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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
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, OREGON, 97124-5839
(Address of principal executive offices)
(Zip Code)
(503) 615-3200
(Registrant's telephone number)
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common stock, no par value 4,254,788 shares
(Class) (Outstanding at April 30, 1997)
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THRUSTMASTER, INC.
Index to Form 10-Q
PART I -- FINANCIAL INFORMATION Page No.
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Item 1. Financial Statements
Consolidated Balance Sheets........................................ 2
Consolidated Statements of Income.................................. 3
Consolidated Statements of Cash Flows.............................. 4
Consolidated Statements of Changes in Shareholders' Equity......... 5
Notes to Consolidated Financial Statements......................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operation....................... 7
PART II -- OTHER INFORMATION .............................................. 10
SIGNATURES ................................................................ 11
1
THRUSTMASTER, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31, December 31,
1997 1996
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(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 7,373 $ 6,420
Accounts receivable, net 4,573 9,820
Inventories 4,393 3,560
Prepaid expenses and other 310 109
Deferred income taxes 245 239
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Total current assets 16,894 20,148
Plant and equipment, net 1,239 1,081
Other 31 32
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Total assets $18,164 $21,261
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,021 $ 3,021
Accrued liabilities 884 2,311
Current portion - long-term debt 7 10
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Total current liabilities 1,912 5,342
Deferred income taxes 22 21
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Total liabilities 1,934 5,363
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Shareholders' equity:
Preferred stock - -
Common stock 13,344 13,301
Retained earnings 2,886 2,597
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Total shareholders' equity 16,230 15,898
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Total liabilities and shareholders' equity $18,164 $21,261
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The accompanying notes are an integral part of these consolidated financial
statements.
2
THRUSTMASTER, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Three Months Ended
March 31,
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1997 1996
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Revenues $6,272 $4,564
Cost of goods sold 3,786 2,970
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Gross profit 2,486 1,594
Operating expenses:
Research and engineering 673 475
Selling, general and administrative 1,435 1,063
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Total operating expenses 2,108 1,538
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Income from operations 378 56
Interest income 80 106
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Income before income taxes 458 162
Provision for income taxes 169 61
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Net income $ 289 $ 101
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Net income per share $ 0.06 $ 0.02
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Weighted average shares outstanding 4,727 4,545
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The accompanying notes are an integral part of these consolidated financial
statements.
3
THRUSTMASTER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
March 31,
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1997 1996
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Cash flows from operating activities:
Net income $ 289 $ 101
Adjustments to reconcile net income to net cash
Provided by (used in) operating activities:
Depreciation 124 135
Deferred income taxes (5) --
Changes in assets and liabilities:
Accounts receivable 5,248 113
Inventories (833) 164
Prepaid expenses and other assets (202) (2)
Payables and accrued liabilities (3,388) (840)
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Net cash provided by (used in) operating activities 1,233 (329)
Cash flows from investing activities:
Purchase of plant and equipment (282) (107)
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Cash flows from financing activities:
Payment on long-term debt (3) (3)
Proceeds from issuance of common stock 5 26
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Net cash provided by financing activities 2 23
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Net increase (decrease) in cash and cash
equivalents
953 (413)
Cash and cash equivalents, beginning of period 6,420 8,090
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Cash and cash equivalents, end of period $7,373 $7,677
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The accompanying notes are an integral part of these consolidated financial
statements.
4
THRUSTMASTER, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands)
(Unaudited)
Common Stock
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Shares Amount Earnings
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Balance, January 1, 1997 4,240 $13,301 $2,597
Stock options exercised 14 5 --
Tax benefits from stock options exercised -- 38 --
Net income -- -- 289
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Balance, March 31, 1997 4,254 $13,344 $2,886
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The accompanying notes are an integral part of these consolidated financial
statements.
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THRUSTMASTER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
NOTE 1 -- Basis of Presentation
The accompanying consolidated financial statements include the accounts of
ThrustMaster, Inc., and its wholly-owned subsidiary, ThrustMaster Foreign Sales
Corporation, and have been prepared by the Company without audit and in
conformity with generally accepted accounting principles for interim financial
information. Accordingly, certain financial information and footnotes have been
omitted or condensed. In the opinion of management, the unaudited condensed
consolidated financial statements include all necessary adjustments (which are
of a normal and recurring nature) for the fair presentation of the results of
the interim periods presented. These financial statements should be read in
conjunction with the Company's audited financial statements for the year ended
December 31, 1996. The results of operations for the periods presented are not
necessarily indicative of the results that may be expected for the entire fiscal
year.
NOTE 2 -- Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market. Inventories are as follows (in thousands):
March 31, December 31,
1997 1996
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Raw materials $ 612 $ 762
Work in progress 64 90
Finished goods 3,717 2,708
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$4,393 $3,560
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NOTE 3 -- Impact of Recently Issued Accounting Standards
During February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, EARNINGS PER SHARE (SFAS
128) which specifies the computation, presentation and disclosure
requirements for earnings per share. SFAS 128 will become effective for the
Company's 1997 fiscal year. The impact, if any, of adoption of SFAS 128 on
the Company's financial statements has not yet been determined.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
of revenues represented by certain items included in the Company's Consolidated
Statements of Income:
Three Months Ended
March 31,
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1997 1996
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Revenues 100.0% 100.0%
Cost of goods sold 60.4 65.1
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Gross profit 39.6 34.9
Operating expenses:
Research and engineering 10.7 10.4
Selling, general and administrative 22.9 23.3
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Total operating expenses 33.6 33.7
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Income from operations 6.0 1.2
Interest income 1.3 2.3
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Income before income taxes 7.3 3.5
Provision for income taxes 2.7 1.3
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Net income 4.6% 2.2%
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COMPARISON OF THREE MONTHS ENDED MARCH 31, 1997 TO THE THREE MONTHS ENDED
MARCH 31, 1996
Revenues for the three months ended March 31, 1997 were $6,272,000, an
increase of $1,708,000, or 37.4%, compared to $4,564,000 for the three months
ended March 31, 1996. Revenues increased primarily due to increases in foreign
sales of the Company's products.
Gross profit for the three months ended March 31, 1997 was $2,486,000, an
increase of $892,000, or 56.0%, compared to $1,594,000 for the three months
ended March 31, 1996. As a percentage of revenues, the gross profit margin
percentage was 39.6% for the three months ended March 31, 1997 and 34.9% for the
three months ended March 31, 1996. The gross profit margin percentage increased
primarily because the Company's newer products, and current product mix have
higher gross margins.
Total operating expenses for the three months ended March 31, 1997 were
$2,108,000, an increase of $570,000, or 37.1%, compared to $1,538,000 for the
three
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months ended March 31, 1996. As a percentage of revenues, total operating
expenses were 33.6% for the quarter ended March 31, 1997, approximately equal to
33.7% for the quarter ended March 31, 1996.
Research and engineering expenses were $673,000 for the quarter ended March
31, 1997, an increase of $198,000, or 41.7%, compared to $475,000 for the
quarter ended March 31, 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 increased to 10.7% for the
quarter ended March 31, 1997, compared to 10.4% for the quarter ended March 31,
1996.
Selling, general and administrative expenses were $1,435,000 for the three
months ended March 31, 1997, an increase of $372,000, or 35.0%, compared to
$1,063,000 for the quarter ended March 31, 1996. 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 22.9% for the quarter ended March 31, 1997, compared to 23.3% for the quarter
ended March 31, 1996.
Interest income for the three-month periods ended March 31, 1997 and 1996
was derived from the investment of the cash balances of the Company.
The provision for income taxes for the three-month period ended March 31,
1997, reflects an effective tax rate of 36.9%. This compares to a tax rate of
37.7% for the three-month period ended March 31, 1996.
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 credit facility with U.S. National Bank of Oregon. Under
present terms, the Company may borrow up to the lesser of $1,000,000 or 75% of
certain eligible receivables collateralizing the facility. The credit facility,
which is scheduled for review in September 1997, requires the Company to
maintain certain working capital and debt to equity ratios. At March 31, 1997
there were no borrowings outstanding and the Company was in compliance with all
bank loan covenants.
Net cash provided by operating activities was $1,233,000 for the three
months ended March 31, 1997, resulting primarily from net income of $289,000, a
decrease in accounts receivable of $5,248,000, an increase in inventory of
$833,000 and a decrease in payables and accrued liabilities of $3,388,000.
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Capital expenditures for the three-month period ended March 31, 1997 were
$282,000 compared to $107,000 for the same period in the prior year. These
expenditures were primarily for new product tooling and computer equipment.
The Company believes that available funds together with borrowings under
its credit facility will be adequate to meet the Company's anticipated cash
needs during the next 12 month period.
This Report on Form 10-Q contains forward-looking statements (as defined in
Section 21E of the Securities Exchange Act of 1934, as amended) which reflect
management's current views with respect to future events and financial
performance. The following important factors, among others, could affect the
Company's actual results and could cause such results to differ materially from
those expressed in the Company's forward-looking statements: product
commercialization and technological change, limited operating history and
financial needs, competition, dependence on software developers and publisher,
variability in periodic operating results, seasonality, customer concentration,
dependence upon key personnel, proprietary rights, offshore manufacturing,
dependence upon sole or limited suppliers, dependence upon independent
distributors and sales representatives, international sales, lack of industry
diversification and governmental regulation. These factors are discussed in
greater detail in the Company's Report on Form 10-K for the fiscal year December
31, 1996.
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PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Number Description
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*3.1 Articles of Incorporation, dated July 23, 1990; Articles of
Amendment, dated December 15, 1990; Articles of Amendment, dated
July 7, 1992; Articles of Amendment, dated July 7, 1993; Articles
of Amendment , dated December 14, 1994
**3.2 Amended and Restated Bylaws
*4.1 Description of Capital Stock contained in the Articles of
Incorporation and Amendments thereto (See Exhibit 3.1)
**4.2 Description of Rights of Security Holders contained in the
Amended and Restated Bylaws (See Exhibit 3.2)
*4.3 Form of Certificate for Shares of Common Stock
*4.4 Form of Representatives' Warrant Agreement among the Company,
Cruttenden Roth and Black & Company, Inc.
*10.1 Consulting Agreement, dated December 1, 1993, between the Company
and BOCAR, Inc.
*10.3 Directors' Nonqualified Stock Option Plan, dated July 19, 1994
*10.4 1994 Stock Option Plan, dated July 19, 1994
**10.5 Letter agreement, dated May 16, 1996 from United States National
Bank of Oregon to the Company regarding a revolving line of
credit
*10.6 Voicecom Development Agreement, dated November 4, 1994, between
the Company and Advanced Protocol Systems, Inc.
**10.7 1990 Stock Option Plan (incorporated by reference to Exhibit 4.3
to the Registration Statement on Form S-8 filed on June 5, 1995
(File No. 33-93082))
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**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
27 Financial Data Schedule
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*Incorporated by reference to the same exhibit number from the Registration
Statement on Form SB-2 filed on January 5, 1995, as amended on February 7, 1995,
and February 24, 1995 (File No. 33-88252-LA).
** Incorporated by reference to the same exhibit number to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the period for which this
report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THRUSTMASTER, INC.
Date: May 8, 1997 By /s/ Kent E. Koski
Kent E. Koski ---------------------------
Vice President of Finance and
Administration Chief Financial
Officer
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