<PAGE>
Filed Pursuant to Rule 424b
Registration No. 333-2992
800,000 SHARES
LOGO
COMMON STOCK
As described below, an additional 233,334 shares of Common Stock are being
registered in connection with this offering on behalf of a selling
stockholder; however, such shares are being registered for resale purposes
only and not as part of the underwritten offering.
TurboChef, Inc. (the "Company") is offering hereby 800,000 shares (the
"Shares") of the common stock of the Company (the "Common Stock"). The Common
Stock is traded in the over-the-counter market and is quoted on the Nasdaq
SmallCap Market ("NASDAQ") under the symbol "TRBO." On June 11, 1996, the
last sales price for the Common Stock as reported by NASDAQ was $17.25 per
share. See "Price Range of Common Stock."
This Prospectus also relates to the offer and sale by a stockholder of the
Company (the "Selling Stockholder") of up to 233,334 shares of Common Stock
(the "Selling Stockholder Shares"), which were issued to the Selling
Stockholder in connection with its providing certain financing to the
Company. The Selling Stockholder Shares are not part of the underwritten
offering, are being registered for resale purposes only and may not be
offered or sold prior to six months following the date of this Prospectus
without the prior written consent of the Underwriter. The Company will not
receive any of the proceeds from the sale of the Selling Stockholder Shares.
See "Selling Stockholder and Plan of Distribution" and "Underwriting."
Upon the Company's consummation of this offering, the Chairman of the
Board and the President of the Company will beneficially own an aggregate of
approximately 59% of the Company's outstanding Common Stock. As a result,
such persons will continue to be able to control the Company, elect all of
the Company's directors and generally direct the affairs of the Company. See
"Risk Factors" and "Principal Stockholders."
------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION AND SHOULD NOT BE PURCHASED BY INVESTORS WHO CANNOT
AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS"
COMMENCING ON PAGE 7 AND "DILUTION" ON PAGE 18.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
================================================================================
Underwriting
Price to Discounts and Proceeds to
Public Commissions (1) Company(2)
- --------------------------------------------------------------------------------
Per Share ................... $ 15.00 $ 1.275 $ 13.725
- --------------------------------------------------------------------------------
Total(3) .. ................ $12,000,000 $1,024,000 $10,980,000
================================================================================
- -----------------------------------------------------------------------------
(1) In addition, the Company has agreed to pay to the Underwriter a 2 1/2 %
nonaccountable expense allowance and to sell to the Underwriter warrants
to purchase 80,000 shares of Common Stock (the "Underwriter's Warrants").
The Company has also agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company (including the
Underwriter's nonaccountable expense allowance in the amount of
$300,000), estimated at $615,000. The Selling Stockholder will not bear any
expenses of the offering.
(3) Certain stockholders of the Company have granted the Underwriter an
option, exercisable within 45 days from the date of this Prospectus, to
purchase from them up to 120,000 additional shares of Common Stock (the
<PAGE>
"Over-Allotment Shares"), on the same terms as set forth above, solely
for the purpose of covering over-allotments, if any. If the Underwriter's
over-allotment option is exercised in full, the total Price to Public and
the total Underwriting Discounts and Commissions will be $13,800,000 and
$1,173,000, respectively, and the stockholders selling the Over-Allotment
Shares will receive proceeds, after their payment of the underwriting
commissions and discounts applicable to such shares, of $1,647,000 (before
also deducting the Underwriter's 2 1/2 % nonaccountable expense allowance
applicable to such shares, payable by such stockholders, in the amount of
$45,000). The Company will not receive any proceeds from the sale of the
Over-Allotment Shares. See "Underwriting" and "Principal Stockholders."
------
The Shares are being offered, subject to prior sale, when, as and if
delivered to and accepted by the Underwriter and subject to the approval of
certain legal matters by counsel and to certain other conditions. The
Underwriter reserves the right to withdraw, cancel or modify the offering and
to reject any order in whole or in part. It is expected that delivery of
certificates representing the Shares will be made against payment therefor at
the offices of the Underwriter, 650 Fifth Avenue, New York, New York 10019,
on or about June 17, 1996.
------
WHALE SECURITIES CO., L.P.
The date of this Prospectus is June 12, 1996
<PAGE>
A TURBOCHEF OVEN
CAN PERFORM THE FUNCTIONS OF MULTIPLE TRADITIONAL COOKING APPLIANCES
[Picture of TurboChef oven with (i) arrows above it pointing to pictures of the
following cooking appliances (all of which are named): grill, convection bake,
toaster, fryer, poacher, broiler, convection roast, conveyor and
microwave/steamer; and (ii) arrows below it pointing to pictures of the
following cooked food items (all of which are named): chicken, filled pastry,
hot sandwich, french fries, fish fillet, shrimp, rack of lamb, pizza 16" / 7",
and vegetables.]
The Company believes that by using the TurboChef oven, traditional full-service
restaurants can offer the convenience and speed of foodservice typically
associated with fast food restaurants (without sacrificing the "restaurant
quality" of the food served) and fast food restaurants can offer more varied
menus and a food quality more typically associated with full-service restaurants
(without compromising their "quick service" speeds).
TURBOCHEF(R)
------------
CHANGING THE WAY GOOD FOOD IS SERVED
------------------------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ SMALLCAP MARKET. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER AND CERTAIN SELLING GROUP
MEMBERS (IF ANY) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON
STOCK ON THE NASDAQ SMALLCAP MARKET IN ACCORDANCE WITH RULE 10b-6A UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
more detailed information and financial statements, including the notes
thereto, appearing elsewhere in this Prospectus. Each prospective investor is
urged to read this Prospectus in its entirety. Unless otherwise indicated,
the information contained in this Prospectus, including per share data and
information relating to the number of shares of Common Stock outstanding: (i)
assumes no exercise of the Underwriter's over-allotment option to purchase up
to an aggregate of 120,000 Over-Allotment Shares from certain stockholders of
the Company, and (ii) has been adjusted to give retroactive effect to a
1,767.2266-for-1 stock split which was effected on March 16, 1994 and to a
2-for-1 stock split which was effected on December 29, 1995. See
"Underwriting" and Note 7 of Notes to Financial Statements.
THE COMPANY
TurboChef, Inc. (the "Company") is a foodservice technology company
engaged in designing, developing and marketing high-speed commercial ovens
and in applying its proprietary technologies to other foodservice products,
processes and concepts for customers seeking a competitive advantage in the
foodservice market. In addition, now that the Company's products and
technologies have been validated (through utilization and extensive testing
by both the Company and a variety of foodservice operators) and its research
and development capabilities have been proven, the Company intends to build
upon its technology base to expand its product offerings, while aggressively
pursuing joint venture, strategic alliance and/or licensing or other
arrangements with companies already engaged in the mass marketing and/or
manufacture of foodservice equipment and products in order to expand its
market penetration.
The Company's ovens, which are marketed under the name TurboChef, employ
the Company's proprietary cooking technologies to quickly, efficiently and
evenly transfer, disperse and control the heat used in the cooking process
and the Company's proprietary computerized control platform to monitor that
process and automatically adjust cook settings during the cooking cycle.
These technologies provide foodservice operators the flexibility to
"cook-to-order" a variety of food items at speeds which the Company believes
are faster than those permitted by conventional commercial ovens and grills,
microwave ovens, and other currently available high-speed ovens. Among the
various types of foods which can be cooked in a TurboChef oven are an 8-ounce
salmon filet in less than 80 seconds, a 16-inch deluxe par-baked pizza in 90
seconds or less, a "bone-in" quarter chicken in 2 minutes or less, and an
18-ounce beef tenderloin in approximately 3 minutes. In addition, because of
the TurboChef oven's moisture retention, browning and crisping capabilities,
the Company believes that the characteristics of most food items cooked in a
TurboChef oven (including their flavor, texture and appearance) are not only
superior in quality to those achieved using other high-speed ovens, or
microwave ovens, but are also equal in quality, or, in the case of many food
items (such as rack of lamb, beef Wellington and most fish and seafood items)
superior in quality, to those achieved using conventional ovens and grills.
As a result of the foregoing, the Company believes that, by using the
TurboChef oven, traditional full-service restaurants can offer the
convenience and speed of foodservice typically associated with fast food
restaurants (without sacrificing the "restaurant quality" of the food served)
and fast food restaurants can offer more varied menus and a food quality more
typically associated with full-service restaurants (without compromising
their "quick-service" speeds). In addition, the Company's technologies
provide both full-service and fast food restaurant operators with the means
of "upgrading" their menu offerings, both in terms of food items offered and
in terms of cooked food quality and consistency, and of enhancing their
profitability, by reducing certain costs associated with the cooking process.
The current TurboChef oven models contain cooking cavities capable of holding
a food product measuring up to 16 inches in diameter and, depending on the
model, 3-4 inches in height and can be purchased for approximately $11,000,
exclusive of any volume discount.
The Company has also recently completed the development of a series of
operations enhancement software systems, each of which incorporates, and
augments the benefits to be derived from, the use of the
3
<PAGE>
TurboChef oven. These proprietary systems include the TurboCom system, a
centralized cook setting system, which can reprogram TurboChef ovens
installed in various restaurant locations from a single central site, thereby
enabling foodservice operators to easily modify their cook settings, and thus
their menu selections, on a system-wide basis; the TurboStage system, a food
preparation management system, which can be incorporated into a restaurant's
existing electronic order processing system, sort the items to be cooked by
required cook times, and indicate, on a real-time basis, when such food items
are to be inserted into the TurboChef oven; and the TurboTouch system, an
oven operations management system, which ties the restaurant's point-of-sale
cash register directly to the TurboChef oven so that exact cooking settings
may be automatically programmed into the oven when the food order is placed.
The Company's largest customer is Whitbread PLC ("Whitbread"), which
operates over 6,500 pub, convenience, restaurant, hotel and leisure locations
across the United Kingdom, including the Beefeater, Pizza Hut, TGI Friday's
and Brewers Fayre chains. Whitbread, with which the Company has been working
closely for over a year (adapting and applying TurboChef's foodservice
technologies and concepts to Whitbread's particular proposed applications)
has announced that it intends to incorporate the TurboChef oven as an
integral part of the foodservice operations of its Beefeater chain, which
consists of 300 casual dining restaurants, by the end of 1996. In keeping
with such goal, Whitbread has agreed to purchase a total of 340 TurboChef
ovens from the Company, under certain specified terms and conditions, with
deliveries scheduled through September 1996 (the "Whitbread Contract"). As of
March 31, 1996, a total of 170 of such ovens had been delivered. Recently,
Whitbread has also announced that it plans over the next few years to
introduce the TurboChef technologies to other parts of its foodservice
operations and is currently testing the Company's TurboCom system for such
purpose.
The Company was also recently selected by Choice Hotels International
("Choice Hotels"), an international hotel operator, as the sole commercial
oven supplier for its new modular Choice Picks branded food court service
system, which is being offered (as an alternative to full-service
restaurants) to operators of Choice Hotels' Clarion, Quality and Comfort
hotels around the world. As the only commercial oven to be used in the Choice
Picks food courts, the TurboChef oven has been approved to cook multiple food
brands, including Nathan's Famous(R) and Pizzeria Uno(R). Choice Hotels first
introduced the Choice Picks program to its franchisees in November 1995 and
their evaluation of the program is expected to continue throughout 1996. As
of March 31, 1996, a total of 12 TurboChef ovens had been purchased for use
in the Choice Hotels system.
The Company intends to use a significant portion of the proceeds from this
offering to continue and complete its development efforts relating to its
proposed residential, and its proposed consumer-operated, TurboChef oven
models. The Company will also continue in its efforts to exploit other of the
many potential market applications for the TurboChef technologies. There can
be no assurance, however, that the focus of the Company's development efforts
will not change or that its current development projects or any new
applications or products will ever be successfully completed or
commercialized. Moreover, although the Company was organized in April 1991,
it was not until March 1994 that it began the initial commercial roll-out of
its first commercial oven product and not until June 1995 that it entered
into the Whitbread Contract, its first major contract. Consequently, the
Company has had a limited operating history upon which an evaluation of its
prospects and performance can be made. To date, the Company has generated
limited revenues and incurred substantial operating losses and anticipates
that it will continue to incur significant operating expenses in connection
with its ongoing development activities and marketing plans. The Company's
future profitability will depend upon, among other things, corresponding
increases in revenues to offset these expenditures. There can be no assurance
that the Company will be able to successfully implement the next phase of
either its business or marketing strategies, that its rate of revenue growth
will continue in the future or that it will ever be able to achieve
profitable operations.
The Company was incorporated in Kansas on April 3, 1991 and reincorporated
in Delaware on August 17, 1993. Unless otherwise noted, references to the
Company relate to TurboChef, Inc., a Delaware corporation, and its
predecessor. The Company's principal executive offices are located at 10500
Metric Drive, Suite 128, Dallas, Texas 75243 and its telephone number is
(214) 341-9471.
4
<PAGE>
THE OFFERING
Common Stock offered by the
Company...................... 800,000 Shares
Common Stock to be outstanding
after the offering(1) ....... 13,668,078 shares
Use of Proceeds ............... The Company intends to use the net proceeds
of this offering for research and
development; marketing and sales;
manufacturing and tooling; the establishment
of an expanded parts and service network and
for working capital and general corporate
purposes. See "Use of Proceeds."
Risk Factors .................. The shares offered hereby are speculative
and involve a high degree of risk and
immediate substantial dilution and should
not be purchased by investors who cannot
afford the loss of their entire investment.
See "Risk Factors" and "Dilution."
NASDAQ symbol ................. "TRBO"
- ------
(1) Does not include (i) 80,000 shares of Common Stock reserved for issuance
upon exercise of the Underwriter's Warrants; (ii) 260,000 shares of
Common Stock reserved for issuance upon exercise of certain warrants
granted to the Underwriter (the "Underwriter's IPO Warrants") in
connection with the Company's initial public offering of Common Stock in
April 1994 (the "April 1994 IPO"); (iii) 1,918,666 shares of Common Stock
reserved for issuance upon exercise of outstanding stock options granted
under the Company's 1994 Stock Option Plan (the "Option Plan"); (iv)
280,334 shares of Common Stock reserved for issuance upon exercise of
options available for future grant under the Option Plan; and (v) 262,500
shares of Common Stock reserved for issuance upon exercise of an
outstanding non-plan option (the "Acadia Option"), which option was
granted, together with the Selling Stockholder Shares, to Acadia
International Limited ("Acadia"), the Selling Stockholder, in connection
with its providing certain financing to the Company. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations," "Management -- 1994 Stock Option Plan," "Certain
Transactions" and "Underwriting."
Notice to California Investors. Each purchaser of Common Stock and
Warrants in California must be an "accredited investor," as that term is
defined in Rule 501(a) of Regulation D promulgated under the Securities Act
of 1933, as amended (the "Securities Act"), or satisfy one of the following
suitability standards: (i) minimum actual gross income of $65,000 and a net
worth (exclusive of home, home furnishings and automobiles) of $250,000; or
(ii) minimum net worth (exclusive of home, home furnishings and automobiles)
of $500,000.
5
<PAGE>
SUMMARY FINANCIAL INFORMATION
Set forth below is certain summary financial information for the periods
and as of the dates indicated. This information is derived from, and should
be read in conjunction with, the financial statements, including the notes
thereto, appearing elsewhere in this Prospectus.
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
Three Months Ended March 31, Year Ended December 31,
------------------------------ --------------------------------
(unaudited)
------------------------------
1996 1995 1995 1994
------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues(1) ........................ $ 1,054,008 $ 165,398 $ 1,228,111 $ 249,883
Net loss (1) ....................... $ (364,491) $ (519,667) $(1,585,268) $(3,181,519)
Net loss per share ................. $ (.03) $ (.04) $ (.13) $ (.29)
Weighted average number of shares
outstanding ....................... 12,867,375 11,943,825 12,451,786 11,120,282
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
---------------------------------- -----------------
(unaudited)
----------------------------------
Actual As Adjusted(2)
--------------- ---------------
<S> <C> <C> <C>
Working capital ........... $ 561,515 $ 10,926,515 $ 1,083,190
Total assets .............. $ 2,172,351 $ 12,537,351 $ 2,217,870
Total liabilities ......... $ 1,086,329 $ 1,086,329 $ 769,857
Accumulated deficit ....... $(10,037,683) $(10,037,685) $ (9,673,192)
Total stockholders' equity . $ 1,086,022 $ 11,451,022 $ 1,448,013
</TABLE>
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(1) From its inception through February 1994, the operations of the Company
were principally limited to conducting research and development, limited
production operations and test marketing of prototype ovens. The Company
commenced the initial commercial rollout of its first commercial product,
the Model D-1 TurboChef oven, in March 1994, and was considered to be in
the development stage until the last quarter of 1994. Effective June
1995, the Company entered into its first major contract with a customer
and commenced initial shipments of its Model D-2 TurboChef oven.
(2) Gives effect to the sale of the 800,000 Shares offered hereby and the
anticipated application of the estimated net proceeds therefrom. See "Use of
Proceeds."
6
<PAGE>
RISK FACTORS
The securities offered hereby are speculative and involve a high degree of
risk, including, but not necessarily limited to, the risk factors described
below. Each prospective investor should carefully consider the following risk
factors inherent in and affecting the business of the Company and this
offering before making an investment decision.
Limited Operating History and Revenues; Substantial Operating Losses;
Accumulated Deficit. Although the Company was organized in April 1991, it was
not until March 1994 that it began the initial commercial roll- out of the
Model D-1 TurboChef oven, its first commercial product, and not until June
1995 that it entered into the Whitbread Contract, its first major contract,
and commenced shipment of its Model D-2 TurboChef oven. Prior to such time,
the Company was engaged primarily in research and development, limited
production operations and test marketing of prototype ovens. Consequently,
the Company has had a limited operating history upon which an evaluation of
the Company's prospects and performance can be made. The Company's prospects
must be considered in light of the risks, expenses, difficulties and delays
frequently encountered in connection with the early-phase operations of a new
business, the development and commercialization of new products based on
innovative technologies and the high level of competition in the industry in
which the Company operates. To date, the Company has generated limited
revenues and incurred substantial losses in each year of its operations
(including net losses of $364,491, $1,585,268 and $3,181,519 for the
three-month period ended March 31, 1996 and the years ended December 31, 1995
and 1994, respectively) resulting in an accumulated deficit of $10,037,683 as
of March 31, 1996. Moreover, for the year ended December 31, 1995,
approximately 69% of the Company's revenues were generated by a single
customer, Whitbread. The subsequent loss of this customer, in the absence of
significant additional customers or contracts, would have a material adverse
effect on the Company's financial condition and results of operations. The
Company anticipates that it will continue to incur significant operating
expenses, including in connection with the Company's ongoing development
activities relating to new product applications for its proprietary
foodservice technologies, the training and set-up of additional third-party
manufacturing sources for the production of the Company's TurboChef ovens and
the continued implementation of the Company's marketing plans. The Company's
future profitability will depend upon, among other things, corresponding
increases in revenues from operations to offset these expenditures. There can
be no assurance that the Company will be able to successfully implement the
next phase of its business strategy, that its rate of revenue growth will
continue in the future or that it will ever be able to achieve profitable
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Business" and Financial Statements.
Significant Capital Requirements; Dependence On Offering Proceeds;
Possible Need for Additional Financing. The Company's capital requirements in
connection with its product and technology development and marketing efforts
have been and will continue to be significant. In addition, capital is
required to operate and expand the Company's operations. Since its inception,
the Company has been substantially dependent on loans and capital
contributions from its principal stockholders (including capital
contributions and borrowings in the aggregate amounts of $285,000 and
$1,585,000 during the three months ended March 31, 1996 and the year ended
December 31, 1995, respectively, from Jeffrey B. Bogatin, the Chairman of the
Company's Board of Directors, and Philip R. McKee, the Company's President
and Chief Executive Officer), as well as private placements of the Company's
securities and the April 1994 IPO, to fund its activities. The Company is
dependent on the proceeds of this offering or other financing to expand its
operations, including to continue its product development activities and
marketing efforts and to set up additional third-party production operations
for the manufacture of the Company's ovens. The Company anticipates, based on
its currently proposed plans and assumptions relating to its operations
(including assumptions regarding its ability to reduce oven production costs
and the progress of its research and development efforts) that the proceeds
of this offering, together with its current cash and cash equivalent balances
and anticipated revenues from operations, will be sufficient to fund the
Company's operations and satisfy its contemplated capital requirements for at
least 24 months following the consummation of this offering. In the event
that the Company's plans change, or its assumptions change or prove to be
incorrect, or if the proceeds of this offering, cash balances and anticipated
revenues otherwise prove to be insufficient, the Company could be required to
seek additional financing prior to the end of such period. Other than a
commitment letter from Messrs. Bogatin and McKee confirming their agreement
to provide financial support (if and as required) to the Company in such
amounts as the Company shall reasonably request during the period
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<PAGE>
from January 1, 1996 through June 1997, the Company has no current
arrangements with respect to, or sources of, additional financing. There can
be no assurance that additional financing will be available to the Company,
if and when needed, on commercially reasonable terms, or at all. Any
inability to obtain additional financing when needed could have a material
adverse effect on the Company, including possibly requiring the Company to
significantly curtail its operations. In addition, to the extent that any
future financings involve the sale of the Company's equity securities, the
Common Stock holdings of the Company's then existing stockholders could be
substantially diluted. See "Use of Proceeds" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Emerging Industry Segment; Uncertainty of Market Acceptance; Limited
Marketing Capabilities; Potential Dependence Upon Third-Party Marketing
Arrangements. The high-speed, high-tech commercial oven segment of the
foodservice equipment industry is an emerging market, characterized by an
increasing number of market entrants. As is typical with new products based
on innovative technologies, demand for and market acceptance of the TurboChef
ovens and other foodservice products developed by the Company using its
innovative technological platform are subject to a high level of uncertainty.
To date, the Company has generated limited revenues from the sale of its
products, entered into only one major contract for future sales of its
products and achieved market acceptance for its products from only a limited
number of customers. Achieving increased market acceptance for its products
and technological concepts will require substantial marketing efforts and the
expenditure of significant funds to increase the foodservice industry's
familiarity with the Company and to educate potential customers as to the
distinctive characteristics and perceived benefits of the TurboChef ovens and
the Company's technologies. There can be no assurance that the Company will
have available the funds necessary to achieve such acceptance. The Company
has conducted only limited marketing activities, to date, and currently has
limited financial, personnel and other resources to undertake extensive
additional marketing and advertising activities. Moreover, the Company's
future performance will be subject to a number of business factors, including
those beyond the Company's control, such as economic downturns and evolving
industry needs and preferences. Consequently, although the Company intends to
utilize approximately $1,900,000 (18.3%) of the net proceeds of this offering
to expand its marketing and sales activities and resources, there can be no
assurance that such funds will be sufficient, that the Company's foodservice
technologies and products will ever achieve widespread market acceptance, or
that the Company's increased marketing efforts and expenditures will result
in significant levels of revenues. In addition, although the Company expects
to continue to market directly to certain international and national
full-service and fast food restaurant chains and to expand its in-house
marketing capability, the Company intends to aggressively pursue the
expansion of its market penetration by seeking to establish joint ventures,
strategic alliances, and/or licensing or other arrangements with companies
already engaged in the mass marketing and/or manufacture of foodservice
equipment and products and to utilize certain independent distributors to
assist the Company in the marketing of its products to independent
restaurants, cafeterias, public and private institutions and non-traditional
food service operators. Any such licensing arrangement with existing
manufacturers would be subject to the terms of certain contingent licenses to
manufacture TurboChef ovens granted to Whitbread under the Whitbread
Contract. Consequently, the Company may experience certain additional
difficulties in establishing acceptable licensing arrangements with third
party manufacturers of foodservice equipment and products. While the Company
believes that any licensees and/or independent distributors with which it
enters into such arrangements will have an economic motivation to
commercialize the Company's products, the time and resources devoted to these
activities generally will be contributed and controlled by such entities and
not by the Company. A decline in the financial prospects of particular
licensees or distributors or of any of their customers could have an adverse
effect on the Company. Moreover, joint venture or similar arrangements may
require financial or other commitments by the Company. There can be no
assurance that the Company will be able, for financial or other reasons, to
finalize any third-party marketing or distribution arrangements or that such
arrangements, if finalized, will result in the successful commercialization
of any of the Company's products. See "Use of Proceeds" and
"Business--Marketing and Sales."
Lengthy Sales Cycle; Possible Fluctuations in Operating Results. The
Company's sales cycle, which generally commences at the time a prospective
customer demonstrates an interest in purchasing a TurboChef oven and ends
upon the execution of a purchase order with that customer, will vary by
customer and could extend for periods of nine months or more, depending upon
the time required by the customer to test and evaluate the TurboChef oven. In
addition, multi-oven sales to restaurant chains generally take even longer as
the Company's products and technologies represent an entirely new method for
the preparation and serving of food and often
8
<PAGE>
require a restructuring of a customer's entire operational strategy. For
instance, the Company's current contract with Whitbread, its principal
customer, was not finalized until after more than a year of testing,
negotiating and organizational planning had first been completed. Moreover,
as a result of the Company's lengthy sales cycle, the sales process for the
Company's products also generally requires substantial time commitments,
effort and expense, and there can be no assurance that the Company, after
expending such resources, will obtain a significant contract or order from
such efforts. In addition, the Company's manufacturing cycle, which is the
period from the execution of a purchase order until actual shipment of the
product to the customer, generally ranges from two to six weeks for small
volume oven sales and up to one or two months longer for initial shipments to
commence under large multi-oven purchase contracts. Accordingly, the
Company's operating results may vary significantly from quarter to quarter or
year to year due to the fluctuating lengths of its sales cycle and
manufacturing cycle, as well as from fluctuations in the purchasing patterns
of potential customers, the timing of introduction of new products and
product enhancements by the Company and its competitors, technological
factors, variations in sales by distribution channels, and generally
non-recurring product sales. Consequently, revenues as well as profits (if
any) or losses may vary significantly from quarter to quarter or year to
year, and revenue or profits (if any) in any period will not necessarily be
indicative of results in subsequent periods. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business."
Dependence on Third-Party Suppliers and Manufacturers. To date, the
Company has relied almost exclusively upon Manufacturers Services Corp., Inc.
("MSC"), a contract foodservice equipment manufacturer, for the manufacture
of the Company's TurboChef ovens, and, as of March 31, 1996, MSC had
manufactured and delivered approximately 265 TurboChef ovens to the Company.
MSC has the current capacity to produce 50 ovens per month, which is
sufficient to meet the Company's delivery requirements under the Whitbread
Contract. However, due to the Company's limited ability to produce TurboChef
ovens, the Company has been allocating only certain numbers of TurboChef
ovens to be shipped into the United Kingdom during designated periods.
Consequently, during such periods the Company may not be able to accommodate
additional customers in the United Kingdom. In addition, pursuant to the
Whitbread Contract, if Whitbread purchases all of the Company's production
capacity which is allocated to the United Kingdom during such periods, the
Company is prohibited from licensing the manufacture of TurboChef ovens for
sale to other entities in the United Kingdom during such periods and for a
period of three (3) months beyond the date of the final shipment to
Whitbread. Accordingly, under certain circumstances, the Company may be
prohibited from licensing the manufacture of TurboChef ovens for sale to
entities in the United Kingdom, other than Whitbread, until January 1997. The
Company has not entered into a long-term contract with MSC, intending instead
to continue its practice of placing oven manufacturing orders with MSC from
time to time, in the ordinary course of business, as its needs require. While
the Company believes that MSC's production quantities can and will be
increased as high as 100 ovens per month, there can be no assurance of such
production increase, that any increased production would be sufficient or
that any increased production could be achieved without materially increasing
the risk of production error. Moreover, while the Company believes that
alternative manufacturing sources are available, and intends to use a portion
of the proceeds of this offering to engage and set up one or more additional
contract manufacturers to produce TurboChef ovens (and, in fact, will
eventually be required to do so in order to continue expanding its
operations), any new contract manufacturing arrangements will require a
substantial amount of the Company's time and effort to set up and prepare the
new manufacturers' operations, and train their personnel, for the production
of the Company's ovens. Consequently, any inability of MSC to meet the
Company's current production requirements, in the absence of immediately
available alternative sources of supply, or any inability of the Company, as
its needs expand, to enter into, and timely develop, additional oven
manufacturing sources, could have a material adverse effect on the Company's
operations. Additionally, the Company has been and will continue to be
dependent on third parties for the supply and manufacture of all of its
component and electronic parts, including both standard components and
specially-designed component parts, such as the printed circuit computer
boards and wiring harnesses used in the TurboChef ovens. The Company
generally does not maintain supply agreements with such third parties but
instead purchases components and electronic parts pursuant to purchase orders
in the ordinary course of business. The Company is substantially dependent on
the ability of its manufacturers and suppliers to, among other things, meet
the Company's design, performance and quality specifications. Failure by the
Company's manufacturers and suppliers to comply with these and other
requirements could have a material adverse effect on the Company.
Furthermore, there can be no assurance that the Company's manufacturers and
suppliers will continue to dedicate sufficient production capacity to meet
the Company's scheduled delivery requirements or that the Company's suppliers
or manufacturers will have sufficient produc-
9
<PAGE>
tion capacity to satisfy the Company's requirements during any period of
sustained demand. Their failure to supply, or delay in supplying, the Company
with ovens or components could adversely affect the Company's profit margin
and the Company's ability to meet its own delivery schedules on a timely and
competitive basis. In addition, although the Company owns the designs and
dies for its specially-designed components and believes that alternative
sources of supply are available, the Company currently purchases all of its
specially-designed components from a limited number of suppliers. Failure by
such suppliers to continue to supply the Company with these components, on
commercially reasonable terms or at all, in the absence of readily available
alternative sources, would have a material adverse effect on the Company. See
"Use of Proceeds" and "Business -- Production and Supply."
Dependence on a Significant Customer. For the three months ended March 31,
1996 and the year ended December 31, 1995, approximately 81% and 69%,
respectively, of the Company's revenues were derived from sales to Whitbread,
and it is anticipated that a majority of the Company's revenues for the year
ended December 31, 1996 will continue to be derived from sales to Whitbread
(based on the terms of the Whitbread Contract, which currently contemplates
shipments through September 1996). The subsequent loss of this customer, in
the absence of significant additional customers or contracts, or the early
termination, for any reason, of the Whitbread Contract would have a material
adverse effect on the Company's financial condition and results of
operations. See "Business--Marketing and Sales."
Uncertainty of New Product Development. The Company intends to utilize
approximately $3,100,000 (29.9%) of the net proceeds of this offering for the
continued development of new and expanded commercial applications of its
foodservice technologies. The Company will be required to devote considerable
efforts to complete the development of such applications, and such
development remains subject to all of the risks associated with the
development of new products based on innovative technologies, including
unanticipated technical or other problems and the possible insufficiency of
the funds allocated therefor, which could result in a substantial change in
the design, delay in the development, or abandonment of such development
efforts. Consequently, there can be no assurance that any new applications or
products will be successfully developed or that, if developed, they will meet
current price or performance objectives, be developed on a timely basis or
prove to be as effective as products based on other technologies. The
inability to successfully complete development of a product or application or
a determination by the Company, for financial, technical or other reasons,
not to complete development of any product or application, particularly in
instances in which the Company has made significant capital expenditures,
could have a material adverse effect on the Company. See "Use of Proceeds,"
"Business--Technologies and Products" and "-- Research and Development."
Risks Associated with Future Growth and Possible Acquisitions. The Company
intends to use a substantial portion of the proceeds of this offering to
implement the next phase of its business strategy in an effort to expand its
current level of operations and grow the Company's business. Such expansion
strategy will place significant pressures on the Company's management,
operational and technical resources. The success of such strategy will thus
depend upon, among other things, the Company's ability to hire and retain
additional skilled management, marketing, technical and other personnel;
secure additional and adequate sources of supply and production on a timely
basis and on commercially reasonable terms; and successfully manage its
growth (which will also require it to develop and improve upon its
operational, management and financial systems and controls, in order to
properly monitor its expanded operations, control its costs and maintain
effective quality controls). The Company's prospects and future growth will
also be largely dependent upon the ability of its products and technologies
to achieve significant penetration in targeted commercial markets and the
ability of the Company to develop and commercialize additional applications
of its proprietary foodservice technologies. There can be no assurance that
the Company will be able to expand its operations, or, if it is able to
expand its operations, that it will be able to effectively manage such
expansion or anticipate and satisfy all of the changing demands and
requirements that growth will impose upon its operations. In addition,
although as of the date of this Prospectus, the Company has no agreements,
understandings or commitments, and is not engaged in any definitive
negotiations, relating thereto, the Company could also seek to expand its
operations by entering into strategic alliances with third-parties relating
to the exploitation of the Company's technologies and/or by acquiring other
companies and businesses. Under Delaware law, various forms of business
combinations can be effected without stockholder approval and, accordingly,
investors in this offering will, in all likelihood, neither receive nor
otherwise have the opportunity to evaluate any financial or other information
which may be made available to
10
<PAGE>
the Company in connection with any potential joint venture arrangement or
business acquisition and will be dependent upon the Company's management to
select, structure and consummate any such arrangements and/or acquisitions in
a manner consistent with the Company's business objectives. Although the
Company will endeavor to evaluate the risks inherent in a particular joint
venture arrangement or acquisition, there can be no assurance that the
Company will properly ascertain or assess all significant and pertinent risk
factors prior to its consummation of such a transaction. Moreover, to the
extent the Company does effect a joint venture or acquisition, there can be
no assurance that the Company will be able to successfully integrate into its
operations any business which it may form or acquire. Any inability to do so,
particularly in instances in which the Company has made significant capital
investments, could have a material adverse effect on the Company. See "Use of
Proceeds" and "Business."
Industry Competition; Technological Obsolescence. The cooking and warming
segment of the foodservice equipment market is characterized by intense
competition. The Company competes with numerous well- established
manufacturers and suppliers of commercial ovens, grills and fryers (including
those which cook through the use of conduction, convection, induction, air
impingement, infrared, and/or microwave heating methods). In addition, the
Company is aware of others who are developing, and in some cases have
introduced, new ovens based on high-speed heating methods and technologies.
Although the Company is not aware of any competitive products, either being
marketed or under development, which it believes are functionally equivalent
to the TurboChef ovens (i.e. that can produce the variety of food items,
cooked to the same high quality standards, at the same speeds), there can be
no assurance that other companies with the financial resources and expertise
that would encourage them to attempt to develop competitive products, do not
have or are not currently developing functionally equivalent products, or
that functionally equivalent products will not become available in the near
future. Most of the Company's competitors possess substantially greater
financial, marketing, personnel and other resources than the Company and have
established reputations relating to product design, development, manufacture,
marketing and service of cooking equipment. In addition, the market for the
Company's products and technologies is characterized by changing technology
and evolving industry standards. Accordingly, the Company's ability to
compete successfully will depend, in large part, on its ability to
continually enhance and improve its existing products, complete development
and introduce to the marketplace in a timely manner its proposed products,
successfully develop and market new products, and continue to improve
operating efficiencies and lower manufacturing costs. There can be no
assurance that the Company will be able to compete successfully, that
competitors will not develop technologies or products that render the
Company's products obsolete or less marketable or that the Company will be
able to successfully enhance or adapt its products, develop new products or
lower its costs. See "Business -- Competition."
Potential Products Liability; Support and Maintenance Requirements;
Warranty Expense. The Company is engaged in a business which could expose it
to possible liability claims from others, including from foodservice
operators and their staffs, as well as from consumers, for personal injury or
property damage due to alleged design or manufacturing defects in the
Company's products or otherwise. The Company maintains a general liability
insurance policy (which includes products liability coverage) that is subject
to a $1,000,000 per occurrence limit with a $2,000,000 aggregate limit and a
$3,000,000 umbrella liability insurance policy to cover claims in excess of
the limits of its liability insurance. In addition, the Company believes that
MSC currently maintains similar levels of liability insurance. There can be
no assurance, however, that either the Company's insurance or that of any
third-party manufacturer will be sufficient to cover potential claims or that
an adequate level of coverage will be available in the future at reasonable
cost. A partially insured or a completely uninsured successful claim against
the Company could have a material adverse effect on the Company. In addition,
if the Company is successful in its efforts to obtain significant additional
orders for TurboChef ovens, the Company may be required to install and
service, on a timely basis, large numbers of TurboChef ovens at its customers
locations. Although the Company intends to use proceeds from this offering to
establish an expanded parts and service network for its customers and their
TurboChef ovens, there can be no assurance that the Company will be able to
provide such services, when required, on acceptable terms or conditions, or
at all. Furthermore, the Company generally warrants its products to be free
from defects in workmanship and materials for one year. There can be no
assurance that future warranty expenses will not have an adverse effect on
the Company. See "Use of Proceeds," "Business -- Warranty and Service" and
"--Insurance."
Patents and Proprietary Rights. The Company holds two United States
patents which cover certain fundamental aspects of the Company's high-speed
cooking technologies and has 15 pending patent applications
11
<PAGE>
corresponding to these United States patents filed in 7 countries (including
16 countries of the European Patent Convention as a single country). The
Company has also applied for one United States patent relating to the
Company's "par-baked" pizza dough setting technology and another United
States patent relating to an improvement to its high-speed cooking
technologies. The Company also holds a United States trademark registration
for the TurboChef(R) name and a servicemark registration for its slogan
"Changing the Way Good Food is Served(R)". There can be no assurance as to
the breadth or degree of protection which existing or future patents, if any,
may afford the Company, that any patent applications will result in issued
patents, that the Company's patents, pending patents, or registered marks
will be upheld if challenged or that competitors will not develop similar or
superior methods or products outside the protection of any patents issued to
the Company. Although the Company believes that none of its patents,
technologies, products or registered marks infringe upon the patents, marks,
or violate the proprietary rights, of others, it is possible that its
existing patent, trademark or servicemark rights may not be valid or that
infringement of existing or future patents, marks or proprietary rights may
occur. In the event the Company's products are deemed to infringe upon the
patents, or proprietary rights of others, the Company could be required to
modify the design of its products, change the name of its products or obtain
a license for the use of certain technologies incorporated in its products.
There can be no assurance that the Company would be able to do any of the
foregoing in a timely manner, upon acceptable terms and conditions, or at
all, and the failure to do so could have a material adverse effect upon the
Company. In addition, there can be no assurance that the Company will have
the financial or other resources necessary to enforce or defend a patent
infringement or proprietary rights violation action, and, if the Company's
products are deemed to infringe upon the patents, marks or proprietary rights
of others, the Company could, under certain circumstances, become liable for
damages, which could also have a material adverse effect on the Company.
In addition to patent protection, the Company also relies on trade secrets
and proprietary know-how, and typically enters into confidentiality and
non-competition agreements with its employees and appropriate suppliers and
manufacturers, to protect the concepts, ideas and documentation relating to
its proprietary technologies. However, as with its patents, such methods may
not afford the Company complete protection. There can be no assurance that
others will not obtain access to the Company's trade secrets and know-how or
independently develop products or technologies similar to those of the
Company. See "Business -- Patent and Proprietary Rights."
Regulation and Accreditation. The Company is subject to regulations
administered by various federal, state and local authorities (including those
limiting radiated emissions from oven products) which impose significant
compliance burdens on the Company. Failure to comply with these regulatory
requirements may subject the Company to civil and criminal sanctions and
penalties. While the Company believes that it, as well as both the Model D-1
and Model D-2 TurboChef ovens, are in compliance in all material respects
with all laws and regulations applicable to the Company and such products,
including those administered by the United States Food and Drug
Administration (the "FDA"), the Federal Communications Commission (the "FCC")
and the European Community Council, there can be no assurance of such
compliance. Moreover, new legislation and regulations, as well as revisions
to existing laws and regulations (at the federal, state and/or local levels,
in the United States and/or in foreign markets), affecting the foodservice
equipment industry may be proposed in the future. Such proposals could affect
the Company's operations, result in material capital expenditures, affect the
marketability of the Company's existing products and technologies and/or
limit opportunities for the Company with respect to modifications of its
existing products or with respect to its new or proposed products or
technologies. In addition, expansion of the Company's operations into
additional foreign markets may require the Company to comply with additional
regulatory requirements. There can be no assurance that the Company will be
able to comply with additional applicable laws and regulations without
excessive cost or business interruption, and failure to comply could have a
material adverse effect on the Company.
In February and March 1994, the Company received certification from
Underwriters Laboratories, Inc. ("UL(R)") as to compliance of the Company's
Model D-1 TurboChef oven with applicable UL(R) requirements relating to
product safety accreditation standards and with the applicable requirements
of the National Sanitation Federation ("NSF") relating to cleanability and
sanitation accreditation standards. Similarly, in July 1995, the Company
received certification from UL(R) as to compliance of the Model D-2 TurboChef
oven with such requirements. Such certifications, which require periodic
renewal, only represent compliance with established standards and are not
legally required. However, failure by the Company to comply with these
accreditation
12
<PAGE>
standards in the future could have a material adverse effect on the Company's
marketing efforts. In addition, in January 1996, the Company met the
requirements necessary to apply the "CE" mark (which indicates compliance
with the European Community Council directive relating to electromagnetic
compatibility) to its Model D-2 TurboChef ovens. As an equipment
manufacturer, the Company is allowed to "self-certify" compliance with this
directive and have a third party attest to the results. The Company is
required by law to meet this European Community Council directive in order to
apply the "CE" mark and thereby sell its ovens in the European Union. Any
failure to meet the requirements of an applicable directive could not only
prevent the Company's sale of its products in the European Union, but if it
were found to be out of compliance with a directive, in connection with
products sold after the establishment of that directive, severe penalties to
the Company could ensue. See "Business -- Regulation and Accreditation."
Risks Relating to Foreign Sales. For the three months ended March 31, 1996
and the year ended December 31, 1995, sales of the Company's products into
foreign markets accounted for approximately 84% and 70%, respectively, of the
Company's revenues. Based on its requirements under the Whitbread Contract,
the Company anticipates that the majority of its revenues will continue to be
derived from sales of its products in foreign markets for at least the near
future. A substantial portion of the Company's revenues will thus continue to
be subject to the risks associated with foreign sales, including economic or
political instability, shipping delays, fluctuations in foreign currency
exchange rates (although, because the Company sells its products on a "United
States dock" basis, this risk is somewhat mitigated) and various trade
restrictions, as well as to the burdens of complying with a wide variety of
foreign laws and regulatory requirements, all of which could have a
significant impact on the Company's ability to deliver products on a
competitive and timely basis. Future imposition of, or significant increases
in, the level of customs duties, export quotas or trade restrictions could
also have an adverse effect on the Company. See "Business -- Marketing and
Sales."
Control by Current Management. Upon consummation of this offering, Jeffrey
B. Bogatin, the Company's Chairman of the Board, and Philip R. McKee, the
Company's President and Chief Executive Officer, will beneficially own an
aggregate of approximately 59% of the Company's outstanding Common Stock. As
a result, Messrs. Bogatin and McKee will continue to be able to control the
Company, elect all of the Company's directors and generally direct the
affairs of the Company. Accordingly, it is likely that investors in this
offering will have little, or no, effective voice in the direction of the
Company's operations. Additionally, pursuant to the Shareholders and
Registration Rights Agreement, dated May 15, 1993, as amended (the
"Shareholders Agreement"), between the Company and Messrs. Bogatin and McKee,
each of Messrs. Bogatin and McKee has agreed to vote for the other to serve
as a member of the Board of Directors, and, as members of the Board, each has
agreed to vote for the election of the other as an officer of the Company.
See "Management," "Principal Stockholders" and "Description of Securities."
Dependence on Key Personnel. The success of the Company will be largely
dependent on the continued personal efforts of Mr. McKee, as well as on those
of other key personnel. Any incapacity or inability of Mr. McKee or certain
other key employees to perform their services could have a material adverse
effect on the Company's business and prospects. Moreover, other than
"key-man" life insurance on the life of Mr. McKee in the amount of $3,000,000
and an employment agreement with Mr. McKee which expires in March 1999, the
Company does not intend to obtain key-man life insurance on the lives of, or
enter into employment agreements with, any of its officers or employees. The
success of the Company will also be dependent upon its ability to hire and
retain additional qualified management, marketing, technical, financial and
other personnel. There can be no assurance that the Company will be able to
hire or retain such necessary personnel, as and when needed, and any
inability to do so could have a material adverse effect on the Company. See
"Management."
Broad Discretion in Application of Proceeds. Approximately $2,875,000
(27.8%) of the estimated net proceeds of this offering has been allocated to
working capital and general corporate purposes. Accordingly, the Company's
management will have broad discretion as to the application of such proceeds.
See "Use of Proceeds."
Possible Volatility of Stock Price. The trading price of the Common Stock
has been highly volatile and has been subject to dramatic fluctuations, since
its initial listing on NASDAQ in connection with the April 1994 IPO, and may
continue to be highly volatile following the consummation of this offering.
Factors such as the Company's financial results, introduction of new products
by the Company or its competitors and various indus-
13
<PAGE>
try factors generally may have a significant impact on the market price of
the Company's securities. Additionally, in recent years, the stock market
itself has experienced a high level of price and volume volatility and,
accordingly, the market prices for many companies, particularly small
capitalization companies, the common stock of which trades in the
over-the-counter market, have experienced wide price fluctuations not
necessarily related to the operating performance of such companies. See
"Price Range of Common Stock."
No Dividends. To date, the Company has not paid any cash dividends on its
Common Stock and does not expect to declare or pay any cash dividends in the
foreseeable future. See "Dividend Policy."
Immediate and Substantial Dilution. A purchaser in this offering will
experience immediate and substantial dilution of approximately $14.18 (95%) per
share between the adjusted net tangible book value per share after this offering
and the public offering price per Share in this offering. See "Dilution."
Shares Eligible for Future Sale; Registration Rights. Upon the
consummation of this offering, the Company will have 13,668,078 shares of
Common Stock outstanding, of which, 4,434,000 shares, including the 800,000
Shares offered hereby and, subject to certain contractual restrictions with
the Underwriter described below, the 233,334 Selling Stockholder Shares
(which are being registered by the Company for resale by the Selling
Stockholder, in connection with this offering) will be freely tradeable
without restriction or further registration under the Securities Act of 1933,
as amended (the "Securities Act"). The remaining 9,234,078 shares are
unregistered and deemed to be "restricted securities" (as that term is
defined under Rule 144 promulgated under the Securities Act), and, as such,
may in the future only be sold pursuant to a registration statement under the
Securities Act, in compliance with the exemption provisions of Rule 144 under
the Securities Act or pursuant to another exemption under the Securities Act.
Of the 9,234,078 restricted shares, an aggregate of 8,223,334 shares are
already eligible for sale under Rule 144, subject to certain volume
limitations prescribed by such rule, and an aggregate of 7,977,004 shares are
the subject of piggyback registration rights granted to Messrs. Bogatin and
McKee and Donald J. Gogel, another director of the Company. Moreover, other
than the Selling Stockholder (which is subject to a six month lock-up
agreement with the Underwriter relating to the Selling Stockholder Shares),
none of the Company's officers, directors, or other stockholders are
contractually restricted from selling or otherwise disposing of any of their
shares of Common Stock. In addition, the Company has granted to the
Underwriter certain demand and piggyback registration rights with respect to
the 260,000 shares and 80,000 shares of Common Stock underlying the
Underwriter's IPO Warrants (which are currently exercisable) and the
Underwriter's Warrants (which are exercisable commencing one year following
the date of this Prospectus), respectively. No prediction can be made as to
the effect, if any, that sales of shares of Common Stock or even the
availability of such shares for sale will have on the market prices
prevailing from time to time. Nonetheless, even the possibility that
substantial additional amounts of Common Stock may be sold in the public
market in the future may adversely affect prevailing market prices for the
Common Stock and could impair the Company's ability to raise capital through
the sale of its equity securities. See "Description of Securities," "Shares
Eligible for Future Sale" and "Underwriting."
Possible Delisting of Securities from NASDAQ; Risks Relating to Low-Priced
Stocks. The Company's Common Stock is currently listed on NASDAQ. In order to
continue to be listed on NASDAQ, however, the Company must continue to
maintain at least (i) $2,000,000 in total assets, (ii) a public float with a
$200,000 market value, and (iii) $1,000,000 in total capital and surplus. In
addition, continued inclusion requires two market-makers and a minimum bid
price of $1.00 per share; provided, however, that if the Company falls below
such minimum bid price, it will remain eligible for continued inclusion in
NASDAQ if the market value of the public float is at least $1,000,000 and the
Company has $2,000,000 in capital and surplus. The failure to meet these
maintenance criteria in the future may result in the delisting of the Common
Stock from NASDAQ, and trading, if any, in the Common Stock would thereafter
be conducted in the non-NASDAQ over-the-counter market. As a result of such
delisting, an investor could find it more difficult to dispose of, or to
obtain accurate quotations as to the market value of, the Common Stock.
In addition, if the Common Stock was to become delisted from trading on
NASDAQ and the trading price of the Common Stock was to fall below $5.00 per
share, trading in the Common Stock would also be subject to the requirements
of certain rules promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") which require additional disclosure by
broker-dealers in connection with any trades involving
14
<PAGE>
a stock defined as a penny stock (generally, any non-NASDAQ equity security
that has a market price of less than $5.00 per share, subject to certain
exceptions). Such rules require the delivery, prior to any penny stock
transaction, of a disclosure statement explaining the penny stock market and
the risks associated therewith, and impose various sales practice
requirements on broker-dealers who sell penny stocks to persons other than
established customers and accredited investors (generally institutions). For
these types of transactions, the broker- dealer must make a special
suitability determination for the purchaser and have received the purchaser's
written consent to the transaction prior to sale. The additional burdens
imposed upon broker-dealers by such requirements may discourage
broker-dealers from effecting transactions in the Common Stock, which could
severely limit the market liquidity of the Common Stock and the ability of
purchasers in this offering to sell the Common Stock in the secondary market.
Due to continued operating losses, the Company had less than $2,000,000 in
total assets and less than $1,000,000 in total capital and surplus as of
March 31, 1995. In order to maintain the eligibility of the Company's Common
Stock for listing on NASDAQ, Messrs. Bogatin and McKee contributed an
aggregate of $1,000,000 in cash to the Company in June 1995 in exchange for
certain shares of Common Stock. Recently, the Company again had less than
$2,000,000 in total assets and, in order to maintain the eligibility of the
Company's Common Stock for listing on NASDAQ, Messrs. Bogatin and McKee
loaned an aggregate of $285,000 to the Company on March 30, 1996. Although,
if this offering is consummated, the Company will be well above the minimum
NASDAQ maintenance requirements, there can be no assurance that, if the
Company were once again to fail to meet NASDAQ's maintenance requirements,
any person, including any of the Company's executive officers, would
contribute cash to the Company in order to prevent the delisting of the
Company Stock from NASDAQ. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Certain Transactions."
15
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 800,000 Shares offered
hereby are estimated to be $10,365,000, after deducting underwriting discounts
and commissions and the estimated expenses of this offering. The Company expects
to use these net proceeds approximately as follows:
<TABLE>
<CAPTION>
Approximate
Approximate Percentage of
Application of Proceeds Dollar Amount Net Proceeds
----------------------- --------------- ---------------
<S> <C> <C>
Research and development (1) ............................. $ 3,100,000 29.9%
Manufacturing and tooling (2) ............................ 2,000,000 19.3
Marketing and sales (3) .................................. 1,900,000 18.3
Establishment of an expanded parts and service network (4) . 490,000 4.7
Working capital and general corporate purposes (5) ....... 2,875,000 27.8
--------------- ---------------
Total ............................................... $10,365,000 100.0%
=============== ===============
</TABLE>
- ------
(1) Represents the estimated costs associated with the continuing development
of improvements and enhancements to the performance of the Company's
Model D-2 TurboChef oven; completion of development efforts relating to a
residential oven model incorporating the Company's proprietary high-speed
cooking technologies; completion of development efforts relating to the
Company's proposed Model E-1 consumer-operated TurboChef oven for use in
convenience stores and other retail outlets; customization of the
Company's proprietary software systems (incorporated in the technological
platform of its products), if, and as, needed for the successful
integration of the Company's products and services with its customers'
existing foodservice operating systems; and the Company's continuing
efforts to exploit other of the many potential market applications for
the TurboChef technologies. See "Business--Products and Technologies" and
"--Research and Development."
(2) Represents tooling costs and other expenses associated with the planned
set-up and training of at least two additional third-party manufacturers
for the production of the TurboChef ovens and the additional tooling
costs necessary to gain both significant efficiencies in the mass
production of the Company's ovens and significant per-unit manufacturing
cost reductions. See "Business--Production and Supply."
(3) Represents anticipated costs associated with the expansion of the
Company's marketing and sales activities, including expenses for the
preparation of sales brochures, advertising in trade publications and
participation in industry trade shows, as well as those costs associated
with the market testing of the Company's products (including the costs of
assembling and maintaining an inventory of customer demonstration and
test-site ovens) and the establishment of a dealer sales network
necessary for the effective marketing of the Company's products to
smaller foodservice operations. This amount also includes salaries for
additional marketing and sales personnel expected to be hired by the
Company. See "Business--Marketing and Sales."
(4) Represents anticipated costs associated with the Company's planned
establishment of a national and global service network capable of
supporting a significant increase in TurboChef oven installations,
including costs associated with the training of, and the establishment of
parts inventories for, additional service network participants. See
"Business--Warranty and Service."
(5) Includes amounts allocated for the establishment of a finished goods
inventory and the addition of key corporate support staff required to
implement the development and production initiatives planned by the
Company over the next two years.
The allocation of the net proceeds of this offering set forth above
represents the Company's best estimates based upon its currently proposed
plans and certain assumptions regarding general economic and industry
conditions and the Company's anticipated future revenues and expenditures. If
any of these factors change, the Company may find it necessary or advisable
to reallocate some of the proceeds within the above-described categories or
to use portions thereof for other purposes. The Company anticipates, based on
its currently proposed
16
<PAGE>
plans and assumptions relating to its operations (including assumptions
regarding its ability to reduce oven production costs and the progress of its
research and development efforts), that the net proceeds of this offering,
together with its current cash and cash equivalent balances and anticipated
revenues from operations, will be sufficient to fund the Company's operations
and satisfy its contemplated capital requirements for at least 24 months
following the consummation of this offering. In the event that the Company's
plans change, or its assumptions change or prove to be incorrect, or if the
proceeds of this offering, current cash and anticipated revenues otherwise
prove to be insufficient (due to unanticipated expenses, delays, problems or
otherwise), the Company could be required to seek additional financing prior
to the end of such period. There can be no assurance that additional
financing will be available to the Company, if and when needed, on
commercially reasonable terms or at all.
The Company may, if and when the opportunity arises, use a portion of the
proceeds of this offering allocated to working capital, together with the
issuance of debt and/or equity securities, to expand its operations by
acquiring companies, or assets thereof, which the Company believes are
compatible with its business. Any decision to make an acquisition will be
based upon a variety of factors including, among others, the purchase price
and other financial terms of the transaction, the business prospects and
competitive position of and services and products provided by the acquisition
candidate and the extent to which any such acquisition would enhance the
Company's prospects. The Company is not, however, currently engaged in
identifying appropriate candidates for acquisition and has no plans,
agreements, understandings or commitments and is not engaged in any
negotiations with respect to any such acquisition.
Proceeds not immediately required for the purposes described above will be
invested principally in United States government securities, short-term
certificates of deposit, money market funds or other short-term interest-
bearing investments.
PRICE RANGE OF COMMON STOCK
The Common Stock has traded on NASDAQ under the symbol "TRBO" since the
Company's April 1994 IPO. Prior to that time, there was no public market for
the Common Stock. The following table sets forth the high and low bid
quotations for the Common Stock for the periods indicated (as adjusted to
give retroactive effect to the Company's 2-for-1 stock split effected on
December 29, 1995) as reported by NASDAQ. The NASDAQ per share quotations
represent inter-dealer prices without adjustment for retail mark-ups,
mark-downs or commissions and may not necessarily represent actual
transactions.
High Low
-------- -------
Year Ended December 31, 1994:
Second Quarter (commencing April 7, 1994) . $ 2 9/16 $ 2 3/16
Third Quarter ........................... 2 7/16 1 1/2
Fourth Quarter .......................... 2 3/16 1 5/16
Year Ended December 31, 1995:
First Quarter ........................... 1 3/4 1
Second Quarter .......................... 9 5/8 1
Third Quarter ........................... 15 1/2 6 1/2
Fourth Quarter .......................... 14 7/8 8 5/8
Year Ended December 31, 1996:
First Quarter ........................... 14 3/8 10 1/4
Second Quarter (through June 11, 1996) .. 19 1/2 10 3/4
The closing sale price of the Common Stock on June 11, 1996, as reported
by NASDAQ, was $17.25 per share. As of such date, there were approximately 55
holders of record of the Common Stock.
17
<PAGE>
DIVIDEND POLICY
The Company has not paid cash dividends on the Common Stock since
inception and does not expect to pay any cash dividends on the Common Stock
in the foreseeable future. The Company instead intends to retain its earnings
to support the operations and growth of its business. Any future cash
dividends would depend on future earnings, capital requirements, the
Company's financial condition and other factors deemed relevant by the Board
of Directors.
DILUTION
The difference between the public offering price per Share offered hereby
and the adjusted net tangible book value per share of Common Stock after the
proposed public offering constitutes the dilution to investors in this
offering. Net tangible book value per share on any given date is determined
by dividing the net tangible book value (total tangible assets less total
liabilities) of the Company on such date by the number of shares of Common
Stock outstanding on such date.
At March 31, 1996, the net tangible book value of the Company was $800,643 or
$.06 per share of Common Stock. After giving effect to the sale of the 800,000
Shares being offered hereby (less underwriting discounts and commissions and
estimated expenses of this offering) the adjusted net tangible book value of the
Company at March 31, 1996 would have been $11,165,643 or $.82 per share,
representing an immediate increase in net tangible book value of $.76 per share
to existing stockholders and an immediate dilution of $14.18 (95%) per share to
new investors. The following table illustrates the foregoing information with
respect to dilution to new investors on a per share basis:
<TABLE>
<CAPTION>
<S> <C>
Public offering price ........................... $15.00
Net tangible book value before offering ... $ .06
Increase attributable to new investors .... .76
------
Adjusted net tangible book value after offering . .82
--------
Dilution to new investors. ..................... $14.18
========
</TABLE>
In addition, as of the date of this Prospectus, there are outstanding
stock options to purchase an aggregate of 2,181,166 shares of Common Stock at
prices ranging from $1.50 to $13.20 per share and outstanding Underwriter's
IPO Warrants to purchase an aggregate of 260,000 shares of Common Stock at a
price of $3.25 per share. To the extent that these options and warrants are
exercised, there will be further dilution to new investors. See "Management
- -- 1994 Stock Option Plan," "Certain Transactions" and "Underwriting."
18
<PAGE>
CAPITALIZATION
The following table sets forth, as of March 31, 1996, the capitalization of
the Company (i) on an actual basis, and (ii) as adjusted to give effect to the
issuance and sale of the 800,000 Shares offered hereby and the anticipated
application of the estimated net proceeds therefrom:
<TABLE>
<CAPTION>
March 31, 1996
--------------------------------
Actual As Adjusted
-------------- --------------
<S> <C> <C>
Notes payable to stockholders: ............................. $ 285,000 $ 285,000
-------------- --------------
Stockholder's equity:
Common Stock, $.01 par value, 20,000,000 shares authorized;
12,868,078 shares issued and outstanding (actual);
13,668,078 shares issued and outstanding (as adjusted)(1) 128,681 136,681
Additional paid-in capital ............................ 10,995,024 21,352,024
Accumulated deficit ................................... (10,037,683) (10,037,683)
-------------- --------------
Total stockholders' equity ....................... 1,086,022 11,451,022
-------------- --------------
Total capitalization ........................ $ 1,371,022 $ 11,736,022
============== ==============
</TABLE>
- ------
(1) Does not include (i) 80,000 shares of Common Stock reserved for issuance
upon exercise of the Underwriter's Warrants; (ii) 260,000 shares of
Common Stock reserved for issuance upon exercise of the Underwriter's IPO
Warrants; (iii) 1,918,666 shares of Common Stock currently reserved for
issuance upon exercise of outstanding options granted under the Option
Plan; (iv) 280,334 shares of Common Stock reserved for issuance upon
exercise of options currently available for future grant under the Option
Plan; and (v) 262,500 shares of Common Stock reserved for issuance upon
exercise of the Acadia Option. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations," "Management -- 1994
Stock Option Plan," "Certain Transactions" and "Underwriting."
19
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data of the Company as of, and for the
fiscal years ended, December 31, 1995 and 1994 has been derived from the
Company's financial statements which have been audited by KMPG Peat Marwick
LLP, independent certified public accountants. The following selected
financial data of the Company as of March 31, 1996, and for the three-month
periods ended March 31, 1996 and 1995, were derived from unaudited financial
statements of the Company which, in the opinion of the Company, reflect all
adjustments, which are of a normal recurring nature, necessary for a fair
presentation of the results of the unaudited periods. The results of
operations for the three-month period ended March 31, 1996 are not
necessarily indicative of the results of operations for any other interim
period or for the entire year. The following data should be read in
conjunction with such financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. See also "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
Three Months Year Ended
Ended March 31, December 31,
----------------------------- --------------------------------
(unaudited)
1996 1995 1995 1994
------------- ------------ -------------- --------------
<S> <C> <C> <C> <C>
Revenues(1) ....... $ 1,054,008 $ 165,398 $ 1,228,111 $ 249,883
Net loss (1) ...... $ (364,491) $ (519,667) $(1,585,268) $(3,181,519)
Net loss per share . $ (.03) $ (.04) $ (.13) $ (.29)
Weighted average
number of shares
outstanding ...... 12,867,375 11,943,825 12,451,786 11,120,282
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
-------------- -----------------
(unaudited)
<S> <C> <C>
Working capital .......... $ 561,515 $ 1,083,190
Total assets ............. $ 2,172,351 $ 2,217,870
Total liabilities ........ $ 1,086,329 $ 769,857
Accumulated deficit ...... $(10,037,683) $(9,673,192)
Total stockholders' equity . $ 1,086,022 $ 1,448,013
</TABLE>
- ------
(1) From its inception through February 1994, the operations of the Company
were principally limited to conducting research and development, limited
production operations and test marketing of prototype ovens. The Company
commenced the initial commercial rollout of its first commercial product,
the Model D-1 TurboChef oven, in March 1994, and was considered to be in
the development stage until the last quarter of 1994. Effective June
1995, the Company entered into its first major contract with a customer
and commenced initial shipments of its Model D-2 TurboChef oven.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Although the Company was organized in April 1991, it was not until March
1994 that it began the initial commercial roll-out of the Model D-1 TurboChef
oven, its first commercial product, and not until June 1995 that it entered
into the Whitbread Contract, its first major contract, and commenced shipment
of its Model D-2 TurboChef oven. Prior to such time, the Company was engaged
primarily in research and development, limited production operations and test
marketing of prototype ovens. As a result, to date, the Company has generated
limited revenues and incurred substantial losses in each year of its
operations (including net losses of $364,491, $1,585,268 and $3,181,519 for
the three-month period ended March 31, 1996 and the years ended December 31,
1995 and 1994, respectively) resulting in an accumulated deficit of
$10,037,683 as of March 31, 1996. The Company anticipates that it will
continue to incur significant operating expenses in the future, including in
connection with the Company's ongoing development activities relating to new
product applications for its proprietary foodservice technologies, the
training and set-up of additional third-party manufacturing sources and the
continued implementation of the Company's marketing plans. The Company's
future profitability will thus depend upon, among other things, corresponding
increases in revenues from operations to offset these expenditures.
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 Prospectus.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO
THE THREE MONTHS ENDED MARCH 31, 1995
Revenues for the three months ended March 31, 1996 were $1,054,008, an
increase of $888,610, when compared to revenues of $165,398 for the three
months ended March 31, 1995. This increase is primarily attributable to
greater oven unit sales to Whitbread during 1996. During the first eight
months of 1995, ovens were only sold to small accounts and on a test basis to
chain accounts. Additional revenues recognized in 1996 were $5,120 received
from the licensing of the Company's proprietary dough-setting process.
Cost of sales for the three months ended March 31, 1996 was $796,431, an
increase of $663,514 when compared to $132,917 for cost of sales for the
three months ended March 31, 1995. This increase is consistent with greater
oven unit sales.
Gross profit on sales for the three months ended March 31, 1996 increased
$219,976 to $252,457 when compared to gross profit on sales of $32,481 during
the three months ended March 31, 1995. The increase is a result of the
increase in oven unit sales, primarily to Whitbread.
Gross margin for the three months ended March 31, 1996 was 24% of sales
compared to 20% for the three months ended March 31, 1995. The percentage
increase is primarily attributable to a reduced per unit manufacturing cost
as a result of increased production volume and cost reduction programs
implemented during the fourth quarter of 1995. The margin increase is
partially offset by the reduced oven unit selling price offered to Whitbread
for a significant quantity of ovens, as compared to the higher oven unit
selling price realized on small quantity purchases during the prior year
period.
Research and development expenses for the quarter ended March 31, 1996
decreased 18% or $26,044, to $120,116 from research and development expenses
of $146,160 for the quarter ended March 31, 1995. This decrease is primarily
attributable to reduced salary levels and lower prototype parts costs,
partially offset by an increase in outside research engineering costs
associated with the development of the home version of the TurboChef oven.
Selling, general and administrative expenses for the quarter ended March
31, 1996 increased 30%, or $114,503, to $498,904 from comparable expenses of
$384,401 for the same period in 1995. This increase is attributable to staff
additions, additional travel associated with the Company's international
customers, the establishment of a service warranty reserve as a result of
increasing oven sales and the addition of a marketing and sales consultant.
21
<PAGE>
Interest expense net of interest income for the three months ended March
31, 1996 decreased $18,539, or 86%, to $3,048 from $21,587 for the three
months ended March 31, 1995. The decrease is attributable to reduced average
borrowing levels, as a result of approximately $1,100,000 of outstanding
indebtedness and accrued interest to the majority stockholder of the Company
being exchanged for 457,892 shares of Common Stock in March 1995.
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995 COMPARED TO THE
YEAR ENDED DECEMBER 31, 1994
Revenues for the year ended December 31, 1995 were $1,228,111, an increase
of $978,228, or 392%, when compared to revenues of $249,883 for the year
ended December 31, 1994. This increase is primarily attributable to greater
oven unit sales to Whitbread in the last four months of fiscal 1995. Until
September 1995, ovens were only sold to small accounts and on a test basis to
chain accounts. Additional revenues recognized in 1995 were $60,000 received
from Whitbread for modifying the TurboChef oven to meet its unique
requirements and revenues received from the licensing of the Company's
proprietary dough-setting process.
Cost of sales for the year ended December 31, 1995 was $956,449, an
increase of $760,976 when compared to $195,473 for cost of sales in the prior
year. This increase is consistent with greater oven unit sales.
Gross profit on sales for the year ended December 31, 1995 increased
$149,272 to $203,682, when compared to gross profit on sales of $54,410
during the prior year. The increase is a result of the increase in oven unit
sales, primarily to Whitbread.
Gross margin for the year ended December 31, 1995 was 18% of sales,
compared to 22% of sales for the year ended December 31, 1994. The percentage
decrease is attributable primarily to the reduced oven unit selling price
under the Whitbread Contract for a significant quantity of ovens, as compared
to the higher oven unit selling price realized on small quantity purchases in
fiscal 1994. The margin decrease is partially offset by a reduced per unit
manufacturing cost as a result of increased production volume and cost
reduction programs implemented during the fourth quarter of 1995.
Prototype and demonstration inventory was comprised primarily of prototype
ovens, which the Company used temporarily as demonstration equipment. During
the year ended December 31, 1993, the Company recorded a provision for
impairment of such inventory of $427,914 and, during the year ended December
31, 1994 the Company expensed the remaining inventory value of $164,945.
Research and development expenses for the year ended December 31, 1995
decreased 41%, or $295,664, to $424,325 from research and development
expenses of $719,989 for the year ended December 31, 1994. This decrease is
primarily attributable to staff reductions, lower prototype parts costs and
reduced governmental certification and accreditation fees, reflecting the
completion of the development of the TurboChef restaurant oven (the Company's
Model D Series).
Selling, general and administrative expenses for the year ended December
31, 1995 decreased 26%, or $537,427, to $1,545,799 from comparable expenses
of $2,083,226 for fiscal 1994. This decrease is attributable to staff
reductions, reduced travel and trade show participation, and reduced legal
and accounting fees during 1995, partially offset by an increase in public
relations expenses and investor relations costs as a result of the Company's
first public stockholders' meeting held during the year ended December 31,
1995.
Interest expense net of interest income for the year ended December 31,
1995 decreased $248,963, or 93%, to $18,806 from $267,769 for the year ended
December 31, 1994. The decrease is attributable to reduced average borrowing
levels, as a result of approximately $1,100,000 of outstanding indebtedness
and accrued interest to the majority stockholder of the Company being
exchanged for 457,892 shares of Common Stock in March 1995. Interest received
on the unexpended proceeds from the April 1994 IPO during the year ended
December 31, 1994 reduced net interest in 1994, partially offsetting the
impact of the decrease in interest expense in 1995.
Other income of $132,000 represents the forfeiture, during the year ended
December 31, 1995, of a customer's 1992 sales deposit, which occurred as a
result of the customer's abandonment of a restaurant concept that it had
previously intended to develop.
22
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements in connection with its product and
technology development and marketing efforts have been and will continue to
be significant. In addition, capital is required to operate and expand the
Company's operations. Since its inception, the Company has been substantially
dependent on loans and capital contributions from its principal stockholders,
private placements of its securities and the April 1994 IPO to fund its
activities.
At March 31, 1996, the Company had working capital of $561,515 as compared
to working capital of $1,083,190 at December 31, 1995. The $521,675 working
capital decrease from December 31, 1995 resulted primarily from the operating
loss of $364,491 incurred by the Company during the three months ended March
31, 1996 and the $134,528 in deferred offering costs associated with the
proposed public offering. For the three months ended March 31, 1996 accounts
receivable turnover improved to 9.9 from 8.1 during the three months ended
March 31, 1995 as a result of the Company adopting more favorable payment
terms with Whitbread. Pursuant to the terms of the Whitbread Contract,
amounts are due within seven days of the invoice date, which is the date of
shipment.
Cash provided by operating activities was $564,334 for the three months
ended March 31, 1996 as compared to cash used in operating activities of
$398,640 for the three months ended March 31, 1995 for an increase of
$962,974. The increase is the result of a $155,176 decrease in operating
losses, a decrease in accounts receivable of $364,300, a $151,215 increase in
accounts payable and the receipt of a sales deposit of $129,900. Cash used in
investing activities for the three months ended March 31, 1996 was $47,321 as
a result of equipment purchases and patent costs. Cash used in financing
activities was $132,028 for the three months ended March 31, 1996, which
represents primarily the costs incurred by the Company in connection with
this offering and, repayment of a note payable to a stockholder, offset by
the proceeds from notes payable to two stockholders. At March 31, 1996, the
Company had cash of $1,027,868, compared to cash of $642,883 at December 31,
1995.
At December 31, 1995, the Company had working capital of $1,083,190 as
compared to working capital of $1,029,070 at December 31, 1994. The $54,120
working capital increase from December 31, 1994 resulted primarily from the
$1,655,239 net cash provided by financing activities during 1995 and the
$509,013 increase in accounts receivable due to the Whitbread oven sales in
late 1995. These increases are predominately offset by the $1,585,268 in
operating losses incurred by the Company during the year ended December 31,
1995, the $275,397 reduction in finished goods inventory and the $202,150
increase in accounts payable as a result of the inventory purchases made to
support the oven shipments to Whitbread in November and December 1995. Even
though accounts receivable increased significantly, accounts receivable
turnover improved to 5.9 in 1995 from 4.7 in 1994 as a result of the Company
adopting more favorable payment terms with Whitbread. In determining the
average days in accounts receivable as of December 31, 1995 and 1994, the
year-end accounts receivable balance for each year and average daily sales
(based on the Company's fourth quarter revenues) were analyzed for each of
the respective years. The fourth quarter revenues were used for the daily
sales calculations as the use of an annual daily sales average would not be
representative of the trend in increasing quarterly oven sales since 1994.
The average number of days sales in accounts receivable as of December 31,
1995, reached 80 days. This amount was abnormally high primarily as a result
of the negotiations which were then in process to increase the Whitbread
Contract, which delayed payment of $270,000 due from Whitbread as of December
31, 1995. The average days sales in accounts receivable was 42 days after
adjusting for the $270,000 past due amount which was paid in January 1996.
This amount is comparable to the 46 days as of December 31, 1994. The Company
believes that the delay in the Whitbread payment is an anomaly and should not
occur in the future. Based on the terms of the Whitbread Contract, which
requires payment within seven days of the invoice date, (the date of
shipment), the average days sales in accounts receivable should be in the
30-day range. As of March 31, 1996, the average days sales in accounts
receivable was 14 days compared to 48 days as of March 31, 1995. This
reduction is a result of Whitbread's payment for the March 1996 shipment of
TurboChef ovens during the month of shipment.
Cash used in operating activities decreased $2,412,778 to $1,581,146 for
the year ended December 31, 1995, as compared to cash used in operating
activities of $3,993,924 for the year ended December 31, 1994. The decrease
is primarily a result of a $1,596,251 decrease in operating losses, combined
with a $275,397 reduction in finished goods inventories compared to a
$814,480 increase in inventories in 1994, and the
23
<PAGE>
$202,150 increase in accounts payable. These factors were partially offset by
the $509,013 increase in accounts receivable. Cash provided by financing
activities was $1,665,239 for the year ended December 31, 1995, which
resulted from investments by Acadia of $140,000, borrowings from a
stockholder of $285,000, the sale of Common Stock at $6.75 per share for an
aggregate of $800,000, and the exercise of stock options for aggregate
proceeds totaling $500,000. These transactions were partially offset by the
$21,232 payment of a note payable to a stockholder and $48,529 in deferred
financing costs. At December 31, 1995, the Company had cash of $642,883,
compared to cash of $617,495 at December 31, 1994.
In April 1994, the Company consummated the April 1994 IPO, pursuant to
which the Company sold 2,600,000 shares of Common Stock for aggregate net
proceeds to the Company (after deducting underwriting discounts and
commissions and other expenses of the offering) of $5,237,007, of which
approximately $1,360,000 was utilized for the repayment of debt.
In November 1994, the Company and Acadia International Limited, a
corporation incorporated under the laws of the British Virgin Islands
("Acadia"), entered into an agreement to jointly develop a new consumer-
operated TurboChef oven (the Model E-1 TurboChef oven) for use in retail
locations (the "Acadia Agreement"). Pursuant to the Acadia Agreement, Acadia
committed to invest up to $1,200,000 in the Model E-1 project, over a period
of 16 months, for which it was ultimately to receive between a 20% and 30%
(depending on various circumstances) ownership interest in AcadiaChef, Inc.
("AcadiaChef"), the entity formed in connection with this joint venture to
commercialize the proposed Model E-1 oven. Each of the Company and Acadia had
the option, however, of terminating the Acadia Agreement prior to such time,
whereupon Acadia's investment would be returned to it pursuant to certain
agreed upon terms, as outlined below, and its interest in AcadiaChef and the
E-1 project would be eliminated. As of March 31, 1995, the Company had
completed an initial prototype of the Model E-1 TurboChef oven and Acadia had
invested a total of $350,000 in the project pursuant to the terms of the
Acadia Agreement. The Company elected at such time to terminate its
arrangement with Acadia. Pursuant to the terms of the Acadia Agreement, upon
such termination, Acadia had the option of (i) having its investment returned
to it, plus interest accrued thereon at the rate of 10% per annum, in cash
and receiving an option to purchase 350,000 shares of Common stock at $1.50
per share (the market price of the Common Stock on the date of the Acadia
Agreement), or (ii) having its investment returned to it, without interest,
in the form of Common Stock, i.e. converting the principal amount of its
investment into 233,334 shares of Common Stock, based on a conversion rate of
$1.50 per share, and receiving an option to purchase 525,000 shares of Common
Stock at $2.50 per share. Instead, the Company was able to reach an agreement
with Acadia in June 1995, with an effective date of March 31, 1995, whereby
Acadia converted its $350,000 investment, foregoing the accrued interest
thereon, into an aggregate of 233,334 shares of Common Stock and received the
Acadia Option to purchase 262,500 additional shares of Common Stock at $2.50
per share. The shares issued to Acadia upon such conversion represent the
Selling Stockholder Shares and are included for registration in the
registration statement of which this Prospectus forms a part. See "Selling
Stockholder and Plan of Distribution."
On March 15, 1995, Jeffrey B. Bogatin, the Chairman of the Board and a
principal stockholder of the Company, exchanged outstanding indebtedness and
accrued interest thereon, in the aggregate amount of $1,144,730, for 457,892
shares of Common Stock (a conversion rate of $2.50 per share) and, in
connection with such exchange, also received an option to purchase 600,000
shares of Common Stock at $2.50 per share. The established conversion and
option exercise prices were approximately 74% above the market price of the
Company's Common Stock on the date of the transaction. See "Certain
Transactions."
In June 1995, Mr. Bogatin, together with Philip R. McKee, a principal
stockholder and the President and Chief Executive Officer of the Company,
made contributions to the capital of the Company in the aggregate amount of
$1,000,000; Mr. Bogatin exercised options to purchase 80,000 shares of Common
Stock at $2.50 per share, for total proceeds to the Company of $200,000, and
Mr. McKee purchased 118,518 shares of restricted Common Stock from the
Company at $6.75 per share, for total proceeds to the Company of $800,000.
See "Management--1994 Stock Option Plan" and "Certain Transactions."
During December 1995, Mr. Bogatin made an additional $300,000 contribution
to the capital of the Company by exercising options to purchase 120,000
shares of Common Stock at $2.50 per share, and Mr. McKee advanced to the
Company the sum of $285,000. The note issued to Mr. McKee evidencing such
borrowing bore interest at the rate of 6.5% per annum and was repaid in full
(an aggregate of $288,139, including accrued interest) on February 28, 1996.
See "Management--1994 Stock Option Plan" and "Certain Transactions."
24
<PAGE>
On March 30, 1996, Mr. Bogatin and Mr. McKee loaned the Company the sums
of $200,000 and $85,000, respectively. These loans are evidenced by
promissory notes bearing interest at the rate of 6.5% per annum. Each of
these notes is payable on demand. These loans were made to satisfy certain
eligibility requirements in order for the Common Stock to continue to be
listed on NASDAQ.
FORWARD-LOOKING STATEMENTS
The following statements are based upon management's current expectations.
These statements are forward looking and actual results may differ materially
as a result of the matters described under "Risk Factors." The Company wishes
to ensure that such statements are accompanied by meaningful cautionary
statements so as to ensure to the fullest extent possible the protections of
the safe harbor established in the Private Securities Litigation Reform Act
of 1995. Accordingly, these statements should be read in conjunction with,
and are qualified by, the other portions of "Management's Discussion and
Analysis of Financial Condition and Results of Operations," as well as the
entire Prospectus, including the section entitled "Risk Factors."
The Company currently utilizes its own existing capital resources to
finance its operations. However, the Company is dependent on the proceeds of
this offering or other financing to expand its operations, including, among
other things, to continue its product development activities and marketing
efforts and to set up additional third-party production operations for the
manufacture of the Company's ovens. The Company anticipates, based on its
currently proposed plans and assumptions relating to its operations
(including assumptions regarding the progress of its research and development
efforts and its ability to reduce oven production costs) that the proceeds of
this offering, together with its current cash and cash equivalent balances
and anticipated revenues from operations, will be sufficient to fund its
operations and satisfy its contemplated capital requirements for at least 24
months following the consummation of this offering. In the event that the
Company's plans change, or its assumptions change or prove to be incorrect,
or if the proceeds of this offering, cash balances and anticipated revenues
otherwise prove to be insufficient, the Company would be required to revise
its plan of operations (which revision would include a significant reduction
in operating costs) and/or seek additional financing prior to the end of such
period. Other than a commitment letter from Messrs. Bogatin and McKee
confirming their agreement to provide financial support (if and as required)
to the Company in such amounts as the Company shall reasonably request during
the period from January 1, 1996 through June 1997, the Company has no current
arrangements with respect to, or sources of, additional financing. There can
thus be no assurance that additional financing will be available to the
Company, if and when needed, on commercially reasonable terms, or at all.
Although the Company intends to use a substantial portion of the proceeds
of this offering to implement the next phase of its business strategy in an
effort to expand its current level of operations and grow the Company's
business, the Company's future performance will be subject to a number of
business factors, including those beyond the Company's control, such as
economic downturns and evolving industry needs and preferences, as well as to
the level of the Company's competition and the ability of the Company to
successfully market its products and effectively monitor and control its
costs. Moreover, the Company expects to incur losses for at least the next
two quarters. While the Company believes that increases in revenues
sufficient to offset its expenses and result in its profitability could be
derived, within the next 12 months, from its currently proposed plans (if
successfully completed) to (i) complete the deliveries of those TurboChef
ovens contemplated by the Whitbread Contract, (ii) further develop the
Company's relationship with Whitbread and thereby increase product sales to
Whitbread, (iii) obtain initial purchase orders from additional regional or
national foodservice operators, (iv) introduce new products, such as its
proposed residential oven model, (v) establish a dealer sales network and
(vi) further reduce the Company's manufacturing costs, there can be no
assurance that the Company will be able to successfully implement any of the
foregoing plans, that either its revenues will increase or its rate of
revenue growth will continue or that it will ever be able to achieve
profitable operations.
At March 31, 1996 the Company had a backlog in excess of $1,600,000.
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BUSINESS
GENERAL
The Company is a foodservice technology company engaged in designing,
developing, and marketing high- speed commercial ovens and in applying its
proprietary technologies to other foodservice products, processes and
concepts for customers seeking a competitive advantage in the foodservice
market.
BACKGROUND
The commercial foodservice industry consists of four principal categories:
(i) full-service restaurants, (ii) fast food or quick-service restaurants,
including those restaurants which primarily offer pizza, (iii) retail
outlets, such as convenience stores, supermarkets and department stores, and
(iv) public and private institutions, such as schools, hospitals, hotels,
airports, corporate cafeterias, and governmental facilities. The foodservice
market has grown dramatically since the early 1980's in response to
population growth and the ever-increasing demand for convenience and speed in
food preparation and consumption that has resulted from this growth and from
other demographic changes. Moreover, the fastest growing category within the
foodservice industry has been the quick-service or fast food restaurant
segment, the defining themes for which are speed and convenience. According
to Cahner's Bureau of Foodservice Research, an industry research group,
domestic fast food restaurant sales in 1996 will account for approximately
$105 billion in projected revenues and domestic full-service restaurant sales
during such period will account for an additional approximately $96 billion
in projected revenues. This compares to domestic fast food restaurant sales
of $35.4 billion in 1982 and $76 billion in 1992 and domestic full-service
restaurant sales of $46.4 billion in 1982 and $80 billion in 1992, according
to the National Restaurant Association, an industry trade association.
Full-service restaurants generally cook food items selected from a broad
menu following a customer's order. In contrast, many fast food restaurants
prepare their limited menu selections in advance of customer orders. Although
the tendency of full-service restaurants to "cook-to-order" results in
freshly-cooked food being served to the customer, the time necessary to cook
these items generally limits the ability of full-service restaurants to serve
customers desiring immediate or "walk-in/carry-out" service. Conversely,
traditional fast food restaurants are not only generally limited in the
breadth of their menus, but are also constrained by the fact that cooking in
advance of customer orders results in the food items either being "held"
until ordered or discarded due to product degradation. The Company believes
there is a growing demand within both the full-service and fast food
restaurant segments of the foodservice industry for equipment which can (i)
cook to high quality standards, and "to-order," a variety of menu items,
within times acceptable to time-constrained and/or "walk-in/carry-out"
customers, and (ii) permit restaurants to develop and implement innovative
food preparation processes and/or concepts in an effort to achieve a
competitive advantage in the foodservice market.
In addition, the Company believes that increased competition in the
foodservice industry, as well as changes in consumer needs and preferences,
will continue to increase the demand by foodservice operators for new food
items which can generate additional sales and attract new customers. Such
menu extensions may require additional or new foodservice equipment. The
Company also believes that increased competition within the foodservice
industry is requiring industry participants to offer services or products
that increase sales per square foot of service area and maximize sales
generated from capital expenditures. As a consequence, there is an increasing
demand for foodservice equipment which can quickly serve a variety of food
items, cooked to high quality standards, in a limited amount of space.
Accordingly, the Company anticipates that the demand for relatively small,
labor saving and energy efficient foodservice equipment should increase. In
addition, foodservice operators incur substantial costs in attracting and
maintaining skilled food preparation personnel, and yet also regularly face
shortages of such personnel. Consequently, the Company believes that there is
an increasing need for foodservice operators to provide their services and
products in a manner which maximizes the productivity of their skilled
workers and/or utilizes lower cost, less skilled labor. Demand for high-speed
cooking equipment from foodservice operators providing delivery services may
increase for other reasons as well. In particular, since a reduction in the
time needed to prepare the delivered food could result in additional time
available for the delivery itself, fewer food service locations would be
required to service a given market area.
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Moreover, many segments of the foodservice equipment industry (which is a
rather mature industry, with its origination and development generally
reflecting the growth and development of the commercial foodservice industry)
are dominated by well-established manufacturers. For example, the three
largest domestic manufacturers of commercial conveyor ovens have been in
business an average of over 60 years. While such old-line manufacturers have
generally responded to the foodservice industry's need for more efficient and
less expensive foodservice equipment, the focus of their research and
development efforts has typically been on manufacturing efficiencies. As a
result, the foodservice equipment industry has generally produced few
innovations in the manner in which food is cooked, thereby offering
restaurants few, if any, viable alternatives by which to cook competing menu
items.
COMPANY OPPORTUNITIES AND STRATEGY
The Company believes that the demand for speed and convenience in
connection with food preparation and service, as well as the resultant demand
for innovative food preparation processes and other competitively
distinguishing foodservice concepts, will continue to increase. While the
Company anticipates that the quick-service category of the foodservice
industry will continue to be the fastest growing category within such
industry, the Company also believes that certain full-service restaurants
will attempt to aggressively compete with quick- service restaurants for
those customers that demand fast service and a broad menu selection. As a
consequence of the foodservice industry's emphasis on speed, the Company
believes that innovative foodservice technology companies, as well as the
high-speed commercial oven sector of the foodservice equipment industry, will
be presented with attractive growth opportunities. By providing foodservice
operators with the ability to quickly serve a variety of food items cooked to
high quality standards, the Company also believes that its foodservice
technologies and products have uniquely positioned the Company to capitalize
on these perceived opportunities.
The Company intends to seize these opportunities by offering products,
such as the TurboChef oven, which will enable participants in the foodservice
industry to distinguish their menu offerings from those of competitors and
thereby achieve a competitive advantage. By working closely with its
customers, the Company intends to develop ovens and food preparation
processes which are customized to meet their particular needs. For example,
the development of the Model D-2 TurboChef oven was in response to the
requirements of Whitbread, the Company's largest customer. Whitbread is an
industry leader in the use of off-site commissaries to perform the
preparatory work for food served in its restaurants. Through these
centralized preparatory commissaries, Whitbread, particularly in its
Beefeater division, has been able to, among other things, increase labor
efficiency, expand menu offerings and reduce labor costs within existing
kitchen space. The use of TurboChef ovens enables Whitbread to derive
additional benefits from its "commissary concept", including, improving food
quality and cooking yields, reducing waste and providing product consistency.
In addition, now that the Company's products and technologies have been
validated (through utilization and extensive testing by both the Company and
a variety of foodservice operators) and its research and development
capabilities have been proven, the Company intends to capitalize upon such
opportunities by aggressively pursuing both the expansion of its product
offerings and its market penetration. The primary focus of such strategy will
be on seeking to establish joint ventures, strategic alliances and licensing
or other arrangements with companies already engaged in the mass marketing
and/or manufacture of foodservice equipment and products, thereby enabling
the Company to devote a greater portion of its efforts to the development of
additional applications of its technologies.
Expansion in the fast food industry has in the past been achieved, to a
large extent, through the building of new free-standing restaurants. However,
as construction, real estate and labor costs have increased and suitable
locations have become more difficult to find, many fast food chains have
slowed their domestic expansion of traditional outlets and targeted
alternative venues, such as hotels, supermarkets, retail stores and sports
arenas thus presenting an additional opportunity for the Company by expanding
the potential market for the Company's products and technologies. The Company
anticipates that such locations may seek to increase their sales of prepared
foods as a means of attracting new customers to their sites and of
encouraging existing customers to prolong their shopping excursions at such
sites. For example, a number of retailers, such as Home Depot, K-Mart and
Wal-Mart, and certain grocery stores have recently placed small outlets of
branded fast food chains, such as McDonald's, Burger King, Little Caesars and
Pizza Hut, in their stores. The Company believes that it is well positioned
to address what it perceives to be this shifting marketing approach within
the fast food industry. Specifically, by integrating, within a mobile cart or
kiosk, the TurboChef oven with a variety of modular compo
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nents, foodservice supplies and equipment, foodservice operators will be able
to take advantage of the TurboChef oven's small size and cooking versatility
to offer an expansive food menu at remote locations. The Company is seeking
to broaden the potential market for its ovens by providing customers with
assistance in connection with this concept.
The Company also anticipates that various entities, such as public and
private institutions (including hotels), that do not engage primarily in the
foodservice business may seek to provide their customers or guests with the
ability to obtain quick, prepared foods on their premises in order to remain
competitive in their own industries. In order to do so on a cost-effective
basis, they may employ equipment and concepts of the type provided by the
Company. For example, in November 1995, the Company was selected by Choice
Hotels as its sole commercial oven supplier for a new modular Choice Picks
branded food court service system to be offered (as an alternative to
full-service restaurants) to all of Choice Hotel's Clarion, Quality and
Comfort hotels. The Choice Picks food court is comprised of a number of
individual brand modules containing all of the equipment, storage, signage
and preparation area required to serve various branded food products,
including Nathan's Famous(R) and Pizzeria Uno(R). Accordingly, the Company
intends to continue to develop relationships with the developers of
alternative foodservice location concepts in order to support their marketing
efforts on concepts which utilize TurboChef ovens.
TECHNOLOGIES AND PRODUCTS
TURBOCHEF COOKING TECHNOLOGIES
The Company's TurboChef ovens are based on the Company's proprietary
cooking system, which is, in turn, based on the Company's proprietary
high-speed cooking technologies. Following are key aspects of the Company's
unique cooking system:
o Heat Transfer into Air. The Company's cooking technologies utilize a
"thermal mass" within the cooking system to quickly and efficiently
transfer heat into rapidly moving air. The amount of heat provided
during a given cooking cycle is small compared to the total amount of
heat stored within the thermal mass. As a result, the cooking system's
temperatures are maintained close to desired maximum cooking
temperatures even during the stand-by mode between cooking cycles in
order to avoid a cooling down of the system, which would delay the
cooking process.
o Heat Transfer from Air to Food Products. The Company's cooking system
transfers heat from the rapidly moving air to a food product placed in
the system's "cooking cavity". The heated air enters the cooking cavity
from the top and strikes the upper surface of the food, breaking
through its cool surrounding "boundary layer". The heated air is then
drawn across the upper surface of the food, redirected and pulled along
the underside of the food by positive pressure from above and negative
pressure from below, causing it to remain in a constant heat transfer
relationship with the food. The rapidly moving heated air surrounds the
food product like a "moving wrap", continuously removing the cool
surrounding boundary layer. As a result, the entire surface of the food
browns and crisps simultaneously, as the food product is heated at
approximately the same temperature across its entire surface.
o Control of Heat Transfer. The Company's cooking system is able to
adjust the cooking temperature at the food surface during the cooking
process by varying the velocity of the air which forms the moving wrap
surrounding the food. As a result, with the system's variable cook
setting process, a foodservice operator is afforded a significant
amount of cooking temperature flexibility even though the temperature
of the system's heat source remains relatively constant.
o Control of Cooking Durations. The Company's precision cooking system
also adjusts cooking durations, on line, based on the temperature
measurements taken by the system during each cooking cycle. As a
result, greater cooking consistency is achieved even though the
pre-cooked temperature of the food items placed in the cook chamber may
vary.
Traditional cooking methods utilize various cooking technologies,
including conduction (transferring heat directly from a conductive surface,
such as a frying pan, to food); natural convection (transferring heat from
air to food, such as in a typical home oven); forced convection (using a fan
to circulate hot air around food); air
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impingement (a form of convection which forces heated air onto food at high
velocities); induction (heating by means of electric current flowing through
food); microwave radiation (cooking by heat generated from microwaves); and
infrared radiation (thermal radiation from light waves, such as a toaster or
broiler). Other newer and higher speed methods of cooking include combination
ovens, which combine two or more of the traditional cooking methods, such as
microwave and traditional air impingement, and ovens which utilize infrared
light from a quartz lamp. The Company believes that each of these cooking
methods is generally subject to limitations involving substantial cooking
times, lower cooked product quality and/or limited menu capabilities.
The Company believes that its cooking system and technologies offer the
following competitive advantages over other heat transfer methods:
o Cooking Speed. Food items can be cooked faster by the TurboChef cooking
system than by other cooking methods; most single-portion food items
can be cooked in less than 90 seconds.
o Quality. Because of the system's moisture retention, browning and
crisping capabilities, the characteristics of most food items cooked
through the use of the Company's cooking system (including flavor,
texture and appearance) are equal or superior to those achieved using
other cooking methods.
o Versatility. The Company's heat transfer methods are not dependent upon
the use of specific ingredients or product formulations to cook quickly
or evenly.
o Cooking Control and Flexibility. The Company's cooking system enables
the cooking of a variety of food types in the same unit, one
immediately after the other, at different temperatures at the food
surface. Other cooking methods typically cannot cook as many types of
foods to the same quality standards. Moreover, under certain
circumstances, the TurboChef oven has the capability of simultaneously
cooking several different types of food by utilizing and coordinating
the common portion of their overlapping cooking temperatures and times.
o Consistency. Numerous cooking parameters are constantly monitored
within the Company's cooking system and are adjusted automatically to
promote consistent cooking results.
THE TURBOCHEF OVENS
The Company's high-speed commercial TurboChef ovens are intended to allow
foodservice operators the flexibility to "cook-to-order" a variety of food
items at speeds which the Company believes are faster than those permitted by
conventional commercial ovens and grills, microwave ovens, and other
currently available high- speed ovens. Among the various types of foods which
can be cooked in a TurboChef oven are an 8-ounce salmon filet in less than 80
seconds, a 16-inch deluxe par-baked pizza in 90 seconds or less, a "bone-in"
quarter chicken in 2 minutes or less and an 18-ounce beef tenderloin in
approximately 3 minutes. In addition, because of the TurboChef oven's
moisture retention, browning and crisping capabilities, the Company believes
that the characteristics of most food items cooked in a TurboChef oven
(including their flavor, texture and appearance) are not only superior in
quality to those achieved using other high-speed ovens, or microwave ovens,
but are also equal in quality, or, in the case of many food items (such as
rack of lamb, beef Wellington, and most fish and seafood items), superior in
quality, to those achieved using conventional ovens and grills.
The TurboChef oven employs both the Company's proprietary cooking
technologies to quickly and efficiently transfer heat into rapidly moving
air, which is then directed at and drawn around the food product in a manner
designed to efficiently and evenly disperse and control the heat transferred
from the air into the food. During the cooking process, heat in a TurboChef
oven may also be transferred to the food item through the use of microwaves,
either in conjunction with, or independent from, the oven's rapidly moving
heated air. The Company's proprietary computerized control platform monitors
the cooking process and automatically adjusts cook settings during the
cooking cycle. In addition, the TurboChef oven incorporates easy-to-use
programmable settings which provide foodservice operators with the option of
pre-setting and customizing their own cook settings.
To use a TurboChef oven, the operator opens the door to the cooking
cavity, places the food product on the cooking surface, closes the door,
presses the pre-set button corresponding to the food product and then presses
the "start" button. When the cooking cycle is complete, an audio signal and a
visual message prompt the opera-
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tor to remove the food. The Company's Model D-1 TurboChef oven contains a
cooking cavity capable of holding a food product measuring up to 16 inches in
diameter and 3 inches in height and requires less than 7 square feet of
counter space. The Company's Model D-2 TurboChef oven is virtually identical
in size to the Model D-1, except that its cooking cavity can hold a food
product measuring up to 4 inches in height. The current direct selling price
of a TurboChef oven is about $11,000, exclusive of any volume discount. While
the Company has only been commercially producing the TurboChef oven since
1994, the Company believes that the expected useful life of a TurboChef oven
can be up to 15 years, provided that the oven is properly maintained.
The cooking capacity of a TurboChef oven is limited by the size of its
cooking cavity but augmented by its speed. Conventional commercial ovens and
grills can usually prepare a larger number of individual items concurrently
and may cook items which are larger in size than can currently be prepared in
a TurboChef oven. However, since the cooking times required by conventional
ovens and grills are substantially longer than those required by a TurboChef
oven, a foodservice operator using such equipment must generally either (i)
cook a large number of items in advance of customer orders, in order to
satisfy potential demand on a timely basis during peak serving periods, or
(ii) have its customers wait for service, with the waiting time most likely
extending beyond the range of generally acceptable service times for the fast
food segment of the foodservice industry. Food items which are pre-cooked
rather than cooked-to-order are typically "held" until purchased, often
resulting in product degradation and increased food costs due to product
spoilage. A TurboChef oven avoids these inherent limitations of conventional
commercial ovens and grills since the rapid cooking speed achieved by the
TurboChef oven allows more products to be cooked-to-order by the foodservice
operator. Moreover, under certain circumstances the TurboChef oven has the
capability of simultaneously cooking up to five different types of food by
utilizing the "lowest common denominator" or overlapping cooking temperatures
and times.
Thus, through the use of a TurboChef oven, the Company believes that
traditional full-service restaurants can offer the convenience and speed of
foodservice typically associated with fast food restaurants -- without
sacrificing the "restaurant quality" of the food served -- and fast food
restaurants can offer more varied menus and a food quality more typically
associated with full-service restaurants -- without compromising their "quick
service" speeds. Moreover, these technologies provide both full-service and
fast food restaurant operators with the means of "upgrading" their menu
offerings, both in terms of food items offered and in terms of cooked food
quality and consistency, without a corresponding increase in their labor or
operating costs.
In fact, the use of the TurboChef oven also provides both full-service and
quick-service restaurants with a means of enhancing their profitability by
reducing certain costs associated with the cooking process. For instance, the
TurboChef oven, which is as easy to use as a conventional microwave oven, can
be operated by both skilled and unskilled personnel with minimal training. As
a result, foodservice operators can reduce their labor costs both by
utilizing less skilled personnel to perform cooking functions that normally
require skilled, and more expensive, labor, and by using the reduced cooking
times associated with the TurboChef oven to improve the productivity of their
skilled food preparers. In addition, the Company has determined that product
yields for certain foods can be increased as the moisture loss, and thus the
food shrinkage, typically associated with the cooking of such food items can
be reduced when a TurboChef oven is used. While yield improvements will vary
significantly depending upon the type of food being cooked and the cooking
procedures being utilized, cooking trials conducted by one of the Company's
customers have indicated increased product yields (decreased moisture loss)
of up to 13% on certain meat and seafood items cooked in a TurboChef oven.
Further, certain kitchen equipment costs can be reduced or eliminated. For
example, the TurboChef oven typically does not require the ventilating
equipment normally needed with commercial ovens and grills and, because of
the TurboChef oven's versatility (its ability to bake, broil and grill), the
need for other types of cooking equipment can be reduced. Finally, certain
electricity costs can be reduced since the TurboChef oven gives off less heat
than commercial grills and ovens, thereby reducing the amount of ventilated
air required to maintain kitchen temperatures at acceptable levels.
OTHER PRODUCTS AND APPLICATIONS
Operations Enhancement Systems. In connection with marketing the TurboChef
oven to traditional full- service and fast food restaurants, the Company has
developed a series of operations enhancement systems, each of which
incorporates the use of the TurboChef oven. By integrating the TurboChef oven
with certain foodservice management concepts, the Company believes that
significant additional benefits may be derived from cooking with the
TurboChef oven. These proprietary systems include:
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o the TurboCom system, a centralized cook setting system, which, through
the use of a computer modem, can reprogram TurboChef ovens installed in
various restaurant locations from a single central site, thereby
enabling foodservice operators to easily modify their cook settings,
and thus their menu selections, on a system-wide basis;
o the TurboStage system, a food preparation management system, which can
be incorporated into a restaurant's existing electronic order
processing system, sort the items to be cooked by required cook times,
and indicate, on a real-time basis, when such food items are to be
inserted into the TurboChef oven; and
o the TurboTouch system, an oven operations management system, which ties
the restaurant's point of sale "cash register" directly to the
TurboChef oven so that exact cooking settings may be automatically
programmed into the oven when the food order is placed.
Proposed Technology Extensions - Additional Commercial Applications. The
Company intends to use a significant portion of the proceeds of this offering
to continue, and complete, its development efforts relating to its proposed
residential TurboChef oven model and its proposed consumer-operated TurboChef
oven model (for use in convenience stores and other retail outlets), both of
which will incorporate the Company's proprietary high-speed cooking
technologies. Such activities will subject the Company to additional
regulatory requirements and there can be no assurance that the Company will
be able to comply with such requirements. The Company will also continue in
its efforts to exploit other of the many potential market applications for
the TurboChef technologies. There can be no assurance, however, that the
focus of the Company's development efforts will not change or that its
current development projects or any new applications or products will ever be
successfully completed or commercialized.
Application of New Technologies to Meet Specific Product Requirements.
The Company has been working with various fast food chain operators to
develop the means by which certain of their branded food products requiring
special or unique food preparation or cooking techniques can be cooked in a
TurboChef oven with results that are virtually identical to those achieved
through the slower cooking methods currently utilized by such operators. A
number of pizza restaurant operators, for example, offer pizzas which have a
specific and "brand recognizable" crust texture. In order to obtain the same
type of crust in a TurboChef oven, the Company has developed (and has filed a
patent application for) a new dough-setting technology. Once a customer's
pizza dough has been set using the Company's technology, the pizza can then
be cooked in a TurboChef oven approximately five times faster than in the
customer's current oven, with virtually identical results. The Company
intends to continue its research into the extension of its cooking
technologies to replicate, at significantly faster speeds, various other
cooking processes. As of the date of this Prospectus, the TurboChef oven has
already been approved to cook certain of Nathan's Famous(R) branded food
products as well as certain of the Pizzeria Uno(R) branded food products.
MARKETING AND SALES
GENERAL
To date, substantially all of the Company's marketing activities have been
conducted by members of management and have consisted primarily of personal
contact with potential customers. Although the Company expects to continue to
market directly to certain international and national accounts, such as fast
food and full- service restaurant chains, and to expand its in-house
marketing capability, the Company intends to aggressively pursue joint
venture, strategic alliance and/or licensing or other arrangements with
companies already engaged in the mass marketing and/or manufacture of
foodservice equipment and products in order to expand its market penetration.
The Company also intends to utilize various mass market distribution
channels, such as independent distributors, to assist the Company in the
marketing of its products to independent restaurants, cafeterias, public and
private institutions and non-traditional foodservice operators and may grant
exclusive marketing rights to certain of such distributors within specified
territories (except for any accounts reserved by the Company) so long as
minimum purchase and other requirements are satisfied.
The Company's marketing efforts are also planned to include direct
mailings, the preparation of sales brochures, advertising in trade
publications and participation in industry trade shows. The Company intends
to utilize a significant portion of the proceeds from this offering to expand
its marketing and sales activities, including in connection with the
foregoing efforts, as well as in connection with the market testing of its
products and the hiring of additional marketing personnel.
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The Company is attempting to market new products and technologies which
change the way in which foods can be cooked in the commercial foodservice
market. As a result, the Company's sales cycle, which generally commences at
the time a prospective customer demonstrates an interest in purchasing a
TurboChef oven and ends upon the execution of a purchase order with that
customer, will not only vary by customer, but could extend for periods of
nine months or more, depending upon the time required by the customer to test
and evaluate the TurboChef oven. In addition, multi-oven sales to restaurant
chains generally take even longer as the Company's products and technologies
represent an entirely new method for the preparation and serving of food and
often require a restructuring of a customer's entire operational strategy.
For instance, the Company's current contract with Whitbread, its principal
customer, was not finalized until after more than a year of testing,
negotiating and organizational planning had first been completed. As a result
of the Company's lengthy sales cycle, the sales process for the Company's
products generally requires substantial time commitments, effort and expense,
and there can be no assurance that the Company, after expending such
resources, will obtain a significant contract or order from such efforts. The
Company anticipates, however, that the sales cycle for repeat purchases will
be reduced, as the time required by a customer to test and evaluate the
TurboChef oven should decrease.
The Company has successfully marketed the TurboChef oven to customers in
the United States as well as other countries located around the world. While
most of the Company's customers are fast food or quick-service restaurant
operations, the Company's largest customer, Whitbread, operates over 6,500
pub, convenience, restaurant, hotel and leisure locations across the United
Kingdom, including the Beefeater, Pizza Hut, TGI Friday's and Brewers Fayre
chains. The Company has been working closely with Whitbread for over a year
in adapting and applying TurboChef's foodservice technologies and concepts to
Whitbread's particular proposed applications. Effective June 1995, the
Company entered into a purchase contract with Whitbread, pursuant to which
Whitbread agreed, under certain specified terms and conditions, to purchase
120 Model D-2 TurboChef ovens. This purchase contract was substantially
increased in December 1995 when Whitbread and the Company executed a
subsequent purchase contract which provides for Whitbread to take delivery of
an aggregate of 340 (including the 120 previously agreed upon) Model D-2
TurboChef ovens, through September 1996. As part of these purchase contracts
(together, the "Whitbread Contract"), the Company agreed that Whitbread would
receive all of the TurboChef ovens produced for export to the United Kingdom
until December 31, 1996, and that the Company would not license any third
party to manufacture TurboChef ovens for sale in the United Kingdom for a
period of three months beyond the date of the final shipment to Whitbread,
which is scheduled to be in September 1996. As of March 31, 1996 the Company
had delivered a total of 170 ovens to Whitbread. Whitbread has announced that
it intends to incorporate the TurboChef oven as an integral part of the
foodservice operations of its Beefeater chain, which operates over 300 casual
dining restaurants located throughout the United Kingdom, by the end of 1996.
In addition, Whitbread has announced that it plans over the next few years to
introduce the TurboChef technologies to other parts of its foodservice
operations and is currently testing the Company's TurboCom system for such
purpose. In 1995, Whitbread posted earnings in excess of $425 million on
sales of over $4.1 billion.
In addition, in November 1995, Choice Hotels, an international hotel
operator with over 3,500 hotels worldwide, selected the Company as its sole
commercial oven supplier for its new Choice Picks branded food court concept
which utilizes individual food preparation modules. The Choice Picks food
court concept is being offered (as an alternative to full-service
restaurants) by Choice Hotels to operators of Choice Hotels' Clarion, Quality
and Comfort hotels around the world. As the only commercial oven to be used
in the Choice Picks food courts, the TurboChef oven has been approved to cook
multiple food brands, including Nathan's Famous(R) and Pizzeria Uno(R).
Choice Hotels first introduced the Choice Picks program to its franchisees in
November 1995, and their evaluation of the program is expected to continue
throughout 1996. As of March 31, 1996, a total of 12 TurboChef ovens had been
purchased for use in the Choice Hotels system.
TARGET MARKETS
The Company currently intends to focus its marketing efforts on the
following commercial markets:
o Restaurants Desiring Menu Extension. A TurboChef oven can accommodate
restaurants seeking to "up- grade" their menu offerings, both in terms
of food items offered and in terms of cooked food quality and
consistency, without any significant additional investment, as well as
those desiring to extend their menus, such as hamburger restaurants
desiring to serve pizza, or to introduce new products on a regular
basis as part of their marketing strategy.
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<PAGE>
o Restaurants Attempting to Achieve a Competitive Advantage. Restaurants
that want to implement and/or expand innovative food preparation
concepts, such as the use of centralized offsite commissaries for food
preparation, can incorporate the use of TurboChef ovens into such
concepts to promote food quality, cooking yields, product consistency,
waste reduction and improved customer service.
o Restaurants Seeking Market Expansion Through Faster Service.
Restaurants seeking to expand the customer base for their existing
product line by emphasizing speed of service, as well as those desiring
to expand their service to accommodate time-constrained or
"walk-in/carry-out" customers, can utilize the cooking speed and
quality provided by the Company's technologies to serve these markets.
A TurboChef oven allows restaurants to cook to-order products they
currently serve, but within cook times which the Company believes are
acceptable to the time-constrained or "walk-in/carry-out" customers.
o Other Points of Foodservice Distribution. Other foodservice venues,
such as corporate cafeterias, sports arenas, hotel lobbies, schools,
airports, parks and recreation facilities, can employ the Company's
technologies to cook a variety of foods quickly.
o New Non-Traditional Foodservice Distribution. The Company's
technologies can provide the convenience store industry, as well as the
operators of other high traffic, non-traditional foodservice locations
(such as malls, grocery stores, discount stores and warehouse clubs)
with the ability to develop foodservice programs which can offer
products to their customers similar to those offered in traditional
fast food restaurants.
The Company's marketing plans are subject to change as a result of a
number of factors, including progress or delays in the Company's development
efforts, changes in the foodservice or foodservice equipment markets, the
nature of marketing arrangements which may become available to the Company
and competitive factors. There can be no assurance that the Company's
efforts, or those of any distributors or other third parties, will result in
significant or continued market acceptance for the Company's cooking
technologies, the TurboChef oven or any other of its products, or that the
Company will succeed in positioning the TurboChef oven and related products
as a preferred method for cooking in commercial venues or otherwise.
PRODUCTION AND SUPPLY
In January 1994, the Company engaged MSC, a contract foodservices
equipment manufacturer, to manufacture TurboChef ovens for the Company and,
as of March 31, 1996, MSC had manufactured and delivered approximately 265
TurboChef ovens to the Company. MSC has the current capacity to produce 50
ovens per month, which is sufficient to meet the Company's delivery
requirements under the Whitbread Contract. The Company has not, however,
entered into a long-term contract with MSC, intending instead to continue its
practice of placing oven manufacturing orders with MSC from time to time, in
the ordinary course of business, as its needs require. While the Company
believes MSC's production quantities can, and will, be increased to as high
as 100 ovens per month, there can be no assurance of such production increase
or that any increased production would be sufficient. Moreover, while the
Company believes that alternative manufacturing sources are available, and
intends to use a portion of the proceeds of this offering to engage and set
up one or more additional contract manufacturers to produce TurboChef ovens
(and, in fact, will be required to do so in order to expand its operations),
any new contract manufacturing arrangements will require a substantial amount
of the Company's time and effort to set up and prepare the new manufacturers'
operations, and train their personnel, for the production of the Company's
ovens. The Company anticipates that, in the near term at least, it will be
largely dependent on MSC's efforts for the manufacture of its TurboChef
ovens. Additionally, the Company has been and will continue to be dependent
on third parties for the supply and manufacture of all of its component and
electronic parts, including standard components and specially-designed
component parts, such as the printed circuit computer boards and wiring
harnesses used in the TurboChef oven. The Company generally does not maintain
supply agreements with such third parties but instead purchases its
components and electronic parts pursuant to purchase orders in the ordinary
course of business. Although the Company owns the designs and dies for its
specially-designed components and believes that alternative sources of supply
for such components are available, the Company currently purchases all of its
specially-designed component parts from a limited number of suppliers. The
Company will be substantially dependent on the ability of its manufacturers
and suppliers to, among other things, meet the Company's design, performance
and quality specifications and to dedicate sufficient production capacity to
meet the Company's scheduled delivery requirements.
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<PAGE>
The Company has required that MSC follow generally accepted industry
standard quality control procedures. In addition, the Company maintains its
own quality assurance personnel and testing capabilities to assist MSC with
its quality program and to perform periodic audits of MSC's facilities and
finished products to ensure the integrity of the quality assurance
procedures. Component parts furnished to the Company by its suppliers and
manufacturers are generally covered by a one-year limited warranty and MSC
furnishes a limited warranty for any MSC manufacturing or assembly defects.
The Company's manufacturing cycle, which is the period from the execution
of a purchase order until actual shipment of the product to the customer,
generally ranges from two to six weeks for small volume oven sales and up to
one or two months longer for initial shipments to commence under large
multi-oven purchase contracts. Pursuant to the Company's warranty policy, the
Company will accept the return of an oven if the oven does not perform
according to product specifications. For certain potentially large customers
which wish to test and evaluate an oven prior to purchase, the Company
occasionally offers credit terms whereby the initial purchase order from such
customer provides for either full payment within a specified period or return
of the oven within such period if the customer is not satisfied for any
reason.
RESEARCH AND DEVELOPMENT
During the three months ended March 31, 1996 and the years ended December
31, 1995 and 1994, the Company incurred costs related to research and
development activities in the amounts of $120,116, $424,325 and $719,989,
respectively. The Company intends to utilize a material portion of the
proceeds of this offering to continue various research and development
activities undertaken since the Company's inception in an effort to satisfy
the changing needs of its customers and potential customers. These efforts
include the continuing development of improvements and enhancements to the
performance of the Company's TurboChef restaurant ovens (its Model D series);
completion of development efforts relating to a residential oven model
incorporating the Company's proprietary high-speed cooking technologies;
completion of development efforts relating to the Company's proposed Model
E-1 consumer-operated TurboChef oven for use in convenience stores and other
retail outlets; customization of the Company's proprietary software systems
(incorporated in the technological platform of its products), if and as
needed for the successful integration of the Company's products and services
with its customers' existing foodservice operating systems; and the Company's
continuing efforts to exploit other of the many potential market applications
for the TurboChef technologies. There can be no assurance, however, that the
focus of the Company's development efforts will not change or that its
current development projects or any new applications or products will ever be
successfully completed or commercialized.
The Company believes that the versatility of its established technological
platform will enable it to deliver a variety of innovative foodservice
products to its customers and that future research and development costs will
thus generally be incurred in connection with expanding the commercial
applications of its technologies for targeted, customer-requested
applications rather than general science research. In addition, to the extent
the Company is engaged to develop products for its customers, the Company
intends to require such customers to fund all or a portion of the related
research and development costs.
In connection with the Company's initial development efforts relating to
the proposed Model E-1 TurboChef oven, the Company entered into a joint
venture agreement with Acadia for the funding of such project, and formed
AcadiaChef for such purpose. It is intended that the Model E-1 oven, in
conjunction with a refrigerator/freezer to store food and a consumer operated
fountain drink dispenser, will be capable of complete consumer operated food
and beverage service from a small space with limited investment or cost to
the operator. In connection with the development of this oven, Acadia
invested a total of $350,000 in the project. However, pursuant to an
agreement in June 1995, with an effective date of March 31, 1995, Acadia
converted its entire $350,000 investment and accrued interest thereon into
the 233,334 Selling Stockholder Shares and received the Acadia Option to
purchase 262,500 additional shares of Common Stock at $2.50 per share. As a
consequence, Acadia's interest in AcadiaChef and the E-1 project was
eliminated.
COMPETITION
The cooking and warming segment of the foodservice equipment market is
characterized by intense competition. The Company competes with numerous
well-established manufacturers and suppliers of conventional
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commercial ovens, grills and fryers (including those which cook through the
use of conduction, convection, induction, air impingement, infrared and/or
microwave heating methods). In addition, the Company is aware of others who
are developing, and in some cases have introduced, new ovens based on
high-speed heating methods and technologies. Although the Company is not
aware of any competitive products, either being marketed or under
development, which it believes are functionally equivalent to the TurboChef
oven (i.e. that can produce the variety of food items, cooked to the same
high quality standards, at the same speeds), there can be no assurance that
other companies with the financial resources and expertise that would
encourage them to attempt to develop competitive products do not have or are
not currently developing functionally equivalent products, or that
functionally equivalent products will not become available in the near
future. Most of the Company's competitors possess substantially greater
financial, marketing, personnel and other resources than the Company and have
established reputations relating to the development, manufacture, marketing
and service of cooking equipment. Among the Company's major competitors in
the cooking and warming segment of the foodservice equipment market are: The
Middleby Corporation and certain of its subsidiaries; the commercial
foodservice equipment division of Welbilt Corporation, including, Lincoln
Foodservice Products, Inc.; Quadlux, Inc; Vulcan-Hart Corporation, a
subsidiary of Premark International, Inc.; the Blodgett Oven Company, Inc., a
subsidiary of G.S. Blodgett Corp.; Groen, Inc., a subsidiary of Dover
Corporation; and Franklin Products, Inc.
The Company competes on the basis of product performance, innovative
technologies, product features, quality, reliability and service. However,
because other commercial oven and grill products currently offered by
competitors of the Company are available at prices which may be substantially
below the price of a TurboChef oven, potential customers may elect, during
general economic downturns or otherwise, to purchase such lower priced
products.
The market for the Company's products and technologies is characterized by
changing technology and evolving industry standards. The Company's ability to
compete successfully will depend, in large part, on its ability to
continually enhance and improve its existing products, complete development
and introduce to the marketplace in a timely manner its proposed products,
adapt its products to the needs of its customers and potential customers,
successfully develop and market new products and continue to improve
operating efficiencies and lower manufacturing costs. There can be no
assurance that the Company will be able to compete successfully, that
competitors will not develop technologies or products that render the
Company's products obsolete or less marketable, or that the Company will be
able to successfully enhance its products, develop new products or lower
costs, when and as needed.
REGULATION AND ACCREDITATION
The Company is subject to regulations administered by various federal,
state and local authorities (including those limiting radiated emissions from
the Company's oven products), which impose significant compliance burdens on
the Company. Failure to comply with these regulatory requirements may subject
the Company to civil and criminal sanctions and penalties. While the Company
believes that it, as well as both the Model D-1 and Model D-2 TurboChef
ovens, is in compliance in all material respects with all laws and
regulations applicable to the Company and such products, including those
administered by the FDA, the FCC and the European Community Council, there
can be no assurance of such compliance. The Company intends to test, from
time to time, the ovens manufactured for it to confirm their continued
compliance with applicable regulatory requirements. Management believes that
compliance with these laws and regulations will not require substantial
capital expenditures or have a material adverse effect on the Company's
future operations.
New legislation and regulations, as well as revisions to existing laws and
regulations (at the federal, state and local levels, in the United States
and/or in foreign markets) affecting the foodservice equipment industry may
be proposed in the future. Such proposals could affect the Company's
operations, result in material capital expenditures, affect the marketability
of the Company's existing products and technologies and/or could limit or
create opportunities for the Company with respect to modifications of its
existing products or with respect to its new or proposed products or
technologies. In addition, an expanded level of operations of the Company in
the future could require the Company to modify or alter its methods of
operation at costs which could be substantial and could subject the Company
to increased regulation, and expansion of the Company's operations into
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<PAGE>
additional foreign markets may require the Company to comply with additional
regulatory requirements. There can be no assurance that the Company will be
able to comply with additional or expanded applicable laws and regulations
without excessive cost or business interruption and failure to comply could
have a material adverse effect on the Company.
In February and March 1994, the Company received certification from UL(R)
as to compliance of the Model D-1 TurboChef oven with applicable UL(R)
requirements relating to product safety accreditation standards and with the
applicable NSF requirements relating to cleanability and sanitation
accreditation standards. The Company has maintained these certifications
since that time and has subsequently received additional certification for
enhancements to the Model D-1 TurboChef oven. Similarly, in July 1995, the
Company received certification from UL(R) as to compliance of the Model D-2
TurboChef oven with such requirements. UL(R) and NSF are agencies which have
established certain standards for a variety of categorized products and can
be engaged to inspect a manufacturer's products for compliance with the
applicable standards. Certification by each agency authorizes the marking of
any such product with the agency's labels, which indicates that the product
is approved by the agency for such use. Such certifications, which require
periodic renewal, only represent compliance with established standards and
are not legally required. However, failure by the Company to comply with
these accreditation standards in the future could have a material adverse
effect on the Company's marketing efforts. In addition, in January 1996, the
Company met the requirements necessary to apply the "CE" mark (which
indicates compliance with the European Community Council directive relating
to electromagnetic compatibility) to its Model D-2 TurboChef ovens. As an
equipment manufacturer, the Company is allowed to "self-certify" compliance
with this directive and have a third party attest to the results. The Company
is required by law to meet this European Community Council directive in order
to apply the "CE" mark and thereby sell its ovens in the European Union.
WARRANTY AND SERVICE
The Company offers to domestic purchasers a one-year limited warranty
covering the TurboChef oven's workmanship and materials, during which period
the Company or its authorized service representative will make repairs and
replace parts which become defective due to normal use. Since the Company
does not currently have the capability to service TurboChef ovens installed
outside the United States, the Company offers international purchasers a
one-year limited warranty covering parts only. In addition, for such
purchasers the Company provides that in the event any oven which has been
operated within the normal operating parameters requires repair more than
four times within 13 months from the date of shipment to the purchaser, the
Company will pay up to 50% of the reasonable cost of any additional service
work required until twelve months after the shipment date of that oven.
Although the cost of servicing TurboChef ovens has not been material to date
and the Company believes that it has experienced warranty costs in accordance
with generally accepted industry standards, there can be no assurance that
future warranty expenses will not have an adverse effect on the Company. In
those areas where TurboChef ovens are located, the Company has established
relationships with independent factory authorized service representatives
which provide installation and repair services and carry a parts inventory.
In addition, the Company intends to use a portion of the proceeds from this
offering to establish a national and global parts and service network of
independent factory authorized service representatives, capable of supporting
a significant increase in TurboChef oven installations.
INSURANCE
The Company is engaged in a business which could expose it to possible
liability claims from others, including from foodservice operators and their
staffs, as well as from consumers, for personal injury or property damage due
to design or manufacturing defects or otherwise. The Company maintains a
general liability insurance policy (which includes products liability
coverage) that is subject to a $1,000,000 per occurrence limit with a
$2,000,000 aggregate limit and a $3,000,000 umbrella liability insurance
policy to cover claims in excess of the limits of its liability insurance,
which the Company believes is adequate coverage for the type of products
currently marketed. In addition, the Company believes that MSC maintains
similar levels of liability insurance. There can be no assurance, however,
that either the Company's insurance or that of any third-party manufacturer
will be sufficient to cover potential claims or that an adequate level of
coverage will be available in the future at reasonable cost. A partially
insured or a completely uninsured successful claim against the Company could
have a material adverse effect on the Company. The Company's failure to
obtain a significantly increased level of coverage on commercially reasonable
terms in the future could limit the Company's ability to expand its
operations.
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<PAGE>
PATENTS AND PROPRIETARY RIGHTS
The Company holds two United States patents which cover certain
fundamental aspects of its high-speed cooking technologies. The Company's
patents expire in 2011 and 2013, respectively. The Company has also applied
for one United States patent relating to the Company's "par-baked" pizza
dough setting technology and another relating to an improvement to the
Company's high-speed cooking technologies. In addition, the Company has 15
pending patent applications corresponding to its two current United States
patents filed in 7 countries (including 16 countries of the European Patent
Convention as a single country) and anticipates that it will apply for
additional patents as deemed appropriate. High-speed cooking systems not
covered by the Company's patents are in commercial distribution by the
Company's competitors. The patent laws of other countries may differ from
those of the United States as to the patentability of the Company's
technologies and products and the degree of protection afforded. The Company
believes that its patents and patent applications provide it with a
competitive advantage. Accordingly, in the event the Company's products and
technologies gain market acceptance, patent protection would be important to
the Company's business. There can be no assurance as to the breadth or degree
of protection which existing or future patents, if any, may afford the
Company, or that any patent applications will result in issued patents, or
that the Company's patent rights will be upheld if challenged, or that other
companies will not develop similar or superior methods or products outside
the protection of any patents issued to the Company.
Although the Company believes that none of its patents, technologies or
products infringe upon the patents or violate the proprietary rights of
others, it is possible that its existing patent rights may not be valid or
that infringement of existing or future patents or proprietary rights may
occur. In the event the Company's products infringe upon the patents or
proprietary rights of others, the Company could be required to modify the
design of its products or obtain a license for the use of certain
technologies incorporated in its products. There can be no assurance that the
Company will be able to do so in a timely manner, upon acceptable terms and
conditions, or at all. The failure to do any of the foregoing could have a
material adverse effect upon the Company. In addition, there can be no
assurance that the Company will have the financial or other resources
necessary to enforce or defend a patent infringement or a proprietary rights
violation action. Moreover, if the Company's products are deemed to infringe
upon the patents or proprietary rights of others, the Company could, under
certain circumstances, become liable for damages, which could have a material
adverse effect on the Company.
The Company believes that product and brand name recognition is an
important competitive factor in the foodservice equipment industry.
Accordingly, the Company promotes the TurboChef name in connection with its
marketing activities. The Company holds a United States trademark
registration for the TurboChef name and a servicemark registration of the
slogan, "Changing the Way Good Food Is Served(R)". The Company's use of these
marks may be subject to challenge by others, which, if successful, could have
a material adverse effect on the Company.
The Company also relies on trade secrets and proprietary know-how, and
typically enters into confidentiality and non-competition agreements with its
employees and appropriate suppliers and manufacturers, to protect the
concepts, ideas and documentation relating to its proprietary technologies.
However, such methods may not afford the Company complete protection either.
There can be no assurance that others will not independently obtain access to
the Company's trade secrets and know-how or independently develop products or
technologies similar to those of the Company. Since the Company believes that
its proprietary technologies are important to its business, failure to
protect such information could have a material adverse effect on the Company.
EMPLOYEES
As of the date of this Prospectus, the Company employs 22 persons, of whom
19 are full-time employees, including its four executive officers. Of its
employees, eight are engaged in design engineering, five are engaged in
manufacturing engineering and technical service, two are engaged in sales,
marketing, and foodservice concept and product development, and seven are
engaged in administration. None of the Company's employees are represented by
labor unions. The Company considers its relations with its employees to be
good.
PROPERTIES
The Company owns no real estate. The Company leases approximately 4,000
square feet of space at 10500 Metric Drive, Dallas, Texas, which it uses for
executive offices, technology development, sales and marketing,
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limited assembly and other purposes, under a lease agreement which expires on
September 30, 1996, at a base monthly rent of $1,667 per month. The Company
also rents approximately 1,800 square feet of space in an adjacent building
for $1,000 per month, on a month-to-month basis, from Cyten. See "Certain
Transactions."
The Company recently entered into a lease covering approximately 7,000
square feet of office space located adjacent to its leased premises at 10500
Metric Drive, Dallas, Texas. This lease provides for an initial term of four
years commencing on June 1, 1996, and an initial base monthly rent of $3,838
per month. The Company anticipates that upon occupying such additional space,
the Company will no longer lease space from Cyten.
The Company also leases approximately 2,000 square feet of general office
space at 126 East 56th Street, New York, New York, at a current base monthly
rent of approximately $7,300, pursuant to a lease that is to expire on
November 30, 1997.
The Company believes that its Dallas facilities, including the additional
space which the Company intends to occupy on or around June 1, 1996, will be
sufficient to accommodate the Company's anticipated future needs.
LITIGATION
The Company is not a party to any material litigation.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The current directors and executive officers of the Company are as
follows:
<TABLE>
<CAPTION>
Name Age Position
---- ---- --------
<S> <C> <C>
Jeffrey B. Bogatin . 47 Chairman of the Board of Directors, Treasurer and Director
Philip R. McKee ... 39 President, Chief Executive Officer and Director
Larry R. Behm ..... 38 Executive Vice President and Secretary
Dennis J. Jameson . 42 Executive Vice President and Chief Financial Officer
Robert S. Briggs .. 58 Vice President -- Engineering
Donald J. Gogel ... 47 Director
</TABLE>
Jeffrey B. Bogatin, a co-founder of the Company, has been Chairman of the
Board and Treasurer of the Company since its inception. Since 1975, Mr.
Bogatin has served as President of Whitemarsh Industries, Inc., which is
engaged in manufacturing and importing ladies apparel and making venture
capital investments.
Philip R. McKee, a co-founder of the Company, has been President, Chief
Executive Officer and a director of the Company since its inception. He was
also Secretary of the Company until January 1994. From May 1989 until
November 1991, Mr. McKee was President of MicroGold, Inc., a food product
manufacturing company, and from January 1986 until April 1989, he served as
President of Tracer, Inc., a technology development and operations company.
Larry R. Behm was elected Executive Vice President of the Company in March
1995 and Secretary of the Company in June 1995. From August 1994 to February
1995, he served as Manager of Commercial Products for the Company. From April
1990 to July 1994, Mr. Behm was Director of Engineering for Pizza Hut, Inc.,
a quick-service pizza restaurant chain. From November 1989 to April 1990, he
served as Section Head, Products Supply, for Procter & Gamble Co., a
multinational consumer products company.
Dennis J. Jameson was elected Executive Vice President and Chief Financial
Officer of the Company in December 1995. From November 1988 to May 1995, he
served as a director, Senior Vice President Finance and Administration, and
Chief Financial Officer of Black-eyed Pea Restaurants, Inc. in Dallas, Texas,
which operates casual dining and quick service Mexican restaurants located
primarily in the Southwest and Southeast.
Robert S. Briggs, Jr. was elected Vice President -- Engineering of the
Company in March 1995. From November 1993 to February 1995, he served as the
Company's Chief Engineer. From February 1993 to November 1993, he served as
Executive Vice President of Cyten Circuit Design Corporation ("Cyten"), a
contract engineering and manufacturing company, where he was responsible for
manufacturing engineering on the TurboChef project. From July 1988 to
February 1993, Mr. Briggs was employed by Comar, Inc., an engineering design
company, serving as Vice President of Engineering from July 1988 to February
1991 and as President from February 1991 to February 1993. Mr. Briggs
co-founded Spectradyne, Inc., a provider of in-room pay-per-view movies to
the hotel industry, and, from 1974 to 1988, he served first as its Director
of Engineering, then as Vice President of Engineering and later as Vice
President of Technology.
Donald J. Gogel has been a director of the Company since April 1993. Since
February 1989, Mr. Gogel has been a principal of Clayton, Dubilier & Rice,
Inc., a private investment firm. Mr. Gogel is currently a director of each
of: A.P.S, Inc. (a national distributor of aftermarket autoparts) and APS
Holding Corporation; Lexmark International Group (a global manufacturer of
printing products and supplies); and Van Kampen American Capital, Inc. (an
investment advisory company serving the mutual fund and institutional money
management industries) and VK/AC Holding, Inc.
All directors hold office until the next annual meeting of stockholders
and the election and qualification of their successors. Directors currently
receive no cash compensation for serving on the Board of Directors other than
reimbursement of reasonable expenses incurred in attending meetings. Officers
are elected annually by the Board of Directors and serve at the discretion of
the Board. Pursuant to the Shareholders Agreement, each of Messrs. Bogatin
and McKee has agreed to vote for the other to serve as a member of the Board
of Directors, and, as members of the Board, each has agreed to vote for the
election of the other as an officer of the Company. See "Description of
Securities."
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In connection with this offering, the Company has agreed, for a period of
three years from the date of this Prospectus, to permit a designee of the
Underwriter (which designee may change from time to time) to serve as a
non-voting advisor to the Company's Board of Directors. The Underwriter has
not yet exercised its right to designate such a person. See "Underwriting."
The Company maintains "key-man" life insurance on the life of Mr. McKee in
the amount of $3,000,000.
KEY EMPLOYEE
Earl R. Winkelmann has been employed by the Company since November 1993
and served as its Vice President-Engineering from January 1994 until March
1995. He is currently a part-time employee of the Company, performing
engineering services for the Company on an as-needed basis. Mr. Winkelmann
has also served as the President of Cyten (which he founded in June 1987)
both since March 1995 and from its inception through January 1994. Prior to
joining the Company in 1994, Mr. Winkelmann was responsible, while at Cyten,
for transforming the Company's technology designs into working ovens. He also
served as Vice President of Manufacturing for Lamtech Electronics
Corporation, a contract manufacturer of electronic products, from February
1985 until January 1990. Prior to such time, he co-founded Spectradyne, Inc.,
a provider of in-room pay-per- view movies to the hotel industry, in 1973,
serving as Executive Vice President and a director of such company from 1978
to 1984.
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid to or accrued by
the Company's Chief Executive Officer for services rendered to the Company
during the fiscal years ended December 31, 1995, 1994 and 1993:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
--------------------------------------------------
Long Term
All Other Compensation
Name and Principal Position Year Salary($) Bonus($) Compensation Awards
------------------------------ ------ ------------ -------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Philip R. McKee, President and
Chief Executive Officer ..... 1995 $ 73,077(1) -0- -0- -0-
1994 110,385 -0- -0- -0-
1993 155,000(2) -0- -0- -0-
</TABLE>
- ------
(1) Pursuant to Mr. McKee's employment agreement with the Company, he was
entitled to receive annual salary of $95,000 for the fiscal year ended
December 31, 1995; however, he did not receive a salary from March 17 to
May 26, 1995 during which time he received $3,745 every two weeks in
repayment of certain indebtedness from the Company. See "Certain
Transactions."
(2) Includes $35,000 in accrued salary as of December 31, 1993 which was paid
from the proceeds of the April 1994 IPO. Does not include an additional
$95,000 in accrued salary as of December 31, 1993 which was eliminated as
of such date.
Mr. McKee was neither granted, nor did he exercise, any stock options
during the past three fiscal years.
EXECUTIVE EMPLOYMENT AGREEMENT
In May 1993, the Company entered into a three-year employment agreement
with Philip R. McKee, providing for his employment as President of the
Company. The term of this agreement was subsequently extended, in March 1996,
pursuant to the mutual agreement of the Company and Mr. McKee, for an
additional three-year period. The employment agreement requires Mr. McKee to
devote all of his business time to the affairs of the Company, for which he
is entitled to receive a base salary of $95,000 per year. Originally, Mr.
McKee's employment agreement provided for an annual base salary of $250,000
but was subsequently amended in December 1993 to provide for an annual base
salary of $120,000 commencing as of January 1, 1994. Pursuant to this
amendment, the Company was also relieved of any liability in respect of any
accrued and unpaid compensation
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due to Mr. McKee as of that date. Consequently, an aggregate of $95,000 in
accrued and unpaid salary as of December 31, 1993 was eliminated as of such
date. Effective as of July 30, 1994, Mr. McKee voluntarily reduced his annual
base salary again, this time to its current $95,000 level. The employment
agreement currently expires in March 1999 and, thereafter, will be
automatically renewed for successive one-year terms unless the Company or the
executive elects not to renew. The employment agreement with Mr. McKee
provides that during the term of his employment with the Company and
thereafter for the remaining stated term or two years from the date of
termination, whichever is longer, Mr. McKee will be subject to a
noncompetition covenant. In addition, Mr. McKee is entitled to receive other
benefits that are generally provided to other employees of the Company.
LIMITATION ON DIRECTORS' LIABILITIES
Pursuant to the Company's Restated Certificate of Incorporation and under
Delaware law, directors of the Company are not liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty, except for
(i) liability in connection with a breach of duty of loyalty, (ii) acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) dividend payments or stock repurchases
illegal under Delaware law or (iv) any transaction in which a director has
derived an improper personal benefit.
In addition to the foregoing, the Company has obtained a liability
insurance policy to insure its officers and directors against losses
resulting from wrongful acts committed by them in their capacities as
officers and directors of the Company, including liabilities arising under
applicable securities laws.
1994 STOCK OPTION PLAN
In January 1994, in order to attract, retain and motivate employees
(including officers), directors, consultants and other persons who perform
substantial services for or on behalf of the Company, the Company adopted the
1994 Stock Option Plan, which was subsequently amended in March 1994, June
1995 and May 1996 (the "Option Plan"), pursuant to which stock options
covering an aggregate of 2,400,000 shares of the Company's Common Stock may
be granted to such persons. Under the Option Plan, incentive stock options
("Incentive Options") within the meaning of Section 422 of the Code, may be
granted to employees (including officers), and non-incentive stock options
("Non-incentive Options") may be granted to any such employee and to other
persons (including directors) who perform substantial services for or on
behalf of the Company. Incentive Options and Non-incentive Options are
collectively referred to herein as "Options".
The Option Plan is administered by the Board of Directors, which is vested
with complete authority to administer and interpret the Option Plan,
determine the terms upon which Options may be granted, prescribe, amend and
rescind such interpretations and determinations and grant Options. The Board
of Directors also has the power to terminate or amend the Option Plan from
time to time in such respects as it deems advisable, except that no
termination or amendment shall materially adversely affect any outstanding
Option without the consent of the grantee, and the approval of the Company's
stockholders is required in respect of any amendment which would (i) change
the total number of shares subject to the Option Plan or (ii) change the
designation or class of employees or other persons eligible to receive
Incentive Options or Non-incentive Options.
The price at which shares covered by an Option may be purchased is
determined on the date of the Option grant by the Board of Directors but may
be no less than the par value of such shares and, in the case of Incentive
Options, no less than the fair market value of such shares on the date of
grant (the "Fair Market Value"). The Fair Market Value is generally equal to
the last sale price quoted for shares of Common Stock on NASDAQ on the date
of grant. The purchase price of shares issuable upon exercise of an Option
may be paid in cash or by delivery of shares with a value equal to the
exercise price of the Option. The Company may also loan the purchase price to
the optionee, or guarantee third-party loans to the optionee, on terms and
conditions acceptable to the Board of Directors. The number of shares covered
by an Option is subject to adjustment for stock splits, mergers,
consolidations, combinations of shares, reorganizations and
recapitalizations. Options are generally non-transferable except by will or
by the laws of descent and distribution, and in the case of employees, with
certain exceptions, may be exercised only so long as the optionee continues
to be employed by the Company. If the employee dies or becomes disabled, the
right to exercise the Option, to the extent then vested, continues for
specified periods. Non-incentive Options may be exercised within a period not
exceeding ten years from the date of grant. The terms of Incentive Options
are subject to additional restrictions provided by the Option Plan.
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<PAGE>
As of the date of this Prospectus, five-year Options to purchase 1,918,666
shares of Common Stock are outstanding, and Options to purchase an additional
280,334 shares are available for future grant. In addition to the foregoing,
Options to purchase an aggregate of 201,000 shares of Common Stock have been
exercised, including Options to purchase an aggregate of 200,000 shares of
Common Stock at $2.50 per share, which were exercised by Mr. Bogatin in June
and December 1995. See "Certain Transactions."
Included in the currently outstanding Options are: an Option granted to
Mr. Briggs in February 1994 to purchase 30,000 shares at $2.50 per share,
which vests at the rate of one-third per year commencing in December 1995;
Options granted to Messrs. Bogatin and Gogel in April 1994 to purchase
200,000 shares and 40,000 shares, respectively, at $2.50 per share, which are
immediately exercisable; Options granted to Messrs. Behm and Briggs in
February 1995 to purchase 120,000 shares and 20,000 shares, respectively, at
$1.50 per share, which vest at the rate of one-third per year commencing in
February 1996; an Option granted to Mr. Bogatin in March 1995 to purchase
600,000 shares at $2.50 per share, which is immediately exercisable; an
Option granted to Mr. Briggs in August 1995 to purchase 20,000 shares at
$11.88 per share, which vests at the rate of one-third per year commencing in
August 1996; an Option granted to Mr. Jameson in January 1996 to purchase
120,000 shares at $10.75 per share, which vests at the rate of one-third per
year commencing in January 1997; and Options granted to Messrs. Bogatin and
McKee in February 1996 to purchase 150,000 shares and 250,000 shares,
respectively, at $13.20 per share, which vest as to various amounts, in
January 1999, based on the performance of the Company's Common Stock. See
"Principal Stockholders" and "Certain Transactions."
AUGUST 1993 STOCK OPTION AGREEMENTS
Pursuant to agreements dated as of August 10, 1993, Messrs. Bogatin, McKee
and Gogel granted five-year options to purchase an aggregate of 161,504 of
their shares of Common Stock (104,448 shares, 48,980 shares and 8,076 shares,
respectively), at a price of $1.25 per share, to nine persons employed or
retained by the Company or Cyten who had significantly contributed to the
development of the Company, the TurboChef oven and the Company's cooking
technologies (the "August Stock Option Agreements"). The options are
exercisable over the period commencing on April 7, 1995, and ending in August
1998, subject to certain exceptions. In April 1996, pursuant to his August
Stock Option Agreements, Mr. Earl R. Winkelmann exercised options to purchase
24,740 shares of Common Stock from Mr. McKee and 4,078 shares of Common Stock
from Mr. Gogel. See "Principal Stockholders" and "Certain Transactions."
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of the date of this
Prospectus and as adjusted to reflect the sale by the Company of the 800,000
Shares hereby, based on information obtained from the persons named below,
relating to the beneficial ownership of shares of Common Stock by (i) each
beneficial owner of more than five percent of the outstanding Common Stock,
(ii) each director, (iii) the executive named in the Summary Compensation
Table in "Management" and (iv) all current executive officers and directors
of the Company as a group.
Percentage of
Outstanding
Amount and Shares Owned(1)
Nature of ------------------------
Name and Address Beneficial Before After
of Beneficial Owner Ownership(1) Offering Offering
-------------------------------- -------------- ---------- ----------
Jeffrey B. Bogatin
126 East 56th Street
New York, New York 10022 ...... 6,269,364(2) 45.87% 43.33%
Philip R. McKee
10500 Metric Drive, Ste. 128
Dallas, Texas 75243 ........... 2,195,042(3) 17.06% 16.06%
Stonehill Capital Management
277 Park Avenue
New York, New York 10172 ...... 2,189,478(4) 17.01% 16.02%
Robert L. Emerson
277 Park Avenue
New York, New York 10172 ...... 2,189,478(4) 17.01% 16.02%
Donald J. Gogel
375 Park Avenue, 18th Floor
New York, New York 10152 ...... 343,798(5) 2.66% 2.51%
All directors and executive
officers as a group (6 persons) . 8,876,870(6) 64.44% 60.91%
- ------
(1) Unless otherwise indicated, the Company believes that all persons named
in the table have sole voting and investment power with respect to all
shares of Common Stock beneficially owned by them. A person is deemed to
be the beneficial owner of securities that can be acquired by such person
within 60 days from the date of this Prospectus upon the exercise of
options and warrants. Each beneficial owner's percentage ownership is
determined by assuming that options and warrants that are held by such
person (but not those held by any other person) and which are exercisable
within 60 days of the date of this Prospectus have been exercised.
Percentages herein assume a base of 12,868,078 shares of Common Stock
outstanding prior to this offering and a base of 13,668,078 shares of
Common Stock outstanding immediately after this offering, before any
consideration is given to outstanding options or warrants.
(2) Includes 104,448 shares of Common Stock which are subject to options
issued by Mr. Bogatin in connection with the August Stock Option
Agreements and 800,000 shares issuable upon exercise of immediately
exercisable Options granted under the Option Plan. Also includes 85,200
Over-Allotment Shares. In the event the Underwriter's over-allotment
option is exercised in full, Mr. Bogatin's beneficial ownership after the
consummation of this offering and his sale of such Over-Allotment Shares
will be 42.74%. See "Underwriting."
(3) Includes 24,240 shares of Common Stock which are subject to options
issued by Mr. McKee in connection with the August Stock Option
Agreements. Also includes 34,800 Over-Allotment Shares. In the event the
Underwriter's over-allotment option is exercised in full, Mr. McKee's
beneficial ownership after the consummation of this offering and his sale
of such Over-Allotment Shares will be 15.81%. See "Underwriting."
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<PAGE>
(4) SCM is an Investment Advisor registered under Section 203 of the
Investment Advisors Act of 1940. Mr. Emerson is the President of SCM. SCM
and Mr. Emerson share the power to vote, direct the vote, dispose of and
direct the disposition of all 2,189,478 of these shares. Of such shares,
1,769,118 ( 13.75% of the outstanding shares of the Company before this
offering and 12.94% after this offering) are held by Stonehill Capital
Partners, L.P., a partnership whose investments are managed by SCM. This
partnership has no authority to vote or dispose of these shares.
(5) Includes 3,998 shares of Common Stock which are subject to options issued
by Mr. Gogel in connection with the August Stock Option Agreements and
40,000 shares issuable upon exercise of immediately exercisable Options
granted under the Option Plan.
(6) Includes an aggregate of 132,686 shares of Common Stock which are subject
to options issued by Messrs. Bogatin, McKee and Gogel in connection with
the August Stock Option Agreements and an aggregate of 906,666 shares
issuable upon exercise of immediately exercisable Options granted under
the Option Plan. Also includes the 120,000 Over-Allotment Shares. In the
event the Underwriter's over-allotment option is exercised in full, the
beneficial ownership of all officers and directors as a group after the
consummation of this offering and the sale of the Over-Allotment Shares
will be 60.08%. See "Underwriting."
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<PAGE>
CERTAIN TRANSACTIONS
Jeffrey B. Bogatin and Philip R. McKee, co-founders of the Company, each
purchased 5,301,680 shares of Common Stock of the Company at an aggregate
price of approximately $30,000 for all 10,603,360 of such shares, upon
formation of the Company in 1991; each of Messrs. Bogatin and McKee
subsequently contributed back to the Company an aggregate of 2,827,916 shares
of Common Stock in order to assure sufficient available authorized capital
stock for future issuances.
Pursuant to an agreement between the Company and Donald J. Gogel, a
director of the Company, dated April 17, 1993 (the "Stock Purchase
Agreement"), the Company sold to Mr. Gogel 407,876 shares of Common Stock for
an aggregate purchase price of $500,000 in April 1993.
In August 1993, pursuant to the August Stock Option Agreements, Messrs.
Bogatin, McKee and Gogel granted options for an aggregate of 161,504 of their
shares of Common Stock (104,448 shares, 48,980 shares and 8,076 shares,
respectively), at a price of $1.25 per share, to nine persons employed or
retained by the Company or Cyten who had, prior to such time, significantly
contributed to the development of the Company, the TurboChef oven, and the
Company's cooking technologies.
Prior to January 1, 1994, Mr. Bogatin made loans to the Company in the
aggregate amount of $1,918,237 and, in connection with certain of such loans,
received 2,801,408 shares of Common Stock. An aggregate of $98,400 of such
indebtedness was repaid by the Company in 1993, resulting in a principal
amount loan balance at December 31, 1993 of approximately $1,819,837. Prior
to the April 1994 IPO, such loans were to mature on November 15, 1995 and
bore interest at the rate of 9% per annum, payable at maturity. In connection
with the April 1994 IPO, however, the Company's indebtedness to Mr. Bogatin
(which, as of April 7, 1994 aggregated approximately $2,079,194, including
$259,357 in accrued interest) was first reduced by $1,000,000, as a result of
Mr. Bogatin's contribution of $1,000,000 of the amounts owed to him to the
Company's capital, and then recharacterized as a term loan, maturing on April
7, 1999 and bearing interest at the rate of 6.5% per annum, payable
semi-annually. In connection with the aforementioned contribution to capital,
Mr. Bogatin received an option granted under the Company's Option Plan to
purchase 400,000 shares of Common Stock at $2.50 per share. Subsequently, on
March 15, 1995, Mr. Bogatin converted the outstanding balance of this
indebtedness, including accrued interest thereon through such conversion
date, in the aggregate amount of $1,144,730, into 457,892 shares of Common
Stock. In connection with such conversion, Mr. Bogatin also received an
option granted under the Company's Option Plan to purchase 600,000 shares of
Common Stock at $2.50 per share.
Prior to January 1, 1994, Mr. McKee loaned the sum of $43,512 to the
Company, of which an aggregate of $27,882 was repaid prior to such time,
resulting in a principal loan balance at December 31, 1993 of $15,630. Prior
to the April 1994 IPO, this loan was to mature on November 15, 1995 and bore
interest at the rate of 9% per annum, payable at maturity. In connection with
the April 1994 IPO, the Company's indebtedness to Mr. McKee (which as of
April 7, 1994 aggregated approximately $21,232, including $5,602 in accrued
interest) was recharacterized as a term loan, maturing on April 7, 1997 and
bearing interest at the rate of 6.5% per annum, payable semi-annually.
Commencing on March 17, 1995, the Company paid Mr. McKee installments in the
amount of $3,745 every two weeks as repayment of the outstanding principal
amount and accrued interest on such loan. Consequently, the loan was repaid
in full on May 26, 1995. During the period that this loan was being repaid,
Mr. McKee did not receive any salary from the Company.
During the period from January to March 1994, Messrs. Bogatin and McKee
made working capital loans to the Company in the aggregate amount of $224,303
and $80,995, respectively. These loans, which bore interest at the rate of 8%
per annum, were repaid by the Company from the proceeds of the April 1994
IPO.
In June 1995, Messrs. McKee and Bogatin made capital contributions to the
Company in the aggregate amount of $1,000,000. Specifically, on June 15,
1995, Mr. McKee made a contribution to the capital of the Company in the
amount of $800,000, by purchasing 118,518 shares of Common Stock at $6.75 per
share directly from the Company and holding such shares for investment, and,
on June 19, 1995, Mr. Bogatin made contributions to the capital of the
Company in the amount of $200,000, by exercising Options (previously granted
to him under the Option Plan in April 1994) to purchase 80,000 shares of
Common Stock at $2.50 per share. The foregoing capital contributions were
made to satisfy certain financial eligibility requirements in order for the
Company's Common Stock to continue to be listed on NASDAQ.
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<PAGE>
On December 29, 1995, Mr. Bogatin made an additional capital contribution
to the Company in the amount of $300,000 by exercising Options (previously
granted to him under the Option Plan in April 1994) to purchase 120,000
shares of Common Stock at $2.50 per share. In addition, on December 29, 1995,
Mr. McKee loaned the Company the sum of $285,000. The note issued to Mr.
McKee evidencing such borrowing bore interest at the rate of 6.5% per annum
and was repaid in full (an aggregate of $288,139, including accrued interest)
on February 28, 1996.
On March 30, 1996, Messrs. Bogatin and McKee loaned the Company the sums
of $200,000 and $85,000, respectively. These loans are evidenced by
promissory notes bearing interest at the rate of 6.5% per annum. Each of
these notes is payable on demand. These loans were made to satisfy certain
eligibility requirements in order for the Company's Common Stock to continue
to be listed on NASDAQ.
In connection with this offering, Messrs. Bogatin and McKee have granted to
the Underwriter an option to purchase up to an aggregate of 120,000 shares of
Common Stock from them (85,200 from Mr. Bogatin and 34,800 from Mr. McKee) for
the purpose of covering over-allotments in connection with the sale of the
800,000 Shares offered hereby, at the public offering price set forth on the
cover page of this Prospectus, less the underwriting discounts and commissions
and the Underwriter's 2 1/2 % nonaccountable expense allowance applicable to
such Over-Allotment Shares. The Company will bear all of the other expenses of
this offering, including any associated with the sale (if any) of these
Over-Allotment Shares. If such over-allotment option is exercised in full,
Messrs. Bogatin and McKee will receive net proceeds therefrom of approximately
$1,137,420 and $464,580, respectively.
Since the inception of the Company, Cyten (which was founded and is
principally owned by Earl R. Winkelmann, the Company's former Vice President
- -- Engineering and a current part-time employee of the Company) has performed
engineering and development work for the Company. During the three months
ended March 31, 1996 and the fiscal years ended December 31, 1995 and 1994,
the Company paid to Cyten $36,211, $110,603 and $157,079, respectively,
relating primarily to research and development charges incurred by Cyten on
behalf of the Company and to a lesser degree to rental payments due in
connection with certain space leased by the Company from Cyten on a
month-to-month basis.
Any future transaction with directors, executive officers or their
affiliates will be made only if the transaction has been approved by a
majority of the then disinterested members of the Board of Directors and is
on terms no less favorable to the Company than could have been obtained from
unaffiliated parties.
46
<PAGE>
DESCRIPTION OF SECURITIES
GENERAL
The Company is authorized to issue 20,000,000 shares of Common Stock, $.01
par value per share. As of the date of this Prospectus, there are 12,868,078
shares of Common Stock outstanding.
COMMON STOCK
Holders of shares of Common Stock are entitled to one vote for each share
held of record on all matters to be voted on by stockholders. There are no
preemptive, subscription, conversion or redemption rights pertaining to the
shares of Common Stock. Holders of shares of Common Stock are entitled to
receive such dividends as may be declared by the Board of Directors out of
funds legally available therefor and to share ratably in the assets of the
Company available upon liquidation. The holders of shares of Common Stock do
not have the right to cumulate their votes in the election of directors and,
accordingly, the holders of more than 50% of all the shares of Common Stock
outstanding are able to elect all directors. The Company's officers and
directors will continue to control a majority of the votes following
completion of this offering and, accordingly, they will be able to elect all
of the Company's directors. All of the outstanding shares of Common Stock
are, and the shares of Common Stock offered hereby, upon issuance and when
paid for, will be, duly authorized, validly issued, fully paid and
non-assessable.
SHAREHOLDERS' AGREEMENTS AND REGISTRATION RIGHTS
In May 1993, Jeffrey B. Bogatin, the Company's Chairman of the Board, and
Philip B. McKee, the Company's President and Chief Executive Officer, entered
into the Shareholders Agreement with the Company, which sets forth certain
rights and obligations of the parties with respect to the Common Stock and
corporate governance of the Company. The Shareholders Agreement provides that
Messrs. Bogatin and McKee will vote for each other to be members of the Board
of Directors and, as members of the Board, will vote to elect each other as
an officer of the Company. The Shareholders Agreement also provides that if
the Company proposes to register shares of its Common Stock under the
Securities Act prior to May 1998 (subject to certain exceptions), then each
individual party will have the right, subject to certain restrictions, to
request that the Company register his shares of Common Stock in connection
with such registration. The Shareholders Agreement also places certain
limitations on the Company's ability to grant demand registration rights to
any of its security holders. The Shareholders Agreement will terminate on the
occurrence of any of the following: (i) the cessation of the Company's
corporate business during the lifetime of Messrs. Bogatin and McKee, (ii) the
bankruptcy or dissolution of the Company or (iii) the mutual agreement of
Messrs. Bogatin and McKee. See "Shares Eligible for Future Sale."
Pursuant to the Company's April 1993 Stock Purchase Agreement with Donald
J. Gogel, a director of the Company, the Company agreed that, if it proposes
to register shares of its Common Stock under the Securities Act prior to
April 17, 1998 (subject to certain exceptions), then Mr. Gogel will have the
right, subject to certain restrictions, to request that the Company register
his shares in connection therewith. The Stock Purchase Agreement also places
certain limitations on the Company's ability to grant demand registration
rights to any of its securityholders. Subject to certain exceptions, the
Stock Purchase Agreement also provides that if any entity owned or controlled
by either or both of Messrs. Bogatin or McKee transacts business with the
Company in connection with consulting or licensing matters or supply,
distribution, agency or other arrangements, then Mr. Gogel is to be given an
opportunity to purchase an equity interest in such entity. See "Shares
Eligible for Future Sale."
TRANSFER AGENT AND REGISTRAR
The Company's Transfer Agent and Registrar is American Stock Transfer &
Trust Company, 40 Wall Street, New York, New York 10005.
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<PAGE>
DELAWARE ANTI-TAKEOVER LAW
The Company is subject to certain anti-takeover provisions under Section
203 of the Delaware General Corporation Law. In general, under Section 203, a
Delaware corporation may not engage in any business combination with any
interested stockholder (a person that owns, directly or indirectly, 15% or
more of the outstanding voting stock of a corporation or is an affiliate of a
corporation that is the owner of 15% or more of the outstanding voting
stock), for a period of three years following the date such stockholder
became an interested stockholder, unless (i) prior to such date the board of
directors of the corporation approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder, or (ii) upon consummation of the transaction which resulted in
the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, or (iii) on or subsequent
to such date, the business combination is approved by the board of directors
and authorized at an annual or special meeting of stockholders by at least 66
2/3 % of the outstanding voting stock which is not owned by the interested
stockholder. The restrictions imposed by Section 203 will not apply to a
corporation if the corporation's original certificate of incorporation
contains a provision expressly electing not to be governed by this section or
the corporation by action of its stockholders holding a majority of
outstanding stock adopts an amendment to its certificate of incorporation or
by-laws expressly electing not to be governed by Section 203. The Company has
not elected out of Section 203, and thus the restrictions imposed by Section
203 apply to the Company. Such provision could have the effect of
discouraging, delaying or preventing a takeover of the Company, which could
otherwise be in the best interest of the Company's stockholders, and have an
adverse effect on the market price for the Company's Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of this offering, the Company will have 13,668,078
shares of Common Stock outstanding, of which, 4,434,000 shares, including the
800,000 Shares offered hereby and, subject to certain contractual
restrictions with the Underwriter described below, the 233,334 Selling
Stockholder Shares, will be freely tradeable without restriction or further
registration under the Securities Act. The remaining 9,234,078 shares are
unregistered and deemed to be restricted securities (as that term is defined
under Rule 144 promulgated under the Securities Act), and, as such, may in
the future only be sold pursuant to a registration statement under the
Securities Act, in compliance with the exemption provisions of Rule 144 under
the Securities Act or pursuant to another exemption under the Securities Act.
In general, under Rule 144 a person (or persons whose shares are
aggregated), including persons who may be deemed to be "affiliates" of the
Company as that term is defined under the Securities Act, is entitled to
sell, within any three-month period, a number of restricted shares
beneficially owned by such person for a period of at least two years that
does not exceed the greater of (i) 1% of the then outstanding shares of
Common Stock or (ii) an amount equal to the average weekly trading volume in
the Common Stock during the four calendar weeks preceding such sale. Sales
under Rule 144 are also subject to certain requirements as to the manner of
sale, notice and the availability of current public information about the
Company. However, a person who is not deemed an affiliate and has
beneficially owned such shares for at least three years is entitled to sell
such shares without regard to the volume or other resale requirements.
Of the 9,234,078 restricted shares of Common Stock, an aggregate of
8,223,334 shares are already eligible for sale under Rule 144, subject to the
volume limitations discussed above. Moreover, an aggregate of 7,977,004 of
such shares are the subject of piggyback registration rights granted to
Messrs. Bogatin, McKee and Gogel. Other than the Selling Stockholder (which
is subject to a six month lock-up agreement with the Underwriter relating to
the Selling Stockholder Shares), none of the Company's officers, directors,
or other stockholders are contractually restricted from selling or otherwise
disposing of any of their shares of Common Stock. The Company has also
granted the Underwriter certain demand and piggyback registration rights with
respect to the 260,000 shares and 80,000 shares of Common Stock underlying
the Underwriter's IPO Warrants (which are currently exercisable) and
Underwriter's Warrants (which are exercisable commencing one year following
the date of this Prospectus), respectively. No prediction can be made as to
the effect, if any, that sales of shares of Common Stock or even the
availability of such shares for sale will have on the market prices
prevailing from time to time. Nonetheless, even the possibility that
substantial additional amounts of Common Stock may be sold in the public
market in the future may adversely affect prevailing market prices for the
Common Stock and could impair the Company's ability to raise capital through
the sale of its equity securities.
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<PAGE>
UNDERWRITING
Whale Securities Co., L.P. (the "Underwriter") has agreed, subject to the
terms and conditions contained in the Underwriting Agreement, to purchase the
800,000 Shares offered hereby from the Company. The Underwriter is committed
to purchase and pay for all of the Shares offered hereby if any of such
Shares are purchased. The Shares are being offered by the Underwriter subject
to prior sale, when, as and if delivered to and accepted by the Underwriter
and subject to approval of certain legal matters by counsel and to certain
other conditions.
The Underwriter has advised the Company that it proposes to offer the
Shares to the public at the public offering price set forth on the cover page
of this Prospectus. The Underwriter may allow to certain dealers who are
members of the National Association of Securities Dealers, Inc. (the "NASD")
concessions, not in excess of $.51 per Share, of which not in excess of $.25
per Share may be reallowed to other dealers who are members of the NASD.
Jeffrey B. Bogatin, the Company's Chairman of the Board, and Philip R.
McKee, the Company's President and Chief Executive Officer, have granted to
the Underwriter an option, exercisable for 45 days from the date of this
Prospectus, to purchase up to an aggregate of 120,000 shares of Common Stock
from them at the public offering price set forth on the cover page of this
Prospectus, less the underwriting discounts and commissions. The Underwriter
may exercise this option to purchase the Over-Allotment Shares in whole or,
from time to time, in part, solely for the purpose of covering
over-allotments, if any, made in connection with the sale of the Shares
offered hereby. The Company will not receive any proceeds from the sale of
any of these Over-Allotment Shares.
The Company has agreed to pay to the Underwriter a nonaccountable expense
allowance equal to 2 1/2 % of the gross proceeds derived from the sale of the
Shares offered hereby (and Messrs. Bogatin and McKee have agreed to pay to
the Underwriter 2 1/2 % of the gross proceeds derived from sales, if any, of
the Over-Allotment Shares), of which $50,000 has been paid as of the date of
this Prospectus. The Company has also agreed to pay all expenses in
connection with qualifying the Shares offered hereby for sale under the laws
of such states as the Underwriter may designate, including expenses of
counsel retained for such purpose by the Underwriter.
The Company has agreed to sell to the Underwriter and its designees, for an
aggregate of $80, warrants (the "Underwriter's Warrants") to purchase up to
80,000 shares of Common Stock at an exercise price equal to $24.00 (160% of the
public offering price per Share). The Underwriter's Warrants may not be sold,
transferred, assigned or hypothecated for one year from the date of this
Prospectus, except to the officers and partners of the Underwriter and members
of the selling group, and are exercisable at any time and from time to time, in
whole or in part, during the four-year period commencing one year following the
date of this Prospectus (the "Warrant Exercise Term"). During the Warrant
Exercise Term, the holders of the Underwriter's Warrants are given, at nominal
cost, the opportunity to profit from a rise in the market price of the Company's
Common Stock. To the extent that the Underwriter's Warrants are exercised,
dilution to the interests of the Company's stockholders will occur. Further, the
terms upon which the Company will be able to obtain additional equity capital
may be adversely affected since the holders of the Underwriter's Warrants can be
expected to exercise them at a time when the Company would, in all likelihood,
be able to obtain any needed capital on terms more favorable to the Company than
those provided in the Underwriter's Warrants. Any profit realized by the
Underwriter on the sale of the Underwriter's Warrants or the underlying shares
of Common Stock may be deemed additional underwriting compensation. Subject to
certain limitations and exclusions, the Company has agreed (i) that, at the
request of the holders of a majority of the Underwriter's Warrants, the Company
will (at its own expense), register the Underwriter's Warrants and the
underlying shares of Common Stock under the Securities Act on one occasion
during the Warrant Exercise Term and (ii) that it will include such
Underwriter's Warrants and underlying shares in any appropriate registration
statement which is filed by the Company during the seven years following the
date of this Prospectus.
The Company has agreed, for a period of three years from the date of this
Prospectus, to permit a designee of the Underwriter, which designee may
change from time to time, to serve as a nonvoting adviser to the Company's
Board of Directors. The Underwriter has not yet exercised its right to
designate such person and has advised the Company that it has no current
intention to do so.
The Underwriting Agreement contains reciprocal agreements of indemnity
between the Company and the Underwriter as to certain liabilities which may
arise in connection with this offering, including liabilities under the
Securities Act.
49
<PAGE>
In connection with this offering, the Underwriter and certain selling
group members (if any), who are qualifying registered market makers on
NASDAQ, may engage in passive market making transactions in the Common Stock
on NASDAQ in accordance with Rule 10b-6A under the Exchange Act during the
two business day period before commencement of sales in this offering. The
passive market making transactions must comply with applicable price and
volume limits and be identified as such. In general, a passive market maker
may display its bid at a price not in excess of the highest independent bid
for the security. If all independent bids are lowered below the passive
market maker's bid, however, such bid must then be lowered when certain
purchase limits are exceeded. Net purchases by a passive market maker on each
day are generally limited in amount to a specified percentage of the passive
market maker's average daily trading volume in the Common Stock during a
specified prior period and must be discontinued when such limit is reached.
Passive market making may stabilize the market price of the Common Stock at a
level above that which might otherwise prevail and, if commenced, may be
discontinued at any time.
Acadia, the Selling Stockholder, has entered into an agreement with the
Underwriter, whereby Acadia has agreed not to sell or otherwise dispose of
any of the Selling Stockholder Shares (which are being registered by the
Company, for resale by Acadia, concurrently with this offering) for a period
of six months from the date of this Prospectus without the prior written
consent of the Underwriter.
The Underwriter also acted as the underwriter of the Company's April 1994
IPO, in connection with which it received the Underwriter's IPO Warrants
which are exercisable to purchase an aggregate of 260,000 shares of Common
Stock at $3.25 per share during the period commencing on April 7, 1996 and
expiring on April 7, 1999. In connection with such warrants the Underwriter
has two demand and unlimited piggyback registration rights.
SELLING STOCKHOLDER AND PLAN OF DISTRIBUTION
An aggregate of up to 233,334 Selling Stockholder Shares may be offered
and sold pursuant to this Prospectus by Acadia International Limited, the
Selling Stockholder. The Company has agreed to register the public offering
of the Selling Stockholder Shares under the Securities Act concurrently with
this offering and to pay all expenses in connection therewith. Consequently,
the Selling Stockholder Shares have been included in the Registration
Statement of which this Prospectus forms a part. None of the Selling
Stockholder Shares may be sold by the Selling Stockholder prior to six months
after the date of this Prospectus, without the prior written consent of the
Underwriter. The Selling Stockholder acquired the Selling Stockholder Shares
in connection with providing certain financing to the Company. No officer or
director of the Selling Stockholder has ever held any position or office with
the Company and, other than as an investor, the Selling Stockholder has had
no material relationship with the Company. The Company will not receive any
of the proceeds from the sale of the Selling Stockholder Shares by the
Selling Stockholder.
As of the date of this Prospectus, the Selling Stockholder is the
beneficial owner of 495,834 shares of Common Stock (including the 233,334
Selling Stockholder Shares and 262,500 shares of Common Stock which are
issuable upon exercise of the immediately exercisable Acadia Option),
representing a 3.8% beneficial ownership interest in the Company's Common
Stock prior to the consummation of this offering. Assuming for purposes
hereof that all of the Selling Stockholder Shares are sold, then immediately
following both the consummation of this offering and the sale of all of the
Selling Stockholder Shares (assuming no additional shares are acquired or
sold by either the Company or the Selling Stockholder), the Selling
Stockholder would beneficially own 262,500 shares of Common Stock,
representing a 1.88% beneficial ownership interest in the Company's Common
Stock.
The Selling Stockholder Shares may be offered and sold from time to time
as market conditions permit in the over-the-counter market, or otherwise, at
prices and terms then prevailing or at prices related to the then- current
market price, or in negotiated transactions. The Selling Stockholder Shares
may be sold by one or more of the following methods, without limitation: (a)
a block trade in which a broker or dealer so engaged will attempt to sell the
shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction; (b) purchases by a broker or dealer
as principal and resale by such broker or dealer for its account pursuant to
this Prospectus; (c) ordinary brokerage transactions and transactions in
which the broker solicits purchases; and (d) face-to-face transactions
between sellers and purchasers without a broker/dealer. In effecting sales,
brokers or dealers engaged by the Selling Stockholder may arrange for other
brokers or dealers to partici-
50
<PAGE>
pate. Such brokers or dealers may receive commissions or discounts from the
Selling Stockholder in amounts to be negotiated. Such brokers and dealers and
any other participating brokers or dealers may be deemed to be "underwriters"
within the meaning of the Securities Act, in connection with such sales.
LEGAL MATTERS
The legality of the Common Stock offered hereby will be passed upon for
the Company by Henry, Meier, Jones & Johnson, L.L.P., Dallas, Texas.
Intellectual property counsel for the Company is Amster, Rothstein &
Ebenstein, New York, New York. Tenzer Greenblatt LLP, New York, New York has
acted as counsel for the Underwriter in connection with this offering.
EXPERTS
The financial statements of the Company as of December 31, 1995 and 1994,
and for the years then ended, which are included in this Prospectus and in
the Registration Statement, have been included herein in reliance upon the
report, appearing elsewhere herein, of KPMG Peat Marwick LLP, independent
certified public accountants, and upon the authority of said firm as experts
in accounting and auditing.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Exchange
Act and, in accordance therewith, files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission").
Such reports, proxy statements and other information filed by the Company can
be inspected and copied, at prescribed rates, at the public reference
facilities of the Commission located at 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's regional offices at 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, New
York, New York 10048. Copies of such material can also be inspected at the
reading room of the library of the National Association of Securities
Dealers, Inc., 1735 K Street, N.W., 2nd Floor, Washington, D.C. 20006.
The Company has filed with the Commission a Registration Statement on Form
SB-2 (the "Registration Statement") under the Securities Act with respect to
the securities offered hereby. This Prospectus, filed as part of such
Registration Statement, does not contain all of the information set forth in,
or annexed as exhibits to, the Registration Statement, certain portions of
which have been omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and this
offering, reference is made to the Registration Statement including the
exhibits filed therewith. Statements made in this Prospectus as to the
contents of any contract or other document referred to are not necessarily
complete and, where the contract or other document has been filed as an
exhibit to the Registration Statement, each such statement is qualified in
all respects by such reference to the applicable document filed with the
Commission. The Registration Statement may be inspected without charge and
copied, upon payment of prescribed fees, at the facilities of the Commission
referred to above.
51
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Independent Auditors' Report ......................................................................... F-2
Financial Statements: Balance Sheets as of March 31, 1996 (unaudited) and December 31, 1995 and 1994 .. F-3
Statements of Operations for the three months ended March 31, 1996 and 1995 (unaudited) and the years
ended December 31, 1995 and 1994 ................................................................... F-4
Statements of Stockholders' Equity (Deficit) for the three months ended March 31, 1996 (unaudited) and
the years ended December 31, 1995 and 1994 ......................................................... F-5
Statements of Cash Flows for the three months ended March 31, 1996 and 1995 (unaudited) and the years
ended December 31, 1995 and 1994 ................................................................... F-6
Notes to Financial Statements ....................................................................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
TurboChef, Inc.:
We have audited the accompanying balance sheets of TurboChef, Inc. as of
December 31, 1995 and 1994, and the related statements of operations,
stockholders equity (deficit), and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of TurboChef, Inc. as of
December 31, 1995 and 1994, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
Dallas, Texas
February 2, 1996, except for the first
paragraph of note 10 which is as of
February 14, 1996
F-2
<PAGE>
TURBOCHEF, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
March 31, ------------------------------
1996 1995 1994
-------------- ------------- -------------
(unaudited)
<S> <C> <C> <C>
Assets
Current Assets:
Cash ....................................... $ 1,027,868 642,883 617,495
Accounts receivable (note 10) .............. 207,999 572,299 63,286
Inventories ................................ 347,503 539,083 814,480
Prepaid expenses ........................... 64,474 98,782 116,840
-------------- ------------- -------------
Total current assets ............. 1,647,844 1,853,047 1,612,101
-------------- ------------- -------------
Property and equipment:
Leasehold improvements ..................... 37,818 37,818 37,818
Furniture and fixtures ..................... 59,370 56,360 39,985
Equipment .................................. 312,849 305,718 273,388
-------------- ------------- -------------
410,037 399,896 351,191
Less accumulated depreciation and amortization (174,259) (154,330) (76,708)
-------------- ------------- -------------
Net property and equipment ....... 235,778 245,566 274,483
-------------- ------------- -------------
Deferred offering costs ......................... 183,057 48,529 --
Other assets .................................... 105,672 70,728 79,463
-------------- ------------- -------------
Total assets ..................... $ 2,172,351 2,217,870 1,966,047
============== ============= =============
Liabilities and Stockholders' Equity
Current liabilities:
Note payable (note 3) ...................... $ -- -- 210,000
Notes payable to stockholders (note 4) ..... 285,000 285,000 --
Accounts payable ........................... 555,508 404,293 202,143
Accrued expenses ........................... 70,671 35,314 37,450
Accrued interest ........................... -- -- 1,438
Sales deposits ............................. 175,150 45,250 132,000
-------------- ------------- -------------
Total current liabilities ........ 1,086,329 769,857 583,031
-------------- ------------- -------------
Accrued interest (note 4) ....................... -- -- 52,516
Notes payable to stockholders (note 4) .......... -- -- 1,100,426
-------------- ------------- -------------
Total liabilities ................ 1,086,329 769,857 1,735,973
-------------- ------------- -------------
Stockholders' Equity (notes 4 and 7):
Common stock, $.01 par value. Authorized
20,000,000 shares. Issued and outstanding
12,868,078 (unaudited), 12,867,078 and
11,857,334 shares at March 31, 1996 and December
31, 1995 and 1994, respectively .......... 128,681 128,671 118,573
Additional paid-in capital ................. 10,995,024 10,992,534 8,199,425
Accumulated deficit ........................ (10,037,683) (9,673,192) (8,087,924)
-------------- ------------- -------------
Total stockholders' equity ....... 1,086,022 1,448,013 230,074
Commitments (note 5)
-------------- ------------- -------------
$ 2,172,351 2,217,870 1,966,047
============== ============= =============
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
TURBOCHEF, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended Years ended
March 31 December 31
---------------------------- ------------------------------
1996 1995 1995 1994
------------- ----------- ------------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales ....................... $1,048,888 165,398 1,160,131 249,883
Other revenues .................. 5,120 -- 67,980 --
------------- ----------- ------------- -------------
Total revenues ................ 1,054,008 165,398 1,228,111 249,883
------------- ----------- ------------- -------------
Costs and expenses:
Cost of goods sold ............ 796,431 132,917 956,449 195,473
Provision for impairment of
prototype and demonstration
inventory .................. -- -- -- 164,945
Research and development expenses
(note 9) ................... 120,116 146,160 424,325 719,989
Selling, general and
administrative expenses .... 498,904 384,401 1,545,799 2,083,226
------------- ----------- ------------- -------------
Total costs and expenses ..... 1,415,451 663,478 2,926,573 3,163,633
------------- ----------- ------------- -------------
Operating loss ............. (361,443) (498,080) (1,698,462) (2,913,750)
------------- ----------- ------------- -------------
Other income (expense):
Interest income ............... 90 2,674 12,589 25,103
Interest expense (notes 3 and 4) (3,138) (24,261) (31,395) (292,872)
Forfeited sales deposit (note 8) -- -- 132,000 --
------------- ----------- ------------- -------------
(3,048) (21,587) 113,194 (267,769)
------------- ----------- ------------- -------------
Net loss ................... $ (364,491) (519,667) (1,585,268) (3,181,519)
============= =========== ============= =============
Loss per common share ........... $ (.03) (.04) (.13) (.29)
============= =========== ============= =============
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
TURBOCHEF, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Shares of Total
common stock Additional stockholders'
(notes 3, 4 Common paid-in Accumulated equity
and 7) stock capital deficit (deficit)
-------------- ----------- ------------ -------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993 ..... 9,189,334 $ 91,893 1,886,968 (4,906,405) (2,927,544)
Issuance of stock January 19, 1994
($1.50 per share) ............. 68,000 680 101,320 -- 102,000
Initial public offering April 7, 1994
($2.50 per share), net of offering
costs of $1,262,993 ........... 2,600,000 26,000 5,211,007 -- 5,237,007
Contributed capital ............ -- -- 1,000,000 -- 1,000,000
Sale of warrants April 7, 1994 . -- -- 130 -- 130
Net loss ....................... -- -- -- (3,181,519) (3,181,519)
-------------- ----------- ------------ -------------- ---------------
Balance, December 31, 1994 ..... 11,857,334 118,573 8,199,425 (8,087,924) 230,074
Exchange of indebtedness and accrued
interest by a major stockholder
(note 4) ...................... 457,892 4,579 1,140,151 -- 1,144,730
Exercise of stock options ...... 200,000 2,000 498,000 -- 500,000
Issuance of stock June 1995 ($6.75
per share) .................... 118,518 1,185 798,815 -- 800,000
Exchange of indebtedness and accrued
interest by Acadia Ltd. (note 3) 233,334 2,334 356,143 -- 358,477
Net loss ....................... -- -- -- (1,585,268) (1,585,268)
-------------- ----------- ------------ -------------- ---------------
Balance at December 31, 1995 ... 12,867,078 128,671 10,992,534 (9,673,192) 1,448,013
Exercise of stock options
(unaudited) ................... 1,000 10 2,490 -- 2,500
Net loss (unaudited) ........... -- -- -- (364,491) (364,491)
-------------- ----------- ------------ -------------- ---------------
Balance, March 31, 1996 (unaudited) 12,868,078 $128,681 10,995,024 (10,037,683) 1,086,022
============== =========== ============ ============== ===============
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
TURBOCHEF, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended Years ended
March 31 December 31
---------------------------- ------------------------------
1996 1995 1995 1994
------------- ----------- ------------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss ........................................ $ (364,491) (519,667) (1,585,268) (3,181,519)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization ................ 22,165 18,540 86,562 59,188
Amortization of debt discount ................ -- -- -- 163,400
Impairment of prototype and demonstration inventory -- -- -- 164,945
Interest expense added to principal .......... -- 14,032 21,070 43,901
Decrease (increase) in accounts receivable ... 364,300 (24,628) (509,013) (60,635)
Decrease (increase) in inventories ........... 191,580 116,414 275,397 (814,480)
Decrease (increase) in prepaid expenses ...... 34,308 9,173 18,058 (113,146)
Increase in other assets ..................... -- -- (205) (3,145)
Increase (decrease) in accounts payable ...... 151,215 (11,080) 202,150 (78,269)
Increase (decrease) in accrued expenses ...... 35,357 (8,784) (2,136) (184,912)
Increase (decrease) in accrued interest ...... -- 7,360 (1,011) 30,118
Increase (decrease) in sales deposits ........ 129,900 -- (86,750) (19,370)
------------- ----------- ------------- -------------
Net cash provided by (used in) operating
activities .............................. 564,334 (398,640) (1,581,146) (3,993,924)
------------- ----------- ------------- -------------
Cash flow from investing activities:
Acquisition of demonstration and prototype inventory -- -- -- (17,371)
Purchase of equipment ........................... (10,141) -- (48,705) (174,712)
Additions to intangibles ........................ (37,180) -- -- --
------------- ----------- ------------- -------------
Net cash used in investing activities ...... (47,321) -- (48,705) (192,083)
------------- ----------- ------------- -------------
Cash flows from financing activities:
Proceeds from notes payable ..................... -- 140,000 140,000 210,000
Repayment of notes payable ...................... -- -- -- (1,000,000)
Proceeds from notes payable to stockholders ..... 285,000 -- 285,000 305,298
Repayments of notes payable to stockholders ..... (285,000) (7,490) (21,232) (305,298)
Exercise of stock options ....................... 2,500 -- 500,000 --
Issuance of common stock ........................ -- -- 800,000 102,000
Proceeds from initial public offering ........... -- -- -- 6,500,000
Proceeds from sale of warrants .................. -- -- -- 130
Offering costs .................................. (134,528) -- (48,529) (1,237,993)
------------- ----------- ------------- -------------
Net cash provided by (used in) financing
activities .............................. (132,028) 132,510 1,655,239 4,574,137
------------- ----------- ------------- -------------
Net increase (decrease) in cash ................... 384,985 (266,130) 25,388 388,130
Cash at beginning of period ....................... 642,883 617,495 617,495 229,365
------------- ----------- ------------- -------------
Cash at end of period ............................. $1,027,868 351,365 642,883 617,495
============= =========== ============= =============
Supplemental disclosures of noncash financing
activities:
Exchange of indebtedness and accrued interest for
common stock ................................. $ -- 1,144,730 1,503,207 --
============= =========== ============= =============
Contribution of notes payable to additional paid-in
capital ...................................... $ -- -- -- 1,000,000
============= =========== ============= =============
Interest payable added to principal ............. $ -- -- 74,012 264,959
============= =========== ============= =============
Supplemental disclosure of cash flow information --
interest paid ................................... $ 3,138 -- 11,337 55,454
============= =========== ============= =============
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
TURBOCHEF, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996 AND 1995 (UNAUDITED) AND DECEMBER 31, 1995 AND 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) General
TurboChef, Inc. (the Company) was incorporated on April 3, 1991. The
Company is a foodservice technology company engaged primarily in
designing, developing and marketing high-speed ovens. From its inception
through February 1994, the operations of the Company were principally
limited to conducting research and development, limited production
operations and test marketing of prototype high-speed commercial ovens. In
March 1994, the Company commenced the commercial manufacturing and initial
marketing of the first restaurant version of the TurboChef oven. Prior to
the last quarter of 1994, the Company was considered to be in the
development stage. The Company believes its primary market is with
traditional full- service restaurants operating both domestically and
internationally. (See note 10 for information regarding concentration of
business risks.)
In April 1994, the Company completed an underwritten initial public
offering ("IPO") of 2,600,000 shares of its common stock resulting in
aggregate proceeds of approximately $5,237,000, net of the underwriter's
discount and other IPO expenses totaling $1,263,000.
The financial statements of the Company as of March 31, 1996 and for the
periods ended March 31, 1996 and 1995 are unaudited, but in the opinion of
management reflect all adjustments consisting of normal recurring accruals
which are necessary for a fair statement of the results of the interim
periods presented. Results for interim periods are not necessarily
indicative of the results to be expected for a full year or for periods
which have been previously reported, due in part to the Company's growth.
(b) Inventory
Inventory is valued at the lower of cost or market and primarily consists
of completed ovens. The Company determines cost for ovens by the specific
cost method.
(c) Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the
respective assets (generally five years). Leasehold improvements are
amortized using the straight-line method over the shorter of the expected
term of the related lease or estimated useful life of the asset.
(d) Deferred Offering Costs
Deferred offering costs consists primarily of legal costs incurred by the
Company in its efforts to secure additional financing. Such costs will be
charged against the proceeds from the offering upon consummation.
(e) Sales Deposits
Sales deposits consists of amounts received from customers for future
purchases of ovens. Deferred amounts will be recognized as revenue as
ovens are shipped to the customer.
(f) Revenue Recognition
The Company records revenue as earned, which occurs when the product is
shipped.
(g) Other Assets and Related Amortization Expense
Other assets consist primarily of the cost of obtaining patents.
Amortization is computed on the straight- line method over ten years.
F-7
<PAGE>
TURBOCHEF, INC.
Notes to Financial Statements - (Continued)
(1) Summary of Significant Accounting Policies - (Continued)
(h) Research and Development
Research and development costs consist of all costs incurred in planning,
design and testing of the high- speed commercial oven, including salary
costs related to research and development, and are expensed as incurred.
(i) Product Warranty
The Company's ovens are under warranty against defects in material and
workmanship for a period of one year. Beginning in January 1996,
anticipated future warranty costs are recorded in the period ovens are
sold. Prior to that time, warranty costs were not significant and expensed
as incurred.
(j) Income Taxes
The Company accounts for income taxes using the asset and liability
method. Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss carryforwards. Deferred tax assets
and liabilities are measured using enacted rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
(k) Loss Per Share
Loss per share is determined based on the weighted average number of
common and dilutive common equivalent shares. The weighted average number
of common shares outstanding, as adjusted for the stock splits described
in note 7, were 12,867,375 (unaudited) and 11,943,825 (unaudited) for the
three-month periods ended March 31, 1996 and 1995, respectively, and
12,451,786 and 11,120,282 for the years ended December 31, 1995 and 1994,
respectively.
Giving effect to the March 15, 1995 conversion of a note payable to
stockholder and related accrued interest of $1,144,730 into 457,892 shares
of common stock would not have materially affected loss per share for
1995.
(l) Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
(m) Reclassifications
Certain amounts in prior periods financial statements have been
reclassified to conform to current year presentation.
(2) LIQUIDITY
Although the Company has historically incurred significant losses, the
Company expects to generate future cash flows from the sale of commercial
ovens and, as necessary, raising capital through future equity or debt
financing. As discussed in note 10, the Company is currently dependent on a
single customer. To the extent these sources of funds are not sufficient, two
officers, who are major shareholders of the Company, have agreed to provide
financial support as required to enable the Company to meet its obligations
through June 1997. If external financing is not sufficient, the Company may
be required to revise its plan of operations, including a curtailment of
expansion and product development activities.
F-8
<PAGE>
TURBOCHEF, INC.
Notes to Financial Statements - (Continued)
(3) NOTE PAYABLE
In November 1994, the Company and Acadia International Limited, a corporation
incorporated under the laws of the British Virgin Islands ("Acadia"), entered
into an agreement to jointly develop a new consumer- operated TurboChef oven
(the Model E-1 TurboChef oven) for use in retail locations (the "Acadia
Agreement"). Pursuant to the Acadia Agreement, Acadia committed to invest up
to $1,200,000 in the Model E-1 project, over a period of 16 months, for which
it was ultimately to receive between a 20% and 30% (depending on various
circumstances) ownership interest in AcadiaChef, Inc. ("AcadiaChef"), the
entity formed in connection with this joint venture to commercialize the
proposed Model E-1 oven. Each of the Company and Acadia had the option,
however, of terminating the Acadia Agreement prior to such time, whereupon
Acadia's investment would be returned, as outlined below, and its interest in
AcadiaChef and the E-1 project would be eliminated. As of March 31, 1995, the
Company had completed an initial prototype of the Model E-1 TurboChef oven
and Acadia had invested a total of $350,000 in the project pursuant to the
terms of the Acadia Agreement. The Company elected at such time to terminate
its arrangement with Acadia. Pursuant to the terms of the Acadia Agreement,
upon such termination, Acadia had the option of (i) having its investment
returned to it, in cash plus interest accrued thereon at the rate of 10% per
annum, and receiving an option to purchase 350,000 shares of common stock at
$1.50 per share (the market price of the common stock on the date of the
Acadia Agreement), or (ii) converting the principal amount of its investment
into 233,334 shares of common stock, based on a conversion rate of $1.50 per
share, and receiving an option to purchase 525,000 shares of common stock at
$2.50 per share. Instead, the Company was able to reach an agreement with
Acadia in June 1995, with an effective date of March 31, 1995, whereby Acadia
converted its $350,000 investment, foregoing the accrued interest thereon,
into an aggregate of 233,334 shares of common stock and received an option to
purchase 262,500 shares of common stock at $2.50 per share, exercisable after
March 31, 1996 and expiring March 31, 2002.
(4) TRANSACTIONS WITH STOCKHOLDERS
(a) Notes Payable
On December 29, 1995, a shareholder and officer of the Company advanced the
Company $285,000. The note is unsecured, bears interest at 6.5% and is
scheduled to mature on March 1, 1996, at which time principal and interest
are due. The carrying value of the note approximates the fair value at
December 31, 1995 because of the short maturity of the note. The amount due
to the stockholder was paid by the Company during the three months ended
March 31, 1996 (unaudited). In addition, $285,000 (unaudited) was loaned to
the Company by two stockholders prior to March 31, 1996. The new notes bear
interest at 6 1/2 percent, are unsecured and due on demand.
The notes payable to stockholders at December 31, 1994 are for various
expenses paid by two principal stockholders for the benefit of the Company
and for cash advances to the Company. The notes payable originally bore
interest at 9% per annum with all amounts due on November 15, 1995.
Pursuant to an agreement between the stockholders and the Company, on April
7, 1994, the effective date of the IPO, the terms of the notes payable were
changed as follows:
o Unpaid principal of $1,000,000 was contributed to the Company as a capital
contribution.
o The final due dates were changed from November 15, 1995 to April 7, 1999,
subject to certain conditional prepayment provisions (subsequently
converted to common stock-see paragraph below).
o The interest rate was changed, prospectively, from 9% to 6 1/2 %.
o Accrued interest of $264,959 was added to the unpaid principal balances of
the notes payable. Subse quently, interest was to be payable semiannually.
F-9
<PAGE>
TURBOCHEF, INC.
Notes to Financial Statements - (Continued)
(4) Transactions With Stockholders - (Continued)
On March 15, 1995, a major stockholder and Chairman of the Board of Directors
of the Company exchanged outstanding indebtedness and accrued interest
aggregating $1,144,730 for 457,892 shares of common stock of the Company. In
addition, the stockholder received an option to purchase 600,000 shares of
the common stock of the Company at $2.50 per share. The option price was
greater than the market price of the Company's common stock on the date of
grant. The options have a five year term and are exercisable beginning March
1996.
(b) Stock Issuance
In June 1995, a principal stockholder and officer of the Company made a
contribution to the capital of the Company in the amount of $800,000 by
purchasing directly from the Company 118,518 shares of the common stock of
the Company at $6.75 per share.
(c) Stock Option Exercise
During 1995, a major stockholder and Chairman of the Board of Directors of
the Company exercised options to purchase 200,000 shares of the common stock
of the Company at $2.50 per share. (d) Advances from Stockholders During the
period from January 1, 1994 through April 6, 1994, approximately $305,000 was
advanced to the Company by two principal stockholders. The advances bore
interest at prime plus 2%. The advances and accrued interest were paid in
April 1994 with proceeds from the IPO.
(5) LEASE COMMITMENTS
The Company is obligated under certain noncancelable leases for office space
and equipment, the majority of which have remaining terms of less than one
year. Obligations for office space which extends beyond a year are $87,472 in
1996 and $80,183 in 1997. Rent expense was $34,667 (unaudited), $33,619
(unaudited), $122,033 and $154,062 for the three-month periods ended March
31, 1996 and 1995 and the years ended December 31, 1995 and 1994,
respectively.
(6) INCOME TAXES
Actual income tax benefit differs from the "expected" income tax benefit
(computed by applying the U.S. federal corporate tax rate of 34% to loss
before income taxes) as follows:
<TABLE>
<CAPTION>
Three months Years ended
ended March 31 December 31
--------------------------- ----------------------------
1996 1995 1995 1994
------------ ----------- ----------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Computed "expected" tax benefit ............ $(123,927) (176,687) (538,991) (1,081,716)
Research and development credit ............ (6,299) (7,665) (22,253) (70,000)
Other ...................................... 3,226 4,352 17,444 11,916
Change in the valuation allowance for losses for
which there is no expected tax benefit .... 127,000 180,000 543,800 1,139,800
------------ ----------- ----------- -------------
$ -- -- -- --
============ =========== =========== =============
</TABLE>
F-10
<PAGE>
TURBOCHEF, INC.
Notes to Financial Statements - (Continued)
(6) Income Taxes - (Continued)
The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities are presented below:
<TABLE>
<CAPTION>
December 31
March 31, ------------------------------
1996 1995 1994
------------- ------------- -------------
(unaudited)
<S> <C> <C> <C>
Deferred tax assets:
Intangibles principally due to differences in amortization $ 2,000 8,000 12,000
Research and development credit carryforwards ......... 14,000 70,000 79,000
Net operating loss carryforwards ...................... 2,037,000 1,852,000 1,318,200
------------- ------------- -------------
Total gross deferred tax assets ...................... 2,053,000 1,930,000 1,409,200
Less valuation allowance .............................. (2,050,000) (1,923,000) (1,379,200)
------------- ------------- -------------
Net deferred tax assets .............................. 3,000 7,000 30,000
------------- ------------- -------------
Deferred tax liabilities:
Prepaid expenses ...................................... $ -- (2,000) (23,000)
Equipment principally due to difference in depreciation . (3,000) (5,000) (7,000)
------------- ------------- -------------
Total gross deferred tax liabilities ............... (3,000) (7,000) (30,000)
------------- ------------- -------------
Net .............................................. $ -- -- --
============= ============= =============
</TABLE>
In assessing the realizability of deferred income tax assets, management
considers whether it is more likely than not that some portion or all of
the deferred income tax assets will not be realized. The ultimate
realization of deferred income tax assets is dependent upon the generation
of future taxable income during the periods in which those temporary
differences become deductible. Due to the historical operating results of
the Company, management is unable to conclude on a more likely than not
basis that deferred income tax assets will be realized.
At December 31, 1995, the Company has net operating loss carryforwards and
research and development credit carryforwards for federal income tax
purposes of $5,447,000 and $70,000, respectively, which are available to
offset future Federal taxable income, if any, through 2010.
(7) STOCKHOLDERS' EQUITY
(a) Authorized Shares of Common Stock
Effective immediately prior t o April 7, 1994, the effective date of the
Prospectus relating to the Company's IPO, the Company filed an amendment to
the Company's Certificate of Incorporation increasing its authorized shares
of common stock from 5,000 to 20,000,000 shares.
(b) Stock Splits
In December 1995, the Board of Directors of the Company approved a
two-for-one stock split for holders of record on December 29, 1995.
Effective immediately prior to April 7, 1994, the effective date of the
Prospectus relating to the Company's IPO, the Company effected a
1,767.2266-for-one stock split.
The stock splits have been reflected retroactively to all periods presented
in the accompanying financial statements and, accordingly, all applicable
dollar, share and per share amounts have been restated to reflect the stock
splits.
(c) Stock Options
Pursuant to agreements dated as of August 10, 1993, certain major
stockholders of the Company granted options to purchase an aggregate of
161,504 shares of the Company's common stock owned by such
F-11
<PAGE>
TURBOCHEF, INC.
Notes to Financial Statements - (Continued)
(7) Stockholders' Equity - (Continued)
stockholders, at a price of $1.25 per share, to nine persons employed or
retained by either the Company or another entity which had performed
engineering and development work for the Company (see note 9). In
November 1993, 13 persons previously employed by such other entity became
employees of the Company. The options are exercisable over a period
commencing April 7, 1994 and ending August 10, 1998 subject to certain
exceptions.
In January 1994, the Company adopted the 1994 Stock Option Plan ("the
Stock Option Plan"), which was amended in March 1994 and June 1995,
pursuant to which stock options covering an aggregate of 2,400,000 shares
of the Company's common stock may be granted. Options awarded under the
Stock Option Plan (i) are generally granted at prices which equate to or
are above fair market value on the date of the grant; (ii) generally
become exercisable over a period of one to three years; and (iii)
generally expire five years subsequent to award. A summary of stock
option activity follows:
<TABLE>
<CAPTION>
Exercise
Shares price
----------- --------------
<S> <C> <C>
Options granted .................................. 1,075,000 $2.50
Options cancelled ................................ (400,000) 2.50
----------- --------------
Options outstanding at December 31, 1994 ......... 675,000 2.50
Options granted .................................. 1,084,666 1.50-13.25
Options exercised ................................ (200,000) 2.50
Options cancelled ................................ (59,000) 1.50
----------- --------------
Options outstanding at December 31, 1995 ......... 1,500,666 1.50-13.25
Options granted (unaudited) ...................... 539,000 10.75-13.20
Options exercised (unaudited) .................... (1,000) 2.50
Options cancelled (unaudited) .................... (120,000) 13.25
----------- --------------
Options outstanding at March 31, 1996 (unaudited) . 1,918,666 $1.50-13.20
=========== ==============
Options exercisable at March 31, 1996 (unaudited) . 1,143,333 $ 1.50-2.50
=========== ==============
Shares available for future grant (unaudited) .... 280,334
===========
</TABLE>
In addition, the Company has issued options to purchase 262,500 shares of
common stock of the Company at $2.50 per share to Acadia (see note 3).
(d) Stock Issuances
In January 1994, the Company entered into stock purchase agreements with
private investors. Under the terms of these agreements, the Company issued
and sold 68,000 shares of common stock for an aggregate purchase price of
$102,000 ($1.50 per share).
(8) FORFEITED SALES DEPOSIT
During 1995, the Company recognized income of $132,000 which had
previously been deposited with the Company for the production of 25 ovens
under a production agreement originated in 1992. Such ovens were completed
in 1993 but were not delivered since the purchaser discontinued the
development of the restaurant concept for which these units were designed.
The Company had previously expensed the cost to produce the 25 units and
management of the Company now believes that no further obligations exist
under the production agreement.
F-12
<PAGE>
TURBOCHEF, INC.
Notes to Financial Statements
- (Continued)
(9) RELATED PARTY TRANSACTIONS
Since inception of the Company, an entity (which was founded and is
principally owned by the Company's former Vice President -- Engineering) has
performed engineering and development work for the Company. The Company paid
the entity fees of $36,211 (unaudited) and $17,143 (unaudited) during the
three-month periods ended March 31, 1996 and 1995, respectively, and $110,603
and $157,079 during the years ended December 31, 1995 and 1994, respectively,
relating primarily to research and development charges incurred on behalf of
the Company.
(10) CONCENTRATION OF BUSINESS RISKS
At December 31, 1995, the Company's accounts receivable from one customer in
the United Kingdom was $450,000. Payments on this account were received as
required by stated credit terms through February 14, 1996. For the year ended
December 31, 1995, revenues from the same customer in the United Kingdom
represented $850,000 or 69.2% of the total revenues of the Company. The loss
of this customer, in the absence of significant additional customers, would
have a material adverse effect on the Company.
At December 31, 1995, substantially all of the production of the Company's
product was performed by a single manufacturer. Management believes that
other manufacturers could provide similar production on comparable terms. A
change in manufacturers, however, could cause a delay in manufacturing and
possible loss of sales, which would adversely affect operating results.
F-13
<PAGE>
A TURBOCHEF OVEN
MAKES COOKING AN ENTIRE MENU FAST AND SIMPLE
- ------------------------------------------------------------------------------
[PICTURE OF TURBOCHEF OVEN]
The Company believes that the characteristics of most food items cooked in a
TurboChef oven (including their flavor, texture and appearance) are not only
superior in quality to those achieved using other high-speed ovens, or microwave
ovens, but are also equal in quality or, in the case of many food items (such as
rack of lamb, beef Wellington, and most fish and seafood items) superior in
quality to those achieved using conventional ovens and grills.
[Picture of Turbo Chef oven Key-pad with four arrows pointing to items on the
key-pad. At the end of the arrows are the captions: "Self-diagnostic
Indicators", "Product "Load" Instructions", "Push Button Ease" and "Program up
to 108 Menu Items."
The Company's proprietary computerized control platform monitors the cooking
process and automatically adjusts cook settings during the cooking cycle. In
addition, the TurboChef oven incorporates easy-to-use programmable settings
which provide foodservice operators with the option of pre-setting and
customizing their own cook settings.
TURBOCHEF OVEN SAMPLE COOKING TIMES
<TABLE>
FROM REFRIGERATED STATE FROM FROZEN STATE
- ------------------------------------------------------------------ ----------------------------------
<S> <C> <C> <C> <C> <C>
Nachos 30 sec. Ravioli Plate 35 sec. Egg Rolls 65 sec.
16' Cheese Pizza 80 sec Bread Sticks 15 sec. Chicken Nuggets 45 sec.
16' Pepperoni Pizza 85 sec. Filled Pastry 55 sec. Chicken Hot Wings 75 sec.
16' Deluxe Pizza 90 sec. Cinnamon Rolls 40 sec. Breaded Chicken Tenders 60 sec.
(3) 8" Pizzas 75 sec. Shrimp Kabob 45 sec. Chicken Pot Pie 80 sec.
Chicken Breasts 55 sec. Shrimp Scampi 35 sec. Chicken Cordon Bleu 60 sec.
Fish Fillets 60 sec Assorted Vegetables 90 sec. Mozzarella Sticks 60 sec.
Hot Dogs 40 sec. Stuffed Mushrooms 45 sec. Breaded Ravioli 50 sec.
Sausage Links 40 sec. Lasagna 70 sec. French Fries 55 sec.
Chicken Parmesan 65 sec. Omelet 35 sec. -----------------------------------
8oz. Strip Steak 70 sec. Reuben Sandwiches 45 sec. TurboChef ovens are intended to allow foodservice
Hamburgers 55 sec. Sub Sandwiches 30 sec. operators the flexibility to "cook-to-order" a
Pork Chops 75 sec. Sausage & Egg Biscuits 30 sec. variety of food items at speeds which the Company
Fajita Plate 65 sec. 1/4 Bone-in-Chicken 2.5 min. believes are faster than those permitted by
Rack of Lamb 2 min. 1/2 Bone-in-Chicken 3.5 min. conventional commercial ovens and grills,
18 oz. Beef Tenderloin 3 min. Baked Potato 3.5 min. microwave ovens, and other currently available
- ------------------------------------------------------------------- high speed ovens.
</TABLE>
<PAGE>
=============================================================================
No dealer, salesperson or any other person has been authorized to give
information or make any representation in connection with this offering other
than as contained in this Prospectus, and, if given or made, such information
or representation must not be relied upon as having been authorized by the
Company, the Underwriter or any selling stockholder. This Prospectus does not
constitute an offer to sell, or a solicitation of an offer to buy, any
security other than the securities offered by this Prospectus, or an offer to
sell, or a solicitation of an offer to buy, any securities by any person in
any jurisdiction in which such offer or solicitation is not authorized or
would be unlawful. Neither the delivery of this Prospectus nor any sale
hereunder shall, under any circumstances, create any implication that the
information herein is correct as of any time subsequent to the date of this
Prospectus.
------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary ............................. 3
Risk Factors ................................... 7
Use of Proceeds ................................ 16
Price Range of Common Stock .................... 17
Dividend Policy ................................ 18
Dilution ....................................... 18
Capitalization ................................. 19
Selected Financial Data ........................ 20
Management's Discussion and Analysis of Financial
Condition and Results of Operations ........... 21
Business ....................................... 26
Management ..................................... 39
Principal Stockholders ......................... 43
Certain Transactions ........................... 45
Description of Securities ...................... 47
Shares Eligible for Future Sale ................ 48
Underwriting ................................... 49
Selling Stockholder and Plan of Distribution 50
Legal Matters .................................. 51
Experts ........................................ 51
Additional Information ......................... 51
Index to Financial Statements .................. F-1
</TABLE>
=============================================================================
<PAGE>
=============================================================================
800,000 SHARES
LOGO
COMMON STOCK
------
PROSPECTUS
------
WHALE SECURITIES CO., L.P.
June 12, 1996
=============================================================================
