<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
- - --------------------------------------------------------------------------------
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
- - ---------- EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
- - ---------- EXCHANGE ACT OF 1934
For the transition period from to
----------- ----------
- - --------------------------------------------------------------------------------
Commission File Number: 0-23478
---------
TURBOCHEF, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 48-1100390
- - ------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number
10500 Metric Drive, Suite 128
Dallas, Texas 75243
----------------------------------------
(Address of principal executive offices)
(214) 341-9471
-----------------------------------------------
(Issuer's telephone number including area code)
- - --------------------------------------------------------------------------------
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past ninety days.
Yes X No
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date: November 1, 1996 13,745,578
1
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TURBOCHEF, INC.
FORM 10-QSB
Table of Contents
Page
----
Part I Financial Information
Item 1 Financial Statements
Balance Sheets as of September 30, 1996 and December 31, 1995 3
Statements of Operations for the three months and nine months
ended September 30, 1996 and 1995 4
Statement of Stockholders' Equity for the nine months ended
September 30, 1996. 5
Statements of Cash Flows for the nine months ended
September 30, 1996 and 1995 6
Notes to Financial Statements 7
Item 2 Management's Discussion and Analysis or Plan of Operation 8
Part II Other Information
Item 1 Legal Proceedings 13
Item 2 Changes in Securities 13
Item 3 Defaults Upon Senior Securities 13
Item 4 Submission of Matters to a Vote of Security Holders 13
Item 5 Other Information 13
Item 6 Exhibits and Reports on Form 8-K 13
2
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Part I - Item 1 FINANCIAL STATEMENTS
TURBOCHEF, INC.
Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
------------- ------------
1996 1995
---- ----
Assets (Unaudited) (Note)
------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,944,516 $ 642,883
Accounts receivable 216,852 572,299
Inventories 688,596 539,083
Prepaid expenses 204,410 98,782
Marketable securities 7,366,506 -
----------- -----------
Total current assets 10,420,880 1,853,047
Property and equipment:
Leasehold Improvements 58,616 37,818
Furniture and fixtures 105,926 56,360
Equipment 349,651 305,718
----------- -----------
514,193 399,896
Less accumulated depreciation (206,984) (154,330)
----------- -----------
Net property and equipment 307,209 245,566
Deferred offering costs - 48,529
Other assets 107,439 70,728
----------- -----------
$10,835,528 $ 2,217,870
=========== ===========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Notes payable to stockholders $ - $ 285,000
Accounts payable 447,309 404,293
Accrued expenses 53,376 35,314
Sales deposits 76,000 45,250
----------- -----------
Total current liabilities 576,685 769,857
Stockholders' equity:
Common stock, $.01 par value. Authorized 20,000,000
shares. Issued 13,745,578 and 12,867,078 137,456 128,671
Additional paid-in capital 21,493,138 10,992,534
Accumulated deficit (11,208,509) (9,673,192)
Note receivable (163,242) -
----------- -----------
Total stockholders' equity 10,258,843 1,448,013
----------- -----------
$10,835,528 $ 2,217,870
=========== ===========
</TABLE>
Note: The balance sheet at December 31, 1995 was derived from audited financial
statements but does not include all disclosures required by generally accepted
accounting principles.
See accompanying notes to financial statements.
3
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TURBOCHEF, INC.
Statements of Operations
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Net sales $ 264,236 $ 294,830 $ 2,254,285 $ 502,783
Other revenue - 5,000 8,120 65,000
------------- ----------- ------------ -----------
264,236 299,830 2,262,405 567,783
Costs and expenses:
Cost of goods sold 202,286 245,587 1,692,001 407,419
Research and development expenses 156,183 80,716 451,177 302,269
Selling, general and administrative
expenses 774,012 373,963 1,795,934 1,106,464
Interest (income) expense, net (129,866) (3,594) (141,390) 19,200
------------- ----------- ------------ -----------
Total costs and expenses 1,002,615 696,672 3,797,722 1,835,352
------------- ----------- ------------ -----------
Net loss $ (738,379) $ (396,842) $ (1,535,317) $ (1,267,569)
============= =========== ============ ===========
Loss per common share $ (0.05) $ (0.03) $ (0.12) $ (0.10)
============= =========== ============ ===========
Weighted average number of
common shares and common share
equivalents outstanding 13,732,708 12,747,078 13,199,071 12,349,636
============= =========== ============ ===========
</TABLE>
See accompanying notes to financial statements.
4
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TURBOCHEF, INC.
Statement of Stockholders' Equity
(UNAUDITED)
<TABLE>
<CAPTION>
Shares of Additional
Common Common Paid-In Accumulated Note
Stock Stock Capital Deficit Receivable Total
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 12,867,078 $128,671 $10,992,534 $(9,673,192) $ - $ 1,448,013
Exercise of stock options 76,500 765 180,285 - (163,242) 17,808
Net proceeds from public offering
June 1996 ($15.00 per share) 800,000 8,000 10,292,509 - - 10,300,509
Sale of warrants June 1996 - - 80 - - 80
Stock issued as compensation to
a member of the Board of
Directors 2,000 20 27,730 - - 27,750
Net loss - - - (1,535,317) - (1,535,317)
-----------------------------------------------------------------------------------
Balance, September 30, 1996 13,745,578 $137,456 $21,493,138 $(11,208,509) $(163,242) $10,258,843
===================================================================================
</TABLE>
See accompanying notes to financial statements.
5
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TURBOCHEF, INC.
Statements of Cash Flows
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,535,317) $ (1,267,569)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 59,223 55,620
Non cash director compensation 6,937 -
Interest added to principal 21,070
Decrease (increase) in accounts receivable 355,447 (121,572)
(Increase) decrease in inventories (149,513) 152,060
Increase in prepaid expenses (84,815) (6,561)
Decrease (increase) in other assets 15 (189)
Increase in accounts payable 43,016 130,780
Increase (decrease) in accrued expenses 18,062 (11,564)
Increase in sales deposits 30,750 49,500
------------ ------------
Net cash used in operating activities (1,256,195) (998,425)
------------ ------------
Cash flows from investing activities:
Purchase of marketable securities (7,366,506) -
Purchase of equipment (114,297) (20,192)
Additions to intangibles (43,295) -
------------ ------------
Net cash used in investing activities (7,524,098) (20,192)
------------ ------------
Cash flows from financing activities:
Proceeds from note payable - 140,000
Proceeds from notes payable to stockholders 285,000 -
Repayment of notes payable to stockholders (570,000) (21,232)
Exercise of stock options 17,808 200,000
Issuance of common stock - 800,000
Proceeds from public offering 12,000,000 -
Proceeds from sale of warrants 80 -
Offering costs (1,650,962) (48,509)
------------ -------------
Net cash provided by financing activities 10,081,926 1,070,259
------------ -------------
Net increase in cash and cash equivalents 1,301,633 51,642
Cash and cash equivalents at beginning of period 642,883 617,495
------------ -------------
Cash and cash equivalents at end of period $ 1,944,516 $ 669,137
============ =============
</TABLE>
See accompanying notes to financial statements.
6
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TURBOCHEF, INC.
Notes to Financial Statements
(UNAUDITED)
September 30, 1996
1. The financial statements of TurboChef, Inc. (the "Company") included herein
have been prepared pursuant to the rules and regulations of the Securities
and Exchange Commission (SEC) and have not been examined by independent
public accountants. In the opinion of management, all adjustments (which
consisted only of normal recurring accruals) necessary to present fairly the
financial position and results of operations have been made. Pursuant to SEC
rules and regulations, certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted from these
statements unless significant changes have taken place since the end of the
most recent fiscal year. The December 31, 1995 balance sheet was derived
from audited financial statements but does not include all disclosures
required by generally accepted accounting principles. Investments in
marketable securities at September 30, 1996 are entirely classified as held-
to-maturity under Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities, and are
stated at amortized cost as the Company has the positive intent and ability
to hold such securities until maturity. The Company believes that other
disclosures contained herein, when read in conjunction with the financial
statements and notes included in the Company's Annual Report for the fiscal
year ended December 31, 1995 on Form 10-KSB, are adequate to make the
information presented not misleading. It is suggested, therefore, that these
statements be read in conjunction with the statements and notes included in
the aforementioned Form 10-KSB. The results of operations for the nine
months ended September 30, 1996 are not necessarily indicative of the results
to be expected for the full year.
2. Loss per share is determined based on the weighted average number of common
and dilutive common equivalent shares outstanding during each period. Stock
options were antidilutive during each period.
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 the nine
month period ended September 30, 1995.
3. In June 1996 the Company consummated an underwritten public offering ("the
June 1996 Offering") of 800,000 shares of its common stock resulting in
aggregate proceeds of approximately $10,301,000, net of the underwriter's
discount and other offering costs.
4. On December 29, 1995, the Company effected a two-for-one stock split. The
stock split has been reflected in all periods reported upon in the financial
statements and, accordingly, all applicable dollar, share and per share
amounts have been restated to reflect the stock split.
5. On March 15, 1995, pursuant to an agreement between the majority stockholder
and the Company, outstanding indebtedness and accrued interest aggregating
$1,144,730 to such stockholder was exchanged 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 the grant. The options have a five year term and
became exercisable on March 15, 1996.
6. 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
7
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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 shares of
Common Stock at $2.50 per share.
7. 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.
8. 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.
9. 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.
10. On March 30, 1996, Mr. Bogatin and Mr. McKee loaned the Company the sums of
$200,000 and $85,000, respectively. These loans were evidenced by
promissory notes bearing interest at the rate of 6.5% per annum. Each of
these notes was payable upon demand. These loans were made to satisfy
certain eligibility requirements in order for the Company's Common Stock to
continue to be listed on the NASDAQ SmallCap Market ("NASDAQ"). These notes
were repaid in full (an aggregate of $288,796, including accrued interest)
prior to the consummation of the June 1996 Offering.
Part I - Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
General
Although the Company was organized in April 1991, it was not until March
1994 that it began the initial commercial introduction of the Model D-1
TurboChef oven, its first commercial product, and not until June 1995 that
it entered into a purchase contract with Whitbread PLC ("Whitbread"), 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 operating losses since its inception. The
8
<PAGE>
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 report.
Results of Operations:
Three Months Ended September 30, 1996 Compared to Three Months Ended September
------------------------------------------------------------------------------
30, 1995
--------
Revenues for the three months ended September 30, 1996 were $264,236, a
decrease of $35,594, when compared to revenues of $299,830 for the three
months ended September 30, 1995. This decrease is primarily attributable to
lower oven unit sales to Whitbread during 1996, offset by higher per unit
selling prices and greater consumable parts sales to support the previously
installed Whitbread ovens. The 1995 revenues include $5,000 from a customer of
the Company for licensing of the Company's proprietary dough-setting process.
Cost of sales for the three months ended September 30, 1996 was $202,286, a
decrease of $43,301 when compared to $245,587 for cost of sales for the three
months ended September 30, 1995. This decrease is a result of a decrease in
oven unit sales and lower per unit oven costs, offset by greater parts sales.
Gross profit on sales for the three months ended September 30, 1996
increased $7,707 to $61,950 when compared to gross profit on sales of $49,243
during the three months ended September 30, 1995. The increase is primarily a
result of higher per unit selling prices, lower per unit oven costs and
greater parts sales, offset by lower oven unit sales.
Gross margin for the three months ended September 30, 1996 was 23% of sales
compared to 17% for the three months ended September 30, 1995. The percentage
increase is attributable primarily to the higher oven unit selling price on
small quantity purchases, a reduced per unit manufacturing cost as a result of
increased production volume and cost reduction programs implemented during the
fourth quarter of 1995, as compared to lower per unit pricing during the same
period in 1995.
Research and development expenses for the quarter ended September 30, 1996
increased $75,467, to $156,183 from research and development expenses of
$80,716 for the quarter ended September 30, 1995. This increase is primarily
attributable to increased staffing and outside engineering costs and higher
parts costs associated with development of the prototype of the residential
version of the TurboChef oven and other new products.
Selling, general and administrative expenses for the quarter ended September
30, 1996 increased $400,049, to $774,012 from comparable expenses of $373,963
for the same period in 1995. This increase is attributable to staff
additions, additional travel associated with the Company's international
customers, field upgrade parts costs and the costs associated with terminating
one contract manufacturer and establishing two new contract manufacturers.
Net interest income for the three months ended September 30, 1996 was
$129,866, an increase of $126,272 from net interest income of $3,594 for the
three months ended September 30, 1995. The increase is primarily attributable
to the income received on the investment of the net proceeds from the June
1996 Offering.
As a result, for the three months ended September 30, 1996, the Company
incurred a net loss of $738,379 compared to a net loss of $396,842 for the
same period in 1995.
9
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Nine Months Ended September 30, 1996 Compared to Nine Months Ended September
----------------------------------------------------------------------------
30, 1995
--------
Revenues for the nine months ended September 30, 1996 were $2,262,405, an
increase of $1,694,622, when compared to revenues of $567,783 for the nine
months ended September 30, 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. The 1995 revenues include $60,000 received from a customer of
the Company for adopting and/or modifying the TurboChef oven to meet the
customer's unique requirements.
Cost of sales for the nine months ended September 30, 1996 was $1,692,001,
an increase of $1,284,582 when compared to $407,419 for cost of sales for the
nine months ended September 30, 1995. This increase is consistent with greater
oven unit sales.
Gross profit on sales for the nine months ended September 30, 1996 increased
$466,920 to $562,284 when compared to gross profit on sales of $95,364 during
the nine months ended September 30, 1995. The increase is a result of the
increase in oven unit sales, primarily to Whitbread.
Gross margin for the nine months ended September 30, 1996 was 25% of sales
compared to 19% for the nine months ended September 30, 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 on small quantity purchases during the prior year period.
Research and development expenses for the nine months ended September 30,
1996 increased $148,908, to $451,177 from research and development expenses of
$302,269 for the nine months ended September 30, 1995. This increase is
primarily attributable to increased staffing and outside engineering costs and
higher parts costs associated with development of the prototype of the
residential version of the TurboChef oven and other new products.
Selling, general and administrative expenses for the nine months ended
September 30, 1996 increased $689,470, to $1,795,934 from comparable expenses
of $1,106,464 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, the addition of a marketing and sales consultant, field
upgrade parts costs and the costs associated with terminating one contract
manufacturer and establishing two new contract manufacturers.
Net interest income for the nine months ended September 30, 1996 was
$141,390, an increase of $160,590 from net interest expense of $19,200 for the
nine months ended September 30, 1995. The increase is primarily attributable
to the income received on the investment of the net proceeds from the June
1996 Offering and 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.
As a result, for the nine months ended September 30, 1996, the Company
incurred a net loss of $1,535,317 compared to a net loss of $1,267,569 for the
same period in 1995.
Liquidity and Capital Resources
The Company's capital requirements in connection with its product and
technology development and marketing efforts have been and will continue to be
significant. In addition, capital is required to operate and expand the
Company's operations. Since its inception, the Company has been substantially
dependent on loans and capital contributions from its principal stockholders,
private placements of its securities, the proceeds from the initial public
offering of common stock in April 1994 ( "the April 1994 IPO") and the June
1996 Offering to fund its activities.
10
<PAGE>
At September 30, 1996, the Company had working capital of $9,844,195 as
compared to working capital of $1,083,190 at December 31, 1995. The
$8,761,005 working capital increase from December 31, 1995 resulted primarily
from the net proceeds received from the June 1996 Offering of $10,251,980
offset by the operating loss of $1,535,317 incurred by the Company during the
nine months ended September 30, 1996. For the nine months ended September 30,
1996, accounts receivable turnover improved to 9.1 from 6.2 during the nine
months ended September 30, 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 used in operating activities was $1,256,195 for the nine months ended
September 30, 1996 as compared to cash used in operating activities of
$998,425 for the nine months ended September 30, 1995 for an increase of
$257,770. The increase is a result of a $267,748 increase in operating
losses, an increase in inventories of $301,573, an increase in prepaid
expenses of $78,254, offset by a $477,019 decrease in accounts receivable.
Cash used in investing activities for the nine months ended September 30, 1996
was $7,524,098 as a result of the $7,366,506 purchase of marketable securities
with a portion of the net proceeds of the June 1996 Offering along with
equipment purchases and patent costs. Cash provided by financing activities
was $10,081,926 for the nine months ended September 30, 1996, which represents
primarily the net proceeds from the June 1996 Offering of $10,349,038 and the
proceeds from notes payable to stockholders of $285,000, offset by the
repayment of notes payable to stockholders of $570,000. At September 30, 1996,
the Company had cash and cash equivalents of $1,944,516, compared to cash and
cash equivalents of $642,883 at December 31, 1995.
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 shares of Common Stock at $2.50 per share.
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
11
<PAGE>
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.
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.
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.
On March 30, 1996, Mr. Bogatin and Mr. McKee loaned the Company the sums of
$200,000 and $85,000, respectively. These loans were evidenced by promissory
notes bearing interest at the rate of 6.5% per annum. Each of these notes was
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. These notes were repaid in full (an aggregate of $288,796,
including accrued interest) prior to the consummation of the June 1996
Offering.
In June 1996 the Company consummated an underwritten public offering of
800,000 shares of its common stock resulting in aggregate proceeds of
approximately $10,301,000, net of the underwriter's discount and other
offering costs.
The Company plans to utilize the proceeds from the June 1996 Offering 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 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 the next two years.
In the event that the Company's plans change, or its assumptions change or
prove to be incorrect, or 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 from Messrs. Bogatin and McKee to provide financial support
(if and as required) to enable the Company to meet its obligations 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
the June 1996 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. There can thus 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.
12
<PAGE>
Part II - Other Information
Item 1 - Legal Proceedings
None
Item 2 - Change in Securities
None
Item 3 - Defaults Upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
None
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
Exhibit
(a) Number Description of Document
------ -----------------------
11 Statement re: Computation of Per Share Earnings (not required
because the relevant computations can be clearly determined
from material contained in the financial statements included
herein).
(b) No reports on Form 8-K were filed during the quarterly period ended
September 30, 1996.
13
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
TURBOCHEF, INC.
November 14, 1996 /s/ Philip R. McKee
--------------------
Philip R. McKee
President, Chief Executive Officer
(Principal Executive Officer)
November 14, 1996 /s/ Dennis J. Jameson
----------------------
Dennis J. Jameson
Executive Vice President, Chief Financial Officer
(Principal Financial Officer)
14
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,944,516
<SECURITIES> 7,366,506
<RECEIVABLES> 216,852
<ALLOWANCES> 0
<INVENTORY> 688,596
<CURRENT-ASSETS> 10,420,880
<PP&E> 514,193
<DEPRECIATION> 206,984
<TOTAL-ASSETS> 10,835,528
<CURRENT-LIABILITIES> 576,685
<BONDS> 0
0
0
<COMMON> 137,456
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 10,835,528
<SALES> 0
<TOTAL-REVENUES> 2,262,405
<CGS> 1,692,001
<TOTAL-COSTS> 3,939,112
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<INCOME-PRETAX> (1,535,317)
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