The following discussion of the financial condition and results of operations of the Company should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes that appear elsewhere in this report and with our Annual Report on Form 10-K for the fiscal year ended May 31, 2009 and the consolidated financial statements and notes thereto.

In addition to historical information, this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements typically may be identified by the use of forward-looking words or phrases such as "believe," "expect," "intend," "anticipate," "should," "planned," "estimated," and "potential," among others and include, but are not limited to, statements concerning our expectations regarding our operations, business, strategies, prospects, revenues, expenses, costs and resources. These forward-looking statements are subject to certain risks and uncertainties that could cause our actual results to differ materially from those anticipated results or other expectations reflected in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this report and other factors beyond our control, and in particular, the risks discussed in "Part II, Item 1A. Risk Factors" and those discussed in other documents we file with the Securities and Exchange Commission. All forward-looking statements included in this document are based on our current expectations, and we undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

OVERVIEW

The Company was founded in 1977 to develop and manufacture burn-in and test equipment for the semiconductor industry. Since its inception, the Company has sold more than 2,500 systems to semiconductor manufacturers, semiconductor contract assemblers and burn-in and test service companies

worldwide. The Company's principal products currently are the MAX burn-in system, the Advanced Burn-in and Test System, the FOX full wafer contact parallel test and burn-in system and the MTX massively parallel test system, the DiePak carrier and test fixtures.

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

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

Global demand for semiconductor equipment has been severely impacted by the current negative global economic environment. As a result, in the second half of fiscal 2009 we experienced a significant decline in sales. In fiscal 2009, the Company's financial results reflected the impact of the bankruptcy filing of its largest customer, Spansion. Due to the bankruptcy filing and the current weak market for the Company's products, we recorded a $13.7 million provision for bad debts, a $7.2 million provision for excess and obsolete inventory, a $4.9 million increase in the valuation allowance against the Company's deferred tax assets, a $0.3 million charge related to cancellation costs, a $0.3 million goodwill impairment charge and a $0.4 million in severance charges. During the first quarter of fiscal 2010, the Company sold a portion of its bankruptcy claim to a third party for net proceeds of approximately $3.3 million and recorded the amount in income from operations. The Company has significantly reduced its headcount and initiated other expense reduction measures. The Company intends to take additional actions as necessary to maintain sufficient cash to manage through this economic downturn.

CRITICAL ACCOUNTING POLICIES

The Company's discussion and analysis of its financial condition and results of operations are based upon the Company's unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates, including those related to customer programs and incentives, product returns, bad debts, inventories, investments, intangible assets, income taxes, financing operations, warranty obligations, long-term service contracts, and contingencies and litigation. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. For a discussion of the critical accounting policies, see "Item 7. Management's Discussion and

Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates" in the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 2009.

RESULTS OF OPERATIONS

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

                                               Three Months Ended
                                                    August 31,
                                              ---------------------
                                                  2009       2008
                                              ---------- ----------
Net sales. . . . . . . . . . . . . . . . .        100.0 %    100.0 %
Cost of sales. . . . . . . . . . . . . . .        104.5       49.2
                                              ---------- ----------
Gross (loss) profit. . . . . . . . . . . .         (4.5)      50.8
                                              ---------- ----------
Operating expenses:
  Selling, general and administrative. . .        103.5       21.5
  Research and development . . . . . . . .         74.3       15.3
  Gain on sale of bankruptcy claim . . . .       (259.3)        --
                                              ---------- ----------
          Total operating expenses . . . .        (81.5)      36.8
                                              ---------- ----------
Income from operations . . . . . . . . . .         77.0       14.0

Interest income. . . . . . . . . . . . . .          0.1        0.6
Other expense, net . . . . . . . . . . . .         (1.1)      (0.1)
                                              ---------- ----------
Income before income tax expense . . . . .         76.0       14.5

Income tax expense . . . . . . . . . . . .          0.2        5.6
                                              ---------- ----------
Net income. . . . . . . . . . . . . . .. .         75.8 %      8.9 %
                                              ========== ==========

THREE MONTHS ENDED AUGUST 31, 2009 COMPARED TO THREE MONTHS ENDED AUGUST 31,
2008

NET SALES. Net sales decreased to $1.3 million for the three months ended August 31, 2009 from $9.7 million for the three months ended August 31, 2008, a decrease of 86.9%. The decrease in net sales for the three months ended August 31, 2009 resulted primarily from decreases in net sales of the Company's wafer- level products. Net sales of the Company's wafer-level products for the three months ended August 31, 2009 were $35,000, and decreased approximately $8.5 million from the three months ended August 31, 2008.

GROSS (LOSS) PROFIT. Gross (loss) 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 loss was $57,000 for the three months ended August 31, 2009, compared with gross profit of $4.9 million for the three months ended August 31, 2008. The difference was primarily the result of the significant decline in net sales.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative ("SG&A") expenses consist primarily of salaries and related costs of employees, commission expenses to independent sales representatives, product promotion and other professional services. SG&A expenses of $1.3 million in the three months ended August 31, 2009 decreased from $2.1 million in the three months ended August 31, 2008, a decrease of 37.0%. The decrease in SG&A expense was primarily due to decreases in employment related expenses.

RESEARCH AND DEVELOPMENT. Research and development ("R&D") expenses consist primarily of salaries and related costs of employees engaged in ongoing research, design and development activities, costs of engineering materials and supplies, and professional consulting expenses. R&D expenses decreased to $0.9 million for the three months ended August 31, 2009 from $1.5 million for the three months ended August 31, 2008, a decrease of 36.3%. This decrease was primarily attributable to decreases in employment related expenses.

GAIN ON SALE OF BANKRUPTCY CLAIM. The Company's largest customer, Spansion, filed for bankruptcy in Japan in February 2009 and in the United States in March 2009. The Company has filed a claim in the Spansion U.S. bankruptcy action. In the first quarter of fiscal 2010, the Company sold a portion of its bankruptcy claim to a third party for net proceeds of approximately $3.3 million and recorded the amount in income from operations.

INTEREST INCOME. Interest income decreased to $1,000 for the three months ended August 31, 2009 from $63,000 for the three months ended August 31, 2008. The decrease in net interest income for the three months ended August 31, 2009 was primarily related to lower average investment balances and lower interest rates.

OTHER EXPENSE, NET. Other expense, net increased to $14,000 for the three months ended August 31, 2009 from $7,000 for the three months ended August 31, 2008.

INCOME TAX EXPENSE. Income tax expense was $3,000 for the three months ended August 31, 2009, compared with $546,000 for the three months ended August 31, 2008. A low effective tax rate was recognized for the three months ended August 31, 2009 as the Company is forecasting a taxable loss for the year for which no benefit is being recorded due to a full valuation allowance. During the third quarter of fiscal 2009, the Company reinstated the valuation allowance for the full amount of its net deferred tax assets for both its U.S. operations and its Japanese subsidiary. Income tax expense recognized in the first quarter of fiscal 2009 reflected a significantly higher tax rate as the Company expected to accrue tax at close to the statutory rates for the countries in which it generated income.

LIQUIDITY AND CAPITAL RESOURCES

Net cash used in operating activities was approximately $1.7 million for the three months ended August 31, 2009 and $6.1 million for the three months ended August 31, 2008. For the three months ended August 31, 2009, net cash used in operating activities was primarily driven by an increase of $2.9 million in prepaid expenses and other, partially offset by net income of $961,000. The increase in prepaid expenses and other was primarily due to the sale of a part of the Company's Spansion U.S. bankruptcy claim for $3.3 million. For the three months ended August 31, 2008, net cash used in operating activities was primarily driven by an increase in accounts receivable. The increase in accounts receivable for the three month period was primarily attributable to a delay in collection of receivables from a large multinational customer.

Net cash provided by investing activities was $0 for the three months ended August 31, 2009 and net cash used in investing activities was approximately $2.2 million for the three months ended August 31, 2008. The net cash used in investing activities during the three months ended August 31, 2008 was primarily due to $2.0 million in purchase of investments.

Financing activities provided cash of $0 for the three months ended August 31, 2009 and approximately $190,000 for the three months ended August 31, 2008. Net cash provided by financing activities during the three months ended August 31, 2008 was primarily due to proceeds from issuance of common stock from the exercise of stock options.

As of August 31, 2009, the Company had working capital of $8.8 million. Working capital consists of cash and cash equivalents, accounts receivable, inventory and other current assets, less current liabilities.

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

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

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

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

OFF-BALANCE SHEET ARRANGEMENTS

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

OVERVIEW OF CONTRACTUAL OBLIGATIONS

There have been no material changes in the composition, magnitude or other key characteristics of the Company's contractual obligations or other commitments as disclosed in the Company's Annual Report on Form 10-K for the year ended May 31, 2009.