-----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, U5uH31n3qtgc2SQ0qqd4XhKpxMxfY+wUQvZnsFJ4U0ZWHNoMHJsXZq7gYmjNkNBG X783vt1EMj8VPCfNXjf/lA== 0001145443-04-000451.txt : 20040330 0001145443-04-000451.hdr.sgml : 20040330 20040330143202 ACCESSION NUMBER: 0001145443-04-000451 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20040330 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/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-23478 FILM NUMBER: 04700052 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/A 1 d14298_10qa.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q/A

(MARK ONE)
x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Quarter ended September 30, 2003

OR

o

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 Incorporation or Organization)		(I.R.S. Employer Identification Number)

10500 METRIC DRIVE, SUITE 128 DALLAS, TEXAS		75243
(Address of Principal Executive Offices)		(Zip Code)

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 o

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES o NO x

Indicate the number of shares outstanding of each of the Registrant’s classes of Common Stock, as of the latest practicable date.

TITLE OF EACH CLASS		NUMBER OF SHARES OUTSTANDING AT OCTOBER 27, 2003

Common Stock, $0.01 Par Value		19,419,240

TURBOCHEF TECHNOLOGIES, INC.
TABLE OF CONTENTS

FORM 10-Q ITEM			PAGE


PART I. FINANCIAL INFORMATION

	Item 1.	Financial Statements

		Unaudited Condensed Balance Sheets as of September 30, 2003 and December 31, 2002	3

		Unaudited Interim Condensed Statements of Operations for the three and nine months ended September 30, 2003 and 2002	4

		Unaudited Interim Condensed Statements of Cash Flows for the nine months ended September 30, 2003 and 2002	5

		Notes to the Unaudited Interim Condensed Financial Statements	6

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	24

	Item 4.	Controls and Procedures	25

PART II. OTHER INFORMATION

	Item 1.	Legal Proceedings	25

	Item 2.	Changes in Securities and Use of Proceeds	25

	Item 3.	Defaults Upon Senior Securities	26

	Item 4.	Submission of Matters to a Vote of Security Holders	26

	Item 5.	Other Information	26

	Item 6.	Exhibits and Reports on Form 8-K	26

		Signatures	26

PART 1. FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

TurboChef Technologies, Inc.
Unaudited Condensed Balance Sheets
(Amounts in Thousands, Except Share Data)

	SEPTEMBER 30, 2003				DECEMBER 31, 2002


Assets

Current assets:
Cash and cash equivalents		$	66			$	629
Accounts receivable net of allowance for doubtful accounts of $219 and $169 at September 30, 2003 and December 31, 2002, respectively			331				1,682
Accounts receivable - other			749				735
Inventory			1,494				1,954
Prepaid expenses			92				79

Total current assets			2,732				5,079


Property and equipment, net			72				170

Other			96				138

Total assets		$	2,900			$	5,387


Liabilities and Stockholders’ Deficit

Current liabilities:
Accounts payable		$	1,701			$	1,113
Accounts payable - other			1,445				1,445
Accrued expenses			153				583
Notes payable			1,545				1,359
Deferred revenue			342				-
Accrued upgrade and warranty costs			810				1,046

Total current liabilities			5,996				5,546

Commitments and contingencies (Notes 2 and 3)

Stockholders’ deficit:
Preferred stock, $1.00 par value and $100.00 stated value. Authorized 5,000,000 shares. 30,000 issued at September 30, 2003 and December 31, 2002, respectively			2,430				2,430
Common stock, $.01 par value. Authorized 50,000,000 shares. Issued 19,419,240 and 19,058,526 shares at September 30, 2003 and December 31, 2002, respectively			194				191
Additional paid-in capital			46,767				46,513
Accumulated deficit			(49,407	)			(46,312	)
Notes receivable for stock issuances			(2,629	)			(2,530	)
Treasury stock - at cost 32,130 shares in 2003 and 2002			(451	)			(451	)

Total stockholders’ deficit			(3,096	)			(159	)


Total liabilities and stockholders’ deficit		$	2,900			$	5,387

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

TurboChef Technologies, Inc.
Unaudited Interim Condensed Statements of Operations
(Amounts in Thousands, Except Share Data)

	Three Months Ended September 30,							Nine Months Ended September 30,

		2003			2002				2003			2002


Revenue - Product sales		$	533		$	2,477			$	3,368		$	5,211

Costs and expenses:
Cost of goods sold			255			1,415				1,776			2,828
Research and development expenses			194			296				680			606
Selling, general and administrative expenses			688			2,287				3,935			6,382

Total costs and expenses			1,137			3,998				6,391			9,816


Operating loss			(604	)		(1,521	)			(3,023	)		(4,605	)


Other income (expense):
Interest income			33			35				99			114
Interest expense			—			(200	)			—			(226	)
Other income			3			(4	)			7			(2	)

			36			(169	)			106			(114	)


Net loss			(568	)		(1,690	)			(2,917	)		(4,719	)

Preferred stock dividends			(60	)		(56	)			(179	)		(191	)

Net loss applicable to common stockholders		$	(628	)	$	(1,746	)		$	(3,096	)	$	(4,910	)


Loss per common share - basic and diluted		$	(0.03	)	$	(0.09	)		$	(0.16	)	$	(0.26	)


Weighted average number of common shares outstanding - basic and diluted			19,419,240			19,058,526				19,301,645			18,851,534

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

TurboChef Technologies, Inc.
Unaudited Interim Condensed Statements of Cash Flows
(Amounts in Thousands)

	Nine Months Ended

	September 30, 2003				September 30, 2002


Cash flows from operating activities:
Net loss		$	(2,917	)		$	(4,719	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			234				413
Allowance for doubtful accounts			51				100
Non-cash interest on notes receivable from employees and directors			(99	)			(99	)
Non-cash compensation expense			19				31
Non-cash interest expense			--				200

Changes in operating assets and liabilities:
Accounts receivable			1,300				(769	)
Inventories			336				(913	)
Prepaid expenses and other assets			3				(39	)
Accounts payable			588				360
Accrued expenses			(420	)			465
Deferred revenue			342

Net cash used in operating activities			(563	)			(4,970	)


Net cash used in investing activities - Purchase of equipment and leasehold improvements			-				(89	)


Cash flows from financing activities:
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			-				48
Proceeds from note payable			-				1,000

Net cash provided by financing activities			-				1,031


Net decrease in cash and cash equivalents			(563	)			(4,028	)
Cash and cash equivalents at beginning of period			629				4,498

Cash and cash equivalents at end of period		$	66			$	470


Supplemental disclosures of noncash activities:

Noncash investing activity - accrued preferred stock dividend		$	141			$	191


Noncash investing activity - payment of preferred stock dividends through the issuance of common stock		$	240			$	363


Noncash financing activity - conversion of preferred stock		$	-			$	2,100

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

TURBOCHEF TECHNOLOGIES, INC.
Notes to Condensed Financial Statements
(Unaudited)
September 30, 2003

1) NATURE OF OPERATIONS AND BASIS OF PRESENTATION

TurboChef Technologies, Inc. (“TurboChef” or “the Company”) was incorporated in the State of Delaware on April 3, 1991. The Company is engaged primarily in designing, developing and marketing its proprietary rapid cook technologies. The Company’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 Company’s ovens’ moisture retention, browning, crisping and toasting capabilities, the Company believes that the characteristics of most food items cooked in a TurboChef oven (including their flavor, texture and appearance) are superior in quality to those achieved using most other cooking methods.

The Company believes its primary markets are with commercial food service operators throughout North America, the United Kingdom, Europe and Asia. Management believes that the Company operates in one primary business segment.

The financial statements of the Company as of September 30, 2003 and 2002 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 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 accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted from these statements unless significant changes have taken place since the end of the Company’s most recent fiscal year. The Company’s December 31, 2002 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, 2002, 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 and nine months ended September 30, 2003 are not necessarily indicative of the results to be expected for the full year.

Certain amounts in the prior period financial statements have been reclassified to conform to current year presentation.

Basic net loss per common share for the three months ended September 30, 2003 and

2002 is based on 19,419,240 and 19,058,526 weighted average shares outstanding, respectively. Basic net loss per common share for the nine months ended September 30, 2003 and 2002 is based on 19,301,645 and 18,851,534 weighted average shares outstanding, respectively. For the three month periods and nine month periods ended September 30, 2003 and 2002, the Company did not report any incremental shares of potentially dilutive stock, as their effect was anti-dilutive.

2) LIQUIDITY & SUBSEQUENT EVENTS

The Company’s capital requirements in connection with its product and technology development and marketing efforts have and will continue to be significant. As of September 30, 2003, additional capital was required to conduct normal business operations. Since its inception, the Company has incurred significant operating losses and the losses may continue. As a result of negative circumstances related to the Company’s working capital and liquidity in prior periods, the independent certified public accountant’s report on the Company’s financial statements for the year ended December 31, 2002 contains an explanatory paragraph regarding the Company’s ability to continue as a going concern.

On October 28, 2003 the Company completed a private placement of 2,132,650 shares of its new Series D Preferred Stock, par value $1.00 per share (the “Series D Preferred Stock”) to OvenWorks, LLLP (“OvenWorks”) and to certain clients of Sanders Morris Harris Inc. for whom OvenWorks served as nominee. At the time of issuance, the shares of Series D Preferred Stock issued in the private placement were convertible into an aggregate of 42,653,000 shares of the Company’s common stock, which represents approximately 58% of the Company’s total equity on a fully diluted, as converted basis (i.e. assuming that all outstanding options, warrants and other rights for the purchase of common stock shall have been exercised, and all outstanding shares of all series of the Company’s preferred stock, including the Series D Preferred Stock, have been converted into common stock). Gross proceeds to the Company totaled $13,077,964, and will be used to satisfy existing obligations and to fund the Company’s working capital needs, including product development and manufacturing, sales and marketing and other general corporate purposes.

OvenWorks is a newly formed Georgia limited liability limited partnership of which Oven Management, Inc., a Georgia corporation (“Oven Management”) serves as the general partner. Oven Management is controlled by Richard E. Perlman.

In connection with the private placement, Jeffrey B. Bogatin and Donald J. Gogel resigned from their board and officer positions with the Company and the Company appointed Mr. Perlman as Chairman of the Board, James K. Price as President and Chief Executive Officer and James A. Cochran as Chief Financial Officer. In addition to Messrs. Perlman and Price, William A. Shutzer and Raymond H. Welsh were appointed to the Company’s Board of Directors. The Company expects to add additional board members in the near future.

all or part of their shares to common stock of the Company), preemptive rights, and demand and piggy-back registration rights with respect to their shares. Holders of Series D Preferred Stock are entitled to vote as a class in connection with certain matters, are generally entitled to vote together with the holders of the Company’s common stock on an as converted basis, and are also entitled to elect two-thirds of the members of the Company’s Board of Directors.

At the time of the private placement, the Company did not have enough shares of its common stock authorized to permit conversion of all of the shares of Series D Preferred Stock. Accordingly, the Series D Preferred Stock may be considered redeemable preferred stock until a formal proxy statement is filed to approve the authorization of additional shares of the Company’s common stock. The shares of Series D Preferred Stock also have beneficial conversion characteristics. Management will measure and record adjustments resulting from the issuance of the Series D Preferred Stock in the fourth quarter of 2003.

In connection with the private placement, Mr. Bogatin was granted the right to nominate and elect one member of the Company’s Board of Directors, subject to the reasonable approval of the Company’s Board of Directors. Messrs. Bogatin and Gogel agreed to a general 18-month prohibition on the transfer of their shares of capital stock of the Company, and to a right of first refusal in favor of the Company and OvenWorks, subject to a monthly trading allowance based on the average daily trading volume of the Company’s common stock. Messrs. Bogatin and Gogel also have entered into a voting agreement pursuant to which they agreed to vote all their shares of the Company’s common stock in favor of, among other things, any proposal to amend the Company’s Certificate of Incorporation to increase the amount of the Company’s authorized capital stock. Mr. Gogel exercised his right to convert all of his shares of the Company’s Series C Preferred Stock, plus all accrued and unpaid dividends thereon, into 803,565 shares of the Company’s common stock. Messrs. Bogatin and Gogel also have each entered into a non-competition agreement and a release agreement in favor of the Company in consideration for which Messrs. Bogatin and Gogel received an aggregate of 2,433,333 and 366,667 shares of the Company’s common stock, respectively. The non-compete agreements shall be valued at the fair market value of the shares and amortized over the benefit period.

Prior to the private placement, Messrs. Bogatin and Gogel agreed to the termination of all of their outstanding options to purchase the Company’s common stock. Additionally, the Company agreed to cancel the obligations of Messrs. Bogatin and Gogel to pay the Company $2,000,000 and $100,000, respectively, under certain promissory notes delivered by them to the Company in connection their exercise of stock options in 1999 and 2000. In return, Messrs. Bogatin and Gogel agreed to the cancellation of the 800,000 and 40,000 shares respectively, of the Company’s common stock acquired by them in connection with such option exercises. The termination of these obligations may result in a fourth quarter compensation charge.

3) OPERATIONS

As of November 13, 2003, the Company had cash and cash equivalents totaling approximately $10,000,000 and accounts receivable totaling approximately $550,000. In addition, as a result of the working capital raised in the October 2003 private placement, the Company anticipates that its cash on hand, collections of its accounts receivable and cash from

anticipated sales of ovens will be sufficient to meet its obligations, resume its normal operations and generate sales in future periods.

The Company has held, and will continue to hold inventory due to its long manufacturing cycle. As of September 30, 2003, the Company held $650,000 of finished goods inventory (ovens)(including $196,000 of inventory for one customer who ordered and paid for 50 ovens in March 2003 but requested future shipment), $23,000 of demo inventory (ovens) and $821,000 of parts inventory (used for manufacturing and servicing ovens). The Company offers 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.

In March 2002, the Company entered into a manufacturing agreement to purchase 5,000 C-3 ovens from Shandong Xiaoya Group Company Limited (“Xiaoya”) totaling approximately $14,000,000 over a 17-month period. In addition, in connection with this manufacturing agreement the Company is required to purchase certain component parts that will be supplied to Xiaoya for use in manufacturing the ovens. In December 2002, this purchase requirement was extended for an additional 12 months to August 2004 and the Company agreed to purchase a minimum of 200 ovens per month. Due to the Company’s cash position, the Company has not purchased any ovens since February 2003. As of September 30, 2003, the Company was behind in its required purchases under the manufacturing agreement and owed Xiaoya $244,000 for units shipped during February 2003. Contemporaneously with the October 2003 private placement, the Company entered into a Settlement, Release Agreement and Third Amendment to its manufacturing agreement with Xiaoya to resolve potential claims and reduce the monthly purchase commitment. Pursuant to this agreement the Company agreed to make a payment of $244,000 in full satisfaction of all amounts then due to Xiaoya. In exchange, Xiaoya agreed to release the Company from any claims Xiaoya may have as of the signing of the agreement and reduce the monthly minimum purchase requirement of C-3 ovens that the Company must make from Xiaoya to 84. On November 12, 2003 the Company made the payment of $244,000 that was owed to Xiaoya.

In September 1999, the Company entered into an agreement to upgrade and warranty 262 ovens installed for Whitbread Group PLC (“Whitbread”). The Company received approximately $1,400,000 from Whitbread to complete the upgrade and provide a three-year extended warranty on each of the upgraded ovens. The oven upgrades include design changes that were intended to substantially increase the life and durability of the ovens. These upgrades were completed in February 2000. The $1,400,000 in fees had been used to offset expenses relating to the upgrade and warranty as incurred. During 2000, the Company accrued an additional $985,000 for expenses in excess of payments received from Whitbread, relating to the completion of the upgrade and repairs during the remainder of the warranty period. No additional costs were incurred during the Company’s 2001 fiscal year. In February 2002, the Company and Whitbread entered into an agreement to terminate the upgrade and warranty agreement originally purchased in September 1999. Under the new agreement, the Company was required to pay Whitbread (pound)460,000 (approximately $670,000) plus VAT (value added tax) over a 24-month period. In return, Whitbread would release TurboChef from its obligation to continue its warranty on the 262 upgraded ovens. On signing the agreement, the Company made an initial payment to Whitbread of (pound)50,000 (approximately $72,000) plus VAT and committed to 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 has not made the November 2002 through October 2003 payments and is currently in default under the agreement. As a result of the default, the estimated warranty liability was recalculated, resulting in an additional estimated warranty liability of $190,000.

In November 2001, the Company purchased $504,000 of parts and oven inventory from its former strategic alliance partner, Maytag Corporation (“Maytag”). The Company paid $177,000 in cash and issued a promissory note in the amount of $327,000 for the remaining balance of this purchase. The note was payable in installments of $131,000, payable in May 2002, and $196,000, payable in November 2002, plus accrued interest at the prime rate, as published in THE WALL STREET JOURNAL, plus 2%. The Company has not made any payments on the note and is currently in default. As of the date of the default, the interest rate of this note increased to the prime rate, as published in THE WALL STREET JOURNAL, plus 5% (9% as of September 30, 2003). On January 6, 2003, Maytag obtained a summary judgment against the Company in the amount of $359,372, which is included in notes payable. The parties are currently negotiating a settlement of all outstanding issues. There can be no assurance that a settlement will be reached, or that if reached, the settlement will be favorable to the Company.

In July 2002, the Company issued a non-interest bearing promissory note in the amount of $1,000,000 to Grand Cheer Company Limited (“Grand Cheer”), a principal stockholder of the Company, which was secured by 350 C-3 ovens. The Company agreed to repay the note by making payments of approximately $2,800 per oven within five days of receipt of cash from the sale of the ovens. All of the ovens were sold and cash received but no payment was made to Grand Cheer. The note was due on October 15, 2002. The note also provided that if the Company did not repay the note in full by October 15, 2002, all remaining unvested warrants for the purchase of the Company’s common stock (666,667 warrants) previously issued to Grand Cheer would immediately vest. In connection with the issuance of the note, the Company incurred a non-cash finance charge of $200,000 which was payable by offsetting the exercise price of the 1,000,000 warrants previously issued to Grand Cheer upon its purchase of the Company’s Series B Convertible Preferred Stock. Contemporaneously with the October 2003 private placement, the Company entered into a Settlement and Release Agreement with Grand Cheer to resolve claims relating to the note. In connection therewith, Grand Cheer exercised its rights to convert all of its shares of the Company’s Series B Preferred Stock, plus all accrued and unpaid dividends thereon, into 2,024,986 shares of the Company’s Common Stock, agreed to reduce from 1,000,000 to 800,000 the number of shares of the Company’s common stock issuable upon exercise of Grand Cheer’s warrants and the Company agreed to pay Grand Cheer $1,200,000 in cash from the proceeds of the transaction, and issue to Grand Cheer 652,288 shares of its Common Stock. On November 4, 2003 the Company paid Grand Cheer $1,200,000 to settle its obligations under the note. The fair value of the exchange in excess of the face value of the obligation will be recorded as interest expense in the fourth quarter.

4) LITIGATION

In 2001, the Company commenced an arbitration proceeding in Texas against its former strategic partner, Maytag. In July 2002, in response to an Iowa court proceeding brought by Maytag which is discussed below, the Company filed an amended arbitration claim removing

two of the Company’s pending claims from the Texas arbitration. Those claims have been filed in the Boston arbitration discussed below. Maytag has made certain counterclaims against the Company in the Texas arbitration and is seeking in excess of $70,000,000 in damages under its counterclaims.

The Company believes that Maytag’s Texas claims are without merit and intends to vigorously defend against Maytag’s allegations.

In May 2002, Maytag filed a complaint in Iowa federal court seeking, among other things, to require that two of the Company’s claims originally filed and pending in the Texas arbitration be decided in a separate arbitration proceeding in Boston, Massachusetts. Maytag’s complaint in the Iowa proceeding also alleges that the Company publicized false and misleading statements about Maytag’s use of the Company’s intellectual property in its residential appliances in a January 2002 press release and in certain other unidentified statements. Based upon this allegation, Maytag asserts claims that the Company caused false advertising with respect to Maytag’s goods and services, that the Company has intentionally interfered with Maytag’s prospective business, that the Company has defamed Maytag and that the Company has unfairly competed with Maytag. Unlike Maytag’s counterclaims in the Texas arbitration proceeding, its complaint in the Iowa proceeding does not specify the dollar amount of damages sought. In July 2002, the Company filed a motion to dismiss the Maytag complaint or, in the alternative, stay the Iowa proceeding pending resolution of the Texas arbitration. On July 30, 2002, Maytag filed a Motion for Leave to File First Amended Complaint adding a claim that the Company failed to pay a promissory note in the amount of $327,478. On January 6, 2003, the Federal Court in the Iowa proceeding granted a summary judgment against the Company in the amount of $359,372, which is accrued and included in notes payable in the September 30, 2003 and December 31, 2002 financial statements and stayed the remainder of Maytag’s claims pending the final resolution of the Texas claims.

Maytag has also initiated arbitration in Boston, claiming damages in the amount in excess of $1,300,000 for failure to pay for ovens. The Company has filed its counterclaim alleging that Maytag breached its warranty and committed fraud and that the Company has been damaged in an amount in excess of $1,500,000.

The parties are currently seeking to negotiate a settlement. There can be no assurance that a settlement will be reached or that any settlement will be favorable to the Company. The outcome of any litigation, however, is uncertain and an unfavorable outcome could have an adverse effect on our operating results and future operations. Since the outcomes of the arbitration proceedings are uncertain, no adjustments have been made to the financial statements.

5) STOCK BASED COMPENSATION

The Company accounts for its stock-based compensation plans under the provisions of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS No. 123, “Accounting for Stock-Based Compensation” requires companies that elect not to account for stock-based compensation as presecribed by that statement to disclose, among other things, the pro forma effects on operations as if SFAS No. 123 had been

adopted. SFAS No. 148, “Accounting for Stock-Based Compensation - Transition and Disclosure” provides for alternative methods of transitioning to SFAS No. 123. It also amends the disclosure provisions of SFAS No. 123 and APB No. 28, “Interim Financial Reporting,” to require disclosure in the summary of significant accounting policies of the effects of an entity’s accounting policy with respect to stock-based compensation on reported net income and earnings per share in annual and interim financial statements. SFAS No. 148’s amendment of the transition and annual disclosure requirements are effective for fiscal years ending after December 15, 2002. The amendment of disclosure requirements of APB Opinion No. 28 is effective for interim periods beginning after December 15, 2002. The Company will continue to use the intrinsic value method of accounting for stock-based compensation as allowed by SFAS No. 148. No compensation expense for employee stock options is reflected in net income (loss) available to common stockholders as all options granted under the plans had an exercise price equal to the market value of the common stock on the date of the grant.

For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options’ vesting period. The Company’s pro forma information, based on the options held by the Company’s employees, is as follows (in thousands, except per share data):

	Three Months Ended September 30,						Nine Months Ended September 30,

	2003			2002			2003			2002


Net income (loss) available to common stockholders:
As reported	$	(628	)	$	(1,746	)	$	(3,096	)	$	(4,910	)
Total stock-based compensation expense		(267	)		(338	)		(801	)		(1,014	)



Pro forma	$	(895	)	$	(2,084	)	$	(3,897	)	$	(5,924	)



Net income (loss) available to common stockholders per share:
As reported	$	(0.04	)	$	(0.09	)	$	(0.17	)	$	(0.26	)
Pro forma		(0.05	)		(0.11	)		(0.20	)		(0.31	)

6) CONTRACTUAL OBLIGATIONS AND COMMITMENTS

The following chart summarizes all of the Company’s material obligations and commitments to make future payments under contracts such as debt and lease agreements as of September 30, 2003:

(in thousands)	Total		Less Than 1 Year			1-3 Years

Long-term debt	$	1,545		$	1,545	$	-

Operating lease obligations		92			87		5


Total contractual cash obligations	$	1,637		$	1,632	$	5

7) AUTHORITATIVE PRONOUNCEMENTS

In November 2002, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others, which disclosures are effective for financial statements issued after December 15, 2002. Adoption of this standard is not expected to have a material effect on the Company’s consolidated financial statements.

In January 2003, FASB issued FAS Interpretation No. 46, Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletin No. 51, Consolidated Financial Statements (“FIN No. 46”). FIN No. 46 explains how to identify variable interest entities and how an enterprise assesses its interests in a variable interest entity, to decide whether to consolidate that entity. The Interpretation requires existing unconsolidated variable interest entities to be consolidated by their primary beneficiaries if the entities do not effectively disperse risks among parties involved. FIN No. 46 is effective immediately for variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. The Interpretation applies in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. Adoption of this standard is not expected to have a material effect on the Company’s consolidated financial statements.

In May 2003, FASB issued Statement of Financial Accounting Standards No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity” (“SFAS No. 150”). SFAS No. 150 establishes standards on the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. The provisions of SFAS No. 150 are effective for financial instruments entered into or modified after May 31, 2003 and to all other instruments that exist as of the beginning of the first interim financial reporting period beginning after June 15, 2003. The Company does not believe that the adoption of SFAS No. 150 will have a material impact on its results of operations or financial position.

ITEM 2:

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RECENT DEVELOPMENTS

Amendment to Form 10-Q

This amendment to Form 10-Q is made to revise revenue recognition for a sales transaction entered into in March 2003 and to revise recognition of interest expense related to the settlement of a note payable which was completed in the fourth quarter of 2003.

On March 31, 2003, we entered into an agreement for the sale of 50 ovens to a significant customer for an aggregate purchase price of $342,500. Although the customer paid for the order in full, it requested that we hold the ovens for delivery to its outlets from time to time as it readied those outlets. We complied with that request as an accommodation to the customer and, based on our then-current understanding of applicable guidance and the facts of the transaction, recognized $342,500 in revenue from this transaction in the quarter ended March 31, 2003.

Staff Accounting Bulletin (“SAB”) 104 was promulgated in December 2003 to codify and update previously issued guidance for revenue recognition. In order to recognize revenue for goods purchased on a delayed delivery basis (sometimes referred to as bill and hold basis), SAB 104 requires, among other things, that there be a fixed schedule for delivery of the held goods. At the time of this transaction, the customer advised us that the delivery schedule would be based on their construction and development schedule, which, in retrospect, was subject to modifications and delays not entirely under the customer’s control. Since placing and paying for this order, the customer has taken delivery on seven ovens, all of which were delivered during the quarter ended December 31, 2003. Based on the actual schedule of the ovens delivered to date under this order, current management has concluded that “a fixed schedule for delivery of the goods” may be deemed to not have existed at the date of sale under SAB 104. Accordingly, we are amending our previously filed quarterly financial statements for each of the quarters in the nine month period ended September 30, 2003 to defer revenue on this transaction until actual delivery of the ovens has occurred. For the nine months ended September 30, 2003, this revision reduces revenue by $342,500; cost of goods sold by $196,000 and the resultant reduction in margin will increase the operating loss and net loss applicable to common stockholders by $146,000. The revision also increases loss per common share by $(.01) for the nine months ended September 30, 2003, and will have a corresponding effect on the related balance sheet items of inventory, deferred revenue and accumulated deficit.

As described in Subsequent Events below, we completed a private placement of our preferred stock in October 2003 which provided gross proceeds of $13.1 million for working capital. Concurrent with completing the private placement, we completed the settlement of our note payable to Grand Cheer which was in default. Part of the consideration given in the settlement was a cash payment of $200,000 and we recorded as interest expense in the quarter ending September 30, 2003 a portion of this payment ($186,000). There had been no interest expense recognized on this liability for the first and second quarter of 2003 since such interest was deemed not material. There were also no settlements with other creditors that involved settlement of liabilities at amounts that differed materially from their carrying values.

In making our final assessment of the measurement of the consideration given in the settlement of this liability, we believe that the total consideration associated with the settlement should have recorded as an expense in the fourth quarter of 2003 when the settlement was finalized. Accordingly, we are amending our previously filed quarterly financial statements for the three and nine months ended September 30, 2003 to reduce interest expense by $186,000. This amount will be recognized in the fourth quarter of 2003. This revision also decreases loss per common share by $0.01 for the three and nine months ended September 30, 2003 and will have a corresponding effect on the related balance sheet items of accrued expenses and accumulated deficit.

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 the Company 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: new management becoming familiar with the Company’s business; the ability to obtain additional financing necessary to continue operations; the likelihood of incurring future losses; the Company’s significant purchase commitments; the effect of the long manufacturing cycle on cash flow; the uncertainly of the outcome of the legal proceedings with Maytag; the uncertainty of consumer acceptance of new products or technologies that may be offered by the Company; the success of the Company’s marketing strategy; the uncertainty inherent in new product development; potential liability for personal injury or property damage; 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 the Company operates; changing technologies and evolving industry standards; regulatory compliance burdens; the highly competitive environment in which Company operates; competition in the markets served by the Company; uncertainties inherent in international manufacturing and sales including foreign currency fluctuations; uncertainty regarding strategic relationships and alliances and the ability to protect the Company’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. The Company undertakes no obligation to update any forward-looking statement.

SUBSEQUENT EVENTS

and James A. Cochran as Chief Financial Officer. In addition to Messrs. Perlman and Price, William A. Shutzer and Raymond H. Welsh were appointed to the Company’s Board of Directors. The Company expects to add additional board members in the near future.

Shares of the Series D Preferred Stock rank senior to all other classes of stock of the Company as to liquidation, dividends, redemption and other payments or distributions. Holders of Series D Preferred Stock also have redemption rights (to the extent they are unable to convert all or part of their shares to common stock of the Company), preemptive rights, and demand and piggy-back registration rights with respect to their shares. Holders of Series D Preferred Stock are entitled to vote as a class in connection with certain matters, are generally entitled to vote together with the holders of the Company’s common stock on an as converted basis, and are also entitled to elect two-thirds of the members of the Company’s Board of Directors.

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 and financial condition. 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. The Company’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 launched the current version of its commercial oven, the TurboChef C-3, in the second quarter of 2000. To date, the TurboChef C-3 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, movie theatres and service stations. As of September 30, 2003, there were approximately 1,100 C-3 ovens operating in the United Kingdom and Europe and approximately 1,200 C-3 ovens operating in the United States, Canada and Puerto Rico.

The Company currently sells its C-3 oven primarily through a direct sales force in North America, and through equipment distributors in Europe and the United Kingdom. Currently there are nine non-exclusive distributors of C-3 ovens in European countries including: Finland, Sweden, Iceland, Ireland, The Netherlands, Belgium, France, Spain, Greece, Switzerland and Germany. In March 2003, the Company signed a one-year agreement with an exclusive distributor in the United Kingdom. Until May 2001, the Company’s C-3 ovens were marketed in the United States through Maytag and its subsidiary, 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 United States 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. 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’s primary sales office is located in Dallas, Texas. In addition, the Company has a sales office in The Netherlands.

In addition to its direct sales force, the Company is seeking to develop multiple distribution channels through the use of third-party distributors, manufacturer’s 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.

The Company has invested heavily in research, prototype development, strategic alliance development and sales and marketing personnel. As a result of these investments, and the limited revenues generated to date from sales of ovens, the Company has incurred substantial operating losses in each year of its operations (including net losses applicable to common stockholders of $3,096,000 and $4,910,000 for the nine months ending September 30, 2003 and 2002, respectively).

CRITICAL ACCOUNTING POLICIES

In preparing the financial statements in conformity with accounting principals generally accepted in the United States of America, the Company uses statistical analyses, estimates and projections that affect the reported amounts and related disclosures and may vary from actual results. The Company considers the following accounting policies to be both important to the portrayal of its financial condition and the policies that require the most subjective judgment. If actual results differ significantly from management’s estimates and projections, there could be a material effect on the Company’s financial statements. Reference is made to Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002 for a description of other significant accounting policies followed by the Company.

REVENUE RECOGNITION

Revenue is recognized when substantially all obligations relating to a sale are completed. If the terms of a sale require installation, the revenue cycle is substantially complete after installation has occurred and therefore revenue is recognized upon installation. For sales where the customer has assumed the installation responsibility and sales to designated agents, substantially all obligations are completed at the time of shipment to the customer or the

customer’s designated agent. Revenue for sales of replacement parts, ceramic platters, cooking utensils and proprietary oven cleaner is recognized upon shipment to the customer.

INVENTORY

Inventories are valued at the lower of cost or market and primarily consist of ovens and replacement parts. The Company determines cost for ovens by the specific cost method. Freight costs are included in costs of goods sold. Ovens used for demonstration and testing are generally depreciated over a one-year period. All finished goods relate to the Company’s current C-3 oven. Substantially all of the Company’s parts are for the Company’s C-3 oven, which the Company currently sells.

PRODUCT WARRANTY

The Company’s ovens are under warranty against defects in material and workmanship for a period of one year from the date of installation. Anticipated future warranty costs are estimated, based upon historical expenses, and are recorded in the period cooking systems are sold. Periodically, the Company’s warranty reserve is reviewed to determine if the reserve is sufficient to cover the repair costs associated with the remaining ovens under warranty. At this time, the Company believes that, based upon historical data over the last 18 months, the current warranty reserve is sufficient to cover the associated costs. If warranty costs trend higher, the Company would need to reserve a higher initial reserve as well as reserve the estimated amounts necessary to cover all ovens remaining under warranty. These additional reserves would be charged to cost of goods sold. These charges could have a material effect on the Company’s financial statements.

FOREIGN EXCHANGE

During the nine month period ending September 30, 2003, approximately 37% of the Company’s revenues were derived from sales outside of the United States. These sales and subsequent accounts receivable, the salaries of employees located outside of the United States and approximately 16% of selling, general and administrative expenses are denominated in foreign currencies, principally British Pounds and Euros. The Company is subject to risk of financial loss resulting from fluctuations in exchange rates of these currencies against the US dollar. In addition, trade terms with customers outside of the United States are longer than with customers inside of the United States, which increases the potential of foreign exchange gains or losses. At this time, the Company does not engage in any foreign exchange hedging activities.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2002

Revenues for the quarter ended September 30, 2003 were $533,000, compared to revenues of $2,477,000 for the quarter ended September 30, 2002. The $1,944,000 decrease is primarily attributable to a decrease in C-3 ovens sold during the period. During the third quarter of 2003, the Company sold 55 C-3 ovens as compared to 329 C-3 ovens in the third quarter of

2002. Sales to one customer accounted for approximately 18% of revenues for the quarter ending September 30, 2003.

The average sale price of C3 ovens increased from $7,353 per unit during the quarter ended September 30, 2002 to $7,542 per unit for the quarter ended September 30, 2003. The per unit average revenue increase of $189 (approximately 3%) is principally due to the sale of ovens to new customers at full price.

Cost of goods sold for the quarter ended September 30, 2003 was $255,000 compared to $1,415,000 for cost of goods sold in the quarter ended September 30, 2002. The decrease of $1,160,000 is principally due to lower oven sales.

The average cost of goods sold of C-3 ovens decreased by approximately 2% for the period ended September 30, 2003, as compared to the quarter ended September 30, 2002. The decrease was principally due to fewer European units sold during the three month period ended September 30, 2003.

Cost of goods sold is calculated based upon the actual cost of the oven, the cost of any accessories supplied with the oven, an allocation of cost for freight, duties and taxes for the importation of the oven and a reserve for warranty. Cost of goods sold does not include any cost allocation for administrative and support services required to deliver or install the oven or an allocation of costs associated with the ongoing quality control of the Company’s manufacturer in China. These costs are recorded within selling, general and administrative expenses.

Gross profit on product sales (revenues less costs of goods sold) for the quarter ended September 30, 2003 decreased $784,000 to $278,000, when compared to gross profit on product sales of $1,062,000 during the quarter ended September 30, 2002. This decrease is due primarily to a decrease in the number of units sold during the quarter ended September 30, 2003.

Research and development expenses for the quarter ended September 30, 2003 decreased $102,000, to $194,000, as compared to $296,000 for the quarter ended September 30, 2002. The decrease in research and development expense principally relates to a decrease in payroll expenses of $88,000 due to a reduction in staff.

Selling, general and administrative expenses for the quarter ended September 30, 2003 decreased $1,599,000, to $688,000 from comparable expenses of $2,287,000 for the quarter ended September 30, 2002. General and administrative expenses declined as a result of a $554,000 decrease in payroll expenses due to a reduction in staff, $259,000 as a result of closing the New York and United Kingdom offices, and a reduction of $88,000 from reducing various certification expenses. Sales and marketing related costs also declined, including an $84,000 reduction in travel and entertainment expenses resulting from cost containment initiatives.

Net other income was $36,000 for the quarter ended September 30, 2003, compared to net other expense ($169,000) for the quarter ended September 30, 2002. The decrease of $205,000 principally relates to a reduction in interest expense.

Charges related to preferred stock dividends were $60,000 for the quarter ended September 30, 2003, and $56,000 for the quarter ended September 30, 2002. Dividends are accrued on the Company’s Series B and Series C Convertible Preferred Stock throughout the year. Dividends are paid semi-annually in either cash or common stock. The payment method is at the Company’s sole discretion. To date, all dividends have been paid in the form of common stock.

Net loss applicable to common shareholders decreased by $1,118,000 to $628,000 for the quarter ended September 30, 2003, as compared to $1,746,000 for the quarter ended September 30, 2002. The net loss per share decreased to ($0.03) from ($0.09), based on the weighted average number of shares outstanding of 19,419,240 and 19,058,526 for the quarters ended September 30, 2003 and 2002, respectively. The decrease in net loss is principally due to a reduction in selling, general and administrative expenses of $1,599,000.

RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2002

Revenues for the nine months ended September 30, 2003 were $3,368,000, compared to revenues of $5,211,000 for the nine months ended September 30, 2002. The $1,843,000 decrease is primarily attributable to a decrease in the number of C-3 ovens sold during the period. During the first nine months of 2003, the Company sold 426 C-3 ovens as compared to 703 C-3 ovens in the first nine months of 2002. Sales to three customers accounted for approximately 53% (23%, 22% and 8%, respectively) of revenues for the nine months ending September 30, 2003.

The average sale price of C3 ovens fell from $7,414 per unit during the nine months ended September 30, 2002 to $6,709 per unit for the nine months ended September 30, 2003. The per unit average revenue decline of $705 (approximately 10%) is principally due to the sale of 49 demonstration units during the first quarter of 2003. Excluding the sale of these demonstration units, the average sale price of new units during the period ended September 30, 2003 was $7,265 per unit. The $149 (approximately 2%) decline for the first nine months of 2003 is principally due to the discounted purchase prices to three major customers during the nine month period ended September 30, 2003.

Cost of goods sold for the nine months ended September 30, 2003 was $1,776,000 compared to $2,828,000 for cost of goods sold for the nine months ended September 30, 2002. The decrease of $1,052,000 is principally due to a decrease in the number of C-3 ovens, parts and consumables sold during the period. In addition, the cost of sales during the nine month period ended September 30, 2002 was reduced due to a one-time cost savings on parts purchased from Maytag resulting in substantially lower cost of sales during the second quarter of 2002. Excluding these one-time effects, the average cost of goods sold of C-3 ovens decreased by approximately 3% for the nine months ended September 30, 2003, as compared to the nine months ended September 30, 2002. The decline resulted from favorable purchasing of component parts, as well as a lower purchase price negotiated from Xiaoya in 2002, partially offset by higher installation and delivery costs.

Gross profit on product sales (revenues less costs of goods sold) for the nine months ended September 30, 2003 decreased $791,000 to $1,592,000, when compared to gross profit on product sales of $2,383,000 during the nine months ended September 30, 2002. This decrease was principally due to a decrease in the number of unit sales during the nine months ended September 30, 2003.

Research and development expenses for the nine months ended September 30, 2003 increased $74,000, to $680,000, as compared to $606,000 for the nine months ended September 30, 2002. The increase in research and development expense principally relates to a reclassification of certain expenses previously included as selling, general and administrative expenses.

Selling, general and administrative expenses for the nine months ended September 30, 2003 decreased $2,447,000, to $3,935,000 from comparable expenses of $6,382,000 for the nine months ended September 30, 2002. This expense reduction is related principally to cost containment initiatives and includes a decrease in payroll expenses of $1,043,000 due to a reduction in staff, lower occupancy costs of $425,000, as a result of the closure of the offices in New York and the United Kingdom, reductions in travel and entertainment expenses of $174,000, direct selling expense of $100,000, lower compensation expense related to warrants of $102,000 and a reduction of $388,000 resulting from lower costs of supporting manufacturing operations in China.

Net other income was $106,000 for the nine months ended September 30, 2003, compared to other expense of $114,000 for the nine months ended September 30, 2002. The decrease of $220,000 principally relates to reductions in interest expense and interest income on option loan balances.

Charges related to preferred stock dividends decreased by $12,000 to $179,000 for the nine months ended September 30, 2003, compared to $191,000 for the nine months ended September 30, 2002. The decrease was due to the conversion of the Company’s Series A Convertible Preferred Stock into common shares in March 2002.

Net loss applicable to common shareholders decreased by $1,814,000 to $3,096,000 for the nine months ended September 30, 2003, as compared to $4,910,000 for the nine months ended September 30, 2002. The net loss per share declined to ($0.16) from ($0.26), based on the weighted average number of shares outstanding of 19,301,645 and 18,851,534 for the nine months ended September 30, 2003 and 2002, respectively. The decrease in net loss is principally due reduced selling, general and administrative expenses during the current nine month period.

LIQUIDITY AND CAPITAL RESOURCES

Although revenues from sales of C-3 ovens improved during 2002 and through the first half of 2003, as of September 30, 2003 the Company had been unable to raise the necessary capital to continue normal business operations. Consequently, the Company delayed payments to critical suppliers of parts, had not purchased additional C-3 ovens from Xiaoya since February 2003 and delayed payments on accounts payable to preserve cash. On October 28, 2003 the Company raised gross proceeds of $13,077,964 in a private placement of a new series of preferred stock (see Subsequent Events above). As of November 13, 2003, the Company had cash and cash equivalents totaling approximately $10,000,000 and accounts receivable totaling approximately $550,000.

As a result of the working capital raised in the October 2003 private placement, the Company anticipates that its cash on hand, collections of its accounts receivable and cash from anticipated sales of ovens will be sufficient to meet its obligations, resume its normal operations and generate sales in future periods. As a result of negative circumstances related to the Company’s working capital and liquidity in prior periods, the independent certified public accountant’s report on the Company’s financial statements for the year ended December 31, 2002 contains an explanatory paragraph regarding the Company’s ability to continue as a going concern.

The Company has held and will continue to hold inventory due to its long manufacturing cycle. As of September 30, 2003, the Company held $650,000 of finished goods inventory (ovens)(including $196,000 of inventory for one customer who ordered and paid for 50 ovens in March 2003 but requested future shipment), $23,000 of demo inventory (ovens) and $821,000 of parts inventory (used for manufacturing and service). The Company offers 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.

In March 2002, the Company entered into a manufacturing agreement to purchase 5,000 C-3 ovens from Xiaoya totaling approximately $14,000,000 over a 17-month period. In addition, in connection with this manufacturing agreement the Company is required to purchase certain component parts that will be supplied to Xiaoya for use in manufacturing the ovens. In December 2002, this purchase requirement was extended for an additional 12 months to August 2004 and the Company agreed to purchase a minimum of 200 ovens per month. Due to the Company’s cash position, the Company has not purchased any ovens since February 2003. As of September 30, 2003, the Company was behind in its required purchases under the manufacturing agreement and owed Xiaoya $244,000 for units shipped during February 2003. Contemporaneously with the October 2003 private placement, the Company entered into a Settlement, Release Agreement and Third Amendment to its manufacturing agreement with Xiaoya to resolve potential claims and reduce the monthly purchase commitment. Pursuant to this agreement the Company agreed to make a payment of $244,000 in full satisfaction of all amounts then due to Xiaoya. In exchange, Xiaoya agreed to release the Company from any

claims Xiaoya may have as of the signing of the agreement and reduce the monthly minimum purchase requirement of C-3 ovens that the Company must make from Xiaoya to 84. On November 12, 2003 the Company made the payment of $244,000 that was owed to Xiaoya.

the purchase of the Company’s common stock (666,667 warrants) previously issued to Grand Cheer would immediately vest. In connection with the issuance of the note, the Company incurred a non-cash finance charge of $200,000 which was payable by offsetting the exercise price of the 1,000,000 warrants previously issued to Grand Cheer upon its purchase of the Company’s Series B Convertible Preferred Stock. Contemporaneously with the October 2003 private placement, the Company entered into a Settlement and Release Agreement with Grand Cheer to resolve claims relating to the note. In connection therewith, Grand Cheer exercised its rights to convert all of its shares of the Company’s Series B Preferred Stock, plus all accrued and unpaid dividends thereon, into 2,024,986 shares of the Company’s Common Stock, agreed to reduce from 1,000,000 to 800,000 the number of shares of the Company’s common stock issuable upon exercise of Grand Cheer’s warrants and the Company agreed to pay Grand Cheer $1,200,000 in cash from the proceeds of the transaction, and issue to Grand Cheer 652,288 shares of its Common Stock. On November 4, 2003 the Company paid Grand Cheer $1,200,000 to settle its obligations under the note. The fair value of the exchange in excess of the face value of the obligation will be recorded as interest expense in the fourth quarter.

Cash used in operating activities was $563,000 for the nine months ended September 30, 2003, as compared to cash used in operating activities of $4,970,000 for the nine months ended September 30, 2002. The net loss of $2,917,000, for the nine months ended September 30, 2003, included $154,000 of non-cash charges (depreciation, amortization, non-cash interest and non-cash compensation expenses), as compared to $545,000 for the nine months ended September 30, 2002. Net cash used in operating activities for the nine months ended September 30, 2003 was positively impacted by a decrease in accounts receivable of $1,300,000 and inventory of $336,000, as well as increases in accounts payable of $588,000 and in deferred revenue of $342,000. These operating cash requirements were partially offset by a decrease in accrued expenses of $420,000.

Cash used in investing activities for the nine months ended September 30, 2003, was $0, compared to $89,000 for the nine months ended September 30, 2002. The uses of cash were made up of capital equipment purchases during the periods. The Company anticipates an increase in capital expenditures to approximately $300,000 during the remainder of fiscal 2003 in order to build its global sales and marketing infrastructure. All capital expenditures will be dependent upon achieving adequate working capital.

Cash provided by financing activities for the nine months ended September 30, 2003 was $0, as compared to $31,000 for the nine months ended September 30, 2002.

At September 30, 2003, the Company had cash of $66,000, as compared to cash of $629,000 at December 31, 2002. As described under Subsequent Events above the Company received gross proceeds of $13,077,964 from a private placement of its Series D Preferred Stock in a transaction completed on October 28, 2003.

ITEM 3:

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Approximately 20% of the Company’s revenues in the third quarter of 2003 were derived from sales outside of the United States. These sales and subsequent accounts receivable, the salaries of employees located outside of the United States and approximately 16% of selling,

general and administrative expenses are denominated in foreign currencies, principally British Pounds and Euros. The Company is subject to risk of financial loss resulting from fluctuations in exchange rates of these currencies against the US dollar. In addition, trade terms with customers outside of the United States are longer than with customers inside of the United States, which increases the potential of foreign exchange gains or losses. There is no assurance that the Company will not be subject to foreign exchange losses in the future.

The Company is in default on a promissory note issued to Maytag. From and after the occurrence of a default, the interest rate of this note increased to the prime rate, as published in THE WALL STREET JOURNAL, plus 5%. Maytag obtained a summary judgment against the Company in the amount of $359,372, which is accrued and included in notes payable in the September 30, 2003 and December 31, 2002 financial statements. The Company is subject to market risk related to the change in the prime rate of interest.
As of September 30, 2003, the Company does not have any assets or liabilities other than those discussed above 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 foreign currency hedging activity.

ITEM 4:

CONTROLS AND PROCEDURES

An evaluation was carried out under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the Company’s disclosure controls and procedures as of the end of the quarter ended September 30, 2003.

Based upon that evaluation, the CEO along with the CFO concluded that, as of September 30, 2003, the Company’s disclosure controls and procedures (1) are effective in timely alerting them to material information relating to the Company required to be included in the Company’s periodic SEC filings and (2) are adequate to ensure that information required to be disclosed by the Company in the reports filed or submitted by the Company under the Securities Exchange Act of 1934, as amended, is recorded, processed and summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

During the quarter ended September 30, 2003 there have been no significant changes in such internal controls or in other factors that could have significantly affected those controls, including any corrective actions with regard to significant deficiencies and material weaknesses.

PART II. OTHER INFORMATION

ITEM 1: LEGAL PROCEEDINGS

The Company is party to certain legal and arbitration proceedings. For a description of these proceedings, reference is made to Part I Item 3 “Legal Proceedings” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.

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

On April 22, 2003, the Company’s Common Stock was delisted from the Nasdaq Stock Market and commenced trading on the OTC Bulletin Board under the symbol “TRBO.OB”.

ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K

(A)	EXHIBITS

	31.1	Certification of Principal Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	31.2	Certification of Principal Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	32	Certification of Principal Executive Officer and Principal Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(B)	REPORTS ON FORM 8-K

	None

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/ James A. Cochran
		James A. Cochran
		Chief Financial Officer

Dated: March 29, 2004

EX-31.1 3 d14298_ex31-1.htm

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

I, James K. Price, certify that:

	1.	I have reviewed this Quarterly Report on Form 10-Q of TurboChef Technologies, Inc.;

	2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; and

	3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.

Date: March 29, 2004

	/s/ James K. Price

	James K. Price
	President and Chief Executive Officer

EX-31.2 4 d14298_ex31-2.htm

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

I, James A. Cochran, certify that:

	1.	I have reviewed this Quarterly Report on Form 10-Q of TurboChef Technologies, Inc.;

	2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; and

	3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.

Date: March 29, 2004

	/s/ James A. Cochran

	James A. Cochran
	Chief Financial Officer

EX-32 5 d14298_ex32.htm

Exhibit 32

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of TurboChef Technologies, Inc. (the “Company”) on Form 10-Q for the period ending September 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, James K. Price and James A. Cochran, Chief Executive Officer and Chief Financial Officer of the Company, respectively, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to our knowledge:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the registrant.

March 29, 2004

/s/ James K. Price

James K. Price
Chief Executive Officer


/s/ James A. Cochran

Jaems A. Cochran
Chief Financial Officer

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