-----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, RCgHvpEHqfWDm0TFq/5aRIY5Iq/eBsauImRkxivpIZofsnzry0tPQlsegyXxVOak uCY2QqYoUWOud6R2awT04g== 0000930661-02-001754.txt : 20020515 0000930661-02-001754.hdr.sgml : 20020515 20020515131259 ACCESSION NUMBER: 0000930661-02-001754 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020515 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: 1934 Act SEC FILE NUMBER: 000-23478 FILM NUMBER: 02650171 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 d10q.txt 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, 2002 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) 379-6000 ------------------------- 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 3, 2002 ------------------- -------------- Common Stock, $0.01 Par Value 18,952,346 ================================================================================ 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, 2002 (unaudited) and December 31, 2001. ........................................................... 3 Unaudited Interim Condensed Statements of Operations for the three months ended March 31, 2002 and 2001. .................................. 4 Unaudited Interim Condensed Statements of Cash Flows for the three months ended March 31, 2002 and 2001. .................................. 5 Notes to the Interim Condensed Financial Statements (unaudited) .............. 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations .................................................... 9 Item 3. Quantitative and Qualitative Disclosures about Market Risk ................... 13 Part II. Other Information Item 1. Legal Proceedings ............................................................ 13 Item 2. Changes in Securities and Use of Proceeds. ................................... 14 Item 3. Defaults Upon Senior Securities .............................................. 14 Item 4. Submission of Matters to a Vote of Security Holders .......................... 14 Item 5. Other Information ............................................................ 14 Item 6. Exhibits and Reports on Form 8-K ............................................. 14 Signatures ................................................................... 15
2 TurboChef Technologies, Inc. Balance Sheets (Amounts in Thousands, Except Share Data)
March 31, December 31, --------- ------------ 2002 2001 ---- ---- (Unaudited) ----------- Assets ------ Current assets: Cash and cash equivalents $ 1,715 $ 4,498 Accounts receivable net of allowance for doubtful accounts of $70 at March 31, 2002 and December 31, 2001, respectively 2,495 979 Accounts receivable - other 735 735 Inventory 2,176 1,857 Prepaid expenses 92 61 ------------ ------------ Total current assets 7,213 8,130 ------------ ------------ Property and equipment, net 306 380 Other assets 155 162 ------------ ------------ Total assets $ 7,674 $ 8,672 ============ ============ Liabilities and Stockholders' Equity ------------------------------------ Current liabilities: Accounts payable $437 $373 Accounts payable - other 1,390 1,390 Accrued expenses 464 517 Notes payable 517 327 Accrued upgrade and warranty costs 936 1,038 ------------ ------------ Total current liabilities 3,744 3,645 Commitments and contingencies [Notes 2 and 3] Stockholders' equity: Preferred stock, $1.00 par value and $100.00 stated value. Authorized 5,000,000 shares. 30,000 and 51,000 issued at March 31, 2002 and December 31, 2001, respectively 2,430 4,530 Common stock, $.01 par value. Authorized 50,000,000 shares. Issued 18,952,346 and 18,418,213 shares at March 31, 2002 and December 31, 2001, respectively 190 184 Additional paid-in capital 45,979 43,628 Accumulated deficit (41,788) (40,458) Notes receivable for stock issuances (2,430) (2,406) Treasury stock - at cost 32,130 shares in 2001 and 2000 (451) (451) ------------ ------------ Total stockholders' equity 3,930 5,027 ------------ ------------ Total liabilities and stockholders' equity $ 7,674 $ 8,672 ============ ============
The accompanying notes are an integral part of these financial statements. 3 TurboChef Technologies, Inc. Unaudited Interim Condensed Statements of Operations (Amounts in Thousands, Except Share Data)
Three Months Ended March 31, ---------------------------- 2002 2001 ---- ---- Revenues: Product sales $ 1,829 $ 481 ----------- ----------- Total revenues 1,829 481 ----------- ----------- Costs and expenses: Cost of goods sold 999 297 Research and development expenses 168 395 Selling, general and administrative expenses 1,941 1,428 ----------- ----------- Total costs and expenses 3,108 2,120 ----------- ----------- Operating loss (1,279) (1,639) ----------- ----------- Other income (expense): Interest income 43 41 Interest expense (2) - Other income (expense) 3 (27) ----------- ----------- 44 14 ----------- ----------- Net loss $ (1,235) $ (1,625) =========== =========== Preferred stock dividends 95 43 Beneficial conversion of Series B preferred stock - 380 ----------- ----------- Net loss applicable to common stockholders $ (1,330) $ (2,048) =========== =========== Loss per common share - basic and diluted $ (0.07) $ (0.13) =========== =========== Weighted average number of common shares outstanding - basic and diluted 18,442,666 15,728,423 =========== ===========
The accompanying notes are an integral part of these financial statements. 4 TurboChef Technologies, Inc. Unaudited Interim Condensed Statements of Cash Flows (Amounts in Thousands)
Three Months Ended March 31, 2002 2001 ---- ---- Cash flows from operating activities: Net loss $(1,235) $(1,625) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 138 85 Non-cash interest on notes receivable from employees and directors (32) (33) Non-cash compensation expense 12 47 Changes in operating assets and liabilities: Accounts receivable (1,516) 297 Inventories (365) (10) Prepaid expenses and other assets (31) 150 Accounts payable 64 (338) Accrued expenses 175 23 ------- ------- Net cash used in operating activities (2,790) (1,404) ------- ------- Cash flows from investing activities: Purchase of equipment and leasehold improvements (11) (26) ------- ------- Net cash used in investing activities (11) (26) ------- ------- Cash flows from financing activities: Proceeds for the sale of preferred stock - 2,000 Payment of broker commission on the sale of common stock (25) - Repayments of notes receivable from employees 8 - Proceeds from the exercise of stock options 35 - ------- ------- Net cash provided by financing activities 18 2,000 ------- ------- Net increase (decrease) in cash and cash equivalents (2,783) 570 Cash and cash equivalents at beginning of period 4,498 1,417 ------- ------- Cash and cash equivalents at end of period $ 1,715 $ 1,987 ======= ======= Supplemental disclosures of noncash activities: Noncash financing activity - accrued preferred stock dividend $ 95 $ 43 ======= ======= Noncash financing activity - payment of preferred stock dividends through the issuance of common stock $ 147 $ - ======= ======= Noncash financing activity - conversion of preferred stock $ 2,100 $ - ======= ======= Noncash financing activity - beneficial conversion of preferred stock $ - $ 380 ======= =======
The accompanying notes are an integral part of these financial statements. 5 TURBOCHEF TECHNOLOGIES, INC. Notes to Condensed Financial Statements (Unaudited) March 31, 2002 1) Basis of Presentation --------------------- TurboChef Technologies, Inc. ("TurboChef" or "the Company") was incorporated on April 3, 1991. The Company is engaged primarily in designing, developing and marketing its proprietary rapid cook technologies. TurboChef's proprietary rapid cook oven, which requires no ventilation, employs a combination of high speed forced air and microwave energy to "cook-to-order" a variety of food products at faster speeds and to quality standards comparable, and in many instances superior to, other conventional commercial and residential ovens currently available. The Company's commercial oven employs the Company's proprietary cooking technologies to quickly, efficiently and evenly transfer, disperse and control the heat used in the cooking process. In addition, because of the TurboChef oven's moisture retention, browning, crisping and toasting capabilities, the Company believes that the characteristics of most food items cooked in a TurboChef cooking system (including their flavor, texture and appearance) are superior in quality to those achieved using most other cooking methods. Management believes that the Company operates in one primary business segment. The financial statements of the Company as of March 31, 2002 and 2001, included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission 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 and cash flows for all periods presented 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 ("GAAP") 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, 2001 balance sheet was derived from audited financial statements and notes included in the Company's Annual Report on Form 10-K for the year ending December 31, 2001, but does not include all disclosures required by GAAP. It is suggested that these financial statements be read in conjunction with the financial statements and notes included in the aforementioned Form 10-K. The results of operations for the three months ended March 31, 2002 are not necessarily indicative of the results to be expected for the full year. Certain amounts in prior period's financial statements have been reclassified to conform to current year presentation. Basic net loss per common share is based on 18,442,666 and 15,728,423 weighted average shares outstanding for the three months ended March 31, 2002 and 2001, respectively. For the three months ended March 31, 2002 and 2001, the Company did not report any incremental shares of potentially dilutive stock, as their effect was anti-dilutive. 6 2) Liquidity --------- TurboChef's capital requirements in connection with its product and technology development and marketing efforts have been and will continue to be significant. Additional capital will be required to operate and expand the Company's operations. Since its inception, the Company has incurred significant operating losses and has been substantially dependent on loans and capital contributions from its principal stockholders and proceeds from the sale of its securities. Furthermore, the Company will continue to be dependent on outside sources of financing for the foreseeable future to fund its working capital needs. The Company anticipates that it may need to raise additional capital by the fourth quarter of 2002. No assurances can be made that the Company will generate the necessary sales from its rapid cook ovens or from the proceeds from the sales of its securities or other financing sources to generate the necessary working capital. As a result of these conditions, the independent certified public accountant's report on the Company's financial statements for the year ended December 31, 2001 contains an explanatory paragraph regarding the Company's ability to continue as a going concern. The Company has, and will continue to hold inventory, due to its long manufacturing cycle. As of March 31, 2002, the Company held $1,179,000 of finished goods inventory (ovens), $47,000 of demonstration inventory (ovens used for customer demonstrations, tests and pilot programs) and $950,000 of parts inventory (used for manufacturing and service). The Company will offer demonstration inventory free of charge or at reduced prices to certain potentially large customers, who wish to test and evaluate an oven prior to purchase. Should sales fail to materialize, or materialize at slower rates than currently anticipated by the Company, additional working capital will be required to cover the carrying costs of component parts and purchase completed ovens. No assurances can be made that the Company will generate the necessary sales of its ovens or from the proceeds from the sales of its securities or other financing sources to generate the necessary working capital. In March 2002, the Company agreed to purchase from the Shandong Xiaoya Group ("Xiaoya") approximately $14 million of C-3 ovens over a seventeen month period. In addition, in connection with the manufacturing agreement the Company will be required to use working capital to purchase certain component parts that will be supplied to Xiaoya for use in the ovens. Although the Company entered into the agreement with Xiaoya in anticipation that its sales of C-3 ovens will increase from current levels, there can be no such assurance that any sales will materialize. The Company does not currently have a significant number of purchase orders or firm commitments to purchase ovens in the future. The Company is currently exploring alternative sources of financing for its inventory and receivables. No assurances can be made that the Company will be successful in developing any of these sources or that any terms that may be offered will be acceptable to the Company. In February 2002, the Company and Whitbread Group PLC ("Whitbread") entered into an agreement to terminate an extended warranty originally purchased by Whitbread, from the Company, in September 1999. Under the new agreement, TurboChef is required to pay Whitbread (pound)460,000 (approximately $670,000) plus VAT over a 24 month period, beginning in March 2002. In return, Whitbread will release TurboChef from its obligation to continue its warranty on 260 older model ovens. On signing the agreement, TurboChef will make an initial payment to Whitbread of (pound)50,000 (approximately $72,000) plus VAT and thereafter pay (pound)15,000 (approximately $22,000) plus VAT a month for the next 24 months, with a final payment of (pound)50,000 plus VAT due the final month. The Company continues to expand its direct sales efforts and estimates that approximately 7 $150,000 per month in operating costs has been added since December 31, 2001. In addition, additional working capital will be required should the Company pursue the development, manufacturing and marketing of a residential oven. The Company does not currently anticipate any significant increases in lease payments or any other long-term fixed obligations from current levels during fiscal 2002. The Company anticipates that it will need to obtain additional sources of funding in order to continue its ongoing operations as currently conducted. However, no assurances can be made that the Company will actually obtain the necessary funding to finance its operations. A failure to obtain additional funding would have significant adverse effects on the Company. All of the above factors raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. 3) Long-Term Contracts ------------------- In March 2002, the Company agreed to purchase from Xiaoya approximately $14 million of C-3 ovens over a seventeen month period. Although the Company entered into the agreement with Xiaoya in anticipation that its sales of C-3 ovens will increase from current levels, there can be no such assurance that any sales will materialize. The Company does not currently have a significant number of purchase orders or firm commitments to purchase ovens in the future. In February 2002, the Company and Whitbread entered into an agreement to terminate an extended warranty originally purchased in September, 1999. Under the new agreement, TurboChef is required to pay Whitbread (pound)460,000 (approximately $670,000) plus VAT over a 24 month period, beginning in March 2002. In return, Whitbread will release TurboChef from its obligation to continue its warranty on 260 older model ovens. 4) Stockholders' Equity -------------------- On March 31, 2002, the holder of all of the Company's Series A Convertible Preferred Stock converted all of its shares, plus accrued and unpaid dividends, into 512,467 of the Company's Common Stock. The issuance of these shares of common stock were made pursuant to an exemption from the registration requirements of the Securities Act of 1933, set forth in Section 3(a)(9) of such act. 5) Authoritative Pronouncements ---------------------------- In June 2001, respectively, the Financial Accounting Standards Board issued FASB Statement No. 141, Business Combinations (SFAS 141), and No. 142, Goodwill and Other Intangible Assets (SFAS 142), effective for years beginning after December 31, 2001. Under the new rules, goodwill will no longer be amortized but will be subject to annual impairment tests in accordance with the statements. Other intangible assets will continue to be amortized over their useful lives. Effective January 1, 2002, the Company adopted the new rules on accounting for goodwill and other intangible assets. The Company does not believe that the adoption of these statements will have a material effect on the Company's financial statements. In June 2001 and August 2001, respectively, the Financial Accounting Standards Board finalized FASB Statement No. 143, Accounting for Asset Retirement Obligations (SFAS 143) and Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144). SFAS 143 requires that the fair value for an asset retirement obligation be recognized in the period in which it is incurred, if a reasonable estimate of fair value can be made, and that the carrying amount of the asset, including capitalized asset retirement costs, be tested for impairment. SFAS 143 is effective for fiscal years beginning after June 15, 2002. Management does not believe this statement will have a material effect on the Company's financial position or results of operations. 8 SFAS 144 prescribes financial accounting and reporting for the impairment of long-lived assets and for long-lived assets to be disposed of, and specifies when to test a long-lived asset for recoverability. Effective January 1, 2002, the Company adopted this new rule. Management has determined that this will not have a material effect on the Company's financial position or results of operations. Item 2: Management's Discussion and Analysis of Financial Condition and --------------------------------------------------------------- Results of Operations --------------------- Forward-Looking Statements Certain statements in this Form 10-Q constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of TurboChef Technologies, Inc. to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: the ability to obtain additional financing necessary to continue operations; the uncertainty of consumer acceptance of new products or technologies that may be offered by TurboChef; the need to hire and retain key personnel; relationships with and dependence on third-party equipment manufacturers and suppliers; uncertainties relating to business and economic conditions in markets in which TurboChef operates; uncertainties relating to customer plans and commitments; potential performance issues with suppliers; the highly competitive environment in which TurboChef operates; potential entry of new, well-capitalized competitors into the markets served by TurboChef; uncertainties inherent in international sales including foreign currency fluctuations; uncertainty regarding strategic relationships and alliances and the ability to protect TurboChef's proprietary information. The words "believe," "expect," "anticipate," "intend," and "plan" and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on any of these forward-looking statements, which speak only as of the date of the statement was made. TurboChef undertakes no obligation to update any forward-looking statement. General The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of the Company's results of operations, financial condition and liquidity. The discussion should be read in conjunction with the financial statements and notes thereto contained elsewhere in this report. The Company is engaged primarily in designing, developing and marketing its proprietary rapid cook technologies. TurboChef's proprietary rapid cook ovens, which requires no ventilation, employs a combination of high speed forced air and microwave energy to "cook-to-order" a variety of food products at faster speeds and to quality standards comparable, and in many instances superior to, other conventional commercial and residential ovens currently available. The Company's commercial ovens employs the Company's proprietary cooking technologies to quickly, efficiently and evenly transfer, disperse and control the heat used in the cooking process. In addition, because of the TurboChef oven's moisture retention, browning, crisping and toasting capabilities, the Company believes that the characteristics of most food items cooked in a TurboChef cooking oven 9 (including their flavor, texture and appearance) are superior in quality to those achieved using most other cooking methods. The Company believes its technology offers the following unique features to its customers: . Cooking speeds 5-10 times faster than a conventional oven . Quality is equal to or higher than a conventional oven . Maintains high consistency of cooked product . Versatility of cooking platform (bake, broil, grill, air fried, poached and steamed cooking profiles) . Ventless operation . Through the Company's Menu in a Minute software technology, the menus and cook settings can be easily changed with minimal labor cost The Company launched the current version of its commercial oven, the TurboChef C-3, in the second quarter of 2000. To date, the TurboChef rapid cook oven has provided cooking solutions to various quick service restaurants, convenience stores, hotels and traditional restaurants in the United Kingdom, Europe and the United States. In addition, the Company has provided cooking solutions to non-traditional operators in the food service business such as stadiums, cinemas and service stations. The Company currently sells its C-3 oven through a direct sales force in North America, the United Kingdom, Europe and Asia. Until May 2001, the Company's C-3 ovens were marketed in the United States through Maytag Corporation ("Maytag") and its subsidiary, G. S. Blodgett, pursuant to the terms of a series of agreements in which the Company granted them the exclusive right to sell its C-3 ovens in North America. Under the agreements the Company retained the right to sell directly outside of North America, with the exception of selling to U.S. based customers overseas. In the first quarter of 2001, the Company and Maytag entered into arbitration with respect to certain disputes under the agreements which arbitration is pending (see Part II, Item 1 - Legal Proceedings). In May 2001, the Company regained from Maytag and Blodgett the right to sell its C-3 ovens products directly in the United States and began building its own sales force to make direct oven sales. The Company is currently expanding its direct marketing and sales efforts throughout North America, the United Kingdom, Europe and Asia. The Company's primary sales office is located in Dallas, Texas. In addition, the Company has sales offices in New York, the United Kingdom, and the Netherlands. In addition to its direct sales force, the Company is in the process of seeking to develop multiple distribution channels through the use of third party distributors, manufactures representatives, agents and wholesale food distributors. The Company is also considering entering into strategic marketing alliances with third parties who have established relationships or synergies with mutual prospective customers. In the second quarter of 2000, TurboChef established a manufacturing venture with Xiaoya, in China in which Xiaoya was granted the exclusive manufacturing rights for the C-3 oven. In March 2002, TurboChef signed a new agreement to purchase approximately $14 million of C-3 ovens from Xiaoya over the next 17 months. 10 Results of Operations for the Three Months Ended March 31, 2002 Compared to the Three Months Ended March 31, 2001 Revenues for the quarter ended March 31, 2002 were $1,829,000, compared to revenues of $481,000 for the quarter ended March 31, 2001. This increase is primarily attributable to an increase in the number of C-3 ovens sold during the period. There were no research and development or royalty revenues in the first quarter of 2002 or 2001. Cost of sales for the quarter ended March 31, 2002 were $999,000 compared to $297,000 for cost of sales in the quarter ended March 31, 2001. The increase is principally due to an increase in the number of C-3 ovens sold during the recent quarter. Gross profit on product sales for the quarter ended March 31, 2002 increased $646,000 to $830,000, when compared to gross profit on product sales of $184,000 during the quarter ended March 31, 2001. This increase is due primarily to a greater number of C-3 ovens sold and a lower manufacturing cost of ovens sold in the first quarter of 2002. In the first quarter of 2002, the Company sold ovens manufactured by Xiaoya at a lower cost than the ovens produced by the previous manufacturer. Research and development expenses for the quarter ended March 31, 2002 decreased $227,000, to $168,000, as compared to $395,000 for the quarter ended March 31, 2001. The decrease in research and development expense principally relates to a reduction in payroll and related expenses of $165,000 and expenses relating to the retrofitting of early production ovens totaling $39,000. Selling, general and administrative expenses for the quarter ended March 31, 2002 increased $513,000, to $1,941,000 from comparable expenses of $1,428,000 for the quarter ended March 31, 2001. The increase is primarily due to increase in general administrative costs, which included additional salaries of $374,000 and other sales and marketing expenses of $398,000. These increases were principally due to the Company's continued expansion of sales and marketing departments after Maytag terminated the commercial License Agreement (see Part II, Item 1 - Legal Proceedings) in the first quarter of 2001. Other income was $44,000 for the quarter ended March 31, 2002, compared to $14,000 for the quarter ended March 31, 2001. The increase in other income is attributable to the elimination of non-cash compensation charges associated with non-employee stock options. Liquidity and Capital Resources TurboChef's capital requirements in connection with its product and technology development and marketing efforts have been and will continue to be significant. Additional capital will be required to operate and expand the Company's operations. Since its inception, the Company has incurred significant operating losses and has been substantially dependent on loans and capital contributions from its principal stockholders and proceeds from the sale of its securities. Furthermore, the Company will continue to be dependent on outside sources of financing for the foreseeable future to fund its working capital needs. The Company anticipates that it may need to raise additional capital by the fourth quarter of 2002. No assurances can be made that the Company will generate the necessary sales from its rapid cook ovens or from the proceeds from the sales of its securities or other financing sources to generate the necessary working capital. As a result of these conditions, the independent certified public accountant's report on the Company's financial statements for the year ended December 31, 2001 contains an explanatory paragraph 11 regarding the Company's ability to continue as a going concern. The Company has, and will continue to hold inventory, due to its long manufacturing cycle. As of March 31, 2002, the Company held $1,179,000 of finished goods inventory (ovens), $47,000 of demonstration inventory (ovens used for customer demonstrations, tests and pilot programs) and $950,000 of parts inventory (used for manufacturing and service). The Company will offer demonstration inventory free of charge or at reduced prices to certain potentially large customers, who wish to test and evaluate an oven prior to purchase. Should sales fail to materialize, or materialize at slower rates than currently anticipated by the Company, additional working capital will be required to cover the carrying costs of component parts and purchase completed ovens. No assurances can be made that the Company will generate the necessary sales of its ovens or from the proceeds from the sales of its securities or other financing sources to generate the necessary working capital. In March 2002, the Company agreed to purchase from Xiaoya approximately $14 million of C-3 ovens over a seventeen month period. In addition, in connection with the manufacturing agreement the Company will be required to use working capital to purchase certain component parts that will be supplied to Xiaoya for use in the ovens. Although the Company entered into the agreement with Xiaoya in anticipation that its sales of C-3 ovens will increase from current levels, there can be no such assurance that any sales will materialize. The Company does not currently have a significant number of purchase orders or firm commitments to purchase ovens in the future. The Company is currently exploring alternative sources of financing for its inventory and receivables. No assurances can be made that the Company will be successful in developing any of these sources or that any terms that may be offered will be acceptable to the Company. In February 2002, the Company and Whitbread entered into an agreement to terminate an extended warranty originally purchased in September, 1999. Under the new agreement, TurboChef is required to pay Whitbread(pound)460,000 (approximately $670,000) plus VAT over a 24 month period, beginning in March 2002. In return, Whitbread will release TurboChef from its obligation to continue its warranty on 260 older model ovens. On signing the agreement, TurboChef will make an initial payment to Whitbread of(pound)50,000 (approximately $72,000) plus VAT and thereafter pay(pound)15,000 (approximately $22,000) plus VAT a month for the next 24 months, with a final payment of (pound)50,000 plus VAT due the final month. The Company continues to expand its direct sales efforts and estimates that approximately $150,000 per month in operating costs has been added since December 31, 2001. In addition, additional working capital will be required should the Company pursue the development, manufacturing and marketing of a residential oven. The Company does not currently anticipate any significant increases in lease payments or any other long-term fixed obligations from current levels during fiscal 2002. At March 31, 2002, the Company had working capital of $3,469,000 as compared to working capital of $4,485,000 at December 31, 2001. The $1,016,000 working capital decrease resulted primarily from operating losses incurred during the first quarter of 2002. Cash used in operating activities was $2,790,000 for the three months ended March 31, 2002, as compared to cash used in operating activities of $1,404,000 for the three months ended March 31, 2001. The net loss of $1,235,000, for the three months ended March 31, 2002, included $118,000 of non-cash charges (depreciation, amortization, non-cash interest and non-cash compensation expenses), as compared to $99,000 for the three months ended March 31, 2001. Net cash used in operating activities for the three 12 months ended March 31, 2002 was negatively impacted by increases in accounts receivable of $1,516,000 and inventory of $365,000. These operating cash requirements were partially offset by increases in accounts payable and accrued expenses of $64,000 and $175,000, respectively. Cash used in investing activities for the three months ended March 31, 2002, was $11,000, compared to $26,000 for the three months ended March 31, 2001. The uses of cash were entirely made up of capital equipment purchases during the periods. The Company anticipates an increase in capital expenditures to approximately $200,000 during fiscal 2002, in order to build its global sales and marketing infrastructure. Cash provided by financing activities for the three months ended March 31, 2002 was $18,000 compared to $2,000,000 for the three months ended March 31, 2001. During the first three months of 2001, the Company raised $2,000,000 from the sale of its Series B convertible preferred. At March 31, 2002, the Company had cash and cash equivalents of $1,715,000, compared to cash and cash equivalents of $1,987,000 at March 31, 2001. Item 3: Quantitative and Qualitative Disclosures about Market Risk ---------------------------------------------------------- Approximately 33% of the Company's revenues in the first quarter of 2002 were derived from sales outside of the United States, and its territories. These sales and related accounts receivable, the salaries of employees located outside of the United States and approximately 20% of selling, general and administrative expenses are denominated in foreign currencies, including British pounds and the Euro. The Company is subject to risk of financial loss resulting from fluctuations in exchange rates of these currencies against the US dollar. As of March 31, 2002, the Company does not have any assets or liabilities that have the potential for market risk that would affect the operating results or cash flow of the Company and is not engaged in any hedging activity. Part II. Other Information Item 1: Legal Proceedings ----------------- During the first quarter of 2001, the Company and Maytag filed a Notice of Claim of Arbitration, as provided for under the Commercial Cooking Appliance Project Agreement ("CCAP") and related commercial License Agreement between the parties. Maytag has claimed that the Company has breached the CCAP and related commercial License Agreement, and is seeking to recover damages of approximately $5.6 million. One of the Company's claims is that, as a result of Maytag's termination of the commercial License Agreement, Maytag is required to pay to the Company the remaining balance of minimum royalties that are due of $5.25 million. In January 2002, the Company amended its claims seeking injunctive relief and monetary damages resulting from Maytag's alleged use of TurboChef's intellectual property. In the amended complaint the Company also seeks damages for Maytag's alleged non-performance under a series of contracts entered into between Maytag and TurboChef involving the development of commercial and residential ovens utilizing TurboChef's rapid cook technology. Although the Company believes that it will prevail on its claims, the outcome of the arbitration proceeding is uncertain. In any event, even if the Company was to receive the balance of the royalties it claims are owed to it, the termination of the Maytag 13 agreements could have a material adverse affect on the Company's financial position and results of operations. Since the outcome of the arbitration proceeding is uncertain, no adjustments have been made to the financial statements. Item 2: Changes in Securities and Use of Proceeds. ----------------------------------------- On March 31, 2002, the holder of all of the Company's Series A Convertible Preferred Stock converted all of its shares, plus accrued and unpaid dividends, into 512,467 of the Company's Common Stock. The issuance of these shares of common stock were made pursuant to an exemption from the registration requirements of the Securities Act of 1933, set forth in Section 3 (a)(9) of such act. 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 3.1 Amendment to Certificate of Incorporation-Certificate of Designation of Series C Convertible Preferred Stock (b) Reports on Form 8-K In January 2002, the Company filed a Form 8-K to report under Item 5 and 7 relating to the issuance of a press release concerning the Company's consummation of a private placement of its securities. 14 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/ Stuart L. Silpe ---------------------------- Stuart L. Silpe Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer) Dated May 13, 2002 15 EX-3.1 3 dex31.txt CERT OF DESIG OF SERIES C CONV PREFERRED STOCK EX 3.1 TURBOCHEF TECHNOLOGIES, INC. ---------- CERTIFICATE OF DESIGNATION OF SERIES C CONVERTIBLE PREFERRED STOCK (Pursuant to Section 151 of the Delaware General Corporation Law) ---------- The undersigned, the authorized officer of TurboChef Technologies, Inc., a Delaware corporation (the "Corporation"), in accordance with the provisions of Section 103 of the Delaware General Corporation Law (the "DGCL") does hereby certify that, in accordance with Section 141 of the DGCL, the following resolution was duly adopted by the Board of Directors of the Corporation on April 20, 2001: RESOLVED, that the Board of Directors, pursuant to authority expressly vested in it by the provisions of the Certificate of Incorporation of the Corporation, hereby authorizes the issuance of a series of Preferred Stock, par value $1.00 per share, of the Corporation, and hereby fixes the designation, preferences, rights and the qualifications, limitations and restrictions thereof, in addition to those set forth in the Certificate of Incorporation of the Corporation, as follows: SERIES C CONVERTIBLE PREFERRED STOCK Section 1. Designation and Amount: Stated Capital. The shares of such -------------------------------------- series shall be designated as "Series C Convertible Preferred Stock" (the "Series C Convertible Preferred Stock"), the par value thereof shall be $1.00 per share and the number of shares constituting the Series C Convertible Preferred Stock shall be 10,000. The amount to be represented in stated capital at all times for each share of Series C Convertible Preferred Stock shall be $1.00. Section 2. Rank. With respect to dividend rights and rights on liquidation, ---- winding-up and dissolution, the Series C Convertible Preferred Stock will rank: (i) senior to: (A) the common stock, par value $.01 per share (the "Common Stock") of the Corporation; (B) all other classes of common stock of the Corporation; (C) the Series A convertible preferred stock, par value $1.00 per share (the "Series A Preferred Stock), and (D) each other class or series of preferred stock of the Corporation now or hereafter established by the Board of Directors (the "Board of Directors" or the "Board") of the Corporation, the terms of which do not expressly provide that it ranks senior to, or on a parity with, the Series C Convertible Preferred Stock as to dividend and redemption rights and rights on liquidation, winding-up and dissolution of the Corporation (collectively referred to as "Junior Stock"); (ii) on a parity with the Series B Convertible Preferred Stock of the Corporation and each other class or series of preferred stock of the Corporation established hereafter by the Board of Directors, the terms of which expressly provide that such class or series will rank on a parity with the Series C Convertible Preferred Stock as to dividend and redemption rights and rights on liquidation, winding-up and dissolution (collectively referred to as "Parity Stock"); and (iii) junior to each class or series of preferred stock of the Corporation established hereafter by the Board, the terms of which class or series expressly provide that such class or series will rank senior to the Series C Convertible Preferred Stock as to dividend and redemption rights or rights on liquidation, winding-up and dissolution of the Corporation (collectively referred to as "Senior Stock"). Section 3. Dividends and Distributions. --------------------------- (a) The holders of shares of Series C Convertible Preferred Stock shall be entitled to receive dividends at the rate of $8.00 per share of the Series C Convertible Preferred Stock per annum, and no more, payable, at the option of the Company, in cash or shares of Common Stock. (b) Dividends shall accrue and be payable semi-annually, in arrears, on the 20th day of April and October in each year, beginning October 2001 (each, a "Dividend Payment Date") with the first dividend payment to be prorated to take into account the actual date of issuance (August 8, 2001)of the Series C Convertible Preferred Stock. The Board of Directors may fix a record date for the determination of holders of shares of Series C Convertible Preferred Stock entitled to receive a payment of a dividend declared thereon, which record date shall be no more than sixty days prior to the date fixed for the payment thereof. (c) In the event that the Corporation elects to make a dividend payment in shares of Common Stock, the number of shares of Common Stock issuable as payment of such dividend shall be determined by dividing the total amount of dividends due by the "Fair Market Value" of the Common Stock. For purposes of this Section 3 (c) "Fair Market Value" shall mean the average of the closing sales price (or closing bid price if no sales prices are reported on any given day) of the Common Stock as reported on Nasdaq (or such other exchange or quotation medium on which the Common Stock is then traded) for the ten (10) day trading period immediately preceding the record date for such dividend, or the Dividend Payment Date if no record date shall have been established. If the Common Stock is not quoted on Nasdaq, an exchange or other quotation medium, Fair Market Value shall be determined by the Board of Directors of the Corporation. In the event of payment of interest in shares of Common stock no fractional shares shall be issued but cash shall be paid in lieu of the issuance of the fractional share based upon the Fair Market Value of such fractional shares. Section 4. Liquidation Preference. In the event of a liquidation, ---------------------- dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of Series C Convertible Preferred Stock shall be entitled to receive out of the assets of the Corporation, -2- whether such assets constitute stated capital or surplus of any nature, a sum in cash equal to $100.00 per share (the "Liquidation Preference"), together with an amount equal to the dividends accrued and unpaid thereon (whether or not declared) to the date of final distribution to such holders, without interest, and no more, before any payment shall be made or any assets distributed to the holders of any Junior Stock; provided, however, that such rights shall accrue to the holders of Series C Convertible Preferred Stock only if the Corporation's payments with respect to the liquidation preference of the holders of Senior Stock are fully met. After the liquidation preferences of the Senior Stock are fully met, the entire assets of the Corporation available, for distribution shall be distributed ratably among the holders of the Series C Convertible Preferred Stock and any Parity Stock in proportion to the respective preferential amounts to which each is entitled (but only to the extent of such preferential amounts). After payment in full of the accrued and unpaid dividends and the Liquidation Preference of the shares of Series C Convertible Preferred Stock as provided in this Section 4, the holders of such shares shall not be entitled to any further participation in any distribution of assets by the Corporation. Neither a consolidation or merger of the Corporation with another corporation nor a sale or transfer of all or part of the Corporation's assets for cash, securities or other property will be considered a liquidation, dissolution or winding up of the Corporation. Section 5. No Sinking Fund. --------------- The shares of Series C Convertible Preferred Stock shall not be subject to the operation of a purchase, retirement or sinking fund. Section 6. Conversion. ---------- (a) Each holder of the Series C Convertible Preferred Stock shall have the right to convert the Series C Convertible Preferred Stock, at any time, from time to time, in whole or in part into shares of Common Stock in accordance with this Section 6. Each share of Series C Convertible Preferred Stock shall be convertible at the Corporation's office into that number of fully paid and nonassessable shares of Common Stock (calculated as to each conversion to the nearest 1/100th of a share) as shall be equal to the Conversion Rate (as hereinafter defined), in effect at the time of conversion. The "Conversion Rate" shall be equal to a fraction, (i) the numerator of which is equal to the Liquidation Preference plus accrued and unpaid dividends through the Conversion Date and (ii) the denominator is $1.26. (b) The right of the holders of Series C Convertible Preferred Stock to convert their shares shall be exercised by surrendering for such purposes to the Corporation or its agent, as provided above, certificates representing the shares of Series C Convertible Preferred Stock to be converted, duly endorsed in blank or accompanied by proper instruments of transfer and a notice of conversion. The Corporation shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery upon conversion of shares of Common Stock or other securities or property in a name other than that of the holder of the shares of the Series C Convertible Preferred Stock being converted, and the Corporation shall not be required to issue or deliver any such shares or other securities or property unless and until the person or persons requesting the issuance thereof shall have paid to the Corporation the amount -3- of any such tax or shall have established to the satisfaction of the Corporation that such tax has been paid. (c) The Corporation (and any successor corporation) shall take all action necessary so that a number of shares of the authorized but unissued Common Stock (or common stock in the case of any successor corporation) sufficient to provide for the conversion of the Series C Convertible Preferred Stock outstanding upon the basis hereinbefore provided are at all times reserved by the Corporation (or any successor corporation), free from preemptive rights, for such conversion, subject to the provisions of Section 6(d). If the Corporation shall issue any securities or make any change in its capital structure which would change the number of shares of Common Stock into which each share of the Series C Convertible Preferred Stock shall be convertible as herein provided, the Corporation shall at the same time also make proper provision so that thereafter there shall be a sufficient number of shares of Common Stock authorized and reserved, free from preemptive rights, for conversion of the outstanding Series C Convertible Preferred Stock on the new basis. (d) In case of any consolidation or merger of the Corporation with any other corporation or in case of any sale or transfer of all or substantially all of the assets of the Corporation, or in the case of any share exchange, in each case pursuant to which all of the outstanding shares of Common Stock are converted into other securities, cash or other property, the Corporation shall make appropriate provision or cause appropriate provision to be made so that each holder of shares of Series C Convertible Preferred Stock then outstanding shall have the right thereafter (in lieu of the right to convert into Common Stock, which right shall cease) to convert such shares of Series C Convertible Preferred Stock into the kind and amount of securities, cash or other property receivable upon such consolidation, merger, sale, transfer or share exchange by a holder of the number of shares of Common Stock into which such shares of Series C Convertible Preferred Stock could have been converted immediately prior to the effective date of such consolidation, merger, sale, transfer or share exchange. If, in connection with any such consolidation, merger, sale, transfer or share exchange, each holder of shares of Common Stock is entitled to elect to receive either securities, cash or other property upon completion of such transaction, the Corporation shall provide or cause to be provided each holder of Series C Convertible Preferred Stock the right to elect the securities, cash (other than by the exercise of appraisal rights) or other property into which the Series C Convertible Preferred Stock held by such holder shall be convertible after completion of any such transaction on the same terms and subject to the same conditions applicable to holders of the Common Stock (including, without limitation, notice of the right to elect, limitations on the period in which such election shall be made and the effect of failing to exercise the election). The Corporation shall not effect any such transaction unless the provisions of this Section 6(d) have been complied with. The above provisions shall similarly apply to successive consolidations, mergers, sales, transfers or share exchanges. (e) Upon the surrender of certificates representing shares of Series C Convertible Preferred Stock, the person converting shall be deemed to be the holder of record of the Common Stock issuable upon such conversion, and all rights with respect to the shares -4- surrendered shall forthwith terminate except the right to receive the Common Stock or other securities, cash or other property as herein provided. (f) No fractional shares of Common Stock shall be issued upon conversion of Series C Convertible Preferred Stock but, in lieu of any fraction of a share of Common Stock which would otherwise be issuable in respect of the aggregate number of such shares surrendered for conversion at one time by the same holder, the Corporation shall pay in cash an amount equal to the product of (i) the Fair Market Value and (ii) such fraction of a share. (g) The Conversion Rate shall be adjusted from time to time under certain circumstances in case the Corporation shall (i) pay a dividend or make a distribution on its Common Stock in shares of its capital stock, (ii) subdivide its outstanding Common Stock into a greater number of shares, (iii) combine the shares of its outstanding Common Stock into a smaller number of shares, or (iv) issue by reclassification of its Common Stock any shares of its capital stock, then in each such case the Conversion Rate in effect immediately prior thereto shall be proportionately adjusted so that the holder of any Series C Convertible Preferred Stock there-after surrendered for conversion shall be entitled to receive, to the extent permitted by applicable law, the number and kind of shares of capital stock of the Corporation which it would have owned or have been entitled to receive after the happening of such event had such Series C Convertible Preferred Stock been converted immediately prior to the record date for such event (or if no record date has been established in connection with such event, the effective date for such action). An adjustment pursuant to this Section 6(g) shall become effective immediately after the record date in the case of a stock dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination, or reclassification. All calculations hereunder shall be made to the nearest cent or to the nearest 1/100 of a share, as the case may be. (h) If at any time as a result of an adjustment made pursuant to Section 6(g), the holder of any Series C Convertible Preferred Stock thereafter surrendered for conversion shall become entitled to receive securities, cash, or assets other than Common Stock, the number or amount of such securities or property so receivable upon conversion shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Stock contained in Section 6(g) above. (i) Except as otherwise provided above in this Section 6, no adjustment in the Conversion Rate shall be made in respect of any conversion for share distributions or dividends theretofore declared and paid or payable on the Common Stock. (j) Whenever the Conversion Rate is adjusted, the Corporation will give notice by mail to the holders of record of Series C Convertible Preferred Stock, which notice shall be made within 45 days after the effective date of such adjustment and shall state the adjustment and the Conversion Rate. Notwithstanding the foregoing notice provisions, failure by the Corporation to give such notice or a defect in such notice shall not affect the binding nature of such corporate action of the Corporation. -5- (k) Whenever the Corporation shall propose to take any of the actions specified in Section 6(d) or in Section 6(g) which would result in any adjustment in the Conversion Rate under this Section 6, the Corporation shall use its best efforts to cause a notice to be mailed at least 10 days prior to the date on which the books of the Corporation will close or on which a record will be taken for such action, to the holders of record of the outstanding Series C Convertible Preferred Stock on the date of such notice. Such notice shall specify the action proposed to be taken by the Corporation and the date as of which holders of record of the Common Stock shall participate in any such actions or be entitled to exchange their Common Stock for securities or other property, as the case may be. Failure by the Corporation to mail the notice or any defect in such notice shall not affect the validity of the transaction. Section 7. Voting Rights. ------------- (a) The holders of Series C Convertible Preferred Stock will not have any voting rights except as set forth in this Section 7 or as otherwise from time to time required by law. (b) The affirmative vote or consent of the holders of at least a majority of the outstanding shares of the Series C Convertible Preferred Stock, voting separately as a class, will be required for any amendment, alteration or repeal of this Certificate of Designation, if such amendment, alteration or repeal materially and adversely affects the rights, preferences or privileges of the Series C Convertible Preferred Stock. The creation, authorization or issuance of any series or shares of any Senior Stock, Parity Stock or Junior Stock or the increase or decrease in the amount of authorized capital stock of any class, including preferred stock, shall not require the consent of holders of the Series C Convertible Preferred Stock and shall not be deemed to affect adversely the rights, preference or privileges of shares of Series C Convertible Preferred Stock. Such right of the holders of Series C Convertible Preferred Stock to vote as hereinabove provided may be exercised at any annual meeting or at any special meeting called for such purpose as hereinafter provided or at any adjournment thereof. (c) In any case in which the holders of Series C Convertible Preferred Stock shall be entitled to vote pursuant to this Section 7 or pursuant to Delaware law, each holder of Series C Convertible Preferred Stock entitled to vote with respect to such matters shall be entitled to one vote for each share of Series C Convertible Preferred Stock held. Section 8. Residual Rights. All rights accruing to the outstanding shares --------------- of the Corporation not expressly provided for to the contrary herein shall be vested in the Common Stock. Section 9. Preemptive Rights. The holders of the Series C Preferred Stock ----------------- are not entitled to any preemptive rights. Section 10. Outstanding Shares. All shares of Series C Convertible ------------------ Preferred Stock shall be deemed outstanding except: (i) from the date of surrender of certificates representing shares of Series C Convertible Preferred Stock for conversion into Common Stock, -6- all shares of Series C Convertible Preferred Stock converted into Common Stock; and (ii) from the date of registration of transfer, all shares of Series C Convertible Preferred Stock held of record by the Corporation or any subsidiary of the Corporation. IN WITNESS WHEREOF, TurboChef Technologies, Inc. has caused this certificate to be signed by John C. Shortley, its Treasurer this 7th day of August 2001. TURBOCHEF TECHNOLOGIES, INC. By: /s/ John C. Shortley ------------------------ John C. Shortley Treasurer -7- -----END PRIVACY-ENHANCED MESSAGE-----