<PAGE>
As Filed With The Securities and Exchange Commission on May 23, 2000
Registration No. 333-______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
inTEST CORPORATION
(Exact name of registrant as specified in its charter)
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<CAPTION>
<S> <C> <C>
Delaware 3825 22-2370659
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation) Classification Code Number) Identification No.)
</TABLE>
2 Pin Oak Lane
Cherry Hill, New Jersey 08003
(856) 424-6886
(Address, including zip code, and telephone number, including area
code, of Registrant's principal executive offices)
ROBERT E. MATTHIESSEN
President and Chief Executive Officer
inTEST Corporation
2 Pin Oak Lane
Cherry Hill, New Jersey 08003
(856) 424-6886
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copy to:
CHARLES C. ZALL, Esq. ALAN SINGER, Esq.
PATRICIA A. GRITZAN, Esq. Morgan, Lewis & Bockius LLP
Saul, Ewing, Remick & Saul LLP 1701 Market Street
1500 Market Street, 38th Floor Philadelphia, PA 19103
Philadelphia, PA 19102 (215) 963-5000
(215) 972-7777
Approximate date of commencement of proposed offer to the public: As soon
as practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]_______________.
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ______________________.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
========================================================================================================
Title of Each Class of Proposed Maximum Proposed Maximum
Securities to be Amount to be Offering Price per Aggregate Offering Amount of
Registered Registered Unit* Price* Registration Fee
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock ........... 2,300,000 $ 17.875 $41,112,500 $10,854
========================================================================================================
</TABLE>
* Estimated solely for the purpose of determining the registration fee.
Calculated in accordance with Rule 457(c), based upon the offering of up to
2,300,000 shares, including 300,000 shares that the underwriters have an
option to purchase from the Registrant to cover over-allotments, at a purchase
price of $17.875 per share, which is the average of the high and low prices
reported on the Nasdaq National Market on May 19, 2000.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until this registration statement shall
become effective on such date as the Commission, acting pursuant to Section 8(a)
of the Securities Act, may determine.
================================================================================
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED MAY 23, 2000
PROSPECTUS
2,000,000 Shares
[inTEST Logo]
inTEST CORPORATION
Common Stock
-------------------
Of the 2,000,000 shares of our common stock being sold in this offering, we
are offering 1,000,000 shares of our common stock and the selling stockholders
named in this prospectus are offering 1,000,000 shares. We will not receive any
of the proceeds from the sale of shares by the selling stockholders. Our common
stock is listed on the Nasdaq National Market under the symbol "INTT." On May
19, 2000, the last reported sale price of our common stock on the Nasdaq
National Market was $17.875 per share.
---------------------
Investing in our common stock involves significant risks. See "Risk Factors"
beginning on page 4.
---------------------
================================================================================
Per Share Total
- --------------------------------------------------------------------------------
Public price ................................. $ $
Underwriting discount ........................ $ $
Proceeds, before expenses, to inTEST ......... $ $
Proceeds to selling stockholders ............. $ $
================================================================================
The underwriters may also purchase up to an additional 300,000 shares of
common stock from us at the public offering price, less the underwriting
discount, within 30 days from the date of this prospectus, to cover
over-allotments.
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved of these securities or determined if this prospectus
is accurate or adequate. It is illegal for any person to tell you otherwise.
---------------------
Needham & Company, Inc.
Adams, Harkness & Hill, Inc.
Janney Montgomery Scott LLC
The date of this prospectus is _________, 2000.
<PAGE>
INSIDE FRONT COVER
inTEST designs and manufactures interface solutions and temperature management
products used by semiconductor manufacturers in the testing of integrated
circuits. inTEST provides high performance manipulator, docking hardware, tester
interface and temperature management products that are designed to enable
semiconductor manufacturers to develop efficient IC test procedures.
This photo shows an automated test system with an in2(R) universal manipulator
holding a test head above a wafer prober with docking hardware and a tester
interface.
[Photo of an automated test system with an in2(R) universal manipulator holding
a test head above a wafer prober with docking hardware and a tester interface.]
<PAGE>
TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
Where You Can Find More Information ..................................................... ii
Incorporation of Certain Documents by Reference ......................................... ii
Prospectus Summary ...................................................................... 1
Risk Factors ............................................................................ 4
Special Note Regarding Forward-Looking Information ...................................... 9
Use of Proceeds ......................................................................... 10
Capitalization .......................................................................... 11
Price Range of Common Stock ............................................................. 12
Dividend Policy ......................................................................... 12
Selected Consolidated Financial Data .................................................... 13
Management's Discussion and Analysis of Financial Condition and Results of Operations ... 14
Business ................................................................................ 21
Management .............................................................................. 30
Principal and Selling Stockholders ...................................................... 33
Underwriting ............................................................................ 36
Legal Matters ........................................................................... 37
Experts ................................................................................. 37
Index to Consolidated Financial Statements and Consolidated Financial Statement Schedule F-1
</TABLE>
-------------------------
You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted.
The information in this prospectus may not contain all of the information
that may be important to you. You should read the entire prospectus, as well as
the documents incorporated by reference in the prospectus, before making an
investment decision. All references to "we," "us," "our," "inTEST" or "the
company" in this prospectus mean inTEST Corporation and all entities owned or
controlled by inTEST Corporation, except where it is made clear that the term
means only the parent company.
i
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission (the "SEC") a
registration statement on Form S-3, as required by the Securities Act, with
respect to the common stock we propose to sell in this offering. Portions of the
registration statement not included in this prospectus and the exhibits and
schedules attached to the registration statement contain additional relevant
information about us and our common stock. In addition, we file reports, proxy
statements and other information with the SEC as required by the Exchange Act.
You may read and copy this information at the following locations of the SEC:
Public Reference Office New York Regional Office Chicago Regional Office
Room 1024 7 World Trade Center 500 West Madison Street
450 Fifth Street, N.W. 14th Floor Suite 1400
Washington, DC 20549 New York, NY 10048 Chicago, IL 60661
You may obtain information about the operation of the SEC's Public
Reference Room by calling the SEC at 1-800-SEC-0330. Our SEC filings are also
available on the SEC's Internet site at: www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to incorporate into this prospectus information that we
file with the SEC in other documents. The information incorporated by reference
is considered to be part of this prospectus, and information contained in this
prospectus and that we will later file with the SEC will automatically update
and supersede this information. We incorporate by reference the documents listed
below and any future filings made with the SEC under Sections 13(a), 13(c), 14
and 15(d) of the Securities Exchange Act of 1934 until all of the shares of
common stock that are part of this offering have been sold. The documents we
incorporate by reference are:
o our annual report on Form 10-K for the year ended December 31, 1999, as
amended by Form 10-K/A filed on April 26, 2000;
o our quarterly report on Form 10-Q for the quarter ended March 31, 2000;
o our current report on Form 8-K dated March 9, 2000, as amended by Form
8-K/A filed on May 16, 2000;
o our current report on Form 8-K dated March 31, 2000;
o our current report on Form 8-K dated May 16, 2000; and
o the description of our common stock contained in our registration
statement on Form 8-A filed on May 6, 1997.
You may request a copy of these filings at no cost by writing or
telephoning: inTEST Corporation, 2 Pin Oak Lane, Cherry Hill, NJ 08003, Attn:
Hugh T. Regan, Jr.; Telephone: (856) 424-6886.
This prospectus is part of a registration statement that we filed with the
SEC. You should rely only on the information incorporated by reference in or
provided in this prospectus and the registration statement. We have authorized
no one to provide you with different information. If anyone provides you with
different or inconsistent information, you should not rely on it. We are not
making an offer to sell these securities in any jurisdiction where the offer or
sale is not permitted. You should not assume that the information provided by
this prospectus is accurate as of any date other than the date on the front of
this prospectus.
ii
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
It is not complete and may not contain all of the information that you should
consider before investing in our common stock. You should read the entire
prospectus carefully, including the "Risk Factors" section and the information
incorporated by reference in this prospectus.
inTEST CORPORATION
We are a leading independent designer, manufacturer and marketer of
interface solutions and temperature management products that semiconductor
manufacturers use in conjunction with automatic test equipment, or ATE, in the
testing of integrated circuits, or ICs. Our interface solutions products include
manipulator, docking hardware and tester interface products. Our high
performance products are designed to enable semiconductor manufacturers to
improve the efficiency of their IC test processes and, consequently, their
profitability. We supply our products worldwide to major semiconductor
manufacturers directly and through leading ATE manufacturers. Our customers
include Motorola, Hewlett Packard, Lucent Technologies, ST Microelectronics,
Texas Instruments, IBM, Analog Devices, Teradyne, LTX, Cascade Microtech,
Electroglas and Tokyo Seitmitsu.
Semiconductor manufacturers test ICs at various stages of the manufacturing
process. We believe that testing costs represent a significant portion of the
total cost of manufacturing. Semiconductor manufacturers compete primarily based
on product performance and price, and, therefore, seek to maximize test yields,
shorten the test cycle, and otherwise reduce or control testing costs. At the
same time, the growing complexity of ICs has increased the difficulty of
maximizing IC test yields. As a result of these pressures, semiconductor
manufacturers strive to develop cost-effective test methodologies through
maximizing ATE usage, creating smaller test areas and increasing the use of
wafer-level testing. These methodologies enable IC manufacturers to reduce costs
because defective components are identified earlier in the manufacturing
process.
We believe the demand for ATE and related products largely depends on the
level of capital expenditures by semiconductor manufacturers. These expenditures
are driven primarily by the growing demand for ICs, new IC designs and
packaging, and evolving production technologies. Dataquest, an independent
market research group, estimates that capital spending by semiconductor
manufacturers was $30.1 billion in 1998, and projects that such spending will be
$63.5 billion in 2004 after reaching $74.9 billion in 2002.
We have focused our efforts on designing high quality products that provide
superior performance to our customers. We strive to enable our customers to
perform IC testing in the most efficient and cost-effective manner possible by
providing:
Scalable, Universal, High Performance Interface Technology: Our customers
can use our products in virtually any test setting and can use them effectively
with the newer generations of testers that are increasing in size, weight and
complexity.
Compatibility and Integration: Our products make a wide range of ATE
compatible, thus enabling smoother changeover during test, longer lives for
interface components and more accurate test results.
Wafer Level Testing: Our advanced thermal chuck systems enable our
customers to test wafers under precise temperature conditions, providing
identification of defective ICs earlier in the manufacturing process, thereby
eliminating the costs of packaging and testing these defective ICs.
Worldwide Customer Service and Support: We provide a high level of customer
support by locating our customer service and support personnel close to most of
our customers' facilities. We work closely with our customers in all phases of
developing test solutions.
Our goal is to be recognized in our industry as the designer and
manufacturer of the highest quality products in our market and to become a
supplier for all of our customers' ATE needs, other than probers, handlers and
testers. Key elements of our strategy include:
1
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o providing technologically advanced solutions;
o leveraging our strong customer relationships;
o continuing our international expansion; and
o pursuing synergistic acquisitions.
Our principal executive offices are located at 2 Pin Oak Lane, Cherry Hill,
New Jersey, 08003, and our telephone number is (856) 424-6886. Our corporate web
site is: www.intest.com. The information in our website is not part of this
prospectus.
"inTEST," "in2," "Pro Dock," "ThermoChuck," "ThermoStream," the inTEST
logo, the in2 logo and the Temptronic logo are our trademarks. This prospectus
also contains the trademarks and trade names of other companies.
Recent Events
On March 9, 2000, we acquired Temptronic Corporation. The acquisition was
in the form of a merger of Temptronic into a subsidiary of ours, and was
accounted for as a pooling of interests. Temptronic designs, makes, sells and
services high-performance temperature management products used in the testing of
ICs and other electronic products. These temperature management products
complement our existing products. The description of our business and financial
information in this prospectus includes Temptronic.
The Offering
Except as otherwise indicated, all information in this prospectus assumes
no exercise of the underwriters' over-allotment option.
<TABLE>
<S> <C>
Common stock offered by inTEST ........................... 1,000,000 shares
Common stock offered by the selling stockholders ......... 1,000,000 shares
Common stock outstanding after the offering .............. 9,588,383 shares
Use of proceeds .......................................... We expect to use the proceeds of this
offering for general corporate purposes,
including working capital and potential
acquisitions. See "Use of Proceeds."
Nasdaq National Market symbol ............................ INTT
</TABLE>
The common stock outstanding after the offering is based upon the number of
shares outstanding as of April 30, 2000 and does not include 670,130 shares of
common stock issuable upon exercise of options outstanding under our option
plans, which are exercisable at a weighted-average price of $8.80 per share. We
currently plan to increase the number of shares authorized under our 1997 Stock
Plan by 500,000 shares to a total of 1,000,000 shares.
2
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Summary Consolidated Financial Data
(in thousands, except per share data)
Consolidated Statement of Earnings Data:
<TABLE>
<CAPTION>
Three Months Ended
Years Ended December 31, March 31,
------------------------------------------------------------------ -------------------------
1995 1996 1997 1998 1999 1999 2000
---------- ------------ ------------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues ................. $28,568 $ 36,259 $ 40,014 $ 36,058 $ 53,585 $ 8,223 $ 20,254
Gross margin ................. 16,727 20,512 20,914 17,188 26,710 3,752 9,975
Operating income ............. 5,706 7,211 5,840 2,076 7,327 60 2,177
Net earnings (loss) .......... 4,443 5,613 4,223 1,058 6,133 (61) 478
Net earnings (loss) per common
share:
Basic ...................... $ 0.82 $ 0.55 $ 0.14 $ 0.76 $ (0.01) $ 0.06
Diluted .................... $ 0.76 $ 0.54 $ 0.14 $ 0.74 $ (0.01) $ 0.06
Weighted average shares:
Basic ...................... 5,325 6,531 7,669 8,084 8,062 8,137
Diluted .................... 5,688 6,697 7,822 8,266 8,062 8,466
</TABLE>
Consolidated Balance Sheet Data:
As of March 31, 2000
------------------------
Actual As Adjusted
--------- ------------
Cash and cash equivalents ........................ $ 8,682 $24,985
Working capital .................................. 22,036 38,339
Total assets ..................................... 43,541 59,844
Total stockholders' equity ....................... 32,007 48,310
The 1996 and 1997 net earnings per common share and weighted average share
data are presented on a pro forma basis to reflect our results as if we had been
taxed as a C corporation for all of 1996 and 1997 and as if we had acquired our
minority interests in three foreign subsidiaries on January 1, 1996, rather than
on June 20, 1997, the actual date of the acquisition.
The "as adjusted" column in the chart above reflects the sale of 1,000,000
shares of common stock by us in this offering and the estimated net proceeds of
approximately $16.3 million based on an assumed public offering price of
$17.875 per share and after deducting the underwriting discount and estimated
offering expenses payable by us.
3
<PAGE>
RISK FACTORS
This offering involves a high degree of risk. You should carefully consider
the risks and uncertainties that we describe below and the other information in
this prospectus before deciding whether to invest in shares of our common stock.
Our sales reflect the cyclicality of the semiconductor industry, which causes
our operating results to fluctuate significantly.
Our business depends in significant part upon the capital expenditures of
semiconductor manufacturers. Capital expenditures by these companies depend
upon, among other things, the current and anticipated market demand for
semiconductors and the products that utilize them. Typically, semiconductor
manufacturers curtail capital expenditures during periods of economic downturn.
Conversely, semiconductor manufacturers increase capital expenditures when
market demand requires the addition of new or expanded production capabilities
or the reconfiguration of existing fabrication facilities to accommodate new
products. These market changes have caused in the past, and will likely cause in
the future, our operating results to fluctuate. Any future downturns or
slowdowns in the semiconductor industry would likely result in a reduction in
demand for our products and hurt our sales and operating results.
Our operating results often change significantly from quarter to quarter and may
cause fluctuations in our stock price.
During the last three years, our operating results have fluctuated
significantly from quarter to quarter. We believe that these fluctuations occur
primarily due to the cycles of demand in the semiconductor manufacturing
industry. In addition to the changing cycles of demand in the semiconductor
manufacturing industry, other factors that have caused our quarterly operating
results to fluctuate in the past, or that may cause fluctuations or losses in
the future, include:
o competitive pricing pressures;
o delays in shipments of our products;
o the mix of our products sold;
o the mix of customers and geographic regions where we sell our products;
o changes in our fixed costs;
o costs associated with the development of our proprietary technology;
o costs and timing of completion and integration of our acquisitions;
o the timing of additional selling, general and administrative expenses to
support our new business;
o our ability to obtain raw materials or fabricated parts when needed; and
o cancellation or rescheduling of orders by our customers.
Because the market price of our common stock has tended to vary based on,
and in relation to, changes in our operating results, fluctuations in the market
price of our stock are likely to continue as variations in our quarterly results
continue.
If we do not successfully integrate Temptronic's business, we may not realize
the expected benefits from the merger.
We completed our merger with Temptronic on March 9, 2000. Integrating
Temptronic's operations with ours may be more difficult, time-consuming and
costly than anticipated. The difficulties involved in integrating the two
companies, which could be substantial, include:
o possible distraction of management and key personnel from the customary
day-to-day business of the combined company may occur;
4
<PAGE>
o the business cultures of the two companies could prove to be
incompatible;
o implementing common systems and procedures, especially information and
accounting systems, could be costly and time-consuming;
o key technical, sales and customer support personnel may elect to leave;
and
o unanticipated problems and liabilities may occur.
If we are unable to realize benefits from the merger when and to the extent
expected, our business may suffer.
The expansion of our operations may interfere with day-to-day operations.
We are expanding our operations significantly. We have added 155 employees
in the period from December 31, 1998 through March 31, 2000 and will need to
further increase personnel to handle higher production levels. This expansion
has placed, and will continue to place, substantial demands on our management
resources. Moreover, to accommodate anticipated growth and expansion, we must
hire, train, manage, retain and motivate qualified personnel. We cannot assure
you that we will be able to hire the qualified personnel that we will need, and
the failure to hire the personnel as needed may impair our ability to expand. In
addition, the planned relocation of existing facilities in New Jersey and the
U.K., and the possible relocation of our Massachusetts facility, may disrupt
operations, cause delays in meeting production schedules and place additional
burdens on our management and internal resources.
We intend to acquire additional businesses. If we are unable to do so, our
future rate of growth may be limited.
A key element of our growth strategy is to acquire businesses, technologies
or products that expand and complement our current businesses. We may not be
able to execute our acquisition strategy if:
o we are unable to identify suitable businesses or technologies to acquire;
o we do not have access to required capital at the necessary time; or
o we are unwilling or unable to outbid larger, more resourceful companies.
Our acquisition strategy involves financial and management risks which may
adversely affect our earnings in the future.
If we acquire additional businesses, technologies or products, we will face
the following additional risks:
o future acquisitions could divert management's attention from daily
operations or otherwise require additional management, operational and
financial resources;
o we might not be able to integrate future acquisitions into our business
successfully or operate acquired businesses profitably;
o we may realize substantial acquisition related expenses, including the
amortization of goodwill, which would reduce our net earnings in future
years; and
o our investigation of potential acquisition candidates may not reveal
problems and liabilities of the companies that we acquire.
If any of the events described above occur, our earnings could be reduced.
If we issue shares of our stock or other rights to purchase our stock in
connection with any future acquisitions, we could dilute our existing
stockholders' interests and our earnings per share may decrease. If we issue
debt in connection with any future acquisitions, lenders may impose covenants on
us which could, among other things, restrict our ability to increase capital
expenditures or to acquire additional businesses.
5
<PAGE>
Our industry is subject to rapidly evolving technological change, and our
business prospects would be hurt if we are unable to respond to innovations in
the semiconductor industry.
Semiconductor technology continues to become more complex as manufacturers
incorporate ICs into an increasing variety of products. This trend, and the
rapid changes needed in automatic testing systems to respond to developments in
the semiconductor industry, are likely to continue. The demand for new testing
systems provides both an opportunity and the need for us to develop innovative
products. We cannot assure you that we will be successful in developing,
manufacturing or selling products that will satisfy customer needs or attain
market acceptance. Our failure to provide products that meet customer needs or
gain market acceptance will hurt our business prospects.
If we are not able to obtain patents on or otherwise preserve and protect our
proprietary technologies, our business may suffer.
We have obtained domestic and foreign patents covering some of our products
which expire between the years 2001 and 2019, and we have pending applications
for additional patents. Some of our products utilize proprietary technology that
is not covered by patent or similar protection, and in many cases, cannot be so
protected. We cannot be certain that:
o any additional patents will be issued on our applications;
o any patents we own now or in the future will protect our business against
competitors that develop similar technology or products;
o our patents will be held valid if they are challenged or subjected to
reexamination or reissue;
o others will not claim rights to our patented or other proprietary
technologies; or
o others will not develop technologies which are similar to, or can compete
with, our unpatented proprietary technologies.
If we cannot obtain patent or other protection for our proprietary
technologies, our ability to compete in our markets could be impaired.
Claims of intellectual property infringement by or against us could seriously
harm our businesses.
From time to time, we may be forced to respond to or prosecute intellectual
property infringement claims to defend or protect our rights or a customer's
rights. These claims, regardless of merit, may consume valuable management time,
result in costly litigation or cause product shipment delays. Any of these
factors could seriously harm our business and operating results. We may have to
enter into royalty or licensing agreements with third parties who claim
infringement. These royalty or licensing agreements, if available, may be costly
to us. If we are unable to enter into royalty or licensing agreements with
satisfactory terms, our business could suffer. In instances where we have had
reason to believe that we may be infringing the patent rights of others, or that
someone may be infringing our patent rights, we have asked our patent counsel to
evaluate the validity of the patents in question, as well as the potentially
infringing conduct. If we become involved in a dispute, neither the third
parties nor the courts are bound by our counsel's conclusions.
Our business will suffer if we cannot compete successfully with manufacturers
whose products are similar to ours.
We compete with numerous manufacturers, many of whom have greater financial
resources and more extensive design and production capabilities than we do. Some
of our principal competitors in the sale of manipulator, docking and interface
products are Reid-Ashman Manufacturing, Microhandling GmbH, Credence Systems,
LTX, Schlumberger, Teradyne and Cerprobe. Some of our principal competitors in
the sale of temperature-management products are Trio-Tech International,
Thermonics and ERS Elektronik GmbH. In
6
<PAGE>
order to remain competitive with these and other companies, we must be able to
continue to commit a significant portion of our personnel, financial resources,
research and development and customer support to developing products and
maintaining customer satisfaction worldwide. If we are not able to compete
successfully, our business will suffer.
We generate a large portion of our sales from a small number of customers. If we
were to lose one or more of our larger customers, operating results could suffer
dramatically.
Our ten largest customers accounted for approximately 60% of net revenues
in 1999, although no one customer accounted for 10% or more of our net revenues
in 1999. The loss of any one or more of our largest customers, or a reduction in
orders by a major customer, could materially reduce our net revenues.
If we do not continue to retain the services of key personnel, relationships
with, and sales to, some of our customers could suffer.
The loss of key personnel could adversely affect our ability to manage our
business effectively. Our future success will depend largely upon the continued
services of our senior management and certain other key employees. Generally, we
do not have employment agreements with any of our executive officers or other
key employees, although we have entered into an employment agreement with the
President and Chief Executive Officer of Temptronic in connection with our
merger with Temptronic. Our future success will depend, in part, upon our
ability to retain our managers, engineers and other key employees. Our business
could suffer if we were unable to retain one or more of our senior officers or
other key employees.
A substantial portion of our operations exists outside the U.S., which exposes
us to foreign political and economic risks.
We have operated internationally for many years and expect to expand our
international operations as necessary to continue expansion of our sales and
service to our non-U.S. customers. Our foreign subsidiaries generated 16% of
consolidated net revenues in 1999 and 18% in 1998. Export sales from our U.S.
manufacturing facilities totaled $15.9 million, or 30% of net revenues, in 1999
and $12.3 million, or 34% of net revenues, in 1998. We expect our international
revenues will continue to represent a significant portion of total net revenues.
To date, we have not experienced significant problems in our foreign operations.
However, in addition to the risks generally associated with sales and operations
in the U.S., sales to customers outside the U.S. and operations in foreign
countries are subject to additional risks, which may, in the future, affect our
operations. These risks include:
o political and economic instability in foreign countries;
o the imposition of financial and operational controls and regulatory
restrictions by foreign governments;
o the need to comply with a wide variety of U.S. and foreign import and
export laws;
o trade restrictions;
o changes in tariffs and taxes;
o longer payment cycles;
o fluctuations in currency exchange rates; and
o the greater difficulty of administering business abroad.
We conduct business in foreign currencies, and fluctuations in the values of
those currencies could result in foreign exchange losses.
In 1999, approximately 5% of our net revenues were denominated in yen and
approximately 6% were denominated in British pounds. Fluctuations in the values
of these currencies could result in foreign exchange losses. Any strengthening
of the dollar in relation to the currencies of our competitors or customers, or
strengthening or weakening of the yen or British pound in relation to other
currencies in which our customers
7
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or competitors do business, could adversely affect our competitiveness.
Moreover, a strengthening of the dollar or other competitive factors could put
pressure on us to denominate a greater portion of our sales in foreign
currencies, thereby increasing our exposure to fluctuations in the exchange
rates. Any devaluation of these currencies would hurt our business. We do not
undertake hedging activities against some of our exchange rate risk.
Fluctuations in exchange rates may adversely affect our competitive position or
result in foreign exchange losses, either of which could cause our business to
suffer.
We will retain broad discretion in the use of proceeds from this offering.
Our management will have significant flexibility in applying the net
proceeds of the offering. You will be relying on the judgment of our management
regarding the application of the proceeds. We may fail to utilize the proceeds
of this offering in a manner that improves our overall profitability or enhances
stockholders' value.
Our stock price is very volatile.
From January 1, 1999 through April 30, 2000, our stock price has ranged
from a low of $3.63 to a high of $26.25. The price of our common stock has been
and likely will continue to be subject to wide fluctuations in response to a
number of events and factors, such as:
o variations in operating results;
o variances between our results of operations and securities analysts'
estimates;
o changes in financial estimates and recommendations by securities
analysts;
o issuance of additional shares of our stock;
o announcements of technological innovations, new products, or strategic
alliances by us or our competitors; and
o news reports relating to trends in our markets.
In addition, the stock market in general, and the market prices for
technology and semiconductor-related companies in particular, have experienced
significant price and volume fluctuations that often have been unrelated to the
operating performance of the companies affected by these fluctuations. These
broad market variations may adversely affect the market price of our common
stock, regardless of our operating performance.
8
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
This prospectus and the documents we have filed with the Securities and
Exchange Commission that we incorporate by reference in this prospectus contain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933. These statements involve risks, uncertainties and other factors
that may cause our actual results, performance or achievements to be materially
different from any future results, performance or achievements expressed or
implied by the forward-looking statements. In some cases, you can identify
forward-looking statements by terms such as "may," "will," "should," "could,"
"would," "expect," "plan," "anticipate," "believe," "estimate," "project,"
"predict," "potential" and similar expressions. Forward-looking statements in
this prospectus include, but are not limited to, statements regarding:
o developments and trends in the IC and ATE industries;
o future acquisitions;
o our ability to integrate our operations with those of Temptronic or to
achieve synergistic benefits from the merger;
o the development of new products and technologies by us or our
competitors;
o the availability of materials used to manufacture our products;
o the availability of qualified personnel;
o the availability and cost of space for future expansion and the costs
associated with this expansion;
o general economic conditions;
o net revenues generated by foreign subsidiaries;
o exchange rate fluctuations and the use of forward exchange rate
contracts;
o use of proceeds;
o merger related costs;
o the increasing use of front end testing by IC manufacturers;
o cost overruns or delays in receiving reimbursements for expenses incurred
in the expansion and relocation of our operations;
o stock price fluctuations;
o the anticipated market for our products; and
o the sufficiency of cash balances, lines of credit and net cash from
operations.
Because forward-looking statements involve risks and uncertainties, there
are important factors that could cause actual results to differ materially from
those expressed or implied by these forward-looking statements, including but
not limited to:
o changes in general economic, business and financial market conditions;
o our ability to integrate businesses, technologies or products which we
may acquire;
o our ability to manage the expansion of our business;
o the extent to which we are able to develop and market new and improved
products;
o our ability to obtain patent protection and enforce our patent and other
proprietary rights in existing and developing technologies;
o competition from other manufacturers of products that are similar to
ours;
o the effect of the loss of, or reduction in orders from, major customers;
o our ability to retain the services of key personnel and to hire qualified
personnel as we expand;
o unanticipated capital requirements;
o delays in the introduction of the redesigned ThermoChuck(R) products;
o cost overruns relating to leasehold improvements and moving costs;
9
<PAGE>
o cancellation or delays in shipments of orders in our backlog; and
o the other factors discussed under "Risk Factors."
Given these uncertainties, you should not place undue reliance on these
forward-looking statements. We discuss many of these risks in greater detail
under the heading "Risk Factors." You should read this prospectus and the
documents that we incorporate by reference in this prospectus completely and
with the understanding that our actual future results may be materially
different from what we expect. These forward-looking statements represent our
estimates and assumptions only as of the date of this prospectus. We are not
obligated to update these forward-looking statements, even though our situation
may change in the future. We qualify all of our forward-looking statements by
these cautionary statements.
USE OF PROCEEDS
The net proceeds to be paid to us from the sale of the 1,000,000 shares of
common stock offered by us in this prospectus are estimated to be approximately
$16.3 million, based on an assumed public offering price of $17.875 per share
and after deducting the underwriting discount and estimated offering expenses
that we must pay. We will not receive any proceeds from the sale of common stock
by the selling stockholders. See "Underwriting."
We expect to use the net proceeds for general corporate purposes, which may
include working capital and possible acquisitions of businesses, technologies or
products that are complementary to our existing businesses. At the present time,
we have no specific plans or agreements with respect to any acquisition, and we
are not engaged in any negotiations regarding any acquisition. Prior to using
the proceeds for the purposes described above, we plan to invest the net
proceeds of this offering in short-term, investment-grade securities or shares
of investment companies investing primarily in such securities.
10
<PAGE>
CAPITALIZATION
The following chart shows, as of March 31, 2000, our actual capitalization
and our capitalization as adjusted to give effect to the sale of the 1,000,000
shares of common stock offered by us in this offering, based on an assumed
public offering price of $17.875 per share and after deducting the underwriting
discount and estimated offering expenses payable by us. The outstanding share
information does not include 675,686 shares of common stock issuable upon
exercise of outstanding options as of March 31, 2000. These options have a
weighted average exercise price of $8.77 per share.
<TABLE>
<CAPTION>
As of March 31, 2000
------------------------------------------------
Actual As Adjusted
---------- ------------
(in thousands, except share and per share data)
<S> <C> <C>
Stockholders' equity
Preferred stock, $0.01 par value; authorized
5,000,000 shares; no shares issued or
outstanding .......................................... -- --
Common stock, $0.01 par value; authorized
20,000,000 shares; issued shares of 8,582,827
actual and 9,582,827 as adjusted ..................... 86 96
Additional paid-in capital ............................. 21,681 37,974
Retained earnings ...................................... 13,555 13,555
Accumulated other comprehensive earnings ............... 1 1
Deferred compensation .................................. (125) (125)
Note receivable from Equity Participation Plan ......... (3,191) (3,191)
------ ------
Total stockholders' equity ........................... $ 32,007 $ 48,310
-------- --------
Total capitalization ................................. $ 32,007 $ 48,310
======== ========
</TABLE>
11
<PAGE>
PRICE RANGE OF COMMON STOCK
Our common stock is traded on the Nasdaq National Market under the symbol
"INTT." The following table sets forth the high and low sale prices of our
common stock, as reported on the Nasdaq National Market, for the periods
indicated. Sale prices have been rounded to the nearest full cent.
Sales Prices
High Low
---- ---
1998
----
First Quarter .................. $ 10.25 $ 6.25
Second Quarter ................. 9.50 6.00
Third Quarter .................. 6.50 3.75
Fourth Quarter ................. 9.63 4.00
1999
----
First Quarter .................. $ 8.25 $ 5.25
Second Quarter ................. 7.75 3.63
Third Quarter .................. 11.25 6.50
Fourth Quarter ................. 20.38 6.63
2000
----
First Quarter .................. $ 26.25 $ 16.44
Second Quarter* ................ 24.50 15.13
*Through May 19, 2000
On May 19, 2000, the closing price for our common stock as reported on the
Nasdaq National Market was $17.875. As of March 31, 2000, we had 8,582,827
shares outstanding that were held of record by approximately 1,000 shareholders.
DIVIDEND POLICY
We have not paid dividends on our common stock since our initial public
offering, and we do not plan to pay cash dividends in the foreseeable future.
Our current policy is to retain any future earnings for reinvestment in the
operation and expansion of our business, including possible acquisitions of
other businesses, technologies or products. Payment of any future dividends will
be at the discretion of our board of directors. In addition, our current credit
agreement prohibits us from paying cash dividends without the lender's prior
consent.
12
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table contains our selected financial data and is qualified
by the more detailed consolidated financial statements and the notes to those
financial statements included elsewhere in this prospectus or incorporated by
reference. The selected financial data gives retroactive effect to our merger
with Temptronic Corporation on March 9, 2000. The merger has been accounted for
using the pooling-of-interests method of accounting. The consolidated statement
of earnings data for the years ended December 31, 1995 and 1996 and the
consolidated balance sheet data as of December 31, 1995 and 1996 are derived
from our unaudited consolidated financial statements. These unaudited
consolidated financial statements do not appear separately in this prospectus.
The selected financial data as of December 31, 1997, 1998 and 1999 and for each
of the years in the three-year period ended December 31, 1999 are derived from
our consolidated financial statements that have been audited by KPMG LLP. The
consolidated financial statements as of December 31, 1998 and 1999 and for each
of the years in the three-year period ended December 31, 1999 and the report
thereon are included elsewhere in this prospectus. The consolidated statement of
earnings data for the three months ended March 31, 1999 and 2000 and the
consolidated balance sheet data as of March 31, 2000 are derived from our
unaudited consolidated financial statements, which are included elsewhere in
this prospectus. The unaudited consolidated financial statements include all
adjustments (consisting only of normal recurring adjustments) that we consider
necessary for a fair presentation of the results of operations for these
periods. You should read the following information together with our
consolidated financial statements included elsewhere in this prospectus or
incorporated by reference to our reports filed with the SEC and the section of
this prospectus entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------------
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Earnings
Data:
Net revenues ........................ $28,568 $36,259 $ 40,014 $ 36,058 $ 53,585
Cost of revenues .................... 11,841 15,747 19,100 18,870 26,875
------- ------- -------- -------- ---------
Gross margin ....................... 16,727 20,512 20,914 17,188 26,710
------- ------- -------- -------- ---------
Operating expenses:
Selling expense .................... 3,282 4,336 6,951 6,976 8,418
Engineering and product
development expense ............... 4,751 5,135 4,543 4,062 4,864
General and administrative
expense ........................... 2,988 3,830 3,580 4,074 6,101
Merger-related costs ............... -- -- -- -- --
------- ------- -------- -------- ---------
Total operating expenses .......... 11,021 13,301 15,074 15,112 19,383
------- ------- -------- -------- ---------
Operating income .................... 5,706 7,211 5,840 2,076 7,327
Other income ........................ (110) (55) 24 163 231
------- ------- -------- -------- ---------
Earnings before income taxes and
minority interest .................. 5,596 7,156 5,864 2,239 7,558
Income tax expense .................. 972 1,330 1,616 1,181 1,425
Minority interest ................... (181) (213) (25) -- --
------- ------- -------- -------- ---------
Net earnings (loss) ............... $ 4,443 $ 5,613 $ 4,223 $ 1,058 $ 6,133
======= ======= ======== ======== =========
Net earnings (loss) per common share:
Basic .............................. $ 0.82 $ 0.55 $ 0.14 $ 0.76
Diluted ............................ $ 0.76 $ 0.54 $ 0.14 $ 0.74
Weighted average common shares
outstanding:
Basic .............................. 5,325 6,531 7,669 8,084
Diluted ............................ 5,688 6,697 7,822 8,266
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1999 2000
---- ----
(in thousands, except per share data)
<S> <C> <C>
Consolidated Statement of Earnings
Data:
Net revenues ........................ $ 8,223 $ 20,254
Cost of revenues .................... 4,471 10,279
------- --------
Gross margin ....................... 3,752 9,975
------- --------
Operating expenses:
Selling expense .................... 1,538 2,318
Engineering and product
development expense ............... 1,067 1,450
General and administrative
expense ........................... 1,087 1,473
Merger-related costs ............... -- 2,557
------- --------
Total operating expenses .......... 3,692 7,798
------- --------
Operating income .................... 60 2,177
Other income ........................ 4 100
------- --------
Earnings before income taxes and
minority interest .................. 64 2,277
Income tax expense .................. 125 1,799
Minority interest ................... -- --
------- --------
Net earnings (loss) ............... $ (61) $ 478
======= ========
Net earnings (loss) per common share:
Basic .............................. $ (0.01) $ 0.06
Diluted ............................ $ (0.01) $ 0.06
Weighted average common shares
outstanding:
Basic .............................. 8,062 8,137
Diluted ............................ 8,062 8,466
</TABLE>
<TABLE>
<CAPTION>
As of December 31, As of March 31,
------------------------------------------------------------ ----------------
1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents .................... $ 2,152 $ 3,840 $12,138 $ 8,637 $12,047 $ 8,682
Working capital .............................. 5,461 6,513 16,826 15,068 20,784 22,036
Total assets ................................. 13,052 16,018 31,290 32,201 43,015 43,541
Long-term debt, less current portion ......... 1,007 1,312 427 262 133 --
Total stockholders' equity ................... 6,284 7,767 21,037 25,062 31,458 32,007
</TABLE>
The 1996 and 1997 net earnings per common share and weighted average share
data are presented on a pro forma basis to reflect our results as if we had been
taxed as a C corporation for all of 1996 and 1997 and as if we had acquired our
minority interests in three foreign subsidiaries on January 1, 1996, rather than
on June 20, 1997, the actual date of the acquisition.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
Our net revenues depend substantially upon the demand for ATE by
semiconductor manufacturers and, therefore, fluctuate generally in response to
the cyclicality in the semiconductor manufacturing industry. During the past
several years, the demand for ATE by the semiconductor industry has exhibited a
high degree of cyclicality. In 1996, we experienced sequential quarterly
declines in orders for and sales of our products. We believe this was due to a
reduced level of semiconductor manufacturing activity and corresponding cutbacks
in semiconductor manufacturers' capital budgets. 1997 marked a turnaround in the
semiconductor industry, which was evidenced by renewed demand for ATE and
related equipment, and resulted in sequential quarterly increases in orders for
and sales of our products. 1998, like 1996, was another year of sequential
quarterly declines in orders for and sales of our products, but to a more
significant degree than in 1996. In 1998, we believe worldwide demand for ICs
fell dramatically due to excess inventory of older IC designs and slower
transition to new IC designs resulting from softening demand for end user
products. In addition, the economic downturns in many world economies,
especially those in Southeast Asia and Japan, exacerbated the semiconductor
industry downturn. The combination of these conditions contributed to a reduced
demand for products manufactured by semiconductor manufacturers, which in turn
significantly reduced their need for new or additional ATE equipment.
Like 1997, 1999 marked a turnaround in the semiconductor industry which
continued in the first quarter of 2000. Since the first quarter of 1999, we have
experienced sequential quarterly growth in our net revenues, which grew from
$8.2 million for the quarter ended March 31, 1999 to $20.3 million for the
quarter ended March 31, 2000. We believe that the increases in our net revenues
reflect the increased worldwide demand for ATE by semiconductor manufacturers.
We believe that purchases of most of our products are typically made from
our customers' capital expenditure budgets. Certain portions of our business,
however, are less dependent upon the capital expenditure budgets of our
customers. For example, purchases of certain related ATE interface products,
such as sockets and interface boards which must be replaced periodically, are
typically made from our customers' operating budgets. In addition, purchases of
our products for the purpose of upgrading, or to improve the utilization,
performance and efficiency of, existing ATE tend to be counter cyclical to sales
of new ATE. Moreover, we believe a portion of our sales of temperature
management products results from the increasing need for temperature testing of
circuit boards and specialized components that do not have the design or
quantity to be tested in a handler. We believe that this business is less
cyclical than new ATE sales.
We recognize net revenues from the sales of products at the time we ship
our products to our customers and service revenues when the services are
performed.
Significant Events
On March 9, 2000, we acquired Temptronic Corporation. The acquisition was
in the form of a merger of Temptronic into a subsidiary of ours, and was
accounted for as a pooling of interests. Temptronic designs, makes, sells and
services high-performance temperature management products used in the testing of
ICs and other electronic products. These temperature management products are
complementary to the manipulator, docking hardware and tester interface products
manufactured by us prior to the merger and expand our line of product offerings
to our customer base.
On August 3, 1998, we acquired all of the outstanding capital stock of
TestDesign Corporation, a privately held California corporation. TestDesign is
engaged in the design and manufacture of tester interface products used by the
semiconductor industry. The purchase price was $4.4 million in cash and 625,000
shares of our common stock (subject to certain adjustments). Subsequent to the
acquisition, TestDesign was renamed "inTEST Sunnyvale Corporation."
14
<PAGE>
On June 20, 1997, we completed an initial public offering of 2,275,000
common shares, including 1,820,000 shares of common stock sold by us. The
balance of the shares sold in the offering were sold by some of our
stockholders. Prior to the offering, we were an S corporation, and our net
earnings were taxed as income to our stockholders for federal and certain New
Jersey state income tax purposes. We terminated our status as an S corporation
prior to the closing of the offering and are subject to federal and additional
state income taxes for subsequent periods.
Results of Operations
The following table sets forth, for the periods indicated, the percentage
of our net revenues represented by each of the line items in our consolidated
statements of earnings:
<TABLE>
<CAPTION>
Years Ended December 31, Three Months Ended March 31,
--------------------------------------- ---------------------------
1997 1998 1999 1999 2000
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net revenues ................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues ............................ 47.7 52.3 50.1 54.4 50.7
----- ----- ----- ------ -----
Gross margin ............................... 52.3 47.7 49.9 45.6 49.3
----- ----- ----- ------ -----
Operating expenses:
Selling expense ............................ 17.4 19.3 15.7 18.7 11.4
Engineering and product development
expense .................................. 11.4 11.3 9.1 13.0 7.2
General and administrative expense ......... 8.9 11.3 11.4 13.2 7.3
Merger-related costs ....................... -- -- -- -- 12.6
----- ----- ----- ------ -----
Total operating expenses .................. 37.7 41.9 36.2 44.9 38.5
----- ----- ----- ------ -----
Operating income ............................ 14.6 5.8 13.7 0.7 10.8
Other income ................................ 0.1 0.4 0.4 0.1 0.5
----- ----- ----- ------ -----
Earnings before income taxes and
minority interest .......................... 14.7 6.2 14.1 0.8 11.3
Income tax expense .......................... 4.0 3.3 2.7 1.5 8.9
Minority interest ........................... (0.1) -- -- -- --
----- ----- ----- ------ -----
Net earnings (loss) ...................... 10.6% 2.9% 11.4% (0.7%) 2.4%
===== ===== ===== ====== =====
</TABLE>
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999
Net Revenues. Net revenues were $20.3 million for the quarter ended March
31, 2000 compared to $8.2 million for the same period in 1999, an increase of
$12.0 million or 146%. We believe that the significant increase in net revenues
over the comparable prior period is principally the result of continued growth
in the demand for ATE in 2000 compared to 1999.
Gross Margin. Gross margin increased to 49% for the quarter ended March 31,
2000 from 46% for the comparable period in 1999. The improvement in gross margin
primarily resulted from the absorption of fixed manufacturing costs over
significantly higher net revenue levels in 2000 compared to 1999. Also
contributing to the improvement in gross margin were production methodology
improvements implemented in 1999 by Temptronic, which were offset, in part, by
increases in fixed manufacturing costs resulting from manufacturing capacity
increases during 1999.
Selling Expense. Selling expense was $2.3 million for the quarter ended
March 31, 2000 compared to $1.5 million for the same period in 1999, an increase
of $780,000 or 51%. We attribute the increase primarily to increased commission
expense resulting from the higher sales levels in 2000, as well as higher levels
of warranty costs, travel expenditures and freight expense, and increases in
salary expense resulting from new sales and marketing staff hired in 1999.
Engineering and Product Development Expense. Engineering and product
development expense was $1.5 million for the quarter ended March 31, 2000
compared to $1.1 million for the same period in 1999, an increase of $383,000 or
36%. We attribute the increase primarily to the salary expense of additional
engineering and technical staff, as well as increased expenditures for product
development materials and travel expenses associated with new product
development.
15
<PAGE>
General and Administrative Expense. General and administrative expense was
$1.5 million for the quarter ended March 31, 2000 compared to $1.1 million for
the same period in 1999, an increase of $386,000 or 36%. We attribute the
increase primarily to higher administrative salary expense resulting from
staffing additions and salary increases for existing staff, as well as incentive
compensation increases for existing staff, increases in investor relations
expense and professional fees, partially offset by $200,000 received from the
settlement of patent infringement litigation.
Merger-related Costs. Merger-related costs resulting from our merger with
Temptronic Corporation were $2.6 million, which consisted of fees paid to
investment bankers, professional fees, printing, escrow and other miscellaneous
costs. We do not expect to record any further costs related to the merger in
future periods.
Income Tax Expense. Income tax expense increased to $1.8 million for the
quarter ended March 31, 2000 from $125,000 for the comparable period in 1999, an
increase of $1.7 million. Our effective tax rate for the first quarter of 2000
was 79% due to the recognition of $2.3 million of non-tax deductible
merger-related costs. In addition, we recognized a $237,000 taxable gain on the
liquidation of life insurance policies held on certain former Temptronic
officers and directors. The effective tax rate for the first quarter of 1999 was
195% because no current tax benefit was recorded for Temptronic's operating loss
during the quarter.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Net Revenues. Net revenues were $53.6 million for 1999 compared to $36.1
million for 1998, an increase of $17.5 million or 49%. The significant increase
in net revenues over the comparable prior period results from the turnaround in
the demand for ATE in 1999 described above. Net revenues for 1999, excluding the
net revenues of inTEST Sunnyvale (formerly, TestDesign Corporation) which was
acquired on August 3, 1998, increased $10.8 million or 31% over 1998.
Gross Margin. Gross margin increased to 50% for 1999 from 48% in 1998. The
improvement in gross margin resulted primarily from the absorption of fixed
manufacturing costs over significantly higher net revenue levels in 1999
compared to 1998. Also contributing to the improvement in the gross margin were
production methodology improvements implemented in 1999 by Temptronic, which
were offset, in part, by increases in fixed manufacturing costs, resulting from
manufacturing capacity increases in 1999 and the acquisition of inTEST
Sunnyvale. During the third quarter of 1999, we added a machining operation in
Cherry Hill, New Jersey and commenced manufacturing operations in Singapore.
Both of these additions had a negative impact on our gross margin because these
operations were not fully functional until late in the fourth quarter of 1999.
Selling Expense. Selling expense was $8.4 million for 1999 compared to $7.0
million for 1998, an increase of $1.4 million or 21%. We attribute the increase
to several factors, including the salary expense of new sales and marketing
staff, as well as salary increases for existing staff, increased expenditures
for travel, higher levels of both warranty and freight costs and increased
spending on advertising.
Engineering and Product Development Expense. Engineering and product
development expense was $4.9 million for 1999 compared to $4.1 million for 1998,
an increase of $802,000 or 20%. We attribute the increase primarily to the
additional salary expense of the inTEST Sunnyvale engineering and technical
staff. To a lesser extent, increased costs of materials used in product
development and travel expenses to facilitate collaboration among our several
offices contributed to the overall increases in this expense category.
Offsetting these increases were reductions in spending on third-party product
development consultants and reductions in engineering and technical staff by
Temptronic.
General and Administrative Expense. General and administrative expense was
$6.1 million for 1999 compared to $4.1 million for 1998, an increase of $2.0
million or 50%. We attribute the increase primarily to increases in
administrative salary expense due to staffing additions (including the staff of
inTEST Sunnyvale) and salary and incentive compensation increases for existing
staff, legal costs related to our patent infringement suit and for the filing of
new patents and maintenance on existing patents worldwide, settlement costs of
threatened litigation relating to a Temptronic personnel matter that occurred
prior to our acquisition of Temptronic, and amortization of goodwill related to
the acquisition of inTEST Sunnyvale.
16
<PAGE>
Other Income (Expense). Other income (expense) was $231,000 for 1999
compared to $163,000 for 1998, an increase of $68,000 or 42%. We attribute the
increase to the reduction in interest expense resulting from debt retirements
during 1999, which were partially offset by reduced interest income in 1999 from
lower average balances of cash and cash equivalents in 1999 compared to 1998 and
an increase in other miscellaneous income.
Income Tax Expense. Income tax expense increased to $1.4 million for 1999
from $1.2 million for 1998, an increase of $244,000. Our effective tax rate was
19% for 1999 compared to 53% for 1998. The significant decline in the effective
tax rate was primarily due to the $1.4 million reduction in the valuation
allowance in 1999. The valuation allowance was reduced based on management's
assessment of our ability to realize the deferred tax assets. The 1998 rate was
negatively affected by the nonrecognition of a current tax benefit on a portion
of Temptronic's operating loss.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Net Revenues. Net revenues were $36.1 million for 1998 compared to $40.0
million for 1997, a decrease of $4.0 million or 10%. The decline in net revenues
from the prior year is the result of the severe downturn that the ATE industry
experienced during 1998 described above, offset, in part, by the net revenues of
inTEST Sunnyvale from its acquisition in August 1998 through year-end.
Gross Margin. Gross margin declined to 48% for 1998 from 52% in 1997. The
reduction in gross margin resulted primarily from the additional manufacturing
fixed costs of inTEST Sunnyvale, compounded by the significantly reduced revenue
levels during the year. In addition, material costs as a percentage of sales
increased due to an increase in the level of sales of certain products with a
greater component material cost in 1998 compared to 1997.
Selling Expense. Selling expense was $7.0 million for both 1998 and 1997.
The reductions in commission expense, sales staff salary expense and advertising
costs were offset by the additional salary, commission and other selling
expenses of inTEST Sunnyvale.
Engineering and Product Development Expense. Engineering and product
development expense was $4.1 million for 1998 compared to $4.5 million for 1997,
a decrease of $481,000 or 11%. We attribute the decline primarily to reduced
spending on product development materials and third party product development
consultants in 1998 compared to 1997. These declines were offset in part by the
additional salary expense of inTEST Sunnyvale coupled with a growth in the
number of engineering and technical staff.
General and Administrative Expense. General and administrative expense was
$4.1 million for 1998 compared to $3.6 million for 1997, an increase of $494,000
or 14%. We attribute the increase primarily to the additional salary and other
administrative costs of inTEST Sunnyvale. Also contributing to the increase in
1998 were increases in professional fees related to computer systems
modifications and amortization of goodwill resulting from the inTEST Sunnyvale
acquisition. These increases were offset by reductions in bad debt expense and
reductions in the number of administrative staff at Temptronic.
Other Income (Expense). Other income (expense) was $163,000 for 1998
compared to $24,000 for 1997, an increase of $139,000. We attribute the increase
primarily to increased interest income due to higher levels of invested cash
from our initial public offering in June 1997 and foreign currency transaction
gains in 1998 compared to foreign currency transaction losses in 1997.
Income Tax Expense. Income tax expense decreased to $1.2 million for 1998
from $1.6 million for 1997, a decrease of $435,000. Our effective tax rate was
53% in 1998 compared to 28% in 1997. The significant increase in the effective
tax rate in 1998 resulted primarily from the nonrecognition of a current tax
benefit on a portion of Temptronic's operating loss. In 1997, we did not begin
accruing federal income taxes on our earnings until June, as a result of our
change in tax status from an S corporation to a C corporation.
Quarterly Results of Operations
The following tables present certain unaudited consolidated quarterly
financial information for each of the nine quarters ended March 31, 2000. We
prepared this quarterly information on the same basis as the
17
<PAGE>
consolidated financial statements set forth elsewhere in this registration
statement and included all adjustments (consisting only of normal recurring
adjustments) necessary to fairly present the information for the periods
presented when read in conjunction with the consolidated financial statements
and notes to those statements. The results of operations for any quarter do not
necessarily serve as an indicator of results for the full year or for any future
period.
Our business is not seasonal, but we may experience a slowing of orders in
December. Year-over-year quarterly comparisons, therefore, may not be as
meaningful as the sequential quarterly comparisons set forth below which tend to
reflect the cyclical activity of the semiconductor industry as a whole.
Quarterly fluctuations in expenses are related directly to sales activity and
volume and may also reflect the timing of operating expenses incurred throughout
the year.
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31,
1998 1998 1998 1998
------------ ------------ ----------- ------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Consolidated Statement of
Earnings Data:
Net revenues ......................... $ 10,634 $ 9,697 $ 8,407 $ 7,320
Cost of revenues ..................... 5,215 5,048 4,540 4,067
-------- -------- -------- -------
Gross margin ........................ 5,419 4,649 3,867 3,253
-------- -------- -------- -------
Operating expenses:
Selling expense ..................... 1,730 1,648 1,735 1,863
Engineering and product
development expense ................ 956 1,236 845 1,025
General and administrative
expense ............................ 900 923 1,039 1,212
Merger-related costs ................ -- -- -- --
-------- -------- -------- -------
Total operating expenses ........... 3,586 3,807 3,619 4,100
-------- -------- -------- -------
Operating income (loss) .............. 1,833 842 248 (847)
Other income ......................... 75 7 21 60
-------- -------- -------- -------
Earnings (loss) before income taxes 1,908 849 269 (787)
Income tax expense (benefit) ......... 689 571 153 (232)
-------- -------- -------- -------
Net earnings (loss) ................ $ 1,219 $ 278 $ 116 $ (555)
======== ======== ======== =======
Net earnings (loss) per common share:
Basic ............................... $ 0.16 $ 0.04 $ 0.01 $ (0.07)
Diluted ............................. $ 0.16 $ 0.04 $ 0.01 $ (0.07)
Weighted average shares:
Basic ............................... 7,395 7,404 7,815 8,052
Diluted ............................. 7,558 7,561 7,968 8,052
As a Percentage of Net Revenues:
Net revenues ......................... 100.0% 100.0% 100.0% 100.0%
Cost of revenues ..................... 49.0 52.1 54.0 55.6
-------- -------- -------- -------
Gross margin ........................ 51.0 47.9 46.0 44.4
-------- -------- -------- -------
Operating expenses:
Selling expense ..................... 16.3 17.0 20.6 25.4
Engineering and product
development expense ................ 9.0 12.7 10.1 14.0
General and administrative
expense ............................ 8.4 9.5 12.4 16.6
Merger-related costs ................ -- -- -- --
-------- -------- -------- -------
Total operating expenses ........... 33.7 39.2 43.1 56.0
-------- -------- -------- -------
Operating income (loss) .............. 17.3 8.7 2.9 (11.6)
Other income ......................... 0.7 0.1 0.3 0.8
-------- -------- -------- -------
Earnings (loss) before income taxes... 18.0 8.8 3.2 (10.8)
Income tax expense (benefit) ......... 6.5 5.9 1.8 ( 3.2)
-------- -------- -------- -------
Net earnings (loss) ................ 11.5% 2.9% 1.4% (7.6%)
======== ======== ======== =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31,
1999 1999 1999 1999 2000
------------ ------------ ----------- ------------ ------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of
Earnings Data:
Net revenues ......................... $ 8,223 $ 10,816 $ 15,237 $ 19,309 $ 20,254
Cost of revenues ..................... 4,471 5,502 7,622 9,280 10,279
------- -------- -------- -------- --------
Gross margin ........................ 3,752 5,314 7,615 10,029 9,975
------- -------- -------- -------- --------
Operating expenses:
Selling expense ..................... 1,538 1,873 2,263 2,744 2,318
Engineering and product
development expense ................ 1,067 1,185 1,243 1,369 1,450
General and administrative
expense ............................ 1,087 1,289 1,514 2,211 1,473
Merger-related costs ................ -- -- -- -- 2,557
------- -------- -------- -------- --------
Total operating expenses ........... 3,692 4,347 5,020 6,324 7,798
------- -------- -------- -------- --------
Operating income (loss) .............. 60 967 2,595 3,705 2,177
Other income ......................... 4 84 74 69 100
------- -------- -------- -------- --------
Earnings (loss) before income taxes 64 1,051 2,669 3,774 2,277
Income tax expense (benefit) ......... 125 357 901 42 1,799
------- -------- -------- -------- --------
Net earnings (loss) ................ $ (61) $ 694 $ 1,768 $ 3,732 $ 478
======= ======== ======== ======== ========
Net earnings (loss) per common share:
Basic ............................... $ (0.01) $ 0.09 $ 0.22 $ 0.46 $ 0.06
Diluted ............................. $ (0.01) $ 0.08 $ 0.21 $ 0.45 $ 0.06
Weighted average shares:
Basic ............................... 8,062 8,071 8,081 8,123 8,137
Diluted ............................. 8,062 8,218 8,260 8,358 8,466
As a Percentage of Net Revenues:
Net revenues ......................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues ..................... 54.4 50.9 50.0 48.1 50.7
------- -------- -------- -------- --------
Gross margin ........................ 45.6 49.1 50.0 51.9 49.3
------- -------- -------- -------- --------
Operating expenses:
Selling expense ..................... 18.7 17.3 14.9 14.2 11.4
Engineering and product
development expense ................ 13.0 11.0 8.2 7.1 7.2
General and administrative
expense ............................ 13.2 11.9 9.9 11.4 7.3
Merger-related costs ................ -- -- -- -- 12.6
------- -------- -------- -------- --------
Total operating expenses ........... 44.9 40.2 33.0 32.7 38.5
------- -------- -------- -------- --------
Operating income (loss) .............. 0.7 8.9 17.0 19.2 10.8
Other income ......................... 0.1 0.8 0.5 0.3 0.5
------- -------- -------- -------- --------
Earnings (loss) before income taxes 0.8 9.7 17.5 19.5 11.3
Income tax expense (benefit) ......... 1.5 3.3 5.9 0.2 8.9
------- -------- -------- -------- --------
Net earnings (loss) ................ (0.7%) 6.4% 11.6% 19.3% 2.4%
======= ======== ======== ======== ========
</TABLE>
18
<PAGE>
Liquidity and Capital Resources
Net cash used in operations for the three months ended March 31, 2000 was
$2.3 million. Accounts receivable increased $3.8 million from December 31, 1999
to March 31, 2000 due to the increase in sales activity during the first quarter
of 2000. Inventories increased $1.2 million, also as a result of the increased
sales activity as we made purchases for future product shipments. Other current
assets decreased $246,000, primarily as a result of the expensing of previously
capitalized merger-related costs. Accounts payable increased $1.3 million due to
the higher production levels during the first quarter of 2000. Accrued expenses
decreased $298,000 as a result of the payment of previously accrued expenses
including sales commissions, salaries, incentive compensation and professional
fees. The decline in accrued expenses was offset, in part, by an accrual for
merger-related costs to be paid in future periods. Domestic and foreign income
taxes payable increased $530,000 as a result of the accrual of income taxes on
the earnings for the first quarter of 2000.
Purchases of machinery and equipment were $551,000 for the three months
ended March 31, 2000, which consisted primarily of improvements to our domestic
facilities. During the three months ended March 31, 2000, we spent approximately
$205,000 on furnishings, $162,000 on equipment and $19,000 on leasehold
improvements at our new facility for our inTEST Sunnyvale operation, which
relocated during the quarter. We estimate that we will spend an additional
$425,000 on leasehold improvements to complete this facility in the second
quarter of 2000. Our lease on this facility entitles us to a reimbursement of
approximately $275,000 of the amount we spend on leasehold improvements and we
expect to receive this reimbursement during the third quarter of 2000. We spent
approximately $115,000 on manufacturing and computer equipment at various other
domestic operations during the quarter. We plan to relocate our headquarters and
primary manufacturing facility during the third quarter of 2000 and we estimate
the total cost of leasehold improvements and other costs associated with the
move will be approximately $1,000,000.
Other long-term assets decreased $958,000 for the three months ended March
31, 2000 primarily as a result of the liquidation of life insurance policies
held on certain former Temptronic officers and directors.
Net cash used in financing activities for the three months ended March 31,
2000 was $1.4 million. During the three months ended March 31, 2000, we repaid
approximately $1.2 million under revolving lines of credit as well as $256,000
of long-term debt acquired as a result of the merger with Temptronic. We had no
debt outstanding at March 31, 2000.
We believe that our existing cash balances and line of credit plus the
anticipated net cash provided from operations will be sufficient to satisfy our
cash requirements for the foreseeable future. However, future acquisitions may
require additional equity or debt financing to meet working capital requirements
or capital expenditure needs. We do not anticipate paying dividends in the
foreseeable future. Under the terms of our current credit agreement, any payment
of dividends would require the prior consent of the lender.
International Operations
Net revenues generated by our foreign subsidiaries were 16% of consolidated
net revenues in 1999, 20% in 1998, and 19% in 1997. Export sales from our U.S.
manufacturing facilities totaled $15.9 million or 30% of consolidated net
revenues in 1999, $12.3 million or 34% in 1998, and $11.1 million or 28% in
1997. We anticipate that net revenues generated by our foreign subsidiaries or
from export sales will continue to account for a significant portion of
consolidated net revenues in the foreseeable future. The net revenues generated
by our foreign subsidiaries will continue to be subject to certain risks,
including political and economic instability of foreign countries, the
imposition of financial and operational controls or regulatory restrictions by
foreign governments, the need to comply with a variety of U.S. and foreign
export and import laws, trade restrictions, changes in tariffs and taxes, longer
payment cycles, fluctuations in foreign currency exchange rates, and the greater
difficulty of administering business abroad. We 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 our products
in the future. Any of these factors or the adoption of restrictive policies
could have a material adverse effect on our business, financial condition or
results of operations.
Net revenues denominated in foreign currencies were 11% in 1999, 15% in
1998 and 16% in 1997. We seek to operate our business such that a significant
portion of our product costs are denominated in the same currency in which the
associated sales are made. Net revenues denominated in currencies other than the
U.S. dollar expose us to currency fluctuations, which can adversely affect
results of operations.
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<PAGE>
The portion of our consolidated net revenues that were derived from sales
to the Asia-Pacific region were 10% in 1999, 13% in 1998 and 14% in 1997.
Countries in the Asia-Pacific region, including Japan, have experienced economic
instability resulting in weaknesses in their currency, banking and equity
markets. Although the economic instability in the Asia-Pacific region has not
had a material adverse effect on our order backlog, financial condition, or
results of operations to date, continued economic instability could have a
material adverse effect on demand for our products and our results of
operations.
Quantitative and Qualitative Disclosures About Market Risk
We are exposed to currency exchange rate risk in the normal course of our
business, primarily in our Japanese operations. Our exposure results from the
fact that the sales of our Japanese subsidiary are in Japanese yen and inventory
purchases are in U.S. dollars. We will have a similar exposure in our Singapore
operations as our manufacturing operations expand, because our sales are in U.S.
dollars but our manufacturing costs are in U.S. dollars, British pounds and
Singapore dollars. We employ risk management strategies, including the use of
forward exchange rate contracts, to manage our exposure to exchange rate risks
involving the yen, and may, in the future, use forward exchange rate contracts
to manage our exposure to exchange rate risks involving the Singapore dollar.
Our objective in managing currency exchange risk is to minimize the impact
of significant currency exchange rate fluctuations. We use forward exchange rate
contracts to establish a fixed conversion rate between the Japanese yen and the
U.S. dollar so that the level of our gross margin from sales in Japan is not
negatively affected by significant movements in the Japanese yen to U.S. dollar
exchange rate. We purchase forward exchange rate contracts on a monthly basis in
the amounts management deems appropriate in light of the amount of the U.S.
dollar denominated obligations of our Japanese subsidiary that are due within
the month. We do not purchase forward contracts with settlement dates beyond 30
days. As of March 31, 2000, there were no forward exchange rate contracts
outstanding.
It is our policy to enter into forward exchange rate contracts only to the
extent necessary to achieve the desired objectives of management in limiting our
exposure to significant fluctuations in currency exchange rates. We do not hedge
all of our currency exchange rate risk exposures in a manner that would
completely eliminate the impact of changes in currency exchange rates on our net
earnings. We do not expect that the results of our operations or our liquidity
will be materially affected by these risk management activities.
20
<PAGE>
BUSINESS
Introduction
We are a leading independent designer, manufacturer and marketer of
interface solutions and temperature management products that semiconductor
manufacturers use in conjunction with automatic test equipment, or ATE, in the
testing of integrated circuits, or ICs. Our interface solutions products include
manipulator, docking hardware and tester interface products. Our high
performance products are designed to enable semiconductor manufacturers to
improve the efficiency of their IC test processes and, consequently, their
profitability. We supply our products worldwide to major semiconductor
manufacturers directly and through leading ATE manufacturers. Our customers
include Motorola, Hewlett Packard, Lucent Technologies, ST Microelectronics,
Texas Instruments, IBM, Analog Devices, Teradyne, LTX, Cascade Microtech,
Electroglas and Tokyo Seitmitsu.
We were incorporated in New Jersey in 1981 and reincorporated in Delaware
in April 1997. We established inTEST Limited in the U.K. in 1985, inTEST
Kabushiki Kaisha in Japan in 1987 and inTEST PTE, Limited in Singapore in 1990.
inTEST Limited designs, manufactures, markets and provides technical support for
our products principally in Europe. inTEST K.K. acts as a liaison office with
Japanese ATE manufacturers, and markets and provides technical support for our
products in Japan. inTEST PTE, Limited designs, manufactures, markets and
provides technical support to customers in Southeast Asia. In 1997, we completed
our initial public offering. In 1998, we acquired all of the stock of TestDesign
Corporation, which expanded our capabilities in the design, manufacture and
marketing of tester interface products. On March 9, 2000, we acquired all of the
stock of Temptronic Corporation, a designer, manufacturer and marketer of
high-performance temperature management products used in the testing of ICs,
printed circuit boards and other subassemblies.
Industry
Overview
The semiconductor market is a high volume, high growth market characterized
by rapid technological change, wide fluctuations in demand, and shortening
product life cycles. Designers and manufacturers of a variety of electronic and
industrial products, such as cell phones, telecom and datacom systems, Internet
access devices, computers and consumer electronics, require increasingly complex
ICs to provide improved end-product performance demanded by their customers.
Semiconductor manufacturers generally compete based on product performance
and price. We believe that testing costs represent a significant portion of the
total cost of manufacturing ICs. As product life cycles shorten, semiconductor
manufacturers are under more pressure to maximize production yields and reduce
testing costs. At the same time, the growing complexity of ICs has increased the
difficulty of maximizing test yields. In order to address these market trends,
semiconductor manufacturers strive for more effective utilization of ATE,
smaller test areas and increased wafer level testing.
The demand for new ATE and related equipment depends upon several factors,
including the demand for products that incorporate ICs, the increasing
complexity of ICs and the emergence of new IC design, production and packaging
technologies. Some of the newer IC technologies include the use of 300 mm wafers
in production, system-on-a-chip ("SOC") where digital, analog and memory
functions are combined on a single IC, and chip scale packaging. As a result of
these and other advances, semiconductor manufacturers must purchase additional
ATE to handle the increased production and more sophisticated testing
requirements of ICs. For example, existing 150 mm and 200 mm wafer facilities
are being upgraded, and the industry is beginning to convert to 300 mm wafer
facilities. Dataquest, an independent market research group, estimates that
capital spending by semiconductor manufacturers was $30.1 billion in 1998, and
projects that such spending will be $63.5 billion in 2004 after reaching $74.9
billion in 2002.
21
<PAGE>
IC Test Process
Semiconductor manufacturers typically produce ICs in multiples of several
hundred on a silicon wafer which is later separated or "diced" into individual
ICs. Extended leads are then attached to the individual ICs, for later
connection to other electrical components before the ICs are put in a plastic,
ceramic or other protective housing. This process step is called "packaging."
Wafers are tested before being diced and packaged, to ensure that only properly
functioning ICs are packaged. This testing step has several names including
"front-end test," "wafer test" or "wafer probe." In front-end test, a piece of
equipment known as a wafer prober automatically positions the wafer under a
"test head," which connects electrically to a test system. Once the good ICs
have been identified, they are packaged. The packaged IC also requires testing,
called "back-end test," to determine if it meets design and performance
specifications. Packaged ICs are placed into a machine called a handler, which
then plugs the packaged ICs into an environmentally-controlled test head, which
includes a test socket, for testing. The following diagram illustrates the basic
steps, including testing, of the IC manufacturing process.
[Schematic depiction of the fabrication of an integrated circuit using
blocks to represent each major step of the process from wafer fabrication to
a finished device with special emphasis on "Front-end Test" and "Back-end
Test."]
Testers range in price from approximately $500,000 to over $3.0 million
each, depending primarily on the complexity of the IC to be tested and the
number of test heads, typically one or two, with which each tester is
configured. Probers and handlers range in price from approximately $100,000 to
$500,000. A typical test floor of a large semiconductor manufacturer may have
100 test heads and 100 probers or 250 handlers supplied by various vendors for
use at any one time.
Test head manipulators facilitate the movement of the test head to the
wafer prober in front-end test, and to the handler in back-end test. Docking
hardware connects the test head to the wafer prober and handler. Tester
interface products provide the electrical connection between the test head and
the wafer or packaged IC. Traditionally, temperature management products are
used in back-end test to allow a manufacturer to test packaged ICs under the
extreme temperature conditions in which the IC may be required to operate.
However, we believe that temperature-controlled testing will be an increasingly
important part of front-end wafer testing as the demand for front-end testing
grows. The following diagram illustrates how our manipulator, docking hardware
and tester interface products are used with ATE.
[Representation of an ATE test system showing an in2(R) test head
manipulator holding a test head above a wafer prober with docking hardware
and tester interface.]
Trends in IC Testing
While the basic purpose of testing ICs during production is to identify
unacceptable products, a related goal of the semiconductor manufacturer is to
perform the test in the most efficient and cost-effective manner possible. To
provide testing equipment that can help manufacturers meet this goal, the ATE
industry must respond to the following developments:
Change in Technology. Currently, most semiconductor manufacturers use 150
mm and 200 mm wafer technology. In order to increase throughput and lower IC
cost, semiconductor manufacturers will need to provide 300 mm wafer production
capability over the next few years. In addition, end-user applications are
demanding ICs with increasingly higher performance, greater speeds, and smaller
sizes. ICs that meet these higher standards are more complex and dense. SOC
designs are likely to have increasing demand in the future. These technology
trends have significant implications for the IC testing process, including:
o the need for more complex, larger and heavier test heads;
o higher pin densities;
o increasing test speeds; and
o a new generation of testers for SOC and other technologies.
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<PAGE>
Need for Plug-Compatibility and Integration. Semiconductor manufacturers
need test methodologies that will perform increasingly complex tests while
lowering the overall cost of testing. This can require combining ATE
manufactured by various companies into optimally performing systems.
Semiconductor manufacturers have to work closely with various test hardware,
software, interface and component vendors to resolve design and compatibility
issues in order to make their products plug-compatible with test equipment
manufactured by other vendors.
Testing under Extreme Conditions. ICs will have to perform across a wider
spectrum of temperature and environmental conditions than ever before because of
the growing complexity of products in which they are deployed. Temperature
testing will likely find an increasing role in front-end, wafer level testing.
Creating a uniform thermal profile over much larger wafer areas represents a
significant engineering and design challenge for ATE manufacturers.
Demand for Higher Levels of Technical Support. As IC testing becomes more
complex, IC manufacturers are increasingly demanding higher levels of technical
support on a routine basis. ATE manufacturers must commit greater resources to
technical support in order to develop close working relationships with their
customers. This level of support also requires close proximity of service and
support centers to customers' facilities.
Cost Reduction through Increased Front-End Testing. As the cost of testing
ICs increases, semiconductor manufacturers will continue to look for ways to
streamline the testing process to make it more cost-effective. We believe that
this factor will lead to more front-end, wafer level testing.
Our Solutions
We have focused our efforts on designing and producing high quality
products that provide superior performance and cost-effectiveness. We seek to
address each manufacturer's individual needs through innovative and customized
designs, use of the best materials available, quality manufacturing practices
and personalized service. We design solutions to overcome the evolving
challenges facing the ATE industry by providing the following advantages:
Scalable, Universal, High Performance Interface Technology. Our universal
test head manipulators provide six degrees of motion freedom to enable a high
degree of flexibility with the minimum amount of effort. As a result, our
products can be used in virtually any test setting. Our manipulators have kept
pace with the rapidly increasing size of test heads, which can weigh up to 900
pounds and which will become larger and heavier as the required level of testing
sophistication increases. Our docking hardware offers precise control over the
connection to test sockets, probing assemblies and interface boards, reducing
downtime and minimizing costly damage to fragile components. We believe that
these characteristics will gain even more significance as testing becomes more
complicated.
Compatibility and Integration. A hallmark of our products has been, and
continues to be, compatibility with a wide variety of ATE. Our universal
manipulators can handle test heads produced by different manufacturers. We also
design and manufacture docking hardware that can be used with otherwise
incompatible ATE. We believe this integrated approach to ATE facilitates smooth
changeover from one tester to another, longer lives for interface components,
better test results and lower overall test costs.
Wafer Level Testing. Semiconductor manufacturers use our redesigned
ThermoChuck(R) products for front-end temperature stress screening at the wafer
level. This can provide significant cost savings from early identification of
defective ICs that will not perform at specified temperatures thereby
eliminating the costs of packaging and testing these defective ICs.
ThermoChuck(R) products are capable of handling any size wafer, including a 300
mm wafer, for thermal test without causing the wafer distortion that can occur
as temperature changes are introduced. In addition, our Pro Dock can be used
in front-end testing by a single operator to position a test head weighing up to
1,000 pounds. The Pro Dock has a relatively small footprint that
significantly increases test floor space utilization. We believe that these
characteristics will become even more important as front-end testing becomes
more intricate.
Worldwide Customer Service and Support. We have long recognized the need
to maintain a physical presence near our customers' facilities. We have
manufacturing facilities in New Jersey, Massachusetts,
23
<PAGE>
California, the U.K. and Singapore, and we provide service to our customers from
11 sales and service offices in the U.S., the U.K., Japan, and Singapore. Thus,
our engineers are easily accessible to, and can work directly with, most of our
customers from the time we begin developing our initial proposal through the
delivery, installation and use of the product by our customer. In this way, we
are able to develop and maintain close relationships with our customers.
Our Strategy
Our goal is to be recognized in our industry as the designer and
manufacturer of the highest quality products in our markets and to become a
supplier for all of our customers' ATE needs, other than probers, handlers and
testers. Our strategies to achieve these goals include the following:
Providing technologically advanced solutions. We are committed to designing
and producing only the highest quality products which incorporate innovative
designs to achieve optimal cost-effectiveness and functionality for each
customer's particular situation. Our engineering and design staff are
continually engaged in developing new and improved products and manufacturing
processes.
Leveraging our strong customer relationships. Our technical personnel work
closely with ATE manufacturers to design tester interface and docking hardware
that are compatible with their ATE. As a result, we are often privy to
proprietary technical data and information about these manufacturers' products.
We believe that because we do not compete with ATE manufacturers in the prober,
handler and tester markets, we have been able to establish strong collaborative
relationships with these manufacturers that enable us to develop ancillary ATE
products on an accelerated basis.
Continuing our international expansion. Our existing and potential
customers are concentrated in certain regions throughout the world. We believe
that we must maintain a presence in the markets in which our customers operate.
We currently have offices in the U.S., the U.K., Japan and Singapore, and we
will be opening an office in Germany in the third quarter of 2000.
Pursuing synergistic acquisitions. A key element of our growth strategy is
to acquire businesses, technologies or products that are complementary to our
current product offerings. Our TestDesign and Temptronic acquisitions have
expanded our line of product offerings and given us the opportunity to market a
broader range of products to our customer base. We expect to make acquisitions
that will further expand our product lines, enabling us to become a single
source supplier to the test floor for a complete selection of equipment
compatible with testers, probers and handlers of all manufacturers.
Our Products
We design and manufacture manipulators, docking hardware, temperature
management products and tester interface products, all of which are designed to
improve the utilization and performance of ATE used by semiconductor
manufacturers in the testing of ICs. Semiconductor manufacturers most frequently
use our primary lines of manipulators and docking hardware during back-end
testing of specialized packaged ICs. They use our temperature management
products and tester interface products in both front-end and back-end testing of
ICs. These ICs include microprocessors, digital signal processing chips,
application specific ICs and specialized memory ICs, and are used primarily in
the automotive, computer, consumer products and telecommunications industries.
We custom-design most of our products for each customer's particular combination
of ATE. We have designed over 5,000 models, each of which is mechanically
different and facilitates the use of one or more of over 175 different test
heads with one or more of over 30 probers or 300 handlers.
Manipulator Products
Universal Manipulators: Our primary line of manipulator products consists of the
in2(R) Test Head Positioners, which are free-standing universal manipulators.
Universal manipulators can hold a variety of test heads and enable an operator
to reposition a test head for alternate use with any one of several probers or
handlers on a test floor. The in2(R) differs from universal manipulators
manufactured by our competitors by our innovative, patented floating-head
design. This design permits a test head weighing up to 900 pounds to be held in
an
24
<PAGE>
effectively weightless state, so it can be moved manually up or down, right or
left, forward or backward and rotated around each axis (known as six degrees of
motion freedom) by an operator using a modest amount of force. The same design
features enable the operator to dock the test interface board without causing
inadvertent damage to the fragile electrical contacts. As a result, after
testing a particular production lot of ICs, the operator can quickly and easily
disconnect a test head held in an in2(R) manipulator and equipped with our
docking hardware and dock it to another handler for testing either a subsequent
lot of the same packaged IC or to test a different IC. To accommodate
increasingly heavy test heads, we have recently introduced a universal
manipulator that can provide power assisted positioning for each axis of motion.
in2(R) manipulators range in price from approximately $12,000 to $100,000.
Dedicated Manipulators: In addition to our free-standing universal manipulators,
we manufacture several models of dedicated manipulators. We have developed a
fully-automatic, electrically-powered and microprocessor-controlled dedicated
manipulator, which we call the Pro Dock. We believe it is the only
fully-automatic manipulator which enables a test head to be automatically docked
to a prober or handler with the push of one button. We believe that the Pro
Dock series of manipulators will be attractive to semiconductor manufacturers
for testing 300 mm wafers and packaged memory ICs because the size of test heads
for these wafers and ICs make manual manipulation difficult. In addition, we
believe that the Pro Dock will enable semiconductor manufacturers to increase
floor space utilization of their ATE systems by 25% to 40% over that achieved by
other dedicated or universal manipulators because a Pro Dock manipulator has
virtually a zero footprint. We have not yet sold any Pro Dock manipulators,
and do not expect significant sales of this product, until demand for 300 mm
wafers reaches levels warranting significant investment in new testing equipment
by semiconductor manufacturers.
Docking Hardware Products
Our docking hardware products ensure proper alignment of the delicate
interface between the test head's interface board and the prober's probing
assembly or the handler's test socket as they are brought together, or "docked."
A simple cam action docks and locks the test head to the prober or handler, thus
eliminating motion of the test head relative to the prober or handler. This
minimizes deterioration of the interface boards, test sockets and probing
assemblies which is caused by the constant vibration during testing. Our docking
hardware products are used primarily with floating-head universal manipulators
when maximum mobility and inter-changeability of handlers between test heads is
required. By using our docking hardware products, semiconductor manufacturers
can achieve cost savings through improved ATE utilization, improved accuracy and
integrity of test results, and reduced repairs and replacements of expensive ATE
interface products.
Our docking hardware products differ from those offered by competing ATE
manufacturers by our ability to make various competing brands of test heads
compatible with various brands of probers and handlers used by a semiconductor
manufacturer by only changing interface boards. This is called
"plug-compatibility." Plug-compatibility enables increased flexibility and
utilization of test heads, probers and handlers purchased from various
manufacturers. We believe that because we do not compete with ATE manufacturers
in the sale of probers, handlers or testers, ATE manufacturers are willing to
provide us with the information that is integral to the design of
plug-compatible products. Our docking hardware products range in price from
approximately $2,000 to $12,000.
Temperature Management Products
Our temperature management products enable a manufacturer to test a
semiconductor wafer or IC over the extreme and variable temperature conditions
that can occur in the actual use of the electronic device containing the ICs.
ThermoChuck(R) Products: Our ThermoChuck(R) precision vacuum platform assemblies
quickly change and stabilize the temperature of semiconductor wafers during
testing without removing the wafer from its testing environment. Such
temperatures can range from as low as -65oC to as high as +400oC.
ThermoChucks(R) are incorporated into wafer prober equipment for laboratory
analysis and for in-line production testing of semiconductor wafers. We recently
redesigned our ThermoChuck(R) product line and developed an innovative
manufacturing process for this product line. We believe this new design and
manufacturing process will improve the reliability and performance of
ThermoChuck(R) products. Specifically, our redesigned
25
<PAGE>
ThermoChuck(R) products stay flatter, remain more level and maintain more
uniform temperatures during testing than our previous design. In addition, the
new manufacturing process is expected to reduce production costs for these
products. We recently began marketing the redesigned ThermoChuck(R) products.
ThermoChuck(R) products range in price from approximately $14,000 to $55,000.
ThermoStream(R) Products: Our ThermoStream(R) stand-alone temperature management
systems use a temperature-controlled air stream to rapidly change and stabilize
the temperature of packaged ICs and printed circuit boards. ThermoStream(R)
products provide a source of heated and cooled air which can be directed over
the component or device under test. These systems are capable of controlling
temperatures to within 0.1oC over a range of -80oC to as high as +225oC within
1.0oC of accuracy. Traditionally, our customers used ThermoStream(R) products
primarily in engineering, quality assurance and small-run manufacturing
environments. However, increasingly, our customers use ThermoStream(R) products
in longer-run production applications. ThermoStream(R) products range in price
from approximately $4,200 to $30,000.
Other Temperature Management Products: We also manufacture ancillary temperature
management products including temperature-controlled contact probes,
temperature-controlled enclosures, and precision temperature platforms.
Tester Interface Products
Tester interface products provide the electrical connections between the
tester and the wafer prober or IC handler to carry the electrical signals
between the tester and the probe card on the prober or the test socket on the
handler. Our designs optimize the integrity of the transmitted signal which
increases the accuracy of the test data. Therefore, our tester interface
products can be used with high speed, high frequency, digital or mixed signal
interfaces used in testing more complex ICs. Because our tester interface
products enable the tester to provide more reliable yield data, our interfaces
may also reduce IC production costs. We offer over 200 different types of tester
interface models that we custom designed for our customers' specific
applications. These products range in price from $6,000 to $46,000.
Marketing, Sales and Customer Support
We market and sell our products in all markets where the manufacture of
semiconductors occurs. North American and European semiconductor manufacturers
have located most of their back-end factories in Southeast Asia. The front-end
wafer fabrication plants of U.S. semiconductor manufacturers are primarily in
the U.S. Likewise, European, Taiwanese, South Korean and Japanese semiconductor
manufacturers generally have located their wafer fabrication plants in their
respective countries.
Manipulator, Docking Hardware and Tester Interface Products: In North America,
we sell to semiconductor manufacturers principally through independent,
commissioned sales representatives. North American sales representatives also
coordinate product installation and support with our technical staff and
participate in trade shows.
Our account managers handle sales to ATE manufacturers and are responsible
for a portfolio of customer accounts and for managing certain independent sales
representatives. In addition, our account managers are responsible for
applications engineering, custom product design, pricing, quotations, proposals
and transaction negotiations. Technical support is provided to North American
customers and independent sales representatives by employees based in New
Jersey, California, Texas, Arizona, and Oregon.
In Europe and Japan, we sell to semiconductor and ATE manufacturers through
our account managers. In China, Hong Kong, Malaysia, the Philippines, South
Korea, Taiwan and Thailand, we sell through independent sales representatives.
International sales representatives are responsible for sales, installation,
support and trade show participation in their geographic market areas.
Temperature Management Products: Sales to ATE manufacturers are handled
directly by our own sales force. Sales to semiconductor manufacturers in the
U.S. are handled through independent sales representative
26
<PAGE>
organizations, except in New England and upstate New York where we sell
directly. Outside the U.S., our sales to semiconductor manufacturers are handled
through distributors. These distributors represent us in 30 countries. We
visit our distributors regularly and have trained them to sell and service all
of our temperature management products.
Post-merger Integration: We believe that one of the benefits that may result
from our merger with Temptronic is the opportunity to combine our sales and
distribution efforts. We have started the process of cross-training our sales
forces and will continue integrating our sales and marketing teams over the
balance of the year.
Customers
We market all of our products to semiconductor manufacturers and ATE
manufacturers. In the case of temperature management products, we also market
our products to independent testers of semiconductors, manufacturers of
electronic products, and semiconductor research facilities. Our customers use
our products principally in production testing, although our ThermoStream(R)
products traditionally have been used largely in engineering development and
quality assurance. We believe that we sell to most major semiconductor
manufacturers in the world.
Our largest customers include:
Semiconductor Manufacturers ATE Manufacturers
--------------------------- -----------------
Hewlett Packard Analog Devices
Lucent Technologies LTX
Motorola Teradyne
ST Microelectronics Cascade Microtech
Texas Instruments Electroglas
IBM Tokyo Seimitsu
Manufacturing and Supply
Our principal manufacturing operations consist of assembly and testing at
our facilities in New Jersey, Massachusetts, California, the U.K., and
Singapore. By maintaining manufacturing facilities and technical support in
geographic markets where most of our customers are located, we believe that we
are able to respond more quickly and effectively to our customers' needs. We
have recently expanded our manufacturing facilities in California, and will be
moving our headquarters, manufacturing and warehouse facility in New Jersey to a
larger facility located within a half-mile of our current facility in the third
quarter of 2000.
We assemble most of our products from a combination of standard components
and custom parts that have been fabricated to our specifications by either third
party manufacturers or our own fabrication operations in New Jersey and
California. Our practice is to use the highest quality raw materials and
components in our products. The primary raw materials used in fabricated parts
are all widely available. We purchase substantially all of our components from
multiple suppliers. Although we purchase certain raw materials and components
from single suppliers, we believe that all materials and components are
available in adequate amounts from other sources.
We conduct inspections of incoming raw materials, fabricated parts and
components using sophisticated measurement equipment. This includes testing with
coordinate measuring machines in New Jersey, Massachusetts, the U.K. and
Singapore to ensure that products with critical dimensions meet our
specifications. We have designed our inspection standards to comply with
applicable MIL specifications and ANSI standards. We have retained a consultant
to prepare a quality manual and assist in our application for ISO 9001
certification, which we intend to file by the end of 2000.
27
<PAGE>
Engineering and Product Development
Our success depends on our ability to provide our customers with products
and solutions that are well engineered, and to design those products and
solutions before, or at least no later than, our competitors. As of March 31,
2000, we employed a total of 44 engineers, who were engaged full time in
engineering and product development. Our practice in many cases is to assign
engineers to work with specific customers, thereby enabling us to develop the
relationships and free exchange of information that is most conducive to
successful product development and enhancement. In addition, some of our
engineers are assigned to new product research and development and have worked
on such projects as the redesign of the ThermoChuck(R) and the development of
several new types of universal manipulators.
Since most of our products are customized, we consider substantially all of
our engineering activities to be engineering and product development. We spent
approximately $4.9 million on engineering and product development in 1999, $4.1
million in 1998, and $4.5 million in 1997.
Patents and Other Proprietary Rights
As of March 31, 2000, we held 21 U.S. patents and had pending 16 U.S.
patent applications covering various aspects of our technology. Our U.S. issued
patents will expire at various times beginning in 2001 and extending through
2019. We also hold foreign patents and file foreign patent applications, in
each case derived from our U.S. patents, to the extent management deems
appropriate.
Our policy is to protect our technology by filing patent applications for
the technologies that we consider important to our business. We also rely on
trade secrets and unpatentable know-how to protect our proprietary rights. It is
our practice to require, as a condition of permanent employment, that all of our
employees agree to assign to us all rights to inventions or other discoveries
relating to our business made while employed by us. In addition, all employees
agree not to disclose any private or confidential information relating to our
technology or intellectual property.
Competition
Our competitors include independent manufacturers, ATE manufacturers and,
to a lesser extent, semiconductor manufacturers' in-house ATE interface groups.
Competitive factors in our market include product performance, price,
functionality, reliability, customer service, applications support, and timely
product delivery. We believe that our long-term relationships with the
industry's leading semiconductor manufacturers and other customers, and our
commitment to and reputation for providing high quality products are important
elements in our ability to compete effectively in all of our markets.
The independent manufacturers of docking hardware and manipulators that
compete with us include Reid-Ashman Manufacturing and Microhandling GmbH, each
of which manufactures docking hardware and manipulators. The ATE manufacturers
that compete with us in the sale of docking hardware and universal manipulators
include Credence Systems, LTX, Schlumberger and Teradyne, who are also our
customers.
Our principal competitors for temperature management products are
Thermonics, Trio-Tech International and ERS Elektronik GmbH. The independent
manufacturers of tester interface products that compete with us include
Cerprobe, Synergetix, a division of IDI, and Xandex. ATE manufacturers that
compete with us in the sale of tester interface products include Credence
Systems, LTX and Teradyne.
Backlog
At March 31, 2000, our backlog of unfilled orders for all products was
approximately $17.6 million compared with approximately $8.2 million at March
31, 1999. Our backlog includes customer purchase orders which we have accepted,
substantially all of which we expect to deliver in the current fiscal year.
While backlog is calculated on the basis of firm purchase orders, a customer may
cancel an order or accelerate or postpone currently scheduled delivery dates. As
a result, our backlog at a particular date is not necessarily indicative of
sales for any future period.
28
<PAGE>
Employees
At March 31, 2000, we had 318 full time employees, including 183 in
manufacturing operations, 101 in customer support/operations and 34 in
administration. These figures include approximately 50 temporary employees,
primarily in manufacturing jobs. Substantially all of our key employees are
highly skilled and trained technical personnel. None of our employees is
represented by a labor union, and we have never experienced a work stoppage. We
believe that our relationship with our employees is very good.
Properties
At March 31, 2000, we leased twelve facilities worldwide. We expanded our
Singapore and Thame, U.K. facilities during 1999, our Sunnyvale, California and
Japan facilities during the first quarter of 2000, and we plan to move to larger
facilities in Cherry Hill, New Jersey in the third quarter of 2000. We believe
that additional space to meet our current and foreseeable future needs is
readily available.
The following chart provides information regarding each of the principal
facilities we occupied, or for which we had signed leases, at March 31, 2000.
<TABLE>
<CAPTION>
Lease Approximate
Location Expiration Square Footage Principal Uses
- -------- ---------- -------------- --------------
<S> <C> <C> <C>
Cherry Hill, NJ* 9/10 80,000 Future headquarters, design, manufacturing, service and
sales--manipulators and docking hardware
Cherry Hill, NJ** 5/03 28,600 Current headquarters, design, manufacturing, service and
sales--manipulators and docking hardware
Cherry Hill, NJ** 2/03 11,000 Warehouse storage space
Cherry Hill, NJ 8/04 11,000 Machine shop
Newton, MA 8/01 44,000 Design, manufacturing, service and sales--temperature
management products
Sunnyvale, CA 12/04 18,300 Design, manufacturing, service and sales--tester interface
products
</TABLE>
- ------------
* Lease to commence September 2000.
** These leases will be terminated upon occupancy of the new headquarters, which
will be leased to us by the same landlord.
Legal Proceedings
From time to time we are a party to legal proceedings. We are not currently
involved in any legal proceedings the resolution of which could have a material
effect on our business, our financial position or our results of operations.
29
<PAGE>
MANAGEMENT
Officers and Directors
Our executive officers and directors and their ages as of March 31, 2000
are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Robert E. Matthiessen .......... 55 President, Chief Executive Officer and Director
Hugh T. Regan, Jr. ............. 40 Treasurer, Secretary and Chief Financial Officer
Douglas W. Smith ............... 50 Executive Vice President, Chief Operating Officer
and Director
Daniel J. Graham ............... 54 Vice Chairman, Senior Vice President and Director
Jack R. Edmunds ................ 59 Vice President of Operations
Jerome R. Bortnem .............. 47 Vice President of Sales and Marketing
William M. Stone ............... 58 President and Chief Executive Officer of
Temptronic Corporation and Director
Alyn R. Holt ................... 62 Chairman
Richard O. Endres .............. 74 Director
Stuart F. Daniels, Ph.D ........ 59 Director
Gregory W. Slayton ............. 40 Director
James J. Greed, Jr ............. 61 Director
</TABLE>
Robert E. Matthiessen was elected Chief Executive Officer of inTEST in
August 1998. He was elected President and a director of inTEST in February 1997.
Mr. Matthiessen served as Chief Operating Officer of inTEST from December 1997
until August 1998. Prior to that, Mr. Matthiessen served as Executive Vice
President since joining inTEST in October 1984.
Hugh T. Regan, Jr. has served as inTEST's Treasurer and Chief Financial
Officer since joining inTEST in April 1996 and was elected Secretary in December
1999. From 1985 to April 1996, Mr. Regan served in various financial capacities
for Value Property Trust, a publicly traded real estate investment trust,
including Vice President of Finance from 1989 to September 1995 and Chief
Financial Officer from September 1995 until April 1996.
Douglas W. Smith was elected Executive Vice President, Chief Operating
Officer and a director of inTEST in August 1998. Mr. Smith founded and served
as President of TestDesign Corporation, a California corporation engaged in the
manufacture of tester interface products, which was acquired by inTEST in
August 1998. Mr. Smith founded TestDesign Corporation in February 1985.
Daniel J. Graham is a co-founder of inTEST and has served as Senior Vice
President and a director of inTEST since June 1988. Mr. Graham was elected Vice
Chairman of inTEST in October 1998.
Jack R. Edmunds has served as inTEST's Vice President of Operations since
October 1998 and as Director of Operations from September 1987 to October 1998.
Jerome R. Bortnem has served as inTEST's Vice President of Sales and
Marketing since August 1998 and as Western Regional Sales Manager from August
1993 to August 1998.
William M. Stone has served as a director of inTEST since our acquisition
of Temptronic in March 2000. He also serves as President and Chief Executive
Officer of Temptronic. Mr. Stone joined Temptronic in May 1997 as Director of
Engineering and became Senior Vice President and Chief Operating Officer in
October 1998. He was appointed President and Chief Executive Officer in August
1999 and became a director of
30
<PAGE>
Temptronic in November 1999. From November 1995 to May 1997, Mr. Stone served as
Director of Engineering and Operations for the Technic Equipment Division of
Technic Corporation. From December 1994 to November 1995, he served as Director
of Engineering for Gerber Optical, a subsidiary of Gerber Scientific
Corporation.
Alyn R. Holt is a co-founder of inTEST and has served as Chairman since
inTEST's inception in September 1981. Mr. Holt served as Chief Executive Officer
of inTEST from September 1981 to August 1998.
Richard O. Endres has served as a director of inTEST since April 1982.
Since 1976, he has served as President of VRA, Inc., which provides business
planning and financial services for technology based companies.
Stuart F. Daniels, Ph.D. is a co-founder of inTEST and served as Vice
President and a director in 1982 and was reappointed as a director in April
1997. In March 1996, Dr. Daniels founded The Daniels Group, which is engaged in
technology assessment, protection and commercialization consulting. From 1980 to
December 1995, Dr. Daniels held several management positions with Siemens
Corporation and its subsidiaries.
Gregory W. Slayton has served as a director of inTEST since August 1998.
Since December 1997, Mr. Slayton has been the President, Chief Executive
Officer and a director of ClickAction, Inc. (f/k/a MySoftware Company), a
publicly traded company that develops small business software. Additionally,
since June 1997, Mr. Slayton has been Managing Director of Slayton Capital, a
venture capital firm. From December 1995 to July 1997, Mr. Slayton was
President, Chief Operating Officer and a director of ParaGraph International, a
privately held Internet tools company. From December 1995 to March 1996, Mr.
Slayton also served as President and Chief Executive Officer of Velocity, Inc.,
a privately held CD-gaming company. Mr. Slayton co-founded Worlds, Inc., an
Internet technology company, in August 1994 and served as its Senior Vice
President and Chief Financial Officer from its inception to November 1995. Mr.
Slayton is also a director of Net Creations, Inc., a publicly traded Internet
provider of direct marketing services, and Quantum Corporation, a publicly
traded manufacturer of hard disk drives and related products.
James J. Greed, Jr. has served as a director of inTEST since our
acquisition of Temptronic in March 2000. From April 1991 to December 1999, Mr.
Greed was President of VLSI Standards, Inc., a leading supplier of calibration
standards to the semiconductor and related industries. Following his retirement
from VLSI, Mr. Greed founded Foothill Technology, a consulting firm, and has
served as its President since its inception. Hakuto Co., Ltd. of Japan, the
parent company of Hakuto America Holdings, Inc., a principal stockholder of
inTEST, is a client of Foothill Technology. From July 1992 through December
1999, Mr. Greed also served on the board of directors of Semiconductor
Equipment and Materials International ("SEMI"), an international trade
association, serving as chairman for the 1996-1997 term and chairman of its
International Standards Committee since 1994. In January 2000, SEMI engaged Mr.
Greed to coordinate an effort by semiconductor equipment manufacturers to
develop a coordinated international assessment of, and response to, the
recently published International Technology Roadmap for Semiconductors.
Agreements Regarding Selection of Nominees for Director
Under the terms of the Amended and Restated Agreement and Plan of Merger
and Reorganization dated as of January 4, 2000, pursuant to which Temptronic was
merged into one of our wholly-owned subsidiaries, we agreed that, prior to the
closing of the merger, Messrs. Greed and Stone would be elected as directors. We
also agreed that, for a period of two years following the closing of the merger,
we will nominate Messrs. Greed and Stone for re-election at each annual meeting
of our stockholders or special meeting held in lieu of an annual meeting and
recommend their re-election.
Limitation of Liability of Directors and Indemnification Matters
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except liability for:
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<PAGE>
o any breach of their duty of loyalty to the corporation or its
stockholders;
o acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
o unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
o any transaction from which a director derives an improper personal
benefit.
Our certificate of incorporation and bylaws provide that we will indemnify
our directors and executive officers, and may indemnify our other officers and
employees and other agents, to the fullest extent permitted by law. We have
purchased directors' and officers' liability insurance, which entitles us to be
reimbursed in certain circumstances for indemnity payments we make to our
directors or officers.
32
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information known to us regarding
the beneficial ownership of our common stock as of April 30, 2000 (except where
otherwise noted), and as adjusted to reflect the sale of shares of common stock
offered by this prospectus by:
o each of our executive officers;
o each of our directors;
o all directors and executive officers as a group;
o each stockholder known by inTEST to own beneficially more than 5% of our
common stock; and
o each of our current stockholders who is expected to sell shares in the
offering.
Percentage ownership in the following table is based on 8,588,383 shares of
common stock outstanding as of April 30, 2000. We have determined beneficial
ownership in the table in accordance with the rules of the Securities and
Exchange Commission. In computing the number of shares beneficially owned by any
person and the percentage ownership of that person, we have deemed shares of
common stock subject to options or warrants held by that person that are
currently exercisable or will become exercisable within 60 days of April 30,
2000 to be outstanding. However, we have not deemed these shares to be
outstanding for computing the percentage ownership of any other person. To our
knowledge, except as set forth in the footnotes below, each stockholder
identified in the table possesses sole voting and investment power with respect
to all shares of common stock shown as beneficially owned by such stockholder.
<TABLE>
<CAPTION>
Shares Beneficially Owned Shares Beneficially Owned
Before Offering After Offering
-------------------------- -------------------------
Number of
Number of Percent of Shares Being Number of Percent of
Name of Beneficial Owner Shares Total Offered Shares Total
- ------------------------------------------- ----------- ------------ -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Directors and Officers:
Robert E. Matthiessen(1) .................. 62,419 * 16,300 46,119 *
Hugh T. Regan, Jr.(2) ..................... 28,100 * 0 28,100 *
Douglas W. Smith(3) ....................... 593,750 6.9% 155,052 438,698 4.6%
Daniel J. Graham(4) ....................... 311,260 3.6% 81,283 229,977 2.4%
Jack R. Edmunds(5) ........................ 37,141 * 8,654 28,487 *
Jerome R. Bortnem(6) ...................... 23,536 * 0 23,536 *
William M. Stone(7) ....................... 16,552 * 0 16,552 *
Alyn R. Holt(3)(8) ........................ 1,576,256 18.4% 411,625 1,164,631 12.1%
Richard O. Endres(9) ...................... 129,197 1.5% 33,739 95,458 1.0%
Stuart F. Daniels, Ph.D.(10) .............. 17,282 * 0 17,282 *
Gregory W. Slayton(11) .................... 31,250 * 8,161 23,089 *
James J. Greed, Jr. ....................... 0 * 0 0 *
All directors and executive officers as a
group (12 individuals)(12) ............... 2,826,743 32.7% 714,814 2,111,929 21.9%
Five Percent Stockholders:
Temptronic Corporation Equity Participation
Trust(3)(13) ............................. 665,157 7.7% 0 665,157 6.9%
FMR Corp.(14) ............................. 650,000 7.6% 0 650,000 6.8%
Hakuto America Holdings, Inc.(15) ......... 647,500 7.5% 169,089 478,411 5.0%
Wellington Management Company LLP(16) ..... 604,000 7.0% 0 604,000 6.3%
Brinson Partners, Inc.(17) ................ 457,815 5.3% 0 457,815 4.8%
Other Selling Stockholders:
C. E. Holt(18) ............................ 150,427 1.8% 39,283 111,144 1.2%
M. M. Matthiessen(18) ..................... 62,618 * 16,352 46,266 *
Hugh T. Regan, Sr.(19) .................... 41,940 * 10,952 30,988 *
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Owned Shares Beneficially Owned
Before Offering After Offering
-------------------------- -------------------------
Number of
Number of Percent of Shares Being Number of Percent of
Name of Beneficial Owner Shares Total Offered Shares Total
- ------------------------------------------- ----------- ------------ -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
K. J. Regan(20) ........................... 41,939 * 10,952 30,987 *
Julian J. Partington(21) .................. 38,743 * 9,595 29,148 *
Tomoyasu Ogura(22) ........................ 34,912 * 9,117 25,795 *
A. Graham(18) ............................. 31,000 * 8,095 22,905 *
Brian Moore(23) ........................... 30,000 * 7,834 22,166 *
I. Moore .................................. 15,000 * 3,917 11,083 *
---------
Total: .................................... 1,000,000
=========
</TABLE>
- ------------
* Denotes less than one percent of class.
(1) Excludes 62,618 shares owned by Mr. Matthiessen's spouse and 2,000 shares
owned by Mr. Matthiessen's emancipated child. Mr. Matthiessen disclaims
beneficial ownership of the shares owned by his spouse and child.
(2) Includes 22,000 shares subject to options exercisable by June 29, 2000.
(3) The address of the stockholder is: c/o inTEST, 2 Pin Oak Lane, Cherry Hill,
New Jersey 08003.
(4) Excludes 31,000 shares owned by Mr. Graham's spouse, 4,300 shares owned
by Mr. Graham's emancipated child and 1,500 held in trust for the benefit
of Mr. Graham's minor child. Mr. Graham disclaims beneficial ownership of
the shares owned by his spouse and children.
(5) Includes 4,000 shares subject to options exercisable by June 29, 2000.
(6) Includes 10,000 shares subject to options exercisable by June 29, 2000.
(7) Includes 9,250 shares subject to options exercisable by June 29, 2000 and
2,677 shares held by the employee stock ownership plan for the benefit of
Mr. Stone.
(8) Includes 115,000 shares owned by The Holt Charitable Remainder Trust.
The Trust will be selling all of its shares in the offering. Excludes
150,427 shares owned by Mr. Holt's spouse. Mr. Holt disclaims beneficial
ownership of the shares owned by his spouse.
(9) Includes 500 shares held by a corporation of which Mr. Endres is a
stockholder and over which Mr. Endres shares investment control. Excludes
10,000 shares owned by Mr. Endres' spouse. Mr. Endres disclaims beneficial
ownership of the shares owned by his spouse.
(10) Includes 6,000 shares subject to options exercisable by June 29, 2000.
(11) Includes 3,600 shares owned by The Slayton Family Foundation of which Mr.
Slayton is the president. The Foundation will sell 940 of its shares in the
offering.
(12) Includes 51,250 shares subject to options exercisable by June 29, 2000.
(13) Represents shares of common stock held by the Temptronic Corporation Equity
Participation Trust (Temptronic's employee stock ownership plan) in a
fiduciary capacity for employees of Temptronic. Shares held by the trust
are allocated to employees of Temptronic annually based on each employee's
salary. Temptronic employees' interests in the plan begin to vest after
three years of employment and become fully vested after seven years of
employment. With respect to shares held by the trust which are allocated to
participants, the trustees must vote such shares in accordance with
instructions from the participants. If no instructions are received, the
trustees have a fiduciary duty to vote such shares in a manner consistent
with their duties as fiduciaries under the Employee Retirement Income and
Security Act of 1974, as amended, or ERISA. With respect to shares held by
the trust which are not allocated to
34
<PAGE>
participants, the trustees have the duty to vote such shares in a manner
consistent with their duties as ERISA fiduciaries. As of March 31, 2000,
212,798 shares held in the plan were allocated to employees, and 452,359
shares were not yet allocated to employees.
(14) According to a Schedule 13G/A filed with the SEC on February 11, 2000, as
of December 31, 1999, Fidelity Management & Research Company, a
wholly-owned subsidiary of FMR Corp., is the beneficial owner of the
650,000 shares as a result of acting as investment adviser to Fidelity
Low-Priced Stock Fund, an investment company registered under Section 8 of
the Investment Company Act of 1940 that owns the 650,000 shares. The
address or principal business office of each of Fidelity Management &
Research, FMR and Fidelity Low-Priced Stock Fund is 82 Devonshire Street,
Boston MA 02109. Edward C. Johnson 3d, Chairman of FMR, and Abigail P.
Johnson, a director of FMR, and other members of the Edward C. Johnson 3d
family and trusts for their benefit, through their ownership of voting
common stock of FMR and the execution of a stockholders' voting agreement,
may be deemed, under the Investment Company Act of 1940, to form a
controlling group with respect to FMR. Edward C. Johnson 3d, Fidelity
Management & Research, FMR (through its control of Fidelity Management &
Research) and Fidelity Low-Priced Stock Fund each has sole power to dispose
of the shares. Neither FMR nor Edward C. Johnson 3d has the sole power to
vote or direct the voting of the shares owned by Fidelity Low-Priced Stock
Fund, which power resides with, and is directed by, the Board of Trustees
of Fidelity Low-Priced Stock Fund.
(15) According to a Schedule 13D filed with the SEC on March 17, 2000, as a
result of the merger with Temptronic, Hakuto America Holdings, Inc., a
former shareholder of Temptronic, became a shareholder of inTEST. The
shares of Temptronic owned by Hakuto America converted into 647,500 shares
of inTEST common stock. Hakuto America is a 100% owned subsidiary of
Hakuto Co. Ltd., a Japanese corporation. Hakuto America serves as the U.S.
holding company for certain investments and operating subsidiaries of
Hakuto Co. Ltd., and its principal business office is 1015 E. State
Parkway, Schaumburg, IL 60173.
(16) According to a Schedule 13G/A filed with the SEC on February 11, 2000, as
of December 31, 1999, Wellington Management Company, LLP, in its capacity
as investment adviser, may be deemed to beneficially own the 604,000 shares
which are held of record by its clients. Wellington Management's principal
business office is located at 75 State Street, Boston, MA 02109.
(17) According to a Schedule 13G/A filed with the SEC on February 10, 2000, as
of December 31, 1999, Brinson Partners, Inc., an investment adviser
registered under Section 203 of the Investment Advisors Act of 1940, and
UBS AG, a bank as defined in Section 3(a)(6) of the Exchange Act,
beneficially own the 457,815 shares. Brinson Partners is an indirect
wholly-owned subsidiary of UBS AG. Brinson Partners' principal business
office is located at 209 South LaSalle, Chicago, IL 60604-1295; UBS AG's
principal business office is located at Bahnhofstrasse 45 8021, Zurich,
Switzerland.
(18) The selling stockholder is the spouse of one of our directors.
(19) The selling stockholder is a former executive officer.
(20) The selling stockholder is the spouse of a former executive officer.
(21) Includes 2,000 shares subject to options exercisable by June 29, 2000.
(22) The selling stockholder is Managing Director of inTEST K.K.
(23) The selling stockholder is a director and former Managing Director of
inTEST Limited.
35
<PAGE>
UNDERWRITING
The underwriters named below, represented by Needham & Company, Inc.,
Adams, Harkness & Hill, Inc. and Janney Montgomery Scott LLC, have severally
agreed, subject to the terms and conditions of the underwriting agreement, to
purchase a total of 1,000,000 shares of common stock from us and 1,000,000
shares of common stock from the selling stockholders. The number of shares of
common stock that each underwriter has agreed to purchase is set forth opposite
its name below. The underwriting agreement provides that the obligations of the
underwriters to pay for and accept delivery of shares are subject to certain
conditions precedent, and that the underwriters are committed to purchase all of
such shares, if any are purchased.
Number of
Underwriter shares
- ----------- ---------
Needham & Company, Inc.
Adams, Harkness & Hill, Inc.
Janney Montgomery Scott LLC
---------
Total ...................................................... 2,000,000
=========
The underwriters, through their representatives, have advised us and the
selling stockholders that they initially propose to offer the shares of common
stock to the public on the terms set forth on the cover page of this prospectus.
The underwriters may allow to selected dealers a concession of not more than
$________ per share, and the underwriters may allow, and such dealers may
reallow, a concession of not more than $_________ per share to certain other
dealers. After the offering, the offering price and other selling terms may be
changed by the representatives. We estimate that the total offering expenses,
other than the underwriting discounts and commissions, will be
$___________.
We have granted to the underwriters an option, exercisable for 30 days from
the date of this prospectus, to purchase up to 300,000 additional shares of
common stock at the same price as the initial 2,000,000 shares to be purchased
by the underwriters. To the extent the underwriters exercise this option, each
underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares as the number set
forth next to such underwriter's name in the preceding table bears to 2,000,000,
and we will be obligated to sell such shares to the underwriters. The
underwriters may exercise such option solely for the purpose of covering
over-allotments incurred in the sale of the shares of common stock offered in
this offering.
We and the selling stockholders have agreed to indemnify the underwriters
against certain liabilities that may be incurred in connection with this
offering, including certain civil liabilities under the Securities Act.
Pursuant to the terms of lock up agreements, all of our executive officers
and directors and the selling stockholders, who will hold in the aggregate
approximately 2,920,822 shares of common stock after this offering (including
shares which may be issued to them upon exercise of stock options which are
exercisable by June 29, 2000), have agreed with the representatives not to sell,
contract to sell, make any short sale, pledge, or otherwise dispose of, or enter
into any hedging transaction that is likely to result in any transfer of, any
shares of common stock, options to acquire shares of common stock or securities
exchangeable for or convertible into shares of common stock which such
stockholder may own, for a period of 90 days after the date of this prospectus,
without the prior written consent of Needham & Company, Inc. Notwithstanding the
foregoing, Mr. Holt has reserved the right to make a charitable contribution of
up to 50,000 shares of common stock and Mr. Regan, Jr. has reserved the right to
sell up to 16,000 shares of common stock upon exercise of options. In addition,
we have agreed not to offer, sell, contract to sell, grant options, warrants or
rights to purchase or otherwise dispose of any of our equity securities or any
other securities convertible into or exchangeable for our common stock or other
equity security (other than pursuant to our 1997 Stock Plan) or enter into any
swap or other derivatives transaction that transfers to another, in whole or in
part, any of the economic benefits or risks of ownership of shares of our common
stock for a period of 90 days after the date of this prospectus, without the
prior written consent of Needham & Company, Inc., except that we may issue
shares of common stock upon the exercise of outstanding stock options and we may
grant stock options or restricted shares pursuant to our 1997 Stock Plan as it
may be amended by action of our board of directors and shareholders to increase
the number of shares authorized for issuance by 500,000 shares.
36
<PAGE>
In connection with the offering, the underwriters and other persons
participating in the offering may engage in transactions that stabilize,
maintain or otherwise affect the market price of the common stock. These
transactions may include stabilization transactions effected in accordance with
the Securities Exchange Act of 1934 pursuant to which such persons may bid for
or purchase common stock for the purpose of stabilizing the market price.
Specifically, the underwriters may over-allot in connection with the offering,
creating a short position in the common stock for their own account. To cover
over-allotments or to stabilize the price of the common stock, the underwriters
may bid for and purchase common stock in the open market. The underwriters may
also impose a penalty bid whereby they may reclaim selling concessions allowed
to an underwriter or a dealer for distributing common stock in the offering if
the underwriters repurchase previously distributed common stock in transactions
to cover their short position, in stabilization transactions or otherwise. These
activities may stabilize or maintain the market price of the common stock above
market levels that might otherwise prevail in the open market. The underwriters
are not required to engage in these activities and, if they are undertaken, they
may be discontinued at any time.
In connection with this offering, certain underwriters and selling group
members (if any) or their respective affiliates who are qualifying registered
market makers on the Nasdaq National Market may engage in passive market making
transactions in our common stock on the Nasdaq National Market in accordance
with Regulation M under the Securities Exchange Act of 1934 during the two
business day period before commencement of offers or sales of the common stock
offered hereby. The passive market making transactions must comply with
applicable volume and price limits and be identified as such. In general, a
passive market maker may display its bid at a price not in excess of the highest
independent bid for the security; if all independent bids are lowered below the
passive market maker's bid, however, such bid must then be lowered when certain
purchase limits are exceeded.
Needham & Company, Inc. and Janney Montgomery Scott LLC served as managing
underwriters of our initial public offering in June 1997. Adams, Harkness &
Hill, Inc. served as an underwriter of our initial public offering in June
1997. Janney Montgomery Scott LLC acted as our financial advisor in connection
with the acquisition of TestDesign and rendered an opinion regarding the
fairness of the exchange ratio in the Temptronic merger.
LEGAL MATTERS
The legality of the issuance of the shares of common stock being offered
hereby will be passed upon for us and the selling stockholders by Saul, Ewing,
Remick & Saul LLP, Philadelphia, Pennsylvania. Certain legal matters in
connection with patent law matters will be passed upon for us by Ratner &
Prestia, P.C., Berwyn, Pennsylvania. Certain legal matters will be passed upon
for the underwriters by Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania.
From time to time, Morgan, Lewis & Bockius LLP has provided estate planning
services to Alyn R. Holt, our chairman.
EXPERTS
The consolidated financial statements and schedule of inTEST Corporation as
of December 31, 1998 and 1999, and for each of the years in the three-year
period ended December 31, 1999, have been included herein and in the
registration statement in reliance upon the report of KPMG LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
The consolidated financial statements of Temptronic Corporation at June 30,
1998 and June 30, 1999, and for each of the three years in the period ended June
30, 1999, incorporated by reference in this prospectus, have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report, and are
incorporated by reference herein in reliance upon such report given on the
authority of such firm as experts in auditing and accounting.
Certain matters dealing with patents and proprietary rights set forth under
"Risk Factors" and "Business--Patents and Other Proprietary Rights" have been
included in this prospectus in reliance upon the written opinion of Ratner &
Prestia, P.C., Berwyn, Pennsylvania, our patent counsel, as experts in such
matters.
37
<PAGE>
inTEST CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Consolidated Financial Statements:
Independent Auditors' Report ............................................................ F-2
Consolidated Balance Sheets as of December 31, 1998 and 1999 and March 31, 2000 ......... F-3
Consolidated Statements of Earnings for the years ended December 31, 1997, 1998 and 1999
and the three months ended March 31, 1999 and 2000 .................................... F-4
Consolidated Statements of Comprehensive Earnings for the years ended December 31, 1997,
1998 and 1999 and the three months ended March 31, 1999 and 2000 ...................... F-5
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1997,
1998 and 1999 and the three months ended March 31, 2000 ............................... F-6
Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1998 and
1999 and the three months ended March 31, 1999 and 2000 ............................... F-7
Notes to Consolidated Financial Statements .............................................. F-8
Consolidated Financial Statement Schedule:
Schedule II -- Valuation and Qualifying Accounts ........................................ F-26
</TABLE>
F-1
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
inTEST Corporation
We have audited the accompanying consolidated balance sheets of inTEST
Corporation and subsidiaries as of December 31, 1998 and 1999, and the related
consolidated statements of earnings, comprehensive earnings, stockholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1999. In connection with our audits of the consolidated financial
statements, we also have audited the consolidated financial statement schedule
of valuation and qualifying accounts as of and for the three years ended
December 31, 1999. These consolidated financial statements and consolidated
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements and consolidated 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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of inTEST Corporation
and subsidiaries as of December 31, 1998 and 1999, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999, in conformity with generally accepted accounting
principles. Also in our opinion, the related consolidated financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
KPMG LLP
Philadelphia, Pennsylvania
May 5, 2000
F-2
<PAGE>
inTEST CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
December 31,
------------------------- March 31,
1998 1999 2000
----------- ----------- ------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................................. $ 8,637 $ 12,047 $ 8,682
Trade accounts and notes receivable, net of allowance for doubtful
accounts of $221, $239 and $238, respectively ....................... 5,779 10,020 13,819
Inventories ........................................................... 5,895 7,972 9,146
Deferred tax asset .................................................... 245 1,271 1,271
Refundable domestic and foreign income taxes .......................... 970 -- --
Other current assets .................................................. 419 898 652
-------- -------- --------
Total current assets ................................................ 21,945 32,208 33,570
-------- -------- --------
Machinery and equipment:
Machinery and equipment ............................................... 6,117 7,279 7,852
Leasehold improvements ................................................ 1,210 1,420 1,346
-------- -------- --------
7,327 8,699 9,198
Less: accumulated depreciation ........................................ (5,191) (6,002) (6,257)
-------- -------- --------
Net machinery and equipment ......................................... 2,136 2,697 2,941
-------- -------- --------
Cash surrender value of life insurance ................................. 990 1,067 --
Deferred tax asset ..................................................... -- 350 350
Other assets ........................................................... 246 288 394
Goodwill, net of accumulated amortization of $301, $780 and $900,
respectively .......................................................... 6,884 6,405 6,286
-------- -------- --------
Total assets ........................................................ $ 32,201 $ 43,015 $ 43,541
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to bank ................................................. $ 3,026 $ 1,241 $ --
Accounts payable ...................................................... 2,185 5,195 6,452
Accrued expenses ...................................................... 1,447 3,011 2,706
Current portion of long-term debt ..................................... 150 123 --
Domestic and foreign income taxes payable ............................. 69 1,854 2,376
-------- -------- --------
Total current liabilities ........................................... 6,877 11,424 11,534
Long-term debt, net of current portion ................................. 262 133 --
-------- -------- --------
Total liabilities ................................................... 7,139 11,557 11,534
-------- -------- --------
Commitments (Note 10)
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;
8,597,842, 8,630,980 and 8,582,827 shares issued, respectively ...... 86 86 86
Additional paid-in capital ............................................ 21,913 21,872 21,681
Retained earnings ..................................................... 6,944 13,077 13,555
Accumulated other comprehensive earnings (expense) .................... (35) 14 1
Deferred compensation ................................................. (255) (139) (125)
Note receivable from Equity Participation Plan ........................ (3,367) (3,228) (3,191)
Treasury stock, at cost; 55,557, 55,557 and 0 shares, respectively .... (224) (224) --
-------- -------- --------
Total stockholders' equity .......................................... 25,062 31,458 32,007
-------- -------- --------
Total liabilities and stockholders' equity .......................... $ 32,201 $ 43,015 $ 43,541
======== ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-3
<PAGE>
inTEST CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended
Years Ended December 31, March 31,
--------------------------------------------- -----------------------------
1997 1998 1999 1999 2000
------------- ------------- ------------- ------------- -------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net revenues ........................ $ 40,014 $ 36,058 $ 53,585 $ 8,223 $ 20,254
Cost of revenues .................... 19,100 18,870 26,875 4,471 10,279
---------- ---------- ---------- ---------- ----------
Gross margin ..................... 20,914 17,188 26,710 3,752 9,975
---------- ---------- ---------- ---------- ----------
Operating expenses:
Selling expense .................... 6,951 6,976 8,418 1,538 2,318
Engineering and product
development expense .............. 4,543 4,062 4,864 1,067 1,450
General and administrative
expense .......................... 3,580 4,074 6,101 1,087 1,473
Merger-related costs ............... -- -- -- -- 2,557
---------- ---------- ---------- ---------- ----------
Total operating expenses ......... 15,074 15,112 19,383 3,692 7,798
---------- ---------- ---------- ---------- ----------
Operating income .................... 5,840 2,076 7,327 60 2,177
---------- ---------- ---------- ---------- ----------
Other income (expense):
Interest income .................... 349 455 348 70 121
Interest expense ................... (310) (356) (229) (66) (30)
Other .............................. (15) 64 112 -- 9
---------- ---------- ---------- ---------- ----------
Total other income ............... 24 163 231 4 100
---------- ---------- ---------- ---------- ----------
Earnings before income taxes and
minority interest .................. 5,864 2,239 7,558 64 2,277
Income tax expense .................. 1,616 1,181 1,425 125 1,799
---------- ---------- ---------- ---------- ----------
Earnings (loss) before minority
interest ........................... 4,248 1,058 6,133 (61) 478
Minority interest ................... (25) -- -- -- --
---------- ---------- ---------- ---------- ----------
Net earnings (loss) .............. $ 4,223 $ 1,058 $ 6,133 $ (61) $ 478
========== ========== ========== ========== ==========
Pro forma information (unaudited)
(Note 3)
Pro forma earnings before
income taxes ..................... $ 5,824
Pro forma income taxes ............. 2,224
Pro forma net earnings ............. 3,600
Earnings (loss) per share (1997
information is pro forma):
Basic ............................ $ 0.55 $ 0.14 $ 0.76 $ (0.01) $ 0.06
Diluted .......................... 0.54 0.14 0.74 (0.01) 0.06
Weighted average shares outstanding
(1997 information is pro forma):
Basic ............................ 6,531,478 7,668,911 8,084,398 8,061,730 8,137,167
Diluted .......................... 6,696,892 7,822,088 8,265,537 8,061,730 8,465,603
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-4
<PAGE>
inTEST CORPORATION
CONSOLIDATED STATEMENTS
OF COMPREHENSIVE EARNINGS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended
Years Ended December 31, March 31,
---------------------------------- -------------------
1997 1998 1999 1999 2000
---------- --------- --------- --------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net earnings (loss) ................... $ 4,223 $1,058 $6,133 $ (61) $ 478
Foreign currency translation
adjustments .......................... (161) 77 49 (76) (13)
------- ------ ------ ------ -----
Comprehensive earnings (loss) ......... $ 4,062 $1,135 $6,182 $ (137) $ 465
======= ====== ====== ====== =====
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-5
<PAGE>
inTEST CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Common Stock Additional
----------------------- Paid-In Retained
Shares Amount Capital Earnings
------------- -------- ------------ ----------
<S> <C> <C> <C> <C>
Balance, January 1, 1997, as
reported ........................ 3,790,591 $38 $ 689 $ 3,833
Pooling of interests with
Temptronic ...................... 2,057,646 21 4,918 3,352
--------- --- ------- --------
Balance, January 1, 1997, as
restated ........................ 5,848,237 59 5,607 7,185
Net earnings ..................... -- -- -- 4,223
Other comprehensive expense -- -- -- --
Deferred compensation ............ -- -- 411 --
Amortization of deferred
compensation .................... -- -- -- --
Principal payments by Equity
Participation Plan .............. -- -- -- --
Dividends ........................ -- -- -- (5,522)
Acquisition of minority
interest ........................ 300,443 3 1,655 --
Issuance of common stock in
connection with Offering,
net ............................. 1,820,000 18 11,637 --
Acquisition of treasury stock -- -- -- --
--------- --- ------- --------
Balance, December 31, 1997 7,968,680 80 19,310 5,886
Net earnings ..................... -- -- -- 1,058
Other comprehensive
earnings ........................ -- -- -- --
Deferred compensation ............ -- -- 47 --
Amortization of deferred
compensation .................... -- -- -- --
Elimination of deferred
compensation related to
stock options forfeited ......... -- -- (110) --
Principal payments by Equity
Participation Plan .............. -- -- -- --
Stock options exercised .......... 4,162 -- -- --
Issuance of common stock in
connection with
Acquisition ..................... 625,000 6 2,666 --
--------- --- ------- --------
Balance, December 31, 1998 8,597,842 86 21,913 6,944
Net earnings ..................... -- -- -- 6,133
Other comprehensive
earnings ........................ -- -- -- --
Amortization of deferred
compensation .................... -- -- -- --
Elimination of deferred
compensation related to
stock options forfeited ......... -- -- (41) --
Principal payments by Equity
Participation Plan .............. -- -- -- --
Stock options exercised .......... 33,138 -- -- --
--------- --- ------- --------
Balance, December 31, 1999 8,630,980 86 21,872 13,077
Net earnings ..................... -- -- -- 478
Other comprehensive expense -- -- -- --
Amortization of deferred
compensation .................... -- -- -- --
Principal payments by Equity
Participation Plan .............. -- -- -- --
Stock options exercised .......... 7,404 -- 33 --
Retirement of treasury stock ..... (55,557) -- (224) --
--------- --- ------- --------
Balance, March 31, 2000
(Unaudited) ..................... 8,582,827 $86 $21,681 $ 13,555
========= === ======= ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive Equity Total
Earnings Deferred Participation Treasury Stockholders'
(Expense) Compensation Plan Note Stock Equity
--------------- -------------- --------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1997, as
reported ........................ $ 27 $ -- $ -- $ -- $ 4,587
Pooling of interests with
Temptronic ...................... 22 (86) (3,668) (193) 4,366
------- ------ -------- ------- --------
Balance, January 1, 1997, as
restated ........................ 49 (86) (3,668) (193) 8,953
Net earnings ..................... -- -- -- -- 4,223
Other comprehensive expense....... (161) -- -- -- (161)
Deferred compensation ............ -- (411) -- -- --
Amortization of deferred
compensation .................... -- 86 -- -- 86
Principal payments by Equity
Participation Plan .............. -- -- 176 -- 176
Dividends ........................ -- -- -- -- (5,522)
Acquisition of minority
interest ........................ -- -- -- -- 1,658
Issuance of common stock in
connection with Offering,
net ............................. -- -- -- -- 11,655
Acquisition of treasury stock -- -- -- (31) (31)
------- ------ -------- ------- --------
Balance, December 31, 1997 (112) (411) (3,492) (224) 21,037
Net earnings ..................... -- -- -- -- 1,058
Other comprehensive
earnings ........................ 77 -- -- -- 77
Deferred compensation ............ -- (47) -- -- --
Amortization of deferred
compensation .................... -- 93 -- -- 93
Elimination of deferred
compensation related to
stock options forfeited ......... -- 110 -- -- --
Principal payments by Equity
Participation Plan .............. -- -- 125 -- 125
Stock options exercised .......... -- -- -- -- --
Issuance of common stock in
connection with
Acquisition ..................... -- -- -- -- 2,672
------- ------ -------- ------- --------
Balance, December 31, 1998 (35) (255) (3,367) (224) 25,062
Net earnings ..................... -- -- -- -- 6,133
Other comprehensive
earnings ........................ 49 -- -- -- 49
Amortization of deferred
compensation .................... -- 75 -- -- 75
Elimination of deferred
compensation related to
stock options forfeited ......... -- 41 -- -- --
Principal payments by Equity
Participation Plan .............. -- -- 139 -- 139
Stock options exercised .......... -- -- -- -- --
------- ------ -------- ------- --------
Balance, December 31, 1999 14 (139) (3,228) (224) 31,458
Net earnings ..................... -- -- -- -- 478
Other comprehensive expense (13) -- -- -- (13)
Amortization of deferred
compensation .................... -- 14 -- -- 14
Principal payments by Equity
Participation Plan .............. -- -- 37 -- 37
Stock options exercised .......... -- -- -- -- 33
Retirement of treasury stock ..... -- -- -- 224 --
------- ------ -------- ------- --------
Balance, March 31, 2000
(Unaudited) ..................... $ 1 $ (125) $ (3,191) $ -- $ 32,007
======= ====== ======== ======= ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-6
<PAGE>
inTEST CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) ............................................... $ 4,223 $ 1,058 $ 6,133
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:
Depreciation ..................................................... 755 822 950
Amortization of goodwill ......................................... 49 252 479
Deferred taxes ................................................... (503) 259 (1,377)
Foreign exchange (gain) loss ..................................... 84 52 (36)
Allowance for doubtful accounts, net ............................. 54 (32) 17
Deferred compensation relating to stock options .................. 86 93 75
Minority interest ................................................ 25 -- --
Changes in assets and liabilities, net of effects of
Acquisition:
Trade accounts and notes receivable ............................. (3,358) 2,863 (4,206)
Inventories ..................................................... (993) 605 (2,080)
Proceeds from sale of demonstration equipment, net of
gain .......................................................... 105 251 85
Refundable domestic and state income taxes ...................... (51) (750) 977
Other current assets ............................................ (28) 111 (481)
Accounts payable ................................................ 1,387 (1,284) 3,045
Domestic and foreign income taxes payable ....................... 904 (1,262) 1,785
Dividends payable ............................................... (973) -- --
Accrued expenses ................................................ 347 (724) 1,561
-------- --------- --------
Net cash provided by (used in) operating activities ................ 2,113 2,314 6,927
-------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of business, net of cash acquired ..................... -- (4,629) --
Purchase of machinery and equipment ............................... (609) (972) (1,596)
Other long-term assets ............................................ 45 229 (100)
-------- --------- --------
Net cash provided by (used in) investing activities ............... (564) (5,372) (1,696)
-------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid .................................................... (5,541) -- --
Net borrowings (repayments) on revolving debt ..................... 528 (221) (1,784)
Proceeds from long-term debt ...................................... 500 21 --
Repayment of long-term debt ....................................... (351) (391) (156)
Note receivable repayments from Equity Participation Plan ......... 176 125 139
Purchase of treasury stock ........................................ (31) -- --
Net proceeds from Offering ........................................ 11,655 -- --
Proceeds from stock options exercised ............................. -- -- --
-------- --------- --------
Net cash provided by (used in) financing activities ................ 6,936 (466) (1,801)
-------- --------- --------
Effects of exchange rate on cash ................................... (93) 23 (20)
-------- --------- --------
Net cash provided by (used in) all activities ...................... 8,392 (3,501) 3,410
Cash and cash equivalents at beginning of period ................... 3,746 12,138 8,637
-------- --------- --------
Cash and cash equivalents at end of period ......................... $ 12,138 $ 8,637 $ 12,047
======== ========= ========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
ACTIVITIES
Details of Acquisition:
Fair value of assets acquired, net of cash acquired .............. $ 2,003
Liabilities assumed .............................................. (549)
Common stock issued .............................................. (2,672)
Goodwill resulting from Acquisition .............................. 5,847
---------
Net cash paid for Acquisition ..................................... $ 4,629
=========
Net cash payments (receipts):
Domestic and foreign income taxes ................................. $ 1,233 $ 2,975 $ 59
Interest .......................................................... 302 358 240
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1999 2000
---------- -----------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) ............................................... $ (61) $ 478
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:
Depreciation ..................................................... 213 287
Amortization of goodwill ......................................... 120 120
Deferred taxes ................................................... -- --
Foreign exchange (gain) loss ..................................... 9 7
Allowance for doubtful accounts, net ............................. (3) (1)
Deferred compensation relating to stock options .................. 17 14
Minority interest ................................................ -- --
Changes in assets and liabilities, net of effects of
Acquisition:
Trade accounts and notes receivable ............................. (999) (3,796)
Inventories ..................................................... 11 (1,173)
Proceeds from sale of demonstration equipment, net of
gain .......................................................... 28 7
Refundable domestic and state income taxes ...................... 975 --
Other current assets ............................................ (22) 246
Accounts payable ................................................ 119 1,259
Domestic and foreign income taxes payable ....................... 323 530
Dividends payable ............................................... -- --
Accrued expenses ................................................ 28 (298)
------ ---------
Net cash provided by (used in) operating activities ................ 758 (2,320)
------ ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of business, net of cash acquired ..................... -- --
Purchase of machinery and equipment ............................... (99) (551)
Other long-term assets ............................................ (28) 958
------ ---------
Net cash provided by (used in) investing activities ............... (127) 407
------ ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid .................................................... -- --
Net borrowings (repayments) on revolving debt ..................... (392) (1,241)
Proceeds from long-term debt ...................................... -- --
Repayment of long-term debt ....................................... (37) (256)
Note receivable repayments from Equity Participation Plan ......... 33 37
Purchase of treasury stock ........................................ -- --
Net proceeds from Offering ........................................ -- --
Proceeds from stock options exercised ............................. -- 33
------ ---------
Net cash provided by (used in) financing activities ................ (396) (1,427)
------ ---------
Effects of exchange rate on cash ................................... (52) (25)
------ ---------
Net cash provided by (used in) all activities ...................... 183 (3,365)
Cash and cash equivalents at beginning of period ................... 8,637 12,047
------ ---------
Cash and cash equivalents at end of period ......................... $8,820 $ 8,682
====== =========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
ACTIVITIES
Details of Acquisition:
Fair value of assets acquired, net of cash acquired ..............
Liabilities assumed ..............................................
Common stock issued ..............................................
Goodwill resulting from Acquisition ..............................
Net cash paid for Acquisition .....................................
Net cash payments (receipts):
Domestic and foreign income taxes ................................. $ (900) $ 1,293
Interest .......................................................... 67 32
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-7
<PAGE>
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 2000 and for the three months ended
March 31, 1999 and 2000 is unaudited)
(in thousands, except share and per share data)
(1) NATURE OF OPERATIONS
inTEST Corporation (the "Company") is a leading independent designer,
manufacturer and marketer of interface solutions and temperature management
products that semiconductor manufacturers use in conjunction with automatic test
equipment, or ATE, in the testing of integrated circuits, or ICs. The Company's
interface solutions products include manipulator, docking hardware and tester
interface products.
The consolidated entity is comprised of inTEST Corporation (parent) and its
eight 100% owned subsidiaries: inTEST Limited (Thame, UK), inTEST Kabushiki
Kaisha (Kichijoji, Japan), inTEST PTE, Limited (Singapore), inTEST Sunnyvale
Corp. (Delaware) (see Note 4), Temptronic Corporation (Delaware), 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., the U.K. and Singapore
(where the Company commenced manufacturing during September 1999). 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
2,275,000 common shares including 1,820,000 shares of common stock sold by the
Company (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").
On March 9, 2000, the Company completed a merger with Temptronic
Corporation ("Temptronic") whereby Temptronic was merged into a wholly-owned
subsidiary of the Company. The Company exchanged 2,046,793 shares of its common
stock for all of the Temptronic common stock. Each share of Temptronic common
stock was exchanged for 0.925 shares of the Company's common stock. In addition,
outstanding Temptronic stock options were converted at the same exchange ratio
into options to acquire 175,686 shares of the Company's common stock. The merger
was accounted for under the pooling-of-interests method of accounting and,
accordingly, the accompanying consolidated financial statements have been
retroactively restated to give effect to the merger. Temptronic also has a 95%
owned foreign subsidiary which is consolidated with Temptronic for reporting
purposes. Minority interest in this foreign subsidiary is not material.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying 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.
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.
F-8
<PAGE>
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 2000 and for the three months ended
March 31, 1999 and 2000 is unaudited)
(in thousands, except share and per share data)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
Reclassification
Certain previously reported amounts for Temptronic have been restated to
conform to the accounting methods applied by the Company.
Cash and Cash Equivalents
Short-term investments, which have maturities of three months or less when
purchased, are considered to be cash equivalents and are carried at cost, which
approximates market value.
Trade Notes Receivable
Trade notes receivable are due from trade customers in Japan, and have
original maturities of less than four months. The notes are non-interest
bearing. Trade notes receivable were $524, $141 and $125 at December 31, 1998
and 1999 and March 31, 2000, respectively.
Note Receivable from Equity Participation Plan
As a result of the merger with Temptronic, the Company has a note
receivable from the Temptronic Corporation Equity Participation Plan ("EPP").
The note was issued on November 6, 1996 with a principal amount of $3.7 million.
The note bears interest at 10% and matures on September 30, 2011. The proceeds
of the note were used by the EPP to purchase approximately 565,483 shares of
common stock at $6.49 per share from certain former stockholders of Temptronic.
The Company has agreed to make an annual contribution to the EPP in the amount
of the principal plus interest due on the EPP's note (see Note 12).
Credit Risks
The Company grants credit to customers and generally requires no
collateral. To minimize its risk, the Company performs ongoing credit
evaluations of its customers' financial condition. Bad debt expense (recoveries)
were $68, $(4), $16, $(3) and $(1) for the years ended December 31, 1997, 1998
and 1999 and the three months ended March 31, 1999 and 2000, respectively.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
under the first-in first-out (FIFO) method.
Machinery and Equipment
Machinery and equipment are stated at cost. Depreciation is based upon the
estimated useful life of the assets using the straight-line method. The
estimated useful lives range from three to seven years. Leasehold improvements
are recorded at cost and amortized over the shorter of the lease term or the
estimated useful life of the asset. Total depreciation expense was $755, $822,
$950, $213 and $287 for the years ended December 31, 1997, 1998 and 1999 and the
three months ended March 31, 1999 and 2000, respectively. Expenditures for
maintenance and repairs are charged to operations as incurred.
Intangibles
Goodwill resulting from the acquisition of the minority interest in the
Company's three foreign subsidiaries and the acquisition of TestDesign (as
described in Note 4) is amortized on a straight-line basis over 15 years. Total
amortization expense for the years ended December 31, 1997, 1998 and 1999 and
the three months ended March 31, 1999 and 2000 was $49, $252, $479, $120 and
$120, respectively. When events or circumstances so indicate, the Company
assesses the potential impairment of its intangible assets
F-9
<PAGE>
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 2000 and for the three months ended
March 31, 1999 and 2000 is unaudited)
(in thousands, except share and per share data)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
and other long-lived assets based on anticipated undiscounted cash flows from
operations. Such events and circumstances include a sale of all or a significant
part of the operations associated with the long-lived asset, or a significant
decline in the operating performance of the asset. If an impairment is
indicated, the amount of impairment charge would be calculated by comparing the
anticipated discounted future cash flows to the carrying value of the long-lived
asset. At March 31, 2000, no impairment was indicated.
Income Taxes
Just prior to the closing of the Offering (as described in Note 1), 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 elections 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 Standards ("SFAS") No. 109, Accounting for
Income Taxes.
Net Earnings (Loss) Per Common Share
Net earnings (loss) per common share is computed in accordance with SFAS
No. 128, Earnings Per Share. Basic earnings (loss) per share is computed by
dividing net earnings (loss) by the weighted average number of common shares
outstanding during each year. Diluted earnings (loss) per share is computed by
dividing net earnings (loss) by the weighted average number of common shares and
common share equivalents outstanding during each year. Common share equivalents
represent stock options using the treasury stock method.
A reconciliation of weighted average shares outstanding -- basic to
weighted average shares outstanding -- diluted appears below:
<TABLE>
<CAPTION>
Three Months Ended
Years Ended December 31, March 31,
---------------------------------------- --------------------------
1997 1998 1999 1999 2000
----------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Weighted average shares outstanding --
basic ............................... 6,531,478 7,668,911 8,084,398 8,061,730 8,137,167
Potentially dilutive securities:
Employee stock options .............. 165,414 153,177 181,139 -- 328,436
--------- --------- --------- --------- ---------
Weighted average shares outstanding --
diluted ............................. 6,696,892 7,822,088 8,265,537 8,061,730 8,465,603
========= ========= ========= ========= =========
</TABLE>
Weighted average common shares outstanding exclude unallocated shares of
common stock held by the Company's EPP (see Note 12).
As discussed in Note 3, pro forma earnings per share information for the
year ended December 31, 1997 includes certain adjustments to reflect results as
if (i) the Company had been taxed as a C corporation for all of 1997, and (ii)
the acquisition of the minority interests in the Company's three foreign
subsidiaries had occurred on January 1, 1997.
Revenue Recognition
Revenue from sales of products are recognized upon shipment to customers.
Service revenues are recognized as the services are performed.
F-10
<PAGE>
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 2000 and for the three months ended
March 31, 1999 and 2000 is unaudited)
(in thousands, except share and per share data)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
Engineering and Product Development
Engineering and product development costs, which consist primarily of the
salary and related benefits costs of the Company's technical staff, as well as
product development costs, are expensed as incurred.
Product Warranties
The Company generally provides product warranties and records estimated
warranty expense at the time of sale based upon historical claims experience.
Warranty expense for the years ended December 31, 1997, 1998 and 1999 and the
three months ended March 31, 1999 and 2000 was $568, $601, $790, $148 and $247,
respectively.
Stock-Based Compensation
During 1997, the Company adopted SFAS No. 123, Accounting for Stock-Based
Compensation. As permitted by SFAS No. 123, the Company has elected to continue
to follow Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees ("APB 25") in accounting for its stock option plans. Under
APB 25, the Company does not recognize compensation expense on the issuance of
its stock options to employees and non-employee directors when the option terms
are fixed and the exercise price equals the fair value of the underlying stock
on the grant date. Compensation expense for stock options granted to
non-employees is accounted for based upon the fair value of the options on the
date of grant, in accordance with the provisions of SFAS No. 123.
Foreign Currency
The accounts of the foreign subsidiaries are translated in accordance with
SFAS 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 other comprehensive earnings or expense in the
consolidated statements of stockholders' equity. Transaction gains or losses are
included in net earnings.
Financial Instruments
The Company's financial instruments, principally accounts and notes
receivable and accounts payable, are carried at cost which approximates fair
value, due to the short maturities of the accounts. The estimated fair values of
the Company's notes payable and long-term debt approximates their carrying value
based upon the current rates offered to the Company for similar type
arrangements.
New Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, Accounting for the Costs 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 adopted this Statement in the first
quarter of 1999, as required. The adoption of this Statement did not have a
material effect on the results of operations, financial condition or long-term
liquidity of the Company.
F-11
<PAGE>
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 2000 and for the three months ended
March 31, 1999 and 2000 is unaudited)
(in thousands, except share and per share data)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, which establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. SFAS No. 133 is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000. The Company plans
to adopt this Statement in the first quarter of 2001, as required. The adoption
of this Statement is not expected to have a material effect on the results of
operations, financial condition or long-term liquidity of the Company.
(3) PRO FORMA STATEMENT OF EARNINGS INFORMATION (Unaudited)
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 year ended December 31, 1997 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 difference between the Federal statutory
income tax rate and the pro forma income tax rate is as follows:
Federal statutory tax rate ......................... 34%
State income taxes, net of Federal benefit ......... 2
Foreign income taxes ............................... 4
Non-deductible goodwill amortization ............... 1
Research credits ................................... (3)
--
Pro forma income tax rate .......................... 38%
==
Set forth below are pro forma results of the Company's operations for the
year ended December 31, 1997. These pro forma results reflect adjustments for:
(i) the aforementioned change in method of computing taxes; and
(ii) the amortization of goodwill resulting from the acquisition of
minority interests in the Company's three foreign subsidiaries, net of
the elimination of the minority interests charge reflected in the
consolidated financial statements, as if the Exchange (as described in
Note 1) had occurred on January 1, 1997. The goodwill resulting from
the Exchange, which totaled $1.3 million, is being amortized over 15
years.
<TABLE>
<CAPTION>
<S> <C>
Pro forma earnings before income taxes .............................. $ 5,824
Pro forma income taxes .............................................. 2,224
Pro forma net earnings .............................................. 3,600
Pro forma net earnings per common share -- basic .................... $ 0.55
Pro forma weighted average common shares outstanding -- basic ....... 6,531,478
Pro forma net earnings per common share -- diluted .................. $ 0.54
Pro forma weighted average common shares and common share
equivalents outstanding -- diluted ................................ 6,696,892
</TABLE>
Pro forma net earnings per common share -- basic was calculated by dividing
pro forma net earnings by the pro forma weighted average number of common shares
outstanding during the period, calculated as if the Exchange had occurred on
January 1, 1997.
F-12
<PAGE>
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 2000 and for the three months ended
March 31, 1999 and 2000 is unaudited)
(in thousands, except share and per share data)
(3) PRO FORMA STATEMENT OF EARNINGS INFORMATION (Unaudited) -- (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
common shares and common share equivalents outstanding during the period,
calculated as if the Exchange had occurred on January 1, 1997.
(4) ACQUISITION
On August 3, 1998, the Company acquired all of the outstanding capital
stock of TestDesign Corporation ("TestDesign"), a privately held California
corporation (the "Acquisition"). Subsequent to the Acquisition, the Company
changed the name of TestDesign to inTEST Sunnyvale Corp. TestDesign is engaged
in the design and manufacture of tester interfaces used by the semiconductor
industry. The purchase price was $4.4 million in cash and 625,000 shares of the
Company's common stock (subject to certain adjustments).
An escrow (held by a third party escrow agent) of $1.0 million of the cash
portion of the purchase price was established at closing. This amount will
remain in escrow until July 31, 2000, unless any indemnity claims are then
pending, in which case an amount equal to the amount of such pending claims will
be retained in escrow until resolution of the claims. Although the Company's
common stock had a market price of $4.75 per share on the closing date of the
transaction, all of the 625,000 shares issued in connection with the Acquisition
are subject to legal restrictions on transfer and were valued at a 10% discount
to the market price of the shares. In addition, the Company incurred transaction
costs of approximately $425 in completing the Acquisition. The following is an
allocation of the purchase price:
<TABLE>
<CAPTION>
<S> <C>
Cash payment .......................................................... $ 4,400
Transaction costs ..................................................... 425
625,000 common shares at $4.28 ........................................ 2,672
-------
7,497
Estimated fair value of identifiable assets acquired net of liabilities
assumed .............................................................. 1,650
-------
Goodwill to be amortized over 15 years ................................ $ 5,847
=======
</TABLE>
F-13
<PAGE>
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 2000 and for the three months ended
March 31, 1999 and 2000 is unaudited)
(in thousands, except share and per share data)
(4) ACQUISITION -- (Continued)
The Acquisition has been accounted for as a purchase and the results of
operations of the acquired business have been included in the Company's
consolidated financial statements since the date of the Acquisition. The
following unaudited pro forma information presents a summary of consolidated
results of operations for the Company and TestDesign as if the Acquisition had
occurred on January 1, 1997 (the 1997 amounts also reflect the pro forma
adjustments described in Note 3):
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------
1997 1998
------------ ------------
<S> <C> <C>
Pro forma net revenues ............................................ $ 48,957 $ 40,318
Pro forma earnings before income taxes ............................ 6,154 2,105
Pro forma income taxes ............................................ 2,574 1,162
Pro forma net earnings ............................................ 3,580 943
Pro forma net earnings per common share -- basic .................. $ 0.50 $ 0.12
Pro forma weighted average common shares outstanding -- basic ..... 7,156,478 8,035,349
Pro forma net earnings per common share -- diluted ................ $ 0.49 $ 0.12
Pro forma weighted average common shares and common share
equivalents outstanding -- diluted .............................. 7,321,892 8,188,527
</TABLE>
(5) SEGMENT INFORMATION
The various products the Company designs, manufactures and markets, which
include manipulator, docking hardware, tester interface and temperature
management products, are considered by management to be a single product
segment. Included in this segment are products the Company designs and markets
that are manufactured by third parties, which include high performance test
sockets and interface boards. The Company operates its business worldwide and
divides the world into three geographic segments: North America, Asia-Pacific
and Europe. The North America segment includes the Company's manufacturing,
design and service facilities in New Jersey, California and Massachusetts; the
Asia-Pacific segment includes the Company's manufacturing, design and service
facilities in Singapore and the Company's design and service facilities in
Japan; and the Europe segment includes the Company's manufacturing, design and
service facility in the U.K. Each segment sells Company designed and
manufactured products, while products produced by third party manufacturers are
primarily distributed by the Company's Asia-Pacific segment. All three segments
sell to semiconductor manufacturers and automatic test equipment manufacturers.
F-14
<PAGE>
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 2000 and for the three months ended
March 31, 1999 and 2000 is unaudited)
(in thousands, except share and per share data)
(5) SEGMENT INFORMATION -- (Continued)
Intercompany pricing between segments is either a multiple of cost for
component parts used in manufacturing or a percentage discount from list price
for finished goods sold to non-manufacturing segments.
<TABLE>
<CAPTION>
Three Months Ended
Years Ended December 31, March 31,
------------------------------------ ------------------------
1997 1998 1999 1999 2000
---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Net revenues from unaffiliated customers:
North America .......................... $32,262 $28,984 $45,064 $ 6,854 $16,148
Asia-Pacific ........................... 5,743 4,727 5,465 958 2,100
Europe ................................. 2,009 2,347 3,056 411 2,006
------- ------- ------- ------- -------
$40,014 $36,058 $53,585 $ 8,223 $20,254
======= ======= ======= ======= =======
Affiliate sales or transfer from:
North America .......................... $ 1,181 $ 1,402 $ 2,106 $ 417 $ 879
Asia-Pacific ........................... -- -- -- -- 10
Europe ................................. 500 378 951 92 125
------- ------- ------- ------- -------
$ 1,681 $ 1,780 $ 3,057 $ 509 $ 1,014
======= ======= ======= ======= =======
Depreciation/amortization:
North America .......................... $ 704 $ 994 $ 1,371 $ 322 $ 381
Asia-Pacific ........................... 69 53 19 4 6
Europe ................................. 31 27 39 7 19
------- ------- ------- ------- -------
$ 804 $ 1,074 $ 1,429 $ 333 $ 406
======= ======= ======= ======= =======
Operating income (loss):
North America .......................... $ 4,855 $ 1,283 $ 5,838 $ 25 $ 672
Asia-Pacific ........................... 651 299 333 77 461
Europe ................................. 334 494 1,156 (42) 1,044
------- ------- ------- ------- -------
$ 5,840 $ 2,076 $ 7,327 $ 60 $ 2,177
======= ======= ======= ======= =======
Earnings (loss) before income taxes and
minority interest:
North America .......................... $ 4,927 $ 1,333 $ 5,949 $ 18 $ 750
Asia-Pacific ........................... 606 379 442 85 486
Europe ................................. 331 527 1,167 (39) 1,041
------- ------- ------- ------- -------
$ 5,864 $ 2,239 $ 7,558 $ 64 $ 2,277
======= ======= ======= ======= =======
Income tax expense (benefit):
North America .......................... $ 1,054 $ 829 $ 790 $ 67 $ 1,365
Asia-Pacific ........................... 463 263 339 77 178
Europe ................................. 99 89 296 (19) 256
------- ------- ------- ------- -------
$ 1,616 $ 1,181 $ 1,425 $ 125 $ 1,799
======= ======= ======= ======= =======
Net earnings (loss):
North America .......................... $ 3,873 $ 504 $ 5,159 $ (49) $ (615)
Asia-Pacific ........................... 131 116 103 8 308
Europe ................................. 219 438 871 (20) 785
------- ------- ------- ------- -------
$ 4,223 $ 1,058 $ 6,133 $ (61) $ 478
======= ======= ======= ======= =======
Identifiable assets:
North America .......................... $27,000 $28,769 $37,983 $28,478 $36,858
Asia-Pacific ........................... 2,679 1,706 2,595 2,038 3,264
Europe ................................. 1,611 1,726 2,437 1,628 3,419
------- ------- ------- ------- -------
$31,290 $32,201 $43,015 $32,144 $43,541
======= ======= ======= ======= =======
</TABLE>
F-15
<PAGE>
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 2000 and for the three months ended
March 31, 1999 and 2000 is unaudited)
(in thousands, except share and per share data)
(5) SEGMENT INFORMATION -- (Continued)
The $2.6 million of merger-related costs were incurred by the North America
segment. Substantially all interest income is generated by the North America
segment. Export sales from the Company's domestic manufacturing facilities (New
Jersey, California and Massachusetts) totaled $11.1 million, $12.3 million,
$15.9 million, $3.9 million and $4.8 million during the years ended December 31,
1997, 1998 and 1999 and the three months ended March 31, 1999 and 2000,
respectively. During the years ended December 31, 1997, 1998 and 1999 and the
three months ended March 31, 1999 and 2000, the Company had sales to Japan of
$8.0 million, $6.8 million, $5.7 million, $1.0 million and $2.8 million,
respectively.
(6) MAJOR CUSTOMERS
No customer accounted for more than 10% of the Company's consolidated net
revenues in 1997, 1998 or 1999.
(7) INVENTORIES
Inventories were comprised of the following:
<TABLE>
<CAPTION>
December 31,
--------------------- March 31,
1998 1999 2000
--------- --------- ----------
<S> <C> <C> <C>
Raw materials .......................... $4,367 $6,091 $7,225
Work in process ........................ 1,538 1,954 1,996
Finished goods ......................... 617 704 777
Reserve for obsolete inventory ......... (627) (777) (852)
------ ------ ------
$5,895 $7,972 $9,146
====== ====== ======
</TABLE>
(8) DEBT
Lines of Credit
The Company has a $1.5 million line of credit. Borrowings under this line
of credit are principally used for working capital purposes. Borrowings on the
line of credit bear interest at the prime rate, which is payable monthly on any
outstanding balance. The Company is required to maintain a $50 compensating
balance at the bank which granted the line of credit. The credit line expires on
June 28, 2000. At March 31, 2000, there were no borrowings outstanding.
As a result of the merger with Temptronic, the Company has two additional
lines of credit with a maximum borrowing capacity of $4.0 million, subject to a
borrowing limitation based on a maximum percentage of qualified inventories and
accounts receivable. At December 31, 1999, the Company had approximately $2.3
million of borrowing capacity available under these lines at the bank's prime
interest rate (8.50%). The weighted average interest rate on outstanding
borrowings under the lines of credit in 1998 and 1999 was 8.36% and 7.99%,
respectively. The lines of credit are collateralized by a security interest in
Temptronic's inventories, accounts receivable and equipment. The line of credit
agreements contain certain covenants with which the Company must comply,
including the maintenance of certain financial ratios. The Company was in
compliance with these covenants at December 31, 1999. There was approximately
$1.1 million outstanding under one of these lines of credit upon completion of
the merger on March 9, 2000 which was paid off shortly thereafter. The Company
does not plan to renew these lines of credit when they expire in June 2000.
F-16
<PAGE>
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 2000 and for the three months ended
March 31, 1999 and 2000 is unaudited)
(in thousands, except share and per share data)
(8) DEBT -- (Continued)
Term Note
As a result of the merger with Temptronic, the Company had a note agreement
with a bank for $500. The agreement was originally entered into in May 1997.
Interest was based on the bank's prime rate plus 0.75% (9.25% at December 31,
1999). The note was collateralized by a security interest in Temptronic's
inventories, accounts receivable and equipment. The note matures on May 2, 2002.
The note agreement contains certain covenants with which the Company must
comply, including the maintenance of certain financial ratios. The Company was
in compliance with these covenants at December 31, 1999. Upon completion of the
merger on March 9, 2000, the Company paid off the remaining balance of $217 of
the term note.
(9) STOCK OPTION PLAN
The 1997 Stock Plan (the "Plan") provides for the granting of either
incentive stock options or non-qualified stock options to purchase shares of the
Company's common stock and for other stock-based awards to key employees and
directors responsible for the direction and management of the Company and to
non-employee consultants. The Plan consists of two parts: the Non-Qualified Plan
(administered by the Board of Directors of the Company) and the Key Employee
Plan (administered by the Compensation Committee of the Board of Directors of
the Company). The Company has reserved 500,000 shares of common stock for
issuance upon exercise of options or stock awards under the Plan.
No option may be granted with an exercise period in excess of ten years
from the date of grant. Generally, incentive stock options will be granted with
an exercise price equal to the fair market value on the date of grant; the
exercise price of non-qualified stock options will be determined by either the
Board of Directors or the Compensation Committee of the Board of Directors.
The options which have been issued under this plan generally vest 20% one
year from date of grant and 20% in each of the succeeding four years.
In connection with the merger with Temptronic, outstanding incentive and
non-qualified stock options to acquire Temptronic common stock were converted
into stock options to acquire the Company's stock at a conversion ratio of
0.925, with appropriate adjustment to the exercise price. The incentive and
non-qualified stock options generally vest over four to five years.
Prior to the merger, shares issued upon exercise were restricted and
subject to repurchase by Temptronic, at the then current fair market value of
the common stock (to be determined by an independent appraiser) upon termination
of the optionee's employment with Temptronic. In addition, in most cases,
Temptronic had a right of first refusal if any optionee received a bona fide
offer to purchase the common stock issued through exercise of their options
where Temptronic could offer, at its election, to repurchase the common stock
from the employee at the lower of the then current fair value or the amount of
the bona fide offer. As a result of the merger described in Note 1, Temptronic's
purchase rights terminated.
As discussed in Note 2, the Company has elected to continue to follow APB
25 in accounting for its stock option plans. Under APB 25, the Company does not
recognize compensation expense on the issuance of its stock options to employees
and non-employee directors when the option terms are fixed and the exercise
price equals the fair value of the underlying stock on the grant date. Prior to
the merger, Temptronic had granted certain non-qualified stock options to
employees which had an exercise price below the estimated fair value of
Temptronic's common stock at the date of grant. For these options, compensation
cost, equaling the difference between the fair market value of the options and
the cost to exercise them, was recorded as a
F-17
<PAGE>
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 2000 and for the three months ended
March 31, 1999 and 2000 is unaudited)
(in thousands, except share and per share data)
(9) STOCK OPTION PLAN -- (Continued)
reduction to stockholders' equity at the date of grant. This cost is amortized
to expense as the options vest. Total compensation cost recognized for the years
ended December 31, 1997, 1998 and 1999 and the three months ended March 31, 1999
and 2000 was $86, $93, $75, $17 and $14, respectively.
Had compensation costs for the Company's stock-based compensation plans
been determined consistent with SFAS No. 123, the Company's net earnings and net
earnings per share for the years ended December 31, 1997, 1998 and 1999 would
have been reduced to the unaudited pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Net earnings:
As reported (pro forma for 1997) ......... $ 3,600 $ 1,058 $ 6,133
Pro forma ................................ $ 3,512 $ 915 $ 5,988
Net earnings per share -- basic:
As reported (pro forma for 1997) ......... $ 0.55 $ 0.14 $ 0.76
Pro forma ................................ $ 0.54 $ 0.12 $ 0.74
Net earnings per share -- diluted:
As reported (pro forma for 1997) ......... $ 0.54 $ 0.14 $ 0.74
Pro forma ................................ $ 0.52 $ 0.12 $ 0.72
</TABLE>
The fair value for stock options granted in 1997 and 1998 was estimated at
the date of grant using the Black-Scholes option pricing model with the
following weighted average assumptions for 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Risk-free interest rate ....................................... 5.67% 5.65%
Dividend yield ................................................ 0.00% 0.00%
Expected common stock market price volatility factor .......... 0.65 0.61
Weighted average expected life of stock options ............... 5 years 5 years
</TABLE>
The per share weighted average fair value of stock options issued by the
Company in 1997 and 1998 was $4.61 and $3.71, respectively.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. As the Company's stock options have characteristics significantly
different from those of traded options, and as changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its stock options.
F-18
<PAGE>
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 2000 and for the three months ended
March 31, 1999 and 2000 is unaudited)
(in thousands, except share and per share data)
(9) STOCK OPTION PLAN -- (Continued)
The following table summarizes the stock option activity for the three
years ended December 31, 1999:
<TABLE>
<CAPTION>
Weighted
Average
Number Exercise
of Shares Price
----------- -----------
<S> <C> <C>
Options outstanding, January 1, 1997 ................................. 224,657 $ 3.06
Granted .............................................................. 215,037 5.75
Exercised ............................................................ -- --
Canceled ............................................................. (27,839) 4.32
------- -------
Options outstanding, December 31, 1997 (177,067 exercisable) ......... 411,855 $ 4.38
------- =======
Granted .............................................................. 200,875 $ 4.20
Exercised ............................................................ (4,162) 0.02
Canceled ............................................................. (22,877) 4.22
------- -------
Options outstanding, December 31, 1998 (215,637 exercisable) ......... 585,691 $ 3.91
------- =======
Granted .............................................................. -- $ --
Exercised ............................................................ (33,138) 0.10
Canceled ............................................................. (79,598) 3.40
------- -------
Options outstanding, December 31, 1999 (202,464 exercisable) ......... 472,955 $ 4.26
======= =======
</TABLE>
The total options granted in 1997 include 55,037 options which were granted
by Temptronic with an exercise price of $0.02. The weighted average fair value
of these options at the date of grant was $6.74. There were no other options
issued with exercise prices below market value during the three years ended
December 31, 1999.
On June 30, 1998, the Company modified 141,000 options originally
exercisable at $7.50 per share and 10,000 options originally exercisable at
$11.00 per share to reduce the exercise price of such options to $6.00 per
share.
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
Weighted Weighted
Average Average
Number Weighted Exercise Number Exercise
Range of Outstanding at Average Price of Exercisable at Price of
Exercise December 31, Maximum Remaining Outstanding December 31, Exercisable
Prices 1999 Life Life Options 1999 Options
- ------------------ ---------------- --------- ----------- ------------- ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
$ 0.02 49,200 10 4.92 $ 0.02 25,613 $ 0.02
$3.79 - $4.60 285,755 10 7.43 $ 4.15 121,651 $ 4.08
$ 6.00 138,000 10 7.54 $ 6.00 55,200 $ 6.00
</TABLE>
(10) COMMITMENTS
The Company leases its offices, warehouse facilities, automobiles and
certain equipment under noncancellable operating leases which expire at various
dates through 2005. Total rental expense for the years ended December 31, 1997,
1998 and 1999 and the three months ended March 31, 1999 and 2000 was $1.1
million, $1.1 million, $1.2 million, $299 and $412, respectively.
F-19
<PAGE>
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 2000 and for the three months ended
March 31, 1999 and 2000 is unaudited)
(in thousands, except share and per share data)
(10) COMMITMENTS -- (Continued)
The aggregate minimum rental commitments under the noncancellable operating
leases in effect at December 31, 1999, are as follows:
2000 ............................................. $1,312
2001 ............................................. 1,100
2002 ............................................. 662
2003 ............................................. 510
2004 ............................................. 375
Thereafter ....................................... 35
(11) INCOME TAXES
As discussed in Notes 2 and 3, prior to the Offering the Company had
elected S corporation status for Federal and State of New Jersey tax purposes,
and therefore, was not directly subject to Federal and certain New Jersey income
taxes. Immediately prior to the Offering, the Company terminated its status as
an S corporation and is now subject to Federal and additional state income
taxes. In addition, the Company is taxed in foreign countries and for activity
in certain states. The cumulative amount of undistributed earnings of foreign
subsidiaries for which U.S. income taxes have not been provided was
approximately $3.0 million and $3.8 million at December 31, 1999 and March 31,
2000, respectively. During 1999, the Company repatriated a portion of the
earnings of its foreign subsidiaries. The estimated tax effect of distributing
such earnings is expected to be offset by available foreign tax credits.
Earnings before income taxes were as follows:
Three Months Ended
Years Ended December 31, March 31,
--------------------------------- ------------------
1997 1998 1999 1999 2000
--------- --------- --------- ------ ---------
Domestic ......... $4,927 $1,333 $5,949 $18 $ 750
Foreign .......... 937 906 1,609 46 1,527
------ ------ ------ --- ------
$5,864 $2,239 $7,558 $64 $2,277
====== ====== ====== === ======
Income tax expense was as follows:
Years Ended December 31,
------------------------------------
1997 1998 1999
--------- ---------- -----------
Current:
Domestic -- Federal ......... $1,243 $ 516 $ 1,934
Domestic -- state ........... 303 54 215
Foreign ..................... 573 352 652
------ ------ --------
2,119 922 2,801
------ ------ --------
Deferred:
Domestic -- Federal ......... (485) 284 (946)
Domestic -- state ........... (18) (25) (430)
------ ------ --------
(503) 259 (1,376)
------ ------ --------
Income tax expense ........... $1,616 $1,181 $ 1,425
====== ====== ========
Deferred income taxes reflect the net tax effect of net operating loss and
credit carryforwards and temporary differences between the carrying amount of
assets and liabilities for financial reporting purposes
F-20
<PAGE>
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 2000 and for the three months ended
March 31, 1999 and 2000 is unaudited)
(in thousands, except share and per share data)
(11) INCOME TAXES -- (Continued)
and the amounts used for income tax purposes. The following is a summary of the
significant components of the Company's deferred tax assets and liabilities as
of December 31, 1998 and 1999:
December 31,
-----------------------
1998 1999
----------- ---------
Deferred tax assets:
Accrued vacation pay ............................... $ 157 $ 195
Allowance for doubtful accounts .................... 80 88
Inventories ........................................ 277 392
Accrued warranty ................................... 38 87
Accrued bonuses .................................... -- 84
Net operating loss and credit carryforward ......... 966 686
Stock compensation ................................. 69 88
Machinery and equipment ............................ 154 101
Other .............................................. 37 55
-------- ------
1,778 1,776
Valuation allowance ................................ (1,508) (90)
-------- ------
Deferred tax assets .............................. 270 1,686
-------- ------
Deferred tax liabilities:
Accrued royalty income ............................. (25) (65)
-------- ------
Deferred tax liabilities ......................... (25) (65)
-------- ------
Net deferred tax asset .............................. $ 245 $1,621
======== ======
The valuation allowance for deferred tax assets as of the beginning of 1998
and 1999 was $898 and $1.5 million, respectively. The net change in the
valuation allowance for the years ended December 31, 1998 and 1999 was an
increase of $610 and a decrease of $1.4 million, respectively. In assessing the
ability to realize the deferred tax assets, management considers whether it is
more likely than not that some portion or all of the deferred tax assets will
not be realized. The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during periods in which those
temporary differences become deductible. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income and tax
planning strategies in making this assessment. In order to fully realize the
total deferred tax assets, the Company will need to generate future taxable
income prior to the expiration of net operating loss and credit carryforwards
which expire at various years through 2019. Based upon the level of historical
taxable income and projections for future taxable income over the periods in
which the temporary differences are deductible, management believes it is more
likely than not the Company will realize the benefit of the deferred tax asset,
net of the valuation allowance, at December 31, 1999. The amount of the deferred
tax asset considered realizable, however, could be reduced in the near term if
estimates of future taxable income during the carryforward period are reduced.
F-21
<PAGE>
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 2000 and for the three months ended
March 31, 1999 and 2000 is unaudited)
(in thousands, except share and per share data)
(11) INCOME TAXES -- (Continued)
An analysis of the effective tax rate on earnings and a reconciliation from
the expected statutory rate are as follows:
<TABLE>
<CAPTION>
Three Months Ended
Years Ended December 31, March 31,
------------------------------------ ------------------
1997 1998 1999 1999 2000
--------- ---------- ----------- ------ ---------
<S> <C> <C> <C> <C> <C>
Expected income tax provision at U.S.
statutory rate .............................. $1,994 $ 761 $ 2,570 $ 22 $ 774
State taxes, net of Federal benefit .......... 79 (65) 157 (26) 114
Increase (decrease) in tax from:
Non-deductible merger-related costs.......... -- -- -- -- 792
Liquidation of life insurance policies....... -- -- -- -- 81
Non-deductible goodwill and other
permanent differences ..................... (36) (83) 28 10 33
Foreign income tax rate differences ......... 219 12 58 3 1
S corporation earnings not subject to
Federal taxation .......................... (549) -- -- -- --
Federal credits ............................. (112) (41) (51) -- --
Change in valuation allowance ............... 48 610 (1,418) 116 --
Other ....................................... (27) (13) 81 -- 4
------ ------ -------- ---- ------
Income tax expense ........................... $1,616 $1,181 $ 1,425 $125 $1,799
====== ====== ======== ==== ======
</TABLE>
(12) EMPLOYEE BENEFIT PLANS
In 1996, the Company instituted a defined contribution 401(k) plan for its
employees who work in the U.S. All permanent employees of inTEST Corporation and
inTEST Sunnyvale Corp. who are at least 18 years of age and have completed six
months of service with the Company are eligible to participate in the plan.
Under the plan, the Company matches employee contributions dollar for dollar up
to 10% of the employee's annual compensation up to $5. In addition, the Company
may, at its discretion, match employee contributions dollar for dollar for
amounts exceeding 10% up to 15% of the employee's annual compensation to a
maximum of $5. Employer contributions vest over a six-year period. The Company
contributed $129, $157, $221, $72 and $85 to the plan for the years ended
December 31, 1997, 1998 and 1999 and the three months ended March 31, 1999 and
2000, respectively.
inTEST Sunnyvale (formerly TestDesign) adopted a defined contribution
401(k) plan for its employees in July 1994. All permanent employees who were at
least 18 years of age and had completed six months of service with inTEST
Sunnyvale were eligible to participate in the plan. Under the plan, inTEST
Sunnyvale matched employee contributions equal to 25% of an employee's
contributions up to 5% of gross salary. Matching contributions for the plan were
$6 from the date of the Acquisition through December 31, 1998. In addition, the
plan allowed inTEST Sunnyvale to make discretionary matching contributions up to
6.5% of an employee's gross salary for the year based upon inTEST Sunnyvale's
profitability. There were no discretionary matching contributions made from the
date of the Acquisition through December 31, 1998.
Effective October 1, 1998, all inTEST Sunnyvale permanent employees who
were at least 18 years of age and had completed six months of service were
offered enrollment in the Company's 401(k) plan, and employee contributions and
employer matching contributions into the inTEST Sunnyvale plan ceased. The
Company is currently in the process of terminating the inTEST Sunnyvale plan.
Upon termination, the former participants will have the option of rolling their
assets into the Company's plan.
F-22
<PAGE>
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 2000 and for the three months ended
March 31, 1999 and 2000 is unaudited)
(in thousands, except share and per share data)
(12) EMPLOYEE BENEFIT PLANS -- (Continued)
Temptronic adopted a defined contribution 401(k) plan for its domestic
employees in 1988. All permanent employees who are at least 21 years of age and
have completed six months of service with Temptronic are eligible to participate
in the plan. Under the plan, Temptronic may make discretionary matching
contributions to be determined annually by Temptronic up to 6% of the employees'
annual compensation. Employer contributions vest over a seven-year period.
Temptronic contributed $93, $88, $56, $17 and $0 to the plan for the years ended
December 31, 1997, 1998 and 1999 and the three months ended March 31, 1999 and
2000, respectively.
Temptronic established the EPP covering substantially all employees in
1982. On November 6, 1996, in exchange for a note receivable, Temptronic loaned
the EPP $3.7 million to purchase 565,483 shares of stock from certain former
stockholders of Temptronic. The amount of the note from the EPP was recorded as
a reduction of stockholders' equity. The amount in stockholders' equity is
reduced when the tax deductible contributions are made. Shares acquired are
allocated to participant accounts on September 30 of each plan year. Temptronic
contributed approximately $470, $470, $470, $118 and $118 to the EPP during the
years ended December 31, 1997, 1998 and 1999 and the three months ended March
31, 1999 and 2000, respectively, and recorded interest income of $294, $345,
$331, $85 and $81, respectively, on the EPP note. At March 31, 2000, the EPP
owned 665,157 shares of stock with a fair market value of approximately $13.9
million of which 212,798 shares were allocated to participants. The remaining
shares will be allocated to participants in the future under the EPP guidelines.
(13) ACCRUED EXPENSES
Accrued expenses consist of the following:
December 31,
--------------------- March 31,
1998 1999 2000
--------- --------- ----------
Accrued compensation ................. $ 503 $1,237 $ 1,077
Accrued commissions .................. 312 776 551
Accrued merger-related costs ......... -- -- 400
Accrued warranty costs ............... 100 228 263
Accrued professional fees ............ 106 340 115
Customer deposits .................... 100 138 101
Accrued directors fees ............... 109 105 42
Accrued other ........................ 217 187 157
------ ------ -------
$1,447 $3,011 $ 2,706
====== ====== =======
(14) RELATED PARTY TRANSACTIONS
The Company paid consulting fees to one individual who is a member of the
Board of Directors of the parent company which totaled $17, $56, $67, $17 and
$22 during the years ended December 31, 1997, 1998 and 1999 and the three months
ended March 31, 1999 and 2000, respectively.
During 1998, in connection with the acquisition of TestDesign, the Company
repaid $215 on a note due to a firm ("PRIM") controlled by Douglas W. Smith,
Executive Vice President and Chief Operating Officer of the Company. This note,
which did not bear interest or have a maturity date, evidenced borrowings that
TestDesign had made from PRIM prior to the acquisition. In addition, subject to
the terms of a consulting agreement between TestDesign and Gregory W. Slayton, a
current board member of the Company, the Company paid directly to Mr. Slayton,
on behalf of TestDesign, $170 in cash and 31,250 shares of the Company's common
stock. These payments are included in the merger consideration and are accounted
for as described in Note 4.
F-23
<PAGE>
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 2000 and for the three months ended
March 31, 1999 and 2000 is unaudited)
(in thousands, except share and per share data)
(14) RELATED PARTY TRANSACTIONS -- (Continued)
Some of the Company's foreign subsidiaries paid directors' fees to several
individuals who are members of management of the parent company which totaled
$177, $104, $119, $71 and $17 during the years ended December 31, 1997, 1998 and
1999 and the three months ended March 31, 1999 and 2000, respectively.
At December 31, 1998 and 1999 and March 31, 2000, there were $49, $48 and
$12, respectively, of foreign directors' fees payable to members of management
of the parent company.
Temptronic has transactions in the normal course of business with Hakuto
Corporation. As of March 31, 2000, a wholly-owned subsidiary of Hakuto
Corporation, Hakuto American Holdings, Inc., owned 647,500 shares of the
Company's outstanding stock. During the years ended December 31, 1997, 1998 and
1999 and the three months ended March 31, 1999 and 2000, Temptronic sold product
at market prices totaling approximately $2.8 million, $2.5 million, $1.5
million, $357 and $515, respectively, to Hakuto Corporation. At December 31,
1998 and 1999 and March 31, 2000, accounts receivable from Hakuto Corporation
amounted to approximately $137, $200 and $63, respectively.
(15) LEGAL PROCEEDINGS
As previously reported, on April 16, 1999, the Company and its subsidiary,
inTEST IP Corp. (which holds title to all of the Company's intellectual
property) filed suit against a competitor for infringement of a United States
patent held by the Company (the "815 Patent"). The invention disclosed and
claimed in the 815 Patent is directed to a system for positioning and docking a
test head to a device handler and is used in the testing of integrated circuits.
The Company sells docking hardware products covered by the 815 Patent worldwide.
As alleged in the complaint, the competitor began manufacturing, offering
to sell, and selling products as early as 1991 that, without license, infringed
upon the claims of the 815 Patent. The complaint asked the court to enjoin the
competitor from further acts of infringement and award the Company damages,
including lost profits, from the infringing product sales.
On March 31, 2000, the Company entered into a settlement agreement with the
competitor under which the Company agreed to dismiss the suit. The settlement
agreement provides, among other things, that the competitor acknowledged the
validity of the 815 Patent with regard to its existing docking hardware
products, agreed to pay the Company $300 over two years, became a licensee under
the 815 Patent and agreed to pay royalties to the Company for future sales of
its current design of docking hardware products.
All legal fees incurred in connection with this matter have been expensed.
The amounts to be received for settlement of the suit will be offset against the
same expense category to which these legal fees were charged.
(16) QUARTERLY CONSOLIDATED FINANCIAL DATA (Unaudited)
The following tables present certain unaudited consolidated quarterly
financial information for each of the eight quarters ended December 31, 1999. In
the opinion of the Company's management, this quarterly information has been
prepared on the same basis as the Consolidated Financial Statements and includes
all adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the information for the period presented. The results of
operations for any quarter are not necessarily indicative of results for the
full year or for any future period.
The Company's business is not seasonal; therefore year-over-year quarterly
comparisons of the Company's results of operations may not be as meaningful as
the sequential quarterly comparisons set forth
F-24
<PAGE>
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 2000 and for the three months ended
March 31, 1999 and 2000 is unaudited)
(in thousands, except share and per share data)
(16) QUARTERLY CONSOLIDATED FINANCIAL DATA (Unaudited) -- (Continued)
below which tend to reflect the cyclical activity of the semiconductor industry
as a whole. Quarterly fluctuations in expenses are related directly to sales
activity and volume and may also reflect the timing of operating expenses
incurred throughout the year.
<TABLE>
<CAPTION>
Quarters Ended
-----------------------------------------------------------
March 31, June 30, September 30, December 31,
1999 1999 1999 1999 Total
------------- ------------ --------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Net revenues .............................. $ 8,223 $ 10,816 $ 15,237 $ 19,309 $ 53,585
Gross margin .............................. 3,752 5,314 7,615 10,029 26,710
Earnings before income taxes .............. 64 1,051 2,669 3,774 7,558
Income taxes .............................. 125 357 901 42 1,425
Net earnings (loss) ....................... (61) 694 1,768 3,732 6,133
Net earnings (loss) per common share --
basic .................................... $ (0.01) $ 0.09 $ 0.22 $ 0.46 $ 0.76
Weighted average common shares
outstanding -- basic ..................... 8,061,730 8,071,154 8,081,482 8,122,588 8,084,398
Net earnings (loss) per common share --
diluted .................................. $ (0.01) $ 0.08 $ 0.21 $ 0.45 $ 0.74
Weighted average common shares
and common share equivalents
outstanding -- diluted ................... 8,061,730 8,217,571 8,260,359 8,358,355 8,265,537
</TABLE>
<TABLE>
<CAPTION>
Quarters Ended
-----------------------------------------------------------
March 31, June 30, September 30, December 31,
1998 1998 1998 1998 Total
------------- ------------ --------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Net revenues .......................... $ 10,634 $ 9,697 $ 8,407 $ 7,320 $ 36,058
Gross margin .......................... 5,419 4,649 3,867 3,253 17,188
Earnings (loss) before income taxes ... 1,908 849 269 (787) 2,239
Income taxes .......................... 689 571 153 (232) 1,181
Net earnings (loss) ................... 1,219 278 116 (555) 1,058
Net earnings (loss) per common share --
basic ................................ $ 0.16 $ 0.04 $ 0.01 $ (0.07) $ 0.14
Weighted average common shares
outstanding -- basic ................. 7,394,868 7,404,292 7,815,345 8,052,303 7,668,911
Net earnings (loss) per common share --
diluted .............................. $ 0.16 $ 0.04 $ 0.01 $ (0.07) $ 0.14
Weighted average common shares and
common share equivalents
outstanding -- diluted ............... 7,557,841 7,561,125 7,967,515 8,052,303 7,822,088
</TABLE>
F-25
<PAGE>
inTEST CORPORATION
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Balance Additions
at Acquisition ------------------------ Balance at
Beginning of Other End of
of Period TestDesign Expense Deductions Period
----------- ------------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1997
Allowance for doubtful accounts ... $143 $-- $68 $14 $197
Inventory obsolescence reserve .... 303 -- 297 93 507
Warranty reserve .................. 71 -- 568 484 155
Year Ended December 31, 1998
Allowance for doubtful accounts ... 197 54 (4) 26 221
Inventory obsolescence reserve .... 507 38 260 178 627
Warranty reserve .................. 155 20 601 676 100
Year Ended December 31, 1999
Allowance for doubtful accounts ... 221 -- 16 (2) 239
Inventory obsolescence reserve .... 627 -- 242 92 777
Warranty reserve .................. 100 -- 790 662 228
</TABLE>
F-26
<PAGE>
INSIDE BACK COVER
[Photo of in2(R)Universal Manipulator product]
in2(R)Universal Manipulator
- -Universal, free-standing manipulator
- -Holds test head in an effectively weightless state
- -Provides six degrees of motion freedom
- -Modest amount of force needed to move large test heads
[Photo of Pro Dock product]
Pro Dock
- -Dedicated manipulator
- -Targets 300 mm front-end wafer testing market
- -Designed to increase floor space utilization by 25% to 40% compared to other
manipulators
[Photo of ThermoChuck(R)product]
ThermoChuck(R)
- -Enables wafer testing from -65 degrees Centigrade to +400 degrees Centigrade
- -Capable of holding up to 300 mm wafers
- -Stays flatter, more level and maintains more uniform temperatures
than previous design
[Photo of ThermoStream(R)product]
ThermoStream(R)
- -Tests packaged ICs and printed circuit boards
- -Enables testing from -80 degrees Centigrade to +225 degrees Centigrade
- -Maintains temperature stability within 1.0 degree Centigrade of accuracy
[inTEST, TestDesign and Temptronic logos]
OUTSIDE BACK COVER
[inTEST logo centered on page with white background]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
We will bear the expenses listed below in connection with the sale of the
securities being registered. Other than the SEC registration fee, the amounts
stated are estimates.
SEC registration fee ...................... $ 10,854
Nasdaq listing fee ........................ 17,500
NASD filing fee ........................... 4,611
Blue Sky Fees ............................. 2,500
Accounting fees and expenses ..............
Legal fees and expenses ...................
Transfer agent and registrar fees .........
Printing expenses .........................
Miscellaneous ............................. --------
Total .................................... $500,000
========
Item 15. Indemnification of Directors and Officers.
Article VI of our bylaws provides that we shall indemnify our directors and
officers to the fullest extent permitted by the General Corporation Law of the
State of Delaware. The bylaws require us, among other things, to indemnify our
directors and officers against certain liabilities that may arise by reason of
their status or service as directors or officers and to advance expenses to them
as they are incurred, provided that they undertake to repay the amount advanced
if it is ultimately determined by a court that they are not entitled to
indemnification. The bylaws require that we indemnify our officers and directors
in connection with any proceeding (or part thereof) initiated by the officer or
director only if the initiation of the proceeding was authorized by the board of
directors. Reference is made to Section 145 of the Delaware General Corporation
Law which provides for indemnification of directors and officers in certain
circumstances.
Article IX of our certificate of incorporation provides that our directors
shall not be personally liable to the corporation or our stockholders for
monetary damages for breach of his or her fiduciary duty as a director, except
for liability (i) for any breach of the director's duty of loyalty to the
corporation or our stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) for
willful or negligent conduct in paying dividends or repurchasing stock out of
other than lawfully available funds, or (iv) for any transaction from which the
director derives an improper personal benefit.
We have an insurance policy which will entitle us to be reimbursed for
certain indemnity payments we are required or permitted to make to our directors
and officers.
Item 16. Exhibits.
The following is a list of exhibits filed as part of the Registration
Statement:
1 Underwriting Agreement*
5.1 Opinion of Saul, Ewing, Remick & Saul LLP*
5.2 Opinion of Ratner & Prestia, P.C.*
23.1 Consent of KPMG LLP
23.2 Consent of Ernst & Young LLP
23.3 Consent of Saul, Ewing, Remick & Saul LLP (included in Exhibit 5.1)*
23.4 Consent of Ratner & Prestia, P.C. (included in Exhibit 5.2)*
24 Power of Attorney (contained on signature page)
* To be filed by amendment
II-1
<PAGE>
Item 17. Undertakings.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes that:
(i) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4), or 497(h)
under the Securities Act of 1933 shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(ii) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Township of Cherry Hill, New Jersey on May 22, 2000.
inTEST CORPORATION
By: /s/ Robert E. Matthiessen
-----------------------
Robert E. Matthiessen
President and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby makes, constitutes and appoints Robert E. Matthiessen and Hugh T.
Regan, Jr., and each of them, with full power to act without the other, his true
and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities to sign any and all amendments to this Registration Statement,
including post-effective amendments, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite or necessary to be done in connection therewith, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or any
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ Robert E. Matthiessen President, Chief Executive Officer and May 22, 2000
- ------------------------------- Director (principal executive officer)
Robert E. Matthiessen
/s/ Hugh T. Regan, Jr. Treasurer, Secretary and Chief Financial May 22, 2000
- ------------------------------- Officer (principal financial officer)
Hugh T. Regan, Jr.
/s/ Douglas W. Smith Executive Vice President, Chief Operating May 22, 2000
- ------------------------------- Officer and Director
Douglas W. Smith
/s/ Daniel J. Graham Vice Chairman, Senior Vice President and May 22, 2000
- ------------------------------- Director
Daniel J. Graham
/s/ Alyn R. Holt Chairman May 22, 2000
- -------------------------------
Alyn R. Holt
/s/ Richard O. Endres Director May 22, 2000
- -------------------------------
Richard O. Endres
/s/ Stuart F. Daniels Director May 22, 2000
- -------------------------------
Stuart F. Daniels
/s/ Gregory W. Slayton Director May 22, 2000
- -------------------------------
Gregory W. Slayton
/s/ James J. Greed, Jr. Director May 22, 2000
- -------------------------------
James J. Greed, Jr.
/s/ William M. Stone Director May 22, 2000
- -------------------------------
William M. Stone
</TABLE>
II-3
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit
----------- -------
1 Underwriting Agreement*
5.1 Opinion of Saul, Ewing, Remick & Saul LLP*
5.2 Opinion of Ratner & Prestia, P.C.*
23.1 Consent of KPMG LLP
23.2 Consent of Ernst & Young LLP
23.3 Consent of Saul, Ewing, Remick & Saul LLP
(included in Exhibit 5.1)*
23.4 Consent of Ratner & Prestia, P.C. (included in Exhibit 5.2)*
24 Power of Attorney (contained on Signature Page)
* To be filed by amendment
II-4
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
inTEST Corporation
We consent to the use of our report included herein and to the reference to our
firm under the heading "Selected Consolidated Financial Data" and "Experts"
in the prospectus.
KPMG LLP
Philadelphia, Pennsylvania
May 22, 2000
<PAGE>
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of inTEST Corporation
for the registration of shares of its common stock and to the incorporation by
reference therein of our report dated August 6, 1999, with respect to the
consolidated financial statements of Temptronic Corporation included in inTEST
Corporation's Form 8-K/A, filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
---------------------
Ernst & Young LLP
Boston, Massachusetts
May 17, 2000
