As filed with the Securities and Exchange Commission on July 28, 2006
Registration No. 333-135474
SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 1, 2000.
REGISTRATION NO. 333-44704
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
Washington, DC 20549
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AMENDMENT NO. 1
TO
FORM S-3
------------------------
REGISTRATION STATEMENT
UNDER
Under
THE SECURITIES ACT OF 1933
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AXT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(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, CATechnology Drive
Fremont, California 94538
(510) 683-5900
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
MORRIS S. YOUNG
CHIEF EXECUTIVE OFFICER
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)
Philip C.S. Yin
Chief Executive Officer
AXT, INC.
4281 TECHNOLOGY DRIVE
FREMONT, CALIFORNIATechnology Drive
Fremont, California 94538
(510) 683-5900
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
WILSON W. CHEUNG | SALLY J. RAU, ESQ. | |
Chief Financial Officer and Corporate Secretary | DLA Piper Rudnick Gray Cary US LLP | |
AXT, Inc. | 2000 University Avenue | |
4281 Technology Drive | East Palo Alto, CA | |
Fremont, California 94538 | (650) 833-2000 | |
(510) 683-5900 |
Approximate date of commencement of proposed sale to the public: From time to time after the effective date of this Registration Statement becomes effective.
registration statement.
If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [ ]
box: o
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [ ]
box: x
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] __________
o
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] __________
o
If delivery ofthis Form is a registration statement pursuant to General Instruction I.D. or a post-effective amendment thereto that shall become effective upon filing with the prospectus is expected to be madeCommission pursuant to Rule 434,
please462(e) under the Securities Act, check the following box. [ ]o
If this Form is a post-effective amendment to a registration statement filed pursuant to General Instruction I.D. filed to register additional securities or additional classes of securities pursuant to Rule 413(b) under the Securities Act, check the following box. o
CALCULATION OF REGISTRATION FEE
Title of Each Class of |
| Proposed Maximum Aggregate Offering Price (1) |
| Amount of Registration Fee |
| ||
Common Stock, $0.001 par value (3) |
| $ | 25,000,000 |
| $ | 2,675.00 | (4) |
(1) | Pursuant to Rule 416 of the Securities Act of 1933, as amended (the “Securities Act”), this registration statement also registers such additional shares of common stock of the registrant as may hereafter be effected without the receipt of consideration which results in an increase in the number of outstanding shares of registrant's common stock offered or issued in connection with the securities registered for sale hereby by reason of any stock splits, stock dividends, recapitalizations or other capital adjustments. | |
(2) | Calculated pursuant to Rule 457(o) of the Securities Act. | |
(3) | Each share of common stock registered in this offering also includes a preferred stock purchase right under the Registrant’s Stockholder Rights Plan. | |
(4) | Previously paid. |
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED JULY 28, 2006
PROSPECTUS
$25,000,000
AXT, INC.
COMMON STOCK
We may offer and sell shares of our common stock from time to time under this prospectus, up to an aggregate offering price of $25,000,000. We will describe in a prospectus supplement the specific terms of each such offering.
We may offer these securities in amounts, at prices and on terms determined at the time of the offering. We will provide specific terms of this offering in supplements to this prospectus. We may sell the securities directly to you, through agents we select, or to or through underwriters and dealers we select. If we use agents, underwriters or dealers to sell the securities, we will name them and describe their compensation in a prospectus supplement. For additional information on the methods of sale, you should refer to the section entitled “Plan of Distribution” in this prospectus. The price to the public of those securities and the net proceeds we expect to receive from that sale will also be set forth in a prospectus supplement.
You should read this prospectus, the information incorporated by reference in this prospectus and any prospectus supplement carefully before you invest.
Our common stock trades on the NASDAQ Global Market under the symbol “AXTI.” On July 26, 2006, the closing price for our common stock, as reported on the NASDAQ Global Market, was $3.03 per share.
INVESTING IN OUR SECURITIES INVOLVES RISKS. SEE THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENTSECTION ENTITLED “RISK FACTORS” ON SUCH DATE OR
DATES PAGE 3, WHICH REFERS YOU TO THE SECTIONS ENTITLED “RISK FACTORS” CONTAINED IN OUR MOST RECENT ANNUAL REPORT ON FORM 10-K AND QUARTERLY REPORT ON FORM 10-Q, AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATEWELL AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(a), MAY
DETERMINE.
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2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
AXT AND THE SELLING STOCKHOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE
REGISTRATION STATEMENT ANY AMENDMENTS THERETO,
NEITHER THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE.NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS NOT AN OFFERTRUTHFUL OR COMPLETE. ANY REPRESENTATION TO SELL THESE SECURITIES
AND ITTHE CONTRARY IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE
WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION -- SEPTEMBER 1, 2000A CRIMINAL OFFENSE.
The date of this prospectus is , 2006.
TABLE OF CONTENTS
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ABOUT THIS PROSPECTUS
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2,200,000 Shares
[AXT LOGO]
Common Stock
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AXT, Inc.
Overview
This prospectus is offering 2,100,000 sharespart of common stock and the selling
stockholders are offering 100,000 shares of common stock. AXT will not receive
any proceeds from the sale of shares by the selling stockholders.
AXT designs, develops, manufactures and distributes high-performance compound
semiconductor substrates, as well as opto-electronic semiconductor devices such
as high-brightness light emitting diodes, or HB LEDs, and vertical cavity
surface emitting lasers, or VCSELs.
The shares of AXT are included for quotation in the Nasdaq National Market under
the symbol "AXTI." On August 31, 2000 the reported last sale price of AXT's
common stock in the Nasdaq National Market was $38.625 per share.
This prospectus provides you with a general description of the common stock we may offer. Each time we sell our common stock pursuant to this prospectus, we will provide a prospectus supplement containing specific information about the terms of that offering. A prospectus supplement may also add, update or passed upon the
accuracy or adequacy ofchange information in this prospectus. Any representationIf there is any inconsistency between the information in this prospectus and the applicable prospectus supplement, you must rely on the information in the prospectus supplement. Please carefully read both this prospectus and the applicable prospectus supplement together with additional information described under the heading “Incorporation of Certain Information by Reference.” This prospectus may not be used to sell any securities unless accompanied by a prospectus supplement.
The registration statement containing this prospectus, including exhibits to the contrary is a
criminal offense.
- --------------------------------------------------------------------------------registration statement, provides additional information about us and the common stock offered under this prospectus. The underwriters may, under some circumstances, purchase up to 330,000
additional shares from AXTregistration statement can be read at the SEC’s website or at the SEC’s public offering price, less underwriting
discountsreading room referred to under the heading “Where You Can Find More Information.”
We have not authorized any broker-dealer, salesperson or other person to give any information or to make any representation other than those contained or incorporated by reference in this prospectus and commissions. Deliverythe accompanying supplement to this prospectus. You must not rely upon any information or representation not contained or incorporated by reference in this prospectus or the accompanying prospectus supplement. This prospectus and payment for the shares will be on
, 2000.
PRUDENTIAL VOLPE TECHNOLOGY
A UNIT OF PRUDENTIAL SECURITIES
CIBC WORLD MARKETS
WIT SOUNDVIEW
ABN AMRO ROTHSCHILD
A DIVISION OF ABN AMRO INCORPORATED
, 2000 PACIFIC CREST SECURITIES
3
Setaccompanying supplement to this prospectus do not constitute an offer to sell or the solicitation of an offer to buy our common stock, nor do this prospectus and the accompanying supplement to this prospectus constitute an offer to sell or the solicitation of an offer to buy our common stock in any jurisdiction to any person to whom it is unlawful to make such offer or solicitation. The information contained in this prospectus and any accompanying prospectus supplement speaks only as of the date set forth on the left-hand sidecover page and may not reflect subsequent changes in our business, financial condition, results of operations and prospects even though this prospectus and any accompanying prospectus supplement is delivered or common stock is sold on a later date.
1
This summary highlights selected information from this prospectus and does not contain all of the inside front coverinformation that you need to consider in making your investment decision. You should carefully read the entire prospectus, including the risks of investing discussed under “Risk Factors” beginning on page are graphics3, the information incorporated by reference, including our consolidated financial statements, the exhibits to the registration statement of selected end-market applications into which AXT'sthis prospectus is a part and any applicable prospectus supplement.
Throughout this prospectus, references to “AXT,” the “Company,” “we,” “us,” and “our” refer to AXT, Inc., and its consolidated subsidiaries, where applicable.
AXT, Inc.
We design, develop, manufacture and distribute high-performance compound and single element semiconductor substrates comprising gallium arsenide (GaAs), indium phosphide (InP) and germanium (Ge). Our substrate products are incorporated.
The following graphics and captions are included:
o a graphic of a wireless handset above the caption "WIRELESS
COMMUNICATIONS AXT's compound semiconductor substrates are used by semiconductor device manufacturersprimarily in high-performancelighting display applications, wireless communications, applications."
o a graphic of optical fiber above the caption "FIBER OPTIC
COMMUNICATIONS AXT's InP substrates and VCSELs are used in next
generation fiber optic communications applications."
o a graphic of full-color outdoor displays above the caption "DISPLAYS
Large, full-color displays, like this one in Tokyo, which incorporate
LEDs that are manufactured on compound semiconductor substrates,
attract attention with news broadcasts, sports events and commercial
advertisements."
o a graphic of a traffic light above the caption "TRAFFIC SIGNALS LEDs
manufactured on compound semiconductor substrates are being used in
traffic lights worldwide."
A caption at the bottom of the page reads "As a result of the limitations of
silicon-based technologies, semiconductor device manufacturers are increasingly
using compound semiconductor substrates to improve the performance of
semiconductor devices and to enable new generations of high-performance
electronic and opto-electronic applications."
Set forth on the inside back cover page are graphics of selected products which
are designed, developed, manufactured and distributed by AXT. The following
graphic and caption is included:
o a graphic of various sizes of compound semiconductor crystals above
the caption "Wecommunications. We believe our proprietaryvertical gradient freeze, or VGF, technique for manufacturing compound semiconductor substrates provides significant benefits over traditionalother methods and has enabled us to become a leading manufacturer of compound semiconductor substrates."
4
TABLE OF CONTENTS
PAGE
----
Prospectus Summary................. 1
Risk Factors....................... 4
Forward-Looking Statements......... 14
Use of Proceeds.................... 15
Price Range of Common Stock and
Dividend Policy.................. 15
Capitalization..................... 16
Selected Consolidated Financial
Data............................. 17
Management's Discussion and
Analysis of Financial Condition
and Results of Operations........ 19
Business........................... 28
Management......................... 40
PAGE
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Certain Transactions............... 42
Principal and Selling
Stockholders..................... 43
Underwriting....................... 44
United States Federal Income Tax
Consequences to Non-United States
Holders.......................... 46
Legal Matters...................... 48
Experts............................ 48
Where You Can Find More
Information...................... 48
Information Incorporated By
Reference........................ 49
Index to Consolidated Financial
Statements....................... F-1
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American Xtal Technology, AXT, the AXT logo, Laserlyte, Opti, Lyte
Optronics, Safe Escape and Minibrite are all trademarks of AXT, Inc. This
prospectus contains trademarks of other companies.
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You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with different information. We are not
making an offer of these securities in any jurisdiction where the offer or sale
is not permitted. You should not assume that the information contained in this
prospectus is accurate as of any other date other than the date on the front
cover of this prospectus.
i
5
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and may not contain all of the information that you
should consider before investing in our common stock. You should read the entire
prospectus carefully.
AXT
We design, develop, manufacture and distribute high-performance compound
semiconductor substrates, as well as opto-electronic semiconductor devices, such
as high-brightness light emitting diodes, or HB LEDs, and vertical cavity
surface emitting lasers, or VCSELs. Our substrate products are used primarily in
fiber optic communications, wireless communications and lighting display
applications. We believe our proprietary vertical gradient freeze, or VGF,
technique for manufacturing compound semiconductor substrates provides
significant benefits over traditional methods and has enabled us to become a
leading manufacturer of compound semiconductor substrates. We pioneered the commercial use of VGF technology to manufacture gallium arsenide, or GaAs substrates and havesubsequently used VGF technology to manufacture substrates from other
materials, such as indium phosphide, or InP and germanium, or Ge. Some of our competitors have developed their own versions of VGF technology. Customers for our substrates include AgilentAvago Technologies, Alpha Industries, EMCORE, Nortel
Networks, RF Micro Devices, SDLContinental Metals, IQE, Kor Ning Do Ri Fang, MBE Technology, Osram Opto Semiconductors, Picogiga International, Sumika Epi Solution Co., Visual Photonics Epitoxy Co., and Sumitomo Chemical. Our acquisition of Lyte
Optronics provided us with expertise in epitaxial processes for manufacturing
opto-electronic semiconductor devices. WeXiamen Shanan Semiconductor. Over the past four years, we have used these capabilities to make
blue, green and cyan HB LEDs and VCSELs. Our opto-electronic semiconductor
devices are used in a wide range of applications, such as solid-state lighting
and fiber optic communications. We have recently undertakenimplemented an initiative to significantly expandreduce the cost of manufacturing our substrates by moving our manufacturing operations to China, which is now complete, and by investing in sources of low cost raw materials.
We also manufacture and sell raw materials related to our substrate business through five joint ventures located in China. These joint ventures produce products including 99.99% pure gallium (4N Ga), high purity gallium, arsenic, germanium, germanium dioxide, paralytic boron nitride (pBN) crucibles, and device manufacturing capacityboron oxide. AXT’s ownership interest in these entities ranges from 25 percent to 83 percent. We consolidate the three joint ventures in which we own a majority interest and employ equity accounting for the two joint ventures in which we have a 25 percent interest. We purchase a portion of the materials produced by these ventures for our use and they offer the remainder of their production to reducethird parties.
In 2005, we made a number of important changes to our management team. Philip C.S. Yin, Ph.D., joined the overall costCompany in March 2005 as chief executive officer. In June 2005, two new positions were created: chief operating officer and chief technology officer. The former president of AXT’s China operations became president of joint venture operations. In September 2005, our new vice president of global sales and marketing joined the Company. This new structure enables us to maximize the expertise and skill sets of our team while placing enhanced emphasis on manufacturing, operations.
The semiconductor industry is experiencing rapid technological changes.
These changes are driven primarily by increased transmissionproduction and storage of
voice, videoquality, and data over communications networks and the Internet. This growth
has generated increased demand for devices to send, receive and display
information, as well as new wireless and wireline networks used to transmit
information. This increased demand has created a growing need for power
efficient, high-performance electronicquality systems that operate at very high
frequencies and can be produced cost-effectively in high volumes. To address
these demands, semiconductor device manufacturers are increasingly using
compound semiconductor substrates, such as GaAs and InP, to improve the
performance of semiconductor devices and to enable new applications.
Our strategy is to strengthen our position as a leading developer and
supplier of high-performance compound semiconductor substrates and to develop a
leading position in the market for opto-electronic semiconductor devices by:
- expanding our GaAs substrate manufacturing capacity and decreasing our
manufacturing cost structure;
- strengthening our position in the InP substrate market;
- advancing our VGF technology leadership;
- enhancing our opto-electronic semiconductor devices; and
- leveraging existing customer relationships.
improvement.
We were incorporated in California in December 1986 and reincorporated in Delaware in May 1998. We changed our name from American Xtal Technology, Inc. to AXT, Inc. in July 2000. Our principal executive offices arecorporate office is located at 4281 Technology Drive, Fremont, California 94538, and our telephone number at this address is (510) 683-5900. 1
6
THE OFFERING
Shares offered by AXT................. 2,100,000 shares
Shares offered byOur web site is www.axt.com; however, the selling
stockholders.......................... 100,000 shares
Common stock outstanding after this
offering.............................. 21,282,155 shares
Use of proceeds by AXT................ Repayment of debt and general
corporate purposes, including working
capital and capital expenditures.
Nasdaq National Market symbol......... AXTI
The number of shares of common stock to be outstanding after this offering
is basedinformation on 18,948,000 shares outstanding as of June 30, 2000, adjusted to
include 234,155 shares of common stock issued in a private placement to 11
stockholders at $36.306 per share in July 2000, andour web site does not include:
- 2,641,756 sharesconstitute a part of common stock issuable upon exercisethis prospectus and is not incorporated herein. We make available, free of options
outstanding ascharge, on or through our web site, our annual, quarterly and current reports, and any amendments to those reports.
AXT is a registered trademark of June 30, 2000, with a weighted average exercise priceAXT, Inc. This prospectus contains product names, trade names and trademarks of $14.65 per share;
- 3,239,831 shares of common stock available for issuance as of June 30,
2000 under our 1993AXT and 1997 stock option plans;
- 778,837 shares of common stock available for issuance as of June 30, 2000
under our 1998 employee stock purchase plan;
- 980,655 shares of preferred stock outstanding; and
- up to 330,000 shares that the underwriters may purchase from us if they
exercise their over-allotment option in full.
other organizations.
2
RISK FACTORS
You should consider
Except for the historical information contained in this prospectus or incorporated by reference, this prospectus (and the information incorporated by reference in this prospectus) contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed here or incorporated by reference. Factors that could cause or contribute to such differences include, but are not limited to, those discussed under “Item 1A. Risk Factors” contained in our most recent Annual Report on Form 10-K for the year ended December 31, 2005, which are incorporated by reference, as well as the information contained or incorporated by reference in this prospectus and any prospectus supplement. For any securities offered under this prospectus, we will include risk factors, andif appropriate, in the impactapplicable prospectus supplement relating to those securities. Each of various events thatthese risks could adversely affect our business, before investingoperating results and financial condition, which might result in the loss of all or part of your investment.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated by reference herein contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, or the Securities Act, Section 21E of the Securities Exchange Act of 1934, or the Exchange Act, or otherwise. These forward-looking statements are based on our common stock.
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SUMMARY CONSOLIDATED FINANCIAL DATA
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
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1995 1996 1997 1998 1999 1999 2000
------- ------- ------- ------- ------- ----------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
CONSOLIDATED INCOME STATEMENT DATA:
Revenue................................. $24,117 $31,272 $43,313 $61,314 $81,521 $39,680 $52,878
Gross profit............................ 9,344 10,235 13,663 22,365 24,152 9,469 20,680
Income from operations.................. 4,122 4,109 2,453 8,143 4,240 (1,704) 8,412
Income (loss) before extraordinary
item.................................. 2,793 2,351 820 4,284 680 (2,520) 4,325
Extraordinary item -- netcurrent expectations and beliefs, including estimates and projections about our industry. Forward-looking statements may be identified by use of terms such as “anticipates,” “expects,” “intends,” “plans,” “seeks,” “estimates,” “believes” and similar expressions, although some forward-looking statements are expressed differently. Statements concerning our financial position, business strategy and plans or objectives for future operations are forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict and may cause actual results to differ materially from management’s current expectations. These risks and uncertainties include those referred to above in the caption “Risk Factors.” The forward-looking statements in this prospectus speak only as of tax
benefits.............................. -- -- -- -- (508) (508) --
Net income (loss)................... $ 2,793 $ 2,351 $ 820 $ 4,284 $ 172 $(3,028) $ 4,325
Basic income (loss) per share:
Income (loss) before extraordinary
item................................ $ 0.96 $ 0.65 $ 0.22 $ 0.27 $ 0.04 $ (0.14) $ 0.23
Net income (loss)................... 0.96 0.65 0.22 0.27 0.01 (0.16) 0.23
Diluted income (loss) per share:
Income (loss) before extraordinary
item................................ $ 0.23 $ 0.19 $ 0.06 $ 0.26 $ 0.03 $ (0.14) $ 0.21
Net income (loss)................... 0.23 0.19 0.06 0.26 0.01 (0.16) 0.21
Shares used in per share calculations:
Basic................................. 2,921 3,595 3,697 16,076 18,655 18,451 18,687
Diluted............................... 11,913 12,524 13,598 16,325 19,771 18,451 20,178
JUNE 30, 2000
---------------------------
ACTUAL AS ADJUSTED
--------- --------------
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 5,149 $ 89,788
Working capital............................................. 34,669 119,308
Total assets................................................ 137,172 221,821
Long-term capital leases, net of current portion............ 8,137 8,137
Long-term debt, net of current portion...................... 14,034 14,034
Total stockholders' equity.................................. 69,246 153,885
Revenue from our substrates division and consumer products division is
included in all periods presented. Revenue from our visible emitters division is
included from the time they are made and do not necessarily reflect our outlook at any other point in time. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or for any other reason. However, you should carefully review the acquisition ofrisk factors set forth in other reports or documents we file from time to time with the visible emitter business on
September 29, 1998.
See Note 6 of Notes to Consolidated Financial Statements for an explanation
ofSecurities and Exchange Commission.
We will retain broad discretion over the determination of the number of shares used in computing per share data.
The as adjusted information above reflects the applicationuse of the net proceeds from ourthe sale of 234,155our securities offered hereby. Except as described in any prospectus supplement, we currently anticipate using the net proceeds from the sale of our securities offered hereby primarily for general corporate purposes, including for research and development and general and administrative expenses. The amounts and timing of the expenditures may vary significantly. We may also use a portion of the net proceeds to acquire or invest in complementary businesses, products, technologies and joint ventures. Although we have no specific agreements, commitments or understandings with respect to any acquisition or investment, we evaluate acquisition and investment opportunities and engage in related discussions with other companies from time to time.
Pending the use of the net proceeds, we intend to invest the net proceeds in short-term, interest-bearing, investment-grade securities.
We have never paid cash dividends on our common stock. We currently intend to retain earnings for use in our business and do not anticipate paying any cash dividends in the foreseeable future. Any future declaration and payment of dividends will be subject to the discretion of our board of directors, will be subject to applicable law and will depend on our results of operations, earnings, financial condition, contractual limitations, cash requirements, future prospects and other factors deemed relevant by our board of directors.
If you invest in our common stock, your interest will be diluted to the extent of the difference between the public offering price per share of our common stock and the net tangible book value per share of our common stock upon the completion of this offering. The net tangible book value attributable to our common stock as of March 31, 2006 was $51,983,000 or $2.26 per share.
Net tangible book value per share of common stock is determined by dividing the number of outstanding shares of common stock into the net tangible book value attributable to our common stock, which is our total tangible assets less our total liabilities and the book value of our preferred stock. Assuming that we sell the entire amount registered on this registration statement, at an assumed price of $3.87 per share, based upon our closing sales price on March 31, 2006, and after deducting the estimated offering expenses payable by us, the adjusted net tangible book value attributable to our common stock as of March 31, 2006 would have been approximately $75,425,000 or $2.56 per share. This represents an immediate increase in net tangible book value of $0.30 per share to the holders of our existing common stock and an immediate dilution of $1.31 per share to new investors purchasing shares of common stock at a pricethe assumed public offering price.
Assumed public offering price per share |
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| $ | 3.87 |
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Net tangible book value per share as of March 31, 2006 |
| $ | 2.26 |
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Increase in net tangible book value |
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Net tangible book value per share after giving effect to this offering |
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| 2.56 |
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Dilution in net tangible book value per share to new investors |
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| $ | 1.31 |
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3
Our authorized capital stock consists of $36.306
per share to 11 investors in a private placement in July 2000 and of 2,100,00070,000,000 shares of common stock, by us in this offering assuming a public offering price
of $38.625$0.001 par value per share, after deducting the underwriting discounts and commissions
and estimated offering expenses.
3
8
RISK FACTORS
You should carefully consider the risks described below, in addition to the
other information in this prospectus, before purchasing2,000,000 shares of preferred stock, $0.001 par value per share, of which 1,000,000 shares have been designated as Series A preferred stock.
Common Stock
The following is a summary description of our common stock. Each of these risk factors could adversely affect our business, financial
condition and operating results as well as adversely affect the value of an
investment in our common stock.
RISKS RELATED TO OUR BUSINESS
UNPREDICTABLE FLUCTUATIONS IN OUR OPERATING RESULTS COULD DISAPPOINT
ANALYSTS OR OUR INVESTORS, WHICH COULD CAUSE OUR STOCK PRICE TO DECLINE.
We may not be able to sustain our historical growth rate, and we may
experience significant fluctuations in our revenue and earnings in the future.
Our quarterly and annual revenue and operating results have varied significantly
in the past and may vary significantly in the future due to a number of factors,
including:
- fluctuations in demand for our products;
- expansion of our manufacturing capacity;
- expansion of our operations in China;
- limited availability and increased cost of raw materials;
- integration of Lyte Optronics and its business, operations and facilities
with our operations;
- the volume and timing of orders from our customers;
- fluctuation of our manufacturing yields;
- decreases in the prices of our competitors' products;
- costs incurred in connection with any future acquisitions of businesses
or technologies;
- increases in our expenses, including expenses for research and
development; and
- our ability to develop, manufacture and deliver high quality products in
a timely and cost-effective manner.
Due to these factors, we believe that period-to-period comparisons of our
operating results may not be a meaningful indicator of our future performance.
It is possible that in some future quarter, our operating results may be below
the expectations of securities analysts or investors. If this occurs, the price
Voting Rights
Holders of our common stock would likely decline.
IF WE FAIL TO EXPAND OUR MANUFACTURING CAPACITY, WE MAY NOT BE ABLE TO MEET
DEMAND FOR OUR PRODUCTS, LOWER OUR COSTS OR INCREASE REVENUE.
In orderare entitled to increase production, we must build new facilities, expand our
existing facilitiesone vote per share for the election of directors and purchase additional manufacturing equipment. If we do
not expand our manufacturing capacity, we will be unableon all other matters that require stockholder approval. Except as otherwise provided by law, and subject to increase production,
adversely impacting our abilityany voting rights provided to reduce unit costs, margins and improve our
operating results.
We are currently constructing additional capacity and facilities in
California and China. Our expansion activities subject us to a numberholders of risks,
including:
- unforeseen environmental or engineering problems;
- unavailability or late delivery of production equipment;
- delays in completing new facilities;
- delays in bringing production equipment on-line;
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- work stoppages or delays;
- unanticipated cost increases; and
- restrictions imposed by requirements of local, state or federal
regulatory agencies.
If any of these risks occurs, construction may be costlier than anticipated
and completion could be delayed, which could hurt our ability to expand capacity
and increase our sales. In addition, if we experience delays in expanding our
manufacturing capacity, we might not be able to timely meet customer
requirements, and we could lose future sales. We are also making substantial
investments in equipment and facilities as partpreferred stock, holders of our capacity expansion. To
offsetcommon stock have exclusive voting rights on all matters requiring a vote of stockholders. Stockholders are not entitled to vote cumulatively for the additional fixed operating expenses, we must increaseelection of directors. Our outstanding preferred stock has no voting rights other than the voting rights required by law.
Dividends and Liquidation
Subject to any preferential rights of any outstanding preferred stock, holders of common stock have a right to receive dividends when and if declared by our revenue by
increasing production and improving yields. If demand for our products does not
grow or if our yields do not improve as anticipated, we may be unable to offset
these costs against increased revenue, which would adversely impact our
operating results.
WE HAVE LIMITED EXPERIENCE WITH SOME OF OUR NEW PRODUCTS, AND WE MAY NOT BE
ABLE TO ACHIEVE ANTICIPATED SALES OF THESE PRODUCTS.
To date, we have limited experience producing and selling our HB LED and
VCSEL products, and we may be unable to successfully market and sell these
products. To market and sell our HB LED and VCSEL products, we will have to
develop additional distribution channels.board of directors out of funds legally available. In addition, we must apply our
proprietary VGF technique to new substrate products and successfully introduce
and market new opto-electronic semiconductor devices, including LED and VCSEL
products.
IF WE DO NOT SUCCESSFULLY DEVELOP NEW PRODUCTS TO RESPOND TO RAPIDLY
CHANGING CUSTOMER REQUIREMENTS, OUR ABILITY TO GENERATE SALES AND OBTAIN
NEW CUSTOMERS MAY SUFFER.
Our success depends on our ability to offer new products that incorporate
leading technology and respond to technological advances. In addition, our new
products must meet customer needs and compete effectively on quality, price and
performance. The life cyclesthe event of our productsliquidation, dissolution or winding up, holders of common stock are difficultentitled to predict becauseshare ratably in the markets forassets remaining after payment of liabilities and the liquidation preferences of any outstanding preferred stock.
Preferred Stock
Blank Check Preferred Stock
Under our products are characterizedcertificate of incorporation, the board of directors is authorized, without further action by rapid technological change,
changing customer needsthe stockholders, to designate and evolving industry standards. If our competitors
introduce products employing new technologies, our existing productsissue up to 2,000,000 shares of preferred stock in one or more series. The board of directors can fix the rights, preferences and privileges of the shares of each series and any qualifications, limitations or restrictions on these shares.
The board of directors may authorize the issuance of preferred stock with voting or conversion rights that could become obsolete and unmarketable. If we fail to offer new products, we may not
generate sufficient revenue to offset our development costsadversely affect the voting power or other rights of the holders of common stock. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other expensescorporate purposes could, under certain circumstances, have the effect of delaying, deferring or meet our customers' requirements. Other companies, including IBM, are
actively developing substrate materials that could be used to manufacture
devices that could provide the same high-performance, low-power capabilities as
GaAs-based devices at competitive prices. If these substrate materials are
successfully developed and semiconductor device manufacturers adopt them, demand
for our GaAs substrates could decline and our revenue could suffer.
The development of new products can bepreventing a highly complex process, and we may
experience delays in developing and introducing new products. Any significant
delays could cause us to fail to timely introduce and gain market acceptance of
new products. Further, the costs involved in researching, developing and
engineering new products could be greater than anticipated.
OUR OPERATING RESULTS DEPEND IN LARGE PART ON FURTHER CUSTOMER ACCEPTANCE
OF OUR EXISTING SUBSTRATE PRODUCTS AND ON OUR ABILITY TO DEVELOP NEW
PRODUCTS BASED ON OUR CORE VGF TECHNOLOGY.
A majority of GaAs substrates are manufactured from crystals grown using
the traditional Liquid Encapsulated Czochralski, or LEC, or
Horizontal-Bridgeman, or HB, techniques. In order to expand sales of our
products, we must continue to promote our VGF technique as a preferred process
for producing substrates, and we must offer products with superior prices and
performance on a timely basis and in sufficient volumes. If we fail to gain
increased market acceptance of our VGF technique, we may not achieve anticipated
revenue growth.
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INTENSE COMPETITION IN THE MARKETS FOR OUR PRODUCTS COULD PREVENT US FROM
INCREASING REVENUE AND SUSTAINING PROFITABILITY.
The markets for our products are intensely competitive. We face competition
for our substrate products from other manufacturers of substrates, such as
Freiberger, Hitachi Cable, Japan Energy, Litton Airtron and Sumitomo Electric
and from semiconductor device manufacturers that produce substrates for their
own use, and from companies, such as IBM, that are actively developing
alternative materials to GaAs. We believe that at least one of our competitors
has recently begun shipping GaAs substrates manufactured using a technique
similar to our VGF technique. Other competitors may develop and begin using
similar technology. If we are unable to compete effectively, our revenue may not
increase and we may not continue to be profitable. We face many competitors that
have a number of significant advantages over us, particularlychange in our compound
semiconductor device products, including:
- greater experience in the business;
- more manufacturing experience;
- broader name recognition; and
- significantly greater financial, technical and marketing resources.
Our competitors could develop new or enhanced products that are more
effective than the products that we have developed or may develop. For example,
some competitors in the HB LED market offer devices that are brighter than our
HB LEDs. Some of our competitors may also develop technologies that enable the
production of commercial products with characteristics similar to or better than
ours, but at a lower cost.
We expect the intensity of competition to increase in the future.
Competitive pressures could reduce our market share, require us to reduce the
prices of our products, affect our ability to recover costs or result in reduced
gross margins.
IF WE HAVE LOW PRODUCT YIELDS, THE SHIPMENT OF OUR PRODUCTS MAY BE DELAYED
AND OUR OPERATING RESULTS MAY BE ADVERSELY IMPACTED.
Our products are manufactured using complex technologies, and the number of
usable substrates and devices we can produce can fluctuate as a result of many
factors, including:
- impurities in the materials used;
- contamination of the manufacturing environment;
- substrate breakage;
- equipment failure, power outages or variations in the manufacturing
process; and
- performance of personnel involved in the manufacturing process.
Because many of our manufacturing costs are fixed, our revenue could
decline if our yields decrease. We have experienced product shipment delays and
difficulties in achieving acceptable yields on both new and older products, and
delays and poor yields have adversely affected our operating results. We may
experience similar problems in the future and we cannot predict when they may
occur or their severity. In addition, many of our manufacturing processes are
new and are still being refined, which can result in lower yields, particularly
as we focus on producing higher diameter substrates and new opto-electronic
semiconductor devices. For example, we recently began manufacturing six-inch
GaAs wafers and have also made substantial investments in equipment and
facilities to manufacture blue, green and cyan HB LEDs. If we are unable to
produce adequate quantities of our high-brightness LEDs and VCSELs, we may not
be able to meet customer demand and our revenue may decrease.
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DEMAND FOR OUR PRODUCTS MAY DECREASE IF OUR CUSTOMERS EXPERIENCE DIFFICULTY
MANUFACTURING, MARKETING OR SELLING THEIR PRODUCTS.
Our products are used as components in our customers' products.
Accordingly, demand for our products is subject to factors affecting the ability
of our customers to successfully introduce and market their products, including:
- the competition our customers face in their particular industries;
- the technical, manufacturing, sales and marketing and management
capabilities of our customers;
- the financial and other resources of our customers; and
- the inability of our customers to sell their products if they infringe
third party intellectual property rights.
If demand for the products offered by our customers decreases, our
customers may reduce purchases of our products.
WE PURCHASE CRITICAL RAW MATERIALS FROM SINGLE OR LIMITED SOURCES, AND
COULD LOSE SALES IF THESE SOURCES FAIL TO FILL OUR NEEDS.
We depend on a limited number of suppliers for certain raw materials,
components and equipment used in manufacturing our products, including key
materials such as gallium, arsenic and quartz. We generally purchase these
materials through standard purchase orders and not pursuant to long-term supply
contracts and none of our suppliers guarantees supply of raw materials to us. If
we lose any of our key suppliers, our manufacturing efforts could be
significantly hampered and we could be prevented from timely producing and
delivering products to our customers. We have experienced delays obtaining
critical raw materials, including gallium, due to shortages of these materials.
We may experience delays due to shortages of materials and may be unable to
obtain an adequate supply of materials. These shortages and delays could result
in higher materials costs and cause us to delay or reduce production of our
products. If we have to delay or reduce production, we could fail to meet
customer delivery schedules, and our revenue and operating results could suffer.
IF WE FAIL TO COMPLY WITH ENVIRONMENTAL REGULATIONS, WE MAY BE SUBJECT TO
SIGNIFICANT FINES OR CESSATION OF OUR OPERATIONS.
We are subject to federal, state and local environmental laws and
regulations. These laws, rules and regulations govern the use, storage,
discharge and disposal of hazardous chemicals during manufacturing, research and
development and sales demonstrations. If we fail to comply with applicable
regulations, we could be subject to substantial liability for clean-up efforts,
personal injury and fines or suspension or cessation of our operations. We are
cooperating with the California Occupational Safety and Health Administration,
or Cal-OSHA, in an investigation primarily regarding impermissible levels of
potentially hazardous materials in certain areas of our manufacturing facility
in Fremont, California. In May 2000, Cal-OSHA levied a fine against us in the
amount of $313,655 for alleged health and safety violations. Although we are
appealing the citations, and have put in place engineering, administrative and
personnel protective equipment programs to address these issues, we may have to
pay this fine, and further penalties, including criminal penalties, could be
levied against us or our management. Our ability to expand or continue to
operate our present locations could be restricted or we could be required to
acquire costly remediation equipment or incur other significant expenses. In
addition, existing or future changes in laws or regulations may require us to
incur significant expenditures or liabilities, or may restrict our operations.
THE LOSS OF ONE OR MORE OF OUR KEY SUBSTRATE CUSTOMERS WOULD SIGNIFICANTLY
HURT OUR OPERATING RESULTS.control.
Series A small number of substrate customers have historically accounted for a
substantial portion of our total revenue. Our top five substrate customers
accounted for 34.9% of our substrate revenue in 1997,
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39.5% of our substrate revenue in 1998, 34.3% of our substrate revenue in 1999
and 26.2% of our substrate revenue in the six months ended June 30, 2000. Our
substrate revenue accounted for 58.5% of our total revenue in 1997, 70.4% of our
total revenue in 1998, 69.6% in 1999, and 85.7% in the six months ended June 30,
2000. We expect that a significant portion of our future revenue will continue
to be derived from a limited number of substrate customers. Our customers are
not obligated to purchase a specified quantity of our products or to provide us
with binding forecasts of product purchases. Preferred Stock
In addition, our customers may
reduce, delay or cancel orders at any time without any significant penalty. If
we lose a major customer or if a customer cancels, reduces or delays orders, our
revenue would decline. In addition, customers that have accounted for
significant revenue in the past may not continue to generate revenue for us in
any future period.
DEFECTS IN OUR PRODUCTS COULD DIMINISH DEMAND FOR OUR PRODUCTS.
Our products are complex and may contain defects. In the past we have
experienced quality control problems with some of our LED and consumer products,
which caused customers to return products to us. If we continue to experience
quality control problems, or experience these problems in our other products,
customers may cancel or reduce orders or purchase products from our competitors.
Defects in our products could cause us to incur higher manufacturing costs and
suffer product returns and additional service expenses, all of which could
adversely impact our operating results.
We are also developing new products and product enhancements, including
substrates and compound semiconductor device products. If our new products
contain defects when released, our customers may be dissatisfied and we may
suffer negative publicity or customer claims against us, lose sales or
experience delays in market acceptance of our new products.
CYCLICALITY IN THE SEMICONDUCTOR INDUSTRY COULD CAUSE OUR OPERATING RESULTS
TO FLUCTUATE SIGNIFICANTLY.
Our business depends in significant part upon manufacturers of
semiconductor devices, as well as the current and anticipated market demand for
such devices and the products using such devices. The semiconductor industry is
highly cyclical. The industry has in the past, and will likely in the future,
experience periods of oversupply that result in significantly reduced demand for
semiconductor devices and components, including our products. When these periods
occur, our operating results and financial condition are adversely affected.
OUR SUBSTRATE AND OPTO-ELECTRONIC SEMICONDUCTOR DEVICE PRODUCTS HAVE A LONG
SALES CYCLE THAT MAKES IT DIFFICULT TO PLAN OUR EXPENSES AND FORECAST OUR
RESULTS.
Customers typically place orders with us for our substrate and
opto-electronic semiconductor device products three months to a year or more
after our initial contact with them. The sale of our products may be subject to
delays due to our customers' lengthy internal budgeting, approval and evaluation
processes. During this time, we may incur substantial expenses and expend sales,
marketing and management efforts while the customers evaluate our products.
These expenditures may not result in sales of our products. If we do not achieve
anticipated sales in a period as expected, we may experience an unplanned
shortfall in our revenue. As a result, we may not be able to cover expenses,
causing our operating results to vary. In addition, if a customer decides not to
incorporate our products into its initial design, we may not have another
opportunity to sell products to this customer for many months or even years. We
anticipate that sales of any future substrate and opto-electronic semiconductor
device products under development will also have lengthy sales cycles and will,
therefore, be subject to risks substantially similar to those inherent in the
lengthy sales cycle of our current substrate and opto-electronic semiconductor
device products.
IF WE FAIL TO MANAGE OUR POTENTIAL GROWTH, OUR OPERATIONS MAY BE DISRUPTED.
We have experienced a period of rapid growth and expansion that has
strained our management and other resources, and we expect this rapid growth to
continue. Our acquisition of Lyte Optronics, together with expansion of our
manufacturing capacity, has placed and continues to place a significant strain
on our
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operations and management resources. If we fail to manage our growth
effectively, our operations may be disrupted. To manage our growth effectively,
we must implement additional and improved management information systems,
further develop our operating, administrative, financial and accounting systems
and controls, add experienced senior level managers, and maintain close
coordination among our executive, engineering, accounting, marketing, sales and
operations organizations.
We will spend substantial sums to support our growth and may incur
additional unexpected costs. Our systems, procedures or controls may not be
adequate to support our operations, and we may be unable to expand quickly
enough to exploit potential market opportunities. Our future operating results
will also depend on expanding sales and marketing, research and development and
administrative support. If we cannot attract qualified people or manage growth
effectively, our business and operating results could be adversely affected.
ANY FUTURE ACQUISITIONS MAY DISRUPT OUR BUSINESS, DILUTE STOCKHOLDER VALUE
OR DISTRACT MANAGEMENT ATTENTION.
As part of our strategy, we may consider acquisitions of, or significant
investments in, businesses that offer products, services and technologies
complementary to ours, such as our acquisition of Lyte Optronics in May 1999.
Acquisitions entail numerous risks, including:
- we may have difficulty assimilating the operations, products and
personnel of the acquired businesses;
- our ongoing business may be disrupted;
- we may incur unanticipated costs;
- our management may be unable to manage the financial and strategic
position of acquired or developed products, services and technologies;
- we may be unable to maintain uniform standards, controls and procedures
and policies; and
- our relationships with employees and customers may be impaired as a
result of any integration.
For example, we incurred substantial costs in connection with our acquisition of Lyte Optronics, includingInc. in May 1999, we issued 883,000 shares of nonvoting Series A preferred stock with a $0.20 per share cumulative annual dividend, when and as declared by our board of directors, and $4.00 per share liquidation preference over our common stock.
Voting Rights. Except as otherwise required by law, shares of Series A preferred stock are not entitled to vote on any matter to be voted on by the assumptionstockholders.
Dividends and Liquidation. Dividends are payable on the Series A preferred stock in preference and priority to any payment of approximately $11.0
millionany dividend on common stock but only when and as declared by our board or directors. In the event of debt, mucha liquitation, dissolution, or winding up of which hasAXT, whether voluntary or involuntary, the holders of Series A preferred stock are entitled to receive out of our assets an amount per share of Series A preferred stock equal to $4.00 (as adjusted for any stock splits, stock dividends, recapitalizations or the like with respect to those shares), plus any dividends that have accrued but not been repaidpaid, and no more, before any payment is made or renegotiated, resulting in a
decline of cash available. We incurred one-time charges and merger-related
expenses of $2.8 million and an extraordinary item of $508,000 relatingany assets distributed to the early extinguishmentholders of debt in the quarter ended June 30, 1999 as a resultcommon stock. If our assets, after payment of the acquisition. Ten percent of the shares issuedall debts and other liabilities, are insufficient to pay to the Lyte Optronics'
stockholdersholders of Series A preferred stock the full liquidation preference to which they are held in escrow to satisfy any claims that we may bring under
the acquisition agreement. We have filed certain claims under the agreement and
expect that all of the shares held in escrow will be returned to us in
satisfaction of these claims.
To the extent that we issue shares of our stock or other rights to purchase
stock in connection with any future acquisitions, dilution to our existing
stockholders will result and our earnings per share may suffer. Any future
acquisitions may not generate additional revenue or provide any benefit to our
business.
IF ANY OF OUR FACILITIES IS DAMAGED, WE MAY NOT BE ABLE TO MANUFACTURE OUR
PRODUCTS.
The ongoing operation of our manufacturing and production facilities in
California and China is critical to our ability to meet demand for our products.
If we are not able to use all or a significant portion of our facilities for
prolonged periods for any reason, we will not be able to manufacture products
for our customers. For example, a natural disaster, fire or explosion caused by
our use of combustible chemicals and high temperatures during our manufacturing
processes would render some orentitled, then all of our facilities inoperableassets available for distributions would 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, the Series A preferred stock does not participate further in any distribution of assets.
Conversion Rights. The Series A preferred stock is not convertible into common stock.
Antitakeover Provisions
Delaware Law
AXT is subject to Section 203 of the Delaware General Corporation Law regulating corporate takeovers, which prohibits a Delaware corporation from engaging in any business combination with an indefinite“interested stockholder” for a period of time. Actions outsidethree years, unless:
• prior to the time that a stockholder became an interested stockholder, the board of our control, such as earthquakes,
could also damage our facilities, rendering them inoperable. All of our crystal
growth is currently performed at our Fremont, California facilities, which are
located very near to an active seismic fault line. If we are unable
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to operate our facilities and manufacture our products, we will lose customers
and revenue and our business will be harmed.
IF WE LOSE KEY PERSONNEL OR ARE UNABLE TO HIRE ADDITIONAL QUALIFIED
PERSONNEL AS NECESSARY, WE MAY NOT BE ABLE TO SUCCESSFULLY MANAGE OUR
BUSINESS OR ACHIEVE OUR OBJECTIVES.
Our success depends upon the continued service of Morris S. Young, Ph.D.,
our president, chairmandirectors of the boardcorporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder;
• the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the voting stock outstanding (a) shares owned by persons who are directors and chief executive officer, as well as
other key managementalso officers, and technical personnel. We(b) shares owned by employee stock plans in which employee participants do not have long-term
employment contracts with, or key person life insurance on, any of our key
personnel. In addition, we have only recently hired our chief financial officer,
and needthe right to retain senior marketing personnel, particularly for our new
opto-electronic semiconductor device products.
We believe our future success will also depend in large part upon our
abilitydetermine confidentially whether shares held subject to attract and retain highly skilled managerial, engineering, sales and
marketing, finance and manufacturing personnel. The competition for these
employees is intense, especially in Silicon Valley, and we cannot assure you
that wethe plan will be successfultendered in attractinga tender or exchange offer; or
• at or subsequent to the time that a stockholder became an interested stockholder, the business combination is approved by the board of directors and retaining new personnel. The lossauthorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the servicesoutstanding voting stock which is not owned by the interested stockholder.
Except as otherwise specified in Section 203, an “interested stockholder” is defined to include (a) any person that is the owner of 15% or more of the outstanding voting stock of the corporation, or is an affiliate or associate of the corporation and was the owner of 15% or more of the outstanding voting stock of the corporation at any time within three years immediately prior to the date of determination and (b) the affiliates and associates of any such person.
4
Certificate of Incorporation and Bylaw Provisions
Provisions of our key personnel, the inability to attract or retain
qualified personnel in the future or delays in hiring required personnel,
particularly engineers, could make it difficult for us to manage our business
and meet key objectives, including the timely introduction of new products.
IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY, WE MAY LOSE VALUABLE
ASSETS OR INCUR COSTLY LITIGATION.
We rely on a combination of patents, copyrights, trademark and trade secret
laws, non-disclosure agreements and other intellectual property protection
methods to protect our proprietary technology. However, we believe that, due to
the rapid pace of technological innovation in the markets for our products, our
ability to establish and maintain a position of technology leadership also
depends on the skills of our development personnel.
Despite our efforts to protect our intellectual property, a third party
could develop products or processes similar to ours. Our means of protecting our
proprietary rights may not be adequate and our competitors may independently
develop similar technology, duplicate our products or design around our patents.
We believe that at least one of our competitors has begun to ship GaAs
substrates produced using a process similar to our VGF technique. Our
competitors may also develop and patent improvements to the VGF, LED and VCSEL
technologies upon which we rely, and thus may limit any exclusivity we enjoy by
virtue of our patents.
It is possible that pending or future United States or foreign patent
applications made by us will not be approved, that our issued patents will not
protect our intellectual property, or that third parties will challenge the
ownership rights or the validity of our patents. In addition, the laws of some
foreign countries may not protect our proprietary rights to as great an extent
as do the laws of the United States and it may be more difficult to monitor the
use of our intellectual property. Our competitors may be able to legitimately
ascertain non-patented proprietary technology embedded in our systems. If this
occurs, we may not be able to prevent the development of technology
substantially similar to ours.
We may have to resort to costly litigation to enforce our intellectual
property rights, to protect our trade secrets or know-how or to determine their
scope, validity or enforceability. Enforcing or defending our proprietary
technology is expensive, could cause us to divert resources and may not prove
successful. Our protective measures may prove inadequate to protect our
proprietary rights, and if we fail to enforce or protect our rights, we could
lose valuable assets.
WE MIGHT FACE INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS THAT MAY BE COSTLY
TO RESOLVE AND COULD DIVERT MANAGEMENT ATTENTION.
Other companies may hold or obtain patents on inventions or may otherwise
claim proprietary rights to technology necessary to our business. The markets in
which we compete are comprised of competitors
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who in some cases hold substantial patent portfolios covering aspects of
products that could be similar to ours. We could become subject to claims that
we are infringing patent, trademark, copyright or other proprietary rights of
others. Litigation to determine the validity of alleged claims could be
time-consuming and result in significant expense to us and divert the efforts of
our technical and management personnel, whether or not the litigation is
ultimately determined in our favor. If a lawsuit is decided against us, we could
be subject to significant liabilities, requiring us to seek costly licenses or
preventing us from manufacturing and selling our products. We may not be able to
obtain required licensing agreements on terms acceptable to us or at all.
RISKS RELATED TO OUR INTERNATIONAL OPERATIONS
WE DERIVE A SIGNIFICANT PORTION OF OUR REVENUE FROM INTERNATIONAL SALES,
AND OUR ABILITY TO SUSTAIN AND INCREASE OUR INTERNATIONAL SALES INVOLVES
SIGNIFICANT RISKS.
Our revenue growth depends in part on the expansion of our international
sales and operations. International sales represented 29.2% of our total revenue
for 1997, 31.7% for 1998, 48.5% for 1999 and 47.3% for the six months ended June
30, 2000. We expect that sales to customers outside the U.S. will continue to
represent a significant portion of our revenue.
Our dependence on international sales involves a number of risks,
including:
- changes in tariffs, import restrictions and other trade barriers;
- unexpected changes in regulatory requirements;
- longer periods to collect accounts receivable;
- changes in export license requirements;
- political and economic instability;
- unexpected changes in diplomatic and trade relationships; and
- foreign exchange rate fluctuations.
Our sales are denominated in U.S. dollars, except for sales to our Japanese
and some Taiwanese customers, which are denominated in Japanese yen. Thus,
increases in the value of the U.S. dollar could increase the price of our
products in non-U.S. markets and make our products more expensive than
competitors' products in these markets. Also, denominating some sales in
Japanese yen subjects us to fluctuations in the exchange rates between the U.S.
dollar and the Japanese yen. The functional currencies of our Japanese and
Chinese subsidiaries are the local currencies. We incur transaction gains or
losses resulting from consolidation of expenses incurred in local currencies for
these subsidiaries, as well as in translation of the assets and liabilities of
these assets at each balance sheet date. If we do not effectively manage the
risks associated with international sales, our revenue and financial condition
could be adversely affected.
IF OUR EXPANSION IN CHINA IS MORE COSTLY THAN WE EXPECT, OUR OPERATING
RESULTS WILL SUFFER.
As part of our planned expansion of our manufacturing capacity, we are
building new facilities and expanding existing facilities in China. If we are
unable to build and expand our Chinese facilities in a timely manner, we may not
be able to increase production of our products and increase revenue as planned.
If our expansion in China proves more costly than we anticipate or we incur
greater ongoing costs than we expect, our operating results would be adversely
affected. If we do not realize expected cost savings once our expansion is
complete in China, our margins may be negatively impacted and our operating
results may suffer.
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CHANGES IN CHINA'S POLITICAL, SOCIAL AND ECONOMIC ENVIRONMENT MAY AFFECT
OUR FINANCIAL PERFORMANCE.
Our financial performance may be affected by changes in China's political,
social and economic environment. The role of the Chinese central and local
governments in the Chinese economy is significant. Chinese policies toward
economic liberalization, and laws and policies affecting technology companies,
foreign investment, currency exchange rates and other matters could change,
resulting in greater restrictions on our ability to do business and operate our
manufacturing facilities in China. Any imposition of surcharges or any increase
in Chinese tax rates could hurt our operating results. The Chinese government
could revoke, terminate or suspend our license for national security and similar
reasons without compensation to us. If the government of China were to take any
of these actions, we would be prevented from conducting all or part of our
business. Any failure on our part to comply with governmental regulations could
result in the loss of our ability to manufacture our products in China.
China has from time to time experienced instances of civil unrest and
hostilities. Confrontations have occurred between the military and civilians.
Events of this nature could influence the Chinese economy, result in
nationalization of foreign-owned operations such as ours, and could negatively
affect our ability to operate our facilities in China.
RISKS RELATED TO THE OFFERING
OUR STOCK PRICE HAS BEEN AND MAY CONTINUE TO BE VOLATILE.
Our stock price has fluctuated significantly since we began trading on the
Nasdaq National Market. For the 12 months ended August 31, 2000, the high and
low sales prices of our common stock were $47.00 and $12.063. A number of
factors could cause the price of our common stock to continue to fluctuate
substantially, including:
- actual or anticipated fluctuations in our quarterly or annual operating
results;
- changes in expectations about our future financial performance or changes
in financial estimates of securities analysts;
- announcements of technological innovations by us or our competitors;
- new product introduction by us or our competitors;
- large customer orders or order cancellations; and
- the operating and stock price performance of comparable companies.
In addition, the stock market in general has experienced extreme volatility
that often has been unrelated to the operating performance of particular
companies. These broad market and industry fluctuations may adversely affect the
trading price of our common stock, regardless of our actual operating
performance.
WE MAY NEED ADDITIONAL CAPITAL TO FUND EXPANSION OF OUR MANUFACTURING
CAPACITY AND OUR FUTURE OPERATIONS, WHICH MAY NOT BE AVAILABLE.
We may need capital in addition to the net proceeds of this offering to
fund expansion of our manufacturing and production capacity and our future
operations or acquisitions. If we raise additional capital through the sale of
equity or debt securities, the issuance of such securities could result in
dilution to existing stockholders. These securities could have rights,
preferences and privileges that are senior to those of holders of our common
stock. For example, in December 1998 we issued debt securities for the purchase
and improvement of our facilities in Fremont, California.
If we require additional capital in the future, it might not be available
on acceptable terms, or at all. If we are unable to obtain additional capital
when needed, we may be required to reduce the scope of our planned expansion of
our manufacturing capacity or of our product development and marketing efforts,
which could adversely affect our business and operating results.
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PROVISIONS IN OUR CHARTER, BYLAWS OR DELAWARE LAW MAY DELAY OR PREVENT A
CHANGE IN CONTROL OF OUR COMPANY.
Provisions in our amended and restated certificate of incorporation and bylaws may have the effect of delayingmaking it more difficult for a third party to acquire, or preventingof discouraging a merger, acquisition or
change ofthird party from attempting to acquire, control of us, or changes in our management.AXT. These provisions include:
-could cause the divisionprice of our boardcommon stock to decrease. Some of directors into three separate classes, each
with three year terms;
-these provisions allow us to issue up to 2,000,000 shares of preferred stock without any vote or further action by the stockholders, eliminate the right of stockholders to act by written consent without a meeting and eliminate cumulative voting in the election of directors. In addition, these provisions include the right of our board to elect a director to fill a space created by a board vacancy or the expansion of the board;
-board, the ability of our board to alter our bylaws;
- the ability of our board to authorize the issuance of up to 2,000,000
shares of blank check preferred stock;bylaws, and
- the requirement that only our board or the holders of at least 10% of our outstanding shares may call a special meeting of our stockholders. Furthermore, because we are incorporated in Delaware, we are subject to the
provisions of Section 203 of the Delaware General Corporation Law. These provisions prohibit largemay make it more difficult for stockholders to take specific corporate actions and could have the effect of delaying or preventing a change in particular those owning 15% or morecontrol of the outstanding voting stock, from consummating a merger or combination with
a corporation unless:
- 66 2/3%AXT.
Our certificate of the shares of voting stock not owned by these large
stockholders approve the merger or combination, or
-incorporation provides that the board of directors approves the mergerwill be divided into three classes of directors, with each class serving a staggered three-year term. The classification system of electing directors may discourage a third party from making a tender offer or combination or the
transaction which resulted in the large stockholder owning 15% or moreotherwise attempting to obtain control of our outstanding voting stock.
WE WILL RETAIN BROAD DISCRETION IN THE USE OF PROCEEDS FROM THIS OFFERING
AND MAY NOT OBTAIN A SIGNIFICANT RETURN ON THE USE OF THESE PROCEEDS.
Although we plan to repay debt and fund expansion of our facilities with a
major portion of the proceeds of this offering, our management has discretion as
to how to spend the proceeds from this offering. They may spend these proceeds
in ways with which our stockholders may not agree. Management's allocation of
the proceeds of this offering may not benefit our business and the investment of
the proceeds may not yield a favorable return.
A LARGE NUMBER OF SHARES OF OUR COMMON STOCK MAY BE SOLD IN THE MARKET
FOLLOWING THIS OFFERING, WHICH MAY DEPRESS THE MARKET PRICE OF OUR COMMON
STOCK.
Sales of substantial numbers of shares of our common stock in the public
market after this offering, or the perception that those sales may be made,
could cause the market price of our common stock to decline. Based on shares
outstanding as of June 30, 2000, following this offering, we will have
21,282,155 shares of common stock outstanding or 21,612,155 shares if the
underwriters' over-allotment option is exercised in full. Of these, 2,184,762
shares are subject to lock-up agreements with the underwriters of this offering,us and may not be sold for 90 days followingmaintain the date of this prospectus, subject
to the restrictions imposed by the federal securities laws on sales by
affiliates. However, Prudential Securities Incorporated may waive these lock-up
restrictions at its sole discretion without notice. In addition, we have agreed
to file a registration statement with the Securities and Exchange Commission
within ten days of the completion of this offering, covering the 234,155 shares
of our common stock issued in our private placement in July 2000.
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18
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. We have
based these forward-looking statements largely on our current expectations and
projections about future events and financial trends affecting the financial
condition of our business. These forward-looking statements are subject to a
number of risks, uncertainties and assumptions about us, including among other
things:
- general economic and business conditions, both nationally and
internationally;
- our expectations and estimates concerning future financial performance,
financing plans and the impact of competition;
- anticipated trends in our business;
- existing and future regulations affecting our business; and
- other risk factors set forth under "Risk Factors" in this prospectus.
In addition, in this prospectus, the words "believe," "may," "will,"
"estimate," "continue," "anticipate," "intend," "expect," "could," "plan" and
similar expressions, as they relate to us, our business or our management, are
intended to identify forward-looking statements.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise
after the date of this prospectus. In light of these risks and uncertainties,
the forward-looking events and circumstances discussed in this prospectus may
not occur and actual results could differ materially from those anticipated or
implied in the forward-looking statements.
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USE OF PROCEEDS
The net proceeds to us from our sale of 2,100,000 shares of common stock in
this offering are estimated to be approximately $76.1 million, or $88.3 million
if the underwriters exercise their over-allotment option in full, based upon an
assumed public offering price of $38.625 per share and after deducting
underwriting discounts and commissions and estimated offering expenses payable
by us.
We intend to use the net proceeds of this offering for general corporate
purposes, including working capital and capital expenditures for our
manufacturing expansion, and to repay approximately $8.0 million of indebtedness
under our revolving line of credit. We may also use a portion of the net
proceeds to acquire businesses, products or technologies that are complementary
to our business, although we are not currently negotiating any acquisitions and
we have no agreements with any third party for any acquisition. Prior to using
the proceeds in the manner described above, we plan to invest the net proceeds
of this offering in short-term, interest-bearing, investment-grade securities or
guaranteed obligations of the United States government. We will not receive any
proceeds from the sale of common stock by the selling stockholders.
Borrowings under our revolving line of credit, which expires May 31, 2002,
bear interest at variable rates based upon the bank's reference rate or LIBOR.
At June 30, 2000, our line of credit bore interest at 10.0%.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Our common stock has been quoted in the Nasdaq National Market under the
symbol "AXTI" since May 20, 1998. The following table sets forth the high and
low sales prices of our common stock for the periods indicated, as reported in
the Nasdaq National Market.
HIGH LOW
------- -------
1998:
Second Quarter (from May 20, 1998).......................... $15.000 $10.125
Third Quarter............................................... 15.500 7.000
Fourth Quarter.............................................. 10.813 6.000
1999:
First Quarter............................................... $22.500 $ 9.063
Second Quarter.............................................. 27.000 19.375
Third Quarter............................................... 35.125 17.750
Fourth Quarter.............................................. 23.875 12.063
2000
First Quarter............................................... $46.625 $14.500
Second Quarter.............................................. 47.000 21.250
Third Quarter (through August 31, 2000)..................... 45.000 31.125
On August 31, 2000, the last reported sale price of our common stock in the
Nasdaq National Market was $38.625 per share.
We have not declared or paid cash dividends on our common stock and do not
anticipate doing so in the foreseeable future. It is our policy to retain any
future earnings to develop and expand our business. In addition, provisions of
our loan and debt covenants prevent us from declaring dividends without the
prior consent of our lenders. The payment of dividends, if any, on our common
stock in the future will be at the discretion of our board of directors. Our
preferred stock accrues dividends at the rate of 5.0% per annum.
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CAPITALIZATION
The following table sets forth our capitalization as of June 30, 2000:
- on an actual basis; and
- on an as adjusted basis to reflect our sale of 234,155 shares of common
stock in a private placement in July 2000 and the sale of 2,100,000
shares of common stock in this offering at an assumed public offering
price of $38.625 per share, after deducting the underwriting discounts
and commissions and estimated offering expenses.
You should read this table in conjunction with our consolidated financial
statements and related notes thereto included elsewhere in this prospectus.
JUNE 30, 2000
--------------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
Note payable and short-term bank borrowing.................. $ 16,980 $ 16,980
Current portion of long-term debt and capital lease......... 5,299 5,299
-------- --------
Total short-term debt.................................. 22,279 22,279
Long-term debt and capital lease, net of current portion.... 22,171 22,171
Stockholders' equity:
Preferred stock
$.001 par value, 2,000 shares authorized; 981 shares
issued and outstanding actual and as adjusted.......... 1 1
Additional paid-in capital............................. 3,989 3,989
Common stock
$.001 par value, 100,000 shares authorized; 18,948
shares issued and outstanding, actual; 21,282 shares
issued and outstanding as adjusted..................... 19 21
Additional paid-in capital............................. 48,606 133,243
Deferred compensation..................................... (162) (162)
Retained earnings......................................... 16,695 16,695
Cumulative translation adjustments........................ 98 98
-------- --------
Total stockholders' equity........................... 69,246 153,885
-------- --------
Total capitalization................................. $113,696 $198,335
======== ========
Shares issued and outstanding exclude the following:
- 2,641,756 shares of common stock issuable upon exercise of options
outstanding as of June 30, 2000 with a weighted average exercise price of
$14.65 per share;
- 3,239,831 shares of common stock reserved for future issuance as of June
30, 2000 under our 1993 and 1997 stock option plans;
- 778,837 shares of common stock reserved for future issuance as of June
30, 2000 under our 1998 employee stock purchase plan; and
- 330,000 shares that the underwriters may purchase if they exercise their
over-allotment option in full.
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SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with, and are qualified by reference to, our consolidated financial
statements and related notes and "Management's Discussion and Analysis of
Financial Condition and Results of Operations." The selected consolidated income
statement data for each of the three years in the period ended December 31, 1999
and for the six months ended June 30, 2000 and the selected consolidated balance
sheet data at December 31, 1998, 1999 and at June 30, 2000 are derived from, and
are qualified by reference to, our audited consolidated financial statements
included elsewhere in this prospectus. The selected consolidated income
statement data for each of the three years in the period ended December 31, 1997
and the selected consolidated balance sheet data as of December 31, 1995, 1996
and 1997 are derived from audited consolidated financial statements not included
in this prospectus. The consolidated income statement data for the six months
ended June 30, 1999 are derived from unaudited condensed consolidated financial
statements included elsewhere in this prospectus. In the opinion of management,
the unaudited condensed consolidated financial statements have been prepared on
the same basis as the audited consolidated financial statements and include all
adjustments, consisting only of normal recurring adjustments, necessary for the
fair statement of the results of this period.
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------------------------- ---------------------
1995 1996 1997 1998 1999 1999 2000
------- ------- ------- ------- ------- ----------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
CONSOLIDATED INCOME STATEMENT DATA:
Revenue............................................ $24,117 $31,272 $43,313 $61,314 $81,521 $39,680 $52,878
Cost of revenue.................................... 14,773 21,037 29,650 38,949 57,369 30,211 32,198
------- ------- ------- ------- ------- ------- -------
Gross profit....................................... 9,344 10,235 13,663 22,365 24,152 9,469 20,680
Operating expenses:
Selling, general, and administrative............. 4,774 5,534 9,921 11,538 14,016 6,843 8,417
Research and development......................... 448 592 1,289 2,684 3,086 1,520 3,851
Acquisition costs................................ -- -- -- -- 2,810 2,810 --
------- ------- ------- ------- ------- ------- -------
Total operating expenses....................... 5,222 6,126 11,210 14,222 19,912 11,173 12,268
------- ------- ------- ------- ------- ------- -------
Income from operations............................. 4,122 4,109 2,453 8,143 4,240 (1,704) 8,412
Interest expense................................... (12) (170) (793) (1,481) (2,150) (1,360) (1,918)
Other income and expense........................... 282 (72) (57) 598 729 722 499
------- ------- ------- ------- ------- ------- -------
Income (loss) before provision for income taxes.... 4,392 3,867 1,603 7,260 2,819 (2,342) 6,993
Provision for income taxes......................... 1,599 1,516 783 2,976 2,139 178 2,668
------- ------- ------- ------- ------- ------- -------
Income (loss) before extraordinary item............ 2,793 2,351 820 4,284 680 (2,520) 4,325
Extraordinary item, net of tax benefits............ -- -- -- -- (508) (508) --
------- ------- ------- ------- ------- ------- -------
Net income......................................... $ 2,793 $ 2,351 $ 820 $ 4,284 $ 172 $(3,028) $ 4,325
======= ======= ======= ======= ======= ======= =======
Basic net income (loss) per share:
Income (loss) before extraordinary item.......... $ 0.96 $ 0.65 $ 0.22 $ 0.27 $ 0.04 $ (0.14) $ 0.23
Extraordinary item............................... -- -- -- -- (0.03) (0.03) --
Net income....................................... 0.96 0.65 0.22 0.27 0.01 (0.16) 0.23
Diluted net income (loss) per share:
Income (loss) before extraordinary item.......... $ 0.23 $ 0.19 $ 0.06 $ 0.26 $ 0.03 $ (0.14) $ 0.21
Extraordinary item............................... -- -- -- -- (0.03) (0.03) --
Net income....................................... 0.23 0.19 0.06 0.26 0.01 (0.16) 0.21
Shares used in calculations:
Basic............................................ 2,921 3,595 3,697 16,076 18,655 18,451 18,687
Diluted.......................................... 11,913 12,524 13,598 16,325 19,771 18,451 20,178
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DECEMBER 31,
------------------------------------------------- JUNE 30,
1995 1996 1997 1998 1999 2000
------- ------- ------- -------- -------- --------
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 1,121 $ 1,171 $ 3,199 $ 16,438 $ 6,062 $ 5,149
Working capital............................................. 5,144 6,866 12,612 41,644 40,462 34,669
Total assets................................................ 15,067 23,178 37,796 102,983 115,762 137,172
Long-term capital lease, net of current portion............. -- -- -- 3,854 6,853 8,137
Long-term debt, net of current portion...................... 2,350 5,833 7,728 18,416 15,254 14,034
Stockholders' equity........................................ 7,869 10,237 17,387 61,164 62,459 69,246
Revenue from our substrates division and consumer products division is
included in all periods presented. Revenue from our visible emitters division is
included from the time of the acquisition of the visible emitter business on
September 29, 1998.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with "Selected Consolidated
Financial Data" and our consolidated financial statements and related notes
included elsewhere in this prospectus. In addition to historical information,
the discussion in this prospectus contains forward-looking statements that
involve risks and uncertainties. Our actual results could differ materially from
those anticipated by these forward-looking statements due to factors, including
but not limited to, those set forth under "Risk Factors" and elsewhere in this
prospectus.
OVERVIEW
We were founded in 1986 to commercialize and enhance our proprietary VGF
technique for producing high-performance compound semiconductor substrates. We
currently operate three divisions: our substrate division, our visible emitter
division and our consumer products division. We made our first substrate sales
in 1990 and our substrate division currently sells GaAs and InP substrates to
manufacturers of semiconductor devices for use in applications such as fiber
optic and wireless telecommunications, LEDs and lasers. We also sell germanium
substrates for use in satellite solar cells. We acquired Lyte Optronics, Inc.,
on May 28, 1999, and currently operate Lyte's historical business as our visible
emitter division and consumer products division. The visible emitter division
manufactures HB LEDs, VCSELs and laser diodes for the illumination markets,
including full-color displays, automobile lighting and traffic signals, as well
as fiber optic communications. The consumer products division focuses on the
design and marketing of laser-pointing and alignment products for the consumer,
commercial and industrial markets. We expect to focus our resources on the
substrate and visible emitter divisions.
We have been profitable on an annual basis since 1990. Our total revenue
was $43.3 million for 1997, $61.3 million for 1998, $81.5 million for 1999 and
$52.9 million for the six months ended June 30, 2000. Our net income was
$820,000 for 1997, $4.3 million for 1998, $172,000 for 1999 and $4.3 million for
the six months ended June 30, 2000.
Our five largest customers accounted for 20.4% of our total revenue in
1997, 27.9% in 1998, 22.9% in 1999 and 25.5% for the six months ended June 30,
2000. No customer accounted for more than 10.0% of our total revenue in 1997,
1998, 1999 or the six months ended June 30, 2000. Generally, we do not have
long-term or other non-cancelable commitments from our customers and usually
sell products pursuant to customer purchase orders.
In the first quarter of 2000, we announced plans to expand substantially
our production capacity for compound substrates as well as blue, green and cyan
HB LEDs. Most of the expansion for substrates will occur at our facilities in
China and the remainder of our substrate expansion and all of our visible
emitter expansion will occur at our California facilities. We estimate that our
capital expenditures for this expansion during the next 12 months will be
approximately $47.0 million.
In connection with our acquisition of Lyte Optronics and its subsidiaries,
we issued approximately 2,247,465 shares of common stock and 980,655 shares of
preferred stock with a 5.0% annual dividend rate and $4.0 million liquidation
preference over common stock, in exchange for all of the issued and outstanding
shares of capital stock of Lyte Optronics. The acquisition was accounted for as
a pooling of interests. In connection with the acquisition, we reported a charge
of $2.8 million in the second quarter of 1999 to reflect transaction costs and
other one-time charges. Ten percent of the shares issued to Lyte Optronics'
stockholders are held in escrow to satisfy any claims that we may bring under
the acquisition agreement. We have filed claims under the acquisition agreement,
and expect that all of the shares held in escrow will be returned to us in
satisfaction of these claims.
Our revenue primarily consists of product revenues. We recognize revenue
upon the shipment of products to the customer provided that we have received a
signed purchase order, the price is fixed, collection of resulting receivables
is probable, product returns are reasonably estimable and there are no remaining
significant obligations. We also provide for future returns based on historical
experience at the
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time revenue is recognized. Except for sales in Japan and some sales in Taiwan,
which are denominated in Japanese yen, we denominate and collect our
international sales in U.S. dollars.
Each of our three divisions is responsible for its own sales and marketing
activities, and each maintains its own sales and marketing personnel. We sell
our substrate products through our direct sales force in the U.S. and Japan and
through independent sales representatives in France, Japan, South Korea, Taiwan
and the United Kingdom. We sell our HB LED and laser diode products primarily
through independent sales representatives to lamp package manufacturers in
Taiwan and China. We currently sell our consumer products through a combination
of our own direct sales force and independent sales representatives, mostly to
customers in the U.S.
RESULTS OF OPERATIONS
The following table sets forth certain operating data as a percentage of
total revenues for the periods indicated.
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------- --------------
1997 1998 1999 1999 2000
------ ------ ------ ----- -----
Revenue............................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue.................................... 68.5 63.5 70.4 76.1 60.9
----- ----- ----- ----- -----
Gross profit....................................... 31.5 36.5 29.6 23.9 39.1
Operating expenses:
Selling, general and administrative.............. 22.9 18.8 17.2 17.2 15.9
Research and development......................... 3.0 4.4 3.8 3.8 7.3
Acquisition costs................................ -- -- 3.5 7.1 --
----- ----- ----- ----- -----
Total operating expenses...................... 25.9 23.2 24.5 28.2 23.2
----- ----- ----- ----- -----
Income (loss) from operations...................... 5.6 13.3 5.2 (4.3) 15.9
Interest expense................................... (1.8) (2.4) (2.6) (3.4) (3.6)
Other income and expense........................... (0.1) 1.0 0.9 1.8 0.9
----- ----- ----- ----- -----
Income (loss) before provision for income taxes.... 3.7 11.9 3.4 (5.9) 13.2
Provision for income taxes......................... 1.8 4.9 2.6 0.4 5.0
----- ----- ----- ----- -----
Income (loss) before extraordinary item............ 1.9 7.0 0.8 (6.4) 8.2
Extraordinary item, net of tax benefits............ -- -- (0.6) (1.3) --
----- ----- ----- ----- -----
Net income......................................... 1.9% 7.0% 0.2% (7.6)% 8.2%
===== ===== ===== ===== =====
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO JUNE 30, 2000
Revenue. Total revenue increased $13.2 million, or 33.3%, from $39.7
million for the six months ended June 30, 1999 to $52.9 million for the six
months ended June 30, 2000. The increase in revenue was primarily due to a $19.2
million, or 73.5%, increase in substrate sales comprised of a $22.8 million, or
106.9% increase in sales of GaAs and InP substrates offset by a $3.6 million
decrease in Ge sales and contract revenues. The increase in GaAs and InP
substrate sales was a result of increased sales to existing and new customers
due in part to strong growth in the fiber optic and wireless handset markets.
The decrease in Ge sales was the result of a cancellation of a contract by a
major customer due to weakness in the satellite market. Sales at our visible
emitter division decreased $4.5 million, or 48.2%, for the six months ended June
30, 2000. Sales at our consumer products division decreased $1.5 million, or
35.6%, due to declining sales prices and lower demand for laser pointer
products.
Revenue from the substrate division was 65.9% of total revenue, revenue
from the visible emitter division was 23.7% of total revenue and revenue from
the consumer products division was 10.5% of total revenue for the six months
ended June 30, 1999 compared to revenue from the substrate division of 85.7%
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25
of total revenue, revenue from the visible emitter division of 9.2% of total
revenue and revenue from the consumer products division of 5.1% of total revenue
for the six months ended June 30, 2000.
International revenue decreased from 49.6% of total revenue for the six
months ended June 30, 1999 to 47.3% of total revenue for the six months ended
June 30, 2000. The decrease in the percentage of revenue was primarily the
result of increased substrate sales to domestic customers.
Gross margin. Gross margins increased from 23.9% for the six months ended
June 30, 1999 to 39.1% for the six months ended June 30, 2000. The gross margin
at the substrate division increased from 39.7% for the six months ended June 30,
1999 to 46.6% for the six months ended June 30, 2000. The increase was primarily
due to higher volume and the realization of lower labor and manufacturing
overhead costs as a result of expanding our wafer production capacity in China.
The gross margin at the visible emitter division decreased from negative 1.2%
for the period ended June 30, 1999 to negative 23.0% for the six months ended
June 30, 2000. The decrease was primarily due to increased costs associated with
the start-up of blue LED and other product production. The gross margin at the
consumer products division increased from negative 19.3% for the six months
ended June 30, 1999 to 24.4% for the six months ended June 30, 2000. The
increase was primarily due to manufacturing process improvements and cost
reductions.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $1.6 million, or 23.0%, from $6.8 million for
the six months ended June 30, 1999 to $8.4 million for the six months ended June
30, 2000. The increase in selling, general and administrative expenses was
primarily due to increases in personnel and related expenses required to support
current and future increases in sales volume. As a percentage of total revenue,
selling, general and administrative expenses were 17.2% for the six months ended
June 30, 1999 compared to 15.9% for the six months ended June 30, 2000. Selling,
general and administrative expenses increased 23.0% compared to increased total
revenue of 33.3% for the six months ended June 30, 2000.
Research and development expenses. Research and development expenses
increased $2.3 million, or 153.4%, from $1.5 million for the six months ended
June 30, 1999 to $3.9 million for the six months ended June 30, 2000. The
increase was primarily the result of increases in personnel and related expenses
and materials to support LED and other product research and development at the
visible emitter division. As a percentage of total revenue, research and
development expenses were 3.8% for the six months ended June 30, 1999 compared
to 7.3% for the six months ended June 30, 2000.
Interest expense. Interest expense increased $558,000, or 41.0%, from $1.4
million for the six months ended June 30, 1999 to $1.9 million for the six
months ended June 30, 2000. The increase was primarily due to using short-term
debt to finance the short-term liquidity needs resulting from our increased
sales volume as well as the addition of certain capital leases to finance
equipment purchases.
Other income and expense. Other income and expense decreased $223,000 from
$722,000 for the six months ended June 30, 1999 to $499,000 for the six months
ended June 30, 2000. The decrease was primarily the result of smaller foreign
exchange gains.
Provision for income taxes. The effective tax rate was 38.0% for the six
months ended June 30, 2000. For the six months ended June 30, 1999, the
provision for income taxes reflected the effect of non-deductible acquisition
costs of $2.8 million.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1999
Revenue. Revenue increased 33.0%, or $20.2 million from $61.3 million for
1998 to $81.5 million for 1999. The increase in revenue resulted primarily from
a $13.7 million increase in sales of GaAs and InP substrates to existing
customers and the addition of new customers, a $12.7 million increase due to the
inclusion of the visible emitter division for a full year in 1999 compared to
only the fourth quarter in 1998, and a $6.1 million decrease in consumer product
sales. The decrease in consumer product sales reflected declining sales prices
for laser pointer products, an increase in sales returns due to product quality
21
26
problems and a change in government regulations regarding the allowable strength
of laser products sold to the consumer product market in Europe.
Revenue from the substrate division was 70.4% of total revenue, revenue
from the visible emitter division was 9.6% of total revenue and revenue from the
consumer products division was 20.0% of total revenue for 1998 compared to
revenue from the substrate division of 69.6% of total revenue, revenue from the
visible emitter division of 22.9% of total revenue and revenue from the consumer
products division of 7.5% of total revenue for 1999.
International revenue, excluding Canada, increased from 29.5% of total
revenue, or $18.1 million, for 1998, to 43.9% or $35.8 million for 1999. The
increase in international revenue resulted primarily from a $7.3 million
increase in GaAs and InP sales to new and existing customers and a $10.0 million
increase due to the inclusion of the visible emitter division for a full year in
1999 compared to only the fourth quarter in 1998.
Gross margin. Gross margin decreased from 36.5% for 1998 to 29.6% for 1999.
The gross margin for substrates decreased slightly from 41.5% to 41.0%,
primarily due to a decline in sales prices. The gross margin on products sold by
the visible emitter division was 36.2% in 1998 compared to 11.1% in 1999. The
decrease in margins at the visible emitter division was primarily due to
significant sales price decreases for laser diodes, a $1.5 million charge to
settle a patent dispute and a $2.4 million charge to write down obsolete
inventory. Excluding these charges, the gross margin was 32.0% in 1999. Gross
margin on products sold by the consumer products division decreased from 18.7%
in 1998 to negative 19.4% in 1999, due to significant sales prices decreases for
laser pointer products and a $2.1 million charge to write down obsolete
inventory. Excluding these charges, the gross margin was 14.7% in 1999.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 21.5%, or $2.5 million, from $11.5 million for
1998 to $14.0 million for 1999. The inclusion of the visible emitter division
for the full year in 1999 compared to only the fourth quarter of 1998 resulted
in an increase of $3.3 million. Substrate division expenses increased $1.2
million primarily due to increases in personnel and related expenses required to
support additional sales volume. These increases were offset by a decrease of
$2.0 million by the 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 revenue decreased from 18.8%
for 1998 to 17.2% for 1999. This decrease was primarily due to an increase in
total revenue.
Research and development expenses. Research and development expenses
increased 15.0%, or $402,000, from $2.7 million for 1998, to $3.1 million for
1999. This increase resulted primarily from the inclusion of the visible emitter
division for a full year in 1999 compared to only the fourth quarter in 1998.
Also, historically the consumer products division did not separately account for
its research and development expenses but included them as part of the cost of
product revenue and selling, general and administrative expenses. Research and
development expenses as a percentage of total revenue decreased from 4.4% of
total revenue for 1998 to 3.8% of revenue for 1999. This decrease was primarily
due to an increase in total revenue.
Acquisition cost. As a result of the acquisition of Lyte Optronics in May
1999, we incurred a number of one-time expenses which totaled approximately $2.8
million. These expenses included fees paid to our investment bankers,
accountants, attorneys and other outside consultants and related transaction
expenses.
Interest expense. Interest expense increased 45.2%, or $669,000 from $1.5
million for 1998, to $2.2 million for 1999. This increase was primarily the
result of the inclusion of the visible emitter division for a full year in 1999
compared to only the fourth quarter in 1998, which resulted in increased
borrowing on a line of credit.
Other income and expense. Other income and expense increased 21.9%, or
$131,000 from $598,000 for 1998 to $729,000 for 1999. The increase was primarily
the result of foreign exchange gains.
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Provision for income taxes. Income tax expense, excluding the effect of
non-deductible acquisition costs of approximately $2.8 million in 1999,
decreased from 41.0% to 38.0% of income before provision for income taxes for
1998 and 1999.
Extraordinary item, net of tax benefit. In connection with the acquisition
of Lyte Optronics in May 1999, we incurred fees associated with a loan that we
repaid as part of the transaction.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Revenue. Revenue increased 41.6%, or $18.0 million from $43.3 million for
1997 to $61.3 million for 1998. The increase in revenue resulted primarily from
a $17.8 million increase in the volume of sales of GaAs and InP substrates to
existing customers, the addition of new customers and the introduction of Ge
substrates in the fourth quarter of 1997. Additionally, there was a $5.9 million
increase due to the inclusion of the visible emitter division for the fourth
quarter of 1998, offset by a $5.7 million decrease in revenue at the consumer
products division reflecting declining sales prices for laser pointer products
and a change in government regulations reducing the allowable strength of lasers
sold to the consumer market in Europe.
Revenue from the substrate division was 58.5% of total revenue, and revenue
from the consumer products division was 41.5% of total revenue for 1997 compared
to revenue from the substrate division of 70.4% of total revenue, revenue from
the visible emitter division of 9.6% of total revenue and revenue from the
consumer products division of 20.0% of total revenue for 1998.
International revenue, excluding Canada, increased from 26.8% of total
revenues for 1997 to 29.5% for 1998. The increase in international revenue
resulted primarily from a $3.8 million increase in substrate sales to new and
existing customers and a $5.1 million increase due to the inclusion of the
visible emitter division for the fourth quarter of 1998, which sells products
primarily in Asia, offset by a $2.4 million decrease in sales to Europe by the
consumer products division caused by governmental regulation changes reducing
the allowable strength of lasers sold to the consumer market.
Gross margin. Gross margins increased from 31.5% for 1997 to 36.5% for
1998. The gross margins for substrates increased slightly from 39.9% in 1997 to
41.5% in 1998 reflecting higher yields achieved in GaAs and InP production,
partially offset by lower margins on Ge substrates. Total gross margins also
benefited from the inclusion of the visible emitter division for the fourth
quarter of 1998, which had a 36.2% gross margin. Gross margins on products sold
by the consumer products division decreased slightly from 19.8% in 1997 to 18.7%
in 1998 due to declining prices for laser pointer products.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 16.3%, or $1.6 million, from $9.9 million for
1997 to $11.5 million for 1998. Substrate division expenses increased $2.1
million primarily due to increases in personnel and related expenses required to
support additional sales volume. The inclusion of the visible emitter division
for the fourth quarter of 1998 added $1.0 million. These increases were offset
by a $1.4 million decrease at the consumer products division as a result of
closing a manufacturing facility located in Arizona in 1998. Selling, general
and administrative expenses as a percentage of total revenue decreased from
22.9% for 1997 to 18.8% for 1998. This percentage decrease was primarily due to
the 41.6% increase in revenue.
Research and development expenses. Research and development expenses
increased 108.2%, or $1.4 million, from $1.3 million for 1997 to $2.7 million
for 1998. This increase resulted primarily from hiring additional engineers and
the purchase of materials at the substrate division to develop new products and
to enhance existing products. Also, historically the consumer products division
did not separately account for its research and development expenses but
included them as part of its cost of product revenue and selling, general and
administrative expenses. Research and development expenses as a percentage of
total revenue increased from 3.0% for 1997 to 4.4% for 1998, primarily as a
result of the increase in spending.
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Interest expense. Interest expense increased 86.8%, or $688,000 from
$793,000 for 1997 to $1.5 million for 1998. This increase was primarily the
result of additional borrowings to finance the purchase and lease of buildings
and equipment at the substrate and consumer products divisions.
Other income and expense. Other income and expense increased from an
expense of $57,000 for 1997 to income of $598,000 for 1998. This increase was
primarily the result of interest income earned on the $25.8 million in net
proceeds raised from our initial public offering in May 1998.
Provision for income taxes. Income tax expense decreased from 48.8% of
income before provision for income taxes in 1997 to 41.0% in 1998, due to a
decrease in non-deductible expenses.
SELECTED QUARTERLY RESULTS OF OPERATIONS
The following table sets forth selected unaudited quarterly consolidated
financial information in dollars for the six quarters ended June 30, 2000. We
believe that all necessary adjustments, consisting only of normal recurring
adjustments, have been included in the amounts stated below to present fairly
such quarterly information. The operating results for any quarter are not
necessarily indicative of results for any subsequent period.
QUARTERS ENDED
----------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1999 1999 1999 1999 2000 2000
-------- -------- --------- -------- -------- --------
(IN THOUSANDS)
Revenue....................................... $18,897 $20,783 $20,017 $21,824 $23,934 $28,944
Cost of revenue............................... 16,240 13,971 13,077 14,081 14,339 17,859
------- ------- ------- ------- ------- -------
Gross profit.................................. 2,657 6,812 6,940 7,743 9,595 11,085
Operating expenses:
Selling, general and administrative......... 3,647 3,196 3,113 4,060 3,853 4,564
Research and development.................... 662 858 670 896 1,988 1,863
Acquisition costs........................... -- 2,810 -- -- -- --
------- ------- ------- ------- ------- -------
Total operating expenses............. 4,309 6,864 3,783 4,956 5,841 6,427
------- ------- ------- ------- ------- -------
Income (loss) from operations................. (1,652) (52) 3,157 2,787 3,754 4,658
Interest expense.............................. (630) (730) (752) (615) (769) (1,149)
Other income and expense...................... 693 29 235 349 196 303
------- ------- ------- ------- ------- -------
Income (loss) before provision for income
taxes....................................... (1,589) (753) 2,640 2,521 3,181 3,812
Provision for income taxes.................... (604) 782 1,003 958 1,209 1,459
------- ------- ------- ------- ------- -------
Income (loss) before extraordinary item....... (985) (1,535) 1,637 1,563 1,972 2,353
Extraordinary item -- net of tax benefits..... -- (508) -- -- -- --
------- ------- ------- ------- ------- -------
Net income (loss)............................. $ (985) $(2,043) $ 1,637 $ 1,563 $ 1,972 $ 2,353
======= ======= ======= ======= ======= =======
The following table sets forth selected unaudited quarterly financial
information by segment.
Revenue:
Substrates.................................. $11,731 $14,405 $15,030 $15,566 $19,125 $26,212
Visible emitters............................ 4,600 4,792 3,889 5,359 3,140 1,728
Consumer products........................... 2,566 1,586 1,098 899 1,669 1,004
------- ------- ------- ------- ------- -------
Total................................ $18,897 $20,783 $20,017 $21,824 $23,934 $28,944
------- ------- ------- ------- ------- -------
Gross profit:
Substrates.................................. $ 4,830 $ 5,549 $ 6,224 $ 6,683 $ 8,682 $12,466
Visible emitters............................ (1,730) 1,622 921 1,248 289 (1,409)
Consumer products........................... (443) (359) (205) (188) 624 28
------- ------- ------- ------- ------- -------
Total................................ $ 2,657 $ 6,812 $ 6,940 $ 7,743 $ 9,595 $11,085
------- ------- ------- ------- ------- -------
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The following table sets forth selected unaudited quarterly consolidated
financial information as a percent of the total revenue for the six quarters
ended June 30, 2000.
QUARTERS ENDED
----------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1999 1999 1999 1999 2000 2000
-------- -------- --------- -------- -------- --------
Revenue....................................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue............................... 85.9 67.2 65.3 64.5 59.9 61.7
------- ------- ------- ------- ------- -------
Gross profit.................................. 14.1 32.8 34.7 35.5 40.1 38.3
Operating expenses:
Selling, general and administrative......... 19.3 15.4 15.6 18.6 16.1 15.8
Research and development.................... 3.5 4.1 3.3 4.1 8.3 6.4
Acquisition costs........................... -- 13.5 -- -- -- --
------- ------- ------- ------- ------- -------
Total operating expenses............. 22.8 33.0 18.9 22.7 24.4 22.2
------- ------- ------- ------- ------- -------
Income (loss) from operations................. (8.7) (0.3) 15.8 12.8 15.7 16.1
Interest expense.............................. (3.3) (3.5) (3.8) (2.8) (3.2) (4.0)
Other income and expense...................... 3.6 0.1 1.2 1.6 0.8 1.0
------- ------- ------- ------- ------- -------
Income (loss) before provision for income
taxes....................................... (8.4) (3.6) 13.2 11.6 13.3 13.1
Provision for income taxes.................... (3.2) 3.8 5.0 4.4 5.1 5.0
------- ------- ------- ------- ------- -------
Income (loss) before extraordinary item....... (5.2) (7.4) 8.2 7.2 8.2 8.1
Extraordinary item -- net of tax benefits..... -- (2.4) -- -- -- --
------- ------- ------- ------- ------- -------
Net income (loss)............................. (5.2)% (9.8)% 8.2% 7.2% 8.2% 8.1%
======= ======= ======= ======= ======= =======
Revenue increased from the quarter ended March 31, 1999 to the quarter
ended June 30, 2000 primarily due to increases in unit sales of substrates,
partially offset by decreases in sales of visible emitter and consumer products.
The decrease in visible emitter sales was primarily caused by declines in both
the number of laser diode chips sold and their average price. Gross profit
margins were higher in the quarters ended March 31 and June 30, 2000 than in
previous quarters because substrates, which have a higher profit margin,
represented a higher proportion of total sales in these last two quarters. In
addition, we were successful in reducing the unit costs of substrates in these
last two quarters. Excluding the acquisition costs related to the merger with
Lyte Optronics in the quarter ended June 30, 1999, operating expenses generally
increased as we added people and equipment in order to generate increased sales.
LIQUIDITY AND CAPITAL RESOURCES
Working capital decreased $5.8 million, or 14.3%, from $40.5 million at
December 31, 1999 to $34.7 million at June 30, 2000. The decrease was primarily
due to expenditures for equipment, partially offset by net income. Total
long-term debt, including capital leases, increased $7.3 million while property,
plant and equipment purchases were $14.5 million during the six months ended
June 30, 2000.
Cash used in operating activities was $7.1 million for the six months ended
June 30, 1999 compared to cash generated from operating activities of $3.9
million for the six months ended June 30, 2000. The increase was primarily due
to increased profitability at the substrate division.
Our capital expenditures were $3.9 million for the six months ended June
30, 1999 compared to $14.5 million during the six months ended June 30, 2000.
The increase in spending was primarily a result of facility expansion and
equipment additions in order to increase crystal growth and wafer processing
capacity at the substrate division as well as facility expansion and equipment
additions at the visible emitter division. We financed these acquisitions in
part through capital leases of $2.7 million during the six months ended June 30,
1999 and $3.4 million during the six months ended June 30, 2000.
We are currently constructing an additional 32,000 square foot building in
Beijing, China to expand substrate wafer processing capacity, a 27,000 square
foot building in El Monte, California to expand HB LED and VCSEL epitaxy
production and leasehold improvements in a 20,000 square foot building and a
9,000 square foot building to expand our administrative offices and material
storage areas in Fremont, California. We are also constructing improvements to
our existing production facilities in Fremont,
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California to increase crystal growth and wafer processing capacity. We expect
to invest approximately $47.0 million in additional facilities and equipment
over the next 12 months.
Cash provided by financing activities for the six months ended June 30,
2000 included a $4.0 million note from our bank and $2.3 million in proceeds
from the exercise of stock options and purchases of stock under our stock
purchase plan.
Total debt was $37.1 million at December 31, 1999, compared to $44.5
million at June 30, 2000.
We currently have a $15.0 million line of credit with a commercial bank at
an interest rate equal to the bank's variable prime rate plus 0.5%. The bank's
prime rate was 9.5% at June 30, 2000. This line of credit is secured by all of
our assets, other than equipment, and expires on September 30, 2000. At June 30,
2000, $13.0 million was outstanding under the $15.0 million line of credit. On
August 28, 2000, we entered into new credit facilities with the bank for a
21-month $20.0 million line of credit and additional 31-month term loans of $6.0
million. This new line of credit will replace the existing $15.0 million
facility.
On June 15, 2000, we entered into a short-term note with our bank in the
amount of $4.0 million. The note bears interest at 1.0% above the lender's
variable prime rate, which was 9.5% at June 30, 2000. The principal and unpaid
interest of the note is due September 30, 2000. We will repay this note with the
proceeds of the new term loans. The proceeds of the note were primarily used to
fund our current operating and capital expenditure needs.
In July 2000, we raised approximately $8.5 million in a private placement
of 234,115 shares of common stock to 11 stockholders.
We generally finance equipment purchases through secured equipment loans
and capital leases over five-year terms at interest rates ranging from 6.0% to
10.0% per annum. Some of our manufacturing facilities have been financed by
long-term borrowings, which were repaid by taxable variable rate revenue bonds
in 1998. These bonds mature in 2023 and bear an interest at 2.0% below the prime
rate. The bonds are traded in the public market. Repayment of principal and
interest under the bonds is supported by a letter of credit from our bank and is
paid on a quarterly basis. We have the option to redeem the bonds in whole or in
part during their term. At June 30, 2000, $10.7 million was outstanding under
these bonds.
We anticipate that the combination of existing working capital and the
borrowings available under the current and committed credit agreements, together
with the net proceeds of this offering, will be sufficient to fund working
capital and capital expenditure requirements for the next 12 months. However,
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 our manufacturing
facilities, the expansion of our selling and marketing and administrative
activities and market acceptance of our products. In addition to the net
proceeds from this offering, we may need to raise additional equity and debt
financing in the future.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, or SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 established accounting and
reporting standards for derivative instruments including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. In June 2000, SFAS 133 was amended by
SFAS 138. We have not determined what the effect of SFAS 133 will be on our
operations and financial position. We will be required to implement SFAS 133 as
amended by SFAS 137, beginning in 2001. We do not expect that adopting the
provisions of SFAS 133 will have a material effect on our financial position or
results of operations.
In December 1999, the Securities and Exchange Commission, or SEC, issued
Staff Accounting Bulletin No. 101, or SAB 101, "Revenue Recognition," which
provides guidance on the recognition, presentation, and disclosure of revenue in
financial statements filed with the SEC. SAB 101 outlines the
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basic criteria that must be met to recognize revenue and provides guidance for
disclosures related to revenue recognition policies. We believe that the impact
of SAB 101 will have no material effect on our financial position or results of
operations.
In March 2000, the FASB issued FASB Interpretation No. 44, or FIN 44,
"Accounting for Certain Transactions involving Stock Compensation, an
interpretation of APB Opinion No. 25." FIN 44 clarifies the application of
Opinion 25" for (a) the definition of an employee for purposes of applying
Opinion 25, (b) the criteria for determining whether a plan qualifies as a
noncompensatory plan, (c) the accounting consequence for various modifications
to the terms of a previously fixed stock option or award, and (d) the accounting
for an exchange of stock compensation awards in a business combination. FIN 44
is effective July 1, 2000, but certain conclusions cover specific events that
occur after either December 15, 1998 or January 12, 2000. The adoption of FIN 44
did not and is not expected to have an impact on our financial position or
results of operations.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Since our Japanese and some Taiwanese invoices are denominated in Japanese
yen, doing business in Japan subjects us to fluctuations in exchange rates
between the U.S. dollar and the Japanese yen. During 1997 we incurred a foreign
transaction exchange loss of $186,000, a loss of $24,000 in 1998, a gain of
$652,000 in 1999 and a loss of $3,000 during the six months ended June 30, 2000.
We purchase foreign exchange contracts to hedge against certain trade accounts
receivable in Japanese yen. The outstanding commitments with respect to such
foreign exchange contracts had a total contract value of approximately $1.7
million as of June 30, 2000. 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, we attempt to minimize the impact of foreign exchange fluctuations.
The fair market value of long-term fixed and variable interest rate debt is
subject to interest rate risk. The effect of an immediate 10% change in interest
rates would not have a material impact on our future operating results or cash
flows.
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BUSINESS
OVERVIEW
We design, develop, manufacture and distribute high-performance compound
semiconductor substrates, as well as opto-electronic semiconductor devices, such
as high-brightness light emitting diodes, or HB LEDs, and vertical cavity
surface emitting lasers, or VCSELs. Our substrate products are used primarily in
fiber optic communications, wireless communications and lighting display
applications. We believe our proprietary vertical gradient freeze, or VGF,
technique for manufacturing compound semiconductor substrates provides
significant benefits over traditional methods and has enabled us to become a
leading manufacturer of compound semiconductor substrates. We pioneered the
commercial use of VGF technology to manufacture gallium arsenide, or GaAs,
substrates and have used VGF technology to manufacture substrates from other
materials, such as indium phosphide, or InP, and germanium, or Ge. Customers for
our substrates include Alpha Industries, Agilent Technologies, EMCORE, Nortel
Networks, RF Micro Devices, SDL and Sumitomo Chemical. Our acquisition of Lyte
Optronics provided us with expertise in epitaxial processes for manufacturing
opto-electronic semiconductor devices. We have used these capabilities to make
blue, green and cyan HB LEDs and VCSELs. Our opto-electronic semiconductor
devices are used in a wide range of applications, such as solid-state lighting
and fiber optic communications. We have recently undertaken an initiative to
significantly expand our substrate and device manufacturing capacity and to
reduce the overall cost structure of our manufacturing operations.
INDUSTRY BACKGROUND
Historically, most semiconductor devices were created on a single crystal
base material, or substrate, of silicon. Today, however, a growing number of
electronic and opto-electronic devices are being developed with requirements
that exceed the capabilities of silicon. Many of these devices address the
continually increasing demand to send, receive and display information on
high-speed wireless and wireline networks. This demand has created a growing
need for power-efficient high-performance systems that can operate at high
frequencies and can be produced cost-effectively in high volumes. These systems
enable the growth and development of a wide range of end-user applications. For
example, International Data Corporation, or IDC, expects the number of mobile
wireless devices for Internet access and other data transmission to grow from
10.0 million units in 1999 to more than 562.0 million units by 2004.
Other examples of applications for these systems include:
- fiber optic networks and optical systems within these networks;
- new voice and high-speed wireless data systems;
- infrared emitters and optical detectors in computer systems;
- solid-state lighting, including exterior and interior automobile
lighting; and
- satellite communications systems.
As a result of the limitations of silicon-based technologies, semiconductor
device manufacturers are increasingly using compound semiconductor substrates to
improve the performance of semiconductor devices and to enable these new
applications. This shift is occurring even though these compound semiconductor
substrates are more expensive. Compound semiconductor substrates are composed of
multiple elements that include a metal, such as gallium, aluminum or indium, and
a non-metal, such as arsenic, phosphorus or nitrogen. The resulting compounds
include gallium arsenide, indium phosphide and gallium nitride. Advantages of
devices manufactured on compound substrates over devices manufactured using
silicon substrates include:
- operation at higher speeds;
- lower power consumption;
- less noise and distortion; and
- opto-electronic properties that enable devices to emit and detect light.
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The first step in producing a compound semiconductor substrate is to grow a
crystal of the materials. Historically, two processes have been used to grow
crystals: the Liquid Encapsulated Czochralski, or LEC, technique and the
Horizontal-Bridgeman, or HB, technique. We believe two trends are reducing the
appeal of these techniques: more semiconductor devices are being formed using an
epitaxial process and semiconductor device manufacturers are switching their
production lines to six-inch diameter substrates. The LEC and HB techniques each
have difficulties producing six-inch, high-quality, low-cost compound
semiconductor substrates for epitaxial processing. We introduced our VGF
technique in 1986 to respond to the limitations inherent in the LEC and HB
techniques.
Compound semiconductor substrates enable the development of a wide range of
electronic products including power amplifiers and radio frequency integrated
circuits used in wireless handsets. Compound substrates can also be used to
create opto-electronic products including HB LEDs and VCSELs used in solid state
lighting and fiber optic communications.
HB LEDs are solid-state compound semiconductor devices that emit light. The
global demand for HB LEDs is experiencing rapid growth because HB LEDs have a
long useful life, consume approximately 10% of the power consumed by
incandescent or halogen lighting and improve display visibility. Applications
where HB LEDs are increasingly used include wireless handset displays,
automotive displays, full color video displays, traffic lights and various
consumer applications. According to Strategies Unlimited, an independent
industry analyst, the market for HB LEDs is expected to grow from $600.0 million
in 1999 to approximately $1.2 billion by 2004.
VCSELs are semiconductor lasers that emit light in a cylindrical beam and
offer significant advantages over traditional laser diodes, including greater
control over beam size and wavelength, reduced manufacturing complexity and
packaging costs, lower power consumption and higher frequency performance.
Electronics and computing systems manufacturers are using VCSELs in a broad
range of end-market applications, including fiber optic switching and routing,
such as Gigabit Ethernet for communications networks and Fibre Channel for
storage area networks. According to ElectroniCast, an independent industry
analyst, the market for VCSELs is expected to grow from $247.0 million in 1999
to approximately $2.8 billion by 2004.
THE AXT ADVANTAGE
We are a leading developer and supplier of high-performance compound
semiconductor substrates and opto-electronic semiconductor devices, including HB
LEDs and VCSELs. There are four key causes of our success:
Our VGF technology is a competitive advantage. We pioneered the commercial
use of VGF technology to manufacture GaAs substrates and we believe that through
the use of VGF we have become the leading worldwide supplier of GaAs substrates.
Our VGF process produces substrates with high mechanical strength and physical
and chemical uniformity, as well as a low defect rate. The following changes in
our customers' technologies are increasing demand for substrates with these
features:
- Greater use of epitaxy rather than ion implantation. Many of the newest
generation of high-performance semiconductor devices for fiber optic and
wireless communications applications, including heterojunction bipolar
transistors, or HBTs, and pseudomorphic high electron mobility
transistors, or PHEMTs, are popular because they offer lower power
consumption and better device linearity than their predecessors. These
devices are created using epitaxial processed substrates. Our VGF
substrates are more suitable for these applications than are our
competitors' products.
- Switch to six-inch diameter wafers. Many of our semiconductor device
manufacturing customers are switching their GaAs production lines to
six-inch diameter substrates in order to reduce unit costs and increase
capacity. Our VGF technique is better suited to developing six-inch
substrates than are competing methods.
- Introduction of InP substrates. Even GaAs cannot meet the requirements
for increasing system performance and network bandwidth of some
applications, including SONET OC-768 applications
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that operate at speeds up to 40 gigabits per second. Manufacturers of
these devices are turning to InP substrates that can support these
features. We have successfully used our VGF technique to develop InP and
we were among the first to offer four-inch InP substrates.
In addition, VGF technology gives us further benefits.
- Customer technology independence. Our semiconductor device manufacturing
customers often compete among themselves. For example, several of our
customers compete for technological leadership in the wireless handset
market. These customers or end-users all require devices made on GaAs
substrates. We are, therefore, largely immune from the effects of such
competition and benefit from an overall need for faster, more power
efficient electronic and opto-electronic devices.
- Faster and less expensive capacity expansion. We build our own crystal
growing equipment rather than ordering it from third-party vendors. This
capability, coupled with the fact that our equipment is less expensive
and simpler to manufacture than LEC equipment, enables us to increase our
capacity faster and at lower cost than our competitors. This ability is
particularly beneficial in the current rapid growth environment for
six-inch GaAs and all InP substrates. Retaining the equipment
manufacturing process within AXT also helps protect our proprietary
technology.
Some customers specify VGF substrates. Our wafers are qualified with most
of the key suppliers of GaAs and InP semiconductor devices. The qualification
process, which is lengthy and must be repeated for each customer, can be a
barrier to entry for a new material or supplier. Furthermore, certain of our
customers now specify that they will only accept VGF-grown substrates for their
manufacturing processes. As the businesses of these customers grow, we are
well-positioned to grow with them as a key supplier.
Our low-cost manufacturing is an advantage. We use our technology and
economics of scale to be a low-cost manufacturer. Our expansion in China
provides us with a combination of lower costs for facilities, labor and
materials than we encountered in the United States and positions us to gain
access to low-cost raw materials supply sources. Furthermore, as we increase our
production capacity, we are able to spread fixed costs over a larger revenue
base, thereby leveraging our cost structure and achieving economies of scale.
We entered the opto-electronic semiconductor device market quickly through
our acquisition of Lyte Optronics. Our acquisition of Lyte Optronics provided us
with expertise in epitaxial processes for manufacturing high-volumes of
opto-electronic semiconductor devices. High-quality epitaxy is a key requirement
for most of today's advanced opto-electronic semiconductor devices, such as HB
LEDs and VCSELs. Since acquiring Lyte Optronics, we have developed
opto-electronic products that are among the more difficult to create using
epitaxy, including green HB LEDs and VCSELs. We have filed five patent
applications for our approach to fabricating HB LEDs. We believe that we can be
an important additional domestic source of these devices.
THE AXT STRATEGY
Our goals are to strengthen our position as the leading developer and
supplier of high-performance compound semiconductor substrates and to develop a
leading position in the market for opto-electronic semiconductor devices. Key
elements of our strategy include:
Expand GaAs substrate manufacturing capacity and decrease manufacturing
cost structure. We are increasing our production capacity in order to increase
our share of the market for GaAs substrates. We believe that we can extend our
leadership position by increasing our manufacturing capacity more rapidly than
competitors and in a manner that enables us to further lower unit production
costs. Much of this capacity increase will be for production of our six-inch
diameter GaAs substrates. We further believe that expanding our manufacturing
operations in China will allow us to increase capacity more quickly and at lower
cost. Furthermore, this expansion will allow us to form strategic alliances with
suppliers of key raw materials.
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Strengthen our leadership position in the InP market. We believe that there
will be rapid growth in demand for the next generation of high speed fiber optic
devices, such as devices used in SONET OC-768 applications. These products are
manufactured on InP substrates and we are positioning ourselves to be the
leading supplier of InP substrates by significantly expanding our production
capacity. Our sales of InP substrates during the six-month period ended June 30,
2000 grew 261% compared to our sales of InP substrates during the six-month
period ended June 30, 1999.
Advance VGF technology leadership. We believe that our ability to produce
high-quality substrates using VGF technology continues to provide us with a
competitive advantage in the high growth compound semiconductor substrate
markets. We intend to continue our investment in research and development in
order to expand our leadership position in the commercial use of VGF technology.
For example, we intend to leverage our existing knowledge in growing six-inch
GaAs substrates to grow longer crystals, which will further reduce our costs. We
are also launching an effort to develop six-inch diameter InP substrates in
response to customer requests.
Enhance our opto-electronic semiconductor devices. We intend to further
penetrate the high growth HB LED and VCSEL markets through continued investment
in research and development and expansion of production capacity. We are
expanding our manufacturing capacity by adding metal-organic chemical vapor
deposition, or MOCVD, reactors and are modifying our epitaxial process to
improve device performance and yield. We have invested in the research and
infrastructure required to grow our own sapphire substrates, which are used in
producing blue, green and cyan LEDs. During the next year we expect to increase
our VCSEL sales and develop our chip fabrication capabilities, which will enable
us to develop one- and two-dimensional VCSEL arrays.
Leverage existing customer relationships. We currently sell our GaAs
substrates to more than 200 customers and believe that we are a qualified
provider to most of the significant users worldwide of GaAs substrates. We
intend to capitalize on our relationships with our customers in order to both
expand sales of GaAs substrates and sell other compound substrates, such as InP.
We also intend to establish alliances and joint development arrangements with
customers in emerging high growth markets to develop new products, increase
manufacturing efficiencies and more effectively serve our customers' needs.
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TECHNOLOGY
Our core technologies include our proprietary VGF technique used to produce
high quality crystals that are processed into compound substrates, and our
epitaxy technologies that enable us to manufacture blue, green and cyan HB LEDs
and VCSELs.
[VGF DIAGRAM]
Our VGF technique is designed to control the crystal-growth process with
minimal temperature variation and is the technique we use to produce our GaAs,
InP and Ge substrates. Unlike traditional techniques, our VGF technique places
the hot compound melt above the cool crystal, thereby reducing the turbulence of
the melt which results when the melt and crystal are inverted. The temperature
gradient between the melt and the crystal in the VGF technique is significantly
lower than in traditional techniques. These aspects of the VGF technique enable
us to grow crystals that have a relatively low defect density and high
uniformity. The crystal, and the resulting substrate, are mechanically strong,
resulting in lower breakage rates during a customer's manufacturing process.
Since the temperature gradient is controlled electronically rather than by
physical movement, the sensitive crystal is not disturbed. In addition, the melt
and growing crystal are contained in a closed chamber, which isolates the
crystal from the outside environment to reduce potential contamination. This
substrate isolation allows for more precise control of the gallium-to-arsenic
ratio, resulting in better consistency and uniformity of the crystals.
Our VGF technique offers several benefits when compared to traditional
crystal growing technologies. The Liquid Encapsulated Czochralski, or LEC,
technique is the traditional method for producing semi-insulating GaAs
substrates for electronic applications. During the LEC process, the crystal is
grown by dipping a seed crystal through molten boric oxide into a melt and
slowly pulling the seed up into the cool zone above the boric oxide where the
crystal hardens. Unlike the VGF technique, the LEC technique is designed so that
the hotter GaAs melt is located beneath the cooler crystal, resulting in greater
turbulence in the melt, and at a temperature gradient that is significantly
higher than the VGF technique. The turbulence and high temperature cause
LEC-grown crystals to have a higher dislocation density than VGF-grown crystals,
resulting in a higher rate of breakage during the device manufacturing process.
As an open process, the LEC technique also results in greater propensity for
contamination and difficulty
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controlling the ratio of gallium to arsenic. It requires large, complex
electro-mechanical systems that are expensive and require highly skilled
personnel to operate.
Our VGF technique also offers advantages over the Horizontal-Bridgeman, or
HB, technique, for producing semi-conducting GaAs substrates for opto-electronic
applications. The HB technique holds the GaAs melt in a semi-cylindrical
container, causing crystals grown using the HB method to have a semi-circular,
or D-shaped, cross-section. Accordingly, more crystal material is discarded when
the D-shaped substrate is subsequently trimmed to a round shape. In addition,
crystals grown using the HB technique have a higher defect density than
VGF-grown crystals. The HB technique cannot be used cost-effectively to produce
substrates greater than three inches in diameter. The HB technique houses the
GaAs melt in a quartz container during the growth process, which can contaminate
the GaAs melt with silicon impurities, making it unsuitable for producing
semi-insulating GaAs substrates.
The following table provides a comparison of these three techniques:
- ----------------------------------------------------------------------------------------------------------
VGF HB LEC
- ----------------------------------------------------------------------------------------------------------
Substrate applications Electronic and Opto-electronic Electronic
opto-electronic
- ----------------------------------------------------------------------------------------------------------
Largest wafer size 6" 3" 6"
available
- ----------------------------------------------------------------------------------------------------------
Stress/defect levels Very Low Low High
- ----------------------------------------------------------------------------------------------------------
Crystal purity Good Poor Good
- ----------------------------------------------------------------------------------------------------------
Applicability to multiple GaAs, InP, Ge GaAs GaAs, InP, GaP
materials
- ----------------------------------------------------------------------------------------------------------
Equipment and labor cost Very Low Low High
- ----------------------------------------------------------------------------------------------------------
Amount of waste material Very Low High Low
- ----------------------------------------------------------------------------------------------------------
Equipment flexibility Versatile Limited Limited
- ----------------------------------------------------------------------------------------------------------
Equipment downtime Minimal Moderate High
- ----------------------------------------------------------------------------------------------------------
Number of competitors Few Many Many
- ----------------------------------------------------------------------------------------------------------
VCSEL devices include single lasers as well as one- and two-dimensional
arrays of lasers. Array products are more highly valued than single lasers
because they provide greater bandwidth, but are harder to form because they
require epitaxial structures that possess very high uniformity in chemical
composition and low variation in thickness. These features are hard to achieve
because the epitaxial process used to make a VCSEL device places approximately
200 layers of epitaxial structure on a substrate, as compared to the less than
10 layers of material deposited on a substrate to make an HB LED. Our epitaxial
process, which includes proprietary in situ monitoring techniques, allows us to
manufacture highly reliable VCSEL wafers that demonstrate comparatively low
threshold currents and high output power and are sufficiently uniform to produce
one- and two-dimensional VCSEL devices. We employ both ion implantation and
oxidation processes to produce VCSEL devices from our wafers.
We create our opto-electronic semiconductor devices using MOCVD, which is
an epitaxial technique to synthesize compound semiconductor thin films onto
substrates. MOCVD reactors are available from multiple sources and wafers
fabricated using MOCVD generally possess a better combination of uniformity and
optical and electronic properties and are easier to produce cost-effectively in
high volumes than wafers manufactured by other methods, such as molecular beam
epitaxy, vapor phase epitaxy or liquid phase epitaxy. As a result, MOCVD
reactors have become the choice of the opto-electronic industry for fabricating
devices such as LEDs, VCSELs and laser diodes. We modify our MOCVD reactors to
improve their performance and use a proprietary growth recipe that controls
temperature, material impurity, defect density, material thickness and layer
composition while allowing for multiple wafer batch replication.
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PRODUCTS
We design, develop, manufacture and distribute high-performance
semiconductor substrates, as well as opto-electronic devices, such as HB LEDs,
VCSELs and laser diodes. The table below sets forth our products and selected
applications:
- -----------------------------------------------------------------------------------------------------
PRODUCT APPLICATIONS
- -----------------------------------------------------------------------------------------------------
SUBSTRATES ELECTRONIC OPTO-ELECTRONIC
GaAs - Cellular phones - LEDs
- Direct broadcast television - Lasers
- High-performance transistors - Optical couplers
- Satellite communications - Displays
InP - Fiber optic communications - Fiber optic communications
- Satellite communications - Lasers
- High-performance transistors
- Automotive collision avoidance
radars
Ge - Satellite solar cells
- -----------------------------------------------------------------------------------------------------
VISIBLE EMITTERS
Blue, green and cyan HB - Full color displays
LEDs - Lighting for the interior and exterior of automobiles
- Traffic signals
- Back lighting for cellular phones and instrument panels
- White light for general illumination
VCSELs - Fiber optic and wireless communications
Laser diodes - Pointer products
- -----------------------------------------------------------------------------------------------------
CONSUMER PRODUCTS
Laser diode-based products - Business presentations
- Fire safety egress
LED-based products - LED flashlight
- -----------------------------------------------------------------------------------------------------
Substrates. We currently sell compound substrates manufactured from GaAs
and InP, as well as single-element substrates manufactured from Ge. We supply
GaAs substrates in two-, three-, four-, five-and six-inch diameters. We
manufacture InP substrates in two-, three- and four-inch diameters and Ge
substrates in four-inch diameters. We are developing and intend to initiate
production of sapphire substrates.
Visible Emitters. We sell blue, green and cyan HB LED products in wafer and
chip form. We began selling blue HB LED products in the first quarter of 2000
and have recently begun shipping green and cyan HB LEDs in test quantities. We
introduced our first VSCEL product in August 2000.
Consumer Products. We sell laser pointers and products that use laser
diodes manufactured by our visible emitter division and other sources. We
announced two new consumer products for shipment during the first half of 2000:
Safe Escape, a laser fire escape system, and MiniBrite, an LED flashlight.
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CUSTOMERS
We sell our compound semiconductor substrates worldwide to leading
semiconductor device manufacturers. Our top substrate customers include:
Agilent Technologies Kopin RF Micro Devices
Alpha Industries Motorola SDL
Alpha Photonics Nortel Networks Spectrolab
EMCORE Osram Sumitomo Chemical
Epistar Picogiga TRW Space & Defense
Eptaxial Products Precision Opto Wafer Visual Photonics Epitaxy
Epitronics Quantum Epitaxial Designs
We sell our laser diode and HB LED products primarily to customers that
incorporate them into lighting products. Our top laser diode and HB LED
customers include Harvatek and King Brite.
MANUFACTURING
We believe that our success is partially due to our manufacturing
efficiency and high product yields and we continually emphasize quality and
process control throughout our manufacturing operations. We perform our
substrate manufacturing operations at our facilities in Fremont, California and
Beijing, China. As part of our plan to reduce manufacturing costs, we are
shifting many of our labor-intensive processes to our facilities in China, where
costs, including labor costs, are generally lower. We intend to transfer the
majority of our substrate manufacturing operations to China by the end of 2001.
We believe that our capital investment and subsequent operating costs are lower
for our manufacturing facilities in China relative to the U.S. Many of our
manufacturing operations are fully automated and computer monitored or
controlled, enhancing reliability and yield. We use proprietary equipment in our
substrate manufacturing operations to protect our intellectual property and
control the timing and pace of capacity additions. By assembling our own
equipment, we can quickly increase capacity without incurring delays caused by
ordering additional equipment or converting older equipment to new technologies.
Our epitaxial wafer production is located in El Monte, California and most of
our laser diode assembly is done in Xiamen, China. Our Fremont and Beijing
substrate facilities are ISO 9002 certified, and we are working toward ISO
certification for our other manufacturing facilities.
We depend on a single or limited number of suppliers for certain critical
materials used in the production of our substrates. We generally purchase these
materials through standard purchase orders and not pursuant to long-term supply
contracts. Although we seek to maintain sufficient inventory levels of certain
materials to guard against interruptions in supply and to meet our near term
needs, and have to date been able to obtain sufficient supplies of materials in
a timely manner, there may be shortages of certain key materials, such as
gallium. Accordingly, to help ensure continued supply of materials, we have
formed strategic alliances with suppliers of key raw materials required to
manufacture our products. We believe that these alliances will be advantageous
in procuring materials to support our continued growth.
We use MOCVD equipment to manufacture our opto-electronic devices. We
currently have several new MOCVD reactors on order and expect that these
additional machines will meet our needs for the foreseeable future. The
substrate materials and raw wafers used in our visible emitter products are
purchased from our substrate division and other sources.
The production of a number of our consumer products, including laser
pointers, is being outsourced to contractors in Asia in order to reduce product
costs and manufacturing overhead. We have established quality control procedures
and personnel in Asia to support our outsourced manufacturing.
SALES AND MARKETING
Each of our three divisions is responsible for its own sales and marketing
activities, and each maintains its own sales and marketing personnel. In
addition, each of our divisions advertises in trade publications, distributes
promotional materials, publishes technical articles, conducts marketing programs
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and participates in industry trade shows and conferences in order to raise
market awareness of our products.
Substrates. We sell our substrate products through our direct sales force
in the U.S. and Japan and through independent sales representatives in France,
Japan, South Korea, Taiwan and the United Kingdom. Our direct sales force
consists of sales engineers who are knowledgeable in the manufacture and use of
compound and single-element substrates. Our sales engineers work with customers
during all stages of the substrate manufacturing process, from developing the
precise composition of the substrate through manufacturing and processing the
substrate to the customer's exact specifications. We believe that maintaining a
close relationship with customers and providing them with ongoing technical
support improves customer satisfaction and will provide us with a competitive
advantage in selling other substrates to our customers. The substrate division
has launched a program with selected customers in which we will guarantee that
high volumes of six-inch GaAs and other substrates will be delivered on specific
dates and the customer will make a prepayment for part of the value of its
order. We intend to allow several major customers to participate in this
program.
Visible Emitters. We sell our HB LED products primarily through independent
sales representatives to lamp package manufacturers in Taiwan and China. We
intend to expand sales of these products in the U.S. and Europe primarily using
our direct sales force. The majority of our laser diode chips are sold in China
and elsewhere in Asia, primarily through independent sales representatives. We
sell our VCSEL devices through our direct sales force.
Consumer Products. We currently sell our consumer products through a
combination of our own direct sales force and independent sales representatives.
Most of our sales are to customers in the U.S.
RESEARCH AND DEVELOPMENT
To maintain and improve our competitive position, we focus our research and
development efforts on designing new proprietary processes and products,
improving the performance of existing products and reducing manufacturing costs.
We have assembled a multi-disciplinary team of highly skilled scientists,
engineers and technicians to meet our research and development objectives. As a
result of our ongoing research and development activities, we believe that we
offer superior quality products. For example, some customers now qualify
substrates manufactured using our VGF technique as the only acceptable material
in their design specifications.
Our current substrate research and development activities focus on
continued development and enhancement of six-inch GaAs crystals, including
improved yield, greater substrate strength and increased crystal length. We
continue to develop other compound substrates, such as InP and a low boron
version of our standard GaAs substrates and are initiating research into
development of six-inch InP products. We are developing and intend to initiate
production of sapphire substrates.
We are focusing on all three major stages of LED development: epitaxy,
wafer fabrication and die fabrication. Our goal is to improve brightness and
yield, create specific colors and enhance uniformity of product, both within and
across production runs. Specific colors are created by controlling the indium
content of the epitaxial layers, which we achieve, in part, from modifications
that we make to our MOCVD reactors. The wafer and die fabrication experience we
gained in our Lyte Optronics laser diode operation has helped us develop similar
techniques for LEDs.
We began research in 1999 to develop VCSEL devices with uniform epitaxy
structures on three-inch wafers and announced VCSEL wafer products in August
2000. We continue to improve their performance characteristics and intend to
develop one- and two-dimensional array VCSEL chips.
We have historically funded a significant portion of our research and
development efforts through contracts with the U.S. government and customer
funded research projects, although we do not have any projects underway
currently. Under our contracts, we retain rights to the VGF and wafer
fabrication technology that we have developed. The U.S. government retains the
rights to utilize the technologies we
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develop for government purposes only. During the period from 1997 to 1999 these
contracts amounted to $5.9 million. Currently, our research and development is
internally funded.
COMPETITION
The semiconductor industry is characterized by rapid technological change
and price erosion, as well as intense foreign and domestic competition. We
believe we currently have a leading position in the existing markets for
compound semiconductor substrates and devices primarily as a result of our
expertise in VGF technology. However, we believe we face actual and potential
competition from a number of established domestic and international companies.
We believe that the primary competitive factors in the markets in which our
products compete are:
- quality;
- price;
- performance;
- meeting customer specifications;
- customer support and satisfaction; and
- customer investment in competing technologies.
Our ability to compete in target markets also depends on factors such as:
- the timing and success of the development and introduction of new
products by us and our competitors;
- the availability of adequate sources of raw materials; and
- protection of our products by effective use of intellectual property laws
and general economic conditions.
Our primary competition in the market for compound semiconductor substrates
includes Freiberger, Hitachi Cable, Japan Energy, Litton Airtron and Sumitomo
Electric. In addition, we also face competition from compound semiconductor
device manufacturers that produce substrates for their own internal use, and
from companies such as IBM that are actively developing alternative compound
semiconductor materials.
Our primary competition in the market for LED products include Cree,
LumiLED, Nichia Chemicals, Toyoda Gosei and United Epitaxy. In general, LED
manufacturers in Taiwan and China have a competitive pricing advantage due to
low overhead and small research and development investments. Cree, Nichia
Chemicals, Sony and Toyoda Gosei have significant patent portfolios that other
competitors, including us, must either design around or license.
We compete with Agilent, EMCORE and Honeywell in the market for VCSEL
devices. Our primary competition in the market for consumer products includes
Alpec and Transverse.
PROTECTION OF OUR INTELLECTUAL PROPERTY
Our success and the competitive position of our VGF technique depend on our
ability to maintain trade secrets and other intellectual property protections.
We rely on a combination of patents, copyrights, trademark and trade secret
laws, non-disclosure agreements and other intellectual property protection
methods to protect our proprietary technology. We believe that, due to the rapid
pace of technological innovation in the markets for our products, our ability to
establish and maintain a position of technology leadership depends as much on
the skills of our development personnel as upon the legal protections afforded
our existing technologies. To protect our trade secrets, we take certain
measures to ensure their secrecy, such as executing non-disclosure agreements
with our employees, customers and suppliers.
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However, reliance on trade secrets is only an effective business practice
insofar as trade secrets remain undisclosed and a proprietary product or process
is not reverse engineered or independently developed.
To date, we have been issued four U.S. patents which relate to our VGF
products and processes. We have five U.S. patent applications pending which
relate to our LED or laser diode technology, and have patent applications
pending in Europe, Canada, China, Japan and Korea which are based on one of our
U.S. patents that relates to our VGF processes. We have no issued foreign
patents. We have two patents and two patent applications pending relating to our
consumer products.
ENVIRONMENTAL REGULATIONS
We are subject to federal, state and local laws and regulations concerning
the use, storage, handling, generation, treatment, emission, release, discharge
and disposal of certain materials used in our research and development and
production operations, as well as laws and regulations concerning environmental
remediation and employee health and safety. The growing of crystals and the
production of substrates involve the use of certain hazardous raw materials,
including arsenic. We cannot guarantee that our control systems will be
successful in preventing a release of these materials or other adverse
environmental conditions. Any release or other failure to comply with present or
future environmental laws and regulations could result in the imposition of
significant fines against us, the suspension of production or a cessation of
operations.
We are cooperating with the California Occupational Safety and Health
Administration, or Cal-OSHA, in an investigation regarding impermissible levels
of potentially hazardous materials in certain areas of our manufacturing
facility in Fremont, California. In May 2000, Cal-OSHA levied a fine against us
in the amount of $313,655 for alleged health and safety violations. Further
penalties, including criminal penalties, could be levied against us or our
management. We are appealing the citations, and have put in place engineering,
administrative and personnel protective equipment programs to address this
issue. The facility is in full operation and to our knowledge, no accidents or
injuries resulted from this matter.
EMPLOYEES
As of June 30, 2000, we had 1,121 full-time employees, of whom 901 were
principally engaged in manufacturing, 166 in sales and administration and 54 in
research and development. Of these employees, 696 are located in the U.S., 422
in China and three in Japan. Our success is in part dependent on our ability to
attract and retain highly skilled workers. None of our employees is represented
by a union and we have never experienced a work stoppage. We consider our
relations with our employees to be good.
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PROPERTIES
Our principal properties are as follows:
SQUARE
LOCATION FEET PROPERTY DESCRIPTION
-------- ------ --------------------
Fremont, CA 58,000 Production and Administration
Fremont, CA 80,000 Production
Fremont, CA 20,292 Administration
Fremont, CA 9,280 Warehouse
Monterey Park, CA 22,000 Production and Administration
Torrance, CA 6,674 Administration
Torrance, CA 15,027 Production
El Monte, CA 26,652 Production
El Monte, CA 6,281 Production
Beijing, China 31,000 Production
Beijing, China 31,000 Production
Beijing, China 32,000 Production
Xiamen, China 14,000 Production
All of the properties listed above are owned except for 20,292 square feet
in Fremont, the lease for which expires May 2005, 9,280 square feet in Fremont,
the lease for which expires in June 2005, 6,281 square feet in El Monte, the
lease for which expires in December 2006 and the two Torrance properties, the
leases for which expire in May 2003. We consider each facility to be in good
operating condition and adequate for its present use, and believe that each
facility has sufficient plant capacity to meet its current and anticipated
operating requirements.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
As of August 31, 2000, our executive officers and directors were as
follows:
NAME AGE POSITION
---- --- --------
Morris S. Young, Ph.D. ..................... 55 Chairman of the Board of Directors, President
and Chief Executive Officer
Donald L. Tatzin............................ 48 Chief Financial Officer and Director
Davis Zhang................................. 43 President, Substrate Division
Xiao Gordon Liu, Ph.D....................... 36 Senior Vice President, Marketing and Sales,
and Engineering and Development
Heng Liu, Ph.D. ............................ 40 President, XtalLED Division
Bingwen Liang, Ph.D. ....................... 39 Acting President, VCSEL Division
Jesse Chen.................................. 42 Director
B.J. Moore.................................. 64 Director
Mr. Jesse Chen and Mr. B.J. Moore are members of the compensation and audit
committees. Dr. Xiao Gordon Liu, Dr. Heng Liu and Dr. Bingwen Liang are not
executive officers or directors but are deemed to be significant employees who
make or are expected to make a significant contribution to our business.
Morris S. Young, Ph.D. co-founded AXT in 1986 and has served as chairman of
our board of directors since February 1998 and president and chief executive
officer, as well as a director, since 1989. From 1985 to 1989, Dr. Young was a
physicist at Lawrence Livermore National Laboratory. Dr. Young holds a bachelor
of science degree in metallurgical engineering from Chengkung University,
Taiwan, a master of science degree in metallurgy from Syracuse University and a
Ph.D. in metallurgy from Polytechnic University.
Donald L. Tatzin has served as a director since February 1998 and as chief
financial officer since August 2000. From April 2000 to August 2000, Mr. Tatzin
served as our interim chief financial officer. From 1993 to 1998, Mr. Tatzin
served as executive vice president of Showboat, a gaming company. In addition,
Mr. Tatzin served as a director for Sydney Harbour Casino, an Australian gaming
company, from April 1995 to October 1996 and as its chief executive officer from
April 1996 to October 1996. From 1976 to 1993, Mr. Tatzin was a director and
consultant with Arthur D. Little. Mr. Tatzin holds a bachelor of science degree
in economics and a bachelor of science and masters degrees in city planning from
the Massachusetts Institute of Technology and a master of science degree in
economics from Australian National University.
Davis Zhang co-founded AXT in 1986 and served as senior vice president,
production from January 1994 until August 1999, and as president of the
substrate division since August 1999. From 1987 to 1993, Mr. Zhang served as our
senior production manager. Mr. Zhang holds a bachelor of science degree in
mechanical engineering from Northern Communication University, Beijing, China.
Xiao Gordon Liu, Ph.D. joined us in June 1995 as senior engineer and was
promoted to vice president, engineering and development in November 1998 and to
senior vice president, marketing and sales, and engineering and development in
August 2000. Prior to joining us, Dr. Liu was a postdoctoral fellow and
associate specialist at University of California at Berkeley and a research
associate at the University of Lund, Sweden. Dr. Liu holds a Ph.D. in physics
from the University of Lund, Sweden and has published more than 30 scientific
papers.
Heng Liu, Ph.D. joined us in September 1999 as director of LED epitaxy and
was promoted to president of the newly formed XtalLED division in March 2000.
From September 1994 to September 1999, Dr. Liu worked at the opto-electronics
division of Hewlett-Packard Company as a research and development engineer. Dr.
Liu holds an undergraduate degree from National Chiao-Tung University in Taiwan,
a masters degree in physics from University of Oregon and a Ph.D. in engineering
from North Carolina State University.
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Bingwen Liang, Ph.D. joined us in January 2000 as director of advanced
technologies and was subsequently promoted to acting president of the VCSEL
division. From November 1999 to January 2000, Dr. Liang was research and
development manager of the III-V materials group in the fiber-optic
communication division of Agilent Technologies. From July 1993 to November 1999,
Dr. Liang was a research and development manager for Hewlett-Packard Company.
Dr. Liang has a Ph.D. in applied physics from the University of California at
San Diego and has published more than 45 scientific papers.
Jesse Chen has served as a director since February 1998. Since May 1997,
Mr. Chen has served as a managing director of Maton Venture, an investment
company. Prior to that, Mr. Chen co-founded BusLogic, a computer peripherals
company and served as its chief executive officer from 1990 to 1996. Mr. Chen
serves on the board of directors of several private companies. Mr. Chen has a
bachelor of science degree in aeronautical engineering from Chenkung University,
Taiwan and a master of science degree in electrical engineering from Loyola
Marymount University.
B.J. Moore has served as a director since February 1998. Since 1991, Mr.
Moore has been self-employed as a consultant and has served as a director to
several technology-based companies. Mr. Moore currently serves on the boards of
directors for Adaptec, a computer peripherals company and Dionex Corporation, an
ion chromatography systems company, as well as several private companies. From
1986 to 1991, Mr. Moore served as president and chief executive officer of
Outlook Technology, an electronics test equipment company. Mr. Moore holds a
bachelor of science degree and a master of science degree in electrical
engineering from the University of Tennessee.
BOARD COMPOSITION
Our board of directors currently consists of four members, as a result of
the resignation of Theodore S. Young in August 2000. We anticipate adding a
fifth director to fill our vacancy on the board by June 2001. Our certificate of
incorporation and bylaws provide that the terms of office of the membersincumbency of the board of directors, are divided into three classes: class I, whose term will
expire atbecause the annual meeting of stockholders to be held in 2002, class II, whose
term will expire at the annual meeting of stockholders to be held in 2003, and
class III, whose term will expire at the annual meeting of stockholders to be
held in 2001. The class I director is Morris S. Young, the class II directors
are Jesse Chen and Donald L. Tatzin and the class III director is B.J. Moore.
At each annual meeting of stockholders after the initial classification,
the successors to directors whose term will then expire will be elected to serve
from the time of election and qualification until the third annual meeting
following their election. As a result, only one class of directors will be
elected at each annual meeting of stockholders, with the other classes
continuing for the remainder of their terms. Any additional directorships
resulting from an increase in the number of directors will be distributed among
the three classes so that, as nearly as possible, each class will consist of
one-third of the total number of directors. This classification of the board of directors may delay or prevent changes in our control or management. In
addition, our bylaws provide thatgenerally increases the authorized numberdifficulty of directors may only be
changed byreplacing a resolutionmajority of the boarddirectors.
Stockholder Rights Plan
During fiscal 2001, we adopted a Stockholder Rights Plan (the “Rights Agreement”). Pursuant to the Rights Agreement, rights were distributed at the rate of directors.
BOARD COMMITTEESone right for each share of common stock owned by our stockholders of record on May 30, 2001. The audit committeerights expire on April 24, 2011 unless extended or earlier redeemed or exchanged by us.
Under the Rights Agreement, each right entitles the registered holder to purchase one one-thousandth of a share of our board of directors recommends or will recommend
the appointment of our independent auditors, reviews our internal accounting
procedures and financial statements and consults with and reviews the services
provided by our independent auditors, including the results and scope of their
audit. The audit committee currently consists of Messrs. Chen and Moore. We
anticipate appointing an additional director prior to June 15, 2001, who will
serve as a third member of the audit committee, as required by the rules and
regulations of the Nasdaq Stock Market.
The compensation committee of our board of directors reviews and recommends
to the board the compensation and benefits of all of our executive officers,
administers our stock option plans and establishes and reviews general policies
relating to compensation and benefits of our employees. The compensation
committee currently consists of Messrs. Chen and Moore.
41
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CERTAIN TRANSACTIONS
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since January 1999, there has not been, nor is there currently proposed,
any transaction or series of similar transactions to which we were or are to be
a party in which the amount involved exceeds $60,000, and in which any director,
executive officer or holder of more than 5% of any class of our voting
securities or members of that person's immediate family had or will have a
direct or indirect material interest other than the transactions described
below.
Equipment & Materials, a California corporation engaged in international
trading and quartzware fabrication, supplies us with various raw materials from
China and has manufactured quartzware for us. Christina X. Li, the sole
shareholder and president of Equipment & Materials, is the wife of Davis Zhang,
the president of our substrate division. Purchases from Equipment & Materials
were approximately $1.5 million for 1997, $3.7 million for 1998, $3.6 million
for 1999 and $3.5 million for the six months ended June 30, 2000.
In August 2000, we entered into a business transfer and acquisition
agreement with Demeter Technology, a Delaware corporation founded by Theodore S.
Young, the former president of our fiber optic division and a former member of
our board of directors, and Robert Shih, the former chief technology officer of
our visible emitter division. Under this agreement, we have agreed to transfer
certain non-core rights to Demeter relating to our research and development
activities in the field of fiber optics. We have entered into non-compete
agreements with Messrs. Shih and Young that prohibit them from certain
activities, including the manufacture of VCSEL devices. We have leased to
Demeter a portion of our owned facility in El Monte, California, subleased a
portion of our rented facility in El Monte, California, leased certain
equipment, including an MOCVD machine, and sold certain inventory relating to
fiber optics. In exchange, Demeter has granted to us a warrant to purchase up to
4.5 million shares of its Series A convertible preferred stock at a price of $0.5714$131.00 per share. We anticipate that someThe rights will become exercisable only if a person or group acquires beneficial ownership of our employees previously engaged
in research and development relating to fiber optics products and services will
join Demeter.
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information known to us with respect to
beneficial ownership15% or more of our common stock asor commences a tender offer or exchange offer upon consummation of August 31, 2000,which such person or group would beneficially own 15% or more of our common stock.
Transfer Agent and as adjustedRegistrar
The transfer agent and registrar for our common stock is Registrar and Transfer Company.
5
We may sell our common stock under this prospectus from time to reflecttime. Registration of the securities covered by this prospectus does not mean, however, that those securities will necessarily be offered or sold.
We may sell our common stock in one or more offerings:
• to or through one or more underwriters or dealers in a public offering and sale by them;
• directly to investors; or
• through agents.
We may sell our common stock from time to time:
• in one or more transactions at a fixed price or prices, which may be changed from time to time;
• at market prices prevailing at the times of sale;
• at prices related to those prevailing market prices; or
• at negotiated prices.
We, and our underwriters, dealers or agents, reserve the right to accept or reject all or part of any proposed purchase of our common stock. We will describe the method of distribution of our common stock and the terms of the offering in the prospectus supplement. If we do offer common stock through underwriters or agents, we will include in the applicable prospectus supplement:
• the names of those underwriters, dealers or agents;
• applicable fees, discounts and commissions to be paid to them;
• details regarding over-allotment options, if any; and
• the net proceeds to us.
If underwriters are used in the sale of our common stock, offeredthe securities will be acquired by usthe underwriters for their own account and the selling stockholders,may be resold from time to time in this offering, for:
- each person known by us to own beneficiallyone or more than 5% of the
outstanding shares;
- each of our directors;
- each executive officer; and
- all executive officers and directors as a group.
Except as otherwise indicated, the principal address of each of the
stockholders below is c/o AXT, Inc., 4281 Technology Drive, Fremont, California
94538. Beneficial ownership is determined under the rules of the Securities and
Exchange Commission and generally includes voting or investment power over
securities. Except in cases where community property laws apply or as indicated
in the footnotes to this table, we believe that each stockholder identified in
the table possesses sole voting and investment power over all shares oftransactions described above. The common stock shown as beneficially ownedmay be offered to the public either through underwriting syndicates represented by managing underwriters or directly by underwriters. Generally, the stockholder. Shares of common stockunderwriters’ obligations to purchase the securities will be subject to options that are currently exercisable or exercisable within 60 days
of the date of this prospectus are considered outstanding and beneficially owned
by the person holding the options for the purpose of computing the percentage
ownership of that person but are not treated as outstanding for the purpose of
computing the percentage ownership of any other person.
We may authorize underwriters, dealers or agents to solicit offers by certain purchasers to purchase our common stock from us at the shares indicated opposite its name:
Underwriters, dealers and agents may contract for or otherwise be offeredentitled to the public at the offering price indicated on the
cover page of this prospectus. The underwriters may allow to selected dealers a
concession not in excess of $ per share, and these dealers may allow a
concession not in excess of $ per share to some other dealers. After the
shares are released for sale to the public, the underwriters may change the
offering price and the concessions.
We and the selling stockholders have agreed to pay to the underwriters the
following fees, assuming both no exercise and full exercise of the underwriters'
over-allotment option to purchase additional shares:
We may engagegrant underwriters who participate in the following activities in accordance with applicable securities
rules:
- Create a syndicate short position by making short salesdistribution of our common stock an option to purchase additional common stock to cover over-allotments, if any, in connection with the distribution.
6
Underwriters, dealers or agents may receive compensation in the form of discounts, concessions or commissions from us or our purchasers, as their agents in connection with the sale of our common stock. These underwriters, dealers or agents may be considered to be underwriters under the Securities Act. As a result, discounts, commissions or profits on resale received by the underwriters, dealers or agents may be treated as underwriting discounts and commissions. The prospectus supplement will identify any such underwriter, dealer or agent and describe any compensation received by them from us. Any public offering price and any discounts or concessions allowed or re-allowed or paid to dealers may purchasebe changed from time to time. The maximum commission or discount to be received by any NASD member or independent broker-dealer participating in any offering of our common stock on the open market to cover
syndicate short positions created by short sales. Short sales involve the
sale by the underwriters of ahereunder will not be greater number of shares ofthan 8%.
Any common stock than they are requiredsold pursuant to purchasea prospectus supplement will be included in the offering. Short sales can be
either covered or naked. Covered short sales are sales madeNASDAQ Global Market.
Any underwriter may engage in an amount
not greater thanover-allotment transactions, stabilizing transactions, short-covering transactions and penalty bids in accordance with Regulation M under the underwriters' over-allotment options to purchase
additional shares in the offering. Naked short sales areExchange Act. Over-allotment involves sales in excess of the over-allotment options. A nakedoffering size, which create a short position is more likelyposition. Stabilizing transactions permit bids to be created ifpurchase the underwriters are concerned that there may be downward
pressure onunderlying security so long as the pricestabilizing bids do not exceed a specified maximum. Short-covering transactions involve purchases of theour common stock in the open market after pricing that could adversely affect investors who purchase in the offering.
- Stabilizing anddistribution is completed to cover short covering; stabilizingpositions. Penalty bids to purchase the shares
are permitted if they do not exceed a specified maximum price. Prudential
Securities Incorporated, on behalf ofpermit the underwriters may close out any
coveredto reclaim a selling concession from a dealer when the securities originally sold by the dealer are purchased in a transaction to cover short position by either exercising the over-allotment options or
purchasing shares in the open market and must close out any naked short
position by purchasing shares in the open market. In determining the
source of shares to close out the covered short position, Prudential
Securities Incorporated, on behalf of the underwriters, will consider,
among other things, the price of the shares. After the distribution of
shares has been completed, short covering purchases in the open market
may also reduce the short position. Thesepositions. Those activities may cause the price of the sharessecurities to be higher than it would otherwise existbe. If commenced, the underwriters may discontinue any of the activities at any time. We make no representation or prediction as to the direction or magnitude of any effect these transactions may have on the price of our common stock. For a description of these activities, see the information under the heading “Underwriting” in the open market.
- Penalty bids permitting the representatives to reclaim concessions from a
syndicate member for the shares purchasedapplicable prospectus supplement.
Underwriters, broker-dealers or agents who may become involved in the stabilizing or short
covering transactions.
These activities, which may be commenced and discontinued at any time, may
be effected on the Nasdaq National Market, in the over-the-counter market or
otherwise. Also, and prior to the pricing of the shares, and until such time
when a stabilizing bid may have been made, some or all of the underwriters who
are market makers in the shares may make bids for or purchases of shares subject
to certain restrictions, known as passive market making activities.
Each underwriter has represented that it has complied and will comply with
all applicable laws and regulations in connection with the offer, sale or
delivery of the shares and related offering materials in the United Kingdom,
including:
- the Public Offers of Securities Regulations 1995;
- the Financial Services Act 1986; and
- the Financial Services Act 1986 (Investment Advertisements) (Exemptions)
Order 1996 (as amended).
Prudential Securities Incorporated facilitates the marketing of new issues
online through its PrudentialSecurities.com division. Clients of Prudential
Advisor(SM), a full service brokerage firm program, may view offering terms and
a prospectus online and place orders through their financial advisors. A
prospectus in electronic format is also being made available on an Internet
website maintained by Wit SoundView's affiliate, Wit Capital Corporation. In
addition, other dealers purchasing shares from Wit SoundView in this offering
have agreed to make a prospectus in electronic format available on websites
maintained by each of these dealers.
45
50
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS
The following is a general discussion of the material United States federal
income tax consequences of the ownership and disposition of our common stock to
a non-United States holder. For the purpose of this discussion, a non-United
States holder is any holder thatmay engage in transactions with and perform other services for United States federal income tax purposes
is not a United States person. For purposes of this discussion, the term United
States person means:
- an individual citizen or resident of the United States;
- a corporation or other entity taxable as a corporation created or
organized in the United States or under the laws of the United States or
any political subdivision thereof;
- an estate whose income is subject to United States federal income tax
regardless of its source; or
- a trust (x) whose administration is subject to the primary supervision of
a United States court andus for which has one or more United States persons who
have the authority to control all substantial decisions of the trust or
(y) which has made an election to be treated as a United States person.
If a partnership holds common stock, the tax treatment of a partner will
generally depend on the status of the partner and upon the activities of the
partnership.
This discussion does not address all aspects of United States federal
income taxation that may be relevant in light of a non-United States holder's
special tax status or special tax situations. United States expatriates, life
insurance companies, tax-exempt organizations, dealers in securities or
currency, banks or other financial institutions, investors whose functional
currency is other than the United States dollar, and investors that hold common
stock as part of a hedge, straddle or conversion transaction are among those
categories of potential investors that are subject to special rules not covered
in this discussion. This discussion does not address any tax consequences
arising under the laws of any state, local or non-United States taxing
jurisdiction. Furthermore, the following discussion is based on current
provisions of the Internal Revenue Code of 1986, as amended, and administrative
and judicial interpretations thereof, all as in effect on the date hereof, and
all of which are subject to change, possibly with retroactive effect.
ACCORDINGLY, EACH NON-UNITED STATES HOLDER SHOULD CONSULT A TAX ADVISOR
REGARDING THE UNITED STATES FEDERAL, STATE, LOCAL AND NON-UNITED STATES INCOME
AND OTHER TAX CONSEQUENCES OF ACQUIRING, HOLDING AND DISPOSING OF SHARES OF OUR
COMMON STOCK.
DIVIDENDS
We have not paid any dividends on our common stock and we do not plan to
pay any dividends for the foreseeable future. However if we do pay dividends on
our common stock, those payments will constitute dividends for United States tax
purposes to the extent paid from our current and accumulated earnings and
profits, as determined under United States federal income tax principles. To the
extent those dividends exceed our current and accumulated earnings and profits,
the dividends will constitute a return of capital and will first reduce a
holder's basis, but not below zero, and then will be treated as gain from the
sale of stock.
Any dividend paid to a non-United States holder of common stock generally
will be subject to United States withholding tax either at a rate of 30% of the
gross amount of the dividend or such lower rate as may be specified by an
applicable tax treaty. In order tothey receive a reduced treaty rate, a non-United
States holder must provide us with an IRS form W-8BEN certifying to your
qualification for the reduced rate.
Dividends received by a non-United States holder that are effectively
connected with a United States trade or business conducted by the non-United
States holder are exempt from such withholding tax. In order to obtain this
exemption, a non-United States holder must provide us with an IRS Form W-8ECI
certifying to such exemption. Such effectively connected dividends, although not
subject to withholding tax, are taxed at the same graduated rates applicable to
United States persons, net of certain deductions and credits.
46
51
In addition to the graduated tax described above, dividends received by a
corporate non-U.S. holder that are effectively connected with a United States
trade or business of the corporate non-U.S. holder may also be subject to a
branch profits tax at a rate of 30% or such lower rate as may be specified by an
applicable tax treaty.
A non-United States holder of common stock that is eligible for a reduced
rate of withholding tax pursuant to a tax treaty may obtain a refund of any
excess amounts currently withheld by filing an appropriate claim for refund with
the Internal Revenue Service, or IRS.
GAIN ON DISPOSITION OF COMMON STOCK
A non-United States holder generally will not be subject to United States
federal income tax on any gain realized upon the sale or other disposition of
our common stock unless:
- the gain is effectively connected with a United States trade or business
of the non-United States holder (which gain, in the case of a corporate
non-United States holder, must also be taken into account for branch
profits tax purposes);
- the non-United States holder is an individual who holds his or her common
stock as a capital asset (generally, an asset held for investment
purposes) and who is present in the United States for a period or periods
aggregating 183 days or more during the calendar year in which the sale
or disposition occurs and certain other conditions are met; or
- we are or have been a "United States real property holding corporation"
for United States federal income tax purposes at any time within the
shorter of the five-year period preceding the disposition or the holder's
holding period for our common stock. We have determined that we are not
and do not believe that we will become a "United States real property
holding corporation" for United States federal income tax purposes.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Generally, we must report annually to the IRS the amount of dividends paid,
the name and address of the recipient, and the amount, if any, of tax withheld.
A similar report is sent to the holder. Pursuant to tax treaties or other
agreements, the IRS may make its reports available to tax authorities in the
recipient's country of residence.
Dividends paid to a non-United States holder at an address within the
United States may be subject to backup withholding at a rate of 31% if the
non-United States holder fails to establish that it is entitled to an exemption
or to provide a correct taxpayer identification number and other information to
the payer. Backup withholding generally will not apply to dividends paid to
non-United States holders at an address outside the United States on or prior to
December 31, 2000 unless the payer has knowledge that the payee is a United
States person. Under recently finalized Treasury Regulations regarding
withholding and information reporting, payment of dividends to non-United States
holders at an address outside the United States after December 31, 2000 may be
subject to backup withholding at a rate of 31% unless such non-United States
holder satisfies various certification requirements.
Under current Treasury Regulations, the payment of the proceeds of the
disposition of common stock to or through the United States office of a broker
is subject to information reporting and backup withholding at a rate of 31%
unless the holder certifies its non-United States status under penalties of
perjury or otherwise establishes an exemption. Generally, the payment of the
proceeds of the disposition by a non-United States holder of common stock
outside the United States to or through a foreign office of a broker will not be
subject to backup withholding but will be subject to information reporting
requirements if the broker is a United States person or has certain other
connections to the United States, unless the broker has documentary evidence in
its files of the holder's non-United States status and certain other conditions
are met, or the holder otherwise establishes an exemption. Neither backup
withholding nor information reporting generally will apply to a payment of the
proceeds of a disposition of common stock by or through a foreign office of a
foreign broker not subject to the preceding sentence.
47
52
In general, the recently promulgated final Treasury Regulations, described
above, do not significantly alter the substantive withholding and information
reporting requirements but would alter the procedures for claiming benefits of
an income tax treaty and change the certifications procedures relating to the
receipt by intermediaries of payments on behalf of the beneficial owner of
shares of common stock. Non-United States holders should consult their tax
advisors regarding the effect, if any, of those final Treasury Regulations on an
investment in our common stock. Those final Treasury Regulations generally are
effective for payments made after December 31, 2000.
Backup withholding is not an additional tax. Rather, the United States
income tax liability of persons subject to backup withholding will be reduced by
the amount of tax withheld. If withholding results in an overpayment of taxes, a
refund may be obtained, provided that the required information is furnished to
the IRS.
compensation.
The validity of the shares of common stock offered hereby will be passed upon for AXTus by DLA Piper Rudnick Gray Cary Ware & FreidenrichUS LLP, East Palo Alto, California. Certain
legal matters in connection with the offering will be passed upon for the
underwriters by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California.
The auditedconsolidated financial statements of AXT, Inc. as of December 31, 1998, 19992005 and June 30,
20002004 and for each of the threetwo years in the period ended December 31, 1999 and2005, incorporated in this prospectus by reference to AXT, Inc.’s Annual Report on Form 10-K for the six monthsyear ended June 30, 2000 included in this Prospectus, except as
they relate to Lyte Optronics, Inc. as of December 31, 1998 and for the two
years in the period then ended, have been audited by PricewaterhouseCoopers LLP,
independent accountants, and, insofar as they relate to Lyte Optronics, Inc. as
of December 31, 1998 and for the two years in the period then ended, by Arthur
Andersen LLP, independent accountants, whose reports thereon appear herein. Such
financial statements2005, have been so includedincorporated in reliance on the reportsreport of suchBurr, Pilger & Mayer LLP, an independent accountantsregistered public accounting firm, given on the authority of said firmsfirm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement
The consolidated financial statements for the year ended December 31, 2003, incorporated in this prospectus by reference to the Annual Report on Form S-3 under10-K for the Securities Act
of 1933, as amended, with the Securities and Exchange Commission. This
prospectus, which constitutes a part of the registration statement, does not
contain all of the information set forthyear ended December 31, 2005, have been so incorporated in the registration statement or the
exhibits and schedules which are a part of the registration statement. For
further information with respect to us and our common stock, please refer to the
registration statement and the exhibits and schedules filed with it. You may
read and copy any document which we file with the SEC at the SEC's public
reference rooms at 450 Fifth Street, N.W., Washington, D.C. 20549, or in New
York, New York and Chicago, Illinois.
We are also subject to the information and periodic reporting requirements
of the Securities Exchange Act of 1934, as amended. We file reports, proxy
statements and other information with the SEC to comply with the Exchange Act.
These reports, proxy statements and other information can be inspected and
copiedreliance on the Internet at http://www.sec.gov; atreport of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the SEC's regional offices at:
Seven World Trade Center, New York, New York 10048authority of said firm as experts in auditing and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661; and at the Public Reference Room of the
SEC, 450 Fifth Street, N.W., Washington, D.C. 20549. You may call the SEC at
1-800-SEC-0330 to obtain information regarding the operation of the Public
Reference Room. Reports, proxy statements and other information concerning our
company also may be inspected at the National Association of Securities Dealers,
Inc., 1735 K Street, N.W., Washington, D.C. 20006.
48
53accounting.
INCORPORATION OF CERTAIN INFORMATION INCORPORATED BY REFERENCE
The SEC allows us to incorporate by reference into this prospectus the information contained in other documents we file with them,the SEC, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is considered
to be a part of this prospectus. Any information that we file with the SEC will
automatically update and supersede this information. We incorporate by reference
the documents listed below and any additional documents we file with the SEC.
This registration statement incorporates by reference the documents listed below
that we have previously filed with the Securities and Exchange Commission. They
contain important information about us and our financial condition.
The following documents filed with the SEC are incorporated by reference
into this prospectus:
- our Definitive Proxy Statement relating to the Annual Meeting of
Stockholders held June 7, 2000.
All documents filed by us pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act after the date of this prospectus and prior to the termination
of the offering of securities contemplated by this prospectus shall be deemed to
be incorporated by reference in this prospectus. Such documents shall be
considered to be a part of this prospectus from the date of filing of such
documents. Any statement contained in aany document incorporated by reference or deemed to be incorporated by reference into this prospectusherein shall be deemed to be modified or superseded, for all purposes of this prospectus, and the
registration statement to the extent that a statement contained in this prospectus in any document incorporated by referenceor a prospectus supplement to this prospectus, or in any other subsequently filed document which also is incorporated or is deemed to be incorporated by reference in this prospectusherein, modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this prospectus. We incorporate by reference the documents listed below and any future filings we make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the 1934 Act until the offering is completed (other than current reports or portions thereof furnished under Item 2.02 or Item 7.01 of Form 8-K):
7
1. | Our Annual Report on Form 10-K for the year ended December 31, 2005, filed March 30, 2006; | |||||||
2. | Our Quarterly Report on Form 10-Q for the quarter ended March 31, 2006, filed on May 12, 2006; | |||||||
3. | Our Current Reports on Form 8-K filed on January 17, 2006 and February 15, 2006; | |||||||
4. | The description of our common stock contained in our registration statement on Form 8-A filed with the SEC on April 24, 1998, including any amendment or report filed for the purpose of updating such description; and | |||||||
5. | The description of our preferred stock purchase rights contained in our registration statement on Form 8-A filed with the SEC on May 30, 2001. | |||||||
Upon written or oral request, we will provide without charge to each person, including any beneficial owner, to whom a copy of thisthe prospectus has beenis delivered a copy of any and
all of the documents referred to above which have been or may be incorporated in
this prospectus by reference and were not delivered with this prospectus. We
will not deliverherein (other than exhibits to such documents unless such exhibits are specifically incorporated by reference. We will provide this information upon
written or oralreference herein). You may request by a person to whom we delivered a copy of these filings, at no cost from Wilson W. Cheung, by writing or telephoning us at the prospectus. Requests for such copies should be directed to our principal
executive offices located atfollowing address: AXT, Inc., 4281 Technology Drive, Fremont, California 94538, Attention: Secretary. Our general telephone number isChief Financial Officer, telephone: (510) 683-5900. 49
54
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Report of Independent Accountants -- PricewaterhouseCoopers
LLP....................................................... F-2
Report of Independent Public Accountants -- Arthur Andersen
LLP....................................................... F-3
Consolidated Balance Sheets................................. F-4
Consolidated Income Statements.............................. F-5
Consolidated Statement of Stockholders' Equity.............. F-6
Consolidated Statements of Cash Flows....................... F-7
Notes to Consolidated Financial Statements.................. F-8
F-1
55
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of AXT, Inc.
In our opinion, based on our audits and the report of other auditors, the
accompanying consolidated balance sheets and the related consolidated statements
of income, of stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of AXT, Inc. and its subsidiaries at
December 31, 1998 and 1999 and June 30, 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 and for the six months ended June 30, 2000 in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. The consolidated financial statements give retroactive effect to the
merger of Lyte Optronics, Inc. on May 28, 1999 in a transaction accounted for as
a pooling of interests, as described in Note 2 to the consolidated financial
statements. We did not audit the financial statements of Lyte Optronics, Inc. at
December 31, 1998 and the results of its operations and its cash flows for each
of the two years in the period ended December 31, 1998, which statements reflect
total assets of $25,435,000 as of December 31, 1998 and total revenues of
$17,978,000 and $18,137,000 for each of the two years in the period ended
December 31, 1998. Those statements were audited by other auditors whose report
thereon has been furnished to us, and our opinion expressed herein, insofar as
it relates to the amounts included for Lyte Optronics, Inc., is based solely on
the report of the other auditors. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits and the report of
other auditors provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
San Jose, California
August 28, 2000
F-2
56
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Lyte Optronics, Inc.:
We have audited the consolidated balance sheet of Lyte Optronics, Inc. (a
Nevada corporation)authorized no one to provide you with any information that differs from that contained in this prospectus or any applicable prospectus supplement. Accordingly, you should not rely on any information that is not contained in this prospectus or any applicable prospectus supplement.
WHERE YOU CAN FIND MORE INFORMATION
We are a reporting company and Subsidiaries as of December 31, 1998,file annual, quarterly and the related
consolidated statements of operations, stockholders' investment and cash flows
for the two years in the period ended December 31, 1998 (not presented herein).
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Lyte Optronics, Inc. and
Subsidiaries as of December 31, 1998, and the results of their operations and
their cash flows for the two years in the period ended December 31, 1998 in
conformity with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Los Angeles, California
May 27, 1999
F-3
57
AXT, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31,
-------------------- JUNE 30,
1998 1999 2000
-------- -------- --------
ASSETS:
Current assets:
Cash and cash equivalents................................ $ 16,438 $ 6,062 $ 5,149
Accounts receivable, net of allowance for doubtful
accounts of $1,648, $778 and $1,702................... 13,128 17,561 20,889
Inventories.............................................. 25,300 35,470 43,630
Prepaid expenses and other current assets................ 3,271 8,945 6,071
Deferred income taxes.................................... 2,452 3,210 4,585
-------- -------- --------
Total current assets.................................. 60,589 71,248 80,324
Property, plant and equipment, net......................... 37,624 40,865 52,476
Other assets............................................... 1,927 1,405 2,427
Goodwill................................................... 2,843 2,244 1,945
-------- -------- --------
Total assets.......................................... $102,983 $115,762 $137,172
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Short-term bank borrowing................................ $ 1,928 $ 11,298 $ 12,980
Note payable............................................. -- -- 4,000
Accounts payable......................................... 7,850 8,294 12,575
Accrued liabilities...................................... 5,242 7,464 10,801
Current portion of long-term debt........................ 2,733 1,568 1,862
Current portion of capital lease obligation.............. 1,192 2,162 3,437
-------- -------- --------
Total current liabilities............................. 18,945 30,786 45,655
Long-term debt, net of current portion..................... 18,416 15,254 14,034
Long-term capital lease, net of current portion............ 3,854 6,853 8,137
Other long-term liabilities................................ 604 410 100
-------- -------- --------
Total liabilities..................................... 41,819 53,303 67,926
-------- -------- --------
Commitments and contingencies (Note 11)
Stockholders' equity:
Preferred stock,
$.001 par value; 2,000 shares authorized; 981 shares
issued and outstanding................................ 1 1 1
Additional paid-in capital............................... 3,999 3,989 3,989
Common stock,
$.001 par value; 100,000 shares authorized; 18,393,
18,659 and 18,948 shares issued and outstanding....... 18 19 19
Additional paid-in capital............................... 45,248 46,321 48,606
Deferred compensation.................................... (327) (217) (162)
Retained earnings........................................ 12,198 12,370 16,695
Cumulative translation adjustments....................... 27 (24) 98
-------- -------- --------
Total stockholders' equity............................ 61,164 62,459 69,246
-------- -------- --------
Total liabilities and stockholders' equity............ $102,983 $115,762 $137,172
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
58
AXT, INC.
CONSOLIDATED INCOME STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------- ---------------------
1997 1998 1999 1999 2000
------- ------- ------- ----------- -------
(UNAUDITED)
Revenue.......................................... $43,313 $61,314 $81,521 $39,680 $52,878
Cost of revenue.................................. 29,650 38,949 57,369 30,211 32,198
------- ------- ------- ------- -------
Gross profit..................................... 13,663 22,365 24,152 9,469 20,680
Operating expenses:
Selling, general and administrative............ 9,921 11,538 14,016 6,843 8,417
Research and development....................... 1,289 2,684 3,086 1,520 3,851
Acquisition costs.............................. -- -- 2,810 2,810 --
------- ------- ------- ------- -------
Total operating expenses.................... 11,210 14,222 19,912 11,173 12,268
------- ------- ------- ------- -------
Income (loss) from operations.................... 2,453 8,143 4,240 (1,704) 8,412
Interest expense................................. (793) (1,481) (2,150) (1,360) (1,918)
Other income and expense......................... (57) 598 729 722 499
------- ------- ------- ------- -------
Income (loss) before provision for income
taxes.......................................... 1,603 7,260 2,819 (2,342) 6,993
Provision for income taxes....................... 783 2,976 2,139 178 2,668
------- ------- ------- ------- -------
Income (loss) before extraordinary item.......... 820 4,284 680 (2,520) 4,325
Extraordinary item, net of tax benefits.......... -- -- (508) (508) --
------- ------- ------- ------- -------
Net income (loss)................................ $ 820 $ 4,284 $ 172 $(3,028) $ 4,325
======= ======= ======= ======= =======
Basic income (loss) per share:
Income (loss) before extraordinary item........ $ 0.22 $ 0.27 $ 0.04 $ (0.14) $ 0.23
Extraordinary item............................. -- -- (0.03) (0.03) --
Net income (loss).............................. 0.22 0.27 0.01 (0.16) 0.23
Diluted income (loss) per share:
Income (loss) before extraordinary item........ $ 0.06 $ 0.26 $ 0.03 $ (0.14) $ 0.21
Extraordinary item............................. -- -- (0.03) (0.03) --
Net income (loss).............................. 0.06 0.26 0.01 (0.16) 0.21
Shares used in per share calculations:
Basic.......................................... 3,697 16,076 18,655 18,451 18,687
Diluted........................................ 13,598 16,325 19,771 18,451 20,178
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
59
AXT, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
ACCUMULATED OTHER
PREFERRED STOCK COMMON STOCK COMPREHENSIVE INCOME
---------------- ---------------- DEFERRED RETAINED CUMULATIVE TRANSLATION
SHARES AMOUNT SHARES AMOUNT COMPENSATION EARNINGS ADJUSTMENTS
------- ------ ------ ------- ------------ -------- ----------------------
BALANCE AT JANUARY 1, 1997......... 8,929 $2,618 3,648 $ 629 $ 7,094 $(104)
Common stock options exercised..... 85 154
Issuance of Series C convertible
preferred stock.................. 1,200 5,935
Issuance of Employee Stock Purchase
Plan stock....................... 67 232
Deferred compensation.............. 322 $(322)
Amortization of deferred
compensation..................... 102
Comprehensive income
Net income....................... 820
Other comprehensive income
Currency translation
adjustment................... (93)
------- ------ ------ ------- ----- ------- -----
BALANCE AT DECEMBER 31, 1997....... 10,129 $8,553 3,800 $ 1,337 $(220) $ 7,914 $(197)
Common stock options exercised..... 71 138
Issuance of common stock........... 123 724
Issuance of common stock and Series
A preferred stock in connection
with the acquisition of Alpha
Photonics, Inc................... 981 4,000 1,267 7,500
Issuance of common stock as
settlement of trade payables..... 4 25
Reacquisition and retirement of
common stock..................... (61)
Issuance of common stock in
connection with financing........ 185 994
Conversion of Series C convertible
preferred stock to common
stock............................ (10,129) (8,553) 10,129 8,553
Issuance of common stock upon
initial public offering.......... 2,875 25,792
Deferred compensation.............. 203 (203)
Amortization of deferred
compensation..................... 96
Comprehensive income
Net income....................... 4,284
Other comprehensive income
Currency translation
adjustment................... 224
------- ------ ------ ------- ----- ------- -----
BALANCE AT DECEMBER 31, 1998....... 981 $4,000 18,393 $45,266 $(327) $12,198 $ 27
Common stock options exercised..... 201 648
Repurchase of shares of common
stock in connection with the
early extinguishment of debt..... (21) (211)
Issuance costs..................... (10) (139)
Issuance of Employee Stock Purchase
Plan stock....................... 86 776
Amortization of deferred
compensation..................... 110
Comprehensive income
Net income....................... 172
Other comprehensive income
Currency translation
adjustment................... (51)
------- ------ ------ ------- ----- ------- -----
BALANCE AT DECEMBER 31, 1999....... 981 $3,990 18,659 $46,340 $(217) $12,370 $ (24)
======= ====== ====== ======= ===== ======= =====
Common stock options exercised..... 254 1,967
Issuance of Employee Stock Purchase
Plan stock....................... 35 318
Amortization of deferred
compensation..................... 55
Comprehensive income
Net income....................... 4,325
Other comprehensive income
Currency translation
adjustment................... 122
------- ------ ------ ------- ----- ------- -----
BALANCE AT JUNE 30, 2000........... 981 $3,990 18,948 $48,625 $(162) $16,695 $ 98
======= ====== ====== ======= ===== ======= =====
COMPREHENSIVE
TOTAL INCOME
------- -------------
BALANCE AT JANUARY 1, 1997......... $10,237
Common stock options exercised..... 154
Issuance of Series C convertible
preferred stock.................. 5,935
Issuance of Employee Stock Purchase
Plan stock....................... 232
Deferred compensation.............. --
Amortization of deferred
compensation..................... 102
Comprehensive income
Net income....................... 820 $ 820
Other comprehensive income
Currency translation
adjustment................... (93) (93)
------- ------
BALANCE AT DECEMBER 31, 1997....... $17,387 $ 727
======
Common stock options exercised..... 138
Issuance of common stock........... 724
Issuance of common stock and Series
A preferred stock in connection
with the acquisition of Alpha
Photonics, Inc................... 11,500
Issuance of common stock as
settlement of trade payables..... 25
Reacquisition and retirement of
common stock..................... --
Issuance of common stock in
connection with financing........ 994
Conversion of Series C convertible
preferred stock to common
stock............................ --
Issuance of common stock upon
initial public offering.......... 25,792
Deferred compensation.............. --
Amortization of deferred
compensation..................... 96
Comprehensive income
Net income....................... 4,284 4,284
Other comprehensive income
Currency translation
adjustment................... 224 224
------- ------
BALANCE AT DECEMBER 31, 1998....... $61,164 $4,508
======
Common stock options exercised..... 648
Repurchase of shares of common
stock in connection with the
early extinguishment of debt..... (211)
Issuance costs..................... (149)
Issuance of Employee Stock Purchase
Plan stock....................... 776
Amortization of deferred
compensation..................... 110
Comprehensive income
Net income....................... 172 172
Other comprehensive income
Currency translation
adjustment................... (51) (51)
------- ------
BALANCE AT DECEMBER 31, 1999....... $62,459 $ 121
======= ======
Common stock options exercised..... 1,967
Issuance of Employee Stock Purchase
Plan stock....................... 318
Amortization of deferred
compensation..................... 55
Comprehensive income
Net income....................... 4,325 4,325
Other comprehensive income
Currency translation
adjustment................... 122 122
------- ------
BALANCE AT JUNE 30, 2000........... $69,246 $4,447
======= ======
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
60
AXT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEARS ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
----------------------------- ----------------------
1997 1998 1999 1999 2000
------- -------- -------- ----------- --------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)..................................... $ 820 $ 4,284 $ 172 $(3,028) $ 4,325
Adjustments to reconcile net income (loss) to cash
provided by (used in) operations:
Depreciation........................................ 1,341 2,959 5,444 1,162 2,917
Deferred income taxes............................... (518) (1,126) (758) (404) (1,375)
Amortization of goodwill............................ -- 149 599 300 299
Stock compensation.................................. 102 96 110 55 55
Changes in assets and liabilities:
Accounts receivable............................... (1,984) (4,192) (4,433) (929) (3,328)
Inventories....................................... (5,616) (11,074) (10,170) (4,491) (8,160)
Prepaid expenses.................................. (435) (1,610) (5,674) (4,407) 2,874
Other assets...................................... 45 (243) 522 790 (1,022)
Accounts payable.................................. 1,928 1,540 444 189 4,281
Accrued liabilities............................... 2,168 533 2,222 3,764 3,337
Other long-term liabilities....................... (252) 110 (194) (103) (310)
------- -------- -------- ------- --------
Net cash provided by (used in) operating
activities................................... (2,401) (8,574) (11,716) (7,102) 3,893
------- -------- -------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment.......... (5,227) (14,899) (2,758) (1,238) (11,101)
------- -------- -------- ------- --------
Net cash used in investing activities........... (5,227) (14,899) (2,758) (1,238) (11,101)
------- -------- -------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (payments of):
Issuance of common stock............................ 386 27,648 1,064 359 2,285
Issuance of convertible preferred stock............. 5,935 -- -- -- --
Capital lease payments.............................. (33) (263) (1,958) (422) (868)
Short-term bank borrowings.......................... 779 (2,320) 9,370 4,526 5,682
Long-term debt borrowings........................... 2,654 17,002 -- -- --
Long-term debt payments............................. -- (5,574) (4,327) (2,304) (926)
------- -------- -------- ------- --------
Net cash provided by financing activities....... 9,721 36,493 4,149 2,159 6,173
------- -------- -------- ------- --------
Effect of exchange rate changes....................... (65) 219 (51) (53) 122
------- -------- -------- ------- --------
Net increase in cash and cash equivalents............. 2,028 13,239 (10,376) (6,234) (913)
Cash and cash equivalents at the beginning of the
period.............................................. 1,171 3,199 16,438 16,438 6,062
------- -------- -------- ------- --------
Cash and cash equivalents at the end of the period.... $ 3,199 $ 16,438 $ 6,062 $10,204 $ 5,149
======= ======== ======== ======= ========
NON CASH ACTIVITY:
Acquisition of property, plant and equipment through
capital leases.................................... $ -- $ 1,737 $ 5,927 $ 2,654 $ 3,427
SUPPLEMENTAL DISCLOSURES:
Interest paid......................................... $ 802 $ 1,481 $ 2,288 $ 730 $ 1,010
Income taxes paid..................................... $ 1,814 $ 4,338 $ 6,268 $ 1,867 $ 870
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
61
AXT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. THE COMPANY AND SUMMARY OF ACCOUNTING POLICIES
The Company
AXT, Inc. designs, develops, manufactures, and distributes high-performance
compound semiconductor substrates, as well as opto-electronic semiconductor
devices, such as high-brightness light-emitting diodes, or HB LEDs, and laser
diodes.
AXT expanded its markets in 1999 through the acquisition of Lyte Optronics,
Inc., or Lyte (see Note 2). Lyte's business now operates as two separate
divisions of AXT: the visible emitter division, which focuses on manufacturing
LEDs and laser diodes, and the consumer products division, which focuses on
designing and marketing laser-pointing, laser-alignment and LED products. The
substrate division comprises the third division of AXT.
The Company officially changed its name from American Xtal Technology, Inc.
to AXT, Inc. on July 7, 2000.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financialcurrent reports, proxy statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All material intercompany accounts and
transactions have been eliminated.
Interim Results (unaudited)
The accompanying consolidated balance sheet as of June 30, 1999 and the
consolidated statements of income and cash flows for the six months ended June
30, 1999 are unaudited. In the opinion of management, these statements have been
prepared on the same accounting basis as the audited consolidated financial
statements and include all adjustments, consisting only of normal recurring
adjustments, necessary for the fair statement of results for these periods. The
data disclosed in the notes to the consolidated financial statements for this
period are unaudited.
Foreign Currency Translation
The functional currencies of the Company's Japanese and Chinese
subsidiaries are the local currencies. Transaction gains and losses resulting
from transactions denominated in currencies other than the U.S. dollar for the
Company or in the local currencies for the subsidiaries are included in other
income for the periods presented.
The assets and liabilities of the subsidiaries are translated at the rates
of exchange on the balance sheet date. Income and expense items are translated
at the average rate of exchange for the period. Gains and losses from foreign
currency translation are included as a separate component of stockholders'
equity.
Revenue Recognition
The Company recognizes revenue upon the shipment of its products to the
customer provided that the Company has received a signed purchase order, the
price is fixed, collection of resulting receivables is
F-8
62
AXT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
probable, product returns are reasonably estimable and there are no remaining
significant obligations. The Company provides for future returns based on
historical experience at the time revenue is recognized.
Fair Value of Financial Instruments
The reported amounts of certain of the Company's financial instruments
including cash and cash equivalents, accounts receivable, accounts payable and
accrued liabilities approximate fair value due to their short maturities. The
reported amounts of notes, short-term bank borrowing, loans payable and capital
lease obligations approximate fair value due to the market interest rates which
these debts bear.
Concentration of Credit Risk
The Company manufactures and distributes GaAs, InP and Ge substrates,
semiconductor laser diodes, LEDs and laser pointer products. Financial
instruments which potentially subject the Company to concentration of credit
risk consist primarily of trade accounts receivable. The Company invests
primarily in money market accounts and commercial paper instruments. Cash
equivalents are maintained with high quality institutions and their composition
and maturities are regularly monitored by management.
The Company performs ongoing credit evaluations of its customers' financial
condition, and limits the amount of credit extended when deemed necessary, but
generally does not require collateral.
No customer represented greater than 10% of product revenues for the years
ended December 31, 1997, 1998, 1999 or the six months ended June 30, 2000.
No customer accounted for 10% or more of the trade accounts receivable
balance as of December 31, 1998, 1999 or June 30, 2000.
Cash Equivalents
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the weighted average cost method. Finished goods and work-in-process
inventories include material, labor and manufacturing overhead costs.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated
depreciation computed using the straight-line method over the estimated economic
lives of the assets, which vary from three to ten years. Leasehold improvements
are amortized over the shorter of the estimated useful life or the term of the
lease.
Impairment of Long-Lived Assets
Pursuant to Statement of Financial Accounting Standard No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of," the Company reviews long-lived assets based upon a gross cash flow basis
and will reserve for impairment whenever events or changes in circumstances
indicate the carrying amount of the assets may not be fully recoverable. Based
on its most recent analysis, the Company believes that there was no impairment
of its property, plant and equipment as of June 30, 2000.
F-9
63
AXT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Stock-Based Compensation
The Company accounts for stock-based employee compensation arrangements
using the intrinsic value method as prescribed in Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" and related
Interpretations thereof. Accordingly, compensation costs for stock options is
measured as the excess, if any, of the market price of the Company's stock at
the date of grant over the stock option exercise price. In addition, the Company
compliesinformation with the disclosure provisions of Statement of Financial Accounting
Standard No. 123, "Accounting for Stock-Based Compensation."
Research and Development
Research and development costs are expensed as incurred.
Income Taxes
The Company accounts for deferred income taxes using the liability method,
under which the expected future tax consequences of timing differences between
the book and tax basis of assets and liabilities are recognized as deferred tax
assets and liabilities.
Comprehensive Income
In 1998, the Company adopted Statement of Financial Accounting Standard No.
130 "Reporting Comprehensive Income." Comprehensive income is defined as the
change in equity of a company during a period from transactions and other events
and circumstances excluding transactions resulting from investment by owners and
distribution to owners. The difference between net income and comprehensive
income for the Company relates to foreign currency translation adjustments.
Comprehensive income for the years ended December 31, 1997, 1998, 1999 and the
six-month period ended June 30, 2000 is disclosed in the "Consolidated Statement
of Stockholders' Equity."
Basic and Diluted Net Income (Loss) Per Share
The Company computes net income (loss) per share in accordance with
Statement of Financial Accounting Standard No. 128, or SFAS 128, "Earnings per
Share." Under the provisions of SFAS 128, basic income (loss) per share is
computed by dividing the income (loss) available to holders of common stock for
the period by the weighted average number of shares of common stock outstanding
during the period. The calculation of diluted income (loss) per share excludes
potential common stock if the effect of such stock is antidilutive. Potential
common stock consists of common shares issuable upon the exercise of stock
options.
Segment Reporting
In 1998, the Company adopted Statement of Financial Accounting Standard No.
131, or SFAS 131, "Disclosures about Segments of an Enterprise and Related
Information." SFAS 131 requires that companies report separately, in the
financial statements, certain financial and descriptive information about
operating segment profit or loss, certain specific revenue and expense items and
segment assets. Additionally, companies are required to report information about
the revenues derived from their products and service groups, about geographic
areas in which the Company earns revenues and holds assets and about major
customers.
Reclassifications
Certain reclassificationsSEC. We have been made to the prior years consolidated
financial statements to conform to current period presentation.
F-10
64
AXT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Recent Accounting Pronouncements
In June 1998, the FASB issued Statement of Financial Accounting Standard
No. 133, or SFAS 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS 133 established accounting and reporting standards for
derivative instruments including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives) and for hedging
activities. In June 2000, SFAS 133 was amended by SFAS 138. The Company will be
required to implement SFAS 133 as amended by SFAS 137, beginning in 2001.
Adopting the provisions of SFAS 133 is not expected to have a material effect on
the Company's financial position or results of operations.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, or SAB 101, "Revenue Recognition", which provides
guidance on the recognition, presentation and disclosure of revenue in financial
statements filed with the SEC. SAB 101 outlines the basic criteria that must be
met to recognize revenue and provides guidance for disclosures related to
revenue recognition policies. Management believes that the impact of SAB 101
would have no material effectSEC a registration statement on the financial position or results of operations
of the Company.
In March 2000, the FASB issued FASB Interpretation No. 44, or FIN 44,
"Accounting for Certain Transactions Involving Stock Compensation, an
interpretation of APB Opinion No. 25." FIN 44 clarifies the application of
Opinion 25 for (a) the definition of employee for purposes of applying Opinion
25, (b) the criteria for determining whether a plan qualifies as a
noncompensatory plan, (c) the accounting consequence for various modifications
to the terms of a previously fixed stock option or award and (d) the accounting
for an exchange of stock compensation awards in a business combination. FIN 44
is effective July 1, 2000, but certain conclusions cover specific events that
occur after either December 15, 1998, or January 12, 2000. The adoption of FIN
44 did not and is not expected to have a material impact on the Company's
financial position or results of operations.
NOTE 2. ACQUISITION
Merger of the Company with Lyte Optronics, Inc.
On May 28, 1999, the Company completed a merger with Lyte Optronics, Inc.,
or Lyte, a Nevada corporation and all of its subsidiaries, including Alpha
Photonics, Inc., Lyte Optronics Ltd. (a United Kingdom company) and Advanced
Semiconductor (a Xiamen, China company). Lyte and its subsidiaries manufacture
and distribute semiconductor laser diode chips, high-brightness LEDs and laser
pointers.
Under the terms of the merger agreement, the Company issued approximately
2,247,000 shares of its 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.
The Company incurred costs of approximately $2.8 million associated with
the merger, which were charged to operations during the quarter ended June 30,
1999, the period in which the merger was consummated.
F-11
65
AXT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Acquisition of Alpha Photonics, Inc. by Lyte Optronics, Inc.
On September 29, 1998, Lyte acquired Alpha Photonics, Inc., or Alpha. The
transaction was accounted for as a purchase. Lyte issued its common and
preferred stock with a value of $11.5 million in exchange for all the
outstanding shares of capital stock of Alpha. Lyte recorded goodwill of $3.0
million, representing the excess of the value of the shares issued by Lyte over
the net book value of Alpha. The results of operations of Alpha are included in
the operations of the Company beginning on September 29, 1998.
NOTE 3. BALANCE SHEET DETAIL
The components of selected balance sheet accounts are summarized below (in
thousands):
DECEMBER 31,
------------------- JUNE 30,
1998 1999 2000
------- -------- --------
Prepaid expenses:
Income tax receivable............................. $ 312 $ 4,013 $ 2,374
Other............................................. 2,959 4,932 3,697
------- -------- --------
$ 3,271 $ 8,945 $ 6,071
======= ======== ========
Inventories:
Raw materials..................................... $ 9,928 $ 13,503 $ 16,693
Work-in-process................................... 13,171 16,151 20,987
Finished goods.................................... 2,201 5,816 5,950
------- -------- --------
$25,300 $ 35,470 $ 43,630
======= ======== ========
Property, plant and equipment:
Land.............................................. $ 2,446 $ 2,447 $ 2,447
Building.......................................... 17,429 18,507 18,544
Machinery and equipment........................... 23,544 31,058 35,437
Leasehold improvements............................ 476 2,704 4,617
Construction in progress.......................... 3,144 1,008 9,207
------- -------- --------
47,039 55,724 70,252
Less: accumulated depreciation and amortization... (9,415) (14,859) (17,776)
------- -------- --------
$37,624 $ 40,865 $ 52,476
======= ======== ========
Accrued liabilities:
Accrued compensation and other.................... $ 934 $ 2,090 $ 3,180
Allowance for sales returns....................... 1,036 344 380
Income tax payable................................ 0 615 4,043
Other............................................. 3,272 4,415 3,198
------- -------- --------
$ 5,242 $ 7,464 $ 10,801
======= ======== ========
NOTE 4. DEBT
Short-Term Bank Borrowing
The Company has a $15.0 million bank line of credit that expires on
September 30, 2000. On August 28, 2000, the Company entered into a new credit
facility of $20.0 million with its bank (see Note 13). The line of credit is
secured by the Company's operating assets, excluding equipment. BorrowingsForm S-3 under the prior line of credit bear interest at 0.5% above the bank's variable prime
rate, which was 9.5% at June 30, 2000 and the new facilities bear interest at
1.75% above LIBOR or 0.5% above the bank's
F-12
66
AXT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
variable prime rate. The line of credit is subject to certain financial
covenants regarding current financial ratios and cash flow requirements that
have all been met as of June 30, 2000. The amounts outstanding under the prior
line of credit were $1.9 million at December 31, 1998, $11.3 million at December
31, 1999, and $13.0 million at June 30, 2000.
Notes Payable
On June 15, 2000, the Company entered into a short-term note with its bank
in the amount of $4.0 million. The note bears interest at 1.0% above the bank's
variable prime rate, which was 9.5% at June 30, 2000. The principal and unpaid
interest of the note is due September 30, 2000. The proceeds of the note were
primarily used to fund current operating and capital expenditure needs of the
Company. The note is to be repaid using the proceeds of a new loan of $6.0
million (see Note 13).
Long-Term Debt
The components of long-term debt are summarized below (in thousands):
DECEMBER 31,
------------------ JUNE 30,
1998 1999 2000
------- ------- --------
Various notes payable to banks, secured by certain
equipment, bearing interest at fixed rates between
7.13% and 9.01%, maturing between February 2001 and
May 2003............................................ $ 3,782 $ 2,948 $ 2,494
Debenture loan payable to Bay Area Employment
Development Company, guaranteed by the U.S. Small
Business Administration, bearing interest at a fixed
rate of 7.27%, maturing October 2016................ 944 917 903
Taxable revenue bonds, secured by a letter of credit
from a bank, bearing interest at 2.0% below prime
rate, which was 9.5% on June 30, 2000, maturing
December 2023....................................... 11,615 11,135 10,723
Various mortgage notes payable to a bank, secured by
property, bearing interest at a fixed rate of 9.00%
and 8.25%, maturing October 2003.................... 1,890 1,822 1,776
Notes payable to a bank and a financing institution,
acquired with Lyte Optronics, paid in full in
1999................................................ 2,918 -- --
------- ------- -------
21,149 16,822 15,896
Less current portion.................................. (2,733) (1,568) (1,862)
------- ------- -------
$18,416 $15,254 $14,034
======= ======= =======
Maturities of long-term debt at June 30, 2000 were as follows:
2001....................................................... $ 1,862
2002....................................................... 1,895
2003....................................................... 1,056
2004....................................................... 686
2005....................................................... 514
Thereafter................................................. 9,883
-------
$15,896
=======
On August 28, 2000, the Company entered into a new credit facility
including $6.0 million in term loans for real estate in Southern California.
Borrowings under the term loans bear interest at 2.75% above
F-13
67
AXT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
LIBOR, 2.5% above short-term treasury notes or 1.5% above the bank's variable
prime rate. The term loans mature on March 31, 2003.
Following the merger with Lyte Optronics in 1999, the Company repaid Lyte
Optronics debt that had been obtained at an unfavorable interest rate. The
repayment resulted in an extraordinary loss in the amount of $508,000, net of
tax benefits.
NOTE 5. INCOME TAXES
The components of the provision for income taxes are summarized below (in
thousands):
YEARS ENDED DECEMBER 31,
--------------------------- SIX MONTHS ENDED
1997 1998 1999 JUNE 30, 2000
------ ------- ------ ----------------
Current:
Federal.............................. $1,571 $ 3,774 $2,274 $ 3,069
State................................ 79 442 376 503
Foreign.............................. 84 51 247 190
------ ------- ------ -------
Total current..................... 1,734 4,267 2,897 3,762
Deferred:
Federal.............................. (808) (1,097) (663) (997)
State................................ (143) (194) (95) (97)
------ ------- ------ -------
Total deferred.................... (951) (1,291) (758) (1,094)
------ ------- ------ -------
Total provision................... $ 783 $ 2,976 $2,139 $ 2,668
====== ======= ====== =======
A reconciliation of the effective income tax rates and the U.S. statutory
federal income tax rate is summarized below:
YEARS ENDED
DECEMBER 31,
-------------------- SIX MONTHS ENDED
1997 1998 1999 JUNE 30, 2000
---- ---- ---- ----------------
Statutory federal income tax rate............. 34.0% 34.0% 34.0% 34.0%
State income taxes, net of federal tax
benefits.................................... 5.4% 2.6% 5.4% 3.4%
Foreign sales corporation benefit............. -- (3.2%) (4.8%) (2.6%)
Foreign income taxed at higher rate........... 4.2% 0.8% 0.0% 0.0%
Acquisition costs............................. 0.0% 0.0% 33.9% 0.0%
Other......................................... 5.2% 6.9% 7.3% 3.3%
---- ---- ---- ----
Effective tax rate............................ 48.8% 41.1% 75.8% 38.1%
==== ==== ==== ====
F-14
68
AXT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Deferred tax assets and liabilities are summarized below (in thousands):
YEARS ENDED
DECEMBER 31,
----------------- SIX MONTHS ENDED
1998 1999 JUNE 30, 2000
------- ------- ----------------
Deferred tax assets:
Accruals and reserves not yet deductible.......... $ 1,635 $ 2,935 $ 3,254
State taxes....................................... 137 98 132
Other............................................. 772 724 1,376
Net operating loss................................ 925 925 925
Credits........................................... -- 128 366
------- ------- -------
$ 3,469 $ 4,810 $ 6,053
Deferred tax liabilities:
Depreciation...................................... (1,017) (1,600) (1,468)
------- ------- -------
Net deferred tax asset......................... $ 2,452 $ 3,210 $ 4,585
======= ======= =======
NOTE 6. NET INCOME PER SHARE
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):
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------- ----------------------
1997 1998 1999 1999 2000
------- ------- ------- ----------- -------
(UNAUDITED)
Numerator:
Net income (loss) $ 820 $ 4,284 $ 172 $(3,028) $ 4,325
======= ======= ======= ======= =======
Denominator:
Denominator for basic
earnings per
share -- weighted
average common shares... 3,697 16,076 18,655 18,451 18,687
Effect of dilutive
securities:
Common stock options.... 72 249 1,116 -- 1,491
Convertible preferred
stock................ 9,829 -- -- -- --
------- ------- ------- ------- -------
Denominator for dilutive income
(loss) per share............. 13,598 16,325 19,771 18,451 20,178
======= ======= ======= ======= =======
Basic income (loss) per
share........................ $ 0.22 $ 0.27 $ 0.01 $ (0.16) $ 0.23
Diluted income (loss) per
share........................ $ 0.06 $ 0.26 $ 0.01 $ (0.16) $ 0.21
Options excluded from diluted
net income (loss) per
share........................ 9 7 415 1,123 45
======= ======= ======= ======= =======
Certain common stock issuable upon exercise of stock options were excluded
from the calculation of diluted net income (loss) per share as the impact of the
options would have been anti-dilutive.
NOTE 7. STOCKHOLDERS' EQUITY
In May 1998, the Company completed its initial public offering, or IPO, and
issued 2,875,000 shares of its common stock at $10.00 per share, including the
shares from an over-allotment option. The Company received cash of approximately
$25.8 million net of underwriting discounts, commissions and
F-15
69
AXT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IPO expenses. Upon the closing of the IPO, all outstanding shares of the
Company's then convertible preferred stock were automatically converted into
shares of common stock.
On May 28, 1999, the Company completed its acquisition of Lyte. Under the
terms of the acquisition, the Company issued approximately 2,247,000 shares of
common stock and 981,000 shares of non-voting and non-convertible preferred
stock with a 5.0% annual dividend rate payable when declared by the board of
directors of the Company and $4.0 million liquidation preference over common
stock, in exchange for all of the issued and outstanding shares of capital stock
of Lyte. Ten percent of the shares issued to the Lyte's stockholders are held in
escrow to satisfy any claims that the Company may bring under the acquisition
agreement. The Company has filed certain claims under the agreement and expects
that all of the shares held in escrow will be returned to the Company in
satisfaction of these claims.
Subsequent to June 30, 2000, the Company completed a private securities
offering (see Note 13).
NOTE 8. EMPLOYEE BENEFIT PLANS
Stock Option Plans
In 1993, the Company adopted the 1993 Stock Option Plan ("1993 Plan") which
provides for granting of incentive and non-qualified stock options to employees,
consultants, and directors of the Company. Under the 1993 Plan, 880,000 shares
of common stock have been reserved for issuance as of December 31, 1998. Options
granted under the 1993 Plan are generally for periods not to exceed ten years
and are granted at the fair market value of the stock at the date of grant as
determined by the board of directors. Options granted under the 1993 Plan
generally vest 25.0% upon grant and 25.0% each year thereafter, with full
vesting occurring on the third anniversary of the grant date.
In May 1997, the Company adopted the 1997 Stock Option Plan ("1997 Plan")
which provides for granting of incentive and non-qualified stock options to
employees, consultants and directors of the Company. Under the 1997 Plan,
5,901,501 shares of common stock have been reserved for issuance as of June 30,
2000. Options granted under the 1997 Plan are generally for periods not to
exceed ten years (five years if the option is granted to a 10.0% stockholder)
and are granted at the fair market value of the stock at the date of grant as
determined by the board of directors. Options granted under the 1997 Plan
generally vest 25.0% at the end of one year and 2.1% each month thereafter, with
full vesting after four years.
F-16
70
AXT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Information about stock option activities is summarized below:
OPTIONS OUTSTANDING
------------------------------------------------
OPTIONS WEIGHTED AVERAGE
AVAILABLE NUMBER EXERCISE PRICE EXERCISE PRICE
FOR GRANT OF SHARES PER SHARE PER SHARE
---------- --------- --------------- ----------------
Balance at December 31, 1996....... 322,594 209,202 $ 1.59
Additional shares authorized..... 1,367,000 -- --
Granted.......................... (1,246,950) 1,246,950 $ 5.00 - $ 6.09 5.06
Exercised........................ -- (84,825) 0.06 - 1.90 1.59
Cancelled........................ 25,175 (25,175) 1.50 - 5.00 3.43
---------- ---------
Balance at December 31, 1997....... 467,819 1,346,152 4.77
Additional shares authorized..... 1,500,000 -- --
Granted.......................... (320,599) 320,599 5.00 - 11.87 7.46
Exercised........................ -- (71,407) 1.20 - 5.00 1.94
Cancelled........................ 64,268 (64,268) 5.00 - 7.50 5.39
---------- ---------
Balance at December 31, 1998....... 1,711,488 1,531,076 5.44
Additional shares authorized..... 1,000,000 -- --
Granted.......................... (1,500,350) 1,500,350 9.12 - 24.96 18.21
Exercised........................ -- (200,679) 1.20 - 8.25 4.64
Cancelled........................ 154,645 (154,645) 1.90 - 22.69 13.82
---------- ---------
Balance at December 31, 1999....... 1,365,783 2,676,102 12.18
Additional shares authorized..... 2,101,501 -- --
Granted.......................... (433,800) 433,800 15.06 - 47.00 25.39
Exercised........................ -- (261,799) 0.20 - 21.18 7.51
Cancelled........................ 206,347 (206,347) 5.00 - 32.50 14.22
---------- ---------
Balance at June 30, 2000........... 3,239,831 2,641,756 14.65
========== =========
Information about stock options outstanding at June 30, 2000 is summarized
below:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------ ------------------------------
WEIGHTED AVERAGE
RANGE OF NUMBER REMAINING NUMBER WEIGHTED AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE OUTSTANDING EXERCISE PRICE
- --------------- ----------- ---------------- ----------- ----------------
$ 1.90 - $1.90 5,850 0.34 5,850 $1.90
5.00 - 5.00 629,082 7.15 399,928 5.00
5.50 - 7.91 315,581 7.73 161,486 6.56
8.25 - 13.56 400,726 8.76 7,519 9.04
14.56 - 17.75 266,500 9.45 5,520 15.53
18.06 - 20.69 67,600 6.85 15,000 20.68
21.19 - 21.19 433,117 8.98 97,876 21.19
21.25 - 22.69 280,100 9.25 -- --
24.00 - 44.38 242,000 9.69 -- --
47.00 - 47.00 1,200 9.97 -- --
--------- ---- ------- -----
2,641,756 8.43 693,179 $8.09
========= ==== ======= =====
F-17
71
AXT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Stock-Based Compensation Under APB No. 25
In connection with certain stock option grants the Company recorded
deferred compensation costs totaling $322,000 for the year ended December 31,
1997 and $203,000 for the year ended December 31, 1998. Compensation cost is the
difference between the exercise price and the deemed fair value at the date of
grant. Compensation cost is being amortized over the vesting period relating to
these options, of which approximately $102,000 was amortized for the year ended
December 31, 1997, $96,000 for 1998, $110,000 for 1999 and $55,000 for the six
months ended June 30, 2000.
Certain Pro Forma Disclosures
Pro forma information regarding net income and net income per share is
required by SFAS No. 123, which also requires that information be determined as
if the Company had accounted for its employee stock options granted under the
fair value method. The fair value for these options was estimated using the
Black-Scholes option pricing model.
The Company calculated the fair value of each option grant on the date of
grant using the Black-Scholes option pricing model as prescribed by SFAS No. 123
using the following assumptions:
YEARS ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
-------------------- --------------------
1997 1998 1999 1999 2000
---- ---- ---- ----------- -----
(UNAUDITED)
Risk free interest rate...................... 6.1% 5.2% 5.6% 4.8% 6.2%
Expected life (in years)..................... 4.5 5.0 5.0 5.0 5.0
Dividend yield............................... 0.0% 0.0% 0.0% 0.0% 0.0%
Volatility................................... 0.0% 75.0% 96.0% 90.0% 140.0%
The weighted average grant-date fair value of options granted during the
year ended December 31, 1997 was $0.49, $4.57 in 1998, $13.09 in 1999, $12.63
for the six months ended June 30, 1999 and $22.83 for the six months ended June
30, 2000.
Had compensation cost for the Company's options been determined based on
the fair value at the grant dates, as prescribed in SFAS 123, the Company's pro
forma net income and net income per share would have been as summarized below
(in thousands except per share data):
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------- ---------------------
1997 1998 1999 1999 2000
----- ------ ------- ----------- ------
(UNAUDITED)
Net income:
As reported........................ $ 820 $4,284 $ 172 $(3,028) $4,325
Pro forma net income............... $ 760 $3,936 $(2,747) $(3,685) $1,970
Net income per share:
As reported:
Basic........................... $0.22 $ 0.27 $ 0.01 $ (0.16) $ 0.23
Diluted......................... $0.06 $ 0.26 $ 0.01 $ (0.16) $ 0.21
Pro forma net income:
Basic........................... $0.21 $ 0.24 $ (0.15) $ (0.20) $ 0.11
Diluted......................... $0.06 $ 0.24 $ (0.15) $ (0.20) $ 0.10
Because additional option grants are expected to be made each year, the
above pro forma disclosures are not representative of pro forma effects on
reported net income for future years.
F-18
72
AXT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Employee Stock Purchase Plan
In May 1997, the Company's board of directors approved an Employee Stock
Purchase Plan. Under this plan, employees of the Company were allowed to
purchase a certain number of shares of common stock by December 31, 1997. A
total of 67,000 shares were purchased as of December 31, 1997.
In February 1998, the Company's board of directors approved the 1998
Employee Stock Purchase Plan (the "1998 Purchase Plan"). The Company's
stockholders approved the 1998 Purchase Plan in March 1998. At June 30, 2000 a
total of 900,000 shares of the Company's common stock were reserved for issuance
under the 1998 Purchase Plan. A total of 121,000 shares were purchased as of
June 30, 2000. The 1998 Purchase Plan permits eligible employees to acquire
shares of the Company's common stock through payroll deductions. The common
stock purchase price is determined as 85.0% of the lower of the market price of
the common stock at the purchase date or the date of offer to the employee.
Retirement Savings Plan
The Company has a 401(k) Savings Plan (the "Savings Plan") which qualifies
as a thrift plan under Section 401(k) of the Internal Revenue Code. All
full-time U.S. employees are eligible to participate in the Savings Plan after
90 days from the date of hire. Participants may contribute up to 10.0% of their
earnings to the Savings Plan with a discretionary matching amount provided by
the Company. The Company's contributions to the Savings Plan were $87,000 for
the year ended December 31, 1997, $101,000 for 1998, $146,000 for 1999 and
$75,000 for the six months ended June 30, 2000.
NOTE 9. SEGMENT AND FOREIGN OPERATIONS INFORMATION
The Company has three reportable segments: substrates, visible emitters and
consumer products. The segments in which the Company operates are subject to
rapid technological change and significant competition. Also, the number of
suppliers of certain materials used by the Company and the number of customers
are limited.
F-19
73
AXT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Selected financial information by business segment is summarized below (in
thousands):
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------- -----------------------
1997 1998 1999 1999 2000
------- -------- -------- ----------- --------
(UNAUDITED)
Substrates:
Net revenues from external
customers........................ $25,335 $ 43,177 $ 56,732 $26,136 $ 45,337
Gross profit (loss)................. 10,108 17,936 23,286 10,381 21,148
Operating income (loss)............. 5,860 10,416 12,275 4,022 14,418
Identifiable assets................. 31,395 76,505 88,579 82,850 105,151
Visible Emitters:
Net revenues from external
customers........................ $ -- $ 5,897 $ 18,640 $ 9,391 $ 4,868
Gross profit (loss)................. 2,135 2,061 (110) (1,120)
Operating income (loss)............. -- 1,132 (2,775) (2,884) (5,592)
Identifiable assets................. -- 18,917 23,423 20,676 26,920
Consumer Products:
Net revenues from external
customers........................ $17,978 $ 12,240 $ 6,149 $ 4,153 $ 2,673
Gross profit (loss)................. 3,555 2,294 (1,195) (802) 652
Operating income (loss)............. (3,407) (3,405) (5,260) (2,842) (414)
Identifiable assets................. 6,401 7,561 3,760 5,094 5,101
Total:
Net revenues from external
customers........................ $43,313 $ 61,314 $ 81,521 $39,680 $ 52,878
Gross profit (loss)................. 13,663 22,365 24,152 9,469 20,680
Operating income (loss)............. 2,453 8,143 4,240 (1,704) 8,412
Identifiable assets................. 37,796 102,983 115,762 108,620 137,172
The Company sells its substrates in the United States and in other parts of
the world. Also, the Company has operations in Japan and China. Revenues by
geographic location based on the country of the customer were as follows (in
thousands):
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------- ----------------------
1997 1998 1999 1999 2000
------- ------- ------- ----------- -------
(UNAUDITED)
Net revenues:
United States.................. $30,676 $41,902 $42,531 $19,991 $27,869
Europe......................... 5,452 4,469 8,290 3,693 5,956
Canada......................... 1,034 1,356 3,221 125 1,211
Japan, Asia Pacific and
other....................... 6,151 13,587 27,479 15,871 17,842
------- ------- ------- ------- -------
Consolidated................... $43,313 $61,314 $81,521 $39,680 $52,878
======= ======= ======= ======= =======
F-20
74
AXT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Property, plant and equipment by geographic location is summarized below
(in thousands):
DECEMBER 31,
------------------ JUNE 30,
1998 1999 2000
------- ------- --------
Property, plant and equipment, net:
United States....................................... $36,558 $37,362 $47,975
China............................................... 881 3,491 4,499
Other............................................... 185 12 2
------- ------- -------
$37,624 $40,865 $52,476
======= ======= =======
NOTE 10. RELATED PARTY TRANSACTIONS
The Company purchased raw materials and manufactured quartz from a supplier
that is owned by a family member of an officer. Purchases from this supplier
were $1.5 million for the year ended December 31, 1997, $3.7 million in 1998,
$3.6 million in 1999 and $3.5 million for the six months ended June 30, 2000.
NOTE 11. COMMITMENTS AND CONTINGENT LIABILITIES
From time to time the Company is involved in litigation in the normal
course of business. Management believes that the outcome of matters to date will
not have a material adverse effect on the Company's financial position or
results of operations.
The Company leases certain office space, manufacturing facilities and
property and equipment under long-term operating leases expiring at various
dates through December 2006. Total rent expense under these operating leases was
approximately $183,000 for the six months ended June 30, 2000.
Included in property and equipment is approximately $11.5 million of
equipment that is leased under non-cancelable leases accounted for as capital
leases. These leases expire at various dates through 2005.
Total minimum lease payments under the above leases as of June 30, 2000,
are summarized below (in thousands):
CAPITAL OPERATING
LEASES LEASES TOTAL
------- --------- -------
2001.................................................. $ 4,336 $ 617 $ 4,953
2002.................................................. 3,253 632 3,885
2003.................................................. 3,170 540 3,710
2004.................................................. 2,177 480 2,657
2005.................................................. 620 443 1,063
Thereafter............................................ -- 83 83
------- ------ -------
13,556 $2,795 $16,351
====== =======
Less amounts representing interest at 8.25% to
22.8%............................................... (1,982)
-------
11,574
Less short-term portion............................... (3,437)
-------
Long-term portion..................................... $ 8,137
=======
F-21
75
AXT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12. FOREIGN EXCHANGE CONTRACTS AND TRANSACTION LOSSES
The Company uses short-term forward exchange contracts for hedging purposes
to reduce the effects of adverse foreign exchange rate movements. The Company
has purchased foreign exchange contracts to hedge against certain trade accounts
receivable denominated in Japanese yen. These contracts are accounted for using
hedge accounting, under which the change in the fair value of the forward
contracts is recognized as part of the related foreign currency transactions as
they occur. As of June 30, 2000, the Company's outstanding commitmentsSecurities Act with respect to the foreign exchange contracts, which were commitmentssecurities we are offering under this prospectus. This prospectus does not contain all of the information set forth in the registration statement and the exhibits to sell
Japanese yen, hadthe registration statement. For further information with respect to us and the securities we are offering under this prospectus, we refer you to the registration statement and the exhibits filed as a total contract valuepart of approximately $1.7 million.
The Company incurredthe registration statement. You may read and copy the registration statement, as well as our reports, proxy statements and other information, at the SEC’s public reference rooms at 100 F Street, N.E., Washington, D.C. 20549, as well as at the SEC’s regional offices at 500 West Madison Street, Suite 1400, Chicago, IL 60661 and at 233 Broadway, New York, NY 10279. You can request copies of these documents by writing to the SEC and paying a foreign transaction exchange loss of $186,000fee for the year ended December 31, 1997, a losscopying cost. Please call the SEC at 1-800-SEC-0330 for more information about the operation of $24,000 in 1998, a gain of $652,000
in 1999 and a gain of $3,000 for the six months ended June 30, 2000.
NOTE 13. SUBSEQUENT EVENTS
Private Securities Offering
On July 25, 2000public reference rooms. Our SEC filings are also available at the Company completed a private securities offering,
raising approximately $8.5 million in exchange for 234,115 shares of common
stock. The shares issued have not been registered under the Securities Act of
1933 and are "restricted securities" as defined by Rule 144 promulgated under
the Act. The securities may not be sold or offered for sale or otherwise
distributed except in conjunction with an effective registration statement for
the shares under the Act, in compliance with Rule 144, or pursuant to an opinion
of counsel satisfactory to the Company, that such registration or compliance is
not required as to said sale, offer or distribution. The Company is obligated to
register the shares no later than ten days after the completion of its next
public securities offering.
New Debt Financing
On August 28, 2000, the Company entered into a new 21-month $20.0 million
line of credit and additional long-term loans of $6.0 million with its bank.
F-22
76
- --------------------------------------------------------------------------------
[AXT LOGO]
PRUDENTIAL VOLPE TECHNOLOGY
A UNIT OF PRUDENTIAL SECURITIES
CIBC WORLD MARKETS
WIT SOUNDVIEW
ABN AMRO ROTHSCHILD
A DIVISION OF ABN AMRO INCORPORATED
PACIFIC CREST SECURITIES
- --------------------------------------------------------------------------------
77
SEC’s web site at “http://www.sec.gov.”
* * *
8
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the variousfees and expenses payable by us in connection with the saleissuance and distribution of the securities being registered.
All of the amounts shown are estimates exceptregistered hereunder. Except for the Securities and Exchange
CommissionSEC registration fee, and the Nasdaq listing application fee.
SEC registration fee |
| $ | 2,675.00 |
|
NASD filing fee |
|
| 3,000.00 |
|
Accounting fees and expenses |
| 60,000.00 |
| |
Legal fees and expenses |
| 100,000.00 |
| |
Printing and engraving expenses |
| 2,500.00 |
| |
Transfer agent and registrar fees and expenses |
| 2,500.00 |
| |
Miscellaneous expenses |
| 12,325.00 |
| |
|
|
|
| |
Total |
| $ | 183,000.00 |
|
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 102102(b)(7) of the Delaware General Corporation Law or DGCL, as amended, allowspermits a Delaware corporation to eliminatelimit the personal liability of its directors in accordance with the provisions set forth therein. The registrant’s amended and restated certificate of a corporationincorporation, as amended, provides that the personal liability of the registrant’s directors shall be limited to the corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except where the director breached his duty of loyalty,
failed to act in good faith, engaged in intentional misconduct or knowingly
violated a law, authorized the payment of a dividend or approved a stock
repurchase in violation of Delaware corporate law or obtained an improper
personal benefit.
fullest extent permitted by applicable law.
Section 145 of the DGCL provides, among other things, that we may indemnify
any person who wasDelaware General Corporation Law authorizes a court to award, or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding (other than an
action by or in the right of AXT) by reason of the fact that the person is or
was a director, officer, agent, or employee of AXT, or is or was serving at our
request as a director, officer, agent or employee of another corporation,
partnership, joint venture, trust or other enterprise against expenses,
including attorneys' fees, judgments, fines and amounts paid in settlement
actually and reasonably incurred by the person in connection with such action,
suit or proceeding. The power to indemnify applies (a) if such person is
successful on the merits or otherwise in defense of any action, suit or
proceeding, or (b) if such person acting in good faith and in a manner he
reasonably believed to be in the best interest, or not opposed to the best
interest, of AXT, and with respect to any criminal action or proceeding had no
reasonable cause to believe his conduct was unlawful. The power to indemnify
applies to actions brought by or in the right of AXT as well but only to the
extent of defense expenses (including attorneys' fees but excluding amounts paid
in settlement) actually and reasonably incurred and not to any satisfaction of
judgment or settlement of the claim itself, and with the further limitation that
in such actions no indemnification shall be made in the event of any
adjudication of liability to AXT, unless the court believes that in light of all
the circumstances indemnification should apply.
Section 174 of the DGCL provides, among other things, that a director, who
willfully or negligently approves of an unlawful payment of dividends or an
unlawful stock purchase or redemption, may be held liable for such actions. A
director who was either absent when the unlawful actions were approved or
dissented at the time, may avoid liability by causing his or her dissent to such
actions to be entered in the
II-1
78
books containing minutes of the meetings of thecorporation’s board of directors atto grant, indemnity to directors and officers in terms sufficiently broad to permit such indemnification under certain circumstances for liabilities including reimbursement for expenses incurred arising under the time
such action occurred or immediately after such absent director receives noticeSecurities Act of the unlawful acts.
Our Certificate1933. The registrant’s amended and restated certificate of Incorporationincorporation, as amended, and its Bylaws provide that we shall indemnify
ourpermit indemnification of directors, officers, employees and other agents to the maximum extent permitted by Delaware Law, including in circumstances in which indemnification is otherwise
discretionary under Delaware Law.law. In addition, we havethe registrant has entered into separate
indemnification agreementsIndemnification Agreements with oureach of its officers and directors. The registrant also maintains an officers and directors and officers which would require
us, among other things, to indemnify them against certain liabilities which may
arise by reason of their status or service (other than liabilities arising from
willful misconduct of a culpable nature). We also intend to maintain director
and officer liability insurance if available on reasonable terms.policy. These indemnification provisions and the indemnification agreements may be sufficiently broad to permit indemnification of ourthe registrant’s officers, directors and directorsother corporate agents for liabilities (including reimbursement of expenses incurred) arising under the Securities ActAct.
The foregoing may reduce the likelihood of 1933, as amended (the "Securities Act").
a derivative litigation against the registrant’s directors and executive officers and may discourage or deter stockholders or management from suing directors or executive officers for breaches of their duty of care, even though such actions, if successful, might otherwise benefit the registrant and its stockholders.
The Underwriting Agreement hereto providesunderwriting agreement that the registrant may enter into, Exhibit 1.1 to this Registration Statement, will provide for indemnification by any underwriters of the Underwriters of usregistrant, its directors, its officers who sign the registration statement and our officers and directorsits controlling persons for certainsome liabilities, including mattersliabilities arising under the Securities Act.
We have a policy of directors' and officers' liability insurance that
insures our directors and officers against the cost of defense, settlement or
payment of a judgment under certain circumstances.
At present, there is no pending litigation or proceeding involving any of
our directors, officers, employees or other agents in which indemnification is
being sought. We are not aware of any threatened litigation that may result in a
claim for indemnification by any of our directors, officers, employees or other
agents.
ITEM 16. EXHIBITS.
The following exhibits are filed with this Registration Statement:
Exhibits:
Exhibit | Description | |
1.1 | Form of Underwriting | |
3.1 | Restated Certificate of | |
3.2 | Certificate of Designation, Preferences and Rights of Series A Preferred Stock. (2) | |
3.3 | Second Amended and Restated Bylaws. (3) | |
4.1** | Rights Agreement dated | |
5.1** | Opinion of DLA Piper Rudnick Gray Cary US LLP | |
21.1 | List of subsidiaries of the | |
23.1** | Consent of DLA Piper Rudnick Gray Cary US LLP (contained in Exhibit 5.1) | |
23.2 | Consent of Burr, Pilger & Mayer LLP, Independent Registered Public Accounting Firm | |
23.3 | Consent of PricewaterhouseCoopers LLP, | |
24** | Power of Attorney | |
* | If applicable, to be filed by amendment or as | |||||
** | Previously filed. | |||||
(1) | Incorporated by reference to exhibit 3.1 filed | |||||
(2) | Incorporated by reference to exhibit 3.2 filed with the SEC with our Current Report on Form 8-K on June 14, 1999. | |||||
(3) | Incorporated by reference to exhibit 3.3 filed with the SEC with our Current Report on Form 8-K on May 30, 2001. | |||||
(4) | Incorporated by reference to exhibit 4.2 filed with the SEC in our Form 8-K on May 30, 2001. | |||||
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ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
We hereby undertake
(A) (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) (§ 230.424(b) of this chapter) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement;
(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;
Provided, however, that Paragraphs (a)(1)(i), (a)(1)(ii) and (a)(1)(iii) of this section do not apply if the registration statement is on Form S-3 (§239.13 of this chapter) or Form F-3 (§239.33 of this chapter) and the information required to be included in a posteffective amendment by those paragraphs is contained in reports filed with or furnished to the Commission by the registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement, or is contained in a form of prospectus filed pursuant to Rule 424(b) (§230.424(b) of this chapter) that is part of the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser:
(i) If the registrant is relying on Rule 430B (§230.430B of this chapter):
(A) Each prospectus filed by the registrant pursuant to Rule 424(b)(3) (§230.424(b)(3) of this chapter) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and
(B) Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) (§230.424(b)(2), (b)(5), or (b)(7) of this chapter) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) (§230.415(a)(1)(i), (vii), or (x) of this chapter) for the purpose of providing the information required by section 10(a) of the Securities Act of 1933 shall be deemed to be part of and
II-2
included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date; or
(ii) If the registrant is subject to Rule 430C (§230.430C of this chapter), each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A (§230.430A of this chapter), shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
(5) That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities:
The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424 (§230.424 of this chapter);
(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
(B) That, for purposes of determining any liability under the Securities Act of 1933, as amended, each filing of the registrant'sRegistrant’s annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 as amended (and, where applicable, each filing of an employee benefit plan'splan’s annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(C) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and
Exchange Commission suchSEC this form of indemnification is against public policy as expressed in the Securities Act and is, therefore, II-2
79
unenforceable. In the event that a claim for indemnification against suchthese liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by sucha director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of suchthis issue.
We hereby undertake that:
(a) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(b) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Fremont, State of California on the
1st day of September, 2000.
AXT, INC.
By: /s/ MORRIS S. YOUNG
------------------------------------
Morris S. Young
Chief Executive Officer
July 28, 2006.
AXT, INC. | ||
By: | /s/ PHILIP C. S. YIN | |
Philip C.S. Yin | ||
Chief Executive Officer | ||
Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1 to the Registration Statement has been signed on September 1, 2000 by the following persons in the capacities and on the dates indicated.
indicated:
Name | Title | Date | |||||||||
/s/ PHILIP C. S. | Chief Executive Officer (Principal Executive | July 28, 2006 | |||||||||
Philip C.S. Yin | Officer) and | ||||||||||
By: | * | Chief Financial Officer and | July 28, 2006 | ||||||||
Wilson W. Cheung | Secretary (Principal Financial and Accounting Officer) | ||||||||||
By: | * | Director | July 28, 2006 | ||||||||
Jesse Chen | |||||||||||
By: | * | Director | July 28, 2006 | ||||||||
Leonard LeBlanc | |||||||||||
By: | * | Director | July 28, 2006 | ||||||||
David C. Chang | |||||||||||
By: | * | Chief Technology Officer and Director | July 28, 2006 | ||||||||
Morris S. Young | |||||||||||
*By: | /s/ PHILIP C. S. YIN | |
Philip C.S. Yin Attorney-in-Fact | ||
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EXHIBIT
INDEX TO EXHIBITS
Exhibit | Description | |
1.1 | Form of Underwriting | |
3.1 | Restated Certificate of | |
3.2 | Certificate of Designation, Preferences and Rights of Series A Preferred Stock. (2) | |
3.3 | Second Amended and Restated Bylaws. (3) | |
4.1** | Rights Agreement dated | |
5.1** | Opinion of DLA Piper Rudnick Gray Cary US LLP | |
21.1 | List of subsidiaries of the | |
23.1** | Consent of DLA Piper Rudnick Gray Cary US LLP (contained in Exhibit 5.1) | |
23.2 | Consent of Burr, Pilger & Mayer LLP, Independent Registered Public Accounting Firm | |
23.3 | Consent of PricewaterhouseCoopers LLP, | |
24** | Power of Attorney | |
* | If applicable, to be filed by amendment or as | |||||
** | Previously filed. | |||||
(1) | Incorporated by reference to exhibit 3.1 filed | |||||
(2) | Incorporated by reference to exhibit 3.2 filed with the SEC with our Current Report on Form 8-K on June 14, 1999. | |||||
(3) | Incorporated by reference to exhibit 3.3 filed with the SEC with our Current Report on Form 8-K on May 30, 2001. | |||||
(4) | Incorporated by reference to exhibit 4.2 filed with the SEC in our Form 8-K on May 30, 2001. | |||||