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, 2021
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 incorporation or organization)
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(IRS Employer
Identification Number)
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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:
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Trading
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Title
of each class
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Symbol(s)
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Name of each exchange on which registered
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Common Stock,
par value $0.01 per share
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AEHR
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The NASDAQ Capital Market
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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
every Interactive Data File required to be submitted 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 such files).
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:
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Large accelerated
filer [ ]
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Accelerated filer [
]
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Non-accelerated
filer [X]
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Smaller reporting
company [X]
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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 has filed a report on and attestation
to its management's assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the
Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public
accounting firm that prepared or issued its audit report. [
]
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 $1.65 on November 30, 2020, as
reported on the NASDAQ Capital Market, was $34,124,251. 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, 2021 was
24,168,522.
DOCUMENTS
INCORPORATED BY REFERENCE:
Portions
of registrant’s Definitive Proxy Statement relating to the
Annual Meeting of Stockholders are incorporated by reference into
Part III of this Annual Report on Form 10-K where indicated. Such
Definitive Proxy Statement will be filed with the Securities and
Exchange Commission within 120 days after the end of the
registrant’s fiscal year ended May 31, 2021.
2
AEHR TEST SYSTEMS
FORM 10-K
FISCAL YEAR ENDED MAY 31, 2021
TABLE OF CONTENTS
PART
I
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PART II
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PART III
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PART IV
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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 11 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.
Investors and others should note that we
announce material financial information to our investors using our
investor relations website
(https://www.aehr.com/investor-relations/), SEC filings, press
releases, public conference calls and webcasts. We use these
channels to communicate with our investors and the public about our
company, our products and services and other issues. It is possible
that the information we post on our investor relations website
could be deemed to be material information. Therefore, we encourage
investors, the media, and others interested in our company to
review the information we post on our investor relations
website.
PART I
Item 1.
B
usiness
THE
COMPANY
Aehr Test was
incorporated in the state of California on May 25, 1977. We
develop, manufacture and sell solutions that are designed to reduce
the cost of testing and to perform reliability screening and stress
testing, burn-in or cycling, of homogeneous and heterogenous logic
and memory semiconductor integrated circuits, sensors, power and
optical devices. These solutions can be used to simultaneously
perform parallel testing and burn-in of packaged devices,
singulated bare die or semiconductor devices while still in wafer
form. The expanding automotive, mobility, networking, and
telecommunications markets require semiconductor devices that meet
increased quality and reliability specifications. To meet these
needs, device manufacturers are increasing capacity and performing
additional testing and burn-in of their products, creating
opportunities for Aehr Test products in package and wafer-level
testing. Leveraging its expertise as a long-time leading provider
of burn-in equipment, and having installed over 2,500 systems
worldwide, the Company has developed and introduced several
innovative product families, including the ABTS
TM
and
FOX
TM
family of systems,
the WaferPak
TM
Contactor and the
DiePak
®
Carrier for
making electrical and thermal contact with devices under test, and
WaferPak Aligners and DiePak Autoloaders for handling and alignment
of devices into the corresponding WaferPaks and DiePaks. The 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, memory and
systems-on-a-chip, and offers individual temperature control for
high-power advanced logic devices while in a packaged form. The FOX
family of systems are parallel test and burn-in systems designed to
contact all devices on one or more wafers or panels of devices
simultaneously, thus enabling cost effective full wafer parallel
test and burn-in. The FOX systems are also used for parallel test
and burn-in of singulated die or very small multi-IC modules. The
WaferPak Contactor includes a full-wafer probe card for use in
testing wafers in FOX systems. The DiePak Carrier is a reusable,
temporary package that enables IC manufacturers to perform
cost-effective test and burn-in of singulated bare die or very
small multi-IC modules.
INDUSTRY
BACKGROUND
Semiconductor
manufacturing is a complex, multi-step process, and defects or
weaknesses that may result in the failure of an 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 semiconductor device
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. Most leading-edge microprocessors,
microcontrollers, digital signal processors, memory ICs, sensors,
power 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
4
the application. This can either be done at the wafer level, before
the die are packaged, or at the package level, after the die are
packaged. The burn-in process screens for early failures by
operating the device at elevated voltages and temperatures, at up
to 150 degrees Celsius (302 degrees Fahrenheit) or higher.
Depending upon the application, the burn-in times can range
anywhere from minutes to hours or even days. A typical burn-in
system can process thousands of devices simultaneously. After
burn-in, the devices undergo a final test process using automatic
test equipment, or testers. For example, this cycling process
screens silicon carbide semiconductor devices used in electric
vehicle engine controller inverters and their corresponding
on-board battery chargers for failure to meet current carrying,
power loss and leakage specifications, as well as endurance
requirements.
MARKETS
The Company’s
semiconductor test and reliability qualification
solutions
address multiple test
and burn-in segments including silicon carbide
devices for
electric vehicles,
silicon photonics
markets that include data center infrastructure and worldwide 5G
infrastructure, 2D/3D sensor markets related to consumer
electronics and automotive applications, and the data storage and
memory markets.
Silicon Carbide
Silicon carbide power semiconductors have
emerged as the preferred technology for battery electric vehicle
power conversion in on-board and off-board electric vehicle battery
chargers, and the electric power conversion and control of the
electric engines. These devices reduce power loss by as much as
greater than 75% over power silicon alternatives like IGBT
(
Insulated-Gate Bipolar Transistor)
devices, which has essentially changed the entire
market dynamic. With this development, the Company sees most, if
not every automotive company that is working on electric vehicles,
moving to silicon carbide-based powertrain and charging systems in
the near future.
Aehr’s FOX-XP
test and burn-in
system
allows for one of the
key reliability screening tests to be completed on an entire wafer
full of devices, testing all of them at one time, while also
testing and monitoring every device for failures during the burn-in
process to provide critical information on those devices. This is
an enormously valuable capability, as it allows its customers to
screen devices that would otherwise fail after they are packaged
into multi-die modules where the yield impact is 10 times or even
100 times as costly. The Company’s FOX-P family of products
are very cost-effective solutions for ensuring the critical quality
and reliability of devices in this market, where performance and
reliability can not only mean increased battery life, but also
assurance against failure of a vehicle whose power semiconductor
fails in the power train.
Silicon Photonics
The
silicon photonics market is
seeing
increasing deployment of devices used in the expansion of bandwidth
and infrastructure to meet the explosive growth of data center and
5G infrastructure.
The
rapid growth of integrated optical devices in data centers and data
center interconnect infrastructure, mobile devices, automotive
applications, and wearable biosensor markets is driving
substantially higher requirements for initial quality and long-term
reliability, and they are increasing with every new product
generation.
Silicon photonics devices are highly
integrated silicon-based semiconductors that have embedded or
integrated the non-silicon based laser transmitters and receivers
to enable a smaller, lower cost, higher reliable alternative to
traditional fiber optic transceivers currently used in data center
and telecommunication infrastructure. These require a process step
in manufacturing called stabilization where the devices are
subjected to high temperatures and power to stabilize their output
power. The Company’s solution makes it feasible to burn-in
integrated silicon photonics devices while still in wafer form
without adding the cost to the transceiver printed circuit board
and other mechanical infrastructure of the final transceiver
module, and that has both yield and significant cost savings. In
the case of silicon photonics, the laser devices are bonded
directly to a silicon-based device that has all the logic
multiplexing and de-multiplexing, and other high-speed
communication subsystems, all integrated into a silicon-based
integrated circuit.
Mobile 2D and 3D Sensors
Sensors used in mobile devices such as
smartphones, tablets, wearables such as watches and fitness bands,
and audio devices have become pervasive. Initially, sensors on
smartphones allowed basic functions we have all come to expect such
as touchscreens, rotational sensors, and fingerprint sensors, but
have gotten more complex with added capabilities such as 3D facial
recognition and time of flight distance measurements. We will see
the addition of health monitoring sensors, 3D measurement
capability, and other advanced sensors in the future. As sensors
become more pervasive and add critical new functionality to
devices, it becomes more and more important that the data collected
be accurate and reliable, which we believe will drive more and more
requirements for our solutions for production test and burn-in of
these sensors.
5
In
addition, the rapid growth and increasing demand for reliability in
automotive sensor technologies is a key market driver for the
Company. These technologies include ADAS (Advanced Driver
Assistance Systems) capabilities such as collision avoidance
systems using laser, LIDAR (Light Detection and Ranging), and RADAR
(Radio Detection and Ranging) or other sensing technologies. More
and more new vehicles now include as standard capabilities
collision avoidance systems that detect obstacles and monitor the
vehicle’s surroundings to notify the driver of dangerous
conditions and take evasive action. In addition to autonomous
vehicles that require extremely high reliability of the devices in
these systems, more and more vehicles around the world are
embedding these systems and sensors into their everyday driving
features. The Company sees the rising tide of the increasing number
of embedded sensors and electrical and optical systems in vehicles
as a key driver of the increasing market need for more and more
reliable semiconductors. This, in turn, is increasing the need for
100% production test and burn-in of devices in order to lower the
infant mortality rate and ensure that these devices and systems
operate over the life of the vehicles.
Data Storage and Memory
The
Company also sees the data storage and memory markets as critical
new opportunities for its systems where these end markets and
customers require devices to have extremely high levels of quality
and long-term reliability.
PRODUCTS
The
Company manufactures and markets full wafer contact test systems,
test during burn-in systems, test fixtures and related
accessories.
All
of the Company’s systems are platform-based systems with a
portfolio of current, voltage, digital and thermal capabilities,
allowing them to be configured with optional features to meet
customer requirements. Systems can be configured for use in
production applications, where capacity, throughput and price are
most important, or for reliability engineering and quality
assurance applications, where performance and flexibility, such as
extended temperature ranges, are essential.
FULL WAFER CONTACT SYSTEMS
The
FOX-XP test and burn-in system, introduced in July 2016, is
designed for devices in wafer, singulated die, and module form that
require test and burn-in times typically measured in hours to days.
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, networking, telecommunications, sensors, power and
solid-state devices, 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/heterogeneous 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-P platform
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 die or modules, much higher than the capacity of a
traditional burn-in system with traditional single-device sockets
and heat sinks. This capability was introduced in March
2017.
The
FOX-NP was introduced in January 2019 and is a low-cost entry-level
system to provide a configuration and price point for companies to
do initial production qualification and new product introduction,
enabling an easier transition to the FOX-XP system for high volume
production test. The FOX-NP system is 100% compatible with the
FOX-XP system and is configurable with up to two slot assemblies
per system compared to up to 18 slot assemblies in the FOX-XP
system.
The
FOX-CP was introduced in February 2019 and is a low-cost
single-wafer compact test and reliability verification solution for
logic, memory, power and photonic devices. The FOX-CP reduces test
cost by functionally testing wafers during reliability screening to
identify failing logic, memory, power or photonic die before the
die are integrated into their final package, and is optimal for
test times ranging from minutes to a few hours or where multiple
touchdowns are required to test the entire wafer. The FOX-CP
includes an integrated prober which is equipped with optics for
automatic pattern recognition so that the wafer is aligned properly
for the testing process. It complements the capabilities of the
FOX-XP
and FOX-NP systems, which are optimal when the test time is
measured in hours or days and the full wafer can be tested in a
single touchdown.
The FOX-1P full wafer parallel test system,
introduced in October 2014, is designed for massively parallel
testing 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
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pattern
generator is designed to functionally test industry-standard memory
devices such as flash and DRAMs, and 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 is designed to provide per-pin electronics and
per-device power supplies and is tailored to full-wafer functional
test. The Company believes that the FOX-1P system can significantly
reduce the cost of testing IC wafers. The Company’s FOX-1P
system was partially funded through a development agreement with a
leading semiconductor manufacturer. The Company received the first
production order of this new system and shipped the first system in
July 2016.
Another key
component of the FOX-XP and FOX-NP systems is the patented DiePak
Carrier. The DiePak Carrier, which is easily removable from the
system, contains many multi-module or die sockets with very
fine-pitch probes. 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
accommodates 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 two to seven years, depending on the device
life cycle. Therefore, multiple sets of DiePak Carriers could be
purchased over the life of a FOX-XP or FOX-NP
system.
Another key
component of our FOX-XP and FOX-NP and test solution is the
WaferPak Aligner. The WaferPak Aligner performs alignment of the
customer’s wafer to the WaferPak Contactor so that the wafer
can be tested and burned-in by the FOX-XP and FOX-NP systems. The
Company offers an automated aligner for high volume production
applications, which can support several FOX-XP or FOX-NP systems,
and a manual aligner for low volume production or engineering
applications.
Similar
to the WaferPak Aligner for WaferPak Contactors, the Company offers
the 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 and FOX-NP system. Typically, one DiePak Loader can support
several FOX-XP or FOX-NP systems.
Net
sales of full wafer contact product lines, systems, WaferPak
Contactors, DiePaks Carriers and services for fiscal 2021, 2020 and
2019 were $15.0 million, $19.8 million, and $14.6 million,
respectively, and accounted for approximately 90%, 89% and 69% of
the Company’s net sales in fiscal 2021, 2020 and 2019,
respectively.
SYSTEMS FOR PACKAGED PARTS
Test
during burn-in, or TDBI, systems consist of several subsystems:
pattern generation and test electronics, control software, network
interface and environmental chamber. The test pattern generator
allows duplication of most of the functional tests performed by a
traditional tester. Pin electronics at each burn-in board, or BIB,
position are designed to provide accurate signals to the ICs being
tested and detect whether a device is failing the
test.
Devices
being tested are placed on BIBs and loaded into environmental
chambers which typically operate at temperatures from 25 degrees
Celsius (77 degrees Fahrenheit) up to 150 degrees Celsius (302
degrees Fahrenheit). Using our optional chambers, our systems 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. Several updates to the ABTS system have been made since its
introduction, including the ABTS-P system released in 2012. The
ABTS family of products is based on a hardware and software
architecture that is intended to address not only today’s
devices, but also
future devices for
many years to come. The ABTS system can test and burn-in both
high-power logic and low-power
7
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.
Net
sales of packaged part product lines, systems and services for
fiscal 2021, 2020 and 2019 were $1.6 million, $2.5 million, and
$6.4 million, respectively, and accounted for approximately 10%,
11% and 31% of the Company’s net sales in fiscal 2021, 2020
and 2019, respectively.
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 84%, 87%, and 80% of its net sales in fiscal 2021,
2020 and 2019, respectively. During fiscal 2021, Advanced
Semiconductor Engineering, Inc., ON Semiconductor Korea, Ltd., or
ON Semiconductor, Intel Corporation, or Intel, and Inphi
International Pte. Ltd, or Inphi, accounted for approximately 24%,
23%, 20% and 10%, respectively, of the Company’s net sales.
During fiscal 2020, Intel, ON Semiconductor and STMicroelectronics,
Inc., or STMicroelectronics, accounted for approximately 43%, 16%
and 15%, respectively, of the Company’s net sales. During
fiscal 2019, Intel, Texas Instruments Incorporated, or Texas
Instruments, Cypress Semiconductor Corporation, or Cypress
Semiconductor, and STMicroelectronics accounted for approximately
36%, 14%, 12% and 10%, respectively, of the Company’s net
sales. No other customers accounted for more than 10% of the
Company’s net sales for any of these periods. The Company
expects that sales of its products to a limited number of customers
will continue to account for a high percentage of net sales for the
foreseeable future. In addition, sales to particular customers may
fluctuate significantly from quarter to quarter. Such fluctuations
may result in changes in utilization of the Company’s
facilities and resources. The loss of or reduction or delay in
orders from a significant customer or a delay in collecting or
failure to collect accounts receivable from a significant customer
could materially and adversely affect the Company’s business,
financial condition and operating results.
MARKETING,
SALES AND CUSTOMER SUPPORT
The
Company has sales and service operations in the United States,
Philippines and Taiwan, dedicated service resources in Germany,
China and South Korea, and has established a network of
distributors and sales representatives in certain key parts of the
world. In fiscal 2020, the Company moved to a sales representative
distributorship model for sales in Japan and Germany,
substantially closing
its subsidiary in Japan, see Note 17, “Restructuring,”
of the Notes to Consolidated Financial Statements, and eliminating
the direct sales staff at its Germany subsidiary. 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 Germany and Philippines, at its
branch office in Taiwan, and also through 3
rd
party agreements in
China and South Korea. 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 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, 2021, the Company’s backlog was $1.6 million compared
with $2.5 million at May 31, 2020. 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
8
research
and development expenses. The Company’s research and
development expenses during fiscal 2021, 2020 and 2019 were $3.7
million, $3.4 million and $4.2 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,
and burn-in of devices in singulated die and module form, including
the FOX-NP and FOX-CP systems released during fiscal 2019. The
Company is developing enhancements to our packaged parts and wafer
level burn-in products, intended to improve the capability and
performance for testing and burn-in of future generation devices
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. 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.
Final assembly and testing are performed at the Company’s
principal manufacturing facility located in Fremont,
California.
COMPETITION
The
semiconductor equipment industry is intensely competitive.
Significant competitive factors in the semiconductor equipment
market include price, technical capabilities, quality, flexibility,
automation, cost of ownership, reliability, throughput, product
availability and customer service. In each of the markets it
serves, the Company faces competition from established competitors
and potential new entrants, many of which have greater financial,
engineering, manufacturing and marketing resources than the
Company.
The
Company’s FOX full wafer contact systems face competition
from larger systems manufacturers that have significant
technological know-how and manufacturing capability. Competing
suppliers of full wafer contact systems include Advantest
Corporation, Chroma ATE Inc., Teradyne Inc., Micronics Japan Co.,
Ltd., and Tokyo Electron Limited.
The
Company’s ABTS TDBI systems face increasingly severe
competition, especially from several regional, low-cost
manufacturers and from systems manufacturers that offer higher
power dissipation per device under test. Some users of such
systems, such as independent test labs, build their own burn-in
systems, while others, particularly large IC manufacturers in Asia,
acquire burn-in systems from captive or affiliated suppliers. The
market for burn-in systems is highly fragmented, with many domestic
and international suppliers. Competing suppliers of burn-in and
functional test systems that compete with ABTS systems include
Dong-Il Corporation, Micro Control Company, Incal Technology and
Advantest Corporation.
The
Company’s WaferPak products are facing and are expected to
face increasing competition. Several companies have developed or
are developing full-wafer and single-touchdown probe cards. As the
full-wafer test market develops, the Company expects that other
competitors will emerge. The primary competitive factors in this
market are cost, performance, reliability and assured supply.
Competing suppliers of full-wafer probe cards include FormFactor,
Inc., Japan Electronic Materials Corporation and Micronics Japan
Co., Ltd.
The
Company expects that its DiePak products for burning-in and testing
multiple singulated die and small modules face significant
competition. The Company believes that several companies have
developed or are developing products which are intended to enable
test and burn-in of multiple bare die, and small modules. The
Company expects that other competitors will emerge. The Company
expects that the primary competitive factors in this market will be
cost, performance, reliability and assured supply. Suppliers with
products that compete with our single die DiePak products include
Chroma ATE Inc.
The
Company expects its competitors to continue to improve the
performance of their current products and to introduce new products
with improved price and performance characteristics. New product
introductions by the Company’s competitors or by new market
entrants could cause a decline in sales or loss of market
acceptance of the Company’s products. The Company has
observed price competition in the systems market, particularly with
respect to its less advanced products. Increased competitive
pressure could also lead to intensified price-based competition,
resulting in lower prices which could adversely affect the
Company’s operating margins and results. The Company believes
that to remain competitive it must invest significant financial
resources in new product development and expand
9
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, 2021, the Company held 52 issued United States patents with
expiration date ranges from 2022 to 2038 and had several additional
United States patent applications and foreign patent applications
pending.
The
Company’s ability to compete successfully is dependent in
part upon its ability to protect its proprietary technology and
information. Although the Company attempts to protect its
proprietary technology through patents, copyrights, trade secrets
and other measures, there can be no assurance that these measures
will be adequate or that competitors will not be able to develop
similar technology independently. Further, there can be no
assurance that claims allowed on any patent issued to the Company
will be sufficiently broad to protect the Company’s
technology, that any patent will be issued to the Company from any
pending application or that foreign intellectual property laws will
protect the Company’s intellectual property. Litigation may
be necessary to enforce or determine the validity and scope of the
Company’s proprietary rights, and there can be no assurance
that the Company’s intellectual property rights, if
challenged, will be upheld as valid. Any such litigation could
result in substantial costs and diversion of resources and could
have a material adverse effect on the Company’s business,
financial condition and operating results, regardless of the
outcome of the litigation. In addition, there can be no assurance
that any of the patents issued to the Company will not be
challenged, invalidated or circumvented or that the rights granted
thereunder will provide competitive advantages 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.
HUMAN
CAPITAL RESOURCES
As
of May 31, 2021, the Company, including its foreign subsidiaries
and one branch office, employed 79 persons collectively, on a
regular full-time basis, of whom 16 were engaged in research,
development and related engineering, 21 were engaged in
manufacturing, 34 were engaged in marketing, sales and customer
support and 8 were engaged in general administration and finance
functions. In addition, the Company from time to time employs a
number of contractors, temporary, and part-time employees,
particularly to perform customer support and
manufacturing.
The
Company’s employees are dispersed across principal offices in
the United States, Germany, Taiwan, and Philippines. In addition,
our service and support organization has employees located
worldwide, at or near customer facilities, to provide timely
customer response. As of May 31, 2021 regular full-time employees
were located in the following geographic areas: 59 United States, 1
Germany, 4 Taiwan, and 15 in the Philippines.
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. The Company regularly evaluates its ability
to attract and retain its employees. The Company has had relatively
low turnover rates within its workforce, with 60% of its United
States workforce being with the Company for 10 years or
more.
The
Company believes that the investments we make in driving a strong,
values-based culture and supporting its employees through programs,
development, and competitive pay enhances its organizational
capability. Company management quarterly reviews retention and
turnover, employee communications, performance review status, and
compensation and benefits to identify potential issues or
opportunities. The Company periodically performs employee surveys
to monitor employee satisfaction and the Company follows-up with an
action planning process to actively respond to employee
feedback.
10
The
Company has been impacted by the outbreak of the novel coronavirus,
known as COVID-19, which has spread throughout the world. Our
business’ top priority during the COVID-19 pandemic is
protecting the health and safety of our employees and their
families, customers and community. We introduced policies and
procedures to increase workplace flexibility such as working
remotely where possible to reduce the number of people who are on
campus each day. As a global supplier of Critical Infrastructure
Sectors, as defined by the cybersecurity and Infrastructure
Security Agency, we have supported and continue to support
customers during the pandemic. In the interest of public health,
all onsite operations generally use the minimum number of people to
safely execute tasks and follow enhanced safety and health
protocols including screenings, social distancing, and use of
personal protective equipment.
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 2,
“Revenue” and Note 15, “Segment
Information” and certain risks related to such operations are
discussed in Part I, Item 1A, Risk Factors, under the heading
“We sell our products and services worldwide, and our
business is subject to risks inherent in conducting business
activities in geographic regions outside of the United
States.”
AVAILABLE
INFORMATION
The
Company’s common stock trades on the NASDAQ Capital Market
under the symbol “AEHR.” The Company’s annual
report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K and amendments to these reports that are filed
with the United States Securities and Exchange Commission, or SEC,
pursuant to Section 13(a) or 15(d) of the Exchange Act, are
available free of charge through the Company’s website at
www.aehr.com
as
soon as reasonably practicable after we electronically file them
with, or furnish them to the SEC.
The
public may read and copy any materials filed by the Company with
the SEC at the SEC’s Public Reference Room at 100 F Street,
NE, Washington, DC 20549. The public may obtain information on the
operations of the Public Reference Room by calling the SEC at
1-800-SEC-0330. The SEC maintains an Internet site,
www.sec.gov
,
that contains reports, proxy and information statements and other
information regarding issuers that file electronically with the
SEC.
In
addition, information regarding the Company’s code of conduct
and ethics and the charters of its Audit, Compensation and
Nominating and Governance Committees, are available free of charge
on the Company’s website listed above.
Item 1A.
R
isk Factors
You should carefully consider the
risks described below. These risks are not the only risks that we
may face. Additional risks and uncertainties that we are unaware
of, or that we currently deem immaterial, also may become important
factors that affect us. If any of the following risks occur, our
business, financial condition or results of operations could be
materially and adversely affected which could cause our actual
operating results to differ materially from those indicated or
suggested by forward-looking statements made in this Annual Report
on Form 10-K or presented elsewhere by management from time to
time.
Risks Related to our Business and Industry
The effects of the COVID-19 pandemic have disrupted, and may
continue to significantly disrupt, our operations, including our
ability to manufacture and supply products and perform research and
development activities, and our customers’ usage of our
products, all of which have had and may continue to have a material
and adverse effect on our business, future revenues and financial
condition. We are unable to predict the extent to which the
pandemic and related impacts will continue to adversely impact our
business operations, financial performance, results of operations
and the achievement of our strategic objectives.
Our
business, results of operation and financial performance have been
negatively impacted by the COVID-19 pandemic and related public
health responses, such as shelter-in-place orders, social
distancing protocols, and travel restrictions in many of the
countries and regions in which we have operations or manufacturing
partners. Due to these impacts and measures, we have experienced
and may continue to experience significant and unpredictable
reductions in the demand for our products. In addition, our
customers may delay, cancel or redirect planned capital
expenditures in order to focus resources differently during or as a
result of the COVID-19 pandemic. The effects of this outbreak on
our business has included and could continue to include disruptions
or restrictions on our employees’ ability to travel in
affected regions, as well as temporary closures of the facilities
of our suppliers, customers, or other vendors in our
11
supply
chain, which could impact our business, interactions and
relationships with our customers, third-party suppliers and
contractors, and results of operations.
As
a result of the COVID-19 outbreak around the world, we implemented
certain travel restrictions, temporarily limited the number of
employees permitted onsite in our offices and implemented
work-from-home rules. This has caused disruption and delays in our
ability to operate and manufacture, test and assemble products in
our internal facilities, and has limited our ability to continue
certain research and development activities which could materially
and adversely affect our ability to develop or deliver products on
the timelines we previously anticipated.
The
COVID-19 pandemic has created economic uncertainty and volatility
in the financial markets around the world, resulting in economic
uncertainty that has affected and will likely continue to affect
demand for our products and impact our results of operations. As a
result, this may lead to periods of regional, national, and global
economic slowdown or regional, national, or global recessions that
would curtail or delay spending by semiconductor manufacturers and
contract assemblers and affect demand for our products as well as
increase the risk of customer defaults or delays in payments. Our
customers may delay or cancel orders for our products due to
bankruptcy, lack of liquidity, lack of funding, operational
failures, or other reasons. The ultimate impact of the COVID-19
pandemic on our operations and financial performance depends on
many factors that are not within our control, including, but not
limited, to: government’s, business’ and
individuals’ actions that have been and may continue to be
taken in response to the pandemic (including restrictions on travel
and transport and workforce pressures); the impact of the pandemic
and actions taken in response to global and regional economies,
travel, and economic activity; the availability of federal, state,
local or non-U.S. funding programs; general economic uncertainty in
key global markets and financial market volatility; global economic
conditions and levels of economic growth; and the pace of recovery
as the COVID-19 pandemic subsides. Although the magnitude of the
continuing impact of COVID-19 on our business operations remains
uncertain and difficult to predict, and this remains a highly
dynamic situation, we have experienced and will continue to
experience in subsequent periods, disruptions to our business that
will likely continue to impact our business, financial condition
and results of operations.
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 84%, 87%, and 80% of our net sales in
fiscal 2021, 2020 and 2019, respectively. During fiscal 2021,
Advanced Semiconductor Engineering, Inc., ON Semiconductor, Intel
and Inphi accounted for approximately 24%, 23%, 20% and 10%,
respectively, of the Company’s net sales. During fiscal 2020,
Intel, ON Semiconductor and STMicroelectronics, accounted for
approximately 43%, 16% and 15%, respectively, of the
Company’s net sales. During fiscal 2019, Intel, Texas
Instruments, Cypress Semiconductor and STMicroelectronics,
accounted for approximately 36%, 14%, 12% and 10%, respectively, of
the Company’s 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 our net sales for
the foreseeable future. In addition, sales to particular customers
may fluctuate significantly from quarter to quarter. The loss of,
or reduction or delay of, an order or orders from a significant
customer or customers, or a delay in collecting or failure to
collect accounts receivable from a significant customer or
customers, could adversely affect our business, financial condition
and operating results.
The semiconductor equipment industry is intensely competitive. In
each of the markets we serve, we face competition from established
competitors and potential new entrants, many of which have greater
financial, engineering, manufacturing and marketing resources than
us.
Our
FOX wafer-level and singulated die/module test and burn in systems
face competition from larger systems manufacturers that have
significant technological know-how and manufacturing capability.
Our ABTS 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
12
price
competition in the systems market, particularly with respect to its
less advanced products. Increased competitive pressure could also
lead to intensified price-based competition, resulting in lower
prices which could adversely affect our operating margins and
results. We believe that to remain competitive we must invest
significant financial resources in new product development and
expand our customer service and support worldwide. There can be no
assurance that we will be able to compete successfully in the
future.
We rely on increasing market acceptance for our FOX system, and we
may not be successful in attracting new customers or maintaining
our existing customers.
A
principal element of our business strategy is to increase our
presence in the test equipment market through system sales in our
FOX wafer-level and singulated die/module test and burn-in product
family. 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.
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 by our customers or other
delays in our shipments. 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.
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.
The Company is exposed to cybersecurity threats or
incidents.
We
collect, maintain, and transmit data on information systems. These
systems include those owned and maintained by the Company or by
third parties. In addition, we use cloud-based enterprise resource
planning, ERP, software to manage the business integrating all
facets of operations, including manufacturing, finance, and sales
and marketing. The data maintained on these systems includes
confidential and proprietary information belonging to us, our
customers, suppliers, and others. While the Company devotes
significant resources to protect its systems and data from
unauthorized access or misuse, we are exposed to cybersecurity
risks. Our systems are subject to computer viruses, data breach,
phishing schemes, and other malicious software programs or attacks.
We have experienced cyber threats and incidents in the past.
Although past threats and incidents have not resulted in a material
adverse effect, cybersecurity incidents may result in business
disruption, loss of data, or unauthorized access to intellectual
property which could adversely affect our business.
13
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.
A decrease in customer device failure rates may result in a
decrease in demand for our products.
Customer
tool utilization is driven by many factors including failure rates
of customer devices. Improvements in yield may result in customers
decreasing test and burn-in times, or electing to perform sampling
rather than 100% burn-in of their devices. Based upon data obtained
from our systems customers may revise internal manufacturing
processes to decrease failure rates. A decrease in customer tool
utilization may result in a decrease in demand for our products
impacting our business and results of operations.
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.
Operational and Other Risks
Supply chain issues, including a shortage of critical components or
contract manufacturing capacity, could result in a delay in
fulfillment of customer orders, or an increase in costs, resulting
in an adverse impact on our business and operating
results.
Our
sales growth depends on our ability to obtain timely deliveries of
parts from our suppliers and contract manufacturers. There is
currently a market shortage of semiconductor and other component
supply which has affected, and could further affect, lead times,
the cost of supply, and our ability to meet customer demand for our
products. While we have taken steps to obtain an assurance of
supply from our key suppliers, the market shortage of semiconductor
supply may impact our ability to meet customer order fulfillments,
or result in a significant increase in costs of our inventories.
Manufacturing issues or capacity problems experienced by our
suppliers or contract manufacturers could impact our ability to
secure sufficient supply of critical components. Due to the market
shortage of semiconductor supply, suppliers and contract
manufacturers may commit their capacity to others, limiting our
supplies or increasing costs. The failure to obtain timely delivery
of supplies, or a significant increase in costs, could result in a
material impact in our business and results from
operations.
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
68%, 39%, and 36% of our net sales for fiscal 2021, 2020 and 2019,
respectively, were attributable to sales to customers for delivery
outside of the United States. We operate sales and service in
Taiwan, a service
14
organization
in Germany and Philippines, as well as direct support through third
party agreements in China and South Korea. 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, the impact
of the COVID-19 pandemic on the global economy and financial
markets, 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.
Our
net sales for fiscal 2021 were primarily denominated in U.S.
Dollars. However, because a substantial portion of our net sales is
from sales of products for delivery outside the United States, an
increase in the value of the U.S. Dollar relative to foreign
currencies would increase the cost of our products compared to
products sold by local companies in such markets. In addition,
since the price is determined at the time a purchase order is
accepted, we are exposed to the risks of fluctuations in the U.S.
Dollar exchange rate during the lengthy period from the date a
purchase order is received until payment is made. This exchange
rate risk is partially offset to the extent our foreign operations
incur expenses in the local currency. To date, we have not invested
in any instruments designed to hedge currency risks. Our operating
results could be adversely affected by fluctuations in the value of
the U.S. Dollar relative to other currencies.
We purchase materials from suppliers worldwide, which subjects the
Company to increased risk.
We
purchase components, sub-assemblies, and chambers from suppliers
outside the United States. Increases in tariffs, additional taxes,
disruptions due to the COVID-19 pandemic or trade barriers may
result in an increase in our manufacturing costs. A decrease in the
value of the U.S. Dollar relative to foreign currencies would
increase the cost of our materials. Should the Company increase its
sales prices to recover the increase in costs, this could result in
a decrease in the competitiveness of our products. In addition, we
are subject to other risks associated with purchasing materials
from suppliers worldwide. Government authorities may also implement
protectionist policies or impose limitations on the transfer of
intellectual property. This may limit our ability to obtain
products from certain geographic regions and require us to identify
and qualify new suppliers. The process of qualifying suppliers
could be lengthy, and no assurance can be given that any additional
sources would be available to us on a timely basis. Changes in
trade relations, currency fluctuations, or protectionist policies
could have a material adverse effect on our business, financial
condition or results of operations.
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, DiePak carriers, WaferPak Aligners, and DiePak
Loaders contain several components, including environmental
chambers, power supplies, high-density interconnects, wafer
contactors, module contactors, signal distribution substrates, and
certain ICs that are currently supplied by only one or a limited
number of suppliers. Our reliance on subcontractors and single
source suppliers involves a number of significant risks, including
the loss of control over the manufacturing process, the potential
absence of adequate capacity and reduced control over delivery
schedules, manufacturing yields, quality and costs. In the event
that any significant subcontractor or single source supplier is
unable or unwilling to continue to manufacture subassemblies,
components or parts in required volumes, we would have to identify
and qualify acceptable replacements. The process of qualifying
subcontractors and suppliers could be lengthy, and no assurance can
be given that any additional sources would be available to us on a
timely basis. Any delay, interruption or termination of a supplier
relationship could adversely affect our ability to deliver
products, which would harm our operating
results.
Our
suppliers manufacture components, tooling, and provide engineering
services. During this process, our suppliers are allowed access to
our intellectual property. While we maintain patents to protect
from intellectual property infringement, there can be no assurance
that technological information gained in the manufacture of our
products will not be used to develop a new product, improve
processes or techniques which compete against our products.
Litigation may be necessary to enforce or determine the validity
and scope of our proprietary rights, and there can be no assurance
that our intellectual property rights, if challenged, will be
upheld as valid.
15
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.
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. In
fiscal 2019 and 2020, we implemented restructuring plans in order
to streamline our operations and better align our structure with
our objectives going forward. 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 2020, with the exception
of fiscal 2014 and 2018, 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.
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
16
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.
Risks Related to Ownership of our Common Stock
Our stock price may fluctuate.
The
price of our common stock has fluctuated in the past and may
fluctuate significantly in the future. We believe that factors such
as announcements of developments related to our business,
fluctuations in our operating results, general conditions in the
semiconductor and semiconductor equipment industries as well as the
worldwide economy, announcement of technological innovations, new
systems or product enhancements by us or our competitors,
fluctuations in the level of cooperative development funding,
acquisitions, changes in governmental regulations, developments in
patents or other intellectual property rights and changes in our
relationships with customers and suppliers could cause the price of
our common stock to fluctuate substantially. In addition, in recent
years the stock market in general, and the market for small
capitalization and high technology stocks in particular, have
experienced extreme price fluctuations which have often been
unrelated to the operating performance of the affected companies.
Such fluctuations could adversely affect the market price of our
common stock.
Risks Related to our Legal/Organizational Structure
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 are 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.
If we fail to maintain effective internal control over financial
reporting in the future, the accuracy and timing of our financial
reporting may be adversely affected.
We
are required to comply with Section 404 of the Sarbanes-Oxley Act
of 2002. The provisions of the act require, among other things,
that we maintain effective internal control over financial
reporting and disclosure controls and procedures. Preparing our
financial statements involves a number of complex processes, many
of which are done manually and are dependent upon individual data
input or review. These processes include, but are not limited to,
calculating revenue, deferred revenue and inventory costs. While we
continue to automate our processes and enhance our review and put
in place controls to reduce the likelihood for errors, we expect
that for the foreseeable future, many of our processes will remain
manually intensive and thus subject to human error.
Item 1B.
U
nresolved Staff
Comments
None.
17
The
Company’s principal administrative and production facilities
are located in Fremont, California, in a 51,289 square foot
building. The Company’s lease was renewed in February 2018
and expires in July 2023. The Company maintained a facility in
Japan located in a 418 square foot office in Tokyo under a lease
which expired in June 2020. The Company also maintained a 1,585
square foot warehouse in Yamanashi under a lease which expired in
June 2020. The Company substantially closed its subsidiary Aehr
Test Systems Japan K.K. in March 2020, completing the liquidation
of the legal entity in July 2020, see Note 17,
“Restructuring,” of the Notes to Consolidated Financial
Statements. The Company leases a 492 square foot sales and support
office in Utting, Germany. The lease, which began February 1, 1992
and expires on January 31, 2023, contains an automatic twelve
months renewal, at rates to be determined, if no notice is given
prior to six months from expiry. On November 18, 2020, the Company
established a wholly owned new subsidiary, Aehr Test Systems
Philippines Inc., which has been in full operation since March
2021. The Company leases a facility in Philippines located in
a 2,713 square foot building
in Clark Freeport Zone, Pampanga. The
lease, which began January 1, 2021 and expires on December 31,
2025, contains an option to renew for another three years at rates
stipulated in the contract, notice for renewal is given six months
from expiry. The Company periodically evaluates its global
operations and facilities to bring its capacity in line with demand
and to provide cost efficient services for its customers. In prior
years, through this process, the Company has moved from certain
facilities that exceeded the capacity required to satisfy its
needs. The Company believes that its existing facilities are
adequate to meet its current and reasonably foreseeable
requirements. The Company regularly evaluates its expected future
facilities requirements and believes that alternate facilities
would be available if needed.
Item 3.
L
egal Proceedings
None.
Item 4.
M
ine Safety
Disclosures
Not
Applicable
PART II
Item 5.
M
arket for Registrant’s
Common Equity, Related Stockholder Matters and Issuer Purchases
of
Equity
Securities
The
Company’s common stock is publicly traded on the NASDAQ
Capital Market under the symbol “AEHR”. The following
table sets forth, for the periods indicated, the high and low sale
prices for the common stock on such market. These quotations
represent prices between dealers and do not include retail markups,
markdowns or commissions and may not necessarily represent actual
transactions.
|
|
High
|
Low
|
|
Fiscal
2021:
|
|
|
|
First quarter ended August 31,
2020
|
$
2.49
|
$
1.63
|
|
Second quarter ended November 30,
2020
|
1.90
|
1.15
|
|
Third quarter ended February 28,
2021
|
3.60
|
1.56
|
|
Fourth quarter ended May 31,
2021
|
3.17
|
1.94
|
|
|
|
|
|
Fiscal
2020:
|
|
|
|
First quarter ended August 31,
2019
|
$
1.87
|
$
1.27
|
|
Second quarter ended November 30,
2019
|
2.33
|
1.28
|
|
Third quarter ended February 29,
2020
|
2.78
|
1.75
|
|
Fourth quarter ended May 31,
2020
|
2.24
|
1.10
|
At
August 3, 2021, the Company had 120 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, 2021.
18
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, 2021, 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,
2016, 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.
Item 6.
S
elected Consolidated
Financial Data
The
selected consolidated financial data set forth below should be read
in conjunction with “Management’s Discussion and
Analysis of Financial Condition and Results of Operations”
and the consolidated financial statements and related notes
included elsewhere in this Annual Report on Form 10-K. The selected
consolidated financial data in this section are not intended to
replace the consolidated financial statements and are qualified in
their entirety by the consolidated financial statements and related
notes thereto included elsewhere in this Annual Report on Form
10-K.
We
derived the statements of operations data for the fiscal years
ended May 31, 2021, 2020 and 2019 and the balance sheet data as of
May 31, 2021 and 2020 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 fiscal years ended May 31, 2018 and 2017 and the
balance sheet data as of May 31, 2019, 2018 and 2017 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.
19
|
|
Fiscal Year Ended May 31,
|
||||
|
|
2021
|
2020
|
2019
|
2018
|
2017
|
|
|
(In thousands, except per share data)
|
||||
|
CONSOLIDATED
STATEMENTS OF OPERATIONS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
16,600
|
$
22,291
|
$
21,056
|
$
29,555
|
$
18,898
|
|
Cost of sales
|
10,568
|
13,920
|
13,454
|
17,169
|
12,118
|
|
Gross profit
|
6,032
|
8,371
|
7,602
|
12,386
|
6,780
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
Selling, general and
administrative
|
6,562
|
7,530
|
7,724
|
7,290
|
7,052
|
|
Research
and development
|
3,652
|
3,386
|
4,153
|
4,181
|
4,657
|
|
Restructuring
|
--
|
220
|
725
|
--
|
--
|
|
|
|
|
|
|
|
|
Total operating
expenses
|
10,214
|
11,136
|
12,602
|
11,471
|
11,709
|
|
|
|
|
|
|
|
|
(Loss) income from operations
|
(4,182
)
|
(2,765
)
|
(5,000
)
|
915
|
(4,929
)
|
|
|
|
|
|
|
|
|
Interest (expense) income, net
|
(46
)
|
10
|
(252
)
|
(399
)
|
(678
)
|
|
Net
gain from dissolution of Aehr Test
Systems Japan
|
2,186
|
--
|
--
|
--
|
--
|
|
Other (expense) income, net
|
(162
)
|
(11
)
|
44
|
(61
)
|
(21
)
|
|
|
|
|
|
|
|
|
(Loss)
income before income tax
benefit (expense)
|
(2,204
)
|
(2,766
)
|
(5,208
)
|
455
|
(5,628
)
|
|
|
|
|
|
|
|
|
Income tax benefit (expense)
|
177
|
(36
)
|
(27
)
|
73
|
(25
)
|
|
Net (loss) income
|
(2,027
)
|
(2,802
)
|
(5,235
)
|
528
|
(5,653
)
|
|
Less:
Net income attributable to the noncontrolling
interest
|
--
|
--
|
--
|
--
|
--
|
|
|
|
|
|
|
|
|
Net
(loss) income attributable to Aehr
Test Systems common
shareholders
|
$
(2,027
)
|
$
(2,802
)
|
$
(5,235
)
|
$
528
|
$
(5,653
)
|
|
Net
(loss) income per share:
|
|
|
|
|
|
|
Basic
|
$
(0.09
)
|
$
(0.12
)
|
$
(0.23
)
|
$
0.02
|
$
(0.35
)
|
|
Diluted
|
$
(0.09
)
|
$
(0.12
)
|
$
(0.23
)
|
$
0.02
|
$
(0.35
)
|
|
|
|
|
|
|
|
|
Shares
used in per share calculations:
|
|
|
|
|
|
|
Basic
|
23,457
|
22,882
|
22,387
|
21,732
|
16,267
|
|
Diluted
|
23,457
|
22,882
|
22,387
|
22,782
|
16,267
|
|
|
May 31,
|
||||
|
|
2021
|
2020
|
2019
|
2018
|
2017
|
|
CONSOLIDATED
BALANCE SHEETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
4,582
|
$
5,433
|
$
5,428
|
$
16,848
|
$
17,803
|
|
Working capital
|
10,123
|
13,786
|
14,522
|
18,308
|
21,494
|
|
Total assets
|
21,665
|
20,574
|
21,307
|
30,955
|
30,892
|
|
|
|
|
|
|
|
|
Long-term obligations, less current portion
|
1,155
|
2,653
|
342
|
522
|
6,214
|
|
Total shareholders' equity
|
11,449
|
14,056
|
15,453
|
19,285
|
16,794
|
20
Item 7.
M
anagement’s Discussion
and Analysis of Financial Condition and Results of
Operations
The
following discussion and analysis of the financial condition and
results of operations should be read in conjunction with our
“Selected Consolidated Financial Data” and our
consolidated financial statements and related notes included
elsewhere in this Annual Report on Form 10-K.
COVID-19
PANDEMIC RESPONSE
The
Company has been impacted by the outbreak of the novel coronavirus,
known as COVID-19, which has spread throughout the world. Our
business’ top priority during the COVID-19 pandemic is
protecting the health and safety of our employees and their
families, customers and community. We introduced policies and
procedures to increase workplace flexibility such as working
remotely where possible to reduce the number of people who are on
campus each day. As a global supplier of Critical Infrastructure
Sectors, as defined by the Cybersecurity and Infrastructure
Security Agency, we have supported and continue to support
customers during the pandemic. In the interest of public health,
all onsite operations generally use the minimum number of people to
safely execute tasks and follow enhanced safety and health
protocols including screenings, social distancing, and use of
personal protective equipment.
Due
to the impact of the COVID-19 pandemic on customers and
customers’ customers, we experienced a significant drop in
customer orders and revenues in the fiscal year ended May 31, 2021
and the last quarter of fiscal year ended May 31, 2020. In
response, we have implemented cost reduction initiatives to
mitigate operating losses, including mandatory vacation days,
shutdown days, and executive staff pay reductions. On April 23,
2020, we received proceeds of $1,679,000 from a Paycheck Protection
Program Loan (the “PPP Loan”), under the CARES Act
which we used to retain employees, maintained payroll and made
lease and utility payments. The entire PPP Loan balance and
interest were forgiven on June 4, 2021, see Note 18,
“Subsequent Event” of the Notes to Consolidated
Financial Statements.
We
will continue to monitor the situation. As of the date of this
report, we cannot predict with certainty the potential effects the
COVID-19 pandemic may continue to have on our business and our
operating results. While the overall environment remains uncertain,
we continue to aggressively invest in priority areas with the
objective of driving profitable growth over the long
term.
OVERVIEW
We
were founded in 1977 to develop and manufacture burn-in and test
equipment for the semiconductor industry. Since our inception, we
have installed over 2,500 systems at semiconductor manufacturers,
semiconductor contract assemblers and burn-in and test service
companies worldwide. Our principal products currently are the
FOX-XP, FOX-NP, and FOX-CP wafer contact and singulated die/module
parallel test and burn-in systems, WaferPak Aligner, WaferPak
contactors, DiePak Loader, DiePak carriers and test
fixtures.
Our
net sales consist primarily of sales of systems, WaferPak Aligners
and DiePak Loaders, WaferPak contactors, DiePak carriers, test
fixtures, upgrades and spare parts, revenues from service
contracts, and engineering development charges. Our selling
arrangements may include contractual customer acceptance
provisions, which are mostly deemed perfunctory or inconsequential,
and installation of the product occurs after shipment and transfer
of title.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
Our
discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements,
which have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation
of these consolidated financial statements requires us to make
estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. On an ongoing basis, we evaluate
our estimates, including those related to customer programs and
incentives, product returns, bad debts, inventories, investments,
income taxes, financing operations, warranty obligations, and
long-term service contracts, among others. Our estimates are
derived from historical experience and on various other assumptions
that are believed to be reasonable under the circumstances. Those
results form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under
different assumptions or conditions.
We
believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our
consolidated financial statements.
21
REVENUE
RECOGNITION
The Company recognizes revenue when promised goods or services are
transferred to customers in an amount that reflects the
consideration to which the Company expects to be entitled in
exchange for those goods or services by following
a
five-step process: (1) identify the contract with a customer, (2)
identify the performance obligations in the contract, (3) determine
the transaction price, (4) allocate the transaction price, and (5)
recognize revenue when or as the Company satisfies a performance
obligation, as further described below.
Performance
obligations include sales of systems, contactors, spare parts, and
services, as well as installation and training services included in
customer contracts.
A
contract’s transaction price is allocated to each distinct
performance obligation. In determining the transaction price, the
Company evaluates whether the price is subject to refund or
adjustment to determine the net consideration to which the Company
expects to be entitled. The Company generally does not grant return
privileges, except for defective products during the warranty
period.
For
contracts that contain multiple performance obligations, the
Company allocates the transaction price to the performance
obligations on a relative standalone selling price basis.
Standalone selling prices are based on multiple factors including,
but not limited to, historical discounting trends for products and
services and pricing practices in different
geographies.
Revenue
for systems and spares are recognized at a point in time, which is
generally upon shipment or delivery. Revenue from services is
recognized over time as services are completed or ratably over the
contractual period of generally one year or less.
The
Company has elected the practical expedient to not assess whether a
contract has a significant financing component as the
Company’s standard payment terms are less than one
year.
We
sell our products primarily through a direct sales force. In
certain international markets, we sell our products through
independent distributors. We consider revenue to be earned when all
of the following criteria are met:
●
We have a contract with a customer that creates enforceable rights
and obligations,
●
Promised performance obligations are identified,
●
The transaction price, or the amount we expect to receive, is
determinable and
●
We have satisfied the performance obligations to the
customer.
Transfer
of control is evidenced upon passage of title and risk of loss to
the customer unless we are required to provide additional
services.
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.
INVENTORY
OBSOLESCENCE
In
each of the last three fiscal years, we wrote 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
22
upon assumptions about future demand and market conditions, see
Note 6, “Balance Sheet Detail.” If future market
conditions are less favorable than those projected by management,
additional inventory write-downs may be required.
INCOME
TAXES
Income
taxes are accounted for under the asset-and-liability method as
required by FASB ASC Topic 740, Income Taxes (“ASC
740”). Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and
tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period corresponding to the enactment date. Under ASC
740, a valuation allowance is required when it is more likely than
not all or some portion of the deferred tax assets will not be
realized through generating sufficient future taxable
income.
FASB
ASC Subtopic 740-10, Accounting for Uncertainty of Income Taxes,
(“ASC 740-10”) defines the criterion an individual tax
position must meet for any part of the benefit of the tax position
to be recognized in financial statements prepared in conformity
with GAAP. The Company may recognize the tax benefit from an
uncertain tax position only if it is more likely than not such tax
position will be sustained on examination by the taxing
authorities, based solely on the technical merits of the respective
tax position. The tax benefits recognized in the financial
statements from such a tax position should be measured based on the
largest benefit having a greater than 50% likelihood of being
realized upon ultimate settlement with the tax authority. In
accordance with the disclosure requirements of ASC 740-10, the
Company’s policy on income statement classification of
interest and penalties related to income tax obligations is to
include such items as part of income taxes.
STOCK-BASED
COMPENSATION EXPENSE
Stock-based
compensation expense consists of expenses for stock options,
restricted stock units, or RSUs, and employee stock purchase plan,
or ESPP, purchase rights. Stock-based compensation cost for stock
options and ESPP purchase rights is measured at each grant date,
based on the fair value of the award using the Black-Scholes option
valuation model, and is recognized as expense over the
employee’s requisite service period. This model was developed
for use in estimating the value of publicly traded options that
have no vesting restrictions and are fully transferable. Our
employee stock options have characteristics significantly different
from those of publicly traded options. For RSUs, stock-based
compensation cost is based on the fair value of our common stock at
the grant date, and is recognized as expense over the
employee’s requisite service period. 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 11 to our consolidated financial statements for detailed
information relating to stock-based compensation and the stock
option plan and the ESPP.
RESTRUCTURING
We record a charge for restructuring when management commits to a
restructuring plan, the restructuring plan identifies all
significant actions, the period of time to complete the
restructuring plan indicates that significant changes to the plan
are not likely, and individuals who are impacted have been notified
of the pending involuntary termination.
Restructuring
charges include severance payments, legal fees, and write-off of
assets. For employees that are not required to render
services beyond a minimum retention period, the severance expense
is recognized at the communication date based upon its fair
value. For employees who are required to render service until
they are terminated in order to receive the severance, the
severance costs are measured initially at the communication date
based upon its fair value, and recognized ratably over the future
service period.
There were no restructuring charges during fiscal year ended May
31, 2021. In the fiscal year ended May 31, 2020, we recognized
$220,000 in restructuring charges related to the dissolution of
Aehr Test Systems Japan K.K (“ATS-Japan”), a majority
owned subsidiary. The restructuring charges included
severance payments for individuals impacted in this reduction,
legal fees associated with the dissolution process, and write-off
of assets. Restructuring charges for the fiscal year ended
May 31, 2019 were related to a restructuring plan implemented in
order to streamline our operations and better align our structure
with our objectives going forward. We recognized $725,000 of
employee termination expenses for the fiscal year ended May 31,
2019.
23
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,
|
||
|
|
2021
|
2020
|
2019
|
|
|
|
|
|
|
Net sales
|
100.0
%
|
100.0
%
|
100.0
%
|
|
Cost of sales
|
63.7
|
62.4
|
63.9
|
|
Gross profit
|
36.3
|
37.6
|
36.1
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
Selling, general and
administrative
|
39.5
|
33.8
|
36.7
|
|
Research and
development
|
22.0
|
15.2
|
19.7
|
|
Restructuring
|
--
|
1.0
|
3.4
|
|
|
|
|
|
|
Total operating
expenses
|
61.5
|
50.0
|
59.8
|
|
|
|
|
|
|
Loss from operations
|
(25.2
)
|
(12.4
)
|
(23.7
)
|
|
|
|
|
|
|
Interest (expense) income, net
|
(0.3
)
|
--
|
(1.2
)
|
|
Net
gain from dissolution of Aehr Test Systems Japan
|
13.2
|
--
|
--
|
|
Other (expense) income, net
|
(1.0
)
|
--
|
0.2
|
|
|
|
|
|
|
Loss before income tax benefit
(expense)
|
(13.3
)
|
(12.4
)
|
(24.7
)
|
|
|
|
|
|
|
Income tax benefit (expense
)
|
1.1
|
(0.2
)
|
(0.2
)
|
|
|
|
|
|
|
Net loss
|
(12.2
)
|
(12.6
)
|
(24.9
)
|
|
Less:
Net income attributable to the noncontrolling
interest
|
--
|
--
|
--
|
|
Net
loss attributable to Aehr Test Systems
common shareholders
|
(12.2
)%
|
(12.6
)%
|
(24.9
)%
|
FISCAL
YEAR ENDED MAY 31, 2021 COMPARED TO FISCAL YEAR ENDED MAY 31,
2020
NET
SALES. Net sales decreased to $16.6 million for the fiscal year
ended May 31, 2021 from $22.3 million for the fiscal year ended May
31, 2020, a decrease of 25.5%. The decrease in net sales for the
fiscal year ended May 31, 2021 was impacted by the continued
challenging global business environment created by the COVID-19
pandemic which resulted in the decrease in net sales of both our
wafer-level products and Test During Burn-in (TDBI) products. Net
sales of our wafer-level products for fiscal 2021 were $15.0
million, and decreased approximately $4.8 million from fiscal 2020.
Net sales of our TDBI products for fiscal 2021 were $1.6 million,
and decreased approximately $928,000 from fiscal 2020.
GROSS
PROFIT. Gross profit decreased to $6.0 million for the fiscal year
ended May 31, 2021 from $8.4 million for the fiscal year ended May
31, 2020, a decrease of 27.9%. Gross profit margin decreased to
36.3% for the fiscal year ended May 31, 2021 from 37.6% for the
fiscal year ended May 31, 2020. The decrease in gross profit margin
was primarily due to manufacturing inefficiencies due to a lower
level of net sales and increased warranty provision
related to a voluntary
replacement of a component to improve long term reliability of our
systems, partially offset by a lower level of inventory reserves
recorded.
SELLING,
GENERAL AND ADMINISTRATIVE. SG&A expenses were $6.6 million for
the fiscal year ended May 31, 2021, compared with $7.5 million for
the fiscal year ended May 31, 2020, a decrease of 12.9%. The
decrease in SG&A expenses was primarily due to decreases in
employment related expenses as a result of cost reduction
initiatives implemented in fiscal 2021.
RESEARCH AND
DEVELOPMENT. R&D expenses were $3.7 million for the fiscal year
ended May 31, 2021, compared with $3.4 million for the fiscal year
ended May 31, 2020, an increase of 7.9%. The increase in R&D
expenses was primarily due to increases in project expenses of
$169,000 and employment related expenses of
$104,000.
24
RESTRUCTURING.
There were no restructuring charges for the fiscal year ended May
31, 2021. Restructuring charges for the fiscal year ended May 31,
2020 were related to the dissolution of Aehr Test Systems Japan K.K
(ATS-Japan), a majority owned subsidiary. In connection with the
dissolution plan, the Company recognized approximately $220,000
related to severance payments for individuals impacted in this
reduction and legal fees associated with the dissolution process in
the fourth quarter of fiscal 2020.
INTEREST
(EXPENSE) INCOME, NET. Interest expense, net was $46,000 for the
fiscal year ended May 31, 2021 compared with interest income, net
which was $10,000 for the fiscal year ended May 31, 2020. The
interest expense for the fiscal year ended May 31, 2021 was from
the PPP Loan that we obtained on April 23, 2020.
NET
GAIN FROM DISSOLUTION OF AEHR TEST SYSTEMS JAPAN. Net gain from
dissolution of Aehr Test Systems Japan was $2.2 million for the
fiscal year ended May 31, 2021, due to the release of the
cumulative translation adjustment in connection with the complete
liquidation of Aehr Test Systems Japan subsidiary in July
2020.
OTHER
(EXPENSE) INCOME, NET. Other expense, net was $162,000 and $11,000
for the fiscal year ended May 31, 2021 and 2020, respectively. The
change in other expense, net was primarily due to losses realized
in connection with the fluctuation in the value of the dollar
compared to foreign currencies during the referenced
periods.
INCOME
TAX BENEFIT (EXPENSE). Income tax benefit for the fiscal year ended
May 31, 2021 was $177,000 compared with income tax expense of
$36,000 for the fiscal year ended May 31, 2020.
During the fiscal year
ended May 31, 2021, the currency translation adjustment balance was
released and the residual income tax effect of $215,000 was
recorded pursuant to the inter-period allocation rules in
connection with the complete liquidation of Aehr Test Systems Japan
subsidiary in July 2020.
FISCAL
YEAR ENDED MAY 31, 2020 COMPARED TO FISCAL YEAR ENDED MAY 31,
2019
NET
SALES. Net sales increased to $22.3 million for the fiscal year
ended May 31, 2020 from $21.1 million for the fiscal year ended May
31, 2019, an increase of 5.9%. The increase in net sales in fiscal
2020 resulted primarily from the increase in net sales of our
wafer-level products, partially offset by the decrease in net sales
of our TDBI products. Net sales of our wafer-level products for
fiscal 2020 were $19.8 million, and increased approximately $5.2
million from fiscal 2019. Net sales of our TDBI products for fiscal
2020 were $2.5 million, and decreased approximately $3.9 million
from fiscal 2019.
GROSS
PROFIT. Gross profit increased to $8.4 million for the fiscal year
ended May 31, 2020 from $7.6 million for the fiscal year ended May
31, 2019, an increase of 10.1%. Gross profit margin increased to
37.6% for the fiscal year ended May 31, 2020 from 36.1% for the
fiscal year ended May 31, 2019. The increase in gross profit margin
was primarily the result of change in product mix in net sales
which wafer-level products revenues, contributing higher margins,
accounted for 89% of revenues in fiscal year ended May 31, 2020
compared to 69% of revenues in fiscal year ended May 31, 2019. The
increase was partially offset by the impact of excess and obsolete
charges mainly related to ABTS products reaching the end of product
life.
SELLING,
GENERAL AND ADMINISTRATIVE. SG&A expenses were $7.5 million for
the fiscal year ended May 31, 2020, compared with $7.7 million for
the fiscal year ended May 31, 2019, a decrease of 2.5%. The
decrease in SG&A expenses was primarily due to decreases in
employment related expenses as a result of cost reduction
initiatives implemented in fiscal 2019.
RESEARCH
AND DEVELOPMENT. R&D expenses were $3.4 million for the fiscal
year ended May 31, 2020, compared with $4.2 million for the fiscal
year ended May 31, 2019, a decrease of 18.5%. The decrease in
R&D expenses was primarily due to decreases in employment
related expenses of $500,000 and project expenses of
$267,000.
RESTRUCTURING.
Restructuring charges for the fiscal year ended May 31, 2020 were
related to the dissolution of Aehr Test Systems Japan K.K
(ATS-Japan), a majority owned subsidiary. In connection with the
dissolution plan, the Company recognized approximately $220,000
related to severance payments for individuals impacted in this
reduction and legal fees associated with the dissolution process in
the fourth quarter of fiscal 2020. Restructuring charges for the
fiscal year ended May 31, 2019 were related to a restructuring plan
implemented in February 2019 in order to streamline our operations
and better align our structure with our objectives going forward.
We recognized $725,000 of employee termination expenses for the
fiscal year ended May 31, 2019.
INTEREST INCOME (EXPENSE), NET. Interest income,
net was $10,000 for the fiscal year ended May 31, 2020 compared
with interest expense, net of $252,000 for the fiscal year ended
May 31, 2019. The decrease in interest expense, net was primarily
due to the repayment of convertible notes which matured on April
10, 2019, partially offset by a decrease in interest income due to
a decrease in our investment
portfolio.
25
OTHER
(EXPENSE) INCOME, NET. Other expense, net was $11,000 for the
fiscal year ended May 31, 2020 compared with other income, net of
$44,000 for the fiscal year ended May 31, 2019.
The change in other
(expense) income, net 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) BENEFIT. Income tax expense was $36,000 and $27,000
for the fiscal year ended May 31, 2020 and 2019,
respectively.
LIQUIDITY
AND CAPITAL RESOURCES
We
consider cash and cash equivalents as liquid and available for use.
As of May 31, 2021 and 2020, respectively, we had $4.6 million and
$5.4 million in cash and cash equivalents.
Net
cash used in operating activities was $2.7 million and $2.0 million
for the fiscal years ended May 31, 2021 and 2020, respectively. For
the fiscal year ended May 31, 2021, net cash used in operating
activities was primarily the result of the net loss of $2.0
million, as adjusted to exclude the effect of net gain from
dissolution of Aehr Test Systems Japan of $2.4 million, including
an income tax benefit of $215,000, a non-cash charge for
stock-based compensation expense of $1.1 million and depreciation
and amortization of $310,000. Net cash used in operations was also
impacted by increases in accounts receivable and inventories of
$1.4 million and $972,000, respectively, partially offset by
increases in accounts payable and accrued expenses of $1.9 million
and $732,000, respectively. The increase in accounts receivable was
primarily due to higher shipment activities toward the end of
fiscal year ended May 31, 2021. The increase in inventory was to
support expected future shipments for customer orders. The increase
in accounts payable was primarily due to inventory purchases to
support future shipments. The increase in accrued expenses was
primarily due to increases in warranty provision and accrued
employment related expenses. For the fiscal year ended May 31,
2020, net cash used in operating activities was primarily the
result of the net loss of $2.8 million, as adjusted to exclude the
effect of non-cash charges of stock-based compensation expense of
$910,000 and depreciation and amortization of $384,000. Net cash
used in operations was also impacted by decreases in customer
deposits and deferred revenue of $1.5 million and in accounts
payable of $1.0 million, partially offset by decreases in
inventories and accounts receivable of $1.2 million each. The
decrease in customer deposits and deferred revenue was primarily
due to the decrease in backlog of customer orders with down
payments. The decrease in accounts payable was primarily due to a
reduction in inventory purchases. The decrease in inventories was
primarily due to the increase in inventory reserves related to
older products. The decrease in accounts receivable was primarily
due to lower shipment activities toward the end of the fiscal year
ended May 31, 2020.
Net
cash used in investing activities was $227,000 and $163,000 for the
fiscal years ended May 31, 2021 and 2020, respectively. Net cash
used in investing activities for the fiscal years ended May 31,
2021 and 2020 was due to the purchases of property and
equipment.
Net
cash provided by financing activities was $2.0 million and $2.2
million for the fiscal year ended May 31, 2021 and 2020,
respectively. Net cash provided by financing activities during the
fiscal year ended May 31, 2021 was due to $1.4 million borrowing
from our line of credit and $560,000 in proceeds from the issuance
of common stock under employee plans. Net cash provided by
financing activities during the fiscal year ended May 31, 2020 was
due to the proceeds of $1.7 million from the PPP Loan, and the net
proceeds from issuance of common stock under employee plans of
$493,000.
The
effect of fluctuation in exchange rates increased cash by $117,000
and $20,000 for the fiscal year ended May 31, 2021 and 2020,
respectively. The changes were due to the fluctuation in the value
of the dollar compared to foreign currencies.
As
of May 31, 2021 and 2020, we had working capital of $10.1 million
and $13.8 million, respectively.
For
the fiscal year ended May 31, 2019, net cash used in operating
activities was primarily the result of the net loss of $5.2
million, as adjusted to exclude the effect of non-cash charges of
stock-based compensation expense of $905,000 and depreciation and
amortization of $431,000, an increase in accounts receivable of
$2.0 million, and a decrease in customer deposits and deferred
revenue of $355,000, partially offset by an increase in accrued
expenses of $402,000. The increase in accounts receivable was
primarily due to large shipments toward the end of fiscal 2019. The
decrease in customer deposits and deferred revenue was primarily
due to the decrease in backlog of customer orders with down
payments. The
increase in accrued expenses was primarily due to severance
expenses accrued as a result of our restructuring plan implemented
in February 2019.
Net cash used in investing activities was
$173,000 for the fiscal year ended May 31, 2019 was due to the
purchase of property and equipment.
26
Net
cash used in financing activities of $5.6 million for the fiscal
year ended May 31, 2019 was primarily due to the repayment of
certain convertible notes in the aggregate amount of $6.1 million
on the maturity date of April 10, 2019, partially offset by
proceeds from issuance of common stock under employee plans of
$559,000.
The
effect of fluctuation in exchange rates decreased cash by $59,000
for the fiscal year ended May 31, 2019 due to the fluctuation in
the value of the dollar compared to foreign
currencies.
As
of May 31, 2019, we had working capital of $14.5
million.
We
lease our manufacturing and office space under operating leases. We
entered into a non-cancelable operating lease agreement for our
United States manufacturing and office facilities, which was
renewed in February 2018 and expires in July 2023. Under that 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.
Since
inception, we have incurred substantial cumulative losses and
negative cash flows from operations. In response, we took steps to
minimize expense levels, entered into credit arrangements, and
raised capital through public and private equity offerings, to
increase the likelihood that we will have sufficient cash to
support operations. We anticipate that the existing cash balance
together with future income from operations, collections of
existing accounts receivable, revenue from our existing backlog of
products as of this filing date, the sale of inventory on hand,
deposits and down payments against significant orders will be
adequate to meet our working capital and capital equipment
requirement needs over the next 12 months. Our future capital
requirements will depend on many factors, including our growth
rate, the timing and extent of our spending to support research and
development activities, the timing and cost of establishing
additional sales and marketing capabilities, the timing and cost to
introduce new and enhanced products and the timing and cost to
implement new manufacturing technologies. In the event that
additional financing is required from outside sources, we may not
be able to raise it on terms acceptable to us or at all. Any
additional debt financing obtained by us in the future could also
involve restrictive covenants relating to our capital-raising
activities and other financial and operational matters, which may
make it more difficult for us to obtain additional capital and to
pursue business opportunities, including potential acquisitions.
Additionally, if we raise additional funds through further
issuances of equity, convertible debt securities or other
securities convertible into equity, our existing stockholders could
suffer significant dilution in their percentage ownership of the
Company, and any new equity securities we issue could have rights,
preferences and privileges senior to those of holders of our common
stock. If we are unable to obtain adequate financing or financing
on terms satisfactory to us when we require it, our ability to
continue to grow or support our business and to respond to business
challenges could be significantly limited.
OFF-BALANCE
SHEET FINANCING
We
have not entered into any off-balance sheet financing arrangements
and have not established any special purpose or variable interest
entities.
OVERVIEW
OF CONTRACTUAL OBLIGATIONS
The
following table provides a summary of such arrangements, or
contractual obligations.
|
|
Payments Due by Period (in thousands)
|
||||
|
|
|
Less than
|
1 - 3
|
3 - 5
|
More than
|
|
|
Total
|
1 year
|
years
|
years
|
5 years
|
|
Lease obligations
|
$
1,861
|
$
813
|
$
997
|
$
51
|
$
--
|
|
Line of credit
|
1,400
|
1,400
|
--
|
--
|
--
|
|
Current portion of long-term
debt
|
1,679
|
1,679
|
--
|
--
|
--
|
|
Interest on long-term debt (1)
|
16
|
16
|
--
|
--
|
--
|
|
Purchases (2)
|
3,377
|
3,377
|
--
|
--
|
--
|
|
Total
|
$
8,333
|
$
7,285
|
$
997
|
$
51
|
$
--
|
(1)
Based on 1% interest rate of PPP Loan. See Note 10,
“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.
27
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.
Item 7A.
Q
uantitative and Qualitative
Disclosures about Market Risk
We
had no holdings of derivative financial or commodity instruments at
May 31, 2021.
We
are exposed to financial market risks, including changes in
interest rates and foreign currency exchange rates. We only invest
our short-term excess cash in government-backed securities with
maturities of 18 months or less. We do not use any financial
instruments for speculative or trading purposes. Fluctuations in
interest rates would not have a material effect on our financial
position, results of operations or cash flows.
A
majority of our revenue and capital spending is transacted in U.S.
Dollars. We also enter into transactions in other currencies,
primarily Euros, New Taiwan Dollar, and Philippine Peso. 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.
28
Item 8.
F
inancial Statements and
Supplementary Data
INDEX
|
Consolidated
Financial Statements of Aehr Test Systems
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
30
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Balance Sheets at May 31, 2021 and 2020
|
32
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Statements of Operations for the years ended May 31, 2021, 2020 and
2019
|
33
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Statements of Comprehensive Loss for the years ended May 31, 2021,
2020 and 2019
|
34
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Statements of Shareholders' Equity for the years ended May 31,
2021, 2020 and 2019
|
35
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Statements of Cash Flows for the years ended May 31, 2021, 2020 and
2019
|
36
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
to Consolidated Financial Statements
|
37
|
||||||||||
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.
29
Report Of Independent Registered Public Accounting
Firm
To the Stockholders and Board of Directors of
Aehr Test Systems
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of
Aehr Test Systems and its subsidiaries (the “Company”)
as of May 31, 2021 and 2020, the related consolidated statements of
operations, comprehensive loss, shareholders’ equity, and
cash flows for each of the three years in the period ended May 31,
2021, and the related notes (collectively referred to as the
“consolidated financial statements”). In our opinion,
the consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of May
31, 2021 and 2020, and the results of its operations and its cash
flows for each of the three years in the period ended May 31, 2021,
in conformity with accounting principles generally accepted in the
United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of
the Company’s management. Our responsibility is to express an
opinion on the Company’s consolidated financial statements
based on our audits. We are a public accounting firm registered
with the Public Company Accounting Oversight Board (United States)
(“PCAOB”) and are required to be independent with
respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement, whether due
to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting. As part of our audits, we are required to obtain an
understanding of internal control over financial reporting but not
for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of
material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included
evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation
of the consolidated financial statements. We believe that our
audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising
from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to
the audit committee and that: (1) relates to accounts or
disclosures that are material to the consolidated financial
statements and (2) involved our especially challenging, subjective,
or complex judgments. The communication of the critical audit
matter does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by
communicating the critical audit matter below, providing separate
opinions on the critical audit matter or on the accounts or
disclosures to which it relates.
Inventory Valuation – Adjustments for Excess or Obsolete
Inventory
As described in Note 1 to the consolidated financial statements,
the Company’s consolidated inventories balance was $8.8
million as of May 31, 2021. The Company’s inventory is stated
at the lower of cost, which is determined on a standard cost basis
on a first-in, first-out method, or net realizable value. The
Company evaluates the net realizable value by considering
obsolescence, excessive levels of inventory, deterioration and
other factors. Adjustments to reduce the cost of inventory to its
net realizable value, if required, are made for estimated excess,
obsolescence or impaired inventory. If actual demand were to be
substantially lower than
30
estimated, there could be a significant adverse impact on the
carrying value of the inventory and results of
operations.
The principal considerations for our determination that performing
procedures relating to adjustments for excess or obsolete inventory
is a critical audit matter are the significant amount of judgement
by management in developing the assumptions of the forecasted
product demand, which in turn led to significant auditor judgement,
subjectivity, and effort in performing audit procedures and
evaluating audit evidence relating to the forecasted product
demand. Additionally, for certain new sales channels there may be
limited historical data with which to evaluate
forecasts.
Addressing the matter involved performing procedures and evaluating
audit evidence in connection with forming our overall opinion on
the consolidated financial statements. These procedures included,
among others, testing management’s process for developing the
estimate of the adjustments for excess or obsolete inventory,
testing the completeness and accuracy of the underlying data used
in the estimate, and evaluating management’s assumptions of
forecasted product demand. Evaluating management’s demand
forecast for reasonableness involved considering historical sales
of its products, comparing prior period estimates to actual results
of the same period, and determining whether the demand forecast
used was consistent with evidence obtained in other areas of the
audit.
/s/ BPM LLP
We have served as the Company’s auditor since
2005.
San Jose, California
August 27, 2021
31
AEHR TEST SYSTEMS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
|
|
May
31,
|
|
|
|
2021
|
2020
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
Cash and cash
equivalents
|
$
4,582
|
$
5,433
|
|
Accounts receivable,
net
|
5,202
|
3,717
|
|
Inventories
|
8,849
|
7,989
|
|
Prepaid expenses and
other
|
551
|
512
|
|
|
|
|
|
Total current
assets
|
19,184
|
17,651
|
|
|
|
|
|
Property and equipment, net
|
677
|
663
|
|
Operating lease right-of-use
assets
|
1,606
|
2,107
|
|
Other assets
|
198
|
153
|
|
|
|
|
|
Total
assets
|
$
21,665
|
$
20,574
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
Accounts payable
|
$
2,893
|
$
945
|
|
Accrued expenses
|
2,163
|
1,439
|
|
Operating lease liabilities,
short-term
|
737
|
658
|
|
Customer deposits and deferred
revenue, short
-term
|
189
|
170
|
|
Line of credit
|
1,400
|
--
|
|
Current portion of long-term
debt
|
1,679
|
653
|
|
|
|
|
|
Total current
liabilities
|
9,061
|
3,865
|
|
|
|
|
|
Operating lease liabilities,
long-term
|
1,007
|
1,605
|
|
Long-term debt, net of current portion
|
--
|
1,026
|
|
Deferred revenue,
long-term
|
99
|
22
|
|
Other long-term liabilities
|
49
|
--
|
|
|
|
|
|
Total
liabilities
|
10,216
|
6,518
|
|
|
|
|
|
Commitments
and contingencies (Note 20)
|
|
|
|
|
|
|
|
Aehr
Test Systems shareholders' equity:
|
|
|
|
|
|
|
|
Preferred
stock, $0.01 par value: Authorized: 10,000 shares;
Issued and outstanding: none
|
--
|
--
|
|
Common
stock, $0.01 par value: Authorized: 75,000 shares;
Issued
and outstanding: 23,725 shares and 23,107
shares at May 31, 2021 and 2020
respectively
|
237
|
231
|
|
Additional paid-in capital
|
87,553
|
85,898
|
|
Accumulated other comprehensive
income
|
(28
)
|
2,234
|
|
Accumulated
deficit
|
(76,313
)
|
(74,286
)
|
|
Total Aehr Test Systems
shareholders' equity
|
11,449
|
14,077
|
|
Noncontrolling interest
|
--
|
(21
)
|
|
Total shareholders'
equity
|
11,449
|
14,056
|
|
Total liabilities
and shareholders' equity
|
$
21,665
|
$
20,574
|
The
accompanying notes are an integral part of these consolidated
financial statements.
32
AEHR TEST SYSTEMS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
|
|
Year Ended May 31,
|
||
|
|
2021
|
2020
|
2019
|
|
|
|
|
|
|
Net sales
|
$
16,600
|
$
22,291
|
$
21,056
|
|
Cost of sales
|
10,568
|
13,920
|
13,454
|
|
Gross profit
|
6,032
|
8,371
|
7,602
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
Selling, general and
administrative
|
6,562
|
7,530
|
7,724
|
|
Research and development
|
3,652
|
3,386
|
4,153
|
|
Restructuring
|
--
|
220
|
725
|
|
|
|
|
|
|
Total operating
expenses
|
10,214
|
11,136
|
12,602
|
|
|
|
|
|
|
Loss from operations
|
(4,182
)
|
(2,765
)
|
(5,000
)
|
|
|
|
|
|
|
Interest (expense) income, net
|
(46
)
|
10
|
(252
)
|
|
Net gain from dissolution of Aehr Test Systems
Japan
|
2,186
|
--
|
--
|
|
Other (expense) income, net
|
(162
)
|
(11
)
|
44
|
|
|
|
|
|
|
Loss before income tax benefit
(expense)
|
(2,204
)
|
(2,766
)
|
(5,208
)
|
|
|
|
|
|
|
Income tax benefit (expense)
|
177
|
(36
)
|
(27
)
|
|
Net loss
|
(2,027
)
|
(2,802
)
|
(5,235
)
|
|
Less:
Net income attributable
to the noncontrolling interest
|
--
|
--
|
--
|
|
|
|
|
|
|
Net
loss attributable to Aehr Test Systems
common shareholders
|
$
(2,027
)
|
$
(2,802
)
|
$
(5,235
)
|
|
|
|
|
|
|
Net loss per share – basic and
diluted
|
$
(0.09
)
|
$
(0.12
)
|
$
(0.23
)
|
|
Shares used in per share calculation –
basic
|
23,457
|
22,882
|
22,387
|
|
Shares used in per share calculation –
diluted
|
23,457
|
22,882
|
22,387
|
The
accompanying notes are an integral part of these consolidated
financial statements.
33
AEHR TEST SYSTEMS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(IN THOUSANDS)
|
|
Year Ended May 31,
|
||
|
|
2021
|
2020
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
$
(2,027
)
|
$
(2,802
)
|
$
(5,235
)
|
|
|
|
|
|
|
Other comprehensive
income (loss), net of tax:
Foreign
currency translation income (loss)
|
160
|
2
|
(61
)
|
|
Reclassification
of cumulative translation adjustment as a result of dissolution of
Aehr Test Systems Japan
|
(2,401
)
|
--
|
--
|
|
|
|
|
|
|
Total comprehensive
loss
|
(4,268
)
|
(2,800
)
|
(5,296
)
|
|
Less: Comprehensive
income (loss) attributable to noncontrolling interest
|
21
|
(2
)
|
1
|
|
|
|
|
|
|
Comprehensive
loss
, attributable to Aehr Test
Systems
|
$
(4,289
)
|
$
(2,798
)
|
$
(5,297
)
|
The
accompanying notes are an integral part of these consolidated
financial statements.
34
AEHR TEST SYSTEMS
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
Total Aehr
|
|
|
|
|
|
|
|
Accumulated
|
|
Test
|
|
|
|
|
|
|
Additional
|
Other
|
|
Systems
|
|
Total
|
|
|
|
Common Stock
|
Paid-in
|
Comprehensive
|
Accumulated
|
Shareholders’
|
Noncontrolling
|
Shareholders'
|
|
|
|
Shares
|
Amount
|
Capital
|
Income
|
Deficit
|
Equity
|
Interest
|
Equity
|
|
Balances, May
31, 2018
|
22,143
|
$
221
|
$
83,041
|
$
2,292
|
$
(66,249
)
|
$
19,305
|
$
(20
)
|
$
19,285
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of
common stoc
k under employee plans
|
526
|
6
|
553
|
--
|
--
|
559
|
--
|
559
|
|
Stock-based
compensation
|
--
|
--
|
905
|
--
|
--
|
905
|
--
|
905
|
|
Net
loss
|
--
|
--
|
--
|
--
|
(5,235
)
|
(5,235
)
|
--
|
(5,235
)
|
|
Foreign
currency translation adjustment
|
--
|
--
|
--
|
(62
)
|
--
|
(62
)
|
1
|
(61
)
|
|
|
|
|
|
|
|
|
|
|
|
Balances, May
31, 2019
|
22,669
|
227
|
84,499
|
2,230
|
(71,484
)
|
15,472
|
(19
)
|
15,453
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of
common stock under employee plans
|
444
|
4
|
499
|
--
|
--
|
503
|
--
|
503
|
|
Shares
repurchased for tax withholdings on vesting of
RSUs
|
(6
)
|
--
|
(10
)
|
--
|
--
|
(10
)
|
--
|
(10
)
|
|
Stock-based
compensation
|
--
|
--
|
910
|
--
|
--
|
910
|
--
|
910
|
|
Net
loss
|
--
|
--
|
--
|
--
|
(2,802
)
|
(2,802
)
|
--
|
(2,802
)
|
|
Foreign
currency translation adjustment
|
--
|
--
|
--
|
4
|
--
|
4
|
(2
)
|
2
|
|
|
|
|
|
|
|
|
|
|
|
Balances, May
31, 2020
|
23,107
|
231
|
85,898
|
2,234
|
(74,286
)
|
14,077
|
(21
)
|
14,056
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of
common stock under employee plans
|
627
|
6
|
574
|
--
|
--
|
580
|
--
|
580
|
|
Shares
repurchased for tax withholdings on vesting of
RSUs
|
(9
)
|
--
|
(20
)
|
--
|
--
|
(20
)
|
--
|
(20
)
|
|
Stock-based
compensation
|
--
|
--
|
1,101
|
--
|
--
|
1,101
|
--
|
1,101
|
|
Net loss
|
--
|
--
|
--
|
--
|
(2,027
)
|
(2,027
)
|
--
|
(2,027
)
|
|
Reclassification
of cumulative translation adjustment
|
--
|
--
|
--
|
(2,401
)
|
--
|
(2,401
)
|
--
|
(2,401
)
|
|
Foreign
currency translation adjustment
|
--
|
--
|
--
|
139
|
--
|
139
|
21
|
160
|
|
|
|
|
|
|
|
|
|
|
|
Balances, May
31, 2021
|
23,725
|
$
237
|
$
87,553
|
$
(28
)
|
$
(76,313
)
|
$
11,449
|
--
|
$
11,449
|
The
accompanying notes are an integral part of these consolidated
financial statements.
35
AEHR TEST SYSTEMS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
|
|
Year Ended May 31,
|
||
|
|
2021
|
2020
|
2019
|
|
Cash
flows from operating activities:
|
|
|
|
|
Net loss
|
$
(2,027
)
|
$
(2,802
)
|
$
(5,235
)
|
|
Adjustments to reconcile net loss to net cash used
in
operating
activities:
|
|
|
|
|
Stock-based compensation
expense
|
1,101
|
910
|
905
|
|
Recovery of doubtful
accounts
|
--
|
--
|
(3
)
|
|
Depreciation and
amortization
|
310
|
384
|
431
|
|
Loss on disposal of
assets
|
--
|
45
|
--
|
|
Net gain from dissolution
of Aehr Test Systems Japan
|
(2,186
)
|
--
|
--
|
|
Income
tax benefit related to dissolution of
Aehr Test Systems Japan
|
(215
)
|
--
|
--
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
Accounts
receivable
|
(1,373
)
|
1,161
|
(2,043
)
|
|
Inventories
|
(972
)
|
1,164
|
(112
)
|
|
Prepaid
expenses and other
|
(81
)
|
271
|
84
|
|
Accounts
payable
|
1,877
|
(1,024
)
|
210
|
|
Accrued
expenses
|
732
|
(589
)
|
402
|
|
Customer
deposits and deferred revenue
|
96
|
(1,542
)
|
(355
)
|
|
Deferred
rent
|
--
|
--
|
90
|
|
Other
long-term liabilities
|
47
|
--
|
--
|
|
Income taxes
payable
|
(10
)
|
(2
)
|
(11
)
|
|
Net
cash used in operating activities
|
(2,701
)
|
(2,024
)
|
(5,637
)
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
Purchases of property and
equipment
|
(227
)
|
(163
)
|
(173
)
|
|
Net
cash used in investing activities
|
(227
)
|
(163
)
|
(173
)
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
Repayment of convertible
notes
|
--
|
--
|
(6,110
)
|
|
Proceeds from long-term
debt
|
--
|
1,679
|
--
|
|
Line of credit borrowings,
net
|
1,400
|
--
|
--
|
|
Proceeds from issuance of common
stock
under employee plans
|
580
|
503
|
559
|
|
Shares repurchased for tax withholdings on
vesting
of restricted stock units
|
(20
)
|
(10
)
|
--
|
|
Net
cash provided by (used in) financing activities
|
1,960
|
2,172
|
(5,551
)
|
|
|
|
|
|
|
Effect of exchange rates on cash, cash equivalents
and
restricted cash
|
117
|
20
|
(59
)
|
|
|
|
|
|
|
Net (decrease)
increase in cash, cash equivalents
and
restricted cash
|
(851
)
|
5
|
(11,420
)
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash,
beginning of year
|
5,513
|
5,508
|
16,928
|
|
Cash, cash equivalents and restricted cash, end of
year
|
$
4,662
|
$
5,513
|
$
5,508
|
|
|
|
|
|
|
Supplemental
cash flow information:
|
|
|
|
|
Cash
paid during the year for:
|
|
|
|
|
Income
taxes
|
$
15
|
$
42
|
$
37
|
|
Interest
|
$
6
|
$
--
|
$
610
|
|
|
|
|
|
|
Supplemental
disclosure of non-cash flow information:
|
|
|
|
|
Net
transfer of equipment between inventory
and property and equipment
|
$
113
|
$
112
|
$
119
|
The
accompanying notes are an integral part of these consolidated
financial statements.
36
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 FOX-XP,
FOX-NP, and FOX-CP wafer contact parallel test and burn-in systems,
the WaferPak full wafer contactor, the DiePak carrier, the WaferPak
aligner, the DiePak autoloader, 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.
At
May 31, 2021, the Company had $4.6 million in cash and cash
equivalents. The Company anticipates that the existing cash and
cash equivalents balance together with income from operations,
collections of existing accounts receivable, revenue from its
existing backlog of products, the sale of inventory on hand,
deposits and down payments against significant orders will be
adequate to meet its working capital and capital equipment
requirements, and its anticipated cash needs over the next 12
months. The Company’s future capital requirements will depend
on many factors, including the Company’s growth rate, the
timing and extent of its spending to support research and
development activities, the timing and cost of establishing
additional sales and marketing capabilities, the timing and cost to
introduce new and enhanced products and the timing and cost to
implement new manufacturing technologies. In the event that
additional financing is required from outside sources, the Company
may not be able to raise it on terms acceptable to the Company or
at all. Any additional debt financing obtained by the Company in
the future could also involve restrictive covenants relating to the
Company’s capital-raising activities and other financial and
operational matters, which may make it more difficult for the
Company to obtain additional capital and to pursue business
opportunities, including potential acquisitions. Additionally, if
the Company raises additional funds through further issuances of
equity, convertible debt securities or other securities convertible
into equity, its existing stockholders could suffer significant
dilution in their percentage ownership of the Company, and any new
equity securities the Company issue could have rights, preferences
and privileges senior to those of holders of the Company’s
common stock. If the Company is unable to obtain adequate financing
or financing on terms satisfactory to the Company when the Company
requires it, the Company’s ability to continue to grow or
support its business and to respond to business challenges could be
significantly limited. On April 23, 2020, we received proceeds of
$1,679,000 from a Paycheck Protection Program Loan (the “PPP
Loan”), under the CARES Act which we used to retain
employees, maintained payroll and made lease and utility payments.
The entire PPP Loan balance and interest were forgiven on June 4,
2021, see Note 18, “Subsequent Event” of the Notes to
Consolidated Financial Statements.
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 Euros, Philippines Peso 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.
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,
“Other (Expense) Income, Net” 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
37
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 net realizable value, and warranty reserves.
CASH
EQUIVALENTS:
Cash
equivalents consist of money market instruments purchased with an
original maturity of three months or less. These investments are
reported at fair value.
ACCOUNTS
RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Accounts
receivable are derived from the sale of products throughout the
world to semiconductor manufacturers, semiconductor contract
assemblers, electronics manufacturers and burn-in and test service
companies. Accounts receivable are recorded at the invoiced amount
and are not interest bearing. The Company maintains an allowance
for doubtful accounts to reserve for potentially uncollectible
trade receivables. The Company also reviews its trade 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 fiscal years ended May 31, 2021, 2020 or
2019.
CONCENTRATION
OF CREDIT RISK:
The
Company sells its products primarily to semiconductor manufacturers
in North America, Asia, and Europe. As of May 31, 2021,
approximately 2%, 98% and 0% of gross accounts receivable were from
customers located in North America, Asia and Europe, respectively.
As of May 31, 2020, approximately 13%, 62% and 25% of gross
accounts receivable were from customers located in North America,
Asia and Europe, respectively. Three customers accounted for 51%,
24% and 19% of gross accounts receivable as of May 31, 2021. Two
customers accounted for 45% and 18% of gross accounts receivable as
of May 31, 2020. Four customers accounted for 24%, 23%, 20% and 10%
of net sales in fiscal 2021. Three customers accounted for 43%, 16%
and 15% of net sales in fiscal 2020. 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,
Philippines, Germany and Taiwan. The Company invests its excess
cash in money market funds and U.S. Treasury securities. The money
market funds bear the risk associated with each fund. The money
market funds have variable interest rates. The Company has not
experienced any material losses on its money market funds or
short-term cash deposits.
CONCENTRATION
OF SUPPLY RISK:
The
Company relies on subcontractors to manufacture many of the
components and subassemblies used in its products. Quality or
performance failures of the Company’s products or changes in
its manufacturers’ financial or business condition could
disrupt the Company’s ability to supply quality products to
its customers and thereby have a material and adverse effect on its
business and operating results. Some of the components and
technologies used in the Company’s products are purchased and
licensed from a single source or a limited number of sources. The
loss of any of these suppliers may cause the Company to incur
additional transition costs, result in delays in the manufacturing
and delivery of its products, or cause it to carry excess or
obsolete inventory and could cause it to redesign its
products.
INVENTORIES:
Inventories
include material, labor and overhead, and are stated at the lower
of cost (first-in, first-out method) or net realizable value. Net
realizable value is the estimated selling prices in the ordinary
course of business, less costs of completion, disposal and
transportation. Provisions for excess, obsolete and unusable
inventories are made after management’s evaluation of future
demand and market conditions. The Company adjusts inventory
balances to approximate the lower of its manufacturing costs or net
realizable value. If actual future demand or market conditions
become less favorable than those projected by management,
additional inventory write-downs may be required, and would be
reflected in cost of sales in the period the revision is made.
During fiscal 2021, 2020 and 2019 the Company recognized a
provision for inventory reserves of $176,000, $1,669,000, and
$1,168,000, respectively.
38
PROPERTY
AND EQUIPMENT:
Property
and equipment are stated at cost less accumulated depreciation and
amortization. Major improvements are capitalized, while repairs and
maintenance are expensed as incurred. Leasehold improvements are
amortized over the lesser of their estimated useful lives or the
term of the related lease. Furniture and fixtures, machinery and
equipment, and test equipment are depreciated on a straight-line
basis over their estimated useful lives. The ranges of estimated
useful lives are generally as follows:
Furniture
and fixtures
. . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . .
2 to 6 years
Machinery
and equipment
. . . .
. . . . . . . . . . . . . . . . . . . . . . . . .
3 to 6
years
Test
equipment
. . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . .
. . . .
.
.
4 to 6
years
REVENUE
RECOGNITION:
The
Company recognizes revenue when promised goods or services are
transferred to customers in an amount that reflects the
consideration to which the Company expects to be entitled in
exchange for those goods or services by following a five-step
process: (1) identify the contract with a customer, (2) identify
the performance obligations in the contract, (3) determine the
transaction price, (4) allocate the transaction price, and (5)
recognize revenue when or as the Company satisfies a performance
obligation, as further described below.
Performance
obligations include sales of systems, contactors, spare parts, and
services, as well as installation and training services included in
customer contracts.
A
contract’s transaction price is allocated to each distinct
performance obligation. In determining the transaction price, the
Company evaluates whether the price is subject to refund or
adjustment to determine the net consideration to which the Company
expects to be entitled. The Company generally does not grant return
privileges, except for defective products during the warranty
period.
For
contracts that contain multiple performance obligations, the
Company allocates the transaction price to the performance
obligations on a relative standalone selling price basis.
Standalone selling prices are based on multiple factors including,
but not limited to, historical discounting trends for products and
services and pricing practices in different
geographies.
Revenue
for systems and spares are recognized at a point in time, which is
generally upon shipment or delivery. Revenue from services is
recognized over time as services are completed or ratably over the
contractual period of generally one year or less.
The
Company has elected the practical expedient to not assess whether a
contract has a significant financing component as the
Company’s standard payment terms are less than one
year.
We
sell our products primarily through a direct sales force. In
certain international markets, we sell our products through
independent distributors. We consider revenue to be earned when all
of the following criteria are met:
●
We have a contract with a customer that creates enforceable rights
and obligations,
●
Promised performance obligations are identified,
●
The transaction price, or the amount we expect to receive, is
determinable and
●
We have satisfied the performance obligations to the
customer.
Transfer
of control is evidenced upon passage of title and risk of loss to
the customer unless we are required to provide additional
services.
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 2021,
2020 and 2019.
39
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 are accounted for under the asset-and-liability method as
required by FASB ASC Topic 740, Income Taxes (“ASC
740”). Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and
tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period corresponding to the enactment date. Under ASC
740, a valuation allowance is required when it is more likely than
not all or some portion of the deferred tax assets will not be
realized through generating sufficient future taxable
income.
FASB
ASC Subtopic 740-10, Accounting for Uncertainty of Income Taxes,
(“ASC 740-10”) defines the criterion an individual tax
position must meet for any part of the benefit of the tax position
to be recognized in financial statements prepared in conformity
with GAAP. The Company may recognize the tax benefit from an
uncertain tax position only if it is more likely than not such tax
position will be sustained on examination by the taxing
authorities, based solely on the technical merits of the respective
tax position. The tax benefits recognized in the financial
statements from such a tax position should be measured based on the
largest benefit having a greater than 50% likelihood of being
realized upon ultimate settlement with the tax authority. In
accordance with the disclosure requirements of ASC 740-10, the
Company’s policy on income statement classification of
interest and penalties related to income tax obligations is to
include such items as part of income taxes.
COMPREHENSIVE
LOSS:
Comprehensive
loss generally represents all changes in shareholders’ equity
except those resulting from investments or contributions by
shareholders. Unrealized gains and losses on foreign currency
translation adjustments are included in the Company’s
components of comprehensive loss, which are excluded from net loss.
In fiscal 2021 the Company recognized comprehensive income of
$2,401,000 related to the completed liquidation of ATS-Japan, a
majority owned subsidiary. Refer to Note 16, “Dissolution of
Aehr Test Systems Japan,” for a further discussion of the
transaction. Comprehensive loss is included in the statements of
comprehensive loss.
RECENT
ACCOUNTING PRONOUNCEMENTS:
Accounting
Standards Not Yet Adopted
Financial
Instruments
In
June 2016, the FASB issued an accounting standard update
(“ASU”) 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 collectability of the
reported amount. Due to a subsequent ASU in November 2019, the
accounting standard will be effective for the Company beginning in
the first quarter of fiscal 2024 on a modified retrospective basis,
and early adoption in fiscal 2020 is permitted. The Company does
not expect a material impact of this accounting standard on its
consolidated financial statements.
Income Taxes
On
December 18, 2019, the FASB issued Accounting Standards Update ASU
2019-12 on Simplifying the Accounting for Income Taxes. The board
decided to remove the exception to the incremental approach for
intra-period tax allocation when there is a loss from continuing
operations and income or gain from other items (for example
discontinued operations or other comprehensive income). There are
also provisions related to state taxes and calculating
40
income
taxes in an interim period when a year-to-date loss exceeds the
anticipated loss for the year. The new guidance is effective for
fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2020. The Company has not yet
adopted ASU 2019-12 and believes upon adoption there would be no
material impact.
2. REVENUE:
Disaggregation of revenue
The
following tables show revenues by major product categories. Within
each product category, contract terms, conditions and economic
factors affecting the nature, amount, timing and uncertainty around
revenue recognition and cash flow are substantially
similar.
The
Company’s revenues by product category are as follows (in
thousands):
|
|
Year Ended May 31,
|
||
|
|
2021
|
2020
|
2019
|
|
Type
of good / service:
|
|
|
|
|
Systems
|
$
7,250
|
$
8,099
|
$
9,566
|
|
Contactors
|
5,837
|
10,784
|
6,154
|
|
Services
|
3,513
|
3,408
|
5,336
|
|
|
$
16,600
|
$
22,291
|
$
21,056
|
|
Product
lines:
|
|
|
|
|
Wafer-level
|
$
15,004
|
$
19,768
|
$
14,618
|
|
Test During Burn-In
|
1,596
|
2,523
|
6,438
|
|
|
$
16,600
|
$
22,291
|
$
21,056
|
The
following presents information about the Company’s operations
in different geographic areas. Net sales are based upon ship-to
location (in thousands):
|
|
Year Ended May 31,
|
||
|
|
2021
|
2020
|
2019
|
|
Geographic
region:
|
|
|
|
|
United States
|
$
5,386
|
$
13,544
|
$
13,468
|
|
Asia
|
11,074
|
7,556
|
5,648
|
|
Europe
|
140
|
1,191
|
1,940
|
|
|
$
16,600
|
$
22,291
|
$
21,056
|
With
the exception of the amount of service contracts and extended
warranties, the Company’s product category revenues are
recognized at point in time when control transfers to customers.
The following presents revenue based on timing of recognition (in
thousands):
|
|
Year Ended May 31,
|
||
|
|
2021
|
2020
|
2019
|
|
Timing
of revenue recognition (in thousands):
|
|
|
|
|
Products
and services transferred at
a point in time
|
$
15,009
|
$
19,948
|
$
18,473
|
|
Services transferred over time
|
1,591
|
2,343
|
2,583
|
|
|
$
16,600
|
$
22,291
|
$
21,056
|
Contract balances
A
receivable is recognized in the period the Company delivers goods
or provides services or when the Company’s right to
consideration is unconditional. The Company usually does not record
contract assets because the Company has an unconditional right to
payment upon satisfaction of the performance obligation, and
therefore, a receivable is more commonly recorded than a contract
asset.
41
Contract
liabilities include payments received in advance of performance
under a contract and are satisfied as the associated revenue is
recognized. Contract liabilities are reported on the consolidated
balance sheets at the end of each reporting period as a component
of deferred revenue. Contract liabilities as of May 31, 2021 and
2020 were $288,000 and $192,000, respectively. During the fiscal
years ended May 31, 2021 and 2020, the Company recognized $164,000
and $1,545,000 of revenues that were included in contract
liabilities as of May 31, 2020 and 2019, respectively.
Remaining performance obligations
On
May 31, 2021, the Company had $194,000 of remaining performance
obligations, which were comprised of deferred service contracts and
extended warranty contracts not yet delivered. The Company expects
to recognize approximately 49% of its remaining performance
obligations as revenue in fiscal 2022, and an additional 51% in
fiscal 2023 and thereafter. The foregoing excludes the value of
other remaining performance obligations as they have original
durations of one year or less, and also excludes information about
variable consideration allocated entirely to a wholly unsatisfied
performance obligation.
Costs to obtain or fulfill a contract
The
Company generally expenses sales commissions when incurred as a
component of selling, general and administrative expense as the
amortization period is typically less than one year. Additionally,
the majority of the Company’s cost of fulfillment as a
manufacturer of products is classified as inventory and fixed
assets, which are accounted for under the respective guidance for
those asset types. Other costs of contract fulfillment are
immaterial due to the nature of the Company’s products and
their respective manufacturing process.
3. EARNINGS PER SHARE (“EPS”):
Basic
EPS is determined using the weighted average number of common
shares outstanding during the period. Diluted EPS is determined
using the weighted average number of common shares and potential
common shares (representing the dilutive effect of stock options,
RSUs and ESPP shares) outstanding during the period using the
treasury stock method.
The
following table presents the computation of basic and diluted net
loss per share attributable to Aehr Test Systems common
shareholders (in thousands, except per share data):
|
|
Year Ended May 31,
|
||
|
|
2021
|
2020
|
2019
|
|
Numerator: Net loss
|
$
(2,027
)
|
$
(2,802
)
|
$
(5,235
)
|
|
|
|
|
|
|
Denominator
for basic net loss per share:
|
|
|
|
|
Weighted average shares
outstanding
|
23,457
|
22,882
|
22,387
|
|
|
|
|
|
|
Shares used in basic net loss per share
calculation
|
23,457
|
22,882
|
22,387
|
|
|
|
|
|
|
Effect of dilutive securities
|
--
|
--
|
--
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted net loss per
share
|
23,457
|
22,882
|
22,387
|
|
|
|
|
|
|
Basic net loss per share
|
$
(0.09
)
|
$
(0.12
)
|
$
(0.23
)
|
|
|
|
|
|
|
Diluted net loss per share
|
$
(0.09
)
|
$
(0.12
)
|
$
(0.23
)
|
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 years ended May 31, 2021,
2020 and 2019, 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 2,766,000,
3,153,000 and 3,107,000 shares of common stock were outstanding on
May 31, 2021, 2020 and 2019, respectively, but were not included in
the computation of diluted net loss per share, because the
inclusion of such shares would be anti-dilutive. ESPP rights to
purchase 239,000, 192,000 and 297,000 ESPP shares were outstanding
on May 31, 2021, 2020 and 2019, 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 132,000
shares,
10,000 shares and 23,000 shares were outstanding on May 31, 2021,
2020 and 2019, respectively, but were not included in the
computation of diluted net loss per share, because the inclusion of
such shares would be anti-dilutive.
42
4. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The
Company’s financial instruments are measured at fair value
consistent with authoritative guidance. This authoritative guidance
defines fair value, establishes a framework for using fair value to
measure assets and liabilities, and disclosures required related to
fair value measurements.
The
guidance establishes a fair value hierarchy based on inputs to
valuation techniques that are used to measure fair value that are
either observable or unobservable. Observable inputs reflect
assumptions market participants would use in pricing an asset or
liability based on market data obtained from independent sources
while unobservable inputs reflect a reporting entity’s
pricing based upon their own market assumptions. The fair value
hierarchy consists of the following three levels:
Level 1
- instrument valuations are obtained from real-time quotes for
transactions in active exchange markets involving identical
assets.
Level 2
- instrument valuations are obtained from readily-available pricing
sources for comparable instruments.
Level 3
- instrument valuations are obtained without observable market
values and require a high level of judgment to determine the fair
value.
The
following table summarizes the Company’s financial assets
measured at fair value on a recurring basis as of May 31, 2021 (in
thousands):
|
|
Balance as of
|
|
|
|
|
|
May 31, 2021
|
Level 1
|
Level 2
|
Level 3
|
|
Money market funds
|
$
580
|
$
580
|
$
--
|
$
--
|
|
Assets
|
$
580
|
$
580
|
$
--
|
$
--
|
The
following table summarizes the Company’s financial assets
measured at fair value on a recurring basis as of May 31, 2020 (in
thousands):
|
|
Balance as of
|
|
|
|
|
|
May 31, 2020
|
Level 1
|
Level 2
|
Level 3
|
|
Money market funds
|
$
80
|
$
80
|
$
--
|
$
--
|
|
Assets
|
$
80
|
$
80
|
$
--
|
$
--
|
Included
in money market funds as of May 31, 2021 and 2020 is $80,000 of
restricted cash representing a security deposit for the
Company’s United States manufacturing and office space
lease.
There
were no financial liabilities measured at fair value as of May 31,
2021 and 2020.
There
were no transfers between Level 1 and Level 2 fair value
measurements during the fiscal years ended May 31, 2021 and
2020.
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.
5. ACCOUNTS RECEIVABLE:
Accounts
receivable comprise (in thousands):
|
|
May 31,
|
|
|
|
2021
|
2020
|
|
Accounts receivable
|
$
5,202
|
$
3,717
|
|
Less: Allowance for doubtful
accounts
|
--
|
--
|
|
|
$
5,202
|
$
3,717
|
Accounts
receivable represent customer trade receivables. As of May 31, 2021
and 2020, there were no allowances for doubtful
accounts.
43
6. BALANCE SHEET DETAIL:
INVENTORIES:
|
|
May 31,
|
|
|
(In
Thousands)
|
2021
|
2020
|
|
Raw materials and
sub-assemblies
|
$
5,859
|
$
5,055
|
|
Work in process
|
2,988
|
2,917
|
|
Finished goods
|
2
|
17
|
|
|
$
8,849
|
$
7,989
|
During the year ended May 31, 2021,
2020, and 2019, the Company wrote down $176,000, $1,669,000, and
$1,168,000 of inventory, respectively.
PROPERTY AND EQUIPMENT, NET:
|
|
May
31,
|
|
|
(In
Thousands)
|
2021
|
2020
|
|
Leasehold improvements
|
$
1,214
|
$
1,201
|
|
Furniture and fixtures
|
627
|
612
|
|
Machinery and equipment
|
3,343
|
3,038
|
|
Test equipment
|
2,525
|
2,516
|
|
|
7,709
|
7,367
|
|
Less:
Accumulated depreciation
and amortization
|
(7,032
)
|
(6,704
)
|
|
|
$
677
|
$
663
|
Depreciation expense was $310,000,
$384,000 and $431,000 for fiscal 2021, 2020, and 2019,
respectively.
ACCRUED EXPENSES:
|
|
May 31,
|
|
|
(In
Thousands)
|
2021
|
2020
|
|
Payroll related
|
$
1,020
|
$
791
|
|
Warranty
|
494
|
246
|
|
Commissions and bonuses
|
413
|
139
|
|
Professional services
|
168
|
173
|
|
Investor relations
|
22
|
19
|
|
Accrued interest
|
16
|
--
|
|
Taxes payable
|
5
|
30
|
|
Restructuring
|
--
|
8
|
|
Other
|
25
|
33
|
|
|
$
2,163
|
$
1,439
|
CUSTOMER
DEPOSITS AND DEFERRED REVENUE, SHORT-TERM:
|
|
May 31,
|
|
|
(In
Thousands)
|
2021
|
2020
|
|
Customer deposits
|
$
27
|
$
--
|
|
Deferred revenue
|
162
|
170
|
|
|
$
189
|
$
170
|
7. INCOME TAXES:
Domestic
and foreign components of loss before income tax benefit (expense)
are as follows (in thousands):
|
|
Year Ended May 31,
|
||
|
|
2021
|
2020
|
2019
|
|
Domestic
|
$
(13,064
)
|
$
(2,751
)
|
$
(5,273
)
|
|
Foreign
|
10,860
|
(15
)
|
65
|
|
|
$
(2,204
)
|
$
(2,766
)
|
$
(5,208
)
|
44
The
income tax benefit (expense) consists of the following (in
thousands):
|
|
Year Ended May 31,
|
||
|
|
2021
|
2020
|
2019
|
|
Federal
income taxes:
|
|
|
|
|
Current
|
$
163
|
$
--
|
$
--
|
|
Deferred
|
--
|
--
|
--
|
|
State
income taxes:
|
|
|
|
|
Current
|
13
|
(30
)
|
(6
)
|
|
Deferred
|
--
|
--
|
--
|
|
Foreign
income taxes:
|
|
|
|
|
Current
|
1
|
(6
)
|
(21
)
|
|
Deferred
|
--
|
--
|
--
|
|
|
$
177
|
$
(36
)
|
$
(27
)
|
The
Company’s effective tax rate differs from the U.S. federal
statutory tax rate, as follows:
|
|
Year Ended May 31,
|
||
|
|
2021
|
2020
|
2019
|
|
U.S. federal statutory tax rate
|
21.0
%
|
21.0
%
|
21.0
%
|
|
State taxes, net of federal tax
effect
|
0.6
|
1.4
|
(1.0
)
|
|
Foreign rate differential
|
9.8
|
(21.5
)
|
(0.7
)
|
|
Stock-based compensation
|
(4.7
)
|
(4.0
)
|
(2.8
)
|
|
Research and development credit
|
4.0
|
--
|
1.5
|
|
Change in valuation allowance
|
(32.1
)
|
4.3
|
(15.6
)
|
|
Federal rate change impact
|
--
|
--
|
--
|
|
Federal AMT refund
|
--
|
--
|
--
|
|
ASU 2016-09 adoption
|
--
|
--
|
--
|
|
Controlled
Foreign Corporation Liquidation
|
9.8
|
--
|
--
|
|
Other
|
(0.4
)
|
(2.5
)
|
(2.9
)
|
|
Effective tax rate
|
8.0
%
|
(1.3
)%
|
(0.5
)%
|
The
components of the net deferred tax assets and liabilities are as
follows (in thousands):
|
|
Year Ended May 31,
|
|
|
|
2021
|
2020
|
|
|
|
|
|
Deferred
tax assets:
|
|
|
|
Net operating losses
|
$
15,584
|
$
13,634
|
|
Lease Liability
|
372
|
483
|
|
Credit carryforwards
|
5,298
|
5,089
|
|
Inventory reserves
|
1,006
|
1,005
|
|
Reserves and accruals
|
890
|
739
|
|
Other
|
450
|
319
|
|
|
23,600
|
21,269
|
|
|
|
|
|
Deferred
tax liabilities:
|
|
|
|
Operating lease right-of-use
assets
|
(342
)
|
(449
)
|
|
Less: Valuation allowance
|
(23,258
)
|
(20,820
)
|
|
Net deferred tax assets
(liabilities)
|
$
--
|
$
--
|
The
valuation allowance increased by $2,438,000 during fiscal 2021,
decreased by $118,000 during fiscal 2020, and increased by $813,000
during fiscal 2019. As of May 31, 2021 and 2020, 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, 2021 and 2020, the Company has
federal net operating loss carryforwards of approximately
$64,298,000 and $54,601,000 respectively, to reduce future taxable
income. A portion of the federal net operating losses will begin to
expire in 2024. Federal net operating losses of $13,383,000 will
carryforward indefinitely and would be subject to
an
45
80%
taxable income limitation in the year utilized. At May 31, 2021 and
2020, the Company has state net operating loss carryforwards of
$29,812,000 and $29,386,000, respectively, to reduce future taxable
income. The state net operating loss carryforwards will begin to
expire in 2028.
At
May 31, 2021 and 2020, the Company has federal research and
development credit carryforwards of approximately $2,201,000 and
$2,113,000 respectively, to offset future tax liability. The
federal credit carryforwards will begin to expire in 2022. At May
31, 2021 and 2020, The Company has state research and development
credit carryforwards of approximately $5,955,000 and $5,782,000
respectively, to offset future tax liability. The credit
carryforwards are not subject to expiration. The Company also has
alternative minimum tax credit carryforwards of $34,000 for state
purposes. The credits may be used to offset regular tax and do not
expire.
ATS
Japan was completely liquidated in July 2020. Thus, there is no
more foreign net operating loss carryforward related to the Japan
entity to the future.
Internal
Revenue Code of 1986, as amended (“IRC”) Section 382
(“§382”) limits the use of NOL and tax credit
carryforwards in certain situations where changes occur in the
stock ownership of a company. In general, if we experience a
greater than 50% aggregate change in ownership over a 3-year
period, we are subject to an annual limitation under IRC §382
on the utilization of the Company’s pre-change NOL
carryforwards. California and other states have similar laws. The
annual limitation generally is determined by multiplying the value
of the Company’s stock at the time of such ownership change
(subject to certain adjustments) by the applicable long-term exempt
rate. Such limitations may result in expiration of a portion of the
NOL carryforwards before utilization.
The
Company has made no provision for U.S. income taxes on
undistributed earnings of certain foreign subsidiaries because it
is the Company’s intention to permanently reinvest such
earnings in its foreign subsidiaries. If such earnings were
distributed, the Company would be subject to additional U.S. income
tax expense.
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,
2018
|
$
1,785
|
|
|
|
|
Decreases related to prior year tax
positions
|
(41
)
|
|
Increases related to current year tax
positions
|
65
|
|
|
|
|
Balance at May 31, 2019
|
$
1,809
|
|
|
|
|
Decreases related to prior year tax
positions
|
(11
)
|
|
Increases related to current year tax
positions
|
54
|
|
|
|
|
Balance at May 31, 2020
|
$
1,852
|
|
|
|
|
Increases related to prior year tax
positions
|
11
|
|
Increases related to current year tax
positions
|
65
|
|
|
|
|
Balance at May 31, 2021
|
$
1,928
|
As
of May 31, 2021 and 2020, the Company has not recorded interest and
penalties associated with its unrecognized tax benefits. The
Company’s unrecognized gross tax benefits would not reduce
the annual effective tax rate if recognized because it has recorded
a full valuation allowance on its deferred tax assets. The Company
does not foresee any material changes to the gross unrecognized tax
benefit within the next twelve months. The Company’s policy
is to recognize interest and penalties in income tax
expense.
The
Company’s federal and state income tax returns are subject to
possible examination by the taxing authorities until the expiration
of the related statutes of limitations on those tax returns. In
general, the federal income tax returns have a three-year statute
of limitations, and the state income tax returns have a four-year
statute of limitations. The Company’s foreign income tax
returns are also subject to examination by the foreign tax
authorities with the longest statute of limitations period of
four-year.
On March 27, 2020, the CARES Act was signed into
law. The CARES Act includes provisions relating to refundable
payroll tax credits, deferment of the employer portion of certain
payroll taxes, net operating loss carryback
periods,
46
alternative
minimum tax credit refunds, modifications to the net interest
deduction limitations and technical corrections to tax depreciation
methods for qualified improvement property. The CARES Act did not
have material impact to income taxes as the Company is in a
historical loss position.
On
December 27, 2020, the Consolidated Apportions Act of 2021
(“CCA”), a tax, funding and spending bill was signed
into law and the Company does not believe the CAA will materially
impact the 2021 income tax provision.
On
June 29, 2020, California Governor Gavin Newsom signed Assembly
Bill 85 (“AB 85”) into law as part of the California
2020 Budget Act, which temporarily suspends the use of California
net operating losses and imposes a cap on the amount of business
incentive tax credits that companies can utilize against their net
income for tax years 2020, 2021, and 2022. We analyzed the
provisions of AB 85 and determined there was no impact on our
provision for income taxes for the current period and will continue
to evaluate the impact, if any, AB 85 may have on our condensed
consolidated financial statements and disclosures.
8. LEASES
The
Company leases most of its manufacturing and office space under
operating leases. The Company entered into non-cancelable operating
lease agreements for its United States manufacturing and office
facilities and maintains equipment under non-cancelable operating
leases in Germany. The Company’s principal administrative and
production facilities are located in Fremont, California, in a
51,289 square foot building. The Company’s lease was renewed
in February 2018 and expires in July 2023. The Company maintained a
facility in Japan located in a 418 square foot office in Tokyo
under a lease which expired in June 2020. The Company also
maintained a 1,585 square foot warehouse in Yamanashi under a lease
which expired in June 2020. The Company substantially closed its
subsidiary Aehr Test Systems Japan K.K. in March 2020, completing
the liquidation of the legal entity in July 2020, see Note 17,
“Restructuring,” of the Notes to Consolidated Financial
Statements. The Company leases a 492 square foot sales and support
office in Utting, Germany. The lease, which began February 1, 1992
and expires on January 31, 2023, contains an automatic twelve
months renewal, at rates to be determined, if no notice is given
prior to six months from expiry. On November 18, 2020, the Company
established a wholly owned new subsidiary, Aehr Test Systems
Philippines Inc., which has been in full operation since March
2021. The Company leases a facility in Philippines located in
a 2,713 square foot building
in Clark Freeport Zone, Pampanga. The
lease, which began January 1, 2021 and expires on December 31,
2025, contains an option to renew for another three years at rates
stipulated in the contract, notice for renewal is given 6 months
from expiry. Under the lease agreements, the Company is responsible
for payments of utilities, taxes and insurance.
The
Company has only operating leases for real estate including
corporate offices, warehouse space and certain equipment. A lease
with an initial term of 12 months or less is generally not recorded
on the condensed consolidated balance sheet, unless the arrangement
includes an option to purchase the underlying asset, or renew the
arrangement that the Company is reasonably certain to exercise
(short-term leases). The Company recognizes lease expense on a
straight-line basis over the lease term for short-term leases that
the Company does not record on its balance sheet. The
Company’s operating leases have remaining lease terms of 1
year to 5 years.
The
Company determines whether an arrangement is or contains a lease
based on the unique facts and circumstances present at the
inception of the arrangement. Operating lease liabilities and their
corresponding right-of-use assets are recorded based on the present
value of lease payments over the expected lease term. The interest
rate implicit in lease contracts is typically not readily
determinable. As such, the Company utilizes the appropriate
incremental borrowing rate, which is the rate incurred to borrow on
a collateralized basis over a similar term at an amount equal to
the lease payments in a similar economic environment. Certain
adjustments to the right-of-use asset may be required for items
such as initial direct costs paid or incentives
received.
The
weighted average remaining lease term for the Company’s
operating leases was 2.4 years at May 31, 2021 and the weighted
average discount rate was 5.4%.
The
Company’s operating lease cost under FASB ASC Topic
842 was $761,000 for the year ended May 31, 2021. The
Company’s operating lease cost under FASB ASC Topic
842 was $734,000 for the year ended May 31,
2020.
The
following table presents supplemental cash flow information related
to the Company’s operating leases (in
thousands):
47
|
|
Year Ended May 31,
|
|
|
|
2021
|
2020
|
|
Cash
paid for amounts included in the measurement of operating lease
liabilities:
|
|
|
|
Operating
cash flows from operating leases
|
$
779
|
$
737
|
|
Right-of-use
assets obtained in exchange for operating leases
liabilities
|
147
|
2,859
|
The
following table presents the maturities of the Company’s
operating lease liabilities as of May 31, 2021 (in
thousands):
|
Fiscal year
|
Operating Leases
|
|
2022
|
$
813
|
|
2023
|
829
|
|
2024
|
168
|
|
2025
|
32
|
|
2026
|
19
|
|
Thereafter
|
--
|
|
Total
future minimum operating lease payments
|
1,861
|
|
Less:
imputed interest
|
(117
)
|
|
Present
value of operating lease liabilities
|
$
1,744
|
9. BORROWING AND FINANCING ARRANGEMENTS:
On
January 16, 2020, the Company entered into a Loan and Security
Agreement (the “Loan Agreement”) with Silicon Valley
Bank (“SVB”). Pursuant to the Loan Agreement, the
Company may borrow up to (a) the lesser of (i) the revolving line
of $4.0 million or (ii) the amount available under the borrowing
base minus (b) the outstanding principal balance of any advances,
under a revolving line of credit which is collateralized by all the
Company’s assets except intellectual property. The borrowing
base is 80% of eligible accounts, as determined by SVB from the
Company’s most recent borrowing base statement; provided,
however, SVB has the right to decrease the foregoing percentage in
its good faith business judgment to mitigate the impact of certain
events or conditions, which may adversely affect the collateral or
its value. Subject to an event of default, the principal amount
outstanding under the revolving line of credit will accrue interest
at a floating per annum rate equal to the greater of (a) the prime
rate plus an additional percentage of up to 1%, which additional
percentage depends on the Company’s adjusted quick ratio, and
(b) 4.75%. Interest is payable monthly on the last calendar day of
each month and the outstanding principal amount, the unpaid
interest and all other obligations are due on the maturity date,
which is 364 days from the effective date of January 13,
2020.
On
January 14, 2021, the Company entered into the First Amendment to
Loan and Security Agreement (the “Amendment”) with
Silicon Valley Bank. The Amendment, among other things, extends the
Revolving Line Maturity Date to July 14, 2021; provided, however,
that if the Company achieves specified operating metrics on a
consolidated basis on or prior to May 31, 2021 the Amended
Revolving Line Maturity Date is extended to January 13, 2022. On
July 8, 2021 the Company received confirmation from SVB that the
Revolving Line Maturity Date has been extended to January 13,
2022.
At
May 31, 2021, the Company had drawn $1,400,000 against the credit
facility and was in compliance with all covenants related to
obligations to meet reporting requirements. The balance available
to borrow under the line at May 31, 2021 was $308,000. There are no
financial covenants in the agreement.
10. LONG-TERM DEBT:
On
April 23, 2020, the Company obtained the PPP Loan in the aggregate
amount of $1,678,789 from SVB. The PPP Loan was evidenced by a
promissory note dated April 23, 2020 (the “Note”) that
matures on April 23, 2022 and bears interest at a rate of 1% per
annum, payable monthly commencing on November 23, 2020. The PPP
Loan proceeds were used for payroll, health care benefits, rent and
utilities.
Under the terms of the CARES Act, PPP loan
recipients can apply for and be granted forgiveness for all or a
portion of loans granted under the PPP. Such forgiveness will be
determined, subject to limitations, based on the use of
loan
48
11. STOCKHOLDERS’ EQUITY AND STOCK-BASED
COMPENSATION:
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,
and is recognized as
expense over the employee’s requisite service period. 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 fiscal years ended May 31, 2021, 2020 and 2019 (in thousands,
except per share data):
|
|
Year Ended May 31,
|
||
|
|
2021
|
2020
|
2019
|
|
Stock-based
compensation in the form of stock options,
RSUs,
and ESPP purchase rights, included in:
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
$
70
|
$
80
|
$
104
|
|
Selling, general and
administrative
|
816
|
631
|
545
|
|
Research and development
|
215
|
199
|
256
|
|
|
|
|
|
|
Net effect on net loss
|
$
1,101
|
$
910
|
$
905
|
|
|
|
|
|
|
Effect
on net loss per share:
|
|
|
|
|
Basic
|
$
0.05
|
$
0.04
|
$
0.04
|
|
Diluted
|
$
0.05
|
$
0.04
|
$
0.04
|
As
of May 31, 2021, 2020 and 2019, there were no stock-based
compensation expenses capitalized as part of
inventory.
During fiscal 2021, 2020 and fiscal 2019, the Company recorded
stock-based compensation related to stock options and restricted
stock units of $993,000, $751,000 and $650,000,
respectively.
As
of May 31, 2021, the total compensation expense related to unvested
stock-based awards under the Company’s 2016 Equity Incentive
Plan, but not yet recognized, was $1,022,000 which is net of
estimated forfeitures of $3,000. This expense will be amortized on
a straight-line basis over a weighted average period of
approximately 2.4 years.
During
fiscal 2021, 2020 and fiscal 2019, the Company recorded stock-based
compensation related to its ESPP of $108,000, $159,000 and
$255,000, respectively. The increase in fiscal 2019 is primarily
due to employees increasing their ESPP elections during the fiscal
year.
As
of May 31, 2021, the total compensation expense related to purchase
rights under the ESPP but not yet recognized was $229,000. This
expense will be amortized on a straight-line basis over a weighted
average period of approximately 1.2 years.
Valuation
Assumptions
Valuation
and Amortization Method. The Company estimates the fair value of
stock options granted using the Black-Scholes option valuation
method and a single option award approach. The fair value under the
single option approach is amortized on a straight-line basis over
the requisite service periods of the awards, which is generally the
vesting period.
Expected Term. The Company’s expected term
represents the period that the Company’s stock-based awards
are expected to be outstanding and was determined based on
historical experience, giving consideration to the contractual
terms of the stock-based awards, vesting schedules and expectations
of future employee behavior as evidenced by changes to the terms of
its stock-based awards.
49
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 2021, 2020 and 2019 were estimated using the
following weighted average assumptions in the Black-Scholes option
valuation method:
|
|
Year Ended May 31,
|
||
|
|
2021
|
2020
|
2019
|
|
|
|
|
|
|
Expected term (in years)
|
6
|
5
|
5
|
|
Volatility
|
72.0
%
|
71.5
%
|
71.9
%
|
|
Risk-free interest rates
|
0.44
%
|
1.56
%
|
2.83
%
|
|
Weighted average grant date fair
value
|
$
1.12
|
$
0.95
|
$
1.33
|
The
fair value of our ESPP purchase rights for the fiscal 2021, 2020
and 2019 was estimated using the following weighted average
assumptions:
|
|
Year End May 31,
|
||||
|
|
2021
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
Expected term (in years)
|
0.5 – 2.0
|
|
0.5 – 2.0
|
|
0.5 – 2.0
|
|
Volatility
|
74% – 88%
|
|
62% – 77%
|
|
48% – 78%
|
|
Risk-free interest rates
|
0.04%–0.17%
|
|
0.14%–1.81%
|
|
2.33%–2.82%
|
|
Weighted average grant date fair value
|
$1.03
|
|
$0.79
|
|
$1.14
|
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, non-statutory 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 3,435,000 shares of common stock have been
reserved for issuance under the Company’s 2016 Equity
Incentive Plan, which includes 1,835,000 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 22, 2019 for
further information regarding the 2016 Equity Incentive
Plan.
As
of May 31, 2021, out of the 4,036,000 shares authorized for grant
under the 2016 Equity Incentive Plan, 2,898,000 stock options and
RSUs were outstanding. As of May 31, 2020, out of the 4,813,000
shares authorized for grant under the 2016 Equity Incentive Plan,
3,163,000 stock options and RSUs were outstanding.
The
following tables summarize the Company’s stock option and RSU
transactions during fiscal 2021, 2020 and 2019 (in
thousands):
50
|
|
Available
|
|
|
Shares
|
|
Balance, May 31, 2018
|
1,812
|
|
|
|
|
Options granted
|
(804
)
|
|
RSUs cancelled
|
8
|
|
Options terminated
|
195
|
|
Options expired
|
(64
)
|
|
|
|
|
Balance, May 31, 2019
|
1,147
|
|
|
|
|
Additional shares reserved
|
1,196
|
|
Options granted
|
(738
)
|
|
RSUs granted
|
(25
)
|
|
Shares
withheld for taxes and not issued
|
6
|
|
Options terminated
|
457
|
|
Options expired
|
(393
)
|
|
|
|
|
Balance, May 31, 2020
|
1,650
|
|
|
|
|
Options granted
|
(297
)
|
|
RSUs granted
|
(340
)
|
|
RSUs
cancelled
|
1
|
|
Shares
withheld for taxes and not issued
|
9
|
|
Options terminated
|
455
|
|
Options expired
|
(341
)
|
|
|
|
|
Balance, May 31, 2021
|
1,137
|
The
following table summarized the stock option transactions during
fiscal 2021, 2020 and 2019 (in thousands, except per share
data):
|
|
Outstanding Options
|
||
|
|
|
Weighted
|
|
|
|
Number
|
Average
|
Aggregate
|
|
|
of
|
Exercise
|
Intrinsic
|
|
|
Shares
|
Price
|
Value
|
|
Balances, May 31, 2018
|
2,859
|
$
2.04
|
$
1,987
|
|
|
|
|
|
|
Options granted
|
804
|
$
2.19
|
|
|
Options terminated
|
(195
)
|
$
2.32
|
|
|
Options exercised
|
(361
)
|
$
0.85
|
|
|
|
|
|
|
|
Balances, May 31, 2019
|
3,107
|
$
2.20
|
$
283
|
|
|
|
|
|
|
Options granted
|
738
|
$
1.61
|
|
|
Options terminated
|
(457
)
|
$
1.98
|
|
|
Options exercised
|
(235
)
|
$
1.22
|
|
|
|
|
|
|
|
Balances, May 31, 2020
|
3,153
|
$
2.17
|
$
102
|
|
|
|
|
|
|
Options granted
|
297
|
$
1.78
|
|
|
Options terminated
|
(455
)
|
$
2.31
|
|
|
Options exercised
|
(229
)
|
$
1.54
|
|
|
|
|
|
|
|
Balances, May 31, 2021
|
2,766
|
$
2.16
|
$
807
|
|
|
|
|
|
|
Options
fully vested and expected to vest
at
May 31, 2021
|
2,732
|
$
2.16
|
$
795
|
The options outstanding and exercisable at May
31, 2021 were in the following exercise price ranges (in thousands,
except per share data):
51
|
|
Options
Outstanding
|
Options
Exercisable
|
|||||
|
|
at May 31,
2021
|
at May 31,
2021
|
|||||
|
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
|
|
$
1.22-$1.34
|
133
|
6.05
|
$
1.27
|
56
|
6.15
|
$
1.29
|
|
|
$
1.64-$1.86
|
1,040
|
4.80
|
$
1.70
|
625
|
4.33
|
$
1.69
|
|
|
$
2.03-$2.46
|
1,035
|
3.09
|
$
2.21
|
814
|
2.68
|
$
2.20
|
|
|
$
2.65-$2.81
|
358
|
0.46
|
$
2.72
|
357
|
0.45
|
$
2.72
|
|
|
$
3.46-$3.93
|
200
|
3.16
|
$
3.86
|
193
|
3.16
|
$
3.85
|
|
|
|
|
|
|
|
|
|
|
|
$
1.22-$3.93
|
2,766
|
3.54
|
$
2.16
|
2,045
|
2.94
|
$
2.26
|
$
492
|
The
total intrinsic values of options exercised were $152,000, $160,000
and $338,000 during fiscal 2021, 2020 and 2019, respectively. The
weighted average contractual life of the options exercisable and
expected to be exercisable at May 31, 2021 was 3.52
years.
Options
to purchase 2,045,000, 2,203,000 and 2,314,000 shares were
exercisable at May 31, 2021, 2020 and 2019, respectively. These
exercisable options had weighted average exercise prices of $2.26,
$2.25 and $2.14 as of May 31, 2021, 2020 and 2019,
respectively.
During
the fiscal year ended May 31, 2021, RSUs for 170,000 shares, net of
9,000 shares withheld to settle payroll taxes, were granted and
fully vested to employees. The weighted average market value on the
date of the grant of these RSUs was $1.92 per share. During the
fiscal year ended May 31, 2021, 37,000 RSUs became fully vested and
1,000 RSUs were cancelled. 132,000 RSUs were outstanding and
unvested at May 31, 2021. The intrinsic value of the outstanding
and unvested RSUs at May 31, 2021 was $297,000. During the fiscal
year ended May 31, 2020, RSUs for 10,000 shares, net of 6,000
shares withheld to settle payroll taxes, were granted and fully
vested to employees. The market value on the date of the grant of
these RSUs was $1.64 per share. During the fiscal year ended May
31, 2020, 13,000 RSUs became fully vested and there was no
cancellation. 10,000 RSUs were outstanding and unvested at May 31,
2020. The intrinsic value of the outstanding and unvested RSUs at
May 31, 2020 was $16,000. During the fiscal year ended May 31,
2019, there were no RSUs granted to employees. During the fiscal
year ended May 31, 2019, 16,000 RSUs became fully vested and 8,000
RSUs were cancelled. 23,000 RSUs were outstanding and unvested at
May 31, 2019. The intrinsic value of the outstanding and unvested
RSUs at May 31, 2019 was $40,000.
During
the fiscal year ended May 31, 2021, RSUs for 161,000 shares were
granted and fully vested to members of the Company’s Board of
Directors. The weighted average market value on the date of the
grant of these RSUs was $1.81 per share. During the fiscal year
ended May 31, 2020, RSUs for 9,000 shares were granted and fully
vested to members of the Company’s Board of Directors. The
weighted average market value on the date of the grant of these
RSUs was $1.64 per share. There were no RSUs granted to members of
the Board of Directors during fiscal 2019.
EMPLOYEE
STOCK PURCHASE PLAN:
In
October 2006, the Company’s shareholders approved the 2006
Employee Stock Purchase Plan. In October 2016, the Company’s
shareholders approved the Company’s Amended and Restated 2006
Employee Stock Purchase Plan (the “Purchase Plan”),
which amended and restated the 2006 Employee Stock Purchase Plan.
The Purchase Plan extended the term of the 2006 Employee Stock
Purchase Plan indefinitely. See the Company’s Registration
Statements on Form S-8 filed with the Securities and Exchange
Commission on November 14, 2016 and November 21, 2018 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. In October
2020, the
Company’s shareholders approved an amendment to the Purchase
Plan to increase the number of shares authorized for issuance
thereunder by an additional 350,000 shares of the Company’s
common stock. After such amendment, a total of 2,200,000 shares of
the Company’s common stock have been authorized for issuance
under the Purchase Plan. During the fiscal years ended May 31,
2021, 2020 and 2019, ESPP purchase rights of 279,000,
55,000,
52
and
379,000 shares, respectively, were granted. For the fiscal years
ended May 31, 2021, 2020 and 2019, approximately 147,000, 136,000
and 125,000 shares of common stock, respectively, were issued under
the Purchase Plan. As of May 31, 2021, a total of 1,764,000 shares
have been issued under the Purchase Plan, and 436,000 ESPP shares
remain available for issuance.
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 2021,
2020 and 2019. The contribution amounts are recorded as
compensation expense, in the period authorized and included in
accrued expenses, in the period authorized. Contributions of 36,000
shares were made to the ESOP during fiscal 2021 for fiscal 2020.
Contributions of 34,000 shares were made to the ESOP during fiscal
2020 for fiscal 2019. Contributions of 23,000 shares were made to
the ESOP during fiscal 2019 for fiscal 2018. The contribution for
fiscal 2021 will be made in fiscal 2022. 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 2021, 2020
and 2019.
13. OTHER (EXPENSE) INCOME, NET:
Other
(expense) income, net comprises the following (in
thousands):
|
|
Year Ended May 31,
|
||
|
|
2021
|
2020
|
2019
|
|
Foreign exchange (loss) gain
|
$
(111
)
|
$
(12
)
|
$
43
|
|
Other (expense) income, net
|
(51
)
|
1
|
1
|
|
|
$
(162
)
|
$
(11
)
|
$
44
|
14. 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, 2021 and 2020 (in
thousands):
53
|
|
May 31,
|
|
|
|
2021
|
2020
|
|
|
|
|
|
Balance at the beginning of the
year
|
$
246
|
$
154
|
|
Accruals for warranties issued during the
year
|
390
|
299
|
|
Adjustment to previously existing
warranty
|
346
|
--
|
|
Consumption of reserves
|
(488
)
|
(207
)
|
|
|
|
|
|
Balance at the end of the year
|
$
494
|
$
246
|
The
accrued warranty balance is included in accrued expenses on the
consolidated balance sheets.
15. SEGMENT INFORMATION:
The
Company has only one reportable segment. The information for
revenue category by type, product line, geography and timing of
revenue recognition, is summarized in Note 2,
“Revenue.”
Property
and equipment information is based on the physical location of the
assets. The following table presents property and equipment
information for geographic areas (in thousands):
|
|
May 31,
|
|
|
|
2021
|
2020
|
|
United
States
|
$
647
|
$
662
|
|
Asia
|
30
|
1
|
|
Europe
|
--
|
--
|
|
|
$
677
|
$
663
|
As
of May 31, 2021, the operating lease right-of-use assets of
$1,480,000 and $126,000 were allocated in the United States and
Asia, respectively.
There
were no revenues through distributors for the fiscal years ended
May 31, 2021 and 2020.
16. DISSOLUTION OF AEHR TEST SYSTEMS JAPAN
On
July 31, 2020, the Company completed the liquidation of ATS-Japan,
a majority owned subsidiary. Accordingly, the Company
deconsolidated ATS-Japan and recognized an aggregate net gain of
$2,401,000 for the period ended August 31, 2020. The net gain was
mainly due to cumulative translation adjustment reclassified into
earnings of $2,186,000 and the residual income tax effect in
connection with the cumulative translation adjustment released into
income tax benefits of $215,000.
17. RESTRUCTURING:
During the fiscal year ended May 31,
2020,
the Company
approved the dissolution of Aehr Test Systems Japan K.K
(“ATS-Japan”), a majority owned subsidiary. In
connection with the dissolution plan, the Company recognized
approximately $220,000 in the fourth quarter of fiscal 2020 related
to severance payments for individuals impacted in this reduction,
legal fees associated with the dissolution process, and write-off
of assets. The ATS-J subsidiary was dissolved in March 2020. The
liquidation process occurred from March 2020 through the final
liquidation in July 2020, allowing creditors time to submit claims
and time for ATS-J to wind down and disposition any
assets.
During
the fiscal year ended May 31, 2019, the Company implemented a
restructuring plan in order to streamline its operations and better
align its structure with its objectives going forward. In
connection with the restructuring plan, the Company recognized
$725,000 of restructuring charges related to employee termination
expenses during the fiscal year ended May 31, 2019. The Company
paid $317,000 of the restructuring charge during fiscal year ended
May 31, 2019.
At May 31, 2019,
the balance of $408,000 of the restructuring charge was included in
accrued expenses on the accompanying condensed consolidated balance
sheets and was paid in fiscal year 2020. The Company does not
expect to incur any further expenses in connection with this
restructuring plan.
54
18.
SUBSEQUENT EVENT
On
June 12, 2021, the Company received confirmation from the SVB that
on June 4, 2021, the Small Business Administration approved the
Company’s PPP Loan forgiveness application for the entire PPP
Loan balance of $1,678,789 and interest totaling $18,933, and that
the remaining PPP Loan balance is zero.
19. RELATED PARTY TRANSACTIONS:
Mario
M. Rosati, one of the Company’s directors, was 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. Mario M. Rosati retired from Wilson Sonsini Goodrich
& Rosati on January 31, 2020. The amounts of transactions
during fiscal years ended May 31, 2020 were $78,000. At May 31,
2020 the Company had a prepayment to Wilson Sonsini Goodrich &
Rosati of $14,000.
20. COMMITMENTS AND CONTINGENCIES:
COMMITMENTS
At
both May 31, 2021 and 2020, the Company had restricted cash of
$80,000 held by a financial institution, representing a security
deposit for its United States manufacturing and office space lease.
This amount is included in other assets on the consolidated balance
sheets.
PURCHASE
OBLIGATIONS
The
Company has purchase obligations to certain suppliers. In some
cases the products the Company purchases are unique and have
provisions against cancellation of the order. At May 31, 2021, the
Company had $3,377,000 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.
21. 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, 2021 and 2020. 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.
55
|
|
Three Months Ended
|
|||
|
|
Aug. 31,
|
Nov. 30,
|
Feb. 28,
|
May 31,
|
|
|
2020
|
2020
|
2021
|
2021
|
|
Net sales
|
$
2,012
|
$
1,683
|
$
5,267
|
$
7,638
|
|
Gross profit
|
$
227
|
$
377
|
$
1,894
|
$
3,534
|
|
Net income (loss)
|
$
107
|
$
(1,966
)
|
$
(735
)
|
$
567
|
|
Net income (loss) per share basic and
diluted
|
$
0.00
|
$
(0.08
)
|
$
(0.03
)
|
$
0.02
|
|
|
Three Months Ended
|
|||
|
|
Aug. 31,
|
Nov. 30,
|
Feb. 29,
|
May 31,
|
|
|
2019
|
2019
|
2020
|
2020
|
|
Net sales
|
$
5,533
|
$
6,874
|
$
6,111
|
$
3,773
|
|
Gross profit
(loss)
|
$
2,271
|
$
3,202
|
$
2,991
|
$
(93
)
|
|
Net (loss) income
|
$
(413
)
|
$
251
|
$
245
|
$
(2,885
)
|
|
Net (loss) income per share basic and
diluted
|
$
(0.02
)
|
$
0.01
|
$
0.01
|
$
(0.13
)
|
Item 9.
C
hanges in and Disagreements
with Accountants on Accounting and Financial
Disclosure
None.
Item 9A.
C
ontrols and
Procedures
(a)
Evaluation of disclosure controls and
procedures.
Our
management evaluated, with the participation of our Chief Executive
Officer and Chief Financial Officer, the effectiveness of our
disclosure controls and procedures, as defined in Rules 13a-15(e)
and 15d-15(e) under the Exchange Act, as of the end of the period
covered by this Annual Report on Form 10-K. Based on this
evaluation, our Chief Executive Officer and our Chief Financial
Officer have concluded that our disclosure controls and procedures
are effective to ensure that information we are required to
disclose in reports that we file or submit under the Securities
Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in Securities and
Exchange Commission rules and forms, and that such information is
accumulated and communicated to management, including our Chief
Executive Officer and Chief Financial Officer, as appropriate to
allow for timely decisions regarding required
disclosure.
(b)
Management’s report on internal control
over financial reporting.
Our
management is responsible for establishing and maintaining adequate
internal control over financial reporting as defined in Rule
13a-15(f) of the Exchange Act. Under the supervision and with the
participation of our Chief Executive Officer and Chief Financial
Officer, our management conducted an evaluation of the
effectiveness of our internal control over financial reporting
based upon the framework in “
Internal Control – Integrated
Framework”
(2013 Framework) issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on that
evaluation, management has concluded that the Company’s
internal control over financial reporting was effective as of May
31, 2021. This annual report does not include an attestation report
of the Company’s registered public accounting firm regarding
internal control over financial reporting. Management’s
report was not subject to attestation by the Company’s
registered public accounting firm pursuant to rules of the
Securities and Exchange Commission that permit the Company to
provide only management’s report in this Annual
Report.
(c)
Changes in internal controls over financial
reporting.
There
were no changes in our internal controls over financial reporting
that occurred during the period covered by this Annual Report on
Form 10-K that have materially affected, or are reasonably likely
to materially affect, our internal controls over financial
reporting.
Item 9B.
O
ther Information
None.
56
PART III
Item 10.
D
irectors, Executive Officers
and Corporate Governance
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 2021 Annual Meeting of
Shareholders.
Item 11.
E
xecutive
Compensation
The
information required by this item is incorporated by reference to
our Proxy Statement to be filed with the Securities and Exchange
Commission in connection with our 2021 Annual Meeting of
Shareholders.
Item 12.
S
ecurity Ownership of Certain
Beneficial Owners and Management and Related Stockholder
Matters
The
information required by this item is incorporated by reference to
our Proxy Statement to be filed with the Securities and Exchange
Commission in connection with our 2021 Annual Meeting of
Shareholders.
Item 13.
C
ertain Relationships and
Related Transactions, and Director Independence
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 2021 Annual Meeting of
Shareholders.
Item 14.
P
rincipal Accountant Fees and
Services
The
information required by this item is incorporated by reference to
our Proxy Statement to be filed with the Securities and Exchange
Commission in connection with our 2021 Annual Meeting of
Shareholders.
57
PART IV
Item 15.
E
xhibits, Financial Statement
Schedules
(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:
58
|
Exhibit Number
|
|
Description
|
|||||||||
|
3.1
(1)
|
|
Restated
Articles of Incorporation of Registrant.
|
|||||||||
|
3.2
(2)
(25)
|
|
Amended
and Restated Bylaws of Registrant.
|
|||||||||
|
4.1
(3)
|
|
Form
of Common Stock certificate.
|
|||||||||
|
4.2
(4)
|
|
Registration
Rights Agreement by and among the Company and the
Investors
(as defined therein), dated as of September 22,
2016.
|
|||||||||
|
|
Description
of Securities (filed herewith)
|
||||||||||
|
10.1
(5)
|
|
2006
Equity Incentive Plan.*
|
|||||||||
|
10.2
(6)
|
|
Amended
and Restated 2006 Employee Stock Purchase Plan.*
|
|||||||||
|
10.3
(7)
|
|
2016
Equity Incentive Plan.*
|
|||||||||
|
10.4
(8)
|
|
Form
of Indemnification Agreement entered into between Registrant
and
its directors and executive officers.*
|
|||||||||
|
10.5
(9)
|
|
Form
of Change of Control Agreement.*
|
|||||||||
|
10.6
(10)
|
|
Lease
dated August 3, 1999 for facilities located at Building C,
400
Kato Terrace, Fremont, California.
|
|||||||||
|
10.7
(11)
|
|
First
Amendment dated May 06, 2008 for facilities located at 400 Kato
Terrace, Fremont, California.
|
|||||||||
|
10.8
(12)
|
|
Second
Amendment dated November 7, 2014 for facilities located at
400
Kato Terrace, Fremont, California.
|
|||||||||
|
10.9
(13)
|
|
Third
Amendment dated February 27, 2018 for facilities located at
400
Kato Terrace, Fremont, California.
|
|||||||||
|
10.10
(14)
|
|
Offer
Letter dated January 3, 2012, between the Company and Gayn
Erickson.*
|
|||||||||
|
10.11
(15)
|
|
Offer
Letter dated March 5, 2013, between the Company and Rhea
Posedel.*
|
|||||||||
|
10.12
(16)
|
|
Change
of Control Severance Agreement dated January 3, 2012, between the
Company and Gayn Erickson.*
|
|||||||||
|
10.13
(17)
|
|
Amended
and Restated Change of Control Severance Agreement dated March 5,
2013, between the Company and Rhea J. Posedel.*
|
|||||||||
|
10.15
(18)
|
|
Form
of 2006 Equity Incentive Plan Stock Option Award Agreement.*
|
|||||||||
|
10.16
(19)
|
|
Form
of 2006 Equity Incentive Plan Restricted Stock Unit Award.*
|
|||||||||
|
10.17
(20)
|
|
Form
of 2016 Equity Incentive Plan Stock Option Award Agreement.*
|
|||||||||
|
10.18
(21)
|
|
Form
of 2016 Equity Incentive Plan Restricted Stock Unit Award.*
|
|||||||||
|
10.19
(22)
|
|
Purchase
Agreement by and among the Company and the Investors (as defined
therein), dated as of September 22, 2016.
|
|||||||||
|
10.20
(23)
|
|
Loan
and Security Agreement, dated as of January 13, 2020 and effective
on January 16, 2020, by and between Silicon Valley Bank and Aehr
Test Systems.
|
|||||||||
|
10.21
(24)
|
|
Promissory
note, dated April 23, 2020 with Silicon Valley Bank as Lender and
Aehr Test Systems as Borrower.
|
|||||||||
|
10.22
(26)
|
|
First Amendment,
dated as of January 14, 2021, to Loan and Security Agreement by and
between Silicon Valley Bank and Aehr Test Systems, dated January
13, 2020
|
|||||||||
|
|
Subsidiaries
of the Company (filed herewith).
|
||||||||||
|
|
Consent
of BPM LLP - Independent Registered Public Accounting Firm
(filed
herewith).
|
||||||||||
|
|
Power
of Attorney (incorporated by reference to the signature page of
this Annual Report on Form 10-K).
|
||||||||||
|
|
Certification
Statement of Chief Executive Officer pursuant to Section 302(a) of
the Sarbanes-Oxley Act of 2002 (filed herewith).
|
|
|
|
Certification
Statement of Chief Financial Officer pursuant to Section 302(a) of
the Sarbanes-Oxley Act of 2002 (filed herewith).
|
|
|
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 the same-numbered exhibit previously
filed with the Company’s Current Report on Form 8-K filed
September 11, 2019 (File No. 000-22893).
59
(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 10.2 previously filed with the
Company’s Current Report on Form 8-K filed September 28, 2016
(File No. 000-22893).
(5)
Incorporated by reference to Exhibit 4.1 previously filed with the
Company’s Registration Statement on Form S-8 filed October
27, 2006 (File No. 333-138249).
(6)
Incorporated by reference to Exhibit 4.2 previously filed with the
Company’s Registration Statement on Form S-8 filed November
14, 2016 (File No. 333-214589).
(7)
Incorporated by reference to Appendix A of the Company’s
Definitive Proxy Statement filed September 26, 2019 (File No.
333-214589).
(8)
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).
(9)
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).
(10)
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).
(11)
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).
(12)
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).
(13)
Incorporated by reference to Exhibit 10.1 previously filed with the
Company’s Current Report on Form 8-K filed March 2, 2018
(File No. 000-22893).
(14)
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).
(15)
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).
(16)
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).
(17)
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).
(18)
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).
(19)
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).
(20)
Incorporated by reference to Exhibit 10.19 previously filed with
the Company’s Annual Report on Form 10-K filed August 29,
2017 (File No. 000-22893).
(21)
Incorporated by reference to Exhibit 10.20 previously filed with
the Company’s Annual Report on Form 10-K filed August 29,
2017 (File No. 000-22893).
(22)
Incorporated by reference to Exhibit 10.1 previously filed with the
Company’s Current Report on Form 8-K filed September 28, 2016
(File No. 000-22893).
(23)
Incorporated by references to Exhibit 10.1 previously filed with
the Company’s Current Report on Form 8-K filed January 1,
2020 (File No. 000-22893).
(24)
Incorporated by reference to Exhibit 10.1 previously filed with the
Company’s Current Report on Form 8-K filed April 28, 2020
(File No. 000-22893).
(25)
Incorporated by reference to Exhibit 3.1 previously filed with the
Company’s Current Report on Form 8-K filed September 2, 2020
(File No. 000-22893).
(26)
Incorporated by reference to Exhibit 10.1 previously filed with the
Company’s Current Report on Form 8-K filed January 14, 2021
(File No. 000-22893).
*
Management contracts or compensation plans or arrangements
in which directors or executive officers are eligible to
participate.
60
S
IGNATURES
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.
|
|
AEHR TEST
SYSTEMS
|
|
|
|
|
|
|
|
|
Dated: August 27,
2021
|
By:
|
/s/ GAYN
ERICKSON
|
|
|
|
|
Gayn
Erickson
|
|
|
|
|
PRESIDENT AND CHIEF
EXECUTIVE OFFICER
|
|
|
|
|
(Principal
Executive Officer)
|
|
P
OWER 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 27,
2021
|
|
Gayn Erickson
|
|
|
|
|
|
|
|
Vice President of
Finance and Chief Financial Officer
|
|
|
|
/s/ KENNETH
B. SPINK
|
|
(Principal
Financial and Accounting Officer)
|
|
August 27,
2021
|
|
Kenneth B. Spink
|
|
|
|
|
|
|
|
|
|
|
|
/s/ FARIBA
DANESH
|
|
Director
|
|
August 27,
2021
|
|
Fariba
Danesh
|
|
|
|
|
|
|
|
|
|
|
|
/s/
LAURA OLIPHANT
|
|
Director
|
|
August 27,
2021
|
|
Laura Oliphant
|
|
|
|
|
|
|
|
|
|
|
|
/s/
RHEA J. POSEDEL
|
|
Chairman
|
|
August 27,
2021
|
|
Rhea J. Posedel
|
|
|
|
|
|
|
|
|
|
|
|
/s/ MARIO M.
ROSATI
|
|
Director
|
|
August 27,
2021
|
|
Mario M. Rosati
|
|
|
|
|
|
|
|
|
|
|
|
/s/
GEOFFREY G. SCOTT
|
|
Director
|
|
August 27,
2021
|
|
Geoffrey G. Scott
|
|
|
|
|
|
|
|
|
|
|
|
/s/ HOWARD T.
SLAYEN
|
|
Director
|
|
August 27,
2021
|
|
Howard T. Slayen
|
|
|
61
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 Transactions, and Director IndependenceItem 14. Principal Accountant Fees and ServicesPart IVItem 15. Exhibits, Financial Statement Schedules