<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
(x) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the year ended December 31, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
Commission File Number 0-25520
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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 OR 97124-5839
(Address of principal executive offices, including zip code)
(503) 615-3200
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock
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 III of this Form 10-K or any amendment to the
Form 10-K. (x)
As of March 10, 1998, the aggregate market value of voting stock held by
non-affiliates of the Registrant based on the last sales price as reported by
The NASDAQ National Market was $29,218,287.
As of March 10, 1998, the Registrant had 4,296,345 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for the fiscal year
ended December 31, 1997 are incorporated by reference into Part III.
The index to Exhibits appears on page 36.
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<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
ThrustMaster, Inc. (the "Company") designs, develops, manufactures and
markets a diversified line of innovative and technologically advanced game
controllers for the home personal computer ("PC") market. The Company has
established ThrustMaster-Registered Trademark- as a brand name recognized for
quality, value, durability and ease of use. ThrustMaster products enhance the
enjoyment of the PC entertainment experience and appeal to a wide variety of
users, from occasional game players to avid enthusiasts. The Company's
products include racing wheels, joysticks, game pads and flight simulation
controllers. ThrustMaster products are available in over 5,000 retail outlets
in North America and Europe.
Working with leading software publishers, such as Electronic Arts, Inc.,
Activision, Inc., Sierra On-Line, Inc., GT Interactive Software Corp. and
Virgin Interactive Entertainment, Inc., the Company often bundles its game
controllers with popular software titles. The Company offers a variety of
bundled game controller packages which allow for differentiation among
retailers that carry the Company's products. The Company also utilizes
recognized brand names, such as NASCAR-Registered Trademark-, TOP GUN and
NASA, to enhance consumer appeal.
INDUSTRY BACKGROUND
Over the last several years, significant technological advances in home
PCs, such as improvements in processor speeds and graphics capabilities, have
enabled software developers to create increasingly sophisticated
entertainment programs with real-time interaction that offer greater realism
and excitement. Today's PCs generally include hardware enhancements such as
CD-ROM, 3-D graphics and high-definition sound capabilities. As
high-performance PCs have become more affordable, the installed base of home
PCs has steadily increased, and as a result, the home PC has become a viable
entertainment platform. Industry analysts expect significant growth in sales
of both home PCs and entertainment software titles. The Company believes that
sales of game controllers are directly correlated with sales of both PCs and
entertainment software titles.
PRODUCTS
The Company's products include racing wheels, joysticks, game pads and
flight simulation controllers. The Company closely monitors trends and
consumer preferences in the PC entertainment software market, and offers a
broad line of competitively priced products at various price points
Racing Wheels.
The Company's introduction in 1994 of its Formula T1 driving control,
consisting of a racing wheel, console, and brake and accelerator pedals, helped
create the PC racing wheel market. The Company later introduced the Formula T2
and the Grand Prix 1 racing wheels.
After signing a licensing agreement with NASCAR, the foremost sanctioning
body of stock car racing in North America, the Company introduced the NASCAR Pro
Racing Wheel in mid-1997. NASCAR racing is currently one of the fastest growing
spectator sports in the United
<PAGE>
States, attracting 10.5 million visitors and 150 million television viewers
each year, according to NASCAR. In Europe, a version of this product is
marketed as the Formula 1 Racing Wheel. The Company holds a license from
Formula One Administration Limited, a leader in European motor sports, to use
the "Formula 1" name and logo for its racing wheels.
Joysticks.
The Company offers a line of joysticks priced to appeal to different
consumers in the PC entertainment market. The Company's joysticks offer a rich
set of features that enhance the combat experience found in today's action and
adventure games. These products include the TOP GUN joystick, the X-Fighter
joystick, and the Millennium 3D Inceptor, introduced during the third quarter of
1997. The Millennium 3D Inceptor is modeled after the hand controller found in
the NASA Space Shuttle. This unique product provides a complete 3D game control
system, with throttle, programmable buttons and three axes of movement.
GamePads.
In October 1997, the Company began shipping the RAGE 3D game pad to address
demand created by the popularity of action and multi-player PC software titles.
The RAGE 3D game pad combines ergonomic design, sophisticated technology and a
variety of programmable buttons and triggers to offer users maximum control in
action, adventure and sports PC games.
Flight Simulation Controllers.
The Company manufacturers a broad line of award-winning flight products
designed to simulate the equipment found in high-performance aircraft, including
flight sticks, throttle controls and rudder pedals. These products, the
Company's initial offerings, established the ThrustMaster name for realism and
quality and offer flight simulation enthusiasts a realistic PC interactive
flight control system.
PRODUCT DEVELOPMENT
The Company currently employs 24 full-time engineers, and supplements its
product development capabilities by contracting with a leading industrial design
firm. The Company devotes significant resources to product enhancements and new
product development. During 1995, 1996, and 1997, the Company's research and
engineering expenses were $1,845,000, $2,105,000 and $2,697,000, respectively.
In 1997, the Company began shipping products incorporating its proprietary
"DirectConnect" technology. This technology broadens communications bandwidth
and enables multi-player use without degradation of performance. In addition,
the Company's Windows 95 software interface simplifies the connection and
configuration of controllers, creating a more intuitive environment.
During 1997, PC manufacturers began shipping computers equipped with the
Universal Serial Bus ("USB") technology, a "plug-and-play" capability. USB
provides over 10 times the throughput of a standard serial port. The 1998 update
of Microsoft's Windows operating system is expected to provide general access to
the benefits of USB technology. ThrustMaster initially began shipping
USB-enabled controllers to hardware developers in 1996 and shipped a small
volume of such controllers to its OEM customers in 1997.
<PAGE>
ThrustMaster plans to incorporate force-feedback technology in certain of
its future products. Force-feedback technology combines software and hardware
elements to create a greater sense of realism during game play. For example, a
steering wheel could become less reactive when a player's car drives over ice,
or vibrate when crossing rough terrain.
SALES, DISTRIBUTION AND MARKETING
The Company's products are principally sold directly through retail outlets
that purchase the products directly from the Company or through third-party
distributors. ThrustMaster products are available in over 5,000 retail outlets
in North America and Europe.
ThrustMaster products are distributed in over 50 countries through
international distributors and through the Company's direct sales efforts in the
United States, the United Kingdom and Germany.
In addition to retail outlets, the Company actively pursues business through
OEM arrangements. The Company has sold its products on an OEM basis to Compaq
Computer Corp., NEC, Micron Electronics, Inc. and Sierra On-Line, Inc. Although
OEM sales currently account for a relatively minor portion of the Company's
revenues, management believes that these sales will account for an increasing
percentage of its revenues in the future.
Working with leading software publishers, such as Electronic Arts, Inc.,
Activision, Inc., Sierra On-Line, Inc., and GT Interactive Software Corp.,
the Company often bundles its game controllers with popular software titles.
These bundling arrangements enable the Company to deliver increased value to
consumers and to differentiate its products from competing products. The
Company offers a variety of bundled game controller packages which allow for
differentiation among retailers that carry the Company's products. The
Company also utilizes recognized brand names, such as NASCAR, TOP GUN and
NASA, to enhance consumer appeal.
The Company anticipates that a significant portion of its revenues will
continue to be derived from a limited number of key customers. In 1997, Sam's
Club and Best Buy Co., Inc. accounted for an aggregate of approximately 22.5% of
the Company's revenue. The loss of one or more of its key customers or any
significant reduction in orders by such customers could have a material adverse
effect on the Company's business, financial condition and results of operations.
MANUFACTURING
Over the past three years, ThrustMaster has moved virtually all
manufacturing operations offshore on a contract basis in an effort to obtain
manufacturing cost efficiencies. Although the Company has continued to gain
experience and confidence in offshore manufacturing, the use of offshore
manufacturing is subject to the customary risks of doing business abroad,
including, among others, fluctuations in the value of currencies, tariffs,
export duties, work stoppages and political instability. For 1997, approximately
90% of the Company's products were manufactured through a single vendor
utilizing factories located in Taiwan and the Guangdong province of China.
Manufacturing by such vendor at one factory accounted for more than half of the
Company's production. If any of the manufacturing facilities utilized by the
Company becomes unavailable, or if the manufacturing operations at these
facilities are slowed, interrupted or terminated, the Company's business,
financial condition and results of operations could be materially and adversely
affected. The Company plans to continue to manufacture its products offshore and
plans
<PAGE>
to expand its relationships with other manufacturers. The Company believes
that the manufacturing resources available to it are adequate to meet current
and foreseeable demand for its products.
CUSTOMER SERVICE
Management believes that its commitment to provide high-quality customer
service is a key factor in its success and has increased the brand loyalty of
its customers. The Company provides free technical support to the end users of
its products by telephone, the Internet and through bulletin boards on many of
the major computer on-line network services. The Company uses customer feedback
as a source of ideas for product improvements and enhancements. ThrustMaster
products are covered by a one-year warranty against defects.
COMPETITION
The markets in which the Company participates are highly competitive, and
the Company expects that it will face increased competition in the future. The
Company's principal competitors include Microsoft Corporation, Advanced Gravis
Computer Technology Ltd., CH Products, Logitech International S.A. and InterAct
Accessories, many of which have substantially greater financial, technical and
marketing resources than the Company.
The Company believes that the principal competitive factors in the market
for PC game controllers include price, quality, product features, ease of use,
durability, reputation and compatibility with PC games. Increased competition
has in the past created, and may in the future create, margin pressures. The
Company believes that its future growth will depend principally on its ability
to develop and introduce competitively priced new products with features that
are attractive to PC games users.
INTELLECTUAL PROPERTY
The Company regards certain aspects of its products as proprietary and
relies on a combination of copyright and trademark laws, patents, trade secrets,
confidentiality procedures and contractual provisions to protect its proprietary
rights. The Company holds utility patents and design patents and has filed
additional patent applications covering certain aspects of the Company's
proprietary technology. The issued patents expire during the period from October
2006 to September 2015. There can be no assurance that any patent applications
will result in issued patents, or that any patents now or hereafter issued will
not be challenged, invalidated or circumvented by others. There can be no
assurance that these patents will not be found to be invalid, or non-infringed
in judicial or administrative proceedings, should a dispute arise. Although the
Company believes that its products, processes and trademarks do not infringe on
the rights of others, third parties may assert infringement or other related
claims against the Company in the future. Any infringement claim or related
litigation against the Company, or any challenge to the validity of the
Company's own intellectual property rights, and the expense and effort of
defending the same, could materially and adversely affect the Company's
business, financial conditions and results of operations.
The Company believes that obtaining patent protection may provide some
benefits to the Company, but that product development and marketing capabilities
are of greater importance to the Company's business than patent protection. The
Company does not believe that its business is
<PAGE>
dependent on obtaining patent protection or successfully defending any
patents that may be obtained against infringement by others.
The continuing development of the Company's technology is dependent, in
part, on the knowledge and skills of its employees. To protect its rights to its
proprietary information, the Company requires key employees, consultants and
collaborators to enter into confidentiality agreements which prohibit the
disclosure of confidential information to persons unaffiliated with the Company.
These agreements may not provide meaningful protection for the Company's
technology or other confidential information in the event of any unauthorized
use, misappropriation or disclosure.
The Company has obtained several trademark registrations, including
"ThrustMaster," "Thrustware," "X-Fighter," "FLCS" and "FORMULA T1." Trademark
applications are pending in the United States with respect to other trade names
used by the Company, however, such applications may not result in trademark
registrations.
GOVERNMENT REGULATION
The Federal Communications Commission (the "FCC") regulates the emission of
radio frequency energy by various devices, including computers and computer
peripherals, under Part 15 of its rules promulgated pursuant to the Federal
Communications Act of 1934, as amended. Certain of the Company's products emit
radio frequency energy and are subject to authorization and assignment of an
identifier by the FCC prior to the sale of the devices. Government agencies in
certain foreign countries have also established rules which regulate the
electronic emissions of the Company's products. The Company believes that it has
complied with the requirements of the FCC and foreign governmental regulations
in countries where its products are sold in respect of its current products and
has instituted procedures to monitor compliance with respect to future products.
EMPLOYEES
As of December 31, 1997, the Company had a total of 117 full-time employees.
At times the Company supplements its workforce with temporary contract workers.
None of the Company's employees are represented by a labor union. The Company
has not experienced any work stoppages and considers its relations with its
employees to be good.
ITEM 2. PROPERTIES
The Company is headquartered in Hillsboro, Oregon, in approximately
60,000 square feet of leased space under two leases expiring in September
2003. The Company's sales and distribution facility in Surrey, England,
occupies approximately 16,000 square feet of space under a lease expiring in
September 2007. The Company believes that these facilities are adequate for
its immediately foreseeable needs and that suitable additional or alternative
space will be available on commercially reasonable terms if needed.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
From time to time the Company has been, and expects to continue to be,
subject to legal proceedings and claims in the ordinary course of its business.
Such claims, even if lacking merit, could result in the expenditure of
significant financial and managerial resources. The Company is not currently a
party to, nor is it aware of, any legal proceeding or claims that it believes
will have, individually or in the aggregate, a material adverse effect on the
Company or on its financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol "TMSR.". The following table sets forth the high and low closing sales
prices for the Common Stock for each quarter as reported on the Nasdaq National
Market for 1996 and 1997.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
1996
First quarter.................................................................................. $ 7.41 $ 3.52
Second quarter................................................................................. 6.92 4.00
Third quarter.................................................................................. 5.58 3.64
Fourth quarter................................................................................. 8.86 5.34
1997
First quarter.................................................................................. $ 8.98 $ 7.00
Second quarter................................................................................. 12.13 7.13
Third quarter.................................................................................. 18.00 11.00
Fourth quarter................................................................................. 17.63 11.75
</TABLE>
As of March 10, 1998, there were 4,296,345 shares of Common Stock
outstanding held by 98 holders of record.
The Company did not declare or pay cash dividends on its Common Stock during
1996 or 1997. On January 21, 1997, the Company declared a 3% stock dividend on
the Common Stock to holders of record as of February 14, 1997. The Company
currently intends to retain any future earnings to finance the expansion and
development of its business and does not anticipate paying cash dividends to the
holders of Common Stock. The payment of future cash dividends will be at the
sole discretion of the Company's Board of Directors and will depend on, among
other things, future earnings, capital requirements, the financial condition of
the Company and general business conditions. No financing agreements to which
the Company is a party or by which it is bound currently restrict the payment of
dividends on the Common Stock.
8
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data relating to the Company
should be read in conjunction with the Company's consolidated financial
statements and the related notes thereto, "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the other financial
information included herein. The selected financial data set forth below for the
Company as of December 31, 1996 and 1997 and for each of the three years in the
period ended December 31, 1997 are derived from the audited financial statements
included elsewhere herein. The selected financial data set forth below for the
Company as of December 31, 1993, 1994 and 1995 and for each of the two years in
the period ended December 31, 1994 are derived from the financial statements not
included elsewhere herein.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues.................................................... $ 8,214 $ 13,582 $ 19,415 $ 30,821 $ 45,494
Cost of goods sold.......................................... 4,290 8,007 11,815 19,592 28,839
--------- --------- --------- --------- ---------
Gross profit.............................................. 3,924 5,575 7,600 11,229 16,655
--------- --------- --------- --------- ---------
Operating expenses:
Research and engineering.................................. 1,022 1,115 1,845 2,105 2,697
Selling, general and administrative....................... 1,559 2,689 4,111 5,961 9,450
--------- --------- --------- --------- ---------
Total operating expenses................................ 2,581 3,804 5,956 8,066 12,147
--------- --------- --------- --------- ---------
Income from operations...................................... 1,343 1,771 1,644 3,163 4,508
Interest income............................................. -- -- 404 466 304
--------- --------- --------- --------- ---------
Income before income taxes.................................. 1,343 1,771 2,048 3,629 4,812
--------- --------- --------- --------- ---------
Provision for income taxes(1)............................... 456 633 687 1,370 1,615
--------- --------- --------- --------- ---------
Net income(1)............................................... $ 887 $ 1,138 $ 1,361 $ 2,259 $ 3,197
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income per share(1)
Basic..................................................... $ 0.42 $ 0.51 $ 0.37 $ 0.54 $ 0.75
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Diluted................................................... $ 0.36 $ 0.42 $ 0.34 $ 0.51 $ 0.69
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average shares outstanding
Basic..................................................... 2,129 2,244 3,647 4,182 4,268
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Diluted................................................... 2,473 2,684 4,060 4,468 4,660
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital............................................. $ 1,022 $ 1,873 $ 12,276 $ 14,806 $ 17,197
Total assets................................................ 2,905 4,575 15,102 21,261 26,877
Total liabilities........................................... 1,574 1,885 1,791 5,363 7,597
Total shareholders' equity.................................. 1,331 2,690 13,311 15,898 19,280
</TABLE>
(1) The provision for income taxes, net income and net income per share include
a pro forma income tax adjustment to reflect the Company as a C corporation,
rather than an S corporation, for federal and state income tax purposes for the
years ended December 31, 1993 and 1994, and to exclude the cumulative effect on
deferred taxes in 1995 related to the conversion from an S corporation to a C
corporation. See Notes 2 and 11 to Consolidated Financial Statements.
9
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
ThrustMaster designs, develops, manufactures and markets a diversified line
of innovative and technologically advanced game controllers for the home PC
market. The Company has established ThrustMaster-Registered Trademark- as a
brand name recognized for quality, value, durability and ease of use.
ThrustMaster products enhance the enjoyment of the PC entertainment experience
and appeal to a wide variety of users, from occasional game players to avid
enthusiasts. The Company's products include racing wheels, joysticks, gamepads
and flight simulation controllers. ThrustMaster products are available in over
5,000 retail outlets in North America and Europe.
From its inception in 1990 through the third quarter of 1994, the Company
derived a majority of its revenues from sales of flight simulation controllers
to serious PC game enthusiasts. In the fourth quarter of 1994, the Company
expanded its product line to include racing wheels. While the Company continues
to offer a wide variety of game controllers, racing wheels now account for a
majority of the Company's revenues. The Company believes that it is the leading
producer of racing wheels for the PC entertainment market.
In mid-1996, the Company increased its foreign presence by contracting with
a distributor in the United Kingdom and with an independent sales representative
to market its products to major retailers in Germany. In 1997, the Company
opened its own distribution facility in the United Kingdom and hired sales and
administrative staff to support its future growth in Europe. Sales outside North
America accounted for approximately 39% of the Company's revenues in 1996 and
approximately 30% of revenues in 1997. The Company intends to continue to expand
its presence in foreign markets, primarily in Europe, by entering into
relationships with additional distributors and sales representatives. See Note 3
to Consolidated Financial Statements.
Over the past three years, ThrustMaster moved virtually all manufacturing
operations offshore on a contract basis in an effort to obtain manufacturing
cost efficiencies. The Company has continued to gain experience and confidence
in offshore manufacturing. During 1997, approximately 90% of the Company's
products were manufactured through a single vendor utilizing factories in Taiwan
and the Guangdong province of China. Manufacturing by such vendor at one factory
accounted for more than half of the Company's production.
The Company typically ships its products within 30 days of receipt of
customer orders. Substantially all of the Company's revenues in any quarter
result from orders received in that quarter. Accordingly, the Company generally
does not have significant backlog and believes that its backlog at any given
time is not a reliable indicator of future revenues or earnings.
The Company's business is seasonal, reflecting traditional retail
seasonality patterns. Sales in the retail PC game entertainment industry are
significantly higher in the fourth calendar quarter of each year than in the
preceding three quarters. In 1997, approximately 47% of the Company's revenues
were earned in the fourth quarter.
10
<PAGE>
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 included elsewhere herein.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Revenues................................................................................. 100.0% 100.0% 100.0%
Cost of goods sold....................................................................... 60.9 63.6 63.4
--------- --------- ---------
Gross profit............................................................................. 39.1 36.4 36.6
--------- --------- ---------
Operating expenses:
Research and engineering................................................................. 9.5 6.8 5.9
Selling, general and administrative...................................................... 21.1 19.3 20.8
--------- --------- ---------
Total operating expenses................................................................. 30.6 26.1 26.7
--------- --------- ---------
Income from operations................................................................... 8.5 10.3 9.9
Interest income.......................................................................... 2.0 1.5 .7
--------- --------- ---------
Income before income taxes............................................................... 10.5 11.8 10.6
Pro forma provision for taxes on income (1).............................................. 3.5 4.5 3.6
--------- --------- ---------
Net income (1)........................................................................... 7.0% 7.3% 7.0%
--------- --------- ---------
--------- --------- ---------
</TABLE>
(1) The provision for income taxes and net income include a pro forma income tax
adjustment to reflect the Company as a C corporation, rather than an S
corporation, for federal and state income tax purposes for the year ended
December 31, 1995. See Notes 2 and 11 to Consolidated Financial Statements.
COMPARISON OF YEARS ENDED DECEMBER 31, 1997 AND 1996
REVENUES. Revenues for 1997 were $45,494,000, an increase of $14,673,000,
or 47.6%, compared to $30,821,000 for 1996. Revenues increased primarily due to
significantly increased sales of the Company's existing products in the United
States and Europe, and higher sales due to the introduction of new products.
GROSS PROFIT. Gross profit for 1997 was $16,655,000, an increase of
$5,426,000, or 48.3%, compared to $11,229,000 for 1996. As a percentage of
revenues, the gross profit percentage was 36.6% for 1997 and 36.4% for 1996.
RESEARCH AND ENGINEERING EXPENSES. Research and engineering expenses were
$2,697,000 for 1997, an increase of $592,000, or 28.1%, compared to $2,105,000
in 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 decreased to 5.9% in 1997, compared to 6.8% in 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. Selling, general and
administrative expenses were $9,450,000 for 1997, an increase of $3,489,000, or
58.5%, compared to $5,961,000 for 1996. The increase resulted primarily from
higher sales and marketing expenses associated
11
<PAGE>
with greater revenues, and increases in other merchandising and marketing
expenses. Also included in selling, general and administrative expenses were
$297,000 of charges, associated with the cancellation of the Company's
proposed public offering in the fourth quarter of 1997. As a percentage of
revenues, selling, general and administrative expenses increased to 20.8% of
revenues in 1997, compared to 19.3% in 1996.
INTEREST INCOME. Interest income of $304,000 for 1997 and $466,000 for 1996
was derived from the investment of the cash balances of the Company.
INCOME TAXES. The provision for income taxes for 1997 reflects an effective
tax rate of 33.6%. This compares to an effective tax rate of 37.8% for 1996. The
decrease in the effective tax rate was due primarily to a lower effective state
tax rate due to a state tax credit, and higher research and experimentation tax
credit in 1997. See Notes 2 and 11 of Notes to Consolidated Financial
Statements.
COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1995
REVENUES. Revenues for 1996 were $30,821,000, an increase of $11,406,000,
or 58.7%, compared to $19,415,000 for 1995. Revenues increased primarily due to
significantly increased sales of the Company's existing products in Europe,
higher sales in the United States and the introduction of new products.
GROSS PROFIT. Gross profit for 1996 was $11,229,000, an increase of
$3,629,000, or 47.8%, compared to $7,600,000 for 1995. As a percentage of
revenues, the gross profit percentage was 36.4% for 1996, compared to 39.1% for
1995. The gross profit percentage declined primarily because the Company's later
product offerings generally had a lower gross margin percentage than the
Company's earlier products, and the Company incurred higher than normal amounts
of air freight in expediting delivery of certain products to meet additional,
unanticipated fourth quarter demand.
RESEARCH AND ENGINEERING EXPENSES. Research and engineering expenses were
$2,105,000 for 1996, an increase of $260,000, or 14.1%, compared to $1,845,000
in 1995. 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 decreased to 6.8% in 1996, compared to 9.5% in 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $5,961,000 for 1996, an increase of $1,850,000, or
45.0%, compared to $4,111,000 for 1995. The increase resulted primarily from
higher sales and marketing expenses. Sales and marketing expenses increased due
to higher amounts of selling expenses associated with greater revenues, and
increases in other merchandising and marketing expenses. As a percentage of
revenues, selling, general and administrative expenses decreased to 19.3% of
revenues in 1996, compared to 21.1% in 1995.
INTEREST INCOME. Interest income of $466,000 for 1996 and $404,000 for 1995
was derived from the investment of the cash balances of the Company.
INCOME TAXES. The provision for income taxes for 1996 reflects an effective
tax rate of 37.8%. This compares to a pro forma effective tax rate of 33.5% for
1995. The increase in the effective tax rate was due primarily to a lower
effective state tax rate for the Company which
12
<PAGE>
resulted from a state tax credit and to a higher research and experimentation
tax credit in 1995. See Notes 2 and 11 of Notes to Consolidated Financial
Statements.
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 revolving 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 or a rate based on LIBOR. From October 1997 through January 31, 1998, the
bank temporarily increased the line of credit to the lesser of $5.0 million or
60% of eligible receivables to meet the Company's seasonal working capital
needs. The line of credit is scheduled for review in July 1998 and is
collateralized by substantially all of the Company's assets. The line of credit
requires the Company to maintain certain working capital and debt-to-equity
ratios. At December 31, 1997, $1,110,000 was outstanding under the facility and
the Company was in compliance with all loan covenants.
Net cash used in operating activities was $5,482,000 in 1997, resulting
primarily from an increase in accounts receivable of $6,784,000, and inventories
of $3,414,000, offset by net income of $3,197,000, depreciation of $615,000, and
an increase in payables and accrued liabilities of $1,211,000. Cash used in
operations was $941,000 in 1996. Increases in accounts receivable of $6,923,000,
inventories of $1,034,000, payables and accruals of $3,857,000, and a decrease
in prepaids and other assets of $286,000 were the primary components of changes
in working capital for 1996. Cash provided from operations was $59,000 in 1995.
Increases in accounts receivable of $784,000, inventories of $1,572,000,
payables and accruals of $325,000, and a decrease in prepaids and other assets
of $346,000 were the primary components of changes in working capital for 1995.
At December 31, 1997, the Company had cash and cash equivalents of $449,000
and working capital of $17,197,000.
Capital expenditures for 1997, 1996, and 1995 were $1,653,000, $789,000, and
$753,000, respectively. Capital expenditures for December 31, 1997 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.
The Company has reviewed its computer systems in order to evaluate necessary
modifications for the year 2000. The Company does not anticipate that it will
incur material expenditures to complete any such modifications and does not
anticipate any significant disruptions to its operations.
The Company believes that available funds and expected cash flow to be
generated from operations, together with any borrowings under its line of credit
will be adequate to meet the Company's anticipated cash needs through the end of
1998. If the cash flow from such sources is insufficient, if the Company makes
acquisitions or enters into joint ventures, or if working capital requirements
are greater than anticipated, the Company could be required to raise additional
funds.
13
<PAGE>
If the Company has insufficient funds for its needs, the Company may not
be able to raise additional funds on favorable terms, if at all, or may not be
able to do so on a timely basis.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
During 1997, the Financial Accounting Standards Board issued SFAS No. 130
and SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information." These standards will become effective for the Company's 1998
fiscal year. SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. SFAS No. 131 changes current practice by establishing a
new framework on which to base segment reporting (referred to as the
"management" approach) and also requires interim reporting of segment
information. Management is currently assessing the impact of the implementation
of these standards on the consolidated financial statements of the Company.
FORWARD LOOKING INFORMATION
This report on Form 10-K, including the foregoing discussion in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and other reports hereafter filed by the Company with the
Securities and Exchange Commission may contain 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. These forward-looking statements are subject to certain risks and
uncertainties, including, but not limited to, the following:
14
<PAGE>
NEW PRODUCTS AND TECHNOLOGICAL CHANGE
The Company believes that its future growth will depend on its ability to
develop and introduce new products that keep pace with technological
developments, maintain and enhance its existing product line, respond to
evolving customer preferences, and achieve market acceptance. The Company
occasionally has experienced, and may in the future experience, delays in the
development and introduction of new products. The success of new products and
product enhancements depends on a variety of factors, including product
selection and specification, timely and efficient completion of product design,
cost-effective implementation of manufacturing and assembly processes, and
effective sales and marketing efforts through the Company's distribution
channels. Any failure by the Company to anticipate or respond adequately to
technological developments or customer preferences, or any significant delays in
product development or introduction, could have a material adverse effect on the
Company's business, financial condition and results of operations.
COMPETITION
The markets in which the Company participates are highly competitive, and
the Company expects that it will face increased competition in the future. The
Company's principal competitors include Microsoft Corporation, Advanced Gravis
Computer Technology, Ltd., CH Products, Logitech International S.A. and InterAct
Accessories, many of which have substantially greater financial, technical and
marketing resources than the Company. The Company believes that the principal
competitive factors in the market for PC game controllers include price,
quality, product features, ease of use, durability, reputation and compatibility
with PC games. The Company's competitors could hinder sales and market
acceptance of the Company's products by developing products that are more
appealing than the Company's products or that render the Company's technology
and products obsolete or noncompetitive. Moreover, increased competitive
pressure could lead to intensified price-based competition, which has in the
past created, and could in the future create, margin pressures and which could
have a material adverse effect on the Company's business, financial condition
and results of operations.
OFFSHORE MANUFACTURING; DEPENDENCE ON MANUFACTURING CONTRACTORS
Virtually all of the Company's products are manufactured in China and Taiwan
by independent contractors. The Company's use of offshore manufacturing is
subject to the customary risks of doing business abroad, including fluctuations
in the value of currencies, tariffs, export duties, quotas, restrictions on the
transfer of funds, work stoppages and political instability.
For 1997, approximately 90% of the Company's products were manufactured
through a single vendor utilizing factories located in Taiwan and the Guangdong
province of China. Manufacturing by such vendor at one factory accounted for
more than half of the Company's production. If any of the manufacturing
facilities utilized by the Company become unavailable, or if the manufacturing
operations at these facilities are slowed, interrupted or terminated, the
Company's business, financial condition and results of operations could be
materially and adversely affected. The Company may not be able to enter into
alternative third-party manufacturing arrangements on terms satisfactory to the
Company, in a timely fashion, or at all, if alternative arrangements are needed.
In addition, although the Company seeks to control the quality of its products
manufactured offshore, quality problems have occasionally arisen, and may in the
future arise, that are beyond the Company's direct control. The use of
independent manufacturing
15
<PAGE>
contractors to manufacture and assemble products offshore also has required
the Company to increase production lead times and has reduced the Company's
ability to adjust production in response to short-term market conditions.
SEASONALITY; VARIABILITY IN PERIODIC OPERATING RESULTS
The Company's business is seasonal, reflecting traditional retail
seasonality patterns. Sales in the retail PC game entertainment industry are
significantly higher in the fourth calendar quarter of each year than in each of
the preceding three quarters. In 1997, nearly 47% of the Company's revenues were
earned in the fourth quarter. In addition to seasonality, the Company is likely
to experience significant fluctuations in future periodic operating results due
to a number of factors, including the size or timing of customer orders, delays
in product enhancements and new product introductions by the Company, quality
control difficulties, market acceptance of new products, product returns,
customer order deferrals in anticipation of new products or enhancements,
reduction in demand for existing products as a result of new product
introductions by the Company or others, and general economic conditions. Any of
these factors could cause quarterly or other periodic operating results to vary
significantly from prior periods. The Company's customers generally order on an
as-needed basis, and the Company typically does not have a significant order
backlog at the beginning of each quarter. Because quarterly revenues are
dependent largely on the volume and timing of orders received during such
quarter, which may be difficult to forecast, and the Company's operating
expenses are based in part on its estimate of future revenues, the Company may
be unable to adjust its spending in a timely manner to compensate for a
shortfall in revenues.
POTENTIAL INABILITY TO MANAGE FUTURE ACQUISITIONS
The Company intends to supplement its internal growth through the
acquisition of complementary product lines and businesses. The Company's
management has limited experience in identifying, completing, and integrating
acquisitions. The Company's ability to grow through acquisitions depends on,
among other things, the Company's ability (i) to identify complementary product
lines or businesses, (ii) to acquire them on terms that management considers
attractive, and (iii) to integrate acquired complementary product lines or
businesses into its organization. Any acquisitions would be accompanied by the
risks commonly encountered in such transactions, including difficulties
associated with assimilating the personnel and operations of an acquired
business, the Company's potential inability to achieve expected financial
results or strategic goals for the acquired product line or business, the
potential disruption of the Company's ongoing business, and the diversion of
management and other Company resources. The Company has not identified any
specific acquisition candidate. The Company may not be able to identify
acquisition opportunities or to successfully overcome the risks and challenges
encountered in completing and integrating such acquisitions. The Company's
failure to implement its acquisition strategy could reduce the Company's
financial performance. The Company's failure to execute successfully its
acquisition strategy could have a material adverse effect on the Company's
business, financial condition and results of operations.
CUSTOMER CONCENTRATION
The Company anticipates that a significant portion of the Company's revenues
and accounts receivable will continue to be derived from a limited number of key
customers. In 1997, two customers accounted for an aggregate of approximately
22.5% of the Company's revenues. The loss of one or more of its key customers or
any significant reduction in orders by such
16
<PAGE>
customers could have a material adverse effect on the Company's business,
financial condition and results of operations.
DEPENDENCE UPON KEY PERSONNEL
The Company's future success depends to a significant extent on the
continued service of its key research and development, manufacturing,
management and marketing and sales personnel. Competition for such employees
is intense, and the Company may be unable to attract, motivate and retain
highly qualified employees. The Company does not have employment or
non-competition agreements with, or maintain key man life insurance for, any
of its employees. Any failure to attract, motivate or retain key Company
personnel could have a material adverse effect on the Company's business,
financial condition and results of operations.
INTELLECTUAL PROPERTY RIGHTS
The Company regards certain aspects of its products as proprietary and
relies on a combination of copyright and trademark laws, patents, trade secrets
and confidentiality procedures and agreements to protect its proprietary rights.
Despite the Company's efforts to safeguard its proprietary rights, it may not be
successful in doing so or the Company's competitors may independently develop or
patent technologies that are substantially equivalent or superior to or
otherwise circumvent the Company's proprietary rights. Confidentiality
agreements may not provide meaningful protection for the Company's trade secrets
or other proprietary information in the event of any unauthorized use,
misappropriation or disclosure of such information by the Company's employees,
consultants or business partners. The Company believes that its products,
processes and trademarks do not infringe on the rights of third parties;
however, third parties may assert infringement or other related claims against
the Company in the future. Any infringement claim or related litigation against
the Company, or any challenge to the validity of the Company's own intellectual
property rights, and the expense of defending the same, could materially and
adversely affect the Company's business, financial condition and results of
operations.
DEPENDENCE UPON SOLE OR LIMITED SUPPLIERS
The Company is dependent on suppliers for components, and certain key
components used in the Company's products are obtained from a sole or limited
group of suppliers. The Company's reliance on these suppliers involves several
risks, including a potential inability to obtain an adequate supply of required
components and reduced control over pricing and timely delivery of components
and finished products. Any reduction or interruption of or delay in supply could
materially and adversely affect the Company. The Company has in the past
encountered, and may in the future encounter, shortages of supplies and delays
in deliveries of necessary components. Substantially all components used in the
Company's products are purchased from sources located outside the United States.
Trading policies adopted by the United States or foreign governments could
restrict the availability of components or increase the cost of obtaining them.
Any significant increase in component prices or decrease in component
availability could materially and adversely affect the Company's business,
financial condition and results of operations.
INTERNATIONAL SALES
The Company expects to focus an increasing amount of its sales efforts in
international markets. The Company expects that any international sales will be
subject to the normal risks of foreign sales, such as protective tariffs, export
and import controls, transportation delays and
17
<PAGE>
interruptions, and changes in demand resulting from fluctuating exchange
rates. Although most of the Company's international revenues currently are
earned in U.S. dollars, a growing portion is earned in other currencies,
primarily German marks and British pounds sterling. To the extent revenues
are earned in currencies other than U.S. dollars, net income may fluctuate
due to changes in the value of the U.S. dollar relative to such other
currencies. The Company has not entered into any forward exchange contracts
or other hedging activities in anticipation of foreign currency fluctuations,
but may do so in the future.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Substantially all of the Company's liquid investments are at fixed interest
rates, and therefore the fair value of these investments is affected by changes
in market interest rates. However, substantially all of the Company's liquid
investments mature within one year. As a result, the Company believes that the
market risk arising from its holdings of financial instruments is minimal.
18
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL DATA
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Accountants.......................................................................... 20
Consolidated Balance Sheets--As of December 31, 1996 and 1997.............................................. 21
Consolidated Statements of Income--For each of the three years in the period ended December 31, 1997....... 22
Consolidated Statements of Cash Flows--For each of the three years in the
period ended December 31, 1997........................................................................... 23
Consolidated Statements of Changes in Shareholders' Equity--For each of the three years in the period ended
December 31, 1997........................................................................................ 24
Notes to Consolidated Financial Statements................................................................. 25
Financial Statement Schedule:
Schedule II--Valuation and Qualifying Accounts--For each of the three years in the period ended
December 31, 1997...................................................................................... 38
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
ThrustMaster, Inc.
We have audited the consolidated financial statements and the financial
statement schedule of ThrustMaster, Inc. and Subsidiary listed in the index on
page 19 of this Form 10-K. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 consolidated financial position of ThrustMaster,
Inc. and Subsidiary as of December 31, 1996 and 1997 and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedule referred to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects, the
information required to be included therein.
COOPERS & LYBRAND L.L.P.
Portland, Oregon
January 23, 1998
<PAGE>
THRUSTMASTER, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1996 1997
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents.................................. $6,420 $ 449
Accounts receivable, less allowance for doubtful
accounts of $14 and $51.................................. 9,820 16,604
Inventories................................................ 3,560 6,974
Prepaid expenses and other................................. 109 294
Deferred income taxes...................................... 239 409
--------- ---------
Total current assets..................................... 20,148 24,730
Plant and equipment, net..................................... 1,081 2,119
Other........................................................ 32 28
--------- ---------
Total assets............................................. $21,261 $26,877
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable............................................... $ -- $ 1,110
Accounts payable........................................... 3,021 2,919
Accrued liabilities........................................ 2,311 3,504
Current portion--long-term debt............................ 10 --
--------- ---------
Total current liabilities.................................... 5,342 7,533
Deferred income taxes........................................ 21 64
--------- ---------
Total liabilities........................................ 5,363 7,597
--------- ---------
Commitments (Note 8)
Shareholders' equity:
Preferred stock, no par value, 5,000,000 shares
authorized; none issued or outstanding................... -- --
Common stock, no par value, 25,000,000 shares
authorized; 4,240,403 and 4,293,588 shares issued
and outstanding.......................................... 13,301 13,486
Retained earnings.......................................... 2,597 5,794
--------- ---------
Total shareholders' equity............................... 15,898 19,280
--------- ---------
Total liabilities and shareholders' equity............... $21,261 $26,877
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
THRUSTMASTER, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1995 1996 1997
--------- --------- ---------
Revenues......................................................................... $ 19,415 $ 30,821 $ 45,494
Cost of goods sold............................................................... 11,815 19,592 28,839
--------- --------- ---------
Gross profit................................................................... 7,600 11,229 16,655
--------- --------- ---------
Operating expenses:
Research and engineering....................................................... 1,845 2,105 2,697
Selling, general and administrative............................................ 4,111 5,961 9,450
--------- --------- ---------
Total operating expenses..................................................... 5,956 8,066 12,147
--------- --------- ---------
Income from operations........................................................... 1,644 3,163 4,508
Interest income.................................................................. 404 466 304
--------- --------- ---------
Income before income taxes....................................................... 2,048 3,629 4,812
Provision for income taxes....................................................... 614 1,370 1,615
--------- --------- ---------
Net income................................................................... $ 1,434 $ 2,259 $ 3,197
--------- --------- ---------
--------- --------- ---------
Pro forma data (Notes 2 and 11):
Income before income taxes....................................................... $ 2,048
Provision for income taxes....................................................... 687
---------
Net income....................................................................... $ 1,361
---------
---------
Net income per share
Basic............................................................................ $ 0.37 $ 0.54 $ 0.75
--------- --------- ---------
--------- --------- ---------
Diluted.......................................................................... $ 0.34 $ 0.51 $ 0.69
--------- --------- ---------
--------- --------- ---------
Weighted average shares outstanding
Basic............................................................................ 3,647 4,182 4,268
--------- --------- ---------
--------- --------- ---------
Diluted.......................................................................... 4,060 4,468 4,660
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
THRUSTMASTER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1995 1996 1997
--------- --------- ---------
Cash flows from operations:
Net income......................................................................... $ 1,434 $ 2,259 $ 3,197
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation..................................................................... 376 766 615
Deferred income taxes............................................................ (66) (152) (127)
Changes in assets and liabilities:
Accounts receivable............................................................. (784) (6,923) (6,784)
Inventories..................................................................... (1,572) (1,034) (3,414)
Prepaid expenses and other assets............................................... 346 286 (181)
Payables and accrued liabilities................................................ 325 3,857 1,212
--------- --------- ---------
Net cash provided by (used in) operating activities.......................... 59 (941) (5,482)
--------- --------- ---------
Cash flows from investing activities:
Purchases of plant and equipment................................................... (753) (789) (1,653)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from note payable......................................................... -- -- 1,110
Payments on long-term debt......................................................... (56) (11) (10)
Proceeds from issuance of common stock............................................. 8,851 71 64
Cash dividends..................................................................... (556) -- --
--------- --------- ---------
Net cash provided by financing activities.................................... 8,239 60 1,164
--------- --------- ---------
Net increase (decrease) in cash and
cash equivalents............................................................... 7,545 (1,670) (5,971)
Cash and cash equivalents, beginning of year......................................... 545 8,090 6,420
--------- --------- ---------
Cash and cash equivalents, end of year............................................... $ 8,090 $ 6,420 $ 449
--------- --------- ---------
--------- --------- ---------
Cash paid during the year for:
Interest........................................................................... $ 3 $ 1 $ 19
Income taxes....................................................................... 376 47 1,531
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
23
<PAGE>
THRUSTMASTER, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
COMMON STOCK
-------------------- RETAINED
SHARES AMOUNT EARNINGS
--------- --------- ---------
<S> <C> <C> <C>
Balance, January 1, 1995................................................... 2,192 $ 875 $ 1,815
Reclassification of S corporation earnings............................... -- 1,660 (1,660)
Proceeds from issuance of common stock................................... 1,761 8,851 --
Tax benefits from stock options exercised................................ -- 491 --
Dividends................................................................ -- -- (155)
Net income............................................................... -- -- 1,434
--------- --------- ---------
Balance, December 31, 1995................................................. 3,953 11,877 1,434
Proceeds from issuance of common stock................................... 164 71 --
Tax benefits from stock options exercised................................ -- 257 --
Stock dividend declared (Note 2)......................................... 123 1,096 (1,096)
Net income............................................................... -- -- 2,259
--------- --------- ---------
Balance, December 31, 1996................................................. 4,240 13,301 2,597
Proceeds from issuance of common stock................................... 54 64 --
Tax benefits from stock options exercised................................ -- 121 --
Net income............................................................... -- -- 3,197
--------- --------- ---------
Balance, December 31, 1997................................................. 4,294 $ 13,486 $ 5,794
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
24
<PAGE>
THRUSTMASTER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
NOTE 1--THE COMPANY
The consolidated financial statements include the accounts of ThrustMaster,
Inc., (the "Company"), an Oregon corporation, and its wholly-owned subsidiary,
ThrustMaster Foreign Sales Corporation. The Company was incorporated on July 31,
1990. The Company designs, develops, manufactures and markets a variety of game
controllers, primarily for personal computers, and related equipment.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS. Cash equivalents consist of highly liquid debt
instruments purchased with an original maturity of three months or less.
INVENTORIES. Inventories are stated at the lower of cost or market on a
first-in, first-out basis. Finished goods are costed using standard cost, which
approximates the first-in, first-out method of accounting.
PLANT AND EQUIPMENT. Plant and equipment are stated at cost and are
depreciated using the straight-line method over the estimated useful lives
(three to seven years). Replacements and improvements which extend the useful
life are capitalized. Maintenance and repairs and routine replacements are
expensed as incurred. Upon disposal, costs and related accumulated
depreciation of the assets are removed from the accounts and resulting gains
and losses are reflected in operations.
INCOME TAXES. From January 1, 1991 through December 31, 1994, the
Company was treated for federal income tax purposes as an S corporation under
Subchapter S of the Internal Revenue Code of 1986, as amended, and was
treated as an S corporation for state income tax purposes under comparable
state tax laws. As a result, the Company's earnings from January 1, 1991
through December 31, 1994 have been, for federal and certain state income tax
purposes, taxed directly to the Company's shareholders, rather than to the
Company. Effective January 1, 1995 (the "Termination Date"), the Company's S
corporation status was terminated. Subsequent to the Termination Date, the
Company is no longer treated as an S corporation and, accordingly, is subject
to federal and state income taxes on its earnings.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial reporting and
tax bases of assets and liabilities and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax 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 of change. Valuation allowances are established when
necessary, to reduce deferred tax assets to the amounts expected to be
realized.
REVENUE RECOGNITION. Revenue is recognized at the time of product
shipment. All products have a warranty for one year from date of sale
covering product defects. Certain sales agreements provide
25
<PAGE>
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the right to return on unsold merchandise. The Company provides for estimated
costs of warranty and returns when products are shipped. The Company offers
price protection to certain customers on its products. The Company records
anticipated price protection as a reduction of sales.
RESEARCH AND ENGINEERING EXPENSE. Research and engineering costs are
charged to operations as incurred.
FOREIGN CURRENCY TRANSLATION. The Company maintains a sales and
distribution office and warehouse in Surrey, England, through which all of
its European sales are made. The financial statements of the Company's
operations in the United Kingdom have been translated into U.S. dollars in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 52,
"Foreign Currency Translation." Certain of the Company's sales to foreign
distributors are denominated in foreign currencies. Gains and losses
associated with the foreign currency transaction gains and losses are
recorded in the Company's financial statements at the settlement date. Gains
and losses associated with foreign currency receivables are recorded based
upon the exchange rate at the end of the period.
EARNINGS PER SHARE DATA. In February 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 128,
"Earnings per Share" ("SFAS 128"). This Statement supersedes APB Opinion No.
15 and specifies the computation, presentation and disclosure requirements
for earnings per share for entities with publicly held common stock or
potential common stock. The Company was required to adopt the provisions of
SFAS No. 128 for the year ended December 31, 1997. As it relates to the
Company, the principal differences between the provisions of SFAS 128 and
previous authoritative pronouncements are exclusion of common stock
equivalents in the determination of Basic Earnings Per Share and the market
price at which common stock equivalents are calculated in the determination
of Diluted Earnings per Share.
Basic earnings per common share is computed using the weighted average
number of shares of common stock outstanding for the period. Diluted earnings
per common share is computed using the weighted average number of shares of
common stock and dilutive common equivalent shares outstanding during the
year. Common equivalent shares from stock options are excluded from the
computation when their effect is antidilutive.
Stock Dividend On January 21, 1997, the Company's board of directors
declared a 3% stock dividend payable to shareholders of record on February
14, 1997. Share, per share, common stock, stock option and warrant amounts
have been restated to reflect the effect of this stock dividend.
USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles 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 from those estimates.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS. During 1997, the
Financial Accounting Standards Board issued SFAS No. 130 and SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information." These
standards will become effective for the Company's 1998 fiscal year. SFAS No.
130 establishes standards for reporting and display of comprehensive income
and
26
<PAGE>
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
its components in a full set of general-purpose financial statements. SFAS
No. 131 changes current practice by establishing a new framework on which to
base segment reporting (referred to as the "management" approach) and also
requires interim reporting of segment information. Management is currently
assessing the impact of the implementation of these standards on the
consolidated financial statements of the Company.
NOTE 3--CONCENTRATION OF CREDIT RISK, FOREIGN OPERATIONS, AND MAJOR
CUSTOMER INFORMATION
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and cash
equivalents and accounts receivable. The Company's cash equivalents are in
high quality securities placed with institutions with high credit ratings.
The Company's accounts receivable are primarily from a small number of
computer wholesale distributors and software specialty stores located in the
United States, Canada, and western Europe. Management believes that any risk
of loss is significantly reduced by its ongoing credit evaluations of its
customers' financial condition.
In 1995 product sales to two customers each accounted for approximately 10%
of revenues. In 1996, no customer individually accounted for more than 10% of
revenues. During 1997, two customers accounted for 11.8% and 10.4% of revenues,
respectively.
The Company operates in a single industry segment comprising interactive
control devices for use with personal computer entertainment software.
Certain of the Company's products are manufactured and assembled in Taiwan
and China by an independent contractor. Products manufactured and assembled
by this vendor approximated 37.6% and 74.3%, and 89.9% of total products in
1995, 1996, and 1997 respectively.
Net revenue by geographic region and as a percentage of total revenue for
each region outside the United States that constituted more than 10% of the
Company's total revenue is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1995 1996 1997
--------- --------- ---------
Net revenue by geographic region:
Europe................................................................. $ 2,489 $ 10,225 $ 13,473
Net revenue as a percentage of total revenue:
Europe................................................................. 12.8% 33.2% 29.6%
</TABLE>
The Company's U.K. operations accounted for substantially all of the
Company's European sales. Identifiable assets of the Company's U.K.
operations were $4,179 at December 31, 1997.
27
<PAGE>
NOTE 4--INVENTORIES
Inventories are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1996 1997
--------- ---------
Raw materials.......................................................................... $ 762 $ 1,062
Work-in-progress....................................................................... 90 49
Finished goods......................................................................... 2,708 5,863
--------- ---------
$ 3,560 $ 6,974
--------- ---------
--------- ---------
</TABLE>
NOTE 5--PLANT AND EQUIPMENT
Plant and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1996 1997
--------- ---------
Computers and other equipment.......................................................... $ 1,075 $ 1,652
Tooling................................................................................ 1,209 2,172
Furniture and fixtures................................................................. 230 343
--------- ---------
2,514 4,167
--------- ---------
--------- ---------
Accumulated depreciation............................................................... (1,433) (2,048)
--------- ---------
$ 1,081 $ 2,119
--------- ---------
--------- ---------
</TABLE>
NOTE 6--BANK LINE OF CREDIT
At December 31, 1997, the Company had a revolving line of credit with a bank
which provided for borrowings up to the lesser of one million dollars or 75% of
eligible receivables. Borrowings are payable on demand and bear interest at a
fluctuating rate equal to the prime rate or a rate based on LIBOR (8.5% at
December 31, 1997). The Company's bank temporarily increased the line of credit
to the lesser of $5.0 million or 60% of eligible receivables through January 31,
1998 to meet the Company's seasonal working capital needs during the fourth
quarter of 1997. The Company also may borrow up to two hundred thousand dollars
to finance up to 80% of the cost of certain equipment. Borrowings under the
agreement are collateralized by substantially all of the Company's assets. Loan
covenants under the agreement include maintaining a defined level of working
capital and maximum debt to tangible net worth ratio. At December 31, 1997,
$1,110 was outstanding under the line.
28
<PAGE>
NOTE 7--ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1996 1997
--------- ---------
Accrued payroll and payroll liabilities................................................ $ 132 $ 208
Accrued bonuses........................................................................ 460 601
Warranty reserve....................................................................... 365 785
Federal and state income taxes......................................................... 977 1,056
Accrued commissions.................................................................... 322 771
Other liabilities...................................................................... 55 83
--------- ---------
$ 2,311 $ 3,504
--------- ---------
--------- ---------
</TABLE>
A portion of the compensation paid by the Company to certain officers is
determined based upon the Company's revenues and net income for the year. The
Company recorded expense of $118 in 1995, $251 in 1996, and $289 in 1997,
related to such amounts.
NOTE 8--COMMITMENTS
The Company leases facilities and equipment under non-cancelable operating
leases. Certain of the facility leases contain escalation clauses. The following
is a schedule by years, through expiration of the leases, of future minimum
lease payments required under these leases as of December 31, 1997:
<TABLE>
<CAPTION>
<S> <C>
1998.....................$660
1999..................... 705
2000..................... 701
2001..................... 705
2002..................... 725
</TABLE>
Under the agreements for the lease of its office, production, and
distribution facilities, the Company is obligated to the lessors for its share
of certain expenses related to the use, operation, maintenance and insurance of
the property. These expenses, payable monthly in addition to the base rent, are
not included in the amounts shown above. Rental expense totaled $239, $236 and
$438 for the years ended December 31, 1995, 1996, and 1997, respectively.
NOTE 9--STOCK OPTION PLANS AND WARRANTS
The Company has adopted a stock option plan for employees (the "1994 Stock
Option Plan") and a separate option plan for directors (the "Directors' Stock
Option Plan"). The Company has reserved 400,000 shares for issuance under the
1994 Stock Option Plan and 160,000 shares for issuance under the Director's
Stock Option Plan. The 1994 Stock Option Plan provides for incentive stock
option and nonqualified options to be granted. The Company previously made
grants under a nonqualified plan adopted in 1990 in which 1,200,000 shares had
been reserved. In July 1994, any ungranted
29
<PAGE>
NOTE 9--STOCK OPTION PLANS AND WARRANTS (CONTINUED)
options and any future forfeitures under the 1990 option plan were
transferred to the 1994 Stock Option Plan.
The stock option plans generally require the price of options to be at
the estimated fair market value of the stock at the date of grant. Options
have a maximum duration of ten years (five years under certain circumstances)
and may be exercised in varying amounts over the vesting periods.
The following table summarizes stock option transactions:
<TABLE>
<CAPTION>
NUMBER OF SHARES
---------------------------------
AVAILABLE FOR
UNDER OPTION GRANT
------------- ------------------
<S> <C> <C>
Balance January 1, 1995.................................................... 767,200 739,904
Granted ($8.75 to $8.875 per share)........................................ 126,500 (126,500)
Exercised ($0.25 to $2.50 per share)....................................... (207,400) --
Cancelled.................................................................. (6,100) 6,100
------------- --------
Balance, December 31, 1995................................................. 680,200 619,504
Granted ($4.125 to $7.625 per share)....................................... 331,000 (331,000)
Exercised ($0.25 to $0.75 per share)....................................... (164,100) --
Cancelled.................................................................. (134,500) 134,500
Effect of 3% stock dividend declared (See Note 2).......................... 21,378 --
------------- --------
Balance, December 31, 1996................................................. 733,978 423,004
Granted ($8.625 to $15.75 per share)....................................... 239,000 (239,000)
Exercised ($0.243 to $8.495)............................................... (41,394) --
Cancelled.................................................................. (40,233) 40,233
Effect of 3% stock dividend declared (See Note 2).......................... 4,470 --
------------- --------
Balance December 31, 1997.................................................. 895,821 224,237
------------- --------
------------- --------
</TABLE>
The exercise price of the outstanding options at December 31, 1997 ranged
between $0.24 and $15.75 per share. The weighted average exercise price of
outstanding options was $4.54 at December 31, 1997.
The following table summarizes information about stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------- -------------------------
WEIGHTED
OUTSTANDING AVERAGE WEIGHTED EXERCISABLE WEIGHTED
RANGE OF AT CONTRACTUAL AVERAGE AT AVERAGE
EXERCISE DECEMBER 31, REMAINING EXERCISE DECEMBER 31, EXERCISE
PRICES 1997 LIFE PRICE 1997 PRICE
- -------------- ------------ --------------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
$0.24--$0.73 274,982 4.9 $ 0.30 274,982 $ 0.30
$2.43--$2.91 98,880 6.1 2.59 98,880 2.59
$4.73--$5.34 290,652 8.3 5.01 72,633 5.01
$8.50--$8.75 191,307 9.1 8.58 47,827 8.58
$ 15.75 40,000 9.8 15.00 -- --
------------ ------------
895,821 494,322
------------ ------------
------------ ------------
</TABLE>
30
<PAGE>
NOTE 9--STOCK OPTION PLANS AND WARRANTS (Continued)
During 1995, warrants to purchase 139,050 shares were granted at a price of
$7.57 per share after giving effect to the stock dividend discussed in Note 2.
There were 117,151 warrants outstanding at December 31, 1997.
The Company applies APB opinion No. 25 and related interpretations in
accounting for its plans. However, in accordance with SFAS 123, pro forma
disclosures as if the Company adopted the cost recognition requirements under
SFAS 123 for all awards subsequent to January 1, 1995, are presented below.
The fair value of each option granted during the years ended 1995, 1996 and
1997 is estimated on the date of grant using the Black-Scholes option pricing
model with the following assumptions: (i) average dividend yield of 0%, (ii)
expected volatility of 27.0% for 1995, 28.8% for 1996, and 26.7% for 1997, (iii)
expected average life of 3.3 years. The risk-free interest rate (equivalent to
the zero coupon treasury rate) at the date of grant ranged from 6.0% to 7.0% for
1995, from 4.8% to 6.3% for 1996, and from 5.9% to 6.8% for 1997.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Net income -- as reported...................................................... $ 1,361 $ 2,259 $ 3,197
Net income -- pro forma........................................................ 1,304 2,173 2,987
Net income per share--as reported
Basic.......................................................................... 0.37 0.54 0.75
Diluted........................................................................ 0.34 0.51 0.69
Net income per share--pro forma
Basic.......................................................................... 0.36 0.52 0.70
Diluted........................................................................ 0.32 0.49 0.64
</TABLE>
The effect of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts.
NOTE 10--CONSULTING AGREEMENT
In December 1993, the Company entered into a consulting agreement with a
company owned entirely by a shareholder and former chief executive officer. The
agreement terminated in February 1996. Under the agreement, services included
providing product concepts and consulting and assistance on product design.
Payments of $205, and $36 were made pursuant to the agreement in 1995 and 1996,
respectively.
NOTE 11--INCOME TAXES
Effective January 1, 1995, the Company was required to provide for deferred
taxes, arising from the cumulative temporary differences between financial
reporting and tax reporting, by recording a benefit for income taxes for such
deferred taxes in its statement of income in the period
31
<PAGE>
NOTE 11--INCOME TAXES (CONTINUED)
in which the Termination Date occurred. The amount of this benefit during 1995
was $73.
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
<S> <C> <C> <C>
1995 (1) 1996 1997
----------- --------- ---------
Current payable:
Federal............................................................................ $ 613 $ 1,256 $ 1,535
State.............................................................................. 67 266 207
----- --------- ---------
Total current...................................................................... 680 1,522 1,742
----- --------- ---------
Deferred:
Federal............................................................................ 6 (126) (105)
State.............................................................................. 1 (26) (22)
----- --------- ---------
Total deferred..................................................................... 7 (152) (127)
----- --------- ---------
Total............................................................................ $ 687 $ 1,370 $ 1,615
----- --------- ---------
----- --------- ---------
</TABLE>
- ------------------------
(1) Unaudited pro forma information
A reconciliation of the statutory federal income tax rate to the Company's
effective income tax rate is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
<S> <C> <C> <C>
1995 (1) 1996 1997
----------- --------- ---------
Federal statutory rate.................................................................... 34.0% 34.0% 34.0%
State income taxes, net of federal income tax benefit..................................... 2.2 4.4 2.2
Effect of research and experimentation tax credit and other............................... (2.7) (.6) (2.7)
--- --- ---
Effective income tax rate................................................................. 33.5% 37.8% 33.5%
--- --- ---
--- --- ---
</TABLE>
- ------------------------
(1) Unaudited pro forma information
Deferred income taxes result from items of income or expense being reported
for income tax purposes in different periods than they are reported for
financial reporting purposes. The primary effects of temporary differences which
give rise to deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1996 1997
--------- ---------
Deferred tax asset:
Warranty reserve, inventory reserve, and other accrued liabilities.............................. $ 239 $ 409
Deferred tax liability:
Excess tax over book depreciation and amortization.............................................. 21 64
</TABLE>
32
<PAGE>
NOTE 12--EARNINGS PER SHARE
The following is a reconciliation of the numerators and denominators of the
basic and diluted computations of earnings per share:
<TABLE>
<CAPTION>
PER
SHARE
INCOME SHARES AMOUNT
--------- ----------- -----------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Basic earnings per share:
Income available to common shareholders............................................. $ 3,197 4,268 $ 0.75
-----
-----
Effect of dilutive securities
Stock options issuable.............................................................. -- 392
Diluted earnings per share:
--------- -----
Income available to common shareholders............................................. $ 3,197 4,660 $ 0.69
--------- ----- -----
--------- ----- -----
YEAR ENDED DECEMBER 31, 1996
Basic earnings per share:
Income available to common shareholders............................................. $ 2,259 4,182 $ 0.54
-----
-----
Effect of dilutive securities
Stock options issuable.............................................................. -- 286
Diluted earnings per share:
--------- -----
Income available to common shareholders............................................. $ 2,259 4,468 $ 0.51
--------- ----- -----
--------- ----- -----
YEAR ENDED DECEMBER 31, 1995
Basic earnings per share:
Income available to common shareholders............................................. $ 1,361 3,647 $ 0.37
-----
-----
Effect of dilutive securities
Stock options issuable.............................................................. -- 413
Diluted earnings per share:
--------- -----
Income available to common shareholders............................................. $ 1,361 4,060 $ 0.34
--------- ----- -----
--------- ----- -----
</TABLE>
NOTE 13--401 (K) PLAN
The Company has a 401(k) Plan (the "Plan") covering substantially all
employees meeting minimum service requirements. The Plan allows the Company to
make discretionary matching contributions. The Company provided discretionary
contributions of $23, $35, and $45 for the years ended December 31, 1995, 1996,
and 1997, respectively.
33
<PAGE>
NOTE 14--QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Selected unaudited and pro forma financial information for each of the
quarters is as follows. Pro forma net income per share and net income per share
data has been adjusted to reflect the stock dividend discussed in Note 2.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
----------- ----------- ------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1996
Revenues.................................................... $ 4,564 $ 4,250 $ 6,931 $ 15,076
Cost of goods sold.......................................... 2,970 2,615 4,142 9,865
Operating expenses.......................................... 1,538 1,564 1,930 3,034
Net income.................................................. 101 111 626 1,421
Diluted net income per share................................ $ 0.02 $ 0 .03 $ 0 .14 $ 0.31
1997
Revenues.................................................... $ 6,272 $ 7,149 $ 10,509 $ 21,564
Cost of goods sold.......................................... 3,786 4,480 6,548 14,025
Operating expenses.......................................... 2,108 2,244 2,804 4,991
Net income.................................................. 289 329 836 1,743
Diluted net income per share................................ $ 0.06 $ 0.07 $ 0.18 $ 0.37
</TABLE>
34
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for by this item is hereby incorporated herein by
reference to the Registrant's definitive Proxy Statement for the fiscal year
ended December 31, 1997, which Proxy Statement will be filed with the Securities
and Exchange Commission no later than 120 days after the end of the fiscal year
covered by this report.
ITEM 11. EXECUTIVE COMPENSATION
The information called for by this item is hereby incorporated herein by
reference from the Registrant's definitive Proxy Statement for the fiscal year
ended December 31, 1997, which Proxy Statement will be filed with the Securities
and Exchange Commission no later than 120 days after the end of the fiscal year
covered by this report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by this item is hereby incorporated herein by
reference from the Registrant's definitive Proxy Statement for the fiscal year
ended December 31, 1997, which Proxy Statement will be filed with the Securities
and Exchange Commission no later than 120 days after the end of the fiscal year
covered by this report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this item is hereby incorporated herein by
reference from the Registrant's definitive Proxy Statement for the fiscal year
ended December 31, 1997, which Proxy Statement will be filed with the Securities
and Exchange Commission no later than 120 days after the end of the fiscal year
covered by this report.
35
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) List of documents filed as part of this Report:
(1) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE:
See index on page 19.
(2) EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
*3.1 Articles of Incorporation, as amended
**3.2 Amended and Restated Bylaws
*4.1 Description of Capital Stock contained in the Articles of Incorporation, as amended (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.
*10.2 1994 Incentive Compensation Plan, dated December 21, 1993
***10.3 Directors' Nonqualified Stock Option Plan, dated July 19, 1994, as amended
***10.4 1994 Stock Option Plan, dated July 19, 1994, as amended
</TABLE>
- ------------------------
* 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 from the Company's
Report on Form 10-K filed on March 25, 1997.
*** Underlying document 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);
the amendment to the underlying document accompanies this filing.
36
<PAGE>
<TABLE>
<C> <S>
10.5 Letter agreement, dated October 8, 1997 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 June 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 (Bonus Program Extended for 1998)
21 List of Subsidiaries
23 Consent of Independent Accountants
27.1 Financial Data Schedule as of December 31, 1997 and the related Statement of Income
for the period then ended
27.2 Financial Data Schedules as of December 31, 1995; March 31, 1996; June 30, 1996;
September 30, 1996; and December 31, 1996, and the related Statements of Income
for the respective periods then ended
27.3 Financial Data Schedules as of March 31, 1997; June 30, 1997; and September 31 ,
1997, and the related Statements of Income for the respective periods then ended
</TABLE>
- ------------------------
* 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 from the Company's
Report on form 10-K filed on March 25, 1997.
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed during the last quarter of 1997.
37
<PAGE>
Schedule II
THRUSTMASTER, INC.
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
<TABLE>
<CAPTION>
BEGINNING CHARGES TO DEDUCTIONS ENDING
YEAR BALANCE EXPENSE WRITE-OFFS BALANCE
--------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
1997 $ 14 $ 87 $ (50) $ 51
1996 7 122 (115) 14
1995 -- 8 (1) 7
Reserve for warranty expense and sales returns:
1997 365 420 -- 785
1996 192 173 -- 365
1995 229 -- (37) 192
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities 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: MARCH 20, 1998
BY /S/ KENT E. KOSKI
-----------------------------------------
Kent E. Koski
Vice President--Finance and Administration,
Chief Financial Officer and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ C. NORMAN WINNINGSTAD Chairman of the Board
- ------------------------------ March 20, 1998
C. Norman Winningstad
/s/ STEPHEN A. AANDERUD President, Chief Executive
- ------------------------------ Officer, and Director March 20, 1998
Stephen A. Aanderud
/s/ ROBERT L. CARTER Director
- ------------------------------ March 20, 1998
Robert L. Carter
/s/ GRAHAM DORLAND Director
- ------------------------------ March 20, 1998
Graham Dorland
/s/ MERRILL A. MCPEAK Director
- ------------------------------ March 20, 1998
Merrill A. McPeak
/s/ G. GERALD PRATT Director
- ------------------------------ March 20, 1998
G. Gerald Pratt
/s/ MILTON R. SMITH Director
- ------------------------------ March 20, 1998
Milton R. Smith
/s/ FREDERICK M. STEVENS Director
- ------------------------------ March 20, 1998
Frederick M. Stevens
Vice President--Finance and
/s/ KENT E. KOSKI Administration, Chief
- ------------------------------ Financial Officer and March 20, 1998
Kent E. Koski Secretary
<PAGE>
Exhibit 10.3
Amendments to ThrustMaster, Inc.
Directors' Non-Qualified Stock Option Plan
The following amendments to the ThrustMaster, Inc. Directors' Non-Qualified
Stock Option Plan (the "Plan") were adopted January 23, 1998:
1. The following paragraph is added to Section 4(h) of the Plan:
With respect to options granted after January 22, 1998, the
exercise price for shares purchased under an Option shall be paid in
full to the Company by delivery of consideration equal to the product
of the Option exercise price and the number of shares purchased. Such
consideration must be paid in cash or by check or, unless the Plan
Administrator in its sole discretion determines otherwise, either at
the time the Option is granted or at any time before it is exercised,
a combination of cash and/or check (if any) and one or both of the
following alternative forms: (a) tendering (either actually or, if
and so long as the Common Stock is registered under Section 12(b) or
12(g) of the Exchange Act, by attestation) Common Stock already owned
by the Optionee for at least six months (or any shorter period
necessary to avoid a charge to the Company's earnings for financial
reporting purposes) having a Fair Market Value on the day prior to the
exercise date equal to the aggregate Option exercise price or (b) if
and so long as the Common Stock is registered under Section 12(b) or
12(g) of the Exchange Act, delivery of a properly executed exercise
notice, together with irrevocable instructions, to (i) a brokerage
firm designated by the Company to deliver promptly to the Company the
aggregate amount of sale or loan proceeds to pay the Option exercise
price and any withholding tax obligations that may arise in connection
with the exercise and (ii) the Company to deliver the certificates for
such purchased shares directly to such brokerage firm, all in
accordance with the regulations of the Federal Reserve Board. In
addition, the exercise price for shares purchased under an Option may
be paid, either singly or in combination with one or more of the
alternative forms of payment authorized by this Section 4(h), by such
other consideration as the Plan Administrator may permit.
<PAGE>
2. The following sentence is added to paragraph 4(j) of the Plan:
Notwithstanding the foregoing, and to the extent permitted
by Section 422 of the Code, the Committee, in its sole
discretion, may permit such assignment or transfer and may
permit a holder of Options to designate a beneficiary who
may exercise the Options; provided, however, that the
Options so assigned or transferred shall be subject to all
the same terms and conditions contained in the instrument
evidencing the Option.
3. The following phrase is added to the first sentence of
Section 5(h) of the Plan: "with respect to grants of options occurring
prior to January 23, 1998."
4. Section 9 of the Plan is amended to read as follows:
The Plan Administrator may, at any time, modify, amend
or terminate this Plan and Options granted under this Plan,
including, without limitation, such modifications or
amendments as are necessary to maintain compliance with
applicable statutes, rules or regulations; provided,
however, that no amendment with respect to an outstanding
Option shall be made over the objection of the Optionee
thereof. Without limiting the generality of the foregoing,
the Plan Administrator may modify grants to persons who are
eligible to receive Options under this Plan who are foreign
nationals or employed outside the United States to recognize
differences in local law, tax policy or custom.
<PAGE>
Exhibit 10.4
Amendments to ThrustMaster, Inc.
1994 Stock Option Plan
The following amendments to the ThrustMaster, Inc. 1994 Stock Option Plan
(the "Plan") were adopted January 23, 1998:
1. Section 2 of the Plan is amended to read as follows:
This Plan shall be administered by the Board of Directors of
the Company (the "Board") or a committee (the "Committee")
appointed by and consisting of two or more members of the Board.
So long as the Common Stock is registered under Section 12(b) or
12(g) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the Board shall consider in selecting the
Committee the provisions regarding (a) "nonemployee directors" as
contemplated by Rule 16b-3 under the Exchange Act and
(b) "outside directors" as contemplated by Section 162(m) under
the Internal Revenue Code of 1986, as amended (the "Code"). The
Committee shall have the powers and authority vested in the Board
hereunder (including the power and authority to interpret any
provision of this Plan or of any Option). The members of any
such Committee shall serve at the pleasure of the Board. A
majority of the members of the Committee shall constitute a
quorum, and all actions of the Committee shall be taken by a
majority of the members present. Any action may be taken by a
written instrument signed by all of the members of the Committee
and any action so taken shall be fully effective as if it had
been taken at a meeting. The Board, or any committee thereof
appointed to administer the Plan, is referred to herein as the
"Plan Administrator."
2. The following sentence is added to Section 4 of the Plan
immediately following the first sentence of Section 4:
Options for no more than 50,000 shares may be granted to any
individual participant in the Plan in the aggregate in any one fiscal
year of the Company, except that the Company may make additional
<PAGE>
one-time grants of up to 100,000 shares to newly hired participants in
the Plan, such limitation to be applied in a manner consistent with
the requirements of, and only to the extent required for compliance
with, the exclusion from the limitation on deductibility of
compensation under 162(m) of the Code.
3. The following paragraph is added to Section 5(i) of the Plan:
With respect to options granted after January 22, 1998, the
exercise price for shares purchased under an Option shall be paid in
full to the Company by delivery of consideration equal to the product
of the Option exercise price and the number of shares purchased. Such
consideration must be paid in cash or by check or, unless the Plan
Administrator in its sole discretion determines otherwise, either at
the time the Option is granted or at any time before it is exercised,
a combination of cash and/or check (if any) and one or both of the
following alternative forms: (a) tendering (either actually or, if
and so long as the Common Stock is registered under Section 12(b) or
12(g) of the Exchange Act, by attestation) Common Stock already owned
by the Optionee for at least six months (or any shorter period
necessary to avoid a charge to the Company's earnings for financial
reporting purposes) having a Fair Market Value on the day prior to the
exercise date equal to the aggregate Option exercise price or (b) if
and so long as the Common Stock is registered under Section 12(b) or
12(g) of the Exchange Act, delivery of a properly executed exercise
notice, together with irrevocable instructions, to (i) a brokerage
firm designated by the Company to deliver promptly to the Company the
aggregate amount of sale or loan proceeds to pay the Option exercise
price and any withholding tax obligations that may arise in connection
with the exercise and (ii) the Company to deliver the certificates for
such purchased shares directly to such brokerage firm, all in
accordance with the regulations of the Federal Reserve Board. In
addition, the exercise price for shares purchased under an Option may
be paid, either singly or in combination with one or more of the
alternative forms of payment authorized by this Section 5(i), by such
other consideration as the Plan Administrator may permit.
4. The following phrase is added to the first sentence of Section 5(h) of
the Plan: "with respect to grants of options occurring prior to January 23,
1998."
5. The following sentence is added to paragraph 5(k) of the Plan:
<PAGE>
Notwithstanding the foregoing, and to the extent permitted
by Section 422 of the Code, the Committee, in its sole
discretion, may permit such assignment or transfer and may
permit a holder of Options to designate a beneficiary who
may exercise the Options; provided, however, that the
Options so assigned or transferred shall be subject to all
the same terms and conditions contained in the instrument
evidencing the Option.
6. Section 11 of the Plan is amended to read as follows:
The Plan Administrator may, at any time, modify, amend
or terminate this Plan and Options granted under this Plan,
including, without limitation, such modifications or
amendments as are necessary to maintain compliance with
applicable statutes, rules or regulations; provided,
however, that no amendment with respect to an outstanding
Option shall be made over the objection of the Optionee
thereof. Without limiting the generality of the foregoing,
the Plan Administrator may modify grants to persons who are
eligible to receive Options under this Plan who are foreign
nationals or employed outside the United States to recognize
differences in local law, tax policy or custom.
<PAGE>
EXHIBIT 10.5
N.W. OREGON BUSINESS
BANKING CENTER
8625 S.W Cascade Avenue, Suite 400
Beaverton, OR 97008
October 8, 1997
Mr. Kent Koski
Vice President Finance & Administration
ThrustMaster, Inc.
7175 NW Evergreen Parkway #400
Portland, Oregon 97124
Dear Kent,
I am pleased to advise you that United States National Bank of Oregon has
approved your request for a short term increase in your revolving line of
credit subject to the following terms and conditions:
BORROWER: ThrustMaster, Inc.
OPERATING LINE OF CREDIT
MAXIMUM LOAN AMOUNT: Increase to $5,000,000 until 1/31/98.
PURPOSE: General corporate purposes and to
support letters of credit.
INTEREST RATE: OPTION 1
Fully floating variable interest rate
equal to U.S. Bank's prime rate.
OPTION 2
LIBOR plus 250 basis points. 1, 2, 3
or 6 month terms. Minimum advance
amount $250,000. Advances over
$250,000 shall be in increments of
$100,000. No prepayment is allow on
LIBOR indexed loans.
<PAGE>
ThrustMaster, Inc.
October 8, 1997
RATES TIED TO PRIME: Prime tied rates
are floating rates, adjusted the same
day as any change in Bank's prime
rate.
LIBOR: The LIBOR rate is the rate
per annum established by Lender as
its LIBOR rate, based on a
determination of the rate of interest
at which U. S. dollar deposits would
be offered to U.S. Bank in the London
interbank market at approximately
11:00 a.m. London time two business
days prior to the effective date of
the rate (adjusted for reserves, if
any).
REQUIRED NOTICE: Two business-days'
notice is required on LIBOR advances.
For example, rates quoted today would
be effective for an advance made two
business days later.
TIME ALLOCATED FOR DECISION: LIBOR
interest rate quotes may be obtained
from Lender between 8:00 a.m. and
10:00 a.m. and must be accepted by
10:00 a.m. Rates quoted are for rates
which are to become effective two
business days later.
ELECTION/MATURITY: Borrower will
notify Bank in writing of its
election to advance funds under the
LIBOR option. Notification will
include the amount to be advanced,
the term of the advance, and must be
signed by an officer of the company.
Any amounts advanced under an LIBOR
option shall at maturity, roll into
the Prime Tied Option.
<PAGE>
ThrustMaster, Inc.
October 8, 1997
All interest under both rate options
described above shall be computed on
the basis of a 360-day year and the
actual number of days elapsed.
MATURITY DATE: Payable on demand.
REPAYMENT: Principal and interest payable on demand.
Interest payable monthly in absence of
demand.
LOAN FEE: Non-refundable upfront loan fee of 1/8%
of $4,000,000, prorated 4 months
($1,667).
COLLATERAL: Perfected first priority security
interest in all of Borrower's now
owned and hereafter acquired accounts
receivable, inventory and equipment.
OPERATING REQUIREMENTS
1. 60% advance against eligible A/R to 30 days past due.
2. Definition of Ineligible A/R includes (but is not limited to) the
following:
- All invoices aged beyond 30 days past due.
- Inter or related company sales.
- Sales exceeding debtor credit limits established by Bank at its sole
discretion on concentration accounts which equal or exceed $1,000,000.
- Foreign accounts. Canadian accounts are eligible.
3. Borrower's certificates are to be provided to U.S. Bank on a monthly basis,
as of month end.
4. Summary account receivable agings and accounts payable aging to be provided
to U.S. Bank on monthly basis.
<PAGE>
ThrustMaster, Inc.
October 8, 1997
5. Collateral exam may be required annually.
6. Account debtor address listing to be provided annually.
THE ABOVE OPERATING REQUIREMENTS WILL APPLY ONLY UNTIL JANUARY 31, 1998.
AFTER THAT DATE THE OPERATING REQUIREMENT IN THE LETTER OF UNDERSTANDING
DATED JUNE 19, 1997 WILL APPLY.
FINANCIAL REPORTING
1. Annual CPA audited financial statement within 120 days after the end of
each fiscal year.
2. Quarterly company prepared financial statements, within 30 days after the
end of each calendar quarter.
GENERAL TERMS AND CONDITIONS
1. PRIME RATE: U.S. Bank's prime rate is the rate of interest which U.S. Bank
from time to time establishes as its prime rate and is not, for example,
the lowest rate of interest which U.S. Bank collects from any borrower or
class of borrowers.
2. LOAN ADVANCES: Advances may be requested by Borrower from time to time in
accordance with the terms of the promissory note. All advances shall be
made at the sole option of U.S. Bank. U.S. Bank may decline to make any
advance and may terminate the availability of advances at any time.
3. INSURANCE: Borrower shall maintain insurance in such amounts and covering
such risks as U.S. Bank shall require.
4. FINANCIAL REPORTING: At any time requested by U.S. Bank, Borrower shall
furnish any additional information regarding Borrower's financial condition
and business operations that U.S. Bank requests. This information may
include, but is not limited to, financial statements, tax returns, lists of
assets and liabilities, agings of receivables and payables, inventory
schedules, budgets and forecasts.
5. LOAN DOCUMENTATION: Borrower shall deliver to U.S. Bank duly executed
promissory notes, deeds of trust, mortgages, security agreements, financing
statements, loan agreements, guaranties, borrower authorizations, attorney
<PAGE>
ThrustMaster, Inc.
October 8, 1997
opinion letters and other documents ("Loan Documents") as required by U.S.
Bank in form and substance satisfactory to U.S. Bank and its counsel.
6. NON-ASSIGNABLE: This credit accommodation may not be assigned by Borrower.
No guarantor or any third party is intended as a third-party beneficiary
or has any right to rely hereon.
7. ARBITRATION: Borrower and U.S. Bank hereby agree to be bound by the terms
of the Arbitration clause attached hereto as Exhibit A.
8. EXPENSES: Borrower shall reimburse U.S. Bank for all out-of-pocket
expenses incurred in connection with this credit accommodation upon demand,
whether or not this transaction closes or is funded. Such expenses shall
include, without limitation, attorney fees, title insurance fees, travel
costs, examination expenses, and filing fees.
9. EXPIRATION DATE: This offer will expire on October 31, 1997.
10. ACCESS LAWS: Without limiting the generality of any provision of this
agreement requiring Borrower to comply with applicable laws, rules, and
regulations, Borrower agrees that it will at all times comply with
applicable laws relating to disabled access including, but not limited to,
all applicable titles of the Americans with Disabilities Act of 1990.
This letter summarizes certain principal terms and conditions relating to the
loan and supersedes all prior oral or written negotiations, understandings,
representations and agreements with respect to the loan. However, the Loan
Documents will include additional terms, conditions, covenants,
representations, warranties and other provisions which U.S. Bank customarily
includes in similar transactions or which US Bank determines to be
appropriate to this transaction. Except to the extent modified by any other
agreement, all terms, condition, covenants and other provisions of this
letter shall remain in effect until the revolving line of credit (including
any renewals, extensions or modifications) is terminated and the loan balance
is paid in full, and by signing below, Borrower agrees to comply with all
such provisions.
In addition to the events of default in any Loan Document, any failure to
comply with any term, condition or obligation in this letter shall constitute
an event of default under each of the Loan Documents. The provisions of this
letter shall survive the closing of the loan and the execution and delivery
of the Loan Documents. In the event of a conflict between this letter and
the Loan Documents, the terms of the Loan Documents shall control.
<PAGE>
ThrustMaster, Inc.
October 8, 1997
UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY LENDERS
AFTER OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE
NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE
BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED
BY THE LENDER TO BE ENFORCEABLE.
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO
FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER
WASHINGTON LAW.
If the above terms and conditions are acceptable to you, please sign, date
and return the acknowledgment copy of this letter on or before the Expiration
Date.
Sincerely,
/s/ Debbie Sidley
Debbie Sidley
VP & Commercial Account Office;
526-6018
Borrower hereby accepts U.S. Bank's offer to extend credit on terms and
conditions stated above. Borrower hereby agrees to the Arbitration clause
set forth in Exhibit A attached hereto.
ThrustMaster, Inc.
By: /s/ Kent Koski
Title: VP - Finance
Date: 10/17/97
<PAGE>
EXHIBIT A
ARBITRATION. U.S. Bank and Borrower agree that all disputes, claims and
controversies between them, whether individual, joint, or class in nature,
arising from this letter or the revolving line of credit or otherwise,
including without limitation contract and tort disputes, shall be arbitrated
pursuant to the Rules of the American Arbitration Association, upon request
of either party. No act to take or dispose of any collateral securing any
loan shall constitute a waiver of this arbitration agreement or be prohibited
by this arbitration agreement. This includes, without limitation, obtaining
injunctive relief or a temporary restraining order; foreclosing by notice and
sale under any deed of trust or mortgage; obtaining a writ of attachment or
imposition of a receiver; or exercising any rights relating to personal
property, including taking or disposing of such property with or without
judicial process pursuant to Article 9 of the Uniform Commercial Code. Any
disputes, claims, or controversies concerning the lawfulness or
reasonableness or any act, or exercise of any right, concerning any
collateral securing any loan, including any claim to rescind, reform, or
otherwise modify any agreement relating to the collateral securing any loan,
shall also be arbitrated, provided however that no arbitrator shall have the
right or other power to enjoin or restrain any act of any party. Judgment
upon any award rendered by any arbitrator may be entered in any court having
jurisdiction. Nothing herein shall preclude any party from seeking equitable
relief from a court of competent jurisdiction. The stature of limitations,
estoppel, waiver, laches, and similar doctrines which would otherwise be
applicable in an action brought by a party shall be applicable in any
arbitration proceeding, and the commencement of an arbitration proceeding
shall be deemed the commencement of any action for these purposes. The
Federal Arbitration Act shall apply to the construction, interpretation, and
enforcement of this arbitration provision.
<PAGE>
Exhibit 21
List of Subsidiaries
ThrustMaster Foreign Sales Corporation, Inc.
ThrustMaster (Europe) Limited (as of January 5, 1998)
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTS
We consent to the incorporation by reference in the registration statement of
ThrustMaster, Inc. on Form S-8 (File No. 333-93082) of our report dated
January 23, 1998, on our audits of the consolidated financial statements and
financial statement schedule of ThrustMaster, Inc. as of December 31, 1996
and 1997, and for the three years in the period ended December 31, 1997,
which report is included in this Annual Report on Form 10-K.
COOPERS & LYBRAND, L.L.P.
Portland, Oregon
March 25, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997 AND THE RELATED STATEMENTS OF
INCOME FOR THE TWELVE MONTH PERIOD THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000932290
<NAME> THRUSTMASTER, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 449
<SECURITIES> 0
<RECEIVABLES> 16,655
<ALLOWANCES> 51
<INVENTORY> 6,974
<CURRENT-ASSETS> 24,730
<PP&E> 4,167
<DEPRECIATION> 2,048
<TOTAL-ASSETS> 26,877
<CURRENT-LIABILITIES> 7,533
<BONDS> 0
0
0
<COMMON> 13,486
<OTHER-SE> 5,794
<TOTAL-LIABILITY-AND-EQUITY> 19,280
<SALES> 45,494
<TOTAL-REVENUES> 45,494
<CGS> 28,839
<TOTAL-COSTS> 28,839
<OTHER-EXPENSES> 12,147
<LOSS-PROVISION> 87
<INTEREST-EXPENSE> 19
<INCOME-PRETAX> 4,812
<INCOME-TAX> 1,615
<INCOME-CONTINUING> 3,197
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,197
<EPS-PRIMARY> .75
<EPS-DILUTED> .69
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
RESPECTIVE CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1995, MARCH 31, 1996,
JUNE 30, 1996, SEPTEMBER 30, 1996, AND DECEMBER 31, 1996 AND THE RELATED
STATEMENTS OF INCOME FOR THE RESPECTIVE PERIODS THEN ENDED, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000932290
<NAME> THRUSTMASTER, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C> <C> <C> <C>
<C>
<PERIOD-TYPE> YEAR YEAR 3-MOS 6-MOS
9-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996 MAR-30-1996 JUN-30-1996
SEP-30-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996 JAN-01-1996 JAN-01-1996
JAN-01-1996
<PERIOD-END> DEC-31-1995 DEC-31-1996 MAR-31-1996 JUN-30-1996
SEP-30-1996
<EXCHANGE-RATE> 1 1 1 1
1
<CASH> 8,090 6,420 7,677 7,928
8,433
<SECURITIES> 0 0 0 0
0
<RECEIVABLES> 2,904 9,834 2,791 3,057
4,704
<ALLOWANCES> 7 14 7 7
66
<INVENTORY> 2,526 3,560 2,362 1,977
1,997
<CURRENT-ASSETS> 14,019 20,148 14,435 13,396
15,501
<PP&E> 1,725 2,514 1,832 2,057
2,412
<DEPRECIATION> 667 1,433 802 938
1,078
<TOTAL-ASSETS> 15,102 21,261 14,520 14,568
16,889
<CURRENT-LIABILITIES> 1,743 5,342 903 775
2,377
<BONDS> 0 0 0 0
0
0 0 0 0
0
0 0 0 0
0
<COMMON> 11,877 13,301 12,036 12,104
12,198
<OTHER-SE> 1,434 2,597 1,535 1,646
2,272
<TOTAL-LIABILITY-AND-EQUITY> 15,102 21,261 14,520 14,568
16,889
<SALES> 19,415 30,821 4,564 8,814
15,745
<TOTAL-REVENUES> 19,415 30,821 4,564 8,814
15,745
<CGS> 11,815 19,592 2,970 5,585
9,727
<TOTAL-COSTS> 11,815 19,592 2,970 5,585
9,727
<OTHER-EXPENSES> 5,956 8,066 1,538 3,102
5,032
<LOSS-PROVISION> 8 122 0 0
68
<INTEREST-EXPENSE> 3 1 0 0
0
<INCOME-PRETAX> 2,048 3,629 162 340
1,310
<INCOME-TAX> 687 1,370 61 128
472
<INCOME-CONTINUING> 1,361 2,259 101 212
838
<DISCONTINUED> 0 0 0 0
0
<EXTRAORDINARY> 0 0 0 0
0
<CHANGES> 0 0 0 0
0
<NET-INCOME> 1,361 2,259 101 212
838
<EPS-PRIMARY> .37 .54 .02 .05
.20
<EPS-DILUTED> .34 .51 .02 .05
.19
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 1997, JUNE 30, 1997, SEPTEMBER 30,
1997 AND THE RELATED STATEMENTS OF INCOME FOR THE RESPECTIVE PERIODS THEN ENDED.
</LEGEND>
<RESTATED>
<CIK> 0000932290
<NAME> THRUSTMASTER, INC
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997
<CASH> 7,373 7,994 5,376
<SECURITIES> 0 0 0
<RECEIVABLES> 4,575 5,487 9,637
<ALLOWANCES> 2 2 2
<INVENTORY> 4,393 3,457 5,300
<CURRENT-ASSETS> 16,894 17,346 20,935
<PP&E> 2,796 3,101 3,715
<DEPRECIATION> 1,557 1,694 1,837
<TOTAL-ASSETS> 18,164 18,784 22,844
<CURRENT-LIABILITIES> 1,912 2,147 5,293
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 13,344 13,399 13,474
<OTHER-SE> 2,886 3,215 4,051
<TOTAL-LIABILITY-AND-EQUITY> 18,164 18,784 22,844
<SALES> 6,272 13,421 23,930
<TOTAL-REVENUES> 6,272 13,421 23,930
<CGS> 3,786 8,266 14,814
<TOTAL-COSTS> 3,786 8,266 14,814
<OTHER-EXPENSES> 2,108 4,352 7,156
<LOSS-PROVISION> 6 6 6
<INTEREST-EXPENSE> 0 0 0
<INCOME-PRETAX> 458 982 2,244
<INCOME-TAX> 169 364 790
<INCOME-CONTINUING> 289 618 1,454
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 289 618 1,454
<EPS-PRIMARY> .07 .15 .34
<EPS-DILUTED> .06 .14 .31
</TABLE>
