##### Table of Contents



UNITED
    STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C.
    20549
  Form 10-K
  FOR ANNUAL AND TRANSITION
    REPORTS
 PURSUANT TO SECTIONS 13 OR
    15(d) OF THE
 SECURITIES EXCHANGE ACT OF
    1934
  þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    September 30, 2006o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934   Commission File Number:
    000-51828
  EAGLE TEST SYSTEMS,
    INC.
 (Exact name of registrant as
    specified in its charter)
  Delaware

36-2917389(State or other jurisdiction
    of
    incorporation or organization)

(I.R.S. Employer
    Identification No.)2200 Millbrook Drive,
    Buffalo Grove, IL(Address of principal
    executive offices)

60089(Zip code)   (847) 367-8282
 (Registrants telephone
    number, including area code)
  Securities to be registered pursuant to Section 12(b) of
    the Act:
  Title of Each Class

Name of Each Exchange on Which RegisteredCommon Stock, $0.01 Par Value
    Per Share

The Nasdaq Global Market   Securities registered pursuant to Section 12(g) of the
    Act:
 None
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2.)
  o o þ
  Rule 12b-2 o þ
      DOCUMENTS INCORPORATED BY REFERENCE
  Form 10-K.




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##### 



TABLE OF
    CONTENTS
  PagePART IItem 1.


Business


1Item 1A.


Risk
    Factors


11Item 1B.


Unresolved Staff
    Comments


21Item 2.


Properties


21Item 3.


Legal
    Proceedings


21Item 4.


Submission of
    Matters to a Vote of Security Holders


21Item 5.


Market for
    Registrants Common Equity, Related Stockholder Matters and
    Issuer Purchases of Equity Securities


22Item 6.


Selected
    Consolidated Financial Data


23Item 7.


Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations


24Item 7A.


Quantitative and
    Qualitative Disclosures About Market Risk


34Item 8.


Financial
    Statements and Supplementary Data


35Item 9.


Changes in and
    Disagreements with Accountants on Accounting and Financial
    Disclosure


61Item 9A.


Controls and
    Procedures


61Item 9B.


Other
    Information


61Item 10.


Directors and
    Executive Officers of the Registrant


61Item 11.


Executive
    Compensation


62Item 12.


Security Ownership
    of Certain Beneficial Owners and Management and Related
    Stockholder Matters


62Item 13.


Certain
    Relationships and Related Transactions


62Item 14.


Principal
    Accounting Fees and Services


62Item 15.


Exhibits, Financial
    Statement Schedules


62SIGNATURES


63EXHIBIT
    INDEX


64Code of Business Conduct and EthicsSubsidiariesRule 13a-14(a)/15d-14(a) CertificationRule 13a-14(a)/15d-14(a) CertificationSection 1350 Certifications   i




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##### Table of Contents



PART I  Item 1.
    Business  Certain statements in this Annual Report on
    Form 10-K
    are forward-looking statements within the meaning of
    Section 27A of the Securities Act of 1933, as amended (the
    Securities Act), and Section 21E of the
    Securities Exchange Act of 1934, as amended (the Exchange
    Act). These statements involve a number of risks,
    uncertainties and other factors that could cause our actual
    results, performance or achievements to be materially different
    from any future results, performance or achievements expressed
    or implied by these forward-looking statements. Factors which
    could materially affect such forward-looking statements can be
    found in the section entitled Risk Factors in
    Part 1, Item 1A. in this Annual Report on
    Form 10-K.
    Investors are urged to consider these factors carefully in
    evaluating the forward-looking statements and are cautioned not
    to place undue reliance on such forward-looking statements. The
    forward-looking statements made herein are only made as of the
    date hereof and we will undertake no obligation to publicly
    update such forward-looking statements to reflect subsequent
    events or circumstances.
  References in this Annual Report on
    Form 10-K
    to Eagle Test, the Company,
    we, us or our are to Eagle
    Test Systems, Inc., a Delaware corporation, and its
    subsidiaries.
  Overview
  cost-of-test tm
  cost-of-test Cost-of-test set-up cost-of-test
    Industry
    Background
   1




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##### Table of Contents



The
    Importance of Testing in Semiconductor Production; The ATE
    Market
      
    Wafer Probe Test.  After wafer fabrication, a
    test system performs electrical testing of individual devices
    while still in wafer form for initial pass/fail verification by
    moving the wafer into contact with a wafer probe card.
    Semiconductors are tested at this stage to avoid the additional
    costs associated with assembling, packaging and further testing
    of defective semiconductors.
    Final Test.  After the individual semiconductor
    devices, called die, that fail the wafer probe test are
    discarded, the remaining die are assembled into packages.
    Manufacturers then test the packaged devices over a range of
    potential operating conditions to measure their functionality
    against precise performance specifications. Final test works to
    ensure that a device meets the manufacturers quality
    standards prior to shipping.    Current
    Test Challenges
     2




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##### Table of Contents




    Need for High Throughput Testing.  A test
    systems throughput, or the number of devices that can be
    tested on a single test system in a given period of time, is a
    principal driver of cost-of-test. Improving throughput allows
    semiconductor manufacturers to meet increased capacity demands
    with fewer test systems, and consequently less ancillary
    equipment. The most effective method of increasing test
    throughput is to test multiple devices simultaneously on the
    same test system, or in parallel, on multiple test sites. The
    benefits are lower overall capital expenditures and less
    required floor space for a given increment of capacity. Although
    this multi-site, parallel test approach is widely employed for
    high volume production of digital and memory devices, it has
    proved challenging for analog and mixed-signal device testing
    due to the nature of the electrical properties of analog devices
    and the current architecture of many analog and mixed-signal
    test systems.
    Need for Greater Testing Accuracy and
    Repeatability.  The percentage of functioning
    devices per production run, known as yield, is a key measurement
    in determining the cost of semiconductor manufacturing. While
    yield losses can occur at multiple points during the
    manufacturing process, yield can be particularly affected during
    the testing process when functioning, or good,
    devices are deemed bad by test equipment incapable
    of making high precision measurements. Since lower yields have a
    direct impact on profitability, semiconductor manufacturers seek
    test equipment capable of highly accurate, repeatable results.
    Greater precision increases the likelihood that good devices
    will pass and defective devices will fail. In multi-site
    testing, test accuracy and repeatability can be compromised when
    electrical signals from a device failure from one site influence
    the test results at another site. This occurs in conventional
    test systems because the test instrumentation connected to each
    device under test, or DUT, is electrically linked by a common
    signal and power pathway, known as a common ground pathway, in
    the test system. For this reason, semiconductor manufacturers
    seek test solutions capable of producing precise, repeatable
    results and that minimize undesired interaction between devices
    undergoing simultaneous multi-site test.
    Demand for Scalable, Flexible Solutions.  ATE
    providers have traditionally offered test systems that emphasize
    solutions for the most advanced semiconductors, such as those
    with high digital pin counts and high operating frequencies. The
    challenges associated with testing these complex devices have
    resulted in test systems that are increasingly expensive to
    acquire, operate and maintain. Often, the functionality of these
    test systems greatly exceeds the test requirements for many
    low-priced, high-volume devices and cannot be scaled down in a
    cost-effective manner to address the specific requirements of
    these particular devices. In other cases, the test equipment
    offered at lower prices has proven incapable of providing the
    multi-site, parallel test capability required to achieve high
    throughput. Due to the lack of flexibility in traditional ATE
    architecture, semiconductor manufacturers require test equipment
    with the capability to cost-effectively scale functionality to
    meet the test requirements of a wide range of devices.
    High Cost of Changing Test Platforms.  Although
    more cost-effective test platforms may be available for testing
    many devices, the costs associated with migrating, or switching,
    to a new platform are often significant enough to cause
    semiconductor manufacturers to stay with their current, less
    efficient, test platforms. The switching costs associated with
    replacing an existing test solution include the capital expense
    of the new test system, the cost of developing and integrating
    new test programs and associated hardware, the expense
    associated with investment in ancillary hardware and other
    accessories, and the re-training and facility improvements
    necessary to support the new ATE environment. In addition,
    switching costs decrease the overall efficiency of the test
    process due to the increased time required for engineering and
    production staff to evaluate and validate new test systems.
    These high switching costs often make semiconductor
    manufacturers reluctant to switch to a new test platform,
    despite the new platforms ability to provide higher
    throughput and lower cost-of-test. 3




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##### Table of Contents



Our
    Solution
    Increased Throughput.
  
    Our proprietary
    SmartPintm
    technology shortens the time required to complete the test
    routine for each individual device.
    SmartPintm
    technology enables high-speed, sequential subtests in which the
    test instrumentation completes an entire range of test
    parameters without software intervention or the time consuming
    task of opening and closing relays. In addition, with onboard
    DSP processing technology,
    SmartPintm
    eliminates the need for data and test results to cross long
    signal paths in order to be collected and analyzed.
    Our test systems optimize simultaneous, or parallel, testing
    across multiple sites on the same test system. We refer to this
    capability as
    SimulTesttm.
    Our architecture enables test routine replication across
    multiple sites by dedicating signal sourcing and measurement
    resources, for current and voltage, and local signal processing
    to each pin on the DUT. This permits one test system to
    effectively test multiple devices simultaneously, which is
    critical for cost-efficient, multi-site, parallel testing.  Improved Yield with Precision and
    Repeatability.
  
    Our equipment allows customers to perform tests with a high
    degree of precision by narrowing the range of test tolerances,
    or guard bands. Reduced guard bands improve yield by allowing
    device manufacturers to measure closer to the established
    performance limits of the device.
    The analog resource boards in our test systems are designed with
    independent computer interfaces, power supplies and independent
    ground connections that eliminate the need for a shared
    communication and electrical pathway. By avoiding the use of a
    common ground pathway, the test results from one device are
    isolated and avoid undesirable interactions with devices
    undergoing simultaneous test within the same test system.  Scalable and Flexible Architecture.
  
    Our test instruments, or resource boards, provide dedicated
    functionality and capability, which allow customers to tailor
    their test system capabilities to the specific testing needs of
    their devices. Our ATE is designed utilizing modular hardware
    and off-the-shelf electrical components that allow us to develop
    new features at the resource board level in a short time period.
    Our architecture also enables customers to upgrade their test
    system capability by simply adding another board or replacing an
    existing board within an existing test system. This is a more
    cost efficient and less time consuming approach than replacing
    the entire test system, as is required by many competing
    systems.
    A majority of our analog resource boards can be employed in any
    of the test platforms we offer, allowing our customers to
    utilize identical hardware across our entire product line. This
    approach offers compatibility across a wide range of products,
    as well as easy replacement and support of individual resource
    boards. In addition, our entire test system product line
    operates under a uniform software environment, allowing
    customers to move seamlessly to different test system types by
    utilizing a common operating environment. 4




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##### Table of Contents



Lower Switching Costs. tm
      Products
  Test
    Systems
    DataConversionAnalog


Digital


RF


Multi-Site

Power

RF and

and Video



Complex

PrecisionTest Systems

Channels


Pins


Ports


Capability

Management

Wireless

Processing

Automotive

Mixed-Signal

Linear

DiscretesETS-600


480



256



32


64

ü

ü

ü

ü

ü

üETS-364


240



128



16


64

ü

ü

ü

ü

ü

üETS-300


240



32






32

ü





ü



üETS-200


120



16






16

ü





ü



üETS-200T


48










16













ü   ETS-600 and
    ETS-364. ETS-364 tm tm ETS-364
 5




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##### Table of Contents



ETS-364 ETS-364 ETS-364
  ETS-300
    and ETS-200. ETS-300 ETS-300 tm ETS-300
  tm and/or ETS-300 ETS-300
  ETS-200T.
  Software
    Products
  point-and-click point-and-click
  set-up tm
  Technology
  SmartPin tm tm tm tm
 6




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tm tm
  Chameleon tm tm tm
  Pattern-Based
    Testing tm tm tm tm tm cost-of-test.
  Floating Resources.
  Sales and
    Marketing
         7




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##### Table of Contents



Customers
    Agape Packaging Mfg. Co. Ltd.
    Allegro MicroSystems, Inc.
    AMI Semiconductor, Inc.
    Amkor Technology, Inc.
    ASE Electronics (M) Sdn. Bhd.
    Carsem Sdn. Bhd
    EM Microelectronic-Marin SA
    Fairchild Semiconductor
      International, Inc.

Guidant Corporation
    HANA Semiconductor
      (Ayutthaya) Co., Ltd.
    Hewlett-Packard Company
    Infineon Technologies AG
    International Rectifier Corporation
    Intersil Corporation
    Jiangsu Changjiang Electronics
      Technology Co., Ltd.
    Microchip Technology Incorporated

Microsemi Integrated Products
    Myson Century Inc.
    National Semiconductor Corporation
    NS Electronics Bangkok Ltd
    O2MICRO, Inc.
    ON Semiconductor Corporation
    PDF Solutions, Inc.
    STATS ChipPAC Ltd.
    Test-Serv Inc.
    Texas Instruments Incorporated Unitive Electronics, Inc.       Manufacturing
    and Assembly
   8




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Research
    and Development
          Competition
   9




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##### Table of Contents



Intellectual
    Property
      Employees
    Backlog
   10




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##### Table of Contents



Item 1A.
    Risk
    Factors  Set forth below are certain risk factors that could harm our
    business, results of operations and financial condition. You
    should carefully read the following risk factors, together with
    the financial statements, related notes and other information
    contained in this Annual Report on
    Form 10-K.
    This Annual Report on
    Form 10-K
    contains forward-looking statements that contain risks and
    uncertainties. Please refer to the discussion of
    Forward-Looking Statements on page one of this
    Annual Report on
    Form 10-K
    in connection with your consideration of the risk factors and
    other important factors that may affect future results described
    below.
  Risks
    Related to Our Business and Industry
  The
    highly cyclical nature of the semiconductor industry could
    adversely affect our operating results.
      
    decreased customer orders, test systems shipments and revenue;
    decreases in backlog;
    decreases in the average selling prices, or ASPs, of our test
    systems;
    delays in order commitments;
    lower operating margins;
    increases in order cancellations and customer-requested shipment
    delays;
    excess production capacity;
    delays in collecting accounts receivable; and
    excessive inventory levels.    Our
    quarterly operating results may fluctuate significantly from
    period to period and this may cause our stock price to
    decline.
    
    rapid shifts in demand for, or acceptance of, our products as a
    result of the cyclical nature of the semiconductor equipment
    industry or otherwise, often resulting in sharp reductions in
    equipment sales during industry downturns and increased
    equipment sales during periods of industry recovery;
    the loss of a significant customer or reduced capital spending
    by a customer;
    delays, cancellations or reschedulings, or other changes in the
    timing or terms of product shipments; 11




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
    acceleration or postponement of existing customer order delivery
    dates;
    delays in acceptance of products as a result of our failure to
    meet customers specifications;
    the timing of our new product introductions, and market
    acceptance of our new products and enhanced versions of our
    existing products;
    our competitors announcements of new products, services or
    technological innovations, which can, among other things, render
    our products less competitive;
    competitive pressures resulting in lower ASPs for our test
    systems;
    lower gross margins in any period due to changes in our product
    mix or increased prices for components;
    our inability to quickly reduce our fixed costs or
    managements decision to maintain headcount notwithstanding
    decreased demand for our products;
    disruptions in our manufacturing or in our supply of components,
    causing us to delay shipment of our products; and
    write-offs of excess or obsolete inventory and accounts
    receivable that are not collectible.    quarter-to-quarter
  We
    depend on a small number of customers for a significant portion
    of our sales, and the loss of any of these customers will
    adversely affect our revenue.
  Form 10-K.
  We
    face difficulty in obtaining new customers because of the high
    cost of switching test equipment vendors in our
    markets.
   12




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Our
    sales cycle is long, requires significant investment, and may
    not result in additional sales.
    
    the capital expenditure budgets and capital equipment needs of
    our customers;
    the willingness and ability of customers to incur the expense of
    adopting new product platforms;
    the internal technical capabilities and sophistication of our
    customers;
    the efforts and effectiveness of our sales force; and
    the need for and our success in demonstrating our technical and
    manufacturing capabilities to meet our customers
    requirements.    We
    face substantial competition that, among other things, may
    adversely affect our sales and may lead to price
    pressure.
      We
    rely on a few key employees and our success depends on our
    ability to hire and retain key personnel.
   13




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If we
    fail to maintain adequate internal control over financial
    reporting, if we are unable to timely complete our assessment of
    the effectiveness of our internal control over financial
    reporting, or if our independent registered public accounting
    firm cannot attest to our assessment of our internal control
    over financial reporting, we may be subject to regulatory
    sanctions and a loss of public confidence and the trading price
    of our stock could be negatively impacted.
    We
    have grown rapidly and if we fail to manage our growth, our
    business will suffer.
    If we
    are not successful in developing new and enhanced products, we
    will lose market share to our competitors and our operating
    results will suffer.
   14




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##### Table of Contents




    successfully develop and commercialize innovative products that
    are differentiated from our competitors offerings;
    properly and quickly identify customer needs and anticipate
    technological advances and industry trends;
    quickly adjust to changing industry conditions and product
    announcements by competitors; and
    establish manufacturing processes that will enable us to build
    and timely deliver new or enhanced products to specification in
    sufficient volumes.    Products
    that do not meet customer specifications or that contain defects
    could cause us to lose customers and revenue.
  and/or
  You
    should not rely on our level of backlog as an indication of our
    future revenues.
  Form 10-K.
  We
    obtain some of the components and subassemblies included in our
    test systems from a limited number of suppliers and
    subcontractors, which may result in production delays, loss of
    revenue or increased costs.
   15




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and/or
  If we
    cannot accurately plan the production of products to meet our
    customers demands, we could incur excess inventory or miss
    sales opportunities.
    Our
    manufacturing activities are conducted at a single facility, and
    any prolonged disruption in the operations of that facility
    could have a material adverse effect on our
    revenue.
    We
    have no experience with acquiring other companies and our future
    efforts to do so may subject us to significant costs without the
    realization of the anticipated benefits of those
    acquisitions.
    
    difficulties in integrating the products, operations or
    personnel of acquired companies into our business;
    diversion of our managements attention from our ongoing
    operations;
    additional expenses associated with amortization of acquired
    assets or impairment of acquired goodwill;
    difficulties in maintaining uniform standards, controls,
    procedures and policies;
    potential impairment of existing relationships with employees,
    suppliers and customers as a result of the difficulties in
    integration of new management personnel; and
    dilution to our stockholders in the event we issue stock to
    finance an acquisition or increased leverage if we incur debt to
    finance an acquisition. 16




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Economic,
    political and other risks associated with international sales
    and operations, particularly in Asia, could adversely affect our
    revenue.
    
    economic and political instability;
    compliance with foreign and domestic laws and regulations;
    changes in foreign and domestic legal and regulatory
    requirements or policies resulting in burdensome government
    controls, tariffs, restrictions, embargoes or export license
    requirements;
    longer payment cycles common in foreign markets;
    difficulties in staffing and managing our international
    operations;
    less favorable foreign intellectual property laws making it more
    difficult to protect our technology from appropriation by
    competitors;
    potentially adverse tax treatment;
    difficulties with distributors;
    difficulties collecting our accounts receivable; and
    natural disasters.    We
    could experience a decline in international sales due to
    currency fluctuations.
    Accounting
    for employee stock options using the fair value method could
    significantly reduce our net income.
   17




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Form 10-K
  Risks
    Related to Intellectual Property
  Third
    parties may claim we are infringing their intellectual property
    rights, and we could be prevented from selling our products or
    services, or suffer significant litigation or licensing
    expenses, even if these claims have no merit.
  tm
  Third
    parties may infringe or design around our intellectual property
    rights, and we may expend significant resources enforcing our
    rights or suffer competitive injury.
         18




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Our
    efforts to protect our intellectual property may be less
    effective in some foreign countries where intellectual property
    rights are not as well protected as in the United
    States.
      Risks
    Related to our Common Stock and our Capital Structure
  There
    is a limited history of a trading market for our common stock,
    and the market price of our common stock may be highly volatile
    or may decline regardless of our operating
    performance.
    Future
    sales of our shares could adversely affect the market price of
    our common stock.
  lock-up lock-up
  Form S-8 lock-up
 19




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##### Table of Contents



lock-up
  Our
    directors and certain significant stockholders exercise
    significant control over Eagle Test.
    Provisions
    in our certificate of incorporation and by-laws may deter third
    parties from acquiring us.
    
    our board of directors is divided into three classes serving
    staggered three-year terms;
    only our board of directors may call special meetings of our
    stockholders;
    our stockholders may take action only at a meeting of our
    stockholders and not by written consent;
    we have authorized undesignated preferred stock, the terms of
    which may be established and shares of which may be issued
    without stockholder approval and may be used in connection with
    the adoption of a stockholder rights plan;
    stockholder approval of amendments of our certificate of
    incorporation or by-laws require a vote of 75% of our
    outstanding shares;
    vacancies on the board of directors may be filled only by the
    directors;
    our directors may be removed only for cause by the affirmative
    vote of the holders of 75% of the votes that all stockholders
    would be entitled to cast in the election of directors; and
    we require advance notice for stockholder proposals.    Section 203
    of the Delaware General Corporation Law may delay, defer or
    prevent a change in control that our stockholders might consider
    to be in their best interests.
   20




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Our
    Website
  Form 10-K, Form 10-Q, Form 8-K, Form 10-K.
  Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties      Item 3.
    Legal
    Proceedings    Item 4.
    Submission
    of Matters to a Vote of Security Holders   21




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PART II
  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities  Market
    Information
    High


Low2006Second Quarter (commencing
    March 8, 2006)

$
15.50


$
13.88Third Quarter

$
17.77


$
14.00Fourth Quarter

$
19.47


$
12.332007First Quarter (through
    November 30, 2006)

$
18.64


$
14.45   Holders
    Dividends
    Securities
    Authorized For Issuance Under Equity Compensation
    Plans
    Number of SecuritiesRemaining Available forNumber of Securities


Weighted Average


Future Issuance underto be Issued Upon Exercise


Exercise Price of


Equity Compensation Plansof Outstanding Options,


Outstanding Options,


(Excluding SecuritiesPlan Category

Warrants and Rights


Warrants and Rights


Reflected in Column (a))(a)


(b)


(c)Equity compensation plans approved
    by security holders(1)


679,500


$
9.09



2,520,000
(2)Equity compensation plans not
    approved by security holders(3)










Total


679,500


$
9.09



2,520,000     (1)
    
    Includes our 2003 Stock Option and Grant Plan and our 2006 Stock
    Option and Incentive Plan.(2)
    
    Includes shares remaining available for future issuance under
    our 2006 Stock Option and Incentive Plan.(3)
    
    There are no equity compensation plans in place not approved by
    shareholders. 22




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Recent
    Sales of Unregistered Securities
    Use of
    Proceeds from Registered Securities
  Form S-1 No. 333-130521)
  Issuer
    Purchases of Equity Securities
    Item 6.
    Selected
    Consolidated Financial Data  Form 10-K Form 10-K.
  Year Ended September 30,2006


2005


2004


2003


2002(In thousands, except per share data)Consolidated Statement of Net
    Income Data:Net revenue

$
124,738


$
63,477


$
111,210


$
55,766


$
25,918Cost of goods sold


42,320



26,596



37,337



20,457



8,556Gross profit


82,418



36,881



73,873



35,309



17,362Operating expensesSelling, general and administrative


28,974



21,066



23,932



16,491



10,949Research and development


8,939



7,883



6,051



3,113



3,240Write-off of offering expenses










1,858







Operating income


44,505



7,932



42,032



15,705



3,173Interest expense


3,496



3,910



3,887



31



30Increase (decrease) in value of
    warrants


5,466



(599
)


1,548







Other (income) and expense, net


(1,866
)


(2,274
)


(408
)


(636
)


633Income before taxes


37,409



6,895



37,005



16,310



2,510Provision (benefit) for income
    taxes


14,836



(524
)


14,952



6,706



864Net income

$
22,573


$
7,419


$
22,053


$
9,604


$
1,646 23




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##### Table of Contents



Year Ended September 30,2006


2005


2004


2003


2002(In thousands, except per share data)Earnings Per Share
    Data:Net income per share, basic(1)

$
0.79


$
0.53


$
1.58


$
0.67


$
0.11Net income per share, diluted(1)


0.60



0.36



1.46



0.67



0.11Weighted average shares
    outstanding, basic


14,016,988



5,396,248



5,396,248



14,365,017



14,390,000Weighted average shares
    outstanding, diluted


17,980,235



14,513,227



14,009,533



14,390,337



14,390,000Selected Operating
    Data:Gross margin


66.1
%


58.1
%


66.4
%


63.3
%


67.0
%Operating margin


35.7
%


12.5
%


37.8
%


28.2
%


12.2
%     (1)
    
    The difference between the fair market value of our previously
    outstanding Redeemable Preferred Stock at date of issue of
    $21.1 million and the redemption price of
    $32.5 million paid on March 14, 2006 with proceeds
    from our initial public offering was charged to retained
    earnings in March 2006 when the redemption occurred. This
    $11.4 million adjustment is used to reduce net income to
    arrive at income available to common stockholders for purposes
    of calculating earnings per common  basic and diluted
    shares for the fiscal year ended September 30, 2006 in
    accordance with EITF Topic D-42  The Effect on
    the Calculation of Earnings per Share for the Redemption or
    Induced Conversion of Preferred Stock.  As of September 30,2006


2005


2004


2003


2002Consolidated Balance Sheet
    Data:Cash, cash equivalents and
    marketable securities

$
75,946


$
22,676


$
23,733


$
21,961


$
20,573Receivable from sale of common
    stock


31,185















Working capital


125,738



41,617



39,276



18,919



25,375Total assets


165,886



66,171



91,752



50,852



43,505Capital lease obligations


640



890











Redeemable warrants






2,667



3,266



1,718



Senior subordinated convertible
    notes






28,843



28,561



28,282



Series A convertible
    preferred stock






65,000



65,000



65,000



Total stockholders equity
    (deficit)


136,414



(44,587
)


(51,433
)


(73,620
)


27,043   Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  You should read the following discussion in conjunction with
    our consolidated financial statements and related notes thereto.
    In addition to historical information, this discussion contains
    forward-looking statements that involve risks, uncertainties and
    assumptions that could cause actual results to differ materially
    from managements expectations. Factors that could cause
    such differences include those described in Risk
    Factors in Part 1, Item 1A. in this Annual
    Report on
    Form 10-K.
  Overview
  cost-of-test
 24




---



##### Table of Contents



25




---



##### Table of Contents



period-to-period
      Net Revenue.
  Cost of Goods Sold. period-to-period.
  Gross Profit. period-to-period.
  Selling, General and Administrative.
 26




---



##### Table of Contents



Research and Development.
  Interest Expense.
  Increase (Decrease) in Value of
    Warrants.
  Other (Income) and Expense.
  Provision for Income Taxes.
  Critical
    Accounting Policies and Estimates
      Revenue Recognition.
  
    we have a written sales agreement;
    delivery has occurred or services have been rendered; 27




---



##### Table of Contents




    the price is fixed or determinable; and
    collectibility is reasonably assured.        Inventory Reserves. first-in, end-of-life
    Warranty Reserves.
  Allowance for Sales Returns and
    Uncollectibles.
  Stock-Based Compensation.
   28




---



##### Table of Contents



Results
    of Operations
    Year Ended September 30,2006


2005


2004Net revenue


100.0
%


100.0
%


100.0
%Cost of goods sold


33.9



41.9



33.6Gross profit


66.1



58.1



66.4Operating expensesSelling, general and administrative


23.2



33.2



21.5Research and development


7.2



12.4



5.4Write-off of offering expenses










1.7Operating income


35.7



12.5



37.8Interest expense


2.8



6.1



3.5Increase (decrease) in value of
    warrants


4.4



(0.9
)


1.4Other (income) and expense, net


(1.5
)


(3.6
)


(0.4
)Income before taxes


30.0



10.9



33.3Provision (benefit) for income
    taxes


11.9



(0.8
)


13.5Net income


18.1
%


11.7
%


19.8
%     Year Ended September 30,2006


2005


2004United States

$
38,177



30.6
%

$
29,295



46.2
%

$
24,031



21.6
%Malaysia


48,377



38.8



13,602



21.4



56,720



51.0Other


38,184



30.6



20,580



32.4



30,459



27.4Total

$
124,738



100.0
%

$
63,477



100.0
%

$
111,210



100.0
%   and/or
    Year Ended September 30,2006


2005


2004National Semiconductor Corporation


*
%


*
%


36.1
%Texas Instruments Incorporated


52.9



44.3



31.9     *
    
    Less than 10% 29




---



##### Table of Contents



Year
    Ended September 30, 2006 Compared to Year Ended
    September 30, 2005
  Net Revenue.
  Gross Profit.
  Selling, General and Administrative.
  Research and Development.
  Interest Expense.
  Increase (Decrease) in Value of Warrants.
  Other (Income) and Expense, Net.
  Provision (Benefit) for Income Taxes.
 30




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##### Table of Contents



Year
    Ended September 30, 2005 Compared to Year Ended
    September 30, 2004
  Net Revenue.
  Cost of Goods Sold.
  Gross Profit.
  Selling, General and Administrative.
  Research and Development.
  Write-off of Offering Expenses.
  Interest Expense.
  Increase (Decrease) in Value of
    Warrants.
  Other (Income) and Expense, Net.
 31




---



##### Table of Contents



Provision (Benefit) for Income Taxes.
  Liquidity
    and Capital Resources
      work-in-process,
   32




---



##### Table of Contents



Contractual
    Obligations
    Payments Due inLess Than








More ThanTotal


1 Year


1-3 Years


4-5 Years


5 YearsOperating lease obligations

$
12,436


$
1,994


$
3,170


$
2,856


$
4,416Capital lease obligations


680



286



392



2



Purchase commitments(1)


8,271



8,271











Total

$
21,387


$
10,551


$
3,562


$
2,858


$
4,416     (1)
    
    The purchase commitments primarily represent the value of
    purchase orders issued for raw materials and purchased services
    that have been scheduled for fulfillment in the next six to
    eight months.    Recently
    Issued Accounting Pronouncements
   33




---



##### Table of Contents



No. SFAS 109-a, No. SFAS 109-b, No. SFAS 109-a
        Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk     34




---



##### Table of Contents



Item 8.
    Financial
    Statements and Supplementary Data  INDEX TO
    FINANCIAL STATEMENTS AND
    FINANCIAL STATEMENT SCHEDULE
  PageEAGLE TEST SYSTEMS,
    INC.:Report of
    Independent Registered Public Accounting Firm


36Consolidated
    Balance Sheets


37Consolidated
    Statements of Net Income and Comprehensive Income


38Consolidated
    Statements of Stockholders Equity (Deficit)


39Consolidated
    Statements of Cash Flows


40Notes to
    Consolidated Financial Statements


41Schedule II 
    Valuation and Qualifying Accounts


60  35




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm             
    36




---



##### Table of Contents



EAGLE
    TEST SYSTEMS, INC.
  CONSOLIDATED
    BALANCE SHEETS
 (In
    thousands, except share and per share data)
  September 30,


September 30,2006


2005ASSETSCurrent assets:Cash and cash equivalents

$
51,071


$
9,976Marketable securities


24,875



12,700Accounts receivable, net of
    allowances of $616 and $1,240


17,338



9,202Receivable from sale of common
    stock


31,185



Inventories


22,378



17,707Deferred income taxes


4,512



3,426Prepaid expenses and other current
    assets


2,143



548Total current assets


153,502



53,559Property, plant and equipment, net


11,745



12,135Other assets


639



477Total assets

$
165,886


$
66,171LIABILITIES AND
    STOCKHOLDERS EQUITY (DEFICIT)Current liabilities:Accounts payable

$
5,941


$
1,523Current portion of long-term debt


261



249Deferred revenue


9,409



3,419Accrued compensation and related
    liabilities


5,734



3,103Accrued income taxes


2,949



767Other accrued expenses


3,470



2,881Total current liabilities


27,764



11,942Long-term liabilities:Long-term debt, less current
    portion


379



29,484Redeemable warrants






2,667Deferred income taxes


941



1,272Other long-term liabilities


388



393Total long-term liabilities


1,708



33,816Series A convertible
    preferred stock, par value $0.01 per share, no shares
    authorized, issued, or outstanding as of September 30,
    2006, 3,437 shares authorized and 3,436 shares issued
    as of September 30, 2005






65,000Stockholders equity
    (deficit):Preferred stock, par value
    $0.01 per share, 10,000,000 shares authorized, no
    shares issued or outstanding as of September 30, 2006, no
    shares authorized, issued or outstanding as of
    September 30, 2005






Common stock, par value
    $0.01 per share, 90,000,000 and 15,495,325 shares
    authorized as of September 30, 2006 and 2005, respectively;
    22,655,283 and 5,396,248 shares issued and outstanding as
    of September 30, 2006 and 2005, respectively


227



54Additional paid in capital


169,709



156Accumulated deficit


(33,522
)


(44,665
)Deferred stock compensation expense






(132
)Total stockholders equity
    (deficit)


136,414



(44,587
)Total liabilities and
    stockholders equity (deficit)

$
165,886


$
66,171    37




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##### Table of Contents



EAGLE
    TEST SYSTEMS, INC.
  CONSOLIDATED
    STATEMENTS OF NET INCOME AND COMPREHENSIVE INCOME
 (In
    thousands, except share and per share data)
  Year Ended September 30,2006


2005


2004Net revenue

$
124,738


$
63,477


$
111,210Cost of goods sold


42,320



26,596



37,337Gross profit


82,418



36,881



73,873Operating expensesSelling, general and administrative


28,974



21,066



23,932Research and development


8,939



7,883



6,051Write-off of offering expenses










1,858Operating income


44,505



7,932



42,032Interest expense


3,496



3,910



3,887Other (income) and expenseIncome from marketable securities


(1,863
)


(2,017
)


(438
)Investment impairments


25



18



9Increase (decrease) in value of
    warrants


5,466



(599
)


1,548Other (income) and expense, net


(28
)


(275
)


21Income before taxes


37,409



6,895



37,005Provision (benefit) for income
    taxes


14,836



(524
)


14,952Net income

$
22,573


$
7,419


$
22,053Net income per share, basic

$
0.79


$
0.53


$
1.58Net income per share, diluted

$
0.60


$
0.36


$
1.46Weighted average shares
    outstanding, basic


14,016,988



5,396,248



5,396,248Weighted average shares
    outstanding, diluted


17,980,235



14,513,227



14,009,533Comprehensive Income:Net income

$
22,573


$
7,419


$
22,053Unrealized gain on marketable
    securities, net of taxes










104Realized net gain on marketable
    securities, net of taxes






(621
)


Comprehensive income

$
22,573


$
6,798


$
22,157    38




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##### Table of Contents



EAGLE
    TEST SYSTEMS, INC.
  CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
 (In
    thousands, except share and per share data)
  Deferred


Accumulated


TotalAdditional


Retained


Stock


Other


StockholdersCommon Stock


Paid In


Earnings


Compensation


Comprehensive


EquityShares


Amount


Capital


(Deficit)


Expense


Income


(Deficit)Balance at September 30, 2003


5,396,248


$



$



$
(74,137
)

$



$
517


$
(73,620
)Net income














22,053











22,053Recapitalization






54



(54
)














Deferred compensation expense
    related to issuance of stock options










210







(210
)






Compensation expense related to
    stock options


















30







30Unrealized gain on marketable
    securities, net of taxes of $69






















104



104Balance at September 30, 2004


5,396,248


$
54


$
156


$
(52,084
)

$
(180
)

$
621


$
(51,433
)Net income














7,419











7,419Compensation expense related to
    stock options


















48







48Reclassification adjustment for
    realized gain on marketable securities, net of taxes $(450)






















(621
)


(621
)Balance at September 30, 2005


5,396,248


$
54


$
156


$
(44,665
)

$
(132
)

$



$
(44,587
)Net income














22,573











22,573Reclassification for adoption of
    SFAS 123R










(132
)






132







Compensation expense related to
    stock options










354















354Issuance of common stock upon
    exercise of stock options


13,750



1



91















92Issuance of common stock upon
    conversion of series A convertible preferred stock


8,590,245



86



43,844















43,930Adjustment for redemption of
    redeemable preferred stock














(11,430
)










(11,430
)Issuance of common stock upon
    exercise of warrants


525,040



5



8,133















8,138Issuance of common stock, net of
    issuance costs


8,130,000



81



117,263















117,344Balance at September 30, 2006


22,655,283


$
227


$
169,709


$
(33,522
)

$



$



$
136,414    39




---



##### Table of Contents



EAGLE
    TEST SYSTEMS, INC.
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
 (In
    thousands)
  Year Ended September 30,2006


2005


2004Cash flows from operating
    activities:Net income

$
22,573


$
7,419


$
22,053Adjustments to reconcile net income
    to net cash provided by operating activities:Depreciation and amortization


3,193



2,169



1,270Investment impairments


25



18



9Realized (gain) loss on sale of
    marketable securities






(1,616
)


(227
)Gain on sale of property and
    equipment






(247
)


Accretion of discount on long-term
    debt


1,752



282



279Increase (decrease) in value of
    warrants


5,466



(599
)


1,548Non cash compensation related to
    stock options


354



48



30Deferred income taxes


(1,418
)


7,246



(4,194
)Changes in operating assets and
    liabilities:Accounts receivable


(8,136
)


14,333



(15,556
)Inventories


(4,671
)


9,959



(16,133
)Prepaid expenses and other current
    assets


(1,595
)


(390
)


92Other assets


(187
)


(153
)


(29
)Accounts payable


4,418



(5,354
)


2,746Deferred revenue


5,990



(15,465
)


11,233Accrued compensation and related
    liabilities


2,631



(3,258
)


2,190Accrued income taxes


2,182



(7,439
)


(421
)Other accrued expenses


166



(2,310
)


3,486Other liabilities


(5
)


310



27Net cash provided by operating
    activities


32,738



4,953



8,403Cash flows from investing
    activities:Purchases of marketable securities


(13,000
)


(12,700
)


(1,131
)Proceeds from the sales of
    investments


825



6,957



10,835Sale of property and equipment






659



Capital expenditures


(2,803
)


(7,055
)


(4,614
)Net cash provided by (used in)
    investing activities


(14,978
)


(12,139
)


5,090Cash flows from financing
    activities:Payments of long-term debt


(30,595
)






(294
)Payments of capital lease
    obligations


(250
)


(141
)


Redemption of redeemable preferred
    stock


(32,500
)






Proceeds from issuance of common
    stock, net of issuance costs


86,680







Dividends paid










(2,045
)Net cash provided by (used in)
    financing activities


23,335



(141
)


(2,339
)Net increase (decrease) in cash and
    cash equivalents


41,095



(7,327
)


11,154Cash and cash equivalents at
    beginning of period


9,976



17,303



6,149Cash and cash equivalents at end of
    period

$
51,071


$
9,976


$
17,303Supplemental
    disclosures:Interest paid

$
3,350


$
3,628


$
2,700Income tax refunds


(2,871
)


(3,266
)


Income taxes paid


16,947



2,932



19,673Capital lease obligations






1,031



    40




---



##### Table of Contents



EAGLE
    TEST SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (In
    thousands, except share and per share data)
  1.
    The
    Company    2.
    Summary
    of Significant Accounting Policies  Basis
    of Presentation
    Preparation
    of Financial Statements and Use of Estimates
    Revenue
    Recognition
         41




---



##### Table of Contents



EAGLE
    TEST SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (In
    thousands, except share and per share data)
  Shipping
    and Handling Costs
    Product
    Warranty Costs
    Research
    and Development Costs
    Income
    Taxes
    Cash,
    Cash Equivalents and Marketable Securities
  available-for-sale. other-than-temporary
  Inventories
     42




---



##### Table of Contents



EAGLE
    TEST SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (In
    thousands, except share and per share data)
  Property
    and Equipment
    Stock
    Options
    Accounting for Stock Issued to Employees
  Fair
    Value of Financial Instruments
    Recent
    Accounting Pronouncements
    No. SFAS 109-a, No. SFAS 109-b,
 43




---



##### Table of Contents



EAGLE
    TEST SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (In
    thousands, except share and per share data)
  No. SFAS 109-a
  Accounting Changes and Error Corrections
  Accounting for
    Uncertainty in Income Taxes  an interpretation of
    FASB Statement No. 109
  3.
    Marketable
    Securities      September 30,2006


2005Auction rate securities

$
1,700


$
1,700Variable rate demand notes (VRDNs)


23,175



11,000$
24,875


$
12,700      44




---



##### Table of Contents



EAGLE
    TEST SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (In
    thousands, except share and per share data)
    Year EndedSeptember 30,2006


2005


2004Interest income

$
827


$
331


$
141Dividend income


1,036



70



70Net realized gains from sales of
    marketable securities






1,616



227Income from marketable securities

$
1,863


$
2,017


$
438     4.
    Inventories    September 30,2006


2005Raw materials

$
7,185


$
7,683Work-in-process


6,741



1,865Finished goods


6,086



7,434Inventory at customers under
    purchase orders


2,366



725$
22,378


$
17,707   end-of-life
 45




---



##### Table of Contents



EAGLE
    TEST SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (In
    thousands, except share and per share data)
  5.
    Property
    and Equipment    September 30,


Depreciable2006


2005


Life(In years)Buildings

$
161


$
161



30Building improvements


29



127



10Leasehold improvements


3,679



3,575



10
*Equipment


13,247



10,672



3-5Office furniture


1,724



1,636



5-7Software


1,059



952



319,899



17,123Less accumulated depreciation


(8,154
)


(4,988
)$
11,745


$
12,135     *
    
     or lease term if less        6.
    Long-Term
    Debt    September 30,2006


2005Senior Subordinated Convertible
    Notes, net of discount of $1,157 at September 30, 2005

$



$
28,843Capital lease obligations


640



890$
640


$
29,733Less current portion of capital
    lease obligations


(261
)


(249
)$
379


$
29,484    46




---



##### Table of Contents



EAGLE
    TEST SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (In
    thousands, except share and per share data)
    7.
    Stockholders
    Equity and Preferred Stock  Equity
    Offerings
      Recapitalization
    Change in Authorized Shares
    Common
    Stock
   47




---



##### Table of Contents



EAGLE
    TEST SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (In
    thousands, except share and per share data)
          Dividends
  Voting rights
  Preferred
    Stock
    Series A
    Convertible Preferred Stock (Redeemed in Initial Public
    Offering)
  EITF 98-5 
    Voting
 48




---



##### Table of Contents



EAGLE
    TEST SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (In
    thousands, except share and per share data)
  Dividends
  Preference
  Redemption
  Conversion Rights
  Redeemable
    Preferred Stock (Redeemed in Initial Public Offering)
      Voting
  Dividends
  Preference
  Redemption
 49




---



##### Table of Contents



EAGLE
    TEST SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (In
    thousands, except share and per share data)
  Warrants
    (Exercised Prior to Initial Public Offering)
    8.
    Investment
    by TA Associates        9.
    Net
    Income Per Share  No. 03-6, No. 03-6.
   50




---



##### Table of Contents



EAGLE
    TEST SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (In
    thousands, except share and per share data)
      Year Ended September 30,2006


2005


2004Net income

$
22,573


$
7,419


$
22,053Basic EPS:Adjustments to income:Retained earnings adjustment for
    conversion of redeemable preferred stock


(11,430
)*






Net income allocated to
    convertible preferred shares






(4,557
)


(13,544
)Income available to common
    shareholders


11,143



2,862



8,509Weighted-average common share
    outstanding


14,016,988



5,396,248



5,396,248Basic net income per share

$
0.79


$
0.53


$
1.58Diluted EPS:Adjustments to Income:Dividend on Redeemable Preferred
    stock as converted  5% cumulative

$
(406
)

$
(1,656
)

$
(1,656
)Warrant value adjustment



**


(599
)



**Income available to common
    shareholders

$
10,737


$
5,164


$
20,397Weighted-average common shares
    outstanding


14,016,988



5,396,248



5,396,248Plus impact of convertible
    preferred stock and warrants and stock options, as applicable


3,963,247



9,116,979



8,613,285Diluted common shares


17,980,235



14,513,227



14,009,533Diluted EPS

$
0.60


$
0.36


$
1.46     *
    
    The difference between the fair market value of the Redeemable
    Preferred Stock at date of issue of $21,070 and the redemption
    price of $32,500 was charged to retained earnings in March 2006,
    when the redemption occurred. This adjustment is used to reduce
    net income to arrive at income available to common stockholders
    for purposes of calculating earnings per common share in
    accordance with EITF Topic D-42  The Effect on
    the Calculation of Earnings per Share for the Redemption or
    Induced Conversion of Preferred Stock.**
    
    This element of the diluted EPS computation is not applicable
    since the impact on the computation would be anti-dilutive. 51




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##### Table of Contents



EAGLE
    TEST SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (In
    thousands, except share and per share data)
  10.
    Income
    Taxes    Year EndedSeptember 30,2006


2005


2004Current:Federal

$
13,257


$
(5,400
)

$
15,433State


2,997



(1,920
)


3,866Total current


16,254



(7,320
)


19,299Deferred:Federal


(1,169
)


5,013



(3,476
)State


(249
)


1,783



(871
)Total deferred


(1,418
)


6,796



(4,347
)Total income tax expense

$
14,836


$
(524
)

$
14,952     Year Ended September 30,2006


2005


2004Federal statutory rate


35.0
%


35.0
%


35.0
%State income taxes, net of federal
    income tax effect


4.7



3.7



5.2Capital loss carryover






(2.0
)


Research and development tax
    credits


(0.1
)


(1.8
)


(0.3
)Nondeductible increase (decrease)
    in value of warrants


5.1



(3.4
)


1.7Extraterritorial income exclusion


(2.5
)


(3.0
)


(1.1
)Domestic production deduction


(1.2
)






Provision to return adjustments


(1.2
)


(23.0
)


Reduction in tax accrual






(13.8
)


Other


(0.2
)


0.7



(0.1
)Effective tax rate


39.6
%


(7.6
)%


40.4
%      52




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##### Table of Contents



EAGLE
    TEST SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (In
    thousands, except share and per share data)
    September 30,2006


2005Deferred tax assets:Allowance for accounts receivable

$
243


$
491Inventory valuation reserves


2,751



2,027Deferred revenue


759



494Other accrued expenses


711



406Stock option compensation expense


38



Other


48



8Total deferred tax assets


4,550



3,426Deferred tax liabilities:Depreciation


(979
)


(1,272
)Total deferred tax liabilities


(979
)


(1,272
)Net deferred tax assets

$
3,571


$
2,154   11.
    Employee
    Benefit Plans  Employee
    Stock Ownership Plan
    Other
    Compensation Plans
      12.
    Stock
    Option Plan   53




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##### Table of Contents



EAGLE
    TEST SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (In
    thousands, except share and per share data)
        WeightedOutstanding


AverageOptions


Exercise PriceOutstanding at September 30,
    2003






Granted


664,500


$
8.37Exercised






Forfeited






Outstanding at September 30,
    2004


664,500


$
8.37Granted


45,000



7.33Exercised






Forfeited


(6,389
)


10.00Outstanding at September 30,
    2005


703,111


$
8.29Granted


405,000



11.62Exercised


(13,750
)


6.73Forfeited


(414,861
)


10.28Outstanding at September 30,
    2006


679,500


$
9.09  54




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##### Table of Contents



EAGLE
    TEST SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (In
    thousands, except share and per share data)
    WeightedAverageGrant-DateNon-Vested Options

Options


Fair ValueNon-vested at September 30,
    2005





$
Granted


405,000



5.88Vested


(56,180
)


3.60Forfeited


(140,000
)


7.37Non-vested at September 30,
    2006


208,820


$
5.50     Options Outstanding


Options VestedWeighted


Weighted





WeightedAverage


Average





AverageNumber


Remaining


Exercise


Number


ExerciseExercise Price

Outstanding


Life


Price


Exercisable


Price$ 6.00 - $ 7.00


309,500



7.83


$
6.56



169,500


$
6.45$ 8.00 - $10.00


240,000



8.08


$
9.46



113,854


$
9.84$11.00 - $13.00


50,000



9.33


$
11.40



27,014


$
11.40$14.00 - $16.00


25,000



9.58


$
15.80






$
$16.01 - $16.56


55,000



9.83


$
16.56






$
679,500











310,368     13.
    Concentration
    of Credit Risk    Year Ended September 30,2006


2005


2004National Semiconductor Corporation


*
%


*
%


36.1
%Texas Instruments Incorporated


52.9



44.3



31.952.9
%


44.3
%


68.0
%     *
    
    Less than 10% 55




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##### Table of Contents



EAGLE
    TEST SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (In
    thousands, except share and per share data)
      14.
    Other
    Comprehensive Income    Year Ended September 30,2006


2005


2004Change in net unrealized holdings
    gains (losses) on marketable securities, net of tax of $0, $0,
    and $160 in 2006, 2005, and 2004, respectively

$



$



$
240Less adjustment for net gain
    (loss) on investments included in net income, net of tax of $0,
    $450, and $91 in 2006, 2005, and 2004, respectively






621



136Other comprehensive income, net of
    taxes

$



$
(621
)

$
104   15.
    Industry
    and Geographic Segment Information  Operating
    Segments
    Geographic
    Information
   56




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##### Table of Contents



EAGLE
    TEST SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (In
    thousands, except share and per share data)
    Year Ended September 30,2006


2005


2004United States

$
38,177


$
29,295


$
24,031Malaysia


48,377



13,602



56,720Other


38,184



20,580



30,459$
124,738


$
63,477


$
111,210     16.
    Commitments
    and Contingencies  Lease
    Commitments
    September 30,2006Operating


CapitalLeases


Leases2007

$
1,994


$
2862008


1,690



2762009


1,480



1162010


1,512



22011


1,344



Thereafter


4,416



Total minimum lease payments

$
12,436



680Less amount representing interest






(40
)Present value of capital lease
    obligations





$
640     Contingencies
     57




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##### Table of Contents



EAGLE
    TEST SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (In
    thousands, except share and per share data)
  Product
    Warranty
    Product Warranty ActivityBalance at September 30, 2003

$
500Warranty expenditures


(862
)Provision for warranty


1,633Balance at September 30, 2004


1,271Warranty expenditures


(1,416
)Provision for warranty


708Balance at September 30, 2005


563Warranty expenditures


(1,193
)Provision for warranty


1,698Balance at September 30, 2006

$
1,068   17.
    Write-off
    of Offering Expenses  S-1
  18.
    Quarterly
    Results of Operations (unaudited)  Year Ended September 30, 2006First


Second


Third


FourthQuarter(1)


Quarter(2)


Quarter


Quarter(In thousands, except per share data)Net sales

$
22,447


$
28,565


$
36,779


$
36,947Gross profit


15,418



19,246



24,523



23,232Net income


1,875



1,773



9,672



9,254Net income (loss) per share:Basic

$
0.13


$
(1.04
)

$
0.47


$
0.45Diluted

$
0.10


$
(1.04
)

$
0.46


$
0.44     (1)
    
    Includes increase in value of warrants of $2,191.(2)
    
    Includes increase in value of warrants of $3,275, and retained
    earnings adjustment of $11,430 used to reduce net income
    available to common shareholders for purposes of computing
    earnings per share.  58




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##### Table of Contents



EAGLE
    TEST SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (In
    thousands, except share and per share data)
  Year Ended September 30, 2005First


Second


Third


FourthQuarter


Quarter


Quarter(1)


Quarter(2)(In thousands, except per share data)Net sales

$
20,191


$
8,600


$
6,163


$
28,523Gross profit


12,511



3,573



2,870



17,927Net income (loss)


3,055



(2,049
)


(930
)


7,343Net income (loss) per share:Basic

$
0.22


$
(0.38
)

$
(0.17
)

$
0.53Diluted

$
0.18


$
(0.42
)

$
(0.17
)

$
0.36     (1)
    
    Includes tax benefit of provision to return adjustments of
    $1,577.(2)
    
    Includes realized gain on sale of marketable securities of
    $1,544. 59




---



##### Table of Contents



SCHEDULE II 
    VALUATION AND QUALIFYING ACCOUNTS
    EAGLE TEST SYSTEMS, INC.
    SEPTEMBER 30, 2006
    (In thousands) Col. A

Col. B


Col. C


Col. D


Col. ECharged toBalance at


Charged to


OtherBeginning of


Costs and


Accounts 


Deductions 


Balance atDescription

Period


Expenses


Describe


Describe


End of Period(In thousands)Allowance for Doubtful AccountsYear Ended September 30, 2006

$
1,240


$
155






$
779
(1)

$
616Year Ended September 30, 2005

$
1,220


$
605






$
585
(1)

$
1,240Year Ended September 30, 2004

$
791


$
510






$
81
(1)

$
1,220     (1)
    
    Sales returns and uncollectible accounts written off and
    recoveries 60




---



##### Table of Contents



Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures  Disclosure
    Controls and Procedures
  Rule 13a-15 Rule 13a-15(e)
  Changes
    in Internal Control Over Financial Reporting
    Item 9B.
    Other
    Information    PART III
    Item 10.
    Directors
    and Executive Officers of the Registrant    Audit
    Committee Financial Expert
  Regulation S-K,
 61




---



##### Table of Contents



Code of
    Ethics
  www.eagletest.com
   Item 11.
    Executive
    Compensation     Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters  Form 10-K.
   Item 13.
    Certain
    Relationships and Related Transactions     Item 14.
    Principal
    Accounting Fees and Services    PART IV
   Item 15.
    Exhibits,
    Financial Statement Schedules  Financial
    Statements: Form 10-K.
  Financial Statement
    Schedule: Form 10-K.
  Exhibits: Form 10-K. 1-800-SEC-0330 http://www.sec.gov.
 62




---



##### Table of Contents



SIGNATURES    
  By:
    /s/  Stephen
    J. Hawrysz        attorney-in-fact Form 10-K, attorney-in-fact attorney-in-fact
    Signature

Title

Date/s/  Leonard
    A. FoxmanLeonard
    A. Foxman

Chief Executive Officer, President
    and Director (Principal Executive Officer)

December 8, 2006/s/  Stephen
    J. HawryszStephen
    J. Hawrysz

Chief Financial Officer (Principal
    Financial and Accounting Officer)

December 8, 2006/s/  Theodore
    D. FoxmanTheodore
    D. Foxman

Chief Operating Officer, Executive
    Vice President and Director

December 8, 2006/s/  Michael
    C. ChildMichael
    C. Child

Director

December 8, 2006/s/  Ross
    W. ManireRoss
    W. Manire

Director

December 8, 2006/s/  William
    H. GibbsWilliam
    H. Gibbs

Director

December 8, 2006/s/  David
    B. MullenDavid
    B. Mullen

Director

December 8, 2006  63




---



##### Table of Contents



EXHIBIT INDEX  Number


Description

Method of Filing3.1


Form of Amended and Restated
    Certificate of Incorporation of the Registrant, to be effective
    at the effectiveness of this Registration Statement

Incorporated by reference to
    Exhibit 3.1 to Amendment No. 4 to our Registration
    Statement on
    Form S-1
    (File
    No. 333-130521)
    filed with the Securities and Exchange Commission on
    February 21, 20063.2


Form of Second Amended and
    Restated Certificate of Incorporation of the Registrant, to be
    effective at the completion of this offering

Incorporated by reference to
    Exhibit 3.2 to Amendment No. 4 to our Registration
    Statement on
    Form S-1
    (File
    No. 333-130521)
    filed with the Securities and Exchange Commission on
    February 21, 20063.3


Form of Amended and Restated
    By-laws of the Registrant

Incorporated by reference to
    Exhibit 3.3 to Amendment No. 4 to our Registration
    Statement on
    Form S-1
    (File
    No. 333-130521)
    filed with the Securities and Exchange Commission on
    February 21, 20064.1


Specimen Stock Certificate

Incorporated by reference to
    Exhibit 4.1 to Amendment No. 5 to our Registration
    Statement on
    Form S-1
    (File
    No. 333-130521)
    filed with the Securities and Exchange Commission on
    March 3, 20064.2


Registration Rights Agreement by
    and among the Registrant, the Investors and the Stockholders
    named therein, dated as of September 30, 2003

Incorporated by reference to
    Exhibit 4.2 to our Registration Statement on
    Form S-1
    (File
    No. 333-117274)
    filed with the Securities and Exchange Commission on
    July 9, 20044.3


Amendment No. 1 to the
    Registration Rights Agreement dated September 1, 2006

Incorporated by reference to
    Exhibit 4.3 to our Registration Statement on
    Form S-1
    (File
    No. 333-137121)
    filed with the Securities and Exchange Commission on
    September 5, 200610.1


2003 Stock Option and Grant Plan

Incorporated by reference to
    Exhibit 10.1 to our Registration Statement on
    Form S-1
    (File
    No. 333-117274)
    filed with the Securities and Exchange Commission on
    July 9, 200410.2


2006 Stock Option and Incentive
    Plan

Incorporated by reference to
    Exhibit 10.2 to Amendment No. 4 to our Registration
    Statement on
    Form S-1
    (File
    No. 333-130521)
    filed with the Securities and Exchange Commission on
    February 21, 200610.3


Employee Stock Ownership Plan

Incorporated by reference to
    Exhibit 10.4 to our Registration Statement on
    Form S-1
    (File
    No. 333-117274)
    filed with the Securities and Exchange Commission on
    July 9, 200410.4


Profit Sharing Plan and Trust

Incorporated by reference to
    Exhibit 10.5 to our Registration Statement on
    Form S-1
    (File
    No. 333-117274)
    filed with the Securities and Exchange Commission on
    July 9, 200410.5


Stock Purchase Agreement by and
    among the Registrant, the Stockholders and the Investors named
    therein, dated as of September 30, 2003

Incorporated by reference to
    Exhibit 10.6 to Amendment No. 1 to our Registration
    Statement on
    Form S-1
    (File
    No. 333-117274)
    filed with the Securities and Exchange Commission on
    August 12, 2004 64




---



##### Table of Contents



Number


Description

Method of Filing10.6


Stockholders Agreement by and
    among the Registrant, the Existing Stockholders and the
    Investors named therein, dated as of September 30, 2003

Incorporated by reference to
    Exhibit 10.7 to Amendment No. 1 to our Registration
    Statement on
    Form S-1
    (File
    No. 333-117274)
    filed with the Securities and Exchange Commission on
    August 12, 200410.7


Note Purchase Agreement by and
    among the Registrant, TA Subordinated Debt Fund, L.P. and TA
    Investors LLC, dated as of September 30, 2003

Incorporated by reference to
    Exhibit 10.8 to Amendment No. 1 to our Registration
    Statement on
    Form S-1
    (File
    No. 333-117274)
    filed with the Securities and Exchange Commission on
    August 12, 200410.8


Senior Subordinated Convertible
    Note of the Registrant issued in favor of TA Investors, LLC,
    dated as of September 30, 2003

Incorporated by reference to
    Exhibit 10.9 to our Registration Statement on
    Form S-1
    (File
    No. 333-117274)
    filed with the Securities and Exchange Commission on
    July 9, 200410.9


Form of Warrant to Purchase Common
    Stock of the Registrant

Incorporated by reference to
    Exhibit 10.10 to our Registration Statement on
    Form S-1
    (File
    No. 333-117274)
    filed with the Securities and Exchange Commission on
    July 9, 200410.10


Senior Subordinated Convertible
    Note of the Registrant issued in favor of TA Subordinated Debt
    Fund, L.P., dated as of September 30, 2003

Incorporated by reference to
    Exhibit 10.11 to our Registration Statement on
    Form S-1
    (File
    No. 333-117274)
    filed with the Securities and Exchange Commission on
    July 9, 200410.11


Non-Competition Agreement, dated
    as of September 30, 2003, by and among the Registrant,
    Leonard A. Foxman and the Investors named therein

Incorporated by reference to
    Exhibit 10.12 to our Registration Statement on
    Form S-1
    (File
    No. 333-117274)
    filed with the Securities and Exchange Commission on
    July 9, 200410.12


Non-Competition Agreement, dated
    as of September 30, 2003, by and among the Registrant,
    Foxman Family LLC and the Investors named therein

Incorporated by reference to
    Exhibit 10.13 to our Registration Statement on
    Form S-1
    (File
    No. 333-117274)
    filed with the Securities and Exchange Commission on
    July 9, 200410.13


Employment Agreement by and
    between the Registrant and Leonard Foxman, dated as of
    September 30, 2003

Incorporated by reference to
    Exhibit 10.14 to our Registration Statement on
    Form S-1
    (File
    No. 333-117274)
    filed with the Securities and Exchange Commission on
    July 9, 200410.14


Employment Agreement by and
    between the Registrant and Theodore Foxman, dated as of
    September 30, 2003

Incorporated by reference to
    Exhibit 10.15 to our Registration Statement on
    Form S-1
    (File
    No. 333-117274)
    filed with the Securities and Exchange Commission on
    July 9, 200410.15


Employment Agreement by and
    between the Registrant and Stephen J. Hawrysz, dated as of
    March 1, 2004

Incorporated by reference to
    Exhibit 10.16 to our Registration Statement on
    Form S-1
    (File
    No. 333-117274)
    filed with the Securities and Exchange Commission on
    July 9, 200410.16


Employment Agreement by and
    between the Registrant and Jack Weimer, dated as of
    September 30, 2003

Incorporated by reference to
    Exhibit 10.17 to our Registration Statement on
    Form S-1
    (File
    No. 333-117274)
    filed with the Securities and Exchange Commission on
    July 9, 200410.17


Form of Indemnification Agreement
    between the Registrant and each of its Directors and Executive
    Officers

Incorporated by reference to
    Exhibit 10.17 to Amendment No. 4 to our Registration
    Statement on
    Form S-1
    (File
    No. 333-130521)
    filed with the Securities and Exchange Commission on
    February 21, 2006 65




---



##### Table of Contents



Number


Description

Method of Filing10.18


Lease, dated as of
    December 1, 2003, between Millbrook VI LLC and the
    Registrant

Incorporated by reference to
    Exhibit 10.23 to our Registration Statement on
    Form S-1
    (File
    No. 333-117274)
    filed with the Securities and Exchange Commission on
    July 9, 200410.19


Form of Incentive Stock Option
    Agreement under the 2006 Stock Option and Incentive Plan

Incorporated by reference to
    Exhibit 10.19 to Amendment No. 4 to our Registration
    Statement on
    Form S-1
    (File
    No. 333-130521)
    filed with the Securities and Exchange Commission on
    February 21, 200610.20


Form of Non-Qualified Stock Option
    Agreement under the 2006 Stock Option and Incentive Plan

Incorporated by reference to
    Exhibit 10.20 to Amendment No. 4 to our Registration
    Statement on
    Form S-1
    (File
    No. 333-130521)
    filed with the Securities and Exchange Commission on
    February 21, 200610.21


Form of Restricted Stock Award
    Agreement under the 2006 Stock Option and Incentive Plan

Incorporated by reference to
    Exhibit 10.21 to Amendment No. 4 to our Registration
    Statement on
    Form S-1
    (File
    No. 333-130521)
    filed with the Securities and Exchange Commission on
    February 21, 200610.22


Form of Non-Qualified Stock Option
    Agreement for Non-Employee Directors under the 2006 Stock Option
    and Incentive Plan

Incorporated by reference to
    Exhibit 10.22 to Amendment No. 4 to our Registration
    Statement on
    Form S-1
    (File
    No. 333-130521)
    filed with the Securities and Exchange Commission on
    February 21, 200610.23


Employment Agreement by and
    between the Registrant and Steven R. Dollens, dated as of
    May 25, 2004

Incorporated by reference to
    Exhibit 10.18 to Amendment No. 1 to our Registration
    Statement on
    Form S-1
    (File
    No. 333-117274)
    filed with the Securities and Exchange Commission on
    August 12, 200410.24


Employment Agreement by and
    between the Registrant and Derek Abramovitch, dated as of
    September 30, 2003

Incorporated by reference to
    Exhibit 10.19 to our Registration Statement on
    Form S-1
    (File
    No. 333-117274)
    filed with the Securities and Exchange Commission on
    July 9, 200410.25


Form of Management Rights Letter
    Agreement as signed by the Registrant and each of TA
    Subordinated Debt Fund, L.P., TA Investors LLC, TA IX L.P., TA/
    Atlantic and Pacific IV L.P., TA Strategic Partners Fund A
    L.P. and T.A. Strategic Partners Fund B L.P.

Incorporated by reference to
    Exhibit 10.25 to Amendment No. 2 to our Registration
    Statement on
    Form S-1
    (File
    No. 333-130521)
    filed with the Securities and Exchange Commission on
    February 7, 200610.26


Amendment No. 1 to Management
    Rights Letter Agreements dated February 6, 2005

Incorporated by reference to
    Exhibit 10.25 to Amendment No. 2 to our Registration
    Statement on
    Form S-1
    (File
    No. 333-130521)
    filed with the Securities and Exchange Commission on
    February 7, 200610.27


Amendment No. 1 to
    Stockholders Agreement dated February 6, 2005

Incorporated by reference to
    Exhibit 10.25 to Amendment No. 2 to our Registration
    Statement on
    Form S-1
    (File
    No. 333-130521)
    filed with the Securities and Exchange Commission on
    February 7, 200610.28


Letter Agreement between the
    Registrant and Leonard A. Foxman dated August 31, 2006

Incorporated by reference to
    Exhibit 10.28 to our Registration Statement on
    Form S-1
    (File
    No. 333-137121)
    filed with the Securities and Exchange Commission on
    September 5, 2006 66




---



##### Table of Contents



Number


Description

Method of Filing10.29


Letter Agreement between the
    Registrant and Theodore D. Foxman dated August 31, 2006

Incorporated by reference to
    Exhibit 10.29 to our Registration Statement on
    Form S-1
    (File
    No. 333-137121)
    filed with the Securities and Exchange Commission on
    September 5, 200614.1


Code of Business Conduct and Ethics

Filed herewith21.1


Subsidiaries of Eagle Test
    Systems, Inc.

Filed herewith24.1


Powers of Attorney

Included on signature page hereto31.1


Rule 13a-14(a)/15d-14(a)
    Certification, executed by Leonard A. Foxman, Chief Executive
    Officer, President and Director

Filed herewith31.2


Rule 13a-14(a)/15d-14(a)
    Certification, executed by Stephen J. Hawrysz, Chief Financial
    Officer

Filed herewith32.1


Section 1350 Certifications,
    executed by Leonard A. Foxman, Chief Executive Officer,
    President and Director, and Stephen J. Hawrysz, Chief Financial
    Officer

Filed herewith  67