<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-22529
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inTEST Corporation
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(Exact Name of Registrant as Specified in its Charter)
Delaware 22-2370659
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(State or other jurisdiction of (I.R.S Employer Identification No.)
incorporation or organization)
2 Pin Oak Lane, Cherry Hill, New Jersey 08003
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(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (856) 424-6886
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Indicate by check X whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
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Number of shares of Common Stock, $.01 par value, outstanding as of March
31, 2000:
8,582,827
<PAGE>
inTEST CORPORATION
INDEX
PART 1. FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2000 (unaudited)
and December 31, 1999 1
Consolidated Statements of Earnings (Loss) for the three
months ended March 31, 2000 and 1999 (unaudited) 2
Consolidated Statements of Comprehensive Earnings (Loss)
for the three months ended March 31, 2000 and 1999
(unaudited) 3
Consolidated Statement of Stockholders' Equity for the three
months ended March 31, 2000 (unaudited) 4
Consolidated Statements of Cash Flows for the three months
ended March 31, 2000 and 1999 (unaudited) 5
Notes to Consolidated Financial Statements (unaudited) 6 -10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11-16
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities and Use of Proceeds 19-20
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Securities Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
March 31, Dec. 31,
2000 1999
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(Unaudited) (Audited)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 8,682 $12,047
Trade accounts and notes receivable, net of allowance for
doubtful accounts of $238 and $239, respectively 13,819 10,020
Inventories 9,146 7,972
Deferred tax asset 1,271 1,271
Other current assets 652 898
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Total current assets 33,570 32,208
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Machinery and equipment:
Machinery and equipment 7,852 7,279
Leasehold improvements 1,346 1,420
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9,198 8,699
Less: accumulated depreciation (6,257) (6,002)
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Net machinery and equipment 2,941 2,697
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Cash surrender value of life insurance - 1,067
Deferred tax asset 350 350
Other assets 394 288
Goodwill, net of accumulated amortization of $900
and $780, respectively 6,286 6,405
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Total assets $43,541 $43,015
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to bank $ - $ 1,241
Accounts payable 6,452 5,195
Accrued expenses 2,706 3,011
Current portion of long-term debt - 123
Domestic and foreign income taxes payable 2,376 1,854
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Total current liabilities 11,534 11,424
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Long-term debt, net of current portion - 133
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Total liabilities 11,534 11,557
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Commitments
Stockholders' equity:
Preferred stock, $0.01 par value; 5,000,000 shares authorized;
no shares issued or outstanding - -
Common stock, $0.01 par value; 20,000,000 shares authorized;
8,582,827 and 8,630,980 shares issued, respectively 86 86
Additional paid-in capital 21,681 21,872
Retained earnings 13,555 13,077
Accumulated other comprehensive earnings 1 14
Deferred compensation (125) (139)
Note receivable from Equity Participation Plan (3,191) (3,228)
Treasury stock, at cost; 0 and 55,557 shares, respectively - (224)
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Total stockholders' equity 32,007 31,458
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Total liabilities and stockholders' equity $43,541 $43,015
======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
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<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
(In thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
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2000 1999
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<S> <C> <C>
Net revenues $20,254 $ 8,223
Cost of revenues 10,279 4,471
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Gross margin 9,975 3,752
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Operating expenses:
Selling expense 2,318 1,538
Engineering and product development expense 1,450 1,067
General and administrative expense 1,473 1,087
Merger-related costs 2,557 -
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Total operating expenses 7,798 3,692
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Operating income 2,177 60
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Other income (expense):
Interest income 121 70
Interest expense (30) (66)
Other 9 -
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Total other income 100 4
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Earnings before income taxes 2,277 64
Income tax expense 1,799 125
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Net earnings (loss) $ 478 $ (61)
======= =======
Net earnings (loss) per common share-basic $0.06 $(0.01)
Weighted average common shares
outstanding-basic 8,137,167 8,061,730
Net earnings (loss) per common share-diluted $0.06 $(0.01)
Weighted average common shares and common
share equivalents outstanding-diluted 8,465,603 8,061,730
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
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<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS)
(In thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
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2000 1999
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<S> <C> <C>
Net earnings (loss) $ 478 $ (61)
Foreign currency translation adjustments (13) (76)
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Comprehensive earnings (loss) $ 465 $ (137)
====== ======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
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<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(In thousands, except share data)
(Unaudited except Balance, December 31, 1999)
<TABLE>
<CAPTION>
Accumulated
Other
Common Stock Additional Comprehensive Equity Total
---------------- Paid-In Retained Earnings Deferred Participation Treasury Stockholders'
Shares Amount Capital Earnings (Expense) Compensation Plan Note Stock Equity
--------- ------ ---------- -------- -------------- ------------ ------------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1999 8,630,980 $ 86 $21,872 $13,077 $ 14 $ (139) $(3,228) $(224) $31,458
Net earnings - - - 478 - - - - 478
Other comprehensive expense - - - - (13) - - - (13)
Amortization of deferred
compensation - - - - - 14 - - 14
Principal payments by
Equity Participation Plan - - - - - - 37 - 37
Stock options exercised 7,404 - 33 - - - - - 33
Retirement of treasury stock (55,557) - (224) - - - - 224 -
--------- ---- ------ ------- ----- ------ ------- ----- -------
Balance, March 31, 2000 8,582,827 $ 86 $21,681 $13,555 $ 1 $ (125) $(3,191) $ - $32,007
========= ==== ======= ======= ===== ====== ======= ===== =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
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<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $ 478 $ (61)
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:
Depreciation 287 213
Amortization of goodwill 120 120
Foreign exchange loss 7 9
Allowance for doubtful accounts, net (1) (3)
Deferred compensation relating to stock options 14 17
Changes in assets and liabilities:
Trade accounts and notes receivable (3,796) (999)
Inventories (1,173) 11
Proceeds from sale of demonstration equipment,
net of gain 7 28
Refundable domestic and state income taxes - 975
Other current assets 246 (22)
Accounts payable 1,259 119
Domestic and foreign income taxes payable 530 323
Accrued expenses (298) 28
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Net cash provided by (used in) operating activities (2,320) 758
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of machinery and equipment (551) (99)
Other long-term assets 958 (28)
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Net cash provided by (used in) investing activities 407 (127)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net repayments of revolving debt (1,241) (392)
Repayment of long-term debt (256) (37)
Note receivable repayments from Equity Participation Plan 37 33
Proceeds from stock options exercised 33 -
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Net cash used in financing activities (1,427) (396)
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Effects of exchange rates on cash (25) (52)
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Net cash provided by (used in) all activities (3,365) 183
Cash and cash equivalents at beginning of period 12,047 8,637
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Cash and cash equivalents at end of period $ 8,682 $ 8,820
======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
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<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 2000 and for the three months ended
March 31, 2000 and 1999 is unaudited)
(In thousands, except for 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), 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.,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 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. Upon consummation
of the merger, 55,557 shares of treasury stock held by Temptronic with a
cost of $224 were retired. 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 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
- 6 -
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Basis of Presentation (Continued)
---------------------
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.
Certain footnote information has been condensed or omitted from these
financial statements. Therefore, these financial statements should be
read in conjunction with the consolidated financial statements and
accompanying footnotes included in the Company's Form 10-K for the year
ended December 31, 1999. Such financial statements and footnotes do not
reflect the pooling of interests with Temptronic.
Net Earnings Per Common Share
-----------------------------
Basic earnings per common share is computed by dividing net earnings
(loss) by the weighted average number of common shares outstanding during
each period. Diluted earnings per common share is computed by dividing
net earnings (loss) by the weighted average number of common shares and
common share equivalents outstanding during each period. Common share
equivalents represent stock options using the treasury stock method.
Weighted average common shares outstanding exclude unallocated shares of
common stock held by the Company's Equity Participation Plan.
New Accounting Pronouncements
-----------------------------
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
- 7 -
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
New Accounting Pronouncements (Continued)
-----------------------------
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives) and for hedging
activities. SFAS 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) 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. The North America segment
sells through Company account managers, independent sales representatives
and distributors; the Asia-Pacific segment sells through Company account
managers and independent sales representatives; and the Europe segment
sells through Company account managers and distributors.
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.
- 8 -
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
(3) SEGMENT INFORMATION (Continued)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
2000 1999
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<S> <C> <C>
Net revenues from unaffiliated customers:
North America $16,148 $6,854
Asia-Pacific 2,100 958
Europe 2,006 411
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$20,254 $8,223
======= ======
Affiliate sales or transfers from:
North America $ 879 $ 417
Asia-Pacific 10 -
Europe 125 92
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$ 1,014 $ 509
======= ======
Operating income (loss):
North America $ 672 $ 25
Asia-Pacific 461 77
Europe 1,044 (42)
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$ 2,177 $ 60
======= ======
Earnings (loss) before income taxes:
North America $ 750 $ 18
Asia-Pacific 486 85
Europe 1,041 (39)
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$ 2,277 $ 64
======= ======
Net earnings (loss):
North America $ (614) $ (49)
Asia-Pacific 308 8
Europe 784 (20)
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$ 478 $ (61)
======= ======
</TABLE>
The $2.6 million of merger-related costs were incurred by the North
America segment.
-9-
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
(4) LEGAL PROCEEDINGS
As previously reported, on April 16, 1999, the Company and its
subsidiary, inTEST IP Corp.(which holds title to all our 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 it 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 $300,000 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
and the amounts to be received for settlement of the suit will be offset
against these previously incurred expenses.
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<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Overview
- --------
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 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. Our first quarter results reflect the
continuation of a period of growth in the semiconductor industry which has
been evidenced by our sequential quarterly growth in net revenues which grew
from $8.2 million for the quarter ended March 31, 1999 to a record $20.3
million for the quarter ended March 31, 2000. Orders for our products
("bookings") were a record $21.8 million for the quarter ended March 31,
2000 compared with $12.0 million for the quarter ended March 31, 1999. As a
result of our increased bookings, our backlog increased from $8.1 million at
March 31, 1999 to $17.6 million at March 31, 2000. We believe that the
increases in our net revenues, bookings, and backlog reflect the increased
demand for ATE by semiconductor manufacturers. Although we calculate bookings
and backlog on the basis of firm orders, we cannot give any assurance that
customers will purchase the equipment subject to such orders. As a result,
our bookings for any period and backlog at any particular date do not
necessarily serve as an indicator of actual sales for any succeeding period.
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. The following discussion describes
our results of operations and financial condition on a pooled basis.
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<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Results of Operations
- ---------------------
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31,
1999:
Net Revenues. Net revenues were a record $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, 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.
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
during the quarter from the settlement of patent infringement litigation.
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<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Merger-related Costs. Merger-related costs resulting from the Company's
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.
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 quarter ended
March 31, 2000, which consisted primarily of improvements to the Company's
facilities in the United States. During the quarter, 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
$350,000 on leasehold improvements to complete this facility in the next
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<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
quarter. Our lease on this facility entitles us to a reimbursement of
approximately $250,000 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 $800,000.
Other long-term assets decreased $958,000 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 quarter ended March 31,
2000 was $1.4 million. During the quarter we repaid approximately $1.2
million under revolving lines of credit as well as $247,000 of long-term debt
acquired as a result of the merger with Temptronic.
We believe that our existing cash balances and lines 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.
International Operations
- ------------------------
Net revenues generated by our foreign subsidiaries were 20% and 17% of
consolidated net revenues for the quarters ended March 31, 2000 and 1999,
respectively. We anticipate that net revenues generated by our foreign
subsidiaries 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.
- 14 -
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
International Operations (Continued)
- ------------------------
Net revenues denominated in foreign currencies were 15% and 11% of
consolidated revenues for the quarters ended March 31, 2000 and 1999,
respectively. Although we seek to operate our business such that a
significant portion of our product costs are denominated in the same currency
that the associated sales are made in, we may be adversely affected in the
future due to our exposure to foreign operations. Moreover, net revenues
denominated in currencies other than U.S. dollars expose us to currency
fluctuations, which can adversely affect results of operations.
The portion of our consolidated net revenues that were derived from sales
to the Asia-Pacific region were 10% and 12% for the quarters ended March 31,
2000 and 1999, respectively. Countries in the Asia-Pacific region, including
Japan, have experienced economic instability resulting in weaknesses in their
currency, banking and equity markets. Although the past economic instability
in the Asia-Pacific region has not materially adversely affected our order
backlog, balance sheet, or results of operations to date, continued economic
instability could have a material adverse effect on demand for our products
and our consolidated results of operations.
Cautionary Statement Regarding Forward-Looking Statements
- ---------------------------------------------------------
This Report contains statements of a forward-looking nature relating to
future events, such as statements regarding the anticipated market for our
products throughout the balance of 2000; costs related to our merger with
Temptronic Corporation; additional expenditures for leasehold improvements for
our new Sunnyvale facility; expenditures for leasehold improvements and moving
costs for our new headquarters and primary manufacturing facility; anticipated
reimbursement on certain expenditures for leasehold improvements; anticipated
net revenues generated by foreign operations; sufficiency of cash balances,
lines of credit and net cash from operations; and use of forward exchange rate
contracts. Forward-looking statements typically can be identified by the use
of terminology such as "believes," expects," "may," "will," "should" or
"anticipates" or the negative thereof or other variations thereon or
comparable terminology, or by discussions of strategy that involve risks and
uncertainties. Investors and prospective investors are cautioned that such
statements are only projections and that actual events or results may differ
materially from those expressed in any such forward-looking statements. In
addition to the factors described in this Report, our actual consolidated
quarterly or annual operating results have been affected in the past, or could
be affected in the future, by additional factors, including, without
limitation: changes in business conditions and the economy, generally; our
ability to obtain patent protection, and enforce our patent rights, for
existing and developing proprietary technologies; our ability to integrate
successfully businesses, technologies or products which we may acquire; the
effect of the loss of, or reduction in orders from, a major customer;
- 15 -
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Cautionary Statement Regarding Forward-Looking Statements (Continued)
- ---------------------------------------------------------
cancellation, or delays in shipment of, orders in our backlog; competition
from other manufacturers of docking hardware, test head manipulators, tester
interfaces and related ATE interface products and temperature management
products; cost overruns relating to leasehold improvements for our new
Sunnyvale facility; cost overruns relating to leasehold improvements and
moving costs for our new headquarters and primary manufacturing facility;
unanticipated exchange rate fluctuations; delays in reimbursement payment for
leasehold improvements; and capital requirements relating to future
acquisitions.
- 16 -
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
Item 3. 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, which commenced in
September 1999, expand, because our sales will be in U.S. dollars but our
manufacturing costs will be primarily in 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 expect that the results of our operations or our liquidity will be
materially affected by these risk management activities. 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.
- 17 -
<PAGE>
inTEST CORPORATION
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
As previously reported, on April 16, 1999, we and our subsidiary, inTEST
IP Corp.(which holds title to all our intellectual property) filed suit
against a competitor for infringement of a United States patent held by
us (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. We
sell 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 us damages, including lost profits, from the infringing product
sales.
On March 31, 2000, we entered into a settlement agreement with the
competitor under which we 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 us $300,000 over two years, became a
licensee under the 815 Patent and agreed to pay royalties to us for
future sales of its current design of docking hardware products.
All legal fees incurred in connection with this matter have been expensed
and the amounts to be received for settlement of the suit will be offset
against these previously incurred expenses.
- 18 -
<PAGE>
inTEST CORPORATION
PART II. OTHER INFORMATION (Continued)
Item 2. Changes in Securities and Use of Proceeds
On June 17, 1997, the Company's Registration Statement on
Form S-1 covering the Offering of 2,275,000 shares of the
Company's Common Stock, Commission file number 333-26457,
was declared effective. The Offering commenced on
June 20, 1997, managed by Janney Montgomery Scott, Inc.
and Needham & Company, Inc. as representatives of the
several underwriters named in the Registration Statement
(the "Underwriters").
Of the 2,275,000 shares sold pursuant to the Offering,
1,820,000 shares were sold by the Company and 455,000 were sold
by certain selling stockholders (the "Selling Stockholders").
In addition, the Underwriters exercised an over-allotment option
to purchase an additional 341,250 shares of the Company's Common
Stock from the Selling Stockholders. The total price to the
public for the shares offered and sold by the Company and the
Selling Stockholders was $13,650,000 and $5,971,875,
respectively.
The amount of expenses incurred for the Company's account in
connection with the Offering were as follows:
<TABLE>
<S> <C>
Underwriting discounts and commissions: $1,023,750
Finders' fees: None
Expenses paid to or for the Underwriters: 16,650
Other expenses: 954,758
----------
Total expenses: $1,995,158
==========
</TABLE>
All of the foregoing expenses were direct or indirect payments
to persons other than (i) directors, officers or their
associates; (ii) persons owning ten percent (10%) or more of the
Company's Common Stock; or (iii) affiliates of the Company.
The net proceeds of the Offering to the Company (after deducting
the foregoing expenses) was $11,654,842. From the effective
date of the Registration Statement, the net proceeds have been
used for the following purposes:
- 19 -
<PAGE>
inTEST CORPORATION
PART II. OTHER INFORMATION (Continued)
Item 2. Changes in Securities and Use of Proceeds (Continued)
<TABLE>
<S> <C>
Construction of plant, building and facilities $ -
Purchase and installation of machinery
and equipment 2,171,538
Purchase of real estate -
Acquisition of other businesses (including
transaction costs) 6,565,349
Repayment of indebtedness 1,717,465
Working capital 599,725
Temporary investments, including cash &
cash equivalents -
Other purposes (for which at least $100,000
has been used), including:
Payment of final S corporation distribution 600,765
-----------
$11,654,842
===========
</TABLE>
In connection with the termination of the Company's status as
an S corporation, the Company used $600,765 of the net proceeds
to pay a portion of the $4.3 million final distribution of
previously taxed but undistributed earnings of the Company.
All of the foregoing payments with the exception of the final S
corporation distribution were direct or indirect payments to
persons other than (i) directors, officers or their associates;
(ii) persons owning ten percent (10%) or more of the Company's
Common Stock; or (iii) affiliates of the Company.
Item 3. Defaults Upon Senior Securities
None
- 20 -
<PAGE>
inTEST CORPORATION
PART II. OTHER INFORMATION (Continued)
Item 4. Submission of Matters to a Vote of Securities Holders
During the first quarter of 2000, a Special Meeting of Shareholders
was held on March 9, 2000 for the purpose of considering and voting
upon the proposal to approve the merger agreement among inTEST,
Temptronic Corporation and one of our wholly-owned subsidiaries.
The number of votes cast for or against as well as the number of
abstentions and broker non-votes for the above proposal were as
follows:
<TABLE>
<CAPTION>
For Against Abstentions Broker Non-Votes
--------- ------- ----------- ----------------
<C> <C> <C> <C>
5,445,958 1,500 350 0
</TABLE>
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
3.1 Articles of Incorporation: Previously filed by the
Company as an Exhibit to the Company's Registration
Statement on Form S-1, File No. 333-26457, and
Incorporated herein by reference.
3.2 By-Laws: Previously filed by the Company as an Exhibit
to the Company's Registration Statement on Form S-1,
File No. 333-26457, and incorporated herein by
reference.
27 Financial Data Schedule
(b) Reports on Form 8-K
1) 8-K dated March 9, 2000 providing information responsive
to the requirements of Item 2 and 7 of that form.
- 21-
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
inTEST Corporation
Date: May 12, 2000 /s/ Robert E. Matthiessen
------------------ -------------------------------------
Robert E. Matthiessen
President and Chief Executive Officer
Date: May 12, 2000 /s/ Hugh T. Regan, Jr.
------------------ -------------------------------------
Hugh T. Regan, Jr.
Treasurer and Chief Financial Officer
<PAGE>
Index to Exhibits
Item 6. Exhibits and Reports on Form 8-K
3.1 Articles of Incorporation: Previously filed by the
Company as an Exhibit to the Company's Registration
Statement on Form S-1, File No. 333-26457, and
Incorporated herein by reference.
3.2 By-Laws: Previously filed by the Company as an Exhibit
to the Company's Registration Statement on Form S-1,
File No. 333-26457, and incorporated herein by
reference.
27 Financial Data Schedule
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<NAME> INTEST CORPORATION
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
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0
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