AEHR TEST SYSTEMS

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Organization

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 Sonoma, Tahoe and Echo packaged parts burn-in products; the WaferPak full wafer contactor; the DiePak Carrier; the WaferPak Aligner; the DiePak Autoloader; and test fixtures.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany accounts and transactions have been eliminated.

Foreign Currency Translation and Transactions

Assets and liabilities of the Company’s foreign subsidiaries are translated into U.S. Dollars from their functional currencies using the exchange rate in effect at the balance sheet date. Additionally, revenues 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. Dollar 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.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) 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 revenue recognition, inventory valuation, business combination, impairment of goodwill and long-lived assets, and accounting for income taxes.

Cash and 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 Credit Losses

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 credit losses for expected uncollectible accounts receivable and assess collectibility by reviewing accounts receivable on a collective basis where similar risk characteristics exist and on an individual basis when specific customers with known disputes or collectibility issues are identified. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. Changes in circumstances, such as an unexpected material adverse change in a major customer’s ability to meet its financial obligation to the Company, may require the Company to further adjust its estimates of the recoverability of accounts receivable. The credit losses recognized on accounts receivable during the years ended May 30, 2025, May 31, 2024, and May 31, 2023 were not significant and management has determined that no allowance for credit losses was required as of May 30, 2025 and May 31, 2024.

Concentration of Credit Risk

Financial instruments which subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. The Company’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. The Company’s cash and investment balances held at banks and brokerage firms may at time exceed federally insured levels. The Company has not experienced any material losses on its money market funds or short-term cash deposits.

The Company performs credit evaluations of its customers’ financial condition and generally requires no collateral. The Company had revenues from individual customers in excess of 10% of total revenues as follows:

• Amount was less than 10% of total revenue

The Company had gross accounts receivable from individual customers in excess of 10% of gross accounts receivable as follows:

• Amount was less than 10% of total gross accounts receivable

Inventories

Inventories include material, labor and overhead, and are stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out (FIFO) basis. 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. If actual future demand or market conditions become less favorable than those projected by management, additional adjustment for excess or obsolete inventory may be required, and would be reflected in cost of revenue in the period the revision is made.

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:

Business Combination

The Company recognizes identifiable assets acquired and liabilities assumed at their acquisition date fair values. Goodwill is measured as the excess of the consideration transferred over the fair value of assets acquired and liabilities assumed on the acquisition date. While the Company uses its best estimates and assumptions as part of the purchase price allocation process to accurately value assets acquired and liabilities assumed, these estimates are inherently uncertain and subject to refinement. Key estimates and assumptions in valuing certain of the intangible assets and goodwill the Company has acquired include, but are not limited to, expected future cash flows from acquired developed technology, customer relationships, and trade names. Unanticipated events and circumstances could impact the accuracy or validity of such assumptions, estimates or actual results.

The authoritative guidance allows a measurement period of the purchase price allocation that ends when the entity has obtained all relevant information about facts that existed at the acquisition date, and that cannot exceed one year from the date of acquisition. As a result, during the measurement period, the Company may record adjustments to the fair values of assets acquired and liabilities assumed, with the corresponding offset to goodwill to the extent that it identifies adjustments to the preliminary purchase price allocation. Upon conclusion of the measurement period or final determination of the values of the assets acquired and liabilities assumed, whichever comes first, any subsequent adjustments will be recorded in the consolidated statements of operations.

Goodwill

Goodwill represents the excess of the total purchase price over the fair value of net identifiable assets acquired in a business combination. The Company assesses goodwill for impairment annually during each fourth fiscal quarter or whenever events or changes in circumstances indicate the carrying value may not be fully recoverable. In the valuation of goodwill, management estimates future cash flows to be derived from the Company’s business. If these estimates or their related assumptions change in the future, the Company may be required to record an impairment. Management may first evaluate qualitative factors to assess if it is more likely than not that the fair value of a reporting unit is less than its carrying amount and to determine if an impairment test is necessary. Management may choose to proceed directly to the quantitative impairment test, bypassing the initial qualitative assessment. The quantitative test compares the fair value of the reporting unit to its carrying value, including goodwill allocated to that reporting unit. A goodwill impairment loss would be the amount by which a reporting unit’s carrying value exceeds its fair value, however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.

Definite-Lived Intangible Assets

The Company performs valuations of assets acquired and liabilities assumed on the acquisition accounted for as a business combination and allocates the purchase price of the acquired business to the identifiable net tangible and intangible assets. The Company determines the appropriate useful life by performing an analysis of expected cash flows based on historical experience of the acquired businesses. Intangible assets are amortized over their estimated useful lives using the straight-line method which approximates the pattern of consumption of economic benefits.

Impairment of Long-Lived Assets

The Company evaluates long-lived assets, including property and equipment and intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets held and used is measured by a comparison of the carrying amount of an asset or an asset group to estimated undiscounted future net cash flows expected to be generated by the asset or asset group. If such evaluation indicates that the carrying amount of the asset or the asset group is not recoverable, any impairment loss would be equal to the amount the carrying value exceeds the fair value.

Warranty Reserves

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.

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, WaferPak 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 is recognized at a point in time, which is generally upon shipment or delivery and evidenced by transfer of title and risk of loss to the customer. Revenue from services is recognized over time as the customer receives the benefit over the contractual period of generally one year or less.

The Company has elected the practical expedient to not assess whether a contract has a significant financing component as the Company’s standard payment terms are less than one year.

The Company sells its products primarily through a direct sales force. In certain international markets, the Company sells its products through independent distributors.

Shipping And Handling Costs

Amounts billed to customers for shipping and handling of products are included in revenue. Costs incurred related to shipping and handling of products are included in cost of revenue.

Stock-based Compensation Expense

Stock-based compensation expense consists of expenses for stock options, restricted stock units (“RSUs”), performance RSUs (“PRSUs”), and an employee stock purchase plan (“ESPP”). Stock-based compensation cost 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. For RSUs, PRSUs, restricted shares and performance restricted shares, stock-based compensation expense is based on the fair value of the Company’s common stock at the grant date, and is recognized as expense over the employee’s requisite service period. All of the Company’s stock-based compensation is accounted for as an equity instrument.

Income Taxes

The Company accounts for income taxes in accordance with the authoritative guidance, which requires income tax effects for changes in tax laws to be recognized in the period in which the law is enacted. Deferred tax assets and liabilities are recognized for the estimated future tax effects of temporary differences between the book and tax bases of assets and liabilities. Deferred tax assets are also recognized for net operating loss and tax credit carryforwards. Deferred tax assets are offset by a valuation allowance to the extent it is more likely than not that they are not expected to be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets and liabilities are adjusted for the effect of a change in tax rates, laws, or status when the change is enacted.

As of May 30, 2025, the Company does not maintain a valuation allowance against its deferred assets. During the year ended May 31, 2024, the Company concluded that its deferred tax assets are more likely than not to become realizable, and as such, the Company reversed all $21.9 million of its existing valuation allowance. The conclusion that a valuation allowance was no longer needed was based on three years of cumulative pre-tax income, current year utilization of federal and state net operating losses, combined with estimates of future years' pre-tax income that are sufficient to realize the remaining deferred tax assets. The amount of the deferred tax asset considered realizable can change if estimates of future taxable income change or if objective negative and positive evidence change.

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 consolidated 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. Interest and penalties related to uncertain tax positions are recognized in the provision for income taxes.

Comprehensive Income (Loss)

Comprehensive income (loss) generally represents all changes in shareholders’ equity except those resulting from investments or contributions by shareholders. Unrealized gains and losses from available-for-sale securities and on foreign currency translation adjustments are included in the Company’s components of comprehensive income (loss), which are excluded from net income (loss). Comprehensive income (loss) is included in the consolidated statements of comprehensive income (loss).

Reclassifications

Certain reclassifications have been made to the previous year consolidated financial statements to conform to the current period presentation. The reclassifications had no impact on net income, total assets, total liabilities, or shareholders’ equity.

Accounting Standards Adopted

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (ASU 2023-07), which requires disclosure of incremental segment information on an annual and interim basis. The Company adopted this standard on June 1, 2024. See Note 16, Segment Information for further details.

Recent Accounting Pronouncements Not Yet Adopted

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which expands the disclosures required for income taxes. This ASU is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The amendment should be applied on a prospective basis while retrospective application is permitted. The Company is currently evaluating the effect of this pronouncement on its disclosures.

In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, an accounting standard update to improve income statement expenses disclosures. The standard requires more detailed information related to the types of expenses, including (among other items) the amounts of purchases of inventory, employee compensation, depreciation and intangible asset amortization included within each interim and annual income statement’s expense caption, as applicable. This authoritative guidance can be applied prospectively or retrospectively and will be effective for fiscal years beginning after December 15, 2026, with early adoption permitted. The Company is currently evaluating the effect of this pronouncement on its disclosures.

2. 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 is 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 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 - Inputs that are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant inputs are observable in the market or can be derived from observable market data. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs including interest rate curves, foreign exchange rates, and credit ratings.

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

The following table summarizes the Company’s financial assets measured at fair value on a recurring basis as of May 30, 2025:

The following table summarizes the Company’s financial assets measured at fair value on a recurring basis as of May 31, 2024:

As of May 30, 2025 and May 31, 2024, money market funds included restricted cash of $0.2 million, representing a security deposit for the Company’s manufacturing and office space lease in the United States, which is included in other non-current assets in the consolidated balance sheets.

There were no financial liabilities measured at fair value as of May 30, 2025 and May 31, 2024.

There were no transfers between Level 1 and Level 2 fair value measurements during the fiscal years ended May 30, 2025 and May 31, 2024.

The carrying amounts of financial instruments including cash equivalents, accounts receivables, accounts payable and certain other accrued liabilities, approximate fair value due to their short maturities.

3. BALANCE SHEET INFORMATION

Inventories consisted of the following:

Property and equipment, net consisted of the following:

Depreciation expense was $1.0 million, $0.7 million, and $0.5 million in fiscal years 2025, 2024, and 2023, respectively.

Accrued expenses and other current liabilities consisted of the following:

Changes in the Company’s warranty reserve were as follows:

The accrued warranty balance is included in accrued expenses and other current liabilities on the consolidated balance sheets.

Deferred revenue, short-term consisted of the following:

4. BUSINESS COMBINATION

On July 31, 2024, the Company completed its acquisition of Incal Technology, Inc. (“Incal”), a company that specializes in packaged part reliability/burn-in test solutions. The acquisition date fair value of the consideration transferred for Incal was approximately $22.2 million, which consisted of the following:

(1) Included in Prepaid expenses and other current assets

As part of the purchase consideration, the Company issued 552,355 shares of its restricted common stock. The restricted stock issued to the shareholders of Incal is subject to a six-month holding period, during which time the shares cannot be transferred or sold without registration under the Securities Act of 1933, as amended, or pursuant to an available exemption. The fair value of the restricted shares was determined based on the closing price of the Company’s common stock on the acquisition date, adjusted for a discount related to the lack of marketability due to the transfer restrictions. The total fair value of the restricted shares issued as part of the consideration was $9.4 million.

The escrow payable represented the present value of total escrow amount, net of certain indemnification, and was initially recorded within accrued expenses and other current liabilities and other long-term liabilities, respectively. The total escrow amount at the acquisition date included: (1) $2.1 million designated for the sellers' indemnification obligations and expected to be settled after 15 months, and (2) $0.7 million designated for the sellers' payment obligations and expected to be settled after 60 days. The escrow payable will be settled with cash of $2.8 million held in an escrow account for working capital adjustments and potential indemnification obligations in connection with the acquisition of Incal. Of the $2.8 million cash restricted in escrow, the Company initially recorded $0.7 million within prepaid expenses and other current assets and $2.1 million within Other non-current assets.

During the year ended May 30, 2025, the Company updated the purchase consideration, which reflects a reduction in the receivable related to the working capital adjustment from $0.8 million to $0.2 million and a reduction in escrow payable related to indemnification from $2.8 million to $2.5 million, based on negotiations with the seller. As a result, the total purchase consideration has been adjusted from $21.9 million to $22.2 million. Accordingly, the goodwill balance has increased from $10.4 million to $10.7 million. During the year ended May 30, 2025, the Company released $0.7 million of cash previously held in escrow related to working capital adjustments.

During the year ended May 30, 2025, the Company recorded immaterial adjustments to certain assets and liability balances and finalized the fair value of the assets acquired and liabilities assumed at the acquisition date in the table below:

The goodwill recognized in connection with the acquisition is primarily attributable to anticipated synergies from future growth and will not be deductible for income tax purposes.

The following table summarizes the fair value of the separately identifiable intangible assets at the time of acquisition:

Acquisition-related costs were $0.5 million during the year ended May 30, 2025 and were expensed in the period incurred within selling, general and administrative expense in the Company's Consolidated Statements of Operations.

The Company's Consolidated Statement of Operations for the year ended May 30, 2025 included $18.6 million in revenue and $3.8 million in net income contributed by Incal from the date of acquisition. Pro forma results of operations for this acquisition have not been presented, as the financial impact to the Company's consolidated results of operations is not material.

5. GOODWILL AND PURCHASED INTANGIBLE ASSETS

Goodwill

The Company's goodwill activity during the year ended May 30, 2025 was as follows:

Goodwill was tested for impairment in the fourth quarter at the reporting unit level. There were no impairments to goodwill during the year ended May 30, 2025.

Purchased Intangible Assets

The Company’s purchased intangible assets, net, were as follows:

Amortization expense related to purchased intangible assets with finite lives was $1.2 million for the year ended May 30, 2025.

As of May 30, 2025, the estimated future amortization expense of purchased intangible assets with finite lives is as follows:

There were no impairment charges related to purchased intangible assets for the year ended May 30, 2025.

6. INCOME TAXES

Domestic and foreign components of income (loss) before income tax expense (benefit) are as follows:

The income tax expense (benefit) consists of the following:

The Company’s effective tax rate differs from the U.S. federal statutory tax rate, as follows:

The components of the net deferred tax assets and liabilities are as follows:

During the year ended May 31, 2024, the Company concluded that its deferred tax assets are more likely than not to become realizable, and as such, the Company reversed all its existing valuation allowance totaling $21.9 million. The conclusion that a valuation allowance was no longer needed was based on three years of cumulative pre-tax income, current year utilization of federal and state net operating losses, combined with estimates of future years' pre-tax income that are sufficient to realize the remaining deferred tax assets. The amount of the deferred tax asset considered realizable can change if estimates of future taxable income change or if objective negative and positive evidence change.

At May 30, 2025 and May 31, 2024, the Company has federal net operating loss carryforwards of approximately $28.0 million and $34.6 million and respectively, that are available to reduce future taxable income. A portion of the federal net operating losses will begin to expire in 2034. Federal net operating losses of $14.4 million will carryforward indefinitely and would be subject to an 80% taxable income limitation in the year utilized. At May 31, 2025 and May 31, 2024, the Company has state net operating loss carryforwards of $29.7 million and $29.8 million respectively, that are available to reduce future taxable income. The state net operating loss carryforwards will begin to expire in 2028.

At May 30, 2025 and May 31, 2024, the Company has federal research and development credit carryforwards of approximately $3.2 million and $3.3 million, respectively, that are available to offset future tax liability. The federal credit carryforwards began to expire in 2026. At May 30, 2025 and May 31, 2024, the Company has state research and development credit carryforwards of approximately $7.1 million and $7.1 million, respectively, that are available to offset future tax liability. The state credit carryforwards are not subject to expiration. The Company also has alternative minimum tax credit carryforwards of $34.1 thousand for state purposes. The credits may be used to offset regular tax and do not expire.

Sections 382 and 383 of the Internal Revenue Code limit the annual use of NOL carryforwards and tax credit carryforwards, respectively, following an ownership change. NOL carryforwards may be subject to annual limitations under Section 382 (or comparable provisions of state law) if certain changes in ownership of our company were to occur. In general, an ownership change occurs for the purposes of Section 382 if there is a more than 50% change in ownership of a company by 5% shareholders over a 3-year testing period. During the year ended May 31, 2024, a Section 382 study was completed and it was determined that there is no limitation on the Company’s ability to utilize its NOLs under Section 382. During the year ended May 30, 2025, the Company did not complete a formal Section 382 study on the potential limitation of its tax attributes due to no significant change in ownership.

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 and such liabilities relate primarily to estimated tax credits and are treated as a reduction of deferred tax assets for tax credit carryforward. 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:

As of May 30, 2025 and May 31, 2024, the total amount of unrecognized tax benefits was approximately $2.5 million and $2.5 million, respectively. The unrecognized tax benefit of $2.5 million would impact the effective tax rate, if recognized. The Company had zero accrued interest and accrued penalties related to unrecognized tax benefit as of May 30, 2025. The Company does not expect its unrecognized tax benefits to change materially over the next 12 months. The Company 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. The Company is not currently under audit with the Internal Revenue Service, or any foreign, state or local jurisdictions, nor has it been notified of any other potential future income tax audit.

7. LEASES

The Company leases its manufacturing and office space under operating leases. The principal administrative and production facility is located in Fremont, California, in a 51,289 square foot building. The Company entered into a non-cancelable operating lease agreement for its United States manufacturing and office facility, which was amended in December 2022 to extend the lease term to September 2030. The total commitments, net of tenant incentives of up to $0.3 million, under the modified lease are $8.6 million. The modified lease contains an option to further extend the lease for five years. The lease modification resulted in an increase in the Company’s operating lease right-of-use assets and operating lease liabilities of $5.9 million each in December 2022. In April 2025, it became reasonably certain that the Company would exercise the five-year lease extension option ending in September 2035 due to the remodeling of the Fremont manufacturing and administrative office. As a result, the lease modification increased the Company’s operating lease right-of-use assets and operating lease liabilities by $4.6 million each. The Company leases a 492 square foot sales and support office in Utting, Germany. The lease, which began on February 1, 1992, contains an automatic twelve months renewal. The Company leases a facility in the Philippines located in a 6,458 square foot building in Clark Freeport Zone, Pampanga. The lease, amended in 2023, began on November 1, 2023 and expires on June 30, 2029 with an option to renew for another three or five years at the prevailing market rate. Under the lease agreements, the Company is responsible for payments of utilities, taxes and insurance. In connection with the acquisition of Incal, the Company assumed the lease obligation for Incal’s office located in Fremont, California, which expires on July 31, 2026. Management decided to vacate the Incal office in May 2025 following the relocation of employees to the Company’s principal facilities in Fremont to consolidate the Company’s California operations. As a result of this decision and the associated change in the facility's intended use, the Company determined that the carrying value of the right-of-use asset associated with the Incal facility was no longer recoverable and recorded an impairment charge of $0.5 million as of May 30, 2025. The charge is reflected in restructuring charges in the consolidated statements of operations.

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 consolidated balance sheets, unless the arrangement includes an option to purchase the underlying asset, or renew the arrangement that the Company is reasonably certain to exercise. 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 consolidated balance sheets. The Company’s operating leases have remaining lease terms of one year to ten 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.

As of May 30, 2025, the weighted average remaining lease term for the Company’s operating leases was 9.9 years and the weighted average discount rate was 6.95%.

The Company’s operating lease cost was $1.6 million, $1.2 million, and $0.9 million for the years ended May 30, 2025, May 31, 2024, and May 31, 2023.

The following table presents supplemental cash flow information related to the Company’s operating leases:

The following table presents the maturities of the Company’s operating lease liabilities as of May 30, 2025:

8. RETIREMENT PLAN

The Company maintains a defined contribution savings plan named AEHR Test Systems 401(k) Savings & Retirement Plan (the “401(k) Plan”) to provide retirement savings 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. Effective July 1, 2024, the Company implemented a discretionary matching contribution under its 401(k) Plan. All matching contributions are 100% vested immediately. The Company’s matching contributions to the 401(k) Plan totaled $0.3 million during fiscal 2025. No matching contributions were made during fiscal years 2024 and 2023.

9. COMMITMENTS AND CONTINGENCIES

Commitment

Purchase obligations consist of non-cancelable significant contractual obligations. As of May 30, 2025, the Company’s unconditional purchase obligations, which have a remaining term in excess of 12 months, are not material.

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.

On December 3, 2024, a putative shareholder class action lawsuit captioned Lucid Alternative Fund, LP v. Aehr Test Systems, Inc. was filed in the United States District Court for the Northern District of California against the Company. The lawsuit alleged, in part, that the Company and certain of its executives made materially false and misleading statements regarding the Company’s earnings guidance and other financial projections for 2024. The lawsuit sought unspecified monetary damages and purported to represent purchasers of the Company’s securities between January 9, 2024 and March 24, 2024. On February 3, 2025, Lucid and individual investor Yue Guo each filed motions requesting appointment as lead plaintiff. On March 19, 2025, the court appointed Yue Guo, who is represented by Rosen Law, as lead plaintiff in the shareholder class action. On April 4, 2025, the court ordered lead plaintiff to file an amended complaint or designate the existing complaint as operative by May 16, 2025; defendants to file their anticipated motion to dismiss by June 6, 2025; lead plaintiff to respond to the motion by June 27, 2025; and defendants to reply by July 11, 2025. The court scheduled a hearing on defendants’ motion to dismiss for August 8, 2025. On May 16, 2025, the court-appointed lead plaintiff elected to dismiss the case voluntarily, with all parties to bear their own fees and costs. The Court subsequently closed the case. Additionally, two shareholder derivative complaints were filed, alleging breaches of fiduciary duties and other misconduct by certain directors and officers of the Company. The derivative complaints were consolidated before the same judge as the putative shareholder class action lawsuit under the captionIn re Aehr Test Systems, Inc. Stockholder Derivative Litigation, No. 3:24-cv-09236-SI. On April 28, 2025, the court entered an order staying the consolidated action pending resolution of any motion(s) to dismiss, including any related appeal(s), in theLucidlitigation. On June 9, 2025, the court dismissed the derivative action without prejudice pursuant to the parties’ stipulation. The Company believes the claims in all three lawsuits were without merit. Following the voluntary dismissal of the shareholder class action and the court’s dismissal of the consolidated derivative action, no related proceedings are currently pending.

On October 16, 2024, the Company filed a complaint with the China Suzhou Intermediate Court to protect its intellectual property rights in China against Suzhou Semight Instruments Co., Ltd. (“Semight”) and its related entities and/or distributors, alleging infringement of the Company’s two patents related to wafer burn-in systems and wafer reliability test systems. The Company is seeking injunctive relief, claiming that Semight’s actions have infringed upon its intellectual property rights and caused substantial harm to its business. The Company believes its claims are valid and is vigorously pursuing its legal remedies. At this stage, the outcome of the litigation is uncertain, and the Company is unable to predict the likelihood of success or estimate the potential financial impact, if any, on its consolidated financial statements. The Company has also incurred and expects to continue to incur legal expenses related to this matter. On November 15 and December 6, 2024, Semight filed a petition for invalidation to the two aforementioned Chinese patents with the Department of National Intellectual Properties in Beijing, respectively. The oral hearings for both of the patents have been held, and the decision has been issued for both patents that upholds part of the claims. In addition, the Company received a suspension ruling from Suzhou Intermediate People’s Court on the infringement proceedings, pending the outcome of the validity rulings.* *With both patents having been upheld, the suspended infringement proceedings are expected to resume shortly.

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 flow.

10. EQUITY

On August 25, 2021, the Board of Directors authorized management to take actions necessary for the execution of a $75 million shelf registration. A Registration Statement on Form S-3 was filed with the SEC on September 3, 2021. A Prospectus Supplement for sales of $25 million of common stock pursuant to an "At the Market" ("ATM") offering program was subsequently filed on September 17, 2021. The Company sold 1,696,729 shares of common stock at an average selling price of $14.73 per share between September and October 2021. The gross proceeds to the Company were $25 million, before commission fees of $0.7 million and offering expenses of $0.3 million. Another Prospectus Supplement for an ATM sale of $25 million of common stock was subsequently filed on February 8, 2023. The Company sold 208,917 shares of common stock at an average selling price of $34.78 per share in February 2023. The gross proceeds to the Company during the quarter ended February 28, 2023 were $7.3 million, before commissions of $0.2 million and offering expenses of $0.2 million. The 2021 registration statement expired in September 2024.

On October 15, 2024, the Board of Directors authorized management to execute a new $100 million shelf registration, and a Registration Statement on Form S-3 was filed with the SEC. Additionally, a Prospectus Supplement for sales of $40 million of common stock pursuant to an ATM offering program was subsequently filed on October 29, 2025. No proceeds were raised from the ATM during fiscal 2025. The remaining amount of the ATM offering program was $40 million as of May 30, 2025.

11. 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:

The following presents information about the Company’s operations in different geographic areas. Net revenues are based on ship-to locations:

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:

Contract Balances

Accounts receivable are recognized in the period the Company delivers goods and provides services or when the Company’s right to consideration is unconditional. Contract assets include unbilled receivables which represent revenues that are earned in advance of scheduled billings to customers. These amounts are primarily related to product sales where transfer of control has occurred but the Company has not yet invoiced. As of May 30, 2025 and May 31, 2024, unbilled receivables were $3.6 million and $0.2 million, respectively, and were included in prepaid expenses and other current assets on the accompanying consolidated balance sheets.

Contract liabilities include payments received in advance of performance under a contract and are satisfied as the associated revenue is recognized. Contract liabilities as of May 30, 2025 and May 31, 2024 were $2.0 million and $1.4 million, respectively, and were included in deferred revenue, short-term and deferred revenue, long-term on the accompanying consolidated balance sheets. During the fiscal years ended May 30, 2025 and May 31, 2024, the Company recognized $1.3 million and $2.8 million, respectively, of revenues that were included in contract liabilities as of May 31, 2024 and 2023, respectively.

Remaining Performance Obligations

As of May 30, 2025, the remaining performance obligations, exclusive of customer deposits, which were comprised of deferred service contracts and extended warranty contracts not yet delivered, are not material. The foregoing excludes the value of the remaining performance obligations that 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.

12. EMPLOYEE STOCK PLANS

2023 Equity Incentive Plan

On October 23, 2023, the shareholders of the Company approved the 2023 Equity Incentive Plan (the "2023 Plan") to replace the Company’s 2016 Equity Incentive Plan (the “2016 Plan”) and reserved a total of 1,500,000 shares of common stock under the 2023 Plan.

The 2023 Plan permits grants to employees of share-based awards, including stock options, RSUs, PRSUs, restricted shares, performance restricted shares. Full value awards, which are equity awards other than options, stock appreciation rights or other awards that are based solely on an increase in value of the shares following the grant date, when granted or forfeited will be counted as the same number of common stock shares added or deducted to the remaining available shares for issuance under the 2023 Plan.

2016 Equity Incentive Plan

In October 2016, the Company’s 2016 Plan was approved by the Company’s shareholders. The 2016 Plan replaced the 2006 Equity Incentive Plan and would continue in effect until 2026. The exercise price of each stock option equals the market value of the Company's common stock on the date of grant. Options typically vest over four years, subject to the grantee’s continued service with the Company through the scheduled vesting date, and expire in seven years from the grant date. A total of 4,848,000 shares of common stock have been reserved for issuance under the Company’s 2016 Plan. Full value awards, which are equity awards other than options, stock appreciation rights or other awards that are based solely on an increase in value of the shares following the grant date, when granted or forfeited will be counted as two times the number of shares added or deducted to the remaining available shares for issuance under the 2016 Plan.

The following table summarizes the total stock-based compensation expense for the fiscal years ended May 30, 2025, May 31, 2024, and May 31, 2023:

As of May 30, 2025 and May 31, 2024, stock-based compensation totaling $0.3 million and $0.3 million, respectively, was capitalized as part of inventory.

The following table presents the combined stock activities and the total number of shares available for grant under the Company’s equity incentive plans:

Restricted Stock Units, Performance Restricted Stock Units and Restricted Stock Awards

The Company’s nonvested RSU, PRSU and restricted stock awards granted to employees and members of the Company’s Board of Directors for the fiscal year ended May 30, 2025 were as follows:

During fiscal 2025, the Company recorded stock-based compensation related to RSUs, PRSUs, performance restricted shares and restricted shares of $3.7 million. As of May 30, 2025, the total unrecognized compensation expense related to unvested RSU, PRSU and restricted shares was $6.9 million. This expense will be amortized on a straight-line basis over a weighted average period of approximately 2.1 years.

Stock Options

The following table summarized the stock option transactions during fiscal 2025:

The fair value of the Company’s stock options granted to employees was estimated on the date of grant using the Black-Scholes model and the straight-line attribution approach with the following weighted average assumptions:

No options were granted during the year ended May 30, 2025. The total intrinsic values of options exercised were $0.6 million, $9.5 million, and $17.1 million during fiscal 2025, 2024, and 2023, respectively.

During fiscal year 2025, the Company recorded stock-based compensation related to its stock options of $0.5 million. As of May 30, 2025, the Company had $0.4 million of total unrecognized compensation expense related to unvested stock options granted and outstanding which is expected to be recognized over a weighted average remaining period of 1.3 years.

Employee Stock Purchase Plan

The ESPP permits employees to purchase common stock at a discount through payroll withholdings at certain specified dates (purchase period) within a defined offering period. The purchase price is 85.0% of the fair market value of the common stock at the end of the purchase period and is intended to qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code.

For the fiscal years ended May 30, 2025, May 31, 2024, and May 31, 2023, approximately 116,000,72,000, and 211,000 shares of common stock were issued under the ESPP. As of May 30, 2025,210,000 shares remain available for issuance under the ESPP.

The fair value of each purchase right under the ESPP was estimated on the date of grant using the Black-Scholes model with the following weighted average assumptions:

During fiscal years 2025, 2024, and 2023, the Company recorded stock-based compensation related to its ESPP of $1.0 million, $0.8 million, and $0.8 million, respectively.

As of May 30, 2025, the total unrecognized compensation expense related to purchase rights under the ESPP was $1.0 million. This expense will be amortized on a straight-line basis over a weighted average period of approximately 1.3 years.

Employee Stock Ownership Plan* *

The Company had a non-contributory, trusteed employee stock ownership plan or Employee Stock Ownership Plan (“ESOP”) for full-time and part-time employees. The Company can contribute either shares of the Company’s stock or cash to the ESOP. During the fiscal years ended May 30, 2025, May 31, 2024, and May 31, 2023, the Company contributed 26,064,9,085, and 29,832 shares to the ESOP. As a result, the Company recognized stock-based compensation expense totaling zero, $0.3 million, and $0.3 million during the fiscal years ended May 30, 2025, May 31, 2024, and May 31, 2023, respectively. Shares held in the ESOP are included in the net income (loss) per share calculation. The Company terminated its ESOP plan in fiscal year 2025 and began to provide a matching contribution to the participants of the 401(k) Plan.

13. RESTRUCTURING CHARGES

In the fourth quarter of fiscal 2025, the Company initiated a restructuring plan to consolidate facilities and optimize cost structure in order to more effectively support the Company’s long-term strategic objectives. Restructuring charges relate to impairment of long-lived assets that will no longer be used in operations, including right-of-use assets and facility-related property, contract termination costs and facility exit-related costs.

The following table presents restructuring charges included in the Consolidated Statements of Operations:

There were no restructuring charges for the years ended May 31, 2024 and 2023.

The Company recorded a restructuring liability of $0.2 million as of May 30, 2025, primarily related to contract termination costs, which is included as a component of accrued expenses and other current liabilities.

14. NET INCOME (LOSS) PER SHARE

Basic net income (loss) per share is determined using the weighted average number of common shares outstanding during the period. Diluted net income per share is determined using the weighted average number of common shares and potential common shares (representing the hypothetical number of incremental shares issuable under the assumed exercise of outstanding stock options, and vesting of outstanding RSUs and ESPP shares) during the period using the treasury stock method. The calculation of dilutive shares outstanding excludes securities that would have an antidilutive effect on net income per share.

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

15. ACCUMULATED OTHER COMPREHENSIVE LOSS

Changes in the components of accumulated other comprehensive loss, net of tax, were as follows:

16. SEGMENT INFORMATION

The Company's chief executive officer, who is the chief operating decision maker ("CODM"), reviews discrete financial information presented at the consolidated basis, to assess performance and allocate resources. There are no segment managers who are held accountable for operations or operating results below the consolidated unit level. Accordingly, the Company has only one reportable segment. The information for revenue category by type, geography and timing of revenue recognition, is summarized in Note 11, “Revenue.”

The CODM reviews consolidated expense information under the categories that are reported on the Consolidated Statement of Operations, for the purpose of allocating resources and evaluating financial performance.

Property and equipment information is based on the physical location of the assets. The following table presents property and equipment information for geographic areas:

As of May 30, 2025, the operating lease right-of-use assets of $9.3 million and $0.3 million were allocated to the United States and international locations, respectively. As of May 31, 2024, operating lease right-of-use assets of $5.4 million and $0.3 million were allocated to the United States and international locations, respectively.

17. SUBSEQUENT EVENTS

On July 4, 2025, the One Big Beautiful Bill Act was enacted. Among other changes, it permanently extends several corporate tax provisions formerly expiring in 2025, alters depreciation/amortization rules (including full R&D expensing and bonus depreciation), modifies interest deductibility limits, and discontinues or phases out certain energy tax credits. The company is currently evaluating the impacts on its financial statements including its effective tax rate and deferred tax assets and liabilities in future years.