Cautionary Statement Regarding Forward-Looking Statements

From time

INTRODUCTION

In this report, "we," "us," "our," and the "Company" refer to time, we make written or oral "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, including statements contained in our filings with the SecuritiesinTEST Corporation and Exchange Commission, or SEC, (including this Report on Form 10-K), our annual report to stockholders and in other communications. These statements do not convey historical information, but relate to predicted or potential future events, such as statements of our plans, strategies and intentions, or our future performance or goals. Our forward-looking statements can often be identified by the use of forward-looking terminology such as "believes," "expects," "intends," "may," "will," "should" or "anticipates" or similar terminology, and include, but are not limited to, statements made in this Report regarding:

Investors and prospective investors are cautioned that such forward-looking statements are only projections based on current estimations. These statements involve risks and uncertainties and are based upon various assumptions. We discuss many of these risks and uncertainties under Item 1A "Risk Factors," below, and elsewhere in this Report. These risks and uncertainties, among others, could cause our actual future results to differ materially from those described in our forward-looking statements or from our prior results. We are not obligated to update these forward-looking statements, even though our situation may change in the future.

INTRODUCTION

its consolidated subsidiaries. We are an independent designer, manufacturer and marketer of thermal mechanicalmanagement products and electrical products thatATE interface solutions which are used by semiconductor manufacturers in conjunction with ATE, in theto perform development, qualifying and final testing of ICs. In addition, we market our thermal products in markets outsideintegrated circuits (“ICs”) and wafers, and for other electronic test across a range of industries including the ATE market, such as the automotive, consumer electronics, defense/aerospace, energy, industrial, telecommunications and telecommunicationsother markets. We also offer induction heating products for joining and forming metals in a variety of industrial markets, including automotive, aerospace, machinery, wire & fasteners, medical, semiconductor, food & beverage, and packaging. Our high performancehigh-performance products are designed to enable our customers to improve the efficiency of their test and manufacturing processes and, consequently, their profitability.

portion of the total cost of manufacturing ICs. Semiconductor manufacturers remain under 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.

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 evolutionary changes in IC technologies included the shift to 300 mm wafers in production, system-on-a-chip or SOC,(“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 may require additional ATE not only to handle increases in production but also to handle the more sophisticated testing requirements of ICs.

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. In most cases, the ICs are then encapsulated in a plastic, ceramic or other protective housing. These process steps are 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," "wafer probe" or "wafer sort." In front-end test, an electronic handling device known as a wafer prober automatically positions the wafer under a probe card which is electronically connected to a "test head," which connects electrically to a test system. During front-end testing, there is a growing trend of thermally conditioning the wafer during test, especially in the memory and automotive markets.test. Once the good ICs have been identified, they are packaged.

The packaged ICs also require testing, called "back-end test" or "final test," to determine if they meet design and performance specifications. Packaged ICs are tested after loading into another type of electronic handling device called a "package handler" or "handler," which then transfers the packaged ICs into a test socket which is attached to the test head. These handlers may be temperature controlled for testing. "Wafer probers" and "handlers" are sometimes referred to in this Report collectively as "electronic device handlers."

Testers range in price from approximately $100,000 to over $2.0 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.tested. Probers and handlers range in price from approximately $50,000 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. While larger global semiconductor manufacturers typically purchase ATE to test the ICs they manufacture, there are a growing number of semiconductor manufacturers who outsource IC testing to third-party foundries, test and assembly providers.

Test head manipulators, also referred to as positioners, facilitate the movement of the test head to the electronic device handler. Docking hardware mechanically connects the test head to the wafer prober or 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 more parameters traditionally tested in back end-test are moved to front-end test.

Trends in IC Testing

ATE is used to identify unacceptable packaged ICs and bad die on wafers. ATE assists IC manufacturers in controlling test costs by performing IC testing in an efficient and cost-effective manner. In order to provide testing equipment that can help IC manufacturers meet these goals, we believe the ATE market must address the following issues:

Change in Technology. End-user applications are demanding ICs with increasingly higher performance, greater speeds, and smaller sizes. ICs that meet these higher standards, including SOC designs, are more complex and dense. These technology trends have significant implications for the IC testing process, including:

Need for Plug-Compatibility and Integration.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 these vendors' 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. In recent years, temperature testing has found an increasing role in front-end, wafer levelwafer-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, semiconductor manufacturers demand higher levels of technical support on a routine basis. ATE manufacturers must commit appropriate 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 personnel 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, such as the trend to use massive parallel testing, in which semiconductor manufacturers test multiple ICs on the wafer simultaneously. We believe that this factor will lead to more front-end, wafer-level testing.

OUR SOLUTIONS

Historically, we have focused our development efforts on designing and producing high quality products that provide superior performance and cost-effectiveness. We have sought 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 have designed solutions to overcome the evolving challenges facing the ATE market and other markets that we serve, which we believe provide the following advantages:

Temperature-ControlledTesting. Our Thermostream^(R) products are used by manufacturers in a number of markets to stress test a variety of semiconductor and electronic components, PCprinted circuit boards and sub-assemblies. Our Thermochuck^(R) products are used by semiconductor manufacturers for front-end temperature stress screening at the wafer level. Factors motivating manufacturers to use temperature testing include design characterization, failure analysis and quality control as well as determining performance under extreme operating temperatures, all of which contribute to manufacturing cost savings. Our acquisitions of Sigma Systems Corporation ("Sigma"), in October 2008, and Thermonics, Inc. ("Thermonics"), in January 2012, have significantly increased our product offerings in the area of temperature-controlled testing.testing and enabled us to begin serving customers in other markets outside the ATE market. Sigma's thermal platforms and temperature chambers can accommodate large thermal masses and are found in both laboratory and production environments. Thermonics' products provide a range of precision temperature forcing systems and have been melded into Temptronic's ATS ThermoStream product line. The Thermonics brand is now used throughoutto market a family of process chillers for test and industrial applications.

Induction Heating Applications. Our acquisition of Ambrell added induction heating capabilities to our product offerings, which can be used by customers in process applications where precision controlled heating is needed.  Customers use our induction heating products in conjunction with other technologies in various marketsmanufacturing environments to verify the performance ofimprove production efficiencies.  Applications for our EKOHEAT^(R) or EASYHEAT^™ induction heating products at a range of temperatures.include annealing, bonding, brazing, curing, forging, heat treating, melting, shrink-fitting and testing.

Scalable, Universal, High Performance Interface Technology. Our universal test head manipulators provide a high degree of positioning flexibility with a minimum amount of effort. As a result, our products can be used in virtually any test setting. Our manipulator products are designed to accommodate the increased size of test heads. 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. Our tester interface products optimize the integrity of the signals transmitted between the test head and the device under test by being virtually transparent to the test signals. This results in increased accuracy of the test data and may thus enable improved test yields. We believe that these characteristics will gain even more significance as testing becomes even more demanding.

Compatibility and Integration.Integration. A hallmark of our products has been, and continues to be, compatibility with a wide variety of ATE. Our manipulator and docking hardware products are all designed to 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, increased ATE utilization and lower overall test costs.

Worldwide Customer Service and Support. We have long recognized the need to maintain a physical presence near our customers' facilities. As of December 31, 2015,2017, we had domestic manufacturing facilities in California, Massachusetts, New Jersey and CaliforniaNew York and provided service to our customers from sales and service personnel based in the U.S., Europe and Asia. 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 STRATEGIES

We remain committed to our goals of being recognized in our markets as the designer and manufacturer of the highest quality and most cost effectivecost-effective products and becoming the key supplier of all of our customers' product testing needs, other than probers, handlers and testers.needs. Our strategies to achieve these goals include the following:

Pursuing Synergistic Acquisitions. A key element of our growth strategy has been to acquire businesses, technologies or products that are complementary to our current product offerings. Since our initial public offering in 1997, we have acquired several businesses which have enabled us to expand our line of product offerings and have given us the opportunity to market a broader range of products to our customer base. In particular, the acquisitions of Temptronic in 2000, Sigma in 2008, and Thermonics in 2012 and Ambrell in 2017 have provided access to markets that are less sensitive to cyclicality than the ATEsemiconductor market. We seek to make acquisitions that will further expand our product lines as well as increase our exposure to markets outside of the ATEsemiconductor market.

Pursuing Revenue Growth Opportunities Outside the Semiconductor ATE Market. Another element of our growth strategy is to pursue revenue growth opportunities in markets we have not traditionally served, such as the automotive, consumer electronics, defense/aerospace, energy, industrial and telecommunications markets. We believe that we may be able to reduce some of the cyclicality that we have historically experienced by further diversifying our revenue streams outside the semiconductor ATE market. We see the most potential for this within our Thermal Products segment. During 20152017 and 2014,2016, approximately $10.7$29.0 million (including $13.2 million of net revenues attributable to Ambrell), or 44%, and $11.1$12.2 million, respectively, or 27%30%, respectively, of our total net revenues in both years were derived from markets outside semiconductor test.semiconductor. These revenues were all generated by our Thermal Products segment. We cannot determine at this time whether we will be successful in building our sales in these non-traditional markets or what the growth rate of our sales in these markets will be in future periods.

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 is 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. Engineering is also at the heart of the thermal segment where customers often return to inTEST with their next thermal challenge. We work to cement relationships with customers that have demanding specifications whether it be thermal testing at temperature extremes for aerospace application, for example, or delivering precise heating for efficient industrial processes. We believe that with our capabilities to consistently demonstrate solutions from proof of concept to manufactured products with required specifications, we can continue to strengthen our customer relationships.

Maintaining Our International Presence. 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., Germany, Singapore, the Netherlands and Singapore.the U.K.

Controlling Costs. At the same time as we are pursuing growth opportunities, we will seek ways to more aggressively streamline our cost structure, so that we are positioned to offer products at prices that provide the margin for a reasonable profit as well as the resources for continual product development.

ThermoChuck(R) Products:ThermoChuck^(R) Products: Our ThermoChuck(R)ThermoChuck^(R) precision vacuum platform assemblies, used primarily in the semiconductor market, quickly change and stabilize the temperature of semiconductor wafers accurately and uniformly during testing without removing the wafer from its testing environment. Such temperatures can range from as low as -65 degrees Celsius to as high as +300 degrees Celsius. ThermoChucks(R)ThermoChucks^(R) are incorporated into wafer prober equipment for laboratory analysis and for in-line production testing of semiconductor wafers. ThermoChuck(R)ThermoChuck^(R) products range in price from approximately $16,000$25,000 to $120,000.

Thermonics(R)Thermonics^(R) Products: Our Thermonics temperature conditioning products provide tempered gas or fluid to enable customers to maintain desired thermal conditions within their tool or process. Applications include general industrial, chemical processing, energy, electronics, automotive, mil/aero and semiconductor markets. Prices range from $20,000 to greater than $100,000.$200,000.

EKOHEAT^(R) Products: Our EKOHEAT^(R)induction heating systems with power ratings from 10KW to 500KW are manufactured by Ambrell and are used to conduct fast, efficient, repeatable non-contact heating of metals or other electrically conductive materials, in order to transform raw materials into finished parts. Prices range from $25,000 to $250,000.

EASYHEAT™ Products: Our compact EASYHEAT^™induction heating systems with power ratings from 1KW to 10KW are manufactured by Ambrell are used to conduct fast, efficient, repeatable non-contact heating of metals or other electrically conductive materials, in order to transform raw materials into finished parts. Prices range from $5,000 to $25,000.

Applications for both EKOHEAT^(R) and EASYHEAT^™ products include annealing, bonding, brazing, curing, forging, heat treating, melting, shrink-fitting, soldering and testing.

MechanicalEMS Products

Manipulator Products.We offer threetwo lines of manipulator products: the in2(R), the Aero Seriesin2^(R) and the Cobal Series. These free-standing 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. Certain members of the Aero family are also available as a lower-cost solution for dedicated prober-only or handler-only test cell applications.

The in2(R)in2^(R) and Cobal Series of manipulator products incorporate our balanced floating-head design. This design permits a test head weighing up to 1,6001,100 pounds to be held in an effectively weightless state, so it can be moved manually or with optional powered assistance, 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 head 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 that is held in an in2(R)in2^(R) manipulator and equipped with our docking hardware and dock it to another electronic device handler for testing either a subsequent lot of the same packaged ICs or to test different ICs. The in2(R)in2^(R) and Cobal Series manipulators range in price from approximately $12,000 to $60,000.

The Aero Series of manipulator products consists of the Aero 450H and Aero 150P manipulators. These manipulators are designed to handle test heads weighing less than 1,500 pounds. The up and down movement is supported by an air-pressure-based floating state technology. The Aero Series manipulators range in price from $10,000 to $30,000.

Docking Hardware Products. OurWe offer two lines of docking hardware productsproducts: fixed manual docking and Intellidock pin and cup docking. Both types protect the delicate interface contacts and ensure proper repeatable and precise alignment 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 simpleFixed manual docking includes a mechanical cam action docksmechanism to dock and lockslock the test head to the prober or handler, thus eliminatinghandler. Intellidock is an automated docking solution that provides operator feedback for each docking step via a touchscreen display. Both types eliminate 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 constant vibration during testing. Our docking hardware products are used primarily with floating-head universal manipulators when maximum mobility and inter-changeability of handlers and probers 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.

We believe our docking hardware products offer our customers the ability to make various competing brands of test heads compatible with various brands of probers and handlers 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 ATE 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 $25,000.

MANUFACTURING AND SUPPLY

As of December 31, 2015,2017, our principal manufacturing operations consisted of assembly and testing at our facilities in California, Massachusetts, New Jersey and California.New York. 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 operation in New Jersey. 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. We purchase certain raw materials and components from single suppliers, however, we believe that all materials and components are available in adequate amounts from other sources, although from time to time, certain components may be in short supply because of high demand or the inability of some vendors to consistently meet our quality or delivery requirements.

We conduct inspections of incoming raw materials, fabricated parts and components using sophisticated measurement equipment. This includes testing with coordinate measuring machines in all but one of our manufacturing facilities 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.

Our Massachusetts facility has maintained certification with theis ISO 9001:2015 certified. Our New York facility is ISO 9001:2008 standard since its inception.certified. Our New Jersey and California facilities manufacture products only for the semiconductor industry where ISO certification is not required. However, these locations do employ the practices embodied in the ISO 9001:2008.

Our competitors include independent manufacturers, ATE manufacturers and, to a lesser extent, semiconductor manufacturers' in-house ATE interface groups. Competitive factors in our marketthe markets we serve include price, functionality, timely product delivery, customer service, applications support, product performance and reliability. 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.

Our principal competitors for Thermostream^(R) products are FTS Systems, a part of SP Industries, and MPI Corporation. Our principal competitors for Thermochuck^(R) products include Cascade Microtech, Inc., a subsidiary of FormFactor, Inc., ERS Electronik GmbH and Espec Corp. Our principal competitors for environmental chambers are Cincinnati Sub-Zero Products, Inc., Espec Corp. and Thermotron Industries. Our principal competitor for thermal platforms is Environmental Stress Systems Inc. Our principal competitors for EKOHEAT^(R) and EASYHEAT™ products are Inductotherm Corporation, Ajax-Tocco Magneticthermic, EFD Induction Corporation, Trumpf Huettinger GmbH, and Ceia Loge.

Our principal competitors for manipulator products are Advantest Corporation, Esmo AG, Reid-Ashman Manufacturing and Teradyne, Inc. Our principal competitors for docking hardware products include Advantest Corporation, Esmo AG, Knight Automation, Reid-Ashman Manufacturing and Teradyne, Inc.

Our principal competitors for tester interface products are Advantest Corporation, Esmo AG, Reid-Ashman Manufacturing and Teradyne, Inc.

BACKLOG

At December 31, 2015,2017, our backlog of unfilled orders for all products was approximately $2.4$13.7 million compared with approximately $3.8$7.4 million at December 31, 2014.2016. At December 31, 2017, our backlog included $5.5 million attributable to Ambrell. Our backlog includes customer orders which we have accepted, substantially all of which we expect to deliver in 2016.2018. 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. Our backlog may be affected by the tendency of customers to rely on shorter lead times available from suppliers, including us, in periods of depressed demand. In periods of increased demand, there is a tendency towards longer lead times that has the effect of increasing backlog. As a result of these factors, our backlog at a particular date is not necessarily indicative of sales for any future period.

EMPLOYEES

EMPLOYEES

At December 31, 2015,2017, we had 125full199full time employees, including 56101 in manufacturing operations, 49in61in customer support/operations and 2037 in administration. Substantially all of our key employees are highly skilled and trained technical personnel. None of our employees are represented by a labor union, and we have never experienced a work stoppage. From time to time we retain third-party contractors to assist us in manufacturing operations and engineering and product development projects.

ADDITIONAL INFORMATION

Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to these reports that are filed with the SEC pursuant to Section 13(a) or 15(d) of the Exchange Act, are available free of charge through our website (www.intest.com) as soon as reasonably practicable after we electronically file them with, or furnish them to, the SEC. We also routinely post press releases, presentations, webcasts and other information regarding the Company on our website. The information posted to our website is not part of this Report.

The following are some of the factors that could materially and adversely affect our future performance or could cause actual results to differ materially from those expressed or implied in our forward-looking statements. The risks and uncertainties described below are not the only ones facing us and we cannot predict every event and circumstance that may adversely affect our business. However, these risks and uncertainties are the most significant factors that we have identified at this time. If one or more of these risks actually occurs, our business, results of operations and/or financial condition would likelycould suffer, and the price of our stock could be negatively affected.

We seek to further diversify the markets for our thermal products in order to increase the proportion of our sales attributable to markets which are less subject to cyclicality than the semiconductor and ATE markets.acquire additional businesses. If we are unable to do so, our future performancerate of growth may be reduced or limited. We may incur significant expenses related to due diligence or other transaction-related expenses for a proposed acquisition that may not be completed.

A key element of our growth strategy is to acquire businesses, technologies or products that are complementary to our current product offerings. We seek to make acquisitions that will remain substantially exposedfurther expand our product lines as well as reduce our overall reliance on the ATE market. We may not be able to execute our acquisition strategy if:

Our acquisition strategy involves financial and management risks which may adversely affect our results in the fluctuationsfuture.

If we acquire additional businesses, technologies or products, we will face the following additional risks:

If any of the cyclicality of the semiconductor and ATE markets.

Since 2009,events described above occur, our earnings could be reduced. If we have sold our thermal products in markets outside of the ATE market, including the automotive, consumer electronics, defense/aerospace, energy, industrial and telecommunications markets. Our sales to these non-ATE markets were $10.7 million and $11.1 million in 2015 and 2014, respectively, and represented 27%issue shares of our consolidated net revenuesstock or other rights to purchase our stock in both years. We offer highly specialized engineering solutionsconnection with any future acquisitions, we would dilute our existing stockholders' interests and our earnings per share may decrease. If we issue debt in these markets outside the ATE market, the demand forconnection with any future acquisitions, lenders may require that we pledge our assets to secure repayment of such debt and impose covenants on us which is limited and which we expect may vary significantly from period to period. Our goal iscould, among other things, restrict our ability to increase capital expenditures or to acquire additional businesses.

Our business is subject to intense competition, which has in the past and could in the future, materially adversely affect our sales into thesebusiness, financial condition and other non-ATE markets; however,results of operations.

We face significant competition throughout the world in most cases, the expansioneach of our thermal product sales into thesesegments. Some of our competitors have substantial financial resources and more extensive design and production capabilities than we do. Some of our competitors are much smaller than we are, and therefore have much lower levels of overhead than we do, which enables them to sell their competing products at lower prices. In order to remain competitive, we must be able to continually commit a significant portion of our personnel and financial resources to developing new markets has occurred inproducts and maintaining customer satisfaction worldwide. We expect our competitors to continue to improve the performance of their current products and introduce new products or technologies. Over the last several years, in response to significant declines in global demand for our products, some competitors have reduced their product pricing significantly, which has led to intensified price based competition, which has and we may experience difficulty in expanding our sales efforts further into these markets. These difficulties could include hiring sales and marketing staff with sufficient experience selling into these new markets and our ability to continue to develop products which meet the needs of customers in these markets and which are not currently offered bymaterially adversely affect our competitors. In addition, due to the nature of our highly specialized product offerings in these non-ATE markets, we do not expect broad market penetration in many of these markets. If we are unable to expand our sales in non-ATE markets, our net revenuesbusiness, financial condition and results of operations will remain substantially dependent upon the cyclesoperations.

Our restructuring efforts, the goal of which is to return non-profitable operations to profitability, may not be successful.

In recent years, our Mechanical Products segment has experienced significant operating losses. We have undertaken actions at various times over the last few years to address these losses. On January 4, 2016, in conjunction with the formation of the inTEST EMS Products Division, we implemented a workforce reduction which resulted in our recording a restructuring charge of $99,000 in the first quarter of 2016. The annualized savings from these actions are estimated to be approximately $690,000. Our review of the operations of this product segment is ongoing with the goal of identifying additional opportunities for cost reduction and revenue growth. We cannot be certain that our efforts to restructure this operation to achieve profitability will be successful. These efforts could require us to utilize additional financial resources to pay severance or fund other costs associated with the restructuring of this operation, which would reduce the amount of our cash and cash equivalents available to fund our short term working capital requirements.

Our sales are affected by the cyclicality and seasonality of the semiconductor and ATE markets, 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. In addition to being cyclical, the ATE market has also developed a seasonal pattern in the last several years, with the second and third quarters being the periods of strong demand and the first and fourth quarters being periods of weakened demand. We believe this change has been driven by the strong demand for consumer products containing semiconductor content sold during the year-end holiday shopping season. These market changes and seasonal sales pattern have contributed in the past, and will likely continue to contribute in the future, to fluctuations in our operating results.

We seek to acquire additional businesses.further diversify the markets for our thermal products in order to increase the proportion of our sales attributable to markets which are less subject to cyclicality than the semiconductor and ATE markets. If we are unable to do so, our future rateperformance will remain substantially exposed to the fluctuations of growth may be reduced or limited. We may incur significant expenses relatedthe cyclicality of the semiconductor and ATE markets.

Since 2009, we have sold our thermal products in markets outside of the semiconductor market, including the automotive, consumer electronics, defense/aerospace, energy, industrial and telecommunications markets. During 2017 and 2016, our sales to due diligence or other transaction related expenses for a proposed acquisition that may not be completed.

A key elementthese non-semiconductor markets were $29.0 million (including $13.2 million of net revenues attributable to Ambrell) and $12.2 million, respectively, and represented 44% and 30% of our growth strategy is to acquire businesses, technologies or products that are complementaryconsolidated net revenues, respectively. Prior to our current product offerings. We seek to make acquisitions that will further expand our product lines as well as increase our exposure toacquisition of Ambrell, we offered only highly specialized engineering solutions in these markets outside the ATE market. Wesemiconductor market, the demand for which is limited and which we expect may vary significantly from period to period. Our goal is to increase our sales into these and other non-semiconductor markets; however, in most cases, the expansion of our thermal product sales into these new markets has occurred in the last several years, and we may experience difficulty in expanding our sales efforts further into these markets. These difficulties could include hiring sales and marketing staff with sufficient experience selling into these new markets and our ability to continue to develop products which meet the needs of customers in these markets and which are not be ablecurrently offered by our competitors. In addition, due to executethe highly specialized nature of certain of our acquisition strategy if:

Our acquisition strategy involves financial and management risks which may adversely affectexpand our resultssales in the future.

If we acquire additional businesses, technologies or products, we will face the following additional risks:

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 would 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.

Our business is subject to intense competition.

We face significant competition throughout the world in each of our product segments. Some of our competitors have substantial financial resources and more extensive design and production capabilities than we do. Some of our competitors are much smaller than we are, and therefore have much lower levels of overhead than we do, which enables them to sell their competing products at lower prices. In order to remain competitive, we must be able to continually commit a significant portion of our personnel and financial resources to developing new products and maintaining customer satisfaction worldwide. We expect our competitors to continue to improve the performance of their current products and introduce new products or technologies. Over the last several years, in response to significant declines in global demand for our products, some competitors have reduced their product pricing significantly, which has led to intensified price based competition, which has and could continue to materially adversely affect our business, financial conditionrevenues and results of operations.operations will remain substantially dependent upon the cycles of the semiconductor and ATE markets.

Changes in the buying patterns of our customers have affected, and may continue to affect, demand for our products and our gross and net operating margins. Such changes in patterns are difficult to predict and may not be immediately apparent.

In addition to the cyclicality and seasonality of the semiconductor and ATE markets, demand for our products and our gross and net operating margins have also been affected by changes in the buying patterns of our customers. We believe that in recent years there have been a variety of changes within the ATE market, including, for example, changing product requirements, longer time periods between new product offerings by OEMs and changes in customer buying patterns. In particular, demand for our mechanical and electricalthe products sold by EMS, which are sold exclusively within the ATE market, and our operating margins in these product segments have been affected by shifts in the competitive landscape, including (i) customers placing heightened emphasis on shorter lead times (which places increased demands on our available engineering and production capacity increasing unit costs) and ordering in smaller quantities (which prevents us from acquiring component materials in larger volumes at lower cost and increasing unit costs), (ii) the increasing practice of OEM manufacturers to specifyOEMs specifying other suppliers as primary vendors, with less frequent opportunities to compete for such designations, (iii) customers requiring products with a greater range of use at the lowest cost, and (iv) customer supply chain management groups demanding lower prices and spreading purchases across multiple vendors.

These shifts in market practices have had, and may continue to have, varying degrees of impact on our net revenues and our gross and net operating margins. Such shifts are difficult to predict and may not be immediately apparent, and the impact of these practices is difficult to quantify from period to period. There can be no assurance that we will be successful in implementing effective strategies to counter these shifts.

Increased in-house manufacturing capabilities among certain ATE manufacturers may have resulted, and may continue to result, in reductions in our share of the manipulator, docking hardware and tester interface products markets, reduced revenues in our Mechanical and Electrical Products segments and net losses in our Mechanical Products segment.

Over the last several years, certain ATE manufacturers have begun manufacturing and selling certain products made by both our Mechanical and Electrical Products segments, including manipulator, docking hardware and tester interface products. As a result of the loss of these product sales, we may have lost market share in our manipulator, docking hardware and tester interface products, and our Mechanical Products segment has incurred operating losses. To the extent that we cannot replace these lost sales, our market share may decline, which could have a material adverse impact on the financial results of our Mechanical and Electrical Products segments.

We generate a large portion of our sales from a small number of customers. If we were to lose one or more of our large customers, operating results could suffer dramatically.

During the years ended December 31, 20152017 and 2014,2016, Hakuto Co. Ltd., one of our distributors, accounted for 12%11% and 11%13% of our consolidated net revenues, respectively. These revenues were generated by our Thermal Products segment. During the yearyears ended December 31, 2014,2017 and 2016, Texas Instruments Incorporated accounted for 13%11% and 10% of our consolidated net revenues. The reduction in net revenues, from Texas Instruments Incorporated during 2015 as compared to 2014 reflects reduced capital spending by this customer during 2015.respectively. While all threeboth of our operating segments sold products to this customer, these revenues were primarily generated by our Mechanical Products and Electrical Products segments.EMS segment. Our ten largest customers accounted for approximately 43%46% and 48%50% of our consolidated net revenues in 20152017 and 2014,2016, respectively. 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 or otherwise materially affect our business, financial condition or results of operations.

Our operating results often change significantly from quarter to quarter and may cause fluctuations in our stock price.

Historically, 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, and that may cause fluctuations and losses in the future, include:

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.


WeIn connection with our acquisition of Ambrell in May 2017, we agreed to contingent consideration in the form of earnouts based on the future adjusted EBITDA of Ambrell for 2017 and 2018.Significant variation in the amount of the estimated fair value of contingent consideration from period to period is possible which could have experienced and may continue to experience significant variabilitya materially adverse effect on our results of operations.

The consideration paid for the acquisition of Ambrell, which we acquired in our effective tax rates and may have exposure to additional tax liabilities and costs.

We are subject to payingMay 2017, includes contingent consideration in the form of earnouts based on the future adjusted EBITDA of Ambrell. Adjusted EBITDA is earnings (or loss) from operations before interest expense, benefit or provision for income taxes, depreciation and amortization, and excludes other non-recurring income and expense items as defined in the U.S. and various other countries in whichstock purchase agreement for Ambrell. The first earnout, to be paid after calendar year 2017 is completed, is an amount equal to 8x Ambrell's adjusted EBITDA for 2017 minus the $22 million paid at closing. At December 31, 2017, we operate. Our effective tax ratehad accrued $5.4 million as the 2017 earnout payable on our balance sheet representing the amount of the first earnout. The second earnout, if any, to be paid after calendar year 2018 is dependent on where our earnings are generatedcompleted, will be an amount equal to 8x Ambrell's adjusted EBITDA for 2018 minus the sum of the $22 million paid at closing and the tax regulationsearnout paid with respect to 2017. The 2017 and the interpretation and judgment of administrative tax or revenue entities2018 earnouts, in the U.S.aggregate, are capped at $18 million. To estimate the fair value of the contingent consideration at the acquisition date, an option based income approach using a Monte Carlo simulation model was utilized due to the non-linear payout structure. This resulted in an estimated fair value of $4.1 million, which was recorded as a contingent consideration liability as of the acquisition date. At December 31, 2017, the estimated fair value of our contingent consideration liability had increased to $11.1 million, and, accordingly, during the second half of 2017, we recorded a $7.0 million increase in the amounts accrued for contingent consideration. We use this same option based income approach to estimate the fair value of the contingent consideration as of the end of each quarter. Significant variation in the amount of the estimated fair value of contingent consideration from period to period is possible as the fair value is affected by our then current estimation of future events including future net revenues and other countries. We are also subject to tax audits in the countries where we operate. Any material assessment resulting from an audit from an administrative tax or revenue entityitems that affect future projected adjusted EBITDA. Such variation could negatively affecthave a materially adverse effect on our financial results.

Our industry is subject to rapid technological change, and our business prospects would be negatively affected if we are unable to quickly and effectively respond to innovation in the semiconductor and ATE markets.

Semiconductor technology continues to become more complex as manufacturers incorporate ICs into an increasing variety of products. This trend, and the changes needed in automatic testing systems to respond to developments in the semiconductor market, are likely to continue. We cannot be certain that we will be successful or timely in developing, manufacturing or selling products that will satisfy customer needs or that will attain market acceptance. Our failure to provide products that effectively and timely meet customer needs or gain market acceptance will negatively affect our business prospects.

A substantial portion of our customers are located 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 13% and 15% of consolidated net revenues in 2015 and 2014, respectively. Net revenues from foreign customers totaled $24.6 million, or 63% of consolidated net revenues in 2015 and $27.4 million, or 66% of consolidated net revenues in 2014. We expect our net revenues from foreign customers will continue to represent a significant portion of total net revenues. 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:

A significant portion of our cash position is maintained overseas.

While much of our cash is in the U.S., a significant portion is generated from and maintained by our foreign operations. As of December 31, 2015, $2.0 million of our cash and cash equivalents was held by our foreign subsidiaries. Our financial condition and results of operations could be adversely impacted if we are unable to maintain a sufficient leveloperations.

A breach of our operational or security systems could negatively affect our business and results of operations.

We rely on various information technology networks and systems, some of which are managed by third parties, to process, transmit and store electronic information, including confidential data, and to carry out and support a variety of business activities, including manufacturing, research and development, supply chain management, sales and accounting. A failure in or a breach of our operational or security systems or infrastructure, or those of our suppliers and other service providers, including as a result ofcyberattacks,, could disrupt our business, result in the disclosure or misuse of proprietary or confidential information, damage our reputation, cause losses andsignificantly increase our costs. In addition, domestic and international regulatory agencies have implemented, and are continuing to implement, various reporting and remediation requirements that companies must comply with upon learning of a breach. While we have insurance that may protect us from incurring some of these costs, there is no assurance that such insurance coverage is adequate to cover all costs and damages incurred in connection with a cyberattack.cyberattack.

Our industry is subject to rapid technological change, and our business prospects would be negatively affected if we are unable to quickly and effectively respond to innovation in the semiconductor and ATE markets.

Semiconductor technology continues to become more complex as manufacturers incorporate ICs into an increasing variety of products. This trend, and the changes needed in automated testing systems to respond to developments in the semiconductor market, are likely to continue. We cannot be certain that we will be successful or timely in developing, manufacturing or selling products that will satisfy customer needs or that will attain market acceptance. Our failure to provide products that effectively and timely meet customer needs or gain market acceptance will negatively affect our business prospects.

If our suppliers do not meet product or delivery requirements, we could have reduced revenues and earnings.

Certain components may be in short supply from time to time because of high demand or the inability of some vendors to consistently meet our quality or delivery requirements. A significant portion of our material purchases require some custom work and there are not always multiple suppliers capable of performing such custom work on a timely or cost effective basis. If any of our suppliers were to cancel commitments or fail to meet quality or delivery requirements needed to satisfy customer orders for our products, we could lose time-sensitive customer orders, have reduced revenues and earnings, and be subject to contractual penalties, any of which could have a material adverse effect on our business, results of operations and financial condition.

Our business may suffer if we are unable to attract and retain key employees.

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 other key employees or the development of successors with commensurate skills and talents. In the past, during periods of weakened demand which has caused us to experience operating losses, we have implemented temporary salary and benefit reductions and eliminations that have remained in place until our operations returned to profitability. AsIf global economic conditions improvewere to deteriorate and employment opportunities increase,we were to implement such salary and benefit reductions or eliminations again, or if we are unablecannot continue to increase employee salaries and maintain employee benefits commensurate with competitive opportunities, we may not be able to retain our senior management and other key employees. Our business could suffer if we were to lose one of more of our senior officers or other key employees.

If weA substantial portion of our customers are not ablelocated outside the U.S., which exposes us to obtain patents on or otherwise preserveforeign political and protect our proprietary technologies, our business may suffer.economic risks.

We have obtained domesticoperated internationally for many years and foreign patents covering someexpect to expand our international operations as necessary to continue expansion of our products which expire between the yearssales and service to our non-U.S. customers. Our foreign subsidiaries generated 17% and 16% of consolidated net revenues in 2017 and 2016, respectively. Net revenues from foreign customers totaled $46.6 million, or 70% of consolidated net revenues in 2016, and 2034,$27.2 million, or 68% of consolidated net revenues in 2016. We expect our net revenues from foreign customers will continue to represent a significant portion of total net revenues. However, in addition to the risks generally associated with sales and we have applications pending foroperations in the U.S., sales to customers outside the U.S. and operations in foreign countries are subject to additional patents. Some of our products utilize proprietary technology that is not covered by a patent or similar protection, and, in many cases, cannot be protected. We cannot be certain that:

subsidiaries operate. If we cannot obtain patent or other protection forare unable to repatriate the earnings of our proprietary technologies,subsidiaries it could have an adverse impact on our ability to competeredeploy earnings in other jurisdictions where they could be used more profitably.

We have experienced and may continue to experience significant variability in our marketseffective tax rates and may have exposure to additional tax liabilities and costs.

We are subject to paying income taxes in the U.S. and various other countries in which we operate. Our effective tax rate is dependent on where our earnings are generated and the tax regulations and the interpretation and judgment of administrative tax or revenue entities in the U.S. and other countries. We are also subject to tax audits in the countries where we operate. Any material assessment resulting from an audit from an administrative tax or revenue entity could be impaired.negatively affect our financial results.

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.

We may not be able to fully execute our share repurchase program.

In October 2015, our Board