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 June 30, 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 4,276,930 shares
(Class) (Outstanding at July 31, 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
Consolidates Statements of Income................................ 3
Consolidated Statements of Cash Flows............................ 4
Consolidated Statements of Changes in Shareholders' Equity....... 5
Notes to Consolidated Financial Statements....................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation..................................... 7
PART II - OTHER INFORMATION............................................... 11
SIGNATURES................................................................ 13
THRUSTMASTER, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30, December 31,
1997 1996
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(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 7,994 $ 6,420
Accounts receivable, net 5,485 9,820
Inventories 3,457 3,560
Prepaid expenses and other 158 109
Deferred income taxes 252 239
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Total current assets 17,346 20,148
Plant and equipment, net 1,407 1,081
Other 31 32
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Total assets $ 18,784 $ 21,261
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,396 $ 3,021
Accrued liabilities 747 2,311
Current portion - long-term debt 4 10
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Total current liabilities 2,147 5,342
Deferred income taxes 23 21
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Total liabilities 2,170 5,363
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Shareholders' equity:
Preferred stock - -
Common stock 13,399 13,301
Retained earnings 3,215 2,597
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Total shareholders' equity 16,614 15,898
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Total liabilities and shareholders' equity $ 18,784 $ 21,261
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The accompanying notes are an integral part of these consolidated financial
statements.
THRUSTMASTER, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
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1997 1996 1997 1996
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Revenues $7,149 $4,250 $13,421 $8,814
Cost of goods sold 4,480 2,615 8,266 5,585
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Gross profit 2,669 1,635 5,155 3,229
Operating expenses:
Research and engineering 531 408 1,204 883
Selling, general and administrative 1,713 1,156 3,148 2,219
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Total operating expenses 2,244 1,564 4,352 3,102
Income from operations 425 71 803 127
Interest income 99 107 179 213
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Income before income taxes 524 178 982 340
Provision for income taxes 195 67 364 128
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Net income $ 329 $ 111 $ 618 $ 212
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Net income per share $ 0.07 $ 0.02 $ 0.13 $ 0.05
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Weighted average shares outstanding 4,762 4,554 4,740 4,553
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The accompanying notes are an integral part of these consolidated financial
statements.
THRUSTMASTER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended
June 30,
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1997 1996
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Cash flows from operating activities:
Net income $ 618 $ 212
Adjustments to reconcile net income to net cash provided
Provided by (used in) operating activities:
Depreciation 260 271
Deferred income taxes (11) --
Changes in assets and liabilities:
Accounts receivable 4,335 (153)
Inventories 103 549
Prepaid expenses and other assets (48) 38
Payables and accrued liabilities (3,119) (969)
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Net cash provided by (used in)
operating activities 2,138 (52)
Cash flows from investing activities:
Purchase of plant and equipment (586) (332)
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Cash flows from financing activities:
Payment on long-term debt (6) (5)
Proceeds from issuance of common stock 28 227
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Net cash provided by financing activities 22 222
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Net increase (decrease) in cash and cash
equivalents
1,574 (162)
Cash and cash equivalents, beginning of period 6,420 8,090
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Cash and cash equivalents, end of period $7,994 $7,928
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The accompanying notes are an integral part of these consolidated financial
statements.
THRUSTMASTER, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands)
(Unaudited)
Common Stock Retained
Shares Amount Earnings
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Balance, January 1, 1997 4,240 $13,301 $2,597
Stock options exercised 27 28 --
Tax benefits from stock options exercised -- 70 --
Net income -- -- 618
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Balance, June 30, 1997 4,267 $13,399 $3,215
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The accompanying notes are an integral part of these consolidated financial
statements.
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):
June 30, December 31,
1997 1996
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Raw materials $ 812 $ 762
Work in progress 80 90
Finished goods 2,565 2,708
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$3,457 $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") and Statement of Financial Accounting Standards No. 129,
"Disclosure of Information about Capital Structure "(SFAS 129"), which are
effective for the Company's 1997 fiscal year. The Company's management has
studied the implications of SFAS 128 and SFAS 129, and based on the initial
evaluation, does not expect the adoption to have a material impact on the
Company's financial condition or results of operations.
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 Six Months Ended
June 30, June 30,
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1997 1996 1997 1996
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Revenues 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 62.7 61.5 61.6 63.4
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Gross profit 37.3 38.5 38.4 36.6
Operating expenses:
Research and engineering 7.4 9.6 9.0 10.0
Sales, general and administrative 24.0 27.2 23.4 25.2
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Total operating expenses 31.4 36. 8 32.4 35.2
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Income from operations 5.9 1.7 6.0 1.4
Interest income 1.4 2.5 1.3 2.5
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Income before income taxes 7.3 4.2 7.3 3.9
Provision for income taxes 2.7 1.6 2.7 1.5
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Net income 4.6% 2.6% 4.6% 2.4%
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COMPARISON OF THREE MONTHS ENDED JUNE 30, 1997 TO THE THREE MONTHS ENDED JUNE
30, 1996
Revenues for the three months ended June 30, 1997 were $7,149,000, an
increase of $2,899,000, or 68.2%, compared to $4,250,000 for the three months
ended June 30, 1996. Revenues grew due to both increasing demand for the
Company's core products and additional sales into the warehouse-club
distribution channel.
Gross profit for the three months ended June 30, 1997 was $2,669,000, an
increase of $1,034,000, or 63.2%, compared to $1,635,000 for the three months
ended June 30, 1996. As a percentage of revenues, the gross profit margin
percentage was 37.3% for the three months ended June 30, 1997 and 38.5% for the
three months ended June 30, 1996. The gross profit margin percentage decreased
primarily because of a higher percentage of sales into the warehouse-club
distribution channel, which yield somewhat lower gross margins.
Total operating expenses for the three months ended June 30, 1997 were
$2,244,000, an increase of $680,000, or 43.5%, compared to $1,564,000 for the
three
months ended June 30, 1996. As a percentage of revenues, total operating
expenses were 31.4% for the quarter ended June 30, 1997, compared to 36.8%
for the quarter ended June 30, 1996.
Research and engineering expenses were $531,000 for the quarter ended June
30, 1997, an increase of $123,000, or 30.1%, compared to $408,000 for the
quarter ended June 30, 1996. The increase resulted primarily from additional
expenses incurred in development of the Company's new products. As a
percentage of revenues, research and engineering expenses were 7.4% for the
quarter ended June 30, 1997, compared to 9.6% for the quarter ended June 30,
1996.
Selling, general and administrative expenses were $1,713,000 for the three
months ended June 30, 1997, an increase of $557,000, or 48.2%, compared to
$1,156,000 for the quarter ended June 30, 1996. The increase was primarily due
to higher selling expenses associated with higher revenues, and increases in
other merchandising and marketing expenses. As a percentage of revenues,
selling, general and administrative expenses decreased to 24.0% for the quarter
ended June 30, 1997, compared to 27.2% for the quarter ended June 30, 1996.
Interest income for the three-month periods ended June 30, 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 June 30,
1997, reflects an effective tax rate of 37.2%. This compares to a tax rate
of 37.6% for the three-month period ended June 30, 1996.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1997 TO THE SIX MONTHS ENDED JUNE 30,
1996
Revenues for the six months ended June 30, 1997 were $13,421,000, an
increase of $4,607,000, or 52.3%, compared to $8,814,000 for the six months
ended June 30, 1996. Revenues grew primarily due to increased demand for the
Company's core products and additional sales into the warehouse-club
distribution channel.
Gross profit for the six months ended June 30, 1997 was $5,155,000, an
increase of $1,926,000, or 59.6%, compared to $3,229,000 for the six months
ended June 30, 1996. As a percentage of revenues, the gross profit margin
percentage was 38.4% for the six months ended June 30, 1997 and 36.6% for the
six months ended June 30, 1996. The gross profit margin percentage increased
primarily because the Company's newer products and current product mix have
higher gross margins. Gross margins were affected somewhat due to an increase
in sales in the warehouse-club distribution channel, which typically have lower
gross margins.
Total operating expenses for the six months ended June 30, 1997 were
$4,352,000, an increase of $1,250,000, or 40.3%, compared to $3,102,000 for
the six months ended June 30, 1996. As a percentage of revenues, total
operating expenses were
32.4% for the six-months period ended June 30, 1997, compared to 35.2% for
the six-month period ended June 30, 1996.
Research and engineering expenses were $1,204,000 for the six months ended
June 30, 1997, an increase of $321,000, or 36.4%, compared to $883,000 for the
six months ended June 30, 1996. The increase resulted primarily from
additional expenses incurred in development of the Company's new products. As
a percentage of revenues, research and engineering expenses were 9.0% for the
six months ended June 30, 1997, compared to 10.0% for the six months ended June
30, 1996.
Selling, general and administrative expenses were $3,148,000 for the six
months ended June 30, 1997, an increase of $929,000, or 41.9%, compared to
$2,219,000 for the six months ended June 30, 1996. The increase was primarily
due to higher amounts of selling expenses associated with higher revenues, and
increases in other merchandising and marketing expenses. As a percentage of
revenues, selling, general and administrative expenses decreased to 23.4% for
the six months ended June 30, 1997, compared to 25.2% for the six months ended
June 30, 1996.
Interest income for the six-month periods ended June 30, 1997 and 1996 was
derived from the investment of the cash balances of the Company.
The provision for income taxes for the six-month period end June 30, 1997,
reflects an effective tax rate of 37.1%. This compares to a tax rate of 37.6%
for the six-month period ended June 30, 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 July of 1998, requires the Company
to maintain certain working capital and debt to equity ratios. At June 30,
1997 there were no borrowings outstanding and the Company was in compliance
with all bank loan covenants.
Net cash provided by operating activities was $2,138,000 for the six
months ended June 30, 1997, resulting primarily from net income of $618,000, a
decrease in accounts receivable of $4,335,000, and a decrease in payables and
accrued liabilities of $3,119,000.
Capital expenditures for the six-month period ended June 30, 1997 were
$586,000 compared to $332,000 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 months.
This Report on Form 10-Q contains forward-looking statements (as defined
in Section 21E of the Securities Exchange Act of 1934, as amended) which
reflect management's current views with respect to future events and financial
performance. The following important factors, among others, could affect the
Company's actual results and could cause such results to differ materially from
those expressed in the Company's forward-looking statements: product
commercialization and technological change, competition, dependence on software
developers and publishers, variability in periodic operating results,
seasonality, customer concentration, dependence upon key personnel, proprietary
rights, offshore manufacturing, dependence upon sole or limited suppliers,
dependence upon independent distributors and sales representatives,
international sales, lack of industry diversification and governmental
regulation and other risks detailed from time to time in the Company's SEC
reports, including the Company's Report on Form 10-K for the fiscal year
December 31, 1996.
PART II -- OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO VOTER SECURITY HOLDERS
The Company's 1997 Annual Meeting of Shareholders was held May 22, 1997.
The following persons were elected directors for the terms set forth below by
the votes set forth opposite their names:
Votes Against Shares Which Broker
Votes For or Withheld Abstained Non-Votes
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Terms Expiring in 1998
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Robert L. Carter 3,979,232 16,091 N/A N/A
G. Gerald Pratt 3,984,742 10,581 N/A N/A
Milton R. Smith 3,986,648 8,675 N/A N/A
Terms Expiring in 1999
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Stephen A. Aanderud 3,987,678 7,645 N/A N/A
Merrill A. McPeak 3,987,678 7,645 N/A N/A
C. Norman Winningstad 3,985,618 9,705 N/A N/A
Terms Expiring in 2000
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Graham E. Dorland 3,987,832 7,491 N/A N/A
Frederick M. Stevens 3,987,832 7,491 N/A N/A
Shareholders also ratified the selection of Coopers & Lybrand LLP as
independent accountants of the Company by a vote of 3,982,366 shares For to
4,526 shares Against; 8,431 shares Abstained and there were no Broker
Non-Votes.
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
to the Registration Statement on Form S-8 filed on June 5, 1995
(File No. 93082))
**10.8 Leases, dated March 13, 1996, between Pacific Realty Associates,
L.P. and the Company, as amended
**10.9 Summary of 1997 Bonus Program
11.1 Statement re Computation of Per Share Earnings
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: August 11, 1997 By /s/ Kent E. Koski
Kent E. Koski ----------------------
Vice President of Finance and
Administration, Chief Financial
Officer