UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _________ to __________
Commission file number:
(Exact name of Registrant as specified in its charter) |
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(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
| (Zip Code) |
(
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
☒ | Smaller reporting company | ||
|
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
The |
Number of shares of the registrant’s common stock, $0.01 par value, outstanding as of December 31, 2022 was
AEHR TEST SYSTEMS
FORM 10-Q
FOR THE QUARTER ENDED NOVEMBER 30, 2022
INDEX
| 2 |
| Table of Contents |
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS (Unaudited)
AEHR TEST SYSTEMS
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(unaudited)
|
| November 30, |
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| May 31, |
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| 2022 |
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| 2022 |
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| (1) | ||
ASSETS | ||||||||
Current assets: |
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Cash and cash equivalents |
| $ |
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| $ |
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Short-term investments |
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Trade and other accounts receivable, net |
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Inventories |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Operating lease right-of-use assets |
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Other assets |
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Total assets |
| $ |
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| $ |
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LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Current liabilities: |
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Accounts payable |
| $ |
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| $ |
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Accrued expenses |
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Operating lease liabilities, short-term |
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Customer deposits and deferred revenue, short-term |
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Total current liabilities |
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Operating lease liabilities, long-term |
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Deferred revenue, long-term |
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Other liabilities |
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Total liabilities |
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Shareholders’ equity: |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated other comprehensive loss |
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Accumulated deficit |
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Total shareholders’ equity |
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Total liabilities and shareholders’ equity |
| $ |
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| $ |
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(1) | The condensed consolidated balance sheet at May 31, 2022 has been derived from the audited consolidated financial statements at that date. |
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 3 |
| Table of Contents |
AEHR TEST SYSTEMS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
|
| Three Months Ended |
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| Six Months Ended |
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|
| November 30, |
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| November 30, |
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| 2022 |
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| 2021 |
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| 2022 |
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| 2021 |
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Net sales |
| $ |
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| $ |
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| $ |
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| $ |
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Cost of sales |
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Gross profit |
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Operating expenses: |
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Selling, general and administrative |
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Research and development |
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Total operating expenses |
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Income (loss) from operations |
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Interest income (expense), net |
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Gain from forgiveness of PPP loan |
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Other (expense) income, net |
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Income before income tax expense |
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Income tax expense |
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| ( | ) |
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| ( | ) |
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Net income |
| $ |
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| $ |
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| $ |
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| $ |
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Net income per share |
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Basic |
| $ |
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| $ |
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| $ |
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| $ |
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Diluted |
| $ |
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| $ |
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| $ |
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| $ |
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Shares used in per share calculations: |
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Basic |
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Diluted |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
| 4 |
| Table of Contents |
AEHR TEST SYSTEMS
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands, unaudited)
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| November 30, |
|
| November 30, |
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| 2022 |
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| 2021 |
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| 2022 |
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| 2021 |
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Net income |
| $ |
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| $ |
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| $ |
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| $ |
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Other comprehensive (loss) income, net of tax: |
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Net change in unrealized loss on investments |
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| ( | ) |
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| ( | ) |
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Net change in cumulative translation adjustments |
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| ( | ) |
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| ( | ) |
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| ( | ) | |
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Comprehensive income |
| $ |
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| $ |
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| $ |
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| $ |
| ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 5 |
| Table of Contents |
AEHR TEST SYSTEMS
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands)
(unaudited)
|
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| Additional |
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| Accumulated Other |
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| Total |
| |||||||||
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| Common Stock |
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| Paid-in |
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| Comprehensive |
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| Accumulated |
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| Shareholders’ |
| |||||||||
Three Months Ended November 30, 2022 |
| Shares |
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| Amount |
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| Capital |
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| Income (Loss) |
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| Deficit |
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| Equity |
| ||||||
Balances, August 31, 2022 |
|
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| $ |
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| $ |
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| $ | ( | ) |
| $ | ( | ) |
| $ |
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Issuance of common stock under employee plans |
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Shares repurchased for tax withholdings on vesting of restricted stock units |
|
| ( | ) |
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| ( | ) |
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| ( | ) | |||
| Stock-based compensation |
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| - |
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Net income |
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| - |
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Net unrealized loss on investments |
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| - |
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| ( | ) |
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| ( | ) | |||
Foreign currency translation adjustment |
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| - |
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Balances, November 30, 2022 |
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| $ |
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| $ |
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| $ | ( | ) |
| $ | ( | ) |
| $ |
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| Accumulated |
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| |||||||||||||||
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| Additional |
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| Other |
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| Total |
| ||||||||||||||
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| Common Stock |
| Paid-in |
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| Comprehensive |
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| Accumulated |
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| Shareholders’ |
| ||||||||||
Six Months Ended November 30, 2022 |
| Shares |
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| Amount |
| Capital |
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| Loss |
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| Deficit |
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| Equity |
| |||||||
Balances, May 31, 2022 |
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| $ |
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| $ |
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| $ | ( | ) |
| $ | ( | ) |
| $ |
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Issuance of common stock under employee plans |
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Shares repurchased for tax withholdings on vesting of restricted stock units |
|
| ( | ) |
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| ( | ) |
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| ( | ) |
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| ( | ) | ||
| Stock-based compensation |
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| - |
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Net income |
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| - |
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Net unrealized loss on investments |
|
| - |
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| ( | ) |
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| ( | ) | |||
Foreign currency translation adjustment |
|
| - |
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| ( | ) |
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| ( | ) | |||
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Balances, November 30, 2022 |
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| $ |
|
| $ |
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| $ | ( | ) |
| $ | ( | ) |
| $ |
| ||||
| 6 |
| Table of Contents |
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| Accumulated |
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| Additional |
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| Other |
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| Total |
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| Common Stock |
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| Paid-in |
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| Comprehensive |
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| Accumulated |
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| Shareholders’ |
| |||||||||
Three Months Ended November 30, 2021 |
| Shares |
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| Amount |
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| Capital |
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| Loss |
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| Deficit |
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| Equity |
| ||||||
Balances, August 31, 2021 |
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| $ |
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| $ |
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| $ | ( | ) |
| $ | ( | ) |
| $ |
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Issuance of common stock under employee plans |
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Shares repurchased for tax withholdings on vesting of restricted stock units |
|
| ( | ) |
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| ( | ) |
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| ( | ) | |||
Proceeds from public offerings, net of issuance costs |
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| Stock-based compensation |
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| - |
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Net income |
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| - |
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| |||||
Foreign currency translation adjustment |
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| - |
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| ( | ) |
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| ( | ) | |||
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Balances, November 30, 2021 |
|
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| $ |
|
| $ |
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| $ | ( | ) |
| $ | ( | ) |
| $ |
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| Accumulated |
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| |||||||||||||
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| Additional |
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| Other |
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| Total |
| ||||||||
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| Common Stock |
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| Paid-in |
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| Comprehensive |
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| Accumulated |
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| Shareholders’ |
| |||||||||
Six Months Ended November 30, 2021 |
| Shares |
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| Amount |
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| Capital |
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| Loss |
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| Deficit |
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| Equity |
| ||||||
Balances, May 31, 2021 |
|
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|
| $ |
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| $ |
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| $ | ( | ) |
| $ | ( | ) |
| $ |
| ||||
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Issuance of common stock under employee plans |
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| ||||||
Shares repurchased for tax withholdings on vesting of restricted stock units |
|
| ( | ) |
|
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| ( | ) |
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| ( | ) | |||
Proceeds from public offerings, net of issuance costs |
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| ||||||
| Stock-based compensation |
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| - |
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| |||||
Net income |
|
| - |
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| |||||
Foreign currency translation adjustment |
|
| - |
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| ( | ) |
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| ( | ) | |||
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Balances, November 30, 2021 |
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ |
| ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 7 |
| Table of Contents |
AEHR TEST SYSTEMS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
|
| Six Months Ended |
| |||||
|
| November 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Cash flows from operating activities: |
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| ||
Net income |
| $ |
|
| $ |
| ||
Adjustments to reconcile net income to net cash provided by operating activities: |
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Stock-based compensation expense |
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Provision for doubtful accounts |
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Depreciation and amortization |
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| ||
Accretion of investment discount |
|
| ( | ) |
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| |
Gain from forgiveness of PPP loan |
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| ( | ) | |
Changes in operating assets and liabilities: |
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|
Trade and other accounts receivable |
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| ( | ) | |
Inventories |
|
| ( | ) |
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| ( | ) |
Prepaid expenses and other assets |
|
| ( | ) |
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| ( | ) |
Accounts payable |
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| ( | ) |
|
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| |
Accrued expenses |
|
| ( | ) |
|
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| |
Customer deposits and deferred revenue |
|
|
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| ||
Income taxes payable |
|
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|
|
|
| ||
Net cash provided by operating activities |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchases of investments |
|
| ( | ) |
|
|
| |
Purchases of property and equipment |
|
| ( | ) |
|
| ( | ) |
Net cash used in investing activities |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Line of credit repayments, net |
|
|
|
|
| ( | ) | |
Proceeds from issuance of common stock under employee plans |
|
|
|
|
|
| ||
Shares repurchased for tax withholdings on vesting of restricted stock units |
|
| ( | ) |
|
| ( | ) |
Proceeds from issuance of common stock from public offering, net of issuance costs |
|
|
|
|
|
| ||
Net cash (used in) provided by financing activities |
|
| ( | ) |
|
|
| |
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash, cash equivalents and restricted cash |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash, cash equivalents and restricted cash |
|
| ( | ) |
|
|
| |
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash, beginning of period(1) |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash, end of period(1) |
| $ |
|
| $ |
| ||
(1) | Includes restricted cash in other assets. |
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 8 |
| Table of Contents |
AEHR TEST SYSTEMS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCCOUNTING POLICIES
The accompanying financial information has been prepared by Aehr Test Systems, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) have been condensed or omitted pursuant to such rules and regulations.
In the opinion of management, the unaudited condensed consolidated financial statements for the interim periods presented have been prepared on a basis consistent with the May 31, 2022 audited consolidated financial statements and reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the condensed consolidated financial position and results of operations as of and for such periods indicated. These unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2022. Results for the interim periods presented herein are not necessarily indicative of results which may be reported for any other interim period or for the entire fiscal year.
PRINCIPLES OF CONSOLIDATION. The condensed consolidated financial statements include the accounts of Aehr Test Systems and its subsidiaries (collectively, the “Company”). All significant intercompany balances have been eliminated in consolidation.
ACCOUNTING ESTIMATES. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates are used to account for sales and revenue allowances, the allowance for doubtful accounts, inventory valuations, income taxes, stock-based compensation expenses, and product warranties, among others. The Company bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances. Actual results could differ materially from those estimates.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. The Company’s significant accounting policies are disclosed in the Company’s Annual Report on Form 10-K for the year ended May 31, 2022. There have been no significant changes in the Company’s significant accounting policies during the three and six months ended November 30, 2022.
2. RECENT ACCOUNTING PRONOUNCEMENTS
Accounting Standards Not Yet Adopted
In June 2016, the Financial Accounting Standards Board issued Accounting Standard Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326), that requires measurement and recognition of expected credit losses for financial assets held based on historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. Due to a subsequent ASU in November 2019, the accounting standard will be effective for the Company beginning in the first quarter of fiscal 2024 on a modified retrospective basis, with early adoption in or after fiscal 2021 permitted. The Company does not expect a material impact of this accounting standard on its consolidated financial statements.
| 9 |
| Table of Contents |
3. REVENUE
Revenue recognition
The Company recognizes revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services by following a five-step process: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price, and (5) recognize revenue when or as the Company satisfies a performance obligation, as further described below.
Performance obligations include sales of systems, contactors, spare parts, and services, as well as installation and training services included in customer contracts.
A contract’s transaction price is allocated to each distinct performance obligation. In determining the transaction price, the Company evaluates whether the price is subject to refund or adjustment to determine the net consideration to which the Company expects to be entitled. The Company generally does not grant return privileges, except for defective products during the warranty period.
For contracts that contain multiple performance obligations, the Company allocates the transaction price to the performance obligations on a relative standalone selling price basis. Standalone selling prices are based on multiple factors including, but not limited to historical discounting trends for products and services and pricing practices in different geographies.
Revenue for systems and spares are recognized at a point in time, which is generally upon shipment or delivery. Revenue from services is recognized over time as services are completed or ratably over the contractual period of generally one year or less.
The Company has elected the practical expedient to not assess whether a contract has a significant financing component as the Company’s standard payment terms are less than one year.
The Company sells its products primarily through a direct sales force. In certain international markets, the Company sells its products through independent distributors.
Transfer of control is evidenced upon passage of title and risk of loss to the customer unless we are required to provide additional services.
Disaggregation of revenue
The following tables show revenues by major product categories. Within each product category, contract terms, conditions and economic factors affecting the nature, amount, timing and uncertainty around revenue recognition and cash flow are substantially similar.
The Company’s revenues by product category are as follows (in thousands):
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| November 30, |
|
| November 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Type of good / service: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Systems |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Contactors |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Services |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| $ | 14,815 |
|
| $ | 9,611 |
|
| $ | 25,486 |
|
| $ | 15,257 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product lines: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wafer-level |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Test During Burn-In |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
| 10 |
| Table of Contents |
The following presents information about the Company’s operations in different geographic areas. Net sales are based upon ship-to location (in thousands):
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| November 30, |
|
| November 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Geographic region: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
United States |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Asia |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Europe |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
With the exception of the amount of service contracts and extended warranties, the Company’s product category revenues are recognized at the point in time when control transfers to customers. The following presents revenue based on timing of recognition (in thousands):
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| November 30, |
|
| November 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Timing of revenue recognition: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Products and services transferred at a point in time |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Services transferred over time |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Contract balances
A receivable is recognized in the period the Company delivers goods or provides services or when the Company’s right to consideration is unconditional. The Company usually does not record contract assets because the Company has an unconditional right to payment upon satisfaction of the performance obligation, and therefore, a receivable is more commonly recorded than a contract asset.
Contract liabilities include payments received in advance of performance under a contract and are satisfied as the associated revenue is recognized. Contract liabilities are reported on the Condensed Consolidated Balance Sheets at the end of each reporting period as a component of deferred revenue. Contract liabilities as of November 30, 2022 and May 31, 2022 were $
Remaining performance obligations
On November 30, 2022, the Company had $
Costs to obtain or fulfill a contract
The Company generally expenses sales commissions when incurred as a component of selling, general and administrative expense as the amortization period is typically less than one year. Additionally, the majority of the Company’s cost of fulfillment as a manufacturer of products is classified as inventory and fixed assets, which are accounted for under the respective guidance for those asset types. Other costs of contract fulfillment are immaterial due to the nature of the Company’s products and their respective manufacturing process.
| 11 |
| Table of Contents |
4. EARNINGS PER SHARE
Basic earnings per share is determined using the weighted average number of common shares outstanding during the period. Diluted earnings per share is determined using the weighted average number of common shares and potential common shares (representing the dilutive effect of stock options, restricted shares, restricted stock units (“RSUs”), Performance RSUs (“PRSUs”) and Amended and Restated 2006 Employee Stock Purchase Plan (“ESPP”) shares) outstanding during the period using the treasury stock method.
The following table presents the computation of basic and diluted net income per share (in thousands, except per share data):
Three Months Ended |
|
| Six Months Ended |
| ||||||||||||
|
| November 30, |
|
| November 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Numerator: Net income |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Denominator for basic net income per share: |
|
|
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|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
|
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|
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|
| ||||
|
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|
|
Shares used in basic net income per share calculation |
|
|
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|
|
|
|
|
|
| ||||
Effect of dilutive securities |
|
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| ||||
|
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|
|
Denominator for diluted net income per share |
|
|
|
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|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Diluted net income per share |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
For the purpose of computing diluted earnings per share, weighted average potential common shares do not include stock options with an exercise price greater than the average fair value of the Company’s common stock for the period, as the effect would be anti-dilutive. In the three and six months ended November 30, 2022, stock options to purchase
| 12 |
| Table of Contents |
5. CASH, CASH EQUIVALENTS AND INVESTMENTS
The following table summarizes the Company’s cash, cash equivalents and investments by security type at November 30, 2022 (in thousands):
|
| Cost |
|
| Gross Unrealized Loss |
|
| Estimated Fair Value |
| |||
|
|
|
|
|
|
|
|
|
| |||
Cash |
| $ |
|
| $ | - |
|
| $ |
| ||
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
|
|
|
| - |
|
|
|
| ||
U.S. treasury securities |
|
|
|
|
| - |
|
|
|
| ||
Total cash equivalents |
|
|
|
|
| - |
|
|
|
| ||
Total cash and cash equivalents |
| $ |
|
| $ | - |
|
| $ |
| ||
Short-term investments: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury securities |
| $ |
|
| $ |
|
| $ |
| |||
Long-term investments: |
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
| $ |
|
|
| - |
|
| $ |
| ||
Total cash, cash equivalents and investments |
| $ |
|
| $ |
|
| $ |
| |||
Long-term investments are included in other assets on the accompanying condensed consolidated balance sheets.
Unrealized gains and temporary losses on investments classified as available-for-sale are included within accumulated other comprehensive loss, net of any related tax effect. Upon realization, those amounts are reclassified from accumulated other comprehensive loss to results of operations.
The unrealized loss of $
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company’s financial instruments are measured at fair value consistent with authoritative guidance. This authoritative guidance defines fair value, establishes a framework for using fair value to measure assets and liabilities, and disclosures required related to fair value measurements.
The guidance establishes a fair value hierarchy based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity’s pricing based upon their own market assumptions. The fair value hierarchy consists of the following three levels:
Level 1 - instrument valuations are obtained from real-time quotes for transactions in active exchange markets involving identical assets.
Level 2 - instrument valuations are obtained from readily-available pricing sources for comparable instruments.
Level 3 - instrument valuations are obtained without observable market values and require a high level of judgment to determine the fair value.
| 13 |
| Table of Contents |
The following table summarizes the Company’s financial assets measured at fair value on a recurring basis as of November 30, 2022 (in thousands):
|
| Balance as of |
|
|
|
|
|
|
|
| ||||||
|
| November 30, 2022 |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
Money market funds |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
U.S. treasury securities |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Assets |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
The following table summarizes the Company’s financial assets measured at fair value on a recurring basis as of May 31, 2022 (in thousands):
|
| Balance as of May 31, 2022 |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
Money market funds |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Assets |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Included in money market funds as of November 30, 2022 and May 31, 2022 is $
There were no financial liabilities measured at fair value as of November 30, 2022 and May 31, 2022.
There were no transfers between Level 1 and Level 2 fair value measurements during the three months ended November 30, 2022.
The carrying amounts of financial instruments including cash equivalents, accounts receivable, accounts payable and certain other accrued liabilities, approximate fair value due to their short maturities.
7. TRADE AND OTHER ACCOUNTS RECEIVABLE, NET
Trade accounts receivable represents customer trade receivables. As of November 30, 2022 and May 31, 2022, there were no allowances for doubtful accounts. Trade accounts receivable is derived from the sale of products throughout the world to semiconductor manufacturers, semiconductor contract assemblers, electronics manufacturers and burn-in and test service companies. Other accounts receivable represents non-customer trade related receivables that are derived from the sale of raw materials to our subcontractors. The Company’s allowance for doubtful accounts is based upon historical experience and review of trade receivables by aging category to identify specific customers with known disputes or collection issues. Uncollectible receivables are recorded as bad debt expense when all efforts to collect have been exhausted and recoveries are recognized when they are received.
8. INVENTORIES
Inventories are comprised of the following (in thousands):
|
| November 30, |
|
| May 31, |
| ||
|
| 2022 |
|
| 2022 |
| ||
Raw materials and sub-assemblies |
| $ |
|
| $ |
| ||
Work in process |
|
|
|
|
|
| ||
Finished goods |
|
|
|
|
|
| ||
|
| $ |
|
| $ |
| ||
9. PRODUCT WARRANTIES
The Company provides for the estimated cost of product warranties at the time revenues are recognized on the products shipped. While the Company engages in extensive product quality programs and processes, including actively monitoring and evaluating the quality of its component suppliers, the Company’s warranty obligation is affected by product failure rates, material usage and service delivery costs incurred in correcting a product failure. Should actual product failure rates, material usage or service delivery costs differ from the Company’s estimates, revisions to the estimated warranty liability would be required.
| 14 |
| Table of Contents |
The standard warranty period is one year for systems and ninety days for parts and service.
The following is a summary of changes in the Company’s liability for product warranties during the three and six months ended November 30, 2022 and 2021 (in thousands):
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| November 30, |
|
| November 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Balance at the beginning of the period |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruals for warranties issued during the period |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Adjustments to previously existing warranty accruals |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Consumption of reserves |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the period |
| $ |
|
| $ |
|
| $ | 311 |
|
| $ | 415 |
| ||
The accrued warranty balance is included in accrued expenses on the accompanying condensed consolidated balance sheets.
10. CUSTOMER DEPOSITS AND DEFERRED REVENUE, SHORT-TERM
Customer deposits and deferred revenue, short-term (in thousands):
|
| November 30, |
|
| May 31, |
| ||
|
| 2022 |
|
| 2022 |
| ||
Customer deposits |
| $ |
|
| $ |
| ||
Deferred revenue |
|
|
|
|
|
| ||
|
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
11. ACCUMULATED OTHER COMPREHENSIVE LOSS
Changes in the components of accumulated other comprehensive loss, net of tax, were as follows (in thousands):
|
| Cumulative Translation Adjustments |
|
| Unrealized Loss on Investments, Net |
|
| Total |
| |||
|
|
|
|
|
|
|
|
|
| |||
Balance at May 31, 2022 |
| $ | ( | ) |
| $ |
|
| $ | ( | ) | |
Other comprehensive loss before reclassifications |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Amounts reclassified out of accumulated other comprehensive loss |
|
|
|
|
|
|
|
|
| |||
Other comprehensive loss, net of tax |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Balance at November 30, 2022 |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| 15 |
| Table of Contents |
12. INCOME TAXES
The Company is subject to U.S federal and state and foreign income taxes as a corporation. The Company’s tax provision and the resulting effective tax rate for the interim period is determined based upon its estimated annual effective tax rate adjusted for the effect of discrete items arising in that quarter. The Company recorded a provision for income tax of $
Income taxes have been provided using the liability method whereby deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and net operating loss and tax credit carryforwards measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse, or the carryforwards are utilized. Valuation allowances are established when it is determined that it is more likely than not that such assets will not be realized.
Since fiscal 2009, a full valuation allowance was established against all deferred tax assets, as management determined that it is more likely than not that certain deferred tax assets will not be realized.
The Company accounts for uncertain tax positions consistent with authoritative guidance. The guidance prescribes a “more likely than not” recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company does not expect any material change in its unrecognized tax benefits over the next twelve months. The Company recognizes interest and penalties related to unrecognized tax benefits as a component of income taxes.
13. LEASES
The Company has only operating leases for real estate including corporate offices, warehouse space and certain equipment. A lease with an initial term of 12 months or less is generally not recorded on the condensed consolidated balance sheets, unless the arrangement includes an option to purchase the underlying asset, or renew the arrangement that the Company is reasonably certain to exercise (short-term leases). The Company recognizes lease expense on a straight-line basis over the lease term for short-term leases that the Company does not record on its balance sheets. The Company’s operating leases have remaining lease terms of
The Company determines whether an arrangement is or contains a lease based on the unique facts and circumstances present at the inception of the arrangement. Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected lease term. The interest rate implicit in lease contracts is typically not readily determinable. As such, the Company utilizes the appropriate incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term at an amount equal to the lease payments in a similar economic environment. Certain adjustments to the right-of-use assets may be required for items such as initial direct costs paid or incentives received.
The weighted average remaining lease term for the Company’s operating leases was
The Company’s operating lease cost was $
| 16 |
| Table of Contents |
The following table presents supplemental cash flow information related to the Company’s operating leases (in thousands):
|
| Six Months Ended |
| |||||
|
| November 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Cash paid for amounts included in the measurement of operating lease liabilities: |
|
|
|
|
|
| ||
Operating cash flows for operating leases |
| $ |
|
| $ |
| ||
The following table presents the maturities of the Company’s operating lease liabilities as of November 30, 2022 (in thousands):
Fiscal year |
| Operating Leases |
| |
2023 (excluding the first six months of 2023) |
| $ |
| |
2024 |
|
|
| |
2025 |
|
|
| |
2026 |
|
|
| |
Total future minimum operating lease payments |
| $ |
| |
Less: imputed interest |
|
| ( | ) |
Present value of operating lease liabilities |
| $ |
| |
14. BORROWING AND FINANCING ARRANGEMENTS
On January 16, 2020, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Silicon Valley Bank (“SVB”). Pursuant to the Loan Agreement, the Company may borrow up to (a) the lesser of (i) the revolving line of $
On January 14, 2021, the Company entered into the First Amendment to Loan and Security Agreement (the “Amendment”) with SVB. The Amendment, among other things, extended the Revolving Line Maturity Date to July 14, 2021; provided, however, that if the Company achieved specified operating metrics on a consolidated basis on or prior to May 31, 2021 the Amended Revolving Line Maturity Date would be extended to
| 17 |
| Table of Contents |
On January 11, 2022, the Company entered into the Second Amendment to the Loan and Security Agreement (the “Second Amendment”) with SVB. The Second Amendment, among other things, (A) increased the available amount of the line up to the lesser of (i) $
At November 30, 2022, the Company had not drawn against the credit facility and was in compliance with all covenants related to obligations to meet reporting requirements. The balance available to borrow under the line at November 30, 2022 was $
15. LONG-TERM DEBT
On April 23, 2020, the Company obtained the Paycheck Protection Program Loan (the “PPP Loan”) in the aggregate amount of $
Under the terms of the CARES Act, PPP loan recipients can apply for and be granted forgiveness for all or a portion of loans granted under the PPP. On June 12, 2021, the Company received confirmation from SVB that on June 4, 2021, the Small Business Administration approved the Company’s PPP Loan forgiveness application for the entire PPP Loan balance of $1,679,000 and interest totaling $
16. STOCK-BASED COMPENSATION
Stock-based compensation expense consists of expenses for stock options, RSUs, PRSUs, restricted shares, performance restricted shares and ESPP purchase rights. Stock-based compensation expense for stock options and ESPP purchase rights is measured at each grant date, based on the fair value of the award using the Black-Scholes option valuation model, and is recognized as expense over the employee’s requisite service period. This model was developed for use in estimating the value of publicly traded options that have no vesting restrictions and are fully transferable. The Company’s employee stock options have characteristics significantly different from those of publicly traded options. For RSUs and restricted shares, stock-based compensation cost is based on the fair value of the Company’s common stock at the grant date. All of the Company’s stock-based compensation is accounted for as an equity instrument. See Note 11 in the Company’s Annual Report on Form 10-K for fiscal 2022 filed on August 26, 2022 for further information regarding the 2016 Equity Incentive Plan (the “2016 Plan”) and the ESPP.
The following table summarizes the stock-based compensation expense for the three and six months ended November 30, 2022 and 2021 (in thousands):
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| November 30, |
|
| November 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Stock-based compensation in the form of stock options, RSUs, restricted shares and ESPP purchase rights, included in: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cost of sales |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Selling, general and administrative |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Research and development |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total stock-based compensation |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
As of November 30, 2022, there were $
| 18 |
| Table of Contents |
During the three months ended November 30, 2022 and 2021, the Company recorded stock-based compensation expense related to stock options, RSUs and restricted shares of $
As of November 30, 2022, the total compensation expense related to unvested stock-based awards under the 2016 Plan, but not yet recognized, was approximately $
During the three months ended November 30, 2022 and 2021, the Company recorded stock-based compensation expense related to the ESPP of $
As of November 30, 2022, the total compensation expense related to purchase rights under the ESPP but not yet recognized was approximately $
Valuation Assumptions
Valuation and Amortization Method. The Company estimates the fair value of stock options granted using the Black-Scholes option valuation model and a single option award approach. The fair value under the single option approach is amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period.
Expected Term. The Company’s expected term represents the period that the Company’s stock-based awards are expected to be outstanding and was determined based on historical experience, giving consideration to the contractual terms of the stock-based awards, vesting schedules and expectations of future employee behavior as evidenced by changes to the terms of its stock-based awards.
Volatility. Volatility is a measure of the amounts by which a financial variable such as stock price has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period. The Company uses the historical volatility, which matches the expected term of most of the option grants, to estimate expected volatility. Volatility for each of the ESPP’s four time periods of six months, twelve months, eighteen months, and twenty-four months is calculated separately and included in the overall stock-based compensation expense recorded.
Risk-Free Interest Rate. The Company bases the risk-free interest rate used in the Black-Scholes option valuation model on the implied yield in effect at the time of option grant on U.S. Treasury zero-coupon issues with a remaining term equivalent to the expected term of the stock awards including the ESPP.
| 19 |
| Table of Contents |
Fair Value. The fair value of the Company’s stock options granted to employees for the three and six months ended November 30, 2022 and 2021 were estimated using the following weighted average assumptions in the Black-Scholes option valuation model:
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| November 30, |
|
| November 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Expected term (in years) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Volatility |
|
| % |
|
| % |
|
| % |
|
| % | ||||
Risk-free interest rate |
|
| % |
|
| % |
|
| % |
|
| % | ||||
Weighted average grant date fair value |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
The fair values of the ESPP purchase rights granted for the three and six months ended November 30, 2022 and 2021 were estimated using the following assumptions:
|
| Three and Six Months Ended |
|
| Three and Six Months Ended |
| ||
|
| November 30, 2022 |
|
| November 30, 2021 |
| ||
|
|
|
|
|
| |||
Expected term (in years) |
|
|
|
| ||||
Volatility |
| % |
| % | ||||
Risk-free interest rates |
| % |
| % | ||||
Weighted average grant date fair value |
| $ |
|
| $ |
| ||
During the three and six months ended November 30, 2022, ESPP purchase rights of
The following tables summarize the Company’s stock option and RSU transactions during the three and six months ended November 30, 2022 (in thousands):
|
| Available |
| |
|
| Shares |
| |
Balance, May 31, 2022 |
|
|
| |
|
|
|
|
|
Options granted |
|
| ( | ) |
RSUs granted |
|
| ( | ) |
Options cancelled and adjusted |
|
|
| |
|
|
|
|
|
Balance, August 31, 2022 |
|
|
| |
Options granted |
|
| ( | ) |
RSUs granted |
|
| ( | ) |
|
|
|
|
|
Balance, November 30, 2022 |
|
|
| |
The following table summarizes the stock option transactions during the three and six months ended November 30, 2022 (in thousands, except per share data):
|
| Outstanding Options |
| |||||||||
|
|
|
|
| Weighted |
|
|
|
| |||
|
| Number |
|
| Average |
|
| Aggregate |
| |||
|
| of |
|
| Exercise |
|
| Intrinsic |
| |||
|
| Shares |
|
| Price |
|
| Value |
| |||
Balances, May 31, 2022 |
|
|
|
| $ |
|
| $ |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
Options granted |
|
|
|
| $ |
|
|
|
|
| ||
Options cancelled |
|
| ( | ) |
| $ |
|
|
|
|
| |
Options exercised |
|
| ( | ) |
| $ |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, August 31, 2022 |
|
|
|
| $ |
|
| $ |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
Options granted |
|
|
|
| $ |
|
|
|
|
| ||
Options exercised |
|
| ( | ) |
| $ |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, November 30, 2022 |
|
|
|
| $ |
|
| $ |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options fully vested and expected to vest at November 30, 2022 |
|
|
|
| $ |
|
| $ |
| |||
| 20 |
| Table of Contents |
The options outstanding and exercisable at November 30, 2022 were in the following exercise price ranges (in thousands, except per share data):
|
|
| Options Outstanding |
|
| Options Exercisable |
| |||||||||||||||||||||||
|
|
| at November 30, 2022 |
|
| at November 30, 2022 |
| |||||||||||||||||||||||
Range of Exercise Prices |
|
| Number Outstanding Shares |
|
| Weighted Average Remaining Contractual Life (Years) |
|
| Weighted Average Exercise Price |
|
| Number Exercisable Shares | Weighted Average Remaining Contractual Life (Years) |
|
| Weighted Average Exercise Price |
|
| Aggregate Intrinsic Value |
| ||||||||||
| $ | 1.34 |
|
|
|
|
|
|
|
| $ |
|
|
| |
|
|
|
|
| $ |
|
|
|
| ||||||
$1.64-$1.86 |
|
|
|
|
|
|
|
| $ |
|
|
|
|
|
|
|
| $ |
|
|
|
| ||||||||
$2.03-$2.40 |
|
|
|
|
|
|
|
| $ |
|
|
|
|
|
|
|
| $ |
|
|
|
| ||||||||
$2.76-$2.93 |
|
|
|
|
|
|
|
| $ |
|
|
|
|
|
|
|
| $ |
|
|
|
| ||||||||
$3.46-$3.93 |
|
|
|
|
|
|
|
| $ |
|
|
|
|
|
|
|
| $ |
|
|
|
| ||||||||
$8.00-$24.83 |
|
|
|
|
|
|
|
| $ |
|
|
|
|
|
|
|
| $ |
|
|
|
| ||||||||
$1.34-$24.83 |
|
|
|
|
|
|
|
| $ |
|
|
|
|
|
|
|
| $ |
|
| $ |
| ||||||||
The total intrinsic value of options exercised during the three and six months ended November 30, 2022 was $
The following table summarizes RSUs, PRSUs, restricted shares and performance restricted shares granted to employees and members of the Company’s Board of Directors during the three and six months ended November 30, 2022 and 2021:
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| November 30, |
|
| November 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Employees: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Annual RSUs granted |
|
| - |
|
|
|
|
|
|
|
|
|
| |||
Weighted average market value on the date of the grant of annual RSUs |
|
|
|
| $ |
|
| $ |
|
| $ |
| ||||
Annual restricted shares granted |
|
| - |
|
|
| - |
|
|
|
|
|
| - |
| |
Weighted average market value on the date of the grant of annual restricted shares |
|
|
|
|
|
|
| $ |
|
|
|
| ||||
RSUs granted in lieu of cash payment for salary reductions |
|
| - |
|
|
| - |
|
|
| - |
|
|
|
| |
Weighted average market value on the date of the grant of RSU in lieu of cash payment |
|
|
|
|
|
|
|
|
|
| $ |
| ||||
PRSUs granted based on revenue target thresholds maximum |
|
| - |
|
|
| - |
|
|
|
|
|
|
| ||
Performance restricted shares granted based on revenue target thresholds maximum |
|
| - |
|
|
| - |
|
|
|
|
|
| - |
| |
Weighted average market value on the date of the grant of PRSUs, performance restricted shares |
|
|
|
|
|
|
| $ |
|
| $ |
| ||||
Stock-based compensation expense |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Members of Board of Directors: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs granted |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted average market value on the date of the grant of RSUs |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
PRSUs granted based on revenue target thresholds maximum |
|
| - |
|
|
| - |
|
|
|
|
|
| - |
| |
Weighted average market value on the date of the grant of PRSUs |
|
|
|
|
|
|
| $ |
|
|
|
| ||||
Stock-based compensation expense |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
| 21 |
| Table of Contents |
PRSUs were granted to key officers and members of Board of Directors based upon revenue target thresholds for fiscal 2023 and 2022.
The following table summarizes the RSUs and PRSUs vested and unvested during the three and six months ended November 30, 2022 and 2021:
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| November 30, |
|
| November 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Net RSUs and PRSUs vested |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Shares withheld to settle payroll taxes |
|
|
|
|
| - |
|
|
|
|
|
| - |
| ||
RSUs and PRSUs unvested |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Intrinsic value of unvested RSUs and PRSUs (in thousands) |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
17. SEGMENT AND CONCENTRATION INFORMATION
The Company has only one reportable segment. The information for revenue category by type, product line, geography and timing of revenue recognition, is summarized in Note “3. REVENUE.”
Property and equipment information is based on the physical location of the assets. The following table presents property and equipment information for geographic areas (in thousands):
|
| November 30, |
|
| May 31, |
| ||
|
| 2022 |
|
| 2022 |
| ||
United States |
| $ |
|
| $ |
| ||
Asia |
|
|
|
|
|
| ||
Europe |
|
|
|
|
|
| ||
|
| $ |
|
| $ |
| ||
As of November 30, 2022, the operating lease right-of-use assets of $
There were no revenues through distributors for the three and six months ended November 30, 2022 and 2021.
Sales to the Company’s five largest customers accounted for approximately
| 22 |
| Table of Contents |
18. SUBSEQUENT EVENTS
On December 5, 2022, the Company entered into a Fourth Amendment to the lease agreement for the Company’s United States manufacturing and office facilities. The amendment extends the term of the lease for a period of eighty-six (86) calendar months, commencing on August 1, 2023 and expiring on
On January 10, 2023, the Company entered into the Third Amendment to the Loan and Security Agreement (the “Third Amendment”) with SVB. The Third Amendment, among other things, extends the Revolving Line Maturity Date to
| 23 |
| Table of Contents |
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes that appear elsewhere in this Report and with our Annual Report on Form 10-K for the fiscal year ended May 31, 2022 and the consolidated financial statements and notes thereto.
In addition to historical information, this Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements in this Report, including those made by our management, other than statements of historical fact, are forward-looking statements. These statements typically may be identified by the use of forward-looking words or phrases such as “believe,” “expect,” “intend,” “anticipate,” “should,” “planned,” “estimated,” and “potential,” among others and include, but are not limited to, statements concerning when we expect to recognize remaining performance obligations and statements concerning our expectations regarding our operations, business, strategies, prospects, revenues, expenses, costs and resources. These forward-looking statements include management’s judgments, estimates and assumptions and are subject to certain risks and uncertainties that could cause our actual results to differ materially from anticipated results or other expectations reflected in forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Report and other factors beyond our control, and in particular, the risks discussed in “Part II, Item 1A. Risk Factors” and those discussed in other documents we file with the SEC. All forward-looking statements included in this document are based on our current expectations, and we undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.
Investors and others should note that we announce material financial information to our investors using our investor relations website (https://www.aehr.com/investor-relations/), SEC filings, press releases, public conference calls and webcasts. We use these channels to communicate with our investors and the public about our company, our products and services and other issues. It is possible that the information we post on our investor relations website could be deemed to be material information. Therefore, we encourage investors, the media and others interested in our company to review the information we post on our investor relations website.
OVERVIEW
We were founded in 1977 to develop and manufacture burn-in and test equipment for the semiconductor industry. Since our inception, we have sold more than 2,500 systems to semiconductor manufacturers, semiconductor contract assemblers and burn-in and test service companies worldwide. Our principal products currently are the FOX-XP, FOX-NP and FOX-CP wafer level and singulated die/module parallel test and burn-in systems, WaferPak Aligner, WaferPak contactors, DiePak Loader, DiePak carriers and test fixtures.
| 24 |
| Table of Contents |
Our net sales consist primarily of sales of systems, WaferPak Aligners and DiePak Loaders, WaferPak contactors, DiePak carriers, test fixtures, upgrades and spare parts, revenues from service contracts, and engineering development charges. Our selling arrangements may include contractual customer acceptance provisions, which are mostly deemed perfunctory or inconsequential, and installation of the product occurs after shipment and transfer of title.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to customer programs and incentives, product returns, bad debts, inventories, income taxes, financing obligations, warranty obligations, and long-term service contracts. Our estimates are derived from historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Those results form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. For a discussion of the critical accounting policies, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the fiscal year ended May 31, 2022.
There have been no material changes to our critical accounting policies and estimates during the three and six months ended November 30, 2022 compared to those discussed in our Annual Report on Form 10-K for the fiscal year ended May 31, 2022.
RESULTS OF OPERATIONS
The following table sets forth items in our unaudited condensed consolidated statements of operations as a percentage of net sales for the periods indicated.
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| November 30, |
|
| November 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net sales |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
Cost of sales |
|
| 46.6 |
|
|
| 53.0 |
|
|
| 51.4 |
|
|
| 55.4 |
|
Gross profit |
|
| 53.4 |
|
|
| 47.0 |
|
|
| 48.6 |
|
|
| 44.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
| 19.4 |
|
|
| 25.9 |
|
|
| 21.2 |
|
|
| 29.1 |
|
Research and development |
|
| 10.5 |
|
|
| 13.6 |
|
|
| 11.9 |
|
|
| 17.3 |
|
Total operating expenses |
|
| 29.9 |
|
|
| 39.5 |
|
|
| 33.1 |
|
|
| 46.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
| 23.5 |
|
|
| 7.5 |
|
|
| 15.5 |
|
|
| (1.8 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income (expense), net |
|
| 1.8 |
|
|
| -- |
|
|
| 1.5 |
|
|
| (0.1 | ) |
Gain from forgiveness of PPP loan |
|
| -- |
|
|
| -- |
|
|
| -- |
|
|
| 11.1 |
|
Other (expense) income, net |
|
| -- |
|
|
| 0.3 |
|
|
| 0.1 |
|
|
| 0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
| 25.3 |
|
|
| 7.8 |
|
|
| 17.1 |
|
|
| 9.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
| (0.2 | ) |
|
| (0.3 | ) |
|
| (0.2 | ) |
|
| (0.3 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
| 25.1 | % |
|
| 7.5 | % |
|
| 16.9 | % |
|
| 9.3 | % |
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| Table of Contents |
THREE MONTHS ENDED NOVEMBER 30, 2022 COMPARED TO THREE MONTHS ENDED NOVEMBER 30, 2021
NET SALES. Net sales increased to $14.8 million for the three months ended November 30, 2022 from $9.6 million for the three months ended November 30, 2021, an increase of 54.1%. The increase in net sales for the three months ended November 30, 2022 was primarily due to the increases in net sales of our wafer-level products. Net sales of our wafer-level products for the three months ended November 30, 2022 were $14.4 million, and increased approximately $5.3 million from the three months ended November 30, 2021 due to stronger demand related to silicon carbide applications.
GROSS PROFIT. Gross profit increased to $7.9 million for the three months ended November 30, 2022 from $4.5 million for the three months ended November 30, 2021, an increase of 75.1%. Gross profit margin increased to 53.4% for the three months ended November 30, 2022 from 47.0% for the three months ended November 30, 2021. The increase in gross profit margin of 6.4% was primarily due to manufacturing efficiencies from the increase in net sales resulting in a 2.4% gross profit margin increase, a decreased warranty provision resulting in a 1.7% gross profit margin increase, and a decrease in freight costs resulting in a 1.7% gross profit margin increase.
SELLING, GENERAL AND ADMINISTRATIVE. SG&A expenses increased to $2.9 million for the three months ended November 30, 2022 from $2.5 million for the three months ended November 30, 2021, an increase of 15.5%. The increase in SG&A expenses was primarily the result of increases in headcount, bonuses, stock compensation and sales commissions.
RESEARCH AND DEVELOPMENT. R&D expenses increased to $1.6 million for the three months ended November 30, 2022 from $1.3 million for the three months ended November 30, 2021, an increase of 18.1%. The increase in R&D expenses was primarily due to increases in employment-related expenses and outside services.
INTEREST INCOME (EXPENSE), NET. Interest income, net was $263,000 for the three months ended November 30, 2022, compared with interest expense, net of $1,000 for the three months ended November 30, 2021. The interest income for the three months ended November 30, 2022 was due to interest earned on U.S. treasury and government securities.
OTHER (EXPENSE) INCOME, NET. Other expense, net was $5,000 for the three months ended November 30, 2022, compared with other income, net of $35,000 for the three months ended November 30, 2021. The changes were primarily due to fluctuations in the value of the dollar compared to foreign currencies during the referenced periods.
INCOME TAX EXPENSE. Income tax expense was $18,000 and $34,000 for the three months ended November 30, 2022 and 2021, respectively. Income tax expense was not significant due to available net operating loss and research and development credit carryforwards.
SIX MONTHS ENDED NOVEMBER 30, 2022 COMPARED TO SIX MONTHS ENDED NOVEMBER 30, 2021
NET SALES. Net sales increased to $25.5 million for the six months ended November 30, 2022 from $15.3 million for the six months ended November 30, 2021, an increase of 67.0%. The increase in net sales for the six months ended November 30, 2022 was primarily due to the increases in net sales of our wafer-level products. Net sales of our wafer-level products for the six months ended November 30, 2022 were $24.7 million, and increased approximately $10.5 million from the six months ended November 30, 2021 due to stronger demand related to silicon carbide applications.
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| Table of Contents |
GROSS PROFIT. Gross profit increased to $12.4 million for the six months ended November 30, 2022 from $6.8 million for the six months ended November 30, 2021, an increase of 82.2%. Gross profit margin increased to 48.6% for the six months ended November 30, 2022 from 44.6% for the six months ended November 30, 2021. The increase in gross profit margin was primarily the result of manufacturing efficiencies due to an increase in net sales.
SELLING, GENERAL AND ADMINISTRATIVE. SG&A expenses increased to $5.4 million for the six months ended November 30, 2022 from $4.4 million for the six months ended November 30, 2021, an increase of 21.6%. The increase in SG&A expenses was primarily the result of increases in headcount, bonuses, stock compensation, and sales commissions.
RESEARCH AND DEVELOPMENT. R&D expenses increased to $3.0 million for the six months ended November 30, 2022 from $2.6 million for the six months ended November 30, 2021, an increase of 15.8%. The increase in R&D expenses was primarily due to increases in employment-related expenses and project expenses, partially offset by a decrease in outside services.
INTEREST INCOME (EXPENSE), NET. Interest income, net was $384,000 for the six months ended November 30, 2022, compared with interest expense, net of $10,000 for the six months ended November 30, 2021. The interest income for the six months ended November 30, 2022 was primarily due to interest earned on U.S. treasury and government securities. The interest expense for the six months ended November 30, 2021 was from the PPP Loan that we obtained on April 23, 2020.
GAIN FROM FORGIVENESS OF PPP LOAN. 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. As a result, we recognized a gain of $1,698,000.
OTHER (EXPENSE) INCOME, NET. Other income, net was $19,000 and $58,000 for the six months ended November 30, 2022 and 2021, respectively. The changes were primarily due to gains realized in connection with the fluctuation in the value of the dollar compared to foreign currencies during the referenced periods.
INCOME TAX EXPENSE. Income tax expense was $32,000 and $57,000 for the six months ended November 30, 2022 and 2021, respectively. Income tax expense was not significant due to available net operating loss and research and development credit carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $5.3 million and $5.2 million for the six months ended November 30, 2022 and 2021, respectively. For the six months ended November 30, 2022, net cash provided by operating activities was primarily the result of net income of $4.3 million, a non-cash charge of stock-based compensation expense of $1.5 million and depreciation and amortization of $191,000. Other changes in cash from operations primarily resulted from a decrease in trade and other accounts receivable of $2.6 million, and an increase in customer deposits and deferred revenue of $1.2 million, partially offset by increases of $3.1 million and $196,000 in inventories, and prepaid expenses and other assets, respectively, and decreases of $1.0 million and $210,000 in accrued expenses and accounts payable, respectively. The decrease in accounts receivable was primarily due to the down payments from certain customers. The increase in customer deposits and deferred revenue was primarily due to the receipt of additional down payments from certain customers. The increase in inventory was due to purchasing to support expected future shipments for customer orders. The increase in prepaid expenses and other assets was primarily due to down payments to certain vendors and the renewal of insurance. The decrease in accrued expenses was primarily due to the payments of employees’ bonus and sales commissions. The decrease in accounts payable was primarily due to down payments applied toward vendor invoices. For the six months ended November 30, 2021, net cash provided by operating activities was primarily the result of net income of $1.4 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 $1.3 million and depreciation and amortization of $149,000. Other changes in cash from operations primarily resulted from an increase in customer deposits and deferred revenue of $9.9 million, partially offset by increases in inventories of $4.2 million and accounts receivable of $2.3 million. The increase in customer deposits and deferred revenue was primarily due to the receipt of additional down payments from certain customers. The increase in inventory was to support expected future shipments for customer orders. The increase in accounts receivable was primarily due to an increase in sales for the six months ended November 30, 2021.
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| Table of Contents |
Net cash used in investing activities was $17.8 million and $132,000 for the six months ended November 30, 2022 and 2021, respectively. During the six months ended November 30, 2022, net cash used in investing activities was due to the purchases of U.S. treasury securities of $17.7 million, and the purchases of property and equipment of $99,000. During the six months ended November 30, 2021, net cash used in investing activities was due to purchases of property and equipment.
Net cash used in financing activities was $104,000 for the six months ended November 30, 2022, compared with net cash provided by financing activities of $25.4 million for the six months ended November 30, 2021. Net cash used in financing activities during the six months ended November 30, 2022 was primarily due to the proceeds from issuance of common stock under employee plans of $1.1 million, offset by the shares repurchased for tax withholdings on vesting of RSUs of $1.2 million. Net cash provided by financing activities during the six months ended November 30, 2021 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 $3.0 million, partially offset by the shares repurchased for tax withholdings on vesting of RSUs of $259,000 and the net repayment of the line of credit of $1.4 million.
The effect of fluctuation in exchange rates decreased cash by $21,000 and $4,000 for the six months ended November 30, 2022 and 2021, respectively. The changes were due to the fluctuation in the value of the dollar compared to foreign currencies.
As of November 30, 2022 and May 31, 2022, we had working capital of $54.8 million and $49.0 million, respectively.
We lease our manufacturing and office space under operating leases. We entered into a non-cancelable operating lease agreement for our United States manufacturing and office facilities, which was renewed in December 2022 and expires in September 2030, see Note “18. SUBSEQUENT EVENTS.” As of November 30, 2022, our operating lease liabilities totaled $616,000. Under the lease agreement, we are responsible for payments of utilities, taxes and insurance.
From time to time, we evaluate potential acquisitions of businesses, products or technologies that complement our business. If consummated, any such transactions may use a portion of our working capital or require the issuance of equity. We have no present understandings, commitments or agreements with respect to any material acquisitions.
We anticipate that the existing cash balance 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. Our future capital requirements will depend on many factors, including our growth rate, the timing and extent of our spending to support research and development activities, the timing and cost of establishing additional sales and marketing capabilities, the timing and cost to introduce new and enhanced products and the timing and cost to implement new manufacturing technologies. 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. Any additional debt financing obtained by us in the future could also involve restrictive covenants relating to our capital-raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. Additionally, if we raise additional funds through further issuances of equity, convertible debt securities or other securities convertible into equity, our existing stockholders could suffer significant dilution in their percentage ownership of the Company, and any new equity securities we issue could have rights, preferences and privileges senior to those of holders of our common stock. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to grow or support our business and to respond to business challenges could be significantly limited.
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OFF-BALANCE SHEET ARRANGEMENTS
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
There have been no material changes in the composition, magnitude or other key characteristics of our contractual obligations or other commitments as disclosed in the Company’s Annual Report on Form 10-K for the year ended May 31, 2022, except the renewal of facility lease agreement, see Note “18. SUBSEQUENT EVENTS.”
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
We had no holdings of derivative financial or commodity instruments as of November 30, 2022 or May 31, 2022.
We are exposed to financial market risks, including changes in interest rates and foreign currency exchange rates. We only invest our short-term excess cash in government-backed securities with maturities of 12 months or less. We do not use any financial instruments for speculative or trading purposes. Fluctuations in interest rates would not have a material effect on our financial position, results of operations or cash flows.
A majority of our revenue and capital spending is transacted in U.S. Dollars. We also enter into transactions in other currencies, primarily Euros, New Taiwan Dollar, and Philippine Peso. Since our subsidiaries’ financial statements are based in their local currency and our condensed consolidated financial statements are based in U.S. Dollars, our subsidiaries and we recognize foreign exchange gains or losses in any period in which the value of the local currency rises or falls in relation to the U.S. Dollar. A 10% decrease in the value of the subsidiaries’ local currency as compared with the U.S. Dollar would not be expected to result in a significant change to our net income or loss. There have been no material changes in our risk exposure since the end of the last fiscal year, nor are any material changes to our risk exposure anticipated.
Item 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. Our management evaluated, with the participation of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Securities and Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to management as appropriate to allow for timely decisions regarding required disclosure.
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CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING. There was no change in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
INHERENT LIMITATIONS OF INTERNAL CONTROLS. Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within us have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving our stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
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PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None.
Item 1A. RISK FACTORS
Please refer to the description of the risk factors associated with our business previously disclosed in Part I, Item 1A - “Risk Factors” of our Annual Report on Form 10-K for the year ended May 31, 2022 filed with the Securities and Exchange Commission on August 26, 2022.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. MINE SAFETY DISCLOSURES
Not Applicable.
Item 5. OTHER INFORMATION
None.
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Item 6. EXHIBITS
Exhibit No. |
| Description |
|
|
|
3.1(1) |
| Restated Articles of Incorporation of Registrant. |
|
|
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3.2(2) |
| Amended and Restated Bylaws of the Registrant. |
|
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|
10.1(3) |
| Fourth Amendment to Multi-Tenant Office Triple Net Lease, dated as of December 5, 2022, by and between Icon Owner Pool 1 SF Non-Business Parks, LLC and Aehr Test Systems. |
|
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| ||
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| ||
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| ||
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|
101.INS |
| XBRL Instance Document |
|
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|
101.SCH |
| XBRL Taxonomy Extension Schema Document |
|
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|
101.CAL |
| XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
101.DEF |
| XBRL Taxonomy Extension Definition Linkbase Document |
|
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|
101.LAB |
| XBRL Taxonomy Extension Label Linkbase Document |
|
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|
101.PRE |
| XBRL Taxonomy Extension Presentation Linkbase Document |
(1) Incorporated by reference to the same-numbered exhibit previously filed with the Company’s Registration Statement on Form S-1 filed June 11, 1997 (File No. 333-28987).
(2) Incorporated by reference to Exhibit 3.1 previously filed with the Company’s Current Report on Form 8-K filed September 9, 2020 (File No. 000-22893).
(3) Incorporated by reference to Exhibit 10.1 previously filed with the Company’s Form 8-K filed with the SEC on December 8, 2022 (File No. 000-22893).
*This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that Section, nor shall it be deemed incorporated by reference in any filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in any filings.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Aehr Test Systems |
| |
| (Registrant) |
| |
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|
|
Date: January 13, 2023 | By: | /s/ GAYN ERICKSON |
|
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| Gayn Erickson |
|
|
| President and Chief Executive Officer |
|
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| (Principal Executive Officer) |
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|
Date: January 13, 2023 | By: | /s/ KENNETH B. SPINK |
|
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| Kenneth B. Spink |
|
|
| Vice President of Finance and Chief Financial Officer |
|
|
| (Principal Financial and Accounting Officer) |
|
| 33 |
EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302(a) OF THE
SARBANES-OXLEY ACT
I, Gayn Erickson, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Aehr Test Systems; |
|
|
|
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
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| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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|
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: January 13, 2023 | /s/ GAYN ERICKSON | ||
|
|
| Gayn Erickson | |
| President and Chief Executive Officer | |||
| (Principal Executive Officer) |
EXHIBIT 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302(a) OF THE
SARBANES-OXLEY ACT
I, Kenneth B. Spink, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Aehr Test Systems; |
|
|
|
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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|
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: January 13, 2023 | /s/ KENNETH B. SPINK | ||
|
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| Kenneth B. Spink | |
| Vice President of Finance and Chief Financial Officer | |||
| (Principal Financial and Accounting Officer) |
EXHIBIT 32
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Gayn Erickson, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge, the Quarterly Report of Aehr Test Systems on Form 10-Q for the period ended November 30, 2022 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Aehr Test Systems.
| Date: January 13, 2023 | By: | /s/ GAYN ERICKSON | |
|
|
| Gayn Erickson | |
| President and Chief Executive Officer | |||
|
|
| (Principal Executive Officer) |
|
I, Kenneth B. Spink, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge, the Quarterly Report of Aehr Test Systems on Form 10-Q for the period ended November 30, 2022 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Aehr Test Systems.
| Date: January 13, 2023 | By: | /s/ KENNETH B. SPINK | |
|
|
| Kenneth B. Spink | |
| Vice President of Finance and | |||
| Chief Financial Officer | |||
|
|
| (Principal Financial and Accounting Officer) |
|
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares |
Nov. 30, 2022 |
May 31, 2022 |
|---|---|---|
| CONDENSED CONSOLIDATED BALANCE SHEETS | ||
| Common stock, par value | $ 0.01 | $ 0.01 |
| Common stock, shares authorized | 75,000,000 | 75,000,000 |
| Common stock, shares issued | 27,732,000 | 27,120,000 |
| Common stock, shares outstanding | 27,732,000 | 27,120,000 |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) - USD ($) shares in Thousands, $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Nov. 30, 2022 |
Nov. 30, 2021 |
Nov. 30, 2022 |
Nov. 30, 2021 |
|
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) | ||||
| Net sales | $ 14,815 | $ 9,611 | $ 25,486 | $ 15,257 |
| Cost of sales | 6,904 | 5,092 | 13,094 | 8,457 |
| Gross profit | 7,911 | 4,519 | 12,392 | 6,800 |
| Operating expenses: | ||||
| Selling, general and administrative | 2,875 | 2,489 | 5,400 | 4,442 |
| Research and development | 1,551 | 1,313 | 3,049 | 2,634 |
| Total operating expenses | 4,426 | 3,802 | 8,449 | 7,076 |
| Income (loss) from operations | 3,485 | 717 | 3,943 | (276) |
| Interest income (expense), net | 263 | (1) | 384 | (10) |
| Gain from forgiveness of PPP loan | 0 | 0 | 0 | 1,698 |
| Other (expense) income, net | (5) | 35 | 19 | 58 |
| Income before income tax expense | 3,743 | 751 | 4,346 | 1,470 |
| Income tax expense | (18) | (34) | (32) | (57) |
| Net income | $ 3,725 | $ 717 | $ 4,314 | $ 1,413 |
| Net income per share | ||||
| Basic | $ 0.14 | $ 0.03 | $ 0.16 | $ 0.06 |
| Diluted | $ 0.13 | $ 0.03 | $ 0.15 | $ 0.05 |
| Shares used in per share calculations: | ||||
| Basic | 27,579 | 26,205 | 27,410 | 25,102 |
| Diluted | 29,080 | 28,342 | 28,934 | 26,849 |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Nov. 30, 2022 |
Nov. 30, 2021 |
Nov. 30, 2022 |
Nov. 30, 2021 |
|
| CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited) | ||||
| Net income | $ 3,725 | $ 717 | $ 4,314 | $ 1,413 |
| Other comprehensive (loss) income, net of tax: | ||||
| Net change in unrealized loss on investments | (6) | 0 | (6) | 0 |
| Net change in cumulative translation adjustments | 1 | (44) | (44) | (80) |
| Comprehensive income | $ 3,720 | $ 673 | $ 4,264 | $ 1,333 |
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCCOUNTING POLICIES |
6 Months Ended |
|---|---|
Nov. 30, 2022 | |
| BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCCOUNTING POLICIES | |
| BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCCOUNTING POLICIES | 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCCOUNTING POLICIES
The accompanying financial information has been prepared by Aehr Test Systems, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) have been condensed or omitted pursuant to such rules and regulations.
In the opinion of management, the unaudited condensed consolidated financial statements for the interim periods presented have been prepared on a basis consistent with the May 31, 2022 audited consolidated financial statements and reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the condensed consolidated financial position and results of operations as of and for such periods indicated. These unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2022. Results for the interim periods presented herein are not necessarily indicative of results which may be reported for any other interim period or for the entire fiscal year.
PRINCIPLES OF CONSOLIDATION. The condensed consolidated financial statements include the accounts of Aehr Test Systems and its subsidiaries (collectively, the “Company”). All significant intercompany balances have been eliminated in consolidation.
ACCOUNTING ESTIMATES. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates are used to account for sales and revenue allowances, the allowance for doubtful accounts, inventory valuations, income taxes, stock-based compensation expenses, and product warranties, among others. The Company bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances. Actual results could differ materially from those estimates.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. The Company’s significant accounting policies are disclosed in the Company’s Annual Report on Form 10-K for the year ended May 31, 2022. There have been no significant changes in the Company’s significant accounting policies during the three and six months ended November 30, 2022. |
RECENT ACCOUNTING PRONOUNCEMENTS |
6 Months Ended |
|---|---|
Nov. 30, 2022 | |
| RECENT ACCOUNTING PRONOUNCEMENTS | |
| RECENT ACCOUNTING PRONOUNCEMENTS | 2. RECENT ACCOUNTING PRONOUNCEMENTS
Accounting Standards Not Yet Adopted
In June 2016, the Financial Accounting Standards Board issued Accounting Standard Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326), that requires measurement and recognition of expected credit losses for financial assets held based on historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. Due to a subsequent ASU in November 2019, the accounting standard will be effective for the Company beginning in the first quarter of fiscal 2024 on a modified retrospective basis, with early adoption in or after fiscal 2021 permitted. The Company does not expect a material impact of this accounting standard on its consolidated financial statements. |
REVENUE |
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| REVENUE | 3. REVENUE
Revenue recognition
The Company recognizes revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services by following a five-step process: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price, and (5) recognize revenue when or as the Company satisfies a performance obligation, as further described below.
Performance obligations include sales of systems, contactors, spare parts, and services, as well as installation and training services included in customer contracts.
A contract’s transaction price is allocated to each distinct performance obligation. In determining the transaction price, the Company evaluates whether the price is subject to refund or adjustment to determine the net consideration to which the Company expects to be entitled. The Company generally does not grant return privileges, except for defective products during the warranty period.
For contracts that contain multiple performance obligations, the Company allocates the transaction price to the performance obligations on a relative standalone selling price basis. Standalone selling prices are based on multiple factors including, but not limited to historical discounting trends for products and services and pricing practices in different geographies.
Revenue for systems and spares are recognized at a point in time, which is generally upon shipment or delivery. Revenue from services is recognized over time as services are completed or ratably over the contractual period of generally one year or less.
The Company has elected the practical expedient to not assess whether a contract has a significant financing component as the Company’s standard payment terms are less than one year.
The Company sells its products primarily through a direct sales force. In certain international markets, the Company sells its products through independent distributors.
Transfer of control is evidenced upon passage of title and risk of loss to the customer unless we are required to provide additional services.
Disaggregation of revenue
The following tables show revenues by major product categories. Within each product category, contract terms, conditions and economic factors affecting the nature, amount, timing and uncertainty around revenue recognition and cash flow are substantially similar.
The Company’s revenues by product category are as follows (in thousands):
The following presents information about the Company’s operations in different geographic areas. Net sales are based upon ship-to location (in thousands):
With the exception of the amount of service contracts and extended warranties, the Company’s product category revenues are recognized at the point in time when control transfers to customers. The following presents revenue based on timing of recognition (in thousands):
Contract balances
A receivable is recognized in the period the Company delivers goods or provides services or when the Company’s right to consideration is unconditional. The Company usually does not record contract assets because the Company has an unconditional right to payment upon satisfaction of the performance obligation, and therefore, a receivable is more commonly recorded than a contract asset.
Contract liabilities include payments received in advance of performance under a contract and are satisfied as the associated revenue is recognized. Contract liabilities are reported on the Condensed Consolidated Balance Sheets at the end of each reporting period as a component of deferred revenue. Contract liabilities as of November 30, 2022 and May 31, 2022 were $3,705,000 and $2,484,000, respectively. During the three and six months ended November 30, 2022, the Company recognized $44,000 and $2,115,000, respectively, of revenues that were included in contract liabilities as of May 31, 2022.
Remaining performance obligations
On November 30, 2022, the Company had $135,000 of remaining performance obligations, which were comprised of deferred service contracts and extended warranty contracts not yet delivered. The Company expects to recognize approximately 49% of its remaining performance obligations as revenue in the remainder of fiscal 2023, and an additional 51% in fiscal 2024 and thereafter. The foregoing excludes the value of other remaining performance obligations as they have original durations of one year or less, and also excludes information about variable consideration allocated entirely to a wholly unsatisfied performance obligation.
Costs to obtain or fulfill a contract
The Company generally expenses sales commissions when incurred as a component of selling, general and administrative expense as the amortization period is typically less than one year. Additionally, the majority of the Company’s cost of fulfillment as a manufacturer of products is classified as inventory and fixed assets, which are accounted for under the respective guidance for those asset types. Other costs of contract fulfillment are immaterial due to the nature of the Company’s products and their respective manufacturing process. |
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EARNINGS PER SHARE |
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| EARNINGS PER SHARE | 4. EARNINGS PER SHARE
Basic earnings per share is determined using the weighted average number of common shares outstanding during the period. Diluted earnings per share is determined using the weighted average number of common shares and potential common shares (representing the dilutive effect of stock options, restricted shares, restricted stock units (“RSUs”), Performance RSUs (“PRSUs”) and Amended and Restated 2006 Employee Stock Purchase Plan (“ESPP”) shares) outstanding during the period using the treasury stock method.
The following table presents the computation of basic and diluted net income per share (in thousands, except per share data):
For the purpose of computing diluted earnings per share, weighted average potential common shares do not include stock options with an exercise price greater than the average fair value of the Company’s common stock for the period, as the effect would be anti-dilutive. In the three and six months ended November 30, 2022, stock options to purchase 14,000 shares of common stock were outstanding, but were not included in the computation of diluted net income per share, because the inclusion of such shares would be anti-dilutive. In the three and six months ended November 30, 2021, stock options to purchase 5,000 shares of common stock were outstanding, but were not included in the computation of diluted net income per share, because the inclusion of such shares would be anti-dilutive. |
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CASH, CASH EQUIVALENTS AND INVESTMENTS |
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| CASH, CASH EQUIVALENTS AND INVESTMENTS | 5. CASH, CASH EQUIVALENTS AND INVESTMENTS
The following table summarizes the Company’s cash, cash equivalents and investments by security type at November 30, 2022 (in thousands):
Long-term investments are included in other assets on the accompanying condensed consolidated balance sheets.
Unrealized gains and temporary losses on investments classified as available-for-sale are included within accumulated other comprehensive loss, net of any related tax effect. Upon realization, those amounts are reclassified from accumulated other comprehensive loss to results of operations.
The unrealized loss of $6,000 as of November 30, 2022 is not considered other-than-temporary, and has been in an unrealized loss position for less than a year. |
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FAIR VALUE OF FINANCIAL INSTRUMENTS |
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| FAIR VALUE OF FINANCIAL INSTRUMENTS | 6. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company’s financial instruments are measured at fair value consistent with authoritative guidance. This authoritative guidance defines fair value, establishes a framework for using fair value to measure assets and liabilities, and disclosures required related to fair value measurements.
The guidance establishes a fair value hierarchy based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity’s pricing based upon their own market assumptions. The fair value hierarchy consists of the following three levels:
Level 1 - instrument valuations are obtained from real-time quotes for transactions in active exchange markets involving identical assets.
Level 2 - instrument valuations are obtained from readily-available pricing sources for comparable instruments.
Level 3 - instrument valuations are obtained without observable market values and require a high level of judgment to determine the fair value. The following table summarizes the Company’s financial assets measured at fair value on a recurring basis as of November 30, 2022 (in thousands):
The following table summarizes the Company’s financial assets measured at fair value on a recurring basis as of May 31, 2022 (in thousands):
Included in money market funds as of November 30, 2022 and May 31, 2022 is $80,000 restricted cash representing a security deposit for the Company’s United States manufacturing and office space lease which is included in other assets in the consolidated balance sheets.
There were no financial liabilities measured at fair value as of November 30, 2022 and May 31, 2022.
There were no transfers between Level 1 and Level 2 fair value measurements during the three months ended November 30, 2022.
The carrying amounts of financial instruments including cash equivalents, accounts receivable, accounts payable and certain other accrued liabilities, approximate fair value due to their short maturities. |
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TRADE AND OTHER ACCOUNTS RECEIVABLE, NET |
6 Months Ended |
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Nov. 30, 2022 | |
| TRADE AND OTHER ACCOUNTS RECEIVABLE, NET | |
| TRADE AND OTHER ACCOUNTS RECEIVABLE, NET | 7. TRADE AND OTHER ACCOUNTS RECEIVABLE, NET
Trade accounts receivable represents customer trade receivables. As of November 30, 2022 and May 31, 2022, there were no allowances for doubtful accounts. Trade accounts receivable is derived from the sale of products throughout the world to semiconductor manufacturers, semiconductor contract assemblers, electronics manufacturers and burn-in and test service companies. Other accounts receivable represents non-customer trade related receivables that are derived from the sale of raw materials to our subcontractors. The Company’s allowance for doubtful accounts is based upon historical experience and review of trade receivables by aging category to identify specific customers with known disputes or collection issues. Uncollectible receivables are recorded as bad debt expense when all efforts to collect have been exhausted and recoveries are recognized when they are received. |
INVENTORIES |
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| INVENTORIES | 8. INVENTORIES
Inventories are comprised of the following (in thousands):
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PRODUCT WARRANTIES |
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| PRODUCT WARRANTIES | 9. PRODUCT WARRANTIES
The Company provides for the estimated cost of product warranties at the time revenues are recognized on the products shipped. While the Company engages in extensive product quality programs and processes, including actively monitoring and evaluating the quality of its component suppliers, the Company’s warranty obligation is affected by product failure rates, material usage and service delivery costs incurred in correcting a product failure. Should actual product failure rates, material usage or service delivery costs differ from the Company’s estimates, revisions to the estimated warranty liability would be required.
The standard warranty period is one year for systems and ninety days for parts and service.
The following is a summary of changes in the Company’s liability for product warranties during the three and six months ended November 30, 2022 and 2021 (in thousands):
The accrued warranty balance is included in accrued expenses on the accompanying condensed consolidated balance sheets. |
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CUSTOMER DEPOSITS AND DEFERRED REVENUE SHORTTERM |
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| CUSTOMER DEPOSITS AND DEFERRED REVENUE, SHORT-TERM | 10. CUSTOMER DEPOSITS AND DEFERRED REVENUE, SHORT-TERM
Customer deposits and deferred revenue, short-term (in thousands):
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ACCUMULATED OTHER COMPREHENSIVE LOSS |
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| ACCUMULATED OTHER COMPREHENSIVE LOSS | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ACCUMULATED OTHER COMPREHENSIVE LOSS | 11. ACCUMULATED OTHER COMPREHENSIVE LOSS
Changes in the components of accumulated other comprehensive loss, net of tax, were as follows (in thousands):
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INCOME TAXES |
6 Months Ended |
|---|---|
Nov. 30, 2022 | |
| INCOME TAXES | |
| INCOME TAXES | 12. INCOME TAXES
The Company is subject to U.S federal and state and foreign income taxes as a corporation. The Company’s tax provision and the resulting effective tax rate for the interim period is determined based upon its estimated annual effective tax rate adjusted for the effect of discrete items arising in that quarter. The Company recorded a provision for income tax of $18,000 and $32,000 for the three and six months ended November 30, 2022 which consisted primarily of foreign withholding taxes and foreign income taxes. The Company recorded a provision for income tax of $34,000 and $57,000 for the three and six months ended November 30, 2021 which consisted primarily of foreign withholding taxes and foreign income taxes. The income tax provision was not significant due to available net operating loss and research and development credit carryforwards.
Income taxes have been provided using the liability method whereby deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and net operating loss and tax credit carryforwards measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse, or the carryforwards are utilized. Valuation allowances are established when it is determined that it is more likely than not that such assets will not be realized.
Since fiscal 2009, a full valuation allowance was established against all deferred tax assets, as management determined that it is more likely than not that certain deferred tax assets will not be realized.
The Company accounts for uncertain tax positions consistent with authoritative guidance. The guidance prescribes a “more likely than not” recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company does not expect any material change in its unrecognized tax benefits over the next twelve months. The Company recognizes interest and penalties related to unrecognized tax benefits as a component of income taxes. |
LEASES |
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| LEASES | 13. LEASES
The Company has only operating leases for real estate including corporate offices, warehouse space and certain equipment. A lease with an initial term of 12 months or less is generally not recorded on the condensed consolidated balance sheets, unless the arrangement includes an option to purchase the underlying asset, or renew the arrangement that the Company is reasonably certain to exercise (short-term leases). The Company recognizes lease expense on a straight-line basis over the lease term for short-term leases that the Company does not record on its balance sheets. The Company’s operating leases have remaining lease terms of 7 months to 3 years.
The Company determines whether an arrangement is or contains a lease based on the unique facts and circumstances present at the inception of the arrangement. Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected lease term. The interest rate implicit in lease contracts is typically not readily determinable. As such, the Company utilizes the appropriate incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term at an amount equal to the lease payments in a similar economic environment. Certain adjustments to the right-of-use assets may be required for items such as initial direct costs paid or incentives received.
The weighted average remaining lease term for the Company’s operating leases was 1.0 years at November 30, 2022 and the weighted-average discount rate was 5.38%.
The Company’s operating lease cost was $189,000 and $379,000 for the three and six months ended November 30, 2022, respectively. The Company’s operating lease cost was $192,000 and $385,000 for the three and six months ended November 30, 2021, respectively. The following table presents supplemental cash flow information related to the Company’s operating leases (in thousands):
The following table presents the maturities of the Company’s operating lease liabilities as of November 30, 2022 (in thousands):
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BORROWING AND FINANCING ARRANGEMENTS |
6 Months Ended |
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Nov. 30, 2022 | |
| BORROWING AND FINANCING ARRANGEMENTS | |
| BORROWING AND FINANCING ARRANGEMENTS: | 14. BORROWING AND FINANCING ARRANGEMENTS
On January 16, 2020, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Silicon Valley Bank (“SVB”). Pursuant to the Loan Agreement, the Company may borrow up to (a) the lesser of (i) the revolving line of $4.0 million or (ii) the amount available under the borrowing base minus (b) the outstanding principal balance of any advances, under a revolving line of credit which is collateralized by all the Company’s assets except intellectual property. The borrowing base is 80% of eligible accounts, as determined by SVB from the Company’s most recent borrowing base statement; provided, however, SVB has the right to decrease the foregoing percentage in its good faith business judgment to mitigate the impact of certain events or conditions, which may adversely affect the collateral or its value. Subject to an event of default, the principal amount outstanding under the revolving line of credit will accrue interest at a floating per annum rate equal to the greater of (a) the prime rate plus an additional percentage of up to 1%, which additional percentage depends on the Company’s adjusted quick ratio, and (b) 4.75%. Interest is payable monthly on the last calendar day of each month and the outstanding principal amount, the unpaid interest and all other obligations are due on the maturity date, which is 364 days from the effective date of January 13, 2020.
On January 14, 2021, the Company entered into the First Amendment to Loan and Security Agreement (the “Amendment”) with SVB. The Amendment, among other things, extended the Revolving Line Maturity Date to July 14, 2021; provided, however, that if the Company achieved specified operating metrics on a consolidated basis on or prior to May 31, 2021 the Amended Revolving Line Maturity Date would be extended to January 13, 2022.
On January 11, 2022, the Company entered into the Second Amendment to the Loan and Security Agreement (the “Second Amendment”) with SVB. The Second Amendment, among other things, (A) increased the available amount of the line up to the lesser of (i) $10 million or (ii) the available amount under the borrowing base, under a revolving line of credit, (B) allowed for borrowing up to $3 million of the available balance based upon eligible customer purchase orders, (C) reduced the interest rate for account advances under the line to the greater of (a) prime rate plus an additional percentage up to 1.0%, which additional percentage depends on the Company’s adjusted quick ratio, and (b) 3.25%, reduces the interest rate for purchase order advances under the line to the greater of (a) prime rate plus an additional percentage up to 1.5%, which additional percentage depends on the Company’s adjusted quick ratio, and (b) 3.75%, and (D) extended the maturity date to January 13, 2023. See note “18. SUBSEQUENT EVENTS” for the renewal of this Loan and Security Agreement.
At November 30, 2022, the Company had not drawn against the credit facility and was in compliance with all covenants related to obligations to meet reporting requirements. The balance available to borrow under the line at November 30, 2022 was $6,782,000. There are no financial covenants in the agreement. |
LONG-TERM DEBT |
6 Months Ended |
|---|---|
Nov. 30, 2022 | |
| LONG-TERM DEBT | |
| LONG-TERM DEBT | 15. LONG-TERM DEBT
On April 23, 2020, the Company obtained the Paycheck Protection Program Loan (the “PPP Loan”) in the aggregate amount of $1,679,000 from SVB. The PPP Loan was evidenced by a promissory note dated April 23, 2020 (the “Note”) that matured on April 23, 2022 and bore interest at a rate of 1% per annum, payable monthly commencing on November 23, 2020. The PPP Loan proceeds were used for payroll, health care benefits, rent and utilities.
Under the terms of the CARES Act, PPP loan recipients can apply for and be granted forgiveness for all or a portion of loans granted under the PPP. On June 12, 2021, the Company received confirmation from SVB that on June 4, 2021, the Small Business Administration approved the Company’s PPP Loan forgiveness application for the entire PPP Loan balance of $1,679,000 and interest totaling $19,000, and the Company recognized a gain on loan forgiveness of $1,698,000. |
STOCK-BASED COMPENSATION |
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| STOCK-BASED COMPENSATION | 16. STOCK-BASED COMPENSATION
Stock-based compensation expense consists of expenses for stock options, RSUs, PRSUs, restricted shares, performance restricted shares and ESPP purchase rights. Stock-based compensation expense for stock options and ESPP purchase rights is measured at each grant date, based on the fair value of the award using the Black-Scholes option valuation model, and is recognized as expense over the employee’s requisite service period. This model was developed for use in estimating the value of publicly traded options that have no vesting restrictions and are fully transferable. The Company’s employee stock options have characteristics significantly different from those of publicly traded options. For RSUs and restricted shares, stock-based compensation cost is based on the fair value of the Company’s common stock at the grant date. All of the Company’s stock-based compensation is accounted for as an equity instrument. See Note 11 in the Company’s Annual Report on Form 10-K for fiscal 2022 filed on August 26, 2022 for further information regarding the 2016 Equity Incentive Plan (the “2016 Plan”) and the ESPP.
The following table summarizes the stock-based compensation expense for the three and six months ended November 30, 2022 and 2021 (in thousands):
As of November 30, 2022, there were $101,000 stock-based compensation expenses capitalized as part of inventory. As of November 30, 2021, there were no stock-based compensation expenses capitalized as part of inventory. During the three months ended November 30, 2022 and 2021, the Company recorded stock-based compensation expense related to stock options, RSUs and restricted shares of $577,000 and $416,000, respectively. During the six months ended November 30, 2022 and 2021, the Company recorded stock-based compensation expense related to stock options, RSUs and restricted shares of $1,112,000 and $900,000, respectively.
As of November 30, 2022, the total compensation expense related to unvested stock-based awards under the 2016 Plan, but not yet recognized, was approximately $3,999,000, which is net of estimated forfeitures of $10,000. This expense will be amortized on a straight-line basis over a weighted average period of approximately 2.2 years.
During the three months ended November 30, 2022 and 2021, the Company recorded stock-based compensation expense related to the ESPP of $216,000 and $302,000, respectively. During the six months ended November 30, 2022 and 2021, the Company recorded stock-based compensation expense related to the ESPP of $391,000 and $406,000, respectively.
As of November 30, 2022, the total compensation expense related to purchase rights under the ESPP but not yet recognized was approximately $527,000. This expense will be amortized on a straight-line basis over a weighted average period of approximately 1.0 year.
Valuation Assumptions
Valuation and Amortization Method. The Company estimates the fair value of stock options granted using the Black-Scholes option valuation model and a single option award approach. The fair value under the single option approach is amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period.
Expected Term. The Company’s expected term represents the period that the Company’s stock-based awards are expected to be outstanding and was determined based on historical experience, giving consideration to the contractual terms of the stock-based awards, vesting schedules and expectations of future employee behavior as evidenced by changes to the terms of its stock-based awards.
Volatility. Volatility is a measure of the amounts by which a financial variable such as stock price has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period. The Company uses the historical volatility, which matches the expected term of most of the option grants, to estimate expected volatility. Volatility for each of the ESPP’s four time periods of six months, twelve months, eighteen months, and twenty-four months is calculated separately and included in the overall stock-based compensation expense recorded.
Risk-Free Interest Rate. The Company bases the risk-free interest rate used in the Black-Scholes option valuation model on the implied yield in effect at the time of option grant on U.S. Treasury zero-coupon issues with a remaining term equivalent to the expected term of the stock awards including the ESPP. Fair Value. The fair value of the Company’s stock options granted to employees for the three and six months ended November 30, 2022 and 2021 were estimated using the following weighted average assumptions in the Black-Scholes option valuation model:
The fair values of the ESPP purchase rights granted for the three and six months ended November 30, 2022 and 2021 were estimated using the following assumptions:
During the three and six months ended November 30, 2022, ESPP purchase rights of 43,000 were granted. During the three and six months ended November 30, 2021, ESPP purchase rights of 103,000 were granted. Total ESPP shares issued during the three and six months ended November 30, 2022 and 2021 were 109,000 and 75,000 shares, respectively. As of November 30, 2022 and 2021, there were 499,000 and 361,000 ESPP shares available for issuance, respectively.
The following tables summarize the Company’s stock option and RSU transactions during the three and six months ended November 30, 2022 (in thousands):
The following table summarizes the stock option transactions during the three and six months ended November 30, 2022 (in thousands, except per share data):
The options outstanding and exercisable at November 30, 2022 were in the following exercise price ranges (in thousands, except per share data):
The total intrinsic value of options exercised during the three and six months ended November 30, 2022 was $2,592,000 and $3,356,000, respectively. The total intrinsic value of options exercised during the three and six months ended November 30, 2021 was $9,133,000 and $11,035,000, respectively. The weighted average remaining contractual life of the options exercisable and expected to be exercisable at November 30, 2022 was 4.02 years. The weighted average remaining contractual life of the options exercisable and expected to be exercisable at November 30, 2021 was 4.22 years.
The following table summarizes RSUs, PRSUs, restricted shares and performance restricted shares granted to employees and members of the Company’s Board of Directors during the three and six months ended November 30, 2022 and 2021:
PRSUs were granted to key officers and members of Board of Directors based upon revenue target thresholds for fiscal 2023 and 2022.
The following table summarizes the RSUs and PRSUs vested and unvested during the three and six months ended November 30, 2022 and 2021:
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SEGMENT AND CONCENTRATION INFORMATION |
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| SEGMENT AND CONCENTRATION INFORMATION | 17. SEGMENT AND CONCENTRATION INFORMATION
The Company has only one reportable segment. The information for revenue category by type, product line, geography and timing of revenue recognition, is summarized in Note “3. REVENUE.”
Property and equipment information is based on the physical location of the assets. The following table presents property and equipment information for geographic areas (in thousands):
As of November 30, 2022, the operating lease right-of-use assets of $479,000 and $82,000 are allocated in the United States and Asia, respectively.
There were no revenues through distributors for the three and six months ended November 30, 2022 and 2021.
Sales to the Company’s five largest customers accounted for approximately 98% of its net sales for both the three and six months ended November 30, 2022. Two customers accounted for approximately 79% and 15% of the Company’s net sales in the three months ended November 30, 2022. Two customers accounted for approximately 74% and 18% of the Company’s net sales in the six months ended November 30, 2022. Sales to the Company’s five largest customers accounted for approximately 98% and 96% of its net sales in the three and six months ended November 30, 2021, respectively. One customer accounted for approximately 82% of the Company’s net sales in the three months ended November 30, 2021. One customer accounted for approximately 77% of the Company’s net sales in the six months ended November 30, 2021. No other customers represented more than 10% of the Company’s net sales in the three and six months ended November 30, 2022 and 2021. |
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SUBSEQUENT EVENTS |
6 Months Ended |
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Nov. 30, 2022 | |
| SUBSEQUENT EVENTS | |
| SUBSEQUENT EVENTS | 18. SUBSEQUENT EVENTS
On December 5, 2022, the Company entered into a Fourth Amendment to the lease agreement for the Company’s United States manufacturing and office facilities. The amendment extends the term of the lease for a period of eighty-six (86) calendar months, commencing on August 1, 2023 and expiring on September 30, 2030 (the “Expiration Date”) with an option for the Company to further extend the lease for one additional period of five (5) years after the Expiration Date. The amendment increases monthly base rent from $66,385 to $88,474 effective August 1, 2023, and an annual increase in monthly base rent of 4 percent throughout the remainder of the lease term. The amendment provides for two months of rent abatement, and an improvement allowance of up to $282,090.
On January 10, 2023, the Company entered into the Third Amendment to the Loan and Security Agreement (the “Third Amendment”) with SVB. The Third Amendment, among other things, extends the Revolving Line Maturity Date to January 13, 2024, provided, however, that (i) if the Company submits a fiscal year 2024 plan of record to that is generally acceptable to SVB, and (ii) the minimum net cash at the end of November 30, 2023 is at least $20.0 million, the Amended Revolving Line Maturity Date would be extended to January 13, 2025. |
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCCOUNTING POLICIES (Policies) |
6 Months Ended |
|---|---|
Nov. 30, 2022 | |
| BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCCOUNTING POLICIES | |
| BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCCOUNTING POLICIES | The accompanying financial information has been prepared by Aehr Test Systems, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) have been condensed or omitted pursuant to such rules and regulations.
In the opinion of management, the unaudited condensed consolidated financial statements for the interim periods presented have been prepared on a basis consistent with the May 31, 2022 audited consolidated financial statements and reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the condensed consolidated financial position and results of operations as of and for such periods indicated. These unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2022. Results for the interim periods presented herein are not necessarily indicative of results which may be reported for any other interim period or for the entire fiscal year. |
| PRINCIPLES OF CONSOLIDATION | PRINCIPLES OF CONSOLIDATION. The condensed consolidated financial statements include the accounts of Aehr Test Systems and its subsidiaries (collectively, the “Company”). All significant intercompany balances have been eliminated in consolidation. |
| ACCOUNTING ESTIMATES | ACCOUNTING ESTIMATES. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates are used to account for sales and revenue allowances, the allowance for doubtful accounts, inventory valuations, income taxes, stock-based compensation expenses, and product warranties, among others. The Company bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances. Actual results could differ materially from those estimates. |
| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. The Company’s significant accounting policies are disclosed in the Company’s Annual Report on Form 10-K for the year ended May 31, 2022. There have been no significant changes in the Company’s significant accounting policies during the three and six months ended November 30, 2022. |
RECENT ACCOUNTING PRONOUNCEMENTS (Policies) |
6 Months Ended |
|---|---|
Nov. 30, 2022 | |
| RECENT ACCOUNTING PRONOUNCEMENTS | |
| RECENT ACCOUNTING PRONOUNCEMENTS | Accounting Standards Not Yet Adopted
In June 2016, the Financial Accounting Standards Board issued Accounting Standard Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326), that requires measurement and recognition of expected credit losses for financial assets held based on historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. Due to a subsequent ASU in November 2019, the accounting standard will be effective for the Company beginning in the first quarter of fiscal 2024 on a modified retrospective basis, with early adoption in or after fiscal 2021 permitted. The Company does not expect a material impact of this accounting standard on its consolidated financial statements. |
REVENUE (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Nov. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| REVENUE | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Disaggregation of revenue | The Company’s revenues by product category are as follows (in thousands):
The following presents information about the Company’s operations in different geographic areas. Net sales are based upon ship-to location (in thousands):
With the exception of the amount of service contracts and extended warranties, the Company’s product category revenues are recognized at the point in time when control transfers to customers. The following presents revenue based on timing of recognition (in thousands):
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EARNINGS PER SHARE (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Nov. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| EARNINGS PER SHARE | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings per share | The following table presents the computation of basic and diluted net income per share (in thousands, except per share data):
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CASH, CASH EQUIVALENTS AND INVESTMENTS (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Nov. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CASH, CASH EQUIVALENTS AND INVESTMENTS | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cash, cash equivalents and investments by security type | The following table summarizes the Company’s cash, cash equivalents and investments by security type at November 30, 2022 (in thousands):
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FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Nov. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| FAIR VALUE OF FINANCIAL INSTRUMENTS | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair value by hierarchy | The following table summarizes the Company’s financial assets measured at fair value on a recurring basis as of November 30, 2022 (in thousands):
The following table summarizes the Company’s financial assets measured at fair value on a recurring basis as of May 31, 2022 (in thousands):
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INVENTORIES (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Nov. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| INVENTORIES | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of inventories | Inventories are comprised of the following (in thousands):
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PRODUCT WARRANTIES (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Nov. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| PRODUCT WARRANTIES | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Liability for product warranties | The following is a summary of changes in the Company’s liability for product warranties during the three and six months ended November 30, 2022 and 2021 (in thousands):
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CUSTOMER DEPOSITS AND DEFERRED REVENUE SHORTTERM (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Nov. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CUSTOMER DEPOSITS AND DEFERRED REVENUE SHORTTERM (Tables) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Customer deposits and deferred revenue | Customer deposits and deferred revenue, short-term (in thousands):
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ACCUMULATED OTHER COMPREHENSIVE LOSS (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Nov. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ACCUMULATED OTHER COMPREHENSIVE LOSS | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Changes in the components of accumulated other comprehensive loss, net of tax | Changes in the components of accumulated other comprehensive loss, net of tax, were as follows (in thousands):
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LEASES (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
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Nov. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||
| LEASES | ||||||||||||||||||||||||||||||||||||||||||||||
| Supplemental cash flow information related to leases | The following table presents supplemental cash flow information related to the Company’s operating leases (in thousands):
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| Maturity of operating lease liabilities | The following table presents the maturities of the Company’s operating lease liabilities as of November 30, 2022 (in thousands):
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STOCK-BASED COMPENSATION (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Nov. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| STOCK-BASED COMPENSATION | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Compensation costs related to the Company's stock-based compensation | The following table summarizes the stock-based compensation expense for the three and six months ended November 30, 2022 and 2021 (in thousands):
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| Fair value assumptions for Option Valuation Model | Fair Value. The fair value of the Company’s stock options granted to employees for the three and six months ended November 30, 2022 and 2021 were estimated using the following weighted average assumptions in the Black-Scholes option valuation model:
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| Fair value assumptions of the ESPP purchase rights | The fair values of the ESPP purchase rights granted for the three and six months ended November 30, 2022 and 2021 were estimated using the following assumptions:
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| Stock option and RSU transactions | The following tables summarize the Company’s stock option and RSU transactions during the three and six months ended November 30, 2022 (in thousands):
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| Stock option transactions | The following table summarizes the stock option transactions during the three and six months ended November 30, 2022 (in thousands, except per share data):
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| Options outstanding | The options outstanding and exercisable at November 30, 2022 were in the following exercise price ranges (in thousands, except per share data):
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| RSUs, PRSUs, restricted shares and performance restricted shares granted | The following table summarizes RSUs, PRSUs, restricted shares and performance restricted shares granted to employees and members of the Company’s Board of Directors during the three and six months ended November 30, 2022 and 2021:
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| RSUs and PRSUs vested and unvested during period | The following table summarizes the RSUs and PRSUs vested and unvested during the three and six months ended November 30, 2022 and 2021:
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SEGMENT INFORMATION (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Nov. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SEGMENT INFORMATION (Tables) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property and equipment by geographic region | Property and equipment information is based on the physical location of the assets. The following table presents property and equipment information for geographic areas (in thousands):
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REVENUE (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Nov. 30, 2022 |
Nov. 30, 2021 |
Nov. 30, 2022 |
Nov. 30, 2021 |
|
| Net Sales | $ 14,815 | $ 9,611 | $ 25,486 | $ 15,257 |
| Contactors | ||||
| Net Sales | 6,607 | 5,090 | 7,101 | 6,042 |
| Services | ||||
| Net Sales | 808 | 767 | 1,891 | 1,582 |
| Wafer-Level | ||||
| Net Sales | 14,401 | 9,107 | 24,723 | 14,250 |
| Test During Burn-In | ||||
| Net Sales | 414 | 504 | 763 | 1,007 |
| Systems | ||||
| Net Sales | $ 7,400 | $ 3,754 | $ 16,494 | $ 7,633 |
REVENUE (Details 1) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Nov. 30, 2022 |
Nov. 30, 2021 |
Nov. 30, 2022 |
Nov. 30, 2021 |
|
| Net sales | $ 14,815,000 | $ 9,611,000 | $ 25,486,000 | $ 15,257,000 |
| Asia | ||||
| Net sales | 12,216,000 | 8,716,000 | 20,024,000 | 13,853,000 |
| United States | ||||
| Net sales | 2,555,000 | 895,000 | 5,418,000 | 1,401,000 |
| Europe | ||||
| Net sales | $ 44,000 | $ 0 | $ 44,000 | $ 3,000 |
REVENUE (Details 2) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Nov. 30, 2022 |
Nov. 30, 2021 |
Nov. 30, 2022 |
Nov. 30, 2021 |
|
| Net sales | $ 14,815 | $ 9,611 | $ 25,486 | $ 15,257 |
| Products and Services Transferred at a Point in Time | ||||
| Net sales | 14,427 | 9,270 | 24,681 | 14,560 |
| Services Transferred over Time | ||||
| Net sales | $ 388 | $ 341 | $ 805 | $ 697 |
REVENUE (Details Narrative) - USD ($) |
3 Months Ended | 6 Months Ended | |||
|---|---|---|---|---|---|
Nov. 30, 2022 |
Nov. 30, 2022 |
May 31, 2024 |
May 31, 2023 |
May 31, 2022 |
|
| Contract liabilities | $ 3,705,000 | $ 3,705,000 | $ 2,484,000 | ||
| Recognition of contract liabilities | 44,000 | 2,115,000 | |||
| Remaining performance obligations | $ 135,000 | $ 135,000 | |||
| Scenario Forecast [Member] | |||||
| Remaining performance obligation revenue recognition | 51.00% | 49.00% |
EARNINGS PER SHARE (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Nov. 30, 2022 |
Nov. 30, 2021 |
Nov. 30, 2022 |
Nov. 30, 2021 |
|
| EARNINGS PER SHARE | ||||
| Net income | $ 3,725 | $ 717 | $ 4,314 | $ 1,413 |
| Denominator for basic net income per share: weighted average shares outstanding | 27,579 | 26,205 | 27,410 | 25,102 |
| Shares used in basic net income per share calculation | 27,579 | 26,205 | 27,410 | 25,102 |
| Effect of dilutive securities | 1,501 | 2,137 | 1,524 | 1,747 |
| Denominator for diluted net income per share | 29,080 | 28,342 | 28,934 | 26,849 |
| Basic net income per share | $ 0.14 | $ 0.03 | $ 0.16 | $ 0.06 |
| Diluted net income per share | $ 0.13 | $ 0.03 | $ 0.15 | $ 0.05 |
EARNINGS PER SHARE (Details Narrative) - shares |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Nov. 30, 2022 |
Nov. 30, 2021 |
Nov. 30, 2022 |
Nov. 30, 2021 |
|
| Stock Option | ||||
| Options not included in the computation of diluted net income per share | 14,000 | 5,000 | 14,000 | 5,000 |
CASH, CASH EQUIVALENTS AND INVESTMENTS (Details Narrative) |
Nov. 30, 2022
USD ($)
|
|---|---|
| Gross Unrealized Loss | |
| Unrealized loss | $ 6,000 |
FAIR VALUE OF FINANCIAL INSTRUMENTS (Details) - USD ($) $ in Thousands |
Nov. 30, 2022 |
May 31, 2022 |
|---|---|---|
| Money Market Funds [Member] | ||
| Investment securities | $ 11,308 | $ 28,609 |
| U.S. treasury securities [Member] | ||
| Investment securities | 21,683 | |
| Assets [Member] | ||
| Investment securities | 32,991 | 28,609 |
| Level 1 | U.S. treasury securities [Member] | ||
| Investment securities | 21,683 | |
| Level 1 | Money Market Funds [Member] | ||
| Investment securities | 11,308 | 28,609 |
| Level 1 | Assets [Member] | ||
| Investment securities | 32,991 | 28,609 |
| Level 2 | U.S. treasury securities [Member] | ||
| Investment securities | 0 | |
| Level 2 | Money Market Funds [Member] | ||
| Investment securities | 0 | 0 |
| Level 2 | Assets [Member] | ||
| Investment securities | 0 | 0 |
| Level 3 | U.S. treasury securities [Member] | ||
| Investment securities | 0 | |
| Level 3 | Money Market Funds [Member] | ||
| Investment securities | 0 | 0 |
| Level 3 | Assets [Member] | ||
| Investment securities | $ 0 | $ 0 |
FAIR VALUE OF FINANCIAL INSTRUMENTS (Details Narrative) - USD ($) |
Nov. 30, 2022 |
May 31, 2022 |
|---|---|---|
| FAIR VALUE OF FINANCIAL INSTRUMENTS | ||
| Transfer between Level 1 and Level 2 fair value measurements | $ 0 | $ 0 |
| Restricted cash | 80,000 | 80,000 |
| Financial liabilities at fair value | $ 0 | $ 0 |
INVENTORIES (Details) - USD ($) $ in Thousands |
Nov. 30, 2022 |
May 31, 2022 |
|---|---|---|
| INVENTORIES (Details) | ||
| Raw materials and sub-assemblies | $ 11,963 | $ 9,507 |
| Work in process | 5,826 | 5,461 |
| Finished goods | 183 | 83 |
| Inventories | $ 17,972 | $ 15,051 |
PRODUCT WARRANTIES (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Nov. 30, 2022 |
Nov. 30, 2021 |
Nov. 30, 2022 |
Nov. 30, 2021 |
|
| PRODUCT WARRANTIES (Details) | ||||
| Balance at the beginning of the year | $ 424 | $ 505 | $ 410 | $ 494 |
| Accruals for warranties issued during the period | 5 | 95 | 123 | 257 |
| Adjustments to previously existing warranty accruals | 0 | 72 | 61 | 72 |
| Consumption of reserves | (118) | (257) | (283) | (408) |
| Balance at the End of the year | $ 311 | $ 415 | $ 311 | $ 415 |
CUSTOMER DEPOSITS AND DEFERRED REVENUE SHORTTERM (Details) - USD ($) $ in Thousands |
Nov. 30, 2022 |
May 31, 2022 |
|---|---|---|
| CUSTOMER DEPOSITS AND DEFERRED REVENUE SHORTTERM (Details) | ||
| Total | $ 3,680 | $ 2,415 |
| Customer deposits | 3,561 | 2,263 |
| Deferred revenue | $ 119 | $ 152 |
INCOME TAXES (Details Narrative) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Nov. 30, 2022 |
Nov. 30, 2021 |
Nov. 30, 2022 |
Nov. 30, 2021 |
|
| INCOME TAXES | ||||
| Provision For Income Tax | $ 18,000 | $ 34,000 | $ 32,000 | $ 57,000 |
LEASES (Details) - USD ($) $ in Thousands |
6 Months Ended | |
|---|---|---|
Nov. 30, 2022 |
Nov. 30, 2021 |
|
| Cash paid for amounts included in measurement of operating lease liabilities: | ||
| Operating cash flows for operating leases | $ 415 | $ 408 |
LEASES (Details 1) $ in Thousands |
Nov. 30, 2022
USD ($)
|
|---|---|
| LEASES (Details 1) | |
| Total future minimum operating lease payments | $ 634 |
| Less: imputed interest | (18) |
| Present value of operating lease liabilities | 616 |
| 2023 (excluding the first three months of 2023) | 416 |
| 2024 | 168 |
| 2025 | 32 |
| 2026 | $ 18 |
LEASES (Details Narrative) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Nov. 30, 2022 |
Nov. 30, 2021 |
Nov. 30, 2022 |
Nov. 30, 2021 |
|
| Operating lease, weighted-average discount rate | 5.38% | 5.38% | ||
| Operating lease, weighted-average remaining lease term | 1 year | 1 year | ||
| Operating lease, cost | $ 189,000 | $ 192,000 | $ 379,000 | $ 385,000 |
| Minimum [Member] | ||||
| Operating lease term | 7 years | 7 years | ||
| Maximum [Member] | ||||
| Operating lease term | 3 years | 3 years | ||
BORROWING AND FINANCING ARRANGEMENTS (Details Narrative) |
6 Months Ended |
|---|---|
|
Nov. 30, 2022
USD ($)
| |
| Original Loan and Security Agreement | |
| Line of Credit, maximum borrowing | $ 4,000,000.0 |
| Variable interest rate | the greater of (a) the prime rate plus an additional percentage of up to 1%, which additional percentage depends on the Company’s adjusted quick ratio, and (b) 4.75% |
| Borrowing under line of credit | $ 0 |
| Balance available to borrow under the line of credit | 6,782,000 |
| Second Amendment To Loan And Security Agreement | |
| Line of Credit, maximum borrowing | $ 10,000,000 |
| Variable interest rate | the greater of (a) prime rate plus an additional percentage up to 1.0%, which additional percentage depends on the Company’s adjusted quick ratio, and (b) 3.25%, reduces the interest rate for purchase order advances under the line to the greater of (a) prime rate plus an additional percentage up to 1.5%, which additional percentage depends on the Company’s adjusted quick ratio, and (b) 3.75% |
| Revolving line maturity date | Jan. 13, 2023 |
| Second Amendment To Loan And Security Agreement | Customer Purchase Order | |
| Line of Credit, maximum borrowing | $ 3,000,000 |
| First Amendment to Loan and Security Agreement | |
| Revolving line maturity date | Jan. 13, 2022 |
LONGTERM DEBT (Details Narrative) - Silicon Valley Bank - USD ($) |
Jun. 12, 2021 |
Apr. 23, 2020 |
|---|---|---|
| PPP loan | $ 1,679,000 | |
| Interest rate | 1.00% | |
| Total interest | $ 19,000 | |
| Recognized a gain on loan forgiveness | $ 1,698,000 |
STOCKBASED COMPENSATION (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Nov. 30, 2022 |
Nov. 30, 2021 |
Nov. 30, 2022 |
Nov. 30, 2021 |
|
| Total stock-based compensation | $ 793 | $ 718 | $ 1,503 | $ 1,306 |
| Cost of Sales | ||||
| Total stock-based compensation | 85 | 76 | 177 | 158 |
| Selling, General and Administrative | ||||
| Total stock-based compensation | 507 | 377 | 971 | 772 |
| Research and Development | ||||
| Total stock-based compensation | $ 201 | $ 265 | $ 355 | $ 376 |
STOCKBASED COMPENSATION (Details 1) - Stock Option - $ / shares |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Nov. 30, 2022 |
Nov. 30, 2021 |
Nov. 30, 2022 |
Nov. 30, 2021 |
|
| Expected term (in years) | 6 years | 6 years | 5 years | 6 years |
| Volatility | 112.45% | 85.00% | 116.41% | 76.00% |
| Risk-free interest rates | 4.07% | 1.32% | 3.10% | 1.02% |
| Weighted-average grant date fair value | $ 18.06 | $ 14.16 | $ 7.07 | $ 2.50 |
STOCK-BASED COMPENSATION (Details 2) - $ / shares |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Nov. 30, 2022 |
Nov. 30, 2021 |
Nov. 30, 2022 |
Nov. 30, 2021 |
|
| Weighted-average grant date fair value | $ 11.17 | $ 9.57 | $ 11.17 | $ 9.57 |
| Maximum | Employee Stock Purchase Plan | ||||
| Expected term (in years) | 2 years | 2 years | 2 years | 2 years |
| Volatility | 203.00% | 143.00% | 203.00% | 143.00% |
| Risk-free interest rates | 4.12% | 0.27% | 4.12% | 0.27% |
| Minimum | Employee Stock Purchase Plan | ||||
| Expected term (in years) | 6 months | 6 months | 6 months | 6 months |
| Volatility | 91.00% | 101.00% | 91.00% | 101.00% |
| Risk-free interest rates | 3.97% | 0.05% | 3.97% | 0.05% |
STOCKBASED COMPENSATION (Details 3) - Stock Option and RSU Transactions [Member] - shares shares in Thousands |
3 Months Ended | |
|---|---|---|
Nov. 30, 2022 |
Aug. 31, 2022 |
|
| Available shares, beginning | 1,453 | 1,826 |
| Options granted | (5) | (103) |
| RSUs granted | (14) | (276) |
| Options cancelled and adjusted | 6 | |
| Available shares, ending | 1,434 | 1,453 |
STOCK-BASED COMPENSATION (Details 7) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Nov. 30, 2022 |
Nov. 30, 2021 |
Nov. 30, 2022 |
Nov. 30, 2021 |
|
| STOCKBASED COMPENSATION (Details) | ||||
| Net RSUs and PRSUs vested | 60,000 | 18,000 | 202,000 | 29,000 |
| Shares withheld to settle payroll taxes | 2,000 | 150,000 | ||
| RSUs and PRSUs unvested | 394,000 | 237,000 | 394,000 | 237,000 |
| Intrinsic value of unvested RSUs and PRSUs (in thousands) | $ 10,272 | $ 4,129 | $ 10,272 | $ 4,129 |
SEGMENT AND CONCENTRATION INFORMATION (Details) - USD ($) $ in Thousands |
Nov. 30, 2022 |
May 31, 2022 |
|---|---|---|
| Property and equipment, net | $ 1,263 | $ 1,203 |
| Asia | ||
| Property and equipment, net | 53 | 47 |
| United States | ||
| Property and equipment, net | 1,210 | 1,156 |
| Europe | ||
| Property and equipment, net | $ 0 | $ 0 |
SEGMENT AND CONCENTRATION INFORMATION (Details Narrative) - USD ($) |
3 Months Ended | 6 Months Ended | |||
|---|---|---|---|---|---|
Nov. 30, 2022 |
Nov. 30, 2021 |
Nov. 30, 2022 |
Nov. 30, 2021 |
May 31, 2022 |
|
| Operating lease right-of-use assets | $ 561,000 | $ 561,000 | $ 917,000 | ||
| United States [Member] | |||||
| Operating lease right-of-use assets | 479,000 | 479,000 | |||
| Asia [Member] | |||||
| Operating lease right-of-use assets | $ 82,000 | $ 82,000 | |||
| Customer A [Member] | |||||
| Customers accounted for 10% or more of total revenues | 79.00% | 82.00% | 74.00% | 77.00% | |
| Customers B [Member] | |||||
| Customers accounted for 10% or more of total revenues | 15.00% | 18.00% | |||
| Five Largest Customers [Member] | |||||
| Customers accounted for 10% or more of total revenues | 98.00% | 98.00% | 98.00% | 96.00% | |
SUBSEQUENT EVENT (Details Narrative) - SUBSEQUENT EVENTS |
Dec. 05, 2022
USD ($)
|
|---|---|
| Description of changes in monthly base rent | The amendment increases monthly base rent from $66,385 to $88,474 effective August 1, 2023 |
| Improvement allowance | $ 282,090 |
| Revolving line matuity date | Jan. 13, 2024 |
| Fourth amendment Lease expiry date | Sep. 30, 2030 |
| Description about amendment third agreemnet | the minimum net cash at the end of November 30, 2023 is at least $20.0 million, the Amended Revolving Line Maturity Date would be extended to January 13, 2025. |