-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KoGg2P6yJClBxfxLmr6LgIwAYC3INZbjP8yq+KQFGE962w7669Uedc6q87XaRJI9 iYuTKLmpl0UQYZ/NY2LYdg== 0000930661-98-002422.txt : 19981118 0000930661-98-002422.hdr.sgml : 19981118 ACCESSION NUMBER: 0000930661-98-002422 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TURBOCHEF TECHNOLOGIES INC CENTRAL INDEX KEY: 0000916545 STANDARD INDUSTRIAL CLASSIFICATION: REFRIGERATION & SERVICE INDUSTRY MACHINERY [3580] IRS NUMBER: 481100390 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-23478 FILM NUMBER: 98752492 BUSINESS ADDRESS: STREET 1: 10500 METRIC DRIVE SUITE 128 CITY: DALLAS STATE: TX ZIP: 75243 BUSINESS PHONE: 2122445553 MAIL ADDRESS: STREET 1: 10500 NETRIC DRIVE STREET 2: SUITE 128 CITY: DALLAS STATE: TX ZIP: 75243 FORMER COMPANY: FORMER CONFORMED NAME: TURBOCHEF INC DATE OF NAME CHANGE: 19940207 10-Q 1 FORM 10-Q - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 _________________________ FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Quarter ended September 30, 1998 OR [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ___________ TO ____________ COMMISSION FILE NUMBER 0-23478 _________________________ TURBOCHEF TECHNOLOGIES, INC. (Exact name of Registrant as specified in its Charter) DELAWARE 48-1100390 (State or other jurisdiction of (IRS employer incorporation or organization) identification number) 10500 METRIC DRIVE, SUITE 128 75243 DALLAS, TEXAS (Zip Code) (Address of principal executive offices) Registrant's telephone number: (214) 341-9471 _________________________ Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 [ ] Indicate the number of shares outstanding of each of the Registrant's classes of Common Stock, as of the latest practicable date. Number of Shares Outstanding Title of Each Class at November 10, 1998 ------------------- -------------------- Common Stock, $0.01 Par Value 14,654,134 - -------------------------------------------------------------------------------- TURBOCHEF TECHNOLOGIES, INC. TABLE OF CONTENTS Form 10-Q Item Page - -------------- ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Balance Sheets as of September 30, 1998 (unaudited) and December 31, 1997......................................... 3 Condensed Statements of Operations (unaudited) for the three and nine months ended September 30, 1998 and 1997... 4 Condensed Statements of Cash Flows (unaudited) for the nine months ended September 30, 1998 and 1997............. 5 Notes to Condensed Financial Statements (unaudited)........... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..................................... 8 PART II. OTHER INFORMATION Item 1. Legal Proceedings............................................. 15 Item 2. Changes in Securities......................................... 15 Item 3. Defaults Upon Senior Securities............................... 15 Item 4. Submission of Matters to a Vote of Security Holders........... 15 Item 5. Other Information............................................. 15 Item 6. Exhibits and Reports on Form 8-K.............................. 15 2 PART 1 - ITEM 1 FINANCIAL STATEMENTS TURBOCHEF TECHNOLOGIES, INC. CONDENSED BALANCE SHEETS
September 30, December 31, ----------------- ---------------- 1998 1997 ----------------- ---------------- Assets (Unaudited) ------ Current assets: Cash and cash equivalents $ 372,283 1,396,641 Marketable securities available for sale, at fair value 7,754,692 7,277,395 Accounts receivable 1,045,153 644,569 Inventories 788,284 934,690 Prepaid expenses 56,655 104,160 ------------ ------------ Total current assets 10,017,067 10,357,455 ------------ ------------ Marketable securities available for sale, at fair value 7,015,573 5,482,064 Property and equipment: Leasehold improvements 129,324 110,062 Furniture and fixtures 410,855 344,507 Equipment 431,876 420,342 ------------ ------------ 972,055 874,911 Less accumulated depreciation and amortization (509,939) (383,948) ------------ ------------ Net property and equipment 462,116 490,963 ------------ ------------ Other assets 141,076 109,283 ------------ ------------ Total assets $ 17,635,832 16,439,765 ============ ============ Liabilities and Stockholders' Equity ------------------------------------ Current liabilities: Accounts payable 395,421 401,013 Accrued expenses 396,927 352,928 Deferred revenue 39,335 21,705 Other liabilities 193,093 - ------------ ------------ Total current liabilities 1,024,776 775,646 ------------ ------------ Deposits 5,677 - Deferred rent 26,739 35,651 ------------ ------------ Total liabilities 1,057,192 811,297 ------------ ------------ Stockholders' equity: Common stock, $.01 par value. Authorized 50,000,000 shares. Issued 14,654,134 and 14,551,294 shares at September 30, 1998 and December 31, 1997, respectively 146,541 145,513 Additional paid-in capital 32,423,935 32,129,601 Accumulated deficit (19,572,039) (17,276,907) Net unrealized gain on marketable securities 4,031,155 964,148 Treasury stock - at cost 32,130 shares in 1998 and 17,382 shares in 1997 (450,952) (333,887) ------------ ------------ Total stockholders' equity 16,578,640 15,628,468 ------------ ------------ $ 17,635,832 $ 16,439,765 ============ ============
See accompanying notes to condensed financial statements. 3 TURBOCHEF TECHNOLOGIES, INC. CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Nine Months Ended ------------------ ----------------- September 30, September 30, ------------------ ----------------- 1998 1997 1998 1997 --------------- -------------- --------------- -------------- Net sales $ 841,075 720,517 $ 2,543,958 2,458,787 Other revenues 1,150,000 - 2,800,000 - ----------- ---------- ----------- ---------- Total revenues 1,991,075 720,517 5,343,958 2,458,787 Costs and expenses: Cost of goods sold 589,859 650,353 2,055,862 1,838,416 Research and development expenses 502,743 354,983 1,346,898 876,888 Selling, general and administrative expenses 1,603,555 1,432,899 4,303,995 3,575,362 ----------- ---------- ----------- ---------- Total costs and expenses 2,696,157 2,438,235 7,706,755 6,290,666 ----------- ---------- ----------- ---------- Operating loss (705,082) (1,717,718) (2,362,797) (3,831,879) ----------- ---------- ----------- ---------- Other income (expense): Interest income 19,878 41,853 85,446 228,121 Dividend income 52,910 - 146,941 - Equity in loss of joint venture - (41,677) (180,365) (56,386) Other 2,474 - 15,649 - ----------- ---------- ----------- ---------- 75,262 176 67,671 171,735 ----------- ---------- ----------- ---------- Net loss $ (629,820) (1,717,542) $(2,295,126) (3,660,144) =========== ========== =========== ========== Loss per common share - basic and diluted $(0.04) (0.12) $(0.16) (0.26) =========== ========== =========== ========== Weighted average number of common shares outstanding 14,653,986 13,920,640 14,597,413 13,877,866 =========== ========== =========== ==========
See accompanying notes to condensed financial statements. 4 TURBOCHEF TECHNOLOGIES, INC. CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended September 30, ---------------------------------------- 1998 1997 ------------------- ------------------- Cash flows from operating activities: Net loss $(2,295,126) (3,660,144) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 135,893 84,528 Decrease (increase) in accounts receivable, net (400,584) (10,075) Decrease (increase) in inventories 146,406 (238,674) Decrease (increase) in prepaid expenses 47,505 (218,251) Decrease (increase) in other assets 3,591 (91,404) Increase (decrease) in accounts payable (5,592) 50,552 Increase (decrease) in accrued expenses 13,999 (208,788) Increase (decrease) in deferred revenue 17,630 24,259 Increase (decrease) in other liabilities 223,093 - Increase (decrease) in deferred rent (8,912) - ----------- ---------- Net cash used in operating activities (2,122,097) (4,267,997) ----------- ---------- Cash flows from investing activities: Sales (purchases) of marketable securities 1,056,212 3,955,896 Purchase of equipment (97,144) (240,370) Investment in TurboChef Europe (39,636) 14,636 ----------- ---------- Net cash provided by investing activities 919,432 3,730,162 ----------- ---------- Cash flows from financing activities: Exercise of stock options 12,500 232,245 Exercise of stock warrants 282,872 285,399 Purchase of treasury stock (117,065) (166,548) ----------- ---------- Net cash provided by financing activities 178,307 351,096 ----------- ---------- Net decrease in cash and cash equivalents (1,024,358) (186,739) Cash and cash equivalents at beginning of period 1,396,641 477,166 ----------- ---------- Cash and cash equivalents at end of period $ 372,283 290,427 =========== ==========
See accompanying notes to condensed financial statements. 5 TURBOCHEF TECHNOLOGIES, INC. Notes to Condensed Financial Statements (Unaudited) September 30, 1998 General - ------- The financial statements of TurboChef Technologies, Inc. (the "Company") included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) and have not been audited by independent public accountants. In the opinion of management, all adjustments (which consisted only of normal recurring accruals) necessary to present fairly the financial position and results of operations have been made. Pursuant to SEC rules and regulations, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted from these statements unless significant changes have taken place since the end of the most recent fiscal year. The December 31, 1997 balance sheet was derived from audited financial statements but does not include all disclosures required by generally accepted accounting principles. The Company believes that other disclosures contained herein, when read in conjunction with the financial statements and notes included in the Company's Annual Report for the fiscal year ended December 31, 1997 on Form 10-K, are adequate to make the information presented not misleading. It is suggested, therefore, that these statements be read in conjunction with the statements and notes included in the aforementioned Form 10-K. The results of operations for the three and nine months ended September 30, 1998 are not necessarily indicative of the results to be expected for the full year. The Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share (EPS), during the fourth quarter of 1997, and all previous references to per share amounts were retroactively restated. The Statement requires basic EPS to be computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in earnings of the entity. Adoption of this statement did not impact previously recorded net loss per common share for the three or nine months ended September 30, 1997. Basic net loss per common share is based on 14,653,986 and 13,920,640 weighted average shares outstanding for the three months ended September 30, 1998 and 1997, respectively. For the nine months ended September 30, 1998 and 1997 basic net loss per common share is based on 14,597,413 and 13,877,866 weighted average shares outstanding, respectively. For both the three-month and nine-month periods ended September 30, 1998 and 1997, the Company did not have any incremental shares of potentially dilutive stock as their effect was antidilutive. 6 The Company adopted the provisions of Statement of Financial Accounting Standards No. 130, Comprehensive Income, on January 1, 1998. This statement requires the Company to report comprehensive income and its components with the same prominence as other financial statements in its December 31, 1998 financial statements. Comprehensive income describes the total of all components of comprehensive income, including net income and other comprehensive income. Other comprehensive income refers to all revenues, expenses, gains and losses that under generally accepted accounting principles are included in comprehensive income but excluded from net income. For the nine month period ended September 30, 1998, comprehensive income was $1,736,029 of which ($2,295,126) was net loss and of which $4,031,155 was net unrealized gain on marketable securities. For the nine month period ended September 30, 1997, there were no components of other comprehensive income. In July 1998, the Company executed a revolving credit agreement with its bank to support general corporate requirements, specifically, continued investment in technology development. This agreement, which expires July 1, 1999 is secured by 90,000 shares of Maytag common stock owned by the Company. The Company can borrow up to the lesser of $3,000,000 or 75% of the market value of the Maytag stock at market rates of interest. As of November 10, 1998, there are no outstanding borrowings under such revolving credit facility. 7 ITEM 2: MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS --------------------------------------------------------------------- OF OPERATIONS ------------- GENERAL From its inception in April 1991 until March 1994, the Company was engaged primarily in research and development, limited production operations and test marketing of its cooking systems. In March 1994, the Company introduced its first commercial product, the Model D-1 cooking system. In June 1995, the Company entered into its first major contract with Whitbread PLC ("Whitbread") and introduced an enhanced product, the Model D-2 cooking system. The Company concentrated its efforts on the Whitbread rollout throughout 1996. Upon the completion of the secondary public offering of Common Stock in June 1996 (the "June 1996 Offering"), the Company began development of a direct sales organization. By the end of the first quarter of 1997, the Company had substantially developed its U.S. direct sales and European sales infrastructure and marketing programs. Due to the revolutionary nature of the Company's technologies, coupled with the foodservice industry's general resistance to change, significant increases in sales have not yet materialized through these efforts. The Company believes its long-term success is dependent on its core competencies of developing new technologies and products for the foodservice industry. Consequently, the Company has sought to establish an alliance with a major firm with strengths in manufacturing, sales, marketing and distribution. An alliance of this nature was successfully established in September 1997, when the Company announced a strategic alliance with Maytag Corporation ("Maytag") to jointly develop new products revolving around the Company's technologies. The Company also announced in July 1998 that the Maytag alliance had been expanded to include the sales and marketing of commercial cooking products in North America. This alliance enables the Company to focus on its core competency of technology development. The Company has invested heavily in research, prototype development, establishment of manufacturing capacity, and sales and marketing personnel. As a result of these investments, and the heretofore limited revenues generated through sales of cooking systems, the Company has incurred substantial operating losses in each year of its operations (including net losses of $4,662,302, $2,941,413, and $1,585,268 for the years ended December 31, 1997, 1996 and 1995, respectively) resulting in an accumulated deficit of $19,572,039 as of September 30, 1998. The Company will continue to pursue business growth through implementation of the following strategies: (i) joint development and commercialization of residential and commercial products through the Maytag alliance, (ii) pursue the formation of strategic alliances and license agreements in other major markets, (iii) continued marketing to U.S., European and Japanese restaurants, hotels, convenience stores and other foodservice operators, and (iv) continued development of new hardware, software and food solutions for foodservice operators. The Company's future profitability will depend upon, among other things, the successful implementation of these initiatives. MAYTAG ALLIANCE On September 29, 1997, the Company announced a strategic alliance with Maytag Corporation (the "Maytag alliance"). The alliance is aimed at the development and commercialization of innovative 8 products based on the Company's leading-edge technologies in heat transfer, thermodynamics and control systems. The two companies believe that the combination of Maytag's expertise in manufacturing, marketing and distribution in residential and commercial appliance markets, and the Company's proprietary technologies and product development capabilities, can result in the successful commercialization of new products in the future. The alliance entailed a mutual purchase of each company's common stock valued at approximately $10 million and Maytag's payment to the Company for certain research and development activities related to targeted product initiatives. The initial alliance-related research project began in October 1997, and was originally for a term of six months. Maytag was contracted to pay $250K per month pursuant to the agreement to fund research and development activities related to the project. In March 1998, this project was extended for one year, and the monthly payment increased to $300K. In July 1998, the Company announced a commercial sales agreement with Maytag whereby Maytag will lead the Company's North American commercial sales and marketing initiatives. Furthermore, the commercial sales agreement establishes a profit sharing arrangement for the North American sales of commercial products employing the Company's technologies. With the addition of the commercial relationship, the research and development funding was increased to $425K per month beginning August 1998 and ending January 1999. As of November 10, 1998, Maytag had paid the Company an aggregate of $4.4 million for alliance-related activities. RECENT DEVELOPMENTS On September 1, 1998, Rick Caron joined the Company as President, Chief Executive Officer and as a director. Mr. Caron is a 19-year veteran of Arthur D. Little, Inc., an international technology and innovation consulting firm, and has held title of Vice President since 1995 and has been Industry Practice Leader for Consumer Goods Business in North America since 1997. His foodservice industry clients have included, among others, McDonalds Corporation, Welbilt Corporation, Burger King and Bass Brewers. Mr. Caron received his BS and MS degrees in chemical engineering from the Massachusetts Institute of Technology and has served on the Science and Technology Committee of the U.S. House of Representatives and managed the Commercial Gas Appliance Technology Center for the Gas Research Institute. On September 1, 1998, Philip R. McKee, a co-founder of the Company, stepped down from the board of directors and as the Company's Chief Technology Officer. He is currently employed by the Company as a key advisor to the new CEO and as a liaison with Maytag Corporation on strategic alliance projects. On November 9, 1998, Dr. Amit S. Mukherjee joined the Company as Chief Technical and Strategy Officer. Dr. Mukherjee will oversee the Company's strategy of combining its multiple cooking product embodiments with proprietary software that will bring the residential and commercial kitchen into the computer age. He will also co-lead the Company's efforts to transfer its technologies internationally through the formation of joint ventures and licensing agreements. Most recently, Dr. Mukherjee was a Director with Arthur D. Little, Inc. His work focused on product development, manufacturing and business strategy, typically for clients in the quick service restaurant and food and beverage industries. Earlier, he was on the faculty of INSEAD, where he taught Strategic R&D Management, Quality 9 Management and World-Class Manufacturing in the MBA, Ph.D. and Executive Programs. Dr. Mukherjee earned his BS in Mechanical Engineering at the Birla Institute of Technology and Science in India, an MBA at the Darden School of the University of Virginia and a Doctorate in Business Administration at the Harvard Business School. RESULTS OF OPERATIONS The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of the Company's results of operations and financial condition. The discussion should be read in conjunction with the financial statements and notes thereto contained elsewhere in this report. RESULTS FOR THE QUARTER ENDED SEPTEMBER 30, 1998 COMPARED TO THE QUARTER ENDED SEPTEMBER 30, 1997 Revenues for the quarter ended September 30, 1998 were $1,991K, an increase of $1,270K, when compared to revenues of $721K for the quarter ended September 30, 1997. This increase is primarily attributable to revenues received pursuant to the Maytag alliance and revenues generated by an extended maintenance program for the Company's largest customer. Cost of sales for the quarter ended September 30, 1998 was $590K, a decrease of $60K when compared to $650K for cost of sales in the quarter ended September 30, 1997. This decrease is attributable to non-recurring charges during the quarter ended September 30, 1997, partially offset by a higher unit manufacturing cost in 1998. Gross profit on total net sales for the quarter ended September 30, 1998 increased $181K to $251K, when compared to gross profit on total net sales of $70K during the quarter ended September 30, 1997. Gross margin for the quarter ended September 30, 1998 was 30% of total net sales, compared to 10% of total net sales for the quarter ended September 30, 1997. Gross margin on net oven sales increased to 42% during the quarter ended September 30, 1998, compared to 31% for the quarter ended September 30, 1998 due to higher revenues per unit. Research and development expenses for the quarter ended September 30, 1998 increased $148K, to $503K, as compared to $355K for the quarter ended September 30, 1997. The increase is attributable to R&D activity relating primarily to Maytag alliance projects entailing technical staff additions and prototype development. Selling, general and administrative expenses for the quarter ended September 30, 1998 increased $171K, to $1,604K from comparable expenses of $1,433K for the quarter ended September 30, 1997. The increased expense is due to European business development expenses not incurred during the third quarter of 1997, the addition of executive management and other administrative expenses including office expansion and executive recruiting expenses. Interest income, net of interest expense for the quarter ended September 30, 1998, was $20K compared to $42K for the quarter ended September 30, 1997. The decrease in interest income is 10 attributable to decreased cash levels. Dividend income, from the Company's Maytag common stock holdings, was $53K for the quarter ended September 30, 1998. There was no dividend income during the quarter ended September 30, 1997. RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1997 Revenues for the nine months ended September 30, 1998 were $5,344K, an increase of $2,885K, when compared to revenues of $2,459K for the nine months ended September 30, 1997. This increase is primarily attributable to $2,800K in revenues received pursuant to the Maytag alliance. Cost of sales for the nine months ended September 30, 1998 was $2,056K, an increase of $218K when compared to $1,838K for cost of sales in the nine months ended September 30, 1997. This increase is attributable to charges taken to establish reserves for anticipated losses on an extended maintenance program, offset by a decline in unit shipments. Gross profit on total net sales for the nine months ended September 30, 1998 decreased $132K to $488K, when compared to gross profit on total net sales of $620K during the nine months ended September 30, 1997. Gross margin for the nine months ended September 30, 1998 was 19% of total net sales, compared to 25% of total net sales for the nine months ended September 30, 1997. Gross profit and gross margin were adversely affected by the aforementioned extended maintenance charge. Excluding extended maintenance charges, gross profit and gross margin for the nine months ended September 30, 1998 was $649K and 29% respectively. Gross margin on net oven sales for the nine months ended September 30, 1998 was 34% as compared to 35% for the nine months ended September 30, 1997. Research and development expenses for the nine months ended September 30, 1998 increased $470K, to $1,347K, as compared to $877K for the nine months ended September 30, 1997. The increase is attributable to R&D activity relating primarily to Maytag alliance projects entailing staff additions and prototype and software development. Selling, general and administrative expenses for the nine months ended September 30, 1998 increased $729K, to $4,304K from comparable expenses of $3,575K for the nine months ended September 30, 1997. The increased expense is primarily due to European business development expenses not incurred during the first nine months of 1997, the addition of executive management and other administrative expenses including office expansion and executive recruiting expenses. Interest income, net of interest expense for the nine months ended September 30, 1998, was $86K compared to $228K for the nine months ended September 30, 1997. The decrease in interest income is attributable to decreased cash levels. Dividend income, from the Company's Maytag common stock holdings, was $147K for the nine months ended September 30, 1998. There was no dividend income for the nine months ended September 30, 1997. 11 Results for the nine months ended September 30, 1998 include a $114K charge relating to the termination of the Company's European joint venture, TCE, which was terminated on July 31, 1998. The $114K charge establishes a reserve for the write-off of the net investment in TCE. For the nine months ended September 30, 1998, losses relating to TCE were $180K. LIQUIDITY AND CAPITAL RESOURCES The Company's capital requirements in connection with its product and technology development and marketing efforts have been and will continue to be significant. In addition, capital is required to operate and expand the Company's operations. From its inception until June 1996, the Company was substantially dependent on loans and capital contributions from its principal stockholders, private placements of its securities and the proceeds from the initial public offering of common stock in April 1994 (the "April 1994 IPO"). In June 1996 the Company consummated the June 1996 Offering, an underwritten public offering of 800,000 shares of Common Stock which resulted in aggregate proceeds of approximately $10,301K, net of the underwriter's discount and other offering costs of $1,699K. Since October 1997, the Company's capital requirements have been met in part by Maytag. In accordance with the Maytag alliance, the Company has been paid an aggregate of $4.4 million ($250K per month from October 1997 through March 1998, $300K from April through July 1998 and $425K through November 1998) for technology transfer initiatives by the company. In March 1998, the initial project was extended for one year and Maytag increased the monthly payment from $250K to $300K per month for the term of the extension. In July 1998, a commercial sales agreement was announced and the monthly payment increased to $425K for six months. The Maytag alliance called for the mutual purchase of each company's stock with a value of approximately $10 million. Maytag purchased 564,668 shares of the Company's common stock, and the Company purchased 293,846 shares of Maytag common stock. According to the terms of the strategic alliance agreement, the Maytag stock owned by the Company is subject to a general restriction placed on selling, pledging, transferring or assigning such securities for a period of two years from the date of the agreement. However, in accordance with the agreement, the Company gained the right to sell, pledge, transfer or assign up to 50% of the shares on March 31, 1998. As of November 10, 1998, the Maytag stock owned by the Company had a market value of approximately $14.7 million. In July 1998, the Company executed a revolving credit agreement with its bank to support general corporate requirements, specifically, continued investment in technology development. This agreement, which expires July 1, 1999, is secured by 90,000 shares of Maytag common stock owned by the Company. The Company can borrow up to the lesser of $3,000,000 or 75% of the market value of the Maytag stock at market rates of interest. As of November 10, 1998, there are no outstanding borrowings under such revolving credit facility. At September 30, 1998, the Company had working capital of $8,992K as compared to working capital of $9,582K at December 31, 1997. The $590K working capital decrease from December 31, 1997 resulted primarily from the net operating loss of $2,295K, offset by the appreciation of the current portion (50%) of the investment in Maytag common stock. Cash used in operating activities was $2,122K for the nine months ended September 30, 1998 as 12 compared to cash used in operating activities of $4,268K for the nine months ended September 30, 1997. The decrease is primarily the result of a $1,365K decrease in operating losses, a decrease in inventories of $385K, a decrease in prepaid expenses of $266K and an increase in accrued expenses and other liabilities of $223K and $223K respectively. These amounts are partially offset by an increase in accounts receivable of $391K. Cash provided by investing activities for the nine months ended September 30, 1998 was $919K as a result of net sales of marketable securities in the amount of $1,056K, offset by equipment purchases of $97K. Cash provided by financing activities was $178K for the nine months ended September 30, 1998, which represents the net proceeds from exercises of stock options and warrants, offset by the purchase of treasury stock. At September 30, 1998, the Company had cash and cash equivalents of $372K, compared to cash and cash equivalents of $1,397K at December 31, 1997. YEAR 2000 ISSUES The Year 2000 issue, which is common to most businesses, concerns the inability of information systems, primarily computer software programs, to properly recognize and process date-sensitive information as the year 2000 approaches. All critical software and related technologies used by the Company are year-2000 compliant. Thus, management believes that there will be no significant costs required to address the Year 2000 issue and such issue will not materially impact its financial condition nor adversely impact business operations. AUTHORITATIVE PRONOUNCEMENTS The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information, which is not expected to significantly change the Company's current disclosures. FORWARD LOOKING STATEMENTS The Company is continuing to utilize the proceeds from the June 1996 Offering, in addition to payments received from the Maytag alliance projects, to strengthen its management team and intensify its product development activities. The company's goals are to continue its development of innovative and commercially viable products, to support the Maytag Alliance efforts and to establish additional strategic alliances and license agreements outside North America. The Company anticipates, based on its currently proposed plans and assumptions relating to its operations (including assumptions regarding the progress of its research and development efforts and the realization of projected cooking system deliveries) that its current cash and cash equivalent balances, anticipated revenues from operations, payments and stock received pursuant to the Maytag alliance, and the recently established revolving credit facility, will be sufficient to fund its operations and satisfy its contemplated capital requirements for at least the next 24 months. In the event that the Company's plans change, or its assumptions change or prove to be incorrect, or cash balances, anticipated revenues and amounts available under the revolving credit facility otherwise 13 prove to be insufficient, the Company would be required to revise its plan of operations (which revision would include a significant reduction in operating costs) and/or seek additional financing prior to the end of such period. The Company has no other current arrangements with respect to, or sources of, additional financing. There can thus be no assurance that additional financing will be available to the Company, if and when needed, on commercially reasonable terms, or at all. The Company has used a substantial portion of the proceeds of the June 1996 Offering and payments received from Maytag in an effort to expand its current level of operations and grow the Company's business. However, the Company's future performance will be subject to a number of business factors, including those beyond the Company's control, such as economic downturns and evolving industry needs and preferences, as well as to the level of the Company's competition and the ability of the Company to successfully market its products and effectively monitor and control its costs. The Company believes that increases in revenues sufficient to offset its expenses and result in its profitability could be derived from its currently proposed plans within the next 15 months, if such plans are successfully completed. These plans include: (i) successfully develop and market new products through the Maytag alliance, (ii) further develop U.S. product sales through the Maytag commercial sales agreement, (iii) utilize the awareness created by the Whitbread relationship to extend the Company's marketing and sales efforts throughout the UK, (iv) introduce additional new products, and (v) establish additional strategic alliances and license agreements outside of North America. However, there can be no assurance that the Company will be able to successfully implement any of the foregoing plans, that either its revenues will increase or its rate of revenue growth will continue or that it will ever be able to achieve profitable operations. As of September 30, 1998, the amount of backlog orders believed to be firm was approximately $0.7 million, as compared to approximately $2.0 million as of December 31, 1997. This backlog includes the remaining minimum order quantity of cooking systems contemplated in the Kanematsu purchase agreement, which are contingent upon Japanese regulatory approval. This report and other reports and statements filed by the Company from time to time with the Securities and Exchange Commission (collectively, "SEC Filings") contain or may contain certain forward looking statements and information that are based on the beliefs of the Company's management as well as estimates and assumptions made by, and information currently available to, the Company's management. When used in SEC Filings, the words "anticipate", "believe", "estimate", "expect", "future", "intend", "plan", and similar expressions, as they relate to the Company or the Company's management, identify forward looking statements. Such statements reflect the current views of the Company with respect to future events and are subject to certain risks, uncertainties and assumptions relating to the Company's operations and results of operations, competitive factors and pricing pressures, shifts in market demand, the performance and needs of the segments of the foodservice industry served by the Company, the costs of product development and other risks and uncertainties, in addition to any uncertainties specifically identified in the text surrounding such statements, uncertainties with respect to changes or developments in social, economic, business, industry, market, legal, and regulatory circumstances and conditions and actions taken or omitted to be taken by third parties, including the Company's stockholders, customers, suppliers, business partners, and competitors, legislative, regulatory, judicial and other governmental authorities and officials. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may vary significantly from those anticipated, believed, estimated, expected, intended or planned. 14 PART II. OTHER INFORMATION Item 1. LEGAL PROCEEDINGS None Item 2. CHANGES IN SECURITIES. None Item 3. DEFAULTS UPON SENIOR SECURITIES None Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None Item 5. OTHER INFORMATION None Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS Exhibit Number Description -------------- ----------- 10.30 Employment Letter between Rick Caron and TurboChef Technologies, Inc. dated September 2, 1998 (b) REPORTS ON FORM 8-K None 15 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. TURBOCHEF TECHNOLOGIES, INC. By:/s/ Dennis J. Jameson ------------------------- Dennis J. Jameson Executive Vice President, Chief Financial Officer (Principal Financial Officer) Dated November 13, 1998 16 EX-10.30 2 EMPLOYMENT LETTER BETWEEN RICK CARON & TURBOCHEF EXHIBIT 10.30 EMPLOYMENT LETTER BETWEEN RICK CARON AND TURBOCHEF TECHNOLOGIES, INC. DATED SEPTEMBER 2, 1998. [LOGO OF TURBOCHEF APPEARS HERE] September 2, 1998 Dear Rick; On behalf of the Board of Directors of TurboChef Technologies, Inc. (the "Company"), we are pleased to present to you an offer of employment under the following terms and conditions: I. Title and Positions: President and Chief Executive Officer and a member of the Board of Directors. II. Job Description and Focus: To be determined by the Board of Directors in consultation with you. III. Compensation: Cash: $300,000 per year in base salary; plus an annual bonus of up to 50% of base salary, as determined exclusively by the Board of Directors. Signing Bonus: The Company will pay a signing bonus of $60,000 (50% payable on October 1, 1998 and 50% on March 1, 1999). If you choose to terminate your employment with the Company within one year of your start date, you agree to repay the Signing Bonus in full within thirty (30) days of your departure. Stock Options: You will be granted the option to purchase 200,000 shares of Common Stock of the Company. The option will vest at a rate of one-third of the shares per year on each of the anniversary dates of your continued employment. The exercise price per share will be determined on the date of the option grant, which will occur on or after your start date. This option will expire seven years after the grant date. All option terms shall be defined in accordance with the Company's 1994 Stock Option Plan (as amended). - -------------------------------------------------------------------------------- TurboChef Technologies, Inc. 10500 Metric Drive, Suite 128 Dallas, Texas 75243 TEL (214) 341-9471 . FAX (214) 340-8477 IV. Start Date: Your start date is to be no later than September 8, 1998. V. Expenses: The Company will reimburse you for all reasonable expenses in connection with the performance of your duties and in accordance with the Company's Travel and Entertainment Policies as may be amended from time to time. The Company will reimburse you for all reasonable living expenses incurred in connection with your commuting to Dallas, Texas. VI. Medical Benefits: You will be provided with medical benefits in accordance with the Company's benefit plan as may be amended from time to time. The Company will initially subsidize your present health plan until the Company's current plan provides comparable coverage. VII. Condition Precedent to Employment: You agree to execute, prior to your start date, the Company's non- disclosure and non-compete agreements in the forms attached hereto. VIII. Vacation/Holiday/Other: You shall be entitled to up to four weeks of paid vacation. You are also entitled to paid holidays in accordance with the Company's holiday policies as may be amended from time to time. Additionally, you are entitled to up to ten days of paid time off in each of 1998 and 1999 for the completion of your work with Arthur D. Little, Inc. and up to four days of paid time off in 1999 for the completion of certain work. IX. Termination by the Company: The Company may terminate your employment under this agreement at any time. In the event of termination of your employment by the Company, you will receive a severance of one year's base salary, paid to you in accordance with the Company's standard payroll practices. X. Arbitration: Your employment shall be governed and construed according to New York State Law without regards to conflict of law provisions. Any disputes or claims arising under or in connection with your employment shall be resolved by binding arbitration in accordance with the rules of the American Arbitration Association. Any such arbitration proceeding would be held in New York, New York. If the foregoing accurately reflects your understanding of the terms of your employment with the Company, please so indicate in the space provided below, whereupon this letter will constitute a binding agreement between the Company and you. We look forward to working with you. Sincerely, Agreed and accepted as of the date first written above, ----------------------------- Marion H. Antonini Rick Caron Chairman of the Board ----------------------------- Date Jeffrey B. Bogatin Director and Chairman of the Executive Committee EX-27 3 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-1998 JUL-01-1998 SEP-30-1998 372,283 7,754,692 1,045,153 0 788,284 10,017,067 972,055 509,939 17,635,832 1,024,776 0 0 0 146,541 16,432,099 17,635,832 841,075 2,066,337 589,859 2,696,157 0 (629,820) 0 (629,820) 0 0 0 0 0 (629,820) (0.04) (0.04)
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