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As filed with the Securities and Exchange Commission on May 23, 2000.
Registration No.: 0-30722
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10- SB/A
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
MICROWAVE TRANSMISSION SYSTEMS, INC.
(Name of Small Business Issuer in its charter)
Texas 75-2197372
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
541 Sterling Drive 75081
Richardson, Texas --------------
------------------------- (Zip Code)
(Address of principal
executive offices)
Issuer's telephone number - (972) 669-0591
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
none none
Securities to be registered under Section 12(g) of the Act:
Common Stock, par value $.001 per share
(Title of class)
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<TABLE>
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TABLE OF CONTENTS
<S> <C>
PART I................................................................................1
ITEM 1. DESCRIPTION OF BUSINESS......................................................1
Background............................................................................1
History of the Company................................................................2
Stock Exchange with Microwave Transmissions Systems, Inc............................. 2
Business Development................................................................. 3
Summary...............................................................................3
Site Development Business.............................................................3
Maintenance and Management............................................................5
Projects Completed/Underway...........................................................6
Strategy for Future Growth............................................................6
Build-to-Suit Programs................................................................7
Strategic Siting .....................................................................8
Customers.............................................................................8
Sales and Marketing...................................................................8
Competition...........................................................................9
Employees............................................................................11
Regulatory and Environmental Matters.................................................11
Research............................................................................12
Suppliers...........................................................................12
Licenses, Franchises, Concessions, Royalty Agreements, Patents
Trademarks or Labor Contracts...............................................13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION...................................................................13
ITEM 3. DESCRIPTION OF PROPERTY.....................................................16
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT..................................................................17
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS.............................................................17
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Preston David Spurlin.......................................................17
Committees of the Board of Directors........................................18
ITEM 6. EXECUTIVE COMPENSATION.............................................18
Employee Benefit Plan.......................................................18
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ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..............................19
Related Companies....................................................................19
ITEM 8. DESCRIPTION OF SECURITIES...................................................20
Capital Stock........................................................................20
Provisions Having a Possible Anti-Takeover Effect....................................21
ADDITIONAL INFORMATION...............................................................21
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS; MARKET DATA.......................21
PART II..............................................................................23
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT=S
COMMON EQUITY AND RELATED STOCKHOLDER MATTERS...............................23
Market Information..........................................................23
Holders.....................................................................23
Dividends...................................................................23
ITEM 2. LEGAL PROCEEDINGS...........................................................23
ITEM 3. CHANGES IN AN DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING DISCLOSURE.......................................................23
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.....................................24
ITEM 5. INDEMNIFICATION OF OFFICERS AND DIRECTORS...................................24
PART F/S............................................................................F-1
PART III
ITEM 1. INDEX TO EXHIBITS
SIGNATURES
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
We are a holding company and the sole shareholder of MTSI, Inc., a
Texas corporation ("MTSI"), and independent builder of wireless
communications infrastructure in the United States and internationally. Our
sole asset is the stock of MTSI, and all references herein to "we," "us" or
"our" with respect to our business operations refer to the combined business
operations of Microwave Transmission Systems, Inc. and MTSI, unless
specifically stated otherwise.
Our revenue is currently generated by our current business: our site
development and tower construction services. We have participated in the
development of more than 1,000 antennae sites in the major wireless markets in
the United States.
Our site development service business is an "end-to-end" service
offering design, construction and operating expertise to a range of wireless
service providers. Site development services include: network pre-design,
communication site selection, communication site acquisition, local zoning
and permitting, and site construction and antennae installation.
We are currently attempting to use our current presence in the site
development services business, our existing national field organization and our
relationships with wireless service providers to expand into the ownership and
leasing of communication sites. Our growth strategy is to lease antennae space
to multiple tenants on towers that we will construct or acquire. We believe that
our build-to-suit program will provide an integrated solution to those wireless
service providers seeking to minimize their capital expenditures, overhead and
time associated with the build-out and on-going maintenance of their wireless
network infrastructure.
Our management believes that rapid advancements in communications
technology have left a unique opportunity for companies that will attempt to
support the technologies of the future. Our goal is to design, develop and
market the next generation of communications infrastructure that will be
compatible with a
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variety of commercially viable hardware platforms and communications
networks. Suppliers of these platforms and networks, from cable TV operators
to telecommunications companies, are now forming strategic alliances with
suppliers of telecommunications infrastructure services.
We believe that we can provide the infrastructure necessary for the
latest communication systems by fabricating, building, inspecting and
maintaining wireless and satellite based communication transmitting and
receiving facilities for providers of wireless communication services.
Cellular telephones and Personal Communications Systems (commonly
referred to as "PCS") in the United States and Canada rely on analog and digital
technology. A cellular telephone transmits a radio signal to the closest
cellular communications facility. The communications facility contains an
antenna that is connected by wireline or short haul microwave to a nearby
switching office. The switching office processes signals for several cellular
facilities. For transmission from a mobile telephone to a telephone that is not
a mobile phone, the switching office connects the telephone signal to a local
telephone exchange. For transmission between two mobile telephones, the
switching office locates the receiving cellular communication facility to which
the receiving telephone is connected and completes the connection by
transmitting the signal to that facility. If one or both of the cellular
telephones is moving, such as a car phone, the local switching station hands the
signal off to a different facility as the phone moves from one area to another.
Cellular telephones use radio frequencies to transmit to the
communication facilities. The number of frequencies that are available to
transmit to a communication facility is limited. In areas with heavy demand for
cellular services, these available frequencies become congested. To increase
capacity, the number of cells is increased. This result in smaller cells that
cover a smaller geographic area. As a result, the cells must be closer together
and the demand for additional communications towers increases.
We initially constructed primarily microwave and cellular transmission
facilities, and installed electronic lines and components. As microwave
technology evolved and matured, so did the construction and installation
services relating to those technologies. In fact, we often return to previously
built facilities to upgrade the equipment. Recent years have seen the rise of
the use and demand for cellular telephones and PCS. We design, build, and
install towers and rooftop sites that house cellular telephone and PCS antennae.
These facilities are presently designed for use with microwave, cellular
telephone, pager, specialized mobile radio and satellite based radio
technologies.
HISTORY OF THE COMPANY
Microwave Transmission Systems, Inc. was originally incorporated as
West Covina Auto Parts, Inc., ("Wesco") a California corporation on June 22,
1962. On May 3, 1993, Reddi Brake Supply Company, Inc, a California corporation,
merged with and into Wesco, with the surviving corporation amending its name to
RBSC, Inc. ("RBSC") on May 23, 1997. On December 11, 1998, the prior management
of RBSC changed its state of
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incorporation from California to Texas by merging with and into RBS
Acquisition Corp., a Texas corporation. On August 6, 1999, Preston David
Spurlin acquired 5,750,000 shares of the common stock (or approximately 92%
of the outstanding shares) of RBS Acquisition Corp. in exchange for 100% of
the common stock of Microwave Transmission Systems, Inc., a Texas corporation
which became its wholly-owned subsidiary of RBS Acquisition Corp. On January
11, 2000, RBS Acquisition Corp. changed its corporate name to Microwave
Transmission Systems, Inc. On January 12, 2000, our wholly-owned subsidiary
changed its name to MTSI, Inc.
STOCK EXCHANGE WITH MICROWAVE TRANSMISSIONS SYSTEMS, INC.
The wireless communications infrastructure business currently
operated by us was
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commenced in 1987 by Microwave Transmission Systems, Inc., a Texas
corporation ("MTSI") which is now our wholly-owned subsidiary. On August 6,
1999, the prior management of RBS Acquisition Corp. entered into a Stock
Exchange Agreement (the "Exchange") with MTSI pursuant to which Preston David
Spurlin, the sole shareholder of MTSI, assigned his equity ownership interest
in that company to us in exchange for 5,750,000 shares (or approximately 92%)
of our outstanding common stock. At the time of the Exchange, RBS Acquisition
Group had no operations and essentially no assets, and was 60% owned by
Halter Financial Group. Following the Exchange, the former officers and
directors of RBS Acquisition Corp. were replaced by Preston David Spurlin,
our only officer and director. Preston David Spurlin entered into this
transaction in order to enable us to begin the process of becoming a
publicly-traded company.
The Stock Exchange Agreement was approved by the holders of our
outstanding shares of common stock issued pursuant to the Plan on September
23, 1999. On January 11, 2000, we changed our corporate name to Microwave
Transmission Systems, Inc. On January 12, 2000, MTSI changed its corporate
name to MTSI, Inc.
As a result of the Exchange, our current capitalization structure is
as follows:
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<CAPTION>
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# of shares # of shares
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Before % After %
------ --- ----- ---
<S> <C> <C> <C> <C>
Preston David Spurlin 0 0% 5,750,000 92.00%
Halter Financial Group, Inc. 300,000 60% 300,000 4.8%
All Other Shareholders 200,084 40% 200,084 3.2%
------- --- ------- ----
TOTAL 500,084 100% 6,250,084 100.0%
======= ==== ========= ======
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BUSINESS DEVELOPMENT
SUMMARY. Our principal goal is to position MTSI as an industry
leader in the design, fabrication, construction and maintenance of high
quality products. To achieve this goal, we have adopted a multi-tiered
strategy to:
- -
- - Manage Risk Effectively
- - Attract the Best and Brightest Talent
- - Broaden Capabilities
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- - Maximize Market Opportunities
- - Exploit Key Markets and Segments
- - Retain Options and Maintain Flexibility
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SITE DEVELOPMENT BUSINESS. We offer each phase of our site development
services to our customers. These services and phases are the same ones we employ
for our own benefit when we build towers for our ownership. Our customers
generally hire us through a single purchase order for each site or group of
sites. These purchase orders summarize the billing details and specifications
for each site, and are not a guarantee or representation of future business from
such customer(s). Customers may hire us to perform some or all of the services
we offer.
The following narrative illustrates a complete tower construction
project: During Phase I, network pre-design, we perform pre-design analysis by
investigating those geographic areas that are designated as a priority by our
customer. We then identify, to the extent possible, all sites which meet the
customer's RF requirement in those areas. We then create maps of the sites,
analyzing for a number of factors, including which areas may have the most
favorable zoning regulations and availability of co-location opportunities.
Typically, we conduct preliminary zoning analysis and determine those areas
where zoning approval is likely, along with a possible time frame for approval.
We use Phase I services to eliminate costly redesigns once a project is started,
which can result in significant savings of both time and money.
In Phase II, site selection, we determine which sites most closely meet
the Radio Frequency ("RF") engineering requirements of the customer, which sites
are leasable or can be purchased, which sites have the potential to be zoned for
site construction or co-location based on the then-current zoning requirements,
and which sites are most suitable for construction and installation of antennae.
We select the most suitable sites based on demographics, traffic patterns and
signal characteristics. Typically, we identify two or three potential sites for
each location in the RF engineering plan, with the intent of co-locating on an
existing site or constructing a new site on the location most advantageous to
the customer. We also seek Federal Aviation Administration approval for the
antennae and tower at this time.
In Phase III, site acquisition, we secure the right from the property
owner to construct a
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tower or co-locate on the site. Depending on the type of interest in the
property that best suits the needs of our customer, we negotiate and enter
into one of the following types of agreements on behalf of the customer:
1) A contract of sale pursuant to which the customer acquires fee
title to the property;
2) A long-term ground or rooftop lease pursuant to which the
customer acquires a leasehold interest in the property
(typically a five-year lease with four or five renewal periods
of five years each);
3) An easement agreement pursuant to which the customer acquires
an easement over the property; or
4) An option to purchase or lease the property pursuant to which
the customer has a future right to acquire fee title to the
property or acquire a leasehold interest. During this phase of
the site development service, we generally obtain a title
report on the site, conduct a survey of the site, perform soil
analysis of the site and obtain an environmental survey of the
site.
Phase IV, local zoning and permitting, includes the preparation of
all appropriate zoning applications and providing representation at any zoning
hearings which may be conducted. During this phase, we also obtain all
necessary entitlement land use permits necessary to commence construction or
install equipment on the site.
Phase V, construction and installation, involves the construction
management of the tower on a selected site, whether by the third party or
directly by us. Phase V includes the preparation of a construction budget, the
installation or monitoring of the installation of equipment and antennae,
hiring sub-contractors to perform the actual construction of the tower or
equipment installation when not performed by us, the preparation of a
construction schedule, monitoring all vendors' delivery and installation of
equipment and monitoring the completion of all construction and landscaping of
the site.
Our site development business is headquartered in Richardson, Texas.
Once we are hired to work on a site development project, we dispatch a site
development team from headquarters to the project site and establish a
temporary field office for the duration of the project. The site development
team is typically composed of our permanent employees and supplemented with
local hires employed only for that particular project. A team leader is
assigned to each phase of the site development project and reports to a
project manager who oversees all team leaders. Upon the completion of a site
development project, the field office is closed and all of our permanent
employees are either relocated to another project or directed to return to
headquarters.
We generally set prices for each site development service
separately. Customers are billed for these services on a fixed price or time
and materials basis and we may negotiate fees on individual sites or for
groups of sites. Our customers generally hire us through a single purchase
order for each such site or group of sites, rather than a lengthy contract.
These purchase orders summarize the billing details and specifications for
each site, and are not a guarantee or representation of future business from
such customer(s). Consequently, there can be no assurance that we will receive
future business from our past or current
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customers. Currently, approximately 60% of our site development business is
concentrated in Texas, with the other 40% disbursed across the United States
and internationally.
MAINTENANCE AND MANAGEMENT. Once constructed, we maintain and manage
our communication sites through a combination of in-house personnel and
independent contractors. In-house personnel are responsible for oversight and
supervision of all aspects of site maintenance and management, and are
particularly responsible for monitoring security access and lighting, RF
emission and interference issues, signage, structural engineering and tower
capacity, tenant relations and supervision of independent contractors. We hire
independent contractors locally to perform routine maintenance functions such
as landscaping, pest control, snow removal, vehicular access, site access and
equipment installation oversight. We engage these independent contractors on
either a fixed fee or time and materials basis.
Our network operations center is in Richardson, Texas, where, among
other functions, we have centralized our monitoring of security access and
lighting for our towers. As the number of communication sites we own and
manage increases, we anticipate increased expenditures to expand our
maintenance infrastructure, including expenditures for personnel and computer
hardware and software, which may be material expenditures.
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PROJECTS COMPLETED/UNDERWAY. During the past three (3) years, we have
completed approximately 1,080 Projects. As used herein, "Projects" includes
the construction, installation, repairs, maintenance and/or updating of tower
and antennae sites. Currently, we have eighteen (18) Projects underway. If a
customer hires us to build a complete tower from start to finish, a Project
takes an average of forty-five (45) days to complete.
STRATEGY FOR FUTURE GROWTH. To capitalize on the growing demand for
communications facilities and antenna sites, we are now seeking to implement
an integrated program of tower ownership, antenna site leasing and
communications site services. Historically, we have built communications
towers on a turnkey basis according to specifications provided by the site
owner and retained no ownership of the site or completed facilities. We are
currently embarking on a built-to-suit-to-own program (described below),
whereby we will enter into agreements with service providers for the
construction of a communications tower. We would build the tower to the
specifications provided by the service provider. The service provider would
then lease one or more antenna sites on the tower from us. We anticipate that
these towers will be able to accommodate multiple tenants. The antenna site
leasing companies are expected to come from a wide range of industries,
including cellular, PCS, enhanced specialized mobile radio, paging, fixed
microwave, radio and television.
Our goal is to construct new tower networks in and around markets in
which we already have a presence. Currently, approximately 60% of our site
development business is concentrated in Texas, with the other 40% disbursed
across the United States and internationally. We also intend to target new
markets, both domestically and internationally, that have not been
significantly built out by carriers or other communications site companies. By
working with one or more "anchor" tenants, we will seek to develop a
comprehensive plan for a particular network by locating new sites in areas
identified by our customers as optimal for their network expansion
requirements. In order to minimize the risk associated with the investment, we
will generally seek to secure commitments for leasing prior to commencing
construction.
Our management believes that our current work in the site development
services business, our existing national field organization and our existing
relationships with wireless service providers provide us with a solid
foundation for growth. We also believe that the following four (4) strategies
will maintain that foundation and will enhance our opportunities for future
growth:
- Developing New Towers That We Will Own and Operate. As
wireless service providers increasingly outsource their
investment in, and ownership of, towers, we plan to meet their
needs by using our expertise and relationships in the site
development business to construct towers with anchor tenants
through build-to-suit programs. We intend to aggressively
identify attractive locations for new towers and strategically
complete pre-construction procedures necessary to secure tower
sites in advance of customer demand.
- Maintaining and Capitalizing on Strong Relationships with
Major Wireless Service Providers. We believe that we are
well-positioned to be a preferred partner of wireless service
providers in build-to-suit programs due to our
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existing relationships with wireless service providers and our
past operating experience. Generally, the provider-personnel
responsible for awarding site development projects for
wireless service providers are the same personnel who make
decisions with respect to build-to-suit programs. We will
continually market our build-to-suit programs to such site
development service customers.
- Maintaining Our Expertise in Site Development Services. We
currently perform an array of site development services for
wireless service providers across the United States and
internationally. We believe that our knowledge of local
markets and existing customer relationships will allow us to
identify and participate in site development projects across
the United States and internationally.
- Capitalizing on Management Experience. Our management team has
extensive experience in site development services. Preston
David Spurlin, our President and Chief Executive Officer, has
more than twenty (20) years of experience in the
communications infrastructure industry.
BUILD-TO-SUIT PROGRAMS. We plan to construct towers pursuant to
antennae site lease agreements negotiated with an anchor tenants only after
making the determination that the initial or planned capital investment for
those towers would not exceed a targeted multiple of expected tower cash flow
from those towers over a certain period of time. Our sales representatives
will then attempt to sell our build-to-suit programs by utilizing their
existing relationships in the wireless communications industry to target
wireless service providers interested in outsourcing their network build-out.
Our sales representatives will make proposals for build-to-suit towers in
response to competitive bids or specific requests and in circumstances where
we feel that the provider would have an interest in build-to-suit towers.
Although the terms may vary from proposal to proposal, we will typically seek
to sign a five-year lease agreement with each anchor tenant, with four or five
additional five-year renewal periods at the option of the lessee. While the
proposed monthly rent also varies, broadband customers utilizing PCS, cellular
or ESMR should generally pay more than the aggregate monthly rent paid by
paging or other narrowband customers. Additionally, anchor tenants should
typically pay lower monthly rents than subsequent tenants of a similar type
service. In certain cases, an anchor tenant may enjoy an introductory lease
rate for a given period of time.
A wireless provider accepts the terms of the proposal by awarding us
a non-binding "mandate" to pursue specific sites, specific search rings or
general areas. Based on the status of the geographic areas, we would perform
such due diligence investigations only for a designated period during which
time we would analyze the site based on a number of factors, chiefly,
co-location opportunities, zoning and permitting issues, economic potential of
the site, difficulty of constructing a multi-tenant tower and the remoteness
of the site. These mandates will be non-binding agreements under which either
party may terminate the mandate at any time and/or for any reason.
If, after our due diligence investigation during a mandate, we
conclude that it is economically feasible to construct the towers requested by
the wireless service provider, we would attempt to enter into an antennae site
lease agreement with the provider. In some
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cases, we would build a tower for the carrier regardless of the outcome of our
due diligence investigation. We are negotiating several master build-to-suit
agreements, including antennae site lease terms, with providers in specific
markets who we believe will facilitate our obtaining build-to-suit programs.
The antennae site lease agreements shall typically provide that all
obligations will be conditioned on our receiving necessary zoning approvals
(where applicable). Some of our antennae site lease agreements shall contain
penalty or forfeiture provisions in the event that the tower is not completed
within specified time periods.
STRATEGIC SITING. Our strategic siting activities will focus on
developing new towers in locations chosen by us rather than by anchor tenants
in build-to-suit programs. We will attempt to identify attractive locations
for new towers and strategically complete preconstruction procedures necessary
to secure the site in advance of demand from a specific customer. We may
invest in the zoning and permitting of these strategic sites (and even the
construction of the towers) when we have not yet obtained an anchor tenant if
we believe that demand for the site will exist in the near term, or that a
competitor of ours may acquire the site if we wait until an anchor tenant is
secured. However, we generally will not build a tower on a strategic site
unless and until we have signed a lease with a tenant.
CUSTOMERS
We have performed site development services for many of the largest
wireless service providers over the past several years. The majority of our
contracts have been for PCS broadband, ESMR (Enhanced Specialized Mobile
Radio), cellular and paging customers. We also service PCS narrowband, SMR
(Special Mobile Radio) and MDS (Multiple Address Systems) wireless providers.
In 1999, our largest customers were Pathnet, Inc., MCI Worldcom, and
Southwestern Bell Wireless, representing 30.3%, 26.8%, and 12.9% of our
revenues, respectively. In 1998, our largest customers were MCI Worldcom,
Southwestern Bell Mobile and Viper Communications, Inc., representing 35.0%
and 15.3% of our revenues, respectively. No other customer represented more
than 10% of our revenues during these periods. Our customers generally hire us
through a single purchase order for such site, rather than a lengthy contract.
These purchase orders summarize the billing details and specifications for
each site, and are not a guarantee or representation of future business from
such customer(s). Consequently, there can be no assurance that we will receive
any future business from our past or current customers. Currently,
approximately 60% of our site development business is concentrated in Texas,
with the other 40% disbursed across the United States and internationally.
SALES AND MARKETING
A successful integrated transmission infrastructure and service
provider company requires creative and technical talent, along with skilled
experienced service personnel. We believe that we have assembled such a team
and that we have coupled this team with executive management that has a blend
of entrepreneurial and operational experience.
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Our sales and marketing goals are to:
- - Begin our site leasing business;
- - Further cultivate existing customers to obtain mandates for build-to-suit
programs as well as to sell site development services;
- - Use our contacts and industry knowledge to better identify attractive
locations for new tower builds;
- - Use existing relationships and develop new relationships with wireless
service providers to lease antennae space on our owned or managed
communication sites;
- - Form affiliations with select communications systems vendors who utilize
end-to-end services, including those provided by use, which will enable us
to market our services and product offerings through additional channels
of distribution; and
- - Sustain our current revenue from our site development business.
Our management believes that we have historically capitalized on our
experience, performance and relationships with wireless service providers to
position ourselves for additional site development business. We are currently
seeking to leverage these attributes to obtain build-to-suit mandates, and we
expect to continue to enhance and leverage these to sell build-to-suit
programs and antennae space on our owned or managed communications sites. We
also intend to use these attributes to identify attractive locations upon
which to build towers on strategic sites.
Our primary marketing and sales support is centralized and directed
from our headquarters in Richardson, Texas and is supplemented by our regional
offices. Our full-time marketing and sales support staff are charged with
implementing our marketing strategies, prospecting and producing sales
presentation materials and proposals. Maintaining and cultivating
relationships with wireless service providers is a main focus of senior
management. Our strategy is to delegate sales efforts to those employees of
ours who have the best relationships with wireless service providers. We
assign our representatives specific accounts based on historical experience
with a provider and the quality of the relationship between these
representatives and such provider. Most wireless service providers have
national corporate headquarters with regional offices. Our management believes
that most decisions for site development and site leasing services are made by
providers at the regional level with input from their corporate headquarters.
Our sales representatives work with the provider representatives at the local
level and, when appropriate, at the national level. Our sales staff
compensation is heavily weighted to incentive-based goals and measurements. In
addition to our marketing and sales staff, we rely upon our executive and
operations personnel on the national and field office levels to identify sales
opportunities within existing customer accounts, as well as acquisition
opportunities.
COMPETITION
SUMMARY. The industry for wireless infrastructure building and
implementation services is highly competitive and fragmented. Most industry
participants are small companies with fewer than fifty employees. Other recent
entrants into the market are wireless equipment manufacturers that provide
services in conjunction with the sale of wireless equipment. Finally, the
increased demand for wireless infrastructure building that far outstrips the
supply of
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companies able to provide the products and services required has resulted in
the recent entry of traditional, non-wireless engineering and construction
companies and non-wireless subcontractors into the market. As demand for
wireless infrastructure building increases, we expect that more of these
non-traditional competitors will enter the market, thereby increasing
competition.
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SITE LEASING COMPETITION. In this area, we face competition from
American Tower Corporation, Crown Castle International Corporation, Pinnacle
Holdings, Inc. and SBA Communications Corporation. These competitors are
attempting to consolidate tower ownership through acquisitions. We compete for
site leasing tenants with:
1. Wireless service providers that own and operate their own tower
footprints and lease, or may in the future decide to lease, antennae
space to other providers;
2. Site development companies that acquire antennae space on existing
towers for wireless service providers, manage new tower construction
and provider site development services;
3. Other large independent tower companies; and
4. Similar local independent tower operators.
WIRELESS SERVICE PROVIDERS. Wireless service providers which own and
operate their own tower networks are generally substantially larger and have
greater financial resources than we do. We believe that tower location,
capacity, price, quality of service and density within a geographic market
historically have been and will continue to be the most significant
competitive factors affecting tower leasing companies.
MAINTENANCE AND MANAGEMENT COMPETITION. The following companies are
primarily competitors for our site management activities: AAT, APEX, JJS
Leasing, Inc., Motorola, Signal One, Subcarrier Communications and Tower
Resources Management.
SITE DEVELOPMENT COMPETITION. We also compete for development and new
tower construction opportunities with wireless service providers, site
developers and other independent tower operating companies and believe that
competition for site development will increase and that additional competitors
may enter the tower market, some of whom may have greater financial resources
than we do. We believe that the majority of our competitors in the site
development business operate within local market areas exclusively, while some
firms appear to offer their services nationally, including American Tower
Corporation, Tetratech, Pyramid, NLS and SpectraSite. Our market includes
participants from a variety of market segments offering individual, or
combinations of, competing services. The field of competitors includes site
development consultants,
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construction companies, tower owners/managers, radio frequency engineering
consultants, telecommunications equipment vendors (which provide end-to-end
site development services through multiple subcontractors) and providers'
internal staff. We believe that providers base their decisions on site
development services on certain criteria, including a company's experience,
track record, local reputation, price and time for completion of a project,
and believe that we compete favorably in these areas.
EMPLOYEES
As of May 15, 2000, we had forty-four (44) employees, none of whom is
represented by a collective bargaining agreement. All of our employees are
full-time employees. Of our total employees, three (3) work in management, ten
(10) in administration and thirty-two (32) in construction. We consider our
employee relations to be good, and we have never experienced a work stoppage.
From time to time, we also employ independent contractors to support our
operation.
Our future success will depend in part upon our ability to attract,
retain and motivate highly qualified technical and management personnel, for
whom competition is intense. As part of our retention efforts, we seek to
minimize turnover of key employees by emphasizing our industry experience, our
work environment and our competitive compensation packages. Due to the nature
of our business, we experience a "run-up" and "run-down" in employees as
contracts are completed in one area of the country and are commenced in a
different area.
REGULATORY AND ENVIRONMENTAL MATTERS
FEDERAL REGULATIONS. Both the Federal Communications Commission
("FCC") and Federal Aviation Administration ("FAA") regulate towers used for
wireless communications transmitters and receivers. These regulations control
the siting and marking of towers and may, depending on the characteristics of
particular towers, require registration of tower facilities. Wireless
communications devices operating on towers are separately regulated and
independently licensed based upon the particular frequency used.
Pursuant to the requirements of the Communications Act of 1934, the
FCC, in conjunction with the FAA, has developed standards to consider
proposals for new or modified antennae. These standards mandate that the FCC
and the FAA consider the height of proposed antennae, the relationship of the
structure to existing natural or man-made obstructions and the proximity of
the structure to runways and airports. Proposals to construct or to modify
existing antennae above certain heights are reviewed by the FAA to ensure the
structure will not present a hazard to aviation. The FAA may condition its
issuance of a no-hazard determination upon compliance with specified lighting
and/or marking requirements. The FCC will not license the operation of
wireless telecommunications devices on towers unless the tower has been
registered with the FCC or a determination has been made that such
registration is not necessary. The FCC will not register a tower unless the
tower has been registered with the FAA. The FCC may also enforce special
lighting and painting requirements. Owners of wireless transmissions towers
may have an obligation to maintain painting and lighting to conform to FCC
standards. Tower owners may also bear the responsibility of notifying the FAA
of any tower lighting outage. Failure to comply with the applicable
requirements may lead to civil penalties.
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The Telecommunications Act of 1996 amended the Communications Act of
1934 by giving state and local zoning authorities jurisdiction over the
construction, modification and placement of towers. The new law preserves
local zoning authority by prohibiting any action that would (1) discriminate
between different providers of personal wireless services or (2) ban
altogether the construction, modification or placement of radio communication
towers. Finally, the 1996 Telecom Act requires the federal government to help
licensees for wireless communications services gain access to preferred sites
for their facilities. This may require that federal agencies and departments
work directly with licensees to make federal property available for tower
facilities.
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Owners and operators of antennae may be subject to, and therefore must
comply with, environmental laws. The FCC's decision to license a proposed tower
may be subject to environmental review pursuant to the National Environmental
Policy Act of 1969, which requires federal agencies to evaluate the
environmental impacts of their decisions under certain circumstances. The FCC
has issued regulations implementing the National Environmental Policy Act. These
regulations place responsibility on each applicant to investigate any potential
environmental effects of operations and to disclose any significant effects on
the environment in an environmental assessment prior to constructing a tower. In
the event the FCC determines the proposed tower would have a significant
environmental impact based on the standards the FCC has developed, the FCC would
be required to prepare an environmental impact statement. This process could
significantly delay the registration of a particular tower.
ENVIRONMENTAL REGULATION. As an owner and operator of real property, we
are subject to certain environmental laws that impose strict, joint and several
liability for the cleanup of on-site or off-site contamination and related
personal or property damages. We are also subject to certain environmental laws
that govern tower placement, including pre-construction environmental studies.
Operators of towers must also take into consideration certain RF emissions
regulations that impose a variety of procedural and operating requirements. The
potential connection between RF emissions and certain negative health effects,
including some forms of cancer, has been the subject of substantial study by the
scientific community in recent years. To date, the results of these studies have
been inconclusive. We believe that we are in substantial compliance with and we
have no material liability under all applicable environmental laws. These costs
of compliance with existing or future environmental laws and liability related
thereto may have a material adverse effect on our prospects, financial condition
or results of operations. We had no costs from our compliance with these laws
during the past three (3) years.
STATE AND LOCAL REGULATIONS. Most states regulate certain aspects of
real estate acquisition and leasing activities. Where required, we conduct the
site acquisition portions of our site development services business through
licensed real estate brokers or agents, who may be our employees or hired as
independent contractors. Local regulations include city and other local
ordinances, zoning restrictions and restrictive covenants imposed by community
developers. These regulations vary greatly, but typically require tower owners
to obtain approval from local officials or community standards organizations
prior to tower construction. Local zoning authorities generally have been
hostile to construction of new transmission towers in their communities because
of the height and visibility of the towers.
RESEARCH. We do not generally spend any material amount of our resources on
research and development.
SUPPLIERS. We are not dependent upon any supplier/vendor to construct our
towers and all of the materials necessary for their construction are readily
available from multiple suppliers. Our principal vendors currently include
Davis Motor Crane Service, FWT, Inc., Hutton & Company, J. Wisdom Travel,
Inc., Madden Bolts, Mobil Fleet, Office Depot, Texas Bonner Chevrolet, Texas
Fleet, United Rentals and Baillargeon Ford.
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LICENSES, FRANCHISES, CONCESSIONS, ROYALTY AGREEMENT, PATENTS, TRADEMARKS OR
LABOR CONTRACTS. We have construction licenses in the states of Florida
(#CO-C0573) and New Mexico (#32164). Our management believes that we are in
compliance with all regulatory requirements in the states in which we conduct
business.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR-ENDED DECEMBER 31, 1998.
REVENUES. We recorded a net profit of $306,147, or $.05 per share for
1999 as compared to a net profit of $125,369, or $.02 per share for 1998.
Total revenues for 1999 were $6,358,896, an increase of $1,619,298 or
34.1% compared to revenues of $4,739,598 for 1998. The increase in revenues was
due largely to the accelerated build out of the wireless infrastructure, which
occurred as wireless service providers increasingly sought to increase their
service areas, in part by increasing site development.
Our management expects that the current accelerated build-out of the
wireless infrastructure will continue over the long-term, which would positively
impact our revenue. Our management does not know of any other known trends or
events which are reasonably likely to have a material impact on our revenues.
OPERATING COSTS. Cost of sales increased by $913,941 or 28.6% from 1998
to 1999 due primarily to the increase in related sales. The overall increase is
generally made up of the net of the following increases or decreases:
-- Direct labor costs increased by $744,219 or 34.8% primarily due to
increases in labor utilization and the need to meet customer demands
for turnkey construction solutions. As a percentage of revenue, they
increased from 44.9% in 1998 to 45.2% in 1999.
-- Fuel costs increased by $28,474 or 37.3% primarily due to soaring gas
prices and increased labor effort.
-- Job travel expenses increased by $85,940 or 47.4% primarily due to
increased airfare pricing and increased revenue.
-- Material costs increased by $133,481 or 38% primarily due to meeting
customers demands of a turnkey construction solution.
-- Expenses not billed increased $110,302 or 271%. This is primarily due
to the magnitude and scope of the many projects underway at the end of
the year. We expect to complete these projects and record the revenue
in the first quarter 2000.
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Operating expenses increased by $404,068 or 27.5%. This increase was
primarily due to the legal and accounting costs associated with the reverse
merger of MTSI with RBS Acquisition Corp. As a percentage of revenue, these
costs decreased from 30.9% in 1998 to 29.3% in 1999.
DEPRECIATION, AMORTIZATION, RENT AND INTEREST. Depreciation expense
increased from $142,856 in 1998 to $187,842 in 1999. This was primarily due to
the addition of several pieces of needed equipment. Rent remained consistent
with prior year numbers. Interest expense decreased $6,301 or 19.3%. This was
primarily due to increased cash flow from operations resulting in less average
borrowings during 1999.
INCOME TAX EXPENSE. Deferred tax liability increased $103,194 or 32.7%
to $417,828. This liability exists primarily due to the use of the cash method
of accounting for income tax purposes through December 31, 1999. We are required
to change accounting methods for tax purposes in 2000 and believe that the
payment of this liability will be spread out over four years.
LIQUIDITY AND CAPITAL RESOURCES
At December 31,1999, our working capital ratio was 1.31 to 1 compared
to 1.27 to 1 at December 31, 1998. We had a working capital surplus of $417,332
at the end of December 31,1999, as compared to a surplus of $293,784 at the end
of 1998. The increase in our working capital ratio and working capital is
primarily due to an increase in cash collections and increased revenue.
Net cash provided by operating activities for 1999 totaled $405,868 as
compared to net cash provided by operating activities of $145,321 for the year
ended 1998. The increase in net cash provided by operating activities is
primarily the result of increased operating income.
Capital expenditures for 1999 were $287,570 as compared to $273,110 in
1998. The increase is primarily associated with new equipment and vehicles to
meet the needs of continued expansion.
We have a line of credit of $450,000, of which we had borrowed
$400,806 at the end of 1999. The borrowing base fluctuates based on reports
submitted by us to the lender on an as needed basis. The availability of this
credit is determined by a calculation of 80% of the eligible accounts receivable
submitted since the last report. The line of credit expires November 20, 2000.
The current interest rate on our line of credit is 9.25%.
Our management believes that cash flow provided by operations,
supplemented by our positive cash position, will be adequate to meet our need to
sustain moderate growth. Our
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management believes that we will be able to increase our borrowing limits
under our line of credit. Our management also believes that we are capable of
borrowing additional amounts to acquire equipment and of raising capital
through the sale of our stock. Some or all of these resources may be utilized
to fund additional growth opportunities.
Our management believes that our capital resources and/or our
ability to raise additional capital resources are sufficient for our needs
through the end of 2001.
PERIOD ENDED MARCH 31, 2000
REVENUES. We recorded a net profit of $33,738 or $.01 per share for the
three months ended March 31, 2000 as compared to a net profit of $91,768, or
$.01 per share for the three months ended March 31, 1999. The decrease is
primarily due to the increase in tax expense. Pre tax income was $166,253 and
$131,086, respectively.
Total revenues for the three months ended March 31, 2000 were
$1,477,102, an increase of 20% compared to revenues of $1,227,786 for the same
period in 1999. The increase in revenues was due largely to the continued
accelerated build out of the wireless infrastructure. We expect the accelerated
build out of the wireless infrastructure to continue through the year 2000.
Our management expects that the current accelerated build-out of the
wireless infrastructure will continue over the long-term, which would positively
impact our revenue. Our management does not know of any other known trends or
events which are reasonably likely to have a material impact on our revenues.
OPERATING COSTS. Cost of sales increased by 35.6% from 1998 to 1999 due
primarily to the increase in related sales and the net of the following
increases or decreases:
Direct labor costs increased by $64,326 or 12.3% primarily due to increases
in labor utilization and the hiring of more subcontractors to meet customer
demands for turnkey construction solutions. As a percentage of revenue,
they decreased from 42.3% in 1998 to 39.5% in 1999.
Job travel expenses decreased by 46% primarily due to more efficient use of
local personnel.
Material costs increased by 137% primarily due to meeting customers demands
of a turnkey construction solution.
Expenses not billed decreased $130,368 since December 31, 1999. This is
primarily due to the magnitude and scope of the many projects underway at
the end of the year.
Operating expenses deceased by $8,622 or 2% and as a percentage of
revenue, these costs decreased from 32.6% in 1998 to 26.4% in 1999.
DEPRECIATION, AMORTIZATION, RENT AND INTEREST. Depreciation expense
decreased
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from 1999 to 2000 primarily due to certain fixed assets being fully
depreciated. Rent remained consistent with prior year numbers. Interest
expense decreased 68%. This was primarily due to increased cash flow from
operations resulting in less average borrowings during the quarter.
INCOME TAX EXPENSE. The combined current and deferred tax liability
increased $69,754 from December 31, 1999 to March 31, 2000. The increase in
income tax expense for the first quarter 2000 is a result of the change from the
cash method of accounting to the accrual method of accounting for tax purposes
and the required inclusion of one quarter of the increase in taxable income in
the year 2000. The remaining three quarters of the increase will be paid over
the next three years.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, our working capital ratio was 1.31 to 1 compared
to 2.79 to 1 at March 31, 2000. We had a working capital surplus of $417,332 at
the end of December 31, 1999, as compared to a surplus of $766,977 at the end of
March. The increase in our working capital ratio and working capital is
primarily due to an increase in cash collections and increased revenue.
We have a line of credit of $450,000, which we had paid down to zero at
March 31, 2000.
Our management believes that cash flow provided by operations and
availability on our line of credit, supplemented by our positive cash position,
will be adequate to meet our need to sustain moderate growth. Our management
believes that we will be able to increase our borrowing limits under our line of
credit. Our management also believes that we are capable of borrowing additional
amounts to acquire equipment and of raising capital through the sale of our
stock. Some or all of these resources may be utilized to fund additional growth
opportunities.
Our management believes that our capital resources and/or our
ability to raise additional capital resources are sufficient for our needs
through the end of 2001.
ITEM 3. DESCRIPTION OF PROPERTY
We lease our primary office facility from Preston David Spurlin, our
Chief Executive Officer, President, Sole Director and majority shareholder. The
lease is for an initial three (3) year term expiring 1999, with a month-to-month
renewal thereafter, and has been classified as an operating lease. Total rent
expense associated with this lease was $56,400 for each of the years ended
December 31, 1999 and 1998, respectively.
We also lease a house from Preston David Spurlin. The house provides
lodging for out-of-town employees and contractors in lieu of incurring hotel and
other travel related charges. The lease began in April 1999 and continues on a
month-to-month basis. Total rent expense associated with this lease was $11,900
for the year ended December 31, 1999.
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We open and close project offices from time to time in connection with
our site development business, which offices are generally leased for periods
not to exceed 18 months.
Total rental expense for all of our operating leases was $68,300 and
$73,596 for the years ended December 31, 1999 and 1998, respectively.
We believe that the condition of our lease facilities is excellent, and
are sufficient for our use and operation at our present level of operations. We
believe that these facilities will be sufficient for our operations for the
foreseeable future. In the opinion of our management, these properties are
adequately insured, in good condition and suitable for their anticipated future
use.
With respect to investments in real estate, real estate mortgages and
securities of or interest in persons primarily engaged in real estate
activities, we neither hold nor intend upon holding any such investments. It is
not our policy to acquire assets primarily for possible capital gain or
primarily for income. At present, we have no limitations on the percentage of
our assets which may be invested in any one investment or type of investment,
although this policy may be changed without a vote of our shareholders.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth, as of May 15, 2000, certain information
with respect to the beneficial ownership of our capital stock by (1) each person
who we know to be beneficial owner of more than 5% of any class or series of our
capital stock; (2) each of the directors and executive officers individually and
(3) all directors and executive officers as a group. At May 15, 2000, we had
outstanding the following shares of capital stock issued and outstanding:
6,250,084 shares of common stock.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature
Title of Class Beneficial Owner of Beneficial Owner Percent of Class
- -------------- ------------------- ------------------- ----------------
<S> <C> <C> <C>
Common Stock P. David Spurlin 5,750,000 92.0%
</TABLE>
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The table below sets forth certain information concerning our directors and
executive officers as of May 15, 2000.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Preston D. Spurlin 41 Chief Executive Officer, President
and Sole Director
</TABLE>
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Preston David Spurlin is the founder of MTSI, Inc. and has served as its Chief
Executive Officer, President and Sole Director since its inception. From 1983 to
1987, Mr. Spurlin served first as Director of Field Operations and later as Vice
President of International Tower Company. From 1979 to 1983, Mr. Spurlin worked
for McFarlin Tower Company in a variety of positions including Foreman and
Manager of all crews. Mr. Spurlin, his wife Cheryl and three children reside in
Richardson, Texas.
COMMITTEES OF THE BOARD OF DIRECTORS. Our Board of Directors does not have any
committees at this time.
ITEM 6. EXECUTIVE COMPENSATION
The information set forth below concerns the cash and non-cash compensation to
the named executive officers of the Company for each of the past three fiscal
years ended December 31, 1999, 1998 and 1997. In each case, the compensation
listed was paid by MTSI, Inc., our wholly-owned subsidiary. No executive officer
of the Company has an employment agreement with the Company and all executive
officers serve at the discretion of the Board of Directors.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
-------------------------------------------------------------
Annual Compensation Long Term Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Name and Other Annual Restricted Securities LTIP All other
Principal Compensation Stock Underlying Payouts Compensation(1)
Position Year Salary($) Bonus($) ($) Award(s)($) Opinions/SAR's(#) ($) ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Preston David
Spurlin 1999 108,056 1,956 0 0 0 21,689
President, 1998 103,347 1,800 0 0 0 20,959
CEO, Director 1997 91,646 1,774 0 0 0 19,200
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents premium paid on term life insurance policies on behalf of Preston
David Spurlin and employer contributions under the Profit Sharing Plan described
below.
EMPLOYEE BENEFIT PLAN. We offer a profit-sharing plan, the Microwave
Transmission Systems, Inc. Profit Sharing Plan, which covers all of our
employees and all employees of MTSI who have attained age 18 or older and have
at least six months of service with either us or MTSI
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as of the semi-annual Plan entrance dates. We make non-matching contributions
at the discretion of the Plan's Trustees. Employees' profit sharing accounts
are fully vested after seven years. In accordance with the Profit Sharing
Plan provisions, we cover all costs associated with the administration of the
Profit Sharing Plan. Employer discretionary contributions for the years ended
December 31, 1999 and 1998 were $289,000 and $249,000, respectively.
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ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There currently exists one loan to Preston David Spurlin, our Chief
Executive Officer, President and Sole Director, from MTSI with remaining
balances of $181,009 and $114,362 in 1999 and 1998, respectively. This loan
bears interest at 6% annually and is payable over 20 years.
MTSI leases its office space from Preston David Spurlin. The lease agreement
originated in January of 1996 and has a term of 36 months, with a month-to-month
renewal thereafter. The monthly lease payment under this lease is $4,700. Total
rent expense charged during both 1999 and 1998 was $56,400.
MTSI also leases a house from Preston David Spurlin. This house
provides lodging for out-of-town employees and contractors in lieu of MTSI
incurring hotel and other travel related charges. The lease began in April of
1999 and continues on a month-to-month basis. Total rent expense associated with
this lease was $11,900 for the year ended December 31, 1999.
Our management believes that each of the transactions described in this
Item 7 was made on terms no less favorable to us than could have been obtained
from unaffiliated third parties.
RELATED COMPANIES
Preston David Spurlin, our Chief Executive Officer, President, Sole
Director and majority shareholder, also serves as a director of and owns 51% of
the stock of each of the following Texas corporations: Viper Communications
Systems, Inc. ("Viper"), CKS Management, Inc. ("CKS") and Epic Communications,
Inc. ("Epic"). During 1999 and 1998, MTSI received $116,751 and $107,828
administrative fee income from each of Viper, CKS and Epic, respectively. MTSI
charges these related entities a fee of 2% of their gross revenues for the
accounting and bookkeeping services provided to Viper, CKS and Epic. Preston
David Spurlin does not control the day-to-day operations of Viper, CKS or Epic.
On January 1, 1998, MTSI transferred vehicles under capital leases with
a net book value of $224,377 and related capital lease obligations of $222,645
to each of Viper and CKS, respectively. In addition, during 1999 and 1998, MTSI
made cash loans to Viper of $203,650 and $294,500, CKS of $488,000 and $504,660,
and Epic of $35,000 and $0, respectively, and MTSI paid expenses $108,815 and
$15,029, respectively on behalf of these entities. MTSI charges each of Viper,
CKS and Epic, respectively, 9.75% annual interest on all loans outstanding. At
December 31, 1999 and 1998, MTSI had loans receivable from each of Viper
totaling $272,474 and ($33,633), CKS totaling $26,789 and $232,665, and Epic
totaling $(66,173) and $0, respectively. Additionally, MTSI, Inc. holds a note
of Epic Communications, Inc. with a remaining balance of $37,320 and $0 at
December 31, 1999 and $1998, respectively. This note bears interest at 9.75%
annually and is payable over three years.
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Epic and Viper offer the same services that we do and are
hired to complete the same types of Projects that we are. However, each
company is located in a specific geographical area in which their respective
Projects are undertaken - Epic in Austin, Texas (servicing Austin and portions
of South Texas) and Viper in Florida (servicing Florida and portions of the
surrounding area). While the customers of each of Epic and Viper might
consider us to undertake these Projects, our management believes that these
companies are retained due to their specific geographic concentration and that
for this reason we are not competitive with these customers. From time to
time, we have subcontracted parts of our Projects to Epic and/or Viper on
terms that our management believes were no less favorable to us than could
have been obtained from unaffiliated third parties. More often, however, these
companies retain us to help complete their Projects.
CKS performs subcontracted civil engineering services to us
and to a variety of other customers. Whether or not we hire CKS or one of
their competitors is based on their availability and the price of their
services. Our management believes that when we have hired CKS, we have done so
on terms no less favorable to us than could have been obtained from
unaffiliated third parties.
ITEM 8. DESCRIPTION OF SECURITIES
CAPITAL STOCK. Our authorized capital stock consists of 40,000,000
shares of common stock and 10,000,000 shares of preferred stock, each with a
par value of $.001 per share. Each share of common stock entitles the holder
thereof to one vote on all matters upon which shareholders are permitted to
vote. No shareholder has any preemptive right or other similar right to
purchase or subscribe for any additional securities issued by us, and no
shareholder has any right to convert his, her or its common stock into other
securities. No shares of common stock are subject to redemption or any sinking
fund provisions. All the outstanding shares of our common stock are fully paid
and non-assessable. Subject to the rights of the holders of the preferred
stock, if any, our shareholders of common stock are entitled to dividends
when, as and if declared by our Board of Directors from funds legally
available therefor and, upon liquidation, to a pro-rata share in any
distribution to shareholders. We do not anticipate declaring or paying any
cash dividends on the common stock in the year 2000. Our current line of
credit agreements require prior written consent for the payment of dividends.
Pursuant to our Articles of Incorporation, our Board of Directors has
the authority, without further shareholder approval, to provide for the
issuance of up to 10,000,000 shares of our preferred stock in one or more
series and to determine the dividend rights, conversion rights, voting rights,
rights in terms of redemption, liquidation preferences, the number of shares
constituting any such series and the designation of such series. Because our
Board of Directors has the power to establish such preferences and rights of
any such series, it may afford the holders of any preferred stock preferences,
powers and rights (including voting rights) senior to the rights of holders of
our common stock. No shares of our preferred stock are currently outstanding.
Although we have no present intention to issue any shares of preferred stock,
the issuance of shares of preferred stock, or the issuance of rights to
purchase such shares, may have the effect of delaying, deferring or preventing
a change in control of the Company.
As a successor to RBSC, Inc., a California corporation reorganized
pursuant to
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a plan of bankruptcy and reorganization, we are prohibited from issuing
non-equity voting securities under Section 1123(a)(6) of the United States
Bankruptcy Code. If there are to be any classes of securities issued in the
future, all shall possess voting power, an appropriate distribution of such
voting power among such classes, including, in the case of any class of equity
securities having a preference over another class of equity securities with
respect to dividends, and adequate provision for the election of directors
representing such preferred class in the event of default in the payment of
such dividends.
PROVISIONS HAVING A POSSIBLE ANTI-TAKEOVER EFFECT. Our Articles of
Incorporation and Bylaws contain certain provisions that are intended to
enhance the likelihood of continuity and stability in the composition of our
Board of Directors and in the policies formulated by the Board and to
discourage certain types of transactions which may involve an actual or
threatened change of control of the Company. In addition, our Board of
Directors has the authority, without further action by our shareholders, to
issue up to 10,000,000 shares of our preferred stock in one or more series and
to fix the rights, preferences, privileges and restrictions thereof, and to
issue up to 33,749,916 additional shares of our common stock. The issuance of
our preferred stock or additional shares of our common stock could adversely
affect the voting power of the holders of our common stock and could have the
effect of delaying, deferring or preventing a change in our control.
ADDITIONAL INFORMATION
Statements contained in this registration statement regarding the contents of
any contract or any other document are not necessarily complete and, in each
instance, reference is hereby made to the copy of such contract or other
document filed as an exhibit to the registration statement. As a result of
this Registration Statement, we will be subject to the informational
requirements of the Securities Exchange Act of 1934 and, consequently, will be
required to file annual and quarterly reports, proxy statements and other
information with the SEC. The registration statement, including exhibits, may
be inspected without charge at the SEC's principal office in Washington, D.C.,
and copies of all or any part thereof may be obtained from the Public
Reference Section, Securities and Exchange Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549 upon payment of the prescribed fees. You may obtain
information on the operation of the Public Reference Room by calling the SEC
at 1.800.SEC.0330. The SEC maintains a Website that contains reports, proxy
and information statements and other information regarding registrants that
file electronically with it. The address of the SEC's Website is
http://www.sec.gov.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS;
MARKET DATA
This registration statement contains forward-looking statements.
These statements relate to future events or our future financial performance.
In some cases, you can identify forward-looking statements by terminology such
as "may," "will," "should," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential" or "continue" or the negative of such
terms or other comparable terminology. Forward-looking statements are
speculative and uncertain and not based on historical facts. Because
forward-looking statements involve risks and uncertainties, there are
important factors that could cause actual results to differ materially from
those expressed or implied by these forward-looking statements, including
those discussed
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<PAGE>
under "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and "Description of Business."
Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance, or achievements. Moreover, neither we nor any
other person assumes responsibility for the accuracy and completeness of such
statements. The reader is advised to consult any further disclosures made on
related subjects in our future SEC filings.
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PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
MARKET INFORMATION. Our common stock was approved for trading on the
NQB Pink Sheets on March 23, 2000. Although our stock has yet to trade, the
set bid and ask price is $.50 as of the date of this filing. As of May 15,
2000 there was one market maker in our common stock.
We are filing this Form 10- SB/A for the purpose of enabling our
shares of common stock to commence trading on the NASDAQ Bulletin Board for
OTCBB. Our Form 10- SB/A must be declared effective by the Securities and
Exchange Commission prior to our being approved for trading on the NASDAQ
OTCBB, and until such time as this Form 10- SB/A is declared effective, our
shares of common stock will continue to be quoted on the "pink sheets." Our
market maker must make an application to the National Association of
Securities Dealers, Inc., or NASD, following the effective date of this Form
10- SB/A in order to have our shares of common stock quoted on the NASDAQ
OTCBB.
HOLDERS. As of May 15, 2000, there were a total of Six Million Two
Hundred Fifty Thousand Eighty-Four (6,250,084) shares of our common stock
outstanding, held by one thousand eighty-three (1,083) shareholders of record.
DIVIDENDS. We have not declared any dividends on our common stock
during the last two fiscal years. Our current lines of credit agreements
require prior written consent for any payment of dividends.
ITEM 2. LEGAL PROCEEDINGS
From time to time, we are involved in various legal proceedings
relating to claims arising in the ordinary course of business. We are not a
party to any such legal proceedings, the adverse outcome of which,
individually or taken together with all other legal proceedings, is expected
to have a material adverse effect on our prospects, financial condition or
result of operations.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING DISCLOSURE
Not Applicable.
31
<PAGE>
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
Pursuant to the Plan of Reorganization of our predecessor entity, all
of our outstanding capital stock as of the date of our bankruptcy petition
(March 17, 1997) were canceled. Pursuant to the Plan, we issued an aggregate
of 500,084 shares of our common stock to certain of our creditors and Halter
Financial Group, Inc. Such shares were issued in accordance with Section 1145
under the United States Bankruptcy Code and the transaction was thus exempt
from the registration requirements of Section 5 of the Securities Act of 1933
(the "Securities Act").
On August 6, 1999, we entered into a Stock Exchange Agreement with
MTSI pursuant to which Preston David Spurlin, the sole shareholder of MTSI,
assigned his equity ownership in that company to us in exchange for 5,750,000
shares (or approximately 92%) of our outstanding common stock. We relied on
Section 4(2) of the Securities Act because the transaction did not involve a
public offering and was therefore exempt from the registration requirements of
the Securities Act. No underwriters were used in connection with this
transaction.
ITEM 5. INDEMNIFICATION OF OFFICERS AND DIRECTORS
We have the authority under Articles 2.02a(16) and 2.02-1 of the
Texas Business Corporation Act to indemnify our Directors and Officers to the
extent provided for in such statute. The Texas Business Corporation Act
provides, in part, that a corporation may indemnify a director or officer or
other person who was, is or is threatened to be made a named defendant or
respondent in a proceeding because such person is or was a director, officer,
employee or agent of the corporation, if it is determined that such person:
- - conducted himself in good faith;
- - reasonably believed, in the case of conduct in his official capacity as a
director or officer of the corporation, that his conduct was in the
corporation's best interest and, in all other cases, that his conduct was
at least not opposed to the corporation's best interests; and
- - in the case of any criminal proceeding, had no reasonable cause to believe
that his conduct was unlawful.
A corporation may indemnify a person under the Texas Business
Corporation Act against judgments, penalties, including excise and similar
taxes, fines, settlement, unreasonable expenses actually incurred by the
person in connection with the proceeding. If the person is found liable to the
corporation or is found liable on the basis that personal benefit was
improperly received by the person, the indemnification is limited to
reasonable expenses actually incurred by the person in connection with the
proceeding, and shall not be made in respect of any proceeding in which the
person shall have been found liable for willful or intentional misconduct in
the performance of his duty to the corporation. The corporation may also pay
or reimburse expenses incurred by a person in connection with his appearance
as a witness or other participation in a proceeding at a time when he is not a
named defendant or respondent in the proceeding.
Our Articles of Incorporation provide that none of our Directors
shall be personally liable
32
<PAGE>
to us or our shareholders for monetary damages for an act or omission in such
Director's capacity as a Director; PROVIDED, HOWEVER, that the liability of
such Director is not limited to the extent that such Director is found liable
for (a) a breach of the Director's duty of loyalty to us or our shareholders,
(b) an act or omission not in good faith that constitutes a breach of duty of
the Director to us or an act or omission that involves intentional misconduct
or a knowing violation of the law, (c) a transaction from which the Director
received an improper benefit, whether or not the benefit resulted from an
action taken within the scope of the Director's office, or (d) an act or
omission for which the liability of the Director is expressly provided under
Texas law. Limitations on liability provided for in our Articles of
Incorporation do not restrict the availability of non-monetary remedies and do
not affect a Director's responsibility under any other law, such as the
federal securities laws or state or federal environmental laws.
We believe that these provisions will assist us in attracting and
retaining qualified individuals to serve as executive officers and directors.
The inclusion of these provisions in our Articles of Incorporation may have
the effect of reducing a likelihood of derivative litigation against our
Directors and may discourage or deter shareholders or management from brining
a lawsuit against Directors for breach of their duty of care, even though such
an action, if successful, might otherwise have benefitted us or our
shareholders.
We have directors' and officers' liability insurance policies to
cover certain liabilities of directors and officers arising out of claims
based on certain acts or omissions by them in their capacity as directors or
officers with policy limits of $1,000,000.
Our Bylaws provide that our Officers and Directors shall be
indemnified and held harmless by us from and against any judgments, penalties
(including excise taxes), fines, amounts paid in settlement and reasonable
expenses (including court costs and attorneys' fees) actually incurred by such
persons in connection with all threatened, pending or completed actions,
claims, suits or proceedings; PROVIDED, HOWEVER, that it must be determined
that such Officer or Director acted in good faith and reasonably believed (1)
that in the case of conduct in his official capacity on behalf of us that his
conduct was in our best interest, (2) in all other cases that his conduct was
not opposed to our best interests, and (3) with respect to any proceeding
which is a criminal action, that he had no reasonable cause to believe that
his conduct was unlawful. However, in the event a determination is made that
an Officer or Director is liable to us or is found liable on the basis that
personal benefit was improperly received by such person, such indemnification
is limited to reasonable expenses actually incurred by such person in
connection with the proceeding and shall not be made in respect of any
proceeding in which such person shall have been found liable for willful or
intentional misconduct in the performance of his duty to the corporation. Any
indemnification under our Bylaws shall be made by us only upon a determination
that indemnification of such person is proper, such determination to be made
by a majority vote of a quorum consisting of Directors who at the time of the
vote are not named defendants or respondents in such proceeding, or in the
alternative by special legal counsel and/or the shareholders of the
corporation, as described in our Bylaws.
The above discussion of the Texas Business Corporation Act, our
Articles of Incorporation, and our Bylaws is not intended to be exhaustive and
is qualified in its entirety by such statutes, our Articles of Incorporation
and our Bylaws, respectively.
33
<PAGE>
PART F/S
The following financial information is provided in accordance with
the requirements of Item 310 of Regulation S-B.
MICROWAVE TRANSMISSION SYSTEMS, INC.
AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION> Page
----
<S> <C>
Report of Independent Certified Public Accountants..................................................F-2
Consolidated Balance Sheets at December 31, 1999 and 1998 and March 31, 2000 (unaudited)............F-3
Consolidated Statements of Income for the years ended December 31, 1999 and 1998 and
the three months ended March 31, 2000 (unaudited)................................................F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1999 and 1998 and
the three months ended March 31, 2000 (unaudited)................................................F-6
Notes to Interim Consolidated Financial Statements..................................................F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
MICROWAVE TRANSMISSION SYSTEMS, INC.
We have audited the accompanying consolidated balance sheets of Microwave
Transmission Systems, Inc. and Subsidiary as of December 31, 1999 and 1998 and
the related consolidated statements of income, shareholders' equity, and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Microwave Transmission
Systems, Inc. and Subsidiary as of December 31, 1999 and 1998, and the results
of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
KING GRIFFIN & ADAMSON P.C.
Dallas, Texas
February 1, 2000
F-2
<PAGE>
MICROWAVE TRANSMISSION SYSTEMS, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
At December 31, 1999 and 1998 and March 31, 2000 (unaudited)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, MARCH 31,
1999 1998 2000
------------ ------------ ----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 22,445 $ 18,585 $ 52,098
Marketable securities, available for sale - - 78,957
Accounts receivable - trade 1,243,759 950,278 627,708
Related party receivables 25,904 70,627 322,687
Due from affiliates 233,090 199,032 23,326
Employee advances 12,830 15,816 17,778
Jobs in progress 150,978 40,676 20,610
Prepaid and other current assets 18,835 32,601 17,242
Income taxes receivable - 20,000 -
Notes receivable - related parties 14,763 5,036 35,466
---------- ---------- ----------
Total current assets 1,722,604 1,352,651 1,195,872
Property and equipment, net 544,412 463,417 511,697
Non-current notes receivable - related parties 203,566 109,326 275,626
---------- ---------- ----------
TOTAL ASSETS $2,470,582 $1,925,394 $1,983,195
========== ========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE>
MICROWAVE TRANSMISSION SYSTEMS, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (Continued)
At December 31, 1999 and 1998 and March 31, 2000 (unaudited)
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
DECEMBER 31, DECEMBER 31, MARCH 31,
1999 1998 2000
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Current liabilities
Borrowings on line of credit $ 400,806 $ 350,000 $ --
Current portion of capital lease obligation -- 42,476 --
Current portion of long-term debt 65,940 61,321 75,074
Accounts payable 40,587 52,618 81,557
Accrued liabilities 333,831 252,218 77,185
Income taxes payable 56,041 -- 195,079
Deferred tax liability - current 408,067 300,234 --
---------- ---------- ----------
Total current liabilities 1,305,272 1,058,867 428,895
Deferred tax liability - non-current 9,761 14,400 358,305
Long-term debt, less current portion 44,598 44,021 52,349
Capital lease obligation, less current portion -- 3,302 --
Total liabilities 1,359,631 1,120,590 839,549
Shareholders' equity
Preferred stock, $0.001 par value;
10,000,000 shares authorized;
none issued and outstanding -- -- --
Common stock $0.001 par value;
40,000,000 shares authorized;
6,250,084 shares issued and outstanding 6,250 6,250 6,250
Additional paid-in capital (5,250) (5,250) (5,250)
Accumulated other comprehensive
income (loss) -- -- (1,043)
Retained earnings 1,109,951 803,804 1,143,689
---------- ---------- ----------
Total shareholders' equity 1,110,951 804,804 1,143,646
---------- ---------- ----------
Total liabilities and shareholders' equity $2,470,582 $1,925,394 $1,983,195
========== ========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
F-4
<PAGE>
MICROWAVE TRANSMISSION SYSTEMS, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31, 1999 and 1998
and the Three Months Ended March 31, 2000 (unaudited)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
1999 1998 2000
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Net sales $ 6,358,896 $ 4,739,598 $ 1,477,102
Cost of sales 4,101,005 3,187,064 959,532
------------ ------------ ------------
Gross profit 2,257,891 1,552,534 517,570
Operating expenses 1,869,245 1,465,177 392,056
------------ ------------ ------------
Operating income 388,646 87,357 125,514
Interest income from related parties 6,697 19,678 6,273
Other income from related parties 116,751 107,828 37,014
Interest expense (26,228) (32,529) (2,548)
------------ ------------ ------------
Income before taxes 485,866 182,334 166,253
Provision for income taxes
Current 76,525 - 192,038
Deferred 103,194 56,938 (59,523)
------------ ------------ ------------
179,719 56,938 132,515
------------ ------------ ------------
Net income $ 306,147 $ 125,396 $ 33,738
============ ============ ============
Net earnings per common share - basic
and diluted $ .05 $ .02 $ .01
============ ============ ============
Weighted average number of common
shares outstanding - basic and diluted 5,884,269 5,750,000 6,250,084
============ ============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE>
MICROWAVE TRANSMISSION SYSTEMS, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS For
the Years Ended December 31, 1999 and 1998
and the Three Months Ended March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
1999 1998 2000
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities
Net income from operations $ 306,147 $ 125,396 $ 33,738
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 193,212 163,288 36,254
(Gain) loss on disposal or sale of property
and equipment -- 1,732 (5,000)
Deferred income tax provision 103,194 56,938 (59,523)
Bad debt expense -- 487 --
Changes in operating assets and liabilities:
Accounts receivable - trade (293,481) (165,356) 616,051
Related party receivables 44,723 (70,627) (296,783)
Employee advances 2,986 2,453 (4,948)
Jobs in progress (110,302) 53,157 130,368
Prepaid and other current assets 13,766 35,609 1,593
Accounts payable (12,031) 17,629 40,970
Accrued liabilities 81,613 (38,504) (256,646)
Income taxes payable 76,041 (36,881) 139,038
----------- ----------- -----------
Cash flows provided by operating
activities 405,868 145,321 375,112
Cash flows from investing activities
Purchases of property and equipment (287,570) (273,110) (57,535)
Proceeds from sale of property and equipment -- -- 30,000
Issuance of notes receivable (123,999) (89,754) (70,000)
Payments received on notes receivable 33,395 3,120 6,233
Advances to affiliates (835,465) (814,189) (65,543)
Payments received on advances to affiliates 801,407 1,038,490 275,307
Purchase of marketable securities -- -- (80,000)
----------- ----------- -----------
Cash flows provided by (used in)
investing activities (412,232) (135,443) 38,462
</TABLE>
F-6
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
<PAGE>
MICROWAVE TRANSMISSION SYSTEMS, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued) For the Years Ended December 31,
1999 and 1998
and the Three Months Ended March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
1999 1998 2000
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from financing activities
Payments on capital leases (45,778) (103,356) --
Proceeds from line of credit 895,806 970,000 --
Payments on line of credit (845,000) (910,000) (400,806)
Borrowings on long-term debt 103,810 148,940 36,430
Repayment of long-term debt (98,614) (101,514) (19,545)
--------- --------- ---------
Cash flows provided by (used in)
financing activities 10,224 4,070 (383,921)
--------- --------- ---------
Net increase in cash 3,860 13,948 29,653
Cash, beginning of period 18,585 4,637 22,445
--------- --------- ---------
Cash, end of period $ 22,445 $ 18,585 $ 52,098
========= ========= =========
Supplemental disclosures for cash flow information:
Cash paid during the period for:
Interest $ 26,200 $ 32,500 $ 2,548
========= ========= =========
Income taxes $ 484 $ 36,881 $ 53,000
========= ========= =========
Supplemental non-cash financing and investing activities:
Note received from sale of property and
equipment $ 13,363 $ -- $ 28,996
========= ========= =========
Property and equipment and related note
payable transferred to affiliate $ -- $ 224,377 $ --
========= ========= =========
</TABLE>
F-7
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
<PAGE>
MICROWAVE TRANSMISSION SYSTEMS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1999 and 1998
1. NATURE OF OPERATIONS
Microwave Transmission Systems, Inc. (the "Company" or "MTSI"), a Texas
corporation incorporated on August 7, 1987, provides contracting services
related to site development and the construction of wireless
communication towers. The Company's site development service business is
a comprehensive service offering design, construction and operating
expertise to a range of wireless service providers. Site development
services include network pre-design, communication site selection,
communication site acquisition, local zoning and permitting, and site
construction and antennae installation. MTSI operates primarily in the
U.S. and is based in Richardson, Texas.
In September 1999, MTSI entered into a reverse acquisition agreement with
RBS Acquisition Corp. ("RBS"), a publicly held "shell" Texas Corporation.
RBS purchased 100% of MTSI's shares in a tax free reorganization. RBS
issued 5,750,000 shares of RBS $0.001 par value common stock in exchange
for all of the outstanding shares of MTSI. For accounting purposes, the
acquisition will be treated as a recapitalization of MTSI with MTSI as
the acquirer (a reverse acquisition). On January 12, 2000, Microwave
Transmission Systems, Inc., the subsidiary, changed its name to MTSI,
Inc., and the public company changed its name to Microwave Transmission
Systems, Inc. The historical financial statements included herein are
those of MTSI.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts
of Microwave Transmission Systems, Inc. and MTSI, Inc., its wholly-owned
subsidiary. All significant intercompany transactions and balances have
been eliminated in consolidation.
CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of cash equivalents, accounts receivable, accounts
payable, accrued liabilities and debt approximate fair value. The fair
value of notes receivable related party is approximately $172,000 and
$85,000 at December 31, 1999 and 1998, respectively, using a 10%
effective interest rate.
ACCOUNTS RECEIVABLE
The Company extends unsecured credit in the normal course of business to
virtually all of its customers. Management has provided an allowance for
doubtful accounts which reflects its opinion of amounts which may
ultimately become uncollectible. In the event of non-performance of
accounts receivable, the maximum exposure to the Company is the recorded
amount shown on the balance sheet.
F-8
<PAGE>
MICROWAVE TRANSMISSION SYSTEMS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1999 and 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Property and equipment under
capital leases are stated at the lower of fair value or the present value
of minimum lease payments at the date of purchase. Expenditures for
maintenance and repairs are charged directly against income. Major
renewals and betterments are capitalized.
Depreciation on property and equipment other than amounts acquired under
capital leases is calculated on the straight-line method for financial
reporting purposes, with useful lives ranging from 3 to 17 years. Property
and equipment held under capital leases and leasehold improvements are
amortized straight-line over the shorter of the lease term or estimated
useful life of the asset.
FEDERAL INCOME TAXES
The Company provides for income taxes under the asset and liability
approach. This method requires that deferred tax assets and liabilities be
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
REVENUE RECOGNITION
The Company uses the completed contract method of revenue recognition.
Under this method, revenue and its related expenses are not recognized
until a project, or a significant phase of the project, is completed.
Costs incurred, which primarily consist of labor and materials, on
uncompleted projects are capitalized as jobs in progress. Provisions for
estimated losses on uncompleted contracts are made in the period in which
such losses are determined.
EARNINGS PER COMMON SHARE
Basic earnings per share is computed by dividing earnings available to
common shareholders by the weighted-average number of common shares
outstanding during the year. Diluted earnings per common share is computed
by dividing earnings available to common shareholders by the
weighted-average number of common shares outstanding plus the number of
additional shares that would have been outstanding if potentially dilutive
securities had been issued. As of December 31, 1999 and 1998, the Company
did not have any potentially dilutive securities.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities as of the date of the
financial statements, as well as the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
F-9
<PAGE>
MICROWAVE TRANSMISSION SYSTEMS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1999 and 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the
current year presentation.
3. NOTES RECEIVABLE - RELATED PARTIES
The Company has a note receivable from an officer totaling $181,009 and
$114,362 at December 31, 1999 and 1998, respectively. Interest on the loan
is charged at 6% per annum and is paid monthly. The loan is payable over
twenty years.
The Company has a note receivable from an affiliated company totaling
$37,320 and $0 at December 31, 1999 and 1998, respectively. Interest on
the loan is charged at 9.75% per annum and is paid monthly. The loan is
payable over three years.
4. PROPERTY AND EQUIPMENT
Property and equipment at December 31 consists of the following:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Leasehold improvements $ 81,599 $ 78,703
Furniture and fixtures 62,088 52,163
Production equipment 353,483 227,668
Trailers 21,455 17,466
Vehicles - including capital leases 605,187 548,582
----------- -----------
1,123,812 924,582
Less accumulated depreciation and amortization (579,400) (461,165)
----------- -----------
$ 544,412 $ 463,417
=========== ===========
</TABLE>
At December 31, 1999 and 1998, the gross amount of vehicles and related
accumulated amortization recorded under capital leases were as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Vehicles, at cost $ - $ 363,552
Less accumulated amortization - (314,429)
----------- -----------
$ - $ 49,123
=========== ===========
</TABLE>
F-10
<PAGE>
MICROWAVE TRANSMISSION SYSTEMS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1999 and 1998
4. PROPERTY AND EQUIPMENT (Continued)
Amortization of assets held under capital leases is included with
depreciation expense. Depreciation and amortization expense for the years
ended December 31, 1999 and 1998 was $193,212 and $163,288, respectively.
5. LINE OF CREDIT
During 1998, the Company entered into a line of credit agreement with a
bank with a maximum facility of $450,000. Interest is payable monthly at
the prime rate plus 1.5% (10% at December 31, 1999) and the principal is
due November 20, 2000. The line of credit is secured by substantially all
of the assets of MTSI.
6. LONG-TERM DEBT
Long-term debt at December 31, 1999 and 1998 consists of the following:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Note payable with interest at 8.5%, collateralized by
vehicles, payable in monthly principal and interest
installments of $2,992, through January, 2000 $ - $ 37,052
Borrowings under financing agreements, interest from 1.9% to 9.1%,
collateralized by vehicles, payable in monthly principal and interest
installments of $3,239, through October, 2001 63,612 54,808
Borrowings under financing agreements, interest from 8.9% to 9.25%,
collateralized by vehicles, payable in monthly principal
and interest installments of $1,472, through December, 2001 22,433 13,482
Borrowings under financing agreements, interest at 8.5%,
collateralized by vehicles, payable in monthly principal and
interest installments of $1,542, through July, 2001 24,493 -
----------- -----------
110,538 105,342
Less current portion 65,940 61,321
----------- -----------
$ 44,598 $ 44,021
=========== ===========
</TABLE>
At December 31, 1999, scheduled maturities of long-term debt are as
follows:
<TABLE>
<S> <C>
2000 $ 65,940
2001 44,598
-----------
$ 110,538
===========
</TABLE>
F-11
<PAGE>
MICROWAVE TRANSMISSION SYSTEMS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
7. INCOME TAXES
At December 31, 1999 and 1998 deferred tax assets (liabilities) are
comprised of the following:
1999 1998
----------- -------------
<S> <C> <C>
Deferred tax assets
Accounts payable and accrued expenses
not currently deductible $ 23,023 $ 15,785
Other - 2,456
----------- -------------
Total deferred tax asset 23,023 18,241
Deferred tax liabilities
Accounts receivable (380,899) (306,272)
Jobs in progress (45,293) (12,203)
Property and equipment (9,761) (14,400)
Other (4,898) -
----------- ------------
Total deferred tax liability (440,851) (332,875)
----------- ------------
Net deferred tax liability $ (417,828) $ (314,634)
=========== ============
At December 31, 1999 and 1998 deferred tax assets and liabilities included
in the balance sheets are as follows:
1999 1998
----------- ------------
<S> <C> <C>
Current deferred tax asset $ 23,023 $ 18,241
Current deferred tax liability (431,090) (318,475)
----------- -----------
Net current deferred tax liability (408,067) (300,234)
Non-current deferred tax liability (9,761) (14,400)
----------- -----------
Net deferred tax liability $ (417,828) $ (314,634)
=========== ===========
</TABLE>
The effective income tax rate for the years ended December 31, 1999 and
1998 vary from the statutory rate due to the following:
<TABLE>
<CAPTION>
1999 1998
------- --------
<S> <C> <C>
Income tax expense at statutory rate 34% 34%
State taxes 0.5% -
Other 2.5% (2.8%)
------ ------
37.0% 31.2%
====== =======
</TABLE>
F-12
<PAGE>
MICROWAVE TRANSMISSION SYSTEMS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1999 and 1998
8. LEASES
The Company leases its office facility from the president and majority
shareholder of the Company. The lease is for an initial three-year term
expiring in 1999 with a month-to-month renewal thereafter, and has been
classified as an operating lease. Total rent expense associated with this
lease was $56,400 for each of the years ended December 31, 1999 and 1998.
The Company also leases a house from the president and majority
shareholder. The house provides lodging for out-of-town employees and
contractors in lieu of the Company incurring hotel and other travel related
charges. The lease began in April 1999 and continues on a month-to-month
basis. Total rent expense associated with this lease was $11,900 for the
year ended December 31, 1999.
Total rental expense for operating leases was $68,300 and $73,596 for the
years ended December 31, 1999 and 1998, respectively.
9. EMPLOYEE BENEFIT PLAN
The Company offers a profit sharing plan, Microwave Transmission Systems,
Inc. Profit Sharing Plan, which covers all employees of the Company who
have attained age 18 or older with at least six months of service with the
Company as of the semi-annual plan entrance dates. The Company makes
non-matching contributions at the discretion of the plan's trustees.
Employees' profit sharing accounts are fully vested after seven years. In
accordance with the profit sharing plan provisions, the Company covers all
costs associated with the administration of the profit sharing plan.
Employer discretionary contributions for the years ended December 31, 1999
and 1998 were $289,000 and $249,000, respectively.
10. RELATED PARTY TRANSACTIONS
At December 31, 1999 and 1998, there exists a loan to an officer from the
Company with a remaining balance of $181,009 and $114,362, respectively.
The loan bears interest at 6% and is payable over twenty years.
Additionally, the Company holds a note to an affiliated Company from MTSI
with a remaining balance of $37,320 and $0 at December 31, 1999 and 1998,
respectively. The note bears interest at 9.75% and is payable over three
years.
The Company leases its office space from the president and majority
shareholder of the Company. The lease agreement originated in January 1996
and has a term of 36 months with a month-to-month renewal thereafter. The
monthly lease payment is $4,700. Total rent expense charged during both
1999 and 1998 was $56,400.
The Company also leases a house from the president and majority
shareholder. The house provides lodging for out of town employees and
contractors in lieu of the Company incurring hotel and other travel related
charges. The lease began in April 1999 and continues on a month-to-month
basis. Total rent expense associated with this lease was $11,900 for the
year ended December 31, 1999.
The majority shareholder of MTSI also owns 51% of the stock of Viper
Communication Systems, Inc. ("Viper"), CKS Management, Inc. ("CKS") and
EPIC Communications, Inc. ("EPIC"). During 1999 and 1998, the Company
received $116,751 and $107,828 in administrative fee income from Viper, CKS
and EPIC. MTSI charges these related entities a fee of 2% of their gross
revenues for the accounting and bookkeeping services it provides to Viper,
CKS and EPIC. In addition, during 1999 and 1998, the Company made cash
loans to Viper,
F-13
<PAGE>
MICROWAVE TRANSMISSION SYSTEMS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1999 and 1998
10. RELATED PARTY TRANSACTIONS (CONTINUED)
CKS and EPIC. In addition, during 1999 and 1998, the Company made cash
loans to Viper, CKS and EPIC of $726,650 and $799,160, respectively, and
MTSI paid expenses of $108,815 and $15,029, respectively, on behalf of
these entities. On January 1, 1998, MTSI transferred vehicles under capital
leases with a net book value of $224,377 and related capital lease
obligations of $222,645 to Viper and CKS. MTSI charges Viper, CKS and EPIC
9.75% interest on all loans outstanding. At December 31, 1999 and 1998, the
Company had loans receivable from Viper, CKS and EPIC totaling $233,090 and
$199,032, respectively.
11. BUSINESS AND CREDIT CONCENTRATIONS
The Company has three customers that accounted for 70% of sales for the
year ended December 31, 1999 and had two customers that accounted for 51%
of sales for the year ended December 31, 1998. At December 31, 1999 and
1998, these customers accounted for 73% and 59%, respectively, of total
accounts receivable.
12. UNAUDITED INTERIM FINANCIAL INFORMATION
The unaudited interim financial information as of March 31, 2000 and for
the three months then ended, has been prepared on the same basis as the
audited financial statements. In the opinion of management, such unaudited
information includes all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation of this interim information.
Operating results for the three months ended March 31, 2000 are not
necessarily indicative of the results that may be expected for the entire
year ending December 31, 2000.
EARNINGS PER COMMON SHARE
Basic earnings per share is computed by dividing earnings available to
common shareholders by the weighted-average number of common shares
outstanding during the year. Diluted earnings per common share is computed
by dividing earnings available to common shareholders by the
weighted-average number of common shares outstanding plus the number of
additional shares that would have been outstanding if potentially dilutive
securities had been issued. As of March 31, 2000, the Company did not have
any potentially dilutive securities.
MARKETABLE SECURITIES
Marketable equity securities are classified as available for sale and are
carried at market value. Unrealized gains and losses are recorded as a
component of stockholders' equity until realized. Realized gains and losses
on the sale of investments are based upon the specific identification
method and are included in the statement of income in the period of sale.
F-14
<PAGE>
<TABLE>
<CAPTION>
PART III
ITEM 1. INDEX TO EXHIBITS
The following documents are filed as exhibits to this Registration Statement:
<S> <C>
3.1 Articles of Incorporation of Microwave Transmission Systems, Inc.
(with amendments).*
3.2 Restated Bylaws of Microwave Transmission Systems, Inc.*
6.1 Stock Exchange Agreement by and among Microwave Transmission Systems,
Inc., the Sole Shareholder of Microwave Transmission Systems, Inc., RBS
Acquisition Corp., and Halter Financial Group, Inc. dated August 6,
1999.*
6.2 Consulting Agreement by and between Microwave Transmission Systems,
Inc. and Halter Financial Group, Inc. dated July 29, 1999.*
6.3 Commercial Lease Agreement dated January 17, 1996 by and between
Microwave Transmission Systems, Inc. (now MTSI, Inc.) and P. David
Spurlin.*
6.4 Lease Agreement dated April 1, 1999 by and between Microwave
Transmission Systems, Inc. (now MTSI, Inc.) and P. David Spurlin.*
</TABLE>
*Previously filed.
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Act of 1934, the
Company caused this amended Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
MICROWAVE TRANSMISSION SYTEMS, INC.
DATE: May 23, 2000 By: /s/ Preston David
---------------------------
Spurlin
Preston David Spurlin
Chief Executive Officer and President
