10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________

FORM 10-Q
_____________

(Mark One)
☒  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2017 or

☐  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________________ to ___________________

Commission File Number 1-36117

inTEST Corporation
(Exact Name of Registrant as Specified in its Charter)

Delaware
(State or other jurisdiction of incorporation or organization) 22-2370659
(I.R.S. Employer Identification Number)

804 East Gate Drive, Suite 200
Mt. Laurel, New Jersey 08054
(Address of principal executive offices, including zip code)

(856) 505-8800
(Registrant's Telephone Number, including Area Code)
_________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES ☒      NO ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (SS 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES ☒      NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or a emerging growth company. See the definitions of "large accelerated filer," "accelerated filer" "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ___	Accelerated filer  ___
Non-accelerated filer   ___ (Do not check if a smaller reporting company)	Smaller reporting company  X
Emerging growth company  ___

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ___

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES ☐      NO ☒

Number of shares of Common Stock, $.01 par value, outstanding as of the close of business on October 31, 2017:

10,413,058

inTEST CORPORATION

INDEX

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets as of September 30, 2017 (Unaudited) and December 31, 2016	1
	Unaudited Consolidated Statements of Operations for the three months and nine months ended September 30, 2017 and 2016	2
	Unaudited Consolidated Statements of Comprehensive Earnings for the three months and nine months ended September 30, 2017 and 2016	3
	Unaudited Consolidated Statement of Stockholders' Equity for the nine months ended September 30, 2017	4
	Unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016	5
	Notes to Consolidated Financial Statements	6-18
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	19-27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4.	Controls and Procedures	27
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 3.	Defaults Upon Senior Securities	28
Item 4.	Mine Safety Disclosures	28
Item 5.	Other Information	28
Item 6.	Exhibits	29
Signatures		30

PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

inTEST CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)

	September 30,			December 31,
	2017			2016
ASSETS	(Unaudited)
Current assets:
Cash and cash equivalents	$	11,499		$	28,611
Trade accounts receivable, net of allowance for doubtful accounts of $146 and $146, respectively		10,225			5,377
Inventories		6,033			3,676
Prepaid expenses and other current assets		714			342
Total current assets		28,471			38,006
Property and equipment:
Machinery and equipment		4,993			4,383
Leasehold improvements		730			603
Gross property and equipment		5,723			4,986
Less: accumulated depreciation		(4,179	)		(4,042	)
Net property and equipment		1,544			944
Deferred tax assets		-			1,110
Goodwill		13,738			1,706
Intangible assets, net		16,259			875
Restricted certificates of deposit		175			175
Other assets		27			28
Total assets	$	60,214		$	42,844
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	2,363		$	1,368
Accrued wages and benefits		2,218			1,588
Accrued rent		530			572
Accrued professional fees		682			419
Accrued sales commissions		476			287
Customer deposits and deferred revenue		1,111			74
Domestic and foreign income taxes payable		1,087			575
Current portion of contingent consideration liability		-			-
Other current liabilities		400			173
Total current liabilities		8,867			5,056
Deferred tax liabilities		4,010			-
Contingent consideration liability, net of current portion		3,574			-
Total liabilities		16,451			5,056
Commitments and Contingencies
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; 10,444,135 and 10,394,018 shares issued, respectively		104			104
Addtional paid-in capital		25,808			25,578
Retained earnings		17,212			11,671
Accumulated other comprehensive earnings		843			639
Treasury stock, at cost; 33,077 and 33,077 shares, respectively		(204	)		(204	)
Total stockholders' equity		43,763			37,788
Total liabilities and stockholders' equity	$	60,214		$	42,844

See accompanying Notes to Consolidated Financial Statements.

- 1 -

inTEST CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(Unaudited)

	Three Months Ended September 30,					Nine Months Ended September 30,
	2017			2016		2017			2016
Net revenues	$	17,352		$	10,823	$	47,420		$	29,955
Cost of revenues		8,556			5,246		22,475			14,982
Gross margin		8,796			5,577		24,945			14,973
Operating expenses:
Selling expense		2,322			1,394		5,861			4,200
Engineering and product development expense		1,139			905		3,056			2,878
General and administrative expense		3,143			1,574		8,423			5,364
Adjustment to contingent consideration liability		(549	)		0		(549	)		0
Total operating expenses		6,055			3,873		16,791			12,442
Operating income		2,741			1,704		8,154			2,531
Other income		100			17		195			63
Earnings before income tax expense		2,841			1,721		8,349			2,594
Income tax expense		823			631		2,808			937
Net earnings	$	2,018		$	1,090	$	5,541		$	1,657
Net earnings per common share - basic	$	0.20		$	0.11	$	0.54		$	0.16
Weighted average common shares outstanding - basic		10,288,325			10,295,447		10,276,682			10,327,095
Net earnings per common share - diluted	$	0.19		$	0.11	$	0.54		$	0.16
Weighted average common shares and common share equivalents outstanding - diluted		10,351,009			10,318,715		10,327,080			10,344,747

See accompanying Notes to Consolidated Financial Statements.

- 2 -

inTEST CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(In thousands)
(Unaudited)

	Three Months Ended September 30,					Nine Months Ended September 30,
	2017		2016			2017		2016
Net earnings	$	2,018	$	1,090		$	5,541	$	1,657
Foreign currency translation adjustments		21		(6	)		204		35
Comprehensive earnings	$	2,039	$	1,084		$	5,745	$	1,692

 See accompanying Notes to Consolidated Financial Statements.

- 3 -

inTEST CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands, except share data)
(Unaudited)

											Accumulated
						Additional					Other					Total
	Common Stock					paid-in			Retained		Comprehensive		Treasury			Stockholders'
	Shares			Amount		capital			Earnings		Earnings		Stock			Equity
Balance, January 1, 2017		10,394,018		$	104	$	25,578		$	11,671	$	639	$	(204	)	$	37,788
Net earnings		-			-		-			5,541		-		-			5,541
Other comprehensive income		-			-		-			-		204		-			204
Amortization of deferred compensation related to stock-based awards		-			-		292			-		-		-			292
Issuance of unvested shares of restricted stock		64,000			-		-			-		-		-			-
Repurchase and retirement of common stock		(13,883	)		-		(62	)									(62	)
Balance, September 30, 2017		10,444,135		$	104	$	25,808		$	17,212	$	843	$	(204	)	$	43,763

See accompanying Notes to Consolidated Financial Statements.

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inTEST CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)  

	Nine Months Ended September 30,
	2017			2016
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings	$	5,541		$	1,657
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		1,317			451
Adjustment to contingent consideration liability		(549	)		-
Provision for excess and obsolete inventory		161			184
Foreign exchange gain		(130	)		(7	)
Amortization of deferred compensation related to stock-based awards		292			222
(Gain) loss on sale of property and equipment		(4	)		3
Proceeds from sale of demonstration equipment, net of gain		53			128
Deferred income tax expense (benefit)		(225	)		141
Changes in assets and liabilities:
Trade accounts receivable		(1,060	)		(2,252	)
Inventories		(581	)		(57	)
Prepaid expenses and other current assets		(164	)		183
Restricted certificates of deposit		-			125
Other assets		1			-
Accounts payable		(426	)		343
Accrued wages and benefits		(18	)		47
Accrued rent		(42	)		(100	)
Accrued professional fees		177			64
Accrued sales commissions		83			74
Customer deposits and deferred revenue		302			(74	)
Domestic and foreign income taxes payable		472			523
Other current liabilities		(12	)		86
Net cash provided by operating activities		5,188			1,741
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of business, net of cash acqured		(21,962	)		-
Purchase of property and equipment		(435	)		(282	)
Proceeds from sale of property and equipment		35			-
Net cash used in investing activities		(22,362	)		(282	)
CASH FLOWS FROM FINANCING ACTIVITIES
Repurchases of common stock		(62	)		(841	)
Net cash used in financing activities		(62	)		(841	)
Effects of exchange rates on cash		124			17
Net cash provided by (used in) all activities		(17,112	)		635
Cash and cash equivalents at beginning of period		28,611			25,710
Cash and cash equivalents at end of period	$	11,499		$	26,345
Cash payments for:
Domestic and foreign income taxes	$	2,555		$	25
Details of acquisition:
Fair value of assets acquired, net of cash	$	22,652
Liabilities assumed		(8,599	)
Goodwill resulting from acquisition		12,032
Contingent consideration		(4,123	)
Net cash paid for acquisition	$	21,962

See accompanying Notes to Consolidated Financial Statements.

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inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except share and per share data)

(1) NATURE OF OPERATIONS

We are an independent designer, manufacturer and marketer of thermal management products and semiconductor automatic test equipment (“ATE”) interface solutions. Our products are used by semiconductor manufacturers to perform development, qualifying and final testing of integrated circuits (“ICs”) and wafers, and for other electronic test across a range of industries including the automotive, defense/aerospace, energy, industrial and telecommunications 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. We manufacture our products in the U.S. Marketing and support activities are conducted worldwide from our facilities in the U.S., Germany, Singapore, the Netherlands and the U.K. The consolidated entity is comprised of inTEST Corporation and our wholly-owned subsidiaries.

During 2016, we reorganized our business from three product segments, Thermal Products, Mechanical Products and Electrical Products, into two product segments, Thermal Products ("Thermal") and Electromechanical Semiconductor Products ("EMS"). Certain operational changes undertaken in the first quarter of 2016 in connection with this reorganization are discussed further in Note 3 of our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2016 filed with the Securities and Exchange Commission on March 27, 2017 (the "2016 Form 10-K"). Accordingly, effective January 1, 2017, we have two reportable segments, which are also our reporting units. Prior period information has been reclassified to be comparable to the presentation for 2017.

On May 24, 2017, we completed the acquisition of Ambrell Corporation ("Ambrell"). The acquisition was completed by acquiring all of the outstanding capital stock of Ambrell. Ambrell is a manufacturer of precision induction heating systems which 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. The Ambrell acquisition complements our current thermal technologies and broadens our diverse customer base, allowing expansion within many non-ATE related markets, such as consumer product packaging, fiber-optics, automotive and other markets. Ambrell's operations are included in our Thermal segment. Ambrell manufactures its products in the U.S. and conducts marketing and support activities from its facilities in the U.S., the Netherlands and the U.K. This acquisition is discussed further in Note 3.

The ATE market in which we operate is characterized by rapid technological change, competitive pricing pressures and cyclical as well as seasonal market patterns. This market is subject to significant economic downturns at various times. Our financial results are affected by a wide variety of factors, including, but not limited to, general economic conditions worldwide and in the markets in which we operate, economic conditions specific to the ATE market and the other markets we serve, our ability to safeguard patented technology and intellectual property in a rapidly evolving market, downward pricing pressures from customers, and our reliance on a relatively few number of customers for a significant portion of our sales. In addition, we are exposed to the risk of obsolescence of our inventory depending on the mix of future business and technological changes within the markets that we serve. We also continue to implement an acquisition strategy that may cause us to incur substantial expense in reviewing and evaluating potential transactions. We may or may not be successful in locating suitable businesses to acquire. In addition, we may not be able to successfully integrate any business we do acquire with our existing business and we may not be able to operate the acquired business profitably. As a result of these or other factors, we may experience significant period-to-period fluctuations in future operating results.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Use of Estimates

The accompanying consolidated financial statements include our accounts and those of our wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated upon consolidation. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") requires us 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. Certain of our accounts, including inventories, long-lived assets, goodwill, identifiable intangibles, contingent consideration liabilities and deferred tax assets and liabilities, including related valuation allowances, are particularly impacted by estimates.

In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments (consisting only of normal 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 consolidated financial statements. Therefore, these consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying footnotes included in our 2016 Form 10-K.
 

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inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except share and per share data)

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Reclassification

Certain prior period amounts have been reclassified to be comparable with the current period's presentation.

Business Combinations

Acquired businesses are accounted for using the purchase method of accounting, which requires that the purchase price be allocated to the net assets acquired at their respective fair values. Any excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill. Fair values of intangible assets are estimated by valuation models prepared by our management and third party advisors. The assets purchased and liabilities assumed have been reflected in our consolidated balance sheets, and the results are included in the consolidated statements of operations and consolidated statements of cash flows from the date of acquisition. Any change in the fair value of acquisition-related contingent consideration subsequent to the acquisition date, including changes from events after the acquisition date, will be recognized within general and administrative expense in the period of the estimated fair value change. Acquisition-related transaction costs, including legal and accounting fees and other external costs directly related to the acquisition, are recognized separately from the acquisition and expensed as incurred in general and administrative expense in the consolidated statements of operations.

Fair Value Measurements

The fair values of our financial instruments reflect the amounts that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price).

The carrying amounts of our financial instruments of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate fair value due to their short maturities.

We carry our contingent consideration liability at fair value. In accordance with the three-tier fair value hierarchy, we determined the fair value of our contingent consideration liability using an option-based income approach with a Monte Carlo simulation model. The income approach uses Level 3, or unobservable inputs, as defined under the accounting guidance for fair value measurements. See Notes 3 and 4 for more information regarding our contingent consideration liability.

Inventories

Inventories are valued at cost on a first-in, first-out basis, not in excess of market value. Cash flows from the sale of inventories are recorded in operating cash flows. On a quarterly basis, we review our inventories and record excess and obsolete inventory charges based upon our established objective excess and obsolete inventory criteria. These criteria identify material that has not been used in a work order during the prior twelve months and the quantity of material on hand that is greater than the average annual usage of that material over the prior three years. In certain cases, additional excess and obsolete inventory charges are recorded based upon current market conditions, anticipated product life cycles, new product introductions and expected future use of the inventory. The excess and obsolete inventory charges we record establish a new cost basis for the related inventories. We incurred excess and obsolete inventory charges of $161 and $184 for the nine months ended September 30, 2017 and 2016, respectively.

Goodwill, Intangible and Long-Lived Assets

We account for goodwill and intangible assets in accordance with Accounting Standards Codification ("ASC") 350 (Intangibles - Goodwill and Other). Finite-lived intangible assets are amortized over their estimated useful economic life and are carried at cost less accumulated amortization. Goodwill is assessed for impairment annually in the fourth quarter on a reporting unit basis, or more frequently when events and circumstances occur indicating that the recorded goodwill may be impaired. As a part of the goodwill impairment assessment, we have the option to perform a qualitative assessment to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount. If we determine this is the case, we are required to perform a two-step goodwill impairment test to identify potential goodwill impairment and measure the amount of goodwill impairment loss to be recognized. The two-step test is discussed below. If we determine that it is more-likely-than-not that the fair value of the reporting unit is greater than its carrying amounts, the two-step goodwill impairment test is not required.
 

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inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except share and per share data)

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

If we determine it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount as a result of our qualitative assessment, we will perform a quantitative two-step goodwill impairment test. In the Step I test, the fair value of a reporting unit is computed and compared with its book value. If the book value of a reporting unit exceeds its fair value, a Step II test is performed in which the implied fair value of goodwill is compared with the carrying amount of goodwill. If the carrying amount of goodwill exceeds the implied fair value, an impairment loss is recorded in an amount equal to that excess. The two-step goodwill impairment assessment is based upon a combination of the income approach, which estimates the fair value of our reporting units based upon a discounted cash flow approach, and the market approach which estimates the fair value of our reporting units based upon comparable market multiples. This fair value is then reconciled to our market capitalization at year end with an appropriate control premium. The determination of the fair value of our reporting units requires management to make significant estimates and assumptions including the selection of appropriate peer group companies, control premiums, discount rate, terminal growth rates, forecasts of revenue and expense growth rates, income tax rates, changes in working capital, depreciation, amortization and capital expenditures. Changes in assumptions concerning future financial results or other underlying assumptions could have a significant impact on either the fair value of the reporting unit or the amount of the goodwill impairment charge.

Indefinite-lived intangible assets are assessed for impairment annually in the fourth quarter, or more frequently if events or changes in circumstances indicate that the asset might be impaired. As a part of the impairment assessment, we have the option to perform a qualitative assessment to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired. If, as a result of our qualitative assessment, we determine that it is more-likely-than-not that the fair value of the indefinite-lived intangible asset is less than its carrying amount, the quantitative impairment test is required. Otherwise, no further testing is required. The quantitative impairment test consists of a comparison of the fair value of the intangible asset with its carrying amount. If the carrying amount of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.

Long-lived assets, which consist of finite-lived intangible assets and property and equipment, are assessed for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate. Each impairment test is based on a comparison of the estimated undiscounted cash flows to the recorded value of the asset. If impairment is indicated, the asset is written down to its estimated fair value. The cash flow estimates used to determine the impairment, if any, contain management's best estimates using appropriate assumptions and projections at that time.

Stock-Based Compensation

We account for stock-based compensation in accordance with ASC Topic 718 (Compensation - Stock Compensation), which requires that employee share-based equity awards be accounted for under the fair value method and requires the use of an option pricing model for estimating fair value of stock options granted, which is then amortized to expense over the service periods. See further disclosures related to our stock-based compensation plan in Note 9.

Subsequent Events

We have made an assessment of our operations and determined that there were no material subsequent events requiring adjustment to, or disclosure in, our consolidated financial statements for the nine months ended September 30, 2017.

Revenue Recognition

We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, and collection of the related receivable is reasonably assured. Sales of our products are made through our sales employees, third-party sales representatives and distributors. There are no differences in revenue recognition policies based on the sales channel. We do not provide our customers with rights of return or exchanges. Revenue is generally recognized upon product shipment. Our customers' purchase orders do not typically contain any customer-specific acceptance criteria, other than that the product performs within the agreed upon specifications. We test all products manufactured as part of our quality assurance process to determine that they comply with specifications prior to shipment to a customer. To the extent that any customer purchase order contains customer-specific acceptance criteria, revenue recognition is deferred until customer acceptance.

In addition, we lease certain of our equipment to customers under non-cancellable operating leases. These leases generally have an initial term of six months. We recognize revenue for these leases on a straight-line basis over the term of the lease.

With respect to sales tax collected from customers and remitted to governmental authorities, we use a net presentation in our consolidated statement of operations. As a result, there are no amounts included in either our net revenues or cost of revenues related to sales tax.
 

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inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except share and per share data)

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Product Warranties

We generally provide product warranties and record estimated warranty expense at the time of sale based upon historical claims experience. Warranty expense is included in selling expense in our consolidated statement of operations. 

Income Taxes

The asset and liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for operating loss and tax credit carryforwards and for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets if it is more likely than not that such assets will not be realized.

Net Earnings Per Common Share

Net earnings per common share - basic is computed by dividing net earnings by the weighted average number of common shares outstanding during each period. Net earnings per common share - diluted is computed by dividing net earnings by the weighted average number of common shares and common share equivalents outstanding during each period. Common share equivalents represent unvested shares of restricted stock and stock options and are calculated using the treasury stock method. Common share equivalents are excluded from the calculation if their effect is anti-dilutive.

The table below sets forth, for the periods indicated, a reconciliation of weighted average common shares outstanding - basic to weighted average common shares and common share equivalents outstanding - diluted and the average number of potentially dilutive securities that were excluded from the calculation of diluted earnings per share because their effect was anti-dilutive:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Weighted average common shares outstanding - basic		10,288,325		10,295,447		10,276,682		10,327,095
Potentially dilutive securities:
Unvested shares of restricted stock and stock options		62,684		23,268		50,398		17,652
Weighted average common shares and common share equivalents outstanding - diluted		10,351,009		10,318,715		10,327,080		10,344,747
Average number of potentially dilutive securities excluded from calculation		96,000		19,800		79,753		18,277

Effect of Recently Adopted Amendments to Authoritative Accounting Guidance

In March 2016, the Financial Accounting Standards Board (the "FASB") issued amendments to the current guidance on accounting for stock-based compensation issued to employees which is contained in ASC Topic 718 (Compensation - Stock Compensation). The amendments simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The amendments were effective for us as of January 1, 2017. The implementation of these amendments did not have a material impact on our consolidated financial statements.

In July 2015, the FASB issued amendments to update the current guidance on the subsequent measurement of inventory, which is presented in ASC Topic 330 (Inventory). The purpose of the amendments is to simplify the subsequent measurement of inventory and reduce the number of potential outcomes. It applies to all inventory other than inventory measured using last-in, first-out or the retail inventory method. Current guidance requires an entity to measure inventory at the lower of cost or market. Market could be replacement cost, net realizable value, or net realizable value less a normal profit margin. The updated guidance amends this to require that an entity measure inventory within the scope of the updated guidance at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The amendments were effective for us as of January 1, 2017. The implementation of these amendments did not have a material impact on our consolidated financial statements.
 

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inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except share and per share data)

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Effect of Recently Issued Amendments to Authoritative Accounting Guidance

In May 2017, the FASB issued amendments to the guidance on accounting for a change to the terms or conditions (modification) of a share-based payment award. The amendments provide that an entity should account for the effects of a modification unless the fair value and vesting conditions of the modified award and the classification of the modified award (equity or liability instrument) are the same as the original award immediately before the modification. The amendments are effective for us as of January 1, 2018. Early adoption is permitted. The amendments are to be applied prospectively to an award modified on or after the adoption date. We do not expect the implementation of the amendments to have a material impact on our consolidated financial statements.

In January 2017, the FASB issued amendments to the guidance on accounting for goodwill impairment. The amendments simplify the accounting for goodwill impairment by removing Step II of the goodwill impairment test, which requires a hypothetical purchase price allocation. Under the amendments, a goodwill impairment will now be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The amendments will be applied prospectively and are effective for us as of January 1, 2020, with early application permitted beginning January 1, 2017. We do not expect the implementation of the amendments to have a material impact on our consolidated financial statements.

In January 2017, the FASB issued amendments to clarify the current guidance on the definition of a business. The objective of the amendments is to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments are effective for us as of January 1, 2018, with early application permitted. We do not expect the implementation of these amendments to have a material impact on our consolidated financial statements.

In November 2016, the FASB issued amendments to the guidance on presentation of restricted cash within the statement of cash flows. The amendments require that restricted cash be included within cash and cash equivalents on the statement of cash flows. The amendments are effective for us as of January 1, 2018, and are to be applied retrospectively. Early application is permitted. We do not expect the implementation of these amendments to have a material impact on our consolidated financial statements.

In February 2016, the FASB issued amendments to the current guidance on accounting for lease transactions, which is presented in ASC Topic 842 (Leases). The intent of the updated guidance is to increase transparency and comparability among organizations by requiring lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by leases and to disclose key information about leasing arrangements. Under the new guidance, a lessee will be required to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The amendments are effective for us as of January 1, 2019. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. We are currently evaluating the impact of the implementation of these amendments on our consolidated financial statements.

In May 2014, the FASB issued new guidance on the recognition of revenue from contracts with customers. Subsequent to May, 2014, the FASB has issued additional clarifying guidance on certain aspects of this new guidance. This new guidance is presented in ASC Topic 606 (Revenue from Contracts with Customers) and will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. Companies can use either the retrospective or cumulative effect transition method. In August 2015, the FASB deferred the effective date of this new guidance for one additional year. As a result, this new guidance is effective for us as of January 1, 2018. Early application is only permitted as of the prior effective date, which in our case would be as of January 1, 2017. We currently plan to implement this new guidance on January 1, 2018 with a cumulative adjustment to retained earnings as opposed to retrospectively adjusting prior periods. During the fourth quarter of 2016, we completed a preliminary review of all our revenue streams to identify any differences in timing, measurement or presentation of revenue recognition. Our implementation process is ongoing; however, based on the results of our assessment to date, we currently do not expect the implementation of this new guidance to have a significant impact on the timing or amount of revenue we recognize in any given period in comparison to the amount recognized under current guidance.

(3) ACQUISITION

On May 24, 2017, we completed our acquisition of Ambrell, a manufacturer of precision induction heating systems. Ambrell's systems 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. The Ambrell acquisition complements our current thermal technologies and broadens our diverse customer base, allowing expansion within many non-ATE related markets, such as consumer product packaging, fiber-optics, automotive and other markets.

The purchase price for Ambrell was $22,000 in cash paid at closing, subject to a customary post-closing working capital adjustment. Additional consideration in the form of earnouts may be paid based upon a multiple of adjusted EBITDA for 2017 and 2018, as further discussed below. The acquisition was completed by acquiring all of the outstanding capital stock of Ambrell. Total acquisition costs incurred to complete this transaction were $880. Acquisition costs were expensed as incurred and included in general and administrative expense.

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inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except share and per share data)

(3) ACQUISITION (Continued)

The acquisition of Ambrell has been accounted for as a business combination using purchase accounting, and, accordingly, the results of Ambrell have been included in our consolidated results of operations from the date of acquisition. The allocation of the Ambrell purchase price was based on estimated fair values as of May 24, 2017. The determination of fair value reflects the assistance of third-party valuation specialists, as well as our own estimates and assumptions.

The excess of the purchase price over the identifiable intangible and net tangible assets was allocated to goodwill and is not deductible for tax purposes. Goodwill is attributed to synergies that are expected to result from the operations of the combined businesses.

The total purchase price of $26,733 was comprised of:

Cash paid to acquire the capital stock of Ambrell	$	22,610
Estimated fair value of contingent consideration		4,123
Total purchase price	$	26,733

As noted above, the consideration paid for the acquisition of Ambrell 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 stock purchase agreement for Ambrell. The first earnout, to be paid after calendar year 2017 is completed, will be an amount equal to 8x Ambrell's adjusted EBITDA for 2017 minus the $22,000 paid at closing. The second earnout, to be paid after calendar year 2018 is completed, is an amount equal to 8x Ambrell's adjusted EBITDA for 2018 minus the sum of the $22,000 paid at closing and any earnout paid with respect to 2017. The 2017 and 2018 earnouts, in the aggregate, are capped at $18,000. 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 $4,123, which was recorded as a contingent consideration liability as of the acquisition date.

The total purchase price of $26,733 has been allocated as follows:

Goodwill	$	12,032
Identifiable intangible assets		16,300
Tangible assets acquired and liabilities assumed:
Cash		648
Trade accounts receivable		3,621
Inventories		1,917
Other current assets		200
Property and equipment		614
Accounts payable		(1,420	)
Accrued expenses		(1,280	)
Customer advances		(554	)
Deferred tax liability		(5,345	)
Total purchase price	$	26,733

We estimated the fair value of identifiable intangible assets acquired using a combination of the income, cost and market approaches. Identifiable intangible assets acquired include customer relationships, customer backlog, technology and trademarks. We generally amortize our finite-lived intangible assets over their estimated useful lives on a straight-line basis, unless an alternate amortization method can be reliably determined. Any such alternate amortization method would be based on the pattern in which the economic benefits of the intangible asset are expected to be consumed.

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inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except share and per share data)

(3) ACQUISITION (Continued)

The following table summarizes the estimated fair value of Ambrell's identifiable intangible assets and their estimated useful lives as of the acquisition date:

	Fair Value		Weighted Average Estimated Useful Life
			(in years)
Finite-lived intangible assets:
Customer relationships	$	9,000		9.0
Technology		600		9.0
Customer backlog		500		0.3
Total finite-lived intangible assets		10,100		8.6
Indefinite-lived intangible assets:
Trademarks		6,200
Total intangible assets	$	16,300

For the period from May 24, 2017 to September 30, 2017, Ambrell contributed $6,925 of net revenues and had net earnings of $336, which includes the impact of a $549 reduction in the amount of our contingent consideration liability during the third quarter of 2017.

The following unaudited pro forma information gives effect to the acquisition of Ambrell as if the acquisition occurred on January 1, 2016. These proforma summaries do not reflect any operating efficiencies or costs savings that may be achieved by the combined businesses. These proforma summaries are presented for informational purposes only and are not necessarily indicative of what the actual results of operations would have been had the acquisition taken place as of that date, nor are they indicative of future consolidated results of operations:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Net revenues	$	17,352	$	15,458	$	55,040	$	44,225
Net earnings	$	2,291	$	709	$	6,452	$	593
Diluted earnings per share	$	0.22	$	0.07	$	0.61	$	0.06

The pro forma results shown above do not reflect the impact on general and administrative expense of investment advisory costs, legal costs and other costs of $880 incurred by us as a direct result of the transaction. The pro forma results shown above include a $549 reduction in the amount of our contingent consideration liability which we recorded during the third quarter of 2017.

(4) FAIR VALUE MEASUREMENTS

ASC Topic 820 (Fair Value Measurement) establishes a fair value hierarchy for instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and our own assumptions (unobservable inputs). Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of us. Unobservable inputs are inputs that reflect our assumptions about the inputs that market participants would use in pricing the asset or liability, and are developed based on the best information available in the circumstances.

ASC 820 identifies fair value as the exchange price, or exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a three-tier fair value hierarchy that distinguishes among the following:

Level 1	Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access.
Level 2	Valuations based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and models for which all significant inputs are observable, either directly or indirectly.
Level 3	Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by us in determining fair value is greatest for instruments categorized in Level 3. A financial instrument's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

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inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except share and per share data)

(4) FAIR VALUE MEASUREMENTS (Continued)

Recurring Fair Value Measurements

The contingent consideration liability on our balance sheet is measured at fair value on a recurring basis using Level 3 inputs. Our contingent consideration liability is a result of our acquisition of Ambrell on May 24, 2017, and it represents the estimated fair value of the additional cash consideration payable that is contingent upon the achievement of certain financial results by Ambrell in 2017 and 2018, as discussed more fully in Note 3. The fair value of this Level 3 instrument involves generating various scenarios for projected adjusted EBITDA over a specified time period, calculating the associated contingent consideration payments and discounting the average payments to present value. During the third quarter of 2017, we recorded a $549 reduction in the fair value of our contingent consideration liability, primarily as a result of a reduction in the projected adjusted EBITDA of Ambrell for the year ended December 31, 2017.

The following fair value hierarchy table presents information about liabilities measured at fair value on a recurring basis:

	Amounts at		Fair Value Measurement Using
	Fair Value		Level 1		Level 2		Level 3
As of September 30, 2017
Contingent consideration liability	$	3,574	$	-	$	-	$	3,574

Changes in the fair value of our Level 3 contingent consideration liability for the three and nine months ended September 30, 2017 were as follows:

	Three Months Ended September 30, 2017			Nine Months Ended September 30, 2017
Balance at beginning of period	$	4,123		$	-
Contingent consideration liability established in connection with the acquisition of Ambrell		-			4,123
Fair value adjustment		(549	)		(549	)
Balance at end of period	$	3,574		$	3,574

(5) GOODWILL AND INTANGIBLE ASSETS

Goodwill and intangible assets on our balance sheets are the result of our acquisitions of Sigma Systems Corp. ("Sigma") in October 2008, Thermonics, Inc. ("Thermonics") in January 2012 and Ambrell in May 2017. All of our goodwill and intangible assets are allocated to our Thermal segment.

Goodwill

Changes in the amount of the carrying value of goodwill for the nine months ended September 30, 2017 are as follows:

	Sigma		Thermonics		Ambrell		Total
Balance - January 1, 2017	$	1,656	$	50	$	-	$	1,706
Acquisition of Ambrell		-		-		12,032		12,032
Balance - September 30, 2017	$	1,656	$	50	$	12,032	$	13,738

Intangible Assets

Changes in the amount of the carrying value of finite-lived intangible assets for the nine months ended September 30, 2017 are as follows:

Balance - January 1, 2017	$	365
Acquisition of Ambrell		10,100
Amortization		(916	)
Balance - September 30, 2017	$	9,549

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inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except share and per share data)

(5) GOODWILL AND INTANGIBLE ASSETS (Continued)

The following tables provide further detail about our intangible assets as of September 30, 2017 and December 31, 2016:

	September 30, 2017
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Finite-lived intangible assets:
Customer relationships	$	10,480	$	1,640	$	8,840
Technology		600		54		546
Patents		590		454		136
Software		270		243		27
Trade name		140		140		-
Customer backlog		500		500		-
Total finite-lived intangible assets		12,580		3,031		9,549
Indefinite-lived intangible assets:
Trademarks		6,710		-		6,710
Total intangible assets	$	19,290	$	3,031	$	16,259

	December 31, 2016
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Finite-lived intangible assets:
Customer relationships	$	1,480	$	1,328	$	152
Patents		590		424		166
Software		270		223		47
Trade name		140		140		-
Total finite-lived intangible assets		2,480		2,115		365
Indefinite-lived intangible assets:
Sigma trademark		510		-		510
Total intangible assets	$	2,990	$	2,115	$	875

We generally amortize our finite-lived intangible assets over their estimated useful lives on a straight-line basis, unless an alternate amortization method can be reliably determined. Any such alternate amortization method would be based on the pattern in which the economic benefits of the intangible asset are expected to be consumed. None of our intangible assets have any residual value.

Total amortization expense for our finite-lived intangible assets was $916 and $173, respectively, for the nine months ended September 30, 2017 and 2016. The following table sets forth the estimated annual amortization expense for each of the next five years:

2017 (remainder)	$	246
2018	$	1,102
2019	$	1,257
2020	$	1,233
2021	$	1,227

(6) MAJOR CUSTOMERS

During the nine months ended September 30, 2017 and 2016, Texas Instruments Incorporated accounted for 12% and 11% of our consolidated net revenues, respectively. While both of our operating segments sold products to this customer, these revenues were primarily generated by our EMS segment. During the nine months ended September 30, 2017 and 2016, Hakuto Co., Ltd., one of our distributors, accounted for 11% and 13% of our consolidated net revenues, respectively. These revenues were generated by our Thermal segment. No other customers accounted for 10% or more of our consolidated net revenues during the nine months ended September 30, 2017 and 2016.

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inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except share and per share data)

(7) INVENTORIES

Inventories held at September 30, 2017 and December 31, 2016 were comprised of the following:

	September 30, 2017		December 31, 2016
Raw materials	$	3,892	$	2,695
Work in process		1,013		728
Inventory consigned to others		72		81
Finished goods		1,056		172
Total inventories	$	6,033	$	3,676

(8) DEBT

Letters of Credit

We have issued letters of credit as the security deposits for certain of our domestic leases. These letters of credit are secured by pledged certificates of deposit which are classified as Restricted Certificates of Deposit on our balance sheets. The terms of our leases require us to renew these letters of credit at least 30 days prior to their expiration dates for successive terms of not less than one year until lease expiration. Our outstanding letters of credit at September 30, 2017 and December 31, 2016 consisted of the following:

		L/C	Lease	Letters of Credit Amount Outstanding
	Original L/C Issue Date	Expiration Date	Expiration Date	September 30, 2017		December 31, 2016
Mt. Laurel, NJ	3/29/2010	3/31/2018	4/30/2021	$	125	$	125
Mansfield, MA	10/27/2010	11/08/2018	8/23/2021		50		50
				$	175	$	175

(9) STOCK-BASED COMPENSATION

As of September 30, 2017, we have unvested restricted stock awards and stock options granted under stock-based employee compensation plans that are described more fully in Note 12 to the consolidated financial statements in our 2016 Form 10-K.

As of September 30, 2017, total unrecognized compensation expense related to unvested restricted stock awards and stock options was $691. The weighted average period over which this expense is expected to be recognized is 2.8 years. The following table shows the allocation of the compensation expense we recorded during the three and nine months ended September 30, 2017 and 2016, respectively, related to stock-based compensation:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Cost of revenues	$	1	$	2	$	5	$	7
Selling expense		-		1		-		4
Engineering and product development expense		1		3		5		8
General and administrative expense		104		38		282		203
	$	106	$	44	$	292	$	222

There was no stock-based compensation expense capitalized in the nine months ended September 30, 2017 or 2016.

Restricted Stock Awards

We record compensation expense for restricted stock awards based on the quoted market price of our stock at the grant date and amortize the expense over the vesting period. Restricted stock awards generally vest over four years. However, during January 2016, we granted 22,500 shares of restricted stock to our independent directors which vested 100% upon the re-election of these directors at our annual meeting of stockholders in June 2016. The total compensation expense related to the shares granted in 2016 was $98, and it was recorded upon the re-election of these directors. In March 2017, we granted 22,500 shares of restricted stock to these same directors. These shares vested 25% upon the grant date and will vest an additional 25% at each of June 30, September 30, and December 31, 2017. The total compensation expense related to these shares is $143 and it will be recorded as the shares vest during 2017.

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inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except share and per share data)

(9) STOCK-BASED COMPENSATION (Continued)

The following table summarizes the activity related to unvested shares of restricted stock for the nine months ended September 30, 2017:

	Number of Shares			Weighted Average Grant Date Fair Value
Unvested shares outstanding, January 1, 2017		97,025		$	4.04
Granted		64,000			6.48
Vested		(45,975	)		4.70
Forfeited		-			-
Unvested shares outstanding, September 30, 2017		115,050			5.13

The total fair value of the shares that vested during the nine months ended September 30, 2017 and 2016 was $290 and $138, respectively, as of the vesting dates of these shares.

Stock Options

We record compensation expense for stock options based on the fair market value of the options as of the grant date. No option may be granted with an exercise period in excess of ten years from the date of grant. Generally, stock options will be granted with an exercise price equal to the fair market value of our stock on the date of grant and will vest over four years.

The fair value for stock options granted during the nine months ended September 30, 2017 and 2016 was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:

	2017			2016
Risk-free interest rate		2.14	%		1.30	%
Dividend yield		0.00	%		0.00	%
Expected common stock market price volatility factor		.39			.40
Weighted average expected life of stock options (years)		6			4

The per share weighted average fair value of stock options issued during the nine months ended September 30, 2017 and 2016 was $2.64 and $1.43, respectively.

The following table summarizes the activity related to stock options for the nine months ended September 30, 2017:

	Number of Shares		Weighted Average Grant Date Fair Value
Options outstanding, January 1, 2017 (none exercisable)		19,800	$	4.37
Granted		96,000		6.35
Exercised		-		-
Forfeited		-		-
Options outstanding, September 30, 2017 (4,950 exercisable)		115,800		6.01

(10) STOCK REPURCHASE PLAN

As discussed further in our 2016 Form 10-K, on October 27, 2015, our Board of Directors authorized the repurchase of up to $5,000 of our common stock from time to time on the open market, in compliance with Rule 10b-18 under the Securities Exchange Act of 1934 (the "Exchange Act"), or in privately negotiated transactions (the "2015 Repurchase Plan"). The 2015 Repurchase Plan does not obligate us to repurchase any particular amount of common stock and may be suspended or discontinued at any time without prior notice. The 2015 Repurchase Plan is funded using our operating cash flow or available cash.

During the nine months ended September 30, 2017 and 2016, we repurchased 13,883 and 209,271 shares, respectively, at a cost of $62 and $841, respectively. As of September 30, 2017, we had repurchased a total of 297,020 shares at a cost of $1,195 under the 2015 Repurchase Plan. All of the repurchased shares were retired.

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inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except share and per share data)

(11) EMPLOYEE BENEFIT PLANS

We have defined contribution 401(k) plans for our employees who work in the U.S. All permanent employees of inTEST Corporation, Temptronic Corporation (“Temptronic”) and inTEST Silicon Valley Corporation who are at least 18 years of age are eligible to participate in the inTEST Corporation Incentive Savings Plan. We match employee contributions dollar for dollar up to 10% of the employee's annual compensation, with a maximum limit of $5. Employer contributions vest ratably over four years. Matching contributions are discretionary. For the nine months ended September 30, 2017 and 2016, we recorded $299 and $311 of expense for matching contributions, respectively.

All permanent employees of Ambrell are immediately eligible to participate in the Ambrell Corporation Savings & Profit Sharing Plan (the "Ambrell Plan") upon employment and are eligible for employer matching contributions after completing one year of service, as defined in the Ambrell Plan. The Ambrell Plan allows eligible employees to make voluntary contributions up to 100% of compensation, up to the federal government contribution limits. We will make a matching contribution of 25% of each employee's contributions up to a maximum of 2% of such employee's annual compensation. From the date of acquisition through September 30, 2017, we made matching contributions of $21.

(12) SEGMENT INFORMATION

As discussed in Note 1, during 2016, we reorganized our business from three product segments (Thermal Products, Mechanical Products and Electrical Products) into two product segments (Thermal and EMS). Accordingly, effective January 1, 2017, we have two reportable segments, which are also our reporting units. Prior period information has been reclassified to be comparable to the presentation for 2017.

Thermal includes the operations of Temptronic, Thermonics, Sigma, inTEST Thermal Solutions GmbH (Germany), inTEST Pte, Limited (Singapore) and Ambrell, which we acquired in May 2017, as discussed in Note 3. Sales of this segment consist primarily of temperature management systems which we design, manufacture and market under our Temptronic, Thermonics and Sigma product lines, and precision induction heating systems which are designed, manufactured and marketed by Ambrell. In addition, this segment provides post-warranty service and support.

EMS includes the operations of our manufacturing facilities in Mt. Laurel, New Jersey and Fremont, California. Sales of this segment consist primarily of manipulator, docking hardware and tester interface products, which we design, manufacture and market.

We operate our business worldwide and sell our products both domestically and internationally. Both of our segments sell to semiconductor manufacturers, third-party test and assembly houses and ATE manufacturers. Thermal also sells into a variety of markets outside of the ATE market, including the automotive, consumer electronics, consumer product packaging, defense/aerospace, energy, fiber optics, industrial, telecommunications and other markets.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Net Revenues:
Thermal	$	11,470		$	6,641		$	28,440		$	17,429
EMS		5,882			4,182			18,980			12,526
	$	17,352		$	10,823		$	47,420		$	29,955
Earnings (loss) before income tax expense (benefit):
Thermal	$	1,539		$	1,402		$	4,735		$	2,709
EMS		1,594			374			5,455			733
Corporate		(292	)		(55	)		(1,841	)		(848	)
	$	2,841		$	1,721		$	8,349		$	2,594
Net earnings (loss):
Thermal	$	1,183		$	888		$	3,228		$	1,737
EMS		1,021			236			3,471			469
Corporate		(186	)		(34	)		(1,158	)		(549	)
	$	2,018		$	1,090		$	5,541		$	1,657

	September 30, 2017		December 31, 2016
Identifiable assets:
Thermal	$	49,443	$	19,893
EMS		10,771		22,951
	$	60,214	$	42,844

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inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except share and per share data)

(12) SEGMENT INFORMATION (Continued)

The following table provides information about our geographic areas of operation. Net revenues from unaffiliated customers are based on the location to which the goods are shipped.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Net revenues:
U.S.	$	4,746	$	3,268	$	12,212	$	8,898
Foreign		12,606		7,555		35,208		21,057
	$	17,352	$	10,823	$	47,420	$	29,955

	September 30, 2017		December 31, 2016
Property and equipment:
U.S.	$	1,003	$	691
Foreign		541		253
	$	1,544	$	944

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inTEST CORPORATION

Item 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Risk Factors and Forward-Looking Statements

In addition to historical information, this report and management’s discussion and analysis (“MD&A”) contains statements relating to possible future events and results that are considered "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements can often be identified by the use of forward-looking terminology such as "believes," "expects," "intends," "may," "will," "should," “plans” or "anticipates" or similar terminology. See Part I, Item 1 - "Business - Cautionary Statement Regarding Forward-Looking Statements" in our 2016 Form 10-K for examples of statements made in this report which may be "forward-looking statements." These statements involve risks and uncertainties and are based on various assumptions. Although we believe that our expectations are based on reasonable assumptions, investors and prospective investors are cautioned that such statements are only projections, and there cannot be any assurance that these events or results will occur. We undertake no obligation to update the information in this report and MD&A to reflect events or circumstances after the date hereof or to reflect the occurrence of anticipated or unanticipated events.

Information about the primary risks and uncertainties that could cause our actual future results to differ materially from our historic results or the results described in the forward-looking statements made in this report or presented elsewhere by management from time to time are included in Part I, Item 1A - "Risk Factors" in our 2016 Form 10-K. Material changes to such risk factors may be reported in subsequent Quarterly Reports on Form 10-Q in Part II, Item 1A. There have been no such changes from the risk factors set forth in our 2016 Form 10-K. 

Overview

In this report and MD&A, "we," "us," "our," and the "Company" refer to inTEST Corporation and its consolidated subsidiaries. This MD&A should be read in conjunction with the accompanying consolidated financial statements.

Our business and results of operations are substantially dependent upon the demand for ATE by semiconductor manufacturers and companies that specialize in the testing of ICs. As further discussed below, on May 24, 2017, we acquired Ambrell, which sells its products almost exclusively to customers in the industrial market, which is a non-ATE market. We expect that the acquisition of Ambrell will significantly reduce our dependence on customers in the ATE market. We expect that our future orders and net revenues will be approximately equally split between the ATE and non-ATE markets. Demand for ATE is driven by semiconductor manufacturers that are opening new, or expanding existing, semiconductor fabrication facilities or upgrading equipment, which in turn is dependent upon the current and anticipated market demand for semiconductors and products incorporating semiconductors. Such market demand can be the result of market expansion, development of new technologies or redesigned products to incorporate new features, or the replacement of aging equipment. In addition, we continue to focus on design improvements and new approaches for our own products which contribute to our net revenues as our customers adopt these new products.

In the past, the semiconductor industry has been highly cyclical with recurring periods of oversupply, which often have a severe impact on the semiconductor industry's demand for ATE, including the products we manufacture. This can cause wide fluctuations in both our orders and net revenues and, depending on our ability to react quickly to these shifts in demand, can significantly impact our results of operations. ATE market cycles are difficult to predict and in recent years have become more volatile and, in certain cases, shorter in duration. Because the market cycles are generally characterized by sequential periods of growth or declines in orders and net revenues during each cycle, year over year comparisons of operating results may not always be as meaningful as comparisons of periods at similar points in either up or down cycles. In addition, during both downward and upward cycles in our industry, in any given quarter, the trend in both our orders and net revenues can be erratic. This can occur, for example, when orders are canceled or currently scheduled delivery dates are accelerated or postponed by a significant customer or when customer forecasts and general business conditions fluctuate during a quarter.

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.

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inTEST CORPORATION

Item 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Third-party market share statistics are not available for the products we manufacture and sell into the ATE market; therefore, comparisons of period over period changes in our market share are not easily determined. As a result, it is difficult to ascertain if ATE market volatility in any period is the result of macro-economic or customer-specific factors impacting ATE market demand, or if we have gained or lost market share to a competitor during the period.

As part of our ongoing strategy to reduce the impact of ATE market volatility on our business operations, we continue to diversify our served markets to address the thermal test requirements of several other markets outside the ATE market. These include the automotive, consumer electronics, consumer product packaging, defense/aerospace, energy, fiber optics, industrial, telecommunications and other markets. We believe that these markets usually are less cyclical than the ATE market. While market share statistics exist for some of the markets we serve outside the ATE market, 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 and, therefore, do not anticipate developing meaningful market shares in these non-ATE markets. In addition, our orders and net revenues in any given period in these markets do not necessarily reflect the overall trends in these non-ATE markets due to our limited market shares. Consequently, we are continuing to evaluate buying patterns and opportunities for growth in these non-ATE markets that may affect our performance. The level of our orders and net revenues from these non-ATE markets has varied in the past, and we expect will vary significantly in the future, as we work to build our presence in these markets and establish new markets for our products. As previously mentioned, Ambrell, which we acquired in May 2017, sells its products almost exclusively to customers in the industrial market, which is one of the non-ATE markets we serve. We expect that the acquisition of Ambrell will significantly increase our orders and net revenues from markets outside the ATE market. As a result, we expect that our future orders and net revenues will be approximately equally split between the ATE and non-ATE markets.

While the majority of our orders and net revenues are derived from the ATE market, our operating results do not always follow the overall trend in the ATE market in any given period. We believe that these anomalies may be driven by a variety of factors within the ATE market, including, for example, changing product requirements, longer time periods between new product offerings by original equipment manufacturers ("OEMs") and changes in customer buying patterns. In particular, demand for our mechanical and electrical products, 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 practice of OEMs specifying other suppliers as primary vendors, with less frequent opportunities to compete for such designations, (iii) the in-house manufacturing activities of OEMs building certain products we have historically sold to them, including manipulators, docking hardware and tester interfaces, which has had the impact of significantly reducing the size of the available market for those certain products, (iv) the role of third-party test and assembly houses in the ATE market and their requirement of products with a greater range of use at the lowest cost, (v) customer supply chain management groups demanding lower prices and spreading purchases across multiple vendors, and (vi) certain competitors aggressively reducing their products' sales prices (causing us to either reduce our products' sales prices to be successful in obtaining the sale or causing loss of the sale).

In addition, in recent periods we have seen instances where demand for ATE is not consistent for each of our product segments or for any given product within a particular product segment. This inconsistency in demand for ATE can be driven by a number of factors, but in most cases, we have found that the primary reason is unique customer-specific changes in demand for certain products driven by the needs of their customers or markets served. These shifts in market practices and customer-specific needs have had, and may continue to have, varying levels of impact on our operating results and are difficult to quantify or predict from period to period. Management has taken, and will continue to take, such actions it deems appropriate to adjust our strategies, products and operations to counter such shifts in market practices as they become evident.

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inTEST CORPORATION

Item 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Acquisition

On May 24, 2017, we completed the acquisition of Ambrell by acquiring all of the outstanding capital stock of Ambrell. Ambrell is a manufacturer of precision induction heating systems. Ambrell's systems 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. The Ambrell acquisition complements our current thermal technologies and broadens our diverse customer base, allowing expansion within many non-ATE related markets, such as consumer product packaging, fiber-optics, automotive and other markets. This acquisition has been accounted for as a business combination using purchase accounting. The purchase price for Ambrell was $22.6 million in cash. Additional consideration in the form of earnouts may be paid based upon a multiple of adjusted EBITDA for 2017 and 2018. The 2017 and 2018 earnouts, in the aggregate, are capped at $18 million. For further discussion of the acquisition, see Note 3 to our consolidated financial statements.

Orders and Backlog

The following table sets forth, for the periods indicated, a breakdown of the orders received by product segment and market (in thousands).

	Three Months Ended September 30,				Change					Three Months Ended June 30,		Change
	2017		2016		$		%			2017		$			%
Orders:
Thermal	$	12,133	$	7,316	$	4,817		66	%	$	8,775	$	3,358			38	%
EMS		5,500		3,966		1,534		39	%		5,817		(317	)		(5	)%
	$	17,633	$	11,282	$	6,351		56	%	$	14,592	$	3,041			21	%
ATE market	$	8,915	$	7,008	$	1,907		27	%	$	8,689	$	226			3	%
Non-ATE market		8,718		4,274		4,444		104	%		5,903		2,815			48	%
	$	17,633	$	11,282	$	6,351		56	%	$	14,592	$	3,041			21	%

	Nine Months Ended September 30,				Change
	2017		2016		$		%
Orders:
Thermal	$	28,168	$	20,618	$	7,550		37	%
EMS		19,089		13,101		5,988		46	%
	$	47,257	$	33,719	$	13,538		40	%
ATE market	$	29,163	$	23,072	$	6,091		26	%
Non-ATE market		18,094		10,647		7.447		70	%
	$	47,257	$	33,719	$	13,538		40	%

Total consolidated orders for the three months ended September 30, 2017 were $17.6 million compared to $11.3 million for the same period in 2016 and $14.6 million for the three months ended June 30, 2017. During the three months ended September 30, 2017, the orders of our Thermal segment included $6.4 million of orders attributable to Ambrell, which we acquired on May 24, 2017, as previously discussed. Of the orders attributable to Ambrell, $334,000 were from customers in the ATE market and the balance were from non-ATE market customers. When adjusted to eliminate the impact of the orders attributable to Ambrell, our consolidated orders would have decreased $63,000, or 1%, as compared to the same period in 2016, and $1.0 million, or 9%, as compared to the three months ended June 30, 2017. These reductions primarily represent a decrease in orders from our non-ATE market customers in the telecommunications market and were partially offset by continued strong demand from our customers in the ATE market.

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inTEST CORPORATION

Item 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Total consolidated orders for the nine months ended September 30, 2017 were $47.3 million compared to $33.7 million for the same period in 2016. When adjusted to eliminate the impact of orders attributable to Ambrell, our consolidated orders for the nine months ended September 30, 2017 would have increased $4.8 million, or 14%, as compared to the same period in 2016. The increase was attributable to our customers in the ATE market. This higher level of demand is being driven, in part, by the increasing number of ICs utilized in the automotive industry and the need to test those ICs. In addition, demand for ATE is also being driven by products which enable the Internet of Things (IoT) and the increasing number of ICs in consumer electronics and industrial applications. The increase from customers in the ATE market was partially offset by a decrease in non-ATE market demand, primarily from customers in the defense/aerospace market.

When adjusted to eliminate the orders attributable to Ambrell, orders from customers in non-ATE markets for the three months ended September 30, 2017 were $2.6 million, or 24% of total consolidated orders, compared to $4.3 million, or 38% of total consolidated orders for the same period in 2016 and $3.7 million, or 30% of total consolidated orders, for the three months ended June 30, 2017. When adjusted to eliminate the orders attributable to Ambrell, orders from customers in non-ATE markets for the nine months ended September 30, 2017, were $9.8 million, or 25% of total consolidated orders as compared to $10.6 million, or 32% of total consolidated orders for the same period in 2016. As previously mentioned, the decrease in demand was primarily from customers in the telecommunications and defense/aerospace markets. The level of our orders in these non-ATE markets has varied in the past, and we expect it will vary significantly in the future as we build our presence in these markets and establish new markets for our products.

At September 30, 2017, our backlog of unfilled orders for all products was approximately $11.3 million compared with approximately $6.1 million at September 30, 2016 and $11.1 million at June 30, 2017. At September 30, 2017, our backlog included $5.9 million attributable to Ambrell. Our backlog includes customer orders which we have accepted, substantially all of which we expect to deliver in 2017. 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 short 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, our backlog at a particular date is not necessarily indicative of sales for any future period.

Net Revenues

The following table sets forth, for the periods indicated, a breakdown of the net revenues by product segment and market (in thousands).

	Three Months Ended September 30,				Change					Three Months Ended June 30,		Change
	2017		2016		$		%			2017		$			%
Net revenues:
Thermal	$	11,470	$	6,641	$	4,829		73	%	$	9,194	$	2,276			25	%
EMS		5,882		4,182		1,700		41	%		6,694		(812	)		(12	)%
	$	17,352	$	10,823	$	6,529		60	%	$	15,888	$	1,464			9	%
ATE market	$	9,162	$	8,039	$	1,123		14	%	$	10,155	$	(993	)		(10	)%
Non-ATE market		8,190		2,784		5,406		194	%		5,733		2,457			43	%
	$	17,352	$	10,823	$	6,529		60	%	$	15,888	$	1,464			9	%

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inTEST CORPORATION

Item 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

	Nine Months Ended September 30,				Change
	2017		2016		$		%
Net revenues:
Thermal	$	28,440	$	17,429	$	11,011		63	%
EMS		18,980		12,526		6,454		52	%
	$	47,420	$	29,955	$	17,465		58	%
ATE market	$	29,756	$	22,068	$	7,688		35	%
Non-ATE market		17,664		7,887		9,777		124	%
	$	47,420	$	29,955	$	17,465		58	%

Total consolidated net revenues for the three months ended September 30, 2017 were $17.4 million compared to $10.8 million for the same period in 2016 and $15.9 million for the three months ended June 30, 2017. During the three months ended September 30, 2017, we recorded $4.9 million in net revenues attributable to Ambrell, $91,000 of which were from customers in the ATE market and the balance of which were from non-ATE market customers. Total consolidated net revenues for the first nine months of 2017 were $47.4 million compared to $30.0 million for the same period in 2016. During the nine months ended September 30, 2017, we recorded $6.9 million in net revenues attributable to Ambrell, $122,000 of which were from customers in the ATE market and the balance of which were from non-ATE market customers.

When adjusted to eliminate the impact of the net revenues attributable to Ambrell, the increase in our net revenues for the three and nine months ended September 30, 2017, as compared to the same periods in 2016, primarily reflects strengthening in demand within the ATE market. When adjusted to eliminate the impact of the net revenues attributable to Ambrell, as a percent of our total consolidated net revenues, net revenues from customers in non-ATE markets were 27% for both the three and nine months ended September 30, 2017 compared to 26% in each of the comparable prior periods, and 27% for the three months ended June 30, 2017.

Product/Customer Mix

Both of our product segments each have multiple products that we design, manufacture and market to our customers. Due to a number of factors, our products have varying levels of gross margin. The mix of products we sell in any period is ultimately determined by our customers' needs. Therefore, the mix of products sold in any given period can change significantly from the prior period. As a result, our consolidated gross margin can be significantly impacted in any given period by a change in the mix of products sold in that period.

We sell most of our products to semiconductor manufacturers and third-party test and assembly houses (end user sales) and to ATE manufacturers (OEM sales) who ultimately resell our equipment with theirs to both semiconductor manufacturers and third-party test and assembly houses. Our Thermal segment also sells into a variety of other markets, including the automotive, consumer electronics, defense/aerospace, energy, industrial and telecommunications markets, and, as a result of the acquisition of Ambrell, the consumer products packaging, fiber optics and other markets. The mix of customers during any given period will affect our gross margin due to differing sales discounts and commissions. For the three months ended September 30, 2017 and 2016, our OEM sales as a percentage of net revenues were 2% and 3%, respectively. For the nine months ended September 30, 2017 and 2016, our OEM sales as a percentage of net revenues were 6% and 5%, respectively.

OEM sales generally have a lower gross margin than end user sales, as OEM sales historically have had a more significant discount. Our current net operating margins on most OEM sales, however, are only slightly less than margins on end user sales because of the payment of third party sales commissions on most end user sales. We have also continued to experience demands from our OEM customers' supply chain managers to reduce our sales prices to them. If we cannot further reduce our manufacturing and operating costs, these pricing pressures will negatively affect our gross and operating margins.

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inTEST CORPORATION

Item 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Results of Operations

The results of operations for our two product segments are generally affected by the same factors described in the Overview section above. Separate discussions and analyses for each product segment would be repetitive. The discussion and analysis that follows, therefore, is presented on a consolidated basis and includes discussion of factors unique to each product segment where significant to an understanding of that segment.

Three Months Ended September 30, 2017 Compared to Three Months Ended September 30, 2016

Net Revenues. Net revenues were $17.4 million for the three months ended September 30, 2017 compared to $10.8 million for the same period in 2016, an increase of $6.5 million, or 60%. Our net revenues for the three months ended September 30, 2017 included $4.9 million of net revenues attributable to Ambrell. We believe the increase in our net revenues during the third quarter of 2017 primarily reflects the factors previously discussed in the Overview.

Gross Margin. Our consolidated gross margin was 51% of net revenues for the three months ended September 30, 2017 as compared to 52% of net revenues for the same period in 2016. The decrease in our gross margin as a percentage of net revenues primarily reflects an increase in our fixed operating costs. Of the $1.1 million increase in these costs, $913,000 represents the fixed operating costs attributable to Ambrell. The remaining $166,000 increase in our fixed operating costs primarily reflects higher salary and benefits expense for our Thermal segment.

Selling Expense. Selling expense was $2.3 million for the three months ended September 30, 2017 compared to $1.4 million for the same period in 2016, an increase of $928,000, or 67%. Our expense for the three months ended September 30, 2017 included $850,000 of selling costs attributable to Ambrell. The remaining increase of $78,000 primarily reflects an increase in salary and benefits expense for our Thermal segment.

Engineering and Product Development Expense. Engineering and product development expense was $1.1 million for the three months ended September 30, 2017 compared to $905,000 for the same period in 2016, an increase of $234,000, or 26%. Engineering expense attributable to Ambrell in the third quarter of 2017 was $269,000. When adjusted to eliminate this amount, engineering expense would have decreased $35,000, or 4%, for the third quarter of 2017 as compared to same period in 2016. This decrease primarily reflects reduced spending on legal matters related to our intellectual property which was partially offset by an increase in the cost of materials used in new product development for our Thermal segment.

General and Administrative Expense. General and administrative expense was $3.1 million for the three months ended September 30, 2017 compared to $1.6 million for the same period in 2016, an increase of $1.6 million, or 100%. Our expenses for the third quarter of 2017 included $31,000 of transaction costs related to the acquisition of Ambrell on May 24, 2017, and $1.3 million of general and administrative expense attributable to Ambrell. Ambrell’s general and administrative expense included $560,000 of amortization of intangible assets. When adjusted to eliminate these items, general and administrative expense would have increased $258,000 or 17%, primarily reflecting an increase in accruals for profit related bonuses, higher salary and benefits expense, including deferred compensation expense related to stock-based awards. To a lesser extent, there was also an increase in fees paid to third party professionals who assist us in a variety of compliance related matters and an increase in travel cost.

Contingent Consideration Liability. During the three months ended September 30, 2017, we recorded a reduction of $549,000 in the fair value of our liability for contingent consideration. This liability is a result of our acquisition of Ambrell in May 2017 and is discussed further in Notes 3 and 4 to our consolidated financial statements. The reduction in the fair value is primarily a result of a reduction in the projected adjusted EBITDA of Ambrell for the year ending December 31, 2017.

Income Tax Expense. For the three months ended September 30, 2017, we recorded income tax expense of $823,000 compared to $631,000 for the same period in 2016. Our effective tax rate was 29% for the three months ended September 30, 2017 compared to 37% for the same period in 2016. On a quarterly basis, we record income tax expense or benefit based on the expected annualized effective tax rate for the various taxing jurisdictions in which we operate our businesses. The decrease in our effective tax rate reflects recording the aforementioned reduction of $549,000 in our liability for contingent consideration which is not taxable.

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inTEST CORPORATION

Item 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016

Net Revenues. Net revenues were $47.4 million for the nine months ended September 30, 2017 compared to $30.0 million for the same period in 2016, an increase of $17.4 million, or 58%. Our net revenues for the nine months ended September 30, 2017 included $6.9 million of net revenues attributable to Ambrell. We believe the increase in our net revenues during the first nine months of 2017 primarily reflects the factors previously discussed in the Overview section above.

Gross Margin. Our consolidated gross margin was 53% for the nine months ended September 30, 2017 as compared to 50% for the same period in 2016. Although our fixed operating costs increased $1.8 million in absolute dollar terms, they were more fully absorbed by the higher net revenue levels. Of the $1.8 million increase in the absolute dollar value of these costs, $1.3 million represents the fixed operating costs attributable to Ambrell. The remaining $506,000 increase in our fixed operating costs primarily reflects higher salary and benefits expense for our Thermal segment as a result of an increased use of temporary labor for operations support due to the increased order and shipment activity. To a lesser extent, the increase in gross margin as a percentage of net revenues also reflects a reduction in our component material costs as a percentage of net revenues as a result of changes in product and customer mix.

Selling Expense. Selling expense was $5.9 million for the nine months ended September 30, 2017 compared to $4.2 million for the same period in 2016, an increase of $1.7 million, or 40%. Our expense for the nine months ended September 30, 2017 included $1.2 million of selling costs attributable to Ambrell. The remaining increase of $494,000 primarily reflects higher levels of commission expense reflecting the higher net revenues, and to a lesser extent, an increase in travel costs and salary and benefits expense for our Thermal segment.

Engineering and Product Development Expense. Engineering and product development expense was $3.1 million for the nine months ended September 30, 2017 compared to $2.9 million for the same period in 2016, an increase of $178,000, or 6%. Our expense for the nine months ended September 30, 2017 included $351,000 of engineering costs attributable to Ambrell. When adjusted to eliminate this amount, engineering expense would have decreased $173,000, or 6%, for the first nine months of 2017 as compared to same period in 2016. This decrease primarily reflects reduced spending on legal matters related to our intellectual property and lower salary and benefits expense for our EMS product segment.

General and Administrative Expense. General and administrative expense was $8.4 million for the nine months ended September 30, 2017 compared to $5.4 million for the same period in 2016, an increase of $3.1 million, or 57%. Our expenses for the first nine months of 2017 included $880,000 of transaction costs related to the acquisition of Ambrell on May 24, 2017, and $1.8 million of general and administrative expense attributable to Ambrell. Ambrell’s general and administrative expense included $757,000 of amortization of intangible assets. Our expenses for the first nine months of 2016 included $479,000 of transaction costs related to an acquisition that did not close. When adjusted to eliminate these items, general and administrative expense would have increased $850,000 or 17%, primarily reflecting higher salary and benefits expense and an increase in accruals for profit-related bonuses. To a lesser extent there was also an increase in travel costs and professional fees.

Contingent Consideration Liability. During the nine months ended September 30, 2017, we recorded a reduction of $549,000 in the fair value of our liability for contingent consideration. This liability is a result of our acquisition of Ambrell in May 2017 and is discussed further in Notes 3 and 4 to our consolidated financial statements. The reduction in the fair value is primarily a result of a reduction in the projected adjusted EBITDA of Ambrell for the year ending December 31, 2017.

Income Tax Expense. For the nine months ended September 30, 2017, we recorded income tax expense of $2.8 million compared to $937,000 for the same period in 2016. Our effective tax rate was 34% for the nine months ended September 30, 2017 compared to 36% for the same period in 2016. On a quarterly basis, we record income tax expense or benefit based on the expected annualized effective tax rate for the various taxing jurisdictions in which we operate our businesses. The decrease in our effective tax rate reflects the aforementioned adjustment to our liability for contingent consideration.

Liquidity and Capital Resources

As discussed more fully in the Overview, our business and results of operations are substantially dependent upon the demand for ATE by semiconductor manufacturers and companies that specialize in the testing of ICs. The cyclical and volatile nature of demand for ATE makes estimates of future revenues, results of operations and net cash flows difficult.

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inTEST CORPORATION

Item 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Our primary historical source of liquidity and capital resources has been cash flow generated by our operations, and we manage our businesses to maximize operating cash flows as our primary source of liquidity. We use cash to fund growth in our operating assets, for new product research and development, for acquisitions and for stock repurchases.

Liquidity

Our cash and cash equivalents and working capital were as follows:

	September 30, 2017		December 31, 2016
Cash and cash equivalents	$	11,499	$	28,611
Working capital	$	19,604	$	32,950

As of September 30, 2017, $2.7 million of our cash and cash equivalents was held by our foreign subsidiaries. When these funds are needed for our operations in the U.S., we may be required to accrue and pay U.S. taxes if we repatriate certain of these funds.

We currently expect our cash and cash equivalents and projected future cash flow to be sufficient to support our short term working capital requirements, the post-acquisition integration of Ambrell, the potential contingent consideration payments for Ambrell and other corporate requirements. However, we may need additional financial resources to consummate a significant acquisition if the consideration in such a transaction would require us to utilize a substantial portion of, or an amount equal to or in excess of, our available cash. We do not currently have any credit facilities under which we can borrow to help fund our working capital or other requirements.

Cash Flows

Operating Activities. Net cash provided by operations for the nine months ended September 30, 2017 was $5.2 million. During the nine months ended September 30, 2017, we recorded net earnings of $5.5 million which included non-cash charges of $1.3 million for depreciation and amortization, a $549,000 reduction in the fair value of our contingent consideration liability, $292,000 for amortization of deferred compensation expense related to stock-based awards and $161,000 as a provision for excess and obsolete inventory. Approximately $757,000 of our amortization expense was related to the intangible assets acquired as part of the acquisition of Ambrell in May 2017, which is discussed further in the Overview and Note 3 to our consolidated financial statements. When adjusted to eliminate the assets and liabilities purchased in the acquisition of Ambrell, accounts receivable and inventories increased $1.1 million and $581,000, respectively, during the nine months ended September 30, 2017 compared to the levels at the end of 2016. These increases primarily reflect the increased business activity during the first nine months of 2017 as compared to the fourth quarter of 2016. During the nine month months ended September 30, 2017, domestic and foreign income taxes payable increased $472,000 as a result of higher levels of taxable income during the first nine months of 2017.

Investing Activities. During the nine months ended September 30, 2017, we completed the acquisition of Ambrell for $22.0 million, net of cash acquired, as discussed in further detail in the Overview and Note 3 to our consolidated financial statements. During the nine months ended September 30, 2017, purchases of property and equipment were $435,000. We currently plan to spend approximately $1.5 million to $2.0 million on leasehold improvements for a new facility for Ambrell in Rochester, New York. We expect to spend these funds during the fourth quarter of 2017 and the first quarter of 2018 and expect to take occupancy on May 1, 2018. We have no other significant commitments for capital expenditures for the balance of 2017; however, depending upon changes in market demand or manufacturing and sales strategies, we may make such purchases or investments as we deem necessary and appropriate.

Financing Activities. During the nine months ended September 30, 2017, we utilized $62,000 to repurchase 13,883 shares of our common stock under the 2015 Repurchase Plan.

New or Recently Adopted Accounting Standards

See the Notes to our consolidated financial statements for information concerning the implementation and impact of new or recently adopted accounting standards.

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inTEST CORPORATION

Item 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Critical Accounting Policies

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to inventories, long-lived assets, goodwill, identifiable intangibles, contingent consideration liabilities and deferred income tax valuation allowances. We base our estimates on historical experience and on appropriate and customary assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Some of these accounting estimates and assumptions are particularly sensitive because of their significance to our consolidated financial statements and because of the possibility that future events affecting them may differ markedly from what had been assumed when the financial statements were prepared. As of September 30, 2017, there have been no significant changes to the accounting policies that we have deemed critical. These policies are more fully described in our 2016 Form 10-K.

Off -Balance Sheet Arrangements

There were no off-balance sheet arrangements during the nine months ended September 30, 2017 that have or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our interests.

Item 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

This disclosure is not required for a smaller reporting company.

Item 4.    CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures, as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act"). Because there are inherent limitations in all control systems, a control system, no matter how well conceived and operated, can provide only reasonable, as opposed to absolute, assurance that the objectives of the control system are met. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Our management, including our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all error and all fraud. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Accordingly, our management has designed the disclosure controls and procedures to provide reasonable assurance that the objectives of the control system were met.

CEO/CFO Conclusions about the Effectiveness of the Disclosure Controls and Procedures. As required by Rule 13a-15(b), management, including our CEO and CFO, conducted an evaluation as of the end of the period covered by this report, of the effectiveness of our disclosure controls and procedures. Based on that evaluation, our CEO and CFO concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this Report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

- 27 -

PART II.  OTHER INFORMATION

Item 1.    Legal Proceedings

From time to time we may be a party to legal proceedings occurring in the ordinary course of business. We are not currently involved in any material legal proceedings.

Item 1A. Risk Factors

Information regarding the primary risks and uncertainties 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, appears in Part I, Item 1A - "Risk Factors" of our 2016 Form 10-K filed with the Securities and Exchange Commission on March 27, 2017.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

On October 27, 2015, our Board of Directors authorized the repurchase of up to $5.0 million of our common stock from time to time on the open market, in compliance with Rule 10b-18 under the Exchange Act, or in privately negotiated transactions (the "2015 Repurchase Plan"). Repurchases may also be made under trading plans entered into with RW Baird & Co. (each a "10b5-1 Plan"), which permit shares to be repurchased when we might otherwise be precluded from doing so under insider trading laws. The 2015 Repurchase Plan does not obligate us to repurchase any particular amount of common stock and may be suspended or discontinued at any time without prior notice. The 2015 Repurchase Plan is funded using our operating cash flow or available cash. The timing, price and amount of any shares repurchased under the 2015 Repurchase Plan is determined by our management, based on our evaluation of market conditions and other factors. To date, all purchases have been made in accordance with 10b5-1 Plans which provided for purchases to be made so long as the price did not exceed a maximum price. Recently, the price of our shares has exceeded the cap. Management is considering new parameters for future purchases and may enter into a new 10b5-1 Plan at some point under those new parameters. For the three months ended September 30, 2017, there were no shares repurchased. As of September 30, 2017 all of the Company’s 10b5-1 Plans had expired.

Item 3.    Defaults Upon Senior Securities

None.

Item 4.    Mine Safety Disclosures

Not applicable.

Item 5.    Other Information

None.

- 28 -

PART II.  OTHER INFORMATION

Item 6.     Exhibits

10.1	Form of Indemnification Agreement.(1)
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a).
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a).
32.1	Certification of Chief Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.1	Press Release of inTEST Corporation, issued October 23, 2017.(2)
101.INS	XBRL Taxonomy Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
(1)	Previously filed as an exhibit to the Company’s Current Report on Form 8-K dated October 2, 2017, File No. 001-36117, filed October 6, 2017, and incorporated herein by reference.
(2)	Previously filed as an exhibit to the Company’s Current Report on Form 8-K dated October 20, 2017, File No. 001-36117, filed October 23, 2017, and incorporated herein by reference.

- 29 -

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:	November 14, 2017	/s/ Robert E. Matthiessen
		Robert E. Matthiessen President and Chief Executive Officer
Date:	November 14, 2017	/s/ Hugh T. Regan, Jr.
		Hugh T. Regan, Jr. Secretary, Treasurer and Chief Financial Officer

-30-

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Robert E. Matthiessen, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of inTEST Corporation;

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.     The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)     Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)     Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)     Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)     Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.     The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)     All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)     Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 14, 2017

/s/ Robert E. Matthiessen
Robert E. Matthiessen
Executive Chairman, President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Hugh T. Regan, Jr., certify that:

1.     I have reviewed this quarterly report on Form 10-Q of inTEST Corporation;

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.     The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)     Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)     Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)     Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)     Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.     The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)     All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)     Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 14, 2017

/s/ Hugh T. Regan, Jr.
Hugh T. Regan, Jr.
Secretary, Treasurer and Chief Financial Officer

EX-32.1

EXHIBIT 32.1

inTEST CORPORATION


CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of inTEST Corporation (the "Company") on Form 10-Q for the period ending September 30, 2017 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Robert E. Matthiessen, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)     The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)     The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


Date:     November 14, 2017

/s/ Robert E. Matthiessen
Robert E. Matthiessen
Executive Chairman, President and Chief Executive Officer

EX-32.2

EXHIBIT 32.2

inTEST CORPORATION


CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of inTEST Corporation (the "Company") on Form 10-Q for the period ending September 30, 2017 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Hugh T. Regan, Jr., Secretary, Treasurer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


Date: November 14, 2017

/s/ Hugh T. Regan, Jr.
Hugh T. Regan, Jr.
Secretary, Treasurer and Chief Financial Officer

XML

Document And Entity Information - shares	9 Months Ended
	Sep. 30, 2017	Oct. 31, 2017
Document Information [Line Items]
Entity Registrant Name	INTEST CORP
Entity Central Index Key	0001036262
Trading Symbol	intt
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Entity Common Stock, Shares Outstanding (in shares)		10,413,058
Document Type	10-Q
Document Period End Date	Sep. 30, 2017
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q3
Amendment Flag	false

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Current assets:
Cash and cash equivalents	$ 11,499	$ 28,611
Trade accounts receivable, net of allowance for doubtful accounts of $146 and $146, respectively	10,225	5,377
Inventories	6,033	3,676
Prepaid expenses and other current assets	714	342
Total current assets	28,471	38,006
Property and equipment:
Machinery and equipment	4,993	4,383
Leasehold improvements	730	603
Gross property and equipment	5,723	4,986
Less: accumulated depreciation	(4,179)	(4,042)
Net property and equipment	1,544	944
Deferred tax assets		1,110
Goodwill	13,738	1,706
Intangible assets, net	16,259	875
Restricted certificates of deposit	175	175
Other assets	27	28
Total assets	60,214	42,844
Current liabilities:
Accounts payable	2,363	1,368
Accrued wages and benefits	2,218	1,588
Accrued rent	530	572
Accrued professional fees	682	419
Accrued sales commissions	476	287
Customer deposits and deferred revenue	1,111	74
Domestic and foreign income taxes payable	1,087	575
Current portion of contingent consideration liability
Other current liabilities	400	173
Total current liabilities	8,867	5,056
Deferred tax liabilities	4,010
Contingent consideration liability, net of current portion	3,574
Total liabilities	16,451	5,056
Commitments and Contingencies
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; 10,444,135 and 10,394,018 shares issued, respectively	104	104
Addtional paid-in capital	25,808	25,578
Retained earnings	17,212	11,671
Accumulated other comprehensive earnings	843	639
Treasury stock, at cost; 33,077 and 33,077 shares, respectively	(204)	(204)
Total stockholders' equity	43,763	37,788
Total liabilities and stockholders' equity	$ 60,214	$ 42,844

XML

Consolidated Balance Sheets (Parentheticals) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Allowance for doubtful accounts	$ 146	$ 146
Preferred stock par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized (in shares)	5,000,000	5,000,000
Preferred stock, shares issued (in shares)	0	0
Preferred stock, shares outstanding (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	20,000,000	20,000,000
Common stock, shares issued (in shares)	10,444,135	10,394,018
Treasury stock, at cost, shares (in shares)	33,077	33,077

XML

Consolidated Statement of Operations - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Net revenues	$ 17,352	$ 10,823	$ 47,420	$ 29,955
Cost of revenues	8,556	5,246	22,475	14,982
Gross margin	8,796	5,577	24,945	14,973
Operating expenses:
Selling expense	2,322	1,394	5,861	4,200
Engineering and product development expense	1,139	905	3,056	2,878
General and administrative expense	3,143	1,574	8,423	5,364
Adjustment to contingent consideration liability	(549)	0	(549)
Total operating expenses	6,055	3,873	16,791	12,442
Operating income	2,741	1,704	8,154	2,531
Other income	100	17	195	63
Earnings before income tax expense	2,841	1,721	8,349	2,594
Income tax expense	823	631	2,808	937
Net earnings	$ 2,018	$ 1,090	$ 5,541	$ 1,657
Net earnings per common share - basic (in dollars per share)	$ 0.20	$ 0.11	$ 0.54	$ 0.16
Weighted average common shares outstanding - basic (in shares)	10,288,325	10,295,447	10,276,682	10,327,095
Net earnings per common share - diluted (in dollars per share)	$ 0.19	$ 0.11	$ 0.54	$ 0.16
Weighted average common shares and common share equivalents outstanding - diluted (in shares)	10,351,009	10,318,715	10,327,080	10,344,747

XML

Consolidated Statements of Comprehensive Earnings - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Net earnings	$ 2,018	$ 1,090	$ 5,541	$ 1,657
Foreign currency translation adjustments	21	(6)	204	35
Comprehensive earnings	$ 2,039	$ 1,084	$ 5,745	$ 1,692

XML

Consolidated Statements of Stockholders' Equity - 9 months ended Sep. 30, 2017 - USD ($) $ in Thousands	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	AOCI Attributable to Parent [Member]	Treasury Stock [Member]	Total
Balance (in shares) at Dec. 31, 2016	10,394,018					10,394,018
Balance at Dec. 31, 2016	$ 104	$ 25,578	$ 11,671	$ 639	$ (204)	$ 37,788
Net earnings			5,541			5,541
Other comprehensive income				204		204
Amortization of deferred compensation related to stock-based awards		292				$ 292
Issuance of unvested shares of restricted stock (in shares)	64,000
Repurchase and retirement of common stock (in shares)	(13,883)					(13,883)
Repurchase and retirement of common stock		(62)				$ (62)
Balance (in shares) at Sep. 30, 2017	10,444,135					10,444,135
Balance at Sep. 30, 2017	$ 104	$ 25,808	$ 17,212	$ 843	$ (204)	$ 43,763

XML

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings	$ 5,541	$ 1,657
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	1,317	451
Adjustment to contingent consideration liability	(549)
Provision for excess and obsolete inventory	161	184
Foreign exchange gain	(130)	(7)
Amortization of deferred compensation related to stock-based awards	292	222
(Gain) loss on sale of property and equipment	(4)	3
Proceeds from sale of demonstration equipment, net of gain	53	128
Deferred income tax expense (benefit)	(225)	141
Changes in assets and liabilities:
Trade accounts receivable	(1,060)	(2,252)
Inventories	(581)	(57)
Prepaid expenses and other current assets	(164)	183
Restricted certificates of deposit		125
Other assets	1
Accounts payable	(426)	343
Accrued wages and benefits	(18)	47
Accrued rent	(42)	(100)
Accrued professional fees	177	64
Accrued sales commissions	83	74
Customer deposits and deferred revenue	302	(74)
Domestic and foreign income taxes payable	472	523
Other current liabilities	(12)	86
Net cash provided by operating activities	5,188	1,741
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of business, net of cash acqured	(21,962)
Purchase of property and equipment	(435)	(282)
Proceeds from sale of property and equipment	35
Net cash used in investing activities	(22,362)	(282)
CASH FLOWS FROM FINANCING ACTIVITIES
Repurchases of common stock	(62)	(841)
Net cash used in financing activities	(62)	(841)
Effects of exchange rates on cash	124	17
Net cash provided by (used in) all activities	(17,112)	635
Cash and cash equivalents at beginning of period	28,611	25,710
Cash and cash equivalents at end of period	11,499	26,345
Cash payments for:
Domestic and foreign income taxes	2,555	25
Goodwill resulting from acquisition	12,032
Net cash paid for acquisition	21,962
Ambrell [Member]
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of business, net of cash acqured	(21,962)
Cash payments for:
Fair value of assets acquired, net of cash	22,652
Liabilities assumed	(8,599)
Goodwill resulting from acquisition	12,032
Contingent consideration	(4,123)
Net cash paid for acquisition	$ 21,962

XML

Note 1 - Nature of Operations

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Nature of Operations [Text Block]

( 1 ) NATURE OF OPERATIONS

We are an independent designer, manufacturer and marketer of thermal management products and semiconductor automatic test equipment (“ATE”) interface solutions. Our products are used by semiconductor manufacturers to perform development, qualifying and final testing of integrated circuits (“ICs”) and wafers, and for other electronic test across a range of industries including the automotive, defense/aerospace, energy, industrial and telecommunications 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. We manufacture our products in the U.S. Marketing and support activities are conducted worldwide from our facilities in the U.S., Germany, Singapore, the Netherlands and the U.K. The consolidated entity is comprised of inTEST Corporation and our wholly-owned subsidiaries.

During

2016,

we reorganized our business from

three

product segments, Thermal Products, Mechanical Products and Electrical Products, into

two

product segments, Thermal Products ("Thermal") and Electromechanical Semiconductor Products ("EMS"). Certain operational changes undertaken in the

first

quarter of

2016

in connection with this reorganization are discussed further in Note

3

of our consolidated financial statements included in our Annual Report on Form

10

-K for the year ended

December 31, 2016

filed with the Securities and Exchange Commission on

March 27, 2017 (

the

"2016

Form

10

-K"). Accordingly, effective

January 1, 2017,

we have

two

reportable segments, which are also our reporting units. Prior period information has been reclassified to be comparable to the presentation for

2017.

On

May 24, 2017,

we completed the acquisition of Ambrell Corporation ("Ambrell"). The acquisition was completed by acquiring all of the outstanding capital stock of Ambrell. Ambrell is a manufacturer of precision induction heating systems which 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. The Ambrell acquisition complements our current thermal technologies and broadens our diverse customer base, allowing expansion within many non-ATE related markets, such as consumer product packaging, fiber-optics, automotive and other markets. Ambrell's operations are included in our Thermal segment. Ambrell manufactures its products in the U.S. and conducts marketing and support activities from its facilities in the U.S., the Netherlands and the U.K. This acquisition is discussed further in Note

3.

The ATE market in which we operate is characterized by rapid technological change, competitive pricing pressures and cyclical as well as seasonal market patterns. This market is subject to significant economic downturns at various times. Our financial results are affected by a wide variety of factors, including, but

not

limited to, general economic conditions worldwide and in the markets in which we operate, economic conditions specific to the ATE market and the other markets we serve, our ability to safeguard patented technology and intellectual property in a rapidly evolving market, downward pricing pressures from customers, and our reliance on a relatively few number of customers for a significant portion of our sales. In addition, we are exposed to the risk of obsolescence of our inventory depending on the mix of future business and technological changes within the markets that we serve. We also continue to implement an acquisition strategy that

may

cause us to incur substantial expense in reviewing and evaluating potential transactions. We

may

or

may

not

be successful in locating suitable businesses to acquire. In addition, we

may

not

be able to successfully integrate any business we do acquire with our existing business and we

may

not

be able to operate the acquired business profitably. As a result of these or other factors, we

may

experience significant period-to-period fluctuations in future operating results.

XML

Note 2 - Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Significant Accounting Policies [Text Block]

( 2 ) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Use of Estimates

The accompanying consolidated financial statements include our accounts and those of our wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated upon consolidation. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") requires us 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. Certain of our accounts, including inventories, long-lived assets, goodwill, identifiable intangibles, contingent consideration liabilities and deferred tax assets and liabilities, including related valuation allowances, are particularly impacted by estimates.

In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments (consisting only of normal 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 consolidated financial statements. Therefore, these consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying footnotes included in our

2016

Form

10

-K.
 

Reclassification

Certain prior period amounts have been reclassified to be comparable with the current period's presentation.

Business Combinations

Acquired businesses are accounted for using the purchase method of accounting, which requires that the purchase price be allocated to the net assets acquired at their respective fair values. Any excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill. Fair values of intangible assets are estimated by valuation models prepared by our management and

third

party advisors. The assets purchased and liabilities assumed have been reflected in our consolidated balance sheets, and the results are included in the consolidated statements of operations and consolidated statements of cash flows from the date of acquisition. Any change in the fair value of acquisition-related contingent consideration subsequent to the acquisition date, including changes from events after the acquisition date, will be recognized within general and administrative expense in the period of the estimated fair value change. Acquisition-related transaction costs, including legal and accounting fees and other external costs directly related to the acquisition, are recognized separately from the acquisition and expensed as incurred in general and administrative expense in the consolidated statements of operations.

Fair Value Measurements

The fair values of our financial instruments reflect the amounts that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price).

The carrying amounts of our financial instruments of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate fair value due to their short maturities.

We carry our contingent consideration liability at fair value. In accordance with the

three

-tier fair value hierarchy, we determined the fair value of our contingent consideration liability using an option-based income approach with a Monte Carlo simulation model. The income approach uses Level

3,

or unobservable inputs, as defined under the accounting guidance for fair value measurements. See Notes

3

and

4

for more information regarding our contingent consideration liability.

Inventories

Inventories are valued at cost on a

first

-in,

first

-out basis,

not

in excess of market value. Cash flows from the sale of inventories are recorded in operating cash flows. On a quarterly basis, we review our inventories and record excess and obsolete inventory charges based upon our established objective excess and obsolete inventory criteria. These criteria identify material that has

not

been used in a work order during the prior

twelve

months and the quantity of material on hand that is greater than the average annual usage of that material over the prior

three

years. In certain cases, additional excess and obsolete inventory charges are recorded based upon current market conditions, anticipated product life cycles, new product introductions and expected future use of the inventory. The excess and obsolete inventory charges we record establish a new cost basis for the related inventories. We incurred excess and obsolete inventory charges of

$161

and

$184

for the

nine

months ended

September 30, 2017

and

2016,

respectively.

Goodwill, Intangible and Long-Lived Assets

We account for goodwill and intangible assets in accordance with Accounting Standards Codification ("ASC")

350

(Intangibles - Goodwill and Other). Finite-lived intangible assets are amortized over their estimated useful economic life and are carried at cost less accumulated amortization. Goodwill is assessed for impairment annually in the

fourth

quarter on a reporting unit basis, or more frequently when events and circumstances occur indicating that the recorded goodwill

may

be impaired. As a part of the goodwill impairment assessment, we have the option to perform a qualitative assessment to determine whether it is more-likely-than-

not

that the fair value of a reporting unit is less than its carrying amount. If we determine this is the case, we are required to perform a

two

-step goodwill impairment test to identify potential goodwill impairment and measure the amount of goodwill impairment loss to be recognized. The

two

-step test is discussed below. If we determine that it is more-likely-than-

not

that the fair value of the reporting unit is greater than its carrying amounts, the

two

-step goodwill impairment test is

not

required.

 

If we determine it is more-likely-than-

not

that the fair value of a reporting unit is less than its carrying amount as a result of our qualitative assessment, we will perform a quantitative

two

-step goodwill impairment test. In the Step I test, the fair value of a reporting unit is computed and compared with its book value. If the book value of a reporting unit exceeds its fair value, a Step II test is performed in which the implied fair value of goodwill is compared with the carrying amount of goodwill. If the carrying amount of goodwill exceeds the implied fair value, an impairment loss is recorded in an amount equal to that excess. The

two

-step goodwill impairment assessment is based upon a combination of the income approach, which estimates the fair value of our reporting units based upon a discounted cash flow approach, and the market approach which estimates the fair value of our reporting units based upon comparable market multiples. This fair value is then reconciled to our market capitalization at year end with an appropriate control premium. The determination of the fair value of our reporting units requires management to make significant estimates and assumptions including the selection of appropriate peer group companies, control premiums, discount rate, terminal growth rates, forecasts of revenue and expense growth rates, income tax rates, changes in working capital, depreciation, amortization and capital expenditures. Changes in assumptions concerning future financial results or other underlying assumptions could have a significant impact on either the fair value of the reporting unit or the amount of the goodwill impairment charge.

Indefinite-lived intangible assets are assessed for impairment annually in the

fourth

quarter, or more frequently if events or changes in circumstances indicate that the asset might be impaired. As a part of the impairment assessment, we have the option to perform a qualitative assessment to determine whether it is more likely than

not

that an indefinite-lived intangible asset is impaired. If, as a result of our qualitative assessment, we determine that it is more-likely-than-

not

that the fair value of the indefinite-lived intangible asset is less than its carrying amount, the quantitative impairment test is required. Otherwise,

no

further testing is required. The quantitative impairment test consists of a comparison of the fair value of the intangible asset with its carrying amount. If the carrying amount of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.

Long-lived assets, which consist of finite-lived intangible assets and property and equipment, are assessed for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets

may

not

be fully recoverable or that the useful lives of these assets are

no

longer appropriate. Each impairment test is based on a comparison of the estimated undiscounted cash flows to the recorded value of the asset. If impairment is indicated, the asset is written down to its estimated fair value. The cash flow estimates used to determine the impairment, if any, contain management's best estimates using appropriate assumptions and projections at that time.

Stock-Based Compensation

We account for stock-based compensation in accordance with ASC Topic

718

(Compensation - Stock Compensation), which requires that employee share-based equity awards be accounted for under the fair value method and requires the use of an option pricing model for estimating fair value of stock options granted, which is then amortized to expense over the service periods. See further disclosures related to our stock-based compensation plan in Note

9.

Subsequent Events

We have made an assessment of our operations and determined that there were

no

material subsequent events requiring adjustment to, or disclosure in, our consolidated financial statements for the

nine

months ended

September 30, 2017.

Revenue Recognition

We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, and collection of the related receivable is reasonably assured. Sales of our products are made through our sales employees,

third

-party sales representatives and distributors. There are

no

differences in revenue recognition policies based on the sales channel. We do

not

provide our customers with rights of return or exchanges. Revenue is generally recognized upon product shipment. Our customers' purchase orders do

not

typically contain any customer-specific acceptance criteria, other than that the product performs within the agreed upon specifications. We test all products manufactured as part of our quality assurance process to determine that they comply with specifications prior to shipment to a customer. To the extent that any customer purchase order contains customer-specific acceptance criteria, revenue recognition is deferred until customer acceptance.

In addition, we lease certain of our equipment to customers under non-cancellable operating leases. These leases generally have an initial term of

six

months. We recognize revenue for these leases on a straight-line basis over the term of the lease.

With respect to sales tax collected from customers and remitted to governmental authorities, we use a net presentation in our consolidated statement of operations. As a result, there are

no

amounts included in either our net revenues or cost of revenues related to sales tax.

 

Product Warranties

We generally provide product warranties and record estimated warranty expense at the time of sale based upon historical claims experience. Warranty expense is included in selling expense in our consolidated statement of operations. 

Income Taxes

The asset and liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for operating loss and tax credit carryforwards and for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets if it is more likely than

not

that such assets will

not

be realized.

Net Earnings Per Common Share

Net earnings per common share - basic is computed by dividing net earnings by the weighted average number of common shares outstanding during each period. Net earnings per common share - diluted is computed by dividing net earnings by the weighted average number of common shares and common share equivalents outstanding during each period. Common share equivalents represent unvested shares of restricted stock and stock options and are calculated using the treasury stock method. Common share equivalents are excluded from the calculation if their effect is anti-dilutive.

The table below sets forth, for the periods indicated, a reconciliation of weighted average common shares outstanding - basic to weighted average common shares and common share equivalents outstanding - diluted and the average number of potentially dilutive securities that were excluded from the calculation of diluted earnings per share because their effect was anti-dilutive:

	Three Months Ended Sept ember 30,				Nine Months Ended Sept ember 30,
	2017		2016		2017		2016
Weighted average common shares outstanding - basic		10,288,325		10,295,447		10,276,682		10,327,095
Potentially dilutive securities:
Unvested shares of restricted stock and stock options		62,684		23,268		50,398		17,652
Weighted average common shares and common share equivalents outstanding - diluted		10,351,009		10,318,715		10,327,080		10,344,747
Average number of potentially dilutive securities excluded from calculation		96,000		19,800		79,753		18,277

Effect of Recently Adopted Amendments to Authoritative Accounting Guidance

In

March 2016,

the Financial Accounting Standards Board (the "FASB") issued amendments to the current guidance on accounting for stock-based compensation issued to employees which is contained in ASC Topic

718

(Compensation - Stock Compensation). The amendments simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The amendments were effective for us as of

January 1, 2017.

The implementation of these amendments did

not

have a material impact on our consolidated financial statements.

In

July 2015,

the FASB issued amendments to update the current guidance on the subsequent measurement of inventory, which is presented in ASC Topic

330

(Inventory). The purpose of the amendments is to simplify the subsequent measurement of inventory and reduce the number of potential outcomes. It applies to all inventory other than inventory measured using last-in,

first

-out or the retail inventory method. Current guidance requires an entity to measure inventory at the lower of cost or market. Market could be replacement cost, net realizable value, or net realizable value less a normal profit margin. The updated guidance amends this to require that an entity measure inventory within the scope of the updated guidance at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The amendments were effective for us as of

January 1, 2017.

The implementation of these amendments did

not

have a material impact on our consolidated financial statements.

 

Effect of Recently Issued Amendments to Authoritative Accounting Guidance

In

May 2017,

the FASB issued amendments to the guidance on accounting for a change to the terms or conditions (modification) of a share-based payment award. The amendments provide that an entity should account for the effects of a modification unless the fair value and vesting conditions of the modified award and the classification of the modified award (equity or liability instrument) are the same as the original award immediately before the modification. The amendments are effective for us as of

January 1, 2018.

Early adoption is permitted. The amendments are to be applied prospectively to an award modified on or after the adoption date. We do

not

expect the implementation of the amendments to have a material impact on our consolidated financial statements.

In

January 2017,

the FASB issued amendments to the guidance on accounting for goodwill impairment. The amendments simplify the accounting for goodwill impairment by removing Step II of the goodwill impairment test, which requires a hypothetical purchase price allocation. Under the amendments, a goodwill impairment will now be the amount by which a reporting unit's carrying value exceeds its fair value,

not

to exceed the carrying amount of goodwill. The amendments will be applied prospectively and are effective for us as of

January 1, 2020,

with early application permitted beginning

January 1, 2017.

We do

not

expect the implementation of the amendments to have a material impact on our consolidated financial statements.

In

January 2017,

the FASB issued amendments to clarify the current guidance on the definition of a business. The objective of the amendments is to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments are effective for us as of

January 1, 2018,

with early application permitted. We do

not

expect the implementation of these amendments to have a material impact on our consolidated financial statements.

In

November 2016,

the FASB issued amendments to the guidance on presentation of restricted cash within the statement of cash flows. The amendments require that restricted cash be included within cash and cash equivalents on the statement of cash flows. The amendments are effective for us as of

January 1, 2018,

and are to be applied retrospectively. Early application is permitted. We do

not

expect the implementation of these amendments to have a material impact on our consolidated financial statements.

In

February 2016,

the FASB issued amendments to the current guidance on accounting for lease transactions, which is presented in ASC Topic

842

(Leases). The intent of the updated guidance is to increase transparency and comparability among organizations by requiring lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by leases and to disclose key information about leasing arrangements. Under the new guidance, a lessee will be required to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than

12

months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The amendments are effective for us as of

January 1, 2019.

A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. We are currently evaluating the impact of the implementation of these amendments on our consolidated financial statements.

In

May 2014,

the FASB issued new guidance on the recognition of revenue from contracts with customers. Subsequent to

May, 2014,

the FASB has issued additional clarifying guidance on certain aspects of this new guidance. This new guidance is presented in ASC Topic

606

(Revenue from Contracts with Customers) and will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. Companies can use either the retrospective or cumulative effect transition method. In

August 2015,

the FASB deferred the effective date of this new guidance for

one

additional year. As a result, this new guidance is effective for us as of

January 1, 2018.

Early application is only permitted as of the prior effective date, which in our case would be as of

January 1, 2017.

We currently plan to implement this new guidance on

January 1, 2018

with a cumulative adjustment to retained earnings as opposed to retrospectively adjusting prior periods. During the

fourth

quarter of

2016,

we completed a preliminary review of all our revenue streams to identify any differences in timing, measurement or presentation of revenue recognition. Our implementation process is ongoing; however, based on the results of our assessment to date, we currently do

not

expect the implementation of this new guidance to have a significant impact on the timing or amount of revenue we recognize in any given period in comparison to the amount recognized under current guidance.

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Note 3 - Acquisition

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Business Combination Disclosure [Text Block]

( 3 ) ACQUISITION

On

May 24, 2017,

we completed our acquisition of Ambrell, a manufacturer of precision induction heating systems. Ambrell's systems 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. The Ambrell acquisition complement

s our current thermal technologies and broadens our diverse customer base, allowing expansion within many non-ATE related markets, such as consumer product packaging, fiber-optics, automotive and other markets.

The purchase price for Ambrell was

$22,000

in cash paid at closing, subject to a customary post-closing working capital adjustment. Additional consideration in the form of earnouts

may

be paid based upon a multiple of adjusted EBITDA for

2017

and

2018,

as further discussed below. The acquisition was completed by acquiring all of the outstanding capital stock of Ambrell. Total acquisition costs incurred to complete this transaction were

$880.

Acquisition costs were expensed as incurred and included in general and administrative expense.

The acquisition of Ambrell has been accounted for as a business combination using purchase accounting, and, accordingly, the results of Ambrell have been included in our consolidated results of operations from the date of acquisition. The allocation of the Ambrell purchase price was based on estimated fair values as of

May 24, 2017.

The determination of fair value reflects the assistance of

third

-party valuation specialists, as well as our own estimates and assumptions.

The excess of the purchase price over the identifiable intangible and net tangible assets was allocated to goodwill and is

not

deductible for tax purposes. Goodwill is attributed to synergies that are expected to result from the operations of the combined businesses.

The total purchase price of

$26,733

was comprised of:

Cash paid to acquire the capital stock of Ambrell	$	22,610
Estimated fair value of contingent consideration		4,123
Total purchase price	$	26,733

As noted above, the consideration paid for the acquisition of Ambrell 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 stock purchase agreement for Ambrell. The

first

earnout, to be paid after calendar year

2017

is completed, will be an amount equal to

8x

Ambrell's adjusted EBITDA for

2017

minus the

$22,000

paid at closing. The

second

earnout, to be paid after calendar year

2018

is completed, is an amount equal to

8x

Ambrell's adjusted EBITDA for

2018

minus the sum of the

$22,000

paid at closing and any earnout paid with respect to

2017.

The

2017

and

2018

earnouts, in the aggregate, are capped at

$18,000.

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

$4,123,

which was recorded as a contingent consideration liability as of the acquisition date.

The total purchase price of

$26,733

has been allocated as follows:

Goodwill	$	12,032
Identifiable intangible assets		16,300
Tangible assets acquired and liabilities assumed:
Cash		648
Trade accounts receivable		3,621
Inventories		1,917
Other current assets		200
Property and equipment		614
Accounts payable		(1,420	)
Accrued expenses		(1,280	)
Customer advances		(554	)
Deferred tax liability		(5,345	)
Total purchase price	$	26,733

We estimated the fair value of identifiable intangible assets acquired using a combination of the income, cost and market approaches.

Identifiable intangible assets acquired include customer relationships, customer backlog, technology and trademarks. We generally amortize our finite-lived intangible assets over their estimated useful lives on a straight-line basis, unless an alternate amortization method can be reliably determined. Any such alternate amortization method would be based on the pattern in which the economic benefits of the intangible asset are expected to be consumed.

The following table summarizes the estimated fair value of Ambrell's identifiable intangible assets and their estimated useful lives as of the acquisition date:

	Fair Value		Weighted Average Estimated Useful Life
			(in years)
Finite-lived intangible assets:
Customer relationships	$	9,000		9.0
Technology		600		9.0
Customer backlog		500		0.3
Total finite-lived intan gible assets		10,100		8.6
Indefinite-lived intangible assets:
Trademarks		6,200
Total intangible assets	$	16,300

For the period from

May 24, 2017

to

September 30, 2017,

Ambrell contributed

$6,925

of net revenues and had net

earnings of

$336,

which includes the impact of a

$549

reduction in the amount of our contingent consideration liability during the

third

quarter of

2017.

The following unaudited pro forma information gives effect to the acquisition of Ambrell as if the acquisition occurred on

January 1, 2016.

These proforma summaries do

not

reflect any operating efficiencies or costs savings that

may

be achieved by the combined businesses. These proforma summaries are presented for informational purposes only and are

not

necessarily indicative of what the actual results of operations would have been had the acquisition taken place as of that date, nor are they indicative of future consolidated results of operations:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Net revenues	$	17,352	$	15,458	$	55,040	$	44,225
Net earnings	$	2,291	$	709	$	6,452	$	593
Diluted earnings per share	$	0.22	$	0.07	$	0.61	$	0.06

The pro forma results shown above do

not

reflect the impact on general and administrative expense of investment advisory costs, legal costs and other costs of

$8

80

incurred by us as a direct result of the transaction. The pro forma results shown above include a

$549

reduction in the amount of our contingent consideration liability which we recorded during the

third

quarter of

2017.

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Note 4 - Fair Value Measurements

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Fair Value Disclosures [Text Block]

( 4 ) FAIR VALUE MEASUREMENTS

ASC Topic

820

(Fair Value Measurement) establishes a fair value hierarchy for instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and our own assumptions (unobservable inputs). Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of us. Unobservable inputs are inputs that reflect our assumptions about the inputs that market participants would use in pricing the asset or liability, and are developed based on the best information available in the circumstances.

ASC

820

identifies fair value as the exchange price, or exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As a basis for considering market participant assumptions in fair value measurements, ASC

820

establishes a

three

-tier fair value hierarchy that distinguishes among the following:

Level 1	Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access.
Level 2	Valuations based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and models for which all significant inputs are observable, either directly or indirectly.
Level 3	Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by us in determining fair value is greatest for instruments categorized in Level

3.

A financial instrument's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

Recurring Fair Value Measurements

The contingent consideration liability on our balance sheet is measured at fair value on a recurring basis using Level

3

inputs. Our contingent consideration liability is a result of our acquisition of Ambrell on

May 24, 2017,

and it represents the estimated fair value of the additional cash consideration payable that is contingent upon the achievement of certain financial results by Ambrell in

2017

and

2018,

as discussed more fully in Note

3.

The fair value of this Level

 

3

instrument involves generating various scenarios for projected adjusted EBITDA over a specified time period, calculating the associated contingent consideration payments and discounting the average payments to present value. During the

third

quarter of

2017,

we recorded a

$549

reduction in the fair value of our contingent consideration liability, primarily as a result of a reduction in the projected adjusted EBITDA of Ambrell for the year ended

December 31, 2017.

The following fair value hierarchy table presents information about liabilities measured at fair value on a recurring basis:

	Amounts at		Fair Value Measurement Using
	Fair Value		Level 1		Level 2		Level 3
As of September 30, 2017
Contingent consideration liability	$	3,574	$	-	$	-	$	3,574

Changes in the fair value of

our Level 

3

contingent consideration liability for the

three

and

nine

months ended

September 

30,

2017

were as follows:

	Three Months Ended September 30, 2017			Nine Months Ended September 30, 2017
Balance at beginning of period	$	4,123		$	-
Contingent consideration liability established in connection with the acquisition of Ambrell		-			4,123
Fair value adjustment		(549	)		(549	)
Balance at end of period	$	3,574		$	3,574

XML

Note 5 - Goodwill and Intangible Assets

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Goodwill and Intangible Assets Disclosure [Text Block]

( 5 ) GOODWILL AND INTANGIBLE ASSETS

Goodwill and intangible assets on our balance sheets are the result of our acquisitions of Sigma Systems Corp. ("Sigma") in

October 2008,

Thermonics, Inc. ("Thermonics") in

January 2012

and Ambrell in

May 2017.

All of our goodwill and intangible assets are allocated to our Thermal segment.

Goodwill

Changes in the amount of the carrying value of goodwill for the

nine

months ended

September 30, 2017

are as follows:

	Sigma		Thermonics		Ambrell		Total
Balance - January 1, 2017	$	1,656	$	50	$	-	$	1,706
Acquisition of Ambrell		-		-		12,032		12,032
Balance - September 30, 2017	$	1,656	$	50	$	12,032	$	13,738

Intangible Assets

Changes in the amount of the carrying value of finite-lived intangible assets for the

nine

months ended

September 30, 2017

are as follows:

Balance - January 1, 2017	$	365
Acquisition of Ambrell		10,100
Amortization		(916	)
Balance - September 30, 2017	$	9,549

The following tables provide further detail about our intangible assets as of

September 30, 2017

and

December 31, 2016:

	September 30, 2017
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Finite-lived intangible assets:
Customer relationships	$	10,480	$	1,640	$	8,840
Technology		600		54		546
Patents		590		454		136
Software		270		243		27
Trade name		140		140		-
Customer backlog		500		500		-
Total finite-lived intangible assets		12,580		3,031		9,549
Indefinite-lived intangible assets:
Trademarks		6,710		-		6,710
Total intangible assets	$	19,290	$	3,031	$	16,259

	December 31, 2016
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Finite-lived intangible assets:
Customer relationships	$	1,480	$	1,328	$	152
Patents		590		424		166
Software		270		223		47
Trade name		140		140		-
Total finite-lived intangible assets		2,480		2,115		365
Indefinite-lived intangible assets:
Sigma trademark		510		-		510
Total intangible assets	$	2,990	$	2,115	$	875

We generally amortize our finite-lived intangible assets over their estimated useful lives on a straight-line basis, unless an alternate amortization method can be reliably determined. Any such alternate amortization method would be based on the pattern in which the economic benefits of the intangible asset are expected to be consumed.

None

of our intangible assets have any residual value.

Total amortization expense for our finite-lived intangible assets was

$916

and

$173,

respectively, for the

nine

months ended

September 30, 2017

and

2016.

The following table sets forth the estimated annual amortization expense for each of the next

five

years:

2017 (remainder)	$	246
2018	$	1,102
2019	$	1,257
2020	$	1,233
2021	$	1,227

XML

Note 6 - Major Customers

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Concentration Risk Disclosure [Text Block]

( 6 ) MAJOR CUSTOMERS

During the

nine

months ended

September 30, 2017

and

2016,

Texas Instruments Incorporated accounted for

12%

and

11%

of our consolidated net revenues, respectively. While

both

of our operating segments sold products to this customer, these revenues were primarily generated by our EMS segment. During the

nine

months ended

September 30, 2017

and

2016,

Hakuto Co., Ltd.,

one

of our distributors, accounted for

11%

and

13%

of our consolidated net revenues, respectively. These revenues were generated by our Thermal segment.

No

other customers accounted for

10%

or more of our consolidated net revenues during the

nine

months ended

September 30, 2017

and

2016.

XML

Note 7 - Inventories

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Inventory Disclosure [Text Block]

( 7 ) INVENTORIES

Inventories held at

September 30, 2017

and

December 31, 2016

were comprised of the following:

	September 30, 2017		December 31, 2016
Raw materials	$	3,892	$	2,695
Work in process		1,013		728
Inventory consigned to others		72		81
Finished goods		1,056		172
Total inventories	$	6,033	$	3,676

XML

Note 8 - Debt

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Debt Disclosure [Text Block]

( 8 ) DEBT

Letters of Credit

We have issued letters of credit as the security deposits for certain of our domestic leases. These letters of credit are secured by pledged certificates of deposit which are classified as Restricted Certificates of Deposit on our balance sheets. The terms of our leases require us to renew these letters of credit at least

30

days prior to their expiration dates for successive terms of

not

less than

one

year until lease expiration. Our outstanding letters of credit at

September 30, 2017

and

December 31, 2016

consisted of the following:

		L/C	Lease	Letters of Credit Amount Outstanding
	Original L/C Issue Date	Expiration Date	Expiration Date	September 30, 2017		December 31, 2016
Mt. Laurel, NJ	3/29/2010	3/31/2018	4/30/2021	$	125	$	125
Mansfield, MA	10/27/2010	11/08/2018	8/23/2021		50		50
				$	175	$	175

XML

Note 9 - Stock-based Compensation

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

( 9 ) STOCK-BASED COMPENSATION

As of

September 30, 2017,

we have unvested restricted stock awards and stock options granted under stock-based employee compensation plans that are described more fully in Note

12

to the consolidated financial statements in our

2016

Form

10

-K.

As of

September 30, 2017,

total unrecognized compensation expense related to unvested restricted stock awards and stock options was

$691.

The weighted average period over which this expense is expected to be recognized is

2.8

years. The following table shows the allocation of the compensation expense we recorded during the

three

and

nine

months ended

September 30, 2017

and

2016,

respectively, related to stock-based compensation:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Cost of revenues	$	1	$	2	$	5	$	7
Selling expense		-		1		-		4
Engineering and product development expense		1		3		5		8
General and administrative expense		104		38		282		203
	$	106	$	44	$	292	$	222

There was

no

stock-based compensation expense capitalized in the

nine

months ended

September 30, 2017

or

2016.

Restricted Stock Awards

We record compensation expense for restricted stock awards based on the quoted market price of our stock at the grant date and amortize the expense over the vesting period. Restricted stock awards generally vest over

four

years. However, during

January 2016,

we granted

22,500

shares of restricted stock to our independent directors which vested

100%

upon the re-election of these directors at our annual meeting of stockholders in

June 2016.

The total compensation expense related to the shares granted in

2016

was

$98,

and it was recorded upon the re-election of these directors. In

March 2017,

we granted

22,500

shares of restricted stock to these same directors. These shares vested

25%

upon the grant date and will vest an additional

25%

at each of

June 30,

September 30,

and

December 31, 2017.

The total compensation expense related to these shares is

$143

and it will be recorded as the shares vest during

2017.

The following table summarizes the activity related to unvested shares of restricted stock for the

nine

months ended

September 30, 2017:

	Number of Shares			Weighted Average Grant Date Fair Value
Unvested shares outstanding, January 1, 2017		97,025		$	4.04
Granted		64,000			6.48
Vested		(45,975	)		4.70
Forfeited		-			-
Unvested shares outstanding, September 30, 2017		115,050			5.13

The total fair value of the shares that vested during the

nine

months ended

September 30, 2017

and

2016

was

$290

and

$138,

respectively, as of the vesting dates of these shares.

Stock Options

We record compensation expense for stock options based on the fair market value of the options as of the grant date.

No

option

may

be granted with an exercise period in excess of

ten

years from the date of grant. Generally, stock options will be granted with an exercise price equal to the fair market value of our stock on the date of grant and will vest over

four

years.

The fair value for stock options granted during the

nine

months ended

September 30, 2017

and

2016

was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:

	2017			2016
Risk-free interest rate		2.14	%		1.30	%
Dividend yield		0.00	%		0.00	%
Expected common stock market price volatility factor		.39			.40
Weighted average expected life of stock options (years)		6			4

The per share weighted average fair value of stock options issued during the

nine

months ended

September 30, 2017

and

2016

was

$2.64

and

$1.43,

respectively.

The following table summarizes the activity related to stock options for the

nine

months ended

September 30, 2017:

	Number of Shares		Weighted Average Grant Date Fair Value
Options outstanding, January 1, 2017 (none exercisable)		19,800	$	4.37
Granted		96,000		6.35
Exercised		-		-
Forfeited		-		-
Options outstanding, September 30, 2017 (4,950 exercisable)		115,800		6.01

XML

Note 10 - Stock Repurchase Plan

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Stock Repurchase Plan [Text Block]

( 10 ) STOCK REPURCHASE PLAN

As discussed further in our

2016

Form

10

-K, on

October 27, 2015,

our Board of Directors authorized the repurchase of up to

$5,000

of our common stock from time to time on the open market, in compliance with Rule

10b

-

18

under the Securities Exchange Act of

1934

(the "Exchange Act"), or in privately negotiated transactions (the

"2015

Repurchase Plan"). The

2015

Repurchase Plan does

not

obligate us to repurchase any particular amount of common stock and

may

be suspended or discontinued at any time without prior notice. The

2015

Repurchase Plan is funded using our operating cash flow or available cash.

During the

nine

months ended

September 30, 2017

and

2016,

we repurchased

13,883

and

209,271

shares, respectively, at a cost of

$62

and

$841,

respectively. As of

September 30, 2017,

we had repurchased a total of

297,020

shares at a cost of

$1,195

under the

2015

Repurchase Plan. All of the repurchased shares were retired.

XML

Note 11 - Employee Benefit Plans

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Pension and Other Postretirement Benefits Disclosure [Text Block]

( 11 ) EMPLOYEE BENEFIT PLANS

We have defined contribution

401

(k) plans for our employees who work in the U.S. All permanent employees of inTEST Corporation, Temptronic Corporation

(“Temptronic”) and inTEST Silicon Valley Corporation who are at least

18

years of age are eligible to participate in the inTEST Corporation Incentive Savings Plan. We match employee contributions dollar for dollar up to

10%

of the employee's annual compensation, with a maximum limit of

$5.

Employer contributions vest ratably over

four

years. Matching contributions are discretionary. For the

nine

months ended

September 30, 2017

and

2016,

we recorded

$299

and

$311

of expense for matching contributions, respectively.

All permanent employees of Ambrell are immediately eligible to participate in the Ambrell Corporation Savings & Profit Sharing Plan (the "Ambrell Plan") upon employment and are eligible for employer matching contributions after completing

one

year of service, as defined in the Ambrell Plan. The Ambrell Plan allows eligible employees to make voluntary contributions up to

100%

of compensation, up to the federal government contribution limits. We will make a matching contribution of

25%

of each employee's contributions up to a maximum of

2%

of such employee's annual compensation. From the date of acquisition through

September 30, 2017,

we made matching contributions of

$21.

XML

Note 12 - Segment Information

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

( 12 ) SEGMENT INFORMATION

As discussed in Note

1,

during

2016,

we reorganized our business from

three

product segments (Thermal Products, Mechanical Products and Electrical Products) into

two

product segments (Thermal and EMS). Accordingly, effective

January 1, 2017,

we have

two

reportable segments, which are also our reporting units. Prior period information has been reclassified to be comparable to the presentation for

2017.

Thermal includes the operations of Temptronic, Thermonics, Sigma, inTEST Thermal Solutions GmbH (Germany), inTEST Pte, Limited (Singapore) and Ambrell, which we acquired in

May 2017,

as discussed in Note

3.

Sales of this segment consist primarily of temperature management systems which we design, manufacture and market under our Temptronic, Thermonics and Sigma product lines, and precision induction heating systems which are designed, manufactured and marketed by Ambrell. In addition, this segment provides post-warranty service and support.

EMS includes the operations of our manufacturing facilities in Mt. Laurel, New Jersey and Fremont, California. Sales of this segment consist primarily of manipulator, docking hardware and tester interface products, which we design, manufacture and market.

We operate our business worldwide and sell our products both domestically and internationally. Both of our segments sell to semiconductor manufacturers,

third

-party test and assembly houses and ATE manufacturers. Thermal also sells into a variety of markets outside of the ATE market, including the automotive, consumer electronics, consumer product packaging, defense/aerospace, energy, fiber optics, industrial, telecommunications and other markets.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Net Revenues:
Thermal	$	11,470		$	6,641		$	28,440		$	17,429
EMS		5,882			4,182			18,980			12,526
	$	17,352		$	10,823		$	47,420		$	29,955
Earnings (loss) before income tax expense (benefit):
Thermal	$	1,539		$	1,402		$	4,735		$	2,709
EMS		1,594			374			5,455			733
Corporate		(292	)		(55	)		(1,841	)		(848	)
	$	2,841		$	1,721		$	8,349		$	2,594
Net earnings (loss):
Thermal	$	1,183		$	888		$	3,228		$	1,737
EMS		1,021			236			3,471			469
Corporate		(186	)		(34	)		(1,158	)		(549	)
	$	2,018		$	1,090		$	5,541		$	1,657

	September 30, 2017		December 31, 2016
Identifiable assets:
Thermal	$	49,443	$	19,893
EMS		10,771		22,951
	$	60,214	$	42,844

The following table provides information about our geographic areas of operation. Net revenues from unaffiliated customers are based on the location to which the goods are shipped.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Net revenues:
U.S.	$	4,746	$	3,268	$	12,212	$	8,898
Foreign		12,606		7,555		35,208		21,057
	$	17,352	$	10,823	$	47,420	$	29,955

	September 30, 2017		December 31, 2016
Property and equipment:
U.S.	$	1,003	$	691
Foreign		541		253
	$	1,544	$	944

XML

Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2017

Accounting Policies [Abstract]

Basis Of Presentation And Use Of Estimates [Policy Text Block]

Basis of Presentation and Use of Estimates

The accompanying consolidated financial statements include our accounts and those of our wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated upon consolidation. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") requires us 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. Certain of our accounts, including inventories, long-lived assets, goodwill, identifiable intangibles, contingent consideration liabilities and deferred tax assets and liabilities, including related valuation allowances, are particularly impacted by estimates.

In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments (consisting only of normal 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 consolidated financial statements. Therefore, these consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying footnotes included in our

2016

Form

10

-K.
 

Reclassification, Policy [Policy Text Block]

Reclassification

Certain prior period amounts have been reclassified to be comparable with the current period's presentation.

Business Combinations Policy [Policy Text Block]

Business Combinations

Acquired businesses are accounted for using the purchase method of accounting, which requires that the purchase price be allocated to the net assets acquired at their respective fair values. Any excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill. Fair values of intangible assets are estimated by valuation models prepared by our management and

third

party advisors. The assets purchased and liabilities assumed have been reflected in our consolidated balance sheets, and the results are included in the consolidated statements of operations and consolidated statements of cash flows from the date of acquisition. Any change in the fair value of acquisition-related contingent consideration subsequent to the acquisition date, including changes from events after the acquisition date, will be recognized within general and administrative expense in the period of the estimated fair value change. Acquisition-related transaction costs, including legal and accounting fees and other external costs directly related to the acquisition, are recognized separately from the acquisition and expensed as incurred in general and administrative expense in the consolidated statements of operations.

Fair Value Measurement, Policy [Policy Text Block]

Fair Value Measurements

The fair values of our financial instruments reflect the amounts that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price).

The carrying amounts of our financial instruments of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate fair value due to their short maturities.

We carry our contingent consideration liability at fair value. In accordance with the

three

-tier fair value hierarchy, we determined the fair value of our contingent consideration liability using an option-based income approach with a Monte Carlo simulation model. The income approach uses Level

3,

or unobservable inputs, as defined under the accounting guidance for fair value measurements. See Notes

3

and

4

for more information regarding our contingent consideration liability.

Inventory, Policy [Policy Text Block]

Inventories

Inventories are valued at cost on a

first

-in,

first

-out basis,

not

in excess of market value. Cash flows from the sale of inventories are recorded in operating cash flows. On a quarterly basis, we review our inventories and record excess and obsolete inventory charges based upon our established objective excess and obsolete inventory criteria. These criteria identify material that has

not

been used in a work order during the prior

twelve

months and the quantity of material on hand that is greater than the average annual usage of that material over the prior

three

years. In certain cases, additional excess and obsolete inventory charges are recorded based upon current market conditions, anticipated product life cycles, new product introductions and expected future use of the inventory. The excess and obsolete inventory charges we record establish a new cost basis for the related inventories. We incurred excess and obsolete inventory charges of

$161

and

$184

for the

nine

months ended

September 30, 2017

and

2016,

respectively.

Goodwill Intangible And Long Lived Assets [Policy Text Block]

Goodwill, Intangible and Long-Lived Assets

We account for goodwill and intangible assets in accordance with Accounting Standards Codification ("ASC")

350

(Intangibles - Goodwill and Other). Finite-lived intangible assets are amortized over their estimated useful economic life and are carried at cost less accumulated amortization. Goodwill is assessed for impairment annually in the

fourth

quarter on a reporting unit basis, or more frequently when events and circumstances occur indicating that the recorded goodwill

may

be impaired. As a part of the goodwill impairment assessment, we have the option to perform a qualitative assessment to determine whether it is more-likely-than-

not

that the fair value of a reporting unit is less than its carrying amount. If we determine this is the case, we are required to perform a

two

-step goodwill impairment test to identify potential goodwill impairment and measure the amount of goodwill impairment loss to be recognized. The

two

-step test is discussed below. If we determine that it is more-likely-than-

not

that the fair value of the reporting unit is greater than its carrying amounts, the

two

-step goodwill impairment test is

not

required.

 

If we determine it is more-likely-than-

not

that the fair value of a reporting unit is less than its carrying amount as a result of our qualitative assessment, we will perform a quantitative

two

-step goodwill impairment test. In the Step I test, the fair value of a reporting unit is computed and compared with its book value. If the book value of a reporting unit exceeds its fair value, a Step II test is performed in which the implied fair value of goodwill is compared with the carrying amount of goodwill. If the carrying amount of goodwill exceeds the implied fair value, an impairment loss is recorded in an amount equal to that excess. The

two

-step goodwill impairment assessment is based upon a combination of the income approach, which estimates the fair value of our reporting units based upon a discounted cash flow approach, and the market approach which estimates the fair value of our reporting units based upon comparable market multiples. This fair value is then reconciled to our market capitalization at year end with an appropriate control premium. The determination of the fair value of our reporting units requires management to make significant estimates and assumptions including the selection of appropriate peer group companies, control premiums, discount rate, terminal growth rates, forecasts of revenue and expense growth rates, income tax rates, changes in working capital, depreciation, amortization and capital expenditures. Changes in assumptions concerning future financial results or other underlying assumptions could have a significant impact on either the fair value of the reporting unit or the amount of the goodwill impairment charge.

Indefinite-lived intangible assets are assessed for impairment annually in the

fourth

quarter, or more frequently if events or changes in circumstances indicate that the asset might be impaired. As a part of the impairment assessment, we have the option to perform a qualitative assessment to determine whether it is more likely than

not

that an indefinite-lived intangible asset is impaired. If, as a result of our qualitative assessment, we determine that it is more-likely-than-

not

that the fair value of the indefinite-lived intangible asset is less than its carrying amount, the quantitative impairment test is required. Otherwise,

no

further testing is required. The quantitative impairment test consists of a comparison of the fair value of the intangible asset with its carrying amount. If the carrying amount of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.

Long-lived assets, which consist of finite-lived intangible assets and property and equipment, are assessed for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets

may

not

be fully recoverable or that the useful lives of these assets are

no

longer appropriate. Each impairment test is based on a comparison of the estimated undiscounted cash flows to the recorded value of the asset. If impairment is indicated, the asset is written down to its estimated fair value. The cash flow estimates used to determine the impairment, if any, contain management's best estimates using appropriate assumptions and projections at that time.

Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block]

Stock-Based Compensation

We account for stock-based compensation in accordance with ASC Topic

718

(Compensation - Stock Compensation), which requires that employee share-based equity awards be accounted for under the fair value method and requires the use of an option pricing model for estimating fair value of stock options granted, which is then amortized to expense over the service periods. See further disclosures related to our stock-based compensation plan in Note

9.

Subsequent Events, Policy [Policy Text Block]

Subsequent Events

We have made an assessment of our operations and determined that there were

no

material subsequent events requiring adjustment to, or disclosure in, our consolidated financial statements for the

nine

months ended

September 30, 2017.

Revenue Recognition, Policy [Policy Text Block]

Revenue Recognition

We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, and collection of the related receivable is reasonably assured. Sales of our products are made through our sales employees,

third

-party sales representatives and distributors. There are

no

differences in revenue recognition policies based on the sales channel. We do

not

provide our customers with rights of return or exchanges. Revenue is generally recognized upon product shipment. Our customers' purchase orders do

not

typically contain any customer-specific acceptance criteria, other than that the product performs within the agreed upon specifications. We test all products manufactured as part of our quality assurance process to determine that they comply with specifications prior to shipment to a customer. To the extent that any customer purchase order contains customer-specific acceptance criteria, revenue recognition is deferred until customer acceptance.

In addition, we lease certain of our equipment to customers under non-cancellable operating leases. These leases generally have an initial term of

six

months. We recognize revenue for these leases on a straight-line basis over the term of the lease.

With respect to sales tax collected from customers and remitted to governmental authorities, we use a net presentation in our consolidated statement of operations. As a result, there are

no

amounts included in either our net revenues or cost of revenues related to sales tax.

Standard Product Warranty, Policy [Policy Text Block]

Product Warranties

We generally provide product warranties and record estimated warranty expense at the time of sale based upon historical claims experience. Warranty expense is included in selling expense in our consolidated statement of operations. 

Income Tax, Policy [Policy Text Block]

Income Taxes

The asset and liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for operating loss and tax credit carryforwards and for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets if it is more likely than

not

that such assets will

not

be realized.

Earnings Per Share, Policy [Policy Text Block]

Net Earnings Per Common Share

Net earnings per common share - basic is computed by dividing net earnings by the weighted average number of common shares outstanding during each period. Net earnings per common share - diluted is computed by dividing net earnings by the weighted average number of common shares and common share equivalents outstanding during each period. Common share equivalents represent unvested shares of restricted stock and stock options and are calculated using the treasury stock method. Common share equivalents are excluded from the calculation if their effect is anti-dilutive.

The table below sets forth, for the periods indicated, a reconciliation of weighted average common shares outstanding - basic to weighted average common shares and common share equivalents outstanding - diluted and the average number of potentially dilutive securities that were excluded from the calculation of diluted earnings per share because their effect was anti-dilutive:

	Three Months Ended Sept ember 30,				Nine Months Ended Sept ember 30,
	2017		2016		2017		2016
Weighted average common shares outstanding - basic		10,288,325		10,295,447		10,276,682		10,327,095
Potentially dilutive securities:
Unvested shares of restricted stock and stock options		62,684		23,268		50,398		17,652
Weighted average common shares and common share equivalents outstanding - diluted		10,351,009		10,318,715		10,327,080		10,344,747
Average number of potentially dilutive securities excluded from calculation		96,000		19,800		79,753		18,277

New Accounting Pronouncements, Policy [Policy Text Block]

Effect of Recently Adopted Amendments to Authoritative Accounting Guidance

In

March 2016,

the Financial Accounting Standards Board (the "FASB") issued amendments to the current guidance on accounting for stock-based compensation issued to employees which is contained in ASC Topic

718

(Compensation - Stock Compensation). The amendments simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The amendments were effective for us as of

January 1, 2017.

The implementation of these amendments did

not

have a material impact on our consolidated financial statements.

In

July 2015,

the FASB issued amendments to update the current guidance on the subsequent measurement of inventory, which is presented in ASC Topic

330

(Inventory). The purpose of the amendments is to simplify the subsequent measurement of inventory and reduce the number of potential outcomes. It applies to all inventory other than inventory measured using last-in,

first

-out or the retail inventory method. Current guidance requires an entity to measure inventory at the lower of cost or market. Market could be replacement cost, net realizable value, or net realizable value less a normal profit margin. The updated guidance amends this to require that an entity measure inventory within the scope of the updated guidance at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The amendments were effective for us as of

January 1, 2017.

The implementation of these amendments did

not

have a material impact on our consolidated financial statements.

 

Effect of Recently Issued Amendments to Authoritative Accounting Guidance

In

May 2017,

the FASB issued amendments to the guidance on accounting for a change to the terms or conditions (modification) of a share-based payment award. The amendments provide that an entity should account for the effects of a modification unless the fair value and vesting conditions of the modified award and the classification of the modified award (equity or liability instrument) are the same as the original award immediately before the modification. The amendments are effective for us as of

January 1, 2018.

Early adoption is permitted. The amendments are to be applied prospectively to an award modified on or after the adoption date. We do

not

expect the implementation of the amendments to have a material impact on our consolidated financial statements.

In

January 2017,

the FASB issued amendments to the guidance on accounting for goodwill impairment. The amendments simplify the accounting for goodwill impairment by removing Step II of the goodwill impairment test, which requires a hypothetical purchase price allocation. Under the amendments, a goodwill impairment will now be the amount by which a reporting unit's carrying value exceeds its fair value,

not

to exceed the carrying amount of goodwill. The amendments will be applied prospectively and are effective for us as of

January 1, 2020,

with early application permitted beginning

January 1, 2017.

We do

not

expect the implementation of the amendments to have a material impact on our consolidated financial statements.

In

January 2017,

the FASB issued amendments to clarify the current guidance on the definition of a business. The objective of the amendments is to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments are effective for us as of

January 1, 2018,

with early application permitted. We do

not

expect the implementation of these amendments to have a material impact on our consolidated financial statements.

In

November 2016,

the FASB issued amendments to the guidance on presentation of restricted cash within the statement of cash flows. The amendments require that restricted cash be included within cash and cash equivalents on the statement of cash flows. The amendments are effective for us as of

January 1, 2018,

and are to be applied retrospectively. Early application is permitted. We do

not

expect the implementation of these amendments to have a material impact on our consolidated financial statements.

In

February 2016,

the FASB issued amendments to the current guidance on accounting for lease transactions, which is presented in ASC Topic

842

(Leases). The intent of the updated guidance is to increase transparency and comparability among organizations by requiring lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by leases and to disclose key information about leasing arrangements. Under the new guidance, a lessee will be required to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than

12

months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The amendments are effective for us as of

January 1, 2019.

A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. We are currently evaluating the impact of the implementation of these amendments on our consolidated financial statements.

In

May 2014,

the FASB issued new guidance on the recognition of revenue from contracts with customers. Subsequent to

May, 2014,

the FASB has issued additional clarifying guidance on certain aspects of this new guidance. This new guidance is presented in ASC Topic

606

(Revenue from Contracts with Customers) and will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. Companies can use either the retrospective or cumulative effect transition method. In

August 2015,

the FASB deferred the effective date of this new guidance for

one

additional year. As a result, this new guidance is effective for us as of

January 1, 2018.

Early application is only permitted as of the prior effective date, which in our case would be as of

January 1, 2017.

We currently plan to implement this new guidance on

January 1, 2018

with a cumulative adjustment to retained earnings as opposed to retrospectively adjusting prior periods. During the

fourth

quarter of

2016,

we completed a preliminary review of all our revenue streams to identify any differences in timing, measurement or presentation of revenue recognition. Our implementation process is ongoing; however, based on the results of our assessment to date, we currently do

not

expect the implementation of this new guidance to have a significant impact on the timing or amount of revenue we recognize in any given period in comparison to the amount recognized under current guidance.

XML

Note 2 - Summary of Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2017

Notes Tables

Schedule of Weighted Average Number of Shares [Table Text Block]

	Three Months Ended Sept ember 30,				Nine Months Ended Sept ember 30,
	2017		2016		2017		2016
Weighted average common shares outstanding - basic		10,288,325		10,295,447		10,276,682		10,327,095
Potentially dilutive securities:
Unvested shares of restricted stock and stock options		62,684		23,268		50,398		17,652
Weighted average common shares and common share equivalents outstanding - diluted		10,351,009		10,318,715		10,327,080		10,344,747
Average number of potentially dilutive securities excluded from calculation		96,000		19,800		79,753		18,277

XML

Note 3 - Acquisition (Tables)

9 Months Ended

Sep. 30, 2017

Notes Tables

Schedule of Business Acquisitions, by Acquisition [Table Text Block]

Cash paid to acquire the capital stock of Ambrell	$	22,610
Estimated fair value of contingent consideration		4,123
Total purchase price	$	26,733

Goodwill	$	12,032
Identifiable intangible assets		16,300
Tangible assets acquired and liabilities assumed:
Cash		648
Trade accounts receivable		3,621
Inventories		1,917
Other current assets		200
Property and equipment		614
Accounts payable		(1,420	)
Accrued expenses		(1,280	)
Customer advances		(554	)
Deferred tax liability		(5,345	)
Total purchase price	$	26,733

Schedule of Finite-Lived Intangible Assets Acquired as Part of Business Combination [Table Text Block]

	Fair Value		Weighted Average Estimated Useful Life
			(in years)
Finite-lived intangible assets:
Customer relationships	$	9,000		9.0
Technology		600		9.0
Customer backlog		500		0.3
Total finite-lived intan gible assets		10,100		8.6
Indefinite-lived intangible assets:
Trademarks		6,200
Total intangible assets	$	16,300

Business Acquisition, Pro Forma Information [Table Text Block]

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Net revenues	$	17,352	$	15,458	$	55,040	$	44,225
Net earnings	$	2,291	$	709	$	6,452	$	593
Diluted earnings per share	$	0.22	$	0.07	$	0.61	$	0.06

XML

Note 4 - Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2017

Notes Tables

Fair Value, Liabilities Measured on Recurring Basis [Table Text Block]

	Amounts at		Fair Value Measurement Using
	Fair Value		Level 1		Level 2		Level 3
As of September 30, 2017
Contingent consideration liability	$	3,574	$	-	$	-	$	3,574

Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Table Text Block]

	Three Months Ended September 30, 2017			Nine Months Ended September 30, 2017
Balance at beginning of period	$	4,123		$	-
Contingent consideration liability established in connection with the acquisition of Ambrell		-			4,123
Fair value adjustment		(549	)		(549	)
Balance at end of period	$	3,574		$	3,574

XML

Note 5 - Goodwill and Intangible Assets (Tables)

9 Months Ended

Sep. 30, 2017

Notes Tables

Schedule of Goodwill [Table Text Block]

	Sigma		Thermonics		Ambrell		Total
Balance - January 1, 2017	$	1,656	$	50	$	-	$	1,706
Acquisition of Ambrell		-		-		12,032		12,032
Balance - September 30, 2017	$	1,656	$	50	$	12,032	$	13,738

Schedule of Carrying Value of Finite-lived Intangible Assets [Table Text Block]

Balance - January 1, 2017	$	365
Acquisition of Ambrell		10,100
Amortization		(916	)
Balance - September 30, 2017	$	9,549

Schedule Of Intangible Assets [Table Text Block]

	September 30, 2017
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Finite-lived intangible assets:
Customer relationships	$	10,480	$	1,640	$	8,840
Technology		600		54		546
Patents		590		454		136
Software		270		243		27
Trade name		140		140		-
Customer backlog		500		500		-
Total finite-lived intangible assets		12,580		3,031		9,549
Indefinite-lived intangible assets:
Trademarks		6,710		-		6,710
Total intangible assets	$	19,290	$	3,031	$	16,259

	December 31, 2016
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Finite-lived intangible assets:
Customer relationships	$	1,480	$	1,328	$	152
Patents		590		424		166
Software		270		223		47
Trade name		140		140		-
Total finite-lived intangible assets		2,480		2,115		365
Indefinite-lived intangible assets:
Sigma trademark		510		-		510
Total intangible assets	$	2,990	$	2,115	$	875

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense [Table Text Block]

2017 (remainder)	$	246
2018	$	1,102
2019	$	1,257
2020	$	1,233
2021	$	1,227

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Note 7 - Inventories (Tables)

9 Months Ended

Sep. 30, 2017

Notes Tables

Schedule of Inventory, Current [Table Text Block]

	September 30, 2017		December 31, 2016
Raw materials	$	3,892	$	2,695
Work in process		1,013		728
Inventory consigned to others		72		81
Finished goods		1,056		172
Total inventories	$	6,033	$	3,676

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Note 8 - Debt (Tables)

9 Months Ended

Sep. 30, 2017

Notes Tables

Schedule Of Outstanding Letters Of Credit [Table Text Block]

		L/C	Lease	Letters of Credit Amount Outstanding
	Original L/C Issue Date	Expiration Date	Expiration Date	September 30, 2017		December 31, 2016
Mt. Laurel, NJ	3/29/2010	3/31/2018	4/30/2021	$	125	$	125
Mansfield, MA	10/27/2010	11/08/2018	8/23/2021		50		50
				$	175	$	175

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Note 9 - Stock-based Compensation (Tables)

9 Months Ended

Sep. 30, 2017

Notes Tables

Schedule of Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Table Text Block]

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Cost of revenues	$	1	$	2	$	5	$	7
Selling expense		-		1		-		4
Engineering and product development expense		1		3		5		8
General and administrative expense		104		38		282		203
	$	106	$	44	$	292	$	222

Schedule of Nonvested Share Activity [Table Text Block]

	Number of Shares			Weighted Average Grant Date Fair Value
Unvested shares outstanding, January 1, 2017		97,025		$	4.04
Granted		64,000			6.48
Vested		(45,975	)		4.70
Forfeited		-			-
Unvested shares outstanding, September 30, 2017		115,050			5.13

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]

	2017			2016
Risk-free interest rate		2.14	%		1.30	%
Dividend yield		0.00	%		0.00	%
Expected common stock market price volatility factor		.39			.40
Weighted average expected life of stock options (years)		6			4

Share-based Compensation, Stock Options, Activity [Table Text Block]

	Number of Shares		Weighted Average Grant Date Fair Value
Options outstanding, January 1, 2017 (none exercisable)		19,800	$	4.37
Granted		96,000		6.35
Exercised		-		-
Forfeited		-		-
Options outstanding, September 30, 2017 (4,950 exercisable)		115,800		6.01

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Note 12 - Segment Information (Tables)

9 Months Ended

Sep. 30, 2017

Notes Tables

Schedule of Segment Reporting Information, by Segment [Table Text Block]

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Net Revenues:
Thermal	$	11,470		$	6,641		$	28,440		$	17,429
EMS		5,882			4,182			18,980			12,526
	$	17,352		$	10,823		$	47,420		$	29,955
Earnings (loss) before income tax expense (benefit):
Thermal	$	1,539		$	1,402		$	4,735		$	2,709
EMS		1,594			374			5,455			733
Corporate		(292	)		(55	)		(1,841	)		(848	)
	$	2,841		$	1,721		$	8,349		$	2,594
Net earnings (loss):
Thermal	$	1,183		$	888		$	3,228		$	1,737
EMS		1,021			236			3,471			469
Corporate		(186	)		(34	)		(1,158	)		(549	)
	$	2,018		$	1,090		$	5,541		$	1,657

Revenue from External Customers by Geographic Areas [Table Text Block]

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Net revenues:
U.S.	$	4,746	$	3,268	$	12,212	$	8,898
Foreign		12,606		7,555		35,208		21,057
	$	17,352	$	10,823	$	47,420	$	29,955

Long-lived Assets by Geographic Areas [Table Text Block]

	September 30, 2017		December 31, 2016
Property and equipment:
U.S.	$	1,003	$	691
Foreign		541		253
	$	1,544	$	944

Asset [Member]

Notes Tables

Schedule of Segment Reporting Information, by Segment [Table Text Block]

	September 30, 2017		December 31, 2016
Identifiable assets:
Thermal	$	49,443	$	19,893
EMS		10,771		22,951
	$	60,214	$	42,844

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Note 1 - Nature of Operations (Details Textual)	9 Months Ended	12 Months Ended
	Sep. 30, 2017	Dec. 31, 2016
Number of Reportable Segments	2	3

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Note 2 - Summary of Significant Accounting Policies (Details Textual) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016
Inventory Write-down	$ 161	$ 184
Thermal Products and Mechanical Products [Member]
Equipment Leased To Customers Initial Term	180 days

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Note 2 - Summary of Significant Accounting Policies - Weighted Average Common Shares (Details) - shares	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Weighted average common shares outstanding - basic (in shares)	10,288,325	10,295,447	10,276,682	10,327,095
Potentially dilutive securities:
Unvested shares of restricted stock and stock options (in shares)	62,684	23,268	50,398	17,652
Weighted average common shares and common share equivalents outstanding - diluted (in shares)	10,351,009	10,318,715	10,327,080	10,344,747
Average number of potentially dilutive securities excluded from calculation (in shares)	96,000	19,800	79,753	18,277

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Note 3 - Acquisition (Details Textual) - USD ($) $ in Thousands		3 Months Ended		4 Months Ended	9 Months Ended
	May 24, 2017	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2017	Sep. 30, 2016
Business Combination, Contingent Consideration Arrangements, Change in Amount of Contingent Consideration, Liability		$ (549)	$ 0		$ (549)
Ambrell [Member]
Payments to Acquire Businesses, Gross	$ 22,610
Business Acquisition, Transaction Costs	880
Business Combination, Consideration Transferred	26,733
Business Combination, Contingent Consideration, Liability	4,123
Business Combination, Pro Forma Information, Revenue of Acquiree since Acquisition Date, Actual				$ 6,925
Business Combination, Pro Forma Information, Earnings or Loss of Acquiree since Acquisition Date, Actual				$ 336
Business Combination, Contingent Consideration Arrangements, Change in Amount of Contingent Consideration, Liability		$ (549)
Ambrell [Member] | Aggregate Total Payout [Member]
Business Combination, Contingent Consideration Arrangements, Range of Outcomes, Value, High	$ 18,000

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Note 3 - Acquisition - Purchase Price (Details) - USD ($) $ in Thousands		9 Months Ended
	May 24, 2017	Sep. 30, 2017	Sep. 30, 2016	Dec. 31, 2016
Goodwill		$ 13,738		$ 1,706
Ambrell [Member]
Cash paid to acquire the capital stock of Ambrell	$ 22,610
Estimated fair value of contingent consideration	4,123	4,123
Total purchase price	26,733
Goodwill	12,032	$ 12,032
Identifiable intangible assets	16,300
Cash	648
Trade accounts receivable	3,621
Inventories	1,917
Other current assets	200
Property and equipment	614
Accounts payable	(1,420)
Accrued expenses	(1,280)
Customer advances	(554)
Deferred tax liability	(5,345)
Total purchase price	$ 26,733

XML

Note 3 - Acquisition - Intangible Assets Acquired (Details) - USD ($) $ in Thousands		9 Months Ended
	May 24, 2017	Sep. 30, 2017
Finite-lived intangible assets		$ 10,100
Acquisition of Ambrell		$ 10,100
Ambrell [Member]
Finite-lived intangible assets	$ 10,100
Finite-lived intangible assets, weighted average estimated useful life (Year)	8 years 219 days
Acquisition of Ambrell	$ 10,100
Identifiable intangible assets	16,300
Ambrell [Member] | Trademarks [Member]
Indefinite-lived intangible assets	6,200
Ambrell [Member] | Customer Relationships [Member]
Finite-lived intangible assets	$ 9,000
Finite-lived intangible assets, weighted average estimated useful life (Year)	9 years
Acquisition of Ambrell	$ 9,000
Ambrell [Member] | Patented Technology [Member]
Finite-lived intangible assets	$ 600
Finite-lived intangible assets, weighted average estimated useful life (Year)	9 years
Acquisition of Ambrell	$ 600
Ambrell [Member] | Order or Production Backlog [Member]
Finite-lived intangible assets	$ 500
Finite-lived intangible assets, weighted average estimated useful life (Year)	109 days
Acquisition of Ambrell	$ 500

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Note 3 - Acquisition - Proforma Information (Details) - Ambrell [Member] - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Net revenues	$ 17,352	$ 15,458	$ 55,040	$ 44,225
Net earnings	$ 2,291	$ 709	$ 6,452	$ 593
Diluted earnings per share (in dollars per share)	$ 0.22	$ 0.07	$ 0.61	$ 0.06

XML

Note 4 - Fair Value Measurements (Details Textual) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Business Combination, Contingent Consideration Arrangements, Change in Amount of Contingent Consideration, Liability	$ (549)	$ 0	$ (549)
Ambrell [Member]
Business Combination, Contingent Consideration Arrangements, Change in Amount of Contingent Consideration, Liability	$ (549)

XML

Note 4 - Fair Value Measurements - Liabilities Measured on a Recurring Basis (Details) - Fair Value, Measurements, Recurring [Member] $ in Thousands	Sep. 30, 2017 USD ($)
Contingent consideration liability	$ 3,574
Fair Value, Inputs, Level 1 [Member]
Contingent consideration liability
Fair Value, Inputs, Level 2 [Member]
Contingent consideration liability
Fair Value, Inputs, Level 3 [Member]
Contingent consideration liability	$ 3,574

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Note 4 - Fair Value Measurements - Change in Fair Value of Contingent Consideration Liability (Details) - Contingent Consideration Liability [Member] - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2017
Balance at beginning of period	$ 4,123
Contingent consideration liability established in connection with the acquisition of Ambrell		4,123
Fair value adjustment	(549)	(549)
Balance at end of period	$ 3,574	$ 3,574

XML

Note 5 - Goodwill and Intangible Assets (Details Textual) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016
Amortization of Intangible Assets	$ 916	$ 173

XML

Note 5 - Goodwill and Intangible Assets - Changes in the Amount of the Carrying Value of Goodwill (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016
Balance	$ 1,706
Acquisition of Ambrell	12,032
Balance	13,738
Sigma [Member]
Balance	1,656
Balance	1,656
Thermonics [Member]
Balance	50
Balance	50
Ambrell [Member]
Balance
Acquisition of Ambrell	12,032
Balance	$ 12,032

XML

Note 5 - Goodwill and Intangible Assets - Changes in the Amount of the Carrying Value of Intangible Assets (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016
Balance	$ 365
Acquisition of Ambrell	10,100
Amortization	(916)	$ (173)
Balance	$ 9,549

XML

Note 5 - Goodwill and Intangible Assets - Intangible Assets (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Finite-lived, Gross Carrying Amount	$ 12,580	$ 2,480
Finite-lived, Accumulated Amortization	3,031	2,115
Net Carrying Amount	9,549	365
Intangible Assets, Gross Carrying Amount	19,290	2,990
Net Carrying Amount	16,259	875
Trademarks [Member]
Indefinite-lived, Gross Carrying Amount	6,710	510
Net Carrying Amount	6,710	510
Indefinite-lived, Gross Carrying Amount	6,710	510
Customer Relationships [Member]
Finite-lived, Gross Carrying Amount	10,480	1,480
Finite-lived, Accumulated Amortization	1,640	1,328
Net Carrying Amount	8,840	152
Patented Technology [Member]
Finite-lived, Gross Carrying Amount	600
Finite-lived, Accumulated Amortization	54
Net Carrying Amount	546
Patents [Member]
Finite-lived, Gross Carrying Amount	590	590
Finite-lived, Accumulated Amortization	454	424
Net Carrying Amount	136	166
Computer Software, Intangible Asset [Member]
Finite-lived, Gross Carrying Amount	270	270
Finite-lived, Accumulated Amortization	243	223
Net Carrying Amount	27	47
Trade Names [Member]
Finite-lived, Gross Carrying Amount	140	140
Finite-lived, Accumulated Amortization	140	140
Net Carrying Amount
Order or Production Backlog [Member]
Finite-lived, Gross Carrying Amount	500
Finite-lived, Accumulated Amortization	500
Net Carrying Amount

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Note 5 - Goodwill and Intangible Assets - Future Amortization Expense (Details) $ in Thousands	Sep. 30, 2017 USD ($)
2017 (remainder)	$ 246
2018	1,102
2019	1,257
2020	1,233
2021	$ 1,227

XML

Note 6 - Major Customers (Details Textual)	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016
Number of Operating Segments	2
Sales Revenue, Net [Member] | Customer Concentration Risk [Member] | Texas Instruments Incorporated [Member]
Concentration Risk, Percentage	12.00%	11.00%
Sales Revenue, Net [Member] | Customer Concentration Risk [Member] | Hakuto Co Ltd [Member]
Concentration Risk, Percentage	11.00%	13.00%

XML

Note 7 - Inventories - Inventories Held (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Raw materials	$ 3,892	$ 2,695
Work in process	1,013	728
Inventory consigned to others	72	81
Finished goods	1,056	172
Total inventories	$ 6,033	$ 3,676

XML

Note 8 - Debt - Outstanding Letters of Credit (Details) - Letter of Credit [Member] - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2017	Dec. 31, 2016
Letters of Credit Amount Outstanding	$ 175	$ 175
Mt Laurel [Member]
Line of Credit, Issue Date	Mar. 29, 2010
Line of Credit, ExpirationDate	Mar. 31, 2018
Lease Expiration Date	Apr. 30, 2021
Letters of Credit Amount Outstanding	$ 125	125
Mansfield [Member]
Line of Credit, Issue Date	Oct. 27, 2010
Line of Credit, ExpirationDate	Nov. 08, 2018
Lease Expiration Date	Aug. 23, 2021
Letters of Credit Amount Outstanding	$ 50	$ 50

XML

Note 9 - Stock-based Compensation (Details Textual) - USD ($) $ / shares in Units, $ in Thousands	1 Months Ended		3 Months Ended		9 Months Ended		10 Months Ended
	Mar. 31, 2017	Jan. 31, 2016	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016	Dec. 31, 2017
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized			$ 691		$ 691
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition					2 years 292 days
Restricted Stock [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs, Capitalized Amount					$ 0	$ 0
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period					4 years
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period					64,000
Allocated Share-based Compensation Expense			$ 106	$ 44	$ 292	222
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period, Fair Value					$ 290	$ 138
Restricted Stock [Member] | Independent Directors [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period	22,500	22,500
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage		100.00%
Allocated Share-based Compensation Expense		$ 98
Restricted Stock [Member] | Independent Directors [Member] | Scenario, Forecast [Member]
Allocated Share-based Compensation Expense							$ 143
Restricted Stock [Member] | Independent Directors [Member] | Share-based Compensation Award, Tranche One [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage	25.00%
Restricted Stock [Member] | Independent Directors [Member] | Share-based Compensation Award, Tranche Two [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage	25.00%
Restricted Stock [Member] | Independent Directors [Member] | Share-based Compensation Award, Tranche Three [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage	25.00%
Restricted Stock [Member] | Independent Directors [Member] | Share-based Compensation Award, Tranche Four [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage	25.00%
Employee Stock Option [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period					4 years
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period					10 years
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Weighted Average Grant Date Fair Value					$ 2.64	$ 1.43

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Note 9 - Stock-based Compensation - Allocation of Share-based Compensation Expense (Details) - Restricted Stock [Member] - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Allocated Share-based Compensation Expense	$ 106	$ 44	$ 292	$ 222
Cost of Sales [Member]
Allocated Share-based Compensation Expense	1	2	5	7
Selling and Marketing Expense [Member]
Allocated Share-based Compensation Expense		1		4
Research and Development Expense [Member]
Allocated Share-based Compensation Expense	1	3	5	8
General and Administrative Expense [Member]
Allocated Share-based Compensation Expense	$ 104	$ 38	$ 282	$ 203

XML

Note 9 - Stock-based Compensation - Nonvested Shares (Details) - Restricted Stock [Member]	9 Months Ended
	Sep. 30, 2017 $ / shares shares
Unvested shares outstanding (in shares) | shares	97,025
Unvested shares outstanding (in dollars per share) | $ / shares	$ 4.04
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period | shares	64,000
Granted (in dollars per share) | $ / shares	$ 6.48
Vested (in shares) | shares	(45,975)
Vested (in dollars per share) | $ / shares	$ 4.70
Forfeited (in shares) | shares
Forfeited (in dollars per share) | $ / shares
Unvested shares outstanding (in shares) | shares	115,050
Unvested shares outstanding (in dollars per share) | $ / shares	$ 5.13

XML

Note 9 - Stock-based Compensation - Stock Options Valuation Assumptions (Details) - Employee Stock Option [Member]	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016
Risk-free interest rate	2.14%	1.30%
Dividend yield	0.00%	0.00%
Expected common stock market price volatility factor	0.39%	0.40%
Weighted average expected life of stock options (years) (Year)	6 years	4 years

XML

Note 9 - Stock-based Compensation - Stock Option Activity (Details)	9 Months Ended
	Sep. 30, 2017 $ / shares shares
Options outstanding, Number of shares (in shares) | shares	19,800
Options outstanding, Weighted average grant date fair value (in dollars per share) | $ / shares	$ 4.37
Granted, Number of shares (in shares) | shares	96,000
Granted, Weighted average grant date fair value (in dollars per share) | $ / shares	$ 6.35
Options outstanding, Number of shares (in shares) | shares	115,800
Options outstanding, Weighted average grant date fair value (in dollars per share) | $ / shares	$ 6.01

XML

Note 9 - Stock-based Compensation - Stock Option Activity (Details) (Parentheticals) - shares	Sep. 30, 2017	Dec. 31, 2016
Options exercisable (in shares)	4,950	0

XML

Note 10 - Stock Repurchase Plan (Details Textual) - USD ($) $ in Thousands	9 Months Ended		23 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Oct. 27, 2015
Stock Repurchase Program, Authorized Amount				$ 5,000
Stock Repurchased and Retired During Period, Shares	13,883	209,271	297,020
Stock Repurchased and Retired During Period, Value	$ 62	$ 841	$ 1,195

XML

Note 11 - Employee Benefit Plans (Details Textual) - USD ($) $ in Thousands	4 Months Ended	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2017	Sep. 30, 2016
Defined Contribution Plan, Employer Matching Contribution, Percent of Employees' Gross Pay		10.00%
Defined Contribution Plan Maximum Annual Employer Matching Contribution Per Emplyee Amount		$ 5
Defined Contribution Plan Employer Matching Contribution Vesting Period		4 years
Defined Contribution Plan, Employer Discretionary Contribution Amount		$ 299	$ 311
The Ambrell Plan [Member]
Defined Contribution Plan, Employer Matching Contribution, Percent of Employees' Gross Pay	2.00%
Defined Contribution Plan, Employer Discretionary Contribution Amount	$ 21
Defined Contribution Plan, Maximum Annual Contributions Per Employee, Percent	100.00%
Defined Contribution Plan, Employer Matching Contribution, Percent of Match	25.00%

XML

Note 12 - Segment Information (Details Textual)	9 Months Ended	12 Months Ended
	Sep. 30, 2017	Dec. 31, 2016
Number of Reportable Segments	2	3

XML

Note 12 - Segment Information - Segment Information (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Net revenues	$ 17,352	$ 10,823	$ 47,420	$ 29,955
Earnings before income tax expense	2,841	1,721	8,349	2,594
Net earnings	2,018	1,090	5,541	1,657
Corporate, Non-Segment [Member]
Earnings before income tax expense	(292)	(55)	(1,841)	(848)
Net earnings	(186)	(34)	(1,158)	(549)
Thermal Products [Member] | Operating Segments [Member]
Net revenues	11,470	6,641	28,440	17,429
Earnings before income tax expense	1,539	1,402	4,735	2,709
Net earnings	1,183	888	3,228	1,737
EMS [Member] | Operating Segments [Member]
Net revenues	5,882	4,182	18,980	12,526
Earnings before income tax expense	1,594	374	5,455	733
Net earnings	$ 1,021	$ 236	$ 3,471	$ 469

XML

Note 12 - Segment Information - Identifiable Assets (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Identifiable assets:
Identifiable Assets	$ 60,214	$ 42,844
Thermal Products [Member]
Identifiable assets:
Identifiable Assets	49,443	19,893
EMS [Member]
Identifiable assets:
Identifiable Assets	$ 10,771	$ 22,951

XML

Note 12 - Segment Information - Net Revenue From Unaffiliated Customers (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Revenues	$ 17,352	$ 10,823	$ 47,420	$ 29,955
UNITED STATES
Revenues	4,746	3,268	12,212	8,898
Foreign [Member]
Revenues	$ 12,606	$ 7,555	$ 35,208	$ 21,057

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Note 12 - Segment Information - Long-lived Assets by Geographical Area (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Property and Equipment	$ 1,544	$ 944
UNITED STATES
Property and Equipment	1,003	691
Foreign [Member]
Property and Equipment	$ 541	$ 253