SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
______________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
Commission File Number 0-25520
______________
THRUSTMASTER, INC.
(Exact name of registrant as specified in its charter)
OREGON 93-1040330
(State or jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
7175 NW Evergreen Parkway #400
Hillsboro, OR 97124-5839
(Address of principal executive offices)
(Zip Code)
(503) 615-3200
(Registrant's telephone number)
______________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No __
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common stock, no par value 4,116,096 shares
(Class) (Outstanding at October 31, 1996)
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 Flows ......................... 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 Operations ................ 8
PART II - OTHER INFORMATION ........................................... 12
SIGNATURES ............................................................ 12
THRUSTMASTER, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
September 30, December 31,
1996 1995
____________ ___________
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 8,433 $ 8,090
Accounts receivable, net 4,638 2,897
Inventories 1,997 2,526
Prepaid expenses and other 302 402
Deferred income taxes 131 104
_______ _______
Total current assets 15,501 14,019
Plant and equipment, net 1,334 1,058
Other 54 25
_______ _______
Total assets $16,889 $15,102
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,683 $ 1,203
Income taxes payable 194 --
Accrued liabilities 488 529
Current portion - long-term debt 12 11
_______ _______
Total current liabilities 2,377 1,743
Long-term debt 1 10
Deferred income taxes 41 38
_______ _______
Total liabilities 2,419 1,791
_______ _______
Shareholders' equity:
Preferred stock - -
Common stock 12,198 11,877
Retained earnings 2,272 1,434
_______ _______
Total shareholders' equity 14,470 13,311
_______ _______
Total liabilities and shareholders'
equity $16,889 $15,102
======= =======
<FN>
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 Nine Months Ended
September 30, September 30,
__________________ _________________
1996 1995 1996 1995
______ ______ ______ ______
Revenues $6,931 $5,033 $15,745 $13,011
Cost of goods sold 4,142 2,943 9,727 7,664
______ ______ _______ _______
Gross profit 2,789 2,090 6,018 5,347
Operating expenses:
Research and engineering 469 497 1,352 1,347
Sales and marketing 907 487 2,064 1,416
Customer service 86 83 224 229
General and administrative 468 445 1,392 1,192
______ ______ _______ _______
Total operating expenses 1,930 1,512 5,032 4,184
______ ______ _______ _______
Income from operations 859 578 986 1,163
Interest income 111 125 324 290
______ ______ _______ _______
Income before income taxes 970 703 1,310 1,453
Provision for income taxes 344 228 472 425
______ ______ _______ _______
Net income $ 626 $ 475 $ 838 $ 1,028
====== ====== ======= =======
Pro forma information:
Income before income taxes $ 970 $ 703 $ 1,310 $ 1,453
Provision for income taxes 344 228 472 498
_______ _______ _______ _______
Net income $ 626 $ 475 $ 838 $ 955
======= ======= ======= =======
Net income per share $ 0.14 $ 0.11 $ 0.19 $ 0.23
======= ======= ======= =======
Weighted average shares
outstanding 4,455 4,462 4,449 4,105
======= ======= ======= =======
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
THRUSTMASTER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
September 30,
_________________
1996 1995
____ ____
Cash flows from operating activities:
Net income $ 838 $1,028
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 411 251
Deferred income taxes (24) (102)
Changes in assets and liabilities:
Accounts receivable (1,741) (400)
Inventories 529 (1,575)
Prepaid expenses and other assets 71 258
Payables and accrued liabilities 885 529
_______ ______
Net cash provided by (used in)
operating activities 969 (11)
Cash flows from investing activities:
Purchase of plant and equipment (687) (551)
_______ ______
Cash flows from financing activities:
Payment on long-term debt (9) (53)
Proceeds from issuance of common stock 70 8,810
Dividends -- (556)
_______ ______
Net cash provided by financing activities 61 8,201
Net increase in cash 343 7,639
Cash, beginning of period 8,090 545
_______ ______
Cash, end of period $8,433 $8,184
======= ======
<FN>
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
______ ______ ________
Balance, December 31, 1995 3,953 $11,877 $1,434
Stock options exercised 161 70 --
Tax benefits from stock options exercised -- 251 --
Net income -- -- 838
______ _______ ______
Balance, September 30, 1996 4,114 $12,198 $2,272
====== ======= ======
<FN>
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 statements
of ThrustMaster, Inc., and its wholly-owned subsidiary, ThrustMaster Foreign
Sales Corporation (the Company), 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
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):
September 30, December 31,
1996 1995
_____________ ___________
Raw materials $1,075 $1,493
Work in progress 73 244
Finished goods 849 789
______ ______
$1,997 $2,526
====== ======
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 Nine Months Ended
September 30, September 30,
__________________ _________________
1996 1995 1996 1995
______ ______ ______ ______
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 59.8 58.5 61.8 58.9
_____ _____ _____ _____
Gross profit 40.2 41.5 38.2 41.1
Operating expenses:
Research and engineering 6.8 9.9 8.6 10.4
Sales and marketing 13.1 9.7 13.1 10.9
Customer service 1.2 1.6 1.4 1.8
General and administrative 6.7 8.8 8.8 9.1
_____ _____ _____ _____
Total operating expenses 27.8 30.0 31.9 32.2
_____ _____ _____ _____
Income from operations 12.4 11.5 6.3 8.9
Interest income 1.6 2.5 2.0 2.3
_____ _____ _____ _____
Income before income taxes 14.0 14.0 8.3 11.2
Pro forma provision for income taxes 5.0 4.6 3.0 3.9
_____ _____ _____ _____
Pro forma net income 9.0% 9.4% 5.3% 7.3%
===== ===== ===== =====
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1996 TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1995
Revenues for the three months ended September 30, 1996 were $6,931,000,
an increase of $1,898,000 or 37.7% compared to $5,033,000 for the three months
ended September 30, 1995. Revenues increased primarily due to greater retail
distribution of the Company's products and introduction of new PC game
peripherals.
Gross profit for the three months ended September 30, 1996 was
$2,789,000 an increase of $699,000 or 33.4%, compared to $2,090,000 for the
three months ended September 30, 1995. As a percentage of revenues, gross
profit was 40.2% for the three months ended September 30, 1996 and 41.5% for
the three months ended September 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.
Operating expenses for the three months ended September 30, 1996 were
$1,930,000, an increase of $418,000 or 27.6%, compared to $1,512,000 for the
three months ended September 30, 1995. The increase resulted primarily from
higher sales and marketing expenses. Sales and marketing expenses for the
three months ended September 30, 1996 were $907,000, an increase of $420,000
or 86.2%, compared to $487,000 for the period ended September 30, 1995. As a
percentage of revenues, sales and marketing expenses were 13.1% for the
three-month period ended September 30, 1996 compared to 9.7% in the same
period in the prior year. The increase resulted primarily from increased
merchandising programs with certain major retail customers and additional
marketing personnel and related expenses needed to support the anticipated
growth of the Company.
Interest income for the three-month periods ended September 30, 1996 and
1995 was derived from investing the cash balances of the Company.
The provision for income taxes for the three-month period ended
September 30, 1996 reflects an effective tax rate of 35.5%. This compares to
a tax rate of 32.4% for the three-month period ended September 30, 1995. The
increase in the effective tax rate was due primarily to a higher effective
state tax rate in 1996.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1996 TO NINE MONTHS ENDED
SEPTEMBER 30, 1995
Revenues for the nine months ended September 30, 1996 were $15,745,000,
an increase of $2,734,000 or 21.0%, compared to $13,011,000 for the nine
months ended September 30, 1995. Revenues increased primarily due to greater
retail distribution of the Company's products and introduction of new PC game
peripherals.
Gross profit for the nine months ended September 30, 1996 was
$6,018,000, an increase of $671,000 or 12.5%, compared to $5,347,000 for the
nine months ended September 30, 1995. As a percentage of revenues, the gross
profit margin percentage was 38.2% for the nine months ended
September 30, 1996 and 41.1% for the nine months ended September 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.
Operating expenses for the nine months ended September 30, 1996 were
$5,032,000 an increase of $848,000 or 20.3%, compared to $4,184,000 for the
nine months ended September 30, 1995. The increase resulted primarily from
higher sales and marketing expenses. Sales and marketing expenses for the
nine months ended September 30, 1996 were $2,064,000, an increase of
$648,000 or 45.8%, compared to $1,416,000 for the nine-month period ended
September 30, 1995. As a percentage of revenues, sales and marketing expenses
were 13.1% for the nine-month period ended September 30, 1996 compared to
10.9% in the same period in the prior year. The increase resulted primarily
from increased merchandising programs with certain major retail customers and
additional marketing personnel and related expenses needed to support the
anticipated growth of the Company.
Interest income for the nine-month periods ended September 30, 1996 and
1995 was derived from the investment of the cash balances of the Company.
The pro forma provision for income taxes for the nine-month period ended
September 30, 1996 reflects an effective tax rate of 36.0%. This compares
to a pro forma tax rate of 34.3% for the nine-month period ended
September 30, 1995. The increase in the effective tax rate was due primarily
to a higher effective state tax rate in 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 line of credit.
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
September 30, 1996 there were no borrowings outstanding and the Company was
in compliance with all bank loan covenants.
Net cash provided by operating activities was $969,000 for the nine
months ended September 30, 1996, resulting primarily from net income of
$838,000, an increase in accounts receivable of $1,741,000, a decrease in
inventory of $529,000 and an increase in payables and accrued liabilities of
$885,000.
Capital expenditures for the nine-month period ended September 30, 1996
were $687,000 compared to $551,000 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 nine-month period ended September 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 Section 27 A of the Securities Act of 1933, as amended) 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 publishers.
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
27.1 Financial Data Schedule (This schedule has been filed
electronically with the Commission)
_______________
* Incorporated by reference from the Company's Registration
Statement on Form SB-2, filed on January 5, 1995 and amended
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: October 31, 1996 By /s/ Kent E. Koski
_______________________________
Kent E. Koski
Vice President of Finance and
Administration, Chief Financial
Officer and Secretary
EXHIBIT 11.1
THRUSTMASTER, INC.
STATEMENTS REGARDING COMPUTATION
OF PER SHARE EARNINGS
(In thousands)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
__________________ _________________
1996 1995 1996 1995
______ ______ ______ ______
Weighted average number of
common shares outstanding 4,083 3,799 4,042 3,412
Common stock equivalents
arising from stock options 372 663 407 693
_____ _____ _____ _____
4,455 4,462 4,449 4,105
===== ===== ===== =====
Net income--pro forma $ 626 $ 475 $ 838 $ 955
===== ===== ===== =====
Net income per share--pro forma $0.14 $0.11 $0.19 $0.23
===== ===== ===== =====