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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 September 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
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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.
Class Outstanding at September 30, 1999
----------------------------- ---------------------------------
Common Stock, $.001 par value 18,612,434
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AXT, INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at September 30, 1999
and December 31, 1998
Condensed Consolidated Income Statements for the three and
nine months ended September 30, 1999 and 1998
Condensed Consolidated Statements of Cash Flows for the nine
months ended September 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 6. Exhibits and Reports on Form 8-K
Signatures
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AXT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
September 30, December 31,
1999 1998
------------- ------------
(Unaudited)
Assets:
Current assets
Cash and cash equivalents $ 4,883 $ 16,438
Accounts receivable, net of allowance for doubtful
accounts of $1,864 and $1,648 17,344 13,128
Inventories 33,447 25,300
Prepaid expenses and other current assets 8,328 3,271
Deferred income taxes 2,856 2,452
--------- ---------
Total current assets 66,858 60,589
Property, plant and equipment 40,304 37,624
Other assets 2,087 1,927
Goodwill 2,394 2,843
--------- ---------
Total assets $ 111,643 $ 102,983
========= =========
Liabilities and Stockholders' Equity:
Current liabilities
Short-term bank borrowing $ 4,345 $ 1,928
Accounts payable 9,951 7,850
Accrued liabilities 10,967 5,242
Current portion of long-term debt 3,190 2,733
Current portion of capital lease obligation 1,092 1,192
--------- ---------
Total current liabilities 29,545 18,945
Long-term debt, net of current portion 15,079 18,416
Long-term capital lease, net of current portion 5,904 3,854
Other long-term liabilities 501 604
--------- ---------
Total liabilities 51,029 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;
18,612 and 18,393 shares issued and outstanding, respectively 19 18
Additional paid-in capital 45,992 45,248
Deferred compensation (244) (327)
Retained earnings 10,807 12,198
Cumulative translation adjustments 40 27
--------- ---------
Total stockholders' equity 60,614 61,164
--------- ---------
Total liabilities and stockholders' equity $ 111,643 $ 102,983
========= =========
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)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
1999 1998 1999 1998
-------- -------- -------- --------
Revenue $ 20,017 $ 13,942 $ 59,697 $ 40,660
Cost of revenue 13,077 8,911 43,288 26,244
-------- -------- -------- --------
Gross profit 6,940 5,031 16,409 14,416
Operating expenses:
Selling, general and administrative 3,113 2,540 9,956 7,238
Research and development 670 819 2,190 2,173
Acquisition costs -- -- 2,810 --
-------- -------- -------- --------
Total operating expenses 3,783 3,359 14,956 9,411
-------- -------- -------- --------
Income (loss) from operations 3,157 1,672 1,453 5,005
Interest expense (752) (325) (1,535) (837)
Other income and expense 235 248 380 219
-------- -------- -------- --------
Income (loss) before provision for income taxes 2,640 1,595 298 4,387
Provision for income taxes 1,003 559 1,181 1,704
-------- -------- -------- --------
Net Income (loss) before extraordinary item 1,637 1,036 (883) 2,683
Extraordinary item -- -- 508 --
-------- -------- -------- --------
Net Income (loss) $ 1,637 $ 1,036 $ (1,391) $ 2,683
======== ======== ======== ========
Basic income (loss) per share:
Income before extraordinary item $ 0.09 $ 0.06 $ (0.05) $ 0.17
Extraordinary item (0.03)
Net income 0.09 0.06 (0.07) 0.17
Diluted income (loss) per share:
Income before extraordinary item $ 0.08 $ 0.06 $ (0.05) $ 0.17
Extraordinary item (0.03)
Net income 0.08 0.06 (0.07) 0.17
Shares used in per share calculations:
Basic 18,482 16,915 18,610 15,388
Diluted 19,946 17,705 18,610 16,178
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)
Nine Months Ended
September 30,
-------------------------
1999 1998
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss): $ (1,391) $ 2,683
Adjustments to reconcile net income (loss) to cash used in operations:
Depreciation 4,097 1,961
Deferred income taxes (404) (1,152)
Amortization of goodwill 449 --
Stock compensation 83 (134)
Changes in assets and liabilities:
Accounts receivable (4,216) (1,174)
Inventories (8,147) (5,057)
Prepaid expenses and other current assets (5,057) (1,796)
Other assets (160) (81)
Accounts payable 2,101 2,102
Accrued liabilities 5,725 (85)
Other long-term liabilities (103) --
-------- --------
Net cash provided by (used in) operating activities (7,023) (2,733)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (4,123) (15,029)
-------- --------
Net cash used in investing activities (4,123) (15,029)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (payments of):
Issuance of common stock 745 34,577
Issuance of preferred stock -- (7,829)
Capital leases (704) (99)
Short-term bank borrowings 2,417 2,556
Long-term debt borrowings (2,880) 601
-------- --------
Net cash provided by financing activities (422) 29,806
-------- --------
Effect of exchange rate changes 13 (33)
-------- --------
Net increase (decrease) in cash and cash equivalents (11,555) 12,011
Cash and cash equivalents at the beginning of the period 16,438 3,199
-------- --------
Cash and cash equivalents at the end of the period $ 4,883 $ 15,210
======== ========
Non cash activity:
Purchase of PP&E through capital leases $ 2,654 $ --
======== ========
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 ended March 31, June 30 and September 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 nine-month periods ended September 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.
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):
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ------------------------
1999 1998 1999 1998
------- ------- -------- -------
Numerator:
Net income (loss) $ 1,637 $ 1,036 $ (1,391) $ 2,683
======= ======= ======== =======
Denominator:
Denominator for basic earnings per share -
weighted average common shares 18,482 16,915 18,610 15,388
Effect of dilutive securities:
Common stock options 1,464 790 -- 790
------- ------- -------- -------
Denominator for dilutive earnings per share 19,946 17,705 18,610 16,178
======= ======= ======== =======
Basic earnings per share $ 0.09 $ 0.06 $ (0.07) $ 0.17
Diluted earnings per share $ 0.08 $ 0.06 $ (0.07) $ 0.17
Note 4. Inventories
The components of inventory are summarized below (in thousands):
September 30, December 31,
1999 1998
------------- ------------
Inventories:
Raw materials $13,904 $ 9,928
Work in process 13,012 13,171
Finished goods 6,531 2,201
------- -------
$33,447 $25,300
======= =======
Note 5. Comprehensive Income
The components of comprehensive income are summarized below (in
thousands):
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Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- -----------------------
1999 1998 1999 1998
------ ------- ------- -------
Net Income (loss) $1,637 $ 1,036 $(1,391) $ 2,683
Foreign currency translation gain (loss) 66 (63) 13 (26)
------ ------- ------- -------
Comprehensive income $1,703 $ 973 $(1,378) $ 2,657
====== ======= ======= =======
Note 6. Segment Information
Selected industry segment information is summarized below (in
thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ -------------------------
1999 1998 1999 1998
-------- -------- -------- --------
Substrates
Net revenues from external customers $ 15,030 $ 11,395 $ 41,167 $ 31,915
Gross profit 6,225 4,554 16,606 12,992
Operating income 4,371 2,708 8,394 7,752
Identifiable assets 83,500 66,380 83,500 66,380
Visible emitters
Net revenues from external customers 3,889 - 13,280 -
Gross profit (loss) 920 - 810 -
Operating income (loss) 97 - (2,787) -
Identifiable assets 22,547 - 22,547 -
Consumer products
Net revenues from external customers 1,098 2,547 5,250 8,745
Gross profit (loss) (205) 477 (1,007) 1,424
Operating loss (1,311) (1,036) (4,154) (2,747)
Identifiable assets 5,596 4,973 5,596 4,973
Total
Net revenues from external customers 20,017 13,942 59,697 40,660
Gross profit 6,940 5,031 16,409 14,416
Operating income (loss) 3,157 1,672 1,453 5,005
Identifiable assets 111,643 71,353 111,643 71,353
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 December 31, 1998 as
filed with the Securities and Exchange Commission and the condensed consolidated
financial statements included elsewhere in this report.
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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:
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
1999 1998 1999 1998
----- ----- ----- -----
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of revenues 65.3 63.9 72.5 64.5
----- ----- ----- -----
Gross profit 34.7 36.1 27.5 35.5
Operating expenses:
Selling, general and administrative 15.6 18.2 16.7 17.8
Research and development 3.3 5.9 3.7 5.3
Acquisition costs -- -- 4.7 --
----- ----- ----- -----
Total operating expenses 18.9 24.1 25.1 23.1
----- ----- ----- -----
Income (loss) from operations 15.8 12.0 2.4 12.3
Interest expense (3.8) (2.3) (2.6) (2.1)
Other income and expense 1.2 1.8 0.6 0.5
----- ----- ----- -----
Income (loss) before provision for income taxes 13.2 11.4 0.5 10.8
Provision for income taxes 5.0 4.0 2.0 4.2
----- ----- ----- -----
Net income (loss) before extra ordinary item 8.2 7.4 (1.5) 6.6
Extraordinary item -- -- 0.9 --
----- ----- ----- -----
Net Income (loss) after extra ordinary item 8.2% 7.4% 2.3% 6.6%
===== ===== ===== =====
Revenues. Total revenues increased 43.6% from $13.9 million for the
three months ended September 30, 1998 to $20.0 million for three months ended
September 30, 1999. The increase in product revenues for the three month and
nine month periods ended September 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 LED's in the amount of $3.9 million and $13.2 million for the three months
and nine months, respectively, which were not included in the 1998 results. We
introduced LED's in the second quarter of 1999. Ge substrate sales were $315,000
lower in the third quarter of 1999 when compared to the third quarter of 1998,
and were $527,000 lower in sales for the nine months ended September 30, 1999
when compared to the nine months ended September 30, 1998. These decreases were
due in part to a request by a major Ge customer for a two-month suspension in
shipments due to their excess inventory.
International revenues, excluding Canada, increased from 17.2% of total
revenues for the three months ended September 30, 1998 to 44.7% of total
revenues for the three months ended September 30, 1999, and increased from 22.3%
of total revenues for the nine months ended September 30, 1998 to 43.5% for the
nine months ended September 30, 1999. These increases primarily reflect
increased sales in Europe and Asia for GaAs substrates used for the LED market,
and the inclusion of Alpha division's sales in 1999 results, which are sold
primarily to Asian markets.
Gross margin. Total gross margin decreased from 36.1% to 34.7% of total
revenues for the three months ended September 30, 1998, and September 30, 1999,
respectively. This decrease is due to a mix of different factors.
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The inclusion of the Alpha laser-diode and LED divisions in the 1999 amounts
resulted in an increase in gross margin. Alpha's laser-diode and LED division
benefited from the transition of manufacturing operations to China in the first
quarter of 1999, and Lyte's consumer products division benefited from the 1998
closing of their Arizona manufacturing facility, which lowered our labor costs
and improved our gross margins in 1999. In 1999, gross margins from Ge
substrates were lower, which 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 nine months ended September 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 from $2.5 million for the three months ended
September 30, 1998 to $3.1 million for the three months ended September 30,
1999, and increased 38.9% from $7.2 million for the nine months ended September
30, 1998 to $10.0 million for the nine months ended September 30, 1999. These
increases resulted primarily from the inclusion of the Alpha division in the
1999 results. The Alpha division added $652,000 and $2.6 million to the selling,
general and administrative expenses in the three months and nine months ended
September 30, 1999, respectively. This increase was partially offset by a
decrease in selling, general and administrative expenses by the Lyte division,
as a result of the closing of a manufacturing facility located in Arizona in
1998 as mentioned above. Selling, general and administrative expenses as a
percentage of total revenues decreased from 18.2% for the three months ended
September 30, 1998 to 15.6% for the three months ended September 30, 1999, and
decreased as a percentage of total revenues from 17.8% for the nine months ended
September 30, 1998 to 16.7% for the nine months ended September 30, 1999. These
decreases primarily reflect the closing of the facility in Arizona by Lyte and
the control of our expenses combined with an increase in our total revenues.
Research and development expenses. Research and development expenses
decreased 18.2% from $819,000 for the three months ended September 30, 1998 to
$670,000 for the three months ended September 30, 1999, and were flat at $2.2
million for the nine months ended September 30, 1998 and 1999. The decrease for
the three months ended September 30, 1999 was primarily due to a reduction of
consulting fees and materials purchased at the substrate division.
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 $325,000 for the three
months ended September 30, 1998 to $752,000 for the three months ended September
30, 1999, and increased from $837,000 for the nine months ended September 30,
1998 to $1.5 million for the nine months ended September 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 about $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 $213,000 and
$599,000 for the three months and nine months ended September 30, 1999,
respectively.
Other income and expense. Other income and expense decreased 5.2% from
$248,000 for the three months ended September 30, 1998 to $235,000 for the three
months ended September 30, 1999. Other income and expense increased from
$219,000 for the nine months ended September 30, 1998 to $380,000 for the nine
months ended September 30, 1999. The decrease for the three months ended
September 30, 1999 was primarily due to lower interest income on short-term
investments offset by exchange rate gains. The increase for the nine months
ended September 30, 1999 was primarily due to exchange rate gains.
Provision for income taxes. Income tax expense, as adjusted for
acquisition costs of $2.8 million in 1999, declined from 38.8% of income before
provision of income taxes for the nine months ended September 30, 1998 to 38.0%
for the nine months ended September 30, 1999.
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Extraordinary Item, net of tax benefits. In connection with the
acquisition of Lyte, 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 in the second quarter of 1999, which is
reflected in the nine months ended September 30, 1999.
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 September
30, 1999, we had working capital of $37.3 million, including cash and cash
equivalents of $4.9 million, compared to working capital at December 31, 1998 of
$41.6 million, including cash and cash equivalents of $16.4 million.
During the nine months ended September 30, 1999, net cash used in
operations of $7.0 million was primarily due to increases in inventories of $8.1
million, accounts receivable of $4.2 million, prepaid and other assets of $5.1
million and a loss of $1.3 million, offset in part by depreciation of $4.1
million and increases in accounts payable and accrued liabilities of $7.8
million. The increases in accounts receivable, inventory and accounts payable
and accrued liabilities were primarily the result of the 46.8% increase in total
revenues from the prior nine months ended September 30. In addition, raw
materials inventories increased 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, prepaid research and development expenses.
Net cash used in investing activities was $4.1 million for the nine
months ended September 30, 1999, and was due primarily to the purchase of
property, plant and equipment in our Fremont facilities as well as our new
facility in Beijing, China.
Net cash used in financing activities was $422,000 for the nine months
ended September 30, 1999, and was generated primarily from our issuance of
Common Stock in the amount of $956,000 and short-term borrowings of $2.4
million, offset by repayments of long-term borrowings and capital leases of $3.6
million. The Common Stock was issued primarily to employees exercising their
stock options or purchasing stock through our employee stock purchase plan.
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 September
30, 1999, $10.7 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
November 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 September 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 September 30, 1999, $4.3 million
was outstanding under the $15 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 dependent 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
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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 have any 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 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 will 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 September
30, 1999, the Company's outstanding commitments with respect to the foreign
exchange contracts had a total value of approximately $3.8 million. Many of the
contracts were entered into six months prior to the due date and the dates
coincide with the receivable terms on customer invoices. By matching the
receivable collection date and contract due date, the Company attempts to
minimize the impact of foreign exchange fluctuations.
PART II. OTHER INFORMATION
Item 2. Changes in securities 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. 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 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
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stockholders of Lyte Optronics were provided with an information statement
setting forth information about the Company and the Merger. There was no general
solicitation or advertising involved in the acquisition. Prudential Securities,
Inc., to whom we paid a fee of $800,000, advised us on the acquisition.
Item 6. Exhibits and reports on Form 8-K
a. Exhibits
27.1 Financial Data Schedule
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
amended the report on 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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