<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC. 20549
----------------------------
FORM 10-Q/A
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the quarterly period ended
June 30, 1999
or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period from
______________ to ______________
Commission File Number 0-24085
--------------------
AXT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 94-3031310
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
4281 TECHNOLOGY DRIVE, FREMONT, CALIFORNIA 94538
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(510) 683-5900
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
-----------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding at June 30, 1999
----- ----------------------------
<S> <C>
Common Stock, $.001 par value 18,504,123
</TABLE>
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AXT, INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at June 30, 1999 and
December 31, 1998
Condensed Consolidated Income Statements for the three and six
months ended June 30, 1999 and 1998
Condensed Consolidated Statements of Cash Flows for the six
months ended June 30, 1999 and 1998
Notes To Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
Signatures
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AXT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------- ------------
(Unaudited)
<S> <C> <C>
Assets:
Current assets
Cash and cash equivalents $ 10,204 $ 16,438
Accounts receivable, net of allowance for doubtful
accounts of $1,616 and $1,648 14,057 13,128
Inventories 29,791 25,300
Prepaid expenses and other current assets 7,678 3,271
Deferred income taxes 2,856 2,452
--------- ---------
Total current assets 64,586 60,589
Property, plant and equipment 40,354 37,624
Other assets 1,137 1,927
Goodwill 2,543 2,843
--------- ---------
Total assets $ 108,620 $ 102,983
========= =========
Liabilities and Stockholders' Equity:
Current liabilities
Short-term bank borrowing $ 6,454 $ 1,928
Accounts payable 8,039 7,850
Accrued liabilities 9,006 5,242
Current portion of long-term debt 2,863 2,733
Current portion of capital lease obligation 1,139 1,192
--------- ---------
Total current liabilities 27,501 18,945
Long-term debt, net of current portion 15,982 18,416
Long-term capital lease, net of current portion 6,139 3,854
Other long-term liabilities 501 604
--------- ---------
Total liabilities 50,123 41,819
--------- ---------
Stockholders' equity:
Preferred stock
$.001 par value per share; 2,000 shares authorized;
981 shares issued and outstanding 1 1
Additional paid-in capital 3,999 3,999
Common stock
$.001 par value per share; 100,000 shares authorized;
18,504 and 18,393 shares issued and outstanding, respective1y 19 18
Additional paid-in capital 45,606 45,248
Deferred compensation (272) (327)
Retained earnings 9,170 12,198
Cumulative translation adjustments (26) 27
--------- ---------
Total stockholders' equity 58,497 61,164
--------- ---------
Total liabilities and stockholders' equity $ 108,620 $ 102,983
========= =========
</TABLE>
See accompanying notes to these unaudited condensed consolidated financial
statements.
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AXT, INC.
CONDENSED CONSOLIDATED INCOME STATEMENTS (Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue $ 20,783 $ 13,532 $ 39,680 $ 26,718
Cost of revenue 13,971 9,189 30,211 17,333
-------- -------- -------- --------
Gross profit 6,812 4,343 9,469 9,385
Operating expenses:
Selling, general and administrative 3,196 2,238 6,843 4,698
Research and development 858 714 1,520 1,354
Acquisition costs 2,810 -- 2,810 --
-------- -------- -------- --------
Total operating expenses 6,864 2,952 11,173 6,052
-------- -------- -------- --------
Income (loss) from operations (52) 1,391 (1,704) 3,333
Interest expense (730) (274) (1,360) (512)
Other income and expense 29 (48) 722 (29)
-------- -------- -------- --------
Income (loss) before provision for income taxes (753) 1,069 (2,342) 2,792
Provision for income taxes 782 437 178 1,144
-------- -------- -------- --------
Net Income (loss) before extraordinary item (1,535) 632 (2,520) 1,648
Extra ordinary item 508 -- 508 --
-------- -------- -------- --------
Net Income (loss) $ (2,043) $ 632 $ (3,028) $ 1,648
======== ======== ======== ========
Basic income (loss) per share:
Income before extraordinary item $ (0.08) $ 0.04 $ (0.14) $ 0.11
Extraordinary item (0.03) (0.03)
Net income (0.11) 0.04 (0.16) 0.11
Diluted income (loss) per share:
Income before extraordinary item $ (0.08) $ 0.04 $ (0.14) $ 0.11
Extraordinary item (0.03) (0.03)
Net income (0.11) 0.04 (0.16) 0.11
Shares used in per share calculations:
Basic 18,443 15,075 18,451 14,495
Diluted 18,443 15,878 18,451 15,298
</TABLE>
See accompanying notes to these unaudited condensed consolidated financial
statements.
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AXT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss): $ (3,028) $ 1,648
Adjustments to reconcile net income (loss) to cash used in operations:
Depreciation 1,162 1,107
Deferred income taxes (404) (528)
Amortization of goodwill 300 --
Stock compensation 55 (182)
Changes in assets and liabilities:
Accounts receivable (929) (405)
Inventories (4,491) (1,004)
Prepaid expenses and other current assets (4,407) (1,857)
Other assets 790 12
Accounts payable 189 (932)
Accrued liabilities 3,764 1,719
Other long-term liabilities (103) --
-------- --------
Net cash provided by (used in) operating activities (7,102) (422)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (1,238) (12,817)
-------- --------
Net cash used in investing activities (1,238) (12,817)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (payments of):
Issuance of common stock 359 34,764
Issuance of preferred stock -- (8,553)
Capital lease payments (422) (18)
Short-term bank borrowings 4,526 1,528
Long-term debt borrowings (2,304) 901
-------- --------
Net cash provided by financing activities 2,159 28,622
-------- --------
Effect of exchange rate changes (53) 34
-------- --------
Net increase (decrease) in cash and cash equivalents (6,234) 15,417
Cash and cash equivalents at the beginning of the period 16,438 3,199
-------- --------
Cash and cash equivalents at the end of the period $ 10,204 $ 18,616
======== ========
Non cash activity:
Purchase of PP&E through capital leases $ 2,654 $ --
======== ========
</TABLE>
See accompanying notes to these unaudited condensed consolidated financial
statements.
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AXT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
As previously disclosed in the Company's Annual Report on Form 10-K for
the year ended December 31, 1999, the results of operations for the quarters
ended March 31 and June 30, 1999 were restated for certain corrections to the
account balances of Lyte Optronics, Inc. This report on Form 10-Q/A amends the
previously filed report on Form 10-Q to reflect these corrections.
The accompanying condensed consolidated financial statements for the
three-month and six-month periods ended June 30, 1999 and 1998 are unaudited.
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the unaudited condensed
consolidated financial statements reflect all adjustments, consisting only of
normal recurring adjustments, considered necessary to present fairly the
financial position, results of operations and cash flows of AXT, Inc. (the
"Company") and its subsidiaries for all periods presented. Certain prior period
reclassifications have been made to conform to the current period presentation.
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these condensed consolidated
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
The results of operations are not necessarily indicative of the results
to be expected in the future or for the full fiscal year. It is recommended that
these condensed consolidated financial statements be read in conjunction with
the Company's consolidated financial statements and the notes thereto included
in its 1998 Annual Report on Form 10-K and the separate financial statements of
Lyte Optronics, Inc. included in the Form 8-K/A filed with the Securities and
Exchange Commission.
Note 2. Acquisition
On May 28, 1999, the Company completed a merger with Lyte Optronics,
Inc., a Nevada corporation and all of its subsidiaries, including Alpha
Photonics, Inc., Lyte Optronics Ltd. (a United Kingdom company) and Advanced
Semiconductor (a Xiamen, Peoples Republic of China company). Lyte Optronics,
Inc. and its subsidiaries manufacture and distribute visible semiconductor laser
diode chips, high brightness visible light emitting diodes and laser pointers.
Under the terms of the merger agreement, the Company issued
approximately 2.3 million shares of common stock in exchange for all the
outstanding shares of Lyte's common stock as well as the outstanding shares of
Lyte's Series A preferred stock. The Company also issued approximately 981,000
shares of Series A preferred stock in exchange for all the outstanding shares of
Lyte's Series B preferred stock. In addition, the Company assumed and converted
Lyte's options and warrants representing approximately 115,000 shares of the
Company's common stock.
The merger has been accounted for as a pooling of interests;
accordingly, all prior period consolidated financial statements have been
restated to include the combined results of operations, financial position, and
cash flows of Lyte Optronics, Inc.
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The Company incurred costs of approximately $2.8 million associated with
the merger, which was charged to operations during the quarter ended June 30,
1999, the period in which the merger was consummated.
Note 3. Net Income Per Share
Basic earnings per common share is calculated by dividing net earnings
by the weighted average number of common shares outstanding during the period.
Diluted earnings per share includes the dilutive effect of common stock
equivalents outstanding during the period calculated using the treasury stock
method. Common stock equivalents consist of the shares issuable upon the
exercise of stock options. Common equivalent shares of approximately 1.0 million
are excluded from the computation for the three-month and six-month periods
ended June 30, 1999, as their effect is antidilutive.
A reconciliation of the numerators and denominators of the basic and
diluted net income per share calculations is as follows (in thousands except per
share data):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) $ (2,043) $ 632 $ (3,028) $ 1,648
======== ======== ======== ========
Denominator:
Denominator for basic earnings per share -
weighted average common shares 18,443 15,075 18,451 14,495
Effect of dilutive securities:
Common stock options -- 803 -- 803
Convertible preferred stock -- -- -- --
-------- -------- -------- --------
Denominator for dilutive earnings per share 18,443 15,878 18,451 15,298
======== ======== ======== ========
Basic earnings per share $ (0.11) $ 0.04 $ (0.16) $ 0.11
Diluted earnings per share $ (0.11) $ 0.04 $ (0.16) $ 0.11
</TABLE>
Note 4. Inventories
The components of inventory are summarized below (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------- -------
<S> <C> <C>
Inventories:
Raw materials $11,880 $ 9,928
Work in process 14,367 13,171
Finished goods 3,544 2,201
------- -------
$29,791 $25,300
======= =======
</TABLE>
Note 5. Comprehensive Income
The components of comprehensive income are summarized below (in
thousands):
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<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
-------------------- --------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Income (loss) $(2,043) $ 632 $(3,028) $ 1,648
Foreign currency translation gain (loss) 25 (113) (53) 34
------- ------- ------- -------
Comprehensive income $(2,018) $ 519 $(3,081) $ 1,682
======= ======= ======= =======
</TABLE>
Note 6. Segment Information
Selected industry segment information is summarized below (in
thousands):
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------------ ------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Substrates
Net revenues from external customers $ 14,405 $ 10,790 $ 26,136 $ 20,520
Gross profit 5,549 4,433 10,381 8,438
Operating income 1,164 2,645 4,022 5,044
Identifiable assets 82,850 62,157 82,850 62,157
Visible emitters
Net revenues from external customers 4,792 -- 9,391 --
Gross profit (loss) 1,622 -- (110) --
Operating income (loss) 111 -- (2,884) --
Identifiable assets 20,676 -- 20,676 --
Consumer products
Net revenues from external customers 1,586 2,742 4,153 6,198
Gross profit (loss) (359) (90) (802) 947
Operating loss (1,327) (1,254) (2,842) (1,711)
Identifiable assets 5,094 5,766 5,094 5,766
Total
Net revenues from external customers 20,783 13,532 39,680 26,718
Gross profit 6,812 4,343 9,469 9,385
Operating income (loss) (52) 1,391 (1,704) 3,333
Identifiable assets 108,620 67,923 108,620 67,923
</TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Management's Discussion and Analysis of Financial Condition and
Results of Operations includes a number of forward-looking statements that
reflect current views with respect to future events and financial performance.
These forward-looking statements are subject to certain risks and uncertainties
that could cause actual results to differ materially from historical results or
those anticipated. In this report, the words "anticipates," "believes,"
"expects," "future," "intends," and similar expressions identify forward-looking
statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. This
discussion should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations included in the
Company's Annual Report on Form 10-K for the year ended
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December 31, 1998 as filed with the Securities and Exchange Commission and the
condensed consolidated financial statements included elsewhere in this report.
Results of Operations
The following table sets forth certain information relating to the
operations of the Company expressed as a percentage of total revenues for the
periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------- -----------------
1999 1998 1999 1998
----- ----- ----- -----
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of revenues 67.2 67.9 76.1 64.9
----- ----- ----- -----
Gross profit 32.8 32.1 23.9 35.1
Operating expenses:
Selling, general and administrative 15.4 16.5 17.2 17.6
Research and development 4.1 5.3 3.8 5.1
Acquisition costs 13.5 -- 7.1 --
----- ----- ----- -----
Total operating expenses 33.0 21.8 28.1 22.7
----- ----- ----- -----
Income (loss) from operations (0.2) 10.3 (4.3) 12.4
Interest expense (3.5) (2.0) (3.4) (1.9)
Other income and expense 0.1 (0.4) 1.8 0.0
----- ----- ----- -----
Income (loss) before provision for income taxes (3.6) 7.9 (5.9) 10.5
Provision for income taxes 3.8 3.2 0.4 4.3
----- ----- ----- -----
Net Income (loss) before extra ordinary item (7.4) 4.7 (6.3) 6.2
Extraordinary item 2.4 -- 1.3 --
----- ----- ----- -----
Net Income (loss) after extra ordinary item (9.8)% 4.7% (7.6)% 6.2%
===== ===== ===== =====
</TABLE>
Revenues. Total revenues increased 54.1% from $13.5 million for the
three months ended June 30, 1998 to $20.8 million for the three months ended
June 30, 1999. The increase in revenues for the three month and six month
periods ended June 30, 1999, reflected an increase in the volume of sales of
GaAs and InP substrates to existing domestic and international customers and the
addition of new customers, which offset a decline in Lyte Optronics' sales. In
addition, the 1999 results include the sale of laser diodes and LEDs in the
amount of $4.7 million and $9.4 million for the three months and six months,
respectively, which amounts were not included in the 1998 results. We introduced
LEDs in the second quarter of 1999. Ge substrate sales were $800,000 lower in
the second quarter of 1999 when compared to the second quarter of 1998, and were
approximately equal in sales for the six months ended June 30, 1998 and 1999,
respectively.
International revenues, excluding Canada, increased from 30.0% of total
revenues for the three months ended June 30, 1998 to 44.4% for the three months
ended June 30, 1999, and increased from 26.4% of total revenues for the six
months ended June 30, 1998 to 44.3% for the six months ended June 30, 1999.
These increases primarily reflect increased sales in Europe and Asia for GaAs
substrates used for the LED market and the inclusion of laser-diode and LED
sales in 1999 results, which are sold primarily to Asian markets.
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Gross margin. Total gross margin increased from 32.1% of total revenues
for the three months ended June 30, 1998 to 32.8% of total revenues for the
three months ended June 30, 1999, and decreased from 35.1% of total revenues for
the six months ended June 30, 1998 to 23.9% for the six months ended June 30,
1999. The slight increase in gross margins for the three months is due to a mix
of different factors. One factor was the inclusion of laser-diode and LED
amounts in the 1999 results; in 1999, the laser-diode and LED business benefited
from the transition of manufacturing operations to China, which lowered our
labor costs and improved our gross margins. In 1999, gross margins from Ge
substrates were lower, which was offset in part the higher yields achieved in
GaAs and InP production. The lower gross margins from Ge substrates in 1999 were
primarily the result of pricing declines in the Ge industry generally. The
decrease in gross margin for the six months ended June 30, 1999 is primarily due
to charges for returned merchandise and increased warranty amounts for the
consumer products division.
Selling, general and administration expenses. Selling, general and
administrative expenses increased 45.5% from $2.2 million for the three months
ended June 30, 1998 to $3.2 million for the three months ended June 30, 1999,
and increased 44.7% from $4.7 million for the six months ended June 30, 1998 to
$6.8 million for the six months ended June 30, 1999. These increases resulted
primarily from the inclusion of the laser-diode and LED division in the 1999
results. The laser-diode and LED division added $1.1 million and $1.9 million to
selling, general and administrative expenses in the three months and six months
ended June 30, 1999, respectively. This increase was offset by a decrease in
selling, general and administrative expenses by Lyte Optronics' consumer
products division, as a result of the closing of a manufacturing facility
located in Arizona in 1998. Selling, general and administrative expenses as a
percentage of total revenues decreased from 16.5% for the three months ended
June 30,1998 to 12.5% for the three months ended June 30, 1999, and decreased as
a percentage of total revenues from 17.6% for the six months ended June 30, 1998
to 17.2% for the six months ended June 30, 1999. These decreases primarily
reflect the closing of the facility in Arizona by Lyte Optronics and the control
of our expenses combined with an increase in our total revenues.
Research and development expenses. Research and development expenses
increased 20.2% from $714,000 for the three months ended June 30, 1998 to
$858,000 for the three months ended June 30, 1999, and increased 7.1% from $1.4
million for the six months ended June 30, 1998 to $1.5 million for the six
months ended June 30, 1999.
Acquisition cost. As part of the acquisition of Lyte Optronics in May
1999, we incurred a number of one-time expenses associated with the transaction
in the approximate amount of $2.8 million. Such expenses include the fees paid
to our investment bankers, accountants, attorneys, and other outside consultants
and related transaction expenses.
Interest expense. Interest expense increased from $274,000 for the three
months ended June 30, 1998 to $730,000 for the three months ended June 30, 1999,
and increased from $512,000 for the six months ended June 30, 1998 to $1.4
million for the six months ended June 30, 1999. These increases primarily
reflect the inclusion of the laser-diode and LED business in the 1999 results.
As part of the acquisition, we added approximately $11.0 million in debt, of
which we repaid approximately $6.0 million in June 1999. The additional interest
from the inclusion of the laser-diode and LED business was $276,000 and $386,000
for the three months and six months ended June 30, 1999, respectively.
Other income and expense. Other income and expense increased from an
expense of $48,000 for the three months ended June 30, 1998 to income of $29,000
for the three months ended June 30, 1999. Other income increased from an expense
of $29,000 for the six months ended June 30, 1998 to income of $722,000 for the
six months ended June 30, 1999. This increase was primarily the result of two
significant changes. First, we recognized foreign exchange gains in the first
quarter of 1999 of approximately $600,000 on short-term forward contracts to
hedge against certain accounts receivable in Japanese yen. Second, there was an
increase in investment income of approximately $80,000 earned on proceeds from
the completion in May 1998 of our initial public offering and the raising of
$25.8 million, net of offering expenses.
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<PAGE> 11
Provision for income taxes. Income tax expense, as adjusted for
acquisition costs of approximately $2.8 million, declined from 41.0% of income
before provision for income taxes for the three and the six months ended June
30, 1998 to 38.0% for the three and six months ended June 30, 1999.
Extraordinary item, net of tax benefits. In connection with the
acquisition of Lyte Optronics, we incurred prepayment penalties associated with
a loan that we repaid as part of the transaction. This one-time charge is shown,
net of tax benefits, as an extraordinary item.
Liquidity and Capital Resources
During the past five years, we have funded our operations primarily from
cash provided by operations, short-term and long-term borrowings and a private
financing of $5.9 million for preferred stock completed in March 1997. We
completed our initial public offering in May 1998, and raised approximately
$25.8 million, net of offering expenses. In December 1998 we completed our
taxable bond offering and raised approximately $11.6 million. As of June 30,
1999, we had working capital of $37.1 million, including cash and cash
equivalents of $10.2 million, compared to working capital at December 31, 1998
of $41.6 million, including cash of $16.4 million.
During the six months ended June 30, 1999, net cash used in operations
of $7.1 million was primarily due to increases in inventories of $4.5 million
and prepaid and other current assets of $4.4 million, as well as the loss for
the period. The increase in inventory was primarily due to increased
work-in-process inventories in anticipation of large orders for the upcoming
quarters. The increase in prepaid and other assets was primarily due to deposits
for Ge raw material and equipment and prepaid research and development expenses.
Net cash used in investing activities was $1.2 million for the six
months ended June 30, 1999, and was due to the purchase of property, plant and
equipment to expand wafer production in our Fremont facilties.
Net cash provided by financing activities was $2.2 million for the six
months ended June 30, 1999, and was generated primarily from our short-term
borrowings of $4.5 million.
We have generally financed our equipment purchases through secured
equipment loans over five-year terms at interest rates ranging from 6.0% to 9.0%
per annum. Our manufacturing facilities have been financed by long-term
borrowings, which were repaid by the taxable variable rate revenue bonds in
1998. These bonds have a term of twenty-five years and mature in 2023 with an
interest rate at 200 basis points below the prime rate and are traded in the
public market. Repayment of principal and interest under the bonds is secured by
a letter of credit from our bank and is paid on a quarterly basis. We have the
option to redeem in whole or in part the bonds during their term. At June 30,
1999, $11.0 million was outstanding under the taxable variable rate revenue
bonds.
We currently have a $15.0 million line of credit with a commercial bank
at an interest rate equal to the prime rate plus one-half percent. This line of
credit is secured by all business assets, less equipment, and expires in October
1999. We are currently negotiating an extension to this line of credit. This
line of credit is subject to certain financial covenants regarding current
financial ratios and cash flow requirements, which were met as of June 30, 1999.
We must obtain the lender's approval to obtain additional borrowings or to
further pledge our assets, except for borrowings obtained in the normal course
of business or the pledging of equipment. At June 30, 1999, $5.4 million was
outstanding under the $15.0 million line of credit.
We anticipate that the combination of existing working capital and the
borrowings available under current credit agreements will be sufficient to fund
working capital and capital expenditure requirements for the next 12 months. Our
future capital requirements will be depend on many factors, including the rate
of revenue growth, our profitability, the timing and extent of spending to
support research and development programs, the expansion of selling and
marketing and administrative activities, and market acceptance of our products.
We expect that we may need to raise additional equity or debt financing in the
future, although we are not currently negotiating for additional financing nor
do we have any current plans to obtain additional financing. We cannot assure
you that additional equity or debt financing, if required, will be available on
the acceptable terms or at all. If we are unable to obtain such additional
capital, if needed, we may be required to reduce the scope of our planned
product
11
<PAGE> 12
development and selling and marketing activities, which would have a material
adverse effect on our business, financial condition and results of operations.
In the event that we do raise additional equity financing, further dilution to
our investors may result.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Since many of the Company's Japanese and Taiwanese invoices are
denominated in yen, the Company has purchased foreign exchange contracts to
hedge against certain trade accounts receivable in Japanese yen. As of June 30,
1999, the Company's outstanding commitments with respect to the foreign exchange
contracts had a total value of approximately $4.1 million. Many of the contracts
were entered into six months prior to the invoice due date and the dates
coincide with the receivable terms. By matching the receivable collection date
and contract due date, we attempt to minimize the impact of foreign exchange
fluctuation.
PART II. OTHER INFORMATION
Item 2. Changes in Securites and use of Proceeds
(a) In connection with the acquisition of Lyte Optronics, our Board of
Directors adopted resolutions designating 2,000,000 shares of Preferred Stock of
the Company as Series A Preferred Stock (the "Series A Preferred Stock"), of
which 980,655 shares were subsequently issued to the stockholders of Lyte
Optronics in exchange for the shares of Series B Preferred Stock of Lyte
Optronics, in connection with the Company's acquisition of Lyte Optronics. The
holders of the Series A Preferred Stock shall be entitled to receive, out of any
funds legally available therefor, dividends in cash in an amount equal to $0.20
per annum for each share of Series A Preferred Stock held by them, in each case
as adjusted for stock splits, recapitalizations and the like. Dividends shall
accrue quarterly and be payable as and when declared by the Board of Directors.
Dividends that have accrued but not been paid shall cumulate. Unless we have
paid all dividends that have accrued on the Series A Preferred Stock, so long as
any shares of Series A Preferred Stock are outstanding we shall not pay or
declare any dividend or distribution of any nature on shares of Common Stock. In
the event of a liquidation, dissolution, or winding up of the Company, whether
voluntary or involuntary, after our debts have been paid, the holders of Series
A Preferred Stock shall be entitled to receive out of our assets an amount per
share equal to $4.00 before any payment shall be made or any assets distributed
to the holders of Common Stock. If the assets remaining after our debts have
been paid or amounts set aside for such payment are insufficient to pay to the
holders of Series A Preferred Stock the full amount to which they are entitled,
then all of our assets available for distribution shall be distributed ratably
among the holders of the Series A Preferred Stock. After payment in full of this
liquidation preference plus accrued but unpaid dividends of the shares of the
Series A Preferred Stock, no further participation in any distribution of our
assets shall be allowed in respect of such shares, and the holders of the Common
Stock shall be entitled to receive all of our remaining assets to be
distributed. Except as otherwise required by law, shares of Series A Preferred
Stock shall not be entitled to vote on any matter to be voted on by our
stockholders.
(b) In connection with the acquisition of Lyte Optronics, we issued an
aggregate of 2,247,465 shares of Common Stock and 980,655 shares of Series A
Preferred Stock to the existing stockholders of Lyte Optronics in exchange for
all of the outstanding shares of capital stock of Lyte Optronics, and we assumed
options to acquire 101,501 shares of our Common Stock and warrants convertible
into 13,557 shares of our Common Stock (collectively the "Merger Shares"). The
Merger Shares were issued pursuant to an exemption from the registration
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
afforded by Section 4(2). Lyte Optronics retained a purchaser representative on
behalf of their stockholders who had knowledge and experience in financial and
business matters such that the purchaser representative was capable of
evaluating the merits and risks of the investment. The stockholders of Lyte
Optronics had access to all relevant information regarding us necessary to
evaluate the investment and represented that the shares were being acquired for
investment intent. Additionally, the stockholders of Lyte Optronics were
provided with an information statement setting forth information about the
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Company and the Merger. There was no general solicitation or advertising
involved in the acquisition. We were advised on the acquisition by Prudential
Securities, Inc., to whom we paid a fee of $800,000.
Item 4. Submission of Matters to a Vote of Security Holders
We held our Annual Meeting of Stockholders on May 17, 1999. The
following is a brief description of each matter voted upon at the meeting and
the number of votes cast for, withheld, or against and the number of abstentions
with respect to each matter. Each director proposed by us was elected and the
stockholders also approved the three management proposals we proposed.
(a) The stockholders reelected the two nominees for our Board of Directors:
<TABLE>
<CAPTION>
Director Shares voted for Shares withheld
----------------- ---------- ----------
<S> <C> <C>
Morris S. Young 10,878,142 81,719
Theodore S. Young 10,945,142 14,719
</TABLE>
(b) The stockholders approved the increase in the number of shares reserved for
issuance under our 1997 Stock Option Plan from 2,800,000 to 3,800,000 shares of
common stock and to limit the number of shares for which options may be granted
under such plan to any employee within any fiscal year to 250,000:
<TABLE>
<S> <C>
Shares voted for: 10,225,108
Shares voted against: 617,073
Shares abstaining: 117,280
Broker non-votes: 400
</TABLE>
(c) The stockholders approved the increase in the number of shares reserved for
issuance under our 1998 Employee Stock Purchase Plan from 250,000 to 400,000
shares of common stock:
<TABLE>
<S> <C>
Shares voted for: 10,483,279
Shares voted against: 360,002
Shares abstaining: 116,580
</TABLE>
(d) The stockholders approved the appointment of PricewaterhouseCoopers LLP as
our independent auditors for the fiscal year ending December 31, 1999:
<TABLE>
<S> <C>
Shares voted for: 10,803,699
Shares voted against: 38,632
Shares abstaining: 117,530
</TABLE>
Item 6. Exhibits and reports on Form 8-K
a. Exhibits.
<TABLE>
<CAPTION>
Exhibit No. Description
------------ -----------
<S> <C>
2.1 Agreement and Plan of Reorganization dated May 27, 1999
(which is incorporated herein by reference to Exhibit
2.1 to the Registrant's Form 8-K dated May 28, 1999).
2.2 Certificate of Merger dated May 27, 1999, filed with the
Secretary of State of the State of Delaware on May 28,
1999 (which is incorporated herein by reference to
Exhibit 2.1 to the Registrant's Form 8-K dated May 28,
1999).
</TABLE>
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<TABLE>
<S> <C>
2.3 Articles of Merger dated May 27, 1999, filed with the
Secretary of State of the State of Nevada on May 28,
1999 (which is incorporated herein by reference to
Exhibit 2.1 to the Registrant's Form 8-K dated May 28,
1999).
3.1 Certificate of Designation, Preferences and Rights of
Series A Preferred Stock, as filed with the Secretary of
State of the State of Delaware on May 27, 1999 (which is
incorporated herein by reference to Exhibit 2.1 to the
Registrant's Form 8-K dated May 28, 1999).
27.1 Financial Data Schedule.
</TABLE>
b. Reports on Form 8-K.
(1) On June 14, 1999, we filed a report on Form 8-K reporting the
acquisition of Lyte Optronics, Inc.
(2) On August 28, 2000, we filed a report on Form 8-K/A to amend the
Form 8-K that was originally filed on June 14, 1999.
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SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
AMERICAN XTAL TECHNOLOGY, INC.
Dated: August 28, 2000 By: /s/ Donald L. Tatzin
---------------------------
Donald L. Tatzin
Chief Financial Officer
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