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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

For the fiscal year ended December 31, 2000

OR

Commission file number 001-16047

ADVANCED POWER TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)

405 SW Columbia Street, Bend, Oregon 97702
(Address of principal executive offices and zip code)

(541) 382-8028
(Registrant's telephone number)

Securities registered pursuant to Section 12(b) of the Act:
None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share

    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 Exchange 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 the filing requirements for the past 90 days. Yes /x/  No / /

    Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or in any amendment to this Form 10-K. / /

    The aggregate market value of the voting stock held by non-affiliates of the Registrant as of March 7, 2001 was $45.7 million based upon the composite closing price of the Registrant's Common Stock on the Nasdaq National Market System on that date.

    The number of shares of the Registrant's Common Stock outstanding as of March 7, 2001 was 8,442,086 shares.

DOCUMENTS INCORPORATED BY REFERENCE

    Portions of the registrant's proxy statement in connection with its 2001 Annual Meeting of Shareholders are incorporated by reference into Part III.

ADVANCED POWER TECHNOLOGY, INC.

FORM 10-K

TABLE OF CONTENTS

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PART I

ITEM 1. BUSINESS.

    In this report, the terms "APT" "we," "us," and "our" refer to Advanced Power Technology, Inc. We are a leading designer, manufacturer and marketer of high-performance power semiconductors. Power semiconductors manage and regulate power by converting electricity into a form required by electrical and electronic products. Our power semiconductors increase system efficiency, permit the design of more compact end products and improve features and functionality. We are primarily focused on the high power, high frequency segment of the power semiconductor market. High power refers to the ability to handle voltages and currents above one kilowatt, and high frequency refers to the ability to switch on and off at speeds above 100 kilohertz.

Industry and Market Overview

    We believe there are two significant factors driving the general demand for high performance power semiconductors:

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Rapid proliferation of sophisticated electronics; and



•

Increasing need for higher power and more precisely regulated power quality in electronic equipment.

    Power semiconductors are used in virtually every electronic device to convert and control the electrical current that powers the device. As a result, the power semiconductor market is a large and steadily growing segment of the semiconductor industry. The proliferation of consumer electronic devices, wireless communication, and mobile computing is driving demand for new generations of power semiconductors that are smaller, lighter and more efficient. At the same time, new medical and industrial applications are creating demand for more powerful and reliable power semiconductors.

    Power semiconductors address the growing demand for energy efficiency and are used to provide the precisely regulated power required by sophisticated electronic products and equipment. The more sophisticated the end product, the greater its need for specially formatted, finely regulated power. Within the end product, power semiconductors are most commonly used to convert AC power (from the power source such as a wall socket) into a more useable DC power and to alter DC power to different voltage levels. Higher power, higher frequency power semiconductors make many end products more efficient and permit them to be smaller and lighter.

    Older generations of solid state power switching devices have been used for the past 40 years. Bipolar transistors, which can handle large voltages and currents, are slow to switch on and off, and require complex external drive circuitry to handle the switching function. Power metal oxide semiconductor field effect transistors, or MOSFETs, which are controlled by electrical voltage rather than by current, were introduced approximately 20 years ago. Because they are voltage controlled, power MOSFETs provide for greater speed and reduced complexity of drive circuitry. Power MOSFETs were originally very limited in the ranges of voltage and current that they could handle. Our power MOSFETs were developed to increase the power that could be handled by the device, while maintaining its advantage in speed of switching over bipolar transistors.

    The demand for power semiconductors is expanding as a result of the proliferation of new technologies that require electricity and the increasing use of electrical processes and automation in industry to increase productivity. Sophisticated electronics are increasing their share of total electrical consumption, with the Information Technology Industry Council reporting that computers represented 13% of U.S. electrical consumption in 1998 versus only 6% in 1994. The increasing complexity and power requirements of electronic products, and the rapid increase in electronic features in

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communications equipment, consumer electronics and industrial processes all require more efficient power management.

Market Size and Trends

    Statistics published by the Semiconductor Industry Association project that the worldwide market for all power semiconductors will grow at a 13% compound annual growth rate from $8.2 billion in 1999 to $11.9 billion in 2002. Based on data from the Semiconductor Industry Association, we project that the worldwide markets we serve (radio frequency, or RF transistors, power MOSFETs, insulated gate bipolar transistors, or IGBTs and high power rectifiers) will grow at a 19% compound annual growth rate from $4.6 billion in 1999 to $7.8 billion in 2002.

    The primary markets we serve are characterized by rapid technological development and increasing complexity. In addition to more overall power, we believe these markets will require more reliable and precisely regulated forms of power. The following key trends are driving the demand for high power, high frequency semiconductors in our primary markets:

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Convergence of Voice, Video and Data Transmission and Proliferation of Wireless Systems. As voice, video and data converge into one digital stream, the power demands of traditional and emerging transmission systems are changing. Service providers and equipment manufacturers are looking to modify and supplement existing infrastructures to address these new demands. Power semiconductors with higher power levels and faster switching speeds give providers and manufacturers much more flexibility in addressing these demands, in particular in building base stations for wireless applications and servers for Internet infrastructure.



•

Demand for Semiconductor Capital Equipment. According to the Semiconductor Industry Association, the worldwide semiconductor market is forecasted to grow substantially from $126 billion in 1998 to $319 billion in 2003, representing a compound annual growth rate of 20%. According to Semiconductor Equipment and Materials International (SEMI) research, sales for semiconductor capital equipment to produce these semiconductor devices are expected to grow at an average growth rate of 22% from 1998 through 2002. As semiconductor capital equipment becomes more sophisticated in areas such as thin film deposition and plasma etching, there is an increasing need for high power, high frequency semiconductors. However, the semiconductor industry has from time to time experienced depressed business conditions and has rapidly changed from periods of strong demand to periods of weak demand. Recent slowing of worldwide semiconductor sales has resulted in a decline in demand for semiconductor capital equipment, which is expected to decrease our sales into this sector, and we currently have limited visibility as to the duration of this slowing.



•

Emergence of New Applications for High Power, High Frequency Semiconductors. Continuing demands for higher power, higher voltages and higher frequencies are expanding the range of applications for which sophisticated power semiconductor products are suitable. For example, the use of RF power semiconductors presents opportunities to enter new markets. The same power delivery systems used for plasma generation in semiconductor processing equipment are now finding new applications in the industrial market (such as flat panel displays, optical and glass coatings and tool-hard coatings) and the data storage market (such as data recording heads as well as hard and compact disc technologies). In addition, RF MOSFETs are now being used in magnetic resonance imaging equipment in place of vacuum tubes, enhancing the performance and reducing the size of those systems.

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Products

    Our products combine innovative proprietary and patented semiconductor technology, designs, processes and packaging solutions that are optimized for our customers' applications. They can be broadly categorized into two product types:

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Discrete Power Semiconductors. Discrete power semiconductors are single components used in general power management applications and consist of power transistors and diodes. These products include MOSFETs, IGBTs and fast recovery epitaxial diodes, or FREDs.

A power MOSFET is a switch controlled by voltage at its gate. Power MOSFETs are used in combination with passive components to vary the amperage and frequency of electricity by switching on and off at very high speeds. Based on our original core technology, our MOSFET products include Power MOS IV® introduced in 1989, Power MOS V® introduced in 1997, Power MOS VI™ introduced in 1999 and Power MOS 7™ introduced in 2000. Each succeeding generation offers performance improvements over the preceding generation. Our products also include RF MOSFETs for applications with frequencies up to 150 megahertz.

Our IGBTs and FREDs are derivative products of our core technology. IGBTs are also switches and serve many of the same functions as power MOSFETS. IGBTs can operate at higher currents and voltages but have a much slower switching speed than that of power MOSFETS. FREDs are electronic components that conduct current in one direction and quickly switch from on to off. FREDs are typically used in conjunction with MOSFETs and IGBTs.

Our RF MOSFETs, IGBTs and FREDs are often used as part of the same power conversion or control systems that use our power MOSFETs. These derivative technologies and products share many of the same markets and customers with our core products, and we expect them to contribute to our growth.

Our discrete power semiconductors are packaged either in plastic or hermetically in metal. Our higher volume products are plastic packaged, where the product is encapsulated in a plastic mold compound. We also offer a line of hermetic products where the product is encapsulated in a metallic and hermetic package. Hermetic products are typically used in high reliability applications, serving the military and aerospace markets, although there is a trend in these markets toward using plastic products that are more cost effective. Some of our plastic products have been successfully used in aerospace applications.

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Application Specific Power Modules. ASPMs combine power semiconductors with other power management components in integrated modules that improve efficiency, provide a cost-effective solution and enable customers to introduce new products more quickly. We produce most of the power semiconductors used in our ASPMs. Our ASPMs cover a wide range of integration and complexity, from relatively simple functions integrating less than ten components to fully integrated functions integrating more than 500 components in a single power module. Many of our ASPM customers also buy our discrete products.

Research and Development

    Our research and development efforts focus on improving our core technology and the products associated with it. Over the past several years we introduced new and significantly improved versions of our core switching MOSFET technology—Power MOS V® in 1997, next generation Power MOS VI™, and Power MOS 7™ with further performance enhancements in 2000. Succeeding generations of switching power MOSFET technologies for further product performance enhancements are currently in development.

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    Our research and development engineers work closely with our product engineers and technicians to improve our products and our core technology. We focus on internal improvements in our technology (such as reducing feature size) to improve the efficiency and speed of our products, and on incorporating outside technological advances to ensure that our products remain highly competitive. We also spend significant engineering time modifying our core products in order to address specific customers or market needs. Our discrete semiconductor research and development activities take place at our Bend, Oregon facility. ASPM research and development activity takes place at our Bordeaux, France facility. We incurred expenses of $1.1 million, $883,000 and $926,000 in 2000, 1999 and 1998, respectively, for research and development. Historically, capital constraints have required us to focus our research and development activity almost exclusively on enhancing and protecting our core technology. We expect to increase our research and development investments in the future to accelerate the development of our core technology and to further expand into fast growing areas such as power semiconductors for RF applications.

Customers

    In 2000, we sold our products to over 1,000 customers through a network of independent sales representatives and distributors, managed by our sales staff. We sell our products primarily in North America and Europe, and increasingly in Asia. In 2000, approximately 55% of our revenues were from sales to customers in the United States, 30% from customers in Europe, and 15% from customers in Asia.

    We sell our products both to OEMs and through distributors. In 2000, approximately 80% of our net sales were to OEMs, and 20% were to distributors. Sales to our five largest customers accounted for 48%, 41% and 35% of our net sales in 2000, 1999 and 1998, respectively. Advanced Energy Industries, Inc. accounted for approximately 17% of our net sales in 2000, 15% of our net sales in 1999 and 8% of our net sales in 1998. No other customer exceeded 10% of our net sales during these periods. We provide our customers a 12-month repair or replacement warranty.

Sales, Marketing and Distribution

    The principal end-user markets for our products are communications and Internet infrastructure, semiconductor capital equipment, industrial, medical, and military and aerospace. Our largest volume original equipment manufacturer, or OEM, customers include Advanced Energy Industries, Inc., Power-One, Inc. and Emerson Energy Systems AB. Our leading distributor is Richardson Electronics Ltd. Power semiconductors are typically critical to the performance of our customers' products, and we therefore work closely with a number of our large OEM customers in the design phase of their products to ensure that we can meet their performance requirements. Once our products have been designed into end products, they tend to be used through the lifecycle of these end products.

    Our internal sales organization consists of three regional sales managers who work under the supervision of the vice president of sales. There is one sales manager for each of Europe and Asia, and North America is covered jointly by both a sales manager and our vice president of sales. Each regional sales manager directs the sales efforts of the independent manufacturers' representatives and independent distributors in his or her region. We currently have 35 independent manufacturers' representatives, whose primary focus is developing and servicing major OEM accounts.

    We use independent distributors to develop and service our smaller volume accounts worldwide. We have three regional and three national distributors in North America, and 21 single country distributors who cover western Europe and Asia. In 1998, we entered into a strategic agreement with Richardson Electronics, a worldwide distributor, under which they stock significant quantities of our most popular products. This arrangement has enhanced our ability to meet the needs of our smaller volume customers and permitted increased sales to large manufacturing customers by freeing up sales

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and support resources. Distributors can return up to 5% of the dollar value of products purchased during the prior six months upon 30 days notice. We closely monitor inventory levels at our key distributors on a monthly basis.

    Our application engineering, product engineering and product marketing organizations provide technical support for the sales force. We employ six engineers in these organizations, as well as support staff. Customer service for all of our accounts is handled by our customer service organizations in Bend, Oregon and Bordeaux, France. Our website gives our customers access to information about us and our products, enables them to request quotations or technical assistance and provides links to our local sales channels worldwide.

Manufacturing and Facilities

    Our discrete power semiconductors are manufactured in our Bend, Oregon facilities and by Infineon Technologies at its facility in Austria under our wafer foundry agreement. We use subcontractors in the Philippines and Taiwan to package and test our plastic packaged discrete products. We manufacture and assemble all of our discrete hermetic packages in Bend. Application specific power modules, or ASPMs are manufactured at our facility in Bordeaux, France, as well as at our subcontractor's facility in the Philippines.

    Our current manufacturing strategy is to expand our use of external subcontractors for the manufacture and assembly of our most popular, highest volume products. We selected Infineon Technologies as our foundry partner for its ability to process more cost effective six-inch wafers in its state-of-the-art manufacturing facility. Our Bend manufacturing facility is currently operating at or near capacity, and we are increasing production at Infineon Technologies faster than we initially anticipated in order to meet increasing customer demand. We expect our agreement with Infineon Technologies to continue to increase our production capacity, and to reduce our overall cost per wafer as the volume of wafers purchased increases. This agreement with Infineon Technologies extends through 2004.

    We have an agreement with Team Pacific, a subcontractor in the Philippines for assembly and packaging of most of our products, which extends through January 2003. Team Pacific currently tests a portion of the products that they assemble. Most of the discrete power semiconductors are returned to our Bend facility for further testing prior to shipment to customers. We plan to move more of the testing operations to Team Pacific, which will permit direct shipment from that facility to our customers. We expect this to reduce our manufacturing costs and production cycle times.

    Our ASPM manufacturing techniques utilize a wide variety of processes and equipment, which allow us to design and produce products of varying complexity for a number of different applications. Our ASPM manufacturing strategy includes moving the assembly and testing of certain niche products to our Bend facility, and the assembly and testing of certain high volume products to our subcontractor in the Philippines. We intend to continue manufacturing low to medium volume and medium to high complexity ASPMs at our facility in Bordeaux.

    Our manufacturing processes emphasize quality and reliability, and involve testing at various stages of the manufacturing process. We test 100% of our products. Our Bend facility is certified to IS0-9001 standards and to U.S. military specifications.

Competition

    We encounter varying degrees of competition for our products, depending on the nature of the product and the particular market served. Generally, the power semiconductor industry is highly competitive and subject to price erosion, and many of our competitors are larger companies with greater financial resources. There are a number of companies that manufacture products that compete

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directly with our products. Our principal competitors include International Rectifier, IXYS and STMicroelectronics.

    We believe that the primary elements of competition in our markets are product features and performance, quality, reliability, technical knowledge, breadth of product line, competitive pricing and customer service and support. We believe that our proprietary design makes our products more efficient and allows them to operate at higher frequencies than those of our competitors, allowing us to compete effectively in our markets.

Intellectual Property Matters

    We have received 17 U.S. patents and eight foreign patents and have applications pending for one additional U.S. and five foreign patents on different aspects of our core technology. We rely on these patents, trade secret and other intellectual property laws, as well as confidentiality and intellectual property assignment agreements with our employees in Bend, Oregon to protect our proprietary rights. We regard certain of our processes, information and knowledge that we have developed and use to design and manufacture our products as proprietary. We have also registered trademarks for Power MOS IV® and Power MOS V®. We have trademark applications pending for Power MOS VI™ and Power MOS 7™.

    We have licensed portions of our intellectual property for commercialization in certain foreign markets. In 1990, we entered into two non-exclusive, non-transferable licenses and technology transfer agreements for the manufacture of our products in Japan. In 1991, we entered into a similar arrangement with a manufacturer in the United Kingdom for sales in Europe only. Each of these agreements resulted in one-time payments to us and entitles us to certain royalties over the life of the licenses. To date, on going royalties from these licensing arrangements have not been material. We recently entered into a joint venture agreement in China, which includes a license and technology transfer agreement for our Power MOS V® and Power MOS VI™ technology, in exchange for cash payments totaling $1.5 million over two to three years and a 25% share in the equity ownership of the joint venture. (See Note 1c of Notes to Consolidated Financial Statements.) We believe that these arrangements will enhance our access to key markets in Asia and Europe.

Employees

    At December 31, 2000, we had 231 employees. Of these, 196 were at our facilities in Bend, Oregon, 34 were at our facility in Bordeaux, France, and one was located in Boston, Massachusetts. Our continued success depends heavily on our ability to attract and retain qualified personnel. We consider our relations with our employees to be good. None of our employees are represented by a union.

Environmental Regulation

    While we believe we have the environmental permits necessary to conduct our business and that our operations conform to present environmental regulations, increased public attention has been focused on the environmental impact of semiconductor operations. In the conduct of our manufacturing operations, we have handled and do handle materials that are considered hazardous, toxic or volatile under federal, state and local laws; therefore, we are subject to regulations related to the use, storage, discharge and disposal of materials. The risk of accidental release of such materials cannot be completely eliminated, and if such a release occurs, we could be held financially responsible for the clean up or other consequences of the release. Along with the rest of the semiconductor industry, we are subject to variable interpretations and governmental priorities concerning environmental laws and regulations. Environmental statutes have been interpreted to provide for joint and several liability and strict liability regardless of actual fault. We may be required to incur costs to

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comply with current or future environmental laws or regulations, and our operations, business or financial condition could be adversely affected by such requirements.

ITEM 2. PROPERTIES.

    We lease a 41,000 square foot building in Bend where we perform our semiconductor manufacturing, shipping and warehousing, as well as our engineering and research and development. We manufacture four-inch wafers in this facility. We lease an 18,000 square foot building in Bend that houses some of our administrative functions, as well as some testing and shipping, and 4,125 square feet in an additional building in Bend, which houses some of our administrative functions. We lease a 10,250 square foot facility in Bordeaux that houses our ASPM production, shipping and warehousing, as well as the administrative and development staff for our European operation.

ITEM 3. LEGAL PROCEEDINGS.

    From time to time in our industry, participants become involved in litigation over intellectual property rights and other matters. We are not currently involved in any litigation, and have not received any unresolved claims or threats of claims. However, we are from time to time a party to litigation or claims that arise out of the ordinary conduct of our business, including those relating to commercial transactions, contracts and environmental matters.

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

    We did not submit any matters to a vote of our stockholders during the quarter ended December 31, 2000.

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PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.

    Our common stock is traded on the Nasdaq National Market under the symbol "APTI." Our common stock began trading on August 8, 2000. The high and low sales prices as reported on the Nasdaq National Market for the period from August 8, 2000 to December 31, 2000 were as follows:

    As of March 7, 2001, the last reported sale price of our common stock on the Nasdaq National Market was $10.94 per share. As of March 7, 2001, there were approximately 60 stockholders of record and approximately 3,800 beneficial stockholders of our common stock.

    We have not declared or paid any cash dividends on our capital stock, and we do not anticipate doing so in the foreseeable future. We currently intend to retain future earnings, if any, to operate and expand our business. Our loan covenants require us to obtain the bank's consent prior to the payment of any cash dividends.

ITEM 6. SELECTED FINANCIAL DATA.

(1)

In September 1995, our six senior officers purchased a controlling 51% interest in APT, of which approximately $3.3 million was funded with a note payable to Hamilton Sundstrand, the seller. In January 1998, these same officers purchased the remaining interest in APT, of which approximately $3.0 million was funded with a note payable to APT. In accordance with purchase accounting and push down accounting rules, we were required to establish a new cost basis for our assets and liabilities in January 1998 based on these purchase transactions. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Effects of Push Down Accounting."

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Overview

    We are a leading designer, manufacturer and marketer of high-performance power semiconductors. Power semiconductors manage and regulate power by converting electricity into a form required by electrical and electronic products. Our power semiconductors increase system efficiency, permit the design of more compact end products and improve features and functionality. We are primarily focused on the high power, high frequency segment of the power semiconductor market. High power refers to the ability to handle voltages and currents above one kilowatt, and high frequency refers to the ability to switch on and off at speeds above 100 kilohertz. We sell our products primarily in North America and Europe, with increasing sales in Asia, through a network of independent sales representatives and distributors.

    In August 2000, we completed an initial public offering, or IPO, of 4,025,000 shares of our common stock, including the underwriters' over-allotment, at an offering price of $15.00 per share. The IPO included 2,830,000 shares sold by APT and 1,195,000 shares sold by shareholders of APT, and resulted in net proceeds to APT of approximately $38.3 million. The net proceeds are currently held in various investments and will be used for general corporate purposes, including research and development and possible acquisitions. Our common stock is listed on the Nasdaq National Market under the symbol APTI.

Results of Operations

    The following table presents our consolidated statement of operations data for the periods indicated as a percentage of net revenue:

Years Ended December 31, 2000 and 1999

    Revenues.  Our net revenues were $44.2 million in 2000, an increase of 60.8% from net revenues of $27.5 million in 1999. The increase in net revenues in 2000 resulted from higher levels of demand

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from our customers and continued strength in the semiconductor industry. Sales of our products increased in the communications and Internet infrastructure markets as a result of increasing demand for communications infrastructure, in particular, base stations used in wireless communication. Sales of our products also increased in the semiconductor capital equipment market as a result of a continued increase in the building of wafer fabrication facilities. Recent slowing of worldwide semiconductor sales has resulted in a decline in demand for semiconductor capital equipment, which is expected to decrease our sales into this sector, and we currently have limited visibility as to the duration of this slowing.

    During 2000, we entered into a joint venture agreement in China, which included a license and technology transfer agreement for certain of our technologies, in exchange for cash payments totaling $1.5 million over two to three years. The $1.5 million is being recognized as revenue as specific milestones under the contract for the implementation of the technology transferred to the joint venture are met. Included in revenues in 2000 was $440,000 of technology licensing revenue associated with our joint venture in China.

    Gross Profit.  Our gross profit margin was 39.5% in 2000 compared to 34.5% in 1999. The increase in gross profit margin in 2000 resulted from lower costs associated with use of processed silicon wafers from Infineon Technologies, which we began to purchase in the fourth quarter of 1999, a more favorable product mix including greater sales of radio frequency, or RF, power semiconductors which have a higher gross margin, improved capacity utilization in our Bend, Oregon manufacturing facility, and a negotiated reduction in the cost of silicon from our key supplier. Additionally, gross profit in 2000 included $440,000 related to the technology licensing revenue associated with our joint venture in China. (See "Revenues" above.)

    Research and Development Expense.  Our research and development expenses were $1.1 million in 2000, an increase of 24.2% from research and development expenses of $883,000 in 1999. The increase in research and development expenses in 2000 primarily resulted from increased salaries. Salary reductions, which had been in place through the first six months of 1999, were subsequently eliminated in late 1999. Additionally, we recorded $29,000 of stock compensation expense in 2000 and none in 1999. See "Stock Compensation Expense" below. As a percent of net revenues, research and development expense decreased to 2.5% in 2000 from 3.2% in 1999, primarily due to the increase in net revenues.

    Selling, General and Administrative Expense.  Our selling, general and administrative expenses were $10.0 million in 2000, an increase of 36.0% from selling, general and administrative expenses of $7.3 million in the 1999. The increase in selling, general and administrative expenses in 2000 principally resulted from $987,000 of increased commissions on higher revenues; $817,000 of increased payroll from bonuses based on operating results, the elimination of salary decreases in effect in 1999 and to a lesser extent additional personnel; $176,000 of increased depreciation on computer systems; $150,000 of stock compensation expense (see "Stock Compensation Expense" below); and general increases related to the growth of our business. Selling, general and administrative expenses also include amortization of goodwill of $262,000 in 2000 and $363,000 in 1999, related to the purchase of APT by our six senior officers. (See "Effects of Push Down Accounting" below.) As a percent of net revenues, selling, general and administrative expense decreased to 22.5% in 2000 from 26.7% in 1999, primarily due to the increase in net revenues.

    Stock Compensation Expense.  Stock compensation expense includes costs relating to stock-based employee compensation arrangements, and is based on the difference between the fair market value of our common stock on the date of grant of options and the exercise price of options to purchase that stock. Stock compensation expense is recognized over the vesting periods of the related options, typically five years. Stock compensation expense of $277,000 was recorded in 2000. Of this amount, $98,000 was recorded in cost of goods sold, $29,000 was recorded in research and development expense and $150,000 was recorded in selling, general and administrative expense. We expect to record stock compensation expense of approximately $160,000 in 2001.

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    Interest Expense.  Interest expense decreased to $1.2 million in 2000 from $1.3 million in 1999. The decrease in interest expense in 2000 was principally a result of the reduction of outstanding debt from the application of proceeds from our IPO in early August 2000. See "Overview" above. The decrease in interest expense in 2000 was partially offset by $460,000 of imputed interest related to the issuance of warrants to Advanced Energy Industries, Inc. to purchase shares of our common stock in return for a renewal of their loan guaranty. Interest expense also included interest expense related to the $3.3 million note payable to Hamilton Sundstrand for the purchase of APT by our six senior officers and other outstanding debt related to our operations. See "Effects of Push Down Accounting" below.

    Interest Income.  We had interest income of $938,000 in 2000, nearly all of which we earned on the investment of proceeds from our IPO in August 2000. We had no material interest income in 1999.

    Income Taxes.  Our effective tax rate was approximately 37% in 2000 compared to 800% in 1999. Absent the impact of push down accounting, our effective tax rate would have been approximately 34% in 2000. The effective tax rate was increased by permanent differences such as nondeductible expenses and was decreased by the benefit of a decrease in the valuation allowance on the foreign net operating losses. Due to the effects of push down accounting, the $3.3 million note payable to Hamilton Sundstrand resulted in an increase in the effective tax rate since the interest on that note was not deductible by us for tax purposes. In addition, interest income was recognized for tax purposes on the $3.1 million notes payable from our six senior officers, but no interest income was recorded on those notes on our consolidated financial statements. Furthermore, goodwill amortization related to the purchase transactions increased the effective tax rate because the amortization was not deductible for tax purposes.

Years Ended December 31, 1999 and 1998

    Revenues.  Our net revenues were $27.5 million in 1999, an increase of 10.5% from net revenues of $24.9 million in 1998. During 1998, the semiconductor industry continued to experience worldwide overcapacity, which caused prices to erode and was accompanied by a slowdown in the demand for semiconductors and in turn, semiconductor capital equipment. During 1999, market conditions began to improve, and we experienced an increase in sales in 1999, predominantly in the semiconductor capital equipment and telecommunications markets.

    Gross Profit.  Our gross profit margin was 34.5% in 1999 compared to 25.8% in 1998. In 1998, gross profit was decreased by $799,000, relating to the inventory effect of the application of push down accounting. Without this effect, our gross profit margin in 1998 would have been 29.0%. See "Effects of Push Down Accounting" below. The increase in gross profit margin in 1999 was attributable to higher capacity utilization in our Bend, Oregon and Bordeaux, France manufacturing facilities as a result of improvement in the semiconductor market from the slowdown that impacted us throughout 1998, a negotiated reduction in the cost of silicon from our key supplier and a more favorable product mix. In the fourth quarter of 1999, we began to purchase processed silicon wafers from Infineon Technologies at a lower cost to us. Our gross profit margins were also affected by increases in our inventory valuation reserve of $306,000 in 1999 and $351,000 in 1998 as a result of the effects of the slowdown in demand for semiconductors and semiconductor capital equipment in these periods.

    Research and Development Expense.  Our research and development expenses were $883,000 in 1999, a decrease of 4.6% from research and development expenses of $926,000 in 1998. As a percent of net revenues, research and development expense decreased to 3.2% in 1999 from 3.7% in 1998. The decrease in research and development expense was primarily attributable to a decrease of $50,000 in the cost of masks and other product design costs, and a decrease of $25,000 in payroll costs related to the continuation of the salary reductions implemented in 1998, offset by an increase of $26,000 of outside consulting services.

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    Selling, General and Administrative Expense.  Our selling, general and administrative expenses were $7.3 million in 1999, an increase of 3.0% from selling, general and administrative expenses of $7.1 million in 1998. The increase in selling, general and administrative expenses resulted from increased commissions on higher revenues. Selling, general and administrative expenses include amortization of goodwill of $363,000 in 1999 and $358,000 in 1998 related to the purchase of APT by our six senior officers. See "Effects of Push Down Accounting" below. As a percent of net revenues, selling, general and administrative expenses decreased to 26.7% in 1999 from 28.6% in 1998, primarily as a result of the increase in net revenues.

    Interest Expense.  Interest expense increased to $1.3 million in 1999 from $1.2 million in 1998, as a result of $118,000 of imputed interest related to the issuance of and adjustment to warrants in 1999 to purchase our common stock. Interest expense also includes interest expense of $298,000 in 1999 and $324,000 in 1998 related to the $3.3 million note payable to Hamilton Sundstrand for the purchase of APT by our six senior officers. See "Effects of Push Down Accounting" below.

    Income Taxes.  Our effective tax rate was approximately 800% in 1999, compared to a tax benefit of approximately 40% in 1998. The 1999 effective tax rate was increased by permanent differences such as goodwill amortization and expired net operating loss carryforwards, offset in part by the release of a deferred net operating loss. In addition, the impact of push down accounting, primarily the nondeductibility of interest expense and the recognition of interest income as described above, resulted in an increase in our effective tax rate. See "Effects of Push Down Accounting." The 1998 effective tax rate was also a result of a net loss in the period and the write-off of the tax basis of our European subsidiary, APT Europe. However, the reduction to the effective tax rate was offset by increases for permanent differences such as goodwill amortization, expired net operating loss carryforwards and the differences in the treatment of the interest income and interest expense.

Effects of Push Down Accounting

    In September 1995, our six senior officers purchased a controlling 51% interest in APT for approximately $3.6 million, of which approximately $3.3 million was funded with a note payable to Hamilton Sundstrand, the seller, and the balance was funded from the personal assets of these officers. In January 1998, these same officers purchased the remaining interest in APT for approximately $2.5 million. We loaned our six senior officers $3.0 million, an amount sufficient to purchase the remaining 49% interest and to pay interest on the note owed to Hamilton Sundstrand. In addition, we loaned $100,000 to our six senior officers in 1999 to pay interest on the Hamilton Sundstrand note. In accordance with purchase accounting and push down accounting rules, we were required to establish a new cost basis for our assets and liabilities in January 1998, based on these purchase transactions and to reflect that basis in our consolidated financial statements. The effects of applying push down accounting to our accompanying consolidated financial statements were as follows:

•

In 1998, we recorded the $3.3 million note payable to Hamilton Sundstrand related to the 1995 purchase as long-term debt on our consolidated balance sheet and we have included corresponding interest expense in our consolidated statements of operations. In August 2000, our six senior officers used a portion of their proceeds from the sale of shares of common stock in our IPO to repay the $3.3 million note payable and accrued interest of $771,000 to Hamilton Sundstrand, which eliminates our interest expense related to this debt going forward.



•

The $3.1 million in notes payable to APT and accrued interest related to the 1998 purchase was not recorded as a liability on our consolidated balance sheet, but was reflected as a reduction to stockholders' equity (deficit). In August 2000, our six senior officers used a portion of their proceeds from the sale of shares of common stock in our IPO to repay the $3.1 million notes payable and accrued interest of $481,000 to APT, which increased our stockholders' equity (deficit).

13

•

We accounted for the purchase of APT by our six senior officers using the purchase method of accounting, which required that the purchase price be allocated to the net assets acquired based on the relative fair value of assets acquired. The amount of the purchase price in excess of the fair value of the net assets acquired was classified as goodwill. We recorded approximately $983,000 of goodwill related to the purchase transactions. Goodwill amortization is included in selling, general and administrative expense in our consolidated statements of operations. As of December 31, 2000, goodwill associated with the purchase transactions was fully amortized.

Liquidity and Capital Resources

    In 2000, we generated approximately $5.0 million from operating activities, primarily from net income of $3.8 million adjusted for depreciation and amortization of $1.2 million and the tax benefit from exercise of warrants of $3.1 million, and an increase in accounts payable of $1.3 million, offset by an increase in accounts receivable of $2.4 million and an increase in inventories of $1.7 million. Accounts payable increased as a result of increased purchases of processed wafers and packages during 2000 due to the increased level of sales and as a result of the timing of purchases and payments. Accounts receivable and inventories increased as a result of the increased level of sales in 2000.

    In 2000, we used approximately $14.1 million in investing activities, which consisted of the purchase of $8.1 million of short-term investments and $3.0 million of long-term investments and the purchase of $3.0 million of equipment, approximately $900,000 of which had been under capital leases. At December 31, 2000, we had capital expenditure commitments of approximately $600,000.

    In 2000, we generated approximately $34.1 million in financing activities, which primarily consisted of net proceeds of $38.3 million from our IPO in August 2000 and $3.6 million from the payment of a note receivable from officers, offset by $3.5 million of principal payments on long-term debt and $4.9 million of payments on lines of credit, which were made with the proceeds of our IPO.

    We have two lines of credit with a bank for up to a total of $6.0 million to provide funds for our continuing operations. No amounts were outstanding under the lines of credit at December 31, 2000. The lines of credit expire in May 2001, bear interest at prime plus 1.0% or 1.25% based on the ratio of debt to equity and are secured by accounts receivable and inventories. Borrowings under our lines of credit are subject to financial covenants, including minimum tangible net worth, maximum debt to tangible net worth, minimum debt service ratio and quick ratio. We were in compliance with all covenants as of December 31, 2000.

    We believe our existing cash and cash equivalents, expected cash flow from operations and other existing financing sources will be sufficient to support our operating cash requirements for at least the next 12 months. We expect from time to time to evaluate potential acquisitions and equity investments complementary to our market strategy. To the extent we pursue such transactions, we could require additional equity or debt financing to fund such activities or to fund our working capital requirements in the event of an industry downturn or an unexpected adverse change in our business operations. To the extent we require additional capital, we cannot assure you that we will be able to obtain such financing on terms favorable to us, or at all.

Recent Accounting Pronouncements

    In June 1998, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities", or SFAS No. 133. SFAS No. 133, as amended by SFAS 137 and 138, establishes methods for derivative financial instruments and hedging activities related to those instruments, as well as other hedging activities. SFAS No. 133, as amended, is effective for all fiscal quarters of all fiscal years beginning after June 15, 2000. Because we do not currently hold any derivative instruments and do not currently

14

engage in hedging activities, the adoption of SFAS No. 133, as amended, will not have a material impact on our financial position or results of operations.

    In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements," or SAB 101, which provides guidance on the recognition, presentation and disclosure of revenue in financial statements filed with the Securities and Exchange Commission. We adopted the provisions of SAB 101 during the quarter ended December 31, 2000. The adoption of SAB 101 did not have a material impact on our financial position or results of operations.

    In March 2000, the FASB issued FASB Interpretation No. 44, or FIN 44, which provides interpretive guidance on several implementation issues related to Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees." We adopted the provisions of FIN 44 in the third quarter of 2000. The adoption of FIN 44 did not have a material impact on our financial position or results of operations.

Risk Factors Affecting Business and Results of Operations

    This report contains statements which, to the extent that they do not recite historical fact, constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The words "believe," "expect," "estimate," "may," "will," "could," "plan" or "continue" and similar expressions are intended to identify forward-looking statements. Such forward-looking information involves important risks and uncertainties that could materially alter results in the future from those expressed in any forward- looking statements made by, or on behalf of, us. These risks and uncertainties include, but are not limited to those listed in this report.

    We caution you that such forward-looking statements are only predictions and that actual events or results may differ materially. In evaluating such statements, you should specifically consider the various factors which could cause actual events or results to differ materially from those indicated by such forward-looking statements, including the factors that we discuss below. We are under no duty to update any of the forward-looking statements after the date of this report, to conform them to actual results or to changes in our expectations.

The semiconductor industry is very cyclical, and an industry downturn would reduce our revenues.

    The semiconductor industry is characterized by:

•

rapid technological change;



•

cyclical market patterns;



•

significant price erosion;



•

periods of over-capacity and production shortages;



•

variations in manufacturing costs and yields; and



•

significant expenditures for capital equipment and product development.

    The semiconductor industry has from time to time experienced depressed business conditions. In the past, business conditions in this industry have rapidly changed from periods of strong demand to periods of weak demand. Any future downturn in the industry could harm our business and cause our operating results to suffer. We cannot assure you that we will not experience substantial period-to-period fluctuations in operating results due to general semiconductor industry conditions or other factors.

15

We have historically experienced fluctuations in our operating results and expect these fluctuations to continue, which may cause our common stock price to decline.

    Our quarterly and annual operating results are affected by a wide variety of factors that could materially and adversely affect our net sales, gross margins and operating results. These factors include:

•

the volume and timing of orders received;



•

market acceptance of our products and the products of our customers;



•

competitive pricing pressures;



•

our ability to expand manufacturing output to meet increasing demand;



•

the timing and extent of our research and development expenses; and



•

fluctuations in manufacturing yields.

    Historically in the semiconductor industry, average selling prices of products have decreased over time. If we are unable to introduce new proprietary products with higher margins or reduce manufacturing costs to offset anticipated decreases in the prices of our existing products, then our operating results will be harmed. Our business is characterized by short-term orders and shipment schedules, and customer orders typically can be canceled or rescheduled without penalty to the customer. Because most of our backlog is cancelable without penalty, we typically plan our production and inventory levels based on internal forecasts of customer demand, which is highly unpredictable and can fluctuate substantially. In addition, because of fixed costs in the semiconductor industry, we are limited in our ability to reduce costs quickly in response to any revenue shortfalls. As a result of the foregoing factors, we may experience material adverse fluctuations in our future operating results on a quarterly or annual basis. We cannot assure you that we will be profitable on a quarterly or annual basis in future periods.

If we cannot introduce new products on a timely basis, our financial results may suffer.

    The markets for our products are characterized by rapid technological change and frequent new product introductions. Our success depends upon our ability to develop improved power semiconductors for new and existing markets, to introduce these products in a timely manner, and to have these products gain market acceptance. The development of new power semiconductors is highly complex and from time to time we have experienced delays in developing and introducing new products. Successful product development and introduction depends on a number of factors, including:

•

proper new product definition;



•

timely completion of design and testing of new products;



•

achievement of acceptable manufacturing yields; and



•

market acceptance of our products and the products of our customers.

    We cannot assure you we will be able to meet these challenges or adjust to changing market conditions as quickly and cost-effectively as necessary to compete successfully. Due to the complexity and variety of power semiconductors, the limited number of qualified development engineers and the limited effectiveness of computer-aided design systems in the design of such circuits, we cannot assure you that we will be able to successfully develop and introduce new products on a timely basis. We cannot assure you that any products introduced by us will be adopted by existing or potential customers, or that any products initially accepted by our customers will become industry standard products. Our failure to develop and introduce new products successfully could significantly harm our business and cause our operating results to suffer.

16

    Our results of operations are also dependent on our ability to optimize the mix between sales of relatively higher margin but lower volume products and relatively higher volume but lower margin products. In order to improve our margins, sales of higher margin products must in the future represent a greater percentage of our net sales, requiring us to develop, introduce and market new proprietary products. We cannot assure you that we will be successful in developing new proprietary products with the features and functionality that customers in our key markets will demand.

Disruption, termination or reduction in the functions performed by our key subcontractors could reduce our sales.

    We are increasingly more reliant on third party subcontractors in Europe and Asia for manufacturing, assembly and packaging of most of our products. We have entered into a wafer foundry agreement with Infineon Technologies, an outside foundry located in Europe, which currently provides a significant percentage of our wafers. We also rely on an agreement with Team Pacific, a subcontractor in the Philippines, for assembly and packaging of most of our products. Our agreement with Team Pacific extends through January 2003, and requires Team Pacific to assemble all products we send them, based on rolling periodic forecasts. Our agreement with Infineon is for a minimum term of five years from 1999, and requires Infineon to produce increasing quantities of wafers over its term. Disruption or termination of either of these arrangements could harm our business and operating results. Political instability, labor disputes or natural disasters could disrupt the operations of our subcontractors. If any of our subcontractors experience financial, operational, production or quality assurance difficulties resulting in a reduction or interruption in supply to us, our operating results would suffer until alternate subcontractors, if any, become available. Infineon Technologies may not be able to maintain the technological capability to meet our future needs. In addition, our subcontractors also manufacture and package products for our competitors, and there is a risk that our subcontractors could allocate less of their production capacity and resources to our needs.

If our manufacturing processes become obsolete, our margins and profitability will be harmed.

    Semiconductor design and process methodologies are subject to rapid technological change, requiring large expenditures for research and development in order to improve product performance and increase manufacturing yields. We cannot assure you that our current process technology will not become obsolete. If we are unable to develop or obtain access to advanced silicon wafer processing technologies as they become needed, our future operating results will suffer.

If we cannot adequately protect our intellectual property rights, our financial results may suffer.

    Our success depends on our ability to obtain or maintain protection of certain proprietary technologies used in our principal products. We rely on a combination of patents, trademarks, trade secret laws and contractual provisions to protect our proprietary rights. Our competitors may, however, misappropriate our technology or independently develop technologies that are as good as or better than ours. We cannot assure you that any patent owned by us will not be invalidated, circumvented or challenged. Moreover, the process of seeking patent protection can be long and expensive, and we cannot assure you that our current patents are or any new patents that may be issued will be of sufficient scope or strength to provide any meaningful protection or any competitive advantage to us. We may also become subject to or initiate interference proceedings in the U.S. Patent and Trademark office, which can demand significant financial and management resources and could harm our financial results.

    In addition, we have licensed a portion of our intellectual property rights to European and Japanese entities and have entered into a joint venture and licensing and technology transfer agreement in China. Intellectual property law and practice differs in foreign jurisdictions, and it may prove difficult for us to protect our rights in certain foreign countries. We cannot assure you that our

17

licensing and other arrangements with foreign entities will not result in infringements on our proprietary rights. If we are unable to protect our intellectual property rights, either in the U.S. or abroad, we could face increased competition in the market for our products and technologies, which could negatively affect our sales and ability to expand our business.

We may become involved in costly and lengthy patent infringement or intellectual property litigation, which could harm our business.

    The semiconductor industry in general is characterized by frequent litigation regarding patent and other intellectual property rights. Protecting our proprietary rights may require us to defend claims of intellectual property infringement by our competitors. If any such infringements arise or are claimed in the future, we may be exposed to substantial liability for damages and may need to obtain licenses from the patent owners, discontinue or change our processes or products or expend significant resources to develop or acquire non-infringing technologies. We cannot be certain that licenses would be available under reasonable terms or that we could successfully develop or acquire non-infringing technologies. Moreover, such efforts would likely be time-consuming and divert management attention and resources. Our future involvement in patent infringement or intellectual property litigation could harm our operating results and financial condition.

Strong competition in the power semiconductor market may reduce the demand for our products or the prices of our products, which could reduce our revenues and harm our business.

    The power semiconductor industry is highly competitive and subject to rapid technological change. Significant competitive factors in the power semiconductor market include:

•

product features and performance;



•

product quality;



•

product reliability;



•

technical knowledge;



•

breadth of product line;



•

competitive pricing; and



•

customer service and support.

    Because the market for power semiconductors is diverse and highly fragmented, we encounter different competitors in our various product markets. Our principal competitors in one or more of our product areas include International Rectifier, IXYS and ST Microelectronics. Many of our competitors have substantially greater technical, financial and marketing resources and greater name recognition than we do. We expect intensified competition from existing power semiconductor suppliers and the possible entry of new competitors. Increased competition could harm our business. We cannot assure you that we will be able to compete successfully in the future or that competitive pressures will not harm our financial condition or our operating results. Competitive pressures could reduce market acceptance of our products and result in price reductions and increases in expenses that could harm our business and our financial condition.

Our financial results would be harmed if we were to lose one of our major customers or key distributors.

    Several of our major customers account for a significant portion of our net sales each year. During 2000, our top five customers accounted for 48% of our net sales, and one customer, Advanced Energy Industries, Inc. accounted for 17% of our net sales. If we lost Advanced Energy Industries, Inc. or one

18

of our other major customers, or if one of them reduced or canceled significant orders, our net income and operating results could be harmed. Richardson Electronics serves as a significant distributor of our products. If this relationship were discontinued, or if Richardson Electronics should fail to provide adequate service to our customers, we could lose sales and our operating results would suffer.

If we fail to manage our growth effectively, we may lose business and experience reduced profitability.

    We have recently experienced rapid revenue growth, and we anticipate continued growth if demand increases in the markets for our products. To manage this growth successfully, we will need to manage increased production requirements, attract, retain and train new employees and management, improve our operational and administrative systems, and manage multiple relationships with customers and suppliers. We may be unable to accomplish any of these requirements, and our failure to do so would harm our operating results.

We may engage in future acquisitions that dilute the ownership interest of our stockholders and cause us to incur debt and assume contingent liabilities.

    From time to time, we may review acquisition prospects or joint ventures that would complement our current product offering, enhance our design capability or that may otherwise offer growth opportunities. We may acquire businesses, products or technologies in the future. In the event of future acquisitions, we could:

•

use a significant portion of our available cash;



•

issue equity securities that would dilute current stockholders' percentage ownership;



•

incur substantial debt; or



•

assume contingent liabilities.

    Such actions by us could harm our operating results and/or the price of our common stock. Acquisitions also entail numerous risks, including:

•

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



•

unanticipated costs associated with the acquisition or joint venture;



•

adverse effects on existing business relationships with customers; and



•

potential loss of key employees of acquired organizations.

    Our ability to successfully manage these risks would be limited by the small size of our management team.

Our business is subject to risks associated with operations in foreign countries.

    In 2000, approximately 45% of our revenues were from sales to customers located outside of the U.S. We are vulnerable to risks associated with doing business in foreign countries, including tariffs, quotas, taxes and other market barriers, political and economic instability, currency fluctuations and difficulties in staffing and management of overseas operations. In addition, we have supply agreements, assembly agreements, and other relationships with foreign companies that are subject to similar risks.

Failure to attract and retain key technical and management personnel could harm our operating results.

    Our success depends upon the continued service of our executive officers and other key management and technical personnel, particularly our development engineers, and on our ability to continue to attract, retain and motivate qualified personnel, particularly experienced development

19

engineers, systems applications engineers and sales managers. There is intense competition for the services of development engineers in our industry. The loss of the services of one or more of our development engineers, executive officers or other key personnel or our inability to recruit replacements for such personnel or to otherwise attract, retain and motivate qualified personnel could harm our business. We do not currently carry life insurance payable to APT with respect to any of our management employees.

Our products are complex and could contain defects, which could reduce sales of those products or result in claims against us.

    We develop complex and evolving products. Despite testing by us and our customers, defects or other performance problems may be found in existing or new products. This could result in delay in recognition or loss of revenues, loss of market share or failure to achieve market acceptance. These defects may also cause us to incur significant warranty, support and repair costs, divert the attention of our engineering personnel from our product development efforts and harm our relationships with our customers. Any defects or other problems with our products could result in financial or other damages to our customers who could seek damages from us for their losses. Even an unsuccessful product liability claim would likely be time-consuming and costly to defend.

Interruptions in wafer production may harm our operating results.

    Any prolonged inability to utilize our Bend, Oregon foundry or third party foundries as a result of fire, natural disaster or otherwise would harm our financial condition and cause our operating results to suffer. If we are not able to obtain additional foundry capacity as required, our relationships with our customers would be harmed and our sales would likely be reduced. We may not be able to make arrangements for additional foundry capacity in a timely fashion or at all, and such arrangements, if any, may not be on terms favorable to us. Moreover, if we are able to secure additional foundry capacity, we may be obligated to utilize all of that capacity or incur penalties. These penalties may be expensive and could harm our operating results.

We depend on the availability of raw materials to manufacture our products, and a disruption in supply could harm our operating results.

    We rely on raw materials to manufacture our products, including silicon, various chemicals, gases and compounds. In particular, we obtain silicon wafers and some packages through limited sources of supply, and in the event of a shortage, we may be forced to locate alternative sources and be forced to pay higher prices. A severe shortage or an increase in the price of silicon wafers or some packages may harm our gross margins and our ability to deliver our products on a timely basis, if at all.

Our manufacturing operations involve hazardous substances, and the costs of complying with applicable environmental laws could harm our financial results.

    Our manufacturing operations are subject to various federal, state, local and foreign environmental laws and regulations relating to the management, disposal and remediation of hazardous substances and the emission and discharge of pollutants into the air, water and soil. In the conduct of our manufacturing operations, we have handled and do handle materials that are considered hazardous, toxic or volatile under federal, state and local laws. The risk of accidental release of such materials cannot be completely eliminated, and if such an accidental release occurs, we could be held financially responsible for clean-up costs and other consequences of the release. In addition, if environmental laws become more stringent over time, or existing laws are more stringently enforced, we could incur greater compliance costs and be subject to increased risks and penalties for violations. We could be held liable for significant damages for violating environmental laws and could lose certain licenses or permits, which could harm our financial results.

20

An accident at our manufacturing facility could cause serious damage for which we could be responsible.

    Our manufacturing operations involve high voltage equipment, explosive gases and hazardous chemicals. An accident at our manufacturing facility could result in serious personal injury or property damage for which we could be held financially responsible. Any financial obligation in excess of available insurance could harm our financial results.

Our charter contains provisions that may hinder or prevent a change in the control of our company.

    The authorization of undesignated preferred stock makes it possible for our board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to change control of APT. These and other provisions in our charter may defer hostile takeovers or delay changes in control or management, which could reduce our stock price. Also, there are provisions of Delaware law that may have similar effects.

Six members of management, as a group, own a controlling interest in our common stock.

    Six members of our senior management own approximately 49% of our outstanding shares of common stock. As a result, these members of management exercise significant control over all matters requiring stockholder approval. The concentrated holdings of management may result in a delay of, or serve as a deterrent to, possible changes in control of APT, which may reduce the market price of our common stock.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

    We do not use derivative financial instruments in our investment portfolio. Due to the short duration and conservative nature of our cash equivalents, and the high quality and conservative nature of our long-term investments, we do not expect any material loss with respect to our investment portfolio.

    Currently less than 3% of our sales are transacted in local currencies, primarily French francs. As a result, our international results of operations are subject to foreign exchange rate fluctuations. We do not currently hedge against foreign currency rate fluctuations. Most of our export sales and sales by APT Europe are in U.S. dollars, and most of our foreign currency sales are from operations with significant expenses in the same currency. As a result, gains and losses from such fluctuations have not been material to our consolidated results of operations.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

    The information required by this item is included in Note 13 of Notes to Consolidated Financial Statements and as listed in Item 14 of Part IV of this Report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

    None.

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PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

    The information required by this item is included in our Proxy Statement for our 2001 annual meeting of shareholders.

ITEM 11. EXECUTIVE COMPENSATION.

    The information required by this item is included in our Proxy Statement for our 2001 annual meeting of shareholders.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

    The information required by this item is included in our Proxy Statement for our 2001 annual meeting of shareholders.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

    The information required by this item is included in our Proxy Statement for our 2001 annual meeting of shareholders.

22

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)

1.  Index to Financial Statements

(a)

2.  Financial Statement Schedules

    Schedules have been omitted because the information required to be set forth therein is not applicable or is included in the Consolidated Financial Statements or notes thereto.

(a)

3.  Index to Exhibits

    The following exhibits are filed with, or incorporated by reference into, this Annual Report on Form 10-K:

23

†

Confidential treatment has been requested with respect to certain portions of these agreements. The omitted portions have been filed separately with the Securities and Exchange Commission.

*

This Exhibit constitutes a management contract or compensatory plan or arrangement.

(b)

Reports on Form 8-K

    No reports on Form 8-K were filed during the quarter ended December 31, 2000.

24

SIGNATURES

    Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 15, 2001

    Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on March15, 2001 by the following persons on behalf of the Registrant and in the capacities indicated.

25

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Advanced Power Technology, Inc.:

    We have audited the accompanying consolidated balance sheets of Advanced Power Technology, Inc. and subsidiary as of December 31, 2000 and 1999, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for each of the years in the three-year period ended December 31, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

    We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amount and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

    In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Advanced Power Technology, Inc. and subsidiary at December 31, 2000 and 1999 and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America.

KPMG LLP

Portland, Oregon
January 26, 2001

F-1

ADVANCED POWER TECHNOLOGY, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

See accompanying notes to consolidated financial statements.

F-2

ADVANCED POWER TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

See accompanying notes to consolidated financial statements.

F-3

ADVANCED POWER TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands, except share amounts)

See accompanying notes to consolidated financial statements.
F-4

ADVANCED POWER TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(1)

See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Effects of Push Down Accounting"

See accompanying notes to consolidated financial statements.

F-5

ADVANCED POWER TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

(1) Summary of Significant Accounting Policies

(a) Company Background

    Advanced Power Technology, Inc. (APT) is a leading designer, manufacturer and marketer of high power, high frequency power semiconductors on a national and international basis.

    In 1992, APT was purchased by Hamilton Sundstrand (Sundstrand) (the 1992 purchase). In 1993, Sundstrand purchased all of the outstanding shares of Power Compact of Merignac, France (the 1993 purchase), whose name was subsequently changed to Advanced Power Technology Europe S.A. (APT Europe). On September 6, 1995, Tremoliere LLC (Tremoliere), a company owned by APT's management group, purchased 51% of APT from Sundstrand for $250 in cash and $3,320 in a note payable to Sundstrand (the 1995 purchase), which was paid in August 2000. Just prior to the effective date of this transaction: 1) APT completed a recapitalization in which the Board of Directors authorized 5,110,370 shares of common stock and, pursuant to the recapitalization, the 1,000 shares of $1 par value common stock issued and outstanding were converted into 5,000,000 shares of $.01 par value common stock, 2) $12,394 of APT's payables to Sundstrand were converted to additional paid in capital and 3) Sundstrand transferred all of its shares of APT Europe to APT. Pursuant to the buyout agreement, 51% of APT's outstanding common shares, owned by Tremoliere, collateralize the $3,320 note payable from Tremoliere to Sundstrand.

    On January 5, 1998, Tremoliere purchased the remaining 49% interest in APT from Sundstrand for $2,450 in cash. Tremoliere borrowed $3,000 from APT under a promissory note to purchase the remaining 49% interest in APT and pay interest accrued on the $3,320 note payable to Sundstrand (the 1998 purchase). The note from Tremoliere was paid in full in August 2000. Tremoliere's basis in APT was allocated to APT's financial statements using the push-down method of accounting.

    In accordance with purchase accounting and push down accounting, APT established a new cost basis for assets and liabilities in January 1998 based on these purchase transactions, and reflected that basis in APT's consolidated financial statements.

(b) Principles of Consolidation

    The accompanying consolidated financial statements include the accounts of APT and its wholly-owned subsidiary, APT Europe. All intercompany balances have been eliminated in the consolidation of financial statements.

(c) Joint Venture Agreement

    In April 2000, APT entered into a joint venture agreement in China, which includes a license and technology transfer agreement for certain technologies, in exchange for a cash payment of $1,500 over two to three years and a 25% share in the equity ownership of the joint venture. This investment is being accounted for using the equity method. The $1,500 is being recognized as revenue as the specific milestones under the contract for the implementation of the technology transferred to the joint venture are met. As of December 31, 2000, revenues of $440 have been recognized under the contract.

    Under the equity method of accounting, APT will record its percentage share of the net income or loss of the joint venture. The difference, if any, between the cost of the APT investment and the

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amount of the underlying equity in the net assets of the joint venture would result in an adjustment to the net income or loss of the joint venture on APT's financial statements.

(d) Cash Equivalents and Investments

    APT classifies highly liquid investments purchased with an original maturity of three months or less as cash equivalents. Short-term investments consist of U.S. government debt securities and other highly liquid investments with original maturities in excess of three months, but less than one year. Long-term investments consist of highly liquid debt securities with maturities greater than one year.

    Investments are classified as available-for-sale in accordance with SFAS 115, Accounting for Certain Investments in Debt and Equity Securities. Investments are carried at fair market value with unrealized gains and losses reported in stockholders' equity as a component of other comprehensive income. During the year ended December 31, 2000, unrealized gains or losses on investments were insignificant.

    At December 31, 1999 there were no cash equivalents or investments. The following is a summary of cash, cash equivalents and investments at December 31, 2000: