U. S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required
For the period ended February 28, 1999
[ ] 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.
(Exact name of small business issuer as specified 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
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
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEEDING 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 X No
----- ------
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practical date: Common Stock $.001 par value
3,576,311 shares as of April 14 ,1999
Transitional Small Business Disclosure Format (check one): Yes No X
------ -----
<PAGE>
INDEX
TOWER TECH, INC.
Page
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Balance Sheet -- February 28, 1999 F-1
Statements of Operations --Three months ended February 28,
1999 and 1998 F-2
Statements of Cash Flows --Three months ended February 28,
1999 and 1998 F-3
Notes to Financial Statements -- February 28, 1999 F-4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 3
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 7
Signatures 11
-2-
<PAGE>
TOWER TECH, INC.
BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
February 28, 1999
<S> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,028,732
Accounts receivable, net of allowance
for doubtful accounts of $275,000 4,412,075
Accounts receivable, affiliate 970,269
Notes receivable, current 238,621
Receivables from officers and employees 102,332
Cost and estimated earnings in excess of
billings on uncompleted contracts 97,045
Inventory 5,737,633
Restricted assets - current 158,196
Prepaid expenses 248,908
Deferred tax asset 300,800
--------------
Total current assets 13,294,611
Property, plant and equipment, net 17,417,718
Patents, net 227,772
Notes receivable, non-current, net of unamortized
discount of $34,710 1,849,361
Deferred tax asset 109,182
Other assets 548,642
--------------
Total Assets $33,447,286
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of long-term debt $ 1,242,450
Current maturities of obligations under capital lease 154,492
Accounts payable 3,885,784
Accounts payable, affiliate 7,675
Accrued liabilities 823,465
Interest payable 180,556
Customer deposits 12,071
-------------
Total current liabilities 6,306,493
Long-term debt, net 19,607,578
------------
Obligations under capital lease 157,300
------------
Liability for equity share in investment 57,741
------------
Stockholders' equity:
Common stock, $.001 par value; 10,000,000 shares
authorized; 3,576,311 shares issued and outstanding 3,577
Capital in excess of par 8,278,561
Deficit (963,964)
-------------
Total stockholders' equity 7,318,174
Total liabilities and stockholders' equity $33,447,286
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-1
<PAGE>
Tower Tech, Inc.
STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
February 28,
<S> <C> <C>
1999 1998
Sales and other operating revenue:
Tower sales $ 3,752,423 $ 1,562,390
Concrete tower construction 265,608 1,969,165
Tower rentals 31,239 475,681
Other tower revenue 285,832 43,354
------------- --------------
Total tower revenue 4,335,102 4,050,590
------------ ------------
Costs and expenses:
Cost of goods sold and constructed 4,486,630 3,408,561
General and administrative 490,382 444,704
Selling expenses 363,473 425,465
Research and development 445,897 82,385
------------- --------------
Total cost and expenses 5,786,382 4,361,115
------------ ------------
Loss from operations (1,451,280) (310,525)
------------ ------------
Other income (expense):
Interest (506,696) (212,424)
Gain on sale of rental operations 6,688,670 -
Equity share of income before taxes of
investee company 21,205 -
Miscellaneous 45,450 27,391
------------ --------------
Total other income (expense) 6,248,629 (185,033)
------------ -------------
Income (loss) before income taxes 4,797,349 (495,558)
Income tax (expense) benefit (1,918,940) 198,223
------------ -------------
Net income(loss) $ 2,878,409 $ (297,335)
=========== ============
Weighted average shares outstanding-basic 3,576,311 3,526,311
============ ============
Net income (loss) per common share-basic $ .81 $ (.08)
============ =============
Weighted average shares outstanding-diluted 3,576,311 3,526,311
============ ============
Net income (loss) per common share-diluted $ .81 $ (.08)
============ ============
</TABLE>
The accompanying notes are an integral partof these financial statements.
F-2
<PAGE>
TOWER TECH, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
February 28,
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 2,878,409 $ (297,335)
Adjustments to reconcile net income (loss)
to net cash used by operating activities:
Depreciation and amortization 271,689 153,889
Gain on sale of rental operations (6,688,670) -
Equity share of loss of investee (21,205) -
Decrease(increase) in deferred taxes 1,905,126 (198,223)
Decrease in accounts receivable 196,539 283,443
(Increase) decrease in accounts
receivable, affiliate (538,053) 156,477
Decrease (increase) in cost in
excess of billings 340,162 (344,099)
Increase in inventory (268,931) (1,072,114)
Increase in prepaid expenses (72,478) (70,387)
Decrease in other assets 67,693 24,345
(Decrease) increase in account
payable (1,206,845) 1,197,488
Increase (decrease) in accounts
payable, affiliate 7,675 (8,389)
Increase in billings in excess of costs - 15,195
(Decrease) increase in interest
payable and accrued liabilities (528,201) 121,835
Decrease in deposits (123,375) (55,169)
Decrease in income tax payable - (24,000)
------------ -----------
Net cash used in operating activities (3,780,465) (109,777)
------------ ------------
Cash flows from investing activities:
Decrease in notes receivable - 7,267
Purchase of property and equipment (1,055,216) (2,210,292)
Decrease in restricted assets 598 2,062
Additions to rental fleet - (310,986)
Purchase of patents (1,373) (2,728)
Proceeds from sale of rental operations 12,150,000 -
------------ --------------
Net cash provided (used) in investing
activities 11,094,009 (2,514,677)
------------ -----------
Cash flows from financing activities:
Proceeds from borrowings 9,662,072 5,003,324
Repayments of long-term debt
and capital lease obligations (15,715,363) (2,552,673)
Decrease in book overdraft (235,319) (193,999)
------------- ------------
Net cash (used) provided by financing
activities (6,288,610) 2,256,652
------------ -----------
Net increase (decrease) in cash 1,024,934 (375,069)
Cash at beginning of period 3,798 551,954
--------------- ------------
Cash at end of period $ 1,028,732 $ 176,885
============= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
TOWER TECH, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. Interim Financial Statements
The balance sheet as of February 28, 1999, and the related statements of
operations for the three month period ended February 28, 1999 and 1998 and
the statements of cash flows for the three month period ended February 28,
1999 and 1998 are unaudited; in the opinion of management, all adjustments
necessary for a fair presentation of such financial statements have been
included.
These financial statements and notes are presented as permitted by Form
10-QSB and should be read in conjunction with the Company's financial
statements and notes included in the annual report on Form 10-KSB.
2. Earnings Per Share
The Company has adopted FAS 128. FAS 128 requires a reconciliation of the
numerators and denominators of the basic and diluted EPS computations.
Options to purchase 354,584 and 210,894 shares of common stock at weighted
average prices of $6.46 and $6.67 were outstanding during the three month
period ended February 28, 1999 and 1998 respectively, but were not
included in the computation of diluted EPS because the effect of these
outstanding options would be antidilutive.
3. Sale of Rental Operations
In December 1998 the company consummated the sale of its industrial cooling
tower rental operations (the "Rental Operations") to Aggreko Inc., an
unrelated party, for $13,500,000, with $12,150,000 paid in cash at closing
and the remaining $1,350,000 paid by delivery of Aggreko Inc.'s promissory
note (the "Note"). The Note bears interest at 1% above prime. The
outstanding principal balance of the Note, together with accrued interest,
is due and payable in December 1999. The assets sold included the modular
cooling tower rental fleet, other rental fleet equipment, and certain
assets used in the operation of the Rental Operations. Accordingly, the
Company recorded a pre-tax gain of $6,688,670 for the three months ended
February 28, 1999. Proceeds were used to reduce debt and for working
capital.
In connection with the sale of assets described above, Aggreko Inc., the
Company, and Harold D. Curtis, The Company's Chief Executive Officer,
entered into a Noncompetition Agreement. The Noncompetition Agreement
generally prohibits the Company and Mr. Curtis from conducting any business
in competition with the Rental Operations, as well as hiring certain of the
Company's prior employees who worked in the Rental Operations.
Additionally, in connection with the sale of assets described above, the
Company and Aggreko Inc. entered into a License Agreement and a Supply
Agreement. The License Agreement grants to Aggreko Inc. an exclusive
license to use for a limited time period the patents, trademarks, trade
names and other proprietary rights related to the Rental Operations. The
Supply Agreement describes the terms upon which the Company has agreed to
sell to Aggreko Inc., and Aggreko Inc. has agreed to purchase from the
Company, all modular cooling tower units and replacement parts necessary
for future operations of the Rental Operations.
4. Debt
In December 1998, the Company entered into a $4,000,000 line of credit
agreement with a financial institution for working capital requirements.
Interest is payable monthly at a variable rate of 1.5% over national
prime. This line of credit matures in January 2000. This credit facility
is collateralized by certain accounts receivable, inventory and general
intangibles, and as of February 28, 1999, $3,339,121 was outstanding.
F-4
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Three Months Ended February 28, 1999 Compared to Three Months Ended
February 28, 1998
Total tower revenues were $4,335,102 for the three months ended February
28, 1999, compared to $4,050,590 in the same period in the prior year. During
the current three month period, 86 percent of total tower revenues was derived
from sales of 122 modular fiberglass cooling towers, 6 percent of total tower
revenues was derived from design and construction of modular concrete towers, 1
percent of total tower revenues was derived from rental of modular fiberglass
cooling towers and 7 percent of total tower revenues was derived from other
revenues. In the comparable three month period of 1998, 39 percent of total
tower revenues was derived from sales of 41 modular fiberglass cooling towers,
48 percent of total tower revenues was derived from construction of modular
concrete towers, 12 percent of total tower revenues was derived from rental of
modular cooling towers, and 1 percent of total tower revenues was derived from
other tower revenues. Other tower revenues consist primarily of sales of modular
tower parts and service, accessory equipment and water treatment equipment. The
increase in fiberglass tower revenues for 1999 is due to the increase in the
quantity of units sold. Such increase was due to marketing efforts for the newly
designed TTEF Series tower and significant completion of the manufacturing
processes for TTEF Series component parts at the OKC facility. The decrease in
concrete revenues is due to the decrease in the number and size of jobs
completed and in process. For the three months ended February 28, 1998, over
fifty percent of concrete revenue was generated from two international projects
as compared to no international projects for the three month period ended
February 28, 1999. However, the Company has seen some improvement in certain
international markets with recent orders from Mexico, Brazil, Autria and
Singapore for concrete cooling tower projects and factory assembled cooling
towers. The Company has restructured its pricing on its precast concrete cooling
tower and has redesigned certain proprietary parts which management believes
will lower costs as well as increase thermal capability of its concrete cooling
tower. Management is optimistic that concrete tower revenues will improve with
continued improvement in the international market economies, and domestically
with aggressive marketing of its redesigned precast concrete cooling towers.
Other tower revenue is up from the previous year due to more sales of
proprietary parts to licensees, combined with more sales of tower parts and
service. No licensing agreements were finalized in the first quarter of 1999
although negotiations are continuing for agreements for Spain, Peru, New
Zealand, Australia, and the United Kingdom.
In December 1998, the company consummated the sale of its industrial
cooling tower rental operations (the "Rental Operations") to Aggreko Inc., an
unrelated party, for $13,500,000, with $12,150,000 paid in cash at closing and
the remaining $1,350,000 paid by delivery of Aggreko Inc.'s promissory note (the
"Note"). The Note bears interest at 1% above prime. The outstanding principal
balance of the Note, together with accrued interest, is due and payable in
December 1999. The assets sold included the modular cooling tower rental fleet,
other rental fleet equipment, and certain assets used in the operation of the
Rental Operations. Accordingly, the Company recorded a pre-tax gain of
$6,688,670 for the three months ended February 28, 1999. Proceeds were used to
reduce debt and for working capital.
In connection with the sale of assets described above, Aggreko Inc.,
the Company, and Harold D. Curtis, The Company's Chief Executive Officer,
entered into a Noncompetition Agreement. The Noncompetition Agreement generally
prohibits the Company and Mr. Curtis from conducting any business in competition
with the Rental Operations, as well as hiring certain of the Company's prior
employees who worked in the Rental Operations.
Additionally, in connection with the sale of assets described above,
the Company and Aggreko Inc. entered into a License Agreement and a Supply
Agreement. The License Agreement grants to Aggreko Inc. an exclusive license to
use for a limited time period the patents, trademarks, trade names and other
proprietary rights related to the Rental Operations. The Supply Agreement
describes the terms upon which the Company has agreed to sell to Aggreko Inc.,
and Aggreko Inc. has agreed to purchase from the Company, all modular cooling
tower units and replacement parts necessary for future operations of the Rental
Operations.
-3-
<PAGE>
The Company's cost of goods sold and constructed during the three month
period ended February 28, 1999, was $4,486,630 or 103 percent of total tower
revenues, as compared to $3,408,561 or 84 percent of total tower revenues during
the comparable period in 1998. The increase in cost of goods sold and
constructed during the first quarter of 1999 resulted mainly from increased
sales of modular fiberglass cooling towers. Overall margin decreased as a result
of concrete cooling tower cost overruns on certain jobs, lower margins incurred
in the factory assembled cooling tower line, and decreased tower rentals which
carry a higher margin. Lower margins in the factory assembled cooling tower line
is due to the delays in the completion and occupancy of the Oklahoma City (OKC)
plant combined with delays in the delivery of the manufacturing equipment and
tooling. It is estimated that these delays will continue to have a negative,
although lessening, impact on second quarter 1999 margins and operations.
Decreased tower rentals is due to the sale of the rental operations as above
discussed.
Included in the cost of goods sold for the first quarter 1999 is
$148,000 to retrofit and service towers previously sold. This compares to
expenditures of $85,000 during the comparable period in the prior year. The
Company has a complete quality control system in place which management believes
will control such expenditures in future periods.
The three month period ended February 28, 1999 reflected a 10 percent
increase in general and administrative expenses from $444,704 in 1998 to
$490,382 in 1999. The increase is due mainly to additional expenses related to
the OKC facility. Selling expenses decreased from $425,465 to $363,473 due to a
reduction in expenses related primarily to the opening of direct domestic and
international sales offices. Research and development expenses increased from
$82,385 in the first quarter of 1998 to $445,897 in the first quarter of 1999. A
significant portion of the increase in R & D costs is related to the redesign of
the TTMT Series tower to the TTEF Series tower in order to lower future
production costs. With the redesign of the tower combined with manufacturing of
component parts in-house, management believes that the Company has positioned
itself to grow its share of the cooling tower market. With the lower production
costs, management believes that it will be able to lower prices to its customers
and, at the same time, increase margins. Management expects to continue to
conduct research to develop refinements in cooling tower design and
construction. Although the Company has no fixed research and development budget,
such future costs are anticipated to be less than current expenditures.
The Company's loss from operations for the three months ended February
28, 1999 was $1,451,280 as compared to a loss from operations of $310,525 for
the comparable period in the prior year. After interest expense, gain on sale of
rental operations, miscellaneous items, and income tax expense, the Company's
net income was $2,878,409 compared to a net loss of $297,335 for the quarter
ended February 28, 1998.
The Company recognized income tax expense of $1,918,940 for the three
months ended February 28, 1999, compared to an income tax benefit of $198,223
for the comparable period in 1998. The ultimate realization of the deferred
income tax assets depends on the Company's ability to generate sufficient
taxable income in the future. Management has determined that it is more likely
than not that the Company will realize the deferred tax assets.
Currently, the estimated backlog is $7.6 million including two
contracts for the modular concrete cooling towers totaling $1.6 million. One
project is scheduled for completion in second quarter 1999 and the other project
is projected to be completed in the fourth quarter of 1999. Estimated backlog
for the modular factory assembled cooling towers is $5.8 million. $5.2 million
is scheduled for delivery in the second quarter 1999, with the balance scheduled
for delivery in the second half of 1999.
Liquidity and Capital Resources
At February 28, 1999, the Company had working capital of $6,988,118 as
compared to a working capital deficit of $3,890,374 at November 30, 1998. The
Company's cash flow provided by (used in) its operating, investing and financing
activities for the three months ended February 28, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Operating activities ($3,780,465) ($109,777)
Investing activities $11,094,009 ($2,514,677)
Financing activities ($6,288,610) $2,256,652
</TABLE>
-4-
<PAGE>
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. 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. Although
bringing the manufacturing processes in-house has taken over a year longer than
expected and has cost substantially more than anticipated, it will enable the
Company to better manage inventory levels and reduce costs when the new
manufacturing facility is fully operational and efficient. 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 cooling tower projects have an effect
on working capital requirements. At February 28, 1999, net costs and estimated
earnings in excess of billings on uncompleted contracts were $97,045 as compared
to net costs and estimated earnings in excess of billings on uncompleted
contracts of $1,063,546 at February 28, 1998. Normally, concrete cooling tower
projects provide for progress payments of the contract price with a retainage of
10 to 15 percent payable after completion of the project. In an effort to
control costs and profits on future concrete cooling tower projects, the Company
will utilize precast panels in lieu of "tilt-up" on site construction.
Scheduled principal payments on capital leases will total $154,492 over
the next twelve months. In addition, $1,242,450 of principal payments will
become due on the Company's debt during the next twelve months.
Substantially all of the Company's planned capital expenditures during
1999 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 $11.5 million, including $6.0 million to equip the facility. As of February
28, 1999, the Company had incurred approximately $9.2 million related to the
manufacturing facility. The manufacturing facility includes equipment to allow
the Company to produce parts used in the modular 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 continue to
incur unforeseen costs and production problems, particularly in the short term,
in bringing these processes in-house.
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, providing 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 in the form of a HUD Section 108 loan in the amount of
$1,250,000 for start-up expenses of the manufacturing facility and associated
working capital requirements. As of February 28, 1999, all 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 entered into an agreement with a lending institution for
a total funding of $1,775,815 for equipment and tooling for the new
manufacturing facility. Principal and interest, at 9.25%, is paid monthly with
the final payment due in July 2004 and is collateralized by equipment. The
outstanding balance at February 29, 1999, was $1,623,412.
-5-
<PAGE>
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 line was increased to $8,500,000 to help fund increases in the
Company's rental fleet. This credit facility was paid off in December 1998 with
proceeds from the sale of the rental operations.
The Company has a line of credit at Chickasha Bank in the amount of
$400,000 for short-term cash flow needs, of which $400,000 was outstanding at
February 28, 1999. This line of credit matures May 21, 1999 and has an interest
rate of 10%.
In April 1998, the Company finalized a $2,000,000 construction loan for
the Oklahoma City office facility which is expected to cost approximately $2.4
million. The loan matures in April 1999 and bears interest at 9.75% payable
monthly. At February 28, 1999, $1,648,072 was outstanding. The Company is
negotiating with the lender to increase this loan to $2.4 million and convert
this loan to permanent financing when construction is complete, which is
expected in May 1999.
In December 1998, the Company entered into a $4,000,000 line of credit
agreement with a financial institution for working capital requirements.
Interest is payable monthly at a variable rate of 1.5% over national prime. This
line of credit matures in January 2000. This credit facility is collateralized
by certain accounts receivable, inventory and general intangibles, and as of
February 28, 1999, $3,339,121 was outstanding.
The Company believes it has sufficient capital resources to fund its
capital requirements for the next four quarters. Although the Company's
financial position has improved, substantial growth beyond its current capital
resources and/or continued operating losses could increase the Company's funding
requirements and require it to obtain additional capital to maintain its growth.
Accordingly, management is negotiating for increases in its credit facilities
and additional sources of capital. Management recognizes that the company is
highly leveraged and that 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
Almost two years ago the Company developed a plan to address the Year
2000 (Y2K) issue. The plan consists of the following steps and is ongoing:
o Testing of all computer equipment, plant production equipment, hardware and/or
software.
o Upgrading or replacing, as needed, any component found to not be Y2K
compliant.
o Contacting our vendors, customers and business partners to ensure that
they are also addressing the Y2K issue.And, if any are found to not be
addressing the Y2K issue, establish alternative sources for those goods and/or
services supplied by the non-Y2K compliant party.
Accordingly, the Company has upgraded its accounting systems and main
application software to the latest versions available from the software
developers at a cost of approximately $100,000. Each of these various software
developers has stated that the version(s) of software to which the Company
upgraded is or will be Y2K compliant. Any computer equipment, plant production
equipment, hardware or software found to not be Y2K compliant has been, or will
be upgraded or replaced as needed in order to insure uninterrupted normal
operation of production and office processes. As a result of our Y2K plan and
information furnished to us by our business partners, the Company does not
expect to be materially affected by the Y2K problem.
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 both domestic and international markets served by the
Company, competition in the cooling tower industry and the introduction of
-6-
<PAGE>
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 timely and efficient
production of its products and utilization of the new OKC plant.
Part 2. Other Information
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibits have been filed as part of this registration
statement:
Exhibit No. Description
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.-7 Form of 10% Subordinated Convertible Debenture
4.2 Omitted
4.3-1 Form of Stock Certificate
4.4 Omitted
4.5-8 Form of Placement Agent Warrants
4.10 Omitted
10.1-3 Promissory Note between Tower Tech, Inc., and Local
Federal Bank, dated June 24, 1998.
10.2-9 Loan Agreement between Tower Tech, Inc., and the
City of Oklahoma City, dated September 8, 1997.
10.3-9 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, 1997
10.5-7 Form of Debenture Purchase Agreement among the
Company, Taglich Brothers, D'Amadeo Wagner &
Company, Incorporated and various lenders.
-7-
<PAGE>
10.6-9 Promissory Note between Tower Tech, Inc. and
Electrical Constructors, dated May 8, 1996
10.7-9 Promissory Note between Tower Tech, Inc., as Maker,
and Electrical Constructors, as Payee, dated May 8,
1997, and amendment extending maturity date.
10.8-9 Promissory Note between Tower Tech, Inc., and
Electrical Constructors, dated March 25, 1997, and
amendment extending maturity date.
10.9-11 Promissory Note between Tower Tech, Inc., and
People First Bank, dated December 7, 1998.
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
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
10.181-1 Loan Agreement between Tower Tech, Inc. and People
First Bank dated December 7, 1998.
10.19-6 Water Line Agreement between the City of Oklahoma
City and Tower Tech, Inc. dated November 1997
10.20-6 Master Security Agreement between CIT
Group/Equipment Financing, Inc. and Tower Tech,
Inc. dated October 31, 1997
-8-
<PAGE>
10.21-2 Promissory Note between Tower Tech, Inc. and
Southwestern Bank & Trust Company, dated April 30,
1998.
10.22-2 Business Loan Agreement between Tower Tech, Inc.
and Southwestern Bank & Trust Company, dated April
30, 1998
10.23-2 Commercial Security Agreement between Tower Tech,
Inc. and Southwestern Bank & Trust Company, dated
April 30, 1998
10.24-2 Promissory Note between Tower Tech, Inc. and Local
Federal Bank, dated June 10, 1998
10.25-2 Promissory Note between Tower Tech, Inc. and Local
Federal Bank, dated February 18, 1998
10.26-10 Promissory Note dated as of December 4, 1998 to the
Company from Aggreko Inc.
10.27-10 Noncompetition Agreement dated as of December 4,
1998 between the Company, Harold D. Curtis and
Aggreko Inc.
10.28-10 License Agreement dated as of December 4, 1998
between the Company and Aggreko Inc.
10.29-10 Supply Agreement dated as of December 4, 1998
between the Company and Aggreko Inc.
10.30-5 Asset Purchase Agreement dated as of December 4, 1998
between the Company and Aggreko Inc.
10.31 Omitted
10.32 Omitted
21.11-1 Tower Tech, Inc. subsidiaries
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 May 31, 1998.
3 Incorporated by reference from the same numbered exhibit to Form 10-QSB for
the quarter ended August 31, 1998
4 Incorporated by reference from the same numbered exhibit to Registration
Statement No. 333-07337 on Form S-8.
-9-
<PAGE>
5 Incorporated by reference from exhibit number 99.1 to Form 8-K filed
December 18, 1998.
6 Incorporated by reference from the same numbered exhibit to Form 10-KSB for
the year ended November 30, 1997.
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 10-QSB for
the quarter ended August 31, 1997.
10 Incorporated by reference from the same numbered exhibit to Form 8-K filed
December 18, 1998.
11 Incorporated by reference from the same numbered exhibit to Form 10-KSB
filed on March 1, 1999.
b. The company filed a report on Form 8-K on December 18, 1998.
-10-
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TOWER TECH, INC.
(Registrant)
Date: April 15, 1999 ss/ HAROLD CURTIS
-------------- --------------------------------------------
Harold Curtis, Chief Executive Officer
Date: April 15, 1999 ss/ROBERT BRINK
-------------- -------------------------------------------
Robert Brink, President
Date: April 15, 1999 ss/CHARLES D. WHITSITT
-------------- -------------------------------------------
Charles D. Whitsitt, Chief Financial Officer
-11-
<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Consolidated statements of operations found on pages F1 to F3 of the
Company's Form 10-QSB for the quarter ended February 28, 1999 and is qualified
in its entirey by reference to such financial statements.
</LEGEND>
<CIK>
<NAME>
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Nov-30-1999
<PERIOD-START> Dec-1-1998
<PERIOD-END> Feb-28-1999
<EXCHANGE-RATE> 1
<CASH> 1,028,732
<SECURITIES> 0
<RECEIVABLES> 4,412,075
<ALLOWANCES> 275,000
<INVENTORY> 5,737,633
<CURRENT-ASSETS> 13,294,611
<PP&E> 17,417,718
<DEPRECIATION> 271,689
<TOTAL-ASSETS> 33,447,286
<CURRENT-LIABILITIES> 6,306,493
<BONDS> 0
0
0
<COMMON> 3,577
<OTHER-SE> 7,318,174
<TOTAL-LIABILITY-AND-EQUITY> 33,447,286
<SALES> 4,335,102
<TOTAL-REVENUES> 4,335,102
<CGS> 4,486,630
<TOTAL-COSTS> 5,786,382
<OTHER-EXPENSES> 1,299,752
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (506,696)
<INCOME-PRETAX> 4,797,349
<INCOME-TAX> (1,918,940)
<INCOME-CONTINUING> 2,878,409
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,878,409
<EPS-PRIMARY> .81
<EPS-DILUTED> .81
</TABLE>
