Aehr Test Systems

Corporate governance · Internal controls and risk management

If we fail to maintain effective internal control over financial reporting in the future, the accuracy and timing of our financial reporting may be adversely affected. 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.

Customer and revenue · Revenue concentration in specific products or segments

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

Customer and revenue · Customer concentration and key customer dependence

Sales to our five largest customers accounted for approximately 70%, 77%, and 93% of our net sales in fiscal 2026, 2025, and 2024, respectively. We expect that sales of our products to a limited number of customers will continue to account for a high percentage of our net sales for the foreseeable future.

Market position and competition · Competitive pressure and market share loss

The semiconductor equipment industry is intensely competitive. In each of the markets we serve, we face competition from established competitors and potential new entrants, many of which have greater financial, engineering, manufacturing and marketing resources than us.

Market position and competition · Pricing pressure and margin compression

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.

Innovation and product development · Product development and randd investment risks

Our ability to remain competitive and expand into new markets depends in part upon our ability to develop new products and to introduce them at competitive prices and on a timely and cost-effective basis. We invest significant resources in research and development; however, there is no assurance that these efforts will result in commercially viable products or technologies that satisfy future customer needs.

Innovation and product development · Time to market and commercialization risks

Because new product development commitments must be made well in advance of sales, new product decisions must anticipate both future demand and future technology advancements, which are inherently uncertain. Failure to innovate, delays in product development, or unsuccessful product launches could hinder our ability to enter new markets, negatively impacting our competitive position, revenue growth, and overall financial performance.

Customer and revenue · Changing customer preferences and behavior

A decrease in customer device failure rates and future changes in semiconductor technologies may result in a decrease in demand for our products. Improvements in yield may result in customers decreasing test and burn-in times or electing to perform sampling rather than 100% burn-in of their devices.

Strategic execution · Merger acquisition and divestiture risks

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 exceed our expectations, or if acquired businesses perform poorly, then our business and financial results may suffer.

Tax and financial reporting · Financial reporting and accounting standards

A change in accounting standards or practices or a change in existing taxation rules or practices (or changes in interpretations of such standards, practices or rules) could have a significant effect on our reported results and may affect reporting of transactions completed before the change is effective.

Industry regulation · Regulatory compliance and changes

Compliance with federal securities laws, rules and regulations, as well as NASDAQ requirements, has become increasingly complex, and the significant attention and expense we must devote to those areas may have an adverse impact on our business.

Legal and litigation · Litigation and legal proceedings

We are exposed to risks associated with shareholder class action lawsuits, which are expensive and could divert management attention. We have been, and may in the future be, subject to securities class action lawsuits, shareholder derivative actions and other litigation or regulatory proceedings.

Legal and litigation · Contractual disputes and claims

We are exposed to risks related to our commercial terms and conditions, including our indemnification of third parties, as well as the performance of our products. In situations where we engage in business with a third party without an explicit master agreement regarding the applicable terms and conditions, or where the commercial documentation applicable to the transaction is subject to varying interpretations, we may have disputes with those third parties.

Legal and litigation · Product liability and warranty claims

We are also exposed to potential costs associated with unexpected product performance issues. Unexpected product performance issues could result in significant costs being incurred by us, including increased service or warranty costs, providing product replacements for (or modifications to) defective products, litigation related to defective products, reimbursement for damages caused by our products, product recalls, or product write-offs or disposal costs.

Core operations · Operational disruption and business continuity

We rely on subcontractors to manufacture many of the components or subassemblies used in our products. In the event that any significant subcontractor or sole-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, which could adversely affect our ability to deliver products.

Core operations · Quality control and product defects

As is common with new complex products incorporating leading-edge technologies, we have encountered reliability, design, 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 related to components and subsystems supplied to us by third parties.

Supply chain and procurement · Raw material availability and cost volatility

We purchase components, sub-assemblies, and chambers from suppliers outside the United States. Our reliance on global suppliers exposes us to risks associated with international sourcing, including supply chain disruptions, rising costs due to inflationary pressures, foreign currency fluctuations, and changes in trade or regulatory policies.

Capital structure and performance · Financial performance volatility

If we fail to operate our business in accordance with our business plan, our operating results, business and stock price may be significantly and adversely impacted. Because our expenses are in most cases relatively fixed in the short term, any revenue shortfall below expectations could have an immediate and material adverse effect on our operating results.

Digital transformation and innovation · Artificial intelligence and automation

We are increasingly incorporating AI capabilities into the development of our technologies and into our products and services. AI technology is complex and rapidly evolving, and may subject us to significant competitive, legal, regulatory, 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.

Geopolitical and trade · Trade policies tariffs and sanctions

Changes in U.S. tariff policy, import restrictions, export controls, sanctions, retaliatory trade measures, and broader trade disputes have adversely affected, and may continue to adversely affect, our business, financial condition, and results of operations. These measures have increased, and may continue to increase, our cost of revenues and operating expenses by raising the cost of imported raw materials, components, equipment, and other inputs used in our business.