UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF
1934 (NO FEE REQUIRED)
FOR THE FISCAL YEAR ENDED MARCH 31, 1997
Commission File Number 0-8164
MOUNTAIN STATES RESOURCES CORPORATION
(Exact name of registrant as specified in charter)
UTAH 87-0280886
State or other jurisdiction of (IRS 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 ( )
Check if disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no
disclosure will 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-KSB or any
amendment to this Form 10-KSB. ( )
State issuer's revenues for its most recent fiscal year:
$ 4,665,802
State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the
stock was sold, or the average bid and asked prices of such stock,
as of a specified date within the past 60 days. The Company
does not have an active trading market and it is, therefore,
difficult, if not impossible, to determine the market value of
the stock. Based on the bid price for the Company's Common
Stock at June, 1997 of $1.00 per share, the market value of
shares held by non-affiliates would be approximately $1,455,000.
As of June 30, 1997 the Registrant had 10,764,733 shares
of common stock issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by
reference and the part of the form 10-KSB (e.g., part I,
part II, etc.) into which the document is incorporated:
(1) Any annual report to security holders; (2) Any proxy
or other information statement; and (3) Any prospectus
filed pursuant to rule 424 (b) or (c) under the
Securities Act of 1933: None.
MOUNTAIN STATES RESOURCES CORPORATION (THE "COMPANY") WAS
DELINQUENT IN FILING ITS PERIODIC REPORTS SINCE SEPTEMBER
31, 1989. SEVERAL REPORTS WERE FILED ESSENTIALLY
SIMULTANEOUSLY IN ORDER TO BRING THE COMPANY CURRENT
IN ITS REPORTING OBLIGATIONS. THE REPORTS PROVIDED
INFORMATION FOR THE PERIOD DESCRIBED IN THE COVER PAGES
TO WHICH IT RELATED. SUCH INFORMATION SHOULD BE
CONSIDERED IN LIGHT OF ALL OTHER REPORTS FILED
BY THE COMPANY, PARTICULARLY REPORTS BEING FILED FOR
SUBSEQUENT PERIODS.
PART I
Item 1. Business
(A) History and Organization
MOUNTAIN STATES RESOURCES CORPORATION, (the "Registrant"
or the "Company" or "MSRC"), was organized under the laws
of the State of Utah on April 15, 1969.
On June 23, 1997, the Registrant executed an agreement
and plan of reorganization with the stockholders of
Micro-Media Solutions, Inc. (MSI), a Texas corporation,
whereby the Registrant acquired 100% of the outstanding
shares of MSI, in exchange for the issuance of 9,310,000
shares (86.48%) of the Registrant's common stock. The
transaction was a tax free exchange and was accounted for
as a reverse merger with MSRC being the survivor. MSRC
intends to change its name to MSI. The Registrant
intends to continue to pursue those activities formerly
pursued by the predecessor, MICRO-MEDIA SOLUTIONS, INC.,
the Texas corporation.
Business Activities
The initial business objective of the Registrant was to
acquire, explore for and hold interests in mineral
prospects and properties for further explorative
development or sale. The Registrant discontinued its
operations in 1993 and was considered a development stage
company for accounting purposes until June 23, 1997 when
the merger with Micro-Media Solutions, Inc. (MSI) took
place.
MSI is considered a leading computer networking services
provider primarily for institutional customers and was
recently listed by the Austin Business Journal in their
December, 1996 issue as number six of the largest 25
networking services companies in the Central Texas
region. MSI provides computer networking services,
distribution services, computer products, cable
installations, and personal computer hardware and
software support.
Marketing
Networking Systems. In the mid to late 1980s, networks
were centrally managed with a much smaller number of
intelligent end points. Local area network procedures
allow employees in small departments or work groups to
share files or expensive peripherals. These LANs
increased network complexity , but network design still
involved relatively few choices - for example, whether to
use either Ethernet or Token Ring topologies to connect
users. In today's increasingly connected world, networks
are more distributed, complex, and pervasive.
Network technology has evolved to support a broader group
- -- from employee communications to suppliers and clients.
In addition, an increasing number of remote users may be
accessing what once was local data. Distinctions between
LANs, enterprise networks, and inter-enterprise
networks have blurred in recent years.
Networks are no longer limited to simple data exchange or
the sharing of peripherals. Client/server, imaging,
multimedia, internet access, and videoconferencing
applications are now common in many organizations. These
data and graphically intensive applications often require
increased network bandwidth to ensure that users
experience adequate response times.
New technologies include Asynchronous Transfer Mode
(ATM), Fast Ethernet, and Fiber Distributed Data Interface
(FDDI). These technologies can increase bandwidth at least
tenfold over traditional 10-Mbps Ethernet and offer a
growth path and new application opportunities for
customers. Bridges, modems,
remote access devices, routers, or switches can connect
different work groups into enterprise networks, and a
variety of protocols can move information from location
to location.
Transmission media and wiring types have evolved from
copper to combinations of twisted-pair copper, coaxial
cable, fiber optic, and telephone leased lines; satellite
and wireless based service options; and more variations in
the future. Purchasing decisions now focus less on media
choices, as organizations have moved to Category 5
twisted-pair to the desktop and fiber in the backbone,
and more on how to incorporate new technologies using
existing media. Vendors have found ways to use ATM and
FDDI with existing infrastructure to boost performance,
rather than force people to bear the expense of ripping
out and replacing wiring.
All of these developments described above involve making
a series of trade-offs'. The products that offer the
most bandwidth and the most sophisticated features are
the most expensive and often are not compatible with the
existing infrastructure.
Internet Market. The internet market shares information
and related services among millions of people around the
world. The internet opens up the possibility of
redefining the desktop paradigm into one that uses more
affordable, easier use, and easier maintain platforms.
Bulky PCs will be replaced with a new type of desktop
computer, the Network Computer that is designed
specifically for use with the Internet and corporate
Intranets. Latest surveys estimate that over 20 million
individuals are currently using the Internet. Most
organizations have either implemented or are planning
to implement Internet (INET) applications. At least 60%
of U.S. consumers have not bought a home PC.
MSI is currently focusing on the large public agency and
private sector business segment and working diligently
on providing desktop network computers targeting
telecommunications providers as strategic partners.
In working strategically with telecom companies, MSI
will provide network products and services for work at
home, education, government, health care, finance, and
general business segments. Telecommunications companies'
growth strategy is focused on strengthening network based
business and that is where MSI`s business opportunities lie.
Competition
The computer and information access markets are
characterized by rapidly changing technology and
evolving industry standards. The Company experiences
significant competition from other network computer
manufacturers, suppliers of personal computers and
workstations, and software developers.
MSI includes several important features that set their
products and services apart from others that may be
considered competitive:
Established experience computer services corporation
Performed and performing as a historically
underutilized business (HUB)
Established strategic partnerships and alliances
Certified Minority Business Enterprise (MBE) by City,
State and Federal Agencies
Field Installation Services. MSI is carrying out state-
wide field installation services for key clients for the
installation of lottery equipment and electronic benefit
transfer equipment. MSI is positioned to increase the
service base with its statewide coverage of 35 technicians
working throughout the state of Texas. MSI's strategic
positioning has become a leader in the field installation
and maintenance services market.
Network Computers (NCs). MSI has positioned itself as a
technology leader in NCs and INET services. MSI is
positioned in its physical location and is strategically
positioned to become a leader in this market. There are no
identified competitors at this time. In addition, there are
no minority owned NCs OEMs identified in all of Central
Texas.
Our strategy has based on serving niche markets well. In
particular, in this case, NCs and INET services will be a
key to MSI's growth and business stability. The specific
education niche is relevant to MSI's sales growth.
Education markets require a heavy investment of resources
for computer networking, servers, and computer work
stations. MSI is geared to provide these services and offer
the TelaVista, MSI's version of he network computer as an
affordable alternative to PC purchases.
Cabling Services. As a minority owned company, MSI is
positioned to enlarge its market presence in the
communications area. MSI currently has capabilities in
fiber optic cabling through installation services, and
MSI's extensive expertise in cable types, splicing,
connectors/terminations, and testing. MSI's personnel
are certified in copper and fiber optic wiring systems
for data, voice, and video applications.
Employees
At June 30, 1997, MSI had 75 full-time employees. None
of MSI's employees are subject to a collective
bargaining agreement. MSI considers its relations with
its employees to be good and anticipates that it will
hire additional field personnel to implement its growth
plans.
Offices
MSI leases approximately 36,000 square feet of executive
office, manufacturing and distribution space in Austin,
Texas. If it were to require added space, MSI believes
that additional space is readily available for lease.
MSI leases field offices, storage facilities and equipment
yards in Dallas, Texas and San Antonio, Texas.
Item 2. Properties
MSI's principal administrative, marketing, manufacturing
and research and development operations are located in a
36,000 square foot building in Austin, Texas. These
facilities are occupied under a lease which expires November
2001. The annual gross rent for these facilities currently
approximates $95,000. The Company believes that its
existing facilities are adequate for its present
requirements. The Company's field sales and service
offices consist of leased office space totaling
approximately 1,000 square feet under and office sharing
arragement with a customer in exchange for services.
Current aggregate gross rents were insignificant for 1997.
Item 3. Legal Proceedings
There is no material, pending litigation incidental to
the business to which MSRC or MSI is a party or against
any of its Officers or Directors as a result of their
corporate capacities.
Item 4. Submission of Matters to a Vote of Security
Holders
No matters were submitted to a vote of security holders
of MSRC during the quarter ending July 31, 1997.
Annual meetings of the shareholders of MSRC are held
in accordance with Utah law.
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters
These prices are believed to be representative of inter-
dealer quotations without retail markup, markdown or
commissions, but may not represent actual transactions.
There can be no assurance that a public market for the
Registrant's common stock will be sustained in the
future.
Quarter Ended
Bid
low high
March 31, 1996 1.00 1.00
June 30, 1996 1.00 1.00
September 30, 1996 1.00 1.00
December 31, 1996 1.00 1.00
March 31, 1997 1.00 1.00
June 30, 1997 2.00 2.00
On June 30, 1997 there were approximately 5,400
registered holders of the Registrant's common stock,
including those persons having beneficial positions in
street name holdings.
Holders of common stock are entitled to receive such
dividends as may be declared by the Registrant's Board
of Directors. The Registrant has not yet paid any
dividends, and the Board of Directors of the Registrant
presently intends to pursue a policy of retaining earnings,
if any, for use in the Registrant's operations and to
finance expansion of its business. With respect to the
Common Stock, the declaration and payment of dividends in
the future, of which there can be no assurance, will be
determined by the Board of Directors in light of conditions
then existing, including the Registrant`s earnings,
finacial condition, capital requirements and other factors.
Item 6. Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following discussion addresses the Company's results
of operations forthe years ended March 31, 1997 and 1996,
as well as liquidity and capital resources as of
March 31, 1997.
As a result of the acquisition of Micro-Media Solutions,
Inc. on June 23, 1997, the financial condition of the
Registrant changed dramatically. The acquisition was
accounted for as a recapitalization and resulted in a
significant change in the business of the Registrant.
The Registrant considers its results to be comparative
for the purposes of this discussion and analysis.
MSI's past operating results have been, and its future
operating results may be, subject to seasonality and other
fluctuations, on a quarterly and an annual basis, as a
result of a wide variety of factors, including, but not
limited to, critical component availability, the timing
of new product introductions by MSI and its competitors,
fluctuating market pricing for computer and semiconductor
memory products, industry competition, fluctuating
component costs, inventory obsolescence, seasonal cycles
common in the computer industry, seasonal government
purchasing cycles, the effect of product reviews and
industry awards, manufacturing and production constraints,
changes in product mix and the timing of orders from and
shipments to OEM customers. As a result, the operating
results for any particular period are not necessarily
indicative of the results that may occur in any future
period.
Results of Operations
Year Ended March 31, 1997 Compared to March 31, 1996
Revenues decreased $ 76,357 or 1.6% from 1996 to 1997.
The decrease was a result of normal business activity
and is not attributed to any particular item or event.
Cost of goods sold decreased $ 152,677 or 4.4% from 1996
to 1997. This resulted from efforts to increase margins
on sales by improving relationships with vendors that
offer discounts on inventory purchases and focusing on
finding competitive pricing for inventory purchases.
Selling, general, and administrative expenses increased
substantially for theyear ended March 31, 1997 as compared
to the year ended March 31, 1996 primarily due to the
increase of statewide employees and related personnel
costs. Management anticipates a slight increase in
selling, general, and administrative expenses in the
immediate future.
Liquidity and Capital Resources
During the twelve months ended March 31, 1997, working
capital decreased $691,000 from the prior year as a result
of increased borrowings, new debt,and failure by Management
to complete restructuring arrangements with various
financial institutions. During this period the Company's
accounts payable increased $178,000 or 33%.
At the present time, the Registrant is more than thirty
(30) days past due onthe majority of its accounts payable.
If the Registrant's financing efforts are not successful
in the immediate term, Management cannot reasonably predict
the outlook for continuing operations. Management intends
to devote material effort toward satisfying the immediate
need for working capital. Management has received a letter
of commitment from a private financing source for $3,000,000
of equity and debt.
Inflation
The Registrant does not believe that inflation will have
a material impact on the Registrant's future operations.
Item 7. Financial Statements and Supplementary Data
Please see accompanying index to Financial Statements
Item 8. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure
There have been no disagreements between the Registrant
and its independent accountants on any matter of
accounting principles or practices or financial statement
disclosure since the Registrant's inception. Jones, Jensen,
and Company resigned as auditors on June 23, 1997. The
Registrant hired Salazar and Associates, P.C. during June
1997 and filed an 8-K reporting the change.
PART III
Item 9. Directors and Executive Officers of the
Registrant
The executive officers, key employees and directors of
the Registrant and their ages and positions with the
Registrant or its subsidiaries are as follows:
Name\ Age Position
Period from
which served
Jose G. Chavez 46 Chairman of the Board
June 23, 1997 of Directors and President
Mitchell C. Kettrick 30 Vice-President and
June 23, 1997 Director
George Villalva 61 Vice-President and
June 23, 1997 Director
Frank Rodriguez 46 Chief Financial and
June 23, 1997 Accounting Officer
The Registrant has no knowledge of any arrangement or
understanding in existence between any executive officer
named above and any other person pursuant to which any
such executive officer was or is to be elected to such
office or offices. All officers of the Registrant serve
at the pleasure of the Board of Directors. No family
relationship exists among the directors or executive
officers of the Registrant. All Officers of the
Registrant will hold office until the next Annual Meeting
of the Registrant.
The following sets forth biographical information as to
the business experience of each Officer and Director of the
Registrant for at least the past five years.
Jose G. Chavez, President, has over 20 years experience
in manufacturing, engineering, system design and
development, energy engineering, and computer technology
management. As co-founder of MSI in 1993, he has overseen
the development of a start-up to a multi-million dollar
business enterprise. He previously was plant manager for
HDS, a division of Hart Graphics, Inc. from 1991 to 1993,
and manufacturing manager for Compuadd Corporation from
1989 to 1991. Mr. Chavez holds an electrical engineering
degree from UTEP and a business degree from the University
of Redlands, Redlands, Califonia.
Mitchell C. Kettrick, Vice-President of Technical
Operations has over 6 yearsexperience in manufacturing,
test diagnostics, and networking. As co-founder of MSI
in 1993, and MSI's Chief Technology Officer, he oversees
technical services, system design, and information services.
Previously, he was manager for quality assurance for Hart
Distributions Services during 1992, and manufacturing
systems test manager for Compuadd Corporation from 1987 to
1991. Mr. Kettrick holds an Associate of Applied Science
1992. in Computer Technology from TSTC.
George Villalva, Vice-President of Operations, is a
registered architect and has designed and planned many
projects of distinguished value. As Vice-President of
Operations since 1993, he oversees day to day operations
and MSI's building expansion and space planning. He
carries out important strategic marketing tasks for MSI
with public and private sector clients. Mr. Villalva has
been in private practice for 25 years and devotes 50% of
is time to the Company.
Frank Rodriguez, Director of Finance and Corporate
Development since 1995, has over 20 years of financial
planning and market development experience in the public
and private sectors, most recently serving as Director of
Consumer Services and Economic Development for Pedernales
Electric Cooperative from 1988 to 1995. Mr. Rodriguez has
served in upper levels of City and State government as an
Assistant City Manager, Budget Director, Finance Director,
and Treasurer. In the private sector, he has served as a
finacial advisor to business with specialties in finacial
planning and market development. Hehas worked in diverse
industries such as in electric utility, real estate,
housing, and computer tecnology businesses. Mr. Rodriguez
holds a Business degree for O.L.L.U., San Antonio, Texas.
During the past five years, there have been no petitions
under the Bankruptcy Act or any state insolvency law filed
by or against, nor have there been any receivers, fiscal
agents, or similar officers appointed by any court for the
business or property of any of the Registrant's incumbent
directors or executive officers, or any partnership in
which any such person was a general partner within two
years before the time of such filing, or any corporation
or business association of which any such director or
executive officer was a executive officer within two years
before the time of such filing.
During the past five years, no incumbent director or
executive officer of the Registrant has been convicted
of any criminal proceeding (excluding traffic violations
and other minor offenses) and no such person is the subject
of a criminal prosecution, which is presently pending.
Item 10. Executive Compensation
Summary Compensation Table
Annual Compensation
Payouts
(a) (b) (c) (d) (e)
Name and
Principal Year Salary Bonus Other
Position Annual
Compen
-sation
Jose G. 1997 $105,000 $-0- $-0-
Chavez, 1996 $ 51,000 $34,000 $-0-
CEO & 1995 $ 87,000 $13,000 $-0-
President
Long Term Compensation
(f) (g) (h) (I)
- -0- -0- -0- -0-
- -0- -0- -0- -0-
- -0- -0- -0- -0-
Employment Contracts
There are no written employment contracts as of the
date of this report.
Compensation of Directors
Each director who is not an employee of the Registrant
(the "Outside Directors") will be paid the sum of $1,000
for each meeting of the Board of Directors attended by them.
Additionally, they will be reimbursed for expenses incurred
in attending meetings of the Board of Directors and related
committees. As of the date of this report, the Registrant
has no outside directors. No compensation was paid to any
outside Director during fiscal 1997.
Item 11. Security Ownership of Certain Beneficial Owners
and Management
As of July 31, 1997, there were 10,764,733 shares of
common stock issued and outstanding.
The following table sets forth, as of the date of this
Report, the common stock ownership of each person known
by the Registrant to be the beneficial owner of five
percent or more of the Registrant's common and preferred
stock , all Directors individually, and all Directors and
Officers of the Registrant as a group. Except as noted,
each person has sole record and beneficial ownership and
voting power with respect to the shares shown.
Name and Address of Common Stock (1) Percent of Class (1)
Beneficial Owner
Jose G. Chavez 7,125,000 66.18%
Mitchell C. Kettrick 1,425,000 13.24%
George Villalva 475,000 4.41%
All Directors and
Officers as a Group 9,025,000 83.83%
(3 persons)
________
(1) Calculations assume exercise and conversion of all
warrants, option and conversion rights into the underlying
shares of common stock. All common and preferred shares
held by the Officers, Directors and Principal Shareholders
listed above are "restricted securities" and as such are
subject to limitations on resale. The shares may be sold
pursuant to Rule 144 under certain circumstances.
Rule 13d-3 under the Securities Exchange Act of 1934,
involving the determination of beneficial owners of
securities, includes as beneficial owners of securities,
among others, any person who directly or indirectly,
through any contract, arrangement, understanding,
relationship or otherwise has, or shares, voting power
and/or investment power with respect to such securities;
and, any person who has the right to acquire beneficial
ownership of such security within sixty days through means,
including, but notise of any option, warrant or conversion
of a security. Any securities not outstanding which are
subject to such options, warrants or conversion privileges
shall be deemed to be outstanding securities of the class
owned by such person, but shall not be deemed to be
outstanding for the purpose of computing the percentage of
the class by any other person.
All shares are "restricted securities" and as such are
subject to limitations on resale. The shares may be sold
pursuant to Rule 144 under certain circumstances.
There are no contractual arrangements or pledges of the
Registrant's securities, known to the Registrant, which
may at a subsequent date result in a change of control
of the Registrant.
Item 12. Certain Relationships and Related Transactions
Certain information concerning the Registrant's executive
officers and directors is included under Item 11 of
this report.
Certain officers, directors, stockholders and employees
of the registrant have ownership interests in entities
where the registrant has advanced monies for working
capital and expenses. The advances have been converted
to notes and are personally guaranteed by the shareholders
of the related entities. The schedule below lists the name
of the stockholder and the percentage of ownership.
Name of Prima Quality Salas
Stock- Development & Communications, Concessions
holder Construction, Inc. Inc. Inc.
(Percentage of Ownership)
Jose G. Chavez 26 28 33
Frank Rodriguez 15 5 -
Andrew Ramirez 26 27 35
George Villalva 15 5 4
Mitchell C. 18 10 13
Kettrick
Bruce Funderburk -- 20 --
Laurel Funderburk-- 5 --
Tammie Delaney -- -- 15
100 100 100
The Registrant's officers and directors serve as officers
directors and advisors on an as needed basis and total
involvement is minimal.
Item 13. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K
Exhibits
Exhibit Description Location
3A Articles of Incorporation Incorporated by
and Bylaws reference to Exhibit
No. 3 to the
Registrant's
Registration
Statement
(#33-24265-LA)
3B Amended Articles of Incorporated by
Incorporation reference to Exhibit
No. 2B of
Registrant's Form
8-A Registration
Statement
(File #0-20760)
4 Specimen of Securities Incorporated by
reference to Exhibit
Nos. 1A and 1B of
Registrant's Form
8-A Registration
Statement
(File #0-20760)
10A Agreement and Plan of Incorporated by
Reorganization reference to Form
8-K dated
August 12, 1992
The Registrant filed no Reports on Form 8-K during the
last quarter of the fiscal year covered by this Report
on Form 10-KSB.
MOUNTAIN STATES RESOURCES CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND SCHEDULES REQUIRED BY ITEM 8 AND ITEM 14
FINANCIAL STATEMENTS PAGE
Reports of Independent Public Accountants F-2
Consolidated Balance Sheet as of March 31, 1997 F-3
Consolidated Statements of Operations for
the Years Ended March 31, 1997 and 1996 F-4
Consolidated Statements of Stockholders' Equity
for the Years Ended March 31, 1997 and 1996 F-5
Consolidated Statements of Cash Flows for the
Years Ended March 31, 1997 and 1996 F-6
Notes to Consolidated Financial Statements F-7
to F-17
FINANCIAL STATEMENT SCHEDULES (1)
(1) Schedules are omitted because of the absence of the
conditions under which they are required, or because the
information required by such omitted schedule is
contained in the consolidated financial statements or
the notes thereto.
Salazar & Associates
CERTIFIED PUBLIC ACCOUNTANTS
Jose Salazar, CPA Frances Ortiz-Salazar, CPA
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors of Mountain States Resources
Corporation
We have audited the accompanying consolidated balance
sheet of Mountain States Resources Corporation and
subsidiary (the "Company") at March 31, 1997 and the
related consolidated statements of operations and cash
flows for the year ended March 31, 1997. These
consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to
express an opinion on the consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally
accepted auditing standards. Those standards require
that we plan and perform the audit to obtain a 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 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 Mountain States
Resources Corporation and subsidiary as of March 31,
1997, and the consolidated results of their operations
and cash flows for the years then ended in conformity
with generally accepted accounting principles.
The accompanying consolidated financial statements have
been prepared assuming that the Company will continue as
a going concern. As discussed in Note 10 to the
consolidated financial statements, the Company has
suffered losses from operations and has a working capital
deficiency, which raises substantial doubt about its
ability to continue as a going concern. Management's
plans regarding these matters is presented in Note 10 of
this financial statement.
As more fully described in Note 11 and 12, subsequent to
the issuance of the Company's March 31, 1997 financial
statements and our report thereon dated June 22, 1997,
we became aware that those financial statements did not
reflect certain adjustments as described in Notes 11 and 12.
In our original report we expressed an unqualified opinion
on the March 31, 1997 financial statement as described
in paragraph four above, and our opinion on the revised
statements, as expressed herein, remains unqualified
with respect to paragraph four above.
Salazar and Associates,
Austin, Texas
June 22, 1997, except as to the fifth paragraph above and
Notes 11 and 12, which are as of June 10, 1998
MOUNTAIN STATES RESOURCES CORPORATION AND SUBSIDIARY
Consolidated Balance Sheet
March 31, 1997
ASSETS
Current Assets
Cash and Cash Equivalents $ 18,112
Accounts Receivable - Trade 983,352
Inventory (Note 2) 181,060
Other Receivables - Advances (Note 3) 127,971
Total Current Assets 1,310,495
Property, Plant, and Equipment (Note 4) 784,039
Long Term Notes Receivable (Note 5) 419,774
TOTAL ASSETS $ 2,514,308
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities
Accounts Payable - Trade $ 875,734
Bank Line of Credit (Note 6) 725,000
Other Accrued Expenses 113,185
Current Maturities of
Long-term Debt (Note 7) 174,026
Current Portion of Obligations
Under Capital Leases (Note 8) 41,097
Total Current Liabilities 1,929,042
Long Term Liabilities
Notes Payable (Note 7) 506,806
Obligations under
Capital Leases (Note 8) 182,044
Total Long Term Notes 688,850
Stockholders Equity
Preferred stock at $2 par value;
Authorized 10,000,000 shares;
no shares issued or outstanding
Common stock at $.10 par value;
Authorized 50,000,000 shares;
10,764,733 shares issued and
outstanding 1,076,473
Discount of Paid-in capital (1,046,058)
Accumulated Deficit ( 133,999)
Total Stockholders Deficit ( 103,584)
TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY $ 2,514,308
The accompanying notes are an integral part of these
financial statements.
MOUNTAIN STATES RESOURCES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operation
For the Twelve Months Ended March 31
1997 1996
Net Revenues $ 4,665,802 $ 4,742,159
Cost of Goods Sold 3,306,490 3,459,167
Gross Margin 1,359,312 1,282,992
Selling, General and Administrative 1,839,493 920,873
Operating Income (Loss) ( 480,181) 362,119
Other Income (Expense) ( 2,204) (81,417)
Net Income (Loss) $ ( 482,385) $ 280,702
Earnings (Loss) Per Share $ (.05) $ .03
Weighted average number of shares
outstanding used in earnings (loss) per-
shares calculation. 10,026,400 9,784,733
The accompanying notes are an integral part of these
financial Statements.
MOUNTAIN STATES RESOURCES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For the Years Ended March 31, 1997 and 1996
Additional Accum-
Common Stock (Discount on) lated
Shares Amount Paid in capital Deficit Total
Balance
3/31/96 9,784,733 978,473 (1,046,058) 348,386 280,801
Common stock
Issued for
services 480,000 48,000 48,000
Common stock
issued for services
under S-8 500,000 50,000 50,000
Net Loss for the
year ended
3/31/97 (482,385)(482,385)
Balance
3/31/97 10,764,733 1,076,473 (1,046,058) (133,999)(103,584)
The accompanying notes are an integral part of these
financial Statements.
MOUNTAIN STATES RESOURCES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flow
For the years ended March 31
1997 1996
Cash Flows from Operating Activities:
Net Income (loss) $ (482,385) $ 280,702
Adjustments to reconcile net income
To net cash, provided by
operating activities:
Depreciation expense 116,628 58,126
Change in accounts receivable (165,619) (810,224)
Change in inventory 189,040 (362,645)
Change in accounts Payable 351,644 524,090
Change in accrued expenses 395,989 63,008
Net Cash provided by (Used by)
Operating Activities 405,297 (246,943)
Cash Flows from Investment Activities:
Investment in
property & equipment (632,900) (297,394)
Investment in other assets ( 19,370) (15,390)
Issuance of loans (398,331) (149,413)
Net Cash provided by (Used by)
Investing Activities (1,050,601) (462,197)
Cash Flows from Financing Activities:
Borrowings of long term debt(net) 501,301 665,160
Change in capital lease
obligations(net) 160,565
Change in other
long term liabilities 41,667
Net Cash provided by (Used by)
Financing Activities 661,867 706,827
Net Increase (Decrease) in Cash 16,563 (2,313)
Cash at Beginning of Period 1,549 3,832
Cash at End of Period $ 18,112 $ 1,519
The accompanying notes are an integral part of these
financial statements.
MOUNTAIN STATES RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMEMTS
MARCH 31, 1997
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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. MSRC 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 has actively sought new
business opportunities. 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. The transaction was
accounted for as a recapitalization as described in Note 11
to the financial statements.
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 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. MSI is HUB certified to do business with state and
corporate clients.
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 which
was eliminated in the recapitalization. The significant
account balances were MSI's.
Cash and Cash Equivalents
The Company considers all liquid investments purchased
with an original maturity of three months or less to be
cash equivalents.
Accounts Receivable
The Company provides an allowance for uncollectable
receivables when it determined that collection is doubtful.
A reserve for uncollectable Receivables is provided and
uncollectable accounts are written off when such a
determination is made.Property, Plant, and Equipment
MOUNTAIN STATES RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(Continued)
Property, Plant & Equipment
Property, plant and equipment are stated at cost.
Depreciation is provided over the estimated useful
lives of five to ten years using the straight -line
method of depreciation. Renewals and betterment are
capitalized when incurred. Costs of maintenance and
repairs that do not improve or extend asset lives are
charged to expense.
Revenue Recognition
For financial reporting purposes, revenues are recognized
in the accounting period that corresponds with the
performance of the service to the customer. The related
costs and expenses are recognized when incurred. Revenues
are derived from local and state government contracts and
local businesses.
Federal Income Tax
Deferred tax liabilities and assets are determined based
on differences between the financial statement and tax
basis of assets and liabilities using enacted tax rates
expected to be in effect for the year in which the
differences are expected to reverse. The net change in
deferred tax assets and liabilities is reflected in the
statement of operations.
Earnings (loss) Per Share
The earnings (loss) per share are computed based on the
weighted average number of shares outstanding during the
year. All historical per share data has been restated to
reflect stock splits and the effect of the merger
transaction of Micro Media Solutions, Inc. and
recapitalization.
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. The Company's reliance on a limited
number of suppliers involves several risks, including the
MOUNTAIN STATES RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(Continued)
possibility of shortages and/or increases in costs of
components and subassemblies, and the risk of reduced
control over delivery schedules.
Financial Instruments
Cash equivalents include highly liquid short-term
investments with original maturities of three months
or less, readily convertible to known amounts of cash.
The amounts reported as cash equivalents, receivables,
other assets, accounts payable and accrued expenses and
debt are considered by the Company to be reasonable
approximations of their fair values, based on market
information available to management as of March 31, 1997.
The use of different market assumptions and estimation
methodologies could have a material effect on the estimated
fair value amounts. The reported fair values do not take
into consideration potential taxes or other expenses that
would be incurred in an actual settlement.
Financial instruments that potentially subject the
Company to concentration of credit risk consist
principally of cash and cash equivalents and trade
accounts receivable. A concentration of credit risk
may exist with respect to trade receivables, as many of
the Company's customers are affiliated with 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.
NOTE 2. INVENTORY
Inventories are valued at cost using the first-in first-
out (FIFO) method. Inventory consists principally of
hardware and software needed for maintaining and building
network technology for customers.
NOTE 3. OTHER RECEIVABLES
Other receivables include employee advances for travel and lodging in
preparation and set up of projects
across the state.
MOUNTAIN STATES RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(Continued)
NOTE 4. PROPERTY PLANT AND EQUIPMENT
A summary of the Company's investment in property, plant
and equipment at March 31, 1997 is as follows:
Equipment, furniture and fixtures $ 805,759
Leasehold Improvements 177,077
982,836
Less Accumulated Depreciation 198,797
Net Property Plant and Equipment $ 784,039
Depreciation charged against income for the years ended
March 31, 1997 and 1996 was $116,628 and $58,126
respectively.
NOTE 5. RELATED PARTY - NOTES RECEIVABLE - LONG TERM
As of March 31, 1997, the Company had advanced funds to
the following Entities:
Prima Development and Construction, Inc. $ 251,983
(1O% Note Receivable from a related party)
Quality Communications, Inc. 84,394
(1O% Note Receivable from a related party)
Salas Concessions, Inc. 83,397
(10% Note Receivable from a related party)
TOTAL $ 419,774
Prima Development and Construction, Inc. (a construction
and fiber optics cabling corporation) - The original loan
agreement is dated April 1, 1997. The principal amount of
this loan is $185,000. Interest is due and payable monthly
as it accrues, commencing on April 10, 1997 and continuing
on the same day of each month thereafter during the term of
the note. Principal and interest are payable in monthly
installments of $2,444.79. The annual interest rate on the
note is 10%. Prima Development and Construction, Inc. has
the right to prepayment without penalties.
An amendment to the loan agreement was executed on April
15, 1997 to incorporate funds advanced to MSI for the
period January 1, 1997 through March 31, 1997. The
principal amount of this loan is $66,983. Interest is due
and payable monthly as it accrues, commencing on January
2, 1998 and continuing on the same day of each month
thereafter during the term of the note. Principal and
interest are payable in monthly installments of $885.19.
The annual interest rate on the note is 10%. Prima
MOUNTAIN STATES RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(Continued)
Development and Construction, Inc. Has the right to
prepayment without penalties. The ownership of Prima
Development and Development, Inc. includes owners of
MSI and other outside investors. The primary purpose
of establishing Prima was to enable MSI to sub-contract
critical services relevant to MSI's service mix. By
setting up a company to exclusively provide support
services for MSI reduces the overhead to MSI and avoids
carrying expenses that vary seasonally such as outside
fiber optic cabling and related construction. MSI
contracts with Prima on a project to project basis.
Currently, Prima has under contract several projects.
This will provide the basis for the loan repayment to MSI.
Quality Communications, Inc. (a telecommunications
corporation) - The loan agreement is dated April 1,
1997. The principal amount of this loan is $77,600.
Interest is due and payable monthly as it accrues,
commencing on April 10, 1997 and continuing on the same
day of each month thereafter during the term of the note.
Principal and interest are payable in monthly installments
of $1,025.49. The annual interest rate on the note is 10%.
Quality Communications, Inc. has the right to prepayment
without penalties.
The ownership of Quality Communications, Inc. (QCI)
includes owners of MSI and other outside investors.
The primary purpose of establishing QCI was to enable
MSI's to sub-contract critical services relevant to MSI's
service mix. By setting up a company to exclusively
provide support services for MSI reduces the overhead to
MSI and avoids carrying expenses. MSI contracts with QCI
on a project to project basis. QCI has under contract
several significant cabling projects that will provide
funds for pay-off of MSI's loan.
Salas Concessions, Inc. (a food services corporation) -
The loan agreement is dated April 1, 1997. The principal
amount of this loan is $83,397. Interest is due and
payable monthly as it accrues, commencing on April 1O, 1997
and continuing on the same day of each month thereafter
during the term of the note. Principal and interest are
payable in monthly installments of $1,766.86. The annual
interest rate on the note is 10%. Salas Concessions, Inc.
has the right to prepayment without penalties.
This investment loan was extended when MSI was expanding.
Salas Concessions located at Robert Mueller Airport
offered a unique opportunity to show MSI's point of sale
and telecommunications services and equipment in a
commercial environment. MSI also planned to use a $80,000
MOUNTAIN STATES RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(Continued)
carry-over loss write-off to offset MSI's 1995-1996
operating profits. Subsequently, MSI went into as
statewide expansion and headquarter expansion that
eliminated the need for taking over Salas Concession.
Salas Concessions entered an agreement to pay-off initial
capital and operating expense for funds advanced by MSI.
The concessions are growing in by 6% annually and beginning
to show profit; therefore, there is no risk to MSI's note.
NOTE 6. SHORT - TERM BORROWINGS.
The Company has 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
March 31, 1997 the Company was eligible to borrow $725,000
pursuant to the agreement, and had borrowed the full
amount. Under the agreement, the Company is subject to
certain financial and other covenants including certain
financial ratios.
NOTE 7. NOTES PAYABLE.
Long-term notes payable consists of the following amounts
at March 31, 1997:
Austin Community Development Corporation, $ 98,538
$ 100,000 Equipment loan dated May 29, 1996
secured by equipment and accounts receivable.
Loan requires interest payments at 9% for the
first six months, principal and interest
payments of $2,224.44 beginning in
February 1997. Loan will mature over a
60 month period ending January 2002.
Austin Community Development Corporation, 79,554
$100,000 working capital loan dated
June 14, 1995 secured by equipment and
accounts receivable. Loan is due in 48
monthly principal installments of $2,083.33
along with interest of 9% beginning in
July 1996. Loan will mature in June 2000.
Neighborhood Commercial Management Program 54,407
$75,000 loan from City of Austin dated
June 8, 1995 secured by second lien
on equipment and accounts receivable. Loan
is due in 60 monthly installments of principal
and interest of $1,347.65 beginning
January 1996. Interest rate of 0% until
December 1995, thereafter3% rate to maturity.
Loan will mature over a 60 month period
ending December 2000.
MOUNTAIN STATES RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(Continued)
Neighborhood Commercial Management Program $ 250,000
$250,000 loan from City of Austin dated
July 15, 1996 secured by second lien one
equipment and accounts receivable. Loan is
due in 60 monthly installments of principal
and interest of $4,492.17 beginning January
1997. Interest rate of 0% until December 1996
Thereafter 3% rate to maturity.
Loan will mature over a 60 month
period ending December 2001.
Bank One $200,000 loan dated June 12, 1996 173,333
secured by a First lien equipment and leasehold
improvements of the Company. Loan is due in 60
monthly principal installments of $3,333.33
along with interest equal to the Bank One,
Texas base rate plus 2%. Loan will mature in
June 2001.
Bank One $50,000 loan dated July 3, 1995 25,000
secured by a first lien equipment of the
Company. Loan is due in 36 monthly principal
installments of $1,388.88 along with interest
equal to the Bank One, Texas base rate plus 2%.
Loan will mature in August 1998.
$ 680,832
Following are maturities of long-term debt for each of
the next five years:
Amount
1998 174,026
1999 157,114
2000 153,054
2001 134,340
2002 62,298
The shareholders of MSI signed personal guarantees for
all the notes.
Note 8. OBLIGATIONS UNDER CAPITAL LEASES
The Company is lessee of transportation and telephone
equipment under capital leases expiring in various
years through September 2001. The asset and
liabilities under capital leases are recorded at the
lower of the present value of the minimum lease
payments or the fair value of the assets. The assets
are depreciated over the lower of their related lease
MOUNTAIN STATES RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(Continued)
terms or their estimated productive lives. Depreciation
of assets under capital leases is included in depreciation
expense.
Following is a summary of property held under capital
leases:
Transportation equipment $ 210,321
Communication equipment 47,401
Minimum future lease payments under capital leases as of
March 31, 1997 for each of the next five years and in the
aggregate are:
Year Ended March 31, Amount
1998 $56,769
1999 56,769
2000 56,769
2001 72,006
2002 -0-
Total minimum lease payments 242,313
Less: Amount representing interest ( 19,172)
$223,141
NOTE 9. FEDERAL INCOME TAXES
Deferred tax liabilities and assets are determined based
on differences Between the financial statement and tax
basis of assets and liabilities using enacted tax rates
expected to be in effect for the year in which the
differences are expected to reverse. The net change in
deferred tax assets and liabilities is reflected in the
statement of operations, if any.
NOTE 10. GOING CONCERN
As shown in the consolidated financial statements, the
Company has incurred a net loss in the current year of
$482,385 and as of that date, the Company's current
liabilities exceeded its current assets by $618,547. Also,
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 the expenses related to operations and capital
improvements. The Company is currently negotiating with
several investors to obtain an infusion of new capital.
In addition, the Company is continuing discussions with
private investment groups, and plans a secondary offering in
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.
MOUNTAIN STATES RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(Continued)
NOTE 11. RECAPITALIZATION
On June 23, 1997, MSRC and MSI were combined in a reverse
merger which has been treated as a recapitalization.
In a recapitalization MSI is treated as the acquirer of
MSRC. Goodwill is not recorded in a recapitalization as
the difference in the par value of the stock issued in
MSRC and net assets of the acquirer is treated as a
reduction of Paid in Capital. A reduction of Paid in
Capital in excess of the account balance is treated as
a "Discount on Paid in Capital"
NOTE 12. SUBSEQUENT ADJUSTMENTS
Subsequent to issuing the March 31, 1997 audited
financial statements and accompanying auditor's report
dated June 22, 1997, additional adjustments to the
financial statements were discovered. The following
adjustments have been included in accompanying financial
statements:
Balance as Balance After
Previously Subsequent
Reported Adjustments Adjustments
Trade Receivables $ 1,383,207 $(399,855) $ 983,352
Property, Plant
and Equipment 723,783 60,256 784,039
Goodwill 751,329 (751,329) -0-
Long Term
Notes Receivables 476,914 ( 57,140) 419,774
Other Accrued
Expenses 255,608 142,423 113,185
Additional
Paid in Capital 5,600,652 (5,600,652) -0-
Discount on
Paid in Capital -0- (1,046,058) (1,046,058)
Accumulated Deficit
(5,746,125) 5,612,126 ( 133,999)
All other
Accounts, net ( 28,939)
Net Loss ( 199,130)( 283,255) ( 482,385)
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__06/21/98_________ By __/s/__Jose G Chavez
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
/s/ Jose G. Chavez
Jose G. Chavez Chairman of the Board 06/21/98
Directors and President
/s/ Mitchell Kettrick
Mitchell Kettrick Vice-President and
Director 06/21/98
/s/ Stephen Hoelscher
Stephen Hoelscher Comptroller 06/21/98
