<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 1O-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______.
Commission File Number __________________
MICROWAVE TRANSMISSION SYSTEMS, INC.
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(Exact name of small business issuer as specified in its charter)
TEXAS 75- 2197372
--------------------------------- ---------------------------------
(State or other jurisdiction IRS Employer Identification Number
of incorporation or organization)
541 STERLING DRIVE, RICHARDSON, TEXAS 75081
-------------------------------------------
(Address of principal executive offices)
(972) 669-0591
--------------
(Issuer's telephone number)
N/A
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes No X
--- ---
There were 6,250,084 shares of the registrant's common stock outstanding as of
August 14, 2000.
Transitional Small Business Disclosure Format (Check One:)
Yes No X
--- ---
<PAGE>
MICROWAVE TRANSMISSION SYSTEMS, INC. AND SUBSIDIARY
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
----
<S> <C>
Item 1. - Consolidated Financial Statements 1
Consolidated Balance Sheets 1
Consolidated Statements of Income 3
Consolidated Statements of Cash Flows 4
Notes to Financial Statements 6
ITEM 2. - Management's Discussion and Analysis of
Financial Condition or Plan of Operation: 7
PART II - OTHER INFORMATION 12
Item 1. - Legal Proceedings 12
Item 2. - Changes in Securities 12
Item 3. - Defaults Upon Senior Securities 12
Item 4. - Submission of Matters to a Vote of Security Holders 12
Item 5. - Other Information 12
Item 6. - Exhibits and Reports on Form 8-K 13
Signature Page 14
Index to Exhibits 15
</TABLE>
<PAGE>
MICROWAVE TRANSMISSION SYSTEMS, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
------
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
2000 1999
------------ ------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 63,091 $ 22,445
Marketable securities, available for sale 77,728 --
Accounts receivable, trade 1,292,612 1,243,759
Related party receivables 52,510 25,904
Due from affiliates 64,265 233,090
Employee advances 21,184 12,830
Jobs in progress 296,228 150,978
Prepaid and other current assets 14,862 18,835
Notes receivable - related parties 35,466 14,763
------------ ------------
Total current assets 1,917,946 1,722,604
Property and equipment, net 544,768 544,412
Non-current notes receivable - related parties 327,326 203,566
------------ ------------
Total assets $ 2,790,040 $ 2,470,582
============ ============
</TABLE>
1
<PAGE>
MICROWAVE TRANSMISSION SYSTEMS, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (Continued)
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
2000 1999
------------ ------------
<S> <C> <C>
Current liabilities
Borrowings on line of credit $ 260,000 $ 400,806
Current portion of long-term debt 85,372 65,940
Accounts payable 295,877 40,587
Accrued liabilities 227,298 333,831
Income taxes payable 223,597 56,041
Deferred tax liability - current -- 408,067
------------ ------------
Total current liabilities 1,092,144 1,305,272
Income taxes payable, non-current 11,449 --
Deferred tax liability - non-current 346,856 9,761
Long-term debt, less current portion 56,111 44,598
------------ ------------
Total liabilities 1,506,560 1,359,631
------------ ------------
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
Additional paid-in capital (5,250) (5,250)
Accumulated other comprehensive income (loss) (2,272) --
Retained earnings 1,284,752 1,109,951
------------ ------------
Total shareholders' equity 1,283,480 1,110,951
------------ ------------
Total liabilities and shareholders' equity $ 2,790,040 $ 2,470,582
============ ============
</TABLE>
2
<PAGE>
MICROWAVE TRANSMISSION SYSTEMS, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Three months ended June 30, Six months ended June 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 1,751,217 $ 1,988,080 $ 3,228,319 $ 3,215,866
Cost of sales 1,086,675 1,108,405 2,046,207 1,816,195
------------ ------------ ------------ ------------
Gross profit 664,542 879,675 1,182,112 1,399,671
Operating expenses 500,874 360,993 892,930 697,671
------------ ------------ ------------ ------------
Operating income 163,668 518,682 289,182 702,000
Interest income from related parties 5,314 -- 11,587 1,740
Other income from related parties 54,543 28,118 91,557 46,110
Interest expense (6,011) (5,666) (8,559) (13,628)
------------ ------------ ------------ ------------
Income before taxes 217,514 541,134 383,767 736,222
Provision for income taxes
Current 76,451 47,178 268,489 237,573
Deferred -- 145,943 (59,523) 100,146
------------ ------------ ------------ ------------
76,451 193,121 208,966 337,719
------------ ------------ ------------ ------------
Net income $ 141,063 $ 348,013 $ 174,801 $ 398,503
============ ============ ============ ============
Net earnings per common share - basic
and diluted $ 0.02 $ 0.06 $ 0.03 $ 0.07
============ ============ ============ ============
Weighted average number of common
shares outstanding - basic and diluted 6,250,084 5,750,000 6,250,084 5,750,000
============ ============ ============ ============
</TABLE>
3
<PAGE>
MICROWAVE TRANSMISSION SYSTEMS, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Six months ended Six months ended
June 30, 2000 June 30, 1999
-------------- --------------
<S> <C> <C>
Cash flows from operating activities
Net income from operations $ 174,801 $ 398,503
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 70,423 104,474
Gain on disposal or sale of property and equipment (5,000) --
Deferred income tax provision (59,523) 100,146
Changes in operating assets and liabilities:
Accounts receivable - trade (48,853) (70,627)
Related party receivables (26,606) (55,618)
Employee advances (8,354) 7,563
Jobs in progress (145,250) (16,256)
Prepaid and other current assets 3,973 12,214
Accounts payable 255,290 42,883
Accrued liabilities (106,533) (236,575)
Income taxes payable/receivable 167,556 237,089
-------------- --------------
Cash flows provided by operating activities 271,924 523,796
-------------- --------------
Cash flows from investing activities
Purchases of property and equipment (51,694) (229,725)
Proceeds from sale of property and equipment 30,000 --
Issuance of notes receivable (146,000) --
Payments received on notes receivable 30,533 9,000
Advances to affiliates (350,083) (224,200)
Payments received on advances to affiliates 518,908 412,419
Purchase of marketable securities (80,000) --
-------------- --------------
Cash flows used in investing activities (48,336) (32,506)
-------------- --------------
Cash flows from financing activities
Payments on capital leases -- (33,771)
Proceeds from line of credit 410,000 295,000
Payments on line of credit (550,806) (645,000)
Borrowings of long-term debt -- 64,688
Repayment of long-term debt (42,136) (40,786)
-------------- --------------
Cash flows used by financing activities (182,942) (359,869)
-------------- --------------
Net increase in cash 40,646 131,421
Cash, beginning of period 22,445 18,585
-------------- --------------
Cash, end of period $ 63,091 $ 150,006
============== ==============
</TABLE>
4
<PAGE>
MICROWAVE TRANSMISSION SYSTEMS, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Six months Six months
ended ended
June 30, June 30,
2000 1999
------------ ------------
<S> <C> <C>
Supplemental disclosures for cash flow information:
Cash paid during the period for:
Interest $ 8,559 $ 13,628
============ ============
Income taxes $ 53,000 $ --
============ ============
Supplemental non-cash financing and investing activities:
Note received from sale of property and equipment $ 28,996 $ --
============ =============
Purchase of property and equipment with long-term debt $ 73,081 $ --
============ =============
</TABLE>
5
note 1
<PAGE>
MICROWAVE TRANSMISSION SYSTEMS, INC.
AND SUBSIDIARY
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The interim condensed consolidated financial statements included
herein have been prepared by Microwave Transmission Systems, Inc. ("MTSI") or
("Company"), without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. In the opinion of the Company's
management, the accompanying interim condensed consolidated financial
statements reflect all adjustments that are necessary for a fair presentation
of the Company's financial position, results of operations and cash flows for
such periods. All such adjustments are of a normal recurring nature. It is
recommended that these interim condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and
the notes thereto included in the Company's annual financial statements for
the years ended December 31, 1999 and 1998. Results of operations for interim
periods are not necessarily indicative of results that may be expected for any
other interim periods or the full fiscal year.
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
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 2. COMPREHENSIVE INCOME
Comprehensive income consists of unrealized losses on available for
sale marketable securities and totaled $2,272 and $0 for the six months ended
June 30, 2000 and 1999, respectively.
NOTE 3. LINE OF CREDIT
On June 14, 2000 the Company renewed its existing line of credit.
The renewed line of credit provides for maximum borrowings of $500,000 with
interest at the lender's prime rate plus 0.5% and is due on demand.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
OR PLAN OF OPERATION
Except for the historical information contained herein, the matters
discussed below contain forward-looking statements which involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company, or industry results, to
be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. The Company expressly
disclaims any obligation to update this information or publicly release any
revision or reflect events or circumstances after the date of this report.
Such factors include among others: our ability to achieve or sustain
profitability; our limited operating history; significant client
concentration; the fact that our client contracts are either short-term or
terminable with minimal notice; business conditions in our industry generally;
the impact of market competitors and their service offerings; and such other
factors that are more fully described in the Company's Registration Statement
on Form 10-SB/A as filed with the Securities and Exchange Commission on May
23, 2000.
THE COMPANY
Microwave Transmission Systems, Inc. is a Texas corporation, a
holding company and the sole shareholder of MTSI, Inc., a Texas corporation
("MTSI"), an 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 principal
executive offices are located at 541 Sterling Drive, Richardson, Texas 75081
and our telephone number is 972/669-6591.
Our revenue is currently generated primarily by 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.
7
<PAGE>
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.
THREE-MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE-MONTHS ENDED JUNE 30, 1999
Revenues: Total revenues for the three months ended June 30, 2000
were $1,751,217 a decrease of 11.9% compared to revenues of $1,988,080 for the
same period in 1999. The decrease in revenues was due largely to jobs in
process.
Management expects that the current accelerated build-out of the
wireless infrastructure will continue over the long-term, which would
positively impact our revenue. Management does not know of any other known
trends or events which are reasonably likely to have a material impact on our
revenues.
Cost of Sales: Cost of sales decreased from $1,108,405 to $1,086,675
or 2.0% from the three month period June 30, 2000 to June 30, 1999 due
primarily to the increase in jobs in process and the net of the following
increases or decreases:
- Direct labor costs decreased from $685,956 to $651,268 or 5.1% primarily
due to increases in labor utilization. As a percentage of revenue, these
costs decreased from 34.5% in 1999 to 37.2% in 2000.
- Job travel expenses decreased from $88,854 to $40,568 or 54.3% primarily
due to more efficient use of local personnel.
- Material costs increased from $99,631 to $444,841 or 346.5% primarily due
to meeting customers demands of a turnkey construction solution. The
increase of related revenue for the same period is 298.7%. Total material
revenue for the three months ended June 30, 2000 was $342,249 compared to
$85,843 for the same period in 1999.
Gross Profit: Gross profit decreased from $879,675 to $664,542 or
24.5% for the three months ended June 30, 2000 due to the large number of jobs
in process at June 30, 2000.
8
<PAGE>
Operating expense: Operating expenses increased from $360,993 to
$500,874 or 38.7% in the three months ended June 30, 2000.
Other income and interest expense: Interest expense increased from
$5,666 to $6,011 or 6.1% for the three month period June 30, 2000 to June 30,
1999. Interest income from related parties increased from zero to $5,314 for
the three month period from June 30, 2000 to June 30, 1999. This increase was
primarily due to increased funding to related parties. Management fees from
related parties increased from $28,118 to $54,543 or 94% for the three month
period from June 30, 2000 to June 30, 1999. This was primarily due to the
increase of revenue by related parties.
Income Tax Expense: Income tax expense was $193,121 for the three
month period ended June 30, 1999 compared to $76,451 for the three month
period ended June 30, 2000. The decrease is directly attributable to the
decrease of pre tax earnings.
Net Income: The Company recorded a net profit of $141,063 or ($.02)
per share for the three months period ended June 30, 2000 as compared to a
net profit of $348,013 or ($.06) per share for the three month period ended
June 30, 1999. Before income tax, income was $217,514 and $541,134,
respectively.
SIX-MONTHS ENDED JUNE 30, 2000 COMPARTED TO SIX-MONTHS ENDED JUNE 30, 1999
Revenues: Total revenues for the six months ended June 30, 2000 were
$3,228,319 an increase of 0.4% compared to revenues of $3,215,866 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.
Management expects that the current accelerated build-out of the
wireless infrastructure will continue over the long-term, which would
positively impact our revenue. Management does not know of any other known
trends or events which are reasonably likely to have a material impact on our
revenues.
Cost of Sales: Cost of sales increased from $1,816,195 to $2,046,207
or 12.66% from June 30, 2000 to June 30, 1999 due primarily to the increase in
related sales and the net of the following increases or decreases:
9
<PAGE>
- Direct labor costs increased from $1,119,501 to $1,161,202 or 3.72%
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, these costs decreased from 34.8%
in 1999 to 36% in 2000.
- Job travel expenses decreased from $142,425 to $69,497 or 51.2% primarily
due to more efficient use of local personnel.
- Material costs increased from $172,108 to $557,633 or 224% primarily due
to meeting customers demands of a turnkey construction solution. The
increase of related revenue for the same period is 129.7%. Total material
revenue for the six months ended June 30, 2000 was $469,874 compared to
$204,517 for the same period in 1999.
Gross Profit: Gross profit decreased from $1,399,671 to $1,182,112 or
15.5% for the six months ended June 30, 2000 due to the increases in direct
labor and material costs for the six months ended June 30, 2000.
Operating expense: Operating expenses increased from $697,671 to
$892,930 or 28% in the six months ended June 30, 2000.
Other income and interest expense. Interest expense decreased from
$13,628 to $8,559 or 37.2% from June 30, 2000 to June 30, 1999. Interest
income from related parties increased from $1,740 to $11,587 or 565.9% from
June 30, 2000 to June 30, 1999. This increase was primarily due to increased
funding to related parties. Management fees from related parties increased
from $46,110 to $91,557 or 98.6% from June 30, 2000 to June 30, 1999. This
was primarily due to the increase of revenue by related parties.
Income Tax Expense: Income tax expense decreased from $337,719 to
$208,966 or 38.1% for the six months ended June 30, 2000. The decrease is
directly attributable to the decrease of pre-tax earnings.
Net Income: The Company recorded a net profit of $174,801 or ($.03)
per share for the six months ended June 30, 2000 as compared to a net profit
of $398,503 or ($.07) per share for the six months ended June 30, 1999. Before
income tax, income was $383,767 and $736,222, respectively.
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company had a working capital surplus of $825,802 at the end of
June 30, 2000, as compared to a surplus of $417,332 at the end of December,
1999. The increase in our working capital ratio and working capital is
primarily due to an increase in cash collections.
The Company previously had a $450,000 line of credit, which we had
paid down in full at March 31, 2000. Drawings available under the line of
credit were increased to $500,000 as of June 14, 2000. The line of credit
borrowings are due on demand and bear interest at the lender's prime rate plus
0.5%.
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.
Management believes that we will be able to increase our borrowing limits
under our line of credit. 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.
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.
Cash flows from operating activities: Cash provided by operating
activities for the six months ended June 30, 1999 was $523,796 compared to
cash provided by operating activities of $271,924 for the six months ended
June 30, 2000. The decrease results from reduced net income and other net
changes in operating assets and liabilities.
Cash flows from investing activities: Cash used in investing
activities increased from $32,506 to $48,336 or 48.7% from June 30, 1999 the
June 30, 2000. This is primarily due to the issuance of notes receivable in
the amount of $146,000; advances to affiliates of $350,083 and the purchase of
$80,000 of marketable securities.
Cash flows from financing activities: Cash used in financing
activities decreased from $359,869 to $182,942 or 49.2% from June 30, 1999 to
June 30, 2000. This is primarily due to proceeds from the line of credit in
the amount of $410,000 less the payments of $550,806 and the repayment of
long-term debts.
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. 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 2. CHANGES IN SECURITIES
(a) None.
(b) None.
(c) None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
(a) None.
(b) None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
12
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
The following documents are filed as exhibits to this Form 10-QSB.
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.*
27.1 Financial Data Schedule (filed herewith).
*Previously filed with the Company's Registration Statement on Form
10-SB/A as filed with the Securities and Exchange Commission on May 23,
2000.
</TABLE>
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 11, 2000 NAME OF COMPANY
By: /s/ Preston David Spurlin
---------------------------------------
Preston David Spurlin
President and Chief Financial Officer
14
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<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.*
27.1 Financial Data Schedule (filed herewith).
*Previously filed with the Company's Registration Statement on Form
10-SB/A as filed with the Securities and Exchange Commission on May 23,
2000.
</TABLE>
15
