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NATURE OF OPERATIONS

We are a global supplier of innovative test and process solutions for use in manufacturing and testing across a wide range of markets including automotive, defense/aerospace, industrial, medical, semiconductor and telecommunications. We manage our business as

two

operating segments which are also our reportable segments and reporting units: Thermal Products ("Thermal") and Electromechanical Solutions ("EMS"). Our Thermal segment designs, manufactures and sells our thermal test and thermal process products while our EMS segment designs, manufactures and sells our semiconductor test products. 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.

Our EMS segment sells its products to semiconductor manufacturers and

third

-party test and assembly houses (end user sales) and to automated test equipment (“ATE”) manufacturers (original equipment manufacturer (“OEM”) sales), who ultimately resell our equipment with theirs to both semiconductor manufacturers and

third

-party test and assembly houses. These sales all fall within the ATE sector of the broader semiconductor market. Our Thermal segment sells its products to many of these same types of customers; however, it also sells to customers in the wafer processing sector within the broader semiconductor market and to customers in a variety of other markets outside the semiconductor market, including the automotive, defense/aerospace, industrial (including consumer products packaging, fiber optics and other sectors within the broader industrial market), medical and telecommunications markets.

Both of our operating segments 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 refer to the broader semiconductor market, including the more specialized ATE and wafer processing sectors within that market, as the “Semi Market.” All other markets are designated as “Multimarket.” The Semi Market, which is the principal market in which we operate, is characterized by rapid technological change, competitive pricing pressures and cyclical 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 Semi 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. Part of our strategy for growth includes potential acquisitions that

may

cause us to incur substantial expense in the review and evaluation of potential transactions. We

may

not

be successful in locating suitable businesses to acquire or in closing acquisitions of businesses we pursue. 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 our future operating results.

COVID-

Pandemic

Demand from all of the markets we serve was significantly affected by COVID-

during the

first

half of

2020.

The impact of COVID-

on demand from the Semi Market was intensified during the

first

half of

2020

because our business operations were also being negatively affected by a global downturn in the Semi Market at that time. The Semi Market, from which approximately half of our orders and net revenues are derived, entered a cyclical downturn in the beginning of

2019.

During the

first

quarter of

2020,

before the spread of COVID-

19,

we had started to see indications that the downturn was coming to an end. These indications included increased quoting activity and order levels for the

first

quarter of

2020

compared to the

fourth

quarter of

2019.

However, we believe COVID-

delayed the recovery in the Semi Market as the increase in activity leveled off during late

March 2020.

Although we saw slightly increased order rates from our customers in the Semi Market during the

second

and

third

quarters of

2020,

it was

not

until the

fourth

quarter of

2020

that we saw a significant increase in our orders from the Semi Market, which we believe indicates that we have now entered the next cyclical upturn. During the

fourth

quarter of

2020,

our orders from the Semi Market increased

53%

sequentially and were

141%

higher than in the

fourth

quarter of

2019,

the low point of the prior cyclical downturn for the products that we sell. This trend in our orders from the Semi Market continued in the

first

quarter of

2021

with a further

54%

sequential increase from the level in the

fourth

quarter of

2020.

We believe the level of increase in our orders and net revenues from the Semi Market during the

fourth

quarter of

2020

and the

first

quarter of

2021

reflects a combination of increased demand in the market resulting from the interruption of the normal recovery in the Semi Market cycle caused by the onset of COVID-

in the

first

half of

2020,

as well as increased demand for semiconductors, generally. We believe this increase in demand is being driven both by changing technology as well as increased use of technology across all aspects of daily life, such as in devices that facilitate remote work and education, smart technology used in homes and businesses, the increase in the number of integrated circuits used in the automotive industry and changes occurring in the telecommunications and mobility markets.

As of the date of this filing, all of our operations continue to be deemed “critical and essential business operations” under the various governmental COVID-

mandates, which has allowed us to continue to operate our business with certain modifications. These modifications include a significant number of our employees working remotely. Such employees have been provided with the tools and technology necessary to do so. Additionally, we have implemented workplace safeguards designed to protect the health and well-being of our employees. Employees who remain in our facilities are following World Health Organization (“WHO”) and Centers for Disease Control and Prevention (“CDC”) recommended safety practices, as well as state and local directives. We have had occasions where

one

or more employees have contracted COVID-

and entered our facilities while infected. To date, we have managed these occurrences with minimal disruption to our business while protecting other employees, but there can be

assurances that we can avoid similar occurrences in the future or, that in such cases, we can avoid significant disruption of our operations.

The aftermarket service and support that we provide to our customers has been, and we expect

may

continue to be, adversely impacted by COVID-

19.

Specifically, the travel restrictions that remain in place, coupled with limitations on visitors into customer facilities, have resulted in the reduction or suspension of in-person service and support activities. The net revenues associated with these aftermarket service and support activities typically range from

10%

of our consolidated net revenues. Although these net revenues returned to a more typical range during the

second

half of

2020,

they declined again in the

first

quarter of

2021.

If the spread of COVID-

or variations of the virus worsen, these revenues

may

continue to be reduced in future periods.

While the negative impact of COVID-

on our business was reduced significantly in the

second

half of

2020

and the

first

quarter of

2021,

the spread of the virus or variants of the virus could worsen and

one

or more of our significant customers or suppliers could be impacted, or significant additional governmental regulations and restrictions could be imposed, thus negatively impacting our business in the future. As a result of our current level of working capital as well as the availability of our revolving credit facility, which is discussed in Note

we currently expect to have sufficient liquidity to operate our business throughout

2021.

Our revolving credit facility, which had

outstanding balance, was set to mature on

April 9, 2021.

As discussed in Note

14,

we modified this facility on

April 10, 2021

and extended it as modified through

April 9, 2024.