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What changed in AEHR TEST SYSTEMS's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of AEHR TEST SYSTEMS's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+166 added−172 removedSource: 10-K (2023-08-28) vs 10-K (2022-08-26)

Top changes in AEHR TEST SYSTEMS's 2023 10-K

166 paragraphs added · 172 removed · 112 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeFor example, this cycling process screens silicon carbide semiconductor devices used in electric vehicle engine controller inverters and their corresponding on-board battery chargers for failure to meet current carrying, power loss and leakage specifications, as well as endurance requirements. 3 Table of Contents MARKETS The Company’s semiconductor test and reliability qualification solutions address multiple test and burn-in segments including silicon carbide devices for electric vehicles, silicon photonics markets that include data center infrastructure and worldwide 5G infrastructure, 2D/3D sensor markets related to consumer electronics and automotive applications, and the data storage and memory markets.
Biggest changeFor example, this cycling process screens silicon carbide semiconductor devices used in electric vehicle engine controller inverters and their corresponding on-board battery chargers for failure to meet current carrying, power loss and leakage specifications, as well as endurance requirements.
This, in turn, is increasing the need for 100% production test and burn-in of devices in order to lower the infant mortality rate and ensure that these devices and systems operate over the life of the vehicles.
This, in turn, is increasing the need for 100% production test and burn-in of devices in order to lower the infant mortality rate of devices and ensure that these devices and systems operate over the life of the vehicles.
Selected financial information, including net sales and property and equipment, net for each of the last three fiscal years, by geographic area is included in Part II, Item 8, Note 2, “Revenue” and Note 15, “Segment Information” and certain risks related to such operations are discussed in Part I, Item 1A, Risk Factors, under the heading “We sell our products and services worldwide, and our business is subject to risks inherent in conducting business activities in geographic regions outside of the United States.” AVAILABLE INFORMATION The Company’s common stock trades on the NASDAQ Capital Market under the symbol “AEHR.” The Company’s annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports that are filed with the United States Securities and Exchange Commission, or SEC, pursuant to Section 13(a) or 15(d) of the Exchange Act, are available free of charge through the Company’s website at www.aehr.com as soon as reasonably practicable after we electronically file them with, or furnish them to the SEC.
Selected financial information, including net sales and property and equipment, net for each of the last three fiscal years, by geographic area is included in Part II, Item 8, Note 2, “Revenue” and Note 17, “Segment Information” and certain risks related to such operations are discussed in Part I, Item 1A, Risk Factors, under the heading “We sell our products and services worldwide, and our business is subject to risks inherent in conducting business activities in geographic regions outside of the United States.” AVAILABLE INFORMATION The Company’s common stock trades on the NASDAQ Capital Market under the symbol “AEHR.” The Company’s annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports that are filed with the United States Securities and Exchange Commission, or SEC, pursuant to Section 13(a) or 15(d) of the Exchange Act, are available free of charge through the Company’s website at www.aehr.com as soon as reasonably practicable after we electronically file them with, or furnish them to the SEC.
MARKETING, SALES AND CUSTOMER SUPPORT The Company has sales and service operations in the United States, Philippines and Taiwan, dedicated service resources in Germany, China, Japan and South Korea, and has established a network of distributors and sales representatives in certain key parts of the world.
MARKETING, SALES AND CUSTOMER SUPPORT The Company has sales and service operations in the United States, Germany, Philippines and Taiwan, dedicated service resources in China and South Korea, and has established a network of distributors and sales representatives in certain key parts of the world.
The SEC maintains an Internet site, www.sec.gov, that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. 9 Table of Contents In addition, information regarding the Company’s code of conduct and ethics and the charters of its Audit, Compensation and Nominating and Governance Committees, are available free of charge on the Company’s website listed above.
The SEC maintains an Internet site, www.sec.gov, that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. In addition, information regarding the Company’s code of conduct and ethics and the charters of its Audit, Compensation and Nominating and Governance Committees, are available free of charge on the Company’s website listed above.
The Company has applications engineering and field service personnel located near and sometimes co-located at our customers and includes resources at the corporate headquarters in Fremont, California, at customer locations in Texas, at the Company’s subsidiaries in Germany and Philippines, at its branch office in Taiwan, and also through 3 rd party agreements in China and South Korea.
The Company has applications engineering and field service personnel located near and sometimes co-located at our customers and includes resources at the corporate headquarters in Fremont, California, at customer locations in Texas, at the Company’s subsidiaries in Germany and the Philippines, at its branch office in Taiwan, and also through third-party agreements in China and South Korea.
This capability was introduced in March 2017. The FOX-NP was introduced in January 2019 and is a low-cost entry-level system to provide a configuration and price point for companies to do initial production qualification and new product introduction, enabling an easier transition to the FOX-XP system for high volume production test.
This capability was introduced in March 2017. The FOX-NP was introduced in January 2019 and is a low-cost entry-level system to provide a configuration and price point for companies to initiate a new product introduction and production qualification, enabling an easier transition to the FOX-XP system for high volume production test.
Silicon Carbide Silicon carbide power semiconductors have emerged as the preferred technology for battery electric vehicle power conversion in on-board and off-board electric vehicle battery chargers, and the electric power conversion and control of the electric engines.
Power Semiconductors (Silicon Carbide and Gallium Nitride) Silicon carbide power semiconductors have emerged as the preferred technology for battery electric vehicle power conversion in on-board and off-board electric vehicle battery chargers, and the electric power conversion and control of the electric engines.
A single BIB can hold up to several hundred ICs, and a production chamber holds up to 72 BIBs, resulting in thousands of memory or logic devices being tested in a single system. The Advanced Burn-in and Test System, or ABTS, was introduced in fiscal 2008.
A single BIB can hold up to several hundred ICs, and a production chamber holds up to 72 BIBs, resulting in thousands of memory or logic devices being tested in a single system. 6 Table of Contents The Advanced Burn-in and Test System, or ABTS, was introduced in fiscal 2008.
FULL WAFER CONTACT SYSTEMS The FOX-XP test and burn-in system, introduced in July 2016, is designed for devices in wafer, singulated die, and module form that require test and burn-in times typically measured in hours to days. The FOX-XP system can test and burn-in up to 18 wafers at a time.
The FOX-XP test and burn-in system, introduced in July 2016, is designed for devices in wafer, singulated die, and module form that require test and burn-in times typically measured in hours to days. The FOX-XP system can test and burn-in up to 18 wafers at a time.
The FOX-CP reduces test cost by functionally testing wafers during reliability screening to identify failing logic, memory, power or photonic die before the die are integrated into their final package, and is optimal for test times ranging from minutes to a few hours or where multiple touchdowns are required to test the entire wafer.
The FOX-CP reduces test cost by functionally testing wafers during reliability screening to identify failing logic, memory, power or photonic die before the die are integrated into 5 Table of Contents their final package, and is optimal for test times ranging from minutes to a few hours or where multiple touchdowns are required to test the entire wafer.
Aehr’s FOX-XP test and burn-in system allows for one of the key reliability screening tests to be completed on an entire wafer full of devices, testing all of them at one time, while also testing and monitoring every device for failures during the burn-in process to provide critical information on those devices.
FULL WAFER CONTACT SYSTEMS Aehr’s FOX-XP test and burn-in platform allows for one of the key reliability screening tests to be completed on an entire wafer full of devices, testing all of them at one time, while also testing and monitoring every device for failures during the burn-in process to provide critical information on those devices.
This can either be done at the wafer level, before the die are packaged, or at the package level, after the die are packaged. The burn-in process screens for early failures by operating the device at elevated voltages and temperatures, at up to 150 degrees Celsius (302 degrees Fahrenheit) or higher.
This can either be done at the wafer level, before the die are packaged, or at the package level, after the die are packaged. The burn-in process screens for early failures by operating the device at elevated voltages and 3 Table of Contents temperatures, at up to 150 degrees Celsius (302 degrees Fahrenheit) or higher.
Building upon the expertise gained in the development of its existing products, the Company has developed the FOX family of systems for performing test and burn-in of entire processed wafers, and burn-in of devices in singulated die and module form, including the FOX-NP and FOX-CP systems released during fiscal 2019.
Building upon the expertise gained in the development of its existing products, the Company has developed the FOX family of systems for performing test and burn-in of entire processed wafers, and burn-in of devices in singulated die and module form, including the FOX-NP and FOX-CP systems released during fiscal 2019, and the Automated WaferPak Aligner released during fiscal 2023.
CUSTOMERS The Company markets and sells its products throughout the world to semiconductor manufacturers, semiconductor contract assemblers, electronics manufacturers and burn-in and test service companies. Sales to the Company’s five largest customers accounted for approximately 98%, 84%, and 87% of its net sales in fiscal 2022, 2021 and 2020, respectively.
CUSTOMERS The Company markets and sells its products throughout the world to semiconductor manufacturers, semiconductor contract assemblers, electronics manufacturers and burn-in and test service companies. Sales to the Company’s five largest customers accounted for approximately 97%, 98%, and 84% of its net sales in fiscal 2023, 2022 and 2021, respectively.
The Company’s research and development expenses during fiscal 2022, 2021 and 2020 were $5.8 million, $3.7 million and $3.4 million, respectively. 7 Table of Contents The Company conducts ongoing research and development to design new products and to support and enhance existing product lines.
The Company’s research and development expenses during fiscal 2023, 2022 and 2021 were $7.1 million, $5.8 million and $3.7 million, respectively. 7 Table of Contents The Company conducts ongoing research and development to design new products and to support and enhance existing product lines.
The Company’s proprietary software is copyrighted and licensed to the Company’s customers. At May 31, 2022, the Company held 56 issued United States patents with expiration date ranges from 2022 to 2038 and had several additional United States patent applications and foreign patent applications pending.
The Company’s proprietary software is copyrighted and licensed to the Company’s customers. At May 31, 2023, the Company held 46 issued United States patents with expiration date ranges from 2023 to 2038 and had several additional United States patent applications and foreign patent applications pending.
The Company believes that maintaining a close relationship with customers and providing them with ongoing engineering support improves customer satisfaction and will provide the Company with a competitive advantage in selling its products to the Company’s customers. BACKLOG At May 31, 2022, the Company’s backlog was $11.1 million compared with $1.6 million at May 31, 2021.
The Company believes that maintaining a close relationship with customers and providing them with ongoing engineering support improves customer satisfaction and will provide the Company with a competitive advantage in selling its products to the Company’s customers. BACKLOG At May 31, 2023, the Company’s backlog was $24.5 million compared with $11.1 million at May 31, 2022.
The Company regularly evaluates its ability to attract and retain its employees. The Company has had relatively low turnover rates within its workforce, with 52% of its United States regular full-time workforce being with the Company for 5 years or more.
The Company regularly evaluates its ability to attract and retain its employees. The Company has had relatively low turnover rates within its workforce, with 58% of its regular full-time workforce being with the Company for 5 years or more.
Net sales of full wafer contact product lines, systems, WaferPak Contactors, DiePaks Carriers and services for fiscal 2022, 2021 and 2020 were $48.9 million, $15.0 million, and $19.8 million, respectively, and accounted for approximately 96%, 90% and 89% of the Company’s net sales in fiscal 2022, 2021 and 2020, respectively.
Net sales of full wafer contact product lines, systems, WaferPak Contactors, DiePaks Carriers and services for fiscal 2023, 2022 and 2021 were $63.5 million, $48.9 million, and $15.0 million, respectively, and accounted for approximately 98%, 96% and 90% of the Company’s net sales in fiscal 2023, 2022 and 2021, respectively.
In addition, our service and support organization has employees located worldwide, at or near customer facilities, to provide timely customer response. As of May 31, 2022 regular full-time employees were located in the following geographic areas: 71 United States, 1 Japan, 4 Taiwan, and 15 in the Philippines.
In addition, our service and support organization has employees located worldwide, at or near customer facilities, to provide timely customer response. As of May 31, 2023 regular full-time employees were located in the following geographic areas: 80 United States, 1 Germany, 5 Taiwan, and 18 in the Philippines.
The ABTS system can test and burn-in both high-power logic and low-power ICs. It can be configured to provide individual device temperature control for devices up to 70W or more and with up to 320 I/O channels.
The ABTS system can test and burn-in both high-power logic and low-power ICs. It can be configured to provide individual device temperature control for devices up to 70W or more and with up to 320 I/O channels. The ABTS system is nearing the end of its lifecycle and limited shipments are expected in the future.
The unique design of the WaferPak as well as the FOX-XP and FOX-NP systems remove the need for a dedicated wafer prober per wafer. A single FOX-XP system with a set of WaferPak Contactors can test up to 18 wafers at a time in the same footprint as a single-wafer wafer prober and test system offered by Aehr’s competitors.
A single FOX-XP system with a set of WaferPak Contactors can test up to 18 wafers at a time in the same footprint as a single-wafer wafer prober and test system offered by Aehr’s competitors.
During fiscal 2022, one customer accounted for approximately 82% of the Company’s net sales. During fiscal 2021, four customers accounted for approximately 24%, 23%, 20% and 10%, respectively, of the Company’s net sales. During fiscal 2020, three customers accounted for approximately 43%, 16% and 15%, respectively, of the Company’s net sales.
During fiscal 2023, two customers accounted for approximately 79% and 10% of the Company’s net sales. During fiscal 2022, one customer accounted for approximately 82% of the Company’s net sales. During fiscal 2021, four customers accounted for approximately 24%, 23%, 20% and 10%, respectively, of the Company’s net sales.
However, the Company may, from time to time, receive communications from third parties asserting intellectual property claims against the Company. Such claims could include assertions that the Company’s products infringe, or may infringe, the proprietary rights of third parties, requests for indemnification against such infringement or suggest the Company may be interested in acquiring a license from such third parties.
Such claims could include assertions that the Company’s products infringe, or may infringe, the proprietary rights of third parties, requests for indemnification against 8 Table of Contents such infringement or suggest the Company may be interested in acquiring a license from such third parties.
In addition, there can be no assurance that any of the patents issued to the Company will not be challenged, invalidated or circumvented or that the rights granted thereunder will provide competitive advantages to the Company.
In addition, there can be no assurance that any of the patents issued to the Company will not be challenged, invalidated or circumvented or that the rights granted thereunder will provide competitive advantages to the Company. Also, there can be no assurance that the Company will have the financial resources to defend its patents from infringement or claims of invalidity.
As sensors become more pervasive and add critical new functionality to devices, it becomes more and more important that the data collected be accurate and reliable, which we believe will drive more and more requirements for our solutions for production test and burn-in of these sensors. 4 Table of Contents Automotive Semiconductors In addition, the rapid growth and increasing demand for reliability in automotive sensor technologies is a key market driver for the Company.
As sensors become more pervasive and add critical new functionality to devices, it becomes more and more important that the data collected be accurate and 4 Table of Contents reliable, which we believe will drive more and more requirements for our solutions for production test and burn-in of these sensors.
Traditional probe cards often are only able to contact a portion of the wafer, requiring multiple touchdowns to test the entire wafer. Traditional probe cards also require the use of a dedicated wafer prober handler for each wafer in order to press the wafer up to make contact with the probe card.
Traditional probe cards also require the use of a dedicated wafer prober handler for each wafer in order to press the wafer up to make contact with the probe card.
The Company offers an automated aligner for high volume production applications, which can support several FOX-XP or FOX-NP systems, and a manual aligner for low volume production or engineering applications. Similar to the WaferPak Aligner for WaferPak Contactors, the Company offers the DiePak Loader for DiePak Carriers.
The Company offers an automated aligner for high volume production applications, which can support several FOX-XP or FOX-NP systems or can be connected to a FOX-XP resulting in a fully integrated automated test cell, and a manual aligner for low volume production or engineering applications.
HUMAN CAPITAL RESOURCES As of May 31, 2022, the Company, including its foreign subsidiaries and one branch office, employed 91 persons collectively, on a regular full-time basis, of whom 21 were engaged in research, development and related engineering, 26 were engaged in manufacturing, 35 were engaged in marketing, sales and customer support and 9 were engaged in general administration and finance functions.
The Company also maintains Audit, Compensation and Nominating and Governance Committees to provide corporate oversight. 9 Table of Contents HUMAN CAPITAL RESOURCES As of May 31, 2023, the Company, including its foreign subsidiaries and one branch office, employed 104 persons collectively, on a regular full-time basis, of whom 23 were engaged in research, development and related engineering, 31 were engaged in manufacturing, 39 were engaged in marketing, sales and customer support and 11 were engaged in general administration, finance and IT functions.
The ABTS system is nearing the end of its lifecycle and limited shipments are expected in the future. 6 Table of Contents Net sales of packaged part product lines, systems and services for fiscal 2022, 2021 and 2020 were $1.9 million, $1.6 million, and $2.5 million, respectively, and accounted for approximately 4%, 10% and 11% of the Company’s net sales in fiscal 2022, 2021 and 2020, respectively.
Net sales of packaged part product lines, systems and services for fiscal 2023, 2022 and 2021 were $1.4 million, $1.9 million, and $1.6 million, respectively, and accounted for approximately 2%, 4% and 10% of the Company’s net sales in fiscal 2023, 2022 and 2021, respectively.
These technologies include ADAS (Advanced Driver Assistance Systems) capabilities such as collision avoidance systems using laser, LIDAR (Light Detection and Ranging), and RADAR (Radio Detection and Ranging) or other sensing technologies.
Automotive Semiconductors In addition, the rapid growth and increasing demand for reliability in automotive sensor technologies is a key market driver for the Company. These technologies include ADAS (Advanced Driver Assistance Systems) capabilities such as collision avoidance systems using laser, LIDAR (Light Detection and Ranging), and RADAR (Radio Detection and Ranging) or other sensing technologies.
BUSINESS SEGMENT DATA AND GEOGRAPHIC AREAS The Company operates in a single business segment, the designing, manufacturing and marketing of advanced test and burn-in products to the semiconductor manufacturing industry in several geographic areas.
The Company periodically performs employee surveys to monitor employee satisfaction and the Company follows-up with an action planning process to actively respond to employee feedback. BUSINESS SEGMENT DATA AND GEOGRAPHIC AREAS The Company operates in one business segment, the designing, manufacturing, marketing and selling of advanced test and burn-in products to the semiconductor manufacturing industry in several geographic areas.
It complements the capabilities of the FOX-XP and FOX-NP systems, which are optimal when the test time is measured in hours or days and the full wafer can be tested in a single touchdown. 5 Table of Contents The FOX-1P full wafer parallel test system, introduced in October 2014, is designed for massively parallel testing of devices at wafer level.
The FOX-CP includes an integrated prober which is equipped with optics for automatic pattern recognition so that the wafer is aligned properly for the testing process. It complements the capabilities of the FOX-XP and FOX-NP systems, which are optimal when the test time is measured in hours or days and the full wafer can be tested in a single touchdown.
Also, there can be no assurance that the Company will have the financial resources to defend its patents from infringement or claims of invalidity. 8 Table of Contents There are currently no pending claims against the Company regarding infringement of any patents or other intellectual property rights of others.
There are currently no pending claims against the Company regarding infringement of any patents or other intellectual property rights of others. However, the Company may, from time to time, receive communications from third parties asserting intellectual property claims against the Company.
The Company received the first production order of this new system and shipped the first system in July 2016. One of the key components of the FOX systems is the patented WaferPak Contactor. The WaferPak Contactor contains a full-wafer single-touchdown probe card which is easily removable from the system.
One of the key components of the FOX systems is the patented WaferPak Contactor. The WaferPak Contactor contains a full-wafer single-touchdown probe card which is easily removable from the system. Traditional probe cards often are only able to contact a portion of the wafer, requiring multiple touchdowns to test the entire wafer.
The WaferPak Contactor includes a full-wafer probe card for use in testing wafers in FOX systems. The DiePak Carrier is a reusable, temporary package that enables IC manufacturers to perform cost-effective test and burn-in of singulated bare die or very small multi-IC modules.
The FOX-CP system is a low-cost single-wafer compact test solution for logic, memory and photonic devices and the newest addition to the FOX-P product family. The FOX WaferPak Contactor contains a unique full wafer contactor capable of testing wafers up to 300mm that enables IC manufacturers to perform test, burn-in, and stabilization of full wafers on the FOX-P systems.
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Item 1. Business THE COMPANY Aehr Test was incorporated in the state of California on May 25, 1977. We develop, manufacture and sell solutions that are designed to reduce the cost of testing and to perform reliability screening and stress testing, burn-in or cycling, of homogeneous and heterogenous logic and memory semiconductor integrated circuits, sensors, power and optical devices.
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Item 1. Business THE COMPANY Aehr Test Systems, Inc. (“Aehr Test,” “Aehr,” or “we”) was incorporated in the state of California on May 25, 1977 and is headquartered in Fremont, California.
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These solutions can be used to simultaneously perform parallel testing and burn-in of packaged devices, singulated bare die or semiconductor devices while still in wafer form. The expanding automotive, mobility, networking, and telecommunications markets require semiconductor devices that meet increased quality and reliability specifications.
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We are a leading provider of test solutions for testing, burning-in, and stabilizing semiconductor devices in wafer level, singulated die, and package part form, and have installed thousands of systems worldwide.
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To meet these needs, device manufacturers are increasing capacity and performing additional testing and burn-in of their products, creating opportunities for Aehr Test products in package and wafer-level testing.
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Increasing quality, reliability, safety, and security needs of semiconductors used across multiple applications, including electric vehicles, electric vehicle charging infrastructure, solar and wind power, computing, data and telecommunications infrastructure, and solid-state memory storage, are driving additional test requirements, incremental capacity needs, and new opportunities for Aehr Test products and solutions.
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Leveraging its expertise as a long-time leading provider of burn-in equipment, and having installed over 2,500 systems worldwide, the Company has developed and introduced several innovative product families, including the ABTS TM and FOX TM family of systems, the WaferPak TM Contactor and the DiePak ® Carrier for making electrical and thermal contact with devices under test, and WaferPak Aligners and DiePak Autoloaders for handling and alignment of devices into the corresponding WaferPaks and DiePaks.
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We have developed and introduced several innovative products including the FOX-P TM family of test and burn-in systems and FOX WaferPak TM Aligner, FOX WaferPak Contactor, FOX DiePak® Carrier and FOX DiePak Loader.
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The ABTS family of packaged part burn-in and test systems can perform test during burn-in of complex devices, such as digital signal processors, microprocessors, microcontrollers, memory and systems-on-a-chip, and offers individual temperature control for high-power advanced logic devices while in a packaged form.
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The FOX-XP and FOX-NP systems are full wafer contact and singulated die/module test and burn-in systems that can test, burn-in, and stabilize a wide range of devices such as leading-edge silicon carbide-based and other power semiconductors, 2D and 3D sensors used in mobile phones, tablets, and other computing devices, memory semiconductors, processors, microcontrollers, systems-on-a-chip, and photonics and integrated optical devices.
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The FOX family of systems are parallel test and burn-in systems designed to contact all devices on one or more wafers or panels of devices simultaneously, thus enabling cost effective full wafer parallel test and burn-in. The FOX systems are also used for parallel test and burn-in of singulated die or very small multi-IC modules.
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The FOX DiePak Carrier allows testing, burn-in, and stabilization of singulated bare die and modules up to 1,024 devices in parallel per DiePak on the FOX-NP and FOX-XP systems up to nine DiePaks at a time.
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The FOX-CP includes an integrated prober which is equipped with optics for automatic pattern recognition so that the wafer is aligned properly for the testing process.
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MARKETS The Company’s semiconductor test and reliability qualification solutions address multiple test and burn-in markets including Silicon Carbide (SiC) and Gallium Nitride (GaN) devices for power semiconductors, electric vehicles, electric vehicle charging infrastructure, solar and wind power, silicon photonics for data center infrastructure and worldwide 5G infrastructure, 2D/3D sensors for consumer electronics and automotive applications, and the data storage and memory markets.
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The FOX-1P system is designed to make electrical contact to and test all of the die on a wafer in a single touchdown. The FOX-1P test head and WaferPak Contactor are compatible with industry-standard 300 mm wafer probers, which provide the wafer handling and alignment automation for the FOX-1P system.
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The gallium nitride market appears to be a potentially significant growth driver for our systems and WaferPak full wafer Contactors, particularly for automotive and photovoltaic applications where burn-in appears to be critical for meeting the initial quality and reliability needs of those markets.
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The FOX-1P pattern generator is designed to functionally test industry-standard memory devices such as flash and DRAMs, and it is optimized to test memory or logic ICs that incorporate design for testability, or DFT, and built-in self-test, or BIST.
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The upcoming application of silicon photonics integrated circuits for use in optical chip-to-chip communication in addition to the current photonics as multiple companies have made announcements regarding their product roadmaps for co-packaged photonics integrated circuits with microprocessors, graphics processors, chip sets for computing as well as artificial intelligence applications.
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The FOX-1P universal per-pin architecture is designed to provide per-pin electronics and per-device power supplies and is tailored to full-wafer functional test. The Company believes that the FOX-1P system can significantly reduce the cost of testing IC wafers. The Company’s FOX-1P system was partially funded through a development agreement with a leading semiconductor manufacturer.
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The unique design of the WaferPak as well as the FOX-XP and FOX-NP systems remove the need for a dedicated wafer prober per wafer, allowing for better utilization of clean room space.
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In fiscal 2020, the Company moved to a sales representative distributorship model for sales in Japan and Germany, closing its subsidiary in Japan, see Note 17, “Restructuring,” of the Notes to Consolidated Financial Statements, and eliminating the direct sales staff at its Germany subsidiary.
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The latest generation Automated WaferPak Aligner supports industry standard Automated Material Handling System (AMHS), Automated Guided Vehicle (AGV), Overhead Hoist Transfer (OHT) and SEMI Equipment Communication Standard (SECS) and Generic Equipment Mode (GEM) Semi E84 factory integration enabling “Lights-out” fully automated wafer handling.
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The Company periodically performs employee surveys to monitor employee satisfaction and the Company follows-up with an action planning process to actively respond to employee feedback. The Company has been impacted by the outbreak of the novel coronavirus, known as COVID-19, which has spread throughout the world.
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Supporting a wide range of wafer sizes (e.g. 100/200/300mm) allows a broad range of customers to implement fully automated wafer level test and burn-in factories. Similar to the WaferPak Aligner for WaferPak Contactors, the Company offers the DiePak Loader for DiePak Carriers.
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Our business’ top priority during the COVID-19 pandemic is protecting the health and safety of our employees and their families, customers and community. We introduced policies and procedures to increase workplace flexibility such as working remotely where possible to reduce the number of people who are on campus each day.
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ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) ENVIRONMENTAL The Company focuses on clean technology such as the electrical vehicle (“EV”) and power semiconductors market. EV and power semiconductor revenues accounted for 85%, 82%, and 23% of total revenues in fiscal 2023, 2022 and 2021, respectively.
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As a global supplier of Critical Infrastructure Sectors, as defined by the cybersecurity and Infrastructure Security Agency, we have supported and continue to support customers during the pandemic.
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We engineer our products to be more energy efficient by using more efficient electrical designs and thermally efficient cooling architectures using conductive heat transfer versus convection air cooled methods. Our technology and architectural design allow our products to take up only 5% of the test floor space compared to competitor’s products.
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In the interest of public health, all onsite operations generally use the minimum number of people to safely execute tasks and follow enhanced safety and health protocols including screenings, social distancing, and use of personal protective equipment.
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The Company improved our facility by replacing existing air conditioners and heat exchanger: with higher efficiency units that draw less power and produce less wasted energy. Our new headquarters facility upgrades include moving to high efficiency lighting, modernizing our electrical power and cooling infrastructure, and adding Electric Vehicle charging stations for employees, vendors, and customers.
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SOCIAL The Company reviews hiring and turnover quarterly and performs annual salary reviews, using independent third-party data, to ensure competitive compensation practices. The Company performs annual employee surveys to evaluate employee satisfaction. Glassdoor shows the Company at a 4.1 out of 5 rating as a great place to work.
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The Company provides variable compensation on top of base salary for all employees including an employee profit sharing plan. The Company also provides equity awards including stock options, restricted stock units (“RSUs”), and participation in an employee stock purchase plan for regular full-time (“RFT”) employees, located in the U.S.
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The Company is restricted from issuing stock options or RSUs to non-U.S. employees in certain countries due to local regulations. For those employees who are unable to participate in the Company’s equity incentive plan, the Company maintains a stock appreciation bonus program to provide compensation linked to the Company’s stock price during a predetermined period.
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The Company also provides a 401k plan, and a non-contributory Employee Stock Ownership plan, for U.S. employees. The Company provides recurring training in compliance with State of California ragulations including sexual harassment, prevention of violence in the workplace, and Diversity, Equality, and Inclusion (“DEI”) training.
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The Company promotes employee engagement through corporate events or activities and maintains a “First Years” group to encourage new hires to build comradery, and assist in recruiting efforts. The Company provides health care coverage for all RFT employees, life insurance, continuing education assistance, and reimbursement of employee health club membership.
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The Company ensures compliance with International Organization for Standardization (ISO”) certification and maintains safety training. GOVERNANCE The Company’s Board satisfies the diversity objectives of Nasdaq Rule 5605(1)(2) for Smaller Reporting Companies with two directors who identify as female, representing 33% of the total six Board members. The Board members also include individuals with Native American origin and multi-ethnicity.
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As the Company pursues future Board recruitment efforts, the Nominating Committee will continue to seek candidates who can contribute to the diversity of views and perspectives of the Board. This includes seeking out individuals of diverse ethnicities, a balance in terms of gender, and individuals with diverse perspectives informed by other personal and professional experiences.
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All employees and Board members sign a Code of Conduct and Ethics policy, and Insider Trading Policy upon hire. All employees are provided with the employee handbook which addresses sexual harassment, confidentiality, and Electronic Use Policy among others. Each of Company’s directors and officers completes a Director and Officer Questionnaire to identify conflicts of interest or areas of concern.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

28 edited+8 added−16 removed79 unchanged
Biggest changeIn addition, flash memory and other similar device prices have historically declined and will likely do so again in the future. These developments may affect us in several ways. The market for semiconductors and semiconductor capital equipment has historically been cyclical, and we expect this to continue in the future.
Biggest changeTurmoil in the international financial markets has resulted, and may result in the future, in dramatic currency devaluations, stock market declines, restriction of available credit and general financial weakness. In addition, flash memory and other similar device prices have historically declined and will likely do so again in the future. These developments may affect us in several ways.
Some users of such systems, such as independent test labs, build their own burn-in systems, while others, particularly large IC manufacturers in Asia, acquire burn-in systems from captive or affiliated suppliers. Our WaferPak products are facing and are expected to face increasing competition. Several companies have developed or are developing full-wafer and single-touchdown probe cards.
Some users of our systems, such as independent test labs, build their own burn-in systems, while others, particularly large IC manufacturers in Asia, acquire burn-in systems from captive or affiliated suppliers. Our WaferPak products are facing and are expected to face increasing competition. Several companies have developed or are developing full-wafer and single-touchdown probe cards.
The recent decline in relations with the United States and China, and relations between China and Taiwan, may result in the imposition of trade restrictions with China or Taiwan.
The recent decline in relations between the United States and China, and relations between China and Taiwan, may result in the imposition of trade restrictions with China or Taiwan.
Inflation has reached a 40-year high during 2022, and market rates of interest have risen after a prolonged period at historical lows. The increase in inflation has resulted in a tightening of world-wide monetary policy, which in turn has resulted in an increase in the cost of credit.
Inflation reached a 40-year high during 2022, and market rates of interest have risen after a prolonged period at historical lows. The increase in inflation has resulted in a tightening of world-wide monetary policy, which in turn has resulted in an increase in the cost of credit.
Our FOX and ABTS systems, WaferPak contactors, DiePak carriers, WaferPak Aligners, and DiePak Loaders contain several components, including environmental chambers, power supplies, high-density interconnects, wafer contactors, module contactors, signal distribution substrates, and certain ICs that are currently supplied by only one or a limited number of suppliers.
Our FOX systems, WaferPak contactors, DiePak carriers, WaferPak Aligners, and DiePak Loaders contain several components, including environmental chambers, power supplies, high-density interconnects, wafer contactors, module contactors, signal distribution substrates, and certain ICs that are currently supplied by only one or a limited number of suppliers.
These processes include, but are not limited to, calculating revenue, deferred revenue and inventory costs. While we continue to automate our processes and enhance our review and put in place controls to reduce the likelihood for errors, we expect that for the foreseeable future, many of our processes will remain manually intensive and thus subject to human error. Item 1B.
These processes include, but are not limited to, calculating revenue, deferred revenue and inventory costs. While we continue to automate our processes and enhance our review and put in place controls to reduce the likelihood for errors, we expect that for the foreseeable future, many of our processes will remain manually intensive and thus subject to human error.
We expect that sales of products for delivery outside of the United States will continue to represent a substantial portion of our future net sales.
We expect that sales of products for delivery outside of the United States will continue to represent a substantial portion of our future sales.
We may experience increased costs associated with new product introductions. As is common with new complex products incorporating leading-edge technologies, we have encountered reliability, design and manufacturing issues as we began volume production and initial installations of certain products at customer sites.
We may experience increased costs associated with new product introductions. As is common with new complex products incorporating leading-edge technologies, we have encountered reliability, design and manufacturing issues as we begin volume production and initial installations of certain products at customer sites.
Should the Company increase its sales prices to recover the increase in costs, this could result in a decrease in the competitiveness of our products. In addition, we are subject to other risks associated with purchasing materials from suppliers worldwide. Government authorities may also implement protectionist policies or impose limitations on the transfer of intellectual property.
Should the Company increase its sales prices to recover the increase in costs, this could result in a decrease in the competitiveness of our products. In addition, we are subject to other risks associated with purchasing materials from suppliers worldwide. Government 13 Table of Contents authorities may also implement protectionist policies or impose limitations on the transfer of intellectual property.
Customer tool utilization is driven by many factors including failure rates of customer devices. Improvements in yield may result in customers decreasing test and burn-in times, or electing to perform sampling rather than 100% burn-in of their devices. Based upon data obtained from our systems customers may revise internal manufacturing processes to decrease failure rates.
Customer tool utilization is driven by many factors including failure rates of customer devices. Improvements in yield may result in customers decreasing test and burn-in times, or electing to perform sampling rather than 100% burn-in 12 Table of Contents of their devices. Based upon data obtained from our systems customers may revise internal manufacturing processes to decrease failure rates.
Our net sales for fiscal 2022 were primarily denominated in U.S. Dollars. However, because a substantial portion of our net sales is from sales of products for delivery outside the United States, an increase in the value of the U.S.
Our net sales for fiscal 2023 were primarily denominated in U.S. Dollars. However, because a substantial portion of our net sales is from sales of products for delivery outside the United States, an increase in the value of the U.S.
Our operating results could be adversely affected by fluctuations in the value of the U.S. Dollar relative to other currencies. 13 Table of Contents We purchase materials from suppliers worldwide, which subjects the Company to increased risk. We purchase components, sub-assemblies, and chambers from suppliers outside the United States.
Our operating results could be adversely affected by fluctuations in the value of the U.S. Dollar relative to other currencies. We purchase materials from suppliers worldwide, which subjects the Company to increased risk. We purchase components, sub-assemblies, and chambers from suppliers outside the United States.
Our inability to complete new product development, or to manufacture and ship products in time to meet customer requirements would materially adversely affect our business, financial condition and results of operations. 12 Table of Contents A decrease in customer device failure rates may result in a decrease in demand for our products.
Our inability to complete new product development, or to manufacture and ship products in time to meet customer requirements would materially adversely affect our business, financial condition and results of operations. A decrease in customer device failure rates may result in a decrease in demand for our products.
We anticipate that our existing cash balance together with income from operations, collections of existing accounts receivable, revenue from our existing backlog of products, the sale of inventory on hand, and deposits and down payments against significant orders will be adequate to meet our working capital and capital equipment requirements.
We anticipate that our existing cash balance together with income from operations, collections of existing accounts receivable, revenue from our existing backlog of products, the sale of inventory on hand, and deposits and down payments against significant orders, and available balance under our ATM offering, will be adequate to meet our working capital and capital equipment requirements.
In recent years, in the face of a downturn in our business and a decline in our net sales, we implemented a variety of cost controls and restructured our operations with the goal of reducing our operating costs to position ourselves to more effectively meet the needs of the then weak market for test and burn-in equipment.
We have in the past, in the face of a downturn in our business and a decline in our net sales, implemented a variety of cost controls and restructured our operations with the goal of reducing our operating costs to position ourselves to more effectively meet the needs of the then weak market for test and burn-in equipment.
From time to time, cancellations and rescheduling of customer orders have occurred, and delays by our suppliers in providing components or subassemblies to us have caused delays in our shipments of our own products.
From time to time, cancellations and rescheduling of customer 11 Table of Contents orders have occurred, and delays by our suppliers in providing components or subassemblies to us have caused delays in our shipments of our own products.
In addition, we are subject to other risks associated with doing business internationally, including longer receivable collection periods and greater difficulty in accounts receivable collection, the burden of complying with a variety of foreign laws, difficulty in staffing and managing global operations, the impact of the COVID-19 pandemic on the global economy and financial markets, risks of civil disturbance or other events which may limit or disrupt markets, international exchange restrictions, changing political conditions and monetary policies of foreign governments.
In addition, we are subject to other risks associated with doing business internationally, including longer receivable collection periods and greater difficulty in accounts receivable collection, the burden of complying with a variety of foreign laws, difficulty in staffing and managing global operations, risks of civil disturbance or other events which may limit or disrupt markets, international exchange restrictions, changing political conditions and monetary policies of foreign governments.
Increases in tariffs, additional taxes, disruptions due to the COVID-19 pandemic or trade barriers may result in an increase in our manufacturing costs. A decrease in the value of the U.S. Dollar relative to foreign currencies would increase the cost of our materials.
Increases in tariffs, additional taxes, or trade barriers may result in an increase in our manufacturing costs. A decrease in the value of the U.S. Dollar relative to foreign currencies would increase the cost of our materials.
These events may contribute to significant slowdowns in the industry in which we operate. Difficulties in obtaining capital and deteriorating market conditions can pose the risk that some of our customers may not be able to obtain necessary financing on reasonable terms, which could result in lower sales.
These events may contribute to significant slowdowns in the industry in which we operate. Difficulties in obtaining capital and deteriorating market conditions can pose the risk that some of our customers may not be able to obtain necessary financing on reasonable terms, which could result in lower sales. Customers with liquidity issues may lead to additional bad debt expense.
If any of the following risks occur, our business, financial condition or results of operations could be materially and adversely affected which could cause our actual operating results to differ materially from those indicated or suggested by forward-looking statements made in this Annual Report on Form 10-K or presented elsewhere by management from time to time.
If any of the following risks occur, our business, financial condition or results of operations could be materially and adversely affected which could cause our actual operating results to differ materially from those indicated or suggested by forward-looking statements made in this Annual Report on Form 10-K or presented elsewhere by management from time to time. 10 Table of Contents Risks Related to our Business and Industry We generate a large portion of our sales from a small number of customers.
No other customers accounted for more than 10% of our net sales for any of these periods. We expect that sales of our products to a limited number of customers will continue to account for a high percentage of our net sales for the foreseeable future. In addition, sales to particular customers may fluctuate significantly from quarter to quarter.
We expect that sales of our products to a limited number of customers will continue to account for a high percentage of our net sales for the foreseeable future. In addition, sales to particular customers may fluctuate significantly from quarter to quarter.
The current economic conditions and uncertainty about future economic conditions make it challenging for us to forecast our operating results, make business decisions, and identify the risks that may affect our business, financial condition and results of operations.
Such developments could have a material adverse effect on our business, financial condition and results of operations. The current economic conditions and uncertainty about future economic conditions make it challenging for us to forecast our operating results, make business decisions, and identify the risks that may affect our business, financial condition and results of operations.
Sales to our five largest customers accounted for approximately 98%, 84%, and 87% of our net sales in fiscal 2022, 2021 and 2020, respectively. During fiscal 2022, ON Semiconductor accounted for approximately 82% of the Company’s net sales.
Sales to our five largest customers accounted for approximately 97%, 98%, and 84% of our net sales in fiscal 2023, 2022 and 2021, respectively. During fiscal 2023, two customers accounted for approximately 79% and 10% of our net sales. During fiscal 2022, one customer accounted for approximately 82% of our net sales.
As is common with new complex products incorporating leading-edge technologies, we may encounter reliability, design and manufacturing issues as we begin volume production and initial installations of FOX systems at customer sites.
As is common with new complex products incorporating leading-edge technologies, we may encounter reliability, design and manufacturing issues as we begin volume production and initial installations of FOX systems at customer sites. The failure of the FOX system to achieve increased market acceptance would have a material adverse effect on our future operating results, long-term prospects and our stock price.
Approximately 90%, 68%, and 39% of our net sales for fiscal 2022, 2021 and 2020, respectively, were attributable to sales to customers for delivery outside of the United States. We operate sales and service in Taiwan, a service organization in Germany and Philippines, as well as direct support through third party agreements in China and South Korea.
Approximately 86%, 90%, and 68% of our net sales in fiscal 2023, 2022 and 2021, respectively, were attributable to sales to customers for delivery outside of the United States.
The uncertainty of the semiconductor market may cause some manufacturers in the future to further delay capital spending plans. Economic conditions may also affect the ability of our customers to meet their payment obligations, resulting in cancellations or deferrals of existing orders and limiting additional orders.
Economic conditions may also affect the ability of our customers to meet their payment obligations, resulting in cancellations or deferrals of existing orders and limiting additional orders. In addition, some governments have subsidized portions of fabrication facility construction, 14 Table of Contents and financial turmoil may reduce these governments’ willingness to continue such subsidies.
We derive a substantial portion of our net sales from the sale of a relatively small number of systems which typically range in purchase price from approximately $300,000 to well over $1 million per system.
A substantial portion of our net sales is generated by relatively small volume, high value transactions. We derive a substantial portion of our net sales from the sale of a relatively small number of systems with high dollar value.
During fiscal 2021, Advanced Semiconductor Engineering, Inc., ON Semiconductor, Intel and Inphi accounted for approximately 24%, 23%, 20% and 10%, respectively, of the Company’s net sales. During fiscal 2020, Intel, ON Semiconductor and STMicroelectronics, accounted for approximately 43%, 16% and 15%, respectively, of the Company’s net sales.
During fiscal 2021, four customers accounted for approximately 24%, 23%, 20% and 10%, respectively, of our net sales. No other customers accounted for more than 10% of our net sales for any of these periods.
Removed
Risks Related to our Business and Industry The effects of the COVID-19 pandemic have disrupted, and may continue to significantly disrupt, our operations, including our ability to manufacture and supply products and perform research and development activities, and our customers’ usage of our products, all of which have had and may continue to have a material and adverse effect on our business, future revenues and financial condition.
Added
We provide sales and service in North America and Taiwan, operate a sales organization in Germany and a service organization in the Philippines, as well as direct support through third party agreements in China and South Korea.
Removed
We are unable to predict the extent to which the pandemic and related impacts will continue to adversely impact our business operations, financial performance, results of operations and the achievement of our strategic objectives.
Added
The market for semiconductors and semiconductor capital equipment has historically been cyclical, and we expect this to continue in the future. The uncertainty of the semiconductor market may cause some manufacturers in the future to further delay capital spending plans.
Removed
Our business, results of operation and financial performance have been negatively impacted by the COVID-19 pandemic and related public health responses, such as shelter-in-place orders, social distancing protocols, and travel restrictions in many of the countries and regions in which we have operations or manufacturing partners.
Added
Increased scrutiny and changing expectations from stakeholders with respect to the Company’s ESG practices may result in additional costs or risks. Companies across many industries are facing increasing scrutiny related to their ESG practices.
Removed
Due to these impacts and measures, we have experienced and may continue to experience significant and unpredictable reductions in the demand for our products. In addition, our customers may delay, cancel or redirect planned capital expenditures in order to focus resources differently during or as a result of the COVID-19 pandemic.
Added
Investor advocacy groups, certain institutional investors, investment funds and other influential investors are also increasingly focused on ESG practices and in recent years have placed increasing importance on the non-financial impacts of their investments.
Removed
The effects of this outbreak on our business has included and could continue to include disruptions or restrictions on our employees’ ability to travel in affected regions, as well as temporary closures of the facilities of our suppliers, customers, or other vendors in our supply chain, which could impact our business, interactions and relationships with our customers, third-party suppliers and contractors, and results of operations.
Added
If our ESG practices do not meet investor or other industry stakeholder expectations, which continue to evolve, we may incur additional costs and our brand, ability to attract and retain qualified employees and business may be harmed.
Removed
Following the COVID-19 outbreak around the world, we had implemented certain travel restrictions, temporarily limited the number of employees permitted onsite in our offices and implemented work-from-home rules. These restrictions have since been removed. However, the future course of COVID-19 remains uncertain and we continue to monitor the situation for potential reinstatement of such restrictions.
Added
The collapse of certain U.S. banks and potentially other financial institutions may have adverse impacts on our business. On March 10, 2023, Silicon Valley Bank (“SVB”) was shut down, followed on March 11, 2023 by Signature Bank and the Federal Deposit Insurance Corporation was appointed as receiver for those banks.
Removed
Such restrictions may cause disruption and delays in our ability to operate and manufacture, test and assemble products in our internal facilities, and limit our ability to continue certain research and development activities which could materially and adversely affect our ability to develop or deliver products on the timelines we currently anticipate.
Added
Since that time, there have been reports of instability at other U.S. banks. The Company’s cash and investment balances held at banks and brokerage firms may at time exceed federally insured levels.
Removed
The COVID-19 pandemic has created economic uncertainty and volatility in the financial markets around the world, resulting in economic uncertainty that has affected and will likely continue to affect demand for our products and impact our results of operations.
Added
On March 15, 2023, the Company filed a Current Report on Form 8-K with the SEC, disclosing its exposure to SVB and stating that the Company did not expect a significant impact on its operations. 16 Table of Contents Item 1B. Unresolved Staff Comments None.
Removed
As a result, this may lead to periods of regional, national, and global economic slowdown or regional, national, or global recessions that would curtail or delay spending by semiconductor manufacturers and contract assemblers and affect demand for our products as well as increase the risk of customer defaults or delays in payments.
Removed
Our customers may delay or cancel orders for our products due to bankruptcy, lack of liquidity, lack of funding, operational failures, or other reasons.
Removed
The ultimate impact of the COVID-19 pandemic on our operations and financial performance depends on many factors that are not within our control, including, but not limited, to: government’s, business’ and individuals’ actions that have been and may continue to be taken in response to the pandemic (including restrictions on travel and transport and workforce pressures); the impact of the pandemic and actions taken in response to global and regional economies, travel, and economic activity; the availability of federal, state, local or non-U.S. funding programs; general economic uncertainty in key global markets and financial market volatility; global economic conditions and levels of economic growth; and the pace of recovery as the COVID-19 pandemic subsides.
Removed
Although the magnitude of the continuing impact of COVID-19 on our business operations remains uncertain and difficult to predict, and this remains a highly dynamic situation, we have experienced and will continue to experience in subsequent periods, disruptions to our business that will likely continue to impact our business, financial condition and results of operations. 10 Table of Contents We generate a large portion of our sales from a small number of customers.
Removed
Our ABTS TDBI systems have faced and are expected to continue to face increasingly severe competition, especially from several regional, low-cost manufacturers and from systems manufacturers that offer higher power dissipation per device under test.
Removed
The failure of the FOX system to achieve increased market acceptance would have a material adverse effect on our future operating results, long-term prospects and our stock price. 11 Table of Contents A substantial portion of our net sales is generated by relatively small volume, high value transactions.
Removed
Customers with liquidity issues may lead to additional bad debt expense. 14 Table of Contents Turmoil in the international financial markets has resulted, and may result in the future, in dramatic currency devaluations, stock market declines, restriction of available credit and general financial weakness.
Removed
In addition, some governments have subsidized portions of fabrication facility construction, and financial turmoil may reduce these governments’ willingness to continue such subsidies. Such developments could have a material adverse effect on our business, financial condition and results of operations.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe Company leases a 492 square foot sales and support office in Utting, Germany. The lease, which began February 1, 1992 and expires on January 31, 2024, contains an automatic twelve months renewal, at rates to be determined, if no notice is given prior to six months from expiry.
Biggest changeThe lease, which began February 1, 1992 and expires on January 31, 2025, contains an automatic twelve months renewal, at rates to be determined, if no notice is given prior to six months from expiration. On November 18, 2020, the Company established a wholly owned subsidiary, Aehr Test Systems Philippines Inc., which has been in full operation since March 2021.
The Company believes that its existing facilities are adequate to meet its current and reasonably foreseeable requirements. The Company regularly evaluates its expected future facilities requirements and believes that alternate facilities would be available if needed. Item 3. Legal Proceedings None. Item 4. Mine Safety Disclosures Not Applicable 16 Table of Contents PART II
The Company believes that its existing facilities in Fremont, California are adequate to meet its current and reasonably foreseeable requirements. The Company regularly evaluates its expected future facilities requirements and believes that alternate facilities would be available if needed. Item 3. Legal Proceedings None. Item 4. Mine Safety Disclosures Not Applicable PART II
The lease, which began January 1, 2021 and expires on December 31, 2025, contains an option to renew for another three years at rates stipulated in the contract, notice for renewal is given six months from expiry.
The Company leases a facility in Philippines located in a 2,713 square foot building in Clark Freeport Zone, Pampanga. The lease, which began January 1, 2021 and expires on December 31, 2025, contains an option to renew for another three years at rates stipulated in the contract, notice for renewal is given six months from expiration.
Item 2. Properties The Company’s principal administrative and production facilities are located in Fremont, California, in a 51,289 square foot building. The Company’s lease was renewed in February 2018 and expires in July 2023. The Company maintained a facility in Japan located in a 418 square foot office in Tokyo under a lease which expired in June 2020.
Item 2. Properties The Company’s principal administrative and production facilities are located in Fremont, California, in a 51,289 square foot building. The Company’s lease was renewed in December 2022 and expires in September 2030. The Company leases a 492 square foot sales and support office in Utting, Germany.
Removed
The Company also maintained a 1,585 square foot warehouse in Yamanashi under a lease which expired in June 2020. The Company closed its subsidiary Aehr Test Systems Japan K.K. in March 2020, completing the liquidation of the legal entity in July 2020, see Note 17, “Restructuring,” of the Notes to Consolidated Financial Statements.
Removed
On November 18, 2020, the Company established a wholly owned new subsidiary, Aehr Test Systems Philippines Inc., which has been in full operation since March 2021. The Company leases a facility in Philippines located in a 2,713 square foot building in Clark Freeport Zone, Pampanga.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeHigh Low Fiscal 2022: First quarter ended August 31, 2021 $ 8.60 $ 2.25 Second quarter ended November 30, 2021 27.09 6.83 Third quarter ended February 28, 2022 24.70 10.20 Fourth quarter ended May 31, 2022 13.94 6.86 Fiscal 2021: First quarter ended August 31, 2020 $ 2.49 $ 1.63 Second quarter ended November 30, 2020 1.90 1.15 Third quarter ended February 28, 2021 3.60 1.56 Fourth quarter ended May 31, 2021 3.17 1.94 At August 3, 2022, the Company had 106 holders of record of its common stock.
Biggest changeHigh Low Fiscal 2023: First quarter ended August 31, 2022 $ 19.43 $ 6.71 Second quarter ended November 30, 2022 27.00 13.00 Third quarter ended February 28, 2023 37.57 17.05 Fourth quarter ended May 31, 2023 40.69 23.11 Fiscal 2022: First quarter ended August 31, 2021 $ 8.60 $ 2.25 Second quarter ended November 30, 2021 27.09 6.83 Third quarter ended February 28, 2022 24.70 10.20 Fourth quarter ended May 31, 2022 13.94 6.86 At August 3, 2023, the Company had 86 holders of record of its common stock.
The Company currently anticipates that it will retain its future earnings, if any, for use in the expansion and operation of its business and does not anticipate paying any cash dividends on its common stock in the foreseeable future. The Company did not repurchase any of its common stock during the fiscal year ended May 31, 2022.
The Company currently anticipates that it will retain its future earnings, if any, for use in the expansion and operation of its business and does not anticipate paying any cash dividends on its common stock in the foreseeable future.
Removed
PERFORMANCE MEASUREMENT COMPARISON The following graph shows a comparison of total shareholder return for holders of the Company's common stock for the last five fiscal years ended May 31, 2022, compared with the NASDAQ Composite Index and the Philadelphia Semiconductor Index.
Added
The Company did not repurchase any of its common stock during the fiscal year ended May 31, 2023. 17 Table of Contents Item 6. [Reserved]
Removed
The graph assumes that $100 was invested in the Company's common stock, in the NASDAQ Composite Index and the Philadelphia Semiconductor Index on May 31, 2017, and that all dividends were reinvested.
Removed
The Company believes that while total shareholder return can be an important indicator of corporate performance, the stock prices of semiconductor equipment companies like us are subject to a number of market-related factors other than company performance, such as competitive announcements, mergers and acquisitions in the industry, the general state of the economy and the performance of other semiconductor equipment company stocks.
Removed
Stock prices and shareholder returns over the indicated period should not be considered indicative of future stock prices or shareholder returns. 17 Table of Contents

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeNet cash used in investing activities was $163,000 for the fiscal year ended May 31, 2020 was due to the purchase of property and equipment. 25 Table of Contents Net cash provided by financing activities during the fiscal year ended May 31, 2020 was due to the proceeds of $1.7 million from the PPP Loan, and the net proceeds from issuance of common stock under employee plans of $493,000.
Biggest changeNet cash used in investing activities was $227,000 for the fiscal year ended May 31, 2021 was due to the purchase of property and equipment.
On June 12, 2021, we received confirmation from the SVB that on June 4, 2021, the Small Business Administration approved our PPP Loan forgiveness application for the entire PPP Loan balance of $1,679,000 and interest totaling $19,000, and we recognized a gain of $1,698,000. OTHER INCOME (EXPENSE), NET.
On June 12, 2021, we received confirmation from SVB that on June 4, 2021, the Small Business Administration approved our PPP Loan forgiveness application for the entire PPP Loan balance of $1,679,000 and interest totaling $19,000, and we recognized a gain of $1,698,000. OTHER (EXPENSE) INCOME, NET.
The change in other income (expense), net was primarily due to gains or losses realized in connection with the fluctuation in the value of the dollar compared to foreign currencies during the referenced periods. INCOME TAX (EXPENSE) BENEFIT.
The change in other (expense) income, net was primarily due to gains or losses realized in connection with the fluctuation in the value of the dollar compared to foreign currencies during the referenced periods. INCOME TAX (EXPENSE) BENEFIT.
SG&A expenses were $10.0 million for the fiscal year ended May 31, 2022, compared with $6.6 million for the fiscal year ended May 31, 2021, an increase of 53.1%. The increase in SG&A expenses was primarily the result of increased bonuses, stock compensation, and commission expense due to an increase in net sales and profitability, and an increase in headcount.
SG&A expenses were $10.0 million for the fiscal year ended May 31, 2022, compared with $6.6 million for the fiscal year ended May 31, 2021, an increase of 53.1%. The increase in SG&A expenses was primarily the result of increased bonuses, stock-based compensation, and commission expense due to an increase in net sales and profitability, and an increase in headcount.
For RSUs, stock-based compensation cost is based on the fair value of our common stock at the grant date, and is recognized as expense over the employee’s requisite service period. All of our stock-based compensation is accounted for as an equity instrument.
For RSUs, stock-based compensation expense is based on the fair value of our common stock at the grant date, and is recognized as expense over the employee’s requisite service period. All of our stock-based compensation is accounted for as an equity instrument.
For the fiscal year ended May 31, 2021, net cash used in operating activities was primarily the result of the net loss of $2.0 million, as adjusted to exclude the effect of net gain from dissolution of Aehr Test Systems Japan of $2.4 million, including an income tax benefit of $215,000, a non-cash charge for stock-based compensation expense of $1.1 million and depreciation and amortization of $310,000.
For the fiscal year ended May 31, 2021, net cash used in operating activities was primarily the result of the net loss of $2.0 million, as adjusted to exclude the effect of net gain from dissolution of Aehr Test Systems Japan of $2.4 million, including an income tax benefit of $215,000, a non-cash charge for stock-based compensation expense of $1.1 million and depreciation and amortization of $328,000.
For the fiscal year ended May 31, 2022, net cash provided by operating activities was primarily the result of net income of $9.5 million, as adjusted to exclude the effect of forgiveness of PPP loan of $1.7 million, and a non-cash charge of stock-based compensation expense of $3.0 million and depreciation and amortization of $307,000.
For the fiscal year ended May 31, 2022, net cash provided by operating activities was primarily the result of net income of $9.5 million, as adjusted to exclude the effect of forgiveness of PPP loan of $1.7 million, and a non-cash charge of stock-based compensation expense of $3.0 million and depreciation and amortization of $356,000.
We anticipate that the existing cash balance together with future income from operations, collections of existing accounts receivable, revenue from our existing backlog of products as of this filing date, the sale of inventory on hand, deposits and down payments against significant orders will be adequate to meet our working capital and capital equipment requirement needs over the next 12 months.
We anticipate that the existing cash balance and the available line of credit together with future income from operations, collections of existing accounts receivable, revenue from our existing backlog of products as of this filing date, the sale of inventory on hand, deposits and down payments against significant orders will be adequate to meet our working capital and capital equipment requirement needs over the next 12 months.
OFF-BALANCE SHEET FINANCING We have not entered into any off-balance sheet financing arrangements and have not established any special purpose or variable interest entities. OVERVIEW OF CONTRACTUAL OBLIGATIONS The following table provides a summary of such arrangements, or contractual obligations.
OFF-BALANCE SHEET FINANCING We have not entered into any off-balance sheet financing arrangements and have not established any special purpose or variable interest entities. 23 Table of Contents OVERVIEW OF CONTRACTUAL OBLIGATIONS The following table provides a summary of such arrangements, or contractual obligations.
Net gain from dissolution of Aehr Test Systems Japan was $2.2 million for the fiscal year ended May 31, 2021, due to the release of the cumulative translation adjustment in connection with the complete liquidation of Aehr Test Systems Japan subsidiary in July 2020. 23 Table of Contents GAIN FROM FORGIVENESS OF PPP LOAN.
Net gain from dissolution of Aehr Test Systems Japan was $2.2 million for the fiscal year ended May 31, 2021, due to the release of the cumulative translation adjustment in connection with the complete liquidation of Aehr Test Systems Japan subsidiary in July 2020. GAIN FROM FORGIVENESS OF PPP LOAN.
FASB ASC Subtopic 740-10, Accounting for Uncertainty of Income Taxes, (“ASC 740-10”) defines the criterion an individual tax position must meet for any part of the benefit of the tax position to be recognized in financial statements prepared in conformity with GAAP.
FASB ASC Subtopic 740-10, Accounting for Uncertainty of Income Taxes, (“ASC 740-10”) defines the criterion an individual tax position must meet for any part of the benefit of the tax position to be recognized in financial statements 19 Table of Contents prepared in conformity with GAAP.
Performance obligations include sales of systems, contactors, spare parts, and services, as well as installation and training services included in customer contracts. A contract’s transaction price is allocated to each distinct performance obligation.
Performance obligations include sales of systems, contactors, spare parts, and services, as well as installation and training services included in customer contracts. 18 Table of Contents A contract’s transaction price is allocated to each distinct performance obligation.
Net cash provided by financing activities during the fiscal year ended May 31, 2021 was due to $1.4 million borrowing from our line of credit and $560,000 in proceeds from the issuance of common stock under employee plans.
Net cash provided by financing activities was $2.0 million for the fiscal year ended May 31, 2021 was due to $1.4 million borrowing from our line of credit and $560,000 in proceeds from the issuance of common stock under employee plans.
The effect of fluctuation in exchange rates increased cash by $20,000 for the fiscal year ended May 31, 2020 due to the fluctuation in the value of the dollar compared to foreign currencies. We lease our manufacturing and office space under operating leases.
The effect of fluctuation in exchange rates increased cash by $117,000 for the fiscal year ended May 31, 2021 due to the fluctuation in the value of the dollar compared to foreign currencies. We lease our manufacturing and office space under operating leases.
Year Ended May 31, 2022 2021 2020 Net sales 100.0 % 100.0 % 100.0 % Cost of sales 53.4 63.7 62.4 Gross profit 46.6 36.3 37.6 Operating expenses: Selling, general and administrative 19.8 39.5 33.8 Research and development 11.5 22.0 15.2 Restructuring -- -- 1.0 Total operating expenses 31.3 61.5 50.0 Income (loss) from operations 15.3 (25.2 ) (12.4 ) Interest income (expense), net 0.1 (0.3 ) -- Net gain from dissolution of Aehr Test Systems Japan -- 13.2 -- Gain from forgiveness of PPP loan 3.3 -- -- Other income (expense), net 0.1 (1.0 ) -- Income (loss) before income tax (expense) benefit 18.8 (13.3 ) (12.4 ) Income tax (expense) benefit (0.2 ) 1.1 (0.2 ) Net income (loss) 18.6 % (12.2 )% (12.6 )% FISCAL YEAR ENDED MAY 31, 2022 COMPARED TO FISCAL YEAR ENDED MAY 31, 2021 NET SALES.
Year Ended May 31, 2023 2022 2021 Net sales 100.0 % 100.0 % 100.0 % Cost of sales 49.6 53.4 63.7 Gross profit 50.4 46.6 36.3 Operating expenses: Selling, general and administrative 18.8 19.8 39.5 Research and development 11.0 11.5 22.0 Total operating expenses 29.8 31.3 61.5 Income (loss) from operations 20.6 15.3 (25.2 ) Interest income (expense), net 1.9 0.1 (0.3 ) Net gain from dissolution of Aehr Test Systems Japan -- -- 13.2 Gain from forgiveness of PPP loan -- 3.3 -- Other (expense) income, net -- 0.1 (1.0 ) Income (loss) before income tax (expense) benefit 22.5 18.8 (13.3 ) Income tax (expense) benefit (0.1 ) (0.2 ) 1.1 Net income (loss) 22.4 % 18.6 % (12.2 )% FISCAL YEAR ENDED MAY 31, 2023 COMPARED TO FISCAL YEAR ENDED MAY 31, 2022 NET SALES.
Other expense, net was $162,000 and $11,000 for the fiscal years ended May 31, 2021 and 2020, respectively. The change in other expense, net was primarily due to losses realized in connection with the fluctuation in the value of the dollar compared to foreign currencies during the referenced periods. INCOME TAX (EXPENSE) BENEFIT.
The change in other (expense) income, net was primarily due to losses or gains realized in connection with the fluctuation in the value of the dollar compared to foreign currencies during the referenced periods. INCOME TAX (EXPENSE) BENEFIT. Income tax expense was $60,000 and $91,000 for the fiscal years ended May 31, 2023 and 2022, respectively.
Under ASC 740, a valuation allowance is required when it is more likely than not all or some portion of the deferred tax assets will not be realized through generating sufficient future taxable income.
Under ASC 740, a valuation allowance is required when it is more likely than not all or some portion of the deferred tax assets will not be realized through generating sufficient future taxable income. As of May 31, 2023 the Company maintained a full valuation allowance against its deferred tax assets.
Net cash provided by financing activities during the fiscal year ended May 31, 2022 was primarily due to the net proceeds from issuance of common stock from public offering of $24.0 million, and the proceeds from the issuance of common stock under employee benefit plans of $3.1 million, partially offset by the net payment of the line of credit of $1.4 million.
Net cash provided by financing activities during the fiscal year ended May 31, 2022 was primarily due to the net proceeds from issuance of common stock from public 22 Table of Contents offering of $24.0 million, and the proceeds from the issuance of common stock under employee benefit plans of $3.6 million, partially offset by the shares repurchased for tax withholdings on vesting of RSUs of $0.4 million, and by the net payment of the line of credit of $1.4 million.
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.
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 believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements. 20 Table of Contents REVENUE RECOGNITION The Company recognizes revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services by following a five-step process: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price, and (5) recognize revenue when or as the Company satisfies a performance obligation, as further described below.
REVENUE RECOGNITION The Company recognizes revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services by following a five-step process: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price, and (5) recognize revenue when or as the Company satisfies a performance obligation, as further described below.
Net cash used in investing activities was $416,000 and $227,000 for the fiscal years ended May 31, 2022 and 2021, respectively, was due to the purchases of property and equipment. Financing activities provided cash of $25.8 million and $2.0 million for the fiscal years ended May 31, 2022 and 2021, respectively.
During the fiscal year ended May 31, 2022, net cash used in investing activities was due to purchases of property and equipment. Financing activities provided cash of $7.3 million and $25.8 million for the fiscal years ended May 31, 2023 and 2022, respectively.
Interest expense, net was $46,000 for the fiscal year ended May 31, 2021 compared with interest income, net which was $10,000 for the fiscal year ended May 31, 2020. The interest expense for the fiscal year ended May 31, 2021 was from the PPP Loan that we obtained on April 23, 2020.
Interest income, net was $13,000 for the fiscal year ended May 31, 2022, compared with interest expense of $46,000 for the fiscal year ended May 31, 2021. The interest expense for the fiscal year ended May 31, 2021 was from the PPP Loan that we obtained on April 23, 2020. NET GAIN FROM DISSOLUTION OF AEHR TEST SYSTEMS JAPAN.
INVENTORY OBSOLESCENCE In each of the last three fiscal years, we wrote down our inventory for estimated obsolescence or unmarketable inventory by an amount equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions, see Note 6, “Balance Sheet Detail.” If future market conditions are less favorable than those projected by management, additional inventory write-downs may be required. 21 Table of Contents INCOME TAXES Income taxes are accounted for under the asset-and-liability method as required by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 740, Income Taxes (“ASC 740”).
INVENTORY OBSOLESCENCE In each of the last three fiscal years, we wrote down our inventory for estimated obsolescence or unmarketable inventory by an amount equal to the difference between the cost of inventory and the net realizable value based upon assumptions about future demand and market conditions, see Note 7, “Balance Sheet Detail.” If future market conditions are less favorable than those projected by management, additional inventory write-downs may be required.
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.
Those results form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.
While we successfully raised $25 million in the ATM public offering in October 2021 as a portion of a $75 million shelf registration, in the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all.
We successfully raised $25 million in an at-the-market (“ATM”) offering in October 2021 and $7.3 million in a follow on ATM offering in February 2023; however, in the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all.
The effect of fluctuation in exchange rates increased cash by $49,000 and $117,000 for the fiscal years ended May 31, 2022 and 2021, respectively. The changes were due to the fluctuation in the value of the dollar compared to foreign currencies. As of May 31, 2022 and 2021, we had working capital of $49.0 million and $10.1 million, respectively.
The effect of fluctuation in exchange rates decreased cash by $37,000 for the fiscal years ended May 31, 2023 and increased cash by $49,000 for the fiscal years ended May 31, 2022. The changes were due to the fluctuation in the value of the dollar compared to foreign currencies.
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.
It is not possible to determine the maximum potential amount under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. To date, our payments under these agreements have not had a material impact on our operating results, financial position or cash flows.
To date, our payments under these agreements have not had a material impact on our operating results, financial position or cash flows. 26 Table of Contents RECENT ACCOUNTING PRONOUNCEMENTS For a description of recent accounting pronouncements, including the expected dates of adoption and estimated effects, if any, on our consolidated financial statements, see Note 1, “Organization and Summary of Significant Accounting Policies,” of the Notes to Consolidated Financial Statements.
RECENT ACCOUNTING PRONOUNCEMENTS For a description of recent accounting pronouncements, including the expected dates of adoption and estimated effects, if any, on our consolidated financial statements, see Note 1, “Organization and Summary of Significant Accounting Policies,” of the Notes to Consolidated Financial Statements.
R&D expenses were $3.7 million for the fiscal year ended May 31, 2021, compared with $3.4 million for the fiscal year ended May 31, 2020, an increase of 7.9%. The increase in R&D expenses was primarily due to increases in project expenses of $169,000 and employment related expenses of $104,000. RESTRUCTURING.
R&D expenses were $7.1 million for the fiscal year ended May 31, 2023, compared with $5.8 million for the fiscal year ended May 31, 2022, an increase of 22.6%. The increase in R&D expenses was primarily due to increases in project expenses of $0.6 million and employment-related expenses of $0.5 million related to R&D initiatives during fiscal 2023.
The increase in employment-related expenses was primarily the result of increased bonuses and stock compensation due to an increase in net sales and profitability, and an increase in headcount. INTEREST INCOME (EXPENSE), NET. Interest income, net was $13,000 for the fiscal year ended May 31, 2022, compared with interest expense of $46,000 for the fiscal year ended May 31, 2021.
The increase in employment-related expenses was primarily the result of increased bonuses and stock-based compensation due to an increase in net sales and profitability, and an increase in headcount. 21 Table of Contents INTEREST INCOME (EXPENSE), NET.
We entered into a non-cancelable operating lease agreement for our United States manufacturing and office facilities, which was renewed in February 2018 and expires in July 2023. Under that lease agreement, we are responsible for payments of utilities, taxes and insurance. From time to time, we evaluate potential acquisitions of businesses, products or technologies that complement our business.
We entered into a non-cancelable operating lease agreement for our United States manufacturing and office facilities, which was renewed in December 2022 and expires in September 2030. As of May 31, 2023 our operating lease liabilities totaled $6,300,000. Under that lease agreement, we are responsible for payments of utilities, taxes and insurance.
As of May 31, 2022 and 2021, respectively, we had $31.5 million and $4.6 million in cash and cash equivalents. Net cash provided by operating activities was $1.5 million for the fiscal year ended May 31, 2022, compared with net cash used by operating activities of $2.7 million for the fiscal year ended May 31, 2021.
Net cash provided by operating activities was $10.0 million and $1.5 million for the fiscal year ended May 31, 2023 and 2022, respectively.
Income tax benefit for the fiscal year ended May 31, 2021 was $177,000 compared with income tax expense of $36,000 for the fiscal year ended May 31, 2020.
Other expense, net was $3,000 for the fiscal year ended May 31, 2023, compared with other income, net of $30,000 for the fiscal year ended May 31, 2022.
Payments Due by Period (in thousands) Less than 1-3 3-5 More than Total 1 year years years 5 years Lease obligations $ 1,047 $ 829 $ 199 $ 19 $ -- Purchases (1) 17,576 17,576 -- -- -- Total $ 18,623 $ 18,405 $ 199 $ 19 $ -- (1) Shown above are our binding purchase obligations.
Payments Due by Period (in thousands) Less than 1-3 4-5 More than Total 1 year years years 5 years Lease obligations $ 8,429 $ 608 $ 2,317 $ 2,429 $ 3,075 Purchases (1) 26,318 26,318 -- -- -- Total $ 34,747 $ 26,926 $ 2,317 $ 2,429 $ 3,075 (1) Shown above are our binding purchase obligations.
See Note 11 to our consolidated financial statements for detailed information relating to stock-based compensation and the stock option plan and the ESPP.
See Note 13 to our consolidated financial statements for detailed information relating to stock-based compensation and the stock option plan and the ESPP. RESULTS OF OPERATIONS The following table sets forth statements of operations data as a percentage of net sales for the periods indicated.
Our net sales consist primarily of sales of systems, WaferPak Aligners and DiePak Loaders, WaferPak contactors, DiePak carriers, test fixtures, upgrades and spare parts, revenues from service contracts, and engineering development charges. Our selling arrangements may include contractual customer acceptance provisions, which are mostly deemed perfunctory or inconsequential, and installation of the product occurs after shipment and transfer of title.
Our selling arrangements may include contractual customer acceptance provisions, which are mostly deemed perfunctory or inconsequential, and installation of the product occurs after shipment, transfer of title and risk of loss.
For the fiscal year ended May 31, 2020, net cash used in operating activities was primarily the result of the net loss of $2.8 million, as adjusted to exclude the effect of non-cash charges of stock-based compensation expense of $910,000 and depreciation and amortization of $384,000.
For the fiscal year ended May 31, 2023, net cash provided by operating activities was primarily the result of net income of $14.6 million, net of a non-cash charge of stock-based compensation expense of $2.7 million, depreciation and amortization of $0.5 million, and accretion of investment discount of $0.6 million.
Net cash used in operations was also impacted by decreases in customer deposits and deferred revenue of $1.5 million and in accounts payable of $1.0 million, partially offset by decreases in inventories and accounts receivable of $1.2 million each.
Other changes in cash from operations primarily resulted from increases in inventories and trade and other accounts receivable of $9.5 million and $3.8 million, respectively, partially offset by increases in accounts payable, accrued expenses and customer deposits and deferred revenue of $5.0 million, $0.5 million and $0.4 million, respectively.
Gross profit decreased to $6.0 million for the fiscal year ended May 31, 2021 from $8.4 million for the fiscal year ended May 31, 2020, a decrease of 27.9%. Gross profit margin decreased to 36.3% for the fiscal year ended May 31, 2021 from 37.6% for the fiscal year ended May 31, 2020.
Gross profit increased to $32.7 million for the fiscal year ended May 31, 2023 from $23.7 million for the fiscal year ended May 31, 2022, an increase of 38.4%. Gross margin increased to 50.4% for the fiscal year ended May 31, 2023 from 46.6% for the fiscal year ended May 31, 2022.
Net sales of our wafer-level products for fiscal 2021 were $15.0 million, and decreased approximately $4.8 million from fiscal 2020. Net sales of our TDBI products for fiscal 2021 were $1.6 million, and decreased approximately $928,000 from fiscal 2020. GROSS PROFIT.
Net sales of our wafer-level test products 20 Table of Contents for fiscal 2023 were $63.5 million and increased approximately $14.6 million from fiscal 2022 due to strong demand for our FOX-P systems. GROSS PROFIT.
The decrease in customer deposits and deferred revenue was primarily due to the decrease in backlog of customer orders with down payments. The decrease in accounts payable was primarily due to a reduction in inventory purchases. The decrease in inventories was primarily due to the increase in inventory reserves related to older products.
The increase in inventory was to support expected future shipments for customer orders. The increase in trade and other accounts receivable was primarily due to higher revenues and lower customer deposits on shipments. The increase in accounts payable was primarily due to inventory purchases to support future shipments.
Removed
COVID-19 PANDEMIC RESPONSE The Company has been impacted by the outbreak of the novel coronavirus, known as COVID-19, which has spread throughout the world. Our top priority during the COVID-19 pandemic is protecting the health and safety of our employees and their families, along with our customers and community.
Added
OVERVIEW Aehr Test Systems (“Aehr Test”, “Aehr” or “We”) is a leading provider of test solutions for testing, burning-in, and stabilizing semiconductor devices in wafer level, singulated die, and package part form, and has installed thousands of systems worldwide.
Removed
We introduced policies and procedures to increase workplace flexibility, such as working remotely where possible to reduce the number of people who are on campus each day. As a global supplier of Critical Infrastructure Sectors, as defined by the Cybersecurity and Infrastructure Security Agency, we have supported and continue to support customers during the pandemic.
Added
Increasing quality, reliability, safety, and security needs of semiconductors used across multiple applications, including electric vehicles, electric vehicle charging infrastructure, solar and wind power, computing, data and telecommunications infrastructure, and solid-state memory and storage, are driving additional test requirements, incremental capacity needs, and new opportunities for Aehr Test products and solutions.
Removed
In the interest of public health, all onsite operations generally use the minimum number of people to safely execute tasks and follow enhanced safety and health protocols including screenings, social distancing and use of personal protective equipment.
Added
We have developed and introduced several innovative products including the FOX-P family of test and burn-in systems and FOX WaferPak Aligner, FOX WaferPak Contactor, FOX DiePak Carrier and FOX DiePak Loader.
Removed
Due to the impact of the COVID-19 pandemic on customers and customers’ customers, the Company experienced a drop in customer orders and revenues during the fiscal year ended May 31, 2021 and in the last quarter of fiscal year ended May 31, 2020.
Added
The FOX-XP and FOX-NP systems are full wafer contact and singulated die/module test and burn-in systems that can test, burn-in, and stabilize a wide range of devices such as leading-edge silicon carbide-based and other power semiconductors, 2D and 3D sensors used in mobile phones, tablets, and other computing devices, memory semiconductors, processors, microcontrollers, systems-on-a-chip, and photonics and integrated optical devices.
Removed
In response, the Company implemented cost reduction initiatives to mitigate operating losses, including mandatory vacation days, shutdown days and executive staff pay reductions. The Company eliminated all cost reduction initiatives in the last quarter of the fiscal year ended May 31, 2021. The Company will continue to monitor the situation.
Added
The FOX-CP system is a low-cost single-wafer compact test solution for logic, memory and photonic devices and the newest addition to the FOX-P product family. The FOX WaferPak Contactor contains a unique full wafer contactor capable of testing wafers up to 300mm that enables Integrated Circuit manufacturers to perform test, burn-in, and stabilization of full wafers on the FOX-P systems.
Removed
As of the date of this report, the Company cannot predict with certainty the potential effects the COVID-19 pandemic may have on the Company’s business and its operating results. While the overall environment remains uncertain, the Company continues to invest in priority areas with the objective of driving profitable growth over the long term.
Added
The FOX DiePak Carrier allows testing, burning in, and stabilization of singulated bare die and modules up to 1,024 devices in parallel per DiePak on the FOX-NP and FOX-XP systems up to nine DiePaks at a time.
Removed
OVERVIEW We were founded in 1977 to develop and manufacture burn-in and test equipment for the semiconductor industry. Since our inception, we have installed over 2,500 systems at semiconductor manufacturers, semiconductor contract assemblers and burn-in and test service companies worldwide.
Added
Our net sales consist primarily of sales of FOX-P systems, WaferPak Aligners and DiePak Loaders, WaferPak contactors, DiePak carriers, test fixtures, upgrades and spare parts, service contracts revenues, and non-recurring engineering charges.
Removed
Our principal products currently are the FOX-XP, FOX-NP, and FOX-CP wafer contact and singulated die/module parallel test and burn-in systems, WaferPak Aligner, WaferPak contactors, DiePak Loader, DiePak carriers and test fixtures.
Added
INCOME TAXES Income taxes are accounted for under the asset-and-liability method as required by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 740, Income Taxes (“ASC 740”).
Removed
RESTRUCTURING We record a charge for restructuring when management commits to a restructuring plan, the restructuring plan identifies all significant actions, the period of time to complete the restructuring plan indicates that significant changes to the plan are not likely, and individuals who are impacted have been notified of the pending involuntary termination.
Added
We will continue to assess whether sufficient future taxable income will be generated to permit the use of deferred tax assets, and will reverse all or a portion of the allowance when there is sufficient evidence to support the reversal.
Removed
Restructuring charges include severance payments, legal fees, and write-off of assets. For employees that are not required to render services beyond a minimum retention period, the severance expense is recognized at the communication date based upon its fair value.
Added
Based upon our prior two fiscal years of profitability, the outlook for the next fiscal year, and absent any additional objective negative evidence, the Company anticipates adjusting the current valuation allowance position in fiscal 2024.
Removed
For employees who are required to render service until they are terminated in order to receive the severance, the severance costs are measured initially at the communication date based upon its fair value, and recognized ratably over the future service period. There were no restructuring charges during fiscal year ended May 31, 2022 and 2021.
Added
Net sales increased to $65.0 million for the fiscal year ended May 31, 2023 from $50.8 million for the fiscal year ended May 31, 2022, an increase of 27.8%. The increase in net sales for the fiscal year ended May 31, 2023 was primarily due to the increases in net sales of our wafer-level test products.
Removed
In the fiscal year ended May 31, 2020, we recognized $220,000 in restructuring charges related to the dissolution of Aehr Test Systems Japan K.K (“ATS-Japan”), a majority owned subsidiary.
Added
The increase in gross margin was primarily the result of a decrease in other cost of sales of 1.6 percentage points primarily due to lower costs of provision for inventory reserves, a decrease in labor and overhead of 1.2 percentage points due to manufacturing efficiencies due to higher sales volume, and a benefit of 1.0 percentage points due to lower direct material costs.
Removed
The restructuring charges included severance payments for individuals impacted in this reduction, legal fees associated with the dissolution process, and write-off of assets. 22 Table of Contents RESULTS OF OPERATIONS The following table sets forth statements of operations data as a percentage of net sales for the periods indicated.
Added
SELLING, GENERAL AND ADMINISTRATIVE. SG&A expenses were $12.2 million for the fiscal year ended May 31, 2023, compared with $10.0 million for the fiscal year ended May 31, 2022, an increase of 21.8%.
Removed
The interest expense for the fiscal year ended May 31, 2021 was from the Paycheck Protection Program Loan (the “PPP Loan”) that we obtained on April 23, 2020. NET GAIN FROM DISSOLUTION OF AEHR TEST SYSTEMS JAPAN.
Added
The increase in SG&A expenses was primarily the result of increased shareholder relation costs of $0.5 million, recruiting and relocation of $0.3 million, and employment-related expenses of $0.3 million to support our growing business. RESEARCH AND DEVELOPMENT.
Removed
FISCAL YEAR ENDED MAY 31, 2021 COMPARED TO FISCAL YEAR ENDED MAY 31, 2020 NET SALES. Net sales decreased to $16.6 million for the fiscal year ended May 31, 2021 from $22.3 million for the fiscal year ended May 31, 2020, a decrease of 25.5%.
Added
INTEREST INCOME (EXPENSE), NET. Interest income, net was $1.2 million and $13,000 for the fiscal years ended May 31, 2023 and 2022, respectively. Higher interest income for the fiscal year ended May 31, 2023 was driven by higher cash deposits and higher interest rates in fiscal year ended May 31, 2023. GAIN FROM FORGIVENESS OF PPP LOAN.
Removed
The decrease in net sales for the fiscal year ended May 31, 2021 was impacted by the continued challenging global business environment created by the COVID-19 pandemic which resulted in the decrease in net sales of both our wafer-level products and Test During Burn-in (TDBI) products.
Added
On June 12, 2021, we received confirmation from SVB that on June 4, 2021, the Small Business Administration approved our Payroll Protection Program loan (“PPP Loan”) forgiveness application for the entire PPP Loan balance of $1,679,000 and interest totaling $19,000, and we recognized a gain of $1,698,000. OTHER (EXPENSE) INCOME, NET.
Removed
The decrease in gross profit margin was primarily due to manufacturing inefficiencies due to a lower level of net sales and increased warranty provision related to a voluntary replacement of a component to improve long term reliability of our systems, partially offset by a lower level of inventory reserves recorded. SELLING, GENERAL AND ADMINISTRATIVE.
Added
Income tax expense for both fiscal years were related to income taxes incurred in foreign tax jurisdictions. Income tax expense was not significant due to available net operating loss and research and development credit carryforwards. FISCAL YEAR ENDED MAY 31, 2022 COMPARED TO FISCAL YEAR ENDED MAY 31, 2021 NET SALES.
Removed
SG&A expenses were $6.6 million for the fiscal year ended May 31, 2021, compared with $7.5 million for the fiscal year ended May 31, 2020, a decrease of 12.9%. The decrease in SG&A expenses was primarily due to decreases in employment related expenses as a result of cost reduction initiatives implemented in fiscal 2021. RESEARCH AND DEVELOPMENT.
Added
LIQUIDITY AND CAPITAL RESOURCES We consider cash, cash equivalents and short-term investments as liquid and available for use. As of May 31, 2023 and 2022, respectively, we had $30.2 million and $31.6 million in cash, cash equivalents and restricted cash. We also had $17.9 million in short-term investments as of May 31, 2023.
Removed
There were no restructuring charges for the fiscal year ended May 31, 2021. Restructuring charges for the fiscal year ended May 31, 2020 were related to the dissolution of Aehr Test Systems Japan K.K (ATS-Japan), a majority owned subsidiary.
Added
Net cash used in investing activities was $18.7 million and $0.4 million for the fiscal years ended May 31, 2023 and 2022, respectively.
Removed
In connection with the dissolution plan, the Company recognized approximately $220,000 related to severance payments for individuals impacted in this reduction and legal fees associated with the dissolution process in the fourth quarter of fiscal 2020. INTEREST INCOME (EXPENSE), NET.

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