<PAGE>
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL QUARTER ENDED MARCH 31, 1997
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM
___________ TO ____________
COMMISSION FILE NUMBER 0-23478
-------------------------
TURBOCHEF, INC.
(Exact name of Registrant as specified in its Charter)
DELAWARE 48-1100390
(State or other jurisdiction of (IRS employer
incorporation or organization) identification number)
10500 METRIC DRIVE, SUITE 128 75243
DALLAS, TEXAS (Zip Code)
(Address of principal executive offices)
Registrant's telephone number:
(214) 341-9471
-------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate the number of shares outstanding of each of the Registrant's classes
of Common Stock, as of the latest practicable date.
Number of Shares Outstanding
Title of Each Class at May 2, 1997
------------------- --------------
Common Stock, $0.01 Par Value 13,861,411
================================================================================
<PAGE>
TURBOCHEF, INC.
TABLE OF CONTENTS
Form 10-Q Item Page
- -------------- ----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of March 31, 1997 (unaudited) and
December 31, 1996........................................... 3
Statements of Operations (unaudited) for the three
months ended March 31, 1997 and 1996........................ 4
Statement of Cash Flows (unaudited) for the three
months ended March 31, 1997 and 1996........................ 5
Notes to Financial Statements............................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................... 11
Item 2. Changes in Securities....................................... 11
Item 3. Defaults Upon Senior Securities............................. 11
Item 4. Submission of Matters to a Vote of Security Holders......... 11
Item 5. Other Information........................................... 11
Item 6. Exhibits and Reports on Form 8-K............................ 11
2
<PAGE>
Part 1 - Item 1 FINANCIAL STATEMENTS
TurboChef, Inc.
Balance Sheets
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
------------ ------------
Assets (Unaudited)
------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 277,759 $ 477,166
Marketable securities available for sale
at market value 6,259,432 7,309,431
Accounts receivable 470,638 583,023
Inventory 737,972 686,272
Prepaid expenses 369,741 276,991
------------ ------------
Total current assets 8,115,542 9,332,883
------------ ------------
Property and equipment:
Leasehold improvements 77,990 64,334
Furniture and fixtures 175,652 132,640
Equipment 358,977 350,719
------------ ------------
612,619 547,693
Less accumulated depreciation and amortization (269,617) (242,579)
------------ ------------
Net property and equipment 343,002 305,114
------------ ------------
Investment in TurboChef Europe 41,750 -
Other assets 104,157 105,291
------------ ------------
Total assets $ 8,604,451 $ 9,743,288
============ ============
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable 415,391 340,575
Accrued expenses 167,527 415,091
Sales deposits - 43,700
Deferred revenue 10,375 10,765
------------ ----------
Total liabilities 593,293 810,131
------------ ----------
Stockholders' equity:
Common stock, $.01 par value.
Authorized 20,000,000 shares.
Issued 13,861,411 and 13,785,244 shares at
March 31, 1997 and December 31, 1996,
respectively 138,614 137,852
Additional paid-in capital 21,735,437 21,577,249
Accumulated deficit (13,578,606) (12,614,605)
Treasury stock - at cost 8,315 shares in
1996 and 5,867 shares in 1997 (284,287) (167,339)
------------ ------------
Total stockholders' equity 8,011,158 8,933,157
------------ ------------
$ 8,604,451 $ 9,743,288
============ ============
</TABLE>
3
<PAGE>
TurboChef, Inc.
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------
1997 1996
<S> <C> <C>
Net sales 686,940 1,048,888
Other revenue 6,237 5,120
----------- -----------
Total revenues 693,177 1,054,008
Costs and expenses:
Cost of goods sold 511,436 820,731
Research and development expenses 268,057 120,116
Selling, general, and administrative expenses 984,534 474,604
----------- -----------
Total costs and expenses 1,764,027 1,415,451
----------- -----------
(1,070,850) (361,443)
----------- -----------
Other income (expense):
Interest income 106,427 90
Interest expense - (3,138)
Gain on sale of asset 422 -
----------- -----------
106,849 (3,048)
----------- -----------
Net loss $ (964,001) (364,491)
=========== ===========
Loss per common share ($0.07) (0.03)
=========== ===========
Weighted average number of common shares
and common share equivalents outstanding 13,835,791 12,867,375
=========== ===========
</TABLE>
4
<PAGE>
TURBOCHEF, INC.
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($964,001) (364,491)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization 27,038 22,165
Allowance for doubtful accounts 1,500 -
Amortization of director compensation 6,937 -
Decrease in accounts receivable 110,885 364,300
Decrease (increase) in inventories (51,700) 191,580
Decrease (increase) in prepaid expenses (99,688) 34,308
Decrease in other assets 1,134 -
Increase in accounts payable 74,817 151,215
Increase (decrease) in accrued expenses (247,564) 35,357
Decrease in deferred revenue (390) -
Increase (decrease) in sales deposits (43,700) 129,900
----------- ---------
Net cash (used in) provided by
operating activities (1,184,732) 564,334
----------- ---------
Cash flows from investing activities:
Sales of marketable securities 1,050,000 -
Purchase of equipment (64,926) (10,141)
Investment in TurboChef Europe (41,750) -
Additions to intangibles - (37,180)
----------- ---------
Net cash (used in) provided by
investing activities 943,324 (47,321)
----------- ---------
Cash flows from financing activities:
Proceeds from notes payable to stockholders - 285,000
Repayment of notes payable to stockholders - (285,000)
Exercise of stock options 158,949 2,500
Purchase of treasury stock (116,948) -
Offering costs - (134,528)
----------- ---------
Net cash (used in) provided by
financing activities 42,001 (132,028)
----------- ---------
Net increase (decrease) in cash and cash
equivalents (199,407) 384,985
Cash and cash equivalents at beginning of period 477,166 642,883
----------- ---------
Cash and cash equivalents at end of period $ 277,759 1,027,868
=========== =========
</TABLE>
5
<PAGE>
TURBOCHEF, INC.
Notes to Financial Statements
(Unaudited)
March 31, 1997
General
- -------
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, 1996 balance sheet was derived from audited financial
statements but does not include all disclosures required by generally accepted
accounting principles. 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,
1996 on Form 10-K, 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-K. The results of operations for the three months ended March 31, 1997 are
not necessarily indicative of the results to be expected for the full year.
6
<PAGE>
ITEM 2: MANAGEMENT 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
cooking system, its first commercial product, and not until June 1995 that it
entered into the initial Whitbread contract, its first major contract, and
commenced shipment of its Model D-2 TurboChef cooking system. Prior to such
time, the Company was engaged primarily in research and development, limited
production operations and test marketing of prototype cooking systems. As a
result, to date, the Company has generated limited revenues and incurred
substantial operating losses in each year of its operations (including net
losses of $2,941,413, $1,585,268 and $3,181,519 for the years ended December 31,
1996, 1995 and 1994, respectively) resulting in an accumulated deficit of
$13,578,606 as of March 31, 1997. The Company anticipates that it will continue
to incur significant operating expenses in the future, including 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 FOR THE QUARTER ENDED MARCH 31, 1997 COMPARED TO THE
QUARTER ENDED MARCH 31, 1996
Revenues for the quarter ended March 31, 1997 were $693,177, a decrease of
$360,831, when compared to revenues of $1,054,008 for the quarter ended March
31, 1996. This decrease is primarily attributable to fewer cooking system unit
sales to Whitbread during the quarter ended March 31, 1997 compared to the
quarter ended March 31, 1996. The decline in shipments to Whitbread was due to
the transition between the fulfillment of the second Whitbread contract and
deliveries pursuant to the third Whitbread contract, which was completed in
February 1997.
Cost of sales for the quarter ended March 31, 1997 was $511,436, a decrease
of $309,295 when compared to $820,731 for cost of sales in the quarter ended
March 31, 1996. This decrease is consistent with the decline in cooking system
unit sales.
Gross profit on sales for the quarter ended March 31, 1997 decreased
$51,536 to $181,741, when compared to gross profit on sales of $233,277 during
the quarter ended March 31, 1996. The decrease is a result of the decline in
cooking system unit sales compared to the quarter ended March 31, 1996. Gross
margin for the quarter ended March 31, 1997 was 26% of sales, compared to 22% of
sales for the quarter ended March 31, 1996. The percentage increase is
attributable to a reduced per unit manufacturing cost which resulted from
increased production volume and cost reduction engineering in 1996.
7
<PAGE>
Research and development expenses for the quarter ended March 31, 1997
increased $147,941, to $268,057, as compared to $120,116 for the quarter ended
March 31, 1996. The increase was due to the completion of a reduced size
commercial system prototype and the expenses incurred to develop a prototype
self-serve cooking system for convenience store and vending applications.
Selling, general and administrative expenses for the quarter ended March
31, 1997 increased $509,930, to $984,534 from comparable expenses of $474,604
for the quarter ended March 31, 1996. The increased expense is attributable to
the planned addition of key personnel in the sales and manufacturing areas,
including customer service staff, a Chief Operating Officer, and a Director of
Manufacturing.
Interest income, net of interest expense for the quarter ended March 31,
1997, was income of $106,427 compared to expense of $3,048 for the quarter ended
March 31, 1996. The increase in income is attributable to earnings on the
investment of the net proceeds from the secondary public offering of Common
Stock in June 1996 (the "June 1996 Offering").
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 March 31, 1997, the Company had working capital of $7,522,249 as
compared to working capital of $8,522,752 at December 31, 1996. The $1,000,503
working capital decrease from December 31, 1996 resulted primarily from the net
operating loss of $964,001 incurred by the Company for the quarter ended March
31, 1997. For the quarter ended March 31, 1997, accounts receivable turnover
declined to 5.5 from 9.9 during the quarter ended March 31, 1996 as a result of
a delay in the year end payment by the Company's largest customer, Whitbread.
Cash used in operating activities was $1,184,732 for the quarter ended
March 31, 1997 as compared to cash provided by operating activities of $564,334
for the quarter ended March 31, 1996. The increase is primarily the result of a
$599,510 increase in operating losses, a decrease in accrued expenses of
$247,564, an increase in prepaid expenses of $99,688, and an increase in
inventories of $51,700. These amounts are offset by a $110,885 decrease in
accounts receivable and a $74,817 increase in accounts payable. Cash provided
by investing activities for the quarter ended March 31, 1997 was $943,324 as a
result of the sale of marketable securities in the amount of $1,050,000, offset
by equipment purchases of $64,926 and the investment in the European joint
venture, TurboChef Europe, of $41,750. Cash provided by financing activities
was $42,001 for the quarter ended March 31, 1997, which represents the net
proceeds from exercises of stock options offset by purchases of treasury stock.
At March 31, 1997, the Company had cash and cash equivalents of $277,759,
compared to cash and cash equivalents of $477,166 at December 31, 1996.
During December 1995, Philip R. McKee, a principal stockholder and the
President and Chief
8
<PAGE>
Executive Officer of the Company, 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 the June 1996 Offering, an
underwritten public offering of 800,000 shares of Common Stock which resulted in
aggregate proceeds of approximately $10,301,000, net of the underwriter's
discount and other offering costs of $1,699,491. As of March 31, 1996, the
Company had incurred expenses relating to the June 1996 Offering of $134,528.
FORWARD LOOKING STATEMENTS
The Company is utilizing the proceeds from the June 1996 Offering to expand
its operations, including, among other things, continuing its product
development activities and marketing efforts and to set-up additional third-
party production operations for the manufacture of the Company's cooking
systems. 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
cooking system 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 the next
12-15 months. 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. In March 1996, Messrs. Bogatin and McKee made a commitment to provide
financial support (if and as required) to enable the Company to meet its
obligations through June 1997. This commitment was made prior to the June 1996
Offering, when the Company had minimal cash reserves, and the timing and
likelihood of the success of the Offering could not be guaranteed. The Company
has no other 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. The Company
believes that increases in revenues sufficient to offset its expenses and result
in its profitability could be derived from its currently proposed plans within
the next 12 months, if such plans are successfully completed. These plans
include: (i) complete the deliveries of those TurboChef cooking
9
<PAGE>
systems contemplated by the latest Whitbread contract and Southland's initial
purchase order, (ii) utilize the awareness created by the Whitbread relationship
and extend the Company's marketing and sales efforts into other countries within
the European Union, (iii) further develop the Company's relationship with
Southland and thereby increase product sales to Southland, (iv) obtain initial
purchase orders from additional regional or national foodservice operators, (v)
introduce additional new products, such as its proposed residential cooking
system and CUB models, (vi) establish a dealer sales network and (vii) further
reduce the Company's manufacturing costs. However, 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.
As of March 31, 1997, the amount of backlog orders believed to be firm was
approximately $3 million, as compared to approximately $4 million as of December
31, 1996. The Company anticipates that substantially all of such backlog will
be filled during the current year.
This report and other reports and statements filed by the Company from time
to time with the Securities and Exchange Commission (collectively, "SEC
Filings") contain or may contain certain forward looking statements and
information that are based on the beliefs of the Company's management as well as
estimates and assumptions made by, and information currently available to, the
Company's management. When used in SEC Filings, the words "anticipate",
"believe", "estimate", "expect", "future", "intend", "plan", and similar
expressions, as they relate to the Company or the Company's management, identify
forward looking statements. Such statements reflect the current views of the
Company with respect to future events and are subject to certain risks,
uncertainties and assumptions relating to the Company's operations and results
of operations, competitive factors and pricing pressures, shifts in market
demand, the performance and needs of the segments of the foodservice industry
served by the Company, the costs of product development and other risks and
uncertainties, in addition to any uncertainties specifically identified in the
text surrounding such statements, uncertainties with respect to changes or
developments in social, economic, business, industry, market, legal, and
regulatory circumstances and conditions and actions taken or omitted to be taken
by third parties, including the Company's stockholders, customers, suppliers,
business partners, and competitors, legislative, regulatory, judicial and other
governmental authorities and officials. Should one or more of these risks or
uncertainties materialize, or should the underlying assumptions prove incorrect,
actual results may vary significantly from those anticipated, believed,
estimated, expected, intended or planned.
10
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None
Item 2. CHANGES 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
None
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TURBOCHEF, INC.
By: /s/ Dennis J. Jameson
--------------------------------
Dennis J. Jameson
Executive Vice President, Chief
Financial Officer
(Principal Financial Officer)
Dated May 15, 1997
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 277,759
<SECURITIES> 6,259,432
<RECEIVABLES> 470,638
<ALLOWANCES> 0
<INVENTORY> 737,972
<CURRENT-ASSETS> 8,115,592
<PP&E> 612,619
<DEPRECIATION> 269,617
<TOTAL-ASSETS> 8,604,451
<CURRENT-LIABILITIES> 593,293
<BONDS> 0
0
0
<COMMON> 138,614
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 8,604,451
<SALES> 686,940
<TOTAL-REVENUES> 693,177
<CGS> 511,436
<TOTAL-COSTS> 1,764,027
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (964,001)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (964,001)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
