<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 1O-QSB
- - --------------------------------------------------------------------------------
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- - -------- ACT OF 1934
For the quarterly period ended June 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 chanter)
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
(lssuer's telephone number including area code)
- - --------------------------------------------------------------------------------
Check whether the issuer (1) filed all reports required to be filed by Section 1
3 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: August 9,1996 13,730,723
1
<PAGE>
TURBOCHEF, INC.
FORM 1O-QSB
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I FINANCIAL INFORMATION
ITEM 1 Financial Statements
Balance Sheets as of June 30, 1996 and December 3l, 3
1995
Statements of Operations for the three months and six 4
months ended June 30, 1996 and 1995
Statement of Stockholders' Equity for the six months 5
ended June 30, 1996.
Statements of Cash Flows for the six months ended 6
June 30, 1996 and 1995
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
</TABLE>
2
<PAGE>
PART I - ITEM 1 FINANCIAL STATEMENTS
TURBOCHEF, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
----------- ------------
1996 1995
----------- ------------
ASSETS (UNAUDITED) (NOTE)
------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 10,332,356 $ 642,883
Accounts receivable 366,620 572,299
Inventories 441,438 539,083
Prepaid expenses 101,549 98,782
------------ -----------
Total current assets 11,241,963 1,853,047
Property and equipment:
Leasehold Improvements 52,542 37,818
Furniture and fixtures 61,183 56,360
Equipment 332,597 305,718
------------ -----------
446,322 399,896
Less accumulated depreciation (194,188) (154,330)
------------ -----------
Net property and equipment 252,134 245,566
Deferred offering costs - 48,529
Other assets 107,532 70,728
------------ -----------
$ 11,601,629 $ 2,217,870
============ ===========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
- - ------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Current liabilities:
Notes payable to stockholders $ - $ 285,000
Accounts payable 416,899 404,293
Accrued expenses 105,188 35,314
Sales deposits 89,650 45,250
------------ -----------
Total current liabilities 611,737 769,857
Stockholders' equity:
Common stock, $.01 par value.
Authorized 20,000,000 shares.
Issued 13,670,078 and
12,867,078 136,701 128,671
Additional paid-in capital 21,323,321 10,992,534
Accumulated deficit (10,470,130) (9,673,192)
------------ -----------
Total stockholders' equity 10,989,892 1,448,013
------------ -----------
$ 11,601,629 $ 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
<PAGE>
TURBOCHEF, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
----------------------------- -----------------------------
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Net sales $ 941,161 $ 42,555 $ 1,990,049 $ 207,953
Other revenue 3,000 60,000 8,120 60,000
----------- ----------- ----------- -----------
944,161 102,555 1,998,169 267,953
Costs and expenses:
Cost of goods sold 693,284 28,915 1,489,715 161,832
Research and development expenses 174,878 75,393 294,994 221,553
Selling, general and administrative expenses 523,018 348,100 1,021,922 732,501
Interest (income) expense, net (14,572) 1,207 (11,524) 22,794
----------- ----------- ----------- -----------
Total costs and expenses 1,376,608 453,615 2,795,107 1,138,680
----------- ----------- ----------- -----------
Net loss $ (432,447) $ (351,060) $ (796,938) $ (870,727)
=========== =========== =========== ===========
Loss per common share $ (0.03) $ (0.03) $ (0.06) $ (0.07)
=========== =========== =========== ===========
Weighted average number of common
shares and common share
equivalents outstanding 12,991,265 12,349,178 12,929,320 12,147,622
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
TURBOCHEF, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES OF ADDITIONAL
COMMON COMMON PAID-IN ACCUMULATED
STOCK STOCK CAPITAL DEFICIT TOTAL
--------------------------------------------------------------
<S> <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 1,000 10 2,490 - 2,500
Net proceeds from public offering
June1996 ($15.00 per share) 800,000 8,000 10,300,487 - 10,308,487
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 - - - (796,938) (796,938)
---------- -------- ----------- ------------ -----------
Balance, June 30,1996 13,670,078 $136,701 $21,323,321 $(10,470,130) $10,989,892
========== ======== =========== ============ ===========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
TURBOCHEF, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
1996 1995
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (796,938) $ (870,727)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 44,279 37,080
Interest added to principal - 21,070
Decrease (increase) in accounts receivable 205,679 (10,332)
Decrease in inventories 97,645 138,335
Decrease in prepaid expenses 24,983 1,427
Decrease (increase) in other assets 2,070 (189)
Increase (decrease) in accounts payable 12,606 (43,762)
Increase (decrease) in accrued expenses 69,874 (10,276)
Increase in sales deposits 44,400 60,000
----------- ----------
Net cash used in operating activities (295,402) (677,374)
----------- ----------
Cash flows from investing activities:
Purchase of equipment (46,426) -
Additions to intangibles (43,295) -
----------- ----------
Net cash used in investing activities (89,721) -
----------- ----------
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 2,500 200,000
Issuance of common stock - 800,000
Proceeds from public offering 12,000,000 -
Proceeds from sale of warrants 80 -
Offering costs (1,642,984) -
----------- ----------
Net cash provided by financing activities 10,074,596 1,118,768
----------- ----------
Net increase in cash and cash equivalents 9,689,473 441,394
Cash and cash equivalents at beginning of period 642,883 617,495
----------- ----------
Cash and cash equivalents at end of period $10,332,356 $1,058,889
=========== ==========
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
TURBOCHEF, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
June 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. The Company believes
that the 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 six months ended June 30, 1996 are not necessarily indicative of the
results to be expected for the full year.
2. Loss per share is determined based on 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
six month period ended June 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 $10,308,000, 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 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
7
<PAGE>
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 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
8
<PAGE>
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 JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED JUNE 30, 1995
-----------------------------------------------------------------------------
Revenues for the three months ended June 30, 1996 were $944,161, an increase
of $841,606, when compared to revenues of $102,555 for the three months
ended June 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 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 three months ended June 30, 1996 was $693,284, an
increase of $664,369 when compared to $28,915 for cost of sales for the
three months ended June 30, 1995. This increase is consistent with greater
oven unit sales.
Gross profit on sales for the three months ended June 30, 1996 increased
$237,237 to $250,877 when compared to gross profit on sales of $13,640
during the three months ended June 30, 1995. The increase is a result of the
increase in oven unit sales, primarily to Whitbread.
Gross margin for the three months ended June 30, 1996 was 27% of sales
compared to 32% for the three months ended June 30, 1995. The percentage
decrease is attributable primarily to a reduced oven unit selling price
offered to Whitbread for a significant quantity of ovens, as compared to the
higher oven unit selling price on small quantity purchases during the prior
year period. 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.
Research and development expenses for the quarter ended June 30, 1996
increased 132%, or $99,485, to $174,878 from research and development
expenses of $75,393 for the quarter ended June 30, 1995. This increase is
primarily attributable to increased salary and outside engineering costs and
higher parts costs associated with development of the prototype of the
residential version of the TurboChef oven.
Selling, general and administrative expenses for the quarter ended June 30,
1996 increased 50%, or $174,918, to $523,018 from comparable expenses of
$348,100 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.
Net interest income for the three months ended June 30, 1996 was $14,572, an
increase of $15,779 from net interest expense of $1,207 for the three months
ended June 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 June 30, 1996, the Company incurred
a net loss of $432,447 compared to a net loss of $351,060 for the same
period in 1995.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
-------------------------------------------------------------------------
Revenues for the six months ended June 30, 1996 were $1,998,169, an increase
of $1,730,216, when compared to revenues of $267,953 for the six months
ended June 30, 1995. This increase is primarily attributable to greater oven
unit sales to Whitbread during 1996. During the first eight
9
<PAGE>
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 six months ended June 30, 1996 was $1,489,715, an
increase of $1,327,883 when compared to $161,832 for cost of sales for the
six months ended June 30, 1995. This increase is consistent with greater
oven unit sales.
Gross profit on sales for the six months ended June 30, 1996 increased
$454,213 to $500,334 when compared to gross profit on sales of $46,121
during the six months ended June 30, 1995. The increase is a result of the
increase in oven unit sales, primarily to Whitbread.
Gross margin for the six months ended June 30, 1996 was 25% of sales
compared to 22% for the six months ended June 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 six months ended June 30, 1996
increased 33%, or $73,441, to $294,994 from research and development
expenses of $221,553 for the six months ended June 30, 1995. This increase
is primarily attributable to increased salary and outside engineering costs
and higher parts costs associated with development of the prototype of the
residential version of the TurboChef oven.
Selling, general and administrative expenses for the six months ended June
30, 1996 increased 40%, or $289,421, to $1,021,922 from comparable expenses
of $732,501 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 partially offset by reduced public relations costs.
Net interest income for the six months ended June 30, 1996 was $11,524, an
increase of $34,318 from net interest expense of $22,794 for the six months
ended June 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 six months ended June 30, 1996, the Company incurred a
net loss of $796,938 compared to a net loss of $870,727 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.
At June 30, 1996, the Company had working capital of $10,630,226 as compared
to working capital of $1,083,190 at December 31, 1995. The $9,547,036
working capital increase from December 31, 1995 resulted primarily from the
net proceeds received from the June 1996 Offering of $10,357,016 offset by
the operating loss of $796,938 incurred by the Company during the six months
ended June 30, 1996. For the six months ended June 30, 1996, accounts
receivable turnover improved to 10.9 from 6.7 during the six months ended
June 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.
10
<PAGE>
Cash used in operating activities was $295,402 for the six months ended June
30, 1996 as compared to cash used in operating activities of $677,374 for
the six months ended June 30, 1995 for a decrease of $381,972. The decrease
is a result of a $73,789 decrease in operating losses, a decrease in
accounts receivable of $216,011 and a $136,518 increase in accounts payable
and accrued expenses. Cash used in investing activities for the six months
ended June 30, 1996 was $89,721 as a result of equipment purchases and
patent costs. Cash provided by financing activities was $10,074,596 for the
six months ended June 30, 1996, which represents primarily the net proceeds
from the June 1996 Offering of $10,357,016 and the proceeds from notes
payable to stockholders of $285,000, offset by the repayment of notes
payable to stockholders of $570,000. At June 30, 1996, the Company had cash
and cash equivalents of $10,332,356, 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 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.
11
<PAGE>
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 $10,308,000, 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
The Company's Proxy Statement, dated May 24, 1996 for the Annual Meeting of
Stockholders held on June 18, 1996 as filed with the Securities and Exchange
Commission on April 29, 1996, is incorporated by reference.
a. The Annual Meeting of Stockholders of the Company was held on June 18,
1996.
b. Each of the management's nominees, as described in the Proxy Statement
above, was elected a director to hold office until the next annual
meeting of the stockholders or until his successor is elected or
qualified.
Number of affirmative Number of negative
votes cast votes cast
--------------------- ------------------
11,323,484 630
---------- ---
c. The following matter was also voted upon at the meeting and approved.
A proposal to ratify the appointment of KPMG Peat Marwick as the
Company's independent public accountants for the 1996 fiscal year.
Number of affirmative Number of abstain
votes cast votes cast
--------------------- -----------------
11,312,314 11,800
---------- ------
Item 5 - OTHER INFORMATION
None
Item 6 - EXHIBITS AND REPORTS ON FORM 8-K
Exhibit
(a) Number Description of Document
------ -----------------------
10.1 Amendment No. 1 dated as of June 12, 1996 to the
Warrant Agreement between the Company and Whale
Securities Co., L.P. dated as of April 14, 1994.
10.2 Letter Agreement between the Company and Joseph F.
Fogliano dated June 26, 1996.
13
<PAGE>
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
June 30, 1996.
14
<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.
August 13, 1996 /s/ Philip R. McKee
-----------------------------------
Philip R. McKee
President, Chief Executive Officer
(Principal Executive Officer)
August 13, 1996 /s/ Dennis J. Jameson
-----------------------------------
Dennis J. Jameson
Executive Vice President, Chief
Financial Officer (Principal Financial
Officer)
15
<PAGE>
INDEX OF EXHIBITS
Exhibit No. Description
- - ----------- -----------
10.1 Amendment No. 1 dated as of June 12, 1996 to the Warrant
Agreement between the Company and Whale Securities Co., L.P.
dated as of April 14, 1994.
10.2 Letter Agreement between the Company and Joseph F. Fogliano
dated June 26, 1996.
<PAGE>
EXHIBIT 10.1
This AMENDMENT No. 1 dated as of June 12, 1996 to the WARRANT AGREEMENT
between TurboChef, Inc., a Delaware corporation (the "Company"), and Whale
Securities Co., L.P. (hereinafter referred to as the "Underwriter") dated as of
April 14, 1994 (the "Warrant Agreement").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, on April 14, 1994, the Company issued to the Underwriter and its
designees (the "Designees") certain warrants ("Warrants") to purchase up to an
aggregate of 130,000 shares (the "Shares") of common stock of the Company, par
value $.01 per share (the "Common Stock") pursuant to the Warrant Agreement in
connection with the initial public offering of the Company's Common Stock; and
WHEREAS, the Underwriter is serving as underwriter in connection with a
secondary public offering of the Company's Common Stock and the Company has
filed a Registration Statement on Form SB-2 with the Securities and Exchange
Commission (the "SB-2 Registration Statement") No. 333-2292 relating to such
secondary public offering; and
WHEREAS, pursuant to Article 7 of the Warrant Agreement, the Underwriter
and the Designees were granted certain registration rights relating to the
Shares, including, unlimited piggyback registration rights and one demand
registration right; and
WHEREAS, the Company requests that the Underwriter and the Designees
waive their right pursuant to section 7.3 of the Warrant Agreement to piggyback
the registration of the Registrable Securities (as defined in the Warrant
Agreement) in the Form SB-2 Registration Statement; and
WHEREAS, the Company is willing to grant to the Underwriter and the
Designees an additional demand registration right relating to the Registrable
Securities, in consideration for the waiver by the Underwriter and the Designees
of their piggyback registration rights in connection with, and solely in
connection with, the Form SB-2 Registration Statement;
<PAGE>
NOW, THEREFORE, in consideration of the premises, the agreements herein
set forth and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
1. The Underwriter, on behalf of itself and, pursuant to Section
14 of the Warrant Agreement, the Designees, hereby waives the right of the
Underwriter and the Designees pursuant to Section 7.3 of the Warrant Agreement
to have the Shares underlying their Warrants included for registration in the
Form SB-2 Registration Statement.
2. In consideration for the foregoing waiver, the parties hereto
agree that Section 7.4(a) of the Warrant Agreement shall be deleted in its
entirety and replaced with the following:
"At any time during the Warrant Exercise Term, any "Majority
Holder" (as such term is defined in Section 7.4(c) below) of the Registrable
Securities shall have the right (which right is in addition to the piggyback
registration rights provided for under Section 7.3 hereof), exercisable by
written notice to the Company (the "Demand Registration Request"), to have the
Company prepare and file with the Securities and Exchange Commission (the
"Commission"), on two separate occasions, at the sole expense of the Company, a
Registration Statement and such other documents, including a prospectus, as may
be necessary (in the opinion of both counsel for the Company and counsel for
such Majority Holder), in order to comply with the provisions of the Act, so as
to permit a public offering and sale of the Registrable Securities by the
holders thereof, until the earlier of (i) the date that all of the Registrable
Securities included in such Registration Statement have been sold or (ii) the
date that the holders of the Registrable Securities included therein receive an
opinion of counsel to the Company that all of such Registrable Securities may be
freely traded without registration under the Securities Act, under Rule 144
promulgated under the Securities Act or otherwise. Nothing herein contained
shall require the Company to undergo an audit, other than in the ordinary course
of business."
2
<PAGE>
3. Governing Law.
-------------
This Amendment shall be deemed to be a contract made under the
laws of the State of New York and for all purposes shall be construed in
accordance with the laws of said State.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed, as of the day and year first above written.
TURBOCHEF, INC.
By: /s/ Philip R. McKee
--------------------------------------
Philip R. McKee,
President
WHALE SECURITIES CO., L.P.
By: Whale Securities Corp.,
General Partner
By: /s/ William G. Walters
--------------------------------------
William G. Walters
Chairman
4
<PAGE>
EXHIBIT 10.2
June 26, 1996
Mr. Joseph Fogliano
530 Pine Street
P.O. Box 772655
Steamboat Springs, Colorado 80477 Fax: (970) 879-7263
Dear Joe:
The Board of Directors of TurboChef Inc. has authorized me to make the
following offer to you regarding your service on our Board:
Term
- - -----
For the sake of simplicity we will call your term "One Year". However, the
election of all of TurboChef's Directors expires at the shareholder's meeting
for the following year -- which has always been held in mid June -- so your
actual appointment will be for about 51 weeks. All elected Directors (including
Jeffrey Bogatin and myself) serve one year terms.
The Board is being expanded from three to four members with your election. It
is our intention to expand the board further in the near future - but no other
offers have been authorized to date.
Annual Compensation
- - -------------------
The annual compensation for all "outside" directors (as opposed to Jeffrey
Bogatin and myself) is $25,000 in stock, plus options to purchase additional
stock (at the market price on the day of your formal appointment) totaling
$25,000.
Expense Reimbursement
- - ---------------------
Reasonable out-of-pocket expenses incurred during your participation in, or
attendance at, Board meetings, as well as such expenses which may be incurred
while you are carrying out any other duties and responsibilities that you may
have as a TurboChef Board Member, will be reimbursed to you in a timely manner.
Duties and Responsibilities
- - ---------------------------
While there are several areas of TurboChef's business strategy in which you can
make a unique contribution, the first -- and most critical -- is in the area of
advancing TurboChef's technologies into the residential marketplace.
Accordingly, I would ask that you head the Residential Oven Committee, and that
you take a "personal interest" in assisting me in mapping out the strategies and
tactics for the residential marketplace which I will be responsible to allocate
the company's resources against.
<PAGE>
Mr. Joseph Fogliano
June 26, 1996
Page 2
Duties and Responsibilities (continued)
- - ---------------------------------------
In addition, I would ask that you serve on the Audit Committee which is required
by NASDAQ to consist of a majority of independent Directors.
Flexibility
- - -----------
TurboChef is a young and rapidly growing company. Accordingly, as the company's
needs continue to evolve, we may from time to time modify and adjust the
direction of the company and, in fact, perhaps even the role of the company's
directors. I mention this only in an attempt to encourage you, as an outside
director, not to be shy with your thoughts or comments because you think we have
a corporate culture of doing something a particular way. We have elected you in
part because we believe you can bring a passion for achievement to our company,
and Jeffrey, Don and I are looking forward to having the company benefit from
your personal involvement.
Time Commitment
- - ---------------
We expect to conduct Board Meetings between 4 to 6 times per year, as necessary.
As a rule of thumb, I would expect that TurboChef would take between 1 and 2
days per month of your time, including the board meetings, for concentrated work
effort. In addition, I would hope that I could feel free to call you for advice
on any number of issues I might be faced with - but realistically that probably
wouldn't require more than an additional hour or two per month of your time.
Officers and Directors Liability Insurance and Indemnification
- - --------------------------------------------------------------
TurboChef Inc. carries Officers and Directors Liability insurance in the amount
of $2,000,000, with a $250,000 deductible, such deductible being an obligation
of the Company. In addition, pursuant to the Bylaws of TurboChef Inc., as well
as the Company's Articles of Incorporation, TurboChef Inc. indemnifies (to the
fullest extent permissible under the Laws of the State of Delaware) its Officers
and Directors against any and all expenses and/or judgments that might occur in
the event of any legal action taken against any Officers or Directors.
Exceptions to this indemnification include a Director's breach of his duties of
loyalty to TurboChef or its stockholders, acts or omissions not in good faith
which involve intentional misconduct, a knowing violation of law, or any
transactions from which a Director derived an improper personal benefit.
Acceptance
- - ----------
If this offer is acceptable to you, please indicate so by signing below and
returning this document to me.
<PAGE>
Mr. Joseph Fogliano
June 26, 1996
Page 3
I look forward to working with you.
Sincerely,
TURBOCHEF INC.
/s/ Philip R. McKee
- - -------------------
Philip R. McKee
President & CEO
ACCEPTED:
/s/ Joseph F. Fogliano June 26, 1996
- - ----------------------------------- ------------------------
Joseph F. Fogliano Date
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 10,332,356
<SECURITIES> 0
<RECEIVABLES> 336,620
<ALLOWANCES> 0
<INVENTORY> 441,438
<CURRENT-ASSETS> 11,241,963
<PP&E> 446,322
<DEPRECIATION> 194,188
<TOTAL-ASSETS> 11,601,629
<CURRENT-LIABILITIES> 611,737
<BONDS> 0
0
0
<COMMON> 136,701
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 11,601,629
<SALES> 1,990,049
<TOTAL-REVENUES> 1,998,169
<CGS> 1,489,715
<TOTAL-COSTS> 2,806,631
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (796,938)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (796,938)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> 0
</TABLE>
