converted, together with the number of shares issued to each is set forth below:

           --------------- ---------------------------- -----------------------
                             Principal and Interest      Number of Shares
                                    Converted
           --------------- ---------------------------- -----------------------
            Jean Belanger                     $543,137               2,715,687
           --------------- ---------------------------- -----------------------
           Jeremy Simpson                     $ 52,944                 264,722
           --------------- ---------------------------- -----------------------

The Canadian Director, Jeffery Green, converted $106,653 of principal and
interest into 533,263 Special Warrants.


During the year ended June 30, 2002, the Company sold special warrants that are
convertible into common shares. Two Directors purchased Special Warrants, Jean
Belanger; $729,000 and D. Bruce Walter; %50,000.

As of June 30, 2002, MSU has issued an aggregate principal amount of
approximately $1,500,000 of 11.5% convertible promissory notes in a private
placement. Jean Belanger, Jeremy Simpson, D. Bruce Walter and Jeffrey Nelson
Green purchased promissory notes in the principal amount of $737,500 , $50,372,
$25,000 and $10,000, respectively.


ITEM 14. CONTROLS AND PROCEDURES

Under transition provisions contained in the final rules adopted by the
Securities and Exchange Commission relating to, among other things, the
evaluation of the Company's disclosure controls and procedures, the Company is
not required to perform the evaluation of its disclosure controls and procedures
for purposes of this Report. Accordingly, the required disclosure as to whether
or not there have been significant changes in the company's internal controls,
or in other factors that could affect those controls, subsequent to such an
evaluation is not applicable to the Company.



                                     PART IV


ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K

         (a) 1.       Financial Statements

The following financial statements are filed as a part of this report:

<TABLE>
<CAPTION>


                                                                                                        Page

        <S>                                                                                             <C>
         Report of Independent Public Accountants....................................................   F-2

         Consolidated Financial Statements:
              Balance Sheets as of June 30, 2002 and 2001............................................   F-4
              Statements of Operations for the years ended June 30, 2002, 2001, and 2000.............   F-5
              Statements of Stockholders' Equity for the years ended June 30, 2002, 2001 and 2000....   F-6
              Statements of Cash Flows for the years ended June 20, 2002, 2001 and 2000..............   F-7
              Notes to Consolidated Financial Statements.............................................   F-8

</TABLE>

                  2.       Financial Statement Schedules

Information with respect to this Item regarding the financial statement schedule
is contained on page F-1 of this Annual Report on Form 10-K.

              (b) Reports on Form 8-K. The following Forms 8-K were filed during
the fourth fiscal quarter, April 1-June 30, 2002:

                  April 4, 2002 Item 5, Item 7. May 2, 2002 Item 5, Item 7.
                  May 16, 2002 Item 5, Item 7.
                  June 25, 2002 Item 4, Item 7.

             (c) 3.       Exhibits

The following exhibits are filed herewith or are incorporated by reference to
exhibits previously filed with the Commission. The Company shall furnish copies
of exhibits for a reasonable fee (covering the expense of furnishing copies)
upon request.

Exhibit Number                               Exhibit Title
--------------                               -------------

2.01(1)                    Certificate of Ownership and Merger as filed in the
                           Office of the Secretary of the State of Delaware by
                           MSU Corporation and MSU Acquisition Corporation on
                           July 16, 2001.

2.01.1(1)                  Board Resolutions of MSU Corporation dated June 30,
                           2001.

2.02(1)                    Articles of Merger as filed with the Secretary of the
                           State of Florida by MSU Corporation and MSU
                           Acquisition Corporation on July 17, 2001.

2.02.1(1)                  Agreement and Plan of Merger by and between MSU
                           Corporation and MSU Acquisition Corporation dated as
                           of June 30, 2001.

2.02.1.1(1)                Certificate of Incorporation of MSU Acquisition
                           Corporation filed with the Delaware Secretary of
                           State on June 27, 2001.

2.02.1.2(1)                By-Laws of MSU Acquisition Corporation, as adopted
                           June 27, 2001.

3.01(1)                    Certificate of Incorporation of MSU Acquisition
                           Corporation filed with the Delaware Secretary of
                           State on June 27, 2001.


3.02(1)                    By-Laws of MSU Acquisition Corporation, as adopted
                           June 27, 2001.

21.01(2)                   Subsidiaries of the registrant.


----------
(1)      Incorporated by reference to the Form 8-K filed on August 7, 2001.

(2)      Incorporated by reference in the exhibits to the Form 10-K for the
         fiscal year ended June 30, 1997, filed on September 25, 1997.

                                       19
<PAGE>



                                   SIGNATURES

     In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                             MSU DEVICES, INC.

                                             Registrant



Date: November 18, 2002                     By  /s/ Robert L. George
                                                --------------------
                                            Robert L. George ,President, Chief
                                            Executive Officer and  Director


Date: November 18, 2002                     By  /s/ Kwok H. Phoon
                                                -----------------
                                            Kwok H. Phoon, Acting Chief
                                            Financial Officer



         In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.



Date: November 18, 2002                     By: /s/Jean Belanger
                                               -----------------------
                                               Jean Belanger, Chairman



Date: November 18, 2002                     By: /s/ Stephan W. Coles
                                               ----------------------------
                                               Stephan W. Coles, Director


Date: November 18, 2002                     By: /s/Jeremy M. Simpson
                                              ------------------------------
                                               Jeremy M. Simpson, Director


Date: November 18, 2002                     By: /s/_D. Bruce Walter
                                                ----------------------
                                               D. Bruce Walter, Director


<PAGE>


                                  CERTIFICATION


           With regard to the Form 10-K for the fiscal year ending June 30, 2002
(the "periodic report") of MSU Devices, Inc. (the "issuer"),

           I, Robert L. George, certify that:

           1. the periodic report fully complies with the requirement of Section
13(a) or 15(d) of the Securities Exchange Act of 1934, and

           2. the information contained in the periodic report fairly presents,
in all material respects, the financial condition and results of operation of
the issuer.


Date:     November 18, 2002                         /s/  Robert L. George
                                                    ---------------------
                                                         Robert L. George,
                                                         Chief Executive Officer



<PAGE>




                                  CERTIFICATION


           With regard to the Form 10-K for the fiscal year ending June 30, 2002
(the "periodic report") of MSU Devices, Inc. (the "issuer"),

           I, Kwok H. Phoon, certify that:

           1. the periodic report fully complies with the requirement of Section
13(a) or 15(d) of the Securities Exchange Act of 1934, and

           2. the information contained in the periodic report fairly presents,
in all material respects, the financial condition and results of operation of
the issuer.


Date:     November 18, 2002                         /s/  Kwok H. Phoon
                                                    ------------------
                                                         Kwok H. Phoon,
                                                         Acting CFO



<PAGE>




                                  CERTIFICATION


I, Robert L.George, certify that:

1. I have reviewed this annual report on Form 10-K of MSU Devices, Inc. (the
"registrant");

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the period presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

           a) designed such disclosure controls and procedures to ensure that
           material information relating to the registrant, including its
           consolidated subsidiaries, is made known to us by others within
           those entities, particularly during the period in which this annual
           report is being prepared;

           b) evaluated the effectiveness of the registrant's disclosure
           controls and procedures as of a date within 90 days prior to the
           filing date of this annual report (the "Evaluation Date"); and

           c) presented in this annual report our conclusions about the
           effectiveness of the disclosure controls and procedures based on our
           evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on
lour most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):

           a) all significant deficiencies in the design or operation of
           internal controls which could adversely affect the registrant's
           ability to record, process, summarize and report financial date and
           have identified for the registrant's auditors any material weaknesses
           in internal controls; and

           b) any fraud, whether or not material, that involves management or
           other employees who have a significant role in the registrant's
           internal controls; and

                                                    /s/ Robert L. George
Date:     November 18, 2002                         ----------------------------
                                                    Robert L. George
                                                    Chief Executive Officer




<PAGE>




                                  CERTIFICATION


I, Kwok H. Phoon, certify that:

1. I have reviewed this annual report on Form 10K of MSU Devices, Inc. (the
"registrant");

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the period presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

           a) designed such disclosure controls and procedures to ensure that
           material information relating to the registrant, including its
           consolidated subsidiaries, is made known to us by others within
           those entities, particularly during the period in which this annual
           report is being prepared;

           b) evaluated the effectiveness of the registrant's disclosure
           controls and procedures as of a date within 90 days prior to the
           filing date of this annual report (the "Evaluation Date"); and

           c) presented in this annual report our conclusions about the
           effectiveness of the disclosure controls and procedures based on our
           evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):

           a) all significant deficiencies in the design or operation of
           internal controls which could adversely affect the registrant's
           ability to record, process, summarize and report financial date and
           have identified for the registrant's auditors any material weaknesses
           in internal controls; and

           b) any fraud, whether or not material, that involves management or
           other employees who have a significant role in the registrant's
           internal controls; and


Date:     November 18, 2002                       /s/ Kwok H. Phoon
                                                    ------------------
                                                  Kwok H. Phoon
                                                  Acting Chief Financial Officer


<PAGE>

<TABLE>
<CAPTION>

                                                                                                                      Page
                                                                                                                      Number
                                                                                                                      ------
<S>                                                                                                                     <C>
Reports of Certified Public Accountants                                                                                 F-2

Financial Statements

      Consolidated Balance Sheets                                                                                       F-4

      Consolidated Statements of Operations                                                                             F-5

      Consolidated Statements of Changes in Shareholders' Equity  (Deficit)                                             F-6

      Consolidated Statements of Cash Flows                                                                             F-7

      Notes to Consolidated Financial Statements                                                                        F-8

</TABLE>




<PAGE>



               Report of Independent Certified Public Accountants



Board of Directors and Stockholders
MSU Devices, Inc.

We have audited the accompanying consolidated balance sheet of MSU Devices, Inc.
and Subsidiaries as of June 30, 2002, and the related consolidated statements of
operations, changes in shareholders' equity (deficit), and cash flows for the
year then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall consolidated financial statement presentation. We believe that our audit
provides 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 Devices, Inc.
and Subsidiaries as of June 30, 2002, and the results of their operations and
their cash flows for the year then ended, in conformity with accounting
principles generally accepted in the United States.

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 limited
revenues. 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.





                                                  KING GRIFFIN & ADAMSON P.C.

Dallas, Texas
-------------
October 15, 2002

                                      F-2
<PAGE>


               Report of Independent Certified Public Accountants



Board of Directors and Stockholders
MSU Devices, Inc.

We have audited the accompanying consolidated balance sheets of MSU Devices,
Inc. (formerly MSU Corporation) and subsidiaries as of June 30, 2001 and 2000,
and the related consolidated statements of operations, changes in shareholders'
deficit and cash flows for each of the two years in the period ended June 30,
2001. 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 auditing standards generally accepted
in the United States of America. 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 Devices, Inc.
(formerly MSU Corporation) and subsidiaries as of June 30, 2001 and 2000, and
the results of their operations and their cash flows for each of the two years
in the period ended June 30, 2001 in conformity with accounting principles
generally accepted in the United States of America.




                                             Moore, Stephens Lovelace, P.A.,

Orlando, FL
September 7, 2001


                                     F-3


<PAGE>
<TABLE>
<CAPTION>

                       MSU DEVICES, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                             June 30, 2002 and 2001


                                    ASSETS
                                                                                       2002               2001
                                                                                   --------------    ----------------
<S>                                                                                  <C>                  <C>
CURRENT ASSETS
Cash and cash equivalents                                                              $ 106,428         $ 1,280,238
Accounts receivable                                                                       13,981               3,513
Other receivables                                                                         10,000             265,000
Inventory                                                                                 55,766                   -
Prepaid expenses and other                                                                61,683             218,795
                                                                                   --------------    ----------------

                        TOTAL CURRENT ASSETS                                             247,858           1,767,546

EQUIPMENT, net of accumulated depreciation of $411,254
and $296,605 in 2002 and 2001, respectively                                               96,256             137,129
                                                                                   --------------    ----------------

                        TOTAL ASSETS                                                   $ 344,114         $ 1,904,675
                                                                                   ==============    ================


                    LIABILITIES AND SHAREHOLDERS' DEFICIT

CURRENT LIABILITIES
Convertible 10% bridge loans                                                                 $ -         $ 3,894,670
Convertible 10% bridge loans - related party                                                   -             605,283
Convertible 11.5% bridge loan                                                            662,700                   -
Convertible 11.5% bridge loan - related party                                            825,372                   -
Unamortized discount, net                                                                      -          (1,598,840)
                                                                                   --------------    ----------------
                                                                                       1,488,072           2,901,113

Current portion of long-term debt                                                              -             195,000
Accounts payable and accrued liabilities                                                 988,099           1,856,555
                                                                                   --------------    ----------------

                        TOTAL CURRENT LIABILITIES                                      2,476,171           4,952,668

LONG-TERM DEBT                                                                           901,157                   -

COMMITMENTS AND CONTINGENCIES (Notes 1 and 12)

SHAREHOLDERS' DEFICIT
Common stock, $0.01 par value; 120,000,000 shares authorized; 53,438,591 and
38,547,868 shares issued and outstanding at
June 30, 2002 and June 30, 2001, respectively                                            534,387             385,479
Additional paid-in capital                                                            29,705,407          26,441,566
Special warrants                                                                       3,354,626                   -
Accumulated other comprehensive income                                                 1,791,212           1,789,017
Accumulated deficit                                                                  (38,418,846)        (31,664,055)
                                                                                   --------------    ----------------

                        TOTAL SHAREHOLDERS' DEFICIT                                   (3,033,214)         (3,047,993)
                                                                                   --------------    ----------------

                        TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT                    $ 344,114         $ 1,904,675
                                                                                   ==============    ================

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


</TABLE>

                                      F-4
<PAGE>


<TABLE>
<CAPTION>


                       MSU DEVICES, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                    Years Ended June 30, 2002, 2001 and 2000


                                                                          2002               2001                2000
                                                                    ---------------   -----------------    ---------------
<S>                                                                      <C>               <C>                   <C>
REVENUES                                                                  $ 277,274         $ 1,394,380          $ 904,695

EXPENSES
Cost of revenues                                                            216,194           3,782,052            928,255
Restructuring of UK operations                                               91,052             288,965                  -
Selling, general and administrative                                       2,855,585           5,542,498          2,190,296
Depreciation                                                                114,649              70,960             83,267
Research and development                                                  1,266,885           1,110,847          2,036,450
                                                                     ---------------   -----------------    ---------------

                    TOTAL EXPENSES                                        4,544,365          10,795,322          5,238,268
                                                                     ---------------   -----------------    ---------------

                    OPERATING LOSS                                       (4,267,091)         (9,400,942)        (4,333,573)

OTHER INCOME (EXPENSE)
Interest income                                                               6,577              76,292             37,998
Interest expense                                                           (293,313)           (296,943)          (112,935)
Amortization of discount on convertible notes
and deferred financing costs                                             (2,200,964)           (228,406)          (441,251)
Impairment loss on carrying value of  investments                                 -            (382,474)                 -
Conversion loss on issuance of common stock
under market                                                                      -                   -            (55,788)
                                                                     ---------------   -----------------    ---------------
                    TOTAL OTHER INCOME (EXPENSE)                         (2,487,700)           (831,531)          (571,976)
                                                                     ---------------   -----------------    ---------------

                    NET LOSS                                           $ (6,754,791)      $ (10,232,473)      $ (4,905,549)
                                                                     ===============   =================    ===============

BASIC AND DILUTED LOSS
PER COMMON SHARE                                                            $ (0.15)            $ (0.35)           $ (0.19)
                                                                     ===============   =================    ===============

WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING                                                46,065,579          29,083,000         25,793,000
                                                                     ===============   =================    ===============


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

</TABLE>


                                     F-5

<PAGE>


<TABLE>
<CAPTION>


                       MSU DEVICES, INC. AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF CHANGES
                        IN SHAREHOLDERS' EQUITY (DEFICIT)

Years Ended June 30, 2002 and 2001 and 2000
                                                                                                                       Accumulated
                                                                                                        Other          Total
                    Comprehensive    Common Stock       Additional            Stock                     Comprehensive  Shareholders'
                    Income          $0.01 Par Value     Paid-In     Special   Subscription  Accumulated Income         Equity
                    (Loss)          Shares   Amount     Capital     Warrants  Receivable    Deficit     (Loss)
Receivable Deficit
 (Loss) (Deficit)   ------------------------------------------------------------------------------------------------------------

<S>                   <C>       <C>           <C>       <C>           <C>     <C>          <C>           <C>          <C>
Balance
 - June 30, 1999         -      $25,364,262  $ 253,642 $ 17,854,174            $(148,750)  $(16,526,033) $ 108,820   $ 1,541,853

Issuance
 of common shares                 3,686,940     36,870    3,781,293                                                    3,818,163

Charge for
 discount on
 convertible
 notes issued                                               441,251                                                      441,251

Collection of stock
 subscription
 receivable                                                                        3,750                                  3,750

Translation
 adjustments       443,880                                                                                 443,880      443,880

Change in market
 value of
 Investments
 available
 for sale         (163,493)                                                                               (163,493)    (163,493)

Net loss        (4,905,549)                                                                   (4,905,549)            (4,905,549)
                --------------------------------------------------------------------------------------------------------------------

Comprehensive
 Loss          $(4,625,162)
               ============

Balance
 - June 30, 2000         -       29,051,202   290,512   22,076,718          -   (145,000)    (21,431,582)   389,207   1,179,855

Issuance of
 common shares                    9,148,166    91,482    2,118,255                                                    2,209,737

Cancellation of
 stock subscription                (145,000)   (1,450)    (143,550)              145,000                                      -

Issuance of
 15% penalty shares                  493,500    4,935      231,945                                                       236,880

Other                                                      (16,675)                                                      (16,675)

Discount on
 convertible
 bridge loan
 notes issued                                             1,827,246                                                     1,827,246

Issuance of
 options to
 contractors
 and repricing
 of options                                                 347,627                                                       347,627

Reclassification
 of change in
 market value of
 investments
 available for
 sale to account
 for permanent
 impairment         163,493                                                                                  163,493     163,493

Translation
 adjustments      1,236,317                                                                                1,236,317   1,236,317

Net loss        (10,232,473)                                                                 (10,232,473)            (10,232,473)
            ------------------------------------------------------------------------------------------------------------------------

Comprehensive
 loss           $(8,832,663)
                ============

Balance -
 June 30, 2001                  38,547,868  385,479 26,441,566                             (31,664,055)  1,789,017    (3,047,993)

Conversion of
 6% notes to
 common stock                      80,000       800     19,200                                                            20,000

Conversion of
 8% notes to
 common stock                     600,000     6,000      144,000                                                         150,000

Conversion of 10%
 bridge loan notes
 to common stock               13,310,123   133,101    2,588,924                                                       2,722,025

Beneficial
 conversion
 related
 to 8% notes                                             105,000                                                         105,000

Compensation
 expense for
 options granted
 to employee
 and contractor                                         (198,314)                                                       (198,314)

Issuance of
 special warrants
 for cash and
 conversion of debt                                                3,354,626                                            3,354,626

Reconcile stock
 ledger to stock
 transfer records                273,373     2,733       24,604                                                            27,337

Beneficial
 conversion feature
 relate to
 11.5% notes payable                                    497,123                                                           497,123

Stock issued
 for employee salaries           627,227     6,274       83,304                                                            89,578

Translation
 adjustments              2,195                                                                               2,195         2,195

Net loss             (6,754,791)                                                           (6,754,791)                 (6,754,791)
                -------------------------------------------------------------------------------------------------------------------

Comprehensive
 loss              $(6,752,596)
                   ============

Balance
 - June 30, 2002               53,438,591 $534,387  $29,705,407   $3,354,626    $      - $(38,418,846)    $1,791,212  $ (3,033,214)
                               ========== ========  ===========   ==========    ======== ============     ==========  =============



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



</TABLE>

                                           F-6

<PAGE>

<TABLE>
<CAPTION>




                       MSU DEVICES, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                          June 30, 2002, 2001 and 2000


                                                              2002            2001            2000
                                                          --------------  --------------   ------------
<S>                                                        <C>            <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss                                                   $ (6,754,791)  $ (10,232,473)   $ (4,905,549)
Adjustments to reconcile net loss to net
 cash used in operating activities
Depreciation                                                    114,649          70,960         83,267
Amortization of discount on convertible notes and deferred
financing costs                                               2,200,964         228,406        441,251
Impairment loss on carrying value of investments                      -         382,474              -
Non-cash expense related to grants of
stock purchase options                                         (198,314)        347,625              -
Issuance of stock for services and settlements                        -       1,158,202              -
Issuance of stock for employee salaries                          89,578               -              -
Non-cash interest expense                                       268,086         122,313         32,001
Conversion loss on issuance of common stock under market              -               -         55,788
Non-cash revenue related to sale of license                           -               -              -
(Increase) decrease in accounts receivable, net                 (10,468)        312,669       (362,016)
(Increase) decrease in inventories                              (55,766)      1,087,146     (1,184,650)
(Increase) decrease in prepaid expenses and other               217,112         249,600       (306,923)
Decrease in other receivables                                   255,000               -              -
Increase in accounts payable and accrued liabilities            109,313         354,009        739,473
Decrease in related-party accounts and advances payable               -        (125,140)       (46,548)
                                                          --------------  --------------   ------------

                    NET CASH USED IN OPERATING ACTIVITIES    (3,764,637)     (6,044,209) -  (5,453,906)

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of equipment, net                                  (73,776)        (54,338)      (110,768)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from (repayments of) borrowings under
short-term credit facilities, net                                     -         (17,556)        19,774
Proceeds from issuance of convertible promissory notes          662,700       3,629,670        900,000
Proceeds from issuance of note to related party                 825,372         605,283              -
Proceeds from issuance of convertible promissory notes that
 was converted to stock                                               -
Repayment of convertible promissory notes                       (25,000)       (150,000)             -
Proceeds from issuance of special warrants                      368,000               -              -
Proceeds from issuance of special warrants to related party     779,000               -              -
Repayment of note to related party                                    -               -        (20,291)
Issuance of common stock                                              -               -      3,580,374
Collection of subscription receivable                                 -               -          3,750
                                                          --------------  --------------   ------------

                NET CASH PROVIDED BY FINANCING ACTIVITIES     2,610,072       4,067,397      4,483,607

EFFECT OF EXCHANGE RATE CHANGES                                  54,531       1,321,181        466,770
                                                          --------------  --------------   ------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS        (1,173,810)       (709,969)      (614,297)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                1,280,238       1,990,207      2,604,504
                                                          --------------  --------------   ------------

CASH AND CASH EQUIVALENTS AT END OF YEAR                      $ 106,428     $ 1,280,238    $ 1,990,207
                                                          ==============  ==============   ============

Supplemental schedule of non-cash items
Interest Paid                                                       $ -               -              -
Income Taxes Paid                                                   $ -               -              -
Other Financing and investing activities:
Conversion of Notes Payable to Special Warrants             $ 2,207,626               -              -
Conversion of 6% Notes to Common Stock                         $ 20,000               -              -
Conversion of 8% Notes to Common Stock                        $ 150,000               -              -
Conversion of 10% Notes to Common Stock                     $ 2,722,025               -              -
Accounts Payable converted to Long-Term Debt                  $ 901,157               -              -
Beneficial conversion feature of notes payable                $ 602,123               -              -

      The accompanying notes are an intergral part of the consolidated financial statements

                                    F-7
</TABLE>


<PAGE>

NOTE 1 - ORGANIZATION, BASIS OF PRESENTATION AND SIGNIFICANT RISKS

Organization and Basis of Presentation

In October 1994, MSU Devices, Inc. (formerly MSU Corporation, formerly Capital
Acquisition Company) ("MSU"), 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 originally based in the United
Kingdom, which owns all of the capital stock of Web 2 U Limited, formerly MSU UK
Limited (see Note 3).

In July 2001, the Company changed its name from MSU Corporation to MSU Devices,
Inc. and reincorporated in the State of Delaware. The Company was previously a
Florida Corporation.

MSU has historically operated primarily through Web 2 U Limited, which has been
principally engaged in the design and development of software computer chips and
chipsets for use in high-volume consumer electronic products and in the sale of
set-top-boxes that were used for Internet access. The activity of MSU's U.S.
operations has not been significant since its inception. In January 2001, the
Board of Directors reorganized the operations of the Company by hiring a new
executive management team and relocating the principal offices from the United
Kingdom to Plano, Texas, a suburb of Dallas. All development and sales of
existing products were halted, and all resources were focused on the development
of the fifth generation ("MSU V5") of the Company's Internet Access Device (see
Note 3). The Company launched the MSU V5 in the early part of calendar year
2002.

MSU Devices, Inc. designs, markets and sells affordable Windows CE-based devices
that access the Internet and provides software systems integration and
applications for the Windows CE family of operating systems that enable consumer
and business end-users to communicate simply and easily by using e-mail and over
the World Wide Web via the Internet without the necessity of technical or
personal computer knowledge or expertise. When using our products, software or
services, end-users have access to an Internet service provider, e-mail hosting
and content in a single, easy to use hardware/software appliance. In December
2001, the Company began early production runs of the MSU V5 Internet access
device. In February 2002, the Company started receiving its first MSU V5
production runs. In April 2002 the Company introduced several new variations of
the MSU V5 targeted at specific niche markets. Sales of the MSU V5 were minimal
due to the launch late in fiscal year 2002 and a lack of existing customers.

The consolidated financial statements include the accounts of MSU, MSU Plc., and
Web 2 U Limited (collectively, the "Company"). All significant intercompany
accounts and transactions have been eliminated in the consolidated financial
statements.

Going Concern Uncertainty

The Company's consolidated financial statements have been prepared assuming the
Company will continue as a going concern. During the years ended June 30, 2002,
2001 and 2000, the Company generated net losses of approximately $6,494,000,
$10,232,000, and $4,906,000, respectively, and expects to incur net losses in
fiscal 2003 as it attempts to develop, upgrade and market its product and to
develop its infrastructure to support operations.

At June 30, 2002, the Company had an accumulated deficit of approximately
$38,158,000 and a substantial negative working capital ratio ($2,132,000 at
June 30,2002).

                               F-8
<PAGE>

Additionally, the Company has generated recurring negative cash flows from
operations and currently has no active customer base for fiscal year 2002. These
factors, among others, 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 sales of its MSU V5 proprietary Internet Access Device
in respect of which commercial production has commenced and 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 also intends
to develop further 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 with an original
maturity, when purchased, of three months or less.

Equipment

Equipment is comprised of computer hardware and software and is stated at cost.
Depreciation is provided using the straight-line method over the estimated
useful lives of the equipment, generally three to five 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, and their components. During the year
ended June 30, 2001, the entire amount of inventory was written off due to the
obsolescence of version 2 and version 3 and due to the Company's decision to
only market and sell the new V5 product in the future (see Note 3). At June 30,
2002, all of the Company's current inventory consisted of the MSU V5.


Investments

Investments consisted of publicly traded stock of a U.S. based company. This
stock was conveyed to the company in partial payment of fees under a licensing
agreement dated May 6, 1998. These investments were accounted for as available
for sale securities. Consequently, the unrealized holding loss on these
securities was reported as a separate component of shareholders' equity, unless
a determination was made that the holding loss was other than temporary. If the
holding loss was determined to be permanent, the loss was recognized in the year
such a determination was made.


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.

Revenue Recognition

Revenues primarily consist of sales of Internet Access Devices and are
recognized if persuasive evidence of an arrangement exists, delivery has
occurred and collectibility is reasonably assured.


                                  F-9
<PAGE>


Deferred Financing Costs

The costs attributable to the issuance of certain convertible promissory notes,
including debt discounts, resulting from warrants issued with the notes and or
beneficial conversion features are generally amortized over the earliest period
during which conversion may occur.

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 as the Company does not have an
established product life or customer base.

Stock Based Compensation

The Company accounts for employee stock options in accordance with Accounting
Principles Board Opinion No. 25, "Accounting For Stock Issued To Employess",
under which the Company recognizes no compensation expense related to employee
stock options when options are granted with exercise prices at or above the
estimated fair value of the stock on the date of the grant. The Company provides
the supplemental disclosures required by FAS 123 for equity instruments granted
to employees.

The Company accounts for common stock issued to non-employees using Financial
Accounting Standard No. 123 ("FAS 123"), "Accounting for Stock-Based
Compensation" and the provisions of Emerging Issues Task Force No. 96-18 ("EITF
96-18"), "Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring or in Conjunction with Selling Goods or Services." All
transactions in which goods or services are the consideration received for the
issuance of equity instruments are accounted for based on the fair value of the
consideration received or the fair value of the equity instrument issued,
whichever is a more reliable measurement. The measurement date of the fair value
of the equity instrument issued is the earlier of the date on which the counter
party's performance is complete or the date on which it is probably that
performance will occur.

Net Loss Per Share

Basic loss per common share is calculated by dividing net loss applicable to
common shares by the weighted average number of common shares outstanding during
the period. The calculation of diluted earnings per common share is similar to
that of basic earnings per common share, except that dilutive earnings per
common share reflects the amount of earnings for the period available to each
share of common stock outstanding during the reporting period, while giving
effect to all dilutive potential common shares that were outstanding during the
period such as common shares that could result from the potential exercise or
conversion of securities and debt into common stock. Dilutive earnings per share
has not been presented since the effects would be anti-dilutive due to the
Company's losses. The Company's options and warrants, however, could potentially
dilute earnings per share in the future. Total options and warrants outstanding
at June 30, 2002 were 9,112,503. Special warrants outstanding at June 30, 2002
totaled 24.4 million. Convertible debt outstanding at June 30, 2002 is
convertible to 14.9 million shares of common stock.

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 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' deficit.

                                     F-10

<PAGE>


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 financial institutions and
receivables. The Company primarily maintains its cash in bank deposit accounts
in the United States and the United Kingdom, which, at any time, may exceed
federally insured limits, or may not be insured at all. 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.

Management believes that credit risk with respect to accounts receivable is
mitigated by the creditworthiness of the related customer.

Financial instruments reflected in the Company's balance sheets at June 30, 2002
and 2001 include cash and cash equivalents, receivables, notes payable, and
other borrowings. The carrying amount of cash and cash equivalents, receivables,
notes payable and other short-term borrowings approximates fair value because of
the short maturity of those instruments. The long-term debt recorded amount
approximates fair value based on the current equivalent terms on which a similar
transaction creating this debt would be available.

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 2001 amounts have been reclassified to conform with the 2002
presentation.


Significant Recent Accounting Pronouncements

In August 2001, the FASB issued statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("FAS
144"). FAS 144 supercedes FAS 121, "Accounting for Long-Lived Assets and for
Long-Lived Assets to be Disposed of" ("FAS 121") and the accounting and
reporting provisions of the Accounting Principles Board Opinion No. 30,
"Reporting the Results of Operation - Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions." FAS 144 establishes a single accounting model, based
on the framework established by FAS 121, for long-lived assets to be disposed of
by sale and resolved significant implementation issues related to FAS 121. FAS
144 retains the requirements of FAS 121 to recognize an impairment loss only if

                                     F-11

<PAGE>

the carrying amount of a long-lived asset is not recoverable from its
undiscounted cash flows and measure an impairment loss as the difference between
the carrying amount and the fair value of the asset. FAS 144 excludes goodwill
from its scope, describes a probability-weighted cash flow estimation approach
and establishes a "primary-asset" approach to determine the cash flow estimation
period for groups of assets and liabilities. FAS 144 is effective for fiscal
years beginning after December 15, 2001, and interim periods within those fiscal
years, with early application encouraged. The Company does not believe that the
implementation of this standard will have any material effect on its financial
position, results of operations or cash flows.


NOTE 3 - RESTRUCTURING OF WEB 2 U

A restructuring charge of approximately $289,000 was recorded during fiscal year
2001 for the restructuring of the Company's UK operations, which is comprised of
involuntary termination benefits and legal fees associated with the
restructuring. In addition to the restructuring charges, inventory, which was
comprised of Version 2 and Version 3 Internet Access Devices, in the amount of
approximately $1.9 million was expensed and included in cost of revenues due to
obsolescence and due to the Company's determination to focus all sales efforts
on the Company's new V5 product. 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. Web 2 U Limited
voluntarily petitioned the High Court in London for an administration order to
settle its current outstanding liabilities with all creditors on an equitable
basis. The order was granted on May 15, 2001. A settlement was reached with Web
2 U's significant creditors in July 2001, in which the significant creditors
(totaling amounts due at June 30, 2002 of $901,157) were issued 5% convertible
promissory notes for amounts due to them with five-year terms, interest payable
annually and with repayments of principal commencing after three years. The
Company will have the right to convert the notes to common stock at $1.00 per
share in the event that the Company's stock closes at or above $1.25 per share
for five consecutive business days. The balance is included on the accompanying
June 30, 2002 consolidated balance sheet as long-term debt.

Web 2 U successfully emerged from administration on August 20, 2001. On April 5,
2002, all assets, liabilities and employees of Web 2 U Limited were transferred
to its UK parent, MSU plc. Subsequent to the transfer, the Company changed the
name of MSU plc to MSU Devices Ltd. MSU Devices Ltd. remains an active
international sales office of MSU Devices Inc. On April 11, 2002, a Notice of
Completion was filed with the High Court of Justice, London, England to finalize
the Company Voluntary Arrangement of the Company's subsidiary, Web 2 U Ltd.

NOTE 4 - IMPAIRMENT LOSS ON INVESTMENTS

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
$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 the
carrying value of investments of $2,500,000.

During the year ended June 30, 2001, trading of common shares previously
recorded in a licensing transaction was halted; consequently, the Company
recorded an impairment loss on the remaining investment in these shares of
approximately $219,000. Additionally previously recognized unrealized losses of
$163,000 were recorded as realized.

                                     F-12

<PAGE>

NOTE 5 - RELATED-PARTY TRANSACTIONS

The Company has received services from law firms in which a former director of
the Company was employed. Amounts charged to operations for these legal services
during the years ended June 30, 2002, 2001 and 2000, approximated $ 0 and
$33,000 and $80,000, respectively.

During the fiscal years ended June 30, 2001 and 2000, the Company received
services from a marketing joint venture corporation, one member of which is an
entity primarily owned by a significant shareholder of the Company. Expenses
related to these services incurred in the fiscal years ended June 30, 2002, 2001
and 2000, were approximately $0 and $202,000 and $138,000, respectively. In
December 2000, the relationship between the Company and the marketing joint
venture corporation was terminated, and the Company agreed to satisfy the
outstanding liability of $340,000 through the payment of $15,000 cash and the
issuance of 1.3 million shares of stock at $0.25 per share. As of June 30, 2002,
a payable in the amount $15,000 to the marketing joint venture had not been
paid.

Three directors of the Company were issued 10% convertible bridge loan notes
(see Note 10) totaling approximately $605,000 during the year ended June 30,
2001. These notes carry a one-year term and are convertible to one share of
common stock per $0.20 loaned to the Company. These notes totaling $ 650,000
including accrued interest, were converted during fiscal year 2002 to 3,250,000
common shares.

In May 2001, 1,873,400 shares of the Company's common stock valued at
approximately $375,000 were issued to a director of the Company as part of a
payment for fees and the termination of an agreement with an investment banking
firm, that the director was a member of, that performed services for the
Company.

Amounts due under related party notes, advances and payables as of June 30,
2002, 2001 and 2000, amounted to approximately $825,000, $605,000 and $125,000,
respectively. The June 30, 2002 balance consists of approximately $825,000 of
convertible bridge loan notes held by four directors. The June 30, 2001 balance
consists of approximately $605,000 of convertible bridge loan notes held by
three directors (see Note 10). The June 30, 2000 balance consists of $125,000
due to directors for unpaid salaries.

In June 2001, a director of the Company was issued 67,667 shares of common stock
and a former director of the Company was issued 116,000 shares of common stock
in payment of unpaid director's salary. The former director was also paid
approximately $17,000 in cash for consulting services performed for Web 2 U.

In May and June of 2002, the Company issued 627,277 shares of common stock to
employees for payment of salary.

During the year ended June 30, 2002, the Company sold special warrants for cash
and converted bridge loans as discussed in note 8.


NOTE 6 - INCOME TAXES

As of June 30, 2002, the Company had a U.S. net operating loss carryforward of
approximately $9.2 million. The net operating loss carryforward begins to expire
in 2002. Under U.S. federal tax laws, certain changes in ownership of a company
may cause a limitation on future utilization of these loss carryfowards.

                                     F-13

<PAGE>

Deferred tax assets resulting from the Company's U.S. income tax loss
carryforwards were approximately $3.5 million, $2.2 million and $1.1 million at
June 30, 2002, 2001 and 2000, respectively. The Company has established a
valuation allowance to fully offset all U.S. deferred tax assets and
carryforwards, as their future realization is uncertain.

As of June 30, 2002 and 2001, the Company's subsidiaries had a United Kingdom
net operating loss carryforward of approximately $16.4 million, $15.5 million
and $14.5 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 $4.9, $4.7 million and $4.3 million at June 30,
2002 and 2001, respectively. The Company has established a valuation allowance
to fully offset all foreign deferred tax assets and carryfowards, as their
future realization is uncertain.


NOTE 7 - SHAREHOLDERS' DEFICIT

During the year ended June 30, 2002, the Company issued, in private
transactions, an aggregate of 14,890,723 shares of unregistered common stock.
13,990,123 shares were issued as a result of the conversion of $2,892,025 of 6%,
8% and 10% notes payable.

During April and May, 2002, the Company issued stock to employees for partial
payment of salaries. The Company issued a total of 627,227 shares of common
stock valued at $89,578 to employees for services rendered during that period.

During the year ended June 30, 2001, the Company issued, in private
transactions, an aggregate of 9,641,666 shares of unregistered common stock.
3,940,000 shares were issued as a result of the conversion of $985,000 of notes
payable. Approximately 369,000 shares were issued to relieve approximately
$122,000 in accrued interest on those notes. Approximately, 4,839,000 shares
were issued to creditors, primarily of Web 2 U, and former directors and
employees to satisfy approximately $1.1 million in payables to these parties.
493,500 shares were issued as a penalty to the Company resulting from the
Company's failure to complete an S-1 registration of shares of common stock
issued for cash during the year ended June 30, 2000. As a result of the
Company's failure to complete the registration of the shares within 180 days of
issuance, the Company was penalized an amount of shares equal to 15% of the
total number of shares issued. In addition, a stock subscription receivable in
the amount of $145,000 was cancelled, along with 145,000 shares of common stock.

In June 2001, at the annual shareholder's meeting, the shareholders of the
Company approved a resolution to increase the number of authorized shares of
common stock from 50,000,000 to 120,000,000.

During the year ended June 30, 2000, the Company issued, in private
transactions, an aggregate of 3,686,940 shares of unregistered common stock in
exchange for net consideration of approximately $3,818,000. Approximately
$3,440,000 was received in cash for the issuance of 3,393,250 shares of common
stock at the time of the transactions. Accrued interest payable approximating
$32,000 was relieved through the issuance of 16,190 shares of common stock.
Convertible notes payable in the amount of approximately $150,000 were converted
into 75,000 shares of common stock and stock options representing 202,500 shares
of stock were exercised for an aggregate exercise price of approximately
$141,000 during the year ended June 30, 2000. Conversion cost of securities
issued below market during the fiscal year ended June 30, 2000, approximated
$55,000, substantially all of which was as a result of related-party
transactions, and was recorded as additional paid-in capital in the accompanying
statement of changes in shareholders' equity (deficit).

                                     F-14

<PAGE>

NOTE 8 - SPECIAL WARRANTS

During the year ended June 30, 2002, the Company sold special warrants
convertible into 5.1 million shares of the Company's common stock for $1.275
million cash. Additionally, 10% convertible bridge loans of approximately $2.1
million plus accrued interest of approximately $108,000 were converted into
special warrants convertible into 11,038,130 shares of the Company's common
stock. Special warrants convertible into 600,000 shares of the Company's common
stock and a cash commission of approximately $86,000 were paid as placement
fees.

The special warrants are convertible into common stock at no additional cost to
the holder. The special warrants were issued 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 special warrants may be exercised at any time until 5:00 p.m., Toronto time,
on the earlier of (a) the date which is five business days following the date on
which the Company has been qualified under a prospectus in certain jurisdictions
in Canada or (b) one year from the final closing of the sale of the special
warrants. If the Company is not in compliance with the prospectus provisions,
the holders of the special warrants are entitled to 10% additional warrants. See
discussion in Note 13 - Subsequent Events covering the 10% additional warrants.

In February 2002, due to the issuance of 10% Promissory Notes which were
convertible into common stock at $0.10 per share, the conversion price of the
special warrants into common stock was reduced from $0.25 to $0.10 per share
pursuant to the price protection provisions of the special warrants.
Consequently, the number of special warrants associated with the $1.275 million
invested increased from 5.1 million to 12.75 million.

NOTE 9 - STOCK OPTIONS AND WARRANTS

In February 2001, an officer of the Company was granted options to acquire
1,200,000 shares of the Company's common stock at $0.60 per share. 600,000
shares became exercisable immediately, and the remaining 600,000 become
exercisable in equal monthly installments over the following 18 months. In May
2001, the options were re-priced to $0.25 per share resulting in the recognition
by the Company of approximately $200,000 of stock compensation expense in 2001.
The options will expire in February 2006.

Between February and March 2001, three employees of the Company were granted
options to acquire 1,500,000 shares of the Company's common stock at $0.60 per
share. The options vest monthly over 36 months from the grant date. In May 2001,
the options were re-priced to $0.25 per share resulting in the recognition by
the Company of approximately $25,000 in stock compensation expense. The options
will expire between February and March 2006.

The Company accounted for the repricing of the options based on APB 25,
Accounting for Stock Issued to Employees, under variable accounting. During
2002, due to the decline in the Company's stock, the Company reversed the
compensation expense initially recorded in 2001 totaling $225,000.

The Company incurred compensation expense related to 62,500 options that vested
immediately which were granted to a contractor who, in October, 2001, became a
full-time employee. In October 2001, the Company issued 412,500 options to
purchase the Company's common stock to the employee. Upon the change in status
to this employee, a new measurement date was established. The intrinsic value of
the stock options on the measurement date of approximately $102,000 was recorded
as unearned compensation and is being amortized using the straight-line method
over the vesting period of the options. The employee left the Company March 29,
2002. All unvested unearned compensation was reclassified to additional paid-in
capital.

                                     F-14

<PAGE>

Compensation expense recorded for stock options and warrants granted in the
years ended June 30, 2002, 2001 and 2000, approximated $(198,000), $348,000 and
$0 respectively, and is included in selling, general and administrative
expenses. During 2002, due to the decline in the Company's stock, the Company
reversed the compensation expense related to options that were repriced in 2001.

If compensation cost for the stock options granted to employees had been
determined based on the fair value of the options at the grant dates under the
provisions of SFAS 123 and assuming a risk-free interest rate at 4.75%, 7% and
8%, expected option lives of one to five years, expected volatility of 159%,
132% and 128% and no dividends for the years ended June 30, 2002, 2001 and 2000,
respectively, the Company's net loss and net loss per share would have been
increased to the pro forma amounts set forth below:

<TABLE>
<CAPTION>

                                            2002             2001           2000
                                        ------------     ------------    -----------
<S>                                     <C>                 <C>            <C>
    Net loss applicable to
      common stock attributed to
      continued operations - as
      reported                         $ (6,494,165)     $(10,232,473)   $(4,905,549)

    Net loss applicable to
      common stock attributed
      to continued operations
      - pro forma                        (6,546,632)      (11,390,530)    (6,892,658)

    Net loss applicable to
      common stock per common
      share attributed to
      continued operations - as
      reported                                  (.14)            (.35)         (.19)

    Net loss applicable to
      common stock per common
      share attributed to
      continued operations - pro
      forma                                     (.14)             (.39)         (.27)
</TABLE>

Additional information regarding options outstanding under the Company's stock
option plans at June 30, 2002, 2001 and 2000 as follows:

<TABLE>
<CAPTION>

                        2002                    2001                         2000
                    ---------------------    ---------------------  -------------------
                                 Weighted                  Weighted              Weighted
                                 Average                   Average               Average
                                 Exercise                  Exercise              Exercise
                     Options     Price       Options       Price     Options    Price
                    ----------  --------    ----------    --------   ---------  --------
<S>                  <C>            <C>        <C>          <C>        <C>       <C>
Outstanding at
Beginning of year   11,469,403    $0.72     10,089,323      $2.34     5,444,503   $1.18
Granted                437,500     0.25      7,922,500       0.29     6,351,320   $2.85
Exercised                    -        -              -          -      (202,500)  $0.69
Cancelled           (2,794,400)    8.29     (6,542,420)      2.69     1,504,000   $0.59
                    ----------  --------    ----------    --------   ---------   ------
Outstanding at
End of year          9,112,503    $0.62     11,469,403      $0.72    10,089,323   $2.34
                     ---------              ----------               ----------
</TABLE>

                                    F-15

<PAGE>


The following table summarizes information about stock options outstanding at
June 30, 2002:
<TABLE>
<CAPTION>

                                       Number                     Number
        Exercise                     of Options                 of Options
         Price                      Outstanding                 Exercisable
       ----------                  -------------               -------------
<S>     <C>                          <C>                          <C>
       $0.25-$0.50                     6,103,357                   2,088,904
       $0.51-$1.00                     2,003,846                   1,407,593
       $1.01-$3.50                     1,005,300                     680,214

</TABLE>



NOTE 10 - SHORT-TERM BORROWINGS

During the year ended June 30, 2001, the Company issued approximately $4.5
million of 10% convertible bridge loan notes $ 175,000 ("10% Notes"), of which
approximately $605,000 was issued to related parties. The notes were issued from
October 2000 until June 30, 2001 and matured one year from the issue date.
Interest accrued until the maturity date, at which time, if the note has not
been converted, it will be paid to the noteholder, along with the outstanding
principal balance. The notes are convertible into shares of common stock at the
rate of one share of common stock for each $0.20 of principal and accrued
interest converted. The noteholders may convert at the earlier of the closing of
a qualified financing by the Company or the repayment date. 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. Since the conversion price of these
notes was below the market price of the Company's common stock at the date of
issuance, a discount relating to this beneficial conversion feature of
approximately $1,827,000 was recorded in the year ended June 30, 2001, of which
approximately $228,000 was amortized as of June 30, 2001. The remaining balance
was fully amortized during the fiscal year ended June 30, 2002.

During 2002, the remaining 10% Notes were converted by the Company upon the
closing of a qualified financing on December 21, 2001. Per the terms of the
purchase agreement for the 10% Notes, upon completion of a qualified financing,
the Company had the option to convert the 10% Notes into unregistered shares of
the Company's common stock. Consequently, the Company converted 10% Notes in the
principal amount of approximately $3.4 million plus accrued interest into
special warrants for Canadian holders of 10% Notes and into shares of
unregistered common stock for all other individuals or entities.

The Company executed 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 principal balance of $75,000 outstanding at
June 30, 2000, is unsecured and was due at June 30, 2000. During January 2001,
the Company offered the holders of the $75,000 note the opportunity to convert
the note at a rate of $0.25 per share. This offer was good until May 24, 2001,
and it resulted in the conversion of the $75,000 note, plus accrued interest, to
common stock during the year ended June 30, 2001.

Between March 2002 and June 2002, the Company issued approximately $1,488,000 in
11.5% convertible promissory notes (11.5% Promissory Notes") to accredited
investors, which mature September 30, 2002. On September 23, 2002, the maturity
date of the 11.5% Promissory Notes was extended to December 31, 2002. Of the
amount issued, a total of approximately $825,000 were issued to four directors
and $49,000 to an individual for services rendered in the Company's financing.

                                    F-16

<PAGE>

Due to the fact that for certain issuances the conversion price per share of the
11.5% Promissory Notes was lower than the market price per share of the
Company's common stock on the date the 11.5% Promissory Notes were issued, the
Company recorded approximately $497,000 in debt discount to account for the
beneficial conversion feature of the 11.5% Promissory Notes. This discount will
be amortized over the term of the notes. At June 30, 2002, approximately
$261,000 of the discount remains unamortized.

$637,500 of 11.5% notes were initially issued as secured, 10% notes in February
2002. Upon issuance of the remaining 11.5% notes, the 10% notes were altered to
unsecured, 11.5% notes.

Deferred financing costs of approximately $86,000 relating to professional fees
incurred in obtaining the financing were recorded and are being amortized over
the term of the notes.

Under the covenants of the 11.5% Promissory Notes, the Company was required to
raise an additional $1.163 million under the following schedule: at least
$250,000 not later than May 1, 2002; an additional $412,500 not later than May
15, 2002; and an additional $500,000 not later than June 10, 2002. In the event
the Company does not raise these additional funds it will be in default and the
note holders can accelerate the maturity of the 11.5% Promissory Notes. If the
Company does not raise the funds required to be received by May 15, 2002, the
holders of the 11.5% Promissory Notes can elect to secure their notes by a first
priority lien on the assets of the Company, including intangible assets and
intellectual property. The Company has not met the covenants of the note and the
note holders have secured a first priority lien on the assets as of June 30,
2002.

The 11.5% Promissory Notes are convertible at any time at the option of the
holders into shares of common stock at a rate of 10 shares per $1 loaned,
subject to adjustment in certain events. On September 23, 2002, the conversion
rate was increased to 50 common shares per $1 loaned. Addionally, the 11.5%
Notes are now convertible into common shares at the option of the Company, if
the Company meets certain convenants. The Company has granted registration
rights with respect to shares issuable upon such conversion. If the Company
arranges $3.5 million in additional financing beyond the $1,162,500 noted above,
the 11.5% Promissory Notes will automatically convert into identical terms of
the instruments issued in such financing.


NOTE 11 - LONG-TERM DEBT

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, guaranteed by
two directors of the Company, 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. The notes were converted into common
shares in 2002. In connection with the conversion, the Company offered a amended
conversion price per share of $.25 which was lower than the trading value at
that time. Accordingly, the Company recorded and expensed $105,000 as debt
discount related to this beneficial conversion feature.

                                    F-17

<PAGE>

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, guaranteed by
two directors of the Company, 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. During January 2001, the Company
offered the noteholders the opportunity to convert their notes at a rate of
$0.25 per share. This offer was available until May 24, 2001, and it resulted in
the conversion of $310,000 of 6% notes to common stock during the year ended
June 30, 2001. The offer was extended into fiscal 2002 and the remaining $20,000
was then converted.

In January and February 2000, the Company issued $750,000 of 10% convertible
promissory notes (the "new 10% Notes"). Interest is payable on these notes
semi-annually. The new 10% Notes 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 new
10% Notes principal converted. Proceeds received by the Company from the
issuance of the new 10% Notes, net of offering costs, approximated $704,000.
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 approximately $291,000 was recorded in the
year ended June 30, 2000. Due to the automatic conversion feature of the new 10%
Notes, this discount was fully amortized upon issuance of the notes and appears
in the accompanying fiscal 2000 statement of operations. During January 2001,
the Company offered the noteholders the opportunity to convert their notes at a
rate of $0.25 per share. This offer was available until May 24, 2001, and it
resulted in the conversion of all of the new 10% notes, plus accrued interest,
to common stock during the year ended June 30, 2001.

A settlement was reached with Web 2 U Limited's significant creditors in July
2001, in which the significant creditors would be issued 5% convertible
promissory notes of MSU (the "5% Notes") with five-year terms for amounts due to
them, interest payable annually and with repayments of principal commencing
after three years. The Company will have the right to convert the notes into
common stock at $1.00 per share in the event that the Company's stock price
closes at or above $1.25 per share for five consecutive business days. These
notes, totaling approximately $901,000 with the foreign exchange translation,
were issued to Web 2 U Limited's significant creditors on December 31, 2001. Web
2 U Limited remains an active international sales office of MSU Devices Inc.
(See Note 3)

Long-term debt consists of the following at June 30, 2002 and 2001:

<TABLE>
<CAPTION>

                                                   June 30, 2002   June 30, 2001
                                                   -------------   -------------
<S>                                                   <C>            <C>
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 at the option of the Company
 into shares of the Company's common stock
 at a rate of one share for each $3.00
 of note principal converted in 2002                        -          20,000

Convertible 5% promissory notes, interest
 payable annually, maturing December 2006,
 collateralized by assets of the Company,
 convertible at the option of the Company
 into shares of common stock at a rate of
 one share for each $1.00 of note principal
 converted in the event that the Company's
 stock price closes at or above $1.25 per
 share for five consecutive business days             901,157               -

Less current portion                                        -         (195,000)
                                                     --------         --------
Total long-term debt                                 $901,157         $      -
                                                     ========         ========
</TABLE>

Maturities of long-term debt obligations are as follows:
<TABLE>
<CAPTION>

                   <S>                                              <C>
           Year ending June 30,                                  Principal
           -------------------                                   ---------
                  2006                                           $901,157

</TABLE>


NOTE 12 - COMMITMENTS AND CONTINGENCIES

Leases

The Company leases office space at its headquarters outside of Dallas, Texas,
and in the UK at Milton Keynes. The operating lease for the U.S. headquarters
was entered into in February 2001 and will expire in February 2003. The UK
office was leasing space on a month-to-month basis under an operating lease that
terminated in March 2001 through June, 2002. In June, the UK office entered into
a new lease that expires June, 2005. In the UK. Future minimum rental payments
and service charges required under the leases at June 30, 2002, approximately
$72,000 per year for the fiscal years 2003, 2004 and 2005.

For the years ended June 30, 2002, 2001 and 2000, rent expense totaled
approximately $121,000, $109,000 and $192,000, respectively.

Pension Plan

Web 2 U has a pension plan for the benefit of its Web 2 U 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, 2002, 2001 and
2000, Web 2 U made contributions of approximately $0, $47,000 and $65,000 to the
plan.

Employment Agreements

The Company has entered into employment agreements with certain officers of the
Company. Some employment agreements also provide for severance in the event the
individual is terminated.

                                     F-18

<PAGE>

Contracts

In March 2001, the Company signed a consulting agreement with a former
officer/director of the Company, whereby, in exchange for consulting services,
the Company would pay approximately 6,000 British Pounds per month for four
years. Based upon exchange rates as of June 30, 2001, this equates to
approximately $8,500 per month. The Company also issued to the consultant
120,000 shares of the Company's common stock. In March 2002, the Company paid
approximately $63,000 to the former director in full settlement of the Company's
obligation under this consulting agreement.

In June 2001, the Company signed a product design and development agreement with
a contract manufacturer having a term of one year. Under the agreement, the
Company makes fixed payments to the manufacturer for services related to the
design and development of the Company's V5 product.

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, 2002,
2001 and 2000 were generated from a small number of customers. Management does
not expect to generate future sales from these customers.

The Company presently has only one supplier manufacturing Internet Access
Devices. Should the supplier cease production, the Company could be adversely
affected.

The Company's revenue, by geographical region, during the years ended June 30,
2002, 2001 and 2000, were approximately as follows:
<TABLE>
<CAPTION>

    Location                     2002            2001          2000
-----------------             ---------       ----------     ---------
<S>                           <C>              <C>            <C>
Europe                        $ 203,000       $ 618,000      $ 343,000
Asia                               --           610,000        562,000
North America                    74,000         166,000          --
                              ---------       ----------     ---------
                              $ 277,000       $1,394,000     $ 905,000
                              =========       ==========     =========
</TABLE>

Trust

As of June 30, 2002, 2001 and 2000, 1,962,444, 1,962,444 and 2,724,444 shares of
the Company's common stock were held by a trust (the "Trust"). The Settlor is
the previous chairman of the Company and the beneficiaries are substantially all
of the employees of the Company, including the Settlor. During the years ended
June 30, 2002, 2001 and 2000, the Company made no contributions to the Trust.

Other

In August 2001, the Company signed an agreement with a contract manufacturer to
commercially manufacture the V5 device. The contract carries a term of one year,
and the Company is committed to purchase a minimum number of units over the term
of the contract.

From time to time, The Company is a party to what is believed to be routine
litigation and proceedings that may be considered as part of the ordinary course
of its business. Currently, The Company is not aware of any current or pending
litigation or proceedings that would have a material adverse effect on its
business, results of operations or financial condition.


NOTE 13 - Quarterly Financial Data (Unaudited)

The Company has determined that the debt discount recorded of |$305,513 at March
31, 2002 should have been expensed immediately as the underlying convertible
notes were convertible immediately. The Company was originally amortizing this
discount over the life of the debt. This adjustment has the effect of increasing
amortization of discount on convertible notes and deferred financing costs and
increasing current liabilities a total of $305,513 as of March 31, 2002 for the
three and nine months ended March 31, 2002. Accordingly, the Company has
restated the unaudited interim financial statements for the three and nine
months ended March 31, 2002. The effect of this restatement is as follows:
<TABLE>
<CAPTION>

                                                                   March 31
                                                    ---------------------------------------
                                                    Reported       Adjustments     Adjusted
                                                   -----------    -----------    ---------
<S>                                                 <C>             <C>           <C>
3 months ended March 31, 2002:
   Net loss                                         $(1,094,328)    (305,513)     (1,399,841)
   Net loss per common share -
        Basic and diluted                                 $(.02)        (.01)           (.03)

9 months ended March 31, 2002:
   Net loss                                         $(5,166,371)    (305,513)     (5,471,844)
   Net loss per common share -
        Basic and diluted                                 $(.12)          --            (.12)

</TABLE>



                                     F-19

<PAGE>

NOTE 14 - SUBSEQUENT EVENTS

In May 2001, a former CEO of the Company brought a claim against the Company in
the amount of 110,000 pounds for unpaid wages and a termination payment. The
Company settled the suit for a total of $75,000, to be paid in three
installments beginning in June 2002. The amounts remain unpaid as of the date of
the audit.

Between July and November 2002, the Company received funding from shareholders
totaling $510,000.

On September 6, 2002, the Company announced the completion of the $4.5 million
10% Convertible Bridge Loan conversion. The Company approved the issuance of
restricted common stock to the holders of the Special Warrants issued in
December 2001. The issuance of the additional shares was the final transaction
under the terms of the loan. The total number of shares approved for issuance
was 12,832,073, which included each Special Warrant exchanged for one share of
common stock, plus 10% additional shares authorized for issuance to each Bridge
Loan holder to offset the reduced liquidity provided relative to the original
terms of the loan. In approving the issuance, all Directors of the Company
waived their participation in the 10% additional issuance.


                                     F-20

<PAGE>