Forward Looking Statements and Risk Factors

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact made in this Quarterly Report on Form 10-Q are forward-looking, including, but not limited to, statements regarding industry prospects; future results of operations or financial position; our expectations and beliefs regarding future revenue growth; the future capabilities and functionality of our products and services, our strategies and intentions regarding acquisitions; the outcome of any litigation to which we are a party; our accounting and tax policies; our future strategies regarding investments, product offerings, research and development, market share, and strategic relationships and collaboration; our dividend policies; and our future capital requirements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology, including "intend," "could," "may," "will," "should," "expect," "plan," "anticipate," "believe," "estimate" "predict," "potential," "future," or "continue," the negative of these terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially from those expressed or implied in such forward-looking statements. In evaluating these statements, you should specifically consider various factors, including the risks included in Item 1A to our Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 10, 2009. These risk factors have not significantly changed since they were filed with our Form 10-K and included the following:

• Our operating results have fluctuated in the past and are likely to fluctuate in the future, which could cause us to miss analyst expectations about these results and cause the trading price of our common stock to decline.

• The cyclicality of the semiconductor industry affects our financial results, and, as a result, we may experience reduced sales or operating losses in a semiconductor industry downturn.

• As a result of rapid macroeconomic deterioration, some of our customers may experience sudden and unexpected changes in their financial condition and their ability to order or take delivery of products from us, which could possibly result in bad debts. Additionally, the rapid macroeconomic deterioration may increase competitive pricing pressures, potentially resulting in lower margins or loss of revenues.

• Consolidation of our customer base due to the poor economic environment could adversely affect our revenues and results of operations.

• Because we generally do not have a sufficient backlog of unfilled orders to meet our quarterly revenue targets, revenue in any quarter is substantially dependent upon customer orders received and fulfilled in that quarter.

• As is the case with other companies in our industry, many of our customers defer purchasing decisions until late each quarter. As a result, we are significantly dependent upon the sale of our products in the third month of each quarter, and, if we do not generate enough revenue in the third month of each quarter to meet the earnings expectations of analysts or investors, the price of our common stock could decline.

• If we do not keep pace with technological developments in the semiconductor industry, especially the trend toward faster, smaller and lower cost chips, our revenue and operating results could suffer as potential customers decide to adopt our competitors' products.

• We may make future acquisitions, which may be costly, difficult to integrate with our operations, divert management resources and dilute shareholder value.

• Intense competition in the semiconductor wafer probing business may reduce demand for our products and reduce our sales.

• We obtain some of the materials, components and subassemblies used in our products from a single source or a limited group of suppliers. If these suppliers declare bankruptcy or are unable to provide us with these materials, components or subassemblies in adequate quantities and on a timely basis, we may be unable to manufacture our products or meet our customers' needs.

• We have long-lived assets, including fixed assets and intangible assets, recorded on our balance sheet. In view of the current turbulent economic environment and the decline in our revenues, the fair value of certain long-lived assets may be reduced below their carrying value. If there has been an impairment of long-lived assets, we would be required to record non-cash asset impairment charges in future periods, which would adversely impact our results of operations.

• We face economic, political and other risks associated with our international sales and operations, which could materially harm our operating results.

• We rely on independent manufacturers' representatives and distributors for a significant portion of our revenue, and a disruption in our relationship with our manufacturers' representatives or distributors would have a material adverse effect on our revenue.

• Failure to retain key managerial, technical, and sales and marketing personnel or to attract new key personnel could harm our business.

• Our customers' evaluation processes can lead to lengthy sales cycles, during which we may incur significant costs that may not result in sales.

• If our products contain defects, our reputation would be damaged, and we could lose customers and revenue and incur warranty expenses.

• If we fail to protect our proprietary technology and rights, competitors may be able to use our technologies, which would weaken our competitive position and could reduce our sales.

• Intellectual property infringement claims by or against us may result in litigation, the cost of which could be substantial and could prevent us from selling our products.

• Our growth could strain our personnel and infrastructure resources, and, if we are unable to implement appropriate controls and procedures to manage our growth, we may not be able to successfully implement our business plan.

• Our success depends on our continued investment in research and development, the level and effectiveness of which could reduce our profitability.

• We manufacture most of our products at our Oregon and Minnesota facilities, and any disruption in the operations of these facilities could harm our business.

• We rely on suppliers and contract manufacturers for the products we sell.

• Reorganization could also result in significant disruption of our business and our relationships with our employees, suppliers and customers could be adversely affected.

• We may fail to comply with environmental regulations, which could result in significant costs and harm our business.

• Product liability claims may be asserted against us, resulting in costly litigation for which we may not have sufficient liability insurance.

• We rely on a small number of customers for a significant portion of our revenue, and the termination of any of these relationships would adversely affect our business.

• Our employment costs in the short-term are, to a large extent, fixed, and therefore, any shortfall in sales would harm our operating results.

• Unanticipated changes in our tax rates or exposure to additional income tax liabilities could affect our profitability.

• The anti-takeover provisions of our charter documents and Oregon law may inhibit a takeover or change in our control that our shareholders may consider beneficial.

• If our stock price is volatile, securities class action litigation may be brought against us, which could result in substantial costs.

General

We design, develop and manufacture advanced wafer probing and test socket solutions for the electrical measurement and testing of high performance chips. We design, manufacture and assemble our products in Oregon and Minnesota, with global sales, service and support centers in North America, Germany, Japan, Taiwan, China and Singapore.

Engineering probe stations address the need for precise and accurate measurement of semiconductor electrical characteristics during chip design or when optimizing the chip fabrication process. Our engineering probe stations are highly configurable and are typically sold with various accessories, including our analytical probes, as well as accessories from third parties. In addition, we design and build custom engineering probe stations to address the specific requirements of our customers.

Our analytical probes are sold to serve as components of our engineering probe stations, or less often, to serve as components of test equipment manufactured by third parties. Our production probe cards are designed and sold for production test applications, ranging from very low current parametric testing to sophisticated, high speed radio frequency testing. Our test sockets are designed and sold for both production and engineering test applications, typically for high speed digital and radio frequency testing.

We also generate revenue through the sales of service contracts to our customers.

Overview

Revenues decreased to $38.1 million in the first nine months of 2009 compared to $61.2 million in the first nine months of 2008, as uncertainty in the world economic environment impacted demand for semiconductors and semiconductor equipment. However, revenues increased to $14.0 million in the third quarter of 2009 compared to $12.6 million in the second quarter of 2009 and $11.5 million in the first quarter of 2009 as a result of the mild, but continued, recovery in the semiconductor market over the past two quarters. The steady improvement in sales and focus on controlling costs over the past two quarters resulted in an overall increase in gross margin to 39.3% in the third quarter of 2009, compared to 37.9% in the second quarter of 2009, and 33.6% in the first quarter of 2009 as fixed overhead costs were recovered.

Outlook for the Remainder of 2009

Based on the results for first nine months of 2009 and our current forecast, we expect an overall decline in revenue for 2009 compared to 2008. However, we are seeing a mild, but steady, recovery in the market place that we expect to continue in the fourth quarter of 2009. However, continued uncertainty in global economic conditions makes it difficult to predict product demand and other related matters, and makes it more likely that our actual results could differ materially from expectations.

Critical Accounting Policies and the Use of Estimates

Management's discussion and analysis of financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to revenue recognition, bad debts,

inventory, lives and recoverability of equipment and other long-lived assets, warranty obligations, income taxes, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed 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. Actual results may differ from these estimates under different assumptions or conditions.

We reaffirm the critical accounting policies and estimates as reported in our Annual Report on Form 10-K for the year ended December 31, 2008, which was filed with the Securities and Exchange Commission on March 10, 2009.

Results of Operations

The following table sets forth our consolidated statement of operations data for
the periods indicated as a percentage of revenue.(1)



                                             For the Three Months Ended              For the Nine Months Ended
                                                   September 30,                           September 30,
                                             2009                  2008              2009                 2008
Revenue                                        100.0 %               100.0 %           100.0 %              100.0 %
Cost of sales                                   60.7                  57.1              62.9                 55.5

Gross profit                                    39.3                  42.9              37.1                 44.5
Operating expenses:
Research and development                        15.0                  10.9              15.5                 13.1
Selling, general and administrative             35.6                  36.6              40.9                 35.9
Amortization of purchased intangibles            1.0                   2.8               1.1                  3.1

Total operating expenses                        51.6                  50.3              57.5                 52.1

Loss from operations                           (12.3 )                (7.4 )           (20.4 )               (7.6 )
Other income (expense), net                      2.1                  (0.7 )             1.0                  1.0

Loss before income taxes                       (10.2 )                (8.1 )           (19.4 )               (6.6 )
Income tax benefit                              (0.0 )                (2.0 )            (0.6 )               (1.4 )

Net loss                                       (10.2 )%               (6.1 )%          (18.8 )%              (5.2 )%

(1) Percentages may not add due to rounding.

Revenue and gross profit information by segment was as follows (dollars in thousands):

                                                             Probes
                                                              and
      Three Months Ended September 30, 2009   Systems       Sockets        Total
      Revenue                                 $  7,221      $  6,750      $ 13,971
      Gross Profit                            $  2,109      $  3,384      $  5,493
      Gross Margin                                29.2 %        50.1 %        39.3 %

      Three Months Ended September 30, 2008
      Revenue                                 $ 11,090      $ 10,038      $ 21,128
      Gross Profit                            $  3,730      $  5,330      $  9,060
      Gross Margin                                33.6 %        53.1 %        42.9 %

                                                             Probes
                                                              and
      Nine Months Ended September 30, 2009    Systems       Sockets        Total
      Revenue                                 $ 19,538      $ 18,518      $ 38,056
      Gross Profit                            $  6,275      $  7,854      $ 14,129
      Gross Margin                                32.1 %        42.4 %        37.1 %

      Nine Months Ended September 30, 2008
      Revenue                                 $ 31,474      $ 29,700      $ 61,174
      Gross Profit                            $ 10,764      $ 16,477      $ 27,241
      Gross Margin                                34.2 %        55.5 %        44.5 %

The segment data provided is prepared in accordance with Accounting Standards Codification ("ASC") 280-10, "Segment Reporting - Overall," and is not meant to represent stand-alone divisional information. See Note 9 of Notes to Condensed Consolidated Financial Statements above for additional information.

Revenue decreased $7.1 million, or 33.9%, to $14.0 million in the three-month period ended September 30, 2009 compared to $21.1 million in the same period of 2008 and decreased $23.1 million, or 37.8%, to $38.1 million in the nine-month period ended September 30, 2009 compared to $61.2 million in the same period of 2008.

Systems

Systems revenue decreased $3.9 million, or 34.9%, to $7.2 million in the three-month period ended September 30, 2009 compared to $11.1 million in the same period of 2008 and decreased $12.0 million, or 37.9%, to $19.5 million in the nine-month period ended September 30, 2009 compared to $31.5 million in the same period of 2008.

Certain financial information which contributed to the Systems revenue results was as follows:

                                                    Three Months Ended             Nine Months Ended
                                                    September 30, 2009             September 30, 2009
                                                    Compared to Three               Compared to Nine
                                                       Months Ended                   Months Ended
                                                    September 30, 2008             September 30, 2008
Percentage decrease in unit sales                                 32.0 %                         33.5 %
Percentage decrease in average sales price                        11.8 %                         14.5 %

We realized decreased unit sales in the three and nine-month periods ended September 30, 2009 compared to the same periods of 2008 due to a significant slow-down in the semiconductor and semiconductor equipment markets that began during the third quarter of 2008. Average sales price was negatively affected in the three and nine-month periods ended September 30, 2009 compared to the same periods of 2008 by changes in our sales mix, as fewer high-end 300mm systems were sold in relation to total system sales. Average sales price includes the sales price of any analytical probes, probe cards and accessories purchased with an engineering probe station.

Probes and Sockets

Probes and Sockets revenue decreased $3.2 million, or 32.8%, to $6.8 million in the three-month period ended September 30, 2009 compared to $10.0 million in the same period of 2008 and decreased $11.2 million, or 37.7%, to $18.5 million in the nine-month period ended September 30, 2009 compared to $29.7 million in the same period of 2008. These decreases were primarily the result of lower unit sales driven by the overall decrease in worldwide semiconductor production.

Cost of Sales and Gross Profit

Cost of sales includes purchased materials, fabrication, assembly, test and installation labor and overhead, customer-specific engineering costs, warranty costs, royalties and provision for inventory valuation reserves.

Cost of sales decreased $3.6 million, or 29.7%, to $8.5 million in the three-month period ended September 30, 2009 compared to $12.1 million in the same period of 2008 and decreased $10.0 million, or 29.5%, to $23.9 million in the nine-month period ended September 30, 2009 compared to $33.9 million in the same period of 2008.

Systems

The gross margin in Systems decreased to 29.2% and 32.1%, respectively, in the three and nine-month periods ended September 30, 2009 from 33.6% and 34.2%, respectively, in the same periods of 2008. The decreases in gross margin were primarily attributable to the overall decrease in sales volume and change in product mix. We sold fewer 300mm systems in relation to total system sales, which typically yield higher margins than non-300mm systems due to their higher average sales prices and sales of accessories. The decreases in gross margin due to volume and product mix were partially offset by decreases in salaries, benefits and overhead costs.

Probes and Sockets

The gross margin in Probes and Sockets decreased to 50.1% and 42.4%, respectively, in the three and nine-month periods ended September 30, 2009 from 53.1% and 55.5%, respectively, in the same periods of 2008. The decreases in gross margin were primarily due to the decreases in sales volume as production costs for Probes and Sockets have a higher component of fixed overhead than Systems. As sales volumes decline, unallocated fixed overhead costs recorded as a period expense in cost of sales increase. The impact of the decline in sales volume was partially offset by an overall reduction in salaries, benefits and overhead costs and improvement in yields on certain product lines.

Research and Development

Research and development costs are expensed as incurred and include compensation and related expenses for personnel, materials, consultants and overhead. From time to time, we enter into arrangements that provide for the reimbursement of research and development expenses. Such reimbursements are netted against gross research and development expenses.

Research and development expenses decreased $0.2 million, or 9.2%, to $2.1 million in the three-month period ended September 30, 2009 compared to $2.3 million in the same period of 2008 and decreased $2.1 million, or 26.5%, to $5.9 million in the nine-month period ended September 30, 2009 compared to $8.0 million in the same period of 2008.

The decreases were primarily due to the following:

                                               Three Months Ended            Nine Months Ended
                                               September 30, 2009            September 30, 2009
                                                Compared to Three             Compared to Nine
                                                  Months Ended                  Months Ended
                                               September 30, 2008            September 30, 2008
Decrease in wages and benefits due to
lower headcount                                $          (335,000 )        $         (1,639,000 )
Increase in consulting fees for R&D
projects                                                    99,000                       181,000
Decrease in production costs allocated
to R&D                                                      (5,000 )                    (172,000 )
Decrease in travel, meals and
entertainment expenses                                     (24,000 )                    (125,000 )
Decrease in allocated occupancy expenses                   (15,000 )                    (117,000 )
Decrease in recruiting expenses                            (28,000 )                     (97,000 )
Increase (decrease) in incentive
compensation                                                 6,000                       (44,000 )
Increase (decrease) in stock-based
compensation                                                62,000                       (18,000 )
Other, net                                                  40,000                       (69,000 )

                                               $          (200,000 )        $         (2,100,000 )

Selling, General and Administrative

Selling, general and administrative, or SG&A, expense includes compensation and related expenses for personnel, travel, outside services, manufacturers' representative commissions, internally developed patent and trademark amortization and overhead incurred in our sales, marketing, customer support, management, legal and other professional and administrative support functions, as well as costs to operate as a public company.

SG&A expenses decreased $2.7 million, or 35.8%, to $5.0 million in the three-month period ended September 30, 2009 compared to $7.7 million in the same period of 2008 and decreased $6.4 million, or 29.2%, to $15.6 million in the nine-month period ended September 30, 2009 compared to $22.0 million in the same period of 2008. The decreases were primarily due to the following:

                                               Three Months Ended           Nine Months Ended
                                               September 30, 2009           September 30, 2009
                                               Compared to Three             Compared to Nine
                                                  Months Ended                 Months Ended
                                               September 30, 2008           September 30, 2008
Decrease in wages and benefits due to
lower headcount                               $           (827,000 )       $         (1,845,000 )
Decrease in accounting and consulting
fees                                                      (374,000 )                   (937,000 )
Decrease in internal and external sales
commissions                                               (240,000 )                   (671,000 )
Decrease in travel, meals and
entertainment expenses                                    (121,000 )                   (604,000 )
Decrease in recruiting and relocation
expenses                                                   (22,000 )                   (117,000 )
Decrease in advertising, sales materials
and event fees                                             (91,000 )                   (389,000 )
Decrease in stock-based compensation                      (149,000 )                   (446,000 )
Decrease in restructuring costs                           (490,000 )                   (360,000 )
Increases (decrease) in allocated
occupancy expenses                                          36,000                     (237,000 )
Decrease in executive incentive
compensation                                               (39,000 )                   (189,000 )
Decrease in equipment repairs and
maintenance                                                (69,000 )                   (186,000 )
Decrease in departmental supplies                          (69,000 )                   (151,000 )
Decrease in bad debt expense                              (139,000 )                   (107,000 )
Other, net                                                (106,000 )                   (161,000 )

                                              $         (2,700,000 )       $         (6,400,000 )

Amortization of Purchased Intangibles

Amortization of purchased intangibles includes amortization related to our prior acquisitions. Amortization expense decreased $0.5 million to $0.1 million in the three-month period ended September 30, 2009 compared to $0.6 million in the same period of 2008 and decreased $1.5 million to $0.4 million in the nine-month period ended September 30, 2009 compared to $1.9 million in the same period of 2008 due to the asset impairment charge recorded in the fourth quarter of 2008. Net purchased intangibles totaled $2.0 million at September 30, 2009.

. . .