Aehr Test Systems – IPO: ‘424B3’ on 8/15/97

As of:  Friday, 8/15/97   ·   Accession #:  912057-97-28242   ·   File #:  333-28987

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Initial Public Offering (IPO):  Prospectus   —   Rule 424(b)(3)
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 424B3       Prospectus                                            82    456K 

Document Table of Contents

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3,600,000 SHARES

[LOGO]
COMMON STOCK
--------------

    Of the 3,600,000 shares of Common Stock offered hereby, 2,500,000 shares are
being sold by Aehr Test Systems ("Aehr Test" or the "Company") and 1,100,000    
shares are being sold by the Selling Shareholders. The Company will not receive 
any of the proceeds from the sale of shares by the Selling Shareholders. See    
"Principal and Selling Shareholders."                                           

    Prior to this offering, there has been no public market for the Common Stock
of the Company. See "Underwriting" for a discussion of the factors to be        
considered in determining the initial public offering price. The Company's      
Common Stock has been approved for quotation on the Nasdaq National Market under
the symbol "AEHR".                                                              

THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. 
SEE "RISK FACTORS" BEGINNING AT PAGE 6. 
----------------- 

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND    
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE            
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION     
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY          
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.               
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]

                                                                                               PROCEEDS TO    
                                     PRICE TO          UNDERWRITING        PROCEEDS TO           SELLING      
                                      PUBLIC           DISCOUNT (1)        COMPANY (2)         SHAREHOLDERS   
                                                                                                              
--------------------------------------------------------------------------------------------------------------
Per Share.....................        $12.00              $0.84               $11.16              $11.16      
Total (3).....................     $43,200,000          $3,024,000         $27,900,000         $12,276,000    
-------------------------------------------------------------------------------------------                   
-------------------------------------------------------------------------------------------                   

(1) See "Underwriting," for information concerning indemnification of the       
Underwriters and other information.                                     

(2) Before deducting expenses of the offering payable by the Company estimated  
at $900,000.                                                            

(3) Certain of the Selling Shareholders have granted the Underwriters an option,
exercisable within 30 days of the date hereof, to purchase up to 540,000
additional shares of Common Stock for the purpose of covering           
  over-allotments, if any. If the Underwriters exercise such option in full,
 the total Price to Public, Underwriting Discounts and Proceeds to Selling
   Shareholders will be $49,680,000, $3,477,600 and $18,302,400, respectively.
See "Underwriting."                                                     

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

  The shares of Common Stock are offered severally by the Underwriters when,
as and if delivered to and accepted by them, subject to their right to withdraw,
cancel or reject orders in whole or in part and subject to certain other        
conditions. It is expected that delivery of the certificates representing the   
shares will be made against payment on or about August 20, 1997 at the office of
Oppenheimer & Co., Inc., Oppenheimer Tower, World Financial Center, New York,   
New York 10281.                                                                 

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

OPPENHEIMER & CO., INC.                                  NEEDHAM & COMPANY, INC.

The date of this Prospectus is August 14, 1997

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FRONT INSIDE COVER

                                                                [Download Table]
                                                                                 
TITLE:     DiePak                                                                
           Known Good Die Solutions                                              

TEXT:      Aehr Test Systems' DiePak-Registered Trademark- carrier is a reusable,
           temporary package designed to enable IC manufacturers to perform      
           cost-effective final test and burn-in of bare die using the same test 
           and burn-in systems used for packaged ICs.                            

[Exploded DIAGRAM of a DiePak test fixture, including textual descriptions of    
"Bare Die," "Open DiePak Carrier," "DiePak Socket," "Loaded DiePak Carrier in    
Socket" and "Section of a Test Fixture."                                         

[PHOTOGRAPH of a Multichip Module (textually described as "Memory MCM"), two     
DiePak Carriers (described as same) and four Bare and Packaged dies (textually   
described as "Memory Die," "Memory Package," "Microcontroller Package" and       
"Microcontroller Die.")]                                                         

CAPTION: IC manufacturers have traditionally packaged their die in plastic or    
ceramic packages. By using bare die directly in multichip modules (MCMs),        
electronics manufacturers can improve performance and substantially reduce size. 

[ARTWORK: Substrate for DiePak.]                                                 

[Aehr Test Systems Logo.]                                                        

CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SHARES, INCLUDING 
SYNDICATE COVERING TRANSACTIONS AND THE IMPOSITION, OF A PENALTY BID. FOR A     
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."                            

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE SHARES 
ON NASDAQ IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE "UNDERWRITING."      

  DiePak-Registered Trademark-, Aehr Test and the Aehr Test Systems logo are
trademarks of the Company. This Prospectus also includes trademarks of companies
other than the Company.                                                         

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FRONT COVER FOLD-OUT

                                                        [Enlarge/Download Table]
                                                                                                   
TITLE:             MTX Parallel Test Systems                                                       

TEXT:              Aehr Test Systems' MTX Massively Parallel Test System, which processes thousands
                   of devices simultaneously, is designed to reduce the cost of memory testing by  
                   performing many of the time-consuming tests traditionally performed by          
                   lower-throughput, higher-cost memory testers.                                   

[PHOTOGRAPH: MTX Parallel Test Systems]                                                            

CAPTION:           MTX Massively Parallel Test Systems on the Siemens, Dresden production floor.   

[PHOTOGRAPH: MTX Performance Test Board installed in an MTX System]                                

CAPTION:           The MTX can hold 30 test fixtures and up to 7,680 memory devices.               

[PHOTOGRAPH: DiePak carriers installed in sockets on a test fixture]                               

CAPTION:           MTX test fixtures also can support Aehr Test Systems DiePak carriers.           

[FLOW DIAGRAM: Traditional Process Flow]                                                           
TEXT IN DIAGRAM:   Traditional Process Flow                                                        
                   Device Assembly and Packaging                                                   
                   Pre Burn-in Test                                                                
                   --DC Parametrics Test                                                           
                   --Gross Functional Test                                                         
                   Monitored Burn-in                                                               
                   --Dynamic Stressing                                                             
                   --Long Functional Test                                                          
                   Final Test                                                                      
                   --DC Parametrics Test                                                           
                   --AC Parametrics Test                                                           
                   --Speed Sort                                                                    
                   --Pattern Sensitivity Test                                                      
                   --High-Speed Functional Test                                                    
                   --Data Retention Test                                                           
                   --Refresh Test                                                                  
                   Ship Packaged Devices                                                           

[FLOW DIAGRAM: Aehr Test Systems Parallel Test Process Flow]                                       
TEXT IN DIAGRAM:   Aehr Test Systems Parallel Test Process Flow                                    
                   Device Assembly and Packaging                                                   
                   Pre Burn-in Test                                                                
                   --DC Parametrics Test                                                           
                   --AC Parametrics Test                                                           
                   Aehr Test Systems Massively Parallel Test                                       
                   --Dynamic Stressing                                                             
                   --Long Functional Test                                                          
                   --Pattern Sensitivity Test                                                      
                   --High-speed Functional Test                                                    
                   --Data Retention Test                                                           
                   --Refresh Test                                                                  
                   Final Test                                                                      
                   --DC Parametrics Test                                                           
                   --AC Parametrics Test                                                           
                   --Speed Sort                                                                    
                   Ship Packaged Devices                                                           

TEXT:              Transferring tests to the MTX system can enable Aehr Test Systems' customers to 
                   reduce the required number of traditional memory testers.                       

[PHOTOGRAPH: MTX Driver Boards and Pattern Generators installed in MTX system]                     

CAPTION:           MTX driver and pattern generator electronics                                    

[PHOTOGRAPH: MTX operator interface showing typical information display]                           

CAPTION:           The MTX operator interface                                                      

[Aehr Test Systems LOGO.]                                                                          

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PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED 
INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING NOTES THERETO,     
APPEARING ELSEWHERE IN THIS PROSPECTUS. EXCEPT AS OTHERWISE NOTED HEREIN, ALL   
INFORMATION IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE UNDERWRITERS'         
OVER-ALLOTMENT OPTION. THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS.     
DISCUSSIONS CONTAINING SUCH FORWARD-LOOKING STATEMENTS MAY BE FOUND IN THE      
MATERIAL SET FORTH BELOW AND UNDER "RISK FACTORS," "MANAGEMENT'S DISCUSSION AND 
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS," AS   
WELL AS IN THE PROSPECTUS GENERALLY. ACTUAL EVENTS OR RESULTS MAY DIFFER        
MATERIALLY FROM THOSE DISCUSSED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF
VARIOUS FACTORS, INCLUDING WITHOUT LIMITATION THE RISK FACTORS SET FORTH BELOW  
AND THE MATTERS SET FORTH IN THE PROSPECTUS GENERALLY.                          

THE COMPANY 

Aehr Test develops, manufactures and sells systems which are designed to
reduce the cost of testing Dynamic Random Access Memory ("DRAMs") and other     
memory devices, and products which are designed to enable integrated circuit    
manufacturers to perform test and burn-in of bare die. Leveraging its expertise 
as a long-time leading provider of burn-in equipment, with over 2,000 systems   
installed world-wide, the Company has developed and introduced two innovative   
product families, the MTX system and the DiePak carrier. The MTX is a massively 
parallel test system capable of processing thousands of memory devices          
simultaneously. The DiePak carrier is a reusable, temporary package that enables
integrated circuit ("IC") manufacturers to perform cost-effective final test and
burn-in of bare die. The Company also offers systems that perform reliability   
screening, or burn-in, of complex logic and memory devices.                     

The semiconductor industry is intensely competitive. IC manufacturers   
compete on the basis of price, performance and increasingly, for applications   
such as notebook PCs and portable phones, "form factor" or size. Price          
competition is especially severe for high volume ICs such as DRAMs. In 1996, for
example, prices for 16Mb DRAMs fell from approximately $50 to approximately $10 
per device. The continuing price competition motivates IC manufacturers to      
reduce production costs, including test costs, wherever possible. According to  
Dataquest, as of 1997 final test costs represent approximately 8.5% of total    
manufacturing costs for 64Mb DRAMs. The competitive factors affecting the       
semiconductor industry also have encouraged the emergence of new IC packaging   
and interconnect technologies, including the use of unpackaged or "bare" die    
mounted directly on a multichip module or printed circuit board. Using bare die 
dramatically reduces the form factor of a system's IC components. For example, a
packaged microprocessor is typically four to five times the size of the bare    
die, and a packaged memory device is typically twice the size of the bare die.  
Using bare die also can improve product performance by increasing system        
operating speed and reducing power consumption and potentially could save costs 
associated with packaging ICs. The widespread use of bare die has been          
restricted by the absence of a cost-effective means of performing final test and
burn-in.                                                                        

The MTX massively parallel test system is designed to reduce the cost of
memory testing by performing both test and burn-in on thousands of devices      
simultaneously, including DRAMs, Synchronous DRAMs ("SDRAMs") and Static Random 
Access Memory ("SRAMs"). IC manufacturers can optimize the final test process by
transferring many time-consuming tests to the MTX system and using              
lower-throughput, higher-cost memory testers to perform only the high accuracy  
test functions for which they are most effective. The Company believes that this
"mix and match" strategy can enable IC manufacturers to reduce the required     
number of conventional memory testers and, as a result, substantially reduce    
capital and operating costs. Siemens has purchased production quantities of MTX 
systems from the Company, and other leading IC manufacturers have purchased     
units for evaluation. Sales of MTX systems and related products represented less
than 30% of the Company's total net sales for fiscal 1996 and approximately 60% 
of total net sales for fiscal 1997.                                             

 The DiePak product line includes the DiePak carriers, which are reusable,
temporary packages that hold bare die, as well as sockets which are used to     
connect the carriers to test fixtures for test and burn-in. Using the DiePak    
carrier, IC manufacturers can perform final test and burn-in of bare die using  
many of the same systems they use for packaged ICs. The DiePak carrier thus can 
enable IC manufacturers to supply to their customers "known good die" that meet 
the same reliability specifications as packaged die. Motorola, Inc. is using the
DiePak carrier in volume production, and other leading IC manufacturers have    
purchased DiePak carriers for                                                   

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evaluation. Production sales of DiePak products have only recently begun and    
have not represented a material amount of total net sales in any fiscal year.   

 The Company's current burn-in products consist of the MAX and ATX product
families. The Company believes that its burn-in systems provide accurate and    
reliable burn-in for complex logic and memory ICs. The Company manufactures and 
sells test fixtures, including performance test boards for use with the MTX     
system and, burn-in boards for use with burn-in systems. The test fixtures hold 
the ICs and provide the electrical interface between the system and the ICs     
undergoing burn-in or test.                                                     

    The Company assembles its products from components and parts manufactured by
others. Final assembly and test are performed at the Company's principal        
facility, located in Mountain View, California, and at a Tokyo facility operated
by its Japanese subsidiary. The Company's strategy is to use in-house           
manufacturing only when necessary to protect a proprietary process or if a      
significant improvement in quality, cost or lead time can be achieved.          

 The Company markets and sells its products in the United States through a
combination of a direct sales force and independent sales representatives. The  
Company markets and sells its products in Japan, Germany, Austria, Switzerland  
and the Benelux countries through its subsidiaries' direct sales forces, and in 
other countries through a network of independent distributors and sales         
representatives.                                                                

THE OFFERING

                                                        [Enlarge/Download Table]
                                                                                               
Common Stock offered by:                                                                       
  The Company........................................ 2,500,000 shares                         
  Selling Shareholders............................... 1,100,000 shares                         
Common Stock to be outstanding after the Offering.... 6,795,522 shares(1)                      
Use of proceeds ..................................... Repayment of debt, capital expenditures, 
                                                      and general corporate purposes, including
                                                      working capital and potential            
                                                      acquisitions. See "Use of Proceeds."     
Nasdaq National Market symbol........................ AEHR                                     

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

(1) Excludes (i) 1,341,350 shares reserved for issuance under the Company's     
stock option plans, of which 759,350 shares were subject to outstanding 
 options as of May 31, 1997, at a weighted average exercise price of $4.01
   per share and (ii) 300,000 shares reserved for issuance under the Company's
 1997 Employee Stock Purchase Plan. Subsequent to May 31, 1997, options to
   purchase an additional 46,750 shares were granted and are outstanding at an
   exercise price of $7.50 per share. See "Management--Stock Plans" and Note 8
of Notes to Consolidated Financial Statements.                          

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SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA) 

                                                        [Enlarge/Download Table]

                                                                                    YEAR ENDED MAY 31,                   
                                                                  -------------------------------------------------------
                                                                    1993       1994       1995       1996        1997    
                                                                  ---------  ---------  ---------  ---------  -----------
                                                                                                                         
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:                                                                              
  Net sales...................................................... $  24,529  $  23,204  $  23,257  $  33,234   $  42,020 
  Income (loss) from operations..................................    (2,387)    (4,198)    (2,080)     2,536       3,684 
  Income (loss) before income taxes and minority interest in                                                             
    subsidiary...................................................    (2,799)    (4,518)    (2,166)     1,531       2,542 
  Income tax expense (benefit)...................................       185         17         10        130        (773)
  Net income (loss)..............................................    (2,809)    (4,250)    (1,987)     1,400       3,315 
  Net income (loss) per share(1)................................. $   (0.68) $   (1.02) $   (0.45) $    0.31   $    0.73 
  Shares used in per share calculations(1).......................     4,106      4,162      4,442      4,487       4,536 

Supplemental net income(2).......................................                                              $   3,473 
Supplemental net income per share(2).............................                                              $    0.73 
Shares used in supplemental per share calculation(2).............                                                  4,766 

                                                        [Enlarge/Download Table]

                                                                                                       MAY 31, 1997     
                                                                                                  ----------------------
                                                                                                                 AS     
                                                                                                   ACTUAL    ADJUSTED(3)
                                                                                                  ---------  -----------
                                                                                                                        
CONSOLIDATED BALANCE SHEETS DATA:                                                                                       
  Cash and cash equivalents...................................................................... $   1,176   $  25,417 
  Working capital................................................................................     7,895      34,895 
  Total assets...................................................................................    24,389      48,630 
  Long-term obligations, less current portion....................................................       356         356 
  Total shareholders' equity.....................................................................    10,070      37,070 

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

(1) See Note 1 of Notes to Consolidated Financial Statements for a description  
 of the computation of the number of shares used in per share calculations
and net income (loss) per share. Net income for fiscal 1997 includes    
    $1,055,000 of income tax benefit. Without the income tax benefit, net income
per share would have been $0.50 in fiscal 1997.                         

(2) Supplemental net income, supplemental net income per share and shares used  
  in supplemental per share calculation for fiscal year 1997 were calculated
 assuming that the indebtedness to be repaid with the net proceeds of this
   offering had been repaid at the beginning of fiscal 1997 using the proceeds
 from the sale of 229,917 shares at an offering price of $12.00 per share.

(3) Adjusted to reflect the sale of the 2,500,000 shares of Common Stock offered
by the Company hereby (at an initial public offering price of $12.00 per
  share and after deducting the underwriting discount and estimated offering
expenses payable by the Company) and the application of the net proceeds
 therefrom, less approximately $2.8 million of short-term borrowings to be
  repaid by the Company with the proceeds of this offering ("Offering"). See
"Use of Proceeds" and "Capitalization."                                 

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RISK FACTORS

IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING  
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE COMPANY AND ITS        
BUSINESS BEFORE PURCHASING THE SHARES OF COMMON STOCK OFFERED HEREBY. THIS      
PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND           
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE    
RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR
CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THOSE DISCUSSED BELOW AND UNDER          
"PROSPECTUS SUMMARY," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL        
CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS," AS WELL AS IN THE          
PROSPECTUS GENERALLY.                                                           

FLUCTUATIONS IN OPERATING RESULTS                                               

The Company has experienced and expects to continue to experience       
significant fluctuations in its quarterly and annual operating results. During  
fiscal 1996 and 1997, quarterly net sales have been as low as $7,601,000 and as 
high as $11,718,000, and gross margins for quarterly sales have fluctuated      
between 36.7% and 41.7%. The Company's future operating results will depend upon
a variety of factors, including the timing of significant orders, the mix of    
products sold, changes in pricing by the Company, its competitors, customers or 
suppliers, the length of sales cycles for the Company's products, timing of new 
product announcements and releases by the Company and its competitors, market   
acceptance of new products and enhanced versions of the Company's products,     
capital spending patterns by customers, timing of completion of Defense Advanced
Research Projects Agency ("DARPA") development milestones, manufacturing        
inefficiencies associated with new product introductions by the Company, the    
Company's ability to produce systems and products in volume and meet customer   
requirements, product returns and customer acceptance of product shipments,     
volatility in the Company's targeted markets, political and economic            
instability, natural disasters, regulatory changes, possible disruptions caused 
by expanding existing facilities or moving into new facilities, expenses        
associated with acquisitions and alliances, and various competitive factors,    
including price-based competition and competition from vendors employing other  
technologies. The Company's gross margins have varied and will continue to vary 
based on a variety of factors, including the mix of products sold, sales volume,
and the amount of products sold under volume purchase arrangements, which tend  
to have lower selling prices. See "Management's Discussion and Analysis of      
Financial Condition and Results of Operations." Accordingly, past performance   
may not be indicative of future performance.                                    

DEPENDENCE ON TIMING AND SIZE OF SALES ORDERS AND SHIPMENT                      

 During the Company's last two fiscal years, net sales in the first fiscal
quarter, ended August 31, have declined compared with the fourth fiscal quarter,
ended May 31, of the preceding fiscal year, primarily due to additional emphasis
being placed on shipping products prior to the end of the fiscal year. The      
Company expects that fluctuations of this type may occur in the future. The     
Company derives a substantial portion of its revenues from the sale of a        
relatively small number of systems which typically range in purchase price from 
approximately $100,000 to over $1.5 million. As a result, the loss or deferral  
of a limited number of system sales could have a material adverse effect on the 
Company's 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 reschedulings of customer orders have occurred, and     
delays by the Company's suppliers in providing components or subassemblies to   
the Company have caused delays in the Company's shipments of its own products.  
Although the Company has not experienced material cancellations or reschedulings
of purchase orders in recent years, there can be no assurance that the Company  
will not be materially adversely affected by future cancellations and           
reschedulings. 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 reschedulings,  
cancellations or deferrals by customers, customer credit issues, unexpected     
manufacturing difficulties experienced by the Company, or delays in deliveries  
by suppliers, could cause net sales in a                                        

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particular quarter to fall significantly below the Company's expectations. As   
the Company is continuing to increase its operating expenses in anticipation of 
increasing sales levels, the Company's results of operations will be adversely  
affected if such sales levels are not achieved.                                 

RECENT OPERATING LOSSES                                                         

The Company incurred operating losses of $2.4, $4.2 and $2.1 million in 
fiscal 1993, 1994 and 1995, respectively. Although the Company has operated     
profitably during fiscal 1996 and 1997, increased net sales in those years were 
substantially the result of sales of new products, particularly sales of MTX    
systems to Siemens. During fiscal 1996 and 1997, Siemens accounted for 29.1% and
55.7% of the Company's net sales, respectively. Sales to Siemens, which include 
both the MTX and other products, are made pursuant to individual purchase       
orders. There is no long term volume purchase commitment. There can be no       
assurance that the MTX system will receive broad market acceptance or that the  
Company will be able to sustain net sales growth or profitability.              

DEPENDENCE ON MARKET ACCEPTANCE OF MTX SYSTEM                                   

 A principal element of the Company's strategy is to capture an increasing
share of the memory test equipment market through sales of the MTX massively    
parallel test system. The MTX is a new system designed to perform both burn-in  
and many of the final test functions currently performed by high-cost memory    
testers and the market for MTX systems is in the early stage of development. The
Company's strategy depends, in part, upon its ability to persuade potential     
customers that the MTX system can successfully perform a significant portion of 
such final test functions and that transferring such tests to MTX systems will  
reduce their overall capital and test costs. There can be no assurance that the 
Company's strategy will be successful. The failure of the MTX system to achieve 
market acceptance would have a material adverse effect on the Company's         
business, financial condition and operating results.                            

Market acceptance of the MTX system is subject to a number of risks. The
Company believes the MTX system has not yet been used in volume production to   
perform a significant portion of the test functions performed by memory testers.
To date, several companies have purchased evaluation units of the MTX system;   
however, only Siemens has purchased production quantities. During fiscal 1996   
and 1997, Siemens accounted for 29.1% and 55.7% of the Company's net sales,     
respectively. Sales to Siemens, which include both the MTX and other products,  
are made pursuant to individual purchase orders. There is no long term volume   
purchase commitment. Although Siemens has taken delivery of production          
quantities of MTX systems, has been conducting extensive evaluations and has    
placed orders for additional systems, the Company believes Siemens has not yet  
completed the evaluations necessary for it to transfer significant test         
functions from standard testers to MTX systems. Consequently, there can be no   
assurance that the MTX system will be accepted by the market for performing     
memory test functions in volume production. Future sales to Siemens and other   
customers could be adversely affected if for any reason Siemens does not satisfy
itself that a significant number of test functions can successfully be          
transferred to the MTX system.                                                  

 Since most potential customers have successfully relied on memory testers
for many years and their personnel understand the use and maintenance of such   
systems, the Company anticipates that they may be reluctant to change their     
procedures in order to transfer test functions to the MTX system. Before a      
customer will transfer test functions to the MTX, the test programs must be     
translated for use with the MTX and lengthy correlation tests must be performed.
Correlation testing may take up to six months or more. Furthermore, MTX system  
sales are expected to be primarily limited to new facilities and to existing    
facilities being upgraded to accommodate new product generations, such as the   
transition from 16 megabit ("Mb") to 64Mb DRAMs. Other companies have purchased 
MTX systems which are being used in quality assurance and engineering           
applications, and the Company believes that a number of these companies are     
evaluating the MTX for use in production applications. Market acceptance of the 
MTX system also may be affected by a reluctance of IC manufacturers to rely on  
relatively small suppliers such as the Company.                                 

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  As is common with new complex and software-intensive products, the Company
encountered reliability, design and manufacturing issues as it began volume     
production and initial installations of MTX systems at customer sites. The      
Company places a high priority on addressing these issues as they arise. Certain
of these issues have been related to components and subsystems supplied to the  
Company by third parties which have in some cases limited the ability of the    
Company to address such issues promptly. One customer who purchased an MTX      
system in 1995 for use in a quality assurance application subsequently          
determined that the MTX system did not meet its particular requirements; the    
Company purchased the system from that customer at a reduced price and intends  
to refurbish the system for resale. Since the Company is still in the early     
stages of the MTX systems' life cycle, there can be no assurance that other     
reliability, design and manufacturing issues will not be discovered in the      
future or that such issues, if they arise, can be resolved to the customers'    
satisfaction or that the resolution of such problems will not cause the Company 
to incur significant development costs or warranty expenses or to lose          
significant sales opportunities.                                                

The Company's future sales and operating results are also partially     
dependent on its sales of performance test boards ("PTBs") for use with the MTX 
system. Sales of PTBs by the Company and its licensees will depend upon the     
number of MTX systems installed by customers.                                   

DEPENDENCE ON DEVELOPMENT OF BARE DIE MARKET AND MARKET ACCEPTANCE OF DIEPAK    
CARRIER                                                                     

Another principal element of the Company's strategy is to capture an    
increasing share of the bare die burn-in and test product market through sales  
of its DiePak carrier products. The Company developed the DiePak carrier to     
enable burn-in and test of bare die in order to supply known good die ("KGD")   
for use in applications such as multichip modules. The Company's strategy       
depends upon increased industry acceptance of bare die as an alternative to     
packaged die as well as acceptance of the Company's DiePak products. There can  
be no assurance that the Company's strategy will be successful. The failure of  
the bare die market to expand or of the DiePak carrier to achieve broad market  
acceptance would have a material adverse effect on the Company's business,      
financial condition and operating results.                                      

The emergence of the bare die market and broad acceptance of the DiePak 
carrier are subject to a number of risks. The Company believes that the growth  
of the bare die market depends largely on the relative cost and benefits to the 
manufacturers of PCs and other electronics products of using bare die rather    
than alternative IC packaging methods. The Company believes that the cost of    
producing KGD using DiePak products is currently higher than the cost of        
producing most packaged die. There can be no assurance that electronics         
manufacturers will perceive that the benefits of KGD justify its potentially    
higher cost, and acceptance of KGD for many applications may therefore be       
limited. In addition, electronics manufacturers must change their manufacturing 
processes in order to use KGD, but electronics manufacturers typically have     
substantial investments in existing manufacturing technology and have           
historically been slow in transitioning to new technologies.                    

    The adoption of the DiePak products by IC manufacturers and burn-in and test
services companies typically will involve a lengthy qualification. Such         
qualification processes could delay high volume sales of DiePak products by the 
Company. Motorola is the only customer to have ordered DiePak products in       
production quantities. Motorola accounted for approximately 48% of the Company's
net sales of DiePak products in fiscal 1997. Sales to Motorola, which include   
both DiePak products and other products, are made pursuant to individual        
purchase orders. There is no long term volume purchase commitment. There can be 
no assurance that the bare die market will emerge and grow as the Company       
anticipates, that the DiePak carrier will achieve commercial acceptance, or that
the Company will not experience difficulties in ramping up production to meet   
any increased demand for DiePak products that may develop.                      

CUSTOMER CONCENTRATION                                                          

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                          

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purchases of semiconductor equipment. Sales to the Company's five largest       
customers accounted for approximately 45.1%, 55.8% and 69.2% of its net sales in
fiscal 1995, 1996 and 1997, respectively. During fiscal 1996 and 1997, Siemens  
accounted for 29.1% and 55.7% of the Company's net sales, respectively. During  
fiscal 1995, Sony Corporation ("Sony") accounted for 18.2% of net sales. No     
other customers represented more than 10% of the Company's net sales for any of 
such periods. The Company expects that sales of its products to a limited number
of customers, particularly Siemens, 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 orders from a significant customer, or a delay 
in collecting or failure to collect accounts receivable from a significant      
customer could adversely affect the Company's business, financial condition and 
operating results. See "Business-- Customers."                                  

LIMITED MARKET FOR BURN-IN SYSTEMS                                              

  Historically, a substantial portion of the Company's net sales was derived
from the sale of burn-in systems. Sales of burn-in systems and related products 
and equipment exceeded 90% of the Company's total net sales in fiscal 1995,     
represented approximately 70% of total net sales in fiscal 1996 and represented 
less than 40% of total net sales in fiscal 1997. The market for burn-in systems 
is mature and estimated to be less than $100 million per year. In general,      
process control improvements in the semiconductor industry have tended to reduce
burn-in times. In addition, as a given IC product generation matures and yields 
increase, the required burn-in time may be reduced or eliminated. Some burn-in  
system suppliers primarily provide "monitored" burn-in systems optimized for    
DRAMs. The sale of monitored burn-in products has reduced the size of the market
segment addressed by the Company's dynamic burn-in systems. IC manufacturers,   
the Company's primary historical customer base, increasingly outsource test and 
burn-in to independent test labs, who often build their own systems. There can  
be no assurance that the market for burn-in systems will grow, and sales of the 
Company's burn-in products could decline further.                               

LENGTHY SALES CYCLE                                                             

Sales of the Company's 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 involve 
a significant commitment of capital. In view of the significant investment or   
strategic issues that may be involved in a decision to purchase MTX systems or  
DiePak carriers, the Company may experience delays following initial            
qualification of the Company's systems as a result of delays in a customer's    
approval process. Furthermore, the approval process for MTX sales may require   
lengthy qualification and correlation testing. For this and other reasons, the  
Company's systems typically have a lengthy sales cycle during which the Company 
may expend substantial funds and management effort in securing a sale. Lengthy  
sales cycles subject the Company to a number of significant risks, including    
inventory obsolescence and fluctuations in operating results, over which the    
Company has 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 could have a material adverse effect on the Company's         
business, operating results and financial condition and, in particular, could   
contribute to significant fluctuations in operating results on a quarterly      
basis.                                                                          

DEPENDENCE ON INTERNATIONAL SALES AND OPERATIONS                                

  Approximately 81.5%, 90.4% and 92.5% of the Company's net sales for fiscal
1995, 1996 and 1997, respectively, were attributable to sales to customers for  
delivery outside of the United States. The Company maintains a sales, service,  
product engineering and assembly operation in Japan and a sales and service     
organization in Germany. The Company expects sales of products for delivery     
outside of the United States will continue to represent a substantial portion of
its future revenues. The future performance of the Company will depend, in      
significant part, upon its ability to continue to compete in                    

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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 the Company's ability to sell   
its products in foreign markets. In addition, the Company is subject to other   
risks associated with doing business internationally, including longer          
receivables 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. See 
"Management's Discussion and Analysis of Financial Condition and Results of     
Operations."                                                                    

 Because a substantial portion of the Company's net sales is from sales of
products for delivery outside the United States, including particularly Germany 
and Japan, an increase in the value of the U.S. Dollar relative to foreign      
currencies would increase the cost of the Company's products compared to        
products sold by local companies in such markets. Approximately 77.8%, 20.1% and
2.1% of the Company's net sales for fiscal 1997 were denominated in U.S.        
Dollars, Japanese Yen and German Marks, respectively. Although most sales to    
German customers are denominated in dollars, substantially all sales to Japanese
customers are denominated in Japanese 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-dollar exchange rate during the lengthy period from     
purchase order to ultimate payment. This exchange rate risk is partially offset 
to the extent the Company's Japanese subsidiary incurs yen-denominated expenses.
To date, the Company has not invested in instruments designed to hedge currency 
risks. In fiscal 1997, the Company experienced a foreign currency loss of       
$393,000. In addition, the Company's Japanese subsidiary typically carries debt 
owed to the Company and denominated in dollars. Since the subsidiary's financial
statements are based in yen, it recognizes an income gain or loss in any period 
in which the value of the yen rises or falls in relation to the dollar.         

   A substantial portion of the world's manufacturers of memory devices are in
Korea, Japan and Taiwan and growth in the Company's net sales depends in large  
part upon its ability to penetrate the Korean and Japanese markets. Both the    
Korean and Japanese markets are difficult for foreign companies to penetrate.   
The Company has served the Japanese market through its Japanese subsidiary,     
which has experienced limited success and incurred operating losses in recent   
years. Sales into Korea have not been significant in recent years. The Company  
formerly served the Korean market through a direct support operation, which was 
closed in 1996. The Company subsequently selected a local distributor, but its  
sales into Korea remained low and that distribution relationship is being       
terminated. The Company intends to select a new distributor. The lack of local  
manufacturing may impede the Company's efforts to develop the Korean market.    
Taiwan also represents an increasingly important portion of the memory          
manufacturer market. The Company relies on an independent distributor in Taiwan 
and does not have any direct operations in Taiwan. There can be no assurances   
that the Company's efforts in Japan, Korea or Taiwan will be successful or that 
the Company will be able to achieve and sustain significant sales to, or be able
to successfully compete in, the Japanese, Korean or Taiwanese test and burn-in  
markets.                                                                        

RAPID TECHNOLOGICAL CHANGE; IMPORTANCE OF TIMELY PRODUCT INTRODUCTION           

The semiconductor equipment industry is subject to rapid technological  
change and new product introductions and enhancements. The Company's ability to 
remain competitive will depend in part upon its ability to develop new products 
and to introduce these products at competitive prices and on a timely and       
cost-effective basis. The Company's 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                                      

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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 the Company and its          
suppliers. This process in the past has required and in the future is likely to 
require the Company to incur unreimbursed engineering expenses, and from time to
time to experience warranty claims or product returns. There can be no assurance
that the Company will be successful in selecting, developing, manufacturing and 
marketing new products that satisfy market demand. Any such failure would       
materially adversely affect the Company's business, financial condition and     
results of operations.                                                          

   Because of the complexity of the Company's products, significant delays can
occur between a product's introduction and the commencement of volume production
of such product. The Company has experienced significant delays from time to    
time in the introduction of, and technical and manufacturing difficulties with, 
certain of its products and may experience delays and technical and             
manufacturing difficulties in future introductions or volume production of new  
products, and there can be no assurance that the Company will not encounter such
difficulties in the future. The Company's inability to complete product         
development, products or to manufacture and ship products in volume and in time 
to meet customer requirements would materially adversely affect the Company's   
business, financial condition and results of operations.                        

    Future improvements in semiconductor design and manufacturing technology may
reduce or eliminate the need for the Company's products. For example, the       
introduction of viable wafer-level burn-in and test systems, improvements in    
built-in self test ("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 the Company's products.              

UNCERTAINTIES RELATING TO DARPA FUNDING FOR RESEARCH AND DEVELOPMENT            

In 1994, the Company entered into a cost-sharing agreement with DARPA, a
U.S. government agency, under which DARPA is providing co-funding for the       
development of wafer-level burn-in and test equipment. The contract provides for
potential payments by DARPA totaling up to $6.5 million. The agreement provides 
that (i) the Company shall retain title to all co-funded inventions, (ii) DARPA 
will receive a paid-up license to use the inventions for government purposes and
(iii) DARPA can require the Company to license the inventions to third parties  
on reasonable terms if the Company fails to adequately commercialize the        
inventions. Payments by DARPA depend on satisfaction of development milestones, 
and DARPA has the right to terminate project funding at any time. The level of  
payments may vary significantly from quarter to quarter. There can be no        
assurance that the Company will meet the development milestones or that DARPA   
will continue funding the project. If DARPA funding were discontinued and the   
Company continued the project, the Company's operating results would be         
adversely affected. There also can be no assurance that the development project 
will result in any marketable products. The Company has completed certain       
development milestones and invoiced $2.9 million through May 31, 1997. The      
remaining funding is subject to milestones scheduled to be completed through    
January 1999.                                                                   

INTENSE COMPETITION                                                             

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 expects its competitors to continue to improve the performance of   
their current products and to introduce new products with improved price and    
performance characteristics. In addition, continuing consolidation in the       
semiconductor equipment industry, and potential future consolidation, could     
adversely affect the ability of smaller companies such as the Company to compete
with larger, integrated competitors. 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 existing products. Increased competitive     
pressure could also lead to intensified price-based                             

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competition, resulting in lower prices which could adversely affect the         
Company's business, financial condition and operating 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. See "Business--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.            

    Because the Company's MTX system performs burn-in and many of the functional
tests performed by memory testers, the Company expects that the MTX System will 
face intense competition from burn-in system suppliers and traditional memory   
tester suppliers. The market for burn-in systems is highly fragmented, with many
domestic and international suppliers. Some users, such as independent test labs,
build their own burn-in systems, and some other users, particularly large       
Japanese IC manufacturers, acquire burn-in systems from captive or affiliated   
suppliers. Competing suppliers of burn-in systems, which typically cost less    
than the MTX system, include Ando Corporation, Japan Engineering Company,       
Reliability Incorporated and Tabai Espec Corp. Some of the burn-in systems      
offered by competing suppliers perform some test functions. In addition,        
suppliers of memory test equipment including Advantest Corporation and Teradyne,
Inc. may seek to offer parallel test systems in the future.                     

The Company's DiePak products face significant competition. Texas       
Instruments Incorporated sells a temporary, reusable bare die carrier which is  
intended to enable burn-in and test of bare die, and the Company believes that  
several other companies have developed or are developing other such products. As
the bare die market develops, the Company expects that other competitors will   
emerge. The Company expects that the primary competitive factors in this market 
will be performance, reliability, cost and assured supply.                      

The Company's MAX dynamic and ATX monitored and dynamic burn-in systems 
increasingly have faced and are expected to continue to face severe competition,
especially from local, low cost manufacturers. Also, the MAX dynamic burn-in    
system faces severe competition from manufacturers of monitored burn-in systems 
that perform limited functional tests not performed by the Company's dynamic    
burn-in systems, including tests designed to ensure the devices receive the     
specified voltages and signals.                                                 

The Company's test fixture products face numerous competitors. There are
limited barriers to entry into the burn-in board ("BIB") market, and as a       
result, many small companies design and manufacture BIBs, including BIBs for use
with the Company's MAX and ATX systems. The Company's strategy is to provide    
higher performance BIBs, and the Company generally does not compete to supply   
lower cost, low performance BIBs. The Company has granted a royalty-bearing     
license to one company to make PTBs for use with its MTX systems, in order to   
assure customers of a second source of supply, and the Company may license      
others as well. Sales of PTBs by licensees would result in royalties to the     
Company but would potentially reduce the Company's own sales of PTBs.           

  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. Increased competitive pressure     
could also lead to intensified price-based competition, resulting in lower      
prices which could adversely affect the Company's business, financial condition 
and operating 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.                     

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CYCLICALITY OF SEMICONDUCTOR INDUSTRY AND CUSTOMER PURCHASES; RISK OF           
CANCELLATIONS AND RESCHEDULINGS                                             

The Company's 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 and products      
utilizing integrated circuits. The semiconductor and semiconductor equipment    
industries in general, and the market for DRAMs and other memories in           
particular, historically have been highly volatile and have experienced periodic
downturns and slowdowns, which have had a severe negative effect 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 also adversely affected the Company's operating    
results in the past. In addition, the purchasing patterns of the Company's      
customers are also highly cyclical because most customers purchase the Company's
products for use in new production facilities or for upgrading existing test    
lines for the introduction of next generation products. A large portion of the  
Company's net sales are attributable to a few customers and therefore a         
reduction in purchases by one or more customers could materially adversely      
affect the Company's financial results. There can be no assurance that the      
semiconductor industry will grow in the future at the same rates it has grown   
historically. Any future downturn or slowdown in the semiconductor industry     
would have a material adverse effect on the Company's 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
the Company's ability to reduce its 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 and reschedulings of purchase orders, as was the case in the      
industry in late 1995 and early 1996. Although the Company has not experienced  
material cancellations or reschedulings of purchase orders in recent years,     
there can be no assurance that the Company will not be materially adversely     
affected by future cancellations and reschedulings.                             

DEPENDENCE ON SUBCONTRACTORS; SOLE OR LIMITED SOURCES OF SUPPLY                 

  The Company relies on subcontractors to manufacture many of the components
or subassemblies used in its products. The Company's MTX, MAX and ATX systems   
contain several components, including environmental chambers, power supplies and
certain ICs, which are currently supplied by only one or a limited number of    
suppliers. The DiePak products include an interconnect substrate which is       
supplied only by Nitto Denko Corporation, and certain mechanical parts and      
sockets which are currently supplied only by Enplas Corporation. Nitto Denko and
the Company developed the interconnect substrate in cooperation with each other 
pursuant to a joint development agreement. Enplas cooperated with the Company in
developing the DiePak socket, and Enplas has been a shareholder of the Company  
since fiscal 1994. The Company does not have formal written supply agreements   
with Nitto Denko or Enplas. There have been no significant interruptions in     
supply of components by Nitto Denko or Enplas. 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 were to become unable or    
unwilling to continue to manufacture subassemblies, components or parts in      
required volumes, the Company 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 the Company on a timely basis. Any delay, interruption or          
termination of a supplier relationship could have a material adverse effect on  
the Company's business, financial condition and operating results. See          
"Business--Manufacturing."                                                      

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MANAGEMENT OF CHANGING BUSINESS                                                 

If the Company is to be successful, it must expand its operations. Such 
expansion will place a significant strain on the Company's administrative,      
operational and financial resources. 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 the Company is unable to manage the expansion of its operations    
effectively, the Company's business, financial condition and operating results  
will be materially and adversely affected.                                      

DEPENDENCE ON KEY PERSONNEL                                                     

The Company's success depends to a significant extent upon the continued
service of Rhea Posedel, its President and Chief Executive Officer, as well as  
other executive officers and key employees. See "Business--Management." The     
Company does not maintain key person life insurance for its benefit on any of   
its personnel, and none of the Company's employees is subject to a              
noncompetition agreement with the Company. The loss of the services of any of   
its executive officers or a group of key employees could have a material adverse
effect on the Company's business, financial condition and operating results. The
Company's future success will depend in significant part upon its 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 the      
Company to hire such personnel. Competition for such personnel in the           
semiconductor equipment industry is intense, and there can be no assurance that 
the Company will be successful in attracting or retaining such personnel. The   
Company's inability to attract and retain the executive management and other key
personnel it requires could have a material adverse effect on the Company's     
business, financial condition and operating results. See "Business--Employees." 

INTELLECTUAL PROPERTY PROTECTION AND INFRINGEMENT                               

   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 issue 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. 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.                                                      

 There are no pending claims against the Company regarding infringement of
any patents or other intellectual property rights of others. However, the       
Company may receive, in the future, 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 suggestions that 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. See "Business--Proprietary Rights."

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ENVIRONMENTAL REGULATIONS                                                       

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

SHARES ELIGIBLE FOR FUTURE SALE                                                 

Sales of substantial amounts of the Company's Common Stock in the public
market after the Offering could adversely affect the market price of the Common 
Stock. Upon completion of the Offering, the Company will have 6,795,522 shares  
of Common Stock outstanding, assuming no exercise of the Underwriters'          
over-allotment option. Of such outstanding shares, the 3,600,000 shares offered 
hereby (assuming no exercise of the Underwriters' over-allotment option) and    
approximately 158,889 additional shares of Common Stock will be eligible for    
immediate sale in the public market without restriction or under Rule 144 of the
Securities Act of 1933, as amended (the "Securities Act"), and the remaining    
3,036,633 shares will be subject to lock-up agreements restricting their        
transfer until 180 days after the date of the Offering, except with the consent 
of Oppenheimer & Co., Inc. After the termination of the 180-day lock-up,        
3,195,522 shares will be eligible for sale in the public market pursuant to     
Rules 144 and 701 under the Securities Act. The holders of 609,245 shares of    
Common Stock are entitled to certain registration rights. In addition, as of May
31, 1997, options to purchase an aggregate of 759,350 shares of Common Stock    
were outstanding under the Company's stock plans, all of which are subject to   
the 180-day lock-up described above. As of 180 days after the effective date of 
the Offering, upon expiration of lock-up agreements with the Company, an        
aggregate of approximately 531,529 shares will be eligible for sale upon the    
exercise of outstanding and vested stock options. Following the Offering, the   
Company intends to file a registration statement covering the shares reserved   
for issuance under the Company's stock plans, thus permitting the resale of such
shares in the public market without restriction. See "Description of Capital    
Stock--Registration Rights" and "Shares Eligible for Future Sale."              

NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE                      

Prior to the Offering there has been no public market for the Company's 
Common Stock, and there can be no assurance that an active public market for the
Common Stock will develop or be sustained after the Offering contemplated       
hereby. The initial public offering price was determined by negotiations among  
the Company, the Selling Shareholders and the representatives of the            
Underwriters, and may not be indicative of prices that may prevail in the public
market after the Offering. The trading price for the Company's Common Stock is  
likely to be highly volatile and could be subject to wide fluctuations in       
response to factors such as announcements of developments related to the        
Company's business or its competitors' or customers' businesses, fluctuations in
the Company's operating results, general conditions or developments in the      
semiconductor and semiconductor equipment industries and the worldwide economy, 
sales of the Company's Common Stock into the marketplace, the number of market  
makers for the Company's Common Stock, announcements of technological           
innovations or new or enhanced products by the Company or its competitors or    
customers, a shortfall in revenue, gross profit, earnings or other operating    
results from, or changes in, analysts' expectations and developments in the     
Company's relationships with its customers and suppliers, or a variety of other 
factors, many of which are beyond the Company's control. There can be no        
assurance that the market price of the Company's Common Stock will              

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not experience significant fluctuations, including fluctuations that are        
material, adverse and unrelated to the Company's performance. See               
"Underwriting."                                                                 

FUTURE ACQUISITIONS                                                             

  The Company may in the future pursue acquisitions of complementary product
lines, technologies or businesses. Future acquisitions by the Company may result
in potentially dilutive issuances of equity securities, the incurrence of debt  
and contingent liabilities and amortization expenses related to goodwill and    
other intangible assets, which could materially adversely affect any Company    
profitability. In addition, acquisitions involve numerous risks, including      
difficulties in the assimilation of the operations, technologies and products of
the acquired companies, the diversion of management's attention from other      
business concerns, risks of entering markets in which the Company has no or     
limited direct prior experience, and the potential loss of key employees of the 
acquired company. There are currently no negotiations, understandings or        
agreements with respect to any acquisition. In the event that such an           
acquisition does occur, however, there can be no assurance as to the effect     
thereof on the Company's business or operating results.                         

FUTURE CAPITAL NEEDS                                                            

In order to remain competitive, the Company must continue to make       
significant investments in capital equipment, facilities, computer systems,     
sales, service, training and support capabilities, procedures, controls and     
research and development, among other items. The Company's capital requirements 
will depend on many factors, including, but not limited to, acceptance of and   
demand for the Company's products and the extent to which the Company invests in
research and development. The Company believes that the proceeds from this      
offering, together with its cash, short-term investments and anticipated cash   
flow from operations and credit facilities will satisfy its anticipated         
financing requirements for at least the next 12 months. To the extent that such 
financial resources are insufficient to fund the Company's activities,          
additional funds will be required. There can be no assurance that additional    
financing will be available on reasonable terms, or at all. See "Use of         
Proceeds" and "Management's Discussion and Analysis of Financial Condition and  
Results of Operations."                                                         

CONTROL BY PRINCIPAL SHAREHOLDERS, OFFICERS AND DIRECTORS                       

    After the Offering, assuming no exercise of the Underwriters' over-allotment
option, the Company's officers and directors and their affiliates will          
beneficially own approximately 31% of the Company's Common Stock, including     
options held by them that are exercisable on or before July 31, 1997. The       
Company's officers and directors hold additional options which will become      
exercisable after July 31, 1997 and will entitle them to purchase an additional 
175,649 shares of the Company's Common Stock, which represents approximately 3% 
of the shares outstanding immediately after the Offering. As a result, such     
persons will have the ability to substantially influence the Company and direct 
its affairs and business. Such concentration of ownership may also have the     
effect of delaying, deferring or preventing a change in control of the Company. 
See "Principal and Selling Shareholders."                                       

POTENTIAL ISSUANCE OF UNDESIGNATED PREFERRED STOCK; ANTI-TAKEOVER EFFECTS       

The Company's Board of Directors can, without obtaining shareholder     
approval, issue shares of Preferred Stock having rights, preferences, privileges
and restrictions, including voting rights, that could adversely affect the      
voting power and other rights of holders of the Company's Common Stock. The     
issuance of the Preferred Stock, while providing desirable flexibility in       
connection with possible acquisitions and other corporate purposes, could have  
the effect of making it more difficult for a person to acquire a majority of the
outstanding voting stock of the Company, thereby delaying, deferring or         
preventing a change in control of the Company. Furthermore, such Preferred Stock
may have other rights, including economic rights, senior to the Common Stock,   
and, as a result, the issuance of such stock could                              

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have a material adverse effect on the market value of the Common Stock. The     
Company has no current plans to issue shares of Preferred Stock. The Company may
in the future adopt other measures that may have the effect of delaying,        
deferring or preventing a change in control of the Company, even though at a    
premium price or favored by a majority of unaffiliated shareholders. Certain of 
such measures may be adopted without any further vote or action by the          
shareholders. The Company has no current plans to adopt any such measures. See  
"Description of Capital Stock."                                                 

BROAD DISCRETION IN ALLOCATION OF NET PROCEEDS                                  

   Although the Company expects to use approximately $22,700,000, or 84.1%, of
the net proceeds of the Offering for general corporate purposes, with the       
remainder of the proceeds to be used for the repayment of certain short-term    
debt and limited capital expenditures, the Company has not identified the       
specific amount of the net proceeds to be used for specific purposes. The       
Company will retain broad discretion to allocate the net proceeds of the        
Offering, and there can be no assurance that the proceeds can or will be        
invested to yield a significant return. See "Use of Proceeds."                  

DILUTION TO NEW INVESTORS; ABSENCE OF DIVIDENDS                                 

Purchasers of the Common Stock offered hereby will incur immediate and  
substantial net tangible book value dilution of $6.62 per share, and, to the    
extent outstanding options to purchase the Company's Common Stock are exercised,
there will be further dilution. See "Dilution." The Company has never declared  
or paid cash dividends on its capital stock. The Company intends to retain any  
future earnings to finance the growth and development of its business. See      
"Dividend Policy."                                                              

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THE COMPANY 

The Company was incorporated in California in May 1977. The Company's   
principal executive offices are located at 1667 Plymouth Street, Mountain View, 
California 94043, and its telephone number at that location is (415) 691-9400.  
The Company also maintains offices in Irvine, California, Tokyo and Osaka, Japan
and Utting, Germany. Unless the context other requires, "Aehr Test" and the     
"Company," as used in this Prospectus, refer to Aehr Test Systems and its       
subsidiaries.                                                                   

USE OF PROCEEDS 

The net proceeds to the Company from the sale of the 2,500,000 shares of
Common Stock offered by the Company hereby are $27,000,000, after deducting the 
underwriting discount and estimated offering expenses payable by the Company.   
The Company will apply approximately $2.8 million of the net proceeds to the    
repayment of outstanding indebtedness under the Company's U.S. working capital  
lines of credit which bear interest at 0.75% to 1.00% over the prime rate (the  
prime rate was 8.5% as of May 31, 1997) and expire in December 1997. See Note 4 
of Notes to Consolidated Financial Statements. The Company currently estimates  
that it will use approximately $1.5 million of the net proceeds for planned     
capital expenditures in fiscal 1998. The remaining net proceeds will be used to 
finance inventories and accounts receivable, to fund engineering and product    
development expenditures, and for other general corporate purposes.             

  The Company may also use a portion of the net proceeds for the acquisition
of complementary businesses or products or to obtain the right to use           
complementary technologies. From time to time, in the ordinary course of        
business, the Company evaluates potential acquisitions of such businesses,      
products and technologies. However, the Company has no present understandings,  
commitments or agreements with respect to any material acquisition of           
businesses, products or technologies. See "Management's Discussion and Analysis 
of Financial Condition and Results of Operations--Liquidity and Capital         
Resources." Pending use of the net proceeds for the above purposes, the Company 
intends to invest such funds in short-term, high quality, interest-bearing      
investments.                                                                    

   The Company will not receive any proceeds from the sale of shares of Common
Stock offered by the Selling Shareholders. See "Principal and Selling           
Shareholders."                                                                  

DIVIDEND POLICY 

    To date, the Company has not paid any cash dividends on shares of its Common
Stock. The Company presently intends to retain future earnings for its business 
and does not anticipate paying cash dividends on its Common Stock in the        
foreseeable future. In addition, the Company's current bank credit facilities   
currently prohibit the Company from paying cash dividends without prior bank    
approval. See Note 4 of Notes to Consolidated Financial Statements.             

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CAPITALIZATION

    The following table sets forth the short-term debt and capitalization of the
Company as of May 31, 1997 and as adjusted to reflect the sale of 2,500,000     
shares of Common Stock offered by the Company hereby and the receipt and        
application of the estimated net proceeds therefrom:                            

                                                        [Enlarge/Download Table]

                                                                            MAY 31, 1997     
                                                                       ----------------------
                                                                                             
                                                                        ACTUAL    AS ADJUSTED
                                                                       ---------  -----------
                                                                           (IN THOUSANDS)    
Notes payable and current portion of long-term debt(1)................ $   4,773   $   2,014 
                                                                       ---------  -----------
                                                                       ---------  -----------
Long-term debt net of current portion.................................       136         136 
                                                                       ---------  -----------
Shareholders' equity:                                                                        
  Preferred Stock, $0.01 par value; 10,000,000 shares authorized; no                         
    shares outstanding................................................ $      --   $      -- 
  Common Stock, $0.01 par value; 75,000,000 shares authorized,                               
    4,295,522 shares outstanding actual; and 6,795,522 shares                                
    outstanding as adjusted(2)........................................        43          68 
  Additional paid-in capital..........................................     8,085      35,060 
  Accumulated deficit.................................................      (130)       (130)
  Cumulative translation adjustment...................................     2,072       2,072 
                                                                       ---------  -----------
  Total shareholders' equity..........................................    10,070      37,070 
                                                                       ---------  -----------
    Total capitalization.............................................. $  10,206   $  37,206 
                                                                       ---------  -----------
                                                                       ---------  -----------

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

(1) See Note 4 of Notes to Consolidated Financial Statements.                   

(2) Excludes (i) 1,341,350 shares reserved for issuance under the Company's     
stock option plans, of which 759,350 shares were subject to outstanding 
 options as of May 31, 1997, at a weighted average exercise price of $4.01
   per share and (ii) 300,000 shares reserved for issuance under the Company's
 1997 Employee Stock Purchase Plan. Subsequent to May 31, 1997, options to
   purchase an additional 46,750 shares were granted and are outstanding at an
    exercise price of $7.50 per share. See "Management-- Stock Plans" and Note 8
of Notes to Consolidated Financial Statements.                          

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DILUTION

As of May 31, 1997, the net tangible book value of the Company was      
$9,585,000, or approximately $2.23 per share of Common Stock. Net tangible book 
value per share represents the total tangible assets of the Company reduced by  
its total liabilities and divided by the total number of shares of Common Stock 
outstanding. After giving effect to the sale of the 2,500,000 shares of Common  
Stock offered by the Company hereby at an initial public offering price of      
$12.00 and the application of the estimated net proceeds therefrom, the pro     
forma net tangible book value of the Company as of May 31, 1997 would have been 
approximately $36,585,000, or $5.38 per share. This represents an immediate     
increase in net tangible book value of $3.15 per share to existing shareholders 
and an immediate dilution of $6.62 per share to the new investors. The following
table illustrates this per share dilution:                                      

                                                                [Download Table]
                                                                                  
Initial public offering price per share......................            $   12.00
  Net tangible book value per share as of May 31, 1997....... $    2.23           
  Increase in net tangible book value per share attributable                      
    to new investors.........................................      3.15           
                                                              ---------           
Pro forma net tangible book value per share after the                             
  offering...................................................                 5.38
                                                                         ---------
Dilution per share to new investors..........................            $    6.62
                                                                         ---------
                                                                         ---------

    The following table summarizes, on a pro forma basis as of May 31, 1997, the
number of shares of Common Stock purchased from the Company, the total          
consideration paid to the Company and the average price per share paid by the   
existing shareholders and by the new investors purchasing shares of Common Stock
in this offering based upon an initial public offering price of $12.00 per share
(before the deduction of the underwriting discount and estimated offering       
expenses payable by the Company):                                               

                                                        [Enlarge/Download Table]

                                    SHARES PURCHASED         TOTAL CONSIDERATION        AVERAGE   
                                 -----------------------  --------------------------     PRICE    
                                   NUMBER      PERCENT       AMOUNT        PERCENT     PER SHARE  
                                 ----------  -----------  -------------  -----------  ------------
                                                                                                  
Existing shareholders(1)........  4,295,522        63.2%  $   8,128,000        21.3%   $     1.89 
New investors(1)................  2,500,000        36.8      30,000,000        78.7         12.00 
                                 ----------       -----   -------------       -----               
    Total.......................  6,795,522       100.0%  $  38,128,000       100.0%              
                                 ----------       -----   -------------       -----               
                                 ----------       -----   -------------       -----               

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

(1) Sales by the Selling Shareholders in this Offering will reduce the number of
shares held by existing shareholders to 3,195,522, or 47.0% of the total
  number of shares of Common Stock outstanding, and will increase the number
  of shares held by new investors to 3,600,000, or 53.0% of the total number
    of shares of Common Stock outstanding after the Offering. See "Principal and
Selling Shareholders."                                                  

    The foregoing tables assume no exercise of stock options after May 31, 1997.
As of May 31, 1997, there were outstanding options to purchase an aggregate of  
759,350 shares of Common Stock, at a weighted average exercise price of $4.01   
per share, under the Company's stock option plans. Subsequent to May 31, 1997,  
options to purchase an additional 46,750 shares were granted and are outstanding
at an exercise price of $7.50 per share. Had these options been exercised as of 
May 31, 1997, the dilution per share to new investors would have been $6.74. See
"Capitalization," "Management--Stock Plans," and Note 8 of Notes to Consolidated
Financial Statements.                                                           

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SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read in    
conjunction with the Company's consolidated financial statements and related    
notes thereto and "Management's Discussion and Analysis of Financial Condition  
and Results of Operations" included elsewhere in this Prospectus. The           
consolidated statements of operations data set forth below with respect to the  
fiscal years ended May 31, 1995, 1996 and 1997 and the consolidated balance     
sheets data as of May 31, 1996 and 1997 are derived from, and are qualified by  
reference to, the audited consolidated financial statements of the Company      
included elsewhere in this Prospectus. The consolidated statements of operations
data with respect to the fiscal years ended May 31, 1993 and 1994 and the       
consolidated balance sheets data as of May 31, 1993, 1994 and 1995 are derived  
from audited financial statements not included herein.                          

                                                        [Enlarge/Download Table]

                                                                                          YEAR ENDED MAY 31,                   
                                                                         ----------------------------------------------------- 
                                                                           1993       1994       1995       1996       1997    
                                                                         ---------  ---------  ---------  ---------  --------- 
                                                                                                                               
                                                                                 (IN THOUSANDS, EXCEPT PER SHARE DATA)         
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:                                                                                    
Net sales............................................................... $  24,529  $  23,204  $  23,257  $  33,234  $  42,020 
Cost of sales...........................................................    15,527     15,761     16,192     19,942     25,715 
                                                                         ---------  ---------  ---------  ---------  --------- 
Gross profit............................................................     9,002      7,443      7,065     13,292     16,305 
                                                                         ---------  ---------  ---------  ---------  --------- 
Operating expenses:                                                                                                            
  Selling, general and administrative...................................     7,864      8,077      6,316      7,534      8,878 
  Research and development..............................................     3,525      3,825      3,783      4,113      4,536 
  Research and development cost reimbursement--DARPA(1).................        --       (261)      (954)      (891)      (793)
                                                                         ---------  ---------  ---------  ---------  --------- 
    Total operating expenses............................................    11,389     11,641      9,145     10,756     12,621 
                                                                         ---------  ---------  ---------  ---------  --------- 
Income (loss) from operations...........................................    (2,387)    (4,198)    (2,080)     2,536      3,684 
Interest expense........................................................      (295)      (347)      (341)      (446)      (577)
Other income (expense), net.............................................      (117)        27        255       (559)      (565)
                                                                         ---------  ---------  ---------  ---------  --------- 
Income (loss) before income taxes and minority interest in subsidiary...    (2,799)    (4,518)    (2,166)     1,531      2,542 
Income tax expense (benefit)............................................       185         17         10        130       (773)
Minority interest in subsidiary.........................................       175        285        189         (1)        -- 
                                                                         ---------  ---------  ---------  ---------  --------- 
Net income (loss)....................................................... $  (2,809) $  (4,250) $  (1,987) $   1,400  $   3,315 
                                                                         ---------  ---------  ---------  ---------  --------- 
                                                                         ---------  ---------  ---------  ---------  --------- 
Net income (loss) per share(2).......................................... $   (0.68) $   (1.02) $   (0.45) $    0.31  $    0.73 
                                                                         ---------  ---------  ---------  ---------  --------- 
                                                                         ---------  ---------  ---------  ---------  --------- 
Shares used in per share calculations(2)................................     4,106      4,162      4,442      4,487      4,536 
                                                                         ---------  ---------  ---------  ---------  --------- 
                                                                         ---------  ---------  ---------  ---------  --------- 

Supplemental net income(3)..............................................                                             $   3,473 
                                                                                                                     --------- 
                                                                                                                     --------- 
Supplemental net income per share(3)....................................                                             $    0.73 
                                                                                                                     --------- 
                                                                                                                     --------- 
Shares used in supplemental per share calculation(3)....................                                                 4,766 
                                                                                                                     --------- 
                                                                                                                     --------- 

                                                        [Enlarge/Download Table]

                                                                                                     MAY 31,                       
                                                                              -----------------------------------------------------
                                                                                1993       1994       1995       1996       1997   
                                                                              ---------  ---------  ---------  ---------  ---------
                                                                                                                                   
                                                                                                 (IN THOUSANDS)                    
CONSOLIDATED BALANCE SHEETS DATA:                                                                                                  
Cash and cash equivalents.................................................... $   3,931  $   2,430  $     598  $     535  $   1,176
Working capital..............................................................     8,425      5,685      3,564      4,799      7,895
Total assets.................................................................    24,529     20,640     19,890     23,749     24,389
Long-term obligations, less current portion(4)...............................     1,507      1,325      1,004        533        356
Total shareholders' equity...................................................    10,185      7,439      5,544      6,789     10,070

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

(1) Consists of reimbursements from DARPA for certain research and development  
expenses incurred by the Company in connection with its joint research  
project with DARPA. See Note 1 of Notes to Consolidated Financial       
Statements.                                                             

(2) See Note 1 of Notes to Consolidated Financial Statements for a description  
  of the computation of the numbers of shares used in per share calculations
and net income (loss) per share. Net income for fiscal 1997 includes    
    $1,055,000 of income tax benefit. Without the income tax benefit, net income
per share would have been $0.50 in fiscal 1997.                         

(3) Supplemental net income, supplemental net income per share and shares used  
  in supplemental per share calculation for fiscal year 1997 were calculated
 assuming that the indebtedness to be repaid with the net proceeds of this
   Offering had been repaid at the beginning of fiscal 1997 using the proceeds
 from the sale of 229,917 shares at an offering price of $12.00 per share.

(4) Includes long term debt and deferred lease commitments, deferred income     
taxes, and minority interest in subsidiary.                             

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 
AND RESULTS OF OPERATIONS 

   THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS. DISCUSSIONS CONTAINING
SUCH FORWARD-LOOKING STATEMENTS MAY BE FOUND IN THE MATERIAL SET FORTH BELOW AND
UNDER "PROSPECTUS SUMMARY," "RISK FACTORS" AND "BUSINESS," AS WELL AS IN THE    
PROSPECTUS GENERALLY. ACTUAL EVENTS OR RESULTS MAY DIFFER MATERIALLY FROM THOSE 
DISCUSSED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS,     
INCLUDING WITHOUT LIMITATION THE RISK FACTORS SET FORTH IN THE SECTION ENTITLED 
"RISK FACTORS" AND THE MATTERS SET FORTH IN THE PROSPECTUS GENERALLY.           

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 2,000 systems to semiconductor manufacturers, semiconductor      
contract assemblers and burn-in and test service companies worldwide. The       
Company's principal products currently are the MTX massively parallel test      
system, the DiePak carrier, the MAX and ATX burn-in systems and test fixtures.  

    Prior to fiscal 1995, the Company primarily sold burn-in systems and related
products. The Company experienced significant operating losses in fiscal 1993   
through fiscal 1995 due to a decline in net sales of burn-in systems and        
significant investment in the development of new products. In fiscal 1993, the  
Company initiated development of the MTX massively parallel test system and the 
DiePak carrier. The Company began shipping the MTX in March 1995. Revenues and  
earnings increased in fiscal 1996 and 1997, primarily as a result of increases  
in sales of MTX systems and associated test fixtures. The Company began shipping
DiePak carriers in volume in fiscal 1997. The Company has been profitable in    
each of the last nine quarters.                                                 

In 1994, the Company entered into a cost-sharing agreement with DARPA, a
U.S. government agency, under which DARPA is providing co-funding for the       
development of wafer-level burn-in and test equipment. The contract provides for
potential payments by DARPA totaling up to $6.5 million. The agreement provides 
that (i) the Company shall retain title to all co-funded inventions, (ii) DARPA 
will receive a paid-up license to use the inventions for government purposes and
(iii) DARPA can require the Company to license the inventions to third parties  
on reasonable terms if the Company fails to adequately commercialize the        
inventions. Payments by DARPA depend on satisfaction of development milestones, 
and DARPA has the right to terminate project funding at any time. The level of  
payments may vary significantly from quarter to quarter. There can be no        
assurance that the Company will meet the development milestones or that DARPA   
will continue funding the project. DARPA payments are reflected as credits to   
research and development expenses. If DARPA funding were discontinued and the   
Company continued the project, the Company's operating results would be         
adversely affected. There also can be no assurance that the development project 
will result in any marketable products. The Company has completed certain       
development milestones and invoiced $2.9 million through May 31, 1997. The      
remaining funding is subject to milestones scheduled to be completed through    
January 1999.                                                                   

 The Company has a wholly-owned subsidiary in Germany which performs sales
and service and an 86.7% owned subsidiary in Japan, which performs sales,       
service, and limited product engineering and manufacturing. The Company's       
consolidated financial statements combine the subsidiaries' financial results   
with those of the Company but, in order to account for the minority             
shareholders' interest in the Japanese subsidiary, the financial statements     
include a line item which excludes 13.3% of the total profits or losses of the  
Japanese subsidiary, except for periods in which the subsidiary has cumulative  
losses in which case no such exclusions are made.                               

    The Company's net sales consist primarily of sales of systems, die carriers,
test fixtures, upgrades and spare parts and revenues from service contracts. The
Company recognizes revenue upon shipment of product and records a provision for 
estimated future warranty costs.                                                

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  A substantial portion of the Company's net sales are derived from the sale
of products for overseas markets, particularly Germany and Japan. Consequently, 
an increase in the value of the U.S. Dollar relative to foreign currencies would
increase the cost of the Company's products compared to products sold by local  
companies in such markets. Although most sales to German customers are          
denominated in dollars, 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-    
dollar exchange rate during the lengthy period from purchase order to ultimate  
payment. The exchange rate risk is partially offset to the extent the Company's 
Japanese subsidiary incurs yen-denominated expenses. To date, the Company has   
not invested in instruments designed to hedge currency risks, but it may do so  
in the future. The Company's Japanese subsidiary typically carries debt owed to 
the Company and denominated in dollars. Since its financial statements are based
in yen, the Japanese subsidiary recognizes an income or loss in any period in   
which the value of the yen rises or falls in relation to the dollar.            

In accordance with SFAS 86, 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. Capitalized costs, net of accumulated  
amortization, of approximately $323,000, $213,000 and $57,000 were included as  
of May 31, 1995, 1996 and 1997, respectively.                                   

RESULTS OF OPERATIONS                                                           

The following table sets forth items in the Company's consolidated      
statements of operations as a percentage of net sales for the periods indicated.

                                                        [Enlarge/Download Table]

                                                                                   YEARS ENDED MAY 31,        
                                                                             -------------------------------  
                                                                               1995       1996       1997     
                                                                             ---------  ---------  ---------  
                                                                                                              
Net sales...................................................................     100.0%     100.0%     100.0% 
Cost of sales...............................................................      69.6       60.0       61.2  
                                                                             ---------  ---------  ---------  
Gross profit................................................................      30.4       40.0       38.8  
                                                                             ---------  ---------  ---------  
Operating expenses:                                                                                           
  Sales, general and administrative.........................................      27.1       22.7       21.1  
  Research and development..................................................      16.3       12.4       10.8  
  Research and development cost                                                                               
    reimbursement--DARPA....................................................      (4.1)      (2.7)      (1.9) 
                                                                             ---------  ---------  ---------  
    Total operating expenses................................................      39.3       32.4       30.0  
                                                                             ---------  ---------  ---------  
Income (loss) from operations...............................................      (8.9)       7.6        8.8  
Interest expense............................................................      (1.5)      (1.3)      (1.4) 
Other income (expense), net.................................................       1.1       (1.7)      (1.3) 
                                                                             ---------  ---------  ---------  
Income (loss) before income taxes and minority interest in subsidiary.......      (9.3)       4.6        6.1  
Income tax expense (benefit)................................................        --        0.4       (1.8) 
Minority interest in subsidiary.............................................       0.8         --         --  
                                                                             ---------  ---------  ---------  
Net income (loss)...........................................................      (8.5)%       4.2%       7.9%
                                                                             ---------  ---------  ---------  
                                                                             ---------  ---------  ---------  

FISCAL YEAR ENDED MAY 31, 1997 COMPARED TO FISCAL YEAR ENDED MAY 31, 1996       

  NET SALES.  Net sales increased to $42.0 million in fiscal 1997 from $33.2
million in fiscal 1996, an increase of 26.4%. The growth in net sales was caused
primarily by increased shipments of MTX products, primarily to Siemens, and to a
lesser extent by increased shipments of DiePak carriers. These increases        

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were partially offset by a decline in unit sales of burn-in systems,            
particularly in the Japanese market. Sales of MTX products represented less than
30% of total net sales in fiscal 1996, increasing to approximately 60% of total 
net sales in fiscal 1997. Sales of DiePak products were insignificant in fiscal 
1996 and less than 5% of total net sales in fiscal 1997. Sales of the Company's 
historical products, which include burn-in systems and related fixtures and     
equipment, represented approximately 70% of total net sales in fiscal 1996 and  
less than 40% of total net sales in fiscal 1997. Siemens accounted for 55.7 %   
and 29.1% of net sales for fiscal 1997 and fiscal 1996, respectively.           

  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 increased to $16.3 million in fiscal 
1997 from $13.3 million in fiscal 1996, an increase of 22.7%. Gross profit      
margin decreased to 38.8% in fiscal 1997 from 40.0% in fiscal 1996. The decrease
in gross profit margin of 1.2 percentage points resulted primarily from an      
increase in other miscellaneous costs of goods, such as provision for inventory 
reserves, representing approximately one-and-one-half times the gross profit    
margin percentage decrease, and scrap, representing approximately one-half the  
gross profit margin percentage decrease, partially offset by improvement in     
production efficiencies due to higher levels of production.                     

 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 and other professional services. SG&A        
expenses increased to $8.9 million in fiscal 1997 from $7.5 million in fiscal   
1996, an increase of 17.8%. As a percentage of net sales, SG&A expenses         
decreased to 21.1% for fiscal 1997 from 22.7% for fiscal 1996. Approximately    
one-half of the increase in SG&A expenses in fiscal 1997 was due to increased   
commission expenses to independent sales representatives related to higher      
levels of shipments, and approximately one-fourth of the increase was due to    
increased employment costs. The decrease in SG&A expenses as a percentage of net
sales was primarily due to the increase in net sales. The Company anticipates   
that SG&A expenses will generally continue to increase throughout fiscal 1998,  
but may vary as a percentage of net sales.                                      

    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 increased to $4.5  
million in fiscal 1997 from $4.1 million in fiscal 1996, an increase of 10.3%.  
Approximately one-half of the increase in R&D expenses was due to an increase in
professional consulting contracts and approximately one-fourth of the increase  
was due to increased employment costs. As a percentage of net sales, R&D        
expenses decreased to 10.8% for fiscal 1997 from 12.4% for fiscal 1996,         
reflecting higher net sales. The Company anticipates that R&D expenses will     
increase for fiscal 1998 compared to fiscal 1997, while such expenses may       
fluctuate as a percentage of net sales.                                         

RESEARCH AND DEVELOPMENT COST REIMBURSEMENT--DARPA.  Research and       
development cost reimbursement--DARPA ("R&D--DARPA") is a credit representing   
reimbursements by DARPA of costs incurred in the Company's wafer-level burn-in  
development project. R&D--DARPA credit decreased to $793,000 in fiscal 1997 from
$891,000 in fiscal 1996, a decrease of 11.0%. The decrease was due to delays in 
completion of development milestones.                                           

INTEREST EXPENSE.  Interest expense increased to $577,000 in fiscal 1997
from $446,000 in fiscal 1996, an increase of 29.4%, primarily because of        
increased borrowings to support the Company's increased volume of shipments.    

 OTHER INCOME (EXPENSE), NET.  Other expense, net increased to $565,000 in
fiscal 1997 from $559,000 in fiscal 1996, an increase of 1.1%.                  

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    INCOME TAX EXPENSE (BENEFIT).  Income tax expense consisted primarily of the
minimum federal and state taxes in the U.S., as operating loss carryforwards    
offset other taxable income, and taxes on earnings of the Company's German      
subsidiary. Income tax benefit was $773,000 in fiscal 1997 compared with income 
tax expense of $130,000 in fiscal 1996. The Company recognizes deferred tax     
assets and liabilities for the expected future consequences of temporary        
differences between the carrying amounts and the tax bases of assets and        
liabilities. The Company's Japanese subsidiary experienced significant          
cumulative losses since fiscal 1993, and thus generated certain net operating   
losses available to offset future taxes payable. As a result of the subsidiary's
cumulative operating losses, a valuation allowance has been established for the 
full amount of the subsidiary's net deferred tax assets. The Company has        
recorded tax benefits totaling $1.1 million related to recognition of its United
States net deferred tax assets. The Company expects that its effective tax rate 
for fiscal 1998 will more closely approximate the statutory tax rates of the    
jurisdictions in which the Company operates.                                    

MINORITY INTEREST IN SUBSIDIARY.  Minority interest in subsidiary was a 
negligible amount in both fiscal 1997 and 1996.                                 

FISCAL YEAR ENDED MAY 31, 1996 COMPARED TO FISCAL YEAR ENDED MAY 31, 1995       

  NET SALES.  Net sales increased to $33.2 million in fiscal 1996 from $23.3
million in fiscal 1995, an increase of 42.9%. The increase in net sales in      
fiscal 1996 was primarily due to increased shipments of MTX products, primarily 
to Siemens. Sales of MTX products represented less than 10% of total net sales  
in fiscal 1995 and less than 30% of total net sales in fiscal 1996. Sales of the
Company's historical products, which include burn-in systems and related        
fixtures and equipment, represented more than 90% of total net sales in fiscal  
1995 and approximately 70% of total net sales in fiscal 1996.                   

  GROSS PROFIT.  Gross profit increased to $13.3 million in fiscal 1996 from
$7.1 million in fiscal 1995, an increase of 88.1%. Gross profit margin increased
to 40.0% in fiscal 1996 from 30.4% in fiscal 1995. The higher gross profit and  
higher gross profit margin in fiscal 1996 as compared with fiscal 1995 were due 
to improved production efficiencies associated with increased net sales.        

SELLING, GENERAL AND ADMINISTRATIVE.  SG&A expenses increased to $7.5   
million in fiscal 1996 from $6.3 million in fiscal 1995, an increase of 19.3%.  
As a percentage of net sales, SG&A expenses decreased to 22.7% in fiscal 1996   
from 27.1% in fiscal 1995. Approximately one-half of the increase in SG&A       
expenses in fiscal 1996 compared with fiscal 1995 was due to increased          
commission expenses related to higher levels of shipments and approximately     
one-tenth of the increase was due to increased employment costs. The decrease in
SG&A expenses as a percentage of net sales in fiscal 1996 compared with fiscal  
1995 was primarily due to the increase in net sales.                            

   RESEARCH AND DEVELOPMENT.  R&D expenses increased to $4.1 million in fiscal
1996 from $3.8 million in fiscal 1995, an increase of 8.7%. Approximately       
one-half of the increase in R&D expenses in fiscal 1996 compared with fiscal    
1995 was primarily due to an increase in professional consulting contracts, and 
approximately one-third of the increase was due to increased employment costs in
the United States, partially offset by a decrease in Japan. As a percentage of  
net sales, R&D expenses decreased to 12.4% in fiscal 1996 from 16.3% in fiscal  
1995, reflecting the increase in net sales.                                     

    RESEARCH AND DEVELOPMENT COST REIMBURSEMENT--DARPA.  R&D--DARPA decreased to
$891,000 in fiscal 1996 from $954,000 in fiscal 1995, a decrease of 6.6%. The   
decrease in fiscal 1996 from fiscal 1995 was due to delays in completion of     
development milestones.                                                         

INTEREST EXPENSE.  Interest expense increased to $446,000 in fiscal 1996
from $341,000 in fiscal 1995, an increase of 30.8%, primarily because of        
increased borrowings to support the Company's increased volume of shipments.    

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OTHER INCOME (EXPENSE), NET.  Other expense, net was $559,000 in fiscal 
1996, compared with other income, net of $255,000 in fiscal 1995. This was      
primarily due to foreign currency losses incurred by the Company's Japanese     
subsidiary in fiscal 1996 as opposed to foreign currency gains incurred in      
fiscal 1995.                                                                    

  INCOME TAX EXPENSE (BENEFIT).  Income tax expense increased to $130,000 in
fiscal 1996 from $10,000 in fiscal 1995. Income tax expense in fiscal 1996      
primarily consisted of foreign taxes, most of which related to the operations of
the Company's subsidiary in Germany, and United States federal and state        
alternative minimum income taxes. Income tax expense in fiscal 1995 primarily   
consisted of foreign taxes.                                                     

    MINORITY INTEREST IN SUBSIDIARY.  Minority interest in subsidiary was a loss
of $1,000 in fiscal 1996 compared to a gain of $189,000 in fiscal 1995. This was
due to profits reported by the Company's majority-owned Japanese subsidiary in  
fiscal 1996 compared to losses reported in fiscal 1995.                         

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QUARTERLY RESULTS OF OPERATIONS                                                 

 The following tables set forth certain unaudited statements of operations
data for each of the past eight quarters as well as the percentage of the       
Company's net sales represented by each item. The unaudited financial statements
have been prepared on the same basis as the audited financial statements        
contained herein and include all adjustments (consisting only of normal         
recurring adjustments) that the Company considers necessary for a fair          
presentation of such information when read in conjunction with the Company's    
financial statements and notes thereto appearing elsewhere in this Prospectus.  
The operating results for any quarter are not necessarily indicative of results 
for any future period. Net income for the quarter ended May 31, 1997 includes   
$1,055,000 of income tax benefit. Without the income tax benefit, net income per
share for that quarter would have been $0.19 and the net income as a percentage 
of sales for that quarter would have been 7.5%.                                 

                                                        [Enlarge/Download Table]

                                                                          QUARTER ENDED                                      
                                    -----------------------------------------------------------------------------------------
                                     AUG. 31,     NOV. 30,     FEB. 29,      MAY 31,     AUG. 31,     NOV. 30,     FEB. 28,  
                                       1995         1995         1996         1996         1996         1996         1997    
                                    -----------  -----------  -----------  -----------  -----------  -----------  -----------
                                                              (IN THOUSANDS, EXCEPT PER SHARE DATA)                          
                                                                                                                             
Net sales..........................  $   7,601    $   7,783    $   8,683    $   9,167    $   9,071    $  10,486    $  10,745 
Cost of sales......................      4,589        4,654        5,355        5,344        5,745        6,494        6,364 
                                    -----------  -----------  -----------  -----------  -----------  -----------  -----------
Gross profit.......................      3,012        3,129        3,328        3,823        3,326        3,992        4,381 
                                    -----------  -----------  -----------  -----------  -----------  -----------  -----------
Operating expenses:                                                                                                          
  Selling, general and                                                                                                       
    administrative.................      1,886        1,609        1,833        2,206        1,849        2,088        2,222 
  Research and development.........      1,054        1,023        1,061          975        1,016        1,174        1,157 
  Research and development cost                                                                                              
    reimbursement--DARPA...........       (236)        (219)        (197)        (239)        (176)        (117)          -- 
                                    -----------  -----------  -----------  -----------  -----------  -----------  -----------
    Total operating expenses.......      2,704        2,413        2,697        2,942        2,689        3,145        3,379 
                                    -----------  -----------  -----------  -----------  -----------  -----------  -----------
Income from operations.............        308          716          631          881          637          847        1,002 
Interest expense...................       (132)         (96)        (106)        (112)        (152)        (134)        (185)
Other income (expense), net........         (1)        (131)         (48)        (379)           9         (113)        (246)
                                    -----------  -----------  -----------  -----------  -----------  -----------  -----------
Income before income taxes and                                                                                               
  minority interest in                                                                                                       
  subsidiary.......................        175          489          477          390          494          600          571 
Income tax expense (benefit).......         13          107           75          (65)         130          177          (19)
Minority interest in subsidiary....          9            3          (12)          (1)           3           --           -- 
                                    -----------  -----------  -----------  -----------  -----------  -----------  -----------
Net income.........................  $     171    $     385    $     390    $     454    $     367    $     423    $     590 
                                    -----------  -----------  -----------  -----------  -----------  -----------  -----------
                                    -----------  -----------  -----------  -----------  -----------  -----------  -----------
Net income per share...............  $    0.04    $    0.08    $    0.09    $    0.10    $    0.08    $    0.10    $    0.13 
                                    -----------  -----------  -----------  -----------  -----------  -----------  -----------
                                    -----------  -----------  -----------  -----------  -----------  -----------  -----------
Shares used in per share                                                                                                     
  calculations.....................      4,488        4,505        4,497        4,459        4,478        4,477        4,578 
                                    -----------  -----------  -----------  -----------  -----------  -----------  -----------
                                    -----------  -----------  -----------  -----------  -----------  -----------  -----------



                                      MAY 31,                                                                                
                                       1997                                                                                  
                                    -----------                                                                              

                                                                                                                             
Net sales..........................  $  11,718                                                                               
Cost of sales......................      7,112                                                                               
                                    -----------                                                                              
Gross profit.......................      4,606                                                                               
                                    -----------                                                                              
Operating expenses:                                                                                                          
  Selling, general and                                                                                                       
    administrative.................      2,719                                                                               
  Research and development.........      1,189                                                                               
  Research and development cost                                                                                              
    reimbursement--DARPA...........       (500)                                                                              
                                    -----------                                                                              
    Total operating expenses.......      3,408                                                                               
                                    -----------                                                                              
Income from operations.............      1,198                                                                               
Interest expense...................       (106)                                                                              
Other income (expense), net........       (215)                                                                              
                                    -----------                                                                              
Income before income taxes and                                                                                               
  minority interest in                                                                                                       
  subsidiary.......................        877                                                                               
Income tax expense (benefit).......     (1,061)                                                                              
Minority interest in subsidiary....         (3)                                                                              
                                    -----------                                                                              
Net income.........................  $   1,935                                                                               
                                    -----------                                                                              
                                    -----------                                                                              
Net income per share...............  $    0.42                                                                               
                                    -----------                                                                              
                                    -----------                                                                              
Shares used in per share                                                                                                     
  calculations.....................      4,611                                                                               
                                    -----------                                                                              
                                    -----------                                                                              
                                                        [Enlarge/Download Table]

                                                                  AS A PERCENTAGE OF NET SALES                               
                                    -----------------------------------------------------------------------------------------
                                                                          QUARTER ENDED                                      
                                    -----------------------------------------------------------------------------------------
                                     AUG. 31,     NOV. 30,     FEB. 29,      MAY 31,     AUG. 31,     NOV. 30,     FEB. 28,  
                                       1995         1995         1996         1996         1996         1996         1997    
                                    -----------  -----------  -----------  -----------  -----------  -----------  -----------
                                                                                                                             
Net sales..........................      100.0%       100.0%       100.0%       100.0%       100.0%       100.0%       100.0%
Cost of sales......................       60.4         59.8         61.7         58.3         63.3         61.9         59.2 
                                    -----------  -----------  -----------  -----------  -----------  -----------  -----------
Gross profit.......................       39.6         40.2         38.3         41.7         36.7         38.1         40.8 
                                    -----------  -----------  -----------  -----------  -----------  -----------  -----------
Operating expenses:                                                                                                          
  Selling, general and                                                                                                       
    administrative.................       24.8         20.7         21.1         24.1         20.4         19.9         20.7 
  Research and development.........       13.8         13.1         12.2         10.6         11.2         11.2         10.8 
  Research and development cost                                                                                              
    reimbursement--DARPA...........       (3.1)        (2.8)        (2.3)        (2.6)        (1.9)        (1.1)          -- 
                                    -----------  -----------  -----------  -----------  -----------  -----------  -----------
    Total operating expenses.......       35.5         31.0         31.0         32.1         29.7         30.0         31.5 
                                    -----------  -----------  -----------  -----------  -----------  -----------  -----------
Income from operations.............        4.1          9.2          7.3          9.6          7.0          8.1          9.3 
Interest expense...................       (1.8)        (1.2)        (1.2)        (1.2)        (1.7)        (1.3)        (1.7)
Other income (expense), net........         --         (1.7)        (0.6)        (4.1)         0.1         (1.1)        (2.3)
                                    -----------  -----------  -----------  -----------  -----------  -----------  -----------
Income before income taxes and                                                                                               
  minority interest in                                                                                                       
  subsidiary.......................        2.3          6.3          5.5          4.3          5.4          5.7          5.3 
Income tax expense (benefit).......        0.2          1.4          0.9         (0.7)         1.4          1.7         (0.2)
Minority interest in subsidiary....        0.1           --         (0.1)          --           --           --           -- 
                                    -----------  -----------  -----------  -----------  -----------  -----------  -----------
Net income.........................        2.2%         4.9%         4.5%         5.0%         4.0%         4.0%         5.5%
                                    -----------  -----------  -----------  -----------  -----------  -----------  -----------
                                    -----------  -----------  -----------  -----------  -----------  -----------  -----------



                                      MAY 31,                                                                                
                                       1997                                                                                  
                                    -----------                                                                              
                                                                                                                             
Net sales..........................      100.0%                                                                              
Cost of sales......................       60.7                                                                               
                                    -----------                                                                              
Gross profit.......................       39.3                                                                               
                                    -----------                                                                              
Operating expenses:                                                                                                          
  Selling, general and                                                                                                       
    administrative.................       23.2                                                                               
  Research and development.........       10.1                                                                               
  Research and development cost                                                                                              
    reimbursement--DARPA...........       (4.2)                                                                              
                                    -----------                                                                              
    Total operating expenses.......       29.1                                                                               
                                    -----------                                                                              
Income from operations.............       10.2                                                                               
Interest expense...................       (0.9)                                                                              
Other income (expense), net........       (1.8)                                                                              
                                    -----------                                                                              
Income before income taxes and                                                                                               
  minority interest in                                                                                                       
  subsidiary.......................        7.5                                                                               
Income tax expense (benefit).......       (9.0)                                                                              
Minority interest in subsidiary....         --                                                                               
                                    -----------                                                                              
Net income.........................       16.5%                                                                              
                                    -----------                                                                              
                                    -----------                                                                              

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The Company has experienced and expects to continue to experience       
significant fluctuations in its quarterly and annual operating results. The     
Company's future operating results will depend upon a variety of factors,       
including the timing of significant orders, the mix of products sold, changes in
pricing by the Company, its competitors, customers or suppliers, the length of  
sales cycles for the Company's products, timing of new product announcements and
releases by the Company and its competitors, market acceptance of new products  
and enhanced versions of the Company's products, capital spending patterns by   
customers, timing of completion of DARPA development milestones, manufacturing  
inefficiencies associated with new product introductions by the Company, the    
Company's ability to produce systems and products in volume and meet customer   
requirements, product returns and customer acceptance of product shipments,     
volatility in the Company's targeted markets, political and economic            
instability, natural disasters, regulatory changes, possible disruptions caused 
by expanding existing facilities or moving into new facilities, expenses        
associated with acquisitions and alliances, and various competitive factors,    
including price-based competition and competition from vendors employing other  
technologies. The Company's gross margins have varied and will continue to vary 
based on a variety of factors, including the mix of products sold, sales volume,
and the amount of products sold under volume purchase arrangements, which tend  
to have lower selling prices. Due to the uncertainties enumerated above and     
other factors, the Company could experience material fluctuations in future     
operating results on a quarterly or annual basis.                               

The Company's net sales have generally trended upward in the last eight 
fiscal quarters. The sales growth has been due primarily to increases in MTX    
shipments, partially offset by declines in sales of burn-in systems and sales in
Japan. During the Company's last two fiscal years, net sales in the first fiscal
quarter, ended August 31, have declined compared with the fourth fiscal quarter,
ending May 31, of the preceding fiscal year, primarily due to additional        
emphasis being placed on shipping products prior to the end of the fiscal year. 
The Company expects that fluctuations of this type may occur in the future. With
the exception of the quarter ended August 31, 1996, gross profit has generally  
trended upward in the last eight fiscal quarters, although gross profit margin  
has fluctuated significantly. The lower gross profit in the quarter ended August
31, 1996 was primarily caused by a change in product mix toward the sale of     
products with somewhat higher material costs and an increase in other costs of  
sales, such as scrap, packaging costs, inventory reserves, and provision for    
warranty. The Company's gross profit and gross profit margin have been, and will
continue to be, affected by a variety of factors, including the mix and average 
selling prices of the products sold, and the costs to manufacture, service and  
support new and enhanced products.                                              

LIQUIDITY AND CAPITAL RESOURCES                                                 

  The Company has financed its operations primarily through private sales of
equity securities totaling approximately $7.2 million, bank debt and lease      
financing for capital equipment. As of May 31, 1997, the Company's principal    
sources of liquidity included cash and short term investments of $2.8 million,  
two U.S. bank lines of credit totaling $7.0 million collateralized by           
substantially all of the Company's U.S. assets, of which $2.8 million was       
outstanding, and various borrowings in Japan which totaled $2.2 million. Most of
the borrowings in Japan mature within a year and carry interest rates ranging   
from 0.5% to 8.0%. The amount outstanding under the U.S. lines of credit, which 
carry interest rates ranging from prime plus 0.75% to prime plus 1.00% (as of   
May 31, 1997, the prime rate was 8.50%) and expire December 4, 1997, will be    
repaid from the net proceeds of this Offering.                                  

Net cash provided by operations was $3.0 million in fiscal 1997, and was
primarily the result of the Company's net income and reductions in accounts     
receivable, partially offset by an increase in inventory. Net cash used for     
operations was $754,000 in fiscal 1996, primarily the result of increases in    
accounts receivable and inventory, partially offset by the Company's net income 
and increases in accounts payable and accrued expenses. Financing activities    
used cash of $2.1 million in fiscal 1997. Financing activities provided cash of 
$1.1 million in fiscal 1996, due primarily to increased borrowing from banks.   

  Property and equipment purchases were $647,000 and $581,000 in fiscal 1997
and fiscal 1996, respectively. The Company anticipates that its capital         
expenditures in fiscal 1998 will be greater than                                

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amounts spent in fiscal 1997 and will be directed primarily to support product  
development, as well as requirements for manufacturing, customer support, and   
demonstration equipment.                                                        

As of May 31, 1997, the Company had working capital of $7.9 million,    
compared with $4.8 million as of May 31, 1996. Working capital consists of cash 
and cash equivalents, accounts receivable, inventory and other current assets,  
less current liabilities. Accounts receivable decreased to $7.5 million as of   
May 31, 1997 from $10.6 million as of May 31, 1996 as a result of policies      
instituted to encourage earlier payment of outstanding balances. Inventory      
increased to $10.5 million as of May 31, 1997 from $7.9 million as of May 31,   
1996. The inventory increase in fiscal 1997 related to increased production to  
support increasing levels of shipments. The Company expects future inventory    
levels to fluctuate with anticipated sales levels, and believes that, because of
the relatively long manufacturing cycle for its systems, its investment in      
inventory will continue to represent a significant portion of its working       
capital. As a result of increases in inventory, the Company may be subject to an
increasing risk of inventory obsolescence, which could materially and adversely 
affect the Company's results of operations.                                     

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 believes that the proceeds from the sale by the Company of the
Common Stock offered hereby, together with existing sources of liquidity and    
anticipated funds from operations, will satisfy the Company's anticipated       
working capital and capital equipment requirements through fiscal 1998. See "Use
of Proceeds." After fiscal 1998, 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.                                                                        

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BUSINESS

GENERAL                                                                         

Aehr Test Systems develops, manufactures and sells systems which are    
designed to reduce the cost of testing DRAMs and other memory devices, and      
products which are designed to enable IC manufacturers to perform test and      
burn-in of bare die. Leveraging its expertise as a long-time leading provider of
burn-in equipment, with over 2,000 systems installed world-wide, the Company has
developed and introduced two innovative product families, the MTX system and the
DiePak carrier. The MTX is a massively parallel test system capable of          
processing thousands of memory devices simultaneously. The MTX system performs  
not only burn-in but also many of the tests traditionally performed in final    
test by lower-throughput, higher cost memory testers. Siemens has purchased     
production quantities of MTX systems from the Company, and other leading        
manufacturers have purchased units for evaluation. The DiePak carrier is a      
reusable, temporary package that enables IC manufacturers to perform            
cost-effective final test and burn-in of bare die. Motorola is using the DiePak 
carrier in volume production, and other leading manufacturers have purchased    
DiePak carriers for evaluation. The Company also offers systems that perform    
reliability screening, or burn-in, of complex logic and memory devices.         

INDUSTRY BACKGROUND                                                             

THE INTEGRATED CIRCUIT MARKET                                               

   The semiconductor industry has grown significantly over the last five years
due to the continued growth of the personal computer market, the expansion of   
the telecommunications industry and the emergence of new market areas such as   
consumer electronics products, wireless communication devices, notebook and     
handheld computers, and automotive and other applications. Dataquest estimates  
that integrated circuit manufacturers produced more than 49 billion ICs in 1996,
resulting in sales of $121.8 billion, and that unit shipments are likely to     
increase to more than 83 billion by 2000. While the volume of ICs produced and  
sold has increased over the past several years, the industry remains intensely  
competitive. IC manufacturers typically compete on the basis of price,          
performance and, increasingly for certain applications, size or form factor.    

Severe price competition characterizes many sectors of the IC industry. 
Average selling prices typically decline substantially as products mature,      
volumes increase and new competitors enter the market. In 1996, for example,    
prices for 16 megabit ("Mb") DRAMs fell from approximately $50 to approximately 
$10 per device. As a result, IC manufacturers face increased pressure to reduce 
production costs wherever possible.                                             

Market demand for higher performance has led IC manufacturers to develop
denser, more complex ICs, capable of holding more data or performing more       
functions faster. Since 1989, for example, advanced process technologies have   
migrated from 0.8 micron to 0.25 micron geometries, and leading edge memory     
devices have increased in density from 4Mb to 64Mb. The smaller geometries and  
more complex designs have generally increased the need for sophisticated IC     
testing and reliability screening, which increases test times and test costs.   

  Minimizing the amount of space on a printed circuit board assembly used by
one or more ICs (the "form factor") has become increasingly important for many  
applications, including notebook and handheld computers, portable phones and    
other portable consumer products. By using IC components with smaller form      
factors, system manufacturers can build smaller, lighter products or enhance the
performance or features of existing products without increasing size. The demand
for smaller form factors is driving the adoption of new IC packaging and        
interconnect technologies, including the use of unpackaged or "bare" die. Bare  
die may be mounted directly on a printed circuit board or used in multichip     
modules, such as the module for Intel's Pentium Pro microprocessor, which       
contain multiple bare die.                                                      

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THE IC TEST PROCESS                                                         

   Semiconductor manufacturing is a complex, multi-step process and defects or
weaknesses that may result in the failure of an IC 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 involves multiple steps. The first set of
tests is typically performed before the processed semiconductor wafer is cut    
into individual die, in order to avoid the cost of packaging defective die into 
their plastic or ceramic packages. After the die are packaged and before they   
undergo reliability screening, a short test is typically performed in order to  
detect packaging defects. Most leading-edge microprocessors, microcontrollers   
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, usually at  
125 DEG.C (257 DEG.F), for periods typically ranging from 12 to 48 hours.       
Burn-in systems can process thousands of ICs simultaneously. After burn-in, the 
ICs undergo a final test process using automatic test equipment ("testers").    
Testers can test up to 64 ICs simultaneously and perform a variety of tests at  
multiple temperatures.                                                          

 Final test can be time-consuming and costly, particularly for memory ICs.
Final testing of the current generation of 16Mb DRAMs often takes five to ten   
minutes per device. A memory tester with a 64 site automated handler can cost   
between $2 million and $3 million. A test facility adequate to process the      
output of a typical leading-edge memory IC production facility may require 30 or
more such systems. Prime Research Group, a market research firm, estimates that 
the market for memory testers exceeded $1.5 billion in 1996. According to       
Dataquest, final test costs range from $0.38 per 16Mb DRAM to $4.00 per 64Mb    
DRAM. The continuing price competition motivates IC manufacturers to reduce     
production costs, including test costs, wherever possible.                      

TRENDS IN IC PACKAGING AND THE NEED FOR KNOWN GOOD DIE                      

Consumer market demand for smaller and lighter products has spurred the 
emergence of new IC packaging and interconnect technologies. Die have           
traditionally been packaged in plastic or ceramic packages which substantially  
increase the size of the device. A packaged microprocessor is typically four to 
five times the size of the die, and a packaged memory device is typically twice 
the size of the die. By using bare die, electronics manufacturers can           
substantially reduce size and weight in such products as wireless phones, pagers
and portable PCs. Eliminating packaging also can improve final product          
performance because reducing the lengths of the connections between ICs enhances
system operating speeds and reduces power consumption. Moreover, since packaging
can represent a significant cost, particularly for high pin-count               
microprocessors, using bare die potentially could save costs associated with    
packaging ICs. For these reasons, electronics manufacturers are increasingly    
interested in using bare die as well as "chip scale" packages (bare die         
partially covered with a thin plastic layer). Electronics manufacturers already 
have begun placing multiple bare die in multichip modules ("MCMs") and on       
printed circuit board assemblies using "flip-chip," "wire bond" and other       
connection technologies.                                                        

Dataquest estimates that bare die could account for 12% of worldwide IC 
production by 2000. The emergence of a bare die market, however, has been       
constrained by the absence of a cost-effective approach to burn-in and final    
test of bare die. Until recently, electronics manufacturers using bare die have 
been forced to perform burn-in and final test after the die have been mounted on
MCMs or printed circuit boards. If defective die are discovered at this stage,  
the MCMs or printed circuit board assemblies must be discarded or reworked      
manually, either of which is costly. Using unburned-in die can be prohibitively 
expensive because even low defect rates in individual bare die are compounded   
and can result in relatively high defect rates in products that contain multiple
bare die. Consequently, IC manufacturers need the                               

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ability to supply "known good die" ("KGD") that have passed burn-in and final   
test prior to shipment and that offer their customers the assurance that they   
meet the same specifications as packaged ICs.                                   

THE AEHR TEST SOLUTION                                                          

    Aehr Test provides innovative systems designed to reduce the cost of testing
DRAMs and other memory devices and products designed to enable IC manufacturers 
to perform test and burn-in of bare die. The Company has recently introduced two
new product families, the MTX system and the DiePak carrier.                    

   Leveraging its expertise as a long-time leading provider of burn-in systems
that process thousands of ICs in parallel, Aehr Test has developed and          
introduced the MTX, a massively parallel test system capable of testing         
thousands of memory devices simultaneously. The MTX system performs many of the 
time-consuming tests traditionally performed in final test by lower-throughput, 
higher-cost memory testers. Using the MTX system, IC manufacturers can optimize 
the final test process by transferring many time-consuming tests to the MTX     
system and using memory testers to perform only the high-accuracy, short-       
duration test functions for which they are most effective. The Company believes 
IC manufacturers using this "mix and match" strategy can substantially reduce   
the required number of conventional memory testers and, as a result,            
substantially reduce capital and operating costs.                               

    Aehr Test also has developed and introduced the DiePak carrier product line.
The DiePak carrier is a reusable, temporary package that enables semiconductor  
manufacturers to perform cost-effective final test and burn-in of bare die using
existing burn-in and test equipment with only minimum modifications. The Company
believes that the availability of known good die will help enable bare die to   
become a practical alternative to packaged die and will accelerate the expansion
of the bare die market.                                                         

STRATEGY                                                                        

    Aehr Test's objective is to strengthen its position as a leading provider of
high-quality, cost-effective systems and products for testing and reliability   
screening of both packaged ICs and bare die. The principal elements of the      
Company's strategy include:                                                     

   - REDUCE TEST COSTS FOR MEMORY MANUFACTURERS.  The Company seeks to capture
    an increasing share of the memory test equipment market by marketing the
     MTX massively parallel test system. The Company believes that high volume
     manufacturers of memory devices can substantially reduce their test costs
     by mixing and matching high-throughput MTX systems with lower-throughput,
   higher-cost testers. Siemens has purchased production quantities of the
MTX system, and other leading manufacturers have purchased units for
evaluation.                                                         

  - PROVIDE ENABLING PRODUCTS FOR THE EMERGING BARE DIE MARKET.  The Company
seeks to facilitate the expansion of the bare die market by offering
solutions to enable cost-effective test and burn-in of bare die. The
      Company has developed and begun shipping the DiePak carrier, which enables
test and burn-in of bare die using the same burn-in and test systems
currently used for packaged ICs. Motorola has begun using the DiePak
carrier in volume production of known good die and other leading    
manufacturers have purchased DiePak carriers for qualification. In  
addition, the Company believes that periodic replacement of DiePak  
  carriers by its customers will generate recurring revenues because new
 designs require new carriers and DiePak carriers have a limited life.

 - BUILD ON LONG-STANDING CUSTOMER RELATIONSHIPS.  The Company has shipped
    over 2,000 systems since its inception in 1977 and believes it is one of
     the leading suppliers of burn-in systems. The Company's customers include
   many of the largest semiconductor manufacturers and contract assemblers
     worldwide. The Company believes its reputation and customer relationships
    with leading semiconductor manufacturers have assisted and will continue
to assist it in selling new products to its existing as well as new 
customers.                                                          

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- LEVERAGE TECHNOLOGY LEADERSHIP.  Aehr Test has nearly 20 years of     
  experience as a leader in the development and marketing of burn-in and
 parallel test systems and has developed and introduced innovative new
products for the industry, including the MTX massively parallel test
    system and the DiePak carrier. Building upon the expertise gained in the
    development of those products, the Company has embarked upon a long-term
 project to develop a system for performing burn-in and test of entire
processed wafers, rather than individual die or packaged parts. This
     wafer-level burn-in and test project is being financed by the Company and
   by DARPA under a cost-sharing agreement. There is no assurance that the
wafer-level burn-in and test project will be successful.            

- CONTINUE TO EXPAND WORLDWIDE PRESENCE.  As major semiconductor        
manufacturers establish multiple locations worldwide, market factors
  increasingly require semiconductor equipment vendors to provide global
      support and service to customers in each major region. Aehr Test has sales
  and service operations in the United States, Germany and Japan and has
    established a network of distributors and sales representatives in other
    key parts of the world. The Company believes that this worldwide network
of sales and service operations improves its ability to sell to and 
   support the world's major IC manufacturers and contract assemblers. The
Company intends to continue to invest in building its international 
network of distributors, sales representatives and direct sales and 
service operations.                                                 

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PRODUCTS                                                                        

 The Company manufactures and markets massively parallel test systems, die
carriers, burn-in systems, test fixtures 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.                                                          

MASSIVELY PARALLEL TEST SYSTEM                                              

The MTX massively parallel test system is designed to reduce the cost of
memory test by processing thousands of memory devices simultaneously, including 
DRAMs, SDRAMs, SRAMs and most application-specific memories. The MTX system can 
perform a significant number of tests usually performed by memory testers,      
including pattern sensitivity tests, functional tests, data retention tests and 
refresh tests. The Company estimates that transferring these tests from memory  
testers to the MTX system can reduce the time that a memory device must be      
tested by a memory tester by up to 75%, thereby reducing the required number of 
memory testers and, as a result, reducing capital and operating costs.          

The MTX system shown below consists of several subsystems: pattern      
generation and test electronics, control software, network interface,           
environmental chamber and automation. The MTX system has an algorithmic test    
pattern generator which allows it to duplicate many of the tests performed by a 
memory tester. Pin electronics at each performance test board ("PTB") position  
are designed to provide accurate signals to the memories being tested and detect
whether a device is failing the test. An optional enhanced fault collection     
capability allows the MTX to identify which cells in a memory IC are failing,   
resulting in information which can be used to sort partially good devices.      

THE MTX SYSTEM                                                  

[DIAGRAM OF MTX SYSTEM. Textual descriptions of Refrigeration Unit, Circuit     
Breaker and Contactor Enclosure, Driver Boards, Pattern Generator Boards,       
Operator Interface, Local Control Computer, Performance Test Board (PTB), Oven  
Chamber and Automated PTB Insert/Eject Mechanism.]                              

   The MTX system software is executed on PCs running a UNIX operating system.
The system uses a relational database to store test plans and test results. The 
simple point-and-click graphical user interface                                 

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supports multiple users and the multiple simultaneous tasks required to run a   
network of systems efficiently. The MTX system is also equipped with a          
widely-used GEM/SECS network interface which allows easy integration with       
customers' factory automation and information systems.                          

Devices being tested are placed on PTBs and loaded into environmental   
chambers which typically operate at temperatures from 25 DEG.C (77 DEG.F) up to 
150 DEG.C (302 DEG.F) (optional chambers can produce temperatures as low as     
-55 DEG.C (-67 DEG.F)). A single PTB can hold up to 256 16Mb DRAMs, and a       
production chamber holds 30 PTBs, resulting in up to 7,680 devices being tested 
in parallel in a single system. For production environments, the systems include
an automatic PTB insertion/ejection mechanism and a docking cart for more       
efficient handling of large quantities of PTBs.                                 

List prices for production model MTX systems range from $900,000 to     
$1,100,000 depending on configuration and features.                             

 Initial MTX system customers have typically performed up to six months or
more of correlation testing on the MTX system. Correlation testing involves     
performing the same tests using both MTX and standard memory testers to         
determine if they detect the same defects. The Company expects that customer    
correlation testing requirements will decline as the MTX becomes more           
established in the marketplace. Because the Company is not able to perform      
extensive correlation testing on its own, it has performed testing in           
cooperation with early evaluation customers. Siemens conducted initial tests on 
the MTX system and subsystems to determine its custom design and purchase       
requirements and thereafter performed extensive correlation tests. During this  
process the Company and Siemens identified and addressed various reliability,   
design and manufacturing issues, including new product features requested by    
Siemens. The Company believes Siemens was satisfied with the results of this    
process. After extensive testing, Siemens has purchased and confirmed final     
acceptance of multiple MTX systems. However, Siemens is still performing        
extensive correlation testing. Although the Company believes the results have   
been generally satisfactory, there can be no assurance that Siemens will approve
the MTX system for performing substantial memory test functions in volume       
production. Motorola also has performed correlation tests and reported to the   
Company that test results from the MTX correlated well with test results from a 
standard memory tester.                                                         

DIEPAK CARRIERS                                                             

  The Company's DiePak product line includes a family of reusable, temporary
die carriers and associated sockets which 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 known good die for most   
types of ICs, including memory, microcontroller and microprocessor devices. The 
DiePak carrier was introduced in fiscal 1995 following a development effort that
included the Company, Nitto Denko, which manufactured the interconnect          
substrate, and Motorola which, as the first customer, assisted in defining      
requirements and testing the product. In April 1997, Motorola approved the      
DiePak carrier for use in production test and burn-in of bare die. In addition, 
the Microelectronics and Computer Technology Corporation's ("MCC") High-Value   
Electronics Division tested the DiePak carrier and reported that the DiePak     
carrier is fully capable of enabling test and burn-in to be performed on bare   
die.                                                                            

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The DiePak carrier, shown below in a cross-section view, consists of an 
interconnect substrate, which provides 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 108, 172 and 320 pin
versions to handle ICs ranging from low pin-count memories to high pin-count    
microprocessors. The DiePak carrier and socket feature a small footprint which  
reduces test and burn-in cost because more devices may be processed             
simultaneously on a test fixture. The Company believes that the DiePak carrier's
competitive advantages include its small footprint, its one-piece design, which 
facilitates the automated loading of die into carriers, and its low contact     
resistance, which enables more accurate, high speed testing.                    

THE DIEPAK CARRIER                                              

[DIAGRAM OF DIEPAK CARRIER. Textual descriptions of Hinged Lid, Pressure Plate, 
Bare Die, Latch, Socket Contacts, Base, Substrate and Alignment Plate.]         

The Company believes that periodic replacement of DiePak carriers by its
customers will generate recurring revenues because new IC designs require new   
carriers and DiePak carriers have a limited life. The Company anticipates that  
for most applications the DiePak carrier can be reused approximately 100 times  
for test and burn-in, which would typically occur during the course of one year 
of normal operation. The list price of DiePak carriers varies from $70 to $300  
in production quantities, depending on the number of pins and the volume        
purchased.                                                                      

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BURN-IN SYSTEMS                                                             

 The Company's current burn-in products consist of the MAX and ATX product
families. The Company believes that its burn-in systems provide accurate and    
reliable burn-in for complex memory and logic ICs. The current list prices for  
the MAX and ATX systems typically range in purchase price from $150,000 to      
$500,000 depending on system and configuration.                                 

    The MAX system, which was introduced in fiscal 1993, is designed for dynamic
burn-in of memory and low pin-count logic devices. The system is modular in     
design and has a subsystem structure similar to that of the MTX system. The     
production version holds 64 burn-in boards ("BIBs"), each of which may hold 350 
or more devices, resulting in a system capacity of 22,400 or more devices. The  
pattern generator is designed to dynamically burn-in memory devices as large as 
4 gigabits, which is likely to be sufficient to cover future generations of     
memory devices. The MAX system's 48-channel pin electronics and ability to run  
stored test patterns also allow it to be used for application-specific memory   
devices and many logic devices. The pin electronics are designed to provide     
precisely-controlled voltages and signals to the devices on the BIBs and to     
protect them from damage during the burn-in process. The latest generation      
system, the MAX2, was introduced in July, 1997. The MAX2 features multi-tasking 
Windows NT-based software which includes lot tracking and reporting software    
that are needed for production and military applications.                       

The ATX system is designed for dynamic and monitored burn-in of high    
pin-count VLSI devices, including microprocessors, microcontrollers,            
applications-specific ICs ("ASICs"), and certain memory devices. The ATX system 
uses much of the same software as the MAX system and contains additional        

features such as an interface to CAE systems for program development and output 
monitoring to ensure that the devices receive the specified voltages and        
signals. Its 256-channel pin electronics configuration allows it to handle      
complex logic devices, and its ability to burn in different device types in each
of the system's 32 BIB positions is useful for quality assurance applications.  

TEST FIXTURES                                                               

  The Company manufactures and sells custom designed test fixtures including
performance test boards for use with the MTX massively parallel test system and 
burn-in boards for its burn-in systems. PTBs and BIBs hold the devices          
undergoing test or burn-in and electrically connect the devices under test to   
the system electronics. The capacity of each PTB or BIB 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 devices. PTBs and 
BIBs are sold both with new Aehr Test systems and for use with the Company's    
installed base of systems. Due to the advanced test requirements of the MTX     
system, PTBs are substantially more complex than BIBs. The Company has patented 
certain features of the PTB and to date has licensed one other company to supply
PTBs. See "--Proprietary Rights." The Company primarily sells BIBs in the higher
performance segments of the market where the Company believes its knowledge of  
its systems represents a competitive advantage.                                 

    The demand for PTBs and BIBs depends upon the volume of devices manufactured
and the number of new device types. Customers typically need new versions of    
PTBs and BIBs for each new device type. The list price per board typically      
ranges from $1,000 to $5,000 depending on quantity, socket type and number of   
sockets per board. A full set of test fixtures for a system typically ranges in 
price from approximately $50,000 to $150,000.                                   

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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. The following is a        
representative list of customers who have purchased more than $200,000 in       
products and services from the Company since the beginning of fiscal 1995:      

                                                                [Download Table]
                                                                                 
Asahi Chemical Industry Co.                  Opti Inc.                           
Carsem Semiconductor Sdn. Bhd.               Philips Electronics N.V.            
El-Mos Elektronik in MOS-technologie GmbH    Promos Technologies, Inc.           
Fuji Photo Film Co., Ltd.                    Rood Technology Deutschland GmbH    
Fujitsu Ltd.                                 Samsung Group                       
High-Reliability Components Corporation      Sanyo Electric Co., Ltd.            
Hitachi Ltd.                                 SGS Thomson Microelectronics N.V.   
Honeywell Inc.                               Sharp Corporation                   
Hyundai Electronics Industries Co., Inc.     Siemens AG                          
International Business Machines Corporation  Sony Corporation                    
Israeli Test House, Ltd.                     Statsym Sdn. Bhd.                   
KESM Industries Sdn. Bhd.                    Symbios Logic, Inc.                 
Lucent Technologies, Inc.                    Texas Instruments Incorporated      
Matsushita Electric Industrial Co., Ltd.     Tokyo IC Co. Ltd.                   
Microchip Technology Incorporated            Toshiba Corporation                 
Mitsubishi Corporation                       Yamaha Corporation                  
Motorola, Inc.                               Yoshikawa Co. Ltd.                  
NEC Corporation                              Zentrum Mikroelektronik Dresden GmbH
Nippon Telegraph and Telephone Company                                           

 Sales to the Company's five largest customers accounted for approximately
45.1%, 55.8% and 69.2% of its net sales in fiscal 1995, 1996 and 1997,          
respectively. During fiscal 1996 and 1997, Siemens accounted for 29.1% and 55.7%
of the Company's net sales, respectively. During fiscal 1995, Sony accounted for
18.2% of the Company's net sales. No other customers represented more than 10%  
of the Company's net sales for any of such 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. 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 adversely affect the Company's business,      
financial condition and operating results. See "Risk Factors--Customer          
Concentration."                                                                 

MARKETING, SALES AND CUSTOMER SUPPORT                                           

 The Company focuses its marketing effort on its existing customer base of
large, established semiconductor manufacturers and contract assemblers. The     
Company has sales and service operations in the United States, Japan and Germany
and has established a network of distributors and sales representatives in other
key parts of the world. As of June 30, 1997, there were 16 in-house personnel in
the United States, Japan and Germany, collectively, and 19 independent sales    
representative organizations marketing the Company's products.                  

The Company's customer service and support program includes system      
installation, system repair, applications engineering support, spare parts      
inventories, customer training, and documentation. As of June 30, 1997, the     
Company had 18 full-time employees providing customer service and support. The  
customer support organization has both applications engineering and field       
service personnel located at the corporate headquarters in Mountain View,       
California and at the Company's subsidiaries in Germany and Japan. The Company's
distributors provide applications and field service support in other parts of   
the                                                                             

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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.                                              

BACKLOG                                                                         

As of May 31, 1997 and 1996, the Company's backlog was $20.9 million and
$19.1 million, respectively. 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. Most orders are subject to rescheduling or       
cancellation by the customer with limited penalties. Because of the possibility 
of customer changes in delivery schedules or cancellations and potential delays 
in product shipments, 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. As of June 30, 1997, the       
Company had 43 full-time employees engaged in research and development. The     
Company's research and development expenses during fiscal 1995, 1996 and 1997   
were approximately $3.8 million, $4.1 million and $4.5 million, respectively.   

The Company conducts ongoing research and development to develop new    
products and to support and enhance existing product lines. The Company         
currently is developing capability and performance enhancements to the MTX, MAX 
and ATX systems for future generation ICs. The Company also is developing DiePak
carriers to accommodate additional types of devices.                            

Building upon the expertise gained in the development of its existing   
products, the Company has embarked upon a long-term project to develop a system 
for performing test and burn-in of entire processed wafers, rather than         
individual die or packaged parts. This wafer-level burn-in and test project is  
being financed by the Company and DARPA, under a cost-sharing agreement entered 
into in 1994. The agreement provides that (i) the Company shall retain title to 
all co-funded inventions, (ii) DARPA will receive a paid-up license to use the  
inventions for government purposes and (iii) DARPA can require the Company to   
license the inventions to third parties on reasonable terms if the Company fails
to adequately commercialize the inventions. However, payments by DARPA depend on
satisfaction of development milestones, and DARPA has the right to terminate    
project funding at any time. The level of payments may vary significantly from  
quarter to quarter. There is no assurance that the Company will meet the        
development milestones or that DARPA will continue funding the project. If DARPA
funding were discontinued and the Company continued the project, the Company's  
operating results would be adversely affected. DARPA payments are reflected as a
credit to research and development expenses. The agreement provides for         
potential payments by DARPA totaling up to $6.5 million. The Company has        
completed certain development milestones and invoiced $2.9 million through May  
31, 1997. The remaining funding is subject to milestones scheduled to be        
completed through January 1999.                                                 

 The DiePak carrier was introduced in fiscal 1995, following a development
effort that included the Company, Nitto Denko Corporation, which manufactures   
the interconnect substrate, and Motorola which, as the first customer, assisted 
in defining requirements and testing the product. Enplas Corporation, a Japanese
manufacturer of advanced plastic products, cooperated with the Company in       
developing the DiePak socket. Enplas became a shareholder of the Company in     
fiscal 1994, and as of June 30, 1997, owned 320,000 shares of Common Stock. See 
"Principal and Selling Shareholders."                                           

MANUFACTURING                                                                   

    The Company assembles its products from components and parts manufactured by
others, including environmental chambers, power supplies, metal fabrications,   
printed circuit assemblies, integrated circuits, burn-in sockets and            
interconnect substrates. Final assembly and test are performed within the       
Company's facilities. The Company's strategy is to use in-house manufacturing   
only when necessary to protect a                                                

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proprietary process or if a significant improvement in quality, cost or lead    
time can be achieved. The Company's principal manufacturing facility is located 
in Mountain View, California. The Company's Tokyo, Japan facility provides final
assembly and test and product customization.                                    

  The Company relies on subcontractors to manufacture many of the components
or subassemblies used in its products. The Company's MTX, MAX and ATX systems   
contain several components, including environmental chambers, power supplies and
certain ICs, which are currently supplied by only one or a limited number of    
suppliers. The DiePak products include an interconnect substrate which is       
supplied only by Nitto Denko, and certain mechanical parts and sockets which are
currently supplied only by Enplas. 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 were to become unable or unwilling to continue to        
manufacture subassemblies, components or parts in required volumes, the Company 
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 the Company on a     
timely basis. Any delay, interruption or termination of a supplier relationship 
could have a material adverse effect on the Company's business, financial       
condition and operating results.                                                

   The Company is also pursuing a strategy of designing PTBs in locations near
its customers to more effectively respond to their custom design needs.         
Currently the Company designs and manufactures PTBs in the United States and    
Japan and intends to establish a design capability in Germany.                  

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.            

    Because the Company's MTX system performs burn-in and many of the functional
tests performed by memory testers, the Company expects that the MTX system will 
face intense competition from burn-in system suppliers and traditional memory   
tester suppliers. The market for burn-in systems is highly fragmented, with many
domestic and international suppliers. Some users, such as independent test labs,
build their own burn-in systems, and some other users, particularly large       
Japanese IC manufacturers, acquire burn-in systems from captive or affiliated   
suppliers. Competing suppliers of burn-in systems, which typically cost less    
than the MTX system, include Ando Corporation, Japan Engineering Company,       
Reliability Incorporated and Tabai Espec Corp. Some of the burn-in systems      
offered by competing suppliers perform some test functions. In addition,        
suppliers of memory test equipment including Advantest Corporation and Teradyne,
Inc. may seek to offer parallel test systems in the future.                     

The Company's DiePak products face significant competition. Texas       
Instruments Incorporated sells a temporary, reusable bare die carrier which is  
intended to enable burn-in and test of bare die, and the Company believes that  
several other companies have developed or are developing other such products. As
the bare die market develops, the Company expects that other competitors will   
emerge. The Company expects that the primary competitive factors in this market 
will be performance, reliability, cost and assured supply.                      

The Company's MAX dynamic and ATX monitored and dynamic burn-in systems 
increasingly have faced and are expected to continue to face severe competition,
especially from local, low cost manufacturers. Also, the MAX dynamic burn-in    
system faces severe competition from manufacturers of monitored burn-in systems 
that perform limited functional tests, including tests designed to ensure the   
devices receive the specified voltages and signals.                             

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The Company's test fixture products face numerous competitors. There are
limited barriers to entry into the BIB market, and as a result, many small      
companies design and manufacture BIBs, including BIBs for use with the Company's
MAX and ATX systems. The Company's strategy is to provide higher performance    
BIBs, and the Company generally does not compete to supply lower cost, low      
performance BIBs. The Company has granted a royalty-bearing license to one      
company to make PTBs for use with its MTX systems, in order to assure customers 
of a second source of supply, and the Company may license others as well. Sales 
of PTBs by licensees would result in royalties to the Company but would         
potentially reduce the Company's own sales of PTBs.                             

  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. Increased competitive pressure     
could also lead to intensified price-based competition, resulting in lower      
prices which could adversely affect the Company's business, financial condition 
and operating 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 secret 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 three issued United States patents and has two          
additional United States patent applications and several foreign patent         
applications pending. The Company has one United States trademark registration. 
One issued patent covers the method used to connect the PTBs with the MTX       
system. One patent relating to the MTX that has been allowed but not yet issued 
includes claims covering certain details of the electronic implementation used  
to obtain high performance in the MTX system and also covering certain testing  
methods.                                                                        

   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 issue 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. 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.                                                      

 There are no pending claims against the Company regarding infringement of
any patents or other intellectual property rights of others. However, the       
Company may receive, in the future, 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 suggestions that 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             

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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 June 30, 1997, the Company and its two foreign subsidiaries employed
155 persons full-time, of whom 43 were engaged in research, development, and    
related engineering, 61 in manufacturing, 34 in marketing, sales, and customer  
support, and 17 in general administration and finance. 35 persons are employed  
by the Company's subsidiary in Japan. In addition, the Company from time to time
employs a number of part-time employees and contractors, particularly in        
manufacturing. 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 is represented by a union and the Company has never         
experienced a work stoppage. Management considers its relations with its        
employees to be good. See "Risk Factors-- Dependence on Key Personnel."         

FACILITIES                                                                      

    The Company's principal administrative and production facilities are located
in Mountain View, California, in a 61,364 square foot building. The lease on    
this building expires in September 1999; the Company has an option to extend the
lease of its headquarters building for an additional five year period at rates  
to be negotiated. The Company also leases a sales office in Irvine, California  
and a sales and support office in Osaka, Japan. The Company's Japan facility is 
located in Tokyo in a 15,607 square foot building under a lease which expires in
June 1998. The Company leases a sales and support office in Utting, Germany. The
Company's and its subsidiaries' annual rental payments currently aggregate      
approximately $1.4 million. The Company believes that alternate facilities would
be available if needed.                                                         

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MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS                                                

The executive officers and directors of the Company are as follows:     

                                                        [Enlarge/Download Table]

NAME                                            AGE     POSITIONS                               
----------------------------------------------  ---     ----------------------------------------
                                                                                                
Rhea J. Posedel...............................      55  President, Chief Executive Officer and  
                                                          Chairman of the Board of Directors    

Gary L. Larson................................      47  Vice President of Finance and Chief     
                                                          Financial Officer                     

Michael P. Evon...............................      50  Vice President of Sales                 

Carl N. Buck..................................      45  Vice President of Research and          
                                                          Development Engineering               

William D. Barraclough........................      53  Vice President of Test Systems          
                                                          Engineering                           

Richard F. Sette..............................      59  Vice President of Operations            

Takahiro Hatakenaka...........................      62  President, Aehr Test Systems Japan      

William W. R. Elder (1)(2)....................      58  Director                                

Mario M. Rosati (1)...........................      51  Director and Secretary                  

David Torresdal (2)...........................      58  Director                                

Katsuji Tsutsumi..............................      46  Director                                

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

(1) Member of the Compensation Committee.                                       

(2) Member of the Audit Committee.                                              

RHEA J. POSEDEL is a founder of the Company and has served as President,
Chief Executive Officer and Chairman of the Board of Directors since its        
inception in 1977. He 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.                

    MICHAEL P. EVON joined the Company as Vice President of Sales in March 1995.
He was employed at GenRad, Inc., a world market leader in PC board test systems,
from 1968 to 1995, during which time he held various positions, including       
serving as Director of Sales for Asia, Pacific and Latin America, Director of   
Sales/North America for the Design Automation Division, and Western Regional    
Sales Manager. Mr. Evon received a B.S. in Electrical Engineering from Tufts    
University.                                                                     

  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, and Vice President of Research and Development Engineering in    
November 1996. 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.         

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   WILLIAM D. BARRACLOUGH joined the Company as an Account Manager in February
1989 and held various positions until he was elected Vice President of Test     
Systems Engineering in August 1996. From 1984 to 1989, Mr. Barraclough served as
Vice President of Marketing at Thermonics, Inc., a manufacturer of temperature  
control equipment for electronics devices. Mr. Barraclough received a B.S.E.E.  
from the University of Southern California.                                     

RICHARD F. SETTE rejoined the Company as Vice President of Operations in
January 1996, after serving in that same position from 1984 to 1987. He served  
as Senior Director of Operations of Northrop Grumman Corp., a manufacturer of   
aircraft and aircraft subsystems, from 1987 to 1993, as Vice President of       
Operations of Symtek, Inc., which manufactures handling equipment for the       
semiconductor industry, from 1993 to 1994 and as Director of Engineering at     
SatCon Technologies Corp., a developer of energy storage systems, from 1994 to  
1995. Mr. Sette received a B.S.E.E. and an M.S.E.E. from Northeastern           
University.                                                                     

TAKAHIRO HATAKENAKA is a founder of Aehr Test Systems Japan K.K. the    
Company's Japanese subsidiary, and has been President and Chairman of its Board 
of Directors since its inception in October 1981. Mr. Hatakenaka attended Waseda
University in Tokyo, Japan, where he majored in Economics.                      

    WILLIAM W. R. ELDER has been a director of the Company since 1989. Dr. Elder
was the Chief Executive Officer of Genus, Inc. ("Genus"), a semiconductor       
company, from his founding of Genus in 1981 to September 1996. Dr. Elder has    
been a director of Genus since its inception, and was elected as Chairman of the
Board of Genus in September 1996. Dr. Elder holds a B.S.I.E. and an honorary    
Doctorate Degree from the University of Paisley in Scotland.                    

   MARIO M. ROSATI has served as Secretary and a director of the Company since
1977. He is a member of the law firm of Wilson Sonsini Goodrich & Rosati, which 
he joined in 1971. Mr. Rosati is a graduate of Boalt Hall, University of        
California at Berkeley. Mr. Rosati is a director of C*ATS Software Inc., Genus, 
Inc., Meridian Data, Inc., Ross Systems, and Sanmina Corporation, as well as    
several private companies.                                                      

  DAVID TORRESDAL has been a director of the Company since 1977. He has been
President of Davtron, Inc., a manufacturer of aircraft electronic equipment,    
since 1970. Mr. Torresdal received an A.A.S. in Engineering from Oregon         
Technical Institute.                                                            

KATSUJI TSUTSUMI has been a director of the Company since 1994. He has  
served as a Vice President of Enplas Tech (U.S.A.), Inc., a subsidiary of Enplas
Corporation, since October, 1993. From 1989 to 1993, Mr. Tsutsumi served as     
Overseas Sales Division General Manager for Enplas Corporation in Japan. Mr.    
Tsutsumi received a degree in Economics from the University of Aoyama Gakuin in 
Japan.                                                                          

   All directors hold office until the next annual meeting of shareholders and
until their successors have been duly elected and qualified. The Company's      
executive officers are approved by and serve at the discretion of the Board of  
Directors. There are no family relationships among the directors or executive   
officers of the Company.                                                        

DIRECTORS' COMPENSATION AND OTHER ARRANGEMENTS                                  

Directors of the Company do not receive any cash compensation for their 
services as members of the Board of Directors, although they are reimbursed for 
certain expenses incurred in attending Board and committee meetings. Directors  
are eligible to participate in the Company's option plans. In fiscal 1996, the  
Company granted options to purchase 55,000 shares to William Elder at $4.00 per 
share, 20,000 shares to Mario Rosati at $4.00 per share, and 20,000 shares to   
David Torresdal at $4.00 per share. Directors were granted no options in fiscal 
1997.                                                                           

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BOARD COMMITTEES                                                                

   The Board of Directors has a Compensation Committee and an Audit Committee.
The Compensation Committee, which is comprised of William Elder and Mario       
Rosati, makes recommendations to the Board of Directors regarding executive     
compensation matters, including decisions relating to salary and bonus and      
grants of stock options. The Audit Committee, which is comprised of William     
Elder and David Torresdal, approves the Company's independent auditors, reviews 
the results and scope of annual audits and other accounting related services,   
and reviews and evaluates the Company's internal audit and control functions.   

EXECUTIVE COMPENSATION                                                          

SUMMARY COMPENSATION INFORMATION                                            

The following table sets forth all compensation received for services   
rendered to the Company in all capacities for the fiscal year ended May 31, 1997
by the Company's Chief Executive Officer and for each of the four other most    
highly compensated executive officers with annual compensation in excess of     
$100,000 (collectively, the "Named Executive Officers"):                        

SUMMARY COMPENSATION TABLE

                                                        [Enlarge/Download Table]

                                                                                   LONG-TERM                       
                                                                                 COMPENSATION                      
                                                                                 -------------                     
                                                                                    PAYOUTS                        
                                                                                 -------------                     
                                                         ANNUAL COMPENSATION         LTIP                          
                                                       ------------------------     PAYOUTS          ALL OTHER     
NAME AND PRINCIPAL POSITION                            SALARY($)     BONUS($)         ($)         COMPENSATION($)  
-----------------------------------------------------  ----------  ------------  -------------  -------------------
                                                                                                                   
Rhea J. Posedel......................................  $  185,040  $  70,500       $   5,388         $   2,497     
  President, Chief Executive Officer and Chairman of                                                               
    the Board of Directors                                                                                         
Takahiro Hatakenaka (1)..............................  $  177,116  $      --       $      --         $   3,997     
  President, Aehr Test Systems Japan                                                                               
Gary L. Larson.......................................  $  133,449  $  33,700       $   5,258         $   3,313     
  Vice President of Finance and Chief Financial                                                                    
    Officer                                                                                                        
William D. Barraclough...............................  $  123,996  $  40,584(2)    $   5,388         $   2,227     
  Vice President of Test Systems Engineering                                                                       
Michael P. Evon......................................  $  113,650  $  35,794       $   4,943         $   2,218     
  Vice President of Sales                                                                                          

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

(1) Mr. Hatakenaka's salary was converted to U.S. Dollars at a calculated fiscal
1997 average rate of 114.576 yen to the dollar.                         

(2) Of this amount, $22,584 was related to MTX project milestones completed     
prior to Mr. Barraclough's appointment as Vice President of Test Systems
Engineering.                                                            

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OPTION GRANTS                                                               

   None of the Named Executive Officers received grants of options to purchase
the Company's Common Stock during fiscal 1997.                                  

OPTION EXERCISES AND HOLDINGS                                               

   The following table sets forth information concerning stock options held as
of May 31, 1997 by the Named Executive Officers. There were no option exercises 
by any Named Executive Officer during the fiscal year ended May 31, 1997.       

AGGREGATE OPTION EXERCISES IN FISCAL YEAR AND YEAR-END VALUES 

                                                        [Enlarge/Download Table]

                                                                 NUMBER OF SHARES                                 
                                                                    UNDERLYING            VALUES OF UNEXERCISED   
                                                               UNEXERCISED OPTIONS         IN-THE-MONEY OPTIONS   
                                                                AT MAY 31, 1997(1)          AT MAY 31, 1997(2)    
                                                            --------------------------  --------------------------
NAME                                                        EXERCISABLE  UNEXERCISABLE  EXERCISABLE  UNEXERCISABLE
----------------------------------------------------------  -----------  -------------  -----------  -------------
                                                                                                                  
Rhea J. Posedel...........................................      36,249        33,751     $ 116,955    $   110,045 
Takahiro Hatakenaka.......................................       1,583           417     $   5,541    $     1,460 
Gary L. Larson............................................      49,915        18,085     $ 181,421    $    64,079 
William D. Barraclough....................................      20,832        24,168     $  78,380    $    86,620 
Michael P. Evon...........................................      23,333        26,667     $  97,290    $   107,710 

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

(1) All options were granted under the Company's 1986 Incentive Stock Plan. Each
  option becomes exercisable according to a vesting schedule, subject to the
   applicable Named Executive Officer's continued employment with the Company.

(2) Calculated on the basis of the fair market value of the Common Stock as of  
   May 31, 1997. The fair market value of the Common Stock as of such date was
 $7.50 per share. Assuming the fair market value of the Common Stock as of
   May 31, 1997 was the initial public offering price of $12.00 per share, the
   total aggregate value of the exercisable and unexercisable options would be
   $542,000 in the case of Mr. Posedel, $16,000 in the case of Mr. Hatakenaka,
   $551,500 in the case of Mr. Larson, $367,500 in the case of Mr. Barraclough
and $430,000 in the case of Mr. Evon.                                   

STOCK PLANS                                                                     

1986 INCENTIVE STOCK PLAN                                                   

  The Company's 1986 Incentive Stock Plan (the "1986 Plan") provides for the
grant of incentive stock options and nonstatutory stock options. As of May 31,  
1997, options to purchase an aggregate of 691,350 shares of Common Stock were   
outstanding under the 1986 Plan. Options granted under the Plan will remain     
outstanding in accordance with their terms, but the Board of Directors has      
determined that no further options will be granted under the 1986 Plan.         

1996 STOCK OPTION PLAN                                                      

 The Company's 1996 Stock Option Plan (as Amended and Restated) (the "1996
Plan") was approved by the Board of Directors and the shareholders on October   
23, 1996. The 1996 Plan provides for the grant to employees of incentive stock  
options within the meaning of Section 422 of the Internal Revenue Code of 1986, 
as amended (the "Internal Revenue Code"), and for the grant to employees,       
directors and consultants of nonstatutory stock options and stock purchase      
rights ("SPRs"). In June 1997 the Board of Directors amended and restated the   
terms of the 1996 Plan to take effect upon the Company's initial public offering
of Common Stock. Unless terminated sooner, the 1996 Plan will terminate         
automatically in 2006. The Board has the authority to amend, suspend or         
terminate the 1996 Plan, provided that no such                                  

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action may affect any share of Common Stock previously issued and sold or any   
option previously granted under the 1996 Plan.                                  

As of May 31, 1997, options to purchase an aggregate of 68,000 shares of
Common Stock were outstanding under the 1996 Plan, and options to purchase an   
aggregate of 582,000 shares of Common Stock were available for future issuance. 

  The 1996 Plan may be administered by the Board of Directors or a committee
of the Board (the "Committee"), which Committee is required to be constituted to
comply with Section 16(b) of the Securities Exchange Act of 1934, as amended,   
and applicable laws. The Committee has the power to determine the terms of the  
options or SPRs granted, including the exercise price, the number of shares     
subject to each option or SPR and the exercisability thereof, and the form of   
consideration payable upon exercise. Options and SPRs granted under the 1996    
Plan are not generally transferable by the optionee, and each option and SPR is 
exercisable during the lifetime of the optionee only by such optionee. In       
general, options granted under the 1996 Plan must be exercised within thirty    
days of the end of optionee's status as an employee, director or consultant of  
the Company or a parent or subsidiary corporation of the Company, or within     
twelve months after such optionee's termination by death or disability, but in  
no event later than the expiration of the option's expiration date. In the case 
of SPRs, unless the Committee determines otherwise, the Restricted Stock        
Purchase Agreement shall grant the Company a repurchase option exercisable upon 
the voluntary or involuntary termination of the purchaser's employment or       
service with the Company or a parent or subsidiary corporation of the Company   
for any reason (including death or disability). The purchase price for shares   
repurchased pursuant to the Restricted Stock Purchase Agreement shall be the    
original price paid by the purchaser. The repurchase option shall lapse at a    
rate determined by the Committee. The exercise price of all incentive stock     
options granted under the 1996 Plan must be at least equal to the fair market   
value of the Common Stock on the date of grant. The exercise price of           
nonstatutory stock options and SPRs granted under the Plan is determined by the 
Committee. With respect to any participant who owns stock possessing more than  
10% of the voting power of all classes of the outstanding capital stock of the  
Company or a parent or subsidiary corporation of the Company, the exercise price
of any incentive stock option granted must equal at least 110% of the fair      
market value on the grant date and the term of such incentive stock option must 
not exceed five years. The term of all other incentive stock options granted    
under the 1996 Plan may not exceed ten years.                                   

   The 1996 Plan provides that in the event of a merger of the Company with or
into another corporation, a sale of substantially all of the Company's assets or
a like transaction involving the Company, each option and SPR shall be assumed  
or an equivalent option or right substituted for by the successor corporation.  
If the outstanding options and SPRs are not assumed or substituted as described 
in the preceding sentence, an optionee will fully vest in and have the right to 
exercise the option or SPR as to all or a portion of the optioned stock,        
including shares as to which it would not otherwise be exercisable. If the      
Administrator makes an option or SPR becomes exercisable in full in the event of
a merger or sale of assets, the Administrator shall notify the optionee that the
option or SPR shall be fully exercisable for a period of fifteen (15) days from 
the date of such notice, and the option or SPR will terminate upon the          
expiration of such period.                                                      

1997 EMPLOYEE STOCK PURCHASE PLAN                                           

  The Company's 1997 Employee Stock Purchase Plan (the "1997 Purchase Plan")
was adopted by the Board of Directors in June 1997 and by the shareholders in   
July 1997. A total of 300,000 shares of Common Stock has been reserved for      
issuance under the 1997 Purchase Plan. The 1997 Purchase Plan, which is intended
to qualify under Section 423 of the Internal Revenue Code, 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 the first such offering period commences with the effectiveness of the   
Offering of Common Stock and ends on the last trading day on or before March 31,
1999.                                                                           

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The 1997 Purchase Plan is administered by the Board of Directors or by a
committee appointed by the Board. Employees are eligible to participate if they 
are customarily employed by the Company or any participating subsidiary for at  
least 20 hours per week and more than five months in any calendar year. However,
any employee (i) who immediately after grant owns stock possessing 5% or more of
the total combined voting power or value of all classes of the capital stock of 
the Company or any subsidiary of the Company, or (ii) whose rights to purchase  
stock under all employee stock purchase plans of the Company accrues at a rate  
which exceeds $25,000 worth of stock for each calendar year may not be granted  
an option to purchase stock under the 1997 Purchase Plan. The 1997 Purchase Plan
permits eligible employees to purchase Common Stock through payroll deductions  
of up to 10% of an employee's compensation (compensation is defined as the      
participant's base straight time gross earnings and commissions, but excludes   
payments for overtime, shift premium, incentive compensation, incentive         
payments, bonuses and other compensation). The price of stock purchased under   
the 1997 Purchase Plan will be 85% of the lower of the fair market value of the 
Common Stock on the first day of the offering period or the last day of the     
purchase period. The maximum number of shares a participant may purchase during 
a single purchase period is determined by dividing $12,500 by the fair market   
value of a share of the Company's Common Stock on the first day of the          
then-current offering period. Employees may end their participation in the      
offering at any time during an offering period, and they will be paid their     
payroll deductions to date. Participation ends automatically on termination of  
employment with the Company.                                                    

Rights granted under the 1997 Purchase Plan are not transferable by a   
participant other than by will, the laws of descent and distribution, or as     
otherwise provided under the 1997 Purchase Plan. The 1997 Purchase Plan provides
that, in the event of a merger of the Company with or into another corporation  
or a sale of substantially all of the Company's assets, each option shall be    
assumed or an equivalent option substituted by the successor corporation. If the
outstanding options are not assumed or substituted, the Board of Directors shall
shorten the offering period (so that employees' rights to purchase stock under  
the 1997 Purchase Plan are exercised prior to the merger or sale of assets). The
1997 Purchase Plan will terminate in 2007. The Board of Directors has the       
authority to amend or terminate the 1997 Purchase Plan, except that no such     
action may adversely affect any outstanding rights to purchase stock under the  
1997 Purchase Plan.                                                             

EMPLOYEE STOCK BONUS PLAN                                                   

 Under Aehr Test Systems Employee Stock Bonus Plan (the "Bonus Plan"), the
Company may, but is not required to, make contributions up to a maximum of 15%  
of the Company's payroll (less amounts contributed to the Company's Savings and 
Retirement Plan). This contribution is determined annually by the Company and is
allocated among all participants in proportion to their eligible compensation   
for the year. Eligible participants are full-time employees who have completed  
three consecutive months of service and 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. Individuals' account  
balances vest at a rate of 25% per year commencing upon completion of three     
years of service. Nonvested balances, which are forfeited, are allocated to the 
remaining employees in the plan. Each participant's share in the Bonus Plan is  
credited to the participant's account and held in trust until retirement, death,
disability or termination of service. The Bonus Plan is a discretionary defined 
contribution plan under the Employee Retirement Income Security Act. All        
employees of Aehr Test Systems are eligible to participate in the Bonus Plan as 
of the entry date each year. The Company made a Bonus Plan contribution of      
$200,000 and $50,000 in fiscal 1997 and 1996, respectively, and made no         
contribution to the Bonus Plan in fiscal 1995.                                  

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION                     

   The Company's Compensation Committee currently consists of Mario Rosati and
William Elder. No executive officer of the Company serves on the compensation   
committee of another entity or on any other                                     

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committee of the board of directors of another entity that has one or more      
executive officers serving as a member of the Company's Board of Directors or   
Compensation Committee.                                                         

LIMITATION ON LIABILITIES AND INDEMNIFICATION                                   

   The Company's Restated Articles of Incorporation limit the liability of its
directors for monetary damages arising from a breach of their fiduciary duty as 
directors, except to the extent otherwise required by the California            
Corporations Code. Such limitation of liability does not affect the availability
of equitable remedies such as injunctive relief or rescission.                  

   The Company's Bylaws provide that the Company shall indemnify its directors
and officers to the fullest extent permitted by California law, including       
circumstances in which indemnification is otherwise discretionary under         
California law. The Company has also entered into indemnification agreements    
with its officers and directors containing provisions which are in some respects
broader than the specific indemnification provisions contained in the California
Corporations Code. The indemnification agreements may require the Company, among
other things, to indemnify such officers and directors against certain          
liabilities that may arise by reason of their status or service as directors or 
officers (other than liabilities arising from willful misconduct of a culpable  
nature), to advance their expenses incurred as a result of any proceeding       
against them as to which they could be indemnified, and to obtain directors' and
officers' insurance if available on reasonable terms.                           

   Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company      
pursuant to the foregoing provisions, the Company has been informed that in the 
opinion of the Securities and Exchange Commission such indemnification is       
against public policy as expressed in the Securities Act and is therefore       
unenforceable.                                                                  

At present, there is no pending litigation or proceeding involving any  
director, officer, employee or agent or the Company in which indemnification by 
the Company will be required or permitted. The Company is not aware of any      
threatened litigation or proceeding which may result in a claim for such        
indemnification.                                                                

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CERTAIN TRANSACTIONS

On August 1, 1994, the Company entered into a strategic consulting      
arrangement with William Elder, a director of the Company, whereby the Company  
granted Mr. Elder a nonstatutory stock option to purchase 40,000 shares in      
exchange for his consulting services. The agreement terminated on January 31,   
1995.                                                                           

 Katsuji Tsutsumi represents Enplas Corporation on the Board of Directors.
Enplas Corporation supplies die carrier components and sockets to the Company   
for use in the Company's DiePak carrier products. Enplas Corporation purchased  
320,000 shares of the Company's Common Stock for a price of $4.50 per share and 
a total aggregate price of $1,440,000 in April 1994. In connection with the     
financing, the Company agreed to appoint one nominee of Enplas Corporation to   
the Company's Board of Directors. That agreement terminates upon completion of  
this Offering.                                                                  

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PRINCIPAL AND SELLING SHAREHOLDERS

The following table sets forth certain information regarding beneficial 
ownership of the Company's Common Stock as of May 31, 1997, and as adjusted to  
reflect the sale of the shares of Common Stock offered hereby, by (i) each      
person known by the Company to own more than 5% of the Company's Common Stock,  
(ii) each Named Executive Officer, (iii) each of the Company's directors, (iv)  
all directors and executive officers as a group, and (v) each Selling           
Shareholder holding 1% or more of the Common Stock:                             

                                                        [Enlarge/Download Table]

                                                                  SHARES BENEFICIALLY                   SHARES BENEFICIALLY   
                                                                    OWNED PRIOR TO                          OWNED AFTER       
                                                                      OFFERING(1)                         OFFERING(1)(2)      
                                                                -----------------------    SHARES     ----------------------- 
NAME AND ADDRESS OF BENEFICIAL OWNER                             NUMBER      PERCENT     TO BE SOLD    NUMBER      PERCENT    
--------------------------------------------------------------  ---------  ------------  -----------  ---------  ------------ 
                                                                                                                              
NAMED EXECUTIVE OFFICERS AND DIRECTORS:                                                                                       
Rhea J. Posedel (3)...........................................    977,208        22.7%            0     977,208        14.4%  
Katsuji Tsutsumi (4)..........................................    320,000         7.4%       50,000     270,000         4.0%  
David Torresdal (5)...........................................    313,633         7.3%            0     313,633         4.6%  
Mario M. Rosati (6)...........................................    211,349         4.9%            0     211,349         3.1%  
Takahiro Hatakenaka (7).......................................     75,201         1.8%            0      75,201         1.1%  
William W. R. Elder (8).......................................     64,583         1.5%            0      64,583         1.0%  
Gary L. Larson (9)............................................     54,208         1.3%            0      54,208       *       
Michael P. Evon (10)..........................................     25,417       *                 0      25,417       *       
William D. Barraclough (11)...................................     22,916       *                 0      22,916       *       
All directors and executive officers as a group (eleven                                                                       
  persons) (4) (12)...........................................  2,138,614        49.8  %     50,000   2,088,614        30.8  %

OTHER 5% HOLDERS:                                                                                                             
Enplas Corporation (13).......................................    320,000         7.4  %     50,000     270,000         4.0  %
Summit Partners (14)..........................................    300,625         7.0  %    257,296      43,329       *       
Japan Associated Finance Co., Ltd. (15).......................    285,715         6.7%       39,158     246,557         3.6%  
Mayfield III (16).............................................    283,824         6.6%            0     283,824         4.2%  

OTHER SELLING SHAREHOLDERS:                                                                                                   
Verna L. Brame, Trustee,                                                                                                      
  Verna L. Brame Trust u/d/t                                                                                                  
  dated May 20, 1983..........................................    161,775         3.8%       86,637      75,138         1.1%  
Louis J. Cartalano............................................    102,167         2.4%       88,442      13,725       *       
Roger D. Bouyea and Lorraine M. Bouyea,                                                                                       
  his Wife, as Community Property.............................    100,000         2.3  %     32,494      67,506         1.0  %
Diane R. Pagani...............................................    100,000         2.3  %     20,000      80,000         1.2  %
Alice Wilder Hall.............................................     56,840         1.3  %     45,822      11,018       *       
Teruo Kunugi..................................................     55,410         1.3  %     22,791      32,619       *       
Frank J. George and Evelyn E. George, Trustees of the Frank J.                                                                
  George and Evelyn E. George Trust, u/d/t dated August 7,                                                                    
  1991 .......................................................     55,000         1.3  %     20,000      35,000       *       
John Spencer Morse and Annette Ruth Morse,                                                                                    
  Trustees of the John Spencer Morse & Annette Ruth Morse                                                                     
  Trusts, u/d/t dated December 23, 1982.......................     54,643         1.3  %     48,857       5,786       *       
The Central Capital Ltd.......................................     50,000         1.2  %     44,989       5,011       *       
Nikko Venture Capital Co., Ltd................................     50,000         1.2  %     44,989       5,011       *       
Alan Helgesson................................................     42,500         1.0  %     10,625      31,875       *       
Other Selling Shareholders, each holding less than 1% of the                                                                  
  Common Stock prior to the Offering..........................    412,592         9.6  %    287,900     124,692         1.8  %
All Selling Shareholders as a group...........................  2,147,267        50.0  %  1,100,000   1,047,267        15.4  %

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

*  Represents less than one percent.                                          

(1) Beneficial ownership is determined in accordance with the rules of the      
Securities and Exchange Commission. In computing the number of shares   
   beneficially owned by a person and the percentage ownership of that person,
shares of Common Stock subject to options held by that person that are  
  currently exercisable, or will become exercisable within 60 days after May
31, 1997, are deemed outstanding. Such shares, however, are not deemed  
   outstanding for purposes of computing the percentage ownership of any other
person. Unless otherwise indicated in the footnotes to this table, the  
persons and entities named in the table have                            

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 represented to the Company that they have sole voting and sole investment
 power with respect to all shares beneficially owned, subject to community
  property laws where applicable. Unless otherwise indicated, the address of
  each of the individuals listed in the table is c/o Aehr Test Systems, 1667
Plymouth Street, Mountain View, California 94043.                       

(2) This column assumes no exercise of the Underwriters' over-allotment option. 
   If, however, the Underwriters' over-allotment is exercised in full, certain
shareholders will sell an aggregate of 540,000 shares of Common Stock.  
    Specifically, in such event, in addition to those share amounts set forth in
the table above, (i) Rhea J. Posedel will sell 40,819 shares, of which  
20,000 shares are held by Vivian M. Owen, Mr. Posedel's wife, and will  
    beneficially own 936,389 shares, which is 13.8% of the Company's outstanding
   Common Stock, after completion of the Offering; (ii) Enplas Corporation, of
 which Mr. Tsutsumi, a director of the Company, is a vice president of its
    wholly-owned subsidiary, Enplas Tech (U.S.A.), Inc., will sell an additional
    50,000 shares and will beneficially own 220,000 shares, which is 3.2% of the
Company's outstanding Common Stock and of which Mr. Tsutsumi disclaims  
beneficial ownership, after completion of the Offering; (iii) David     
  Torresdal will sell 25,000 shares held by David and Betty Torresdal, 5,000
held by Barbara Long, Trustee of the Brock Frank Torresdal Trust I U/T/A
    dated 5/30/83, 5,000 shares held by Barbara Long, Trustee of the Candice Ann
 Torresdal Trust I U/T/A dated 5/30/83, 5,000 shares held by Barbara Long,
    Trustee of the Eric Nels Torresdal Trust I U/T/A dated 5/30/83, 5,000 shares
held by Barbara Long, Trustee of the Kevin Allen Torresdal Trust I U/T/A
 dated 5/30/83 and 5,000 shares held by Barbara Long, Trustee of the Kyler
David Torresdal Trust I U/T/A dated 5/30/83 and will beneficially own   
263,633 shares, which is 3.9% of the Company's outstanding Common Stock,
 after completion of the Offering; (iv) Gary Larson will sell 5,000 shares
  and will beneficially own 49,208 shares, which is less than one percent of
 the Company's outstanding Common Stock, after completion of the Offering;
    (v) Richard P. Sette will sell 4,996 shares and will beneficially own 22,458
  shares, which is less than one percent of the Company's outstanding Common
  Stock, after completion of the Offering; (vi) Summit Partners will sell an
additional 26,803 shares held by Summit Ventures, L.P. and an additional
  16,526 shares held by SV Eurofund C.V. and will beneficially own no shares
  after completion of the Offering; (vii) Japan Associated Finance Co., Ltd.
will sell an additional 3,842 shares held by JAFCO No. 5 Investment     
Enterprise Partnership and will beneficially own 242,715 shares, which  
   represents 3.6% of the Company's outstanding Common Stock, after completion
of the Offering; (viii) Mayfield III will sell an aggregate of 283,824  
    shares and will beneficially own no shares after completion of the Offering;
 and (ix) Carl Buck will sell 5,000 shares and will benficially own 41,645
  shares, which is less than one percent of the Company's outstanding Common
Stock, after completion of the Offering.                                

(3) Includes 40,000 shares held by Vivian M. Owen, Mr. Posedel's wife, and      
    40,208 shares issuable upon the exercise of stock options exercisable within
60 days of May 31, 1997.                                                

(4) Includes 320,000 shares held by Enplas Corporation, a Japanese corporation. 
   Mr. Tsutsumi, a director of the Company, is a vice president of Enplas Tech
(U.S.A.), Inc., a California corporation and wholly owned subsidiary of 
Enplas Corporation. Mr. Tsutsumi disclaims beneficial ownership of the  
shares held by Enplas Corporation.                                      

(5) Includes 273,800 shares held jointly with Betty Torresdal, 6,800 shares held
by Barbara Long, trustee for the benefit of Brock Frank Torresdal, 6,800
shares held by Barbara Long, trustee for the benefit of Candice Ann     
Torresdal, 6,800 shares held by Barbara Long, trustee for the benefit of
Eric Nels Torresdal, 6,800 shares held by Barbara Long, trustee for the 
    benefit of Kyler David Torresdal, 6,800 shares held by Barbara Long, trustee
    for the benefit of Kevin Allen Torresdal, and 5,833 shares issuable upon the
exercise of stock options exercisable within 60 days of May 31, 1997.   

(6) Includes 27,000 shares held by Mario Rosati and Douglas Laurice, trustees   
   for the benefit of Mario M. Rosati, 158,516 shares held by Mario M. Rosati,
    Trustee of the Mario M. Rosati Trust, U/D/T dated 1/9/90, 20,000 shares held
 by Douglas M. Laurice and Mario M. Rosati TTEE FBO Sally Rosati Banks and
   5,833 shares issuable upon the exercise of stock options exercisable within
60 days of May 31, 1997.                                                

(7) Includes 1,750 shares issuable upon the exercise of stock option exercisable
within 60 days of May 31, 1997.                                         

(8) Includes 62,083 shares issuable upon the exercise of stock options          
   exercisable within 60 days of May 31, 1997 and 2,500 shares held by William
Elder, Trustee of the William W. R. Elder Separate Property Trust, U/D/T
dated April 18, 1983.                                                   

(9) Consists of shares issuable upon the exercise of stock options exercisable  
within 60 days of May 31, 1997.                                         

(10) Includes 25,417 shares issuable upon the exercise of stock options         
exercisable within 60 days of May 31, 1997.                             

(11) Consists of 22,916 shares issuable upon the exercise of stock options      
exercisable within 60 days of May 31, 1997.                             

(12) Includes 4,996 shares held by Richard F. Sette, 1,000 shares held by Carl  
N. Buck, and 286,351 shares issuable upon the exercise of stock options 
exercisable within 60 days of May 31, 1997.                             

(13) The address of this beneficial owner is as follows: Enplas Corporation,    
2-30-1, Namiki, Kawaguchi City, Saitama, Pref. 332, Japan.              

(14) Includes 1,238 shares held by Summit Investors, L.P., 180,457 shares held  
   by Summit Ventures, L.P. and 118,930 shares held by SV Eurofund C.V. All of
the shares held by Summit Investors, L.P., 155,971 shares held by Summit
Ventures, L.P. and 103,833                                              

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   shares held by SV Eurofund C.V. are being sold in the Offering. The address
 of this beneficial owner is as follows: Summit Ventures, L.P., One Boston
Place, Boston, MA 02108.                                                

(15) Includes 29,000 shares held by JAFCO G-2(A) Investment Enterprise          
Partnership, 29,000 shares held by JAFCO G-2(B) Investment Enterprise   
Partnership, 84,000 shares held by JAFCO G-3 Investment Enterprise      
Partnership, 43,000 shares held by JAFCO No. 5 Investment Enterprise    
Partnership, 43,000 shares held by JAFCO No. 6 Investment Enterprise    
Partnership and 57,715 shares held by Japan Associated Finance Co., Ltd.
39,490 shares held by JAFCO No. 5 Investment Enterprise Partnership are 
being sold in the Offering. The address of this beneficial owner is as  
follows: Japan Associated Finance Co., Ltd., Toshiba Bldg., 10th Floor, 
1-1-1 Shibaura, Minato-Ku, Tokyo, 105, Japan.                           

(16) The address of this beneficial owner is as follows: Mayfield III, 2800 Sand
Hill Road, Suite 250, Menlo Park, CA 94025.                             

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DESCRIPTION OF CAPITAL STOCK

Upon the closing of the Offering, the authorized capital stock of the   
Company will consist of 75,000,000 shares of Common Stock, $0.01 par value, and 
10,000,000 shares of Preferred Stock, $0.01 par value.                          

COMMON STOCK                                                                    

 On May 31, 1997, there were 4,295,522 shares of Common Stock outstanding,
held of record by approximately 165 shareholders. The holders of Common Stock   
are entitled to one vote for each share held of record on all matters submitted 
to a vote of shareholders. Accordingly, holders of a majority of the shares of  
Common Stock entitled to vote in any election of directors may elect all of the 
directors standing for election. Subject to preferences that may be applicable  
to any outstanding Preferred Stock, holders of Common Stock are entitled to     
receive ratably such dividends, if any, as may be declared from time to time by 
the Board of Directors out of funds legally available therefor. See "Dividend   
Policy." In the event of a liquidation, dissolution or winding up of the        
Company, holders of Common Stock are entitled to share ratably in all assets    
remaining after payment of the Company's liabilities and the liquidation        
preference, if any, of any outstanding Preferred Stock. Holders of Common Stock 
have no preemptive rights and no rights to convert their Common Stock into any  
other securities, and there are no redemption provisions with respect to such   
shares. All of the outstanding shares of Common Stock are, and the shares to be 
sold in the Offering when issued and paid for will be, fully paid and           
non-assessable. The rights, preferences and privileges of holders of Common     
Stock are subject to, and may be adversely affected by, the rights of the       
holders of shares of any series of Preferred Stock which the Company may        
designate and issue in the future.                                              

PREFERRED STOCK                                                                 

    Effective upon the closing of the Offering, the Board of Directors will have
the authority, without further action by the shareholders, to provide for the   
issuance of up to 10,000,000 shares of Preferred Stock from time to time in one 
or more series, to establish the number of shares to be included in each such   
series, to fix the designations, powers, preferences, privileges and relative   
participating, optional or special rights and the qualifications, limitations or
restrictions of the shares of each series, including dividend rights, conversion
rights, voting rights, terms of redemption and liquidation preferences of each  
such series, any or all of which may be greater than the rights of the Common   
Stock. The Board of Directors, without shareholder approval, can issue Preferred
Stock with voting, conversion or other rights that could adversely affect the   
voting power and other rights of the holders of Common Stock. Preferred Stock   
could thus be issued quickly with terms calculated to delay or prevent a change 
in control of the Company or make removal of management more difficult. The     
issuance of Preferred Stock could also decrease the amount of earnings and      
assets available for distribution to holders of Common Stock. The Company has no
current plans to issue any of the Preferred Stock.                              

REGISTRATION RIGHTS                                                             

    As of the date hereof, the holders of approximately 609,245 shares of Common
Stock are entitled to certain rights with respect to the registration of such   
shares under the Securities Act. Under the terms of the registration rights     
agreements between the Company and each of such holders, if the Company proposes
to register any of its securities under the Securities Act, either for its own  
account or the account of other security holders, the holders are entitled to   
notice of such registration and are entitled to include shares of such Common   
Stock therein; provided, among other conditions, that the underwriters of any   
offering have the right to limit the number of such shares included in such     
registration. In addition, certain of the holders benefitting from these rights 
may require the Company, beginning 120 days after the effective date of the     
registration statement for the Offering, on not more than one occasion, to file 
a registration statement under the Securities Act at the Company's expense with 
respect to such shares, and                                                     

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the Company is required to use its best efforts to effect such registration,    
subject to certain conditions and limitations. Further, holders may require the 
Company to register, subject to certain conditions and limitations, all or a    
portion of their shares with registration rights on Form S-3, when the Company  
qualifies to use such form.                                                     

TRANSFER AGENT AND REGISTRAR                                                    

The Transfer Agent and Registrar for the Company's Common Stock is U.S. 
Stock Transfer, whose telephone number is (818) 502-1404.                       

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SHARES ELIGIBLE FOR FUTURE SALE 

    Prior to this Offering, there has been no market for the Common Stock of the
Company. Future sales of substantial amounts of Common Stock in the public      
market could adversely affect prevailing market prices from time to time.       
Furthermore, since only a limited number of shares will be available for sale   
shortly after the Offering because of certain contractual and legal restrictions
on resale (as described below), sales of substantial amounts of Common Stock of 
the Company in the public market after the restrictions lapse could adversely   
affect the prevailing market price and the ability of the Company to raise      
equity capital in the future.                                                   

  Upon completion of the Offering, based on the outstanding shares of Common
Stock at May 31, 1997, the Company will have 6,795,522 shares of Common Stock   
outstanding, assuming no exercise of the Underwriters' over-allotment option and
no exercise of outstanding and vested options to purchase 403,974 shares of     
Common Stock. Of the 6,795,522 shares of Common Stock, the 3,600,000 shares of  
Common Stock offered hereby will be freely transferable without restriction or  
further registration under the Securities Act. The remaining 3,195,522 shares of
Common Stock held by existing shareholders are "restricted shares" as defined in
Rule 144 ("Restricted Shares"). Restricted Shares may be sold in the public     
market only if registered or if they qualify for an exemption from registration 
under Rules 144, 144(k) or 701 promulgated under the Securities Act, which rules
are summarized below. As a result of the contractual restrictions described     
below and the provisions of Rules 144, 144(k) and 701, shares will be available 
for sale in the public market as follows: (i) 158,889 shares will be available  
for immediate sale in the public market on the date of this Prospectus, and the 
remaining (ii) 3,036,633 shares will be eligible for sale upon expiration of the
lock-up agreements 180 days after the date of this Prospectus.                  

Upon completion of the Offering, the holders of 431,781 shares of Common
Stock, or their transferees, will be entitled to certain rights with respect to 
the registration of such shares under the Securities Act. Registration of such  
shares under the Securities Act would result in such shares becoming freely     
tradeable without restriction under the Securities Act (except for shares       
purchased by "Affiliates" of the Company, as that term is defined in Rule 144   
under the Securities Act) immediately upon the effectiveness of such            
registration. See "Description of Capital Stock--Registration Rights."          

   The Company, its officers and directors, the Selling Shareholders and other
current shareholders have agreed not to offer, pledge, sell, contract to sell,  
sell any option or contract to purchase, purchase any option or contract to     
sell, grant any option, right or warrant to purchase, or otherwise transfer or  
dispose of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock, or enter into 
any swap or similar agreement that transfers, in whole or in part, the economic 
risk of ownership of the Common Stock, for a period of 180 days after the date  
of this Prospectus, except (i) the shares of Common Stock offered hereby, (ii)  
with the prior written consent of Oppenheimer & Co., Inc. and (iii) in the case 
of the Company, for the issuance of Common Stock upon the exercise of options,  
or the grant of options to purchase Common Stock under outstanding stock option 
plans or the 1997 Purchase Plan.                                                

  In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated)  
who has beneficially owned Restricted Shares for at least one year is entitled  
to sell within any three-month period a number of shares that does not exceed   
the greater of 1% of the then outstanding shares of the Company's Common Stock  
(approximately 67,956 shares immediately after the Offering) or the average     
weekly trading volume of the Company's Common Stock on the Nasdaq National      
Market during the four calendar weeks preceding the date on which notice of the 
sale is filed with the Securities and Exchange Commission (the "Commission").   
Sales under Rule 144 are also subject to certain manner of sale provisions,     
notice requirements and the availability of current public information about the
Company. Any person (or persons whose shares are aggregated) who is not deemed  
to have been an Affiliate of the Company at any time during the three months    
preceding a sale, and who owns Restricted Shares that were purchased from the   
Company (or any Affiliate) at least                                             

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two years previously, would be entitled to sell such shares under Rules 144(k)  
without regard to the volume limitations, manner of sale provisions, public     
information requirements or notice requirements.                                

Subject to certain limitations on the aggregate offering price of a     
transaction and other conditions, Rule 701 may be relied upon with respect to   
the resale of securities originally purchased from the Company by its employees,
directors, officers, consultants or advisors prior to the date the issuer       
becomes subject to the reporting requirements of the Securities Exchange Act of 
1934, as amended (the "Exchange Act"), pursuant to written compensatory benefit 
plans or written contracts relating the compensation of such persons. In        
addition, the Commission had indicated that Rule 701 will apply to typical stock
options granted by an issuer before it becomes subject to the reporting         
requirements of the Exchange Act, along with the share acquired upon exercise of
such options (including exercises after the date of this Prospectus). Securities
issued in reliance on Rule 701 are restricted securities and, subject to the    
contractual restrictions described above, beginning 90 days after the date of   
this Prospectus, may be sold by persons other than Affiliates subject only to   
the manner of sale provisions of Rule 144 and by Affiliates under Rule 144      
without compliance with its one-year minimum holding period requirements.       

  The Company intends to file a registration statement on Form S-8 under the
Securities Act covering the 1,641,350 shares subject to outstanding options or  
reserved for issuance under the Company's 1986 Plan, the 1996 Plan or the 1997  
Purchase Plan. Accordingly, shares registered under such registration statement 
will, subject to Rule 144 volume limitations applicable to Affiliates, be       
available for sale in the open market, except to the extent that such shares are
subject to vesting restrictions with the Company or the contractual restrictions
described above. All of the shares issuable upon exercise of outstanding options
are subject to 180-day lock-up agreements with the Company and/or               
representatives of the Underwriters. An aggregate of 531,529 shares will be     
issuable upon the exercise of the currently outstanding options vested and      
exercisable 180 days following the date of this Prospectus. Such shares will be 
freely tradeable in the public market upon exercise, pursuant to such           
registration statement on Form S-8. See "Management--Stock Plans."              

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UNDERWRITING

    Subject to the terms and conditions set forth in the Underwriting Agreement,
the Company and the Selling Shareholders have agreed to sell to each of the     
underwriters named below (the "Underwriters"), and each of the Underwriters, for
whom Oppenheimer & Co., Inc. and Needham & Company, Inc. are acting as          
Representatives (the "Representatives"), have severally agreed to purchase from 
the Company and the Selling Shareholders the respective number of shares of     
Common Stock set forth opposite the name of each such Underwriter:              

                                                        [Enlarge/Download Table]

UNDERWRITER                                                                  NUMBER OF SHARES 
---------------------------------------------------------------------------  -----------------
                                                                                              
Oppenheimer & Co., Inc.....................................................        1,050,000  
Needham & Company, Inc.....................................................        1,050,000  
Cowen & Company............................................................          100,000  
Deutsche Morgan Grenfell Inc...............................................          100,000  
Dillon, Read & Co. Inc.....................................................          100,000  
A.G. Edwards & Sons, Inc...................................................          100,000  
Hambrecht & Quist LLC......................................................          100,000  
The Nikko Securities Co. International, Inc................................          100,000  
Nomura Securities International, Inc.......................................          100,000  
Prudential Securities Incorporated.........................................          100,000  
Adams, Harkness & Hill, Inc................................................           50,000  
Brean Murray & Co., Inc....................................................           50,000  
Crowell, Weedon & Co.......................................................           50,000  
Fahnestock & Co. Inc.......................................................           50,000  
Gruntal & Co., L.L.C.......................................................           50,000  
Hoefer & Arnett, Inc.......................................................           50,000  
Kaufman Bros., L.P.........................................................           50,000  
Ragen MacKenzie Incorporated...............................................           50,000  
SoundView Financial Group, Inc.............................................           50,000  
Southcoast Capital Corp....................................................           50,000  
Sutro & Co., Incorporated..................................................           50,000  
Unterberg Harris...........................................................           50,000  
Van Kasper & Company.......................................................           50,000  
H.G. Wellington & Co. Inc..................................................           50,000  
                                                                             -----------------

    Total..................................................................        3,600,000  
                                                                             -----------------
                                                                             -----------------

    The Underwriters propose to offer the shares of Common Stock directly to the
public at the initial public offering price set forth on the cover page of this 
Prospectus and in part to certain securities dealers at such price less a       
concession of $0.50 per share. The Underwriters may allow, and such dealers may 
reallow, a concession not in excess of $0.05 per share to certain brokers and   
dealers. After the shares of Common Stock are released for sale to the public,  
the offering price and other selling terms may from time to time be varied by   
the Representatives. The Underwriters are obligated to take and pay for all of  
the shares of Common Stock offered pursuant to this Prospectus (other than those
covered by the over-allotment option described below) if any are taken.         

The Selling Shareholders have granted the Underwriters an option,       
exercisable for up to 30 days after the date of this Prospectus, to purchase up 
to an aggregate of 540,000 additional shares of Common Stock to cover           
over-allotments, if any, at the initial public offering price less the          
underwriting discount set forth on the cover page of this Prospectus. If the    
Underwriters exercise such option to purchase any of the additional 540,000     
shares of Common Stock, the Underwriters have severally agreed, subject to      
certain conditions, to purchase approximately the same percentage thereof that  
the number of shares to be                                                      

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purchased by each of them represents with respect to the 3,600,000 shares of    
Common Stock offered pursuant to this Prospectus. The Underwriters may exercise 
such option only to cover over-allotments made in connection with the sale of   
the shares of Common Stock offered pursuant to this Prospectus. The Selling     
Shareholders will be obligated, pursuant to the over-allotment option, to sell  
shares of Common Stock to the Underwriters to the extent such over-allotment is 
exercised.                                                                      

In connection with the Offering, certain Underwriters and selling group 
members and their respective affiliates may engage in transactions that         
stabilize, maintain or otherwise affect the market price of the shares of Common
Stock. Such transactions may include stabilization transactions effected in     
accordance with Rule 104 of Regulation M under the Exchange Act pursuant to     
which such persons may bid for or purchase shares of Common Stock for the       
purpose of stabilizing the market price for shares of Common Stock. The         
Underwriters also may create a short position for the account of the            
Underwriters by selling more shares of Common Stock in connection with the      
Offering than they are committed to purchase from the Company and the Selling   
Shareholders, and in such case may purchase shares of Common Stock in the open  
market following completion of the Offering to cover all or a portion of the    
shares of Common Stock or by exercising the Underwriters' over-allotment options
referred to above. In addition, Oppenheimer & Co., Inc., on behalf of the       
Underwriters, may impose "penalty bids" under contractual arrangements with the 
other Underwriters whereby it may reclaim from an Underwriter (or dealer        
participating in the Offering) for the account of the other Underwriters, the   
selling concession with respect to shares of Common Stock that are distributed  
in the Offering but subsequently purchased for the account of the Underwriters  
in the open market. Any of the transactions described in this paragraph may     
result in the maintenance of the price of the shares of Common Stock at a level 
above that which might otherwise prevail in the open market. None of the        
transactions described in this paragraph is required, and, if they are          
undertaken, they may be discontinued at any time.                               

The Company and the Selling Shareholders have agreed to indemnify the   
Representatives of the Underwriters and the several Underwriters against certain
liabilities, including, without limitation, liabilities under the Securities    
Act, and to contribute to certain payments that the Underwriters may be required
to make in respect thereof.                                                     

 The Representatives of the Underwriters do not intend to confirm sales of
shares of Common Stock in the Offering to any account over which any of the     
Representatives exercise discretionary control.                                 

    The Company and all of its officers, directors and Selling Shareholders have
agreed not to offer, sell, contract to sell, pledge or grant any option to      
purchase or otherwise transfer or dispose of shares of Common Stock of the      
Company or any security convertible into or exchangeable or exercisable for, or 
warrants, options or rights to acquire any shares of Common Stock (other than   
shares issuable upon exercise of outstanding options) for 180 days after the    
date of this Prospectus without the prior written consent of Oppenheimer & Co., 
Inc., subject to certain limited exceptions. See "Shares Eligible for Future    
Sale."                                                                          

    Prior to the Offering, there has been no public market for the Common Stock.
Consequently, the initial public offering price will be determined by           
negotiations among the Company, the Selling Shareholders and the                
Representatives. Among the factors considered in such negotiations will be      
prevailing market conditions, the results of operations of the Company in recent
periods, the market capitalizations and stages of development of other companies
which the Company, the Selling Shareholders and the Representative believe to be
comparable to the Company, estimates of the business potential of the Company,  
the history of and prospects for the industry in which the Company competes, the
present state of the Company's development and other factors deemed relevant.   

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LEGAL MATTERS 

   The validity of the Common Stock offered hereby will be passed upon for the
Company by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo     
Alto, California. Mario Rosati, a director of the Company, is a member of Wilson
Sonsini Goodrich & Rosati and beneficially owned 203,849 shares of Common Stock 
of the Company as of the date of this Prospectus. See "Principal and Selling    
Shareholders." As of the date of this Prospectus, an investment partnership of  
which certain members of Wilson Sonsini Goodrich & Rosati, Professional         
Corporation, are partners beneficially owned 43,707 shares of the Company's     
Common Stock. Certain legal matters in connection with the Offering will be     
passed upon for the Underwriters by Gray Cary Ware & Freidenrich, A Professional
Corporation, Palo Alto, California.                                             

EXPERTS 

   The consolidated balance sheets of Aehr Test Systems as of May 31, 1996 and
1997 and the consolidated statements of operations, shareholders' equity and    
cash flows for each of the three years in the period ended May 31, 1997 included
in this Prospectus and the financial statement schedule for the aforementioned  
periods included in the registration statement for the Offering have been       
included in reliance on the reports of Coopers & Lybrand L.L.P., independent    
accountants, given the authority of said firm as experts in accounting and      
auditing.                                                                       

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission,      
Washington, D.C. 20549, a Registration Statement on Form S-1 under the          
Securities Act of 1933, as amended, with respect to the shares of Common Stock  
offered hereby. This Prospectus does not contain all of the information set     
forth in the Registration Statement and the exhibits and schedules filed        
thereto. For further information with respect to the Company, reference is made 
to the Registration Statement and the exhibits and schedules filed as a part    
thereof. A copy of the Registration Statement may be inspected without charge   
and may be obtained at prescribed rates at the Commission's principal office,   
Public Reference Room of the Securities and Exchange Commission, 450 Fifth      
Street, Washington, D.C. 20549, and at the Commission's regional offices at 7   
World Trade Center, Suite 1300, New York, New York 10048 and 500 West Madison   
Street, Chicago, Illinois 60661. Copies of all or any part of the Registration  
Statement may be obtained from the Public Reference Section of the Commission,  
Washington, D.C. 20549 upon the payment of the fees prescribed by the           
Commission. Such reports and other information may also be inspected without    
charge at a web site maintained by the Commission. The address of such site is  
"http://www.sec.gov".                                                           

    The Company intends to furnish to its shareholders annual reports containing
financial statements audited by an independent public accounting firm and       
quarterly reports for the first three quarters of each fiscal year containing   
unaudited interim financial information.                                        

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AEHR TEST SYSTEMS AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                        [Enlarge/Download Table]

                                                                                                            PAGE   
                                                                                                            -----  
                                                                                                                   
Report of Independent Accountants..........................................................................     F-2

Consolidated Balance Sheets................................................................................     F-3

Consolidated Statements of Operations......................................................................     F-4

Consolidated Statements of Shareholders' Equity............................................................     F-5

Consolidated Statements of Cash Flows......................................................................     F-6

Notes to Consolidated Financial Statements.................................................................     F-7

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REPORT OF INDEPENDENT ACCOUNTANTS 

To the Board of Directors and Shareholders of                                   
Aehr Test Systems:                                                              

 We have audited the accompanying consolidated balance sheets of Aehr Test
Systems and Subsidiaries as of May 31, 1996 and 1997 and the related            
consolidated statements of operations, shareholders' equity and cash flows for  
each of the three years in the period ended May 31, 1997. These financial       
statements are the responsibility of the Company's management. Our              
responsibility is to express an opinion on these financial statements based on  
our audits.                                                                     

We conducted our audits in accordance with generally accepted auditing  
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting 
the amounts and disclosures in the financial statements. An audit also includes 
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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Aehr Test      
Systems and Subsidiaries as of May 31, 1996 and 1997, and the consolidated      
results of their operations and their cash flows for each of the three years in 
the period ended May 31, 1997, in conformity with generally accepted accounting 
principles.                                                                     

                            COOPERS & LYBRAND L.L.P.

San Jose, California                                                            
June 30, 1997                                                                   

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AEHR TEST SYSTEMS AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS 

(IN THOUSANDS, EXCEPT PER SHARE DATA) 

                                                        [Enlarge/Download Table]

                                                                                                    MAY 31,        
                                                                                              -------------------- 
                                                                                                1996       1997    
                                                                                              ---------  --------- 
                                                                                                                   
                                                      ASSETS                                                       
Current assets:                                                                                                    
  Cash and cash equivalents ................................................................. $     535  $   1,176 
  Short-term cash deposits ..................................................................     1,946      1,614 
  Accounts receivable, net of allowance for doubtful accounts of $241 and $270 at May 31,                          
    1996 and 1997, respectively .............................................................    10,565      7,515 
  Inventories ...............................................................................     7,921     10,498 
  Deferred income taxes......................................................................        --        900 
  Prepaid expenses and other ................................................................       259        155 
                                                                                              ---------  --------- 
      Total current assets ..................................................................    21,226     21,858 

Property and equipment, net .................................................................     1,382      1,691 
Other assets, net ...........................................................................     1,141        685 
Deferred income taxes........................................................................        --        155 
                                                                                              ---------  --------- 
      Total assets .......................................................................... $  23,749  $  24,389 
                                                                                              ---------  --------- 
                                                                                              ---------  --------- 

                                       LIABILITIES AND SHAREHOLDERS' EQUITY                                        

Current liabilities:                                                                                               
  Notes payable -- banks .................................................................... $   6,688  $   4,656 
  Current portion of long-term debt .........................................................       500        117 
  Accounts payable ..........................................................................     5,590      4,482 
  Accrued expenses ..........................................................................     3,474      4,495 
  Deferred revenue ..........................................................................       175        213 
                                                                                              ---------  --------- 
      Total current liabilities .............................................................    16,427     13,963 

Long-term debt, net of current portion ......................................................       146        136 
Deferred lease commitment ...................................................................       387        220 
                                                                                              ---------  --------- 
      Total liabilities .....................................................................    16,960     14,319 
                                                                                              ---------  --------- 
Commitments (Note 7).                                                                                              

Shareholders' equity:                                                                                              
  Preferred stock, $.01 par value:                                                                                 
    Authorized: 10,000 shares;                                                                                     
    Issued and outstanding: none                                                                     --         -- 
  Common stock, $.01 par value:                                                                                    
    Authorized: 75,000 shares;                                                                                     
    Issued and outstanding: 4,298 shares and 4,296 shares at May 31, 1996 and 1997,                                
     respectively............................................................................        43         43 
  Additional paid-in capital ................................................................     8,094      8,085 
  Accumulated deficit .......................................................................    (3,445)      (130)
  Cumulative translation adjustment .........................................................     2,097      2,072 
                                                                                              ---------  --------- 
      Total shareholders' equity ............................................................     6,789     10,070 
                                                                                              ---------  --------- 
      Total liabilities and shareholders' equity ............................................ $  23,749  $  24,389 
                                                                                              ---------  --------- 
                                                                                              ---------  --------- 

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

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AEHR TEST SYSTEMS AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS 

(IN THOUSANDS, EXCEPT PER SHARE DATA) 

                                                        [Enlarge/Download Table]

                                                                                        YEAR ENDED MAY 31,        
                                                                                  ------------------------------- 
                                                                                    1995       1996       1997    
                                                                                  ---------  ---------  --------- 
                                                                                                                  
Net sales ....................................................................... $  23,257  $  33,234  $  42,020 
Cost of sales ...................................................................    16,192     19,942     25,715 
                                                                                  ---------  ---------  --------- 
Gross profit ....................................................................     7,065     13,292     16,305 
                                                                                  ---------  ---------  --------- 

Operating expenses:                                                                                               
  Selling, general and administrative ...........................................     6,316      7,534      8,878 
  Research and development ......................................................     3,783      4,113      4,536 
  Research and development cost reimbursement--DARPA ............................      (954)      (891)      (793)
                                                                                  ---------  ---------  --------- 
    Total operating expenses ....................................................     9,145     10,756     12,621 
                                                                                  ---------  ---------  --------- 
    Income (loss) from operations ...............................................    (2,080)     2,536      3,684 

Interest expense ................................................................      (341)      (446)      (577)
Other income (expense), net .....................................................       255       (559)      (565)
                                                                                  ---------  ---------  --------- 
  Income (loss) before income taxes and minority interest in subsidiary .........    (2,166)     1,531      2,542 

Income tax expense (benefit) ....................................................        10        130       (773)
                                                                                  ---------  ---------  --------- 
  Income (loss) before minority interest in subsidiary ..........................    (2,176)     1,401      3,315 

Minority interest in subsidiary .................................................       189         (1)        -- 
                                                                                  ---------  ---------  --------- 
    Net income (loss) ........................................................... $  (1,987) $   1,400  $   3,315 
                                                                                  ---------  ---------  --------- 
                                                                                  ---------  ---------  --------- 
Net income (loss) per share ..................................................... $   (0.45) $    0.31  $    0.73 
                                                                                  ---------  ---------  --------- 
                                                                                  ---------  ---------  --------- 
Shares used in per share calculations ...........................................     4,442      4,487      4,536 
                                                                                  ---------  ---------  --------- 
                                                                                  ---------  ---------  --------- 

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

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AEHR TEST SYSTEMS AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY 

(IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                                    COMMON STOCK        ADDITIONAL                 CUMULATIVE             
                                              ------------------------    PAID-IN    ACCUMULATED   TRANSLATION            
                                                SHARES       AMOUNT       CAPITAL      DEFICIT     ADJUSTMENT     TOTAL   
                                              -----------  -----------  -----------  ------------  -----------  --------- 
                                                                                                                          
Balances, May 31, 1994.......................      4,320    $      43    $   8,175    $   (2,858)   $   2,079   $   7,439 
  Repurchase of common stock.................        (12)          --          (37)           --           --         (37)
  Net loss...................................         --           --           --        (1,987)          --      (1,987)
  Translation adjustment.....................         --           --           --            --          129         129 
                                                   -----          ---   -----------  ------------  -----------  --------- 
Balances, May 31, 1995.......................      4,308           43        8,138        (4,845)       2,208       5,544 
  Issuance of common stock...................          1           --            3            --           --           3 
  Repurchase of common stock.................        (11)          --          (47)           --           --         (47)
  Net income.................................         --           --           --         1,400           --       1,400 
  Translation adjustment.....................         --           --           --            --         (111)       (111)
                                                   -----          ---   -----------  ------------  -----------  --------- 
Balances, May 31, 1996.......................      4,298           43        8,094        (3,445)       2,097       6,789 
  Repurchase of common stock.................         (2)          --           (9)           --           --          (9)
  Net income.................................         --           --           --         3,315           --       3,315 
  Translation adjustment.....................         --           --           --            --          (25)        (25)
                                                   -----          ---   -----------  ------------  -----------  --------- 
Balances, May 31, 1997.......................      4,296    $      43    $   8,085    $     (130)   $   2,072   $  10,070 
                                                   -----          ---   -----------  ------------  -----------  --------- 
                                                   -----          ---   -----------  ------------  -----------  --------- 

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

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CONSOLIDATED STATEMENTS OF CASH FLOWS 

(IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                                                                          YEAR ENDED MAY 31,        
                                                                                    ------------------------------- 
                                                                                      1995       1996       1997    
                                                                                    ---------  ---------  --------- 
                                                                                                                    
Cash flows from operating activities:                                                                               
  Net income (loss)................................................................ $  (1,987) $   1,400  $   3,315 
  Adjustments to reconcile net income (loss) to net                                                                 
    cash provided by (used in) operating activities:                                                                
    Minority interest in subsidiary................................................      (189)         1         -- 
    Provision for doubtful accounts................................................        34         71         34 
    Loss on disposition of fixed assets............................................       156         34          9 
    Depreciation and amortization..................................................       622        622        633 
    Deferred income taxes..........................................................        --         --     (1,055)
    Changes in operating assets and liabilities:                                                                    
      Accounts receivable..........................................................     1,068     (4,367)     2,608 
      Inventories..................................................................       156     (2,631)    (2,854)
      Accounts payable.............................................................       250      2,092       (795)
      Accrued expenses and deferred revenue........................................      (648)     2,043      1,180 
      Deferred lease commitment....................................................       (91)      (143)      (167)
      Other current assets.........................................................       (81)       124        118 
                                                                                    ---------  ---------  --------- 
        Net cash provided by (used in) operating activities........................      (710)      (754)     3,026 
                                                                                    ---------  ---------  --------- 
Cash flows from investing activities:                                                                               
    (Increase) decrease in short-term cash deposits................................       (86)        16        188 
    Additions to property and equipment............................................      (396)      (581)      (647)
    (Increase) decrease in other assets............................................       (67)       105        246 
                                                                                    ---------  ---------  --------- 
        Net cash used in investing activities......................................      (549)      (460)      (213)
                                                                                    ---------  ---------  --------- 
Cash flows from financing activities:                                                                               
    Increase (decrease) in notes payable--banks....................................      (475)     1,914     (1,784)
    Borrowings under long-term debt................................................       947        327        141 
    Long-term debt and capital lease principal payments............................      (904)    (1,069)      (488)
    Proceeds from issuance of common stock and exercise of stock options...........        --          3         -- 
    Repurchase of common stock.....................................................       (37)       (47)        (9)
                                                                                    ---------  ---------  --------- 
        Net cash provided by (used in) financing activities........................      (469)     1,128     (2,140)
                                                                                    ---------  ---------  --------- 
Effect of exchange rates on cash...................................................      (104)        23        (32)
                                                                                    ---------  ---------  --------- 
        Net increase (decrease) in cash and cash equivalents.......................    (1,832)       (63)       641 

Cash and cash equivalents, beginning of period.....................................     2,430        598        535 
                                                                                    ---------  ---------  --------- 
Cash and cash equivalents, end of period........................................... $     598  $     535  $   1,176 
                                                                                    ---------  ---------  --------- 
                                                                                    ---------  ---------  --------- 
Supplemental cash flow information:                                                                                 
    Cash paid during the year for:                                                                                  
      Interest..................................................................... $     420  $     473  $     522 
      Income taxes, net............................................................ $      10  $      30  $     155 

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:                                  

BUSINESS:                                                                       

 Aehr Test Systems ("Company") was incorporated in California in June 1977
and primarily designs, engineers and manufactures test and burn-in equipment    
used in the semiconductor industry. The Company's principal products are the MTX
massively parallel test system, the DiePak carrier and the MAX and ATX burn-in  
systems and test fixtures.                                                      

CONSOLIDATION:                                                                  

The financial statements include the accounts of the Company, its wholly
owned foreign sales corporation ("FSC") and both its wholly owned and majority  
owned foreign subsidiaries. Intercompany accounts and transactions have been    
eliminated.                                                                     

FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS:                                  

   Assets and liabilities of the Company's foreign subsidiaries are translated
into U.S. dollars 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.                                           

USE OF ESTIMATES:                                                               

The preparation of financial statements in conformity with generally    
accepted accounting principles 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 SHORT-TERM CASH DEPOSITS:                                  

  All highly liquid instruments purchased with a maturity of three months or
less are considered to be cash equivalents.                                     

 Short-term cash deposits represent interest-bearing time deposits with an
original maturity greater than three months.                                    

CONCENTRATION OF CREDIT RISK:                                                   

  The Company sells its products primarily to semiconductor manufacturers in
North America, the Far East, and Europe. As of May 31, 1997, approximately 15%, 
28% and 57% of accounts receivable are from customers located in the United     
States, Europe and the Far East, respectively. Two customers accounted for 24%  
and 17% of accounts receivable at May 31, 1996 and one customer accounted for   
44% of accounts receivable at May 31, 1997. The Company performs ongoing credit 
evaluations of its customers and generally does not require collateral. The     
Company also maintains allowances for potential credit losses                   

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)                      
and such losses have been within management's expectations. The Company uses    
letter of credit terms for some of its international customers.                 

 Primarily all of the Company's cash, cash equivalents and short-term cash
deposits are deposited with major banks in the United States and Japan. 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 losses on its money market funds or short-term cash deposits.   

INVENTORIES:                                                                    

Inventories are stated at the lower of standard cost (which approximates
cost on a first-in, first-out basis) or market.                                 

PROPERTY AND EQUIPMENT:                                                         

Property and equipment are stated at cost. 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 as follows:   

                                                                [Download Table]
                                                                       
                                                                2 to 15
Furniture and fixtures........................................  years  
                                                                4 to 11
Machinery and equipment.......................................  years  

GOODWILL:                                                                       

Cost in excess of the fair value of net assets of acquired companies of 
$882,000 is being amortized on a straight-line basis over 24.5 years and is     
included in other assets, net of accumulated amortization of $418,000 and       
$454,000 at May 31, 1996 and 1997, respectively.                                

REVENUE RECOGNITION:                                                            

Revenue is recognized upon shipment of product and a provision for the  
estimated future cost of warranty is recorded. Actual warranty costs incurred   
have not materially differed from those provided.                               

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. Capitalized costs are        
amortized over the estimated life of the related software product using the     
greater of the units of sales or straight-line                                  

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)                      
methods over ten years. Capitalized costs, net of accumulated amortization, of  
approximately $213,000 and $57,000 are included in other assets at May 31, 1996 
and 1997, respectively.                                                         

    During 1994, the Company entered into a cost-sharing research agreement with
the Defense Advanced Research Projects Agency ("DARPA"), a U.S. government      
agency, under which DARPA will provide co-funding up to a maximum amount of $6.5
million during fiscal 1994 through January 1999 for the development of a new    
product that will allow for burn-in at the wafer level. Payments from DARPA will
be received upon DARPA's approval of the achievement by the Company of          
milestones as outlined in the contract. The Company recognizes such             
reimbursements as a reduction to research and development expenses in an amount 
equal to actual reimbursable project costs incurred. Amounts due from DARPA are 
$153,000 and $500,000 at May 31, 1996 and 1997, respectively.                   

FAIR VALUE OF FINANCIAL INSTRUMENTS:                                            

    Carrying amounts of certain of the Company's financial instruments including
cash and cash equivalents, short-term cash deposits, accounts receivable,       
accounts payable and accrued expenses approximate fair value due to their short 
maturities. Based on borrowing rates currently available to the Company for     
loans with similar terms, the carrying value of notes payable approximates fair 
value.                                                                          

CARRYING VALUE OF LONG-TERM ASSETS:                                             

   The Company writes off the carrying value of long-term assets to the extent
that projected net operating income is not sufficient to recover the carrying   
value of these assets over their remaining useful life.                         

INCOME TAXES:                                                                   

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.     

STOCK-BASED COMPENSATION:                                                       

  In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for     
Stock-Based Compensation," which is effective for the Company's financial       
statements beginning in fiscal 1997. SFAS No. 123 allows companies to either    
account for stock-based compensation under the new provisions of SFAS No. 123 or
under the provisions of Accounting Principles Board Opinion No. 25 ("APB No.    
25"), "Accounting for Stock Issued to Employees," but requires pro forma        
disclosure in the footnotes to the financial statements as if the measurement   
provisions of SFAS No. 123 had been adopted. The Company accounts for its stock 
based compensation in accordance with the provisions of APB No. 25 and presents 
disclosures required by SFAS No. 123.                                           

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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)                      
COMPUTATION OF NET INCOME (LOSS) PER SHARE:                                     

    Net income (loss) per share is computed using the weighted average number of
common stock and dilutive common equivalent shares outstanding during the       
period. Dilutive common equivalent shares consist of stock options (using the   
treasury stock method for all periods presented).                               

    The Company has computed the number of common and dilutive common equivalent
shares for all periods presented pursuant to the Securities and Exchange        
Commission Staff Accounting Bulletin ("SAB") No. 83. SAB No. 83 requires the    
Company to include in its calculation on net income (loss) per share, all common
equivalent shares, whether or not dilutive, issued during the twelve months     
preceding the filing date of an initial public offering, as if the shares had   
been outstanding for all periods presented.                                     

RECENT ACCOUNTING PRONOUNCEMENTS:                                               

   In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 ("SFAS No. 128"), "Earnings Per       
Share," which specifies the computation, presentation and disclosure            
requirements for earning per share. SFAS No. 128 supersedes Accounting          
Principles Board Opinion No. 15 and is effective for financial statements issued
for periods ending after December 15, 1997. SFAS No. 128 requires restatement of
all prior-period earnings per share data presented after the effective date.    
SFAS No. 128 will not have a material impact on the Company's financial         
position, results of operations or cash flows.                                  

2. INVENTORIES:                                                                 

Inventories are comprised of the following (in thousands):              

                                                        [Enlarge/Download Table]

                                                                                MAY 31,       
                                                                          --------------------
                                                                            1996       1997   
                                                                          ---------  ---------
                                                                                              
Raw materials and subassemblies.......................................... $   3,153  $   4,376
Work in process..........................................................     4,162      5,508
Finished product.........................................................       606        614
                                                                          ---------  ---------
                                                                          $   7,921  $  10,498
                                                                          ---------  ---------
                                                                          ---------  ---------

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3. PROPERTY AND EQUIPMENT:                                                      

Property and equipment comprise (in thousands):                         

                                                        [Enlarge/Download Table]

                                                                                MAY 31,        
                                                                          -------------------- 
                                                                            1996       1997    
                                                                          ---------  --------- 
                                                                                               
Leasehold improvements................................................... $     389  $     473 
Furniture and fixtures...................................................     3,686      3,617 
Machinery and equipment..................................................     3,107      3,174 
Test equipment...........................................................     2,267      2,283 
                                                                          ---------  --------- 
                                                                              9,449      9,547 
Less accumulated depreciation and amortization...........................    (8,067)    (7,856)
                                                                          ---------  --------- 
                                                                          $   1,382  $   1,691 
                                                                          ---------  --------- 
                                                                          ---------  --------- 

4. NOTES PAYABLE--BANKS:                                                        

  At May 31, 1996 and 1997 short-term bank borrowings totaled $6,688,000 and
$4,656,000, respectively. Outstanding borrowings at May 31, 1996 and 1997 were  
comprised of borrowings under a domestic line of credit and of short-term bank  
loans of the Company's majority owned Japanese subsidiary for $3,415,000 and    
$1,897,000 at an interest rate of 4.8% and 3.8%, respectively. These borrowings 
are partially collateralized by certain time deposits and accounts receivable.  

    As of May 31, 1997, the Company's revolving bank line of credit provides for
maximum borrowings of up to the lesser of $2,000,000 or 80% of eligible accounts
receivable. This revolving credit line had a stated interest rate of prime (8.5%
at May 31, 1997) plus 1.0%. Under this agreement, which expires in December     
1997, the Company's U.S. operation is required to maintain certain financial    
ratios on a monthly basis including tangible net worth of $6,000,000 and a ratio
of debt to tangible net worth of not more than 2.0 to 1. There was no           
outstanding balance under this line of credit at May 31, 1996 or at May 31,     
1997.                                                                           

    The Company has a second line of credit agreement with a bank which provides
for a maximum borrowing of up to the lesser of $1,150,000 or 90% of eligible    
foreign accounts receivable. The credit line has a stated interest rate of prime
(8.5% at May 31, 1997) plus 1.25%. Under this agreement, which expired on August
30, 1996 and has been guaranteed by The California Export Finance Office, the   
Company's U.S. operation is required to maintain certain financial ratios on a  
monthly basis including tangible net worth of $3,250,000 and a ratio of debt to 
tangible net worth of not more than 1.9 to 1. Borrowings outstanding under this 
line of credit amounted to $1,110,000 at May 31, 1996, and none at May 31, 1997.

 In 1996, the Company entered into a third line of credit agreement with a
bank which provides for maximum borrowings of $5,000,000 or 90% of eligible     
foreign accounts receivable and certain inventories. This revolving credit line 
has a stated interest rate of prime (8.5% at May 31, 1997) plus .75%. Under this
agreement, which expires on December 4, 1997 and has been guaranteed by The     
Export Import Bank, the Company's U.S. operations are required to maintain      
certain financial ratios on a monthly basis including tangible net worth of     
$6,000,000 and a ratio of debt to tangible net worth of not more than 2.0 to 1. 
Borrowings outstanding under this line of credit amounted to $2,163,000 at May  
31, 1996 and $2,759,000 at May 31, 1997.                                        

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4. NOTES PAYABLE--BANKS: (CONTINUED)                                            
 The Company's majority owned Japanese subsidiary has overdraft facilities
with a bank up to a limit of $1,115,000 against which certain time deposits and 
accounts receivable are pledged as collateral for the facilities.               

5. LONG-TERM DEBT:                                                              

Long-term debt comprises (in thousands):                                

                                                        [Enlarge/Download Table]

                                                                                     MAY 31,        
                                                                               -------------------- 
                                                                                 1996       1997    
                                                                               ---------  --------- 
                                                                                                    
Various notes payable to Japanese banks, denominated in Japanese Yen, bearing                       
  interest at 0.5% to 4.9% per annum. These notes are payable in monthly                            
  principal installments of $1,000 to $37,000 plus accrued interest, maturing                       
  through October 2002 and are collateralized by certain time deposits and                          
  accounts receivable........................................................  $     646  $     253 

Less current portion.........................................................       (500)      (117)
                                                                               ---------  --------- 
                                                                               $     146  $     136 
                                                                               ---------  --------- 
                                                                               ---------  --------- 

   The long-term debt agreements contain certain cross-default covenants under
which outstanding borrowings would become payable on demand if the Company were 
to be in default of any other debt agreement and any lender were to accelerate  
the other debt.                                                                 

Principal payments under long-term debt obligations for each of the next
five fiscal years as of May 31, 1997 are as follows (in thousands):             

                                                                [Download Table]
                                                                                
1998.................................................................  $     118
1999.................................................................         77
2000.................................................................         34
2001.................................................................         12
2002.................................................................         12
                                                                       ---------
                                                                       $     253
                                                                       ---------
                                                                       ---------

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6. ACCRUED EXPENSES:                                                            

Accrued expenses comprise (in thousands):                               

                                                        [Enlarge/Download Table]

                                                                                  MAY 31,       
                                                                            --------------------
                                                                              1996       1997   
                                                                            ---------  ---------
                                                                                                
Advances from customer..................................................... $   1,036  $      --
Payroll related............................................................       733        993
Commissions and bonuses....................................................       788      1,882
Warranty...................................................................       119        173
Deferred rent, current.....................................................       141        290
Other......................................................................       657      1,157
                                                                            ---------  ---------
                                                                            $   3,474  $   4,495
                                                                            ---------  ---------
                                                                            ---------  ---------

7. COMMITMENTS:                                                                 

The Company leases most of its manufacturing and office space under     
operating leases. The Company has entered into a noncancelable operating lease  
agreement for its United States manufacturing and office facilities, which      
commenced in October 1991 and expires in September 1999. Under the lease        
agreement, the Company is responsible for payments of utilities, taxes and      
insurance.                                                                      

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

                                                                [Download Table]
                                                                               
1998................................................................  $   1,077
1999................................................................      1,073
2000................................................................        386
2001................................................................         11

Rent expense for the years ended May 31, 1995, 1996 and 1997 was        
approximately $1,419,000, $1,425,000 and $1,226,000, respectively.              

The Company has a $67,000 certificate of deposit held by a financial    
institution representing a security deposit for its United States manufacturing 
office and facilities lease.                                                    

8. CAPITAL STOCK:                                                               

PREFERRED STOCK:                                                                

The Board of Directors is authorized to determine the rights of the     
preferred shareholders.                                                         

STOCK OPTIONS:                                                                  

 The Company has reserved 1,341,350 shares of common stock for issuance to
employees and consultants under its two stock option plans. Both plans provide  
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 nonstatutory options and purchase rights and 110% of
fair market value in certain circumstances). Options generally expire five years
from date of grant. Most options become exercisable in increments over a        
four-year period from the date of grant. Options to purchase approximately      
409,353 shares were exercisable at May 31, 1997.                                

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8.  CAPITAL STOCK (CONTINUED)                                                   

Activity under the Company's stock option plans was as follows:         

                                                        [Enlarge/Download Table]

                                                                     OUTSTANDING OPTIONS            
                                                           ---------------------------------------- 
                                               AVAILABLE    NUMBER OF                               
                                                SHARES       SHARES     PRICE PER SHARE     TOTAL   
                                              -----------  -----------  ----------------  --------- 
                                                      (IN THOUSANDS, EXCEPT PER SHARE DATA)         
                                                                                                    
Balances, May 31, 1994.......................        103          361       $3.00--$6.00  $   1,186 
  Options granted............................       (112)         112        $3.25              365 
  Options terminated.........................         66          (66)      $3.00--$4.00       (210)
                                                     ---          ---                     --------- 
Balances, May 31, 1995.......................         57          407       $3.00--$6.00      1,341 
  Options granted............................       (548)         548        $4.00            2,193 
  Options exercised..........................         --           (1)       $3.00               (3)
  Options terminated.........................        222         (222)      $3.00--$6.00       (712)
  Additional shares reserved.................        335           --          --                -- 
  1978 Plan expiration.......................        (27)          --          --                -- 
  1983 Plan expiration.......................        (37)          --          --                -- 
                                                     ---          ---                     --------- 
Balances, May 31, 1996.......................          2          732       $3.25--$6.00      2,819 
  Additional shares reserved.................        650           --          --                -- 
  Options granted............................        (70)          70       $4.25--$6.00        397 
  Options terminated.........................         43          (43)      $3.25--$6.00       (167)
  1986 Plan expiration.......................        (43)          --          --                -- 
                                                     ---          ---                     --------- 
Balances, May 31, 1997.......................        582          759       $3.25--$6.00  $   3,049 
                                                     ---          ---                     --------- 
                                                     ---          ---                     --------- 

    The following information concerning the Company's stock option and employee
stock purchase plans is provided in accordance with SFAS No. 123, "Accounting   
for Stock-Based Compensation." The Company accounts for such plans in accordance
with APB No. 25 and related Interpretations.                                    

   The fair value of each option grant has been estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted average
assumptions used for grants:                                                    

                                                        [Enlarge/Download Table]

                                                                      YEAR ENDED MAY 31,  
                                                                    ----------------------
                                                                       1996        1997   
                                                                    ----------  ----------
                                                                                          
Risk-free Interest Rates...........................................      6.47%       6.47%
Expected Life......................................................    5 years     5 years
Volatility.........................................................         --          --
Dividend Yield.....................................................         --          --

The weighted average expected life was calculated based on the exercise 
behavior. The weighted average fair value of those options granted in 1996 and  
1997 was $3.84 and $4.01, respectively.                                         

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8.  CAPITAL STOCK (CONTINUED)                                                   
  The following pro forma income information has been prepared following the
provisions of SFAS No. 123:                                                     

                                                        [Enlarge/Download Table]

                                                                           YEAR ENDED MAY 31, 
                                                                          --------------------
                                                                            1996       1997   
                                                                          ---------  ---------
                                                                              (AMOUNTS IN     
                                                                          THOUSANDS EXCEPT PER
                                                                              SHARE DATA)     
                                                                                              
Net income--as reported.................................................. $   1,400  $   3,315
Net income--pro forma.................................................... $   1,339  $   3,215
Net income per share--as reported........................................ $    0.31  $    0.73
Net income per share--pro forma.......................................... $    0.30  $    0.71

The above pro forma effects on income may not be representative of the  
effects on net income for future years as option grants typically vest over     
several years and additional options are generally granted each year.           

   The following table summarizes information with respect to stock options at
May 31, 1997:                                                                   

                                                        [Enlarge/Download Table]

                              OPTIONS OUTSTANDING                                        
                  -------------------------------------------     OPTIONS EXERCISABLE    
                                  WEIGHTED                     --------------------------
                    NUMBER         AVERAGE        WEIGHTED       NUMBER       WEIGHTED   
                  OUTSTANDING     REMAINING        AVERAGE     EXERCISABLE     AVERAGE   
    RANGE OF      AT MAY 31,     CONTRACTUAL      EXERCISE     AT MAY 31,     EXERCISE   
EXERCISE PRICES      1997       LIFE (YEARS)        PRICE         1997          PRICE    
----------------  -----------  ---------------  -------------  -----------  -------------
                                                                                         
     $3.25           158,150           2.08       $    3.25       126,032     $    3.25  
     $4.00           508,200           3.40       $    4.00       259,403     $    4.00  
     $4.25            11,500           4.40       $    4.25         1,674     $    4.25  
     $4.40            25,000           3.41       $    4.40        19,791     $    4.40  
     $6.00            56,500           4.79       $    6.00         2,453     $    6.00  
                  -----------                                  -----------               
  $3.25--$6.00       759,350           3.25       $    4.01       409,353     $    3.80  

9.  EMPLOYEE BENEFIT PLANS                                                      

EMPLOYEE STOCK BONUS PLAN:                                                      

 The Company has a noncontributory, trusteed employee stock bonus 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. Individuals' account balances vest at a rate of  
25% per year commencing upon completion of three years of service. Nonvested    
balances, which are forfeited, are allocated to the remaining employees in the  
plan. Contributions made to the plan during fiscal 1995, 1996 and 1997 were     
none, $50,000 and $200,000, respectively.                                       

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9.  EMPLOYEE BENEFIT PLANS (CONTINUED)                                          
401(K) PLAN:                                                                    

The Company maintains a 401(k) profit-sharing plan for its 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. Each participant in the plan may elect to contribute from 1% to 20%  
of their annual salary to the plan, subject to certain limitations. The Company,
at its discretion, may make an annual contribution to the plan. No contributions
were made by the Company to the plan during fiscal 1995, 1996 and 1997.         

EMPLOYEE STOCK PURCHASE PLAN:                                                   

   The Company's 1997 Employee Stock Purchase Plan was adopted by the Board of
Directors in June 1997. A total of 300,000 shares of Common Stock have been     
reserved for issuance under the plan. The plan has consecutive, overlapping,    
twenty-four month offering 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 commences with the effectiveness of the Company's    
initial public offering and ends 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   
such offering 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. To     
date, no shares have been issued under the plan.                                

10.  INCOME TAXES:                                                              

  Domestic and foreign components of pretax income (loss) are as follows (in
thousands):                                                                     

                                                        [Enlarge/Download Table]

                                                                      YEAR ENDED MAY 31,        
                                                                ------------------------------- 
                                                                  1995       1996       1997    
                                                                ---------  ---------  --------- 
                                                                                                
Domestic....................................................... $    (725) $   1,283  $   3,672 
Foreign........................................................    (1,441)       248     (1,130)
                                                                ---------  ---------  --------- 
                                                                $  (2,166) $   1,531  $   2,542 
                                                                ---------  ---------  --------- 
                                                                ---------  ---------  --------- 

The provision (benefit) for income taxes consists of the following (in  
thousands):                                                                     

                                                        [Enlarge/Download Table]

                                                                      YEAR ENDED MAY 31,        
                                                                ------------------------------- 
                                                                  1995       1996       1997    
                                                                ---------  ---------  --------- 
                                                                                                
Federal income taxes:                                                                           
  Current...................................................... $      --  $      40  $     150 
  Deferred.....................................................        --         --       (910)
State income taxes:                                                                             
  Current......................................................        --          5         15 
  Deferred.....................................................        --         --       (145)
Foreign income taxes:                                                                           
  Current......................................................        10         85        117 
  Deferred.....................................................        --         --         -- 
                                                                ---------  ---------  --------- 
                                                                $      10  $     130  $    (773)
                                                                ---------  ---------  --------- 
                                                                ---------  ---------  --------- 

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10.  INCOME TAXES: (CONTINUED)                                                  
   The components of the net deferred tax asset (liability) are as follows (in
thousands):                                                                     

                                                        [Enlarge/Download Table]

                                                                                MAY 31,        
                                                                          -------------------- 
                                                                            1996       1997    
                                                                          ---------  --------- 
                                                                                               
Noncurrent assets:                                                                             
  Net operating losses................................................... $   2,996  $   1,836 
  Credit carryforwards...................................................        95         24 
  Depreciation and amortization..........................................      (184)        (7)
                                                                          ---------  --------- 
                                                                              2,907      1,853 
Less valuation allowance.................................................    (2,907)    (1,698)
                                                                          ---------  --------- 
                                                                                 --        155 
                                                                          ---------  --------- 
Current assets:                                                                                
  Inventory and other revenues...........................................       542      1,295 
  Accrued liabilities....................................................     1,497        860 
                                                                          ---------  --------- 
                                                                              2,039      2,155 
Less valuation allowance.................................................    (2,039)    (1,255)
                                                                          ---------  --------- 
                                                                                 --        900 
                                                                          ---------  --------- 
Net deferred tax asset................................................... $      --  $   1,055 
                                                                          ---------  --------- 
                                                                          ---------  --------- 

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

                                                        [Enlarge/Download Table]

                                                                          YEAR ENDED MAY 31,          
                                                                   ---------------------------------  
                                                                      1995        1996       1997     
                                                                   ----------  ----------  ---------  
                                                                                                      
Maximum statutory (benefit) rate..................................     (34.0)%      34.0%       34.0% 
Net operating losses without current year income tax                                                  
  benefit carried forward.........................................      34.0          --          --  
Net operating loss utilized.......................................        --       (34.0)      (34.0) 
Foreign taxes.....................................................       0.5         5.4         4.6  
State taxes, net of federal tax effect............................        --         0.3         0.6  
Other.............................................................        --         2.8         5.9  
Recognition of deferred taxes.....................................        --          --       (41.5) 
                                                                       -----       -----   ---------  
Effective tax rate................................................       0.5%        8.5 %     (30.4)%
                                                                       -----       -----   ---------  
                                                                       -----       -----   ---------  

Foreign net operating loss carryforwards of approximately $3,600,000 are
available to reduce future foreign taxable income and expire in 2010 if not     
utilized. A valuation allowance has been provided for the deferred tax assets of
the Japanese subsidiary as management does not believe it is more likely than   
not the tax assets will be realized, due to the subsidiary's cumulative losses. 

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11.  OTHER INCOME (EXPENSE), NET:                                               

Other Income (Expense), Net comprises the following:                    

                                                        [Enlarge/Download Table]

                                                                            YEAR ENDED MAY 31,        
                                                                      ------------------------------- 
                                                                        1995       1996       1997    
                                                                      ---------  ---------  --------- 
                                                                                                      
Foreign exchange gain (loss)......................................... $     258  $    (573) $    (393)
Other, net...........................................................        (3)        14       (172)
                                                                      ---------  ---------  --------- 
                                                                      $     255  $    (559) $    (565)
                                                                      ---------  ---------  --------- 
                                                                      ---------  ---------  --------- 

12.  SEGMENT INFORMATION:                                                       

FOREIGN OPERATIONS:                                                             

The Company develops, manufactures and sells systems to semiconductor   
manufacturers and operates in one industry segment. The following presents      
information about the Company's operations in different geographic areas (in    
thousands):                                                                     

                                                        [Enlarge/Download Table]

                                                           UNITED                                                 
                                                           STATES      ASIA      EUROPE    ADJUSTMENTS    TOTAL   
                                                          ---------  ---------  ---------  -----------  --------- 
                                                                                                                  
1995:                                                                                                             
  Net sales.............................................. $  12,270  $  12,447  $   1,917   $  (3,377)  $  23,257 
  Portion of U.S. net sales from export sales............     4,931         --         --          --       4,931 
  Income (loss) from operations..........................    (1,589)    (1,003)       (93)        605      (2,080)
  Identifiable assets....................................    12,368     11,912        612      (5,002)     19,890 

1996:                                                                                                             
  Net sales.............................................. $  21,486  $  14,204  $   3,497   $  (5,953)  $  33,234 
  Portion of U.S. net sales from export sales............    13,150         --         --          --      13,150 
  Income (loss) from operations..........................     1,330        707        199         300       2,536 
  Identifiable assets....................................    18,515      9,453      1,103      (5,322)     23,749 

1997:                                                                                                             
  Net sales.............................................. $  35,404  $   8,718  $   3,986   $  (6,088)  $  42,020 
  Portion of U.S. net sales from export sales............    27,102         --         --          --      27,102 
  Income (loss) from operations..........................     3,972       (668)       (32)        412       3,684 
  Identifiable assets....................................    22,983      5,093        910      (4,597)     24,389 

The Company's foreign operations are primarily those of its Japanese    
subsidiary. Substantially all of their sales are made to unaffiliated Japanese  
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.                                                                           

F-18

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AEHR TEST SYSTEMS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12.  SEGMENT INFORMATION: (CONTINUED)                                           
MAJOR CUSTOMERS:                                                                

One customer accounted for 18% of 1995 net sales, and another customer  
accounted for 29% of 1996 net sales, and 56% of 1997 net sales.                 

13.  SUBSEQUENT EVENTS:                                                         

    In June 1997, the Board of Directors authorized management of the Company to
file a Registration Statement with the Securities and Exchange Commission       
permitting the Company to sell shares of its Common Stock to the public.        

F-19

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BACK COVER

                                                                [Download Table]
                                                                                
TITLE:     Leading-Edge Test and Burn-in Technology                             

[PHOTOGRAPH of MAX Burn-in System]                                              

CAPTION:   Aehr Test Systems is a leader in the development and marketing of    
           dynamic burn-in systems, including the MAX and ATX systems, which are
           designed for use with memory devices and microprocessors.            

[PHOTOGRAPH of prototype wafer test fixture]                                    

CAPTION:   Leveraging expertise gained in the development of the MTX Massively  
           Parallel Test System and the DiePak carrier, Aehr Test Systems is    
           working on a long-term research project co-funded by DARPA to develop
           a system to test and burn-in semiconductor wafers.                   

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

  NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS 
HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING SHAREHOLDERS OR ANY OF THE   
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A         
SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON   
STOCK REFERRED TO BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR
A SOLICITATION TO SUCH PERSON IN ANY JURISDICTION TO ANY PERSON TO WHOM SUCH    
OFFER OR SOLICITATION MAY NOT BE LAWFULLY MADE. NEITHER THE DELIVERY OF THIS    
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS   
PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.              

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

TABLE OF CONTENTS 

                                                                [Download Table]

                                                   PAGE   
                                                   -----  
                                                          
Prospectus Summary............................           3
Risk Factors..................................           6
The Company...................................          18
Use of Proceeds...............................          18
Dividend Policy...............................          18
Capitalization................................          19
Dilution......................................          20
Selected Consolidated Financial Data..........          21
Management's Discussion and Analysis of                   
  Financial Condition and Results of                      
  Operations..................................          22
Business......................................          30
Management....................................          43
Certain Transactions..........................          50
Principal and Selling Shareholders............          51
Description of Capital Stock..................          54
Shares Eligible for Future Sale...............          56
Underwriting..................................          58
Legal Matters.................................          60
Experts.......................................          60
Additional Information........................          60
Index to Consolidated Financial Statements....         F-1

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

UNTIL SEPTEMBER 8, 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT     
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.    
THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN  
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR           
SUBSCRIPTIONS.                                                                  

3,600,000 SHARES

[LOGO]

COMMON STOCK

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

P R O S P E C T U S 

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

OPPENHEIMER & CO., INC. 
NEEDHAM & COMPANY, INC. 

AUGUST 14, 1997 

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Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
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		8/19/97
Filed on:		8/15/97							S-1MEF
		8/14/97		1		82
		7/31/97		17
		6/30/97		39		63
		5/31/97		5		76
		10/23/96		47
		8/31/96		29
		8/30/96		72
		5/31/96		22		75
		5/31/95		22		75
		1/31/95		51
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