NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:
BUSINESS:
Aehr
Test Systems (the “Company”) was incorporated in
California in May 1977 and primarily designs, engineers 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 parallel test and burn-in systems,
the WaferPak full wafer contactor, the DiePak carrier, the WaferPak
aligner, the DiePak autoloader, and test fixtures.
LIQUIDITY:
Since
inception, the Company has incurred substantial cumulative losses
and negative cash flows from operations. In response, the Company
took steps to minimize expense levels, entered into credit
arrangements, and raised capital through public and private equity
offerings, to increase the likelihood that it will have sufficient
cash to support operations.
At
May 31, 2021, the Company had $4.6 million in cash and cash
equivalents. The Company anticipates that the existing cash and
cash equivalents balance together with income from operations,
collections of existing accounts receivable, revenue from its
existing backlog of products, the sale of inventory on hand,
deposits and down payments against significant orders will be
adequate to meet its working capital and capital equipment
requirements, and its anticipated cash needs over the next 12
months. The Company’s future capital requirements will depend
on many factors, including the Company’s growth rate, the
timing and extent of its spending to support research and
development activities, the timing and cost of establishing
additional sales and marketing capabilities, the timing and cost to
introduce new and enhanced products and the timing and cost to
implement new manufacturing technologies. In the event that
additional financing is required from outside sources, the Company
may not be able to raise it on terms acceptable to the Company or
at all. Any additional debt financing obtained by the Company in
the future could also involve restrictive covenants relating to the
Company’s capital-raising activities and other financial and
operational matters, which may make it more difficult for the
Company to obtain additional capital and to pursue business
opportunities, including potential acquisitions. Additionally, if
the Company raises additional funds through further issuances of
equity, convertible debt securities or other securities convertible
into equity, its existing stockholders could suffer significant
dilution in their percentage ownership of the Company, and any new
equity securities the Company issue could have rights, preferences
and privileges senior to those of holders of the Company’s
common stock. If the Company is unable to obtain adequate financing
or financing on terms satisfactory to the Company when the Company
requires it, the Company’s ability to continue to grow or
support its business and to respond to business challenges could be
significantly limited. On April 23, 2020, we received proceeds of
$1,679,000 from a Paycheck Protection Program Loan (the “PPP
Loan”), under the CARES Act which we used to retain
employees, maintained payroll and made lease and utility payments.
The entire PPP Loan balance and interest were forgiven on June 4,
2021, see Note 18, “Subsequent Event” of the Notes to
Consolidated Financial Statements.
CONSOLIDATION:
The
consolidated financial statements include the accounts of the
Company and both its wholly-owned and majority-owned foreign
subsidiaries. Intercompany accounts and transactions have been
eliminated.
FOREIGN
CURRENCY TRANSLATION AND TRANSACTIONS:
Assets
and liabilities of the Company’s foreign subsidiaries and a
branch office are translated into U.S. Dollars from their
functional currencies of Euros, Philippines Peso and New Taiwan
Dollars using the exchange rate in effect at the balance sheet
date. Additionally, their net sales and expenses are translated
using exchange rates approximating average rates prevailing during
the fiscal year. Translation adjustments that arise from
translating their financial statements from their local currencies
to U.S. Dollars are accumulated and reflected as a separate
component of shareholders’ equity.
Transaction
gains and losses that arise from exchange rate changes denominated
in currencies other than the local currency are included in the
Consolidated Statements of Operations as incurred. See Note 13,
“Other (Expense) Income, Net” for the detail of foreign
exchange transaction gains and losses for all periods
presented.
USE OF
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, 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
could differ from those estimates. Significant estimates in the
Company’s consolidated financial statements include allowance
for doubtful accounts, valuation of inventory at the lower of cost
or net realizable value, and warranty reserves.
CASH
EQUIVALENTS:
Cash
equivalents consist of money market instruments purchased with an
original maturity of three months or less. These investments are
reported at fair value.
ACCOUNTS
RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Accounts
receivable are derived from the sale of products throughout the
world to semiconductor manufacturers, semiconductor contract
assemblers, electronics manufacturers and burn-in and test service
companies. Accounts receivable are recorded at the invoiced amount
and are not interest bearing. The Company maintains an allowance
for doubtful accounts to reserve for potentially uncollectible
trade receivables. The Company also reviews its trade receivables
by aging category to identify specific customers with known
disputes or collection issues. The Company exercises judgment when
determining the adequacy of these reserves as the Company evaluates
historical bad debt trends, general economic conditions in the
United States and internationally, and changes in customer
financial conditions. Uncollectible receivables are recorded as bad
debt expense when all efforts to collect have been exhausted and
recoveries are recognized when they are received. No significant
adjustments to the allowance for doubtful accounts were recorded
during the fiscal years ended May 31, 2021, 2020 or
2019.
CONCENTRATION
OF CREDIT RISK:
The
Company sells its products primarily to semiconductor manufacturers
in North America, Asia, and Europe. As of May 31, 2021,
approximately 2%, 98% and 0% of gross accounts receivable were from
customers located in North America, Asia and Europe, respectively.
As of May 31, 2020, approximately 13%, 62% and 25% of gross
accounts receivable were from customers located in North America,
Asia and Europe, respectively. Three customers accounted for 51%,
24% and 19% of gross accounts receivable as of May 31, 2021. Two
customers accounted for 45% and 18% of gross accounts receivable as
of May 31, 2020. Four customers accounted for 24%, 23%, 20% and 10%
of net sales in fiscal 2021. Three customers accounted for 43%, 16%
and 15% of net sales in fiscal 2020. The Company performs ongoing
credit evaluations of its customers and generally does not require
collateral. The Company uses letter of credit terms for some of its
international customers.
The
Company’s cash and cash equivalents are generally deposited
with major financial institutions in the United States,
Philippines, Germany and Taiwan. The Company invests its excess
cash in money market funds and U.S. Treasury securities. The money
market funds bear the risk associated with each fund. The money
market funds have variable interest rates. The Company has not
experienced any material losses on its money market funds or
short-term cash deposits.
CONCENTRATION
OF SUPPLY RISK:
The
Company relies on subcontractors to manufacture many of the
components and subassemblies used in its products. Quality or
performance failures of the Company’s products or changes in
its manufacturers’ financial or business condition could
disrupt the Company’s ability to supply quality products to
its customers and thereby have a material and adverse effect on its
business and operating results. Some of the components and
technologies used in the Company’s products are purchased and
licensed from a single source or a limited number of sources. The
loss of any of these suppliers may cause the Company to incur
additional transition costs, result in delays in the manufacturing
and delivery of its products, or cause it to carry excess or
obsolete inventory and could cause it to redesign its
products.
INVENTORIES:
Inventories
include material, labor and overhead, and are stated at the lower
of cost (first-in, first-out method) or net realizable value. Net
realizable value is the estimated selling prices in the ordinary
course of business, less costs of completion, disposal and
transportation. Provisions for excess, obsolete and unusable
inventories are made after management’s evaluation of future
demand and market conditions. The Company adjusts inventory
balances to approximate the lower of its manufacturing costs or net
realizable value. If actual future demand or market conditions
become less favorable than those projected by management,
additional inventory write-downs may be required, and would be
reflected in cost of sales in the period the revision is made.
During fiscal 2021, 2020 and 2019 the Company recognized a
provision for inventory reserves of $176,000, $1,669,000, and
$1,168,000, respectively.
PROPERTY
AND EQUIPMENT:
Property
and equipment are stated at cost less accumulated depreciation and
amortization. Major improvements are capitalized, while repairs and
maintenance are expensed as incurred. Leasehold improvements are
amortized over the lesser of their estimated useful lives or the
term of the related lease. Furniture and fixtures, machinery and
equipment, and test equipment are depreciated on a straight-line
basis over their estimated useful lives. The ranges of estimated
useful lives are generally as follows:
Furniture
and fixtures . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . 2 to 6 years
Machinery
and equipment. . . .
. . . . . . . . . . . . . . . . . . . . . . . . . 3 to 6
years
Test
equipment. . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . .
. . . .
. . 4 to 6
years
REVENUE
RECOGNITION:
The
Company recognizes revenue when promised goods or services are
transferred to customers in an amount that reflects the
consideration to which the Company expects to be entitled in
exchange for those goods or services by following a five-step
process: (1) identify the contract with a customer, (2) identify
the performance obligations in the contract, (3) determine the
transaction price, (4) allocate the transaction price, and (5)
recognize revenue when or as the Company satisfies a performance
obligation, as further described below.
Performance
obligations include sales of systems, contactors, spare parts, and
services, as well as installation and training services included in
customer contracts.
A
contract’s transaction price is allocated to each distinct
performance obligation. In determining the transaction price, the
Company evaluates whether the price is subject to refund or
adjustment to determine the net consideration to which the Company
expects to be entitled. The Company generally does not grant return
privileges, except for defective products during the warranty
period.
For
contracts that contain multiple performance obligations, the
Company allocates the transaction price to the performance
obligations on a relative standalone selling price basis.
Standalone selling prices are based on multiple factors including,
but not limited to, historical discounting trends for products and
services and pricing practices in different
geographies.
Revenue
for systems and spares are recognized at a point in time, which is
generally upon shipment or delivery. Revenue from services is
recognized over time as services are completed or ratably over the
contractual period of generally one year or less.
The
Company has elected the practical expedient to not assess whether a
contract has a significant financing component as the
Company’s standard payment terms are less than one
year.
We
sell our products primarily through a direct sales force. In
certain international markets, we sell our products through
independent distributors. We consider revenue to be earned when all
of the following criteria are met:
●
We have a contract with a customer that creates enforceable rights
and obligations,
●
Promised performance obligations are identified,
●
The transaction price, or the amount we expect to receive, is
determinable and
●
We have satisfied the performance obligations to the
customer.
Transfer
of control is evidenced upon passage of title and risk of loss to
the customer unless we are required to provide additional
services.
PRODUCT
DEVELOPMENT COSTS AND CAPITALIZED SOFTWARE:
Costs
incurred in the research and development of new products or systems
are charged to operations as incurred. Costs incurred in the
development of software programs for the Company’s products
are charged to operations as incurred until technological
feasibility of the software has been established. Generally,
technological feasibility is established when the software module
performs its primary functions described in its original
specifications, contains features required for it to be usable in a
production environment, is completely documented and the related
hardware portion of the product is complete. After technological
feasibility is established, any additional costs are capitalized.
Capitalization of software costs ceases when the software is
substantially complete and is ready for its intended use.
Capitalized costs are amortized over the estimated life of the
related software product using the greater of the units of sales or
straight-line methods over ten years. No system software
development costs were capitalized or amortized in fiscal 2021,
2020 and 2019.
IMPAIRMENT
OF LONG-LIVED ASSETS:
In
the event that facts and circumstances indicate that the carrying
value of assets may be impaired, an evaluation of recoverability
would be performed. If an evaluation is required, the estimated
future undiscounted cash flows associated with the asset would be
compared to the asset’s carrying value to determine if a
write-down is required.
ADVERTISING
COSTS:
The
Company expenses all advertising costs as incurred and the amounts
were not material for all periods presented.
SHIPPING
AND HANDLING OF PRODUCTS:
Amounts
billed to customers for shipping and handling of products are
included in net sales. Costs incurred related to shipping and
handling of products are included in cost of sales.
INCOME
TAXES:
Income
taxes are accounted for under the asset-and-liability method as
required by FASB ASC Topic 740, Income Taxes (“ASC
740”). Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and
tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period corresponding to the enactment date. Under ASC
740, a valuation allowance is required when it is more likely than
not all or some portion of the deferred tax assets will not be
realized through generating sufficient future taxable
income.
FASB
ASC Subtopic 740-10, Accounting for Uncertainty of Income Taxes,
(“ASC 740-10”) defines the criterion an individual tax
position must meet for any part of the benefit of the tax position
to be recognized in financial statements prepared in conformity
with GAAP. The Company may recognize the tax benefit from an
uncertain tax position only if it is more likely than not such tax
position will be sustained on examination by the taxing
authorities, based solely on the technical merits of the respective
tax position. The tax benefits recognized in the financial
statements from such a tax position should be measured based on the
largest benefit having a greater than 50% likelihood of being
realized upon ultimate settlement with the tax authority. In
accordance with the disclosure requirements of ASC 740-10, the
Company’s policy on income statement classification of
interest and penalties related to income tax obligations is to
include such items as part of income taxes.
COMPREHENSIVE
LOSS:
Comprehensive
loss generally represents all changes in shareholders’ equity
except those resulting from investments or contributions by
shareholders. Unrealized gains and losses on foreign currency
translation adjustments are included in the Company’s
components of comprehensive loss, which are excluded from net loss.
In fiscal 2021 the Company recognized comprehensive income of
$2,401,000 related to the completed liquidation of ATS-Japan, a
majority owned subsidiary. Refer to Note 16, “Dissolution of
Aehr Test Systems Japan,” for a further discussion of the
transaction. Comprehensive loss is included in the statements of
comprehensive loss.
RECENT
ACCOUNTING PRONOUNCEMENTS:
Accounting
Standards Not Yet Adopted
Financial
Instruments
In
June 2016, the FASB issued an accounting standard update
(“ASU”) that requires measurement and recognition of
expected credit losses for financial assets held based on
historical experience, current conditions, and reasonable and
supportable forecasts that affect the collectability of the
reported amount. Due to a subsequent ASU in November 2019, the
accounting standard will be effective for the Company beginning in
the first quarter of fiscal 2024 on a modified retrospective basis,
and early adoption in fiscal 2020 is permitted. The Company does
not expect a material impact of this accounting standard on its
consolidated financial statements.
Income Taxes
On
December 18, 2019, the FASB issued Accounting Standards Update ASU
2019-12 on Simplifying the Accounting for Income Taxes. The board
decided to remove the exception to the incremental approach for
intra-period tax allocation when there is a loss from continuing
operations and income or gain from other items (for example
discontinued operations or other comprehensive income). There are
also provisions related to state taxes and calculating
income
taxes in an interim period when a year-to-date loss exceeds the
anticipated loss for the year. The new guidance is effective for
fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2020. The Company has not yet
adopted ASU 2019-12 and believes upon adoption there would be no
material impact.
2. REVENUE:
Disaggregation of revenue
The
following tables show revenues by major product categories. Within
each product category, contract terms, conditions and economic
factors affecting the nature, amount, timing and uncertainty around
revenue recognition and cash flow are substantially
similar.
The
Company’s revenues by product category are as follows (in
thousands):
|
|
|
|
|
|
Type
of good / service:
|
|
|
|
Systems
|
$7,250
|
$8,099
|
$9,566
|
Contactors
|
5,837
|
10,784
|
6,154
|
Services
|
3,513
|
3,408
|
5,336
|
|
$16,600
|
$22,291
|
$21,056
|
Product
lines:
|
|
|
|
Wafer-level
|
$15,004
|
$19,768
|
$14,618
|
Test During Burn-In
|
1,596
|
2,523
|
6,438
|
|
$16,600
|
$22,291
|
$21,056
|
The
following presents information about the Company’s operations
in different geographic areas. Net sales are based upon ship-to
location (in thousands):
|
|
|
|
|
|
Geographic
region:
|
|
|
|
United States
|
$5,386
|
$13,544
|
$13,468
|
Asia
|
11,074
|
7,556
|
5,648
|
Europe
|
140
|
1,191
|
1,940
|
|
$16,600
|
$22,291
|
$21,056
|
With
the exception of the amount of service contracts and extended
warranties, the Company’s product category revenues are
recognized at point in time when control transfers to customers.
The following presents revenue based on timing of recognition (in
thousands):
|
|
|
|
|
|
Timing
of revenue recognition (in thousands):
|
|
|
|
Products
and services transferred at a point in time
|
$15,009
|
$19,948
|
$18,473
|
Services transferred over time
|
1,591
|
2,343
|
2,583
|
|
$16,600
|
$22,291
|
$21,056
|
Contract balances
A
receivable is recognized in the period the Company delivers goods
or provides services or when the Company’s right to
consideration is unconditional. The Company usually does not record
contract assets because the Company has an unconditional right to
payment upon satisfaction of the performance obligation, and
therefore, a receivable is more commonly recorded than a contract
asset.
Contract
liabilities include payments received in advance of performance
under a contract and are satisfied as the associated revenue is
recognized. Contract liabilities are reported on the consolidated
balance sheets at the end of each reporting period as a component
of deferred revenue. Contract liabilities as of May 31, 2021 and
2020 were $288,000 and $192,000, respectively. During the fiscal
years ended May 31, 2021 and 2020, the Company recognized $164,000
and $1,545,000 of revenues that were included in contract
liabilities as of May 31, 2020 and 2019, respectively.
Remaining performance obligations
On
May 31, 2021, the Company had $194,000 of remaining performance
obligations, which were comprised of deferred service contracts and
extended warranty contracts not yet delivered. The Company expects
to recognize approximately 49% of its remaining performance
obligations as revenue in fiscal 2022, and an additional 51% in
fiscal 2023 and thereafter. The foregoing excludes the value of
other remaining performance obligations as they have original
durations of one year or less, and also excludes information about
variable consideration allocated entirely to a wholly unsatisfied
performance obligation.
Costs to obtain or fulfill a contract
The
Company generally expenses sales commissions when incurred as a
component of selling, general and administrative expense as the
amortization period is typically less than one year. Additionally,
the majority of the Company’s cost of fulfillment as a
manufacturer of products is classified as inventory and fixed
assets, which are accounted for under the respective guidance for
those asset types. Other costs of contract fulfillment are
immaterial due to the nature of the Company’s products and
their respective manufacturing process.
3. EARNINGS PER SHARE (“EPS”):
Basic
EPS is determined using the weighted average number of common
shares outstanding during the period. Diluted EPS 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
loss per share attributable to Aehr Test Systems common
shareholders (in thousands, except per share data):
|
|
|
|
|
|
Numerator: Net loss
|
$(2,027)
|
$(2,802)
|
$(5,235)
|
|
|
|
|
Denominator
for basic net loss per share:
|
|
|
|
Weighted average shares
outstanding
|
23,457
|
22,882
|
22,387
|
|
|
|
|
Shares used in basic net loss per share
calculation
|
23,457
|
22,882
|
22,387
|
|
|
|
|
Effect of dilutive securities
|
--
|
--
|
--
|
|
|
|
|
|
|
|
|
Denominator for diluted net loss per
share
|
23,457
|
22,882
|
22,387
|
|
|
|
|
Basic net loss per share
|
$(0.09)
|
$(0.12)
|
$(0.23)
|
|
|
|
|
Diluted net loss per share
|
$(0.09)
|
$(0.12)
|
$(0.23)
|
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. In the fiscal years ended May 31, 2021,
2020 and 2019, 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 these
periods are the same. Stock options to purchase 2,766,000,
3,153,000 and 3,107,000 shares of common stock were outstanding on
May 31, 2021, 2020 and 2019, respectively, but were not included in
the computation of diluted net loss per share, because the
inclusion of such shares would be anti-dilutive. ESPP rights to
purchase 239,000, 192,000 and 297,000 ESPP shares were outstanding
on May 31, 2021, 2020 and 2019, respectively, but were not included
in the computation of diluted net loss per share, because the
inclusion of such shares would be anti-dilutive. RSUs for 132,000
shares,
10,000 shares and 23,000 shares were outstanding on May 31, 2021,
2020 and 2019, respectively, but were not included in the
computation of diluted net loss per share, because the inclusion of
such shares would be anti-dilutive.
4. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The
Company’s financial instruments are measured at fair value
consistent with authoritative guidance. This authoritative guidance
defines fair value, establishes a framework for using fair value to
measure assets and liabilities, and disclosures required related to
fair value measurements.
The
guidance establishes a fair value hierarchy based on inputs to
valuation techniques that are used to measure fair value that are
either observable or unobservable. Observable inputs reflect
assumptions market participants would use in pricing an asset or
liability based on market data obtained from independent sources
while unobservable inputs reflect a reporting entity’s
pricing based upon their own market assumptions. The fair value
hierarchy consists of the following three levels:
Level 1
- instrument valuations are obtained from real-time quotes for
transactions in active exchange markets involving identical
assets.
Level 2
- instrument valuations are obtained from readily-available pricing
sources for comparable instruments.
Level 3
- instrument valuations are obtained without observable market
values and require a high level of judgment to determine the fair
value.
The
following table summarizes the Company’s financial assets
measured at fair value on a recurring basis as of May 31, 2021 (in
thousands):
|
|
|
|
|
|
|
|
|
|
Money market funds
|
$580
|
$580
|
$--
|
$--
|
Assets
|
$580
|
$580
|
$--
|
$--
|
The
following table summarizes the Company’s financial assets
measured at fair value on a recurring basis as of May 31, 2020 (in
thousands):
|
|
|
|
|
|
|
|
|
|
Money market funds
|
$80
|
$80
|
$--
|
$--
|
Assets
|
$80
|
$80
|
$--
|
$--
|
Included
in money market funds as of May 31, 2021 and 2020 is $80,000 of
restricted cash representing a security deposit for the
Company’s United States manufacturing and office space
lease.
There
were no financial liabilities measured at fair value as of May 31,
2021 and 2020.
There
were no transfers between Level 1 and Level 2 fair value
measurements during the fiscal years ended May 31, 2021 and
2020.
The
carrying amounts of financial instruments including cash, cash
equivalents, receivables, accounts payable and certain other
accrued liabilities, approximate fair value due to their short
maturities. Based on the borrowing rates currently available to the
Company for loans with similar terms, the carrying value of the
debt approximates the fair value.
5. ACCOUNTS RECEIVABLE:
Accounts
receivable comprise (in thousands):
|
|
|
|
|
Accounts receivable
|
$5,202
|
$3,717
|
Less: Allowance for doubtful
accounts
|
--
|
--
|
|
$5,202
|
$3,717
|
Accounts
receivable represent customer trade receivables. As of May 31, 2021
and 2020, there were no allowances for doubtful
accounts.
6. BALANCE SHEET DETAIL:
INVENTORIES:
|
|
(In
Thousands)
|
|
|
Raw materials and
sub-assemblies
|
$5,859
|
$5,055
|
Work in process
|
2,988
|
2,917
|
Finished goods
|
2
|
17
|
|
$8,849
|
$7,989
|
During the year ended May 31, 2021,
2020, and 2019, the Company wrote down $176,000, $1,669,000, and
$1,168,000 of inventory, respectively.
PROPERTY AND EQUIPMENT, NET:
|
|
(In
Thousands)
|
|
|
Leasehold improvements
|
$1,214
|
$1,201
|
Furniture and fixtures
|
627
|
612
|
Machinery and equipment
|
3,343
|
3,038
|
Test equipment
|
2,525
|
2,516
|
|
7,709
|
7,367
|
Less:
Accumulated depreciation and amortization
|
(7,032)
|
(6,704)
|
|
$677
|
$663
|
Depreciation expense was $310,000,
$384,000 and $431,000 for fiscal 2021, 2020, and 2019,
respectively.
ACCRUED EXPENSES:
|
|
(In
Thousands)
|
|
|
Payroll related
|
$1,020
|
$791
|
Warranty
|
494
|
246
|
Commissions and bonuses
|
413
|
139
|
Professional services
|
168
|
173
|
Investor relations
|
22
|
19
|
Accrued interest
|
16
|
--
|
Taxes payable
|
5
|
30
|
Restructuring
|
--
|
8
|
Other
|
25
|
33
|
|
$2,163
|
$1,439
|
CUSTOMER
DEPOSITS AND DEFERRED REVENUE, SHORT-TERM:
|
|
(In
Thousands)
|
|
|
Customer deposits
|
$27
|
$--
|
Deferred revenue
|
162
|
170
|
|
$189
|
$170
|
7. INCOME TAXES:
Domestic
and foreign components of loss before income tax benefit (expense)
are as follows (in thousands):
|
|
|
|
|
|
Domestic
|
$(13,064)
|
$(2,751)
|
$(5,273)
|
Foreign
|
10,860
|
(15)
|
65
|
|
$(2,204)
|
$(2,766)
|
$(5,208)
|
The
income tax benefit (expense) consists of the following (in
thousands):
|
|
|
|
|
|
Federal
income taxes:
|
|
|
|
Current
|
$163
|
$--
|
$--
|
Deferred
|
--
|
--
|
--
|
State
income taxes:
|
|
|
|
Current
|
13
|
(30)
|
(6)
|
Deferred
|
--
|
--
|
--
|
Foreign
income taxes:
|
|
|
|
Current
|
1
|
(6)
|
(21)
|
Deferred
|
--
|
--
|
--
|
|
$177
|
$(36)
|
$(27)
|
The
Company’s effective tax rate differs from the U.S. federal
statutory tax rate, as follows:
|
|
|
|
|
|
U.S. federal statutory tax rate
|
21.0%
|
21.0%
|
21.0%
|
State taxes, net of federal tax
effect
|
0.6
|
1.4
|
(1.0)
|
Foreign rate differential
|
9.8
|
(21.5)
|
(0.7)
|
Stock-based compensation
|
(4.7)
|
(4.0)
|
(2.8)
|
Research and development credit
|
4.0
|
--
|
1.5
|
Change in valuation allowance
|
(32.1)
|
4.3
|
(15.6)
|
Federal rate change impact
|
--
|
--
|
--
|
Federal AMT refund
|
--
|
--
|
--
|
ASU 2016-09 adoption
|
--
|
--
|
--
|
Controlled
Foreign Corporation Liquidation
|
9.8
|
--
|
--
|
Other
|
(0.4)
|
(2.5)
|
(2.9)
|
Effective tax rate
|
8.0%
|
(1.3)%
|
(0.5)%
|
The
components of the net deferred tax assets and liabilities are as
follows (in thousands):
|
|
|
|
|
|
|
|
Deferred
tax assets:
|
|
|
Net operating losses
|
$15,584
|
$13,634
|
Lease Liability
|
372
|
483
|
Credit carryforwards
|
5,298
|
5,089
|
Inventory reserves
|
1,006
|
1,005
|
Reserves and accruals
|
890
|
739
|
Other
|
450
|
319
|
|
23,600
|
21,269
|
|
|
|
Deferred
tax liabilities:
|
|
|
Operating lease right-of-use
assets
|
(342)
|
(449)
|
Less: Valuation allowance
|
(23,258)
|
(20,820)
|
Net deferred tax assets (liabilities)
|
$--
|
$--
|
The
valuation allowance increased by $2,438,000 during fiscal 2021,
decreased by $118,000 during fiscal 2020, and increased by $813,000
during fiscal 2019. As of May 31, 2021 and 2020, the Company
concluded that it is more likely than not that the deferred tax
assets will not be realized and therefore provided a full valuation
allowance against the deferred tax assets. The Company will
continue to evaluate the need for a valuation allowance against its
deferred tax assets on a quarterly basis.
At May 31, 2021 and 2020, the Company has
federal net operating loss carryforwards of approximately
$64,298,000 and $54,601,000 respectively, to reduce future taxable
income. A portion of the federal net operating losses will begin to
expire in 2024. Federal net operating losses of $13,383,000 will
carryforward indefinitely and would be subject to
an
80%
taxable income limitation in the year utilized. At May 31, 2021 and
2020, the Company has state net operating loss carryforwards of
$29,812,000 and $29,386,000, respectively, to reduce future taxable
income. The state net operating loss carryforwards will begin to
expire in 2028.
At
May 31, 2021 and 2020, the Company has federal research and
development credit carryforwards of approximately $2,201,000 and
$2,113,000 respectively, to offset future tax liability. The
federal credit carryforwards will begin to expire in 2022. At May
31, 2021 and 2020, The Company has state research and development
credit carryforwards of approximately $5,955,000 and $5,782,000
respectively, to offset future tax liability. The credit
carryforwards are not subject to expiration. The Company also has
alternative minimum tax credit carryforwards of $34,000 for state
purposes. The credits may be used to offset regular tax and do not
expire.
ATS
Japan was completely liquidated in July 2020. Thus, there is no
more foreign net operating loss carryforward related to the Japan
entity to the future.
Internal
Revenue Code of 1986, as amended (“IRC”) Section 382
(“§382”) limits the use of NOL and tax credit
carryforwards in certain situations where changes occur in the
stock ownership of a company. In general, if we experience a
greater than 50% aggregate change in ownership over a 3-year
period, we are subject to an annual limitation under IRC §382
on the utilization of the Company’s pre-change NOL
carryforwards. California and other states have similar laws. The
annual limitation generally is determined by multiplying the value
of the Company’s stock at the time of such ownership change
(subject to certain adjustments) by the applicable long-term exempt
rate. Such limitations may result in expiration of a portion of the
NOL carryforwards before utilization.
The
Company has made no provision for U.S. income taxes on
undistributed earnings of certain foreign subsidiaries because it
is the Company’s intention to permanently reinvest such
earnings in its foreign subsidiaries. If such earnings were
distributed, the Company would be subject to additional U.S. income
tax expense.
The
Company maintains liabilities for uncertain tax positions. These
liabilities involve considerable judgment and estimation and are
continuously monitored by management based on the best information
available. The aggregate changes in the balance of gross
unrecognized tax benefits are as follows (in
thousands):
Beginning balance as of May 31,
2018
|
$1,785
|
|
|
Decreases related to prior year tax
positions
|
(41)
|
Increases related to current year tax
positions
|
65
|
|
|
Balance at May 31, 2019
|
$1,809
|
|
|
Decreases related to prior year tax
positions
|
(11)
|
Increases related to current year tax
positions
|
54
|
|
|
Balance at May 31, 2020
|
$1,852
|
|
|
Increases related to prior year tax
positions
|
11
|
Increases related to current year tax
positions
|
65
|
|
|
Balance at May 31, 2021
|
$1,928
|
As
of May 31, 2021 and 2020, the Company has not recorded interest and
penalties associated with its unrecognized tax benefits. The
Company’s unrecognized gross tax benefits would not reduce
the annual effective tax rate if recognized because it has recorded
a full valuation allowance on its deferred tax assets. The Company
does not foresee any material changes to the gross unrecognized tax
benefit within the next twelve months. The Company’s policy
is to recognize interest and penalties in income tax
expense.
The
Company’s federal and state income tax returns are subject to
possible examination by the taxing authorities until the expiration
of the related statutes of limitations on those tax returns. In
general, the federal income tax returns have a three-year statute
of limitations, and the state income tax returns have a four-year
statute of limitations. The Company’s foreign income tax
returns are also subject to examination by the foreign tax
authorities with the longest statute of limitations period of
four-year.
On March 27, 2020, the CARES Act was signed into
law. The CARES Act includes provisions relating to refundable
payroll tax credits, deferment of the employer portion of certain
payroll taxes, net operating loss carryback
periods,
alternative
minimum tax credit refunds, modifications to the net interest
deduction limitations and technical corrections to tax depreciation
methods for qualified improvement property. The CARES Act did not
have material impact to income taxes as the Company is in a
historical loss position.
On
December 27, 2020, the Consolidated Apportions Act of 2021
(“CCA”), a tax, funding and spending bill was signed
into law and the Company does not believe the CAA will materially
impact the 2021 income tax provision.
On
June 29, 2020, California Governor Gavin Newsom signed Assembly
Bill 85 (“AB 85”) into law as part of the California
2020 Budget Act, which temporarily suspends the use of California
net operating losses and imposes a cap on the amount of business
incentive tax credits that companies can utilize against their net
income for tax years 2020, 2021, and 2022. We analyzed the
provisions of AB 85 and determined there was no impact on our
provision for income taxes for the current period and will continue
to evaluate the impact, if any, AB 85 may have on our condensed
consolidated financial statements and disclosures.
8. LEASES
The
Company leases most of its manufacturing and office space under
operating leases. The Company entered into non-cancelable operating
lease agreements for its United States manufacturing and office
facilities and maintains equipment under non-cancelable operating
leases in Germany. The Company’s principal administrative and
production facilities are located in Fremont, California, in a
51,289 square foot building. The Company’s lease was renewed
in February 2018 and expires in July 2023. The Company maintained a
facility in Japan located in a 418 square foot office in Tokyo
under a lease which expired in June 2020. The Company also
maintained a 1,585 square foot warehouse in Yamanashi under a lease
which expired in June 2020. The Company substantially closed its
subsidiary Aehr Test Systems Japan K.K. in March 2020, completing
the liquidation of the legal entity in July 2020, see Note 17,
“Restructuring,” of the Notes to Consolidated Financial
Statements. The Company leases a 492 square foot sales and support
office in Utting, Germany. The lease, which began February 1, 1992
and expires on January 31, 2023, contains an automatic twelve
months renewal, at rates to be determined, if no notice is given
prior to six months from expiry. On November 18, 2020, the Company
established a wholly owned new subsidiary, Aehr Test Systems
Philippines Inc., which has been in full operation since March
2021. The Company leases a facility in Philippines located in
a 2,713 square foot building in Clark Freeport Zone, Pampanga. The
lease, which began January 1, 2021 and expires on December 31,
2025, contains an option to renew for another three years at rates
stipulated in the contract, notice for renewal is given 6 months
from expiry. Under the lease agreements, the Company is responsible
for payments of utilities, taxes and insurance.
The
Company has only operating leases for real estate including
corporate offices, warehouse space and certain equipment. A lease
with an initial term of 12 months or less is generally not recorded
on the condensed consolidated balance sheet, unless the arrangement
includes an option to purchase the underlying asset, or renew the
arrangement that the Company is reasonably certain to exercise
(short-term leases). The Company recognizes lease expense on a
straight-line basis over the lease term for short-term leases that
the Company does not record on its balance sheet. The
Company’s operating leases have remaining lease terms of 1
year to 5 years.
The
Company determines whether an arrangement is or contains a lease
based on the unique facts and circumstances present at the
inception of the arrangement. Operating lease liabilities and their
corresponding right-of-use assets are recorded based on the present
value of lease payments over the expected lease term. The interest
rate implicit in lease contracts is typically not readily
determinable. As such, the Company utilizes the appropriate
incremental borrowing rate, which is the rate incurred to borrow on
a collateralized basis over a similar term at an amount equal to
the lease payments in a similar economic environment. Certain
adjustments to the right-of-use asset may be required for items
such as initial direct costs paid or incentives
received.
The
weighted average remaining lease term for the Company’s
operating leases was 2.4 years at May 31, 2021 and the weighted
average discount rate was 5.4%.
The
Company’s operating lease cost under FASB ASC Topic
842 was $761,000 for the year ended May 31, 2021. The
Company’s operating lease cost under FASB ASC Topic
842 was $734,000 for the year ended May 31,
2020.
The
following table presents supplemental cash flow information related
to the Company’s operating leases (in
thousands):
|
|
|
|
|
Cash
paid for amounts included in the measurement of operating lease
liabilities:
|
|
|
Operating
cash flows from operating leases
|
$779
|
$737
|
Right-of-use
assets obtained in exchange for operating leases
liabilities
|
147
|
2,859
|
The
following table presents the maturities of the Company’s
operating lease liabilities as of May 31, 2021 (in
thousands):
Fiscal year
|
|
2022
|
$813
|
2023
|
829
|
2024
|
168
|
2025
|
32
|
2026
|
19
|
Thereafter
|
--
|
Total
future minimum operating lease payments
|
1,861
|
Less:
imputed interest
|
(117)
|
Present
value of operating lease liabilities
|
$1,744
|
9. BORROWING AND FINANCING ARRANGEMENTS:
On
January 16, 2020, the Company entered into a Loan and Security
Agreement (the “Loan Agreement”) with Silicon Valley
Bank (“SVB”). Pursuant to the Loan Agreement, the
Company may borrow up to (a) the lesser of (i) the revolving line
of $4.0 million or (ii) the amount available under the borrowing
base minus (b) the outstanding principal balance of any advances,
under a revolving line of credit which is collateralized by all the
Company’s assets except intellectual property. The borrowing
base is 80% of eligible accounts, as determined by SVB from the
Company’s most recent borrowing base statement; provided,
however, SVB has the right to decrease the foregoing percentage in
its good faith business judgment to mitigate the impact of certain
events or conditions, which may adversely affect the collateral or
its value. Subject to an event of default, the principal amount
outstanding under the revolving line of credit will accrue interest
at a floating per annum rate equal to the greater of (a) the prime
rate plus an additional percentage of up to 1%, which additional
percentage depends on the Company’s adjusted quick ratio, and
(b) 4.75%. Interest is payable monthly on the last calendar day of
each month and the outstanding principal amount, the unpaid
interest and all other obligations are due on the maturity date,
which is 364 days from the effective date of January 13,
2020.
On
January 14, 2021, the Company entered into the First Amendment to
Loan and Security Agreement (the “Amendment”) with
Silicon Valley Bank. The Amendment, among other things, extends the
Revolving Line Maturity Date to July 14, 2021; provided, however,
that if the Company achieves specified operating metrics on a
consolidated basis on or prior to May 31, 2021 the Amended
Revolving Line Maturity Date is extended to January 13, 2022. On
July 8, 2021 the Company received confirmation from SVB that the
Revolving Line Maturity Date has been extended to January 13,
2022.
At
May 31, 2021, the Company had drawn $1,400,000 against the credit
facility and was in compliance with all covenants related to
obligations to meet reporting requirements. The balance available
to borrow under the line at May 31, 2021 was $308,000. There are no
financial covenants in the agreement.
10. LONG-TERM DEBT:
On
April 23, 2020, the Company obtained the PPP Loan in the aggregate
amount of $1,678,789 from SVB. The PPP Loan was evidenced by a
promissory note dated April 23, 2020 (the “Note”) that
matures on April 23, 2022 and bears interest at a rate of 1% per
annum, payable monthly commencing on November 23, 2020. The PPP
Loan proceeds were used for payroll, health care benefits, rent and
utilities.
Under the terms of the CARES Act, PPP loan
recipients can apply for and be granted forgiveness for all or a
portion of loans granted under the PPP. Such forgiveness will be
determined, subject to limitations, based on the use of
loan
proceeds for
payment of payroll costs, covered rent and mortgage obligations,
and covered utility payments incurred by the Company. On June 4,
2021, the entire PPP Loan balance and interest were forgiven, see
Note 18, “Subsequent Event” of the Notes to
Consolidated Financial Statements.
11. STOCKHOLDERS’ EQUITY AND STOCK-BASED
COMPENSATION:
STOCK-BASED
COMPENSATION:
Stock-based
compensation expense consists of expenses for stock options,
restricted stock units, or RSUs, 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 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, 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.
The
following table summarizes the stock-based compensation expense for
the fiscal years ended May 31, 2021, 2020 and 2019 (in thousands,
except per share data):
|
|
|
|
|
|
Stock-based
compensation in the form of stock options, RSUs,
and ESPP purchase rights, included in:
|
|
|
|
|
|
|
|
Cost of sales
|
$70
|
$80
|
$104
|
Selling, general and
administrative
|
816
|
631
|
545
|
Research and development
|
215
|
199
|
256
|
|
|
|
|
Net effect on net loss
|
$1,101
|
$910
|
$905
|
|
|
|
|
Effect
on net loss per share:
|
|
|
|
Basic
|
$0.05
|
$0.04
|
$0.04
|
Diluted
|
$0.05
|
$0.04
|
$0.04
|
As
of May 31, 2021, 2020 and 2019, there were no stock-based
compensation expenses capitalized as part of
inventory.
During fiscal 2021, 2020 and fiscal 2019, the Company recorded
stock-based compensation related to stock options and restricted
stock units of $993,000, $751,000 and $650,000,
respectively.
As
of May 31, 2021, the total compensation expense related to unvested
stock-based awards under the Company’s 2016 Equity Incentive
Plan, but not yet recognized, was $1,022,000 which is net of
estimated forfeitures of $3,000. This expense will be amortized on
a straight-line basis over a weighted average period of
approximately 2.4 years.
During
fiscal 2021, 2020 and fiscal 2019, the Company recorded stock-based
compensation related to its ESPP of $108,000, $159,000 and
$255,000, respectively. The increase in fiscal 2019 is primarily
due to employees increasing their ESPP elections during the fiscal
year.
As
of May 31, 2021, the total compensation expense related to purchase
rights under the ESPP but not yet recognized was $229,000. This
expense will be amortized on a straight-line basis over a weighted
average period of approximately 1.2 years.
Valuation
Assumptions
Valuation
and Amortization Method. The Company estimates the fair value of
stock options granted using the Black-Scholes option valuation
method 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 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 expense
recorded.
Risk-Free
Interest Rate. The Company bases the risk-free interest rate used
in the Black-Scholes option valuation method on the implied yield
in effect at the time of option grant on U.S. Treasury zero-coupon
issues with a remaining term equivalent to the expected term of the
stock awards including the ESPP.
Fair
Value. The fair values of the Company’s stock options granted
to employees in fiscal 2021, 2020 and 2019 were estimated using the
following weighted average assumptions in the Black-Scholes option
valuation method:
|
|
|
|
|
|
|
|
|
|
Expected term (in years)
|
6
|
5
|
5
|
Volatility
|
72.0%
|
71.5%
|
71.9%
|
Risk-free interest rates
|
0.44%
|
1.56%
|
2.83%
|
Weighted average grant date fair
value
|
$1.12
|
$0.95
|
$1.33
|
The
fair value of our ESPP purchase rights for the fiscal 2021, 2020
and 2019 was estimated using the following weighted average
assumptions:
|
Year End May 31,
|
|
2021
|
|
2020
|
|
2019
|
|
|
|
|
|
|
Expected term (in years)
|
0.5 – 2.0
|
|
0.5 – 2.0
|
|
0.5 – 2.0
|
Volatility
|
74% – 88%
|
|
62% – 77%
|
|
48% – 78%
|
Risk-free interest rates
|
0.04%–0.17%
|
|
0.14%–1.81%
|
|
2.33%–2.82%
|
Weighted average grant date fair value
|
$1.03
|
|
$0.79
|
|
$1.14
|
EQUITY
INCENTIVE PLAN:
In
October 2006, the Company’s 2006 Equity Incentive Plan was
approved by the shareholders, which provides for granting of
incentive stock options, non-statutory stock options, restricted
stock, restricted stock units, stock appreciation rights,
performance units, performance shares and other stock or cash
awards as the Company’s Board of Directors may
determine.
In
October 2016, the Company’s 2016 Equity Incentive Plan was
approved by the Company’s shareholders. The 2016 Equity
Incentive Plan replaced our 2006 Equity Incentive Plan, which was
scheduled to expire in October 2016, and will continue in effect
until 2026. A total of 3,435,000 shares of common stock have been
reserved for issuance under the Company’s 2016 Equity
Incentive Plan, which includes 1,835,000 shares that remained
available for issuance under the 2006 Equity Incentive Plan. See
the Company’s Registration Statement on Form S-8 filed with
the Securities and Exchange Commission on November 22, 2019 for
further information regarding the 2016 Equity Incentive
Plan.
As
of May 31, 2021, out of the 4,036,000 shares authorized for grant
under the 2016 Equity Incentive Plan, 2,898,000 stock options and
RSUs were outstanding. As of May 31, 2020, out of the 4,813,000
shares authorized for grant under the 2016 Equity Incentive Plan,
3,163,000 stock options and RSUs were outstanding.
The
following tables summarize the Company’s stock option and RSU
transactions during fiscal 2021, 2020 and 2019 (in
thousands):
|
|
|
|
Balance, May 31, 2018
|
1,812
|
|
|
Options granted
|
(804)
|
RSUs cancelled
|
8
|
Options terminated
|
195
|
Options expired
|
(64)
|
|
|
Balance, May 31, 2019
|
1,147
|
|
|
Additional shares reserved
|
1,196
|
Options granted
|
(738)
|
RSUs granted
|
(25)
|
Shares
withheld for taxes and not issued
|
6
|
Options terminated
|
457
|
Options expired
|
(393)
|
|
|
Balance, May 31, 2020
|
1,650
|
|
|
Options granted
|
(297)
|
RSUs granted
|
(340)
|
RSUs
cancelled
|
1
|
Shares
withheld for taxes and not issued
|
9
|
Options terminated
|
455
|
Options expired
|
(341)
|
|
|
Balance, May 31, 2021
|
1,137
|
The
following table summarized the stock option transactions during
fiscal 2021, 2020 and 2019 (in thousands, except per share
data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, May 31, 2018
|
2,859
|
$2.04
|
$1,987
|
|
|
|
|
Options granted
|
804
|
$2.19
|
|
Options terminated
|
(195)
|
$2.32
|
|
Options exercised
|
(361)
|
$0.85
|
|
|
|
|
|
Balances, May 31, 2019
|
3,107
|
$2.20
|
$283
|
|
|
|
|
Options granted
|
738
|
$1.61
|
|
Options terminated
|
(457)
|
$1.98
|
|
Options exercised
|
(235)
|
$1.22
|
|
|
|
|
|
Balances, May 31, 2020
|
3,153
|
$2.17
|
$102
|
|
|
|
|
Options granted
|
297
|
$1.78
|
|
Options terminated
|
(455)
|
$2.31
|
|
Options exercised
|
(229)
|
$1.54
|
|
|
|
|
|
Balances, May 31, 2021
|
2,766
|
$2.16
|
$807
|
|
|
|
|
Options
fully vested and expected to vest at
May 31, 2021
|
2,732
|
$2.16
|
$795
|
The options outstanding and exercisable at May
31, 2021 were in the following exercise price ranges (in thousands,
except per share data):
|
|
|
|
|
|
|
Number
Outstanding Shares
|
Weighted Average
Remaining Contractual Life (Years)
|
Weighted Average
Exercise Price
|
Number
Exercisable Shares
|
Weighted Average
Remaining Contractual Life (Years)
|
Weighted Average
Exercise Price
|
Aggregate
Intrinsic Value
|
$1.22-$1.34
|
133
|
6.05
|
$1.27
|
56
|
6.15
|
$1.29
|
|
$1.64-$1.86
|
1,040
|
4.80
|
$1.70
|
625
|
4.33
|
$1.69
|
|
$2.03-$2.46
|
1,035
|
3.09
|
$2.21
|
814
|
2.68
|
$2.20
|
|
$2.65-$2.81
|
358
|
0.46
|
$2.72
|
357
|
0.45
|
$2.72
|
|
$3.46-$3.93
|
200
|
3.16
|
$3.86
|
193
|
3.16
|
$3.85
|
|
|
|
|
|
|
|
|
|
$1.22-$3.93
|
2,766
|
3.54
|
$2.16
|
2,045
|
2.94
|
$2.26
|
$492
|
The
total intrinsic values of options exercised were $152,000, $160,000
and $338,000 during fiscal 2021, 2020 and 2019, respectively. The
weighted average contractual life of the options exercisable and
expected to be exercisable at May 31, 2021 was 3.52
years.
Options
to purchase 2,045,000, 2,203,000 and 2,314,000 shares were
exercisable at May 31, 2021, 2020 and 2019, respectively. These
exercisable options had weighted average exercise prices of $2.26,
$2.25 and $2.14 as of May 31, 2021, 2020 and 2019,
respectively.
During
the fiscal year ended May 31, 2021, RSUs for 170,000 shares, net of
9,000 shares withheld to settle payroll taxes, were granted and
fully vested to employees. The weighted average market value on the
date of the grant of these RSUs was $1.92 per share. During the
fiscal year ended May 31, 2021, 37,000 RSUs became fully vested and
1,000 RSUs were cancelled. 132,000 RSUs were outstanding and
unvested at May 31, 2021. The intrinsic value of the outstanding
and unvested RSUs at May 31, 2021 was $297,000. During the fiscal
year ended May 31, 2020, RSUs for 10,000 shares, net of 6,000
shares withheld to settle payroll taxes, were granted and fully
vested to employees. The market value on the date of the grant of
these RSUs was $1.64 per share. During the fiscal year ended May
31, 2020, 13,000 RSUs became fully vested and there was no
cancellation. 10,000 RSUs were outstanding and unvested at May 31,
2020. The intrinsic value of the outstanding and unvested RSUs at
May 31, 2020 was $16,000. During the fiscal year ended May 31,
2019, there were no RSUs granted to employees. During the fiscal
year ended May 31, 2019, 16,000 RSUs became fully vested and 8,000
RSUs were cancelled. 23,000 RSUs were outstanding and unvested at
May 31, 2019. The intrinsic value of the outstanding and unvested
RSUs at May 31, 2019 was $40,000.
During
the fiscal year ended May 31, 2021, RSUs for 161,000 shares were
granted and fully vested to members of the Company’s Board of
Directors. The weighted average market value on the date of the
grant of these RSUs was $1.81 per share. During the fiscal year
ended May 31, 2020, RSUs for 9,000 shares were granted and fully
vested to members of the Company’s Board of Directors. The
weighted average market value on the date of the grant of these
RSUs was $1.64 per share. There were no RSUs granted to members of
the Board of Directors during fiscal 2019.
EMPLOYEE
STOCK PURCHASE PLAN:
In
October 2006, the Company’s shareholders approved the 2006
Employee Stock Purchase Plan. In October 2016, the Company’s
shareholders approved the Company’s Amended and Restated 2006
Employee Stock Purchase Plan (the “Purchase Plan”),
which amended and restated the 2006 Employee Stock Purchase Plan.
The Purchase Plan extended the term of the 2006 Employee Stock
Purchase Plan indefinitely. See the Company’s Registration
Statements on Form S-8 filed with the Securities and Exchange
Commission on November 14, 2016 and November 21, 2018 for further
information regarding the Purchase Plan. The Purchase Plan has
consecutive, overlapping, twenty-four month offering periods. Each
twenty-four-month offering period includes four six-month purchase
periods. The offering periods generally begin on the first trading
day on or after April 1 and October 1 each year. All employees who
work a minimum of 20 hours per week and are customarily employed by
the Company (or an affiliate thereof) for at least five months per
calendar year are eligible to participate. Under the Purchase Plan,
shares are purchased through employee payroll deductions at
exercise prices equal to 85% of the lesser of the fair market value
of the Company’s common stock at either the first day of an
offering period or the last day of the purchase period. If a
participant’s rights to purchase stock under all employee
stock purchase plans of the Company accrue at a rate which exceeds
$25,000 worth of stock for a calendar year, such participant may
not be granted an option to purchase stock under the Purchase Plan.
The maximum number of shares a participant may purchase during a
single purchase period is 3,000 shares. In October 2020, the
Company’s shareholders approved an amendment to the Purchase
Plan to increase the number of shares authorized for issuance
thereunder by an additional 350,000 shares of the Company’s
common stock. After such amendment, a total of 2,200,000 shares of
the Company’s common stock have been authorized for issuance
under the Purchase Plan. During the fiscal years ended May 31,
2021, 2020 and 2019, ESPP purchase rights of 279,000,
55,000,
and
379,000 shares, respectively, were granted. For the fiscal years
ended May 31, 2021, 2020 and 2019, approximately 147,000, 136,000
and 125,000 shares of common stock, respectively, were issued under
the Purchase Plan. As of May 31, 2021, a total of 1,764,000 shares
have been issued under the Purchase Plan, and 436,000 ESPP shares
remain available for issuance.
12. EMPLOYEE BENEFIT PLANS:
EMPLOYEE
STOCK OWNERSHIP PLAN:
The
Company has a non-contributory, trusteed employee stock ownership
plan for full-time employees who have completed three consecutive
months of service and for part-time employees who have completed
one year of service and have attained an age of 21. The Company can
contribute either shares of the Company’s stock or cash to
the plan. The contribution is determined annually by the Company
and cannot exceed 15% of the annual aggregate salaries of those
employees eligible for participation in the plan. On May 31, 2007,
the Company converted the Aehr Test Systems Employee Stock Bonus
Plan into the Aehr Test Systems Employee Stock Ownership Plan (the
“Plan”). The stock bonus plan was converted to an
employee stock ownership plan (“ESOP”) to enable the
Plan to better comply with changes in the law regarding Company
stock. Individuals’ account balances vest at a rate of 20%
per year commencing upon completion of two years of service.
Non-vested balances, which are forfeited following termination of
employment, are allocated to the remaining employees in the Plan.
Under the Plan provisions, each employee who reaches age fifty-five
(55) and has been a participant in the Plan for ten years will be
offered an election each year to direct the transfer of up to 25%
of his/her ESOP account to the employee self-directed account in
the Savings and Retirement Plan. For anyone who met the above
prerequisites, the first election to diversify holdings was offered
after May 31, 2008. In the sixth year, employees will be able to
diversify up to 50% of their ESOP accounts. Contributions of
$60,000 per year were authorized for the plan during fiscal 2021,
2020 and 2019. The contribution amounts are recorded as
compensation expense, in the period authorized and included in
accrued expenses, in the period authorized. Contributions of 36,000
shares were made to the ESOP during fiscal 2021 for fiscal 2020.
Contributions of 34,000 shares were made to the ESOP during fiscal
2020 for fiscal 2019. Contributions of 23,000 shares were made to
the ESOP during fiscal 2019 for fiscal 2018. The contribution for
fiscal 2021 will be made in fiscal 2022. Shares held in the ESOP
are included in the EPS calculation.
401(K)
PLAN:
The
Company maintains a defined contribution savings plan (the
“401(k) Plan”) to provide retirement income to all
qualified employees of the Company. The 401(k) Plan is intended to
be qualified under Section 401(k) of the Internal Revenue Code of
1986, as amended. The 401(k) Plan is funded by voluntary pre-tax
contributions from employees. Contributions are invested, as
directed by the participant, in investment funds available under
the 401(k) Plan. The Company is not required to make, and did not
make, any contributions to the 401(k) Plan during fiscal 2021, 2020
and 2019.
13. OTHER (EXPENSE) INCOME, NET:
Other
(expense) income, net comprises the following (in
thousands):
|
|
|
|
|
|
Foreign exchange (loss) gain
|
$(111)
|
$(12)
|
$43
|
Other (expense) income, net
|
(51)
|
1
|
1
|
|
$(162)
|
$(11)
|
$44
|
14. 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.
Following is a summary of changes in the
Company’s liability for product warranties during the fiscal
years ended May 31, 2021 and 2020 (in
thousands):
|
|
|
|
|
|
|
|
Balance at the beginning of the
year
|
$246
|
$154
|
Accruals for warranties issued during the
year
|
390
|
299
|
Adjustment to previously existing
warranty
|
346
|
--
|
Consumption of reserves
|
(488)
|
(207)
|
|
|
|
Balance at the end of the year
|
$494
|
$246
|
The
accrued warranty balance is included in accrued expenses on the
consolidated balance sheets.
15. SEGMENT INFORMATION:
The
Company has only one reportable segment. The information for
revenue category by type, product line, geography and timing of
revenue recognition, is summarized in Note 2,
“Revenue.”
Property
and equipment information is based on the physical location of the
assets. The following table presents property and equipment
information for geographic areas (in thousands):
|
|
|
|
|
United
States
|
$647
|
$662
|
Asia
|
30
|
1
|
Europe
|
--
|
--
|
|
$677
|
$663
|
As
of May 31, 2021, the operating lease right-of-use assets of
$1,480,000 and $126,000 were allocated in the United States and
Asia, respectively.
There
were no revenues through distributors for the fiscal years ended
May 31, 2021 and 2020.
16. DISSOLUTION OF AEHR TEST SYSTEMS JAPAN
On
July 31, 2020, the Company completed the liquidation of ATS-Japan,
a majority owned subsidiary. Accordingly, the Company
deconsolidated ATS-Japan and recognized an aggregate net gain of
$2,401,000 for the period ended August 31, 2020. The net gain was
mainly due to cumulative translation adjustment reclassified into
earnings of $2,186,000 and the residual income tax effect in
connection with the cumulative translation adjustment released into
income tax benefits of $215,000.
17. RESTRUCTURING:
During the fiscal year ended May 31,
2020, the Company
approved the dissolution of Aehr Test Systems Japan K.K
(“ATS-Japan”), a majority owned subsidiary. In
connection with the dissolution plan, the Company recognized
approximately $220,000 in the fourth quarter of fiscal 2020 related
to severance payments for individuals impacted in this reduction,
legal fees associated with the dissolution process, and write-off
of assets. The ATS-J subsidiary was dissolved in March 2020. The
liquidation process occurred from March 2020 through the final
liquidation in July 2020, allowing creditors time to submit claims
and time for ATS-J to wind down and disposition any
assets.
During
the fiscal year ended May 31, 2019, the Company implemented a
restructuring plan in order to streamline its operations and better
align its structure with its objectives going forward. In
connection with the restructuring plan, the Company recognized
$725,000 of restructuring charges related to employee termination
expenses during the fiscal year ended May 31, 2019. The Company
paid $317,000 of the restructuring charge during fiscal year ended
May 31, 2019. At May 31, 2019,
the balance of $408,000 of the restructuring charge was included in
accrued expenses on the accompanying condensed consolidated balance
sheets and was paid in fiscal year 2020. The Company does not
expect to incur any further expenses in connection with this
restructuring plan.
18.
SUBSEQUENT EVENT
On
June 12, 2021, the Company received confirmation from the SVB that
on June 4, 2021, the Small Business Administration approved the
Company’s PPP Loan forgiveness application for the entire PPP
Loan balance of $1,678,789 and interest totaling $18,933, and that
the remaining PPP Loan balance is zero.
19. RELATED PARTY TRANSACTIONS:
Mario
M. Rosati, one of the Company’s directors, was also a member
of Wilson Sonsini Goodrich & Rosati, Professional Corporation,
which has served as the Company’s outside corporate counsel
and has received compensation at normal commercial rates for these
services. Mario M. Rosati retired from Wilson Sonsini Goodrich
& Rosati on January 31, 2020. The amounts of transactions
during fiscal years ended May 31, 2020 were $78,000. At May 31,
2020 the Company had a prepayment to Wilson Sonsini Goodrich &
Rosati of $14,000.
20. COMMITMENTS AND CONTINGENCIES:
COMMITMENTS
At
both May 31, 2021 and 2020, the Company had restricted cash of
$80,000 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 consolidated balance
sheets.
PURCHASE
OBLIGATIONS
The
Company has purchase obligations to certain suppliers. In some
cases the products the Company purchases are unique and have
provisions against cancellation of the order. At May 31, 2021, the
Company had $3,377,000 of purchase obligations which are due within
the following 12 months. This amount does not include contractual
obligations recorded on the consolidated balance sheets as
liabilities.
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 believe any pending legal
proceedings will result in judgment or settlement that will have a
material adverse effect on the Company’s consolidated
financial position, results of operations or cash
flows.
In
the normal course of business to 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 the claim. In addition, the Company
has entered into indemnification agreements with its officers and
directors, and the Company’s bylaws contain similar
indemnification obligations to 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 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 Company’s operating results, financial position or
cash flows.
21. SELECTED QUARTERLY CONSOLIDATED FINANCIAL DATA
(UNAUDITED):
The
following tables (presented in thousands, except per share data)
sets forth selected unaudited condensed consolidated statements of
operations data for each of the four quarters of the fiscal years
ended May 31, 2021 and 2020. The unaudited quarterly information
has been prepared on the same basis as the annual information
presented elsewhere herein and, in the Company’s opinion,
includes all adjustments (consisting only of normal recurring
entries) necessary for a fair statement of the information for the
quarters presented. The operating results for any quarter are not
necessarily indicative of results for any future period and should
be read in conjunction with the audited consolidated financial
statements of the Company’s and the notes thereto included
elsewhere herein.
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
$2,012
|
$1,683
|
$5,267
|
$7,638
|
Gross profit
|
$227
|
$377
|
$1,894
|
$3,534
|
Net income (loss)
|
$107
|
$(1,966)
|
$(735)
|
$567
|
Net income (loss) per share basic and
diluted
|
$0.00
|
$(0.08)
|
$(0.03)
|
$0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
$5,533
|
$6,874
|
$6,111
|
$3,773
|
Gross profit (loss)
|
$2,271
|
$3,202
|
$2,991
|
$(93)
|
Net (loss) income
|
$(413)
|
$251
|
$245
|
$(2,885)
|
Net (loss) income per share basic and
diluted
|
$(0.02)
|
$0.01
|
$0.01
|
$(0.13)
|