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 quarterly period ended February 29, 2000
[ ] 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
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, 2000
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 29, 2000 F-1
Statements of Operations --Three months ended February 29,
2000 and February 28, 1999 F-2
Statements of Cash Flows --Three months ended February 29,
2000 and February 28, 1999 F-3
Notes to Financial Statements -- February 29, 2000 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 11
Signatures 16
<PAGE>
TOWER TECH, INC.
BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
February 29, 2000
<S> <C>
Assets
Current assets:
Cash $ 139,307
Accounts receivable, net of allowance
for doubtful accounts of $799,700 2,787,610
Receivables from officers and employees 149,590
Notes receivable, current 186,158
Inventory 7,673,530
Restricted assets 157,595
Prepaid expenses 140,314
--------------
Total current assets 11,234,104
Property, plant and equipment, net 19,516,016
Patents, net 229,675
Goodwill, net 414,672
Notes receivable, non-current, net of
unamortized discount of $14,874 424,011
Other assets 317,505
--------------
Total assets $32,135,983
===========
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of long-term debt $ 17,319,017
Current maturities of obligations
under capital lease 423,474
Accounts payable 7,067,920
Billings in excess of costs and estimated
earnings on uncompleted contracts 299,370
Accrued liabilities 1,042,253
Interest payable 528,133
Customer deposits 590,540
---------------
Total current liabilities 27,270,707
-------------
Long-term debt, net 7,228,663
--------------
Obligations under capital lease 1,583,525
--------------
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 (12,229,050)
------------
Total stockholders' equity (3,946,912)
-------------
Total liabilities and stockholders' equity $32,135,983
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-1
<PAGE>
Tower Tech, Inc.
STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended
February 29 February 28,
<TABLE>
<CAPTION>
<S> <C> <C>
2000 1999
Sales and other operating revenue:
Tower sales $ 2,657,605 $ 3,752,423
Concrete tower construction 302,798 265,608
Tower rentals - 31,239
Other tower revenue 62,078 285,832
------------- --------------
Total tower revenue 3,022,481 4,335,102
Other operating revenue 64,079 -
-------------- --------------
Total revenue 3,086,560 4,335,102
------------ -------------
Costs and expenses:
Cost of goods sold and constructed 3,057,098 4,486,630
General and administrative 446,160 490,382
Selling expenses 217,416 363,473
Research and development 76,122 445,897
------------- --------------
Total cost and expenses 3,796,796 5,786,382
------------ -------------
Loss from operations (710,236) (1,451,280)
------------ --------------
Other income (expense):
Interest (691,955) (506,696)
Gain on sale of rental operation - 6,688,670
Equity share of income before taxes
of investee company - 21,205
Miscellaneous - 45,450
-------------- -------------
Total other income (expense) (691,955) 6,248,629
------------ ------------
(Loss) income before taxes (1,402,191) 4,797,349
Income tax expense - (1,918,940)
------------ -------------
Net (income) income $ (1,402,191) $ 2,878,409
------------- ------------
Weighted average shares outstanding - basic 3,576,311 3,576,311
============= ============
Net (loss) income per common share - basic $ (.39) $ .81
============== ============
Weighted average shares outstanding -
diluted 3,576,311 3,576,311
============= =============
Net (loss) income per common share -
diluted $ (.39) $ .81
=============== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
TOWER TECH, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended
February 29, February 28,
2000 1999
<TABLE>
<CAPTION>
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (1,402,191) $ 2,878,409
Adjustments to reconcile net (loss) income
to net cash used by operating activities:
Depreciation and amortization 339,467 271,689
Gain on sale of rental operations - (6,688,670)
Equity share of loss of investee - (21,205)
Decrease in deferred taxes - 1,905,126
(Increase) decrease in accounts receivable (82,279) 196,539
Decrease in trade notes receivable 57,436 -
Increase in accounts receivable, affiliate - (538,053)
Decrease in cost in excess of billings 85,120 340,162
Increase in inventory (225,604) (268,931)
Increase in prepaid expenses (32,273) (72,478)
Decrease in other assets 29,811 67,693
Decrease in accounts payable (85,594) (1,206,845)
Increase in accounts payable, affiliate - 7,675
Increase in billings in excess of costs 299,370 -
Decrease in interest payable and
accrued liabilities (4,826) (528,201)
Increase (decrease) in deposits 295,232 (123,375)
--------- ---------
Net cash used in operating activities (726,331) (3,780,465)
---------- -----------
Cash flows from investing activities:
Purchase of property and equipment (33,997) (1,055,216)
Decrease in restricted assets 18 598
Purchase of patents (20,811) (1,373)
Proceeds from sale of rental operations - 12,150,000
Payment of note receivable from sale of
rental operation 1,350,000 -
------------ -----------
Net cash provided from investing activities 1,295,210 11,094,009
----------- -----------
Cash flows from financing activities:
Proceeds from borrowings 961,281 9,662,072
Repayments of long-term debt
and capital lease obligations (1,642,748) (15,715,363)
Decrease in book overdraft - (235,319)
------------ ------------
Net cash used by financing activities (681,467) (6,288,610)
------------ ------------
Net (decrease) increase in cash (112,588) 1,024,934
Cash at beginning of period 251,895 3,798
------------ ------------
Cash at end of period $ 139,307 $ 1,028,732
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
TOWER TECH, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED), CONTINUED
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
During the first quarter of fiscal 2000, the Company acquired equipment
of $1,219,840 with the execution of capital lease agreements.
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
TOWER TECH, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. Interim Financial Statements
The balance sheet as of February 29, 2000, and the related statements of
operations for the three month period ended February 29, 2000 and 1999 and
the statements of cash flows for the three month period ended February 29,
2000 and 1999 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 424,156 and 354,584 shares of common stock at weighted
average prices of $6.84 and $6.46 were outstanding during the three month
period ended February 29, 2000 and 1999 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, was due and paid 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 29, 2000. 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.
F-5
<PAGE>
TOWER TECH, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED), continued
4. Debt
On April 3, 2000, the Company entered into a loan modification agreement
regarding its $6.5 million line of credit with a financial institution.
The agreement waived the Company's past noncompliance with the original
loan agreement, reduced the maximum borrowing to $5,088,160 and reduced
the minimum tangible net worth requirement to $1.4 million. Additionally,
the maturity date was extended to June 1, 2000.
F-6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
The following discussion should be read in conjunction with the Company's
financial statements and the related notes thereto.
The Company began the extensive effort of introducing new technology to
the cooling tower industry in 1991. From 1991 through 1999, the Company has
focused significant efforts on research and development. As the Company's
technology evolved, the market's acceptance of its factory-assembled and
field-erected lines of cooling towers accelerated. To date, the Company and its
international licensees have sold approximately $100,000,000 of products
containing the Company's technology. Now that the Company's research and
development stage is substantially completed, management is optimistic that the
Company's technology will continue to gain acceptance in international markets
and that domestic market share will increase going forward. Currently, the
Company's estimated sales backlog is over $9.5 million, compared to $7.6 million
in the prior year at this time. Financial stability and sufficient cash flow are
key to continuing this positive trend in sales orders.
Although the Company has seen market acceptance of its technology, past
extensive investment in research and development has limited operating capital
and cash reserves. Several setbacks have exerted tremendous financial strain on
the Company:
o In 1996, in an effort to reduce costs and improve profit margins, the
Company redesigned its TTMT Series of factory-assembled towers, started
construction on a new manufacturing plant in Oklahoma City, and began
bringing the production of certain component parts in-house. Product
development delays, coupled with construction and tooling delays, caused
the new manufacturing plant to become operational over a year later than
anticipated. The delays contributed significantly to the Company's losses
in FY 1998 and FY 1999.
o Another major setback was the downturn of several Asian economies, which
rapidly spread throughout our international markets in 1998. This economic
downturn resulted in the cancellation or postponement of cooling tower
projects. Since 1995, the Company has invested considerable resources in
the development of international markets. The Company had anticipated
significant revenues from international activities. As a direct result of
the international market downturn, the Company's actual revenues from
international activities were significantly lower than anticipated.
o The Company's new Oklahoma City manufacturing plant was put into production
at the beginning of 1999. At that time, the Company began shipping the
first factory-assembled cooling towers of the new design. From February
1999 to May 1999, the Company shipped approximately 145 TTEF Series cooling
towers with all in-house extruded wall panels. When put into service, a
number of these units contained unforeseen design or quality defects that
caused water leaks, and the larger size units had an additional undetected
structural deficiency. To effect permanent solutions to these problems, the
Company ceased its assembly operations for forty-two days during the third
quarter 1999 so extrusion and injection molding tools could be modified. As
a result, fiscal 1999 and first quarter 2000 tower sales were negatively
impacted. Additionally, fiscal 1999 cost of goods sold (including warranty
expense), and research and development costs were also negatively impacted.
Management believes that these design deficiencies have been corrected.
3
<PAGE>
Losses resulting from the foregoing business setbacks have reduced equity
and have negatively impacted cash flow. The Company had a $14.9 million deficit
in working capital at February 29, 2000. As a result, the Company is presently
not in compliance with the net worth covenants in some of its loan agreements.
However, in April 2000, the Company modified the loan agreement for its
operating line of credit and is in compliance with the net worth covenant in
that agreement. The Company is also unable to pay past-due balances owed to
materials suppliers, and consequently is now required to pay for new materials
on a cash-in-advance-basis, which compounds cash flow problems.
The Company has been able to make payments due on secured credit
obligations and its convertible subordinate debentures. However, the Company has
significant amounts of debt, including its operating line of credit ($5,026,945
outstanding at February 29, 2000) and $6,000,000 of the convertible subordinate
debentures, which are due through June 2000. Currently, the Company does not
have sufficient cash flow to satisfy these obligations.
Management has formulated a plan to address obstacles to the Company's
financial health. If the plan is successfully implemented, management believes
that the Company's financial condition will improve. However, management cannot
assure that the plan will be consummated, consummated in its current form; or if
consummated, that it will return the Company to profitability.
The plan consists of several phases. The objective of the initial phase
is to resuscitate what then was a failing enterprise and to lead it to a
position of relative stability from which a long-range plan can be launched. The
initial phase consists of the following steps:
o Sales orders need to be rekindled and average $400,000 or more per
week. This goal was substantially met in the period from September
15, 1999 to February 29, 2000. Sales orders fell off somewhat during
the holiday season as is typical for that time of year, and they have
begun increasing again since early February 2000.
o Trade creditors need to give temporary forbearance and agree to
supply materials on a cash-in-advance basis. A few trade creditors,
most having little prospects for ongoing business with the Company,
have filed suit for payment. The remaining trade creditors have shown
tremendous patience and forbearance. Still, the cash-in-advance
arrangements have exerted tremendous pressure on cash flow.
o The Company needed its primary lender to temporarily waive the breach
of net worth covenant in its loan agreement. This was accomplished in
April 2000 with a loan modification agreement.
o The Company needed to obtain working capital of at least $1,500,000.
A $2,000,000 loan was obtained from the City of Oklahoma City in
November 1999. Virtually all of the loan proceeds were used to make
payments due on secured obligations, for materials and labor to
manufacture cooling towers, and for overhead expenses.
4
<PAGE>
o The Company needed to resolve the remaining technical issues related
to its new line of factory-assembled cooling towers and the Company's
production. Management believes that virtually all the technical
issues are now resolved, and the Company is producing a quality
product.
o The Company needs to reduce its breakeven point by reducing costs and
increasing cooling tower selling prices. Opportunities to reduce
costs are being pursued, and cooling tower selling prices were
increased in October 1999 by an average of 30%.
The objectives of the second phase are to:
o Restore liquidity.
o Secure additional working capital, or a suitable combination of
working capital and credit guarantees, so the Company can move away
from cash-in-advance purchasing arrangements.
o Return to compliance with net worth covenants in loan agreements.
o Restore financial strength needed to win large cooling tower projects
o Reduce debt and increase equity, including conversion of the
Debentures and/or extension of maturity dates on debt agreements.
A small, private investor group has expressed a willingness to purchase
$900,000 of the Company's common stock. Further, in consideration of the
Company's agreement to issue stock warrants, the investor group has agreed to
provide credit guarantees for a period of up to two (2) years. The investor
group's commitments are contingent upon certain concessions from the unsecured
creditors including a deferral of up to two years in maturity of amounts due to
unsecured creditors, and amendment of the net worth covenants in the loan
agreements. The Company has not yet been able to satisfy all these conditions.
An investment by the group, coupled with the recovery steps described above,
will be a first step to restoring the Company financially. In addition, the
Company hopes the investment will increase customer and distributor confidence
resulting in increased sales. The Company believes this new investment, coupled
with the forbearance of its current creditors, will increase the Company's
ability to raise additional working capital. However, there can be no assurance
that these objectives will be accomplished, including being able to meet the
Company's current debt obligations.
Results of Operations
Three Months Ended February 29, 2000 Compared to Three Months Ended
February 28, 1999
For the three months ended February 29, 2000, total tower revenues
decreased to $3,022,481 from $4,335,102 for the comparable period in the prior
year. During the current three month period, 88 percent of total tower revenue
was derived from sales of 75 modular fiberglass cooling towers; 10 percent of
total tower revenue was derived from design and construction of the TTCT Series
concrete cooling towers; and 2 percent of total tower revenue was derived from
other tower revenue. In the comparable three month period ended February 28,
1999, 86 percent of total tower revenue was derived from sales of 122 modular
cooling towers; 6 percent of total tower revenue was derived from design and
construction of the TTCT series concrete towers; 1 percent of total tower
revenue was derived from rental of modular cooling towers; and 7 percent of
total tower revenues were derived from other tower revenue. The decrease in
tower sales revenue for the three months ended February 29, 2000 is due to the
decrease in the quantity of units sold. The increase in concrete revenues is due
to the increase in the number and size of jobs completed and in process. Other
tower revenue is down from the previous year due to decreased sales of
proprietary parts to international licenses combined with a decrease in service
sales.
5
<PAGE>
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 provided for interest at 1% above prime. The outstanding
principal balance of the Note, together with accrued interest, was paid 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 Non-competition Agreement. The Non-competition 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.
The Company's cost of goods sold and constructed for the three months
ended February 29, 2000 was $3,057,098, or 101 percent of total tower revenue as
compared to $4,486,630, or 103 percent during the comparable period in 1999.
Overall margin in the factory-assembled cooling tower line was impacted by the
decrease in the number of units sold for the three months ended February 29,
2000 compared to the three months ended February 28, 1999. Included in cost of
goods sold for the three month period ended February 29, 2000 is $135,566 to
retrofit and service towers previously sold. This compares to three month
retrofit and warranty costs of $147,585 during the same period in 1999. The
balance in the accrual to cover estimated future costs to retrofit and service
towers previously sold is $485,000 at February 29, 2000.
The three-month period ended February 29, 2000 reflected a decrease in
general and administrative expenses from $490,382 in 1999 to $446,160 in 2000.
The decrease is due mainly to the reduction in salaries through staff and wage
reductions. Selling expenses decreased from $363,473 to $217,416. The decrease
is also due mainly to a reduction in salaries through staff and wage reductions.
Research and development expenses decreased from $445,897 in 1999 to $76,122 in
2000. A significant portion of the decrease is related to the completion of the
redesign of the TTMT Series tower to the TTEF Series tower. With the redesign of
the tower and with manufacturing of component parts in-house, management
believes that the Company will be able to reduce future production costs.
Although the Company has no research and development budget, such future
quarterly costs are anticipated to be comparable to those incurred in the three
months ended February 29, 2000.
Interest expense increased from $506,696 to $691,955 primarily due to
the increase in total debt.
The Company recognized an income tax expense of $1,918,940 for the
three months ended February 28, 1999, compared to no income tax benefit for the
comparable period in 2000. 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. The sale of the Rental Operations in
the first quarter of 1999 allowed the Company to conclude that the deferred tax
assets at November 30, 1998 and the first three quarters of 1999 were
realizable. The severity of the design flaws and resultant difficulties
discussed above have caused management to believe that a full valuation
allowance is required at November 30, 1999, and February 29, 2000. Management
has determined that based on the Company's inability to generate taxable income
in the last two years (1999 and 1998), and for the first three months
6
FY 2000, it is more likely than not the Company will not realize the net
deferred tax assets at November 30, 1999 and February 29, 2000. Therefore, a
valuation allowance in the amount of $4,082,451 was established in the fourth
quarter of 1999. The Company has a net operating loss carryforward of
$10,500,000 expiring 2009 to 2019.
Currently, the Company's estimated backlog is over $9.5 million, and
includes one contract for TTCT Series modular concrete cooling tower totaling
$.70 million. This contract is scheduled for completion in the second quarter of
2000. Estimated backlog for the TTEF Series modular cooling towers is over $6.8
million. Over $6 million is scheduled for delivery in second quarter, with the
balance to deliver in third quarter of FY 2000. With this backlog and other
projected orders to be received and delivered in the second quarter of FY 2000,
the Company is cautiously optimistic that it will return to profitability for
the three months ended May 31, 2000.
Liquidity and Capital Resources
At February 29, 2000, the Company had a working capital deficit of
$16,036,603 as compared to a working capital deficit of $14,623,196 at November
30, 1999. The Company's cash flow provided by (used in) its operating, investing
and financing activities during the three months ended February 29 and 28, 2000
and 1999 are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
2000 1999
---- ----
Operating activities ($ 726,331) ($ 3,780,465)
Investing activities $1,295,210 $11,094,009
Financing activities ($ 681,467) ($ 6,288,610)
</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. 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,
management believes that it will enable the Company to better manage inventory
levels and reduce costs. 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 an effect on working capital
requirements. At February 29, 2000, billings in excess of costs and estimated
earnings on uncompleted contracts were $299,370 as compared to costs and
estimated earnings in excess of billings on uncompleted contracts of $85,120 at
November 30, 1999. 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 $423,474 over
the next twelve months. In addition, $17,319,017 of principal payments will
become due on the Company's debt during the next twelve months. The Company does
not have sufficient capital resources to fund its debt service and capital
requirements for the next four quarters.
Virtually all of the Company's capital expenditures during the three
months ended February 29, 2000 were related to additional equipment and tooling
for the new manufacturing facility. As of November 30, 1999, the manufacturing
facility was substantially complete with a total investment of $11.5 million.
However, to finalize the process of producing all component parts in-house, the
Company acquired through a capital lease a 2200 ton injection-molder, at a cost
of $1.2 million in
7
<PAGE>
December 1999. Management anticipates additional capital expenditures of $1.0
million in FY 2000 to complete the final tooling requirements of the production
process. The manufacturing facility includes equipment and tooling to allow the
Company to produce parts used in its modular cooling towers which previously had
been purchased from outside vendors. Management believes manufacturing these
parts in-house can reduce product costs.
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 in 1997 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,
with final payment due October 1, 2007. A debt service reserve fund of $157,000
was also set aside from the bond proceeds. The reserve fund was used to pay the
April 1, 2000 principal and interest payment. The OIA holds a mortgage on the
Oklahoma City facility to collateralize the bond indebtedness. The balance
outstanding was $3,620,000 at February 29, 2000.
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 30,
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. The Company is currently negotiating
with Debenture holders to either convert the debentures or extend the maturity
date up to two years.
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 29, 2000, all of these funds had
been advanced to the Company and were outstanding. The loan bears interest at
5.5%. Principal and interest payments are due annually beginning August 1, 2000,
in the amount of $140,000. An interest only payment is due each February 1 until
maturity on August 1, 2008. 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, 2000, was $1,419,261. The Company is not in
compliance with net worth requirements in the loan agreement and accordingly
this debt is classified as current in the Company's financial statements.
The Company has a line of credit at Chickasha Bank, secured by the
Chickasha property, in the amount of $380,000 for short-term cash flow needs, of
which $373,577 was outstanding at February 29, 2000. In March 2000, the Company
closed the sale of the Chickasha plant and the proceeds were used to pay off
this loan.
In April 1998, the Company finalized a $2,000,000 construction loan for
the Oklahoma City office facility that cost approximately $2.4 million. This
loan was converted to a first mortgage loan in June 1999 in the amount of
$2,010,000. Initially, the loan bears interest at 8.25%. Principal and interest
payments of $17,127 are due monthly. The note matures in June 2002. Also, in
June 1999, a second mortgage in the amount of $253,000 was finalized. Initially,
the loan bears interest at 8.25%. Principal and interest payments of $3,103 are
due monthly. The note matures in
8
<PAGE>
June 2002. The interest rates on both of these notes are variable at Wall Street
Journal prime rate plus .5%. The balances on the loans at February 29, 2000, are
$1,986,363 and $243,255 respectively.
In April 1999, the Company increased its line of credit with a financial
institution from $4,000,000 to $6,500,000 for working capital requirements.
Interest is payable monthly at a variable rate of 2.0% over national prime. This
line of credit matures in June 2000. The agreement contains a financial covenant
that provides for a minimum tangible net worth. At February 29, 2000, the
Company was not in compliance with this covenant. However, in April 2000, the
loan agreement was modified and reduced the net worth requirement, among other
things, which brings the Company into compliance. The loan modification
agreement also reduced the line to a maximum of $5,088,160. This credit facility
is collateralized by certain accounts/notes receivable, inventory and general
intangibles and as of February 29, 2000, $5,026,945 was outstanding.
In November 1999, the Company entered into a loan agreement with the City
of Oklahoma City in the amount of $2,000,000 for working capital purposes. As of
February 29, 2000, $2,000,000 of these funds had been advanced to the Company.
The loan bears interest at 6%. An interest-only payment is due May 2, 2000.
Remaining interest and principal is due at maturity on November 2, 2000. This
note is collateralized by accounts receivable, inventory and a mortgage on the
Oklahoma City plant facility.
Total notes payable of $2,000,000 to a company were outstanding at
February 29, 2000. These notes are secured by certain patents and bear interest
ranging from 10.75% to 13% at February 29, 2000 and mature June 14, 2000.
On December 29, 1995, Tower Tech entered into a joint venture agreement
with J-Tech Enterprises, Inc. ("J-Tech") to form Tower Tech SE ("TTSE"). The
original joint venture gave TTSE the sole and exclusive right to use certain
Tower Tech technology in Alabama, Florida, and Georgia. On April 30, 1999, Tower
Tech entered into an agreement and plan of dissolution to acquire J-Tech's
interest and dissolve the joint venture. The aggregate purchase price of
$430,677 was comprised of $100,000 in cash and $330,677 of net receivables owed
to the Company by TTSE. Tower Tech also received all cash, accounts receivable,
inventory, accounts payable, and other current liabilities of TTSE. The
transaction resulted in goodwill to Tower Tech of $431,120 that is being
amortized on a straight-line basis over its estimated useful life of twenty
years.
The Company does not have sufficient capital resources to fund its debt
service and capital requirements for the next four quarters. Continued operating
losses have increased the Company's funding requirements and require it to
obtain additional capital. Accordingly, management is negotiating for increases
in its credit facilities, as well as term extensions. The Company has also
engaged an investment banker to seek additional sources of capital. There can be
no assurances that management's or the investment banker's efforts will be
successful.
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.
9
<PAGE>
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 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 and equipment.
10
<PAGE>
Part 2. Other Information
Item 6. Exhibits and Reports on Form 8-K
a. The following exhibits have been filed as part of this report:
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
4.1-7 Form of 10% Subordinated Convertible Debenture
4.2 Omitted
4.3-1 Form of Stock Certificate
4.4 Omitted
4.5 Omitted
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 Deferral Agreement between Tower Tech, Inc., and
Chickasha Bank & Trust, dated June 16, 1999.
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.
10.6-9 Promissory Note between Tower Tech, Inc. and Electrical
Constructors, dated May 8, 1996
11
<PAGE>
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 Master Lease Agreement between Tower Tech, Inc. and HPM
Corporation, dated June 16, 1999.
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.
10.18-11 Loan Agreement between Tower Tech, Inc. and People First
Bank dated December 7, 1999.
10.19-6 Water Line Agreement between the City of Oklahoma City and
Tower Tech, Inc. dated November 1997.
12
<PAGE>
10.20-6 Master Security Agreement between CIT Group/Equipment
Financing, Inc. and Tower Tech, Inc. dated October 31, 1997.
10.21-11 Modification and Extension Agreement between Tower Tech,
Inc. and First United Bank and Trust Company, dated June
17, 1999.
10.22-11 Commercial Mortgage, Security Agreement, Financing
Statement and Assignment of Rents between Tower Tech, Inc.
and First United Bank and Trust Company, dated June 17,
1999.
10.23-11 Commercial Promissory Note between Tower Tech, Inc. and
First United Bank and Trust Company, dated June 17, 1999.
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.
10.31-11 Agreement and Plan of Dissolution between the Company and
J-Tech Enterprises dated April 30, 1999.
10.32-11 Security Agreement between Tower Tech, Inc. and HPM
Corporation dated June 16, 1999.
10.33-12 Security Agreement between Tower Tech, Inc. and HPM
Corporation dated November 30, 1999.
13
<PAGE>
10.34-12 Master Lease Agreement between Tower Tech, Inc. and U.S.
Bancorp dated August 4, 1999.
10.35-12 Lease Agreement between Tower Tech, Inc. and JACOM Leasing
dated September 22, 1999.
10.36-12 Secured Promissory Note between Tower Tech, Inc. and the
City of Oklahoma City dated November 2, 1999.
10.37-12 Mortgage between Tower Tech, Inc. and the City of Oklahoma
City dated November 2, 1999.
10.38-12 Loan Agreement between Tower Tech, Inc. and the City of
Oklahoma City dated November 2, 1999.
10.39-12 Security Agreement between Tower Tech, Inc. and the City of
Oklahoma City dated November 2, 1999.
10.40-13 Loan Modification Agreement between Tower Tech, Inc. and
People First Bank dated April 3, 2000.
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 t
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.
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.
14
<PAGE>
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
10-QSB for the quarter ended August 31, 1999.
12 Incorporated by reference from the same numbered exhibit to
10-KSB for the year ended November 30, 1999.
13 Filed herewith.
b. The Company has not filed any reports on Form 8-K during the
quarter for which this report is filed.
15
<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 18, 2000 ss/HAROLD CURTIS
----------------
Harold Curtis, Chief Executive Officer
Date: April 18, 2000 ss/ROBERT BRINK
---------------
Robert Brink, President
Date: April 18, 2000 ss/CHARLES D. WHITSITT
----------------------
Charles D. Whitsitt, Chief Financial Officer
-16-
<PAGE>
LOAN MODIFICATION AGREEMENT
THIS LOAN MODIFICATION AGREEMENT ("Agreement") is made effective as of
the 3rd day of April, 2000, by and among TOWER TECH, INC., an Oklahoma
corporation, (the "Borrower"); HAROLD D. CURTIS, an individual (the
"Guarantor"), and PEOPLE FIRST BANK, an Oklahoma state banking corporation
("Bank").
RECITALS
A. Borrower is indebted to Bank pursuant to that certain promissory
note dated April 23, 1999 in the original principal amount of $6,500,000.00 (the
"Note") executed and delivered in connection with that certain Amended and
Restated Loan Agreement of even date with the Note by and between the Borrower,
Guarantor and the Bank (the "Loan Agreement"). The Note is secured by, among
other things, that certain Security Agreement executed by Borrower in favor of
Bank and dated of even date with the Note (the "Security Agreement") the
guarantee of the Guarantor of even date with the Note (the "Guaranty"). The Loan
Agreement, Note, Security Agreement, Guaranty and all other written documents
executed in connection therewith, together with any written renewals,
modifications and/or extensions thereof are collectively referred to as the
"Loan Documents". Words and phrases not otherwise defined herein shall have the
meaning given in the Loan Agreement.
B. Borrower and Guarantor acknowledge that, as of the effective date
hereof, the indebtedness evidenced by the Note is due and owing to the Bank
without right of setoff. Borrower and Guarantor have requested that Bank extend
the time of repayment of all obligations under the Loan Documents, including,
without limitation the Note, until June 1, 2000, in reliance upon the covenants,
representations, and warranties of Borrower and Guarantor herein and for other
good and valuable consideration.
AGREEMENT
For and in consideration of the mutual covenants contained herein, Ten
Dollars ($10.00), and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Borrower, Guarantor, and Bank
agree as follows:
1. Recitals. The foregoing recitals are confirmed by the parties as true
and correct and are incorporated herein by reference. The recitals are a
substantive, contractual part of this Agreement.
<PAGE>
2. No Waiver. The execution, delivery and performance of this Agreement by
Bank and the acceptance by Bank of performance of Borrower and Guarantor
hereunder (a) shall not constitute a novation of the Loan Documents as it is the
intent of the parties to modify the Loan Documents as expressly set out herein,
and (b) except as expressly provided in this Agreement, shall be without
prejudice to, and is not a waiver or release of, Bank's rights at any time in
the future to exercise any and all rights conferred upon Bank by the Loan
Documents or otherwise at law or in equity, including but not limited to the
right to accelerate the Note, if not already accelerated, and to institute
collection proceedings against Borrower and/or Guarantor and/or any night
against any other person or entity not a party to this Agreement. Similarly, by
the execution, delivery, and performance of this Agreement by Borrower and
Guarantor, jointly and severally, waive any and all claims now or hereafter
arising from or related to the Bank's exercise of any rights or remedies under
the Loan Documents. The Bank waives all defaults of the Loan Agreement that
occurred prior to the date of this Agreement, and further waives its right to
accelerate the Note for defaults occurring prior to the date hereof.
3. Acknow1edement of Amounts Due and Maturity Date. Bank and Borrower
acknowledge that (a) the outstanding balance of the Note as of the date first
hereinabove stated is $5,088,160.00 in unpaid principal (the "Note Balance"),
and $52,997.46 in accrued, unpaid interest. Borrower and Guarantor waive any and
all rights to notice of payment default or any other default, protest and notice
of protest, dishonor, diligence in collecting and the bringing of suit against
any party, notice of intention to accelerate, notice of acceleration, demand for
payment and any other notices whatsoever regarding the Note or the other Loan
Documents, and further waive any claims that any notices previously given are
insufficient for any reason. All obligations under the Loan Documents,
including, without limitation the Note, shall be due and payable in fill on June
1, 2000.
4. Advances. Borrower acknowledges and agrees that it shall not be entitled
to, nor shall Borrower request, any additional advances under the Note which
would cause the principal balance thereunder to exceed the lesser of the Note
Balance or the Borrowing Base; provided, however, in the event the Note Balance
is reduced by the payment thereof, and there otherwise exists no Default under
the Loan Documents, Borrower may request, and Bank will honor, additional
advances under the Note to the extent the same, when added to the then
outstanding principal balance of the Note, will not exceed the lesser of the
Note Balance or Borrowing Base.
5. Eligible Receivable. The definition of Eligible Receivable at Section
1.2.17 of the Loan Agreement is amended to delete the last sentence thereof and
add in its place the following: "At any particular date, the Eligible
Receivables shall be the sum of the unpaid principal balance of all of the
accounts receivable, as defined above; provided, however, that Receivables from
any one account debtor shall not exceed 20% of the Eligible Receivables, unless
otherwise approved in writing by the Bank; provided further, that this 20%
limitation shall not apply to the accounts receivable owed to the Borrower from
Cinergy Corp., with its offices at 139 East Fourth Street, Cincinnati, Ohio."
<PAGE>
6. Borrowing Base Certificate. On Tuesday of each week hereafter (as
limited by Section 4 herein), Borrower shall provide the Bank with a Borrowing
Base Certificate and Compliance Statement, in the form attached as Exhibit "E"
to the Loan Agreement using Borrower's best estimates, and methodologies
adequately described to and approved by Bank and consistently applied by
Borrower, and on or before ten (10) days after the end of each month hereafter,
Borrower shall provide the Bank with a Borrowing Base Certificate and Compliance
Statement, in the form attached as Exhibit "E" to the Loan Agreement, certified
by an officer of Borrower as true and correct.
7. Sales Detail Report. The Borrower agrees to provide Bank, on or before
Tuesday of each week, the Borrower's weekly sales detail report in the same form
as such report is currently being prepared by Borrower.
8. Net Worth Covenant. Section 6.10.1 is hereby amended to provide that
Borrower's minimum Tangible Net Worth shall be at least $1,400,000.00 at all
times during the term of this Agreement.
9. Subordinated Debt. Notwithstanding the provisions of Section 7.10 of the
Loan Agreement, during the term of this Agreement, Borrower agrees that it will
not make any payment of interest or principal due under any of it subordinated
debentures.
10. Condition Precedent to Bank's Performance. Notwithstanding anything
contained in this Agreement to the contrary, the Bank shall not be obligated to
further perform or honor its agreements hereunder unless Bank receives funds
from Borrower in the approximate amount of $1,481,000.00, on or before April 7,
2000, in connection with contract number 101550, dated March 31, 2000 between
Borrower and Cinergy Corp.
11. Representations and Warranties. In order to induce Bank to execute,
deliver, and perform this Agreement, Borrower and Guarantor warrant and
represent to Bank that:
(a) this Agreement is not being made or entered into with the actual intent to
hinder, delay, or defraud any entity or person, and Guarantor is solvent
and is not bankrupt, and attached hereto as Exhibit "A" are the Borrower's
February 28, 2000 financial statements which are true and correct in all
material respects;
(b) this Agreement is not intended by the parties to be a novation of the Loan
Documents and, except as expressly modified herein, all terms, conditions,
rights and obligations as set out in the Loan Documents are hereby
reaffirmed and shall otherwise remain in full force and effect as
originally written and agreed;
(c) no action or proceeding, including, without limitation, a voluntary or
involuntary petition for bankruptcy under any chapter of the Federal
Bankruptcy Code, has been instituted by or against Borrower or Guarantor;
<PAGE>
(d) all information provided by Borrower and Guarantor to Bank prior to the
date hereof, including, without limitation, all financial statements,
balance sheets, and cash flow statements, was, at the date of delivery, and
is, as of the date hereof true and correct in all respects. Borrower and
Guarantor recognize and acknowledge that Bank is entering into this
Agreement based in part on the financial information provided to Bank by
each of them and that the truth and correctness of that financial
information is a material inducement to Bank in entering into this
Agreement. During the term of this Agreement, Borrower and Guarantor agree
to advise Bank promptly in writing of any and all new information, facts,
or occurrences which would in any way materially supplement, contradict, or
affect any financial statements, balance sheets, cash flow statements, or
similar items furnished to Bank. Bank waives any default based on
projections provided to the Bank prior to the date hereof which may have
been inaccurate.
12. Default. Bank shall be entitled to pursue each and every remedy
hereunder and under the Loan Documents, at Bank's sole option, upon the
occurrence of any of the following:
(a) Borrower and/or Guarantor, files a petition for bankruptcy under any
chapter of the Federal Bankruptcy Code or takes advantage of any other
debtor relief law, or an involuntary petition for bankruptcy under any
chapter of the Federal Bankruptcy Code is filed against Borrower and/or any
Guarantor, or any other judicial action is taken with respect to Borrower
and/or any Guarantor by any creditor;
(b) Bank discovers that any representation or warranty made herein by Borrower
or Guarantor was or is untrue, incorrect or misleading in any material
respect;
(c) Borrower or Guarantor breaches or defaults in performance of any covenant
or agreement contained in this Agreement, or the Loan Documents.
13. Waiver of Claims. Borrower and Guarantor warrant and represent to Bank
that the Note is not subject to any credits, charges, claims, or rights of
offset or deduction of any kind or character whatsoever; and Borrower and
Guarantor release and discharge Bank from any and all claims and causes of
action, whether known or unknown and whether now existing or hereafter arising,
including without limitation, any usury claims, that have at any time been
owned, or that are hereafter owned, in tort or in contract by Borrower or
Guarantor and that arise out of any one or more circumstances or events that
occurred prior to the date of this Agreement.
14. Expenses. The Borrower and Guarantor jointly and severally covenant and
agree to pay all costs and expense required to satisfy the conditions of this
Agreement or incurred by reason of Borrower's default hereunder.
15. Miscellaneous.
<PAGE>
(a) Any future waiver, alteration, amendment or modification of any of the
provisions of the Loan Documents or this Agreement shall not be valid or
enforceable unless in writing and signed by all parties. Moreover, any
delay by Bank in enforcing its rights after an event of default shall not
be a release or waiver of the event of default and shall not be relied upon
by the Borrower or the Guarantor as a release or waiver of the default.
(b) This Agreement shall be binding upon and shall inure to the benefit of the
parties hereto, their heirs, executors, administrators, successors, legal
representatives, and assigns.
(c) The headings of paragraphs in this Agreement are for convenience of
reference only and shall not in any way affect the interpretation or
construction of this Agreement.
(d) THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF OKLAHOMA AND
FEDERAL LAW, AS APPLICABLE. THIS AGREEMENT REPRESENTS THE FINAL AGREEMENT
AMONG THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR ORAL OR WRITTEN, Contemporaneous, OR
SUBSEQUENT ORAL AGREEMENTS AMONG THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS AMONG THE PARTIES.
(e) This Loan Modification Agreement shall not constitute a binding agreement
unless duly executed by the Borrower and Guarantor, without any
modifications thereto, and returned to Bank not later than 4:00 p.m., April
11, 2000, at which time this Loan Modification Agreement shall
automatically become null and void unless accepted by Borrower and
Guarantor as required in this paragraph.
Executed on the date first set forth above.
Borrower:
TOWER TECH, INC., an Oklahoma corporation
By: ss/HAROLD D. CURTIS
_________________________
Printed Name: Harold D. Curtis
Title: Chief Executive Officer
Guarantor:
ss/HAROLD D. CURTIS
_________________________
An individual
Bank:
PEOPLE FIRST BANK
By: ss/RALPH T. FREDRICKSON
Printed Name: Ralph T. Fredrickson
Title: Executive Vice President
<PAGE>
TOWER TECH, INC.
Proforma Quarterly Balance Sheets
(Confidential - Unaudited For Internal Use of Management Only)
EXHIBIT A
Actual
February 2000
Assets
Current assets:
<TABLE>
<CAPTION>
<S> <C>
Cash $ 139,307
Accounts receivable, net 2,937,201
Notes receivable 107,083
Inventory 7,591,997
Costs in excess of costs and estimated earnings
uncompleted contracts (299,370)
Restricted assets 157,595
Prepaid expenses and other 221,847
------------
Total current assets 10,855,659
Property and equipment, net 19,713,372
Notes receivable, noncurrent 503,086
Deferred tax asset 3,813,324
Deferred tax asset reserve (3,813,324)
Other 732,176
------------
$31,804,294
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable $7,067,020
Accrued liabilities 1,042,253
Interest payable 528,133
Customer deposits 590,540
------------
9,228,845
Notes payable 21,495,416
Borrowing base 5,025,945
New credit facility committed
New tooling credit facility NEEDED
New credit facility NEEDED
Stockholders' equity:
Common stock 3,577
Capital in excess of par 8,278,561
Retained earnings (deficit) (8,415,726)
Deferred tax asset reserve (3,813,324)
------------
(3,946,912)
$31,804,294
</TABLE>
These statements are subject to certain risks, uncertainties and assumptions.
should one or more of these risks or uncertainties occur, or should underlying
assumptions prove incorrect, actual results may vary materially from those
anticipated. estimated or projected.
<PAGE>
TOWER TECH, INC.
Proforma Quarterly Statements of Operations
(Confidential Unaudited For Internal Use of Management Only)
Actual 1st Quarter
<TABLE>
<CAPTION>
<S> <C>
Revenues:
Tower sales $2,237,776
Tower sales - rental\custom towers 419,827
Concrete tower construction 302,799
Plastics parts mfg. & design; TQFX 2,313
Other tower revenue 59,764
--------------
Total tower revenue 3,022,481
Other operating revenue 64,079
License fees 0
--------------
Total revenues 3,086,560
------------
Costs and expenses:
Cost of good sold and constructed 3,055,432
General and administrative 447,830
Selling expenses 217,417
Research and development 76,121
--------------
Total costs and expenses 3,796,800
------------
Income (loss) from operations (710,240)
Other income (expense):
Interest, net (691,956)
Gain (loss) on sale of assets 0
---------------
Total other income (expense) (691,956)
-------------
Income (loss) before income taxes (1,402,196)
Income tax (expense) benefit 560,678
Income tax (expense) benefit, reserved (560,878)
-------------
Net income (loss) ($1,402,196)
===========
Weighted average shares outstanding - primary 3,5716,311
===========
Net income per common share - primary ($0.39)
===============
</TABLE>
These statements are subject to certain risks, uncertainties and assumptions.
should one or more of these risks or uncertainties occur, or should underlying
assumptions prove incorrect, actual results may vary materially from those
anticipated, estimated or projected.
<PAGE>
TOWER TECII, INC.
Proforma Quarterly Statements of Cash Flows
(Confidential - Unaudited For Internal Use of Management Only)
Actual
<TABLE>
<CAPTION>
<S> <C>
1st Quarter
Cash flows from operating activities:
Net income (loss) (1,402,195)
Adjustments to reconcile net income (loss) to net
Cash (used) provided by operating activities:
Depreciation and amortization 330,000
Sale of sale of assets
(Increase) decrease in deferred taxes 0
(Increase) decrease in accounts receivable (82,279)
(Increase) decrease in notes receivable 1,407,438
(Increase) decrease in inventory (144,071)
(Increase) decrease in costs in excess of costs
and estimated earnings on uncompleted contracts
(Increase) decrease in restricted assets
(Increase) decrease in prepaid expenses
(Increase) decrease in other assets 68,577
Increase (decrease) in accounts payable (85,594)
Increase (decrease) in accrued liabilities (27,544)
Increase (decrease) in deposits
Increase (decrease) in interest payable 22,818
-------------
Net cash provided (used) by operating activities 652,980
------------
Cash flows from investing activities:
(Increase) decrease in property and equipment (1,303,045)
Proceeds from sale of assets
(Increase) decrease in notes rec. non-current 0
------------
Net cash provided (used) by investing activities (1,303,945)
-----------
Cash flows from financing activities:
Net change in debt 1,009,701
Scheduled note repayments (471,327)
-----------
Net cash provided (used) by financing activities 538,374
----------
Net increase (decrease) in cash (112,589)
Cash at beginning of period 251,895
----------
Cash at end of period $ 139,307
==========
</TABLE>
These statements are subject to certain risks, uncertainties and assumptions.
should one or more of these risks or uncertainties occur, or should underlying
assumptions prove incorrect, actual results may vary materially from those
anticipated, estimated or projected.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Consolidated statements of operations found on pages F-2 and F-3 of the
Company's Form 10-QSB for the period ended February 29, 2000, and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000913034
<NAME> TOWER TECH, INC.
<MULTIPLIER> 1
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 3-Mos
<FISCAL-YEAR-END> Nov-30-2000
<PERIOD-START> Dec-01-1999
<PERIOD-END> Feb-29-2000
<EXCHANGE-RATE> 1
<CASH> 139,307
<SECURITIES> 0
<RECEIVABLES> 2,787,610
<ALLOWANCES> 799,700
<INVENTORY> 7,673,530
<CURRENT-ASSETS> 11,234,104
<PP&E> 19,516,016
<DEPRECIATION> 339,467
<TOTAL-ASSETS> 32,135,983
<CURRENT-LIABILITIES> 27,270,707
<BONDS> 0
0
0
<COMMON> 3,577
<OTHER-SE> (3,946,912)
<TOTAL-LIABILITY-AND-EQUITY> 32,135,983
<SALES> 3,022,481
<TOTAL-REVENUES> 3,086,560
<CGS> 3,057,098
<TOTAL-COSTS> 3,796,796
<OTHER-EXPENSES> 739,698
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (691,955)
<INCOME-PRETAX> (1,402,191)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,402,191)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,402,191)
<EPS-BASIC> (.39)
<EPS-DILUTED> (.39)
</TABLE>
