Back to GetFilings.com
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________
Form 10-K
For Annual and Transition Reports pursuant to Sections 13 or 15(d) of the
Securities Exchange Act of 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 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
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE EXCHANGE ACT:
Name of Each Exchange on
Title of Each Class Which Registered
------------------- ----------------
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE EXCHANGE ACT:
Common Stock, $0.01 Par Value
(Title of Class)
_________________________
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part II of this Form 10-K or any amendment to this
Form 10-K. [_]
Aggregate Market Value of voting stock held by non-affiliates of the Registrant
at March 27, 2001: $16,007,890
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 March 27, 2001
------------------- -----------------
Common Stock, $0.01 Par Value 15,728,423
_________________________
================================================================================
TURBOCHEF TECHNOLOGIES, INC.
TABLE OF CONTENTS
Form 10-K Item Page
- -------------- ----
Part I.
Forward-looking Statements................................................................ 2
Item 1. Business.................................................................................. 2
Item 2. Properties................................................................................ 14
Item 3. Legal Proceedings......................................................................... 14
Item 4. Submission of Matters to a Vote of Security Holders....................................... 14
Part II.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters..................... 15
Item 6. Selected Financial Data................................................................... 16
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..... 17
Item 7A. Quantitative and Qualitative Disclosures about Market Risk ............................... 30
Item 8. Financial Statements and Supplementary Data............................................... 31
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...... 31
Part III.
Item 10. Directors and Executive Officers of the Registrant........................................ 32
Item 11. Executive Compensation.................................................................... 33
Item 12. Security Ownership of Certain Beneficial Owners and Management............................ 37
Item 13. Certain Relationships and Related Transactions............................................ 39
Part IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.......................... 40
Signatures................................................................................ 43
Part I
Forward-looking Statements
Certain statements in this Form 10-K 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
the Company 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 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.
Item 1. Business
--------
General
TurboChef Technologies, Inc. ("TurboChef Technologies" or "the Company") is
a technology development company engaged primarily in designing, developing and
licensing its proprietary rapid cook technologies. The TurboChef rapid cook
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.
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 Company's commercial rapid cook
system, the C-3 commercial counter top, is smaller, less expensive and offers
more features than its predecessor, the D model commercial rapid cook systems.
The C-3 was recognized as the best innovative new product at the Hotelympia
international foodservice show in London in February 2000.
The Company launched the TurboChef C-3 counter top in the second quarter of
2000 with an initial sale to a fast food restaurant chain in the United Kingdom.
More recently, in January 2001, the Company received two prestigious awards at
the Horecava 2001 trade show in
-2-
Amsterdam. Horecava is Europe's premier food service trade show and is attended
by over 50,000 people and 600 exhibitors associated with the European food
service industry. The judges selected the TurboChef oven as the winner in the
equipment category, as well as being selected as the winner of the gold medal
award for innovation for the entire show.
The Company intends to continue to build upon its core technology
competency, expand its technology portfolio by developing other innovative
products and increase market penetration through joint venture, strategic
alliance and/or licensing arrangements with companies already engaged in the
mass marketing and/or manufacture of foodservice products.
The Company's commercial cooking systems employ the Company's proprietary
cooking technologies to quickly, efficiently and evenly transfer, disperse and
control the heat used in the cooking process. The Company's proprietary
computerized control platform monitors the cooking process and automatically
adjusts cook settings during the cooking cycle for optimum performance. These
technologies provide foodservice operators the flexibility to "cook-to-order" a
variety of food items at speeds which the Company believes are significantly
faster than those permitted by conventional commercial ovens, grills, microwave
ovens, and other currently available high-speed ovens, without sacrificing
quality. For example, the commercial TurboChef system can cook an 18-ounce beef
tenderloin in 3 minutes (versus 40-45 minutes in a conventional commercial
oven), a 16-inch pizza in 3 minutes (versus 8-12 minutes) and a 7-ounce salmon
fillet in 55 seconds (versus 8-10 minutes).
In addition, because of the TurboChef cooking system's moisture retention,
browning and crisping 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 other rapid cook ovens, or microwave ovens, and are equal
to, or, in some cases, superior in quality to those achieved using conventional
ovens and grills.
In addition, the Company's rapid cook systems use a microprocessor to
control the cooking processes to ensure consistent quality and it also has the
ability to communicate with users and service personnel over computer networks
and the Internet. As a result of the explosion in the Internet and intelligent
appliance innovation, the Company has 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.
Recent Developments
Since entering into a Strategic Alliance, and related agreements with
Maytag Corporation ("Maytag") in September 1997, the Company has received
approximately $10.5 million in connection with product development and
technology transfer fees (approximately 27%, 50% and 57% of total revenues for
2000, 1999 and 1998, respectively).
-3-
In January 2001, Maytag advised the Company that it was terminating distribution
of its Accellis 5XP residential oven that incorporated TurboChef rapid cook
technology. During the first quarter of 2001, Maytag took actions, which the
Company believes resulted in termination of the Commercial Cooking Appliance
Project Agreement ("CCAP") and associated License Agreement. As a result of
these actions, both Maytag and the Company have filed claims under the
arbitration provision of these agreements. One of the Company's claims is that,
as a result of its termination of the agreement, Maytag is required to pay to
the Company the remaining balance of minimum royalties that are due under the
License Agreement of $5.25 million. Although the Company believes that it will
prevail on its claims, the outcome of the arbitration proceeding is uncertain.
The termination of the Maytag agreement could have a material adverse effect on
the Company's financial position and results of operations. In addition,
Maytag's actions have delayed the Company's ability to realize economic value
from its rapid cook technologies. The Company intends in the future to seek to
enter into non-exclusive distribution arrangements with multiple parties in an
effort to lessen its reliance on any one single market partner.
In March 2001, the Company raised $2,000,000 through the sale of its 8%
Series B convertible preferred stock. The dividend on the preferred stock is
payable, at the Company's option, in either cash or shares of common stock. The
preferred stock is convertible to common stock at $1.00 per common share
(representing the closing sale price of the common stock on the date of
funding). In connection with this transaction, the Company also issued to the
investor warrants to purchase an additional 1,000,000 shares of common stock at
$1.20 per share. These warrants are exercisable in three equal annual
installments, commencing one year from the date of issuance and expire in 2011.
Rapid Cook Technology
Traditional cooking systems employ a wide range of processes for
transferring heat energy to food. These include: conduction (direct energy
transfer from a hot surface, as in a grill); natural convection (energy transfer
to and from naturally moving air, as in a typical home oven); forced convection
(energy transfer to and from mechanically circulated air, as in a typical
convection oven); air impingement (forced convection with rapidly moving air
directed at the food); induction (heating by the generation of electromagnetic
fields); microwave radiation (heating by the dissipation of microwave energy in
food); and infra-red radiation (heating by light whose wavelength falls below
that of the color red in the electromagnetic spectrum).
Newer cooking systems have begun to incorporate two or more of these
conventional sources of energy. For example, some cooking systems employ
microwaves and air impingement or microwave and halogen light. However, the
Company does not believe that these systems provide the speed or the tangible
quality results that are achieved in the TurboChef rapid cook systems.
Additionally, the Company, working with the Massachusetts Institute of
Technology staff, scientifically validated the TurboChef systems cooking
characteristics in order to provide an independent, scientific basis for food
quality and competitive product testing.
In its simplest form, the Company's unique, patented system couples hot air
with microwave energy. The close coupling of the two energy sources enables
faster cooking at higher quality levels than is possible by each energy source
operating independently. The air is forced down from the top of the oven and at
the same time pulled out through a return path that results in a tight air wrap
around food. This air wrap ensures that there is a constant interaction between
the heated air and the entire surface area of the food product in the cooking
cavity,
-4-
resulting in not only evenly browned food products on the outside, but also
creates temperature and moisture gradients that enable precisely targeted
microwaves to energize water molecules that cook the food on the inside. The
microwave energy is introduced from a direction directly opposite that of the
direction of the airflow, thus capturing the food between the two opposing
energy gradients resulting in faster cooking times and enhanced quality in the
food products being cooked.
Other Products and Applications
The presence of the microprocessor as an intrinsic element of the cooking
system also gives TurboChef cooking systems a powerful tool to communicate with
its users. For example, cooking programs can be downloaded via computer modem
into the cooking system and the cooking system routinely monitors its own
performance and diagnoses possible problems. To facilitate this process, for its
commercial customers, the Company continues to develop, enhance and refine
ChefComm(TM), a software that enables executive chefs of foodservice chains to
program the cooking systems centrally. Thus, for most foodservice chains, the
use of this system can provide a higher level of cooking quality than is
currently possible. Planned enhancements to ChefComm(TM), are expected improve
oven reliability -- a critically important foodservice need. The Company is also
engaged in hardware and software development that is intended to enable the
TurboChef rapid cook system to leverage the Internet to further enhance and
simplify the cooking process. The Company intends to develop an open platform
system that is expected to enable its rapid cook system to communicate with
other appliances and computers, enabling users to better utilize the system's
communications capabilities and Internet connectivity.
Opportunities and Strategy
The Company believes that its long-term success is dependent upon the
successful commercialization of its cooking technologies in commercial and
residential products, upon leveraging its core competencies of developing new
innovative technologies and adding value to the consumer by enhancing these
technologies with Internet connectivity. The Company intends to pursue both
residential and commercial rapid cook opportunities nationally and
internationally, with the North American market as the launching point. The
Company's market research revealed that "time" and "quality" are two of the most
important considerations taken into account for food preparation, the Company
believes that its patented cooking technologies are well suited for adoption in
both the residential and commercial kitchens.
The Company's Next Generation Oven ("NGO") residential oven is expected to
reduce cooking times to as little as one-eighth of traditional cook times. For
example, a three-pound whole chicken can be cooked to perfection in 10 minutes,
a task that typically takes 1 hour and 15 minutes in a conventional oven. With
this speed in cooking it will enable the preparation of quality meals at the
spur of the moment. More importantly, the cooking system will bake, roast,
broil, brown and crisp while maintaining nutrition, taste, texture and
appearance that the Company believes is comparable, or better than food cooked
in conventional ovens.
Similarly, the commercial foodservice market continues to experience rising
real estate costs, increased food product costs and intense competition. These
factors have forced many
-5-
commercial foodservice operators to rethink their operations and become more
efficient and cost effective in their food preparation. While many operators
have initiated cost saving mechanisms in their kitchens, their available options
have been somewhat limited. The Company believes that its patented technologies
not only provide operators the opportunity to achieve operating cost savings
(i.e., energy, ventilation, food waste and labor), but enables operators to
produce quality meals in less time from a smaller, more efficient and less labor
intensive kitchen.
TurboChef also believes that it is in a position to benefit from the
evolution from a `PC-based' technology standard to a `PC-plus' platform of on-
demand information access. The iAppliance application of TurboChef's cooking
technology represents a paradigm shift in the value of kitchen appliances, and
the Company believes that its web enabled, rapid-cook oven will elicit `want-in'
versus `wear-out' consumer demand and open many new avenues for product and
service revenues. The Company also believes that this `next generation' product
should reach a broader market, than existing products, through an open-platform
system supported by low-cost, high-volume OEM and branded OEM partners and that
its technologies may attract interest from both major international food
manufacturers trying to participate in the new economy and supermarkets seeking
new ways to capitalize on changes in the home meal replacement industry.
Strategy
The Company intends to continue its stated strategy of growing through
partnerships. The Company has targeted four primary partnership strategies that
it believes are essential to the success of the Company.
1. Market partners - The Company seeks to leverage the marketing and
---------------
distribution capabilities of large appliance and consumer electronics
manufacturers to broadly distribute the Company's rapid cook technologies
worldwide. By entering into licensing, joint venture and marketing
alliances, the Company believes that it can realize the distribution of its
technologies without having to incur the huge costs generally associated
with this process. The Company believes that this is the best approach to
achieve broad acceptance of its technologies and to achieve the Company's
objective of becoming the dominant rapid cook platform in this newly
emerging cooking category.
The Company is seeking to expand its market partners in North America on a
non-exclusive basis. The Company also intends to extend its current "C"
model cooking system into a single phase and three phase electric powered
units. Additionally, the Company is seeking additional funding to build
upon prior investments made by the Gas Research Institute to commercialize
a natural gas fueled version of its "C" model oven. The Company believes
that a multiple partner, non-exclusive distribution strategy will be the
most effective strategy to protect the Company from over reliance on any
one single market partner.
2. Manufacturing partners - In the second quarter of 2000, the Company
----------------------
established a manufacturing venture with Shandong Xiaoya Group in China.
The Company expects that the Shandong Xiaoya Group will be producing the
"C" model commercial cooking system in the second quarter of 2001. The
Company is actively seeking other partnerships with large original
equipment manufacturers ("OEM's") and appliance manufacturers to set up
high volume, low cost, manufacturing
-6-
facilities for components and/or entire systems, so that turnkey packages
can be offered to marketing partners. These partnerships are expected to
enable the Company to consolidate manufacturing efforts, thereby providing
economies of scale for potential market partners that may not have
appliance manufacturing facilities of their own. This strategy should
enable the Company to expand its channels to market and create a wider
distribution of the TurboChef rapid cook technologies. The strategy of
deploying a high quality low cost OEM to provide centralized manufacturing
combined with non-exclusive distribution has been received positively by
existing manufactures and appliance distributors.
3. Technology partners - The Company continues to seek out potential partners
-------------------
that have expertise, competencies and knowledge in particular areas, which
may complement the Company's technology offerings. The Company believes
that such partnerships could help to facilitate improvements to the
Company's core technologies, reduce manufacturing costs and expedite time
to market. Examples of these partners include the Gas Research Institute,
with whom the Company has a cooperative agreement to develop natural gas
fueled versions of TurboChef's rapid cook system for residential and
commercial markets. The Company is also working with the Massachusetts
Institute of Technology staff to scientifically quantify and validate the
performance characteristics of the Company's cooking technologies.
4. Consumables partners - The Company is in the process of developing
--------------------
relationships with consumer products companies to develop products that
compliment and expand the Company's technologies. Specifically, the Company
is targeting packaged food manufacturers and packaging companies to develop
TurboChef compatible products that will further assist in establishing the
Company's technologies as the standard in the rapid cooking market.
A strategic synopsis by region is as follows:
North America: As a result of the termination of its relationship with
-------------
Maytag during the first quarter of 2001, the Company believes that entering into
non-exclusive distribution agreements with multiple partners will be the most
effective means of achieving distribution of the Company's "C" model cooking
system, as well as protecting the Company from over reliance on any one single
market partner. The Company is seeking, but has not yet obtained distribution
partners to replace the sales and marketing functions previously provided by
Maytag.
-7-
Europe: Direct marketing efforts utilizing a consultative selling program
------
have been established and implemented in the United Kingdom, in part, by
leveraging the existing brand equity and reputation gained from the placement of
over 450 D-model cooking systems with Whitbread PLC ("Whitbread"). To date the
Company has an installed base of D-model units of approximately 1,100. In
addition, the Company sold 350 units of its C-3 rapid cook system, which
replaced the D-model, to a fast food restaurant chain in the United Kingdom in
the third quarter of 2000. As of December 31, 2000 the Company's install base
of C-3 units was approximately 400 units.
The C-3 was awarded a gold medal for best innovative new product at the
Hotelympia foodservice show, held in London during February 2000. The Company
won this prestigious award while in competition against some of the top
foodservice companies in the world. More recently, in January 2001, the Company
received two prestigious awards at the Horecava 2001 trade show in Amsterdam.
Horecava is Europe's premier food service trade show and is attended by over
50,000 people and 600 exhibitors associated with the European food service
industry. The judges selected the TurboChef oven as the winner in the equipment
category, as well as being selected as the winner of the gold medal award for
innovation for the entire show.
The Company intends to expand the direct marketing efforts for commercial
rapid cook systems. The Company is currently seeking distributors and dealers to
market and distribute the Company's C-3 next generation rapid cook systems in
Europe. The Company will continue its efforts to attract additional partners and
pursue alliances in this region to ensure the broadest possible availability of
its technologies throughout this region.
Asia: The Company has initiated missionary marketing efforts in Asia and
----
intends to gather data from such beta test sites and incorporate such
information into future generations of the Company's technologies. During 2000,
the Company entered into a manufacturing arrangement in Asia for production of
its commercial counter top model. The Company expects that the Shandong Xiaoya
Group will be producing the "C" model commercial cooking system in the second
quarter of 2001.
Production and Supply
In the second quarter of 2000, the Company established a manufacturing
venture with Shandong Xiaoya Group in China. The Company expects that the
Shandong Xiaoya Group will be producing the "C" model commercial cooking system
in the second quarter of 2001. The agreement may be terminated by the Shandong
Xiaoya Group or the Company with thirty days written notice. Under this
agreement, the Company is required to purchase a minimum of 500 "C" model
cooking systems during fiscal 2001.
The Company has been and will continue to be dependent on third parties for
the supply and manufacture of all of its component and electronic parts,
including both standard components and specially-designed component parts, such
as the printed circuit computer boards and wiring harnesses used in the
TurboChef cooking systems. The Company generally does not
-8-
maintain supply agreements with such third parties but instead purchases
components and electronic parts pursuant to purchase orders in the ordinary
course of business. The Company is substantially dependent on the ability of its
manufacturers and suppliers to, among other things, meet the Company's design,
performance and quality specifications. Failure by the Company's manufacturers
and suppliers to comply with these and other requirements could have a material
adverse effect on the Company.
The Company has required that its contract manufacturers follow generally
accepted industry standard quality control procedures. In addition, the Company
maintains its own quality assurance personnel and testing capabilities to assist
its contract manufacturers with their respective quality programs and to perform
periodic audits of manufacturing facilities and finished products to ensure the
integrity of the quality assurance procedures. Component parts furnished to the
Company by its suppliers and manufacturers are generally covered by a one-year
limited warranty and contract manufacturers furnish a limited warranty for any
of their manufacturing or assembly defects.
The Company's manufacturing cycle, which is the period from the execution
of a purchase order until actual shipment of the product to the customer,
generally ranges from two to six weeks for small volume cooking system sales and
up to one or two months longer for initial shipments to commence under large
multi-unit purchase contracts. Pursuant to the Company's warranty policy, the
Company will accept the return of a cooking system if the cooking system does
not perform according to product specifications, within one year of the date of
purchase. For certain potentially large customers, who wish to test and evaluate
a cooking system prior to purchase, the Company occasionally offers one or more
units at a reduced price for such evaluation.
Research and Development
During the years ended December 31, 2000, 1999, and 1998, the Company
incurred costs related to research and development activities in the amounts of
$3,731,000, $4,092,000 and $2,311,000, respectively, substantially all of which
was from third parties. It is the intention of the Company to continue to invest
in the continued development of its core technologies and related applications
to the extent needed to establish them as a major world wide cooking platform.
In particular, in the area of cooking, the Company plans to continue improving
the performance of its commercial system that embodies the core technologies in
a broader range of cooking appliances. After the Company completed the
development of its first residential cooking system it began to develop other
residential embodiments of its cooking technologies. In addition, the Company
plans to develop and enhance a range of software products for residential and
commercial kitchens to enable users to extract more value from their cooking
systems and achieve new levels of communication and connectivity through the
Internet.
Competition
The commercial cooking and warming segment of the foodservice equipment
market is characterized by intense competition. The Company competes with
numerous well-established manufacturers and suppliers of conventional commercial
ovens, grills and fryers (including those
-9-
that cook through the use of conduction, convection, induction, air impingement,
infrared, halogen and/or microwave heating methods). In addition, the Company is
aware of others who are developing, and in some cases have introduced,
commercial ovens based on high-speed heating methods and technologies. Most of
the Company's competitors possess substantially greater financial, marketing,
personnel and other resources than TurboChef Technologies and have established
reputations relating to the development, manufacture, marketing and service of
cooking equipment. Among the Company's major competitors in the cooking and
warming segment of the foodservice equipment market are: The Middleby
Corporation and certain of its subsidiaries; the commercial foodservice
equipment division of Welbilt Corporation, including, Lincoln Foodservice
Products, Inc. and MerryChef; Quadlux, Inc.; Vulcan-Hart Corporation, a
subsidiary of Premark International, Inc.; Groen, Inc., a subsidiary of Dover
Corporation; Amana Fujimak and Energyst (a technology licensing company).
The competitive activity has also increased in the emerging residential
rapid cook sector, and there can be no assurance that other companies with
greater financial resources and expertise will not attempt to develop or are
currently developing functionally competitive products that may become available
in the near future. Certain competitors have already introduced products into
the rapid cook sector, including; the General Electric Advantium (utilizing
microwave and halogen light technology), the Quadlux Flashbake wall oven
(utilizing infrared and invisible light technology), the Whirlpool Speedcook
wall oven (utilizing convection, microwave and halogen light technology) and the
Amana Lightwave (utilizing microwave and infrared light technology). In
addition, other competitive products are scheduled to be launched in the near
future including the Thermador Jetdirect (utilizing microwave and air
impingement) and the General Electric wall oven (utilizing microwave and halogen
light technology). Although the Company is not aware of any competitive
products, either being marketed or under development, which it believes are
functionally equivalent to the TurboChef cooking system (i.e., that have the
similar computer capabilities, that can produce the variety of food items,
cooked to the same high quality standards, at the same speeds), there can be no
assurance that other companies with greater financial resources will not attempt
to develop functionally equivalent competitive products in the near future.
Regulation and Accreditation
The Company is subject to regulations administered by various federal,
state, local and international authorities, such as the United States Food and
Drug Administration, the Federal Communication Commission, the European
Community Council and the Japanese Government's Ministry of International Trade
(MITI) (including those regulations limiting radiated emissions from the
Company's cooking system products), which impose significant compliance burdens
on the Company. Failure to comply with these regulatory requirements may subject
the Company to civil and criminal sanctions and penalties. While the Company
believes that its products are in compliance in all material respects with all
material laws and regulations applicable to the Company and such products, there
can be no assurance of such compliance. The Company tests, from time to time,
the cooking systems in order to confirm continued compliance with applicable
regulatory requirements. Management believes that compliance with these laws and
regulations will not require substantial capital expenditures or have a material
adverse effect on the Company's future operations.
-10-
New legislation and regulations, as well as revisions to existing laws and
regulations (at the federal, state and local levels, in the United States and/or
in foreign markets) affecting the foodservice equipment and residential
appliance industries may be proposed in the future. Such proposals could affect
the Company's operations, result in material capital expenditures, affect the
marketability of the Company's existing products and technologies and/or could
limit or create opportunities for the Company with respect to modifications of
its existing products or with respect to its new or proposed products or
technologies. In addition, an expanded level of operations of the Company in the
future could require the Company to modify or alter its methods of operation at
costs, which could be substantial and could subject the Company to increased
regulation, and expansion of the Company's operations into additional foreign
markets may require the Company to comply with additional regulatory
requirements.
The Company has received certification from Underwriter's Laboratories,
Inc. ("UL(R)") as to compliance of the Company's model "C" and "D" TurboChef
cooking systems with applicable UL(R) requirements relating to product safety
accreditation standards and with the applicable requirements of the National
Sanitation Federation ("NSF") relating to cleanability and sanitation
accreditation standards. UL(R) and NSF are agencies which have established
certain standards for a variety of categorized products and can be engaged to
inspect a manufacturer's products for compliance with the applicable standards.
Certification by each agency authorizes the marking of any such product with the
agency's labels, which indicates that the product is approved by the agency for
such use. Such certifications, which require periodic renewal, only represent
compliance with established standards and are not legally required. However,
failure by the Company to comply with these accreditation standards in the
future could have a material adverse effect on the Company's marketing efforts.
In addition, the Company has met the requirements necessary to apply the "CE"
mark (which indicates compliance with the European Community Council directive
relating to electromagnetic compatibility and low voltage) to its C and D Model
TurboChef cooking systems. As an equipment manufacturer, the Company is allowed
to "self-certify" compliance with this directive and has a third party attest to
the results. The Company is required by law to meet this European Community
Council directive in order to apply the "CE" mark and thereby sell its cooking
systems in the European Union.
Warranty and Service
The Company generally offers to purchasers a one-year limited warranty
covering the TurboChef cooking system's workmanship and materials, during which
period the Company or its authorized service representative will make repairs
and replace parts which become defective due to normal use. There can be no
assurance that future expenses incurred on the one-year warranty will not have a
material adverse effect upon the Company.
The Company did allow the purchase of an extended warranty program for a
particular customer during 1999 and 1998, which covered units that were older
than one year. The Company recorded revenues of $201,000 and $417,000 in 1999
and 1998,
-11-
respectively, for this extended warranty program. The costs associated with this
extended warranty program in excess of revenues were $150,000 and $462,000 for
the years ended December 31, 1999 and 1998, respectively. The results of
research associated with the extended warranty program coupled with research
findings from the Company's accelerated life cycle testing facility have lead to
design improvements that should improve both the durability and reliability of
the Company's products and will be incorporated into future products. The above
extended warranty program was completed in 1999.
On September 1, 1999, the Company entered into an agreement to upgrade and
warranty 262 cooking systems installed with Whitbread. The Company received
approximately $1.4 million from Whitbread to complete the upgrade and warranty
the cooking systems for a three-year period, beginning in September 1999. The
cooking system upgrades include design changes that should substantially
increase the life and durability of the cooking systems and were completed in
February 2000. The $1.4 million has been used to offset expenses relating to the
upgrade and warranty as incurred. During 2000 and 1999, the Company accrued an
additional $985,000 and $755,000, respectively, for expenses in excess of
payments from Whitbread, relating to the completion of the upgrade and remainder
of the warranty period. 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. However, 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.
In those areas where TurboChef cooking systems are located, the Company has
established relationships with independent factory authorized service
representatives who provide installation and repair services and carry a parts
inventory. The Company expects its market partners to establish parts and
service capabilities in the markets in which they sell TurboChef licensed
products.
Insurance
The Company is engaged in a business which could expose it to possible
liability claims from others, including from foodservice operators and their
staffs, as well as from consumers, for personal injury or property damage due to
design or manufacturing defects of the Company's products or otherwise. The
Company maintains a general liability insurance policy, which the Company
believes is adequate coverage for the type of products currently marketed. In
addition, the Company believes that its third party manufacturer currently
maintains similar levels of liability insurance. No assurance can be given that
the Company's insurance coverage will be adequate to cover every claim against
the Company.
Patents and Proprietary Rights
The Company holds nine United States patents that cover certain fundamental
aspects of the Company's rapid cook technologies. Additionally, the Company has
received notification from the U.S. Patent and Trademark Office that another
patent application covering fundamental new aspects of the Company's residential
rapid cook technology has been allowed. The Company has pending patent
applications or patents corresponding to one or more of these United States
patents filed in at least seven countries (including the various countries of
the European Patent Convention). These United States patents expire between
2011-2018. The
-12-
Company further holds one pending United States patent application on a vent
catalytic converter for use in such rapid cook technologies and patent
applications covering other aspects of the Company's rapid cook technology. The
Company also holds one United States patent relating to the Company's "par-
baked" pizza dough setting technology, which patent expires in 2014. The patent
laws of other countries may differ from those of the United States as to the
patentability of the Company's technologies and products and the degree of
protection afforded. The Company believes that its patents and patent
applications provide it with a competitive advantage. Accordingly, in the event
the Company's products and technologies gain market acceptance, patent
protection would be important to the Company's business. There can be no
assurance as to the breadth or degree of protection which existing or future
patents, if any, may afford the Company, or that any patent applications will
result in issued patents, or that the Company's patent rights will be upheld if
challenged, or that competitors will not develop similar or superior methods or
products outside the protection of any patents issued to the Company.
There is rapid technological development in the Company's markets with
concurrent extensive patent filings and a rapid rate of issuance of new patents.
Although the Company believes that its technologies have been independently
developed and do not infringe the patents or intellectual property rights of
others, certain components of the Company's products could infringe patents,
either existing or which may be issued in the future, in which event the Company
may be required to modify its designs or obtain a license. No assurance can be
given that the Company will be able to do so in a timely manner or upon
acceptable terms and conditions; and the failure to do either of the foregoing
could have a material adverse effect upon the Company's business.
The Company believes that product and brand name recognition is an
important competitive factor in the foodservice equipment industry. Accordingly,
the Company promotes the TurboChef(R) name in connection with its marketing
activities. The Company holds a United States trademark for the TurboChef(R)
name and also a United States Trademark for TurboChef Technologies, Inc(R).
The Company also relies on trade secrets and proprietary know-how, and
typically enters into confidentiality and non-competition agreements with its
employees and appropriate suppliers and manufacturers, to protect the concepts,
ideas and documentation relating to its proprietary technologies. However, such
methods may not afford the Company complete protection. There can be no
assurance that others will not independently obtain access to the Company's
trade secrets and know-how or independently develop products or technologies
similar to those of the Company. Since the Company believes that its proprietary
technologies are important to its business, failure to protect such information
could have a material adverse effect on the Company.
Employees
As of March 27, 2001, the Company employed 28 persons, all of whom are
full-time employees, including one executive officer and four senior managers.
Of its employees, ten are engaged in technological development, seven in
administration, and eleven in sales, marketing,
-13-
and customer service. None of the Company's employees are represented by labor
unions. The Company considers its relations with its employees to be good.
Item 2 Properties
----------
The Company owns no real estate. The Company leases approximately 18,600
square feet of space at 10500 Metric Drive, Dallas, Texas, which it uses for
executive offices, technology development, limited assembly and other purposes,
under a lease agreement, which expires on January 31, 2002. The annual base
rental expense on this property is $152,000.
The Company leases approximately 1,000 square feet of general office space
at 660 Madison Avenue, New York, New York, pursuant to a lease that is scheduled
to expire on December 31, 2002. The annual base rental expense on this property
is $189,000.
The Company leases approximately 1,000 square feet of general office space
in the Cranfield Innovation Centre, in Cranfield, U.K. In addition, the Company
occupies approximately 1,000 square feet of office space, which is used as a
training facility, in Bedfordshire, U.K., pursuant to a month-to-month lease.
The annual base rental expense on this property is $34,000.
The Company believes that its facilities are generally well maintained, in
good operating condition and adequate for its current needs.
Item 3 Legal Proceedings
-----------------
During the first quarter of 2001, the Company and Maytag filed its Notice
of Claim of Arbitration, as provided for under the CCAP and related License
Agreement. Maytag has claimed that the Company has breached the CCAP and related
License Agreement, and is seeking to recover damages of approximately $4.2
million. One of the Company's claims is that, as a result of its 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. The
Company believes that it will prevail on its claims, and expects the arbitration
to be complete prior to the end of fiscal 2001. 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 agreements
could have a material adverse effect 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 4 Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
-14-
Part II
Item 5 Market for Registrant's Common Equity and Related Stockholder Matters
---------------------------------------------------------------------
The Company's common stock traded on the NASDAQ SmallCap Market under the
symbol "TRBO" from the Company's initial public offering in April 1994 until
February 1999. On March 1, 1999, the Company's stock began trading on the NASDAQ
National Market. The following table sets forth the high and low bid quotations
for the common stock for the periods indicated as reported by NASDAQ Small Cap
Market and the NASDAQ National Market, as applicable. The per share quotations
represent inter-dealer prices without adjustment for retail mark-ups, mark-downs
or commissions and may not necessarily represent actual transactions.
Per Share Price
---------------
Period High Low
------ ---- ---
Fiscal Year 2000
- ----------------
First Quarter $10.18 $5.37
Second Quarter $ 6.87 $3.63
Third Quarter $ 5.21 $2.28
Fourth Quarter $ 5.09 $1.25
Fiscal Year 1999
- -----------------
First Quarter $13.88 $8.75
Second Quarter $12.88 $7.63
Third Quarter $ 9.94 $4.50
Fourth Quarter $ 8.94 $3.63
As of March 27, 2001, there were approximately 133 shareholders of record
of the Company's common stock. In addition, the Company believes that there are
approximately 3,475 shareholders whose shares are held in "street name".
Dividends
The Company has not paid cash dividends on the common stock since its
organization and does not expect to pay any cash dividends on the common stock
in the foreseeable future. Rather, the Company intends to continue a policy of
retaining earnings for the Company's operations and planned expansion of its
business. The payment of any future cash dividends would be at the discretion of
the Company's Board of Directors and would depend on future earnings, capital
requirements, the Company's financial condition and other factors deemed
relevant by the Board of Directors.
-15-
Item 6 Selected Financial Data
-----------------------
The following selected financial data for each of the fiscal years ended
December 31, 2000, 1999 and 1998 has been derived from the Company's audited
financial statements, and should be read in conjunction with those statements,
which are included in this Form 10-K. The following selected financial data for
each of the fiscal years ended December 31, 1997 and 1996, has been derived from
the Company's audited financial statements, and should be read in conjunction
with those statements, which are not included in this Form 10-K. The selected
financial data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements and notes thereto which are included elsewhere in this Form 10-K.
Year Ended December 31,
(Amounts in Thousands, Except Share and Per Share Data)
------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Statement of Operations
- -----------------------
Data:
- -----
Revenues $ 7,846 $ 7,063 $ 7,137 $ 4,222 $ 2,802
Operating Loss $ (7,674) $ (8,005) $ (4,152) $ (4,822) $ (3,197)
Net Loss $ (3,732) $ (8,779) $ (3,954) $ (4,662) $ (2,941)
Per Share Data (1)
Net Loss per Share - basic $ (0.24) $ (.59) $ (.27) $ (.33) $ (.22)
and diluted
Weighted Average Number of
Shares Outstanding 15,602,211 14,983,486 14,611,724 14,032,796 13,339,431
Balance Sheet Data:
- -------------------
Working Capital $ 846 $ 14,484 $ 18,566 $ 9,527 $ 8,523
Total Assets $ 5,722 $ 21,069 $ 20,800 $ 16,440 $ 9,743
Total Liabilities $ 4,054 $ 11,218 $ 1,607 $ 811 $ 810
Accumulated Deficit $ (33,742) $ (30,010) $ (21,231) $ (17,277) $ (12,615)
Total Stockholders' Equity(2) $ 1,668 $ 9,851 $ 19,193 $ 15,629 $ (8,933)
(1) Share data is based upon the weighted average common shares and share
equivalents outstanding for each period, adjusted to reflect the
split.
(2) In March 2001, the Company raised $2,000,000 through the sale of its
8% Series B convertible stock.
-16-
Item 7 Management's 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.
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
Company began development of a direct sales organization. By the end of the
first quarter of 1997, the Company had substantially developed a U.S. direct
sales and European sales infrastructure and marketing programs. However, the
revolutionary nature of the Company's technologies, coupled with large
restaurant chain operators' historical resistance to change and the Company's
lack of brand strength has limited commercial sales.
During the first quarter of 2001, Maytag took action, which the Company
believes resulted in termination of the CCAP and association License Agreement.
As a result of these actions, both Maytag and the Company have filed claims
under the arbitration provision of these agreements. One of the Company's claims
is that, as a result of its termination of the agreement, Maytag is required to
pay to the Company the remaining balance of minimum royalties that are due under
the License Agreement of $5.25 million. Although the Company believes that it
will prevail on its claims, the outcome of the arbitration proceeding is
uncertain. The termination of the Maytag agreements could have a material
adverse effect on the Company's financial position and results of operations. In
addition, Maytag's actions have delayed the Company's ability to realize
economic value from its rapid cook technologies. The Company intends in the
future to seek to enter into non-exclusive distribution arrangements with
multiple parties in an effort to lessen its reliance on any one single market
partner.
-17-
The Company has invested heavily in research, prototype development,
strategic alliance development 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 $3.7 million, $8.8 million
and $4.0 million for the years ended December 31, 2000, 1999 and 1998,
respectively) resulting in an accumulated deficit of $33.7 million as of
December 31, 2000.
Although the Company has historically incurred significant losses, the
Company expects to generate future cash flows from the direct sale of its
commercial and residential cooking systems, royalties from the sale of its
commercial and residential cooking systems, research and development fees for
product development and, as necessary, raising capital through future equity or
debt financing. As discussed elsewhere in this report, in January 2001, Maytag,
in an effort to restructure and return to its core appliance business,
discontinued its manufacturing and distribution of its Jenn-Air(R) Accellis(TM)
5XP rapid cook system, which incorporated the Company's rapid cook technologies.
Furthermore, as noted above, the Company believes that its relationship with
Maytag has terminated. The Company believes it will find other channels to
distribute its technology into the residential and commercial markets. In
particular, the Company intends initially to focus on the Southwest and West
Coast regions of the U.S. Furthermore, the Company intends to continue its
pursuit of potential marketing and manufacturing partners in Europe, Asia and
Latin America.
In the second quarter of 2000, the Company successfully established a
manufacturing venture with Shandong Xiaoya Group in China. The Company expects
that the Shandong Xiaoya Group will be producing the "C" model commercial
cooking system in the second quarter of 2001.
The Company intends to continue to pursue business growth through
implementation of the following strategies: (i) selling and marketing its model
"C" oven, which is manufactured in China, worldwide to restaurants, hotels,
convenience stores and other foodservice operators, (ii) licensing its next
generation technology for residential ovens to partners that have the capability
to commercialize it from its current proof of concept state and (iii) broadening
the "C" model platform beyond the single phase electric unit to include a three
phase electric and gas fueled version. The Company's future liquidity will
depend upon, among other things, the successful implementation of these
initiatives.
-18-
Results of Operations for the Year Ended December 31, 2000 Compared to the Year
Ended December 31, 1999
Revenues increased $783,000 to $7,846,000 for the year ended December 31,
2000 from $7,063,000 for the year ended December 31, 1999. This increase is due
to an increase in royalty revenues of $923,000 received under the Company's
commercial License Agreement with Maytag in the last half of 2000. This was
offset in part by a decrease in product sales of $322,000, which was primarily
the result of initial replacement parts inventory sold to the Company's oven
manufacturer in 1999.
Cost of sales for the year ended December 31, 2000, was $3,846,000 compared
to $3,267,000 for cost of sales in the prior year. Greater than expected
warranty expense related to initial manufacturing problems associated with the
production of the Company's C and D series ovens is the primary contributor to
an increase in costs. In addition, the Company has written down obsolete
inventory by approximately $215,000.
Gross profit (loss) on product sales for the year ended December 31, 2000
and December 31, 1999 was $(777,000) and $124,000, respectively. The reduction
in gross profit was principally due to the costs relating to the upgrade and
extended warranty on products sold and the inventory writedown adjustment, as
explained above.
Research and development expenses for the year ended December 31, 2000
decreased $361,000, to $3,731,000 from $4,092,000 for the year ended December
31, 1999. The decrease is the result of a decrease in engineering and technical
personnel to support the Company's commercial countertop product development
requirements associated with the Maytag commercial license and development
agreement. This decrease was offset by expenditures incurred in the development
of the Company's "next generation" residential cooking systems and the ongoing
operating costs associated with the Company's accelerated life cycle testing
facility, established for the durability and reliability testing of the
Company's products.
Selling, general and administrative expenses for the year ended December
31, 2000, increased $234,000 to $7,943,000 from $7,709,000 for the year ended
December 31, 1999. The increase over 1999 is primarily due to an increase in
operating costs of $455,000 related to the Company's manufacturing joint venture
in China. These increases were offset in part by a decrease of $241,000 in sales
and marketing expenses. Sales and marketing expenses were lower because the
Company transferred its North American sales and marketing operations to Maytag
in 1999 under the commercial License Agreement.
Other income/(expense) was $3,942,000 for the year ended December 31, 2000,
compared to ($774,000) for the year ended December 31, 1999. The increase is
primarily the result of the gain of $5,022,000 the Company recorded when it
liquidated its hedged invesment in Maytag common stock in the fourth quarter of
2000. This gain was offset in part by an increase in interest expense of
$305,000, which was the result of an increase in outstanding debt used to
finance working capital.
-19-
Results of Operations for the Year Ended December 31, 1999 Compared to the Year
Ended December 31, 1998
Revenues for the year ended December 31, 1999, were $7,063,000 and are
comparable to revenues of $7,137,000 for the year ended December 31, 1998. A
scheduled reduction in payments to the Company for research and development
activities under the Maytag Alliance was partially offset by an increase in
commercial cooking system sales during 1999.
Cost of sales for the year ended December 31, 1999, were $3,267,000, an
increase of $590,000 when compared to $2,677,000 for cost of sales in the prior
year. This increase is attributable to an increase in the sales of the Company's
commercial cooking systems and costs relating to the upgrade and extended
warranty on products sold to a major customer in Europe.
Gross profit on product sales for the year ended December 31, 1999,
decreased to $124,000, when compared to gross profit on sales of $385,000 during
the prior year. Gross margin for the year ended December 31, 1999, was 4% of
sales, compared to 13% of sales for the year ended December 31, 1998. The
reduction in gross profit was principally due to the costs relating to the
upgrade and extended warranty on products sold to a major customer in Europe.
Research and development expenses for the year ended December 31, 1999,
increased to $4,092,000. This represents an increase of $1,781,000 from
$2,311,000 for the year ended December 31, 1998. The increase is due to
additions of engineering and technical personnel to support the Company's
product development requirements, costs associated with the Maytag commercial
license and development agreement, development of "next generation" residential
cooking systems and the ongoing operating costs associated with the Company's
accelerated life cycle testing facility, established for the durability and
reliability testing of the Company's products.
Selling, general and administrative expenses for the year ended December
31, 1999, increased $1,408,000, to $7,709,000 from comparable expenses of
$6,301,000 for 1998. The increase over 1998 is due to the addition of executive
officers and other administrative support personnel and the expansion of the
Company's European sales and marketing organization.
Other expense was $774,000 for the year ended December 31, 1999, compared
to other income of $198,000 for the year ended December 31, 1998. The $972,000
increase in expenses is primarily due to accrued interest charges and the
amortization of the premium on the purchased put option purchased to hedge
against market value fluctuations of the Company's Maytag common stock. A
portion of such shares were collateral for the Company's long-term credit
facility. The increase in other expense was partially offset by the elimination
of expenses relating to the Company's interest in a former joint venture.
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
-20-
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.
Over the past several years, the Company has primarily funded its capital
needs with monies received from Maytag, sales of securities and revenues
generated from operations. Since October 1997, Maytag has paid the Company an
aggregate of $10.5 million for technology transfer initiatives. As noted above,
the Company's relationship with Maytag has terminated.
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 of its commercial 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.
The Company anticipates that it will need to obtain additional sources of
funding in order to continue its ongoing operations according to its current
plans. Management believes that through sales of its commercial cooking systems,
technology transfer fees and the possibility of raising capital through debt and
equity financing, the Company will have adequate funding for its continued
operations and research and development efforts throughout 2001. However, if the
Company is unable to obtain additional financing, it will have to curtail its
current level of operations and research and development. No assurances can be
made that the Company will actually obtain the necessary funding to finance its
operations. The Company's financial statements have been prepared assuming that
the Company will continue as a going concern. 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.
Cash used during fiscal 2000 exceeded the Company's original forecast,
primarily as a result of the following:
. The launch of the commercial counter top oven was 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.
. The Company is applying staff resources and funding in connection
with the development of its Next Generation Oven ("NGO"). The
prototype NGO's completed by the Company are embodied in a full size
oven cavity, and may be sold as either a built in wall oven or a
freestanding range. The prototype NGO ovens cook food 7 to 8 times
faster than conventional ovens and can accommodate a 20+ pound
turkey.
. Certain funds were being applied to the development of the Company's
Internet strategy, the TurboChef rapid cook iAppliance and certain
marketing activities support management's efforts to procure
additional funding in the form of research and development
sponsorships, strategic alliances and/or equity investments .
-21-
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 provided 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. Interest was imputed at rates
ranging from 5.8% to 8.0%. The Company satisfied the then outstanding obligation
on November 13, 2000 by surrendering Maytag shares equal to the fair value of
the obligation.
In July 1999, the Company entered into a research and development agreement
with the Gas Research Institute ("GRI"). Through this agreement, the Company
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. During 2000, GRI earned royalties of $73,000 under this agreement.
-22-
In August 2000, the Company entered into another 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 carries
a dividend of 7% per annum which is payable in common 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 conversion date.
At December 31, 2000, the Company had working capital of $846,000 as
compared to working capital of $14,484,000 at December 31, 1999. The $13,638,000
working capital decrease from December 31, 1999 resulted primarily from the sale
of the Company's marketable securities to repay its long-term debt and as a
result of negative operating cash flow during fiscal 2000.
Cash used in operating activities was $10,062,000 for the year ended
December 31, 2000, as compared to cash used in operating activities of
$4,308,000 for the year ended December 31, 1999. The net loss of $3,732,000 in
2000 included $1,107,000 of non-cash charges (depreciation, amortization, non-
cash interest and non-cash compensation expenses), compared to $1,524,000 in
1999. Net cash used in operating activities in 2000 was negatively impacted by a
$1,727,000 decrease in deferred revenue, a $904,000 increase in accounts
receivable and a $771,000 increase in inventory. These operating cash
requirements were partially offset by a $1,811,000 increase in accounts payable.
Cash provided by/(used) in investing activities for the year ended December
31, 2000, was $15,255,000 and primarily resulted from the sale of the Company's
Maytag common stock and associated purchased put option for $15,723,000. This
was partially offset by equipment and leasehold improvement purchases of
$332,000 and capitalized patent costs of $136,000.
Cash used in financing activities was $5,704,000 for the year ended
December 31, 2000, of which $14,674,000 was used to repay the Company's long-
term credit agreement with AIG. The Company received $6,795,000 through its
long-term credit agreement with AIG in fiscal year 2000, prior to its repayment
of the facility in November 2000. The Company also received $2,100,000 due to
the sale of preferred stock during fiscal 2000.
At December 31, 2000, the Company had cash and cash equivalents of
$1,417,000, compared to cash and cash equivalents of $1,928,000 at December 31,
1999.
Management continually evaluates its liquidity position. During the fourth
quarter of 2000 and first quarter of 2001, the Company decreased non-core
business spending and implemented cost-cutting measures. The Company
-23-
anticipates that it will need to obtain additional sources of funding in order
to continue its ongoing operations according to is current plans. Management
believes that through sales of its commercial rapid cook systems, minimum
royalties, technology transfer fees and the possibility of raising capital
through debt and equity financing, the Company will have adequate funding for
its continued operations and research and development efforts throughout 2001.
However, if the Company is unable to obtain additional financing, it will have
to curtail its current level of operations. No assurances can be made that the
Company will actually obtain the necessary funding to finance its operations.
In March 2001, the Company raised $2,000,000 through the sale of its 8%
Series B convertible preferred stock. The dividend on the preferred stock is
payable, at the Company's option, in either cash or shares of common stock. The
preferred stock is convertible to common stock at $1.00 per common share
(representing the closing sale price of the common stock on the date of
funding). In connection with this transaction, the Company also issued to the
investor warrants to purchase an additional 1,000,000 shares of common stock at
$1.20 per share. These warrants are exercisable in three equal annual
installments, commencing one year from the date of issuance and expire in 2011.
Backlog
As of December 31, 2000, the amount of backlog orders believed to be firm
was approximately $0.3 million, as compared to approximately $0.2 million as of
December 31, 1999. The Company anticipates that the majority of this backlog
will be filled during the current year. The December 31, 2000, backlog was
positively impacted by the Company's transition from marketing its model "D"
cooking system to the model "C" cooking system, which was introduced in the
third quarter of 2000.
Authoritative Pronouncements
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements". This SAB does not change any existing rules on revenue recognition,
rather it provides guidance based on interpretations and practices followed by
the SEC. The Company's implementation of SAB 101 during the fourth quarter of
2000 did not have a material impact on its financial position or results of
operations.
In March 2000, the Financial Accounting Standards Board ("FASB") issued
Interpretation ("FIN") No. 44, "Accounting for Certain Transactions Involving
Stock Compensation", an interpretation of Accounting Principles Board ("APB")
No. 25. FIN No. 44 clarifies the application of APB No. 25 for the definition of
an employee for the purposes of applying APB No. 25, the criteria for
determining whether a plan qualifies as a non-compensatory plan, the accounting
consequence of various modifications to the terms of a previously fixed stock
option or award and the accounting for an exchange of stock compensation awards
in a business combination. The Company adopted FIN No. 44 effective July 1,
2000, but certain conclusions cover specific events that occur after either
December 15, 1998, or January 1, 2000. The
-24-
Company's implementation of FIN No. 44 did not have a material impact on its
financial position or results of operations.
In June 1998, the FASB issued Statement of Financial Accounting Standard
("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities", which establishes accounting and reporting standards for derivative
instruments and hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. Implementation of this standard was delayed by
the FASB for a 12-month period through the issuance of SFAS No. 137, "Accounting
for Derivative Instruments and Hedging Activities -deferral of effective date of
FASB Statement No. 133". In additional, SFAS No. 133 was amended by SFAS No.
138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activity." The Company will adopt SFAS No. 133 as of January 1, 2001, as
amended, as required for its first quarterly filing of fiscal year 2001. We do
not believe that this will have a material impact on the Company's financial
statements.
Risk factors
The Company operates in a changing environment that involves numerous known
and unknown risks and uncertainties that could materially adversely affect the
Company's operations. The following highlights some of the factors that have
affected, and in the future could affect, the Company's operations.
Auditors' Report. The auditors have included an explanatory paragraph in
their audit opinion with respect to the Company's consolidated financial
statements at December 31, 2000. The paragraph states that the Company's
recurring losses from operations and resulting continued dependence on access to
external financing sources raise substantial doubt about its ability to
continue as a going concern. Furthermore, the factors leading to and the
existence of the explanatory paragraph may adversely affect the Company's
relationship with customers and suppliers and have an adverse effect on its
ability to obtain additional financing.
Significant Capital Requirements; Need for Additional Financing. To date
the Company's capital requirements in connection with its technology and product
development have been significant and are expected to continue to be significant
for the foreseeable future. The Company may also have to expend significant
monies for marketing and additional financing will be required to fund
anticipated future operating losses. As a result of the $2.0 million in gross
proceeds the Company raised through the sales of its Series B convertible stock
in March 2001, anticipated sales of its commercial rapid cook systems, minimum
royalties technology transfer fees and the possibility of raising additional
capital through debt and equity financing, the Company believes that it will
have adequate funding for its continued operations throughout 2001. However, if
the Company's plans change, or anticipated revenues do not materialize, or
actual expenses exceed estimated expenses the Company could be required to
obtain additional financing sooner. The Company has no current arrangements with
respect to, or sources of, additional financing. Even if additional funds are
available, the Company may not be able to obtain them on a timely basis, or on
terms acceptable to it. Failure to obtain additional funds when required could
result in the Company curtailing or ceasing its operations.
History of Losses and Expectation of Future Losses; Accumulated Deficit;
Uncertainty of Future Profitability. The Company has incurred losses of $8.8
million and $3.7 million during the years ended December 31, 1999 and 2000,
respectively. The Company had an accumulated
-25-
deficit of approximately $33.7 million at December 31, 2000. There can be no
assurance that the Company will be able to achieve profitable operations in the
future.
Uncertainty of Market Acceptance; Dependence Upon Third-Party Marketing
Arrangements; Business Factors. The high-speed commercial oven segment of the
foodservice equipment industry is an emerging market, characterized by an
increasing number of market entrants. As is typical with new products based on
innovative technologies, demand for and market acceptance of the TurboChef ovens
are subject to a high level of uncertainty. Achieving market acceptance for the
TurboChef ovens will require substantial marketing efforts and the expenditure
of significant funds to increase the foodservice industry's familiarity with the
Company and to educate potential customers as to the distinctive characteristics
and perceived benefits of the TurboChef ovens and the Company's technologies.
There can be no assurance that the Company will have available the funds
necessary to achieve such acceptance. Moreover, to date, the Company has
primarily relied upon third parties for its marketing needs. In addition, 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.
Uncertainty of Strategic Alliances. In the past the Company has pursued a
strategy of outsourcing its manufacturing and marketing requirements by entering
into strategic alliance with other entities. While the Company believes that any
independent distributors, representatives and/or licensees with which it enters
into such arrangements will have an economic motivation to commercialize the
Company's products, the time and resources devoted to these activities generally
will be contributed and controlled by such entities and not by the Company. A
decline in the financial prospects of particular distributors, representatives
or licensees or of any of their customers could have an adverse effect on the
Company. In addition, joint venture or similar arrangements may require
financial or other commitments by the Company. There can be no assurance that
the Company will be able, for financial or other reasons, to finalize any third-
party distribution or marketing arrangements or that such arrangements, if
finalized, will result in the successful commercialization of any of the
Company's products.
Uncertainty of New Product Development. Although the Company's research and
development efforts relating to the technological aspects of its next generation
oven are substantially completed, the Company is continually seeking to refine
and improve upon the physical attributes and utility of the TurboChef oven.
There can be no assurance that the next generation oven or any future TurboChef
ovens developed will satisfactorily perform to customer expectations. Moreover,
the Company is subject to many risks associated with the development of new
products based on innovative technologies, including unanticipated technical or
other problems and the possible insufficiency of the funds allocated for the
completion of such development, which could result in a substantial change in
the design, delay in the development, or abandonment of such applications and
products. Consequently, there can be no assurance that the next generation oven
will be successfully commercialized or that additional products will be
successfully developed or that if developed they will meet current price or
performance objectives, be developed on a timely basis or prove to be as
effective as products based on other technologies. The inability to successfully
complete development of a product or application or a determination by the
Company, for financial, technical or other reasons, not to complete development
of any product or application, particularly in instances in which the Company
has made significant capital expenditures, could have a material adverse effect
on the Company.
-26-
Dependence on Third-Party Suppliers and Manufacturers. The Company
generally does not maintain supply agreements with such third parties but
instead purchases components and electronic parts pursuant to purchase orders in
the ordinary course of business. The Company will be substantially dependent on
the ability of its manufacturers and suppliers to, among other things, meet the
Company's design, performance and quality specifications. Failure by the
Company's manufacturers and suppliers to comply with these and other
requirements could have a material adverse effect on the Company. Furthermore,
there can be no assurance that the Company's manufacturers and suppliers will
dedicate sufficient production capacity to meet the Company's scheduled delivery
requirements or that the Company's suppliers or manufacturers will have
sufficient production capacity to satisfy the Company's requirements during any
period of sustained demand. Their failure to supply, or delay in supplying, the
Company with ovens or components could adversely affect the Company's profit
margin and the Company's ability to meet its own delivery schedules on a timely
and competitive basis. In addition, although the Company owns the designs for
its specially-designed components and believes that alternative sources of
supply are available, the Company currently purchases all of its specially-
designed components from a limited number of suppliers and failure by such
suppliers to continue to supply the Company with these components, on
commercially reasonable terms or at all, in the absence of readily available
alternative sources, would have a material adverse effect on the Company.
Industry Competition; Technological Obsolescence. The cooking and warming
segment of the foodservice equipment market is characterized by intense
competition. The Company competes with numerous well-established manufacturers
and suppliers of commercial ovens, grills and fryers (including those which cook
through the use of conduction, convection, induction, air impingement, infrared,
and/or microwave heating methods). In addition, the Company is aware of others
who are developing, and in some cases have introduced, new ovens based on high-
speed heating methods and technologies. Although the Company is not aware of any
competitive products, either being marketed or under development, which it
believes are functionally equivalent to the TurboChef oven (i.e. that can
produce the variety of food items, cooked to the same high quality standards, at
the same speeds), there can be no assurance that other companies with the
financial resources and expertise that would encourage them to attempt to
develop competitive products, do not have or are not currently developing
functionally equivalent products, or that functionally equivalent products will
not become available in the near future. Most of the Company's competitors
possess substantially greater financial, marketing, personnel and other
resources than the Company and have established reputations relating to product
design, development, manufacture, marketing and service of cooking equipment. In
addition, the market for the Company's products and technologies is
characterized by changing technology and evolving industry standards.
Accordingly, the Company's ability to compete successfully will depend, in large
part, on its ability to continually enhance and improve its existing products,
complete development and introduce to the marketplace in a timely manner its
proposed products, adapt its products to the needs of its customers and
potential customers, successfully develop and market new products, and continue
to improve operating efficiencies and lower manufacturing costs. There can be no
assurance that the Company will be able to compete successfully, that
competitors will not develop technologies or products that render the Company's
products obsolete or less marketable or that the Company will be able to
successfully enhance or adapt its products, develop new products or lower costs.
-27-
Potential Products Liability; Warranty Expense. The Company is engaged in a
business which could expose it to possible liability claims from others,
including from foodservice operators and their staffs, as well as from
consumers, for personal injury or property damage due to design or manufacturing
defects or otherwise. The Company maintains a general liability insurance policy
(which includes products liability coverage) that is subject to a $5,000,000 per
occurrence limit with a $5,000,000 aggregate limit and a $25,000,000 umbrella
liability insurance policy to cover claims in excess of the limits of its
liability insurance. There can be no assurance, however, that the Company's
insurance or that of any third-party manufacturer will be sufficient to cover
potential claims or that an adequate level of coverage will be available in the
future at reasonable cost. A partially insured or a completely uninsured
successful claim against the Company could have a material adverse effect on the
Company. In addition, if the Company is successful in its efforts to obtain
significant orders for TurboChef ovens, the Company may be required to install
and service, on a timely basis, large numbers of TurboChef ovens at its
customers' locations. There can be no assurance that the Company will be able to
provide such services on acceptable terms or conditions, or at all. Furthermore,
the Company generally warrants its products to be free from defects in
workmanship and materials for 1 year. There can be no assurance that future
warranty expenses will not have an adverse effect on the Company.
Patents and Proprietary Rights. The Company holds certain United States and
foreign patents which cover certain fundamental aspects of the Company's high-
speed cooking technologies. There can be no assurance as to the breadth or
degree of protection which existing or future patents, if any, may afford the
Company, that any patent applications will result in issued patents, that the
Company's patents, pending patents, registered trademark or registered
servicemark will be upheld if challenged or that competitors will not develop
similar or superior methods or products outside the protection of any patent
issued to the Company. Although the Company believes that its patents, the
TurboChef oven, its trademark and its servicemark do not and will not infringe
patents, trademarks or servicemarks or violate proprietary rights of others, it
is possible that its existing patent, trademark or servicemark rights may not be
valid or that infringement of existing or future patents, trademarks,
servicemarks or proprietary rights may occur. In the event the Company's
products infringe patents, trademarks, servicemarks or proprietary rights of
others, the Company may be required to modify the design of its products, change
the name of its products or obtain a license. There can be no assurance that the
Company will be able to do so in a timely manner, upon acceptable terms and
conditions, or at all. The failure to do any of the foregoing could have a
material adverse effect upon the Company. Although the Company has patent
insurance to protect and defend its patents, there can be no assurance that the
Company will have all of the financial or other resources necessary to enforce
or defend a patent infringement or proprietary rights violation action.
Moreover, if the Company's products infringe patents, trademarks, servicemarks
or proprietary rights of others, the Company could, under certain circumstances,
become liable for damages, which could have a material adverse effect on the
Company.
The Company also relies on trade secrets and proprietary know-how and
employs various methods to protect the concepts, ideas and documentation of its
proprietary technologies. However, such methods may not afford complete
protection and there can be no assurance that others will not independently
develop similar know-how or obtain access to the Company's know-how, concepts,
ideas and documentation. Furthermore, although the Company has and expects to
have confidentiality and non-competition agreements with its employees and
appropriate suppliers and manufacturers, there can be no assurance that such
arrangements will adequately protect the
-28-
Company's trade secrets or that others will not independently develop products
or technologies similar to those of the Company.
Possible Fluctuations in Operating Results. The Company's operating results
could vary from period to period as a result of factors such as fluctuations in
the length of the Company's sales cycle (the time between a customer expressing
interest in a product and placing an order) , as well as from fluctuations in
the Company's manufacturing cycle (the time between the placement of a customer
order and the Company's ability to fill the order), the purchasing patterns of
potential customers, the timing of introduction of new products and product
enhancements by the Company and its competitors, technological factors,
variations in sales by distribution channels and generally non-recurring product
sales.
Regulation and Accreditation. The Company is subject to regulations
administered by various federal, state, local and international authorities,
including those limiting radiated emissions from oven products, which impose
significant compliance burdens on the Company. Failure to comply with these
regulatory requirements may subject the Company to civil and criminal sanctions
and penalties. While the Company believes that it and its products are in
compliance in all material respects with all laws and regulations applicable to
such models, including those administered by the United States Food and Drug
Administration, the Federal Communications Commission, the European Community
Council and the Japanese Government's Ministry of International Trade there can
be no assurance of such compliance. Moreover, new legislation and regulations,
as well as revisions to existing laws and regulations, at the federal, state,
local and international levels may be proposed in the future affecting the
foodservice equipment industry. Such proposals could affect the Company's
operations, result in material capital expenditures, affect the marketability of
the Company's existing products and technologies and/or could limit
opportunities for the Company with respect to modifications of its existing
products or with respect to its new or proposed products or technologies. In
addition, expansion of the Company's operations into new markets may require the
Company to comply with additional regulatory requirements. There can be no
assurance that the Company will be able to comply with additional applicable
laws and regulations without excessive cost or business interruption, and
failure to comply could have a material adverse effect on the Company.
Possible Volatility of Stock Price. The market price for the Company's
Common Stock has been subject to volatility and may continue to be highly
volatile as has been the case with the securities of other small capitalization
companies. Factors such as the Company's financial results, introduction of new
products by the Company's competitors and various industry factors generally may
have a significant impact on the market price of the Company's securities.
Additionally, in recent years, the stock market has experienced a high level of
price and volume volatility and, accordingly, the market prices for many
companies, particularly small capitalization companies, the common stock of
which trades in the over-the-counter market, have experienced wide price
fluctuations not necessarily related to the operating performance of such
companies.
NASDAQ Listing. The Company's common stock is listed on the NASDAQ National
Market, which requires maintenance of certain quantitative and other standards
for continual listing. If the Company's common stock were delisted from the
NASDAQ National Market, and if the Company meets the continued listing
requirements for the NASDAQ SmallCap Market, the Company will apply for
continued listing on the NASDAQ SmallCap Market and trading
-29-
would continue in this market. However, if the common stock were delisted from
the NASDAQ SmallCap Market, trading, if any, would likely be conducted in the
over-the-counter market on the National Association of Securities Dealers' OTC
Bulletin Board and/or on the pink sheets of the National Quotation Bureau. As a
result, an investor may find it more difficult to dispose of, or to obtain
accurate quotations as to the price of our common stock. In addition, the common
stock would be subject to rules promulgated under the Securities Exchange Act of
1934 applicable to "penny stocks." The Securities and Exchange Commission has
adopted regulations that generally define a "penny stock" to be an equity
security that has a market price (as determined pursuant to regulations adopted
by the Commission) or exercise price of less than $5.00 per share, subject to
certain exceptions. By virtue of being listed on the NASDAQ, the Company's
common stock will be exempt from the definition of "penny stock." If, however,
the Company's common stock is removed from NASDAQ, its securities may become
subject to the penny stock rules that impose additional sales practice
requirements on broker-dealers who sell penny stocks to persons other than
established customers and accredited investors. Consequently, the penny stock
rules may adversely affect the ability of broker-dealers to sell the Company's
common stock and may affect the ability of purchasers of the Company's common
stock to sell such securities in the secondary market.
Dependence on Key Personnel. The Company believes that its ability to
successfully implement its business strategy is dependent on its management. The
loss of services of one or more of these individuals might hinder the
achievement of the Company's development objectives. There can be no assurance
that the Company will continue to be able to hire and retain the qualified
personnel needed for its business. The loss of the services of or the failure to
recruit key technical personnel could adversely affect its business, operating
results and financial condition.
Item 7A Quantitative and Qualitative Disclosures about Market Risk
----------------------------------------------------------
In the fourth quarter of 2000, the Company sold its investment in Maytag
common stock and paid the outstanding principal and interest due on the AIG
credit facility. The purchase put option, which was an integral part of the AIG
credit facility was terminated at the same time. As of December 31, 2000, 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.
-30-
Item 8 Financial Statements and Supplementary Data
-------------------------------------------
The financial statements set forth herein commence on page F- 1 of this
report.
Item 9 Changes In and Disagreements with Accountants on Accounting and
----------------------------------------------------------------
Financial Disclosure
--------------------
Arthur Andersen LLP resigned as the Company's independent auditor on June
5, 2000. On October 17, 2000, the Company's board of directors, by unanimous
consent, approved the engagement of BDO Seidman LLP, as its independent auditor
for the fiscal year ending December 31, 2000, to replace the firm of Arthur
Andersen LLP.
The audit reports of Arthur Andersen LLP on the Company's financial
statements for the past two fiscal years did not contain an adverse opinion or a
disclaimer of opinion, nor were they qualified or modified as to uncertainty,
audit scope, or accounting principles. In connection with the audits of the
Company's financial statements for each of the two fiscal years ended December
31, 1999, and December 31, 1998, and the subsequent interim period through June
5, 2000, there were no disagreements with Arthur Andersen LLP on any matter of
accounting principles or practices, financial statement disclosures, or auditing
scope procedure which, if not resolved to the satisfaction of Arthur Andersen
LLP, would have caused Arthur Andersen LLP to make reference to the subject
matter in its reports.
-31-
Part III
Item 10 Directors and Executive Officers of the Registrant
--------------------------------------------------
The executive officers of the Company as of March 30, 2001, are as follows:
Name Age Position(s)
---- --- ----------
Jeffrey B. Bogatin......................... 52 Chairman of the Board of Directors
Richard N. Caron........................... 44 President, Chief Executive Officer and
Director
Donald J. Gogel............................ 51 Director
John C. Shortley........................... 32 Chief Accounting Officer, Controller,
Treasurer and Assistant Secretary
Jeffrey B. Bogatin is a co-founder of the Company, has been a director of
the Company since its inception in 1991 and served as Chairman of the Board of
Directors until April 1998. Mr. Bogatin was re-appointed as Chairman of the
Board of Directors on March 5, 2000. Mr. Bogatin has also served as Treasurer of
the Company from inception until June 1996. Since 1975, Mr. Bogatin has served
as President of Whitemarsh Industries, Inc., which was engaged in manufacturing
and importing ladies apparel and is now involved with making venture capital
investments.
Richard N. Caron was elected President and Chief Executive Officer and
appointed to the TurboChef Technologies Board in September 1998. Mr. Caron was
employed by Arthur D. Little, Inc., an international technology and innovation
consulting firm, from 1979 to 1998, holding the title of Director from 1991 and
Practice Leader for Consumer Goods in North America from 1997 until he joined
the Company.
Donald J. Gogel has been a director of the Company since April 1993. Since
February 1989, Mr. Gogel has been a principal of Clayton, Dubilier & Rice, Inc.,
a private investment firm, and has served as President and Chief Executive
Officer since January 1997. Mr. Gogel is a director of Jafra Cosmetics, Inc.
John C. Shortley has been employed by the Company as its Controller since
September 1998. Mr. Shortley currently serves in the capacity of Chief
Accounting Officer, Controller, Treasurer and Assistant Secretary. Mr. Shortley
was employed by PS Trading, Inc., a fuel storage and distribution company, from
1996 to 1998, holding the title of Controller.
Directors serve until the next Annual Meeting of Stockholders or their
resignation. Officers serve the Company at the discretion of the Board of
Directors.
-32-
Item 11 Executive Compensation
----------------------
Summary Compensation Table
The following table sets forth information concerning total compensation
earned by or paid to the Company's Chief Executive Officer and the other most
highly compensated executive officers of the Company who served in such
capacities during the fiscal year ended December 31, 2000 (collectively, the
"Named Executive Officers") for services rendered to the Company during each of
the last three fiscal years. No other officers of the Company received
compensation in excess of $100,000 during fiscal year 2000.
Annual Compensation
-------------------
Long Term No. of Stock
Name and Principal Fiscal All Other Compensation Options
Position Year Salary ($) Bonus ($) $Compensation($) Awards($) Granted
- -------- ---- ---------- ----------- ---------------- -------- --------
Richard N. Caron 2000 $287,761 $ -0- $-0- $-0- 100,000
President and Chief 1999 298,434 125,000/(2)/ -0- -0- -0-
Executive Officer/(1)/ 1998 92,308 30,000/(2)/ -0- -0- 200,000
Marc Jacobson 2000 $134,598 $ -0- $-0- $-0- 100,000
Chief Financial Officer/(3)/
Dennis J. Jameson 2000 $167,069 $ -0- $-0- $-0- 100,000
Executive Vice President, 1999 $173,372 25,000 -0- -0- -0-
Chief Financial Officer, 1998 160,000 33,750 -0- -0- 20,000
Secretary and Treasurer/(4)/
/(1)/ Mr. Caron was employed by the Company in September 1998, at which time he
was elected President and Chief Executive Officer of the Company.
/(2)/ Upon being employed by the Company, Mr. Caron was entitled to receive a
signing bonus of $60,000, of which $30,000 was paid in each of 1999 and
2000.
/(3)/ Mr. Jacobson was elected interim Chief Financial Officer in May 1, 2000.
Mr. Jacobson resigned as interim Chief Financial Officer effective
December 15, 2000.
/(4)/ Mr. Jameson was employed by the Company in December 1995, at which time he
was elected Executive Vice President and Chief Financial Officer and
served as Chief Financial Officer until April 2000. Mr. Jameson`s tenure
as an employee and executive officer of the Company terminated effective
May 26, 2000. Effective May 1, 2000, Marc Jacobson was retained by the
Company to assume the position of interim Chief Financial Officer.
-33-
Executive Employment Agreements
In August 1998, the Company entered into an employment agreement with
Richard N. Caron providing for his employment as President and Chief Executive
Officer of the Company effective in September 1998. Pursuant to such employment
agreement, Mr. Caron is entitled to receive an annual base salary of $300,000
plus an annual bonus of up to 50% of his base salary, as determined by the Board
of Directors. Mr. Caron also received a signing bonus of $60,000, with 50% of
such amount being paid on October 1, 1998, and the remainder being paid on March
1, 1999. Pursuant to his employment agreement, Mr. Caron has been granted
options to acquire 200,000 shares of Common Stock at a price of $4.75 per share,
which will vest in equal amounts over a three-year period. The employment
agreement does not specify any term of employment. In the event that the Company
terminates Mr. Caron's employment for any reason, Mr. Caron is entitled to
twelve months severance pay equal to his salary in effect at the termination
date.
On June 1, 1999, the Company entered into an employment agreement with
Dennis J. Jameson, providing for his employment as Chief Financial Officer.
Pursuant to such employment agreement, Mr. Jameson was entitled to receive an
annual base salary of $175,000, plus an annual bonus of up to 50% of his base
salary, as determined by the Board of Directors in a manner consistent with
other management personnel of the Company. Mr. Jameson's termination was
effective May 26, 2000. Pursuant to a termination agreement, Mr. Jameson
received severance of approximately $102,000; received non-qualified stock
option to purchase 100,000 shares of the Company's common stock at an exercise
price equal to $5.00 per share in accordance with the Company's 1994 Stock
Option Plan, as amended, exercisable by Mr. Jameson on or before December 31,
2001; and maintenance of his group health benefits in effect at the time of
termination for a period of twelve months.
Compensation Committee Interlocks and Insider Participation
The Company has a Compensation Committee whose members are, and during
fiscal 2000 were, Mr. Caron, the Company's President and Chief Executive Officer
and Mr. Gogel. During 2000, none of the executive officers of the Company served
on the Board of Directors or Compensation Committee of any other entity. See
Item 13 - Certain Relationships and Related Transactions for a description of
certain transactions between the Company and Mr. Gogel.
-34-
Option Grants for Fiscal 2000
The following table sets forth information with respect to stock option
grants to the Named Executive Officers during fiscal 2000 and the potential
realizable value of such option grants.
Option Grants in Last Fiscal Year
---------------------------------
Potential Realizable Value at
Assumed Annual Rates of
Stock Price Appreciation for
Individual Grants/(1)/ Option Term (2)
--------------------- ---------------
Number of
Securities % of Total
Underlying Options Exercise
Options Granted to Price Per Expiration
Name Granted Employees Share Date 5% 10%
- ---- -------- ---------- --------- ---------- -------- --------
Richard N. Caron 100,000/(3)/ 6.51% $1.32 12/27/10 $ 83,000 $210,000
Marc Jacobson/(4)/ 100,000/(5)/ 6.51% $5.00 4/19/10/(5)/ $314,000 $797,000
Dennis J. Jameson/(6)/ 100,000/(6)/ 6.51% $5.00 12/31/01 $ 40,000 $ 82,000
/(1)/ These are options granted under the Company's 1994 Stock Option Plan, as
amended, to acquire shares of Common Stock.
/(2)/ The potential realizable value of the options, if any, granted in 2000 to
each of the Named Executive Officers was calculated by multiplying those
options by the excess of (a) the assumed market value of Common Stock, at
the end of option term, if the market value of Common Stock were to
increase 5% or 10% in each year of the option's term over (b) the exercise
price shown. This calculation does not take into account any taxes or
other expenses which might be owed. The 5% and 10% appreciated rates are
set forth in the SEC rules and no representation is made that the Common
Stock will appreciate at these assumed rates or at all.
/(3)/ Mr. Caron's options grant vests as follows: one-third in December 2000,
one-third in December 2001 and one-third in December 2002.
/(4)/ Mr. Jacobson was elected interim Chief Financial Officer in May 1, 2000.
Mr. Jacobson resigned as interim Chief Financial Officer effective
December 15, 2000.
/(5)/ Mr. Jacobson's options grant vests as follows: one-fourth in each March
2001, March 2002, March 2003 and March 2004. Mr. Jacobson's option grant
was terminated upon his resignation from the Company, effective December
15, 2000.
/(6)/ Mr. Jameson's option grant in 2000 was immediately vested, per his
separation agreement. Mr. Jameson's tenure as an employee and executive
officer of the Company terminated effective May 26, 2000.
-35-
Option Exercises and Values for Fiscal 2000
The table below sets forth the following information with respect to option
exercises during fiscal 2000 by each of the named executive officers and the
status of their options at December 31, 2000:
Aggregated Option Exercises in
Last Fiscal Year and Fiscal Year End Option Value
Value Realized Number of Unexercised Value of Unexercised In-
Shares (Market Price Options the-Money Options at
Acquired on at Exercise Less at Fiscal Year-End Fiscal year-End /(1)/
------------------ ---------------------
Name Exercise Exercise Price) Exercisable Unexercisable Exercisable Unexercisable
- ---- -------- ----------------- ----------- ------------- ----------- -------------
Richard N. Caron -0- -0- 166,667 133,333 $10,167 $20,333
Marc Jacobson/(2)/ -0- -0- -0- -0- $ -0- $ -0-
Dennis J. Jameson/(3)/ -0- -0- 100,000 -0- $ -0- $ -0-
(1) Options are "in the money" if the fiscal year end fair market value of the
Common Stock exceeds the option exercise price.
(2) Mr. Jacobson was elected interim Chief Financial Officer in May 1, 2000.
Mr. Jacobson resigned as interim Chief Financial Officer effective December
15, 2000.
(3) Mr. Jameson's tenure as an employee and executive officer of the Company
terminated effective May 26, 2000.
-36-
Item 12 Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
The following table sets forth certain information as of March 27, 2001,
based on information obtained from the persons named below, relating to the
beneficial ownership of shares of Common Stock (unless otherwise indicated) by
(i) each beneficial owner of more than five percent (5%) of the outstanding
Common Stock, (ii) each director, (iii) each Named Executive Officer and (iv)
all current executive officers and directors of the Company as a group.
Amount and Nature Percent
Name of of Beneficial of
Beneficial Owner Ownership/(1)/ Class
- ---------------- ------------- ------
Jeffrey B. Bogatin........................... 6,126,135/(2)/ 38.12%
Grand Cheer Company Limited.................. 2,405,800/(3)/ 15.30%
Jack Silver.................................. 791,000/(4)/ 5.03%
Donald J. Gogel.............................. 569,418/(5)/ 3.59%
Richard N. Caron............................. 169,167/(6)/ 1.05%
Dennis J. Jameson............................ 100,000/(7)/ *
Marc Jacobson .............................. 900 *
All current directors and executive
officers as a group (4 persons) ............. 6,904,786/(8)/ 42.08%
* Less than 1%
(1) Unless otherwise indicated, the Company believes that all persons named in
the table have sole voting and investment power with respect to all shares
of Common Stock beneficially owned by them. A person is deemed to be the
beneficial owner of securities that can be acquired by such person within
sixty (60) days upon the exercise of preferred stock, stock options and
warrants. Each beneficial owner's percentage ownership is determined by<