-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OKYsjUMPPnWb1gQveVkUduDORoT+mvDYZCAFBU/8/rKLQlNNbqZiC8UlxQ/OSmqa GLcusZUsXBjf5mXDUiV/sw== 0001040470-06-000063.txt : 20061013 0001040470-06-000063.hdr.sgml : 20061013 20061013160648 ACCESSION NUMBER: 0001040470-06-000063 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20060831 FILED AS OF DATE: 20061013 DATE AS OF CHANGE: 20061013 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AEHR TEST SYSTEMS CENTRAL INDEX KEY: 0001040470 STANDARD INDUSTRIAL CLASSIFICATION: INSTRUMENTS FOR MEAS & TESTING OF ELECTRICITY & ELEC SIGNALS [3825] IRS NUMBER: 942424084 STATE OF INCORPORATION: CA FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-22893 FILM NUMBER: 061144382 BUSINESS ADDRESS: STREET 1: 400 KATO TERRACE CITY: FREMONT STATE: CA ZIP: 94539 BUSINESS PHONE: 5106239400 MAIL ADDRESS: STREET 1: 400 KATO TERRACE CITY: FREMONT STATE: CA ZIP: 94539 10-Q 1 q107-e10q.txt Q107 10 DOCUMENT FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended August 31, 2006. OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to __________. Commission file number: 000-22893. AEHR TEST SYSTEMS (Exact name of Registrant as specified in its charter) CALIFORNIA 94-2424084 - -------------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 400 KATO TERRACE FREMONT, CA 94539 - -------------------------------------- ------------------------------------ (Address of principal (Zip Code) executive offices) (510) 623-9400 - ------------------------------------------------------------------------------ (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT. N/A 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 as the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. (Item 1) YES X NO --- --- (Item 2) YES X NO --- --- Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act (Check one): Large accelerated filer Accelerated filer Non-accelerated filer X --- --- --- Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES NO X --- --- 1 Number of shares of Common Stock, $0.01 par value, outstanding at September 30, 2006 was 7,751,214. 2 FORM 10-Q FOR THE QUARTER ENDED AUGUST 31, 2006 INDEX PART I. FINANCIAL INFORMATION ITEM 1. Condensed Consolidated Financial Statements (Unaudited) Condensed Consolidated Balance Sheets as of August 31, 2006 and May 31, 2006 . . . . . . . . . . . . 4 Condensed Consolidated Statements of Operations for the three months ended August 31, 2006 and 2005 . . . . . . 5 Condensed Consolidated Statements of Cash Flows for the three months ended August 31, 2006 and 2005 . . . . . . 6 Notes to Condensed Consolidated Financial Statements. . . . . 7 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . . . . . . . . . . . 13 ITEM 3. Quantitative and Qualitative Disclosures about Market Risks. . 17 ITEM 4. Controls and Procedures. . . . . . . . . . . . . . . . . . . . 18 PART II. OTHER INFORMATION ITEM 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . 19 ITEM 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . 19 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds. . 21 ITEM 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . 21 ITEM 4. Submission of Matters to a Vote of Security Holders . . . . . 22 ITEM 5. Other Information . . . . . . . . . . . . . . . . . . . . . . 22 ITEM 6. Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . 22 SIGNATURE PAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Index to Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 3 PART I. FINANCIAL STATEMENTS Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) AEHR TEST SYSTEMS CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except per share data) (Unaudited)
August 31, May 31, 2006 2006 ----------- ----------- ASSETS Current assets: Cash and cash equivalents . . . . . . . . . . . $ 8,550 $ 9,405 Short-term investments. . . . . . . . . . . . . 1,773 1,600 Accounts receivable, net of allowances for doubtful accounts of $68 and $70 at August 31, 2006 and May 31, 2006, respectively . . . . . . . . . . . . . . . . 5,248 4,531 Inventories . . . . . . . . . . . . . . . . . . 6,285 7,242 Prepaid expenses and other. . . . . . . . . . . 316 357 ----------- ----------- Total current assets . . . . . . . . . . . . 22,172 23,135 Property and equipment, net . . . . . . . . . . . 854 959 Goodwill. . . . . . . . . . . . . . . . . . . . . 274 274 Other assets, net . . . . . . . . . . . . . . . . 520 525 ----------- ----------- Total assets . . . . . . . . . . . . . . . . $23,820 $24,893 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable. . . . . . . . . . . . . . . . $ 1,076 $ 1,130 Accrued expenses. . . . . . . . . . . . . . . . 2,119 2,347 Deferred revenue. . . . . . . . . . . . . . . . 464 2,335 ----------- ----------- Total current liabilities . . . . . . . . . . 3,659 5,812 Accrued lease commitment. . . . . . . . . . . . . 255 264 ----------- ----------- Total liabilities . . . . . . . . . . . . . . 3,914 6,076 ----------- ----------- Shareholders' equity: Common stock, $0.01 par value: Issued and outstanding: 7,721 shares and 7,630 shares at August 31, 2006 and May 31, 2005, respectively. . . . . . . . . . 77 76 Additional paid-in capital. . . . . . . . . . . 38,622 38,081 Accumulated other comprehensive income. . . . . 1,281 1,291 Accumulated deficit . . . . . . . . . . . . . . (20,074) (20,631) ----------- ----------- Total shareholders' equity . . . . . . . . . 19,906 18,817 ----------- ----------- Total liabilities and shareholders' equity. . $23,820 $24,893 =========== ===========
The accompanying notes are an integral part of these condensed consolidated financial statements. 4 AEHR TEST SYSTEMS CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (Unaudited)
Three Months Ended August 31, ---------------------- 2006 2005 ---------- ---------- Net sales. . . . . . . . . . . . . . . . . . . $7,136 $4,646 Cost of sales. . . . . . . . . . . . . . . . . 3,883 2,458 ---------- ---------- Gross profit . . . . . . . . . . . . . . . . . 3,253 2,188 ---------- ---------- Operating expenses: Selling, general and administrative. . . . . 1,635 1,452 Research and development . . . . . . . . . . 1,387 1,034 ---------- ---------- Total operating expenses . . . . . . . . 3,022 2,486 ---------- ---------- Income (loss) from operations . . . . . 231 (298) Interest income. . . . . . . . . . . . . . . . 122 46 Other income, net . . . . . . . . . . . . . . 216 -- ---------- ---------- Income (loss) before income taxes . . . 569 (252) Income tax expense (benefit) . . . . . . . . . 12 (8) ---------- ---------- Net income (loss) . . . . . . . . . . . . . . $ 557 $ (244) ========== ========== Net income (loss) per share (basic) . . . . . $ 0.07 $(0.03) Net income (loss) per share (diluted). . . . . $ 0.07 $(0.03) Shares used in per share calculations: Basic . . . . . . . . . . . . . . . . . . . 7,683 7,482 Diluted. . . . . . . . . . . . . . . . . . . 8,326 7,482
The accompanying notes are an integral part of these condensed consolidated financial statements. 5 AEHR TEST SYSTEMS CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited)
Three Months Ended August 31, ---------------------- 2006 2005 ---------- ---------- Cash flows from operating activities: Net income (loss)............................. $ 557 $ (244) Adjustments to reconcile net income (loss) to net cash used in operating activities: Stock compensation expense.................. 163 -- Provision for doubtful accounts............. (2) 25 Loss on disposal of property and equipment.. 41 25 Depreciation and amortization............... 69 85 Changes in operating assets and liabilities: Accounts receivable....................... (720) (2,130) Inventories............................... 956 (915) Accounts payable.......................... (50) 266 Accrued expenses and deferred revenue..... (2,068) 20 Accrued lease commitment ................. (9) (2) Prepaid expenses and other................ 38 151 ---------- ---------- Net cash used in operating activities.................. (1,025) (2,719) ---------- ---------- Cash flows from investing activities: Purchase of investments..................... (4,173) (4,590) Net proceeds from sales and maturity of investments................... 4,002 6,475 Purchase of property and equipment ......... (13) (33) ---------- ---------- Net cash provided by (used in) investing activities.................. (184) 1,852 ---------- ---------- Cash flows from financing activities: Proceeds from issuance of common stock and exercise of stock options............. 373 -- ---------- ---------- Net cash provided by financing activities.................. 373 -- ---------- ---------- Effect of exchange rates on cash................ (19) (102) ---------- ---------- Net decrease in cash and cash equivalents...................... (855) (969) Cash and cash equivalents, beginning of period.. 9,405 4,952 ---------- ---------- Cash and cash equivalents, end of period........ $8,550 $3,983 ========== ========== Supplementary disclosure of non-cash item: Transfer of inventory to property and equipment. $ -- $ 231 ========== =========
The accompanying notes are an integral part of these condensed consolidated financial statements. 6 AEHR TEST SYSTEMS NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED AUGUST 31, 2006 (UNAUDITED) 1. BASIS OF PRESENTATION The accompanying condensed consolidated financial information has been prepared by Aehr Test Systems, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") and therefore does not include all information and footnotes necessary for a fair presentation of financial position, results of operations and cash flows in accordance with accounting principles generally accepted in the United States of America. In the opinion of management, the unaudited condensed consolidated financial statements for the interim periods presented reflect all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the condensed consolidated financial position and results of operations as of and for such periods indicated. These condensed consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 2006. Results for the interim periods presented herein are not necessarily indicative of results which may be reported for any other interim period or for the entire fiscal year. PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the accounts of Aehr Test Systems and its subsidiaries (collectively, the "Company," "we," "us," and "our"). All significant intercompany balances have been eliminated in consolidation. ACCOUNTING ESTIMATES. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates. 2. STOCK-BASED COMPENSATION Prior to June 1, 2006, the Company's stock-based employee compensation plans were accounted for under the recognition and measurement provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), and related interpretations, as permitted by Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). The Company generally did not recognize stock-based compensation cost in its statement of operations for periods prior to June 1, 2006 as most options granted had an exercise price equal to or higher than the market value of the underlying common stock on the date of the grant. The Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004),"Share-Based Payment" ("SFAS No. 123(R)"), using the modified prospective transition method, which requires the application of the accounting standard as of June 1, 2006, the first day of the Company's fiscal year 2007. The Company's condensed consolidated financial statements as of and for the three months ended August 31, 2006 reflect the impact of SFAS No. 123R. In accordance with the modified prospective transition method, the Company's consolidated financial statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS No. 123R. Stock compensation expense recognized under SFAS No. 123R for the three months ended August 31, 2006 was $169,000. See Notes 9 and 10 in the Company's Form 10-K for fiscal 7 2006 filed on August 29, 2006 for further information regarding the stock option and employee stock purchase plans ("ESPP"). Under the modified prospective transition method, stock compensation cost has been recognized in the quarter ended August 31, 2006 in the statement of operations for stock awards granted or modified after May 31, 2006 and for stock awards granted prior to, but unvested as of, June 1, 2006. The Company recorded $169,000 of stock compensation expense for the three months ended August 31, 2006. The stock compensation expense was recorded in the statement of operations as follows: selling, general and administrative ($92,000), research and development ($64,000), and cost of sales ($13,000). The effect on basic and diluted net income per share was $0.02 per share. As required by SFAS No. 123R, management made an estimate of expected forfeitures and is recognizing compensation costs only for those equity awards expected to vest. The following table illustrates the pro forma effect on our net loss and net loss per share for the three months ended August 31, 2005 if we had applied the fair value recognition provisions of SFAS No. 123 to stock-based compensation using the Black-Scholes valuation method (in thousands, except per share amounts):
Three Months Ended August 31, 2005 ------------------ Net loss, as reported:...................... $(244) Deduct: Total stock compensation expense determined under fair value based method for all awards, net of related tax effects................. (193) ------------------ Pro forma net loss.......................... $(437) ================== Net loss per share: Basic and diluted, as reported .............. $(0.03) ================== Basic and diluted, pro forma ................ $(0.06) ==================
The Company estimates the fair value of stock options granted using the Black-Scholes valuation method and a single option award approach for options granted after June 1, 2006. The multiple option approach has been used for all options granted prior to June 1, 2006. 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. The fair value under the multiple option approach is amortized on a weighted basis over the requisite service periods of the awards, which is generally the vesting period. The Company's expected term represents the period that the Company's stock-based awards are expected to be outstanding and was determined based on historical experience, giving consideration to the contractual terms of the stock-based awards, vesting schedules and expectations of future employee behavior as evidenced by changes to the terms of its stock-based awards. Volatility 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 to estimate expected volatility, which matches the term of the option grant. Volatility for 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 cost recorded. 8 The Company bases the risk-free interest rate used in the Black-Scholes valuation method on the implied yield currently available on U.S. Treasury zero-coupon issues with a remaining term equivalent to the expected term of the stock awards including the ESPP. When estimating forfeitures, the Company considers voluntary termination behavior as well as analysis of actual option forfeitures. As of August 31, 2006, the total compensation cost related to unvested stock based awards under the Company's 1996 Stock Option Plan, but not yet recognized, was approximately $1,057,000 which is net of estimated forfeitures of $155,000. This cost will be amortized over a weighted average period of approximately 3.4 years. As of August 31, 2006, the total compensation cost related to options to purchase the Company's common shares under the ESPP but not yet recognized was approximately $118,000. The fair values of the Company's stock options granted to employees and ESPP shares for the three months ended August 31, 2006 were estimated using the following weighted average assumptions in the Black-Scholes valuation method consistent with the provisions of SFAS 123(R), Securities and Exchange Commission Staff Accounting Bulletin No. 107 and the Company's prior pro forma disclosures of net loss, including stock-based compensation (determined under a fair value method as prescribed by SFAS No. 123). The fair value of our stock options granted to employees for the three months ended August 31, 2006 and 2005 was estimated using the following weighted-average assumptions:
Three months ended August 31, --------------------- 2006 2005 -------- -------- Option Plan Shares Expected Term (in years).................... 5 5 Volatility.................................. 0.76 0.78 Expected Dividend........................... $0.00 $0.00 Risk-free Interest Rates.................... 5.10% 3.96% Estimated Forfeiture Rate................... 4% 0% Weighted Average Fair Value................. $5.47 $2.00
Three months ended August 31, ------------------------- 2006 2005 ----------- ----------- Employee Stock Purchase Plan Shares Expected Term (in years).............. 0.5 - 2.0 0.5 - 2.0 Volatility.................................. 0.80 - 0.82 0.59 - 0.79 Expected Dividend........................... $0.00 $0.00 Risk-free Interest Rates.................... 4.0% - 5.2% 2.4% - 3.1% Estimated Forfeiture Rate................... 4% 0% Weighted Average Fair Value................. $5.14 $5.21
9 The following table summarizes the stock options transactions during the three months ended August 31, 2006 (in thousands, except per share data):
Outstanding Options --------------------------------------------- Weighted Number Average Aggregate Available of Exercise Intrinsic Shares Shares Price Value ---------- -------- --------- ---------- Balances, May 31, 2006........ 334 1,269 $3.81 Options granted............. (145) 145 $8.54 Options exercised........... -- (91) $4.11 ---------- -------- Balances, August 31, 2006..... 189 1,323 $4.31 $7,496 ========== ======== Options exercisable and expected to be exercisable at August 31, 2006 1,264 $4.26 $7,224 ========
The options outstanding and exercisable at August 31, 2006 were in the following exercise price ranges:
Options Outstanding Options Exercisable at August 31, 2006 at August 31, 2006 ----------------------------------- ---------------------------- Weighted Average Weighted Weighted Number Remaining Average Number Average Aggregate Range of Outstanding Contractual Exercise Exercisable Exercise Intrinsic Exercise Prices Shares Life (Years) Price Shares Price Value - ---------------- ------------ ----------- -------- ----------- -------- --------- $2.49 - $3.63 581 5.02 $3.09 274 $3.09 $3.66 - $4.08 278 3.63 $3.91 251 $3.92 $4.25 - $4.95 214 2.98 $4.50 182 $4.52 $5.25 - $6.25 105 2.03 $5.83 95 $5.80 $8.45 - $9.30 145 6.88 $8.54 3 $8.54 ------------ ----------- $2.49 - $9.30 1,323 4.36 $4.31 805 $4.01 $4,799 ============ ===========
The total intrinsic value of options exercised during the three months ended August 31, 2006 was $367,000. 3. EARNINGS PER SHARE Earnings per share is computed based on the weighted average number of common and common equivalent shares (common stock options) outstanding, when dilutive, during each period using the treasury stock method. 10
Three Months Ended August 31, ---------- ---------- 2006 2005 ---------- ---------- (in thousands, except per share amounts) Net income (loss) available to common shareholders: Numerator: Net income (loss)....................... $ 557 $ (244) ---------- ---------- Denominator for basic income (loss) per share: Weighted-average shares outstanding ............. 7,683 7,482 ---------- ---------- Shares used in basic income (loss) per share calculation...................................... 7,683 7,482 Effect of dilutive securities...................... 643 -- ---------- ---------- Denominator for diluted net income (loss) per share...................................... 8,326 7,482 ---------- ---------- Basic net income (loss) per share.................. $0.07 $(0.03) ========== ========== Diluted net income (loss) per share................ $0.07 $(0.03) ========== ==========
Stock options to purchase 12,000 shares of common stock were outstanding on August 31, 2006, but not included in the computation of diluted income per share, because the inclusion of such shares would be anti-dilutive. Stock options to purchase 1,408,000 shares of common stock were outstanding on August 31, 2005, but were not included in the computation of diluted loss per share because the inclusion of such shares would be anti-dilutive. 4. INVENTORIES Inventories are comprised of the following (in thousands):
August 31, May 31, 2006 2006 ----------- ----------- Raw materials and sub-assemblies $2,611 $3,039 Work in process 3,448 2,978 Finished goods 226 1,225 ----------- ----------- $6,285 $7,242 =========== ===========
5. SEGMENT INFORMATION The Company operates in one reportable segment; the design, manufacture and marketing of advanced test and burn-in products to the semiconductor manufacturing industry. The following presents information about the Company's operations in different geographic areas (in thousands): 11
United Adjust- States Asia Europe ments Total --------- --------- --------- --------- --------- Three months ended August 31, 2006: Net sales...................... $ 6,442 $1,216 $ 29 $ (551) $ 7,136 Portion of U.S. net sales from export sales............ 3,797 -- -- -- 3,797 Income (loss) from operations.. 286 97 (150) (2) 231 Identifiable assets............ 32,804 1,207 712 (10,903) 23,820 Property and equipment, net.... 745 86 23 -- 854 Three months ended August 31, 2005: Net sales...................... $ 3,961 $ 583 $195 $ (93) $ 4,646 Portion of U.S. net sales from export sales............ 3,278 -- -- -- 3,278 Loss from operations .......... (287) (3) (43) 35 (298) Identifiable assets............ 29,826 1,171 883 (10,499) 21,381 Property and equipment, net.... 1,156 195 30 -- 1,381
The Company's foreign operations are primarily those of its Japanese and German subsidiaries. Substantially all of the sales of the subsidiaries are made to unaffiliated Japanese or European customers. Net sales and income (loss) from operations from outside the United States include the operating results of Aehr Test Systems Japan K.K. and Aehr Test Systems GmbH. Adjustments consist of intercompany eliminations. Identifiable assets are all assets identified with operations in each geographic area. 6. PRODUCT WARRANTIES The Company provides for the estimated cost of product warranties at the time the products are 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. Following is a summary of changes in the Company's liability for product warranties during the three months ended August 31, 2006 and 2005:
Three months ended August 31, ------------------------ 2006 2005 ----------- ----------- (in thousands) Balance at the beginning of the period ........... $169 $213 Accruals for warranties issued during the period.. 114 -- Reversal of warranties issued during the period... -- (11) Settlements made during the period (in cash or in kind)............................. (106) (60) ----------- ----------- Balance at the end of the period.................. $177 $142 =========== ===========
7. OTHER COMPREHENSIVE INCOME (LOSS) Other comprehensive income (loss), net of tax are comprised of the following: 12
Three months ended August 31, ------------------------ 2006 2005 ----------- ----------- (in thousands) Net income (loss)................................ $557 $(244) Foreign currency translation adjustments......... (12) 1 Unrealized holding gains arising during period ................................. 2 4 ----------- ----------- Comprehensive income (loss)...................... $547 $(239) =========== ===========
8. RECENT ACCOUNTING PRONOUNCEMENTS In June 2006, the FASB issued FASB Interpretation No. 48 ("FIN 48") "Accounting for Uncertain Tax Positions - An Interpretation of FASB Statement No. 109". FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with FASB Statement No. 109 "Accounting for Income Taxes". It prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company is currently evaluating the impact of FIN 48 to its financial position and results of operations. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of the financial condition and results of operations of the Company should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes that appear elsewhere in this document and with our Annual Report on Form 10-K for the fiscal year ended May 31, 2006 and the consolidated financial statements and notes thereto. In addition to historical information, this report contains forward- looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Act of 1934. These statements typically may be identified by the use of forward-looking words or phrases such as "believe," "expect," "intend," "anticipate," "should," "planned," "estimated," and "potential," among others and include, but are not limited to, statements concerning our expectations regarding our operations, business, strategies, prospects, revenues, expenses, costs and resources. These forward-looking statements are subject to certain risks and uncertainties that could cause our actual results to differ materially from those the anticipated results or other expectations reflected in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this report and other factors beyond our control, and in particular, the risks discussed in Part II, Item 1A. Risk Factors and those discussed in other documents we file with the Securities and Exchange Commission. All forward-looking statements included in this document are based on our current expectations, and we undertake no obligation to revise or publicly release the results of any revision to these forward- looking statements. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. 13 CRITICAL ACCOUNTING POLICIES The Company's discussion and analysis of its financial condition and results of operations are based upon the Company's unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company 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, the Company evaluates its estimates, including those related to customer programs and incentives, product returns, bad debts, inventories, investments, intangible assets, income taxes, financing operations, warranty obligations, long-term service contracts, and contingencies and litigation. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which 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. For a discussion of the critical accounting policies, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies" in the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 2006. RESULTS OF OPERATIONS The following table sets forth items in the Company's unaudited condensed consolidated statements of operations as a percentage of net sales for the periods indicated.
Three Months Ended August 31, --------------------- 2006 2005 ---------- ---------- Net sales. . . . . . . . . . . . . . . . . 100.0 % 100.0 % Cost of sales. . . . . . . . . . . . . . . 54.4 52.9 ---------- ---------- Gross profit . . . . . . . . . . . . . . . 45.6 47.1 ---------- ---------- Operating expenses: Selling, general and administrative. . . 22.9 31.3 Research and development . . . . . . . . 19.4 22.3 ---------- ---------- Total operating expenses . . . . 42.3 53.6 ---------- ---------- Income (loss) from operations . . . . . . 3.3 (6.5) Interest income. . . . . . . . . . . . . . 1.7 1.0 Other income (expense), net. . . . . . . . 3.0 -- ---------- ---------- Income (loss) before income taxes. . . . . 8.0 (5.5) Income tax expense (benefit) . . . . . . . 0.2 (0.2) ---------- ---------- Net income (loss). . . . . . . . . . . . . 7.8 % (5.3)% ========== ==========
14 THREE MONTHS ENDED AUGUST 31, 2006 COMPARED TO THREE MONTHS ENDED AUGUST 31, 2005 NET SALES. Net sales increased to $7.1 million in the three months ended August 31, 2006 from $4.6 million in the three months ended August 31, 2005, an increase of 53.6%. The increase in net sales in the three months ended August 31, 2006 resulted primarily from increases in net sales of the Company's monitored burn-in products. Net sales of the Company's monitored burn-in products for the three months ended August 31, 2006 were $4.5 million, and increased approximately $2.0 million from the three months ended August 31, 2005. The Company expects net sales in the second quarter of fiscal 2007 to be similar to those of the first quarter of fiscal 2007. GROSS PROFIT. Gross profit consists of net sales less cost of sales. Cost of sales consists primarily of the cost of materials, assembly and test costs, and overhead from operations. Gross profit increased to $3.3 million in the three months ended August 31, 2006 from $2.2 million in the three months ended August 31, 2005, an increase of 48.7%. As a percentage of net sales, gross profit margin decreased to 45.6% in the three months ended August 31, 2006 from 47.1% in the three months ended August 31, 2005. The decrease in gross profit margin from last year was primarily due to low introductory selling prices offered to a new Asian customer. Prices to that customer for similar systems have subsequently been increased. SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative ("SG&A") expenses consist primarily of salaries and related costs of employees, commission expenses to independent sales representatives, product promotion and other professional services. SG&A expenses of $1.6 million in the three months ended August 31, 2006 increased from $1.5 million in the three months ended August 31, 2005, an increase of 12.6%. The increase in SG&A expenses was primarily due to an increase in employee stock compensation expenses of $92,000. As a percentage of net sales, SG&A expenses decreased to 22.9% in the three months ended August 31, 2006 from 31.3% in the three months ended August 31, 2005, reflecting higher net sales. RESEARCH AND DEVELOPMENT. Research and development ("R&D") expenses consist primarily of salaries and related costs of employees engaged in ongoing research, design and development activities, costs of engineering materials and supplies, and professional consulting expenses. R&D expenses increased to $1.4 million in the three months ended August 31, 2006 from $1.0 million in the three months ended August 31, 2005, an increase of 34.1%. This increase was primarily due to an increase in project related professional service expenses of $137,000, employment related expenses of $102,000, and stock compensation expenses of $64,000. As a percentage of net sales, R&D expenses decreased to 19.4% in the three months ended August 31, 2006 from 22.3% in the three months ended August 31, 2005, reflecting higher net sales. INTEREST INCOME. Interest income increased to $122,000 in the three months ended August 31, 2006 from $46,000 in the three months ended August 31, 2005. Approximately 60% of the increase in interest income was the result of higher interest rates earned and approximately 40% of the increase in interest income was the result of higher invested balances. OTHER INCOME, NET. Other income, net increased to $216,000 in the three months ended August 31, 2006 from zero in the three months ended August 31, 2005. The increase in other income, net was primarily due to the receipt of a dividend paid by the Company's investment in ESA Electronics Pte Ltd., a Singapore company. INCOME TAX EXPENSE (BENEFIT). Income tax expense was $12,000 in the three months ended August 31, 2006 and income tax benefit was $8,000 in the three months ended August 31, 2005. The income tax expense in the three months ended August 31, 2006 was primarily attributable to alternate minimum tax requirements for the Company's U.S. operations. The income tax benefit in the three months ended August 31, 2005 primarily related to the income or loss 15 earned in the Company's German subsidiary. The Company's U.S. operations and its Japanese subsidiary have experienced significant cumulative losses and thus generated certain net operating losses available to offset future taxes payable in the U.S. and Japan. As a result of the cumulative operating losses in the Company's U.S. operations and its Japanese subsidiary, a valuation allowance was established for the full amount of its net deferred tax assets for both its U.S. operations and its Japanese subsidiary. LIQUIDITY AND CAPITAL RESOURCES Net cash used in operating activities was approximately $1.0 million for the three months ended August 31, 2006 and $2.7 million for the three months ended August 31, 2005. For the three months ended August 31, 2006, net cash used in operating activities of $1.0 million was primarily due to a decrease in accrued expenses and deferred revenues of $2.1 million and an increase in accounts receivable of $720,000, partially offset by a decrease in inventories of $956,000 and the net income of $557,000. The primary reasons for these changes were: (1) accrued expenses and deferred revenue decreased primarily due to revenue recognized from deferrals made in prior periods which were earned in this quarter, (2) accounts receivable increased because a large multinational customer was beyond its payment terms at August 31, 2006 (this customer's past due receivables were paid in September 2006), and (3) inventories decreased primarily due to the costs of revenue transactions recognized from deferrals noted in item (1) above. For the three months ended August 31, 2005, net cash used in operating activities was due primarily to increases in accounts receivable of $2.1 million and inventories of $915,000, and the net loss of $244,000, partially offset by an increase in accounts payable of $266,000. Net cash used in investing activities was approximately $184,000 for the three months ended August 31, 2006 and net cash provided by investing activities was approximately $1.9 million for the three months ended August 31, 2005. The net cash used in investing activities during the three months ended August 31, 2006 was primarily attributable to $4.2 million of purchase of investments, partially offset by $4.0 million net proceeds from sales and maturities of investments. The net cash provided by investing activities during the three months ended August 31, 2005 was primarily due to the net proceeds from sales and maturity of investments, partially offset by the purchase of investments. Financing activities provided cash of approximately $373,000 in the three months ended August 31, 2006. Financing activities neither used nor provided cash in the three months ended August 31, 2005. Net cash provided by financing activities during the three months ended August 31, 2006 was due to proceeds from issuance of common stock and exercise of stock options. As of August 31, 2006, the Company had working capital of $18.5 million. Working capital consists of cash and cash equivalents, short-term investments, accounts receivable, inventory and other current assets, less current liabilities. The Company announced in August 1998 that its board of directors had authorized the repurchase of up to 1,000,000 shares of its outstanding common shares. The Company may repurchase the shares in the open market or in privately negotiated transactions, from time to time, subject to market conditions. The number of shares of common stock actually acquired by the Company will depend on subsequent developments and corporate needs, and the repurchase program may be interrupted or discontinued at any time. Any such repurchase of shares, if consummated, may use a portion of the Company's working capital. As of May 31, 2006, the Company had repurchased 523,700 shares at an average price of $3.95. Shared repurchased by the Company are cancelled. During the first quarter of 2007, the Company did not repurchase any of its outstanding common stock. The Company leases most of its manufacturing and office space under operating leases. The Company entered into a non-cancelable operating lease agreement for its United States manufacturing and office facilities, which 16 commenced in December 1999 and expires in December 2009. Under the lease agreement, the Company is responsible for payments of utilities, taxes and insurance. From time to time, the Company evaluates potential acquisitions of businesses, products or technologies that complement the Company's business. Any such transactions, if consummated, may use a portion of the Company's working capital or require the issuance of equity. The Company has no present understandings, commitments or agreements with respect to any material acquisitions. The Company anticipates that the existing cash balance together with cash provided by operations, if any, are adequate to meet its working capital and capital equipment requirements through fiscal year 2007. After fiscal year 2007, depending on its rate of growth and profitability, the Company may require additional equity or debt financing to meet its 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 the Company. OFF-BALANCE SHEET ARRANGEMENTS The Company has not entered into any off-balance sheet financing arrangements and has not established any variable interest entities. OVERVIEW OF CONTRACTUAL OBLIGATIONS There have been no material changes in the composition, magnitude or other key characteristics of the Company's contractual obligations or other commitments as disclosed in the Company's Form 10-K for the year ended May 31, 2006. RECENT ACCOUNTING PRONOUNCEMENTS In June 2006, the FASB issued FASB Interpretation No. 48 ("FIN 48") "Accounting for Uncertain Tax Positions - An Interpretation of FASB Statement No. 109". FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with FASB Statement No. 109 "Accounting for Income Taxes". It prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company is currently evaluating the impact of FIN 48 to its financial position and results of operations. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS The Company considered the provisions of Financial Reporting Release No. 48, "Disclosures of Accounting Policies for Derivative Financial Instruments and Derivative Commodity Instruments, and Disclosures of Quantitative and Qualitative Information about Market Risk Inherent in Derivative Commodity Instruments." The Company had no holdings of derivative financial or commodity instruments at August 31, 2006. The Company is exposed to financial market risks, including changes in interest rates and foreign currency exchange rates. The Company invests excess cash in a managed portfolio of corporate and government bond instruments with maturities of 18 months or less. The Company does not use any financial instruments for speculative or trading purposes. Fluctuations in interest rates would not have a material effect on the Company's financial position, results of operations and cash flows. 17 A majority of the Company's revenue and capital spending is transacted in U.S. dollars. The Company, however, enters into transactions in other currencies, primarily Japanese Yen. Substantially all sales to Japanese customers are denominated in Yen. Since the price is determined at the time a purchase order is accepted, the Company is exposed to the risks of fluctuations in the Yen-U.S. dollar exchange rate during the lengthy period from purchase order to ultimate payment. This exchange rate risk is partially offset to the extent that the Company's Japanese subsidiary incurs expenses payable in Yen. To date, the Company has not invested in instruments designed to hedge currency risks. In addition, the Company's Japanese subsidiary typically carries debt or other obligations due to the Company that may be denominated in either Yen or U.S. dollars. Since the Japanese subsidiary's financial statements are based in Yen and the Company's financial statements are based in U.S. dollars, the Japanese subsidiary and the Company recognize foreign exchange gain or loss in any period in which the value of the Yen rises or falls in relation to the U.S. dollar. A 10% decrease in the value of the Yen as compared with the U.S. dollar would not be expected to result in a significant change in the net income or loss. Item 4. CONTROLS AND PROCEDURES Evaluation of disclosure controls and procedures. Our management evaluated, with the participation of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. 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 and Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms. Changes in internal controls over financial reporting. There was no change in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 18 PART II - OTHER INFORMATION Item 1. LEGAL PROCEEDINGS None. Item 1A. RISK FACTORS Set forth below and elsewhere in this Quarterly Report on Form 10-Q and in other documents we file with the Securities and Exchange Commission, including without limitation our most recently filed Form 10-K, are risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements in this Quarterly Report on Form 10-Q. We believe that these risks and uncertainties are the principal material risks facing the Company as of the date of this Form 10-Q. In the future, we may become subject to additional risks that are not currently known to us. If any of these risks actually occur, our business, financial condition and operating results could be seriously harmed. As a result, the trading price of our common stock could decline, and you could lose all or part of the value of your investment. CUSTOMER CONCENTRATION. 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 the Company's five largest customers accounted for approximately 82.9%, 73.1% and 70.5% of its net sales in fiscal 2006, 2005 and 2004, respectively. Sales to the Company's five largest customers accounted for approximately 77.4% of its net sales in the three months ended August 31, 2006. During fiscal 2006, Texas Instruments Incorporated and Spansion Inc. (formerly FASL LLC.) accounted for 47.9% and 24.9% of the Company's net sales, respectively. During fiscal 2005, Spansion Inc. and Texas Instruments Incorporated accounted for 43.1% and 16.9% of the Company's net sales, respectively. No other customers represented more than 10% of the Company's net sales for any of such 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. The loss of or reduction or delay in an order or orders from a significant customer, or a delay in collecting or failure to collect accounts receivable from a significant customer could adversely affect the Company's business, financial condition and operating results. DEPENDENCE ON MARKET ACCEPTANCE OF FOX SYSTEM. One element of the Company's business strategy is to capture an increasing share of the test equipment market through sales of its FOX wafer-level test and burn-in system. The FOX system is newly designed to simultaneously burn-in and functionally test all of the die on a wafer. The market for the FOX systems is in the very early stages of development. The FOX-14 full wafer contact burn-in and parallel test system was introduced in July 2001 and the FOX-1 full wafer parallel test system was introduced in June 2005. The Company's strategy depends, in part, upon its ability to persuade potential customers that the FOX system can successfully contact and functionally test all of the die on a wafer simultaneously, and that this method of testing is cost-effective for the customer. There can be no assurance that the Company's strategy will be successful. The failure of the FOX system to achieve market acceptance would have a material adverse effect on the Company's future operating results and long-term prospects. The Company's stock price may also decline. Market acceptance of the FOX system is subject to a number of risks. The Company must complete development of the FOX system and the manufacturing processes used to build it. Before a customer will incorporate the FOX system into a production line, lengthy qualification and correlation tests must be performed. The Company anticipates 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 19 FOX system also may be affected by a reluctance of IC manufacturers to rely on relatively small suppliers such as the Company. As is common with new complex products incorporating leading-edge technologies, the Company may encounter reliability, design and manufacturing issues as it begins volume production and initial installations of FOX systems at customer sites. While the Company places a high priority on addressing these issues as they arise, there can be no assurance that they can be resolved to the customer's satisfaction or that the resolution of such problems will not cause the Company to incur significant development costs or warranty expenses or to lose significant sales opportunities. INTENSE COMPETITION. 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 expects its competitors will continue to improve the performance of their current products and to introduce new products with improved price and performance characteristics. In addition, continuing consolidation in the semiconductor equipment industry, and potential future consolidation, could adversely affect the ability of smaller companies, such as the Company, to compete with larger, integrated competitors. 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 existing products. Increased competitive pressure could also lead to intensified price-based competition, resulting in lower prices which could adversely affect the Company's business, financial condition and operating results. The Company believes that to remain competitive it must invest significant financial resources in new product development and expand its customer service and support worldwide. There can be no assurance that the Company will be able to compete successfully in the future. The semiconductor equipment industry is intensely competitive. Significant competitive factors in the semiconductor equipment market include price, technical capabilities, quality, delivery lead-time, 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. Because the Company's MTX system performs burn-in and many of the functional tests performed by traditional memory testers, the MTX system faces intense competition from burn-in system suppliers and traditional memory tester suppliers. The market for burn-in systems is highly fragmented, with many domestic and international suppliers. 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. Competing suppliers of burn-in and functional test systems include Advantest Corporation and Dong-Il Corporation. The Company's MAX monitored burn-in 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. The Company's FOX full wafer contact system is expected to face competition from larger systems manufacturers that have sufficient technological know-how and manufacturing capability. Competing suppliers of full wafer contact systems include Matsushita Electric Industrial Co., Ltd. and Delta V Instruments, Incorporated. The Company expects that its DiePak products will face significant competition. The Company believes that several companies have developed or are developing products which are intended to enable test and burn-in of bare die. As the bare die market develops, the Company expects that other competitors will emerge. The DiePak products also face severe competition from other alternative test solutions. The Company expects that the primary competitive 20 factors in this market will be cost, performance, reliability and assured supply. Competing suppliers of DiePak products include Yamaichi Electronics Co., Ltd. The Company's test fixture products face numerous regional competitors. There are limited barriers to entry into the burn-in board ("BIB") market, and as a result, many companies design and manufacture BIBs, including BIBs for use with the Company's MAX system. The Company's strategy is to provide only certain high performance BIBs, and the Company generally does not compete to supply low cost, low performance BIBs. The Company has a partnership with Pycon, Inc. whereby Pycon, Inc. designs, manufactures and sells the BIBs and the Company provides Pycon, Inc. with system know-how. Both companies jointly market and sell the BIBs and performance test boards ("PTBs"). There can be no assurance that the partnership will be successful. The Company has granted royalty-bearing licenses to several companies to make performance test boards for use with the Company's MTX systems and BIBs for use with the Company's MAX4 systems, in order to assure customers of a second source of supply, and the Company may grant additional licenses as well. Sales of PTBs and MAX4 BIBs by licensees result in royalties to the Company. The Company expects its competitors to continue to improve the performance of their current products and to introduce new products with improved price and performance characteristics. New product introductions by the Company's competitors or by new market entrants could cause a decline in sales or loss of market acceptance of the Company's products. The Company has observed price competition in the systems market, particularly with respect to its less advanced products. Increased competitive pressure could also lead to intensified price-based competition, resulting in lower prices which could adversely affect the Company's operating margins and results. The Company believes that to remain competitive it must invest significant financial resources in new product development and expand its customer service and support worldwide. There can be no assurance that the Company will be able to compete successfully in the future. DEPENDENCE ON SUBCONTRACTORS; SOLE OR LIMITED SOURCES OF SUPPLY. The Company relies on subcontractors to manufacture many of the components or subassemblies used in its products. The Company's MTX, MAX, and FOX systems and DiePak carriers contain several components, including environmental chambers, power supplies, wafer and die contactors, signal distribution substrates and certain ICs, which are currently supplied by only one or a limited number of suppliers. The Company's 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 was to become unable or unwilling to continue to manufacture subassemblies, components or parts in required volumes, the Company 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 the Company on a timely basis. Any delay, interruption or termination of a supplier relationship could have a material and adverse effect on the Company's business, financial condition and operating results. Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS None. Item 3. DEFAULTS UPON SENIOR SECURITIES None. 21 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. Item 5. OTHER INFORMATION None. Item 6. EXHIBITS The Exhibits listed on the accompanying "Index to Exhibits" are filed as part hereof, or incorporated by reference into, the report. 22 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Aehr Test Systems (Registrant) Date: October 13, 2006 /s/ RHEA J. POSEDEL --------------------------- Rhea J. Posedel Chief Executive Officer and Chairman of the Board of Directors Date: October 13, 2006 /s/ GARY L. LARSON ---------------------------- Gary L. Larson Vice President of Finance and Chief Financial Officer 23 AEHR TEST SYSTEMS INDEX TO EXHIBITS Exhibit No. Description - ---------- ------------ 31.1 Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002. 32 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. 24 EX-31 3 ex311ceo.txt EXHIBIT 31.1 CEO CERTIFICATION Exhibit 31.1 CERTIFICATION I, Rhea J. Posedel, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Aehr Test Systems; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluations; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: October 13, 2006 /s/ RHEA J. POSEDEL ----------------------- Rhea J. Posedel Chief Executive Officer EX-31 4 ex312cfo.txt EXHIBIT 31.2 CFO CERTIFICATION Exhibit 31.2 CERTIFICATION I, Gary L. Larson, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Aehr Test Systems; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluations; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: October 13, 2006 /s/ GARY L. LARSON --------------------------- Gary L. Larson Chief Financial Officer EX-32 5 ex32ceocfo.txt EXHIBIT 32 CEO & CFO CERTIFICATION Exhibit 32 CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Rhea J. Posedel, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Aehr Test Systems on Form 10-Q for the period ended August 31, 2006 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Aehr Test Systems. By: /s/ RHEA J. POSEDEL ---------------------------------- Rhea J. Posedel Chief Executive Officer I, Gary L. Larson, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Aehr Test Systems on Form 10-Q for the period ended August 31, 2006 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Aehr Test Systems. By: /s/ GARY L. LARSON ---------------------------------- Gary L. Larson Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----