AEHR TEST SYSTEMS
10-Ks and 10-Qs
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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, 2017
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)
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CALIFORNIA
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94-2424084
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(State
or other jurisdiction of
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(IRS
Employer Identification Number)
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incorporation or
organization)
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400
KATO TERRACE, FREMONT, CA
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94539
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(Address of
principal executive offices)
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(Zip
Code)
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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).
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. [ X ]
1
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):
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Large
accelerated filer [ ]
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Accelerated
filer [ ]
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Non-accelerated
filer [ ]
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Smaller
reporting company [X]
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(Do not
check if a smaller reporting company)
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Emerging growth
company [ ]
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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 $2.99 on November 30, 2016, as
reported on the NASDAQ Capital Market, was $39,151,174. 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, 2017 was
21,417,011.
2
AEHR TEST SYSTEMS
FORM 10-K
FISCAL YEAR ENDED MAY 31, 2017
TABLE OF CONTENTS
PART I
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Item
1. Business
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4
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Item
1A. Risk Factors
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9
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Item
1B. Unresolved Staff Comments
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15
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Item 2.
Properties
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15
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Item
3. Legal Proceedings
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15
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Item
4. Mine Safety Disclosures
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15
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PART II
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Item
5. Market for Registrant’s Common Equity,
Related Stockholder Matters and Issuer
Purchases of Equity
Securities
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16
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Item
6. Selected Consolidated Financial
Data
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17
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Item
7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations
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19
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Item
7A. Quantitative and Qualitative Disclosures about Market
Risk
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24
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Item
8. Financial Statements and Supplementary
Data
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26
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Item
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
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51
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Item
9A. Controls and Procedures
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51
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Item
9B. Other Information
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51
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PART III
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Item
10. Directors, Executive Officers and Corporate
Governance
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52
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Item
11. Executive Compensation
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52
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Item
12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder
Matters
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52
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Item
13. Certain Relationships and Related Transactions
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52
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Item
14. Principal Accountant Fees and Services
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52
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PART IV
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Item
15. Exhibits, Financial Statement Schedules
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53
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Signatures
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57
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3
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.
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 ABTS
TM
and
FOX
TM
systems, the
WaferPak
TM
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. 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 final 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, die carriers and
related accessories.
4
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-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 has received the first production order of this new
system and shipped the first system in July 2016.
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.
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
application. 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
application. 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.
The
full wafer contact systems product category accounted for
approximately 51%, 60% and 31% of the Company’s net sales in
fiscal 2017, 2016 and 2015, respectively.
5
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 completely new
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
49%, 40% and 65% of the Company’s net sales in fiscal 2017,
2016 and 2015, 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’s single and multi-die DiePak product line includes a
family of reusable, temporary die carriers and associated sockets
that enable the test and burn-in of bare die and modules. The
singulated die DiePak carriers offer cost-effective solutions for
providing KGD for most types of ICs, including memory,
microcontroller and microprocessor devices. The DiePak carrier
consists of an interconnect substrate, which provides an electrical
connection between the die pads and the socket contacts, and a
mechanical support system. The substrate is customized for each IC
product. The single and multi-die DiePak carriers come in several
different versions, designed to handle ICs ranging from low pin
count sensors, to high pin count microprocessors.
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 5%
of net sales in fiscal 2017, 2016 and 2015.
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 93%, 94%, and 79% of its net sales in fiscal 2017,
2016 and 2015, respectively. During fiscal 2017, Texas Instruments
Incorporated, or 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 the Company’s net
sales. During fiscal 2015, Texas Instruments, and Micronas GMBH, or
Micronas, accounted for approximately 45% and 11%, 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
6
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.
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 3
rd
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, 2017, the Company’s backlog was $12.7 million
compared with $5.3 million at May 31, 2016. 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
2017, 2016 and 2015 were $4.7 million, $4.3 million and $4.1
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 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
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, Teradyne Inc., Micronics Japan Co., Ltd., and Tokyo
Electron Limited.
The
Company’s ABTS 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. 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 singulated die 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 bare die. If the bare die
market develops, the Company expects that other competitors will
emerge. The DiePak products also face severe competition from other
alternative test solutions. 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 Yamaichi
Electronics Co., Ltd.
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, 2017, the Company held forty-seven issued United States patents
with expiration date ranges from 2017 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
8
not be
challenged, invalidated or circumvented or that the rights granted
thereunder will provide competitive advantages 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, 2017, the Company, including its two foreign
subsidiaries and one branch office, employed 79 persons
collectively, on a full-time basis, of whom 20 were engaged in
research, development and related engineering, 25 were engaged in
manufacturing, 23 were engaged in marketing, sales and customer
support and 11 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.
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 93%, 94%, and 79% of our net sales in
fiscal 2017, 2016 and 2015, respectively. 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. During fiscal 2015, Texas
Instruments and Micronas accounted for approximately 45% and 11%,
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.
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.
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 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
10
production
applications. We have had a strengthening of ABTS product sales
last fiscal year. 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.
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.
11
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
59%, 80%, and 64% of our net sales for fiscal 2017, 2016 and 2015,
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 3
rd
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.
Approximately
98%, 2% and 0% of our net sales for fiscal 2017 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 2017, 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.
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.
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
12
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.
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.
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 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.
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,
13
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.
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
14
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.
None.
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 November 2014
and expires in June 2018. The Company has an option to extend the
lease for an additional three year period at rates to be
determined. 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 2017. The Company
leases a sales and support office in Utting, Germany. The lease,
which began February 1, 1992 and expires on January 31, 2019,
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 $509,000. 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.
None.
Not
Applicable
15
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.
|
|
High
|
Low
|
|
Fiscal
2017:
|
|
|
|
First quarter ended August 31,
2016
|
$
3.42
|
$
0.96
|
|
Second quarter ended November 30,
2016
|
3.58
|
2.05
|
|
Third quarter ended February 28,
2017
|
5.28
|
2.15
|
|
Fourth quarter ended May 31,
2017
|
6.10
|
3.37
|
|
|
|
|
|
Fiscal
2016:
|
|
|
|
First quarter ended August 31,
2015
|
$
2.49
|
$
1.95
|
|
Second quarter ended November 30,
2015
|
2.50
|
1.72
|
|
Third quarter ended February 29,
2016
|
2.02
|
1.01
|
|
Fourth quarter ended May 31,
2016
|
1.76
|
0.95
|
At
August 4, 2017, the Company had 145 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, 2017.
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, 2017, 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,
2012, 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.
16
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, 2017, 2016 and 2015 and the balance sheet data as of May 31,
2017 and 2016 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, 2014 and 2013 and the balance sheet
data as of May 31, 2015, 2014 and 2013 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.
17
|
|
Fiscal Year Ended May 31,
|
||||
|
|
2017
|
2016
|
2015
|
2014
|
2013
|
|
|
(In thousands, except per share
data)
|
||||
|
CONSOLIDATED
STATEMENTS OF OPERATIONS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
$
18,898
|
$
14,501
|
$
10,018
|
$
19,684
|
$
16,488
|
|
Cost of sales
|
12,118
|
9,356
|
6,180
|
9,462
|
9,712
|
|
Gross profit
|
6,780
|
5,145
|
3,838
|
10,222
|
6,776
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
Selling, general and
administrative
|
7,052
|
6,975
|
6,470
|
6,323
|
6,872
|
|
Research
and development
|
4,657
|
4,324
|
4,062
|
3,402
|
3,211
|
|
|
|
|
|
|
|
|
Total operating
expenses
|
11,709
|
11,299
|
10,532
|
9,725
|
10,083
|
|
|
|
|
|
|
|
|
(Loss) income from operations
|
(4,929
)
|
(6,154
)
|
(6,694
)
|
497
|
(3,307
)
|
|
|
|
|
|
|
|
|
Interest expense
|
(678
)
|
(605
)
|
(130
)
|
(26
)
|
(49
)
|
|
Other (expense) income, net
|
(21
)
|
(16
)
|
211
|
(64
)
|
(33
)
|
|
|
|
|
|
|
|
|
(Loss)
income before income tax (expense)
benefit
|
(5,628
)
|
(6,775
)
|
(6,613
)
|
407
|
(3,389
)
|
|
|
|
|
|
|
|
|
Income tax (expense) benefit
|
(25
)
|
(10
)
|
(34
)
|
15
|
(30
)
|
|
Net (loss) income
|
(5,653
)
|
(6,785
)
|
(6,647
)
|
422
|
(3,419
)
|
|
Less:
Net income attributable to the noncontrolling
interest
|
--
|
--
|
--
|
--
|
--
|
|
|
|
|
|
|
|
|
Net
(loss) income attributable to Aehr
Test Systems common
shareholders
|
$
(5,653
)
|
$
(6,785
)
|
$
(6,647
)
|
$
422
|
$
(3,419
)
|
|
Net
(loss) income per share:
|
|
|
|
|
|
|
Basic
|
$
(0.35
)
|
$
(0.52
)
|
$
(0.55
)
|
$
0.04
|
$
(0.36
)
|
|
Diluted
|
$
(0.35
)
|
$
(0.52
)
|
$
(0.55
)
|
$
0.04
|
$
(0.36
)
|
|
|
|
|
|
|
|
|
Shares
used in per share calculations
|
|
|
|
|
|
|
Basic
|
16,267
|
13,091
|
12,047
|
10,877
|
9,549
|
|
Diluted
|
16,267
|
13,091
|
12,047
|
11,889
|
9,549
|
|
|
|
|
|
|
|
|
|
May 31,
|
||||
|
|
2017
|
2016
|
2015
|
2014
|
2013
|
|
CONSOLIDATED
BALANCE SHEETS:
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
17,803
|
$
939
|
$
5,527
|
$
1,809
|
$
2,324
|
|
Working capital
|
21,494
|
4,068
|
7,776
|
6,556
|
4,900
|
|
Total assets
|
30,892
|
10,046
|
14,868
|
12,225
|
10,975
|
|
|
|
|
|
|
|
|
Long-term obligations, less current portion
|
6,214
|
6,089
|
3,799
|
79
|
280
|
|
Total shareholders' equity
(deficit)
|
16,794
|
(723
)
|
4,550
|
7,029
|
4,994
|
18
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 sold more than 2,500 systems
to 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 parallel test and burn-in system,
WaferPak contactors, the DiePak carriers and test
fixtures.
Our
net sales consist primarily of sales of systems, WaferPak
contactors and aligners, multi-die DiePak carriers and autoloaders,
single die 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, long-term
service contracts. 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) collectability 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. 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.
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.
19
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, 2017
and 2016.
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 1997 – 2016 remain subject to
examination by the appropriate governmental agencies due to tax
loss carryovers from those years.
20
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 the Company’s
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
Note 1 to our consolidated financial statements for additional
information relating to stock-based compensation. See Notes 11 and
12 to our consolidated financial statements for detailed
information regarding 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.
|
|
Year Ended May 31,
|
||
|
|
2017
|
2016
|
2015
|
|
|
|
|
|
|
Net sales
|
100.0
%
|
100.0
%
|
100.0
%
|
|
Cost of sales
|
64.1
|
64.5
|
61.7
|
|
Gross profit
|
35.9
|
35.5
|
38.3
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
Selling, general and
administrative
|
37.3
|
48.1
|
64.6
|
|
Research and
development
|
24.7
|
29.8
|
40.5
|
|
|
|
|
|
|
Total operating
expenses
|
62.0
|
77.9
|
105.1
|
|
|
|
|
|
|
Loss from operations
|
(26.1
)
|
(42.4
)
|
(66.8
)
|
|
|
|
|
|
|
Interest expense
|
(3.6
)
|
(4.2
)
|
(1.3
)
|
|
Other (expense) income, net
|
(0.1
)
|
(0.1
)
|
2.1
|
|
|
|
|
|
|
Loss before income tax expense
|
(29.8
)
|
(46.7
)
|
(66.0
)
|
|
|
|
|
|
|
Income tax expense
|
(0.1
)
|
(0.1
)
|
(0.4
)
|
|
|
|
|
|
|
Net loss
|
(29.9
)
|
(46.8
)
|
(66.4
)
|
|
Less:
Net income attributable to the noncontrolling
interest
|
--
|
--
|
--
|
|
Net
loss attributable to Aehr Test Systems
common shareholders
|
(29.9
)%
|
(46.8
)%
|
(66.4
)%
|
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.
21
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.
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.
INCOME
TAX EXPENSE. Income tax expense was $25,000 and $10,000 for the
fiscal year ended May 31, 2017 and 2016, respectively.
FISCAL
YEAR ENDED MAY 31, 2016 COMPARED TO FISCAL YEAR ENDED MAY 31,
2015
NET
SALES. Net sales increased to $14.5 million for the fiscal year
ended May 31, 2016 from $10.0 million for the fiscal year ended May
31, 2015, an increase of 44.7%. The increase in net sales in fiscal
2016 resulted primarily from an increase in net sales of our
wafer-level products, partially offset by a decrease in net sales
of our TDBI products. Net sales of the wafer-level products for
fiscal 2016 were $8.7 million, and increased approximately $5.5
million from fiscal 2015. Net sales of the TDBI products for fiscal
2016 were $5.8 million, and decreased approximately $0.7 million
from fiscal 2015.
GROSS
PROFIT. Gross profit increased to $5.1 million for the fiscal year
ended May 31, 2016 from $3.8 million for the fiscal year ended May
31, 2015, an increase of 34.1%. Gross profit margin for the fiscal
year ended May 31, 2016 was 35.5%, compared with 38.3% for the
fiscal year ended May 31, 2015.
The decrease in gross
profit margin of 2.8% was primarily due to manufacturing
inefficiencies from decreased manufacturing levels, resulting in a
4.5% gross profit margin reduction, partially offset by decreased
direct material costs as a percentage of sales due to product mix
and the sale of fully reserved inventory, resulting in a 1.7%
increase in gross profit margin.
SELLING,
GENERAL AND ADMINISTRATIVE. SG&A expenses were $7.0 million for
the fiscal year ended May 31, 2016, compared with $6.5 million for
the fiscal year ended May 31, 2015, an increase of 7.8%. The
increase in SG&A expenses was primarily due to increases of
$0.2 million each in employment related expenses and sales
commissions to outside sales representatives.
RESEARCH
AND DEVELOPMENT. R&D expenses increased to $4.3 million for the
fiscal year ended May 31, 2016 from $4.1 million for the fiscal
year ended May 31, 2015, an increase of 6.5%. Higher R&D
expenses in the fiscal year ended May 31, 2016 were primarily due
to increases of $0.2 million in each of project expenses and
employment related expenses.
INTEREST
EXPENSE. Interest expense increased to $605,000 for the fiscal year
ended May 31, 2016 from $130,000 for the fiscal year ended May 31,
2015. The increase in interest expense for the fiscal year ended
May 31, 2016 was primarily due to an increase in borrowing under
existing debt agreements.
OTHER
(EXPENSE) INCOME, NET. Other expense, net was $16,000 for the
fiscal year ended May 31, 2016, compared with other income, net of
$211,000 for the fiscal year ended May 31, 2015.
The change between
other expense and other income was due primarily to losses or gains
realized in connection with the fluctuation in the value of the
dollar compared to foreign currencies during the referenced
periods.
INCOME
TAX EXPENSE. Income tax expenses were $10,000 and $34,000 for the
fiscal year ended May 31, 2016 and 2015, respectively.
22
LIQUIDITY
AND CAPITAL RESOURCES
We
consider cash and cash equivalents as liquid and available for use.
As of May 31, 2017, we had $17.8 million in cash and cash
equivalents, compared to $0.9 million as of May 31,
2016.
Net
cash used in operating activities was $4.5 million and $6.3 million
for the fiscal years ended May 31, 2017 and 2016, respectively. 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. 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 $0.5 million and $0.9 million
for the fiscal year ended May 31, 2017 and 2016, respectively. Net
cash used in investing activities for the fiscal year ended May 31,
2017 and 2016 was due to the purchases of property and equipment
for our capital and infrastructure improvement plan to showcase our
products and to enhance our manufacturing capabilities in
preparation for increased demand.
Financing
activities provided net cash of $21.8 million for the fiscal year
ended May 31, 2017 as compared to $2.5 million for the fiscal year
ended May 31, 2016. 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. Net
cash provided by financing activities 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.
As
of May 31, 2017 and 2016, we had working capital of $21.5 and $4.1
million, respectively. Working capital consists of cash and cash
equivalents, accounts receivable, inventories and prepaid expenses
and other current assets, less current liabilities.
As
of May 31, 2016, we had $0.9 million in cash and cash equivalents,
compared to $5.5 million as of May 31, 2015.
As
of May 31, 2015, we had working capital of $7.8
million.
For
the fiscal year ended May 31, 2015, net cash used in operating
activities was primarily the result of the net loss of $6.6
million, as adjusted to exclude the effect of non-cash charges
including stock-based compensation expense of $1.0 million, and an
increase in inventories of $1.0 million, partially offset by an
increase in customer deposits and deferred revenue of $3.7 million
and a decrease in accounts receivable of $1.8 million. The increase
in inventories was primarily due to inventory purchases to support
future shipments. The increase in customer deposits and deferred
revenue was primarily due to the receipt of additional down
payments from certain customers. The decrease in accounts
receivable was primarily due to a decrease in sales.
Net
cash used in investing activities was $0.1 million for the fiscal
year ended May 31, 2015 was due to the purchase of property and
equipment.
Net
cash provided by financing activities during the fiscal year ended
May 31, 2015 was primarily due to net proceeds of $3.8 million from
the issuance of Convertible Notes, and the net proceeds of $2.6
million from the sale of our common stock in a private placement
transaction with our certain directors and officers and other
accredited investors that closed on November 26, 2014. Refer to
Note 9 of Notes to Consolidated Financial Statements,
“LONG-TERM DEBT”, for further discussion of the Credit
Facility and Convertible Notes.
23
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 November 2014 and expires in June 2018. 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 has not established any special purpose entities.
OVERVIEW
OF CONTRACTUAL OBLIGATIONS
The
following table provides a summary of such arrangements, or
contractual obligations.
|
|
Payments Due by Period (in thousands)
|
||||
|
|
Total
|
Less than
1 year
|
1-3
years
|
3-5
years
|
5
years
|
|
Operating Leases
|
$
567
|
$
502
|
$
65
|
$
--
|
$
--
|
|
Convertible Notes
|
6,110
|
--
|
6,110
|
--
|
--
|
|
Interest on Convertible Notes
(1)
|
1,160
|
550
|
610
|
--
|
--
|
|
Purchases (2)
|
5,684
|
5,684
|
--
|
--
|
--
|
|
Total
|
$
13,521
|
$
6,736
|
$
6,785
|
$
--
|
$
--
|
(1)
Based on 9% interest rate. See Note 9 “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.
We
had no holdings of derivative financial or commodity instruments at
May 31, 2017.
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.
24
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.
25
INDEX
|
Consolidated
Financial Statements of Aehr Test Systems
|
|
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
27
|
|
|
|
|
Consolidated
Balance Sheets at May 31, 2017 and 2016
|
28
|
|
|
|
|
Consolidated
Statements of Operations for the years ended May 31, 2017, 2016 and
2015
|
29
|
|
|
|
|
Consolidated
Statements of Comprehensive Loss for the years ended May 31, 2017,
2016 and 2015
|
30
|
|
|
|
|
Consolidated
Statements of Shareholders' Equity (Deficit) for the years ended
May 31, 2017, 2016 and 2015
|
31
|
|
|
|
|
Consolidated
Statements of Cash Flows for the years ended May 31, 2017, 2016 and
2015
|
32
|
|
|
|
|
Notes
to Consolidated Financial Statements
|
33
|
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.
26
REPORT
OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Aehr Test Systems
We
have audited the accompanying consolidated balance sheets of Aehr
Test Systems and subsidiaries (the “Company”) as of May
31, 2017 and 2016, and the related consolidated statements of
operations, comprehensive loss, shareholders’ equity
(deficit), and cash flows for each of the years in the three-year
period ended May 31, 2017. These consolidated financial statements
are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. The Company is not required to have, nor
have we been engaged to perform, an audit of the Company’s
internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, 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. An
audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In
our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Aehr Test Systems and subsidiaries as of May 31, 2017
and 2016, and the results of their operations and their cash flows
for each of the years in the three-year period ended May 31, 2017,
in conformity with accounting principles generally accepted in the
United States of America.
/s/ BPM LLP
San Jose, California
August 29, 2017
27
AEHR TEST SYSTEMS AND SUBSIDIARIES
(IN THOUSANDS, EXCEPT PER SHARE DATA)
|
|
May 31,
|
|
|
|
2017
|
2016
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
Cash and cash
equivalents
|
$
17,803
|
$
939
|
|
Accounts receivable,
net
|
4,010
|
522
|
|
Inventories
|
6,604
|
7,033
|
|
Prepaid expenses and
other
|
961
|
254
|
|
|
|
|
|
Total current
assets
|
29,378
|
8,748
|
|
|
|
|
|
Property and equipment, net
|
1,419
|
1,204
|
|
Other assets
|
95
|
94
|
|
|
|
|
|
Total
assets
|
$
30,892
|
$
10,046
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
Accounts payable
|
$
2,808
|
$
1,413
|
|
Accrued
expenses
|
1,609
|
1,553
|
|
Customer deposits and deferred
revenue
|
3,467
|
1,714
|
|
|
|
|
|
Total current
liabilities
|
7,884
|
4,680
|
|
|
|
|
|
Convertible notes, net of debt issuance
costs
|
6,110
|
5,962
|
|
Deferred revenue, long-term
|
104
|
127
|
|
|
|
|
|
Total
liabilities
|
14,098
|
10,769
|
|
|
|
|
|
Commitments
and contingencies (Note 16)
|
|
|
|
|
|
|
|
Aehr
Test Systems shareholders' equity (deficit):
|
|
|
|
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: 21,340 shares and 13,216
shares at
May 31, 2017 and 2016, respectively
|
213
|
132
|
|
Additional paid-in capital
|
81,128
|
58,052
|
|
Accumulated other comprehensive
income
|
2,249
|
2,237
|
|
Accumulated deficit
|
(66,777
)
|
(61,124
)
|
|
Total Aehr Test Systems
shareholders' equity (deficit)
|
16,813
|
(703
)
|
|
Noncontrolling interest
|
(19
)
|
(20
)
|
|
Total shareholders'
equity (deficit)
|
16,794
|
(723
)
|
|
|
|
|
|
Total liabilities
and shareholders' equity (deficit)
|
$
30,892
|
$
10,046
|
The
accompanying notes are an integral part of these consolidated
financial statements.
28
AEHR TEST SYSTEMS AND SUBSIDIARIES
(IN THOUSANDS, EXCEPT PER SHARE DATA)
|
|
Year Ended May 31,
|
||
|
|
2017
|
2016
|
2015
|
|
|
|
|
|
|
Net sales
|
$
18,898
|
$
14,501
|
$
10,018
|
|
Cost of sales
|
12,118
|
9,356
|
6,180
|
|
Gross profit
|
6,780
|
5,145
|
3,838
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
Selling, general and
administrative
|
7,052
|
6,975
|
6,470
|
|
Research and
development
|
4,657
|
4,324
|
4,062
|
|
|
|
|
|
|
Total operating
expenses
|
11,709
|
11,299
|
10,532
|
|
|
|
|
|
|
Loss from operations
|
(4,929
)
|
(6,154
)
|
(6,694
)
|
|
|
|
|
|
|
Interest expense
|
(678
)
|
(605
)
|
(130
)
|
|
Other (expense) income, net
|
(21
)
|
(16
)
|
211
|
|
|
|
|
|
|
Loss before income tax expense
|
(5,628
)
|
(6,775
)
|
(6,613
)
|
|
|
|
|
|
|
Income tax expense
|
(25
)
|
(10
)
|
(34
)
|
|
Net loss
|
(5,653
)
|
(6,785
)
|
(6,647
)
|
|
Less:
Net income attributable
to the noncontrolling interest
|
--
|
--
|
--
|
|
|
|
|
|
|
Net
loss attributable to Aehr Test Systems
common shareholders
|
$
(5,653
)
|
$
(6,785
)
|
$
(6,647
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share – basic and
diluted
|
$
(0.35
)
|
$
(0.52
)
|
$
(0.55
)
|
|
Shares used in per share calculation –
basic
|
16,267
|
13,091
|
12,047
|
|
Shares used in per share calculation –
diluted
|
16,267
|
13,091
|
12,047
|
The
accompanying notes are an integral part of these consolidated
financial statements.
29
AEHR TEST SYSTEMS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(IN THOUSANDS)
|
|
Year Ended May 31,
|
||
|
|
2017
|
2016
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
$
(5,653
)
|
$
(6,785
)
|
$
(6,647
)
|
|
|
|
|
|
|
Other comprehensive
income (loss), net of tax:
Foreign currency
translation income loss
|
13
|
4
|
(254
)
|
|
|
|
|
|
|
Total comprehensive
loss
|
(5,640
)
|
(6,781
)
|
(6,901
)
|
|
Less: Comprehensive
income (loss) attributable to
noncontrolling
interest
|
1
|
(2
)
|
3
|
|
|
|
|
|
|
Comprehensive
loss
, attributable to
Aehr Test Systems
|
$
(5,641
)
|
$
(6,779
)
|
$
(6,904
)
|
The
accompanying notes are an integral part of these consolidated
financial statements.
30
AEHR TEST SYSTEMS
AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(IN
THOUSANDS)
|
|
Common
Stock
|
Additional Paid-in
|
Accumulated Other Comprehensive
|
Accumulated
|
Total Aehr
Test Systems Shareholders' Equity |
Noncontrolling
|
Total Shareholders'
|
|
|
|
Shares
|
Amount
|
Capital
|
Income
|
Deficit
|
(Deficit)
|
Interest
|
Equity
(Deficit)
|
|
Balances,
May 31, 2014
|
11,203
|
$
112
|
$
52,142
|
$
2,488
|
$
(47,692
)
|
$
7,050
|
$
(21
)
|
$
7,029
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock
under private
placement
|
1,065
|
11
|
2,563
|
--
|
--
|
2,574
|
--
|
2,574
|
|
Issuance of common stock
under employee plans
|
589
|
6
|
849
|
--
|
--
|
855
|
--
|
855
|
|
Stock-based
compensation
|
--
|
--
|
993
|
--
|
--
|
993
|
--
|
993
|
|
Net
loss
|
--
|
--
|
--
|
--
|
(6,647
)
|
(6,647
)
|
--
|
(6,647
)
|
|
Foreign currency
translation adjustment
|
--
|
--
|
--
|
(257
)
|
--
|
(257
)
|
3
|
(254
)
|
|
|
|
|
|
|
|
|
|
|
|
Balances,
May 31, 2015
|
12,857
|
129
|
56,547
|
2,231
|
(54,339
)
|
4,568
|
(18
)
|
4,550
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock
under employee plans
|
359
|
3
|
509
|
--
|
--
|
512
|
--
|
512
|
|
Stock-based
compensation
|
--
|
--
|
996
|
--
|
--
|
996
|
--
|
996
|
|
Net
loss
|
--
|
--
|
--
|
--
|
(6,785
)
|
(6,785
)
|
--
|
(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
|
--
|
--
|
704
|
--
|
704
|
|
Issuance of common stock
under public offering
|
4,423
|
44
|
15,788
|
--
|
--
|
15,832
|
--
|
15,832
|
|
Issuance of common stock
under private
offering
|
2,722
|
27
|
5,272
|
--
|
--
|
5,299
|
--
|
5,299
|
|
Issuance of common stock in
consideration for
cancellation
of outstanding vendor
invoice
|
200
|
2
|
321
|
--
|
--
|
323
|
--
|
323
|
|
Stock-based compensation
|
--
|
--
|
999
|
--
|
--
|
999
|
--
|
999
|
|
Net
loss
|
--
|
--
|
--
|
--
|
(5,653
)
|
(5,653
)
|
--
|
(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
|
The
accompanying notes are an integral part of these consolidated
financial statements.
31
AEHR TEST SYSTEMS AND SUBSIDIARIES
(IN THOUSANDS)
|
|
Year Ended May 31,
|
||
|
|
2017
|
2016
|
2015
|
|
Cash
flows from operating activities:
|
|
|
|
|
Net loss
|
$
(5,653
)
|
$
(6,785
)
|
$
(6,647
)
|
|
Adjustments to reconcile net loss to net cash used in
operating activities:
|
|
|
|
|
Stock-based compensation
expense
|
999
|
1,016
|
997
|
|
Provision (recovery of)
for doubtful accounts
|
53
|
(13
)
|
(30
)
|
|
Loss on disposal of
asset
|
--
|
2
|
--
|
|
Amortization of debt
issuance cost
|
148
|
177
|
31
|
|
Depreciation and
amortization
|
271
|
203
|
135
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
Accounts
receivable
|
(3,507
)
|
887
|
1,774
|
|
Inventories
|
430
|
70
|
(1,008
)
|
|
Prepaid
expenses and other
|
(707
)
|
9
|
34
|
|
Accounts
payable
|
1,686
|
564
|
(850
)
|
|
Accrued
expenses
|
53
|
539
|
(371
)
|
|
Customer
deposits and deferred revenue
|
1,730
|
(2,909
)
|
3,702
|
|
Income taxes
payable
|
2
|
(41
)
|
(15
)
|
|
Deferred
rent
|
--
|
--
|
(8
)
|
|
Net
cash used in operating activities
|
(4,495
)
|
(6,281
)
|
(2,256
)
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
Purchases of property and
equipment
|
(477
)
|
(919
)
|
(118
)
|
|
Net
cash used in investing activities
|
(477
)
|
(919
)
|
(118
)
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
Line of credit borrowings
(repayments), net
|
--
|
2,000
|
(777
)
|
|
Proceeds from issuance of
convertible notes, net
|
--
|
(6
)
|
3,760
|
|
Proceeds from issuance of common stock
under public
offering, net of issuance costs
|
15,832
|
--
|
--
|
|
Proceeds from issuance of common stock
under private
placement, net of issuance costs
|
5,299
|
--
|
2,574
|
|
Proceeds from issuance of common stock
under employee
plans
|
704
|
512
|
855
|
|
Net
cash provided by financing activities
|
21,835
|
2,506
|
6,412
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rates on cash and
cash equivalents
|
1
|
106
|
(320
)
|
|
|
|
|
|
|
Net increase (decrease) in cash and
cash equivalents
|
16,864
|
(4,588
)
|
3,718
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of
year
|
939
|
5,527
|
1,809
|
|
Cash and cash equivalents, end of
year
|
$
17,803
|
$
939
|
$
5,527
|
|
|
|
|
|
|
Supplemental
cash flow information:
|
|
|
|
|
Cash
paid during the year for:
|
|
|
|
|
Income
taxes
|
$
18
|
$
47
|
$
26
|
|
Interest
|
$
516
|
$
302
|
$
130
|
|
|
|
|
|
|
Supplemental
disclosure of non-cash flow information:
|
|
|
|
|
Net
change in capitalized stock-based compensation
|
$
--
|
$
(20
)
|
$
(4
)
|
|
Line
of credit converted to convertible notes
|
$
--
|
$
2,000
|
$
--
|
|
Fair
value of common stock issued to settle accounts
payable
|
$
323
|
$
--
|
$
--
|
The
accompanying notes are an integral part of these consolidated
financial statements.
32
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, 2017 the Company had $17.8 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 13 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 AND INVESTMENTS:
Cash
equivalents consist of money market instruments purchased with an
original maturity of three months or less. These investments are
reported at fair value.
FAIR
VALUE OF FINANCIAL INSTRUMENTS AND MEASUREMENT:
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.
33
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, 2017 (in
thousands):
|
|
Balance as of
|
|
|
|
|
|
May 31, 2017
|
Level 1
|
Level 2
|
Level 3
|
|
Money market funds
|
$
15,516
|
$
15,516
|
$
--
|
$
--
|
|
Certificate of deposit
|
50
|
--
|
50
|
--
|
|
Assets
|
$
15,566
|
$
15,516
|
$
50
|
$
--
|
|
|
|
|
|
|
The
following table summarizes the Company’s financial assets
measured at fair value on a recurring basis as of May 31, 2016 (in
thousands):
|
|
Balance as of
|
|
|
|
|
|
May 31, 2016
|
Level 1
|
Level 2
|
Level 3
|
|
Money market funds
|
$
1
|
$
1
|
$
--
|
$
--
|
|
Certificate of deposit
|
50
|
--
|
50
|
--
|
|
Assets
|
$
51
|
$
1
|
$
50
|
$
--
|
|
|
|
|
|
|
There
were no financial liabilities measured at fair value as of May 31,
2017 and 2016.
There
were no transfers between Level 1 and Level 2 fair value
measurements during the fiscal year ended May 31, 2017 and
2016.
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.
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 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, 2017, 2016 or 2015.
CONCENTRATION
OF CREDIT RISK:
The
Company sells its products primarily to semiconductor manufacturers
in North America, Asia, and Europe. As of May 31, 2017,
approximately 55%, 0% and 45% of gross accounts receivable were
from customers located in Asia,
34
Europe
and North America, respectively. As of May 31, 2016, approximately
7%, 68% and 25% of gross accounts receivable were from customers
located in Asia, Europe and North America, respectively. Three
customers accounted for 47%, 40% and 11% of gross accounts
receivable as of May 31, 2017. One customer accounted for 67% of
gross accounts receivable as of May 31, 2016. Four customers
accounted for 45%, 19%, 17% and 10% of net sales in fiscal 2017.
Two customers accounted for 47% and 32% of net sales in fiscal
2016. 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. 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 market. 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 market 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
equipmen
t
|
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 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.
J
udgments 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
35
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.
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 2017,
2016 and 2015.
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.
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, 2017
and 2016.
36
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 1997
– 2016 remain subject to examination by the appropriate
governmental agencies due to tax loss carryovers from those
years.
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, 2017, 2016 and 2015 (in thousands, except
per share data):
|
|
Year Ended May 31,
|
||
|
|
2017
|
2016
|
2015
|
|
Stock-based
compensation in the form of stock options,
RSUs, and ESPP
purchase rights, included in:
|
|
|
|
|
Cost of sales
|
$
91
|
$
87
|
$
70
|
|
Selling, general and
administrative
|
714
|
723
|
726
|
|
Research and development
|
194
|
206
|
201
|
|
Net effect on net loss
|
$
999
|
$
1,016
|
$
997
|
|
Effect
on net loss per share:
|
|
|
|
|
Basic
|
$
0.06
|
$
0.08
|
$
0.08
|
|
Diluted
|
$
0.06
|
$
0.08
|
$
0.08
|
During
fiscal 2017, 2016 and fiscal 2015, the Company recorded stock-based
compensation related to stock options and restricted stock units of
$884,000, $894,000 and $857,000, respectively.
As
of May 31, 2017, the total compensation cost related to unvested
stock-based awards under the Company’s 2006 Equity Incentive
Plan and 2016 Equity Incentive Plan, but not yet recognized, was
$886,000 which is net of estimated forfeitures of $2,000. This cost
will be amortized on a straight-line basis over a weighted average
period of approximately 2.3 years.
During
fiscal 2017, 2016 and fiscal 2015, the Company recorded stock-based
compensation related to its ESPP of $115,000, $122,000 and
$140,000, respectively.
As
of May 31, 2017, 2016 and 2015, stock-based compensation costs of
zero, zero and $20,000, respectively, were capitalized as part of
inventory.
As
of May 31, 2017, the total compensation cost related to purchase
rights under the ESPP but not yet recognized was $33,000. This cost
will be amortized on a straight-line basis over a weighted average
period of approximately 0.7 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.
37
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.
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 2017, 2016 and 2015 were estimated using the
following weighted average assumptions in the Black-Scholes option
valuation method:
|
|
Year Ended May 31,
|
||
|
|
2017
|
2016
|
2015
|
|
Option
plan shares
|
|
|
|
|
Expected term (in years)
|
4
|
4
|
4
|
|
Volatility
|
0.81
|
0.86
|
0.90
|
|
Risk-free interest rates
|
1.02
%
|
1.21
%
|
1.20
%
|
|
Weighted-average grant date fair
value
|
$
1.09
|
$
1.31
|
$
1.52
|
The
fair value of our ESPP purchase rights for the fiscal 2017, 2016
and 2015 was estimated using the following weighted-average
assumptions:
|
|
Year End May 31,
|
||
|
|
2017
|
2016
|
2015
|
|
Employee
stock purchase plan shares
|
|
|
|
|
Expected term (in years)
|
0.5 – 2.0
|
0.5 – 2.0
|
0.5 – 2.0
|
|
Volatility
|
0.79 – 1.08
|
0.64 – 0.74
|
0.55 – 0.83
|
|
Risk-free interest rates
|
0.48%–0.80%
|
0.40%–0.76%
|
0.04%–0.55%
|
|
Weighted-average grant date fair
value
|
$
1.65
|
$
0.80
|
$
1.43
|
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,
and employee stock purchase plan shares) outstanding during the
period using the treasury stock method.
The
following table presents the computation of basic and diluted net
loss per share attributable to Aehr Test Systems common
shareholders (in thousands, except per share data):
38
|
|
Year Ended May 31,
|
||
|
|
2017
|
2016
|
2015
|
|
Numerator: Net loss
|
$
(5,653
)
|
$
(6,785
)
|
$
(6,647
)
|
|
|
|
|
|
|
Denominator
for basic net loss per share:
|
|
|
|
|
Weighted-average shares
outstanding
|
16,267
|
13,091
|
12,047
|
|
|
|
|
|
|
Shares used in basic net loss per share
calculation
|
16,267
|
13,091
|
12,047
|
|
|
|
|
|
|
Effect of dilutive securities
|
--
|
--
|
--
|
|
|
|
|
|
|
Denominator for diluted net loss per
share
|
16,267
|
13,091
|
12,047
|
|
|
|
|
|
|
Basic net loss per share
|
$
(0.35
)
|
$
(0.52
)
|
$
(0.55
)
|
|
|
|
|
|
|
Diluted net loss per share
|
$
(0.35
)
|
$
(0.52
)
|
$
(0.55
)
|
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. In the fiscal year’s 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,
3,201,000, and 3,686,000 shares of common stock were outstanding on
May 31, 2017, 2016 and 2015, 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
and 35,000 shares were outstanding at May 31, 2017 and 2016,
respectively, but 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, 304,000 and 175,000
ESPP shares were outstanding on May 31, 2017, 2016 and 2015,
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 at May 31, 2017 and 2016 were not
included in the computation of diluted net loss per share, because
the inclusion of such shares would be anti-dilutive.
COMPREHENSIVE
LOSS:
Comprehensive
loss generally represents all changes in shareholders’ equity
(deficit) 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 loss, which are excluded from net loss.
Comprehensive loss is included in the statements of comprehensive
loss.
RECLASSIFICATION
Certain
reclassifications have been made to the consolidated financial
statements to conform to the current period presentation. These
reclassifications did not result in any change in previously
reported net loss, total assets or shareholders’ equity
(deficit).
RECENT
ACCOUNTING PRONOUNCEMENTS:
In May 2014, as part of its ongoing efforts to
assist in the convergence of GAAP and International Financial
Reporting Standards (“IFRS”), the Financial Accounting
Standards Board (“FASB”) issued an accounting standard
update related to revenue from contracts with customers. This
standard sets forth a new five-step revenue recognition model which
replaces the prior revenue recognition guidance in its entirety and
is intended to eliminate numerous industry-specific pieces of
revenue recognition guidance that have historically existed in
GAAP. The underlying principle of the new standard is that a
business or other organization will recognize revenue to depict the
transfer of promised goods or services to customers in an amount
that reflects what it expects in exchange for the goods or
services. The standard also requires more detailed disclosures and
provides additional guidance for transactions that were not
addressed completely in the prior accounting guidance. The standard
provides alternative methods of initial adoption and will become
effective for the Company beginning in the first quarter of fiscal
2019. The FASB has issued several updates to the standard which i)
defer the original effective date from January 1, 2017 to January
1, 2018, while allowing for early adoption as of January 1, 2017.
ii) clarify the application of the principal versus agent guidance.
and iii) clarify the guidance on inconsequential and perfunctory
promises and licensing. In May 2016, the FASB issued an update to
address certain narrow aspects of the guidance including
collectibility criterion, collection of sales taxes from customers,
noncash consideration, contract modifications and completed
contracts. This issuance does not change the
core
39
principle
of the guidance in the initial topic issued in May 2014. In
December 2016, the FASB issued updated guidance regarding revenue
from contracts with customers. Some topics that could impact the
Company include corrections and improvements around the following:
contract costs impairment testing, disclosure of remaining
performance obligations and prior period obligations, contract
modifications, and contract asset versus receivable. The Company is
currently evaluating the impact of adopting this new guidance on
its consolidated financial statements.
In
August 2014, the FASB issued authoritative guidance related to
going concern. This guidance requires management to evaluate the
conditions or events that raise substantial doubt about the
entity’s ability to continue as a going concern and whether
or not it is probable that the entity will be unable to meet its
obligations as they become due within one year after the date the
financial statements are issued. This guidance became effective for
the Company for the annual period ending May 31, 2017. The adoption
of this guidance did not have a significant impact on the
Company’s consolidated financial statements.
In
July 2015, the 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. This
new standard will be effective for us in fiscal year 2018. The
adoption of this guidance is not expected to have a significant
impact on the Company’s consolidated financial
statements.
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. This
new standard will be effective for us in fiscal year 2018. The
adoption of this guidance is not expected to have a significant
impact on the Company’s consolidated financial
statements.
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
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.
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
accounting standard will be effective for the Company beginning the
first quarter of fiscal 2018, and early adoption is permitted. The
adoption of this guidance is not expected to have a significant
impact on the Company’s 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.
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.
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.
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
40
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.
In
December 2016, the FASB issued authoritative guidance related to
technical corrections and improvements. This guidance provides
minor updates on a variety of codification topics and are not
expected to have a significant effect on current accounting
practice. Most of these corrections do not have a transition date
as they are minor in nature.
2. ACCOUNTS RECEIVABLE:
Accounts
receivable comprise (in thousands):
|
|
May 31,
|
|
|
|
2017
|
2016
|
|
Accounts receivable
|
$
4,071
|
$
530
|
|
Less: Allowance for doubtful accounts
|
(61
)
|
(8
)
|
|
|
$
4,010
|
$
522
|
|
|
|
Additions
|
|
|
|
|
Balance at
|
charged to
|
|
Balance
|
|
|
beginning
|
costs and
|
|
at end
|
|
|
of year
|
expenses
|
Deductions*
|
of year
|
|
|
|
|
|
|
|
Allowance
for doubtful
accounts receivable:
|
|
|
|
|
|
May
31, 2017
|
$
8
|
$
53
|
$
--
|
$
61
|
|
|
|
|
|
|
|
May
31, 2016
|
$
21
|
$
--
|
$
(13
)
|
$
8
|
*
Deductions include write-offs of uncollectible accounts and
collections of amounts previously reserved.
3. INVENTORIES:
Inventories
comprise (in thousands):
|
|
May 31,
|
|
|
|
2017
|
2016
|
|
Raw materials and
sub-assemblies
|
$
4,268
|
$
2,839
|
|
Work in process
|
2,059
|
4,151
|
|
Finished goods
|
277
|
43
|
|
|
$
6,604
|
$
7,033
|
4. PROPERTY AND EQUIPMENT, NET:
Property
and equipment, net comprise (in thousands):
|
|
May 31,
|
|
|
|
2017
|
2016
|
|
Leasehold improvements
|
$
1,145
|
$
1,072
|
|
Furniture and fixtures
|
974
|
974
|
|
Machinery and equipment
|
3,035
|
2,330
|
|
Test equipment
|
2,268
|
2,581
|
|
|
|
|
|
|
7,422
|
6,957
|
|
Less:
Accumulated depreciation
and
amortization
|
(6,003
)
|
(5,753
)
|
|
|
$
1,419
|
$
1,204
|
Depreciation expense was $271,000,
$203,000 and $135,000 for fiscal 2017, 2016, and 2015,
respectively.
41
5. PRODUCT WARRANTIES:
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.
Following
is a summary of changes in the Company’s liability for
product warranties during the fiscal years ended May 31, 2017 and
2016 (in thousands):
|
|
May 31,
|
|
|
|
2017
|
2016
|
|
|
|
|
|
Balance at the beginning of the
year
|
$
155
|
$
137
|
|
Accruals for warranties issued during the
year
|
123
|
334
|
|
Accruals
and adjustments (change in estimates) related
to
pre-existing warranties during the year
|
(54
)
|
--
|
|
Settlement made during the year (in cash or in
kind)
|
(111
)
|
(316
)
|
|
|
|
|
|
Balance at the end of the year
|
$
113
|
$
155
|
The
accrued warranty balance is included in accrued expenses on the
consolidated balance sheets.
6. ACCRUED EXPENSES:
Accrued expenses comprise (in
thousands):
|
|
May
31,
|
|
|
|
2017
|
2016
|
|
Payroll related
|
$
934
|
$
706
|
|
Professional services
|
161
|
166
|
|
Accrued interest
|
139
|
110
|
|
Commissions and bonuses
|
125
|
227
|
|
Warranty
|
113
|
155
|
|
Taxes payable
|
69
|
63
|
|
Investor relations
|
25
|
88
|
|
Other
|
43
|
38
|
|
|
$
1,609
|
$
1,553
|
7. INCOME TAXES:
Domestic
and foreign components of loss before income tax (expense) benefit
are as follows (in thousands):
|
|
Year Ended May 31,
|
||
|
|
2017
|
2016
|
2015
|
|
Domestic
|
$
(5,663
)
|
$
(6,794
)
|
$
(6,871
)
|
|
Foreign
|
35
|
19
|
258
|
|
|
$
(5,628
)
|
$
(6,775
)
|
$
(6,613
)
|
42
The
income tax (expense) benefit consists of the following (in
thousands):
|
|
Year Ended May 31,
|
||
|
|
2017
|
2016
|
2015
|
|
Federal
income taxes:
|
|
|
|
|
Current
|
$
--
|
$
--
|
$
--
|
|
Deferred
|
--
|
--
|
--
|
|
State
income taxes:
|
|
|
|
|
Current
|
(8
)
|
3
|
(19
)
|
|
Deferred
|
--
|
--
|
--
|
|
Foreign
income taxes:
|
|
|
|
|
Current
|
(17
)
|
(13
)
|
(15
)
|
|
Deferred
|
--
|
--
|
--
|
|
|
$
(25
)
|
$
(10
)
|
$
(34
)
|
The
Company’s effective tax rate differs from the U.S. federal
statutory tax rate, as follows:
|
|
Year Ended May 31,
|
||
|
|
2017
|
2016
|
2015
|
|
U.S. federal statutory tax
rate
|
34.0
%
|
34.0
%
|
34.0
%
|
|
State taxes, net of federal tax
effect
|
(0.1
)
|
--
|
(0.2
)
|
|
Foreign rate differential
|
0.1
|
0.2
|
1.4
|
|
Stock-based compensation
|
(2.8
)
|
(3.8
)
|
(2.2
)
|
|
Research and development credit
|
3.1
|
2.1
|
1.1
|
|
Change in valuation allowance
|
(33.8
)
|
(32.5
)
|
(34.4
)
|
|
Other
|
(0.9
)
|
(0.2
)
|
(0.2
)
|
|
Effective tax rate
|
(0.4
)%
|
(0.2
)%
|
(0.5
)%
|
The
components of the net deferred tax assets are as follows (in
thousands):
|
|
Year Ended May 31,
|
|
|
|
2017
|
2016
|
|
|
|
|
|
Net operating losses
|
$
18,719
|
$
16,643
|
|
Credit carryforwards
|
4,715
|
4,430
|
|
Inventory reserves
|
870
|
1,064
|
|
Reserves and accruals
|
1,566
|
1,606
|
|
Other
|
393
|
885
|
|
|
|
|
|
|
26,263
|
24,628
|
|
|
|
|
|
Less: Valuation allowance
.
|
(26,263
)
|
(24,628
)
|
|
Net deferred tax assets
|
$
--
|
$
--
|
The
valuation allowance increased by $1,635,000 during fiscal 2017,
increased by $421,000 during fiscal 2016, and increased by
$2,223,000 during fiscal 2015. As of May 31, 2017 and 2016, 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, 2017, the Company had federal and state net operating loss
carryforwards of $51,851,000 and $30,351,000, respectively. The
federal and state net operating loss carryforwards will begin to
expire in 2024. At May 31, 2017, the Company also had federal and
state research and development tax credit carryforwards of
$1,982,000 and $5,164,000, 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 $91,000 for federal
tax purposes and $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
43
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 $892,000 are available to
reduce future foreign taxable income. The foreign net operating
losses will begin to expire in 2018.
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):
|
Beginning balance as of May 31,
2014
|
$
973
|
|
Decreases related to prior year tax
positions
|
--
|
|
Decreases related to lapse of statute of
limitations
|
(54
)
|
|
|
|
|
Balance at May 31, 2015
|
$
919
|
|
|
|
|
Decreases related to prior year tax
positions
|
(124
)
|
|
Decreases related to lapse of statute of
limitations
|
(6
)
|
|
|
|
|
Balance at May 31, 2016
|
$
789
|
|
|
|
|
Decreases related to prior year tax
positions
|
--
|
|
Decreases related to lapse of statute of
limitations
|
--
|
|
|
|
|
Balance at May 31, 2017
|
$
789
|
The
ending balance of $789,000 of unrecognized tax benefits as of May
31, 2017, if recognized, would not impact the effective tax
rate.
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 1997
– 2016 remain subject to examination by the appropriate
governmental agencies due to tax loss carryovers from those
years.
8. CUSTOMER DEPOSITS AND DEFERRED REVENUE:
Customer
deposits and deferred revenue (in thousands):
|
|
May 31,
|
|
|
|
2017
|
2016
|
|
Customer deposits
|
$
3,264
|
$
540
|
|
Deferred revenue
|
203
|
1,174
|
|
|
$
3,467
|
$
1,714
|
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 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 are being accreted over the term of the original
loan using the effective interest rate method, were offset against
the loan balance. During fiscal years ended May 31, 2017 and 2016,
$148,000 and $177,000, respectively, of amortization costs were
recognized as interest expense.
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
44
common
stock to the holder of Convertible Notes electing such conversion.
The Company may not redeem the Convertible Notes prior to
maturity.
On
April 14, 2016, $900,000 drawn against the Credit Facility was
converted into Convertible Notes. As of May 31, 2016, the Company
had a balance of $1,100,000 against the Credit Facility. Upon
maturity in July 2016, the $1,100,000 balance of the Credit
Facility was converted into Convertible Notes. As of May 31, 2017,
there was no remaining balance available on the Credit
Facility.
The
Company’s obligations under the Purchase Agreement are
secured by substantially all of the assets of the
Company.
Long-term
debt, net of debt issuance costs (in thousands):
|
|
May 31,
|
May 31,
|
|
|
2017
|
2016
|
|
Principal
|
$
6,110
|
$
6,110
|
|
Unamortized debt issuance
costs
|
--
|
(148
)
|
|
|
$
6,110
|
$
5,962
|
10. 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.
11. CAPITAL STOCK:
EQUITY
INCENTIVE PLAN:
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, 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.
The
following tables summarize the Company’s stock option and RSU
transactions during fiscal 2017, 2016 and 2015 (in
thousands):
45
|
|
Available
|
|
|
Shares
|
|
Balances, May 31, 2014
|
1,145
|
|
|
|
|
Additional shares reserved
|
860
|
|
Options granted
|
(1,253
)
|
|
Options terminated
|
93
|
|
|
|
|
Balances, May 31, 2015
|
845
|
|
|
|
|
Additional shares reserved
|
800
|
|
Options granted
|
(92
)
|
|
RSUs granted
|
(35
)
|
|
Options terminated
|
329
|
|
|
|
|
Balances, May 31, 2016
|
1,847
|
|
|
|
|
Additional shares reserved
|
2,238
|
|
Options granted
|
(368
)
|
|
RSUs granted
|
(157
)
|
|
Options terminated
|
55
|
|
Plan shares expired
|
(1,446
)
|
|
|
|
|
Balances, May 31, 2017
|
2,169
|
The
following table summarized the stock option transactions during
fiscal 2017, 2016 and 2015 (in thousands, except per share
data):
|
|
Outstanding Options
|
||
|
|
|
Weighted
|
|
|
|
Number
|
Average
|
Aggregate
|
|
|
of
|
Exercise
|
Intrinsic
|
|
|
Shares
|
Price
|
Value
|
|
Balances, May 31, 2014
|
3,002
|
$
1.31
|
$
2,913
|
|
|
|
|
|
|
Options granted
|
1,253
|
$
2.38
|
|
|
Options terminated
|
(93
)
|
$
2.30
|
|
|
Options exercised
|
(476
)
|
$
1.33
|
|
|
|
|
|
|
|
Balances, May 31, 2015
|
3,686
|
$
1.66
|
$
2,946
|
|
|
|
|
|
|
Options granted
|
92
|
$
2.12
|
|
|
Options terminated
|
(329
)
|
$
1.93
|
|
|
Options exercised
|
(248
)
|
$
1.34
|
|
|
|
|
|
|
|
Balances, May 31, 2016
|
3,201
|
$
1.66
|
$
189
|
|
|
|
|
|
|
Options granted
|
368
|
$
1.83
|
|
|
Options terminated
|
(55
)
|
$
1.42
|
|
|
Options exercised
|
(440
)
|
$
1.35
|
|
|
|
|
|
|
|
Balances, May 31, 2017
|
3,074
|
$
1.73
|
$
8,763
|
|
|
|
|
|
|
Options exercisable and expected to be
exercisable at May
31, 2017
|
3,030
|
$
1.72
|
$
8,654
|
46
The
options outstanding and exercisable at May 31, 2017 were in the
following exercise price ranges (in thousands, except per share
data):
|
|
Options
Outstanding
|
Options
Exercisable
|
|||||
|
|
at May 31,
2017
|
at May 31,
2017
|
|||||
|
Range of
Exercise
Prices
|
Number
Outstanding Shares
|
Weighted Average
Remaining Contractual Life (Years)
|
Weighted Average
Exercise Price
|
Number
Exercisable Shares
|
Weighted Average
Remaining Contractual Life (Years)
|
Weighted Average
Exercise Price
|
Aggregate
Intrinsic Value
|
|
$
0.59-$0.97
|
514
|
1.77
|
$
0.66
|
514
|
1.77
|
$
0.66
|
|
|
$
1.09-$1.40
|
784
|
2.41
|
$
1.28
|
773
|
2.40
|
$
1.28
|
|
|
$
1.68-$2.06
|
542
|
5.12
|
$
1.77
|
287
|
4.26
|
$
1.85
|
|
|
$
2.10-$2.81
|
1,234
|
4.53
|
$
2.44
|
848
|
4.46
|
$
2.46
|
|
|
|
|
|
|
|
|
|
|
|
$
0.59-$2.81
|
3,074
|
3.63
|
$
1.73
|
2,422
|
3.21
|
$
1.63
|
$7,148
|
The
total intrinsic values of options exercised were $810,000, $185,000
and $540,000 during fiscal 2017, 2016 and 2015, respectively. The
weighted average contractual life of the options exercisable and
expected to be exercisable at May 31, 2017 was 3.62
years.
Options
to purchase 2,422,000, 2,390,000 and 2,189,000 shares were
exercisable at May 31, 2017, 2016 and 2015, respectively. These
exercisable options had weighted average exercise prices of $3.21,
$3.69 and $1.43 as of May 31, 2017, 2016 and 2015,
respectively.
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 are performance-based and immediately vest upon attainment
of goals established and have 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 during fiscal 2015.
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 or 2015.
12. 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 2017,
2016 and 2015. The contribution amounts are recorded as
compensation expense, in the period authorized and included in
accrued expenses, in the period authorized. 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. Contributions of 27,000 shares were made to
the
47
ESOP
during fiscal 2015 for fiscal 2014. The contribution for fiscal
2017 will be made in fiscal 2018. 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 2017, 2016
and 2015.
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, 2017, 2016 and 2015, ESPP purchase
rights of 1,000, 304,000, and 222,000 shares, respectively, were
granted. For the years ended May 31, 2017, 2016 and 2015,
approximately 151,000, 86,000 and 87,000 shares of common stock,
respectively, were issued under the plans. As of May 31, 2017,
1,119,000 shares have been issued under the ESPP, and there were
381,000 ESPP shares available for issuance.
13. OTHER (EXPENSE) INCOME, NET:
Other
(expense) income, net comprises the following (in
thousands):
|
|
Year Ended May 31,
|
||
|
|
2017
|
2016
|
2015
|
|
Foreign exchange (loss) gain
|
$
(21
)
|
$
(19
)
|
$
194
|
|
Other, net
|
--
|
3
|
17
|
|
|
$
(21
)
|
$
(16
)
|
$
211
|
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):
48
|
|
United
|
|
|
|
|
|
States
|
Asia
|
Europe
|
Total
|
|
2017:
|
|
|
|
|
|
Net sales
|
$
7,762
|
$
10,439
|
$
697
|
$
18,898
|
|
Property and equipment,
net
|
1,364
|
40
|
15
|
1,419
|
|
|
|
|
|
|
|
2016:
|
|
|
|
|
|
Net sales
|
$
2,957
|
$
10,228
|
$
1,316
|
$
14,501
|
|
Property and equipment,
net
|
1,151
|
39
|
14
|
1,204
|
|
|
|
|
|
|
|
2015:
|
|
|
|
|
|
Net sales
|
$
3,648
|
$
4,943
|
$
1,427
|
$
10,018
|
|
Property and equipment,
net
|
432
|
34
|
12
|
478
|
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. At May 31, 2017, the Company had $188,000 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 November 2014 and expires in June 2018. The Company has an
option to extend the lease for an additional three year period at
rates to be determined. 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 2017. The Company leases a sales and support
office in Utting, Germany. The lease, which began February 1, 1992
and expires on January 31, 2019, contains an 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,
|
|
|
2018
|
$
502
|
|
2019
|
64
|
|
2020
|
1
|
|
2021
|
--
|
|
2022
|
--
|
|
Thereafter
|
--
|
|
Total
|
$
567
|
|
|
|
Rental
expense for the years ended May 31, 2017, 2016 and 2015 was
$509,000, $499,000 and $554,000, respectively.
At
May 31, 2017 and 2016, the Company had a $50,000 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.
49
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, 2017, the
Company had $5,684,000 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, 2017 and 2016. 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.
|
|
Three Months Ended
|
|||
|
|
Aug. 31,
|
Nov. 30,
|
Feb. 28,
|
May 31,
|
|
|
2016
|
2016
|
2017
|
2017
|
|
Net sales
|
$
5,318
|
$
4,216
|
$
2,681
|
$
6,683
|
|
Gross profit
|
$
2,206
|
$
1,463
|
$
503
|
$
2,608
|
|
Net loss
|
$
(755
)
|
$
(1,452
)
|
$
(2,651
)
|
$
(795
)
|
|
Net loss per share basic and
diluted
|
$
(0.06
)
|
$
(0.09
)
|
$
(0.16
)
|
$
(0.04
)
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|||
|
|
Aug. 31,
|
Nov. 30,
|
Feb. 29,
|
May 31,
|
|
|
2015
|
2015
|
2016
|
2016
|
|
Net sales
|
$
6,633
|
$
4,620
|
$
1,677
|
$
1,571
|
|
Gross profit
(loss)
|
$
3,383
|
$
1,691
|
$
169
|
$
(98
)
|
|
Net income (loss)
|
$
294
|
$
(1,048
)
|
$
(2,975
)
|
$
(3,056
)
|
|
Net income (loss) per share basic and
diluted
|
$
0.02
|
$
(0.08
)
|
$
(0.23
)
|
$
(0.23
)
|
|
|
|
|
|
|
50
None.
(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, 2017. 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.
None.
51
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 2017 Annual Meeting of
Shareholders.
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 2017 Annual Meeting of
Shareholders.
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 2017 Annual Meeting of
Shareholders.
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 2017 Annual Meeting of
Shareholders.
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 2017 Annual Meeting of
Shareholders.
52
(a) The
following documents are filed as part of this Report:
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:
53
|
Exhibit
No.
|
|
Description
|
|
3.1(1)
|
|
Restated
Articles of Incorporation of Registrant.
|
|
3.2(2)
|
|
Amended
and Restated Bylaws of Registrant.
|
|
4.1(3)
|
|
Form of
Common Stock certificate.
|
|
4.2(4)
|
|
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.
|
|
4.3(5)
|
|
Amendment
to Convertible Note Purchase and Credit Facility Agreement and 9.0%
Notes, dated August 22, 2016, by and among Aehr Test Systems, QVT
Fund LP and Quintessence Fund L.P.
|
|
4.4
|
|
Form of
9.0% Convertible Secured Note due 2017 (included in Exhibit
4.2)
|
|
4.5
|
|
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.
|
|
10.1(8)
|
|
2006
Equity Incentive Plan.*
|
|
10.2(9)
|
|
Amended
and Restated 2006 Employee Stock Purchase Plan.*
|
|
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 at400 Kato
Terrace, Fremont, California.
|
|
10.6.2(15)
|
|
Second
Amendment dated November 7, 2014 for facilities located at400 Kato
Terrace, Fremont, California.
|
|
10.10(16)
|
|
Offer
Letter dated January 3, 2012, between the Company and Gayn
Erickson.*
|
|
10.11(17)
|
|
Offer
Letter dated March 5, 2013, between the Company and Rhea
Posedel.*
|
|
10.12(18)
|
|
Change
of Control Severance Agreement dated January 3, 2012, between the
Company and Gayn Erickson.*
|
|
10.13(19)
|
|
Amended
and Restated Change of Control Severance Agreement dated March 5,
2013, between the Company and Rhea J. Posedel.*
|
|
10.14(20)
|
|
Common
Stock Purchase Agreement by and among the Company and the Investors
(as defined therein), dated as of March 15, 2013.
|
|
10.15(21)
|
|
Common
Stock Purchase Agreement by and among the Company and the Investors
(as defined therein), dated as of November 24, 2014.
|
|
10.16(22)
|
|
Security
Agreement, dated April 10, 2015, by and among Aehr Test Systems,
QVT Fund LP and Quintessence Fund L.P.
|
|
10.17(23)
|
|
Form of
2006 Equity Incentive Plan Stock Option Award
Agreement.*
|
|
10.18(24)
|
|
Form of
2006 Equity Incentive Plan Restricted Stock Unit
Award.*
|
|
|
Form of
2016 Equity Incentive Plan Stock Option Award
Agreement.*
|
|
|
|
Form of
2016 Equity Incentive Plan Restricted Stock Unit
Award.*
|
|
|
10.21(25)
|
|
Purchase
Agreement by and among the Company and the Investors (as defined
therein), dated as of September 22, 2016.
|
|
|
Subsidiaries
of the Company.
|
|
|
|
Consent
of BPM LLP - Independent Registered Public Accounting Firm (filed
herewith).
|
|
|
24.1
|
|
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).
|
|
| 31.2 |
|
Certification Statement of Chief Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002 (filed herewith). |
54
|
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 January 9,
2012 (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 4.3 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 4.6 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 4.7 previously filed with the
Company’s Current Report on Form 8-K filed September 22, 2016
(File No. 000-22893).
(8)
Incorporated by reference to Exhibit 10.1 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 10.2 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 10.3 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 No. 10.1 previously filed with
the Company's Current Report on Form 8-K filed January 9, 2012
(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 March 8, 2013 (File
No. 000-22893).
55
(18)
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).
(19)
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).
(20)
Incorporated by reference to Exhibit No. 10.1 previously filed with
the Company's Current Report on Form 8-K filed March 20, 2013 (File
No. 000-22893).
(21)
Incorporated by reference to Exhibit No. 10.1 previously filed with
the Company's Current Report on Form 8-K filed November 26, 2014
(File No. 000-22893).
(22)
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).
(23)
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).
(24)
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).
(25)
Incorporated by reference to Exhibit 10.21 previously filed with
the Company’s Current Report on Form 8-K filed September 22,
2016 (File No. 000-22893).
*
Management contracts or compensation plans or arrangements
in which directors or executive officers are eligible to
participate.
56
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 29, 2017
|
|
AEHR TEST
SYSTEMS
|
|
|
|
|
|
|
|
|
Date
|
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
29, 2017
|
|
Gayn Erickson
|
|
Vice
President of Finance
|
|
|
|
|
|
and
Chief Financial Officer
|
|
|
|
/s/ KENNETH
B. SPINK
|
|
(Principal
Financial and
|
|
August
29, 2017
|
|
Kenneth B. Spink
|
|
|
|
|
|
|
|
|
|
|
|
/s/ RHEA J.
POSEDEL
|
|
Chairman
|
|
August
29, 2017
|
|
Rhea J. Posedel
|
|
|
|
|
|
|
|
|
|
|
|
/s/ ROBERT
R. ANDERSON
|
|
Director
|
|
August
29, 2017
|
|
Robert R. Anderson
|
|
|
|
|
|
|
|
|
|
|
|
/s/ WILLIAM
W. R. ELDER
|
|
Director
|
|
August
29, 2017
|
|
William W. R. Elder
|
|
|
|
|
|
|
|
|
|
|
|
/s/ MARIO M.
ROSATI
|
|
Director
|
|
August
29, 2017
|
|
Mario M. Rosati
|
|
|
|
|
|
|
|
|
|
|
|
/s/ JOHN M.
SCHNEIDER
|
|
Director
|
|
August
29, 2017
|
|
John M. Schneider
|
|
|
|
|
|
|
|
|
|
|
|
/s/ HOWARD
T. SLAYEN
|
|
Director
|
|
August
29, 2017
|
|
Howard T. Slayen
|
|
|
|
|
57
TABLE OF CONTENTS
Part IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. Mine Safety DisclosuresPart IIItem 5. Market For Registrant S Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesItem 5. Market For Registrant S Common Equity, Related Stockholder Matters and Issuer Purchases OfItem 6. Selected Consolidated Financial DataItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 9B. Other InformationPart IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related TransactionsItem 14. Principal Accountant Fees and ServicesPart IVItem 15. Exhibits, Financial Statement Schedules