FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 2006.
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to __________.
Commission file number: 000-22893.
AEHR TEST SYSTEMS
(Exact name of Registrant as specified in its charter)
CALIFORNIA 94-2424084
-------------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
400 KATO TERRACE
FREMONT, CA 94539
-------------------------------------- ------------------------------------
(Address of principal (Zip Code)
executive offices)
(510) 623-9400
------------------------------------------------------------------------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE
LAST REPORT.
N/A
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 as the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
(Item 1) YES X NO
--- ---
(Item 2) YES X NO
--- ---
Indicate by check mark whether the Registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange
Act (Check one):
Large accelerated filer Accelerated filer Non-accelerated filer X
--- --- ---
Indicate by check mark whether the Registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
YES NO X
--- ---
1
Number of shares of Common Stock, $0.01 par value, outstanding
at September 30, 2006 was 7,751,214.
2
FORM 10-Q
FOR THE QUARTER ENDED AUGUST 31, 2006
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of
August 31, 2006 and May 31, 2006 . . . . . . . . . . . . 4
Condensed Consolidated Statements of Operations for the
three months ended August 31, 2006 and 2005 . . . . . . 5
Condensed Consolidated Statements of Cash Flows for the
three months ended August 31, 2006 and 2005 . . . . . . 6
Notes to Condensed Consolidated Financial Statements. . . . . 7
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . . . . . 13
ITEM 3. Quantitative and Qualitative Disclosures about Market Risks. . 17
ITEM 4. Controls and Procedures. . . . . . . . . . . . . . . . . . . . 18
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . 19
ITEM 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . 19
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds. . 21
ITEM 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . 21
ITEM 4. Submission of Matters to a Vote of Security Holders . . . . . 22
ITEM 5. Other Information . . . . . . . . . . . . . . . . . . . . . . 22
ITEM 6. Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SIGNATURE PAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Index to Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3
PART I. FINANCIAL STATEMENTS
Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
AEHR TEST SYSTEMS
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(Unaudited)
August 31, May 31,
2006 2006
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . $ 8,550 $ 9,405
Short-term investments. . . . . . . . . . . . . 1,773 1,600
Accounts receivable, net of allowances for
doubtful accounts of $68 and $70 at
August 31, 2006 and May 31, 2006,
respectively . . . . . . . . . . . . . . . . 5,248 4,531
Inventories . . . . . . . . . . . . . . . . . . 6,285 7,242
Prepaid expenses and other. . . . . . . . . . . 316 357
----------- -----------
Total current assets . . . . . . . . . . . . 22,172 23,135
Property and equipment, net . . . . . . . . . . . 854 959
Goodwill. . . . . . . . . . . . . . . . . . . . . 274 274
Other assets, net . . . . . . . . . . . . . . . . 520 525
----------- -----------
Total assets . . . . . . . . . . . . . . . . $23,820 $24,893
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable. . . . . . . . . . . . . . . . $ 1,076 $ 1,130
Accrued expenses. . . . . . . . . . . . . . . . 2,119 2,347
Deferred revenue. . . . . . . . . . . . . . . . 464 2,335
----------- -----------
Total current liabilities . . . . . . . . . . 3,659 5,812
Accrued lease commitment. . . . . . . . . . . . . 255 264
----------- -----------
Total liabilities . . . . . . . . . . . . . . 3,914 6,076
----------- -----------
Shareholders' equity:
Common stock, $0.01 par value:
Issued and outstanding: 7,721 shares and
7,630 shares at August 31, 2006 and
May 31, 2005, respectively. . . . . . . . . . 77 76
Additional paid-in capital. . . . . . . . . . . 38,622 38,081
Accumulated other comprehensive income. . . . . 1,281 1,291
Accumulated deficit . . . . . . . . . . . . . . (20,074) (20,631)
----------- -----------
Total shareholders' equity . . . . . . . . . 19,906 18,817
----------- -----------
Total liabilities and shareholders' equity. . $23,820 $24,893
=========== ===========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
4
AEHR TEST SYSTEMS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
Three Months Ended
August 31,
----------------------
2006 2005
---------- ----------
Net sales. . . . . . . . . . . . . . . . . . . $7,136 $4,646
Cost of sales. . . . . . . . . . . . . . . . . 3,883 2,458
---------- ----------
Gross profit . . . . . . . . . . . . . . . . . 3,253 2,188
---------- ----------
Operating expenses:
Selling, general and administrative. . . . . 1,635 1,452
Research and development . . . . . . . . . . 1,387 1,034
---------- ----------
Total operating expenses . . . . . . . . 3,022 2,486
---------- ----------
Income (loss) from operations . . . . . 231 (298)
Interest income. . . . . . . . . . . . . . . . 122 46
Other income, net . . . . . . . . . . . . . . 216 --
---------- ----------
Income (loss) before income taxes . . . 569 (252)
Income tax expense (benefit) . . . . . . . . . 12 (8)
---------- ----------
Net income (loss) . . . . . . . . . . . . . . $ 557 $ (244)
========== ==========
Net income (loss) per share (basic) . . . . . $ 0.07 $(0.03)
Net income (loss) per share (diluted). . . . . $ 0.07 $(0.03)
Shares used in per share calculations:
Basic . . . . . . . . . . . . . . . . . . . 7,683 7,482
Diluted. . . . . . . . . . . . . . . . . . . 8,326 7,482
The accompanying notes are an integral part of these
condensed consolidated financial statements.
5
AEHR TEST SYSTEMS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Three Months Ended
August 31,
----------------------
2006 2005
---------- ----------
Cash flows from operating activities:
Net income (loss)............................. $ 557 $ (244)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Stock compensation expense.................. 163 --
Provision for doubtful accounts............. (2) 25
Loss on disposal of property and equipment.. 41 25
Depreciation and amortization............... 69 85
Changes in operating assets and liabilities:
Accounts receivable....................... (720) (2,130)
Inventories............................... 956 (915)
Accounts payable.......................... (50) 266
Accrued expenses and deferred revenue..... (2,068) 20
Accrued lease commitment ................. (9) (2)
Prepaid expenses and other................ 38 151
---------- ----------
Net cash used in
operating activities.................. (1,025) (2,719)
---------- ----------
Cash flows from investing activities:
Purchase of investments..................... (4,173) (4,590)
Net proceeds from sales and
maturity of investments................... 4,002 6,475
Purchase of property and equipment ......... (13) (33)
---------- ----------
Net cash provided by (used in)
investing activities.................. (184) 1,852
---------- ----------
Cash flows from financing activities:
Proceeds from issuance of common stock
and exercise of stock options............. 373 --
---------- ----------
Net cash provided by
financing activities.................. 373 --
---------- ----------
Effect of exchange rates on cash................ (19) (102)
---------- ----------
Net decrease in cash and
cash equivalents...................... (855) (969)
Cash and cash equivalents, beginning of period.. 9,405 4,952
---------- ----------
Cash and cash equivalents, end of period........ $8,550 $3,983
========== ==========
Supplementary disclosure of non-cash item:
Transfer of inventory to property and equipment. $ -- $ 231
========== =========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
6
AEHR TEST SYSTEMS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED AUGUST 31, 2006
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial information has been
prepared by Aehr Test Systems, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission ("SEC") and therefore
does not include all information and footnotes necessary for a fair
presentation of financial position, results of operations and cash flows in
accordance with accounting principles generally accepted in the United States
of America.
In the opinion of management, the unaudited condensed consolidated
financial statements for the interim periods presented reflect all
adjustments, consisting of only 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 condensed
consolidated financial statements and notes thereto should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the fiscal year ended
May 31, 2006. Results for the interim periods presented herein are not
necessarily indicative of results which may be reported for any other interim
period or for the entire fiscal year.
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements
include the accounts of Aehr Test Systems and its subsidiaries (collectively,
the "Company," "we," "us," and "our"). All significant intercompany balances
have been eliminated in consolidation.
ACCOUNTING ESTIMATES. The preparation of financial statements in
conformity with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results may differ from those estimates.
2. STOCK-BASED COMPENSATION
Prior to June 1, 2006, the Company's stock-based employee compensation
plans were accounted for under the recognition and measurement provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"), and related interpretations, as permitted by Financial
Accounting Standards Board ("FASB") Statement of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation" ("SFAS
No. 123"). The Company generally did not recognize stock-based compensation
cost in its statement of operations for periods prior to June 1, 2006 as most
options granted had an exercise price equal to or higher than the market value
of the underlying common stock on the date of the grant.
The Company adopted Statement of Financial Accounting Standards No. 123
(revised 2004),"Share-Based Payment" ("SFAS No. 123(R)"), using the modified
prospective transition method, which requires the application of the
accounting standard as of June 1, 2006, the first day of the Company's fiscal
year 2007. The Company's condensed consolidated financial statements as of
and for the three months ended August 31, 2006 reflect the impact of SFAS No.
123R. In accordance with the modified prospective transition method, the
Company's consolidated financial statements for prior periods have not been
restated to reflect, and do not include, the impact of SFAS No. 123R. Stock
compensation expense recognized under SFAS No. 123R for the three months ended
August 31, 2006 was $169,000. See Notes 9 and 10 in the Company's Form 10-K
for fiscal
7
2006 filed on August 29, 2006 for further information regarding the stock
option and employee stock purchase plans ("ESPP"). Under the modified
prospective transition method, stock compensation cost has been recognized in
the quarter ended August 31, 2006 in the statement of operations for stock
awards granted or modified after May 31, 2006 and for stock awards granted
prior to, but unvested as of, June 1, 2006.
The Company recorded $169,000 of stock compensation expense for the three
months ended August 31, 2006. The stock compensation expense was recorded in
the statement of operations as follows: selling, general and administrative
($92,000), research and development ($64,000), and cost of sales ($13,000).
The effect on basic and diluted net income per share was $0.02 per share. As
required by SFAS No. 123R, management made an estimate of expected forfeitures
and is recognizing compensation costs only for those equity awards expected to
vest.
The following table illustrates the pro forma effect on our net loss and
net loss per share for the three months ended August 31, 2005 if we had
applied the fair value recognition provisions of SFAS No. 123 to stock-based
compensation using the Black-Scholes valuation method (in thousands, except
per share amounts):
Three Months Ended
August 31, 2005
------------------
Net loss, as reported:...................... $(244)
Deduct: Total stock compensation expense
determined under fair value based
method for all awards, net of
related tax effects................. (193)
------------------
Pro forma net loss.......................... $(437)
==================
Net loss per share:
Basic and diluted, as reported .............. $(0.03)
==================
Basic and diluted, pro forma ................ $(0.06)
==================
The Company estimates the fair value of stock options granted using the
Black-Scholes valuation method and a single option award approach for options
granted after June 1, 2006. The multiple option approach has been used for
all options granted prior to June 1, 2006. 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. The
fair value under the multiple option approach is amortized on a weighted basis
over the requisite service periods of the awards, which is generally the
vesting period.
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 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 five years to estimate expected volatility,
which matches the term of the option grant. Volatility for 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.
8
The Company bases the risk-free interest rate used in the Black-Scholes
valuation method on the implied yield currently available on U.S. Treasury
zero-coupon issues with a remaining term equivalent to the expected term of
the stock awards including the ESPP. When estimating forfeitures, the Company
considers voluntary termination behavior as well as analysis of actual option
forfeitures.
As of August 31, 2006, the total compensation cost related to unvested
stock based awards under the Company's 1996 Stock Option Plan, but not yet
recognized, was approximately $1,057,000 which is net of estimated forfeitures
of $155,000. This cost will be amortized over a weighted average period of
approximately 3.4 years.
As of August 31, 2006, the total compensation cost related to options to
purchase the Company's common shares under the ESPP but not yet recognized was
approximately $118,000.
The fair values of the Company's stock options granted to employees and
ESPP shares for the three months ended August 31, 2006 were estimated using
the following weighted average assumptions in the Black-Scholes valuation
method consistent with the provisions of SFAS 123(R), Securities and Exchange
Commission Staff Accounting Bulletin No. 107 and the Company's prior pro forma
disclosures of net loss, including stock-based compensation (determined under
a fair value method as prescribed by SFAS No. 123). The fair value of our
stock options granted to employees for the three months ended August 31, 2006
and 2005 was estimated using the following weighted-average assumptions:
Three months ended
August 31,
---------------------
2006 2005
-------- --------
Option Plan Shares
Expected Term (in years).................... 5 5
Volatility.................................. 0.76 0.78
Expected Dividend........................... $0.00 $0.00
Risk-free Interest Rates.................... 5.10% 3.96%
Estimated Forfeiture Rate................... 4% 0%
Weighted Average Fair Value................. $5.47 $2.00
Three months ended
August 31,
-------------------------
2006 2005
----------- -----------
Employee Stock Purchase Plan Shares
Expected Term (in years).............. 0.5 - 2.0 0.5 - 2.0
Volatility.................................. 0.80 - 0.82 0.59 - 0.79
Expected Dividend........................... $0.00 $0.00
Risk-free Interest Rates.................... 4.0% - 5.2% 2.4% - 3.1%
Estimated Forfeiture Rate................... 4% 0%
Weighted Average Fair Value................. $5.14 $5.21
9
The following table summarizes the stock options transactions during the
three months ended August 31, 2006 (in thousands, except per share data):
Outstanding Options
---------------------------------------------
Weighted
Number Average Aggregate
Available of Exercise Intrinsic
Shares Shares Price Value
---------- -------- --------- ----------
Balances, May 31, 2006........ 334 1,269 $3.81
Options granted............. (145) 145 $8.54
Options exercised........... -- (91) $4.11
---------- --------
Balances, August 31, 2006..... 189 1,323 $4.31 $7,496
========== ========
Options exercisable and expected to be
exercisable at August 31, 2006 1,264 $4.26 $7,224
========
The options outstanding and exercisable at August 31, 2006 were in the
following exercise price ranges:
Options Outstanding Options Exercisable
at August 31, 2006 at August 31, 2006
----------------------------------- ----------------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average Aggregate
Range of Outstanding Contractual Exercise Exercisable Exercise Intrinsic
Exercise Prices Shares Life (Years) Price Shares Price Value
---------------- ------------ ----------- -------- ----------- -------- ---------
$2.49 - $3.63 581 5.02 $3.09 274 $3.09
$3.66 - $4.08 278 3.63 $3.91 251 $3.92
$4.25 - $4.95 214 2.98 $4.50 182 $4.52
$5.25 - $6.25 105 2.03 $5.83 95 $5.80
$8.45 - $9.30 145 6.88 $8.54 3 $8.54
------------ -----------
$2.49 - $9.30 1,323 4.36 $4.31 805 $4.01 $4,799
============ ===========
The total intrinsic value of options exercised during the three months
ended August 31, 2006 was $367,000.
3. EARNINGS PER SHARE
Earnings per share is computed based on the weighted average number of
common and common equivalent shares (common stock options) outstanding, when
dilutive, during each period using the treasury stock method.
10
Three Months Ended
August 31,
---------- ----------
2006 2005
---------- ----------
(in thousands, except
per share amounts)
Net income (loss) available to common shareholders:
Numerator: Net income (loss)....................... $ 557 $ (244)
---------- ----------
Denominator for basic income (loss) per share:
Weighted-average shares outstanding ............. 7,683 7,482
---------- ----------
Shares used in basic income (loss) per share
calculation...................................... 7,683 7,482
Effect of dilutive securities...................... 643 --
---------- ----------
Denominator for diluted net income (loss)
per share...................................... 8,326 7,482
---------- ----------
Basic net income (loss) per share.................. $0.07 $(0.03)
========== ==========
Diluted net income (loss) per share................ $0.07 $(0.03)
========== ==========
Stock options to purchase 12,000 shares of common stock were outstanding
on August 31, 2006, but not included in the computation of diluted income per
share, because the inclusion of such shares would be anti-dilutive. Stock
options to purchase 1,408,000 shares of common stock were outstanding on
August 31, 2005, but were not included in the computation of diluted loss per
share because the inclusion of such shares would be anti-dilutive.
4. INVENTORIES
Inventories are comprised of the following (in thousands):
August 31, May 31,
2006 2006
----------- -----------
Raw materials and sub-assemblies $2,611 $3,039
Work in process 3,448 2,978
Finished goods 226 1,225
----------- -----------
$6,285 $7,242
=========== ===========
5. 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 (in thousands):
11
United Adjust-
States Asia Europe ments Total
--------- --------- --------- --------- ---------
Three months ended August 31, 2006:
Net sales...................... $ 6,442 $1,216 $ 29 $ (551) $ 7,136
Portion of U.S. net sales
from export sales............ 3,797 -- -- -- 3,797
Income (loss) from operations.. 286 97 (150) (2) 231
Identifiable assets............ 32,804 1,207 712 (10,903) 23,820
Property and equipment, net.... 745 86 23 -- 854
Three months ended August 31, 2005:
Net sales...................... $ 3,961 $ 583 $195 $ (93) $ 4,646
Portion of U.S. net sales
from export sales............ 3,278 -- -- -- 3,278
Loss from operations .......... (287) (3) (43) 35 (298)
Identifiable assets............ 29,826 1,171 883 (10,499) 21,381
Property and equipment, net.... 1,156 195 30 -- 1,381
The Company's foreign operations are primarily those of its Japanese and
German subsidiaries. Substantially all of the sales of the subsidiaries are
made to unaffiliated Japanese or European customers. Net sales and income
(loss) from operations from outside the United States include the operating
results of Aehr Test Systems Japan K.K. and Aehr Test Systems GmbH.
Adjustments consist of intercompany eliminations. Identifiable assets are all
assets identified with operations in each geographic area.
6. PRODUCT WARRANTIES
The Company provides for the estimated cost of product warranties at the
time the products are 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.
Following is a summary of changes in the Company's liability for product
warranties during the three months ended August 31, 2006 and 2005:
Three months ended
August 31,
------------------------
2006 2005
----------- -----------
(in thousands)
Balance at the beginning of the period ........... $169 $213
Accruals for warranties issued during the period.. 114 --
Reversal of warranties issued during the period... -- (11)
Settlements made during the period
(in cash or in kind)............................. (106) (60)
----------- -----------
Balance at the end of the period.................. $177 $142
=========== ===========
7. OTHER COMPREHENSIVE INCOME (LOSS)
Other comprehensive income (loss), net of tax are comprised of the
following:
12
Three months ended
August 31,
------------------------
2006 2005
----------- -----------
(in thousands)
Net income (loss)................................ $557 $(244)
Foreign currency translation adjustments......... (12) 1
Unrealized holding gains arising
during period ................................. 2 4
----------- -----------
Comprehensive income (loss)...................... $547 $(239)
=========== ===========
8. RECENT ACCOUNTING PRONOUNCEMENTS
In June 2006, the FASB issued FASB Interpretation No. 48 ("FIN 48")
"Accounting for Uncertain Tax Positions - An Interpretation of FASB Statement
No. 109". FIN 48 clarifies the accounting for uncertainty in income taxes
recognized in an enterprise's financial statements in accordance with FASB
Statement No. 109 "Accounting for Income Taxes". It prescribes a 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. FIN 48 also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure, and
transition. FIN 48 is effective for fiscal years beginning after December 15,
2006. The Company is currently evaluating the impact of FIN 48 to its
financial position and results of operations.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the unaudited
condensed consolidated financial statements and the related notes that appear
elsewhere in this document and with our Annual Report on Form 10-K for the
fiscal year ended May 31, 2006 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 and Section 21E of the Securities Act of 1934. These statements
typically may be identified by the use of forward-looking words or phrases
such as "believe," "expect," "intend," "anticipate," "should," "planned,"
"estimated," and "potential," among others and include, but are not limited
to, statements concerning our expectations regarding our operations, business,
strategies, prospects, revenues, expenses, costs and resources. These
forward-looking statements are subject to certain risks and uncertainties that
could cause our actual results to differ materially from those the 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 Securities and
Exchange Commission. All forward-looking statements included in this document
are based on our current expectations, and we undertake no obligation to
revise or publicly release the results of any revision to these forward-
looking statements. Given these risks and uncertainties, readers are
cautioned not to place undue reliance on such forward-looking statements.
13
CRITICAL ACCOUNTING POLICIES
The Company's discussion and analysis of its financial condition and
results of operations are based upon the Company's unaudited 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 financial statements requires the Company 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, the Company evaluates its
estimates, including those related to customer programs and incentives,
product returns, bad debts, inventories, investments, intangible assets,
income taxes, financing operations, warranty obligations, long-term service
contracts, and contingencies and litigation. The Company bases its estimates
on historical experience and on various other assumptions that are believed to
be reasonable under the circumstances, the results of which 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" in the Company's Annual Report on Form 10-K for the
fiscal year ended May 31, 2006.
RESULTS OF OPERATIONS
The following table sets forth items in the Company's unaudited condensed
consolidated statements of operations as a percentage of net sales for the
periods indicated.
Three Months Ended
August 31,
---------------------
2006 2005
---------- ----------
Net sales. . . . . . . . . . . . . . . . . 100.0 % 100.0 %
Cost of sales. . . . . . . . . . . . . . . 54.4 52.9
---------- ----------
Gross profit . . . . . . . . . . . . . . . 45.6 47.1
---------- ----------
Operating expenses:
Selling, general and administrative. . . 22.9 31.3
Research and development . . . . . . . . 19.4 22.3
---------- ----------
Total operating expenses . . . . 42.3 53.6
---------- ----------
Income (loss) from operations . . . . . . 3.3 (6.5)
Interest income. . . . . . . . . . . . . . 1.7 1.0
Other income (expense), net. . . . . . . . 3.0 --
---------- ----------
Income (loss) before income taxes. . . . . 8.0 (5.5)
Income tax expense (benefit) . . . . . . . 0.2 (0.2)
---------- ----------
Net income (loss). . . . . . . . . . . . . 7.8 % (5.3)%
========== ==========
14
THREE MONTHS ENDED AUGUST 31, 2006 COMPARED TO THREE MONTHS ENDED AUGUST 31,
2005
NET SALES. Net sales increased to $7.1 million in the three months ended
August 31, 2006 from $4.6 million in the three months ended August 31, 2005,
an increase of 53.6%. The increase in net sales in the three months ended
August 31, 2006 resulted primarily from increases in net sales of the
Company's monitored burn-in products. Net sales of the Company's monitored
burn-in products for the three months ended August 31, 2006 were $4.5 million,
and increased approximately $2.0 million from the three months ended August
31, 2005. The Company expects net sales in the second quarter of fiscal 2007
to be similar to those of the first quarter of fiscal 2007.
GROSS PROFIT. Gross profit consists of net sales less cost of sales.
Cost of sales consists primarily of the cost of materials, assembly and test
costs, and overhead from operations. Gross profit increased to $3.3 million
in the three months ended August 31, 2006 from $2.2 million in the three
months ended August 31, 2005, an increase of 48.7%. As a percentage of net
sales, gross profit margin decreased to 45.6% in the three months ended August
31, 2006 from 47.1% in the three months ended August 31, 2005. The decrease in
gross profit margin from last year was primarily due to low introductory
selling prices offered to a new Asian customer. Prices to that customer for
similar systems have subsequently been increased.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
("SG&A") expenses consist primarily of salaries and related costs of
employees, commission expenses to independent sales representatives, product
promotion and other professional services. SG&A expenses of $1.6 million in
the three months ended August 31, 2006 increased from $1.5 million in the
three months ended August 31, 2005, an increase of 12.6%. The increase in
SG&A expenses was primarily due to an increase in employee stock compensation
expenses of $92,000. As a percentage of net sales, SG&A expenses decreased to
22.9% in the three months ended August 31, 2006 from 31.3% in the three months
ended August 31, 2005, reflecting higher net sales.
RESEARCH AND DEVELOPMENT. Research and development ("R&D") expenses
consist primarily of salaries and related costs of employees engaged in
ongoing research, design and development activities, costs of engineering
materials and supplies, and professional consulting expenses. R&D expenses
increased to $1.4 million in the three months ended August 31, 2006 from $1.0
million in the three months ended August 31, 2005, an increase of 34.1%. This
increase was primarily due to an increase in project related professional
service expenses of $137,000, employment related expenses of $102,000, and
stock compensation expenses of $64,000. As a percentage of net sales, R&D
expenses decreased to 19.4% in the three months ended August 31, 2006 from
22.3% in the three months ended August 31, 2005, reflecting higher net sales.
INTEREST INCOME. Interest income increased to $122,000 in the three
months ended August 31, 2006 from $46,000 in the three months ended August 31,
2005. Approximately 60% of the increase in interest income was the result of
higher interest rates earned and approximately 40% of the increase in interest
income was the result of higher invested balances.
OTHER INCOME, NET. Other income, net increased to $216,000 in the three
months ended August 31, 2006 from zero in the three months ended August 31,
2005. The increase in other income, net was primarily due to the receipt of a
dividend paid by the Company's investment in ESA Electronics Pte Ltd., a
Singapore company.
INCOME TAX EXPENSE (BENEFIT). Income tax expense was $12,000 in the three
months ended August 31, 2006 and income tax benefit was $8,000 in the three
months ended August 31, 2005. The income tax expense in the three months
ended August 31, 2006 was primarily attributable to alternate minimum tax
requirements for the Company's U.S. operations. The income tax benefit in the
three months ended August 31, 2005 primarily related to the income or loss
15
earned in the Company's German subsidiary. The Company's U.S. operations and
its Japanese subsidiary have experienced significant cumulative losses and
thus generated certain net operating losses available to offset future taxes
payable in the U.S. and Japan. As a result of the cumulative operating losses
in the Company's U.S. operations and its Japanese subsidiary, a valuation
allowance was established for the full amount of its net deferred tax assets
for both its U.S. operations and its Japanese subsidiary.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was approximately $1.0 million for
the three months ended August 31, 2006 and $2.7 million for the three months
ended August 31, 2005. For the three months ended August 31, 2006, net cash
used in operating activities of $1.0 million was primarily due to a decrease
in accrued expenses and deferred revenues of $2.1 million and an increase in
accounts receivable of $720,000, partially offset by a decrease in inventories
of $956,000 and the net income of $557,000. The primary reasons for these
changes were: (1) accrued expenses and deferred revenue decreased primarily
due to revenue recognized from deferrals made in prior periods which were
earned in this quarter, (2) accounts receivable increased because a large
multinational customer was beyond its payment terms at August 31, 2006 (this
customer's past due receivables were paid in September 2006), and (3)
inventories decreased primarily due to the costs of revenue transactions
recognized from deferrals noted in item (1) above. For the three months ended
August 31, 2005, net cash used in operating activities was due primarily to
increases in accounts receivable of $2.1 million and inventories of $915,000,
and the net loss of $244,000, partially offset by an increase in accounts
payable of $266,000.
Net cash used in investing activities was approximately $184,000 for the
three months ended August 31, 2006 and net cash provided by investing
activities was approximately $1.9 million for the three months ended August
31, 2005. The net cash used in investing activities during the three months
ended August 31, 2006 was primarily attributable to $4.2 million of purchase
of investments, partially offset by $4.0 million net proceeds from sales and
maturities of investments. The net cash provided by investing activities
during the three months ended August 31, 2005 was primarily due to the net
proceeds from sales and maturity of investments, partially offset by the
purchase of investments.
Financing activities provided cash of approximately $373,000 in the three
months ended August 31, 2006. Financing activities neither used nor provided
cash in the three months ended August 31, 2005. Net cash provided by
financing activities during the three months ended August 31, 2006 was due to
proceeds from issuance of common stock and exercise of stock options.
As of August 31, 2006, the Company had working capital of $18.5 million.
Working capital consists of cash and cash equivalents, short-term investments,
accounts receivable, inventory and other current assets, less current
liabilities.
The Company announced in August 1998 that its board of directors had
authorized the repurchase of up to 1,000,000 shares of its outstanding common
shares. The Company may repurchase the shares in the open market or in
privately negotiated transactions, from time to time, subject to market
conditions. The number of shares of common stock actually acquired by the
Company will depend on subsequent developments and corporate needs, and the
repurchase program may be interrupted or discontinued at any time. Any such
repurchase of shares, if consummated, may use a portion of the Company's
working capital. As of May 31, 2006, the Company had repurchased 523,700
shares at an average price of $3.95. Shared repurchased by the Company are
cancelled. During the first quarter of 2007, the Company did not repurchase
any of its outstanding common stock.
The Company leases most of its manufacturing and office space under
operating leases. The Company entered into a non-cancelable operating lease
agreement for its United States manufacturing and office facilities, which
16
commenced in December 1999 and expires in December 2009. Under the lease
agreement, the Company is responsible for payments of utilities, taxes and
insurance.
From time to time, the Company evaluates potential acquisitions of
businesses, products or technologies that complement the Company's business.
Any such transactions, if consummated, may use a portion of the Company's
working capital or require the issuance of equity. The Company has no present
understandings, commitments or agreements with respect to any material
acquisitions.
The Company anticipates that the existing cash balance together with cash
provided by operations, if any, are adequate to meet its working capital and
capital equipment requirements through fiscal year 2007. After fiscal year
2007, depending on its rate of growth and profitability, the Company may
require additional equity or debt financing to meet its working capital
requirements or capital equipment needs. There can be no assurance that
additional financing will be available when required, or, if available, that
such financing can be obtained on terms satisfactory to the Company.
OFF-BALANCE SHEET ARRANGEMENTS
The Company has not entered into any off-balance sheet financing
arrangements and has not established any variable interest entities.
OVERVIEW OF CONTRACTUAL OBLIGATIONS
There have been no material changes in the composition, magnitude or other
key characteristics of the Company's contractual obligations or other
commitments as disclosed in the Company's Form 10-K for the year ended May 31,
2006.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2006, the FASB issued FASB Interpretation No. 48 ("FIN 48")
"Accounting for Uncertain Tax Positions - An Interpretation of FASB Statement
No. 109". FIN 48 clarifies the accounting for uncertainty in income taxes
recognized in an enterprise's financial statements in accordance with FASB
Statement No. 109 "Accounting for Income Taxes". It prescribes a 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. FIN 48 also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure, and
transition. FIN 48 is effective for fiscal years beginning after December 15,
2006. The Company is currently evaluating the impact of FIN 48 to its
financial position and results of operations.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Company considered the provisions of Financial Reporting Release No.
48, "Disclosures of Accounting Policies for Derivative Financial Instruments
and Derivative Commodity Instruments, and Disclosures of Quantitative and
Qualitative Information about Market Risk Inherent in Derivative Commodity
Instruments." The Company had no holdings of derivative financial or
commodity instruments at August 31, 2006.
The Company is exposed to financial market risks, including changes in
interest rates and foreign currency exchange rates. The Company invests
excess cash in a managed portfolio of corporate and government bond
instruments with maturities of 18 months or less. The Company does not use
any financial instruments for speculative or trading purposes. Fluctuations
in interest rates would not have a material effect on the Company's financial
position, results of operations and cash flows.
17
A majority of the Company's revenue and capital spending is transacted in
U.S. dollars. The Company, however, enters into transactions in other
currencies, primarily Japanese Yen. Substantially all sales to Japanese
customers are denominated in Yen. Since the price is determined at the time a
purchase order is accepted, the Company is exposed to the risks of
fluctuations in the Yen-U.S. dollar exchange rate during the lengthy period
from purchase order to ultimate payment. This exchange rate risk is partially
offset to the extent that the Company's Japanese subsidiary incurs expenses
payable in Yen. To date, the Company has not invested in instruments designed
to hedge currency risks. In addition, the Company's Japanese subsidiary
typically carries debt or other obligations due to the Company that may be
denominated in either Yen or U.S. dollars. Since the Japanese subsidiary's
financial statements are based in Yen and the Company's financial statements
are based in U.S. dollars, the Japanese subsidiary and the Company recognize
foreign exchange gain or loss in any period in which the value of the Yen
rises or falls in relation to the U.S. dollar. A 10% decrease in the value of
the Yen as compared with the U.S. dollar would not be expected to result in a
significant change in the net income or loss.
Item 4. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures. Our management
evaluated, with the participation of our Chief Executive Officer and our Chief
Financial Officer, the effectiveness of our disclosure controls and procedures
as of the end of the period covered by this Quarterly Report on Form 10-Q.
Based on this evaluation, our Chief Executive Officer and our Chief Financial
Officer have concluded that our disclosure controls and procedures are
effective to ensure that information we are required to disclose in reports
that we file or submit under the Securities and Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission rules and forms.
Changes in internal controls over financial reporting. There was no
change in our internal control over financial reporting that occurred during
the period covered by this Quarterly Report on Form 10-Q that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
18
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None.
Item 1A. RISK FACTORS
Set forth below and elsewhere in this Quarterly Report on Form 10-Q and in
other documents we file with the Securities and Exchange Commission, including
without limitation our most recently filed Form 10-K, are risks and
uncertainties that could cause actual results to differ materially from the
results contemplated by the forward-looking statements in this Quarterly
Report on Form 10-Q. We believe that these risks and uncertainties are the
principal material risks facing the Company as of the date of this Form 10-Q.
In the future, we may become subject to additional risks that are not
currently known to us. If any of these risks actually occur, our business,
financial condition and operating results could be seriously harmed. As a
result, the trading price of our common stock could decline, and you could
lose all or part of the value of your investment.
CUSTOMER CONCENTRATION. The semiconductor manufacturing industry is
highly concentrated, with a relatively small number of large semiconductor
manufacturers and contract assemblers accounting for a substantial portion of
the purchases of semiconductor equipment. Sales to the Company's five largest
customers accounted for approximately 82.9%, 73.1% and 70.5% of its net sales
in fiscal 2006, 2005 and 2004, respectively. Sales to the Company's five
largest customers accounted for approximately 77.4% of its net sales in the
three months ended August 31, 2006. During fiscal 2006, Texas Instruments
Incorporated and Spansion Inc. (formerly FASL LLC.) accounted for 47.9% and
24.9% of the Company's net sales, respectively. During fiscal 2005, Spansion
Inc. and Texas Instruments Incorporated accounted for 43.1% and 16.9% of the
Company's net sales, respectively. No other customers represented more than
10% of the Company's net sales for any of such periods. The Company expects
that sales of its products to a limited number of customers will continue to
account for a high percentage of net sales for the foreseeable future. In
addition, sales to particular customers may fluctuate significantly from
quarter to quarter. The loss of or reduction or delay in an order or orders
from a significant customer, or a delay in collecting or failure to collect
accounts receivable from a significant customer could adversely affect the
Company's business, financial condition and operating results.
DEPENDENCE ON MARKET ACCEPTANCE OF FOX SYSTEM. One element of the
Company's business strategy is to capture an increasing share of the test
equipment market through sales of its FOX wafer-level test and burn-in system.
The FOX system is newly designed to simultaneously burn-in and functionally
test all of the die on a wafer. The market for the FOX systems is in the very
early stages of development. The FOX-14 full wafer contact burn-in and
parallel test system was introduced in July 2001 and the FOX-1 full wafer
parallel test system was introduced in June 2005. The Company's strategy
depends, in part, upon its ability to persuade potential customers that the
FOX system can successfully contact and functionally test all of the die on a
wafer simultaneously, and that this method of testing is cost-effective for
the customer. There can be no assurance that the Company's strategy will be
successful. The failure of the FOX system to achieve market acceptance would
have a material adverse effect on the Company's future operating results and
long-term prospects. The Company's stock price may also decline.
Market acceptance of the FOX system is subject to a number of risks. The
Company must complete development of the FOX system and the manufacturing
processes used to build it. Before a customer will incorporate the FOX system
into a production line, lengthy qualification and correlation tests must be
performed. The Company anticipates that potential customers may be reluctant
to change their procedures in order to transfer burn-in and test functions to
the FOX system. Initial purchases are expected to be limited to systems used
for these qualifications and for engineering studies. Market acceptance of
the
19
FOX system also may be affected by a reluctance of IC manufacturers to rely on
relatively small suppliers such as the Company. As is common with new complex
products incorporating leading-edge technologies, the Company may encounter
reliability, design and manufacturing issues as it begins volume production
and initial installations of FOX systems at customer sites. While the Company
places a high priority on addressing these issues as they arise, there can be
no assurance that they can be resolved to the customer's satisfaction or that
the resolution of such problems will not cause the Company to incur
significant development costs or warranty expenses or to lose significant
sales opportunities.
INTENSE COMPETITION. In each of the markets it serves, the Company faces
competition from established competitors and potential new entrants, many of
which have greater financial, engineering, manufacturing and marketing
resources than the Company. The Company expects its competitors will continue
to improve the performance of their current products and to introduce new
products with improved price and performance characteristics. In addition,
continuing consolidation in the semiconductor equipment industry, and
potential future consolidation, could adversely affect the ability of smaller
companies, such as the Company, to compete with larger, integrated
competitors. New product introductions by the Company's competitors or by new
market entrants could cause a decline in sales or loss of market acceptance of
the Company's existing products. Increased competitive pressure could also
lead to intensified price-based competition, resulting in lower prices which
could adversely affect the Company's business, financial condition and
operating results. The Company believes that to remain competitive it must
invest significant financial resources in new product development and expand
its customer service and support worldwide. There can be no assurance that
the Company will be able to compete successfully in the future.
The semiconductor equipment industry is intensely competitive.
Significant competitive factors in the semiconductor equipment market include
price, technical capabilities, quality, delivery lead-time, flexibility,
automation, cost of ownership, reliability, throughput, product availability
and customer service. In each of the markets it serves, the Company faces
competition from established competitors and potential new entrants, many of
which have greater financial, engineering, manufacturing and marketing
resources than the Company.
Because the Company's MTX system performs burn-in and many of the
functional tests performed by traditional memory testers, the MTX system faces
intense competition from burn-in system suppliers and traditional memory
tester suppliers. The market for burn-in systems is highly fragmented, with
many domestic and international suppliers. Some users of such systems, such
as independent test labs, build their own burn-in systems, while others,
particularly large IC manufacturers in Asia, acquire burn-in systems from
captive or affiliated suppliers. Competing suppliers of burn-in and
functional test systems include Advantest Corporation and Dong-Il Corporation.
The Company's MAX monitored burn-in systems have faced and are expected to
continue to face increasingly severe competition, especially from several
regional, low-cost manufacturers and from systems manufacturers that offer
higher power dissipation per device under test.
The Company's FOX full wafer contact system is expected to face
competition from larger systems manufacturers that have sufficient
technological know-how and manufacturing capability. Competing suppliers of
full wafer contact systems include Matsushita Electric Industrial Co., Ltd.
and Delta V Instruments, Incorporated.
The Company expects that its DiePak products will face significant
competition. The Company believes that several companies have developed or
are developing products which are intended to enable test and burn-in of bare
die. As the bare die market develops, the Company expects that other
competitors will emerge. The DiePak products also face severe competition
from other alternative test solutions. The Company expects that the primary
competitive
20
factors in this market will be cost, performance, reliability and assured
supply. Competing suppliers of DiePak products include Yamaichi Electronics
Co., Ltd.
The Company's test fixture products face numerous regional competitors.
There are limited barriers to entry into the burn-in board ("BIB") market, and
as a result, many companies design and manufacture BIBs, including BIBs for
use with the Company's MAX system. The Company's strategy is to provide only
certain high performance BIBs, and the Company generally does not compete to
supply low cost, low performance BIBs. The Company has a partnership with
Pycon, Inc. whereby Pycon, Inc. designs, manufactures and sells the BIBs and
the Company provides Pycon, Inc. with system know-how. Both companies jointly
market and sell the BIBs and performance test boards ("PTBs"). There can be
no assurance that the partnership will be successful. The Company has granted
royalty-bearing licenses to several companies to make performance test boards
for use with the Company's MTX systems and BIBs for use with the Company's
MAX4 systems, in order to assure customers of a second source of supply, and
the Company may grant additional licenses as well. Sales of PTBs and MAX4
BIBs by licensees result in royalties to the Company.
The Company expects its competitors to continue to improve the performance
of their current products and to introduce new products with improved price
and performance characteristics. New product introductions by the Company's
competitors or by new market entrants could cause a decline in sales or loss
of market acceptance of the Company's products. The Company has observed
price competition in the systems market, particularly with respect to its less
advanced products. Increased competitive pressure could also lead to
intensified price-based competition, resulting in lower prices which could
adversely affect the Company's operating margins and results. The Company
believes that to remain competitive it must invest significant financial
resources in new product development and expand its customer service and
support worldwide. There can be no assurance that the Company will be able to
compete successfully in the future.
DEPENDENCE ON SUBCONTRACTORS; SOLE OR LIMITED SOURCES OF SUPPLY. The
Company relies on subcontractors to manufacture many of the components or
subassemblies used in its products. The Company's MTX, MAX, and FOX systems
and DiePak carriers contain several components, including environmental
chambers, power supplies, wafer and die contactors, signal distribution
substrates and certain ICs, which are currently supplied by only one or a
limited number of suppliers. The Company's reliance on subcontractors and
single source suppliers involves a number of significant risks, including the
loss of control over the manufacturing process, the potential absence of
adequate capacity and reduced control over delivery schedules, manufacturing
yields, quality and costs. In the event that any significant subcontractor or
single source supplier was to become unable or unwilling to continue to
manufacture subassemblies, components or parts in required volumes, the
Company would have to identify and qualify acceptable replacements. The
process of qualifying subcontractors and suppliers could be lengthy, and no
assurance can be given that any additional sources would be available to the
Company on a timely basis. Any delay, interruption or termination of a
supplier relationship could have a material and adverse effect on the
Company's business, financial condition and operating results.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
21
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS
The Exhibits listed on the accompanying "Index to Exhibits" are filed as
part hereof, or incorporated by reference into, the report.
22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Aehr Test Systems
(Registrant)
Date: October 13, 2006 /s/ RHEA J. POSEDEL
---------------------------
Rhea J. Posedel
Chief Executive Officer and
Chairman of the Board of Directors
Date: October 13, 2006 /s/ GARY L. LARSON
----------------------------
Gary L. Larson
Vice President of Finance and
Chief Financial Officer
23
AEHR TEST SYSTEMS
INDEX TO EXHIBITS
Exhibit No. Description
---------- ------------
31.1 Certification of Chief Executive Officer pursuant to Rules
13a-14(a) and 15d-14(a) promulgated under the Securities
Exchange Act of 1934, as amended, as adopted pursuant to
Section 302(a) of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Rules
13a-14(a) and 15d-14(a) promulgated under the Securities
Exchange Act of 1934, as amended, as adopted pursuant to
Section 302(a) of the Sarbanes-Oxley Act of 2002.
32 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.
24