##### 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, 2007o

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 þ o
  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


12Item 1B.


Unresolved Staff Comments


21Item 2.


Properties


21Item 3.


Legal Proceedings


22Item 4.


Submission of Matters to a Vote of Security
    Holders


22Item 5.


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


22Item 6.


Selected Consolidated Financial Data


25Item 7.


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


26Item 7A.


Quantitative and Qualitative Disclosures About
    Market Risk


36Item 8.


Financial Statements and Supplementary Data


37Item 9.


Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


63Item 9A.


Controls and Procedures


63Item 9B.


Other Information


63Item 10.


Directors and Executive Officers of the
    Registrant


63Item 11.


Executive Compensation


64Item 12.


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


64Item 13.


Certain Relationships and Related Transactions


64Item 14.


Principal Accounting Fees and Services


64Item 15.


Exhibits, Financial Statement Schedules


64SIGNATURES


65EXHIBIT INDEX


66SubsidiariesConsent of Ernst & Young LLPCertificationCertificationSection 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
  tm
  set-up
   1




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##### Table of Contents



Industry
    Background
      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 3




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##### Table of Contents



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.  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 4




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##### Table of Contents



Lower Switching Costs. tm
      Products
  Test
    Systems
    DataIndex





ConversionAnalog


Digital


RF


Multi-Site

Parallel

Power

RF and

and Video



Complex

PrecisionTest Systems

Channels


Pins


Ports


Capability

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















üETS-200T-FT


48










16

ü













ü   ETS-600 and ETS-364. tm tm
 5




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ETS-300 and ETS-200. tm
  tm and/or
  ETS-200T.
  ETS-200T-FT.
  New Instrumentation.
  
    HPU-100 (100 Amp High Power Unit), a third generation SmartPin
    resource that includes our patented pattern-based range changing
    technology. This resource provides the ability to rapidly force
    and measure a sequence of voltages and currents to facilitate
    high-speed production testing. The HPU-100 is unique in that it
    can deliver current pulses up to 100 Amps that are needed to
    effectively address discrete and automotive device testing.
    QHSU (Quad High-Speed Signal Unit), a four channel signal
    analyzer that can simultaneously generate and measure four
    high-speed analog waveforms. This resource is valuable for
    testing various video frequency devices such as amplifiers and
    filters. It offers an on-board digital signal processor (DSP)
    with a robust math library for performing complex high-speed
    calculations. The QHSU expands the number of applications that
    we can address with the ETS-364/600 test platform. 6




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
    QPLU (Quad Precision Linearity Unit), a highly specialized
    resource designed for testing precision analog to digital
    converters (ADCs) and precision digital to analog converters
    (DACs). This new resource allows us to address the challenges
    associated with testing precision converters.
    We also developed a new Rapid Dither algorithm (patent pending)
    for rapid calculation of measurement errors generated by testing
    of ADCs in a production environment, for use in conjunction with
    the new QPLU hardware.    Software
    Products
  point-and-click point-and-click
  set-up tm
      Technology
  SmartPin tm tm tm tm
 7




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tm tm
  Chameleon tm tm tm
  Pattern-Based
    Testing tm tm tm tm tm
  Floating Resources.
  Sales and
    Marketing
         8




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##### Table of Contents



Customers
    Agape Packaging Mfg. Co. Ltd.

Hewlett-Packard Company

National Semiconductor CorporationAllegro MicroSystems, Inc.

Infineon Technologies AG

O2MICRO, Inc.AMI Semiconductor, Inc.

International Rectifier Corporation

ON Semiconductor CorporationCarsem Sdn. Bhd

Intersil Corporation

PDF Solutions, Inc.Delphi Delco Electronics Corporation

Jiangsu Changjiang Electronics Technology Co., Ltd.

STATS ChipPAC Ltd.EM Microelectronic-Marin SA

Linear Technology Corporation

STMicroelectronics N.V.Exar Corporation

Microchip Technology Incorporated

Texas Instruments IncorporatedFairchild Semiconductor International, Inc.

Microsemi Integrated Products

Unitive Electronics, Inc.Guidant Corporation

Myson Century Inc.

UTAC Thai Ltd.       Manufacturing
    and Assembly
     9




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Research
    and Development
          Competition
   10




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Intellectual
    Property
      Employees
    Backlog
   11




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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; 12




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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.      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.
   13




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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.
   14




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We are
    subject to the internal control evaluation and attestation
    requirements of Section 404 of the Sarbanes-Oxley Act of
    2002.
    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.
    
    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. 15




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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.
   16




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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.
    Compliance
    with current and future environmental regulations may be costly
    and disruptive to our operations.
    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.
   17




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##### Table of Contents




    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.  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.
   18




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Accounting
    for employee stock options using the fair value method could
    significantly reduce our net income.
  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.
     19




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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.
    Our
    directors and certain significant stockholders exercise
    significant control over Eagle Test.
   20




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##### Table of Contents



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.
    Our
    Website
  Form 10-K, Form 10-Q, Form 8-K, Form 10-K.
  Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties   21




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Item 3.
    Legal
    Proceedings    Item 4.
    Submission
    of Matters to a Vote of Security Holders    PART II
  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities 22




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Performance
    Graph
  19-month
  COMPARISON
    OF 19 MONTH CUMULATIVE TOTAL RETURN* Among
    Eagle Test Systems, Inc, The Dow Jones Wilshire 5000 Index
    And The DJ Wilshire Semiconductors Index
  
 *
    $100 invested on 3/9/06 in stock or index-including reinvestment
    of dividends.   3/06


3/06


6/06


9/06


12/06


3/07


6/07


9/07Eagle Test Systems, Inc



100.00




99.35




90.45




106.58




94.06




107.35




103.61




82.71Dow Jones Wilshire 5000



100.00




102.72




100.76




105.10




112.79




114.47




121.32




123.05DJ Wilshire Semiconductors



100.00




101.63




91.95




96.31




96.48




95.49




108.71




113.05   The stock price performance included in this graph is not
    necessarily indicative of future stock price performance.
 23




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##### Table of Contents



Market
    Information
    High


Low2006Second Quarter (commencing March 8, 2006)

$
15.50


$
13.88Third Quarter

$
17.77


$
14.00Fourth Quarter

$
19.47


$
12.332007First Quarter

$
18.64


$
14.45Second Quarter

$
18.00


$
13.80Third Quarter

$
17.89


$
15.13Fourth Quarter

$
16.44


$
11.692008First Quarter (through November 30, 2007)

$
13.99


$
10.87   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)


900,647


$
12.10



2,173,500
(2)Equity compensation plans not approved by security holders(3)










Total


900,647


$
12.10



2,173,500     (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. 24




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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 30,2007


2006


2005


2004


2003(In thousands, except share and per share data)Consolidated Statement of Net Income Data:Net revenue

$
85,982


$
124,738


$
63,477


$
111,210


$
55,766Cost of goods sold


33,751



42,320



26,596



37,337



20,457Gross profit


52,231



82,418



36,881



73,873



35,309Operating expenses:Selling, general and administrative


32,477



28,974



21,066



23,932



16,491Research and development


9,080



8,939



7,883



6,051



3,113Write-off of offering expenses














1,858



Operating income


10,674



44,505



7,932



42,032



15,705Interest expense


98



3,496



3,910



3,887



31Increase (decrease) in value of warrants






5,466



(599
)


1,548



Other (income) and expense, net


(4,923
)


(1,866
)


(2,274
)


(408
)


(636
)Income before taxes


15,499



37,409



6,895



37,005



16,310Provision (benefit) for income taxes


4,791



14,836



(524
)


14,952



6,706Net income

$
10,708


$
22,573


$
7,419


$
22,053


$
9,604 25




---



##### Table of Contents



Year Ended September 30,2007


2006


2005


2004


2003(In thousands, except share and per share data)Earnings Per Share Data:Net income per share, basic(1)

$
0.47


$
0.79


$
0.53


$
1.58


$
0.67Net income per share, diluted(1)

$
0.46


$
0.60


$
0.36


$
1.46


$
0.67Weighted average shares outstanding, basic


22,914,031



14,016,988



5,396,248



5,396,248



14,365,017Weighted average shares outstanding, diluted


23,134,479



17,980,235



14,513,227



14,009,533



14,390,337Selected Operating Data:Gross margin


60.7
%


66.1
%


58.1
%


66.4
%


63.3
%Operating margin


12.4
%


35.7
%


12.5
%


37.8
%


28.2
%     (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 30,2007


2006


2005


2004


2003Consolidated Balance Sheet Data:Cash, cash equivalents and marketable securities

$
112,517


$
75,946


$
22,676


$
23,733


$
21,961Receivable from sale of common stock






31,185











Working capital


142,033



125,738



41,617



39,276



18,919Total assets


172,570



165,886



66,171



91,752



50,852Capital lease obligations


394



640



890







Redeemable warrants










2,667



3,266



1,718Senior subordinated convertible notes










28,843



28,561



28,282Series A convertible preferred stock










65,000



65,000



65,000Total stockholders equity (deficit)


151,890



136,414



(44,587
)


(51,433
)


(73,620
)   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
  high-growth
 26




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##### Table of Contents



27




---



##### Table of Contents



Net Revenue.
  Cost of Goods Sold.
  Gross Profit.
  Selling, General and Administrative.
  Research and Development.
  Interest Expense.
 28




---



##### Table of Contents



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;
    the price is fixed or determinable; and
    collectibility is reasonably assured.     29




---



##### Table of Contents



Inventory Reserves. first-in,
    Warranty Reserves.
  Allowance for Sales Returns and
    Uncollectibles.
  Stock-Based Compensation.
  Income Taxes.
   30




---



##### Table of Contents



Results
    of Operations
    Year Ended September 30,2007


2006


2005Net revenue


100.0
%


100.0
%


100.0
%Cost of goods sold


39.3



33.9



41.9Gross profit


60.7



66.1



58.1Operating expensesSelling, general and administrative


37.7



23.2



33.2Research and development


10.6



7.2



12.4Operating income


12.4



35.7



12.5Interest expense


0.1



2.8



6.1Increase (decrease) in value of warrants






4.4



(0.9
)Other (income) and expense, net


(5.7
)


(1.5
)


(3.6
)Income before taxes


18.0



30.0



10.9Provision (benefit) for income taxes


5.5



11.9



(0.8
)Net income


12.5
%


18.1
%


11.7
%     Year Ended September 30,2007


2006


2005United States

$
30,283



35.2
%

$
38,177



30.6
%

$
29,295



46.2
%Malaysia


15,092



17.6



48,377



38.8



13,602



21.4Other


40,607



47.2



38,184



30.6



20,580



32.4Total

$
85,982



100.0
%

$
124,738



100.0
%

$
63,477



100.0
%   and/or
    Year Ended September 30,2007


2006


2005Texas Instruments Incorporated


30.7
%


52.9
%


44.3
%   Year
    Ended September 30, 2007 Compared to Year Ended
    September 30, 2006
  Net Revenue.
 31




---



##### Table of Contents



Gross Profit.
  Selling, General and Administrative.
  Research and Development.
  Interest Expense.
  Increase in Value of Warrants.
  Other (Income) and Expense, Net.
  Provision (Benefit) for Income Taxes.
  Year
    Ended September 30, 2006 Compared to Year Ended
    September 30, 2005
  Net Revenue.
 32




---



##### Table of Contents



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.
 33




---



##### Table of Contents



Liquidity
    and Capital Resources
      work-in-process,
   34




---



##### Table of Contents



Contractual
    Obligations
    Payments Due inLess Than








More ThanTotal


1 Year


1-3 Years


4-5 Years


5 YearsOperating lease obligations

$
11,652


$
2,044


$
3,408


$
2,889


$
3,311Capital lease obligations


409



283



126







Purchase commitments(1)


11,506



11,506











Total

$
23,567


$
13,833


$
3,534


$
2,889


$
3,311     (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.  short-term
  Recently
    Issued Accounting Pronouncements
       35




---



##### Table of Contents



Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk     36




---



##### Table of Contents



Item 8.
    Financial
    Statements and Supplementary Data  INDEX TO
    FINANCIAL STATEMENTS AND
    FINANCIAL STATEMENT SCHEDULE
  PageEAGLE TEST SYSTEMS, INC.:Managements Assessment of Internal Control
    over Financial Reporting


38Report of Independent Registered Public
    Accounting Firm on Internal Control over Financial Reporting


39Report of Independent Registered Public
    Accounting Firm


40Consolidated Balance Sheets


41Consolidated Statements of Net Income and
    Comprehensive Income


42Consolidated Statements of Stockholders
    Equity (Deficit)


43Consolidated Statements of Cash Flows


44Notes to Consolidated Financial Statements


45Schedule II  Valuation and Qualifying
    Accounts


62  37




---



##### Table of Contents



MANAGEMENTS
    ASSESSMENT OF
    INTERNAL CONTROL OVER FINANCIAL REPORTING
                   38




---



##### Table of Contents



Report
    of Independent Registered Public Accounting Firm on Internal
    Control Over Financial Reporting
     Internal Control  Integrated Framework
            
    39




---



##### Table of Contents



Report
    of Independent Registered Public Accounting Firm
               
    40




---



##### Table of Contents



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


September 30,2007


2006ASSETSCurrent assets:Cash and cash equivalents

$
10,302


$
51,071Marketable securities


102,215



24,875Accounts receivable, net of allowances of $585 and $616


18,238



17,338Receivable from sale of common stock






31,185Inventories


22,233



22,378Deferred income taxes


4,410



4,512Prepaid expenses and other current assets


3,857



2,143Total current assets


161,255



153,502Property, plant and equipment, net


10,782



11,745Other assets


533



639Total assets

$
172,570


$
165,886LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
6,079


$
5,941Current portion of capital lease obligations


270



261Deferred revenue


6,441



9,409Accrued compensation and related liabilities


3,357



5,734Accrued income taxes


416



2,949Other accrued expenses


2,659



3,470Total current liabilities


19,222



27,764Long-term liabilities:Capital lease obligations, less current portion


124



379Deferred income taxes


900



941Other long-term liabilities


434



388Total long-term liabilities


1,458



1,708Stockholders equity:Preferred stock, par value $0.01 per share,
    10,000,000 shares authorized, no shares issued or
    outstanding as of September 30, 2007 and 2006






Common stock, par value $0.01 per share, 90,000,000 shares
    authorized, 22,974,177 and 22,655,283 shares issued and
    outstanding as of September 30, 2007 and 2006, respectively


230



227Additional paid in capital


174,474



169,709Accumulated deficit


(22,814
)


(33,522
)Total stockholders equity


151,890



136,414Total liabilities and stockholders equity

$
172,570


$
165,886    41




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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 30,2007


2006


2005Net revenue

$
85,982


$
124,738


$
63,477Cost of goods sold


33,751



42,320



26,596Gross profit


52,231



82,418



36,881Operating expensesSelling, general and administrative


32,477



28,974



21,066Research and development


9,080



8,939



7,883Operating income


10,674



44,505



7,932Interest expense


98



3,496



3,910Other (income) and expenseIncome from marketable securities


(4,755
)


(1,863
)


(2,017
)Increase (decrease) in value of warrants






5,466



(599
)Other income


(168
)


(3
)


(257
)Income before taxes


15,499



37,409



6,895Provision (benefit) for income taxes


4,791



14,836



(524
)Net income

$
10,708


$
22,573


$
7,419Net income per share, basic

$
0.47


$
0.79


$
0.53Net income per share, diluted

$
0.46


$
0.60


$
0.36Weighted average shares outstanding, basic


22,914,031



14,016,988



5,396,248Weighted average shares outstanding, diluted


23,134,479



17,980,235



14,513,227Comprehensive Income:Net income

$
10,708


$
22,573


$
7,419Realized net gain on marketable securities, net of taxes










(621
)Comprehensive income

$
10,708


$
22,573


$
6,798    42




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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, 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
)










136,414Net income














10,708











10,708Compensation expense related to stock options










602















602Excess tax benefits from stock based compensation










426















426Issuance of common stock upon exercise of stock options


118,894



1



859















860Issuance of common stock, net of issuance costs


200,000



2



2,878















2,880Balance at September 30, 2007


22,974,177


$
230


$
174,474


$
(22,814
)

$



$



$
151,890    43




---



##### Table of Contents



EAGLE
    TEST SYSTEMS, INC.
  CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In
    thousands)
  Year Ended September 30,2007


2006


2005Cash flows from operating activities:Net income

$
10,708


$
22,573


$
7,419Adjustments to reconcile net income to net cash provided by
    operating activities:Depreciation and amortization


3,554



3,193



2,169Realized gain on sale of marketable securities










(1,616
)Loss (gain) on sale of property and equipment


4







(247
)Accretion of discount on long-term debt






1,752



282Increase (decrease) in value of warrants






5,466



(599
)Non-cash compensation related to stock options


602



354



48Excess tax benefits from stock based compensation


(426
)






Deferred income taxes


61



(1,418
)


7,246Changes in operating assets and liabilities:Accounts receivable


(900
)


(8,136
)


14,333Inventories


745



(4,671
)


9,959Prepaid expenses and other current assets


(1,714
)


(1,595
)


(390
)Other assets


106



(162
)


(135
)Accounts payable


138



4,418



(5,354
)Deferred revenue


(2,968
)


5,990



(15,465
)Accrued compensation and related liabilities


(2,377
)


2,631



(3,258
)Accrued income taxes


(2,107
)


2,182



(7,439
)Other accrued expenses


(811
)


166



(2,310
)Other liabilities


46



(5
)


310Net cash provided by operating activities


4,661



32,738



4,953Cash flows from investing activities:Net purchases of marketable securities


(77,340
)


(13,000
)


(12,700
)Proceeds from the sales of investments






825



6,957Sale of property and equipment


9







659Capital expenditures


(3,204
)


(2,803
)


(7,055
)Net cash used in investing activities


(80,535
)


(14,978
)


(12,139
)Cash flows from financing activities:Payments of long-term debt






(30,595
)


Payments of capital lease obligations


(246
)


(250
)


(141
)Redemption of redeemable preferred stock






(32,500
)


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


34,925



86,680



Excess tax benefits from stock based compensation


426







Net cash provided by (used in) financing activities


35,105



23,335



(141
)Net increase (decrease) in cash and cash equivalents


(40,769
)


41,095



(7,327
)Cash and cash equivalents at beginning of period


51,071



9,976



17,303Cash and cash equivalents at end of period

$
10,302


$
51,071


$
9,976Supplemental disclosures:Interest paid

$
98


$
3,350


$
3,628Income tax refunds


(1,227
)


(2,871
)


(3,266
)Income taxes paid


8,804



16,947



2,932Transfer of equipment from fixed assets to inventory


600







Capital lease obligations


19







1,031    44




---



##### 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
         45




---



##### 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
    Allowance
    for Sales Returns and Uncollectibles
    Inventories
   46




---



##### 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
  Accounting for
    Uncertainty in Income Taxes  an interpretation of
    FASB Statement No. 109
 47




---



##### Table of Contents



EAGLE
    TEST SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (In thousands, except share and per share data)
        3.
    Marketable
    Securities      September 30,2007


2006Auction rate securities

$
53,940


$
1,700Variable rate demand notes (VRDNs)


48,275



23,175$
102,215


$
24,875  48




---



##### Table of Contents



EAGLE
    TEST SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (In thousands, except share and per share data)
        Year EndedSeptember 30,2007


2006


2005Interest income

$
2,056


$
827


$
331Dividend income


2,699



1,036



70Net realized gains from sales of marketable securities










1,616Income from marketable securities

$
4,755


$
1,863


$
2,017   4.
    Inventories    September 30,2007


2006Raw materials

$
7,766


$
7,185Work-in-process


4,499



6,741Finished goods


8,317



6,086Inventory at customers under purchase orders


1,651



2,366$
22,233


$
22,378    49




---



##### 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,


Depreciable2007


2006


Life(In years)Buildings

$
161


$
161



30Building improvements


29



29



10Leasehold improvements


3,775



3,679



10
*Equipment


14,330



13,247



3-5Office furniture


1,822



1,724



5-7Software


2,073



1,059



3-522,190



19,899Less accumulated depreciation


(11,408
)


(8,154
)$
10,782


$
11,745     *
    
     or lease term if less      6.
    Capital
    Lease Obligations  September 30,2007


2006Capital lease obligations

$
394


$
640Less current portion of capital lease obligations


(270
)


(261
)$
124


$
379   7.
    Stockholders
    Equity and Preferred Stock  Equity
    Offerings
   50




---



##### Table of Contents



EAGLE
    TEST SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (In thousands, except share and per share data)
    Recapitalization
    Change in Authorized Shares
  Common
    Stock
          Dividends
  Voting rights
 51




---



##### Table of Contents



EAGLE
    TEST SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (In thousands, except share and per share data)
  Preferred
    Stock
    Series A
    Convertible Preferred Stock (Redeemed in Initial Public
    Offering)
  EITF 98-5 
    Redeemable
    Preferred Stock (Redeemed in Initial Public Offering)
      Warrants
    (Exercised Prior to Initial Public Offering)
    8.
    Investment
    by TA Associates   52




---



##### Table of Contents



EAGLE
    TEST SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (In thousands, except share and per share data)
      9.
    Net
    Income Per Share  No. 03-6,
   53




---



##### Table of Contents



EAGLE
    TEST SYSTEMS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (In thousands, except share and per share data)
    Year Ended September 30,2007


2006


2005Net income

$
10,708


$
22,573


$
7,419Basic EPS:Adjustments to income:Retained earnings adjustment for conversion of redeemable
    preferred stock






(11,430
)*


Net income allocated to convertible preferred shares










(4,557
)Income available to common shareholders

$
10,708


$
11,143


$
2,862Weighted-average common share outstanding


22,914,031



14,016,988



5,396,248Basic net income per share

$
0.47


$
0.79


$
0.53Diluted EPS:Adjustments to Income:Dividend on redeemable preferred stock as converted 
    5% cumulative

$



$
(406
)

$
(1,656
)Warrant value adjustment







**


(599
)Income available to common shareholders

$
10,708


$
10,737


$
5,164Weighted-average common shares outstanding


22,914,031



14,016,988



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


220,448



3,963,247



9,116,979Diluted common shares


23,134,479



17,980,235



14,513,227Diluted EPS

$
0.46


$
0.60


$
0.36     *
    
    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. 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)
   10.
    Income
    Taxes    Year EndedSeptember 30,2007


2006


2005Current:Federal

$
4,032


$
13,257


$
(5,400
)State


698



2,997



(1,920
)Total current


4,730



16,254



(7,320
)Deferred:Federal


50



(1,169
)


5,013State


11



(249
)


1,783Total deferred


61



(1,418
)


6,796Total income tax expense (benefit)

$
4,791


$
14,836


$
(524
)     Year EndedSeptember 30,2007


2006


2005Federal statutory rate


35.0
%


35.0
%


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


4.0



4.7



3.7Capital loss carryover










(2.0
)Tax exempt investment income


(4.5
)






Research and development tax credits


(2.2
)


(0.1
)


(1.8
)Nondeductible increase (decrease) in value of warrants






5.1



(3.4
)Extraterritorial income exclusion


(0.6
)


(2.5
)


(3.0
)Domestic production deduction


(0.7
)


(1.2
)


Provision to return adjustments






(1.2
)


(23.0
)Reduction in tax accrual










(13.8
)Other


(0.1
)


(0.2
)


0.7Effective tax rate


30.9
%


39.6
%


(7.6
)%      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)
    September 30,2007


2006Deferred tax assets:Allowance for accounts receivable

$
232


$
243Inventory valuation reserves


2,902



2,751Deferred revenue


559



759Other accrued expenses


658



711Stock option compensation expense


162



38Other


59



48Total deferred tax assets


4,572



4,550Deferred tax liabilities:Depreciation


(1,062
)


(979
)Total deferred tax liabilities


(1,062
)


(979
)Net deferred tax assets

$
3,510


$
3,571   11.
    Employee
    Benefit Plans  Benefit
    Plan Changes-2007
    Employee
    Stock Ownership Plan
    Other
    Compensation Plans
   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)
      12.
    Stock
    Option Plan        WeightedOutstanding


AverageOptions


Exercise PriceOutstanding 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


$
9.09Granted


346,500



16.23Exercised


(118,894
)


7.23Forfeited


(6,459
)


7.00Outstanding at September 30, 2007


900,647


$
12.10  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)
    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


$
5.50Granted


346,500



10.21Vested


(80,274
)


5.45Forfeited






Non-vested at September 30, 2007


475,046


$
8.95     Options Outstanding


Options VestedWeighted


Weighted





WeightedAverage


Average





AverageNumber


Remaining


Exercise


Number


ExerciseExercise Price

Outstanding


Life


Price


Exercisable


Price$ 6.00 - $ 7.00


208,521



7.03


$
6.60



152,684


$
6.53$ 8.00 - $11.40


265,626



7.35


$
9.75



186,043


$
9.93$15.08 - $15.91


276,500



9.18


$
15.79



9,165


$
15.80$16.56 - $18.00


150,000



9.28


$
17.08



20,726


$
16.71900,647











368,618     2007


2006Exercised

$
1,104


$
84Outstanding

$
2,112


$
5,052Vested

$
1,497


$
2,605  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)
  13.
    Concentration
    of Credit Risk    Year Ended September 30,2007


2006


2005Texas Instruments Incorporated


30.7
%


52.9
%


44.3
%       14.
    Other
    Comprehensive Income    Year Ended September 30,2007


2006


2005Adjustment for net gain on investments included in net income,
    net of tax of $0, $0, and $450 in 2007, 2006, and 2005,
    respectively

$



$



$
621Other comprehensive income, net of taxes

$



$



$
(621
)   15.
    Industry
    and Geographic Segment Information  Operating
    Segments
   59




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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)
  Geographic
    Information
      Year Ended September 30,2007


2006


2005United States

$
30,283


$
38,177


$
29,295Malaysia


15,092



48,377



13,602Other


40,607



38,184



20,580$
85,982


$
124,738


$
63,477     16.
    Commitments
    and Contingencies  Lease
    Commitments
    September 30,2007Operating


CapitalLeases


Leases2008

$
2,044


$
2832009


1,752



1232010


1,656



32011


1,457



2012


1,432



Thereafter


3,311



Total minimum lease payments

$
11,652



409Less amount representing interest






(15
)Present value of capital lease obligations





$
394     Contingencies
     60




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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, 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


1,068Warranty expenditures


(2,389
)Provision for warranty


2,314Balance at September 30, 2007

$
993   17.
    Quarterly
    Results of Operations (unaudited)  Year Ended September 30, 2007First


Second


Third


FourthQuarter


Quarter


Quarter


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

$
24,036


$
21,308


$
19,858


$
20,780Gross profit


14,159



12,888



12,368



12,816Net income


3,866



1,839



2,008



2,995Net income per share:Basic

$
0.17


$
0.08


$
0.09


$
0.13Diluted

$
0.17


$
0.08


$
0.09


$
0.13   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



23,231Net income


1,875



1,773



9,672



9,253Net 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. 61




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##### Table of Contents



SCHEDULE II 
    VALUATION AND QUALIFYING ACCOUNTS
    EAGLE TEST SYSTEMS, INC.
    SEPTEMBER 30, 2007
 (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, 2007

$
616


$
100






$
131
(1)

$
585Year Ended September 30, 2006

$
1,240


$
155






$
779
(1)

$
616Year Ended September 30, 2005

$
1,220


$
605






$
585
(1)

$
1,240Reserve for excess and obsolete inventoryYear Ended September 30, 2007

$
9,088


$
1,567
(3)





$
2,278
(2)

$
8,377Year Ended September 30, 2006

$
9,082


$
38
(3)





$
32
(2)

$
9,088Year Ended September 30, 2005

$
5,727


$
3,278
(3)





$
(77
)(2)

$
9,082     (1)
    
    Sales returns and uncollectible accounts written off and
    recoveries(2)
    
    Inventory written off or utilization of reserve(3)
    
    Amounts charged to expense include inventory provisions for
    excess inventory above our projected future usage and for
    product transitions 62




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##### Table of Contents



Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures  Managements
    Annual Report on Internal Control Over Financial
    Reporting
  Evaluation
    of Disclosure Controls and Procedures.
  Rules 13a-15(e) 15d-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,
 63




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##### 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.
 64




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##### Table of Contents



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

Title

Date/s/  Leonard
    A. FoxmanLeonard
    A. Foxman

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

December 6, 2007/s/  Stephen
    J. HawryszStephen
    J. Hawrysz

Chief Financial Officer (Principal Financial and Accounting
    Officer)

December 6, 2007/s/  Theodore
    D. FoxmanTheodore
    D. Foxman

Chief Operating Officer, Executive Vice President and Director

December 6, 2007/s/  Michael
    C. ChildMichael
    C. Child

Director

December 6, 2007/s/  Ross
    W. ManireRoss
    W. Manire

Director

December 6, 2007/s/  William
    H. GibbsWilliam
    H. Gibbs

Director

December 6, 2007/s/  David
    B. MullenDavid
    B. Mullen

Director

December 6, 2007  65




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##### Table of Contents



EXHIBIT INDEX
  Number

Description

Method of Filing3.1


Form of Second Amended and Restated Certificate of Incorporation
    of the Company, 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, 20063.2


Form of Amended and Restated By-laws of the Company

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 Company, 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


Stockholders Agreement by and among the Company, 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,
    200410.6


Non-Competition Agreement, dated as of September 30, 2003,
    by and among the Company, 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, 2004 66




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##### Table of Contents



Number

Description

Method of Filing10.7


Non-Competition Agreement, dated as of September 30, 2003,
    by and among the Company, 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, 200410.8


Employment Agreement by and between the Company 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, 200410.9


Employment Agreement by and between the Company 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, 200410.10


Employment Agreement by and between the Company 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, 200410.11


Employment Agreement by and between the Company 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, 200410.12


Form of Indemnification Agreement between the Company 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, 200610.13


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

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, 200410.14


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, 200610.15


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, 200610.16


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, 200610.17


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, 2006 67




---



##### Table of Contents



Number

Description

Method of Filing10.18


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,
    200610.19


Amendment No. 1 to Employment Agreement between the Company
    and Leonard Foxman dated January 16, 2007

Incorporated by reference to Exhibit 10.1 to our Form 8-K (File
    No. 000-51828) filed with the Securities and Exchange Commission
    on January 19, 200710.20


Amendment No. 1 to Employment Agreement between the Company
    and Theodore Foxman dated January 16, 2007

Incorporated by reference to Exhibit 10.2 to our Form 8-K (File
    No. 000-51828) filed with the Securities and Exchange Commission
    on January 19, 200710.21


Amendment No. 1 to Employment Agreement between the Company
    and Steve Hawrysz dated January 16, 2007

Incorporated by reference to Exhibit 10.3 to our Form 8-K (File
    No. 000-51828) filed with the Securities and Exchange Commission
    on January 19, 200710.22


Amendment No. 1 to Employment Agreement between the Company
    and Jack Weimer dated January 16, 2007

Incorporated by reference to Exhibit 10.4 to our Form 8-K (File
    No. 000-51828) filed with the Securities and Exchange Commission
    on January 19, 200710.23


2007 Management Bonus Plan

Incorporated by reference to Exhibit 10.5 to our Form 8-K (File
    No. 000-51828) filed with the Securities and Exchange Commission
    on January 19, 200710.24


2008 Management Bonus Plan

Incorporated by reference to Exhibit 10.1 to our Form 8-K (File
    No. 000-51828) filed with the Securities and Exchange Commission
    on November 27, 200721.1


Subsidiaries of Eagle Test Systems, Inc.

Filed herewith23.1


Consent of Ernst & Young LLP

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  68