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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, 1998
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM
___________ TO ____________
COMMISSION FILE NUMBER 0-23478
_________________________
TurboChef Technologies, Inc.
(Exact name of Registrant as specified in its Charter)
DELAWARE 48-1100390
(State or other jurisdiction of (IRS employer
incorporation or organization) identification number)
10500 METRIC DRIVE, SUITE 128 75243
DALLAS, TEXAS (Zip Code)
(Address of principal executive offices)
Registrant's telephone number:
(214) 341-9471
_________________________
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate the number of shares outstanding of each of the Registrant's classes
of Common Stock, as of the latest practicable date.
Number of Shares Outstanding
Title of Each Class at August 10, 1998
------------------- ------------------
Common Stock, $0.01 Par Value 14,653,976
_________________________
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TURBOCHEF TECHNOLOGIES, INC.
TABLE OF CONTENTS
Form 10-Q Item Page
- -------------- ----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets as of June 30, 1998 (unaudited) and
December 31, 1997............................................ 3
Condensed Statements of Operations (unaudited) for the three
and six months ended June 30, 1998 and 1997.................. 4
Condensed Statements of Cash Flows (unaudited) for the
six months ended June 30, 1998 and 1997...................... 5
Notes to Condensed Financial Statements (unaudited).......... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................ 15
Item 2. Changes in Securities........................................ 15
Item 3. Defaults Upon Senior Securities.............................. 15
Item 4. Submission of Matters to a Vote of Security Holders.......... 15
Item 5. Other Information............................................ 16
Item 6. Exhibits and Reports on Form 8-K............................. 16
2
PART 1 - ITEM 1 FINANCIAL STATEMENTS
TURBOCHEF TECHNOLOGIES, INC.
CONDENSED BALANCE SHEETS
June 30, December 31,
-------- ------------
1998 1997
---- ----
Assets (Unaudited)
Current assets:
Cash and cash equivalents $ 176,735 1,396,641
Marketable securities available for sale,
at fair value 8,970,303 7,277,395
Accounts receivable 1,210,117 644,569
Inventories 508,961 934,690
Prepaid expenses 41,392 104,160
------------ ------------
Total current assets 10,907,508 10,357,455
------------ ------------
Marketable securities available for sale, at fair value 7,254,323 5,482,064
Property and equipment:
Leasehold improvements 116,313 110,062
Furniture and fixtures 388,281 344,507
Equipment 430,581 420,342
------------ ------------
935,175 874,911
Less accumulated depreciation and amortization (467,940) (383,948)
------------ ------------
Net property and equipment 467,235 490,963
------------ ------------
Other assets 144,176 109,283
------------ ------------
Total assets $ 18,773,242 16,439,765
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable 428,685 401,013
Accrued expenses 342,876 352,928
Deferred revenue 66,536 21,705
Other liabilities 215,000 --
------------ ------------
Total current liabilities 1,053,097 775,646
------------ ------------
Deposits 4,977 --
Deferred rent 29,709 35,651
------------ ------------
Total liabilities 1,087,783 811,297
------------ ------------
Stockholders' equity:
Common stock, $.01 par value. Authorized 50,000,000
shares. Issued 14,653,976 and 14,551,294 shares at
June 30, 1998 and December 31, 1997, respectively 146,540 145,513
Additional paid-in capital 32,423,423 32,129,601
Accumulated deficit (18,942,217) (17,276,907)
Net unrealized gain on marketable securities 4,508,665 964,148
Treasury stock - at cost 32,130 shares in 1998 and
17,382 shares in 1997 (450,952) (333,887)
------------ ------------
Total stockholders' equity 17,685,459 15,628,468
------------ ------------
$ 18,773,242 $ 16,439,765
============ ============
See accompanying notes to condensed financial statements.
3
TURBOCHEF TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Six Months Ended
-------------------- --------------------
June 30, June 30,
-------- --------
1998 1997 1998 1997
---- ---- ---- ----
Net sales $ 748,879 1,040,916 $ 1,702,883 1,727,856
Other revenues 900,000 4,177 1,650,000 10,414
------------ ------------ ------------ ------------
Total revenues 1,648,879 1,045,093 3,352,883 1,738,270
Costs and expenses:
Cost of goods sold 718,326 676,627 1,466,004 1,188,063
Research and development expenses 385,024 253,848 844,149 521,905
Selling, general and administrative expenses 1,410,531 1,157,929 2,700,450 2,142,463
------------ ------------ ------------ ------------
Total costs and expenses 2,513,881 2,088,404 5,010,603 3,852,431
------------ ------------ ------------ ------------
Operating loss (865,002) (1,043,311) (1,657,720) (2,114,161)
------------ ------------ ------------ ------------
Other income (expense):
Interest income 28,646 79,419 65,569 186,268
Dividend income 47,016 -- 94,031 --
Equity in loss of joint venture (115,083) (14,709) (180,365) (14,709)
Other 13,175 -- 13,175 --
------------ ------------ ------------ ------------
(26,246) 64,710 (7,590) 171,559
------------ ------------ ------------ ------------
Net loss $ (891,248) (978,601) $ (1,665,310) (1,942,602)
============ ============ ============ ============
Loss per common share - basic and diluted $ (0.06) (0.07) $ (0.11) (0.14)
============ ============ ============ ============
Weighted average number of
common shares outstanding 14,578,173 13,876,233 14,568,658 13,856,124
============ ============ ============ ============
See accompanying notes to condensed financial statements.
4
TURBOCHEF TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended June 30,
----------------------------
1998 1997
----------- -----------
Cash flows from operating activities:
Net loss $(1,665,310) (1,942,602)
Adjustments to reconcile net loss to net cash used in
operating activities:
Equity in net loss of joint venture 180,365 14,709
Depreciation and amortization 234,593 54,076
Provision for doubtful accounts 15,000 2,775
Amortization of director compensation 14,946 13,878
Increase in accounts receivable (705,548) (115,703)
Decrease (increase) in inventories 281,729 (206,592)
Decrease (increase) in prepaid expenses 47,823 (353,502)
Decrease (increase) in other assets (1,859) 2,272
Increase (decrease) in accounts payable 27,674 (16,507)
Decrease in accrued expenses (10,052) (213,007)
Increase (decrease) in deferred revenue 44,831 (1,171)
Increase (decrease) in deposits 4,977 (43,250)
Increase in other liabilities 120,000 --
Decrease in deferred rent (5,942) --
----------- -----------
Net cash used in operating activities (1,416,773) (2,804,624)
----------- -----------
Cash flows from investing activities:
Purchase of marketable securities (1,715,980) (4,498,277)
Proceeds from sales of marketable securities 1,795,331 7,309,431
Purchase of equipment (60,264) (170,753)
Investment in TurboChef Europe -- (41,750)
----------- -----------
Net cash provided by investing activities 19,087 2,598,651
----------- -----------
Cash flows from financing activities:
Exercise of stock options 12,500 42,001
Exercise of stock warrants 165,280 125,060
----------- -----------
Net cash provided by financing activities 177,780 167,061
----------- -----------
Net decrease in cash and cash equivalents (1,219,906) (38,912)
Cash and cash equivalents at beginning of period 1,396,641 477,166
----------- -----------
Cash and cash equivalents at end of period $ 176,735 438,254
=========== ===========
See accompanying notes to condensed financial statements.
5
TURBOCHEF TECHNOLOGIES, INC.
Notes to Condensed Financial Statements
(Unaudited)
June 30, 1998
General
- -------
The financial statements of TurboChef Technologies, Inc. (the "Company")
included herein have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission (SEC) and have not been audited by
independent public accountants. In the opinion of management, all adjustments
(which consisted only of normal recurring accruals) necessary to present fairly
the financial position and results of operations have been made. Pursuant to
SEC rules and regulations, certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted from these statements
unless significant changes have taken place since the end of the most recent
fiscal year. The December 31, 1997 balance sheet was derived from audited
financial statements but does not include all disclosures required by generally
accepted accounting principles. The Company believes that other disclosures
contained herein, when read in conjunction with the financial statements and
notes included in the Company's Annual Report for the fiscal year ended December
31, 1997 on Form 10-K, are adequate to make the information presented not
misleading. It is suggested, therefore, that these statements be read in
conjunction with the statements and notes included in the aforementioned Form
10-K. The results of operations for the three and six months ended June 30, 1998
are not necessarily indicative of the results to be expected for the full year.
The Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 128, Earnings Per Share (EPS), during the fourth quarter of
1997, and all previous references to per share amounts were retroactively
restated. The Statement requires basic EPS to be computed by dividing income
available to common shareholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in earnings of the entity. Adoption of this statement did
not impact previously recorded net loss per common share for the three or six
months ended June 30, 1997.
Basic net loss per common share is based on 14,578,173 and 13,876,233 weighted
average shares outstanding for the three months ended June 30, 1998 and 1997,
respectively. For the six months ended June 30, 1998 and 1997 basic net loss per
common share is based on 14,568,658 and 13,856,124 weighted average shares
outstanding, respectively. For both the three month and six month periods ended
June 30, 1998 and 1997, the Company did not have any incremental shares of
potentially dilutive stock as their effect was antidilutive.
6
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 130, Comprehensive Income, on January 1, 1998. This statement
requires the Company to report comprehensive income and its components with the
same prominence as other financial statements in its December 31, 1998 financial
statements. Comprehensive income describes the total of all components of
comprehensive income, including net income and other comprehensive income.
Other comprehensive income refers to all revenues, expenses, gains and losses
that under generally accepted accounting principles are included in
comprehensive income but excluded from net income. For the six month period
ended June 30, 1998, comprehensive income was $2,843,355, of which ($1,665,310)
was net loss and of which $4,508,665 was net unrealized gain on marketable
securities. For the six month period ended June 30, 1997, there were no
components of other comprehensive income.
In July 1998, the Company executed a revolving credit agreement with its bank to
support general corporate requirements, specifically, continued investment in
technology development. This agreement, which expires July 1, 1999 is secured
by 90,000 shares of Maytag common stock owned by the Company. The Company can
borrow up to the lesser of $3,000,000 or 75% of the market value of the Maytag
stock at market rates of interest. As of August 10, 1998, there are no
outstanding borrowings under such revolving credit facility.
7
ITEM 2: MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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OF OPERATIONS
-------------
General
From its inception in April 1991 until March 1994, the Company was engaged
primarily in research and development, limited production operations and test
marketing of its cooking systems. In March 1994, the Company introduced its
first commercial product, the Model D-1 cooking system. In June 1995, the
Company entered into its first major contract with Whitbread PLC ("Whitbread")
and introduced an enhanced product, the Model D-2 cooking system. The Company
concentrated its efforts on the Whitbread rollout throughout 1996. Upon the
completion of the secondary public offering of Common Stock in June 1996 (the
"June 1996 Offering"), the Company began development of a direct sales
organization. By the end of the first quarter of 1997, the Company had
substantially developed its U.S. direct sales and European sales infrastructure
and marketing programs. Due to the revolutionary nature of the Company's
technologies, coupled with the foodservice industry's general resistance to
change, significant increases in sales have not yet materialized through these
efforts. The Company believes its long-term success is dependent on its core
competencies of developing new technologies and products for the foodservice
industry. Consequently, the Company has sought to establish an alliance with a
major firm with strengths in manufacturing, sales, marketing and distribution.
An alliance of this nature was successfully established in September 1997, when
the Company announced a strategic alliance with Maytag Corporation ("Maytag") to
jointly develop new products revolving around the Company's technologies. The
Company also announced in July 1998 that the Maytag alliance had been expanded
to include the sales and marketing of commercial cooking products in North
America. This alliance enables the Company to focus on its core competency of
technology development.
The Company has invested heavily in research, prototype development,
establishment of manufacturing capacity, and sales and marketing personnel. As
a result of these investments, and the heretofore limited revenues generated
through sales of cooking systems, the Company has incurred substantial operating
losses in each year of its operations (including net losses of $4,662,302,
$2,941,413, and $1,585,268 for the years ended December 31, 1997, 1996 and 1995,
respectively) resulting in an accumulated deficit of $18,942,217 as of June 30,
1998.
The Company will continue to pursue business growth through implementation
of the following strategies: (i) joint development and commercialization of
residential and commercial products through the Maytag alliance, (ii) continued
marketing to U.S., European and Japanese restaurants, hotels, convenience stores
and other foodservice operators, and (iii) continued development of new
hardware, software and food solutions for foodservice operators. The Company's
future profitability will depend upon, among other things, the successful
implementation of these initiatives.
MAYTAG ALLIANCE
On September 29, 1997, the Company announced a strategic alliance with
Maytag Corporation (the "Maytag alliance"). The alliance is aimed at the
development and commercialization of innovative products based on the Company's
leading-edge technologies in heat transfer, thermodynamics and control
8
systems. The two companies believe that the combination of Maytag's expertise in
manufacturing, marketing and distribution in residential and commercial
appliance markets, and the Company's proprietary technologies and product
development capabilities, can result in the successful commercialization of new
products in the future. The alliance entailed a mutual purchase of each
company's common stock valued at approximately $10 million and Maytag's payment
to the Company for certain research and development activities related to
targeted product initiatives.
The initial alliance-related research project began in October 1997, and
was originally for a term of six months. Maytag was contracted to pay $250K per
month pursuant to the agreement to fund research and development activities
related to the project. In March 1998, this project was extended for one year,
and the monthly payment increased to $300K. In July 1998, the Company announced
a commercial sales agreement with Maytag whereby Maytag will lead the Company's
North American commercial sales and marketing initiatives. Furthermore, the
commercial sales agreement establishes a profit sharing arrangement for the
North American sales of commercial products employing the Company's
technologies. With the addition of the commercial relationship, the research
and development funding will be increased to $425K per month from August 1998
through January 1999.
As of August 10, 1998, Maytag had paid the Company an aggregate of $3.1
million for alliance-related activities.
RECENT DEVELOPMENTS
The Company's latest purchase contract with Whitbread expired in May 1998
as did Whitbread's exclusive purchase rights in the UK. The Company and
Whitbread are currently in discussion to continue cooking system purchases.
Furthermore, a unit of Whitbread, Whitbread Pub Partnerships ("WPP") has
contracted with the Company to commence a 30 store test of the Company's cooking
system following their successful two store test over the last year. The cooking
systems for the test will come from existing Whitbread inventory, and will not
initially result in the sale of new units. However, a successful test in WPP
could lead to sales in the future, although it is not possible at this time to
indicate the timing or quantity of such sales as all WPP locations do not have
the physical capacity to accommodate foodservice operations. WPP is comprised of
approximately 1,700 pub operations located throughout the UK which are owned by
Whitbread and managed by independent operators. It is estimated that 200-400 of
the facilities could accommodate a Model D-2 cooking system.
On June 26, 1998, the Company announced that it had consummated a purchase
agreement with Kanematsu Corporation of Japan ("Kanematsu"). The initial minimum
sale of the Company's cooking systems is valued at approximately $1 million.
Purchases by Kanematsu are contingent upon, among other things, Japanese
regulatory approval of the Company's cooking system.
In July 1998, The Company executed a sales agreement with Best Western
International, Inc. ("BWI") for the purchase of 100 ovens. The agreement is
contingent upon a successful six unit test. BWI is an association of member
hotels established to provide revenue generating opportunities and to leverage
the purchasing power of its member hotels. BWI's membership includes
approximately 3,700 locations worldwide.
On June 30, 1998 the Company's European joint venture TurboChef Europe
Limited ("TCE") was terminated. TCE was a joint venture between the Company and
The Queally Group ("Queally"), one of Europe's largest food manufacturers. The
objective of TCE had been to market the Company's products in conjunction with
Queally's food products through the establishment of distribution agreements
with
9
regional foodservice equipment distributors throughout Western Europe. As the
inclusion of Queally's food manufacturing services in the joint venture did not
generate the revenues the Company and Queally had anticipated, the two firms
elected to terminate the joint venture as of June 30, 1998. Effective July 1,
1998, the Company commenced exclusive sales and marketing responsibilities for
Western Europe. The former sales and support staff of the joint venture are now
employees of the Company and a managing director has been hired to oversee
European operations which are based in the London area.
RESULTS OF OPERATIONS
The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of the Company's results
of operations and financial condition. The discussion should be read in
conjunction with the financial statements and notes thereto contained elsewhere
in this report.
RESULTS FOR THE QUARTER ENDED JUNE 30, 1998 COMPARED TO THE QUARTER ENDED JUNE
30, 1997
Revenues for the quarter ended June 30, 1998 were $1,649K, an increase of
$604K, when compared to revenues of $1,045K for the quarter ended June 30, 1997.
This increase is primarily attributable to revenues received pursuant to the
Maytag alliance and revenues generated by an extended maintenance program for
the Company's largest customer, offset by a decline in unit shipments.
Cost of sales for the quarter ended June 30, 1998 was $718K, an increase of
$42K when compared to $677K for cost of sales in the quarter ended June 30,
1997. This increase is attributable to a charge taken to establish a reserve for
anticipated losses on an extended maintenance program, offset by a decline in
unit shipments.
Gross profit on total net sales for the quarter ended June 30, 1998
decreased $334K to $31K, when compared to gross profit on total net sales of
$364K during the quarter ended June 30, 1997. Gross margin for the quarter ended
June 30, 1998 was 4% of total net sales, compared to 35% of total net sales for
the quarter ended June 30, 1997. Gross profit and gross margin were adversely
affected by the aforementioned extended maintenance charge. Excluding extended
maintenance charges, gross profit and gross margin for the quarter were $217K
and 33% respectively.
Gross margin on net oven sales decreased to 34% during the quarter ended
June 30, 1998, compared to 36% for the quarter ended June 30, 1998 due to a
higher average unit cost.
Research and development expenses for the quarter ended June 30, 1998
increased $131K, to $385K, as compared to $254K for the quarter ended June 30,
1997. The increase is attributable to R&D activity relating primarily to Maytag
alliance projects entailing staff additions and prototype and software
development.
Selling, general and administrative expenses for the quarter ended June 30,
1998 increased $253K, to $1,411K from comparable expenses of $1,158K for the
quarter ended June 30, 1997. The increased expense is due to European business
development expenses not incurred during the first quarter of 1997, the addition
of executive management and other administrative personnel, and other
administrative expenses including office expansion and executive recruiting
expenses.
10
Interest income, net of interest expense for the quarter ended June 30,
1998, was $29K compared to $79K for the quarter ended June 30, 1997. The
decrease in interest income is attributable to decreased cash levels.
Second quarter results include a $114K charge relating to the termination
of the Company's European joint venture TurboChef Europe Limited ("TCE"). The
$114K charge establishes a reserve for the write-off of the net investment in
TCE. For the three months ended June 30, 1998, losses relating to TCE
were $115K.
RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO THE SIX MONTHS ENDED
JUNE 30, 1997
Revenues for the six months ended June 30, 1998 were $3,353K, an increase
of $1,615K, when compared to revenues of $1,738K for the six months ended June
30, 1997. This increase is primarily attributable to revenues received pursuant
to the Maytag alliance.
Cost of sales for the six months ended June 30, 1998 was $1,466K, an
increase of $278K when compared to $1,188K for cost of sales in the six months
ended June 30, 1997. This increase is attributable to a charge taken to
establish a reserve for anticipated losses on an extended maintenance program,
offset by a decline in unit shipments.
Gross profit on total net sales for the six months ended June 30, 1998
decreased $303K to $237K, when compared to gross profit on total net sales of
$540K during the quarter ended June 30, 1997. Gross margin for the quarter ended
June 30, 1998 was 14% of total net sales, compared to 31% of total net sales for
the quarter ended June 30, 1997. Gross profit and gross margin were adversely
affected by the aforementioned extended maintenance charge. Excluding extended
maintenance charges, gross profit and gross margin for the quarter were $472K
and 32% respectively.
Gross margin on net oven sales of 35% for the six months ended June 30,
1998 was unchanged from 35% for the six months ended June 30, 1997. The effect
of higher average selling prices was offset by an increased average unit cost.
Research and development expenses for the six months ended June 30, 1998
increased $322K, to $844K, as compared to $522K for the six months ended June
30, 1997. The increase is attributable to R&D activity relating primarily to
Maytag alliance projects entailing staff additions and prototype and software
development.
Selling, general and administrative expenses for the six months ended June
30, 1998 increased $558K, to $2,700K from comparable expenses of $2,142K for the
six months ended June 30, 1997. The increased expense is due to European
business development expenses not incurred during the first six months of 1997,
the addition of executive management and other administrative personnel, and
other administrative expenses including office expansion and executive
recruiting expenses.
Interest income, net of interest expense for the six months ended June 30,
1998, was $66K compared to $186K for the six months ended June 30, 1997. The
decrease in interest income is attributable to decreased cash levels.
Results for the six months ended June 30, 1998 include a $114K charge
relating to the termination of the Company's European joint venture, TCE. The
$114K charge establishes a reserve for the
11
write-off of the net investment in TCE. For the six months ended June 30,
1998, losses relating to TCE were $180K.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements in connection with its product and
technology development and marketing efforts have been and will continue to be
significant. In addition, capital is required to operate and expand the
Company's operations. From its inception until June 1996, the Company was
substantially dependent on loans and capital contributions from its principal
stockholders, private placements of its securities and the proceeds from the
initial public offering of common stock in April 1994 (the "April 1994 IPO"). In
June 1996 the Company consummated the June 1996 Offering, an underwritten public
offering of 800,000 shares of Common Stock which resulted in aggregate proceeds
of approximately $10,301K, net of the underwriter's discount and other offering
costs of $1,699K.
Since October 1997, the Company's capital requirements have been met in
part by Maytag, which in accordance with the alliance has paid to the Company an
aggregate of $3.1 million ($250K per month from October 1997 through March 1998,
$300K from April through July 1998, and $425K in August 1998) as of August 10,
1998 for research and development relating to their interests. In March 1998,
the initial project was extended for one year, and Maytag increased the monthly
payment from $250K to $300K per month for the term of the extension. In July
1998, a commercial sales agreement was announced, and the monthly payment
increased to $425K for six months. The Maytag alliance called for the mutual
purchase of each company's stock with a value of approximately $10 million.
Maytag purchased 564,668 shares of the Company's common stock, and the Company
purchased 293,846 shares of Maytag common stock. According to the terms of the
strategic alliance agreement, the Maytag stock owned by the Company is subject
to a general restriction placed on selling, pledging, transferring or assigning
such securities for a period of two years from the date of the agreement.
However, in accordance with the agreement, the Company gained the right to sell,
pledge, transfer or assign up to 50% of the shares on March 31, 1998. As of
August 10, 1998, the Maytag stock owned by the Company had a market value of
approximately $12.6 million.
In July 1998, the Company executed a revolving credit agreement with its
bank to support general corporate requirements, specifically, continued
investment in technology development. This agreement, which expires July 1,
1999 is secured by 90,000 shares of Maytag common stock owned by the Company.
The Company can borrow up to 75% of the market value of the Maytag stock at
market rates of interest. As of August 10, 1998, there are no outstanding
borrowings under such revolving credit facility.
At June 30, 1998, the Company had working capital of $9,854K as compared to
working capital of $9,582K at December 31, 1997. The $272K working capital
increase from December 31, 1997 resulted primarily from the appreciation of the
current portion (50%) of the investment in Maytag common stock, offset by the
net operating loss of $1,665K. For the six months ended June 30, 1998, accounts
receivable turnover decreased to 4.1 from 5.9 during the six months ended June
30, 1997. The decrease is primarily due to outstanding accounts receivable from
TCE.
Cash used in operating activities was $1,417K for the six months ended June
30, 1998 as compared to cash used in operating activities of $2,805K for the six
months ended June 30, 1997. The decrease is primarily the result of a $277K
decrease in operating losses, an increase in non-cash expenses of $359K, a
12
decrease in inventories of $282K, decreased prepaid expenses of $48K and
increased accounts payable, deferred revenue and other liabilities of $28K, $45K
and $120K respectively. These amounts are offset by a $706K increase in accounts
receivable. Cash provided by investing activities for the six months ended June
30, 1998 was $19K as a result of sales of marketable securities in the amount of
$1,795K offset by purchases of marketble securities of $1,716K and equipment
purchases of $60K. Cash provided by financing activities was $178K for the six
months ended June 30, 1998, which represents the net proceeds from exercises of
stock options and warrants. At June 30, 1998, the Company had cash and cash
equivalents of $177K, compared to cash and cash equivalents of $1,397K at
December 31, 1997.
YEAR 2000 ISSUES
The Year 2000 issue, which is common to most businesses, concerns the
inability of information systems, primarily computer software programs, to
properly recognize and process date-sensitive information as the year 2000
approaches. All critical software and related technologies used by the Company
are year-2000 compliant. Thus, management believes that there will be no
significant costs required to address the Year 2000 issue and such issue will
not materially impact its financial condition nor adversely impact business
operations.
AUTHORITATIVE PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 131, Disclosures about Segments of an Enterprise and
Related Information, which is not expected to significantly change the Company's
current disclosures.
FORWARD LOOKING STATEMENTS
The Company is continuing to utilize the proceeds from the June 1996
Offering, in addition to payments received from the Maytag alliance projects, to
intensify its product development activities with the goal of developing
innovative and commercially viable products, and support its marketing efforts
to expand its commercial cooking system customer base. The Company anticipates,
based on its currently proposed plans and assumptions relating to its operations
(including assumptions regarding the progress of its research and development
efforts and the realization of projected cooking system deliveries) that its
current cash and cash equivalent balances, anticipated revenues from operations,
payments received pursuant to the Maytag alliance, and the recently established
revolving credit facility, will be sufficient to fund its operations and satisfy
its contemplated capital requirements for at least the next 24 months. In the
event that the Company's plans change, or its assumptions change or prove to be
incorrect, or cash balances, anticipated revenues and amounts available under
the revolving credit facility otherwise prove to be insufficient, the Company
would be required to revise its plan of operations (which revision would include
a significant reduction in operating costs) and/or seek additional financing
prior to the end of such period). The Company has no other current arrangements
with respect to, or sources of, additional financing. There can thus be no
assurance that additional financing will be available to the Company, if and
when needed, on commercially reasonable terms, or at all.
The Company has used a substantial portion of the proceeds of the June 1996
Offering and payments received from Maytag in an effort to expand its current
level of operations and grow the
13
Company's business. However, the Company's future performance will be subject to
a number of business factors, including those beyond the Company's control, such
as economic downturns and evolving industry needs and preferences, as well as to
the level of the Company's competition and the ability of the Company to
successfully market its products and effectively monitor and control its costs.
The Company believes that increases in revenues sufficient to offset its
expenses and result in its profitability could be derived from its currently
proposed plans within the next 18 months, if such plans are successfully
completed. These plans include: (i) successfully develop and market new products
through the Maytag alliance, (ii) further develop U.S. product sales through the
Maytag commercial sales agreement, (iii) utilize the awareness created by the
Whitbread relationship and the early successes of TCE to extend the Company's
marketing and sales efforts into other countries within the European Union, (iv)
introduce additional new products, and (v) reduce the Company's manufacturing
costs. However, there can be no assurance that the Company will be able to
successfully implement any of the foregoing plans, that either its revenues will
increase or its rate of revenue growth will continue or that it will ever be
able to achieve profitable operations.
As of June 30, 1998, the amount of backlog orders believed to be firm was
approximately $0.8 million, as compared to approximately $2.0 million as of
December 31, 1997. This backlog includes the remaining minimum order quantity of
cooking systems contemplated in the Kanematsu purchase agreement, which are
contingent upon Japanese regulatory approval of the oven. This backlog does not
include any sales to BWI, which are contingent upon successful completion of
field operations tests and certain payback criteria.
This report and other reports and statements filed by the Company from time
to time with the Securities and Exchange Commission (collectively, "SEC
Filings") contain or may contain certain forward looking statements and
information that are based on the beliefs of the Company's management as well as
estimates and assumptions made by, and information currently available to, the
Company's management. When used in SEC Filings, the words "anticipate",
"believe", "estimate", "expect", "future", "intend", "plan", and similar
expressions, as they relate to the Company or the Company's management, identify
forward looking statements. Such statements reflect the current views of the
Company with respect to future events and are subject to certain risks,
uncertainties and assumptions relating to the Company's operations and results
of operations, competitive factors and pricing pressures, shifts in market
demand, the performance and needs of the segments of the foodservice industry
served by the Company, the costs of product development and other risks and
uncertainties, in addition to any uncertainties specifically identified in the
text surrounding such statements, uncertainties with respect to changes or
developments in social, economic, business, industry, market, legal, and
regulatory circumstances and conditions and actions taken or omitted to be taken
by third parties, including the Company's stockholders, customers, suppliers,
business partners, and competitors, legislative, regulatory, judicial and other
governmental authorities and officials. Should one or more of these risks or
uncertainties materialize, or should the underlying assumptions prove incorrect,
actual results may vary significantly from those anticipated, believed,
estimated, expected, intended or planned.
14
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None
Item 2. CHANGES IN SECURITIES.
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 30, 1998, the Annual Meeting of Stockholders of the Company was
held in Dallas, Texas. At the Annual Meeting, the Company's stockholders
elected four (4) 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, the number of
votes cast against, and the number of votes withheld. There were no broker non-
votes cast at the Annual Meeting.
Name of Director Number of Votes For Number of Votes Against Withheld Votes
- -------------------- ------------------- ----------------------- --------------
Marion H. Antonini 12,155,542 120,624 -0-
Jeffery B. Bogatin 11,636,527 639,639 -0-
Philip R. McKee 12,158,042 118,124 -0-
Donald J. Gogel 12,158,392 117,774 -0-
In addition to the election of the Company's Board of Directors, the
stockholders approved the following proposals at the Annual Meeting:
1. A proposal to amend the First Article of the Company's Restated Articles
of Incorporation to change the Company's corporate name to TurboChef
Technologies, Inc. An aggregate of 12,232,774 shares were voted for this
proposal, 14,592 shares were voted against this proposal, and 28,800 shares
abstained;
2. A proposal to amend the Company's 1994 Stock Option Plan, as amended, to
increase the number of shares of Common Stock authorized for issuance from
3,150,000 to 3,650,000 shares. An aggregate of 12,109,550 shares were voted for
this proposal, 137,316 shares were voted against this proposal and 29,300 shares
abstained; and
3. A proposal to ratify the appointment of KPMG Peat Marwick LLP as the
Company's independent public accountants for the 1998 fiscal year. An aggregate
of 12,237,774 shares were voted for this proposal, 8,100 shares were voted
against this proposal and 30,342 shares abstained.
15
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit Number Description
-------------- -----------
10.30 Commercial Cooking Appliance Project
Agreement dated as of July 29, 1998 by and
between TurboChef Technologies, Inc. and
Maytag Corporation.(1)
10.31 Revolving Credit Agreement between Chase
Bank of Texas NA and TurboChef Technologies,
Inc. dated July 1, 1998.
(1) Filed herewith in redacted form pursuant to Rule 24b-2 promulgated under
the Securities Exchange Act of 1934, as amended (the "Act"). Filed
separately in unredacted form subject to a request for confidential
treatment pursuant to Rule 24b-2 under the Act.
(b) REPORTS ON FORM 8-K
A report on Form 8-K dated July 1, 1998 was filed with the
Securities and Exchange Commission on July 2, 1998. This Form
8-K reported that the Company's corporate name had been
changed to TurboChef Technologies, Inc.
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TURBOCHEF TECHNOLOGIES, INC.
By:/s/ Dennis J. Jameson
------------------------
Dennis J. Jameson
Executive Vice President,
Chief Financial Officer
(Principal Financial Officer)
Dated August 14, 1998
17