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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 June 30, 2000
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, including area code:
(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 August 4, 2000
------------------- -----------------
Common Stock, $0.01 Par Value 15,728,423
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TURBOCHEF TECHNOLOGIES, INC.
TABLE OF CONTENTS
Form 10-Q Item Page
-------------- ----
Cautionary Statement Regarding Future Results and
Forward-Looking Statements.................................. 3
Part I. Financial Information
Item 1. Financial Statements
Condensed Balance Sheets as of June 30, 2000 (unaudited) and
December 31, 1999........................................... 4
Unaudited Interim Condensed Statements of Operations for the
three and six months ended June 30, 2000 and 1999........... 5
Unaudited Interim Condensed Statements of Cash Flows for the
three and six months ended June 30, 2000 and 1999........... 6
Notes to the Interim Condensed Financial Statements......... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 14
Item 3. Quantitative and Qualitative Disclosures about Market Risk.. 21
Part II. Other Information
Item 1. Legal Proceedings........................................... 22
Item 2. Changes in Securities and Use of Proceeds................... 22
Item 3. Defaults Upon Senior Securities............................. 22
Item 4. Submission of Matters to a Vote of Security Holders......... 22
Item 5. Other Information........................................... 23
Item 6. Exhibits and Reports on Form 8-K............................ 23
Signatures.................................................. 24
2
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CAUTIONARY STATEMENT REGARDING
FUTURE RESULTS AND FORWARD-LOOKING STATEMENTS
The future results of the Company, including results reflected in any
forward-looking statements made by or on behalf of the Company, will be impacted
by a number of important factors. The factors identified below in the section
entitled "Part 1. Item 2. - Management's Discussion and Analysis of Financial
Condition and Results of Operations - Forward Looking Statements" are important
factors (but not necessarily all important factors) that could cause the
Company's actual future results to differ materially from those expressed in or
implied by in any forward-looking statement made by or on behalf of the Company.
Words such as "may," "will," "expect," "believe," "anticipate," "estimate," or
"continue" or comparable terminology is intended to identify forward-looking
statements. Forward-looking statements, by their nature, involve substantial
risks or uncertainties.
As stated in the Company's Form 8-K, filed with the SEC on June 12, 2000,
and Form 8-K/A, filed with the Securities and Exchange Commission ("SEC") on
June 26, 2000, the Company's independent public accountants for fiscal years
1998 and 1999, Arthur Andersen LLP, was disengaged. The Company's Board of
Directors and Audit Committee is currently in the process of interviewing
independent public accountants to serve as auditor for the Company for fiscal
year 2000. Therefore, the Company does not, at this time, have an independent
public accountant to review the financial statements contained in this Form 10-
Q, as required by Rule 10-01(d) of Regulation S-X and Regulation S-K.
3
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TurboChef Technologies, Inc.
Condensed Balance Sheets
(Amounts in Thousands, Except Share Data)
<TABLE>
<CAPTION>
June 30, December 31,
-------- ------------
2000 1999
---- ----
(Unaudited)
<S> <C> <C>
Assets
------
Current assets:
Cash and cash equivalents $ 523 $ 1,928
Marketable securities available for sale, at fair value 3,065 7,335
Marketable securities - pledged, at fair value 8,852 7,920
Accounts receivable, net 913 1,280
Inventories, net 297 252
Prepaid expenses 16 209
-------- --------
Total current assets 13,666 18,924
-------- --------
Property and equipment:
Leasehold improvements 345 315
Furniture and fixtures 685 720
Equipment 257 518
-------- --------
1,287 1,553
Less accumulated depreciation and amortization (519) (822)
-------- --------
Net property and equipment 768 731
-------- --------
Premium on purchased put option, net 971 1,295
Other assets 96 119
-------- --------
Total assets $ 15,501 $ 21,069
======== ========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 541 $ 1,000
Accrued warranty & upgrade costs 834 1,069
Accrued expenses 562 622
Deferred revenue 1,629 1,727
Other 9 22
-------- --------
Total current liabilities 3,575 4,440
Long-term liabilities:
Long-term debt 6,801 6,406
Accrued interest 684 372
-------- --------
Total long-term liabilities 7,485 6,778
Total liabilities 11,060 11,218
Commitments and contingencies - -
Stockholders' equity:
Common stock, $.01 par value. Authorized 50,000,000 shares.
Issued 15,728,423 and 15,090,373 shares at June 30, 2000
and December 31, 1999, respectively 157 151
Additional paid-in capital 35,990 34,119
Accumulated deficit (35,771) (30,010)
Notes receivable from employees (2,211) (685)
Accumulated other comprehensive income 6,727 6,727
Treasury stock - at cost 32,130 shares in 2000 and 1999 (451) (451)
-------- --------
Total stockholders' equity 4,441 9,851
-------- --------
Total liabilities and stockholders' equity $ 15,501 $ 21,069
======== ========
</TABLE>
4
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TurboChef Technologies, Inc.
Unaudited Interim Condensed Statements of Operations
(Amounts in Thousands, Except Share Data)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Product sales $ 142 $ 1,352 $ 524 $ 2,026
Research and development fees 350 - 2,200 1,025
Royalties 10 - 15 -
----------- ----------- ----------- -----------
Total revenues 502 1,352 2,739 3,051
Costs and expenses:
Cost of goods sold 446 1,097 1,016 1,611
Research and development expenses 1,159 924 2,623 1,693
Selling, general and administrative expenses 2,226 1,958 4,385 3,684
----------- ----------- ----------- -----------
Total costs and expenses 3,831 3,979 8,024 6,988
----------- ----------- ----------- -----------
Operating loss (3,329) (2,627) (5,285) (3,937)
----------- ----------- ----------- -----------
Other income (expense):
Interest income 20 17 49 23
Interest expense (180) (84) (312) (130)
Dividend income 52 53 104 105
Amortization of purchased put option premium (162) (162) (324) (324)
Other income (expense) (23) (7) 7 (12)
----------- ----------- ----------- -----------
(293) (183) (476) (338)
----------- ----------- ----------- -----------
Net loss $ (3,622) $ (2,810) $ (5,761) $ (4,275)
=========== =========== =========== ===========
Loss per common share - basic and diluted $(0.23) $(0.19) $(0.37) $(0.29)
=========== =========== =========== ===========
Weighted average number of common
shares outstanding - basic and diluted 15,728,423 15,071,893 15,474,613 14,874,827
=========== =========== =========== ===========
</TABLE>
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TurboChef Technologies, Inc.
Unaudited Interim Condensed Statements of Cash Flows
(Amounts in Thousands)
<TABLE>
<CAPTION>
Six Month Ended June 30,
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (5,761) $ (4,275)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 158 300
Amortization of premium on purchased put option 324 324
Non-cash compensation expense 324 21
Provision for doubtful accounts - 36
Change in assets and liabilities:
Decrease in accounts receivable 367 40
Decrease (increase) in inventories (45) 543
Decrease in prepaid expenses 193 33
Decrease in other assets 16 6
Decrease in accounts payable (459) (337)
Decrease in accrued expenses (295) (38)
Increase (decrease) in deferred revenue (98) 32
Increase (decrase) in other liabilities (13) 12
Accrued interest 312 130
--------- ---------
Net cash used in operating activities (4,977) (3,173)
--------- ---------
Cash flows from investing activities:
Premium on purchased put option - (1,943)
Purchase of equipment and leasehold improvements (188) (200)
--------- ---------
Net cash provided by (used in) investing
activities (188) (2,143)
--------- ---------
Cash flows from financing activities:
Borrowings under long-term debt 3,733 6,681
Notes receivable from employees (1,526) (714)
Proceeds from the exercise of stock options 1,553 768
Proceeds from the issuance of warrants - 392
--------- ---------
Net cash provided by financing activities 3,760 7,127
--------- ---------
Net increase (decrease) in cash and cash equivalents (1,405) 1,811
Cash and cash equivalents at beginning of period 1,928 164
--------- ---------
Cash and cash equivalents at end of period $ 523 $ 1,975
========= =========
</TABLE>
6
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TURBOCHEF TECHNOLOGIES, INC.
Notes to Condensed Financial Statements
(Unaudited)
June 30, 2000
1) General
-------
TurboChef Technologies, Inc. ("TurboChef Technologies" or "the Company") is
a technology development company that heretofore has engaged primarily in
designing, developing and licensing its proprietary high-speed cooking
technologies. The TurboChef high-speed cooking system employs proprietary
hardware and software technologies to "cook-to-order" a variety of food products
at faster speeds and to quality standards comparable, and in many instances
superior to, other conventional residential and commercial ovens currently
available. In addition, the Company's high-speed cooking systems use a
microprocessor to control the cooking processes to ensure consistent quality and
also has the ability to communicate with users and service personnel over
computer networks and the Internet.
The Company's commercial products and technologies have been validated
through utilization and extensive testing by both the Company and a variety of
foodservice operators around the world. The latest version of the Company's
commercial product, the C-3 commercial counter top, was recognized as the best
innovative new product at the Hotelympia international foodservice show in
London in February 2000. The C-3 is currently available for sale in continental
Europe and the United Kingdom. The North American version, the C-70, is
currently available through the Company's commercial market partner G. S.
Blodgett.
The Company's current strategic alliance partner in North America, Maytag
Corporation ("Maytag"), recently introduced the Company's high-speed cooking
technologies to the US residential market, when it launched the Jenn-Air(R)
Accellis(TM) 5XP wall oven. The Company believes that the Accellis(TM) 5XP
will become available to consumers on or about September 2000.
The Company is currently developing its Next Generation Oven ("NGO"). When
completed, management believes that the NGO will have the ability to cook food
between 7-8 times faster than a conventional oven and may be manufactured at a
cost lower than the current cost of the Jenn-Air(R) Accellis(TM) 5XP. The
Company's strategy embraces the idea of including the "TurboChef" brand as an
"ingredient brand" on each oven manufactured by a third party, permitting more
than one manufacturer to distribute end product to consumers through the
manufacturers' distribution channels.
The Company is currently engaged in identifying several oven manufacturers
to which it would grant the non-exclusive rights to manufacture its NGO.
Management believes that by adopting this strategy it reduces the Company's
dependence on a single manufacturer, permits competitive manufacturers to market
and promote their products to consumers and increases market penetration of the
Company's technology.
As a result of the explosion in the Internet and intelligent appliance
innovation, the Company also embarked on an internal development effort to
couple the computer intelligence and cooking performance of the Company's
proprietary rapid cook technologies with the Internet. The strategy behind this
product development effort is to provide lifestyle changing benefits to
consumers that make cooking, shopping and meal planning a less time consuming
activity. The first stage of product development, a prototype appliance
("iAppliance") that couples the Company's rapid cook oven with a wireless web
pad that provides connectivity to the Internet and intuitive touch screen
controls for the oven, was first demonstrated by the Company in
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March 2000.
Management believes there could be opportunities for the Company to obtain
long-term revenue from each prospective NGO purchaser by connecting that
customer to the Internet. The Company is exploring the means and methods to
connect the NGO to the Internet, and thus obtain regular, long-term, recurring
revenues. No assurances can be made that funding can be secured to develop the
NGO, that if funding is secured that it can be commercialized in a timely
manner, or if it is commercialized that the Company can secure revenue by making
the NGO Internet enabled.
2) Liquidity
---------
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 incurred operating
losses and has been substantially dependent on loans and capital contributions
from its principal stockholders and sales of its securities to fund its
activities. Although the Company has historically incurred significant losses,
the Company expects to generate future cash flows from the direct sale of its
commercial cooking systems, royalties from the sale its commercial and
residential cooking systems, license fees for the non-exclusive licensing of its
technologies, research and development fees for product development and, as
necessary and available, raising capital through future equity or debt
financing.
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 aggregate research and development fees of $10.5 million for product
development initiatives by the Company.
In October 1999, the Company entered into a commercial License Agreement
with Maytag that broadens their distribution rights with respect to commercial
cooking products utilizing the Company's rapid cook technologies. Pursuant to
the terms of the agreement, Maytag now has exclusive rights to market and sell
throughout North America and certain worldwide rights to sell to North American
based chains with international locations. This exclusivity extends until March
2002, with certain applications extending until March 2003. In consideration for
these rights, Maytag has agreed to pay the Company per unit royalties of
approximately 10% of targeted wholesale prices. In the event that actual gross
margins exceed target levels, the Company will share equally in the incremental
margin. Maytag has also agreed to establish $5.75 million as the minimum royalty
threshold over the first twenty-four months of exclusivity ($1.0 million in
2000, $2.9 million in 2001 and $1.9 million in 2002). Maytag has also provided
the Company with $2.5 million in 1999 and $2.1 million in 2000, for the research
and development of prototype units relating to this agreement.
The Company is currently dependent on a single company, Maytag Corporation,
for its royalty revenues. Both Maytag and the Company may choose to cancel the
Alliance by giving at least 30 days prior written notice. If Maytag chooses to
cancel the commercial License Agreement, it may do so with 180 days prior
written notice and would be required to pay the Company the total amount of the
minimum royalties ($5.75 million), less the sum of all royalty payments
previously received pursuant to the agreement, within 30 days of the termination
of the agreement. In addition, currently, the Company is solely dependent on
Maytag to manufacture, market and sell its existing products in North America.
The
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Company is currently pursuing potential marketing partners in Europe and Asia.
In May 2000, the Company formed an alliance with the Shandong Xiaoya Group to
manufacture the TurboChef C3 cooking system. Production of the Chinese
manufactured C3 is expected to begin during the fourth quarter of 2000. In
addition, the Shandong Xiaoya group will distribute the C3 throughout China.
In July 1999, the Company entered into an agreement with the Gas Research
Institute ("GRI") to develop natural gas-fueled versions of the Company's
commercial and residential cooking systems. The agreement provided the Company
with $2 million in funding during 1999. In addition to the funding, the Company
is allowed to obtain licenses to use GRI's extensive patent portfolio and
benefit from years of experience with natural gas related products. In exchange
for the funding, GRI received 50,000 warrants to purchase the Company's common
stock and a defined percentage of the royalty that the Company receives on the
sale of various commercial products in North America and Europe. Such payments
terminate upon the cumulative payments of $4,000,000 to GRI.
In August 2000, the Company entered into an agreement with the GRI in which
they purchased $2.1 million of the Company's $1.00 par value Series A
Convertible Preferred Stock ("Convertible Preferred Stock") for $100.00 per
share. The 21,000 shares of Convertible Preferred Stock will pay a dividend at
the rate of 7% per annum, payable in shares, upon conversion of the Convertible
Preferred Stock into the Company's $0.01 par value Common Stock ("Common
Stock"). These securities will be converted into shares of the Company's Common
Stock on the earlier of the Company's next generation residential oven becoming
generally available for delivery to consumers in the United States or March 31,
2002. The conversion rate of the Convertible Preferred Stock will be dependent
upon the average closing price of the Company's Common Stock over a fixed period
of time prior to the general availability of the Company's next generation
residential oven to consumers in the United States. GRI has retained the right
to purchase an additional 4,000 shares, under the same terms of the initial
purchase of 21,000 shares, through August 31, 2000.
Cash used during the first two quarters of 2000 and projected cash
requirements for the balance of fiscal 2000 have exceeded the Company's original
forecast, primarily as a result of the following:
. The launch of the commercial counter top oven has been delayed by about
three months from the date originally anticipated by the Company,
resulting in a delay in the realization of revenues from sales in Europe
and to the three-month deferral of the quarterly minimum royalty
payments from Maytag.
. Certain discretionary spending is being made to fund the development of
the Company's Internet strategy, the TurboChef rapid cook iAppliance and
certain marketing activities in support of Management's fundraising
efforts in the forms of research and development sponsorships, strategic
alliances and/or equity investments.
. The Company is applying staff resources and funding in connection with
the development of its Next Generation Oven. The Company anticipates
that this oven will cook 40%-60% faster than its existing residential
technologies, and may be manufactured at a substantially lower cost than
its current embodiment.
Management continuously evaluates its liquidity position throughout the year.
If at any time Management believes that incremental funding is not achievable,
royalty payments from Maytag are not expected to be received according to
schedule and/or sufficient incremental revenues are not realized, the Company
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would decrease discretionary spending and implement cost-cutting measures to
ensure that cash flow from operations and financing facilities currently in
place are sufficient to fund operations throughout fiscal 2000.
3) Interim Condensed Financial Statements
--------------------------------------
The financial statements of the Company included herein have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission
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, 1999 balance sheet was
derived from audited financial statements but does not include all disclosures
required by generally accepted accounting principles ("GAAP"). 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, 1999 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
June 30, 2000 are not necessarily indicative of the results to be expected for
the full year.
As stated in the Company's Form 8-K, filed with the SEC on June 12, 2000, and
Form 8-K/A, filed with the SEC on June 26, 2000, the Company's independent
public accountants for fiscal years 1998 and 1999, Arthur Andersen LLP, was
disengaged. The Company's Board of Directors and Audit Committee is currently
in the process of interviewing independent public accountants to serve as
auditor for the Company for fiscal year 2000. Therefore, the Company does not,
at this time, have an independent public accountant to review the financial
statements contained in this Form 10Q, as required by Rule 10-01(d) of
Regulation S-X and Regulation S-K.
Basic net loss per common share is based on 15,728,423 and 15,071,893
weighted average shares outstanding for the three months ended June 30, 2000 and
1999, respectively. For the six months ended June 30, 2000 and 1999 basic net
loss per common share is based on 15,474,613 and 14,874,827 weighted average
shares outstanding, respectively. For both the three and six month periods ended
June 30, 2000 and 1999, the Company did not report any incremental shares of
potentially dilutive stock as their effect was anti-dilutive.
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, 1999 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 six-month period
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ended June 30, 2000, comprehensive income was ($5,759,000) of which all
($5,759,000) was related to net loss. For the six-month period June 30, 1999,
comprehensive income was ($2,053,000) of which ($4,275,000) was net loss and of
which $2,222,000 was the change in net unrealized gain on marketable securities.
4) Notes Receivable from Employees
-------------------------------
In March and April 1999, the Company loaned an aggregate of $72,500 and
$600,000, respectively, to two of its employees and two of the Company's
directors. The loaned amounts were used by such employees and directors to
exercise 269,000 (29,000 in March 1999 and 240,000 in April 1999) stock options
at an exercise price of $2.50 per share. All such loans are full-recourse and
are secured by the underlying securities and the general assets of the
respective borrower. Three of the loans have a term of two years and are
payable, along with accrued interest, in March and April 2001. One of the loans
has a term of five years and is payable, along with accrued interest, on April
2004. All of the notes are recorded as a reduction to Stockholders' Equity.
The notes bear interest at a rate of 4.8%. The market rate of interest on June
30, 1999 was 7.0%, based upon margin rates obtained through various discount
brokers. The difference between interest earned by the Company on the notes and
the market rate of interest is recorded as compensation expense.
In February and March 2000, the Company loaned an aggregate of $13,500 and
$1,500,000 to two of its employees and one of its directors. The amount of
$13,500 was used by such employees to exercise 9,000 stock options at an
exercise price of $1.50 per share in February 2000. The amount of $1,500,000
was used by such director to exercise 600,000 stock options at an exercise price
of $2.50 per share in March 2000. All such loans are full recourse and are
secured by the underlying securities and the general assets of the respective
borrower. Each loan has a term of five years and is payable, along with accrued
interest in February and March 2005. The notes have been recorded as a
reduction to Stockholders' Equity. The notes bear interest at a rate of 6.7%.
The market rates of interest in February and March 2000 was 7.5%, based upon
margin rates obtained through various discount brokers. The difference between
interest earned by the Company on the notes and the market rate of interest has
been recorded as compensation expense.
The total compensation expense related to notes receivable from such
employees and directors was $11,000 for the six months ended June 30, 2000.
5) Derivative Financial Instruments
--------------------------------
As part of its strategic alliance efforts, the Company invested in equity
securities of Maytag Corporation. These securities are subject to fluctuations
from market value changes in stock prices. In connection with the Variable
Stock Transaction (as defined in Note 6 hereof) and in order to mitigate market
risk, the Company hedged its investment in Maytag securities by purchasing, on
January 14, 1999, put options to sell the 293,846 shares of Maytag common stock
owned by the Company. The purchase of the put options required an initial cash
outlay (the "premium" amount) of $1.9 million. The premium will be amortized
over three years, the life of the investment. The purchased put options protect
the Company from a decline in the market value of the security below a minimum
level of approximately $57.00 per share (the put "strike" price) on January 14,
2002. The total value of the put options at risk is equal to the unamortized
premium, which was $971,000 as of June 30, 2000. The Company's purchased put
options are accounted for as a hedge of its investment in the Company's Maytag
stock in accordance with GAAP.
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Hedge accounting under GAAP requires the following criteria to be met: (i) the
item to be hedged is exposed to price risk, (ii) the options position reduces
the price exposure, and (iii) the options position is designated as a hedge. No
options have been purchased to cover the Company's investment in Maytag stock
after January 14, 2002.
At June 30, 2000, the market value of the Company's Maytag common stock was
less than the strike price of the purchased put options. The net unrealized
gain of approximately $5.9 million on the purchased put options is equal to the
difference between the strike price of the options and the market value of the
Maytag common stock as of June 30, 2000, and is recorded as an increase in
accumulated other comprehensive income. The net unrealized gain on the pledged
shares of approximately $4.8 million as of June 30, 2000 has been recorded as a
reduction to the Company's long-term debt. The net unrealized gain of
approximately $1.1 million on shares not pledged as of June 30, 2000 has been
recorded as an increase in marketable securities available for sale.
The Company could be exposed to losses related to the above financial
instrument should its counterparty default. This risk is mitigated through
credit monitoring procedures.
6) Accrued Warranty and Upgrade Costs
----------------------------------
On September 1, 1999, the Company entered into an agreement to upgrade and
warranty 262 cooking systems installed for Whitbread PLC. The Company received
approximately $1.4 million from Whitbread PLC to complete the upgrade and
warranty the cooking systems for a three-year period, beginning in September
1999. The cooking system upgrades will include design changes that should
substantially increase the life and durability of the cooking systems. The
Company recorded a corresponding liability of $1.4 million representing the
estimated cost of upgrade and warranty. The liability is reduced as services
related to the upgrade and warranty are incurred. During 1999 and 2000, the
Company accrued an additional $755,000 and $600,000, respectively, for expenses
relating to the completion of the upgrade and remainder of the three-year
warranty period. The cooking system upgrades were completed in February 2000.
At this time, the Company believes that it has accrued expenses sufficient to
cover the total cost of the upgrades and any charges arising during the three-
year warranty period. The liability has been estimated and is subject to a high
degree of judgement. There can be no assurance that future expenses incurred on
the upgrade and three-year warranty will not have a material adverse effect upon
the Company.
7) Secured Borrowings
------------------
In January 1999, the Company entered into an agreement with Banque AIG,
London Branch (an affiliate of American International Group, Inc. ("AIG")). The
AIG facility provides for the Company to pledge its Maytag shares in the form of
a "Variable Stock Transaction" and to receive cash advances against the value of
the Maytag shares. All advances mature on January 14, 2002. Interest is imputed
at rates ranging from 5.8% to 8.0%. The Company may satisfy any outstanding
obligation by surrendering Maytag shares equal to the number of pledged shares
or with cash at any time up to and including January 14, 2002. The transaction
allows the Company to benefit from the appreciation over $63.25 per share in the
Maytag share price over the three-year period and provides down-side protection
to the Company in the form of a purchased put option for the 293,846 shares of
Maytag stock. The purchased put option establishes a minimum realizable value
for the Maytag shares of approximately $57 per share.
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As of June 30, 2000, the Company had pledged 240,000 shares of the Maytag
stock, receiving advances totaling $11.6 million from AIG. As of August 4,
2000, the Company had pledged 265,000 shares of the Maytag stock, receiving
advances totaling $12.9 million. As of August 4, 2000, the Company has
approximately $1.5 million in advances available through the AIG credit
facility.
In February 1999, the Company entered into a revolving credit agreement
with its bank. The agreement was secured by 6,923 shares of Maytag common stock
owned by the Company. The Company could borrow up to the lesser of $315,000 or
75% of the market value of the Maytag stock at the prime interest rate less
0.5%. This agreement expired in May 2000.
8) Authoritative Pronouncements
----------------------------
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statements of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities". This Statement is now effective
for fiscal years beginning after June 15, 2000. Previously, the Company would
have had to adopt the Statement no later than January 1, 2000. Under the new
guidelines, the Company will be required to adopt this Statement no later than
January 1, 2001. SFAS No. 133 requires companies to report derivatives on the
balance sheet as assets or liabilities, measured at fair value. Gains or losses
resulting from changes in the values of those derivatives would be accounted for
depending on the use of the derivative and whether it qualifies for hedge
accounting. Under FASB 133, the Company's derivative investments would be
marked to market on a quarterly basis and certain gains or losses would be
recorded within the Company's Condensed Statements of Operations. On June 30,
2000, the fair market value of the Company's derivative instruments was
$5,329,000.
In December of 1999, the Securities and Exchange Commission staff issued
Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial
Statements. This SAB does not change any of the existing rules on revenue
recognition. Rather, the SAB provides additional guidance for transactions not
addressed by existing rules. The company is required to review its revenue
recognition policies by the fourth quarter of fiscal year 2000 to determine that
its recognition criteria is in compliance with the SAB interpretations. Any
change in accounting principle required in order to comply with the SAB may be
reported as cumulative catch-up adjustment at that time. The Company is
currently reviewing its revenue recognition policies and does not feel that any
change in accounting required would have a material impact on the Company's
reported financial position, results of operations or cash flows.
Additionally, the Company is evaluating the effects of FASB Interpretation
33, Accounting for Certain Transactions Involving Stock Options. The Company
has not yet adopted or completed its assessment of this interpretation on its
current practices.
9) Subsequent Events
-----------------
In August 2000, the Company entered into an agreement with GRI, in which
they purchased $2.1 million of the Company's $1.00 par value Series A
Convertible Preferred Stock ("Convertible Preferred Stock") for $100.00 per
share. The 21,000 shares of Convertible Preferred Stock will pay a dividend at
the rate of 7% per annum, payable in shares, upon conversion of the Convertible
Preferred Stock into the Company's $0.01 par value Common Stock ("Common
Stock"). These securities will be converted into shares of the Company's Common
Stock on the earlier of the Company's next generation residential oven becoming
generally available for delivery to consumers in the United States or March 31,
2002. The conversion rate of the Convertible Preferred Stock will be dependent
upon the average closing price of the Company's Common Stock over a fixed period
of time prior to the general availability of the Company's next generation
residential oven to consumers in the United States. GRI has retained the right
to purchase an additional 4,000 shares, under the same terms of the initial
purchase of 21,000 shares, through August 31, 2000.
13
<PAGE>
Item 2: Management Discussion and Analysis of Financial Condition and Results
---------------------------------------------------------------------
of Operations
-------------
General
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.
TurboChef Technologies, Inc. ("the Company") was incorporated on April 3,
1991. Prior to its name change in July 1998, the Company operated under the
name TurboChef, Inc. The Company is a foodservice technology company engaged
primarily in designing, developing and marketing high-speed cooking systems.
The Company believes its primary markets are with both residential users and
commercial foodservice operators throughout North America, Europe and Asia.
Management believes that the Company operates in one primary business segment.
In September 1997, the Company and Maytag Corporation ("Maytag") entered
into a "Strategic Alliance Agreement" ("Alliance") for the purpose of the
development and commercialization of innovative products based on new
technologies in the areas of heat transfer and thermodynamics. In connection
with the Alliance, the Company issued 564,668 shares of common stock with an
aggregate fair market value of approximately $10.0 million for 293,846 shares of
Maytag common stock at the same aggregate market value. In addition, the Company
received fees from Maytag for research and development activities. These fees
totaled $4,075,000 and $750,000 in 1998 and 1997, respectively. 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. In November 1999, the Company announced a commercial License
Agreement with Maytag. The Company received $2,500,000 in research and
development fees during the fourth quarter of 1999, $1,850,000 during the first
quarter of 2000 and $250,000 during April 2000, relating to this agreement.
Future revenues from the current Alliance projects will depend upon the
successful commercialization of these products and the minimum royalty
agreements associated with the commercial License Agreement.
The Maytag Alliance is ongoing, and provides for the opportunity to
establish additional residential and commercial product development projects in
the future. Accordingly, future revenues from the Alliance will depend upon the
establishment of additional fee based research and development projects with
Maytag, royalties from the successful commercialization and sales of the
products that embody the Company's technologies, advances against those
royalties, and any other appropriate consideration. However, the Maytag Alliance
is cancelable by either party with 30 days prior written notice.
During the second half of 1999, the Company completed the transition of its
North American Sales and Marketing responsibilities to G.S. Blodgett Corporation
("Blodgett"), a wholly owned subsidiary of Maytag, engaging in the manufacturing
and sales of commercial foodservice equipment. In addition, Blodgett has also
adopted the responsibility of manufacturing of the Company's commercial
products. Blodgett is currently the Company's sole source of supply for its
cooking systems.
In addition, the Company is dependent on Maytag to manufacture, market and
sell its products in North America. Both Maytag and the Company may choose to
cancel the Alliance by giving at least 30 days prior written notice. If Maytag
chooses to cancel the commercial License Agreement, it may do so with 180 days
prior written notice and would be required to pay the Company the total amount
of the minimum royalties ($5.75 million), less the sum of all royalty payments
previously received pursuant to the agreement, within 30 days of the termination
of the agreement. If the Alliance is canceled or if any of the alliance
projects are canceled, there is no assurance that the Company would be able to
find alternate
14
<PAGE>
sources of funding on acceptable terms for further research and development of
current and future products or operations. The failure to find acceptable
alternative financing could have a significant adverse impact on the Company's
current and future operations. However, management is confident that through the
sales of its commercial cooking systems, royalties from the sale of its licensed
products and financing agreements, it will have adequate funding to finance its
operations throughout 2000.
In July 1999, the Company entered into a research and development agreement
with GRI. Through this agreement, the Company has received $2,000,000 in funding
for the development of gas fueled cooking platforms. In exchange for the
funding, GRI received 50,000 warrants to purchase the Company's common stock and
a defined percentage of the royalty that the Company receives on the sale of
various European and North American commercial products developed by research
and development efforts undertaken as a result of the GRI agreement. Such
royalty payments terminate upon the cumulative payments of $4,000,000 to GRI.
In August 2000, the Company entered into an agreement with GRI in which
they purchased $2.1 million of the Company's Convertible Preferred Stock for
$100.00 per share. The 21,000 shares of Convertible Preferred Stock will pay a
dividend at the rate of 7% per annum, payable in shares, upon conversion of the
Convertible Preferred Stock into the Company's Common Stock. These securities
will be converted into shares of the Company's Common Stock on the earlier of
the Company's next generation residential oven becoming generally available for
delivery to consumers in the United States or March 31, 2002. The conversion
rate of the Convertible Preferred Stock will be dependent upon the average
closing price of the Company's Common Stock over a fixed period of time prior to
the general availability of the Company's next generation residential oven to
consumers in the United States. GRI has retained the right to purchase an
additional 4,000 shares, under the same terms of the initial purchase of 21,000
shares, through August 31, 2000.
Results of Operations for the Quarter Ended June 30, 2000 Compared to the
Quarter Ended June 30, 1999
Revenues for the quarter ended June 30, 2000 were $502,000, compared to
revenues of $1,352,000 for the quarter ended June 30, 1999. This decrease is
primarily attributable to a decline in revenues from the direct sales of
commercial cooking systems in Europe and North America. The decline in direct
sales revenues in Europe is due to the Company's focus on sales of the new C3
cooking system. As a result of these efforts, the Company is currently in the
process of installing over 330 units in Little Chef division of Granada PLC, the
United Kingdom's largest food service company. The Company anticipates that this
installation will be completed in October 2000. The decline in direct sales in
North America is a result of the transition to a royalty arrangement with
Maytag, as compared to the recognition of the full sales price as revenues
during the comparable quarter of 1999.
Cost of sales for the quarter ended June 30, 2000 were $446,000, a decrease
of $651,000 when compared to $1,097,000 for cost of sales in the quarter ended
June 30, 1999. This decrease is due to a reduction in direct cooking system
sales in North America and Europe, partially offset by accrued expenses relating
to the Company's three-year extended warranty program with a major customer in
15
<PAGE>
Europe. The decrease in direct sales of commercial cooking systems in North
America is due to the transition to a licensing arrangement with Maytag,
resulting in the elimination of cost of sales for such units.
Gross profit on direct cooking system sales for the quarter ended June 30,
2000 decreased $405,000 to ($7,000), when compared to gross profit on direct
cooking system sales of $398,000 during the quarter ended June 30, 1999. This
decrease is due primarily to the decrease in the number of direct sales of
commercial cooking systems and a $30,000 charge for warranty expenses in Europe.
Research and development expenses for the quarter ended June 30, 2000
increased $235,000, to $1,159,000, as compared to $924,000 for the quarter
ended June 30, 1999. This increase is principally due to engineering and
prototype expenses relating to the development of the Company's commercial
counter top platforms (80%), pursuant to the commercial License Agreement. In
addition, the Company has incurred prototype expenses relating to the Company's
"next generation" residential cooking system and development expenses relating
to the Company's Internet strategy.
Selling, general and administrative expenses for the quarter ended June 30,
2000 increased $268,000, to $2,226,000 from comparable expenses of $1,958,000
for the quarter ended June 30, 1999. The increase over the quarter ending June
30, 1999 is primarily due to marketing costs associated with the Company's new
commercial countertop platform, expansion of the Company's insurance coverage,
principally in connection with the establishment of the Lloyds of London
offensive and defensive patent insurance policies, increases in non-cash
compensation expenses relating to stock option grants to former employees and
the costs associated with the Company's ongoing efforts to develop international
alliances and partnerships.
Other expenses were $293,000 for the quarter ended June 30, 2000, compared
to $183,000 for the quarter ended June 30, 1999. The increase in expense is
primarily due to an increase in interest expense, related to the Company's long-
term credit agreement.
Results of Operations for the Six Months Ended June 30, 2000 Compared to the Six
Months Ended June 30, 1999
Revenues for the six months ended June 30, 2000 was $2,739,000, compared to
revenues of $3,051,000 for the six months ended June 30, 1999. This decrease is
primarily attributable a decline in revenues from the direct sales of commercial
cooking systems in Europe and North America. The decline in direct sales
revenues in Europe is due to the Company's focus on new sales of the C3
commercial counter top platform. As a result of these efforts, the Company is
currently in the process of installing over 330 units in Little Chef division of
Granada PLC, the United Kingdom's largest food service company. The Company
anticipates that this installation will be completed in October 2000. The
decline in North American direct sales revenues is a result of the transition to
a royalty arrangement with Maytag in North America, as compared to the
recognition of the full sales price as revenues during the comparable six months
of 1999. The decrease in direct sales revenues were partially offset by an
increase in research and development fees pursuant to the commercial License
Agreement with Maytag.
Cost of sales for the six months ended June 30, 2000 were $1,016,000, a
decrease of $595,000 when compared to $1,611,000 for cost of sales in the six
months ended June 30, 1999. This decrease is principally due to a reduction in
parts and commercial cooking sales in North America and Europe, partially offset
by charges relating to the Company's three-year extended warranty program. The
decrease
16
<PAGE>
in cost of direct sales of commercial cooking systems in North America is due to
the transition to a licensing arrangement with Maytag.
Gross profit on direct cooking system sales for the six months ended June
30, 2000 decreased $456,000 to $96,000, when compared to gross profit on direct
cooking system sales of $552,000 during the six months ended June 30, 1999. The
decrease was due to a decrease in commercial cooking system sales in Europe and
the transition of the North American sales and marketing responsibilities to
Maytag.
Research and development expenses for the six months ended June 30, 2000
increased $930,000, to $2,623,000, as compared to $1,693,000 for the six months
ended June 30, 1999. This increase was principally due to engineering and
prototype expenses relating to the development of the Company's commercial
counter top platforms (80%), pursuant to the commercial License Agreement. In
addition, the Company has incurred prototype expenses relating to the Company's
"next generation" residential cooking system and development expenses relating
to the Company's Internet strategy.
Selling, general and administrative expenses for the six months ended June
30, 2000 increased $701,000, to $4,385,000 from comparable expenses of
$3,684,000 for the six months ended June 30, 1999. The increase over the six
months ending June 30, 1999 is primarily due to marketing costs associated with
the Company's new commercial countertop platform, expansion of the Company's
insurance coverage, principally in connection with the establishment of the
Lloyds of London offensive and defensive patent insurance policies, increases in
non-cash compensation expenses relating to stock option grants to former
employees and the costs associated with the Company's ongoing efforts to develop
international alliances and partnerships.
Other expenses were $476,000 for the six months ended June 30, 2000,
compared to $338,000 for the six months ended June 30, 1999. The increase in
expense is primarily due to an increase in interest expense, related to the
Company's long-term credit agreement.
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 incurred operating
losses and has been substantially dependent on loans and capital contributions
from its principal stockholders, private placements of its securities and the
proceeds from stock offerings.
Although the Company has historically incurred significant losses, the
Company expects to generate future cash flows from the direct sale of its
commercial cooking systems, royalties from the sale its commercial and
residential cooking systems, license fees for the non-exclusive licensing of its
technologies, research and development fees for product development and, as
necessary and available, raising capital through future equity or debt
financing. As previously discussed, the Company is currently dependent on a
single company, Maytag Corporation, for its royalty revenues. Accordingly,
future revenues from the Alliance will depend upon the establishment of
additional fee based research and development projects with Maytag, royalties
from the successful commercialization and sales of the products that embody the
Company's technologies, advances against such royalties, and other potential
revenue sources. However, if additional projects are not initiated with Maytag,
the Alliance is canceled, or if revenues from cooking system sales, cash from
its financing agreements and external financing is not
17
<PAGE>
sufficient, the Company may be required to revise its plan of operations,
including a curtailment of expansion and or operations, product development
activities and reduction of other general and administrative expenses.
Furthermore, there is no assurance that the Company would be able to find
alternative sources of funding which could have a significant adverse effect on
the Company's current and future operations. However, management is confident
that through sales of its commercial cooking systems, minimum royalties and
current credit facilities, it will have adequate funding for further research
and development throughout 2000.
Cash used during the first two quarters of 2000 and projected cash
requirements for the balance of fiscal 2000 have exceeded the Company's original
forecast, primarily as a result of the following:
. The launch of the commercial counter top oven has been delayed by about
three months from the date originally anticipated by the Company,
resulting in a delay in the realization of revenues from sales in Europe
and to the three-month deferral of the quarterly minimum royalty
payments from Maytag.
. Certain discretionary spending is being made to fund the development of
the Company's Internet strategy, the TurboChef rapid cook iAppliance and
certain marketing activities in support of Management's fundraising
efforts in the forms of research and development sponsorships, strategic
alliances and/or equity investments.
. The Company is applying staff resources and funding in connection with
the development of its Next Generation Oven. The Company anticipates
that this oven will cook 40%-60% faster than its existing residential
technologies, and may be manufactured at a substantially lower cost than
its current embodiment.
Management will continuously evaluate its liquidity position throughout the
year. If at that time Management believes that incremental funding is not
achievable, royalty payments from Maytag are not expected to be received
according to schedule and/or sufficient incremental revenues are not realized,
the Company would decrease discretionary spending and implement cost-cutting
measures to ensure that cash flow from operations and financing facilities
currently in place are sufficient to fund operations throughout fiscal 2000.
Since October 1997, the Company's cash requirements have been met in part
by Maytag. In accordance with the Maytag Alliance, the Company has been paid an
aggregate of $10.5 million for technology transfer initiatives by the Company.
In October 1999, the Company entered into a commercial License Agreement
that broadens Maytag's distribution rights with respect to commercial cooking
products utilizing the Company's rapid cook technologies. Pursuant to the terms
of the agreement, Maytag now has exclusive rights to market and sell throughout
North America and certain worldwide rights to sell to North American based
chains with international locations. This exclusivity extends until March 2002,
with certain applications extending until March 2003. In consideration for
these rights, Maytag has agreed to pay the Company per unit royalties of
approximately 10% of targeted wholesale prices. In the event that actual gross
margins exceed target levels, the Company will share equally in the incremental
margin. In addition to the payment of royalties, Maytag has also agreed to
establish $5.75 million as the minimum royalty threshold over the first two
years of exclusivity, as well as provide the Company with approximately $4.6
million in additional research and development funding ($2.5 million during the
fourth quarter of 1999, $1.85 million during
18
<PAGE>
the first quarter of 2000 and $250,000 during the second quarter of 2000), for
the development of prototype units relating to this agreement. If Maytag chooses
to cancel the commercial License Agreement, it may do so with 180 days prior
written notice and would be required to pay the Company the total amount of the
minimum royalties ($5.75 million), less the sum of all royalty payments
previously received pursuant to the agreement, within 30 days of the termination
of the agreement. The cancellation of this agreement could have a material
adverse effect on the operations and the financial position of the Company if
they were unable to enter into an agreement with another party with similar
terms.
The Maytag Alliance called for the mutual exchange of each company's stock
with a value of approximately $10.0 million. In 1997, Maytag purchased 564,668
shares of the Company's common stock, and the Company purchased 293,846 shares
of Maytag common stock. As of August 4, 2000, these securities had a market
value of approximately $10.4 million.
In July 1999, the Company entered into a research and development agreement
with GRI. Through this agreement, the Company
has received $2,000,000 in funding for the development of gas fueled cooking
platforms. In exchange for the funding, GRI received warrants to purchase
50,000 shares of the Company's common stock and a percentage of the royalty that
the Company receives on the sale of various commercial products containing
technology developed from the GRI funding in North America and Europe. The
maximum cumulative royalty that GRI will receive under this agreement is $4.0
million.
In August 2000, the Company entered into an agreement with GRI in which
they purchased $2.1 million of the Company's Convertible Preferred Stock for
$100.00 per share. The 21,000 shares of Convertible Preferred Stock will pay a
dividend at the rate of 7% per annum, payable in shares, upon conversion of the
Convertible Preferred Stock into the Company's Common Stock. These securities
will be converted into shares of the Company's Common Stock on the earlier of
the Company's next generation residential oven becoming generally available for
delivery to consumers in the United States or March 31, 2002. The conversion
rate of the Convertible Preferred Stock will be dependent upon the average
closing price of the Company's Common Stock over a fixed period of time prior to
the general availability of the Company's next generation residential oven to
consumers in the United States. GRI has retained the right to purchase an
additional 4,000 shares, under the same terms of the initial purchase of 21,000
shares, through August 31, 2000.
In January 1999, the Company entered into an agreement with Banque AIG,
London Branch (an affiliate of American International Group, Inc. ("AIG")). The
AIG facility provides for the Company to pledge its Maytag shares in the form of
a "Variable Stock Transaction" and to receive cash advances against the value of
the Maytag shares. All advances mature on January 14, 2002. Interest is imputed
at rates ranging from 5.8% to 8.0%. The Company may satisfy any outstanding
obligation by surrendering Maytag shares equal to the fair value of the
obligation or with cash at any time up to and including January 14, 2002. The
transaction allows the Company to benefit from the appreciation over $63.25 per
share in the Maytag share price over the three-year period and provides down-
side protection to the Company in the form of a purchased put option for the
293,846 shares of Maytag stock. The purchased put option establishes a minimum
realizable value for the Maytag shares of approximately $57 per share.
As of June 30, 2000, the Company had pledged 240,000 shares of the Maytag
stock, receiving advances totaling $11.6 million from AIG. As of August 4,
2000, the Company had pledged 265,000
19
<PAGE>
shares of the Maytag stock, receiving advances totaling $12.9 million. As of
August 4, 2000, the Company has approximately $1.5 million in advances available
through the AIG credit agreement.
In February 1999, the Company entered into a revolving credit agreement
with its bank. The agreement was secured by 6,923 shares of Maytag common stock
owned by the Company. The Company could borrow up to the lesser of $315,000 or
75% of the market value of the Maytag stock at the prime interest rate less
0.5%. This agreement expired in May 2000.
At June 30, 2000, the Company had working capital of $10,091,000 as
compared to working capital of $14,484,000 at December 31, 1999. The $4,393,000
working capital decrease is primarily due to decreases in the fair value of the
Company's pledged Maytag common stock and cash equivalents and operating losses
incurred during the quarter.
Cash used in operating activities was $4,977,000 for the six months ended
June 30, 2000 as compared to cash used in operating activities of $3,173,000 for
the six months ended June 30, 1999. The net loss in the first six months of 2000
included $1,118,000 of non-cash contributions to net loss, compared to $811,000
in 1999. Major factors leading to the increase in net cash used in operating
activities for the six months ended June 30, 2000 was an increase in net loss
($1,486,000), increases in inventory ($588,000) and decreases in accrued
expenses ($257,000). These were partially offset by an increase in non-cash
expenses ($307,000) and decreases in accounts receivable ($327,000). Cash used
in investing activities for the six months ended June 30, 2000 was $188,000,
consisting of equipment and leasehold improvement purchases. Cash provided by
financing activities was $3,760,000 for the six months ended June 30, 2000,
which was principally obtained through long-term borrowings. At June 30, 2000,
the Company had cash and cash equivalents of $523,000, compared to cash and cash
equivalents of $1,928,000 at December 31, 1999.
Forward-Looking Statements
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 could be
derived from its currently proposed plans within the next 15 to 18 months, if
such plans are successfully completed. These plans may include: (i) joint
development and commercialization of residential and commercial products in
North America through the Maytag Alliance, (ii) pursuit of strategic alliances
and license agreements in major international markets, (iii) continued direct
marketing to European restaurants, hotels, convenience stores and other
foodservice operators, (iv) continued development of new hardware, software and
food solutions for residential and commercial applications utilizing the
Company's patented technologies, (v) the development of new foodservice
technologies, and (vi) the development and execution of an Internet and
connectivity strategy for both residential and commercial appliances including
the filing of key business process patents. 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.
20
<PAGE>
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.
Item 3: Quantitative and Qualitative Disclosures about Market Risk
----------------------------------------------------------
In January 1999, the Company invested approximately $1.9 million to
purchase a "put option" that covered all of the Company's Maytag stock. The
function of the put option is to guarantee a minimum value of the Company's
Maytag stock for a three-year period. This put option is an integral part of
the AIG credit facility as it established a minimum borrowing base from which
the Company could draw upon from time to time. The market value of the put
option will be based upon the current price of Maytag stock and the amount of
time remaining on the option. The Company is currently amortizing this
investment on a straight-line basis, over a three-year period. The maximum
potential exposure that the Company has, with respect to the put option, is $1.9
million, the initial cost of the investment. For further information regarding
the Company's credit facility see the "Liquidity and Capital Resources" and
"Notes to Condensed Financial Statements" sections of this document.
21
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds.
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
No annual meetings were held during the period ending June 30, 2000.
However, on July 12, 2000, the Annual Meeting of Stockholders of the Company was
held in Dallas, Texas. At the Annual Meeting, the Company's stockholders elected
five (5) individuals to serve as the Company's Board of Directors until the next
Annual Meeting of the Stockholders and until their successors are elected and
duly qualified. The table presented below indicates the number of votes cast in
favor of the election of such persons as directors and the number of votes
withheld. There were no broker non-votes cast at the annual meeting.
<TABLE>
<CAPTION>
Name of Director Number of Votes For Withheld Votes
---------------------------------------- --------------------------- ------------------------
<S> <C> <C>
Marion H. Antonini 13,036,338 694,076
Jeffery B. Bogatin 13,062,338 668,076
Richard N. Caron 13,072,462 657,952
Donald J. Gogel 13,144,319 586,095
Sir Anthony Jolliffe 13,134,378 596,036
</TABLE>
In addition to the election of the Company's Board of Directors, the
stockholders approved the following proposal at the Annual Meeting:
1. A proposal to amend the Company's 1994 Stock Option Plan, as amended, to
increase the number of shares of Common Stock reserved for issuance under
the plan by 1,000,000 shares. Aggregates of 7,932,805 shares were voted for
this proposal, 865,139 shares voted against this proposal and 30,470 shares
abstained.
22
<PAGE>
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27: Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
A Form 8-K and Form 8-K/A were filed during the period ended June
30, 2000 under Item 4 to report the disengagment of the
Company's former independent public accountant.
23
<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/ Marc Jacobson
----------------------------------
Marc Jacobson
Interim Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
Dated August 14, 2000
24
