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 JUNE 30, 1997
Commission File Number 0-8146
(MOUNTAIN STATES RESOURCES CORPORATION)
(Exact name of registrant as specified in charter)
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UTAH 87-0280886
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State or other jurisdiction of (I.R.S. Employer I.D. No.)
Incorporation or organization
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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 June 30, 1997: 10,764,733.
Part I: Financial Information Item 1: Financial Statements
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Index to Financial Statements
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Page
Balance Sheets 3
Statements of Operation 4
Statements of Cash Flows 5
Notes to Financial Statements 6
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MOUNTAIN STATES RESOURCES CORPORATION
Consolidated Balance Sheets
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June 30 March 31
1997 1997
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ASSETS (unaudited) (audited)
Current Assets
Cash and Cash Equivalents $29,923 $ 6,840
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Accounts Receivable - Trade 1,492,423 1,383,207
Inventory 570,549 181,060
Other Receivables - Advances 146,802 127,971
Total Current Assets 2,239,697 1,699,078
_________ _____________
Property, Plant, and Equipment (at cost) 666,010 723,783
-Net
Other Assets
Goodwill 732,594 751,329
Other Investments 95,111 17,380
Long Term Notes Receivable 476,914
Total Other Assets 479,959
1,307,664 1,245,673
_________ _____________
TOTAL ASSETS $4,213,371 $ 3,668,534
_________ _____________
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current Liabilities
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Accounts Payable - Trade 1,387,651 869,198
Bank Line of Credit 871,140 724,890
Other Accrued Expenses 161,886 255,608
_________ _____________
Total Current Liabilities 2,420,677 1,849,696
_________ _____________
Long Term Notes
Notes Payable 634,921 655,942
Obligations under Capital Leases For
Equipment 206,896
Other 135,391
Other Long Term Liabilities - 25,000
_________ _____________
Total Long Term Notes 770,312 887,838
Stockholders Equity
Preferred stock at $2 par value;
Authorized 10,000,000 shares issued and -0- -0-
Outstanding
Common stock at $.10 par value; 1,076,473 1,076,473
Authorized 50,000,000 common shares
10,764,733 shares issued and outstanding 5,600,652
Additional paid-in capital (30,525)
Accumulated Deficit (23,566) (5,746,125)
931,000
Total Stockholders Equity 1,022,382
_________ _____________
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $4,213,371 $ 3,668,534
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The accompanying notes are an integral part of these financial statements.
MOUNTAIN STATES RESOURCES CORPORATION
Consolidated Statements of Operation
For the Three Months Ended June 30
(UNAUDITED)
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1997 1996
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Net Revenues $ 1,229,784 $ 1,476,905
Cost of Goods Sold 673,075 988,425
Gross Margin 576,709 488,480
Selling, General and Administrative 557,812 428,246
Operating Income (Loss) 17,632 60,233
Other Income (Expense) (22,463) (69,304)
Net Income (Loss) $___(23,566) $________9,071
Earnings (Loss) Per Share $______(.01) $__________.01
Weighted average number of shares outstanding
used in earnings (loss) per share
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calculation 10,764,733 10,764,733
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The accompanying notes are an integral part of these financial statements.
MOUNTAIN STATES RESOURCES CORPORATION
Consolidated Statement of Cash Flow
For the Quarter ended June 30
(UNAUDITED)
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1997 1996
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Cash Flows from Operating Activities:
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Net Income (Loss) ($23,566) 123,377
Adjustments to reconcile net income
To net cash, provided by operating activities:
Depreciation expense $29,746 $_______13,845
Change in accounts payable $320,983 $850,474
Change in inventory $178,618 ($36,012)
Change in accounts receivable ($476,489) ($516,538)
Change in accrued expenses ($102,627) ($43,234)
Net Cash Provided by (Used by)
_________ _____________
Operating Activities (73,335) 391,911
_________ _____________
Cash Flows from Investment Activities:
Investment in property & equipment $382,368 $222,358
Investment in other assets $452,327 $118,993
Net Cash provided by (Used by)
Investing Activities 834,695 341,351
_________ _____________
Cash Flows from Financing Activities:
Increase of long term debt ($713,065) ($605,820)
Change in capital lease obligations ($66,205) ($109,163)
Net Cash Provided by (Used by) (779,271) (714,983)
Financing Activities
Net Increase (Decrease) in Cash (17,910) 18,279
Cash at Beginning of Period $47,833 29,554
Cash at End of Period $29,923 47,833
_________ _____________
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MOUNTAIN STATES RESOURCES CORPORATION
Consolidated Statements of Stockholders' Equity
For the Year Ended March 31, 1997 Audited
and Quarter Ended June 30, 1997 Unaudited
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Common Stock___ Additional paid_ Accumulated_ Treasury
Shares Amount in Capital Deficit Stock Total
_______ _______ _________ __________ _______ _______
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Balance
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March 31, 1996 418,733_$ 41,873_$4,801,107 _($5,546,995) ($1,000) ($626,069)
Preferred Stock
39,473 Shares
78,946 Amount
Common stock
Issued in
exchange for
preferred
shares at
approximately
$3.95 per share
preferred Stock
(39,473)Shares
(78,946)Amount 20,000_$ 2,000_$ 76,946 _ - - -
Common stock
issued for
services under
S - 8 500,000_$ 50,000 - - - 50,000
Common stock
issued for
debt of
approximately
$17,58 per
share 516,000_$ 51,600 722,599 - - 774,199
Common stock
issued for
acquisition
of Micro-Media
Solutions,
Inc. 9,310,000_$931,000 931,000
Cancellation
of Treasury
Stock 1,000 1,000
Net Loss for
the year
ended March
31, 1997 - - - (199,130) - (199,130)
________________________________________________________________
Balance
March 31,
1997 10,764,733_$1,076,473_$5,600,652_$(5,746,125)$___-_____$931,000
Net loss
for the
quarter
ended
June 30,
1997 - - - - - -
Balance
June 30,
1997 $10,764,733_$1,076,473_$5,600,652_ - - -
MOUNTAIN STATES RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 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 the
results of operations for the interim periods preseted 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
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. (MSI) in which MSRC
acquired 100% of the common stock of MSI. As part of the reorganization,
MSRC plans to change its name to Micro-Media Solutions, Inc. (MSI). The
transaction was accounted for as a purchase.
MSI is an Austin, Texas-based, technology corporation formed to provide
computer hardware, software programming, system support, maintenance, media
duplication, and kitting to the public and private sectors. MSI 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.
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 $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 itsoperations in 1993 and became a develpment stage company
as described in the Statement of Finacial Accounting Stadards #7. Since then
MSRC has actively sought ne business opportunities. The significant account
balances were 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.
MOUNTAIN STATES RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(Continued)
Earnings (Loss) Per Share
The earnings (loss) per share is computed on the basis of the weighted
average number of 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.
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 limited number of suppliers. The company relies,
to a certian extent, upon its suppliers' abilities to enhance existing products
in a timely and cost-effective manner, to develop new poducts to meet changing
customer needs and to respond to emerging standards and other technological
developments in the computer industry. 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.
MOUNTAIN STATES RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
JUNE 30, 1997
(Continued)
The computer and telecommunications industries. 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 will be 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 walues. 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 . 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 acquistion into Mountain States Resources
Corporation.
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 June 30, 1997 the Company owed $700,000 on the line.
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 is
currently searching for a new banking relationship and has tenative agreements
wint two banking institutions.
MOUNTAIN STATES RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(Continued)
NOTE . GOING CONCERN
As shown in the accompanying consolidated financial statements, the Company
has incurred a net loss in the current quarter of $23,566 and as of that
date, the Company's current liabilities exceeded its current assets by
$180,980. At June 30, 1997, the Company owes accounts payable with dates
due in excess of thirty (30) 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 expenses related to operations and
capital inprovements. The Cimpany has signed a letter of intent for $4 million
on a firm commitment basis with $1,060,000 to be recieved during October,
1997, $1,060,000 to be received during January 1998, and an additional
$2,000,000 during calendar 1998. In addition, the Company plans a secondary
offering during fiscal 1998. The financial statements do not include any
adjustments that might be necessary if the Company is unable to continue as
a going concern.
Part I: Financial Information Item 2: Management's Discussion and analysis of
financial condition and results of operations
The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of the Company's
results of operations and financial condition. This discussion should be
read in conjunction with the Consolidated Financial Statements appearing in
Item 1.
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
1997 First Quarter and 1996 First Quarter.
Net sales for the 1997 First Quarter were $1,229,784 versus $1,476,905 for
the 1996 First Quarter. A decrease of 16.7 percent. The decrease is
primarily due to increased focus toward service contracts instead of
hardware sales.
Cost of sales was $673,075 in the 1997 First Quarter versus $988,425 in the
1996 First Quarter, a decrease of 31.9 percent. The decrease was the result
of greater service sales effected in 1997 requiring less inventory cost.
The Company's gross margin in the 1997 First Quarter was 45.3% versus 33.1%
in the 1996 First Quarter, an increase of 14.0 percent. This increase was
due to higher service sales with lower inventory costs, resulting in higher
margins.
Selling general and administrative expenses increased to $539,077 in the 1997
First Quarter from $428,246 in the 1996 First Quarter, an increase of 25.9
percent. This increase is primarily due to additional management personnel.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company had working capital of $ , compared to a
working capital deficit of $ at June 30, 1996. This increase in the
Company's working capital was primarily due to.
Net cash used by operating activities was $ and $ in the 1997 First
Quarter and the 1996 First Quarter, respectively.
The company has financed its growth primarily through borrowings. As of June
30, 1997, the Company's sources of internal and external financing were
limited. It is not expected that internal sources of liquidity will improve
until net cash is provided by operating activities, 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
$4,000,000 to be funded over the next sixteen months beginning with $1,060,000
on or before October 30, 1997.
PART II: Other Information
Item 2: Changes in Securities
The company is currently engaged in the private placement (the "Private
Placement") of up to 4,000,000 shares of common stock, par value $.10 per
share (the "Common Stock") and up to 4,000,000 shares of Series A Preferred
Stock, par value $.10 per share (the "Series A 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 in place at September 15, 1997 and
the successful completion of the private placement-funding revenue for
calendar 1998, which 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 will be 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.
Item 6: Exhibits and Reports on Form 8K
(a) Exhibits
None.
(b) Reports on Form 8K
None.
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
Directors and President
_________________ ___________________
Mitchell Kettrick Vice-President and Director
________________ ___________________
Humberto Casas Accountant
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