U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-KSB
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended November 30, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from _________________________
Commission file number 1-12556
TOWER TECH, INC.
(Name of small business issuer in its charter)
Oklahoma 73-1210013
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
11935 South I-44 Service Road, Oklahoma City, Oklahoma 73173
(Address of principal executive offices) (Zip Code)
Issuer's telephone number 405/290-7788
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Title of each class -- Common Stock, par value $.001
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 X No ____
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year. $19,550,949
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State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the stock was sold,
or the average bid and asked prices of such stock, as of a specified date within
the past 60 days. (See definition of affiliate in Rule 12b-2 of the Exchange
Act). $13,192,517 based on 1,954,447 shares at $6.75 per share, the last sale
price of the Common Stock on February 18, 1998.
(ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PAST FIVE YEARS)
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes No
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date. 3,526,311 shares as of
February 18, 1998
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly
describe them and identify the part of the Form 10-KSB (e.g., Part I, Part II,
etc.) into which the document is incorporated: (1) any annual report to security
holders; (2) any proxy or information statement; and (3) any prospectus filed
pursuant to Rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act").
The listed documents should be clearly described for identification purposes
(e.g., annual report to security holders for fiscal year ended December 24,
1990). Items 9 through 12 of Part III of this Form 10-KSB are incorporated by
reference from the Issuer's definitive proxy statement to be filed on or before
March 31, 1997.
Transitional Small Business Disclosure Format (check one). Yes No X
______ _____
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<PAGE>
TABLE OF CONTENTS
Part I
PAGE
Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . 10
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . 10
Item 4. Submission of Matters to a Vote of Security Holders. . . . .10
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters. . . . . . . . . . . . . . . . . . . . 11
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . 11
Item 7. Financial Statements . . . . . . . . . . . . . . . . . . . 16
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. . . . . . . . . . . . 17
Part III
Item 9. Directors and Executive Officers of the Registrant. . . . 18
Item 10. Executive Compensation . . . . . . . .. . . . . . . . . . . 18
Item 11. Security Ownership of Certain Beneficial Owners
and Management. . . . . . . . . . . . . . . . . . . . . . . 18
Item 12. Certain Relationships and Related Transactions . . . . . 18
Part IV
Item 13. Exhibits and Reports on Form 8-K . . . . . . . . . . . . 19
Financial Statements . . . . . . . . . . . . . . . . . . . F-1
Index to Exhibits. . . . . . . . . . . . . . . . . . . . . 24
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<PAGE>
PART I
Item 1. Description of Business.
The Company is in the business of manufacturing and selling modular
cooling towers. Its TTMT Series cooling tower is made primarily of fiberglass
reinforced plastic and is sold in both the air conditioning and industrial
segments of the cooling tower market. The TTCT Series modular concrete cooling
tower was introduced in 1995 for the industrial and utility segments of the
cooling tower market. The Company's TTMT Series cooling tower utilizes several
innovative design features, including the Rotary Spray Nozzle(TM), a
bottom-mounted direct drive motor fan assembly and a modular design to create a
compact, efficient cooling tower which management believes reduces many
deficiencies associated with other cooling towers, which do not incorporate all
of these design features. Individual modules can be utilized for air
conditioning and light industrial applications, and the modular design allows a
number of modules to be connected in a series for large industrial and utility
applications. Compact design of the modules permits them to be factory
assembled, inventoried for immediate shipment, easily transported and quickly
installed. The design of the TTMT Series cooling tower allows it to be
transported as a complete module on a standard low boy trailer. The TTCT Series
modular concrete tower features tilt-up concrete construction and incorporates
many of the innovative characteristics of the TTMT Series cooling tower. The
Company leases TTMT Series modules to customers for temporary or emergency use.
The Company also sells accessory equipment, water treatment equipment and water
treatment chemicals. The Company also develops technology for the cooling tower
industry and markets that technology either directly through licensing
arrangements or in the form of products as above stated.
The Cooling Tower Market
The market for cooling towers is divided into three general market
segments: the air conditioning or HVAC segment, the light to medium industrial
segment, and the heavy industrial and utility segment. Although all cooling
towers work on the same basic principles, cooling towers generally are divided
into two categories: (1) factory assembled units and (2) field erected cells.
Factory assembled cooling towers are shipped to the customer as a completed unit
and typically are sold to HVAC and light to medium industrial users. In the HVAC
segment of the market, cooling towers are sized from 30 to 500 nominal tons.
Light to medium industrial applications require cooling towers with capacities
ranging from 500 to 10,000 gallons per minute ("GPM"). GPM is the standard unit
of measurement in the industrial segment, while the HVAC segment denominates
capacity in nominal tons. One ton is approximately equivalent to three GPM.
Because of shipping and other technical constraints, factory assembled units
ordinarily range in size from 30 to 1,000 nominal tons. Field erected cooling
towers are constructed on site and typically are sold to medium and heavy
industrial and utility users. Heavy industrial applications require cooling
towers sized from 10,000 to 100,000 GPM, while utility applications range from
30,000 to 200,000 GPM.
Cooling towers can range in price from less than $20,000 for a 500
nominal ton unit intended for HVAC use to $1,000,000 or more for a cooling tower
built to meet the specifications of a heavy industrial or utility customer.
Accurate information about cooling tower industry sales is difficult to obtain
because many cooling tower companies are privately held or are divisions of
large companies. In addition, the size of the new cooling tower market can be
understated because the refurbishment or rebuilding of a cooling tower in some
cases essentially entails the erection of a new cooling tower even though it may
not be characterized as a new cell. Limited market information is available from
the U.S. Department of Commerce and from private studies. Based
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on this limited information and management's evaluation of the market,
management estimates that the total annual United States cooling tower market
ranges from $300 million to $380 million and that the total annual worldwide
market ranges from $1.5 billion to $2.0 billion.
The TTMT Series Cooling Tower
Cooling towers come in a variety of sizes, prices, designs and quality.
Small capacity cooling towers intended for HVAC use typically are forced draft
or induced draft towers which may be constructed of wood, galvanized steel or
fiberglass. Most large capacity cooling towers used in the United States and
worldwide today are induced draft towers and are constructed primarily of wood.
These wood towers are usually constructed on a concrete water basin and have a
treated wood framework, which is sometimes clad with galvanized steel or
fiberglass. Internal components of conventional cooling towers are typically
made of wood, galvanized steel, stainless steel, fiberglass and plastic.
The TTMT Series cooling tower is designed to address many of the
deficiencies which management believes exist in the design of most other cooling
towers on the market. Management believes that the modular design and
interconnectability of the TTMT Series cooling tower is unique in the industrial
segment of the market. The TTMT Series cooling tower is efficient,
corrosion-free, low maintenance and available for immediate delivery.
The modular design of the TTMT Series cooling tower allows a number of
units to be interconnected to meet almost any cooling requirements or
specifications. Other vendors offer small factory assembled cooling towers,
including units which incorporate fiberglass components and which can be
interconnected. However, most factory-assembled units are forced draft towers
and interconnection of some models of such towers exacerbates recirculation,
resulting in thermal performance losses which are typical of this type of tower.
Thus, other factory assembled cooling towers have limited application except in
the HVAC segment and light industrial segment of the market. Most segments of
the cooling tower market can be served by the TTMT Series cooling tower from
light HVAC applications to large petrochemical and refinery operations.
Immediate delivery of the TTMT Series cooling tower is possible because
the modules are factory assembled and can be inventoried. Usually, there is only
one hour of installation time required per module. The concrete basin of most
field erected cooling towers is replaced in the TTMT Series cooling tower by an
internal fiberglass water basin. The TTMT Series cooling tower is supported on a
substructure which can either be customer provided fabricated metal, concrete
piers, or the Company's own FRP substructure. The modular design also lends
itself to shipping by standard trucking without special permits. TTMT Series
modules are readily shipped to international customers as well.
Management believes that a problem with many cooling towers manufactured
today arises from water distribution nozzles which tend to clog. Most nozzles
used in cooling towers today utilize an orifice/splash plate combination to
minimize the clogging problem. This design often exhibits void areas in the
water distribution which causes inefficient operation and performance
deficiencies. These deficiencies can be overcome to some degree by installing
additional fill media and/or designing a higher air inlet area in the cooling
tower. This results in additional capital investment as well as higher operating
costs due to increased pump head and fan horsepower requirements.
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<PAGE>
To address this problem, Mr. Curtis designed and patented the Rotary
Spray Nozzle(TM) primarily for use in the TTMT Series cooling tower. The Rotary
Spray Nozzle(TM) is designed to operate clog-free even in severe operating
conditions. This nozzle utilizes a rotating disc that operates on a water
bearing to evenly distribute the flow throughout the entire fill area while
providing a self-cleaning action. The radial discharge design allows the nozzle
to operate as low as one inch above the fill media and at a lower operating
pressure than most conventional nozzles. Since conventional nozzles typically
operate at distances of up to two feet above the fill media, the Rotary Spray
Nozzle(TM) adds increased performance and significantly reduces pump head
requirements.
In addition to reduced pump head requirements attributable to the Rotary
Spray Nozzle(TM), the pump head requirement in the TTMT Series cooling tower is
reduced because the circulating water is collected in an elevated water basin
above the air inlet. This results in reduced pump operating costs for the TTMT
Series cooling tower compared with a comparably sized conventional cooling
tower.
The TTMT Series cooling tower was designed with a bottom mounted fan
system. Maintenance is greatly reduced by this design as the fans are direct
motor driven without gear boxes, drive shafts, and pulleys. Each module has four
fans which can be zoned to operate more efficiently. The mechanical equipment is
located in the cool, dry air stream and is also protected from the natural
elements by the cooling tower itself. Service can be performed from ground level
and customer spare parts inventory is limited to one motor and one fan. In the
event of mechanical failure, the probability is that only one fan or motor would
be inoperable, enabling the continued operation of the remaining three fans
until repairs could be made.
The TTMT Series cooling tower has a water collection system installed
just below the fill media and above the fans. The water collection system
consists of a network of chevron type blades positioned in a canopy over the
fans and supported by internal FRP beams. The water is collected from the fill
media and discharged into hollow FRP support beams which serve as the water
basin. The fill media is nestled on top of the water collector vanes and is
easily installed or removed. The distribution system, consisting of a PVC header
pipe and laterals, is connected to the top of the module by molded end caps. The
drift (or mist) eliminators are supported by the distribution piping header and
laterals and locked into the molded perimeter wall channel.
The FRP construction of the TTMT Series cooling tower virtually
eliminates all significant corrosion problems. The wood structural components
used in many cooling towers are usually treated with chemicals and thus may be
environmentally undesirable. Galvanized metal parts also contain zinc and lead
which may cause environmental problems. Corrosion and deterioration of the wood
and metal parts of a cooling tower may lead to costly maintenance, repair, and
ultimate replacement.
The TTMT Series cooling tower is produced in several sizes. The basic
units range in size from a six by six foot module to a twelve foot by thirty
foot module. The individual module capacities range from 50 nominal tons to
1,000 nominal tons, or approximately 150 GPM to 3,000 GPM. This range is
achieved by using various sizes of modules and internal components, including
motors, fans and fill media. Individual modules of varying sizes can be
connected in a series to satisfy the specific cooling requirements of customers.
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<PAGE>
The Modular Concrete Cooling Tower
In December 1994, the Company introduced its TTCT Series concrete cooling
tower for the industrial and utility segments of the cooling tower market. The
design of the concrete tower incorporates some of the patented technology used
in the Company's TTMT Series cooling tower, as well as technology unique to the
product. This tower gives the Company added capabilities to penetrate the large
utility, petro-chemical and industrial markets. The same technological advances
made with the TTMT Series cooling towers are utilized in the concrete tower. The
concrete tower is built using a tilt-up construction method which substantially
reduces construction time as compared with a similarly sized wood or
conventional concrete tower.
Modular Cooling Tower Leasing Program
The Company also leases modular cooling towers. Because of the compact
size and other design features of the TTMT Series cooling tower, it can easily
be mounted on a skid and equipped with necessary electrical connections to
produce a mobile cooling tower which can be transported by truck to the desired
location. Leased towers are used to augment large cooling towers during peak
heat loads, to provide temporary cooling while maintenance and repairs are being
made to existing cooling towers, to supply cooling in the event of a failure of
an existing cooling tower due to fire, weather damage or mechanical
malfunctions, and to provide temporary cooling during research and development,
testing and evaluation programs. The Company has more than seventy-five cooling
towers in its rental fleet.
Patents
The Company owns patents (U.S. Patent No. 5,227,095) covering the basic
design of the TTMT Series cooling tower and the TTCT Series concrete cooling
tower (U.S. Patent No. 5,545,356). The patents expire in 2010 and 2014,
respectively. The Company owns and has applied for other United States and
foreign patents for technology used in the TTMT Series and TTCT Series cooling
towers. Mr. Curtis has also granted an exclusive, royalty-free license to the
Company for the Rotary Spray Nozzle(TM) which gives the Company the exclusive
right to use this technology in cooling tower applications. The licensed
technology is the subject of patents (U.S. Patent Nos. 5,143,657 and 5,152,458)
which expire in 2009. Mr. Curtis has retained all rights with respect to the
patents in all applications other than cooling towers.
Product Design and Development
The Company spent $667,222, $386,474, and $108,183 on research and
development during fiscal years 1997, 1996 and 1995, respectively. The Company
is continuously evaluating its products and manufacturing methods. The Company
has not developed any significant products other than the TTMT Series and TTCT
Series cooling towers, and related technology, at this time. The Company plans
to continue to research refinements in cooling tower design and construction,
although it has no fixed research and development budget.
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<PAGE>
Assembly of Products
The Company's products are currently assembled at its plant in Chickasha,
Oklahoma. However, with completion of its new manufacturing and assembly plant
in South Oklahoma City, (see Item 2. Description of Property), the assembly of
the TTMT Series cooling towers will be done at the Oklahoma City Plant. In
addition to assembly, the Company is bringing "in-house" the manufacturing of
substantially all component parts which have been manufactured (outsourced) for
the Company using pultrusion or extrusion molding technology. The Company
believes that bringing these manufacturing processes "in-house" will help ensure
and control quality and supply, as well as substantially reduce costs of
production of these parts. The Company also casts some of the concrete component
parts of its TTCT Series cooling towers. This operation will remain in
Chickasha.
Suppliers and Vendors
The Company relies upon suppliers for materials and parts used to
manufacture and assemble its products. The Rotary Spray Nozzle(TM) is purchased
from a vendor who uses the Company's tools and dies. Most materials and parts
purchased from suppliers are available from multiple sources. The Company has
invested in tools and dies which in some cases are used by suppliers in the
manufacture of components for the Company. However, as noted above, the Company
is moving substantially all of these manufacturing processes "in-house". The
Company has not experienced any significant delays in obtaining parts and
components for its products, and management believes that the Company's
relationships with its suppliers are good.
Marketing and Sales
The Company sells its products through a combination of direct sales by
Company employees, sales through an established nationwide network of sales
representatives, and sales through representatives, licensees, distributors and
other arrangements in international markets. The Company has opened direct
offices or entered into international ventures and/or licensing agreements for
the manufacture, marketing and/or sales of the Company's products in India,
Southeast Asia, South America, South Africa, Mexico and the Mediterranean
region. Negotiations are in process for similar arrangements for China, Korea,
Taiwan, Japan, and Europe. Sales representatives typically market the Company's
products along with a variety of other cooling tower related products.
In addition to its direct sales activities, the Company markets its
products in a number of other ways, including participating in trade shows,
conducting direct mail solicitation and advertising in various trade
publications. The Company makes extensive use of marketing videos which portray
its products using pictures and computer animation. These video tapes are
distributed to engineering firms, contractors, manufacturers and specialized
mailing lists in the industrial cooling tower market. The Company also has a
full-time marketing manager who is responsible for publicizing the product,
identifying marketing opportunities and developing a marketing strategy.
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<PAGE>
Warranties and Customer Service
The Company provides a limited warranty on its products. During the time
the Company was redesigning and refining the TTMT Series cooling tower, the
Company incurred costs associated with correcting problems with and retrofitting
towers which had been shipped to customers. In 1997, the Company incurred
$426,699 of expenses to retrofit and service towers, as compared to $358,016
during fiscal 1996. The Company also provides field support services on an
individual call basis and offers service maintenance contracts. Necessary
repairs are made at the installation site.
Governmental Regulation
The Company is subject to the requirements of a number of federal, state
and local laws, such as the federal Occupational Safety and Health Act ("OSHA").
The Company generates small quantities of waste in the course of its
manufacturing activities, some of which are classified as hazardous waste under
state and federal law. The Company endeavors to comply with all state and
federal laws and believes that it is in compliance with all applicable federal,
state and local regulations , including environmental regulations.
Competition
The market for cooling towers is extremely competitive. There are 15 to
25 manufacturers of cooling towers in the United States. The two biggest
manufacturers, Marley Cooling Tower Co. and Baltimore Air Coil, collectively
account for 60 to 70 percent of the market. A number of the Company's
competitors are substantially larger in size and have greater financial and
other resources than the Company. Many of these competitors have been in
business for a number of years and are well established in the industry. The
Company estimates that its share of the United States cooling tower market for
1997 is approximately 5%.
A number of the Company's competitors manufacture and market cooling
towers which use fiberglass and other composite materials, PVC cellular fill and
other construction and design refinements which are similar to the TTMT Series
cooling tower. Several competitors manufacture factory assembled fiberglass
cooling towers, including units which can be connected in a series. Management
believes that its TTMT Series cooling tower offers advantages over cooling
towers produced by the Company's competitors. There can be no assurance that
competitors will develop and produce a product which is comparable or superior
to the Company's products.
Employees
As of November 30, 1997, the Company had 135 employees. None of the
Company's employees is subject to a collective bargaining agreement. The Company
believes that relations with its employees are good.
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<PAGE>
Item 2. Description of Property.
The Company's principal place of business is located in Chickasha,
Oklahoma. These facilities include approximately 20 acres of land near
Chickasha, Oklahoma with three separate production buildings totaling over
52,000 square feet, a building of approximately 8,000 square feet used as
offices and a test facility, and two one-story office buildings having
approximately 6,500 square feet. The Company has purchased a 50-acre tract in
South Oklahoma City and has constructed a new manufacturing facility of
approximately 98,000 square feet, which will house its manufacturing and
assembly operations. The Company began to occupy the facility in January 1998
and expects to commence full production operations in late April or May 1998.
The Company will locate its general offices in this facility temporarily until a
new administration facility is built. The administration facility, approximately
25,000 square feet, will also be constructed on the site. Construction is
expected to begin in April 1998 and be completed in December 1998. The Company
will move its general headquarters to this new administration facility when it
is completed. The Oklahoma Industries Authority ("OIA") has partially financed
the new plant facility through an industrial revenue bond issuance in the amount
of $4,405,000. Management estimates the Company's total investment in the new
manufacturing facility will be $9 million, including $3.5 million to equip the
facility. For additional information about the financing of the Oklahoma City
facility, see "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS-Liquidity and Capital Resources".
The new Oklahoma City (OKC) plant is expected to increase efficiency of
the Company's production and assembly process. The ceiling height and
configuration of the Chickasha plant limits production methods. The OKC plant
should be adequate to support annual fiberglass tower sales of approximately
$150 million, which should be adequate for several years. The OKC plant is
closer to major transportation routes and facilities, particularly the Will
Rogers World Airport. Management plans to use the Chickasha facility for the
Company's concrete tower and leased tower operations. Currently, much of the
concrete operations are conducted outdoors.
Item 3. Legal Proceedings
The Company is a party to legal proceedings incidental to its business,
none of which is considered to be material.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to stockholders during the fourth quarter of
the fiscal year covered by this report.
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PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
The Company's Common Stock is traded over-the-counter and quoted on the
NASDAQ system under the symbol "TTMT". The following table shows the high and
low closing bid prices for the Common Stock as reported by NASDAQ for each
quarter during the last three fiscal years. Bid prices represent prices between
dealers, do not include retail mark-ups, markdowns or commissions, and may not
represent actual transactions.
<TABLE>
<S> <C> <C>
Quarter Ended High Low
February 28, 1995 5 1/4 3 1/2
May 31, 1995 5 1/4 3 3/4
August 31, 1995 4 2 1/2
November 30, 1995 4 3/4 2 1/2
February 28, 1996 7 5/8 4
May 31, 1996 10 1/4 6 7/8
August 31, 1996 12 1/2 8 3/8
November 30, 1996 15 9 1/8
February 28, 1997 11 1/4 10
May 31, 1997 9 5/8 8
August 31, 1997 9 3/8 7 3/8
November 30, 1997 8 5/8 7
</TABLE>
On February 18, 1998, the last sale price of the Common Stock as reported
by NASDAQ was $6 3/4 per share. On February 18, 1998, the Common Stock was held
of record by 56 holders. The Company believes that there are more than 400
beneficial holders of its Common Stock.
The Company has not paid dividends on its Common Stock and does not
anticipate paying dividends in the foreseeable future. The Company intends to
retain future earnings, if any, for use in its business.
Item 6. Management's Discussion and Analysis or Plan of Operation.
General
The Company has been in the conventional cooling tower business since
1985, which consists of constructing, repairing and upgrading forced draft and
induced draft wood cooling towers and selling spare parts for conventional
cooling towers. In 1991, the Company began developing its TTMT Series cooling
tower, and the Company shifted its emphasis from conventional cooling tower
projects to developing the TTMT Series cooling tower. The Company began selling
prototypes of its modular cooling tower in 1991 and continued to sell modules
during the development stage of the product. Development of the TTMT Series
cooling tower was completed during 1994. The Company also developed the TTCT
Series concrete cooling tower during 1994. This product was introduced to the
market during the first quarter of 1995. The Company also sells parts, accessory
equipment, water treatment equipment, water treatment chemicals, and leases
cooling towers. Additionally, the Company develops technology for the cooling
tower industry and markets that technology either directly through licensing
agreements or in the form of its products.
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<PAGE>
The Company derives revenue from the following principal sources: TTMT
Series cooling tower sales; TTCT Series cooling tower construction projects;
modular cooling tower leases; other tower revenue consisting of parts sales and
service, accessory equipment, water treatment equipment and water treatment
chemicals; and other operating revenue consisting of fees for the licensing of
its technology to others, primarily internationally. TTMT Series cooling towers
are typically sold on a bid basis and revenue is generally recognized when
towers are shipped to customers. TTCT Series concrete cooling tower projects are
typically sold on a fixed-price basis. Revenue and related costs for such
projects are recognized under the percentage of completion method of accounting.
Rental towers are usually leased under short-term or month-to-month agreements
and revenue is recognized when earned. Revenues from licensing agreements are
recognized when a non-cancelable contract is signed specifying a fixed
non-refundable licensing fee and technology materials are delivered to the
licensee and governmental approval has been obtained when required.
Results of Operations
Twelve Months Ended November 30, 1997 Compared to Twelve Months Ended
November 30, 1996
For the twelve months ended November 30, 1997, total tower revenues
increased to $18,690,454 from $17,796,544 for the comparable period in the prior
year. During the current twelve month period, 65 percent of total tower revenues
was derived from sales of 317 modular fiberglass cooling towers, 19 percent of
total tower revenues was derived from design and construction of the TTCT Series
concrete cooling towers, 7 percent of total tower revenues was derived from
rental of modular fiberglass cooling towers, and 9 percent of total tower
revenues was derived from other tower revenue. In the comparable twelve month
period in 1996, 60 percent of total tower revenues was derived from sales of 288
modular cooling towers, 30 percent of total tower revenues was derived from
design and construction of modular concrete towers, 4 percent of total tower
revenues was derived from rental of modular cooling towers, and 6 percent of
total tower revenues were derived from other tower revenue. Other tower revenues
consist primarily of modular tower parts sales and service, accessory equipment,
water treatment equipment and water treatment chemicals. The increase in tower
sales revenues for 1997 is due not only to the increase in the quantity of units
sold but also to the sales of larger capacity, more expensive units. The
decrease in concrete tower revenues is due to the decrease in the number and
size of jobs completed and in process. The increase in other tower revenue is
due mainly to the sale of proprietary parts to licensees. Other operating
revenue for the twelve months ended November 30, 1997, consists of fees which
were realized as a result of international license agreements covering the
Republic of Mexico and the Mediterranean region. These licensing fees
demonstrate the Company's ability to capitalize on the technology it develops.
The Company's cost of goods sold and constructed during the twelve-month
period ended November 30, 1997 was $13,842,816, or 74 percent of total tower
revenues, as compared to $14,740,210 or 83 percent, during the comparable period
in 1996. Increased overall margin for the current year is due mainly to the
increase in rental and other tower revenues which are higher margin operations,
and an improvement in gross margin in the fiberglass line as that product
continues to mature. In the concrete line, gross margins are less than
anticipated because of the recent introduction of the product. Management
believes that gross margins on concrete projects will improve as this product
line continues to mature. Included in the cost of goods sold for the twelve
month period ended November 30, 1997, is $426,699 to retrofit and service towers
previously sold. This compares to retrofit and warranty costs of $358,016 during
the fiscal year ended November 30, 1996. In 1995, design changes were made and a
complete quality control system was implemented which management believes will
continue to control such per unit expenditures in future periods.
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The twelve-month period ended November 30, 1997 reflected an increase in
general and administrative expenses from $1,543,530 in 1996 to $1,703,896 in
1997. This increase was due mainly to an increase in the allowance for doubtful
accounts of $150,000. Selling expenses increased from $1,009,499 to $1,309,292
due to increased sales and marketing efforts for both the fiberglass and the
concrete modular cooling towers, including an increase in sales staff related
primarily to the opening of direct international sales offices. Management
expects the increased investment in selling expenses to have a positive impact
on revenues in future periods. Research and development expenses increased from
$386,474 in 1996 to $667,222 in 1997 as the Company continued to research
refinements in cooling tower design and construction, and to develop new
products and technology related to the cooling tower industry. The Company has
no fixed research and development budget.
Interest expense increased from $465,776 for the twelve months ended
November 30, 1996, to $646,947 in 1997. In addition to the interest expense
reported, the Company capitalized $27,937 and $380,304 in 1996 and 1997,
respectively, related to the construction of the new manufacturing facility.
Interest expense will increase significantly in 1998 as a result of the new
facility financings.
The Company recognized an income tax benefit of $615,919 for the twelve
months ended November 30, 1997, compared to no income tax benefit or expense for
the comparable period in 1996. FAS 109 requires that the Company record a
valuation allowance when it is more likely than not that some portion or all of
the deferred tax assets will not be realized. The ultimate realization of the
deferred income tax assets depends on the Company's ability to generate
sufficient taxable income in the future. In the fourth quarter of fiscal 1997,
management determined that, based on the Company's ability to generate taxable
income in two consecutive years (1996 and 1997), it is more likely than not that
the Company will realize the deferred tax assets. Therefore, the valuation
allowance previously established against the net deferred tax asset was
reversed.
The Company's income from operations for the twelve months ended November
30, 1997 was $2,027,723 as compared to income from operations of $956,814 for
the comparable period in the prior year. The increase in income from operations
reflects the Company's success in developing and marketing of its technology and
products both nationally and internationally. The Company's net income was
$2,062,951 in 1997 compared to net income of $565,118 for the twelve months
ended November 30, 1996. The delays in completion and occupancy of the OKC plant
combined with the delays in delivery of the manufacturing equipment and tooling
will have a negative impact on expected results of operations for the first half
of 1998.
Currently, the Company's estimated backlog is over $12.4 million
including nine contracts for TTCT Series concrete cooling towers and/or parts
totaling $5.8 million. Seven concrete tower contracts are scheduled for
completion or delivery in the second quarter of 1998 and the remaining contracts
are projected to be completed in the third quarter of 1998. Interest in this
product has continued to increase in both the United States and international
markets. Seventy percent of the backlog for the modular fiberglass cooling
towers is scheduled for delivery in the first half of fiscal year 1998.
-13-
<PAGE>
Liquidity and Capital Resources
At November 30, 1997, the Company had working capital of $6,904,910 as
compared to working capital of $3,147,126 at November 30, 1996. Improvement in
the Company's liquidity during the year resulted from profitable operations and
financing activities including cash received from the exercise of common stock
warrants and options. The Company's cash flow provided by (used in) its
operating, investing and financing activities during fiscal years 1997 and 1996
are as follows:
<TABLE>
1997 1996
<CAPTION> ---- ----
<S> <C> <C>
Operating activities ($571,023) ($3,423,804)
Investing activities ($3,695,164) ($5,593,098)
Financing activities $3,967,809 $9,228,974
</TABLE>
The Company's capital requirements for its continuing operations consist
of its general working capital needs, scheduled payments on its debt obligations
and capital expenditures. Management anticipates that the Company's operating
activities will require cash during 1998, which primarily relates to the
anticipated growth in receivables and inventory levels to support expanding
sales. The Company tries to minimize its inventory of component parts, although
minimum order requirements of some suppliers can cause inventory levels to
fluctuate significantly from period to period. Bringing the manufacturing
processes in-house will enable the Company to better manage inventory levels and
reduce costs when the new manufacturing facility is fully operational. However,
fluctuations in inventory levels are still expected due to the size of planned
production runs of components. Management also attempts to manage accounts
receivable to increase cash flow, but it is anticipated that accounts receivable
will increase as sales increase. Other significant variances in working capital
items can also be expected. Also, the Company's concrete construction projects
will have a greater effect on working capital requirements in the future. At
November 30, 1997, net costs in excess of billing and estimated earnings on
uncompleted contracts were $719,447 as compared to net costs in excess of
billings and estimated earnings on uncompleted contracts of $471,716 at November
30, 1996. Normally, concrete construction projects provide for progress payments
of the contract price with a retainage of 10 to 15 percent payable after
completion of the project.
Scheduled principal payments on capital leases will total $129,079 during
fiscal 1998. In addition, $439,308 of principal payments will become due on the
Company's debt during 1998.
Substantially all of the Company's planned capital expenditures during
1998 will be related to the completion of the new manufacturing facility and
construction of the new office facility in south Oklahoma City. Management
estimates the Company's total investment in the new manufacturing facility will
be $9 million, including $3.5 million to equip the facility. As of November 30,
1997, the Company had incurred approximately $5.6 million related to the
manufacturing facility. The Company expects to begin full production operations
in late April or May 1998. Construction of the new office facility is expected
to commence in April 1998 and be completed in December 1998. The manufacturing
facility includes equipment to allow the Company to produce parts used in the
TTMT Series cooling towers which have been purchased from outside vendors.
Management believes that product costs can be reduced by producing these parts
in-house. However, the Company may incur unforeseen costs and production
problems, particularly in the short term, in bringing these processes in-house.
-14-
<PAGE>
The new manufacturing facility has been partially financed with a $4.4
million loan from the Oklahoma Industries Authority (the "OIA") and a portion of
the proceeds of a private placement of $6 million, 10% Convertible Subordinated
Debentures (the "Debentures"). The industrial revenue bonds were issued by the
OIA in October 1996. The bonds are payable in quarterly installments of
principal and interest in the amount of approximately $157,000. A debt service
reserve fund of $157,000 was also set aside from the bond proceeds. The OIA
holds a mortgage on the facility to collateralize the bond indebtedness.
The Debentures were issued by the Company during the third quarter of
1997, yielding net proceeds of approximately $5,467,000. The Debentures bear
interest at 10 percent, which is payable semiannually, and mature on June 10,
2000. The principal balance of each Debenture is convertible into shares of
common stock at a price of $8.75 per share at the option of each Debenture
holder or at the option of the Company if the closing price of the common stock
is at least 175% of the conversion price for 20 of 30 consecutive trading days
and certain other conditions are satisfied.
In September 1997, the Company entered into a loan agreement with the
City of Oklahoma City under which a HUD Section 108 loan in the amount of
$1,250,000 is available to the Company for start-up expenses of the
manufacturing facility and associated working capital requirements. As of
November 30, 1997, none of these funds had been advanced to the Company.
Initially the loan bears interest at 20 basis points above the LIBOR rate,
adjusted monthly, and interest only is payable quarterly. When HUD provides
permanent financing, the interest rate becomes fixed at the rate charged by HUD
to the City and principal and interest are payable quarterly based on an
eight-year amortization period. The loan is collateralized by a second mortgage
on the manufacturing facility.
The Company has a verbal commitment from a lending institution for a
total funding of $1,750,000 for equipment and tooling for the new manufacturing
facility. In November 1997, the Company executed a note payable for initial
funding of $731,890 and in December 1997, the Company executed an additional
note payable for the second funding in the amount of $442,974. The Company
expects the final funding of $575,136 to occur by March 31, 1998.
Effective December 31, 1997, the Company entered into a $3,500,000 line
of credit agreement with a financial institution for working capital
requirements and completion of the Company's manufacturing facility in Oklahoma
City. This financing replaced a $2,000,000 line of credit payable to an
individual which had an outstanding balance of $499,507 at November 30, 1997.
Interest is payable monthly at a variable rate of two basis points over national
prime rate. The loan matures June 30, 1999. The agreement is collateralized by
certain accounts receivable, inventory, rental fleet and patents. Negotiations
are in process to increase this line of credit to $5,000,000, although there is
no assurance that this increase will be obtained.
The Company has a line of credit at Chickasha Bank in the amount of
$400,000 for short-term cash flow needs, of which $251,625 was outstanding at
November 30, 1997. The Company also has a $1,200,000 credit arrangement with one
of its major vendors to fund materials purchased from the vendor of which
$158,286 was outstanding and included in accounts payable at November 30, 1997.
The Company is evaluating sources of debt financing for the Oklahoma City
office facility, which is expected to cost approximately $2.1 million. While the
Company anticipates that it will be able to obtain such financing, it has not
received a commitment from any lender and there is no assurance that it will
obtain financing for the new office facility.
-15-
<PAGE>
During 1997, the Company received net proceeds of approximately $879,000
from the exercise of options and common stock purchase warrants.
The Company believes it has sufficient capital resources to fund its
capital requirements for at least the next four quarters. Management is very
pleased with the continued improvement in the Company's liquidity and capital
resources and believes that the Company's improved financial position will
facilitate additional growth. Although the Company's financial position has
improved, substantial growth beyond that expected by management could increase
the Company's capital requirements and require it to obtain additional capital
to maintain its growth. In addition, the Company's debt and capital lease
obligations increased 34 percent during 1997. While financial leverage can
increase the Company's return on equity, it also increases the risk presented to
equity owners of the Company.
Year 2000 Compliance
Many existing computer programs use only two digits to identify a year in
the date field. These programs were designed and developed without considering
the impact of the upcoming change in the century. If not corrected, much
computer application could fail or create erroneous result by or at the Year
2000. The Company has not determined whether its computer programs are affected
by the Year 2000 issue or whether the costs of making its systems Year 2000
compliant or the consequences of failing to take necessary actions would have a
material impact on the Company's financial position or results of operations.
Management is currently evaluating its systems to assess the situation.
Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earning Per Share ("FAS
128"). FAS 128 will change the computation, presentation and disclosure
requirements for earnings per share. FAS 128 requires presentation of "basic"
and "diluted" earnings per share, as defined, on the face of the income
statement for all entities with complex capital structures. FAS 128 is effective
for financial statements issued for periods ending after December 15, 1997 and
requires restatement of all prior period earnings per share amounts. The Company
has determined that FAS 128 will not have a material impact on its earnings per
share when adopted.
Forward Looking Statements
Statements of the Company's or management's intentions, beliefs,
anticipations, expectations and similar expressions concerning future events
contained in this report constitute "forward looking statements" as defined in
the Private Securities Litigation Reform Act of 1995. As with any future event,
there can be no assurance that the events described in forward looking
statements made in this report will occur or that the results of future events
will not vary materially from those described in the forward looking statements
made in this report. Important factors that could cause the Company's actual
performance and operating results to differ materially from the forward looking
statements include, but are not limited to, changes in the general level of
economic activity in the markets served by the Company, competition in the
cooling tower industry and the introduction of new products by competitors,
delays in refining the Company's manufacturing and construction techniques, cost
overruns on particular projects, availability of capital sufficient to support
the Company's level of activity and the ability of the Company to implement its
business strategy, including efficient production of its products and
utilization of the new OKC plant.
-16-
<PAGE>
Item 7. Financial Statements.
The financial statements required by this item begin at page F-1 of this
report.
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure.
Effective July 1, 1996, Price Waterhouse LLP sold its Oklahoma City
practice to Coopers & Lybrand L.L.P., and as a result resigned as the
independent accountants of the Company. The reports of Price Waterhouse LLP on
the Company's financial statements for the last two fiscal years contained no
adverse opinion or disclaimer of opinion and were not qualified as to
uncertainty, audit scope or accounting principle. In connection with its audits
for the two most recent fiscal years and through July 1, 1996, there have been
no disagreements with Price Waterhouse LLP on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements if not resolved to the satisfaction of Price
Waterhouse LLP would have caused it to make reference thereto in its report on
the financial statements for such years. During the two most recent fiscal years
and through July 1, 1996, there have been no reportable events (as defined in
Regulation S-K Item 304(a)(1)(v)).
The Company engaged Coopers & Lybrand L.L.P. as its new independent
accountants effective as of July 1, 1996. Through July 1, 1996, the Company had
not consulted with Coopers & Lybrand L.L.P. regarding either (1) the application
of accounting principles to a particular transaction, either completed or
proposed, or the type of audit opinion that might be rendered on the Company's
financial statements, and either a written report was provided to the Company or
oral advice was provided that Coopers & Lybrand L.L.P. concluded was an
important factor considered by the Company in reaching a decision as to the
accounting, auditing or financial reporting issue; (2) any matter that was
either the subject of a disagreement, as that term is defined in Item
304(a)(1)(iv) of Regulation S-K and the related instructions to Item 304 of
Regulation S-K, or a reportable event, as that term is defined in Item
304(a)(1)(v) of Regulation S-K.
-17-
<PAGE>
PART III
Items 9 through 12 of Part III of this Form 10-KSB are incorporated by reference
from the Company's proxy statement to be filed on or before March 29, 1998.
-18-
<PAGE>
PART IV
Item 1. Exhibits
The following exhibits have been filed as part of this registration
statement:
Exhibit No. Desscription
3.1-1 Amended and Restated Certificate of Incorporation
of Tower Tech, Inc.
3.2-1 Amended Bylaws of Tower Tech, Inc.
3.3-1 Amendment to Bylaws
4.1-7 Form of 10% Subordinated Convertible Debenture
4.2 Omitted
4.3-1 Form of Stock Certificate
4.4-1 Form of Underwriters' Warrants
4.5-8 Form of Placement Agent Warrants
4.10-3 Registration Rights Agreement, dated February 2,
1996, among Tower Tech, Inc., Lancer LP, Michael
Taglich, and Robert Taglich.
10.1-5 Promissory Note between Tower Tech, Inc., and
Campbell, Hurley, Campbell and Campbell, dated
August 1, 1996.
10.2-10 Loan Agreement between Tower Tech, Inc.,and the
City of Oklahoma City, dated September 8, 1997.
10.3-10 Form of Loan Agreement between Tower Tech, Inc.,
and Chickasha Bank & Trust, dated September 22,
1997.
10.4-6 Loan Agreement between Tower Tech, Inc., and
Oklahoma Industries Authority dated October 1, 1996
-19-
<PAGE>
10.5-7 Form of Debenture Purchase Agreement among the
Company, Taglich Brothers, D'Amadeo Wagner &
Company, Incorporated and various lenders.
10.6-10 Promissory Note between Tower Tech, Inc. and
Electrical Constructors, dated May 8, 1996
10.7-10 Promissory Note between Tower Tech, Inc., as Maker,
and Electrical Constructors, as Payee, dated May 8,
1996
10.8-1 Promissory Note between Tower Tech, Inc., and
Electrical Constructors, dated March 25, 1997.
<PAGE>
10.9-1 Agreement by and between Morrison Molded Fiber
Glass Co., and Tower Tech, Inc., made effective
July 26, 1993, regarding the purchase by Tower
Tech, Inc. of certain pultruded components from
Morrison Molded Fiber Glass Company
10.10-1 U. S.Patent No.5,143,657 entitled FLUID DISTRIBUTOR
issued September 1, 1992
10.11-1 U. S. Patent No. 5,152,458 entitled AUTOMATICALLY
ADJUSTABLE FLUID DISTRIBUTOR issued October 6, 1992
10.12-1 U. S. Patent No. 5,227,095 entitled MODULAR COOLING
TOWER issued July 13, 1993
10.13-1 Exclusive License Agreement by and between Harold
D. Curtis and Tower Tech, Inc.
10.14-1 Assignment by and between Harold D. Curtis, as
Assignor, and Tower Tech, Inc., as Assignee
10.15-1 Assignment of Invention Contained in PCT
Application by and between Harold D. Curtis, as
Assignor, and Tower Tech, Inc., as Assignee
<PAGE>
10.16-1 Assignment of Patent by and between Harold D.
Curtis, as Assignor, and Tower Tech, Inc., as
Assignee, of Patent No. 5,227,095
10.17-4 1993 Stock Option Plan, as amended
-20-
<PAGE>
10.18 Promissory Note between Tower Tech, Inc. and
Southwestern Bank & Trust Company, dated
December 31, 1997
10.19 Omitted
10.20 Omitted
10.21-10 Promissory Note between Tower Tech, Inc. and J.
David Bronstad, dated May 31, 1996
10.22 Omitted
10.23 Omitted
10.24 Omitted
10.25 Omitted
10.26 Omitted
10.27 Omitted
10.28 Omitted
10.29 Omitted
10.30 Omitted
10.31-2 Warrant Certificate, dated April 25, 1995,
between J. David Bronstad and Tower Tech,
Inc., entitling J. David Bronstad to purchase
40,000 shares of Tower Tech, Inc.'s common
stock, $.001 par value
10.32-2 Warrant Certificate, dated April 25, 1995,
between James McDonald and Tower Tech, Inc.,
entitling James McDonald to purchase 10,000
shares of Tower Tech, Inc.'s common stock,
$.001 par value
16.1-9 Letter on changes in certifying accountant
23.1 Consent of Coopers & Lybrand L.L.P.
-21-
<PAGE>
1 Incorporated by reference from the same numbered exhibit to Registration
Statement No. 33-69574-FW, as filed with the Commission on September 29,
1993, and as amended.
2 Incorporated by reference from the same numbered exhibit to Form 10-QSB
for the quarter ended August 31, 1996.
3 Incorporated by reference from the same numbered exhibit to Form 10-KSB/A
for the year ended November 30, 1995.
4 Incorporated by reference from the same numbered exhibit to Registration
Statement No. 333-07337 on Form S-8.
5 Incorporated by reference from the same numbered exhibit to Form 10-QSB
for the quarter ended August 31, 1996.
6 Incorporated by reference from the same numbered exhibit to Form 10-KSB
for the year ended November 30, 1996.
7 Incorporated by reference from the same numbered exhibit to Form 10-QSB
for the quarter ended May 31, 1997.
8 Incorporated by reference from the same numbered exhibit to Registration
Statement No. 333-36501, Form S-3, as filed with the Commission on
September 26, 1997.
9 Incorporated by reference from the same numbered exhibit to Form 8-K
filed on July 2, 1996.
10 Incorporated by reference from the same numbered exhibit to Form 10-QSB
for the quarter ended August 31, 1997.
(b) The Company did not file any reports on Form 8-K during the quarter
ended November 30, 1997.
-22-
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
TOWER TECH, INC.
By: HAROLD CURTIS
-------------
Harold Curtis, Chief Executive Officer
In accordance with the requirements of the Securities Exchange Act of
1934, this registration statement was signed by the following persons in the
capacities and on the dates stated.
SIGNATURE TITLE DATE
HAROLD CURTIS Chief Executive Officer Director February 27, 1998
- -------------
Harold Curtis (Principal Executive Officer)
CHARLES D. WHITSITT Chief Financial Officer February 27, 1998
- -------------------
Charles D. Whitsitt (Principal Financial Officer
and Principal Accounting Officer)
LINCOLN E. WHITAKER Director February 27, 1998
- -------------------
Lincoln E. Whitaker
RANDAL K. OBERLAG Director February 27, 1998
- -----------------
Randal K. Oberlag
LEON POAG Director February 27, 1998
- ---------
Leon Poag
-23-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
Report of Independent Accountants. . . . . . . . . . . . . . . . . . . . F-2
Balance Sheets as of November 30, 1997 and 1996. . . . . . . . . . . . . F-3
Statements of Operations for the years ended November 30, 1997
and November 30, 1996 . . . . . . . . . . . . . . . . . . . . . . F-4
Statements of Stockholders' Equity for the years ended November 30, 1997
and November 30, 1996 . . . . . . . . . . . . . . . . . . . . . . F-5
Statements of Cash Flows for the years ended November 30, 1997
and November 30, 1996. . . . . . . . . . . . . . . . . . . . . . . F-6
Notes to Financial Statments. . . . . . . . . . . . . . . . . . . . . . F-8
F-1
<PAGE>
Report Of Independent Accountants
To the Board of Directors and Stockholders of
Tower Tech, Inc.
We have audited the accompanying balance sheets of Tower Tech, Inc. (the
"Company") as of November 30, 1997, and 1996 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. 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 the Company as of November 30,
1997 and 1996, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Oklahoma City, Oklahoma
February 20, 1998
F-2
<PAGE>
Tower Tech, Inc.
Balance Sheets
November 30,
<TABLE>
1997 1996
<S> ---------------- ----------------
Assets
<C> <C>
Current assets:
Cash $ 551,954 $ 850,332
Accounts receivable, net of allowance
of $172,645 and $22,645 respectively 5,740,404 4,702,268
Accounts receivable, affiliate 327,295 324,430
Notes receivable, current 208,624 -
Receivables from officers and employees 69,547 48,867
Costs in excess of billings and
estimated earnings on uncompleted
contracts 719,447 471,716
Inventory 3,027,656 2,919,264
Restricted assets, current 160,468 373,532
Prepaid expenses 129,273 28,454
Deferred tax asset 67,147 -
----------- ----------
Total current assets 11,001,815 9,718,863
Property, plant and equipment, net 9,604,258 3,774,209
Rental fleet, net 2,023,738 837,491
Restricted assets, non-current - 3,572,616
Patents, net 213,092 158,759
Notes receivable, non-current, net of
unamortized discount of $59,505 719,371 -
Deferred tax asset 577,873 -
Other assets 716,258 248,398
----------- ----------
Total assets $24,856,405 $18,310,336
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of long-term debt $ 439,308 $ 2,919,113
Current portion of obligations under
capital lease 129,079 111,934
Accounts payable 2,261,228 2,554,742
Accounts payable, affiliate 10,577 -
Book overdraft 193,999 -
Accrued liabilities 601,039 802,469
Interest payable 318,540 54,365
Customer deposits 114,034 129,114
Income tax payable 29,101 -
----------- ---------
Total current liabilities 4,096,905 6,571,737
----------- ---------
Long-term debt, net of current maturities 13,688,803 7,522,100
----------- ---------
Obligations under capital lease, net of
current maturities 171,907 259,271
----------- ---------
Commitments and Contingencies (Notes 6,9,and 15)
Stockholders' equity:
Preferred stock, $.001 par value; 2,000,000
shares authorized; no shares issued and
outstanding at November 30, 1997 and 1996 - -
Common stock, $.001 par value; 10,000,000
shares authorized; 3,526,311 and
3,370,368 shares issuedand outstanding
at November 30, 1997 and 1996,
respectively 3,527 3,371
Capital in excess of par 8,066,403 7,187,948
Accumulated deficit (1,171,140) (3,234,091)
------------ ----------
Total stockholders' equity 6,898,790 3,957,228
------------ ----------
Total liabilities and stockholders'
equity $24,856,405 $18,310,336
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-3
<PAGE>
Tower Tech, Inc.
Statements of Operations
Year Ended
November 30,
1997 1996
<TABLE>
<S>
---------------- ---------------
<C> <C>
Revenues:
Tower sales $12,127,978 $10,628,983
Concrete tower construction 3,596,569 5,355,931
Tower rentals 1,214,403 670,055
Other tower revenue 1,751,504 1,141,575
------------ ------------
Total tower revenue 18,690,454 17,796,544
Other operating revenue 860,495 839,983
----------- -----------
Total revenues 19,550,949 18,636,527
----------- -----------
Costs and expenses:
Cost of goods sold and
constructed 13,842,816 14,740,210
General and administrative 1,703,896 1,543,530
Selling expenses 1,309,292 1,009,499
Research and development 667,222 386,474
----------- -----------
Total costs and expenses 17,523,226 17,679,713
----------- -----------
Income from operations 2,027,723 956,814
----------- -----------
Other income (expense):
Interest, net (646,947) (465,776)
Miscellaneous 66,256 76,477
Loss on sale of assets - (2,397)
------------ -----------
Total other income (expense) (580,691) (391,696)
------------ -----------
Income before income taxes 1,447,032 565,118
Income tax benefit 615,919 -
------------ -----------
Net income 2,062,951 565,118
Dividends on preferred shares - (62,812)
------------ ------------
Net income applicable to common
shares $ 2,062,951 $ 502,306
=========== ===========
Weighted average shares
outstanding - primary 3,538,113 3,281,291
=========== ===========
Income per common share -
primary $ 0.58 $ 0.15
============= ============
Weighted average shares
outstanding - fully diluted 3,538,113 3,368,057
=========== ===========
Net income per common share -
fully diluted $ 0.58 $ 0.15
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
Tower Tech, Inc.
Statements of Stockholders' Equity
Year Ended
November 30,
<TABLE>
1997 1996
<S> ------------------ ----------------
Preferred stock <C> <C>
Balance at beginning of period $ - $ 316
Conversion of preferred stock -
Series B to common stock - (35)
Conversion of preferred stock -
Series C to Series E - (131)
Conversion of preferred stock -
Series C to Series E - 131
Purchase of preferred stock -
Series E - (131)
Redemption of preferred stock -
Series D - (150)
------------- ------------
Balance at end of period - -
------------- ------------
Common stock
Balance at beginning of period 3,371 2,429
Issuances of common stock - 781
Conversion of preferred stock -
Series B to common stock - 70
Exercise of warrants and options 156 91
-------------- ------------
Balance at end of period 3,527 3,371
-------------- ------------
Capital in excess of par
Balance at beginning of period 7,187,948 4,756,109
Proceeds from issuance of
common stock - 3,404,350
Preferred dividends - (62,812)
Redemption of preferred stock -
Series D - (1,499,850)
Conversion of preferred stock -
Series B to common stock - (35)
Purchase of preferred stock -
Series E - (18,941)
Exercise of warrants and options 878,455 609,127
------------ -----------
Balance at end of period 8,066,403 7,187,948
------------ ----------
Accumulated deficit
Balance at beginning of period (3,234,091) (3,799,209)
Net income 2,062,951 565,118
------------ ----------
Balance at end of period (1,171,140) (3,234,091)
----------- -----------
Total stockholders' equity $ 6,898,790 $ 3,957,228
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
Tower Tech, Inc.
Statements of Cash Flows
Year Ended
November 30,
1997 1996
<TABLE>
<S>
------------- -------------
Cash flows from operating activities: <C> <C>
Net income $ 2,062,951 $ 565,118
Adjustments to reconcile net income
to net cash used in operating
activities:
Depreciation and amortization 677,839 419,085
Bad debt expense 150,000 -
Deferred tax benefit (645,020) -
Loss on disposal of equipment - 2,397
Increase in notes receivable (840,495) -
Payment on note receivable 37,500 -
Increase in accounts receivable (1,313,136) (2,929,140)
Increase in accounts receivable
affiliate (2,865) -
(Increase) decrease in receivables
from officers & employees (20,680) 13,472
Increase in inventory (108,392) (816,179)
(Increase) decrease in prepaid
expenses (100,819) 59,905
Increase in other assets (14,003) (60,356)
Decrease in accounts payable (293,514) (4,898)
Increase in accounts payable,
affiliate 10,577 -
Increase in accrued liabilities 62,744 209,169
(Decrease) increase in customer
deposits (15,080) 129,114
Increase in income tax payable 29,101 -
Increase in costs in excess of
billings (247,731) (1,011,491)
----------- -----------
Net cash used in operating activities (571,023) (3,423,804)
---------- -----------
Cash flows from investing activities:
Purchases of property and equipment (6,041,602) (1,133,015)
Decrease in restricted assets 3,785,680 -
Additions to rental fleet (1,372,109) (413,173)
Proceeds from sale of assets - 21,426
Increase in patent costs (67,133) (122,188)
Purchase of restricted assets - (3,946,148)
------------ -----------
Net cash used in investing activities (3,695,164) (5,593,098)
----------- -----------
Cash flows from financing activities:
Proceeds from borrowings,
net of costs 12,319,554 13,080,026
Increase in book overdraft 193,999 -
Repayments of long-term debt and
capital lease obligations (9,424,355) (6,002,445)
Redemption of preferred stock - (1,500,000)
Proceeds from common stock issuances - 3,386,059
Proceeds from exercise of options and
warrants 878,611 609,220
Payment of preferred dividends - (164,531)
Payment of bond closing costs - (179,355)
------------ -----------
Net cash provided by financing activities 3,967,809 9,228,974
----------- -----------
Net (decrease) increase in cash (298,378) 212,072
Cash at beginning of year 850,332 638,260
------------ ------------
Cash at end of year $ 551,954 $ 850,332
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
Tower Tech, Inc.
Statements of Cash Flows (continued)
Supplemental Disclosure of Cash Flow Information
Cash paid for interest during the years ended November 30, 1997 and 1996 was
$760,656 and $540,127, respectively.
Supplemental Schedule of Non-Cash Investing and Financing Activities
The Company converted $125,000 of accounts receivable to notes receivable during
fiscal 1997.
The Company acquired certain property, plant and equipment under capital lease
obligations of $49,427 and $294,505 for the years ended November 30, 1997 and
1996, respectively.
The Company acquired certain real estate and improvements during 1997 and
1996 by executing notes payable in the aggregate amount of $139,219 and
$387,500, respectively.
See Note 13 for other non-cash issuances and conversions of preferred stock.
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
Tower Tech, Inc.
Notes to Financial Statements
1. General and Summary of Significant Accounting Policies
General
Tower Tech, Inc. (the "Company") has been in the business of building, repairing
and upgrading conventional water cooling towers since 1985. In 1991, the Company
began developing a new line of modular water cooling towers made primarily of
fiberglass ("TTMT Series"). In 1993, the Company began production of the TTMT
Series cooling tower, which has been introduced into both the air conditioning
and industrial segments of the cooling tower market. Compact design of the
modules permits them to be factory assembled, inventoried for immediate
shipment, easily transported and quickly installed. The Company has also built
cooling towers based on the TTMT Series modules which the Company rents for
short-term or emergency use to customers. In 1995, the Company introduced a
concrete water cooling tower which is constructed using the TTMT technology. The
concrete towers, which are constructed using tilt-up concrete construction
methods at the customer's location, are sold under fixed price contracts. In
1996, the Company began marketing its TTMT technology by entering into licensing
agreements with international cooling tower companies.
Revenue and cost recognition
Revenue from TTMT tower sales is recognized as towers are shipped to customers.
Revenues and costs under fixed price contracts for the construction of concrete
towers are recognized on the percentage of completion method and are recorded
based upon a ratio of costs incurred to date on the contract to total estimated
costs. Contract costs include material, direct labor and other direct costs
related to contract performance. Changes in job conditions, estimated
profitability and final contract settlements may result in revisions to cost and
income, and are recognized in the period in which the revisions are determined.
Provisions for estimated losses on uncompleted contracts, if any, are made in
the period in which such losses are determined.
Rental towers are rented under short-term or month-to-month rental agreements
and revenue is recognized when earned.
Revenues from licensing agreements are recognized when a non-cancelable contract
is signed specifying a fixed non-refundable fee, the related technology
materials are delivered and government approval has been obtained by the
licensee, when required. License fees are included in other operating revenue.
Cash and cash equivalents
For purposes of the statement of cash flows, the Company considers all
short-term investments with a maturity of three months or less to be cash
equivalents.
Inventory
Inventory is stated at the lower of cost or market. Cost is determined on a
first-in, first-out basis.
Property, plant and equipment
Property, plant and equipment is recorded at cost. Depreciation (which includes
amortization of assets under capital leases) is provided for using the
straight-line method over the estimated useful lives of the assets as follows:
F-8
<PAGE>
Notes to Financial Statements, continued
1. General and Summary of Significant Accounting Policies, continued
Property, plant and equipment, continued
Buildings and plant improvements 7-40 years
Shop equipment 5-10 years
Office furniture and equipment 3-10 years
Molds and dies 7-10 years
Trucks and vehicles 5 years
Assets under capital lease 5-10 years
Repairs and maintenance charges which do not increase the useful lives of assets
are charged to expense as incurred.
Interest costs incurred on borrowed funds during a period of construction are
capitalized as a component of the costs of construction of qualifying assets.
Patents
Costs associated with obtaining patents are capitalized and amortized from the
date granted over the life of the patents (17 years).
Debt issue costs
Other assets relate primarily to costs associated with the issuance of debt
obligations. Debt issue costs are being amortized over the life of the related
debt obligations.
Warranty costs
The Company provides, by a current charge to cost of goods sold, an amount it
estimates will be needed to cover future warranty obligations for towers sold
during the year. The accrued liability for warranty costs is included in accrued
liabilities in the accompanying balance sheets.
Income taxes
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109). FAS 109
requires deferred tax liabilities or assets to be recognized for the anticipated
future tax effects of temporary differences that arise as a result of the
differences in the carrying amounts and tax bases of assets and liabilities, and
for loss carryforwards and tax credit carryforwards.
Research and development
Costs associated with research and development of new and improved products are
charged to expense as incurred.
Income per common share
Net income per common share is computed based on the weighted average number of
shares of common stock outstanding plus dilutive common equivalent shares
arising from the issuance of warrants and options.
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 disclosure of
contingent assets and liabilities at the dates of the financial statements and
the reported amounts of revenue and expenses during the reporting periods.
Actual results could differ from those estimates.
F-9
<PAGE>
Notes to Financial Statements, continued
1. General and Summary of Significant Accounting Policies, continued
Use of estimates, continued
Estimates are used when accounting for construction contracts, the
allowance for doubtful accounts and warranty reserve. It is reasonably possible
that actual results could differ significantly from the estimates in the near
term.
Fair value of financial instruments
The Company's financial instruments consist primarily of cash and cash
equivalents, and debt instruments. Fair value estimates have been determined by
the Company, using available market information and appropriate valuation
methodologies. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment, and therefore cannot be
determined with precision.
The carrying value of cash and cash equivalents is considered to be
representative of their respective fair values, due to the short maturity of
these instruments. Based on the borrowing rates currently available to the
Company for loans with similar terms and average maturities, the fair market
value of long-term debt and notes payable approximates their carrying value.
Concentration of credit risk
Financial instruments which potentially subject the Company to credit risk
consist of cash and cash equivalents, accounts receivable and notes receivable.
The Company maintains its cash balances in high credit quality financial
institutions. From time-to-time, the Company's cash and cash equivalents may
exceed federally insured limits although management believes any possible credit
risk is minimal.
The Company sells cooling towers to customers throughout the U.S. and enters
into licensing agreements with international companies. The Company extends
credit based upon an evaluation of the customer's financial condition, generally
without requiring collateral. Exposure to losses on accounts receivable and
notes receivable is principally dependent on each customer's financial condition
and economic conditions in countries where they operate. The Company monitors
its exposure for credit losses and maintains allowances for anticipated losses.
Stock Options
In October 1995, the Financial Accounting Standards Board issued Statement No.
123 ("FAS 123"), "Accounting for Stock Based Compensation". As permitted by FAS
123, the Company has continued its previous method of accounting for stock
compensation costs and has adopted the disclosure requirements of this Statement
in fiscal 1997.
Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earning Per Share ("FAS 128"). FAS 128
will change the computation, presentation and disclosure requirements for
earnings per share. FAS 128 requires presentation of "basic" and "diluted"
earnings per share, as defined, on the face of the income statement for all
entities with complex capital structures. FAS 128 is effective for financial
statements issued for periods ending after December 15, 1997 and requires
restatement of all prior period earnings per share amounts. The Company has
determined that FAS 128 will not have a material impact on its earnings per
share when adopted.
Reclassifications
Certain November 30, 1996 amounts have been reclassified to conform with
November 30, 1997 presentation.
F-10
<PAGE>
Notes to Financial Statements, continued
2. Contract Receivables
Contract receivables consist of the following at November 30:
<TABLE>
1997 1996
------------- -------------
<S> <C> <C>
Completed contracts, including retainage $419,904 $540,762
Contracts in progress:
Current accounts 190,141 604,794
Retainage 59,411 104,385
---------- ----------
$669,456 $1,249,941
============ ============
</TABLE>
Contract receivables are included in accounts receivable in the accompanying
balance sheet.
3. Costs in Excess of Billings and Estimated Earnings on Uncompleted
Contracts
The following is a summary of costs and estimated earnings on uncompleted
projects at November 30:
<TABLE>
1997 1996
-------------- -------------
<S> <C> <C>
Cost incurred on uncompleted projects $ 2,010,501 $ 1,996,271
Estimated earnings 22,356 (15,428)
----------- -----------
2,032,857 1,980,843
Less: Billings to date (1,313,410) (1,509,127)
----------- -----------
$ 719,447 $ 471,716
=========== ===========
</TABLE>
4. Inventories
Inventories consist of the following at November 30:
<TABLE>
1997 1996
------------ ------------
<S> <C> <C>
Raw materials $2,070,717 $2,317,411
Work in process 476,498 305,209
Finished goods 480,441 296,644
---------- ----------
$3,027,656 $2,919,264
========== ==========
</TABLE>
F-11
<PAGE>
Notes to Financial Statements, continued
5. Restricted Assets
Restricted assets consist of investments held by a trustee in connection with
financing obtained to fund construction of the Company's new manufacturing and
office facility. See Note 6. Amounts required for obligations classified as
current liabilities are reported in current assets. Investments are stated at
cost which approximates market. The composition of restricted assets at November
30, is set forth in the following table:
<TABLE>
1997 1996
<S> ---------- ----------
Under bond indenture agreements - <C> <C>
held by trustee:
Cash and cash equivalents $ 1,917 $ 3,555
U.S. Treasury Notes 158,551 3,942,593
---------- ----------
Total restricted assets 160,468 3,946,148
Amount required for current
liabilities (160,468) (373,532)
---------- ----------
Noncurrent restricted assets $ - $3,572,616
========== ==========
</TABLE>
6. Property, Plant and Equipment
Following is a summary of property, plant and equipment at November 30:
<TABLE>
1997 1996
----------- -----------
<S> <C> <C>
Building and plant improvements $1,824,683 $1,782,661
Shop equipment 767,798 504,441
Office furniture and equipment 663,122 298,824
Molds and dies 1,274,782 1,117,156
Trucks and vehicles 9,744 -
Assets under capital lease 556,633 507,206
Construction in progress 5,554,826 564,686
Capitalized interest 380,304 27,932
---------- ----------
11,031,892 4,802,906
Accumulated depreciation (1,292,965) (948,986)
Accumulated depreciation, capital leases (134,669) (79,711)
---------- ----------
$9,604,258 $3,774,209
========== ==========
</TABLE>
Construction in progress consists primarily of construction on the Company's new
manufacturing facility in south Oklahoma City, Oklahoma. The new facility has
been partially financed through an industrial revenue bond issuance by the
Oklahoma Industries Authority in the amount of $4,405,000. See Note 8.
Management estimates the Company's total investment in the new facility, which
is scheduled for completion in 1998, will be approximately $9 million, including
$3.5 million to equip the facility
Depreciation of property, plant and equipment, and rental fleet was $586,062 and
$411,575 for the years ended November 30, 1997 and 1996, respectively, of which
$425,872 and $297,870 was included in costs of good sold and constructed.
F-12
<PAGE>
Notes To Financial Statements, Continued
7. Rental Fleet
The Company has a fleet of TTMT Series modular cooling towers which are
available for lease under short-term and month-to-month agreements. The rental
fleet is depreciated using the straight-line method over estimated useful lives
of 7 to 10 years. Following is a summary of the rental fleet and accumulated
depreciation at November 30:
<TABLE>
1997 1996
---------- -----------
<S> <C> <C>
Rental fleet $2,386,687 $1,014,578
Accumulated depreciation (362,949) (177,087)
---------- ----------
$2,023,738 $ 837,491
========== ==========
</TABLE>
8. Long-Term Debt
The following is a summary of long-term debt at November 30:
<TABLE>
1997 1996
----------- -----------
<S> <C> <C>
10% Convertible Subordinated Debenture
("Debentures") as discussed below. $6,000,000 $ -
Oklahoma Industries Authority Revenue Bonds,
Series 1996, principal and interest
are payable quarterly on January 1,
April 1, July 1 and October 1; interest at
an average rate of 7.28%, final payment is
due October 1, 2007; collateralized
by the Company's right, title and interest
in the real estate comprising the
Company's manufacturing facility, along with
all building, structures, fixtures
and improvements on said real estate;
bonds are eligible for early redemption
subject to certain restrictions. 4,335,000 4,405,000
Line of credit payable to an individual
credit limit of $2,000,000; principal
and interest due May 31, 1998; interes
rate of 13%; collateralized by accounts
receivable, inventory, equipment, and
personal guarantee of the Company's
C.E.O. and his wife. Replaced with new
financing subsequent to year-end.
See Note 17. 499,507 2,000,000
Notes payable to an individual; principal
payments of $1,500,000 and $500,000 due
on May 8, and March 25, 1999, respectively;
interest at bank prime + 3% (11.25% at
November 30, 1997), and fixed rate at 13%,
respectively; collateralized by a first
lien and right of assignment on certain
patents. 2,000,000 1,500,000
Line of credit with a bank; credit limit
of $3,800,000; principal and interest due
September 1, 1997; interest at 30 day
LIBOR plus 1%; collateralized by all
accounts, equipment, general intangibles
instruments, documents and chattel paper. - 1,325,000
Note payable to an individual; principal
and interest due August 1, 1997;
interest at 3.5%; collateralized by real
estate - 387,500
F-13
<PAGE>
Notes To Financial Statements, Continued
8. Long-Term Debt, continued
1997 1996
------------- -------------
Line of credit with a bank; principal
and interest due April 1, 1999;
interest at bank prime (10% at
November 30, 1997); collateralized
by real estate. 251,625 500,000
Note payable to a bank; 35 monthly
payments of principal and interest of
$1,557 with remaining principal due
April 15, 1998; interest at bank
prime (10% at November 30, 1997);
collateralized by real estate. 96,223 104,908
Note payable to an individual;
principal due May 2, 1999; interest
at 15% due quarterly; collateralized
by accounts receivable, inventory,
equipment, all other chattels, patent
and personal guarantee of the Company's
C.E.O. and his wife. - 100,000
Note payable to a bank; semi-annual
payments of principal and interest of
$1,557 with final payment due October
13, 1998; interest at bank prime
(10% at November 30, 1997);
collateralized by real estate. 71,879 75,973
Note payable to a lending institution;
principal and interest payments of
$13,651 with final payment due November 3,
2002; interest at 10%; collateralized by
certain equipment. 731,890 -
Notes payable to an institution; monthly
principal and interest payments
of $977, with final payment due November 4,
2017; interest at 7.72%,
collateralized by certain improvements. 119,219 -
Various notes payable to financial
institutions; principal and interest
due monthly; collateralized by vehicle
and equipment. 22,768 42.832
---------- ----------
14,128,111 10,441,213
Current portion (439,308) (2,919,113)
----------- -----------
Long-term debt, net $13,688,803 $ 7,522,100
========== ===========
</TABLE>
Principal amounts maturing on long-term debt for each year is as follows at
November 30, 1997:
<TABLE>
<C> <C>
1998 $ 439,308
1999 3,218,342
2000 6,606,633
2001 505,521
2002 554,106
Thereafter 2,804,201
------------
</TABLE>
$14,128,111
F-14
<PAGE>
Notes To Financial Statements, Continued
8. Long-Term Debt, continued
The Debentures were issued by the Company during the third quarter of 1997,
yielding net proceeds of approximately $5,467,000. The Debentures bear interest
at 10 percent, which is payable semiannually, and mature on June 10, 2000. The
principal balance of each Debenture is convertible into shares of common stock
at a price of $8.75 per share at the option of each Debenture holder or at the
option of the Company if the closing price of the common stock is at least 175%
of the conversion price for 20 of 30 consecutive trading days and certain other
conditions are satisfied.
In September 1997, the Company entered into a loan agreement with the City of
Oklahoma City under which a HUD Section 108 loan in the amount of $1,250,000 is
available to the Company for start-up expenses of the manufacturing facility and
associated working capital requirements. As of November 30, 1997, none of these
funds had been advanced to the Company. Initially the loan bears interest at 20
basis points above the LIBOR rate, adjusted monthly, and interest only is
payable quarterly. When HUD provides permanent financing, the interest rate
becomes fixed at the rate charged by HUD to the City and principal and interest
are payable quarterly based on an eight-year amortization period. The loan is
collateralized by a second mortgage on the manufacturing facility.
9. Obligations Under Capital Leases
The Company leases certain equipment under capital lease agreements. The
equipment leases have original terms ranging from 3 to 5 years. Most equipment
leases have purchase options at the end of the original lease term. Future
minimum payments by year and in the aggregate under noncancelable capital leases
consist of the following at November 30, 1997:
<TABLE>
<C> <C>
1998 $ 160,082
1999 150,873
2000 33,404
2001 14,302
------------
Total minimum lease payments 358,661
Amount representing interest (57,675)
Present value of net minimum lease payments 300,986
Current portion (129,079)
$ 171,907
</TABLE>
10. Retirement Plan
Effective June 8, 1990, the Company implemented the Tower Tech, Inc., 401(k)
Retirement Plan (the "Plan"), a voluntary, contributory 401(k) savings plan. The
Plan currently permits employees of the Company to commence participation in the
Plan as of the first January 1 or July 1 following the completion of twelve
months of service and the attainment of 18 years of age. Participants may make
tax-deferred contributions from their compensation during each year, subject to
statutory limits imposed under Section 401(k) and other applicable sections of
the Internal Revenue Code of 1986, as amended. The Plan provides for a
discretionary matching contribution by the Company. The matching contribution,
if any, is allocated to participants based on a percentage of participant's
eligible contributions compared to total eligible contributions. Eligible
contributions are the participant's contributions not to exceed 6% of
compensation.
Participants in the Plan are at all times fully vested in their contributions
and in the earnings attributable to their contributions and become fully vested
in Company contributions made on their behalf after seven years of service. The
Plan permits withdrawals during employment in the event of proven financial
hardship. In the case of termination of employment, disability, or death, a
participant's account balance is distributed to the participant (or his
beneficiary) in either a lump sum or a part lump sum and part installments
depending on the participant's vested balance. The expense recognized in 1997
and 1996 for the Plan was $1,030 and $1,690, respectively.
F-15
<PAGE>
Notes To Financial Statements, Continued
11. Income Taxes
The (benefit) provision for income taxes for the years ended November 30 are
comprised of the following:
<TABLE>
1997 1996
<S> ---------- ----------
Current provision: <C> <C>
Federal $ 29,101 $ --
---------- ----------
Deferred benefit:
Federal (552,976) --
State (92,044) --
---------- ----------
Total deferred benefit (645,020) --
---------- ----------
Income tax benefit $ (615,919) $ --
========== ==========
</TABLE>
The following is a reconciliation of the statutory federal
income tax rate to the Company's effective income tax rate:
<TABLE>
1997 1996
---------- ----------
<S> <C> <C>
Statutory federal income tax 34% 34%
Utilization of net operating
loss carryforwards (29%) (23%)
Change in valuation allowance (52%) (19%)
Other 4% 8%
---------- ----------
Effective income tax rate (43%) -
========== ==========
</TABLE>
Deferred tax liabilities and assets at November 30
are comprised of the following:
<TABLE>
1997 1996
<S> ---------- -----------
Deferred tax liabilities: <C> <C>
Depreciation $ 289,743 $ 140,351
Workers' Compensation 40,984 -
---------- ----------
Total deferred tax liability 330,727 140,351
---------- ----------
Deferred tax assets:
Accounts receivable allowance 68,471 8,546
Warranty reserve 39,660 37,740
Other 7,848 22,158
Net operating loss carryforward 827,513 1,242,608
AMT credit 32,255 -
---------- ----------
Total deferred tax assets before
valuation allowance 975,747 1,311,052
Valuation allowance for deferred
tax assets - (1,170,701)
---------- ----------
Total deferred tax asset 975,747 140,351
---------- ----------
Net deferred tax asset $ 645,020 $ -
========== ==========
</TABLE>
At November 30, 1997, the Company had a net operating loss carryforward (NOL)
for regular tax purposes of approximately $2,087,000, expiring in 2009 to 2010.
F-16
<PAGE>
Notes To Financial Statements, Continued
11. Income Taxes, continued
FAS 109 requires that the Company record a valuation allowance when it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of the deferred income tax assets depends on
the Company's ability to generate sufficient taxable income in the future. In
the fourth quarter of fiscal 1997, Management determined that, based on the
Company's ability to generate taxable income in two consecutive years (1996 and
1997), it is more likely than not that the Company will realize the deferred tax
assets. Therefore, the valuation allowance previously established against the
net deferred tax asset was reversed.
The ability of the Company to utilize the NOL carryforward to reduce future
income taxes may be limited upon occurrence of certain capital stock
transactions during any three-year period resulting in an aggregate ownership
change of more than 50%.
12. Related Party Transactions
R&B Enterprises ("R&B"), an affiliate of Lincoln E. Whitaker who is a director
of the Company, is an independent sales representative for the Company. As a
sales representative, R&B purchases products from the Company for resale and
sells products as an agent for the Company on a commission basis. During 1997
and 1996, R&B purchased $29,086 and $253,034, respectively, of products from the
Company and earned $7,872 and $32,343, respectively, in commissions.
In December 1995, the Company executed a Joint Venture Agreement with J-Tech
Enterprises, Inc. ("J-Tech"), a Florida corporation to market the Company's
products in Alabama, Florida and Georgia. The Company received a 50% ownership
interest in the joint venture, Tower Tech-Southeast ("TTSE"), for contributing a
license to use its technology. J-Tech contributed a computer system valued at
$5,000 and $35,000 cash. The Company's investment in TTSE is being accounted for
using the equity method of accounting, although the Company did not record an
amount for their initial contribution of technology. The agreement contains a
buyout option allowing the Company to purchase the ownership interest of J-Tech
under certain conditions. Sales made to TTSE amounted to $741,240 and $549,549
during fiscal year 1997 and 1996, respectively.
The following represents the summarized financial data of TTSE at November 30:
<TABLE>
1997 1996
<S> ----------- ----------
Balance sheet data <C> <C>
Assets $ 531,307 $ 520,114
Liabilities $ 463,002 $ 452,773
Equity $ 68,305 $ 67,341
1997 1996
---------- -----------
Statement of operations data
Sales $1,172,410 $ 751,499
Cost of Sales 814,797 611,625
Other expenses 356,649 152,532
---------- ----------
Net income (loss) $ 964 $ (12,658)
========== ==========
</TABLE>
F-17
<PAGE>
Notes To Financial Statements, Continued
13. Stockholders' Equity
At November 30, 1997, and 1996, the Company had outstanding warrants and options
allowing the holders to purchase a total of approximately 344,065 and 424,480
shares respectively, of the Company's Common Stock at an average price of $6.81
per share expiring at various periods through July 2007. These warrants and
options were issued in conjunction with the initial public offering, various
financing agreements with unrelated individuals and the Company's stock option
plan (see Note 14). Warrants for 150,000 and 84,400 shares of common stock were
exercised at an average exercise price of $5.88 and $6.41 during 1997 and 1996,
respectively.
In January 1996, the Company sold 300,000 shares of common stock, through
private placements, at a price of $4.00 per share. The Company used the proceeds
of $1,200,000 for working capital and payment of debt.
In February 1996, the Company sold 350,000 shares of common stock, through a
private placement, at a price of $6.60 per share. The Company used the net
proceeds of $2,205,000 for (i) redemption and retirement of all the outstanding
shares of Series D Preferred Stock and to repurchase certain patent rights from
the holder of the Series D Preferred Stock, (ii) payment of accrued dividends on
the Series B Preferred Stock and Series D Preferred Stock, and (iii) payment of
certain debt obligations and all accrued interest thereon. On March 22, 1996 the
Company redeemed the 150,000 shares of Series D Preferred Stock for $10 per
share, and the Series B Preferred Stock was converted into 70,000 shares of
common stock.
In December 1995, the Series C Preferred Stock was redeemed in exchange for
Series E Preferred Stock. In April 1996, the Series E Preferred Stock was
purchased in exchange for the issuance of 130,667 shares of common stock and
$18,941.
14. Stock Option Plan
In October 1997, the Company amended the Tower Tech, Inc. 1993 Stock Option Plan
(the "Plan"). Under the Plan, up to 500,000 shares of common stock may be issued
pursuant to the exercise of options. The Plan is administered by a committee
consisting of at least two members of the Board of Directors who are not
employees of the Company. The committee has not established a fixed formula for
awarding options under the Plan. Options under the Plan can be in the form of
incentive stock options or nonqualified stock options. The exercise price for
nonqualified stock options issued under the Plan may be for more or less than
the fair market value of the common stock at the time an option is granted. The
exercise price for incentive stock options must be equal to the fair market
value of the common stock at the time the options are granted. There have been
no stock options issued with an exercise price less than the market price of
common stock at the date of issuance. All stock options granted during 1996 and
1997 have a term of ten years and vest incrementally 20% each year. Vested
options may be exercised after five years of employment or upon termination from
the Company. The Company has elected to follow APB No. 25, Accounting for Stock
Issued to Employees and related Interpretations in accounting for its employee
stock options. Under APB No. 25, compensation expense is recognized for the
difference between the option price and market value on the measurement date. No
compensation expense has been recognized because the exercise price of the stock
options equaled the market price of the underlying stock on the date of grant.
Pro forma information regarding net income and earnings per share is required by
FAS No. 123 and has been determined as if the Company had accounted for its
employee stock options under the fair value method of the Statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for fiscal
1997 and 1996, respectively: interest rates (zero-coupon U.S. government issues
with a remaining life equal to the expected term of the options) of 6.12% and
6.67%; dividend yields of 0.0% and 0.0%; volatility factors of the expected
market price of the Company's common stock of 43.95% and 43.95%; and
weighted-average expected life of the options of six years.
F-18
<PAGE>
Notes To Financial Statements, Continued
14. Stock Option Plan, continued
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
The Company's pro forma information follows for November 30:
<TABLE>
1997 1996
---------- -----------
<S> <C> <C>
Net income (loss) as reported $2,062,951 $ 565,118
Pro forma $2,006,279 $ 492,436
Earnings (loss) per share as reported $ .58 $ .15
Pro forma $ .57 $ .15
</TABLE>
For purposes of the pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period, which is five
years. Because the Company's stock options vest generally over five years and
additional awards are typically made each year, the above pro forma disclosures
are not likely to be representative of the effects on pro forma net income for
future years. A summary of the Company's stock option activity and related
information follows for November 30:
1997 1996
---------------------- ------------------------
<TABLE>
Options Weighted Av Options Weighted Avg.
<S> Exercise Price Exercise Price
Outstanding - <C> <C> <C> <C>
Beginning of year 210,880 $ 6.28 169,760 $ 6.25
Granted 34,894 8.75 75,680 6.33
Exercised (5,120) 6.25 (6,880) 6.25
Forfeited (29,760) 6.46 (27,680) 6.25
--------- --------
Outstanding -
End of year 210,894 6.67 210,880 6.28
======= =======
Exercisable -
End of year 83,175 6.25 52,312 6.25
======== ========
</TABLE>
The following table summarizes information about stock options outstanding at
November 30, 1997:
<TABLE>
Weighted Avg.
Range of Number Remaining Weighted Avg.
Exercise Prices Outstanding Contractual Life Exercise Price
<C> <C> <C> <C> <C>
$ 6.25 - $ 8.25 192.800 7.43 $ 6.43
$ 9.00 - $10.00 18,094 9.56 $ 9.21
$ 6.25 - $10.00 210,894 7.62 $ 6.67
</TABLE>
F-19
<PAGE>
Notes To Financial Statements, Continued
15. Commitments and Contingent Liabilities
In July 1993, the Company entered into an agreement with a vendor to purchase
all reinforced plastic components and dies from the vendor for the next five
years. The Company has a secured credit agreement with the vendor whereby the
Company will be extended credit not to exceed $1,200,000 for the purchase of
components ($158,286 outstanding and included in accounts payable at November
30, 1997). The credit agreement is renewable every 6 months and is
collateralized by purchased inventory, personal guaranty of the Company's
C.E.O., and a pledge of 150,000 shares of Company common stock owned by the
Company's C.E.O.
On April 5, 1994, the Company executed a vendor agreement with another vendor
whereby the Company has committed to purchase, annually (measured from agreement
date), a minimum of $1,500,000 of cooling tower fill and drift eliminators from
the vendor. If the Company does not meet the minimum purchase amount in any one
year, the vendor agreement will be extended in time by the percentage amount of
the shortage added in months to the original length of the agreement. Management
believes that the minimum purchase amount will be met through normal operations
over the term of the agreement (5 years).
Included in cost of goods sold and constructed for the years ended November 30,
1997 and 1996 are $426,699 and $358,016, respectively, of expense to retrofit
and service towers previously sold. The Company has recorded a liability for
estimated warranty costs of $100,000 at both November 30, 1997 and 1996.
Management believes the warranty reserve is sufficient to cover future warranty
costs.
The Company is a defendant in certain litigation arising in the normal course of
business. Management is of the opinion that liabilities, if any, arising from
these actions will not have a material effect on the Company's financial
position and results of operations.
16. Licensing Agreements
During 1997 and 1996, the Company entered into certain license agreements with
various international cooling tower companies. The license agreements grant the
licensees an exclusive, nontransferable right and license to manufacture,
develop and promote cooling towers, using the Company's technology in specified
regions, such as Mexico, India, Southeast Asia, South America, South Africa and
the Mediterranean area. Under the agreements, the Company earns an initial
fixed, nonrefundable technology transfer fee upon delivery of the technology
materials. Fees earned during the year ended November 30, 1997 and 1996 totaled
$860,495 and $839,983, respectively. Pursuant to certain agreements, the Company
will earn continuing royalties for all Licensed Products promoted by the
licensee, although no such royalties have been earned through November 30, 1997.
The agreements with two international cooling tower companies give the Company
an option to purchase 49% of a company set up to market cooling towers using the
TTMT technology in specified regions. At November 30, 1997, the Company has not
exercised these options.
17. Subsequent Events
Effective December 31, 1997, the Company entered into a $3,500,000 line of
credit agreement with a financial institution for working capital requirements
and completion of the Company's new facility in Oklahoma City. A portion of this
financing was used to replace a line of credit to an individual which had an
outstanding balance of $499,507 at November 30, 1997. Therefore, this amount is
classified as long term at November 30, 1997. Interest is payable monthly at a
rate of two basis points over National Prime. All outstanding principal and
unpaid interest is due June 30,1999. The agreement is collateralized by all
accounts, other than arising from sales to foreign nationals, inventory, general
intangibles, rental fleet inventory and patents.
F-20
<PAGE>
INDEX TO EXHIBITS
Page
10.18 Promissory Note between Tower Tech, Inc. and Southwestern
Bank & Trust Company dated December 31, 1997. . . . . . E-1
23.1 Consent of Coopers & Lybrand L.L.P . . . . . . . . . . . . E-2
-24-
Exhibit 10.18
PROMISSORY NOTE
Principal Loan Date Maturity Loan No. Call Collateral Account Officer
$3,500,000. 12-21-1997 06-30-1999 47886 220 40,42 0206190 DRB
- -------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
- -------------------------------------------------------------------------------
Borrower: Tower Tech, Inc.(TIN:73-1210313) Lender: Southwestern Bank & Trust Co
P.O. Box 1838 8000 South Western Ave.
Chickasha, OK 73023 P.O. Box 19100
Oklahoma City, OK 73138
Principal Amount: $3,500,000.00 Initial Rate: 10.500%
Date of Note: December 31, 1997
PROMISE TO PAY. Tower Tech Inc. ("Borrower") promises to pay to Southwestern
Bank & Trust Company ("Lender"), or order, in lawful money of the United States
of America, the principal amount of Three Million, Five Hundred Thousand 00/100
DoIIars ($3,500,000.00) or so much as may be outstanding, together with interest
on the unpaid outstanding principal balance of each advance. Interest shall be
calculated from the date of each advance until repayment of each advance.
PAYMENT. Borrower will pay this loan on demand or if no demand is made; in one
payment of all outstanding principal plus all accrued unpaid interest on June
30, 1999. In addition, Borrower will pay regular monthly payments of accrued
unpaid interest beginning January 31, 1998, and all subsequent interest payments
are due on the same day of each month after that. Interest on this Note is
computed on a 385/360 simple interest basis; that is, by applying the ratio of
the annual interest rate over a year of 360 days, multiplied by the outstanding
principal balance, multiplied by the actual number of days the principal balance
is outstanding. Borrower will pay Lender at Lender's address shown above or at
such other place as Lender may designate in writing. Unless otherwise agreed or
required by applicable law, payments will be applied first to accrued unpaid
interest, then to principal, and any remaining amount to any unpaid collection
costs and late charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time to time based on changes in an independent index which is the National
Prime (the "Index"). The Index is not necessarily the lowest rate charged by
Lender on its loans. If the index becomes unavailable during the term of this
loan, Lender may designate a substitute index after notice to Borrower. Lender
will tell Borrower the current Index rate upon Borrower's request. Borrower
understands that Lender may make loans based on other rates as well. The
interest rate change will not occur more often than each day. The Index
currently is 8.500% per annum. The interest rate to be applied to the unpaid
principal balance of this Note will be at a rate of 2.000 percentage points over
the Index, resulting in an initial rate of 10.500% per annum. NOTICE: Under no
circumstances will the interest rate on this Note be more than the maximum rate
allowed by applicable law.
PREPAYMENT; MINIMUM INTEREST CHARGE. In any event, even upon full prepayment of
this Note, Borrower understands that Lender is entitled to a minimum interest
charge of $7.50. Other than Borrower's obligation to pay any minimum interest
charge, Borrower may pay without penalty all or a portion of the amount owed
earlier than it is due. Early payments will not, unless agreed to by Lender in
writing, relieve Borrower of Borrower's obligation to continue to make payments
at accrued unpaid interest. Rather, they will reduce the principal balance due.
DEFAULT. Borrower will be in default if any of the following happens (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note,
or any agreement related to this Note, or in any other agreement or loan
Borrower has with Lender. (c) Borrower defaults under any loan, extension of
credit, security agreement, purchase or sales agreement, or any other agreement,
in favor of any other creditor or person that may materially affect any of
Borrower's property or Borrower's ability to repay this Note or perform
Borrower's obligations under this Note or any of the Related Documents. (d) Any
representation or statement made or furnished to Lender by Borrower or on
Borrower's behalf is false or misleading in any material respect either now or
at the time made or furnished. (e) Borrower becomes insolvent, a receiver is
appointed for any part of Borrower's property, Borrower makes an assignment for
the benefit of creditors, or any proceeding is commenced either by Borrower or
against Borrower under any bankruptcy or insolvency laws. (f) Any creditor tries
to take any of Borrower's property on or in which Lender has a lien or security
interest. This includes a garnishment of any at Borrower's accounts with Lender.
(g) Any guarantor dies or any of the other events described in this default
section occurs with respect to any guarantor of this Note or any guarantor seeks
claims or otherwise attempts to limit, modify or revoke such guarantor's
guarantee of this Note. (h) A material adverse change occurs in Borrower's
financial condition, or Lender believes the prospect of payment or performance
of the indebtedness is impaired. (i) Lender in good faith deems itself insecure.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon default, including failure
to pay upon final maturity, Lender, at its option, may also, if permitted under
applicable law, increase the variable interest rate an this Note to 7.000
percentage points over the Index. The interest rate will not exceed the maximum
rate permitted by applicable law. Lender may hire or pay someone else to help
collect this Note if Borrower does not pay. Borrower also will pay Lender that
amount. This includes, subject to any limits under applicable law, Lender's
attorneys' fees and Lender's legal expenses whether or not there is a lawsuit,
including attorneys' fees and legal expenses for bankruptcy proceedings
(including efforts to modify or vacate any automatic stay or injunction),
appeals, and any anticipated post-judgment collection services. If not
prohibited by applicable law, Borrower also will pay any court costs in addition
to all other sums provided by law. This Note has been delivered to Lender and
accepted by Lender in the State of Oklahoma. If there is a lawsuit, Borrower
agrees upon Lender's request to submit to the jurisdiction of the courts of
Oklahoma County, the State or Oklahoma. This Note shall be governed by and
construed in accordance with the laws of the State or Oklahoma.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns conveys delivers, pledges and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings or some other account), including without
limitation all accounts held jointly with someone else and all accounts Borrower
may open in the future, excluding however all IRA and Keogh accounts and all
trust accounts for which the grant of a security interest would be prohibited by
law. Borrower authorizes Lender, to the extent permitted by applicable law, to
charge or setoff all sums owing on this Note against any and all such accounts
COLLATERAL This Note is secured by All Borrower's accounts other than
accounts arising from sales to foreign (i.e. not U.S.) nationals, inventory,
general intangibles and rental fleet inventory; US. Patent no. 5,487,849 end
U.S. Patent no. 8,487,53l; Assignment of Life Insurance on Harold Curtis.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note may be requested orally by Borrower or as provided in this paragraph.
Lender may, but need not, require that all oral requests be confirmed in
writing. All communications, instructions, or directions by telephone or
otherwise to Lender are to be directed to Lender's office shown above. The
following party or parties are authorized as provided in this paragraph to
request advances under the line of credit until Lender receives from Borrower at
Lender's address shown above written notice of revocation of their authority:
Charles D. Whitsitt, Chief Financial Officer. Advances under this note are
subject to the conditions and limitations set forth in the Business Loan
Agreement of even date herewith. Borrower agrees to be liable for all sums
either: (a) advanced in accordance with the instructions of an authorized person
or (b) credited to any of Borrower's accounts with Lender. The unpaid principal
balance owing on this Note at any time may be evidenced by endorsements on this
Note or by Lender's internal records, including daily computer print-outs.
Lender will have no obligation to advance funds under this Note if: (a) Borrower
or any guarantor is in default under the terms of this Note or any agreement
that Borrower or any guarantor has with Lender including any agreement made in
connection with the signing of this Note; (b) Borrower or any guarantor ceases
doing business or is insolvent; (c) any guarantor seeks claims or otherwise
attempts to limit, modify or revoke such guarantor's guarantee of this Note or
any other loan with Lender; (d) Borrower has applied funds provided pursuant to
this Note for purposes other than those authorized by Lender; or (e) Lender in
good faith deems itself insecure under this Note or any other agreement between
Lender and Borrower.
GENERAL PROVISIONS. This Note is payable on demand. The inclusion of specific
default provisions or rights of Lender shall not preclude Lender's right to
declare payment of this Note on its demand. Lender may delay or forgo enforcing
any of its rights or remedies under this Note without losing them. Borrower and
any other person who signs guarantees or endorses this Note, to the extent
allowed by law, waive presentment, demand for payment, protest and notice of
dishonor. Upon any change in the terms of this Note, and unless otherwise
expressly stated in writing, no party who signs this Note, whether as maker,
guarantor, accommodation maker or endorser, shall be released from liability.
All such parties agree that Lender may renew or extend (repeatedly and for any
length of time) this loan, or release any party or guarantor or collateral; or
impair, fail to realize upon or perfect Lender's security interest in the
collateral; and take any other action deemed necessary by Lender without the
consent of or notice to anyone. All such parties also agree that Lender may
modify this loan without the consent of or notice to anyone other than the party
with whom the modification is made.
12-51-1997 PROMISSORY NOTE Page 2
(Continued)
________________________________________________________________________________
PRIOR TO S1GNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
Tower Tech, Inc.
By: ss/CHARLES D. WHITSIT
___________________________________________
Charles D. Whitsitt. Chief Financial Officer
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements
of Tower Tech, Inc. on Form S-3 (File No. 333-36501) and Form S-8 (File No.
333-07337) of our report dated February 20, 1998, on our audits of the financial
statements of Tower Tech, Inc. as of November 30, 1997 and 1996 and for the
years then ended, which report is included in this Annual Report on Form 10-KSB.
COOPERS & LYBRAND L.L.P.
Oklahoma City, Oklahoma
February 20, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Consolidated statements of operations found on pages F-3 to F-6 of the Company's
Form 10-KSB for the fiscal year 1997 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<CASH> 551,954
<SECURITIES> 0
<RECEIVABLES> 6,345,870
<ALLOWANCES> 172,645
<INVENTORY> 3,027,656
<CURRENT-ASSETS> 11,001,815
<PP&E> 9,604,258
<DEPRECIATION> 677,839
<TOTAL-ASSETS> 24,856,405
<CURRENT-LIABILITIES> 4,096,905
<BONDS> 0
0
0
<COMMON> 3,527
<OTHER-SE> 6,898,790
<TOTAL-LIABILITY-AND-EQUITY> 24,856,405
<SALES> 18,690,454
<TOTAL-REVENUES> 19,550,949
<CGS> 13,842,816
<TOTAL-COSTS> 17,523,226
<OTHER-EXPENSES> 3,680,410
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 646,947
<INCOME-PRETAX> 1,447,032
<INCOME-TAX> (615,919)
<INCOME-CONTINUING> 2,062,951
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,062,951
<EPS-PRIMARY> .58
<EPS-DILUTED> .58
</TABLE>
