<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
_____________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
Commission File Number 0-25520
-------
_____________
THRUSTMASTER, INC.
(Exact name of registrant as specified in its charter)
OREGON 93-1040330
(State or jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
7175 N.W. EVERGREEN PARKWAY #400
HILLSBORO, OREGON, 97124-5839
(Address of principal executive offices)
(Zip Code)
(503) 615-3200
(Registrant's telephone number)
_____________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common stock, no par value 4,293,588 shares
(Class) (Outstanding at October 31, 1997)
<PAGE>
THRUSTMASTER, INC.
Index to Form 10-Q
PART I - FINANCIAL INFORMATION Page No.
--------
Item 1. Financial Statements
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . 2
Consolidated Statements of Income.. . . . . . . . . . . . . . 3
Consolidated Statements of Cash Flows . . . . . . . . . . . . 4
Consolidated Statements of Changes in Shareholders' Equity. . 5
Notes to Consolidated Financial Statements. . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation. . . . . . . . . . . . . . . . . . . 7
PART II - OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . 11
SIGNATURES.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
<PAGE>
THRUSTMASTER, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.........................$ 5,376 $ 6,420
Accounts receivable, net.......................... 9,635 9,820
Inventories....................................... 5,300 3,560
Prepaid expenses and other........................ 355 109
Deferred income taxes............................. 269 239
------- -------
Total current assets............................ 20,935 20,148
Plant and equipment, net............................ 1,878 1,081
Other............................................... 31 32
------- -------
Total assets.................................... $22,844 $21,261
------- -------
------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................$ 4,143 $ 3,021
Accrued liabilities............................... 1,149 2,311
Current portion - long-term debt.................. 1 10
------- -------
Total current liabilities....................... 5,293 5,342
Deferred income taxes............................... 26 21
------- -------
Total liabilities............................... 5,319 5,363
------- -------
Shareholders' equity:
Preferred stock................................... - -
Common stock...................................... 13,474 13,301
Retained earnings................................. 4,051 2,597
------- -------
Total shareholders' equity...................... 17,525 15,898
------- -------
Total liabilities and shareholders' equity...... $22,844 $21,261
------- -------
------- -------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
2
<PAGE>
THRUSTMASTER, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1997 1996 1997 1996
------ ------ ------- -------
<S> <C> <C> <C> <C>
Revenues...................................$10,509 $6,931 $23,930 $15,745
Cost of goods sold......................... 6,548 4,142 14,814 9,727
------- ------ ------- -------
Gross profit............................... 3,961 2,789 9,116 6,018
Operating expenses:
Research and engineering............... 603 469 1,807 1,352
Selling, general and administrative.... 2,201 1,461 5,349 3,680
------- ------ ------- -------
Total operating expenses................... 2,804 1,930 7,156 5,032
------- ------ ------- -------
Income from operations..................... 1,157 859 1,960 986
Interest income............................ 105 111 284 324
------- ------ ------- -------
Income before income taxes................. 1,262 970 2,244 1,310
Provision for income taxes................. 426 344 790 472
------- ------ ------- -------
Net income.................................$ 836 $ 626 $ 1,454 $ 838
------- ------ ------- -------
------- ------ ------- -------
Net income per share.....................$ 0.17 $ 0.14 $ 0.30 $ 0.18
------- ------ ------- -------
------- ------ ------- -------
Weighted average shares outstanding...... 4,943 4,589 4,807 4,582
------- ------ ------- -------
------- ------ ------- -------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
THRUSTMASTER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income.................................................. $1,454 $ 838
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation............................................ 403 411
Deferred income taxes................................... (25) (24)
Changes in assets and liabilities:
Accounts receivable................................... 185 (1,741)
Inventories........................................... (1,740) 529
Prepaid expenses and other assets..................... (245) 71
Payables and accrued liabilities...................... 74 885
------ ------
Net cash provided by operating activities........... 106 969
Cash flows from investing activities:
Purchase of plant and equipment............................. (1,200) (687)
------ ------
Cash flows from financing activities:
Payment on long-term debt................................... (9) (9)
Proceeds from issuance of common stock...................... 59 70
------ ------
Net cash provided by financing activities........... 50 61
Net increase (decrease) in cash and cash
equivalents................................. (1,044) 343
Cash and cash equivalents, beginning of period................ 6,420 8,090
------ ------
Cash and cash equivalents, end of period...................... $5,376 $8,433
------ ------
------ ------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
THRUSTMASTER, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Common Stock
----------------- Retained
Shares Amount Earnings
------ ------ --------
<S> <C> <C> <C>
Balance, January 1, 1997........................ 4,240 $13,301 $2,597
Stock options exercised......................... 41 59 --
Tax benefits from stock options exercised....... -- 114 --
Net income...................................... -- -- 1,454
----- ------- ------
Balance, September 30, 1997..................... 4,281 $13,474 $4,051
----- ------- ------
----- ------- ------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE>
THRUSTMASTER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
NOTE 1 -- Basis of Presentation
The accompanying consolidated financial statements include the accounts
of ThrustMaster, Inc., and its wholly-owned subsidiary, ThrustMaster Foreign
Sales Corporation, and have been prepared by the Company without audit and in
conformity with generally accepted accounting principles for interim
financial information. Accordingly, certain financial information and
footnotes have been omitted or condensed. In the opinion of management, the
unaudited condensed consolidated financial statements include all necessary
adjustments (which are of a normal and recurring nature) for the fair
presentation of the results of the interim periods presented. These
financial statements should be read in conjunction with the Company's audited
financial statements for the year ended December 31, 1996. The results of
operations for the periods presented are not necessarily indicative of the
results that may be expected for the entire fiscal year.
NOTE 2 -- Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market. Inventories are as follows (in thousands):
September 30, December 31,
1997 1996
------------- ------------
Raw materials...................... $1,260 $ 762
Work in progress................... 87 90
Finished goods..................... 3,953 2,708
------ ------
$5,300 $3,560
------ ------
------ ------
NOTE 3 -- Impact of Recently Issued Accounting Standards
During February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
("SFAS 128") and Statement of Financial Accounting Standards No. 129,
"Disclosure of Information about Capital Structure "(SFAS 129"), which are
effective for the Company's 1997 fiscal year. The Company's management has
studied the implications of SFAS 128 and SFAS 129, and based on the initial
evaluation, does not expect the adoption to have a material impact on the
Company's financial condition or results of operations.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the
percentage of revenues represented by certain items included in the Company's
Consolidated Statements of Income:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------ ------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues................................... 100.0% 100.0% 100.0% 100.0%
Cost of goods sold......................... 62.3 59.8 61.9 61.8
----- ----- ----- -----
Gross profit............................... 37.7 40.2 38.1 38.2
Operating expenses:
Research and engineering............... 5.7 6.8 7.5 8.6
Sales, general and administrative...... 21.0 21.0 22.4 23.3
----- ----- ----- -----
Total operating expenses................... 26.7 27.8 29.9 31.9
----- ----- ----- -----
Income from operations..................... 11.0 12.4 8.2 6.3
Interest income............................ 1.0 1.6 1.2 2.0
----- ----- ----- -----
Income before income taxes................. 12.0 14.0 9.4 8.3
Provision for income taxes................. 4.0 5.0 3.3 3.0
----- ----- ----- -----
Net income................................. 8.0% 9.0% 6.1% 5.3%
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1997 TO THE THREE MONTHS
ENDED SEPTEMBER 30, 1996
Revenues for the three months ended September 30, 1997 were $10,509,000,
an increase of $3,578,000, or 51.6%, compared to $6,931,000 for the three
months ended September 30, 1996. Revenues grew primarily due to increased
demand for the Company's core products and additional sales into the
warehouse-club distribution channel.
Gross profit for the three months ended September 30, 1997 was
$3,961,000, an increase of $1,172,000, or 42.0%, compared to $2,789,000 for
the three months ended September 30, 1996. As a percentage of revenues, the
gross profit margin percentage was 37.7% for the three months ended September
30, 1997 and 40.2% for the three months ended September 30, 1996. The gross
profit margin percentage decreased primarily because of a higher percentage
of sales into the warehouse-club distribution channel, which yield somewhat
lower gross margins, and lower wholesale prices offered on one of the
Company's automobile racing controllers.
7
<PAGE>
Research and engineering expenses were $603,000 for the quarter ended
September 30, 1997, an increase of $134,000, or 28.6%, compared to $469,000
for the quarter ended September 30, 1996. The increase resulted primarily
from additional expenses incurred in development of the Company's new
products. As a percentage of revenues, research and engineering expenses
were 5.7% for the quarter ended September 30, 1997, compared to 6.8% for the
quarter ended September 30, 1996. The Company intends to hire additonal
research and engineering personnel to the extent reasonably permitted by
increased revenues.
Selling, general and administrative expenses were $2,201,000 for the
three months ended September 30, 1997, an increase of $740,000, or 50.7%,
compared to $1,461,000 for the quarter ended September 30, 1996. The
increase was primarily due to higher selling expenses associated with higher
revenues, increases in other merchandising and marketing expenses, and the
funding of the Company's further expansion into Europe. As a percentage of
revenues, selling, general and administrative expenses were 21.0% for each of
the quarters ended September 30, 1997 and 1996.
Interest income of $105,000 and $111,000 for the three-month periods
ended September 30, 1997 and 1996, respectively, was derived from the
investment of the cash balances of the Company.
The provision for income taxes for the three-month period ended
September 30, 1997 reflects an effective tax rate of 33.8%, compared to an
effective tax 35.5% for the three-month period ended September 30, 1996. The
effective tax rate was lower in the quarter ended September 30, 1997 as a
result of a one-time state tax credit in 1997.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1997 TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996
Revenues for the nine months ended September 30, 1997 were $23,930,000,
an increase of $8,185,000, or 52.0%, compared to $15,745,000 for the nine
months ended September 30, 1996. Revenues grew primarily due to increased
demand for the Company's core products and additional sales into the
warehouse-club distribution channel.
Gross profit for the nine months ended September 30, 1997 was
$9,116,000, an increase of $3,098,0000, or 51.5%, compared to $6,018,000 for
the nine months ended September 30, 1996. As a percentage of revenues, the
gross profit margin percentage was nearly identical for the nine months ended
September 30, 1997 and 1996.
8
<PAGE>
Research and engineering expenses were $1,807,000 for the nine months
ended September 30, 1997, an increase of $455,000, or 33.7%, compared to
$1,352,000 for the nine months ended September 30, 1996. The increase
resulted primarily from additional expenses incurred in development of the
Company's new products. As a percentage of revenues, research and engineering
expenses were 7.5% for the nine months ended September 30, 1997, compared to
8.6% for the nine months ended September 30, 1996. The Company intends to
hire additional research and engineering personnel to the extent reasonably
permitted by any increased revenues.
Selling, general and administrative expenses were $5,349,000 for the
nine months ended September 30, 1997, an increase of $1,669,000, or 45.4%,
compared to $3,680,000 for the nine months ended September 30, 1996. The
increase was primarily due to higher amounts of selling expenses associated
with higher revenues, increases in other merchandising and marketing expenses
and the funding of the Company's further expansion into Europe. As a
percentage of revenues, selling, general and administrative expenses
decreased to 22.4% for the nine months ended September 30, 1997, compared to
23.3% for the nine months ended September 30, 1996.
Interest income of $284,000 and $324,000 for the nine-month periods
ended September 30, 1997 and 1996, respectively, was derived from the
investment of the cash balances of the Company.
The provision for income taxes for the nine-month period ended September
30, 1997 reflects an effective tax rate of 35.2%. This compares to a tax
rate of 36.0% for the nine-month period ended September 30, 1996. The
effective tax rate was lower in the quarter ended September 30,
1997 as a result of a one-time state tax credit in 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its activities to date with a combination of
cash flow from operations, borrowed funds, and proceeds from the sale of
equity securities.
The Company has a line of credit pursuant to which it may borrow up to
the lesser of $1.0 million or 75% of eligible receivables. Borrowings are
payable on demand and bear interest at a fluctuating rate equal to the prime
rate (8.5% at November 1, 1997) or a rate based on LIBOR. The Company's bank
has increased the line of credit to $5.0 million through January 31, 1998 to
meet the Company's seasonal working capital needs during the fourth quarter.
The line of credit is scheduled for review in July 1998 and is secured by
substantially all the Company's assets. The line of credit requires the
Company to maintain certain working capital and debt-to-equity ratios. At
September 30, 1997 there were no borrowings outstanding under the facility
and the Company was in compliance with all loan covenants. The Company
expects to borrow approximately $4.0 million under the line of credit by the
end of 1997.
9
<PAGE>
Net cash provided by operating activities was $106,000 for the nine
months ended September 30, 1997, resulting primarily from net income of
$1,454,000, an increase in inventories of $1,740,000, and depreciation of
$403,000.
At September 30, 1997, the Company had cash and cash equivalents of
$5,376,000 and working capital of $15,642,000.
Capital expenditures for the nine-month period ended September 30, 1997
were $1,200,000, compared to $687,000 for the same period in the prior year.
These expenditures were primarily for new product tooling, manufacturing
equipment and computer equipment.
The Company does not intend to pay cash dividends to the holders of
Common Stock and intends to retain future earnings to finance the expansion
and development of its business.
Although no current understandings or negotiations exist with respect
thereto, the Company may in the future enter into joint ventures or make
acquisitions in connection with the development and marketing of its
products, and may require additional funds in connection therewith, depending
upon the circumstances.
The Company believes that available funds and expected cash flow to be
generated from operations, together with any borrowings under its credit
facility will be adequate to meet the Company's anticipated cash needs for its
present operations through 1998.
This Report on Form 10-Q contains forward-looking statements (as defined
in Section 21E of the Securities Exchange Act of 1934, as amended) which
reflect management's current views with respect to future events and
financial performance. The following important factors, among others, could
affect the Company's actual results and could cause such results to differ
materially from those expressed in the Company's forward-looking statements:
product commercialization and technological change, competition, dependence
on software developers and publishers, variability in periodic operating
results, seasonality, customer concentration, dependence upon key personnel,
proprietary rights, offshore manufacturing, dependence upon sole or limited
suppliers, dependence upon independent distributors and sales
representatives, international sales, lack of industry diversification and
governmental regulation and other risks detailed from time to time in the
Company's SEC reports, including the Company's Report on Form 10-K for the
fiscal year December 31, 1996.
10
<PAGE>
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Number Description
------ -----------
*3.1 Articles of Incorporation, dated July 23, 1990; Articles
of Amendment, dated December 15, 1990; Articles of
Amendment, dated July 7, 1992; Articles of Amendment,
dated July 7, 1993; Articles of Amendment , dated
December 14, 1994
**3.2 Amended and Restated Bylaws
*4.1 Description of Capital Stock contained in the Articles of
Incorporation and Amendments thereto (See Exhibit 3.1)
**4.2 Description of Rights of Security Holders contained in
the Amended and Restated Bylaws (See Exhibit 3.2)
*4.3 Form of Certificate for Shares of Common Stock
*4.4 Form of Representatives' Warrant Agreement among the
Company, Cruttenden Roth and Black & Company, Inc.
*10.1 Consulting Agreement, dated December 1, 1993, between the
Company and BOCAR, Inc.
*10.3 Directors' Nonqualified Stock Option Plan, dated July 19,
1994
*10.4 1994 Stock Option Plan, dated July 19, 1994
**10.5 Letter agreement, dated May 16, 1996 from United States
National Bank of Oregon to the Company regarding a
revolving line of credit
*10.6 Voicecom Development Agreement, dated November 4, 1994,
between the Company and Advanced Protocol Systems, Inc.
*10.7 1990 Stock Option Plan (incorporated by reference to
Exhibit 4.3 to the Registration Statement on Form S-8
filed on September 5, 1995 (File No. 33-93082))
**10.8 Leases, dated March 13, 1996, between Pacific Realty
Associates, L.P. and the Company, as amended
**10.9 Summary of 1997 Bonus Program
11.1 Statement re Computation of Per Share Earnings
11
<PAGE>
27 Financial Data Schedule
_________________________
*Incorporated by reference to the same exhibit number from the Registration
Statement on Form SB-2 filed on January 5, 1995, as amended on February 7,
1995, and February 24, 1995 (File No. 33-88252-LA).
**Incorporated by reference to the same exhibit number to the Company's
Annual Report on Form 10-K for the year ended December 31, 1996.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the period for which this
report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THRUSTMASTER, INC.
Date: November 13, 1997 By /s/ Kent E. Koski
-----------------------------
Kent E. Koski
Vice President of Finance and
Administration, Chief Financial
Officer
12
<PAGE>
EXHIBIT 11.1
THRUSTMASTER, INC.
STATEMENTS REGARDING COMPUTATION
OF PER SHARE EARNINGS
(In thousands, except net income per share)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average number of
common shares outstanding........... 4,276 4,205 4,254 4,163
Common stock equivalents
arising from stock options.......... 667 384 553 419
----- ----- ----- -----
4,943 4,589 4,807 4,582
----- ----- ----- -----
----- ----- ----- -----
Net income............................. $ 836 $ 626 $1,454 $ 838
----- ----- ----- -----
----- ----- ----- -----
Net income per share................... $0.17 $0.14 $ 0.30 $0.18
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
ThrustMaster, Inc. Consolidated statements of Income for the period ended
September 30, 1997; and ThrustMaster Inc. Consolidated Balance Sheet at
September 30, 1997 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 5,376
<SECURITIES> 0
<RECEIVABLES> 9,635
<ALLOWANCES> 0
<INVENTORY> 5,300
<CURRENT-ASSETS> 20,935
<PP&E> 3,714
<DEPRECIATION> 1,836
<TOTAL-ASSETS> 22,844
<CURRENT-LIABILITIES> 5,293
<BONDS> 0
0
0
<COMMON> 13,474
<OTHER-SE> 4,051
<TOTAL-LIABILITY-AND-EQUITY> 22,844
<SALES> 23,930
<TOTAL-REVENUES> 23,930
<CGS> 14,814
<TOTAL-COSTS> 14,814
<OTHER-EXPENSES> 7,156
<LOSS-PROVISION> 6
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,244
<INCOME-TAX> 790
<INCOME-CONTINUING> 1,454
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,454
<EPS-PRIMARY> .30
<EPS-DILUTED> .30
</TABLE>
