================================================================================ 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 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 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 TurboChef Technologies, Inc. Condensed Balance Sheets (Amounts in Thousands, Except Share Data) June 30, December 31, -------- ------------ 2000 1999 ---- ---- (Unaudited) 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 ======== ======== 4 TurboChef Technologies, Inc. Unaudited Interim Condensed Statements of Operations (Amounts in Thousands, Except Share Data) Three Months Ended June 30, Six Months Ended June 30, 2000 1999 2000 1999 ---- ---- ---- ---- 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 =========== =========== =========== =========== 5 TurboChef Technologies, Inc. Unaudited Interim Condensed Statements of Cash Flows (Amounts in Thousands) Six Month Ended June 30, 2000 1999 ---- ---- 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 ========= ========= 6 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 7 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 8 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 9 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 10 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. 11 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. 12 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 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 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 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 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 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 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 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 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 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. Name of Director Number of Votes For Withheld Votes - ---------------------------------------- --------------------------- ------------------------ 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 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 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 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