aehr_10k.htm

AEHR TEST SYSTEMS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

BUSINESS:

Aehr Test Systems (the “Company”) was incorporated in California in May 1977 and primarily designs, engineers and manufactures test and burn-in equipment used in the semiconductor industry. The Company’s principal products are the Advanced Burn-In and Test System, or ABTS, the FOX full wafer contact parallel test and burn-in systems, the MAX burn-in system, WaferPak full wafer contactor, the DiePak carrier and test fixtures.

LIQUIDITY:

Since inception, the Company has incurred substantial cumulative losses and negative cash flows from operations. During fiscal 2010, 2011 and 2012, the Company experienced a decrease in its net sales in recent years compared to previous years as a result of a major customer filing bankruptcy and a slowdown in the semiconductor manufacturing industry. In response to the low levels of net sales, the Company took significant steps to minimize expense levels and to increase the likelihood that it will have sufficient cash to support operations during the slow business periods. Those steps included reductions in headcount, reduced compensation for officers and other salaried employees, a Company-wide shutdown for one week each month and lower fees paid to the Board of Directors, among other spending cuts. The Company has subsequently eliminated some of these cuts. The Company will continue to explore methods to reduce its costs.

In August 2011, the Company entered into a working capital credit facility agreement allowing the Company to borrow up to $1.5 million based upon qualified U.S. based and foreign customer receivables, and export-related inventory. In May 2012, the credit agreement was amended to increase the borrowing limit to $2.0 million. Refer to Note 8, “LINE OF CREDIT”, for further discussion of the credit facility agreement.

During fiscal 2009, 2010, 2011 and fiscal 2012 we experienced operating losses. Due primarily to these operating losses, we experienced cash outflows and, at May 31, 2012, had $2.1 million in cash and cash equivalents, compared to $4.0 million at May 31, 2011. The Company expects to become profitable and to return to positive cash flow by the end of calendar year 2012. The Company anticipates that the existing cash balance together with cash flows from operations, as well as funds available through the working capital credit facility will be adequate to meet its working capital and capital equipment requirements through fiscal 2013. After fiscal 2013, 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.

CONSOLIDATION AND EQUITY INVESTMENTS:

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. Equity investments in which the Company holds an equity interest less than 20 percent and over which the Company does not have significant influence are accounted for using the cost method. Dividends received from investees accounted for using the cost method are included in other income, net on the Consolidated Statements of Operations.

FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS:

Assets and liabilities of the Company’s foreign subsidiaries and branch office are translated into U.S. Dollars from their functional currencies of Japanese Yen, Euros and New Taiwan Dollars using the exchange rate in effect at the balance sheet date. Additionally, their net sales and expenses are translated using exchange rates approximating average rates prevailing during the fiscal year. Translation adjustments that arise from translating their financial statements from their local currencies to U.S. Dollars are accumulated and reflected as a separate component of shareholders’ equity.

Transaction gains and losses that arise from exchange rate changes denominated in currencies other than the local currency are included in the statements of operations as incurred. See Note 12 for the detail of foreign exchange transaction gains for all periods presented.

USE OF ESTIMATES:

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates in the Company’s consolidated financial statements include allowance for doubtful accounts, valuation of inventory at the lower of cost or market, and warranty reserves.

CASH EQUIVALENTS AND INVESTMENTS:

Cash equivalents consist of money market instruments, commercial paper and other highly liquid investments purchased with an original maturity of three months or less. Short-term investments not classified as cash equivalents are classified as available-for-sale. These investments are reported at fair value with unrealized gains and losses, net of tax, if any, included as a component of shareholders’ equity.

FAIR VALUE OF FINANCIAL INSTRUMENTS AND MEASUREMENT:

On June 1, 2008, the Company adopted authoritative guidance for fair value measurements and the fair value option for financial assets and liabilities. This authoritative guidance defines fair value, establishes a framework for using fair value to measure assets and liabilities, and expands disclosures about fair value measurements.

In the first quarter of fiscal 2010, the Company adopted revised accounting guidance for the fair value measurements and disclosure for non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually).

The guidance establishes a fair value hierarchy that is intended to increase the consistency and comparability in fair value measurements and related disclosures. The fair value hierarchy is 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 and liabilities measured at fair value on a recurring basis as of May 31, 2012 (in thousands):

	Balance as of
	May 31, 2012		Level 1		Level 2		Level 3
Money market funds	$	2	$	2	$	--	$	--

Assets	$	2	$	2	$	--	$	--

Liabilities	$	--	$	--	$	--	$	--

The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis as of May 31, 2011 (in thousands):

	Balance as of
	May 31, 2011		Level 1		Level 2		Level 3
Money market funds	$	1,236	$	1,236	$	--	$	--

Assets	$	1,236	$	1,236	$	--	$	--

Liabilities	$	--	$	--	$	--	$	--

Financial instruments include cash, cash equivalents, receivables, accounts payable and certain other accrued liabilities. The fair value of cash, cash equivalents, receivables, accounts payable and certain other accrued liabilities are valued at their carrying value, which approximates fair value due to their short maturities.

The Company has at times invested in debt and equity of private companies, and may do so again in the future, as part of its business strategy. These investments are carried at cost and are included in “Other Assets” in the consolidated balance sheets. If the Company determines that an other-than-temporary decline exists in the fair value of an investment, the Company writes down the investment to its fair value and records the related write-down as an investment loss in “Other Income (Expense)” in its consolidated statements of operations. During the first quarter of fiscal 2012, the Company sold its long-term investment in ESA Electronics PTE Ltd for proceeds of approximately $1.4 million, resulting in a gain of $990,000. At May 31, 2011, the carrying value of the strategic investments was $384,000 and was included in other assets-long term on the accompanying condensed consolidated balance sheet.

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. During the year ended May 31, 2009, the Company recorded a $13,558,000 increase in its allowance for doubtful accounts as a result of its major customer filing for bankruptcy. During the year ended May 31, 2010, the allowance for doubtful accounts decreased by $12,330,000 due primarily to the write-off of the Spansion U.S. accounts receivable reserved in the prior fiscal year. No significant adjustments to the allowance for doubtful accounts were recorded during the year ended May 31, 2011 or 2012.

CONCENTRATION OF CREDIT RISK:

The Company sells its products primarily to semiconductor manufacturers in North America, Asia, and Europe. As of May 31, 2012, approximately 52%, 25% and 23% of gross accounts receivable are from customers located in the United States, Asia and Europe, respectively. As of May 31, 2011, approximately 49%, 12% and 39% of gross accounts receivable are from customers located in the United States, Asia and Europe, respectively. Three customers accounted for 45%, 22% and 18% of gross accounts receivable at May 31, 2012. Three customers accounted for 41%, 17% and 11% of gross accounts receivable at May 31, 2011. Two customers accounted for 40% and 22% of net sales in fiscal 2012. Two customers accounted for 61% and 11% of net sales in fiscal 2011. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. While the Company has historically maintained reserves within management expectations, as a result of the bankruptcy filing of a key customer during the fiscal year ended May 31, 2009, specific reserves were established. The specific reserves established for this customer accounted for virtually all the allowance for doubtful accounts at May 31, 2009. The Company uses letter of credit terms for some of its international customers.

The Company’s cash, cash equivalents, short-term cash deposits and short-term investments are generally deposited with major financial institutions in the United States, Japan, Germany and Taiwan. The Company invests its excess cash in money market funds and short-term cash deposits. The money market funds and short-term cash deposits bear the risk associated with each fund. The money market funds have variable interest rates, and the short-term cash deposits have fixed 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.

STRATEGIC INVESTMENTS:

The Company invests in debt and equity of private companies as part of its business strategy. These available for sale investments are carried at cost and are included in “Other Assets” in the consolidated balance sheets. If the Company determines that an other-than-temporary decline exists in the fair value of an investment, the Company writes down the investment to its fair value and records the related write-down as an investment loss in “Other Income (Expense)” in its consolidated statements of operations.

At May 31, 2011 the Company held a long-term investment in ESA Electronics PTE Ltd. The carrying value of the strategic investments at that date was $384,000. The investment had not been revalued at May 31, 2011 as the fair value was not readily determinable due to the investment being a privately held company based in Singapore. The Company maintains less than 20% of the voting rights of the company invested.

In June 2011, the Company sold all of its shares of ESA for approximately $1.4 million resulting in a gain of approximately $990,000 reported in the first quarter of fiscal 2012.

INVENTORIES:

Inventories include material, labor and overhead, and are stated at the lower of cost (first-in, first-out method) or market. Provisions for excess, obsolete and unusable inventories are made after management’s evaluation of future demand and market conditions. The Company adjusts inventory balances to approximate the lower of its manufacturing costs or market value. If actual future demand or market conditions become less favorable than those projected by management, additional inventory write-downs may be required, and would be reflected in cost of product revenue in the period the revision is made. During the year ended May 31, 2009, the Company recorded a $7,203,000 charge to cost of sales to reduce its inventory to net realizable value primarily as a result of the bankruptcy filing of its major customer.

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, fixtures, machinery and equipment are depreciated on a straight-line basis over their estimated useful lives. The ranges of estimated useful lives for furniture, fixtures, machinery and equipment are generally as follows:

Furniture and fixtures	2 to 6 years

Machinery and equipment	4 to 6 years

Test equipment	4 to 6 years

GOODWILL:

Goodwill represents the excess of the purchase price over the fair value of tangible and identifiable intangible net assets acquired in the Company’s acquisition of its Japanese subsidiary. The Company reviews goodwill annually or whenever events or circumstances indicate that a decline in value may have occurred. Based on the fair market value of the Company’s common stock relative to its book value and revised estimates for its future cash flow and revenue projections, the Company determined that indicators of impairment for its goodwill were present during fiscal year 2009. As a result, the Company tested the goodwill for impairment, determined that it was impaired and recorded a non-cash impairment of goodwill charge of $274,000 for the fiscal year ended May 31, 2009 bringing the net value to zero. Both gross goodwill and accumulated impairment were each $274,000 at May 31, 2012 and 2011.

REVENUE RECOGNITION:

The Company recognizes revenue upon the shipment of products or the performance of services when: (1) persuasive evidence of the arrangement exists; (2) services have been rendered; (3) the price is fixed or determinable; and (4) collectibility is reasonably assured. The Company's selling arrangements may include contractual customer acceptance provisions. The Company defers recognition of revenue for any amounts subject to acceptance until such acceptance occurs. When a sales agreement involves multiple deliverables, such as extended support provisions, training to be supplied after delivery of the systems, and test programs specific to customers’ routine applications, the multiple deliverables are evaluated to determine the unit of accounting. Judgment is required to properly identify the accounting units of multiple element transactions and the manner in which revenue is allocated among the accounting units. Judgments made, or changes to judgments made, may significantly affect the timing or amount of revenue recognition.

Revenue related to the multiple elements are allocated to each unit of accounting using the relative selling price hierarchy. Consistent with accounting guidance, the selling price is based upon vendor specific objective evidence (VSOE). If VSOE is not available, third party evidence (TPE) is used to establish the selling price. In the absence of VSOE or TPE, estimated selling price is used. We have adopted this guidance effective with the first quarter of fiscal 2012. Prior to fiscal 2012, revenue for arrangements containing multiple deliverables was allocated based upon estimated fair values. The adoption of the new revenue recognition accounting standards did not have a material impact on our consolidated financial statements.

Sales tax collected from customers is not included in net sales but rather recorded as a liability due to the respective taxing authorities. Provisions for the estimated future cost of warranty and installation are recorded at the time the products are shipped.

Royalty-based revenue related to licensing income from performance test boards and burn-in boards is recognized upon the earlier of the receipt by the Company of the licensee’s report related to its usage of the licensed intellectual property or upon payment by the licensee.

The Company’s terms of sales with distributors are generally FOB shipping point with payment due within 60 days. All products go through in-house testing and verification of specifications before shipment. Apart from warranty reserves, credits issued have not been material as a percentage of net sales. The Company’s distributors do not generally carry inventories of the Company’s products. Instead, the distributors place orders with the Company at or about the time they receive orders from their customers. The Company’s shipment terms to our distributors do not provide for credits or rights of return. Because the Company’s distributors do not generally carry inventories of our products, they do not have rights to price protection or to return products. At the time the Company ships products to the distributors, the price is fixed. Subsequent to the issuance of the invoice, there are no discounts or special terms. The Company does not give the buyer the right to return the product or to receive future price concessions. The Company’s arrangements do not include vendor consideration.

PRODUCT DEVELOPMENT COSTS AND CAPITALIZED SOFTWARE:

Costs incurred in the research and development of new products or systems are charged to operations as incurred. Costs incurred in the development of software programs for the Company’s products are charged to operations as incurred until technological feasibility of the software has been established. Generally, technological feasibility is established when the software module performs its primary functions described in its original specifications, contains features required for it to be usable in a production environment, is completely documented and the related hardware portion of the product is complete. After technological feasibility is established, any additional costs are capitalized. Capitalization of software costs ceases when the software is substantially complete and is ready for its intended use. Capitalized costs are amortized over the estimated life of the related software product using the greater of the units of sales or straight-line methods over ten years. No system software development costs were capitalized or amortized in fiscal 2012, 2011 and 2010.

IMPAIRMENT OF LONG-LIVED ASSETS:

In the event that facts and circumstances indicate that the carrying value of assets may be impaired, an evaluation of recoverability would be performed. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset would be compared to the asset’s carrying value to determine if a write-down is required.

ADVERTISING COSTS:

The Company expenses all advertising costs as incurred and the amounts were not material for all periods presented.

SHIPPING AND HANDLING OF PRODUCTS:

Amounts billed to customers for shipping and handling of products are included in net sales. Costs incurred related to shipping and handling of products are included in cost of sales.

INCOME TAXES:

Income taxes have been provided using the liability method whereby deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and net operating loss and tax credit carryforwards measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse or the carryforwards are utilized. Valuation allowances are established when it is determined that it is more likely than not that such assets will not be realized.

During the fiscal year ended May 31, 2008 a partial release of the valuation allowance previously established was made based upon the Company’s current level of profitability and the level of forecasted future earnings. During fiscal 2009, a full valuation allowance was established against all deferred tax assets as management determined that it is more likely than not that certain deferred tax assets will not be realized.

The Company accounts for uncertain tax positions consistent with authoritative guidance. The guidance prescribes a “more likely than not” recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company does not expect any material change in its unrecognized tax benefits over the next twelve months. The Company recognizes interest and penalties related to unrecognized tax benefits as a component of income taxes.

Although the Company files U.S. federal, various state, and foreign tax returns, the Company’s only major tax jurisdictions are the United States, California, Germany and Japan. Tax years 1996 – 2011 remain subject to examination by the appropriate governmental agencies due to tax loss carryovers from those years.

STOCK-BASED COMPENSATION:

Stock-based compensation expense consists of expenses for stock options and employee stock purchase plan, or ESPP, shares. Stock-based compensation cost 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. All of the Company’s stock compensation is accounted for as an equity instrument.

The following table summarizes compensation costs related to the Company’s stock-based compensation for the years ended May 31, 2012, 2011 and 2010, respectively (in thousands, except per share data):

	Year Ended May 31,
	2012		2011		2010
Stock-based compensation in the form of employee
stock options and ESPP shares, included in:

Cost of sales	$	87	$	108	$	293
Selling, general and administrative		430		488		901
Research and development		192		351		539

Net effect on net loss	$	709	$	947	$	1,733

Effect on net loss per share:
Basic	$	0.08	$	0.11	$	0.20
Diluted	$	0.08	$	0.11	$	0.20

During fiscal 2012, 2011 and fiscal 2010, the Company recorded stock-based compensation related to stock options of $613,000, $829,000 and $1,511,000, respectively.

In the second quarter of fiscal 2010, the seven officers of the Company elected to forfeit certain stock options previously granted. The forfeiture of these options resulted in the immediate recognition of the unamortized portion of stock compensation expense of $465,000.

As of May 31, 2012, the total compensation cost related to unvested stock-based awards under the Company’s 1996 Stock Option Plan and 2006 Equity Incentive Plan, but not yet recognized, was $818,000 which is net of estimated forfeitures of $2,000. This cost will be amortized on a straight-line basis over a weighted average period of approximately 3.2 years.

During fiscal 2012, 2011 and fiscal 2010, the Company recorded stock-based compensation related to its ESPP of $96,000, $118,000 and $222,000, respectively.

As of May 31, 2012, the total compensation cost related to options to purchase the Company’s common shares under the ESPP but not yet recognized was $55,000. This cost will be amortized on a straight-line basis over a weighted average period of approximately 1.0 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.

Expected 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 cost recorded.

Dividends. The Company has never paid any cash dividends on its common stock and does not anticipate paying any cash dividends in the foreseeable future. Consequently, the Company uses an expected dividend yield of zero in the Black-Scholes option valuation method.

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.

Estimated Forfeitures. When estimating forfeitures, the Company considers voluntary termination behavior as well as analysis of actual option forfeitures.

Fair Value. The fair values of the Company’s stock options granted to employees and ESPP shares in fiscal 2012, 2011 and 2010 were estimated using the following weighted average assumptions in the Black-Scholes option valuation method:

	Year Ended May 31,
	2012			2011			2010
Option Plan Shares
Expected Term (in years)		5			5			5
Volatility		0.84			0.80			0.78
Expected Dividend	$	0.00		$	0.00		$	0.00
Risk-free Interest Rates		1.12	%		1.73	%		2.53	%
Weighted Average Grant Date Fair Value	$	0.60		$	1.19		$	0.56

The fair value of our ESPP purchase rights for the fiscal 2012, 2011 and 2010 was estimated using the following weighted-average assumptions:

Year End May 31,

2012

2011

2010

Employee Stock Purchase Plan Shares

Expected Term (in years)

0.5 - 2.0

n/a

0.5 - 2.0

Volatility

0.79 – 0.95

n/a

0.89 – 1.01

Expected Dividend

$0.00

n/a

$0.00

Risk-free Interest Rates

0.06%–1.05%

n/a

0.2%–1.1%

Weighted Average Grant Date Fair Value

$0.40

n/a

$0.84

There were no ESPP purchase rights granted during the ESPP periods in fiscal 2011.

EARNINGS PER SHARE (“EPS”):

Basic EPS is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS is computed after giving effect to all dilutive potential common shares that were outstanding during the period. Dilutive potential common shares consist of the incremental common shares issuable upon exercise of stock options for all periods.

A reconciliation of the numerator and denominator of basic and diluted EPS is provided as follows (in thousands, except per share amounts):

	Year Ended May 31,
	2012			2011			2010
Numerator: Net loss	$	(3,389	)	$	(3,373	)	$	(481	)

Denominator for basic net loss per share:
Weighted-average shares outstanding		9,016			8,776			8,563

Shares used in basic net loss per share calculation		9,016			8,776			8,563

Effect of dilutive securities		--			--			--

Denominator for diluted net loss per share		9,016			8,776			8,563

Basic net loss per share	$	(0.38	)	$	(0.38	)	$	(0.06	)

Diluted net loss per share	$	(0.38	)	$	(0.38	)	$	(0.06	)

For purposes of computing diluted earnings per share, weighted average potential common shares do 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. Potential common shares have not been included in the calculation of diluted net loss per share for the fiscal years ended May 31, 2012, 2011 and 2010, as the effect would be anti-dilutive due to the Company’s net loss. As such the numerator and the denominator used in computing both basic and diluted net loss per share for fiscal years ended May 31, 2012, 2011 and 2010 are the same. Stock options to purchase 2,957,000, 2,083,000 and 1,949,000 shares of common stock were outstanding on May 31, 2012, 2011 and 2010, respectively, but not included in the computation of diluted income per share, because the inclusion of such shares would be anti-dilutive.

COMPREHENSIVE INCOME (LOSS):

Comprehensive income (loss) generally represents all changes in shareholders’ equity except those resulting from investments or contributions by shareholders. Unrealized gains (losses) on foreign currency translation adjustments are included in the Company’s components of comprehensive income (loss), which are excluded from net income (loss). Comprehensive income (loss) is included in the statement of shareholders’ equity and comprehensive income (loss).

RECENT ACCOUNTING PRONOUNCEMENTS:

In October 2009, the Financial Accounting Standards Board, or FASB, issued authoritative guidance for revenue recognition with multiple deliverables. This authoritative guidance defines the criteria for identifying individual deliverables in a multiple-element arrangement and the manner in which revenues are allocated to individual deliverables. In absence of vendor-specific objective evidence, or VSOE, or other third party evidence, or TPE, of the selling price for the deliverables in a multiple-element arrangement, guidance requires companies to use an estimated selling price, or ESP, for the individual deliverables. Companies shall apply the relative-selling price model for allocating an arrangement’s total consideration to its individual elements. Under this model, the ESP is used for both the delivered and undelivered elements that do not have VSOE or TPE of the selling price. This guidance is effective for fiscal years beginning on or after June 15, 2010, and was applied prospectively to revenue arrangements entered into or materially modified after the effective date. The Company adopted this standard in the first quarter of fiscal year 2012.

In October 2009, the FASB issued authoritative guidance for the accounting for certain revenue arrangements that include software elements. This authoritative guidance amends the scope of pre-existing software revenue guidance by removing from the guidance non-software components of tangible products and certain software components of tangible products. This guidance is effective for fiscal years beginning on or after June 15, 2010, and was applied prospectively to revenue arrangements entered into or materially modified after the effective date. The Company adopted this standard in the first quarter of fiscal year 2012.

These standards did not have a material impact on the Company’s condensed consolidated financial statements.

In May 2011 updated authoritative guidance to amend existing requirements for fair value measurements and disclosures was issued. The guidance expands the disclosure requirements around fair value measurements categorized in Level 3 of the fair value hierarchy and requires disclosure of the level in the fair value hierarchy of items that are not measured at fair value but whose fair value must be disclosed. It also clarifies and expands upon existing requirements for fair value measurements of financial assets and liabilities as well as instruments classified in shareholders’ equity. The guidance will be effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, and are to be applied prospectively. The Company will adopt this guidance in the first quarter of fiscal 2013. The implementation of this authoritative guidance is not expected to have a material impact on the Company’s financial position or results of operations.

In June 2011, authoritative guidance was issued on the presentation of comprehensive income to require an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This authoritative guidance eliminates the option to present the components of other comprehensive income as part of the statement of shareholders’ equity. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The authoritative guidance is effective for the Company’s first quarter of fiscal 2013. Other than requiring additional disclosure, the adoption of this new guidance will not have a material impact on the Company’s consolidated financial statements.

2. ACCOUNTS RECEIVABLE:

Accounts receivable comprise (in thousands):

	Year Ended May 31,
	2012			2011
Accounts receivable	$	2,627		$	1,455
Less: Allowance for doubtful accounts		(39	)		(23	)
	$	2,588		$	1,432

			Additions
	Balance at		charged to				Balance
	beginning		costs and				at end
	of year		expenses		Deductions*		of year
Allowance for doubtful accounts receivable:

May 31, 2012	$	23	$	16	$	--	$	39

May 31, 2011	$	1,411	$	15	$	1,403	$	23

May 31, 2010	$	13,741	$	59	$	12,389	$	1,411

* Deductions include write-offs of uncollectible accounts and collections of amounts previously reserved.

3. INVENTORIES:

Inventories comprise (in thousands):

	Year Ended May 31,
	2012		2011
Raw materials and sub-assemblies	$	3,218	$	1,992
Work in process		2,657		2,699
Finished goods		195		267
	$	6,070	$	4,958

4. PROPERTY AND EQUIPMENT:

Property and equipment comprise (in thousands):

	Year Ended May 31,
	2012			2011
Leasehold improvements	$	1,107		$	1,105
Furniture and fixtures		1,264			1,246
Machinery and equipment		4,303			4,263
Test equipment		2,972			3,004

		9,646			9,618
Less: Accumulated depreciation
and amortization		(9,136	)		(8,664	)
	$	510		$	954

5. PRODUCT WARRANTIES:

The Company provides for the estimated cost of product warranties at the time revenues are recognized on the products shipped. While the Company engages in extensive product quality programs and processes, including actively monitoring and evaluating the quality of its component suppliers, the Company’s warranty obligation is affected by product failure rates, material usage and service delivery costs incurred in correcting a product failure. Should actual product failure rates, material usage or service delivery costs differ from the Company’s estimates, revisions to the estimated warranty liability would be required.

Following is a summary of changes in the Company’s liability for product warranties during the fiscal years ended May 31, 2012 and May 31, 2011 (in thousands):

	Year Ended May 31,
	2012			2011

Balance at the beginning of the year	$	103		$	174
Accruals for warranties issued during the year		208			174
Adjustments related to pre-existing warranties
(including changes in estimates)		--			(88	)
Settlement made during the year
(in cash or in kind)		(220	)		(157	)

Balance at the end of the year	$	91		$	103

The accrued warranty balance is included in Accrued Expenses on the accompanying consolidated balance sheets.

6. ACCRUED EXPENSES:

Accrued expenses comprise (in thousands):

	Year Ended May 31,
	2012		2011
Payroll related	$	573	$	736
Professional services		209		159
Commissions and bonuses		218		185
Accrued customer obligations		95		35
Warranty		91		103
Taxes payable		74		80
Deferred rent		59		42
Other		66		94
	$	1,385	$	1,434

7. INCOME TAXES:

Domestic and foreign components of loss before income tax expense (benefit) are as follows (in thousands):

	Year Ended May 31,
	2012			2011			2010
Domestic	$	(3,590	)	$	(4,424	)	$	(805	)
Foreign		186			1,002			185
	$	(3,404	)	$	(3,422	)	$	(620	)

The income tax benefit consists of the following (in thousands):

	Year Ended May 31,
	2012			2011			2010
Federal income taxes:
Current		--			--		$	185
Deferred		--			--			--
State income taxes:
Current	$	(12	)	$	(30	)		(4	)
Deferred		--			--			--
Foreign income taxes:
Current		27			79			(42	)
Deferred		--			--			--
	$	15		$	49		$	139

The Company’s effective tax rate differs from the U.S. federal statutory tax rate, as follows:

	Year Ended May 31,
	2012			2011			2010
U.S. federal statutory tax rate		34.0	%		34.0	%		34.0	%
State taxes, net of federal tax effect		(0.2	)		(0.6	)		(0.6	)
Foreign rate differential		2.9			12.4			4.7
Stock-based compensation		(6.0	)		(8.5	)		(92.6	)
Research and development credit		0.1			--			13.2
Change in valuation allowance		(30.2	)		(35.7	)		64.5
Other		(0.2	)		(0.2	)		(0.8	)
Effective tax rate		0.4	%		1.4	%		22.4	%

The components of the net deferred tax asset (liability) are as follows (in thousands):

	Year Ended May 31,
	2012			2011

Net operating losses	$	11,106		$	9,675
Credit carryforwards		3,696			3,548
Inventory reserves		2,686			2,945
Reserves and accruals		2,957			3,506
Other		665			725

		21,110			20,399

Less: Valuation allowance		(21,110	)		(20,399	)
Net deferred tax asset	$	--		$	--

The valuation allowance increased by $711,000 during fiscal 2012, $1,861,000 during fiscal 2011, and $56,000 during fiscal 2010. As of May 31, 2012 and 2011, 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, 2012, the Company had federal and state net operating loss carryforwards of $28,774,000 and $26,365,000, respectively. These carryforwards will begin to expire in 2024 and 2014, respectively. At May 31, 2012, the Company also had federal and state research and development tax credit carryforwards of $1,693,000 and $4,149,000, respectively. The federal credit carryforward will begin to expire in 2016, and the California credit will carryforward indefinitely. These carryforwards may be subject to certain limitations on annual utilization in case of a change in ownership, as defined by tax law. The Company also has alternative minimum tax credit carryforwards of $91,000 for federal tax purposes and $34,000 for state purposes. The credits may be used to offset regular tax and do not expire.

The Company has made no provision for U.S. income taxes on undistributed earnings of certain foreign subsidiaries because it is the Company’s intention to permanently reinvest such earnings in its foreign subsidiaries. If such earnings were distributed, the Company would be subject to additional U.S. income tax expense. Determination of the amount of unrecognized deferred income tax liability related to these earnings is not practicable.

Foreign net operating loss carryforwards of $1,209,000 are available to reduce future foreign taxable income. The foreign net operating losses will begin to expire in 2012.

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, 2009	$	1,190
Decreases related to prior year tax positions		(5	)
Decreases related to lapse of statute of limitations		(4	)

Balance at May 31, 2010	$	1,181

Decreases related to prior year tax positions		--
Decreases related to lapse of statute of limitations		(88	)

Balance at May 31, 2011	$	1,093

Decreases related to prior year tax positions		--
Decreases related to lapse of statute of limitations		(71	)

Balance at May 31, 2012	$	1,022

If the ending balance of $1,022,000 of unrecognized tax benefits at May 31, 2012 were recognized, $125,000 would affect the effective income tax rate. In accordance with the Company’s accounting policy, it recognizes accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes. The Company had accrued interest and penalties of $15,000 at May 31, 2012.

8. LINE OF CREDIT:

On August 25, 2011, the Company entered into a working capital credit facility agreement allowing the Company to borrow up to $1.5 million based upon qualified accounts receivable, and export-related inventory. On May 29, 2012 the credit agreement was amended to increase the borrowing limit to $2.0 million. Each account receivable financed by the lender will bear an annual interest rate or finance charge equal to the greater of the lender's prime rate less 0.5%, or 3.50%, when the Company meets certain borrowing base requirements. If the Company does not meet the borrowing base requirements, each account receivable financed by the lender will bear an annual interest rate or finance charge equal to the greater of the lender's prime rate plus 0.75%, or 4.75%. The applicable interest is calculated based on the full amount of the account receivable and export-related inventory provided as collateral for the actual amounts borrowed. Depending on the composition of the collateral items, whether or not the Company meets certain borrowing base requirements and the relative cash position of the Company, the equivalent annual interest rate applied to the actual loan balances may vary from 3.89% to 8.94%, assuming that the bank’s prime rate is 4.00% or less. At May 31, 2012 the weighted average interest rate on the outstanding loan balance was 4.04%. The average loan balance since the loan inception was $127,000. The term of the agreement is one year and is collateralized by all the Company’s assets except for intellectual property. At May 31, 2012 the Company had drawn $1,408,000 against the credit facility. The balance available to borrow under the line at May 31, 2012 was $592,000. The Company was in compliance with all covenants at May 31, 2012.

9. CAPITAL STOCK:

STOCK OPTIONS:

In October 1996, the Company’s Board of Directors approved the 1996 Stock Option Plan (the “Stock Plan”), which provided for granting of incentive and non-qualified stock options to our employees and directors. The Stock Plan provides that qualified options be granted at an exercise price equal to the fair market value at the date of grant, as determined by the Board of Directors (85% of fair market value in the case of non-statutory options and purchase rights and 110% of fair market value in certain circumstances). Options generally expire within five years from date of grant. Most options become exercisable in increments over a four-year period from the date of grant.

In October 2006, the Company’s 2006 Equity Incentive Plan and 2006 Employee Stock Purchase Plan (“2006 Plans”) were approved by the shareholders. A total of 2,900,000 shares of common stock have been reserved for issuance under the Company’s 2006 Equity Incentive Plan. Options granted under the 2006 Equity Incentive Plan are generally for periods not to exceed ten years (five years if the option is granted to a 10% stockholder) and are granted at the fair market value of the stock at the date of grant as determined by the Board of Directors. The 2006 Plans respectively

replace the Company’s Amended and Restated 1996 Stock Option Plan, which would otherwise have expired in 2006; and the Company’s 1997 Employee Stock Purchase Plan, which would have otherwise expired in 2007. The Amended and Restated 1996 Stock Option Plan will continue to govern awards previously granted under that plan.

As of May 31, 2012, out of the 3,797,000 shares authorized for grant under the 1996 Stock Option Plan and 2006 Equity Incentive Plan, approximately 2,957,000 shares had been granted.

The following table summarizes the Company’s stock option transactions during fiscal 2012, 2011 and 2010 (in thousands, except per share data):

				Outstanding Options
							Weighted
				Number			Average		Aggregate
	Available			of			Exercise		Intrinsic
	Shares			Shares			Price		Value
Balances, May 31, 2009		536			1,636		$	5.37		--

Additional shares reserved		800			--
Options granted		(560	)		560		$	0.88
Options terminated		232			(232	)	$	7.19
Plan shares expired		(10	)		--
Options exercised		--			(15	)	$	2.03

Balances, May 31, 2010		998			1,949		$	3.88	$	833

Options granted		(508	)		508		$	1.88
Options terminated		327			(327	)	$	4.30
Plan shares expired		(130	)		--
Options exercised		--			(47	)	$	0.85

Balances, May 31, 2011		687			2,083		$	3.40	$	298

Additional shares reserved		1,199			--
Options granted		(1,141	)		1,141		$	0.92
Options terminated		258			(258	)	$	3.72
Plan shares expired		(164	)		--
Options exercised		--			(9	)	$	0.85
Balances, May 31, 2012		839			2,957		$	2.40	$	587

Options exercisable and expected to be exercisable at May 31, 2012					2,898		$	2.40	$	575

The options outstanding and exercisable at May 31, 2012 were in the following exercise price ranges (in thousands, except per share data):

		Options Outstanding						Options Exercisable
		at May 31, 2012						at May 31, 2012
Range of Exercise Prices		Number Outstanding Shares		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Number Exercisable Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value
	$0.59-$0.89		1,061		4.74	$	0.74		616	$	0.82		3.39
	$1.10-$2.81		1,349		3.62	$	1.79		690	$	2.06		2.37
	$3.00-$5.96		244		0.12	$	5.16		244	$	5.16		0.12
	$6.00-$9.30		187		0.80	$	7.88		186	$	7.88		0.80
	$9.94-$9.94		116		1.07	$	9.94		114	$	9.94		1.07

	$0.59-$9.94		2,957		3.45	$	2.40		1,850	$	3.13		2.17	$	279

The total intrinsic values of options exercised were $6,000, $25,000 and $7,000 during fiscal 2012, 2011 and 2010, respectively. The weighted average contractual life of the options exercisable and expected to be exercisable at May 31, 2012 was 3.5 years.

Options to purchase 1,850,000, 1,591,000 and 1,343,000 shares were exercisable at May 31, 2012, 2011 and 2010, respectively. These exercisable options had weighted average exercise prices of $3.13, $3.66 and $4.20 as of May 31, 2012, 2011 and 2010, respectively.

10. EMPLOYEE BENEFIT PLANS:

EMPLOYEE STOCK OWNERSHIP PLAN:

The Company has a non-contributory, trusteed employee stock option 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 & 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, $60,000 and $150,000 were authorized for the plan during fiscal 2012, 2011 and 2010, respectively. The contribution amounts are recorded as compensation expense, in the period authorized and included in accrued liabilities, in the period authorized. Contributions of 40,540 shares were made to the ESOP during fiscal 2012 for fiscal 2011. Contributions of 64,102 shares were made to the ESOP during fiscal 2011 for fiscal 2010. Contributions of 64,516 shares were made to the ESOP during fiscal 2010 for fiscal 2009. The contribution for fiscal 2012 will be made in fiscal 2013. 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 2012, 2011 and 2010.

EMPLOYEE STOCK PURCHASE PLAN:

The Company’s Board of Directors adopted the 1997 Employee Stock Purchase Plan in June 1997. A total of 400,000 shares of common stock have been reserved for issuance under the plan. The 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, except that the first such offering period commenced with the effectiveness of the Company’s initial public offering and ended on the last trading day on or before March 31, 1999. 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 1997 Employee Stock Purchase Plan. The maximum number of shares a participant may purchase during a single purchase period is 3,000 shares.

In October 2006, the Company’s shareholders approved the 2006 Employee Stock Purchase Plan, or 2006 Purchase Plan. A total of 800,000 shares of the Company’s common stock were reserved for issuance under the 2006 Purchase Plan. The 2006 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. The first exercise date under the 2006 Purchase Plan was April 1, 2007. 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 2006 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 2006 Purchase Plan. For the years ended May 31, 2012, 2011 and 2010, approximately 154,000, 157,000 and 89,000 shares of common stock, respectively, were issued under the plans. To date, 919,000 shares have been issued under both employee stock purchase plans.

11. STOCKHOLDER RIGHTS PLAN:

The Company’s Board of Directors adopted a Stockholder Rights Plan on March 5, 2001, under which a dividend of one Right to purchase one one-thousandth of a share of the Company’s Series A Participating Preferred Stock was distributed for each outstanding share of the Company’s common stock. The plan entitled each Right holder to purchase 1/1000th of a share of the Company’s Series A Participating Preferred Stock at an exercise price of $35.00, subject to adjustment, in certain events, such as a tender offer to acquire 20% or more of the Company’s outstanding common stock. Under some circumstances, such as if a person or group acquires 20% or more of the Company’s common stock prior to redemption of the Rights, the plan entitled such holders (other than an acquiring party) to purchase the Company’s common stock having a market value at that time of twice the Right’s exercise price. The Rights expired on April 3, 2010.

12. OTHER INCOME, NET:

Other income, net comprises the following (in thousands):

	Year Ended May 31,
	2012		2011		2010
Dividend distribution on long-term investment		--	$	575		--
Foreign exchange gain	$	117		135	$	118
Other, net		--		52		13
	$	117	$	762	$	131

13. SEGMENT INFORMATION:

As the Company’s business is completely focused on one industry segment, the designing, manufacturing and marketing of advanced test and burn-in products to the semiconductor manufacturing industry, management believes that the Company has only one reportable segment. The Company’s net sales and profits are generated through the sale and service of products for this one segment.

The following presents information about the Company’s operations in different geographic areas (in thousands):

	United
	States		Asia		Europe		Total
2012:
Net sales	$	14,173	$	662	$	686	$	15,521
Property and equipment, net		441		66		3		510

2011:
Net sales	$	11,911	$	1,404	$	422	$	13,737
Property and equipment, net		872		72		10		954

2010
Net sales	$	11,080	$	256	$	338	$	11,674
Property and equipment, net		1,412		77		15		1,504

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 exclude intercompany transactions.

14. RELATED PARTY TRANSACTIONS:

The Company has entered into transactions with ESA Electronics Pte Ltd., or ESA, in which the Company owned a 12.5% interest at May 31, 2011 and 2010. In June 2011, the Company sold its investment in ESA for approximately $1.4 million, recording a gain of approximately $1.0 million. ESA purchased goods from the Company for $11,000 and $34,000 during fiscal 2011 and 2010, respectively. In addition, the Company purchased goods from ESA for $2,000 and $3,000 in fiscal 2010 and 2009, respectively. There were no goods purchased from ESA in fiscal 2011. At May 31, 2011 and 2010, the Company had no amounts payable to ESA. At May 31, 2011 and 2010, the Company had no amounts receivable from ESA.

Mario M. Rosati, one of the Company’s directors, is also a member of Wilson Sonsini Goodrich & Rosati, Professional Corporation, which has served as the Company’s outside corporate counsel and has received compensation at normal commercial rates for these services.

15. COMMITMENTS AND CONTINGENCIES:

COMMITMENTS

The Company leases most of its manufacturing and office space under operating leases. The Company entered into non-cancelable operating lease agreements for its United States manufacturing and office facilities and maintains equipment under non-cancelable operating leases in Germany. The Company’s principal administrative and production facilities are located in Fremont, California, in a 51,289 square foot building. The term of the Company’s current lease commenced on April 1, 2008 and ends on June 30, 2015. The Company has an option to extend the lease for an additional period at rates to be determined. The Company’s facility in Japan is located in Tokyo in a 4,294 square foot building under a cancellable lease whose term commenced on October 1, 2007 and ends on September 30, 2013. The Company leases a sales and support office in Utting, Germany. The lease, which began February 1, 1992 and expires on January 31, 2014, contains an automatic twelve months renewal, at rates to be determined, if no notice is given prior to six months from expiry. Under the lease agreements, the Company is responsible for payments of utilities, taxes and insurance.

Minimum annual rentals payments under non-cancellable operating leases in each of the next five fiscal years and thereafter are as follows (in thousands):

Years Ending May 31,
2013	$	596
2014		583
2015		591
2016		49
2017		--
Thereafter		--
Total	$	1,819

Rental expense for the years ended May 31, 2012, 2011 and 2010 was $680,000, $680,000 and $653,000, respectively.

At May 31, 2012 and 2011, the Company had a $50,000 certificate of deposit held by a financial institution representing a security deposit for its United States manufacturing and office space lease. This amount is included in “Other Assets” on the consolidated balance sheets.

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, 2012, the Company had $1,343,000 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 is, from time to time, 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. The Company has 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 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.

16. SELECTED QUARTERLY CONSOLIDATED FINANCIAL DATA (UNAUDITED)

The following table (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, 2012 and 2011. The unaudited quarterly information has been prepared on the same basis as the annual information presented elsewhere herein and, in the Company’s opinion, includes all adjustments (consisting only of normal recurring entries) necessary for a fair statement of the information for the quarters presented. The operating results for any quarter are not necessarily indicative of results for any future period and should be read in conjunction with the audited consolidated financial statements of the Company’s and the notes thereto included elsewhere herein.

	Three Months Ended
	Aug. 31,		Nov. 30,			Feb. 29,			May 31,
	2011		2011			2012			2012
Net sales	$	4,130	$	3,860		$	2,855		$	4,676
Gross profit	$	1,802	$	1,128		$	1,108		$	2,169
Net income (loss)	$	124	$	(1,373	)	$	(1,361	)	$	(779	)
Net income (loss) per share (basic)	$	0.01	$	(0.15	)	$	(0.15	)	$	(0.09	)
Net income (loss) per share (diluted)	$	0.01	$	(0.15	)	$	(0.15	)	$	(0.09	)

During the three months ended August 31, 2011 the Company sold all of its shares of ESA for approximately $1.4 million resulting in a gain of approximately $1.0 million reported in the first quarter of fiscal 2012.

	Three Months Ended
	Aug. 31,			Nov. 30,			Feb. 28,			May 31,
	2010			2010			2011			2011
Net sales	$	2,169		$	3,577		$	4,242		$	3,749
Gross profit	$	944		$	1,354		$	1,605		$	1,609
Net loss	$	(1,516	)	$	(767	)	$	(946	)	$	(144	)
Net loss per share (basic)	$	(0.17	)	$	(0.09	)	$	(0.11	)	$	(0.02	)
Net loss per share (diluted)	$	(0.17	)	$	(0.09	)	$	(0.11	)	$	(0.02	)

During the three months ended August 31, 2010 the Company’s Japanese subsidiary received $0.2 million in proceeds from the Spansion Japan bankruptcy claim and recorded the amount as a reduction of operating expenses.

During the three months ended November 30, 2010 the Company received a dividend payment of $0.6 million related to a long-term investment and reported the amount as other income.

During the three months ended May 31, 2011 the Company’s Japanese subsidiary received $0.7 million in proceeds from the Spansion Japan bankruptcy claim and recorded the amount as a reduction of operating expenses.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

(a)	Evaluation of disclosure controls and procedures.

Our management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this Annual Report on Form 10-K. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow for timely decisions regarding required disclosure.

(b)	Management’s report on internal control over financial reporting.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) of the Exchange Act. Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, our management conducted an evaluation of the effectiveness of our internal control over financial reporting based upon the framework in “Internal Control – Integrated Framework” 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, 2012. This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this Annual Report.

(c)	Changes in internal controls over financial reporting.

There were no changes in our internal controls over financial reporting that occurred during the period covered by this Annual Report on Form 10-K that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

Item 9B. Other Information

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information required by this item is incorporated by reference to the sections entitled “Board Matters and Corporate Governance”, “Proposal 1 -- Election of Directors” and “Compensation of Executive Officers” of the Proxy Statement.

Item 11. Executive Compensation

The information required by this item is incorporated by reference to the sections entitled “Director Compensation” and “Compensation of Executive Officers” of the Proxy Statement.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this item is incorporated by reference to the section entitled “Security Ownership of Certain Beneficial Owners, Directors and Management” of the Proxy Statement.

Item 13. Certain Relationships and Related Transactions

The information required by this item is incorporated by reference to the section entitled “Certain Relationships and Related Transactions” of the Proxy Statement.

Item 14. Principal Accountant Fees and Services

The information required by this item is incorporated by reference to the section entitled “Independent Registered Public Accounting Firm’s Fees” of the Proxy Statement.

PART IV

Item 15. Exhibits, 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:

Exhibit No.		Description

3.1(1)		Restated Articles of Incorporation of Registrant.
3.2(1)		Bylaws of Registrant.
3.2(2)		Amended and Restated Bylaws of Registrant.
4.1(3)		Form of Common Stock certificate.
4.2(4)		2006 Equity Incentive Plan.
4.3(4)		2006 Employee Stock Purchase Plan.
10.1(1)		Amended 1986 Incentive Stock Plan and form of agreement thereunder.
10.2(3)		1996 Stock Option Plan (as amended and restated) and forms of Incentive Stock Option Agreement and Nonstatutory Stock Option Agreement thereunder.
10.3(3)		1997 Employee Stock Purchase Plan and form of subscription agreement thereunder.
10.4(3)		Form of Indemnification Agreement entered into between Registrant and its directors and executive officers.
10.5(1)		Capital Stock Purchase Agreement dated September 11, 1979 between Registrant and certain holders of Common Stock.
10.6(1)		Capital Stock Investment Agreement dated April 12, 1984 between Registrant and certain holders of Common Stock.
10.7(1)		Amendment dated September 17, 1985 to Capital Stock Purchase Agreement dated April 12, 1984 between Registrant and certain holders of Common Stock.
10.8(1)		Amendment dated February 26, 1990 to Capital Stock Purchase Agreement dated April 12, 1984 between Registrant and certain holders of Common Stock.
10.9(1)		Stock Purchase Agreement dated September 18, 1985 between Registrant and certain holders of Common Stock.
10.10(1)		Common Stock Purchase Agreement dated February 26, 1990 between Registrant and certain holders of Common Stock.
10.11(1)		Lease dated May 14, 1991 for facilities located at 1667 Plymouth Street, Mountain View, California.
10.12(5)		Lease dated August 3, 1999 for facilities located at Building C, 400 Kato Terrace, Fremont, California.
10.13(6)		Preferred Shares Rights Agreement dated March 5, 2001.
10.14(7)		Form of Change of Control Agreement.
10.15(8)		First Amendment dated May 06, 2008 for facilities located at 400 Kato Terrace, Fremont, California.
10.16(9)		Purchase and Sale Agreement between the Company and Fulcrum Credit Partners LLC dated August 31, 2009.
10.17(10)		Purchase and Sale Agreement between the Company and APS Capital Corp. dated January 25, 2010.
10.18(11)		Separation Agreement and Release between the Company and Gregory M. Perkins, dated February 1, 2011.
10.19(12)		Sale and Purchase Agreement between the Company and IPCO International Limited dated April 13, 2011.
10.20(13)		Loan and Security Agreement dated August 25, 2011 by and between Aehr Test Systems and Silicon Valley Bank.
10.21(14)		First Amendment to Loan and Security Agreement dated May 29, 2012 by and between Aehr Test Systems and Silicon Valley Bank.
10.22(15)		Export-Import Bank Loan and Security Agreement dated August 25, 2011 by and between Aehr Test Systems and Silicon Valley Bank.
10.23(16)		First Amendment to Export-Import Bank Loan and Security Agreement dated May 29, 2012 by and between Aehr Test Systems and Silicon Valley Bank.
10.24(17)		Export-Import Bank of the United States Working Capital Guarantee Program Borrower Agreement dated August 25, 2011 made by Aehr Test

		Systems in favor of the Export Import Bank of the United States and Silicon Valley Bank.
10.25(18)		Offer Letter dated January 3, 2012, between the Company and Gayn Erickson.
10.26(19)		Offer Letter dated January 3, 2012, between the Company and Rhea Posedel.
10.27(20)		Change of Control Severance Agreement dated January 3, 2012, between the Company and Gayn Erickson.
10.28(21)		Amended and Restated Change of Control Severance Agreement dated January 3, 2012, between the Company and Rhea J. Posedel.
16.1(22)		Letter dated December 9, 2005 regarding change in Certifying Accountant.
21.1(1)		Subsidiaries of the Company.
23.1		Consent of Burr Pilger Mayer, Inc. - Independent Registered Public Accounting Firm (filed herewith).
24.1		Power of Attorney (see page 58).
31.1		Certification Statement of Chief Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002 (filed herewith).
31.2		Certification Statement of Chief Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).

101.INS		XBRL Instance Document*

101.SCH		XBRL Taxonomy Extension Schema Document*

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document*

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document*

101.LAB		XBRL Taxonomy Extension Label Linkbase Document*

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document*

___________________

(1) Incorporated by reference to the same-numbered exhibit previously filed with the Company’s Registration Statement on Form S-1 filed June 11, 1997 (File No. 333-28987).

(2) Incorporated by reference to Exhibit No. 3.1 previously filed with the Company’s Current Report on Form 8-K filed January 9, 2012 (File No. 000-22893).

(3) Incorporated by reference to the same-numbered exhibit previously filed with Amendment No.1 to the Company’s Registration Statement on Form S-1 filed July 17, 1997 (File No. 333-28987).

(4) Incorporated by reference to the exhibit previously filed with the Company’s Registration Statement on Form S-8 filed October 27, 2006 (File No. 333-138249).

(5) Incorporated by reference to the same-numbered 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).

(6) Incorporated by reference to the Exhibit No. 4.1 previously filed with the Company’s Current Report on Form 8-K filed March 28, 2001 (File No. 000-22893).

(7) Incorporated by reference to the same-numbered exhibit previously filed with the Company’s Form 10-K for the year ended May 31, 2001 filed August 29, 2001 (File No. 000-22893).

(8) Incorporated by reference to the same-numbered exhibit previously filed with the Company’s Current Report on Form 8-K filed May 9, 2008 (File No. 000-22893).

(9) Incorporated by reference to the Exhibit No. 10.1 previously filed with the Company’s Quarterly Report on Form 10-Q for the quarter ended August 31, 2009 filed October 14, 2009 (File No. 000-22893).

(10) Incorporated by reference to the Exhibit No. 10.17 previously filed with the Company’s Current Report on Form 8-K filed January 29, 2010 (File No. 000-22893).

(11) Incorporated by reference to the same-numbered exhibit previously filed with the Company’s Current Report on Form 8-K filed February 3, 2011 (File No. 000-22893).

(12) Incorporated by reference to the same-numbered exhibit previously filed with the Company’s Current Report on Form 8-K/A filed April 20, 2011 (File No. 000-22893).

(13) Incorporated by reference to the same-numbered exhibit previously filed with the Company’s Current Report on Form 8-K filed August 30, 2011 (File No. 000-22893).

(14) Incorporated by reference to Exhibit 10.1 previously filed with the Company’s Current Report on Form 8-K filed June 4, 2012 (File No. 000-22893).

(15) Incorporated by reference to Exhibit 10.21 previously filed with the Company’s Current Report on Form 8-K filed August 30, 2011 (File No. 000-22893).

(16) Incorporated by reference to Exhibit 10.2 previously filed with the Company’s Current Report on Form 8-K filed June 4, 2012 (File No. 000-22893).

(17) Incorporated by reference to Exhibit 10.22 previously filed with the Company’s Current Report on Form 8-K filed August 30, 2011 (File No. 000-22893).

(18) Incorporated by reference to the Exhibit No. 10.1 previously filed with the Company's Current Report on Form 8-K filed January 9, 2012 (File No. 000-22893).

(19) Incorporated by reference to the Exhibit No. 10.2 previously filed with the Company's Current Report on Form 8-K filed January 9, 2012 (File No. 000-22893).

(20) Incorporated by reference to the Exhibit No. 10.3 previously filed with the Company's Current Report on Form 8-K filed January 9, 2012 (File No. 000-22893).

(21) Incorporated by reference to the Exhibit No. 10.4 previously filed with the Company's Current Report on Form 8-K filed January 9, 2012 (File No. 000-22893).

(22) Incorporated by reference to the same-numbered exhibit previously filed with the Company’s Current Report on Form 8-K filed December 9, 2005 (File No. 000-22893).

* In accordance with Rule 406T of Regulation S-T, XBRL (Extensible Business Reporting Language) information deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: August 28, 2012

	AEHR TEST SYSTEMS

	By:	/s/ GAYN ERICKSON
		Gayn Erickson
		PRESIDENT AND CHIEF EXECUTIVE OFFICER

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Gayn Erickson and Gary L. Larson, 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 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 Report on Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature	Title	Date
	President, Chief
	Executive Officer, and Director
/s/ GAYN ERICKSON	(Principal Executive Officer)	August 28, 2012
Gayn Erickson
	Vice President of Finance
	and Chief Financial Officer
/s/ GARY L. LARSON	(Principal Financial and	August 28, 2012
Gary L. Larson	Accounting Officer)


/s/ RHEA J. POSEDEL	Executive Chairman	August 28, 2012
Rhea J. Posedel


/s/ ROBERT R. ANDERSON	Director	August 28, 2012
Robert R. Anderson


/s/ WILLIAM W. R. ELDER	Director	August 28, 2012
William W. R. Elder


/s/ MUKESH PATEL	Director	August 28, 2012
Mukesh Patel


/s/ MARIO M. ROSATI	Director	August 28, 2012
Mario M. Rosati


/s/ HOWARD T. SLAYEN	Director	August 28, 2012
Howard T. Slayen

CALIFORNIA		94-2424084
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification Number)

400 KATO TERRACE, FREMONT, CA		94539
(Address of principal executive offices)		(Zip Code)

Large accelerated filer	o	Accelerated filer	o

Non-accelerated filer	o	Smaller reporting company	þ
(Do not check if a smaller reporting company)

	High		Low
Fiscal 2012:
First quarter ended August 31, 2011	$	1.73	$	1.01
Second quarter ended November 30, 2011		1.25		0.40
Third quarter ended February 29, 2012		1.00		0.51
Fourth quarter ended May 31, 2012		1.65		0.69

Fiscal 2011:
First quarter ended August 31, 2010	$	2.49	$	1.13
Second quarter ended November 30, 2010		1.75		0.91
Third quarter ended February 28, 2011		1.89		0.92
Fourth quarter ended May 31, 2011		2.39		1.27

	Fiscal Year Ended May 31,
	2012			2011			2010			2009			2008
	(In thousands, except per share data)
CONSOLIDATED STATEMENTS OF OPERATIONS:
Net sales
Product sales	$	15,521		$	13,737		$	8,934		$	21,407		$	39,041
Cancellation charges		--			--			2,740			--			--

Total net sales		15,521			13,737			11,674			21,407			39,041
Cost of sales		9,314			8,225			5,571			20,223			19,072

Gross profit		6,207			5,512			6,103			1,184			19,969

Operating expenses:
Selling, general and administrative		6,526			5,964			6,094			20,623			7,657
Research and development		4,188			4,567			4,758			5,762			6,501
Impairment of goodwill		--			--			--			274			--
Gain on bankruptcy claim		--			(832	)		(3,993	)		--			--

Total operating expenses		10,714			9,699			6,859			26,659			14,158

(Loss) income from operations		(4,507	)		(4,187	)		(756	)		(25,475	)		5,811

Interest income		--			3			5			142			231
Interest expense		(4	)		--			--			--			--
Gain on sale of long-term investment		990			--			--			--			--
Other income (expense), net		117			762			131			277			(71	)

(Loss) income before income tax benefit
(expense)		(3,404	)		(3,422	)		(620	)		(25,056	)		5,971

Income tax benefit (expense)		15			49			139			(4,915	)		4,602

Net (loss) income	$	(3,389	)	$	(3,373	)	$	(481	)	$	(29,971	)	$	10,573

Net (loss) income per share:
Basic	$	(0.38	)	$	(0.38	)	$	(0.06	)	$	(3.55	)	$	1.32
Diluted	$	(0.38	)	$	(0.38	)	$	(0.06	)	$	(3.55	)	$	1.24

Shares used in per share calculations
Basic		9,016			8,776			8,563			8,436			8,013
Diluted		9,016			8,776			8,563			8,436			8,508

	May 31,
	2012		2011		2010		2009		2008
CONSOLIDATED BALANCE SHEETS:
Cash and cash equivalents	$	2,073	$	4,020	$	7,766	$	4,360	$	15,648
Working capital		6,073		8,031		9,827		7,299		33,362
Total assets		11,613		12,083		14,474		13,911		45,199
Long-term obligations, less current portion		304		442		578		605		566
Total shareholders' equity		6,454		9,101		11,281		9,963		37,772

	PART I
Item 1.	Business	4
Item 1A.	Risk Factors	9
Item 1B.	Unresolved Staff Comments	15
Item 2.	Properties	15
Item 3.	Legal Proceedings	15
Item 4.	Mine Safety Disclosures	15

	PART II

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	16
Item 6.	Selected Consolidated Financial Data	18
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	27
Item 8.	Financial Statements and Supplementary Data	28
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	51
Item 9A.	Controls and Procedures	52
Item 9B.	Other Information	52

	PART III

Item 10.	Directors, Executive Officers and Corporate Governance	53
Item 11.	Executive Compensation	53
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	53
Item 13.	Certain Relationships and Related Transactions	53
Item 14.	Principal Accountant Fees and Services	53

	PART IV

Item 15.	Exhibits, Financial Statement Schedules	54

	Signatures	58

	Payments Due by Period (in thousands)
	Total		Less than 1 year		1-3 years		3-5 years		5 years
Operating Leases	$	1,819	$	596	$	1,223	$	--	$	--
Purchases(1)		1,343		1,343		--		--		--

Total	$	3,162	$	1,939	$	1,223	$	--	$	--

Consolidated Financial Statements of Aehr Test Systems

Report of Independent Registered Public Accounting Firm			29

Consolidated Balance Sheets at May 31, 2012 and 2011			30

Consolidated Statements of Operations for the years ended May 31, 2012, 2011 and 2010			31

Consolidated Statements of Shareholders' Equity and Comprehensive Income (Loss) for the years ended May 31, 2012, 2011 and 2010			32

Consolidated Statements of Cash Flows for the years ended May 31, 2012, 2011 and 2010			33

Notes to Consolidated Financial Statements			34

Financial statement schedules not listed above are either omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements or in the Notes thereto.

							Accumulated
							Other
							Comprehensive
							Income
					Additional		Cumulative
	Common Stock				Paid-in		Translation			Accumulated
	Shares		Amount		Capital		Adjustment			Deficit			Total
Balances, May 31, 2009		8,496	$	85	$	44,552	$	2,800		$	(37,474	)	$	9,963

Issuance of common stock
under employee plans		168		2		174		--			--			176
Stock-based compensation						1,733		--			--			1,733
Net loss		--		--		--		--			(481	)		(481	)
Foreign currency
translation adjustment		--		--		--		(110	)		--			(110	)
Comprehensive loss														(591	)

Balances, May 31, 2010		8,664		87		46,459		2,690			(37,955	)		11,281

Issuance of common stock
under employee plans		268		2		341		--			--			343
Stock-based compensation						947		--			--			947
Net loss		--		--		--		--			(3,373	)		(3,373	)
Foreign currency
translation adjustment		--		--		--		(97	)		--			(97	)
Comprehensive loss														(3,470	)

Balances, May 31, 2011		8,932		89		47,747		2,593			(41,328	)		9,101

Issuance of common stock
under employee plans		203		2		166		--			--			168
Stock-based compensation						709		--			--			709
Net loss		--		--		--		--			(3,389	)		(3,389	)
Foreign currency
translation adjustment		--		--		--		(135	)		--			(135	)
Comprehensive loss														(3,524	)

Balances, May 31, 2012		9,135	$	91	$	48,622	$	2,458		$	(44,717	)	$	6,454