Edgar Filing: TURBOCHEF TECHNOLOGIES INC

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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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, 2001
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
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TurboChef Technologies, Inc.
(Exact name of Registrant as specified in its Charter)
DELAWARE 48-1100390
(State or other jurisdiction of (IRS employer
incorporation or organization) identification number)
10500 Metric Drive, Suite 128 75243
Dallas, Texas (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code:
(214) 379-6000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE EXCHANGE ACT:
Name of Each Exchange on
Title of Each Class Which Registered
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None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE EXCHANGE ACT:
Common Stock, $0.01 Par Value
(Title of Class)

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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. [ X ]

Aggregate Market Value of voting stock held by non-affiliates of
the Registrant at
March 22, 2002: $30,797,359

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 22, 2002
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Common Stock, $0.01 Par Value 18,439,879

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TURBOCHEF TECHNOLOGIES, INC.
TABLE OF CONTENTS

Form 10-K Item Page
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Part I.
Forward-looking Statements ...................................... 2

Item 1. Business......................................................... 3

Item 2. Properties....................................................... 12

Item 3. Legal Proceedings ............................................... 13

Item 4. Submission of Matters to a Vote of Security Holders.............. 13

Part II.
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters ............................................. 14

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...................................................... 31

Item 8. Financial Statements and Supplementary Data...................... 32

Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure ............................. 32

Part III.
Item 10. Directors and Executive Officers of the Registrant .............. 33

Item 11. Executive Compensation........................................... 35

Item 12. Security Ownership of Certain Beneficial Owners
and Management .................................................. 39

Item 13. Certain Relationships and Related Transactions .................. 41

Part IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K...................................................... 43

Signatures....................................................... 46

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 TurboChef operates; uncertainties relating to customer plans
and commitments; potential performance issues with suppliers; the highly
competitive environment in which TurboChef operates; potential entry of new,
well-capitalized competitors into the markets served by TurboChef;
uncertainties inherent in international sales including foreign currency
fluctuations; uncertainty regarding strategic relationships and alliances and
the ability to protect TurboChef's proprietary information. The words
"believe," "expect," "anticipate," "intend," and "plan" and similar expressions
identify forward-looking statements. Readers are cautioned not to place undue
reliance on any of these forward-looking statements, which speak only as of the
date of the statement was made. TurboChef undertakes no obligation to update
any forward-looking statement.

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ITEM 1. BUSINESS
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GENERAL

TurboChef Technologies, Inc. ("TurboChef" or "the Company") is engaged
primarily in designing, developing and marketing its proprietary rapid cook
technologies. TurboChef's proprietary rapid cook oven, which requires no
ventilation, employs a combination of high speed forced air and microwave
energy to "cook-to-order" a variety of food products at faster speeds and to
quality standards comparable, and in many instances superior to, other
conventional commercial and residential ovens currently available.

The Company's commercial oven employs the Company's proprietary cooking
technologies to quickly, efficiently and evenly transfer, disperse and control
the heat used in the cooking process. In addition, because of the TurboChef
oven's moisture retention, browning, crisping and toasting capabilities, the
Company believes that the characteristics of most food items cooked in a
TurboChef cooking system (including their flavor, texture and appearance) are
superior in quality to those achieved using most other cooking methods.

The Company believes its technology offers the following unique features
to its customers:

. Cooking speeds 5-10 times faster than a conventional
oven
. Quality is equal to or higher than a conventional oven
. Maintains high consistency of cooked product
. Versatility of cooking platform (bake, broil, grill,
air fried, poached and steamed cooking profiles)
. Ventless operation
. Through the Company's Menu in a Minute software
technology, the menus and cook settings can be easily
changed with minimal labor cost

The Company launched the current version of its commercial oven, the
TurboChef C-3, in the second quarter of 2000. To date, the TurboChef rapid
oven has provided cooking solutions to various quick service restaurants,
convenience stores, hotels and traditional restaurants in the United Kingdom,
Europe and the United States. In addition, the Company has provided cooking
solutions to non-traditional operators in the food service business such as
stadiums, cinemas and service stations.

The Company currently sells its C-3 oven through a direct sales force in
North America, the United Kingdom, Europe and Asia. Until May 2001, the
Company's C-3 ovens were marketed in the United States through the Maytag
Corporation ("Maytag") and its subsidiary the G. S. Blodgett Corporation
("Blodgett") pursuant to the terms of a series of agreements in which the
Company granted them the exclusive right to sell its C-3 ovens in North
America. Under the agreements the Company retained the right to sell directly
outside of North America, with the exception of selling to U.S. based customers
overseas. In the first quarter of 2001, the Company and Maytag entered into
arbitration with respect to certain disputes under the agreements which
arbitration is pending. (see Item 3: Legal Proceeding). In May 2001, the
Company regained from

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Maytag and Blodgett the right to sell its C-3 ovens products directly in the
United States and began building its own sales force to make direct oven sales.

The Company is currently expanding its direct marketing and sales efforts
throughout North America, the United Kingdom, Europe and Asia. The Company's
primary sales office is located in Dallas, Texas. In addition, the Company has
sales offices in New York, the United Kingdom, and the Netherlands.

In addition to its direct sales force, the Company is in the process of
seeking to develop multiple distribution channels through the use of third
party distributors, manufactures representatives, agents and wholesale food
distributors. The Company is also considering entering into strategic
marketing alliances with third parties who have established relationships or
synergies with mutual prospective customers.

In the second quarter of 2000, TurboChef established a manufacturing
venture with Shandong Xiaoya Group ("Xiaoya"), in China in which Xiaoya was
granted the manufacturing rights for the C-3 oven. In March 2002, TurboChef
signed a new agreement to purchase approximately $14 million of C-3 ovens from
Xiaoya over the next 17 months.

RAPID COOK TECHNOLOGY

Traditional ovens 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 ovens have begun to incorporate two or more of these conventional
sources of energy. For example, some ovens employ microwaves and air
impingement or microwave and halogen light (a form of infra-red radiation).
However, the Company does not believe that these systems provide the speed of
cooking or achieve the same quality of cooked food that is achieved by the
TurboChef rapid cook ovens.

The Company's unique, patented oven couples rapidly circulating hot air
with microwave energy. The close coupling of the two energy sources controlled
by a microprocessor 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, 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

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the two opposing energy gradients resulting in faster cooking times and
enhanced quality in the food products being cooked.

The circulated air is recycled though a proprietary catalytic converter
system that breaks down the fumes and grease byproduct resulting from the
cooking process. This allows TurboChef to claim the C-3 oven offers a ventless
cooking solution, as concluded by Pacific Gas and Electric Company, a
recognized independent leader in the testing of food service equipment, in a
report dated February 2001. TurboChef believe that the operational
efficiencies of a ventless solution are an important distinguishing feature of
the TurboChef C-3 oven.

OTHER PRODUCTS AND SERVICES

TurboChef has developed a Menu in a Minute System ("MIM's") technology,
which when combined with the C-3 oven, offers a system by which a food service
operator can download menus and cook settings for use by that operator's entire
chain of restaurants through the use of a computer chip or internet connection.
This MIM's technology will enable executive chefs of food service chains to
program new cooking settings centrally and make changes to their menus with
exact precision and very little added cost.

TurboChef also separately offers fee-based consulting services to its
customers, where food service is not the primary source of revenue. These
services include menu design, concept development and sourcing of food products.

The Company has from time to time leased ovens to its customers as an
alternative to their purchasing ovens from the Company. The Company is
exploring offering formal leasing programs to its customers through third party
providers. There can be no assurance that the Company will be successful in
developing a leasing program or that any leasing program that is established
will be beneficial to the Company.

OPPORTUNITIES AND STRATEGY

The commercial food service market continues to experience rising real
estate costs, increased food product costs and intense competition. These
factors have forced many commercial food service operators to 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.

The Company believes that its long-term success is dependent upon the
effectiveness of its direct sales efforts in demonstrating the versatility of
its commercial ovens in providing a solution to large food service operators
that seek top-line revenue growth. The Company further believes that
acceptance of its cooking technologies in commercial products can be leveraged
in the marketing of any future residential products that the Company may
introduce. The

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Company's market research has revealed that "time" and "quality" are two of the
most important considerations taken into account for food preparation. The
Company believes that its products have proven that they can meet both the time
and quality demand of the commercial food service marketplace. In addition, the
Company believes that its patented cooking technology can be adapted for use in
residential ovens should it decide in the future to pursue this market.

MARKETING STRATEGY

TurboChef is primarily focused on sales of its products for use by
commercial customers in the traditional and non-traditional food service
markets. During 2001, the Company established its own sales force as a result
of a shift in its marketing strategy to focus on direct sales. The Company
intends to further expand it direct sales and marketing efforts worldwide by
hiring additional sales personnel, primarily in the United States. The new
strategy will target both the non-traditional as well as the traditional food
service markets.

Non-Traditional Food Service: This market segment represents food service
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operations where food is not the primary source of the operation's revenue.
The TurboChef's C-3 oven offers customers a cooking platform which provides the
food service customer with the potential for an additional revenue source,
while requiring little, if any, additional investments in equipment other than
the oven itself, staff or training. TurboChef offers customers in this segment
the opportunity to combine the TurboChef oven with TurboChef's MIM's system and
TurboChef's optional consulting services to provide a full-service offering.
The C-3 oven offers speed, quality, consistency, wide versatility of food
offerings, allows for the use of minimally skilled, inexpensive labor and
offers the potential for ventless operation. Customers in this segment include:

. Hotels
. Movie Theatres
. Airports
. Stadiums
. Supermarkets
. Convenience Stores
. Video Stores

Traditional Food Service: This market segment is defined as food service
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operations where food is the operation's primary source of revenue. The
Company believes that while many of the characteristics sought by a traditional
food service customer from a rapid cook oven are identical to those of the
non-traditional food service customer, the needs of a traditional food service
customer tend to be more specific around an existing menu and the cooking
platform of the food service operation. Participants in this segment include:

. Quick Service Restaurants
. Fine Dining

During the fiscal year ended December 31, 2001 the Company generated
revenue from sales of its products to customers located in the United States,
the United Kingdom, and other

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countries in Europe and in Asia. Total export sales to customers in the United
Kingdom, countries in Europe and in Asia for the fiscal year ended December 31,
2001 were $1,986,000, $264,000 and $34,000, respectively. These sales
accounted for approximately 61%, 8% and 1% of the Company's total product
sales, respectively, during 2001.

For the years ending December 31, 2000 and 1999 all revenues generated from
product sales were the result of sales to customers in the United Kingdom and
Asia. During these periods over 99% of product sales were made to customers
located in the United Kingdom with the balance representing sales made to
customers in Asia.

PRODUCTION AND SUPPLY

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 ovens. 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 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 requires 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
performs routine audits of both manufacturing facilities and finished products
to ensure the highest quality and reliability.

The Company's manufacturing cycle, extends from the execution of a
purchase order for component parts until the actual shipment of finished
product to the customer, generally ranges from sixteen to twenty four weeks.

In the second quarter of 2000, the Company established a manufacturing
venture with Xiaoya in China which acts as the sole manufacturer of the
Company's C-3 oven. The Company received its first model C-3 commercial oven
from Xiaoya in August 2001. In March 2002, the Company signed an agreement
with Xiaoya to purchase approximately $14 million of C-3 ovens over the next 17
months.

RESEARCH AND DEVELOPMENT

During the years ended December 31, 2001, 2000, and 1999, the Company
incurred costs related to research and development activities in the amounts of
$1.1 million, $3.7 million and $4.1 million, respectively. Substantially all
of this research and development was funded from third parties during fiscal
2000 and 1999. The Company intends to invest in the continued development of
its core technologies and related applications and to continue improving the
performance of its current commercial oven. The Company believes its technology
can be

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readily adopted in a residential oven and has developed a prototype. At this
time, the Company's strategy is to focus on opportunities in the
non-traditional and traditional commercial food service markets and pursue
opportunities in the residential oven market at such time when the Company
believes it has the necessary financial resources to do so.

COMPETITION

The commercial rapid cook 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 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 the Company and have established reputations relating to the
development, manufacture, marketing and service of cooking equipment. Among
the Company's major competitors in the rapid cook segment of the foodservice
equipment market are: The Middleby Corporation and certain of its subsidiaries;
the commercial foodservice equipment division of Enodis LLP, 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 Enersyst (a technology
licensing company).

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., products that have the same
capabilities to cook a variety of food items to the same high quality standards
and speeds), there can be no assurance that other companies with greater
financial resources will not develop functionally equivalent competitive
products in the near future.

Competition has also increased in the emerging residential rapid cook
sector as well. Certain companies 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). Although the Company currently does not have a residential
product offering, it has developed a prototype residential oven and intends to
enter into the residential oven appliance market at such time when it has the
financial resources to do so. There can be no assurance that the Company will
ever enter the residential oven market or if it does, that it can successfully
market a residential oven.

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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 with all material
applicable laws and regulations regulating such products, there can be no
assurance of such compliance. The Company tests, from time to time, the ovens
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.

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 Intertek Testing Services
(ETL) as to compliance of the Company's model C3/C TurboChef ovens with
applicable Underwriter's Laboratory (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
model C-3 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.

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WARRANTY AND SERVICE

The Company generally offers 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. Pursuant to the
Company's warranty policy, the Company will accept the return of a cooking
system that does not perform according to product specifications, within one
year of the date of purchase. Component parts furnished to the Company by its
suppliers and manufacturers are generally covered by an one-year limited
warranty and contract manufacturers furnish a limited warranty for any of their
manufacturing or assembly defects. There can be no assurance that future
warranty expenses incurred on the one-year warranty will not have a material
adverse effect upon the Company.

In September 1999, the Company entered into an agreement to upgrade and
warranty 262 ovens installed with Whitbread Group PLC ("Whitbread"). The
Company received approximately $1.4 million from Whitbread to complete the
upgrade and provide a three-year extended warranty to each of the ovens. The
oven upgrades included design changes that were to substantially increase the
life and durability of the oven. These upgrades 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. No additional costs were incurred during
fiscal 2001. In February 2002, the Company and Whitbread entered into an
agreement to terminate this extended warranty agreement. Under this
termination agreement, the Company is required to pay Whitbread [pound]460,000
(approximately $670,000), plus VAT, over a 24 month period, and Whitbread will
release TurboChef from its obligation to continue to warranty approximately 260
of TurboChef's earlier generation commercial ovens. The Company has accounted
for these payments on its financial statements as accrued warranty and upgrade
costs.

In those areas where TurboChef cooking systems are located, the Company
has established relationships with independent factory authorized service
representatives who provide installation and/or repair services and carry a
parts inventory. The Company expects its distributors 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 various insurance policies, which the Company believes
provides adequate coverage for the type of products it currently markets. In
addition, the Company believes that its third-party suppliers and manufacturers
currently maintain adequate levels of liability insurance. No assurance can be
given that the Company's insurance coverage will be adequate to cover any claim
against the Company.

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PATENTS AND PROPRIETARY RIGHTS

The Company holds patents that cover certain fundamental aspects of the
Company's rapid cook technologies. The Company has pending patent applications
or patents corresponding to one or more of these patents filed in at least
seven countries (including the United States, Japan and various countries of
the European Patent Convention). Its United States patents will expire at
various dates between 2011 and 2018. The Company believes that its patents and
patent applications provide it with a competitive advantage and that patent
protection is 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 food service equipment industry.
Accordingly, the Company promotes the TurboChef(R) name in connection with its
marketing activities. The Company holds trademarks in the United States and
United Kingdom for the TurboChef(R) and TurboChef Technologies, Inc(R) names. In
certain countries in Europe, the Company licenses the TurboChef name
from a third party.

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 22, 2002, the Company employed 38 persons, of which 35 are
full-time employees, including 3 executive officers and 3 senior managers. Of
its employees, 5 are

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engaged in technological development, 15 in administration, and 18 in sales,
marketing, 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
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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, 2005. 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 $185,000.

The Company leases approximately 1,000 square feet of general office space
in the Cranfield Innovation Centre, in Cranfield, U.K, pursuant to a lease that
is scheduled to expire on July 10, 2003. The annual base rental expense on this
property is $27,000.

The Company believes that its facilities are generally well maintained, in
good operating condition and adequate for its current needs.

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ITEM 3 LEGAL PROCEEDINGS
-----------------

During the first quarter of 2001, the Company and Maytag filed a Notice of
Claim of Arbitration, as provided for under the Commercial Cooking Appliance
Project Agreement ("CCAP") and related commercial License Agreement between the
parties. Maytag has claimed that the Company has breached the CCAP and related
commercial License Agreement, and is seeking to recover damages of
approximately $5.6 million. One of the Company's claims is that, as result of
Maytag's termination of the commercial License Agreement, Maytag is required to
pay to the Company the remaining balance of minimum royalties that are due of
$5.25 million. In January 2002, the Company amended its claims seeking
injunctive relief and monetary damages resulting from Maytag's alleged use of
TurboChef's intellectual property. In the amended complaint the Company also
seeks damages for Maytag's alleged non-performance under a series of contracts
entered into between Maytag and TurboChef involving the development of
commercial and residential ovens utilizing TurboChef's rapid cook technology.
Although the Company believes that it will prevail on its claims, the outcome
of the arbitration proceeding is uncertain. In any event, even if the Company
was to receive the balance of the royalties it claims are owed to it, the
termination of the Maytag agreements could have a material adverse affect on
the Company's financial position and results of operations. Since the outcome
of the arbitration proceeding is uncertain, no adjustments have been made to
the financial statements.

ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------

None.

- 13 -

PART II

ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
-------------------------------------------------------------
MATTERS
-------

The Company's common stock traded on the over-the counter market through
the NASDAQ National Market under the symbol "TRBO" from March 1, 1999 until
July 11, 2001. Since July 12, 2001, the Company's common stock has been listed
on the NASDAQ Small Cap Market. The following table sets forth the high and
low bid quotations for the common stock for the periods indicated as reported
by NASDAQ. 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 2001
----------------

First Quarter $2.69 $0.75

Second Quarter $2.50 $0.75

Third Quarter $3.19 $2.00

Fourth Quarter $5.68 $1.60

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

As of March 22, 2002, there were approximately 164 shareholders of record
of the Company's common stock. In addition, the Company believes that there
are approximately 3,500 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 use all available
funds 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.

The Company currently has two classes of convertible preferred stock,
which have dividend rights that are senior to the rights of the common
shareholders.

- 14 -

SALES OF SECURITIES

In October 2001, the Company raised $500,000 through the sale of 250,000
shares of its common stock. In connection with this transaction, the Company
issued to the investor warrants to purchase an additional 250,000 shares of
common stock at $2.25 per share. The warrants are exercisable immediately and
expire in 2011.

In December 2001, the Company raised $4,800,000 through the private sales
of an aggregate of 1,049,823 of shares of its common stock. The Company also
issued five-year warrants to purchase 92,958 shares of common stock at $5.34 per
share to one of the investors and 5 year warrants to purchase an aggregate of
83,986 at $4.10 per share to an entity that acted as placement agent in
connection with certain of the sales.

The foregoing sales were made on a private basis to a limited number of
accredited investors pursuant to the exemption from registration under Section
4(2) of the Securities Act of 1933 and/or Regulation D promulgated thereunder.

- 15 -

ITEM 6 SELECTED FINANCIAL DATA
-----------------------

The following selected financial data as of December 31, 2001 and 2000,
and for each of the fiscal years ended December 31, 2001, 2000 and 1999 has
been derived from the Company1'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 as of December 31, 1999, 1998 and
1997, and for each of the fiscal years ended December 31, 1998 and 1997, 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"11 and the financial statements and notes thereto which are included
elsewhere in this Form 10-K.

Year Ended December 31,
----------------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
----------------------------------------------------------------------------------------------
(Amounts in Thousands, Except Share and Per Share Data)

Statement of Operations
-----------------------
Data:
----
Revenues $ 3,230 $ 7,846 $ 7,063 $ 7,137 $ 4,222

Operating loss $ (6,026) $ (7,674) $ (8,005) $ (4,152) $ (4,822)

Net loss $ (6,031) $ (3,732) $ (8,779) $ (3,954) $ (4,662)

Per share data

Net Loss per Share - basic $ (0.41) $ (0.24) $ (.59) $ (.27) $ (.33)
and diluted

Weighted Average Number
of Shares Outstanding 16,206,808 15,602,211 14,983,486 14,611,724 14,032,796

Year Ended December 31,
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Balance Sheet Data:
------------------
Working Capital $ 4,485 $ 846 $ 14,484 $ 18,566 $ 9,527

Total Assets $ 8,672 $ 5,722 $ 21,069 $ 20,800 $ 16,440

Total Liabilities $ 3,645 $ 4,054 $ 11,218 $ 1,607 $ 811

Accumulated Deficit $ (40,458) $ (33,742) $ (30,010) $ (21,231) $ (17,277)

Total Stockholders' Equity $ 5,027 $ 1,668 $ 9,851 $ 19,193 $ 15,629

- 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.

The Company is engaged primarily in designing, developing and marketing
its proprietary rapid cook technologies. TurboChef's proprietary rapid cook
ovens, which requires no ventilation, employs a combination of high speed
forced air and microwave energy to "cook-to-order" a variety of food products
at faster speeds and to quality standards comparable, and in many instances
superior to, other conventional commercial and residential ovens currently
available.

The Company's commercial ovens employs the Company's proprietary cooking
technologies to quickly, efficiently and evenly transfer, disperse and control
the heat used in the cooking process. In addition, because of the TurboChef
oven's moisture retention, browning, crisping and toasting capabilities, the
Company believes that the characteristics of most food items cooked in a
TurboChef cooking oven (including their flavor, texture and appearance) are
superior in quality to those achieved using most other cooking methods.

The Company believes its technology offers the following unique features
to its customers:

. Cooking speeds 5-10 times faster than a conventional oven
. Quality is equal to or higher than a conventional oven
. Maintains high consistency of cooked product
. Versatility of cooking platform (bake, broil, grill, air fried,
poached and steamed cooking profiles)
. Ventless operation
. Through the Company's Menu in a Minute software technology,
the menus and cook settings can be easily changed with minimal
labor cost

The Company launched the current version of its commercial oven, the
TurboChef C-3, in the second quarter of 2000. To date, the TurboChef rapid cook
oven has provided cooking solutions to various quick service restaurants,
convenience stores, hotels and traditional restaurants in the United Kingdom,
Europe and the United States. In addition, the Company has provided cooking
solutions to non-traditional operators in the food service business such as
stadiums, cinemas and service stations.

- 17 -

of a series of agreements in which the Company granted them the exclusive right
to sell its C-3 ovens in North America. Under the agreements the Company
retained the right to sell directly outside of North America, with the
exception of selling to U.S. based customers overseas. In the first quarter of
2001, the Company and Maytag entered into arbitration with respect to certain
disputes under the agreements which arbitration is pending. (See Item 3: Legal
Proceeding). In May 2001, the Company regained from Maytag and Blodgett the
right to sell its C-3 ovens products directly in the United States and began
building its own sales force to make direct oven sales.

In addition to its direct sales force, the Company is in the process of
seeking to develop multiple distribution channels through the use of third
party distributors, manufactures representatives, agents and wholesale food
distributors. The Company is also considering entering into strategic marketing
alliances with third parties who have established relationships or synergies
with mutual prospective customers.

In the second quarter of 2000, TurboChef established a manufacturing
venture with Xiaoya, in China in which Xiaoya was granted the exclusive
manufacturing rights for the C-3 oven. In March 2002, TurboChef signed a new
agreement to purchase approximately $14 million of C-3 ovens from Xiaoya over
the next 17 months.

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 limited revenues generated to date from sales of
ovens, the Company has incurred substantial operating losses in each year of its
operations (including net losses applicable to common shareholders of $6.7
million, $3.8 million and $8.8 million for the years ended December 31, 2001,
2000 and 1999, respectively), resulting in an accumulated deficit of $40.5
million as of December 31, 2001.

RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2001 COMPARED TO THE YEAR
ENDED DECEMBER 31, 2000

Revenues for the year ended December 31, 2001 were $3,230,000, compared to
revenues of $7,846,000 for the year ended December 31, 2000. This decrease is
primarily attributable to the receipt of $4,777,000 in research and development
revenues and minimum royalties recorded in 2000, from Maytag and the Gas
Research Institute. Research and development revenues from the Maytag
commercial License Agreement ended in the second quarter of 2000.

Cost of sales for the year ended December 31, 2001 were $1,592,000, a
decrease of $2,254,000 compared to $3,846,000 for cost of sales for the year
ended December 31, 2000. The decrease is principally due to an accrued warranty
charge of $680,000 in fiscal 2000 and a reduction in cost of sales on C-3 oven
sales. No additional warranty charges were deemed necessary during fiscal 2001.
The warranty charge is associated with a three-year upgrade and

- 18 -

service agreement with Whitbread covering the Company's earlier generation
commercial ovens. This extended warranty agreement was terminated in February
2002.

Gross profit on product sales for the year ended December 31, 2001
increased $2,415,000 to $1,638,000, when compared to gross profit/(loss) on
product sales of ($777,000) during the year ended December 31, 2000. This
increase is due primarily to the improvement in gross margins as a result of
the decrease in warranty costs, reduction in the unit costs of the C-3 ovens
and higher average selling prices during 2001, as compared to 2000.

Research and development expenses for the year ended December 31, 2001
decreased $2,584,000, to $1,147,000, as compared to $3,731,000 for the year
ended December 31, 2000. The decrease in research and development expense
principally relates to a reduction in payroll and related expenses of $668,000
and prototyping expenses of $1,533,000 in the first half of 2001. These
expenses were reduced due to the completion of the Company's C-3 commercial
oven, as well as a decrease in personnel and expenses relating to research and
development.

Selling, general and administrative expenses for the year ended December
31, 2001 decreased $1,426,000 to $6,517,000 from comparable expenses of
$7,943,000 for the year ended December 31, 2000. This decrease is due primarily
to a decrease in administrative expenses of $1,340,000 as a result of overhead
reduction implemented in the first quarter of 2001. This was partially offset
by increases in sales and marketing expenses of $59,000.

Net other income/(expense) was ($5,000) for the year ended December 31,
2001, compared to $3,942,000 for the year ended December 31, 2000. The decrease
in other income was primarily the result of a one time gain of $5,022,000 which
the Company recorded when it liquidated its hedged investment in Maytag common
stock in the fourth quarter of 2000. This was partially offset by decreases in
interest expense and amortization of $677,000 and $594,000, respectively,
relating to liquidation of it long-term debt agreement during fiscal 2000. The
interest expense in 2001 principally relates to a $190,000 non-cash charge
relating to the conversion of a note receivable to preferred stock.

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.

- 19 -

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 write-down adjustment, as
noted 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 investment 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.

LIQUIDITY AND CAPITAL RESOURCES

TurboChef's capital requirements in connection with its product and
technology development and marketing efforts have been and will continue to be
significant. Additional capital will be required to operate and expand the
Company's operations. Since its inception, the Company has incurred significant
operating losses and has been substantially dependent on loans and capital
contributions from its principal stockholders and proceeds from the sale of its
securities. Furthermore, the Company will continue to be dependent on outside
sources of financing for the foreseeable future to fund its working capital
needs. The Company anticipates that it may need to raise additional capital by
the fourth quarter of 2002. No assurances can be made that the Company will
generate the necessary sales from its rapid cook systems or from the proceeds
from the sales of its securities or other financing sources to generate the
necessary working capital. As a result of these conditions, the independent
certified public accountant's report on the Company's financial statements for
the year ended December 31, 2001 contains an explanatory paragraph regarding
the Company's ability to continue as a going concern.

- 20 -

The Company has, and will continue to hold inventory, due to its long
manufacturing cycle. As of December 31, 2001, the Company held $1,054,000 of
finished goods inventory (ovens), $93,000 of demonstration inventory (ovens
used for customer demonstrations, tests and pilot programs) and $710,000 of
parts inventory (used for manufacturing and service). The Company will offer
demonstration inventory free of charge or at reduced prices to certain
potentially large customers, who wish to test and evaluate an oven prior to
purchase. Should sales fail to materialize, or materialize at slower rates than
currently anticipated by the Company, additional working capital will be
required to cover the carrying costs of component parts and purchase completed
ovens. No assurances can be made that the Company will generate the necessary
sales of its ovens or from the proceeds from the sales of its securities or
other financing sources to generate the necessary working capital.

In March 2002, the Company agreed to purchase from Xiaoya approximately
$14 million of C-3 ovens over a seventeen month period. In addition, in
connection with the manufacturing agreement the Company will be required to use
working capital to purchase certain component parts that will be supplied to
Xiaoya for use in the ovens. Although the Company entered into the agreement
with Xiaoya in anticipation that its sales of C-3 ovens will increase from
current levels, there can be no such assurance that any sales will materialize.
The Company does not currently have a significant number of purchase orders or
firm commitments to purchase ovens in the future. The Company is currently
exploring alternative sources of financing for its inventory and receivables.
No assurances can be made that the Company will be successful in developing any
of these sources or that any terms that may be offered will be acceptable to
the Company.

In February 2002, the Company and Whitbread entered into an agreement to
terminate an extended warranty originally purchased in September, 1999. Under
the new agreement, TurboChef is required to pay Whitbread [pound]460,000
(approximately $670,000) plus VAT over a 24 month period. In return, Whitbread
will release TurboChef from its obligation to continue its warranty on 260
older model ovens. On signing the agreement, TurboChef will make an initial
payment to Whitbread of [pound]50,000 (approximately $72,000) plus VAT and
thereafter pay [pound]15,000 (approximately $22,000) plus VAT a month for the
next 24 months, with a final payment of [pound]50,000 plus VAT due the final
month.

The Company continues to expand its direct sales efforts and estimates
that approximately $150,000 per month in operating costs has been added since
December 31, 2001. In addition, additional working capital will be required
should the Company pursue the development, manufacturing and marketing of a
residential oven. The Company does not currently anticipate any significant
increases in lease payments or any other long-term fixed obligations from
current levels during fiscal 2002.

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

- 21 -

warrants are exercisable in three equal annual installments, commencing one
year from the date of issuance and expire in 2011. These warrants were valued
at $380,000. In addition, the beneficial conversion feature of the preferred
stock, the Company was required to record a preferred stock dividend of
$381,000.

In April 2001 the Company raised $1,000,000 through the issuance of an 8%
Non-Negotiable Promissory Note ("Note") due April 20, 2003, provided that upon
the approval of the stockholders of the Company, the entire outstanding
principal amount of the Note was converted into preferred stock (the
"Convertible Preferred Stock") of the Company. This was approved by the
stockholders of the Company in August 2001. In addition, the Company issued
396,825 warrants to purchase shares of its common stock. These warrants were
valued at $190,000 at the time of issuance. The warrants have a term of 10-year
term and at an exercise price of $1.51 per share. Each share of Convertible
Preferred Stock has (i) a liquidation value of $100 per share, (ii) is entitled
to a dividend of $8.00 per share, payable semi-annually in cash or in shares of
the common stock at the then fair market value and are (iii) convertible into
shares of common stock at a conversion rate equal to $1.26 per share. The
unamortized discount of $190,000 was charged to interest expense.

In June 2001, the Company raised $500,000 through the sale of 625,000
shares of its common stock. In connection with this transaction, the Company
issued to the investor warrants to purchase an additional 312,500 shares of
common stock at $1.00 per share. The warrants are exercisable in three equal
annual installments, commencing one year from the date of issuance and expire
in 2011. These warrants were valued at $158,000 at the time of issuance.

At December 31, 2001, the Company had working capital of $4,485,000 as
compared to working capital of $846,000 at December 31, 2000. The $3,639,000
working capital increase from December 31, 2000 resulted primarily from sale of
equity securities during fiscal 2001 of $9,588,000 which were partially offset
by the use of cash to fund the net loss of $6,031,000 incurred during fiscal
2001.

Cash used in operating activities was $6,335,000 for the year ended
December 31, 2001, as compared to cash used in operating activities of
$10,062,000 for the year ended December 31, 2000. The net loss of $6,031,000 in
2001 included $561,000 of non-cash charges (depreciation, amortization,
non-cash interest, discount on note conversion and non-cash compensation
expenses), compared to $1,107,000 (depreciation and amortization, amortization
on premium of purchase put option, non-cash interest and non-cash compensation
expense) in 2000. Net cash

- 22 -

used in operating activities in 2001 was negatively impacted by a $507,000
increase in inventory and $1,048,000 decrease in accounts payable. These
operating cash requirements were partially offset by a $7,000 increase in
accrued expenses, a decrease in prepaid expenses and other assets of $255,000
and $456,000 decrease in accounts receivable.

Cash provided by/(used) in investing activities for the year ended December
31, 2001, was ($172,000) compared to $15,255,000 for the year ended December 31,
2000. This decrease was primarily the result of the sale of the Company's Maytag
common stock and associated purchased put option for $15,723,000 in the fourth
quarter of 2000. The Company's level of capital expenditures decreased
approximately $148,000, compared to the year ended December 31, 2000. This was
due to cost cutting measures put in place during the first half of 2001. The
Company anticipates an increase in capital expenditures to approximately
$200,000 during fiscal 2002, in order to build its global sales and marketing
infrastructure.

Cash provided by/(used in) financing activities for the year ended
December 31, 2001 was $9,588,000 compared to (5,704,000) for the year ended
December 31, 2000. In Fiscal 2001, the Company raised $2,000,000 from the sale
of its Series B convertible preferred stock, $1,000,000 from the issuance of a
convertible note payable, sold common stock totaling $6,049,000 and raised an
additional $539,000 from the exercise of stock options during the year. In
Fiscal 2000, the Company used a net $7,879,000 for the repayment of a long-term
debt. This was partially offset when the Company raised $2,100,000 from the
sale of its Series A convertible preferred stock, $39,000 from the exercise of
stock options and $36,000 from the repayment of a note receivable from a
shareholder.

At December 31, 2001, the Company had cash and cash equivalents of
$4,498,000, compared to cash and cash equivalents of $1,417,000 at December 31,
2000.

BACKLOG

As of December 31, 2001, the amount of backlog orders believed to be firm
was approximately $0.2 million, as compared to approximately $0.3 million as of
December 31, 2000. This backlog was filled during the first quarter of 2002 As
of March 31, 2002 the amount of backlog orders believed to be firm was
approximately $0.1 million, as compared to approximately $0.3 million as of
March 31, 2001. The backlog, as of March 31, 2002, is expected to be filled by
year end.

AUTHORITATIVE PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board finalized FASB
Statement No. 141, Business Combinations (SFAS 141), and No. 142, Goodwill and
Other Intangible Assets (SFAS 142). SFAS 141 requires the use of the purchase
method of accounting and prohibits the use of the pooling-of-interests method
of accounting for business combinations initiated after June 30, 2001. SFAS 141
also requires that the Company recognize acquired intangible assets apart from
goodwill if the acquired intangible assets meet certain criteria. SFAS 141
applies to all business combinations initiated after June 30, 2001. It also
requires, upon adoption of SFAS 142 that the

- 23 -

Company reclassify the carrying amounts of intangible assets and goodwill based
on the criteria in SFAS 141.

SFAS 142 requires, among other things, that companies no longer amortize
goodwill, but instead test goodwill for impairment at least annually. In
addition, SFAS 142 requires that the Company identify reporting units for the
purposes of assessing potential future impairments of goodwill, reassess the
useful lives of other existing recognized intangible assets, and cease
amortization of intangible assets with an indefinite useful life. SFAS 142 also
requires that an intangible asset with an indefinite useful life should be
tested for impairment in accordance with the guidance in SFAS 142. This
statement is required to be applied in fiscal years beginning after December
15, 2001 to all goodwill and other intangible assets recognized at that date,
regardless of when those assets were initially recognized. SFAS 142 requires
the Company to complete a transitional goodwill impairment test six months from
the date of adoption. The Company is also required to reassess the useful lives
of other intangible assets within the first interim quarter after adoption of
SFAS 142.

As of December 31, 2001, the net carrying amount of other intangible
assets is $132,000. Amortization expense during the twelve-month period ended
December 31, 2001 was $48,000. The Company does not believe that the adoption
of SFAS 141 and SFAS 142 will impact its financial position and results of
operations.

In June 2001, the Financial Accounting Standards Board finalized FASB
Statement No. 143, Accounting for Asset Retirement Obligations (SFAS 143) and
Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets (SFAS 144).

SFAS 143 requires that the fair value for an asset retirement obligation
be recognized in the period in which it is incurred if a reasonable estimate of
fair value can be made, and that the carrying amount of the asset, including
capitalized asset retirement costs, be tested for impairment. SFAS 143 is
effective for fiscal years beginning after June 15, 2002. Management does not
believe this statement will have a material effect on the Company's financial
position or results of operations.

SFAS 144 prescribes financial accounting and reporting for the impairment
of long-lived assets and for long-lived assets to be disposed of, and specifies
when to test a long-lived asset for recoverability. SFAS 144 is effective for
fiscal years beginning after December 15, 2001. Management does not believe
this statement will have a material effect on the Company's financial position
or results of operations.

ACCOUNTING POLICIES

In preparing the financial statements in conformity with accounting
principals generally accepted in the United States, the Company uses
statistical analyses, estimates and projections that affect the reported
amounts and related disclosures and may vary from actual results. The Company
considers the following accounting policy to be both important to the portrayal
of its financial condition and the policy that requires the most subjective
judgment. If actual results differ significantly from management's estimates
and projections, there could be a material effect on the Company's financial
statements.

- 24 -

Product Warranty
----------------

The Company's ovens are under warranty against defects in material and
workmanship for a period of one year. Anticipated future warranty costs are
estimated, based upon historical expenses, and are recorded in the period
cooking systems are sold.

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.

RISKS RELATING TO THE COMPANY'S FINANCIAL CONDITION AND OPERATING RESULTS

The Company's auditors expressed substantial doubt about The Company's
----------------------------------------------------------------------
ability to continue as a going concern in their audit report for the fiscal
---------------------------------------------------------------------------
year ended December 31, 2001.
-----------------------------

The Company's auditors have included an explanatory paragraph in their
audit opinion with respect to the Company's consolidated financial statements
at December 31, 2001. The paragraph states that The Company's recurring losses
from operations and resulting continued dependence on access to external
financing sources and new sales raise substantial doubt about the Company's
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 the
Company's ability to obtain additional financing.

Because the Company has not generated positive cash flow and its capital
------------------------------------------------------------------------
requirements are significant, if the Company is unable to obtain financing when
-------------------------------------------------------------------------------
needed, the Company may be required to curtail or cease its operations.
-----------------------------------------------------------------------

TurboChef's capital requirements in connection with its proposed marketing
efforts, continuing product development and purchases of inventory and parts
are expected to be significant for the foreseeable future. Historically, cash
generated from operations have not been sufficient to fund the Company's
capital requirements. The Company anticipates that it may need to raise
additional capital by the fourth quarter of 2002. However, if the Company's
plans change, anticipated revenues do not materialize, or actual expenses
exceed estimated expenses the Company could be required to obtain additional
financing sooner.

The Company has been dependent upon sales of its securities to fund its
-----------------------------------------------------------------------
operations. If the Company is unable to raise additional financing if needed,
-----------------------------------------------------------------------------
the Company may be required to curtail its operations.
------------------------------------------------------

The Company has historically relied upon sales of securities to fund its
operations. The Company has no current arrangements with respect to, or sources
of, additional financing. Even

- 25 -

if additional funds are available, the Company may not be able to obtain them
on a timely basis or on terms acceptable to the Company. Failure to obtain
additional funds when required would result in inadequate capital to operate
the Company's business in accordance with its plans and require the Company to
cut back the Company's operations, which could result in a further decline in
revenues, or to cease its operations.

The Company has incurred significant historical losses and expects to continue
------------------------------------------------------------------------------
to incur losses in the future.
------------------------------

The Company has incurred net losses applicable to shareholders of $6.7
million, $3.8 million and $8.8 million during the fiscal years ended December
31, 2001, 2000 and 1999, respectively. The Company had an accumulated deficit
of approximately $40.5 million as of December 31, 2001. The Company expects its
operating expenses to increase due to the expansion of the Company's sales
force. In addition, in prior periods the Company has incurred expenses to cover
the unanticipated costs of extended warranties. There can be no assurance that
the Company will not incur significant warranty expense in the future.
Moreover, if the Company does not achieve significantly increased sales levels,
losses will increase. There can be no assurance that the Company will be able
to achieve profitable operations in the future.

The Company experienced a substantial decline in revenues from 2000 to 2001 due
-------------------------------------------------------------------------------
to the loss of product royalties and research and development revenues from
---------------------------------------------------------------------------
Maytag and Gas Research Institute.
----------------------------------

In fiscal year 2000, research and development revenues and royalties from
Maytag and research and development revenues from Gas Research Institute
accounted for 39% and 22% of the Company's revenues. In the first quarter 2001,
Maytag terminated its license agreement with the Company and in fourth quarter
2000 its development activities for Gas Research Institute ended. The Company
was unable to replace these revenue sources in 2001 and, as a result, its
revenues declined from $7,846,000 for the year ended December 31, 2000 to
$3,230,000 for the year ended December 31, 2001. The loss of these revenue
sources significantly impacted the Company's operating results and cash flow
for 2001.

Because of the Company's long manufacturing cycle, the Company holds
--------------------------------------------------------------------
significant levels of inventory prior to making sales, which requires the
-------------------------------------------------------------------------
Company to use cash in advance of sales and could adversely affect its
----------------------------------------------------------------------
operating results and cash flows if sales are generated at a slower rate than
-----------------------------------------------------------------------------
anticipated.
-----------

Due to the long manufacturing cycle for its ovens, the Company holds a
significant level of inventory. As of December 31, 2001, the Company held
$1,054,000 of finished goods inventory (ovens) and $803,000 of parts and
demonstration inventory. This process requires the Company to use working
capital early in the manufacturing cycle and without any certainty of
corresponding sales being made. In addition, the Company recently entered into
a contract with its manufacturer of ovens which requires the Company to
purchase $14 million of ovens over a 17 month period. Should sales of ovens
fail to materialize, or materialize at slower than anticipated rates,
additional working capital will be required to hold component parts and
purchase completed ovens and the Company's operating results will be adversely
affected.

- 26 -

RISKS RELATING TO THE COMPANY'S PRODUCTS

Because the market for TurboChef's products is an emerging market, the Company
------------------------------------------------------------------------------
will be required to undertake significant marketing efforts to achieve market
------------------------------------------------------------------------------
acceptance, the success of which can not be predicted.
------------------------------------------------------

The rapid cook commercial oven segment of the food service equipment
industry is an emerging market. 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 food service industry's
familiarity with TurboChef and to educate potential customers as to the
distinctive characteristics and perceived benefits of the TurboChef ovens and
its technologies. There can be no assurance that the Company will have
available the funds necessary to achieve such acceptance or that the Company's
efforts will result in significant commercial acceptance.

If the Company's marketing strategy is not successful, the Company will incur
-----------------------------------------------------------------------------
significant expenses and its operating results will be adversely affected.
--------------------------------------------------------------------------

Historically, TurboChef has engaged a limited direct sales force. The
Company intends to incur significant expense to expand its direct sales force.
If the Company's efforts are unsuccessful or its direct sales force is unable
to generate significant additional revenue, the Company will incur significant
cash expenditures, without achieving a corresponding increase in revenues,
which will adversely affect the Company's operating results and future
prospects.

The Company is subject to risks associated with developing products based on
----------------------------------------------------------------------------
innovative technologies, which could delay product introductions and result in
------------------------------------------------------------------------------
significant capital expenditures.
---------------------------------

The Company continually seeks to refine and improve upon the physical
attributes, utility and performance of the TurboChef oven. 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 new applications and
products. Consequently, there can be no assurance that the Company will develop
or successfully commercialize ovens incorporating technology superior to that
contained in its C-3 oven technology 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 we have made significant capital expenditures, could have a material
adverse effect on the Company's operating results and operations.

- 27 -

The nature of the Company's business exposes the Company to potential liability.
--------------------------------------------------------------------------------

The Company are engaged in a business which could expose it to possible
liability claims from others, including from food service operators and their
staffs, as well as from consumers, for personal injury or property damage due
to design or manufacturing defects or otherwise. There can be no assurance 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's operating results and future operations and
prospects. There can be no assurance that future warranty expenses will not
have an adverse effect on the Company.

RISKS RELATING TO THE COMPANY'S RELATIONSHIPS WITH THIRD PARTIES

The Company has committed to purchase approximately $14 million of C-3 ovens
----------------------------------------------------------------------------
from the Company's sole manufacturing source, regardless of whether the Company
-------------------------------------------------------------------------------
has customers for these ovens.
------------------------------

In March 2002, the Company entered into a manufacturing agreement with
Shandong Xiaoya Group ("Xiaoya") pursuant to which the Company is committed to
purchase $14 million of C-3 ovens over the next 17 months. The Company is
committed to purchase these ovens, regardless of whether the Company has made
corresponding sales. If sales of ovens do not increase significantly, the
Company will be forced to acquire excess inventory and may not have the funds
necessary to make the purchases required under the agreement. If the Company
were to breach the agreement Xiaoya could terminate the agreement and seek
monetary damages. Moreover, Xiaoya is the Company's sole supplier of C-3
ovens. If Xiaoya were unable to produce ovens, in accordance with the Company's
scheduled delivery requirements and its quality specifications, the Company's
ability to generate sales will be materially impacted.

The Company is dependent upon third-party suppliers and manufacturers and do
----------------------------------------------------------------------------
not control their activities.
-----------------------------

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. Some of the Company's
specially-designed components used in the Company's oven are sourced from a
limited number of suppliers. TurboChef is and will continue to be substantially
dependent on the ability of the Company's suppliers to, among other things,
meet the Company's design, performance and quality specifications. Their
failure to supply, or delay in supplying the Company with ovens or components
could adversely affect the Company's profit margin and its ability to meet its
delivery schedules on a timely and competitive basis.

The Company is subject to the risks and uncertainties of foreign manufacturing
------------------------------------------------------------------------------
which could interrupt the Company's operations.
-----------------------------------------------

- 28 -

All of the Company's products are manufactured in China. The Company is
subject to various risks inherent in foreign manufacturing, including:

. increased credit risks;
. tariffs, duties and other trade barriers;
. fluctuations in foreign currency exchange rates;
. shipping delays; and
. international political, regulatory and economic developments.

Any of these developments could have a significant impact on the Company's
manufacturer's ability to deliver the Company's products, increase the
Company's costs of goods and/or interrupt its operations. If these goods were
destroyed or damaged during shipment, TurboChef could lose sales opportunities
and its operations and financial position could be adversely affected.

RISKS RELATING TO THE COMPANY'S TECHNOLOGIES AND INTELLECTUAL PROPERTY

If TurboChef is unable to protect its patents, trademarks and other
-------------------------------------------------------------------
intellectual property, the Company's business could be materially adversely
---------------------------------------------------------------------------
affected.
---------

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. 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.

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, those 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 these
arrangements will adequately protect the Company's trade secrets or that others
will not independently develop products or technologies similar to the
Company's.

If TurboChef's products or intellectual property violates the rights of others,
-------------------------------------------------------------------------------
the Company may become liable for damages.
------------------------------------------

In the event the Company's existing or any future products, trademarks,
servicemarks, other proprietary rights infringe patents, trademarks,
servicemarks or proprietary rights of others, the Company could become liable
for damages and 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

- 29 -

all. The failure to do any of the foregoing could have a material adverse effect
upon the Company's ability to manufacture and market its products.

If the Company is unable to keep up with changing technology and evolving
-------------------------------------------------------------------------
industry standards, the Company's products may become obsolete.
---------------------------------------------------------------

The market for the Company's products and technologies is characterized by
changing technology and evolving industry standards. The Company will not be
able to compete successfully unless it continually enhances and improves its
existing products, completes development and introduces to the marketplace in a
timely manner the Company's proposed products, adapts its products to the needs
of the Company's customers and potential customers and evolving industry
standards, and continues to improve operating efficiencies and lowers
manufacturing costs. Moreover, competitors may develop technologies or products
that render the Company's products obsolete or less marketable.

OTHER RISKS

Because of the intense competition in the market in which the Company competes
------------------------------------------------------------------------------
and the strength of some of its competitors, the Company may not be able to
---------------------------------------------------------------------------
compete effectively.
--------------------

The rapid cook segment of the food service 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.
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.

TurboChef's business subjects it to significant regulatory compliance burdens.
------------------------------------------------------------------------------

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 us.
Failure to comply with these regulatory requirements may subject the Company to
civil and criminal sanctions and penalties. While the Company believes that the
Company 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

- 30 -

levels may be proposed in the future affecting the foodservice equipment
industry. These proposals could affect the Company's operations, result in
material capital expenditures, affect the marketability of our existing products
and technologies and/or could limit opportunities for the Company with respect
to modifications of our existing products or with respect to the Company's new
or proposed products or technologies. In addition, expansion of the Company's
operations into new markets may require it 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.

The Company is subject to the risk of financial loss from foreign currency
--------------------------------------------------------------------------
fluctuations.
-------------

Approximately 65% of the Company's revenues are derived from sales outside
of the United States. These sales, as well as salaries of employees located
outside of the United States and approximately 20% of the Company's other
expenses, are denominated in foreign currencies, including British pounds and
the Euro. The Company is subject to risk of financial loss resulting from
fluctuations in exchange rates of these currencies against the U.S. dollar.

The Company is involved in an arbitration proceeding which, if the outcome were
-------------------------------------------------------------------------------
unfavorable, would adversely affect the Company's operating results and future
------------------------------------------------------------------------------
operations.
-----------

The Company is a plaintiff in an arbitration proceeding commenced in 2001
against its former strategic partner, the Maytag Corporation. Maytag has made
certain counterclaims against the Company in this action and is seeking $5.6
million of damages. The outcome of any litigation is uncertain and an
unfavorable outcome in this action could have an adverse effect on the Company's
operating results and future operations.

The loss of key management or technology personnel would adversely impact the
-----------------------------------------------------------------------------
Company's business.
-------------------

The Company believes that its ability to successfully implement our
business strategy is dependent on the Company's key personnel. 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 TurboChef 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 the Company's business, operating results and
financial condition. The Company currently does not have any employment
agreements in place with either its management or technology personnel.

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.

- 31 -

Approximately 70% of the Company's revenues in 2001 were derived from sales
outside of the United States. These sales and subsequent accounts receivable,
the salaries of employees located outside of the United States and approximately
20% of selling, general and administrative expenses are denominated in foreign
currencies, including British pounds and the Euro. The Company is subject to
risk of financial loss resulting from fluctuations in exchange rates of these
currencies against the US dollar.

As of December 31, 2001, 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.

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
--------------------

None

- 32 -

PART III

ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------

The executive officers of the Company are as follows:

Name Age Position(s)
---- --- -----------

Jeffrey B. Bogatin ............. 54 Chairman of the Board of Directors and
Chief Executive Officer
Bruce S. Brickman............... 50 Director
Donald J. Gogel................. 53 Director

Mitchell E. Rudin............... 49 Director
John C. Shortley................ 33 Chief Accounting Officer, Controller,
Treasurer and Assistant Secretary
Stuart L. Silpe ................ 45 Chief Financial Officer

Jeffrey B. Bogatin is a co-founder of the Company, has been a director of
the Company since its inception in 1991, Chief Executive Officer since June 2001
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.

Bruce S. Brickman has been a director of the Company since March 2002. Mr.
Brickman has been President of Brickman Associates, a national real estate
development company since its inception in 1992.

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.

Mitchell E. Rudin has been a director of the Company since June 2001. Mr.
Rudin has been employed by Insignia/ESG, a full service, international real
estate investment firm since 1989. He currently serves as the President of the
U.S. Transaction Services, a Division of Insignia/ESG. Mr. Rudin overseas the
firm's tenant representation, investment sales and leasing and strategic agency
operations nationwide.

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.

- 33 -

Stuart L. Silpe has been employed by the Company as its Chief Financial
Officer since January 2002. From 1999 to 2001, Mr. Silpe was Chief Financial
Officer and a Director of U.S. Capital Financial Corp, a credit card company.
Previously, Mr. Silpe was an Executive Director at CIBC Oppenheimer Securities,
Inc. from 1996-1998.

Directors serve until the next Annual Meeting of Stockholders or their
resignation. Officers serve the Company at the discretion of the Board of
Directors.

- 34 -

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, 2001 (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 2001.

ANNUAL COMPENSATION
-------------------

Long-Term Compensation
Name and Principal Fiscal Salary ($) Bonus ($) Awards
Position Year Securities Underlying Options (#)

Jeffrey B. Bogatin 2001 $ -0- $ -0- 1,000,000
Chairman and Chief 2000 $ -0- $ -0- 100,000
Executive Officer /(1)/ 1999 $ -0- $ -0- -0-

Richard N. Caron 2001 $ 120,695 $ -0- -0-
President and Chief 2000 $ 287,761 $ -0- 100,000
Executive Officer /(2)/ 1999 $ 298,434 $ 30,000/(3)/ -0-

John C. Shortley 2001 $ 110,000 $ -0- 40,000
Controller and Chief 2000 $ 85,000 $ -0- 40,000
Accounting Officer 1999 $ 75,000 $ -0- 10,000

/(1)/ Mr. Bogatin is a co-founder of the Company and was elected as Chairman of
the Board in March 2000. Mr. Bogatin was appointed as Chief Executive
Officer in June 2001.

/(2)/ Mr. Caron was employed by the Company in September 1998, at which time he
was elected President and Chief Executive Officer of the Company. Mr.
Caron resigned from the Company in June 2001.

/(3)/ Upon joining the Company, Mr. Caron was entitled to receive a signing
bonus of $60,000, of which $30,000 was paid in each of 1998 and 1999.

- 35 -

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 was 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 was paid on March
1, 1999. Pursuant to his employment agreement, Mr. Caron was granted options to
acquire 200,000 shares of Common Stock at a price of $4.75 per share, which
would have vested in equal amounts over a three-year period. Mr. Caron resigned
in June 2001. Mr. Caron was not entitled to severance and forfeited 66,666
options that had not vested prior to his resignation.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Company has a Compensation Committee whose sole member is Donald Gogel.
During 2001, 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.

- 36 -

OPTION GRANTS FOR FISCAL 2001

The following table sets forth information with respect to stock option
grants to the Named Executive Officers during fiscal 2001 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%
---- ------- --------- ----- ---- --------- --------

Jeffrey B. Bogatin 1,000,000/(3)/ 58.58% $ 3.25 11/15/11 $2,044,000 $5,180,000

John C. Shortley 40,000/(4)/ 2.34% $ 1.32 5/1/11 $ 33,000 $ 84,000

/(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 2001 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. Bogatin's option grant vests as follows: one-third in November 2001,
one-third in November 2002 and one-third in November 2003.

/(4)/ Mr. Shortley's option grant vests as follows: one-third in May 2001,
one-third in May 2002 and one-third in May 2003.

- 37 -

OPTION EXERCISES AND VALUES FOR FISCAL 2001

The table below sets forth the following information with respect to option
exercises during fiscal 2001 by each of the Named Executive Officers and the
status of their options at December 31, 2001:

AGGREGATED OPTION EXERCISES IN
LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUE

Number of Unexercised Value of Unexercised In-
Value Realized Options the-Money Options at
Shares (Market Price at Fiscal Year-End Fiscal year-End /(1)/
Acquired on at Exercise Less ------------------ ---------------------
Name Exercise Exercise Price) Exercisable Unexercisable Exercisable Unexercisable
---- -------- --------------- ----------- ------------- ----------- -------------

Jeffrey B. Bogatin -0- $ -0- 784,167 775,883 $ 423,335 $ 526,665

John C. Shortley 18,333 $17,600 33,333 50,001 $ 34,132 $ 102,403

/(1)/ Options are "in the money" if the fiscal year end fair market value of
the Common Stock exceeds the option exercise price.

- 38 -

ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------

The following table sets forth certain information as of March 22, 2002,
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................... 6,474,035/(2)/ 33.68%

Grand Cheer Company LTD.............. 2,797,118/(3)/ 13.43%

Donald J. Gogel...................... 1,469,290/(4)/ 7.59%

Jack Silver.......................... 1,268,000/(5)/ 7.40%

Bruce S. Brickman.................... 150,000 *

John C. Shortley..................... 88,365/(6)/ *

Mitchell E. Rudin.................... 83,900/(7)/ *

All current directors and executive
officers as a group (6 persons) ...... 8,315,590/(8)/ 40.78%

* 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 assuming that options
and warrants that are held by such person (but not those held by any
other person) and which are exercisable within sixty (60) days have
been exercised. Percentages herein assume a base of 18,439,879
shares of common stock outstanding.

/(2)/ Includes 784,167 shares issuable upon exercise of immediately
exercisable options granted under the Company's 1994 Stock Option
Plan, as amended (the "Option Plan"). Includes 860,400 shares
held in a charitable foundation of which Mr. Bogatin is a trustee.
Mr. Bogatin disclaims beneficial ownership of the shares held by
the charitable

- 39 -

foundation. The address of Mr. Bogatin is c/o TurboChef Technologies,
Inc., 660 Madison Avenue, New York, New York 10021.

/(3)/ Includes 2,000,000 shares issuable upon the conversion of the
Company's Series B Convertible Preferred Stock, 57,985 shares
issuable for accrued dividends and 333,333 shares issuable upon
exercise of warrants. The address of Grand Cheer Company LTD is 11/F.
Standard Chartered Bank Building, 4-4A Des Voeux Road Central, Hong
Kong

/(4)/ Includes 86,667 shares issuable upon exercise of immediately
exercisable options, 793,651 shares issuable upon the conversion of
the Company's Series C Convertible Preferred Stock, 132,275 issuable
upon exercise of warrants and 33,529 shares issuable from accrued
interest and dividends. Includes 83,000 shares held in a family
trust of which. Mr. Gogel is a trustee. Mr. Gogel disclaims
beneficial ownership of the shares held by the family trust. The
address of Mr. Gogel is c/o Clayton, Dubilier & Rice, Inc. 375 Park
Avenue, 18th Floor, New York, New York 10152.

/(5)/ Based on information as reflected in Mr. Silvers 13-G filed with the
SEC on February 14, 2002. Includes 104,167 shares issuable upon
exercise of warrants. The address of Mr. Silver is 660 Madison
Avenue, 15th Floor, New York, New York 10021.

/(6)/ Includes 33,333 shares issuable upon the exercise of immediately
exercisable options.

/(7)/ Includes 37,500 shares issuable upon the exercise of immediately
exercisable options.

/(8)/ Includes 1,951,122 shares issuable (i) from accrued dividends
(33,529), (ii) upon conversion of Convertible Preferred Stock
(793,651), (iii) upon exercise of warrants (132,275) and (iv) upon
exercise of immediately exercisable options (991,667)).

- 40 -

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's executive officers, directors and persons who beneficially own
more than ten percent (10%) of a registered class of the Company's equity
securities ("ten percent stockholders") to file initial reports of ownership
and changes in ownership with the Securities and Exchange Commission (the
"SEC"). Executive officers, directors and ten percent stockholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file.

Based solely upon review of the copies of such forms furnished to the
Company, or written representations from certain reporting persons, the Company
believes that during the fiscal year ended December 31, 2001, all filing
requirements applicable to its executive officers, directors and ten percent
stockholders were fulfilled on a timely basis.

ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------

In April 1999 and March 2000, Mr. Bogatin, the Company's Chairman,
exercised certain stock options to purchase 200,000 and 600,000 shares,
respectively of Common Stock. As payment for the aggregate exercise price of
such options, Mr. Bogatin tendered to the Company promissory notes in the
principal amounts of $500,000 and $1,500,000, respectively. The principal
amount of each promissory note, together with all accrued interest, is due and
payable on April 6, 2004 and March 15, 2005, respectively. These notes bear
interest rates of 4.8% and 6.7%, respectively. In addition, in April 1999, Mr.
Gogel, a director of the Company, exercised certain stock options to purchase
40,000 shares of Common Stock. As payment for the aggregate exercise price of
such options, Mr. Gogel tendered to the Company a promissory note in the
principal amount of $100,000. The principal amount of the promissory note,
together with all accrued interest, is due and payable on April 6, 2004. This
note bears an interest rate of 4.8%. The amounts due pursuant to the
promissory notes are full-recourse obligations, which are secured by separate
pledge agreements between the Company and each of Mr. Bogatin and Mr. Gogel.
Pursuant to such pledge agreements, all of the shares of Common Stock purchased
by Mr. Bogatin and Mr. Gogel upon exercise of their respective stock options
were pledged as collateral for the debts evidenced by their respective
promissory notes.

In April 2001 the Company raised $1,000,000 through the sale of an 8%
Non-Negotiable Promissory Note ("Note") due April 20, 2003 to Mr. Gogel. The
entire outstanding principal amount of the Note automatically converted into
shares of preferred stock (the "Convertible Preferred Stock") of the Company
upon the approval of the stockholders which was obtained in August 2001. In
addition, in connection with the sale of the note the Company issued to Mr.
Gogel warrants to purchase 396,825 shares of its common stock. These warrants
were valued at $190,000 at the time of issuance. The warrants have a term of
10 years at an exercise price of $1.51 per share. Each share of Convertible
Preferred Stock has (i) a liquidation value of $100 per share, (ii) is entitled
to a dividend of $8.00 per share, payable semi-annually in cash or in shares of
the Common Stock at the then fair market value and are (iii) convertible into
shares of Common Stock at a conversion price of $1.26. The unamortized
discount of $190,000 was charged to interest expense.

- 41 -

In March 2001, the Company raised $2,000,000 through the sale of
its 8% Series B convertible preferred stock to Grand Cheer Company
Ltd., a principal stockholder of the Company. 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. These warrants were valued at $380,000. In
addition, the beneficial conversion feature of the preferred stock,
the Company was required to record a preferred stock dividend of
$381,000.

The Company currently leases office space in New York at 660
Madison Avenue. This building is owned by a limited liability
corporation controlled by Mr. Bruce Brickman. Mr. Brickman joined
the Company's Board of Directors in March 2002. The Company paid
approximately $185,000 in base rental charges during 2001 for this
office space. The Company believes that, at the time of the lease,
these were the prevailing market rates for similar office space
in New York.

- 42 -

PART IV

ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
----------------------------------------------------------------

(a) The following documents are filed as part of this report:

1. Financial Statements
2. List of Financial Statement Schedules (None)
3. List of Exhibits

EXHIBIT NO. DESCRIPTION

3.1 Restated Certificate of Incorporation. /(1)/

3.2 Amendment to Certificate of Incorporation-Certificate of Designation of Series A
Convertible Preferred Stock. /(8)/

3.3 Amendment to Certificate of Incorporation-Certificate of Designation of Series B
Convertible Preferred Stock. /(9)/

3.4 Restated By-Laws. /(1)/

10.1 1994 Stock Option Plan, as amended. /(1)/

10. 2 Option Agreement between the Company and Acadia International
Limited dated as of March 31, 1995. /(2)/

10.3 Strategic Alliance Agreement dated as of September 26, 1997, by and between
TurboChef Technologies, Inc. and Maytag Corporation. /(3)/

10.4 First Extension of the Project Agreement (RCAP-II) dated March 4, 1998 by and
between TurboChef Technologies, Inc. and Maytag Corporation. /(4)/

10.5 Commercial Cooking Appliance Project Agreement dated as of July 29, 1998 by
and between TurboChef Technologies, Inc. and Maytag Corporation. /(5)/

10.6 Research and Development Contract dated July 29, 1999 by and between Gas
Research Institute and TurboChef Technologies, Inc. /(6)/

10.7 License Agreement dated as of October 28, 1999 by and between Maytag
Corporation and TurboChef Technologies, Inc. /(6)/

10.8 Promissory Note dated March 15, 2000 executed by Jeffrey B. Bogatin in favor of
TurboChef Technologies, Inc. /(7)/

- 43 -

10.9 Pledge Agreement dated as of March 15, 2000 by and between Jeffrey B. Bogatin
and TurboChef Technologies, Inc. /(7)/

10.10 Securities Purchase Agreement dated as of March 19, 2001. /(9)/

10.11 Warrant Certificate dated as of March 19, 2001. /(9)/

10.12 OEM Contract between TurboChef Technologies, Inc. and Shangdong Xiaoya
Group dated May 19, 2000_*| /(11)/

10.13 Promissory Note dated April 20, 2001 /(10)/

10.14 Securities Purchase Agreement dated June 12, 2001 /(10)/

10.15 Warrant Certificate dated June 12, 2001 /(10)/

10.16 Securities Purchase Agreement dated December 20, 2001 /(11)/

10.17 Warrant Certificate dated December 20, 2001 /(11)/

10.18 Placement Agent Agreement dated December 19, 2001 between TurboChef and
Sanders Morris/(11)/

10.19 Registration Rights Agreement dated December 31, 2001 /(11)/

10.20 Warrant Certificate dated December 31, 2001 /(11)/

10.21 Settlement Agreement dated February 28, 2002 between TurboChef and
Whitbread PLC/(11)/

10.22 Supplementary Agreement to the OEM Manufacturing Contract
executed on March 27, 2002 between TurboChef and Shangdong Xiaoya Group_*| /(11)/

11 Statement Re: Computation of Per Share Earnings is not necessary
because the computation of per share earnings on both a basic and diluted
basis can be clearly determined from this report.

21 The Company has no active subsidiaries.

23.1 Consent of Arthur Andersen LLP. /(12)/

23.2 Consent of BDO Seidman, LLP. /(12)/

______________

- 44 -

/(1)/ Filed as an Exhibit to the Company's Registration Statement on Form SB-2
(File No. 33-75008), and incorporated herein by reference.

/(2)/ Filed as an Exhibit to the Company's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1995, and incorporated herein by reference.

/(3)/ Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1997, and incorporated herein by reference.

/(4)/ Filed as an Exhibit to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997, and incorporated herein by reference.

/(5)/ Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998, and incorporated herein by reference.

/(6)/ Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1999, and incorporated herein by reference.

/(7)/ Filed as an Exhibit to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1999, and incorporated herein by reference.

/(8)/ Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2000, and incorporated herein by reference.

/(9)/ Filed as an Exhibit to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 2000, and incorporated herein by reference.

/(10)/ Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2001, and incorporated herein by reference.

/(11)/ Filed as an Exhibit to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 2001.

/(12)/ Filed herewith.

* Portions of these documents have been omitted and filed separately
with the Securities and Exchange Commission pursuant to a
request for confidential treatment of the omitted portions.

(b) Reports on Form 8-K

None.

- 45 -

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

TURBOCHEF TECHNOLOGIES, INC.

By:/s/ Jeffrey B. Bogatin
------------------------------
Jeffrey B. Bogatin
Chairman of the Board and Chief
Executive Officer

By:/s/ Stuart L. Silpe
------------------------------
Stuart L. Silpe
Chief Financial Officer

By:/s/ John C. Shortley
------------------------------
John C. Shortley
Chief Accounting Officer, Controller,
Treasurer and Assistant Secretary
(Principal Accounting Officer)

Dated April 11, 2002

- 46 -

Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated:

Name Title Date
---- ----- ----

/s/ Jeffrey B. Bogatin Chairman of the Board and April 11 2002
Jeffrey B. Bogatin Chief Executive Officer

/s/ Bruce S. Brickman Director April 11, 2002
Bruce S. Brickman

/s/ Donald J. Gogel Director April 11, 2002
Donald J. Gogel

/s/ Mitchell E. Rudin Director April 11, 2002
Mitchell E. Rudin

- 47 -

INDEX TO FINANCIAL STATEMENTS

Report of Independent Certified Public Accountants F-2
Report of Independent Public Accountants F-3

Financial Statements:
Balance Sheets as of December 31, 2001 and 2000 F-4
Statements of Operations for the years ended December 31, 2001, 2000 and 1999 F-5
Statements of Stockholders' Equity for the years ended
December 31, 2001, 2000 and 1999 F-6 & F-7
Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999 F-8
Notes to Financial Statements F-9

All financial statement schedules are omitted since the required information is
not present or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the financial
statements and notes thereto.

F-1

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

The Board of Directors and Stockholders
TurboChef Technologies, Inc.
Dallas, Texas

We have audited the accompanying balance sheets of TurboChef Technologies, Inc.
as of December 31, 2001 and 2000, and the related statements of operations,
stockholders' equity, and cash flows for each of the two years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of TurboChef Technologies, Inc. as
of December 31, 2001 and 2000, and the results of its operations and its cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 2, the Company's
recurring losses from operations and its continued dependence on access to
external financing and additional sales which raise substantial doubt about its
ability to continue as a going concern. Management plans in regard to these
matters are also described in Note 2. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.

/s/ BDO Seidman, LLP

Dallas, Texas
February 28, 2002

F-2

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

The Board of Directors and Stockholders
TurboChef Technologies, Inc.

We have audited the accompanying statement of operations, shareholders' equity
and cash flows of TurboChef Technologies, Inc. (a Delaware corporation), as of
December 31, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of TurboChef Technologies, Inc. as
of December 31, 1999, and the results of its operations and its cash flows for
the year then ended in conformity with auditing standards generally accepted in
the United States.

/s/ Arthur Andersen LLP

Dallas, Texas
March 30, 2000

F-3

TurboChef Technologies, Inc.
Balance Sheets
(Amounts in Thousands, Except Share Data)

At December 31,
2001 2000
---- ----

Assets
------
Current assets:
Cash and cash equivalents $ 4,498 $ 1,417
Accounts receivable net of allowance for doubtful accounts of
$70 and $86 at December 31, 2001 and 2000, respectively 979 1,419
Accounts receivable - other 735 735
Inventory 1,857 1,023
Prepaid expenses 61 306
-------- --------
Total current assets 8,130 4,900
-------- --------

Property and equipment, net 380 602

Other assets 162 220
-------- --------
Total assets $ 8,672 $ 5,722
======== ========

Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 373 $ 1,421
Accounts payable - other 1,390 1,390
Accrued expenses 517 352
Notes payable 327 -
Accrued upgrade and warranty costs 1,038 891
-------- --------
Total current liabilities 3,645 4,054

Commitments and contingencies (Note 12)

Stockholders' equity:
Preferred stock, $100 par value and $100.00 stated value.
Authorized 5,000,000 shares 51,000 and 21,000 issued at December 31, 2001
and 2000, respectively 4,530 2,100
Common stock, $.01 par value. Authorized 50,000,000 shares
Issued 18,418,213 and 15,728,423 shares at
December 31, 2001 and 2000, respectively 184 157
Additional paid-in capital 43,628 35,878
Accumulated deficit (40,458) (33,742)
Notes receivable for stock issuances (2,406) (2,274)
Accumulated comprehensive income - -
Treasury stock - at cost 32,130 shares in 2001 and 2000 (451) (451)
-------- --------
Total stockholders' equity 5,027 1,668
-------- --------

Total liabilities and stockholders' equity $ 8,672 $ 5,722
======== ========

The accompanying notes are an integral part of these financial statements.

F-4

TurboChef Technologies, Inc.
Statements of Operations
(Amounts in Thousands, Except Share Data)

Years Ended December 31,
2001 2000 1999
---- ---- ----

Revenues:
Product sales $ 3,230 $ 3,069 $ 3,391
Research and development fees - 3,827 3,645
Royalties - 950 27
------------ ------------ ------------
Total revenues 3,230 7,846 7,063

Costs and expenses:
Cost of goods sold 1,592 3,846 3,267
Research and development expenses 1,147 3,731 4,092
Selling, general and administrative expenses 6,517 7,943 7,709
------------ ------------ ------------
Total costs and expenses 9,256 15,520 15,068
------------ ------------ ------------

Operating loss (6,026) (7,674) (8,005)
------------ ------------ ------------

Other income (expense):
Interest income 170 187 79
Interest expense (195) (677) (372)
Dividend income - 157 206
Amortization of purchased put option premium - (594) (647)
Gain on the sale of purchased put option - 5,022 -
Gain/(loss) on disposal of assets 12 (126) -
Other income (expense) 8 (27) (40)
------------ ------------ ------------
(5) 3,942 (774)
------------ ------------ ------------

Net loss $ (6,031) $ (3,732) $ (8,779)
============ ============ ============

Preferred stock dividends (305) (20) -
Beneficial conversion feature of Series B preferred stock (380) - -
------------ ------------ ------------
Net loss applicable to common stockholders $ (6,716) $ (3,752) $ (8,779)
============ ============ ============

Loss per common share - basic and diluted $ (0.41) $ (0.24) $ (0.59)
============ ============ ============

Weighted average number of common
shares outstanding - basic and diluted 16,206,808 15,602,211 14,983,486
============ ============ ============

The accompanying notes are an integral part of these financial statements.

F-5

TurboChef Technologies, Inc.
Statements of Stockholders' Equity
(Amounts in Thousands, Except Share Data)

Preferred Stock Common stock Additional paid- Accumulated
--------------- ------------ ---------------- -----------
Shares Amount Shares Amount in capital deficit
------ ------ ------ ------ ---------- -------

Balance, December 31, 1998 - $ - 14,659,134 $ 148 $32,435 $(21,231)

Net loss - - - - - (8,779)
Net unrealized loss on marketable securities - - - - - -
Net unrealized gain on purchased put option - - - - - -
Comprehensive income (loss)

Compensation expense - - - - 374 -
Notes receivable for stock issuances - - - - - -
Issuance of warrants - - - - 153 -
Exercise of warrants - - 121,172 1 392 -
Issuance of common stock - - 310,067 2 765 -
---------------------------------------------------------------------------
Balance, December 31, 1999 - $ - 15,090,373 $ 151 $34,119 $(30,010)

Net loss - - - - - (3,732)
Realized gain on marketable securities - - - - - -
Realized gain on purchased put option - - - - - -
Comprehensive income (loss) - - - - -

Compensation expense - - - - 269 -
Notes receivable for stock issuances - - - - - -
Issuance of preferred stock 21,000 2,100 - - - -
Preferred stock dividend - - - - (57) -
Issuance of common stock - - 638,050 6 1,547 -
---------------------------------------------------------------------------
Balance, December 31, 2000 21,000 $2,100 15,728,423 $ 157 $35,878 $(33,742)
===========================================================================

Net loss - - - - - (6,031)
Realized gain on marketable securities - - - - - -
Realized gain on purchased put option - - - - - -
Comprehensive income (loss) - - - - - -

Compensation expense - - - - 274 -
Notes receivable for stock issuances - - - - - -
Issuance of preferred stock 30,000 2,430 - - - -
Preferred stock dividend - - - - - (305)
Beneficial conversion of preferred stock - - - - 760 (380)
Issuance of warrants - - - - 615 -
Issuance of common stock - - 2,689,790 27 6,101 -
---------------------------------------------------------------------------
Balance, December 31, 2001 51,000 $4,530 18,418,213 $ 184 $43,628 $(40,458)
===========================================================================

The accompanying notes are an integral part of these financial statements.

F-6

TurboChef Technologies, Inc.
Statements of Stockholders' Equity
(Amounts in Thousands, Except Share Data)

Accumulated
-----------
Notes receivable other Total
---------------- ----- -----
for comprehensive Treasury stockholders'
--- ------------- -------- -------------
stock issuances income stock equity
--------------- ------ ----- ------

Balance, December 31, 1998 $ - $ 8,292 $ (451) $ 19,193

Net loss - - - (8,779)
Net unrealized loss on marketable securities - (4,188) - (4,188)
Net unrealized gain on purchased put option - 2,623 - 2,623
----------
Comprehensive income (loss) (10,344)

Compensation expense - - - 374
Notes receivable for stock issuances (685) - - (685)
Issuance of warrants - - - 153
Exercise of warrants - - - 393
Issuance of common stock - - - 767
-----------------------------------------------------------------
Balance, December 31, 1999 $ (685) $ 6,727 $ (451) $ 9,851

Net loss - - - (3,732)
Realized gain on marketable securities - (4,104) - (4,104)
Realized gain on purchased put option - (2,623) - (2,623)
----------
Comprehensive income (loss) (10,459)

Compensation expense - - - 269
Notes receivable for stock issuances (1,589) - - (1,589)
Issuance of preferred stock - - - 2,100
Preferred stock dividend - - - (57)
Issuance of common stock - - - 1,553
-----------------------------------------------------------------
Balance, December 31, 2000 $ (2,274) $ - $ (451) $ 1,668
=================================================================

Net loss - - - (6,031)
Realized gain on marketable securities - - - -
Realized gain on purchased put option - - - -
----------
Comprehensive income (loss) (6,031)

Compensation expense - - - 274
Notes receivable for stock issuances (132) - - (132)
Issuance of preferred stock - - - 2,430
Preferred stock dividend - - - (305)
Beneficial conversion of preferred stock - - - 380
Issuance of warrants - - - 615
Issuance of common stock - - - 6,128
-----------------------------------------------------------------
Balance, December 31, 2001 $ (2,406) $ - $ (451) $ 5,027
=================================================================

The accompanying notes are an integral part of these financial statements.

F-7

TurboChef Technologies, Inc.
Statements of Cash Flows
(Amounts in Thousands)

Years Ended December 31,
---------------------------------
2001 2000 1999
-------- -------- ---------

Cash flows from operating activities:
Net loss $ (6,031) $ (3,732) $ (8,779)
Adjustments to reconcile net loss to net cash used in
operating activities:
Gain on sale of purchased put option - (5,022) -
Depreciation and amortization 454 354 503
Discount on convertible note 190 - -
Amortization of premium on purchased put option - 594 647
Non-cash interest on notes receivable from employees and directors (132) (110) -
Non-cash compensation expense 49 269 374
Provision for doubtful accounts (16) 30 25
Gain/(loss) on disposal of assets (12) 126 -
Changes in operating assets and liabilities:
Accounts receivable 456 (904) (391)
Inventories (507) (771) 266
Prepaid expenses and other assets 255 (81) (158)
Accounts payable (1,048) 1,811 429
Accrued expenses 7 (527) 726
Deferred revenue - (1,727) 1,678
Accrued interest - (372) 372
-------- -------- --------
Net cash used in operating activities (6,335) (10,062) (4,308)
-------- -------- --------

Cash flows from investing activities:
Sales of marketable securities and purchased put option - 15,723 -
Proceeds from sale of fixed assets 12 - (1,943)
Purchase of equipment and leasehold improvements (184) (332) (492)
Capitalization of patent costs - (136) -
-------- -------- --------
Net cash (used in) provided by investing activities (172) 15,255 (2,435)
-------- -------- --------

Cash flows from financing activities:
Borrowings under long-term debt - 6,795 7,879
Payments on long-term debt - (14,674) -
Repayments of notes receivable from employees - 36 -
Proceeds for the sale of preferred stock 2,000 2,100 -
Issuance of convertible note 1,000
Proceeds for the sale of common stock 6,049 - -
Proceeds from the exercise of stock options 539 39 82
Proceeds from the issuance of warrants - - 153
Proceeds from the exercise of warrants - - 393
-------- -------- --------
Net cash (used in) provided by financing activities 9,588 (5,704) 8,507
-------- -------- --------

Net increase (decrease) in cash and cash equivalents 3,081 (511) 1,764
Cash and cash equivalents at beginning of period 1,417 1,928 164
-------- -------- --------
Cash and cash equivalents at end of period $ 4,498 $ 1,417 $ 1,928
======== ======== ========

Supplemental disclosures of noncash activities:
Noncash investing activity - net unrealized gain/(loss)
on marketable securities $ - $ - $ (4,188)
======== ======== ========
Noncash investing activity - net unrealized gain
on purchased put option $ - $ - $ 2,623
======== ======== ========
Noncash investing activity - accrued preferred
stock dividend $ 305 $ 57 $ -
======== ======== ========
Noncash investing activity - beneficial conversion
of preferred stock $ 380 $ 57 $ -
======== ======== ========
Noncash investing activity - exercise of options
for note receivable from employees and directors $ - $ (1,514) $ (685)
======== ======== ========
Noncash investing activity - conversion of note
receivable to preferred stock $ 810 $ - $ -
======== ======== ========

The accompanying notes are an integral part of these financial statements.

F-8

TurboChef Technologies, Inc.
Notes to Financial Statements
December 31, 2001, 2000 and 1999

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------

General
-------

TurboChef Technologies, Inc. ("the Company") was incorporated in the State
of Delaware on April 3, 1991. Prior to its name change in July 1998, the
Company operated under the name TurboChef, Inc. The Company is engaged
primarily in designing, developing and marketing its proprietary rapid
cook technologies. The Company believes its primary markets are with
commercial food service operators throughout North America, the United
Kingdom, Europe and Asia. Management believes that the Company operates
in one primary business segment.

Cash Equivalents
----------------

For the purpose of these statements, the Company considers all highly
liquid debt instruments with original maturities of three months or less
to be cash equivalents.

Inventories
-----------

Inventories are valued at the lower of cost or market and primarily
consist of ovens and replacement parts. The Company determines cost for
ovens by the specific cost method. Freight costs are included in costs of
goods sold. Ovens used for demonstration and testing are generally
depreciated over a one-year period. Depreciation for demonstration ovens
was $91,000 $22,000 and $244,000 for the years ended December 31, 2001,
2000 and 1999 respectively. The following table reflects inventory
balances for the periods ended December 31, 2001 and 2000, respectively:

2001 2000
---- ----
(Dollars in thousands)

Finished Goods - Ovens $ 1,054 $ 803
Demonstration Inventory, net of reserve 93 -
Parts Inventory, net of reserve 710 220
--- ---
$ 1,857 $ 1,023
======== ========
Property and Equipment
----------------------

Property and equipment are recorded at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the
respective assets and accelerated methods for income tax purposes.
Computer equipment is generally depreciated over a three-year period. All
other property and equipment are generally depreciated over a five-year
period.

Sales Deposits
--------------

Sales deposits consist of amounts received from customers for future
purchases of cooking systems. Deferred amounts will be recognized as
revenue when the cooking systems are installed for the customer.

Revenue Recognition
-------------------

F-9

TurboChef Technologies, Inc.
Notes to Financial Statements
December 31, 2001, 2000 and 1999

The Company records product sales when the product is installed for the
customer or shipped to the customer's designated agent. Fees for research
and development services or technology transfers are recorded as earned
on a proportional performance basis. Royalty revenues consist of
royalties received from the sale of products embodying the Company's
technologies. Royalty revenues are recorded when earned which is the
period in which the products are sold. Reserves for sales returns and
allowances are recorded in the same accounting period as the related
revenues. As of December 31, 2001 and 2000, there were no reserves
established as sales returns and allowances were not significant.

Other Assets
------------

Other assets consist primarily of capitalized patent costs, which include
outside legal fees incurred in the registration of the Company's patents.
These costs are amortized over the economic life of the patents, ranging
from four to ten years. Patent amortization was $34,000, $19,000 and
$13,000 for the years ended December 31, 2001, 2000 and 1999,
respectively.

Research and Development Expenses
---------------------------------

Research and development expenses consist of all costs incurred in
planning, design and testing of the rapid cook ovens, including salary
costs related to research and development, and are expensed as incurred.

Product Warranty
----------------

The Company's rapid cook ovens are under warranty against defects in
material and workmanship for a period of one year. Anticipated future
warranty costs are estimated, based upon historical expenses, and are
recorded in the period cooking systems are sold (see Note 8).

Income Taxes
------------

The Company accounts for income taxes using the asset and liability
method. Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss carryforwards. Deferred tax
assets and liabilities are measured using enacted rates expected to apply
to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. The Company recognizes and
adjusts the deferred tax asset valuation allowance based on judgements as
to future realization of the deferred tax benefits supported by
demonstrated trends in the Company's operating results.

Loss Per Common Share
---------------------

The Company provides basic and dilutive loss per common share information
for each year presented. The basic net loss per common share is computed
by dividing the net loss, plus the dividends and dividend equivalents on
preferred stock, by the weighted average number of common shares
outstanding. For the years ended December 31, 2001, 2000 and 1999, net
loss applicable to common stockholders is as follows:

(in thousands)

F-10

TurboChef Technologies, Inc.
Notes to Financial Statements
December 31, 2001, 2000 and 1999

2001 2000 1999
---- ---- ----

Net loss....................................... $(6,031) $ (3,732) $ (8,779)
Beneficial conversion of preferred stock....... (380) - -
Dividends on preferred stock................... (305) (20) -
-------- --------- ---------
Net loss applicable to common stockholders..... $(6,716) $ (3,752) $ (8,779)
======== ========= =========

Diluted net loss per common share is computed by dividing the net loss,
adjusted on an "as if converted" basis, by the weighted average number of
common shares outstanding plus potential dilutive securities. For the
years ended December 31, 2001, 2000 and 1999, potential dilutive
securities had an anti-dilutive effect and were not included in the
calculation of diluted net loss per common share. For the year ended
December 31, 2001, the potential dilutive securities include 5,986,977
shares for options and warrants and 3,306,118 shares attributable to
convertible preferred stock. For the year ended December 31, 2000, the
potential dilutive securities include options and warrants, which are
convertible into 3,499,000 shares of common stock and $2,100,000 of
convertible preferred stock, which conversion rate was dependent upon the
average market price of the Company's common stock. For the year ended
December 31, 1999, the potential dilutive securities included options and
warrants on 3,145,000 of common stock.

Stock Option Plans
------------------

The Company accounts for its stock option plans in accordance with the
provisions of Accounting Principles Board Opinion No. 25 ("APB 25"),
Accounting for Stock Issued to Employees, and related technical
interpretations. Compensation expense for options granted to employees is
recorded on the date of grant only if the market price of the underlying
stock exceeds the exercise price. Since the Company grants substantially
all stock options with an exercise price equal to or greater than the
current market price of the stock on the grant date, no compensation
expense is recorded. The Company has also adopted Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation
("SFAS 123"). Under SFAS 123 the Company has elected the disclosure
provisions, rather than the recognition provisions, and will continue to
account for stock-based compensation under APB 25 (see Note 10).

Use of Estimates
----------------

The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ materially from those estimates.

Fair Value of Financial Instruments
-----------------------------------

The carrying amount of cash and cash equivalents, pledged marketable
securities, accounts receivable, note receivable from employees and
directors, accounts payable, accrued expenses and note payable
approximates fair value due to the short maturity of these instruments.

Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
-----------------------------------------------------------------------

F-11

TurboChef Technologies, Inc.
Notes to Financial Statements
December 31, 2001, 2000 and 1999

The Company reviews long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison
of the carrying amount of an asset to future net cash flows, expected to
be generated by the asset. If such assets are considered to be impaired,
the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying amount
or fair value, less estimated sales expenses. Management believes no
impairment exists as of December 31, 2001.

Reclassifications
-----------------

Certain amounts in prior periods financial statements have been
reclassified to conform to current year presentation.

New Accounting Pronouncements
-----------------------------

As of December 31, 2001, the net carrying amount of other intangible
assets is $132,000. Amortization expense during the twelve-month period
ended December 31, 2001 was $48,000. The Company does not believe that the
adoption of SFAS 141 and SFAS 142 will impact its financial position and
results of operations.

In June 2001, the Financial Accounting Standards Board finalized FASB
Statement No. 141, Business Combinations (SFAS 141), and No. 142, Goodwill
and Other Intangible Assets (SFAS 142). SFAS 141 requires the use of the
purchase method of accounting and prohibits the use of the
pooling-of-interests method of accounting for business combinations
initiated after June 30, 2001. SFAS 141 also requires that the Company
recognize acquired intangible assets apart from goodwill if the acquired
intangible assets meet certain criteria. SFAS 141 applies to all business
combinations initiated after June 30, 2001. It also requires, upon
adoption of SFAS 142 that the Company reclassify the carrying amounts of
intangible assets and goodwill based on the criteria in SFAS 141.

SFAS 142 requires, among other things, that companies no longer amortize
goodwill, but instead test goodwill for impairment at least annually. In
addition, SFAS 142 requires that the Company identify reporting units for
the purposes of assessing potential future impairments of goodwill,
reassess the useful lives of other existing recognized intangible assets,
and cease amortization of intangible assets with an indefinite useful
life. SFAS 142 also requires that an intangible asset with an indefinite
useful life should be tested for impairment in accordance with the
guidance in SFAS 142. This statement is required to be applied in fiscal
years beginning after December 15, 2001 to all goodwill and other
intangible assets recognized at that date, regardless of when those assets
were initially recognized. SFAS 142 requires the Company to complete a
transitional goodwill impairment test six months from the date of
adoption. The Company is also required to reassess the useful lives of
other intangible assets within the first interim quarter after adoption of
SFAS 142.

As of December 31, 2001, the net carrying amount of other intangible
assets is $132,000. Amortization expense during the twelve-month period
ended December 31, 2001 was $48,000. The Company does not believe that the
adoption of SFAS 141 and SFAS 142 will impact its financial position and
results of operations.

F-12

TurboChef Technologies, Inc.
Notes to Financial Statements
December 31, 2001, 2000 and 1999

In June 2001, the Financial Accounting Standards Board finalized
FASB Statement No. 143, Accounting for Asset Retirement Obligations
(SFAS 143) and Statement No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (SFAS 144).

SFAS 143 requires that the fair value for an asset retirement obligation
be recognized in the period in which it is incurred if a reasonable
estimate of fair value can be made, and that the carrying amount of the
asset, including capitalized asset retirement costs, be tested for
impairment. SFAS 143 is effective for fiscal years beginning after June
15, 2002. Management does not believe this statement will have a
material effect on the Company's financial position or results of
operations.

SFAS 144 prescribes financial accounting and reporting for the
impairment of long-lived assets and for long-lived assets to be disposed
of, and specifies when to test a long-lived asset for recoverability.
SFAS 144 is effective for fiscal years beginning after December 15,
2001. Management does not believe this statement will have a material
effect on the Company's financial position or results of operations.

2. LIQUIDITY AND GOING CONCERN
---------------------------

The Company's capital requirements in connection with its product and
technology development and marketing efforts have been and will continue
to be significant. In addition, capital is required to operate and
expand the Company's operations. Since its inception, the Company has
incurred operating losses and has been substantially dependent on loans
and capital contributions from its principal stockholders and proceeds
from the sale of its securities. Furthermore, the Company will be
dependent on outside sources of financing for the foreseeable future to
fund its working capital needs.

The Company anticipates that it may need to raise additional capital by
the fourth quarter 2002. No assurances can be made that the Company
will generate the necessary sales from its commercial ovens or from the
proceeds of the sales of its securities or other financing sources to
generate the necessary working capital. The accompanying financial
statements have been prepared on a going concern basis, which
contemplates the realization of assets and satisfaction of liabilities
in the normal course of business. As discussed above, the Company has
recorded recurring losses, is dependent on outside sources of financing
and achieving certain sales levels to fund its working capital needs.
These conditions give rise to 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 this uncertainty.

3. LONG-TERM CONTRACTS
-------------------

In October 1999, the Company entered into a commercial license agreement
with Maytag that broadened Maytag's distribution rights with respect to
commercial cooking products utilizing the Company's rapid cook
technologies. Pursuant to the terms of the agreement, Maytag received
exclusive rights to market and sell throughout North America and certain
worldwide rights to sell to North American based chains with
international locations. This exclusivity extended to March 2002. In
consideration for these rights, Maytag agreed to pay the Company per
unit royalties of approximately $500. Maytag also agreed to establish
$5.75 million as the minimum royalty threshold over the first
twenty-four months of exclusivity, which were to begin in the third
quarter of 2000, with minimum royalty payments of $1.0 million in 2000,
$2.9 million in 2001 and $1.9 million in 2002. However, Maytag only
made the initial $500,000 payment before stopping all

F-13

TurboChef Technologies, Inc.
Notes to Financial Statements
December 31, 2001, 2000 and 1999

payments of royalties to the Company. In addition, the Company's
manufacturer of ovens, G.S. Blodgett Corporation, a wholly owned
subsidiary of Maytag and the Company's sole source of supply of its
ovens, demanded in January 2001 that the Company agree to revise the
terms of the license agreement. The Company did not agree to the
proposed new terms, and Maytag terminated the license agreement but
refused to make the minimum royalties required by the agreement. The
Company is currently in arbitration with Maytag for non-payment of
minimum royalties due the Company under the License Agreement (see Note
13).

Maytag also provided the Company with $2.5 million in 1999 and $2.1
million in 2000, for the development of prototype units relating to the
commercial license agreement, which are included in research and
development fees in each respective year.

In the second quarter of 2000, the Company established a manufacturing
venture with the Shandong Xiaoya Group ("Xiaoya") in China in which
Xiaoya was granted the exclusive manufacturing rights for the C-3 oven.
In March 2002, the Company signed an agreement with Xiaoya to purchase
approximately $14 million of C-3 cooking systems over the next 17 months.

In July 1999, the Company entered into an agreement with the Gas
Research Institute ("GRI") to develop natural gas-fueled versions of the
Company's commercial and residential cooking systems. The agreement
provided the Company with $2 million in funding during 1999, of which
$1,847,000 was recorded as deferred revenue and recognized as income on
a proportional performance basis as costs are incurred on the commercial
countertop rapid cook systems. In addition to the funding, the Company
is allowed access to GRI's extensive patent portfolio and years of
experience with natural gas related products. In exchange for the
funding, GRI received 50,000 warrants to purchase the Company's common
stock, which were valued at $153,000, and a defined percentage of the
royalty that the Company receives on the sale of various ovens in North
America and Europe. Such payments terminate upon the cumulative
payments of $4,000,000 to GRI. The Company began paying royalties to
GRI in fiscal year 2000. As of December 31, 2000, the Company has paid
royalties to GRI totaling $37,000 and has accrued an additional $37,000
due to GRI. No additional royalties were paid in 2001.

In September 1999, the Company entered into an agreement to upgrade and
warranty 262 ovens installed with Whitbread Group PLC ("Whitbread").
The Company received approximately $1.4 million from Whitbread to
complete the upgrade and provide a three-year extended warranty to each
of the ovens. The oven upgrades include design changes that were to
substantially increase the life and durability of the ovens. These
upgrades 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. No additional costs were incurred during Fiscal
2001. In February 2002, the Company and Whitbread entered into an
agreement to terminate this extended warranty agreement. Under this
agreement, the Company is to pay Whitbread [pound]460,000 (approximately
$670,000), plus VAT, over a 24 month period, and Whitbread will release
TurboChef from its obligation to continue to warrantee approximately 260
earlier generation ovens. TurboChef will make an initial payment to
Whitbread of [pound]50,000 (approximately $72,000) plus VAT and thereafter
pay [pound]15,000 (approximately $22,000) plus VAT a month for the next
24 months, with a final payment of [pound]50,000 plus VAT due the final
month. An adjustment of approximately $190,000 to recognize this
transaction was recorded as of December 31, 2001 as a reduction in cost of
goods sold and accrued expenses. The Company has accrued for these future
payments and they are included in accrued warranty and upgrade costs.

F-14

TurboChef Technologies, Inc.
Notes to Financial Statements
December 31, 2001, 2000 and 1999

4. CONCENTRATION OF BUSINESS RISKS
-------------------------------

For the years ended December 31, 2000 and 1999, the Company received
$2,100,000 and $3,525,000, respectively, in fees for product development
services and technology transfers from the Company's alliance with
Maytag. The Company did not receive any payments for fees from Maytag
in fiscal year 2001, since it is currently in arbitration with Maytag.

Maytag discontinued all relationships with the Company in February 2001.
The Company is not dependent on Maytag for research fees or supplying
the Company with its rapid cook ovens. In May 2001 Maytag relinquished
the right to sell the Company's products in North America.

In the second quarter of 2000, the Company established a manufacturing
venture with Shandong Xiaoya Group in China in which Xiaoya was granted
the exclusive manufacturing rights for the C-3 ovens. In March 2002,
the Company signed a new agreement to purchase approximately $14 million
of C-3 ovens from Xiaoya over the next 17 months.

During fiscal year 2001, 35% the Company's direct sales were to one
customer. During fiscal year 2000, 71% the Company's direct sales were
to one customer and during fiscal year 1999, 42% the Company's direct
sales were to two customers.

5. DEBT
----

In November 2001, the Company purchased $500,000 of parts and oven
inventory from Maytag. The Company paid cash of $176,000 and issued
Maytag a promissory note in the amount of $327,000 for the remaining
balance of this purchase. This note is payable in two installments
equal to $131,000 payable in May 2002, and $196,000 payable in November
2002, plus accrued interest. The interest rate of this note is the prime
rate, as published in the Wall Street Journal, plus 2%.

6. PROPERTY AND EQUIPMENT
----------------------

At December 31, 2001 and 2000, property and equipment consisted of:

2001 2000
---- ----
(Dollars in thousands)

Leasehold improvements $ 257 $ 257
Furniture and fixtures 889 764
Equipment 231 263
----------------------------
1,377 1,284
Less accumulated depreciation (997) (682)
----------------------------
$ 380 $ 602
============================

Depreciation expense was $315,000, $337,000 and $259,000 for the years
ended December 31, 2001, 2000 and 1999, respectively.

F-15

TurboChef Technologies, Inc.
Notes to Financial Statements
December 31, 2001, 2000 and 1999

7. CERTAIN TRANSACTIONS WITH STOCKHOLDERS
--------------------------------------

Notes Receivable
----------------

In 1999, the Company loaned an aggregate of $710,000 to three of
its employees and two of the Company's directors (Mr. Bogatin and Mr.
Gogel). The loaned amounts were used by such employees and directors to
exercise 284,000 stock options at an exercise price of $2.50 per share.
All such loans are full-recourse and are secured by the underlying
securities and the general assets of the respective borrower. Four of
the loans have a term of two years and were payable, along with accrued
interest, in February, March and April 2001. One of the loans has a term
of five years and is payable, along with accrued interest, on April
2004. All of the notes are recorded as a reduction to stockholders'
equity. The notes bear interest at a rate of 4.8%. The market rate of
interest on March 31, 1999 was 7.0%, based upon margin rates obtained
through various discount brokers. The difference between interest
earned by the Company on the notes and the market rate of interest is
recorded as compensation expense.

In November 2000, a loan amount of $35,000, plus accrued interest,
was repaid in full. In December 1999, the loan amount of $37,500 plus
accrued interest was repaid in full. In March 2001, the Company
extended the maturity date of two of the notes, including the note to
Mr. Gogel, totaling $138,000, from March/April 2001 until March/April
2004.

In 2000, the Company loaned an aggregate of $1,513,500 to two of
its employees and one of its directors (Mr. Bogatin). Of this amount
$13,500 was used by such employees to exercise 9,000 stock options at an
exercise price of $1.50 per share in February 2000. The remainder of
$1,500,000 was used by such director to exercise 600,000 stock options
at an exercise price of $2.50 per share in March 2000. All such loans
are full recourse and are secured by the underlying securities. Each
loan has a term of five years and is payable, along with accrued
interest in February and March 2005. The notes are recorded as a
reduction to Stockholders' Equity. The notes bear interest at a rate of
6.7%. The market rates of interest in February and March 2000 was 7.5%,
based upon margin rates obtained through various discount brokers. The
difference between interest earned by the Company on the notes and the
market rate of interest is recorded as compensation expense.

Total compensation expense related to notes receivable from such
employees and directors was $25,000, $24,000 and $11,000 for the years
ended December 31, 2001, 2000 and 1999, respectively.

8. ACCRUED WARRANTY AND UPGRADE COSTS
----------------------------------

The Company generally provides a one-year parts and labor warranty
on its ovens. Warranty costs under this program were $128,000, $282,000
and $161,000 for the years ended December 31, 2001, 2000 and 1999,
respectively.

On September 1, 1999, the Company entered into an agreement to
upgrade and warranty 262 ovens installed for Whitbread PLC. The Company
received approximately $1.4 million from Whitbread PLC to complete the
upgrade and warranty the ovens for a three-year period, beginning in
September 1999. The oven upgrades included design changes that should
substantially increase the life and durability of the ovens. The Company
recorded a corresponding liability of $1.4 million representing the
estimated cost of upgrade and warranty. The liability is reduced as
services related to the upgrade and warranty are incurred. During 2000
and 1999, the Company accrued an

F-16

TurboChef Technologies, Inc.
Notes to Financial Statements
December 31, 2001, 2000 and 1999

additional $985,000 and $755,000, respectively, for expenses relating to
the completion of the upgrade and remainder of the warranty period. The
oven upgrades were completed in February 2000. In February 2002, the
Company and Whitbread entered into an agreement to terminate this
extended warranty agreement. Under this agreement, the Company is to pay
Whitbread [pound]460,000 (approximately $670,000), plus VAT, over a 24
month period, and Whitbread will release TurboChef from its current and
future obligations, under the agreement, to warranty the 262 older
generation ovens. TurboChef will make an initial payment to Whitbread of
[pound]50,000 (approximately $72,000) plus VAT and thereafter pay [pound]
15,000 (approximately $22,000) plus VAT a month for the next 24 months,
with a final payment of [pound]50,000 plus VAT due the final month. An
adjustment to reduce the accrued liability by $190,000 and corresponding
decrease in cost of sales was recorded as of December 31, 2001.

9. INCOME TAXES
------------

The following is a reconciliation of the provision/(benefit) for income
taxes at the U.S. federal income tax rate to the income taxes reflected
in the Statements of Operations:

2001 2000 1999
---- ---- ----
Computed "expected" tax benefit $ (2,050) $ (1,354) $ (2,917)
Other 144 (85) (205)
Valuation Allowance 1906 1,439 3,122
-------- -------- --------

Income tax benefit $ - $ - $ -
======== ======== ========

The components of the Company's net deferred tax assets were as follows:

December 31
------------------
2001 2000
---- ----

Deferred tax assets:
Warranty reserves $ 353 $ 388
Research and development credit carryforwards 245 245
Net operating loss carryforwards 11,717 9,862
Other 139 102
---------- ----------
Total gross deferred tax assets 12,454 10,597
Less valuation allowance (12,454) (10,597)
---------- ----------
Net deferred tax assets - -
---------- ----------
Deferred tax liabilities: - -
---------- ----------
Net $ - $ -
========== ==========

In assessing the realizability of deferred income tax assets, management
considers whether it is more likely than not that some portion or all of
the deferred income tax assets will not be realized. The ultimate
realization of deferred income tax assets is dependent upon the
generation of future taxable income during the periods in which those
temporary differences become deductible. Due to the historical operating
results of the Company, management is unable to conclude on a more likely
than not basis that deferred income tax assets will be realized.
Accordingly, the Company recorded a valuation allowance equal to 100% of
the net deferred tax assets at December 31, 2001 and 2000.

At December 31, 2001, the Company has net operating loss carryforwards
for federal income tax purposes of $34.4 million, which may be used
against future taxable income, if any, and which expire in years 2009 to
2016. Any change in ownership under Internal Revenue Code Section 382

F-17

TurboChef Technologies, Inc.
Notes to Financial Statements
December 31, 2001, 2000 and 1999

could limit the annual utilization of these carryforwards and cause some
amount of the carryforwards to expire unutilized.

The Company also has research and development credit carryforwards
of approximately $720,000, which may be used to offset future federal tax
liability, if any.

10. STOCKHOLDERS' EQUITY
--------------------

Stock Option Plan
-----------------

The Company adopted the 1994 Stock Option Plan ("the Stock Option Plan"),
as amended, pursuant to which stock options covering an aggregate of
5,650,000 shares of the Company's common stock may be granted. Options
awarded under the Stock Option Plan (i) are generally granted at exercise
prices which equate to or are above quoted market price on the date of
the grant; (ii) generally become exercisable over a period of one to four
years; and (iii) generally expire seven or ten years subsequent to award.

At December 31, 2001, there were 740,660 shares available for grant under
the Plan. The per share weighted-average fair value of stock options
granted during 2001, 2000 and 1999 was $1.67, $1.06 and $4.25,
respectively, on the date of grant using the Black-Scholes option-
pricing model with the following weighted-average assumptions: For 2001,
risk-free interest rate, ranging from 4.25% to 5.30%; expected life, ten
years; expected dividend yield, 0%; and volatility, 41%. For 2000,
risk-free interest rate, ranging from 5.73% to 6.79%; expected life, ten
years; expected dividend yield, 0%; and volatility, 38%. For 1999,
risk-free interest rate, ranging from 5.19% to 6.24%; expected life,
seven to ten years; expected dividend yield, 0%; and volatility, 39%.

The Company applies APB Opinion 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock
options in the financial statements. Had the Company determined
compensation cost based on the fair value at the grant date for its stock
options under SFAS No. 123, the Company's net loss would have been
increased to the pro forma amounts indicated below (Amounts shown in
thousands except share amounts).

2001 2000 1999
---- ---- ----

Net loss applicable to common
shareholders:
As reported $ (6,716) $ (3,752) $ (8,779)
Loss per common share - basic
and diluted $ (.41) $ (.24) $ (.59)
Pro forma $ (7,463) $ (4,085) $ (8,403)
Loss per common share - basic
and diluted $ (.46) $ (.26) $ (.58)

A summary of stock option activity follows:

Weighted
Number of Average
Shares Exercise Price
------ --------------

Options outstanding at December 31, 1998 3,077,067 $ 6.57
========= =======

Options granted 422,500 8.14

F-18

TurboChef Technologies, Inc.
Notes to Financial Statements
December 31, 2001, 2000 and 1999

Options exercised (310,067) 2.47
Options canceled (458,000) 12.73
--------- ------
Options outstanding at December 31, 1999 2,731,500 $ 6.13
========= ======

Options granted 1,535,000 2.57
Options exercised (638,050) 2.44
Options canceled (813,950) 7.63
--------- ----
Options outstanding at December 31, 2000 2,814,500 $ 4.77
========= ======

Options granted 1,707,000 3.02
Options exercised (342,458) 1.65
Options canceled (969,876) 5.26
--------- ----
Options outstanding at December 31, 2001 3,209,166 $ 3.85
========= ======

At December 31, 2001, the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $1.32 - $9.50 and
7.97 years, respectively. The following table summarizes information
about the Company's stock options outstanding at December 31, 2001:

Options Outstanding Options Exercisable
------------------- -------------------
Weighted
Outstanding as of Average Weighted Exercisable as of Weighted
Range of Exercise December 31, Remaining Average December 31, Average
Prices 2001 Contractual Life Exercise Price 2001 Exercise Price
------ ---- ---------------- -------------- ---- --------------

$1.32 - $5.00 2,344,416 9.18 $2.75 856,667 $2.74
$5.01 - 9.50 864,750 4.69 $6.85 681,250 $6.93
------- ----- ------- -----
3,209,166 $3.85 1,537,917 $4.60
========= ===== ========= =====

At December 31, 2001, 2000 and 1999, the number of options exercisable
was 1,537,917, 1,289,918 and 1,435,000, respectively, and the
weighted-average exercise price of those options was $4.60, $5.25 and
$5.32, respectively.

Two former joint venture partners have options to purchase 262,500 and
21,000 shares of common stock at $2.50 and $9.00 per share,
respectively. These options expire on December 27, 2005 and March 31,
2006. Compensation expense relating to these options in the amount of
$24,000 has been recorded in 2001 and is included in selling, general
and administrative expense of the Company's statement of operations. As
of December 31, 2001, none of these options have been exercised.

Authorized Shares
-----------------

In June 1999, the Board of Directors of the Company approved a proposal
to authorize the issuance of up to 5,000,000 shares of Preferred Stock.

Stock Issuances
---------------

In August 2000, the Company entered into an agreement with GRI in which
they purchased $2.1 million of the Company's Series A Convertible
Preferred Stock for $100.00 per share. The 21,000 shares of Convertible
Preferred Stock carry a dividend of 7% per annum which is payable in

F-19

TurboChef Technologies, Inc.
Notes to Financial Statements
December 31, 2001, 2000 and 1999

common shares upon conversion of the Convertible Preferred Stock into
the Company's common stock. These securities will be converted into
512,467 shares of the Company's common stock on March 31, 2002.

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 addition, the conversion
feature was valued at $381,000 and recorded as a preferred stock
dividend.

In April 2001 the Company raised $1,000,000 through the issuance of an
8% Non-Negotiable Promissory Note ("Note") due April 20, 2003 provided
that upon the approval of the stockholders of the Company, which was
obtained in August 2001, the entire outstanding principal amount of the
Note was converted into the Company's Series C Convertible Preferred
Stock (the "Convertible Preferred Stock"). These securities can be
converted into 793,651 shares of common stock.

In June 2001, the Company raised $500,000 through the sale of 625,000
shares of its $.01 per share par value common stock.

In October 2001, the Company raised $500,000 through the sale of 250,000
shares of its $.01 per share par value common stock.

In December 2001, the Company raised $4,800,000 through the sale of
1,049,823 shares of its $.01 per share par value common stock.

Stock Warrants
--------------

In July 1999, the Company issued warrants to GRI, in accordance with a
research and development agreement, to purchase 50,000 shares at $13.87
per share (the GRI Warrants). None of the GRI Warrants had been
exercised as of December 31, 2001. The Company valued the warrants at
$153,000 and is recorded in stockholders' equity in the accompanying
financial statements.

In March 2001, the Company issued investor warrants to purchase
1,000,000 shares of common stock at $1.20 per share, in connection to
the sale of its Series B Convertible Preferred Stock. These warrants
are exercisable in three equal annual installments, commencing one year
from the date of issuance and expire in 2011. These warrants are valued
at $380,000 and are recorded in stockholders' equity in the accompanying
financial statements.

In June 2001, the Company issued investor warrants to purchase an
additional 312,500 shares of common stock at $1.00 per share, in
connection with the sale of 625,000 shares of common stock. These
warrants vest equally over three years. These warrants are valued at
$158,000 and are recorded in stockholders' equity in the accompanying
financial statements.

In August 2001, the Company converted a $1,000,000 convertible note into
its Series C Convertible Preferred Stock. A total of 396,825 warrants to
purchase the Company's common stock at $1.51 per share were issued along
with the preferred stock. These warrants vest equally over three years.
These warrants are valued at $235,000 and are recorded in stockholders'
equity in the accompanying financial statements.

F-20

TurboChef Technologies, Inc.
Notes to Financial Statements
December 31, 2001, 2000 and 1999

In October 2001, the Company issued investor warrants to purchase an
additional 250,000 shares of common stock at $2.25 per share, in
connection to the sale of 250,000 shares of common stock. The warrants
are exercisable immediately and expire in 2011. These warrants are
valued at $489,000 and are recorded in stockholders' equity in the
accompanying financial statements.

In connection with the sale of 1,049,823 shares of common stock in
December 2001, the Company issued warrants to purchase an additional
83,986 and 92,958 shares of common stock at $4.10 and $5.34 per share,
respectively. The warrants are exercisable immediately and expire in 2006.
These warrants are valued at $230,000 and are recorded in stockholders'
equity in the accompanying financial statements.

11. RELATED-PARTY TRANSACTIONS
--------------------------

The Company currently leases office space in New York at 660 Madison
Avenue. This building is owned by a limited liability company controlled
by Mr. Bruce Brickman. Mr. Brickman joined the Company's Board of
Directors in March 2002. The Company paid approximately $185,000 in base
rental charges during 2001 for this office space. The Company believes
that, at the time of the lease, these were the prevailing market rates for
similar office space in New York.

In April 2001 the Company raised $1,000,000 through the issuance of an
8% Non-Negotiable Promissory Note ("Note") due April 20, 2003 from Don
Gogel, a director of the Company. The entire outstanding principal
amount of the Note was to be converted into preferred stock (the
"Convertible Preferred Stock") of the Company upon the approval of the
stockholders. This was approved by the stockholders of the Company in
August 2001. In addition, the Company issued 396,825 warrants to
purchase shares of its common stock. These warrants were valued at
$190,000. The warrants have a term of 10 years at an exercise price of
$1.51 per share. Each share of Convertible Preferred Stock has (i) a
liquidation value of $100 per share, (ii) is entitled to a dividend of
$8.00 per share, payable semi-annually in cash or in shares of the
Common Stock at the then fair market value and are (iii) convertible
into shares of Common Stock at a conversion price of $1.26. The
unamortized discount of $190,000 was charged to interest expense.

In June 2001, the Company raised $500,000 through the sale of 625,000
shares of its common stock to Mr. Jack Silver. Mr. Silver joined the
Company as a member of its Board of Directors soon thereafter. Mr. Silver
resigned in November 2001. In connection with this transaction, the
Company issued warrants to purchase an additional 312,500 shares of common
stock at $1.00 per share. The warrants are exercisable in three equal
annual installments, commencing one year from the date of issuance and
expire in 2011. These warrants were valued at $158,000.

The Company has notes receivable with shareholders and directors (see
Note 7).

12. COMMITMENTS AND CONTINGENCIES
-----------------------------

Under the terms of a settlement agreement, the Company has agreed to
pay Whitbread approximately $670,000 over a 24 month period, beginning
in March 2002, in exchange for the termination of a three-year extended
warranty agreement originally purchased by Whitbread in September 1999
(see Note 8). The Company has accrued for these payments in accrued
warranty and upgrade costs.

The Company is obligated under certain non-cancelable leases for office
space and equipment, the majority of which have remaining terms of less
than one year. Obligations for office space, which

F-21

TurboChef Technologies, Inc.
Notes to Financial Statements
December 31, 2001, 2000 and 1999

extends beyond one year, are $364,000, $166,000 and $152,000 in 2002, 2003
and 2004, respectively.

The Company, under its long-term agreement with GRI, is required to pay a
defined percentage of the royalty the Company receives on the sale of its
commercial products in North America and Europe to GRI. These payments
terminate upon the cumulative payments to GRI of $4,000,000.

In the second quarter of 2000, the Company established a manufacturing
venture with the Shandong Xiaoya Group ("Xiaoya") in China in which Xiaoya
was granted the exclusive manufacturing rights for the C-3 oven. In March
2002, the Company signed an agreement with Xiaoya to purchase
approximately $14 million of C-3 cooking systems over the next 17 months.
The Company currently does not have any firm orders or commitments for
these units.

13. LITIGATION
----------

During the first quarter of 2001, the Company and Maytag filed a Notice of
Claim of Arbitration, as provided for under the Commercial Cooking
Appliance Project ("CCAP") and related commercial License Agreement
between the parties. Maytag has claimed that the Company has breached the
CCAP and related commercial License Agreement, and is seeking to recover
damages of approximately $5.6 million. One of the Company's claims is
that, as 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. In January, 2002 the Company
amended its claims to seek injunctive relief and monetary damages
resulting from alleged use of TurboChef's intellectual property. 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 affect
on the Company's financial position and results of operations. Since the
outcome of the arbitration proceeding is uncertain, no adjustments have
been made to the financial statements.

14. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
-------------------------------------------

Unaudited quarterly financial information follows (in thousands except per
share data):

Fiscal
2001 First Second Third Fourth /(1)/ Year
---- ----- ------ ----- ------------ ------

Total revenues $ 481 $ 778 $ 890 $ 1,081 $ 3,230
Gross profit 184 406 349 699 1,638
Net loss (2,048) (1,643) (1,773) (1,252) (6,716)
Basic and diluted loss per share $ (0.13) $ (0.10) $ (0.11) $ (0.08) $ (0.41)
Number of shares used in the
computation of loss per share 15,728,423 15,858,918 16,395,918 16,829,794 16,206,808

2000
----

Total revenues $ 2,237 $ 502 $ 2,706 $ 2,401 $ 7,846
Gross profit 1,667 56 882 1,395 4,000
Net income (loss) (2,141) (3,622) (1,616) 3,647 (3,752)
Basic and diluted loss per share $ (0.14) $ (0.23) $ (0.10) $ 0.23 $ (0.24)
Number of shares used in the

F-22

TurboChef Technologies, Inc.
Notes to Financial Statements
December 31, 2001, 2000 and 1999

computation of loss per share 15,220,802 15,728,423 15,728,423 15,728,423 15,602,211

/(1)/ The decrease in revenues in the fourth quarter of 2001, as compared
to the fourth quarter of 2000, is principally due to the recognition
of revenue of $1,081 in 2001 from product sales compared to $1,500
of research and development fees and $472 of product royalties in
December 2000. The Company's net income decreased in the fourth
quarter of 2001 is due to a gain recognized on the sale of
marketable securities of $5,022 in November 2000. This was partially
offset due to an increase in product sales of $664 in the fourth
quarter of 2001, as compared to the fourth quarter of 2000.

15. GEOGRAPHIC SEGMENT INFORMATION (UNAUDITED)
------------------------------------------

The Company currently derives primarily all its Product Revenues from one
product, according to the following geographic segments:

REGION 2001 2000 1999
------ ---- ---- ----

North America $ 946,000 $ -0- $ 521,000
United Kingdom 1,986,000 2,937,000 2,810,000
Europe and Asia 298,000 132,000 60,000
----------- ----------- -----------
Totals $ 3,230,000 $ 3,069,000 $ 3,391,000
=========== =========== ===========

F-23