<PAGE>   1
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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC. 20549

                          ----------------------------

                                    FORM 10-Q

    (Mark One)

        [X]     Quarterly report pursuant to Section 13 or 15(d) of
                the Securities Exchange Act of 1934 for the quarterly period
                ended March 31, 1999

                                       or

        [ ]     Transition report pursuant to Section 13 or 15(d) of
                the Securities Exchange Act of 1934 for the transition period
                from ___________ to ___________.

                        Commission File Number 0-24085

                             --------------------

                        AMERICAN XTAL TECHNOLOGY, INC.
            (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                DELAWARE                               94-3031310
     (STATE OR OTHER JURISDICTION OF                (I.R.S. EMPLOYER
      INCORPORATION OR ORGANIZATION)               IDENTIFICATION NO.)

                    4311 SOLAR WAY, FREMONT, CALIFORNIA 94538
               (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
                                 (510) 683-5900
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

                          -----------------------------

    Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES |X| NO |_|

    Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

<TABLE>
<CAPTION>
                  Class                       Outstanding at March 31, 1999
                  -----                       -----------------------------
<S>                                          <C>       
      Common Stock, $.001 par value                    16,245,748
</TABLE>

================================================================================


                                       1
<PAGE>   2
                         AMERICAN XTAL TECHNOLOGY, INC.

                                TABLE OF CONTENTS

PART I.  FINANCIAL INFORMATION

         Item 1. Financial Statements.

                 Condensed Consolidated Balance Sheets at March 31, 1999 and 
                 December 31, 1998

                 Condensed Consolidated Statements of Operations for the three
                 months ended March 31, 1999 and 1998

                 Condensed Consolidated Statements of Cash Flows for the three
                 months ended March 31, 1999 and 1998

                 Notes To Condensed Consolidated Financial Statements

         Item 2. Management's Discussion and Analysis of Financial Condition
                 and Results of Operations

PART II. OTHER INFORMATION

         Item 1. Legal Proceedings

         Item 2. Changes in Securities and Use of Proceeds

         Item 3. Defaults upon Senior Securities

         Item 4. Submission of Matters to a Vote of Security Holders

         Item 5. Other Information

         Item 6. Exhibits and Reports on Form 8-K

                 Signatures


                                       2
<PAGE>   3
                         PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                         AMERICAN XTAL TECHNOLOGY, INC.

                      CONDENSED CONSOLIDATED BALANCE SHEETS

                                 (In thousands)

<TABLE>
<CAPTION>
                                                                              March 31,      December 31,
                                                                                1999            1998
                                                                              ---------      ------------
<S>                                                                          <C>             <C>
                                                                             (Unaudited)      (Audited)
Assets:
     Current assets
          Cash and cash equivalents                                           $ 14,371         $ 16,122
          Accounts receivable, net of allowance for doubtful
              accounts of $550 and $550                                         10,448            8,902
          Inventories (Note 3)                                                  22,890           20,579
          Prepaid expenses and other current assets                              4,266            2,507
          Deferred income taxes                                                    322              466
                                                                              --------         --------
              Total current assets                                              52,297           48,576
     Property, plant and equipment, net of accumulated
           depreciation of $6,598 and $5,931                                    27,530           26,447
     Notes receivable                                                            1,000               --
                                                                              --------         --------
              Total assets                                                    $ 80,827         $ 75,023
                                                                              ========         ========
Liabilities and Stockholders' Equity:
      Current liabilities
          Short-term bank borrowing                                           $  1,980         $     --
          Accounts payable                                                       3,682            3,455
          Income taxes payable                                                   1,190               --
          Accrued liabilities                                                    2,265            2,323
          Current portion of long-term debt                                      1,918            1,730
                                                                              --------         --------
              Total current liabilities                                         11,035            7,508
     Long-term debt, net of current portion                                     15,876           16,347
                                                                              --------         --------
              Total liabilities                                                 26,911           23,855
                                                                              --------         --------
     Stockholders' equity:
           Common stock                                                             16               16
           Additional paid in capital                                           36,241           35,537
           Deferred compensation                                                  (299)            (327)
           Retained earnings                                                    18,004           15,909
           Cumulative translation adjustments                                      (46)              33
                                                                              --------         --------
              Total stockholders' equity                                        53,916           51,168
                                                                              --------         --------
          Total liabilities and stockholders' equity                          $ 80,827         $ 75,023
                                                                              ========         ========
</TABLE>

                 The accompanying notes are an integral part of
               these condensed consolidated financial statements.


                                       3
<PAGE>   4

                         AMERICAN XTAL TECHNOLOGY, INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                      (In thousands, except per share data)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                          Three Months Ended
                                                               March 31,
                                                        -----------------------
                                                          1999           1998
                                                        --------       --------
<S>                                                     <C>            <C>
Revenues:
  Product revenues                                      $ 11,885       $  9,238
  Contract revenues                                          417            492
                                                        --------       --------
              Total revenues                              12,302          9,730
Cost of revenues:
   Cost of product revenues                                7,238          5,460
   Cost of contract revenues                                 234            265
                                                        --------       --------
              Total cost of revenues                       7,472          5,725
Gross profit                                               4,830          4,005
Operating expenses:
   Selling, general and administrative                     1,436            966
   Research and development                                  536            640
                                                        --------       --------
              Total operating expenses                     1,972          1,606
                                                        --------       --------
Income from operations                                     2,858          2,399
Interest expense                                            (270)          (181)
Interest and other income                                    790             21
                                                        --------       --------
Income before provision for income taxes                   3,378          2,239
Provision for income taxes                                 1,284            854
                                                        --------       --------
Net income                                              $  2,094       $  1,385
                                                        ========       ========
Net income per share:

Basic                                                   $   0.13       $   0.45
                                                        ========       ========
Diluted                                                 $   0.12       $   0.10
                                                        ========       ========

Shares used in net income per share calculations:

Basic                                                     16,184          3,052

Diluted                                                   17,255         13,516
</TABLE>

              The accompanying notes are an integral part of these
                  condensed consolidated financial statements.


                                       4
<PAGE>   5
                         AMERICAN XTAL TECHNOLOGY, INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                 Three Months Ended
                                                                                      March 31,
                                                                               -----------------------
                                                                                 1999           1998
                                                                               --------       --------
<S>                                                                            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net income                                                                $  2,094       $  1,385
     Adjustments to reconcile net income to net cash 
         provided by (used in) operations:
               Depreciation and amortization                                        667            408
               Deferred income taxes                                                144            (34)
               Stock compensation                                                    28             21
               Changes in assets and liabilities:
                  Accounts receivable                                            (1,546)        (1,115)
                  Inventories                                                    (2,311)          (498)
                  Prepaid expenses and other current assets                      (1,759)          (960)
                  Notes receivable                                               (1,000)            --
                  Accounts payable                                                  227            898
                  Income taxes payable                                            1,190             --
                  Accrued liabilities                                               (58)           856
                                                                               --------       --------
                      Net cash provided by (used in) operating activities        (2,324)           961
                                                                               --------       --------
CASH FLOWS FROM INVESTING ACTIVITIES:
     Purchase of property, plant  and equipment                                  (1,748)        (1,470)
                                                                               --------       --------
                      Net cash used in investing activities                      (1,748)        (1,470)
                                                                               --------       --------
CASH FLOWS FROM FINANCING ACTIVITIES:
     Proceeds from (payments of):
         Issuance of common stock upon exercise of common stock options             704             24
         Short-term bank borrowings                                               1,980             77
         Long-term debt borrowings                                                 (283)           268
                                                                               --------       --------
                      Net cash provided by financing activities                   2,401            369
                                                                               --------       --------
Effect of exchange rate changes                                                     (79)            67
                                                                               --------       --------
Net increase in cash and cash equivalents                                        (1,751)           (73)
Cash and cash equivalents at the beginning of the period                         16,122          3,054
                                                                               --------       --------
Cash and cash equivalents at the end of the period                             $ 14,371       $  2,981
                                                                               ========       ========
SUPPLEMENTAL DISCLOSURES:

     Interest paid                                                             $    125       $    182
                                                                               ========       ========
     Income taxes paid                                                         $     47       $    130
                                                                               ========       ========
</TABLE>

              The accompanying notes are an integral part of these
                  condensed consolidated financial statements.


                                       5
<PAGE>   6
                         AMERICAN XTAL TECHNOLOGY, INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)

Note 1. Basis of Presentation

      The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments, consisting only of normal recurring accruals, considered necessary
for a fair presentation have been included. Operating results for the three
month period ended March 31, 1999 are not necessarily indicative of the result
that may be expected for the year ended December 31, 1999. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's Form 10-K report for the year ended December
31, 1998.

Note 2. 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.

      The functional currencies of the Company's subsidiaries are their
respective local currencies. The assets and liabilities of the Company's
subsidiaries are translated at the rates of exchange on the balance sheet date.
Income and expenses items are translated at an average rate of exchange. The
cumulative translation adjustments in the year ended December 1998 and the three
months ended March 31, 1999 resulted from fluctuations in foreign currency
exchange rates and its effects on the translation of balance sheet accounts.
Gains and losses from foreign currency translation are included as a separate
component of stockholders' equity.

Note 3.     Inventories

      Components of inventory are as follows:

<TABLE>
<CAPTION>
                                                   March 31,        December 31,
                                                     1999              1998
                                                   ---------        ------------
                                                         (in thousands)
<S>                                               <C>               <C>
        Raw materials                               $ 7,616           $ 7,687
        Work in process                              14,266            12,059
        Finished goods                                1,008               833
                                                    -------           -------
                                                    $22,890           $20,579
                                                    =======           =======
</TABLE>


                                       6
<PAGE>   7

Note 4. Comprehensive Income

      The Company has adopted Statement of Financial Accounting Standard No. 130
"Reporting Comprehensive Income" ("SFAS 130"). 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 primary difference between net income and comprehensive income for the
Company relates to foreign currency items. Comprehensive income for the three
months ended March 31, 1999 and 1998 was $2,015,000 and $1,452,000,
respectively. The difference between net income in the condensed consolidated
statements of operations and comprehensive income for the three months ended
March 31, 1999 and 1998 represented cumulative translation adjustment loss of
$79,000 and gain of $67,000, respectively.

Note 5. Net Income Per Share

      The Company has adopted Statement of Financial Accounting Standard No. 128
"Earnings per Share" ("SFAS 128"). Basic earnings per share is computed using
the weighted average number of common shares outstanding during the period.
Diluted earnings per share is computed using the weighted average number of
common and potentially dilutive common shares during the period, except those
that are antidilutive.

      SFAS 128 requires a reconciliation of the numerators and denominators of
the basic and diluted net income per share calculations as follows, (in
thousands except per share data):

<TABLE>
<CAPTION>
                                                           Three months ended March 31,
                                        -------------------------------------------------------------------
                                                      1999                                1998
                                        -------------------------------      ------------------------------
                                                                     (unaudited)
                                                                  Per                                 Per
                                                                 Share                               Share
                                        Income       Shares      Amount      Income       Shares     Amount
                                        ------       ------      ------      ------       ------     ------
<S>                                     <C>          <C>         <C>         <C>          <C>        <C>
Basic net income per share
  calculation                           $2,094       16,184      $ 0.13      $1,385        3,052     $ 0.45
Effect of dilutive securities
     Common stock options                    -        1,071           -           -          335          -
     Convertible preferred stock             -            -           -           -       10,129          -
                                        ------       ------                  ------       ------
Diluted net income per share
  calculation                           $2,094       17,255      $ 0.12      $1,385       13,516     $ 0.10
                                        ======       ======                  ======       ======
</TABLE>

Note 6. Recent Accounting Pronouncement: SFAS 133.

      Please see 10-K for disclosure.


                                       7
<PAGE>   8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

      This Management's Discussion and Analysis of Financial Condition and
Results of Operations includes a number of forward-looking statements which
reflect current views with respect to future events and financial performance.
These forward-looking statements are subject to certain risks and uncertainties,
including those discussed in the "Factors Affecting Future Results" and
elsewhere in this report that could cause actual results to differ materially
from historical results or those anticipated. In this report, the words
"anticipates," "believes," "expects," "future," "intends," and similar
expressions identify forward-looking statements. Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only as of
the date hereof.


Results of Operations

      Overview. We use a proprietary VGF technique to produce high-performance
compound semiconductor substrates for use in a variety of electronic and
opto-electronic applications. We were founded in 1986 and commenced product
sales in 1990. We currently sell GaAs, InP and GaN substrates to manufacturers
of semiconductor devices for use in applications such as wireless and fiber
optic telecommunications, lasers, LEDs, and consumer electronics. We also sell
Ge substrates for use in satellite solar cells.


      Results of Operations. The following table sets forth certain operating
data as a percentage of total revenues for the periods indicated.

<TABLE>
<CAPTION>
                                                         Three Months Ended
                                                              March 31,
                                                       -----------------------
                                                        1999             1998
                                                       ------           ------
<S>                                                    <C>              <C>
Revenues:
  Product revenues                                       96.6%            94.9%
  Contract revenues                                       3.4              5.1
                                                       ------           ------
              Total revenues                            100.0            100.0
Cost of revenues:
   Cost of product revenues                              58.8             56.1
   Cost of contract revenues                              1.9              2.7
                                                       ------           ------
              Total cost of revenues                     60.7             58.8
Gross profit                                             39.3             41.2
Operating expenses:
   Selling, general and administrative                   11.7              9.9
   Research and development                               4.4              6.6
                                                       ------           ------
              Total operating expenses                   16.1             16.5
                                                       ------           ------
Income from operations                                   23.2             24.7
Interest expense                                         (2.2)            (1.9)
Interest and other income                                 6.4              0.2
                                                       ------           ------
Income before provision for income taxes                 27.4             23.0
Provision for income taxes                               10.4              8.8
                                                       ------           ------
Net income                                               17.0%            14.2%
                                                       ======           ======
</TABLE>

      Revenues. Total revenues consist of product revenues and contract
revenues. Total revenues increased 26.4% from $9.7 million for the three months
ended March 31, 1998 to $12.3 million for three months ended March 31, 1999.
Product revenues increased 28.7% from $9.2 million for the three months ended
March 31, 1998 to $11.9 million for the three months ended March 31, 1999. The
increase in product revenues reflected an increase in the


                                       8
<PAGE>   9
volume of sales of GaAs, InP and Ge substrates to existing and new domestic and
international customers. Ge substrates, which were introduced in the quarter
ended December 31, 1997, totaled 20.2% of product revenues for the quarter ended
March 31, 1999 compared to 20.7% of product revenues for the quarter ended March
31, 1998. International revenues, excluding Canada, increased from 28.8% of
total revenues for the three months ended March 31, 1998 to 32.4% of total
revenues for the three months ended March 31, 1999, primarily due to increased
sales in Europe and Asia for GaAs substrates used for the LED market.

     Contract revenues decreased 15.2% from $492,000 for the three months ended
March 31, 1998 to $417,000 for the three months ended March 31, 1999. Contract
revenues in the first quarter of 1999 decreased primarily because the amount of
materials used in existing contracts was less than in the first quarter of 1998.
Contract revenues declined from 5.1% of total revenues for the three months
ended March 31, 1998 to 3.4% of total revenues for the three months ended March
31, 1999, as a result of product revenue growth combined with a decline in
contract revenue growth. In future periods, we expect contract revenues to
continue to decline as a percentage of total revenues.

     Gross margin. Gross margin decreased from 41.2% of total revenues for the
three months ended March 31, 1998 to 39.3% of total revenues for the three
months ended March 31, 1999. Product gross margin decreased from 40.9% for the
three months ended March 31, 1998 to 39.1% for the three months ended March 31,
1999, reflecting lower margins from Ge substrates, which offset the higher
yields achieved in GaAs and InP production. The lower gross margins from Ge
substrates are primarily the result of industry wide pricing pressure.

     Contract gross margin decreased from 46.1% for the three months ended March
31, 1998 to 43.9% for the three months ended March 31, 1999. This decrease was
due to a shift in contract revenue mix to contracts with cost sharing
arrangements, which have a lower gross margin.

     Selling, general and administrative expenses. Selling, general and
administrative expenses increased 48.7% from $966,000 for the three months ended
March 31, 1998 to $1.4 million for the three months ended March 31, 1999. As a
percentage of total revenues, selling, general and administrative expenses
increased from 9.9% for the three months ended March 31,1998 to 11.7% for the
three months ended March 31, 1999. These increases resulted primarily from
increased personnel and administrative expenses required to support additional
sales volumes, higher insurance, outside services and computer processing costs,
fees for the Nasdaq Stock Market and the State of Delaware and amortization of
taxable bond fees.

     Research and development expenses. Research and development expenses
decreased 16.3% from $640,000 for the three months ended March 31, 1998 to
$536,000 for the three months ended March 31, 1999. This decrease resulted
primarily from the reduction of materials purchased to develop new products and
to enhance existing products, which offset an increase in personnel, outside
consulting and licensing fees. In addition to our internally-funded research and
development efforts, we incurred research and development expenses relating to
government and customer-funded research contracts, which are included in the
cost of contract revenues. For the three months ended March 31, 1999, total
research and development costs, including both contract-funded and internally
funded research and development expenses, totaled $770,000, or 6.3% of total
revenues.

      Interest expense. Interest expense increased from $181,000 for the three
months ended March 31, 1998 to $270,000 for the three months ended March 31,
1999. This increase was primarily the result of additional borrowings in 1998
and in the first quarter of 1999 incurred to finance the purchase of our new
building and to finance expansion of production facilities and related equipment
purchases.

     Interest and other income. Interest and other income increased from $21,000
for the three months ended March 31, 1998 to $790,000 for the three months ended
March 31, 1999. This increase was primarily the result of two significant
changes. First, we recognized foreign exchange gains of approximately $600,000
on short-term forward contracts which are used for hedging against certain
accounts receivable in Japanese yen. Second, there was an increase in investment
income of approximately $80,000 earned on the net proceeds of $25.8 million from
the completion of our initial public offering.


                                       9
<PAGE>   10
     Provision for income taxes. Income tax expense remained at 38.0% of income
before provision for income taxes for the three months ended March 31, 1998 and
1999.

Liquidity and Capital Resources

     During the past five years, we have funded our operations primarily from
cash provided by operations, short-term and long-term borrowings and a private
financing of $5.9 million for preferred stock completed in March 1997. We
completed our initial public offering in May 1998, and raised approximately
$25.8 million, net of offering expenses. In December 1998 we completed our
taxable bond offering and raised approximately $11.6 million. As of March 31,
1999, we had working capital of $41.3 million, including cash and cash
equivalents of $14.4 million, compared to working capital at December 31, 1998
of $41.1 million, including cash of $16.1 million.

     During the three months ended March 31, 1999, net cash used in operations
of $2.3 million was primarily due to increases in inventories of $2.3 million,
accounts receivable of $1.5 million, prepaid and other current assets of $1.8
million and notes receivable of $1.0 million offset in part by net income of
$2.1 million, depreciation of $667,000, and increases in accounts payable of
$227,000 and income taxes payable of $1.2 million. The increases in accounts
receivable, inventory and accounts payable were primarily the result of the
26.4% increase in total revenues from the prior period. In addition,
work-in-process inventories increased in anticipation of large orders for the
upcoming quarters. Accordingly, the inventory turnover ratio declined from 1.7
turns at December 31, 1998 to 1.4 turns at March 31, 1999. The increase in
prepaid and other assets was primarily due to deposits for Ge raw material,
prepaid research and development expenses and the increase in unrealized gains
on hedging of the Japanese yen receivables. Days sales outstanding increased
from 62 days at December 31, 1998 to 71 days at March 31, 1999, reflecting large
sales in the latter part of the quarter, particularly for Ge substrates.

     Net cash used in investing activities was $1.7 million for the three months
ended March 31, 1999, for the purchase of property, plant and equipment.

     Net cash provided by financing activities was $2.4 million for the three
months ended March 31, 1999, and was generated primarily from our issuance of
common stock in the amount of $704,000 and short-term borrowings of $2.0
million, offset in part by repayments of long-term borrowings of $283,000. The
common stock was issued primarily to employees exercising their stock options or
under the Employee Stock Purchase Plan.

     We have generally financed our equipment purchases through secured
equipment loans over five-year terms at interest rates ranging from 6.0% to 9.0%
per annum. Our manufacturing facilities were financed by long-term borrowings,
which were repaid by the taxable variable rate revenue bonds in 1998. These
bonds have a term of twenty-five years and mature in 2023 with an interest rate
at 200 basis points below the prime rate and are traded in the public market.
Repayment of principal and interest under the bonds is secured by a letter of
credit from the 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 March 31, 1999, $11.6
million was outstanding under the taxable variable rate revenue bonds.

     We currently have a $15.0 million line of credit with a commercial bank at
an interest rate equal to the prime rate plus one-half percent. This line of
credit is secured by all business assets, less equipment, and expires in May
1999. This line of credit is subject to certain financial covenants regarding
current financial ratios and cash flow requirements, which were met as of March
31, 1999. We must obtain the lender's approval to obtain additional borrowings
or to further pledge our assets, except for borrowings obtained in the normal
course of business or the pledging of equipment. At March 31, 1999, $2.0 million
was outstanding under the $15.0 million line of credit.

     We anticipate that the combination of existing working capital and the
borrowings available under current credit agreements will be sufficient to fund
working capital and capital expenditure requirements for the next 12 months. Our
future capital requirements will depend on many factors, including the rate of
revenue growth, our profitability, the timing and extent of spending to support
research and development programs, the expansion of selling and marketing and
administrative activities, and market acceptance of our products. We expect


                                       10
<PAGE>   11
that we may need to raise additional equity or debt financing in the future,
although we are not currently negotiating for additional financing nor do we
have any plans to obtain additional financing. There can be no assurance that
additional equity or debt financing, if required, will be available on
acceptable terms or at all. If we are unable to obtain such additional capital,
if needed, we may be required to reduce the scope of its planned product
development and selling and marketing activities, which would have a material
adverse effect on our business, financial condition and results of operations.
In the event that we do raise additional equity financing, further dilution to
investors will result.

Factors Affecting Future Results

     In addition to the other information in this report, the following factors
should be considered carefully in evaluating our business before purchasing
shares of our stock.

     A number of factors could cause our quarterly financial results to be worse
than expected, resulting in a decline in our stock price. Although we have been
profitable on an annualized basis since 1990, due to the foregoing factors, we
believe that period-to-period comparisons of our operating results cannot be
relied upon as an indicator of our future performance. It is likely that in some
future quarter, our operating results may be below the expectations of public
market analysts or investors. If this occurs, the price of our common stock
would likely decrease. For more information regarding our results, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".

     Our quarterly and annual revenues 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 substrates due to reduction in the
            value of Asian currencies and the turmoil in the Asian financial
            markets;

         -  our expense levels and expected research and development
            requirements;

         -  our ability to develop and bring to market new products on a timely
            basis;

         -  the volume and timing of orders from our customers;

         -  the availability of raw materials;

         -  fluctuations in manufacturing yields;

         -  our manufacturing expansion in Beijing, China;

         -  changes in the unit of products sold;

         -  introduction of products and technologies by our competitors; and

         -  costs relating to possible acquisitions and integration of
            technologies or businesses.

     For more information regarding our results, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations."

     VGF is a new technique for producing substrates which must achieve
widespread acceptance if we are to succeed. We believe that our competitors
principally utilize the traditional LEC or HB crystal growing processes for
producing semi-insulating and semi-conducting GaAs substrates. We further
believe that we are the only high-volume supplier of semi-insulating and
semi-conducting GaAs substrates which utilize the VGF technique, a newer
technology than either the LEC or HB techniques. We cannot assure you that our
current customers will continue to use our VGF-produced substrates or that
additional companies will purchase our products manufactured from the VGF
technique. Failure to gain increased market acceptance of our VGF technique by
either current or prospective customers could materially adversely affect our
operating results.

     A significant portion of our prospective customers are wireless
communications manufacturers, fiber optic communications manufacturers and
manufacturers of other high-speed semiconductor devices that are produced from
GaAs substrates using either the LEC or HB techniques. To establish the VGF
technique as a preferred process


                                       11
<PAGE>   12
for producing substrates for prospective customers, we must offer products with
superior prices and performance on a timely basis and in sufficient volumes. We
must also overcome the reluctance of these customers to purchase our GaAs
substrates due to possible perceptions of risks relating to concerns about the
quality and cost-effectiveness of our GaAs substrates when compared to
substrates produced by the traditional LEC or HB techniques. In addition,
potential GaAs substrate customers may be reluctant to rely on a relatively
small company for critical materials used to manufacture their semiconductor
devices.

   If we do not achieve acceptable yields of crystals and the successful and
timely production of substrates, the shipment of our products would be delayed
and our business adversely affected. The highly complex processes of growing
crystals as well as other steps involved in manufacturing substrates which we
engage in can be adversely affected by a number of factors, including the
following:

            -  chemical or physical defects in the crystals;

            -  contamination of the manufacturing environment;

            -  substrate breakage;

            -  equipment failure; and

            -  performance of personnel involved in the manufacturing process.

   We have been adversely affected in the past due to the occurrence of a
combination of these factors which resulted in product shipment delays and
adversely affected our business.

   A significant portion of our manufacturing costs are fixed. As a result, we
must increase the production volume of substrates and improve yields in order to
reduce unit costs, increase margins and maintain and improve our results of
operations. Such decreases in production volume and yields could materially
adversely affect our business, financial condition and results of operations.

   In the past, we have sometimes manufactured substrates which have not met
certain customers' manufacturing process requirements. We have fixed such
occurrences through minor changes to the substrates or the manufacturing
process. Recurrence of such problems and our inability to solve them may
materially hurt our performance.

   We have begun producing and shipping Ge and InP substrates in commercial
volume. We also understand that we must achieve the same manufacturing
capability for six inch GaAs wafers. We cannot assure you that we will be able
to manufacture the Ge and InP substrate or the larger GaAs substrates in
commercial volumes with acceptable yields. Our business, financial condition and
results of operations would be materially adversely affected if we experience
low yields of these substrates.

   Because substantially all of our revenue is derived from sales of our GaAs
substrates, we are dependent on widespread market acceptance of these products.
We currently derive substantially all of our revenues from sales of our GaAs
substrates. We expect that revenue from GaAs substrates will account for a
significant majority of our revenues for the next several years. GaAs substrates
are primarily used in electronic applications such as wireless communications,
fiber optic communications and other high-speed semiconductor devices, as well
as in opto-electronic applications such as lasers and LEDs. If there is a
decrease in demand for GaAs substrates by semiconductor device manufacturers or
if new substrates for these electronic and opto-electronic applications are
developed and successfully introduced by competitors, our revenues may decline
and our business will be materially adversely affected.

   Further, other companies, including IBM, are actively involved in developing
other devices which could provide the same high-performance, low power
capabilities as GaAs-based devices at competitive prices, such as
silicon-germanium based devices for use in certain wireless applications. If
these silicon-germanium based devices are successfully developed and are adopted
by semiconductor device manufacturers, demand for GaAs substrates could
decrease. This development could cause our revenues to fall, which could
adversely affect our business, financial condition and results of operations.

   In order to be successful, we must develop and introduce in a timely manner
new substrates and continue to improve our current substrates to address
customer requirements and compete effectively on the basis of price and


                                       12
<PAGE>   13
performance. Recently, we have begun commercial shipments of Ge and InP
substrates and are currently developing other substrates, including gallium
phosphide and gallium nitride. Factors that may affect the success of product
improvements and product introductions include the development of markets for
such improvements and substrates, achievement of acceptable yields, price and
market acceptance. Many of these factors are beyond our control. We cannot
assure you that our product development efforts will be successful or that our
new products will achieve market acceptance. To the extent that product
improvements and new product introductions do not achieve market acceptance, our
business, financial condition and results of operations would be materially
adversely affected.

   Our limited ability to protect our intellectual property may adversely affect
our ability to compete. We rely on a combination of patents, copyrights,
trademarks and trade secret laws and contractual restrictions on employees,
consultants and third parties from disclosure to protect our intellectual
property rights. Despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to copy or otherwise obtain and use our
products or technology. Policing unauthorized use of our products is difficult,
and we cannot be certain that the steps we have taken will prevent
misappropriation of our technology, particularly in foreign countries where the
laws may not protect our proprietary rights as fully as in the United States. We
believe that, due to the rapid pace of technological innovation in the GaAs and
other substrate markets, our ability to establish and maintain a position of
technology leadership in the industry depends more on the skills of our
development personnel than upon the legal protections afforded our existing
technologies.

   To date, we have been issued one U.S. patent, which relates to the VGF
technique, and have two U.S. patent applications pending, one which relates to
the VGF technique. Additionally, we have one pending application for a Japanese
patent but no issued foreign patents. We cannot assure you that:

            -  the pending or any future U.S. or foreign patent applications
               will be approved;

            -  any issued patents will protect our intellectual property;

            -  third parties will not challenge the ownership rights of the
               patents or the validity of the patent applications;

            -  the patents owned by others will not have an adverse effect on
               our ability to do business; or

            -  others will not independently develop similar or competing
               technology or design around any patents issued to us.

   Moreover, the laws of certain foreign countries may not lend protection to
our patents to the same extent as the laws of the United States.

   If we infringe the proprietary rights of others, we may be forced to enter
costly royalty or licensing agreements. We could in the future receive a claim
that we are infringing the patent, trademark, copyright or other proprietary
rights of other third parties. If any claims were asserted against us for
violation of patent, trademark, copyright or other similar laws as a result of
the use by us, our customers or other third parties of our products, those
claims would be costly and time-consuming to defend, would divert our
management's attention and could cause product delays. In addition, if we
discovered we violated other third party rights, we could be required to enter
into costly royalty or licensing agreements as a result of such claims. These
royalty or licensing agreements may adversely affect our operating results.

   If we fail to comply with stringent environmental regulations, we may be
subject to significant fines or the cessation of our operations. We are subject
to federal, state and local environmental laws and regulations. Any failure to
comply with present or future environmental laws and regulations could result in
the imposition of significant fines on us, the suspension of production or a
cessation of operations. In addition, existing or future changes in laws or
regulations may require us to incur further significant expenditures or
liabilities, or additional restriction in our operations. 

   We purchase critical raw materials required to grow crystals from single or
limited sources, and could lose sales if these sources fail to fill our needs.
We do not have any long-term supply contracts with any of our suppliers,


                                       13
<PAGE>   14
and we currently purchase raw materials required to grow crystals from single or
a limited number of suppliers. For example, we purchase a majority of the
gallium we use from Rhone-Poulenc.

   Due to our reliance on a limited group of suppliers, we are exposed to
several risks such as the potential inability to obtain adequate supply of
materials, reduced control over pricing of our products and meeting customer
delivery schedules.

   We have experienced delays receiving orders of certain materials due to
shortages. We may continue to experience these delays due to shortages of
materials and as a result be subject to higher costs. Although we attempt to
preempt supply interruptions by maintaining adequate levels of inventory of
critical materials and attempts to obtain additional suppliers, shortages or
price increases caused by suppliers may nevertheless recur.

   If we are unable to receive adequate and timely deliveries of critical raw
materials, relationships with current and future customers could be harmed,
which could materially adversely affect our business, financial condition and
results of operations.

   We are subject to additional risks as a result of the recent completion of a
new manufacturing facility. In connection with further expanding our
manufacturing capacity, we purchased an additional 58,000 square foot facility
in Fremont, California and a 30,000 square foot facility in Beijing, China, in
1998. The improvements to the new facility subject us to significant risks,
including:

            -  unavailability or late delivery of process equipment;

            -  unforeseen engineering problems;

            -  work stoppages;

            -  unanticipated cost increases; and

            -  unexpected changes or concessions required by local, state or
               federal regulatory agencies with respect to necessary licenses,
               land use permits and building permits.

   If any of the above occur, it could materially adversely affect operations
under the new facility which in turn would materially adversely affect our
business, financial condition and results of operations.

   Finally, the operation of the new facility, together with the recent
expansion of our current facility by approximately 30,000 square feet, will also
expose us to additional risks. For example, the additional fixed operating
expenses associated with the new facility may only be offset by sufficient
increases in product revenues. We cannot assure you that the demand for our
products will grow as we currently expect, and if this does not occur, we would
not be able to offset the costs of operating the new facility, which may
materially adversely affect our results of operations.

   We must effectively respond to rapid technological changes by continually
introducing new products that achieve broad market acceptance. We and our
customers compete in a market that is characterized by rapid technological
changes and continuous improvements in substrates. Accordingly, our future
success depends upon whether we can apply our proprietary VGF technique to
develop new substrates that meet the needs of customers and compete effectively
on the basis of quality, price and performance. If we are unable to timely
develop new, economically viable products that meet market demands, our revenues
will decline, which could adversely affect our results of operation and cause
the price of our stock to fall.

   It is difficult to predict accurately the time required and the costs
involved in researching, developing and engineering new products. Thus, our
actual development costs could exceed budgeted amounts and our product
development schedules could require extension. We have experienced product
development delays in the past and may experience similar delays in the future
which could materially adversely affect our business. For example, our
introduction of InP substrates was delayed approximately six months as a result
of delays in the finalization of the manufacturing process for these substrates.
In addition, if we are unable to introduce reliable quality products, we could
suffer from reduced orders, higher manufacturing costs, product returns and
additional service expenses, all of which could result in lower revenues.


                                       14
<PAGE>   15
    The sales cycle for our GaAs substrates is long and we may incur
substantial, non-recoverable expenses or devote significant resources to sales
that do not occur as anticipated. We have experienced and continue to experience
delays in obtaining purchase orders for GaAs substrates while customers evaluate
our substrates. A customer's decision to purchase our GaAs substrates is based
upon whether the customer prefers substrates developed using our proprietary VGF
technique or substrates developed using the more traditional LEC and HB
techniques. The amount of time it takes for a customer to evaluate our GaAs
substrates typically ranges from three months to a year or more, depending on
the amount of time required to test and qualify substrates from new vendors.
Since our substrates are generally incorporated into a customer's products at
the design stage, the customer's decision to use our substrates often precedes
volume sales, if any, by a significant period. If a customer decides at the
design stage not to incorporate our substrates into its products, we may not
have another opportunity to sell substrates for those products for many months
or even years. Thus, our GaAs substrates typically have a lengthy sales cycle,
during which we may expend substantial funds and sales, marketing and management
efforts to attract the potential customer. However, there is a risk that these
expenditures may not result in sales. Consequently, if sales forecasted from a
specific customer for a particular quarter are not delivered in that quarter, we
may be unable to compensate for the shortfall, which could materially adversely
affect our operating results.

   We anticipate that sales of any future products under development will have
similar lengthy sales cycles and will, therefore, be subject to risks
substantially similar to those inherent in the lengthy sales cycle of our GaAs
substrates.

   The loss of one or more of our key customers would significantly hurt our
operating results. A small number of customers have historically accounted for a
substantial portion of our revenues. We expect that a significant portion of our
future sales will be due to a limited number of customers. Our top five
customers accounted for approximately 39.5% and 37.6% of our revenues in the
year ended December 31, 1998 and three months ended March 31, 1999,
respectively. Our customers are not obligated to purchase any specified quantity
of products or to provide us with binding forecasts of product purchases. In
addition, our customers may reduce, delay or cancel orders at any time without
any significant penalty.

   Our substrates are typically one of many components used in semiconductor
devices produced by our customers. Demand for our products is therefore subject
to many factors beyond our control, including:

            -  demand for our customers' products;

            -  competition faced by our customers in their particular
               industries;

            -  the technical, sales and marketing and management capabilities of
               our customers; and

            -  the financial and other resources of our customers.

   In the past, we have experienced reductions, cancellations and delays in
customer orders. If any one of our major customers reduces, cancels or delays
orders in the future, our business, financial condition and results of operation
could be materially adversely affected.


                                       15
<PAGE>   16
   Intense competition in the market for GaAs substrates could prevent us from
increasing revenue and sustaining profitability. The market for GaAs substrates
is intensely competitive. In the semi-insulating GaAs substrates market, our
principal competitors currently include:

            -  Freiberger Compound Materials;

            -  Hitachi Cable;

            -  Litton Airtron; and

            -  Sumitomo Electric Industries.

    We also compete with manufacturers that produce GaAs substrates for their
own use. In addition, we compete with companies, such as IBM, that are actively
developing alternative materials to GaAs. As we enter new markets, such as the
Ge and InP substrate markets, we expect to face competitive risks similar to
those for our GaAs substrates.

    Many of our competitors and potential competitors have a number of
significant advantages over us, including:

            -  having been in the business longer than we have;

            -  more manufacturing experience;

            -  more established technologies than our VGF technique;

            -  broader name recognition; and

            -  significantly greater financial, technical and marketing
               resources.

   Our competitors could develop enhancements to the LEC, HB or VGF techniques
that are superior to ours in terms of price and performance. Our competitors
also could intensify price-based competition, resulting in lower prices and
margins. 

   We derive a significant portion of our revenues from international sales and
our ability to sustain and increase our international sales involve significant
risks. Our ability to grow will depend in part on the expansion of international
sales and operations which have and are expected to constitute a significant
portion of our revenues. International sales, excluding Canada, represented
28.8% and 32.4% of our total revenues in the year ended December 1998 and three
months ended March 31, 1999, respectively. Sales to customers located in Japan
and other Asian countries represented 18.7% and 19.8% of our total revenues in
the year ended December 31, 1998 and three months ended March 31, 1999. Sales to
customers in Japan, in particular, accounted for 11.5% and 10.3% of our total
revenues in the year ended December 1998 and three months ended March 31, 1999,
respectively. We expect that sales to customers outside the United States,
including device manufacturers located in Japan and other Asian countries who
sell their products worldwide, will continue to represent a significant portion
of our revenues.

   Our dependence on international sales involves a number of risks, including:

      -  import restrictions and other trade barriers;

      -  unexpected changes in regulatory requirements;

      -  longer periods to collect accounts receivable;

      -  export license requirements;

      -  political and economic instability, in particular, the current
         instability of the economies of Japan and other Asian countries; and

      -  unexpected changes in diplomatic and trade relationships.

   Our sales, except for sales by our Japanese subsidiary, are denominated in
U.S. dollars. Thus, increases in the value of the dollar could increase the
price of our products in non-U.S. markets and make our products more expensive
than competitors' products in such markets. For example, doing business in Japan
subjects us to fluctuations in the exchange rates between the U.S. dollar and
the Japanese yen. In the year ended December 31 1998, we incurred foreign
exchange losses of $24,000, and foreign exchange gain of $577,000 in the three
months


                                       16
<PAGE>   17
ended March 31, 1999, respectively. If we do not effectively manage the risks
associated with international sales, our business, financial condition and
results of operations could be materially adversely affected. In order to
minimize our foreign exchange risk, we have bought foreign exchange contracts to
hedge against certain trade accounts receivable in Japanese yen. Because we
currently denominate sales in U.S. dollars except in Japan, we do not anticipate
that the adoption of the Euro as a functional legal currency of certain European
countries will materially affect our business.

   If we lose certain 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 to a significant degree upon the
continued service of Morris S. Young, Ph.D., AXT's President and Chief Executive
Officer, as well as other key management and technical personnel. We neither
have long-term employment contracts with, nor key person life insurance on, any
of our key personnel. In addition, our management team has limited experience as
executive officers of a public company.

   We believe our future success will also depend in large part upon our ability
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 there can be no
assurance that we will be successful in attracting and retaining new personnel.
The loss of the services of any 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, such as product introduction, on time.

   Continued rapid growth may strain our operations. We have recently
experienced a period of rapid growth and expansion which has placed, and
continues to place, a significant strain on our operations. To accommodate this
anticipated growth, we will be required to:

   -  improve existing and implement new operational and financial systems,
      procedures and controls;

   -  hire, train and manage additional qualified personnel;

   -  effectively manage multiple relationships with our customers, suppliers
      and other third parties; and

   -  maintain effective cost controls.

   We may not be able to install adequate control systems in an efficient and
timely manner, and our current or planned personnel systems, procedures and
controls may not be adequate to support our future operations. We are in the
process of installing a new management information system; however, the
functionality of this new system has not been fully implemented. The
difficulties associated with installing and implementing these new systems,
procedures and controls may place a significant burden on our management and our
internal resources. In addition, international growth will require expansion of
our worldwide operations and enhance our communications infrastructure. Any
delay in the implementation of such new or enhanced systems, products and
controls, or any disruption in the transition to such new or enhanced systems,
products and controls, could adversely affect our ability to accurately forecast
sales demand, manage manufacturing, purchasing and inventory levels, and record
and report financial and management information on a timely and accurate basis.
Our inability to manage growth effectively could affect our revenues and
adversely impact our profitability.

    Our failure and the failure of our key suppliers and customers to be year
2000 compliant could negatively impact our business. The year 2000 computer
issue creates a risk for us. If systems do not correctly recognize date
information when the year changes to 2000, there could be an adverse impact on
our operations. The risk exists in four areas:

      -  potential warranty or other claims from our customers;

      -  systems we used to run our business;

      -  systems used by our suppliers; and

      -  the potential reduced spending by other companies on networking
         solutions as a result of significant information systems spending on
         year 2000 remediation.

   We are currently evaluating our exposure in all of these areas.


                                       17
<PAGE>   18
   We are in the process of conducting a comprehensive inventory and evaluation
of the information systems used to run our business. We have a number of
projects underway to replace older systems that are known to be year 2000
non-compliant. Other systems, which are identified as non-compliant, will be
upgraded or replaced. For the year 2000 non-compliance issues identified to
date, the cost of remediation is not expected to be material to our operating
results. However, if implementation of replacement systems is delayed, or if
significant new non-compliance issues are identified, our operating results or
financial condition could be materially adversely affected.

   We have contacted more than thirty key suppliers to determine if their
operations and the products and services they provide are year 2000 compliant.
Where practicable, we will attempt to mitigate our risks with respect to the
failure of suppliers to be year 2000 ready. However, such failures remain a
possibility and could have an adverse impact on our operating results or
financial condition.

   We believe our current products are year 2000 compliant; however, since all
customer situations cannot be anticipated, we may see an increase in warranty
and other claims as a result of the year 2000 transition. In addition,
litigation regarding year 2000 compliance issues is expected to escalate. For
these reasons, the impact of customer claims could have a material adverse
impact on our operating results or financial condition.

   Year 2000 compliance is an issue for virtually all businesses whose computer
systems and applications may require significant hardware and software upgrades
or modifications. Companies owning and operating such systems may plan to devote
a substantial portion of their information systems' spending to fund such
upgrades and modifications and divert spending away from networking solutions.
Such changes in customers' spending patterns could have a material adverse
impact on our business, operating results or financial condition.

   We may engage in future acquisitions that we must successfully integrate into
our business and that may dilute our stockholders and cause us to assume
contingent liabilities. As part of our business strategy, we may in the future
review acquisition prospects that would complement our current product
offerings, augment our market coverage or enhance our technical capabilities, or
that may otherwise offer growth opportunities. In the event of any future
acquisitions, we could:

      -  issue equity securities which would dilute current stockholders'
         percentage ownership;

      -  incur substantial debt; or

      -  assume contingent liabilities.

   Such actions by us could materially adversely affect our operating results
and/or the price of our common stock.

   Any future acquisitions creates risks for us, including:

      -  difficulties in the assimilation of acquired personnel, operations,
         technologies or products;

      -  unanticipated costs associated with the acquisition could materially
         adversely affect our operating results;

      -  diversion of management's attention from other business concerns;

      -  adverse effects on existing business relationships with suppliers and
         customers;

      -  risks of entering markets where we have no or limited prior experience;

      -  potential loss of key employees of acquired organizations; and

      -  loss of customers that, through product acquisition, now become
         competitors.

   These risks and difficulties could disrupt our ongoing business, distract our
management and employees and increase our expenses. We may not be able to
successfully integrate any businesses, products, technologies or


                                       18
<PAGE>   19
personnel that we might acquire in the future, and our failure to do so could
have a material adverse effect on our business, operating results and financial
condition.

   We may need additional capital to fund our future operations which may not be
available. We believe that our cash balances and cash available from credit
facilities and future operations will enable us to meet our working capital
requirements for at least the next 12 months. We do not currently anticipate the
need for additional capital but if cash from future operations is insufficient,
or if cash is used for acquisitions or other currently unanticipated uses, we
may need additional capital. To the extent that we raise additional capital
through the sale of equity or convertible debt securities, the issuance of such
securities could result in dilution to existing stockholders.

   On December 1, 1998, we raised approximately $11.6 million by issuing
variable rate taxable demand revenue bonds series 1998 for:

      -  the purchase of a commercial building and to finance tenant
         improvements at 4281 Technology Drive, Fremont, California;

      -  to refinance an existing loan and to finance tenant improvements on our
         principal offices; and

      -  the permanent financing for an existing bank construction loan.

   These debt securities have rights, preferences and privileges that are senior
to holders of common stock, as other debt securities which we may issue in the
future would be, and the term of any debt could impose restrictions on our
operations. We cannot assure you that if we required additional capital, it will
be available on acceptable terms, or at all. If we are unable to obtain
additional capital, we may be required to reduce the scope of our planned
product development and marketing efforts, which would materially adversely
affect our business, financial condition and operating results. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

   Our executive officers and directors control 21% of our common stock and are
able to significantly influence matters requiring stockholder approval.
Executive officers, directors and entities affiliated with them, in the
aggregate, currently beneficially own approximately 21% of our outstanding
common stock. These stockholders, if acting together, are able to significantly
influence all matters requiring our stockholder approval, including the election
of directors and the approval of mergers or other business combination
transactions. This concentration of ownership could delay or prevent a change of
control of AXT and could reduce the likelihood of an acquisition of AXT at a
premium price.

   Provisions in our charter or agreements may delay or prevent a change of
control. Provisions in our amended and restated certificate of incorporation and
bylaws may have the effect of delaying or preventing a merger or acquisition or
a change of control or changes in our management.
These provisions include, among others:

      -  the division of the board of directors into three separate classes of
         three year terms;

      -  the right of the board to elect the director to fill a space created by
         the expansion of the board;

      -  the ability of the board to alter our bylaws;

      -  authorizing the issuance of up to 2,000,000 shares of "blank check"
         preferred stock; and

      -  the requirement that at least 10% of the outstanding shares are needed
         to call a special meeting of 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 certain large stockholders, in particular those owning 15%
or more of the outstanding voting stock, from consummating a merger or
combination with a corporation unless:


                                       19
<PAGE>   20

      -  66 2/3% of the shares of voting stock not owned by this large
         stockholder approve the merger or combination, or

      -  the board of directors approves the merger or combination or the
         transaction which resulted in the large stockholder owning 15% or more
         of our outstanding voting stock.

   Our stock price has been and may continue to be volatile and is dependent on
external and internal factors. Our stock has fluctuate significantly since we
began trading on the Nasdaq national market. In the three months ended March 31,
1999, our stock price closed as low as $9.06 and as high as $22.50. Various
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 as to 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 other 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.


                                       20
<PAGE>   21
                           PART II. OTHER INFORMATION

ITEM 1.     LEGAL PROCEEDINGS

            None.

ITEM 2.     CHANGES IN SECURITIES AND USE OF PROCEEDS

            None.

ITEM 3.     DEFAULTS UPON SENIOR SECURITIES

            None.

ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

            None.

ITEM 5.     OTHER INFORMATION

            None.

ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K

            a.   Exhibits.

                  11.1  Statement Regarding Computation of Earnings Per Share

                        See Note. 6 in Notes to Condensed Financial Statements
                        for Table of Computation of Earnings Per Share

                  27.1  Financial Data Schedule.

            b.    Reports on Form 8-K.

                  None.


                                       21
<PAGE>   22
                                   SIGNATURES

    PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.

                                        AMERICAN XTAL TECHNOLOGY, INC.

Dated: May 14 , 1999                    By: /s/ Guy D. Atwood 
                                            ------------------------------------
                                            Guy D. Atwood
                                            Chief Financial Officer


                                       22
<PAGE>   23
                                 EXHIBITS INDEX
                                 --------------

<TABLE>
<CAPTION>
Exhibit No.            Description
-----------            -----------
<S>                    <C> 
   27.1                Financial Data Schedule
</TABLE>