UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

~~WASHINGTON,~~

Washington, D.C. 20549

FORM 10-Q

~~/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES~~

~~EXCHANGE ACT OF 1934~~

~~For the quarterly period ended November 30, 2017~~

~~/ / 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~~ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGEACT OF 1934

	For the quarterly period ended August 31, 2023

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGEACT 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~~Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)
~~incorporation or organization)~~

400 Kato Terrace, Fremont, CA		94539
~~Fremont, CA~~ (Address of Principal Executive Offices)		~~94539~~ (Zip Code)

(510) 623-9400

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class

Trading

Symbol(s)

Name of each exchange

on which registered

~~(Address~~

Common Stock par value of ~~principal~~$0.01 per share

AEHR

~~(Zip Code)~~

The NASDAQ Capital Market

~~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,"~~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~~ X

~~(Do not check if a smaller reporting company)~~

~~Emerging growth company ___~~

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

If an emerging growth company, ~~indicate~~indicated by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ~~___~~

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ~~___~~ ☐ No X

~~Number of~~☒

There were 28,799,313 shares of the ~~registrant’s common stock, $0.01 par value,~~Registrant’s Common Stock outstanding as of ~~December 29, 2017 was 21,802,037.~~

~~AEHR TEST SYSTEMS~~

~~FORM 10-Q~~

~~FOR THE QUARTER ENDED NOVEMBER 30, 2017~~

~~INDEX~~

October 9, 2023.

~~PART I. FINANCIAL INFORMATION~~


	1
~~ITEM 1. Financial Statements (Unaudited)~~

TABLE OF CONTENTS

		Page
~~Condensed Consolidated Balance Sheets atNovember 30, 2017 and May 31, 2017~~ PART I FINANCIAL INFORMATION	4

~~Condensed Consolidated Statements of Operations for the Three and Six Months EndedNovember 30, 2017and 2016~~	5

~~Condensed Consolidated Statements of Comprehensive Income (Loss) for theThree and Six Months EndedNovember 30, 2017and 2016~~	6

~~Condensed Consolidated Statements of Cash Flows for theSix Months EndedNovember 30, 2017and 2016~~	7

~~Notes to~~ Item 1. Condensed Consolidated Financial Statements (Unaudited)	8	3

~~ITEM~~ Item 2. ~~Management's~~Management’s Discussion and Analysis of Financial Condition and Results of Operations	20	18

~~ITEM~~ Item 3. Quantitative and Qualitative Disclosures About Market ~~Risks~~Risk	25	22

~~ITEM~~ Item 4. Controls and Procedures	26	22
PART II OTHER INFORMATION

~~PART II. OTHER INFORMATION~~

~~ITEM~~ Item 1. Legal Proceedings	27	23

~~ITEM~~ Item 1A. Risk Factors	27	23

~~ITEM~~ Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	27	23

~~ITEM~~ Item 3. Defaults Upon Senior Securities	27	23

~~ITEM~~ Item 4. Mine Safety Disclosures	27	23
Item 5. Other Information		23
Item 6. Exhibits		24
SIGNATURES		25


~~ITEM 5. Other Information~~	272

~~ITEM 6. Exhibits~~	27Table of Contents

~~SIGNATURES~~	28

~~Index to Exhibits~~	29

PART I.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

~~(1)~~

1. Financial Statements

AEHR TEST SYSTEMS
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

	August 31,			May 31,
(In thousands, except par value)	2023			2023
ASSETS
Current assets:
Cash and cash equivalents	$	50,955		$	30,054
Short-term investments		-			17,853
Accounts receivable, net		13,161			16,594
Inventories		31,557			23,908
Prepaid expenses and other current assets		540			621
Total current assets		96,213			89,030
Property and equipment, net		3,083			2,759
Operating lease right-of-use assets, net		5,951			6,123
Other non-current assets		222			231
Total assets	$	105,469		$	98,143
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable		8,328			9,206
Accrued expenses		4,536			4,143
Operating lease liabilities, short-term		275			137
Deferred revenue, short-term		6,114			2,822
Total current liabilities		19,253			16,308
Operating lease liabilities, long-term		5,997			6,163
Deferred revenue, long-term		33			31
Other long-term liabilities		41			41
Total liabilities		25,324			22,543
Commitments and contingencies (Note 6)
Shareholders’ equity:
Preferred stock, $0.01 par value: Authorized: 10,000 shares;
Issued and outstanding: none		-			-
Common stock, $0.01 par value: Authorized: 75,000 shares;
Issued and outstanding: 28,763 shares and 28,539 shares at August 31, 2023 and May 31, 2023, respectively		288			285
Additional paid-in-capital		127,630			127,776
Accumulated other comprehensive loss		(141	)		(155	)
Accumulated deficit		(47,632	)		(52,306	)
Total shareholders' equity		80,145			75,600
Total liabilities and shareholders’ equity	$	105,469		$	98,143

The ~~condensed consolidated balance sheet at~~Condensed Consolidated Balance Sheet as of May 31, ~~2017~~2023 has been derived from the audited consolidated financial statements at that date.

~~The~~

See accompanying ~~notes are an integral part of these~~

~~condensed consolidated financial statements.~~

Notes to Condensed Consolidated Financial Statements (unaudited)

Table of Contents

AEHR TEST SYSTEMS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

	Three Months Ended August 31,
(In thousands, except per share data)	2023			2022
Revenue:
Product	$	19,357		$	9,588
Services		1,267			1,083
Total revenue		20,624			10,671
Cost of revenue:
Product		9,919			5,349
Services		724			841
Total cost of revenue		10,643			6,190
Gross profit		9,981			4,481
Operating expenses:
Research and development		2,457			1,498
Selling, general and administrative		3,409			2,525
Total operating expenses		5,866			4,023
Income from operations		4,115			458
Interest income, net		581			121
Other income (expense), net		(6	)		24
Income before provision for income taxes		4,690			603
Provision for income taxes		16			14
Net income	$	4,674		$	589

Net income per share:
Basic	$	0.16		$	0.02
Diluted	$	0.16		$	0.02
Shares used in per share calculations:
Basic		28,649			27,242
Diluted		29,632			28,788

See accompanying Notes to Condensed Consolidated Financial Statements (unaudited)

Table of Contents

AEHR TEST SYSTEMS
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

	Three Months Ended August 31,
(In thousands)	2023			2022
Net income	$	4,674		$	589
Other comprehensive income (loss), net of tax:
Net change in cumulative translation adjustment		(3	)		(45	)
Net change in unrealized loss on investments		17			-
Comprehensive income	$	4,688		$	544

See accompanying Notes to Condensed Consolidated Financial Statements (unaudited)

Table of Contents

AEHR TEST SYSTEMS
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)

									Accumulated
						Additional			Other						Total
	Common Stock					Paid-in			Comprehensive			Accumulated			Shareholders'
(In thousands)	Shares			Amount		Capital			Income (loss)			Deficit			Equity
Three Months Ended August 31, 2023
Balances, May 31, 2023		28,539		$	285	$	127,776		$	(155	)	$	(52,306	)	$	75,600

Issuance of common stock under employee plans		247			3		315			-			-			318
Shares repurchased for tax withholdings on vesting of restricted stock units		(23	)		-		(1,012	)		-			-			(1,012	)
Stock-based compensation		-			-		551			-			-			551
Net income		-			-		-			-			4,674			4,674
Foreign currency translation adjustment		-			-		-			(3	)		-			(3	)
Net unrealized gains on investments		-			-		-			17			-			17
Balances, August 31, 2023		28,763		$	288	$	127,630		$	(141	)	$	(47,632	)	$	80,145

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

Issuance of common stock under employee plans		422			4			451			-			-			455
Shares repurchased for tax withholdings on vesting of restricted stock units		(147	)		(1	)		(1,178	)		-			-			(1,179	)
Stock-based compensation		-			-			709			-			-			709
Net income		-			-			-			-			589			589
Foreign currency translation adjustment		-			-			-			(45	)		-			(45	)
Balances, August 31, 2022		27,395		$	274		$	117,668		$	(150	)	$	(66,274	)	$	51,518

See accompanying Notes to Condensed Consolidated Financial Statements (unaudited)

Table of Contents

AEHR TEST SYSTEMS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

	Three Months Ended August 31,
(In thousands)	2023			2022
Cash flows from operating activities:
Net income	$	4,674		$	589
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation expense		522			710
Depreciation and amortization		138			104
Accretion of investment discount		(130	)		-
Non-cash lease expenses		172			177
Changes in operating assets and liabilities:
Accounts receivable		3,437			7,648
Inventories		(7,704	)		(2,323	)
Prepaid expenses and other current assets		90			(210	)
Accounts payable		(939	)		(769	)
Accrued expenses		355			(1,130	)
Deferred revenue		3,294			855
Operating lease liabilities		(28	)		(192	)
Income taxes payable		20			2
Net cash provided by operating activities		3,901			5,461

Cash flows from investing activities:
Purchases of property and equipment		(284	)		(84	)
Proceeds from maturities of investments		18,000			-
Net cash provided by (used in) investing activities		17,716			(84	)

Cash flows from financing activities:
Proceeds from issuance of common stock under employee plans		318			455
Shares repurchased for tax withholdings on vesting of restricted stock units		(1,012	)		(1,179	)
Net cash used in financing activities		(694	)		(724	)

Effect of exchange rate changes on cash, cash equivalents and restricted cash		(22	)		10

Net increase in cash, cash equivalents and restricted cash		20,901			4,663

Cash, cash equivalents and restricted cash, beginning of period ⁽¹⁾		30,204			31,564
Cash, cash equivalents and restricted cash, end of period ⁽¹⁾	$	51,105		$	36,227

(1)	Includes restricted cash in other assets.

See accompanying Notes to Condensed Consolidated Financial Statements (unaudited)

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

~~The accompanying notes are an integral part of these~~

~~condensed consolidated financial statements.~~

~~AEHR TEST SYSTEMS~~

~~CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)~~

~~(in thousands, unaudited)~~

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)

~~The accompanying notes are an integral part of these~~

~~condensed consolidated financial statements.~~

~~AEHR TEST SYSTEMS~~

~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(in thousands)~~

~~(unaudited)~~

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

~~The accompanying notes are an integral part of these~~

~~condensed consolidated financial statements.~~

~~AEHR TEST SYSTEMS~~

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~(UNAUDITED)~~

(Unaudited)

1. ~~BASIS OF PRESENTATION~~ORGANIZATION AND ~~SUMMARY OF~~ SIGNIFICANT ~~ACCCOUNTING~~ACCOUNTING POLICIES

~~The accompanying financial information has been prepared by~~

Organization – Aehr Test Systems ~~without audit, pursuant to~~(the “Company”) was incorporated in California in May 1977 and develops and manufactures test and burn-in equipment used in the semiconductor industry. The Company’s principal products are the FOX-XP, FOX-NP, and FOX-CP wafer contact and singulated die/module parallel test and burn-in systems, the WaferPak full wafer contactor, the DiePak carrier, the WaferPak aligner, the DiePak autoloader, and test fixtures.

Basis of Presentation – The unaudited Condensed Consolidated Financial Statements included in this quarterly report on Form 10-Q include the accounts of the Company and its wholly-owned subsidiaries and have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial reporting and the rules and regulations of the Securities and Exchange Commission ~~or SEC. Certain~~(the “SEC”) for interim reporting. Accordingly, the unaudited Condensed Consolidated Financial Statements do not include certain information and footnote disclosures normally included in our annual consolidated financial ~~statements prepared in accordance with generally accepted accounting principles in the United States (GAAP) have been condensed or omitted pursuant to such rules and regulations.~~

statements. In the opinion of management, the unaudited ~~condensed consolidated financial statements~~Condensed Consolidated Financial Statements for the interim periods presented have been prepared on a basis consistent with the May 31, ~~2017~~2023 audited ~~consolidated financial statements~~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~~Condensed Consolidated Financial Statements should be read in conjunction with the ~~consolidated financial statements and notes thereto included~~Consolidated Financial Statements contained in the Company's Annual Report on Form 10-K for the ~~fiscal~~ year ended May 31, ~~2017. Results for the interim periods presented herein are not necessarily indicative~~2023.

Principles of ~~results which may be reported for any other interim period or for the entire fiscal year.~~

~~PRINCIPLES OF CONSOLIDATION.~~ Consolidation – The ~~condensed consolidated financial statements~~Company’s Condensed Consolidated Financial Statements include the accounts of ~~Aehr Test Systems~~the Company and its wholly-owned subsidiaries ~~(collectively, the "Company"). All~~and all significant intercompany ~~balances~~accounts and transactions have been eliminated upon consolidation.

Critical Accounting Policies and use of Estimates– The Company’s significant accounting policies are disclosed in ~~consolidation. For~~ the Company’s ~~majority owned subsidiary, Aehr Test Systems Japan K.K.,~~Annual Report on Form 10-K for the ~~noncontrolling interest of the portion the Company does not own was reflected on the Condensed Consolidated Balance Sheets in Shareholders’ Equity and~~year ended May 31, 2023. There have been no significant changes in the ~~Condensed Consolidated Statements of Operations.~~

~~ACCOUNTING ESTIMATES.~~Company’s significant accounting policies during the three months ended August 31, 2023. 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~~the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. ~~Estimates are used to account for sales~~Significant estimates in these Condensed Consolidated Financial Statements include valuation of inventory at the lower of cost or net realizable value 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.warranty reserves. Actual results could differ ~~materially~~ from those estimates.

~~REVENUE RECOGNITION.~~

Reclassifications - Certain reclassifications have been made to the prior period Condensed Consolidated Financial Statements to conform to the current period presentation. The reclassifications had no impact on net income, total assets, total liabilities, or shareholders’ equity.

Concentration of Credit Risk – Financial instruments which subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. The Company ~~recognizes revenue upon the shipment~~performs credit evaluations of ~~products or the performance of services when: (1) persuasive evidence of the arrangement exists; (2) goods or services have been delivered; (3) the price is fixed or determinable;~~its customers’ financial condition and (4) collectibility is reasonably assured. When a sales agreement involves multiple deliverables, such as extended support provisions, training to be supplied after delivery of the systems, and test programs specific to customers’ routine applications, the multiple deliverables are evaluated to determine the unit of accounting. Judgment is required to properly identify the accounting units of multiple element transactions and the manner in which revenue is allocated among the accounting units. Judgments made, or changes to judgments made, may significantly affect the timing or amount of revenue recognition.

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

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

generally requires no collateral. The Company ~~recognizes revenue~~had revenues from an individual customer in ~~certain circumstances before physical delivery has occurred. In these arrangements, among other things, risk~~excess of ~~ownership has passed to the customer, the customer has made a written fixed commitment to purchase the products, the customer has requested the products be held for future delivery~~10% of total revenues as ~~scheduled and designated by them, and no additional performance obligations exist by the Company. For these transactions, the products are segregated~~follows:

	Three Months Ended August 31,
	2023			2022

Customer A		88.0	%		67.3	%
Customer B	*				22.9	%

The Company had gross accounts receivable from ~~inventory and normal billing and credit terms granted.~~

~~Sales tax collected from~~individual customers ~~is not included~~ in ~~net sales but rather recorded~~excess of 10% of gross accounts receivable as ~~a liability due to the respective taxing authorities. Provisions for the estimated future cost of warranty and installation~~follows:

	August 31,			May 31,
	2023			2023

Customer A		74.0	%		81.6	%
Customer C		18.0	%		16.5	%

Table of Contents

Recent Accounting Pronouncements — The Company’s accounts receivable are recorded at invoiced amounts less allowance for any credit losses. According to the ~~time~~Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13 that the ~~products are shipped.~~

~~Royalty-based revenue related~~Company adopted on June 1, 2023, the Company recognizes credit losses based on forward-looking current expected credit losses (“CECL”). The Company makes estimates of expected credit losses based upon its assessment of various factors, including the age of accounts receivable balances, credit quality of its customers, current economic conditions, reasonable and supportable forecasts of future economic conditions, and other factors that may affect its ability to ~~licensing income~~collect from ~~performance test boards and burn-in boards~~customers. The allowance for credit losses is recognized ~~upon~~in the ~~earlier~~condensed consolidated statements of operations. The uncollectible accounts receivable are written off in the ~~receipt~~period in which a determination is made that all commercially reasonable means of recovering them have been exhausted. The total allowance for credit losses was $0 at both August 31, 2023 and May 31, 2023, and there was no write-off of accounts receivable for the periods presented. The adoption of ASU 2016-13 did not have a material impact on the Company’s Condensed Consolidated Financial Statements.

Although there are several other new accounting pronouncements issued by the ~~Company of~~FASB, the ~~licensee’s report related to its usage of the licensed intellectual property or upon payment by the licensee.~~

The Company’s terms of sales with distributors are generally FOB shipping point with payment due within 60 days. All products go through in-house testing and verification of specifications before shipment. Apart from warranty reserves, credits issued have not been material as a percentage of net sales. The Company’s distributors do not generally carry inventories of the Company’s products. Instead, the distributors place orders with the Company at or about the time they receive orders from their customers. The Company’s shipment terms to our distributors do not provide for credits or rights of return. Because the Company’s distributors do not generally carry inventories of our products, they do not have rights to price protection or to return products. At the time the Company ships products to the distributors, the price is fixed. Subsequent to the issuance of the invoice, there are no discounts or special terms. The Company does not ~~give~~believe any of these accounting pronouncements had or will have a significant impact on its Condensed Consolidated Financial Statements.

2. FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair Value of Measurements — The Company measures its cash equivalents and money market funds at fair value on a recurring basis. Fair value is an exit price, representing the ~~buyer the right~~amount that would be received to ~~return the product~~sell an asset or paid to ~~receive future price concessions. The Company’s arrangements do not include vendor consideration.~~

~~SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. The Company’s significant accounting policies are disclosed~~transfer a liability in ~~the Company’s Annual Report~~an orderly transaction between market participants. As such, fair value is a market-based measurement that is determined based on ~~Form 10-K for the year ended May 31, 2017. There have been no significant changes~~assumptions that market participants would use in ~~our significant accounting policies during the six months ended November 30, 2017.~~

~~2. STOCK-BASED COMPENSATION~~

~~Stock-based compensation expense consists of expenses for stock options, restricted stock units,~~pricing an asset or ~~RSUs,~~a liability. Assets and ~~employee stock purchase plan, or ESPP, purchase rights. Stock-based compensation cost for stock options and ESPP purchase rights~~liabilities recorded at fair value are measured ~~at each grant date,~~and classified in accordance with a three-tier fair value hierarchy based on the ~~fair value~~observability of the award using the Black-Scholes option valuation model, and is recognized as expense over the employee’s requisite service period. This model was developed for use in estimating the value of publicly traded options that have no vesting restrictions and are fully transferable. The Company’s employee stock options have characteristics significantly different from those of publicly traded options. For RSUs, stock-based compensation cost is based on the fair value of the Company’s common stock at the grant date. All of the Company’s stock-based compensation is accounted for as an equity instrument. See Notes 11 and 12inputs available in the ~~Company’s Annual Report on Form 10-K~~market used to measure fair value:

Level 1 — Observable inputs that reflect quoted prices (unadjusted) for ~~fiscal 2017 filed on August 29, 2017~~identical assets or liabilities in active markets.

Level 2 — Inputs that are based upon quoted prices for ~~further information regarding~~similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant inputs are observable in the ~~2016 Equity Incentive Plan~~market or can be derived from observable market data. Where applicable, these models project future cash flows and discount the ~~Amended~~future amounts to a present value using market-based observable inputs including interest rate curves, foreign exchange rates, and ~~Restated 2006 ESPP.~~

credit ratings.

Level 3 — Unobservable inputs that are supported by little or no market activities.

The following table ~~summarizes the stock-based compensation expense related to~~represents the Company’s ~~stock-based incentive plans~~assets measured at fair value on a recurring basis as of August 31, 2023, and the basis for that measurement:

	Balance as of
(In thousands)	August 31, 2023		Level 1		Level 2		Level 3
Money market funds	$	48,975	$	48,975	$	-	$	-

Total	$	48,975	$	48,975	$	-	$	-

The following table represents the Company’s assets measured at fair value on a recurring basis as of May 31, 2023, and the basis for that measurement:

	Balance as of
	May 31, 2023		Level 1		Level 2		Level 3

Money market funds	$	27,022	$	27,022	$	-	$	-
U. S. treasury securities		17,853		17,853
Total	$	44,875	$	44,875	$	-	$	-

Table of Contents

Included in money market funds as of August 31, 2023 and May 31, 2023 is $150,000 restricted cash representing a security deposit for the ~~three~~Company’s United States manufacturing and ~~six months ended November 30, 2017 and 2016 (in thousands):~~

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

~~As of November 30, 2017 and 2016, there~~office space lease. There were no ~~stock-based compensation costs capitalized~~financial liabilities measured at fair value as ~~part~~ of ~~inventory.~~

~~During~~August 31, 2023 and May 31, 2023. There were no transfers between Level 1 and Level 2 fair value measurements during the three months ended ~~November 30, 2017~~August 31, 2023. The carrying amounts of financial instruments, including cash equivalents, accounts receivable, accounts payable and 2016, the Company recorded stock-based compensation related to stock options and RSUs 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.

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

During the three months ended November 30, 2017 and 2016, the Company recorded stock-based compensation related to the ESPP of $157,000 and $30,000, respectively. During the six months ended November 30, 2017 and 2016, the Company recorded stock-based compensation related to the ESPP of $172,000 and $70,000, respectively. The increase in the three and six months ended November 30, 2017 is primarilycertain other accrued liabilities, approximate fair value due to ~~employees increasing~~ their ~~ESPP elections during the current ESPP purchase period.~~

As of November 30, 2017, the total compensation cost related to purchase rights under the ESPP but not yet recognized was approximately $49,000. This cost will be amortized on a straight-line basis over a weighted average period of approximately 0.3 years.

~~Valuation Assumptions~~

Valuation and Amortization Method. The Company estimates the fair value of stock options granted using the Black-Scholes option valuation model and a single option award approach. The fair value under the single option approach is amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period.

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

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

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

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

Three Months Ended

Six Months Ended

November 30,

November 30,

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

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

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

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

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

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

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

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

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

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

~~The options outstanding and exercisable at November 30, 2017 were in the following exercise price ranges (in thousands, except per share data):~~

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

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

There were no RSUs granted to employees for the three months ended November 30, 2017 or 2016. During the six months ended November 30, 2017, RSUs for 64,000 shares were granted. The market value on the date of the grant of these RSUs was $3.93 per share. During the six months ended November 30, 2016, RSUs for 138,000 shares were granted. The market value on the date of the grant of these RSUs was $1.68 per share. 4,000 and 7,000 RSUs became fully vested during the three and six months ended November 30, 2017, respectively. 89,000 RSUs were unvested at November 30, 2017. The intrinsic value of the unvested RSUs at November 30, 2017 was $227,000.

~~3. EARNINGS PER SHARE~~

Basic earnings per share is determined using the weighted average number of common shares outstanding during the period. Diluted earnings per share is determined using the weighted average number of common shares and potential common shares (representing the dilutive effect of stock options, RSUs and ESPP shares) outstanding during the period using the treasury stock method.

~~The following table presents the computation of basic and diluted net income (loss) per share attributable to 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)

For the purpose of computing diluted earnings per share, the weighted average number of potential common shares does not include stock options with an exercise price greater than the average fair value of the Company’s common stock for the period, as the effect would be anti-dilutive. Stock options to purchase 263,000 shares of common stock were outstanding as of November 30, 2017 but were not included in the computation of diluted net income per share, because the inclusion of such shares would be anti-dilutive. In the three and six months ended November 30, 2016, potential common shares have not been included in the calculation of diluted net loss per share as the effect would be anti-dilutive. As such, the numerator and the denominator used in computing both basic and diluted net loss per share for this period are the same. Stock options to purchase 3,229,000 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 loss per share, because the inclusion of such shares would be anti-dilutive. The 2,657,000 shares convertible under the convertible notes outstanding at November 30, 2017 and 2016 were not included in the computation of diluted net income (loss) per share, because the inclusion of such shares would be anti-dilutive.

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

short maturities.

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

as of August 31, 2023 and May 31, 2023, respectively:

Balances as of August 31, 2023			Gross Unrealized		Estimated
(In thousands)	Cost		Loss		Fair Value
Cash	$	2,130	$	-	$	2,130
Cash equivalents:
Money market funds	$	48,825	$	-	$	48,825
Total cash and cash equivalents	$	50,955	$	-	$	50,955
Long-term investments:
Money market funds	$	150	$	-	$	150
Total cash, cash equivalents and investments	$	51,105	$	-	$	51,105

			Gross
Balances as of May 31, 2023			Unrealized			Estimated
(In thousands)	Cost		Loss			Fair Value
Cash	$	3,182	$	-		$	3,182
Cash equivalents:
Money market funds	$	26,872	$	-		$	26,872
Total cash and cash equivalents	$	30,054	$	-		$	30,054
Short term investments:
U. S. treasury securities	$	17,870	$	(17	)	$	17,853
Long-term investments:
Money market funds	$	150	$	-		$	150
Total cash, cash equivalents and investments	$	48,074	$	(17	)	$	48,057

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 ~~AOCI~~accumulated other comprehensive loss to results of operations.

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

~~5. FAIR VALUE OF FINANCIAL INSTRUMENTS~~

The Company’s financial instruments are measured at fair value consistent with authoritative guidance. This authoritative guidance defines fair value, establishes a framework for using fair value to measure assets and liabilities, and disclosures required related to fair value measurements.

The guidance establishes a fair value hierarchy based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity’s pricing based upon their own market assumptions. The fair value hierarchy consists

Table of Contents

3. BALANCE SHEET INFORMATION

Inventories

Inventories consisted 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~~following:

	August 31,		May 31,
(In thousands)	2023		2023
Raw materials and sub-assemblies	$	19,422	$	15,953
Work in process		9,617		5,764
Finished goods		2,518		2,191
	$	31,557	$	23,908

Property and ~~require a high level of judgment to determine the fair value.~~

~~The following table summarizes the Company’s financial assets measured at fair value on a recurring basis as of November 30, 2017 (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
$--

~~The U.S. Treasury securities have maturities of three~~equipment

Property and ~~six months.~~

~~The following table summarizes the Company’s financial assets measured at fair value on a recurring basis as of May 31, 2017 (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
$--

~~There were no financial liabilities measured at fair value as of November 30, 2017 and May 31, 2017.~~

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

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

~~The Company has, at times, invested in debt and equity~~following:

	Useful life	August 31,			May 31,
(In thousands)	(In years)	2023			2023
Leasehold improvements	*	$	1,325		$	1,310
Machinery and equipment	3 - 6		5,787			5,445
Test equipment	4 - 6		3,083			2,998
Furniture and fixtures	2 - 6		725			706
			10,920			10,459
Less: accumulated depreciation and amortization			(7,837	)		(7,700	)
		$	3,083		$	2,759

* Lesser of ~~private companies, and may do so again in the future, as part of its business strategy.~~

~~6. ACCOUNTS RECEIVABLE, NET~~

Accounts receivable represent customer trade receivables and is presented net of allowances for doubtful accounts of $47,000 at November 30, 2017 and $61,000 at May 31, 2017. Accounts receivable are derived from the sale of products throughout the world to semiconductor manufacturers, semiconductor contract assemblers, electronics manufacturers and burn-in and test service companies. The Company’s allowance for doubtful accounts is based upon historical experience and review of trade receivables by aging category to identify specific customers with known disputesestimated useful life 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.~~

~~7. INVENTORIES~~

~~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

~~8. SEGMENT INFORMATION~~

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

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

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

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

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

~~9. PRODUCT WARRANTIES~~

lease term.

Product warranties

The Company provides for the estimated cost of product warranties at the time revenues are recognized on the products shipped. While the Company engages in extensive product quality programs and processes, including actively monitoring and evaluating the quality of its component suppliers, the Company’s warranty obligation is affected by product failure rates, material usage and service delivery costs incurred in correcting a product failure. Should actual product failure rates, material usage or service delivery costs differ from the Company’s estimates, revisions to the estimated warranty liability would be required.

The standard warranty period is one year for systems and ninety days for parts and service.

The following is a summary of changes in the Company's liability for product warranties during the three ~~and six~~ months ended ~~November 30, 2017~~August 31, 2023 and ~~2016 (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

2022:

	Three Months Ended August 31,
(In thousands)	2023			2022
Balance at the beginning of the period	$	267		$	410
Accruals for warranties issued during the period		65			118
Adjustments to previously existing warrany accruals		-			61
Consumption of reserves		(100	)		(165	)
Balance at the end of the period	$	232		$	424

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

~~10. ACCUMULATED OTHER COMPREHENSIVE~~Condensed Consolidated Balance Sheets.

Deferred revenue

Deferred revenue, short-term consisted of the following:

	August 31,		May 31,
(In thousands)	2023		2023
Customer deposits	$	2,008	$	2,690
Deferred revenue		4,106		132
	$	6,114	$	2,822

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4. INCOME

~~Changes~~ TAX

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 taxes of $16,000 and $14,000 for the ~~components~~three months ended August 31, 2023 and 2022, respectively, which consisted primarily of ~~AOCI, 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

~~11. INCOME TAXES~~

foreign withholding taxes and foreign income taxes.

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

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

The Company continues to reassess the need for a valuation allowance on a quarterly basis.

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

Although the Company files U.S. federal, various state, and foreign tax returns, the Company’s only major tax jurisdictions are the United States, California, Germany and Japan. Tax years 1997 - 2016 remain subject to examination by the appropriate governmental agencies due to tax loss carryovers from those years.

5. BORROWING ARRANGEMENTS

On December 22, 2017, the "Tax Cuts and Jobs Act" was signed into law, significantly impacting several sections of the Internal Revenue Code. The Company is currently analyzing the impact of these changes and therefore an estimate of the impact to income taxes is not yet available.

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

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

November 30,

May 31,

2017

2017

Customer deposits
$2,755
$3,264
Deferred revenue
387
203

$3,142
$3,467

~~13. LONG-TERM DEBT~~

~~On April 10, 2015,~~January 16, 2020, the Company entered into a ~~Convertible Note Purchase~~Loan and ~~Credit Facility~~Security Agreement (the ~~“Purchase~~“Loan Agreement”) with ~~QVT Fund LP and Quintessence Fund L.P. (the “Purchasers”~~Silicon Valley Bank (“SVB”) ~~providing for~~. Pursuant to the Loan Agreement, the Company may borrow up to (a) the lesser of (i) the revolving line of $4.0 million or (ii) the amount available under the borrowing base under a revolving line of credit which is collateralized by all the Company’s ~~sale~~assets except intellectual property. The borrowing base is 80% of eligible accounts, as determined by SVB from the Company’s most recent borrowing base statement; provided, however, SVB has the right to decrease the foregoing percentage in its good faith business judgment to mitigate the impact of certain events or conditions, which may adversely affect the collateral or its value. Subject to an event of default, the principal amount outstanding under the revolving line of credit will accrue interest at a floating per annum rate equal to the ~~Purchasers~~greater of ~~$4,110,000 in aggregate principal amount of 9.0% Convertible Secured Notes due 2017 (the “Convertible Notes”) and (b) a secured revolving loan facility (the “Credit Facility”) in~~(a) the prime rate plus an ~~aggregate principal amount~~additional percentage of up to ~~$2,000,000. On August 22, 2016~~1%, which additional percentage depends on the ~~Purchase Agreement was amended to extend~~Company’s adjusted quick ratio, and (b) 4.75%. Interest is payable monthly on the last calendar day of each month and the outstanding principal amount, the unpaid interest and all other obligations are due on the maturity date, which is 364 days from the effective date of January 13, 2020.

On January 14, 2021, the Company entered into the First Amendment to Loan and Security Agreement (the “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 Notes~~line up to ~~April 10, 2019, decrease~~ the ~~conversion price from $2.65 per share~~lesser of (i) $10 million or (ii) the available amount under the borrowing base, under a revolving line of credit, (B) 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.~~

The Convertible Notes bear interest at an annual rate of 9.0% and will mature on April 10, 2019 unless repurchased or converted prior to that date. Interest is payable quarterly on March 1, June 1, September 1 and December 1 of each year. Debt issuance costs of $356,000, which were accreted over the term$3 million of the ~~original loan using~~available balance based upon eligible customer purchase orders, (C) reduced the ~~effective~~ interest rate ~~method, were offset~~for account advances under the line to the greater of (a) prime rate plus an additional percentage up to 1.0%, which additional percentage depends on the Company’s adjusted quick ratio, and (b) 3.25%, reduces the interest rate for purchase order advances under the line to the greater of (a) prime rate plus an additional percentage up to 1.5%, which additional percentage depends on the Company’s adjusted quick ratio, and (b) 3.75%, and (D) extended the maturity date to January 13, 2023.

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On January 10, 2023, the Company entered into the Third Amendment to the Loan and Security Agreement (the “Third Amendment”) with SVB. The Third Amendment, among other things, extends the Revolving Line Maturity Date to January 13, 2024, provided, however, that (i) if the Company submits a fiscal year 2024 plan of record 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 August 31, 2023, the Company had not drawn against the ~~loan balance.~~

credit facility and was in compliance with all covenants related to obligations to meet reporting requirements. The ~~conversion price~~balance available to borrow under the line as of August 31, 2023 was $5,396,000. There are no financial covenants in the agreement.

6. COMMITMENTS AND CONTINGENCIES

Commitments

As of August 31, 2023 and May 31, 2023, the Company had restricted money market funds of $150,000, held by a financial institution, representing a security deposit for its United States manufacturing and office space lease. This amount is included in other assets on the ~~Convertible Notes is $2.30 per share~~Condensed Consolidated Balance Sheets.

Purchase Obligations

The Company has purchase obligations to certain suppliers. In some cases, the products the Company purchases are unique and ~~is subject to adjustment upon the occurrence of certain specified events. Holders may convert all or any part~~have provisions against cancellation of the principal amount of their Convertible Notes in integrals of $10,000 at any time prior to the maturity date. Upon conversion, the Company will deliver shares of its common stock to the holder of Convertible Notes electing such conversion. order.

Contingencies

The Company may, from time to time, be involved in legal proceedings arising in the ordinary course of business. While there can be no assurances as to the ultimate outcome of any litigation involving the Company, management does not ~~redeem~~believe any pending legal proceedings will result in judgment or settlement that will have a material adverse effect on the ~~Convertible Notes prior~~Company’s consolidated financial position, results of operations or cash flows.

In the normal course of business to ~~maturity.~~

~~The maximum~~facilitate sales of its products, the Company indemnifies other parties, including customers, with respect to certain matters, for example, including against losses arising from a breach of representations or covenants, or from intellectual property infringement or other claims. These agreements may limit the time within which an indemnification claim can be made and the amount of ~~$2,000,000 drawn against~~ the ~~Credit Facility~~claim. In addition, the Company has ~~been converted~~entered into indemnification agreements with its officers and directors, and the Company’s bylaws contain similar indemnification obligations to ~~Convertible Notes,~~the Company’s agents.

It is not possible to determine the maximum potential amount under these indemnification agreements due to the limited history of prior indemnification claims and ~~at November 30, 2017 there was no remaining balance available to be drawn~~the unique facts and circumstances involved in each particular agreement. To date, payments made by the Company under these agreements have not had a material impact on the ~~Credit Facility.~~

Company’s operating results, financial position or cash flow.

7. SHAREHOLDERS’ EQUITY

On August 25, 2021, the Board of Directors authorized management to take actions necessary for the execution of a $75 million shelf registration. A Registration Statement on Form 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 executed the ATM offering by selling 1,696,729 shares of common stock at an average selling price of $14.73 per share. The ~~Company’s obligations under~~gross proceeds to the ~~Purchase Agreement are secured~~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 February 8, 2023. The Company partially executed the ATM offering by ~~substantially all~~selling 208,917 shares of common stock at an average selling price of $34.78 per share. The gross proceeds to the Company were $7.3 million, before commissions of $0.2 million and offering expenses of $0.2 million. As of August 31, 2023, the remaining amount of the ~~assets of the Company.~~

~~14. RECENT ACCOUNTING PRONOUNCEMENTS~~

~~In May 2014, as part of its ongoing efforts to assist~~ATM offering was $17.7 million.

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8. ACCUMULATED OTHER COMPREHENSIVE LOSS

Changes in the ~~convergence~~components of ~~GAAP and International Financial Reporting Standards (“IFRS”), the Financial Accounting Standards Board (“FASB”) issued an accounting standard update related to~~accumulated other comprehensive loss, net of tax, were as follows (in thousands):

	Cumulative			Unrealized loss
(In thousands)	translation adjustment			on investments, net			Total
Balance as of May 31, 2023	$	(138	)	$	(17	)	$	(155	)
Other comprehensive income (loss) before reclassifications		(3	)		17			14
Balance as of August 31, 2023	$	(141	)	$	-		$	(141	)

9. REVENUE

Revenue recognition

The Company recognizes revenue from contracts with customers. This standard sets forth a new five-step revenue recognition model which replaces the prior revenue recognition guidance in its entirety and is intended to eliminate numerous industry-specific pieces of revenue recognition guidance that have historically existed in GAAP. The underlying principle of the new standard is that a business or other organization will recognize revenue to depict the transfer ofwhen promised goods or services are transferred to customers in an amount that reflects ~~what it~~the consideration to which the Company expects to be entitled in exchange for ~~the~~those goods or ~~services.~~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 ~~also requires~~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 presents information about the Company’s net revenues in different geographic areas, which are based upon ship-to locations, and by product category:

	Three Months Ended August 31,
(In thousands)	2023		2022
Asia	$	19,231	$	7,808
United States		789		2,863
Europe		604		-
	$	20,624	$	10,671

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	Three Months Ended August 31,
(In thousands)	2023		2022
Systems	$	8,093	$	9,094
Contactors		11,264		494
Services		1,267		1,083
	$	20,624	$	10,671

With the exception of the amount of service contracts and extended warranties, the Company’s product net revenues are recognized at a point in time when control transfers to the customer. The following presents net revenues based on timing of recognition:

	Three Months Ended August 31,
(In thousands)	2023		2022
Timing of revenue recognition:
Products and services transferred at a point in time	$	20,011	$	10,254
Services transferred over time		613		417
	$	20,624	$	10,671

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 ~~detailed disclosures~~commonly recorded than a contract asset.

Contract liabilities include payments received in advance of performance under a contract and ~~provides additional guidance for transactions~~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 August 31, 2023 and May 31, 2023 were $6.1 million and $2.9 million, respectively. During the three months ended August 31, 2023, the Company recognized $0.7 million of revenues that were ~~not addressed completely~~included in ~~the prior accounting guidance. The standard provides alternative methods~~contract liabilities as of ~~initial adoption and will become effective for~~May 31, 2023.

Remaining performance obligations

On August 31, 2023, the Company beginning in the first quarter of fiscal 2019. The FASB has issued several updates to the standard which i) defer the original effective date from January 1, 2017 to January 1, 2018, while allowing for early adoption as of January 1, 2017. ii) clarify the application of the principal versus agent guidance. and iii) clarify the guidance on inconsequential and perfunctory promises and licensing. In May 2016, the FASB issued an update to address certain narrow aspects of the guidance including collectibility criterion, collection of sales taxes from customers, noncash consideration, contract modifications and completed contracts. This issuance does not change the core principle of the guidance in the initial topic issued in May 2014. In December 2016, the FASB issued updated guidance regarding revenue from contracts with customers. Some topics that could impact the Company include corrections and improvements around the following: contract costs impairment testing, disclosurehad $0.1 million of remaining performance obligations, which were comprised of deferred service contracts and ~~prior period obligations, contract modifications, and contract asset versus receivable.~~extended warranty contracts not yet delivered. The Company ~~is currently evaluating the impact~~expects to recognize approximately 72% of ~~adopting this new guidance on~~ its ~~consolidated financial statements.~~

In July 2015, the FASB issued an accounting standard update that requires management to measure inventory at the lower of cost or net realizable value. Net realizable value is the estimated selling pricesremaining performance obligations as revenue in the ~~ordinary course~~remainder of ~~business,~~fiscal 2024, and an additional 28% in fiscal 2025 and thereafter. The foregoing excludes the value of other remaining performance obligations as they have original durations of one year or less, ~~reasonably predictable~~and also excludes information about variable consideration allocated entirely to a wholly unsatisfied performance obligation.

Costs to obtain or fulfill a contract

The Company generally expenses sales commissions when incurred as a component of selling, general and administrative expenses as the amortization period is typically less than one year. Additionally, the majority of the Company’s cost of fulfillment as a manufacturer of products is classified as inventory and fixed assets, which are accounted for under the respective guidance for those asset types. Other costs of ~~completion, disposal, and transportation. The Company adopted this new standard in fiscal year 2018. The adoption~~contract fulfillment are immaterial due to the nature of ~~this guidance does not have a significant impact on~~ the Company’s ~~consolidated financial statements.~~

~~In November 2015, the FASB issued an accounting standard update related to deferred tax assets~~products and ~~liabilities. This standard simplifies the presentation~~their respective manufacturing process.

10. STOCK-BASED COMPENSATION

Stock-based compensation expense consists of deferred income taxes to be classified as noncurrent in the consolidated balance sheet. The Company adopted this new standard in fiscal year 2018. The adoption of this guidance does not have a significant impactexpenses for stock options, restricted stock units (“RSUs”), performance RSUs, or PRSUs, restricted shares, performance restricted shares and employee stock purchase plan, or ESPP, purchase rights. Stock-based compensation expense for stock options and ESPP purchase rights is measured at each grant date, based on ~~the Company’s consolidated financial statements.~~

In January 2016, the FASB issued an accounting standard update related to recognition and measurement of financial assets and financial liabilities. This standard changes accounting for equity investments, financial liabilities under the fair value of the award using the Black-Scholes option valuation model, and is recognized as expense over the employee’s requisite service period. This model was developed for use in estimating the value of publicly traded options that have no vesting restrictions and are fully transferable. The Company’s employee stock options have characteristics significantly different from those of publicly traded options. For RSUs, PRSUs, restricted shares and performance restricted shares, stock-based compensation expense is based on the fair value of the Company’s common stock at the grant date and is recognized as expense over the employee’s requisite service period. All of the Company’s stock-based compensation is accounted for as equity instruments. See Note 13 in the Company’s Annual Report on Form 10-K for fiscal 2023 filed on August 28, 2023 for further information regarding the 2016 Equity Incentive Plan (the “2016 Plan”) and the ~~presentation~~ESPP.

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The following table summarizes the stock-based compensation expense for the three months ended August 31, 2023 and ~~disclosure requirements for financial instruments. In addition, it clarifies guidance related to~~2022:

	Three Months Ended August 31,
(In thousands)	2023		2022
Cost of sales	$	63	$	91
Research and development		153		154
Selling, general and administrative		306		465
	$	522	$	710

There were $149,000 and $120,000 in stock-based compensation expense capitalized as part of inventory as of August 31, 2023 and as of May 31, 2023, respectively.

There were no options granted during the ~~valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. This standard~~three months ended August 31, 2023. There were no ESPP purchase rights granted during the three months ended August 31, 2023 and 2022.

Nonvested restricted stock units activity during the three months ended August 31, 2023, was as follows:

				Weighted
				Average Grant
				Date Fair
	Shares			Value
	(in thousands)			Per Share
Unvested May 31, 2023		345		$	6.40
Granted		-
Vested		(77	)		7.16
Forfeited		(52	)		5.79
Unvested August 31, 2023		216		$	6.27

11. NET INCOME PER SHARE

Basic net income per share is ~~effective for us in fiscal year 2020. Early adoption~~determined using the weighted average number of common shares outstanding during the period. Diluted net income per share is ~~permitted.~~determined using the weighted average number of common shares and potential common shares (representing the dilutive effect of stock options, unvested RSUs, and ESPP shares) outstanding during the period using the treasury stock method. The ~~Company is currently evaluating~~following table presents the ~~impact~~computation of ~~this new guidance on its consolidated financial statements.~~

~~In February 2016,~~basic and diluted net income per share:

	Three Months Ended August 31,
(In thousands, except per share data)	2023		2022
Numerator:
Net income	$	4,674	$	589
Denominator:
Basic weighted average shares outstanding		28,649		27,242
Dilutive effect of common equivalent shares outstanding		983		1,546
Diluted weighted average shares outstanding		29,632		28,788

Net income per share - Basic	$	0.16	$	0.02
Net income per share - Diluted	$	0.16	$	0.02

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For the ~~FASB issued authoritative guidance related to leases. This guidance requires management to present all leases~~purpose of computing diluted net income per share, weighted average potential common shares do not include stock options with an exercise price greater than ~~one year on~~ the ~~balance sheet as a liability to make payments and an asset~~average fair value of the Company’s common stock for the period, as the ~~right~~effect would be anti-dilutive. Stock options to ~~use~~purchase 2,000 and 152,000 shares of common stock were outstanding as of August 31, 2023 and 2022, respectively, but were not included in the ~~underlying asset~~computation of diluted net income per share, because the inclusion of such shares would be anti-dilutive.

12. SEGMENT AND CONCENTRATION INFORMATION

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or group, in deciding how to allocate resources and in assessing performance.

The Company’s chief operating decision maker, the chief executive officer, reviews discrete financial information presented on a consolidated basis for ~~the lease term. This new standard will be effective for us in fiscal year 2020, with early adoption permitted. The Company is currently evaluating the impact~~purposes of ~~adopting this new guidance on its consolidated~~regularly making operating decisions and assessing financial ~~statements.~~

In March 2016, the FASB released an accounting standard update that simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, forfeitures, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The Company adopted this new standard in fiscal year 2018. The adoption of this guidance does not have a significant impact on the Company’s consolidated financial statements.

In June 2016, the FASB issued an accounting standard update that requires measurement and recognition of expected credit losses for financial assets held based on historical experience, current conditions, and reasonable and supportable forecasts that affect the collectibility of the reported amount. The accounting standard update will be effective forperformance. Accordingly, the Company ~~beginning~~considers itself to be in the first quarter of fiscal 2021 on a modified retrospective basis, and early adoption in fiscal 2020 is permitted. The Company is currently evaluating the impact of this accounting standard update on its consolidated financial statements.

In August 2016, the FASB issued authoritative guidance related to the classification of certain cash receipts and cash payments on the statement of cash flows. The accounting standard update will be effective for the Company beginning in the first quarter of fiscal 2019 on a retrospective basis, and early adoption is permitted. The Company is currently evaluating the impact of this accounting standard update on its consolidated statements of cash flows.

~~In October 2016, the FASB issued an accounting standard update that requires recognition of the income tax consequences of intra-entity transfers of~~one operating segment.

Long-lived assets, (other than inventory) at the transaction date. The accounting standard update will be effective for the Company beginning in the first quarter of fiscal 2019 on a modified retrospective basis, and early adoption is permitted. The Company is currently evaluating the impact of this accounting standard update on its consolidated financial statements.

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

follows:

	August 31,		May 31,
(In thousands)	2023		2023
United States	$	3,041	$	2,713
International		42		46
Total long-lived assets, net	$	3,083	$	2,759

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

Management’s Discussion and Analysis of Financial Condition and Resultsof Operations

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

~~In addition to historical information, this report~~ contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 ~~as amended,~~ and Section 21E of the Securities Exchange Act of ~~1934, as amended.~~1934. All statements ~~in this report, including those made by our management,~~ other than statements of historical fact ~~are~~may be forward-looking statements. ~~These~~In some cases, you can identify forward-looking statements ~~typically~~by terminology such as “may,” “could,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential”, “target” or “continue,” the negative effect of terms like these or other similar expressions. Any statement concerning future financial performance (including future revenues, earnings or growth rates), ongoing business strategies or prospects, and possible actions taken by us or our subsidiaries, which may be ~~identified~~provided by ~~the use of~~us are also 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.statements. These forward-looking statements are only predictions. Forward-looking statements are based on current expectations and projections about future events and are inherently subject to ~~certain~~a variety of risks and uncertainties, ~~that~~many of which are beyond our control, which could cause ~~our~~ actual results to differ materially from those anticipated ~~results~~ or other expectations reflected in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this report and other factors beyond our control, and in particular, the risks discussed in “Part II, Item 1A. Risk Factors” and those discussed in other documents we file with the SEC.projected. All forward-looking statements included in this document are based on ~~our current expectations,~~information available to us on the date of filing and we ~~undertake~~further caution investors that our business and financial performance are subject to substantial risks and uncertainties. We assume no obligation to ~~revise or publicly release the results of~~update any ~~revision to these~~such forward-looking statements. ~~Given~~In evaluating these ~~risks~~statements, you should specifically consider various factors, including the risk factors set forth in Item 1. “Business” and ~~uncertainties, readers are cautioned not to place undue reliance~~Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on ~~such forward-looking statements.~~

~~OVERVIEW~~

~~We were founded in 1977 to develop and manufacture burn-in and test equipment~~Form 10-K for the year ended May 31, 2023, filed with the Securities and Exchange Commission on August 28, 2023. All references to “we”, “us”, “our”, “Aehr Test”, “Aehr Test Systems” or the “Company” refer to Aehr Test Systems.

Overview

Aehr Test Systems is a leading provider of test solutions for testing, burning-in, and stabilizing semiconductor ~~industry. Since our inception, we~~devices in wafer level, singulated die, and package part form, and has installed thousands of systems worldwide. Increasing quality, reliability, safety, and security needs of semiconductors used across multiple applications, including electric vehicles, electric vehicle charging infrastructure, solar and wind power, computing, data and telecommunications infrastructure, and solid-state memory and storage, are driving additional test requirements, incremental capacity needs, and new opportunities for Aehr Test products and solutions.

We have ~~sold more than 2,500 systems to semiconductor manufacturers, semiconductor contract assemblers~~developed and introduced several innovative products including the FOX-P family of test and burn-in systems and ~~test service companies worldwide. Our principal products currently~~FOX WaferPak Aligner, FOX WaferPak Contactor, FOX DiePak Carrier and FOX DiePak Loader. The FOX-XP and FOX-NP systems are ~~the Advanced Burn-in and Test System, or ABTS, the FOX~~ full wafer contact ~~parallel~~and singulated die/module test and burn-in systems that can test, burn-in, and stabilize a wide range of devices such as leading-edge silicon carbide-based and other power semiconductors, 2D and 3D sensors used in mobile phones, tablets, and other computing devices, memory semiconductors, processors, microcontrollers, systems-on-a-chip, and photonics and integrated optical devices. The FOX-CP system is a low-cost single-wafer compact test solution for logic, memory and photonic devices and the newest addition to the FOX-P product family. The FOX WaferPak ~~contactors,~~Contactor contains a unique full wafer contactor capable of testing wafers up to 300mm that enables Integrated Circuit manufacturers to perform test, burn-in, and stabilization of full wafers on the FOX-P systems. The FOX DiePak ~~carrier~~Carrier allows testing, burning in, and ~~test fixtures.~~

stabilization of singulated bare die and modules up to 1,024 devices in parallel per DiePak on the FOX-NP and FOX-XP systems up to nine DiePaks at a time.

Our net ~~sales consist~~revenue consists primarily of sales of FOX-P systems, WaferPak Aligners and DiePak Loaders, WaferPak contactors, DiePak ~~Carriers,~~carriers, test fixtures, upgrades and spare parts, ~~revenues from~~ service contracts revenues, and non-recurring 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~~

title and risk of loss.

Critical Accounting Estimates

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

2023.

There have been no material changes to our critical accounting policies and estimates during the ~~six~~three months ended ~~November 30, 2017~~August 31, 2023 compared to those discussed in our Annual Report on Form 10-K for the fiscal year ended May 31, ~~2017.~~

~~RESULTS OF OPERATIONS~~

~~The following table sets forth items in our unaudited condensed consolidated statements~~2023.

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Results of ~~operations as a percentage~~Operations

Discussion of ~~net sales~~Results of Operations 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 NOVEMBER 30, 2017 COMPARED TO THREE MONTHS ENDED NOVEMBER 30, 2016~~

~~NET SALES. Net sales~~Three Months Ended August 31, 2023 compared to the Three Months Ended August 31, 2022

Revenues

Revenue by Category	Three Months Ended August 31,						Percent
(Dollars in thousands)	2023			2022			Change
Products	$	19,357		$	9,588			102	%
Services		1,267			1,083			17	%
Total revenues	$	20,624		$	10,671			93	%
Products as a percentage of total revenues		93.9	%		89.9	%
Services as a percentage of total revenues		6.1	%		10.1	%

Revenue increased to ~~$7.9~~$20.6 million for the three months ended ~~November 30, 2017~~August 31, 2023 from ~~$4.2~~$10.7 million for the three months ended ~~November 30, 2016, an increase of 87.9%. The increase~~August 31, 2022. Our contactor revenue increased by $10.8 million and our service revenue increased by $0.2 million, partially offset by a $1.0 million decrease in ~~net sales for~~our system revenues.

Revenue by Geography	Three Months Ended August 31,						Percent
(Dollars in thousands)	2023			2022			Change
Asia	$	19,231		$	7,808			146	%
United States		789			2,863		(72		)%
Europe	$	604		$	-			100	%
Total revenues	$	20,624		$	10,671			93	%
Asia as a percentage of total revenues		93.3	%		73.2	%
United States as a percentage of total revenues		3.8	%		26.8	%
Europe as a percentage of total revenues		2.9	%		0.0	%

On a geographic basis, revenues represent products that were shipped to or services that were performed at our customer locations. For the three months period ended ~~November 30, 2017 was primarily due~~August 31, 2023, international revenues significantly increased, compared to the ~~increases~~same period in ~~both net sales of our Test During Burn-in (TDBI) products and wafer-level products. Net sales~~the prior year, primarily as a result of the ~~TDBI products for~~shipments to our main customer in Asia, partially offset by the ~~three months ended November 30, 2017 were $5.1 million, and increased approximately $2.4 million~~decline in net revenue from a customer in the three months ended November 30, 2016. Net sales of the wafer-level products for the three months ended November 30, 2017 were $2.8 million, and increased approximately $1.4 million from the three months ended November 30, 2016.

~~GROSS PROFIT.~~ United States.

Gross Margin

Gross Profit by Category	Three Months Ended August 31,						Percent
(Dollars in thousands)	2023			2022			Change
Products	$	9,438		$	4,239			123	%
Services		543			242			124	%
Gross profit	$	9,981		$	4,481			123	%

Gross Margin by Category
Product		48.8	%		44.2	%
Services		42.9	%		22.3	%
Gross margin		48.4	%		42.0	%

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Gross profit increased to ~~$3.1~~$10.0 million for the three months ended ~~November 30, 2017~~August 31, 2023 from $4.5 million for the three months ended August 31, 2022. Gross margin increased to 48.4% for the three months ended August 31, 2023 from 42.0% for the three months ended August 31, 2022. The increase in gross margin of 6.4 percentage points was primarily due to the increased sales of higher margin contactor products, as well as a reduction in manufacturing overhead due to higher production rates for future sales.

Research and Development

	Three Months Ended August 31,						Percent
(Dollars in thousands)	2023			2022			Change
Research and development	$	2,457		$	1,498			64	%
As a percentage of total revenues		11.9	%		14.0	%

Research and development expenses consist primarily of personnel-related costs to support product development activities, including compensation and benefits, outside development services, travel, facilities cost allocations, and stock-based compensation charges. Research and development expenses increased to $2.5 million for the three months ended August 31, 2023, compared to $1.5 million for the three months ended ~~November 30, 2016, an~~August 31, 2022. The 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~~$1.0 million was ~~primarily~~mostly due to ~~manufacturing efficiencies due to~~non-recurring engineering services charges for $0.6 million, an increase in ~~net sales resulting in a 6.7% gross profit margin increase, partially offset by~~recruiting fees for $0.2 million and an increase in ~~warranty provision resulting~~employment costs due to bonus/other compensation for $0.2 million. We anticipate our expenses in research and development will fluctuate in absolute dollars from period to period as a ~~1.7% decrease in gross profit margin.~~

~~SELLING, GENERAL AND ADMINISTRATIVE. SG&A~~result of the timing of product development projects and revenue generating activity requirements.

Selling, General and Administrative

	Three Months Ended August 31,						Percent
(Dollars in thousands)	2023			2022			Change
Selling, general and administrative	$	3,409		$	2,525			35	%
As a percentage of total revenues		16.5	%		23.7	%

Selling, general and administrative expenses consist primarily of compensation and benefits for sales, marketing and general and administrative personnel, legal and accounting services, marketing communications, travel and facilities cost allocations, and stock-based compensation charges. Selling, general and administrative expenses increased to ~~$1.9~~$3.4 million for the three months ended ~~November 30, 2017 from $1.7~~August 31, 2023, compared to $2.5 million for the three months ended ~~November 30, 2016,~~August 31, 2022. The increase of $0.9 million was mostly due to headcount increase, higher employee-related compensation expense for $0.6 million and increased audit and professional fees for $0.2 million.

Interest and Other Income (Expense), Net

	Three Months Ended August 31,					Percent
(Dollars in thousands)	2023			2022		Change
Interest income	$	581		$	121		380	%
Other income (expense), net		(6	)		24	(125		%)
Interest and other income (expense), net	$	575		$	145		297	%

Interest and other income (expense), net, primarily consists of interest income and foreign currency transaction exchange gain (loss). Interest and other income (expense), net, increased for the three months ended August 31, 2023, compared to the year-ago period primarily due to net favorable interest income due to higher yields from our investments in money market funds.

Provision for Income Taxes

	Three Months Ended August 31,				Percent
(Dollars in thousands)	2023		2022		Change
Provision for income taxes	$	16	$	14		14	%

Income tax expense was not significant due to the available net operating losses and research and development credits carryforwards.

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Liquidity and Capital Resources

Cash, cash equivalents, restricted cash and short-term investments were $51.1 million as of August 31, 2023, compared to $48.1 million as of May 31, 2023. We believe that our existing cash resources and anticipated funds from operations will satisfy our cash requirements to fund our operating activities, capital expenditures and other obligations for the next twelve months.

	Three Months Ended August 31,
(In thousands)	2023			2022			Change
Operating activities	$	3,901		$	5,461		$	(1,560	)
Investing activities		17,716			(84	)		17,800
Financing activities		(694	)		(724	)		30
Effect of exchange rate changes on cash, cash equivalents and restricted cash		(22	)		10			(32	)
Net increase in cash, cash equivalents and restricted cash	$	20,901		$	4,663		$	16,238

Net Cash Flows Provided by Operating Activities

Cash flow from operating activities during the three months ended August 31, 2023 mostly consisted of net income, adjusted for certain non-cash items which primarily consisted of depreciation and amortization, share-based compensation expense and non-cash lease expenses. The $1.6 million decrease in cash flows from operating activities for the three months ended August 31, 2023, compared to the year-ago period, was driven primarily by an increase ~~of 8.6%. The increase~~ in ~~SG&A expenses was primarily~~cash used in inventory production for $5.4 million due to anticipated customer demand, a decrease in cash provided by accounts receivable due to an increase in ~~employment related expenses.~~

~~RESEARCH AND DEVELOPMENT. R&D~~collections of $4.2 million, partially offset by higher net income of $4.1 million, an increase in cash from an increase in deferred revenue due to higher collection of deposits from customers by $2.4 million and an increase cash of $1.5 million from changes in accrued expenses due higher bonus accruals and timing of payments.

Net Cash Flows Provided by (Used in) Investing Activities

Net cash provided by investing activities increased ~~to $1.1~~by $18.0 million for the three months ended ~~November 30, 2017 from $1.0 million~~August 31, 2023 compared for the year-ago period. The increase was primarily due to the maturity of our short-term investments, currently invested in our money market accounts.

Net Cash Flows Used in Financing Activities

Net cash used in financing activities was flat for the three months ended ~~November 30, 2016, an increase of 4.8%. The increase in R&D expenses was primarily due~~August 31, 2023, compared to ~~an increase in employment related expenses.~~

~~INTEREST EXPENSE. Interest expense was $105,000 for~~the year-ago period. For the three months ended November 30, 2017 compared with $181,000 for the three months ended November 30, 2016. The decrease in interest expense in the three months ended November 30, 2017 was primarily due to the debt issuance costs related to the convertible notes becoming fully amortized at the end of fiscal 2017.

OTHER (EXPENSE) INCOME, NET. Other expense, net was $7,000 for the three months ended November 30, 2017 compared with other income, net of $43,000 for the three 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 $15,000 and $30,000 for the three months ended November 30, 2017 and 2016, respectively.~~

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

NET SALES. Net sales increased to $14.9 million for the six months ended November 30, 2017 from $9.5 million for the six months ended November 30, 2016, an increase of 56.2%. The increase in net sales for the six months ended November 30, 2017 was primarily due to the increases in both net sales of our Test During Burn-in (TDBI) products and wafer-level products. Net sales of the TDBI products for the six months ended November 30, 2017 were $7.9 million, and increased approximately $2.6 million from the six months ended November 30, 2016. Net sales of the wafer-level products for the six months ended November 30, 2017 were $7.0 million, and increased approximately $2.8 million from the six months ended November 30, 2016.

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

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

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

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

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

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

~~LIQUIDITY AND CAPITAL RESOURCES~~

~~Net cash used in operating activities was $2.2 million and $1.4 million for the six months ended November 30, 2017 and 2016, respectively. For the six months ended November 30, 2017,~~August 31, 2023, net cash used in ~~operating~~financing activities ~~was~~ primarily ~~the result~~consisted of ~~net income of $70,000, as adjusted to exclude the effect of non-cash charge of stock-based compensation expense of $0.6 million and depreciation and amortization expense of $0.2 million. Net~~ cash used ~~in operations was also impacted by an increase in inventories~~to repurchase shares of ~~$1.2 million, an increase in prepaid expenses and other current assets~~our common stock on vesting 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 million,~~RSUs, partially offset by a decrease in accounts receivable of $0.6 million. The increase in inventories is to support future shipments for customer orders. The increase in prepaid expenses and other current assets was primarily due to down payments to certain vendors. The decrease in accounts payable was primarily due to timing of vendor payments. The decrease in customer deposits and deferred revenue was primarily due to the shipments against customer orders with down payments. The decrease in accounts receivable was due to improvements in customer payment terms. For the six months ended November 30, 2016, net cash used in operating activities was primarily the result of net loss of $2.2 million, as adjusted to exclude the effect of non-cash charge of stock-based compensation expense of $0.5 million. Net cash used in operations was also impacted by an increase in accounts receivable of $1.0 million and a decrease in customer deposits and deferred revenue of $0.7 million, partially offset by a decrease in inventories of $1.3 million and an increase in accounts payable of $0.7 million. 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 shipments to customers with down payments. The decrease in inventories is primarily due to the sales of systems on-hand at the beginning of the period. The increase in accounts payable was primarily due to inventory and capital equipment purchases.

Net cash used in investing activities was $6.3 million and $88,000 for the six months ended November 30, 2017 and 2016, respectively. During the six months ended November 30, 2017, net cash used in investing activities was due to the purchase of available for sale securities~~, which did not affect our liquidity,~~ ~~and the purchases of property and equipment. During the six months ended November 30, 2016, net cash used ininvesting activities was primarily due to the purchases of property and equipment.~~

Financing activities provided cash of $0.6 million and $5.8 million for the six months ended November 30, 2017 and 2016, respectively. Net cash provided by financing activities during the six months ended November 30, 2017 was due to $0.6 million in proceeds from ~~the~~ issuance of common stock under our employee plans. Net cash provided by financing activities during the six months ended November 30, 2016 was due to the net proceeds of $5.3 million from the sale of our common stock in a private placement transaction with certain institutional and accredited investors that closed on September 28, 2016 and $0.5 million in proceeds from the issuance of common stock under employee plans.

The effect of fluctuation in exchange rates used cash of $7,000 for the six months ended November 30, 2017 and $43,000 for the six months ended November 30, 2016. The change in cash used was due to the fluctuation in the value of the dollar compared to foreign currencies.

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

Off-Balance Sheet Agreements

We lease our manufacturing and office space under operating leases. We entered into a non-cancelable operating lease agreement for our United States manufacturing and office facilities, which was renewed in November 2014 and expires in June 2018. Under the lease agreement, we are responsible for payments of utilities, taxes and insurance.

From time to time, we evaluate potential acquisitions of businesses, products or technologies that complement our business. If consummated, any such transactions may use a portion of our working capital or require the issuance of equity. Wedo not have ~~no present understandings, commitments or agreements with respect to any material acquisitions.~~

We anticipate that the existing cash balance together with income from operations, collections of existing accounts receivable, revenue from our existing backlog of products, the sale of inventory on hand, and deposits and down payments against significant orders will be adequate to meet our liquidity requirements for the next 12 months.

~~OFF-BALANCE SHEET ARRANGEMENTS~~

~~We have not entered into~~ any off-balance sheet ~~financing~~ arrangements, ~~and have not established any variable interest entities.~~

~~OVERVIEW OF CONTRACTUAL OBLIGATIONS~~

investments in special purpose entities or undisclosed borrowings or debt. There have been no material changes in the composition, magnitude or other key characteristics of our contractual obligations or other commitments as disclosed in ~~our~~the Company's Annual Report on Form 10-K for the year ended May 31, ~~2017.~~

2023.

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Item 3. ~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS~~

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

~~We are exposed to financial market risks, including changes in interest rates~~Quantitative and foreign currency exchange rates. We only invest our short-term excess cash in government-backed securities with maturities of 18 months or less. We do not use any financial instruments for speculative or trading purposes. Fluctuations in interest rates would not haveQualitative Disclosures about Market Risk

As a ~~material effect on our financial position, results of operations or cash flows.~~

A majority of our revenue and capital spending is transacted in U.S. Dollars. We, however, enter into transactions in other currencies, primarily Euros and Japanese Yen. Since the price is determined at the time a purchase order is accepted,smaller reporting company, we are ~~exposed~~not required to provide the risks of fluctuations in the foreign currency-U.S. Dollar exchange rates during the lengthy period from purchase order to ultimate payment. This exchange rate risk is partially offset to the extent that our subsidiaries incur expenses payable in their local currency. To date, we have not invested in instruments designed to hedge currency risks. In addition, our subsidiaries typically carry debt or other obligations due us that may be denominated in either their local currency or U.S. Dollars. Since our subsidiaries’ financial statements are based in their local currency and our condensed consolidated financial statements are based in U.S. Dollars, we and our subsidiaries recognize foreign exchange gains or losses in any period in which the value of the local currency rises or falls in relation to the U.S. Dollar. A 10% decrease in the value of the subsidiaries’ local currency as compared with the U.S. Dollar would not be expected to result in a significant change to our net income or loss. There have been no material changes in our risk exposure since the end of the last fiscal year, nor are any material changes to our risk exposure anticipated.

information under this item.

Item 4. ~~CONTROLS AND PROCEDURES~~

~~EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES.~~ Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, ~~evaluated,~~ with the participation of our ~~Chief Executive Officer~~chief executive officer, or CEO, and ~~our Chief Financial Officer,~~chief financial officer, or CFO, evaluated the effectiveness of our ~~disclosure~~"disclosure controls and ~~procedures,~~procedures" as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) ~~under the Exchange Act,~~ as of August 31, 2023, in connection with the ~~end~~filing of ~~the period covered by~~ this Quarterly Report on Form 10-Q. Based on ~~this~~that evaluation as of August 31, 2023, our ~~Chief Executive Officer~~CEO and ~~our Chief Financial Officer have~~CFO concluded that our disclosure controls and procedures ~~are~~were 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 of the SEC and ~~that such information is~~ accumulated and communicated to our management as appropriate to allow ~~for~~ timely decisions regarding required ~~disclosure.~~

~~CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING.~~ disclosures.

Changes in Internal Control over Financial Reporting

There ~~was~~were no ~~change~~changes in ~~our~~the Company's 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~~three months ended August 31, 2023, that ~~has~~have materially affected, or isare reasonably likely to materially affect, ~~our~~the Company's internal control over financial reporting.

~~INHERENT LIMITATIONS OF INTERNAL CONTROLS. Our management, including our Chief Executive Officer~~

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we are subject to various claims and ~~Chief Financial Officer, does~~legal proceedings that arise in the ordinary course of business. We accrue for losses related to litigation when a potential loss is probable and the loss can be reasonably estimated in accordance with FASB requirements. During the reported period, we were not ~~expect that our disclosure controls~~a party to any material legal proceedings, thus no loss was probable 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~~amount was accrued as of August 31, 2023.

Item 1A. Risk Factors

Item 1A, “Risk Factors,” on pages 10 through 16 of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within us have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving our stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

~~PART II - OTHER INFORMATION~~

~~Item 1. LEGAL PROCEEDINGS~~

~~None.~~

~~Item 1A. RISK FACTORS~~

~~Please refer to the description of the risk factors associated with our business previously disclosed in Part I, Item 1A - "Risk Factors" of our~~Company’s Annual Report on Form 10-K for the year ended May 31, ~~2017 filed~~2023, provides information on the significant risks associated with ~~the Securities and Exchange Commission on August 29, 2017.~~our business. There have been no subsequent material changes ~~from the risk factors previously described under Item 1A of our Annual Report on Form 10-K for the fiscal year ended May 31, 2017.~~

to these risks.

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

Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. ~~DEFAULTS UPON SENIOR SECURITIES~~

Defaults Upon Senior Securities

None.

Item 4. ~~MINE SAFETY DISCLOSURES~~

Mine Safety Disclosures

Not ~~Applicable~~

Applicable.

Item 5. ~~OTHER INFORMATION~~

Other Information

None.

~~Item 6. EXHIBITS~~

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

~~SIGNATURES~~

~~Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.~~

	~~Aehr Test Systems~~ ~~(Registrant)~~
			23
~~Date: January 12, 2018~~	~~By:~~	~~/s/GAYN ERICKSON~~
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Item 6. Exhibits

Exhibit

Number

~~Gayn Erickson~~

Description

~~President and Chief Executive Officer~~

~~Date: January 12, 2018~~	~~By:~~	~~/s/KENNETH B. SPINK~~
3.1(1)		~~Kenneth B. Spink~~	Restated Article of Incorporation of Registrant
		~~Vice President of Finance and Chief Financial Officer~~

~~AEHR TEST SYSTEMS~~

~~INDEX TO EXHIBITS~~

~~Exhibit No.~~		~~Description~~
~~3.1(1)~~ 3.2(2)		Amended and Restated Bylaws of ~~Registrant.~~ the Registrant

~~31.1~~4.1(3)		Form of Common Stock certificate

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

~~31.2~~31.02		Certification of ~~Chief Financial Officer~~the principal financial and accounting officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a) ~~promulgated under the Securities Exchange Act of 1934, as amended,~~, as adopted pursuant to Section ~~302(a)~~302 of the Sarbanes-Oxley Act of 2002.†

~~32.1~~32.01		Certification ~~of Chief Executive Officer and Chief Financial Officer~~ pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**

~~101.INS~~ 32.02		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**

101.INS		XBRL Instance ~~Document~~Document.†

101.SCH		XBRL Taxonomy Extension Schema ~~Document~~Document.†

101.CAL		XBRL Taxonomy Extension Calculation Linkbase ~~Document~~Document.†

101.DEF		XBRL Taxonomy Extension Definition Linkbase ~~Document~~Document.†

101.LAB		XBRL Taxonomy Extension Label Linkbase ~~Document~~Document.†

101.PRE		XBRL Taxonomy Extension Presentation Linkbase ~~Document~~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).

~~(1)~~

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).

Incorporated by reference to the same-numbered exhibit previously filed with Amendment No.1 to the Company’s Registration Statement on Form S-1 filed July 17, 1997 (File No. 333-28987).

†

Filed herewith.

Furnished, and not filed.

Table of Contents

SIGNATURES

Pursuant to ~~Exhibit No. 3.1 previously filed with~~ the ~~Company’s Current Report on Form 8-K filed October 31, 2017 (File No. 000-22893).~~

*This exhibit shall not be deemed “filed” for purposes of Section 18requirements of the Securities Exchange Act of 1934, ~~or otherwise subject~~the Registrant has duly caused this report to be signed on its behalf by 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.

undersigned thereunto duly authorized.

	AEHR TEST SYSTEMS

Date: October 13, 2023	By:	/s/ GAYN ERICKSON
		Gayn Erickson
		President and Chief Executive Officer
		(Principal Executive Officer)

Date: October 13, 2023	By:	/s/ CHRIS P. SIU
		Chris P. Siu
		Executive Vice President of Finance, Chief Financial Officer and Secretary
		(Principal Financial and Accounting Officer)

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

Total current assets	29,741	29,378

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

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

Total current liabilities	6,538	7,884

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

	Options Outstanding			Options Exercisable
	at November 30, 2017			at November 30, 2017
Range of Exercise Prices	Number Outstanding Shares	Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price	Number Exercisable Shares	Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price	Aggregate Intrinsic Value
$0.59-$0.97	424	1.31	$0.68	424	1.31	$0.68
$1.09-$1.36	645	2.11	$1.27	645	2.10	$1.27
$1.68-$2.06	487	4.73	$1.74	276	4.03	$1.79
$2.10-$2.81	1,197	4.01	$2.45	953	3.99	$2.47
$3.46-$3.93	265	6.66	$3.88	22	6.66	$3.88
$0.59-$3.93	3,018	3.57	$1.96	2,320	3.00	$1.74	$1,985

	Cost	Gross Unrealized Loss	Estimated Fair Value

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

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

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

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

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

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

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

	Cumulative Translation Adjustments	Unrealized Loss on Investments, Net	Total

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