	August 31,			May 31,
	2022			2022
					(1)
ASSETS
Current assets:
Cash and cash equivalents	$	36,147		$	31,484
Accounts receivable, net		5,116			12,859
Inventories		17,233			15,051
Prepaid expenses and other current assets		833			613

Total current assets		59,329			60,007

Property and equipment, net		1,322			1,203
Operating lease right-of-use assets		740			917
Other assets		187			201

Total assets	$	61,578		$	62,328

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	3,387		$	4,195
Accrued expenses		2,479			3,610
Operating lease liabilities, short-term		741			794
Customer deposits and deferred revenue, short-term		3,292			2,415

Total current liabilities		9,899			11,014

Operating lease liabilities, long-term		73			212
Deferred revenue, long-term		47			69
Other long-term liabilities		41			44

Total liabilities		10,060			11,339

Aehr Test Systems shareholders' equity:
Common stock, $0.01 par value: Authorized: 75,000; Issued and outstanding: 27,395 shares and 27,120 shares at August 31, 2022 and May 31, 2022, respectively		274			271
Additional paid-in capital		117,668			117,686
Accumulated other comprehensive loss		(150	)		(105	)
Accumulated deficit		(66,274	)		(66,863	)

Total shareholders' equity		51,518			50,989

Total liabilities and shareholders' equity	$	61,578		$	62,328

(1)

The condensed consolidated balance sheet at May 31, ~~2017~~2022 has been derived from the audited consolidated financial statements at that date.

	Three Months Ended
	August 31,
	2022			2021

Net sales	$	10,671		$	5,646
Cost of sales		6,190			3,365
Gross profit		4,481			2,281

Operating expenses:
Selling, general and administrative		2,525			1,953
Research and development		1,498			1,321
Total operating expenses		4,023			3,274

Income (loss) from operations		458			(993	)

Interest income (expense), net		121			(9	)
Gain from forgiveness of PPP loan		-			1,698
Other income, net		24			23

Income before income tax expense		603			719

Income tax expense		(14	)		(23	)

Net income	$	589		$	696

Net income per share:
Basic	$	0.02		$	0.03
Diluted	$	0.02		$	0.03

Shares used in per share calculations:
Basic		27,242			23,999
Diluted		28,788			25,356

The accompanying notes are an integral part of these

							Additional			Accumulated Other						Total
	Common Stock						Paid-in			Comprehensive			Accumulated			Shareholders'
Three Months Ended August 31, 2022	Shares			Amount			Capital			Income (loss)			Deficit			Equity
Balances, May 31, 2022		27,120		$	271		$	117,686		$	(105	)	$	(66,863	)	$	50,989

Issuance of common stock under employee plans		422			4			451			-			-			455
Shares repurchased for tax withholdings on vesting of restricted stock units		(147	)		(1	)		(1,178	)		-			-			(1,179	)
Stock-based compensation		-			-			709			-			-			709
Net income		-			-			-			-			589			589
Foreign currency translation adjustment		-			-			-			(45	)		-			(45	)

Balances, August 31, 2022		27,395		$	274		$	117,668		$	(150	)	$	(66,274	)	$	51,518

					Additional		Accumulated Other						Total
	Common Stock				Paid-in		Comprehensive			Accumulated			Shareholders’
Three Months Ended August 31, 2021	Shares		Amount		Capital		Income (loss)			Deficit			Equity
Balances, May 31, 2021		23,725	$	237	$	87,553	$	(28	)	$	(76,313	)	$	11,449

Issuance of common stock under employee plans		758		8		1,527		-			-			1,535
Stock-based compensation		-		-		588		-			-			588
Net income		-		-		-		-			696			696
Foreign currency translation adjustment		-		-		-		(36	)		-			(36	)

Balances, August 31, 2021		24,483	$	245	$	89,668	$	(64	)	$	(75,617	)	$	14,232

The accompanying notes are an integral part of these

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Three Months Ended
	August 31,
	2022			2021
Cash flows from operating activities:
Net income	$	589		$	696
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation expense		710			588
Depreciation and amortization		89			73
Gain from forgiveness of PPP loan		-			(1,698	)
Changes in operating assets and liabilities:
Accounts receivable		7,648			895
Inventories		(2,323	)		(1,324	)
Prepaid expenses and other current assets		(210	)		(201	)
Accounts payable		(769	)		(130	)
Accrued expenses		(1,130	)		(169	)
Customer deposits and deferred revenue		855			3,141
Income taxes payable		2			3
Net cash provided by operating activities		5,461			1,874

Cash flows from investing activities:
Purchases of property and equipment		(84	)		(59	)
Net cash used in investing activities		(84	)		(59	)

Cash flows from financing activities:
Line of credit repayments, net		-			(1,400	)
Proceeds from issuance of common stock under employee plans		455			1,535
Shares repurchased for tax withholdings on vesting of restricted stock units		(1,179	)		-
Net cash (used in) provided by financing activities		(724	)		135

Effect of exchange rates on cash, cash equivalents and restricted cash		10			(2	)

Net increase in cash, cash equivalents and restricted cash		4,663			1,948

Cash, cash equivalents and restricted cash, beginning of period⁽¹⁾		31,564			4,662

Cash, cash equivalents and restricted cash, end of period⁽¹⁾	$	36,227		$	6,610

(1) Includes restricted cash in other assets.

The accompanying notes are an integral part of these condensed consolidated financial statements.

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AEHR TEST SYSTEMS

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCCOUNTING POLICIES

The accompanying financial information has been prepared by Aehr Test Systems, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission ~~or SEC.~~(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)~~(“GAAP”) have been condensed or omitted pursuant to such rules and regulations.

In the opinion of management, the unaudited condensed consolidated financial statements for the interim periods presented have been prepared on a basis consistent with the May 31, ~~2017~~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, ~~2017.~~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. For the Company’s majority owned subsidiary, Aehr Test Systems Japan K.K., the noncontrolling interest of the portion the Company does not own was reflected on the Condensed Consolidated Balance Sheets in Shareholders’ Equity and in the Condensed Consolidated Statements of Operations.

ACCOUNTING ESTIMATES. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates are used to account for sales and revenue allowances, the allowance for doubtful accounts, inventory valuations, income taxes, stock-based compensation expenses, and product warranties, among others. The Company bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances. Actual results could differ materially from those estimates.

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

Revenue related to the multiple elements is allocated to each unit of accounting using the relative selling price hierarchy. Consistent with accounting guidance, the selling price is based upon vendor specific objective evidence (VSOE). If VSOE is not available, third party evidence (TPE) is used to establish the selling price. In the absence of VSOE or TPE, estimated selling price is used.

During the first quarter of fiscal 2013, the Company entered into an agreement with a customer to develop a next generation system, and the Company shipped the first system in July 2016. The project identifies multiple milestones with values assigned to each. The consideration earned upon achieving the milestone is required to meet the following conditions prior to recognition: (i) the value is commensurate with the vendor’s performance to meet the milestone, (ii) it relates solely to past performance, (iii) and it is reasonable relative to all of the deliverables and payment terms within the arrangement. Revenue is recognized for the milestone upon acceptance by the customer.

The Company recognizes revenue in certain circumstances before physical delivery has occurred. In these arrangements, among other things, risk of ownership has passed to the customer, the customer has made a written fixed commitment to purchase the products, the customer has requested the products be held for future delivery as scheduled and designated by them, and no additional performance obligations exist by the Company. For these transactions, the products are segregated from inventory and normal billing and credit terms granted.

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

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

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

August 31, 2022.

2. ~~STOCK-BASED COMPENSATION~~

~~Stock-based compensation expense consists~~RECENT ACCOUNTING PRONOUNCEMENTS

Accounting Standards Adopted

Income Taxes

On December 18, 2019, the FASB issued Accounting Standards Update ASU 2019-12 on Simplifying the Accounting for Income Taxes. The board decided to remove the exception to the incremental approach for intra-period tax allocation when there is a loss from continuing operations and income or gain from other items (for example discontinued operations or other comprehensive income). There are also provisions related to state taxes and calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. The new guidance is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2020. The Company adopted ASU 2019-12 in the quarter ended August 31, 2021 with no material impact.

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Accounting Standards Not Yet Adopted

Financial Instruments

In June 2016, the FASB issued an accounting standard update (“ASU”) that requires measurement and recognition of ~~expenses~~expected credit losses for stock options, restricted stock units, or RSUs, and employee stock purchase plan, or ESPP, purchase rights. Stock-based compensation cost for stock options and ESPP purchase rights are measured at each grant date,financial assets held based on historical experience, current conditions, and reasonable and supportable forecasts that affect the ~~fair value~~collectability of the ~~award using~~reported amount. Due to a subsequent ASU in November 2019, the ~~Black-Scholes option valuation model,~~accounting standard will be effective for the Company beginning in the first quarter of fiscal 2024 on a modified retrospective basis, and early adoption in fiscal 2022 is permitted. The Company does not expect a material impact of this accounting standard on its consolidated financial statements.

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 is recognized at a point in time, which is generally upon shipment or delivery. Revenue from services is recognized over time as ~~expense~~services are completed or ratably over the ~~employee’s requisite~~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.

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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
	August 31,
	2022		2021
Type of good / service:
Systems	$	9,094	$	3,879
Contactors		494		952
Services		1,083		815
	$	10,671	$	5,646

Product lines:
Wafer-level	$	10,321	$	5,143
Test During Burn-In		350		503
	$	10,671	$	5,646

The following presents information about the Company’s operations in different geographic areas. Net sales are based upon ship-to location (in thousands):

	Three Months Ended
	August 31,
	2022		2021
Geographic region:
United States	$	2,863	$	506
Asia		7,808		5,137
Europe		-		3
	$	10,671	$	5,646

With the exception of the amount of service ~~period. This model was developed for use~~contracts and extended warranties, the Company’s product category revenues are recognized at a point in ~~estimating~~time when control transfers to the ~~value~~customers. The following presents revenue based on timing of ~~publicly traded options that have no vesting restrictions~~recognition (in thousands):

	Three Months Ended
	August 31,
	2022		2021
Timing of revenue recognition:
Products and services transferred at a point in time	$	10,254	$	5,590
Services transferred over time		417		356
	$	10,671	$	5,646

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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 ~~fully transferable. The Company’s employee stock options have characteristics significantly different from those of publicly traded options. For RSUs, stock-based compensation cost~~satisfied as the associated revenue is ~~based~~recognized. Contract liabilities are reported on the ~~fair value of the Company’s common stock~~Condensed Consolidated Balance Sheets at the ~~grant date. All~~end of ~~the Company’s stock-based compensation is accounted for~~each reporting period as ~~an equity instrument. See Notes 11~~a component of deferred revenue. Contract liabilities as of August 31, 2022 and ~~12 in the Company’s Annual Report on Form 10-K for fiscal 2017 filed on August 29, 2017 for further information regarding the 2016 Equity Incentive Plan~~May 31, 2022 were $3,339,000 and ~~the Amended and Restated 2006 ESPP.~~

~~The following table summarizes the stock-based compensation expense related to the Company’s stock-based incentive plans for the three and six months ended November 30, 2017 and 2016 (in thousands):~~

~~As of November 30, 2017 and 2016, there were no stock-based compensation costs capitalized as part of inventory.~~

$2,484,000, respectively. During the three months ended ~~November 30, 2017 and 2016,~~August 31, 2022, the Company ~~recorded stock-based compensation related to stock options and RSUs~~recognized $2,071,000 of ~~$207,000 and $185,000, respectively. During the six months ended November 30, 2017 and 2016,~~revenues that were included in contract liabilities as of May 31, 2022.

Remaining performance obligations

On August 31, 2022, the Company ~~recorded stock-based compensation related to stock options~~had $192,000 of remaining performance obligations, which were comprised of deferred service contracts and ~~RSUs of $408,000 and $464,000, respectively.~~

~~As of November 30, 2017, the total compensation cost related to unvested stock-based awards under the Company’s 2016 Equity Incentive Plans, but~~extended warranty contracts not yet ~~recognized, was~~delivered. The Company expects to recognize approximately ~~$1,316,000, which is net~~64% of ~~estimated forfeitures of $3,000. This cost will be amortized on a straight-line basis over a weighted average period of approximately 2.5 years.~~

During the three months ended November 30, 2017 and 2016, the Company recorded stock-based compensation related to the ESPP of $157,000 and $30,000, respectively. During the six months ended November 30, 2017 and 2016, the Company recorded stock-based compensation related to the ESPP of $172,000 and $70,000, respectively. The increaseits remaining performance obligations as revenue in the ~~three~~remainder of fiscal 2023, and ~~six months ended November 30, 2017 is primarily due~~an additional 36% 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 ~~employees increasing their ESPP elections during the current ESPP purchase period.~~

~~As of November 30, 2017, the total compensation cost related~~a wholly unsatisfied performance obligation.

Costs to ~~purchase rights under the ESPP but not yet recognized was approximately $49,000. This cost will be amortized on~~obtain or fulfill a ~~straight-line basis over a weighted average period of approximately 0.3 years.~~

~~Valuation and Amortization Method.~~ contract

The Company ~~estimates~~generally expenses sales commissions when incurred as a component of selling, general and administrative expense as the ~~fair value of stock options granted using~~amortization period is typically less than one year. Additionally, the Black-Scholes option valuation model and a single option award approach. The fair value under the single option approach is amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period.

Expected Term. The Company’s expected term represents the period that the Company’s stock-based awards are expected to be outstanding and was determined based on historical experience, giving consideration to the contractual terms of the stock-based awards, vesting schedules and expectations of future employee behavior as evidenced by changes to the terms of its stock-based awards.

Volatility. Volatility is a measure of the amounts by which a financial variable such as stock price has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period. The Company uses the historical volatility for the past four or five years, which matches the expected term of most of the option grants, to estimate expected volatility. Volatility for each of the ESPP’s four time periods of six months, twelve months, eighteen months, and twenty-four months is calculated separately and included in the overall stock-based compensation cost recorded.

Risk-Free Interest Rate. The Company bases the risk-free interest rate used in the Black-Scholes option valuation model on the implied yield in effect at the time of option grant on U.S. Treasury zero-coupon issues with a remaining term equivalent to the expected term of the stock awards including the ESPP.

~~Fair Value. The fair value~~majority of the Company’s ~~stock options granted~~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 ~~employees for~~ the ~~three and six months ended November 30, 2017 and 2016 were estimated using the following weighted average assumptions in the Black-Scholes option valuation model:~~

~~There were no ESPP purchase rights granted for the three and six months ended November 30, 2017 and 2016.~~

~~The following tables summarize~~nature of the Company’s ~~stock option~~products and ~~RSU transactions during the three and six months ended November 30, 2017 (in thousands):~~

~~The following table summarizes the stock option transactions during the three and six months ended November 30, 2017 (in thousands, except per share data):~~

The total intrinsic value of options exercised during the three and six months ended November 30, 2017 was $269,000 and $745,000, respectively. The total intrinsic value of options exercised during the three and six months ended November 30, 2016 was $359,000 and $411,000, respectively. The weighted average remaining contractual life of the options exercisable and expected to be exercisable at November 30, 2017 was 3.56 years.

3.their respective manufacturing process.

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, ~~RSUs~~restricted stock units (“RSUs”), and ~~ESPP~~Amended and Restated 2006 Employee Stock Purchase Plan (“ESPP”) shares) outstanding during the period using the treasury stock method.

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The following table presents the computation of basic and diluted net income ~~(loss)~~ per share attributable to ~~the Company’s~~Aehr Test Systems common shareholders (in thousands, except per share data):

	Three Months Ended
	August 31,
	2022		2021

Numerator: Net income	$	589	$	696

Denominator for basic net income per share:
Weighted average shares outstanding		27,242		23,999

Shares used in basic net income per share calculation		27,242		23,999
Effect of dilutive securities		1,546		1,357

Denominator for diluted net income per share		28,788		25,356
Basic net income per share	$	0.02	$	0.03

Diluted net income per share	$	0.02	$	0.03

For the purpose of computing diluted earnings per share, ~~the~~ weighted average ~~number of~~ potential common shares ~~does~~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. Stock options to purchase ~~263,000~~152,000 shares of common stock were outstanding ~~as of November 30, 2017~~for the three months ending August 31, 2022, 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, 2016, potential common shares have not been included in the calculation of diluted net loss per share as the effect would be anti-dilutive. As such, the numerator and the denominator used in computing both basic and diluted net loss per share for this period are the same. Stock options to purchase ~~3,229,000~~112,000 shares of common stock ~~RSUs for 72,000 shares and ESPP rights to purchase 246,000 ESPP shares~~ were outstanding ~~as of November 30, 2016,~~for the three months ending August 31, 2021, but were not included in the computation of diluted net ~~loss~~income per share, because the inclusion of such shares would be anti-dilutive. The 2,657,000 shares convertible under the convertible notes outstanding at November 30, 2017 and 2016 were not included in the computation of diluted net income (loss) per share, because the inclusion of such shares would be anti-dilutive.

~~4. CASH, CASH EQUIVALENTS AND INVESTMENTS~~

~~The following table summarizes the Company’s cash, cash equivalents and investments by security type at November 30, 2017 (in thousands):~~

Unrealized gains and temporary losses on investments classified as available-for-sale are included within accumulated other comprehensive income ("AOCI"), net of any related tax effect. Upon realization, those amounts are reclassified from AOCI to results of operations.

~~The unrealized loss as of November 30, 2017 is not considered other-than-temporary.~~

5. 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.

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The following table summarizes the Company’s financial assets measured at fair value on a recurring basis as of ~~November 30, 2017~~August 31, 2022 (in thousands):

	Balance as of
	August 31, 2022		Level 1		Level 2		Level 3
Money market funds	$	34,733	$	34,733	$	-	$	-
Assets	$	34,733	$	34,733	$	-	$	-

The following table summarizes the Company’s financial assets measured at fair value on a recurring basis as of May 31, ~~2017~~2022 (in thousands):

	Balance as of
	May 31, 2022		Level 1		Level 2		Level 3
Money market funds	$	28,609	$	28,609	$	-	$	-
Assets	$	28,609	$	28,609	$	-	$	-

Included in money market funds as of August 31, 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, 2017~~August 31, 2022 and May 31, ~~2017.~~

2022.

There were no transfers between Level 1 and Level 2 fair value measurements during the three ~~and six~~ months ended ~~November 30, 2017.~~

August 31, 2022.

The carrying amounts of financial instruments including cash, cash equivalents, receivables, accounts payable and certain other accrued liabilities, approximate fair value due to their short maturities. ~~Based on the borrowing rates currently available to the Company for loans with similar terms, the carrying value of the debt approximates the fair value.~~

~~The Company has, at times, invested in debt and equity of private companies, and may do so again in the future, as part of its business strategy.~~

6. ACCOUNTS RECEIVABLE, NET

Accounts receivable represent customer trade ~~receivables~~receivables. As of August 31, 2022 and ~~is presented net of allowances~~May 31, 2021, there was no allowance for doubtful ~~accounts of $47,000 at November 30, 2017 and $61,000 at May 31, 2017.~~accounts. Accounts receivable are derived from the sale of products throughout the world to semiconductor manufacturers, semiconductor contract assemblers, electronics manufacturers and burn-in and test service companies. 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 are comprised of the following (in thousands):

	August 31,		May 31,
	2022		2022
Raw materials and sub-assemblies	$	12,292	$	9,507
Work in process		4,941		5,461
Finished goods		-		83
	$	17,233	$	15,051

8. ~~SEGMENT INFORMATION~~

~~The Company operates in one reportable segment: the design, manufacture and marketing of advanced test and burn-in products to the semiconductor manufacturing industry.~~

~~The following presents information about the Company’s operations in different geographic areas. Net sales are based upon ship-to location (in thousands).~~

The Company’s Japanese and German subsidiaries primarily comprise the foreign operations. Substantially all of the sales of the subsidiaries are made to unaffiliated Japanese or European customers. Net sales from outside the United States include those of Aehr Test Systems Japan K.K. and Aehr Test Systems GmbH.

Sales to the Company’s five largest customers accounted for approximately 94% and 96% of its net sales in the three and six months ended November 30, 2017, respectively. Two customers accounted for approximately 43% and 34% of the Company’s net sales in the three months ended November 30, 2017. Two customers accounted for approximately 43%, and 39% of the Company’s net sales in the six months ended November 30, 2017. Sales to the Company’s five largest customers accounted for approximately 96% and 95% of its net sales in the three and six months ended November 30, 2016, respectively. Two customers accounted for approximately 60% and 22% of the Company’s net sales in the three months ended November 30, 2016. Three customers accounted for approximately 50%, 19% and 16% of the Company’s net sales in the six months ended November 30, 2016. No other customers represented more than 10% of the Company’s net sales in the six months ended November 30, 2017 and 2016.

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.

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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, 2017~~August 31, 2022 and ~~2016~~2021 (in thousands):

	Three Months Ended
	August 31,
	2022			2021

Balance at the beginning of the period	$	410		$	494

Accruals for warranties issued during the period		118			162
Adjustments to previously existing warranty accruals		61			-
Consumption of reserves		(165	)		(151	)

Balance at the end of the period	$	424		$	505

The accrued warranty balance is included in accrued expenses on the accompanying condensed consolidated balance sheets.

~~10. ACCUMULATED OTHER COMPREHENSIVE INCOME~~

~~Changes in the components of AOCI, net of tax, were as follows~~

9. CUSTOMER DEPOSITS AND DEFERRED REVENUE, SHORT-TERM

Customer deposits and deferred revenue, short-term (in thousands):

~~11.~~

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	August 31,		May 31,
	2022		2022
Customer deposits	$	3,138	$	2,263
Deferred revenue		154		152
	$	3,292	$	2,415

10. 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 $14,000 for the three months ended August 31, 2022 which consisted primarily of foreign withholding taxes and foreign income taxes. The Company recorded a provision for income tax of $23,000 for the three months ended August 31, 2021 which consisted primarily of foreign withholding taxes and foreign income taxes.

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

Since fiscal 2009, a full valuation allowance was established against all deferred tax assets, as management determined that it is more likely than not that certain deferred tax assets will not be realized.

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

~~Although~~

11. 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 sheet, unless the arrangement includes an option to purchase the underlying asset, or renew the arrangement that the Company ~~files U.S. federal, various state,~~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 sheet. The Company’s operating leases have remaining lease terms of 11 months to 3 years.

The Company determines whether an arrangement is or contains a lease based on the unique facts and ~~foreign tax returns,~~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 asset may be required for items such as initial direct costs paid or incentives received.

The weighted-average remaining lease term for the Company’s ~~only major tax jurisdictions are~~operating leases was 1.2 years at August 31, 2022 and the ~~United States, California, Germany~~weighted-average discount rate was 5.40%.

The Company’s operating lease cost was $189,000 and ~~Japan. Tax years 1997 - 2016 remain subject~~$192,000 for the three months ended August 31, 2022 and 2021, respectively.

The following table presents supplemental cash flow information related to ~~examination by~~ the ~~appropriate governmental agencies due to tax loss carryovers from those years.~~

~~On December 22, 2017,~~Company’s operating leases (in thousands):

	Three Months Ended
	August 31,
	2022		2021
Cash paid for amounts included in the measurement of operating lease liabilities:
Operating cash flows for operating leases	$	206	$	203

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The following table presents the ~~"Tax Cuts and Jobs Act" was signed into law, significantly impacting several sections~~maturities of the ~~Internal Revenue Code. The Company is currently analyzing the impact~~Company’s operating lease liabilities as of ~~these changes and therefore an estimate of the impact to income taxes is not yet available.~~

~~12. CUSTOMER DEPOSITS AND DEFERRED REVENUE, SHORT-TERM~~

~~Customer deposits and deferred revenue, short-term~~August 31, 2022 (in thousands):

~~13. LONG-TERM DEBT~~

Fiscal year	Operating Leases
2023 (excluding the first three months of 2023)	$	623
2024		168
2025		32
2026		19
Thereafter		-
Total future minimum operating lease payments		842
Less: imputed interest		(28	)
Present value of operating lease liabilities	$	814

12. BORROWING AND FINANCING ARRANGEMENTS:

On ~~April 10, 2015,~~January 16, 2020, the Company entered into a ~~Convertible Note Purchase~~Loan and ~~Credit Facility~~Security Agreement (the ~~“Purchase~~“Loan Agreement”) with ~~QVT Fund LP and Quintessence Fund L.P. (the “Purchasers”~~Silicon Valley Bank (“SVB”) ~~providing for~~. 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 ~~sale~~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 ~~Purchasers~~greater of ~~$4,110,000 in aggregate principal amount of 9.0% Convertible Secured Notes due 2017 (the “Convertible Notes”) and (b) a secured revolving loan facility (the “Credit Facility”) in~~(a) the prime rate plus an ~~aggregate principal amount~~additional percentage of up to ~~$2,000,000. On August 22, 2016~~1%, which additional percentage depends on the ~~Purchase Agreement was amended to extend~~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 “First Amendment”) with Silicon Valley Bank. The First Amendment, among other things, extends the Revolving Line Maturity Date to July 14, 2021; provided, however, that if the Company achieves specified operating metrics on a consolidated basis on or prior to May 31, 2021 the Amended Revolving Line Maturity Date is extended to January 13, 2022. On July 8, 2021 the Company received confirmation from SVB that the Revolving Line Maturity Date has been 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 Silicon Valley Bank. The Second Amendment, among other things, (A) increases the available amount of the ~~Convertible Notes~~line up to ~~April 10, 2019, decrease~~ the ~~conversion price from $2.65 per share~~lesser of (i) $10 million or (ii) the available amount under the borrowing base, under a revolving line of credit, (B) allows for borrowing up to ~~$2.30 per share, decrease the forced conversion price from $7.50 per share to $6.51 per share, and allow for additional equity awards.~~

The Convertible Notes bear interest at an annual rate of 9.0% and will mature on April 10, 2019 unless repurchased or converted prior to that date. Interest is payable quarterly on March 1, June 1, September 1 and December 1 of each year. Debt issuance costs of $356,000, which were accreted over the term$3 million of the ~~original loan using~~available balance based upon eligible customer purchase orders, (C) reduces the ~~effective~~ interest rate ~~method, were offset~~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) extends the maturity date on the loan to January 13, 2023.

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At August 31, 2022, the Company had not drawn amounts against the ~~loan balance.~~

credit facility and was in compliance with all covenants related to obligations to meet reporting requirements. The conversion price for the Convertible Notes is $2.30 per share and is subject to adjustment upon the occurrence of certain specified events. Holders may convert all or any part of the principal amount of their Convertible Notes in integrals of $10,000 at any time prior to the maturity date. Upon conversion, the Company will deliver shares of its common stock to the holder of Convertible Notes electing such conversion. The Company may not redeem the Convertible Notes prior to maturity.

~~The maximum amount of $2,000,000 drawn against the Credit Facility has been converted to Convertible Notes, and at November 30, 2017 there was no remaining~~ balance available to borrow under the line at August 31, 2022 was $5,699,000. There are no financial covenants in the agreement.

13. 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 matures on April 23, 2022 and bears 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 ~~drawn~~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.

14. STOCK-BASED COMPENSATION

Stock-based compensation expense consists of expenses for stock options, RSUs and ESPP purchase rights. Stock-based compensation expense for stock options and ESPP purchase rights is measured at each grant date, based on the ~~Credit Facility.~~

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 ~~obligations under~~employee stock options have characteristics significantly different from those of publicly traded options. For RSUs, stock-based compensation cost is based on the ~~Purchase Agreement are secured by substantially all~~fair value of the ~~assets~~Company’s common stock at the grant date and is recognized as expense over the employee’s requisite service period. All of the ~~Company.~~

~~14. RECENT ACCOUNTING PRONOUNCEMENTS~~

~~In May 2014,~~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 months ended August 31, 2022 and 2021 (in thousands):

	Three Months Ended
	August 31,
	2022		2021
Stock-based compensation in the form of stock options, RSUs and ESPP purchase rights, included in:
Cost of sales	$	91	$	82
Selling, general and administrative		465		395
Research and development		154		111
Total stock-based compensation	$	710	$	588

As of August 31, 2022, there were $85,000 stock-based compensation expenses capitalized as part of ~~its ongoing efforts to assist in~~inventory. As of August 31, 2021, there were no stock-based compensation expenses capitalized as part of inventory.

During the ~~convergence of GAAP~~three months ended August 31, 2022 and ~~International Financial Reporting Standards (“IFRS”),~~2021, the ~~Financial Accounting Standards Board (“FASB”) issued an accounting standard update~~Company recorded stock-based compensation expenses related to ~~revenue from contracts with customers.~~stock options and RSUs under the 2016 Plan of $535,000 and $484,000, respectively.

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As of August 31, 2022, the total compensation expense related to unvested stock-based awards under the 2016 Plan, but not yet recognized, was approximately $4,249,000, which is net of estimated forfeitures of $11,000. This ~~standard sets forth~~expense will be amortized on a ~~new five-step revenue recognition model which replaces~~straight-line basis over a weighted average period of approximately 2.3 years.

During the ~~prior revenue recognition guidance in its entirety~~three months ended August 31, 2022 and is intended to eliminate numerous industry-specific pieces of revenue recognition guidance that have historically existed in GAAP. The underlying principle of the new standard is that a business or other organization will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects what it expects in exchange for the goods or services. The standard also requires more detailed disclosures and provides additional guidance for transactions that were not addressed completely in the prior accounting guidance. The standard provides alternative methods of initial adoption and will become effective for2021, the Company ~~beginning in the first quarter of fiscal 2019. The FASB has issued several updates~~recorded stock-based compensation expense related to the ~~standard which i) defer~~ESPP of $175,000 and $104,000, respectively.

As of August 31, 2022, the ~~original effective date from January 1, 2017~~total compensation expense related to ~~January 1, 2018, while allowing for early adoption as~~purchase rights under the ESPP but not yet recognized was approximately $241,000. This expense will be amortized on a straight-line basis over a weighted average period of ~~January 1, 2017. ii) clarify the application of the principal versus agent guidance.~~approximately 0.6 years.

Valuation Assumptions

Valuation and iii) clarify the guidance on inconsequential and perfunctory promises and licensing. In May 2016, the FASB issued an update to address certain narrow aspects of the guidance including collectibility criterion, collection of sales taxes from customers, noncash consideration, contract modifications and completed contracts. This issuance does not change the core principle of the guidance in the initial topic issued in May 2014. In December 2016, the FASB issued updated guidance regarding revenue from contracts with customers. Some topics that could impact the Company include corrections and improvements around the following: contract costs impairment testing, disclosure of remaining performance obligations and prior period obligations, contract modifications, and contract asset versus receivable.Amortization Method. The Company ~~is currently evaluating the impact of adopting this new guidance on its consolidated financial statements.~~

In July 2015, the FASB issued an accounting standard update that requires management to measure inventory at the lower of cost or net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The Company adopted this new standard in fiscal year 2018. The adoption of this guidance does not have a significant impact on the Company’s consolidated financial statements.

In November 2015, the FASB issued an accounting standard update related to deferred tax assets and liabilities. This standard simplifies the presentation of deferred income taxes to be classified as noncurrent in the consolidated balance sheet. The Company adopted this new standard in fiscal year 2018. The adoption of this guidance does not have a significant impact on the Company’s consolidated financial statements.

In January 2016, the FASB issued an accounting standard update related to recognition and measurement of financial assets and financial liabilities. This standard changes accounting for equity investments, financial liabilities underestimates 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 ~~presentation and disclosure requirements for financial instruments. In addition, it clarifies guidance related to~~single option approach is amortized on a straight-line basis over the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. This standard is effective for us in fiscal year 2020. Early adoption is permitted. The Company is currently evaluating the impact of this new guidance on its consolidated financial statements.

In February 2016, the FASB issued authoritative guidance related to leases. This guidance requires management to present all leases greater than one year on the balance sheet as a liability to make payments and an asset as the right to use the underlying asset for the lease term. This new standard will be effective for us in fiscal year 2020, with early adoption permitted. The Company is currently evaluating the impact of adopting this new guidance on its consolidated financial statements.

~~In March 2016, the FASB released an accounting standard update that simplifies several aspects~~requisite service periods of the ~~accounting for share-based payment transactions, including~~awards, which is generally the ~~income tax consequences, forfeitures, classification of awards as either equity or liabilities, and classification on~~vesting period.

Expected Term. The Company’s expected term represents the ~~statement of cash flows. The Company adopted this new standard in fiscal year 2018. The adoption of this guidance does not have a significant impact on~~period that the Company’s ~~consolidated financial statements.~~

~~In June 2016, the FASB issued an accounting standard update that requires measurement~~stock-based awards are expected to be outstanding and ~~recognition of expected credit losses for financial assets held~~was determined based on historical experience, ~~current conditions, and reasonable and supportable forecasts that affect~~giving consideration to the ~~collectibility~~contractual terms of the ~~reported amount.~~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 ~~accounting standard update~~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.

Fair Value. The fair value of the Company’s stock options granted to employees for the three months ended August 31, 2022 and 2021 were estimated using the following weighted average assumptions in the Black-Scholes option valuation model:

	Three Months Ended
	August 31,
	2022			2021

Expected term (in years)		5			6
Volatility		117	%		76	%
Risk-free interest rate		3.06	%		1.01	%
Weighted average grant date fair value	$	6.57		$	1.93

There were no ESPP purchase rights granted to employees for the three months ended August 31, 2022 and 2021. There were no ESPP shares issued during the three months ended August 31, 2022 and 2021. As of August 31, 2022, there were 258,000 ESPP shares available for issuance.

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The following tables summarize the Company’s stock option and RSU transactions during the three months ended August 31, 2022 (in thousands):

	Available
	Shares
Balance, May 31, 2022		1,826

Options granted		(103	)
RSUs granted		(276	)
Options cancelled and adjusted		6

Balance, August 31, 2022		1,453

The following table summarizes the stock option transactions during the three months ended August 31, 2022 (in thousands, except per share data):

	Outstanding Options
				Weighted
	Number			Average		Aggregate
	of			Exercise		Intrinsic
	Shares			Price		Value
Balances, May 31, 2022		1,597		$	2.70	$	9,290

Options granted		103		$	8.00
Options cancelled		(6	)	$	2.41
Options exercised		(102	)	$	2.00

Balances, August 31, 2022		1,592		$	3.08	$	18,287

Options fully vested and expected to vest at August 31, 2022		1,569		$	3.08	$	18,030

The options outstanding and exercisable at August 31, 2022 were in the following exercise price ranges (in thousands, except per share data):

		Options Outstanding						Options Exercisable
		at August 31, 2022						at August 31, 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		51		5.14	$	1.34		51		5.14	$	1.34
$1.64-$1.86			586		3.89	$	1.71		387		3.67	$	1.70
$2.03-$2.42			451		3.06	$	2.25		428		2.97	$	2.25
$2.76-$2.93			204		5.32	$	2.91		60		4.00	$	2.88
$3.46-$3.93			100		1.92	$	3.84		100		1.92	$	3.84
$8.00-$19.85			200		6.71	$	9.24		11		6.56	$	11.13
$1.34-$19.85			1,592		4.11	$	3.08		1,037		3.33	$	2.29	$	12,715

The total intrinsic value of options exercised during the three months ended August 31, 2022 and 2021 was $764,000 and $1,902,000, respectively. The weighted average remaining contractual life of the options exercisable and expected to be exercisable at August 31, 2022 was 4.10 years.

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During the three months ended August 31, 2022, RSUs for 159,000 shares were granted to employees. The weighted average market value on the date of the grant of these RSUs was $8.03 per share. During the three months ended August 31, 2022, performance RSUs were granted to key officers based upon revenue target thresholds for the year ending May 31, 2023. The total maximum number of RSUs to be vested if all revenue goals are achieved will be ~~effective~~approximately 114,000. The weighted average market value on the date of the grant of these performance RSUs was $8.00 per share. As of August 31, 2022 none of the revenue goals have been achieved and thus none of the RSUs are vested. During the three months ended August 31, 2022 the Company recognized approximately $22,000 in stock-based compensation expense for these performance RSUs. The Company will adjust its expense when expected revenue changes.

During the three months ended August 31, 2021, RSUs for 119,000 shares were granted to employees. The market value on the date of the grant of these RSUs was $2.93 per share. During the three months ended August 31, 2021, performance RSUs were granted to key officers based upon revenue target thresholds for the year ended May 31, 2022. The total maximum number of RSUs to be vested if all revenue goals were achieved would be approximately 316,000. The weighted average market value on the date of the grant of these performance RSUs was $2.93 per share. As of August 31, 2021 none of the revenue goals had been achieved and thus none of the RSUs were vested. As of August 31, 2021 the Company ~~beginning~~did not expect that by year end the target revenue goals would be achieved and did not recognize stock-based compensation expense for these performance RSUs. During the three months ended August 31, 2021, RSUs for 240,000 shares, net of 40,000 shares withheld to settle payroll taxes, were granted to officers in lieu of cash payment for salary reductions taken as part of prior cost reduction initiatives. These RSUs were fully vested and the market value on the date of the grant of these RSUs was $2.50 per share.

During the three months ended August 31, 2022, RSUs for 30,000 shares were granted to members of the Company’s Board of Directors. The market value on the date of the grant of these RSUs was $8.00 per share. During the three months ended August 31, 2022, performance RSUs were granted to the Company’s Board of Directors based upon revenue target thresholds for the year ended May 31, 2023. The total maximum amount of RSUs to be vested if all revenue goals are achieved will be approximately 30,000. The weighted average market value on the date of the grant of these performance RSUs was $8.00 per share. As of August 31, 2022 none of the revenue goals have been achieved and thus none of the RSUs are vested. The Company expects that by year end the target revenue goal will be achieved. During the three months ended August 31, 2022 the Company recognized approximately $60,000 in stock-based compensation expense for these performance RSUs. During the three months ended August 31, 2021, RSUs for 30,000 shares were granted to members of the Company’s Board of Directors in lieu of cash payment of board fees and were fully vested. The market value on the date of the grant of these RSUs was $2.93 per share.

During the three months ended August 31, 2022, RSUs for 142,000 shares, net of 147,000 shares withheld to settle payroll taxes, became fully vested. As of August 31, 2022, 442,000 RSUs and performance were unvested which had an intrinsic value of $6,423,000. During the three months ended August 31, 2021, RSUs for 90,000 shares, net of 40,000 shares withheld to settle payroll taxes, became fully vested. As of August 31, 2021, 240,000 RSUs were unvested which had an intrinsic value of $1,790,000.

15. 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):

	August 31,		May 31,
	2022		2022
United States	$	1,272	$	1,156
Asia		50		47
Europe		-		-
	$	1,322	$	1,203

As of August 31, 2022, the operating lease right-of-use assets of $652,000 and $88,000 are allocated in the ~~first quarter of fiscal 2021 on a modified retrospective basis,~~United States and ~~early adoption in fiscal 2020 is permitted. The Company is currently evaluating~~Asia, respectively.

There were no revenues through distributors for the ~~impact of this accounting standard update on its consolidated financial statements.~~

Inthree months ended August ~~2016, the FASB issued authoritative guidance related~~31, 2022 and 2021.

Sales to the ~~classification~~Company’s five largest customers accounted for approximately 98% and 95% of ~~certain cash receipts and cash payments on the statement of cash flows. The accounting standard update will be effective~~its net sales for the ~~Company beginning~~three months ended August 31, 2022 and 2021, respectively. Two customers accounted for approximately 67% and 69% of the Company’s net sales in the ~~first quarter of fiscal 2019 on a retrospective basis,~~three months ended August 31, 2022. Two customers accounted for approximately 23% and ~~early adoption is permitted. The Company is currently evaluating the impact of this accounting standard update on its consolidated statements of cash flows.~~

~~In October 2016, the FASB issued an accounting standard update that requires recognition~~16% of the ~~income tax consequences of intra-entity transfers of assets (other than inventory) at the transaction date. The accounting standard update will be effective for the Company beginning~~Company’s net sales in the ~~first quarter~~three months ended August 31, 2021. No other customers represented more than 10% of ~~fiscal 2019 on a modified retrospective basis,~~the Company's net sales for either of the three months ended August 31, 2022 and ~~early adoption is permitted. The Company is currently evaluating the impact of this accounting standard update on its consolidated financial statements.~~

In November 2016, the FASB issued authoritative guidance related to statements of cash flows. This guidance clarifies that amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of period total amounts shown on the statement of cash flows. The accounting standard update will be effective for the Company beginning in the first quarter of fiscal 2019 on a retrospective basis, and early adoption is permitted. The Company is currently evaluating the impact of this accounting standard update on its consolidated financial statements.

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of the financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes that appear elsewhere in this ~~report~~Report and with our Annual Report on Form 10-K for the fiscal year ended May 31, ~~2017~~2022 and the consolidated financial statements and notes thereto.

In addition to historical information, this ~~report~~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,~~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 ~~those~~ anticipated results or other expectations reflected in ~~the~~ forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this ~~report~~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.

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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.

COVID-19 PANDEMIC RESPONSE

The Company has been impacted by the outbreak of the novel coronavirus, known as COVID-19, which has spread throughout the world. Our top priority during the COVID-19 pandemic is protecting the health and safety of our employees and their families, along with our customers and community. We introduced policies and procedures to increase workplace flexibility, such as working remotely where possible to reduce the number of people who are on campus each day. As a global supplier of Critical Infrastructure Sectors, as defined by the Cybersecurity and Infrastructure Security Agency, we have supported and continue to support customers during the pandemic. In the interest of public health, all onsite operations generally use the minimum number of people to safely execute tasks and follow enhanced safety and health protocols including screenings, social distancing and use of personal protective equipment.

Due to the impact of the COVID-19 pandemic on customers and customers’ customers, the Company experienced a drop in customer orders and revenues during the fiscal year ended May 31, 2021 and in the last quarter of fiscal year ended May 31, 2020. In response, the Company implemented cost reduction initiatives to mitigate operating losses, including mandatory vacation days, shutdown days and executive staff pay reductions. The Company eliminated all cost reduction initiatives in the last quarter of the fiscal year ended May 31, 2021.

The Company will continue to monitor the situation. As of the date of this report, the Company cannot predict with certainty the potential effects the COVID-19 pandemic may have on the Company’s business and its operating results. While the overall environment remains uncertain, the Company continues to invest in priority areas with the objective of driving profitable growth over the long term.

OVERVIEW

We were founded in 1977 to develop and manufacture burn-in and test equipment for the semiconductor industry. Since our inception, we have sold more than 2,500 systems to semiconductor manufacturers, semiconductor contract assemblers and burn-in and test service companies worldwide. Our principal products currently are the ~~Advanced Burn-in~~FOX-XP, FOX-NP and ~~Test System, or ABTS, the FOX full~~FOX-CP wafer contact and singulated die/module parallel test and burn-in ~~system,~~systems, WaferPak Aligner, WaferPak contactors, ~~the~~ DiePak ~~carrier~~Loader, DiePak carriers and test fixtures.

Our net sales consist primarily of sales of systems, WaferPak Aligners and DiePak Loaders, WaferPak contactors, DiePak ~~Carriers,~~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.

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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, assumptions and judgments, including those related to customer programs and incentives, product returns, bad debts, inventories, income taxes, financing operations, warranty obligations, and long-term service contracts. Our estimates are derived from historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Those results form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. For a discussion of the critical accounting policies, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the fiscal year ended May 31, ~~2017.~~

2022.

There have been no material changes to our critical accounting policies and estimates during the ~~six~~three months ended ~~November 30, 2017~~August 31, 2022 compared to those discussed in our Annual Report on Form 10-K for the fiscal year ended May 31, ~~2017.~~

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
	August 31,
	2022			2021

Net sales		100.0	%		100.0	%
Cost of sales		58.0			59.6
Gross profit		42.0			40.4

Operating expenses:
Selling, general and administrative		23.7			34.6
Research and development		14.0			23.4

Total operating expenses		37.7			58.0

Income (loss) from operations		4.3			(17.6	)

Interest income (expense), net		1.1			(0.2	)
Gain from forgiveness of PPP loan		--			30.1
Other income, net		0.3			0.4

Income before income tax expense		5.7			12.7

Income tax expense		(0.2	)		(0.4	)

Net income		5.5	%		12.3	%

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THREE MONTHS ENDED ~~NOVEMBER 30, 2017~~AUGUST 31, 2022 COMPARED TO THREE MONTHS ENDED ~~NOVEMBER 30, 2016~~

AUGUST 31, 2021

NET SALES. Net sales increased to ~~$7.9~~$10.7 million for the three months ended ~~November 30, 2017~~August 31, 2022 from ~~$4.2~~$5.6 million for the three months ended ~~November 30, 2016,~~August 31, 2021, an increase of ~~87.9%~~89.0%. The increase in net sales for the three months ended ~~November 30, 2017~~August 31, 2022 was primarily due to the increases in ~~both~~ net sales of our ~~Test During Burn-in (TDBI) products and~~ wafer-level products. Net sales of ~~the TDBI products for the three months ended November 30, 2017 were $5.1 million, and increased approximately $2.4 million from the three months ended November 30, 2016. Net sales of the~~our wafer-level products for the three months ended ~~November 30, 2017~~August 31, 2022 were ~~$2.8~~$10.3 million, and increased approximately ~~$1.4~~$5.2 million from the three months ended ~~November 30, 2016.~~

August 31, 2021 due to stronger demand related to silicon carbide applications.

GROSS PROFIT. Gross profit increased to ~~$3.1~~$4.5 million for the three months ended ~~November 30, 2017~~August 31, 2022 from ~~$1.5~~$2.3 million for the three months ended ~~November 30, 2016,~~August 31, 2021, an increase of ~~114.0%~~approximately 96.4%. Gross profit margin increased to ~~39.5%~~42% for the three months ended ~~November 30, 2017~~August 31, 2022 from ~~34.7%~~40.4% for the three months ended ~~November 30, 2016.~~August 31, 2021. The increase in gross profit margin was primarily ~~due to~~the result of manufacturing efficiencies due to an increase in net ~~sales resulting in a 6.7% gross profit margin increase, partially offset by an increase in warranty provision resulting in a 1.7% decrease in gross profit margin.~~

sales.

SELLING, GENERAL AND ADMINISTRATIVE. SG&A expenses increased to ~~$1.9~~$2.5 million for the three months ended ~~November 30, 2017~~August 31, 2022 from ~~$1.7~~$2.0 million for the three months ended ~~November 30, 2016,~~August 31, 2021, an increase of ~~8.6%~~29.3%. The increase in SG&A expenses was primarily ~~due to an increase~~the result of increases in ~~employment related expenses.~~

headcount, bonuses and stock compensation.

RESEARCH AND DEVELOPMENT. R&D expenses increased to ~~$1.1~~$1.5 million for the three months ended ~~November 30, 2017~~August 31, 2022 from ~~$1.0~~$1.3 million for the three months ended ~~November 30, 2016,~~August 31, 2021, an increase of ~~4.8%~~13.4%. The increase in R&D expenses was primarily due to an increase in ~~employment related expenses.~~

employment-related expenses of $344,000, partially offset by a decrease in outside services of $130,000. The increase in employment-related expenses was primarily the result of increased bonuses and stock compensation due to an increase in net sales and profitability, and an increase in headcount.

INTEREST ~~EXPENSE.~~INCOME (EXPENSE), NET. Interest ~~expense~~income, net was ~~$105,000~~$121,000 for the three months ended ~~November 30, 2017~~August 31, 2022, compared with ~~$181,000~~interest expense, net of $9,000 for the three months ended ~~November 30, 2016.~~August 31, 2021. The ~~decrease in~~ interest ~~expense in the three months ended November 30, 2017 was primarily due to the debt issuance costs related to the convertible notes becoming fully amortized at the end of fiscal 2017.~~

~~OTHER (EXPENSE) INCOME, NET. Other expense, net was $7,000~~income for the three months ended ~~November 30, 2017 compared with other income,~~August 31, 2022 was related to interest earned on the Company’s $24.0 million net proceeds from the sale of ~~$43,000~~common stock in October 2021. The interest expense for the three months ended ~~November 30, 2016.~~August 31, 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 the SVB that on June 4, 2021, the Small Business Administration approved our PPP Loan forgiveness application for the entire PPP Loan balance of $1,679,000 and interest totaling $19,000, and we recognized a gain of $1,698,000.

OTHER INCOME, NET. Other income, net was $24,000 and $23,000 for the three months ended August 31, 2022 and 2021, respectively. The change ~~between~~in other ~~expense and other~~ income, net was primarily due to ~~losses or~~ gains realized in connection with the fluctuation in the value of the dollar compared to foreign currencies during the referenced periods.

INCOME TAX EXPENSE. Income tax ~~expenses were $15,000~~expense was $14,000 and ~~$30,000~~$23,000 for the three months ended ~~November 30, 2017~~August 31, 2022 and ~~2016,~~2021, respectively.

~~SIX MONTHS ENDED NOVEMBER 30, 2017 COMPARED TO SIX MONTHS ENDED NOVEMBER 30, 2016~~

~~NET SALES.~~

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LIQUIDITY AND CAPITAL RESOURCES

Net ~~sales increased to $14.9~~cash provided by operating activities was $5.5 million and $1.9 million for the ~~six~~three months ended November 30, 2017 from $9.5 million for the six months ended November 30, 2016, an increase of 56.2%. The increase in net sales for the six months ended November 30, 2017 was primarily due to the increases in both net sales of our Test During Burn-in (TDBI) productsAugust 31, 2022 and wafer-level products. Net sales of the TDBI products for the six months ended November 30, 2017 were $7.9 million, and increased approximately $2.6 million from the six months ended November 30, 2016. Net sales of the wafer-level products for the six months ended November 30, 2017 were $7.0 million, and increased approximately $2.8 million from the six months ended November 30, 2016.

GROSS PROFIT. Gross profit increased to $6.0 million for the six months ended November 30, 2017 from $3.7 million for the six months ended November 30, 2016, an increase of 64.9%. Gross profit margin increased to 40.6% for the six months ended November 30, 2017 from 38.5% for the six months ended November 30, 2016. The increase in gross profit margin was primarily due to manufacturing efficiencies due to an increase in net sales resulting in a 6.6% gross profit margin increase, partially offset by an increase in warranty provision resulting in a 2.1% decrease in gross profit margin, an increase in shipping cost resulting in a 0.9% decrease in gross profit margin, and an increase in direct material costs resulting in a 1.1% decrease in gross profit margin.

SELLING, GENERAL AND ADMINISTRATIVE. SG&A expenses increased to $3.6 million for the six months ended November 30, 2017 from $3.4 million for the six months ended November 30, 2016, an increase of 6.5%. The increase in SG&A expenses was primarily due to an increase in employment related expenses.

RESEARCH AND DEVELOPMENT. R&D expenses decreased to $2.0 million for the six months ended November 30, 2017 from $2.1 million for the six months ended November 30, 2016, a decrease of 2.6%. The decrease in R&D expenses was primarily due to a decrease in project expenses.

INTEREST EXPENSE. Interest expense was $212,000 for the six months ended November 30, 2017 compared with $359,000 for the six months ended November 30, 2016. The decrease in interest expense in the six months ended November 30, 2017 was primarily due to the debt issuance costs related to the convertible notes becoming fully amortized at the end of fiscal 2017.

OTHER (EXPENSE) INCOME, NET. Other expense, net was $67,000 for the six months ended November 30, 2017 compared with other income, net of $40,000 for the six months ended November 30, 2016. The change between other expense and other income was primarily due to losses or gains realized in connection with the fluctuation in the value of the dollar compared to foreign currencies during the referenced periods.

~~INCOME TAX EXPENSE. Income tax expenses were $10,000 and $34,000 for the six months ended November 30, 2017 and 2016, respectively.~~

~~LIQUIDITY AND CAPITAL RESOURCES~~

~~Net cash used in operating activities was $2.2 million and $1.4 million for the six months ended November 30, 2017 and 2016,~~2021, respectively. For the ~~six~~three months ended ~~November 30, 2017,~~August 31, 2022, net cash ~~used in~~provided by operating activities was primarily the result of net income of ~~$70,000,~~$589,000, as adjusted to exclude the effect of a non-cash charge of stock-based compensation expense of ~~$0.6 million~~$710,000 and depreciation and amortization ~~expense~~ of ~~$0.2 million. Net~~$89,000. Other changes in cash ~~used~~from operations primarily resulted from a decrease in ~~operations was also impacted~~accounts receivable of $7.6 million, partially offset by an increase in inventories of ~~$1.2~~$2.3 million, ~~an increase in prepaid expenses~~ and ~~other current assets of $1.1 million,~~ a decrease in accrued expenses of $1.1 million. The decrease in accounts ~~payable~~receivable was primarily due to collection of ~~$1.0~~accounts receivable related to higher revenue levels in the prior fiscal quarter. The increase in inventory was to support expected future shipments for customer orders. The decrease in accrued expenses was primarily due to the payments of bonus and sales commission accrual. For the three months ended August 31, 2021, net cash provided by operating activities was primarily the result of net income of $696,000, as adjusted to exclude the effect of forgiveness of PPP loan of $1.7 million, and a ~~decrease~~non-cash charge of stock-based compensation expense of $588,000 and depreciation and amortization of $73,000. Other changes in cash from operations primarily resulted from an increase in customer deposits and deferred revenue of ~~$0.2~~$3.1 million, partially offset by ~~a decrease~~an increase in ~~accounts receivable~~inventories of ~~$0.6~~$1.3 million. The increase in inventories is to support future shipments for customer orders. The increase in prepaid expenses and other current assets was primarily due to down payments to certain vendors. The decrease in accounts payable was primarily due to timing of vendor payments. The decrease in customer deposits and deferred revenue was primarily due to the ~~shipments against customer orders with~~receipt of additional down payments. The decrease in accounts receivable was due to improvements in customer payment terms. For the six months ended November 30, 2016, net cash used in operating activities was primarily the result of net loss of $2.2 million, as adjusted to exclude the effect of non-cash charge of stock-based compensation expense of $0.5 million. Net cash used in operations was also impacted by an increase in accounts receivable of $1.0 million and a decrease in customer deposits and deferred revenue of $0.7 million, partially offset by a decrease in inventories of $1.3 million and an increase in accounts payable of $0.7 million.payments from certain customers. The increase in ~~accounts receivable~~inventory was ~~primarily due~~ to ~~large~~support expected future shipments ~~toward the end of the quarter ended November 30, 2016. The decrease in~~for customer deposits and deferred revenue was primarily due to shipments to customers with down payments. The decrease in inventories is primarily due to the sales of systems on-hand at the beginning of the period. The increase in accounts payable was primarily due to inventory and capital equipment purchases.

~~Financing activities provided cash~~common stock under employee plans of ~~$0.6 million and $5.8 million~~$455,000, offset by the shares repurchased for ~~the six months ended November 30, 2017 and 2016, respectively.~~tax withholdings on vesting of RSUs of $1.2 million. Net cash provided by financing activities during the ~~six~~three months ended ~~November 30, 2017~~August 31, 2021 was primarily due to ~~$0.6 million in~~the net proceeds from ~~the~~ issuance of common stock under employee ~~plans. Net cash provided~~plans of $1.5 million, partially offset by ~~financing activities during the six months ended November 30, 2016 was due to~~ the net ~~proceeds~~payment on the line of ~~$5.3 million from the sale~~credit of our common stock in a private placement transaction with certain institutional and accredited investors that closed on September 28, 2016 and $0.5 million in proceeds from the issuance of common stock under employee plans.

$1.4 million.

The effect of fluctuation in exchange rates ~~used~~increased cash ~~of $7,000~~by $10,000 for the ~~six~~three months ended ~~November 30, 2017~~August 31, 2022, and ~~$43,000~~decreased cash by $2,000 for the ~~six~~three months ended ~~November 30, 2016.~~August 31, 2021. The ~~change in cash used was~~changes were due to the fluctuation in the value of the dollar compared to foreign currencies.

As of ~~November 30, 2017~~August 31, 2022 and May 31, ~~2017, the Company~~2022, we had working capital of ~~$23.2~~$49.4 million and ~~$21.5~~$49.0 million, respectively. ~~Working capital consists of cash and cash equivalents, short-term investments, accounts receivable, inventory and other current assets, less current liabilities.~~

We lease our manufacturing and office space under operating leases. We entered into a non-cancelable operating lease agreement for our United States manufacturing and office facilities, which was renewed in ~~November 2014~~February 2018 and expires in ~~June 2018.~~July 2023. 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.

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We anticipate that the existing cash balance together with future income from operations, collections of existing accounts receivable, revenue from our existing backlog of products as of this filing date, the sale of inventory on hand, ~~and~~ deposits and down payments against significant orders will be adequate to meet our ~~liquidity requirements for~~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.

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 ~~our~~the Company's Annual Report on Form 10-K for the year ended May 31, ~~2017.~~

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

We had no holdings of derivative financial or commodity instruments as of ~~November 30, 2017~~August 31, 2022 or May 31, ~~2017.~~

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 18 months or less.~~ We do not use any financial instruments for speculative or trading purposes. Fluctuations in interest rates would not have a material effect on our financial position, results of operations or cash flows.

A majority of our revenue and capital spending is transacted in U.S. Dollars. We ~~however,~~also enter into transactions in other currencies, primarily Euros, New Taiwan Dollar, and Japanese Yen. Since the price is determined at the time a purchase order is accepted, we are exposed to the risks of fluctuations in the foreign currency-U.S. Dollar exchange rates during the lengthy period from purchase order to ultimate payment. This exchange rate risk is partially offset to the extent that our subsidiaries incur expenses payable in their local currency. To date, we have not invested in instruments designed to hedge currency risks. In addition, our subsidiaries typically carry debt or other obligations due us that may be denominated in either their local currency or U.S. Dollars.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, weour subsidiaries and ~~our subsidiaries~~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.

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.

Item 1. LEGAL PROCEEDINGS

Item 1A. RISK FACTORS

Please refer to the description of the risk factors associated with our business previously disclosed in Part I, Item 1A - "Risk Factors" of our Annual Report on Form 10-K for the year ended May 31, ~~2017~~2022 filed with the Securities and Exchange Commission on August ~~29, 2017. There have been no material changes from the risk factors previously described under Item 1A of our Annual Report on Form 10-K for the fiscal year ended May 31, 2017.~~

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Item 3. DEFAULTS UPON SENIOR SECURITIES

Item 4. MINE SAFETY DISCLOSURES

Item 5. OTHER INFORMATION

~~The Exhibits listed on the accompanying "Index to Exhibits" are filed as part of, or incorporated by reference into, this report.~~

~~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.~~

*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.

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.

California		94-2424084
(State or other jurisdiction of		~~(I.R.S. Employer Identification No.)~~
incorporation or organization)		(I.R.S. Employer Identification No.)

400 Kato Terrace, Fremont, CA		94539
~~Fremont, CA~~		~~94539~~
~~(Address~~ (Address of principal executive offices)		(Zip Code)
~~executive offices)~~

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock Par value $0.01 per share	AEHR	The NASDAQ Capital Market

PART I. FINANCIAL INFORMATION

ITEM 1.	Financial Statements (Unaudited)		3

	Condensed Consolidated Balance Sheets at~~November 30, 2017~~ August 31, 2022 and May 31, ~~2017~~2022	4	3

	Condensed Consolidated Statements of Operations for the Three ~~and Six~~ Months Ended~~November 30, 2017~~ August 31, 2022 and ~~2016~~ 2021	5	4

	Condensed Consolidated Statements of Comprehensive Income ~~(Loss)~~ for theThree ~~and Six~~ Months Ended~~November 30, 2017~~ August 31, 2022 and ~~2016~~2021	6	5

	Condensed Consolidated Statements of Shareholders’ Equity for the Three Months Ended August 31, 2022 and 2021		6
				��
	Condensed Consolidated Statements of Cash Flows for the~~Six~~ Three Months Ended~~November 30, 2017~~ August 31, 2022 and ~~2016~~2021		7

	Notes to Condensed Consolidated Financial Statements		8

ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	20	22

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risks	25	27

ITEM 4.	Controls and Procedures	26	28


PART II. OTHER INFORMATION

ITEM 1.	Legal Proceedings	27	29

ITEM 1A.	Risk Factors	27	29

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27	29

ITEM 3.	Defaults Upon Senior Securities	27	29

ITEM 4.	Mine Safety Disclosures		29

ITEM 5.	Other Information		29

ITEM 6.	Exhibits		30

SIGNATURES			31


~~ITEM 4. Mine Safety Disclosures~~	272

~~ITEM 5. Other Information~~	27Table of Contents

~~ITEM 6. Exhibits~~	27

~~SIGNATURES~~	28

~~Index to Exhibits~~	29

~~California~~		~~94-2424084~~ AEHR TEST SYSTEMS
(Exact name of Registrant as specified in its charter)

	November 30,	May 31,
	2017	2017
		(1)
ASSETS
Current assets:
Cash and cash equivalents	$9,959	$17,803
Short-term investments	5,969	--
Accounts receivable, net	3,490	4,010
Inventories	8,225	6,604
Prepaid expenses and other current assets	2,098	961

Total current assets	29,741	29,378

Property and equipment, net	1,166	1,419
Other assets	94	95
Total assets	$31,001	$30,892

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$1,789	2,808
Accrued expenses	1,607	1,609
Customer deposits and deferred revenue, short-term	3,142	3,467

Total current liabilities	6,538	7,884

Long-term debt	6,110	6,110
Deferred revenue, long-term	251	104
Total liabilities	12,899	14,098

Aehr Test Systems shareholders' equity:
Common stock, $0.01 par value:
Authorized: 75,000 shares; Issued and outstanding: 21,797 shares and 21,340 shares at November 30, 2017 and May 31, 2017, respectively	218	213
Additional paid-in capital	82,304	81,128
Accumulated other comprehensive income	2,306	2,249
Accumulated deficit	(66,707)	(66,777)

Total Aehr Test Systems shareholders' equity	18,121	16,813
Noncontrolling interest	(19)	(19)

Total shareholders' equity	18,102	16,794
Total liabilities and shareholders' equity	$31,001	$30,892

	Three Months Ended		Six Months Ended
	November 30,		November 30,
	2017	2016	2017	2016


Net sales	$7,923	$4,216	$14,893	$9,534
Cost of sales	4,792	2,753	8,844	5,865
Gross profit	3,131	1,463	6,049	3,669

Operating expenses:
Selling, general and administrative	1,854	1,707	3,645	3,423
Research and development	1,090	1,040	2,045	2,100
Total operating expenses	2,944	2,747	5,690	5,523

Income (loss) from operations	187	(1,284)	359	(1,854)

Interest expense, net	(105)	(181)	(212)	(359)
Other (expense) income, net	(7)	43	(67)	40

Income (loss) before income tax expense	75	(1,422)	80	(2,173)

Income tax expense	(15)	(30)	(10)	(34)
Net income (loss)	60	(1,452)	70	( 2,207)
Less: Net income attributable to the noncontrolling interest	--	--	--	--

Net income (loss) attributable to Aehr Test Systems common shareholders	$60	$(1,452)	$70	$(2,207)

Net income (loss) per share
Basic	$0.00	$(0.09)	$0.00	$(0.15)
Diluted	$0.00	$(0.09)	$0.00	$(0.15)

Shares used in per share calculations:
Basic	21,645	16,029	21,531	14,673
Diluted	22,883	16,029	22,937	14,673

	~~Available~~
	~~Shares~~
~~Balance, May 31, 2017~~	~~2,169~~

~~Options granted~~	~~(224~~)
~~RSUs granted~~	~~(64~~)
~~Shares cancelled~~	--

~~Balance, August 31, 2017~~	~~1,881~~

~~Options granted~~	~~(41~~)
~~RSUs granted~~	--
~~Shares cancelled~~	--

~~Balance, November 30, 2017~~	~~1,840~~

	Outstanding Options
		Weighted
	Number	Average	Aggregate
	of	Exercise	Intrinsic
	Shares	Price	Value
Balances, May 31, 2017	3,074	$1.73	$8,763

Options granted	224	$3.93
Options cancelled	--	$--
Options exercised	(189)	$1.23

Balances, August 31, 2017	3,109	$1.92	$4,612

Options granted	41	$3.46
Options cancelled	--	$--
Options exercised	(132)	$1.46

Balances, November 30, 2017	3,018	$1.96	$2,230

Options fully vested and expected to vest at November 30, 2017	2,984	$1.95	$2,220

	Options Outstanding			Options Exercisable
	at November 30, 2017			at November 30, 2017
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
$0.59-$0.97	424	1.31	$0.68	424	1.31	$0.68
$1.09-$1.36	645	2.11	$1.27	645	2.10	$1.27
$1.68-$2.06	487	4.73	$1.74	276	4.03	$1.79
$2.10-$2.81	1,197	4.01	$2.45	953	3.99	$2.47
$3.46-$3.93	265	6.66	$3.88	22	6.66	$3.88
$0.59-$3.93	3,018	3.57	$1.96	2,320	3.00	$1.74	$1,985

	Cost	Gross Unrealized Loss	Estimated Fair Value

Cash	$1,802	$--	$1,802
Cash equivalents:
Money market funds	4,164	--	4,164
U.S. Treasury securities	3,993	--	3,993
Total Cash equivalents	8,157	--	8,157
Total Cash and Cash equivalents	$9,959	$--	$9,959
Short-term investments:
U.S. Treasury securities	$5,972	$3	$5,969
Total Cash, Cash equivalents and Investments	$15,931	$3	$15,928

	Balance as of
	November 30, 2017	Level 1	Level 2	Level 3
Money market funds	$4,164	$4,164	$--	$--
U.S. Treasury securities	9,962	9,962	--	--
Certificate of deposit	50	--	50	--
Assets	$14,176	$14,126	$50	$--

	Balance as of
	May 31, 2017	Level 1	Level 2	Level 3
Money market funds	$15,516	$15,516	$--	$--
Certificate of deposit	50	--	50	--
Assets	$15,566	$15,516	$50	$--

	United
	States	Asia	Europe	Total
Three months ended November 30, 2017:
Net sales	$1,964	$5,909	$50	$7,923
Property and equipment, net	1,116	39	11	1,166

Six months ended November 30, 2017:
Net sales	$3,254	$11,569	$70	$14,893
Property and equipment, net	1,116	39	11	1,166

Three months ended November 30, 2016:
Net sales	$1,709	$2,256	$251	$4,216
Property and equipment, net	740	39	14	793

Six months ended November 30, 2016:
Net sales	$4,873	$4,166	$495	$9,534
Property and equipment, net	740	39	14	793

	Cumulative Translation Adjustments	Unrealized Loss on Investments, Net	Total

Balance at May 31, 2017	$2,249	$--	$2,249
Other comprehensive income (loss) before reclassifications	60	(3)	57
Amounts reclassified out of AOCI	--	--	--
Other comprehensive income (loss), net of tax	60	(3)	57
Balance at November 30, 2017	$2,309	$(3)	$2,306

Exhibit No.	~~Aehr Test Systems~~ ~~(Registrant)~~	Description

~~Date: January 12, 2018~~ 3.1(1)	~~By:~~	~~/s/GAYN ERICKSON~~	Restated Articles of Incorporation of Registrant.
		~~Gayn Erickson~~
3.2(2)		~~President and Chief Executive Officer~~

~~Date: January 12, 2018~~	~~By:~~	~~/s/KENNETH B. SPINK~~
		~~Kenneth B. Spink~~
		~~Vice President of Finance and Chief Financial Officer~~

~~Exhibit No.~~		~~Description~~
~~3.1(1)~~		Amended and Restated Bylaws of the Registrant.

31.1		Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

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

(2)	Incorporated by reference to Exhibit 3.1 previously filed with the Company’s Current Report on Form 8-K filed September 9, 2020 (File No. 000-22893).

	Aehr Test Systems
	(Registrant)

Date: October 14, 2022	By:	/s/ GAYN ERICKSON
		Gayn Erickson
		President and Chief Executive Officer
		(Principal Executive Officer)



Date: October 14, 2022	By:	/s/ KENNETH B. SPINK
		Kenneth B. Spink
		Vice President of Finance and Chief Financial Officer
		(Principal Financial and Accounting Officer)