8-K/A 1 form8ka.txt ITEM 7 TO ADMENDED 8-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------- FORM 8-K/A CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): August 30, 2001 MICROWAVE TRANSMISSION SYSTEMS, INC. (Exact name of registrant as specified in its charter) Texas 000-30722 75-2197372 ------------------- --------------------- ------------------- (State or other jurisdiction (Commission (I.R.S. Employer of incorporation) File Number) Identification No.) 541 Sterling Drive, Richardson, Texas 75081 ------------------------------------------------------------- ---------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (972)669-0591 Introductory Note: This amendment on Form 8-K(A) amends the current Report on Form 8-K filed by Microwave Transmission Systems, Inc. (the "Company") on August 30, 2001 with respect to the Company's acquisition via merger of CKS Management, Inc. ("CKS"), Viper Communication Systems, Inc. ("Viper") and Epic Communications, Inc. ("Epic"). This Amendment is being filed for the purposes of providing additional information pursuant to Item 7, (a) the historical financial statements of businesses acquired and (b) the Unaudited Pro Forma Financial Information of the Company and the notes thereto. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. Microwave Transmission Systems, Inc., a Texas corporation, hereby amends its report on Form 8-K dated August 30, 2001 to include in Item 7 thereof the following: (a) Financial Statements of Businesses Acquired (i) CKS Management, Inc. (1) Report of Independent Auditors (2) Balance Sheets as of December 31, 1999 and 2000 (3) Statements of Operations for the years ended December 31, 1999 and 2000 (4) Statements of Stockholders' Equity for the years ended December 31, 1999 and 2000 (5) Statements of Cash Flows for the years ended December 31, 1999 and 2000 (6) Notes to Financial Statements (ii) Epic Communications, Inc. (1) Report of Independent Auditors (2) Balance Sheets as of December 31, 1999 and 2000 (3) Statements of Operations for the years ended December 31, 1999 and 2000 (4) Statements of Stockholders' Equity for the years ended December 31, 1999 and 2000 (5) Statements of Cash Flows for the years ended December 31, 1999 and 2000 (6) Notes to Financial Statements (iii) Viper Communication Systems, Inc. 2 (1) Report of Independent Auditors (2) Balance Sheets as of December 31, 1999 and 2000 (3) Statements of Operations for the years ended December 31, 1999 and 2000 (4) Statements of Stockholders' Equity for the years ended December 31, 1999 and 2000 (5) Statements of Cash Flows for the years ended December 31, 1999 and 2000 (6) Notes to Financial Statements (b) Pro Forma Financial Information (Unaudited) Microwave Transmission Systems, Inc. Unaudited Pro Forma Consolidated Condensed Financial Statements (i) Introduction to Unaudited Pro Forma Consolidated Condensed Financial Statements (ii) Unaudited Pro Forma Consolidated Condensed Statement of Operations SIGNATURES Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Microwave Transmission Systems, Inc. Dated: November 12, 2001 By: /s/ P. David Spurlin Name: P. David Spurlin Title:Chief Executive Officer 3 (a) Financial Statements of Businesses Acquired (i) CKS MANAGEMENT, INC. TABLE OF CONTENTS Page Report of Independent Certified Public Accountants F-5 Balance Sheets as of December 31, 1999 and 2000 F-6 Statements of Operations for the Years Ended December 31, 1999 and 2000 F-8 Statements of Stockholders' Equity for the Years Ended December 31, 1999 and 2000 F-9 Statements of Cash Flows for the Years Ended December 31, 1999 and 2000 F-10 Notes to Financial Statements F-12 4 Daniel L. Lassiter, Jr. Certified Public Accountant 670 W. Campbell Road Suite 150 Richardson, Texas 75080 972-644-8540 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT The Board of Directors CKS Management, Inc. I have audited the accompanying balance sheets of CKS Management, Inc.(a Texas corporation) as of December 31, 1999 and 2000, and the related statements of operations, stockholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. My responsibility is to express an opinion on these financial statements based on my audits. I conducted my audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that I plan and perform the audit 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. I believe that my audits provide a reasonable basis for my opinion. In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of CKS Management, Inc. as of December 31, 1999 and 2000, and the results of its operations and its cash flows for years then ended, in conformity with accounting principles generally accepted in the United States of America. /s/ Daniel L. Lassiter, Jr. Daniel L. Lassiter, Jr. CPA Richardson, Texas April 27, 2001 5 CKS MANAGEMENT, INC. BALANCE SHEETS ASSETS

(Continued) The accompanying notes are an integral part of these financial statements 6 CKS MANAGEMENT, INC. BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' EQUITY

The accompanying notes are an integral part of these financial statements 7 CKS MANAGEMENT, INC. STATEMENTS OF OPERATIONS

The accompanying notes are an integral part of these financial statements 8 CKS MANAGEMENT, INC. STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1999 AND 2000

The accompanying notes are an integral part of these financial statements 9 CKS MANAGEMENT, INC. STATEMENTS OF CASH FLOWS

(Continued) The accompanying notes are an integral part of these financial statements 10 CKS MANAGEMENT, INC. STATEMENTS OF CASH FLOWS (CONTINUED)

The accompanying notes are an integral part of these financial statements 11 CKS MANAGEMENT, INC. NOTES TO FINANCIAL STATEMENTS December 31, 1999 and 2000 NOTE 1: SIGNIFICANT ACCOUNTING POLICIES Company Organization CKS Management, Inc. (the "Company") was organized under the laws of the state of Texas on February 4, 1997. The Company is a closely held company. Preston David Spurlin owns 51% of the common stock issued by the Company. The Company provides contract management services related to the installation and repair of wireless communications transmitting and receiving equipment for providers of wireless communication services. The Company operates primarily in Oklahoma, Texas and Kansas and conducts its business through its offices in Oklahoma City, Oklahoma and Richardson, Texas. Revenue Recognition Revenues from construction and installation contracts are recognized using the completed contract method since the Company's contracts are short-term and financial position and results of operations would not vary materially from those that would result from using the percentage of completion method. The asset "Costs in excess of Billings on Uncompleted Contracts" represents costs expended on uncompleted contracts at the end of an accounting period. Cash and Temporary Investments For purposes of reporting cash flows, the company considers all highly liquid investments, purchased with a maturity of three months or less to be cash equivalents. Depreciation of Property and Equipment Depreciation is provided over the estimated useful lives (3-5 years for furniture and fixture; 40 years for buildings; 5 years for vehicles and equipment and 3-10 years for production equipment) of depreciable assets using principally the straight line method of depreciation. Expenditures for maintenance and repairs are expensed, while expenditures for material betterments are capitalized. Cost of property sold or retired and the related accumulated depreciation are removed from the accounts and the resulting gains and losses are included in other income. Concentrations of Credit Risk The Company places its cash and temporary cash investments in what it believes to be high credit quality financial institution. At times such investments may be in excess of the Federal Deposit Insurance Corporation (FDIC) limits. At December 31, 2000, the Company had no deposits that exceeded the FDIC limits. The Company grants unsecured credit to its customers, who are located in the Company's market area. Management believes that its billing and collection policies are adequate to minimize potential credit risks. (Continued) 12 CKS MANAGEMENT, INC. NOTES TO FINANCIAL STATEMENTS December 31, 1999 and 2000 NOTE 1: SIGNIFICANT ACCOUNTING POLICIES (Continued) Advertising Advertising and promotion costs are charged to expense as incurred. Advertising and promotion costs were $25,811and $21,747 for the two years ended December 31, 1999 and 2000, respectively. Pension Benefit All eligible employees of the Company are covered by a deferred contribution profit sharing 401 (k) Plan established by the Company. The plan allows for both employees and the Company to contribute to the plan. The Company matches the employee contribution up to specified limits. The Company's matching contributions to the Plan were $35,331 and $49,877 for the years ended December 31, 1999 and 2000, respectively. Income Taxes The Company records income tax expense using the liability method of accounting for deferred income taxes. Under the liability method, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial statement carrying value and the income tax basis of the Company's assets and liabilities. An allowance is recorded when it is more likely than not that any or all of a deferred tax asset will not be realized. The provision for income taxes includes taxes currently payable plus the net change during the accounting period in the deferred tax assets and liabilities recorded by the Company. 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 at the date of the financial statements and reported amounts of revenues and expenses during the reporting period and disclosures of contingent assets and liabilities. Actual results could differ from those estimates. Accounting for Long-Lived Assets The Company has adopted Statement of Financial Accounting Standards No. 121, "Accounting For The Impairment of Long-Lived Assets and For Long-Lived Assets To Be Disposed Of". The Company reviews long-lived assets, certain identifiable assets and any goodwill related to those assets for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recoverable. At December 31, 2000, the Company believes that there has been no impairment of its long-lived assets. 13 CKS MANAGEMENT, INC. NOTES TO FINANCIAL STATEMENTS December 31, 1999 and 2000 NOTE 2: ACCOUNTS RECEIVABLE Accounts receivable consists of amounts due on open customer accounts, contract balances billed and sundry accounts receivable. No allowance for bad debts has been provided since management believes that substantially all of the balances in accounts receivable are collectible. The Company did not experience any uncollectible accounts receivable for the years ended December 31, 1999 and 2000. Included in trade accounts receivable is $6,325 and $146,571 from Microwave Transmission Systems, Inc. (MTSI) at December 31, 1999 and 2000, respectively. NOTE 3: NOTES PAYABLE At December 31, 2000, the Company had borrowed $100,000 under the terms of an unsecured line of credit with a bank. The note, which is due on demand, bears interest at the bank's prime rate plus .5% (9%) at December 31, 2000. NOTE 4: LONG-TERM DEBT A summary of long-term debt is as follows:

14 CKS MANAGEMENT, INC. NOTES TO FINANCIAL STATEMENTS December 31, 1999 and 2000 NOTE 4: LONG-TERM DEBT (Continued) Aggregate maturities of long-term debt payable by year are as follows as of December 31, 2000: Years Ending December 31, Amount ------------ ------- 2001 $ 38,084 2002 25,402 2003 21,260 2004 23,025 2005 3,014 ---------- $ 110,785 NOTE 5: ACCRUED LIABILITIES Accounts payable and accrued liabilities were comprised of the following: December 31, --------------------- 1999 2000 ------------- ------------ Accounts Payable $ 59,597 $ 39,842 Accrued Expenses - 23,520 401 (k) Liability 31,852 49,877 Payroll Taxes 32,338 6,763 Accrued Bonuses - 70,000 Other 3,391 762 ---------- ------------ $ 127,178 $ 190,764 ========== ============ 15 CKS MANAGEMENT, INC. NOTES TO FINANCIAL STATEMENTS December 31, 1999 and 2000 NOTE 6: INCOME TAXES The Company files its tax returns on the cash basis of accounting. The Company has no significant permanent differences in taxable income and income for financial reporting purposes, therefore the total tax provision is thirty four percent (34%) of income before taxes. The following is a summary of the Company's net deferred tax assets and liabilities. All of the deferred tax liability is considered current because substantially all of the differences reverse each year.

NOTE 7: RELATED PARTY TRANSACTIONS The Company provides management service for and installation and repair services for Microwave Transmission Systems, Inc. ("MTSI") (a publicly traded company of which Mr. Spurlin owns 90%). The Company received $216,571 and $543,115 in revenues from MTSI for the years ending December 31, 1999 and 2000, respectively. The Company's cost of sales includes $526,808 and $1,007,278 related to construction services provided by MTSI for the Company for the years ending December 31, 1999 and 2000, respectively. The Company pays MTSI a management fee equal to 2% of its gross revenues for accounting and bookkeeping services. The Company paid MTSI $63,569 and $98,892, during the years ended December 31, 1999 and 2000, respectively, for management fees. (Continued) 16 CKS MANAGEMENT, INC. NOTES TO FINANCIAL STATEMENTS December 31, 1999 and 2000 NOTE 7: RELATED PARTY TRANSACTIONS (Continued) The notes payable to related party (MTSI) are due on demand and bear interest at 9.75%. Cost in excess of billings on uncompleted contracts includes $32,117 and $2,158 on jobs performed for MTSI as of December 31, 1999 and 2000. The three owners of the Company have entered into a "Shareholder Agreement" which sets out certain restrictions on the election of directors, the sale of the assets of the Company, the issuance or redemption of capital stock in the Company, amendments to the Articles of Incorporation, borrowings by the Company and certain other corporate restrictions. NOTE 8: PREFERRED STOCK The Class A preferred stock has the same rights and privileges as the common stock issued by the Company. NOTE 9: SUBSEQUENT EVENT During April of 2001, the Company entered into an agreement to be acquired by MTSI. 17 (b) Financial Statements of Businesses Acquired (ii) VIPER COMMUNICATION SYSTEMS, INC. TABLE OF CONTENTS Page Report of Independent Certified Public Accountants F-19 Balance Sheets as of December 31, 1999 and 2000 F-20 Statements of Operations for the Years Ended December 31, 1999 and 2000 F-22 Statements of Stockholders' Equity for the Years Ended December 31, 1999 F-23 Statements of Cash Flows for the Years Ended December 31, 1999 and 2000 F-24 Notes to Financial Statements F-26 18 Daniel L. Lassiter, Jr. Certified Public Accountant 670 W. Campbell Road Suite 150 Richardson, Texas 75080 972-644-8540 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT The Board of Directors Viper Communication Systems, Inc. I have audited the accompanying balance sheets of Viper Communication Systems, Inc. (a Texas corporation) as of December 31, 1999 and 2000, and the related statements of operations, stockholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. My responsibility is to express an opinion on these financial statements based on my audits. I conducted my audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that I plan and perform the audit 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. I believe that my audits provide a reasonable basis for my opinion. In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Viper Communication Systems, Inc. as of December 31, 1999 and 2000, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. /s/ Daniel L. Lassiter, Jr. Daniel L. Lassiter, Jr. CPA Richardson, Texas June 15, 2001 19 VIPER COMMUNICATION SYSTEMS, INC. BALANCE SHEETS ASSETS

(Continued) The accompanying notes are an integral part of these financial statements 20 VIPER COMMUNICATION SYSTEMS, INC. BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' EQUITY

The accompanying notes are an integral part of these financial statements 21 VIPER COMMUNICATION SYSTEMS, INC. STATEMENTS OF OPERATIONS

The accompanying notes are an integral part of these financial statements 22 VIPER COMMUNICATION SYSTEMS, INC. STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1999 AND 2000

The accompanying notes are an integral part of these financial statements 23 VIPER COMMUNICATION SYSTEMS, INC. STATEMENTS OF CASH FLOWS

(Continued) The accompanying notes are an integral part of these financial statements 24 VIPER COMMUNICATION SYSTEMS, INC. STATEMENTS OF CASH FLOWS (CONTINUED)

The accompanying notes are an integral part of these financial statements 25 VIPER COMMUNICATION SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS December 31, 1999 and 2000 NOTE 1: SIGNIFICANT ACCOUNTING POLICIES Company Organization Viper Communication Systems, Inc. (the "Company") was organized under the laws of the state of Texas on June 30, 1997. The Company is a closely held company. Preston David Spurlin owns 51% of the common stock issued by the Company. The Company is primarily engaged in the construction and installation of wireless communications transmitting and receiving equipment for providers of wireless communication services. The Company operates primarily in the state of Florida. Revenue Recognition Revenues from construction and installation contracts are recognized using the completed contract method since the Company's contracts are short-term and financial position and results of operations would not vary materially from those that would result from using the percentage of completion method. The asset "Costs in Excess of Billings on Uncompleted Contracts" represents costs expended and unbilled on uncompleted contracts at the end of an accounting period. Cash and Temporary Investments For purposes of reporting cash flows, the company considers all highly liquid investments, purchased with a maturity of three months or less to be cash equivalents. Depreciation of Property and Equipment Depreciation is provided over the estimated useful lives (3-5 years for furniture and fixtures; 40 years for buildings; 5 years for vehicles and equipment and 3-10 years for production equipment) of depreciable assets using principally the straight line method of depreciation. Expenditures for maintenance and repairs are expensed, while expenditures for material betterments are capitalized. Cost of property sold or retired and the related accumulated depreciation are removed from the accounts and the resulting gains and losses are included in other income. Concentrations of Credit Risk The Company places its cash and temporary cash investments in what it believes to be high credit quality financial institutions. At times such investments may be in excess of the Federal Deposit Insurance Corporation (FDIC) limits. At December 31, 2000, the Company had no deposits that exceeded the FDIC limits. The Company grants unsecured credit to its customers, who are located in the Company's market area of the state of Florida. Management believes that its billing and collection policies are adequate to minimize potential credit risks. (Continued) 26 VIPER COMMUNICATION SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS December 31, 1999 and 2000 NOTE 1: SIGNIFICANT ACCOUNTING POLICIES Continued Advertising Advertising and promotion costs are charged to expense as incurred. Advertising and promotion cost were $11,195, $29,061 and for the two years ended December 31, 1999 and 2000, respectively. Pension Benefit All eligible employees of the Company are covered by a deferred contribution profit sharing 401 (k) Plan established by the Company. The plan allows for both employees and the Company to contribute to the plan. The Company matches an employee's contribution up to specified limits. The Company's matching contributions to the Plan were $119,345 and $149,853 for the years ended December 31, 1999 and 2000, respectively. Income Taxes The Company records income tax expense using the liability method of accounting for deferred income taxes. Under the liability method, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial statement carrying value and the income tax basis of the Company's assets and liabilities. An allowance is recorded when it is more likely than not that any or all of a deferred tax asset will not be realized. The provision for income taxes includes taxes currently payable plus the net change during the accounting period in the deferred tax assets and liabilities recorded by the Company. 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 at the date of the financial statements and reported amounts of revenues and expenses during the reporting period and disclosures of contingent assets and liabilities. Actual results could differ from those estimates. Accounting for Long-Lived Assets The Company has adopted Statement of Financial Accounting Standards No. 121, "Accounting For The Impairment of Long-Lived Assets and For Long-Lived Assets To Be Disposed Of". The Company reviews long-lived assets, certain identifiable assets and any goodwill related to those assets for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recoverable. At December 31, 2000, the Company believes that there has been no impairment of its long-lived assets. 27 VIPER COMMUNICATION SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS December 31, 1999 and 2000 NOTE 2: ACCOUNTS RECEIVABLE Accounts receivable consists of amounts due on open customer accounts, contract balances billed and sundry accounts receivable. No allowance for bad debts has been provided since management believes that substantially all of the balances in accounts receivable are collectible. For the years ended December 31, 1999 and 2000, the Company recognized no significant losses for uncollectible accounts receivable. NOTE 3: NOTE PAYABLE At December 31, 2000, the Company had borrowed $100,000 under the terms of an unsecured line of credit with a bank. The line of credit, which is due on demand, bears interest at prime plus .5% (9.0% at December 31, 2000). NOTE 4: LONG-TERM DEBT Long-term debt at December 31, 1999 consisted of 5 separate notes, due in monthly installments, which were secured by vehicles, land and buildings, all of which were repaid in 2000. NOTE 5: ACCRUED LIABILITIES Accrued liabilities were comprised of the following: December 31, ------------------------------ 1999 2000 ------------- ----------- Accrued Expenses $ 5,297 $ 35,678 401 (k) Liability 113,905 41,990 Payroll Taxes 4,279 70,570 Franchise Taxes - 20,000 Other - 262 ---------- ------------ $ 123,481 $ 168,500 ========== ============ 28 VIPER COMMUNICATION SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS December 31, 1999 and 2000 NOTE 6: INCOME TAXES The Company files its tax returns on the cash basis of accounting. The Company has no significant permanent differences between taxable income and income for financial reporting purposes, therefore the total tax provision is thirty four percent (34%) of income before income taxes. The following is a summary of the Company's net deferred tax assets and liabilities. All of the deferred tax liability is considered current because substantially all of the differences reverse each year. December 31, ------------------------------ 1999 2000 ------------- ------------ Fixed assets $ 10,331 $ 12,437 Accounts receivable 194,053 214,910 ---------- ------------ Total Deferred Tax Liability $ 204,384 $ 227,347 ========== ============ NOTE 7: RELATED PARTY TRANSACTIONS The Company provides construction and installation services for Microwave Transmission Systems, Inc. ("MTSI") (a publicly traded company of which Mr. Spurlin owns 90%). The Company earned $351,835, $15,279 and $4,373 in revenues from MTSI for the years ending December 31, 1999 and 2000, respectively. The Company's cost of sales includes $55,000 and $8,874 related to construction services provided by MTSI to the Company for the year ending December 31, 1999 and 2000, respectively. The Company pays MTSI a management fee equal to 2% of its gross revenues for accounting and bookkeeping services. The Company paid MTSI $45,778 and $74,914, during the years ended December 31, 1999 and 2000, respectively for management fees. The Company owed MTSI $26,789 and $7,472 at December 31, 1999 and 2000 for management fees. Unpaid outstanding balances accrue interest at 9.75%. The three owners of the Company have entered into a "Shareholder Agreement" which sets out certain restrictions on the election of directors, the sale of the assets of the Company , the issuance or redemption of capital stock in the Company, amendments to the Articles of Incorporation, borrowings by the Company and certain other corporate restrictions. 29 VIPER COMMUNICATION SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS December 31, 1999 and 2000 NOTE 8: PREFERRED STOCK The Class A preferred stock has the same rights and privileges as the common stock issued by the Company. NOTE 9: SUBSEQUENT EVENT During April of 2001, the Company entered into an agreement to be acquired by MTSI. 30 (c) Financial Statements of Businesses Acquired (ii) EPIC COMMUNICATIONS, INC. TABLE OF CONTENTS Page Report of Independent Certified Public Accountants F-32 Balance Sheets as of December 31, 1999 and 2000 F-33 Statements of Operations for the Years Ended December 31, 1999 and 2000 F-35 Statements of Stockholders' Equity for the Years Ended December 31, 1999 F-36 Statements of Cash Flows for the Years Ended December 31, 1999 and 2000 F-37 Notes to Financial Statements F-38 31 DANIEL L. LASSITER, JR. CERTIFIED PUBLIC ACCOUNTANT 670 West Campbell Road Suite 150 Richardson, Texas 75080 972-644-8540 Office 972-680-1615 Fax danll@airmail.net REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT The Board of Directors Epic Communications Systems, Inc. I have audited the accompanying balance sheet of Epic Communications, Inc. (a Texas Corporation) as of December 31, 1999 and 2000 and the related statements of operations, stockholders' equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that I plan and perform the audit 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. I believe that my audits provide a reasonable basis for my opinion. In my opinion, the financial statements referred to above present fairly, in all material respects the financial position of Epic Communications, Inc. as of December 31, 1999 and 2000 and the results of its operations and it cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. /s/ Daniel L. Lassiter, Jr. Daniel L. Lassiter, Jr. CPA Richardson, Texas October 22, 2001 32 EPIC COMMUNICATIONS, INC. BALANCE SHEET ASSETS

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS 33 EPIC COMMUNICATIONS, INC. BALANCE SHEET DECEMBER 31, 1999 AND 2000 LIABILITIES AND STOCKHOLDER'S EQUITY

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS 34 EPIC COMMUNICATIONS, INC. STATEMENT OF OPERATIONS FOR THE YEAR (5 MONTHS) ENDED DECEMBER 31, 1999 AND FOR THE YEAR (12 MONTHS) ENDED DECEMBER 31, 2000

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS 35 EPIC COMMUNICATIONS, INC. STATEMENTS OF STOCKHOLDER'S EQUITY FOR THE YEAR (5 MONTHS) ENDED DECEMBER 31, 1999 AND FOR YEAR (TWELVE MONTHS) ENDED DECEMBER 31, 2000

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS 36 EPIC COMMUNICATIONS, INC. STATEMENT OF CASH FLOWS FOR THE YEAR (5 MONTHS) ENDED DECEMBER 31, 1999 FOR YEAR (TWELVE MONTHS) ENDED DECEMBER 31, 2000

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS 37 EPIC COMMUNICATIONS, INC NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 2000 Note 1 - Significant Accounting Policies This summary of significant accounting policies of Epic Communications, Inc. is presented to assist in the understanding of the company's financial statements. The financial statements and notes are representations of the company's management, who is responsible for their integrity and objectivity. These accounting policies conform to generally accepted accounting principles and have been consistently applied in the preparation of the financial statements. Company Organization Epic Communications, Inc. was organized under the laws of Texas on August 3, 1999. The company is closely held. Preston David Spurlin owns 51% of the common stock issued by the company. The company is primarily engaged in the construction and installation of wireless communications transmitting and receiving equipment for providers of wireless communication services. The company operates primarily in the state of Texas. Revenue Recognition Revenues from construction and installation contracts are recognized using the completed contract method. Since the company's contracts are short -term and financial position and results of operations would not vary materially from those that would result from using the percentage of completion method. The asset "Cost in Excess of billings on Uncompleted contracts" represents costs expended and unbilled on uncompleted contracts at the end of an accounting period. Comparative Financial Statements The company started operations on August 3, 1999; therefore the financial statements for 1999 are for the five months operations ended December 31, 1999. The financial statements for the year ended December 31, 2000 are for a twelve month period and the financial statements for December 31, 1999 are for a five month period. Cash and Temporary Investments For purposes of reporting cash flows, the company considers all highly liquid debt instruments, purchased with a maturity of three months or less to be cash equivalents. Continued 38 EPIC COMMUNICATIONS, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 2000 Accounting for long-lived Assets The company has adopted statement of financial accounting standards no. 121 "Accounting for The Impairment of Long-lived Assets To Be Disposed of". The company reviews long lived assets, certain identifiable assets and any goodwill related to those assets for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recoverable. At December 31, 1999, the company believes that there has been no impairment of its long-lived assets. Depreciation of Property and Equipment Depreciation is provided over the estimated useful lives of depreciable assets using principally the straight line method of depreciation. Expenditures for the maintenance and repairs are expensed, while expenditures for the betterments are capitalized. Cost of property sold or retired and related accumulated depreciation are removed from the accounts; the resulting gains and losses are included in income. Concentrations of Credit Risk The company places its cash and temporary investments in what it believes to be high credit quality financial institutions. The company did not have any investments in financial institutions in excess of the Federal Deposit Insurance Corporation (FDIC) limits. The company grants unsecured credit to its customers, which are located in the company's market area of the state of Texas. Management believes that its billing and collection policies are adequate to minimize potential credit risks. Restrictions on cash There are no restrictions on cash. Taxes All taxes including payroll and sales tax are current. Continued 39 EPIC COMMUNICATIONS, INC. NOTES TO FINANCIAL STATEMENTS December 31, 1999 AND 2000 Advertising Advertising and promotion cost s are charged to expense as incurred. Advertising and promotion cost were $633 for the five months ended December 31, 1999 and $11,461 for the twelve months ended December 31, 2000. Pension Benefits All eligible employees of the company are covered by a deferred contribution profit sharing plan 401 (k) plan. The plan allows for both employees and the company to contribute to the plan. The company matches the employees contribution to specified limits. The company's matching contributions to the plan were $6,345 for the five months ended December 31, 1999 and$45,665 for the twelve months ended December 31, 2000. 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 at the date of the financial statements and reported amounts of revenue and expenses during the reporting period and disclosures of contingent assets and liabilities. Actual results could differ from those estimates. Note 2 Income Taxes The company records income tax expense using the liability method of accounting for deferred income taxes. Under the liability method, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial statement carrying value and the income tax basis of the company's assets and liabilities. An allowance is recorded when it is more likely than not that any or all of a deferred tax asset will not be realized. The provision for income taxes includes taxes currently payable plus the net change during the accounting period in the deferred tax assets and liabilities recorded by the company. The corporation is classified as a C Corporation according to the internal revenue code; the corporation's 1999 federal income tax liability of $22,336 and the company did not have a tax liability for 2000. The income tax liability for 1999 and 2000 net taxable income is calculated on a cash basis and the income statements are presented on an accrual basis. Continued 40 EPIC COMMUNICATIONS, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 2000 Note 3 Deferred Income taxes Principally as a result of the company's books being on an accrual basis and the tax return being prepared on a cash basis, the company had a deferred income tax liability of $21,417 for 1999 and $55,836 for 2000. Note 4 Accounts Receivable The accounts receivable are recorded when the service is rendered. As of December 31, 1999 and 2000 the accounts receivable balance were $59,107 and $174,013 respectively and all receivables are current; therefore there is no allowance for bad debt. Note 5 Accounts Payable The balance in accounts payable as of December 31, 1999 and 2000 were $15,243 and $9,004 respectively, all payables are current. Note 6 Accrued Liabilities Accrued liabilities were comprised of the following as of December 31, 1999 and 2000: 1999 2000 -------------- --------------- -------------- --------------- Accrued Payroll $ 2,103 $ 8,487 401K contributions payable 5,816 45,236 Sales tax Payable 17 4.492 Misc. Accrued Expenses - 11,634 --------- -------- Total $ 7,936 $69,849 Note 7 Notes Payable Notes payable to Chase Automotive Finance as of December 31, 1999 were $37,865. The interest rate on these notes is 8.9% per annum. The note payments be retired in September and October 2001. Principal reduction will be $19, 886 in 2000 and $17,979 in 2001. Notes payable to Chase Automotive Finance as of December 31, 2000 were $18,841. The interest rate on these notes is 8.9% per annum. These notes will be paid off during 2001. Notes Payable to Comerica Bank for $18,099 were paid off during 2001. Continued 41 EPIC COMMUNICATIONS, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 2000 Note 8 Notes Payable to related Parties All notes payable to related parties are payable to Microwave Transmission Services, Inc. The balance of the note as of December 31, 1999 is $37,320. The note will be retired between October 1, 2002. The interest rate on this note is 9.6% per annum. Principal reduction of this notes was scheduled to be $11,582.84 in 2000, $12,812.54 in 2001, and $12,924.17 in 2002. This note was paid off ahead of schedule by paying the entire amount due by the end of 2000. Note 9 Commitments The company is obligated under a long-term lease for office space. The lease expires August 31, 2001. Minimum lease payments are as follows: For the year ended 2000 $17,940 For the period Jan-Aug 2001 11,960 --------- Total $29,900 Note 10 Subsequent Events The company was acquired by MTSI, Incorporated during 2001. Note 11 Related Party Transactions Preston David Spurlin is the majority stock holder in both Epic Communications, Inc,. and MTSI, Incorporated. As of December 31, 1999 MTSI, Incorporated had made loans to Epic communications, Inc, of $37,319.55. The company had a payable to MTSI, Incorporated as of December 31, 1999 of $3,826 and $63,843 as of December 31, 2000. The company had loans to its two stockholders of $510 to David Surplin and $490 to Dwayne Griffin as of December 31, 1999 and 2000. In August 1999 the company sold David Spurlin 510 shares of company stock and Dwayne Griffin 490 shares of the company stock. 42 (d)Pro Forma Financial Information (Unaudited) INTRODUCTION TO MICROWAVE TRANSMISSION SYSTEMS UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS On August 30, 2001, the Company closed the acquisition via merger of CKS, Viper and Epic, three Texas corporations engaged in the same business as the company of constructing and maintaining wireless communications transmitting and receiving facilities for providers of wireless communication services (the "Acquired Businesses"). The transactions are structured as mergers of the Acquired Businesses into three wholly owned subsidiaries of the Company formed for the purpose of effecting the mergers. The Acquired Businesses will continue to operate as separate subsidiaries under their same names before the transactions. Consideration for the mergers consisted of 5,378,796 shares of the Company's Common Stock and cash in the amount of $2,514,168. Such cash was obtained from the proceeds of a loan from Comerica Bank - Texas. Of such consideration, 2,017,932 shares of common stock will be issued, and $894,975.17 of the cash will be paid to P. David Spurlin, the Chief Executive Officer of the Company and the controlling shareholder of the Acquired Businesses. The merger consideration was determined based upon an internal valuation using a formula of five times estimated earnings for the year ending December 31, 2001. The merger agreements provide that the Company will be obligated to issue additional shares if the audited after tax income for any of the merged companies exceed the estimated earnings used to determine the valuation. The following unaudited pro forma consolidated condensed financial statements are presented for illustrative purposes only and are not necessarily indicative of the consolidated results of operations for future periods or the results of operations that actually would have been realized had the Company and the Acquired Businesses been combined companies during the specified periods. The unaudited pro forma consolidated condensed financial statements, including the related notes, are qualified in their entirety by reference to, and should be read in conjunction with, the historical consolidated financial statements and related notes of the Company which are included in the Company's annual report on Form 10-KSB for the year ended December 31, 2000, and the historical financial statements and related notes of each of the Acquired Businesses which are included elsewhere in this document. The unaudited pro forma consolidated condensed statements of operations for the years ended December 31, 1999 and 2000, give effect to the acquisition of the Acquired Businesses by the Company as if it had taken place on January 1, 1999, and is based on the historical statements of operations of the Company and the Acquired Businesses for the years ended December 31, 1999 and 2000. The unaudited pro forma consolidated condensed statement of operations for the nine months ended September 30, 2001, gives effect to the acquisition of the Acquired Businesses by the Company as if it had taken place on January 1, 2001, and is based on the historical statements of operations of the Company and each of the Acquired Businesses for the nine months ended September 30, 2001. The unaudited pro forma consolidated condensed statement of operations for the nine months ended September 30, 2000, gives effect to the acquisition of the Acquired Businesses by the Company as if it had taken place on January 1, 2000, and is based on the historical statements of operations of the Company and each of the Acquired Businesses for the nine months ended September 30, 2000. The unaudited pro forma consolidated condensed financial information has been prepared on the basis of assumptions described in the notes to the unaudited pro forma consolidated condensed financial statements. In the opinion of management, all adjustments necessary to present fairly this unaudited pro forma consolidated condensed financial information have been made. 43 Microwave Transmission Systems, Inc. Unaudited Pro Forma Consolidated Condensed Statements of Operations For the Nine Months Ended September 30, 2001

See accompanying notes to unaudited pro forma consolidated condensed financial statements. 44 Microwave Transmission Systems, Inc. Unaudited Pro Forma Consolidated Condensed Statements of Operations For the Nine Months Ended September 30, 2000

See accompanyingnotes to unaudited pro forma consolidated condensed financial statements. 45 Microwave Transmission Systems, Inc. Unaudited Pro Forma Consolidated Condensed Statements of Operations For the Fiscal Year Ended December 31, 2000

See accompanying notes to unaudited pro forma consolidated condensed financial statements. 46 Microwave Transmission Systems, Inc. Unaudited Pro Forma Consolidated Condensed Statements of Operations For the Fiscal Year Ended December 31, 1999

See accompanying notes to unaudited pro forma consolidated condensed financial statements. 47 Notes to Unaudited Pro Forma Consolidated Condensed Financial Statements On August 30, 2001, the Company closed the acquisition via merger of CKS, Viper and Epic, three Texas corporations engaged in the same business as the company of constructing and maintaining wireless communications transmitting and receiving facilities for providers of wireless communication services (the "Acquired Businesses"). The transactions are structured as mergers of the Acquired Businesses into three wholly owned subsidiaries of the Company formed for the purpose of effecting the mergers. The Acquired Businesses will continue to operate as separate subsidiaries under their same names before the transactions. Consideration for the mergers consisted of 5,378,796 shares of the Company's Common Stock and cash in the amount of $2,514,168. Such cash was obtained from the proceeds of a loan from Comerica Bank - Texas. Of such consideration, 2,017,932 shares of common stock will be issued, and $894,975.17 of the cash will be paid to P. David Spurlin, the Chief Executive Officer of the Company and the controlling shareholder of the Acquired Businesses. The merger consideration was determined based upon an internal valuation using a formula of five times estimated earnings for the year ending December 31, 2001. The purchase of the Acquired Businesses from P. David Spurlin, the Chief Executive Officer of the Company and the controlling shareholder of the Acquired Businesses, was recorded as a transfer of shares between companies under common control Per AICPA Accounting Interpretation of APB 16. Per APB 16, the portion of the transaction related to Mr. Spurlin's ownership was accounted for at historical cost in a manner similar to pooling of interest accounting. As such, no goodwill was recognized. The amount of cash disbursed to P. David Spurlin in excess of the net assets for each of the Acquired Businesses was accounted for as a distribution. The purchase of the Acquired Businesses from the minority shareholders was accounted for under the purchase method of accounting in accordance with AICPA's Accounting Interpretation of APB 16. The total purchase price was allocated to each of the Acquired Businesses' tangible and identifiable intangible assets acquired and assumed liabilities based on the relative fair values, which the Company estimated to be the book value at the date of purchase. The amounts and components of the estimated purchase price along with the preliminary allocation of the estimated purchase price to the net assets purchased are as follows:

48 The common stock issued was valued based on the average closing price of the Company's common stock from May 12, 2001 through May 22, 2001, 5 days prior to and 5 days after the announcement of the merger on May 17, 2001, discounted by 15%. A discount of 15% was applied to the average closing stock price to arrive at a fair value of the restricted stock issued in the transactions. The discount rate took into consideration the holding period and other restrictions under Rule 144, the limited trading volume in the Company stock and an average of the discount rates used in comparable transactions. (1) Unaudited Pro Forma Consolidated Statements of Operations The unaudited pro forma consolidated condensed statements of operations give effect to the acquisition as if it had occurred on January 1, 1999. The following adjustments have been reflected in the unaudited pro forma consolidated condensed statements of operations: A. To eliminate inter-company transactions. B. To record the amortization of goodwill and intangible assets resulting from the allocation of the purchase price for the Acquired Businesses. The pro forma adjustment assumes goodwill and other intangible assets acquired from the Acquired Businesses will be amortized on a straight-line basis over estimated life of 25 years. C. Adjustment to reflect the net increase in interest expense based upon a presumption of the execution of the transactions described below:

D. The income tax impact, assuming an effective tax rate of 34%, applied to the deductible pro forma adjustments to the consolidated condensed statement of operations described above. (Note: the amortization of goodwill described in note (a) above and merger costs are not tax benefited.) E. To reflect the common shares issued as consideration for the acquisition of CKS, Viper and EPIC. 49

MICROWAVE TRANSMISSION SYSTEMS INC 8-K/A