Edgar Filing: AEHR TEST SYSTEMS

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended May 31, 2009
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ________________ to ________________

Commission file number: 000-22893.
---------------------------------
AEHR TEST SYSTEMS
(Exact name of registrant as specified in its charter)

CALIFORNIA 94-2424084
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)

400 KATO TERRACE, FREMONT, CA 94539
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (510) 623-9400

Securities registered pursuant to Section 12(b) of the Act:
Common stock, $0.01 par value
Name of each exchange on which registered: The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer,
as defined in Rule 405 of the Securities Act. Yes [ ] No [X]

Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Securities Act.
Yes [ ] No [X]

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically
and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T
(Section 232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).

Yes [ ] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained to the best of the registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [X]

Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions of "large accelerated filer," "accelerated filer" and
"smaller reporting company" in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [X] Smaller reporting company [ ]

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

The aggregate market value of the Registrant's common stock, par value
$0.01 per share, held by non-affiliates of the Registrant, based upon the
closing price of $2.19 on November 28, 2008, as reported on the NASDAQ Global
Market, was approximately $15,326,000. For purposes of this disclosure, shares
of common stock held by persons who hold more than 5% of the outstanding shares
of common stock (other than such persons of whom the Registrant became aware
only through the filing of a Schedule 13G filed with the Securities and
Exchange Commission) and shares held by officers and directors of the
Registrant have been excluded because such persons may be deemed to be
affiliates. This determination of affiliate status is not necessarily
conclusive for other purposes.

The number of shares of Registrant's common stock, par value $0.01 per
share, outstanding at July 31, 2009 was 8,496,000.

Documents Incorporated By Reference

Certain information required by Part III of this report on Form 10-K is
incorporated by reference from the Registrant's proxy statement for the Annual
Meeting of Shareholders to be held on October 27, 2009 (the "Proxy Statement"),
which will be filed with the Securities and Exchange Commission within 120 days
after the close of the Registrant's fiscal year ended May 31, 2009.

AEHR TEST SYSTEMS

FORM 10-K
FISCAL YEAR ENDED MAY 31, 2009

TABLE OF CONTENTS

PART I
Item 1. Business................................................... 4
Item 1A. Risk Factors............................................... 10
Item 1B. Unresolved Staff Comments.................................. 15
Item 2. Properties................................................. 15
Item 3. Legal Proceedings.......................................... 16
Item 4. Submission of Matters to a Vote of Security Holders........ 16

PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities.......... 16
Item 6. Selected Consolidated Financial Data....................... 17
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 18
Item 7A. Quantitative and Qualitative Disclosures about Market Risk. 26
Item 8. Financial Statements and Supplementary Data................ 27
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure................................... 52
Item 9A(T). Controls and Procedures.................................... 52
Item 9B. Other Information.......................................... 53

PART III

Item 10. Directors, Executive Officers and Corporate Governance..... 53
Item 11. Executive Compensation..................................... 55
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters................. 55
Item 13. Certain Relationships and Related Transactions............. 55
Item 14. Principal Accountant Fees and Services..................... 56

PART IV

Item 15. Exhibits and Financial Statement Schedules................. 56

Signatures................................................. 59

This Annual Report on Form 10-K contains forward-looking statements with
respect to Aehr Test Systems ("Aehr Test," the "Company," "we," "us," and
"our") which involve risks and uncertainties. The Company's actual results may
differ materially from the results discussed in the forward-looking statements
due to a number of factors, including those described herein and the documents
incorporated herein by reference, and those factors described in Part I, Item
1A under "Risk Factors." 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.
All forward-looking statements included in this document are based on our
current expectations, and we assume no obligation to update any of these
forward-looking statements. We note that a variety of factors could cause
actual results and experience to differ materially from the anticipated results
or other expectations expressed in these forward-looking statements, including
the risks and uncertainties that may affect the operations, performance,
development, and results of our businesses. These risks include but are not
limited to those factors identified in "Risk Factors" beginning on page 10 of
this Annual Report on Form 10-K, those factors that we may from time to time
identify in our periodic filings with the Securities and Exchange Commission,
as well as other factors beyond our control.

PART I

Item 1. Business

THE COMPANY

Aehr Test develops, manufactures and sells systems which are designed to
reduce the cost of testing flash, dynamic random access memory ("DRAM"), and
other memory devices, and to perform reliability screening or burn-in of
complex logic and memory devices. These systems can be used to simultaneously
perform parallel testing and burn-in of packaged integrated circuits ("ICs"),
singulated bare die, or ICs still in wafer form. Leveraging its expertise as a
long-time leading provider of burn-in equipment, with over 2,500 systems
installed worldwide, the Company has developed and introduced several
innovative product families, including the ABTSTM, FOXTM, MTX and MAX systems,
the WaferPakTM cartridge and the DiePakR carrier. The new ABTS family of
systems can perform Test During Burn-in ("TDBI") on both logic and memory
packaged ICs. The FOX systems are full wafer contact parallel test and burn-in
systems designed to make contact with all pads of a wafer simultaneously, thus
enabling full wafer parallel test and burn-in. The MTX system is a massively
parallel test system designed to reduce the cost of memory testing by
performing both test and burn-in on thousands of devices simultaneously. The
MAX system can effectively burn-in and functionally test complex devices, such
as digital signal processors, microprocessors, microcontrollers and systems-on-
a-chip. The WaferPak cartridge includes a full-wafer probe card for use in
testing wafers in FOX systems. The DiePak carrier is a reusable, temporary
package that enables IC manufacturers to perform cost-effective final test and
burn-in of bare die.

Aehr Test was incorporated in the state of California on May 25, 1977. The
Company's headquarters and mailing address is 400 Kato Terrace, Fremont,
California 94539 and the telephone number at that location is (510) 623-9400.
The Company's common stock trades on the NASDAQ Global Market under the symbol
"AEHR." The Company's website is www.aehr.com. The public may read and copy
materials filed with the United States Securities and Exchange Commission
("SEC"), including the Company's periodic and current reports on Form 10-K,
Form 10-Q and Form 8-K, at the SEC's Public Reference Room at 100 F Street,
N.E., Washington DC 20549. Information about the SEC's Public Reference Room
may be obtained by calling the SEC at 1-800-SEC-0330. All reports and
information electronically filed by Aehr Test with the SEC may also be obtained
on the SEC's website (http://www.sec.gov).

INDUSTRY BACKGROUND

Semiconductor manufacturing is a complex, multi-step process and defects or
weaknesses that may result in the failure of an integrated circuit, may be
introduced at any process step. Failures may occur immediately or at any time
during the operating life of an IC, sometimes after several months of normal
use. Semiconductor manufacturers rely on testing and reliability screening to
detect failures that occur during the manufacturing process.

Testing and reliability screening involve multiple steps. The first set of
tests is typically performed by IC manufacturers before the processed
semiconductor wafer is cut into individual die to avoid the cost of packaging
defective die into their packages. This "wafer probe" testing can be performed
on one or many die at a time, including testing the entire wafer at once.
After the die are packaged and before they undergo reliability screening, a
short test is typically performed to detect packaging defects. Most leading-
edge microprocessors, microcontrollers, digital signal processors, and memory
ICs then undergo an extensive reliability screening and stress testing
procedure known as "burn-in." The burn-in process screens for early failures
by operating the IC at elevated voltages and temperatures, up to 150 degrees
Celsius (302 degrees Fahrenheit), for periods typically ranging from 8 to 48
hours. A typical burn-in system can process thousands of ICs

simultaneously. After burn-in, the ICs undergo a final test process using
automatic test equipment ("testers"). Traditional memory testers can test up
to 512 ICs simultaneously and perform a variety of tests at multiple
temperatures.

PRODUCTS

The Company manufactures and markets full wafer contact systems, monitored
burn-in systems, massively parallel test systems, test fixtures, die carriers
and related accessories.

All of the Company's systems are modular, allowing them to be configured
with optional features to meet customer requirements. Systems can be
configured for use in production applications, where capacity, throughput and
price are most important, or for reliability engineering and quality assurance
applications, where performance and flexibility, such as extended temperature
ranges, are essential.

FULL WAFER CONTACT SYSTEMS

The FOX-1 full wafer parallel test system, introduced in June 2005, is
designed for massively parallel test in wafer sort. The FOX-1 system is
designed to make electrical contact to and test all of the die on a wafer in a
single touchdown. The FOX-1 test head and WaferPak contactor are compatible
with industry-standard 300 mm wafer probers which provide the wafer handling
and alignment automation for the FOX-1 system. The FOX-1 pattern generator is
designed to functionally test industry-standard memories such as flash and
DRAMs, plus it is optimized to test memory or logic ICs that incorporate design
for testability ("DFT") and built-in self-test ("BIST"). The FOX-1 pin
electronics and per-device power supplies are tailored to full-wafer functional
test. The Company believes that the FOX-1 system can significantly reduce the
cost of testing IC wafers.

The FOX-15 full wafer contact test and burn-in system, introduced in
October 2007, is designed for use with wafers that require test and burn-in
times typically measured in hours. The FOX-15 is the latest member of the FOX
family of full wafer contact systems and is focused on parallel testing and
burning-in up to 15 wafers at a time. For high reliability applications, such
as automotive, the FOX-15 system is a cost-effective solution for producing
tested and burned-in die for use in multi-chip packages. Using Known-Good Die
("KGD"), which are fully burned-in and tested die in multi-chip packages, helps
assure the reliability of the final product and lowers costs by increasing the
yield of high-cost multi-chip packages. Wafer-level burn-in and test enables
lower cost production of KGD for multi-chip modules and systems-in-a-package.

One of the key components of the FOX systems is the patented WaferPak
cartridge system. The WaferPak cartridge contains a full-wafer single-
touchdown probe card which is easily removable from the system. Traditional
probe cards contact only a portion of the wafer, requiring multiple touchdowns
to test the entire wafer. The unique design is intended to accommodate a wide
range of contactor technologies so that the contactor technology can evolve
along with the changing requirements of the customer's wafers.

The full wafer contact systems product category accounted for approximately
82%, 86% and 39% of the Company's net sales in fiscal 2009, 2008 and 2007,
respectively.

SYSTEMS FOR PACKAGED PARTS

Monitored burn-in and massively parallel test systems consist of several
subsystems: pattern generation and test electronics, control software, network
interface and environmental chamber. Massively parallel test systems include
an algorithmic test pattern generator which allow them to duplicate most of the
tests performed by a traditional memory tester. Pin electronics at each burn-
in board ("BIB") or performance test board ("PTB") position are designed to
provide accurate signals to the memory ICs being tested and detect whether a
device is failing the test.

Devices being tested are placed on BIBs or PTBs and loaded into
environmental chambers which typically operate at temperatures from 25 degrees
Celsius (77 degrees Fahrenheit) up to 150 degrees Celsius (302 degrees
Fahrenheit) (optional chambers can produce temperatures as low as -55 degrees
Celsius (-67 degrees Fahrenheit)). A single BIB or PTB can hold up to several
hundred memory ICs, and a production chamber holds up to 72 BIBs or PTBs,
resulting in thousands of memories or logic devices being tested in a single
system.

The Advanced Burn-in and Test System ("ABTS") was introduced in fiscal
2008. The ABTS family of products is based on a completely new hardware and
software architecture that is intended to address not only today's devices, but
also future devices for many years to come. The ABTS can test and burn-in
memory as well as both high-power logic and low-power logic devices. It can be
configured to provide individual device temperature control for devices up to
50W or more and with up to 320 I/O channels. ABTS systems can be configured
for both monitored burn-in and massively

parallel test applications. In June 2008, the Company announced shipment of
the first ABTS beta site system to Integrated Service Technology ("iST") in
Taiwan. In January 2009, the Company announced it received a second order for
the ABTS from a leading European provider of embedded wireless technology. In
July 2009, the Company announced it received the third order for the ABTS from
a leading U.S. aerospace company and one follow-on system order from iST.
Through the end of fiscal 2009, the Company has not recognized any revenue from
ABTS sales as contract provisions require customer final acceptance prior to
recognition of revenue.

The MAX3 system, which was introduced by the Company in fiscal 1999, is
designed for monitored burn-in of memory and logic devices. It has 96
channels, holds 64 burn-in boards, each of which may hold up to 350 or more
devices, resulting in a system capacity of up to 22,400 or more devices. The
MAX3 system was designed for today's low voltage ICs. The MAX3 also has
extended stored test program capability for more complete exercise and output
monitoring of complex logic devices such as digital signal processors. The
output monitor feature allows the MAX3 to perform functional tests of devices
and it also supports BIST or other scan features. The MAX4 system was
introduced in 2001. The MAX4 extends the MAX3 system to target devices that
require better voltage accuracy and higher current. It can provide up to 227
amps of current per BIB position. All systems feature multi-tasking software
which includes lot tracking and reporting software that are needed for
production and military applications.

The MTX massively parallel test system is designed to reduce the cost of
memory testing by processing thousands of memory devices simultaneously,
including flash memories, DRAMs and other memories. The MTX system can perform
a significant number of tests usually performed by traditional memory testers,
including pattern sensitivity tests, functional tests, data retention tests and
refresh tests. The Company estimates that transferring these tests from
traditional memory testers to the MTX system can reduce the time that a memory
device must be tested by a traditional memory tester by up to 70%, thereby
reducing the required number of memory testers and, consequently, reducing
capital and operating costs.

This packaged part systems product category accounted for approximately
17%, 12% and 54% of the Company's net sales in fiscal 2009, 2008 and 2007,
respectively.

TEST FIXTURES

The Company sells, and licenses others to manufacture and sell, custom-
designed test fixtures for its systems. The test fixtures include PTBs for use
with the MTX massively parallel test system and BIBs for the MAX monitored
burn-in system. These test fixtures hold the devices undergoing test or burn-
in and electrically connect the devices under test to the system electronics.
The capacity of each test fixture depends on the type of device being tested or
burned-in, ranging from several hundred in memory production to as few as eight
for high pin-count complex ASIC or microprocessor devices. Test fixtures are
sold both with new Aehr Test systems and for use with the Company's installed
base of systems.

The Company's DiePak product line includes a family of reusable, temporary
die carriers and associated sockets that enable the test and burn-in of bare
die using the same test and burn-in systems used for packaged ICs. DiePak
carriers offer cost-effective solutions for providing KGD for most types of
ICs, including memory, microcontroller and microprocessor devices. The DiePak
carrier was introduced in fiscal 1995. The DiePak carrier consists of an
interconnect substrate, which provides an electrical connection between the die
pads and the socket contacts, and a mechanical support system. The substrate
is customized for each IC product. The DiePak carrier comes in several
different versions, designed to handle ICs ranging from 54 pin-count memories
up to 320 pin-count microprocessors. A new lower cost 54/66 pin DiePak
solution was introduced in July 2004.

The Company has received patents or applied for patents on certain features
of the PTB, FOX, ABTS and MAX4 test fixtures. The Company has licensed or
authorized several other companies to provide PTBs and MAX4 BIBs from which the
Company receives royalties. Royalties and revenue for the test fixtures
product category accounted for less than 10% of net sales in fiscal 2009, 2008
and 2007.

CUSTOMERS

The Company markets and sells its products throughout the world to
semiconductor manufacturers, semiconductor contract assemblers, electronics
manufacturers and burn-in and test service companies.

Sales to the Company's five largest customers accounted for approximately
95%, 98%, and 76% of its net sales in fiscal 2009, 2008 and 2007, respectively.
During fiscal 2009 and 2008, one customer, Spansion Inc. ("Spansion"),
accounted for approximately 80% of the Company's net sales. During fiscal
2007, Spansion and Texas Instruments Incorporated accounted for approximately
39% and 23%, respectively, of the Company's net sales. No other customers
accounted for more than 10% of the Company's net sales for any of these
periods. The Company expects that sales of its products to a limited number of
customers will continue to account for a high percentage of net sales for the
foreseeable future. In

addition, sales to particular customers may fluctuate significantly from
quarter to quarter. Such fluctuations may result in changes in utilization of
the Company's facilities and resources. The loss of or reduction or delay in
orders from a significant customer, or a delay in collecting or failure to
collect accounts receivable from a significant customer could materially and
adversely affect the Company's business, financial condition and operating
results. For example, Spansion declared bankruptcy in fiscal 2009 and has not
paid $13.8 million owed to the Company as accounts receivable.

MARKETING, SALES AND CUSTOMER SUPPORT

The Company has sales and service operations in the United States, Japan,
Germany and Taiwan, and has established a network of distributors and sales
representatives in certain key parts of the world. See "REVENUE RECOGNITION"
in Item 7 under "Management's Discussion and Analysis of Financial Condition
and Results of Operations" for a further discussion of the Company's
relationship with distributors, and its effects on revenue recognition.

The Company's customer service and support program includes system
installation, system repair, applications engineering support, spare parts
inventories, customer training, and documentation. The Company has both
applications engineering and field service personnel located at the corporate
headquarters in Fremont, California and at the Company's subsidiaries in Japan,
Germany and Taiwan. The Company's distributors provide applications and field
service support in other parts of the world. The Company customarily provides
a warranty on its products. The Company offers service contracts on its
systems directly and through its subsidiaries, distributors, and
representatives. The Company maintains customer support personnel in the
Philippines and China. The Company believes that maintaining a close
relationship with customers and providing them with ongoing engineering support
improves customer satisfaction and will provide the Company with a competitive
advantage in selling its products to the Company's customers.

BACKLOG

As of May 31, 2009 and 2008, the Company's backlog was $1.7 million and
$18.6 million, respectively. The significant decrease in backlog was primarily
the result of the Company's largest customer, Spansion, filing for bankruptcy
in fiscal 2009 and the current weak market for the Company's products. The
Company's backlog consists of product orders for which confirmed purchase
orders have been received and which are scheduled for shipment within 12
months. Because of the possibility of customer changes in delivery schedules
or cancellations and potential delays in product shipments or development
projects, the Company's backlog as of a particular date may not be indicative
of net sales for any succeeding period.

RESEARCH AND PRODUCT DEVELOPMENT

The Company historically has devoted a significant portion of its financial
resources to research and development programs and expects to continue to
allocate significant resources to these efforts. The Company's research and
development expenses during fiscal 2009, 2008 and 2007 were approximately $5.8
million, $6.5 million and $6.3 million, respectively.

The Company conducts ongoing research and development to design new
products and to support and enhance existing product lines. Building upon the
expertise gained in the development of its existing products, the Company has
developed the FOX family of systems for performing test and burn-in of entire
processed wafers, rather than individual die or packaged parts. The Company is
completing development of the ABTS family of products, intended to improve the
capability and performance for testing and burn-in of future generation ICs and
provide the flexibility in a wide variety of applications from logic to
memories.

MANUFACTURING

The Company assembles its products from components and parts manufactured
by others, including environmental chambers, power supplies, metal
fabrications, printed circuit assemblies, ICs, burn-in sockets, high-density
interconnects, wafer contactors and interconnect substrates. Final assembly
and testing are performed within the Company's facilities. The Company's
strategy is to use in-house manufacturing only when necessary to protect a
proprietary process or when a significant improvement in quality, cost or
leadtime can be achieved. The Company's principal manufacturing facility is
located in Fremont, California. The Company's Tokyo, Japan and Utting, Germany
facilities provide limited manufacturing and product customization.

The Company relies on subcontractors to manufacture many of the components
or subassemblies used in its products. The Company's ABTS, FOX, MTX and MAX
systems and DiePak carriers contain several components, including environmental
chambers, power supplies, high-density interconnects, wafer contactors, signal
distribution substrates and certain ICs, that are currently supplied by only
one or a limited number of suppliers. The Company's reliance on

subcontractors and single source suppliers involves a number of significant
risks, including the loss of control over the manufacturing process, the
potential absence of adequate capacity and reduced control over delivery
schedules, manufacturing yields, quality and costs. In the event that any
significant subcontractor or single source supplier becomes unable or unwilling
to continue to manufacture subassemblies, components or parts in required
volumes, the Company will have to identify and qualify acceptable replacements.
The process of qualifying subcontractors and suppliers could be lengthy, and no
assurance can be given that any additional sources would be available to the
Company on a timely basis. Any delay, interruption or termination of a
supplier relationship could adversely affect our ability to deliver products,
which would harm our operating results.

COMPETITION

The semiconductor equipment industry is intensely competitive. Significant
competitive factors in the semiconductor equipment market include price,
technical capabilities, quality, flexibility, automation, cost of ownership,
reliability, throughput, product availability and customer service. In each of
the markets it serves, the Company faces competition from established
competitors and potential new entrants, many of which have greater financial,
engineering, manufacturing and marketing resources than the Company.

The Company's FOX full wafer contact systems are expected to face
competition from larger systems manufacturers that have sufficient
technological know-how and manufacturing capability. Competing suppliers of
full wafer contact systems include Advantest Corporation, Verigy Ltd.,
Matsushita Electric Industrial Co., Ltd. and Delta V Instruments, Incorporated.

The Company's ABTS and MTX massively parallel test systems face intense
competition from burn-in system suppliers and traditional memory tester
suppliers because the Company's ABTS and MTX systems perform burn-in and many
of the functional tests performed by memory testers. Competing suppliers of
burn-in and functional test systems include Advantest Corporation and Dong-Il
Corporation.

The Company's ABTS and MAX monitored burn-in systems have faced and are
expected to continue to face increasingly severe competition, especially from
several regional, low-cost manufacturers and from systems manufacturers that
offer higher power dissipation per device under test. Some users of such
systems, such as independent test labs, build their own burn-in systems, while
others, particularly large IC manufacturers in Asia, acquire burn-in systems
from captive or affiliated suppliers. The market for burn-in systems is highly
fragmented, with many domestic and international suppliers.

The Company expects that its WaferPak products will face significant
competition. The Company believes that several companies have developed or are
developing full-wafer and single-touchdown probe cards. As the full-wafer test
market develops, the Company expects that other competitors will emerge. The
Company expects that the primary competitive factors in this market will be
cost, performance, reliability and assured supply. Competing suppliers of
WaferPak products include FormFactor, Inc., Verigy Ltd. and Micronics Japan
Co., Ltd.

The Company's test fixture products face numerous regional competitors.
There are limited barriers to entry into the BIBs market, and as a result, many
companies design and manufacture BIBs, including BIBs for use with the
Company's ABTS and MAX systems. The Company has granted royalty-bearing
licenses to several companies to make performance test boards for use with the
Company's MTX systems and BIBs for use with the Company's MAX4 systems and the
Company may grant additional licenses as well. Sales of PTBs and MAX4 BIBs by
licensees result in royalties to the Company.

The Company expects that its DiePak products will face significant
competition. The Company believes that several companies have developed or are
developing products which are intended to enable test and burn-in of bare die.
As the bare die market develops, the Company expects that other competitors
will emerge. The DiePak products also face severe competition from other
alternative test solutions. The Company expects that the primary competitive
factors in this market will be cost, performance, reliability and assured
supply. Competing suppliers of DiePak products include Yamaichi Electronics
Co., Ltd.

The Company expects its competitors to continue to improve the performance
of their current products and to introduce new products with improved price and
performance characteristics. New product introductions by the Company's
competitors or by new market entrants could cause a decline in sales or loss of
market acceptance of the Company's products. The Company has observed price
competition in the systems market, particularly with respect to its less
advanced products. Increased competitive pressure could also lead to
intensified price-based competition, resulting in lower prices which could
adversely affect the Company's operating margins and results. The Company
believes that to remain competitive it must invest significant financial
resources in new product development and expand its customer

service and support worldwide. There can be no assurance that the Company will
be able to compete successfully in the future.

PROPRIETARY RIGHTS

The Company relies primarily on the technical and creative ability of its
personnel, its proprietary software, and trade secrets and copyright
protection, rather than on patents, to maintain its competitive position. The
Company's proprietary software is copyrighted and licensed to the Company's
customers. The Company currently holds twenty-six issued United States patents
with expiration date ranges from 2012 to 2026 and has several additional United
States patent applications and foreign patent applications pending. One issued
patent covers the method used to connect performance test boards with the MTX
system; another covers the method used to connect burn-in boards with the MAX4
system. The Company currently has two United States trademark registrations.

The Company's ability to compete successfully is dependent in part upon its
ability to protect its proprietary technology and information. Although the
Company attempts to protect its proprietary technology through patents,
copyrights, trade secrets and other measures, there can be no assurance that
these measures will be adequate or that competitors will not be able to develop
similar technology independently. Further, there can be no assurance that
claims allowed on any patent issued to the Company will be sufficiently broad
to protect the Company's technology, that any patent will be issued to the
Company from any pending application or that foreign intellectual property laws
will protect the Company's intellectual property. Litigation may be necessary
to enforce or determine the validity and scope of the Company's proprietary
rights, and there can be no assurance that the Company's intellectual property
rights, if challenged, will be upheld as valid. Any such litigation could
result in substantial costs and diversion of resources and could have a
material adverse effect on the Company's business, financial condition and
operating results, regardless of the outcome of the litigation. In addition,
there can be no assurance that any of the patents issued to the Company will
not be challenged, invalidated or circumvented or that the rights granted
thereunder will provide competitive advantages to the Company. Also, there can
be no assurance that the Company will have the financial resources to defend
its patents from infringement or claims of invalidity.

There are currently no pending claims against the Company regarding
infringement of any patents or other intellectual property rights of others.
However, the Company may receive communications from third parties asserting
intellectual property claims against the Company. Such claims could include
assertions that the Company's products infringe, or may infringe, the
proprietary rights of third parties, requests for indemnification against such
infringement or suggest the Company may be interested in acquiring a license
from such third parties. There can be no assurance that any such claim made in
the future will not result in litigation, which could involve significant
expense to the Company, and, if the Company is required or deems it appropriate
to obtain a license relating to one or more products or technologies, there can
be no assurance that the Company would be able to do so on commercially
reasonable terms, or at all.

EMPLOYEES

As of May 31, 2009, the Company, including its two foreign subsidiaries,
employed 83 persons collectively, on a full-time basis, of whom 23 were engaged
in research, development, and related engineering, 20 were engaged in
manufacturing, 28 were engaged in marketing, sales, and customer support, and
12 were engaged in general administration and finance functions. In addition,
the Company from time to time employs a number of part-time employees and
contractors, particularly in manufacturing and to perform customer support.
The Company's success is in part dependent on its ability to attract and retain
highly skilled workers, who are in high demand. None of the Company's
employees are represented by a union and the Company has never experienced a
work stoppage. Management considers its relations with its employees to be
good.

GEOGRAPHIC AREAS

The Company operates in several geographic areas. Selected financial
information, including revenue from customers, a measure of profit or loss and
total assets for each of the last three fiscal years, is included in Part II,
Item 8, Note 12 "Segment Information" and certain risks related to such
operations are discussed in Part I, Item 1A, under the heading "Our business
may suffer due to risks associated with international sales and operations."

Item 1A. Risk Factors

You should carefully consider the risks described below. These risks are
not the only risks that we may face. Additional risks and uncertainties that we
are unaware of, or that we currently deem immaterial, also may become important
factors that affect us. If any of the following risks occur, our business,
financial condition or results of operations could be materially and adversely
affected which could cause our actual operating results to differ materially
from those indicated or suggested by forward-looking statements made in this
Annual Report on Form 10-K or presented elsewhere by management from time to
time.

Current economic conditions could materially adversely affect our operations
and performance.

Our operations and performance depend significantly on worldwide economic
conditions. The current financial turmoil affecting the banking system and
financial markets has resulted in a tightening of the credit markets and a
weakening global economy which are contributing to slowdowns in the
semiconductor manufacturing industry in which we operate. Specifically, we
have experienced a lengthening of the sales cycle and we have also received
requests from some of our customers to defer delivery of equipment.
Difficulties in obtaining capital and deteriorating market conditions pose a
risk that some of our customers may not be able to obtain necessary financing
on reasonable terms which could result in lower sales for the Company. For
example, prior to the Spansion bankruptcy, Spansion accounted for approximately
80% of our revenues. Since declaring bankruptcy, Spansion has accounted for
less than 1% of our revenues. Customers with liquidity issues may lead to
additional bad debt expense for the Company. These conditions may also
similarly affect our key suppliers, which could impact their ability to deliver
parts and result in delays on our products.

The current economic conditions and uncertainty about future economic
conditions make it challenging for us to forecast our operating results, make
business decisions, and identify the risks that may affect our business,
financial condition and results of operations. If we are not able to timely and
appropriately adapt to changes resulting from the difficult macroeconomic
environment, our business, financial condition or results of operations may be
materially and adversely affected.

If we are not able to reduce our operating expenses during periods of weak
revenue, or if we utilize significant amounts of cash to support operating
losses, and not have the ability to raise additional debt or equity financing,
we may erode our cash resources and may not have sufficient cash to operate our
business.

In the face of the current sustained downturn in our industry and decline
in our revenues, we have implemented a variety of cost controls and
restructured our operations with the goal of reducing our operating costs to
position ourselves to more effectively meet the needs of the currently weak
market for test and burn-in equipment. During the third and fourth quarters of
fiscal 2009 we experienced operating losses and cash outflows and our cash and
cash equivalents as of May 31, 2009 were approximately $4.4 million. We took
significant steps to minimize our expense levels during this period and to
increase the likelihood that we will have sufficient cash to support operations
during the downturn, including reducing our headcount by more than 30%,
reducing compensation for officers and other salaried employees, initiating a
Company-wide shutdown for one week each month and lowering the fees paid to our
Board of Directors, among other spending cuts. We will continue to explore
methods to further reduce our costs which may cause us to incur additional
restructuring charges in the future. However, we cannot predict the amount of
such charges at this time. Should the current downturn be prolonged and if we
are unable to reduce our operating expenses sufficiently, we may require
additional debt or equity financing to meet working capital or capital
expenditure needs. While we believe our cash balances, future revenues and
cash received from the sale of our bankruptcy claim against Spansion will be
sufficient to satisfy our cash requirements for at least the next twelve
months, we cannot determine with certainty that, if needed, we will be able to
raise additional funding through either equity or debt financing under these
circumstances or on what terms such financing would be available.

We depend on a small number of key customers in the semiconductor manufacturing
industry for a large portion of our revenues.

The semiconductor manufacturing industry is highly concentrated, with a
relatively small number of large semiconductor manufacturers and contract
assemblers accounting for a substantial portion of the purchases of
semiconductor equipment. Sales to the Company's five largest customers
accounted for approximately 95% and 98% of its net sales in fiscal 2009 and
2008, respectively. One customer, Spansion, accounted for approximately 80% of
the Company's net sales in fiscal 2009 and 2008. No other customers
represented more than 10% of the Company's net sales for either fiscal 2009 or
fiscal 2008.

We expect that sales of our products to a limited number of customers will
continue to account for a high percentage of net sales for the foreseeable
future. In addition, sales to particular customers may fluctuate significantly
from quarter to quarter. The loss of, or reduction or delay in an order, or
orders from a significant customer, or a delay in collecting or failure to
collect accounts receivable from a significant customer could adversely affect
our business, financial condition and operating results. For example, Spansion
declared bankruptcy in Japan in February 2009 and in the U.S. in March 2009,
and has subsequently placed only small orders with the Company, which has
caused our revenues to drop dramatically and impacted the ability to collect on
accounts receivables.

A substantial portion of our revenues is generated by relatively small volume,
high value transactions.

We derive a substantial portion of our revenues from the sale of a
relatively small number of systems which typically range in purchase price from
approximately $300,000 to over $1 million per system. As a result, the loss or
deferral of a limited number of system sales could have a material adverse
effect on our net sales and operating results in a particular period. All
customer purchase orders are subject to cancellation or rescheduling by the
customer with limited penalties, and, therefore, backlog at any particular date
is not necessarily indicative of actual sales for any succeeding period. From
time to time, cancellations and rescheduling of customer orders have occurred,
and delays by our suppliers in providing components or subassemblies to us have
caused delays in our shipments of our own products. There can be no assurance
that we will not be materially adversely affected by future cancellations or
rescheduling. Certain contracts contain provisions that require customer
acceptance prior to recognition of revenue. The delay in customer acceptance
could have a material adverse effect on our operating results. A substantial
portion of net sales typically are realized near the end of each quarter. A
delay or reduction in shipments near the end of a particular quarter, due, for
example, to unanticipated shipment rescheduling, cancellations or deferrals by
customers, customer credit issues, unexpected manufacturing difficulties
experienced by us, or delays in deliveries by suppliers, could cause net sales
in a particular quarter to fall significantly below our expectations.

We rely on continued market acceptance for our FOX system, and we may not be
successful in attracting new customers or maintaining our existing customers.

A principal element of our business strategy is to capture an increasing
share of the test equipment market through sales of our FOX wafer-level test
and burn-in system. The FOX system is designed to simultaneously burn-in and
functionally test all of the die on a wafer. The market for the FOX systems is
in the very early stages of development. Market acceptance of the FOX system
is subject to a number of risks. Before a customer will incorporate the FOX
system into a production line, lengthy qualification and correlation tests must
be performed. We anticipate that potential customers may be reluctant to
change their procedures in order to transfer burn-in and test functions to the
FOX system. Initial purchases are expected to be limited to systems used for
these qualifications and for engineering studies. Market acceptance of the FOX
system also may be affected by a reluctance of IC manufacturers to rely on
relatively small suppliers such as Aehr Test. As is common with new complex
products incorporating leading-edge technologies, we may encounter reliability,
design and manufacturing issues as we begin volume production and initial
installations of FOX systems at customer sites. The failure of the FOX system
to achieve market acceptance would have a material adverse effect on our future
operating results, long-term prospects and our stock price.

In future periods, we may rely on market acceptance for our ABTS system and we
may not be able to achieve sufficient market acceptance to allow our ABTS
system to be commercially viable.

In June 2008, we announced shipment of an ABTS beta site system to
Integrated Service Technology in Taiwan. We recently booked three orders for
the ABTS products, including two systems from new customers and one follow-on
system order from iST. Market acceptance of the ABTS system is subject to a
number of risks. In order for our ABTS system to become commercially viable,
we must complete engineering development of necessary hardware and software.
In addition, it is important that we achieve complete customer satisfaction and
acceptance of the ABTS products. Additional customers must then be found who
are willing to place orders for ABTS systems in sufficient quantities to allow
it to be produced economically.

We may experience a limited Burn-In System market and we depend upon continued
market acceptance for our MAX system.

We have historically derived a substantial portion of our net sales from
the sale of dynamic burn-in systems. We believe that the market for burn-in
systems is mature and is not expected to experience significant long-term
growth in the future. In general, process control improvements in the
semiconductor industry have tended to reduce burn-in times. In addition, as a
given integrated circuit product generation matures and yields increase, the
required burn-in time may be reduced or eliminated. Integrated circuit
manufacturers, which historically have been our primary customer base,
increasingly outsource test and burn-in to independent test labs, which often
build their own systems. Our success depends upon the

continued acceptance of our MAX burn-in products and the acceptance of our ABTS
systems within these markets. There can be no assurance that the market for
burn-in systems will grow, and sales of our MAX burn-in products may decline
and sales of our ABTS products may not materialize.

Our sales cycles can be long and unpredictable, which may harm our ability to
forecast demand and our future operating performance.

Sales of our systems depend, in significant part, upon the decision of a
prospective customer to increase manufacturing capacity or to restructure
current manufacturing facilities, either of which typically involves a
significant commitment of capital. In addition, the approval process for FOX
and MTX systems sales may require lengthy qualification and correlation
testing. In view of the significant investment or strategic issues that may be
involved in a decision to purchase FOX and MTX systems, we may experience
delays following initial qualification of our systems as a result of delays in
a customer's approval process. For these reasons, our systems typically have a
lengthy sales cycle during which we may expend substantial funds and management
effort in securing a sale. Lengthy sales cycles subject us to a number of
significant risks, including inventory obsolescence and fluctuations in
operating results, over which we have little or no control. The loss of
individual orders due to the lengthy sales and evaluation cycle, or delays in
the sale of even a limited number of systems impairs our ability to plan future
operating levels and could have a material adverse effect on our business,
operating results and financial condition and, in particular, could contribute
to significant fluctuations in operating results on a quarterly basis.

Our business may suffer due to risks associated with international sales and
operations.

Approximately 72%, 61% and 42% of our net sales for fiscal 2009, 2008 and
2007, respectively, were attributable to sales to customers for delivery
outside of the United States. We operate sales, service and limited
manufacturing organizations in Japan and Germany and a sales and support
organization in Taiwan. We expect that sales of products for delivery outside
of the United States will continue to represent a substantial portion of our
future revenues. Our future performance will depend, in significant part, upon
our ability to continue to compete in foreign markets which in turn will
depend, in part, upon a continuation of current trade relations between the
United States and foreign countries in which semiconductor manufacturers or
assemblers have operations. A change toward more protectionist trade
legislation in either the United States or such foreign countries, such as a
change in the current tariff structures, export compliance or other trade
policies, could adversely affect our ability to sell our products in foreign
markets. In addition, we are subject to other risks associated with doing
business internationally, including longer receivable collection periods and
greater difficulty in accounts receivable collection, the burden of complying
with a variety of foreign laws, difficulty in staffing and managing global
operations, risks of civil disturbance or other events which may limit or
disrupt markets, international exchange restrictions, changing political
conditions and monetary policies of foreign governments.

A substantial portion of our net sales has been in Asia. Turmoil in the
Asian financial markets has resulted, and may result in the future, in dramatic
currency devaluations, stock market declines, restriction of available credit
and general financial weakness. In addition, flash, DRAM, and other memory
device prices in Asia have recently declined dramatically, and may do so again
in the future. These developments may affect us in several ways. We believe
that many international semiconductor manufacturers limited their capital
spending in fiscal year 2009, and that the uncertainty of the memory market may
cause some manufacturers in the future to again delay capital spending plans.
The economic conditions in Asia may also affect the ability of our customers to
meet their payment obligations, resulting in cancellations or deferrals of
existing orders and limiting additional orders. In addition, Asian governments
have subsidized some portion of fabrication construction. Financial turmoil
may reduce these governments' willingness to continue such subsidies. Such
developments could have a material adverse affect on our business, financial
condition and results of operations.

Approximately 81%, 15% and 4% of our net sales for fiscal 2009 were
denominated in U.S. Dollars, Japanese Yen and Euros, respectively. Although a
large percentage of net sales to European customers are denominated in U.S.
Dollars, substantially all sales to Japanese customers are denominated in Yen.
Because a substantial portion of our net sales is from sales of products for
delivery outside the United States, an increase in the value of the U.S. Dollar
relative to foreign currencies would increase the cost of our products compared
to products sold by local companies in such markets. In addition, since the
price is determined at the time a purchase order is accepted, we are exposed to
the risks of fluctuations in the U.S. Dollar exchange rate during the lengthy
period from the date a purchase order is received until payment is made. This
exchange rate risk is partially offset to the extent our foreign operations
incur expenses in the local currency. To date, we have not invested in
instruments designed to hedge currency risks. Our operating results could be
adversely affected by fluctuations in the value of the U.S. Dollar relative to
other currencies.

Our industry is subject to rapid technological changes and our ability to
remain competitive depends on our ability to introduce new products in a timely
manner.

The semiconductor equipment industry is subject to rapid technological
change and new product introductions and enhancements. Our ability to remain
competitive will depend in part upon our ability to develop new products and to
introduce these products at competitive prices and on a timely and cost-
effective basis. Our success in developing new and enhanced products depends
upon a variety of factors, including product selection, timely and efficient
completion of product design, timely and efficient implementation of
manufacturing and assembly processes, product performance in the field and
effective sales and marketing. Because new product development commitments
must be made well in advance of sales, new product decisions must anticipate
both future demand and the technology that will be available to supply that
demand. Furthermore, introductions of new and complex products typically
involve a period in which design, engineering and reliability issues are
identified and addressed by our suppliers and by us. There can be no assurance
that we will be successful in selecting, developing, manufacturing and
marketing new products that satisfy market demand. Any such failure would
materially and adversely affect our business, financial condition and results
of operations.

Because of the complexity of our products, significant delays can occur
between a product's introduction and the commencement of the volume production
of such product. We have experienced, from time to time, significant delays in
the introduction of, and technical and manufacturing difficulties with, certain
of our products and may experience delays and technical and manufacturing
difficulties in future introductions or volume production of our new products.
Our inability to complete new product development, or to manufacture and ship
products in time to meet customer requirements would materially adversely
affect our business, financial condition and results of operations.

We may experience product delays and increased costs associated with new
product introductions.

As is common with new complex and software-intensive products, we have
encountered reliability, design and manufacturing issues as we began volume
production and initial installations of certain products at customer sites.
Certain of these issues in the past have been related to components and
subsystems supplied to us by third parties who have in some cases limited the
ability of us to address such issues promptly. This process in the past
required and in the future is likely to require us to incur un-reimbursed
engineering expenses and to experience larger than anticipated warranty claims
which could result in product returns. In the early stages of product
development there can be no assurance that we will discover any reliability,
design and manufacturing issues or, that if such issues arise, that they can be
resolved to the customers' satisfaction or that the resolution of such problems
will not cause us to incur significant development costs or warranty expenses
or to lose significant sales opportunities.

Future changes in semiconductor technologies may make our products obsolete.

Future improvements in semiconductor design and manufacturing technology
may reduce or eliminate the need for our products. For example, improvements
in BIST technology, and improvements in conventional test systems, such as
reduced cost or increased throughput, may significantly reduce or eliminate the
market for one or more of our products. If we are not able to improve our
products or develop new products or technologies quickly enough to maintain a
competitive position in our markets, we may not be able to grow our business.

Semiconductor business cycles are unreliable and there is always the risk of
cancellations and rescheduling which could have a material adverse affect on
our operating results.

Our operating results depend primarily upon the capital expenditures of
semiconductor manufacturers, semiconductor contract assemblers and burn-in and
test service companies worldwide, which in turn depend on the current and
anticipated market demand for integrated circuits. The semiconductor and
semiconductor equipment industries in general, and the market for flash
memories, DRAMs and other memory devices, in particular, have historically been
highly volatile and have experienced periodic downturns and slowdowns, which
have had severe, negative effects on the semiconductor industry's demand for
semiconductor capital equipment, including test and burn-in systems
manufactured and marketed by the Company. These downturns and slowdowns have
adversely affected our operating results in the past. In addition, the
purchasing patterns of our customers are also highly cyclical because most
customers purchase our products for use in new production facilities or for
upgrading existing test lines for the introduction of next generation products.
Construction of new facilities and upgrades of existing facilities have in some
cases been delayed or canceled during the most recent semiconductor industry
downturn. A large portion of our net sales is attributable to a few customers
and therefore a reduction in purchases by one or more customers could
materially adversely affect our financial results. There can be no assurance
that the semiconductor industry will grow in the future at the same rates as it
has grown historically. Any downturn or slowdown in the semiconductor industry
would have a material adverse effect on our business, financial condition and
operating results. In addition, the need to maintain investment in research
and

development and to maintain customer service and support will limit our ability
to reduce our expenses in response to any such downturn or slowdown period.

The semiconductor equipment manufacturing industry has historically been
subject to a relatively high rate of purchase order cancellation by customers
as compared to other high technology industry sectors. Manufacturing companies
that are the customers of semiconductor equipment companies frequently revise,
postpone and cancel capital facility expansion plans. In such cases,
semiconductor equipment companies may experience a significant rate of
cancellations or rescheduling of purchase orders. There can be no assurance
that we will not be materially adversely affected by future cancellations or
rescheduling of purchase orders.

Our stock price may fluctuate.

The price of our common stock has fluctuated in the past and may fluctuate
significantly in the future. We believe that factors such as announcements of
developments related to our business, fluctuations in our operating results,
failure to meet securities analysts' expectations, general conditions in the
semiconductor and semiconductor equipment industries and the worldwide economy,
announcement of technological innovations, new systems or product enhancements
by us or our competitors, fluctuations in the level of cooperative development
funding, acquisitions, changes in governmental regulations, developments in
patents or other intellectual property rights and changes in our relationships
with customers and suppliers could cause the price of our common stock to
fluctuate substantially. In addition, in recent years the stock market in
general, and the market for small capitalization and high technology stocks in
particular, have experienced extreme price fluctuations which have often been
unrelated to the operating performance of the affected companies. Such
fluctuations could adversely affect the market price of our common stock.

Our stock price may remain under the threshold required by NASDAQ, which could
cause our stock to be delisted from NASDAQ.

Pursuant to the requirements of NASDAQ, if a company's stock price is
below $1 per share for 30 consecutive trading days, NASDAQ will notify the
company that it is no longer in compliance with the NASDAQ listing
qualifications. The company will then have 180 calendar days to become
compliant. Thereafter, companies listed on the NASDAQ Global Market can
receive an additional 180-day compliance period by transferring to the NASDAQ
Capital Market if they meet all initial listing requirements of the NASDAQ
Capital Market, except for the bid price requirement. Therefore, if our stock
price continues to remain under the threshold required, it is possible that our
stock could be delisted from the NASDAQ Global Market.

Any future growth may strain our operations and may require us to incur
additional expenses to support these expanded operations.

If we are to be successful, we must expand our operations. Such expansion
will place a significant strain on our administrative, operational and
financial resources. Further, such expansion will result in a continuing
increase in the responsibility placed upon management personnel and will
require development or enhancement of operational, managerial and financial
systems and controls. If we are unable to manage the expansion of our
operations effectively, our business, financial condition and operating results
will be materially and adversely affected.

We depend on our key personnel and our success depends on our ability to
attract and retain talented employees.

Our success depends to a significant extent upon the continued service of
Rhea Posedel, our Chief Executive Officer, as well as other executive officers
and key employees. We do not maintain key person life insurance for our
benefit on any of our personnel, and none of our employees are subject to a
non-competition agreement with the Company. The loss of the services of any of
our executive officers or a group of key employees could have a material
adverse effect on our business, financial condition and operating results. Our
future success will depend in significant part upon our ability to attract and
retain highly skilled technical, management, sales and marketing personnel.
There is a limited number of personnel with the requisite skills to serve in
these positions, and it has become increasingly difficult for us to hire such
personnel. Competition for such personnel in the semiconductor equipment
industry is intense, and there can be no assurance that we will be successful
in attracting or retaining such personnel. Changes in management could disrupt
our operations and adversely affect our operating results.

We may be subject to litigation relating to intellectual property infringement
which would be time-consuming, expensive and a distraction to our business.

If we do not adequately protect our intellectual property, competitors may
be able to use our proprietary information to erode our competitive advantage,
and our business and operating results could be harmed. Litigation may be
necessary to enforce or determine the validity and scope of our proprietary
rights, and there can be no assurance that our intellectual property rights, if
challenged, will be upheld as valid. Such litigation could result in
substantial costs and diversion of resources and could have a material adverse
effect on our operating results, regardless of the outcome of the litigation.
In addition, there can be no assurance that any of the patents issued to us
will not be challenged, invalidated or circumvented or that the rights granted
thereunder will provide competitive advantages to us.

There are no pending claims against us regarding infringement of any
patents or other intellectual property rights of others. However, in the
future we may receive communications from third parties asserting intellectual
property claims against us. Such claims could include assertions that our
products infringe, or may infringe, the proprietary rights of third parties,
requests for indemnification against such infringement or suggestions that we
may be interested in acquiring a license from such third parties. There can be
no assurance that any such claim will not result in litigation, which could
involve significant expense to us, and, if we are required or deem it
appropriate to obtain a license relating to one or more products or
technologies, there can be no assurance that we would be able to do so on
commercially reasonable terms, or at all.

While we believe we have complied with all applicable environmental laws, our
failure to do so could materially adversely affect our business as a result of
having to pay substantial amounts in damages or fees.

Federal, state and local regulations impose various controls on the use,
storage, discharge, handling, emission, generation, manufacture and disposal of
toxic and other hazardous substances used in our operations. We believe that
our activities conform in all material respects to current environmental and
land use regulations applicable to our operations and our current facilities,
and that we have obtained environmental permits necessary to conduct our
business. Nevertheless, the failure to comply with current or future
regulations could result in substantial fines being imposed on us, suspension
of production, alteration of our manufacturing processes or cessation of
operations. Such regulations could require us to acquire expensive remediation
equipment or to incur substantial expenses to comply with environmental
regulations. Any failure by us to control the use, disposal or storage of, or
adequately restrict the discharge of, hazardous or toxic substances could
subject us to significant liabilities.

While we believe we currently have adequate internal control over financial
reporting, we are required to assess our internal control over financial
reporting on an annual basis and any future adverse results from such
assessment could result in a loss of investor confidence in our financial
reports and have an adverse effect on our stock.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we must include
in our Annual Report on Form 10-K a report of management on the effectiveness
of our internal control over financial reporting. If we fail to maintain
effective internal control over financial reporting, or management does not
timely assess the adequacy of such internal control, or our independent
registered public accounting firm does not timely deliver an unqualified
opinion as to the effectiveness of our internal controls, we could be subject
to regulatory sanctions and the public's perception may decline. Our
independent registered public accounting firm will be required to attest to the
effectiveness of our internal control over financial reporting at the end of
fiscal 2010.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

The Company's principal administrative and production facilities are
located in Fremont, California, in a 51,289 square foot building. The term of
the Company's current lease ends on June 30, 2015. The Company has an option
to extend the lease of its headquarters building for an additional period at
rates to be determined. The Company's facility in Japan is located in Tokyo in
a 4,294 square foot building under a lease which expires in September, 2010.
The Company leases a sales and support office on a month-to-month basis in
Utting, Germany. The Company leased a sales and support office in Hsinchu,
Taiwan under a lease which was terminated on July 31, 2009. The Company's and
its subsidiaries' annual rental payments currently aggregate approximately
$684,000. The Company periodically evaluates its global operations and
facilities to bring its capacity in line with demand and to provide cost
efficient services for its customers. In prior

years, through this process, the Company has moved from certain facilities that
exceeded the capacity required to satisfy its needs. The Company believes that
its existing facilities are adequate to meet its current and reasonably
foreseeable requirements. The Company regularly evaluates its expected future
facilities requirements and believes that alternate facilities would be
available if needed.

Item 3. Legal Proceedings

None.

Item 4. Submission of Matters to a Vote of Security Holders

None.

PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities

The Company's common stock has been publicly traded on the NASDAQ Global
Market under the symbol "AEHR" since August 1997, the date we consummated our
initial public offering. The following table sets forth, for the periods
indicated, the high and low sale prices for the common stock on such market.
These quotations represent prices between dealers and do not include retail
markups, markdowns or commissions and may not necessarily represent actual
transactions.

High Low
--------- ---------

Fiscal 2009:
First quarter ended August 31, 2008................ $11.20 $4.28
Second quarter ended November 30, 2008............. 4.47 1.43
Third quarter ended February 28, 2009.............. 2.88 1.07
Fourth quarter ended May 31, 2009.................. 1.38 0.79

Fiscal 2008:
First quarter ended August 31, 2007................ $8.27 $5.80
Second quarter ended November 30, 2007............. 7.62 5.41
Third quarter ended February 29, 2008.............. 8.26 5.50
Fourth quarter ended May 31, 2008.................. 9.50 5.76

At August 3, 2009, the Company had 125 holders of record of its common
stock. The Company estimates the number of beneficial owners of the Company's
common stock at August 3, 2009 to be 2,560.

The market price of the Company's common stock has been volatile. For a
discussion of the factors affecting the Company's stock price, see "Risk
Factors - Our stock price may fluctuate."

The Company has not paid cash dividends on its common stock or other
securities. The Company currently anticipates that it will retain its future
earnings, if any, for use in the expansion and operation of its business and
does not anticipate paying any cash dividends on its common stock in the
foreseeable future.

The Company did not repurchase any of its common stock during the fiscal
year ended May 31, 2009.

EQUITY COMPENSATION PLAN INFORMATION

The information required by this item is incorporated by reference to the
information under the caption "Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters" of the Proxy Statement and Part
III, Item 12 of this Annual Report on Form 10-K.

PERFORMANCE MEASUREMENT COMPARISON

The following graph shows a comparison of total shareholder return for
holders of the Company's common stock for the last five fiscal years ended May
31, 2009, compared with the NASDAQ Composite Index and the Philadelphia
Semiconductor Index. The graph assumes that $100 was invested in the Company's
common stock, in the NASDAQ Composite Index and the Philadelphia Semiconductor
Index on May 31, 2004, and that all dividends were reinvested. The Company
believes that while total shareholder return can be an important indicator of
corporate performance, the stock prices of semiconductor equipment companies
like Aehr Test Systems are subject to a number of market-related factors other
than company performance, such as competitive announcements, mergers and
acquisitions in the industry, the general state of the economy, and the
performance of other semiconductor equipment company stocks. Stock prices and
shareholder returns over the indicated period should not be considered
indicative of future stock prices or shareholder returns.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Aehr Test Systems, The NASDAQ Composite Index
And The Philadelphia Semiconductor Index

[The following table was depicted as a line chart in the printed material]

Cumulative Total Return
------------------------------------------------------
5/04 5/05 5/06 5/07 5/08 5/09
-------- -------- -------- -------- -------- ---------

Aehr Test Systems........... 100.00 73.48 156.45 147.20 211.68 22.63
NASDAQ Composite............ 100.00 104.91 113.08 136.66 132.60 92.61
Philadelphia Semiconductor.. 100.00 93.74 89.18 99.00 95.45 68.60

-------- -------- -------- -------- -------- ---------

* $100 invested on 5/31/04 in stock or index, including reinvestment of
dividends.
Fiscal year ending May 31.

Item 6. Selected Consolidated Financial Data (in thousands except per share
data):

The selected consolidated financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and
related notes included elsewhere in this Form 10-K.

Fiscal Year Ended May 31,
------------------------------------------------------
2009 2008 2007 2006 2005
---------- ---------- ---------- ---------- ----------

CONSOLIDATED STATEMENTS OF OPERATIONS:
Net sales..................................... $21,407 $39,041 $27,351 $23,801 $16,080
Cost of sales................................. 20,223 19,072 13,438 13,165 11,817
---------- ---------- ---------- ---------- ----------
Gross profit.................................. 1,184 19,969 13,913 10,636 4,263
---------- ---------- ---------- ---------- ----------
Operating expenses:
Selling, general and administrative......... 20,623 7,657 6,538 5,842 5,215
Research and development.................... 5,762 6,501 6,324 4,339 4,023
Impairment of goodwill...................... 274
---------- ---------- ---------- ---------- ----------
Total operating expenses.................. 26,659 14,158 12,862 10,181 9,238
---------- ---------- ---------- ---------- ----------
(Loss) income from operations................. (25,475) 5,811 1,051 455 (4,975)

Interest income............................... 142 231 491 255 155
Other income (expense), net................... 277 (71) 961 79 86
---------- ---------- ---------- ---------- ----------
(Loss) income before income tax expense
(benefit).... .............................. (25,056) 5,971 2,503 789 (4,734)

Income tax expense (benefit).................. 4,915 (4,602) 75 (21) 136
---------- ---------- ---------- ---------- ----------
Net (loss) income............................. $(29,971) $10,573 $ 2,428 $ 810 $(4,870)
========== ========== ========== ========== ==========

Net (loss) income per share:
Basic ...................................... $ (3.55) $ 1,32 $ 0.31 $ 0.11 $ (0.66)
Diluted .................................... $ (3.55) $ 1.24 $ 0.30 $ 0.11 $ (0.66)

Shares used in per share calculations
Basic....................................... 8,436 8,013 7,751 7,515 7,420
Diluted..................................... 8,436 8,508 8,225 7,605 7,420

May 31,
------------------------------------------------------
2009 2008 2007 2006 2005
---------- ---------- ---------- ---------- ----------

CONSOLIDATED BALANCE SHEETS:
Cash and cash equivalents..................... $ 4,360 $15,648 $ 6,564 $ 9,405 $ 4,952
Working capital............................... 7,299 33,362 20,370 17,323 15,342
Total assets.................................. 13,911 45,199 28,675 24,893 21,469
Long-term obligations, less current portion... 605 566 185 264 332
Total shareholders' equity.................... 9,963 37,772 22,668 18,817 17,452

Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations

The following discussion and analysis of the financial condition and
results of operations of the Company should be read in conjunction with
"Selected Consolidated Financial Data" and our consolidated financial
statements and related notes included elsewhere in this Annual Report on Form
10-K.

This Management's Discussion and Analysis section and other parts of this
Annual Report on Form 10-K contain forward-looking statements that involve
risks and uncertainties, as well as assumptions that, if they never materialize
or prove incorrect, could cause the results of the Company to differ materially
from those expressed or implied by such 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. All forward-looking
statements included in this document are based on our current expectations, and
we assume no obligation to update any such forward-looking statements. All
statements other than statements of historical fact are statements that could
be deemed forward-looking statements, including any projections of earnings,
revenues or other financial items; any statements of the plans, strategies and
objectives of management for future operations; any statements concerning
proposed new products, services or developments; any statements regarding
future economic conditions or performance; any statements of belief; and any
statement of assumptions underlying any of the foregoing. We note that a
variety of factors could cause actual results and experience to differ
materially from the anticipated results or other expectations expressed in such
forward-looking statements. The risks, uncertainties and assumptions referred
to above include, but are not limited to, the risks identified on page 10,
entitled "Risk Factors," as well as those described from time to time in the
Company's Securities and Exchange Commission reports, including but not limited
to this Annual Report on Form 10-K for the fiscal year ended May 31, 2009 and
subsequently filed reports.

OVERVIEW

The Company was founded in 1977 to develop and manufacture burn-in and test
equipment for the semiconductor industry. Since its inception, the Company has
sold more than 2,500 systems to semiconductor manufacturers, semiconductor
contract assemblers and burn-in and test service companies worldwide. The
Company's principal products currently are the Advanced Burn-in and Test System
("ABTS"), the FOX full wafer contact parallel test and burn-in system, the MAX
burn-in system, the MTX massively parallel test system, the DiePak carrier and
test fixtures.

The Company's net sales consist primarily of sales of systems, test
fixtures, die carriers, upgrades and spare parts and revenues from service
contracts. The Company's selling arrangements may include contractual customer
acceptance provisions and installation of the product occurs after shipment and
transfer of title.

SUMMARY OF SIGNIFICANT ITEMS IMPACTING FISCAL 2009 RESULTS

During the fiscal year ended May 31, 2009 the Company recorded the
following charges:
a provision for bad debt of $13.7 million,
a provision for excess and obsolete inventory of $7.2 million,
the reinstatement of the deferred tax asset valuation allowance of $4.9
million,
cancellation charges of $0.3 million,
an impairment of goodwill of $0.3 million, and
severance costs of $0.4 million.

Global demand for semiconductor equipment has been severely impacted by the
current negative global economic environment. As a result, in the second half
of fiscal 2009 we experienced a significant decline in sales. In fiscal 2009,
the Company's financial results reflected the impact of the bankruptcy filing
of its largest customer, Spansion. Due to the bankruptcy filing and the
current weak market for the Company's products, we recorded a $13.7 million
provision for bad debts, a $7.2 million provision for excess and obsolete
inventory, a $4.9 million increase in the valuation allowance against the
Company's deferred tax assets, a $0.3 million charge related to cancellation
costs, a $0.3 million goodwill impairment charge and $0.4 million in severance
charges. The Company has significantly reduced its headcount and initiated
other expense reduction measures. The Company intends to take additional
actions as necessary to maintain sufficient cash to manage through this
economic downturn.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company's discussion and analysis of its financial condition and
results of operations are based upon the Company's consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of these
consolidated financial statements requires the Company to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and liabilities. On an
ongoing basis, the Company evaluates its estimates, including those related to
customer programs and incentives, product returns, bad debts, inventories,
investments, intangible assets, income taxes, financing operations, warranty
obligations, long-term service contracts, and contingencies and litigation.
The Company bases its estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions.

The Company believes the following critical accounting policies affect its
more significant judgments and estimates used in the preparation of its
consolidated financial statements.

REVENUE RECOGNITION

The Company's selling arrangements may include contractual customer
acceptance provisions. Installation of products occurs after shipment and
transfer of title. The Company recognizes revenue in accordance with SEC Staff
Accounting Bulletin ("SAB") No. 104, Revenue Recognition, corrected copy, which
requires revenue to be recognized upon the shipment of products or the
performance of services when: (1) persuasive evidence of the arrangement
exists; (2) services have been rendered; (3) the price is fixed or
determinable; and (4) collectibility is reasonably assured. The Company defers
recognition of revenue for any amounts subject to acceptance until such
acceptance occurs. When multiple elements exist, the Company allocates the
purchase price based on vendor specific objective evidence or third-party
evidence of fair value and defers revenue recognition on the undelivered
portion. Historically, these multiple deliverables have included items such as
extended support provisions, training to be supplied after delivery of the
systems, and test programs specific to

customers' routine applications. The test programs can be written either by
the customer, other firms, or the Company. The amount of revenue deferred is
the greater of the fair value of the undelivered element or the contractually
agreed to amounts. Sales tax collected from customers is not included in
revenue but rather recorded as a liability due to the respective taxing
authorities.

Royalty-based revenue related to licensing income from performance test
boards and burn-in boards is recognized upon the earlier of the receipt by the
Company of the licensee's report related to its usage of the licensed
intellectual property or upon payment by the licensee. This revenue is
recorded in net sales. Provisions for the estimated future cost of warranty
and installation are recorded at the time the products are shipped.

The Company's terms of sales with distributors are generally FOB shipping
point with payment due within 60 days. The only right of return is if the
equipment does not meet the published specifications. All products go through
in-house testing and verification of specifications before shipment. Apart
from warranty reserves, credits issued have not been material as a percentage
of net sales. The Company's distributors do not generally carry inventories of
the Company's products. Instead, the distributors place orders with the
Company at or about the time they receive orders from their customers. The
Company's shipment terms to our distributors do not provide for credits or
rights of return. Because the Company's distributors do not generally carry
inventories of our products, they do not have rights to price protection or to
return products. At the time the Company ships products to the distributors,
the price is fixed. Subsequent to the issuance of the invoice, there are no
discounts or special terms. Paragraph 6 of Statement of Financial Accounting
Standards ("SFAS") No. 48, "Revenue Recognition When Right of Return Exists",
is not applicable because the Company does not give the buyer the right to
return the product or to receive future price concessions. The Company's
arrangements do not include vendor consideration as described in Emerging
Issues Task Force No. 01-09, "Accounting for Consideration Given by a Vendor to
a Customer (Including a Reseller of the Vendor's Products)."

In accordance with SFAS No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed", the Company capitalizes
its systems software development costs incurred after a system achieves
technological feasibility and before first commercial shipment. Such costs
typically represent a small portion of total research and development costs.
No system software development costs were capitalized or amortized in fiscal
2009, 2008 or 2007.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

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.

WARRANTY OBLIGATIONS

The Company provides and records the estimated cost of product warranties
at the time products are shipped. While the Company engages in extensive
product quality programs and processes, including actively monitoring and
evaluating the quality of its component suppliers, the Company's warranty
obligation is affected by product failure rates, material usage and service
delivery costs incurred in correcting a product failure. The Company's
estimate of warranty reserve is based on management's assessment of future
warranty obligations and on historical warranty obligations. 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, which could affect how the Company accounts for expenses.

INVENTORY OBSOLESCENCE

In each of the last three fiscal years, the Company has written down its
inventory for estimated obsolescence or unmarketable inventory by an amount
equal to the difference between the cost of inventory and the estimated market
value based upon assumptions about future demand and market conditions. If
future market conditions are less favorable than those projected by management,
additional inventory write-downs may be required.

IMPAIRMENT OF GOODWILL

estimates for its future cash flow and revenue projections, the Company
determined that indicators of impairment for its goodwill were present during
fiscal year 2009. As a result, the Company tested the goodwill for impairment,
determined that it was impaired and recorded a non-cash impairment of goodwill
charge of $274,000 for the fiscal year ended May 31, 2009.

INVESTMENT IMPAIRMENT

The Company records an investment impairment charge when it believes an
investment has experienced a decline in value that is other than temporary.
The Company has recorded investment impairments when it believed that the
investment had experienced a decline in value that was other than temporary.
Future adverse changes in market conditions or poor operating results of
underlying investments could result in losses or an inability to recover the
carrying value of the investments that may not be reflected in an investment's
current carrying value, thereby possibly requiring an impairment charge in the
future.

INCOME TAXES

We account for income taxes in accordance with SFAS No. 109, "Accounting
for Income Taxes." This statement prescribes the use of the liability method
whereby deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse. Valuation allowances are established when
necessary to reduce deferred tax assets to amounts expected to be realized.

During the fiscal year ended May 31, 2008 a partial release of the
valuation allowance previously established was made based upon the Company's
current level of profitability and the level of forecasted future earnings.
During fiscal 2009 a full valuation allowance was established against all
deferred tax assets as management determined that it is less likely that the
deferred tax assets will be realized.

The Company accounts for uncertain tax positions in accordance with the
provisions of Financial Accounting Standards Board ("FASB") Interpretation No.
48, "Accounting for Uncertainty in Income Taxes - an interpretation of FASB
Statement No. 109" ("FIN No. 48"). FIN No. 48 clarifies the accounting for
uncertainty in income taxes recognized in the Company's financial statements in
accordance with SFAS No. 109, "Accounting for Income Taxes" ("SFAS No. 109").
This interpretation prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. The Company does not
expect any material change in its unrecognized tax benefits over the next
twelve months. In accordance with FIN No. 48, the Company recognizes interest
and penalties related to unrecognized tax benefits as a component of income
taxes.

On June 1, 2007, the Company adopted the provisions of FIN No. 48. The
cumulative effect of adopting FIN No. 48 was a $127,000 decrease to accumulated
deficit and a decrease to income tax liability. In accordance with the
Company's accounting policy, it recognizes interest and penalties related to
unrecognized tax benefits as a component of income taxes.

Although the Company files U.S. federal, various state, and foreign tax
returns, the Company's only major tax jurisdictions are the United States,
California, Germany and Japan. Tax years 1996 - 2007 remain subject to
examination by the appropriate governmental agencies due to tax loss carryovers
from those years.

STOCK-BASED COMPENSATION EXPENSE

The Company accounts for stock options and employee stock purchase plan
("ESPP") shares under the provisions of SFAS No. 123 (revised 2004), "Share-
Based Payment," ("SFAS No. 123(R)"), which requires companies to estimate the
fair value of share-based payment awards on the date of grant using an option-
pricing model. The value of the portion of the award that is ultimately
expected to vest is recognized as expense over the requisite service periods in
the Company's consolidated statements of operations.

In March 2005, the SEC issued SAB No. 107 ("SAB No. 107") relating to SFAS
No. 123(R). The Company has applied the provision of SAB No. 107 in its
adoption of SFAS No. 123(R). The Company adopted SFAS No. 123(R) using the
modified prospective transition method, which requires the application of the
accounting standard as of June 1, 2006, the first day of the Company's fiscal
year 2007. Accordingly, stock-based compensation expense for all stock-based
compensation awards granted after June 1, 2006 is measured at grant date, based
on the fair value of the award which is computed using the Black-Scholes option
valuation model, and is recognized as expense over the requisite service period
for the employee. This methodology requires the use of subjective assumptions
in implementing SFAS No. 123(R), including expected stock price volatility and
estimated life of each award.

RESULTS OF OPERATIONS

The following table sets forth statements of income data as a percentage of
net sales for the periods indicated.

Year Ended May 31,
----------------------------
2009 2008 2007
--------- --------- --------

Net sales ................................. 100.0 % 100.0 % 100.0 %
Cost of sales ............................. 94.5 48.9 49.1
--------- --------- --------
Gross profit .............................. 5.5 51.1 50.9
--------- --------- --------
Operating expenses:
Selling, general and administrative...... 96.3 19.6 23.9
Research and development................. 26.9 16.7 23.1
Impairment of goodwill................... 1.3 -- --
--------- --------- --------
Total operating expenses............... 124.5 36.3 47.0
--------- --------- --------
(Loss) income from operations.......... (119.0) 14.8 3.9

Interest income............................ 0.7 0.6 1.8
Other income (expense), net................ 1.3 (0.2) 3.5
--------- --------- --------
(Loss) income before income tax
expense(benefit)...................... (117.0) 15.2 9.2

Income tax expense (benefit)............... 23.0 (11.9) 0.3
--------- --------- --------
Net (loss) income.......................... (140.0)% 27.1 % 8.9 %
========= ========= ========

FISCAL YEAR ENDED MAY 31, 2009 COMPARED TO FISCAL YEAR ENDED MAY 31, 2008

NET SALES. Net sales consist primarily of sales of systems, test fixtures,
die carriers, upgrades and spare parts and revenues from service contracts.
Global demand for semiconductor equipment has been severely impacted by the
current negative global economic environment. As a result, in the second half
of fiscal 2009 we experienced a significant decline in sales. Net sales
decreased to $21.4 million in the fiscal year ended May 31, 2009 from $39.0
million in the fiscal year ended May 31, 2008, a decrease of 45.2%. The
decrease in net sales in fiscal 2009 resulted primarily from a decrease in net
sales of the Company's wafer/die level products. The decline in net sales of
wafer-level products was primarily due to the fact that no significant net
sales to Spansion were recorded in the third and fourth quarters of 2009.
During the fiscal 2009 and preceding two years, Spansion had been our largest
customer. Spansion declared bankruptcy in Japan in February 2009 and in the
U.S. in March 2009, and has not subsequently placed significant orders with the
Company. Net sales of the Company's wafer/die level products in fiscal 2009
were $17.7 million, and decreased approximately $16.2 million from fiscal 2008.

GROSS PROFIT. Gross profit consists of net sales less cost of sales. Cost
of sales consists primarily of the cost of materials, assembly and test costs,
and overhead from operations. Gross profit decreased to $1.2 million in the
fiscal year ended May 31, 2009 from $20.0 million in the fiscal year ended May
31, 2008. The decrease in gross profit was primarily the result of the
significant decline in net sales, and the $7.2 million provision for excess and
obsolete inventory. The majority of the inventory reserves were taken as a
result of Spansion's bankruptcy.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
("SG&A") expenses consist primarily of salaries and related costs of employees,
customer support costs, commission expenses to independent sales
representatives, product promotion, other professional services and bad debt
expenses. SG&A expenses were $20.6 million in the fiscal year ended May 31,
2009, compared with $7.7 million in the fiscal year ended May 31, 2008, an
increase of 169.3%. The significant increase in SG&A expenses was primarily
due to the $13.6 million increase in the provision for bad debts, related to
Spansion's bankruptcy filing. As a percentage of net sales, SG&A expenses
increased to 96.3% in the fiscal year ended May 31, 2009 from 19.6% in the
fiscal year ended May 31, 2008.

RESEARCH AND DEVELOPMENT. Research and development ("R&D") expenses
consist primarily of salaries and related costs of employees engaged in ongoing
research, design and development activities, costs of engineering materials and
supplies, and professional consulting expenses. R&D expenses decreased to $5.8
million in the fiscal year ended May 31, 2009 from $6.5 million in the fiscal
year ended May 31, 2008, a decrease of 11.4%. The decrease in R&D expenses was
primarily due to a decrease in employment related expenses of approximately
$300,000 and project related professional service expenses of approximately
$154,000. As a percentage of net sales, R&D expenses increased to 26.9% in the
fiscal year ended May 31, 2009 from 16.7% in the fiscal year ended May 31,
2008, resulting from lower net sales.

IMPAIRMENT OF GOODWILL. Goodwill represents the excess of the purchase
price over the fair value of tangible and identifiable intangible net assets
acquired in the Company's acquisition of its Japanese subsidiary. In
accordance with SFAS No. 142, "Goodwill and Other Intangible Assets", goodwill
is reviewed annually or whenever events or circumstances indicate that a
decline in value may have occurred. Based on the fair market value of the
Company's common stock relative to its book value and revised estimates for its
future cash flow and revenue projections, the Company determined that
indicators of impairment for our goodwill were present during the third quarter
of 2009. As a result, the Company tested the goodwill for impairment,
determined that it was impaired and recorded a non-cash impairment of goodwill
charge of $274,000 in fiscal 2009.

INTEREST INCOME. Interest income decreased to $142,000 in the fiscal year
ended May 31, 2009 from $231,000 in the fiscal year ended May 31, 2008, a
decrease of 38.5%. The decrease in net interest income in fiscal 2009 was
primarily related to lower interest rates.

OTHER INCOME (EXPENSE), NET. Other income was $277,000 in the fiscal year
ended May 31, 2009, compared with $71,000 of other expense in the fiscal year
ended May 31, 2008. The increase in other income (expense), net was primarily
attributable to a foreign exchange gain of $344,000 recorded by our Japanese
subsidiary upon settlement of transactions in fiscal 2009.

INCOME TAX EXPENSE (BENEFIT). Income tax expense was $4.9 million in the
fiscal year ended May 31, 2009, compared with income tax benefit of $4.6
million in the fiscal year ended May 31, 2008. Income tax expense recognized
in fiscal 2009 included $4.9 million of tax expense related to the
reinstatement of the valuation allowance for deferred tax assets, as the
Company no longer believes that the deferred tax assets are more likely than
not to be realizable in the future. The income tax benefit in the fiscal year
ended May 31, 2008 was primarily related to the reversal of a portion of the
valuation allowance against the Company's deferred tax assets, following a
determination by management that certain deferred tax assets were more likely
than not to be realizable in the future.

FISCAL YEAR ENDED MAY 31, 2008 COMPARED TO FISCAL YEAR ENDED MAY 31, 2007

NET SALES. Net sales increased to $39.0 million in the fiscal year ended
May 31, 2008 from $27.4 million in the fiscal year ended May 31, 2007, an
increase of 42.7%. The increase in net sales in fiscal 2008 resulted primarily
from an increase in net sales of the Company's wafer/die level products,
partially offset by decreases in sales of the Company's MAX products and MTX
monitored burn-in products. Net sales of the Company's wafer/die level
products in fiscal 2008 were $33.9 million, and increased approximately $21.9
million from fiscal 2007. Net sales of the Company's MAX products in fiscal
2008 were $4.5 million, and decreased approximately $7.7 million from fiscal
2007. Net sales of the Company's MTX monitored burn-in products in fiscal 2008
were $0.6 million, and decreased approximately $2.5 million from fiscal 2007.

GROSS PROFIT. Gross profit increased to $20.0 million in the fiscal year
ended May 31, 2008 from $13.9 million in the fiscal year ended May 31, 2007, an
increase of 43.5%. Gross profit margin increased slightly to 51.1% in the
fiscal year ended May 31, 2008 from 50.9% in the fiscal year ended May 31,
2007.

SELLING, GENERAL AND ADMINISTRATIVE. SG&A expenses increased to $7.7
million in the fiscal year ended May 31, 2008 from $6.5 million in the fiscal
year ended May 31, 2007, an increase of 17.1%. The increase in SG&A expenses
was primarily attributable to increases in employment related expenses of
approximately $472,000, product support expenses of approximately $168,000 and
outside service expenses of approximately $154,000, as the Company added
support resources to address the expected growth in our business. As a
percentage of net sales, SG&A expenses decreased to 19.6% in the fiscal year
ended May 31, 2008 from 23.9% in the fiscal year ended May 31, 2007, resulting
from higher net sales.

RESEARCH AND DEVELOPMENT. R&D expenses increased to $6.5 million in the
fiscal year ended May 31, 2008 from $6.3 million in the fiscal year ended May
31, 2007, an increase of 2.8%. The increase in R&D expenses was primarily due
to an increase in employment related expenses of approximately $670,000,
partially offset by a decrease in project

material expenses of approximately $493,000. As a percentage of net sales, R&D
expenses decreased to 16.7% in the fiscal year ended May 31, 2008 from 23.1% in
the fiscal year ended May 31, 2007, resulting from higher net sales.

INTEREST INCOME. Interest income decreased to $231,000 in the fiscal year
ended May 31, 2008 from $491,000 in the fiscal year ended May 31, 2007, a
decrease of 53.0%. The decrease was primarily related to lower average
invested balances in fiscal 2008.

OTHER INCOME (EXPENSE), NET. Other income (expense), net decreased to
($71,000) in the fiscal year ended May 31, 2008 from $961,000 in the fiscal
year ended May 31, 2007. The decrease in other income (expense), net was
primarily due to the receipt of an earn-out payment in fiscal 2007 for a
portion of the Company's investment in ESA Electronics Pte Ltd., a Singapore
company. No such earn-out payment was received in fiscal 2008.

INCOME TAX EXPENSE (BENEFIT). Income tax benefit was $4.6 million in the
fiscal year ended May 31, 2008, compared with income tax expense of $75,000 in
the fiscal year ended May 31, 2007. The income tax benefit in the fiscal year
ended May 31, 2008 was primarily related to the reversal of a portion of the
valuation allowance against the Company's deferred tax assets, following a
determination by management that certain deferred tax assets are more likely
than not to be realizable in the future. The income tax expense in the fiscal
year ended May 31, 2007 was primarily attributable to alternative minimum tax
requirements on the Company's U.S. operations. The Company's U.S. operations
and its Japanese subsidiary have experienced significant cumulative losses and
thus generated certain net operating losses available to offset future taxes
payable in the U.S. and Japan. Primarily as a result of the cumulative
operating losses in the Company's U.S. operations and its Japanese subsidiary,
a valuation allowance was established for a portion of its net deferred tax
assets for both its U.S. operations and its Japanese subsidiary.

LIQUIDITY AND CAPITAL RESOURCES

We consider cash and cash equivalents as liquid and available for use. As
of May 31, 2009, the Company had $4.4 million in cash and cash equivalents,
compared to $15.6 million as of May 31, 2008. This decrease resulted
primarily from significant decline in net sales in fiscal 2009.

Net cash used in operating activities was $11.0 million for the fiscal year
ended May 31, 2009 and net cash provided by operating activities was $3.6
million for the fiscal year ended May 31, 2008. For the fiscal year ended May
31, 2009, net cash used in operating activities was primarily driven by net
loss of $30.0 million, partially offset by increases of $13.7 million in the
provision for bad debts and $4.9 million of deferred income taxes. During the
fiscal year ended May 31, 2009, the Company recorded bad debts of $13.7 million
as a result of Spansion's bankruptcy filing. The increase in the deferred
income taxes was primarily due to tax expense related to the recording of a
valuation allowance for the Company's deferred tax assets, as the Company no
longer believes that the deferred tax assets are more likely than not to be
realizable in the future. For the fiscal year ended May 31, 2008, net cash
provided by operating activities was primarily due to net income of $10.6
million and an increase in accrued expenses and deferred revenue of $1.2
million, partially offset by increases of $4.9 million in deferred income taxes
and $4.5 million in accounts receivable. The increase in accounts receivable
was primarily due to an increase in net sales of FOX-1 products, as well as an
increase in the proportion of receivables in Japan, which typically have longer
payment terms. The increase in accrued expenses and deferred revenue was due
primarily to increased customer advances, warranty and general expense
accruals.

Net cash used in investing activities was $1.1 million for the fiscal year
ended May 31, 2009, and net cash provided by investing activities was $1.9
million for the fiscal year ended May 31, 2008. Net cash used in investing
activities during the fiscal year ended May 31, 2009 was primarily due to the
purchase of property and equipment. The net cash provided by investing
activities during the fiscal year ended May 31, 2008 was primarily attributable
to $3.5 million in net proceeds from sales and maturities of investments,
partially offset by $1.1 million in purchase of property and equipment.

Financing activities provided cash of $503,000 for the fiscal year ended
May 31, 2009 and approximately $2.3 million for the fiscal year ended May 31,
2008. Net cash provided by financing activities during the fiscal years ended
May 31, 2009 and 2008 was primarily due to proceeds from issuance of common
stock and exercise of stock options.

As of May 31, 2009, the Company had working capital of $7.3 million.
Working capital consists of cash and cash equivalents, accounts receivable,
inventories and prepaid expenses and other current assets, less current
liabilities.

As of May 31, 2008, the Company had $15.6 million in cash, cash
equivalents and short-term investments, compared to $9.6 million as of May 31,
2007. This increase resulted primarily from significant collections at the
end of the last quarter in fiscal 2008. The Company liquidated its holdings of
short-term investments at the end of fiscal 2008 compared with the balance of
$3.0 million at the end of fiscal 2007.

Net cash provided by operating activities was $3.6 million for the fiscal
year ended May 31, 2008 and net cash used in operating activities was $1.1
million for the fiscal year ended May 31, 2007. For the fiscal year ended May
31, 2008, net cash provided by operating activities was primarily due to net
income of $10.6 million and an increase in accrued expenses and deferred
revenue of $1.2 million, partially offset by an increase of $4.9 million in
deferred income taxes and $4.5 million increase in accounts receivable. The
increase in accounts receivable was primarily due to an increased volume of
billing related to the FOX-1 business, as well as an increase in the proportion
of receivables in Japan, which typically have longer payment terms. The
increase in accrued expenses and deferred revenue was due primarily to
increased customer advances, warranty and general expense accruals. For the
fiscal year ended May 31, 2007, net cash used in operating activities was
primarily due to an increase in inventories of $2.5 million, an increase in
accounts receivable of $2.1 million and a decrease in accrued expenses and
deferred revenue of $1.4 million, partially offset by net income of $2.4
million, an increase in accounts payable of $1.4 million and stock compensation
expenses of $700,000. Inventories increased due to the ramp in production
resulting from the strong growth in FOX-1 backlog. The increase in accounts
receivable was primarily a matter of timing, as many of the Company's shipments
were made closer to the end of fiscal 2007. Accrued expenses and deferred
revenue decreased primarily due to revenue recognized from deferrals made in
prior periods which were earned in fiscal 2007. Accounts payable increased
primarily due to higher inventory purchases as a result of the higher
production levels of FOX products.

Net cash provided by investing activities was $1.9 million for the fiscal
year ended May 31, 2008. Net cash used in investing activities was $2.5 million
for the fiscal year ended May 31, 2007. Net cash provided by investing
activities during the fiscal year ended May 31, 2008 was primarily attributable
to $3.5 million in net proceeds from sales and maturities of investments,
partially offset by $1.1 million in purchase of property and equipment. Net
cash used in investing activities during the fiscal year ended May 31, 2007 was
primarily due to $14.2 million in purchase of investments, partially offset by
$12.8 million in net proceeds from sales and maturities of investments.

Financing activities provided cash of $2.3 million in the fiscal year ended
May 31, 2008 and $766,000 in the fiscal year ended May 31, 2007. Net cash
provided by financing activities during the fiscal years ended May 31, 2008 and
2007 was primarily due to proceeds from issuance of common stock and exercise
of stock options.

As of May 31, 2008, the Company had working capital of $33.4 million.

The Company announced in August 1998 that its board of directors had
authorized the repurchase of up to 1,000,000 shares of its outstanding common
shares. The Company may repurchase the shares in the open market or in
privately negotiated transactions, from time to time, subject to market
conditions. The number of shares of common stock actually acquired by the
Company will depend on subsequent developments and corporate needs, and the
repurchase program may be interrupted or discontinued at any time. Any such
repurchase of shares, if consummated, may use a portion of the Company's
working capital. As of May 31, 2006, the Company had repurchased 523,700
shares at an average price of $3.95. Shares repurchased by the Company are
cancelled. During fiscal 2009, 2008 and 2007, the Company did not repurchase
any of its outstanding common stock.

The Company leases its manufacturing and office space under operating
leases. The Company entered into a non-cancelable operating lease agreement
for its United States manufacturing and office facilities, which commenced in
April 2008 and expires in June 2015. Under the lease agreement, the Company is
responsible for payments of utilities, taxes and insurance.

From time to time, the Company evaluates potential acquisitions of
businesses, products or technologies that complement the Company's business.
Any such transactions, if consummated, may use a portion of the Company's
working capital or require the issuance of equity. The Company has no present
understandings, commitments or agreements with respect to any material
acquisitions.

The Company anticipates that the existing cash balance together with cash
provided by operations, if any, and any amounts received as a result of the
sale of the Company's bankruptcy claim against Spansion are adequate to meet
its working capital and capital equipment requirements through fiscal year
2010. After fiscal year 2010, depending on its rate of growth and
profitability, the Company may require additional equity or debt financing to
meet its working capital requirements or capital equipment needs. There can be
no assurance that additional financing will be available when required, or if
available, that such financing can be obtained on terms satisfactory to the
Company.

OFF-BALANCE SHEET FINANCING

The Company has not entered into any off-balance sheet financing
arrangements and has not established any special purpose entities.

OVERVIEW OF CONTRACTUAL OBLIGATIONS

The following table provides a summary of such arrangements, or contractual
obligations.

Payments Due by Period (in thousands)
---------------------------------------------------------
Less than 1-3 3-5 5
Total 1 year years years years
--------- ---------- ---------- ---------- ----------

Operating Leases............. $3,363 $ 525 $1,623 $1,166 $49
Purchases(1)................. 606 606 -- -- --
--------- ---------- ---------- ---------- ----------
Total........................ $3,969 $1,131 $1,623 $1,166 $49
========= ========== ========== ========== ==========

(1) Shown above are the Company's binding purchase obligations. The large
majority of the Company's purchase orders are cancelable by either party, which
if canceled may result in a negotiation with the vendor to determine if there
shall be any restocking or cancellation fees payable to the vendor.

In the normal course of business to facilitate sales of its products, the
Company indemnifies other parties, including customers, with respect to certain
matters. The Company has agreed to hold the other party harmless against
losses arising from a breach of representations or covenants, or from
intellectual property infringement or other claims. These agreements may limit
the time period 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.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

The Company considered the provisions of Financial Reporting Release No. 48
"Disclosures of Accounting Policies for Derivative Financial Instruments and
Derivative Commodity Instruments, and Disclosures of Quantitative and
Qualitative Information about Market Risk Inherent in Derivative Commodity
Instruments." The Company had no holdings of derivative financial or commodity
instruments at May 31, 2009.

The Company is exposed to financial market risks, including changes in
interest rates and foreign currency exchange rates. Through April 2008, the
Company invested excess cash in a managed portfolio of corporate and government
bond instruments with maturities of 18 months or less. Beginning in May 2008,
the Company adopted a revised cash investment policy which only invests in
government-backed securities with maturities of 18 months or less. The Company
does not use any financial instruments for speculative or trading purposes.
Fluctuations in interest rates would not have a material effect on the
Company's financial position, results of operations or cash flows.

A majority of the Company's revenue and capital spending is transacted in
U.S. Dollars. The Company, however, enters into transactions in other
currencies, primarily Japanese Yen. Substantially all sales to Japanese
customers are denominated in Yen. Since the price is determined at the time a
purchase order is accepted, the Company is exposed to the risks of fluctuations
in the Yen-U.S. Dollar exchange rate during the lengthy period from purchase
order to ultimate payment. This exchange rate risk is partially offset to the
extent that the Company's Japanese subsidiary incurs expenses payable in Yen.
To date, the Company has not invested in instruments designed to hedge currency
risks. In addition, the Company's Japanese subsidiary typically carries debt
or other obligations due to the Company that may be denominated in either Yen
or U.S. Dollars. Since the Japanese subsidiary's financial statements are
based in Yen and the Company's consolidated financial statements are based in
U.S. Dollars, the Japanese subsidiary and the Company recognize foreign
exchange gain or loss in any period in which the value of the Yen rises or
falls in relation to the U.S. Dollar. A 10%

decrease in the value of the Yen as compared with the U.S. Dollar would not be
expected to result in a significant change to the Company's net income or loss.

Item 8. Financial Statements and Supplementary Data

INDEX

Consolidated Financial Statements of Aehr Test Systems

Report of Independent Registered Public Accounting Firm ............ 28

Consolidated Balance Sheets at May 31, 2009 and 2008................ 29

Consolidated Statements of Operations for the years
ended May 31, 2009, 2008 and 2007................................. 30

Consolidated Statements of Shareholders' Equity and
Comprehensive Income (Loss) for the years ended
May 31, 2009, 2008 and 2007....................................... 31

Consolidated Statements of Cash Flows for the years ended
May 31, 2009, 2008 and 2007....................................... 32

Notes to Consolidated Financial Statements.......................... 33

Selected Quarterly Consolidated Financial Data (Unaudited).......... 52

Financial statement schedules not listed above are either omitted because
they are not applicable or the required information is shown in the
Consolidated Financial Statements or in the Notes thereto.

REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of
Aehr Test Systems

We have audited the accompanying consolidated balance sheets of Aehr Test
Systems and its subsidiaries (the "Company") as of May 31, 2009 and 2008, and
the related consolidated statements of operations, shareholders' equity and
comprehensive income (loss), and cash flows for each of the three years in the
period ended May 31, 2009. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The Company is not
required to have, nor have we been engaged to perform, an audit of the
Company's internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company's
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Aehr Test
Systems and its subsidiaries as of May 31, 2009 and 2008, and the results of
their operations and their cash flows for each of the three years in the period
ended May 31, 2009 in conformity with accounting principles generally accepted
in the United States of America.

As discussed in Note 1 and Note 7 to the consolidated financial statements,
on June 1, 2007 the Company changed its method of accounting for uncertain tax
positions as a result of adopting Financial Accounting Standards Board
Interpretation No. 48 "Accounting for Uncertainty in Income Taxes - an
interpretation of FASB Statement No. 109".

/s/ Burr, Pilger & Mayer LLP

San Jose, California
September 1, 2009

AEHR TEST SYSTEMS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

May 31,
-------------------------
2009 2008
---------- ----------

ASSETS

Current assets:
Cash and cash equivalents .......................... $ 4,360 $15,648
Accounts receivable, net ........................... 931 10,927
Inventories ........................................ 4,472 10,209
Deferred income taxes............................... -- 3,043
Prepaid expenses and other ......................... 879 396
---------- ----------
Total current assets ........................... 10,642 40,223

Property and equipment, net .......................... 2,741 2,278
Goodwill ............................................. -- 274
Deferred income taxes ................................ -- 1,900
Other assets ......................................... 528 524
---------- ----------
Total assets ................................... $13,911 $45,199
========== ==========

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable ................................... $ 995 $ 2,981
Accrued expenses ................................... 2,107 3,694
Deferred revenue ................................... 241 186
---------- ----------
Total current liabilities ...................... 3,343 6,861

Income tax payable ................................... 299 297
Deferred lease commitment ............................ 306 269
---------- ----------
Total liabilities .............................. 3,948 7,427
---------- ----------
Commitments and contingencies (Note 14)

Shareholders' equity:
Preferred stock, $0.01 par value:
Authorized: 10,000 shares;
Issued and outstanding: none ..................... -- --
Common stock, $0.01 par value:
Authorized: 75,000 shares;
Issued and outstanding: 8,496 shares and 8,359
shares at May 31, 2009 and 2008, respectively .. 85 84
Additional paid-in capital ......................... 44,552 42,796
Accumulated other comprehensive income ............. 2,800 2,395
Accumulated deficit ................................ (37,474) (7,503)
---------- ----------
Total shareholders' equity ..................... 9,963 37,772
---------- ----------
Total liabilities and shareholders' equity ..... $13,911 $45,199
========== ==========

The accompanying notes are an integral part of these consolidated financial
statements.

AEHR TEST SYSTEMS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Year Ended May 31,
--------------------------------
2009 2008 2007
---------- ---------- ----------

Net sales..................................... $21,407 $39,041 $27,351
Cost of sales................................. 20,223 19,072 13,438
---------- ---------- ----------
Gross profit.................................. 1,184 19,969 13,913
---------- ---------- ----------
Operating expenses:
Selling, general and administrative......... 20,623 7,657 6,538
Research and development.................... 5,762 6,501 6,324
Impairment of goodwill...................... 274
---------- ---------- ----------
Total operating expenses.................. 26,659 14,158 12,862
---------- ---------- ----------
(Loss) income from operations................. (25,475) 5,811 1,051

Interest income............................... 142 231 491
Other income (expense), net................... 277 (71) 961
---------- ---------- ----------
(Loss) income before income tax
expense (benefit)........................... (25,056) 5,971 2,503

Income tax expense (benefit).................. 4,915 (4,602) 75
---------- ---------- ----------
Net (loss) income ............................ $(29,971) $10,573 $ 2,428
========== ========== ==========

Net (loss) income per share - basic .......... $ (3.55) $ 1.32 $ 0.31

Shares used in per share calculation - basic.. 8,436 8,013 7,751

Net (loss) income per share - diluted ........ $ (3.55) $ 1.24 $ 0.30

Shares used in per share calculation - diluted 8,436 8,508 8,225

The accompanying notes are an integral part of these consolidated financial
statements.

AEHR TEST SYSTEMS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS)

Accumulated Other
Comprehensive Income
---------------------
Common Stock Additional Unrealized Cumulative
----------------- Paid-in Investment Translation Accumulated
Shares Amount Capital Gain(Loss) Adjustment Deficit Total
------- ------- ------- -------- ---------- ----------- -------

Balances, May 31, 2006 7,630 $76 $38,081 $(2) $1,293 $(20,631) $18,817

Issuance of common stock
under employee plans...... 190 2 764 -- -- -- 766
Stock-based compensation.... 707 -- -- -- 707
Net income.................. -- -- -- -- -- 2,428 2,428
Net unrealized gain on
investments............... -- -- -- 1 -- -- 1
Foreign currency
translation adjustment.... -- -- -- -- (51) -- (51)
-------
Comprehensive income........ 2,378
------- ------- ------- -------- --------- ----------- -------
Balances, May 31, 2007 7,820 78 39,552 (1) 1,242 (18,203) 22,668

Issuance of common stock
under employee plans...... 539 6 2,337 -- -- -- 2,343
Stock-based compensation.... 907 -- -- -- 907
FIN 48 adjustment........... -- -- -- -- -- 127 127
Net income.................. -- -- -- -- -- 10,573 10,573
Net unrealized gain on
investments............... -- -- -- 1 -- -- 1
Foreign currency
translation adjustment.... -- -- -- -- 1,153 -- 1,153
-------
Comprehensive income........ 11,727
------- ------- ------- -------- --------- -- --------- -------
Balances, May 31, 2008 8,359 84 42,796 -- 2,395 (7,503) 37,772

Issuance of common stock
under employee plans...... 137 1 502 -- -- -- 503
Stock-based compensation.... 1,254 -- -- -- 1,254
Net loss.................... -- -- -- -- -- (29,971) (29,971)
Foreign currency
translation adjustment.... -- -- -- -- 405 -- 405
-------
Comprehensive loss.......... (29,566)
------- ------- ------- -------- --------- ----------- -------
Balances, May 31, 2009 8,496 $85 $44,552 $-- $2,800 $(37,474) $ 9,963
======= ======= ======= ======== ========= =========== =======

The accompanying notes are an integral part of these consolidated financial
statements.

AEHR TEST SYSTEMS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

Year Ended May 31,
---------------------------------
2009 2008 2007
--------- --------- ---------

Cash flows from operating activities:
Net (loss) income ............................. $(29,971) $10,573 $ 2,428
Adjustments to reconcile net (loss) income to
net cash (used in) provided by operating
activities:
Stock-based compensation expense............. 1,270 891 700
Provision for doubtful accounts.............. 13,655 100 47
Loss on disposal of property and equipment... 6 3 41
Impairment of goodwill....................... 274 -- --
Depreciation and amortization................ 644 474 323
Deferred income taxes........................ 4,943 (4,943) --
Changes in operating assets and liabilities:
Accounts receivable........................ (3,612) (4,455) (2,117)
Inventories................................ 5,721 (492) (2,454)
Deferred lease commitment ................. 37 9 (74)
Accounts payable........................... (1,986) 464 1,386
Income tax payable......................... 2 (119) --
Accrued expenses and deferred revenue...... (1,532) 1,193 (1,425)
Prepaid expenses and other................. (487) (74) 31
--------- --------- ---------
Net cash (used in) provided by
operating activities................... (11,036) 3,624 (1,114)
--------- --------- ---------
Cash flows from investing activities:
Purchase of investments...................... -- (500) (14,206)
Proceeds from sales and maturity
of investments............................. -- 3,488 12,820
Purchase of property and equipment .......... (1,113) (1,056) (1,103)
--------- --------- ---------
Net cash (used in) provided by
investing activities................... (1,113) 1,932 (2,489)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock
and exercise of stock options.............. 503 2,343 766
--------- --------- ---------
Net cash provided by
financing activities................... 503 2,343 766
--------- --------- ---------

Effect of exchange rates on cash and
cash equivalents............................. 358 1,185 (4)
--------- --------- ---------
Net (decrease) increase in cash and
cash equivalents....................... (11,288) 9,084 (2,841)

Cash and cash equivalents, beginning of year..... 15,648 6,564 9,405
--------- --------- ---------
Cash and cash equivalents, end of year........... $ 4,360 $15,648 $ 6,564
========= ========= =========
Supplemental cash flow information:
Cash paid during the year for:
Income taxes ............................ $223 $126 $30

The accompanying notes are an integral part of these consolidated financial
statements.

AEHR TEST SYSTEMS AND SUBSIDIARIES
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 Advanced Burn-In and Test System, the FOX full wafer contact
system, the MAX burn-in system, the MTX massively parallel test system, the
DiePak carrier and test fixtures.

LIQUIDITY:

Since inception, the Company has incurred substantial cumulative losses
and negative cash flows from operations. During the second half of fiscal
2009, the Company experienced a substantial decrease in its revenues as a
result of a major customer filing bankruptcy and the slowdown in the
semiconductor manufacturing industry. In response to the current low levels
of net revenues, the Company has taken significant steps to minimize expense
levels and to increase the likelihood that it will have sufficient cash to
support operations. Those steps include reductions in headcount, reduced
compensation for officers and other salaried employees, a Company-wide
shutdown for one week each month and lower fees paid to the Board of
Directors, among other spending cuts. The Company will continue to explore
methods to further reduce its costs. The Company has filed a claim in the
Spansion U.S. bankruptcy action. In August 2009, the Company sold a portion
of its bankruptcy claim to a third party (note 15). The Company anticipates
that the existing cash balance together with cash provided by operations, and
the cash received as a result of the Company's sale of its bankruptcy claim
against its major customer are adequate to meet its working capital and
capital equipment requirements through fiscal year 2010. After fiscal year
2010, depending on its rate of growth and profitability, the Company may
require additional equity or debt financing to meet its working capital
requirements or capital equipment needs. There can be no assurance that
additional financing will be available when required, or if available, that
such financing can be obtained on terms satisfactory to the Company.

CONSOLIDATION AND EQUITY INVESTMENTS:

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. Equity
investments in which the Company holds an equity interest less than 20 percent
and over which the Company does not have significant influence are accounted
for using the cost method.

FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS:

Assets and liabilities of the Company's foreign subsidiaries and branch
office are translated into U.S. Dollars from Japanese Yen, Euros and New
Taiwan Dollars using the exchange rate in effect at the balance sheet date.
Additionally, their 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. 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
statements of operations as incurred. See Note 11 for the detail of foreign
exchange transaction gains (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, and disclosure of contingent assets and liabilities
at the date of the financial statements, and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.

CASH EQUIVALENTS AND INVESTMENTS:

Cash equivalents consist of money market instruments, commercial paper and
other highly liquid investments purchased with an original maturity of three
months or less. Investments not classified as cash equivalents are classified
as available-for-sale. Investments in available-for-sale securities are
reported at fair value with unrealized gains and losses, net of tax, if any,
included as a component of shareholders' equity.

FAIR VALUE OF FINANCIAL INSTRUMENTS:

On June 1, 2008, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 157, "Fair Value Measurements" ("SFAS No. 157") which
defines fair value, establishes a framework for using fair value to measure
assets and liabilities, and expands disclosures about fair value measurements.
SFAS No. 157 applies whenever other statements require or permit assets or
liabilities to be measured at fair value. SFAS No. 157 is effective for
fiscal years beginning after November 15, 2007, except for nonfinancial assets
and liabilities that are recognized or disclosed at fair value in the
financial statements on a nonrecurring basis, for which application has been
deferred for one year. In February 2008, the Financial Accounting Standards
Board ("FASB") issued FASB Staff Position No. 157-2, "Effective Date of FASB
Statement No. 157" ("FSP No. 157-2"). FSP No. 157-2 defers the effective date
of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities, except
those that are recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually), to fiscal years, and
interim periods within those fiscal years, beginning after November 15, 2008.
The adoption of SFAS No. 157 did not have a material impact on the Company's
consolidated financial statements.

SFAS No. 157 includes a fair value hierarchy that is intended to increase
the consistency and comparability in fair value measurements and related
disclosures. The fair value hierarchy is 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 and
liabilities measured at fair value on a recurring basis in accordance with
SFAS No. 157 as of May 31, 2009 (in thousands):

Balance as of
May 31, 2009 Level 1 Level 2
-------------- -------- ---------

Money market funds........... $2,549 $2,549 $ --
-------------- -------- ---------
$2,549 $2,549 $ --
============== ======== =========

Liabilities.................. $ -- $ -- $ --
============== ======== =========

As of May 31, 2009, the Company did not have any assets or liabilities
without observable market values that would require a high level of judgment
to determine fair value (Level 3 assets).

In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities - Including an amendment of FASB
Statement No. 115," ("SFAS No. 159") which is effective for fiscal years
beginning after November 15, 2007. SFAS No. 159 permits entities to choose to
measure many financial instruments and certain other items at fair value. SFAS
No. 159 also establishes presentation and disclosure requirements designed to
facilitate comparisons between entities that choose different measurement
attributes for similar types of

assets and liabilities. Unrealized gains and losses on items for which the
fair value option is elected would be reported in earnings. On June 1, 2008,
the Company adopted SFAS No. 159 and has elected not to measure any additional
financial instruments and other items at fair value.

ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS:

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. During
the year ended May 31, 2009, the Company recorded a $13,558,000 increase in
its allowance for doubtful accounts as a result of its major customer filing
for bankruptcy.

CONCENTRATION OF CREDIT RISK:

The Company sells its products primarily to semiconductor manufacturers in
North America, Asia, and Europe. As of May 31, 2009, approximately 76%, 22%
and 2% of gross accounts receivable are from customers located in the United
States, Asia and Europe, respectively. As of May 31, 2008, approximately 49%,
38% and 13% of gross accounts receivable were from customers located in the
United States, Asia and Europe, respectively. One customer accounted for 91%
of gross accounts receivable at May 31, 2009 and two customers accounted for
79% and 12% of gross accounts receivable at May 31, 2008. One customer
accounted for 80% of net sales in both fiscal 2009 and 2008, respectively.
Two customers accounted for 39% and 23% of net sales in fiscal 2007,
respectively. The Company performs ongoing credit evaluations of its
customers and generally does not require collateral. While the Company has
historically maintained reserves within management expectations, as a result
of the bankruptcy filing of a key customer during the fiscal year ended May
31, 2009, specific reserves were established. The specific reserves
established for this customer accounted for virtually all the allowance at May
31, 2009. The Company uses letter of credit terms for some of its
international customers.

The Company's cash, cash equivalents, short-term cash deposits and short-
term investments are generally deposited with major financial institutions in
the United States, Japan, Germany and Taiwan. The Company invests its excess
cash in money market funds and short-term cash deposits. The money market
funds and short-term cash deposits bear the risk associated with each fund.
The money market funds have variable interest rates, and the short-term cash
deposits have fixed rates. The Company has not experienced any material
losses on its money market funds or short-term cash deposits.

STRATEGIC INVESTMENTS:

The Company invests in debt and equity of private companies as part of its
business strategy. These investments are carried at cost and are included in
"Other Assets" in the consolidated balance sheets. If the Company determines
that an other-than-temporary decline exists in the fair value of an
investment, the Company writes down the investment to its fair value and
records the related write-down as an investment loss in "Other Income
(Expense)" in its consolidated statements of operations. At May 31, 2009 and
2008, the carrying value of the strategic investments was $384,000.

INVENTORIES:

Inventories include material, labor and overhead, and are stated at the
lower of cost (first-in, first-out method) or market. Provisions for excess,
obsolete and unusable inventories are made after management's evaluation of
future demand and market conditions. During the year ended May 31, 2009, the
Company recorded a $7,203,000 charge to cost of sales to reduce its inventory
to net realizable value as a result of changes in the semiconductor industry
and the bankruptcy filing of its major customer.

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, fixtures, machinery and equipment are depreciated on a
straight-line basis over their estimated useful lives. The ranges of
estimated useful lives for furniture, fixtures, machinery and equipment are
generally as follows:

Furniture and fixtures.......................... 2 to 6 years

Machinery and equipment......................... 4 to 6 years

Test equipment.................................. 4 to 6 years

GOODWILL:

Goodwill represents the excess of the purchase price over the fair value
of tangible and identifiable intangible net assets acquired in the Company's
acquisition of its Japanese subsidiary. In accordance with SFAS No. 142,
"Goodwill and Other Intangible Assets"("SFAS No. 142"), the Company ceased the
amortization of goodwill as of June 1, 2002 and performed an initial test of
goodwill impairment. The test indicated no impairment of the Company's
goodwill as of June 1, 2002, the initial date of adopting SFAS No. 142. In
accordance with SFAS No. 142, "Goodwill and Other Intangible Assets", goodwill
is reviewed annually or whenever events or circumstances indicate that a
decline in value may have occurred. Based on the fair market value of the
Company's common stock relative to its book value and revised estimates for
its future cash flow and revenue projections, the Company determined that
indicators of impairment for its goodwill were present during the third
quarter of 2009. As a result, the Company tested the goodwill for impairment,
determined that it was impaired and recorded a non-cash impairment of goodwill
charge of $274,000 in fiscal 2009.

REVENUE RECOGNITION:

The Company's selling arrangements may include contractual customer
acceptance provisions. Installation of products occurs after shipment and
transfer of title. The Company recognizes revenue in accordance with Staff
Accounting Bulletin ("SAB") No. 104, Revenue Recognition, corrected copy,
which requires revenue to be recognized upon the shipment of products or the
performance of services when: (1) persuasive evidence of the arrangement
exists; (2) services have been rendered; (3) the price is fixed or
determinable; and (4) collectibility is reasonably assured. The Company
defers recognition of revenue for any amounts subject to acceptance until such
acceptance occurs. When multiple elements exist, the Company allocates the
purchase price based on vendor specific objective evidence or third-party
evidence of fair value and defers revenue recognition on the undelivered
portion. Historically, these multiple deliverables have included items such
as extended support provisions, training to be supplied after delivery of the
systems, and test programs specific to customers' routine applications. The
test programs can be written either by the customer, other firms, or the
Company. The amount of revenue deferred is the greater of the fair value of
the undelivered element or the contractually agreed to amounts. Sales tax
collected from customers is not included in revenue but rather recorded as a
liability due to the respective taxing authorities.

The Company's terms of sales with distributors are generally FOB shipping
point with payment due within 60 days. The only right of return is if the
equipment does not meet the published specifications. All products go through
in-house testing and verification of specifications before shipment. Apart
from warranty reserves, credits issued have not been material as a percentage
of net sales. The Company's distributors do not generally carry inventories
of the Company's products. Instead, the distributors place orders with the
Company at or about the time they receive orders from their customers. The
Company's shipment terms to our distributors do not provide for credits or
rights of return. Because the Company's distributors do not generally carry
inventories of our products, they do not have rights to price protection or to
return products. At the time the Company ships products to the distributors,
the price is fixed. Subsequent to the issuance of the invoice, there are no
discounts or special terms. Paragraph 6 of SFAS No. 48, "Revenue Recognition
When Right of Return Exists", is not applicable because the Company does not
give the buyer the right to return the product or to receive future price
concessions. The Company's arrangements do not include vendor consideration
as described in Emerging Issues Task Force No. 01-09, "Accounting for
Consideration Given by a Vendor to a Customer (Including a Reseller of the
Vendor's Products)."

research and development costs. No system software development costs were
capitalized or amortized in fiscal 2009, 2008 or 2007.

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 2009, 2008 and 2007.

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:

The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes" ("SFAS No. 109"). This statement prescribes the
use of the liability method whereby deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse.
Valuation allowances are established when necessary to reduce deferred tax
assets to amounts expected to be realized.

In June 2006, the FASB issued Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109"
("FIN No. 48"). FIN No. 48 clarifies the accounting for uncertainty in income
taxes recognized in the Company's financial statements in accordance with SFAS
No. 109. FIN No. 48 prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. FIN No. 48 also
provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure, and transition. The evaluation of
a tax position in accordance with FIN No. 48 is a two-step process. The first
step is recognition: the Company determines whether it is "more-likely-than-
not" that a tax position will be sustained upon examination, including
resolution of any related appeals or litigation processes, based on the
technical merits of the position. In evaluating whether a tax position has
met the "more-likely-than-not" recognition threshold, the Company presumes
that the position will be examined by the appropriate taxing authority that
would have full knowledge of all relevant information. The second step is
measurement: a tax position that meets the "more-likely-than-not" recognition
threshold is measured to determine the amount of benefit to recognize in the
financial statements. The tax position is measured at the largest amount of
benefit that is greater than 50 percent likely to be realized upon ultimate
settlement. FIN No. 48 is effective for fiscal years beginning after December
15, 2006.

Upon adoption of FIN No. 48 on June 1, 2007, the Company recognized a
cumulative effect adjustment of $127,000, decreasing its income tax liability
for unrecognized tax benefits, and decreasing the June 1, 2007 accumulated
deficit balance. In accordance with FIN No. 48, the Company recognizes
interest and penalties related to unrecognized tax benefits as a component of
income taxes.

STOCK-BASED COMPENSATION:

The Company accounts for stock-based compensation under the provisions of
SFAS No. 123 (revised 2004), "Share-Based Payment," ("SFAS No. 123(R)") which
requires companies to estimate the fair value of share-based payment awards on
the date of grant using an option-pricing model. SFAS No. 123(R) establishes
accounting for stock-based awards exchanged for employee services.
Accordingly, stock-based compensation cost is measured at each grant date,
based on the fair value of the award, and is recognized as expense over the
employee's requisite service period. All of the Company's stock compensation
is accounted for as an equity instrument. See Notes 8 and 9 for further
information regarding the stock option plan and the employee stock purchase
plan.

The following table summarizes compensation costs related to the
Company's stock-based compensation for the years ended May 31, 2009, 2008 and
2007, respectively (in thousands, except per share data):

Year Ended
May 31,
--------------------
2009 2008 2007
------ ------ ------

Stock-based compensation in the form of employee
stock options and ESPP shares, included in:

Cost of sales................................... $230 $134 $ 58
Selling, general and administrative............. 640 478 386
Research and development........................ 400 279 256
------ ------ ------
Total stock-based compensation.................. 1,270 891 700
Tax effect on stock-based compensation.......... -- (18) (14)
------ ------ ------
Net effect on net (loss)income.................. $1,270 $873 $686
====== ====== ======
Effect on net (loss)income per share:
Basic. . . . . . . . . . . . . . . . . $0.15 $0.11 $0.09
Diluted. . . . . . . . . . . . . . . . $0.15 $0.10 $0.08

As of May 31, 2009, none of the stock-based compensation costs is
capitalized as part of inventory.

During fiscal 2009, 2008 and fiscal 2007, the Company recorded stock-based
compensation related to stock options of $1,115,000, $750,000 and $555,000,
respectively.

As of May 31, 2009, the total compensation cost related to unvested stock-
based awards under the Company's 1996 Stock Option Plan and 2006 Equity
Incentive Plan, but not yet recognized, was approximately $2,354,000 which is
net of estimated forfeitures of $48,000. This cost will be amortized on a
straight-line basis over a weighted average period of approximately
2.8 years.

During fiscal 2009, 2008 and fiscal 2007, the Company recorded stock-based
compensation related to its Employee Stock Purchase Plan ("ESPP") of $155,000,
$141,000 and $145,000, respectively.

As of May 31, 2009, the total compensation cost related to options to
purchase the Company's common shares under the ESPP but not yet recognized was
approximately $132,000. This cost will be amortized on a straight-line basis
over a weighted average period of approximately 0.7 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 for options granted after June 1, 2006. The
multiple option approach has been used for all options granted prior to June
1, 2006. The fair value under the single option approach is amortized on a
straight-line basis over the requisite service periods of the awards, which is
generally the vesting period. The fair value under the multiple option
approach is amortized on a weighted basis over the requisite service periods
of the awards, which is generally the vesting period.

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.

Expected 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 cost recorded.

Dividends. The Company has never paid any cash dividends on its common
stock and does not anticipate paying any cash dividends in the foreseeable
future. Consequently, the Company uses an expected dividend yield of zero in
the Black-Scholes option valuation method.

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.

Estimated Forfeitures. When estimating forfeitures, the Company considers
voluntary termination behavior as well as analysis of actual option
forfeitures.

Fair Value. The fair values of the Company's stock options granted to
employees and ESPP shares in fiscal 2009, 2008 and 2007 were estimated using
the following weighted average assumptions in the Black-Scholes option
valuation method consistent with the provisions of SFAS No. 123(R), Securities
and Exchange Commission SAB No. 107 and the Company's prior pro forma
disclosures of net income (loss), including stock-based compensation
(determined under a fair value method as prescribed by SFAS No. 123).

The fair value of our stock options granted to employees in fiscal 2009,
2008 and 2007 was estimated using the following weighted-average assumptions:

Year Ended May 31,
----------------------------------
2009 2008 2007
---------- ---------- ----------

Option Plan Shares
Expected Term (in years)............... 5 5 5
Volatility............................. 0.74 0.74 0.75
Expected Dividend...................... $0.00 $0.00 $0.00
Risk-free Interest Rates............... 2.99% 4.59% 4.72%
Estimated Forfeiture Rates............. 2% 2% 4%
Weighted Average Grant Date Fair Value. $3.67 $3.94 $5.19

The fair value of our ESPP shares for the fiscal 2009, 2008 and 2007 was
estimated using the following weighted-average assumptions:

Year Ended May 31,
-----------------------------------
2009 2008 2007
----------- ----------- -----------

Employee Stock Purchase Plan Shares
Expected Term (in years)................ 0.5 - 2.0 0.5 - 2.0 0.5 - 2.0
Volatility.............................. 0.62 - 1.08 0.43 - 0.69 0.49 - 0.70
Expected Dividend....................... $0.00 $0.00 $0.00
Risk-free Interest Rates................ 0.41%-2.59% 2.21%-4.93% 4.67%-5.05%
Estimated Forfeiture Rates.............. 0% 0% 4%
Weighted Average Grant Date Fair Value.. $1.28 $2.15 $1.42

EARNINGS PER SHARE ("EPS"):

Basic EPS is computed by dividing net income (loss) available to common
shareholders by the weighted average number of common shares outstanding for
the period. Diluted EPS is computed after giving effect to all dilutive
potential common shares that were outstanding during the period. Dilutive
potential common shares consist of the incremental common shares issuable upon
exercise of stock options for all periods.

A reconciliation of the numerator and denominator of basic and diluted EPS
is provided as follows (in thousands, except per share amounts):

Year Ended May 31,
--------------------------------
2009 2008 2007
---------- ---------- ----------

Numerator: Net (loss)income................. $(29,971) $10,573 $2,428
---------- ---------- ----------
Denominator for basic net (loss) income
per share:
Weighted-average shares outstanding....... 8,436 8,013 7,751
---------- ---------- ----------
Shares used in basic net (loss) income
per share calculation..................... 8,436 8,013 7,751

Effect of dilutive securities............... -- 495 474
---------- ---------- ----------
Denominator for diluted net (loss) income
per share................................. 8,436 8,508 8,225
---------- ---------- ----------

Basic net (loss) income per share........... $(3.55) $ 1.32 $ 0.31
========= ========= =========
Diluted net (loss) income per share......... $(3.55) $ 1.24 $ 0.30
========= ========= =========

For purposes of computing diluted earnings per share, weighted average
potential common shares do 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. Potential common shares have
not been included in the calculation of diluted net loss per share for the
fiscal year ended May 31, 2009, 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 the fiscal year ended May 31, 2009 are the same. Stock
options to purchase 1,636,000, 524,000 and 135,000 shares of common stock were
outstanding on May 31, 2009, 2008 and 2007, respectively, but not included in
the computation of diluted income per share, because the inclusion of such
shares would be anti-dilutive.

COMPREHENSIVE INCOME (LOSS):

SFAS No. 130 ("SFAS 130"), "Reporting Comprehensive Income," establishes
standards for reporting comprehensive income (loss) and its components in
financial statements. Unrealized gains (losses) on available-for-sale
securities and 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 statement
of shareholders' equity and comprehensive income (loss).

RECENT ACCOUNTING PRONOUNCEMENTS:

In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests
in Consolidated Financial Statements - an amendment of ARB No. 51" ("SFAS
No. 160"). The objective of SFAS No. 160 is to improve the relevance,
comparability, and transparency of the financial information that a company
provides in its consolidated financial statements. SFAS No. 160 requires
companies to clearly identify and present ownership interests in subsidiaries
held by parties other than the company in the consolidated financial
statements within the equity section but separate from the company's equity.
It also requires the amount of consolidated net income attributable to the
parent and to the noncontrolling interest be clearly identified and presented
on the face of the consolidated statement of income; changes in ownership
interest be accounted for similarly, as equity transactions; and when a
subsidiary is deconsolidated, any retained noncontrolling equity investment in
the former subsidiary and the gain or loss on the deconsolidation of the
subsidiary be measured at fair value. SFAS No. 160 is effective as of the
beginning of an entity's first fiscal year beginning after December 15, 2008.
The Company is currently evaluating the impact, if any, that the adoption of
SFAS No. 160 will have on its consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business
Combinations" ("SFAS No. 141(R)"). The objective of SFAS No. 141(R) is to
improve the relevance, representational faithfulness, and comparability of the
information that a company provides in its financial reports about a business
combination and its effects. Under SFAS No. 141(R), a company is required to
recognize the assets acquired, liabilities assumed, contractual contingencies,
and contingent consideration measured at their fair value at the acquisition
date. It further requires that research and development assets acquired in a
business combination that have no alternative future use be measured at their
acquisition-date fair value and then immediately charged to expense, and that
acquisition-related costs are to be recognized separately from the acquisition
and expensed as incurred. Among other changes, SFAS No. 141(R) also requires
that "negative goodwill" be recognized in earnings as a gain attributable to
the acquisition, and any deferred tax benefits resulted in a business
combination are recognized in income from continuing operations in the period
of the business combination. SFAS No. 141(R) is effective for fiscal years
beginning after December 15, 2008. Early adoption is prohibited. SFAS No.
141(R) will only impact the Company if the Company is involved in a business
combination.

In December 2007, the Securities and Exchange Commission ("SEC") issued
SAB No. 110, extending the use, under certain circumstances, of the simplified
method for developing an estimate of the expected term of share options. The
Company is currently evaluating the potential impact of this issuance.

In October 2008, the FASB issued FASB Staff Position No. 157-3,
"Determining the Fair Value of a Financial Asset When the Market for That
Asset is Not Active" ("FSP No. 157-3"). FSP No. 157-3 clarifies the
application of SFAS No. 157 in a market that is not active and it is effective
upon the issuance date. The application of FSP No. 157-3 did not have a
material impact on the Company's consolidated financial statements.

In April 2009, the FASB issued FSP SFAS No. 157-4, "Determining Fair Value
When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly"
("FSP No. 157-4") which will be effective for interim and annual periods
ending after June 15, 2009 and will be adopted by the Company beginning in the
fiscal quarter of fiscal 2010. FSP No. 157-4 provides guidance on how to
determine the fair value of assets and liabilities under SFAS No. 157 "Fair
Value Measurements", in the current economic environment and reemphasizes that
the objective of a fair value measurement remains the determination of an exit
price. The Company is evaluating the impact of the implementation of FSP No.
157-4 on its consolidated financial statements.

In April 2009, the FASB issued FSP FAS No. 107-1 and APB No. 28-1 "Interim
Disclosures About Fair Value of Financial Instruments" ("FSP FAS No. 107-1 and
APB No. 28-1"). The FSP amends SFAS No. 107 "Disclosures about Fair Value of
Financial Instruments" to require an entity to provide disclosures about fair
value of financial instruments in interim financial information. This FSP is
to be applied prospectively and is effective for interim and annual periods
ending after June 15, 2009.

In May 2009, the FASB issued SFAS No. 165, "Subsequent Events" ("SFAS
No. 165"). SFAS No. 165 established general standards of accounting for and
disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. This standard
required the Company to disclose the date through which the Company has
evaluated subsequent events and the basis for the date. This standard was
effective for interim periods ending after June 15, 2009.

In June 2009, the FASB issued SFAS No. 168, "The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles - a
Replacement of FASB Statement No. 162" ("SFAS No. 168"). SFAS No. 168
establishes that the FASB Accounting Standards Codification ("the
Codification") will become the single official source of authoritative
generally accepted accounting principles ("GAAP") in the United States of
America, other than guidance issued by the SEC. Following SFAS No. 168, the
FASB will not issue new standards in the form of Statements, Staff Positions
or Emerging Issues Task Force Abstracts. Instead, the FASB will issue
Accounting Standards Updates. All guidance contained in the Codification
carries an equal level of authority. The GAAP hierarchy will be modified to
include only two levels of GAAP: authoritative and non-authoritative. All non-
grandfathered, non-SEC accounting literature not included in the Codification
will become non-authoritative. The Codification, which changes the referencing
of financial standards, becomes effective for interim and annual periods
ending on or after September 15, 2009. The Company does not expect the
adoption of SFAS No. 168 to have a material impact on its business, results of
operations or financial condition.

2. ACCOUNTS RECEIVABLE:

Accounts receivable comprise (in thousands):

May 31,
----------------------
2009 2008
---------- ----------

Trade accounts receivable............... $14,672 $11,110
Less: Allowance for doubtful accounts... (13,741) (183)
---------- ----------
$931 $10,927
========== ==========

Additions
Balance at Charged to Balance
beginning costs and at end
of year expenses Deductions* of year
---------- ---------- ---------- ----------

Allowance for doubtful
accounts receivable:

May 31, 2009 $183 $13,655 $97 $13,741
========== ========== ========== ==========

May 31, 2008 $87 $100 $ 4 $183
========== ========== ========== ==========

May 31, 2007 $70 $ 47 $30 $ 87
========== ========== ========== ==========

* Deductions include write-offs of uncollectible accounts and collections of
amounts previously reserved.

3. INVENTORIES:

Inventories comprise (in thousands):

May 31,
-------------------------
2009 2008
------------ ------------

Raw materials and subassemblies......... $1,416 $5,482
Work in process......................... 2,509 4,462
Finished goods.......................... 547 265
------------ ------------
$4,472 $10,209
============ ============

4. PROPERTY AND EQUIPMENT:

Property and equipment comprise (in thousands):

May 31,
-------------------------
2009 2008
------------ ------------

Leasehold improvements.................. $1,104 $1,106
Furniture and fixtures.................. 1,170 1,171
Machinery and equipment................. 4,221 3,663
Test equipment.......................... 3,709 3,320
------------ ------------
10,204 9,260
Less: Accumulated depreciation
and amortization...................... (7,463) (6,982)
------------ ------------
$2,741 $2,278
============ ============

5. PRODUCT WARRANTIES:

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

Following is a summary of changes in the Company's liability for product
warranties during the fiscal years ended May 31, 2009 and May 31, 2008 (in
thousands):

Year ended
May 31,
-------------------------
2009 2008
------------ ------------

Balance at the beginning of the year............ $387 $153
Accruals for warranties issued during the year.. 382 790
Accruals related to pre-existing warranties
(including changes in estimates)............... -- --
Settlements made during the year
(in cash or in kind)........................... (455) (556)
------------ ------------
Balance at the end of the year.................. $314 $387
============ ============

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

6. ACCRUED EXPENSES:

Accrued expenses comprise (in thousands):

May 31,
-------------------------
2009 2008
------------ ------------

Payroll related......................... $ 628 $1,055
Professional services................... 159 176
Accrued cancellation charges............ 195 --
Accrued construction in progress........ 317 --
Commissions and bonuses................. 114 605
Taxes payable........................... 89 567
Warranty................................ 314 387
Other................................... 291 904
------------ ------------
$2,107 $3,694
============ ============

7. INCOME TAXES:

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

Year Ended May 31,
--------------------------------------
2009 2008 2007
------------ ------------ ------------

Domestic......................... $(22,480) $5,440 $2,239
Foreign.......................... (2,576) 531 264
------------ ------------ ------------
$(25,056) $5,971 $2,503
============ ============ ============

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

Year Ended May 31,
--------------------------------------
2009 2008 2007
------------ ------------ ------------

Federal income taxes:
Current......................... $ (57) $ 115 $ 33
Deferred........................ 3,186 (3,186) --
State income taxes:
Current......................... (5) 108 22
Deferred........................ 453 (453) --
Foreign income taxes:
Current......................... 34 (97) 20
Deferred........................ 1,304 (1,089) --
------------ ------------ ------------
$4,915 $(4,602) $75
============ ============ ============

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

Year Ended May 31,
--------------------------------------
2009 2008 2007
------------ ------------ ------------

U.S. federal statutory tax rate... 34.0 % 34.0 % 34.0 %
State taxes, net of federal tax
effect.......................... (1.8) (6.1) 0.9
Foreign rate differential......... (8.9) (23.1) (3.9)
Stock-based compensation.......... (1.6) 3.4 8.2
Research and development credit... 1.0 (7.1) (4.0)
Change in valuation allowance .... (42.1) (76.6) (33.1)
Other............................. (0.2) (1.6) 0.2
------------ ------------ ------------
Effective tax rate................ (19.6)% (77.1)% 2.3 %
============ ============ ============

The components of the net deferred tax asset (liability) are as follows (in
thousands):

May 31,
-------------------------
2009 2008
------------ ------------

Net operating losses..................... $3,468 $1,225
Credit carryforwards..................... 3,533 2,888
Inventory reserves....................... 4,055 1,628
Reserves and accruals.................... 6,753 2,138
Other.................................... 673 947
------------ ------------
18,482 8,826

Less: Valuation allowance.................. (18,482) (3,883)
------------ ------------
Net deferred tax asset..................... $0 $4,943
============ ============

The valuation allowance increased by $14.6 million during fiscal 2009, and
decreased by $6.1 million during fiscal 2008, and $1.1 million during fiscal
2007. As of May 31, 2009, the Company concluded that it is not more likely
than not that the deferred tax assets would 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, 2009, the Company had federal and state net operating loss
carryforwards of approximately $9.6 million and $8.9 million, respectively.
These carryforwards will begin to expire in 2024 and 2014, respectively. At
May 31, 2009, the Company also had federal and state research and development
tax credit carryforwards of approximately $1.3 million and $2.9 million,
respectively. The federal credit carryforward will begin to expire in 2016,
and the California credit will carryforward indefinitely. These carryforwards
may be subject to certain limitations on annual utilization in case of a
change in ownership, as defined by tax law. The Company also has alternative
minimum tax credit carryforwards of $275,000 for federal tax purposes and
$34,000 for state purposes. The credits may be used to offset regular tax and
do not expire.

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. Determination of the amount of unrecognized deferred
income tax liability related to these earnings is not practicable.

Foreign net operating loss carryforwards of approximately $907,000 are
available to reduce future foreign taxable income. The foreign net operating
losses will begin to expire in 2012.

The Company adopted the provisions of FIN No. 48 on June 1, 2007. The
cumulative effect of adopting FIN No. 48 was a $127,000 decrease to
accumulated deficit and a decrease to income tax liability.

The aggregate changes in the balance of gross unrecognized tax benefits
since adoption were as follows: (in thousands)

Beginning balance as of June 1, 2007 (upon adoption) .... $1,005
Increases related to prior year tax positions............ 4
Increases related to current year tax positions ......... 159
Decreases related to lapse of statute of limitations..... (25)
------------
Ending balance at May 31, 2008........................... $1,143
============

Beginning balance as of June 1, 2008..................... $1,143
Increases related to prior year tax positions............ 49
Increases related to current year tax positions ......... 5
Decreases related to lapse of statute of limitations..... (7)
------------
Ending balance at May 31, 2009........................... $1,190
============

If the ending balance of $1,190,000 of unrecognized tax benefits at May
31, 2009 were recognized, approximately $277,000 would affect the effective
income tax rate. In accordance with the Company's accounting policy, it
recognizes accrued interest and penalties related to unrecognized tax benefits
in the provision for income taxes. This policy did not change as a result of
the adoption of FIN No. 48. The Company had accrued interest and penalties of
$22,000 at May 31, 2009.

Although the Company files U.S. federal, various state, and foreign tax
returns, the Company's only major tax jurisdictions are the United States,
California, Germany and Japan. Tax years 1996 - 2008 remain subject to
examination by the appropriate governmental agencies due to tax loss
carryovers from those years.

8. CAPITAL STOCK:

STOCK OPTIONS:

In October 1996, the Company's Board of Directors approved the 1996 Stock
Option Plan (the "Stock Plan"), which provided for granting of incentive and
non-qualified stock options to our employees and directors. The Stock Plan
provides that qualified options be granted at an exercise price equal to the
fair market value at the date of grant, as determined by the Board of
Directors (85% of fair market value in the case of non-statutory options and
purchase rights and 110% of fair market value in certain circumstances).
Options generally expire within five years from date of grant. Most options
become exercisable in increments over a four-year period from the date of
grant.

In October 2006, the Company's 2006 Equity Incentive Plan and 2006
Employee Stock Purchase Plan ("2006 Plans") were approved by the shareholders.
A total of 600,000 shares of common stock have been reserved for issuance
under the Company's 2006 Equity Incentive Plan. Options granted under the
2006 Equity Incentive Plan are generally for periods not to exceed ten years
(five years if the option is granted to a 10% stockholder) and are granted at
the fair market value of the stock at the date of grant as determined by the
Board of Directors. The 2006 Plans respectively replace the Company's Amended
and Restated 1996 Stock Option Plan, which would otherwise have expired in
2006; and the Company's 1997 Employee Stock Purchase Plan, which would have
otherwise expired in 2007. The Amended and Restated 1996 Stock Option Plan
will continue to govern awards previously granted under that plan.

As of May 31, 2009, out of the 2,172,000 shares authorized for grant under
the 1996 Stock Option Plan and 2006 Equity Incentive Plan, approximately
1,636,000 shares had been granted.

The following table summarizes the Company's stock option transactions
during fiscal 2009, 2008 and 2007 (in thousands, except per share data):

Outstanding Options
--------------------------------------------
Weighted
Number Average Aggregate
Available of Exercise Intrinsic
Shares Shares Price Value
---------- -------- --------- ----------

Balances, May 31, 2006........ 334 1,269 $3.81 $3,234

Options granted............. (194) 194 $7.98
Additional shares reserved.. 600 --
Options terminated.......... 5 (5) $5.02
Options exercised........... -- (108) $4.07
---------- --------
Balances, May 31, 2007........ 745 1,350 $4.38 $2,633

Options granted............. (422) 422 $6.24
Options terminated.......... 27 (27) $6.02
Options exercised........... -- (479) $4.18
---------- --------
Balances, May 31, 2008........ 350 1,266 $5.05 $4,632

Options granted............. (555) 555 $6.01
Additional shares reserved.. 600 --
Options terminated.......... 141 (141) $5.37
Options exercised........... -- (44) $4.35
---------- --------
Balances, May 31, 2009........ 536 1,636 $5.37 --
========== ========

Options exercisable and expected to be
exercisable at May 31, 2009 1,603 $5.37 --
========

The options outstanding and exercisable at May 31, 2009 were in the
following exercise price ranges (in thousands, except per share data):

Options Outstanding Options Exercisable
at May 31, 2009 at May 31, 2009
-------------------------------- --------------------------------------
Weighted Weighted
Average Weighted Number Weighted Average
Range of Number Remaining Average Exer- Average Remaining Aggregate
Exercise Outstanding Contractual Exercise cisable Exercise Contractual Intrinsic
Prices Shares Life (Years) Price Shares Price Life (Years) Value
----------- ----------- ----------- -------- ------- -------- ----------- ---------

$1.29-$3.63 651 3.16 $2.76 438 $3.01 2.54
$3.66-$4.08 128 1.65 $3.90 128 $3.91 1.65
$4.35-$4.60 51 0.56 $4.45 51 $4.45 0.56
$5.91-$7.00 390 2.98 $6.12 204 $6.11 2.86
$7.28-$10.93 416 4.02 $9.30 176 $8.83 3.98
----------- -------
$1.29-$10.93 1,636 3.13 $5.37 997 $4.86 2.64 --
=========== =======

The total intrinsic value of options exercised during fiscal 2009 was
$219,000. The weighted average contractual life of the options exercisable
and expected to be exercisable at May 31, 2009 was 3.13 years.

Options to purchase 996,934, 770,383 and 971,519 shares were exercisable
at May 31, 2009, 2008 and 2007, respectively. These exercisable options had
weighted average exercise prices of $4.86, $4.38 and $4.08 of May 31, 2009,
2008 and 2007, respectively.

9. EMPLOYEE BENEFIT PLANS:

EMPLOYEE STOCK OWNERSHIP PLAN:

The Company has a non-contributory, trusteed employee stock option 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 & Retirement
Plan. For anyone who meets the above prerequisites, the first election to
diversify holdings will be 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, $177,000 and $155,250 were authorized for the plan
during fiscal 2009, 2008 and 2007, respectively. Contributions of 25,661
shares were contributed to the ESOP during fiscal 2008 for fiscal 2007.
Contribution of 20,344 shares were contributed to the ESOP during fiscal 2009
for fiscal 2008. The contribution for fiscal 2009 will be made in fiscal
2010.

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 2009, 2008 and 2007.

EMPLOYEE STOCK PURCHASE PLAN:

The Company's Board of Directors adopted the 1997 Employee Stock Purchase
Plan in June 1997. A total of 400,000 shares of common stock have been
reserved for issuance under the plan. The 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,
except that the first such offering period commenced with the effectiveness of
the Company's initial public offering and ended on the last trading day on or
before March 31, 1999. 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 1997
Employee Stock Purchase Plan. The maximum number of shares a participant may
purchase during a single purchase period is 3,000 shares.

In October 2006, the Company's shareholders approved the 2006 Employee
Stock Purchase Plan ("2006 Purchase Plan"). A total of 200,000 shares of the
Company's common stock were reserved for issuance under the 2006 Purchase
Plan. The 2006 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. The first exercise
date under the 2006 Purchase Plan was April 1, 2007. 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 2006 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 2006 Purchase Plan. For the years ended May 31, 2009, 2008 and 2007,
approximately 73,000, 34,000, and

43,000 shares of common stock, respectively, were issued under the plans. To
date, 519,276 shares have been issued under the plans.

10. STOCKHOLDER RIGHTS PLAN:

The Company's Board of Directors adopted a Stockholder Rights Plan on
March 5, 2001, under which a dividend of one Right to purchase one one-
thousandth of a share of the Company's Series A Participating Preferred Stock
was distributed for each outstanding share of the Company's common stock. The
plan entitles each Right holder to purchase 1/1000th of a share of the
Company's Series A Participating Preferred Stock at an exercise price of
$35.00, subject to adjustment, in certain events, such as a tender offer to
acquire 20% or more of the Company's outstanding common stock. Under some
circumstances, such as if a person or group acquires 20% or more of the
Company's common stock prior to redemption of the Rights, the plan entitles
such holders (other than an acquiring party) to purchase the Company's common
stock having a market value at that time of twice the Right's exercise price.
The Rights expire on April 3, 2010.

11. OTHER INCOME (EXPENSE), NET:

Other income (expense), net comprises the following (in thousands):

Year Ended May 31,
-----------------------------------
2009 2008 2007
----------- ----------- -----------

Foreign exchange gain (loss)...... $331 $(48) $(18)
Income from investment .......... -- -- 936
Other, net........................ (54) (23) 43
----------- ----------- -----------
$277 $(71) $961
=========== =========== ===========

12. SEGMENT INFORMATION:

As the Company's business is completely focused on one industry segment,
the designing, manufacturing and marketing of advanced test and burn-in
products to the semiconductor manufacturing industry, management believes that
the Company has only one reportable segment. The Company's net sales and
profits are generated through the sale and service of products for this one
segment.

The following presents information about the Company's operations in
different geographic areas (in thousands):

United Adjust-
States Asia Europe ments Total
--------- --------- --------- --------- ---------

2009:
Net sales...................... $20,040 $5,032 $1,401 $ (5,066) $21,407
Portion of U.S. net sales from
export sales, including sales
to subsidiaries.............. 14,026 -- -- -- 14,026
Income (loss) from operations.. (22,859) (2,550) 58 (124) (25,475)
Identifiable assets............ 24,762 2,983 1,624 (15,458) 13,911
Property and equipment, net.... 2,642 88 11 -- 2,741

2008:
Net sales...................... $36,818 $19,945 $1,352 $(19,074) $39,041
Portion of U.S. net sales from
export sales, including sales
to subsidiaries.............. 21,698 -- -- -- 21,698
Income from operations......... 5,147 709 35 (80) 5,811
Identifiable assets............ 52,431 5,526 1,660 (14,418) 45,199
Property and equipment, net.... 2,193 67 18 -- 2,278

2007:
Net sales...................... $24,882 $4,104 $1,161 $ (2,796) $27,351
Portion of U.S. net sales from
export sales, including sales
to subsidiaries.............. 9,127 -- -- -- 9,127
Income from operations......... 669 368 7 7 1,051
Identifiable assets............ 37,165 2,405 1,038 (11,933) 28,675
Property and equipment, net.... 1,607 72 10 -- 1,689

The Company's foreign operations are primarily those of its Japanese and
German subsidiaries. Substantially all of the sales of the subsidiaries are
made to unaffiliated Japanese or European customers. Net sales and income
(loss) from operations from outside the United States include the operating
results of Aehr Test Systems Japan K.K. and Aehr Test Systems GmbH.
Adjustments consist of intercompany eliminations. Identifiable assets are all
assets identified with operations in each geographic area.

13. RELATED PARTY TRANSACTIONS:

The Company has entered into transactions with ESA Electronics Pte Ltd.
("ESA") in which the Company owned a 12.5% interest at May 31, 2009, 2008 and
2007. ESA purchased goods from the Company for approximately $30,000, $7,000
and $15,000 during fiscal 2009, 2008 and 2007, respectively. In addition, the
Company purchased goods from ESA for approximately $3,000, $2,000 and $1,000
in fiscal 2009, 2008 and 2007, respectively. At May 31, 2009 and 2008, the
Company had no amounts payable to ESA. At May 31, 2009 and 2008, the Company
had no amounts receivable from ESA.

Mario M. Rosati, one of the Company's directors, is 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.

14. COMMITMENTS AND CONTINGENCIES:

COMMITMENTS

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. These
commitments expire no later than June 2016. Under the lease agreements, the
Company is responsible for payments of utilities, taxes and insurance.

Minimum annual rentals payments under operating leases in each of the next
five fiscal years and thereafter are as follows (in thousands):

Years Ending May 31,
2010.................................... $ 525
2011.................................... 530
2012.................................... 538
2013.................................... 555
2014.................................... 573
Thereafter.............................. 642
------
Total $3,363
======

Rental expense for the years ended May 31, 2009, 2008 and 2007 was
approximately $684,000, $927,000 and $927,000, respectively.

At May 31, 2009, the Company had a $50,000 certificate of deposit 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, 2009, the Company had approximately
$0.6 million 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

On April 24, 2009, Aehr Test Systems Japan filed a claim against Spansion
Japan in the Tokyo District Court for claims for goods and services provided
to Spansion. The claim consists primarily of accounts receivable for goods
and services provided, interest, and cancellation charges for goods and
services ordered by Spansion which were not delivered to Spansion. These
orders were canceled due to Spansion's failure to pay per terms. The claim is
currently under review.

On May 5, 2009, Aehr Test filed a claim against Spansion, Inc. in the
United States Bankruptcy Court of the District of Delaware for claims for
goods and services provided to Spansion. The claim consists primarily of
accounts receivable for goods and services provided, and cancellation charges
for goods and services ordered by Spansion which were not delivered to
Spansion. These orders were canceled due to Spansion's failure to pay per
terms. The claim is currently under review.

While we cannot predict the outcome of these claims, Aehr believes that
the settlement of these claims will have a material effect on its consolidated
financial condition and result of operations.

The Company is, from time to time, 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. The Company has agreed to hold the other party harmless
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.

15. SUBSEQUENT EVENT:

In August 2009, the Company sold a portion of its bankruptcy claim against
Spansion for approximately $3.3 million.

SELECTED QUARTERLY CONSOLIDATED FINANCIAL DATA (UNAUDITED)

The following table (presented in thousands, except per share data) sets
forth selected unaudited condensed consolidated statements of income data for
each of the four quarters of the fiscal years ended May 31, 2009 and 2008.
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.

Three Months Ended
------------------------------------------
Aug. 31, Nov. 30, Feb. 28, May 31,
2008 2008 2009 2009
--------- --------- --------- ---------

Net sales.............................. $9,690 $9,242 $ 1,235 $ 1,240
Gross profit (loss).................... $4,918 $4,592 $ (6,814) $(1,512)
Net income (loss)...................... $ 865 $ 872 $(27,680) $(4,028)
Net income (loss) per share (basic).... $ 0.10 $ 0.10 $ (3.28) $ (0.48)
Net income (loss)per share (diluted)... $ 0.10 $ 0.10 $ (3.28) $ (0.48)

Three Months Ended
------------------------------------------
Aug. 31, Nov. 30, Feb. 29, May 31,
2007 2007 2008 2008
--------- --------- --------- ---------

Net sales.............................. $7,660 $9,675 $10,792 $10,914
Gross profit........................... $4,181 $4,884 $ 5,530 $ 5,374
Net income............................. $ 779 $1,366 $ 1,926 $ 6,502
Net income per share (basic)........... $ 0.10 $ 0.17 $ 0.24 $ 0.79
Net income per share (diluted)......... $ 0.09 $ 0.16 $ 0.23 $ 0.74

During the three months ended February 28, 2009 the Company recorded the
following charges:
a provision for bad debt of $13.7 million,
a provision for excess and obsolete inventory of $5.7 million,
the reinstatement of the deferred tax asset valuation allowance of
$4.9 million,
cancellation charges of $0.5 million,
an impairment of goodwill of $0.3 million, and
severance costs of $0.2 million.

During the three months ended May 31, 2009 the Company recorded the
following charges:
a provision for excess and obsolete inventory of $1.5 million,
severance costs of $0.2 million. and
a credit of $0.3 million for the settlement of cancellation charges
accrued in the three months ended February 28, 2009.

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

None.

Item 9A(T). Controls and Procedures

(a) Evaluation of disclosure controls and procedures.

Our management evaluated, with the participation of our Chief
Executive Officer and Chief Financial Officer, the effectiveness of our
disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-
15(e) under the Exchange Act, as of the end of the period covered by this
Annual Report on Form 10-K. Based on this evaluation, our Chief Executive
Officer and our Chief Financial Officer have concluded that our disclosure
controls and procedures are effective to ensure that information we are
required to disclose in reports that we file or submit under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within
the time periods specified in Securities and Exchange Commission rules and
forms, and that such information is accumulated and communicated to

management, including our Chief Executive Officer and Chief Financial Officer,
as appropriate to allow for timely decisions regarding required disclosure.

(b) Management's report on internal control over financial reporting.

Our management is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in Rule 13a-
15(f) of the Exchange Act. Under the supervision and with the participation
of our Chief Executive Officer and Chief Financial Officer, our management
conducted an evaluation of the effectiveness of our internal control over
financial reporting based upon the framework in "Internal Control - Integrated
Framework" issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on that evaluation, management has concluded that the
Company's internal control over financial reporting was effective as of May
31, 2009. This annual report does not include an attestation report of the
Company's registered public accounting firm regarding internal control over
financial reporting. Management's report was not subject to attestation by
the Company's registered public accounting firm pursuant to temporary rules of
the Securities and Exchange Commission that permit the Company to provide only
management's report in this annual report.

There were no changes in our internal controls over financial
reporting that occurred during the period covered by this Annual Report on
Form 10-K that have materially affected, or are reasonably likely to
materially affect, our internal controls over financial reporting.

Item 9B. Other Information

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY

The directors of the Company are elected annually. The executive officers
of the Company serve with no specific term of office. The executive officers
and directors of the Company are as follows:

Name of Executive Officer Age Positions with the Company
--------------------------- ---- -----------------------------------------
Rhea J. Posedel............ 67 Chief Executive Officer and
Chairman of the Board of Directors

Gary L. Larson............. 59 Vice President of Finance and Chief
Financial Officer

Carl N. Buck............... 57 Vice President of Marketing and Contactor
Business Group

Joel Bustos................ 56 Vice President of Operations

David S. Hendrickson....... 52 Vice President of Engineering

Gregory M. Perkins......... 55 Vice President of Worldwide Sales
and Service

Kunio Sano................. 53 President, Aehr Test Systems Japan K.K.

Robert R. Anderson (1)(2).. 71 Director

William W. R. Elder (2)(3). 70 Director

Mukesh Patel (1)(3)........ 51 Director

Mario M. Rosati............ 63 Director

Howard T. Slayen (1)....... 62 Director

------------------------
(1) Member of the Audit Committee.

(2) Member of the Compensation Committee.

(3) Member of the Nominating and Governance Committee.

RHEA J. POSEDEL is a founder of the Company and has served as Chief
Executive Officer and Chairman of the Board of Directors since the Company's
inception in 1977. From the Company's inception through May 2000, Mr. Posedel
also served as President of the Company. Prior to founding the Company, Mr.
Posedel held various project engineering and engineering managerial positions
at Lockheed Martin Corporation (formerly Lockheed Missile & Space
Corporation), Ampex Corporation, and Cohu, Inc. Mr. Posedel received a B.S.
in Electrical Engineering from the University of California, Berkeley, an M.S.
in Electrical Engineering from San Jose State University and an M.B.A. from
Golden Gate University.

GARY L. LARSON joined the Company in April 1991 as Chief Financial Officer
and was elected Vice President of Finance in February 1992. From 1986 to
1990, he served as Chief Financial Officer, and from 1988 to 1990 also as
President and Chief Operating Officer, of Nanometrics Incorporated, a
manufacturer of measurement and inspection equipment for the semiconductor
industry. Mr. Larson received a B.S. in Mathematics/Finance from Harvey Mudd
College.

CARL N. BUCK joined the Company as a Product Marketing Manager in 1983 and
held various positions until he was elected Vice President of Engineering in
November 1992, Vice President of Research and Development Engineering in
November 1996, Vice President of Marketing in September 1997, Vice President
of Contactor Business Group in May 2002 and Vice President of Marketing and
Contactor Business Group in October 2005. From 1978 to 1983, Mr. Buck served
as Product Marketing Manager at Intel Corporation, an integrated circuit and
microprocessor company. Mr. Buck received a B.S.E.E. from Princeton
University, an M.S. in Electrical Engineering from the University of Maryland
and an M.B.A. from Stanford University.

JOEL BUSTOS joined the Company as Vice President of Operations in July
2007. From 2002 to 2007, Mr. Bustos served as General Manager of the Global
Consumer Business Unit of Celestica Inc., an electronic manufacturing services
company. From 1996 to 2002, Mr. Bustos served as a General Manager at
Flextronics International Ltd., a leading global provider of electronic
manufacturing services. Mr. Bustos received a B.S. in Organizational Behavior
from the University of San Francisco.

DAVID S. HENDRICKSON joined the Company as Vice President of Engineering
in October 2000. From 1999 to 2000, Mr. Hendrickson served as Platform
General Manager, and from 1995 to 1999 as Engineering Director and Software
Director, of Siemens Medical (formerly Acuson Corporation), a medical
ultrasound products company. From 1990 to 1995, Mr. Hendrickson served as
Director of Engineering and Director of Software of Teradyne Inc. (formerly
Megatest Corporation), a manufacturer of semiconductor capital equipment. Mr.
Hendrickson received a B.S. in Computer Science from Illinois Institute of
Technology.

GREGORY M. PERKINS joined the Company as Vice President of Worldwide Sales
and Service in June 2004. From 2001 to 2003, Mr. Perkins served as Vice
President of North America Customer Operations and then Vice President of
North American and European Sales, for Electroglas Corporation, a producer of
semiconductor wafer probers. From 1999 to 2001, he served as Vice President
of Sales at Advantest America, Inc., a semiconductor tester company, and from
1997 to 1999 as Vice President of Worldwide Sales and Field Operations at LTX
Corporation, a semiconductor tester company. From 1978 to 1997, Mr. Perkins
held multiple management positions over 19 years with General Electric Company
including Senior Vice President of Marketing and Business Development for GE
Capital Computer Leasing. Mr. Perkins received a B.S. in Environmental Health
Technologies from Quinnipiac University.

KUNIO SANO joined the Company as Vice President, Aehr Test Systems Japan
K.K., the Company's subsidiary in Japan, in June 1998 and was elected
President, Aehr Test Systems Japan K.K. in January 2001. From 1991 to 1998,
he

served as Manager of Development Engineering Department at Tokyo Electron
Yamanashi Limited, a leading worldwide semiconductor equipment manufacturer.
Mr. Sano received a B.S.E.E. from Sagami Institute of Technology in Kanagawa,
Japan.

ROBERT R. ANDERSON has been a director of the Company since October 2000.
Mr. Anderson currently is a director of MKS Instruments, Inc., a semiconductor
components and equipment supplier. Mr. Anderson also serves as a director for
Energetiq Technology, Inc., a private company. Mr. Anderson is a graduate of
Bentley University and served as a trustee of Bentley University from 1993
through 2004.

WILLIAM W. R. ELDER has been a director of the Company since 1989. From
1981 to 1996, Dr. Elder was the Chief Executive Officer of Genus, Inc., a
semiconductor equipment company, and then again from 1998 until the company
was acquired by AIXTRON AG ("AIXTRON") in 2005. Dr. Elder retired from
AIXTRON in December 2007. Dr. Elder is currently President and CEO of
Maskless Lithography Inc., a capital equipment start-up company based in San
Jose, California. Dr. Elder received a B.S.I.E. and an honorary Doctorate
Degree from the University of Paisley in Scotland.

MUKESH PATEL has been a director of the Company since June 1999. Mr.
Patel was President and Chief Executive Officer of Metta Technology, which he
co-founded in 2004, until November 2006, when LSI Logic Corporation acquired
it. He founded Sparkolor Corporation, acquired by Intel Corporation in late
2002, and co-founded SMART Modular Technologies, Inc. ("SMART Modular"), a
high value added memory products company, acquired by Solectron Corporation in
late 1999. From February 1989 to July 1995, Mr. Patel served as Vice
President and General Manager Memory Product Division of SMART Modular from
August 1995 to August 1998 and as Vice President, Engineering. Mr. Patel also
serves as a director of SMART Modular and for several privately-held
companies. Mr. Patel received a B.S. degree in Engineering with an emphasis
in digital electronics from Bombay University, India.

MARIO M. ROSATI has been a director of the Company since 1977. Mr.
Rosati is a member of the law firm Wilson Sonsini Goodrich & Rosati,
Professional Corporation which he joined in 1971. Mr. Rosati is a director of
Sanmina-SCI Corporation, an electronics manufacturing services company and a
publicly-held company, as well as several privately-held companies. Mr.
Rosati received a B.A. from the University of California, Los Angeles and a
J.D. from the University of California, Berkeley School of Law.

HOWARD T. SLAYEN has been a director of the Company since 2008. Since
June 2001, Mr. Slayen has been providing independent financial consulting
services to various organizations and clients. From October 1999 to May 2001,
Mr. Slayen served as Executive Vice President and Chief Financial Officer of
Quaartz Inc., a web-hosted communications business. From 1971 to September
1999, Mr. Slayen held various positions with PricewaterhouseCoopers/Coopers &
Lybrand, including his last position as a Corporate Finance Partner. Mr.
Slayen currently is a director of Lantronix, Inc., a provider of embedded
networking solutions. Mr. Slayen received a B.A. from Claremont McKenna
College and a J.D. from the University of California, Berkeley School of Law.

The information required by this item relating to directors is incorporated
by reference to the information under the captions "Board Matters and
Corporate Governance" and "Proposal 1 -- Election of Directors" in the Proxy
Statement. Information regarding Section 16 reporting compliance is
incorporated herein by reference under the caption "Compliance with
Section 16(a) of the Securities Exchange Act of 1934" in the Proxy Statement.

Item 11. Executive Compensation

The information required by this item is incorporated by reference to the
sections entitled "Director Compensation" and "Compensation of Executive
Officers" of the Proxy Statement.

Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters

The information required by this item is incorporated by reference to the
section entitled "Security Ownership of Certain Beneficial Owners, Directors
and Management" of the Proxy Statement.

Item 13. Certain Relationships and Related Transactions

The information required by this item is incorporated by reference to the
section entitled "Certain Relationships and Related Transactions" of the Proxy
Statement.

Item 14. Principal Accountant Fees and Services

The information required by this item is incorporated by reference to the
section entitled "Independent Registered Public Accounting Firm's Fees" of
the Proxy Statement.

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a) The following documents are filed as part of this Report:

1. Financial Statements

See Index under Item 8.

2. Financial Statement Schedule

See Index under Item 8.

3. Exhibits

See Item 15(b) below.

(b) Exhibits

The following exhibits are filed as part of or incorporated by reference
into this Report:

Exhibit
No. Description
------- -----------------------------------------------------------------

3.1(1) Restated Articles of Incorporation of Registrant.
3.2(1) Bylaws of Registrant.
4.1(2) Form of Common Stock certificate.
4.2(3) 2006 Equity Incentive Plan.
4.3(3) 2006 Employee Stock Purchase Plan.
10.1(1) Amended 1986 Incentive Stock Plan and form of agreement
thereunder.
10.2(2) 1996 Stock Option Plan (as amended and restated) and forms of
Incentive Stock Option Agreement and Nonstatutory Stock Option
Agreement thereunder.
10.3(2) 1997 Employee Stock Purchase Plan and form of subscription
agreement thereunder.
10.4(2) Form of Indemnification Agreement entered into between Registrant
and its directors and executive officers.
10.5(1) Capital Stock Purchase Agreement dated September 11, 1979 between
Registrant and certain holders of Common Stock.
10.6(1) Capital Stock Investment Agreement dated April 12, 1984 between
Registrant and certain holders of Common Stock.
10.7(1) Amendment dated September 17, 1985 to Capital Stock Purchase
Agreement dated April 12, 1984 between Registrant and certain
holders of Common Stock.
10.8(1) Amendment dated February 26, 1990 to Capital Stock Purchase
Agreement dated April 12, 1984 between Registrant and certain
holders of Common Stock.
10.9(1) Stock Purchase Agreement dated September 18, 1985 between
Registrant and certain holders of Common Stock.
10.10(1) Common Stock Purchase Agreement dated February 26, 1990 between
Registrant and certain holders of Common Stock.
10.11(1) Lease dated May 14, 1991 for facilities located at 1667 Plymouth
Street, Mountain View, California.
10.12(4) Lease dated August 3, 1999 for facilities located at Building C,
400 Kato Terrace, Fremont, California.
10.13(5) Preferred Shares Rights Agreement dated March 5, 2001.
10.14(6) Form of Change of Control Agreement.
10.15(8) First Amendment dated May 06, 2008 for facilities located at
400 Kato Terrace, Fremont, California.
16.1(7) Letter dated December 9, 2005 regarding change in Certifying
Accountant.
21.1(1) Subsidiaries of the Company.
23.1 Consent of Burr, Pilger & Mayer LLP - Independent Registered
Public Accounting Firm (filed herewith).
24.1 Power of Attorney (see page 55).
31.1 Certification Statement of Chief Executive Officer pursuant to
Section 302(a) of the Sarbanes-Oxley Act of 2002 (filed herewith).
31.2 Certification Statement of Chief Financial Officer pursuant to
Section 302(a) of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.1 Certification of Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished
herewith).
------------------------
(1) Incorporated by reference to the same-numbered exhibit previously filed
with the Company's Registration Statement on Form S-1 filed June 11, 1997
(File No. 333-28987).

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

(3) Incorporated by reference to the exhibit previously filed with the
Company's Registration Statement on Form S-8 filed October 27, 2006 (File No.
333-138249).

(4) Incorporated by reference to the same-numbered exhibit previously filed
with the Company's Form 10-K for the year ended May 31, 1999 filed August 30,
1999 (File No. 000-22893).

(5) Incorporated by reference to the Exhibit No. 4.1 previously filed with
the Company's Current Report on Form 8-K filed March 28, 2001 (File No. 000-
22893).

(6) Incorporated by reference to the same-numbered exhibit previously filed
with the Company's Form 10-K for the year ended May 31, 2001 filed August 29,
2001 (File No. 000-22893).

(7) Incorporated by reference to the same-numbered exhibit previously filed
with the Company's Current Report on Form 8-K filed December 9, 2005 (File No.
000-22893).

(8) Incorporated by reference to the same-numbered exhibit previously filed
with the Company's Current Report on Form 8-K filed May 9, 2008 (File No. 000-
22893).

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report on Form 10-K
to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: September 2, 2009
AEHR TEST SYSTEMS

By: /s/ RHEA J. POSEDEL
----------------------------------------
Rhea J. Posedel
CHIEF EXECUTIVE OFFICER AND
CHAIRMAN OF THE BOARD OF DIRECTORS

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Rhea J. Posedel and Gary L. Larson,
jointly and severally, his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any and all
amendments to this Report on Form 10-K, and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be
done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1934, this Report
on Form 10-K has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

Signature Title Date
------------------------ --------------------------------- -----------------
Chief Executive Officer
and Chairman of the
/s/ RHEA J. POSEDEL Board of Directors September 2, 2009
------------------------ (Principal Executive Officer) -----------------
Rhea J. Posedel
Vice President of Finance
and Chief Financial Officer
/s/ GARY L. LARSON (Principal Financial and September 2, 2009
------------------------ Accounting Officer) -----------------
Gary L. Larson

/s/ ROBERT R. ANDERSON Director September 2, 2009
------------------------ -----------------
Robert R. Anderson

/s/ WILLIAM W. R. ELDER Director September 2, 2009
------------------------ -----------------
William W. R. Elder

/s/ MUKESH PATEL Director September 2, 2009
------------------------ -----------------
Mukesh Patel

/s/ MARIO M. ROSATI Director September 2, 2009
------------------------ -----------------
Mario M. Rosati

/s/ HOWARD T. SLAYEN Director September 2, 2009
------------------------ -----------------
Howard T. Slayen