AEHR 10-K & 10-Q changes, risk factors and insider trading

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 affectedaffected, 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.

The semiconductor manufacturing industry is highly concentrated, with a relatively small number of large semiconductor manufacturers and contract test and assembly companies accounting for a substantial portion of the purchases of semiconductor equipment. Sales to our five largest customers accounted for approximately 70%, 77%, 93%, and 97%93% of our net sales in fiscal 2026, 2025, and 2024, respectively. During fiscal 2026, three customers accounted for approximately 26%, 14% and 2023,11% respectively.of our net sales. During fiscal 2025, two customers accounted for approximately 39% and 15% of the Company’sour net sales. During fiscal 2024, two customers accounted for approximately 67% and 17% of the Company’s net sales. During fiscal 2023, two customers accounted for approximately 79% and 10% of our net sales. No other customers accounted for more than 10% of our net sales for any of these periods.

A substantial portion of our net sales is generated by relatively smallsmall-volume, volume, high valuehigh-value transactions.

We derive a substantial portion of our net sales from the sale of a relatively small number of systems with high dollar value. 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. Most 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. For example, insince the second half of fiscal 2025, global tariff announcements had created uncertainty in the global economy that impacted customer demand and orders. There can be no assurance that we will not be materially adversely affected by future cancellations or rescheduling by our customers or other delays in our shipments.

For non-standard products where we have not effectively demonstrated the ability to meet specifications in the customer environment, we defer revenue until we have met such customer specifications. Any delay in meeting customer specifications could have a material adverse effect on our operating results. A substantial portion of net sales typically areis 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, cancellationscancellations, 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.

Our FOX wafer-level and singulated die/module test and burn inburn-in systems and packagedpackage partlevel burn-in systems face competition from larger systems manufacturers that have significant technological know-how and manufacturing capability. Some users of our 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. Our WaferPak products are facing and are expected to face increasing competition. Several companies have developed or are developing full-wafer and single-touchdown probe cards. TheWe Company expectsexpect that itsour DiePak products for burning-in and testing multiple singulated die and small modules face significant competition. TheWe Company believesbelieve that several companies have developed or are developing products which are intended to enable test and burn-in of multiple bare die, and small modules.

Additionally, the semiconductor industry has experienced significant consolidation over the past several years, and such consolidation may further increase competitive factors within the industry. We also expect our 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 our competitors or by new market entrants could cause a decline in sales or loss of market acceptance of our products. We have 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 our operating margins and results. We believe that to remain competitive we must invest significant financial resources in new product development and expand our customer service and support worldwide. There can be no assurance that we will be able to compete successfully in the future.

A principal element of our business strategy is to increase our presence in the test equipment market through system sales in our FOX wafer-level burn-in product family and Sonoma packagedpackage partslevel burn-in solutions. Market acceptance of the FOX and Sonoma systems is subject to a number of risks. Before a customer incorporates the FOX or Sonoma 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 or Sonoma system. Initial purchases are expected to be limited to systems used for these qualifications and for engineering studies. Market acceptance of the FOX and Sonoma systems also may be affected by the reluctance of IC manufacturers to rely on relatively small suppliers such as us. As is common with new complex products incorporating leading-edge technologies, we may encounter reliability, designdesign, and manufacturing issues as we begin volume production and initial installations of FOX and Sonoma systems at customer sites. The failure of the FOX or Sonoma system to achieve increased market acceptance would have a material adverse effect on our future operating results.

As is common with new complex products incorporating leading-edge technologies, we have encountered reliability, designdesign, and manufacturing issues as we begin volume production and initial installations of certain products at customer sites. Some of these issues in the past have been related to components and subsystems supplied to us by third partiesparties, who havewhich in somecertain cases has limited theour 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-reimbursedunreimbursed 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, designdesign, 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.

We collect, maintain, and transmit data on information systems. These systems include those owned and maintained by the Company or by third parties. In addition, we use cloud-based enterprise resource planning,planning ERP,(“ERP”) software to manage the business integrating all facets of operations, including manufacturing, finance, and sales and marketing. The data maintained on these systems includes confidential and proprietary information belonging to us, our customers, suppliers, and others. While the Company devotes significant resources to protect its systems and data from unauthorized access or misuse, we are exposed to cybersecurity risks. Our systems are subject to computer viruses, data breach,breaches, phishing schemes, and other malicious software programs or attacks.cyberattacks. We have experienced cyber threats and incidents in the past. Although past threats and incidents have not resulted in a material adverse effect,Such cybersecurity incidents may result in business disruption, loss of data, or unauthorized access to intellectual propertyproperty, which could adversely affect our business.

Customer tool utilization is driven by many factorsfactors, including failure rates of customer devices. Improvements in yield may result in customers decreasing test and burn-in times,times or electing to perform sampling rather than 100% burn-in of their devices. Based upon data obtained from our systemssystems, customers may revise internal manufacturing processes to decrease failure rates. A decrease in customer quality targets or tool utilization may result in a decrease in demand for our productsproducts, impacting our business and results of operations.

We attempt to operate our business in accordance with a business plan that is established annually, revised as appropriate, reviewed with our Board of Directors on a periodic basis, and reviewed by management even more frequently. Our business plan is developed based on a number of factors, many of which require estimates and assumptions, such as our expectations of the economic environment, future business levels, our customers’ willingness and ability to place orders, lead-times, and future revenue and cash flow. Our budgeted operating expenses, for example, are based in part on our future revenue expectations. However, our ability to achieve our anticipated revenue levels is a function of numerous factors, including the volatile and historically cyclical nature of our primary industry, customer order cancellations, macroeconomic changes, operational matters regarding particular agreements, our ability to manage customer deliveries, the availability of resources for the installation of our products, delays or accelerations by customers in taking deliveries and the acceptance of our products (for products where customer acceptance is required before we can recognize revenue from such sales), our ability to operate our business and sales processes effectively, and a number of the other risk factors as described in this Item 1A.

We have agreed, under certain conditions, to hold these third parties harmless against specified losses, such as those arising from a breach of representations or covenants, third partythird-party claims that our products, when used for their intended purposes, infringe the IP rights of such third parties, or other claims made against certain parties. We may be compelled to enter into or accrue for probable settlements of alleged indemnification obligations, or we may be subject to potential liability arising from our customers’ involvements in legal disputes. In addition, notwithstanding the provisions related to limitations on our liability that we seek to include in our business agreements, the counterparties to such agreements may dispute our interpretation or application of such provisions, and a court of law may not interpret or apply such provisions in our favor, any of which could result in an obligation for us to pay material damages to third parties and engage in costly legal proceedings. It is difficult to determine the maximum potential amount of liability under any indemnification obligations, whether or not asserted, due to our limited history of prior indemnification claims and the unique facts and circumstances that are likely to be involved in any particular claim. Our business, financial condition and results of operations in a reported fiscal period could be materially and adversely affected if we expend significant amounts in defending or settling any purported claims, regardless of their merit or outcomes.

Our success depends on our ability to continually enhance and broaden our product offerings in response to customer-anticipated process changes, strategic opportunities for growth, and industry technology trends. We may choose to acquire new and complementary businesses, products, technologies and/or services instead of developing them ourselves. If we are unable to successfully integrate and manage acquired businesses, if the costs associated with integrating the acquired business exceedsexceed our expectations, or if acquired businesses perform poorly, then our business and financial results may suffer. It is possible that the businesses we have acquired may perform worse than expected or prove to be more difficult to integrate and manage than anticipated.

We are increasingly incorporating AI capabilities into the development of our technologies.technologies and into our products and services. AI technology is complex and rapidly evolving, and may subject us to significant competitive, legal, regulatoryregulatory, and other risks. The implementation of AI can be costly and there is no guarantee that our use of AI will enhance our technologies, benefit our business operations or produce products and services that are preferred by our customers. Our competitors may be more successful in their AI strategy and develop superior products and services with the aid of AI.

We purchase materials from suppliers worldwide, which subjects the Company to increased risk;supply tariff uncertainty,chain, trade restrictions,policy, and globalforeign supply chainsourcing risks that could adversely affect our business.

We purchase components, sub-assemblies, and chambers from suppliers outside the United States. IncreasesOur inreliance tariffs,on uncertaintyglobal surroundingsuppliers currentexposes andus futureto tariffrisks regulations,associated additionalwith taxes,international risingsourcing, inflation in theincluding supply chain ordisruptions, newrising costs due to inflationary pressures, foreign currency fluctuations, and changes in trade barriersor mayregulatory result in an increase in our manufacturing costs. Fluctuations in tariff and trade policies, particularly those that may change without significant notice, create instability in our supply chain and limit our ability to plan for future cost structures.policies. A decrease in the value of the U.S. Dollar relative to foreign currencies would increase the cost of our materials. Should the Company increase its sales prices to recover the increase in costs, this could result in a decrease in the competitiveness of our products. In addition, we are subject to other risks associated with purchasing materials from suppliers worldwide. Government authorities may also implement protectionist policies or impose limitations on the transfer of intellectual property. This may limit our ability to obtain products from certain geographic regions and require us to identify and qualify new suppliers. The process of qualifying suppliers could be lengthy, and no assurance can be given that any additional sources would be available to us on a timely basis. Changes in trade relations, tariff structures, currency fluctuations, or protectionist policies could have a material adverse effect on our business, financial condition or results of operations.

Approximately 59%, 70%, 95%, and 86%95% of our net sales in fiscal 2026, 2025, 2024, and 2023,2024, respectively, were attributable to sales to customers for delivery outside of the United States. We provide sales and service globally with resources in North America, Taiwan, Germany, Japan, South Korea, and a service organization in the Philippines, as well as direct support through third partythird-party agreements in China.China and South Korea. We expect that sales of products for delivery outside of the United States will continue to represent a substantial portion of our future sales. 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. Geopolitical tensions involving the United States, China and Taiwan, or changes in U.S., Chinese, Taiwanese or other foreign trade policies, tariffs, export controls, sanctions, technology-transfer restrictions or diplomatic relations, could also adversely affect our ability to sell products in certain foreign markets, support customers, obtain materials or components, or compete effectively. 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.

Our net sales for fiscal 2025 were primarily denominated in U.S. Dollars. However, 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 any 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.

Global economic uncertainty and financial market volatility caused by political instability, changes in international trade relationships and conflicts, such as the conflict between Russia and Ukraine and the political climate in China and Taiwan, the Israel-Hamas war, the Israel-Iran conflict and the tensions in the Red Sea in connection with the attacks to disrupt shipments may result in limited access to these markets for sales and material purchases. Periods of macroeconomic weakness or recession and heightened market volatility caused by adverse geopolitical developments could increase these risks, potentially resulting in adverse impacts on our business operations. Increased energy costs in Europe, resulting from Russia’s limiting energy supplies in the region, may result in an economic downturn or an increase in the cost of materials. The on-goingongoing decline in relations between the United States and China, and relations between China and Taiwan, may result in the imposition of trade restrictions with China or Taiwan. While we have limited sales in EuropeEurope, the Middle East and Taiwan, and procurement from these regions, unrest in these areas may result in a decrease in sales of our products, or an increase in costs of materials and services.

Our dependence on subcontractors and sole sourcesole-source suppliers may prevent us from delivering our products on a timely basis and expose us to intellectual property infringement.

We rely on subcontractors to manufacture many of the components or subassemblies used in our products. Our FOX systems, WaferPak Contactors, DiePak Carriers, WaferPak Aligners, and DiePak Loaders contain several components, including environmental chambers, power supplies, high-density interconnects, wafer contactors, module contactors, signal distribution substrates, and certain ICs that are currently supplied by only one or a limited number of suppliers. Our reliance on subcontractors and single sourcesole-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 sourcesole-source supplier is unable or unwilling to continue to manufacture subassemblies, components or parts in required volumes, we would have to identify and qualify acceptable replacements. The process of qualifying subcontractors and suppliers could be lengthy, and no assurance can be given that any additional sources would be available to us 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.

Our suppliers manufacture components, tooling, and provide engineering services. During this process, our suppliers are allowed access to our intellectual property. While we maintain patents to protect us from intellectual property infringement, there can be no assurance that technological information gained in the manufacture of our products will not be used to develop a new product, improve processes or techniques which compete against our products. 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.

While these lawsuits have been resolved without adverse judgments, there is no assurance that we will not face similar litigation in the future. Defending against shareholder class actions or derivative lawsuits can be costly, disruptive, and time-consuming, and may divert the attention of our management and Board of Directors. Such proceedings, regardless of their outcome, could also harm our reputation, impact investor confidence, and result in increased scrutiny of our public disclosures, internal controls, and corporate governance practices. If we are subject to future litigation and do not prevail, we could be required to pay substantial damages or incur other significant costs, which could materially adversely affect our financial condition, results of operations, and cash flows.

Our success depends to a significant extent upon the continued service of Gayn Erickson, our President and 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 us. 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, retain and motivatingmotivate highly skilled technical, management, sales and marketing personnel. There are 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, retaining or motivating such personnel. Changes in management could disrupt our operations and adversely affect our operating results.

We are required to comply with Section 404 of the Sarbanes-Oxley Act of 2002. The provisions of the act require, among other things, that we maintain effective internal control over financial reporting and disclosure controls and procedures. Preparing our financial statements involves a number of complex processes, many of which are done manually and are dependent upon individual data input or review. These processes include, but are not limited to, calculating revenue, deferred revenue and inventory costs. While we continue to automate our processes and enhance our review and put in place controls to reduce the likelihood for errors, we expect that for the foreseeable future, many of our processes will remain manually intensive and thus subject to human error. In addition, maintaining effective internal control over financial reporting and complying with the requirements of Section 404 of the Sarbanes-Oxley Act require significant management time, attention, and financial resources. Compliance with these requirements may increase our operating costs, require the hiring of additional personnel or external advisors, and divert management's attention from other business priorities.

Aehr Test Systems (“Aehr Test”, “Aehr”, the “Company” or “We”) is a leading provider of test solutions for testing, burning-in, and stabilizing semiconductor devices in wafer level, singulated die, and package part form,level, and has installed thousands of systems worldwide. Decarbonization, generative AI and digitalization isare driving increased quality, reliability, safety, and security needs of semiconductors used across multiple applications, including electric vehicles, electric vehicle charging infrastructure, solar and wind power, computing, data and telecommunications infrastructure, and solid-state memory and storage. This trend is driving additional test requirements, incremental capacity needs, and new opportunities for Aehr Test products and solutions.

Following the acquisition of Incal, our product portfolio further expanded to include packagedpackage partslevel burn-in solutions for the full range of power and complexity of integrated circuits. Incal’s product lines feature the Sonoma series for ultra-high-power burn-in testing, the Tahoe series for medium-power reliability burn-in, and the Echo series for low-power and high parallelism testing. The Sonoma line, with its ultra-high-power capabilities, is specifically designed to address the reliability and burn-in needs of the burgeoning demand for AI accelerators, GPUs, HPC processors, and devices that can reach levels of power as high as 1600W.1600W or more. The Sonoma is available in its standard configuration, which hosts up to 22 slots per chamber. The Tahoe and Echo lines for medium-power and low-power burn-in solutions, respectively, target logic, SoC, and mixed-signal devices employed in mobile communications, mobility, medical, military, aerospace, and data center applications. These systems are frequently used by independent test and burn-in labs, as well as semiconductor manufacturers.

Our revenue consists primarily of sales of FOX-P systems, WaferPak Aligners and DiePak Loaders, WaferPak Contactors, DiePak Carriers, packagedSonoma partssystems, burn-inTahoe systems, Echo systems, test fixtures, upgrades and spare parts, service contracts revenues, and non-recurring engineering charges. Our selling arrangements may include contractual customer acceptance provisions, which are mostly deemed perfunctory or inconsequential, and installation of the product occurs after shipment, transfer of title and risk of loss.

For contracts that contain multiple performance obligations, we allocate the transaction price to the performance obligations on a relative standalone selling price basis. Standalone selling prices are based on multiple factors including, but not limited to, historical discounting trends for products and services and pricing practices in different geographies. Revenue for systems and spares is recognized at a point in time, which is generally upon shipment or delivery and evidenced by transfer of title and risk of loss to the customer. Revenue from services is recognized ratably over time as the customer simultaneously receives the benefit of the services over the contractual periodperiod, ofwhich is generally one year or less.

We assess goodwill for impairment annually during our fourth fiscal quarter or whenever events or changes in circumstances indicate the carrying value may not be fully recoverable. The process of evaluating the potential impairment of goodwill requires significant judgment. We may first evaluate qualitative factors to assess if it is more likely than not that the fair value of a reporting unit is less than its carrying amount and to determine if an impairment test is necessary. We may choose to proceed directly to the quantitative impairment test, bypassing the initial qualitative assessment. The quantitative test compares the fair value of the reporting unit to its carrying value, including goodwill allocated to that reporting unit. A goodwill impairment loss would be the amount by which a reporting unit’s carrying value exceeds its fair value, however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. There were no impairments to goodwill during the fiscal yearyears ended May 29, 2026 and May 30, 2025.

We monitor the carrying value of long-lived assets for potential impairment each quarter based on whether certain triggering events have occurred. These events include current period losses combined with a history of losses, or a projection of continuing losses, or a significant decrease in the market value of an asset. When a triggering event occurs, we perform an impairment calculation, comparing projected undiscounted cash flows, utilizing current cash flow information and expected growth rates, to the carrying value of the assets. If we identify impairment for long-lived assets to be held and used, we compare the assets’ current carrying value to the assets’ fair value. Fair value is determined based on market values or discounted future cash flows. We record impairment when the carrying value exceeds fair market value.

During the year ended May 29, 2026, the Company did not record any impairment of long-lived assets. During the year ended May 30, 2025, the Company recognized an impairment charge of $0.5 million related to the right-of-use asset and $0.1 million related to leasehold improvements in connection with the closure of the Incal office and the consolidation of facilities. The impairment charge is included in restructuring changes in the consolidated statement of operations. During the years ended May 31, 2024 and May 31, 2023, the Company did not record any impairment of long-lived assets.

Beginning on June 1, 2024, we have changed our fiscal year to the 52- or 53-week period ending on the Friday nearest May 31. Our fiscal year 2026 and 2025 ended on May 29, 2026 and May 30, 2025. Each of ourOur fiscal yearsyear in 2024 and 2023 ended on May 31.31, 2024.

Revenue decreased by $7.3 million in fiscal year 2025 over fiscal year 2024 driven by a decrease in shipments of our systems and contactors primarily due to the continued softness in the power semiconductor demand for electric vehicles. Our product revenue decreased by $8.9 million due to the decrease in our contactors revenue and FOX-P systems revenue, which was partially offset by the increase in package partspackage-level burn-in product revenue in connection with the Incal acquisition. The decline in product revenue was partially offset by an increase in services revenue of $1.7 million.

On a geographic basis, revenues represent products that were shipped to or services that were performed at our customer locations. For fiscal year 2025,2026, revenue declineddecreased in Asia primarily due to continuedthe ongoing softness in the power semiconductor demand for electric vehicles. This declinedecrease was partially offset by higher revenue growth in the United States, drivenprimarily byattributable muchto increased demand in the silicon photonics market, and higher systemsrevenue in Europe and contactorsthe salesMiddle East, also primarily attributable to customersincreased thatdemand focus onin the artificialsilicon intelligencephotonics market.

Gross profit decreased slightlyby for$6.3 million in fiscal year 2024,2026 compared to fiscal year 2023.2025, primarily due to lower revenue levels. Gross margin decreased by 1.3%5.3 percentage points primarily due to anhigher increaseassembly inand inventorywarranty reserves,costs, asincreased wellfreight asexpenses, anand increasehigher intariffs costson fromimported designparts following the government policy changes.

Research and development expenses consist primarily of compensation and benefits for product development personnel, outside development service costs, travel expenses, facilities cost allocations, and stock-based compensation charges. Research and development expenses increased by $1.7$2.2 million in fiscal year 20252026 over fiscal year 20242025 primarily duedriven toby $1.6 million of higher employment-related costs, including stock-based compensation, resulting from increased headcount, and $1.1 million of higher allocated office expenses. These increases were partially offset by the $0.7 million of one-time severance benefits incurred in the prior year period following the death of an executive officer, higher employee costs and stock-based compensation expense resulting from growth in engineering headcount, and additional research and development expenses from the newly acquired Incal business. The increase was partially offset by lower non-recurring engineering service charges.officer.

Selling, general and administrative expenses consist primarily of compensation and benefits for sales, marketing and general and administrative personnel, legal and accounting service costs, marketing communications costs, travel expenses, facilities cost allocations, and stock-based compensation charges. Selling, general and administrative expenses increasedremained byrelatively $4.5 millionflat in fiscal year 20252026 overcompared to fiscal year 2024,2025, primarilyas driven$2.0 million of higher employment-related costs, including stock-based compensation, were partially offset by additional$1.3 selling,million generalof and administrative expenses from the newly acquired Incal business, higherlower legal and other professional service fees, and higher stock-based compensation expense.fees.

Selling, general and administrative expenses increased by $1.5$4.5 million in fiscal year 20242025 over fiscal year 2023,2024, primarily duedriven toby $1.8 million of additional selling, general and administrative expenses from the newly acquired Incal business, $1.7 million higher employment-relatedlegal costand becauseother professional service fees, and $1.0 million of anhigher increasestock-based incompensation headcount, and an increase in audit and legal service fees.expense.

Interest and other income, net, primarily consists of interest income, foreign currency transaction exchange gains and losses and other income (expense). Interest and other income, net, decreasedremained byrelatively $1.0 millionflat in fiscal year 20252026 over fiscal year 2024,2025. Other income (expense), net, increased by $1.1 million, primarily drivenattributable byto lowerthe interestEmployee incomeRetention earnedCredit on(“ERC”) refund of $1.3 million received, net of a lower$0.3 averagemillion cashthird-party balancesservice asfee aincurred resultin connection with the filing of $11.1 million spent on the acquisitionERC of Incal and lower yields from our investments in money market funds.claims.

Interest and other income, net, increaseddecreased by $1.1$1.0 million in fiscal year 20242025 over fiscal year 2023,2024, primarily driven by higherlower interest income earned dueon toa higherlower average cash andbalances investmentas balancesa result of $11.1 million spent on the acquisition of Incal and higherlower yields from our investments in money market funds.

Income tax benefit was $0.4 million in fiscal year 2025, compared to income tax benefit of $20.7 million in fiscal year 2024. In fiscal 2025, the Company recognized an income tax benefit due to year-to-date operating losses in the United States. Income tax benefit was $20.7 million in fiscal year 2024, compared to income tax expense of $60 thousand in fiscal year 2023.2024. A significant income tax benefit in fiscal year 2024 was recognized primarily due to the release of a valuation allowance of $21.9 million, as management determined that there was sufficient positive evidence to conclude that it is more likely than not that the deferred tax assets will be realized, which was partially offset by income tax expense of $1.2 million in fiscal year 2024.

CashNet flowcash used in operating activities during fiscal year 2025 mostly consisted of net loss, adjusted for certain non-cash items which primarily consisted of depreciation and amortization, stock-based compensation expense and amortization of operating lease right-of-use assets. The $9.2 million decrease in cash flows from operating activities in fiscal year 2025, compared to fiscal year 2024, was driven primarily by lower adjusted net income, excluding non-cash items, in the current period compared to the prior period, a decrease in cash provided by the collection of accounts receivable due to lower revenue and slower collection, and an increase in unbilled receivables and prepayments, which were partially offset by the decrease in cash used in procuring inventory and payments to vendors, and an increase in deferred revenue due to timing of customer deposits and revenue recognition.

Net cash used in investing activities was $16.1 million for the fiscal year 2025 compared to net cash provided by investing activities of $17.3 million for the fiscal year 2024. The increase in net cash used was primarily due to the maturity of our short-term investments of $18.0 million during the fiscal year 2024, while there was no such maturity of investment during the fiscal year 2025. Additionally, the Company paid $11.1 million to acquire Incal, and increased its spending on property and equipment by $4.2 million, primarily related to office renovation during the fiscal year 2025.

Net cash provided by financing activities was $97.2 million in fiscal year 2026, compared to $0.6 million forin fiscal year 2025, compared toand $0.1 million and $7.3 million forin fiscal years 20242024, andprimarily 2023,driven respectively. For the fiscal years 2023,by net proceeds of $97.4 million from the saleissuance of our common stock under ourthe “At-the-Market”Company’s ATM offering program were $6.8 million, compared to no such sales during fiscal years 2025 and 2024.program. In fiscal years 2026, 2025, 2024, and 2023, the2024, proceeds from the issuance of common stock under employee stock plans were $1.4$2.2 million, $1.8$1.4 million, and $2.6$1.8 million, respectively. In fiscal 2026, 2025, 2024 and 2023,2024 cash used in shares repurchased for tax withholdings on vesting of restricted stock units was $2.4 million, $0.8 million, $1.6 million and $2.0$1.6 million, respectively.

We have developed and introduced several innovative products including the FOX-P family of test and burn-in systems and FOX WaferPak Aligner, FOX WaferPak Contactor, FOX DiePak Carrier and FOX DiePak Loader. The FOX-XP and FOX-NP systems are full wafer contact and singulated die/module test and burn-in systems that can test, burn-in, and stabilize a wide range of devices such as leading-edge silicon carbide-based and other power semiconductors, 2D and 3D sensors used in mobile phones, tablets, and other computing devices, memory semiconductors, processors, microcontrollers, systems-on-a-chip, and photonics and integrated optical devices used in artificial intelligence.AI. The FOX-CP system is a low-cost single-wafer compact test solution for logic, memory and photonic devices and the newest addition to the FOX-P product family. The FOX WaferPak Contactor contains a unique full wafer contactor capable of testing wafers up to 300mm that enables Integrated Circuit manufacturers to perform test, burn-in, and stabilization of full wafers on the FOX-P systems. The FOX DiePak Carrier allows testing, burning in, and stabilization of singulated bare die and modules up to 1,024 devices in parallel per DiePak on the FOX-NP and FOX-XP systems up to nine DiePaks at a time.

Our net revenue consists primarily of sales of FOX-P systems, WaferPak Aligners and DiePak Loaders,Aligners, WaferPak contactors, DiePak carriers, Sonoma systems, Tahoe systems, Echo systems, test fixtures, upgrades and spare parts, service contracts revenues, and non-recurring engineering charges. Our selling arrangements may include contractual customer acceptance provisions, which are mostly deemed perfunctory or inconsequential, and installation of the product occurs after shipment, transfer of title and risk of loss.

There have been no material changes to our critical accounting policies and estimates during the sixnine months ended NovemberFebruary 28,27, 20252026 compared to those discussed in our Annual Report on Form 10-K for the fiscal year ended May 30, 2025. However, we have expanded the discussion below regarding income taxes to provide additional information about the significant judgments and estimates involved in assessing the realizability of deferred tax assets.

Discussion of Results of Operations for the Three and SixNine Months Ended NovemberFebruary 28,27, 20252026 compared to the Three and SixNine Months Ended NovemberFebruary 29,28, 20242025

For the three months ended NovemberFebruary 28,27, 2025,2026, revenue decreased by $3.6$8.0 million, compared to the same period in the prior year,year. This decrease was primarily driven by a $5.9 million decline in wafer-level burn-in systems revenue and a $4.3 million decline in wafer-level contactors revenue, mainly due to lower shipments of contactorswafer-level dueburn-in products sold. In the prior year period, wafer-level burn-in products were sold to thea ongoingnew softnesssemiconductor incustomer demandserving forAI electricapplications vehicles.and Contactorsto revenuea decreasedgallium bynitride $5.1power million,semiconductor supplier. These decreases were partially offset by ana $1.4 million increase in package-level burn-in boards and burn-in modules revenue and $0.9 million increase in package-level burn-in systems revenue of $1.6 million,revenue, driven by increaseda demandhigher fromnumber of package-level burn-in products sold to customers in AI-related applications.

For the sixnine months ended NovemberFebruary 28,27, 2025,2026, revenue decreased by $5.7$13.7 million, compared to the same period in the prior year, primarily driven by lowera shipments$21.2 ofmillion decrease in wafer-level contactors revenue due to thesignificantly ongoinglower shipments, reflecting continued softness in demand forrelated to electric vehicles. ContactorsThis revenuedecrease decreased by $14.6 million,was partially offset by ana $3.6 million increase in systemspackage-level burn-in boards and burn-in modules revenue ofand $8.3a million,$2.5 million increase in package-level burn-in systems revenue, primarily reflecting increased demand for package-level burn-in products from customers in AI–related applications and other markets, a $0.8 million increase in wafer-level burn-in systems revenue, and ana $0.5 million increase in service revenue of $0.6 million.revenue.

On a geographic basis, revenues represent products that were shipped to or services that were performed at our customer locations. For the three months ended NovemberFebruary 28,27, 2025,2026, compared to the same period in the prior year, revenue decreased in both Asia and the United States primarily due to thelower ongoingsales softnessof wafer-level burn-in systems and contactors to customers in demandthe forUnited electric vehicles.States.

For the sixnine months ended NovemberFebruary 28,27, 2025,2026, compared to the same period in the prior year, revenue decreased in Asia primarily due to the ongoing softness in demand for electric vehicles,vehicles whichand wasrevenue decreased in the United States primarily due to lower sales of wafer-level burn-in systems and contactors to a customer providing AI applications. These decreases were partially offset by increaseshigher revenue in FOX-P systems sold in the United States, Europe and the Middle East, drivenprimarily byattributable customer demand outside ofto the electric vehiclememory market.

Gross profit decreased by $2.9$3.8 million for the three months ended NovemberFebruary 28,27, 2025,2026, compared to the same period in the prior year, primarily due to lower revenue levels. Gross margin decreased by 14.46.5 percentage points primarily due to lower overhead absorption as a result of lower manufacturing production, a change in product mix,mix toward package-level burn-in products, which have lower gross margins than wafer-level products, as well as higher assembly and warranty costs, and increased freight expenses.and tariff costs.

Gross profit decreased by $6.2$10.0 million for the sixnine months ended NovemberFebruary 28,27, 2025,2026, compared to the same period in the prior year, primarily due to lower revenue levels. Gross margin decreased by 17.012.9 percentage points primarily due to lower overhead absorption as a result of lower manufacturing production, a change in product mix,mix toward package-level burn-in products, which have lower gross margins than wafer-level products, higher assembly and warranty costs, increased freight expenses, and higher tariffs on imported parts following recentthe government policy changes.

Research and development expenses consist primarily of compensation and benefits for product development personnel, outside development service costs, travel expenses, facilities cost allocations, and stock-based compensation charges. Research and development expenses increasedremained by $0.7 million and $1.2 million, respectively,consistent for the three and six months ended NovemberFebruary 28,27, 2025,2026, compared to the same periodsperiod in the prior year.year, The increase was primarily driven byas higher employment-related costs,costs includingof stock-based$0.3 compensation,million resulting from increased headcount and higher project-relatedallocated expenses.office expenses of $0.3 million were partially offset by one-time severance benefits of $0.7 million incurred in the prior year period following the passing of an executive officer.

Selling, general and administrative expenses consist primarily of compensation and benefits for sales, marketing and general and administrative personnel, legal and accounting service costs, marketing communications costs, travel expenses, facilities cost allocations, and stock-based compensation charges. Selling, general and administrative expenses remaineddecreased consistentby $0.7 million for the three months and six months ended NovemberFebruary 28,27, 2025,2026, compared to the same periodsperiod in the prior year, asprimarily higherdue stock-based compensation was partially offset byto lower professional service fees andof lower$0.5 accrual for bonuses.million.

Interest and other income, net, primarily consists of interest income, foreign currency transaction exchange gains and losses and other non-operating income and expense. Interest income, net, decreased by $34,000 and $0.5$0.6 million for the three and sixnine months ended NovemberFebruary 28,27, 2025, respectively,2026, compared to the same periods in the prior year, primarily driven by lower interest income earned on a lower average cash balances and lower yields from our investments in money market funds. For the sixnine months ended NovemberFebruary 28,27, 2025,2026, other income,income (expense), net, increased by $1.0$1.1 million, compared to the same period in the prior year, primarily attributable to the Employee Retention Credit (“ERC”) refund of $1.3 million received, net of a $0.3 million third-party service fee incurred in connection with the filing of the ERC claims during the six months ended November 28, 2025.claims.

For the three and sixnine months ended NovemberFebruary 28,27, 2025,2026, the Company recognized an income tax benefitsbenefit of $1.2$0.8 million and $2.0$2.8 million, respectively, primarily driven by quarter-to-date and year-to-date losses in the United States. For the three and sixnine months ended NovemberFebruary 29,28, 2024,2025, the income tax benefit was also primarily related to quarter-to-date and year-to-date losses in the United States.

Cash, cash equivalents, and restricted cash were $31.0$37.1 million as of NovemberFebruary 28,27, 2025,2026, compared to $35.2$31.4 million as of NovemberFebruary 29,28, 2024.2025. We believe that our existing cash resources and anticipated funds from operations will satisfy our cash requirements to fund our operating activities, capital expenditures and other obligations for the next twelve months.

The $2.0 million increase inNet cash flows fromused in operating activities for the sixnine months ended NovemberFebruary 28,27, 2025,2026 remained relatively consistent, compared to the same period in the prior year,year. The change was driven primarily by decreases in prepayments to vendor and in unbilled receivables, an increase in cash provided by collection of accounts receivable, lower cash outflows for inventory purchases, and higher non-cash charges including stock-based compensation expense, partially offset by a higher loss before income tax benefit.benefit and an increase in payment to vendors.

Net cash used in investing activities decreased by $7.5$9.5 million for the sixnine months ended NovemberFebruary 28,27, 2025,2026, compared to the same period in the prior year. The decrease was primarily due to the $10.6$11.1 million payment to acquire Incal during the sixnine months ended NovemberFebruary 29,28, 2024,2025, compared to a $1.8 million escrow release related to the acquisition during the currentnine period.months Thisended decreaseFebruary was27, partially offset by a $1.3 million increase in cash spending on property and equipment, primarily related to an office renovation.2026.

Net cash provided by financing activities increased by $9.1$19.1 million for the sixnine months ended NovemberFebruary 28,27, 2025,2026, compared to the same period in the prior year, primarily driven by net proceeds of $9.4$19.6 million from the issuance of common stock under the Company’s ATM offering program.program, partially offset by a $0.8 million increase in shares repurchased for tax withholdings on vesting of restricted stock units.