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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 and deferred tax assets and liabilities including related valuation allowances, are particularly impacted by estimates.

Reclassification

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

Cash and Cash Equivalents

Short-term investments that have maturities of

three

months or less when purchased are considered to be cash equivalents and are carried at cost, which approximates market value. Our cash balances, which are deposited with highly reputable financial institutions, at times

may

exceed the federally insured limits. We have

not

experienced any losses related to these cash balances and believe the credit risk to be minimal.

Trade Accounts Receivable and Allowance for Doubtful Accounts

Trade accounts receivable are recorded at the invoiced amount and do

not

bear interest. We grant credit to customers and generally require

collateral. To minimize our risk, we perform ongoing credit evaluations of our customers' financial condition. The allowance for doubtful accounts is our best estimate of the amount of probable credit losses in our existing accounts receivable. We determine the allowance based on historical write-off experience and the aging of such receivables, among other factors. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. We do

not

have any off-balance sheet credit exposure related to our customers. We recorded bad debt expense of

$20

and

$68

for the years ended

December 31, 2018

and

2017,

respectively. Cash flows from accounts receivable are recorded in operating cash flows.

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 operating 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 in the consolidated statement of operations 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 of Financial Instruments

Our financial instruments include accounts receivable, accounts payable and our liability for contingent consideration. Our accounts receivable and accounts payable are carried at cost which approximates fair value, due to the short maturities of the accounts. Our liability for contingent consideration is accounted for in accordance with the guidance in Accounting Standards Codification ("ASC")

820

(Fair Value Measurement). ASC

820

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). Our contingent consideration liability is measured at fair value on a recurring basis using Level

inputs which are inputs that are unobservable and significant to the overall fair value measurement. These unobservable inputs 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. See Note

for further disclosures related to the fair value of our liability for contingent consideration.

Revenue Recognition

As discussed further under “Effect of Recently Adopted Amendments to Authoritative Accounting Guidance” below, effective

January 1, 2018,

we recognize revenue in accordance with the guidance in ASC

606

(Revenue from Contracts with Customers). We recognize revenue for the sale of products or services when our performance obligations under the terms of a contract with a customer are satisfied and control of the product or service has been transferred to the customer. Generally this occurs when we ship a product or perform a service. In certain cases, recognition of revenue is deferred until the product is received by the customer or at some other point in the future when we have determined that we have satisfied our performance obligations under the contract. Our contracts with customers

may

include a combination of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. In addition to the sale of products and services, we also lease certain of our equipment under short-term lease agreements. We recognize revenue from equipment leases on a straight-line basis over the lease term.

Revenue is recorded in an amount that reflects the consideration we expect to receive in exchange for those products or services. We do

not

have any material variable consideration arrangements or any material payment terms with our customers other than standard net

or net

day payment terms. We generally do

not

provide a right of return to our customers. Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities.

Nature of Products and Services

We sell thermal management products and semiconductor ATE interface solutions. Our thermal management products include ThermoStreams, ThermoChambers and process chillers, which we sell under our Temptronic, Sigma and Thermonics product lines, and Ambrell’s precision induction heating systems, including EkoHeat and EasyHeat products. Our semiconductor ATE interface solutions include manipulators, docking hardware and electrical interface products. We provide post-warranty service for the equipment we sell. We sell semiconductor ATE interface solutions and certain thermal management products to the ATE market, which provides automated test equipment to the semiconductor market. We also sell our thermal management products to markets outside the semiconductor market which include the automotive, defense/aerospace, industrial, telecommunications and other markets.

We lease certain of our equipment under short-term leasing agreements with original lease terms of

six

months or less. Our lease agreements do

not

contain purchase options.

Types of Contracts with Customers

Our contracts with customers are generally structured as individual purchase orders which specify the exact products or services being sold or equipment being leased along with the selling price, service fee or monthly lease amount for each individual item on the purchase order. Payment terms and any other customer-specific acceptance criteria are also specified on the purchase order. We generally do

not

have any customer-specific acceptance criteria, other than that the product performs within the agreed upon specifications. We test substantially all products manufactured as part of our quality assurance process to determine that they comply with specifications prior to shipment to a customer.

Contract Balances

We record accounts receivable at the time of invoicing. Accounts receivable, net of the allowance for doubtful accounts, is included in current assets on our balance sheet. To the extent that we do

not

recognize revenue at the same time as we invoice, we record a liability for deferred revenue. In certain instances, we also receive customer deposits in advance of invoicing and recording of accounts receivable. Deferred revenue and customer deposits are included in current liabilities on our consolidated balance sheets.

The allowance for doubtful accounts reflects our best estimate of probable losses inherent in the accounts receivable balance. We determine the allowance based on known troubled accounts, if any, historical experience, and other currently available evidence.

Costs to Obtain a Contract with a Customer

The only costs we incur associated with obtaining contracts with customers are sales commissions that we pay to our internal sales personnel or

third

-party sales representatives. These costs are calculated based on an established percentage of the selling price of each product or service sold. Commissions are considered earned by our internal sales personnel at the time we recognize revenue for a particular transaction. Commissions are considered earned by

third

-party sales representatives at the time that revenue is recognized for a particular transaction. We record commission expense in our consolidated statements of operations at the time the commission is earned. Commissions earned but

not

yet paid are included in current liabilities on our balance sheets.

Product Warranties

In connection with the sale of our products, we generally provide standard

one

two

year product warranties which are detailed in our terms and conditions and communicated to our customers. Our standard warranties are

not

offered for sale separately from our products, therefore there is

not

a separate performance obligation related to our standard warranties. We record estimated warranty expense for our standard warranties at the time of sale based upon historical claims experience. In very limited cases, we offer customers an option to separately purchase an extended warranty for certain of our products. In the case of extended warranties, we recognize revenue in the amount of the sale price for the extended warranty on a straight-line basis over the extended warranty period. We record costs incurred to provide service under an extended warranty at the time the service is provided. Warranty expense is included in selling expense in our consolidated statements of operations.

Refer to Notes

and

for further information about our revenue from contracts with customers.

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

$285

and

$251

for the years ended

December 31, 2018

and

2017,

respectively.

Property and Equipment

Machinery and equipment are stated at cost, except for machinery and equipment acquired in a business combination, which are stated at fair value at the time of acquisition. As further discussed below under "Goodwill, Intangible and Long-Lived Assets," machinery and equipment that has been determined to be impaired is written down to its fair value at the time of the impairment. Depreciation is based upon the estimated useful life of the assets using the straight-line method. The estimated useful lives range from

one

ten

years. Leasehold improvements are recorded at cost and amortized over the shorter of the lease term or the estimated useful life of the asset. Total depreciation expense was

$768

and

$618

for the years ended

December 31, 2018

and

2017,

respectively.

Contingent Liability for Repayment of State and Local Grant Funds Received

In connection with Ambrell’s new facility in Rochester, New York, which we occupied in

May 2018,

we entered into agreements with the city of Rochester and the state of New York under which we expect to receive grants totaling

$550

to help offset a portion of the cost of the leasehold improvements we have made to this facility. In exchange for the funds granted to us under these agreements, we are required to create and maintain specified levels of employment in this location through various dates ending in

2023.

If we fail to meet these employment targets, we will be required to repay a proportionate share of the funds received. As of

December 31, 2018,

we have received

$200

in grant funds. We expect to receive the balance of the grant funds during

2019.

We have recorded the amounts received under these agreements as a contingent liability on our balance sheet. As time passes, portions of the funds received will

longer be subject to repayment if we have met the employment requirements of the agreements. Amounts which we are irrevocably entitled to keep will be reclassified to deferred revenue and amortized to income on a straightline basis over the remaining lease term for the Rochester facility.

Goodwill, Intangible and Long-Lived Assets

We account for goodwill and intangible assets in accordance with 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, as a result of our qualitative assessment, we determine this is the case, we are required to perform a goodwill impairment test to identify potential goodwill impairment and measure the amount of goodwill impairment loss to be recognized. The impairment test is discussed below. If, as a result of our qualitative assessment, we determine that it is more-likely-than-

not

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

not

required.

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

two

of the goodwill impairment test, which required 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 are to be applied prospectively and are effective for us as of

January 1, 2020,

with early application permitted beginning

January 1, 2017.

We implemented this guidance effective with our impairment assessment that was performed in the

fourth

quarter of

2018.

The implementation of these amendments did

not

have any impact on our consolidated financial statements.

As previously mentioned, 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 goodwill impairment test. The quantitative goodwill impairment test, used to identify both the existence of impairment and the amount of impairment loss, compares the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered

not

impaired. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. The 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,

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

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, which is then amortized to expense over the service periods. See further disclosures related to our stock-based compensation plans in Note

14.

Subsequent Events

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

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

December 31, 2018.

Engineering and Product Development

Engineering and product development costs, which consist primarily of the salary and related benefits costs of our technical staff, as well as the cost of materials used in product development, are expensed as incurred.

Foreign Currency

For our foreign subsidiaries whose functional currencies are

not

the U.S. dollar, assets and liabilities are translated using the exchange rate in effect at the balance sheet date. The results of operations are translated using an average exchange rate for the period. The effects of rate fluctuations in translating assets and liabilities of these international operations into U.S. dollars are included in accumulated other comprehensive earnings in stockholders' equity. Transaction gains or losses are included in net earnings. For the years ended

December 31, 2018

and

2017,

foreign currency transaction gains (losses) were $(

165

) and

$146,

respectively.

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.

On

December 22, 2017,

the President of the United States signed into law the Tax Cuts and Jobs Act (the “Tax Act”). This legislation made significant changes in the U.S. tax laws including reducing the corporate tax rate to

21%

and creating a territorial tax system with a

one

-time mandatory transition tax payable on previously unremitted earnings of foreign subsidiaries, among other things. See Note

for additional information regarding income taxes.

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:

	Years Ended December 31,
	2018		2017

Weighted average common shares outstanding–basic		10,347,947		10,284,572
Potentially dilutive securities:
Unvested shares of restricted stock and employee stock options		34,247		54,741
Weighted average common shares and common share equivalents outstanding–diluted		10,382,194		10,339,313
Average number of potentially dilutive securities excluded from calculation		216,420		77,047

Effect of Recently Adopted Amendments to Authoritative Accounting Guidance

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 were effective for us as of

January 1, 2018.

The amendments will be applied prospectively to an award modified on or after the adoption date. The implementation of these amendments did

not

have any impact on our consolidated financial statements.

In

January 2017,

the FASB issued amendments to the guidance on accounting for goodwill impairment. As previously discussed, the amendments simplify the accounting for goodwill impairment by removing step

two

of the goodwill impairment test, which required a hypothetical purchase price allocation. As permitted, we applied this new guidance for our goodwill impairment assessment completed during the

fourth

quarter of

2018.

The implementation of these amendments did

not

have any 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 were effective for us as of

January 1, 2018.

The implementation of these amendments did

not

have any impact on our consolidated financial statements. The amendments will be considered prospectively on future acquisitions.

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 were effective for us as of

January 1, 2018,

and have been applied retrospectively. The implementation of these amendments did

not

have any impact on our consolidated financial statements.

May 2014,

the FASB issued new guidance on the recognition of revenue from contracts with customers. This new guidance is presented in ASC

606

and replaced most existing revenue recognition guidance in U.S. GAAP when it became effective. In

August 2015,

the FASB deferred the effective date of this new guidance for

one

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

January 1, 2018.

As previously discussed, we implemented this new guidance on

January 1, 2018

using the cumulative effect transition method. However, we did

not

have a cumulative adjustment to retained earnings to record as of the transition date as this new guidance did

not

have a significant impact on the timing or amount of revenue we recognized in any given period in comparison to the amount recognized under prior guidance.

Effect of Recently Issued Amendments to Authoritative Accounting Guidance

February 2016,

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

842

(Leases). Subsequent to

February 2016,

the FASB has issued additional clarifying guidance on certain aspects of this new guidance, along with certain practical expedients that

may

be applied. 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

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.

The

two

permitted transition methods under the guidance are the modified retrospective transition approach, which requires application of the guidance for all comparative periods presented, and the cumulative effect adjustment approach, which requires prospective application at the adoption date.

We will adopt the amendments on

January 1, 2019

using the cumulative effect adjustment approach. Accordingly, prior periods will

not

be restated. The implementation of this new guidance will have a significant impact on our consolidated balance sheet as a result of recording right-of-use assets and lease liabilities for all of our multi-year leases. Under current guidance,

none

of these leases has any related asset recorded on our balance sheets. The only related liability currently recorded on our balance sheets is the amount which represents the difference between the lease payments we have made and the straightline rent expense we have recorded in our statements of operations. At

December 31, 2018,

that liability was

$380

and is included in Other Current Liabilities on our balance sheet. At

January 1, 2019,

we expect to record an increase in total assets and liabilities of approximately

$4,873

as a result of the implementation of this new guidance. We do

not

expect that the implementation of this new guidance will have a significant impact on our pattern of expense recognition for any of our multi-year leases.