As discussed more fully in our 2007 Form 10-K, 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. Demand for ATE is driven by semiconductor manufacturers that are opening new, or expanding existing, semiconductor fabrication facilities or upgrading existing equipment, which in turn is dependent upon the current and anticipated market demand for semiconductors and products incorporating semiconductors. 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. These industry cycles are difficult to predict and in recent years have become more volatile and shorter in duration. Because the industry 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, as during the third quarter of 2008, and continuing into the fourth quarter, when we saw some push outs and cancellations on orders.

We believe that purchases of most of our products are typically made from semiconductor manufacturers' capital expenditure budgets. Certain portions of our business, however, are generally less dependent upon the capital expenditure budgets of the end users. For example, purchases of certain related ATE interface products, such as sockets and interface boards, which must be replaced periodically, are typically made from the end users' operating budgets. In addition, purchases of certain of our products, such as docking hardware, for the purpose of upgrading or improving the utilization, performance and efficiency of existing ATE, tend to be counter cyclical to sales of new ATE. Moreover, we believe a portion of our sales of temperature management products results from the increasing need for temperature testing of circuit boards and specialized components that do not have the design or quantity to be tested in an electronic device handler. In addition, in recent years we have begun to market our Thermostream temperature management systems in industries outside semiconductor test, such as the automotive, medical/pharmaceutical, electronic, aerospace/defense and telecommunications industries. We believe our October 6, 2008 acquisition of Sigma Systems Corp. (as discussed in Note 13 of the footnotes to our consolidated financial statements) will further expand our temperature management product offerings and will contribute to increasing our revenues in industries outside semiconductor test. We believe that these industries usually are less cyclical than the ATE industry.

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 changes within the ATE market, including, for example, changing product requirements, longer time periods between new product offerings by ATE Manufacturers (OEMs) and changes in customer buying patterns. In particular, demand for our manipulator, docking hardware and tester interface products, which are sold exclusively within the ATE industry, and our operating margins in these product segments have been affected by shifts in the competitive landscape, including (i) customers placing heightened emphasis on shorter lead times (which places increased demands on our available engineering and production capacity increasing unit costs) and ordering in smaller quantities (which prevents us from acquiring component materials in larger volumes at lower cost and increasing unit costs), (ii) the increasing practice of OEMs to specify other suppliers as primary vendors, with less frequent opportunities to compete for such designations, (iii) the increased 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, and (iv) customer supply line management groups demanding lower prices and spreading purchases across multiple vendors. These shifts in market practices have had, and may continue to have, varying levels of impact on our operating results, but it is difficult to quantify the impact of these practices 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, but there can be no assurance that such actions will be fully effective or timely made.

The following table sets forth, for the periods indicated, a breakdown of the net revenues from unaffiliated customers both by product segment and geographic area (based on the location of the selling entity).

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

                                                                    (in 000's)
                                                     Three Months Ended          Nine Months Ended
                                                     Sept. 30,      June 30,         Sept. 30,
   Net revenues from unaffiliated customers:     2008       2007       2008       2008       2007
   Manipulator/Docking Hardware                  $3,792    $ 6,537    $ 4,156    $12,974    $17,187
   Temperature Management                         4,537      5,649      4,753     14,002     17,101
   Tester Interface                               1,385      1,503      2,871      6,203      4,802
   Intersegment sales                              (555)      (575)      (283)    (1,219)    (1,796)
                                                 $9,159    $13,114    $11,497    $31,960    $37,294
   Intersegment sales:
   Manipulator/Docking Hardware                   $   -       $  3      $   -      $   -      $   7
   Temperature Management                           449        475        109        891      1,498
   Tester Interface                                 106         97        174        328        291
                                                   $555       $575       $283     $1,219     $1,796
   Net revenues from unaffiliated customers
   (net of intersegment sales):
   Manipulator/Docking Hardware                  $3,792    $ 6,534    $ 4,156    $12,974    $17,180
   Temperature Management                         4,088      5,174      4,644     13,111     15,603
   Tester Interface                               1,279      1,406      2,697      5,875      4,511
                                                 $9,159    $13,114    $11,497    $31,960    $37,294
   Net revenues from unaffiliated customers:
   U.S.                                          $6,672    $ 9,584    $ 9,063    $23,765    $28,092
   Europe                                           714      2,112      1,018      3,356      4,614
   Asia-Pacific                                   1,773      1,418      1,416      4,839      4,588
                                                 $9,159    $13,114    $11,497    $31,960    $37,294

Our consolidated net revenues for the quarter ended September 30, 2008 decreased $4.0 million, or 30%, as compared to the same period in 2007 and $2.3 million, or 20%, as compared to the second quarter of 2008. During the third quarter of 2008, we experience reduced levels of demand in all of our product segments. The net revenues (net of intersegment sales) of our Manipulator and Docking Hardware, Temperature Management and Tester Interface product segments declined $2.7 million, or 42%, $1.1 million, or 21%, and $127,000, or 9%, respectively, as compared to the same period in 2007 and $364,000, or 9%, $556,000, or 12%, and $1.4 million or 53%, respectively, as compared to the second quarter of 2008. We believe these declines reflect that the ATE market, from which we generate the majority of our net revenues, continues to be in a period of significantly reduced demand which began in the second half of 2006. In addition, we believe the reduction in our net revenues also reflects many of the factors discussed in the Overview. We believe the higher percentage decline in the net revenues (net of intersegment sales) of our Tester Interface product segment in the third quarter of 2008 as compared to the second quarter of 2008 primarily reflects that the second quarter of 2008 included several orders for certain new product designs which this segment had been developing over the last several quarters for a particular OEM customer. In addition, the second quarter of 2008 also included several orders from this same customer for certain existing product designs sold by this segment. The level of orders for both new and existing product designs from this customer in the third quarter of 2008 was significantly lower than the level experienced during the second quarter of 2008. Furthermore, this customer has recently indicated to us that they will not be placing any significant additional orders with any of their vendors for the time being. We believe this action by our customer reflects the impact of the continued reduction in demand in the ATE market.

Total orders for the quarter ended September 30, 2008 were $8.2 million compared to $10.0 million for the quarter ended June 30, 2008 and $11.1 million for the quarter ended September 30, 2007. The decrease in our orders for the third quarter of 2008 as compared to the second quarter of 2008 was made up of a $1.2 million, or 24%, decrease in the orders of our Temperature Management product segment, a $677,000, or 51%, decrease in the orders of our Tester Interface product segment, and a $2,000, or 0%, increase in the orders of our Manipulator and Docking Hardware product segment. We cannot be certain what the level of our orders or net revenues will be in any future period.

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

At September 30, 2008, our backlog of unfilled orders for all products was approximately $3.0 million compared with approximately $3.9 million at June 30, 2008 and $5.1 million at September 30, 2007. Our backlog includes customer orders which we have accepted, substantially all of which we expect to deliver in 2008. 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.

In early 2008, we commenced a review of our operations to more aggressively streamline our cost structure in line with the current business environment. As part of this process, we are focusing on methods to increase our profitability worldwide, including pursuing other types of revenue streams and additional growth opportunities. The actions we have taken to reduce our operating cost structure are described below. The review of our operations is on-going. We continue to explore methods to further reduce our costs and we will likely incur additional restructuring charges in future periods, however, we cannot predict the amount of such charges at this time.

Manipulator and Docking Hardware Product Segment Restructuring. On June 30, 2008, we announced that we were reducing the workforce in our Manipulator and Docking Hardware product segment by 18 employees, representing 18% of the total employees in this segment, and implementing a reduced work week for our manufacturing facility in Amerang, Germany (the "Q2 2008 M&DH Workforce Reduction"). The total costs incurred related to this action were $200,000. These costs represented one-time termination benefits and were incurred during the quarter ended June 30, 2008. This action was completed in the third quarter of 2008. We expect that the completed Q2 2008 M&DH Workforce Reduction will reduce our annual operating expense structure by approximately $1.4 million

On September 12, 2008, we approved a restructuring plan for our Manipulator and Docking Hardware product segment (the "Q3 2008 M&DH Plan"). As a part of this plan, we will permanently close our manufacturing facility in Amerang, Germany and our engineering and sales office in the U. K. In addition to these facility closures, we reduced our domestic workforce by 4 employees, which represented approximately 7% of the total employees in this segment. We also implemented temporary salary reductions for certain employees of this product segment, temporarily reduced the fees paid to members of our Board of Directors, and implemented permanent reductions for expenses related to our use of third-party vendors. Effective January 1, 2009, we will implement additional temporary and permanent cost reductions associated with our employee benefit plans. This includes the temporary suspension of our 401(k) matching contributions and the implementation of an employee contribution of a portion of the cost of medical coverage for our domestic employees in this product segment. During the quarter ended September 30, 2008, we incurred $53,000 in costs related to these actions for one-time termination benefits. We expect to complete these actions and incur additional one-time termination benefits ranging from $100,000 to $150,000 and facility closure costs ranging from $200,000 to $250,000 during the fourth quarter of 2008. We expect the total costs incurred related to this plan to be in the range of $353,000 to $453,000, which is made up of one-time termination benefits in the range of $153,000 to $203,000 and facility closure costs in the range of $200,000 to $250,000. We expect that the completed Q3 2008 M&DH Plan will reduce our annual operating expense structure by approximately $2.2 million.

Tester Interface Product Segment Restructuring. On September 12, 2008, we approved a restructuring plan for our Tester Interface product segment (the "Q3 2008 TI Plan"). As a part of this plan, we reduced our workforce by 3 employees, which represented approximately 9% of the total employees in this segment. We also implemented temporary salary reductions for certain employees of this product segment, and, effective January 1, 2009, we will implement additional temporary and permanent cost reductions associated with our employee benefit plans, similar to those discussed above for the Q3 2008 M&DH Plan. The total costs incurred related to this action were $8,000, which represented one-time termination benefits, and were incurred during the quarter ended September 30, 2008. This action was completed in the third quarter of 2008. We expect that the completed Q3 2008 TI Plan will reduce our annual operating expense structure by approximately $546,000.

We assess the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors we consider important which could indicate impairment include significant underperformance relative to expected historical or projected future operating results, significant changes in the manner of our use of the asset or

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

the strategy for our overall business and significant negative industry or economic trends. When we determine that the carrying value of long-lived assets may not be recoverable based upon the existence of one or more of the above indicators of impairment, we prepare projections of operations for our product segments (or at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities) where these long-lived assets are associated. If the carrying value of the long-lived assets exceeds the undiscounted cash flows of our projections, then we would measure the impairment charge. We measure the impairment based on the excess of the carrying amount over the fair value of the assets. At September 30, 2008, our long-lived assets consisted of $308,000 of finite-lived intangible assets and $1.7 million of property and equipment. During the third quarter of 2008, we recorded a $133,000 charge for the partial impairment of certain property and equipment at our manufacturing facility in Amerang, Germany. We announced our intention to close this facility in September 2008.

As discussed in more detail in our 2007 Form 10-K, we continue to pursue the acquisition of complementary businesses or technologies as a part of our strategy to grow our business and diversify our revenue streams outside the ATE market. In July 2008, we acquired the assets of Diamond Integration, L.L.C., a business that provides post-warranty service for ATE equipment to semiconductor manufacturers. The total cost to acquire these assets was $262,000. Please see Note 3 of the footnotes to our consolidated financial statements for detail of the purchase price allocation.

On October 6, 2008, we acquired Sigma Systems Corp. ("Sigma"), a manufacturer of thermal platforms, custom configured environmental chambers and other environmental test solutions for a variety of industries including automotive, medical/pharmaceutical, electronic, aerospace/defense and ATE. Sigma will be included in our Temperature Management product segment and will expand our product offerings outside the ATE market. We believe Sigma's products are highly complementary to our other Temperature Management products and will greatly facilitate our further penetration into non-ATE markets. The purchase price was approximately $3.5 million and was paid with $1.0 million in cash, 550,000 shares of our common stock, and an agreement by us to issue non-negotiable promissory notes in an aggregate principal amount equal to $1.5 million, subject to adjustment based upon the amount of certain current assets and liabilities of Sigma at closing. The notes will bear interest at the prime rate plus 1.25% and will be secured by the assets of Sigma. Interest will be payable annually. Principal will be payable in four equal annual installments commencing on the first anniversary of closing. We expect to complete the purchase price allocation for this transaction and the determination of the note amounts during the fourth quarter of 2008.

Our three product segments each have multiple products that we design, manufacture and sell to our customers. The gross margin on each product we offer is impacted by a number of factors, including the amount of intellectual property (such as patents) utilized in the product, the number of units ordered by the customer at one time, or the amount of inTEST designed and fabricated material included in our product compared with the amount of third-party designed and fabricated material included in our product. The weight of each of these factors, as well as the current market conditions, determines the ultimate sales price we can obtain for our products and the resulting 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 semiconductor manufacturers. Our Temperature Management product segment also sells into a variety of other industries including the aerospace, automotive, communications, consumer electronics, defense, and medical industries. The mix of customers during any given period will affect our gross margin due to differing sales discounts and commissions. For the nine months ended September 30, 2008 and 2007, our OEM sales as a percentage of net revenues were 19% and 22%, 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 line managers to reduce our sales prices to them. If we cannot further reduce our manufacturing and operating costs, these pricing pressures will continue to reduce our gross and operating margins.

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

In addition to historical information, this discussion and analysis 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" "or anticipates" or similar terminology. 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.

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" of our 2007 Form 10-K, as updated in Part II, Item 1A of this Quarterly Report on Form 10-Q.

All of our products are used by semiconductor manufacturers in conjunction with ATE in the testing of ICs. Consequently, the results of operations for each product segment are generally affected by the same factors. Separate discussions and analyses for each product segment would be repetitive and obscure any unique factors that affected the results of operations of our different product segments. 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.

The following table sets forth, for the periods indicated, the principal items included in the Consolidated Statements of Operations as a percentage of total net revenues.

                                                             Percentage of Net Revenues
                                                  Quarters Ended Sept. 30,    Nine Months Ended
                                                                                  Sept. 30,
                                                      2008         2007       2008       2007
      Net revenues                                      100.0%      100.0%   100.0%        100.0%
      Cost of revenues                                   67.7        61.0     62.6          62.2
      Gross margin                                       32.3        39.0     37.4          37.8
      Selling expense                                    20.3        16.1     19.3          17.6
      Engineering and product development expense        13.5        10.4     12.7          11.2
      General and administrative expense                 19.1        14.9     18.9          16.4
      Impairment of long-lived assets                     1.5         0.0      0.4           0.0
      Restructuring and other charges                     0.7         0.0      0.8           0.0
      Operating loss                                   (22.8)       (2.4)   (14.7)         (7.4)
      Other income                                        0.9         1.1      0.5           1.0
      Loss before income tax expense                   (21.9)       (1.3)   (14.2)         (6.4)
      Income tax expense                                  0.4         0.6      0.5           0.5
      Net loss                                          (22.3)%      (1.9)%  (14.7)%        (6.9)%

Quarter Ended September 30, 2008 Compared to Quarter Ended September 30, 2007

Net Revenues. Net revenues were $9.2 million for the quarter ended September 30, 2008 compared to $13.1 million for the same period in 2007, a decrease of $4.0 million, or 30%. The percentage decrease in the net revenues (net of intersegment sales) of our Manipulator and Docking Hardware, Temperature Management and Tester Interface product segments were 42%, 21% and 9%, respectively. We attribute the decrease in our net revenues to the factors previously discussed in the Overview. During 2007, our Tester Interface product segment experienced a more significant reduction in the level of demand for its products than was experienced by our other product segments. We believe the smaller percentage decrease in the net revenues of our Tester Interface product segment in the third quarter of 2008 as compared to the same period in 2007 reflects the more significant extent to which the reduced demand had impacted this segment during the third quarter of 2007.

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

During the third quarter of 2008, our net revenues from customers in the U.S. decreased 30%. After adjustment to eliminate the impact of changes in foreign currency exchange rates, our net revenues from customers in Europe decreased 68% while our net revenues from customers in Asia increased 16%, during the third quarter of 2008 as compared to the same period in 2007. The larger percentage decrease in our net revenues from customers in Europe primarily reflects lower demand experienced by our Intestlogic operation in Germany. The increase in our net revenues from customers in Asia primarily reflects increased sales of third-party products distributed by our operation in Japan. In the second half of 2007, our sales of third-party products by this operation had significantly declined as they had lost one of the product lines they had been distributing when that company was sold. Since that time, this operation has found new distribution opportunities and has begun to see an increase in net revenues as a result.

. . .