2018 Annual Report
Aehr Test Systems
FOX-XP Multi-Wafer Test & Burn-in System
& WaferPak Full Wafer Contactor
FINANCIAL HIGHLIGHTS
(in thousands, except per share data)
For the years ended May 31,
Net sales
Income (loss) from operations
Net income (loss) attributable to common shareholders
Net income (loss) per share - diluted
Cash and cash equivalents
Working capital
Shareholders’ equity (deficit)
2018
2017
2016
$29,555
915
528
0.02
16,848
18,308
19,285
$18,898
(4,929)
$14,501
(6,154)
(5,653)
(0.35)
17,803
21,494
16,794
(6,785)
(0.52)
939
4,068
(723)
PRODUCTS
The FOXTM-XP Burn-in and Test System, publicly introduced in July 2016, is designed for
single-touchdown testing of up to 18 wafers at a time and for testing singulated die or small
modules. A single test cell with a WaferPakTM Aligner and three FOX-XP systems can test
up to 54 wafers at a time. The FOX-XP system can be used in a wide range of test and
reliability screening (burn-in) applications for devices such as memories, microcontrollers,
sensors, and VCSELs (laser diodes). Our FOX systems are currently used in production test
and burn-in applications for silicon photonics, sensors, VCSELs and LEDs.
The FOX-1P Full Wafer Parallel Test System, introduced in our fiscal year 2015, is
designed for massively parallel testing in wafer sort. By testing all devices on a wafer at
one time, test costs can be decreased significantly due to the high throughput of the
system, enabling the user to significantly reduce the capital investment required for high-
volume production test. The FOX-1P system, with its universal pin architecture to
provide per-pin electronics and per-device power supplies, provides the greatest benefit
when the devices being tested utilize Design for Testability (DFT) or Built-In Self-Test
(BIST), for example in state-of-the-art memories and microcontrollers.
Aehr Test’s patented WaferPak Cartridges and DiePak® Carriers connect electrical test
resources from Aehr’s FOX systems to the customer’s wafer or singulated die/modules
to be tested or burned-in. Both products contain micro-miniature probes to contact all
the die/modules in a single insertion. WaferPak Cartridges and DiePak Carriers are
custom designed for each customer’s unique application. When used in a FOX system,
both configurations are capable of supplying power and removing up to 2kW of heat
energy per WaferPak Cartridge or DiePak Carrier.
The ABTSTM Advanced Burn-In and Test System is the latest product in Aehr Test’s family of
Test During Burn-In systems for packaged parts. It is being used for many applications in the
mobility and automotive markets. It can be configured with up to 320 I/O channels and up to 72
Burn-in boards for testing and burning-in advanced logic devices. It offers an individual device
temperature control option for higher-power applications such as applications processors.
This Annual Report contains certain “forward-looking” statements based on current expectations, forecasts and assumptions that involve risks and
uncertainties. Forward-looking statements include statements relating to future market opportunities and conditions, industry growth and customer
demand for Aehr Test's products. Actual results may differ materially from those stated or implied due to risks and uncertainties. See Aehr Test's recent
10-K report that is part of this Annual Report for a more detailed description of the risks facing our business. Aehr Test disclaims any obligation to
update information contained in any forward-looking statement to reflect events or circumstances occurring after the date of this Annual Report.
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Dear Shareholders, Customers, Partners, and Employees,
Fiscal 2018 was a good year for Aehr Test and a good start for our new FOX-XPTM platform. We grew
our revenue 56% year over year and achieved profitability for the year. During the year we successfully
integrated our new FOX-XP multi wafer, singulated die and module systems into the production processes of
our three lead customers, saw a strengthening of our consumables business emerge as our FOX installed base
continued to grow, and completed the first production order for our new OEM customer for our ABTS
chambers. As we head into fiscal 2019, we are focused on strengthening our capabilities and team to meet
the expanding market opportunities ahead for Aehr Test.
We finished fiscal 2018 with solid fourth quarter and full year financial results. For the fiscal year, we
generated total revenue of $29.6 million, a 56% increase year over year, and achieved profitability for the year
and for each quarter on both a GAAP and non-GAAP basis. We also generated GAAP net income of
$528,000, a significant improvement from a GAAP net loss of $5.7 million for fiscal 2017, and non-GAAP
net income of $1.5 million, an increase of $6.2 million from last year’s non-GAAP loss of $4.7 million. We
continued to maintain a strong balance sheet, with $16.8 million in cash and cash equivalents at fiscal year
end.
We shipped and installed systems at our three lead customers for our new FOX-XP multi-wafer and
singulated die production test and burn in system. These systems are for production test applications that
include 2D and 3D mobile sensors, as well as silicon photonics wafer level and singulated die devices. We are
encouraged that each of them has communicated their commitment to use our products in production of
their initial devices as well as follow-on devices on their roadmaps, including new devices in the coming fiscal
year.
Late in the fiscal year, we received an initial order from our lead FOX-XP customer’s subcontractor to supply
a new DiePak® carrier design for their next generation device. These DiePak carriers will be used on their
installed base of FOX-XP systems, as the FOX-XP system has become an integral part of their qualification
and production process for next-generation devices. We expect these devices to move into volume
production in calendar year 2019.
We also completed customer acceptance, manufacturing release and shipment to our second FOX-XP lead
customer of our new High-Voltage Channel Module-based FOX-XP test and burn-in system for wafer-level
burn-in of silicon photonics wafers in a single touchdown. This customer has forecasted additional system
capacity in addition to a significant capacity need for WaferPak contactors for new designs slated to go to
volume production later in our fiscal 2019. We are very excited to release this new enhancement to our FOX-
P Platform. Our new High-Voltage Channel Module allows us to test up to 1024 multichannel laser devices in
a single touchdown, with individual precision resources per device with up to 30V with up to 6 Watts per
channel. There is no other system on the market that can handle the parallelism or the power of our FOX-XP
system, and high voltage applications are among several ideal applications for our new FOX-XP Test and
Burn-in System and WaferPak contactors.
We also shipped the first multi-blade FOX-XP production system to our newest FOX-XP customer, who is
our lead customer for very unique custom DiePak carriers that enable burn-in and aging of integrated lasers
and special circuitry on silicon photonics devices for data communications applications. This new customer is
an industry leader in the photonics market and represents an additional application for our FOX-XP test cell
with our singulated die/module test configuration. Feedback from the customer has been extremely positive
and they have made the decision and communicated their commitment to bring up several other new devices
on our system, which we expect to drive additional capacity for both FOX-XP test systems and new DiePak
carriers.
In addition to the new device test opportunities we see with our lead customers, we are also engaged with
several potential new customers for similar applications, as well as for several new devices with biometric and
3D sensors for the mobile and automotive application space where safety, security and 100% certainty of
reliability testing are critical.
We are seeing a strengthening consumables business emerge. As we continue to build our installed
base of FOX systems, our WaferPak and DiePak business continues to grow and is becoming a much more
significant part of our business. Our FOX systems utilize these proprietary contactors, which are highly
differentiated products that provide a cost-effective solution for making electrical contact with a full wafer or
panel using our WaferPak contactors, or with hundreds or even a thousand singulated die per DiePak carrier
in a parallel test and burn-in environment. As part of our FOX business model, customers purchase these
WaferPak contactors and DiePak carriers with new system sales, capacity expansions, or when devices
change, such as with new designs. We expect our WaferPak and DiePak contactor business to continue to
grow with current and new customers, both in absolute terms and as a percentage of revenue as we increase
our installed base of FOX systems.
We had a good year for our base packaged part business. During the fiscal year, we received multiple
new and follow-on orders for our ABTS test and burn-in systems. Orders by our largest ABTS customer
were significantly higher than the last several years and was driven by their packaged part burn-in needs of
their devices that serve the automotive, industrial, and several other key markets requiring high reliability. As
we move into the new fiscal year, we are seeing interest from several new potential customers needing to
improve the reliability of their products for automotive and medical applications.
This past fiscal year, we also successfully completed the first production order for our new OEM customer
for our ABTS high performance, high-power thermal chambers. These chambers are a key part of the
production tool used by this customer in their high volume test application. This customer selected Aehr Test
because of our proprietary ABTS thermal chamber’s superior capabilities, including its power handling,
temperature and air flow uniformity. Their application has the potential to be very high volume, and our
ability to supply hundreds of these ABTS chambers per year was another key consideration. This customer is
forecasting a similar or greater capacity for at least the next couple of our fiscal years. We are very pleased to
have this add-on business to our traditional packaged part business, which enables us to generate incremental
revenue and leverage our significant capacity to build our proprietary thermal chambers for applications and
customers outside of our traditional customer base.
Expanding market opportunities. There is a rising tide of concern in the automotive, mobile, and
photonics markets focused on human safety and extended reliability testing and burning-in of devices, which
Aehr Test is very well positioned to address. This is a key driver behind the interest we continue to see from
the semiconductor market for our new wafer level, singulated die, and packaged part test and burn-in
solutions. The increasing requirements on semiconductors to meet the safety, security, and mission critical
reliability needs of the automotive, mobile, and now wearable biosensor markets, is driving the need to ensure
100% validation and assurance of burn-in and test results.
In addition, more and more devices are being demanded by applications where the only way to address the
need is by assembling multiple individual semiconductor devices in a single package. These can be the same
devices, such as stacked flash or DRAM memories, or completely different devices where a mix of memories,
logic, high-performance analog, and RF or microwave devices are packed together in a system in a package.
The quality and reliability of the final module is driving the need for more functional and reliability test of the
wafer or singulated die before they are integrated into the multi-die package. This trend will drive more and
more need for test and burn-in or cycling test in wafer and singulated die form, which is a key market
opportunity for Aehr and our unique test and burn-in systems for wafer level and singulated die devices.
We are strengthening our team and resources to meet an increased level of business. With the
significant opportunities we see in front of us, we will continue to build out our team with resources that we
believe are needed to support the increased level of business we see moving forward. In fiscal 2019, we will
be making significant investments in our sales and marketing, as well as improvements in our manufacturing
infrastructure to meet the anticipated growth in our target markets and to be able to provide the increased
capacity for our FOX wafer and singulated die level test and burn-in products.
We head into fiscal 2019 with optimism. We expect to see continued customer deployment of our systems,
particularly our FOX systems and our proprietary WaferPak and DiePak contactors. We see large expanding
market opportunities ahead and are very optimistic about our ability to grow our business for many years to
come.
I continue to be grateful to our employees, customers, partners and shareholders for their support.
Gayn Erickson, President and CEO
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[X]
Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended May 31, 2018
or
[ ]
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ________________ to ________________
Commission file number: 000-22893.
AEHR TEST SYSTEMS
(Exact name of registrant as specified in its charter)
CALIFORNIA
(State or other jurisdiction of
incorporation or organization)
94-2424084
(IRS Employer Identification Number)
400 KATO TERRACE, FREMONT, CA
(Address of principal executive offices)
94539
(Zip Code)
Registrant’s telephone number, including area code: (510) 623-9400
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $0.01 par value
Name of each exchange on which registered: The NASDAQ Capital Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Securities Act. Yes [ ] No [X]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X]
No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
and post such files).
Yes [X]
No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this
chapter) is not contained herein, and will not be contained to the best of the registrant’s knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-
K. [ ]
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,”
“accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act
(Check one):
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do not check if a smaller reporting company)
Emerging growth company [ ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended
transition period for complying with any new or revised financial accounting standards provided pursuant to Section
13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
The aggregate market value of the registrant’s common stock, par value $0.01 per share, held by non-affiliates of the
registrant, based upon the closing price of $2.55 on November 30, 2017, as reported on the NASDAQ Capital Market,
was $48,946,434. For purposes of this disclosure, shares of common stock held by persons who hold more than 5% of
the outstanding shares of common stock (other than such persons of whom the Registrant became aware only through
the filing of a Schedule 13G filed with the Securities and Exchange Commission) and shares held by officers and
directors of the Registrant have been excluded because such persons may be deemed to be affiliates. This determination
of affiliate status is not necessarily conclusive for other purposes.
The number of shares of registrant’s common stock, par value $0.01 per share, outstanding at July 31, 2018 was
22,220,019.
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AEHR TEST SYSTEMS
FORM 10-K
FISCAL YEAR ENDED MAY 31, 2018
TABLE OF CONTENTS
PART I
Item 1. Business ................................................................................................................................................................ 4
Item 1A. Risk Factors .......................................................................................................................................................... 9
Item 1B. Unresolved Staff Comments ............................................................................................................................. 16
Item 2. Properties .............................................................................................................................................................. 16
Item 3. Legal Proceedings ............................................................................................................................................... 16
Item 4. Mine Safety Disclosures ..................................................................................................................................... 16
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities ..................................................................................................................... 17
Item 6. Selected Consolidated Financial Data ............................................................................................................. 18
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations ................ 20
Item 7A. Quantitative and Qualitative Disclosures about Market Risk ..................................................................... 26
Item 8. Financial Statements and Supplementary Data ............................................................................................. 27
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ............... 54
Item 9A. Controls and Procedures .................................................................................................................................... 54
Item 9B. Other Information ............................................................................................................................................. 54
PART III
Item 10. Directors, Executive Officers and Corporate Governance .......................................................................... 55
Item 11. Executive Compensation .................................................................................................................................... 55
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters ................................................................................................................................................................ 55
Item 13. Certain Relationships and Related Transactions ............................................................................................. 55
Item 14. Principal Accountant Fees and Services ........................................................................................................... 55
Item 15. Exhibits, Financial Statement Schedules .......................................................................................................... 56
PART IV
Signatures ............................................................................................................................................................... 60
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This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Section 27A of
the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as
amended (the Exchange Act). All statements contained in this Annual Report on Form 10-K other than statements of
historical fact, including statements regarding our future results of operations and financial position, our business
strategy and plans, and our objectives for future operations, are forward-looking statements. The words “believe,”
“may,” “will,” “estimate,” “continue,” “anticipate,” “plan,” “intend,” “expect,” “could,” “target,” “project,” “should,”
“predict,” “potential,” “would,” “seek” and similar expressions and the negative of those expressions are intended to
identify forward-looking statements. These forward-looking statements are subject to a number of risks, uncertainties
and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those
expressed in any forward-looking statements. These risks include but are not limited to those factors identified in “Risk
Factors” beginning on page 9 of this Annual Report on Form 10-K, those factors that we may from time to time
identify in our periodic filings with the Securities and Exchange Commission, as well as other factors beyond our
control. We undertake no obligation to revise or update publicly any forward-looking statements for any reason. Unless
the context requires otherwise, references in this Form 10-K to “Aehr Test,” the “Company,” “we,” “us” and “our”
refer to Aehr Test Systems.
PART I
Item 1. Business
THE COMPANY
Aehr Test was incorporated in the state of California on May 25, 1977. We develop, manufacture and sell systems
which are designed to reduce the cost of testing and to perform reliability screening, or burn-in, of complex logic
devices, memory ICs, sensors and optical devices. These systems can be used to simultaneously perform parallel testing
and burn-in of packaged integrated circuits, or ICs, singulated bare die or ICs still in wafer form. Increased quality and
reliability needs of the Automotive, Mobility and flash memory integrated circuit markets are driving additional testing
requirements, capacity needs and opportunities for Aehr Test products in package and wafer level testing. Leveraging its
expertise as a long-time leading provider of burn-in equipment, with over 2,500 systems installed worldwide, the
Company has developed and introduced several innovative product families, including the ABTSTM and FOXTM systems,
the WaferPakTM cartridge and the DiePak® carrier. The latest ABTS family of packaged part burn-in and test systems can
perform test during burn-in of complex devices, such as digital signal processors, microprocessors, microcontrollers and
systems-on-a-chip, and offers individual temperature control for high-power advanced logic devices. The FOX systems
are full wafer contact parallel test and burn-in systems designed to make contact with all pads of a wafer simultaneously,
thus enabling full wafer parallel test and burn-in. They are also used for parallel test and burn-in singulated die or very
small multi-IC modules. The WaferPak cartridge includes a full-wafer probe card for use in testing wafers in FOX
systems. The DiePak carrier is a reusable, temporary package that enables IC manufacturers to perform cost-effective
test and burn-in of singulated bare die or very small multi-IC modules.
INDUSTRY BACKGROUND
Semiconductor manufacturing is a complex, multi-step process, and defects or weaknesses that may result in the
failure of an integrated circuit, or IC, may be introduced at any process step. Failures may occur immediately or at any
time during the operating life of an IC, sometimes after several months of normal use. Semiconductor manufacturers
rely on testing and reliability screening to identify and eliminate defects that occur during the manufacturing process.
Testing and reliability screening involve multiple steps. The first set of tests is typically performed by IC
manufacturers before the processed semiconductor wafer is cut into individual die, in order to avoid the cost of
packaging defective die into their packages. This “wafer probe” testing can be performed on one or many die at a time,
including testing the entire wafer at once. After the die are packaged and before they undergo reliability screening, a
short test is typically performed to detect packaging defects. Most leading-edge microprocessors, microcontrollers,
digital signal processors, memory ICs, sensors and optical devices (such as vertical-cavity surface-emitting lasers, or
VCSELs) then undergo an extensive reliability screening and stress testing procedure known as “burn-in” or “cycling,”
depending on the application. The burn-in process screens for early failures by operating the IC at elevated voltages
and temperatures, up to 150 degrees Celsius (302 degrees Fahrenheit), for periods typically ranging from 2 to 48 hours.
A typical burn-in system can process thousands of ICs simultaneously. After burn-in, the ICs undergo a final test
process using automatic test equipment, or testers. The cycling process screens flash memory devices for failure to meet
write/erase cycling endurance requirements.
PRODUCTS
The Company manufactures and markets full wafer contact test systems, test during burn-in systems, test fixtures and
related accessories.
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All of the Company’s systems are modular, allowing them to be configured with optional features to meet customer
requirements. Systems can be configured for use in production applications, where capacity, throughput and price are
most important, or for reliability engineering and quality assurance applications, where performance and flexibility, such
as extended temperature ranges, are essential.
FULL WAFER CONTACT SYSTEMS
The FOX-XP test and burn-in system, introduced in July 2016, is designed for devices in wafer, singulated die, and
module form that require test and burn-in times typically measured in hours. The FOX-XP system can test and burn in
up to 18 wafers at a time. For high reliability applications, such as automotive, mobile devices, sensors, and SSDs, the
FOX-XP system is a cost-effective solution for producing tested and burned-in die for use in multi-chip packages.
Using Known-Good Die, or KGD, which are fully burned-in and tested die, in multi-chip packages helps assure the
reliability of the final product and lowers costs by increasing the yield of high-cost multi-chip packages. Wafer-level
burn-in and test enables lower cost production of KGD for multi-chip modules, 3-D stacked packages and systems-in-a-
package. The FOX-XP system has been extended for burn-in and test of small multi-die modules by using DiePak
carriers. The DiePak carrier with its multi-module sockets and high wattage dissipation capabilities has a capacity of
hundreds of modules, much higher than the capacity of a traditional burn-in system with traditional single-die sockets
and heat sinks. This capability was introduced in March 2017.
The FOX-15 full wafer parallel test system, the predecessor to the FOX-XP system, was introduced in October 2007
and was designed for full-wafer test and burn-in. The FOX-15 system is nearing the end of its lifecycle and limited
shipments are expected in the future.
The FOX-1P full wafer parallel test system, introduced in October 2014, is designed for massively parallel test of
devices at wafer level. The FOX-1P system is designed to make electrical contact to and test all of the die on a wafer in
a single touchdown. The FOX-1P test head and WaferPak contactor are compatible with industry-standard 300 mm
wafer probers which provide the wafer handling and alignment automation for the FOX-1P system. The FOX-1P
pattern generator is designed to functionally test industry-standard memory devices such as flash and DRAMs, plus it is
optimized to test memory or logic ICs that incorporate design for testability, or DFT, and built-in self-test, or BIST.
The FOX-1P universal per-pin architecture to provide per-pin electronics and per-device power supplies is tailored to
full-wafer functional test. The Company believes that the FOX-1P system can significantly reduce the cost of testing IC
wafers. The Company’s FOX-1P system was partially funded through a development agreement with a leading
semiconductor manufacturer. The Company received the first production order of this new system and shipped the
first system in July 2016.
One of the key components of the FOX systems is the patented WaferPak cartridge system. The WaferPak cartridge
contains a full-wafer single-touchdown probe card which is easily removable from the system. Traditional probe cards
contact only a portion of the wafer, requiring multiple touchdowns to test the entire wafer. The unique design is
intended to accommodate a wide range of contactor technologies so that the contactor technology can evolve along with
the changing requirements of the customer’s wafers. The WaferPak cartridges are custom designed for each device type,
each of which has a typical lifetime of 2 to 7 years, depending on the device life cycle. Therefore, multiple sets of
WaferPak cartridges could be purchased over the life of a FOX system.
A key new component of the FOX-XP systems is the patent-pending DiePak carrier system. The DiePak carrier
contains many multi-module sockets with very fine-pitch probes which are easily removable from the system.
Traditional sockets contact only a single device, requiring multiple large numbers of sockets and burn-in boards to test a
production lot of devices. The unique design is intended to accommodate a wide range of socket sizes and densities so
that the DiePak carrier technology can evolve along with the changing requirements of the customer’s devices. The
DiePak carriers are custom designed for each device type, each of which has a typical lifetime of 2 to 7 years, depending
on the device life cycle. Therefore, multiple sets of DiePak carriers could be purchased over the life of a FOX-XP
system.
Another key component of our FOX-XP and FOX-15 test cell is the WaferPak Aligner. The WaferPak Aligner
performs automatic alignment of the customer’s wafer to the WaferPak cartridge so that the wafer can be tested and
burned-in by the FOX-XP and FOX-15 systems. Typically one WaferPak Aligner can support several FOX-XP or
FOX-15 systems.
Similar to the WaferPak Aligner for WaferPak cartridges, Aehr Test offers a DiePak Loader for DiePak carriers. The
DiePak Loader performs automatic loading of the customer’s modules to the DiePak carrier so that the modules can be
tested and burned-in by the FOX-XP system. Typically one DiePak Loader can support several FOX-XP systems.
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The full wafer contact systems product category accounted for approximately 44%, 51% and 60% of the Company’s
net sales in fiscal 2018, 2017 and 2016, respectively.
SYSTEMS FOR PACKAGED PARTS
Test during burn-in, or TDBI, systems consist of several subsystems: pattern generation and test electronics, control
software, network interface and environmental chamber. The test pattern generator allows duplication of most of the
functional tests performed by a traditional tester. Pin electronics at each burn-in board, or BIB, position are designed to
provide accurate signals to the ICs being tested and detect whether a device is failing the test.
Devices being tested are placed on BIBs and loaded into environmental chambers which typically operate at
temperatures from 25 degrees Celsius (77 degrees Fahrenheit) up to 150 degrees Celsius (302 degrees Fahrenheit)
(optional chambers can produce temperatures as low as -55 degrees Celsius (-67 degrees Fahrenheit)). A single BIB can
hold up to several hundred ICs, and a production chamber holds up to 72 BIBs, resulting in thousands of memory or
logic devices being tested in a single system.
The Advanced Burn-in and Test System, or ABTS, was introduced in fiscal 2008. The ABTS family of products is
based on a hardware and software architecture that is intended to address not only today’s devices, but also future
devices for many years to come. The ABTS system can test and burn-in both high-power logic and low-power ICs. It
can be configured to provide individual device temperature control for devices up to 70W or more and with up to 320
I/O channels.
The MAX system family, the predecessor to the ABTS family, was designed for monitored burn-in of memory and
logic devices. The MAX system is nearing the end of its lifecycle and limited shipments are expected in the future.
This packaged part systems product category accounted for approximately 56%, 49% and 40% of the Company’s net
sales in fiscal 2018, 2017 and 2016, respectively.
TEST FIXTURES
The Company sells, and licenses others to manufacture and sell, custom-designed test fixtures for its systems. The
test fixtures include BIBs for the ABTS parallel test and burn-in system and for the MAX monitored burn-in system.
These test fixtures hold the devices undergoing test or burn-in and electrically connect the devices under test to the
system electronics. The capacity of each test fixture depends on the type of device being tested or burned-in, ranging
from several hundred in memory production to as few as eight for high pin-count complex Application Specific
Integrated Circuits, or ASICs, or microprocessor devices. Test fixtures are sold both with new Aehr Test systems and
for use with the Company’s installed base of systems. Test fixtures are also available from third-party suppliers.
The Company has received patents or applied for patents on certain features of the FOX, ABTS and MAX4 test
fixtures. The Company has licensed or authorized several other companies to provide MAX4 BIBs from which the
Company receives royalties. Royalties and revenue for the test fixtures product category accounted for less than 1% of
net sales in fiscal 2018, 2017 and 2016.
CUSTOMERS
The Company markets and sells its products throughout the world to semiconductor manufacturers, semiconductor
contract assemblers, electronics manufacturers and burn-in and test service companies.
Sales to the Company’s five largest customers accounted for approximately 86%, 93%, and 94% of its net sales in
fiscal 2018, 2017 and 2016, respectively. During fiscal 2018, Texas Instruments Incorporated, or Texas Instruments,
STMicroelectronics, Inc., and Astronics Test Systems, Inc., accounted for approximately 34%, 26% and 13%,
respectively, of the Company’s net sales. During fiscal 2017, Texas Instruments Incorporated, or Texas Instruments,
STMicroelectronics, Inc., Intel Corporation and Cypress Semiconductor, accounted for approximately 45%, 19%, 17%
and 10%, respectively, of the Company’s net sales. During fiscal 2016, Apple Inc. and Texas Instruments accounted for
approximately 47% and 32%, respectively, of the Company’s net sales. No other customers accounted for more than
10% of the Company’s net sales for any of these periods. The Company expects that sales of its products to a limited
number of customers will continue to account for a high percentage of net sales for the foreseeable future. In addition,
sales to particular customers may fluctuate significantly from quarter to quarter. Such fluctuations may result in changes
in utilization of the Company’s facilities and resources. The loss of or reduction or delay in orders from a significant
customer or a delay in collecting or failure to collect accounts receivable from a significant customer could materially and
adversely affect the Company’s business, financial condition and operating results.
6
MARKETING, SALES AND CUSTOMER SUPPORT
The Company has sales and service operations in the United States, Japan, Germany and Taiwan, dedicated service
resources in China, South Korea, and the Philippines, and has established a network of distributors and sales
representatives in certain key parts of the world. See “REVENUE RECOGNITION” in Item 7 under “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” for a further discussion of the Company’s
relationship with distributors, and its effects on revenue recognition.
The Company’s customer service and support program includes system installation, system repair, applications
engineering support, spare parts inventories, customer training and documentation. The Company has applications
engineering and field service personnel located near and sometimes co-located at our customers and includes resources
at the corporate headquarters in Fremont, California, at customer locations in Texas, at the Company’s subsidiaries in
Japan and Germany, at its branch office in Taiwan, and also through 3rd party agreements in China, South Korea, and
the Philippines. The Company’s distributors provide applications and field service support in other parts of the world.
The Company customarily provides a warranty on its products. The Company offers service contracts on its systems
directly and through its subsidiaries, distributors and representatives. The Company maintains customer support
personnel in the Philippines, China and South Korea. The Company believes that maintaining a close relationship with
customers and providing them with ongoing engineering support improves customer satisfaction and will provide the
Company with a competitive advantage in selling its products to the Company’s customers.
BACKLOG
At May 31, 2018, the Company’s backlog was $8.4 million compared with $12.7 million at May 31, 2017. The
Company’s backlog consists of product orders for which confirmed purchase orders have been received and which are
scheduled for shipment within 12 months. Due to the possibility of customer changes in delivery schedules or
cancellations and potential delays in product shipments or development projects, the Company’s backlog as of a
particular date may not be indicative of net sales for any succeeding period.
RESEARCH AND PRODUCT DEVELOPMENT
The Company historically has devoted a significant portion of its financial resources to research and development
programs and expects to continue to allocate significant resources to these efforts. Certain research and development
expenditures related to non-recurring engineering milestones have been transferred to cost of goods sold, reducing
research and development expenses. The Company’s research and development expenses during fiscal 2018, 2017 and
2016 were $4.2 million, $4.7 million and $4.3 million, respectively.
The Company conducts ongoing research and development to design new products and to support and enhance
existing product lines. Building upon the expertise gained in the development of its existing products, the Company has
developed the FOX family of systems for performing test and burn-in of entire processed wafers, rather than individual
die or packaged parts. The Company has extended the FOX-XP product to also perform test and burn-in of devices in
singulated die and module form. The Company is developing enhancements to the ABTS and FOX families of
products, intended to improve the capability and performance for testing and burn-in of future generation ICs and
provide the flexibility in a wide variety of applications.
MANUFACTURING
The Company assembles its products from components and parts manufactured by others, including environmental
chambers, power supplies, metal fabrications, printed circuit assemblies, ICs, burn-in sockets, high-density interconnects,
wafer contactors and interconnect substrates. Final assembly and testing are performed within the Company’s facilities.
The Company’s strategy is to use in-house manufacturing only when necessary to protect a proprietary process or when
a significant improvement in quality, cost or lead time can be achieved and relies on subcontractors to manufacture
many of the components and subassemblies used in its products. The Company’s principal manufacturing facility is
located in Fremont, California. The Company’s facility in Utting, Germany provides limited manufacturing and product
customization.
COMPETITION
The semiconductor equipment industry is intensely competitive. Significant competitive factors in the semiconductor
equipment market include price, technical capabilities, quality, flexibility, automation, cost of ownership, reliability,
throughput, product availability and customer service. In each of the markets it serves, the Company faces competition
from established competitors and potential new entrants, many of which have greater financial, engineering,
manufacturing and marketing resources than the Company.
7
The Company’s FOX full wafer contact systems face competition from larger systems manufacturers that have
significant technological know-how and manufacturing capability. Competing suppliers of full wafer contact systems
include Advantest Corporation, Chroma ATE Inc., Teradyne Inc., Micronics Japan Co., Ltd., and Tokyo Electron
Limited.
The Company’s ABTS TDBI systems face increasingly severe competition, especially from several regional, low-cost
manufacturers and from systems manufacturers that offer higher power dissipation per device under test. Some users of
such systems, such as independent test labs, build their own burn-in systems, while others, particularly large IC
manufacturers in Asia, acquire burn-in systems from captive or affiliated suppliers. The market for burn-in systems is
highly fragmented, with many domestic and international suppliers. Competing suppliers of burn-in and functional test
systems that compete with ABTS systems include Dong-Il Corporation, Micro Control Company, Incal Technology and
Advantest Corporation.
The Company’s WaferPak products are facing and are expected to face increasing competition. Several companies
have developed or are developing full-wafer and single-touchdown probe cards. As the full-wafer test market develops,
the Company expects that other competitors will emerge. The primary competitive factors in this market are cost,
performance, reliability and assured supply. Competing suppliers of full-wafer probe cards include FormFactor, Inc.,
Japan Electronic Materials Corporation and Micronics Japan Co., Ltd.
The Company’s test fixture products face numerous regional competitors. There are limited barriers to entry into the
BIB market, and as a result, many companies design and manufacture BIBs, including BIBs for use with the Company’s
ABTS and MAX systems. The Company has granted royalty-bearing licenses to several companies to make BIBs for use
with the Company’s MAX4 systems and the Company may grant additional licenses as well. Sales of MAX4 BIBs by
licensees result in royalties to the Company.
The Company expects that its DiePak products for burning-in and testing multiple singulated die and small modules
will face significant competition. The Company believes that several companies have developed or are developing
products which are intended to enable test and burn-in of multiple bare die, and small modules. The Company expects
that other competitors will emerge. The Company expects that the primary competitive factors in this market will be
cost, performance, reliability and assured supply. Suppliers with products that compete with our single die DiePak
products include Chroma ATE Inc.
The Company expects its competitors to continue to improve the performance of their current products and to
introduce new products with improved price and performance characteristics. New product introductions by the
Company’s competitors or by new market entrants could cause a decline in sales or loss of market acceptance of the
Company’s products. The Company has observed price competition in the systems market, particularly with respect to
its less advanced products. Increased competitive pressure could also lead to intensified price-based competition,
resulting in lower prices which could adversely affect the Company’s operating margins and results. The Company
believes that to remain competitive it must invest significant financial resources in new product development and
expand its customer service and support worldwide. There can be no assurance that the Company will be able to
compete successfully in the future.
PROPRIETARY RIGHTS
The Company relies primarily on the technical and creative ability of its personnel, its proprietary software, and trade
secrets and copyright protection, rather than on patents, to maintain its competitive position. The Company’s
proprietary software is copyrighted and licensed to the Company’s customers. At May 31, 2018, the Company held fifty
issued United States patents with expiration date ranges from 2018 to 2029 and had several additional United States
patent applications and foreign patent applications pending.
The Company’s ability to compete successfully is dependent in part upon its ability to protect its proprietary
technology and information. Although the Company attempts to protect its proprietary technology through patents,
copyrights, trade secrets and other measures, there can be no assurance that these measures will be adequate or that
competitors will not be able to develop similar technology independently. Further, there can be no assurance that claims
allowed on any patent issued to the Company will be sufficiently broad to protect the Company’s technology, that any
patent will be issued to the Company from any pending application or that foreign intellectual property laws will protect
the Company’s intellectual property. Litigation may be necessary to enforce or determine the validity and scope of the
Company’s proprietary rights, and there can be no assurance that the Company’s intellectual property rights, if
challenged, will be upheld as valid. Any such litigation could result in substantial costs and diversion of resources and
could have a material adverse effect on the Company’s business, financial condition and operating results, regardless of
the outcome of the litigation. In addition, there can be no assurance that any of the patents issued to the Company will
not be challenged, invalidated or circumvented or that the rights granted thereunder will provide competitive advantages
8
to the Company. Also, there can be no assurance that the Company will have the financial resources to defend its
patents from infringement or claims of invalidity.
There are currently no pending claims against the Company regarding infringement of any patents or other intellectual
property rights of others. However, the Company may, from time to time, receive communications from third parties
asserting intellectual property claims against the Company. Such claims could include assertions that the Company’s
products infringe, or may infringe, the proprietary rights of third parties, requests for indemnification against such
infringement or suggest the Company may be interested in acquiring a license from such third parties. There can be no
assurance that any such claim made in the future will not result in litigation, which could involve significant expense to
the Company, and, if the Company is required or deems it appropriate to obtain a license relating to one or more
products or technologies, there can be no assurance that the Company would be able to do so on commercially
reasonable terms, or at all.
EMPLOYEES
As of May 31, 2018, the Company, including its two foreign subsidiaries and one branch office, employed 86 persons
collectively, on a full-time basis, of whom 21 were engaged in research, development and related engineering, 27 were
engaged in manufacturing, 25 were engaged in marketing, sales and customer support and 13 were engaged in general
administration and finance functions. In addition, the Company from time to time employs a number of contractors
and part-time employees, particularly to perform customer support and manufacturing. The Company’s success is in
part dependent on its ability to attract and retain highly skilled workers, who are in high demand. None of the
Company’s employees are represented by a union and the Company has never experienced a work stoppage. The
Company’s management considers its relations with its employees to be good.
BUSINESS SEGMENT DATA AND GEOGRAPHIC AREAS
The Company operates in a single business segment, the designing, manufacturing and marketing of advanced test
and burn-in products to the semiconductor manufacturing industry in several geographic areas. Selected financial
information, including net sales and property and equipment, net for each of the last three fiscal years, by geographic
area is included in Part II, Item 8, Note 14 “Segment Information” and certain risks related to such operations are
discussed in Part I, Item 1A, under the heading “We sell our products and services worldwide, and our business is
subject to risks inherent in conducting business activities in geographic regions outside of the United States.”
AVAILABLE INFORMATION
The Company’s common stock trades on the NASDAQ Capital Market under the symbol “AEHR.” The Company’s
annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these
reports that are filed with the United States Securities and Exchange Commission, or SEC, pursuant to Section 13(a) or
15(d) of the Exchange Act, are available free of charge through the Company’s website at www.aehr.com as soon as
reasonably practicable after we electronically file them with, or furnish them to the SEC.
The public may read and copy any materials filed by the Company with the SEC at the SEC’s Public Reference Room
at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operations of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site, www.sec.gov, that
contains reports, proxy and information statements and other information regarding issuers that file electronically with
the SEC.
In addition, information regarding the Company’s code of conduct and ethics and the charters of its Audit,
Compensation and Nominating and Governance Committees, are available free of charge on the Company’s website
listed above.
Item 1A. Risk Factors
You should carefully consider the risks described below. These risks are not the only risks that we may face.
Additional risks and uncertainties that we are unaware of, or that we currently deem immaterial, also may become
important factors that affect us. If any of the following risks occur, our business, financial condition or results of
operations could be materially and adversely affected which could cause our actual operating results to differ materially
from those indicated or suggested by forward-looking statements made in this Annual Report on Form 10-K or
presented elsewhere by management from time to time.
9
We generate a large portion of our sales from a small number of customers. If we were to lose one or more of
our large customers, operating results could suffer dramatically.
The semiconductor manufacturing industry is highly concentrated, with a relatively small number of large
semiconductor manufacturers and contract assemblers accounting for a substantial portion of the purchases of
semiconductor equipment. Sales to our five largest customers accounted for approximately 86%, 93%, and 94% of our
net sales in fiscal 2018, 2017 and 2016, respectively. During fiscal 2018, Texas Instruments, STMicroelectronics, Inc.,
and Astronics Test Systems, Inc., accounted for approximately 34%, 26% and 13%, respectively, of the Company’s net
sales. During fiscal 2017, Texas Instruments, STMicroelectronics, Inc., Intel, and Cypress Semiconductor, accounted for
approximately 45%, 19%, 17% and 10%, respectively, of the Company’s net sales. During fiscal 2016, Apple and Texas
Instruments accounted for approximately 47% and 32%, respectively, of our net sales. No other customers accounted
for more than 10% of our net sales for any of these periods.
We expect that sales of our products to a limited number of customers will continue to account for a high percentage
of net sales for the foreseeable future. In addition, sales to particular customers may fluctuate significantly from quarter
to quarter. The loss of, reduction or delay in an order, or orders from a significant customer, or a delay in collecting or
failure to collect accounts receivable from a significant customer could adversely affect our business, financial condition
and operating results.
The semiconductor equipment industry is intensely competitive. In each of the markets we serve, we face
competition from established competitors and potential new entrants, many of which have greater financial,
engineering, manufacturing and marketing resources than us.
Our FOX wafer level and singulated die/module test and burn in systems face competition from larger systems
manufacturers that have significant technological know-how and manufacturing capability. Our ABTS Test During
Burn-in (TDBI) systems have faced and are expected to continue to face increasingly severe competition, especially from
several regional, low-cost manufacturers and from systems manufacturers that offer higher power dissipation per device
under test. Some users of such systems, such as independent test labs, build their own burn-in systems, while others,
particularly large IC manufacturers in Asia, acquire burn-in systems from captive or affiliated suppliers. Our WaferPak
products are facing and are expected to face increasing competition. Several companies have developed or are
developing full-wafer and single-touchdown probe cards.
We expect our competitors to continue to improve the performance of their current products and to introduce new
products with improved price and performance characteristics. New product introductions by our competitors or by
new market entrants could cause a decline in sales or loss of market acceptance of our products. We have observed
price competition in the systems market, particularly with respect to its less advanced products. Increased competitive
pressure could also lead to intensified price-based competition, resulting in lower prices which could adversely affect our
operating margins and results. We believe that to remain competitive we must invest significant financial resources in
new product development and expand our customer service and support worldwide. There can be no assurance that we
will be able to compete successfully in the future.
We rely on increasing market acceptance for our FOX system, and we may not be successful in attracting new
customers or maintaining our existing customers.
A principal element of our business strategy is to increase our presence in the test equipment market through system
sales in our FOX wafer-level and singulated die/module test and burn-in product family. The market for the FOX
systems is in the early stages of development. Market acceptance of the FOX system is subject to a number of risks.
Before a customer will incorporate the FOX system into a production line, lengthy qualification and correlation tests
must be performed. We anticipate that potential customers may be reluctant to change their procedures in order to
transfer burn-in and test functions to the FOX system. Initial purchases are expected to be limited to systems used for
these qualifications and for engineering studies. Market acceptance of the FOX system also may be affected by a
reluctance of IC manufacturers to rely on relatively small suppliers such as us. As is common with new complex
products incorporating leading-edge technologies, we may encounter reliability, design and manufacturing issues as we
begin volume production and initial installations of FOX systems at customer sites. The failure of the FOX system to
achieve increased market acceptance would have a material adverse effect on our future operating results, long-term
prospects and our stock price.
10
We rely on continued market acceptance of our ABTS system and our ability to complete certain
enhancements.
Continued market acceptance of the ABTS family is subject to a number of risks. It is important that we achieve
customer acceptance, customer satisfaction and increased market acceptance as we add new features and enhancements
to the ABTS product. To date, we have shipped ABTS systems to customers worldwide for use in both reliability and
production applications. We have had a strengthening of ABTS product sales last two fiscal years. However, the failure
of the ABTS family to grow revenues above current levels would have a material adverse effect on our future operating
results.
A substantial portion of our net sales is generated by relatively small volume, high value transactions.
We derive a substantial portion of our net sales from the sale of a relatively small number of systems which typically
range in purchase price from approximately $300,000 to well over $1 million per system. As a result, the loss or deferral
of a limited number of system sales could have a material adverse effect on our net sales and operating results in a
particular period. Most customer purchase orders are subject to cancellation or rescheduling by the customer with
limited penalties, and, therefore, backlog at any particular date is not necessarily indicative of actual sales for any
succeeding period. From time to time, cancellations and rescheduling of customer orders have occurred, and delays by
our suppliers in providing components or subassemblies to us have caused delays in our shipments of our own products.
There can be no assurance that we will not be materially adversely affected by future cancellations or rescheduling. For
non-standard products where we have not effectively demonstrated the ability to meet specifications in the customer
environment, we defer revenue until we have met such customer specifications. Any delay in meeting customer
specifications could have a material adverse effect on our operating results. A substantial portion of net sales typically
are realized near the end of each quarter. A delay or reduction in shipments near the end of a particular quarter, due, for
example, to unanticipated shipment rescheduling, cancellations or deferrals by customers, customer credit issues,
unexpected manufacturing difficulties experienced by us or delays in deliveries by suppliers, could cause net sales in a
particular quarter to fall significantly below our expectations.
We may experience increased costs associated with new product introductions.
As is common with new complex products incorporating leading-edge technologies, we have encountered reliability,
design and manufacturing issues as we began volume production and initial installations of certain products at customer
sites. Some of these issues in the past have been related to components and subsystems supplied to us by third parties
who have in some cases limited the ability of us to address such issues promptly. This process in the past required and
in the future is likely to require us to incur un-reimbursed engineering expenses and to experience larger than anticipated
warranty claims which could result in product returns. In the early stages of product development there can be no
assurance that we will discover any reliability, design and manufacturing issues or, that if such issues arise, that they can
be resolved to the customers’ satisfaction or that the resolution of such problems will not cause us to incur significant
development costs or warranty expenses or to lose significant sales opportunities.
We sell our products and services worldwide, and our business is subject to risks inherent in conducting
business activities in geographic regions outside of the United States.
Approximately 71%, 59%, and 80% of our net sales for fiscal 2018, 2017 and 2016, respectively, were attributable to
sales to customers for delivery outside of the United States. We operate a direct sales, service and limited manufacturing
organization in Germany and sales and service organizations in Japan and Taiwan as well as direct support through 3rd
party agreements in China, South Korea, and the Philippines. We expect that sales of products for delivery outside of
the United States will continue to represent a substantial portion of our future net sales. Our future performance will
depend, in significant part, upon our ability to continue to compete in foreign markets which in turn will depend, in part,
upon a continuation of current trade relations between the United States and foreign countries in which semiconductor
manufacturers or assemblers have operations. A change toward more protectionist trade legislation in either the United
States or such foreign countries, such as a change in the current tariff structures, export compliance or other trade
policies, could adversely affect our ability to sell our products in foreign markets. In addition, we are subject to other
risks associated with doing business internationally, including longer receivable collection periods and greater difficulty in
accounts receivable collection, the burden of complying with a variety of foreign laws, difficulty in staffing and managing
global operations, risks of civil disturbance or other events which may limit or disrupt markets, international exchange
restrictions, changing political conditions and monetary policies of foreign governments.
11
Approximately 100%, 0% and 0% of our net sales for fiscal 2018 were denominated in U.S. Dollars, Euros and
Japanese Yen, respectively. Although the percentages of net sales denominated in Euros and Japanese Yen were small in
fiscal 2018, they have been larger in the past and could become significant again in the future. A large percentage of net
sales to European customers are denominated in U.S. Dollars, but sales to many Japanese customers are denominated in
Japanese Yen. Because a substantial portion of our net sales is from sales of products for delivery outside the United
States, an increase in the value of the U.S. Dollar relative to foreign currencies would increase the cost of our products
compared to products sold by local companies in such markets. In addition, since the price is determined at the time a
purchase order is accepted, we are exposed to the risks of fluctuations in the U.S. Dollar exchange rate during the
lengthy period from the date a purchase order is received until payment is made. This exchange rate risk is partially
offset to the extent our foreign operations incur expenses in the local currency. To date, we have not invested in any
instruments designed to hedge currency risks. Our operating results could be adversely affected by fluctuations in the
value of the U.S. Dollar relative to other currencies.
We purchase materials from suppliers worldwide, which subjects the Company to increased risk.
We purchase components, sub-assemblies, and chambers from suppliers outside the United States. Increases in
tariffs, additional taxes, or trade barriers may result in an increase in our manufacturing costs. A decrease in the value of
the U.S. Dollar relative to foreign currencies would increase the cost of our materials. Should the Company increase its
sales prices to recover the increase in costs, this could result in a decrease in the competitiveness of our products. In
addition, we are subject to other risks associated with purchasing materials from suppliers worldwide. Government
authorities may also implement protectionist policies or impose limitations on the transfer of intellectual property. This
may limit our ability to obtain products from certain geographic regions and require us to identify and qualify new
suppliers. The process of qualifying suppliers could be lengthy, and no assurance can be given that any additional
sources would be available to us on a timely basis. Changes in trade relations, currency fluctuations, or protectionist
policies could have a material adverse effect on our business, financial condition or results of operations.
The Company is exposed to cybersecurity threats or incidents.
We collect, maintain, and transmit data on information systems. These systems include those owned and maintained
by the Company or by third parties. In addition, we use cloud-based enterprise resource planning, ERP, software to
manage the business integrating all facets of operations, including manufacturing, finance, and sales and marketing. The
data maintained on these systems includes confidential and proprietary information belonging to Aehr, our customers,
suppliers, and others. While the Company devotes significant resources to protect its systems and data from
unauthorized access or misuse, we are exposed to cybersecurity risks. Our systems are subject to computer viruses, data
breach, phishing schemes, and other malicious software programs or attacks. We have experienced cyber threats and
incidents in the past. Although past threats and incidents have not resulted in a material adverse effect, cybersecurity
incidents may result in business disruption, loss of data, or unauthorized access to intellectual property which could
adversely affect our business.
Our industry is subject to rapid technological change and our ability to remain competitive depends on our
ability to introduce new products in a timely manner.
The semiconductor equipment industry is subject to rapid technological change and new product introductions and
enhancements. Our ability to remain competitive depends in part upon our ability to develop new products and to
introduce them at competitive prices and on a timely and cost-effective basis. Our success in developing new and
enhanced products depends upon a variety of factors, including product selection, timely and efficient completion of
product design, timely and efficient implementation of manufacturing and assembly processes, product performance in
the field and effective sales and marketing. Because new product development commitments must be made well in
advance of sales, new product decisions must anticipate both future demand and the technology that will be available to
supply that demand. Furthermore, introductions of new and complex products typically involve a period in which
design, engineering and reliability issues are identified and addressed by our suppliers and by us. There can be no
assurance that we will be successful in selecting, developing, manufacturing and marketing new products that satisfy
market demand. Any such failure would materially and adversely affect our business, financial condition and results of
operations.
Because of the complexity of our products, significant delays can occur between a product’s introduction and the
commencement of the volume production of such product. We have experienced, from time to time, significant delays
in the introduction of, and technical and manufacturing difficulties with, certain of our products and may experience
delays and technical and manufacturing difficulties in future introductions or volume production of our new products.
Our inability to complete new product development, or to manufacture and ship products in time to meet customer
requirements would materially adversely affect our business, financial condition and results of operations.
12
Our dependence on subcontractors and sole source suppliers may prevent us from delivering our products on
a timely basis and expose us to intellectual property infringement.
We rely on subcontractors to manufacture many of the components or subassemblies used in our products. Our
FOX and ABTS systems, WaferPak contactors and DiePak carriers contain several components, including
environmental chambers, power supplies, high-density interconnects, wafer contactors, module contactors, signal
distribution substrates, WaferPak Aligners, DiePak Loaders and certain ICs that are currently supplied by only one or a
limited number of suppliers. Our reliance on subcontractors and single source suppliers involves a number of significant
risks, including the loss of control over the manufacturing process, the potential absence of adequate capacity and
reduced control over delivery schedules, manufacturing yields, quality and costs. In the event that any significant
subcontractor or single source supplier is unable or unwilling to continue to manufacture subassemblies, components or
parts in required volumes, we would have to identify and qualify acceptable replacements. The process of qualifying
subcontractors and suppliers could be lengthy, and no assurance can be given that any additional sources would be
available to us on a timely basis. Any delay, interruption or termination of a supplier relationship could adversely affect
our ability to deliver products, which would harm our operating results.
Our suppliers manufacture components, tooling, and provide engineering services. During this process, our suppliers
are allowed access to our intellectual property. While we maintain patents to protect from intellectual property
infringement, there can be no assurance that technological information gained in the manufacture of our products will
not be used to develop a new product, improve processes or techniques which compete against our products. Litigation
may be necessary to enforce or determine the validity and scope of our proprietary rights, and there can be no assurance
that our intellectual property rights, if challenged, will be upheld as valid.
Periodic economic and semiconductor industry downturns could negatively affect our business, results of
operations and financial condition.
Periodic global economic and semiconductor industry downturns have negatively affected and could continue to
negatively affect our business, results of operations, and financial condition. Financial turmoil in the banking system and
financial markets has resulted, and may result in the future, in a tightening of the credit markets, disruption in the
financial markets and global economy downturn. These events may contribute to significant slowdowns in the industry
in which we operate. Difficulties in obtaining capital and deteriorating market conditions can pose the risk that some of
our customers may not be able to obtain necessary financing on reasonable terms, which could result in lower sales.
Customers with liquidity issues may lead to additional bad debt expense.
Turmoil in the international financial markets has resulted, and may result in the future, in dramatic currency
devaluations, stock market declines, restriction of available credit and general financial weakness. In addition, flash
memory and other similar device prices have historically declined, and will likely do so again in the future. These
developments may affect us in several ways. The market for semiconductors and semiconductor capital equipment has
historically been cyclical, and we expect this to continue in the future. The uncertainty of the semiconductor market
may cause some manufacturers in the future to further delay capital spending plans. Economic conditions may also
affect the ability of our customers to meet their payment obligations, resulting in cancellations or deferrals of existing
orders and limiting additional orders. In addition, some governments have subsidized portions of fabrication facility
construction, and financial turmoil may reduce these governments’ willingness to continue such subsidies. Such
developments could have a material adverse effect on our business, financial condition and results of operations.
The current economic conditions and uncertainty about future economic conditions make it challenging for us to
forecast our operating results, make business decisions, and identify the risks that may affect our business, financial
condition and results of operations. If such conditions recur, and we are not able to timely and appropriately adapt to
changes resulting from the difficult macroeconomic environment, our business, financial condition or results of
operations may be materially and adversely affected.
Future changes in semiconductor technologies may make our products obsolete.
Future improvements in semiconductor design and manufacturing technology may reduce or eliminate the need for
our products. For example, improvements in semiconductor process technology and improvements in conventional test
systems, such as reduced cost or increased throughput, may significantly reduce or eliminate the market for one or more
of our products. If we are not able to improve our products or develop new products or technologies quickly enough to
maintain a competitive position in our markets, our business may decline.
13
If we are not able to reduce our operating expenses sufficiently during periods of weak revenue, or if we utilize
significant amounts of cash to support operating losses, we may erode our cash resources and may not have
sufficient cash to operate our business.
In recent years, in the face of a downturn in our business and a decline in our net sales, we implemented a variety of
cost controls and restructured our operations with the goal of reducing our operating costs to position ourselves to more
effectively meet the needs of the then weak market for test and burn-in equipment. While we took significant steps to
minimize our expense levels and to increase the likelihood that we would have sufficient cash to support operations
during the downturn, from fiscal 2009 through fiscal 2017, with the exception of fiscal 2014, we experienced operating
losses. We anticipate that our existing cash balance together with income from operations, collections of existing
accounts receivable, revenue from our existing backlog of products, the sale of inventory on hand, and deposits and
down payments against significant orders will be adequate to meet our working capital and capital equipment
requirements. Depending on our rate of growth and profitability, and our ability to obtain significant orders with down
payments, we may require additional equity or debt financing to meet our working capital requirements or capital
equipment needs. There can be no assurance that additional financing will be available when required, or if available,
that such financing can be obtained on terms satisfactory to us.
Our stock price may fluctuate.
The price of our common stock has fluctuated in the past and may fluctuate significantly in the future. We believe
that factors such as announcements of developments related to our business, fluctuations in our operating results,
general conditions in the semiconductor and semiconductor equipment industries as well as the worldwide economy,
announcement of technological innovations, new systems or product enhancements by us or our competitors,
fluctuations in the level of cooperative development funding, acquisitions, changes in governmental regulations,
developments in patents or other intellectual property rights and changes in our relationships with customers and
suppliers could cause the price of our common stock to fluctuate substantially. In addition, in recent years the stock
market in general, and the market for small capitalization and high technology stocks in particular, have experienced
extreme price fluctuations which have often been unrelated to the operating performance of the affected companies.
Such fluctuations could adversely affect the market price of our common stock.
We depend on our key personnel and our success depends on our ability to attract and retain talented
employees.
Our success depends to a significant extent upon the continued service of Gayn Erickson, our President and Chief
Executive Officer, as well as other executive officers and key employees. We do not maintain key person life insurance
for our benefit on any of our personnel, and none of our employees are subject to a non-competition agreement with us.
The loss of the services of any of our executive officers or a group of key employees could have a material adverse effect
on our business, financial condition and operating results. Our future success will depend in significant part upon our
ability to attract and retain highly skilled technical, management, sales and marketing personnel. There is a limited
number of personnel with the requisite skills to serve in these positions, and it has become increasingly difficult for us to
hire such personnel. Competition for such personnel in the semiconductor equipment industry is intense, and there can
be no assurance that we will be successful in attracting or retaining such personnel. Changes in management could
disrupt our operations and adversely affect our operating results.
We may be subject to litigation relating to intellectual property infringement which would be time-consuming,
expensive and a distraction from our business.
If we do not adequately protect our intellectual property, competitors may be able to use our proprietary information
to erode our competitive advantage, which could harm our business and operating results. Litigation may be necessary
to enforce or determine the validity and scope of our proprietary rights, and there can be no assurance that our
intellectual property rights, if challenged, will be upheld as valid. Such litigation could result in substantial costs and
diversion of resources and could have a material adverse effect on our operating results, regardless of the outcome of the
litigation. In addition, there can be no assurance that any of the patents issued to us will not be challenged, invalidated
or circumvented or that the rights granted thereunder will provide competitive advantages to us.
14
There are no pending claims against us regarding infringement of any patents or other intellectual property rights of
others. However, in the future we may receive communications from third parties asserting intellectual property claims
against us. Such claims could include assertions that our products infringe, or may infringe, the proprietary rights of
third parties, requests for indemnification against such infringement or suggestions that we may be interested in
acquiring a license from such third parties. There can be no assurance that any such claim will not result in litigation,
which could involve significant expense to us, and, if we are required or deem it appropriate to obtain a license relating
to one or more products or technologies, there can be no assurance that we would be able to do so on commercially
reasonable terms, or at all.
While we believe we have complied with all applicable environmental laws, our failure to do so could adversely
affect our business as a result of having to pay substantial amounts in damages or fees.
Federal, state and local regulations impose various controls on the use, storage, discharge, handling, emission,
generation, manufacture and disposal of toxic and other hazardous substances used in our operations. We believe that
our activities conform in all material respects to current environmental and land use regulations applicable to our
operations and our current facilities, and that we have obtained environmental permits necessary to conduct our
business. Nevertheless, failure to comply with current or future regulations could result in substantial fines, suspension
of production, alteration of our manufacturing processes or cessation of operations. Such regulations could require us
to acquire expensive remediation equipment or to incur substantial expenses to comply with environmental regulations.
Any failure to control the use, disposal or storage of or adequately restrict the discharge of, hazardous or toxic
substances could subject us to significant liabilities.
If we fail to maintain effective internal control over financial reporting in the future, the accuracy and timing of
our financial reporting may be adversely affected.
We are required to comply with Section 404 of the Sarbanes-Oxley Act of 2002. The provisions of the act require,
among other things, that we maintain effective internal control over financial reporting and disclosure controls and
procedures. Preparing our financial statements involves a number of complex processes, many of which are done
manually and are dependent upon individual data input or review. These processes include, but are not limited to,
calculating revenue, deferred revenue and inventory costs. While we continue to automate our processes and enhance
our review and put in place controls to reduce the likelihood for errors, we expect that for the foreseeable future, many
of our processes will remain manually intensive and thus subject to human error.
Our common stock may be delisted from The NASDAQ Capital Market if we cannot maintain compliance
with NASDAQ’s continued listing requirements.
In order to maintain our listing on The NASDAQ Capital Market, we are required to maintain compliance with
NASDAQ’s continued listing requirements. The continued listing requirements include, among others, a minimum bid
price of $1.00 per share and any of: (i) a minimum stockholders’ equity of $2.5 million; (ii) a market value of listed
securities of at least $35 million; or (iii) net income from continuing operations of $500,000 in the most recently
completed fiscal year or in two of the last three fiscal years. There are no assurances that we will be able to sustain long-
term compliance with NASDAQ’s continued listing requirements. On April 19, 2016, we were notified by NASDAQ
that we were no longer in compliance with NASDAQ’s continued listing requirements as we did not have a minimum
stockholders’ equity of $2.5 million. On October 3, 2016, we were notified by NASDAQ that we had regained
compliance with NASDAQ’s continued listing requirements. If we fail to maintain compliance with the applicable
NASDAQ continued listing requirements, our stock may be delisted.
If we are delisted, we would expect our common stock to be traded in the over-the-counter market, which could
make trading our common stock more difficult for investors, potentially leading to declines in our share price and
liquidity. Delisting from The NASDAQ Capital Market would also constitute an event of default under our convertible
notes. In addition, delisting could result in negative publicity and make it more difficult for us to raise additional capital.
15
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
The Company’s principal administrative and production facilities are located in Fremont, California, in a 51,289
square foot building. The Company’s lease was renewed in February 2018 and expires in July 2023. The Company’s
facility in Japan is located in a 418 square foot office in Tokyo under a lease which expires in June 2019. The Company
also maintains a 1,585 square foot warehouse in Yamanashi under a lease which expires in November 2019. The
Company leases a 492 square foot sales and support office in Utting, Germany. The lease, which began February 1,
1992 and expires on January 31, 2020, contains an automatic twelve months renewal, at rates to be determined, if no
notice is given prior to six months from expiry. The Company’s and its subsidiaries’ annual rental payments currently
aggregate $587,000. The Company periodically evaluates its global operations and facilities to bring its capacity in line
with demand and to provide cost efficient services for its customers. In prior years, through this process, the Company
has moved from certain facilities that exceeded the capacity required to satisfy its needs. The Company believes that its
existing facilities are adequate to meet its current and reasonably foreseeable requirements. The Company regularly
evaluates its expected future facilities requirements and believes that alternate facilities would be available if needed.
Item 3. Legal Proceedings
None.
Item 4. Mine Safety Disclosures
Not Applicable
16
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
The Company’s common stock is publicly traded on the NASDAQ Capital Market under the symbol “AEHR”. The
following table sets forth, for the periods indicated, the high and low sale prices for the common stock on such market.
These quotations represent prices between dealers and do not include retail markups, markdowns or commissions and
may not necessarily represent actual transactions.
Fiscal 2018:
First quarter ended August 31, 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second quarter ended November 30, 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third quarter ended February 28, 2018. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth quarter ended May 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2017:
First quarter ended August 31, 2016. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second quarter ended November 30, 2016. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third quarter ended February 28, 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth quarter ended May 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
High
Low
$4.60
4.10
3.37
2.80
$3.42
3.58
5.28
6.10
$2.62
2.50
2.16
2.12
$0.96
2.05
2.15
3.37
At August 3, 2018, the Company had 139 holders of record of its common stock. A substantially greater number of
holders of the Company’s common stock are “street name” or beneficial holders whose shares are held by banks,
brokers and other financial institutions.
The Company has not paid cash dividends on its common stock or other securities. The Company currently
anticipates that it will retain its future earnings, if any, for use in the expansion and operation of its business and does
not anticipate paying any cash dividends on its common stock in the foreseeable future.
The Company did not repurchase any of its common stock during the fiscal year ended May 31, 2018.
PERFORMANCE MEASUREMENT COMPARISON
The following graph shows a comparison of total shareholder return for holders of the Company's common stock for
the last five fiscal years ended May 31, 2018, compared with the NASDAQ Composite Index and the Philadelphia
Semiconductor Index. The graph assumes that $100 was invested in the Company's common stock, in the NASDAQ
Composite Index and the Philadelphia Semiconductor Index on May 31, 2013, and that all dividends were reinvested.
The Company believes that while total shareholder return can be an important indicator of corporate performance, the
stock prices of semiconductor equipment companies like us are subject to a number of market-related factors other than
company performance, such as competitive announcements, mergers and acquisitions in the industry, the general state
of the economy and the performance of other semiconductor equipment company stocks. Stock prices and shareholder
returns over the indicated period should not be considered indicative of future stock prices or shareholder returns.
17
Item 6. Selected Consolidated Financial Data
The selected consolidated financial data set forth below should be read in conjunction with “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements
and related notes included elsewhere in this Annual Report on Form 10-K. The selected consolidated financial data in
this section are not intended to replace the consolidated financial statements and are qualified in their entirety by the
consolidated financial statements and related notes thereto included elsewhere in this Annual Report on Form 10-K.
We derived the statements of operations data for the years ended May 31, 2018, 2017 and 2016 and the balance sheet
data as of May 31, 2018 and 2017 from our audited consolidated financial statements and related notes, which are
included elsewhere in this Annual Report on Form 10-K. We derived the statements of operations data for the years
ended May 31, 2015 and 2014 and the balance sheet data as of May 31, 2016, 2015 and 2014 from our audited
consolidated financial statements and related notes which are not included in this Annual Report on Form 10-K. We
have not declared or distributed any cash dividends.
18
CONSOLIDATED STATEMENTS OF
OPERATIONS:
2018
Fiscal Year Ended May 31,
2017
2015
2016
(In thousands, except per share data)
2014
Net sales. . . . . . . . . . . . . . . . . . . . . . . . . . . .
$29,555
$18,898
$14,501
$10,018
$19,684
Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . .
17,169
12,118
9,356
6,180
9,462
Gross profit. . . . . . . . . . . . . . . . . . . . . . . . .
12,386
6,780
5,145
3,838
10,222
Operating expenses:
Selling, general and administrative. . . . . . .
Research and development . . . . . . . . . . . .
7,290
4,181
7,052
4,657
6,975
4,324
6,470
4,062
6,323
3,402
Total operating expenses . . . . . . . . . . . .
11,471
11,709
11,299
10,532
9,725
Income (loss) from operations. . . . . . . . . . .
915
(4,929)
(6,154)
(6,694)
497
Interest expense. . . . . . . . . . . . . . . . . . . . . .
(399)
(678)
(605)
(130)
(26)
Other (expense) income, net . . . . . . . . . . . .
(61)
(21)
(16)
211
(64)
Income (loss) before income tax benefit
(expense) . . . . . . . . . . . . . . . . . . . . . . . .
Income tax benefit (expense). . . . . . . . . . . .
Net income (loss). . . . . . . . . . . . . . . . . . . . .
Less: Net income attributable to the
noncontrolling interest . . . . . . . . . . . .
Net income (loss) attributable to Aehr
Test Systems common shareholders. . . .
Net income (loss) per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares used in per share calculations
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted. . . . . . . . . . . . . . . . . . . . . . . . . .
CONSOLIDATED BALANCE SHEETS:
455
(5,628)
(6,775)
(6,613)
407
73
528
(25)
(5,653)
(10)
(6,785)
(34)
(6,647)
15
422
--
--
--
--
--
$ 528
$(5,653)
$ (6,785)
$ (6,647)
$ 422
$ 0.02
$ 0.02
$(0.35)
$(0.35)
$(0.52)
$(0.52)
$(0.55)
$(0.55)
$0.04
$0.04
21,732
22,782
16,267
16,267
13,091
13,091
12,047
12,047
10,877
11,889
2018
2017
May 31,
2016
2015
2014
Cash and cash equivalents. . . . . . . . . . . . . . .
Working capital. . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . .
$16,848
18,308
30,955
$17,803
21,494
30,892
$ 939
4,068
10,046
$5,527
7,776
14,868
Long-term obligations, less current portion .
Total shareholders' equity (deficit) . . . . . . . .
522
19,285
6,214
16,794
6,089
(723)
3,799
4,550
$1,809
6,556
12,225
79
7,029
19
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of the financial condition and results of operations should be read in
conjunction with our “Selected Consolidated Financial Data” and our consolidated financial statements and related
notes included elsewhere in this Annual Report on Form 10-K.
OVERVIEW
We were founded in 1977 to develop and manufacture burn-in and test equipment for the semiconductor industry.
Since our inception, we have over 2,500 systems installed at semiconductor manufacturers, semiconductor contract
assemblers and burn-in and test service companies worldwide. Our principal products currently are the Advanced Burn-
in and Test System, or ABTS, the FOX full wafer contact and singulated die/module parallel test and burn-in system,
WaferPak Aligner, WaferPak contactors, DiePak Loader, the DiePak carriers and test fixtures.
Our net sales consist primarily of sales of systems, WaferPak Aligners and DiePak Loaders, WaferPak contactors,
DiePak carriers, test fixtures, upgrades and spare parts, revenues from service contracts, and engineering development
charges. Our selling arrangements may include contractual customer acceptance provisions, which are mostly deemed
perfunctory or inconsequential, and installation of the product occurs after shipment and transfer of title.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated
financial statements, which have been prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these 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 ongoing basis, we evaluate our estimates, including those related to customer
programs and incentives, product returns, bad debts, inventories, investments, income taxes, financing operations,
warranty obligations, and long-term service contracts, among others. Our estimates are derived from historical
experience and on various other assumptions that are believed to be reasonable under the circumstances. Those results
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 believe the following critical accounting policies affect our more significant judgments and estimates used in the
preparation of our consolidated financial statements.
REVENUE RECOGNITION
We recognize revenue upon the shipment of products or the performance of services when: (1) persuasive evidence
of the arrangement exists; (2) goods or services have been delivered; (3) the price is fixed or determinable; and (4)
collectibility is reasonably assured. When a sales agreement involves multiple deliverables, such as extended support
provisions, training to be supplied after delivery of the systems, and test programs specific to customers’ routine
applications, the multiple deliverables are evaluated to determine the units of accounting. Judgment is required to
properly identify the accounting units of multiple element transactions and the manner in which revenue is allocated
among the accounting units. Judgments made, or changes to judgments made, may significantly affect the timing or
amount of revenue recognition.
Revenue related to the multiple elements is allocated to each unit of accounting using the relative selling price
hierarchy. Consistent with accounting guidance, the selling price is based upon vendor specific objective evidence
(VSOE). If VSOE is not available, third party evidence (TPE) is used to establish the selling price. In the absence of
VSOE or TPE, estimated selling price is used.
During the first quarter of fiscal 2013, we entered into an agreement with a customer to develop a next generation
FOX system, and we shipped the first system in July 2016. The project identifies multiple milestones with values
assigned to each. The consideration earned upon achieving the milestone is required to meet the following conditions
prior to recognition: (i) the value is commensurate with the vendor’s performance to meet the milestone, (ii) it relates
solely to past performance, (iii) and it is reasonable relative to all of the deliverables and payment terms within the
arrangement. Revenue is recognized for the milestone upon acceptance by the customer.
20
We recognize revenue in certain circumstances before physical delivery has occurred. In these arrangements, among
other things, risk of ownership has passed to the customer, the customer has made a written fixed commitment to
purchase the products, the customer has requested the products be held for future delivery as scheduled and designated
by them, and no additional performance obligations exist by us. For these transactions, the products are segregated from
inventory and normal billing and credit terms granted.
Sales tax collected from customers is not included in net sales but rather recorded as a liability due to the respective
taxing authorities. Provisions for the estimated future cost of warranty and installation are recorded at the time the
products are shipped.
Royalty-based revenue related to licensing income from performance test boards and burn-in boards is recognized
upon the earlier of the receipt by us of the licensee’s report related to its usage of the licensed intellectual property or
upon payment by the licensee.
Our terms of sales with distributors are generally Free on Board, or FOB, shipping point with payment due within 60
days. All products go through in-house testing and verification of specifications before shipment. Apart from warranty
reserves, credits issued have not been material as a percentage of net sales. Our distributors do not generally carry
inventories of our products. Instead, the distributors place orders with us at or about the time they receive orders from
their customers. Our shipment terms to our distributors do not provide for credits or rights of return. Because our
distributors do not generally carry inventories of our products, they do not have rights to price protection or to return
products. At the time we ship products to the distributors, the price is fixed. Subsequent to the issuance of the invoice,
there are no discounts or special terms. We do not give the buyer the right to return the product or to receive future
price concessions. Our arrangements do not include vendor consideration.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
We maintain an allowance for doubtful accounts to reserve for potentially uncollectible trade receivables. We also
review our trade receivables by aging category to identify specific customers with known disputes or collection issues.
We exercise judgment when determining the adequacy of these reserves as we evaluate historical bad debt trends, general
economic conditions in the United States and internationally and changes in customer financial conditions.
Uncollectible receivables are recorded as bad debt expense when all efforts to collect have been exhausted and
recoveries are recognized when they are received.
WARRANTY OBLIGATIONS
We provide and record the estimated cost of product warranties at the time revenues are recognized on products
shipped. While we engage in extensive product quality programs and processes, including actively monitoring and
evaluating the quality of our component suppliers, our warranty obligation is affected by product failure rates, material
usage and service delivery costs incurred in correcting a product failure. Our estimate of warranty reserve is based on
management’s assessment of future warranty obligations and on historical warranty obligations. Should actual product
failure rates, material usage or service delivery costs differ from our estimates, revisions to the estimated warranty
liability would be required, which could affect how we account for expenses.
INVENTORY OBSOLESCENCE
In each of the last three fiscal years, we have written down our inventory for estimated obsolescence or unmarketable
inventory by an amount equal to the difference between the cost of inventory and the estimated market value based
upon assumptions about future demand and market conditions. If future market conditions are less favorable than
those projected by management, additional inventory write-downs may be required.
INCOME TAXES
Income taxes have been provided using the liability method whereby deferred tax assets and liabilities are determined
based on differences between financial reporting and tax bases of assets and liabilities and net operating loss and tax
credit carryforwards measured using the enacted tax rates and laws that will be in effect when the differences are
expected to reverse or the carryforwards are utilized. Valuation allowances are established when it is determined that it
is more likely than not that such assets will not be realized.
A full valuation allowance was established against all deferred tax assets, as management determined that it is more
likely than not that deferred tax assets will not be realized, as of May 31, 2018 and 2017.
21
We account for uncertain tax positions consistent with authoritative guidance. The guidance prescribes a “more likely
than not” recognition threshold and measurement attribute for the financial statement recognition and measurement of
a tax position taken or expected to be taken in a tax return. We do not expect any material change in its unrecognized
tax benefits over the next twelve months. We recognize interest and penalties related to unrecognized tax benefits as a
component of income taxes.
Although we file U.S. federal, various state and foreign tax returns, our only major tax jurisdictions are the United
States, California, Germany and Japan. Tax years 1996 – 2017 remain subject to examination by the appropriate
governmental agencies due to tax loss carryovers, research and development tax credits, or other tax attributes from
those years.
STOCK-BASED COMPENSATION EXPENSE
Stock-based compensation expense consists of expenses for stock options, restricted stock units, or RSUs, and
employee stock purchase plan, or ESPP, purchase rights. Stock-based compensation cost for stock options and ESPP
purchase rights is measured at each grant date, based on the fair value of the award using the Black-Scholes option
valuation model, and is recognized as expense over the employee’s requisite service period. This model was developed
for use in estimating the value of publicly traded options that have no vesting restrictions and are fully transferable. Our
employee stock options have characteristics significantly different from those of publicly traded options. For RSUs,
stock-based compensation cost is based on the fair value of our common stock at the grant date. All of our stock-based
compensation is accounted for as an equity instrument.
The fair value of each option grant and the right to purchase shares under our ESPP are estimated on the date of
grant using the Black-Scholes option valuation model with assumptions concerning expected term, stock price volatility,
expected dividend yield, risk-free interest rate and the expected life of the award. See Notes 10 to our consolidated
financial statements for detailed information relating to stock-based compensation and the stock option plan and the
ESPP.
RESULTS OF OPERATIONS
The following table sets forth statements of operations data as a percentage of net sales for the periods indicated.
2018
Year Ended May 31,
2017
2016
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100.0%
58.1
41.9
100.0%
64.1
35.9
100.0%
64.5
35.5
Operating expenses:
Selling, general and administrative . . . . . . . . . . . . . . . .
Research and development . . . . . . . . . . . . . . . . . . . . .
24.7
14.1
37.3
24.7
48.1
29.8
Total operating expenses. . . . . . . . . . . . . . . . . . . . . .
38.8
62.0
77.9
Income (loss) from operations . . . . . . . . . . . . . . . . . . .
3.1
(26.1)
(42.4)
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense, net. . . . . . . . . . . . . . . . . . . . . .
(1.4)
(0.2)
(3.6)
(0.1)
(4.2)
(0.1)
Income (loss) before income tax benefit (expense). . . .
1.5
(29.8)
(46.7)
Income tax benefit (expense). . . . . . . . . . . . . . . . . . . . . .
0.3
(0.1)
(0.1)
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.8
(29.9)
(46.8)
Less: Net income attributable
to the noncontrolling interest. . . . . . . . . . . . . . . . . . .
Net income (loss) attributable to Aehr Test Systems
common shareholders. . . . . . . . . . . . . . . . . . . . . . . . . . .
--
--
--
1.8%
(29.9)%
(46.8)%
22
FISCAL YEAR ENDED MAY 31, 2018 COMPARED TO FISCAL YEAR ENDED MAY 31, 2017
NET SALES. Net sales increased to $29.6 million for the fiscal year ended May 31, 2018 from $18.9 million for the
fiscal year ended May 31, 2017, an increase of 56.4%. The increase in net sales in fiscal 2018 resulted primarily from
increases in net sales of both our Test During Burn-in (TDBI) products and wafer-level products. Net sales of the TDBI
products for fiscal 2018 were $16.5 million, and increased approximately $7.3 million from fiscal 2017. Net sales of the
wafer-level products for fiscal 2018 were $13.1 million, and increased approximately $3.5 million from fiscal 2017.
GROSS PROFIT. Gross profit increased to $12.4 million for the fiscal year ended May 31, 2018 from $6.8 million
for the fiscal year ended May 31, 2017, an increase of 82.7%. Gross profit margin increased to 41.9% for the fiscal year
ended May 31, 2018 from 35.9% for the fiscal year ended May 31, 2017.(cid:3)(cid:3)The increase in gross profit margin was
primarily the result of manufacturing efficiencies due to an increase in net sales.
SELLING, GENERAL AND ADMINISTRATIVE. SG&A expenses were $7.3 million for the fiscal year ended
May 31, 2018, compared with $7.1 million for the fiscal year ended May 31, 2017, an increase of 3.4%. The increase in
SG&A expenses was primarily due to increases in employment related expenses.
RESEARCH AND DEVELOPMENT. R&D expenses decreased to $4.2 million for the fiscal year ended May 31,
2018 from $4.7 million for the fiscal year ended May 31, 2017, a decrease of 10.2%. The decrease in R&D expenses was
primarily due to decreases in project expenses.
INTEREST EXPENSE. Interest expense decreased to $399,000 for the fiscal year ended May 31, 2018 from
$678,000 for the fiscal year ended May 31, 2017. The decrease in interest expense for the fiscal year ended May 31, 2018
was primarily due to the debt issuance costs related to the convertible notes becoming fully amortized at the end of fiscal
2017.
OTHER EXPENSE, NET. Other expense, net was $61,000 and $21,000 for the fiscal year ended May 31, 2018 and
2017, respectively. The change in other expense was due primarily to losses realized in connection with the fluctuation
in the value of the dollar compared to foreign currencies during the referenced periods.
INCOME TAX BENEFIT (EXPENSE). Income tax benefit was $73,000 for the fiscal year ended May 31, 2018
compared with income tax expense of $25,000 for the fiscal year ended May 31, 2017. The income tax benefit in the
fiscal year ended May 31, 2018 was primarily due to the impact of the “Tax Cuts and Jobs Act” enacted on December
22, 2017, specifically, the provision which made our alternative minimum tax credit refundable by 2022.
FISCAL YEAR ENDED MAY 31, 2017 COMPARED TO FISCAL YEAR ENDED MAY 31, 2016
NET SALES. Net sales increased to $18.9 million for the fiscal year ended May 31, 2017 from $14.5 million for the
fiscal year ended May 31, 2016, an increase of 30.3%. The increase in net sales in fiscal 2017 resulted primarily from
increases in net sales of both our wafer-level products and Test During Burn-in (TDBI) products. Net sales of the wafer-
level products for fiscal 2017 were $9.6 million, and increased approximately $0.9 million from fiscal 2016. Net sales of
the TDBI products for fiscal 2017 were $9.2 million, and increased approximately $3.4 million from fiscal 2016.
GROSS PROFIT. Gross profit increased to $6.8 million for the fiscal year ended May 31, 2017 from $5.1 million for
the fiscal year ended May 31, 2016, an increase of 31.8%. Gross profit margins for the fiscal years ended May 31, 2017
and 2016 were 35.9% and 35.5%, respectively.(cid:3)(cid:3)
SELLING, GENERAL AND ADMINISTRATIVE. SG&A expenses were $7.1 million for the fiscal year ended
May 31, 2017, compared with $7.0 million for the fiscal year ended May 31, 2016, an increase of 1.1%. The increase in
SG&A expenses was primarily due to increases in employment related expenses.
RESEARCH AND DEVELOPMENT. R&D expenses increased to $4.7 million for the fiscal year ended May 31,
2017 from $4.3 million for the fiscal year ended May 31, 2016, an increase of 7.7%. Higher R&D expenses in the fiscal
year ended May 31, 2017 were primarily due to increases of $0.2 million in employment related expenses and $0.1
million in project expenses.
INTEREST EXPENSE. Interest expense increased to $678,000 for the fiscal year ended May 31, 2017 from
$605,000 for the fiscal year ended May 31, 2016. The increase in interest expense for the fiscal year ended May 31, 2017
was primarily due to higher average borrowings.
OTHER (EXPENSE) INCOME, NET. Other expense, net was $21,000 and $16,000 for the fiscal year ended May
31, 2017 and 2016, respectively. The change in other expense was due primarily to losses realized in connection with the
fluctuation in the value of the dollar compared to foreign currencies during the referenced periods.
23
INCOME TAX EXPENSE. Income tax expense was $25,000 and $10,000 for the fiscal year ended May 31, 2017
and 2016, respectively.
LIQUIDITY AND CAPITAL RESOURCES
We consider cash and cash equivalents as liquid and available for use. As of May 31, 2018 and 2017, we had $16.8
million and $17.8 million, respectively, in cash and cash equivalents.
Net cash used in operating activities was $1.4 million and $4.5 million for the fiscal years ended May 31, 2018 and
2017, respectively. For the fiscal year ended May 31, 2018, net cash used in operating activities was primarily the result
of the net income of $0.5 million, as adjusted to exclude the effect of non-cash charge of stock-based compensation
expense of $1.0 million, depreciation and amortization of $0.4 million, and a decrease in accounts receivable of $1.3
million. Other changes in cash from operations primarily resulted from an increase in inventories of $2.1 million, a
decrease in customer deposits and deferred revenue of $1.5 million, as well as the decrease in accounts payable of $1.1
million. The decrease in accounts receivable was primarily due to improvements in customer payment terms. The
increase in inventories is to support future shipments for customer orders. The decrease in customer deposits and
deferred revenue was primarily due to the decrease in backlog of customer orders with down payments. The decrease in
accounts payable was primarily due to the down payments applied toward vendor invoices. For the fiscal year ended
May 31, 2017, net cash used in operating activities was primarily the result of the net loss of $5.7 million, as adjusted to
exclude the effect of non-cash charge of stock-based compensation expense of $1.0 million, and an increase in accounts
receivable of $3.5 million, partially offset by a decrease in inventories of $0.4 million. Other changes in cash from
operations resulted from an increase in accounts payable as well as an increase in customer deposits and deferred
revenue of $1.7 million each. The increase in accounts receivable was primarily due to an increase in sales. The decrease
in inventories is primarily due to the sales of systems on-hand at the beginning of the period. The increase in accounts
payable was primarily due to higher expenditures associated with higher revenue. The increase in customer deposits and
deferred revenue was primarily due to the receipt of additional down payments from certain customers.
Net cash used in investing activities was $0.6 million and $0.5 million for the fiscal year ended May 31, 2018 and 2017,
respectively. Net cash used in investing activities for the fiscal year ended May 31, 2018 and 2017 was due to the
purchases of property and equipment.
Financing activities provided net cash of $0.9 million for the fiscal year ended May 31, 2018 as compared to $21.8
million for the fiscal year ended May 31, 2017. Net cash provided by financing activities during the fiscal year ended
May 31, 2018 was primarily due to the proceeds from issuance of common stock under employee plans. Net cash
provided by financing activities during the fiscal year ended May 31, 2017 was primarily due to the net proceeds of $15.8
million from the sale of our common stock in a public offering that closed on April 19, 2017, the net proceeds of $5.3
million from the sale of our common stock in a private placement transaction with certain institutional and accredited
investors that closed on September 28, 2016, and $0.7 million in proceeds from issuance of common stock under
employee plans.
The effect of fluctuation in exchange rates increased cash by $43,000 and $1,000 for the fiscal year ended May 31,
2018 and 2017, respectively. The changes were due to the fluctuation in the value of the dollar compared to foreign
currencies.
As of May 31, 2018 and 2017, we had working capital of $18.3 million and $21.5 million, respectively.
For the fiscal year ended May 31, 2016, net cash used in operating activities was primarily the result of the net loss of
$6.8 million, as adjusted to exclude the effect of non-cash charges including stock-based compensation expense of $1.0
million, and depreciation and amortization of $0.2 million. Other changes in cash from operations resulted from a
decrease in accounts receivable of $0.9 million, and increases in accounts payable of $0.6 million and accrued expenses
of $0.5 million, offset by a decrease in customer deposits and deferred revenue of $2.9 million. The decrease in accounts
receivable was primarily due to improvements in customer payment terms. The increases in accounts payable and
accrued expenses were primarily due to higher expenditures associated with higher revenue. The decrease in customer
deposits and deferred revenue was primarily due to the decrease in backlog of customer orders with down payments.
Net cash used in investing activities was $0.9 million for the fiscal year ended May 31, 2016 was due to the purchase
of property and equipment.
Net cash provided by financing activities of $2.5 million during the fiscal year ended May 31, 2016 was due to net
borrowings under the credit facility of $2.0 million, and $0.5 million in proceeds from issuance of common stock under
employee plans. Refer to Note 8 of Notes to Consolidated Financial Statements, “LONG-TERM DEBT”, for further
discussion of the Credit Facility.
24
The effect of fluctuation in exchange rates increased cash by $106,000 for the fiscal year ended May 31, 2016 due to
the fluctuation in the value of the dollar compared to foreign currencies.
We lease our manufacturing and office space under operating leases. We entered into a non-cancelable operating
lease agreement for our United States manufacturing and office facilities, which was renewed in February 2018 and
expires in July 2023. Under the lease agreement, we are responsible for payments of utilities, taxes and insurance.
From time to time, we evaluate potential acquisitions of businesses, products or technologies that complement our
business. If consummated, any such transactions may use a portion of our working capital or require the issuance of
equity. We have no present understandings, commitments or agreements with respect to any material acquisitions.
We anticipate that the existing cash balance together with income from operations, collections of existing accounts
receivable, revenue from our existing backlog of products, the sale of inventory on hand, and deposits and down
payments against significant orders will be adequate to meet our liquidity requirements for the next 12 months.
OFF-BALANCE SHEET FINANCING
We have not entered into any off-balance sheet financing arrangements and have not established any special purpose
or variable interest entities.
OVERVIEW OF CONTRACTUAL OBLIGATIONS
The following table provides a summary of such arrangements, or contractual obligations.
Operating Leases . . . . . . . . . . . . . . . . .
Convertible Notes . . . . . . . . . . . . . . . .
Interest on Convertible Notes (1) . . . .
Purchases (2) . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
$ 3,868
6,110
610
2,488
$13,076
Less than
1 year
$ 664
Payments Due by Period (in thousands)
3-5
years
$1,567
--
--
--
$1,567
1-3
years
$1,504
--
--
--
$1,504
610
2,488
$9,872
6,110
More than
5 years
$ 133
--
--
--
$ 133
(1) Based on 9% interest rate. See Note 8 “LONG-TERM DEBT.”
(2) Shown above are our binding purchase obligations. The large majority of our purchase orders are cancelable by
either party, which if canceled may result in a negotiation with the vendor to determine if there shall be any restocking or
cancellation fees payable to the vendor.
In the normal course of business to facilitate sales of our products, we indemnify other parties, including customers,
with respect to certain matters. We have agreed to hold the other party harmless against losses arising from a breach of
representations or covenants, or from intellectual property infringement or other claims. These agreements may limit
the time period within which an indemnification claim can be made and the amount of the claim. In addition, we have
entered into indemnification agreements with our officers and directors, and our bylaws contain similar indemnification
obligations to our agents.
It is not possible to determine the maximum potential amount under these indemnification agreements due to the
limited history of prior indemnification claims and the unique facts and circumstances involved in each particular
agreement. To date, our payments under these agreements have not had a material impact on our operating results,
financial position or cash flows.
RECENT ACCOUNTING PRONOUNCEMENTS:
For a description of recent accounting pronouncements, including the expected dates of adoption and estimated
effects, if any, on our consolidated financial statements, see Note 1, “Organization and Summary of Significant
Accounting Policies,” of the Notes to Consolidated Financial Statements.
25
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
We had no holdings of derivative financial or commodity instruments at May 31, 2018.
We are exposed to financial market risks, including changes in interest rates and foreign currency exchange rates. We
only invest our short-term excess cash in government-backed securities with maturities of 18 months or less. We do not
use any financial instruments for speculative or trading purposes. Fluctuations in interest rates would not have a
material effect on our financial position, results of operations or cash flows.
A majority of our revenue and capital spending is transacted in U.S. Dollars. We, however, enter into transactions in
other currencies, primarily Euros and Japanese Yen. Since the price is determined at the time a purchase order is
accepted, we are exposed to the risks of fluctuations in the foreign currency-U.S. Dollar exchange rates during the
lengthy period from purchase order to ultimate payment. This exchange rate risk is partially offset to the extent that our
subsidiaries incur expenses payable in their local currency. To date, we have not invested in instruments designed to
hedge currency risks. In addition, our subsidiaries typically carry debt or other obligations due to us that may be
denominated in either their local currency or U.S. Dollars. Since our subsidiaries’ financial statements are based in their
local currency and our condensed consolidated financial statements are based in U.S. Dollars, our subsidiaries and we
recognize foreign exchange gains or losses in any period in which the value of the local currency rises or falls in relation
to the U.S. Dollar. A 10% decrease in the value of the subsidiaries’ local currency as compared with the U.S. Dollar
would not be expected to result in a significant change to our net income or loss. There have been no material changes
in our risk exposure since the end of the last fiscal year, nor are any material changes to our risk exposure anticipated.
26
Item 8. Financial Statements and Supplementary Data
INDEX
Consolidated Financial Statements of Aehr Test Systems
Report of Independent Registered Public Accounting Firm ............ 28
Consolidated Balance Sheets at May 31, 2018 and 2017................ 29
Consolidated Statements of Operations for the years
ended May 31, 2018, 2017 and 2016................................. 30
Consolidated Statements of Comprehensive Income (Loss) for the years
ended May 31, 2018, 2017 and 2016................................. 31
Consolidated Statements of Shareholders' Equity (Deficit) for the
years ended May 31, 2018, 2017 and 2016........................... 32
Consolidated Statements of Cash Flows for the years ended
May 31, 2018, 2017 and 2016....................................... 33
Notes to Consolidated Financial Statements.......................... 34
Financial statement schedules not listed above are either omitted because
they are not applicable or the required information is shown in the
Consolidated Financial Statements or in the Notes thereto.
27
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of
Aehr Test Systems
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Aehr Test Systems and its subsidiaries (the
“Company”) as of May 31, 2018 and 2017, the related consolidated statements of operations, comprehensive income
(loss), shareholders’ equity, and cash flows for each of the three years in the period ended May 31, 2018, and the related
notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of the Company as of May 31, 2018 and 2017,
and the results of its operations and its cash flows for each of the three years in the period ended May 31, 2018, in
conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting
firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to
be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of
material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an
understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our
audits provide a reasonable basis for our opinion.
/s/ BPM LLP
We have served as the Company’s auditor since 2005.
San Jose, California
August 28, 2018
28
AEHR TEST SYSTEMS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other. . . . . . . . . . . . . . . . . . . . . . .
May 31,
2018
2017
$16,848
2,856
9,049
703
$17,803
4,010
6,604
961
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
29,456
29,378
Property and equipment, net. . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,203
296
1,419
95
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$30,955
$30,892
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer deposits and deferred revenue, short-term . . .
Current portion of long-term debt. . . . . . . . . . . . . . . . . .
$1,762
1,646
1,630
6,110
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . .
11,148
Convertible notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred rent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue, long-term . . . . . . . . . . . . . . . . . . . . . .
--
63
459
$2,808
1,609
3,467
--
7,884
6,110
--
104
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,670
14,098
Commitments and contingencies (Note 16)
Aehr Test Systems shareholders' equity:
Preferred stock, $0.01 par value:
Authorized: 10,000 shares;
Issued and outstanding: none . . . . . . . . . . . . . . . . . . . .
Common stock, $0.01 par value:
Authorized: 75,000 shares;
Issued and outstanding: 22,143 shares and 21,340
shares at May 31, 2018 and 2017, respectively . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income . . . . . . . . . .
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Aehr Test Systems shareholders' equity . . . . . . . .
Noncontrolling interest. . . . . . . . . . . . . . . . . . . . . . . . . . .
--
--
221
83,041
2,292
(66,249)
19,305
(20)
213
81,128
2,249
(66,777)
16,813
(19)
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . .
19,285
16,794
Total liabilities and shareholders' equity . . . . . . . . . . .
$30,955
$30,892
The accompanying notes are an integral part of these consolidated financial statements.
29
AEHR TEST SYSTEMS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
2018
Year Ended May 31,
2017
2016
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$29,555
17,169
12,386
$18,898
12,118
6,780
$14,501
9,356
5,145
Operating expenses:
Selling, general and administrative . . . . . . . . . . . . . . . . . .
Research and development . . . . . . . . . . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . .
7,290
4,181
11,471
7,052
4,657
6,975
4,324
11,709
11,299
Income (loss) from operations . . . . . . . . . . . . . . . . . . . . .
915
(4,929)
(6,154)
Interest expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(399)
(61)
(678)
(21)
(605)
(16)
Income (loss) before income tax benefit (expense) . . . . . .
455
(5,628)
(6,775)
Income tax benefit (expense) . . . . . . . . . . . . . . . . . . . . . . .
73
(25)
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
528
(5,653)
(10)
(6,785)
Less: Net income attributable
to the noncontrolling interest. . . . . . . . . . . . . . . . . . . . .
Net income (loss) attributable to Aehr Test Systems
common shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . .
--
--
--
$ 528
$(5,653)
$ (6,785)
Net income (loss) per share – basic and diluted . . . . . . . .
Shares used in per share calculation – basic. . . . . . . . . . . .
Shares used in per share calculation – diluted . . . . . . . . . .
$ 0.02
21,732
22,782
$(0.35)
16,267
16,267
$(0.52)
13,091
13,091
The accompanying notes are an integral part of these consolidated financial statements.
30
AEHR TEST SYSTEMS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS)
2018
Year Ended May 31,
2017
2016
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 528
$(5,653)
$ (6,785)
Other comprehensive income, net of tax:
Foreign currency translation income . . . . . . . . . . . .
42
13
4
Total comprehensive income (loss) . . . . . . . . . . . . . . . .
570
(5,640)
(6,781)
Less: Comprehensive (loss) income attributable to
noncontrolling interest . . . . . . . . . . . . . . . . . . . . .
Comprehensive income (loss), attributable to
Aehr Test Systems. . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1)
1
(2)
$ 571
$(5,641)
$ (6,779)
The accompanying notes are an integral part of these consolidated financial statements.
31
AEHR TEST SYSTEMS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
Accumulated
Additional
Other
Total Aehr
Test
Systems
Total
Common Stock
Paid-in
Comprehensive
Accumulated
Shareholders’
Noncontrolling
Shareholders'
Shares
12,857
Amount
$129
Capital
$56,547
Income
$2,231
Deficit
$(54,339)
Equity (Deficit)
Interest
Equity (Deficit)
$4,568
$(18)
$ 4,550
Balances, May 31, 2015
Issuance of common stock
359
under employee plans. . . . . . . .
Stock-based compensation. . . . . --
--
Net loss . . . . . . . . . . . . . . . . . . . .
3
--
--
509
996
--
--
--
--
--
--
(6,785)
512
996
(6,785)
--
--
--
512
996
(6,785)
Foreign currency
translation adjustment. . . . . . .
--
--
--
6
--
6
(2)
4
Balances, May 31, 2016
13,216
132
58,052
2,237
(61,124)
(703)
(20)
(723)
Issuance of common stock
under employee plans. . . . . . . .
779
8
696
Issuance of common stock
under public offering. . . . . . . . 4,423
Issuance of common stock
under private offering. . . . . . . . 2,722
Issuance of common stock in
44
15,788
27
5,272
consideration for cancellation
of outstanding vendor invoice . 200
Stock-based compensation. . . . . --
--
Net loss . . . . . . . . . . . . . . . . . . . .
2
--
--
321
999
--
--
--
--
--
--
--
--
704
--
704
--
15,832
--
5,299
--
--
(5,653)
323
999
(5,653)
--
--
--
--
--
15,832
5,299
323
999
(5,653)
Foreign currency
translation adjustment . . . . . . .
--
--
--
12
--
12
1
13
Balances, May 31, 2017
21,340
213
81,128
2,249
(66,777)
16,813
(19)
16,794
Issuance of common stock
under employee plans. . . . . . . .
Stock-based compensation. . . . .
Net income . . . . . . . . . . . . . . . . .
Foreign currency
translation adjustment. . . . . . .
803
--
--
--
8
--
--
--
917
996
--
--
--
--
--
--
--
528
925
996
528
--
--
--
925
996
528
43
--
43
(1)
42
Balances, May 31, 2018
22,143
$221
$83,041
$2,292
$(66,249)
$19,305
$(20)
$ 19,285
The accompanying notes are an integral part of these consolidated financial statements.
32
AEHR TEST SYSTEMS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Cash flows from operating activities:
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . .
(Recovery of) provision for doubtful accounts. . . . . . . . . . . .
Loss on disposal of asset. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of debt issuance costs . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other. . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer deposits and deferred revenue. . . . . . . . . . . . . . . .
Deferred rent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in operating activities. . . . . . . . . . . . . . . . . . .
Cash flows from investing activities:
Purchases of property and equipment. . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities . . . . . . . . . . . . . . . . . . .
Cash flows from financing activities:
Line of credit borrowings (repayments), net. . . . . . . . . . . . . . . .
Proceeds from issuance of convertible notes, net. . . . . . . . . . . .
Proceeds from issuance of common stock
under public offering, net of issuance costs . . . . . . . . . . . . . .
Proceeds from issuance of common stock
under private placement, net of issuance costs . . . . . . . . . . . .
Proceeds from issuance of common stock
under employee plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by financing activities . . . . . . . . . . . . . . .
2018
Year Ended May 31,
2017
2016
$ 528
$(5,653)
$ (6,785)
996
(58)
--
--
417
1,260
(2,073)
59
(1,095)
62
(1,482)
63
(28)
(1,351)
999
53
--
148
271
(3,507)
430
(707)
1,686
53
1,730
--
2
(4,495)
(572)
(572)
(477)
(477)
--
--
--
--
1,016
(13)
2
177
203
887
70
9
564
539
(2,909)
--
(41)
(6,281)
(919)
(919)
2,000
(6)
--
15,832
--
--
5,299
--
925
925
704
21,835
512
2,506
Effect of exchange rates on cash and
cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
43
1
106
Net (decrease) increase in cash and
cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents, beginning of year. . . . . . . . . . . . . . . . .
(955)
17,803
Cash and cash equivalents, end of year. . . . . . . . . . . . . . . . . . . . . .
$16,848
16,864
939
$17,803
(4,588)
5,527
$ 939
Supplemental cash flow information:
Cash paid during the year for:
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 37
$550
$ 18
$ 516
$ 47
$ 302
Supplemental disclosure of non-cash flow information:
Net change in capitalized stock-based compensation. . . . . . . . .
Line of credit converted to convertible notes . . . . . . . . . . . . . .
Fair value of common stock issued to settle accounts payable .
$ --
$ --
$ --
$ --
$ --
$ 323
$ (20)
$2,000
$ --
The accompanying notes are an integral part of these consolidated financial statements.
33
AEHR TEST SYSTEMS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS:
Aehr Test Systems (the “Company”) was incorporated in California in May 1977 and primarily designs, engineers and
manufactures test and burn-in equipment used in the semiconductor industry. The Company’s principal products are
the Advanced Burn-In and Test System, or ABTS, the FOX full wafer contact parallel test and burn-in systems, the
MAX burn-in system, WaferPak full wafer contactor, the DiePak carrier and test fixtures.
LIQUIDITY:
Since inception, the Company has incurred substantial cumulative losses and negative cash flows from operations. In
response, the Company took steps to minimize expense levels, entered into credit arrangements, and raised capital
through public and private equity offerings, to increase the likelihood that it will have sufficient cash to support
operations.
In April 2017, the Company completed a public offering of its common stock raising net proceeds to the Company of
$15.8 million. At May 31, 2018 the Company had $16.8 million in cash and cash equivalents. The Company anticipates
that the existing cash balance together with income from operations, collections of existing accounts receivable, revenue
from our existing backlog of products, the sale of inventory on hand, and deposits and down payments against
significant orders will be adequate to meet its working capital and capital equipment requirements.
CONSOLIDATION:
The consolidated financial statements include the accounts of the Company and both its wholly-owned and majority-
owned foreign subsidiaries. Intercompany accounts and transactions have been eliminated.
FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS:
Assets and liabilities of the Company’s foreign subsidiaries and a branch office are translated into U.S. Dollars from
their functional currencies of Japanese Yen, Euros and New Taiwan Dollars using the exchange rate in effect at the
balance sheet date. Additionally, their net sales and expenses are translated using exchange rates approximating average
rates prevailing during the fiscal year. Translation adjustments that arise from translating their financial statements from
their local currencies to U.S. Dollars are accumulated and reflected as a separate component of shareholders’ equity
(deficit).
Transaction gains and losses that arise from exchange rate changes denominated in currencies other than the local
currency are included in the Consolidated Statements of Operations as incurred. See Note 12 for the detail of foreign
exchange transaction gains and losses for all periods presented.
USE OF ESTIMATES:
The preparation of financial statements in conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities, 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.
Significant estimates in the Company’s consolidated financial statements include allowance for doubtful accounts,
valuation of inventory at the lower of cost or market, and warranty reserves.
CASH EQUIVALENTS:
Cash equivalents consist of money market instruments purchased with an original maturity of three months or less.
These investments are reported at fair value.
ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Accounts receivable are derived from the sale of products throughout the world to semiconductor manufacturers,
semiconductor contract assemblers, electronics manufacturers and burn-in and test service companies. Accounts
receivable are recorded at the invoiced amount and are not interest bearing. The Company maintains an allowance for
doubtful accounts to reserve for potentially uncollectible trade receivables. The Company also reviews its trade
34
receivables by aging category to identify specific customers with known disputes or collection issues. The Company
exercises judgment when determining the adequacy of these reserves as the Company evaluates historical bad debt
trends, general economic conditions in the United States and internationally, and changes in customer financial
conditions. Uncollectible receivables are recorded as bad debt expense when all efforts to collect have been exhausted
and recoveries are recognized when they are received. No significant adjustments to the allowance for doubtful
accounts were recorded during the years ended May 31, 2018, 2017 or 2016.
CONCENTRATION OF CREDIT RISK:
The Company sells its products primarily to semiconductor manufacturers in North America, Asia, and Europe. As
of May 31, 2018, approximately 45%, 0% and 55% of gross accounts receivable were from customers located in Asia,
Europe and North America, respectively. As of May 31, 2017, approximately 55%, 0% and 45% of gross accounts
receivable were from customers located in Asia, Europe and North America, respectively. Three customers accounted
for 38%, 32% and 11% of gross accounts receivable as of May 31, 2018. Three customers accounted for 47%, 40% and
11% of gross accounts receivable as of May 31, 2017. Three customers accounted for 34%, 26% and 13% of net sales in
fiscal 2018. Four customers accounted for 45%, 19%, 17% and 10% of net sales in fiscal 2017. The Company performs
ongoing credit evaluations of its customers and generally does not require collateral. The Company uses letter of credit
terms for some of its international customers.
The Company’s cash and cash equivalents are generally deposited with major financial institutions in the United
States, Japan, Germany and Taiwan. The Company invests its excess cash in money market funds and U.S. Treasury
securities. The money market funds bear the risk associated with each fund. The money market funds have variable
interest rates. The Company has not experienced any material losses on its money market funds or short-term cash
deposits.
CONCENTRATION OF SUPPLY RISK:
The Company relies on subcontractors to manufacture many of the components and subassemblies used in its
products. Quality or performance failures of the Company’s products or changes in its manufacturers’ financial or
business condition could disrupt the Company’s ability to supply quality products to its customers and thereby have a
material and adverse effect on its business and operating results. Some of the components and technologies used in the
Company’s products are purchased and licensed from a single source or a limited number of sources. The loss of any of
these suppliers may cause the Company to incur additional transition costs, result in delays in the manufacturing and
delivery of its products, or cause it to carry excess or obsolete inventory and could cause it to redesign its products.
INVENTORIES:
Inventories include material, labor and overhead, and are stated at the lower of cost (first-in, first-out method) or net
realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less costs of
completion, disposal and transportation. Provisions for excess, obsolete and unusable inventories are made after
management’s evaluation of future demand and market conditions. The Company adjusts inventory balances to
approximate the lower of its manufacturing costs or net realizable value. If actual future demand or market conditions
become less favorable than those projected by management, additional inventory write-downs may be required, and
would be reflected in cost of product revenue in the period the revision is made.
PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost less accumulated depreciation and amortization. Major improvements are
capitalized, while repairs and maintenance are expensed as incurred. Leasehold improvements are amortized over the
lesser of their estimated useful lives or the term of the related lease. Furniture and fixtures, machinery and equipment,
and test equipment are depreciated on a straight-line basis over their estimated useful lives. The ranges of estimated
useful lives are generally as follows:
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 to 6 years
Machinery and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 to 6 years
Test equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 to 6 years
REVENUE RECOGNITION:
The Company recognizes revenue upon the shipment of products or the performance of services when: (1) persuasive
evidence of the arrangement exists; (2) goods or services have been delivered; (3) the price is fixed or determinable; and
(4) collectibility is reasonably assured. When a sales agreement involves multiple deliverables, such as extended support
provisions, training to be supplied after delivery of the systems, and test programs specific to customers’ routine
35
applications, the multiple deliverables are evaluated to determine the unit of accounting. Judgment is required to
properly identify the accounting units of multiple element transactions and the manner in which revenue is allocated
among the accounting units. Judgments made, or changes to judgments made, may significantly affect the timing or
amount of revenue recognition.
Revenue related to the multiple elements is allocated to each unit of accounting using the relative selling price
hierarchy. Consistent with accounting guidance, the selling price is based upon vendor specific objective evidence
(VSOE). If VSOE is not available, third party evidence (TPE) is used to establish the selling price. In the absence of
VSOE or TPE, estimated selling price is used.
During the first quarter of fiscal 2013, the Company entered into an agreement with a customer to develop a next
generation system, and the Company shipped the first system in July 2016. The project identifies multiple milestones
with values assigned to each. The consideration earned upon achieving the milestone is required to meet the following
conditions prior to recognition: (i) the value is commensurate with the vendor’s performance to meet the milestone, (ii)
it relates solely to past performance, (iii) and it is reasonable relative to all of the deliverables and payment terms within
the arrangement. Revenue is recognized for the milestone upon acceptance by the customer.
The Company recognizes revenue in certain circumstances before physical delivery has occurred. In these
arrangements, among other things, risk of ownership has passed to the customer, the customer has made a written fixed
commitment to purchase the products, the customer has requested the products be held for future delivery as scheduled
and designated by them, and no additional performance obligations exist by the Company. For these transactions, the
products are segregated from inventory and normal billing and credit terms granted.
Sales tax collected from customers is not included in net sales but rather recorded as a liability due to the respective
taxing authorities. Provisions for the estimated future cost of warranty and installation are recorded at the time the
products are shipped.
Royalty-based revenue related to licensing income from performance test boards and burn-in boards is recognized
upon the earlier of the receipt by the Company of the licensee’s report related to its usage of the licensed intellectual
property or upon payment by the licensee.
The Company’s terms of sales with distributors are generally FOB shipping point with payment due within 60 days.
All products go through in-house testing and verification of specifications before shipment. Apart from warranty
reserves, credits issued have not been material as a percentage of net sales. The Company’s distributors do not generally
carry inventories of the Company’s products. Instead, the distributors place orders with the Company at or about the
time they receive orders from their customers. The Company’s shipment terms to our distributors do not provide for
credits or rights of return. Because the Company’s distributors do not generally carry inventories of our products, they
do not have rights to price protection or to return products. At the time the Company ships products to the
distributors, the price is fixed. Subsequent to the issuance of the invoice, there are no discounts or special terms. The
Company does not give the buyer the right to return the product or to receive future price concessions. The Company’s
arrangements do not include vendor consideration.
PRODUCT DEVELOPMENT COSTS AND CAPITALIZED SOFTWARE:
Costs incurred in the research and development of new products or systems are charged to operations as incurred.
Costs incurred in the development of software programs for the Company’s products are charged to operations as
incurred until technological feasibility of the software has been established. Generally, technological feasibility is
established when the software module performs its primary functions described in its original specifications, contains
features required for it to be usable in a production environment, is completely documented and the related hardware
portion of the product is complete. After technological feasibility is established, any additional costs are capitalized.
Capitalization of software costs ceases when the software is substantially complete and is ready for its intended use.
Capitalized costs are amortized over the estimated life of the related software product using the greater of the units of
sales or straight-line methods over ten years. No system software development costs were capitalized or amortized in
fiscal 2018, 2017 and 2016.
IMPAIRMENT OF LONG-LIVED ASSETS:
In the event that facts and circumstances indicate that the carrying value of assets may be impaired, an evaluation of
recoverability would be performed. If an evaluation is required, the estimated future undiscounted cash flows associated
with the asset would be compared to the asset’s carrying value to determine if a write-down is required.
36
ADVERTISING COSTS:
The Company expenses all advertising costs as incurred and the amounts were not material for all periods presented.
SHIPPING AND HANDLING OF PRODUCTS:
Amounts billed to customers for shipping and handling of products are included in net sales. Costs incurred related
to shipping and handling of products are included in cost of sales.
INCOME TAXES:
Income taxes have been provided using the liability method whereby deferred tax assets and liabilities are determined
based on differences between financial reporting and tax bases of assets and liabilities and net operating loss and tax
credit carryforwards measured using the enacted tax rates and laws that will be in effect when the differences are
expected to reverse or the carryforwards are utilized. Valuation allowances are established when it is determined that it
is more likely than not that such assets will not be realized.
A full valuation allowance was established against all deferred tax assets, as management determined that it is more
likely than not that deferred tax assets will not be realized, as of May 31, 2018 and 2017.
The Company accounts for uncertain tax positions consistent with authoritative guidance. The guidance prescribes a
“more likely than not” recognition threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. The Company does not expect any material
change in its unrecognized tax benefits over the next twelve months. The Company recognizes interest and penalties
related to unrecognized tax benefits as a component of income taxes.
Although the Company files U.S. federal, various state, and foreign tax returns, the Company’s only major tax
jurisdictions are the United States, California, Germany and Japan. Tax years 1996 – 2017 remain subject to examination
by the appropriate governmental agencies due to tax loss carryovers, research and development tax credits, or other tax
attributes from those years.
COMPREHENSIVE INCOME (LOSS):
Comprehensive income (loss) generally represents all changes in shareholders’ equity except those resulting from
investments or contributions by shareholders. Unrealized gains and losses on foreign currency translation adjustments
are included in the Company’s components of comprehensive income (loss), which are excluded from net income (loss).
Comprehensive income (loss) is included in the statements of comprehensive income (loss).
RECENT ACCOUNTING PRONOUNCEMENTS:
Accounting Standards Adopted
Inventory Measurement
In July 2015, the Financial Accounting Standards Board (“FASB”) issued an accounting standard update that requires
management to measure inventory at the lower of cost or net realizable value. Net realizable value is the estimated selling
prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.
The Company adopted this new standard in fiscal year 2018. The adoption of this guidance did not have a significant
impact on the Company’s consolidated financial statements.
Balance Sheet Classification of Deferred Taxes
In November 2015, the FASB issued an accounting standard update related to deferred tax assets and liabilities. This
standard simplifies the presentation of deferred income taxes to be classified as noncurrent in the consolidated balance
sheet. The Company adopted this new standard in fiscal year 2018. The adoption of this guidance did not have a
significant impact on the Company’s consolidated financial statements.
Share-Based Compensation
In March 2016, the FASB released an accounting standard update that simplifies several aspects of the accounting for
share-based payment transactions, including the income tax consequences, forfeitures, classification of awards as either
equity or liabilities, and classification on the statement of cash flows. The Company adopted this new standard in fiscal
year 2018. The adoption of this guidance did not have a significant impact on the Company’s consolidated financial
statements.
37
Income Taxes
On December 22, 2017, the US government enacted comprehensive tax legislation commonly referred to as the Tax
Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the US tax code including but
not limited to (1) reducing the US federal corporate tax rate from 34% to 21%; (2) requiring companies to pay a one-
time transition tax on certain repatriated earnings of foreign subsidiaries; (3) generally eliminating US federal income
taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in US federal income of certain earnings of
controlled foreign corporations; (5) creating a new limitation on deductible interest expense; (6) changing rules related to
the uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017, and
(7) repeals the corporate alternative minimum tax, or AMT, effective December 31, 2017 and repeals the corporate
alternative minimum tax regime and permits existing minimum tax credits to offset the regular tax liability for any tax
year. Consequently, we have accounted for the reduction of $6.4 million of deferred tax assets with an offsetting
adjustment to the valuation allowance for the fiscal year ended 2018, and recorded a benefit of $90,000 for our Federal
refundable AMT credit.
On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) which provides
guidance on accounting for the tax effects of the Tax act. SAB 118 provides a measurement period that should not
extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740,
Income taxes. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax
Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income
tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record and provisional
estimate in the financial statements. There are also certain transitional impacts of the Tax Act. As part of the transition
to the new territorial tax system, the Tax Act imposes a one-time repatriation tax on deemed repatriation of historical
earnings of foreign subsidiaries. These transitional impacts has no impact to the company for the year fiscal year ended
2018. The one-time transition tax is based on post-1986 earnings and profits that were previously deferred from US
income tax. While we have not yet finalized our calculation of the total post-1986 Earnings and profits, for our foreign
corporations or the impact of foreign tax credits, we have prepared a reasonable estimate and calculated the provision
amount. The Company is evaluating the calculation of the transition tax. The accounting for this item is incomplete
and may change as our interpretation of the provisions of the Act evolve, additional information becomes available or
interpretive guidance is issued by the U.S. Treasury. The final determination will be completed no later than one year
from the enactment date. Based on the current year and carryover losses and the valuation allowance the Company
would not expect an impact to the financial statements as a result of the completion of the analysis.
Accounting Standards Not Yet Adopted
Revenue Recognition
In May 2014, the FASB issued ASC Update No. 2014-09, Revenue from Contracts with Customers (Topic 606),
which has been subsequently updated. The new standard will supersede nearly all U.S. GAAP on revenue recognition
and eliminate industry-specific guidance. The core principle of the standard is to recognize revenues when promised
goods or services are transferred to customers in an amount that reflects the consideration that is expected to be
received for those goods or services. The new standard defines a five-step process to achieve this core principle and, in
doing so, it is possible more judgment and estimates may be required within the revenue recognition process than
required under existing GAAP, including identifying performance obligations in the contract, estimating the amount of
variable consideration to include in the transaction price, and allocating the transaction price to each distinct
performance obligation. It also requires increased disclosures including the nature, amount, timing, and uncertainty of
revenues and cash flows related to contracts with customers. The new guidance will become effective for the Company
in the first quarter of fiscal 2019, which is the Company’s planned adoption date.
The standard allows two methods of adoption: i) retrospectively to each prior period presented (“full retrospective
method”), or ii) retrospectively with the cumulative effect recognized in retained earnings as of the date of adoption
("modified retrospective method").
The Company plans to adopt Topic 606 using the modified retrospective method through a cumulative effect
adjustment being recognized in accumulated deficit as of the adoption date. Under that method, the Company will not
restate the prior financial statements but apply the rules to contracts that are complete or incomplete as of June 1, 2018
and recognize the cumulative effect of initially applying the new standard as an adjustment to the opening balance of
accumulative deficit.
The Company has reached conclusions on its accounting assessments related to the standard and does not expect to
record an adjustment to the opening cumulative deficits as the impact deems insignificant.
The adoption of the new standard will not significantly impact the Company’s process, procedure and control. The
Company is currently in the process of developing, implementing and testing its internal systems, processes and controls
38
necessary to adopt Topic 606, and is in process of making the necessary changes to its accounting policies. In addition,
the Company is currently evaluating the impact of the expanded disclosures to its consolidated financial statements.
Financial Instruments
In January 2016, the FASB issued an accounting standard update related to recognition and measurement of financial
assets and financial liabilities. This standard changes accounting for equity investments, financial liabilities under the fair
value option and the presentation and disclosure requirements for financial instruments. In addition, it clarifies guidance
related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on
available-for-sale debt securities. This standard is effective for us in fiscal year 2020. Early adoption is permitted. The
Company is currently evaluating the impact of this new guidance on its consolidated financial statements.
In June 2016, the FASB issued an accounting standard update that requires measurement and recognition of expected
credit losses for financial assets held based on historical experience, current conditions, and reasonable and supportable
forecasts that affect the collectibility of the reported amount. The accounting standard update will be effective for the
Company beginning in the first quarter of fiscal 2021 on a modified retrospective basis, and early adoption in fiscal 2020
is permitted. The Company is currently evaluating the impact of this accounting standard update on its consolidated
financial statements.
Leases
In February 2016, the FASB issued authoritative guidance related to leases. This guidance requires management to
present all leases greater than one year on the balance sheet as a liability to make payments and an asset as the right to
use the underlying asset for the lease term. This new standard will be effective for us in fiscal year 2020, with early
adoption permitted. The Company is currently evaluating the impact of adopting this new guidance on its consolidated
financial statements.
Classification of Certain Cash Receipts and Cash Payments
In August 2016, the FASB issued authoritative guidance related to the classification of certain cash receipts and cash
payments on the statement of cash flows. The accounting standard update will be effective for the Company beginning
in the first quarter of fiscal 2019 on a retrospective basis, and early adoption is permitted. The Company is currently
evaluating the impact of this accounting standard update on its consolidated statements of cash flows.
Intra-Entity Asset Transfers
In October 2016, the FASB issued an accounting standard update that requires recognition of the income tax
consequences of intra-entity transfers of assets (other than inventory) at the transaction date. The accounting standard
update will be effective for the Company beginning in the first quarter of fiscal 2019 on a modified retrospective basis,
and early adoption is permitted. The Company is currently evaluating the impact of this accounting standard update on
its consolidated financial statements.
Restricted Cash
In November 2016, the FASB issued authoritative guidance related to statements of cash flows. This guidance
clarifies that amounts generally described as restricted cash and restricted cash equivalents should be included with cash
and cash equivalents when reconciling the beginning-of-period and end-of period total amounts shown on the statement
of cash flows. The accounting standard update will be effective for the Company beginning in the first quarter of fiscal
2019 on a retrospective basis, and early adoption is permitted. The Company is currently evaluating the impact of this
accounting standard update on its consolidated financial statements.
2. EARNINGS PER SHARE (“EPS”):
Basic EPS is determined using the weighted average number of common shares outstanding during the period.
Diluted EPS is determined using the weighted average number of common shares and potential common shares
(representing the dilutive effect of stock options, RSUs and ESPP shares) outstanding during the period using the
treasury stock method.
The following table presents the computation of basic and diluted net income (loss) per share attributable to Aehr
Test Systems common shareholders (in thousands, except per share data):
39
Numerator: Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . .
2018
$ 528
Year Ended May 31,
2017
$(5,653)
2016
$ (6,785)
Denominator for basic net income (loss) per share:
Weighted-average shares outstanding . . . . . . . . . . . . . . . . . .
21,732
16,267
13,091
Shares used in basic net income (loss) per share calculation . .
21,732
16,267
13,091
Effect of dilutive securities. . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,050
--
--
Denominator for diluted net income (loss) per share . . . . . . . .
22,782
16,267
13,091
Basic net income (loss) per share . . . . . . . . . . . . . . . . . . . . . . .
$ 0.02
$(0.35)
$(0.52)
Diluted net income (loss) per share . . . . . . . . . . . . . . . . . . . . . .
$ 0.02
$(0.35)
$(0.52)
For the purpose of computing diluted earnings per share, the weighted average number of potential common shares
does not include stock options with an exercise price greater than the average fair value of the Company’s common
stock for the period, as the effect would be anti-dilutive. Stock options to purchase 1,313,000 shares of common stock
were outstanding as of May 31, 2018 but were not included in the computation of diluted net income per share, because
the inclusion of such shares would be anti-dilutive. In the fiscal year ended May 31, 2017 and 2016, potential common
shares have not been included in the calculation of diluted net loss per share as the effect would be anti-dilutive. As
such, the numerator and the denominator used in computing both basic and diluted net loss per share for these periods
are the same. Stock options to purchase 3,074,000 and 3,201,000 shares of common stock were outstanding on May 31,
2017 and 2016, respectively, but were not included in the computation of diluted net loss per share, because the
inclusion of such shares would be anti-dilutive. ESPP rights to purchase 169,000 and 304,000 ESPP shares were
outstanding on May 31, 2017 and 2016, respectively, but were not included in the computation of diluted net loss per
share, because the inclusion of such shares would be anti-dilutive. RSUs for 32,000 shares and 0 shares were outstanding
on May 31, 2017 and 2016, respectively, but were not included in the computation of diluted net loss per share, because
the inclusion of such shares would be anti-dilutive. The 2,657,000 shares convertible under the convertible notes
outstanding on May 31, 2018, 2017 and 2016 were not included in the computation of diluted net income (loss) per
share, because the inclusion of such shares would be anti-dilutive.
3. CASH, CASH EQUIVALENTS AND INVESTMENTS:
The following table summarizes the Company’s cash, cash equivalents and investments by security type at May 31,
2018 (in thousands):
Cash
Cash equivalents:
Money market funds
U.S. Treasury securities
Total Cash equivalents
Total Cash and Cash equivalents
Long-term investments:
Certificate of deposit
Total Cash, Cash equivalents and Investments
Cost
$ 3,132
7,733
5,983
13,716
$16,848
Gross
Unrealized
Loss
Estimated
Fair Value
$--
--
--
--
$--
$ 3,132
7,733
5,983
13,716
$ 16,848
$ 80
$16,928
$ --
$ --
$ 80
$ 16,928
Long-term investments are included in other assets on the accompanying consolidated balance sheet at May 31. 2018.
Unrealized gains and temporary losses on investments classified as available-for-sale are included within accumulated
other comprehensive income (“AOCI”), net of any related tax effect. Upon realization, those amounts are reclassified
from AOCI to results of operations.
40
The following table summarizes the Company’s cash, cash equivalents and investments by security type at May 31,
2017 (in thousands):
Cash
Cash equivalents:
Money market funds
Total Cash equivalents
Total Cash and Cash equivalents
Long-term investments:
Certificate of deposit
Total Cash, Cash equivalents and Investments
4. FAIR VALUE MEASUREMENT:
Cost
$ 2,287
15,516
15,516
$17,803
Gross
Unrealized
Loss
Estimated
Fair Value
$--
--
--
$--
$ 2,287
15,516
15,516
$ 17,803
$ 50
$17,853
$ --
$ --
$ 50
$ 17,853
The Company’s financial instruments are measured at fair value consistent with authoritative guidance. This
authoritative guidance defines fair value, establishes a framework for using fair value to measure assets and liabilities, and
disclosures required related to fair value measurements.
The guidance establishes a fair value hierarchy based on inputs to valuation techniques that are used to measure fair
value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use
in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect
a reporting entity’s pricing based upon their own market assumptions. The fair value hierarchy consists of the following
three levels:
Level 1 - instrument valuations are obtained from real-time quotes for transactions in active exchange markets involving
identical assets.
Level 2 - instrument valuations are obtained from readily-available pricing sources for comparable instruments.
Level 3 - instrument valuations are obtained without observable market values and require a high level of judgment to
determine the fair value.
The following table summarizes the Company’s financial assets measured at fair value on a recurring basis as of May
31, 2018 (in thousands):
Money market funds. . . . .
U.S. Treasury securities. . .
Certificate of deposit . . . .
Assets. . . . . . . . . . . . . . . .
Balance as of
May 31, 2018
$ 7,733
5,983
80
$ 13,796
Level 1
$ 7,733
5,983
--
$13,716
Level 2
Level 3
$ --
--
80
$ 80
$ --
--
--
$ --
The U.S. Treasury Securities have maturities of three months.
The following table summarizes the Company’s financial assets measured at fair value on a recurring basis as of May
31, 2017 (in thousands):
Money market funds. . . . .
Certificate of deposit . . . .
Assets. . . . . . . . . . . . . . . .
Balance as of
May 31, 2017
$ 15,516
50
$ 15,566
Level 1
$ 15,516
--
$ 15,516
Level 2
Level 3
$ --
50
$ 50
$ --
--
$ --
There were no financial liabilities measured at fair value as of May 31, 2018 and 2017.
41
There were no transfers between Level 1 and Level 2 fair value measurements during the fiscal year ended May 31,
2018 and 2017.
The carrying amounts of financial instruments including cash, cash equivalents, receivables, accounts payable and
certain other accrued liabilities, approximate fair value due to their short maturities. Based on the borrowing rates
currently available to the Company for loans with similar terms, the carrying value of the debt approximates the fair
value.
The Company has at times invested in debt and equity of private companies, and may do so again in the future, as
part of its business strategy.
5. ACCOUNTS RECEIVABLE:
Accounts receivable comprise (in thousands):
Accounts receivable. . . . . . . . . . . . . . . . . . . .
Less: Allowance for doubtful accounts . . . . .
May 31,
2018
$ 2,860
(4)
$2,856
2017
$4,071
(61)
$4,010
Allowance for doubtful
accounts receivable:
May 31, 2018
Balance at
beginning
of year
Additions
charged to
costs and
expenses
Deductions*
Balance
at end
of year
$ 61
$ 4
$ (61)
$ 4
May 31, 2017
$ 8
$ 53
$ --
$ 61
* Deductions include write-offs of uncollectible accounts, collections of amounts previously reserved, and releases of
allowance for doubtful accounts credited to expense.
6. BALANCE SHEET DETAIL
INVENTORIES:
(In Thousands)
Raw materials and sub-assemblies. . . . . .
Work in process. . . . . . . . . . . . . . . . . . . .
Finished goods. . . . . . . . . . . . . . . . . . . . .
PROPERTY AND EQUIPMENT, NET:
(In Thousands)
Leasehold improvements. . . . . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . .
Machinery and equipment. . . . . . . . . . . .
Test equipment. . . . . . . . . . . . . . . . . . . .
Less: Accumulated depreciation
and amortization. . . . . . . . . . . . . . . . . .
May 31,
2018
$5,747
3,068
234
$9,049
2017
$4,268
2,059
277
$6,604
May 31,
2018
$1,154
984
2,865
2,595
2017
$1,145
974
3,035
2,268
7,598
7,422
(6,395)
$1,203
(6,003)
$ 1,419
Depreciation expense was $417,000, $271,000 and $203,000 for fiscal 2018, 2017, and 2016, respectively.
42
ACCRUED EXPENSES:
(In Thousands)
Payroll related. . . . . . . . . . . . . . . . . . . . . . .
Professional services. . . . . . . . . . . . . . . . . .
Accrued interest . . . . . . . . . . . . . . . . . . . . .
Warranty. . . . . . . . . . . . . . . . . . . . . . . . . . .
Commissions and bonuses. . . . . . . . . . . . .
Taxes payable. . . . . . . . . . . . . . . . . . . . . . .
Investor relations . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018
$1,014
163
139
135
101
34
19
41
$1,646
May 31,
2017
$ 934
161
139
113
125
69
25
43
$1,609
CUSTOMER DEPOSITS AND DEFERRED REVENUE, SHORT-TERM:
(In Thousands)
Customer deposits. . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . .
7. INCOME TAXES:
May 31,
2018
2017
$1,340
290
$1,630
$ 3,264
203
$3,467
Domestic and foreign components of income (loss) before income tax benefit (expense) are as follows (in thousands):
Domestic. . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018
$ 433
22
$ 455
Year Ended May 31,
2017
$ (5,663)
35
$ (5,628)
2016
$(6,794)
19
$(6,775)
The income tax benefit (expense) consists of the following (in thousands):
Federal income taxes:
Current . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . . . . . . . . .
State income taxes:
Current . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign income taxes:
Current . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . . . . . . . . .
2018
$ 99
--
(22)
--
(4)
--
$ 73
Year Ended May 31,
2017
2016
$ --
--
$ --
--
(8)
--
3
--
(17)
--
$ (25)
(13)
--
$ (10)
43
The Company’s effective tax rate differs from the U.S. federal statutory tax rate, as follows:
U.S. federal statutory tax rate. . . . . . . . . . .
State taxes, net of federal tax effect. . . . . .
Foreign rate differential. . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . .
Research and development credit . . . . . . .
Change in valuation allowance. . . . . . . . . .
Federal rate change impact . . . . . . . . . . .
Federal AMT refund . . . . . . . . . . . . . . . .
ASU 2016-09 adoption . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effective tax rate. . . . . . . . . . . . . . . . . . . .
2018
28.6 %
(16.7)
39.4
39.9
5.9
(1,349.2)
1,419.7
(20.0)
(169.1)
5.4
(16.1)%
Year Ended May 31,
2017
34.0 %
(0.1)
0.1
(2.8)
3.1
(33.8)
--
--
--
(0.9)
(0.4)%
2016
34.0 %
--
0.2
(3.8)
2.1
(32.5)
--
--
--
(0.2)
(0.2)%
The components of the net deferred tax assets are as follows (in thousands):
Net operating losses. . . . . . . . . . . . . . . . .
Credit carryforwards. . . . . . . . . . . . . . . . .
Inventory reserves . . . . . . . . . . . . . . . . . .
Reserves and accruals. . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Valuation allowance . . . . . . . . . . . .
Net deferred tax assets. . . . . . . . . . . . . . .
Year Ended May 31,
2018
2017
$12,918
4,952
588
1,419
247
$18,719
4,715
870
1,566
393
20,124
26,263
(20,124)
$ --
(26,263)
$ --
The valuation allowance decreased by $6,139,000 during fiscal 2018, increased by $1,635,000 during fiscal 2017, and
increased by $421,000 during fiscal 2016. As of May 31, 2018 and 2017, the Company concluded that it is more likely
than not that the deferred tax assets will not be realized and therefore provided a full valuation allowance against the
deferred tax assets. The Company will continue to evaluate the need for a valuation allowance against its deferred tax
assets on a quarterly basis.
At May 31, 2018, the Company had federal and state net operating loss carryforwards of $50,356,000 and $31,340,000
respectively. The federal and state net operating loss carryforwards will begin to expire in 2024. At May 31, 2018, the
Company also had federal and state research and development tax credit carryforwards of $2,157,000 and $5,428,000,
respectively. The federal credit carryforward will begin to expire in 2019, and the California credit will carryforward
indefinitely. These carryforwards may be subject to certain limitations on annual utilization in case of a change in
ownership, as defined by tax law. The Company also has alternative minimum tax credit carryforwards of $34,000 for
state purposes. The credits may be used to offset regular tax and do not expire.
The Company has made no provision for U.S. income taxes on undistributed earnings of certain foreign subsidiaries
because it is the Company’s intention to permanently reinvest such earnings in its foreign subsidiaries. If such earnings
were distributed, the Company would be subject to additional U.S. income tax expense. Determination of the amount
of unrecognized deferred income tax liability related to these earnings is not practicable.
Foreign net operating loss carryforwards of $457,000 are available to reduce future foreign taxable income. The
foreign net operating losses will expire starting fiscal year 2019.
The Company maintains liabilities for uncertain tax positions. These liabilities involve considerable judgment and
estimation and are continuously monitored by management based on the best information available. The aggregate
changes in the balance of gross unrecognized tax benefits are as follows (in thousands):
44
Beginning balance as of May 31, 2015. . . . . . . . . . . . .
Decreases related to prior year tax positions. . . . . . . .
Decreases related to lapse of statute of limitations . . .
Balance at May 31, 2016 . . . . . . . . . . . . . . . . . . . . . . .
Decreases related to prior year tax positions. . . . . . . .
Decreases related to lapse of statute of limitations . . .
Balance at May 31, 2017 . . . . . . . . . . . . . . . . . . . . . . .
Increases related to prior year tax positions. . . . . . . .
Increases related to current year tax positions. . . . . .
Balance at May 31, 2018 . . . . . . . . . . . . . . . . . . . . . . .
$ 919
(124)
(6)
$ 789
--
--
$ 789
889
107
$1,785
The ending balance of $1,785,000 of unrecognized tax benefits as of May 31, 2018, if recognized, would not impact
the effective tax rate.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax
Cuts and Jobs Act (the “Tax Act”). On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118
(“SAB 118”), which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a
measurement period that should not extend beyond one year from the Tax Act enactment date for companies to
complete the accounting under ASC 740, Income taxes. In accordance with SAB 118, a company must reflect the
income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent
that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a
reasonable estimate, it must record a provisional estimate in the financial statements.
As part of the transition to the new territorial tax system, the Tax Act imposes a one-time repatriation tax on deemed
repatriation of historical earnings of foreign subsidiaries. The company is not subject to the transition tax. The one-
time transition tax is based on post-1986 earnings and profits that were previously deferred from U.S. income tax. While
the Company has not yet finalized its calculation of the total post-1986 earnings and profits for its foreign corporations
or the impact of foreign tax credits, it has prepared a reasonable estimate and calculation of nil transition tax. The
Company is continuing to evaluate the calculation and accounting of the transition tax, which may change as the
Company's interpretation of the provisions of the Tax Act evolve, additional information becomes available or
interpretive guidance is issued by the U.S. Treasury. The final determination will be completed no later than one year
from the enactment date. Based on current year and carryover losses and valuation allowance, the Company does not
expect an impact to its consolidated financial statements upon completion of the analysis.
The new law also repeals the corporate alternative minimum tax, or AMT, effective December 31, 2017. The law
repeals the corporate alternative minimum tax regime and permits existing minimum tax credits to offset the regular tax
liability for any tax year. Further, the credit is refundable for any tax year beginning after December 31, 2017 and before
December 31, 2020 in an amount equal to 50% of the excess of the minimum tax credit over the allowable credit for the
year against the regular tax liability. Any unused minimum tax credit carryforward is refundable in the following year. As
result, the company recorded a benefit of $90,000 for its Federal refundable AMT credit.
In addition, the reduction of U.S. federal corporate tax rate reduces the corporate tax rate to 21%, effective January 1,
2018. Consequently, the Company has accounted for the reduction of $6.4 million of deferred tax assets with an
offsetting adjustment to the valuation allowance.
Although the Company files U.S. federal, various state, and foreign tax returns, the Company’s only major tax
jurisdictions are the United States, California, Germany and Japan. Tax years 1996 – 2017 remain subject to examination
by the appropriate governmental agencies due to tax loss carryovers, research and development tax credits, or other tax
attributes from those years.
8. LONG-TERM DEBT:
On April 10, 2015, the Company entered into a Convertible Note Purchase and Credit Facility Agreement (the
“Purchase Agreement”) with QVT Fund LP and Quintessence Fund L.P. (the “Purchasers”) providing for (a) the
Company’s sale to the Purchasers of $4,110,000 in aggregate principal amount of 9.0% Convertible Secured Notes due
2017 (the “Convertible Notes”) and (b) a secured revolving loan facility (the “Credit Facility”) in an aggregate principal
amount of up to $2,000,000. On August 22, 2016 the Purchase Agreement was amended to extend the maturity date of
45
the Convertible Notes to April 10, 2019, decrease the conversion price from $2.65 per share to $2.30 per share, decrease
the forced conversion price from $7.50 per share to $6.51 per share, and allow for additional equity awards.
The Convertible Notes bear interest at an annual rate of 9.0% and will mature on April 10, 2019 unless repurchased
or converted prior to that date. Interest is payable quarterly on March 1, June 1, September 1 and December 1 of each
year. Debt issuance costs of $356,000, which were accreted over the term of the original loan using the effective interest
rate method, were offset against the loan balance.
The conversion price for the Convertible Notes is $2.30 per share and is subject to adjustment upon the occurrence
of certain specified events. Holders may convert all or any part of the principal amount of their Convertible Notes in
integrals of $10,000 at any time prior to the maturity date. Upon conversion, the Company will deliver shares of its
common stock to the holder of Convertible Notes electing such conversion. The Company may not redeem the
Convertible Notes prior to maturity.
The maximum amount of $2,000,000 drawn against the Credit Facility has been converted to Convertible Notes, and
at May 31, 2018 there was no remaining balance available to be drawn on the Credit Facility.
The Company’s obligations under the Purchase Agreement are secured by substantially all of the assets of the
Company.
9. EQUITY:
On August 8, 2016 the Company issued 200,000 shares of its common stock to Semics Inc., a semiconductor test
equipment provider that produces fully automatic wafer probe systems, in consideration for cancellation of an
outstanding invoice of $323,000 for capital equipment.
On September 28, 2016, the Company sold 2,722,000 shares of its common stock in a private placement transaction
to certain institutional and accredited investors. The purchase price per share of the common stock sold in the private
placement was $2.15, resulting in gross proceeds to the Company of $5,851,000, before offering expenses. The net
proceeds after offering expenses were $5,299,000.
On April 19 2017, the Company completed a public offering of 4,423,000 shares of its common stock at a price to the
public of $3.90 per share, including the underwriter’s exercise of its option to purchase 577,000 additional shares to
cover over-allotments. The gross proceeds to the Company were $17,250,000, before underwriting discounts and
offering expenses. The net proceeds after underwriting discounts and offering expenses were $15,832,000.
10. STOCKHOLDERS’ EQUITY, COMPREHENSIVE INCOME AND STOCK-BASED
COMPENSATION
ACCUMULATED OTHER COMPREHENSIVE INCOME:
Changes in the components of AOCI, net of tax, were as follows (in thousands):
Cumulative
Translation
Adjustments
Unrealized Loss
on Investments,
Net
Total
Balance at May 31, 2016
Other comprehensive income (loss) before reclassification
Amounts reclassified out of AOCI
Other comprehensive income (loss), net of tax
Balance at May 31, 2017
$ 2,237
12
--
12
$2,249
Other comprehensive income (loss) before reclassifications
43
Amounts reclassified out of AOCI
Other comprehensive income (loss), net of tax
Balance at May 31, 2018
--
43
$2,292
$--
--
--
--
$--
--
--
--
$--
$2,237
12
--
12
$2,249
43
--
43
$2,292
46
STOCK-BASED COMPENSATION:
Stock-based compensation expense consists of expenses for stock options, restricted stock units, or RSUs, and
employee stock purchase plan, or ESPP, purchase rights. Stock-based compensation expense for stock options and
ESPP purchase rights is measured at each grant date, based on the fair value of the award using the Black-Scholes option
valuation model, and is recognized as expense over the employee’s requisite service period. This model was developed
for use in estimating the value of publicly traded options that have no vesting restrictions and are fully transferable. The
Company’s employee stock options have characteristics significantly different from those of publicly traded options.
For RSUs, stock-based compensation expense is based on the fair value of the Company’s common stock at the grant
date. All of the Company’s stock-based compensation is accounted for as equity instruments.
The following table summarizes the stock-based compensation expense for the years ended May 31, 2018, 2017 and
2016 (in thousands, except per share data):
Stock-based compensation in the form of stock options,
RSUs, and ESPP purchase rights, included in:
Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative. . . . . . . . . . . . . . .
Research and development . . . . . . . . . . . . . . . . . . . .
Net effect on net income (loss). . . . . . . . . . . . . . . . .
Effect on net income (loss) per share:
Basic. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018
Year Ended May 31,
2017
2016
$148
592
256
$996
$0.05
$0.04
$ 91
714
194
$ 87
723
206
$999
$1,016
$0.06
$0.06
$0.08
$0.08
As of May 31, 2018, 2017 and 2016, there were no stock-based compensation expenses capitalized as part of
inventory.
During fiscal 2018, 2017 and fiscal 2016, the Company recorded stock-based compensation related to stock options
and restricted stock units of $706,000, $884,000 and $894,000, respectively.
As of May 31, 2018, the total compensation expense related to unvested stock-based awards under the Company’s
2016 Equity Incentive Plan, but not yet recognized, was $976,000 which is net of estimated forfeitures of $2,000. This
expense will be amortized on a straight-line basis over a weighted average period of approximately 2.5 years.
During fiscal 2018, 2017 and fiscal 2016, the Company recorded stock-based compensation related to its ESPP of
$290,000, $115,000 and $122,000, respectively. The increase in fiscal 2018 is primarily due to employees increasing their
ESPP elections during the fiscal year.
As of May 31, 2018, the total compensation expense related to purchase rights under the ESPP but not yet recognized
was $306,000. This expense will be amortized on a straight-line basis over a weighted average period of approximately
1.3 years.
Valuation Assumptions
Valuation and Amortization Method. The Company estimates the fair value of stock options granted using the Black-
Scholes option valuation method and a single option award approach. The fair value under the single option approach is
amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period.
Expected Term. The Company’s expected term represents the period that the Company’s stock-based awards are
expected to be outstanding and was determined based on historical experience, giving consideration to the contractual
terms of the stock-based awards, vesting schedules and expectations of future employee behavior as evidenced by
changes to the terms of its stock-based awards.
Volatility. Volatility is a measure of the amounts by which a financial variable such as stock price has fluctuated
(historical volatility) or is expected to fluctuate (expected volatility) during a period. The Company uses the historical
volatility for the past five years, which matches the expected term of most of the option grants, to estimate expected
volatility. Volatility for each of the ESPP’s four time periods of six months, twelve months, eighteen months, and
twenty-four months is calculated separately and included in the overall stock-based compensation expense recorded.
47
Risk-Free Interest Rate. The Company bases the risk-free interest rate used in the Black-Scholes option valuation
method on the implied yield in effect at the time of option grant on U.S. Treasury zero-coupon issues with a remaining
term equivalent to the expected term of the stock awards including the ESPP.
Fair Value. The fair values of the Company’s stock options granted to employees in fiscal 2018, 2017 and 2016 were
estimated using the following weighted average assumptions in the Black-Scholes option valuation method:
Option plan shares
Expected term (in years) . . . . . . . . . . . . . . . . . . . . . . .
Volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rates. . . . . . . . . . . . . . . . . . . . . . . . .
Weighted-average grant date fair value. . . . . . . . . . . . .
Year Ended May 31,
2018
2017
2016
4
0.77
1.95%
$2.07
4
0.81
1.02%
$1.09
4
0.86
1.21%
$1.31
The fair value of our ESPP purchase rights for the fiscal 2018, 2017 and 2016 was estimated using the following
weighted-average assumptions:
Employee stock purchase plan shares
Expected term (in years) . . . . . . . . . . . . . . . . . . . . . . .
Volatility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rates. . . . . . . . . . . . . . . . . . . . . . . . .
Weighted-average grant date fair value. . . . . . . . . . . . .
EQUITY INCENTIVE PLAN:
Year End May 31,
2018
2017
2016
0.5 – 2.0
0.56 – 0.81
1.92%–2.25%
$1.01
0.5 – 2.0
0.79 – 1.08
0.48%–0.80%
$1.65
0.5 – 2.0
0.64 – 0.74
0.40%–0.76%
$0.80
In October 2006, the Company’s 2006 Equity Incentive Plan was approved by the shareholders, which provides for
granting of incentive stock options, nonstatutory stock options, restricted stock, restricted stock units, stock appreciation
rights, performance units, performance shares and other stock or cash awards as the Company’s Board of Directors may
determine.
In October 2016, the Company’s 2016 Equity Incentive Plan was approved by the Company’s shareholders. The
2016 Equity Incentive Plan replaced our 2006 Equity Incentive Plan, which was scheduled to expire in October 2016,
and will continue in effect until 2026. A total of 2,238,000 shares of common stock have been reserved for issuance
under the Company’s 2016 Equity Incentive Plan, which includes 1,438,000 shares that remained available for issuance
under the 2006 Equity Incentive Plan. See the Company’s Registration Statement on Form S-8 filed with the Securities
and Exchange Commission on November 14, 2016 for further information regarding the 2016 Equity Incentive Plan.
As of May 31, 2018, out of the 4,718,000 shares authorized for grant under the 2016 Equity Incentive Plan,
2,906,000 stock options and RSUs were outstanding. As of May 31, 2017, out of the 5,275,000 shares authorized for
grant under the 2006 Equity Incentive Plan and 2016 Equity Incentive Plan, 3,105,000 stock options and RSUs were
outstanding.
48
The following tables summarize the Company’s stock option and RSU transactions during fiscal 2018, 2017 and 2016
(in thousands):
Balances, May 31, 2015. . . . . . . . . . . . . . .
Additional shares reserved. . . . . . . . . . .
Options granted. . . . . . . . . . . . . . . . . . .
RSUs granted. . . . . . . . . . . . . . . . . . . . .
Options terminated . . . . . . . . . . . . . . . .
Balances, May 31, 2016. . . . . . . . . . . . . . . .
Additional shares reserved. . . . . . . . . . .
Options granted. . . . . . . . . . . . . . . . . . .
RSUs granted. . . . . . . . . . . . . . . . . . . . .
Options terminated . . . . . . . . . . . . . . . .
Plan shares expired. . . . . . . . . . . . . . . . .
Balances, May 31, 2017. . . . . . . . . . . . . . . .
Options granted. . . . . . . . . . . . . . . . . . .
RSUs granted. . . . . . . . . . . . . . . . . . . . .
RSUs cancelled . . . . . . . . . . . . . . . . . . .
Options terminated . . . . . . . . . . . . . . . .
Plan shares expired. . . . . . . . . . . . . . . . .
Balances, May 31, 2018. . . . . . . . . . . . . . . .
Available
Shares
845
800
(92)
(35)
329
1,847
2,238
(368)
(157)
55
(1,446)
2,169
(338)
(64)
33
16
(4)
1,812
The following table summarized the stock option transactions during fiscal 2018, 2017 and 2016 (in thousands, except
per share data):
Balances, May 31, 2015. . . . . . . . . . . . . . .
Options granted. . . . . . . . . . . . . . . . . . .
Options terminated . . . . . . . . . . . . . . . .
Options exercised. . . . . . . . . . . . . . . . . .
Balances, May 31, 2016. . . . . . . . . . . . . . . .
Options granted. . . . . . . . . . . . . . . . . . .
Options terminated . . . . . . . . . . . . . . . .
Options exercised. . . . . . . . . . . . . . . . . .
Outstanding Options
Weighted
Average
Exercise
Price
$1.66
$2.12
$1.93
$1.34
Aggregate
Intrinsic
Value
$2,946
$1.66
$ 189
$1.83
$1.42
$1.35
Number
of
Shares
3,686
92
(329)
(248)
3,201
368
(55)
(440)
Balances, May 31, 2017. . . . . . . . . . . . . . . .
3,074
$1.73
$8,763
Options granted. . . . . . . . . . . . . . . . . . .
Options terminated . . . . . . . . . . . . . . . .
Options exercised. . . . . . . . . . . . . . . . . .
338
(16)
(537)
$3.56
$2.72
$1.17
Balances, May 31, 2018. . . . . . . . . . . . . . . .
2,859
$2.04
$1,987
Options fully vested and expected to vest
at May 31, 2018
2,825
$2.04
$1,976
49
The options outstanding and exercisable at May 31, 2018 were in the following exercise price ranges (in thousands,
except per share data):
Options Outstanding
at May 31, 2018
Weighted
Average
Remaining
Contractual
Life (Years)
0.77
1.64
4.23
3.68
6.16
Weighted
Average
Exercise
Price
$0.67
$1.28
$1.74
$2.45
$3.86
Number
Outstanding
Shares
299
557
483
1,257
263
Options Exercisable
at May 31, 2018
Weighted
Average
Remaining
Contractual
Life (Years)
0.77
1.64
3.73
3.49
6.21
Weighted
Average
Exercise
Price
$0.67
$1.28
$1.78
$2.47
$3.77
Number
Exercisable
Shares
299
556
314
1,073
70
Range of
Exercise
Prices
$0.59-$0.97
$1.09-$1.36
$1.68-$2.06
$2.10-$2.81
$3.46-$3.93
Aggregate
Intrinsic
Value
$0.59-$3.93
2,859
3.30
$2.04
2,312
2.81
$1.89
$1,778
The total intrinsic values of options exercised were $1,058,000, $810,000 and $185,000 during fiscal 2018, 2017 and
2016, respectively. The weighted average contractual life of the options exercisable and expected to be exercisable at
May 31, 2018 was 3.29 years.
Options to purchase 2,312,000, 2,422,000 and 2,390,000 shares were exercisable at May 31, 2018, 2017 and 2016,
respectively. These exercisable options had weighted average exercise prices of $1.89, $1.63 and $1.49 as of May 31,
2018, 2017 and 2016, respectively.
During the fiscal year ended May 31, 2018, RSUs for 64,000 shares were granted to employees. The market value
on the date of the grant of these RSUs was $3.93 per share. During the year ended May 31, 2018, 16,000 RSUs became
fully vested and 33,000 RSUs were cancelled. 47,000 RSUs were unvested at May 31, 2018. The intrinsic value of the
unvested RSUs at May 31, 2018 was $122,000. During the fiscal year ended May 31, 2017, RSUs for 74,000 shares were
granted to employees. The market value on the date of the grant of these RSUs was $1.68 per share. 42,000 RSUs
became fully vested during the year ended May 31, 2017, and 32,000 RSUs were unvested at May 31, 2017. The intrinsic
value of the unvested RSUs at May 31, 2017 was $145,000. During the fiscal year ended May 31, 2016, RSUs were
granted to an employee for 35,000 shares. The market value on the date of the grant of these RSUs was $2.16 per share.
The RSUs were performance-based, immediately vested upon attainment of goals established, and had a term of one
year. The 35,000 RSUs were outstanding and fully vested at May 31, 2016. The intrinsic value of the outstanding RSUs
at May 31, 2016 was $35,000.
There were no RSUs granted to members of the Board of Directors during fiscal 2018. During the fiscal year ended
May 31, 2017, RSUs for 83,000 shares were granted to members of the Company’s Board of Directors. The weighted
average market value on the date of the grant of these RSUs was $1.86 per share. All of these RSUs were fully vested at
May 31, 2017. There were no RSUs granted to members of the Board of Directors during fiscal 2016.
EMPLOYEE STOCK PURCHASE PLAN:
In October 2006, the Company’s shareholders approved the 2006 Employee Stock Purchase Plan. In October 2016,
the Company’s Amended and Restated 2006 Employee Stock Purchase Plan, or Purchase Plan, was approved by the
Company’s shareholders. The Purchase Plan extended the term of the 2006 Employee Stock Purchase Plan indefinitely.
A total of 532,000 shares of the Company’s common stock were reserved for issuance under the Purchase Plan. See the
Company’s Registration Statement on Form S-8 filed with the Securities and Exchange Commission on November 14,
2016 for further information regarding the Purchase Plan. The Purchase Plan has consecutive, overlapping, twenty-four
month offering periods. Each twenty-four month offering period includes four six month purchase periods. The
offering periods generally begin on the first trading day on or after April 1 and October 1 each year. All employees who
work a minimum of 20 hours per week and are customarily employed by the Company (or an affiliate thereof) for at
least five months per calendar year are eligible to participate. Under the Purchase Plan, shares are purchased through
employee payroll deductions at exercise prices equal to 85% of the lesser of the fair market value of the Company’s
common stock at either the first day of an offering period or the last day of the purchase period. If a participant’s rights
to purchase stock under all employee stock purchase plans of the Company accrue at a rate which exceeds $25,000
worth of stock for a calendar year, such participant may not be granted an option to purchase stock under the Purchase
Plan. The maximum number of shares a participant may purchase during a single purchase period is 3,000 shares.
During the fiscal years ended May 31, 2018, 2017 and 2016, ESPP purchase rights of 359,000, 1,000, and 304,000 shares,
respectively, were granted. For the years ended May 31, 2018, 2017 and 2016, approximately 237,000, 151,000 and
50
86,000 shares of common stock, respectively, were issued under the plans. As of May 31, 2018, 1,355,000 shares have
been issued under the ESPP, and there were 145,000 ESPP shares available for issuance.
11. EMPLOYEE BENEFIT PLANS:
EMPLOYEE STOCK OWNERSHIP PLAN:
The Company has a non-contributory, trusteed employee stock ownership plan for full-time employees who have
completed three consecutive months of service and for part-time employees who have completed one year of service
and have attained an age of 21. The Company can contribute either shares of the Company’s stock or cash to the plan.
The contribution is determined annually by the Company and cannot exceed 15% of the annual aggregate salaries of
those employees eligible for participation in the plan. On May 31, 2007, the Company converted the Aehr Test Systems
Employee Stock Bonus Plan into the Aehr Test Systems Employee Stock Ownership Plan (the “Plan”). The stock
bonus plan was converted to an employee stock ownership plan (“ESOP”) to enable the Plan to better comply with
changes in the law regarding Company stock. Individuals’ account balances vest at a rate of 20% per year commencing
upon completion of two years of service. Non-vested balances, which are forfeited following termination of
employment, are allocated to the remaining employees in the Plan. Under the Plan provisions, each employee who
reaches age fifty-five (55) and has been a participant in the Plan for ten years will be offered an election each year to
direct the transfer of up to 25% of his/her ESOP account to the employee self-directed account in the Savings and
Retirement Plan. For anyone who met the above prerequisites, the first election to diversify holdings was offered after
May 31, 2008. In the sixth year, employees will be able to diversify up to 50% of their ESOP accounts. Contributions
of $60,000 per year were authorized for the plan during fiscal 2018, 2017 and 2016. The contribution amounts are
recorded as compensation expense, in the period authorized and included in accrued expenses, in the period authorized.
Contributions of 13,000 shares were made to the ESOP during fiscal 2018 for fiscal 2017. Contributions of 59,000
shares were made to the ESOP during fiscal 2017 for fiscal 2016. Contributions of 25,000 shares were made to the
ESOP during fiscal 2016 for fiscal 2015. The contribution for fiscal 2018 will be made in fiscal 2019. Shares held in the
ESOP are included in the EPS calculation.
401(K) PLAN:
The Company maintains a defined contribution savings plan (the “401(k) Plan”) to provide retirement income to all
qualified employees of the Company. The 401(k) Plan is intended to be qualified under Section 401(k) of the Internal
Revenue Code of 1986, as amended. The 401(k) Plan is funded by voluntary pre-tax contributions from employees.
Contributions are invested, as directed by the participant, in investment funds available under the 401(k) Plan. The
Company is not required to make, and did not make, any contributions to the 401(k) Plan during fiscal 2018, 2017 and
2016.
12. OTHER EXPENSE, NET:
Other expense, net comprises the following (in thousands):
Foreign exchange (loss) gain. . . . . . . . . . . . . . . . . .
Other income, net. . . . . . . . . . . . . . . . . . . . . . . . . .
13. PRODUCT WARRANTIES:
2018
$(63)
2
$(61)
Year Ended May 31,
2017
$(21)
--
$(21)
2016
$(19)
3
$(16)
The Company provides for the estimated cost of product warranties at the time revenues are recognized on the
products shipped. While the Company engages in extensive product quality programs and processes, including actively
monitoring and evaluating the quality of its component suppliers, the Company’s warranty obligation is affected by
product failure rates, material usage and service delivery costs incurred in correcting a product failure. Should actual
product failure rates, material usage or service delivery costs differ from the Company’s estimates, revisions to the
estimated warranty liability would be required.
The standard warranty period is one year for systems and ninety days for parts and service.
51
Following is a summary of changes in the Company’s liability for product warranties during the fiscal years ended May
31, 2018 and 2017 (in thousands):
Balance at the beginning of the year. . . . . . . . . . . . . . .
Accruals for warranties issued during the year . . . . . . .
Accruals and adjustments (change in estimates) related
to pre-existing warranties during the year. . . . . . . . .
Consumption of reserves . . . . . . . . . . . . . . . . . . . . . . .
Balance at the end of the year. . . . . . . . . . . . . . . . . . . .
May 31,
2018
2017
$ 113
329
--
(307)
$ 135
$ 155
123
(54)
(111)
$ 113
The accrued warranty balance is included in accrued expenses on the consolidated balance sheets.
14. SEGMENT INFORMATION:
The Company operates in one reportable segment: the design, manufacture and marketing of advanced test and burn-
in products to the semiconductor manufacturing industry.
The following presents information about the Company’s operations in different geographic areas. Net sales are
based upon ship-to location (in thousands):
2018:
Net sales. . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . .
2017:
Net sales. . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . .
2016:
Net sales. . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . .
United
States
Asia
Europe
Total
$8,446
1,156
$19,973
40
$1,136
7
$29,555
1,203
$7,762
1,364
$10,439
40
$ 697
15
$18,898
1,419
$2,957
1,151
$10,228
39
$1,316
14
$14,501
1,204
The Company’s Japanese and German subsidiaries primarily comprise the foreign operations. Substantially all of the
sales of the subsidiaries are made to unaffiliated Japanese or European customers. Net sales from outside the United
States include those of Aehr Test Systems Japan K.K. and Aehr Test Systems GmbH.
15. RELATED PARTY TRANSACTIONS:
Mario M. Rosati, one of the Company’s directors, is also a member of Wilson Sonsini Goodrich & Rosati,
Professional Corporation, which has served as the Company’s outside corporate counsel and has received compensation
at normal commercial rates for these services. The amounts of transactions during fiscal years ended May 31, 2018,
2017 and 2016 were $64,000, $440,000, and $90,000, respectively. At May 31, 2018 and 2017, the Company had $5,000
and $188,000, respectively, payable to Wilson Sonsini Goodrich & Rosati.
16. COMMITMENTS AND CONTINGENCIES:
COMMITMENTS
The Company leases most of its manufacturing and office space under operating leases. The Company entered into
non-cancelable operating lease agreements for its United States manufacturing and office facilities and maintains
equipment under non-cancelable operating leases in Germany. The Company’s principal administrative and production
facilities are located in Fremont, California, in a 51,289 square foot building. The Company’s lease was renewed in
February 2018 and expires in July 2023. The Company’s facility in Japan is located in a 418 square foot office in Tokyo
under a cancellable lease which expires in June 2019. The Company also maintains a 1,585 square foot warehouse in
Yamanashi under a lease which expires in November 2019. The Company leases a 492 square foot sales and support
office in Utting, Germany. The lease, which began February 1, 1992 and expires on January 31, 2020, contains an
52
automatic twelve months renewal, at rates to be determined, if no notice is given prior to six months from expiry.
Under the lease agreements, the Company is responsible for payments of utilities, taxes and insurance.
Minimum annual rentals payments under non-cancellable operating leases in each of the next five fiscal years and
thereafter are as follows (in thousands):
Years Ending May 31,
2019. . . . . . . . . . . . . . . . . . . . . . .
2020. . . . . . . . . . . . . . . . . . . . . . .
2021. . . . . . . . . . . . . . . . . . . . . . .
2022. . . . . . . . . . . . . . . . . . . . . . .
2023. . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . .
Total
$664
754
750
772
795
133
$3,868
Rental expense for the years ended May 31, 2018, 2017 and 2016 was $587,000, $509,000 and $499,000, respectively.
At May 31, 2018 and 2017, the Company had a $80,000 and $50,000, respectively, certificate of deposit held by a
financial institution representing a security deposit for its United States manufacturing and office space lease. This
amount is included in other assets on the consolidated balance sheets.
PURCHASE OBLIGATIONS
The Company has purchase obligations to certain suppliers. In some cases the products the Company purchases are
unique and have provisions against cancellation of the order. At May 31, 2018, the Company had $2,488,000 of
purchase obligations which are due within the following 12 months. This amount does not include contractual
obligations recorded on the consolidated balance sheets as liabilities.
CONTINGENCIES
The Company may, from time to time, be involved in legal proceedings arising in the ordinary course of business.
While there can be no assurances as to the ultimate outcome of any litigation involving the Company, management does
not believe any pending legal proceedings will result in judgment or settlement that will have a material adverse effect on
the Company’s consolidated financial position, results of operations or cash flows.
In the normal course of business to facilitate sales of its products, the Company indemnifies other parties, including
customers, with respect to certain matters, for example, including against losses arising from a breach of representations
or covenants, or from intellectual property infringement or other claims. These agreements may limit the time within
which an indemnification claim can be made and the amount of the claim. In addition, the Company has entered into
indemnification agreements with its officers and directors, and the Company’s bylaws contain similar indemnification
obligations to the Company’s agents.
It is not possible to determine the maximum potential amount under these indemnification agreements due to the
limited history of prior indemnification claims and the unique facts and circumstances involved in each particular
agreement. To date, payments made by the Company under these agreements have not had a material impact on the
Company’s operating results, financial position or cash flows.
17. SELECTED QUARTERLY CONSOLIDATED FINANCIAL DATA (UNAUDITED)
The following tables (presented in thousands, except per share data) sets forth selected unaudited condensed
consolidated statements of operations data for each of the four quarters of the fiscal years ended May 31, 2018 and 2017.
The unaudited quarterly information has been prepared on the same basis as the annual information presented elsewhere
herein and, in the Company’s opinion, includes all adjustments (consisting only of normal recurring entries) necessary
for a fair statement of the information for the quarters presented. The operating results for any quarter are not
necessarily indicative of results for any future period and should be read in conjunction with the audited consolidated
financial statements of the Company’s and the notes thereto included elsewhere herein.
53
Net sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income per share basic and diluted . . . . . . . . . .
Net sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss per share basic and diluted . . . . . . . . . .
Aug. 31,
2017
$6,970
$2,918
$ 10
$ 0.00
Aug. 31,
2016
$5,318
$2,206
$ (755)
$(0.06)
Three Months Ended
Nov. 30,
2017
$ 7,923
$ 3,131
$ 60
$ 0.00
Feb. 28,
2018
$ 7,393
$ 3,176
$ 267
$ 0.01
May 31,
2018
$ 7,269
$ 3,161
$ 191
$ 0.01
Three Months Ended
Nov. 30,
2016
$ 4,216
$ 1,463
$(1,452)
$ (0.09)
Feb. 28,
2017
$ 2,681
$ 503
$(2,651)
$ (0.16)
May 31,
2017
$ 6,683
$ 2,608
$ (795)
$ (0.04)
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
Our management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer,
the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act, as of the end of the period covered by this Annual Report on Form 10-K. Based on this evaluation, our
Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures are
effective to ensure that information we are required to disclose in reports that we file or submit under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities
and Exchange Commission rules and forms, and that such information is accumulated and communicated to
management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow for timely
decisions regarding required disclosure.
(b) Management’s report on internal control over financial reporting.
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting as defined in Rule 13a-15(f) of the Exchange Act. Under the supervision and with the participation of our
Chief Executive Officer and Chief Financial Officer, our management conducted an evaluation of the effectiveness of
our internal control over financial reporting based upon the framework in “Internal Control – Integrated Framework” (2013
Framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that
evaluation, management has concluded that the Company’s internal control over financial reporting was effective as of
May 31, 2018. This annual report does not include an attestation report of the Company’s registered public accounting
firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the
Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit
the Company to provide only management’s report in this Annual Report.
(c) Changes in internal controls over financial reporting.
There were no changes in our internal controls over financial reporting that occurred during the period covered
by this Annual Report on Form 10-K that have materially affected, or are reasonably likely to materially affect, our
internal controls over financial reporting.
Item 9B. Other Information
None.
54
Item 10. Directors, Executive Officers and Corporate Governance
PART III
The information required by this item is incorporated by reference to our Proxy Statement to be filed with the
Securities and Exchange Commission in connection with our 2018 Annual Meeting of Shareholders.
Item 11. Executive Compensation
The information required by this item is incorporated by reference to our Proxy Statement to be filed with the
Securities and Exchange Commission in connection with our 2018 Annual Meeting of Shareholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item is incorporated by reference to our Proxy Statement to be filed with the
Securities and Exchange Commission in connection with our 2018 Annual Meeting of Shareholders.
Item 13. Certain Relationships and Related Transactions
The information required by this item is incorporated by reference to our Proxy Statement to be filed with the
Securities and Exchange Commission in connection with our 2018 Annual Meeting of Shareholders.
Item 14. Principal Accountant Fees and Services
The information required by this item is incorporated by reference to our Proxy Statement to be filed with the
Securities and Exchange Commission in connection with our 2018 Annual Meeting of Shareholders.
55
Item 15. Exhibits, Financial Statement Schedules
(a) The following documents are filed as part of this Report:
PART IV
1.
Financial Statements
See Index under Item 8.
2.
Financial Statement Schedule
See Index under Item 8.
3.
Exhibits
See Item 15(b) below.
(b) Exhibits
The following exhibits are filed as part of or incorporated by reference into this Report:
56
Exhibit No.
----------- -----------------------------------------------------------------
3.1(1)
3.2(2)
4.1(3)
4.2(4)
Restated Articles of Incorporation of Registrant.
Amended and Restated Bylaws of Registrant.
Form of Common Stock certificate.
Convertible Note Purchase and Credit Facility Agreement, dated
April 10, 2015, by and among Aehr Test Systems, QVT Fund LP and
Quintessence Fund L.P.
Description
4.3(5) Amendment to Convertible Note Purchase and Credit Facility
4.4
4.5
Agreement and 9.0% Notes, dated August 22, 2016, by and among Aehr
Test Systems, QVT Fund LP and Quintessence Fund L.P.
Form of 9.0% Convertible Secured Note due 2017 (included in
Exhibit 4.2)
Form of 5.0% Secured Revolving Credit Note (included in
Exhibit 4.2)
4.6(6) Registration Rights Agreement, dated April 10, 2015, by and among
Aehr Test Systems, QVT Fund LP and Quintessence Fund L.P.
4.7(7) Registration Rights Agreement by and among the Company and the
Investors (as defined therein), dated as of September 22, 2016.
2006 Equity Incentive Plan.*
Amended and Restated 2006 Employee Stock Purchase Plan.*
10.1(8)
10.2(9)
10.3(10) 2016 Equity Incentive Plan.*
10.4(11) Form of Indemnification Agreement entered into between Registrant
and its directors and executive officers.*
10.5(12) Form of Change of Control Agreement.*
10.6(13) Lease dated August 3, 1999 for facilities located at Building C,
400 Kato Terrace, Fremont, California.
10.6.1(14) First Amendment dated May 06, 2008 for facilities located at
400 Kato Terrace, Fremont, California.
10.6.2(15) Second Amendment dated November 7, 2014 for facilities located at
400 Kato Terrace, Fremont, California.
10.6.3(16) Third Amendment dated February 27, 2018 for facilities located at
10.10(17) Offer Letter dated January 3, 2012, between the Company and Gayn
400 Kato Terrace, Fremont, California.
Erickson.*
10.11(18) Offer Letter dated March 5, 2013, between the Company and Rhea
Posedel.*
10.12(19) Change of Control Severance Agreement dated January 3, 2012,
between the Company and Gayn Erickson.*
10.13(20) Amended and Restated Change of Control Severance Agreement dated
March 5, 2013, between the Company and Rhea J. Posedel.*
10.14(21) Security Agreement, dated April 10, 2015, by and among Aehr Test
Systems, QVT Fund LP and Quintessence Fund L.P.
10.15(22) Form of 2006 Equity Incentive Plan Stock Option Award Agreement.*
10.16(23) Form of 2006 Equity Incentive Plan Restricted Stock Unit Award.*
10.17(24) Form of 2016 Equity Incentive Plan Stock Option Award Agreement.*
10.18(25) Form of 2016 Equity Incentive Plan Restricted Stock Unit Award.*
10.19(26) Purchase Agreement by and among the Company and the Investors (as
10.21(27) Underwriting Agreement dated April 13, 2017, between the Company
defined therein), dated as of September 22, 2016.
21.1
23.1
24.1
31.1
31.2
and Craig-Hallum Capital Group LLLC
Subsidiaries of the Company.
Consent of BPM LLP - Independent Registered Public Accounting Firm
(filed herewith).
Power of Attorney (incorporated by reference to the signature
page of this Annual Report on Form 10-K).
Certification Statement of Chief Executive Officer pursuant to
Section 302(a) of the Sarbanes-Oxley Act of 2002 (filed herewith).
Certification Statement of Chief Financial Officer pursuant to
Section 302(a) of the Sarbanes-Oxley Act of 2002 (filed herewith).
57
32.1
Certification of Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished
herewith).
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
------------------------
(1) Incorporated by reference to the same-numbered exhibit previously filed with the Company’s Registration Statement
on Form S-1 filed June 11, 1997 (File No. 333-28987).
(2) Incorporated by reference to Exhibit No. 3.1 previously filed with the Company’s Current Report on Form 8-K filed
October 31, 2017 (File No. 000-22893).
(3) Incorporated by reference to the same-numbered exhibit previously filed with Amendment No.1 to the Company’s
Registration Statement on Form S-1 filed July 17, 1997 (File No. 333-28987).
(4) Incorporated by reference to Exhibit 4.1 previously filed with the Company’s Current Report on Form 8-K filed
April 14, 2015 (File No. 000-22893).
(5) Incorporated by reference to Exhibit 10.1 previously filed with the Company’s Current Report on Form 8-K filed
August 22, 2016 (File No. 000-22893).
(6) Incorporated by reference to Exhibit 4.4 previously filed with the Company’s Current Report on Form 8-K filed
April 14, 2015 (File No. 000-22893).
(7) Incorporated by reference to Exhibit 10.2 previously filed with the Company’s Current Report on Form 8-K filed
September 28, 2016 (File No. 000-22893).
(8) Incorporated by reference to Exhibit 4.1 previously filed with the Company’s Registration Statement on Form S-8
filed October 27, 2006 (File No. 333-138249).
(9) Incorporated by reference to Exhibit 4.2 previously filed with the Company’s Registration Statement on Form S-8
filed November 14, 2016 (File No. 333-214589).
(10) Incorporated by reference to Exhibit 4.1 previously filed with the Company’s Registration Statement on Form S-8
filed November 14, 2016 (File No. 333-214589).
(11) Incorporated by reference to Exhibit 10.4 previously filed with Amendment No.1 to the Company’s Registration
Statement on Form S-1 filed July 17, 1997 (File No. 333-28987).
(12) Incorporated by reference to Exhibit 10.14 previously filed with the Company’s Form 10-K for the year ended May
31, 2001 filed August 29, 2001 (File No. 000-22893).
(13) Incorporated by reference to Exhibit 10.12 exhibit previously filed with the Company’s Form 10-K for the year
ended May 31, 1999 filed August 30, 1999 (File No. 000-22893).
(14) Incorporated by reference to Exhibit 10.15 previously filed with the Company’s Current Report on Form 8-K filed
May 9, 2008 (File No. 000-22893).
(15) Incorporated by reference to Exhibit 10.1 previously filed with the Company’s Current Report on Form 8-K filed
November 12, 2014 (File No. 000-22893).
(16) Incorporated by reference to Exhibit 10.1 previously filed with the Company’s Current Report on Form 8-K filed
March 2, 2018 (File No. 000-22893).
(17) Incorporated by reference to Exhibit No. 10.1 previously filed with the Company's Current Report on Form 8-K
filed January 9, 2012 (File No. 000-22893).
58
(18) Incorporated by reference to Exhibit No. 10.1 previously filed with the Company's Current Report on Form 8-K
filed March 8, 2013 (File No. 000-22893).
(19) Incorporated by reference to Exhibit No. 10.3 previously filed with the Company's Current Report on Form 8-K
filed January 9, 2012 (File No. 000-22893).
(20) Incorporated by reference to Exhibit No. 10.2 previously filed with the Company's Current Report on Form 8-K
filed March 8, 2013 (File No. 000-22893).
(21) Incorporated by reference to Exhibit 10.1 previously filed with the Company’s Current Report on Form 8-K filed
April 14, 2015 (File No. 000-22893).
(22) Incorporated by reference to Exhibit 10.17 previously filed with the Company’s Annual Report on Form 10-K filed
August 29, 2016 (File No. 000-22893).
(23) Incorporated by reference to Exhibit 10.18 previously filed with the Company’s Annual Report on Form 10-K filed
August 29, 2016 (File No. 000-22893).
(24) Incorporated by reference to Exhibit 10.19 previously filed with the Company’s Annual Report on Form 10-K filed
August 29, 2017 (File No. 000-22893).
(25) Incorporated by reference to Exhibit 10.20 previously filed with the Company’s Annual Report on Form 10-K filed
August 29, 2017 (File No. 000-22893).
(26) Incorporated by reference to Exhibit 10.1 previously filed with the Company’s Current Report on Form 8-K filed
September 28, 2016 (File No. 000-22893).
(27) Incorporated by reference to Exhibit 1.1 previously filed with the Company’s Current Report on Form 8-K filed
April 19, 2017 (File No. 000-22893).
* Management contracts or compensation plans or arrangements in which directors or executive officers are eligible to
participate.
59
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: August 28, 2018
AEHR TEST SYSTEMS
By: /s/ GAYN ERICKSON
---------------------------------------
Gayn Erickson
PRESIDENT AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and
appoints Gayn Erickson and Kenneth B. Spink, jointly and severally, his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and
to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1934, this Annual Report on Form 10-K has been signed below
by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date
-------------------------- ----------------------------------- -----------------
President, Chief Executive
Officer, and Director
/s/ GAYN ERICKSON (Principal Executive Officer) August 28, 2018
-------------------------- -----------------
Gayn Erickson Vice President of Finance
and Chief Financial Officer
/s/ KENNETH B. SPINK (Principal Financial and August 28, 2018
-------------------------- Accounting Officer) -----------------
Kenneth B. Spink
/s/ RHEA J. POSEDEL Chairman August 28, 2018
-------------------------- -----------------
Rhea J. Posedel
/s/ WILLIAM W. R. ELDER Director August 28, 2018
-------------------------- -----------------
William W. R. Elder
/s/ MARIO M. ROSATI Director August 28, 2018
-------------------------- -----------------
Mario M. Rosati
/s/ JOHN M. SCHNEIDER Director August 28, 2018
-------------------------- -----------------
John M. Schneider
/s/ HOWARD T. SLAYEN Director August 28, 2018
-------------------------- -----------------
Howard T. Slayen
60
Exhibit 21.1
SUBSIDIARIES OF AEHR TEST SYSTEMS
1. Aehr Test Systems Japan K.K., incorporated in Japan
2. Aehr Test Systems GmbH, incorporated in Germany
61
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-204008,
333-214218 and 333-216792) and Registration Statements on Form S-8 (No. 333-208130, 333-200442, 333-184865, 333-
177954, 333-163100, 333-155389, 333-138249, 333-119636, 333-52592, 333-40577, and 333-214589) of Aehr Test
Systems of our report dated August 28, 2018 relating to the consolidated financial statements, which appears in this
Form 10-K.
/s/ BPM LLP
San Jose, California
August 28, 2018
62
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302(a) OF THE
SARBANES-OXLEY ACT
Exhibit 31.1
I, Gayn Erickson, certify that:
1. I have reviewed this annual report on Form 10-K of Aehr Test Systems;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors
(or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report
financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant’s internal control over financial reporting.
Date: August 28, 2018
/s/ GAYN ERICKSON
-----------------------------------------------
Gayn Erickson
President and Chief Executive Officer
63
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302(a) OF THE
SARBANES-OXLEY ACT
Exhibit 31.2
I, Kenneth B. Spink, certify that:
1. I have reviewed this annual report on Form 10-K of Aehr Test Systems;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors
(or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report
financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant’s internal control over financial reporting.
Date: August 28, 2018
/s/ KENNETH B. SPINK
--------------------------------------------------------------------
Kenneth B. Spink
Vice President of Finance and Chief Financial Officer
64
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Gayn Erickson, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that the Annual Report of Aehr Test Systems on Form 10-K for the period ending May 31,
2018 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that
information contained in such Annual Report on Form 10-K fairly presents in all material respects the financial
condition and results of operations of Aehr Test Systems.
Date: August 28, 2018
By:
/s/ GAYN ERICKSON
----------------------------------------------------------------
Gayn Erickson
President and Chief Executive Officer
I, Kenneth B. Spink, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that the Annual Report of Aehr Test Systems on Form 10-K for the period ending May 31,
2018 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that
information contained in such Annual Report on Form 10-K fairly presents in all material respects the financial
condition and results of operations of Aehr Test Systems.
Date: August 28, 2018
By:
/s/ KENNETH B. SPINK
-----------------------------------------------------------------
Kenneth B. Spink
Vice President of Finance and Chief Financial Officer
65
CORPORATE INFORMATION
CORPORATE
HEADQUARTERS
400 Kato Terrace
Fremont, CA 94539
Telephone: 510.623.9400
Fax: 510.623.9450
Website: www.aehr.com
SUBSIDIARIES
Aehr Test Systems Japan
Hashikan Bldg., 1-14
Azuma-Cho
Hachioji
Tokyo, Japan 192-0082
Telephone: 81.42.642.3530
Fax: 81.42.642.3531
Email: atsj@aehr.com
Aehr Test Systems GmbH
Industriestrasse 9
D-86919 Utting
Germany
Telephone: 49.8806.2021
Fax: 49.8806.2024
Email: atsg@aehr.com
SHAREHOLDER
INFORMATION
Legal Counsel
Wilson Sonsini Goodrich & Rosati,
Professional Corporation
Palo Alto, CA
Independent Registered
Public Accounting Firm
BPM LLP
San Jose, CA
Transfer Agent and Registrar
Computershare Trust Company, N.A.
P. O. Box 505000
Louisville, KY 40233
Toll free: 800.962.4284
Telephone: 303.262.0600
Fax: 303.262.0700
Investor Relations
MKR Group, Inc.
Telephone: 323.468.2300
Email: aehr@mkr-group.com
Annual Meeting
The annual meeting of shareholders
will be held at 4:00 p.m. on
October 23, 2018 at the Company’s
Corporate Headquarters.
Aehr Test Systems’ corporate
headquarters has been certified to the
International Standards Organization
(ISO) 9001 standard since 1997.
DIRECTORS
Rhea J. Posedel
Chairman
Gayn Erickson
President
Chief Executive Officer
William W.R. Elder (1) (2) (3)
President and CEO,
Maskless Lithography Inc.
Mario M. Rosati
Member
Wilson Sonsini Goodrich & Rosati,
Professional Corporation
John M. Schneider (1) (3)
Private investor
Howard T. Slayen (1) (2)
Retired Partner
PricewaterhouseCoopers
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Member of the Corporate Governance and
Nominating Committee
OFFICERS
Gayn Erickson
President
Chief Executive Officer
Kenneth B. Spink
Vice President of Finance
Chief Financial Officer
Mark D. Allison
Vice President of Worldwide Sales
Carl N. Buck
Vice President of Marketing
David Fucci
Vice President of Operations
David S. Hendrickson
Chief Technology Officer
Donald P. Richmond II
Vice President of Engineering
Kunio Sano
President
Aehr Test Systems Japan
CORPORATE HEADQUARTERS
400 KATO TERRACE
FREMONT, CA 94539
TELEPHONE: 510.623.9400
FAX: 510.623.9450
WEB: WWW.AEHR.COM