-----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, WgSLA1P0MtQyhqG/LKTg8iu5s+ZBz7LqgmnJvJHIBMKqFzXtaTAfbL5e6POJ3Wy1 cIoBZurpCtao2HViqZ8ljQ== 0000930661-99-001239.txt : 19990518 0000930661-99-001239.hdr.sgml : 19990518 ACCESSION NUMBER: 0000930661-99-001239 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 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: 99628452 BUSINESS ADDRESS: STREET 1: 10500 METRIC DRIVE SUITE 128 CITY: DALLAS STATE: TX ZIP: 75243 BUSINESS PHONE: 2143419471 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 March 31, 1999 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, including area code: (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 May 14, 1998 ------------------- --------------- Common Stock, $0.01 Par Value 15,083,706 TURBOCHEF TECHNOLOGIES, INC. TABLE OF CONTENTS Form 10-Q Item Page - -------------- ---- Part I. Financial Information Item 1. Financial Statements Condensed Balance Sheets as of March 31, 1999 (unaudited) and December 31, 1998........................................ 3 Condensed Statements of Operations (unaudited) for the three months ended March 31, 1999 and 1998............... 4 Condensed Statements of Cash Flows (unaudited) for the three months ended March 31, 1999 and 1998............... 5 Notes to Condensed Financial Statements (unaudited).......... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................... 8 Item 3. Quantitative and Qualitative Disclosures about Market Risk... 14 Part II. Other Information Item 1. Legal Proceedings............................................ 15 Item 2. Changes in Securities and Use of Proceeds.................... 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 Signatures................................................... 16 2 TurboChef Technologies, Inc. Balance Sheets (Amounts in Thousands, Except Share Data)
March 31, December 31, ------------ ------------ 1999 1998 ------------ ------------ (Unaudited) Assets ------ Current assets: Cash and cash equivalents $ 1,909 $ 164 Marketable securities available for sale, at fair value 10,862 18,292 Marketable securities, pledged and at fair value 6,879 Accounts receivable, net 832 914 Inventories, net 820 762 Prepaid expenses 31 41 ------------ ------------ Total current assets 21,333 20,173 ------------ ------------ Property and equipment: Leasehold improvements 129 130 Furniture and fixtures 524 475 Equipment 497 456 ------------ ------------ 1,150 1,061 Less accumulated depreciation and amortization (615) (563) ------------ ------------ Net property and equipment 535 498 ------------ ------------ Investment in derivatives 1,780 -- Other assets 126 129 ------------ ------------ Total assets $ 23,774 $ 20,800 ============ ============ Liabilities and Stockholders' Equity ------------------------------------ Current liabilities: Accounts payable $ 122 $ 571 Accrued payroll 346 223 Accrued warranty costs 177 259 Accrued expenses 319 474 Deferred revenue 48 49 Other 28 31 ------------ ------------ Total current liabilities 1,040 1,607 Long-term liabilities: Long-term debt 5,109 -- Accrued interest 46 -- ------------ ------------ Total long-term liabilities 5,155 -- Total liabilities 6,195 1,607 Commitments and contingencies -- -- Stockholders' equity Common stock, $.01 par value. Authorized 50,000,000 shares Issued 14,828,706 and 14,659,134 shares at March 31, 1999 and December 31, 1998, respectively 149 148 Additional paid-in capital 32,946 32,435 Notes receivable from employees (110) -- Accumulated deficit (22,696) (21,231) Accumulated other comprehensive income 7,741 8,292 Treasury stock - at cost 32,130 at March 31, 1999 and December 31, 1998, respectively (451) (451) ------------ ------------ Total stockholders' equity 17,579 19,193 ------------ ------------ Total liabilities and stockholders' equity $ 23,774 $ 20,800 ============ ============
3 TurboChef Technologies, Inc. Statements of Operations (Amounts in Thousands, Except Share Data)
Three Months Ended March 31, 1999 1998 ---- ---- Product sales $ 674 $ 954 Research and development fees 1,025 750 ------------ ------------ Total revenues 1,699 1,704 Costs and expenses: Cost of goods sold 514 748 Research and development expenses 769 459 Selling, general and administrative expenses 1,726 1,289 ------------ ------------ Total costs and expenses 3,009 2,496 ------------ ------------ Operating loss (1,310) (792) ------------ ------------ Other income (expense): Interest income 6 39 Interest expense (46) -- Dividend income 52 47 Equity in loss of joint venture -- (65) Amortization of derivatives (162) -- Other income (expense) (6) (3) ------------ ------------ (156) 18 ------------ ------------ Net loss $ (1,466) $ (774) ============ ============ Loss per common share - basic and diluted $ (0.10) $ (0.05) ============ ============ Weighted average number of common shares outstanding 14,675,572 14,559,037 ============ ============
4 TurboChef Technologies, Inc. Statements of Cash Flows (Amounts in Thousands)
Three Month Ended March 31, 1999 1998 ---- ---- Cash flows from operating activities: Net loss $ (1,466) $ (774) Adjustments to reconcile net loss to net cash used in operating activities: Equity in loss of joint venture -- 65 Depreciation and amortization 187 117 Amortization of derivative premium 162 -- Provision for doubtful accounts 17 8 Amortization of director compensation -- 7 Decrease (increase) in accounts receivable 65 (524) Decrease (increase) in inventories (189) 228 Decrease in prepaid expenses 10 45 Increase (decrease) in accounts payable (449) 47 Decrease in other expenses (72) (25) ---------- ---------- Net cash used in operating activities (1,735) (806) ---------- ---------- Cash flows from investing activities: Sales/purchase of marketable securities -- 812 Investment in derivative securities (1,942) -- Purchase of equipment (89) (28) ---------- ---------- Net cash provided by (used in) investing activities (2,031) 784 ---------- ---------- Cash flows from financing activities: Long-term debt 5,109 -- Exercise of stock options 10 13 Exercise of stock warrants 392 50 ---------- ---------- Net cash provided by financing activities 5,511 63 ---------- ---------- Net increase (decrease) in cash and cash equivalents 1,745 41 Cash and cash equivalents at beginning of period 164 1,397 ---------- ---------- Cash and cash equivalents at end of period $ 1,909 $ 1,438 ========== ========== Long-term debt
5 TURBOCHEF TECHNOLOGIES, INC. Notes to Condensed Financial Statements (Unaudited) March 31, 1999 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, 1998 balance sheet was derived from audited financial statements but does not include all disclosures required by generally accepted accounting principles ("GAAP"). 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, 1998 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 months ended March 31, 1999 are not necessarily indicative of the results to be expected for the full year. Basic net loss per common share is based on 14,675,572 and 14,559,037 weighted average shares outstanding for the three months ended March 31, 1999 and 1998, respectively. For the three months ended March 31, 1999 and 1998, the Company did not report any incremental shares of potentially dilutive stock as their effect was antidilutive. 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 three month period ended March 31, 1999, comprehensive income was ($2,017,000) of which ($1,466,000) was net loss and of which ($551,000) was the change in net unrealized gain on marketable securities. For the three-month period March 31, 1998, comprehensive income was $3,276,000 of which ($774,000) was net loss and of which $4,050,000 was the change in net unrealized gain on marketable securities. Notes Receivable from Employees - ------------------------------- In February, March and April 1999, the Company loaned an aggregate of $37,500, $72,500 and $600,000, respectively, to five of its employees. The loaned amounts were used by the employees to exercise 284,000 (15,000 in February, 29,000 in March and 240,000 in April) stock options at an exercise price of $2.50 per share. All loans to employees are full-recourse and are secured by the underlying securities and 6 the general assets of each employee. Each loan has a term of five years and is payable, along with accrued interest, in February, March and April 2004. The notes are recorded as a reduction to Stockholders' Equity. The notes bear interest at a rate of 4.8%. The market rate of interest on March 31, 1999 was 7.0%, based upon margin rates obtained through various discount brokers. The difference between interest earned by the Company on the notes and the market rate of interest is recorded as compensation expense. Total compensation expense related to notes receivable from the employees was less than $1,000 in the quarter ended March 31, 1999. Secured Borrowings - ------------------ On January 14, 1999, the Company established a revolving credit facility with Banque AIG, London Branch (an affiliate of American International Group, Inc. ("AIG")). The AIG facility provides for the Company to pledge its Maytag shares in the form of a "Variable Stock Transaction" and to receive cash advances against the value of the Maytag shares. In January 1999, the Company received advances from its credit facility in the amount of $3.4 million. This advance bears an imputed interest rate of 5.8% and is due in January 2002. In April 1999, the Company received additional advances of $1.7 million. This advance bears an interest rate of 6.3% and is due in January 2002. Both advances have been secured by pledging an aggregate of 140,000 shares of the Company's Maytag stock. AIG has received a first priority secured interest in the pledged shares of the Company's Maytag stock. The Company is currently in compliance with all of its debt covenants. As of May 14, 1999, Maytag has granted TurboChef the ability to sell or pledge 100% of the Maytag shares. Previously, 50% of the shares were not available until September 26, 1999. Accordingly, the Company has an additional $8.7 million in advances available through the AIG Facility as of May 14, 1999. The Company has an additional $315,000 available through a secured financing agreement with its bank. Interest expense relating to its secured borrowings was $46,000 for the quarter ended March 31, 1999. Derivative Financial Instruments - -------------------------------- As part of its strategic alliance efforts, the Company invested in equity securities of Maytag Corporation. These securities are subject to fluctuations from market value changes in stock prices. To mitigate this risk, the Company hedged its investment in Maytag securities by purchasing, on January 14, 1999, put options to sell the 293,846 shares of Maytag common stock owned by the Company. The purchase of the put options required an initial cash outlay (the "premium" amount) of $1.9 million. The premium is amortized over three years, the life of the investment. The purchased put options protect the Company from a decline in the market value of the security below a minimum level of approximately $57.00/share (the put "strike" price). The total value the put options are at risk is equal to the unamortized premium, which was $1,780,000 as of March 31, 1999. The Company's purchased put options are accounted for as a hedge of its investment in the Company's Maytag stock in accordance with GAAP. Hedge accounting under GAAP requires the following criteria to be met (i) the item to be hedged is exposed to price risk (ii) the options position reduces the price exposure and (iii) the options position is designated as a hedge. No options have been purchased to cover the Company's investment in Maytag stock after January 14, 2002. The Company could be exposed to losses related to the above financial instrument should its counterparty default. This risk is mitigated through credit monitoring procedures. 7 Item 2: Management Discussion and Analysis of Financial Condition and Results --------------------------------------------------------------------- of Operations ------------- General TurboChef Technologies, Inc. ("the Company") was incorporated on April 3, 1991. The Company is a technology development firm that intends to be the recognized leader in innovation for residential and commercial appliances. Currently, it is engaged in designing, developing and marketing proprietary "rapid-cook" systems. Prior to its name change in July 1998, the Company operated under the name TurboChef, Inc. 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 a U.S. direct sales and European sales infrastructure and marketing programs. However, the revolutionary nature of the Company's technologies, coupled with large restaurant chain operators' historical resistance to change and the Company's lack of brand strength has limited commercial sales. The Company believes its long-term success is dependent on its core competencies of developing new technologies and products for the foodservice and residential appliance industries. Consequently, the Company has sought to establish alliances with major firms 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 to jointly develop new products incorporating the Company's technologies. The Alliance entailed a mutual exchange 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 Company also announced in July 1998 that the Maytag Alliance had been expanded to establish a cooperative effort to market and sell commercial cooking products in North America. During the first quarter of 1999, the Company and G.S. Blodgett Corporation, a wholly owned subsidiary of Maytag, engaging in the manufacturing and sales of commercial foodservice equipment, began arranging for the transition of the manufacturing of the Company's commercial unit to Blodgett's facilities. The Maytag Alliance will enable the Company to focus on its core competency of technology development while utilizing the strengths of well-established leaders within the commercial and residential appliance industries to manufacture, market, and distribute the Company's products in North America. The Company will continue to pursue business growth through implementation of the following strategies: (i) joint development and commercialization of residential and commercial products in North America through the Maytag Alliance, (ii) pursuit of strategic alliances and license agreements outside North America, (iii) continued marketing to European and Japanese restaurants, hotels, convenience stores and other foodservice operators, (iv) continued development of new hardware, software and food solutions for residential and 8 commercial applications utilizing the Company's patented technologies and (v) the development of new technologies. The Company's future profitability will depend upon, among other things, the successful implementation of these initiatives. 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 of Operations for the Quarter Ended March 31, 1999 Compared to the Quarter Ended March 31, 1998 Revenues for the quarter ended March 31, 1999 were $1,699,000, compared to revenues of $1,704,000 for the quarter ended March 31, 1998. This decrease is primarily attributable to a reduction in sales of commercial cooking systems, offset by an increase in research and development fees received pursuant to the Maytag Alliance. Cost of sales for the quarter ended March 31, 1999 were $514,000, a decrease of $234,000 when compared to $748,000 for cost of sales in the quarter ended March 31, 1998. This decrease is principally attributable to a reduction in sales of commercial cooking systems and a decrease in costs associated with the Company's extended warranty program. Gross profit on total net sales for the quarter ended March 31, 1999 increased $229,000 to $1,185,000 when compared to gross profit on total net sales of $956,000 during the quarter ended March 31, 1998. The increase is primarily attributable to the increase in revenues received pursuant to the Maytag Alliance. Gross margin on net cooking system sales was 36% during the quarter ended March 31, 1999, compared to 36% for the quarter ended March 31, 1998. Research and development expenses for the quarter ended March 31, 1999 increased $310,000, to $769,000, as compared to $459,000 for the quarter ended March 31, 1998. The increase is due to significant additions of engineering and technical personnel to support the Company's product development requirements associated primarily with the Maytag Alliance projects. Furthermore, the Company established an accelerated life cycle testing facility for the durability and reliability testing of the Company's products. Selling, general and administrative expenses for the quarter ended March 31, 1999 increased $437,000, to $1,726,000 from comparable expenses of $1,289,000 for the quarter ended March 31, 1998. The increase over the first quarter of 1998 is due to the addition of executive officers and other administrative support personnel along with the transition of the European sales and marketing organization under the Company's sole direction from its former joint venture, TurboChef Europe. Other income/(expense) was ($156,000) for the quarter ended March 31, 1999, compared to $18,000 for the quarter ended March 31, 1998. The increase in expense is primarily due to the amortization of the derivative investment in a "put-option" on the Maytag stock owned by the Company. This non-cash charge for the quarter was $162,000 (for additional information, refer to the "Liquidity and Capital Resources" and "Authoritative Pronouncements" sections of this document). 9 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. Since its inception, the Company has been substantially dependent on loans and capital contributions from its principal stockholders, private placements of its securities, the proceeds from the initial public offering of common stock in April 1994 (the "April 1994 IPO") and the June 1996 Secondary Offering to fund its activities. 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 aggregate research and development fees of $5.9 million ($250,000 per month from October 1997 through March 1998, $300,000 from April through July 1998, $425,000 from August through January 1999 and $300,000 through March 1999) 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 $250,000 to $300,000 per month for the term of the extension. In July 1998, a commercial sales agreement was announced and the monthly payment increased to $425,000 for six months. The increase to $425,000 ended in January 1999. The remaining monthly payments of $300,000 ended in March 1999. The Maytag Alliance, however, is ongoing, and provides for the opportunity to establish additional residential and commercial product development projects in the future. Accordingly, future revenues from the Maytag Alliance will depend upon the establishment of additional fee based research and development projects with Maytag and royalties from the successful commercialization and sales of the products that embody the Company's technologies. However, if additional projects are not initiated with Maytag there is no assurance that the Company would be able to find alternate sources of funding on acceptable terms for further research and development of current and future products. This could have a significant adverse impact on the Company's current and future operations. In January 1999, the Company terminated an existing revolving credit agreement with its bank and entered into an agreement with Banque AIG, London Branch (an affiliate of American International Group, Inc. ("AIG")). The AIG facility provides for the Company to pledge its Maytag shares in the form of a "Variable Stock Transaction" and to receive cash advances against the value of the Maytag shares. All advances mature within three years and bear interest at LIBOR plus 0.75%, on the date of this advance. At the end of the three-year term, the Company may satisfy any outstanding obligation by surrendering Maytag shares equal to the fair value of the obligation or with cash. The transaction allows the Company to benefit from the appreciation over $63.25 per share in the Maytag share price over the three-year period and provides down-side protection to the Company in the form of a "put option" for the 293,846 shares of Maytag stock. The put option establishes a minimum realizable value for the Maytag shares of approximately $57 per share. As of May 14, 1999, the Company had pledged 140,000 shares of the Maytag stock in connection with the AIG Facility and received advances totaling $5.2 million. In addition, Maytag has granted TurboChef the ability to sell or pledge 100% of the Maytag shares, effective May 14, 1999. Previously, 50% of the shares were not to be available until September 26, 1999. Accordingly, the Company has an additional $8.7 million in advances through the AIG Facility as of May 14, 1999. 10 In February 1999, the Company entered into an agreement with its bank to support general corporate requirements. The credit agreement is set to expire in February 2000. The agreement is secured by 6,923 shares of Maytag common stock owned by the Company. The Company can borrow up to the lesser of $315,000 or 75% of the market value of the Maytag stock at market rates of interest. Management believes that cash flows from operations and advances from the AIG Facility and borrowings under the bank agreement will be adequate to fund the Company's operations during the fiscal year 1999. At March 31, 1999, the Company had working capital of $20,293,000 as compared to working capital of $18,566,000 at December 31, 1998. The $1,727,000 working capital increase is primarily due to increases in cash and cash equivalents provided by the AIG facility. For the quarter ended March 31, 1999, accounts receivable turnover was 3.8 compared to 5.0 during the quarter ended March 31, 1998. The decrease in accounts receivable turnover principally relates to uncollected amounts from certain European customers. Cash used in operating activities was $1,735,000 for the quarter ended March 31, 1999 as compared to cash used in operating activities of $806,000 for the quarter ended March 31, 1998. The net loss in the first quarter of 1999 included $366,000 of non-cash contributions to net loss, compared to $197,000 in 1998. Major factors leading to the increase in net cash used in operating activities for the quarter ended March 31, 1999 were decreases in accounts payable ($449,000) and increases in inventory ($189,000). Cash used in investing activities for the quarter ended March 31, 1999 was $2,031,000, consisting of an investment in derivatives of $1,942,000 and equipment purchases of $89,000. Cash provided by financing activities was $5,511,000 for the quarter ended March 31, 1999, of which $5,109,000 was obtained through advances from the AIG facility and $402,000 was obtained through the exercise of stock options and warrants. At March 31, 1999, the Company had cash and cash equivalents of $1,909,000, compared to cash and cash equivalents of $164,000 at December 31, 1998. Year 2000 Issues The Company, like other businesses, is facing the Year 2000 issue. The Year 2000 issue arises from the past practice of utilizing two digits (as opposed to four) to represent the year in some computer programs and software. If uncorrected, this could result in computational errors as dates are compared across the century boundary. Since the software used in the Company's patented cooking system does not utilize an internal calendar, the Company believes that, for the most part, it will be unaffected by Year 2000 issues. Through May 7, 1999, the Company has had the majority of its internal software and hardware tested and made Year 2000 compliant, where necessary. The Company currently plans to have all of its hardware, software and embedded systems contained in the Company's equipment tested by June 30, 1999 and, if necessary, made Year 2000 compliant no later than September 30, 1999. While Year 2000 costs incurred to date have not been material, the Company believes it will continue to incur costs related to Year 2000 readiness throughout 1999. Furthermore, the Company believes that future costs associated with achieving Year 2000 readiness will not be material, however, there is no guarantee that the Company's operations will not be materially impacted by these costs. 11 The failure of the Company's third party vendors to be Year 2000 ready could prevent or delay the manufacturing or shipping products, providing customer support and completing transactions, all of which could have a material adverse affect on the Company's business, operating results and financial condition. The Company is currently working on plans to assess the Year 2000 readiness of its major third party vendors as well as developing contingency plans as it relates to its operations and major third party vendors. These plans should be completed by the end of the second quarter 1999. Authoritative Pronouncements The Financial Accounting Standards Board (FASB) has recently issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", and SFAS No. 132, "Employers' Disclosure about Pensions and Other Post- Retirement Benefits". These Statements are effective for the Company in 1998. The adoption of these statements does not have a material effect on the Company's financial statements. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". This Statement is effective and will be adopted by the Company on January 1, 2000. SFAS No. 133 requires companies to report derivatives on the balance sheet as assets or liabilities, measured at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. Under FASB 133, the Company's derivative investments would be marked to market on a quarterly basis and any gain or loss would be recorded within the Company's Condensed Statements of Operations. On March 31, 1999, the fair market value of the Company's derivative instruments were $1,851,000. In October 1998, the FASB issued SFAS No 134, "Accounting for Certain Mortgage Banking Activities". This Statement is effective for the Company in 1999. The adoption of this statement is not expected to have a material effect on the Company's financial statements. The American Institute of Certified Public Accountants (AICPA) has issued Statement of Position (SOP) 97-2, "Software Revenue Recognition". The adoption of this Statement does not have a material effect on the Company's financial statements. In 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use", and SOP 98-5, "Reporting on the Costs of Start-Up Activities". The adoption of these Statements does not have a material effect on the Company's financial statements. 12 Forward Looking Statements The Company has utilized the proceeds from the June 1996 Offering, and has used the proceeds received from the Maytag Alliance, to strengthen its management team and support its product development activities. The Company has completed the current phase of targeted research and development and the associated per month payments ended in January and March 1999, respectively. The Maytag Alliance, however, is ongoing, and provides for the opportunity to establish additional residential and commercial product development projects in the future. Future revenues from the Maytag Alliance will depend upon the establishment of additional fee based research and development projects with Maytag and royalties from the successful commercialization and sales of the products that embody the Company's technologies. 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. To ensure financing for corporate activities, in January 1999 the Company on the date of the advance entered into the AIG Facility. The AIG Facility provides for the Company to pledge its Maytag shares in the form of a "Variable Stock Transaction" and to receive cash advances against the value of the Maytag shares. All advances mature within three years and bear interest at LIBOR plus 0.75%, on the date of the advance. At the end of the three-year term, the Company may satisfy any outstanding obligation by surrendering Maytag shares equal to the fair value of the obligation or with cash. The transaction allows the Company to benefit from the appreciation over $63.25 per share in the Maytag share price over the three-year period and provides down-side protection to the Company in the form of a "put option" for the 293,846 shares of Maytag stock. The put option establishes a minimum realizable value for the Maytag shares of approximately $57 per share. As of April 30, 1999, the Company had pledged 140,000 shares of the Maytag stock and received advances totaling $5.2 million. The Company has approximately $1.6 million in advances available on May 14, 1999. Once the additional 146,923 Maytag shares are pledged, the Company will have available approximately $7.1 million in additional advances. In addition, in February 1999 the Company entered into an agreement with its bank to support general corporate requirements. This credit agreement is set to expire in February 2000 and is secured by 6,923 shares of Maytag common stock owned by the Company. The Company can borrow up to the lesser of $315,000 or 75% of the market value of the Maytag stock at market rates of interest. 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 could be derived from its currently proposed plans within the next 9 to 15 months, if such plans are successfully completed. These plans include: (i) joint development and commercialization of residential and commercial products in North America through the Maytag Alliance, (ii) pursuit of strategic alliances and license agreements outside North America, (iii) continued marketing to European and Japanese restaurants, hotels, convenience stores and other foodservice operators, and (iv) continued development of new hardware, software and food solutions for residential and commercial applications. 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. 13 As of March 31, 1999, the amount of backlog orders believed to be firm was approximately $0.5 million, as compared to approximately $0.4 million as of December 31, 1998. The Company anticipates that the majority of this backlog will be filled during the current year. 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. Item 3: Quantitative and Qualitative Disclosures about Market Risk ---------------------------------------------------------- In January 1999, the Company invested approximately $1.9 million to purchase a "put option" that covered all of the Company's Maytag stock. The function of the put option is to guarantee a minimum value of the Company's Maytag stock for a three-year period. This put option is an integral part of the AIG credit facility as it established a minimum borrowing base from which the Company could draw upon from time to time. The market value of the put option will be based upon the current price of Maytag stock and the amount of time remaining on the option. The Company is currently amortizing this investment on a straight-line basis, over a three-year period. The maximum potential exposure that the Company has, with respect to the put option, is $1.9 million, the initial cost of the investment. For further information regarding the Company's credit facility see the "Liquidity and Capital Resources" and "Notes to Condensed Financial Statements" sections of this document. 14 Part II. Other Information Item 1. Legal Proceedings None Item 2. Changes in Securities and Use of Proceeds. 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 None (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 and Chief Financial Officer (Principal Financial Officer) Dated May 17, 1999 16 EX-27 2 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 1,909,000 17,741,000 832,000 0 820,000 21,333,000 1,150,000 (615,000) 23,774,000 1,040,000 0 0 0 149,000 17,430,000 23,774,000 674,000 1,699,000 514,000 3,009,000 (156,000) 0 0 (1,466,000) 0 0 0 0 0 (1,466,000) (0.10) (0.10)
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