<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 September 30, 1998
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 TECHNOLOGIES, 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 November 10, 1998
------------------- --------------------
Common Stock, $0.01 Par Value 14,654,134
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TURBOCHEF TECHNOLOGIES, INC.
TABLE OF CONTENTS
Form 10-Q Item Page
- -------------- ----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets as of September 30, 1998 (unaudited)
and December 31, 1997......................................... 3
Condensed Statements of Operations (unaudited) for
the three and nine months ended September 30, 1998 and 1997... 4
Condensed Statements of Cash Flows (unaudited) for
the nine months ended September 30, 1998 and 1997............. 5
Notes to Condensed Financial Statements (unaudited)........... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................. 15
Item 2. Changes in Securities......................................... 15
Item 3. Defaults Upon Senior Securities............................... 15
Item 4. Submission of Matters to a Vote of Security Holders........... 15
Item 5. Other Information............................................. 15
Item 6. Exhibits and Reports on Form 8-K.............................. 15
2
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PART 1 - ITEM 1 FINANCIAL STATEMENTS
TURBOCHEF TECHNOLOGIES, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
----------------- ----------------
1998 1997
----------------- ----------------
Assets (Unaudited)
------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 372,283 1,396,641
Marketable securities available for sale, at fair value 7,754,692 7,277,395
Accounts receivable 1,045,153 644,569
Inventories 788,284 934,690
Prepaid expenses 56,655 104,160
------------ ------------
Total current assets 10,017,067 10,357,455
------------ ------------
Marketable securities available for sale, at fair value 7,015,573 5,482,064
Property and equipment:
Leasehold improvements 129,324 110,062
Furniture and fixtures 410,855 344,507
Equipment 431,876 420,342
------------ ------------
972,055 874,911
Less accumulated depreciation and amortization (509,939) (383,948)
------------ ------------
Net property and equipment 462,116 490,963
------------ ------------
Other assets 141,076 109,283
------------ ------------
Total assets $ 17,635,832 16,439,765
============ ============
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable 395,421 401,013
Accrued expenses 396,927 352,928
Deferred revenue 39,335 21,705
Other liabilities 193,093 -
------------ ------------
Total current liabilities 1,024,776 775,646
------------ ------------
Deposits 5,677 -
Deferred rent 26,739 35,651
------------ ------------
Total liabilities 1,057,192 811,297
------------ ------------
Stockholders' equity:
Common stock, $.01 par value. Authorized 50,000,000
shares. Issued 14,654,134 and 14,551,294 shares at
September 30, 1998 and December 31, 1997, respectively 146,541 145,513
Additional paid-in capital 32,423,935 32,129,601
Accumulated deficit (19,572,039) (17,276,907)
Net unrealized gain on marketable securities 4,031,155 964,148
Treasury stock - at cost 32,130 shares in 1998
and 17,382 shares in 1997 (450,952) (333,887)
------------ ------------
Total stockholders' equity 16,578,640 15,628,468
------------ ------------
$ 17,635,832 $ 16,439,765
============ ============
</TABLE>
See accompanying notes to condensed financial statements.
3
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TURBOCHEF TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, September 30,
------------------ -----------------
1998 1997 1998 1997
--------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Net sales $ 841,075 720,517 $ 2,543,958 2,458,787
Other revenues 1,150,000 - 2,800,000 -
----------- ---------- ----------- ----------
Total revenues 1,991,075 720,517 5,343,958 2,458,787
Costs and expenses:
Cost of goods sold 589,859 650,353 2,055,862 1,838,416
Research and development expenses 502,743 354,983 1,346,898 876,888
Selling, general and administrative expenses 1,603,555 1,432,899 4,303,995 3,575,362
----------- ---------- ----------- ----------
Total costs and expenses 2,696,157 2,438,235 7,706,755 6,290,666
----------- ---------- ----------- ----------
Operating loss (705,082) (1,717,718) (2,362,797) (3,831,879)
----------- ---------- ----------- ----------
Other income (expense):
Interest income 19,878 41,853 85,446 228,121
Dividend income 52,910 - 146,941 -
Equity in loss of joint venture - (41,677) (180,365) (56,386)
Other 2,474 - 15,649 -
----------- ---------- ----------- ----------
75,262 176 67,671 171,735
----------- ---------- ----------- ----------
Net loss $ (629,820) (1,717,542) $(2,295,126) (3,660,144)
=========== ========== =========== ==========
Loss per common share - basic and diluted $(0.04) (0.12) $(0.16) (0.26)
=========== ========== =========== ==========
Weighted average number of
common shares outstanding 14,653,986 13,920,640 14,597,413 13,877,866
=========== ========== =========== ==========
</TABLE>
See accompanying notes to condensed financial statements.
4
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TURBOCHEF TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
----------------------------------------
1998 1997
------------------- -------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(2,295,126) (3,660,144)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 135,893 84,528
Decrease (increase) in accounts receivable, net (400,584) (10,075)
Decrease (increase) in inventories 146,406 (238,674)
Decrease (increase) in prepaid expenses 47,505 (218,251)
Decrease (increase) in other assets 3,591 (91,404)
Increase (decrease) in accounts payable (5,592) 50,552
Increase (decrease) in accrued expenses 13,999 (208,788)
Increase (decrease) in deferred revenue 17,630 24,259
Increase (decrease) in other liabilities 223,093 -
Increase (decrease) in deferred rent (8,912) -
----------- ----------
Net cash used in operating activities (2,122,097) (4,267,997)
----------- ----------
Cash flows from investing activities:
Sales (purchases) of marketable securities 1,056,212 3,955,896
Purchase of equipment (97,144) (240,370)
Investment in TurboChef Europe (39,636) 14,636
----------- ----------
Net cash provided by investing activities 919,432 3,730,162
----------- ----------
Cash flows from financing activities:
Exercise of stock options 12,500 232,245
Exercise of stock warrants 282,872 285,399
Purchase of treasury stock (117,065) (166,548)
----------- ----------
Net cash provided by financing activities 178,307 351,096
----------- ----------
Net decrease in cash and cash equivalents (1,024,358) (186,739)
Cash and cash equivalents at beginning of period 1,396,641 477,166
----------- ----------
Cash and cash equivalents at end of period $ 372,283 290,427
=========== ==========
</TABLE>
See accompanying notes to condensed financial statements.
5
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TURBOCHEF TECHNOLOGIES, INC.
Notes to Condensed Financial Statements
(Unaudited)
September 30, 1998
General
- -------
The financial statements of TurboChef Technologies, 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 audited by
independent public accountants. In the opinion of management, all adjustments
(which consisted only of normal recurring accruals) necessary to present fairly
the financial position and results of operations 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, 1997 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, 1997 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 and nine months ended September
30, 1998 are not necessarily indicative of the results to be expected for the
full year.
The Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 128, Earnings Per Share (EPS), during the fourth quarter of
1997, and all previous references to per share amounts were retroactively
restated. The Statement requires basic EPS to be computed by dividing income
available to common shareholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in earnings of the entity. Adoption of this statement
did not impact previously recorded net loss per common share for the three or
nine months ended September 30, 1997.
Basic net loss per common share is based on 14,653,986 and 13,920,640 weighted
average shares outstanding for the three months ended September 30, 1998 and
1997, respectively. For the nine months ended September 30, 1998 and 1997 basic
net loss per common share is based on 14,597,413 and 13,877,866 weighted average
shares outstanding, respectively. For both the three-month and nine-month
periods ended September 30, 1998 and 1997, the Company did not have any
incremental shares of potentially dilutive stock as their effect was
antidilutive.
6
<PAGE>
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 130, Comprehensive Income, on January 1, 1998. This statement
requires the Company to report comprehensive income and its components with the
same prominence as other financial statements in its December 31, 1998 financial
statements. Comprehensive income describes the total of all components of
comprehensive income, including net income and other comprehensive income.
Other comprehensive income refers to all revenues, expenses, gains and losses
that under generally accepted accounting principles are included in
comprehensive income but excluded from net income. For the nine month period
ended September 30, 1998, comprehensive income was $1,736,029 of which
($2,295,126) was net loss and of which $4,031,155 was net unrealized gain on
marketable securities. For the nine month period ended September 30, 1997,
there were no components of other comprehensive income.
In July 1998, the Company executed a revolving credit agreement with its bank to
support general corporate requirements, specifically, continued investment in
technology development. This agreement, which expires July 1, 1999 is secured
by 90,000 shares of Maytag common stock owned by the Company. The Company can
borrow up to the lesser of $3,000,000 or 75% of the market value of the Maytag
stock at market rates of interest. As of November 10, 1998, there are no
outstanding borrowings under such revolving credit facility.
7
<PAGE>
ITEM 2: MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
---------------------------------------------------------------------
OF OPERATIONS
-------------
GENERAL
From its inception in April 1991 until March 1994, the Company was engaged
primarily in research and development, limited production operations and test
marketing of its cooking systems. In March 1994, the Company introduced its
first commercial product, the Model D-1 cooking system. In June 1995, the
Company entered into its first major contract with Whitbread PLC ("Whitbread")
and introduced an enhanced product, the Model D-2 cooking system. The Company
concentrated its efforts on the Whitbread rollout throughout 1996. Upon the
completion of the secondary public offering of Common Stock in June 1996 (the
"June 1996 Offering"), the Company began development of a direct sales
organization. By the end of the first quarter of 1997, the Company had
substantially developed its U.S. direct sales and European sales infrastructure
and marketing programs. Due to the revolutionary nature of the Company's
technologies, coupled with the foodservice industry's general resistance to
change, significant increases in sales have not yet materialized through these
efforts. The Company believes its long-term success is dependent on its core
competencies of developing new technologies and products for the foodservice
industry. Consequently, the Company has sought to establish an alliance with a
major firm with strengths in manufacturing, sales, marketing and distribution.
An alliance of this nature was successfully established in September 1997, when
the Company announced a strategic alliance with Maytag Corporation ("Maytag") to
jointly develop new products revolving around the Company's technologies. The
Company also announced in July 1998 that the Maytag alliance had been expanded
to include the sales and marketing of commercial cooking products in North
America. This alliance enables the Company to focus on its core competency of
technology development.
The Company has invested heavily in research, prototype development,
establishment of manufacturing capacity, and sales and marketing personnel. As
a result of these investments, and the heretofore limited revenues generated
through sales of cooking systems, the Company has incurred substantial operating
losses in each year of its operations (including net losses of $4,662,302,
$2,941,413, and $1,585,268 for the years ended December 31, 1997, 1996 and 1995,
respectively) resulting in an accumulated deficit of $19,572,039 as of September
30, 1998.
The Company will continue to pursue business growth through implementation
of the following strategies: (i) joint development and commercialization of
residential and commercial products through the Maytag alliance, (ii) pursue the
formation of strategic alliances and license agreements in other major markets,
(iii) continued marketing to U.S., European and Japanese restaurants, hotels,
convenience stores and other foodservice operators, and (iv) continued
development of new hardware, software and food solutions for foodservice
operators. The Company's future profitability will depend upon, among other
things, the successful implementation of these initiatives.
MAYTAG ALLIANCE
On September 29, 1997, the Company announced a strategic alliance with
Maytag Corporation (the "Maytag alliance"). The alliance is aimed at the
development and commercialization of innovative
8
<PAGE>
products based on the Company's leading-edge technologies in heat transfer,
thermodynamics and control systems. The two companies believe that the
combination of Maytag's expertise in manufacturing, marketing and distribution
in residential and commercial appliance markets, and the Company's proprietary
technologies and product development capabilities, can result in the successful
commercialization of new products in the future. The alliance entailed a mutual
purchase of each company's common stock valued at approximately $10 million and
Maytag's payment to the Company for certain research and development activities
related to targeted product initiatives.
The initial alliance-related research project began in October 1997, and
was originally for a term of six months. Maytag was contracted to pay $250K per
month pursuant to the agreement to fund research and development activities
related to the project. In March 1998, this project was extended for one year,
and the monthly payment increased to $300K. In July 1998, the Company announced
a commercial sales agreement with Maytag whereby Maytag will lead the Company's
North American commercial sales and marketing initiatives. Furthermore, the
commercial sales agreement establishes a profit sharing arrangement for the
North American sales of commercial products employing the Company's
technologies. With the addition of the commercial relationship, the research
and development funding was increased to $425K per month beginning August 1998
and ending January 1999.
As of November 10, 1998, Maytag had paid the Company an aggregate of $4.4
million for alliance-related activities.
RECENT DEVELOPMENTS
On September 1, 1998, Rick Caron joined the Company as President, Chief
Executive Officer and as a director. Mr. Caron is a 19-year veteran of Arthur
D. Little, Inc., an international technology and innovation consulting firm, and
has held title of Vice President since 1995 and has been Industry Practice
Leader for Consumer Goods Business in North America since 1997. His
foodservice industry clients have included, among others, McDonalds Corporation,
Welbilt Corporation, Burger King and Bass Brewers. Mr. Caron received his BS
and MS degrees in chemical engineering from the Massachusetts Institute of
Technology and has served on the Science and Technology Committee of the U.S.
House of Representatives and managed the Commercial Gas Appliance Technology
Center for the Gas Research Institute.
On September 1, 1998, Philip R. McKee, a co-founder of the Company, stepped
down from the board of directors and as the Company's Chief Technology Officer.
He is currently employed by the Company as a key advisor to the new CEO and as a
liaison with Maytag Corporation on strategic alliance projects.
On November 9, 1998, Dr. Amit S. Mukherjee joined the Company as Chief
Technical and Strategy Officer. Dr. Mukherjee will oversee the Company's
strategy of combining its multiple cooking product embodiments with proprietary
software that will bring the residential and commercial kitchen into the
computer age. He will also co-lead the Company's efforts to transfer its
technologies internationally through the formation of joint ventures and
licensing agreements. Most recently, Dr. Mukherjee was a Director with Arthur
D. Little, Inc. His work focused on product development, manufacturing and
business strategy, typically for clients in the quick service restaurant and
food and beverage industries. Earlier, he was on the faculty of INSEAD, where
he taught Strategic R&D Management, Quality
9
<PAGE>
Management and World-Class Manufacturing in the MBA, Ph.D. and Executive
Programs. Dr. Mukherjee earned his BS in Mechanical Engineering at the Birla
Institute of Technology and Science in India, an MBA at the Darden School of the
University of Virginia and a Doctorate in Business Administration at the Harvard
Business School.
RESULTS OF OPERATIONS
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 FOR THE QUARTER ENDED SEPTEMBER 30, 1998 COMPARED TO THE QUARTER ENDED
SEPTEMBER 30, 1997
Revenues for the quarter ended September 30, 1998 were $1,991K, an increase
of $1,270K, when compared to revenues of $721K for the quarter ended September
30, 1997. This increase is primarily attributable to revenues received pursuant
to the Maytag alliance and revenues generated by an extended maintenance program
for the Company's largest customer.
Cost of sales for the quarter ended September 30, 1998 was $590K, a
decrease of $60K when compared to $650K for cost of sales in the quarter ended
September 30, 1997. This decrease is attributable to non-recurring charges
during the quarter ended September 30, 1997, partially offset by a higher unit
manufacturing cost in 1998.
Gross profit on total net sales for the quarter ended September 30, 1998
increased $181K to $251K, when compared to gross profit on total net sales of
$70K during the quarter ended September 30, 1997. Gross margin for the quarter
ended September 30, 1998 was 30% of total net sales, compared to 10% of total
net sales for the quarter ended September 30, 1997.
Gross margin on net oven sales increased to 42% during the quarter ended
September 30, 1998, compared to 31% for the quarter ended September 30, 1998 due
to higher revenues per unit.
Research and development expenses for the quarter ended September 30, 1998
increased $148K, to $503K, as compared to $355K for the quarter ended September
30, 1997. The increase is attributable to R&D activity relating primarily to
Maytag alliance projects entailing technical staff additions and prototype
development.
Selling, general and administrative expenses for the quarter ended
September 30, 1998 increased $171K, to $1,604K from comparable expenses of
$1,433K for the quarter ended September 30, 1997. The increased expense is due
to European business development expenses not incurred during the third quarter
of 1997, the addition of executive management and other administrative expenses
including office expansion and executive recruiting expenses.
Interest income, net of interest expense for the quarter ended September
30, 1998, was $20K compared to $42K for the quarter ended September 30, 1997.
The decrease in interest income is
10
<PAGE>
attributable to decreased cash levels.
Dividend income, from the Company's Maytag common stock holdings, was $53K
for the quarter ended September 30, 1998. There was no dividend income during
the quarter ended September 30, 1997.
RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THE NINE MONTHS
ENDED SEPTEMBER 30, 1997
Revenues for the nine months ended September 30, 1998 were $5,344K, an
increase of $2,885K, when compared to revenues of $2,459K for the nine months
ended September 30, 1997. This increase is primarily attributable to $2,800K in
revenues received pursuant to the Maytag alliance.
Cost of sales for the nine months ended September 30, 1998 was $2,056K, an
increase of $218K when compared to $1,838K for cost of sales in the nine months
ended September 30, 1997. This increase is attributable to charges taken to
establish reserves for anticipated losses on an extended maintenance program,
offset by a decline in unit shipments.
Gross profit on total net sales for the nine months ended September 30,
1998 decreased $132K to $488K, when compared to gross profit on total net sales
of $620K during the nine months ended September 30, 1997. Gross margin for the
nine months ended September 30, 1998 was 19% of total net sales, compared to 25%
of total net sales for the nine months ended September 30, 1997. Gross profit
and gross margin were adversely affected by the aforementioned extended
maintenance charge. Excluding extended maintenance charges, gross profit and
gross margin for the nine months ended September 30, 1998 was $649K and 29%
respectively.
Gross margin on net oven sales for the nine months ended September 30, 1998
was 34% as compared to 35% for the nine months ended September 30, 1997.
Research and development expenses for the nine months ended September 30,
1998 increased $470K, to $1,347K, as compared to $877K for the nine months
ended September 30, 1997. The increase is attributable to R&D activity relating
primarily to Maytag alliance projects entailing staff additions and prototype
and software development.
Selling, general and administrative expenses for the nine months ended
September 30, 1998 increased $729K, to $4,304K from comparable expenses of
$3,575K for the nine months ended September 30, 1997. The increased expense is
primarily due to European business development expenses not incurred during the
first nine months of 1997, the addition of executive management and other
administrative expenses including office expansion and executive recruiting
expenses.
Interest income, net of interest expense for the nine months ended
September 30, 1998, was $86K compared to $228K for the nine months ended
September 30, 1997. The decrease in interest income is attributable to decreased
cash levels.
Dividend income, from the Company's Maytag common stock holdings, was $147K
for the nine months ended September 30, 1998. There was no dividend income for
the nine months ended September 30, 1997.
11
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Results for the nine months ended September 30, 1998 include a $114K charge
relating to the termination of the Company's European joint venture, TCE, which
was terminated on July 31, 1998. The $114K charge establishes a reserve for the
write-off of the net investment in TCE. For the nine months ended September 30,
1998, losses relating to TCE were $180K.
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. From its inception until June 1996, the Company was
substantially dependent on loans and capital contributions from its principal
stockholders, private placements of its securities and the proceeds from the
initial public offering of common stock in April 1994 (the "April 1994 IPO"). 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 $10,301K, net of the underwriter's discount and other offering
costs of $1,699K.
Since October 1997, the Company's capital requirements have been met in
part by Maytag. In accordance with the Maytag alliance, the Company has been
paid an aggregate of $4.4 million ($250K per month from October 1997 through
March 1998, $300K from April through July 1998 and $425K through November 1998)
for technology transfer initiatives by the company. In March 1998, the initial
project was extended for one year and Maytag increased the monthly payment from
$250K to $300K per month for the term of the extension. In July 1998, a
commercial sales agreement was announced and the monthly payment increased to
$425K for six months. The Maytag alliance called for the mutual purchase of
each company's stock with a value of approximately $10 million. Maytag
purchased 564,668 shares of the Company's common stock, and the Company
purchased 293,846 shares of Maytag common stock. According to the terms of the
strategic alliance agreement, the Maytag stock owned by the Company is subject
to a general restriction placed on selling, pledging, transferring or assigning
such securities for a period of two years from the date of the agreement.
However, in accordance with the agreement, the Company gained the right to sell,
pledge, transfer or assign up to 50% of the shares on March 31, 1998. As of
November 10, 1998, the Maytag stock owned by the Company had a market value of
approximately $14.7 million.
In July 1998, the Company executed a revolving credit agreement with its
bank to support general corporate requirements, specifically, continued
investment in technology development. This agreement, which expires July 1,
1999, is secured by 90,000 shares of Maytag common stock owned by the Company.
The Company can borrow up to the lesser of $3,000,000 or 75% of the market value
of the Maytag stock at market rates of interest. As of November 10, 1998, there
are no outstanding borrowings under such revolving credit facility.
At September 30, 1998, the Company had working capital of $8,992K as
compared to working capital of $9,582K at December 31, 1997. The $590K working
capital decrease from December 31, 1997 resulted primarily from the net
operating loss of $2,295K, offset by the appreciation of the current portion
(50%) of the investment in Maytag common stock.
Cash used in operating activities was $2,122K for the nine months ended
September 30, 1998 as
12
<PAGE>
compared to cash used in operating activities of $4,268K for the nine months
ended September 30, 1997. The decrease is primarily the result of a $1,365K
decrease in operating losses, a decrease in inventories of $385K, a decrease in
prepaid expenses of $266K and an increase in accrued expenses and other
liabilities of $223K and $223K respectively. These amounts are partially offset
by an increase in accounts receivable of $391K.
Cash provided by investing activities for the nine months ended September
30, 1998 was $919K as a result of net sales of marketable securities in the
amount of $1,056K, offset by equipment purchases of $97K.
Cash provided by financing activities was $178K for the nine months ended
September 30, 1998, which represents the net proceeds from exercises of stock
options and warrants, offset by the purchase of treasury stock.
At September 30, 1998, the Company had cash and cash equivalents of $372K,
compared to cash and cash equivalents of $1,397K at December 31, 1997.
YEAR 2000 ISSUES
The Year 2000 issue, which is common to most businesses, concerns the
inability of information systems, primarily computer software programs, to
properly recognize and process date-sensitive information as the year 2000
approaches. All critical software and related technologies used by the Company
are year-2000 compliant. Thus, management believes that there will be no
significant costs required to address the Year 2000 issue and such issue will
not materially impact its financial condition nor adversely impact business
operations.
AUTHORITATIVE PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 131, Disclosures about Segments of an Enterprise and
Related Information, which is not expected to significantly change the Company's
current disclosures.
FORWARD LOOKING STATEMENTS
The Company is continuing to utilize the proceeds from the June 1996
Offering, in addition to payments received from the Maytag alliance projects, to
strengthen its management team and intensify its product development activities.
The company's goals are to continue its development of innovative and
commercially viable products, to support the Maytag Alliance efforts and to
establish additional strategic alliances and license agreements outside North
America. 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 the realization of
projected cooking system deliveries) that its current cash and cash equivalent
balances, anticipated revenues from operations, payments and stock received
pursuant to the Maytag alliance, and the recently established revolving credit
facility, will be sufficient to fund its operations and satisfy its contemplated
capital requirements for at least the next 24 months. In the event that the
Company's plans change, or its assumptions change or prove to be incorrect, or
cash balances, anticipated revenues and amounts available under the revolving
credit facility otherwise
13
<PAGE>
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. 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.
The Company has used a substantial portion of the proceeds of the June 1996
Offering and payments received from Maytag in an effort to expand its current
level of operations and grow the Company's business. However, 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
15 months, if such plans are successfully completed. These plans include: (i)
successfully develop and market new products through the Maytag alliance, (ii)
further develop U.S. product sales through the Maytag commercial sales
agreement, (iii) utilize the awareness created by the Whitbread relationship to
extend the Company's marketing and sales efforts throughout the UK, (iv)
introduce additional new products, and (v) establish additional strategic
alliances and license agreements outside of North America. 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 September 30, 1998, the amount of backlog orders believed to be firm
was approximately $0.7 million, as compared to approximately $2.0 million as of
December 31, 1997. This backlog includes the remaining minimum order quantity
of cooking systems contemplated in the Kanematsu purchase agreement, which are
contingent upon Japanese regulatory approval.
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.
14
<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
(a) EXHIBITS
Exhibit Number Description
-------------- -----------
10.30 Employment Letter between Rick Caron and
TurboChef Technologies, Inc. dated
September 2, 1998
(b) REPORTS ON FORM 8-K
None
15
<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 TECHNOLOGIES, INC.
By:/s/ Dennis J. Jameson
-------------------------
Dennis J. Jameson
Executive Vice President,
Chief Financial Officer
(Principal Financial Officer)
Dated November 13, 1998
16
<PAGE>
EXHIBIT 10.30
EMPLOYMENT LETTER BETWEEN RICK CARON AND TURBOCHEF
TECHNOLOGIES, INC. DATED SEPTEMBER 2, 1998.
<PAGE>
[LOGO OF TURBOCHEF APPEARS HERE]
September 2, 1998
Dear Rick;
On behalf of the Board of Directors of TurboChef Technologies, Inc. (the
"Company"), we are pleased to present to you an offer of employment under the
following terms and conditions:
I. Title and Positions:
President and Chief Executive Officer and a member of the Board of
Directors.
II. Job Description and Focus:
To be determined by the Board of Directors in consultation with you.
III. Compensation:
Cash: $300,000 per year in base salary; plus an annual bonus of up to
50% of base salary, as determined exclusively by the Board of
Directors.
Signing
Bonus: The Company will pay a signing bonus of $60,000 (50% payable on
October 1, 1998 and 50% on March 1, 1999). If you choose to
terminate your employment with the Company within one year of
your start date, you agree to repay the Signing Bonus in full
within thirty (30) days of your departure.
Stock
Options: You will be granted the option to purchase 200,000 shares of
Common Stock of the Company. The option will vest at a rate of
one-third of the shares per year on each of the anniversary
dates of your continued employment. The exercise price per share
will be determined on the date of the option grant, which will
occur on or after your start date. This option will expire seven
years after the grant date. All option terms shall be defined in
accordance with the Company's 1994 Stock Option Plan (as
amended).
- --------------------------------------------------------------------------------
TurboChef Technologies, Inc.
10500 Metric Drive, Suite 128
Dallas, Texas 75243
TEL (214) 341-9471 . FAX (214) 340-8477
<PAGE>
IV. Start Date:
Your start date is to be no later than September 8, 1998.
V. Expenses:
The Company will reimburse you for all reasonable expenses in connection
with the performance of your duties and in accordance with the Company's
Travel and Entertainment Policies as may be amended from time to time.
The Company will reimburse you for all reasonable living expenses incurred
in connection with your commuting to Dallas, Texas.
VI. Medical Benefits:
You will be provided with medical benefits in accordance with the
Company's benefit plan as may be amended from time to time. The Company
will initially subsidize your present health plan until the Company's
current plan provides comparable coverage.
VII. Condition Precedent to Employment:
You agree to execute, prior to your start date, the Company's non-
disclosure and non-compete agreements in the forms attached hereto.
VIII. Vacation/Holiday/Other:
You shall be entitled to up to four weeks of paid vacation. You are also
entitled to paid holidays in accordance with the Company's holiday
policies as may be amended from time to time. Additionally, you are
entitled to up to ten days of paid time off in each of 1998 and 1999 for
the completion of your work with Arthur D. Little, Inc. and up to four
days of paid time off in 1999 for the completion of certain work.
IX. Termination by the Company:
The Company may terminate your employment under this agreement at any
time. In the event of termination of your employment by the Company, you
will receive a severance of one year's base salary, paid to you in
accordance with the Company's standard payroll practices.
X. Arbitration:
Your employment shall be governed and construed according to New York
State Law without regards to conflict of law provisions. Any disputes or
claims arising under or in connection with your employment shall be
resolved by binding arbitration in accordance with the rules of the
American Arbitration Association. Any such arbitration proceeding would be
held in New York, New York.
If the foregoing accurately reflects your understanding of the terms of your
employment with the Company, please so indicate in the space provided below,
whereupon this letter will constitute a binding agreement between the Company
and you.
<PAGE>
We look forward to working with you.
Sincerely, Agreed and accepted as of
the date first written above,
-----------------------------
Marion H. Antonini Rick Caron
Chairman of the Board
-----------------------------
Date
Jeffrey B. Bogatin
Director and Chairman of the Executive Committee
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