Blueprint
UNITED
STATES
SECURITIES AND
EXCHANGE COMMISSION
WASHINGTON, D.C.
20549
FORM
10-Q
/X/ QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 2017
OR
/ / TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES
EXCHANGE
ACT OF 1934
For
the transition period from _________ to __________
Commission file
number: 000-22893
AEHR TEST
SYSTEMS
(Exact name of
Registrant as specified in its charter)
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California
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94-2424084
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(State or other
jurisdiction of
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(I.R.S. Employer
Identification No.)
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incorporation or
organization)
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400 Kato
Terrace
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Fremont,
CA
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94539
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(Address of
principal
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(Zip
Code)
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executive
offices)
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(510)
623-9400
(Registrant's
telephone number, including area code)
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.
Yes
X
No ___
Indicate by check
mark whether the registrant has submitted electronically and posted
on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was
required to submit and post such files).
Indicate by check
mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of
"large accelerated filer," "accelerated filer," "smaller reporting
company," and "emerging growth company" in Rule 12b-2 of the
Exchange Act.
Large accelerated
filer ___
Accelerated filer ___
Non-accelerated
filer ___
Smaller reporting company X
(Do not check if a
smaller reporting company)
Emerging
growth company ___
If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act.
___
Indicate by check
mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
___ No
X
Number of shares of
the registrant’s common stock, $0.01 par value, outstanding
as of September 29, 2017 was 21,542,096.
AEHR TEST
SYSTEMS
FORM
10-Q
FOR THE QUARTER
ENDED AUGUST 31, 2017
INDEX
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PART
I. FINANCIAL INFORMATION
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ITEM
1. Financial Statements (Unaudited)
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Condensed
Consolidated Balance Sheets at August 31, 2017 and
May 31, 2017
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4
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Condensed
Consolidated Statements of Operations for the Three
Months Ended
August
31, 2017 and
2016
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5
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Condensed Consolidated Statements of Comprehensive Income (Loss)
for the Three
Months Ended
August
31, 2017 and
2016
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6
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Condensed Consolidated Statements of Cash Flows for the
Three Months Ended August 31,
2017 and
2016
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7
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Notes to Condensed Consolidated Financial
Statements
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8
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ITEM
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
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18
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ITEM
3. Quantitative and Qualitative Disclosures About Market
Risks
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22
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ITEM
4. Controls and Procedures
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23
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PART
II. OTHER INFORMATION
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ITEM
1. Legal Proceedings
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23
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ITEM
1A. Risk Factors
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23
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ITEM
2. Unregistered Sales of Equity Securities and Use of
Proceeds
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23
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ITEM
3. Defaults Upon Senior Securities
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24
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ITEM
4. Mine Safety Disclosures
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24
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ITEM
5. Other Information
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24
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ITEM
6. Exhibits
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24
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SIGNATURES
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25
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26
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PART I.
FINANCIAL INFORMATION
Item
1. FINANCIAL STATEMENTS
(Unaudited)
AEHR
TEST SYSTEMS
CONDENSED
CONSOLIDATED BALANCE SHEETS
(in
thousands, except per share data)
(unaudited)
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ASSETS
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Current
assets:
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Cash
and cash equivalents
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$13,993
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$17,803
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Accounts
receivable, net
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5,301
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4,010
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Inventories
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9,020
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6,604
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Prepaid
expenses and other current assets
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2,050
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961
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Total
current assets
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30,364
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29,378
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Property
and equipment, net
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1,140
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1,419
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Other
assets
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95
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95
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Total
assets
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$31,599
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$30,892
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LIABILITIES
AND SHAREHOLDERS' EQUITY
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Current
liabilities:
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Accounts
payable
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$3,473
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2,808
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Accrued
expenses
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1,572
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1,609
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Customer
deposits and deferred revenue, short-term
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3,034
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3,467
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Total
current liabilities
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8,079
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7,884
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Convertible
notes
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6,110
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6,110
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Deferred
revenue, long-term
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97
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104
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Total
liabilities
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14,286
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14,098
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Aehr
Test Systems shareholders' equity:
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Common
stock, $0.01 par value: Authorized: 75,000; Issued and outstanding:
21,532 shares and 21,340 shares at August 31, 2017 and May 31,
2017, respectively
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215
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213
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Additional
paid-in capital
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81,576
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81,128
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Accumulated
other comprehensive income
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2,308
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2,249
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Accumulated
deficit
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(66,767)
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(66,777)
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Total
Aehr Test Systems shareholders' equity
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17,332
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16,813
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Noncontrolling
interest
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(19)
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(19)
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Total
shareholders' equity
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17,313
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16,794
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Total
liabilities and shareholders' equity
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$31,599
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$30,892
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(1) The condensed
consolidated balance sheet at May 31, 2017 has been derived
from
the audited consolidated financial statements at that
date.
The
accompanying notes are an integral part of these
condensed
consolidated financial statements.
AEHR
TEST SYSTEMS
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(in
thousands, except per share data)
(unaudited)
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Net
sales
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$6,970
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$5,318
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Cost of
sales
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4,052
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3,112
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Gross
profit
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2,918
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2,206
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Operating
expenses:
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Selling,
general and administrative
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1,791
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1,716
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Research and
development
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955
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1,060
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Total
operating expenses
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2,746
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2,776
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Income
(loss) from operations
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172
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(570)
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Interest expense,
net
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(107)
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(178)
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Other expense,
net
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(60)
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(3)
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Income
(loss) before income tax benefit (expense)
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5
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(751)
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Income tax benefit
(expense)
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5
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(4)
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Net income
(loss)
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10
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(755)
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Less:
Net income attributable to the noncontrolling
interest
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--
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--
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Net income (loss)
attributable to Aehr
Test Systems
common shareholders
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$10
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$(755)
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Net income (loss)
per share
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Basic
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$0.00
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$(0.06)
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Diluted
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$0.00
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$(0.06)
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Shares
used in per share calculations:
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Basic
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21,417
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13,317
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Diluted
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22,991
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13,317
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The
accompanying notes are an integral part of these
condensed
consolidated financial statements.
AEHR
TEST SYSTEMS
CONDENSED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in
thousands, unaudited)
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Net income
(loss)
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$10
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$(755)
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Other comprehensive
income, net of tax:
Net
change in cumulative translation adjustments
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59
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7
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Total comprehensive
income (loss)
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69
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(748)
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Less: Comprehensive
loss attributable to the
noncontrolling interest
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--
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(1)
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Comprehensive
income (loss), attributable
to Aehr Test Systems common
shareholders
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$69
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$(747)
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The
accompanying notes are an integral part of these
condensed
consolidated financial statements.
AEHR
TEST SYSTEMS
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in
thousands)
(unaudited)
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Cash
flows from operating activities:
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Net
income (loss)
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$10
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$(755)
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Adjustments
to reconcile net income (loss) to net cash (used
in) provided by operating activities:
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Stock-based
compensation expense
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216
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319
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Provision
for doubtful accounts
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31
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20
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Amortization
of debt issuance costs
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--
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44
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Depreciation
and amortization
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89
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68
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Changes
in operating assets and liabilities:
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Accounts
receivable
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(1,260)
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(1,250)
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Inventories
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(2,044)
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1,374
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Prepaid
expenses and other current assets
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(1,089)
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(52)
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Accounts
payable
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651
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713
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Accrued
expenses
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(21)
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(181)
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Customer
deposits and deferred revenue
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(440)
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946
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Income
taxes payable
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(20)
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(2)
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Net
cash (used in) provided by operating activities
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(3,877)
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1,244
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Cash
flows from investing activities:
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Purchases
of property and equipment
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(184)
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(21)
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Net
cash used in investing activities
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(184)
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(21)
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Cash
flows from financing activities:
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Proceeds
from issuance of common stock under
employee plans, net of taxes paid related to share settlement of
equity awards
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234
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94
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Net
cash provided by financing activities
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234
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94
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Effect
of exchange rates on cash and cash equivalents
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17
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86
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Net
(decrease) increase in cash and cash equivalents
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(3,810)
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1,403
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Cash
and cash equivalents, beginning of period
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17,803
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939
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Cash
and cash equivalents, end of period
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$13,993
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$2,342
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Supplemental
disclosure of non-cash flow information:
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Fair
value of common stock issued to settle
accounts payable
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$--
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$323
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Transfers
of property and equipment to inventories
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$372
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$372
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The
accompanying notes are an integral part of these
condensed
consolidated financial statements.
AEHR
TEST SYSTEMS
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1.
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCCOUNTING
POLICIES
The
accompanying financial information has been prepared by Aehr Test
Systems, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission, or SEC. Certain information
and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting
principles in the United States (GAAP) have been condensed or
omitted pursuant to such rules and regulations.
In
the opinion of management, the unaudited condensed consolidated
financial statements for the interim periods presented have been
prepared on a basis consistent with the May 31, 2017 audited
consolidated financial statements and reflect all adjustments,
consisting of 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
unaudited 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, 2017.
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 condensed consolidated financial statements
include the accounts of Aehr Test Systems and its subsidiaries
(collectively, the "Company"). All significant intercompany
balances have been eliminated in consolidation. For the
Company’s majority owned subsidiary, Aehr Test Systems Japan
K.K., the noncontrolling interest of the portion the Company does
not own was reflected on the Condensed Consolidated Balance Sheets
in Shareholders’ Equity and in the Condensed Consolidated
Statements of Operations.
ACCOUNTING
ESTIMATES. The preparation of financial statements in conformity
with GAAP 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. Estimates are used to account
for sales and revenue allowances, the allowance for doubtful
accounts, inventory valuations, income taxes, stock-based
compensation expenses, and product warranties, among others. The
Company bases its estimates on historical experience and on various
other assumptions that it believes to be reasonable under the
circumstances. Actual results could differ materially from those
estimates.
REVENUE
RECOGNITION. The Company recognizes revenue upon the shipment of
products or the performance of services when: (1) persuasive
evidence of the arrangement exists; (2) goods or services have been
delivered; (3) the price is fixed or determinable; and (4)
collectibility is reasonably assured. When a sales agreement
involves multiple deliverables, such as extended support
provisions, training to be supplied after delivery of the systems,
and test programs specific to customers’ routine
applications, the multiple deliverables are evaluated to determine
the unit of accounting. Judgment is required to properly identify
the accounting units of multiple element transactions and the
manner in which revenue is allocated among the accounting units.
Judgments made, or changes to judgments made, may significantly
affect the timing or amount of revenue recognition.
Revenue
related to the multiple elements is allocated to each unit of
accounting using the relative selling price hierarchy. Consistent
with accounting guidance, the selling price is based upon vendor
specific objective evidence (VSOE). If VSOE is not available, third
party evidence (TPE) is used to establish the selling price. In the
absence of VSOE or TPE, estimated selling price is
used.
During
the first quarter of fiscal 2013, the Company entered into an
agreement with a customer to develop a next generation system, and
the Company shipped the first system in July 2016. The project
identifies multiple milestones with values assigned to each. The
consideration earned upon achieving the milestone is required to
meet the following conditions prior to recognition: (i) the value
is commensurate with the vendor’s performance to meet the
milestone, (ii) it relates solely to past performance, (iii) and it
is reasonable relative to all of the deliverables and payment terms
within the arrangement. Revenue is recognized for the milestone
upon acceptance by the customer.
The
Company recognizes revenue in certain circumstances before physical
delivery has occurred. In these arrangements, among other things,
risk of ownership has passed to the customer, the customer has made
a written fixed commitment to purchase the products, the customer
has requested the products be held for future delivery as scheduled
and designated by them, and no additional performance obligations
exist by the Company. For these transactions, the products are
segregated from inventory and normal billing and credit terms
granted.
Sales
tax collected from customers is not included in net sales but
rather recorded as a liability due to the respective taxing
authorities. Provisions for the estimated future cost of warranty
and installation are recorded at the time the products are
shipped.
Royalty-based
revenue related to licensing income from performance test boards
and burn-in boards is recognized upon the earlier of the receipt by
the Company of the licensee’s report related to its usage of
the licensed intellectual property or upon payment by the
licensee.
The
Company’s terms of sales with distributors are generally FOB
shipping point with payment due within 60 days. All products go
through in-house testing and verification of specifications before
shipment. Apart from warranty reserves, credits issued have not
been material as a percentage of net sales. The Company’s
distributors do not generally carry inventories of the
Company’s products. Instead, the distributors place orders
with the Company at or about the time they receive orders from
their customers. The Company’s shipment terms to our
distributors do not provide for credits or rights of return.
Because the Company’s distributors do not generally carry
inventories of our products, they do not have rights to price
protection or to return products. At the time the Company ships
products to the distributors, the price is fixed. Subsequent to the
issuance of the invoice, there are no discounts or special terms.
The Company does not give the buyer the right to return the product
or to receive future price concessions. The Company’s
arrangements do not include vendor consideration.
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES. The Company’s significant
accounting policies are disclosed in the Company’s Annual
Report on Form 10-K for the year ended May 31, 2017. There have been no
significant changes in our significant accounting policies during
the three months ended August 31, 2017.
2.
STOCK-BASED COMPENSATION
Stock-based
compensation expense consists of expenses for stock options,
restricted stock units, or RSUs, and employee stock purchase plan,
or ESPP, purchase rights. Stock-based compensation cost for stock
options and ESPP purchase rights are measured at each grant date,
based on the fair value of the award using the Black-Scholes option
valuation model, and is recognized as expense over the
employee’s requisite service period. This model was developed
for use in estimating the value of publicly traded options that
have no vesting restrictions and are fully transferable. The
Company’s employee stock options have characteristics
significantly different from those of publicly traded options. For
RSUs, stock-based compensation cost is based on the fair value of
the Company’s common stock at the grant date. All of the
Company’s stock-based compensation is accounted for as an
equity instrument. See Notes 11 and 12 in the Company’s
Annual Report on Form 10-K for fiscal 2017 filed on August 29, 2017
for further information regarding the 2016 Equity Incentive Plan
and the Amended and Restated 2006 ESPP.
The
following table summarizes the stock-based compensation expense for
the three months ended August 31, 2017 and 2016 (in
thousands):
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Stock-based
compensation in the form of employee stock options, RSUs and ESPP
purchase rights, included in:
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Cost
of sales
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$22
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$24
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Selling,
general and administrative
|
150
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247
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Research
and development
|
44
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48
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Total
stock-based compensation
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$216
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$319
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As
of August 31, 2017 and 2016, there were no stock-based compensation
costs capitalized as part of inventory.
During
the three months ended August 31, 2017 and 2016, the Company
recorded stock-based compensation related to stock options and RSUs
of $201,000 and $279,000, respectively.
As
of August 31, 2017, the total compensation cost related to unvested
stock-based awards under the Company’s 2016 Equity Incentive
Plans, but not yet recognized, was approximately $1,444,000, which
is net of estimated forfeitures of $4,000. This cost will be
amortized on a straight-line basis over a weighted average period
of approximately 2.6 years.
During
the three months ended August 31, 2017 and 2016, the Company
recorded stock-based compensation related to the ESPP of $15,000
and $40,000, respectively.
As
of August 31, 2017, the total compensation cost related to purchase
rights under the ESPP but not yet recognized was approximately
$18,000. This cost will be amortized on a straight-line basis over
a weighted average period of approximately 0.5 years.
Valuation Assumptions
Valuation
and Amortization Method. The Company estimates the fair value of
stock options granted using the Black-Scholes option valuation
model and a single option award approach. The fair value under the
single option approach is amortized on a straight-line basis over
the requisite service periods of the awards, which is generally the
vesting period.
Expected
Term. The Company’s expected term represents the period that
the Company’s stock-based awards are expected to be
outstanding and was determined based on historical experience,
giving consideration to the contractual terms of the stock-based
awards, vesting schedules and expectations of future employee
behavior as evidenced by changes to the terms of its stock-based
awards.
Volatility.
Volatility is a measure of the amounts by which a financial
variable such as stock price has fluctuated (historical volatility)
or is expected to fluctuate (expected volatility) during a period.
The Company uses the historical volatility for the past four or
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.
Risk-Free
Interest Rate. The Company bases the risk-free interest rate used
in the Black-Scholes option valuation model on the implied yield in
effect at the time of option grant on U.S. Treasury zero-coupon
issues with a remaining term equivalent to the expected term of the
stock awards including the ESPP.
Fair
Value. The fair value of the Company’s stock options granted
to employees for the three months ended August 31, 2017 and 2016
were estimated using the following weighted average assumptions in
the Black-Scholes option valuation model:
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Expected
term (in years)
|
4
|
4
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Volatility
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0.78
|
0.82
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Risk-free
interest rate
|
1.75%
|
1.01%
|
|
Weighted
average grant date fair value
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$2.27
|
$1.00
|
There were no ESPP purchase rights granted
to employees for the three months ended August 31, 2017 and
2016. There were no ESPP
shares issued during the three months ended August 31, 2017 and
2016. As of August 31, 2017, there were 381,000 ESPP shares
available for issuance.
The
following tables summarize the Company’s stock option and
RSU transactions during
three months ended August 31, 2017 (in thousands):
|
|
|
|
|
|
|
Balance,
May 31, 2017
|
2,169
|
|
|
|
|
Options
granted
|
(224)
|
|
RSUs
granted
|
(64)
|
|
Shares
cancelled
|
--
|
|
|
|
|
Balance,
August 31, 2017
|
1,881
|
|
|
|
The
following table summarizes the stock option transactions during the
three months ended August 31, 2017 (in thousands, except per share
data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances,
May 31, 2017
|
3,074
|
$1.73
|
$8,763
|
|
|
|
|
|
|
Options
granted
|
224
|
$3.93
|
|
|
Options
cancelled
|
--
|
$--
|
|
|
Options
exercised
|
(189)
|
$1.23
|
|
|
|
|
|
|
|
Balances,
August 31, 2017
|
3,109
|
$1.92
|
$4,612
|
|
|
|
|
|
|
Options
fully vested and expected to vest at August 31, 2017
|
3,072
|
$1.92
|
$4,577
|
The
options outstanding and exercisable at August 31, 2017 were in the
following exercise price ranges (in thousands, except per share
data):
|
|
|
|
|
|
|
|
|
|
Number
Outstanding Shares
|
Weighted Average
Remaining Contractual Life (Years)
|
Weighted Average
Exercise Price
|
Number
Exercisable Shares
|
Weighted Average
Remaining Contractual Life (Years)
|
Weighted Average
Exercise Price
|
Aggregate
Intrinsic Value
|
|
$0.59-$0.97
|
454
|
1.54
|
$0.67
|
454
|
1.54
|
$0.67
|
|
|
$1.09-$1.36
|
688
|
2.32
|
$1.27
|
688
|
2.32
|
$1.27
|
|
|
$1.68-$2.06
|
516
|
4.90
|
$1.75
|
285
|
4.10
|
$1.81
|
|
|
$2.10-$2.81
|
1,227
|
4.27
|
$2.44
|
914
|
4.24
|
$2.46
|
|
|
$3.93
|
224
|
6.86
|
$3.99
|
5
|
6.86
|
$3.99
|
|
|
$0.59-$3.93
|
3,109
|
3.73
|
$1.92
|
2,346
|
3.14
|
$1.69
|
$3,919
|
The
total intrinsic value of options exercised during the three months
ended August 31, 2017 was $476,000. The total intrinsic value of
options exercised during the three months ended August 31, 2016 was
$52,000. The weighted average remaining contractual life of the
options exercisable and expected to be exercisable at August 31,
2017 was 3.72 years.
During
the three months ended August 31, 2017, RSUs for 64,000 shares were
granted to employees. The market value on the date of the grant of
these RSUs was $3.93 per share. 2,000 RSUs became fully
vested during the three months ended August 31, 2017, and 93,000
RSUs were unvested at August 31, 2017. The intrinsic value of the
unvested RSUs at August 31, 2017 was $314,000.
3.
EARNINGS PER SHARE
Basic
earnings per share is determined using the weighted average number
of common shares outstanding during the period. Diluted earnings
per share is determined using the weighted average number of common
shares and potential common shares (representing the dilutive
effect of stock options, RSUs and ESPP shares) outstanding during
the period using the treasury stock method.
The
following table presents the computation of basic and diluted net
income (loss) per share attributable to Aehr Test Systems common
shareholders (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
Net income (loss)
|
$10
|
$(755)
|
|
|
|
|
|
Denominator
for basic net income (loss) per share:
|
|
|
|
Weighted
average shares outstanding
|
21,417
|
13,317
|
|
Shares
used in basic net income (loss) per share calculation
|
21,417
|
13,317
|
|
Effect
of dilutive securities
|
1,574
|
--
|
|
Denominator
for diluted net income (loss) per share
|
22,991
|
13,317
|
|
Basic
net income (loss) per share
|
$0.00
|
$(0.06)
|
|
Diluted
net income (loss) per share
|
$0.00
|
$(0.06)
|
For
the purpose of computing diluted earnings per share, the weighted
average number of potential common shares does not include stock
options with an exercise price greater than the average fair value
of the Company’s common stock for the period, as the effect
would be anti-dilutive. Stock options to purchase 140,000 shares of
common stock were outstanding as of August 31, 2017 but were not
included in the computation of diluted net income per share,
because the inclusion of such shares would be anti-dilutive. In the
three months ended August 31, 2016, potential common shares have
not been included in the calculation of diluted net loss per share
as the effect would be anti-dilutive. As such, the numerator and
the denominator used in computing both basic and diluted net loss
per share for this period are the same. Stock options to purchase
3,382,000 shares of common stock, RSUs for 74,000 shares and ESPP
rights to purchase 304,000 ESPP shares were outstanding as of
August 31, 2016 but were not included in the computation of diluted
net loss per share, because the inclusion of such shares would be
anti-dilutive. The 2,657,000 shares convertible under the
convertible notes outstanding at August 31, 2017 and 2016 were not
included in the computation of diluted net income (loss) per share,
because the inclusion of such shares would be
anti-dilutive.
4. FAIR
VALUE OF FINANCIAL INSTRUMENTS
The
Company’s financial instruments are measured at fair value
consistent with authoritative guidance. This authoritative guidance
defines fair value, establishes a framework for using fair value to
measure assets and liabilities, and disclosures required related to
fair value measurements.
The
guidance establishes a fair value hierarchy based on inputs to
valuation techniques that are used to measure fair value that are
either observable or unobservable. Observable inputs reflect
assumptions market participants would use in pricing an asset or
liability based on market data obtained from independent sources
while unobservable inputs reflect a reporting entity’s
pricing based upon their own market assumptions. The fair value
hierarchy consists of the following three levels:
Level 1
- instrument valuations are obtained from real-time quotes for
transactions in active exchange markets involving identical
assets.
Level 2
- instrument valuations are obtained from readily-available pricing
sources for comparable instruments.
Level 3
- instrument valuations are obtained without observable market
values and require a high level of judgment to determine the fair
value.
The
following table summarizes the Company’s financial assets
measured at fair value on a recurring basis as of August 31, 2017
(in thousands):
|
|
Balance as of
August 31, 2017
|
|
|
|
|
Money
market funds
|
$12,797
|
$12,797
|
$--
|
$--
|
|
Certificate
of deposit
|
50
|
--
|
50
|
--
|
|
Assets
|
$12,847
|
$12,797
|
$50
|
$--
|
The
following table summarizes the Company’s financial assets
measured at fair value on a recurring basis as of May 31, 2017 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Money
market funds
|
$15,516
|
$15,516
|
$--
|
$--
|
|
Certificate
of deposit
|
50
|
--
|
50
|
--
|
|
Assets
|
$15,566
|
$15,516
|
$50
|
$--
|
|
|
|
|
|
|
There
were no financial liabilities measured at fair value as of August
31, 2017 and May 31, 2017.
There
were no transfers between Level 1 and Level 2 fair value
measurements during the three months ended August 31, 2017 and May
31, 2017.
The
carrying amounts of financial instruments including cash, cash
equivalents, receivables, accounts payable and certain other
accrued liabilities, approximate fair value due to their short
maturities. Based on the borrowing rates currently available to the
Company for loans with similar terms, the carrying value of the
debt approximates the fair value.
The
Company has, at times, invested in debt and equity of private
companies, and may do so again in the future, as part of its
business strategy.
5.
ACCOUNTS RECEIVABLE, NET
Accounts receivable
represent customer trade receivables and is presented net of
allowance for doubtful accounts of $92,000 at August 31, 2017 and
$61,000 at May 31, 2017. 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. The
Company’s allowance for doubtful accounts is based upon
historical experience and review of trade receivables by aging
category to identify specific customers with known disputes or
collection issues. Uncollectible receivables are recorded as bad
debt expense when all efforts to collect have been exhausted and
recoveries are recognized when they are received.
6.
INVENTORIES
Inventories
are comprised of the following (in thousands):
|
|
|
|
|
|
|
|
|
Raw
materials and sub-assemblies
|
$5,928
|
$4,268
|
|
Work
in process
|
2,639
|
2,059
|
|
Finished
goods
|
453
|
277
|
|
|
$9,020
|
$6,604
|
7.
SEGMENT INFORMATION
The
Company operates in one reportable segment: the design, manufacture
and marketing of advanced test and burn-in products to the
semiconductor manufacturing industry.
The
following presents information about the Company’s operations
in different geographic areas. Net sales are based upon ship-to
location (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended August 31, 2017:
|
|
|
|
|
|
Net
sales
|
$1,290
|
$5,660
|
$20
|
$6,970
|
|
Property
and equipment, net
|
1,089
|
39
|
12
|
1,140
|
|
|
|
|
|
|
|
Three
months ended August 31, 2016:
|
|
|
|
|
|
Net
sales
|
$3,164
|
$1,910
|
$244
|
$5,318
|
|
Property
and equipment, net
|
733
|
42
|
14
|
789
|
|
|
|
|
|
|
The
Company’s Japanese and German subsidiaries primarily comprise
the foreign operations. Substantially all of the sales of the
subsidiaries are made to unaffiliated Japanese or European
customers. Net sales from outside the United States include those
of Aehr Test Systems Japan K.K. and Aehr Test Systems
GmbH.
Sales
to the Company’s five largest customers accounted for
approximately 99% and 93% of its net sales for the three months
ended August 31, 2017 and 2016, respectively. Two customers
accounted for approximately 54% and 35% of the Company’s net
sales in the three months ended August 31, 2017. Three customers
accounted for approximately 42%, 27% and 17% of the Company’s
net sales in the three months ended August 31, 2016. No other
customers represented more than 10% of the Company's net sales for
either of the three months ended August 31, 2017 and
2016.
8.
PRODUCT WARRANTIES
The
Company provides for the estimated cost of product warranties at
the time revenues are recognized on the products shipped. While the
Company engages in extensive product quality programs and
processes, including actively monitoring and evaluating the quality
of its component suppliers, the Company’s warranty obligation
is affected by product failure rates, material usage and service
delivery costs incurred in correcting a product failure. Should
actual product failure rates, material usage or service delivery
costs differ from the Company’s estimates, revisions to the
estimated warranty liability would be required.
The
standard warranty period is one year for systems and ninety days
for parts and service.
The
following is a summary of changes in the Company's liability for
product warranties during the three months ended August 31, 2017
and 2016 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at the beginning of the period
|
$113
|
$155
|
|
|
|
|
|
Accruals
for warranties issued during the period
|
94
|
--
|
|
Accruals
and adjustments (change in estimates) related to pre-existing
warranties during the period
|
--
|
(54)
|
|
Settlement
made during the period (in cash or in kind)
|
(88)
|
(11)
|
|
|
|
|
|
Balance
at the end of the period
|
$119
|
$90
|
The
accrued warranty balance is included in accrued expenses on the
accompanying condensed consolidated balance sheets.
9.
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.
Since
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 1997 - 2016 remain
subject to examination by the appropriate governmental agencies due
to tax loss carryovers from those years.
10.
CUSTOMER DEPOSITS AND DEFERRED REVENUE, SHORT-TERM
Customer
deposits and deferred revenue, short-term (in
thousands):
|
|
|
|
|
Customer
deposits
|
$2,606
|
$3,264
|
|
Deferred
revenue
|
428
|
203
|
|
|
$3,034
|
$3,467
|
11.
LONG-TERM DEBT
On
April 10, 2015, the Company entered into a Convertible Note
Purchase and Credit Facility Agreement (the “Purchase
Agreement”) with QVT Fund LP and Quintessence Fund L.P. (the
“Purchasers”) providing for (a) the Company’s
sale to the Purchasers of $4,110,000 in aggregate principal amount
of 9.0% Convertible Secured Notes due 2017 (the “Convertible
Notes”) and (b) a secured revolving loan facility (the
“Credit Facility”) in an aggregate principal amount of
up to $2,000,000. On August 22, 2016 the Purchase Agreement was
amended to extend the maturity date of the Convertible Notes to
April 10, 2019, decrease the conversion price from $2.65 per share
to $2.30 per share, decrease the forced conversion price from $7.50
per share to $6.51 per share, and allow for additional equity
awards.
The
Convertible Notes bear interest at an annual rate of 9.0% and will
mature on April 10, 2019 unless repurchased or converted prior to
that date. Interest is payable quarterly on March 1, June 1,
September 1 and December 1 of each year. Debt issuance costs of
$356,000, which were accreted over the term of the original loan
using the effective interest rate method, were offset against the
loan balance.
The
conversion price for the Convertible Notes is $2.30 per share and
is subject to adjustment upon the occurrence of certain specified
events. Holders may convert all or any part of the principal amount
of their Convertible Notes in integrals of $10,000 at any time
prior to the maturity date. Upon conversion, the Company will
deliver shares of its common stock to the holder of Convertible
Notes electing such conversion. The Company may not redeem the
Convertible Notes prior to maturity.
The
maximum amount of $2,000,000 drawn against the Credit Facility has
been converted to Convertible Notes, and at August 31, 2017 there
was no remaining balance available to be drawn on the Credit
Facility.
The
Company’s obligations under the Purchase Agreement are
secured by substantially all of the assets of the
Company.
12.
RECENT ACCOUNTING PRONOUNCEMENTS
In
May 2014, as part of its ongoing efforts to assist in the
convergence of GAAP and International Financial Reporting Standards
(“IFRS”), the Financial Accounting Standards Board
(“FASB”) issued an accounting standard update related
to revenue from contracts with customers. This standard sets forth
a new five-step revenue recognition model which replaces the prior
revenue recognition guidance in its entirety and is intended to
eliminate numerous industry-specific pieces of revenue recognition
guidance that have historically existed in GAAP. The underlying
principle of the new standard is that a business or other
organization will recognize revenue to depict the transfer of
promised goods or services to customers in an amount that reflects
what it expects in exchange for the goods or services. The standard
also requires more detailed disclosures and provides additional
guidance for transactions that were not addressed completely in the
prior accounting guidance. The standard provides alternative
methods of initial adoption and will become effective for the
Company beginning in the first quarter of fiscal 2019. The FASB has
issued several updates to the standard which i) defer the original
effective date from January 1, 2017 to January 1, 2018, while
allowing for early adoption as of January 1, 2017. ii) clarify the
application of the principal versus agent guidance. and iii)
clarify the guidance on inconsequential and perfunctory promises
and licensing. In May 2016, the FASB issued an update to address
certain narrow aspects of the guidance including collectibility
criterion, collection of sales taxes from customers, noncash
consideration, contract modifications and completed contracts. This
issuance does not change the core principle of the guidance in the
initial topic issued in May 2014. In December 2016, the FASB issued
updated guidance regarding revenue from contracts with customers.
Some topics that could impact the Company include corrections and
improvements around the following: contract costs impairment
testing, disclosure of remaining performance obligations and prior
period obligations, contract modifications, and contract asset
versus receivable. The Company is currently evaluating the impact
of adopting this new guidance on its consolidated financial
statements.
In
July 2015, the FASB issued an accounting standard update that
requires management to measure inventory at the lower of cost or
net realizable value. Net realizable value is the estimated selling
prices in the ordinary course of business, less reasonably
predictable costs of completion, disposal, and transportation. The
Company adopted this new standard in fiscal year 2018. The adoption
of this guidance does not have a significant impact on the
Company’s consolidated financial statements.
In
November 2015, the FASB issued an accounting standard update
related to deferred tax assets and liabilities. This standard
simplifies the presentation of deferred income taxes to be
classified as noncurrent in the consolidated balance sheet. The
Company adopted this new standard in fiscal year 2018. The adoption
of this guidance does not have a significant impact on the
Company’s consolidated financial statements.
In
January 2016, the FASB issued an accounting standard update related
to recognition and measurement of financial assets and financial
liabilities. This standard changes accounting for equity
investments, financial liabilities under the fair value option and
the presentation and disclosure requirements for financial
instruments. In addition, it clarifies guidance related to the
valuation allowance assessment when recognizing deferred tax assets
resulting from unrealized losses on available-for-sale debt
securities. This standard is effective for us in fiscal year 2020.
Early adoption is permitted. The Company is currently evaluating
the impact of this new guidance on its consolidated financial
statements.
In
February 2016, the FASB issued authoritative guidance related to
leases. This guidance requires management to present all leases
greater than one year on the balance sheet as a liability to make
payments and an asset as the right to use the underlying asset for
the lease term. This new standard will be effective for us in
fiscal year 2020, with early adoption permitted. The Company is
currently evaluating the impact of adopting this new guidance on
its consolidated financial statements.
In
March 2016, the FASB released an accounting standard update that
simplifies several aspects of the accounting for share-based
payment transactions, including the income tax consequences,
forfeitures, classification of awards as either equity or
liabilities, and classification on the statement of cash flows. The
Company adopted this new standard in fiscal year 2018. The adoption
of this guidance does not have a significant impact on the
Company’s consolidated financial statements.
In
June 2016, the FASB issued an accounting standard update that
requires measurement and recognition of expected credit losses for
financial assets held based on historical experience, current
conditions, and reasonable and supportable forecasts that affect
the collectibility of the reported amount. The accounting standard
update will be effective for the Company beginning in the first
quarter of fiscal 2021 on a modified retrospective basis, and early
adoption in fiscal 2020 is permitted. The Company is currently
evaluating the impact of this accounting standard update on its
consolidated financial statements.
In
August 2016, the FASB issued authoritative guidance related to the
classification of certain cash receipts and cash payments on the
statement of cash flows. The accounting standard update will be
effective for the Company beginning in the first quarter of fiscal
2019 on a retrospective basis, and early adoption is permitted. The
Company is currently evaluating the impact of this accounting
standard update on its consolidated statements of cash
flows.
In
October 2016, the FASB issued an accounting standard update that
requires recognition of the income tax consequences of intra-entity
transfers of assets (other than inventory) at the transaction date.
The accounting standard update will be effective for the Company
beginning in the first quarter of fiscal 2019 on a modified
retrospective basis, and early adoption is permitted. The Company
is currently evaluating the impact of this accounting standard
update on its consolidated financial statements.
In
November 2016, the FASB issued authoritative guidance related to
statements of cash flows. This guidance clarifies that amounts
generally described as restricted cash and restricted cash
equivalents should be included with cash and cash equivalents when
reconciling the beginning-of-period and end-of period total amounts
shown on the statement of cash flows. The accounting standard
update will be effective for the Company beginning in the first
quarter of fiscal 2019 on a retrospective basis, and early adoption
is permitted. The Company is currently evaluating the impact of
this accounting standard update on its consolidated financial
statements.
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 should be read in conjunction with the unaudited
condensed consolidated financial statements and the related notes
that appear elsewhere in this report and with our Annual Report on
Form 10-K for the fiscal year ended May 31, 2017 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, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements in this
report, including those made by our management, other than
statements of historical fact, are forward-looking statements.
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 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 SEC. 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.
OVERVIEW
We
were founded in 1977 to develop and manufacture burn-in and test
equipment for the semiconductor industry. Since our inception, we
have sold more than 2,500 systems to semiconductor manufacturers,
semiconductor contract assemblers and burn-in and test service
companies worldwide. Our principal products currently are the
Advanced Burn-in and Test System, or ABTS, the FOX full wafer
contact parallel test and burn-in system, WaferPak contactors, the
DiePak carrier and test fixtures.
Our
net sales consist primarily of sales of systems, WaferPak
contactors, DiePak Carriers, test fixtures, upgrades and spare
parts, revenues from service contracts, and engineering development
charges. Our selling arrangements may include contractual customer
acceptance provisions, which are mostly deemed perfunctory or
inconsequential, and installation of the product occurs after
shipment and transfer of title.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
Our
discussion and analysis of our financial condition and results of
operations are based upon our 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 condensed consolidated financial statements
requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and
related disclosure of contingent assets and liabilities. On an
ongoing basis, we evaluate our estimates, including those related
to customer programs and incentives, product returns, bad debts,
inventories, income taxes, financing operations, warranty
obligations, and long-term service contracts. Our estimates are
derived from historical experience and on various other assumptions
that are believed to be reasonable under the circumstances. Those
results form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under
different assumptions or conditions. 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 and
Estimates” in our Annual Report on Form 10-K for the fiscal
year ended May 31, 2017.
There
have been no material changes to our critical accounting policies
and estimates during the three months ended August 31, 2017
compared to those discussed in our Annual Report on Form 10-K for
the fiscal year ended May 31, 2017.
RESULTS
OF OPERATIONS
The
following table sets forth items in our unaudited condensed
consolidated statements of operations as a percentage of net sales
for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
100.0%
|
100.0%
|
|
Cost
of sales
|
58.1
|
58.5
|
|
Gross
profit
|
41.9
|
41.5
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
Selling,
general and administrative
|
25.7
|
32.3
|
|
Research
and development
|
13.7
|
19.9
|
|
|
|
|
|
Total
operating expenses
|
39.4
|
52.2
|
|
|
|
|
|
Income
(loss) from operations
|
2.5
|
(10.7)
|
|
|
|
|
|
Interest
expense, net
|
(1.5)
|
(3.3)
|
|
Other
expense, net
|
(0.9)
|
(0.1)
|
|
|
|
|
|
Income
(loss) before income tax benefit (expense)
|
0.1
|
(14.1)
|
|
|
|
|
|
Income
tax benefit (expense)
|
--
|
(0.1)
|
|
|
|
|
|
Net
income (loss)
|
0.1
|
(14.2)
|
|
Less: Net income attributable
to
the noncontrolling interest
|
--
|
--
|
|
Net
income (loss) attributable to Aehr Test
Systems common shareholders
|
0.1%
|
(14.2)%
|
THREE
MONTHS ENDED AUGUST 31, 2017 COMPARED TO THREE MONTHS ENDED AUGUST
31, 2016
NET
SALES. Net sales increased to $7.0 million for the three months
ended August 31, 2017 from $5.3 million for the three months ended
August 31, 2016, an increase of 31.1%. The increase in net sales
for the three months ended August 31, 2017 was primarily due to the
increases in both net sales of our wafer-level products and Test
During Burn-in (TDBI) products. Net sales of the wafer-level
products for the three months ended August 31, 2017 were $4.2
million, and increased approximately $1.4 million from the three
months ended August 31, 2016. Net sales of the TDBI products for
the three months ended August 31, 2017 were $2.8 million, and
increased approximately $0.2 million from the three months ended
August 31, 2016.
GROSS
PROFIT. Gross profit increased to $2.9 million for the three months
ended August 31, 2017 from $2.2 million for the three months ended
August 31, 2016, an increase of approximately 32.3%. Gross profit
margin for the three months ended August 31, 2017 and 2016 was
41.9% and 41.5%, respectively.
SELLING,
GENERAL AND ADMINISTRATIVE. SG&A expenses increased to $1.8
million for the three months ended August 31, 2017 from $1.7
million for the three months ended August 31, 2016, an increase of
4.4%. The increase in SG&A expenses was primarily due to an
increase in expenses related to sales activities.
RESEARCH
AND DEVELOPMENT. R&D expenses decreased to $1.0 million for the
three months ended August 31, 2017 from $1.1 million for the three
months ended August 31, 2016, a decrease of 9.9%. The decrease in
R&D expenses was primarily due to the decrease in project
expenses.
INTEREST
EXPENSE, NET. Interest expense, net was $107,000 for the three
months ended August 31, 2017 compared with $178,000 for the three
months ended August 31, 2016. The decrease in interest expense in
the three months ended August 31, 2017 was primarily due to the
debt issuance costs related to the convertible notes becoming fully
amortized at the end of fiscal 2017.
OTHER
EXPENSE, NET. Other expense, net for the three months ended August
31, 2017 and 2016 was $60,000 and $3,000, respectively. The change
in other expense was primarily due to losses realized in connection
with the fluctuation in the value of the dollar compared to foreign
currencies during the referenced periods.
INCOME
TAX BENEFIT (EXPENSE). Income tax benefit was $5,000 for the three
months ended August 31, 2017 compared with income tax expense of
$4,000 for the three months ended August 31,
2016.
LIQUIDITY
AND CAPITAL RESOURCES
Net
cash used in operating activities was $3.9 million for the three
months ended August 31, 2017 and cash provided by operating
activities was $1.2 million for the three months ended August 31,
2016. For the three months ended August 31, 2017, net cash used in
operating activities was primarily due to the increases in
inventories of $2.0 million, accounts receivable of $1.3 million,
and prepaid expenses and other current assets of $1.1 million,
partially offset by an increase in accounts payable of $0.7
million. The increase in inventories is to support future shipments
for customer orders. The increase in accounts receivable was
primarily due to an increase in sales. The increase in prepaid
expenses and other current assets was primarily due to down
payments to certain vendors. The increase in accounts payable was
primarily due to higher expenditures associated with higher
revenue. For the three months ended August 31, 2016, net cash
provided by operating activities was primarily the result of
increases in customer deposits and deferred revenue of $0.9 million
and accounts payable of $0.7 million and decrease in inventories of
$1.4 million. This was partially offset by an increase in accounts
receivable of $1.3 million and the net loss of $0.8 million as
adjusted to exclude the effect of non-cash charges of stock-based
compensation expense of $0.3 million. The increase in customer
deposits and deferred revenue was primarily due to the receipt of
additional down payments from certain customers. The increase in
accounts payable was primarily due to higher expenditures
associated with higher revenue. The decrease in inventories is
primarily due to the sales of systems on-hand at the beginning of
the period. The increase in accounts receivable was primarily due
to an increase in sales.
Net
cash used in investing activities was $184,000 and $21,000 for the
three months ended August 31, 2017 and 2016, respectively. Net cash
used in investing activities during the three months ended August
31, 2017 and 2016 was due to purchases of property and
equipment.
Net cash provided
by financing activities was $234,000 and $94,000 for the three
months ended August 31, 2017 and 2016, respectively. Net cash
provided by financing activities during the three months ended
August 31, 2017 and 2016 was due to proceeds from the exercise of
stock options.
The
effect of fluctuation in exchange rates provided cash of $17,000
and $86,000 for the three months ended August 31, 2017 and 2016,
respectively. The change in cash provided was due to the
fluctuation in the value of the dollar compared to foreign
currencies.
As
of August 31, 2017 and May 31, 2017, we had working capital of
$22.3 million and $21.5 million, respectively. Working capital
consists of cash and cash equivalents, accounts receivable,
inventory and other current assets, less current
liabilities.
We
lease our manufacturing and office space under operating leases. We
entered into a non-cancelable operating lease agreement for our
United States manufacturing and office facilities, which was
renewed in November 2014 and expires in June 2018. Under the lease
agreement, we are responsible for payments of utilities, taxes and
insurance.
From
time to time, we evaluate potential acquisitions of businesses,
products or technologies that complement our business. If
consummated, any such transactions may use a portion of our working
capital or require the issuance of equity. We have no present
understandings, commitments or agreements with respect to any
material acquisitions.
We
anticipate that the existing cash balance together with income from
operations, collections of existing accounts receivable, revenue
from our existing backlog of products, the sale of inventory on
hand, and deposits and down payments against significant orders
will be adequate to meet our liquidity requirements for the next 12
months.
OFF-BALANCE
SHEET ARRANGEMENTS
We
have not entered into any off-balance sheet financing arrangements
and have 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 our contractual obligations or other
commitments as disclosed in the Company's Annual Report on Form
10-K for the year ended May 31, 2017.
Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISKS
We
had no holdings of derivative financial or commodity instruments as
of August 31, 2017 or May 31, 2017.
We
are exposed to financial market risks, including changes in
interest rates and foreign currency exchange rates. We only invest
our short-term excess cash in government-backed securities with
maturities of 18 months or less. We do not use any financial
instruments for speculative or trading purposes. Fluctuations in
interest rates would not have a material effect on our financial
position, results of operations or cash flows.
A
majority of our revenue and capital spending is transacted in U.S.
Dollars. We, however, enter into transactions in other currencies,
primarily Euros and Japanese Yen. Since the price is determined at
the time a purchase order is accepted, we are exposed to the risks
of fluctuations in the foreign currency-U.S. Dollar exchange rates
during the lengthy period from purchase order to ultimate payment.
This exchange rate risk is partially offset to the extent that our
subsidiaries incur expenses payable in their local currency. To
date, we have not invested in instruments designed to hedge
currency risks. In addition, our subsidiaries typically carry debt
or other obligations due us that may be denominated in either their
local currency or U.S. Dollars. Since our subsidiaries’
financial statements are based in their local currency and our
condensed consolidated financial statements are based in U.S.
Dollars, we and our subsidiaries recognize foreign exchange gains
or losses in any period in which the value of the local currency
rises or falls in relation to the U.S. Dollar. A 10% decrease in
the value of the subsidiaries’ local currency as compared
with the U.S. Dollar would not be expected to result in a
significant change to our net income or loss. There have been no
material changes in our risk exposure since the end of the last
fiscal year, nor are any material changes to our risk exposure
anticipated.
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 defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act, 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, as amended,
is recorded, processed, summarized and reported within the time
periods specified in the SEC rules and forms, and that such
information is accumulated and communicated to management as
appropriate to allow for timely decisions regarding required
disclosure.
CHANGES
IN INTERNAL CONTROLS OVER FINANCIAL REPORTING. There was no change
in our internal control over financial reporting, as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act, 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.
INHERENT
LIMITATIONS OF INTERNAL CONTROLS. Our management, including our
Chief Executive Officer and Chief Financial Officer, does not
expect that our disclosure controls and procedures or our internal
controls will prevent all error and all fraud. A control system, no
matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the
control system are met. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any,
within us have been detected. These inherent limitations include
the realities that judgments in decision-making can be faulty, and
that breakdowns can occur because of a simple error or mistake.
Additionally, controls can be circumvented by the individual acts
of some persons, by collusion of two or more people, or by
management override of the control. The design of any system of
controls also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any
design will succeed in achieving our stated goals under all
potential future conditions. Over time, controls may become
inadequate because of changes in conditions, or the degree of
compliance with the policies or procedures may deteriorate. Because
of the inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and not be
detected.
PART II
- OTHER INFORMATION
Item 1.
LEGAL PROCEEDINGS
None.
Item
1A. RISK FACTORS
Please
refer to the description of the risk factors associated with our
business previously disclosed in Part I, Item 1A - "Risk Factors"
of our Annual Report on Form 10-K for the year ended May 31, 2017
filed with the Securities and Exchange Commission on August 29,
2017. There have been no material changes from the risk factors
previously described under Item 1A of our Annual Report on Form
10-K for the fiscal year ended May 31, 2017.
Item 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
None.
Item 3.
DEFAULTS UPON SENIOR SECURITIES
None.
Item 4.
MINE SAFETY DISCLOSURES
Not
Applicable
Item 5.
OTHER INFORMATION
None.
Item 6.
EXHIBITS
The
Exhibits listed on the accompanying "Index to Exhibits" are filed
as part of, or incorporated by reference into, this
report.
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, 2017
|
By:
|
/s/
GAYN
ERICKSON
|
|
|
|
|
Gayn
Erickson
|
|
|
|
|
President and Chief
Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
Date:
October
13, 2017
|
By:
|
/s/
KENNETH
B. SPINK
|
|
|
|
|
Kenneth B.
Spink
|
|
|
|
|
Vice President of
Finance and Chief Financial
Officer
|
AEHR TEST
SYSTEMS
|
Exhibit
No.
|
|
Description
|
|
|
|
|
|
|
|
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.
|
|
|
|
|
|
|
|
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.
|
|
|
|
|
|
|
|
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.*
|
|
|
|
|
|
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
|
*This exhibit shall
not be deemed “filed” for purposes of Section 18
of the Securities Exchange Act of 1934 or otherwise subject to the
liabilities of that Section, nor shall it be deemed incorporated by
reference in any filings under the Securities Act of 1933 or the
Securities Exchange Act of 1934, whether made before or after the
date hereof and irrespective of any general incorporation language
in any filings.
26