The following discussion of the financial condition and results of operations
should be read in conjunction with the unaudited condensed consolidated
financial statements and the related notes that appear elsewhere in this report
and with our Annual Report on Form 10-K for the fiscal year ended May 31, 2021
and the consolidated financial statements and notes thereto.
In addition to historical information, this Report contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All
statements in this Report, including those made by our management, other than
statements of historical fact, are forward-looking statements. These statements
typically may be identified by the use of forward-looking words or phrases such
as "believe," "expect," "intend," "anticipate," "should," "planned,"
"estimated," and "potential," among others and include, but are not limited to,
statements concerning when we expect to recognize remaining performance
obligations and statements concerning our expectations regarding our operations,
business, strategies, prospects, revenues, expenses, costs and resources. These
forward-looking statements include management's judgments, estimates and
assumptions and are subject to certain risks and uncertainties that could cause
our actual results to differ materially from anticipated results or other
expectations reflected in forward-looking statements. Factors that could cause
or contribute to such differences include, but are not limited to, those
discussed in this Report and other factors beyond our control, and in
particular, the risks discussed in "Part II, Item 1A. Risk Factors" and those
discussed in other documents we file with the SEC. All forward-looking
statements included in this document are based on our current expectations, and
we undertake no obligation to revise or publicly release the results of any
revision to these forward-looking statements. Given these risks and
uncertainties, readers are cautioned not to place undue reliance on such
forward-looking statements.
Investors and others should note that we announce material financial
information to our investors using our investor relations website
(https://www.aehr.com/investor-relations/), SEC filings, press releases, public
conference calls and webcasts. We use these channels to communicate with our
investors and the public about our company, our products and services and other
issues. It is possible that the information we post on our investor relations
website could be deemed to be material information. Therefore, we encourage
investors, the media and others interested in our company to review the
information we post on our investor relations website.
COVID-19 PANDEMIC RESPONSE
The Company has been impacted by the outbreak of the novel coronavirus, known
as COVID-19, which has spread throughout the world. Our top priority during the
COVID-19 pandemic is protecting the health and safety of our employees and their
families, along with our customers and community. We introduced policies and
procedures to increase workplace flexibility, such as working remotely where
possible to reduce the number of people who are on campus each day. As a global
supplier of Critical Infrastructure Sectors, as defined by the Cybersecurity and
Infrastructure Security Agency, we have supported and continue to support
customers during the pandemic. In the interest of public health, all onsite
operations generally use the minimum number of people to safely execute tasks
and follow enhanced safety and health protocols including screenings, social
distancing and use of personal protective equipment.
Due to the impact of the COVID-19 pandemic on customers and customers'
customers, the Company experienced a drop in customer orders and revenues during
the fiscal year ended May 31, 2021 and in the last quarter of fiscal year ended
May 31, 2020. In response, the Company implemented cost reduction initiatives to
mitigate operating losses, including mandatory vacation days, shutdown days and
executive staff pay reductions. The Company eliminated all cost reduction
initiatives in the last quarter of the fiscal year ended May 31, 2021.
The Company will continue to monitor the situation. As of the date of this
report, the Company cannot predict with certainty the potential effects the
COVID-19 pandemic may have on the Company's business and its operating results.
While the overall environment remains uncertain, the Company continues to invest
in priority areas with the objective of driving profitable growth over the long
term.
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OVERVIEW
We were founded in 1977 to develop and manufacture burn-in and test equipment
for the semiconductor industry. Since our inception, we have sold more than
2,500 systems to semiconductor manufacturers, semiconductor contract assemblers
and burn-in and test service companies worldwide. Our principal products
currently are the FOX-XP, FOX-NP and FOX-CP wafer contact and singulated
die/module parallel test and burn-in systems, WaferPak Aligner, WaferPak
contactors, DiePak Loader, DiePak carriers and test fixtures.
Our net sales consist primarily of sales of systems, WaferPak Aligners and
DiePak Loaders, WaferPak contactors, DiePak carriers, test fixtures, upgrades
and spare parts, revenues from service contracts, and engineering development
charges. Our selling arrangements may include contractual customer acceptance
provisions, which are mostly deemed perfunctory or inconsequential, and
installation of the product occurs after shipment and transfer of title.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our discussion and analysis of our financial condition and results of
operations are based upon our condensed consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States of America. The preparation of these condensed consolidated
financial statements requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. On an ongoing basis, we
evaluate our estimates, including those related to customer programs and
incentives, product returns, bad debts, inventories, income taxes, financing
operations, warranty obligations, and long-term service contracts. Our estimates
are derived from historical experience and on various other assumptions that are
believed to be reasonable under the circumstances. Those results form the basis
for making judgments about the carrying values of assets and liabilities that
are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions. For a discussion of
the critical accounting policies, see "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations - Critical Accounting
Policies and Estimates" in our Annual Report on Form 10-K for the fiscal year
ended May 31, 2021.
There have been no material changes to our critical accounting policies and
estimates during the three and six months ended November 30, 2021 compared to
those discussed in our Annual Report on Form 10-K for the fiscal year ended May
31, 2021.
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RESULTS OF OPERATIONS
The following table sets forth items in our unaudited condensed consolidated
statements of operations as a percentage of net sales for the periods indicated.
Three Months Ended November 30, Six Months Ended November 30,
2021 2020 2021 2020
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales 53.0 77.6 55.4 83.7
Gross profit 47.0 22.4 44.6 16.3
Operating
expenses:
Selling,
general and
administrative 25.9 89.2 29.1 81.6
Research and
development 13.6 48.7 17.3 46.5
Total
operating
expenses 39.5 137.9 46.4 128.1
Income (loss)
from
operations 7.5 (115.5 ) (1.8 ) (111.8 )
Interest
expense, net -- (0.7 ) (0.1 ) (0.7 )
Net gain from
dissolution of
Aehr Test
Systems Japan -- -- -- 59.2
Gain from
forgiveness of
PPP loan -- -- 11.1 --
Other income
(expense), net 0.3 (0.4 ) 0.4 (2.7 )
Income (loss)
before income
tax (expense)
benefit 7.8 (116.6 ) 9.6 (56.0 )
Income tax
(expense)
benefit (0.3 ) (0.2 ) (0.3 ) 5.7
Net income
(loss) 7.5 % (116.8 )% 9.3 % (50.3 )%
THREE MONTHS ENDED NOVEMBER 30, 2021 COMPARED TO THREE MONTHS ENDED NOVEMBER 30,
2020
NET SALES. Net sales increased to $9.6 million for the three months ended
November 30, 2021 from $1.7 million for the three months ended November 30,
2020, an increase of 471.1%. The increase in net sales for the three months
ended November 30, 2021 was primarily due to the increases in net sales of both
our wafer-level products and Test During Burn-in (TDBI) products. Net sales of
our wafer-level products for the three months ended November 30, 2021 were $9.1
million, and increased approximately $7.9 million from the three months ended
November 30, 2020. Net sales of our TDBI products for the three months ended
November 30, 2021 were $504,000, and increased $72,000 from the three months
ended November 30, 2020.
GROSS PROFIT. Gross profit increased to $4.5 million for the three months ended
November 30, 2021 from $377,000 for the three months ended November 30, 2020, an
increase of 1,098.7%. Gross profit margin increased to 47.0% for the three
months ended November 30, 2021 from 22.4% for the three months ended November
30, 2020. The increase in gross profit margin was primarily the result of
manufacturing efficiencies due to an increase in net sales.
SELLING, GENERAL AND ADMINISTRATIVE. SG&A expenses increased to $2.5 million
for the three months ended November 30, 2021 from $1.5 million for the three
months ended November 30, 2020, an increase of 65.8%. The increase in SG&A
expenses was primarily the result of additional headcount and increased
commission due to an increase in net sales.
RESEARCH AND DEVELOPMENT. R&D expenses increased to $1.3 million for the three
months ended November 30, 2021 from $820,000 for the three months ended November
30, 2020, an increase of 60.1%. The increase in R&D expenses was primarily due
to an increase in employment related expenses from additional headcount.
INTEREST EXPENSE, NET. Interest expense, net was $1,000 and $12,000 for the
three months ended November 30, 2021 and 2020, respectively. The interest
expense for the three months ended November 30, 2020 was from the PPP Loan that
we obtained on April 23, 2020.
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OTHER INCOME (EXPENSE), NET. Other income, net was $35,000 for the three months
ended November 30, 2021, compared with other expense, net of $6,000 for the
three months ended November 30, 2020. The change in other income (expense), net
was primarily due to gains or losses realized in connection with the fluctuation
in the value of the dollar compared to foreign currencies during the referenced
periods.
INCOME TAX (EXPENSE) BENEFIT. Income tax expense was $34,000 and $4,000 for the
three months ended November 30, 2021 and 2020, respectively.
SIX MONTHS ENDED NOVEMBER 30, 2021 COMPARED TO SIX MONTHS ENDED NOVEMBER 30,
2020
NET SALES. Net sales increased to $15.3 million for the six months ended
November 30, 2021 from $3.7 million for the six months ended November 30, 2020,
an increase of 312.9%. The increase in net sales for the six months ended
November 30, 2021 was primarily due to the increases in net sales of both our
wafer-level products and TDBI products. Net sales of our wafer-level products
for the six months ended November 30, 2021 were $14.3 million, and increased
approximately $11.4 million from the six months ended November 30, 2020. Net
sales of our TDBI products for the six months ended November 30, 2021 were $1.0
million, and increased $122,000 from the six months ended November 30, 2020.
GROSS PROFIT. Gross profit increased to $6.8 million for the six months ended
November 30, 2021 from $604,000 for the six months ended November 30, 2020, an
increase of 1,025.8%. Gross profit margin increased to 44.6% for the six months
ended November 30, 2021 from 16.3% for the six months ended November 30, 2020.
The increase in gross profit margin was primarily the result of manufacturing
efficiencies due to an increase in net sales.
SELLING, GENERAL AND ADMINISTRATIVE. SG&A expenses increased to $4.4 million
for the six months ended November 30, 2021 from $3.0 million for the six months
ended November 30, 2020, an increase of 47.3%. The increase in SG&A expenses was
primarily the result of additional headcount and increased commission due to an
increase in net sales.
RESEARCH AND DEVELOPMENT. R&D expenses increased to $2.6 million for the six
months ended November 30, 2021 from $1.7 million for the six months ended
November 30, 2020, an increase of 53.1%. The increase in R&D expenses was
primarily due to increases in employment related expenses from additional
headcount of $585,000, outside services of $204,000, and project expenses of
$125,000.
INTEREST EXPENSE, NET. Interest expense, net was $10,000 and $25,000 for the
six months ended November 30, 2021 and 2020, respectively. The interest expense
for the six months ended November 30, 2020 was from the PPP Loan that we
obtained on April 23, 2020.
NET GAIN FROM DISSOLUTION OF AEHR TEST SYSTEMS JAPAN. Net gain from dissolution
of Aehr Test Systems Japan was $2.2 million for the six months ended November
30, 2020, due to the release of the cumulative translation adjustment in
connection with the complete liquidation of Aehr Test Systems Japan subsidiary
in July 2020.
GAIN FROM FORGIVENESS OF PPP LOAN. On June 12, 2021, we received confirmation
from the SVB that on June 4, 2021, the Small Business Administration approved
our PPP Loan forgiveness application for the entire PPP Loan balance of
$1,678,789 and interest totaling $18,933, and we recognized a gain of
$1,697,722.
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OTHER INCOME (EXPENSE), NET. Other income, net for the six months ended November
30, 2021 was $58,000, compared with other expense, net of $100,000 for the six
months ended November 30, 2020. The change in other income (expense), net was
primarily due to gains or losses realized in connection with the fluctuation in
the value of the dollar compared to foreign currencies during the referenced
periods.
INCOME TAX (EXPENSE) BENEFIT. Income tax expense for the six months ended
November 30, 2021 was $57,000, compared with income tax benefit of $211,000 for
the six months ended November 30, 2020. During the six months ended November 30,
2020, the currency translation adjustment balance was released and the residual
income tax effect of $215,000 was recorded pursuant to the inter-period
allocation rules in connection with the complete liquidation of Aehr Test
Systems Japan subsidiary in July 2020.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $5.2 million for the six months
ended November 30, 2021, compared with net cash used by operating activities of
$2.3 million for the six months ended November 30, 2020. For the six months
ended November 30, 2021, net cash provided by operating activities was primarily
the result of net income of $1.4 million, as adjusted to exclude the effect of
forgiveness of PPP loan of $1.7 million, and a non-cash charge of stock-based
compensation expense of $1.3 million and depreciation and amortization of
$149,000. Other changes in cash from operations primarily resulted from an
increase in customer deposits and deferred revenue of $10.0 million, partially
offset by increases in inventories of $4.2 million and accounts receivable of
$2.3 million. The increase in customer deposits and deferred revenue was
primarily due to the receipt of additional down payments from certain customers.
The increase in inventory was to support expected future shipments for customer
orders. The increase in accounts receivable was primarily due to an increase in
sales for the six months ended November 30, 2021 compared with the six months
ended May 31, 2020. For the six months ended November 30, 2020, the $2.3 million
net cash used in operating activities was primarily the result of net loss of
$1.9 million, as adjusted to exclude the effect of net gain from dissolution of
Aehr Test Systems Japan of $2.4 million, including an income tax benefit of
$215,000, a non-cash charge of stock-based compensation expense of $527,000 and
depreciation and amortization of $165,000. Net cash used in operations was also
impacted by a decrease in accounts receivable of $2.3 million, partially offset
by an increase in inventories of $1.1 million. The decrease in accounts
receivable was primarily due to a decrease in sales for the six months ended
November 30, 2020 compared with the six months ended May 31, 2020. The increase
in inventories was due primarily to inventory purchases to support future
shipments.
Net cash used in investing activities was $132,000 and $194,000 for the six
months ended November 30, 2021 and 2020, respectively, was due to purchases of
property and equipment.
Financing activities provided cash of $25.4 million and $365,000 for the six
months ended November 30, 2021 and 2020, respectively. Net cash provided by
financing activities during the six months ended November 30, 2021 was primarily
due to the net proceeds from issuance of common stock from public offering of
$24.0 million, and the proceeds from the issuance of common stock under employee
benefit plans of $2.7 million, partially offset by the net payment of the line
of credit of $1.4 million. Net cash provided by financing activities during the
six months ended November 30, 2020 was due to the proceeds from the issuance of
common stock under employee benefit plans.
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The effect of fluctuation in exchange rates decreased cash by $4,000 for the six
months ended November 30, 2021, and increased cash by $100,000 for the six
months ended November 30, 2020. The changes were due to the fluctuation in the
value of the dollar compared to foreign currencies.
As of November 30, 2021 and May 31, 2021, we had working capital of $39.5
million and $10.1 million, respectively.
We lease our manufacturing and office space under operating leases. We entered
into a non-cancelable operating lease agreement for our United States
manufacturing and office facilities, which was renewed in February 2018 and
expires in July 2023. As of November 30, 2021, our operating lease liability
totals $1,379,000. Under the lease agreement, we are responsible for payments of
utilities, taxes and insurance.
From time to time, we evaluate potential acquisitions of businesses, products
or technologies that complement our business. If consummated, any such
transactions may use a portion of our working capital or require the issuance of
equity. We have no present understandings, commitments or agreements with
respect to any material acquisitions.
While we were profitable for the six months ended November 30, 2021, we have
incurred substantial cumulative losses and generally negative cash flows from
operations since our inception. In response, we have taken steps to minimize
expense levels, entered into credit arrangements, and raised capital through
public and private equity offerings, to increase the likelihood that we will
have sufficient cash to support operations. We anticipate that the existing cash
balance together with future income from operations, collections of existing
accounts receivable, revenue from our existing backlog of products as of this
filing date, the sale of inventory on hand, deposits and down payments against
significant orders will be adequate to meet our working capital and capital
equipment requirement needs over the next 12 months. Our future capital
requirements will depend on many factors, including our growth rate, the timing
and extent of our spending to support research and development activities, the
timing and cost of establishing additional sales and marketing capabilities, the
timing and cost to introduce new and enhanced products and the timing and cost
to implement new manufacturing technologies. While we successfully raised $25
million in the ATM public offering in October 2021 as a portion of a $75 million
shelf registration, in the event that additional financing is required from
outside sources, we may not be able to raise it on terms acceptable to us or at
all. Any additional debt financing obtained by us in the future could also
involve restrictive covenants relating to our capital-raising activities and
other financial and operational matters, which may make it more difficult for us
to obtain additional capital and to pursue business opportunities, including
potential acquisitions. Additionally, if we raise additional funds through
further issuances of equity, convertible debt securities or other securities
convertible into equity, our existing stockholders could suffer significant
dilution in their percentage ownership of the Company, and any new equity
securities we issue could have rights, preferences and privileges senior to
those of holders of our common stock. If we are unable to obtain adequate
financing or financing on terms satisfactory to us when we require it, our
ability to continue to grow or support our business and to respond to business
challenges could be significantly limited.
OFF-BALANCE SHEET ARRANGEMENTS
We have not entered into any off-balance sheet financing arrangements and have
not established any special purpose or variable interest entities.
OVERVIEW OF CONTRACTUAL OBLIGATIONS
There have been no material changes in the composition, magnitude or other key
characteristics of our contractual obligations or other commitments as disclosed
in the Company's Annual Report on Form 10-K for the year ended May 31, 2021.
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