<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, 2000

                                       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.)



                4281 TECHNOLOGY DRIVE, FREMONT, CALIFORNIA 94538
               (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
                                 (510) 683-5900
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

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



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

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

                  Class                      Outstanding at March 31, 2000
                  -----                      -----------------------------
      Common Stock, $.001 par value                    18,906,558


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


                                       1
<PAGE>   2


                         AMERICAN XTAL TECHNOLOGY, INC.

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>


<S>           <C>
PART I.       FINANCIAL INFORMATION

              Item 1.    Financial Statements.

                         Condensed Consolidated Balance Sheets at March 31, 2000
                         and December 31, 1999

                         Condensed Consolidated Income Statements for the three
                         months ended March 31, 2000 and 1999

                         Condensed Consolidated Statements of Cash Flows for the
                         three months ended March 31, 2000 and 1999

                         Notes To Condensed Consolidated Financial Statements

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

              Item 3.    Quantitative and Qualitative Disclosures About Market Risk

PART II.      OTHER INFORMATION

              Item 6.    Exhibits and Reports on Form 8-K

                         Signatures
</TABLE>

                                       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,
                                                                             2000               1999
                                                                        -------------       -------------
                                                                         (Unaudited)
<S>                                                                     <C>                 <C>
  Assets:
       Current assets
            Cash and cash equivalents                                   $       4,597       $       6,062
            Accounts receivable, net of allowance for doubtful
                accounts of $1,031 and $778                                    20,081              17,561
            Inventories                                                        40,471              35,470
            Prepaid expenses and other current assets                           6,589               4,932
            Income tax receivable                                               4,621               4,013
            Deferred income taxes                                               3,210               3,210
                                                                        -------------       -------------
                Total current assets                                           79,569              71,248
       Property, plant and equipment                                           43,831              40,865
       Receivable from officers and stockholders                                  624                 596
       Other assets                                                             1,810                 809
       Goodwill                                                                 2,095               2,244
                                                                        -------------       -------------
                Total assets                                            $     127,929       $     115,762
                                                                        =============       =============

  Liabilities and Stockholders' Equity:
        Current liabilities
            Short-term bank borrowing                                   $      10,328       $       8,798
            Accounts payable                                                   16,467              10,794
            Accrued liabilities                                                 9,557               7,464
            Current portion of long-term debt                                   1,913               2,550
            Current portion of capital lease obligation                         1,060               1,180
                                                                        -------------       -------------
                Total current liabilities                                      39,325              30,786
       Long-term debt, net of current portion                                  18,680              18,501
       Long-term capital lease, net of current portion                          3,737               3,606
       Note payable to officers and stockholders                                  501                 410
                                                                        -------------       -------------
                Total liabilities                                              62,243              53,303
                                                                        -------------       -------------
       Stockholders' equity:
             Preferred stock
                 $.001 par value per share; 1,000,000 shares
                 authorized; 980,655 shares issued and outstanding                  1                   1
                 Additional paid-in capital                                     3,989               3,989
             Common stock
                 $.001 par value per share; 100,000,000 shares
                 authorized; 18,906,558 and 18,658,919 shares
                 issued and outstanding respectively                               19                  19
                 Additional paid-in capital                                    47,515              46,321
             Deferred compensation                                               (189)               (217)
             Retained earnings                                                 14,342              12,370
             Cumulative translation adjustments                                     9                 (24)
                                                                        -------------       -------------
                Total stockholders' equity                                     65,686              62,459
                                                                        -------------       -------------
            Total liabilities and stockholders' equity                  $     127,929       $     115,762
                                                                        =============       =============
</TABLE>



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

                                       3
<PAGE>   4

                         AMERICAN XTAL TECHNOLOGY, INC.

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

<TABLE>
<CAPTION>

                                                                            Three Months Ended
                                                                                 March 31,
                                                                           2000           1999
                                                                         --------       --------
<S>                                                                      <C>            <C>
  Revenue                                                                $ 23,934       $ 18,897
  Cost of revenue                                                          14,339         16,240
                                                                         --------       --------
  Gross profit                                                              9,595          2,657
  Operating expenses:
     Selling, general and administrative                                    3,853          3,647
     Research and development                                               1,988            662
                                                                         --------       --------
                Total operating expenses                                    5,841          4,309
                                                                         --------       --------
  Income (loss) from operations                                             3,754         (1,652)
  Interest expense                                                           (769)          (630)
  Interest and other income                                                   196            693
                                                                         --------       --------
  Income (loss) before provision for income taxes                           3,181         (1,589)
  Provision for income taxes                                                1,209           (604)
                                                                         --------       --------
  Net Income (loss)                                                      $  1,972       $   (985)
                                                                         ========       ========


  Net income (loss) per common and common equivalent share:
  Basic                                                                  $   0.11       $  (0.05)
  Diluted                                                                $   0.10       $  (0.05)


  Weighted average common and common equivalent shares outstanding:
  Basic                                                                    18,596         18,582
  Diluted                                                                  20,074         18,582

</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 (Unaudited)
                                 (In thousands)


<TABLE>
<CAPTION>

                                                                           Three Months Ended
                                                                                 March 31,
                                                                           2000           1999
                                                                         --------       --------
<S>                                                                      <C>            <C>
  CASH FLOWS FROM OPERATING ACTIVITIES:
       Net income:                                                       $  1,972       $   (985)
           Adjustments to reconcile net income to cash used in
              operations:
                 Depreciation and amortization                              1,503          1,162
                 Amortization of goodwill                                     149            150
                 Stock compensation                                            28             28
                 Changes in assets and liabilities:
                      Accounts receivable                                  (2,520)           678
                      Inventories                                          (5,001)        (2,186)
                      Prepaid expenses and other current assets            (1,657)        (1,115)
                      Income tax receivable                                  (608)        (1,735)
                      Other assets                                         (1,001)           663
                      Accounts payable                                      5,673            456
                      Accrued liabilities                                   2,093          3,642
                                                                         --------       --------
                          Net cash provided by operating activities           631            758
                                                                         --------       --------
  CASH FLOWS FROM INVESTING ACTIVITIES:
       Purchases of property, plant and equipment                          (4,204)        (4,175)
                                                                         --------       --------
                          Net cash used in investing activities            (4,204)        (4,175)
                                                                         --------       --------
  CASH FLOWS FROM FINANCING ACTIVITIES:
       Proceeds from (payments of):
           Issuance of common stock                                         1,194            667
           Capital leases                                                    (254)          (156)
           Long term debt borrowings                                         (458)          (166)
           Short-term bank borrowings                                       1,530            789
           Notes payable to officers and shareholders                          63            287
                                                                         --------       --------
                          Net cash provided by financing activities         2,075          1,421
                                                                         --------       --------
  Effect of exchange rate changes                                              33            (78)
                                                                         --------       --------
  Net increase (decrease) in cash and cash equivalents                     (1,465)        (2,074)
  Cash and cash equivalents at the beginning of the period                  6,062         16,438
                                                                         --------       --------
  Cash and cash equivalents at the end of the period                     $  4,597       $ 14,364
                                                                         ========       ========

Non cash activity:
     Purchase of PP&E through capital leases                             $    265       $     39
                                                                         ========       ========
</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


Note 1.  Basis of Presentation

         The accompanying condensed consolidated financial statements for the
three-month periods ended March 31, 2000 and 1999 are unaudited. The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the unaudited condensed
consolidated financial statements reflect all adjustments, consisting only of
normal recurring adjustments, considered necessary to present fairly the
financial position, results of operations and cash flows of American Xtal
Technology, Inc. (the "Company") and its subsidiaries for all periods presented.
Certain prior period reclassifications have been made to conform to the current
period presentation.

         Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these condensed
consolidated financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those estimates.

         The results of operations are not necessarily indicative of the results
to be expected in the future or for the full fiscal year. It is recommended that
these unaudited condensed consolidated financial statements be read in
conjunction with the Company's consolidated financial statements and the notes
thereto included in its 1999 Annual Report on Form 10-K filed with the
Securities and Exchange Commission.

Note 2.   Earnings Per Common and Common Equivalent Share

         Basic earnings per common share is calculated by dividing net earnings
by the weighted average number of common shares outstanding during the period.
Diluted earnings per common and common equivalent share include the dilutive
effect of common stock equivalents outstanding during the period. Common stock
equivalents consists of the shares issuable upon the exercise of stock options
(using the treasury stock method). Common equivalent shares of approximately 1.0
million are excluded from the computation for the three month period ended March
31, 1999, as their effect is antidilutive.

Note 3.  Inventories

         The components of inventory are summarized below (in thousands):



<TABLE>
<CAPTION>

  Inventory Details:
                                                   March 31,       December 31,
                                                     2000               1999
                                                -------------      -------------
<S>                                             <C>                <C>
  Inventories:
        Raw materials                           $      16,154      $      13,603
        Work in process                                19,565             16,163
        Finished goods                                  4,752              5,704
                                                -------------      -------------
                                                $      40,471      $      35,470
                                                =============      =============
</TABLE>



                                       6
<PAGE>   7

Note 4.  Comprehensive Income


         The components of comprehensive income are summarized below (in
thousands):



<TABLE>
<CAPTION>

                                                   Three Months Ended March 31,
                                                --------------------------------
                                                     2000               1999
                                                -------------      -------------
<S>                                             <C>                <C>
  Net Income (loss)                             $       1,972      $        (985)
  Foreign currency translation gain (loss)                 33                (78)
                                                -------------      -------------
  Comprehensive income                          $       2,005      $      (1,063)
                                                =============      =============
</TABLE>


Note 7.  Segment Information

         Selected industry segment information is summarized below (in
thousands):



<TABLE>
<CAPTION>

                                                  Three months ended March 31,
                                                --------------------------------
                                                    2000               1999
                                                -------------      -------------
<S>                                             <C>                <C>
  Substrates
        Net revenues from external customers    $      19,125      $      11,731
        Gross profit                                    8,682              4,831
        Operating income                                5,636              2,858
        Identifiable assets                            96,132             80,944
  Visible emitters
        Net revenues from external customers            3,140              4,600
        Gross profit (loss)                               289             (1,731)
        Operating income (loss)                        (1,781)            (2,994)
        Identifiable assets                            25,516             19,821
  Consumer products
        Net revenues from external customers            1,669              2,566
        Gross profit (loss)                               624               (443)
        Operating loss                                   (101)            (1,516)
        Identifiable assets                             6,281              5,749
  Total
        Net revenues from external customers           23,934             18,897
        Gross profit                                    9,595              2,657
        Operating income (loss)                         3,754             (1,652)
        Identifiable assets                           127,929            106,514
</TABLE>


                                       7
<PAGE>   8




The Company sells its products in the United States and in other parts of the
world. Also, the Company has operations in China and Japan. Revenues by
geographic location based on the country of the customer are summarized below
(in thousands):




<TABLE>
<CAPTION>


                                                  Three months ended March 31,
                                                --------------------------------
                                                    2000               1999
                                                -------------      -------------
<S>                                             <C>                <C>
  Net revenues:
                United States                   $      12,407      $       9,183
                Europe                                  2,691              1,805
                Canada                                      8                 77
                Japan                                   2,125              1,454
                Asia Pacific and other                  6,703              6,378
                                                -------------      -------------
                Consolidated                    $      23,934      $      18,897
                                                =============      =============
</TABLE>



                                       8
<PAGE>   9


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

          The following table sets forth certain information relating to the
operations of the Company expressed as a percentage of total revenues for the
periods indicated:


<TABLE>
<CAPTION>

                                                         Three Months Ended March 31,
                                                           2000                1999
                                                       ------------        ------------

<S>                                                    <C>                 <C>
  Revenues                                                    100.0%              100.0%
  Cost of revenues                                             59.9                85.9
                                                       ------------        ------------
  Gross profit                                                 40.1                14.1
  Operating expenses:
     Selling, general and administrative                       16.1                19.3
     Research and development                                   8.3                 3.5
                                                       ------------        ------------
                Total operating expenses                       24.4                22.8
                                                       ------------        ------------
  Income (loss) from operations                                15.7                (8.7)
  Interest expense                                             (3.2)               (3.3)
  Interest and other income                                     0.8                 3.6
                                                       ------------        ------------
  Income (loss) before provision for income taxes              13.3                (8.4)
  Provision for income taxes                                    5.1                (3.2)
                                                       ------------        ------------
  Net Income (loss)                                             8.2                (5.2)
                                                       ============        ============
</TABLE>



         Revenues. Revenues increased $5.0 million, or 26.7%, to $23.9 million
during the three months ended March 31, 2000 compared to $18.9 million during
the three months ended March 31, 1999. The increase in revenues was primarily
due to a $10.2 million, or 118% increase in sales of GaAs and InP substrates
offset by a $2.9 million decrease in Ge sales and contract revenues at the
substrate division. The increase in GaAs and InP substrate sales was due to
increased demand by existing domestic, foreign, and new customers due in part to
strong growth in the wireless handset market. The decrease in Ge sales is the
result of a cancellation of a contract by a major customer due to weakness in
the satellite market. Additionally, sales at our visible emitter division
decreased $1.5 million and sales at our consumer products division decreased
$897,000 due to declining sales prices and lower demand for laser pointer
products.

                                       9
<PAGE>   10

         International revenues decreased to 48.2% of total revenues for the
three months ended March 31, 2000 from 51.4% of total revenues for the three
months ended March 31, 1999. The decrease in percentage of international
revenue to total revenue decreased primarily as a result of increased
substrate sales to domestic customers.

         Gross margin. Gross margin increased to 40.1% of revenues for the three
months ended March 31, 2000 compared to 14.1% of revenues for the three months
ended March 31, 1999. We achieved gross margin improvement at each of our
divisions during this period. The gross margin at the substrate division
increased to 45.4% of revenues for the three months ended March 31, 2000
compared to 41.2% of revenues for the period ended March 31, 1999. The increase
was due to the realization of lower costs as a result of expanding our wafer
production capacity in China and the effective utilization of GaAs material that
was previously written down. We expect to continue to realize long-term cost
reductions as a result of increasing capacity in our China facilities. The
benefit from utilizing previously written down materials will continue for the
short-term but will diminish over the next few quarters as these materials are
depleted. These increases were offset in part by the relatively lower sales
prices for LED wafers compared to our prime wafers, which has increased as a
percentage of total wafer sales during the period. We do not expect this trend
to continue. The gross margin at the visible emitter division increased to 9.2%
for the three months ended March 31, 2000 compared to negative 37.6% for the
period ended March 31, 1999. During the period ended March 31, 1999, the gross
margin at the visible emitter division was negatively impacted by the write-down
of inventory in the amount of $1.1 million and a $1.5 million reserve for a
patent infringement suit. Gross margin improvements for the period ended Mach
31, 2000 at the visible emitter division include the benefit of transferring
certain assembly operations to China and reduced costs resulting from lower
merchandise returns due to improvements in product quality. The gross margin at
the consumer products division increased to 37% of revenues for the three months
ended March 31, 2000 compared to negative 17% for the three months ended March
31, 1999. During the period ended March 31, 1999 the gross margin at the
consumer products division was negatively impacted by the write-down of
inventory of approximately $275,000 and additional costs associated with
returned merchandise and quality problems.

         Selling, general and administrative expenses. Selling, general and
administrative expenses increased $206,000, or 5.6%, to $3.9 million for the
three months ended March 31, 2000 compared to $3.6 million for the three months
ended March 31, 1999. Substrate division expenses increased $1.1 million, or
75.7%, primarily due to increases in personnel and related expenses required to
support additional sales volume. This increase was offset by a decrease of
$561,000 at the visible emitter division and a decrease of $321,000 at the
consumer products division. During the period ending March 31, 1999, the visible
emitter and consumer products divisions incurred a write-down of accounts
receivable of $450,000 and approximately $100,000, respectively.

         Research and development expenses. Research and development expenses
increased $1.3 million, or 200%, to $2.0 million for the three months ended
March 31, 2000 from $662,000 for the three months ended March 31, 1999. The
increase was primarily the result of increases in personnel and related expenses
and materials to support LED research and development at the visible emitter
division.

         Interest expense. Interest expense increased $139,000 to $769,000 for
the three months ended March 31, 2000 from $630,000 for the three months ended
March 31, 1999. This increase was primarily due to utilizing short-term debt to
finance the short-term liquidity needs resulting from our increased sales
volume.

         Interest and other income. Interest and other income decreased $497,000
to $196,000 for the three months ended March 31, 2000 from $693,000 for the
three months ended March 31, 1999. The decrease was primarily the result of a
reduction in foreign exchange gains on short-term forward contracts used to
hedge against certain accounts receivable in Japanese yen.

         Provision for income taxes. Income tax expense remained at 38.0% of
income (loss) before provision for income taxes for the three months ended March
31, 2000 and 1999.

Liquidity and Capital Resources

                                       10
<PAGE>   11

         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, 2000, we had working capital of $40.2 million, including cash and
cash equivalents of $4.6 million, compared to working capital at December 31,
1999 of $40.5 million, including cash and cash equivalents of $6.1 million.

         During the three months ended March 31, 2000, net cash provided by
operations of $631,000 was primarily due to net income of $2.0 million,
depreciation and amortization of $1.5 million, increases in accounts payable of
$5.7 million and accrued liabilities of $2.1 million offset in part by increases
in inventories of $5.0 million, accounts receivable of $2.5 million, prepaid and
other current assets of $2.3 million and other long-term assets of $1.0 million.
The increases in accounts receivable, inventory, prepaid expenses and other
current assets, accounts payable and accrued liabilities were primarily the
result of the 10% increase in revenues for the three months ended March 31, 2000
compared to the three months ended December 31, 1999. In addition, raw materials
inventories increased in anticipation of large orders for the upcoming quarters.
Accordingly, the inventory turnover ratio declined to 1.5 turns at March 31,
2000 from 1.6 turns at December 31, 1999. The increase in prepaid and other
current assets was primarily due to deposits for plant and equipment at the
visible emitter division. The increase in other long-term assets was primarily
due to investments made in China. Days sales outstanding decreased slightly to
72 days at March 31, 2000 compared to 73 days at December 31, 1999.

         Net cash used in investing activities was $4.2 million for the three
months ended March 31, 2000, and was due to the purchase of property, plant and
equipment.

         Net cash provided by financing activities was $2.1 million for the
three months ended March 31, 2000, and was generated from the issuance of Common
Stock in the amount of $1.2 million and short-term borrowings of $1.5 million,
offset by net payments on long-term debt of $458,000 and capital lease payments
of $254,000. The common stock was issued to employees exercising their stock
options or purchasing stock through our employee stock purchase plan.

         We have generally financed our equipment purchases through secured
equipment loans over five-year terms at interest rates ranging from 6.0% to 9.0%
per annum. Our manufacturing facilities have been financed by long-term
borrowings, which were repaid by the taxable variable rate revenue bonds in
1998. These bonds have a term of twenty-five years and mature in 2023 with an
interest rate at 200 basis points below the prime rate and are traded in the
public market. Repayment of principal and interest under the bonds is secured by
a letter of credit from our bank and is paid on a quarterly basis. We have the
option to redeem in whole or in part the bonds during their term. At March 31,
2000, $10.9 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 on June
30, 2000. We are currently negotiating an extension to this line of credit. This
line of credit is subject to certain financial covenants regarding current
financial ratios and cash flow requirements, which were met as of March 31,
2000. 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, 2000, $10.3 million was
outstanding under the $15 million line of credit.

         We anticipate that the combination of existing working capital and the
borrowings available under current credit agreements will be sufficient to fund
working capital and capital expenditure requirements for the next 12 months. Our
future capital requirements will be dependent on many factors including the rate
of revenue growth, our profitability, the timing and extent of spending to
support research and development programs, the expansion of selling and
marketing and administrative activities, and market acceptance of our products.
We expect to raise additional equity and debt financing in the future. We are
currently negotiating for additional debt financing that we expect will be
completed on June 30, 2000. We cannot assure you that additional equity or debt
financing, if

                                       11
<PAGE>   12

required, will be available on the acceptable terms or at all. If we are unable
to obtain such additional capital, if needed, we may be required to reduce the
scope of our planned product development and selling and marketing activities,
which would have a material adverse effect on our business, financial condition
and results of operations. In the event that we do raise additional equity
financing, further dilution to our investors will result.

RECENT ACCOUNTING PRONOUNCEMENTS

         In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133") that was subsequently amended by SFAS 137
to delay the effective date of implementing SFAS 133 for one year. SFAS 133
established a new model for accounting for derivatives and hedging activities
and supersedes and amends a number of existing accounting standards. SFAS 133
requires that all derivatives be recognized in the balance sheet at their fair
market value. In addition, corresponding derivative gains and losses should be
either reported in the statement of operations or stockholders' equity,
depending on the type of hedging relationship that exists with respect to such
derivatives. Adopting the provisions of SFAS 133, which will be effective on
June 15, 2000, is not expected to have a material effect on the Company's
consolidated financial statements.

In December 1999, the SEC issued Staff Accounting Bulletin No. 101 ("SAB 101")
"Revenue Recognition in Financial Statements." SAB 101 summarizes certain of the
SEC's views in applying generally accepted accounting principles to revenue
recognition in financial statements. The Company is required to adopt SAB 101 in
the second quarter of fiscal 2000. Management does not expect the adoption of
SAB 101 to have a material effect on the Company's operations or financial
position.

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.

Risks Relating To Our Acquisition of Lyte Optronics, Inc.

         Our success depends on our ability to assume and integrate the
operations of Lyte Optronics with our operations. The success of our acquisition
of Lyte Optronics depends in substantial part on our ability to assume and
integrate the operations of Lyte Optronics in an efficient and effective manner.
The assumption of a new business will require the dedication of management
resources, which may temporarily distract attention from our day-to-day
operations. We cannot assure you that we will be able to integrate the business
operations of Lyte Optronics smoothly or successfully. Our inability to do so
could hurt the performance of our business, which may cause the price of our
stock to decline.

         The success of our acquisition of Lyte Optronics depends in part on our
ability to retain Lyte Optronics' current customers. We cannot guarantee that
the current customers of Lyte Optronics will continue to seek our services now
that the acquisition is completed. If a substantial number of Lyte Optronics'
customers elect not to seek our services, our operating results will suffer.

         We incurred substantial costs in connection with our acquisition of
Lyte Optronics, including the assumption of approximately $11.0 million of debt,
much of which has had to be repaid or renegotiated, resulting in a decline of
cash available. We incurred one-time charges and merger-related expenses of $2.8
million and the extraordinary item of $508,000 in the quarter ended June 30,1999
as a result of the acquisition. We may incur additional unanticipated expenses
related to our assumption of Lyte Optronics' business. If these expenses are
substantial, they may adversely affect our operating results and cause our stock
price to fall.

Risks Relating to Our Operations

                                       12
<PAGE>   13

         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, 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:

         -        our recent acquisition of Lyte Optronics and the integration
                  of its business and separate operations and facilities with
                  our operations;

         -        fluctuations in demand for our substrates due to reduction in
                  the value of Asian currencies and the turmoil in the Asian
                  financial markets;

         -        fluctuations in demand for laser pointing and alignment
                  products and decreases in the prices of these products;

         -        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 and the
                  assumption, integration and operation of the Chinese
                  operations of Lyte Optronics;

         -        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."

         We acquired Lyte Optronics in May 1999, as part of our business
strategy, and we may engage in future acquisitions. These acquisitions must be
successfully integrated into our business and 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.

         Any of these actions 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.

                                       13
<PAGE>   14


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 personnel that
we might acquire in the future, and our failure to do so could materially
adversely affect our operating results.

         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. Our GaAs substrates typically have a lengthy
sales cycle, ranging from three months to a year or more. During this time, we
may expend substantial funds and sales, marketing and management efforts while
the potential customer evaluates our substrates. However, there is a significant
risk that these expenditures may not result in sales. 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. In addition, 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. 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 22.9% and 20.6% of our revenues in the
year ended December 31, 1999 and three months ended March 31, 2000,
respectively. If any of these major customers reduces, delays or cancels its
orders with us, our revenues will decline, which will likely cause our stock
price to fall.

         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. For example, we recently announced the two month
suspension of our Ge substrates from a major customer who had excess inventories
and was experiencing a slow down in business.

         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, however, we believe that one of
our competitors has recently begun shipping, in low volume, GaAs substrates
which utilize a similar technology. 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, which in turn could cause our stock price to fall.

         A significant portion of our prospective customers for our substrates
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 for producing substrates for
these 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 will be
delayed and our revenues will decline. The highly complex processes of growing
crystals as well as other steps involved in manufacturing substrates that we
engage in can be adversely affected by the following factors:

                                       14
<PAGE>   15

         -        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.

Our operating results 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. Any significant decrease in production volume and yields
could materially harm our business.

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

         In 1997, we began 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 larger GaAs substrate in commercial volumes with
acceptable yields. Our business and results of operations will be materially
adversely affected if we experience low yields of these successfully developed
substrates.

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

         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
semiconductor device manufacturers adopt them, demand for GaAs substrates could
decrease. This development could cause our revenues to fall.

         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 performance. We
must also continue to develop our light-emitting and laser diode products, and
develop new markets for this technology, as well as for our laser pointing and
alignment products. 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 will be materially adversely affected.
In 1997, we began commercial shipments of Ge and InP substrates and are
currently developing other substrates, including gallium phosphide,
galliumnitride and silicon carbide. 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.

                                       15
<PAGE>   16

         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 that relates to
the VGF technique. Additionally, we have one pending application for a Japanese
patent but no issued foreign patents. We do not have any patents on our
light-emitting or laser diode technology, although we do have six patents
relating to our laser pointing and alignment products. 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
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 those 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 are cooperating
with Cal-OSHA in an investigation regarding higher than permissible levels of
potentially hazardous materials in certain areas of the manufacturing facility
in Fremont, California. Although no accidents or injuries have resulted from
this matter and the facility is in full operation, civil and criminal penalties
could be imposed against us by Cal-OSHA.

         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, except for Ge, with
any of our suppliers, 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.

                                       16
<PAGE>   17

         Due to our reliance on a limited group of suppliers, we are exposed to
several risks including the potential inability to obtain adequate supply of
materials, reduced control overpricing 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. 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 cause our
revenues to decline.

         We are subject to additional risks as a result of our recent
acquisition of new manufacturing facilities. In connection with further
expanding our manufacturing capacity, we purchased an additional 58,000 square
foot facility in Fremont, California and a 31,000 square foot facility in
Beijing, China, in 1998. These new facilities 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, our operations at the new facilities would be
adversely affected, which may cause our sales to decline and the price of our
stock to fall.

         The additional fixed operating expenses associated with the new
facilities 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 may not be able to offset the costs of
operating the new facilities, which may materially adversely affect our results
of operations.

         We currently only have two machines (MOCVD's) capable of producing
light-emitting diodes wafers. Damage to or failure of these machines could cause
production to stop or delay while repairs or replacements are being made. We do
not keep substantial inventory of LED wafers to enable production to continue
while the MOCVD machine is being repaired. Any delay in production of the LED
wafers while the MOCVD is being repaired could result in loss of revenue.

         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. Our success in the
light-emitting and laser diode markets depends in part upon our ability to
further our development of this technology and develop additional markets and
uses for the products. 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.
Any significant delays could harm 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.

         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.

                                       17
<PAGE>   18

         Our substrates are typically one of many components used in
semiconductor devices that our customers produce. 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.

If, as a result of any of these factors, demand for our products declines, our
business will suffer.

Intense competition in the market for GaAs substrates could prevent us from
increasing revenues and sustaining profitability. The market for GaAs substrates
is intensely competitive. If we cannot successfully compete in this market, our
operating results will be harmed. In the semi-insulating GaAs substrates market,
our principal competitors 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, which would result in
lower prices and reduced margins.

         The market for laser-pointing and alignment devices is highly
competitive and subject to pressure to decrease the price at which the devices
are sold. Lyte Optronics has opened a manufacturing facility in China enabling
production of components at reduced cost; however this facility has only
recently begun operating and may not be able to handle the volume production
that may be required to meet customer demand. In addition, while we continue to
remain competitive in our pricing structure of laser pointing and alignment
devices, if prices continue to fall, we may not be able to produce and sell
these products at a profit.

         We derive a significant portion of our revenues from international
sales and our ability to sustain and increase our international sales involves
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. Our failure to successfully expand our
international operations may cause our revenues not to grow as much as we
anticipate, which could cause our stock price to fall.

         International sales, excluding Canada, represented 45.1% and 48.1% of
our total revenues in the year ended December 31, 1999 and three months ended
March 31, 2000, respectively. Sales to customers located in

                                       18
<PAGE>   19


Japan and other Asian countries represented 34.9% and 36.9% of our total
revenues in the year ended December 31, 1999 and three months ended March 31,
2000, respectively. We expect that sales to customers outside the United States,
including device manufacturers located in Japan and other Asian countries that
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 to our Japanese and Taiwanese customers,
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
1999, we incurred foreign exchange gains of $652,000, and a foreign exchange
gain of $33,000 in the three months ended March 31, 2000. If we do not
effectively manage the risks associated with international sales, our business
and financial condition could be materially adversely affected. To minimize our
foreign exchange risk, we have purchased 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 and Taiwan, 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 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, including any of the key personnel from our acquisition of
Lyte Optronics. 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 we cannot assure you
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, including the introduction of new products on time.

         Continued rapid growth may strain our operations. In addition to our
recent acquisition of Lyte Optronics, we have recently experienced a period of
rapid growth and expansion that 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.

         If we are not able to install adequate control systems in an efficient
and timely manner, or if our current or planned personnel systems, procedures
and controls are not adequate to support our future operations, our sales may
not grow and our business will suffer. 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 has placed and will
continue to place a


                                       19
<PAGE>   20

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
these new or enhanced systems, products and controls, or any disruption in the
transition to these 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.

         In addition, Lyte Optronics maintains separate operational and
financial systems, procedures and controls that must be integrated with or
replaced by our systems. This integration will take time and divert management
attention and resources. If we are unable to timely integrate or replace these
systems, we maybe unable to accurately forecast sales demand, manage
manufacturing, purchasing and inventory levels for the two divisions acquired
with Lyte Optronics, nor record and report financial and management information
on a timely basis for these divisions, which could adversely affect our ability
to timely produce consolidated financial information.

         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. 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.

         In December 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;

         -        the 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. 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 19% of our common stock
and are able to significantly influence matters requiring stockholder approval.
At March 31, 2000, executive officers, directors and entities affiliated with
them currently own approximately 19% 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:

         -        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.

                                       20
<PAGE>   21

         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 large stockholders, in particular those owning 15% or more
of the outstanding voting stock, from consummating a merger or combination with
a corporation unless:

         -        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 fluctuated
significantly since we began trading on the Nasdaq National Market. For the
three months ended March 31, 1999, our stock price closed as low as $14.50 and
as high as $45.75. 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.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Since many of our Japanese and Taiwanese invoices are denominated in
yen, we have bought foreign exchange contracts to hedge against certain trade
accounts receivable in Japanese yen. As of March 31, 2000, our outstanding
commitments with respect to the foreign exchange contracts had a total value of
approximately $2.0 million equivalent. Many of the contracts were entered six
months prior to the due date and the dates coincide with the receivable terms we
have on the invoices. By matching the receivable collection date and contract
due date, we attempt to minimize the impact of foreign exchange fluctuation.

                           PART II. OTHER INFORMATION



ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K

        a.       Exhibits.

                 27.1     Financial Data Schedule.


                                       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 12, 2000                    By:     /s/    Donald L. Tatzin
                                             -----------------------------------
                                                     Donald L. Tatzin
                                                 Chief Financial Officer


                                       22

<PAGE>   23



                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                   DESCRIPTION
-------                  -----------
<C>                <S>
 27.1              Financial Data Schedule
</TABLE>