UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
FOR THE FISCAL QUARTER ENDED SEPTEMBER 30, 1997
Commission File Number 0-8146
MICRO-MEDIA SOLUTIONS, INC.
FORMERLY MOUNTAIN STATES RESOURCES CORPORATION
(Exact name of registrant as specified in charter)
UTAH 87-0280886
State or other jurisdiction of (I.R.S. Employer I.D. No.)
Incorporation or organization
501 Waller St., Austin, Texas 78702
(Address of principal executive offices)
Issuer's telephone number, including area code (512) 476-6925
Securities registered pursuant to section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None N/A
Securities registered pursuant to section 12(g) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, None
Par Value $.10
Check whether the Issuer (1) filed all reports required to be filed by
section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such report(s),
and (2) has been subject to such filing requirements for the past 90 days.
(1) Yes ( ) No (X) (2) Yes (X) No ( )
Number of shares of common stock outstanding at September 30, 1997: 10,764,733.
Part I: Financial Information Item 1: Financial Statements
Index to Financial Statements
Page
Balance Sheets 3
Statements of Operation 5
Statements of Stockholders' Equity 6
Statements of Cash Flows 7
Notes to Financial Statements 8
MICRO-MEDIA SOLUTIONS, INC.
FORMERLY MOUNTAIN STATES RESOURCES CORPORATION
Consolidated Balance Sheets
ASSETS
<TABLE>
<C> <C> <C> <C>
September 30 March 31
1997 1997
(unaudited) (audited)
<S>
Current Assets
<S> <C> <C> <C>
Cash and Cash Equivalents $ 56,617 6,840
Accounts Receivable - Trade 955,843 1,383,207
Inventory 442,310 181,060
Other Receivables - Advances 149,605 127,971
Total Current Assets 1,604,375 1,699,078
Property, Plant and
<S> <C> <S> <C> <S> <C> <C>
Equipment (at cost) - Net 645,467 723,783
Other Assets
Goodwill 713,779 751,329
Investments 15,000 17,430
Long Term Notes Receivable 497,757 476,914
Total Other Assets 1,226,536 1,245,673
Total Assets $ 3,476,378 3,668,534
</TABLE>
The accompanying notes are an integral part of these financial statements.
MICRO-MEDIA SOLUTIONS, INC.
FORMERLY MOUNTAIN STATES RESOURCES CORPORATION
Consolidated Balance Sheets
LIABILITIES AND STOCKHOLDERS EQUITY
<TABLE>
<C> <C> <C> <C>
September 30 March 31
1997 1997
(unaudited) (audited)
<S>
Current Liabilities
<S> <C> <C> <C> <C>
Payroll Taxes Payable $ 133,849 $ 51,637
Accounts Payable - Trade 1,406,620 869,198
Bank Line of Credit 708,966 724,890
Other Payables 469,700 -
Other Accrued Expenses 95,800 203,971
Current Portion - Obligation
Under Capital Leases 52,921 52,921
Current Portion - Long Term Debt 160,060 160,060
Total Current Liabilities 3,027,916 2,062,677
Long Term Notes
Notes Payable 477,319 495,882
Obligations Under Capital
Leases for Equipment 81,736 153,975
Other Long Term Liabilities 20,834 25,000
Total Long Term Notes 579,889 674,857
Stockholders Equity
Preferred Stock at $2 par value;
Authorized 10,000,000 shares
issued and outstanding - -
Common Stock at $.10 par value;
Authorized 50,000,000 common shares
10,764,733 shares issued and outstanding 1,076,473 1,076,473
Additional paid-in capital 5,600,652 5,600,652
Accumulated Deficit (6,808,552) (5,746,125)
Total Stockholders Equity (131,427) 931,000
TOTAL LIABILITIES AND STOCKHOLDERS
EQUITY $ 3,476,378 $ 3,668,534
</TABLE>
The accompanying notes are an integral part of these financial statements.
MICRO-MEDIA SOLUTIONS, INC.
FORMERLY MOUNTAIN STATES RESOURCES CORPORATION
Consolidated Statements of Operation
(UNAUDITED)
<TABLE>
<S>
For the Six Months For the Three Months
Ended September 30 Ended September 30
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net Revenues $2,019,235 $2,750,393 $789,451 $1,273,489
Cost of Goods Sold 1,648,922 1,996,177 596,594 1,007,752
Gross Margin 370,313 754,216 192,857 265,737
Selling, General
and Administrative 1,327,349 900,098 687,821 471,851
Operating (Loss) (957,036) (145,882) (494,964) (206,115)
Other Income (Expense) (105,391) (99,893) (103,275) (30,589)
Net (Loss) $(1,062,427) $(245,775) $(598,239) $(236,704)
(Loss) Per Share (.155) (.036) (.088) (.035)
Weighted average number
of shares outstanding
used in (loss) per
share calculation 6,833,533 6,833,533 6,833,533 6,833,533
</TABLE>
The accompanying notes are an integral part of these financial statements.
MICRO-MEDIA SOLUTIONS, INC.
FORMERLY MOUNTAIN STATES RESOURCES CORPORATION
Consolidated Statements of Stockholders' Equity
For the Year Ended March 31, 1997 (Audited)
and Six Months Ended September 30, 1997 (Unaudited)
<TABLE>
<S>
Preferred Stock Common Stock Additional Accumulated Treasury
<S>
Shares Amount Shares Amount Paid In Deficit Stock Total
<S>
Capital
______ ______ _________ ________ ________ _________ _______ _______
<S>
Balance
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
March 31, 1996 39,473 $78,946 418,733 $ 41,873 $4,801,107 $(5,546,995) $(1,000) $(626,069)
Common stock
Issued in exchange
for preferred shares
at approximately
<C> <S> <C> <C> <C> <C> <C> <S>
$3.95 per share (39,473) (78,946) 20,000 2,000 76,946 - - -
Common stock
issued for services
<S> <C> <S> <C> <C> <S> <C>
under S - 8 - - 500,000 50,000 - - - 50,000
Common stock
issued for debt
of approximately
<C> <S> <C> <C> <C> <S> <C>
$17,58 per share - - 516,000 51,600 722,599 - - 774,199
Common stock
issued for
acquisition of
Micro-Media
<S> <C> <S> <C> <C> <C>
Solutions, Inc. - - 9,310,000 931,000 931,000
Cancellation of
<S> <C> <C>
Treasury Stock 1,000 1,000
Net Loss for the
year ended
<C> <C> <C> <S> <C> <S> <C>
March 31, 1997 - - - - - (199,130) - (199,130)
Balance
<C> <C> <C> <S> <C> <C> <C> <C> <S> <C>
March 31, 1997 - - 10,764,733 1,076,473 5,600,652 (5,746,125) - 931,000
Net loss for
the six months
ended September
<C> <C> <S> <C> <S> <C>
30, 1997 - - - - - (1,062,427) - (1,062,427)
Balance
<C> <C> <C> <S> <C> <C> <C> <C> <S> <C>
June 30, 1997 - - 10,764,733 $1,076,473 $5,600,652 $(6,808,552)$ - $ (131,427)
</TABLE>
The accompanying notes are an integral part of these financial statements.
MICRO-MEDIA SOLUTIONS, INC.
FORMERLY MOUNTAIN STATES RESOURCES CORPORATION
Consolidated Statements of Cash Flow
For the Six Months Ended September 30
(UNAUDITED)
1997 1996
Cash Flows from Operating
Activities:
Net Income (Loss) $ (1,062,427) $ (245,775)
Adjustments to reconcile
net income
To net cash, provided by
operating activities:
Amortization and
Depreciation expense 115,866 -
Change in accounts
receivable 405,730 (416,650)
Change in inventory (261,250) 483,617
Change in accounts payable 537,422 (179,080)
Change in accrued expenses
and other (25,959) (1,473)
Net Cash Provided by (Used by)
Operating Activities (290,618) (359,361)
Cash Flows from Investment Activities:
Investment in property
& equipment - (186,744)
Investment in other assets (18,413) (61,932)
Net Cash provided by (Used by)
Investing Activities (18,413) (248,676)
Cash Flows from Financing Activities:
Increase of long term debt 431,047 791,984
Change in capital lease
obligations (72,239) -
Net Cash Provided by (Used by)
Financing Activities 358,808 791,984
Net Increase (Decrease) in Cash 49,777 183,947
Cash at Beginning of Period 6,840 9,104
Cash at End of Period $ 56,617 $ 193,051
The accompanying notes are an integral part of these financial statements.
MICRO-MEDIA SOLUTIONS, INC.
FORMERLY MOUNTAIN STATES RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
(unaudited)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation:
The accompanying unaudited interim financial statements have been prepared in
accordance with generally accepted accounting principals and the rules of the
Securities and Exchange Commission (the SEC), and should be read in conjunction
with the audited financial statements and notes thereto contained in the
Company's latest annual Report filed with the SEC on Form 10-KSB. In the
opinion of management, all adjustments consisting of normal recurring
adjustments, necessary for the fair presentation of financial position and
results of operations for the interim periods presented have been reflected
herein. The results of operation are not necessarily indicative of the
results to be expected for the full year. Notes to the financial statements
which would substantially duplicate the disclosure contained in the audited
financial statements for the year ended March 31, 1997, as reported in the
Form 10-KSB have been omitted.
Nature of Business and Organization
MICRO-MEDIA SOLUTIONS, INC. formerly MOUNTAIN STATES RESOURCES CORPORATION
(MSRC), (the "Company") was organized under the laws of the State of Utah on
April 15, 1969. On June 23, 1997 MSRC entered into a reverse merger
agreement and plan of reorganization with the shareholders of Micro-Media
Solutions, Inc. in which MSRC acquired 100% of the common stock of MSI.
As part of the reorganization, MSRC changed its name to Micro-Media
Solutions, Inc. (MSI) on September 29, 1997. The name change was approved by
the stockholders. The transaction was accounted for as a purchase.
MSI is an Austin, Texas technology corporation formed to provide computer
hardware, software programming, system support, maintenance, media
duplication, and kiting to the public and private sectors. MSI is a
minority owned business and is HUB certified to do business with state and
corporate clients.
MSI is a business solutions technology integrator with infrastructure design
and implementation services. MSI's computer networking services includes
system integration and local and wide-area networks.
MICRO-MEDIA SOLUTIONS, INC.
FORMERLY MOUNTAIN STATES RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
(Continued)
Principles of Consolidation
The consolidated financial statements for 1997 and 1996 include the accounts
and transactions of MSRC and MSI. All significant inter-company accounts and
transactions have been eliminated in the accompanying consolidated financial
statements. MSRC, however, did not have any material balance sheet accounts
or account balances, with the exception of a net operating loss of
approximately $5.7 million. MSRC, a development stage company, began
operations in April 15, 1969 as a mining, mineral extraction and oil and gas
exploration company. MSRC discontinued its operations in 1993 and became a
development stage company as described in the Statement of Financial
Accounting Standards #7. Since then, MSRC had actively sought new business
opportunities. The significant account balances were those of MSI's.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Loss Per Common Share
The loss per common share is computed on the basis of the weighted average
number of common shares outstanding during the period. All historical per
share data has been restated to reflect stock splits and the effect of the
merger transaction of Micro-Media Solutions, Inc. In February 1997, the
Financial Accounting Standards Board issued Statement No. 128. Earnings Per
Share, which is required to be adopted on December 31, 1997. The impact of
Statement No. 128 on primary and fully diluted earnings per share is not
expected to be material for the three and six months ended September 30, 1997.
Use of Estimates and Certain Concentrations
Management of the Company has made a number of estimates and assumptions
relating to the valuation and reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these consolidated
financial statements in conformity with generally accepted accounting
principles. Although actual results could differ from those estimates,
Management believes its estimates are reasonable. Certain components,
subassemblies and software included in the Company's computer systems are
obtained from sole suppliers or a limited number of suppliers. The Company
relies, to a certain extent, upon its suppliers' abilities to enhance
existing products in a timely and cost-effective manner, to develop new
products to meet changing customer needs and to respond to emerging
standards and other technological developments in the computer industry.
MICRO-MEDIA SOLUTIONS, INC.
FORMERLY MOUNTAIN STATES RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
(Continued)
The Company's reliance on a limited number of suppliers involves several
risks, including the possibility of shortages and/or increases in costs of
components and subassemblies, and the risk of reduced control over delivery
schedules.
The Company has a large number of customers on which it performs ongoing
credit evaluations and generally does not require collateral from its
customers. Historically, the Company has not experienced significant losses
related to receivables from individual customers or groups of customers in
any particular industry of geographic area.
Goodwill
On June 23, 1997, Micro-Media Solutions, Inc. (MSI) merged with Mountain
States Resource Corporation (MSRC). Pursuant to the terms of the Merger,
MSRC issued approximately 9,310,000 shares of its common stock in exchange
for all of the outstanding shares of MSI. The name of the surviving
corporation was changed to MSI. The Merger resulted in a change of control
and was accounted for as a purchase. A new basis of accounting was
established for the assets and liabilities and reflects the allocation on
the basis of their fair values. Goodwill of approximately $751,000 was
recorded to the extent the purchase price exceeded the fair value of the
identifiable net assets. Goodwill is being amortized on a straight line
basis over ten years.
NOTE 2. SHORT-TERM BORROWINGS.
The Company owes $200,000 payable in cash to a third party due November 8,
1997 at 20% for borrowings used for acquisition into Mountain States
Resources Corporation. The full amount including interest was paid on
November 20, 1997.
The Company had a secured credit agreement with Bank One providing for
borrowings of up to $725,000, based on the amount of the Company's eligible
receivables. As of September 30, 1997 the Company owed $709,000 on the line
of credit. The amount due to Bank One under the credit line was reduced in
October and November 1997 by $500,000. Under the agreement, the Company is
subject to certain financial and other covenants including certain financial
ratios.
The credit agreement matured on August 18, 1997 and Bank One notified the
company that the bank would not renew the credit line. The Company has
working agreements with two other banking institutions.
MICRO-MEDIA SOLUTIONS, INC.
FORMERLY MOUNTAIN STATES RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
(Continued)
NOTE 3. SUBSEQUENT EVENTS
On November 18, 1997, the Company received $2,120,000 completing the Private
Placement of 400,000 shares of Series B Preferred Stock $2 par value for a
purchase price of $5.30 per share. The Company received $371,000 in
October 1997 from two individuals under senior convertible notes payable
secured by common stock. Total expenses of the Private Placement including
broker fees, commissions, and legal and accounting expenses totaled $302,000.
NOTE 4. GOING CONCERN
As shown in the accompanying consolidated financial statements, the Company
has incurred a net loss in the current quarter of $598,000 and as of that
date, the Company's current liabilities exceeded its current assets by
$1,263,000. At September 30, 1997, the Company owes accounts payable with
dates due in excess of ninety (90)days. These factors create an uncertainty
about the Company's ability to continue as a going concern. The ability
of the Company to continue as a going concern is dependent on the Company's
attaining additional financing to fund the expenses related to operations and
capital improvements. The Company received a net $1,818,000 from the Private
Placement of Series B Preferred Shared in November 1997. The Company has signed
a letter of intent for $1 million on a firm commitment basis to be received
during December, 1997 and up to an additional $ 5,000,000 under a debt
instrument during the first quarter of calendar 1998. In addition, the
Company plans a secondary offering during fiscal calendar 1998. The financial
statements do not include any adjustments that might be necessary if the
Company is unable to continue as a gong concern.
Part I: Financial Information Item 2: Management's Discussion and analysis
of financial condition and results of operations.
CAUTIONARY STATEMENT REGARDING FACTORS THAT
MAY AFFECT FUTURE RESULTS
This Quarterly Report contains forward-looking statements, within the
meaning of the Private Securities Litigation Reform Act of 1995, with respect
to the financial condition, results of operations and business of Micro-Media
Solutions, Inc., and its subsidiary ("Company", or "Registrant"). Such
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially and adversely from those set forth in
the forward-looking statements, including without limitation the availability
of financial resources adequate to the Company's short-,medium- and long-term
needs, the Company's dependence on the timely development, pre-production
qualification, manufacture, introduction and customer acceptance of new
higher-speed, higher-margin products, the ability of the Company to
successfully implement its strategy of diversifying into the system service
business, the various effects on revenue, margins, inventories and operation
expenses of repositioning the Company's product lines and overall business,
the effects of building and maintaining product inventories, product returns
and credit risks with customers, the Company's dependence on distributors and
resellers for certain product sales to end-users, the impact on revenue,
margins and inventories of rapidly changing technology, competition, downward
pricing pressures and allocations of product among different distribution
channels, the effects of routine price degradation over time in each of the
Company's product lines, varying customer demand for the Company's products,
supply and manufacturing constraints and costs, the Company's dependence on
outside suppliers for components and certain manufacturing services, changes
in plans, programs or expenses for research, development, sales or marketing,
the Company's ability to build and maintain adequate staff infrastructures in
the areas of product development, sales and marketing, finance, accounting
and administration, supplier disputes, customer warranty claims, general
economic conditions, and the other risks and uncertainties described from
time to time in the Company's public announcements and SEC filings, including
without limitation the Company's Forms 8-k, 10-QSB, and 10-KSB respectably.
The Company cautions that the foregoing list of important factors is not
exclusive. The Company does not undertake to update any written or oral
forward-looking statement that may be made from time to time by or on behalf of
the Company.
The information contained in this Quarterly Report is not a complete description
of the Company's business or the risk associated with an investment in the
Company. More complete discussions can be found in the Company's Annual Report
on Form 10-KSB for the fiscal year ended March 31, 1997.
GENERAL
The Company is considered a leading computer networking service provider to
commercial and government markets. Revenue is recognized by the Company when
services are performed. Research and development costs are charged to expenses
as incurred. Among the principal costs to market and sell the Company's
products are advertising and promotion costs, sales, salaries and commissions,
and general and administrative expenses.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1997 Compared to Three Months Ended
September 30, 1996
Net sales for the 1997 fiscal Second Quarter were $789,451 versus $1,273,489
for the 1996 fiscal Second Quarter. A decrease of 38 percent. The decrease
is primarily due to increase in focus toward service contracts instead of
hardware sales.
Cost of sales was $596,594 in the 1997 fiscal Second Quarter Versus $1,007,752
in the 1996 fiscal Second Quarter, a decrease of 41 percent. The decrease was
the result of greater service sales effected in 1997 requiring less inventory
cost.
The buildup in inventory at September 30, 1997 includes work in process for
a Texas independent school district contract to be completed no later than
November 30, 1997.
The Company's gross margin in the 1997 Second Quarter was 24% versus 21% in
the 1996 fiscal Second Quarter, an increase of 3 percent. This increase was
due to the higher service sales resulting in higher margins.
Selling general and administrative expenses increased to $687,821 in the 1997
fiscal Second Quarter from $471,851 in the 1996 fiscal Second Quarter, and
increase to 46 percent. This increase is primarily due to additional
management personnel salaries.
Six Months Ended September 30, 1997 Compared to Six Months Ended September
30, 1996.
Net sales for the 1997 six months ended September 30, 1997 were $2,019,235
versus $2,750,393 for the six months ended September 30, 1996. A decrease of
27 percent. The decrease is primarily due to the increased focus toward service
contracts instead of hardware sales.
Cost of sales was $1,648,922 in the six months ended September 30, 1997 versus
$1,996,177 in the six months ended September 30, 1996, a decrease of 17 percent.
The decrease was the result of greater service sales effected in 1997.
The Company's gross margin in the six months ended September 30, 1997 was
18% versus 27% in the six months ended September 30, 1996, a decrease of
9 percent. This decrease was due to lower revenues.
Selling general and administrative expenses increased to $1,327,349 in the
six months ended September 30, 1997 from $900,098 in the six months ended
September 30, 1996, an increase of 47 percent. This increase is primarily due
to additional management personnel and time expended by the Company on
proposals for new contracts.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Company had a working capital deficit of $1,263,481
compared to working capital of $972,610 at September 30, 1996. This increase
in the Company's working capital deficit was primarily due to increase in
borrowings and payables.
Net cash used by operating activities was $290,618 and $359,361 in the 1997
First Quarter and the 1996 First Quarter, respectively.
The Company received $470,000 in proceeds from outsiders in the form of
bridge financing during the three months ended September 30, 1997. Additional
funding of $215,750 was received through November 17,1997.
The company has financed its operations primarily through borrowings. As of
September 30, 1997, the Company's sources of internal financing were limited.
It is not expected that internal sources of liquidity will improve until net
cash is provided by operating activities which is expected in early 1998,
and until such time, the company will rely upon external sources for liquidity.
The Company has signed a letter of intent with an investment banking firm for
$1,000,000 to be funded over the next 90 days and a debt offering of $3 to $5
million beginning on or before January 30, 1998.
PART II: Other Information
Item 2: Changes in Securities
On November 17, 1997 the Company completed the private placement (the "private
Placement") of 400,000 shares of Series B Preferred Stock, par value $2 per
share (the "Series B Preferred Stock"), all to "accredited investors" as that
term is defined in rule 501(a) of Regulation D promulgated under the Securities
Act of 1933, as amended.
The Company plans to use the proceeds from the sale of the Shares for working
capital, repayment of indebtedness and hiring of new personnel for recently
received new contracts. Based upon those contracts in place at November 15,
1997 and the successful completion of the private placement-funding, revenues
for calendar 1998 should exceed $15,000,000.
The company is obligated under contract to issue up to 1,500,000 shares of
common stock to employees and consultants.
Item 4: Submission of matters to a vote of the security holders
On September 26,1997, a special meeting of the security holders of the Company
was held to change the name of the company to Micro-Media Solutions, Inc.
Item 5: Other Matters
On June 11, 1997, the Company's board of directors replaced Jones & Jensen,
Salt Lake City, Utah as its principal accountant with Salazar & Associates,
Austin, Texas.
The report of Jones and Jensen on the Company's financial statements for the
last two fiscal years did not contain an adverse opinion or a disclaimer of
opinion, nor was such opinion qualified or modified as to certainty, audit
scope, or accounting principles. During the Company's two most recent fiscal
years and subsequent interim periods preceding the replacement of Jones &
Jensen, the Company had no disagreements with Jones & Jensen on any matter
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure. During the Company's two most recent fiscal
years and subsequent interim periods preceding the retention of Salazar &
Associates, neither the Company nor anyone on the Company's behalf, consulted
Salazar & Associates regarding any matter.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Date________________ By ___________________________________________
Jose G. Chavez, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of this
Registrant and in the capacities and on the dates indicated.
Signature Capacity Date
Jose G. Chavez Chairman of the Board of 11/20/97
Directors and President
Mitchell Kettrick Vice-President and Director 11/20/97
Stephen Hoelscher, CPA Comptroller 11/20/97
