<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------------- ----------------
Commission File Number 0-22529
-------
inTEST Corporation
- ------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 22-2370659
- --------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S Employer Identification No.)
incorporation or organization)
2 Pin Oak Lane, Cherry Hill, New Jersey 08003
- ----------------------------------------- ----------------
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (609) 424-6886
---------------
Indicate by check X whether the registrants: (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
----- -----
Number of shares of Common Stock, $.01 par value, outstanding as of March 31,
1998:
5,911,034
<PAGE>
INTEST CORPORATION
INDEX
Part I. Financial Information
Page
----
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1998 (unaudited)
and December 31, 1997 1
Consolidated Statements of Earnings (unaudited) for the
three months ended March 31, 1998 and 1997 2
Consolidated Statement of Stockholders' Equity (unaudited)
for the three months ended March 31, 1998 3
Consolidated Statements of Cash Flows (unaudited) for the
three months ended March 31, 1998 and 1997 4
Notes to Consolidated Financial Statements (unaudited) 5 -10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-15
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 15
Part II. Other Information
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 16-17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Securities Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 18
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
March 31, Dec. 31,
1998 1997
--------- ---------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $12,513 $12,035
Trade accounts and notes receivable, net of allowance for doubtful
accounts of $144 at March 31, 1998 and December 31, 1997 4,007 4,058
Inventories 1,830 1,649
Other current assets 408 301
------- -------
Total current assets 18,758 18,043
------- -------
Property and equipment:
Machinery and equipment 1,152 1,129
Leasehold improvements 183 179
------- -------
1,335 1,308
Less: accumulated depreciation (873) (831)
------- -------
Net property and equipment 462 477
------- -------
Other assets 142 136
Goodwill 1,267 1,289
------- -------
Total assets $20,629 $19,945
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,173 $ 1,142
Accrued expenses 913 955
Domestic and foreign income taxes payable 874 1,291
------- -------
Total current liabilities 2,960 3,388
------- -------
Commitments
Stockholders' equity:
Preferred stock, $0.01 par value; 5,000,000 shares authorized;
no shares issued or outstanding - -
Common stock, $0.01 par value; 20,000,000 shares authorized;
5,911,034 shares issued and outstanding at March 31, 1998
and December 31, 1997 59 59
Additional paid-in capital 13,981 13,981
Retained earnings 3,797 2,643
Accumulated other comprehensive expense (168) (126)
------- -------
Total stockholders' equity 17,669 16,557
------- -------
Total liabilities and stockholders' equity $20,629 $19,945
======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
- 1 -
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except share data)
<TABLE>
<CAPTION>
Three Months Ended
--------------------
March 31, March 31,
1998 1997
-------- --------
<S> <C> <C>
Revenues $ 5,626 $ 3,887
Cost of revenues 2,200 1,602
------- -------
Gross profit 3,426 2,285
------- -------
Operating expenses:
Selling expense 741 493
Research and development expense 421 374
General and administrative expense 594 411
------- -------
Total operating expenses 1,756 1,278
------- -------
Operating income 1,670 1,007
------- -------
Other income (expense):
Interest income 127 29
Interest expense (1) (4)
Other 26 (10)
------- -------
Total other income 152 15
------- -------
Earnings before income taxes and minority interest 1,822 1,022
------- -------
Provision for income taxes:
Domestic 524 21
Foreign 144 146
------- -------
Income tax expense 668 167
------- -------
Earnings before minority interest 1,154 855
Minority interest - (11)
------- -------
Net earnings $ 1,154 $ 844
======= =======
Net earnings per common share - basic $0.20 $0.13
Pro forma weighted average common shares outstanding - basic 5,911,034 4,091,034
Net earnings per common share - diluted $0.19 $0.13
Pro forma weighted average common and common
equivalent shares outstanding - diluted 5,924,949 4,091,034
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
- 2 -
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(In thousands, except share data)
(Unaudited except Balance, December 31, 1997)
<TABLE>
<CAPTION>
Foreign
Common Stock Additional Currency Total
----------------- Paid-In Retained Translation Stockholders'
Shares Amount Capital Earnings Adjustment Equity
--------- ------ ---------- -------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 5,911,034 $ 59 $13,981 $ 2,643 $(126) $16,557
Net earnings - - - 1,154 - 1,154
Accumulated other comprehensive
expense - - - - (42) (42)
--------- ---- ------- ------- ----- -------
Balance, March 31, 1998 5,911,034 $ 59 $13,981 $ 3,797 $(168) $17,669
========= ==== ======= ======= ===== =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
- 3 -
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1998 1997
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 1,154 $ 844
Adjustments to reconcile net earnings to net cash:
Depreciation and amortization 64 41
Foreign exchange (gain)loss 22 (3)
Minority interest - 11
Changes in assets and liabilities:
Accounts and notes receivable 19 (642)
Inventories (187) 97
Other current assets (116) (123)
Accounts payable 15 307
Domestic and foreign income taxes payable (409) (72)
Accrued expenses (42) (129)
------- -------
Total adjustments (634) (513)
------- -------
Net cash provided by operating activities 520 331
------- -------
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES
Purchase of property and equipment (27) (5)
Other assets (7) -
------- -------
Net cash used in investing activities (34) (5)
------- -------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES
Dividends paid - (1,001)
Principal debt payment - (8)
------- -------
Net cash used in financing activities - (1,009)
------- -------
Effects of exchange rates on cash (8) (26)
------- -------
Net cash provided by (used in) all activities 478 (709)
Cash at beginning of period 12,035 3,692
------- -------
Cash at end of period $12,513 $ 2,983
======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
- 4 -
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 1998 and for the three months
ended March 31, 1998 and 1997 is unaudited)
(In thousands, except for share data)
(1) NATURE OF OPERATIONS
inTEST Corporation (the "Company") designs, manufactures and markets
docking hardware and test head manipulators used by semiconductor
manufacturers during the testing of wafers and packaged devices.
The Company also designs and markets related automatic test equipment
interface products.
The consolidated entity is comprised of inTEST Corporation (parent) and
six 100% owned subsidiaries: inTEST Limited (Thame, UK), inTEST
Kabushiki Kaisha (Kichijoji, Japan), inTEST PTE, Limited (Singapore),
inTEST Investments, Inc. (a Delaware holding company), inTEST IP Corp.
(a Delaware holding company) and inTEST Licensing Corp. (a Delaware
holding company).
The Company manufactures its products in the U.S. and the U.K. Marketing
and support activities are conducted worldwide from the Company's
facilities in the U.S., U.K., Japan and Singapore.
On June 20, 1997, the Company completed an initial public offering of
2.275 million common shares through which the Company issued 1.82 million
new shares of common stock (the "Offering"). Simultaneous with the
closing of the Offering, the Company acquired the 21% minority interests
in each of its three foreign subsidiaries in exchange for an aggregate of
300,443 shares of the Company's common stock (the "Exchange"). Prior to
the Offering the Company owned 79% of each of the three foreign
subsidiaries.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Reporting
---------------------------
In the opinion of management, the accompanying unaudited consolidated
financial statements include all adjustments (consisting only of normally
recurring adjustments) necessary to present fairly the financial
position, results of operations, and changes in cash flows for the
interim periods presented.
Certain footnote information has been condensed or omitted from these
financial statements. Therefore, these financial statements should be
- 5 -
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Interim Financial Reporting (Continued)
---------------------------
read in conjunction with the consolidated financial statements and
and accompanying footnotes included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1997.
Basis of Presentation
---------------------
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated upon consolidation. 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.
Reclassifications
-----------------
Certain prior year amounts have been reclassified to conform with the
current year presentation.
Net Earnings Per Common Share
-----------------------------
Net earnings per common share is computed in accordance with the
Statement of Financial Accounting Standard No. 128, Earnings per Share.
Basic earnings per share is computed by dividing net income by the
weighted average number of common shares outstanding during each period.
Diluted earnings per share is computed by dividing net income by the
weighted average number of common and common equivalent shares
outstanding during each period. Common share equivalents include stock
options using the treasury stock method.
As discussed in Note 3, pro forma earnings per share information for the
quarter ended March 31, 1997 includes certain adjustments to reflect
results as if the Company had been taxed as a C corporation for the
quarter and as if the acquisition of the minority interests in the
Company's three foreign subsidiaries had occurred January 1, 1997.
- 6 -
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
------------
Just prior to the closing of the Offering, the Company terminated its
status as an S corporation for Federal tax purposes and in the State of
New Jersey. As an S corporation, any Federal and certain New Jersey
state income tax liabilities were those of the former S corporation
stockholders, not of the Company. All tax liabilities on income earned
subsequent to the revocation of the S corporation election are
liabilities of the Company. The Company is taxed in foreign countries
and for activity in certain states. The Company accounts for income
taxes in accordance with the Statement of Financial Accounting Standard
No. 109, Accounting for Income Taxes.
Foreign Currency
----------------
The accounts of the foreign subsidiaries are translated in accordance
with the Statement of Financial Accounting Standard No. 52, Foreign
Currency Translation, which requires that assets and liabilities of
international operations be translated using the exchange rate in effect
at the balance sheet date. The results of operations are translated
using an average exchange rate for the period. The effects of rate
fluctuations in translating assets and liabilities of international
operations into U.S. dollars are accumulated and reflected as a foreign
currency translation adjustment in the consolidated statements of
stockholders' equity. Transaction gains or losses are included in net
earnings.
New Accounting Pronouncements
-----------------------------
In June 1997, the FASB issued SFAS 131, Disclosures About Segments of an
Enterprise and Related Information. This Statement established standards
for reporting information about operating segments in annual financial
statements and requires selected information about operating segments in
interim financial reports issued to shareholders. It also establishes
standards for related disclosure about products and services, geographic
areas and major customers. The Company plans to adopt this Statement for
the year ended December 31, 1998, as required. The adoption of this
Statement will not affect results from operations, financial condition or
long-term liquidity.
- 7 -
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
New Accounting Pronouncements (Continued)
-----------------------------
In March 1998, the AICPA issued Statement of Position 98-1, Accounting
for the Cost of Computer Software Developed or Obtained for Internal
Use. This Statement requires that certain costs related to the
development or purchase of internal software be capitalized and amortized
over the estimated useful life of the software. This Statement also
requires that costs related to the preliminary project stage and the post
implementation/operation stage of an internal use computer software
development project be expensed as incurred. The Company plans to adopt
this Statement for the year ended December 31, 1999, as required. The
adoption of this Statement is not expected to have a material affect on
the results of operations, financial condition or long-term liquidity.
(3) PRO FORMA STATEMENT OF EARNINGS INFORMATION
The Company terminated its status as an S corporation just prior to the
closing of the Offering, described in Note 1, and is subject to Federal
and additional state income taxes for periods after such termination.
Accordingly, for informational purposes, the following pro forma
information for the three months ended March 31, 1998 and 1997,
respectively, is presented to show pro forma earnings on an after-tax
basis, assuming the Company had been taxed as a C corporation since
January 1, 1997. The results of operations for the three months ended
March 31, 1998 do not require pro forma adjustment because the Company
was a C corporation throughout such period. The difference between the
Federal statutory income tax rate and the pro forma income tax rate are
as follows:
- 8 -
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
(3) PRO FORMA STATEMENT OF EARNINGS INFORMATION (Continued)
<TABLE>
<CAPTION>
3 Months 3 Months
Ended Ended
March 31, March 31,
1998 1997
--------- ---------
<S> <C> <C>
Federal statutory tax rate 34% 34%
State income taxes, net of Federal benefit 2 3
Foreign income taxes 8 7
Non-deductible goodwill amortization 1 1
Tax exempt interest income (2) -
Undistributed earnings of foreign
subsidiaries permanently reinvested (6) -
Other - 1
-- --
Pro forma income tax rate 37% 46%
3 Months 3 Months
Ended Ended
March 31, March 31,
1998 1997
--------- ---------
Pro forma earnings before income taxes $1,822 $1,000
Pro forma income taxes 668 462
Pro forma net earnings 1,154 538
Pro forma net earnings per common share -
basic $ 0.20 $ 0.13
Pro forma weighted average common shares
outstanding - basic 5,911,034 4,091,034
Pro forma net earnings per common share -
diluted $ 0.19 $ 0.13
Pro forma weighted average common and
common stock equivalent shares
outstanding - diluted 5,924,949 4,091,034
</TABLE>
In addition, the pro forma results for the three months ended March 31,
1997 also reflect goodwill amortization resulting from the acquisition
of minority interests in foreign subsidiaries, net of the elimination of
the minority interest charge reflected in the historical financial
statements, as if the Exchange had occurred on January 1, 1997. The
goodwill resulting from the Exchange, which totaled $1.3 million, is
being amortized over 15 years.
Pro forma net earnings per common share - basic was calculated by
dividing pro forma net earnings by the pro forma weighted average number
of shares of common stock outstanding during the period calculated as if
the Exchange had occurred on January 1, 1997.
- 9 -
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
(3) PRO FORMA STATEMENT OF EARNINGS INFORMATION (Continued)
Pro forma net earnings per common share - diluted was calculated by
dividing pro forma net earnings by the pro forma weighted average number
of shares of common and common stock equivalent shares outstanding
during the period calculated as if the Exchange had occurred on
January 1, 1997.
(4) COMPREHENSIVE INCOME
On January 1, 1998, the Company adopted SFAS 130, Reporting Comprehensive
Income. This Statement requires that all items that are required to be
recognized under accounting standards as components of comprehensive
income be reported in a financial statement that is displayed with the
same prominence as other financial statements. Comprehensive income is
computed as follows:
<TABLE>
<CAPTION>
Three Months Ended
--------------------
3/31/98 3/31/97
------- -------
<S> <C> <C>
Net income $ 1,154 $ 844
Other comprehensive expense, net of tax:
Foreign currency translation adjustment (42) (61)
------- -------
$ 1,112 $ 783
======= =======
</TABLE>
-10-
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Overview
- --------
The Company designs, manufacturers and markets docking hardware and test
head manipulators, which are used with automatic test equipment ("ATE") by
semiconductor manufacturers during the testing of wafers and packaged devices.
The Company also designs and markets related ATE interface products including
high performance test sockets, interface boards and probing assemblies. The
Company's products are designed to improve the utilization and cost-
effectiveness of ATE (including testers, wafer probers and device handlers)
during the testing of linear, digital and mixed signal integrated circuits.
The Company's revenues are substantially dependent upon the demand for
ATE by semiconductor manufacturers and, therefore, fluctuate generally as a
result of cyclicality in the semiconductor manufacturing industry. The
Company believes that purchases of the Company's docking hardware and
manipulators are typically made from its customers' capital expenditure
budgets, while related ATE interface products, which must be replaced
periodically, are typically made from its customers' operating budgets.
During the nine quarters ended March 31, 1998 the demand for ATE by the
semiconductor industry has exhibited a high degree of cyclicality. When
semiconductor manufacturing activity generally slowed during much of 1996,
many semiconductor manufacturers reduced their capital expenditure budgets
and, correspondingly, postponed or canceled orders for ATE and related
equipment. As a result, orders for and sales of the Company's products
experienced sequential quarterly declines throughout most of 1996. The
beginning of 1997 marked a turnaround in the semiconductor industry which was
evidenced by a renewal in demand for ATE and related equipment. This resulted
in sequential quarterly increases in orders for and sales of the Company's
products throughout most of 1997. During the first quarter of 1998, orders
for and sales of the Company's products began to decline as compared to the
fourth quarter of 1997. The Company believes that demand for and sales of its
products may continue to decline during the next several quarters as the
industry experiences reduced demand for ATE similar to that experienced during
1996. This cyclicality is reflected in the Company's backlog, which was $4.3
million at March 31, 1996, $2.3 million at March 31, 1997 and $4.5 million at
March 31, 1998.
On June 20, 1997 the Company completed an initial public offering of
2.275 million common shares through which the Company issued 1.82 million new
shares of common stock (the "Offering"). Prior to the Offering the Company
was an S corporation, and the net earnings of the Company were taxed as income
to the Company's stockholders for Federal and certain New Jersey state income
tax purposes. The Company terminated its status as an S corporation prior to
the closing of the Offering and is subject to Federal and additional state
income taxes for periods after such termination.
- 11 -
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Results of Operations
- ---------------------
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31,
1997:
Revenues. Revenues were $5.6 million for the quarter ended March 31,
1998 compared to $3.9 million for the same period in 1997, an increase of $1.7
million or 45%. The increase in revenue over the comparable prior period
reflects the aforementioned cyclical trends which is typical of the ATE
industry and, particularly, the lower demand for ATE and related products in
the three months ended March 31, 1997 as the cycle of ATE demand began to turn
and increase as compared with the higher, albeit decreasing, demand for ATE
and related products in the three months ended March 31, 1998.
Gross Margin. Gross margin increased to 61% for the quarter ended March
31, 1998 compared to 59% for the comparable period in 1997. The improvement
in gross margin was the result of lower incremental material costs due to
increased purchasing volume and by the improved absorption of fixed costs over
the higher revenue base.
Selling Expense. Selling expense was $741,000 for the quarter ended
March 31, 1998 compared to $493,000 for the same period in 1997, an increase
of $248,000 or 50%. The majority of the increase was attributable to a
significant increase in commission expense resulting from a higher level of
commissioned sales to semiconductor manufacturers in 1998 over the comparable
prior period. The increase in selling expense also reflects an increase in
warranty and travel expenses over the same period in 1997.
Research and Development Expense. Research and development expense was
$421,000 for the quarter ended March 31, 1998 compared to $374,000 for the
same period in 1997, an increase of $47,000 or 13%. The increase was
primarily due to increases in engineering and technical staff, and, to a
lesser extent, to increased levels of spending on research and development
materials in 1998 as compared to 1997.
General and Administrative Expense. General and administrative expense
was $594,000 for the quarter ended March 31, 1998 compared to $411,000 for the
same period in 1997, an increase of $183,000 or 44%. The increase was
primarily attributable to the additional costs associated with professional
fees, shareholder and investor relations and increased expenditures for
outside directors' fees incurred as a public company. Other factors
contributing to the increase in 1998 were the amortization of goodwill
resulting from the acquisition of the minority interests in the Company's
three foreign subsidiaries in connection with the Offering and salary
increases of administrative staff.
Income Tax Expense. Income tax expense increased to $668,000 for the
quarter ended March 31, 1998 from $167,000 for the comparable period in 1997,
an increase of $501,000. The Company's effective tax rate was 37% for
the first quarter of 1998 compared to 16% for the same period in 1997. The
significant increase in the effective tax rate was caused by the accrual of
Federal income tax on the Company's earnings due to the change of tax status
from S corporation to C corporation prior to the Offering.
- 12 -
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources
- -------------------------------
The Company realized net cash proceeds of $11.7 million (after payment of
direct expenses of the Offering) from the sale of 1.82 million newly issued
shares in the Offering in June 1997. The proceeds from the Offering are
expected to be used for working capital, general corporate purposes and
possible acquisitions of businesses, technologies or products complementary to
the Company's business.
Net cash provided from operations for the quarter ended March 31, 1998
was $520,000. Accounts receivable decreased $19,000 from December 31, 1997
to March 31, 1998 due to lower sales levels in the first quarter of 1998
compared to the fourth quarter of 1997. Inventories increased $187,000 as the
Company's domestic operations purchased materials to be utilized for product
shipments in future periods. Other current assets increased $116,000,
primarily as a result of increases in prepaid expenses. Accounts payable
increased $15,000 due to the aforementioned increases in the Company's
inventories. Accrued expenses decreased $42,000 primarily as a result of the
timing of payments of previously accrued expenses. Domestic and foreign
income taxes payable increased $409,000 primarily as a result of the accrual
of Federal income tax on earnings.
Purchases of property and equipment and other assets were $34,000 for the
quarter ended March 31, 1998. The Company plans to spend approximately
$500,000 during 1998 to renovate and expand its UK manufacturing facility and
to purchase a coordinate measuring machine for this facility.
Simultaneous with the Offering, the Company acquired the 21% minority
interests in each of its three foreign subsidiaries in exchange for an
aggregate of 300,443 shares of the Company's common stock. This acquisition,
which was accounted for using the purchase method, created goodwill of
approximately $1.3 million, which will be amortized over a period of 15 years.
The Company believes that existing cash and cash equivalents, its $1.5
million line of credit and the anticipated net cash provided from operations
will be sufficient to satisfy the Company's cash requirements for the
foreseeable future. However, if the Company were to make any acquisitions,
the Company may require additional equity or debt financing to meet working
capital requirements or capital expenditure needs. Although the Company, as
an S corporation, has historically paid cash dividends to its stockholders,
the Company does not anticipate that it will pay dividends in the foreseeable
future.
The Company's computer systems are currently Year 2000 compliant. The
Company is currently evaluating the systems of its major suppliers for Year
2000 compliance.
- 13 -
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Cautionary Statement Regarding Forward Looking Statements
- ---------------------------------------------------------
This report contains certain statements of a forward-looking nature
relating to future events, such as statements regarding the Company's plans
and strategies or future financial performance. Such statements can be
identified by the use of forward-looking terminology such as "believes",
"expects", "may", "will", "should" or "anticipates" or the negative thereof or
other variations thereon or comparable terminology, or by discussions of
strategy that involve risks and uncertainties. Investors and prospective
investors are cautioned that such statements are only projections and that
actual events or results may differ materially from those expressed in any
such forward-looking statements. In addition to the factors described in this
Report, the Company's actual consolidated quarterly or annual operating
results have been affected in the past, or could be affected in the future, by
additional factors, including, without limitation: changes in business
conditions and the economy, generally; the ability of the Company to obtain
patent protection, and enforce its patent rights, for existing and developing
proprietary technologies; the ability of the Company to integrate successfully
businesses, technologies or products which it may acquire; the effect of the
loss of, or reduction in orders from, a major customer; and competition from
other manufacturers of docking hardware, test head manipulators and related
ATE interface products.
International Operations
- ------------------------
Revenues generated by the Company's foreign subsidiaries were 28% and 37%
of consolidated revenues for the quarters ended March 31, 1998 and 1997,
respectively. The Company anticipates that revenues generated by the
Company's foreign subsidiaries will continue to account for a significant
portion of consolidated revenues in the foreseeable future. These revenues
generated by the Company's foreign subsidiaries will continue to be subject to
certain risks, including changes in regulatory requirements, tariffs and other
barriers, political and economic instability, an outbreak of hostilities,
foreign currency exchange rate fluctuations, potentially adverse tax
consequences and the possibility of difficulty in accounts receivable
collection. The Company cannot predict whether quotas, duties, taxes or other
charges or restrictions will be implemented by the United States or any other
country upon the importation or exportation of the Company's products in the
future. Any of these factors or the adoption of restrictive policies could
have a material adverse effect on the Company business, financial condition or
results of operations.
Revenues denominated in foreign currencies were 22% and 34% of
consolidated revenues for the quarters ended March 31, 1998 and 1997,
respectively. Although the Company operates its business such that a
significant portion of its product costs are denominated in the same currency
- 14 -
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
that the associated sales are made in, there can be no assurance that the
Company will not be adversely impacted in the future due to its exposure to
foreign operations. Revenues denominated in currencies other than U. S.
dollars expose the Company to currency fluctuations, which can adversely
affect results of operations.
The portion of the Company's consolidated revenues that were derived from
sales to the Asia Pacific region were 22% and 29% for the quarters ended March
31, 1998 and 1997, respectively. Countries in the Asia Pacific region,
including Japan, have recently experienced economic instability resulting in
weaknesses in their currency, banking and equity markets. Although the
current economic instability in the Asia Pacific region has not materially
adversely affected the Company's order backlog, balance sheet, or results of
operations to date, there can be no assurance that continued economic
instability will not in the future have a material adverse affect on demand
for the Company's products and its consolidated results of operations.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
- 15 -
<PAGE>
inTEST CORPORATION
Part II. Other Information
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
On June 17, 1997, the Company's Registration Statement on
Form S-1 covering the Offering of 2,275,000 shares of the
Company's Common Stock, Commission file number 333-26457,
was declared effective. The Offering commenced on
June 20, 1997, managed by Janney Montgomery Scott, Inc.
and Needham & Company, Inc. as representatives of the
several underwriters named in the Registration Statement
(the "Underwriters").
Of the 2,275,000 shares sold pursuant to the Offering,
1,820,000 shares were sold by the Company and 455,000 were sold
by certain selling stockholders (the "Selling Stockholders").
In addition, the Underwriters exercised an over-allotment option
to purchase an additional 341,250 shares of the Company's Common
Stock from the Selling Stockholders. The total price to the
public for the shares offered and sold by the Company and the
Selling Stockholders was $13,650,000 and $5,971,875,
respectively.
The amount of expenses incurred for the Company's account in
connection with the Offering are as follows:
<TABLE>
<S> <C>
Underwriting discounts and commissions: $1,023,750
Finders' fees: None
Expenses paid to or for the Underwriters: 16,650
Other expenses: 954,758
----------
Total expenses: $1,995,158
==========
</TABLE>
All of the foregoing expenses were direct or indirect payments
to persons other than (i) directors, officers or their
associates; (ii) persons owning ten percent (10%) or more of the
Company's Common Stock; or (iii) affiliates of the Company.
The net proceeds of the Offering to the Company (after deducting
the foregoing expenses) was $11,654,842. From the effective
date of the Registration Statement, the net proceeds have been
used for the following purposes:
- 16 -
<PAGE>
inTEST CORPORATION
Part II. Other Information (Continued)
Item 2. Changes in Securities and Use of Proceeds (Continued)
<TABLE>
<S> <C>
Construction of plant, building and facilities $ -
Purchase and installation of machinery
and equipment 64,686
Purchase of real estate -
Acquisition of other business -
Repayment of indebtedness 173,266
Working capital 599,725
Temporary investments, including cash &
cash equivalents 10,216,400
Other purposes (for which at least $100,000
has been used), including:
Payment of final S corporation distribution 600,765
-----------
$11,654,842
===========
</TABLE>
In connection with the termination of the Company's status as
an S corporation, the Company used $601,000 of the net proceeds
to pay a portion of the $4.3 million final distribution of
previously taxed but undistributed earnings of the Company.
All of the foregoing payments with the exception of the final S
corporation distribution were direct or indirect payments to
persons other than (i) directors, officers or their associates;
(ii) persons owning ten percent (10%) or more of the Company's
Common Stock; or (iii) affiliates of the Company.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Securities Holders
None
Item 5. Other Information
None
- 17 -
<PAGE>
inTEST CORPORATION
Part II. Other Information (Continued)
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
3.1 Articles of Incorporation: Previously filed by the
Company as an Exhibit to the Company's Registration
Statement on Form S-1, File No. 333-26457, and
incorporated by reference.
3.2 By-Laws: Previously filed by the Company as an Exhibit
to the Company's Registration Statement on Form S-1,
File No. 333-26457, and incorporated by reference.
10.9 Amended and Restated 1997 Stock Plan: Previously filed
by the Company as an Exhibit to the Company's
Registration Statement on Form S-8, File No.
333-44059, and incorporated by reference.
27 Financial Data Schedule
(b) Reports on Form 8-K
None
- 18 -
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
inTEST Corporation
Date: May 15, 1998 /s/ Alyn R. Holt
--------------------- -------------------------------------
Alyn R. Holt
Chairman and Chief Executive Officer
Date: May 15, 1998 /s/ Hugh T. Regan, Jr.
--------------------- -------------------------------------
Hugh T. Regan, Jr.
Treasurer and Chief Financial Officer
<PAGE>
Index to Exhibits
Item 6. Exhibits and Reports on Form 8-K
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001036262
<NAME> INTEST CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 12,513
<SECURITIES> 0
<RECEIVABLES> 4,007
<ALLOWANCES> 144
<INVENTORY> 1,830
<CURRENT-ASSETS> 18,758
<PP&E> 1,335
<DEPRECIATION> 873
<TOTAL-ASSETS> 20,629
<CURRENT-LIABILITIES> 2,960
<BONDS> 0
0
0
<COMMON> 59
<OTHER-SE> 17,610
<TOTAL-LIABILITY-AND-EQUITY> 20,629
<SALES> 5,626
<TOTAL-REVENUES> 5,626
<CGS> 2,200
<TOTAL-COSTS> 1,756
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1
<INCOME-PRETAX> 1,822
<INCOME-TAX> 668
<INCOME-CONTINUING> 1,154
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,154
<EPS-PRIMARY> .20
<EPS-DILUTED> .19
<FN>
<F1>EPS - PRIMARY AND EPS - DILUTED REFLECT THE IMPACT OF
FINANCIAL ACCOUNTING STANDARDS' BOARD STATEMENT NO. 128.
</FN>
</TABLE>
