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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 March 31, 2002
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) 379-6000
-------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate the number of shares outstanding of each of the Registrant's
classes of Common Stock, as of the latest practicable date.
Number of Shares Outstanding
Title of Each Class at May 3, 2002
------------------- --------------
Common Stock, $0.01 Par Value 18,952,346
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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 March 31, 2002 (unaudited) and
December 31, 2001. ........................................................... 3
Unaudited Interim Condensed Statements of Operations for the
three months ended March 31, 2002 and 2001. .................................. 4
Unaudited Interim Condensed Statements of Cash Flows for the
three months ended March 31, 2002 and 2001. .................................. 5
Notes to the Interim Condensed Financial Statements (unaudited) .............. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations .................................................... 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk ................... 13
Part II. Other Information
Item 1. Legal Proceedings ............................................................ 13
Item 2. Changes in Securities and Use of Proceeds. ................................... 14
Item 3. Defaults Upon Senior Securities .............................................. 14
Item 4. Submission of Matters to a Vote of Security Holders .......................... 14
Item 5. Other Information ............................................................ 14
Item 6. Exhibits and Reports on Form 8-K ............................................. 14
Signatures ................................................................... 15
2
TurboChef Technologies, Inc.
Balance Sheets
(Amounts in Thousands, Except Share Data)
March 31, December 31,
--------- ------------
2002 2001
---- ----
(Unaudited)
-----------
Assets
------
Current assets:
Cash and cash equivalents $ 1,715 $ 4,498
Accounts receivable net of allowance for doubtful accounts
of $70 at March 31, 2002 and December 31, 2001, respectively 2,495 979
Accounts receivable - other 735 735
Inventory 2,176 1,857
Prepaid expenses 92 61
------------ ------------
Total current assets 7,213 8,130
------------ ------------
Property and equipment, net 306 380
Other assets 155 162
------------ ------------
Total assets $ 7,674 $ 8,672
============ ============
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable $437 $373
Accounts payable - other 1,390 1,390
Accrued expenses 464 517
Notes payable 517 327
Accrued upgrade and warranty costs 936 1,038
------------ ------------
Total current liabilities 3,744 3,645
Commitments and contingencies [Notes 2 and 3]
Stockholders' equity:
Preferred stock, $1.00 par value and $100.00 stated value.
Authorized 5,000,000 shares. 30,000 and 51,000 issued at
March 31, 2002 and December 31, 2001, respectively 2,430 4,530
Common stock, $.01 par value. Authorized 50,000,000 shares.
Issued 18,952,346 and 18,418,213 shares at
March 31, 2002 and December 31, 2001, respectively 190 184
Additional paid-in capital 45,979 43,628
Accumulated deficit (41,788) (40,458)
Notes receivable for stock issuances (2,430) (2,406)
Treasury stock - at cost 32,130 shares in 2001 and 2000 (451) (451)
------------ ------------
Total stockholders' equity 3,930 5,027
------------ ------------
Total liabilities and stockholders' equity $ 7,674 $ 8,672
============ ============
The accompanying notes are an integral part of these financial statements.
3
TurboChef Technologies, Inc.
Unaudited Interim Condensed Statements of Operations
(Amounts in Thousands, Except Share Data)
Three Months Ended March 31,
----------------------------
2002 2001
---- ----
Revenues:
Product sales $ 1,829 $ 481
----------- -----------
Total revenues 1,829 481
----------- -----------
Costs and expenses:
Cost of goods sold 999 297
Research and development expenses 168 395
Selling, general and administrative expenses 1,941 1,428
----------- -----------
Total costs and expenses 3,108 2,120
----------- -----------
Operating loss (1,279) (1,639)
----------- -----------
Other income (expense):
Interest income 43 41
Interest expense (2) -
Other income (expense) 3 (27)
----------- -----------
44 14
----------- -----------
Net loss $ (1,235) $ (1,625)
=========== ===========
Preferred stock dividends 95 43
Beneficial conversion of Series B preferred stock - 380
----------- -----------
Net loss applicable to common stockholders $ (1,330) $ (2,048)
=========== ===========
Loss per common share - basic and diluted $ (0.07) $ (0.13)
=========== ===========
Weighted average number of common
shares outstanding - basic and diluted 18,442,666 15,728,423
=========== ===========
The accompanying notes are an integral part of these financial statements.
4
TurboChef Technologies, Inc.
Unaudited Interim Condensed Statements of Cash Flows
(Amounts in Thousands)
Three Months Ended March 31,
2002 2001
---- ----
Cash flows from operating activities:
Net loss $(1,235) $(1,625)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 138 85
Non-cash interest on notes receivable from employees and directors (32) (33)
Non-cash compensation expense 12 47
Changes in operating assets and liabilities:
Accounts receivable (1,516) 297
Inventories (365) (10)
Prepaid expenses and other assets (31) 150
Accounts payable 64 (338)
Accrued expenses 175 23
------- -------
Net cash used in operating activities (2,790) (1,404)
------- -------
Cash flows from investing activities:
Purchase of equipment and leasehold improvements (11) (26)
------- -------
Net cash used in investing activities (11) (26)
------- -------
Cash flows from financing activities:
Proceeds for the sale of preferred stock - 2,000
Payment of broker commission on the sale of common stock (25) -
Repayments of notes receivable from employees 8 -
Proceeds from the exercise of stock options 35 -
------- -------
Net cash provided by financing activities 18 2,000
------- -------
Net increase (decrease) in cash and cash equivalents (2,783) 570
Cash and cash equivalents at beginning of period 4,498 1,417
------- -------
Cash and cash equivalents at end of period $ 1,715 $ 1,987
======= =======
Supplemental disclosures of noncash activities:
Noncash financing activity - accrued preferred
stock dividend $ 95 $ 43
======= =======
Noncash financing activity - payment of preferred stock dividends
through the issuance of common stock $ 147 $ -
======= =======
Noncash financing activity - conversion
of preferred stock $ 2,100 $ -
======= =======
Noncash financing activity - beneficial conversion
of preferred stock $ - $ 380
======= =======
The accompanying notes are an integral part of these financial statements.
5
TURBOCHEF TECHNOLOGIES, INC.
Notes to Condensed Financial Statements
(Unaudited)
March 31, 2002
1) Basis of Presentation
---------------------
TurboChef Technologies, Inc. ("TurboChef" or "the Company") was incorporated on
April 3, 1991. The Company is engaged primarily in designing, developing and
marketing its proprietary rapid cook technologies. TurboChef's proprietary rapid
cook oven, which requires no ventilation, employs a combination of high speed
forced air and microwave energy 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 commercial and residential ovens currently
available.
The Company's commercial oven employs the Company's proprietary cooking
technologies to quickly, efficiently and evenly transfer, disperse and control
the heat used in the cooking process. In addition, because of the TurboChef
oven's moisture retention, browning, crisping and toasting capabilities, the
Company believes that the characteristics of most food items cooked in a
TurboChef cooking system (including their flavor, texture and appearance) are
superior in quality to those achieved using most other cooking methods.
Management believes that the Company operates in one primary business
segment.
The financial statements of the Company as of March 31, 2002 and 2001,
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 and cash flows for all periods
presented 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 ("GAAP")
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,
2001 balance sheet was derived from audited financial statements and notes
included in the Company's Annual Report on Form 10-K for the year ending
December 31, 2001, but does not include all disclosures required by GAAP. It is
suggested that these financial statements be read in conjunction with the
financial statements and notes included in the aforementioned Form 10-K. The
results of operations for the three months ended March 31, 2002 are not
necessarily indicative of the results to be expected for the full year.
Certain amounts in prior period's financial statements have been
reclassified to conform to current year presentation.
Basic net loss per common share is based on 18,442,666 and 15,728,423
weighted average shares outstanding for the three months ended March 31, 2002
and 2001, respectively. For the three months ended March 31, 2002 and 2001, the
Company did not report any incremental shares of potentially dilutive stock, as
their effect was anti-dilutive.
6
2) Liquidity
---------
TurboChef's capital requirements in connection with its product and
technology development and marketing efforts have been and will continue to be
significant. Additional capital will be required to operate and expand the
Company's operations. Since its inception, the Company has incurred significant
operating losses and has been substantially dependent on loans and capital
contributions from its principal stockholders and proceeds from the sale of its
securities. Furthermore, the Company will continue to be dependent on outside
sources of financing for the foreseeable future to fund its working capital
needs. The Company anticipates that it may need to raise additional capital by
the fourth quarter of 2002. No assurances can be made that the Company will
generate the necessary sales from its rapid cook ovens or from the proceeds from
the sales of its securities or other financing sources to generate the necessary
working capital. As a result of these conditions, the independent certified
public accountant's report on the Company's financial statements for the year
ended December 31, 2001 contains an explanatory paragraph regarding the
Company's ability to continue as a going concern.
The Company has, and will continue to hold inventory, due to its long
manufacturing cycle. As of March 31, 2002, the Company held $1,179,000 of
finished goods inventory (ovens), $47,000 of demonstration inventory (ovens used
for customer demonstrations, tests and pilot programs) and $950,000 of parts
inventory (used for manufacturing and service). The Company will offer
demonstration inventory free of charge or at reduced prices to certain
potentially large customers, who wish to test and evaluate an oven prior to
purchase. Should sales fail to materialize, or materialize at slower rates than
currently anticipated by the Company, additional working capital will be
required to cover the carrying costs of component parts and purchase completed
ovens. No assurances can be made that the Company will generate the necessary
sales of its ovens or from the proceeds from the sales of its securities or
other financing sources to generate the necessary working capital.
In March 2002, the Company agreed to purchase from the Shandong Xiaoya
Group ("Xiaoya") approximately $14 million of C-3 ovens over a seventeen month
period. In addition, in connection with the manufacturing agreement the Company
will be required to use working capital to purchase certain component parts that
will be supplied to Xiaoya for use in the ovens. Although the Company entered
into the agreement with Xiaoya in anticipation that its sales of C-3 ovens will
increase from current levels, there can be no such assurance that any sales will
materialize. The Company does not currently have a significant number of
purchase orders or firm commitments to purchase ovens in the future. The Company
is currently exploring alternative sources of financing for its inventory and
receivables. No assurances can be made that the Company will be successful in
developing any of these sources or that any terms that may be offered will be
acceptable to the Company.
In February 2002, the Company and Whitbread Group PLC ("Whitbread") entered
into an agreement to terminate an extended warranty originally purchased by
Whitbread, from the Company, in September 1999. Under the new agreement,
TurboChef is required to pay Whitbread (pound)460,000 (approximately $670,000)
plus VAT over a 24 month period, beginning in March 2002. In return, Whitbread
will release TurboChef from its obligation to continue its warranty on 260 older
model ovens. On signing the agreement, TurboChef will make an initial payment to
Whitbread of (pound)50,000 (approximately $72,000) plus VAT and thereafter pay
(pound)15,000 (approximately $22,000) plus VAT a month for the next 24 months,
with a final payment of (pound)50,000 plus VAT due the final month.
The Company continues to expand its direct sales efforts and estimates that
approximately
7
$150,000 per month in operating costs has been added since December 31, 2001. In
addition, additional working capital will be required should the
Company pursue the development, manufacturing and marketing of a residential
oven. The Company does not currently anticipate any significant increases in
lease payments or any other long-term fixed obligations from current levels
during fiscal 2002.
The Company anticipates that it will need to obtain additional sources of
funding in order to continue its ongoing operations as currently conducted.
However, no assurances can be made that the Company will actually obtain the
necessary funding to finance its operations. A failure to obtain additional
funding would have significant adverse effects on the Company. All of the above
factors raise substantial doubt about the Company's ability to continue as a
going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
3) Long-Term Contracts
-------------------
In March 2002, the Company agreed to purchase from Xiaoya approximately $14
million of C-3 ovens over a seventeen month period. Although the Company entered
into the agreement with Xiaoya in anticipation that its sales of C-3 ovens will
increase from current levels, there can be no such assurance that any sales will
materialize. The Company does not currently have a significant number of
purchase orders or firm commitments to purchase ovens in the future.
In February 2002, the Company and Whitbread entered into an agreement to
terminate an extended warranty originally purchased in September, 1999. Under
the new agreement, TurboChef is required to pay Whitbread (pound)460,000
(approximately $670,000) plus VAT over a 24 month period, beginning in March
2002. In return, Whitbread will release TurboChef from its obligation to
continue its warranty on 260 older model ovens.
4) Stockholders' Equity
--------------------
On March 31, 2002, the holder of all of the Company's Series A Convertible
Preferred Stock converted all of its shares, plus accrued and unpaid dividends,
into 512,467 of the Company's Common Stock. The issuance of these shares of
common stock were made pursuant to an exemption from the registration
requirements of the Securities Act of 1933, set forth in Section 3(a)(9) of such
act.
5) Authoritative Pronouncements
----------------------------
In June 2001, respectively, the Financial Accounting Standards Board issued
FASB Statement No. 141, Business Combinations (SFAS 141), and No. 142, Goodwill
and Other Intangible Assets (SFAS 142), effective for years beginning after
December 31, 2001. Under the new rules, goodwill will no longer be amortized but
will be subject to annual impairment tests in accordance with the statements.
Other intangible assets will continue to be amortized over their useful lives.
Effective January 1, 2002, the Company adopted the new rules on accounting
for goodwill and other intangible assets. The Company does not believe that the
adoption of these statements will have a material effect on the Company's
financial statements.
In June 2001 and August 2001, respectively, the Financial Accounting
Standards Board finalized FASB Statement No. 143, Accounting for Asset
Retirement Obligations (SFAS 143) and Statement No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets (SFAS 144).
SFAS 143 requires that the fair value for an asset retirement obligation be
recognized in the period in which it is incurred, if a reasonable estimate of
fair value can be made, and that the carrying amount of the asset, including
capitalized asset retirement costs, be tested for impairment. SFAS 143 is
effective for fiscal years beginning after June 15, 2002. Management does not
believe this statement will have a material effect on the Company's financial
position or results of operations.
8
SFAS 144 prescribes financial accounting and reporting for the impairment
of long-lived assets and for long-lived assets to be disposed of, and specifies
when to test a long-lived asset for recoverability. Effective January 1, 2002,
the Company adopted this new rule. Management has determined that this will not
have a material effect on the Company's financial position or results of
operations.
Item 2: Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
Forward-Looking Statements
Certain statements in this Form 10-Q constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. These forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of TurboChef Technologies, Inc. to be materially different from
any future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the following:
the ability to obtain additional financing necessary to continue operations; the
uncertainty of consumer acceptance of new products or technologies that may be
offered by TurboChef; the need to hire and retain key personnel; relationships
with and dependence on third-party equipment manufacturers and suppliers;
uncertainties relating to business and economic conditions in markets in which
TurboChef operates; uncertainties relating to customer plans and commitments;
potential performance issues with suppliers; the highly competitive environment
in which TurboChef operates; potential entry of new, well-capitalized
competitors into the markets served by TurboChef; uncertainties inherent in
international sales including foreign currency fluctuations; uncertainty
regarding strategic relationships and alliances and the ability to protect
TurboChef's proprietary information. The words "believe," "expect,"
"anticipate," "intend," and "plan" and similar expressions identify
forward-looking statements. Readers are cautioned not to place undue reliance on
any of these forward-looking statements, which speak only as of the date of the
statement was made. TurboChef undertakes no obligation to update any
forward-looking statement.
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, financial condition and liquidity. The discussion should be read
in conjunction with the financial statements and notes thereto contained
elsewhere in this report.
The Company is engaged primarily in designing, developing and marketing its
proprietary rapid cook technologies. TurboChef's proprietary rapid cook ovens,
which requires no ventilation, employs a combination of high speed forced air
and microwave energy 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 commercial and residential ovens currently available.
The Company's commercial ovens employs the Company's proprietary cooking
technologies to quickly, efficiently and evenly transfer, disperse and control
the heat used in the cooking process. In addition, because of the TurboChef
oven's moisture retention, browning, crisping and toasting capabilities, the
Company believes that the characteristics of most food items cooked in a
TurboChef cooking oven
9
(including their flavor, texture and appearance) are superior in quality to
those achieved using most other cooking methods.
The Company believes its technology offers the following unique features to
its customers:
. Cooking speeds 5-10 times faster than a conventional oven
. Quality is equal to or higher than a conventional oven
. Maintains high consistency of cooked product
. Versatility of cooking platform (bake, broil, grill, air fried,
poached and steamed cooking profiles)
. Ventless operation
. Through the Company's Menu in a Minute software technology, the
menus and cook settings can be easily changed with minimal labor
cost
The Company launched the current version of its commercial oven, the
TurboChef C-3, in the second quarter of 2000. To date, the TurboChef rapid cook
oven has provided cooking solutions to various quick service restaurants,
convenience stores, hotels and traditional restaurants in the United Kingdom,
Europe and the United States. In addition, the Company has provided cooking
solutions to non-traditional operators in the food service business such as
stadiums, cinemas and service stations.
The Company currently sells its C-3 oven through a direct sales force in
North America, the United Kingdom, Europe and Asia. Until May 2001, the
Company's C-3 ovens were marketed in the United States through Maytag
Corporation ("Maytag") and its subsidiary, G. S. Blodgett, pursuant to the terms
of a series of agreements in which the Company granted them the exclusive right
to sell its C-3 ovens in North America. Under the agreements the Company
retained the right to sell directly outside of North America, with the exception
of selling to U.S. based customers overseas. In the first quarter of 2001, the
Company and Maytag entered into arbitration with respect to certain disputes
under the agreements which arbitration is pending (see Part II, Item 1 - Legal
Proceedings). In May 2001, the Company regained from Maytag and Blodgett the
right to sell its C-3 ovens products directly in the United States and began
building its own sales force to make direct oven sales.
The Company is currently expanding its direct marketing and sales efforts
throughout North America, the United Kingdom, Europe and Asia. The Company's
primary sales office is located in Dallas, Texas. In addition, the Company has
sales offices in New York, the United Kingdom, and the Netherlands.
In addition to its direct sales force, the Company is in the process of
seeking to develop multiple distribution channels through the use of third party
distributors, manufactures representatives, agents and wholesale food
distributors. The Company is also considering entering into strategic marketing
alliances with third parties who have established relationships or synergies
with mutual prospective customers.
In the second quarter of 2000, TurboChef established a manufacturing
venture with Xiaoya, in China in which Xiaoya was granted the exclusive
manufacturing rights for the C-3 oven. In March 2002, TurboChef signed a new
agreement to purchase approximately $14 million of C-3 ovens from Xiaoya over
the next 17 months.
10
Results of Operations for the Three Months Ended March 31, 2002 Compared to the
Three Months Ended March 31, 2001
Revenues for the quarter ended March 31, 2002 were $1,829,000, compared to
revenues of $481,000 for the quarter ended March 31, 2001. This increase is
primarily attributable to an increase in the number of C-3 ovens sold during the
period. There were no research and development or royalty revenues in the first
quarter of 2002 or 2001.
Cost of sales for the quarter ended March 31, 2002 were $999,000 compared
to $297,000 for cost of sales in the quarter ended March 31, 2001. The increase
is principally due to an increase in the number of C-3 ovens sold during the
recent quarter.
Gross profit on product sales for the quarter ended March 31, 2002
increased $646,000 to $830,000, when compared to gross profit on product sales
of $184,000 during the quarter ended March 31, 2001. This increase is due
primarily to a greater number of C-3 ovens sold and a lower manufacturing cost
of ovens sold in the first quarter of 2002. In the first quarter of 2002, the
Company sold ovens manufactured by Xiaoya at a lower cost than the ovens
produced by the previous manufacturer.
Research and development expenses for the quarter ended March 31, 2002
decreased $227,000, to $168,000, as compared to $395,000 for the quarter ended
March 31, 2001. The decrease in research and development expense principally
relates to a reduction in payroll and related expenses of $165,000 and expenses
relating to the retrofitting of early production ovens totaling $39,000.
Selling, general and administrative expenses for the quarter ended March
31, 2002 increased $513,000, to $1,941,000 from comparable expenses of
$1,428,000 for the quarter ended March 31, 2001. The increase is primarily due
to increase in general administrative costs, which included additional salaries
of $374,000 and other sales and marketing expenses of $398,000. These increases
were principally due to the Company's continued expansion of sales and marketing
departments after Maytag terminated the commercial License Agreement (see Part
II, Item 1 - Legal Proceedings) in the first quarter of 2001.
Other income was $44,000 for the quarter ended March 31, 2002, compared to
$14,000 for the quarter ended March 31, 2001. The increase in other income is
attributable to the elimination of non-cash compensation charges associated with
non-employee stock options.
Liquidity and Capital Resources
TurboChef's capital requirements in connection with its product and
technology development and marketing efforts have been and will continue to be
significant. Additional capital will be required to operate and expand the
Company's operations. Since its inception, the Company has incurred significant
operating losses and has been substantially dependent on loans and capital
contributions from its principal stockholders and proceeds from the sale of its
securities. Furthermore, the Company will continue to be dependent on outside
sources of financing for the foreseeable future to fund its working capital
needs. The Company anticipates that it may need to raise additional capital by
the fourth quarter of 2002. No assurances can be made that the Company will
generate the necessary sales from its rapid cook ovens or from the proceeds
from the sales of its securities or other financing sources to generate the
necessary working capital. As a result of these conditions, the independent
certified public accountant's report on the Company's financial statements for
the year ended December 31, 2001 contains an explanatory paragraph
11
regarding the Company's ability to continue as a going concern.
The Company has, and will continue to hold inventory, due to its long
manufacturing cycle. As of March 31, 2002, the Company held $1,179,000 of
finished goods inventory (ovens), $47,000 of demonstration inventory (ovens used
for customer demonstrations, tests and pilot programs) and $950,000 of parts
inventory (used for manufacturing and service). The Company will offer
demonstration inventory free of charge or at reduced prices to certain
potentially large customers, who wish to test and evaluate an oven prior to
purchase. Should sales fail to materialize, or materialize at slower rates than
currently anticipated by the Company, additional working capital will be
required to cover the carrying costs of component parts and purchase completed
ovens. No assurances can be made that the Company will generate the necessary
sales of its ovens or from the proceeds from the sales of its securities or
other financing sources to generate the necessary working capital.
In March 2002, the Company agreed to purchase from Xiaoya approximately $14
million of C-3 ovens over a seventeen month period. In addition, in connection
with the manufacturing agreement the Company will be required to use working
capital to purchase certain component parts that will be supplied to Xiaoya for
use in the ovens. Although the Company entered into the agreement with Xiaoya in
anticipation that its sales of C-3 ovens will increase from current levels,
there can be no such assurance that any sales will materialize. The Company does
not currently have a significant number of purchase orders or firm commitments
to purchase ovens in the future. The Company is currently exploring alternative
sources of financing for its inventory and receivables. No assurances can be
made that the Company will be successful in developing any of these sources or
that any terms that may be offered will be acceptable to the Company.
In February 2002, the Company and Whitbread entered into an agreement to
terminate an extended warranty originally purchased in September, 1999. Under
the new agreement, TurboChef is required to pay Whitbread(pound)460,000
(approximately $670,000) plus VAT over a 24 month period, beginning in March
2002. In return, Whitbread will release TurboChef from its obligation to
continue its warranty on 260 older model ovens. On signing the agreement,
TurboChef will make an initial payment to Whitbread of(pound)50,000
(approximately $72,000) plus VAT and thereafter pay(pound)15,000 (approximately
$22,000) plus VAT a month for the next 24 months, with a final payment of
(pound)50,000 plus VAT due the final month.
The Company continues to expand its direct sales efforts and estimates that
approximately $150,000 per month in operating costs has been added since
December 31, 2001. In addition, additional working capital will be required
should the Company pursue the development, manufacturing and marketing of a
residential oven. The Company does not currently anticipate any significant
increases in lease payments or any other long-term fixed obligations from
current levels during fiscal 2002.
At March 31, 2002, the Company had working capital of $3,469,000 as
compared to working capital of $4,485,000 at December 31, 2001. The $1,016,000
working capital decrease resulted primarily from operating losses incurred
during the first quarter of 2002.
Cash used in operating activities was $2,790,000 for the three months ended
March 31, 2002, as compared to cash used in operating activities of $1,404,000
for the three months ended March 31, 2001. The net loss of $1,235,000, for the
three months ended March 31, 2002, included $118,000 of non-cash charges
(depreciation, amortization, non-cash interest and non-cash compensation
expenses), as compared to $99,000 for the three months ended March 31, 2001. Net
cash used in operating activities for the three
12
months ended March 31, 2002 was negatively impacted by increases in accounts
receivable of $1,516,000 and inventory of $365,000. These operating cash
requirements were partially offset by increases in accounts payable and accrued
expenses of $64,000 and $175,000, respectively.
Cash used in investing activities for the three months ended March 31,
2002, was $11,000, compared to $26,000 for the three months ended March 31,
2001. The uses of cash were entirely made up of capital equipment purchases
during the periods. The Company anticipates an increase in capital expenditures
to approximately $200,000 during fiscal 2002, in order to build its global sales
and marketing infrastructure.
Cash provided by financing activities for the three months ended March 31,
2002 was $18,000 compared to $2,000,000 for the three months ended March 31,
2001. During the first three months of 2001, the Company raised $2,000,000 from
the sale of its Series B convertible preferred.
At March 31, 2002, the Company had cash and cash equivalents of $1,715,000,
compared to cash and cash equivalents of $1,987,000 at March 31, 2001.
Item 3: Quantitative and Qualitative Disclosures about Market Risk
----------------------------------------------------------
Approximately 33% of the Company's revenues in the first quarter of 2002
were derived from sales outside of the United States, and its territories. These
sales and related accounts receivable, the salaries of employees located outside
of the United States and approximately 20% of selling, general and
administrative expenses are denominated in foreign currencies, including British
pounds and the Euro. The Company is subject to risk of financial loss resulting
from fluctuations in exchange rates of these currencies against the US dollar.
As of March 31, 2002, the Company does not have any assets or liabilities
that have the potential for market risk that would affect the operating results
or cash flow of the Company and is not engaged in any hedging activity.
Part II. Other Information
Item 1: Legal Proceedings
-----------------
During the first quarter of 2001, the Company and Maytag filed a Notice of
Claim of Arbitration, as provided for under the Commercial Cooking Appliance
Project Agreement ("CCAP") and related commercial License Agreement between the
parties. Maytag has claimed that the Company has breached the CCAP and related
commercial License Agreement, and is seeking to recover damages of approximately
$5.6 million. One of the Company's claims is that, as a result of Maytag's
termination of the commercial License Agreement, Maytag is required to pay to
the Company the remaining balance of minimum royalties that are due of $5.25
million. In January 2002, the Company amended its claims seeking injunctive
relief and monetary damages resulting from Maytag's alleged use of TurboChef's
intellectual property. In the amended complaint the Company also seeks damages
for Maytag's alleged non-performance under a series of contracts entered into
between Maytag and TurboChef involving the development of commercial and
residential ovens utilizing TurboChef's rapid cook technology. Although the
Company believes that it will prevail on its claims, the outcome of the
arbitration proceeding is uncertain. In any event, even if the Company was to
receive the balance of the royalties it claims are owed to it, the termination
of the Maytag
13
agreements could have a material adverse affect on the Company's financial
position and results of operations. Since the outcome of the arbitration
proceeding is uncertain, no adjustments have been made to the financial
statements.
Item 2: Changes in Securities and Use of Proceeds.
-----------------------------------------
On March 31, 2002, the holder of all of the Company's Series A
Convertible Preferred Stock converted all of its shares, plus accrued
and unpaid dividends, into 512,467 of the Company's Common Stock. The
issuance of these shares of common stock were made pursuant to an
exemption from the registration requirements of the Securities Act of
1933, set forth in Section 3 (a)(9) of such act.
Item 3: Defaults Upon Senior Securities
-------------------------------
None
Item 4: Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
Item 5: Other Information
-----------------
None
Item 6: Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
3.1 Amendment to Certificate of Incorporation-Certificate
of Designation of Series C Convertible Preferred Stock
(b) Reports on Form 8-K
In January 2002, the Company filed a Form 8-K to report
under Item 5 and 7 relating to the issuance of a press
release concerning the Company's consummation of a private
placement of its securities.
14
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/ Stuart L. Silpe
----------------------------
Stuart L. Silpe
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
Dated May 13, 2002
15