UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended November 30, 2017
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _________ to __________
Commission file number: 000-22893
AEHR TEST SYSTEMS | ||
(Exact name of Registrant as specified in its charter) |
California | 94-2424084 | |
(State or other jurisdiction of | (I.R.S. Employer Identification No.) | |
incorporation or organization) | ||
400 Kato Terrace | ||
Fremont, CA | 94539 | |
(Address of principal | (Zip Code) | |
executive offices) |
(510) 623-9400
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period asthat the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes X☒ No ___
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes X☒ No ___
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large“large accelerated filer," "accelerated” “accelerated filer," "smaller” “smaller reporting company,"” and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ___
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol (s) | Name of each exchange on which registered |
Common Stock par value of $0.01 per share | AEHR | The NASDAQ Capital Market |
Number of shares of the registrant’s common stock, $0.01 par value, outstanding as of December 29, 2017March 31, 2023 was 21,802,037.
AEHR TEST SYSTEMS
FORM 10-Q
FOR THE QUARTER ENDED NOVEMBER 30, 2017
INDEX
3 | |||
Condensed Consolidated Balance Sheets at | 3 | ||
4 | |||
4 | |||
6 | |||
8 | |||
9 | |||
Management's Discussion and Analysis of Financial Condition and Results of Operations | 25 | ||
30 | |||
30 | |||
31 | |||
31 | |||
31 | |||
31 | |||
31 | |||
31 | |||
32 | |||
33 |
PART I. FINANCIAL INFORMATION
Item 1.FINANCIAL STATEMENTS (Unaudited)
AEHR TEST SYSTEMS
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(unaudited)
November 30, | 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 |
|
| February 28, |
|
| May 31, |
| ||
|
| 2023 |
|
| 2022 |
| ||
|
|
|
|
|
| (1) | ||
ASSETS |
|
|
|
|
|
|
| |
Current assets: |
|
|
|
|
|
|
| |
Cash and cash equivalents |
| $ | 17,188 |
|
| $ | 31,484 |
|
Short-term investments |
|
| 25,577 |
|
|
| - |
|
Trade and other accounts receivable, net |
|
| 11,389 |
|
|
| 12,859 |
|
Inventories |
|
| 21,619 |
|
|
| 15,051 |
|
Prepaid expenses and other current assets |
|
| 808 |
|
|
| 613 |
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
| 76,581 |
|
|
| 60,007 |
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
| 1,281 |
|
|
| 1,203 |
|
Operating lease right-of-use assets |
|
| 6,293 |
|
|
| 917 |
|
Other assets |
|
| 241 |
|
|
| 201 |
|
|
|
|
|
|
|
|
|
|
Total assets |
| $ | 84,396 |
|
| $ | 62,328 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
| 4,988 |
|
|
| 4,195 |
|
Accrued expenses |
|
| 3,489 |
|
|
| 3,610 |
|
Operating lease liabilities, short-term |
|
| 68 |
|
|
| 794 |
|
Customer deposits and deferred revenue, short-term |
|
| 843 |
|
|
| 2,415 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
| 9,388 |
|
|
| 11,014 |
|
|
|
|
|
|
|
|
|
|
Operating lease liabilities, long-term |
|
| 6,324 |
|
|
| 212 |
|
Deferred revenue, long-term |
|
| 8 |
|
|
| 69 |
|
Other long-term liabilities |
|
| 42 |
|
|
| 44 |
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
| 15,762 |
|
|
| 11,339 |
|
|
|
|
|
|
|
|
|
|
Shareholders' equity: |
|
|
|
|
|
|
|
|
Common stock, $0.01 par value: Authorized: 75,000 shares; Issued and outstanding: 28,320 shares and 27,120 shares as of February 28, 2023 and May 31, 2022, respectively |
|
| 283 |
|
|
| 271 |
|
Additional paid-in capital |
|
| 126,930 |
|
|
| 117,686 |
|
Accumulated other comprehensive loss |
|
| (162 | ) |
|
| (105 | ) |
Accumulated deficit |
|
| (58,417 | ) |
|
| (66,863 | ) |
|
|
|
|
|
|
|
|
|
Total shareholders' equity |
|
| 68,634 |
|
|
| 50,989 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders' equity |
| $ | 84,396 |
|
| $ | 62,328 |
|
(1) | The condensed consolidated balance sheet as of May 31, 2022 has been derived from the audited consolidated financial statements at that date. |
The accompanying notes are an integral part of these
3 |
Table of Contents |
AEHR TEST SYSTEMS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
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 |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| February 28, |
|
| February 28, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net sales |
| $ | 17,206 |
|
| $ | 15,283 |
|
| $ | 42,692 |
|
| $ | 30,540 |
|
Cost of sales |
|
| 8,331 |
|
|
| 8,886 |
|
|
| 21,425 |
|
|
| 17,343 |
|
Gross profit |
|
| 8,875 |
|
|
| 6,397 |
|
|
| 21,267 |
|
|
| 13,197 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
| 3,250 |
|
|
| 2,612 |
|
|
| 8,650 |
|
|
| 7,054 |
|
Research and development |
|
| 1,832 |
|
|
| 1,529 |
|
|
| 4,881 |
|
|
| 4,163 |
|
Total operating expenses |
|
| 5,082 |
|
|
| 4,141 |
|
|
| 13,531 |
|
|
| 11,217 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
| 3,793 |
|
|
| 2,256 |
|
|
| 7,736 |
|
|
| 1,980 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income (expense), net |
|
| 374 |
|
|
| 1 |
|
|
| 758 |
|
|
| (9 | ) |
Gain from forgiveness of PPP loan |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,698 |
|
Other (expense) income, net |
|
| (18 | ) |
|
| 10 |
|
|
| 1 |
|
|
| 68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
| 4,149 |
|
|
| 2,267 |
|
|
| 8,495 |
|
|
| 3,737 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
| (17 | ) |
|
| (24 | ) |
|
| (49 | ) |
|
| (81 | ) |
Net income |
| $ | 4,132 |
|
| $ | 2,243 |
|
| $ | 8,446 |
|
| $ | 3,656 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 0.15 |
|
| $ | 0.08 |
|
| $ | 0.31 |
|
| $ | 0.14 |
|
Diluted |
| $ | 0.14 |
|
| $ | 0.08 |
|
| $ | 0.29 |
|
| $ | 0.13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in per share calculations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 27,893 |
|
|
| 26,871 |
|
|
| 27,571 |
|
|
| 25,684 |
|
Diluted |
|
| 29,373 |
|
|
| 28,854 |
|
|
| 29,080 |
|
|
| 27,510 |
|
The accompanying notes are an integral part of these
4 |
Table of Contents |
AEHR TEST SYSTEMS
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands, unaudited)
Three Months Ended | Six Months Ended | |||
November 30, | November 30, | |||
2017 | 2016 | 2017 | 2016 | |
Net income (loss) | $60 | $(1,452) | $70 | $(2,207) |
Other comprehensive income (loss), net of tax: Net change in unrealized loss on investments | (3) | -- | (3) | -- |
Net change in cumulative translation adjustments | 1 | (55) | 60 | (48) |
Total comprehensive income (loss) | 58 | (1,507) | 127 | (2,255) |
Less: Comprehensive income attributable to the noncontrolling interest | -- | 2 | -- | 1 |
Comprehensive income (loss), attributable to Aehr Test Systems common shareholders | $58 | $(1,509) | $127 | $(2,256) |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| February 28, |
|
| February 28, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income |
| $ | 4,132 |
|
| $ | 2,243 |
|
| $ | 8,446 |
|
| $ | 3,656 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income before reclassification: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in unrealized loss on investments |
|
| (16 | ) |
|
| - |
|
|
| (22 | ) |
|
| - |
|
Net change in cumulative translation adjustments |
|
| 9 |
|
|
| (23 | ) |
|
| (35 | ) |
|
| (103 | ) |
Other comprehensive loss, net of tax |
|
| (7 | ) |
|
| (23 | ) |
|
| (57 | ) |
|
| (103 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
| $ | 4,125 |
|
| $ | 2,220 |
|
| $ | 8,389 |
|
| $ | 3,553 |
|
The accompanying notes are an integral part of these
5 |
Table of Contents |
AEHR TEST SYSTEMS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Six Months Ended | ||
November 30, | ||
2017 | 2016 | |
Cash flows from operating activities: | ||
Net income (loss) | $70 | $(2,207) |
Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||
Stock-based compensation expense | 580 | 534 |
(Recovery of) provision for doubtful accounts | (14) | 12 |
Amortization of debt issuance costs | -- | 89 |
Depreciation and amortization | 190 | 129 |
Changes in operating assets and liabilities: | ||
Accounts receivable | 592 | (972) |
Inventories | (1,249) | 1,335 |
Prepaid expenses and other current assets | (1,135) | (138) |
Accounts payable | (1,005) | 721 |
Accrued expenses | 5 | (201) |
Customer deposits and deferred revenue | (178) | (739) |
Income taxes payable | (9) | 21 |
Net cash used in operating activities | (2,153) | (1,416) |
Cash flows from investing activities: | ||
Purchases of investments | (5,972) | -- |
Purchases of property and equipment | (313) | (88) |
Net cash used in investing activities | (6,285) | (88) |
Cash flows from financing activities: | ||
Proceeds from issuance of common stock under private placement, net of issuance costs | -- | 5,299 |
Proceeds from issuance of common stock under employee plans, net of taxes paid related to share settlement of equity awards | 601 | 463 |
Net cash provided by financing activities | 601 | 5,762 |
Effect of exchange rates on cash and cash equivalents | (7) | (43) |
Net (decrease) increase in cash and cash equivalents | (7,844) | 4,215 |
Cash and cash equivalents, beginning of period | 17,803 | 939 |
Cash and cash equivalents, end of period | $9,959 | $5,154 |
Supplemental disclosure of non-cash flow information: | ||
Fair value of common stock issued to settle accounts payable | $-- | $323 |
Transfers of property and equipment to inventories | $372 | $372 |
|
|
|
| Accumulated |
|
|
|
|
| |||||||||||||||
|
|
|
|
|
| Additional |
|
| Other |
|
|
|
| Total |
| |||||||||
|
| Common Stock |
|
| Paid-in |
|
| Comprehensive |
|
| Accumulated |
|
| Shareholders' |
| |||||||||
Three Months Ended February 28, 2023 |
| Shares |
|
| Amount |
|
| Capital |
|
| Income (Loss) |
|
| Deficit |
|
| Equity |
| ||||||
Balances, November 30, 2022 |
|
| 27,732 |
|
| $ | 277 |
|
| $ | 119,094 |
|
| $ | (155 | ) |
| $ | (62,549 | ) |
| $ | 56,667 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock under employee plans |
|
| 395 |
|
|
| 4 |
|
|
| 849 |
|
|
| - |
|
|
| - |
|
|
| 853 |
|
Shares repurchased for tax withholdings on vesting of restricted stock units |
|
| (16 | ) |
|
| - |
|
|
| (464 | ) |
|
| - |
|
|
| - |
|
|
| (464 | ) |
Proceeds from public offerings, net of issuance costs |
|
| 209 |
|
|
| 2 |
|
|
| 6,851 |
|
|
| - |
|
|
| - |
|
|
| 6,853 |
|
Stock-based compensation |
|
| - |
|
|
| - |
|
|
| 600 |
|
|
| - |
|
|
| - |
|
|
| 600 |
|
Net income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 4,132 |
|
|
| 4,132 |
|
Net unrealized loss on investments |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (16 | ) |
|
| - |
|
|
| (16 | ) |
Foreign currency translation adjustment |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 9 |
|
|
| - |
|
|
| 9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, February 28, 2023 |
|
| 28,320 |
|
| $ | 283 |
|
| $ | 126,930 |
|
| $ | (162 | ) |
| $ | (58,417 | ) |
| $ | 68,634 |
|
|
|
|
| Accumulated |
|
|
|
|
| |||||||||||||||
|
|
|
|
|
| Additional |
|
| Other |
|
|
|
| Total |
| |||||||||
|
| Common Stock |
|
| Paid-in |
|
| Comprehensive |
|
| Accumulated |
|
| Shareholders' |
| |||||||||
Nine Months Ended February 28, 2023 |
| 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 |
|
| 1,156 |
|
|
| 11 |
|
|
| 1,954 |
|
|
| - |
|
|
| - |
|
|
| 1,965 |
|
Shares repurchased for tax withholdings on vesting of restricted stock units |
|
| (165 | ) |
|
| (1 | ) |
|
| (1,679 | ) |
|
| - |
|
|
| - |
|
|
| (1,680 | ) |
Proceeds from public offerings, net of issuance costs |
|
| 209 |
|
|
| 2 |
|
|
| 6,851 |
|
|
| - |
|
|
| - |
|
|
| 6,853 |
|
Stock-based compensation |
|
| - |
|
|
| - |
|
|
| 2,118 |
|
|
| - |
|
|
| - |
|
|
| 2,118 |
|
Net income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 8,446 |
|
|
| 8,446 |
|
Net unrealized loss on investments |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (22 | ) |
|
| - |
|
|
| (22 | ) |
Foreign currency translation adjustment |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (35 | ) |
|
| - |
|
|
| (35 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, February 28, 2023 |
|
| 28,320 |
|
| $ | 283 |
|
| $ | 126,930 |
|
| $ | (162 | ) |
| $ | (58,417 | ) |
| $ | 68,634 |
|
6 |
Table of Contents |
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
| |||||||||
|
|
|
|
| Additional |
|
| Other |
|
|
|
|
| Total |
| |||||||||
|
| Common Stock |
|
| Paid-in |
|
| Comprehensive |
|
| Accumulated |
|
| Shareholders' |
| |||||||||
Three Months Ended February 28, 2022 |
| Shares |
|
| Amount |
|
| Capital |
|
| Loss |
|
| Deficit |
|
| Equity |
| ||||||
Balances, November 30, 2021 |
|
| 26,835 |
|
| $ | 268 |
|
| $ | 115,602 |
|
| $ | (108 | ) |
| $ | (74,900 | ) |
| $ | 40,862 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock under employee plans |
|
| 79 |
|
|
| 1 |
|
|
| 25 |
|
|
| - |
|
|
| - |
|
|
| 26 |
|
Stock-based compensation |
|
| - |
|
|
| - |
|
|
| 880 |
|
|
| - |
|
|
| - |
|
|
| 880 |
|
Net income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 2,243 |
|
|
| 2,243 |
|
Foreign currency translation adjustment |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (23 | ) |
|
| - |
|
|
| (23 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, February 28, 2022 |
|
| 26,914 |
|
| $ | 269 |
|
| $ | 116,507 |
|
| $ | (131 | ) |
| $ | (72,657 | ) |
| $ | 43,988 |
|
|
|
|
|
|
| Accumulated |
|
|
|
| ||||||||||||||
|
|
|
| Additional |
|
| Other |
|
|
|
|
| Total |
| ||||||||||
|
| Common Stock |
|
| Paid-in |
|
| Comprehensive |
|
| Accumulated |
|
| Shareholders' |
| |||||||||
Nine Months Ended February 28, 2022 |
| Shares |
|
| Amount |
|
| Capital |
|
| Loss |
|
| Deficit |
|
| Equity |
| ||||||
Balances, May 31, 2021 |
|
| 23,725 |
|
| $ | 237 |
|
| $ | 87,553 |
|
| $ | (28 | ) |
| $ | (76,313 | ) |
| $ | 11,449 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock under employee plans |
|
| 1,492 |
|
|
| 15 |
|
|
| 2,755 |
|
|
| - |
|
|
| - |
|
|
| 2,770 |
|
Proceeds from public offerings, net of issuance costs |
|
| 1,697 |
|
|
| 17 |
|
|
| 24,013 |
|
|
| - |
|
|
| - |
|
|
| 24,030 |
|
Stock-based compensation |
|
| - |
|
|
| - |
|
|
| 2,186 |
|
|
| - |
|
|
| - |
|
|
| 2,186 |
|
Net income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 3,656 |
|
|
| 3,656 |
|
Foreign currency translation adjustment |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (103 | ) |
|
| - |
|
|
| (103 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, February 28, 2022 |
|
| 26,914 |
|
| $ | 269 |
|
| $ | 116,507 |
|
| $ | (131 | ) |
| $ | (72,657 | ) |
| $ | 43,988 |
|
The accompanying notes are an integral part of these
7 |
Table of Contents |
AEHR TEST SYSTEMS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
|
| Nine Months Ended |
| |||||
|
| February 28, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Cash flows from operating activities: |
|
|
|
|
|
| ||
Net income |
| $ | 8,446 |
|
| $ | 3,656 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Stock-based compensation expense |
|
| 2,095 |
|
|
| 2,186 |
|
Provision for doubtful accounts |
|
| 24 |
|
|
| - |
|
Depreciation and amortization |
|
| 337 |
|
|
| 262 |
|
Non-cash operating lease expense |
|
| 10 |
|
|
| (36 | ) |
Accretion of investment discount |
|
| (305 | ) |
|
| - |
|
Gain from forgiveness of PPP loan |
|
| - |
|
|
| (1,698 | ) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Trade and other accounts receivable |
|
| 1,414 |
|
|
| (3,454 | ) |
Inventories |
|
| (6,783 | ) |
|
| (5,449 | ) |
Prepaid expenses and other assets |
|
| (167 | ) |
|
| (28 | ) |
Accounts payable |
|
| 822 |
|
|
| 444 |
|
Accrued expenses |
|
| (126 | ) |
|
| 375 |
|
Customer deposits and deferred revenue |
|
| (1,633 | ) |
|
| 5,999 |
|
Income taxes payable |
|
| 9 |
|
|
| 18 |
|
Net cash provided by operating activities |
|
| 4,143 |
|
|
| 2,275 |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchases of investments |
|
| (33,294 | ) |
|
| - |
|
Proceeds from maturities of investments |
|
| 8,000 |
|
|
| - |
|
Purchases of property and equipment |
|
| (178 | ) |
|
| (218 | ) |
Net cash used in investing activities |
|
| (25,472 | ) |
|
| (218 | ) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Line of credit repayments, net |
|
| - |
|
|
| (1,400 | ) |
Proceeds from issuance of common stock under employee plans |
|
| 1,965 |
|
|
| 3,139 |
|
Shares repurchased for tax withholdings on vesting of restricted stock units |
|
| (1,680 | ) |
|
| (369 | ) |
Proceeds from issuance of common stock from public offering, net of issuance costs |
|
| 6,853 |
|
|
| 24,030 |
|
Net cash provided by financing activities |
|
| 7,138 |
|
|
| 25,400 |
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash, cash equivalents and restricted cash |
|
| (35 | ) |
|
| (19 | ) |
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash, cash equivalents and restricted cash |
|
| (14,226 | ) |
|
| 27,438 |
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash, beginning of period(1) |
|
| 31,564 |
|
|
| 4,662 |
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash, end of period(1) |
| $ | 17,338 |
|
| $ | 32,100 |
|
(1) | Includes restricted cash in other assets. |
The accompanying notes are an integral part of these condensed consolidated financial statements.
8 |
Table of Contents |
AEHR TEST SYSTEMS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCCOUNTING POLICIES
The accompanying financial information has been prepared by Aehr Test Systems, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission 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, 20172022 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 the standalone selling prices related to revenue recognition, 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.
RECLASSIFICATIONS. Certain reclassifications 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, trainingmade to be supplied after delivery of the systems, and test programs specificprior year condensed consolidated financial statements 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.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. The Company’s significant accounting policies are disclosed in the Company’s Annual Report on Form 10-K for the year ended May 31, 2017.2022. There have been no significant changes in ourthe Company’s significant accounting policies during the sixthree and nine months ended November 30, 2017.
2. STOCK-BASED COMPENSATION
Three Months Ended | Six Months Ended | |||
November 30, | November 30, | |||
2017 | 2016 | 2017 | 2016 | |
Stock-based compensation in the form of employee stock options, RSUs and ESPP purchase rights, included in: | ||||
Cost of sales | $57 | $23 | $79 | $47 |
Selling, general and administrative | 218 | 141 | 368 | 388 |
Research and development | 89 | 51 | 133 | 99 |
Total stock-based compensation | $364 | $215 | $580 | $534 |
Accounting Standards Not Yet Adopted
In June 2016, the Company recorded stock-based compensation related to stock optionsFinancial Accounting Standards Board issued Accounting Standard Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326), that requires measurement and RSUsrecognition of $207,000 and $185,000, respectively. During the six months ended November 30, 2017 and 2016, the Company recorded stock-based compensation related to stock options and RSUs of $408,000 and $464,000, respectively.
9 |
Table of Contents |
3. REVENUE
Revenue recognition
The Company recognizes revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services by following a five-step process: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price, and (5) recognize revenue when or as the Company satisfies a performance obligation, as further described below.
Performance obligations include sales of systems, contactors, spare parts, and services, as well as installation and training services included in customer contracts.
A contract’s transaction price is allocated to each distinct performance obligation. In determining the transaction price, the Company evaluates whether the price is subject to refund or adjustment to determine the net consideration to which the Company expects to be entitled. The Company generally does not grant return privileges, except for defective products during the warranty period.
For contracts that contain multiple performance obligations, the Company allocates the transaction price to the performance obligations on a relative standalone selling price basis. Standalone selling prices are based on multiple factors including, but not limited to historical discounting trends for products and services and pricing practices in different geographies.
Revenue for systems and spares are recognized at a point in time, which is generally upon shipment or delivery. Revenue from services is recognized over time as services are completed or ratably over the contractual period of generally one year or less.
The Company has elected the practical expedient to not assess whether a contract has a significant financing component as the Company’s standard payment terms are less than one year.
The Company sells its products primarily through a direct sales force. In certain international markets, the Company sells its products through independent distributors.
Transfer of control is evidenced upon passage of title and risk of loss to the customer unless we are required to provide additional services.
Disaggregation of revenue
The following tables show net sales 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.
10 |
Table of Contents |
The Company’s net sales by product category are as follows (in thousands):
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| February 28, |
|
| February 28, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Type of good / service: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Systems |
| $ | 9,821 |
|
| $ | 7,172 |
|
| $ | 26,315 |
|
| $ | 14,805 |
|
Contactors |
|
| 6,299 |
|
|
| 7,426 |
|
|
| 13,400 |
|
|
| 13,468 |
|
Services |
|
| 1,086 |
|
|
| 685 |
|
|
| 2,977 |
|
|
| 2,267 |
|
|
| $ | 17,206 |
|
| $ | 15,283 |
|
| $ | 42,692 |
|
| $ | 30,540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product lines: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wafer-level |
| $ | 16,810 |
|
| $ | 14,879 |
|
| $ | 41,532 |
|
| $ | 29,130 |
|
Test During Burn-In |
|
| 396 |
|
|
| 404 |
|
|
| 1,160 |
|
|
| 1,410 |
|
|
| $ | 17,206 |
|
| $ | 15,283 |
|
| $ | 42,692 |
|
| $ | 30,540 |
|
The following presents information about the Company’s net sales in different geographic areas. Net sales are based upon ship-to location (in thousands):
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| February 28, |
|
| February 28, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Geographic region: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
United States |
| $ | 2,343 |
|
| $ | 1,057 |
|
| $ | 7,761 |
|
| $ | 2,458 |
|
Asia |
|
| 14,849 |
|
|
| 14,213 |
|
|
| 34,873 |
|
|
| 28,066 |
|
Europe |
|
| 14 |
|
|
| 13 |
|
|
| 58 |
|
|
| 16 |
|
|
| $ | 17,206 |
|
| $ | 15,283 |
|
| $ | 42,692 |
|
| $ | 30,540 |
|
With the exception of the stock-based awards, vesting schedulesamount of service contracts and expectations of future employee behavior as evidenced by changesextended warranties, the Company’s product net sales are recognized at a point in time when control transfers to the termscustomer. The following presents net sales based on timing of recognition (in thousands):
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| February 28, |
|
| February 28, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Timing of revenue recognition: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Products and services transferred at a point in time |
| $ | 16,863 |
|
| $ | 14,932 |
|
| $ | 41,523 |
|
| $ | 29,492 |
|
Services transferred over time |
|
| 343 |
|
|
| 351 |
|
|
| 1,169 |
|
|
| 1,048 |
|
|
| $ | 17,206 |
|
| $ | 15,283 |
|
| $ | 42,692 |
|
| $ | 30,540 |
|
Contract balances
A receivable is recognized in the period the Company delivers goods or provides services or when the Company’s right to consideration is unconditional. The Company usually does not record contract assets because the Company has an unconditional right to payment upon satisfaction of the performance obligation, and therefore, a receivable is more commonly recorded than a contract asset.
Contract liabilities include payments received in advance of performance under a contract and are satisfied as the associated revenue is recognized. Contract liabilities are reported on the condensed consolidated balance sheets at the end of each reporting period as a component of deferred revenue. Contract liabilities as of February 28, 2023 and May 31, 2022 were $851,000 and $2,484,000, respectively. During the three and nine months ended February 28, 2023, the Company recognized $42,000 and $2,157,000, respectively, of revenues that were included in contract liabilities as of May 31, 2022.
11 |
Table of Contents |
Remaining performance obligations
On February 28, 2023, the Company had $90,000 of remaining performance obligations, which were comprised of deferred service contracts and extended warranty contracts not yet delivered. The Company expects to recognize approximately 24% of its stock-based awards.
Costs to obtain or fulfill a financial variable such as stock price has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period. contract
The Company usesgenerally expenses sales commissions when incurred as a component of selling, general and administrative expense as the historical volatility foramortization period is typically less than one year. Additionally, 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.
Three Months Ended | Six Months Ended | |||
November 30, | November 30, | |||
2017 | 2016 | 2017 | 2016 | |
Expected term (in years) | 4 | 4 | 4 | 4 |
Volatility | 0.74 | 0.81 | 0.77 | 0.81 |
Risk-free interest rate | 1.92% | 1.10% | 1.77% | 1.02% |
Weighted average grant date fair value | $1.93 | $1.66 | $2.22 | $1.09 |
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 |
4. EARNINGS PER SHARE
Basic earnings per share is determined using the weighted average number of common shares outstanding during the period. Diluted earnings per share is determined using the weighted average number of common shares and potential common shares (representing the dilutive effect of stock options, restricted shares, restricted stock units (“RSUs”), Performance RSUs (“PRSUs”) and ESPPAmended and Restated 2006 Employee Stock Purchase Plan (“ESPP”) shares) outstanding during the period using the treasury stock method.
The following table presents the computation of basic and diluted net income (loss)earnings per share attributable to the Company’s common shareholders (in thousands, except per share data):
Three Months Ended | Six Months Ended | |||
November 30, | November 30, | |||
2017 | 2016 | 2017 | 2016 | |
Numerator: Net income (loss) | $60 | $(1,452) | $70 | $(2,207) |
Denominator for basic net income (loss) per share: | ||||
Weighted average shares outstanding | 21,645 | 16,029 | 21,531 | 14,673 |
Shares used in basic net income (loss) per share calculation | 21,645 | 16,029 | 21,531 | 14,673 |
Effect of dilutive securities | 1,238 | -- | 1,406 | -- |
Denominator for diluted net income (loss) per share | 22,883 | 16,029 | 22,937 | 14,673 |
Basic net income (loss) per share | $0.00 | $(0.09) | $0.00 | $(0.15) |
Diluted net income (loss) per share | $0.00 | $(0.09) | $0.00 | $(0.15) |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| February 28, |
|
| February 28, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Numerator: Net income |
| $ | 4,132 |
|
| $ | 2,243 |
|
| $ | 8,446 |
|
| $ | 3,656 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
| 27,893 |
|
|
| 26,871 |
|
|
| 27,571 |
|
|
| 25,684 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in basic earnings per share calculation |
|
| 27,893 |
|
|
| 26,871 |
|
|
| 27,571 |
|
|
| 25,684 |
|
Effect of dilutive securities |
|
| 1,480 |
|
|
| 1,983 |
|
|
| 1,509 |
|
|
| 1,826 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings per share |
|
| 29,373 |
|
|
| 28,854 |
|
|
| 29,080 |
|
|
| 27,510 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
| $ | 0.15 |
|
| $ | 0.08 |
|
| $ | 0.31 |
|
| $ | 0.14 |
|
Diluted earnings per share |
| $ | 0.14 |
|
| $ | 0.08 |
|
| $ | 0.29 |
|
| $ | 0.13 |
|
For the purpose of computing diluted earnings per share, the weighted average number of potential common shares doesdo 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. StockIn the three and nine months ended February 28, 2023, stock options to purchase 263,00015,000 shares of common stock were outstanding, as of November 30, 2017 but were not included in the computation of diluted net incomeearnings per share, because the inclusion of such shares would be anti-dilutive. In the three and sixnine 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. StockFebruary 28, 2022, stock options to purchase 3,229,00011,000 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, but were not included in the computation of diluted net lossearnings 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.
The following table summarizes the Company’s cash, cash equivalents and investments by security type at November 30, 2017as of February 28, 2023 (in thousands):
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 |
|
| Cost |
|
| Gross Unrealized Loss |
|
| Estimated Fair Value |
| |||
|
|
|
|
|
|
|
|
|
| |||
Cash |
| $ | 1,479 |
|
| $ | - |
|
| $ | 1,479 |
|
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
| 11,726 |
|
|
| - |
|
|
| 11,726 |
|
U.S. treasury securities |
|
| 3,983 |
|
|
| - |
|
|
| 3,983 |
|
Total cash equivalents |
|
| 15,709 |
|
|
| - |
|
|
| 15,709 |
|
Total cash and cash equivalents |
| $ | 17,188 |
|
| $ | - |
|
| $ | 17,188 |
|
Short-term investments: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury securities |
| $ | 25,599 |
|
| $ | (22 | ) |
| $ | 25,577 |
|
Long-term investments: |
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
| $ | 150 |
|
|
| - |
|
| $ | 150 |
|
Total cash, cash equivalents and investments |
| $ | 42,937 |
|
| $ | (22 | ) |
| $ | 42,915 |
|
Long-term investments are included in other assets on the accompanying condensed consolidated balance sheets.
Unrealized gains and temporary losses on investments classified as available-for-sale are included within accumulated other comprehensive income ("AOCI"),loss, net of any related tax effect. Upon realization, those amounts are reclassified from AOCIaccumulated other comprehensive loss to results of operations.
The unrealized loss of $22,000 as of November 30, 2017February 28, 2023 is not considered other-than-temporary.
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company’s financial instruments are measured at fair value consistent with authoritative guidance. This authoritative guidance defines fair value, establishes a framework for using fair value to measure assets and liabilities, and disclosures required related to fair value measurements.
The guidance establishes a fair value hierarchy based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity’s pricing based upon their own market assumptions. The fair value hierarchy consists of the following three levels:
Level 1 - instrument valuations are obtained from real-time quotes for transactions in active exchange markets involving identical assets.
Level 2 - instrument valuations are obtained from readily-available pricing sources for comparable instruments.
Level 3 - instrument valuations are obtained without observable market values and require a high level of judgment to determine the fair value.
13 |
Table of Contents |
The following table summarizes the Company’s financial assets measured at fair value on a recurring basis as of November 30, 2017February 28, 2023 (in thousands):
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 |
|
|
|
|
|
|
|
| ||||||
|
| February 28, 2023 |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
Money market funds |
| $ | 11,876 |
|
| $ | 11,876 |
|
| $ | - |
|
| $ | - |
|
U.S. treasury securities |
|
| 29,560 |
|
|
| 29,560 |
|
|
| - |
|
|
| - |
|
Total |
| $ | 41,436 |
|
| $ | 41,436 |
|
| $ | - |
|
| $ | - |
|
The following table summarizes the Company’s financial assets measured at fair value on a recurring basis as of May 31, 20172022 (in thousands):
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 | $-- |
|
| Balance as of May 31, 2022 |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
| $ | 28,609 |
|
| $ | 28,609 |
|
| $ | - |
|
| $ | - |
|
Included in money market funds as of February 28, 2023 and May 31, 2022 is $150,000 and $80,000 in restricted cash, respectively, representing a security deposit for the Company’s United States manufacturing and office space lease which is included in other assets in the condensed consolidated balance sheets.
There were no financial liabilities measured at fair value as of November 30, 2017February 28, 2023 and May 31, 2017.
There were no transfers between Level 1 and Level 2 fair value measurements during the three and sixnine months ended November 30, 2017.
The carrying amounts of financial instruments including cash cash equivalents, receivables,accounts receivable, 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.
7. TRADE AND OTHER ACCOUNTS RECEIVABLE, NET
Trade accounts receivable represent customer trade receivablesreceivables. As of February 28, 2023 and is presented net ofMay 31, 2022, there were no allowances for doubtful accounts. Trade accounts of $47,000 at November 30, 2017 and $61,000 at May 31, 2017. Accounts receivable areis derived from the sale of products throughout the world to semiconductor manufacturers, semiconductor contract assemblers, electronics manufacturers and burn-in and test service companies. Other accounts receivable represents non-customer trade related receivables that are derived from the sale of raw materials to our subcontractors. The Company’s allowance for doubtful accounts is based upon historical experience and review of trade receivables by aging category to identify specific customers with known disputes or collection issues. Uncollectible receivables are recorded as bad debt expense when all efforts to collect have been exhausted and recoveries are recognized when they are received.
Inventories are comprised of the following (in thousands):
November 30, | May 31, | |
2017 | 2017 | |
Raw materials and sub-assemblies | $5,020 | $4,268 |
Work in process | 2,970 | 2,059 |
Finished goods | 235 | 277 |
$8,225 | $6,604 |
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 |
|
| February 28, |
|
| May 31, |
| ||
|
| 2023 |
|
| 2022 |
| ||
Raw materials and sub-assemblies |
| $ | 13,906 |
|
| $ | 9,507 |
|
Work in process |
|
| 7,147 |
|
|
| 5,461 |
|
Finished goods |
|
| 566 |
|
|
| 83 |
|
|
| $ | 21,619 |
|
| $ | 15,051 |
|
9. PRODUCT WARRANTIES
The Company provides for the estimated cost of product warranties at the time revenues are recognized on the products shipped. While the Company engages in extensive product quality programs and processes, including actively monitoring and evaluating the quality of its component suppliers, the Company’s warranty obligation is affected by product failure rates, material usage and service delivery costs incurred in correcting a product failure. Should actual product failure rates, material usage or service delivery costs differ from the Company’s estimates, revisions to the estimated warranty liability would be required.
The standard warranty period is one year for systems and ninety days for parts and service.
The following is a summary of changes in the Company's liability for product warranties during the three and sixnine months ended November 30, 2017February 28, 2023 and 20162022 (in thousands):
Three Months Ended | Six Months Ended | |||
November 30, | November 30, | |||
2017 | 2016 | 2017 | 2016 | |
Balance at the beginning of the period | $119 | $90 | $113 | $155 |
Accruals for warranties issued during the period | 152 | 11 | 246 | 11 |
Accruals and adjustments (change in estimates) related to pre-existing warranties during the period | -- | -- | -- | (54) |
Settlement made during the period (in cash or in kind) | (138) | (29) | (226) | (40) |
Balance at the end of the period | $133 | $72 | $133 | $72 |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| February 28, |
|
| February 28, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Balance at the beginning of the period |
| $ | 311 |
|
| $ | 415 |
|
| $ | 410 |
|
| $ | 494 |
|
Accruals for warranties issued during the period |
|
| 84 |
|
|
| 37 |
|
|
| 207 |
|
|
| 294 |
|
Adjustments to previously existing warranty accruals |
|
| - |
|
|
| 26 |
|
|
| 61 |
|
|
| 98 |
|
Consumption of reserves |
|
| (107 | ) |
|
| (108 | ) |
|
| (390 | ) |
|
| (516 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the period |
| $ | 288 |
|
| $ | 370 |
|
| $ | 288 |
|
| $ | 370 |
|
The accrued warranty balance is included in accrued expenses on the accompanying condensed consolidated balance sheets.
15 |
Table of Contents |
10. CUSTOMER DEPOSITS AND DEFERRED REVENUE, SHORT-TERM
Customer deposits and deferred revenue, short-term (in thousands):
|
| February 28, |
|
| May 31, |
| ||
|
| 2023 |
|
| 2022 |
| ||
Customer deposits |
| $ | 760 |
|
| $ | 2,263 |
|
Deferred revenue |
|
| 83 |
|
|
| 152 |
|
|
| $ | 843 |
|
| $ | 2,415 |
|
11. ACCUMULATED OTHER COMPREHENSIVE INCOME
Changes in the components of AOCI,accumulated other comprehensive loss, net of tax, were as follows (in thousands):
Cumulative Translation Adjustments | Unrealized Loss on Investments, Net | Total | |
Balance at May 31, 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 |
|
| Cumulative Translation Adjustments |
|
| Unrealized Loss on Investments, Net |
|
| Total |
| |||
|
|
|
|
|
|
|
|
|
| |||
Balance as of May 31, 2022 |
| $ | (105 | ) |
| $ | - |
|
| $ | (105 | ) |
Other comprehensive loss before reclassifications |
|
| (35 | ) |
|
| (22 | ) |
|
| (57 | ) |
Other comprehensive loss, net of tax |
|
| (35 | ) |
|
| (22 | ) |
|
| (57 | ) |
Balance as of February 28, 2023 |
| $ | (140 | ) |
| $ | (22 | ) |
| $ | (162 | ) |
12. INCOME TAXES
The Company is subject to U.S federal and state and foreign income taxes as a corporation. The Company’s tax provision and the resulting effective tax rate for the interim period is determined based upon its estimated annual effective tax rate adjusted for the effect of discrete items arising in that quarter. The Company recorded a provision for income tax of $17,000 and $49,000 for the three and nine months ended February 28, 2023 which consisted primarily of foreign withholding taxes and foreign income taxes. The Company recorded a provision for income tax of $24,000 and $81,000 for the three and nine months ended February 28, 2022 which consisted primarily of foreign withholding taxes and foreign income taxes. The provision for federal and state income taxes was not significant due to available net operating loss and research and development credit carryforwards.
Income taxes have been provided using the liability method whereby deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and net operating loss and tax credit carryforwards measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse, or the carryforwards are utilized. Valuation allowances are established when it is determined that it is more likely than not that such assets will not be realized.
Since fiscal 2009, a full valuation allowance was established against all deferred tax assets, as management determined that it is more likely than not that certain deferred tax assets will not be realized.
The Company accounts for uncertain tax positions consistent with authoritative guidance. The guidance prescribes a “more likely than not” recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company does not expect any material change in its unrecognized tax benefits over the next twelve months. The Company recognizes interest and penalties related to unrecognized tax benefits as a component of income taxes.
16 |
Table of Contents |
13. LEASES
The Company has only operating leases for real estate including corporate offices, warehouse space and certain equipment. A lease with an initial term of 12 months or less is generally not recorded on the condensed consolidated balance sheets, unless the arrangement includes an option to purchase the underlying asset, or renew the arrangement that the Company 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 condensed consolidated balance sheets. The Company’s operating leases have remaining lease terms of 1 year to 8 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 Company’s only major tax jurisdictionsinception of the arrangement. Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected lease term. The interest rate implicit in lease contracts is typically not readily determinable. As such, the Company utilizes the appropriate incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term at an amount equal to the lease payments in a similar economic environment. Certain adjustments to the right-of-use assets may be required for items such as initial direct costs paid or incentives received.
In December 2022, the Company amended its lease agreement to extend the lease term of an existing office facility located in the United States, California, Germanywhich is considered a lease modification not accounted for as a separate contract. The total commitments, net of tenant incentives expected to be received, under the modified lease are $8.6 million. The modified lease expires in fiscal 2031 and Japan. Taxcontains an option to further extend the lease. The lease modification resulted in an increase in the Company’s operating lease right-of-use assets and operating lease liabilities of $5.9 million each.
As of February 28, 2023, the weighted-average remaining lease term for the Company’s operating leases was 7.5 years 1997 - 2016 remain subjectand the weighted-average discount rate was 7.5%.
The Company’s operating lease cost was $256,000 and $634,000 for the three and nine months ended February 28, 2023, respectively. For the three and nine months ended February 28, 2022, operating lease cost was $191,000 and $576,000, 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.
|
| Nine Months Ended |
| |||||
|
| February 28, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Cash paid for amounts included in the measurement of operating lease liabilities: |
|
|
|
|
|
| ||
Operating cash flows from operating leases |
| $ | 624 |
|
| $ | 612 |
|
17 |
Table of Contents |
The following table presents the "Tax Cuts and Jobs Act" was signed into law, significantly impacting several sectionsmaturities of the Internal Revenue Code. The Company is currently analyzing the impactCompany’s operating lease liabilities as of these changes and therefore an estimate of the impact to income taxes is not yet available.
November 30, | May 31, | |
2017 | 2017 | |
Customer deposits | $2,755 | $3,264 |
Deferred revenue | 387 | 203 |
$3,142 | $3,467 |
Fiscal year |
| Operating Leases |
| |
2023 (remaining three months of 2023) |
| $ | 211 |
|
2024 |
|
| 608 |
|
2025 |
|
| 1,143 |
|
2026 |
|
| 1,174 |
|
2027 |
|
| 1,195 |
|
Thereafter |
|
| 4,309 |
|
Total future minimum operating lease payments |
|
| 8,640 |
|
Less: imputed interest |
|
| (2,248 | ) |
Present value of operating lease liabilities |
| $ | 6,392 |
|
14. BORROWING AND FINANCING ARRANGEMENTS
On April 10, 2015,January 16, 2020, the Company entered into a Convertible Note PurchaseLoan and Credit FacilitySecurity 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 under a revolving line of credit which is collateralized by all the Company’s saleassets 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 Purchasersgreater 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 amountadditional percentage of up to $2,000,000. On August 22, 20161%, which additional percentage depends on the Purchase Agreement was amended to extendCompany’s adjusted quick ratio, and (b) 4.75%. Interest is payable monthly on the last calendar day of each month and the outstanding principal amount, the unpaid interest and all other obligations are due on the maturity date, which is 364 days from the effective date of January 13, 2020.
On January 14, 2021, the Company entered into the First Amendment to Loan and Security Agreement (the “Amendment”) with SVB. The Amendment, among other things, extended the Revolving Line Maturity Date to July 14, 2021; provided, however, that if the Company achieved specified operating metrics on a consolidated basis on or prior to May 31, 2021 the Amended Revolving Line Maturity Date would be extended to January 13, 2022.
On January 11, 2022, the Company entered into the Second Amendment to the Loan and Security Agreement (the “Second Amendment”) with SVB. The Second Amendment, among other things, (A) increased the available amount of the Convertible Notesline up to April 10, 2019, decrease the conversion price from $2.65 per sharelesser of (i) $10 million or (ii) the available amount under the borrowing base, under a revolving line of credit, (B) allowed for borrowing up to $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.
On January 10, 2023, the Company will deliver shares of its common stockentered into the Third Amendment to the holderLoan and Security Agreement (the “Third Amendment”) with SVB. The Third Amendment, among other things, extends the Revolving Line Maturity Date to January 13, 2024, provided, however, that (i) if the Company submits a fiscal year 2024 plan of Convertible Notes electing such conversion. Therecord that is generally acceptable to SVB, and (ii) the minimum net liquidity at the end of November 30, 2023 is at least $20.0 million, the Amended Revolving Line Maturity Date would be extended to January 13, 2025.
As of February 28, 2023 the Company mayhad not redeem the Convertible Notes prior to maturity.
18 |
Table of Contents |
15. LONG-TERM DEBT:
On April 23, 2020, the Company obtained the Paycheck Protection Program Loan (the “PPP Loan”) in the aggregate amount of $1,679,000 from SVB. The PPP Loan was evidenced by a promissory note dated April 23, 2020 (the “Note”) that matured on April 23, 2022 and bore interest at a rate of 1% per annum, payable monthly commencing on November 23, 2020. The PPP Loan proceeds were used for payroll, health care benefits, rent and utilities.
Under the terms of the CARES Act, PPP loan recipients can apply for and be drawngranted 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.
16. STOCK-BASED COMPENSATION
Stock-based compensation expense consists of expenses for stock options, RSUs, PRSUs, restricted shares, performance restricted shares and ESPP purchase rights. Stock-based compensation expense for stock options and ESPP purchase rights is measured at each grant date, based on the Credit Facility.
The following table summarizes the stock-based compensation expense for the three and nine months ended February 28, 2023 and 2022 (in thousands):
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| February 28, |
|
| February 28, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Stock-based compensation in the form of stock options, RSUs, restricted shares and ESPP purchase rights, included in: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cost of sales |
| $ | 75 |
|
| $ | 90 |
|
| $ | 252 |
|
| $ | 248 |
|
Selling, general and administrative |
|
| 359 |
|
|
| 487 |
|
|
| 1,330 |
|
|
| 1,259 |
|
Research and development |
|
| 158 |
|
|
| 303 |
|
|
| 513 |
|
|
| 679 |
|
Total stock-based compensation |
| $ | 592 |
|
| $ | 880 |
|
| $ | 2,095 |
|
| $ | 2,186 |
|
As of February 28, 2023, there were $110,000 stock-based compensation expenses capitalized as part of its ongoing efforts to assist ininventory. As of February 28, 2022, there were no stock-based compensation expenses capitalized as part of inventory.
During the convergence of GAAPthree months ended February 28, 2023 and International Financial Reporting Standards (“IFRS”),2022, the Financial Accounting Standards Board (“FASB”) issued an accounting standard updateCompany recorded stock-based compensation expense related to revenue from contracts with customers. This standard sets forth a new five-step revenue recognition model which replacesstock options, RSUs, PRSUs, performance restricted shares and restricted shares under the prior revenue recognition guidance in its entirety2016 Plan of $424,000 and $516,000, respectively. During the nine months ended February 28, 2023 and 2022, the Company recorded stock-based compensation expense related to stock options, RSUs and restricted shares of $1,536,000 and $1,416,000, respectively. For Performance RSUs and performance restricted shares, the Company evaluates compensation expense quarterly and recognizes expense for performance-based awards only if it determines it is intended to eliminate numerous industry-specific pieces of revenue recognition guidanceprobable 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 exchangeperformance criteria for the goods or services. The standard also requires more detailed disclosuresawards will be met.
19 |
Table of Contents |
As of February 28, 2023, the total compensation expense related to unvested stock-based awards under the 2016 Plan, but not yet recognized, was approximately $3,348,000, which is net of estimated forfeitures of $8,000. This expense will be amortized on a straight-line basis over a weighted average period of approximately 2.1 years.
During the three months ended February 28, 2023 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 for2022, the Company beginning in the first quarter of fiscal 2019. The FASB has issued several updatesrecorded stock-based compensation expense related to the standard which i) deferESPP of $168,000 and $364,000, respectively. During the original effective date from January 1, 2017 to January 1, 2018, while allowing for early adoption as of January 1, 2017. ii) clarify the application of the principal versus agent guidance.nine months ended February 28, 2023 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 impact2022, the Company include correctionsrecorded stock-based compensation expense related to the ESPP of $559,000 and improvements around$770,000, respectively.
As of February 28, 2023, the following: contract costs impairment testing, disclosuretotal compensation expense related to purchase rights under the ESPP but not yet recognized was approximately $261,000. This expense will be amortized on a straight-line basis over a weighted average period of remaining performance obligationsapproximately 1.0 years.
Valuation Assumptions
Valuation 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.
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 onperiod that the Company’s consolidated financial statements.
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 will be effectiveCompany uses the historical volatility, which matches the expected term of most of the option grants, to estimate expected volatility. Volatility for each of the ESPP’s four time periods of six months, twelve months, eighteen months, and twenty-four months is calculated separately and included in the overall stock-based compensation expense recorded.
Risk-Free Interest Rate. The Company bases the risk-free interest rate used in the Black-Scholes option valuation model on the implied yield in effect at the time of option grant on U.S. Treasury zero-coupon issues with a remaining term equivalent to the expected term of the stock awards including the ESPP.
Fair Value. The fair values of the Company’s stock options granted to employees for the Company beginningthree and nine months ended February 28, 2023 and 2022, was estimated using the following weighted average assumptions in the first quarterBlack-Scholes option valuation model:
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| February 28, |
|
| February 28, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Expected term (in years) |
|
| 5 |
|
|
| 5 |
|
|
| 5 |
|
|
| 6 |
|
Volatility |
|
| 90 | % |
|
| 117 | % |
|
| 116 | % |
|
| 77 | % |
Risk-free interest rate |
|
| 3.58 | % |
|
| 1.56 | % |
|
| 3.11 | % |
|
| 1.03 | % |
Weighted average grant date fair value |
| $ | 24.30 |
|
| $ | 9.43 |
|
| $ | 7.24 |
|
| $ | 2.56 |
|
20 |
Table of Contents |
The fair values of the ESPP purchase rights granted for the nine months ended February 28, 2023 and 2022 were estimated using the following assumptions:
|
| Nine Months Ended |
|
| Nine Months Ended |
| ||
|
| February 28, 2023 |
|
| February 28, 2022 |
| ||
|
|
|
|
|
| |||
Expected term (in years) |
| 0.5-2.0 |
|
| 0.5-2.0 |
| ||
Volatility |
| 90%-203 | % |
| 101%-143 | % | ||
Risk-free interest rates |
| 3.97%-4.12 | % |
| 0.05%-0.27 | % | ||
Weighted average grant date fair value |
| $ | 11.17 |
|
| $ | 9.57 |
|
There were no ESPP purchase rights granted to employees for the three months ended February 28, 2023 and 2022. During the nine months ended February 28, 2023 and 2022, ESPP purchase rights of 43,000 and 103,000 were granted, respectively. Total ESPP shares issued during the nine months ended February 28, 2023 and 2022 were 109,000 and 75,000 shares, respectively. There were 499,000 ESPP shares available for issuance as of February 28, 2023.
The following tables summarize the Company’s stock option and RSU transactions during the three and nine months ended February 28, 2023 and shows the shares available to be issued at the end of each period (in thousands):
Available | ||||
Shares | ||||
Balance, May 31, 2022 | 1,826 | |||
Options granted | (103 | ) | ||
RSUs granted | (323 | ) | ||
Options cancelled and adjusted | 6 | |||
Balance, August 31, 2022 | 1,406 | |||
Options granted | (5 | ) | ||
RSUs granted | (14 | ) | ||
Balance, November 30, 2022 | 1,387 | |||
Options granted | (1 | ) | ||
RSUs cancelled | -- | |||
Options cancelled | 8 | |||
Balance, February 28, 2023 | 1,394 |
21 |
Table of Contents |
The following table summarizes the stock option transactions during the three and nine months ended February 28, 2023 (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 granted |
|
| 4 |
|
| $ | 21.22 |
|
|
|
|
|
Options exercised |
|
| (168 | ) |
| $ | 2.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, November 30, 2022 |
|
| 1,428 |
|
| $ | 3.23 |
|
| $ | 32,614 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options granted |
|
| 1 |
|
| $ | 34.00 |
|
|
|
|
|
Options cancelled |
|
| (8 | ) |
| $ | 7.40 |
|
|
|
|
|
Options exercised |
|
| (360 | ) |
| $ | 2.36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, February 28, 2023 |
|
| 1,061 |
|
| $ | 3.54 |
|
| $ | 31,629 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options fully vested and expected to vest on February 28, 2023 |
|
| 1,045 |
|
| $ | 3.53 |
|
| $ | 31,177 |
|
The options outstanding and exercisable on February 28, 2023 were in the following exercise price ranges (in thousands, except per share data):
|
|
| Options Outstanding |
|
| Options Exercisable |
| |||||||||||||||||||||||
|
|
| at February 28, 2023 |
|
| at February 28, 2023 |
| |||||||||||||||||||||||
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 |
|
|
| 41 |
|
|
| 4.64 |
|
| $ | 1.34 |
|
|
| 41 |
|
|
| 4.64 |
|
| $ | 1.34 |
|
|
|
| |
$1.64-$1.86 |
|
|
| 413 |
|
|
| 3.57 |
|
| $ | 1.72 |
|
|
| 298 |
|
|
| 3.43 |
|
| $ | 1.70 |
|
|
|
| ||
$2.03-$2.40 |
|
|
| 196 |
|
|
| 2.85 |
|
| $ | 2.15 |
|
|
| 184 |
|
|
| 2.71 |
|
| $ | 2.15 |
|
|
|
| ||
$2.76-$2.93 |
|
|
| 167 |
|
|
| 4.98 |
|
| $ | 2.92 |
|
|
| 50 |
|
|
| 4.07 |
|
| $ | 2.89 |
|
|
|
| ||
$3.46-$3.93 |
|
|
| 47 |
|
|
| 1.42 |
|
| $ | 3.83 |
|
|
| 47 |
|
|
| 1.42 |
|
| $ | 3.83 |
|
|
|
| ||
$8.00-$34.00 |
|
|
| 197 |
|
|
| 6.22 |
|
| $ | 9.63 |
|
|
| 32 |
|
|
| 6.14 |
|
| $ | 10.17 |
|
|
|
| ||
$1.34-$34.00 |
|
|
| 1,061 |
|
|
| 4.10 |
|
| $ | 3.54 |
|
|
| 652 |
|
|
| 3.33 |
|
| $ | 2.46 |
|
| $ | 20,151 |
|
The total intrinsic value of options exercised during the three and nine months ended February 28,2023 was $10,827,000 and $14,183,000, respectively. The total intrinsic value of options exercised during the three and nine months ended February 28, 2022 was $867,000 and $11,902,000, respectively. The weighted average remaining contractual life of the options exercisable and expected to be exercisable on February 28, 2023 was 4.09 years. The weighted average remaining contractual life of the options exercisable and expected to be exercisable on February 28, 2022 was 4.04 years.
22 |
Table of Contents |
The following table summarizes RSUs, PRSUs, restricted shares and performance restricted shares granted to employees and members of the Company’s Board of Directors during the three and nine months ended February 28, 2023 and 2022:
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| February 28, |
|
| February 28, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Employees: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Annual RSUs granted |
|
| -- |
|
|
| -- |
|
|
| 151,800 |
|
|
| 120,000 |
|
Weighted average market value on the date of the grant of annual RSUs |
|
| - |
|
|
| - |
|
| $ | 8.03 |
|
| $ | 3.17 |
|
Annual restricted shares granted |
|
| -- |
|
|
| -- |
|
|
| 7,500 |
|
|
| -- |
|
Weighted average market value on the date of the grant of annual restricted shares |
|
| - |
|
|
| - |
|
| $ | 8.00 |
|
|
| - |
|
RSUs granted in lieu of cash payment for salary reductions |
|
| -- |
|
|
| -- |
|
|
| -- |
|
|
| 89,000 |
|
Weighted average market value on the date of the grant of RSU in lieu of cash payment |
|
| - |
|
|
| - |
|
|
| - |
|
| $ | 2.50 |
|
Maximum PRSUs to be vested if all revenue goals are achieved |
|
| -- |
|
|
| -- |
|
|
| 80,400 |
|
|
| 270,000 |
|
Maximum Performance restricted shares to be vested if all revenue goals are achieved |
|
| -- |
|
|
| -- |
|
|
| 23,700 |
|
|
| -- |
|
Weighted average market value on the date of the grant of PRSUs, performance restricted shares |
|
| - |
|
|
| - |
|
| $ | 8.00 |
|
| $ | 3.41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Members of Board of Directors: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs granted |
|
| - |
|
|
| -- |
|
|
| 44,000 |
|
|
| 43,000 |
|
Weighted average market value on the date of the grant of RSUs |
|
| - |
|
|
| - |
|
| $ | 11.35 |
|
| $ | 8.02 |
|
Maximum PRSUs granted to be vested if all revenue goals are achieved |
|
| - |
|
|
| - |
|
|
| 30,000 |
|
|
| -- |
|
Weighted average market value on the date of the grant of PRSUs |
|
| -- |
|
|
| -- |
|
| $ | 8.00 |
|
|
| -- |
|
PRSUs were granted to key officers and members of Board of Directors based upon revenue target thresholds for fiscal 2021 on a modified retrospective basis,2023 and early adoption in fiscal 2020 is permitted. 2022.
The following table summarizes the RSUs and PRSUs vested and unvested during the three and nine months ended February 28, 2023 and 2022:
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| February 28, |
|
| February 28, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Net RSUs and PRSUs vested |
|
| 19,000 |
|
|
| 21,000 |
|
|
| 221,000 |
|
|
| 83,000 |
|
Shares withheld to settle payroll taxes |
|
| 16,000 |
|
|
| -- |
|
|
| 165,000 |
|
|
| -- |
|
RSUs and PRSUs unvested |
|
| 406,000 |
|
|
| 485,000 |
|
|
| 406,000 |
|
|
| 485,000 |
|
Intrinsic value of unvested RSUs and PRSUs (in thousands) |
| $ | 13,540 |
|
| $ | 6,596 |
|
| $ | 13,540 |
|
| $ | 6,596 |
|
23 |
Table of Contents |
17. SEGMENT AND CONCENTRATION INFORMATION
The Company has only one reportable segment. The information for revenue category by type, product line, geography and timing of revenue recognition, is currently evaluatingsummarized in Note “3. REVENUE.”
Property and equipment information is based on the impactphysical location of this accounting standard update on its consolidated financial statements.
The following table presents property and equipment information for geographic areas (in thousands):
|
| February 28, |
|
| May 31, |
| ||
|
| 2023 |
|
| 2022 |
| ||
United States |
| $ | 1,229 |
|
| $ | 1,156 |
|
Asia |
|
| 50 |
|
|
| 47 |
|
Europe |
|
| 2 |
|
|
| - |
|
|
| $ | 1,281 |
|
| $ | 1,203 |
|
As of February 28, 2023, the operating lease right-of-use assets of $6,169,000, $76,000 and $48,000 are allocated in the United States, Asia, and Europe, respectively. As of May 31, 2022, the operating lease right-of-use assets of $822,000 and $95,000 were allocated in the United States and Asia, respectively.
There were no revenues through distributors for the three and nine months ended February 28, 2023 and 2022.
Sales to the classificationCompany’s five largest customers accounted for approximately 98% and 97% of certain cash receiptsits net sales in the three and cash payments onnine months ended February 28, 2023, respectively. Two customers accounted for approximately 82% and 12% of the statementCompany’s net sales in the three months ended February 28, 2023. Two customers accounted for approximately 77% and 16% of cash flows. The accounting standard update will be effectivethe Company’s net sales in the nine months ended February 28, 2023. Sales to the Company’s five largest customers accounted for approximately 99% and 97% of its net sales in the three and nine months ended February 28, 2022, respectively. One customer accounted for approximately 90% of the Company’s net sales in the three months ended February 28, 2022. One customer accounted for approximately 84% of the Company’s net sales in the nine months ended February 28, 2022. No other customers represented more than 10% of the Company’s net sales in the three and nine months ended February 28, 2023 and 2022.
18. EQUITY
On August 25, 2021, the Board authorized Management to take actions necessary for the execution of a $75 million shelf registration, which S-3 was filed with the SEC on September 3, 2021. A Prospectus Supplement for an "At the Market" ("ATM") sale of $25 million of common stock was subsequently filed on September 17, 2021. On October 8, 2021, the Company beginning infully executed the first quarterATM offering by selling 1,696,729 shares at an average selling price of fiscal 2019$14.73. The gross proceeds to the Company were $25.0 million, before commission fees of $0.7 million and offering expenses of $0.3 million. Another Prospectus Supplement for an ATM sale of $25 million of common stock was subsequently filed on a retrospective basis, and early adoption is permitted.February 8, 2023. The Company is currently evaluatingpartially executed the impactATM offering by selling 208,917 shares at an average selling price of this accounting standard update on its consolidated statements of cash flows.
24 |
Table of Contents |
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes that appear elsewhere in this reportReport and with our Annual Report on Form 10-K for the fiscal year ended May 31, 20172022 and the consolidated financial statements and notes thereto.
In addition to historical information, this reportReport 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 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 reportReport and other factors beyond our control, and in particular, the risks discussed in “Part II, Item 1A. Risk Factors” and those discussed in other documents we file with the SEC. All forward-looking statements included in this document are based on our current expectations, and we undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.
Investors and others should note that we announce material financial information to our investors using our investor relations website (https://www.aehr.com/investor-relations/), SEC filings, press releases, public conference calls and webcasts. We use these channels to communicate with our investors and the public about our company, our products and services and other issues. It is possible that the information we post on our investor relations website could be deemed to be material information. Therefore, we encourage investors, the media, and others interested in our company to review the information we post on our investor relations website.
OVERVIEW
We were founded in 1977 to develop and manufacture burn-in and test equipment for the semiconductor industry. Since our inception, we have sold more than 2,500 systems to semiconductor manufacturers, semiconductor contract assemblers and burn-in and test service companies worldwide. Our principal products currently are the Advanced Burn-inFOX-XP, FOX-NP and Test System, or ABTS, the FOX fullFOX-CP wafer contact and singulated die/module parallel test and burn-in system,systems, WaferPak Aligner, WaferPak contactors, the DiePak carrierLoader, 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.
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,obligations, warranty obligations, and long-term service contracts. Our estimates are derived from historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Those results form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. For a discussion of the critical accounting policies, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the fiscal year ended May 31, 2017.
There have been no material changes to our critical accounting policies and estimates during the sixthree and nine months ended November 30, 2017February 28, 2023 compared to those discussed in our Annual Report on Form 10-K for the fiscal year ended May 31, 2017.
25 |
Table of Contents |
RESULTS OF OPERATIONS
The following table sets forth items in our unaudited condensed consolidated statements of operations as a percentage of net sales for the periods indicated.
Three Months Ended | Six Months Ended | |||
November 30, | November 30, | |||
2017 | 2016 | 2017 | 2016 | |
Net sales | 100.0% | 100.0% | 100.0% | 100.0% |
Cost of sales | 60.5 | 65.3 | 59.4 | 61.5 |
Gross profit | 39.5 | 34.7 | 40.6 | 38.5 |
Operating expenses: | ||||
Selling, general and administrative | 23.4 | 40.5 | 24.5 | 35.9 |
Research and development | 13.7 | 24.7 | 13.7 | 22.0 |
Total operating expenses | 37.1 | 65.2 | 38.2 | 57.9 |
Income (loss) from operations | 2.4 | (30.5) | 2.4 | (19.4) |
Interest expense, net | (1.3) | (4.3) | (1.4) | (3.8) |
Other (expense) income, net | (0.2) | 1.1 | (0.5) | 0.4 |
Income (loss) before income tax expense | 0.9 | (33.7) | 0.5 | (22.8) |
Income tax expense | (0.1) | (0.7) | -- | (0.3) |
Net income (loss) | 0.8 | (34.4) | 0.5 | (23.1) |
Less: Net income attributable to the noncontrolling interest | -- | -- | -- | -- |
Net income (loss) attributable to Aehr Test Systems common shareholders | 0.8% | (34.4)% | 0.5% | (23.1)% |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| February 28, |
|
| February 28, |
| ||||||||||
|
| 2023 |
|
| 2022 |
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| 2023 |
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| 2022 |
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Net sales |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
Cost of sales |
|
| 48.4 |
|
|
| 58.1 |
|
|
| 50.2 |
|
|
| 56.8 |
|
Gross profit |
|
| 51.6 |
|
|
| 41.9 |
|
|
| 49.8 |
|
|
| 43.2 |
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Operating expenses: |
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|
|
|
|
|
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|
|
|
|
|
|
|
|
Selling, general and administrative |
|
| 18.9 |
|
|
| 17.1 |
|
|
| 20.3 |
|
|
| 23.1 |
|
Research and development |
|
| 10.7 |
|
|
| 10.0 |
|
|
| 11.4 |
|
|
| 13.6 |
|
Total operating expenses |
|
| 29.6 |
|
|
| 27.1 |
|
|
| 31.7 |
|
|
| 36.7 |
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
Income from operations |
|
| 22.0 |
|
|
| 14.8 |
|
|
| 18.1 |
|
|
| 6.5 |
|
|
|
|
|
|
|
|
|
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|
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|
|
|
|
|
|
Interest income (expense), net |
|
| 2.2 |
|
|
| -- |
|
|
| 1.8 |
|
|
| (0.1 | ) |
Gain from forgiveness of PPP loan |
|
| -- |
|
|
| -- |
|
|
| -- |
|
|
| 5.6 |
|
Other (expense) income, net |
|
| (0.1 | ) |
|
| -- |
|
|
| -- |
|
|
| 0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
| 24.1 |
|
|
| 14.8 |
|
|
| 19.9 |
|
|
| 12.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
| (0.1 | ) |
|
| (0.1 | ) |
|
| (0.1 | ) |
|
| (0.2 | ) |
Net income |
|
| 24.0 | % |
|
| 14.7 | % |
|
| 19.8 | % |
|
| 12.0 | % |
THREE MONTHS ENDED NOVEMBER 30, 2017FEBRUARY 28, 2023 COMPARED TO THREE MONTHS ENDED NOVEMBER 30, 2016
NET SALES. Net sales increased to $7.9$17.2 million for the three months ended November 30, 2017February 28, 2023 from $4.2$15.3 million for the three months ended November 30, 2016,February 28, 2022, an increase of 87.9%12.6%. The increase in net sales for the three months ended November 30, 2017February 28, 2023 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 theour wafer-level products for the three months ended November 30, 2017February 28, 2023 were $2.8$16.8 million, and increased approximately $1.4$1.9 million from the three months ended November 30, 2016.
GROSS PROFIT. Gross profit increased to $3.1$8.9 million for the three months ended November 30, 2017February 28, 2023 from $6.4 million for the three months ended February 28, 2022, an increase of 38.7%. Gross profit margin increased to 51.6% for the three months ended February 28, 2023 from 41.9% for the three months ended February 28, 2022. The increase in gross profit margin of 9.7% was primarily due to decreased direct material costs as a percentage of sales resulting in a 2.9% gross profit margin increase, decreased provision for inventory reserves resulting in a 5.5% gross profit margin increase, and manufacturing efficiencies from the increase in net sales resulting in a 1.3% gross profit margin increase.
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SELLING, GENERAL AND ADMINISTRATIVE. SG&A expenses increased to $3.3 million for the three months ended February 28, 2023 from $2.6 million for the three months ended February 28, 2022, an increase of 24.4%. The increase in SG&A expenses was primarily the result of increases in headcount, bonuses, travel expenses and sales commissions.
RESEARCH AND DEVELOPMENT. R&D expenses increased to $1.8 million for the three months ended February 28, 2023 from $1.5 million for the three months ended November 30, 2016,February 28, 2022, an increase of 114.0%. Gross profit margin increased to 39.5% for the three months ended November 30, 2017 from 34.7% for the three 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 6.7% gross profit margin increase, partially offset by an increase in warranty provision resulting in a 1.7% decrease in gross profit margin.
INTEREST EXPENSE.INCOME (EXPENSE), NET. Interest expenseincome, net was $105,000$374,000 and $1,000 for the three months ended November 30, 2017 compared with $181,000February 28, 2023 and 2022, respectively. The interest income for the three months ended November 30, 2016. The decrease inFebruary 28, 2023 was from interest expense inearned on U.S. treasury and government securities while the Company had no such investments during 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 for the three months ended November 30, 2017February 28, 2023 was $18,000 compared with other income, net of $43,000 for the three months ended November 30, 2016.February 28, 2022 of $10,000. The change betweenchanges in other expense and other(expense) income, net was primarily due to losses or gains realized in connection with the fluctuation in the value of the dollar compared to foreign currencies during the referenced periods.
INCOME TAX EXPENSE. Income tax expenses were $15,000expense was $17,000 and $30,000$24,000 for the three months ended November 30, 2017February 28, 2023 and 2016,2022, respectively.
NINE MONTHS ENDED NOVEMBER 30, 2017FEBRUARY 28, 2023 COMPARED TO SIXNINE MONTHS ENDED NOVEMBER 30, 2016
NET SALES. Net sales increased to $14.9$42.7 million for the sixnine months ended November 30, 2017February 28, 2023 from $9.5$30.5 million for the sixnine months ended November 30, 2016,February 28, 2022, an increase of 56.2%39.8%. The increase in net sales for the sixnine months ended November 30, 2017February 28, 2023 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 TDBIour wafer-level products for the sixnine months ended November 30, 2017February 28, 2023 were $7.9$41.5 million, and increased approximately $2.6$12.4 million from the sixnine 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$21.3 million for the sixnine months ended November 30, 2017February 28, 2023 from $3.7$13.2 million for the sixnine months ended November 30, 2016,February 28, 2022, an increase of 64.9%61.2%. Gross profit margin increased to 40.6%49.8% for the sixnine months ended November 30, 2017February 28, 2023 from 38.5%43.2% for the sixnine months ended November 30, 2016.February 28, 2022. The increase in gross profit margin of 6.6% was primarily due to decreased provision for inventory reserves as a percentage of sales resulting in a 2.6% gross profit margin increase, manufacturing efficiencies due to anfrom the increase in net sales resulting in a 6.6%2.2% gross profit margin increase, partially offset by an increase in warranty provisionand decreased direct material costs as a percentage of sales resulting in a 2.1% decrease in1.2% 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$8.7 million for the sixnine months ended November 30, 2017February 28, 2023 from $3.4$7.1 million for the sixnine months ended November 30, 2016,February 28, 2022, an increase of 6.5%22.6%. The increase in SG&A expenses was primarily due to an increasethe result of increases in employment relatedheadcount, bonuses, and stock-based compensation expenses.
RESEARCH AND DEVELOPMENT. R&D expenses decreasedincreased to $2.0$4.9 million for the sixnine months ended November 30, 2017February 28, 2023 from $2.1$4.2 million for the sixnine months ended November 30, 2016, a decreaseFebruary 28, 2022, an increase of 2.6%17.2%. The decreaseincrease in R&D expenses was primarily due to a decreaseincreases in employment-related expenses and project expenses.
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INTEREST EXPENSE.INCOME (EXPENSE), NET. Interest expense was $212,000income, net for the sixnine months ended November 30, 2017February 28, 2023 was $758,000 compared with $359,000interest expense, net for the sixnine months ended November 30, 2016.February 28, 2022 of $9,000. The decrease ininterest income for the nine months ended February 28, 2023 was from interest earned on U.S. treasury and government securities while no such investments were held during the nine months ended February 28, 2022. The interest expense infor the sixnine months ended November 30, 2017February 28, 2022 was primarily due tofrom the debt issuance costs related toPPP Loan that we obtained on April 23, 2020.
GAIN FROM FORGIVENESS OF PPP LOAN. On June 12, 2021, we received confirmation from the convertible notes becoming fully amortized atSVB that, on June 4, 2021, the endSmall Business Administration approved our PPP Loan forgiveness application for the entire PPP Loan balance of fiscal 2017.
OTHER (EXPENSE) INCOME, NET. Other expense,income, net was $67,000$1,000 and $68,000 for the sixnine months ended November 30, 2017 compared withFebruary 28, 2023 and 2022, respectively. The changes in 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 $10,000expense was $49,000 and $34,000$81,000 for the sixnine months ended November 30, 2017February 28, 2023 and 2016,2022, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used inprovided by operating activities was $2.2$4.1 million and $1.4$2.3 million for the sixnine months ended November 30, 2017February 28, 2023 and 2016,2022, respectively. For the sixnine months ended November 30, 2017,February 28, 2023, net cash used inprovided by operating activities was primarily the result of net income of $70,000,$8.4 million, as adjusted to exclude the effect of a non-cash charge of stock-based compensation expense of $0.6$2.1 million, and depreciation and amortization expense of $0.2 million. Net$337,000 and accretion of investment discount of $305,000. Other changes in cash used infrom operations was also impacted byprimarily resulted from an increase in inventories of $1.2$6.8 million, an increase in prepaid expenses and other current assets of $1.1 million, a decrease in accounts payable of $1.0 million, and a decrease in customer deposits and deferred revenue of $0.2$1.6 million, partially offset by a decrease in trade and other accounts receivable of $0.6 million.$1.4 million and an increase in accounts payable of $822,000. The increase in inventories isinventory was to support expected 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 againstdecrease in backlog of customer orders with down payments. The decrease in trade and other accounts receivable was primarily due to improvements in customer payment terms. The increase in accounts payable was primarily due to higher expenditures associated with higher revenue. For the sixnine months ended November 30, 2016,February 28, 2022, net cash used inprovided by operating activities was primarily the result of net lossincome of $2.2$3.7 million, as adjusted to exclude the effect of forgiveness of PPP loan of $1.7 million, and a non-cash charge of stock-based compensation expense of $0.5 million. Net cash used in operations was also impacted by an increase in accounts receivable of $1.0$2.2 million and a decreasedepreciation and amortization of $226,000. Other changes in cash from operations primarily resulted from an increase in customer deposits and deferred revenue of $0.7$6.0 million, partially offset by a decreaseand increases in inventories of $1.3$5.4 million and an increase in accounts payablereceivable of $0.7$3.5 million. The increase in accounts receivable was primarily due to large shipments toward the end of the quarter ended November 30, 2016. The decrease in customer deposits and deferred revenue was primarily due to the receipt of additional down payments from certain customers. The increase in inventory was to support expected future shipments to customers with down payments.for customer orders. The decreaseincrease in inventories isaccounts receivable was primarily due to the salestiming of systems on-hand atrevenue generated toward the beginningend of the period. The increase in accounts payable was primarily due to inventory and capital equipment purchases.
Net cash used in investing activities was $6.3$25.5 million and $88,000$218,000 for the sixnine months ended November 30, 2017February 28, 2023 and 2016,2022, respectively. During the sixnine months ended November 30, 2017,February 28, 2023 net cash used in investing activities was due to the purchasepurchases of available for saleU.S. treasury securities
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Financing activities provided cash of $0.6$7.1 million and $5.8$25.4 million for the sixnine months ended November 30, 2017February 28, 2023 and 2016,2022, respectively. Net cash provided by financing activities during the sixnine months ended November 30, 2017February 28, 2023 was primarily due to $0.6the net proceeds from issuance of common stock from public offering net of issuance costs of $6.9 million, inand the proceeds from the issuance of common stock under employee plans.benefit plans of $2.0 million, partially offset by the shares repurchased for tax withholdings on vesting of RSUs of $1.7 million. Net cash provided by financing activities during the sixnine months ended November 30, 2016February 28, 2022 was primarily due to the net proceeds of $5.3 million from the saleissuance of our common stock in a private placement transaction with certain institutionalfrom public offering net of issuance costs of $24.0 million, and accredited investors that closed on September 28, 2016 and $0.5 million inthe proceeds from the issuance of common stock under employee plans.
The effect of fluctuation in exchange rates useddecreased cash of $7,000by $35,000 and $19,000 for the sixnine months ended November 30, 2017February 28, 2023 and $43,000 for the six months ended November 30, 2016.2022, respectively. The change in cash used waschanges were due to the fluctuation in the value of the dollar compared to foreign currencies.
As of November 30, 2017February 28, 2023 and May 31, 2017, the Company2022, we had working capital of $23.2$67.2 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 2014December 2022 and expires in June 2018.September 2030. As of February 28, 2023 our operating lease liabilities totaled $6,392,000. Under the lease agreement, we are responsible for payments of utilities, taxes and insurance.
From time to time, we evaluate potential acquisitions of businesses, products or technologies that complement our business. If consummated, any such transactions may use a portion of our working capital, or require the issuance of equity.equity or entering into debt agreements. We have no present understandings, commitments or agreements with respect to any material acquisitions.
We anticipate that the existing cash balance and the available line of credit together with future income from operations, collections of existing accounts receivable, revenue from our existing backlog of products as of this filing date, the sale of inventory on hand, and deposits and down payments against significant orders will be adequate to meet our liquidity requirements forworking capital and capital equipment requirement needs over the next 12 months.
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OFF-BALANCE SHEET ARRANGEMENTS
We have not entered into any off-balance sheet financing arrangements and have not established any special purpose or variable interest entities.
OVERVIEW OF CONTRACTUAL OBLIGATIONS
There have been no material changes in the composition, magnitude or other key characteristics of our contractual obligations or other commitments as disclosed in ourthe 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, 2017February 28, 2023 or May 31, 2017.
We are exposed to financial market risks, including changes in interest rates and foreign currency exchange rates. We only invest our short-term excess cash in government-backed securities with maturities of 1812 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 subsidiarieswe recognize foreign exchange gains or losses in any period in which the value of the local currency rises or falls in relation to the U.S. Dollar. A 10% decrease in the value of the subsidiaries’ local currency as compared with the U.S. Dollar would not be expected to result in a significant change to our net income or loss. There have been no material changes in our risk exposure since the end of the last fiscal year, nor are any material changes to our risk exposure anticipated.
Item 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. Our management evaluated, with the participation of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Securities and Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to management as appropriate to allow for timely decisions regarding required disclosure.
CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING. There was no change in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
INHERENT LIMITATIONS OF INTERNAL CONTROLS. Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within us have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving our stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
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PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None.
Item 1A. RISK FACTORS
Please refer to the description of the risk factors associated with our business previously disclosed in Part I, Item 1A - "Risk Factors" of our Annual Report on Form 10-K for the year ended May 31, 20172022 filed with the Securities and Exchange Commission on August 29, 2017. There26, 2022 and the following additional risk factor.
The collapse of certain U.S. banks and potentially other financial institutions may have adverse impacts on our business.
On March 10, 2023, SVB was shut down, followed on March 11, 2023 by Signature Bank and the Federal Deposit Insurance Corporation was appointed as receiver for those banks. Since that time, there have been no material changes fromreports of instability at other U.S. banks. On March 15, 2023, the risk factors previously described under Item 1A of our AnnualCompany filed a Current Report on Form 10-K for8-K with the fiscal year ended May 31, 2017.
Despite the limited exposure and steps taken to date by U.S. agencies to protect depositors, the follow-on effects of the events surrounding the SVB and Signature Bank failures and pressure on other banks are unknown, and could include failures of other financial institutions to which we may encounter direct or indirect exposure. The extent of such impacts is uncertain, and there may be additional risks that we have not yet identified. We continue to monitor the situation on U.S. financial institutions and potential impact on our business.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. MINE SAFETY DISCLOSURES
Not Applicable
Item 5. OTHER INFORMATION
On March 28, 2023, Kenneth B. Spink, the Company’s Chief Financial Officer (“CFO”), notified the Company of his intention to retire after the end of current fiscal year end reporting. The Company has initiated a search to identify a new CFO. To facilitate an orderly transition, Mr. Spink intends to remain at the Company and continue to serve in his current role until a successor is hired.
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Item 6. EXHIBITS
Exhibit No. | Description | ||
3.1(1) | Restated Articles of Incorporation of Registrant. | ||
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). |
(3) | Incorporated by reference to Exhibit 10.1 previously filed with the Company’s Form 8-K filed with the SEC on December 8, 2022 (File No. 000-22893). |
*This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that Section, nor shall it be deemed incorporated by reference in any filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in any filings.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Aehr Test Systems | |||
(Registrant) | |||
Date: April 13, 2023 | By: | /s/ GAYN ERICKSON | |
Gayn Erickson | |||
President and Chief Executive Officer | |||
(Principal Executive Officer) | |||
Date: April 13, 2023 | By: | /s/ KENNETH B. SPINK | |
Kenneth B. Spink | |||
Vice President of Finance and Chief Financial Officer | |||
(Principal Financial and Accounting Officer) |
33 |