Page 1 of 14
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
Commission File Number 0-25520
-------
THRUSTMASTER, INC.
(Exact name of registrant as specified in its charter)
OREGON 93-1040330
- - ----------------------- ---------------------------------
(State or jurisdiction) (IRS Employer Identification No.)
10150 S.W. Nimbus Avenue, Portland, Oregon 97223-4337
- - ------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
(503) 639-3200
- - -------------------------------
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports),and (2) has been subject
to such filing requirements for the past 90 days.
Yes [x] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date.
Common stock, no par value - 4,070,196 shares as of July 31, 1996.
Page 2 of 14
THRUSTMASTER, INC.
Index to Form 10-Q
PART I FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flow 5
Consolidated Statements of Changes in Shareholders' Equity 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operation 8
PART II OTHER INFORMATION 12
SIGNATURES 12
Page 3 of 14
THRUSTMASTER, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30, December 31
1996 1995
-------- --------
(unauditied)
ASSETS
Current assets:
Cash and cash equivalents $ 7,928 $ 8,090
Accounts receivable, net 3,050 2,897
Inventories 1,977 2,526
Prepaid expenses and other 336 402
Deferrred income taxes 105 104
-------- --------
Total current assets 13,396 14,019
Plant and equipment, net 1,119 1,058
Other 53 25
-------- --------
Total assets $ 14,568 $ 15,102
======== ========
<FN>
LIABILITIES AND SHAREHOLDERS EQUITY
Current liabilities:
Accounts payable $ 460 $ 1,203
Accrued liabilites 303 529
Current portion -
long-term debt 12 11
-------- --------
Total current liabilites 775 1,743
Long-term debt 4 10
Deferred income taxes 39 38
-------- --------
Total liabilites 818 1,791
-------- --------
Shareholders' equity:
Preferred stock - -
Common stock 12,104 11,877
Retained earnings 1,646 1,434
-------- --------
Total shareholders' equity 13,750 13,311
-------- --------
Total liabilities and
shareholders' equity $ 14,568 $ 15,102
======== ========
<FN>
The accompanying notes are an integral part of these consolidated fiancial
statements.
Page 4 of 14
THRUSTMASTER, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except pershare data)
(Unaudited)
Three Months ended Six Months Ended
June 30, June 30,
-------------- --------------
1996 1995 1996 1995
------ ------ ------ ------
Revenues $4,250 $4,277 $8,814 $7,978
Cost of goods sold 2,615 2,499 5,585 4,721
------ ------ ------ ------
Gross Profit 1,635 1,778 3,229 3,257
Operating expenses:
Research and engineering 408 471 883 850
Sales and marketing 609 469 1,157 929
Customer service 69 72 138 146
General and administrative 478 406 924 747
------ ------ ------ ------
Total operating income 1,564 1,418 3,102 2,672
------ ------ ------ ------
Income from operations 71 360 127 585
Interest income 107 120 213 165
------ ------ ------ ------
Income before taxes 178 480 340 750
Provision for income taxes 67 173 128 197
------ ------ ------ ------
Net income $ 111 $ 307 $ 212 $ 553
====== ====== ====== ======
Pro forma information:
Income before income taxes $ 178 $ 480 $ 340 $ 750
Provision for income taxes 67 173 128 270
------ ------ ------ ------
Net income $ 111 $ 307 $ 212 $ 480
====== ====== ====== ======
Net income per share $ 0.03 $ 0.07 $ 0.05 $ 0.12
====== ====== ====== ======
Weighted average shares
outstanding 4,422 4,462 4,421 3,926
====== ====== ====== ======
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 5 of 14
THRUSTMASTER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended
June 30,
------------------------
1996 1995
------- --------
Cash flows from operating activities:
Net income $ 212 $ 553
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Depreciation 271 155
Deferred income taxes -- (87)
Changes in assets and liabilities:
Accounts receivable (153) (189)
Inventories 549 (701)
Prepaid expences and
other assets 38 108
Payables and accrued liabilities (969) (31)
------ -------
Net cash used in operating
activities (52) (192)
Cash flows from investing activities:
Purchase of plant and equipment (332) (366)
------ -------
Cash flows from financing activities:
Payment on long-term debt (5) (50)
Proceeds from issuance of common stock 227 8,759
Dividends -- (556)
------ -------
Net cash provided by financing
activities 222 8,153
Net increase (decrease) in cash (162) 7,595
Cash, beginning of period 8,090 545
------ -------
Cash, end of period $7,928 $8,140
====== =======
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 6 of 14
THRUSTMASTER, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands)
(Unaudited)
Common Stock Retained
-------------- --------
Shares Amount Earnings
------ ------ --------
Balance, December 31, 1995 3,953 $11,877 $1,434
Stock options exercised 117 43 --
Tax benefits from stock options
exercised -- 184 --
Net income -- -- 212
----- ------- ------
Balance, June 30, 1996 4,070 $12,104 $1,646
===== ======= ======
<F/N>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 7 of 14
THRUSTMASTER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
[CAPTION]
NOTE 1 Basis of Presentation
The accompanying consolidated financial statements include the statements
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, and include the financial condition and
results of operations of ThrustMaster, Inc. Accordingly, certain financial
information and footnotes have been omitted or condensed. In the opinion
of management, the 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, 1995.
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,
1996 1995
------- -------
Raw materials $ 876 $ 1,493
Work in progress 26 244
Finished goods 1,075 789
------- -------
$ 1,977 $ 2,526
======= =======
<FN>
Page 8 of 14
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,
-------------- --------------
1996 1995 1996 1995
------ ------ ------ ------
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 61.5 58.4 63.4 59.2
------ ------ ------ ------
Gross profit 38.5 41.6 36.6 40.8
Operating expenses:
Research and engineering 9.6 11.0 10.0 10.7
Sales and marketing 14.3 11.0 13.1 11.6
Customer service 1.6 1.7 1.6 1.8
General and administrative 11.3 9.5 10.5 9.4
----- ----- ----- -----
Total operating expenses 36.8 33.2 35.2 33.5
----- ----- ----- -----
Income from operations 1.7 8.4 1.4 7.3
Other income 2.5 2.8 2.5 2.1
----- ----- ----- -----
Income before income taxes 4.2 11.2 3.9 9.4
Pro forma provision for
income taxes 1.6 4.0 1.5 3.4
----- ----- ----- -----
Pro forma net income 2.6% 7.2% 2.4% 6.0%
===== ===== ===== =====
<FN>
Comparison of Three Months Ended June 30, 1996 to the Three Months Ended
June 30, 1995
Revenues for the three months ended June 30, 1996 were $4,250,000, a
decrease of $27,000 or 0.6% compared to $4,277,000 for the three months
ended June 30, 1995.
Sales of driving and other non-flight simulation products during the three
months ended June 30, 1996, totaled $2,654,000, or 62.4% of total revenues,
an increase of $1,867,000, or 237.2%, over non-flight simulation product
sales in the comparable period of the prior year. The increase was due
primarily to additional revenues generated by the Company's Formula T2
driving controls. Revenues for flight simulation products were $1,596,000
during the three months ended June 30, 1996, or 37.6% of total revenues, a
decrease of $1,895,000 or 54.3%, over the three months ended June 30, 1995.
The decrease in flight simulation products resulted primarily from
additional competition and slower growth in the demand for such products.
Page 9 of 14
Gross profit for the three months ended June 30, 1996 was $1,635,000 a
decrease of $143,000 or 8.0%, compared to $1,778,000 for the three months
ended June 30, 1995. As a percentage of revenues, gross profit was 38.5%
for the three months ended June 30, 1996 and 41.6% for the three months
ended June 30, 1995. The gross profit margin percentage declined primarily
because the Company's more recent product offerings, which comprise an
increasing percentage of total revenues, have a lower gross margin
percentage than certain of the Company's other products.
Research and engineering expenses for the three months ended June 30, 1996
were $408,000, a decrease of $63,000 or 13.4%, compared to $471,000 for
the three months ended June 30, 1995. The decrease resulted primarily
from a reduction in the amount of outside engineering services and lower
expenses associated with patents.
Sales and marketing expenses for the three months ended June 30, 1996 were
$609,000, an increase of $140,000 or 29.9%, compared to $469,000 for the
period ended June 30, 1995. As a percentage of revenues, sales and
marketing expenses were 14.3% for the three-month period ended
June 30, 1996 compared to 11.0% in the same period in the prior year.
The increase resulted primarily from additional marketing personnel and
related expenses, and increased merchandising programs with certain major
retail customers.
Customer service expenses for the three-month period ended June 30, 1996
were $69,000, a decrease of $3,000 or 4.2% compared to $72,000 for the three
months ended June 30, 1995.
Page 10 of 14
General and administrative expenses for the three-month period ended
June 30, 1996 were $478,000, an increase of $72,000 or 17.7%, compared to
$406,000 for the three months ended June 30, 1995. This increase was a
result of higher personnel costs, additional costs associated with being
a public company, and increased facility and other expenses.
Interest income for the three-month periods ended June 30, 1996 and 1995
was derived from the investment of the remaining proceeds of the public
offering which closed March 3, 1995.
The provision for income taxes for the three month period ended
June 30, 1996 reflects an effective tax rate of 37.6%. This compares to a
tax rate of 36.0% for the three month period ended June 30, 1995.
Comparison of Six Months Ended June 30, 1996 to the Six Months Ended
June 30, 1995
Revenues for the six months ended June 30, 1996 were $8,814,000, an
increase of $836,000 or 10.5%, compared to $7,978,000 for the six
months ended June 30, 1995.
Sales of driving and other non-flight simulation products during the six
months ended June 30, 1996, totaled $5,331,000, or 60.5% of total revenues,
an increase of $3,820,000, or 252.9%, over non-flight simulation product
sales in the comparable period of the prior year. The increase was due
primarily to additional revenues generated by the Company's Formula T2
driving controls. Revenues for flight simulation products were
$3,483,000 during the six months ended June 30, 1996, or 39.5% of total
revenues, a decrease of $2,984,000 or 46.1%, over the six months ended
June 30, 1995. The decrease in flight simulation products resulted
primarily from additional competition and slower growth in the demand for
such products.
Gross profit for the six months ended June 30, 1996 was $3,229,000, a
decrease of $28,000 or 0.9%, compared to $3,257,000 for the six months ended
June 30, 1995. As a percentage of revenues, the gross profit margin
percentage was 36.6% for the six months ended June 30, 1996 and 40.8% for
the six months ended June 30, 1995. The gross profit margin percentage
declined primarily because the Company's more recent product offerings,
which comprise an increasing percentage of total revenues, have a lower
gross margin percentage than certain of the Company's other products.
Research and engineering expenses for the six months ended June 30, 1996
were $883,000, an increase of $33,000 or 3.9%, compared to $850,000 for
the six months ended June 30, 1995. The increase resulted primarily from
additional expenses incurred in developing new products and enhancements to
existing products as well as additional personnel expenses.
Sales and marketing expenses for the six months ended June 30, 1996 were
$1,157,000, an increase of $228,000 or 24.5%, compared to $929,000 for the
six-month period ended June 30, 1995. As a percentage of revenues, sales
and marketing expenses were 13.1% for the six-month period ended
June 30, 1996 compared to 11.6% in the same period in the prior year.
The increase is primarily attributable to additional personnel expenses and
merchandising programs with certain major retail customers.
Customer service expenses for the six-month period ended June 30, 1996
were $138,000, a decrease of $8,000 or 5.5%, compared to $146,000 for the
six months ended June 30, 1995.
General and administrative expenses for the six-month period ended
June 30, 1996 were $924,000, an increase of $177,000 or 23.7%, compared
to $747,000 for the six months ended June 30, 1995. The increase resulted
from additional personnel costs and services necessary to support growth,
as well as additional expenses incurred as a result of becoming a public
company.
Page 11 of 14
Interest income for the six-month periods ended June 30, 1996 and 1995 was
derived from the investment of the remaining proceeds of the public offering
which closed March 3, 1995.
The pro forma provision for income taxes for the six-month period ended
June 30, 1996 reflects an effective tax rate of 37.6%. This compares to
a pro forma tax rate of 36.0% for the six-month period ended June 30, 1995.
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 line of credit.
The credit facility, which is scheduled for review in June 1997, requires
the Company to maintain certain working capital and debt to equity ratios.
At June 30, 1996 there were no borrowings outstanding and the Company was
in compliance with all bank loan covenants.
Net cash used in operating activities was $52,000 for the six months ended
June 30, 1996, resulting primarily from a reduction of payables and accrued
liabilities.
Capital expenditures for the six-month period ended June 30, 1996 were
$332,000 compared to $366,000 for the same period in the prior year.
These expenditures were primarily for new product tooling and computer
equipment.
The Company paid cash dividends to its shareholders of $556,000 during the
six-month period ended June 30, 1995. These dividends were primarily for
the payment of previously unpaid shareholders' income tax liabilities with
respect to the Company's pre-tax income through December 31, 1994, the date
of termination of the Company's S corporation election.
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.
Certain statements in the Form 10-Q contain forward-looking information
(as defined in the Private Securities Litigation Reform Act of 1995)
that involve risks and uncertainties, including, but not limited to,
dependence on new product offerings, product demand and market acceptance
risks, the effect of economic conditions, the impact of competitive
products and pricing, commercialization and technological difficulties,
product development, customer concentration, the results of financing
efforts and dependence on software developers and publisher.
Page 12 of 14
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
3.1 Articles of Incorporation*
3.2 Bylaws*
11.1 Statements Regarding Computation of Per Share Earnings
23.1 Consent of Independent Accountants
-----------------------------------------
* Incorporated by reference from the Company's Registration
Statement of Form SB-2, filed on January 5, 1995, and
ammended on February 7, 1995 and February 24, 1995
(file number 33-88252-LA).
(b) Reports of Form 8-K
No reports in Form 8-K have been filed during the period 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 7, 1996
By /s/ Kent E. Koski
-----------------
Kent E. Koski
Vice President of Finance and Administration,
Chief Financial Officer and Secretary
Page 13 of 14
EXHIBIT 11.1
THRUSTMASTER, INC.
STATEMENTS REGARDING COMPUTATION
OF PER SHARE EARNINGS
(In thousands)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------- -------------
1996 1995 1996 1995
----- ----- ----- -----
Weighted average number of
common shares outstanding 4,045 3,745 4,021 3,211
Common stock equivalents
arising from stock options 377 717 400 715
----- ----- ----- -----
4,422 4,462 4,421 3,926
===== ===== ===== =====
Net income--pro forma $ 111 $ 307 $ 212 $ 480
===== ===== ===== =====
Net income per share--pro forma $0.03 $0.07 $0.05 $0.12
===== ===== ===== =====
Page 14 of 14
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
of ThrustMaster, Inc. on Form S-8 (File No. 33-93082), of our report dated
January 29,1996, on our audits of the consolidated financial statements and
financial statement schedule of ThrustMaster, Inc. as of December 31, 1994
and 1995, and for the years ended December 31, 1993, 1994, and 1995, which
report is included in the Annual Report on Form 10-K.
Coopers & Lybrand L. L. P.
Portland, Oregon
August 7, 1996
[FN]