<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 (FEE REQUIRED)

                         For the year ended December 31, 1996

                                          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

                                  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, 1997, 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 $18,869,250.

    As of March 10, 1997, the Registrant had 4,253,964 shares of Common Stock
outstanding.

                         DOCUMENTS INCORPORATED BY REFERENCE


Portions of the Registrant's definitive Proxy Statement for the fiscal year
ended December 31, 1996 are incorporated by reference into Part III.

                      The index to Exhibits appears on page 34.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

<PAGE>

                                        PART I

ITEM 1.  BUSINESS

GENERAL

    ThrustMaster, Inc. (the "Company") designs, develops, manufactures and
markets interactive control devices which allow players using personal computer
entertainment software to interact realistically in a simulated environment. The
Company's products are generally purchased by serious computer game enthusiasts
who constitute the Company's core consumer constituency. The Company's principal
products include: automobile racing control devices; a family of flight
simulation controls, consisting of flight sticks, rudder pedals, and throttle
devices which replicate those on military aircraft; and sports and
action/adventure game controllers, including joysticks, a game pad and other
peripherals.

    The Company cooperates with entertainment software developers and
publishers, in conjunction with its core user base, to incorporate the latest
technological advances and maintain its favorable position with serious computer
game enthusiasts and developers and publishers of computer entertainment
software. The Company believes that the compatibility of its products with a
wide variety of computer games is essential to the success of its products,
particularly lower-priced products that do not have programming capability.
Certain developers of computer entertainment software have designed their
programs to support use of ThrustMaster controls, and some have introduced
additional complexity in their games to take advantage of ThrustMaster control
capabilities. The Company also has entered into "bundling" and cooperative
marketing arrangements with software developers for joint marketing of their
respective products.

INDUSTRY BACKGROUND

    The evolution over the past decade of the market for increasingly
sophisticated computer entertainment software has created a market for the
Company's interactive game control devices. An increasingly popular category of
personal computer entertainment software is automobile racing.  Automobile
racing games allow multiple users to race against each other, select the
technical settings on the automobile components, perform pit stops, and control
other features of the race.  Features of the automobile racing games require
high-quality graphics, sound effects, and other features provided by multimedia
personal computers.

    Another significant category of entertainment software, flight simulation
games, places computer users in a simulated flight environment and allows them
to pilot private or military aircraft.  Military flight games simulate
historical battle settings, in which the users "fly" missions in selected
aircraft and experience the visual and sound effects of aerial combat. Computer
networks allow multiple users to play against each other in "dogfights," which
highlights the relative effectiveness of competing brands of control products.

    Action/adventure and sports games represent the largest categories of
interactive entertainment software.  Action/adventure games rely on multimedia
personal computers, utilizing high-quality graphics, animation, sound effects
and text to create interactive stories similar to animated films. In sports
games, the user either plays a simulated round or game, or controls a team or
team member in a simulated game of the designated sport.   The Company believes
that these categories present significant opportunities for its joystick and
game pad products.


                                          2

<PAGE>

PRODUCTS

    The Company produces a variety of interactive control devices that are used
with entertainment software.  The Company's principal products include: auto
racing controllers; a family of flight simulation controls, consisting of flight
sticks, rudder pedals, and throttle devices, which replicate those on military
aircraft; and sports and action/adventure game controllers, including joysticks,
a game pad and other peripherals.  The Company's products are available in
versions for use with IBM compatible personal computers.  Versions of certain of
the Company's products have also been designed for use with Macintosh computers.
The Company's principal products as of the date hereof are briefly described
below.

AUTOMOBILE RACING

    FORMULA T2.    The Formula T2 Driving Control features a steering console
with gear shift knob, and separate accelerator and brake unit for use with
driving and racing simulation software.  Mounting devices are provided to allow
users to temporarily convert their computer desktops into driving consoles.

    GRAND PRIX 1.   The Grand Prix 1 Driving Control features a steering
console with variable control levers on the back of the steering wheel for
acceleration and braking.  Shift buttons are located on the front of the wheel.

FLIGHT SIMULATION

    F-16 FLIGHT CONTROL SYSTEM.   The F-16 Flight Control System, modeled after
the U.S. military's F-16 Falcon flight stick, features multiple four-way
switches, a dual action trigger and four-function buttons.  The product plugs
into both joystick and keyboard ports, includes a microprocessor and can be
programmed by the user to control approximately 300 game functions.

    F-22 PRO. The Company believes that the F-22 Pro is the most sophisticated
and multi-functional joystick available to flight simulation enthusiasts.  The
F-22 Pro takes advantage of the ergonomic design perfected by the U.S. military
in the F-16 Fighting Falcon flight stick, and contains the most popular features
of the Company's F-16 Flight Control System.  Additionally, the F-22 features a
heavy cast metal base, heavier springs for increased stick tension, and enhanced
microprocessing capabilities.

    WEAPONS CONTROL SYSTEM.  The  Weapons Control System, a throttle device
that plugs into a personal computer's game port and keyboard port, contains a
three-way switch and six buttons which can be programmed or mapped to duplicate
keyboard strokes based on a microprocessor included in the control device.  The
Weapons Control System is ergonomically designed for left handed control while
the right hand controls a joystick.

    THE F-16 THROTTLE QUADRANT SYSTEM.  The F-16 Throttle Quadrant System is a
replica of the actual throttle quadrant found in the U.S. military's F-16/Mod 50
Fighting Falcon, and compliments the Company's F-22 Pro and F-16 Flight Control
System.  Moving the handle fore and aft provides thrust control.  Detents exist
to indicate idle and afterburner entry.  This device features a targeting cursor
control, antenna and range dials, two three-position switches and one four-way
switch.   It is user configurable, providing the operator enhanced flexibility
in setting up all the dials, switches, and throttle input.


                                          3

<PAGE>

    RUDDER CONTROL SYSTEM.    The Company's Rudder Control System complements
the Company's flight sticks and throttle devices by allowing the flight
simulation enthusiast to control the yaw axis in flight simulation games by
means of pedals.

SPORTS AND ACTION/ADVENTURE CONTROLS, JOYSTICKS AND PERIPHERALS

    PHAZER PAD -TM-.   The Phazer Pad is a full-featured game pad designed for
sports and action/adventure personal computer games.  It has an ergonomic
design, eight-way directional pad, six buttons, two triggers, and a throttle
wheel.  The Phazer Pad also features unique optic-based technology and provides
both digital and analog power to the game player.

    TOP GUN -TM-.   The Top Gun joystick features a handle similar to the
military B-8 grip found on the F-4 Phantom and other military aircraft.  It
plugs into a computer's joystick port or into the Company's Weapons Control
System.  This product has a weighted base, proprietary four-way viewing switch,
trigger and three function buttons which are programmable when used with the
Weapons Control System.  The Company has acquired from Paramount Pictures the
exclusive world-wide rights for use of the Top Gun name with this product.

    X-FIGHTER.   The X-Fighter joystick features a full scale military B-8
grip, geared potentiometers, and a large weighted base for stability.  This
product plugs into a computer's joystick port or into the Company's Weapons
Control System and has additional features similar to those of the Top Gun
joystick.

    ACM GAME CARD.  The ACM Game Card is an expansion card that can be
installed in IBM compatible personal computers to establish an interface for
joysticks and other control devices.  The ACM Game Card permits manual
adjustment of game card speed to control drift in computer games, features two
dual port game connections on one card, and can be used in today's most powerful
personal computers.

PRODUCT DEVELOPMENT

    The Company's product development efforts are currently focused on the
expansion of the Company's automobile racing, sports and action/adventure and
flight simulation product lines, as well as the development of other computer
entertainment peripherals.  The Company believes that its future growth will
depend on its ability to develop and introduce new products and features that
are attractive to users of computer games, particularly the serious enthusiasts
who are the trend setters for use of the products.  The Company has at times
experienced delays in the development and introduction of new products, and
there can be no assurance that the Company will successfully complete the
development or introduction of new products on a timely basis, if at all, or
that any proposed products will achieve market acceptance.

    United States Government contractors and subcontractors occasionally engage
the Company to design and manufacture flight stick and other controls for
certain of the government's personal computer-based space vehicle simulators and
other defense related simulators.  The Company expects that some of the designs
and technology generated in these government projects may be used in future
personal computer simulation products sold commercially to the public.

    The Company devotes significant resources to product enhancements and new
product development.  During 1994, 1995 and 1996, the Company's research and
engineering expenses were  $1,115,000, $1,845,000 and $2,105,000, respectively.


                                          4

<PAGE>


MARKETING, SALES AND DISTRIBUTION

    The Company's marketing efforts are designed to enhance the Company's
reputation as a leading developer of high-quality, innovative control devices
for the personal computer enthusiast.  The Company's marketing activities
include extensive use of its Web site, advertising in industry publications,
participation in trade shows and software user conventions, cooperative
advertising with retailers, and cooperative marketing activities with
entertainment software developers and publishers.

    The Company believes that its emphasis on innovation has allowed it to
develop cooperative relationships with many of the leading developers and
publishers of certain entertainment software.  Through such relationships, the
Company seeks to encourage software developers to write new entertainment
software that is compatible with ThrustMaster products and that fully utilizes
features provided by certain of the Company's products.  Most automobile racing
and flight simulation software is compatible with the Company's corresponding
products. Several developers of automobile racing and flight simulation software
identify the Company's products as compatible control devices in their software
setup menus, software manuals and help files.  Some publishers of flight
simulation software have referenced the Company or its products on their flight
simulation product packaging, typically identifying their products as
"ThrustMaster-compatible."

    The Company also engages in "bundling" and cooperative marketing
relationships with entertainment software publishers.  During 1996, the Company
bundled its Grand Prix 1 driving control with Sierra's NASCAR and certain of its
joystick products with Electronic Arts' U. S. NAVY FIGHTERS.  In addition, the
Company occasionally includes advertising inserts in new software titles
released by certain  automobile racing and flight simulation software
publishers.

    The Company distributes its products primarily through distributors,
independent sales representatives and original equipment manufacturing ("OEM")
arrangements.  The distributors purchase the Company's products on a wholesale
basis for resale to retail outlets.  The sales representatives market the
Company's products primarily to major retail chains that purchase them directly
from the Company.  During the last half of 1996, the Company entered into its
first OEM arrangements with two computer manufacturers.  These manufacturers
include ThrustMaster game pads and joysticks with certain of their high-end,
multi-media personal computers.  Although currently accounting for a relatively
minor portion of the Company's revenues, the Company believes that OEM sales
will account for an increasing percentage of its revenues in the future.

    ThrustMaster products are currently distributed in the United States
through seven distributors, ten independent sales representative organizations
and the OEM arrangements.  The Company's products are carried by many of the
leading United States retailers of entertainment software, personal computers
and peripherals.  Through these retailers, the Company's products currently
appear in over 2,000 retail outlets in the United States.

    ThrustMaster products currently are distributed in over thirty countries
outside the United States through  international distributors of computer and
consumer electronic products.  During 1996, the Company opened its own
distribution facility in the U.K. and contracted with an independent sales
representative to market its products to major retailers in Germany.  The
Company intends to continue to enhance its presence in foreign markets by
entering into relationships with additional distributors and sales
representatives when deemed appropriate.


                                          5

<PAGE>

    The Company's agreements with independent distributors and sales
representatives are nonexclusive and may be terminated by either party without
cause.  The Company's distributors and sales representatives are not within the
control of the Company, are not obligated to purchase products from the Company
and may represent other lines of products.  There can be no assurance that these
distributors and sales representatives will not give higher priority to the sale
of other products, which could include products of competitors.

    The Company anticipates that a significant portion of  its revenues will be
accounted for by a limited number of key customers, the identity of which may
vary from year to year.  During 1996, no one customer accounted for more than
10% of the Company's revenues.  Because the Company's customers generally place
orders on an as-needed basis, the Company typically does not have a significant
backlog at any given time.

    Sales of the Company's products are seasonal, related to a significant
extent to the Christmas season.  Accordingly, revenues in the fourth quarter of
each calendar year historically have been higher than those for each of the
preceding three quarters.

MANUFACTURING

    The Company's products incorporate electronic components, mold-injected
plastic and fabricated metal parts. Prior to September 1994, all of the
Company's products were assembled in Oregon. In the fourth quarter of 1994, the
Company began shipping products that were manufactured and assembled in Taiwan
and China by an independent contractor. The Company continues to assemble
certain of its products at the Company's facilities in Hillsboro, Oregon, and
contracts with third parties in Oregon for the assembly of certain other
products.  The Company also performs quality control testing and packages
certain products at its Hillsboro, Oregon facility.

    The Company's products incorporate a number of commercially available
electronic components, including potentiometers and microprocessors.  The
Company currently obtains substantially all of the components used in its
products from sole suppliers located in Taiwan and China.  The Company believes
such supply arrangements are not uncommon in its industry.  The Company's
reliance on a sole or limited group of 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.  Use of offshore suppliers is subject to customary risks
of doing business abroad, including political instability.  Any reduction or
interruption of or delay in supply could materially adversely affect the
Company.  The Company believes that it could obtain alternative sources of most
of the components without significant delay if needed.

Customer Service

    Ongoing support of its products is an important element of the Company's
business strategy.  The Company provides free technical support to the end users
of its products by telephone and through the Internet and bulletin boards on
many of the major computer on-line network services.  In addition, the Company
uses the Internet and bulletin board services to provide product information and
to disseminate software updates to its customers.  The Company believes that
these customer support services enhance the Company's reputation with users and
its ability to identify customers' requirements and desires.


                                          6

<PAGE>

COMPETITION

    The markets in which the Company participates are highly competitive, and
the Company expects that it will face increased competition as new companies
enter such markets. As of the date hereof, the Company is aware of at least ten
competitors that market computer game control devices for use with personal
computer-based entertainment games, including Microsoft, Inc., Advanced Gravis
Computer Technology Ltd., CH Products, and Logitech.  Many of the Company's
competitors have substantially greater financial, technical and marketing
resources than the Company.

    The Company believes that price is a significant competitive factor in the
market for computer game control devices.  Other principal competitive factors
include product features, ease of use, realism, reputation and compatibility
with computer games.  Historically, the Company has sought to compete primarily
based on realism and product features.  To date this strategy has been
successful and has resulted in a following by serious driving and flight
simulator enthusiasts.  Certain of the Company's competitors have introduced
multifunction control devices for use with entertainment software that carry
suggested retail prices that are less than those of the Company's products and
have endeavored to add realism to certain of these devices.  As a result of
increasing competition, the Company has begun to experience price and margin
pressures.  The Company believes that its future growth will depend principally
on its ability to develop and introduce competitively priced new products and
features that are attractive to computer games users.

PROPRIETARY RIGHTS

    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 numerous 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 2009 to October 2012.  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.  The
Company has provided notice to certain control device manufacturers that certain
of their products incorporate features which the Company believes infringe upon
the technology that is covered by the Company's patents.  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.  Additionally,
although the Company believes that its products, processes and trademarks do not
infringe on the rights of third parties, there can be no assurance that third
parties will not 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 adversely effect the Company and its ability to market any infringing
products.

    Although the Company believes that obtaining patent protection may provide
some benefits to the Company, the Company believes that its product development
and marketing capabilities are of greater importance to the Company's business
than patent protection. Accordingly, the Company does not believe that its
business is dependent on obtaining patent protection or successfully defending
any such patents that may be obtained against infringement by others.


                                          7

<PAGE>

    The continuing development of the Company's technology is dependent, in
part, on the knowledge and skills of certain of its employees.  To protect its
rights to its proprietary information, the Company requires certain employees,
consultants and collaborators to enter into confidentiality agreements which
prohibit the disclosure of confidential information to persons unaffiliated with
the Company.  There can be no assurance, however, that these agreements will
provide meaningful protection for the Company's technology or other confidential
information in the event of any unauthorized use or disclosure.

    The Company has obtained several trademark registrations and additional
trademark applications are pending in the United States with respect to names
used by the Company. The 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 ensure
compliance with respect to future products.

EMPLOYEES

    As of January 31, 1997, the Company had a total of 99 full-time employees.
The Company relies on the use of temporary employees to supplement its
manufacturing and assembly operations.  In the fourth quarter of each year,
temporary employees historically have constituted a substantial percentage of
the Company's employees.  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's facilities are located in Hillsboro, Oregon on approximately
47,000 square feet of leased space under two leases expiring in September 2003.
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.

ITEM 3.  LEGAL PROCEEDINGS

    The Company is not involved in any legal proceedings in which it is a
defendant.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

    Not applicable.


                                          8

<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 Company's initial public offering was completed March 3,
1995.  The public offering price was $6.50.  The following table sets forth the
high and low closing prices for the Common Stock for each quarter as reported on
The NASDAQ National Market for the years ending December 31, 1995 and 1996:


                                    1995                1996
                             ------------------------------------
                                HIGH     LOW       HIGH      LOW
                                ----     ---       ----      ---
    First quarter.........   $10 1/4   $7 3/4    $7 5/8    $3 5/8
    Second quarter........     9 1/2    6 1/2     7 1/8     4 1/8
    Third quarter.........     9 3/8    6 3/4     5 3/4     3 3/4
    Fourth quarter........     8 7/8    5 5/8     9 1/8     5 1/2


    The Company has not paid cash dividends on its Common Stock, other than for
the payment of its shareholders' income tax liabilities which arose under its S
Corporation status which terminated December 31, 1994.  The Company currently
intends to retain any future earnings to finance the expansion and development
of its business and does not presently anticipate paying cash dividends to the
holders of Common Stock.  On January 21, 1997, the Company's board of directors
declared a 3% stock dividend payable to shareholders of record on February 14,
1997.

    As of March 10, 1997, there were approximately 90 holders of record of the
Company's Common Stock.


                                          9

<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

    The following statements of income data for each of the five years ended
December 31, 1996 and the selected balance sheet data as of December 31, 1992
through 1996, as set forth below,  were derived from the Company's consolidated
financial statements audited by Coopers & Lybrand L.L.P. The following data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and with the Company's audited
consolidated financial statements and notes thereto included elsewhere herein.

<TABLE>
<CAPTION>
                                                                     YEARS ENDED DECEMBER 31,
                                              --------------------------------------------------------------------
                                                 1992           1993           1994           1995           1996
                                                 ----           ----           ----           ----           ----
                                                                   (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                            <C>            <C>           <C>            <C>            <C>
STATEMENTS OF INCOME DATA:
Revenues.................................      $ 2,655        $ 8,214       $ 13,582       $ 19,415       $ 30,821
Cost of goods sold.......................        1,438          4,290          8,007         11,815         19,592
                                               -------        -------       --------       --------       --------
Gross profit.............................        1,217          3,924          5,575          7,600         11,229
Total operating expenses.................          687          2,581          3,804          5,956          8,066
                                               -------        -------       --------       --------       --------
Income from operations...................          530          1,343          1,771          1,644          3,163
Interest income..........................           --             --             --            404            466
                                               -------        -------       --------       --------       --------
Income before income taxes...............      $   530        $ 1,343       $  1,771       $  2,048       $  3,629
                                               -------        -------       --------       --------       --------
                                               -------        -------       --------       --------       --------
PRO FORMA STATEMENTS OF INCOME DATA (1):
Income before income taxes...............      $   530        $ 1,343       $  1,771       $  2,048       $  3,629
Provision for income taxes...............          169            456            633            687          1,370
                                               -------        -------       --------       --------       --------
Net income...............................      $   361        $   887       $  1,138       $  1,361       $  2,259
                                               -------        -------       --------       --------       --------
                                               -------        -------       --------       --------       --------
COMMON STOCK INFORMATION (2):
Net income per share ....................      $  0.25        $  0.33       $  0 .38       $  0 .32       $  0 .49
                                               -------        -------       --------       --------       --------
                                               -------        -------       --------       --------       --------
Weighted average shares outstanding......        1,431          2,686          2,957          4,293          4,647
                                               -------        -------       --------       --------       --------
                                               -------        -------       --------       --------       --------
</TABLE>
<TABLE>
<CAPTION>
                                                                               DECEMBER 31,
                                                ------------------------------------------------------------------
                                                  1992           1993           1994           1995           1996
                                                  ----           ----           ----           ----           ----
                                                                             (IN THOUSANDS)
<S>                                               <C>          <C>            <C>           <C>            <C>
BALANCE SHEET DATA:
Working capital..........................         $485         $1,022         $1,873        $12,276        $14,806
Total assets.............................          965          2,905          4,575         15,102         21,261
Total liabilities........................          303          1,574          1,885          1,791          5,363
Total shareholders' equity...............          662          1,331          2,690         13,311         15,898
</TABLE>
________________________________________
(1)  The Company was treated for federal and state income tax purposes as an S
corporation from January 1, 1991 through December 31, 1994.  The unaudited pro
forma financial information reflects a provision for income taxes as if the
Company had been a C corporation during such period.  Under the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," issued by the Financial Accounting Standards Board, the Company was
required to provide for deferred taxes, arising from the cumulative temporary
differences between  financial and tax reporting, by recording a provision for
income taxes for such deferred taxes in its consolidated statement of income for
1995.

(2)  Weighted average shares and net income per share have been restated for all
periods presented to reflect the effect of a 3% stock dividend declared on
January 21, 1997.

                                          10

<PAGE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

OVERVIEW
    The Company designs, develops, manufactures and markets personal computer
control devices for use with interactive entertainment games and simulation
software.  The Company's primary products are automobile racing controllers; a
family of flight simulation controls, consisting of flight sticks, rudder
pedals, and throttle devices which replicate those on military aircraft; and
sports and action/adventure game controllers, including joysticks, a game pad,
and other peripherals.

    The Company has experienced increases in revenues and gross profit each
year since commercial production commenced and has maintained profitable
operations since 1992.  Such increases and profitability may not continue in the
future.  The Company attributes its growth, in large part, to the proliferation
of personal computers in the home and to increasingly sophisticated computer
entertainment software.  The core users of the Company's products are
enthusiasts who demand a high level of realism in computer simulation games.

    The Company initially derived almost all of its revenues from sales of the
Company's flight simulation products.  Largely as a result of the increasing
popularity of automobile racing games and the Company's entry into such market,
sales of automobile racing controllers currently account for a majority of the
Company's revenues.

    The Company typically ships its products within 15 days of receipt of
customer orders and, consequently, 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 generally is not a reliable indicator of future
revenues or earnings.

    The following table sets forth, for the periods indicated, the percentages
of revenues represented by certain items included in the Company's Consolidated
Statements of Income included elsewhere herein:

<TABLE>
<CAPTION>
                                                            YEARS ENDED
                                                            DECEMBER 31, 
                                                ----------------------------------
                                                 1994           1995          1996
                                                -----          -----          ----
<S>                                             <C>            <C>            <C>
Revenues..................................      100.0%         100.0%         100.0%
Cost of goods sold........................       59.0           60.9           63.6
                                                -----          -----          -----
Gross profit .............................       41.0           39.1           36.4
                                                -----          -----          -----
Operating expenses:
    Research and engineering .............        8.2            9.5            6.8
    Selling, general and administrative ..       19.8           21.1           19.3
                                                -----          -----          -----
Total operating expenses..................       28.0           30.6           26.1
                                                -----          -----          -----
Income from operations ...................       13.0            8.5           10.3
Interest  income .........................         --            2.0            1.5
                                                -----          -----          -----
Income before income taxes ...............       13.0           10.5           11.8
Pro forma provision for taxes on income (1)       4.6            3.5            4.5
                                                -----          -----          -----
Net income................................        8.4%           7.0%           7.3%
                                                -----          -----          -----
                                                -----          -----     -----

</TABLE>
 (1)  See Note 12 of Notes to Consolidated Financial Statements.


                                          11

<PAGE>

COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1995

    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 products in Europe, higher sales
in the United States and the introduction of new personal computer game
peripherals.

    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
margin percentage was 36.4% for 1996, compared to 39.1% for 1995.  The gross
profit margin percentage declined primarily because the Company's more recent
product offerings generally have a lower gross margin percentage than the
Company's other products, and the Company incurred higher than normal amounts of
air freight in expediting delivery of certain products to meet fourth quarter
demand.

    Total operating expenses for 1996 were $8,066,000, an increase of
$2,110,000, or 35.4%, compared to $5,956,000 for 1995.  As a percentage of
revenues, total operating expenses declined to 26.1% of revenues in 1996,
compared to 30.6% in 1995.

    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 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 of $466,000 for 1996 and $404,000 for 1995 was derived from
the investment of the cash balances of the Company.

    The provision for income taxes for 1996 reflects an effective tax rate of
37.8%.  This compares to a pro forma tax rate of 33.5% for 1995.  The increase
in the effective tax rate was due primarily to a higher effective state tax rate
for the Company in 1996 which resulted from a one-time state tax credit in 1995.
See Note 12 of Notes to Consolidated Financial Statements.

    As a result of the foregoing, net income for 1996 was $2,259,000, an
increase of $898,000, or 66.0%, compared to pro forma net income of $1,361,000
in 1995. In 1996, net income was 7.3% of revenues compared to 7.0% in 1995.


                                          12

<PAGE>

COMPARISON OF YEARS ENDED DECEMBER 31, 1995 AND 1994

    Revenues for 1995 were $19,415,000, an increase of $5,833,000, or 42.9%,
compared to $13,582,000 in 1994. Revenues increased primarily due to greater
retail sales of the Company's products and introduction of new personal computer
game peripherals.

    Gross profit for 1995 was $7,600,000, an increase of $2,025,000, or 36.3%,
compared to $5,575,000 in 1994.  As a percentage of revenues, gross profit was
39.1% in 1995, and 41.0% for 1994. The gross profit margin percentage declined
primarily because the Company's later product offerings, which comprise an
increasing percentage of total revenues, generally had a lower gross margin
percentage than the Company's earlier products.

    Total operating expenses for 1995 were $5,956,000, an increase of
$2,152,000, or 56.6%, compared to $3,804,000 in 1995.  As a percentage of
revenues, total operating expenses increased to 30.6% of revenues in 1995,
compared to 28.0% in 1994.  The increase resulted primarily from the hiring of
additional personnel to support growth as well as additional expenses incurred
as a result of being a public company.

    Research and engineering expenses for 1995 were $1,845,000, an increase of
$730,000, or 65.5%, compared to $1,115,000 in 1994.  The increase resulted
primarily from additional expenses incurred in developing new products and
enhancements to existing products as well as the hiring of additional personnel.
Research and engineering expenses were 9.5 % of revenues in 1995, compared to
8.2 % in 1994.

    Selling, general and administrative expenses for 1995 were $4,111,000, an
increase of $1,422,000, or 52.9%, compared to $2,689,000 in 1994.  As a
percentage of revenues, selling, general and administrative expenses were 21.1%
in 1995, compared to 19.8% in 1995.   For 1995, selling, general and
administrative expenses increased primarily due to additional advertising and
merchandising programs with certain major retail customers.  The Company also
increased  its marketing and sales personnel, in order to support the Company's
growth, and its reliance on commission-based independent sales representatives.
Additionally, certain selling, general and administrative expenses increased for
1995 as a result of becoming a public company.

    Interest income for 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 1995 reflects an effective tax
rate of  33.5%.  This compares to a pro forma tax rate of 35.7% for 1994.  The
decrease resulted from a reduction in the state income tax rate applicable to
the Company due to a one-time state tax credit.  See Note 12 of Notes to
Consolidated Financial Statements.

    As a result of the items mentioned above, pro forma net income for 1995 was
$1,361,000, an increase of $223,000, or 19.6%, compared to pro forma net income
of $1,138,000 in 1994.  As a percentage of  revenues, pro forma net income was
7.0% in 1995, compared to 8.4% in 1994.


                                          13

<PAGE>

LIQUIDITY AND  CAPITAL RESOURCES

    The Company has financed its activities to date with a combination of cash
flow from operations, borrowed funds and sales of equity securities. In
October 1994, the Company completed a private placement of 176,000 shares of
Common Stock, resulting in net proceeds to the Company of $510,000.  In March
1995, the Company completed an initial public offering of 1,552,500 shares of
its Common Stock at a price of $6.50 per share, resulting in net proceeds to the
Company of approximately $8,739,000.

    Since September 1992, the Company has maintained a revolving line of credit
with United States National Bank of Oregon.  Under the present terms of the line
of credit, the Company may borrow up to the lesser of $1,000,000 or 75% of
certain eligible accounts receivable collateralizing the line of credit.  The
Company is also permitted to borrow up to $200,000 to finance up to 80% of the
cost of certain equipment.  The line of credit, which expires in June 1997,
requires the Company to maintain a specified level of working capital and
certain debt to net worth ratios. At December 31, 1996, the Company had no
borrowings outstanding and was in compliance with all loan covenants.  See Note
6 of Notes to Consolidated Financial Statements.

    Cash used in operations was $941,000 in 1996.  Cash provided from
operations was $59,000 in 1995 and $1,235,000 in 1994.  Net income is a major
component of cash flow from operations.  For the year ended December 31, 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 the
year ended December 31, 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 the year ended December 31, 1994, increases in accounts
receivable of $507,000, inventories of $52,000, and prepaids and other assets of
$66,000, and a decrease in accounts payable and accruals of $109,000 were the
primary components of changes in working capital.

    At December 31, 1996, the Company had cash and cash equivalents of
$6,420,000 and working capital of $14,806,000.

    Capital expenditures for 1996 were $789,000, compared to $753,000 in 1995
and  $493,000 in 1994.  Capital expenditures for 1996 were primarily for new
product tooling, manufacturing equipment and computer equipment.

    The Company does not presently 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.

    Although no current understandings or negotiations exist with respect
thereto, the Company may in the future enter into joint ventures or make
acquisitions in connection with the development and marketing of its products,
and may require additional funds in connection therewith, depending upon the
circumstances.

    The Company believes that available funds and expected cash flow to be
generated from operations, together with borrowings under its line of credit
will be adequate to meet the Company's anticipated cash needs through 1997.  If
the cash flow from such sources is insufficient, if the Company enters into a
joint venture or makes an acquisition, or if working capital requirements are


                                          14

<PAGE>

greater than anticipated, the Company could be required to raise additional
funds.  If the Company has insufficient funds for its needs, there can be no
assurance that the Company will be able to raise additional funds on favorable
terms, if at all, or that it will be able to do so on a timely basis.

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," 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.  These
forward-looking statements are subject to certain risks and uncertainties,
including, but not limited to, the following:

    PRODUCT COMMERCIALIZATION AND TECHNOLOGICAL CHANGE.  The Company believes
that its success 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
requirements, and achieve market acceptance of its products.  The failure by the
Company to anticipate or respond adequately to technological developments or
customer requirements, or any significant delays in product development or
introduction, could have a material adverse effect on the Company.  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.  The Company may not be successful in achieving such factors, which
could have a material adverse effect on the Company.  Additionally, the
Company's products, once developed, may not be successfully manufactured or
commercially successful or may become obsolete within a short time after their
development.

    LIMITED OPERATING HISTORY; FINANCIAL NEEDS.  The Company was incorporated
in 1990 and has a limited history of operations.  Accordingly, the Company is
subject to the risks inherent in a new business enterprise, including the
absence of a lengthy operating history, limited liquidity and financial
resources, and competition from more established businesses.  Although the
Company has had profitable operations since 1992, there can be no assurance that
the Company will achieve sustained profitability.  The Company's operations
consume substantial amounts of cash.  In the past, the Company has primarily
financed its growth and operations through cash flow from operations and private
placements and a public offering of equity securities.  The Company anticipates
that available funds and expected cash flow from operations, together with any
borrowings under its line of credit, will be adequate to meet the Company's cash
needs through 1997.  However, if the cash flow from such sources is
insufficient, if the Company enters into a joint venture or makes an
acquisition, or if working capital requirements are greater than anticipated,
the Company could be required to raise additional financing by means of borrowed
funds or sales of securities.  If additional funds are raised by issuing equity
securities, further dilution to shareholders may result.  If the Company has
insufficient funds for its needs, there can be no assurance that additional
funds can be obtained on acceptable terms, if at all.  Failure to obtain
additional funds when needed could materially adversely affect the Company.

    COMPETITION.  The markets in which the Company participates are highly
competitive, and the Company expects that it will face increased competition as
additional companies enter


                                          15

<PAGE>

such markets.  As of the date hereof, the Company is aware of at least ten
competitors that market computer game control devices for use with personal
computer-based entertainment games.  The Company believes that price is a
significant competitive factor in the market for computer game control devices.
Other principal competitive factors include product features, ease of use,
realism, reputation and compatibility with computer games.  New product
introductions or product announcements by the Company's competitors, many of
which have substantially greater financial, technical and marketing resources
than the Company, could hinder sales and market acceptance of the Company's
products.  Moreover, increased competitive pressure could lead to intensified
price-based competition, which could result in margin pressures and have a
material adverse effect on the Company.  The Company's competitors may succeed
in developing products that are as or more appealing to consumers than the
Company's products or which could render the Company's technology and products
obsolete or noncompetitive.  The Company may not be able to compete successfully
in the market, which would have a material adverse effect on the Company.


    DEPENDENCE ON SOFTWARE DEVELOPERS AND PUBLISHERS.  A key element of the
Company's business strategy is to encourage leading developers of computer game
software to include the Company's products in game set-up menus and to utilize
the features of the Company's products in their computer game software.
Although the programmability of certain of the Company's products allows such
products to be used with the game software even if not included in the set-up
menus, the failure of software developers to include the Company's products in
game set-up menus or to utilize the features of ThrustMaster products in game
software could materially adversely affect sales of the Company's products and
have a material adverse effect on the Company.  Additionally, the Company is
dependent on developers and publishers of computer software for cooperation in
the development and marketing of new products.  The failure of such developers
and publishers to cooperate with the Company, or a determination by such
developers and publishers to cooperate exclusively with the Company's
competitors, could adversely affect the Company's product development and
marketing efforts and have a material adverse effect on the Company.

    VARIABILITY IN PERIODIC OPERATING RESULTS.  The Company is likely to
experience significant fluctuations in future periodic operating results due to
a number of factors including, among others, 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 others, and general economic conditions.  While the
effect of these factors on the Company's operating results has been largely
obscured to date by the Company's growth, 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 does not typically 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.  Any significant decrease in
customer orders for any reason would have an immediate adverse effect on the
Company's results of operations and its ability to maintain profitability.

    SEASONALITY.  The Company's business is seasonal.  The Company's revenues
in the fourth quarter are typically higher than during the first three quarters
of each year, related, to a


                                          16

<PAGE>

significant extent, to the holiday season.  The Company relies on the use of
temporary employees to supplement its manufacturing and assembly operations.  In
the fourth quarter of each year, temporary employees historically have
constituted a substantial percentage of the Company's employees.  Although the
Company has been successful in obtaining adequate numbers of qualified temporary
employees in the past, it may not be able to do so in future periods, which
could have a material adverse effect on the Company.

    CUSTOMER CONCENTRATION.  The Company anticipates that a significant portion
of the Company's revenues and accounts receivable will be accounted for by a
limited number of key customers, the identity of which may vary from year to
year.  Although no single customer accounted for more than 10% of the Company's
revenues in 1996, 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 revenues 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,
management and marketing and sales personnel and on its ability to continue to
attract, motivate and retain highly qualified employees.  The Company does not
have employment or non-competition agreements with any of its employees.

    PROPRIETARY 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.  Additionally, the 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.  Although the Company believes that its
products, processes and trademarks do not infringe on the rights of third
parties, 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
adversely effect the Company and its ability to market any infringing products.

    OFFSHORE MANUFACTURING.  Prior to September 1994, all of the Company's
products were assembled in Oregon.  In the fourth quarter of 1994, the Company
began shipping products manufactured in Taiwan and China by an independent
contractor.  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, in certain parts of the world, political instability.
The use of an independent contractor to assemble products offshore 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.  As a
result, the failure of the Company to adequately forecast demand for products
manufactured offshore could adversely affect its sales and results of
operations.  In addition, although the Company seeks to control the quality of
its products manufactured offshore, quality problems may arise that are beyond
the Company's direct control.

    DEPENDENCE UPON SOLE OR LIMITED SUPPLIERS.  The Company is dependent on
suppliers for components.  Certain key components used in the Company's products
are obtained by the


                                          17

<PAGE>

Company from sole suppliers.  The Company's reliance on a sole or limited group
of 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 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 of the 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 Company's cost of obtaining them.
Any significant increase in component prices or decrease in component
availability could materially adversely affect the Company.

    DEPENDENCE UPON INDEPENDENT DISTRIBUTORS AND SALES REPRESENTATIVES.  The
Company's agreements with independent distributors and sales representatives are
nonexclusive and may be terminated by either party without cause.  The Company's
distributors and sales representatives are not controlled by the Company, are
not obligated to purchase products from the Company and may represent other
lines of products.  These distributors and sales representatives may give higher
priority to the sale of other products, including products of competitors.

    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
interruptions, and changes in demand resulting from fluctuating exchange rates.
Although most of the Company's international revenues are earned in U.S.
dollars, a portion is earned in other currencies, primarily German marks.  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.

    LACK OF INDUSTRY DIVERSIFICATION.  The Company intends to derive revenues
from the sale of products within the personal computer game industry.  Failure
of anticipated market demand for computer game controllers to materialize could
have a material adverse effect on the Company.

    GOVERNMENTAL REGULATION.  Certain of the Company's products intentionally
transmit radio signals as part of their normal operation.  These products are
subject to regulatory approval, restrictions on the use of certain frequencies
and the creation of interference, and other requirements by the Federal
Communications Commission and corresponding authorities in countries in which
the products are marketed.  Regulatory changes could significantly impact the
Company's operations.


                                          18

<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL DATA

                            INDEX TO FINANCIAL STATEMENTS

                           AND FINANCIAL STATEMENT SCHEDULE

                                                                          Page
                                                                          ----

Report of Independent Accountants                                           20

Consolidated Balance Sheets--As of December 31, 1995 and 1996               21

Consolidated Statements of Income--For each of the three years
    in the period Ended December 31, 1996                                   22

Consolidated Statements of Cash flows--For each of the three years
    in the Period ended December 31, 1996                                   23

Consolidated Statements of Changes in Shareholders' Equity--
    For each of the Three years in the period ended
    December 31, 1996                                                       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, 1996                                                  36


                                          19

<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 audits 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, 1995 and 1996 and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, 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 24, 1997

                                          20

<PAGE>

                                  THRUSTMASTER, INC.
                             CONSOLIDATED BALANCE SHEETS
                                (DOLLARS IN THOUSANDS)



                                                             DECEMBER 31,
                                                      -----------------------
                                                         1995          1996
                                                      ----------     --------
                                        ASSETS

Current assets:
  Cash and cash equivalents .....................     $  8,090       $  6,420
  Accounts receivable, net  .....................        2,897          9,820
  Inventories ...................................        2,526          3,560
  Prepaid expenses and other  ...................          402            109
  Deferred income taxes .........................          104            239
                                                      --------       --------
    Total current assets ........................       14,019         20,148
Plant and equipment, net  .......................        1,058          1,081
Other ...........................................           25             32
                                                      --------       --------
    Total assets ................................     $ 15,102        $21,261
                                                      --------       --------
                                                      --------       --------

                         LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
  Accounts payable...............................     $  1,203       $  3,021
  Accrued liabilities ...........................          529          2,311
  Current portion - long-term debt ..............           11             10
                                                      --------       --------
    Total current liabilities ...................        1,743          5,342
Long-term debt ..................................           10            --
Deferred income taxes ...........................           38             21
                                                      --------       --------
    Total liabilities ...........................        1,791          5,363
                                                      --------       --------
                                                      --------       --------
Commitments (Notes 9 and 11)
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; 3,952,796 and 4,240,403 shares
    issued and outstanding.......................       11,877         13,301
  Retained earnings .............................        1,434          2,597
                                                      --------       --------
    Total shareholders' equity ..................       13,311         15,898
                                                      --------       --------
    Total liabilities and shareholders' equity...     $ 15,102        $21,261
                                                      --------       --------
                                                      --------       --------


The accompanying notes are an integral part of these consolidated financial
statements.


                                          21

<PAGE>


                                  THRUSTMASTER, INC.
                          CONSOLIDATED STATEMENTS OF INCOME
                   (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)


                                                   YEARS ENDED DECEMBER 31,
                                                 ---------------------------
                                                   1994       1995     1996
                                                 -------   --------  -------

Revenues.......................................  $13,582   $ 19,415  $30,821
Cost of goods sold.............................    8,007     11,815   19,592
                                                 -------   --------  -------
  Gross profit.................................    5,575      7,600   11,229
                                                 -------   --------  -------
Operating expenses:
  Research and engineering.....................    1,115      1,845    2,105
  Selling, general and administrative..........    2,689      4,111    5,961
                                                 -------   --------  -------
    Total operating expenses..................     3,804      5,956    8,066
                                                 -------   --------  -------
Income from operations.........................    1,771      1,644    3,163
Interest income................................      --         404      466
                                                 -------   --------  -------
Income before income taxes.....................    1,771      2,048    3,629
Provision for income taxes.....................      --         614    1,370
                                                 -------   --------  -------
    Net income................................   $ 1,771   $  1,434  $ 2,259
                                                 -------   --------  -------
                                                 -------   --------  -------


                                             UNAUDITED PRO FORMA INFORMATION
                                             -------------------------------

Income before income taxes.....................  $1,771    $2,048
Provision for income taxes.....................     633       687
                                                 ------    ------
Net income.....................................  $1,138    $1,361
                                                 ------    ------
                                                 ------    ------
Net income per share (Note 2)..................  $ 0.38    $ 0.32    $  0.49
                                                 ------    ------    -------
                                                 ------    ------    -------
Weighted average shares outstanding (Note 2)...   2,957     4,293      4,647
                                                 ------    ------    -------
                                                 ------    ------    -------


     The accompanying notes are an integral part of these consolidated financial
statements.


                                          22

<PAGE>


                                  THRUSTMASTER, INC.
                        CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (Dollars in thousands)

                                                   Years Ended December 31,
                                                 --------------------------
                                                  1994      1995      1996
                                                 ------    ------    ------
Cash flows from operations:
 Net income                                      $1,771    $1,434    $2,259
 Adjustments to reconcile net income to net cash
   provided by (used in) operating activities:
    Depreciation                                    198       376       766
    Deferred income taxes                            --       (66)     (152)
    Changes in assets and liabilities:
      Accounts receivable                          (507)     (784)   (6,923)
      Inventories                                   (52)   (1,572)   (1,034)
      Prepaid expenses and other assets             (66)      346       286
      Payables and accrued liabilities             (109)      325     3,857
                                                 ------    ------    ------
        Net cash provided by (used in) operating
        activities                                1,235        59      (941)
                                                 ------    ------    ------
Cash flows from investing activities:
  Purchases of plant and equipment                 (493)     (753)     (789)
                                                 ------    ------    ------
Cash flows from financing activities:
  Payments on long-term debt                        (20)      (56)      (11)
  Proceeds from issuance of common stock            510     8,851        71
  Deferred offering costs.                         (167)       --        --
  Cash dividends                                   (521)     (556)       --
                                                 ------    ------    ------
      Net cash provided by (used in) financing
         activities                                (198)    8,239        60
                                                 ------    ------    ------
      Net increase (decrease) in cash and
         cash equivalents                           544     7,545    (1,670)
Cash and cash equivalents, beginning of year          1       545     8,090
                                                 ------    ------    ------
Cash and cash equivalents, end of year           $  545    $8,090    $6,420
                                                 ------    ------    ------
                                                 ------    ------    ------
Supplemental cash flow information:
    During 1994, the Company acquired equipment in exchange for notes payable
of $38.

Cash paid during the year for:
                                  1994       1995      1996
                                  ----       ----      ----
Interest....................      $39        $  3      $  1
Income taxes................       --         376        47


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)

                                                   COMMON STOCK
                                                 -----------------   RETAINED
                                                  SHARES    AMOUNT   EARNINGS
                                                 -------   -------   -------
Balance, January 1, 1994........................ 2,016     $   365   $   966
  Proceeds from issuance of common stock........   176         510        --
  Dividends.....................................    --          --      (922)
  Net income....................................    --          --     1,771
                                                 -----     -------   -------
Balance, December 31, 1994...................... 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
                                                 -----     -------   -------
                                                 -----     -------   -------
     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

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 the right to return on unsold
merchandise. The Company provides for estimated costs of warranty and returns
when products are shipped.

CASH AND CASH EQUIVALENTS.   Cash equivalents consist of highly liquid debt
instruments purchased with an original maturity of three months or less.  The
Company's cash equivalents are in high quality securities placed with
institutions with high credit ratings.  This investment policy limits the
Company's exposure to concentrations of credit risk.

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.

RESEARCH AND ENGINEERING EXPENSE.  Research and engineering costs are charged to
operations as incurred.

PER SHARE DATA.    Net income per share is computed using the weighted average
number of shares of common stock and common stock equivalents outstanding during
the periods presented.  Common stock equivalents include common stock to be
issued upon the exercise of the common stock options and warrants discussed in
Note 10.  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.

UNAUDITED PRO FORMA FINANCIAL INFORMATION AND INCOME TAXES.  As more fully
described in Note 12, the Company was treated as a  Small Business Corporation
(S corporation) for income tax purposes from January 1, 1991 through December
31, 1994.  The unaudited pro forma financial


                                          25

<PAGE>

NOTE 2--SIGNIFICANT ACCOUNTING POLICIES, CONTINUED;

information reflects an estimate of the Company's financial results that would
have been reported had the Company been a C corporation for all periods
presented.

RECLASSIFICATIONS.  Certain operating expense categories for the years ended
December 31, 1994 and 1995 on the Consolidated Statements of Income have been
reclassified in order to conform to the 1996 presentation.  These changes had no
impact on previously reported results of operations or shareholders' equity.

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.

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 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
customer's financial condition.

    In 1995 product sales to two customers each accounted for approximately 10%
of revenues.  In 1994 and 1996, no customer individually accounted for more than
10% of revenues.

    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% of total products in 1995 and 1996, 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:

                                       YEARS ENDED DECEMBER 31,
                                       --------------------------
                                        1994      1995       1996
                                        ----      ----       ----
Net revenue by geographic region:
    Europe.....................        $1,361    $2,489    $10,225
    Asia.......................         1,435     1,580      1,634
Net revenue as a percentage of total
  Revenue:
    Europe.....................          10.0%     12.8%      33.2%
    Asia.......................          10.6       8.1        5.3


                                          26

<PAGE>


NOTE 4--Inventories

    Inventories are as follows:
                                            DECEMBER 31,
                                       ---------------------
                                         1995          1996
                                       ------         ------
Raw materials........................  $1,493         $  762
Work-in-progress.....................     244             90
Finished goods.......................     789          2,708
                                       ------         ------
                                       $2,526         $3,560
                                       ------         ------
                                       ------         ------

NOTE 5--PROPERTY AND EQUIPMENT

    Property and equipment consists of the following:

                                          DECEMBER 31,
                                       ----------------
                                        1995      1996
                                       ------    ------
 Computers and other equipment.......  $  752    $1,075
 Tooling.............................     858     1,209
 Furniture and fixtures..............     115       230
                                       ------    ------
                                        1,725     2,514
 Accumulated depreciation............    (667)   (1,433)
                                       ------    ------
                                       $1,058    $1,081
                                       ------    ------
                                       ------    ------

NOTE 6--ANK LINE OF CREDIT

    At December 31, 1996, the Company had a revolving line of credit with a
bank which provides for borrowings up to the lesser of one million dollars or
75% of eligible receivables.  The Company also may borrow up to two hundred
thousand dollars to finance up to 80% of the cost of certain equipment.  No
amounts were outstanding under this line at December 31, 1996.  Interest is at
the bank's prime lending rate which was 8.25% at December 31, 1996.  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, 1996, the Company had no borrowings outstanding.

NOTE 7--ACCRUED LIABILITIES

    Accrued liabilities consist of the following:

                                                    DECEMBER 31,
                                                 ----------------
                                                  1995      1996
                                                 -----     ------
Accrued payroll and payroll liabilities.......   $103      $  132
Accrued  bonuses .............................    129         460
Warranty reserve..............................    192         365
Federal and state income taxes................     --         977
Other liabilities.............................    105         377
                                                 -----     ------
                                                 $529      $2,311
                                                 -----     ------
                                                 -----     ------

                                          27

<PAGE>

NOTE 7--ACCRUED LIABILITIES, CONTINUED;

    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  $99 in 1994, $118 in 1995, and  $251 in 1996
related to such amounts.

NOTE 8--LONG-TERM DEBT

    Long-term debt is comprised of a note payable to an equipment manufacturer
payable in monthly installments of $1 with interest at 9%.  The note is
collateralized by the related equipment and matures in November 1997.

NOTE 9--COMMITMENTS

    The Company leases facilities under non-cancelable operating leases with
escalation clauses.  The Company also leases equipment under operating leases.
The following is a schedule by years, through expiration of the lease, of future
minimum lease payments required under these leases as of December 31, 1996:

          1997...........................................  $366
          1998...........................................   368
          1999...........................................   348
          2000...........................................   345
          2001...........................................   352

    Under the agreements for the lease of its office, production, and
distribution facilities, the Company is obligated to the lessor 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 $148, $239, and
$236 for the years ended December 31, 1994, 1995, and 1996.

NOTE 10--COMMON AND PREFERRED STOCK

INITIAL PUBLIC OFFERING.  In March, 1995, the Company completed an initial
public offering of 1,552,500 shares of Common Stock which generated net proceeds
of $8,739.

STOCK DIVIDEND.  In January, 1997, the Company declared a 3% stock dividend.
See Note 2.

STOCK OPTION PLANS.  In July 1994, the Company adopted a new stock option plan
for employees (the "1994 Stock Option Plan") and a separate option plan for
directors (the "Directors' Stock Option Plan").  The Company reserved 400,000
shares for the 1994 Stock Option Plan and 160,000 shares for the Director's
Stock Option Plan.  The 1994 Stock Option Plan provides for incentive stock
option and nonqualified options to be granted.  The Company had previously made
grants under a nonqualified plan adopted in 1990 in which 1,200,000 shares had
been reserved.  In July 1994, any ungranted 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


                                          28

<PAGE>

NOTE 10--COMMON AND PREFERRED STOCK, CONTINUED;

years under certain circumstances) and may be exercised in varying amounts over
the vesting periods.

    The following table summarizes stock option transactions:

                                                        NUMBER OF SHARES
                                                      -------------------
                                                       UNDER    AVAILABLE
                                                       OPTION   FOR GRANT
                                                      --------  ---------
Balance, December 31, 1993.........................   768,000     180,000
Authorization of additional shares.................        --     560,000
Granted ($3.00 per share)..........................    32,000     (32,000)
Exercised ($0.25 to $0.28 per share)...............      (896)         --
Canceled...........................................   (31,904)     31,904
                                                      --------  ---------
Balance, December 31, 1994.........................   767,200     739,904
Granted ($8.75 to $8.875)..........................   126,500    (126,500)
Exercised ($  0.25 to $  2.50 per share)...........   (207,400)        --
Canceled...........................................     (6,100)     6,100
                                                      --------  ---------
Balance,  December 31, 1995........................   680,200     619,504
Granted ($4.125 to $7.625).........................   331,000   (331,000)
Exercised ($  0.25 to $  0.75 per share)...........   (164,100)        --
Canceled...........................................   (134,500)   134,500
Effect of 3% stock dividend declared (See Note 2)..      1,378    (1,378)
                                                      --------  ---------
Balance,  December 31, 1996........................    713,978    421,626
                                                      --------  ---------
                                                      --------  ---------

    The exercise price of the outstanding options at December 31, 1996 ranged
between $0.24 and $8.62 per share.  The weighted average exercise price of
outstanding options was $2.69 at December 31, 1996.

    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.

    The Company adopted the disclosure-only provisions of Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation."  Accordingly, no compensation cost has been recognized for grants
of options under the stock option plans.  Had compensation cost for the
Company's two stock option plans been determined based on the fair value at the
grant date for awards in 1995 and 1996 consistent with the provisions of SFAS
No. 123, the Company's net income and net income per share would have been
reduced to the pro forma amounts indicated below:

                                       YEARS ENDED DECEMBER 31,
                                       ------------------------
                                              1995     1996
                                            ------    ------

Net income - as reported.................   $1,361    $2,259
Net income - pro forma...................    1,304     2,173
Net income per share - as reported.......     0.32      0.49
Net income per share - pro forma.........     0.30      0.47


                                          29

<PAGE>

NOTE 11--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 $189, $205, and $36 were made pursuant to the agreement in
1994, 1995, and 1996

NOTE 12--INCOME TAXES

    Prior to January 1, 1991, the Company was treated for federal and state
income tax purposes as a C corporation.  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, at their individual
federal and state income tax rates, 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.

    Under the provisions of Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes" (Statement 109) issued by the Financial
Accounting Standards Board, 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 in which the Termination
Date occurred.  The amount of this benefit during the year ended December 31,
1995 was $73.

    The provision for income taxes computed in accordance with Statement 109 is
as follows.

                                            YEARS ENDED DECEMBER 31,
                                            ------------------------
                                            1994      1995      1996
                                            ----      ----      ----
                                       (UNAUDITED  PRO FORMA INFORMATION)

Current payable:
  Federal.................................. $533      $613      $1,256
  State....................................  121        67         266
                                            ----      -----     ------
  Total current............................  654       680       1,522
                                            ----      -----     ------
Deferred:
  Federal..................................  (17)        6        (126)
  State....................................   (4)        1         (26)
                                            ----      -----     ------
  Total deferred...........................  (21)        7        (152)
                                            ----      -----     ------
    Total.................................  $633      $687      $1,370
                                            ----      -----     ------
                                            ----      -----     ------

                                          30

<PAGE>

NOTE 12--INCOME TAXES, CONTINUED;

    A reconciliation of the statutory federal income tax rate to the Company's
pro forma effective income tax rate is as follows:

                                                     YEARS ENDED DECEMBER 31,
                                                     ------------------------
                                                        1994    1995    1996
                                                        ----    ----    ----
                                                      (UNAUDITED PRO
                                                     FORMA INFORMATION)

Federal statutory rate .............................   34.0%    34.0%   34.0%
State income taxes, net of federal 
  income tax benefit................................    4.4      2.2     4.4
Effect of research and development 
  tax credit and other..............................   (2.7)    (2.7)    (.6)
                                                       ----     ----    ----
Pro forma effective income tax rate ................   35.7%    33.5%   37.8%
                                                       ----     ----    ----
                                                       ----     ----    ----


     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 temporary differences that give rise
to significant portions of the deferred tax assets and liabilities are as
follows:

                                                                YEARS ENDED
                                                                DECEMBER 31,
                                                             ------------------
                                                              1995        1996
                                                             ------      ------
   Deferred tax asset:
      Warranty reserve, inventory reserve,
        and other accrued liabilities. . . . . . . . . . . .  $(274)      $(624)

   Deferred tax liability:
      Excess tax over book depreciation
         and amortization  . . . . . . . . . . . . . . . . .    100          28


                                          31

<PAGE>


NOTE 13--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>
1994
 Revenues.....................................   $2,570         $2,608            $3,327        $ 5,077
 Cost of goods sold...........................    1,544          1,522             1,854          3,087
 Operating expenses...........................      822            828               939          1,215
 Net income...................................      204            258               534            775
 Pro forma net income.........................      129            163               335            511
     Pro forma net income per share.             $ 0.05         $ 0.06            $ 0.12        $  0.17
1995
 Revenues.....................................   $3,701         $4,277            $5,033        $ 6,404
 Cost of goods sold...........................    2,222          2,499             2,943          4,151
 Operating expenses...........................    1,254          1,418             1,512          1,772
 Pro forma net income.........................      173            307               475            406
 Pro forma net income per share...............   $ 0.05         $ 0.07            $ 0.10        $  0.09
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
 Net income per share.........................   $ 0.02         $0 .02            $0 .14        $  0.30




</TABLE>


                                          32

<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, 1996, 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, 1996, 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, 1996, 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, 1996, 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.

                                          33

<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


Number                        Description
------                        -----------

    *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.

    *10.2   1994 Incentive Compensation Plan, dated December 21, 1993

    *10.3   Directors' Nonqualified Stock Option Plan, dated July 19, 1994

    *10.4   1994 Stock Option Plan, dated July 19, 1994


-------------------
*  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).


                                          34

<PAGE>


    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))

    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 Regarding Computation of Per Share Earnings

    21      List of Subsidiaries

    23      Consent of Independent Accountants

    27      Financial Data Schedule

--------------------------
*  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).

(b)     Reports on Form 8-K:

        No reports on Form 8-K have been filed during the last quarter of 1996.

                                          35

<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:
                                  1996      $  7        $122        $(115)    $  14
                                  1995        --           8           (1)        7
                                  1994        --          11          (11)       --
Reserve for warranty
expense and sales returns:
                                  1996       192         173           --       365
                                  1995       229          --          (37)      192
                                  1994       166          63           --       229



 </TABLE>


                                          36

<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, 1997

                                       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, 1997
---------------------------
      C. Norman Winningstad

/s/   Stephen A. Aanderud         President, Chief Executive    March 20, 1997
---------------------------       Officer, and Director
      Stephen A. Aanderud

/s/   Robert L. Carter            Director                 March 20, 1997
---------------------------
      Robert L. Carter

/s/   Graham Dorland              Director                 March 20, 1997
---------------------------
      Graham Dorland

/s/   Merrill A. McPeak           Director                 March 20, 1997
---------------------------
      Merrill A. McPeak

/s/   G. Gerald Pratt             Director                 March 20, 1997
     ---------------------------
      G. Gerald Pratt

/s/   Milton R. Smith             Director                 March 20, 1997
---------------------------
      Milton R. Smith

/s/   Frederick M. Stevens        Director                 March 20, 1997
---------------------------
      Frederick M. Stevens

/s/   Kent E. Koski               Vice President--Finance  March 20, 1997
---------------------------       and Administration,
      Kent E. Koski               Chief Financial Officer
                                  and Secretary


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