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 impemented 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.
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 exchage for services. Current aggregate gross rents were insignificant for 1997.
Item 3.
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.
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.
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.
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.
Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion addresses the Company's results of operations for the 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 pooling of interest 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, manufactureing 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 increased $ 323,498 or 6.8% from 1996 to 1997. The increase was caused by an increase in field installations activities, computer sales, and an increase in cabling projects.
Cost of goods sold decreased $ 18,801 or .5% from 1996 to 1997.
Selling, general, and administrative expenses increased substantially for the year 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 $450 ,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 $345,708 or 66%.
At the present time, the Registrant is more than thirty (30) days past due on the 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.
Item 7. Financial Statements and Supplementary Data
Please see accompanying index to Financial Statements
Item 8.
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.
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:
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 years experience 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 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 his 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. He has 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.
Item 10. Executive Compensation Summary Compensation Table
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.
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.
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(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.
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.
The Registrant's officers and directors serve as officers directors and advisors on an as needed basis and total involvement is minimal.
Item 13.
Item 13. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Exhibits
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