Cray Computer Corp – ‘10-Q’ for 3/31/95

As of:  Monday, 5/22/95   ·   For:  3/31/95   ·   Accession #:  950109-95-1995   ·   File #:  0-18072

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Quarterly Report   —   Form 10-Q
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Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report                                      24    120K 
 2: EX-27       Financial Data Schedule                                2      6K 

10-Q   —   Quarterly Report
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UNITED STATES 
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q 

[ X ]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES       
EXCHANGE ACT OF 1934                                              

For the quarterly period ended March 31, 1995                     
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: 0-18072                                                 
________________________________________________________________________________

CRAY COMPUTER CORPORATION 
(Exact name of registrant as specified in its charter)

Delaware                               84-1120275           
(State of Incorporation)         (I.R.S Employer Identification Number)   

1110 Bayfield Drive, Colorado Springs, Colorado        80906          
(Address of principal executive offices)           (Zip Code)     

________________________________________________________________________________

Telephone Number: (719) 579-6464
(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 Exchange Act of   
1934 during the preceding twelve 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                    
------------               ------------     

As of April 28, 1995, 46,464,987 shares of the registrant's Common Stock, $0.01 
par value, were outstanding.

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CRAY COMPUTER CORPORATION 
(DEBTOR-IN-POSSESSION)
INDEX 

PART I.  FINANCIAL INFORMATION                                                  

ITEM 1.  FINANCIAL STATEMENTS                                                 

                                                                [Download Table]

                                                                            PAGE NO.
                                                                            --------
                                                                                    
Statements of Operations (unaudited) cumulative from                                
October 1983 (inception) through March 31, 1995, and for the                        
three months ended March 31, 1995 and 1994.................................      3  

Balance Sheets as of March 31, 1995 (unaudited), and December 31, 1994.....      4  

Statements of Cash Flows (unaudited) cumulative from October 1983                   
(inception) through March 31, 1995, and for the three months ended                  
March 31, 1995 and 1994....................................................      5  

Notes to Interim Financial Statements (unaudited)..........................      6  

 ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL                         
          CONDITION AND RESULTS OF OPERATIONS..............................     15  

PART II.  OTHER INFORMATION                                                         

 ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..............     23  

 ITEM 5.  OTHER INFORMATION................................................     23  

     None                                                                           

 ITEM 6.  EXHIBITS AND REPORTS OF FORM 8-K.................................     23  

     A)     Exhibits                                                                
            None                                                                    

     B)     Reports on Form 8-K............................................     23  

SIGNATURE..................................................................     24  

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CRAY COMPUTER CORPORATION 
(DEBTOR-IN-POSSESSION)
STATEMENTS OF OPERATIONS
(UNAUDITED) 

                                                        [Enlarge/Download Table]


(In thousands, except per share data)                                                            
------------------------------------                                                             

                                            Cumulative from               Three months           
                                             October 1983                ended March 31,         
                                         (inception) through     ------------------------------- 
                                             March 31, 1995            1995            1994      
                                       ------------------------  ---------------  -------------- 
                                                                                                 
REVENUE                                                                                          
  Sales                                    $    12,760                    -                -     
  Service fees                                   1,683                   90               80     
  Development contract revenue                   2,524                  399                -     
Other revenue                                       80                   24                -     
                                       ------------------------  ---------------  -------------- 
                                                17,047                  513               80     
                                       ------------------------  ---------------  -------------- 

OPERATING COSTS AND EXPENSES                                                                     
  Cost of  sales                                 7,686                    -                -     
  Cost of services                                 641                    -               40     

  Research and development                                                                       
    Related parties                             41,169                   60               90     
    Other                                      316,552                7,571           10,788     
                                       ------------------------  ----------------  ------------- 

  Total research and development               357,721                7,631           10,878     

  Marketing                                      3,859                  362              173     

  General and administrative                    18,775                  961              751     
                                       ------------------------  -----------------  -------------
                                               388,682                8,954           11,842     
                                       ------------------------  -----------------  -------------

OPERATING LOSS                                (371,635)              (8,441)         (11,762)    

  Other income (deductions), net                   618                 (290)             314     

  Litigation settlement expense                  1,000                    -                -     
                                       -----------------------   -----------------  -------------

NET LOSS                                   $  (372,017)              (8,731)         (11,448)    
                                       -----------------------   ----------------  ------------- 
LOSS PER SHARE                                                     $  (0.20)        $  (0.30)    
                                                                  ---------------  --------------
Weighted average number of                                                                       
 shares outstanding                                                  44,424           37,875     
                                                                  ---------------  --------------

See accompanying notes to interim financial statements  

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CRAY COMPUTER CORPORATION 
(DEBTOR-IN-POSSESSION)
BALANCE SHEETS
(UNAUDITED) 

                                                                [Download Table]


(In thousands, except share data)                     March 31,   December 31, 
---------------------------------                       1995         1994      
                                                     ----------  ------------- 
                                                                               
ASSETS                                                                         
Current assets:                                                                
  Cash and cash equivalents                           $     478          2,372 
  Accounts receivable                                       390            711 
  Prepaid expenses                                        1,695          1,855 
  Other current assets                                       19             15 
                                                      ---------   ------------ 
     Total current assets                                 2,582          4,953 
                                                      ---------   ------------ 

Property, plant and equipment                            78,503         78,392 
Less accumulated depreciation and amortization           58,207         57,179 
                                                      ---------   ------------ 
     Net property, plant and equipment                   20,296         21,213 
                                                      ---------   ------------ 
  Other assets                                               12              - 
TOTAL ASSETS                                          $  22,890         26,166 
                                                      =========   ============ 

LIABILITIES AND STOCKHOLDERS' EQUITY                                           
Current liabilities:                                                           
Post petition liabilities                                                      
  Accounts payable                                    $       -              - 
  Accrued expenses                                            1              - 

Liabilities not subject to compromise                                          
  Bank borrowings, including note payable to bank        12,360          7,663 
  Property taxes                                            664            502 

Liabilities subject to compromise                                              
  Accounts payable                                        4,323          2,392 
  Accrued expenses                                          940          1,098 
                                                      ---------   ------------ 

     Total current liabilities                           18,288         11,655 
                                                      ---------   ------------ 

Long-term liability                                           -            360 
Note payable to bank, long-term                               -          5,056 

     Total liabilities                                   18,288         17,071 
                                                      ---------   ------------ 

Stockholders' equity:                                                          
  Preferred stock of $.01 par value                                            
     Authorized 20,000,000 shares                             -              - 
  Common stock of $.01 par value                                               
     Authorized 120,000,000 shares,                                            
     issued and outstanding 46,464,987 and                                     
     41,905,800 shares                                      465            419 
  Additional paid-in capital                            253,379        249,187 
                                                      ---------   ------------ 
                                                        253,844        249,606 
                                                      ---------   ------------ 
  Deficit accumulated during the development                                   
   stage                                               (372,017)      (363,286)
  Less accumulated deficit transferred to                                      
   additional paid-in capital                           122,775        122,775 
                                                      ---------   ------------ 
  Accumulated deficit since November 15, 1989          (249,242)      (240,511)
                                                      ---------   ------------ 
     Total stockholders' equity                           4,602          9,095 
                                                      ---------   ------------ 
Commitments and contingencies                                                  
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY            $  22,890         26,166 
                                                      =========   ============ 

See accompanying notes to interim financial statements  

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CRAY COMPUTER CORPORATION 
(DEBTOR-IN-POSSESSION)
STATEMENTS OF CASH FLOWS
(UNAUDITED) 

                                                        [Enlarge/Download Table]

(In thousands)                                                                       
-------------                                                                        
                                          Cumulative from        Three months ended  
                                            October 1983              March 31,      
                                        (inception) through   -----------------------
                                           March 31, 1995         1995        1994   
                                       ---------------------  ----------  -----------
                                                                                     
CASH FLOWS FROM OPERATING                                                            
 ACTIVITIES:                                                                         
Net loss                                    $ (372,017)        (8,731)     (11,448)  
Adjustments to reconcile net loss                                                    
  to net cash flows used by operations:                                              
  Depreciation and amortization                 81,319          1,028        1,516   
  Loss on sale or retirement of                                                      
     property, plant and equipment               5,572              -           42   
Change in operating assets                                                           
 and liabilities:                                                                    
     Accounts receivable                          (390)           321          113   
     Inventories                                 1,574              -            -   
     Spares, net                                  (641)             -            -   
     Prepaid expenses                             (356)           160          480   
     Accounts payable                            4,605          2,433          157   
     Accrued expenses                            1,103           (497)        (247)  
     Long-term liability                             -           (360)          -    
                                               --------        ------      -------   
Cash flows used by                                                                   
 operating activities                         (279,231)        (5,646)      (9,387)  
                                               --------        ------      -------   

CASH FLOWS FROM INVESTING ACTIVITIES:                                                
Sale of short-term investments                       -              -        8,806   
Sale of long-term                                                                    
 marketable securities                               -              -            -   
Purchase of property,                                                                
 plant and equipment                           (90,357)          (111)      (1,065)  
Proceeds from sale of                                                                
 property, plant and                                                                 
 equipment                                       1,653              -            -   
Proceeds from matured                                                                
 lease deposits                                    987              -            -   
Increase in other assets                        (2,121)           (16)         (15)  
                                              ---------        ------      -------   
Cash flows provided by (used in)                                                     
 investing activities                          (89,838)          (127)       7,726   
                                              ---------        ------      -------   

CASH FLOWS FROM FINANCING                                                            
 ACTIVITIES:                                                                         
Advances from Cray                                                                   
 Research, Inc., net                           160,336              -            -   
Proceeds from the issuance                                                           
 of common stock                                98,538          4,238          359   
Proceeds from note                                                                   
 receivable from Cray                                                                
  Research, Inc.                                98,640              -            -   
Proceeds from sale and                                                               
 leaseback transactions                          3,874              -            -   
Proceeds from bank                                                                   
 borrowings                                      5,860           (359)           -   
Proceeds from issuance of                                                            
 note payable to bank                            6,500              -            -   
Principal payments on                                                                
 capital leases                                 (4,201)             -           (5)  
                                              --------         ------      -------   
Cash flows provided by                                                               
 financing activities                          369,547          3,879          354   
                                              --------         ------      -------   

Increase (decrease) in                                                               
 cash and cash equivalents                         478         (1,894)      (1,307)  
Cash and cash equivalents                                                            
 at beginning of period                              -          2,372        4,691   
                                              --------        -------       ------   

CASH AND CASH EQUIVALENTS                                                            
 AT END OF PERIOD                           $      478            478        3,384   
                                              ========        ========      ======   

Non cash investing and                                                               
 investing activities:                                                               
  Net transfers of                                                                   
   property, plant and                                                               
   equipment from Cray Research,                                                     
      Inc. at net book value                $    3,723              -            -   
  Acquisition of equipment                                                           
   and process technology                                                            
    from GigaBit Logic,                                                              
     Inc., fair market                                                               
     value                                  $   10,854              -        -       
          Consideration                        (10,328)             -        -       
                                              --------         -------   ------      
          Liabilities                                                                
           assumed                          $      526              -        -       
                                              ========         =======   ======      


See accompanying notes to interim financial statements  

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CRAY COMPUTER CORPORATION 

(DEBTOR IN POSSESSION)

NOTES TO INTERIM FINANCIAL STATEMENTS 

(UNAUDITED) 

(1) Bankruptcy Filing and Basis of Financial Statement Presentation             
---------------------------------------------------------------         

The accompanying financial statements are unaudited and have been prepared      
assuming that the  Company will continue as a going concern. The Company's      
recurring losses, continued utilization of cash flows by operating activities,  
working capital deficit at March 31, 1995, and the Bankruptcy filing on March   
24, 1995 raise substantial doubt about its ability to continue as a going       
concern. The financial statements do not include any adjustments that might     
result from the outcome of this uncertainty.  The results of operations and cash
flows for the three months ended March 31, 1995, are not necessarily indicative 
of results to be expected for the entire year.                                  

On March 24, 1995 Cray Computer Corporation (the "Company") filed a voluntary   
petition under Chapter 11 of the United States Bankruptcy Code in the United    
States Bankruptcy Court for the District of Colorado (the "Court") after the    
Company determined it would be unable to complete a planned private placement of
up to $25 million of Common Stock with foreign and United States institutional  
investors, and the Company ceased to have liquid assets which would allow it to 
continue in operations. The Company's existing directors and officers have      
remained in possession of the assets and business of the Company but are subject
to the supervision and orders of the Court. The Company has terminated most of  
its employees and stopped work on its supercomputer systems.                    

The terms of the Company's secured debt financing provided for certain events of
default. The filing of Bankruptcy is stated to be an event of default. No       
additional debt financing is currently available under the secured line of      
credit and under the terms of the debt agreement repayment of such debt is      
required. The lender is subject under the U.S. Bankruptcy Code to an automatic  
stay against any action against the Company or its assets to collect its debt   
without prior approval of the Bankruptcy Court.                                 

In accordance with the Bankruptcy Code, the Company can seek court approval for 
the rejection of executory contracts, including real property leases, its Design
and Development Agreement with Seymour R. Cray, and the development contract    
with the National Security Agency. Any such rejection may give rise to a        
prepetition unsecured claim for breach of contract.                             

As of the petition date, payment of liabilities to unsecured creditors,         
including trade unsecured creditors and secured noteholders, are stayed while   
the Company is a Debtor in Possession.                                          

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Depending on the ultimate outcome of the Company's bankruptcy proceeding, the   
Company's ability to utilize its Federal income tax net operating loss and      
research and development credit carryforwards may be further restricted or      
eliminated.                                                                     

As a result of the bankruptcy proceedings, the Company may sell or otherwise    
realize assets and liquidate or settle liabilities for amounts other than those 
reflected in the accompanying financial statements, including the amounts       
recorded for prepaid expenses and net property, plant, and equipment. Further, a
plan of reorganization could materially change the amounts currently recorded in
the accompanying financial statements. The accompanying financial statements do 
not give effect to any adjustments to the carrying value of assets or amounts.  
All liabilities are classified as current liabilities.  However, as a result of 
the bankruptcy filing the timing of repayment is uncertain.                     

The Company believes that the accompanying financial statements follow the      
reporting recommendations of Statement of Position 90-7, Financial Reporting by 
                                                        ----------------------
Entities in Reorganization Under the Bankruptcy Code.                           
----------------------------------------------------                            

See Notes 3, 5, 7, 9 and 10 for matters that are or may be significantly        
impacted by the bankruptcy filing.                                              

Cray Research, Inc., (CRI) distributed 90 percent of the then outstanding shares
of Cray Computer Corporation (the "Company") to its shareholders on November 19,
1989. By December 31, 1992, CRI had sold the remaining common shares of the     
Company which it had owned. The accompanying financial statements include the   
historical basis accounts of the Company while operating as a division of CRI   
and as a separate company. These accounts do not include general unallocated    
corporate expenses of CRI while the Company operated as a division of CRI.      
Advances made by CRI to the Company through November 15, 1989 were transferred  
to additional paid-in capital and the Company's accumulated deficit from October
1983 (inception) through November 15, 1989 was offset against additional paid-in
capital.                                                                        

The Company is a development stage enterprise, having devoted substantially all 
of its efforts from inception through March 24, 1995 to activities related to   
the design and development of the CRAY-3, CRAY-3/Super Scalable System (SSS),   
and CRAY-4 supercomputer systems. Such activities have included research and    
development; raising capital; acquiring and constructing property, plant and    
equipment; recruiting and training personnel; establishing sources of supply;   
and developing potential markets. The Company has had no orders for or revenues 
from the sale of its products. The Company will remain a development stage      
enterprise until significant revenues are derived from the sale of its          
supercomputer systems if the Company were to reorganize.                        

These condensed financial statements should be read in conjunction with the     
financial statements and related notes thereto included in the Company's Annual 
Report on Form 10-K for the year ended December 31, 1994.  There were no        
business combinations or dispositions in the first three months of 1995.        

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(2) Common Stock and Warrants                                                   
-------------------------                                               

On January 25, 1995, the Company completed a sale of 1,100,000 shares of its    
unregistered Common Stock to foreign institutional investors and 1,165,501      
shares of its unregistered Common Stock to Seymour R. Cray, Chairman of the     
Board and Chief Executive Officer (net proceeds of approximately $2,145,000).   
The sale of shares to the foreign institutional investors was exempt from the   
registration requirements of the Securities Act (the "Securities Act") of 1933, 
as amended pursuant to Regulation S. The sale of shares to Mr. Cray was exempt  
from registration requirements of the Securities Act pursuant to Regulation D.  

On February 27, 1995, the stockholders of the Company approved an amendment to  
the Company's Restated Certificate of Incorporation increasing the number of    
authorized shares of Common Stock, $0.01 par value, from 60,000,000 to          
120,000,000 shares in order to have sufficient authorized unissued shares to    
permit substantial additional equity financing. The Company had approximately 72
million authorized shares of Common Stock remaining available for future        
issuance at March 31, 1995.                                                     

On February 27, 1995, the Company completed a sale of 2,100,000 shares of its   
unregistered Common Stock to a foreign institutional investor (net proceeds of  
approximately $1,764,000). This sale of shares was exempt from the registration 
requirements of the Securities Act pursuant to Regulation S.                    

(3) Related Party Transactions                                                  
--------------------------                                              

Below is a table which sets forth the related party transactions included in    
research and development expenses for the periods indicated.                    

                                                                [Download Table]


(In thousands)                             Three months ended    
                                                March 31,        
                                         ------------------------
                                             1995        1994    
                                         -----------  -----------
                                                                 
Performance Semiconductor Corporation    $     -            14   
Seymour R. Cray                               60            76   
                                            ----          ----   
                                         $    60            90   
                                            ====          ====   

Performance Semiconductor Corporation (PSC) supplied the Company with 4 Kilobit 
and 256 Kilobit Static Random Access Memory (SRAM) circuits until August 1993.  
The $14,000 reported above for 1994 represents the cost of SRAM circuits that   
were used in the research and development process and expensed in 1994. The     
circuits were previously classified as prepaid expenses.                        

In November 1991, the Company entered into an agreement with PSC to design and  
develop a specialized one-megabit memory circuit. Under the terms of the        
agreement, the Company would pay development fees of approximately $1,025,000 to
PSC beginning in November 1991. The Company paid $925,000 to PSC under this     
agreement during 1992. No payments were made under the agreement in 1994, 1993  
and 1991. The Company had the right, in its sole discretion, to cancel the      
remaining payment(s) under the agreement if it was determined that adequate     
progress was not or could not be made. The Company notified PSC that the        
agreement was cancelled because adequate progress was not made on the part of   
PSC, and no additional payments will be made.                                   

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PSC declared Chapter 11 Bankruptcy in January 1994. The Company received Chapter
11 Notice of Final Hearing on Debtor's Motion for Approval of Stipulation for   
Use of Cash Collateral dated January 5, 1994 from the United States Bankruptcy  
Court, Northern District of California. All outstanding purchase orders between 
the Company and PSC had been fulfilled or cancelled prior to January 1994.      

Seymour R. Cray, Chairman of the Board and Chief Executive Officer, serves as an
independent contractor to the Company under a Design and Development Agreement  
(the "Agreement") which does not require any specific working time commitment by
Mr. Cray. The Design and Development Agreement, which is similar to his prior   
agreement with CRI from 1981 to 1989, and with the Company from 1989 to 1992,   
has a term expiring in June 1997. This Agreement would terminate early in the   
event that the Company discontinues development funding for the CRAY-4 or for   
future systems or limits or terminates agreed-upon production for the CRAY-4 or 
for future systems. In such event, Mr. Cray retains the option to continue      
development and production of the project, subject, however, to prior consent by
the Company's asset-based lender for as long as its loan agreement with the     
Company remains in effect. No "agreed-upon production" of the CRAY-4 has been   
established because the CRAY-4 is still in the development stage. The Agreement 
also terminates in the event Mr. Cray fails for any reason to continue a        
project, in which case the Company retains the right to fund and participate in 
additional projects pursued by him. Subject to prior consent by the Company's   
asset-based lender, Mr. Cray could terminate his participation in the           
development of the CRAY-4 at any time and would have the right to use           
independently the technology relating thereto and to compete with the Company.  

The Company is reviewing the terms and conditions of the Agreement with Mr. Cray
to assess the ramifications of the bankruptcy filing.                           

(4) Loss Per Common Share                                                       
---------------------                                                   

Loss per common share has been computed based upon the weighted average number  
of common shares outstanding. Common stock equivalents are not included in the  
computation because their effect would be anti-dilutive.                        

(5) Stock Plans                                                                 
-----------                                                             

1989 Employee Benefit Stock Plan: The purpose of this plan is to provide a means
for the Company, by granting Company stock or options to purchase stock to      
eligible employees and directors of the Company and its subsidiaries, to attract
and retain persons of ability and motivate them to advance the interests of the 
Company and benefit its stockholders. Stock options and grants are awarded by   
the Compensation Committee of the Board of Directors. Under the plan, 3,700,000 
shares of the Company's Common Stock may be issued, of which 200,000 shares may 
be issued to the Company's directors. Under the terms of the plan, the option   
price (in the case of stock options) is equal to the fair market value on the   
date of grant or, if repriced, on the date of option repricing. Options may be  
exercised at a rate of 25 percent annually, beginning one year from the date of 
grant, and terminate seven years from the date of grant.                        

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In the case of stock grants, the vesting terms vary. However, in most cases the 
employee or director becomes vested 25 percent one year after the date of grant 
and then 6.25 percent every three months thereafter. The value of grants on the 
date awarded, net of the value related to grants subsequently cancelled, is     
amortized on a progressive method to the statement of operations over the four  
years during which the grants become vested. There was no unamortized deferred  
compensation expense related to stock grants or outstanding stock grants at     
December 31, 1994. No stock options were awarded in the first quarter of 1995.  

1989 Qualified Stock Purchase Investment Plan: The purpose of this plan is to   
facilitate capital accumulation by eligible employees in the form of the        
Company's Common Stock and thereby to provide employee identification with the  
commitment to the goals of the Company. Under the original plan, up to 500,000  
shares of Common Stock could be issued. At the Annual Meeting of Shareholders   
held on May 10, 1994, shareholders approved an amendment to the original plan   
adding 1,000,000 shares for issuance under the plan bringing the total to       
1,500,000 shares. The Company has registered the 1,500,000 shares with the      
Securities and Exchange Commission. Eligible employees may designate from 2 to  
15 percent of their earnings to be withheld through payroll deductions for the  
purchase of Common Stock at 85 percent of the lower of the market price on the  
first or the last day of the offering period. Directors are not eligible to     
participate. Participant elections resulted in the issuance of 193,686 shares at
a per share price of $0.93 for the offering period ended February 28, 1995.     

The Company is reviewing the terms and conditions of the stock plans to assess  
the ramifications of the bankruptcy filing.                                     

(6) Statement of Stockholders' Equity                                           
---------------------------------                                       

                                                                [Download Table]


(In thousands)                                                                 
                                                       Additional              
                                               Common   Paid-in    Accumulated 
                                               Stock    Capital      Deficit   
                                               ------  ----------  ------------
                                                                               
Balance at December 31, 1994                   $  419     249,187     (240,511)
Issuance of common stock @ $0.93 (avg),                                        
 net                                               44      4,014               
Shares issued for purchases under the                                          
   1989 Qualified Stock Purchase                                               
   Investment Plan                                  2         178              
Net loss                                            -           -       (8,731)
                                               ------  ----------  ----------- 

Balance at March 31, 1995                      $  465     253,379     (249,242)
                                               ======  ==========  =========== 

(7) Income Taxes                                                                
------------                                                            

The Financial Accounting Standards Board has issued the Statement of Financial  
Accounting Standard (SFAS) No. 109, Accounting for Income Taxes. Under the asset
and liability method of SFAS 109, deferred tax assets and liabilities are       
recognized for the future tax consequences attributable to the differences      
between the financial statement carrying amounts of existing assets and         
liabilities and their respective tax bases. Deferred tax assets and liabilities 
are measured using enacted tax rates expected to apply to taxable income in the 
years in which those temporary differences are expected to be recovered or      
settled. The effect on deferred tax assets and liabilities of a change in tax   
rates is recognized in the period that includes the enactment date.             

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Effective January 1, 1993, the Company adopted SFAS 109. There was no effect on 
the financial statements as a result of this change in accounting for income    
taxes.                                                                          

At March 31, 1995, the Company had a net operating loss carryforward for Federal
income tax purposes of approximately $230,000,000 which it believes may be      
available to offset future taxable income, if any, through 2009. The Company    
also has a research and development tax credit carryforward for Federal income  
tax purposes of approximately $14,000,000 which it believes will be available to
offset future Federal income taxes, if any, through 2009. The use of these      
carryforwards would be severely limited by the terms of Section 382 of the      
Internal Revenue Code if there is an "ownership change" as defined by Section   
382.                                                                            

Depending on the ultimate outcome of the Company's bankruptcy proceeding, the   
Company's ability to utilize its Federal income tax net operating loss and      
research and development credit carryforwards may be further restricted or      
eliminated.                                                                     

(8) Accounts Receivable                                                         
-------------------                                                     

In August 1994, the Company and the National Security Agency (NSA) entered into 
a cost sharing development contract for the Company to produce a CRAY-3/SSS.    
Under the terms of the contract, the Company may be paid up to $4,200,000 for   
development costs, and the Government will provide approximately $400,000 in    
software consulting services. As of March 31, 1995, the Company had cumulatively
invoiced NSA approximately $2,524,000 pursuant to the terms of the joint        
development contract and had related outstanding accounts receivable of         
approximately $268,000. The Company's asset based lender asserts a security     
interest in the outstanding accounts receivable.  The  Company has requested    
that the United States Bankruptcy Court for the District of Colorado provide an 
order authorizing the Company the use of cash collateral.  The motion is        
scheduled for a hearing in bankruptcy court on May 23, 1995.  Development costs 
incurred by the Company are charged to research and development expense.        

(9) Licensing Agreement                                                         
-------------------                                                     

In June 1993, the Company entered into a systems distributorship and license    
agreement with Advanced Visual Systems, Inc. (AVS). The agreement grants the    
Company a license to use AVS software and AVS documentation internally to make  
distributor versions of AVS software. The agreement also grants the Company a   
license to sublicense distributor versions of AVS software. The agreement       
expires after three years and can be automatically renewed on a year-to-year    
basis. The Company has the right to cancel the agreement upon 90 days written   
notice to AVS. Under the terms of the license agreement a one-time,             
nonrefundable licensing fee of $300,000 was incurred by the Company. The Company
paid $50,000 of this fee upon the execution of the agreement with the remaining 
amount of $250,000 due in 1996. The total license fee of $300,000 was charged to
research and development expense in 1993.                                       

The Company is reviewing the terms and conditions of the licensing agreement    
with AVS to assess the ramifications of the bankruptcy filing.                  

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(10) Bank Borrowings                                                            
---------------                                                       

In June 1994, the Company obtained a $17.5 million secured line of credit       
commitment from a lender. The commitment is comprised of a $6.5 million term    
loan and an $11.0 million revolving line of credit. The commitment is secured by
a senior security interest in all the assets of the Company. Additional         
collateral was provided by Seymour R. Cray, Chairman of the Board and Chief     
Executive Officer, in the form of a $5.0 million standby letter of credit in    
June 1994 and a $1.0 million standby letter of credit in December 1994. The     
Company received the funds from the $6.5 million term loan upon closing of the  
transaction in June 1994. As of March 31, 1995, the Company had borrowed $5.9   
million of the revolving line of credit, for a total amount of $12.4 million    
borrowed against the available line of credit of $17.5 million. The Company     
could have borrowed the remaining amount of the available revolving line of     
credit ($5.1 million) only by providing additional collateral in the form of    
standby letter(s) of credit (up to $4.0 million) and/or 70 percent of eligible  
accounts receivable (up to $1.1 million). The revolving line of credit is for a 
term of three years from June 10, 1994 and from year to year thereafter, unless 
sooner terminated pursuant to the terms of the Loan and Security Agreement.     

All loans under the revolving line of credit are subject to the lender's        
continuing right to establish lending reserves. These reserves, if imposed,     
could have reduced the amount of revolving line of credit loans which otherwise 
would have been available to the Company under the lending formulas.            

The $6.5 million term loan has a five-year term under which the Company made    
interest only payments from June 1994 through December 1994. Principal plus     
interest payments commenced in January 1995. Annual maturities on the term loan 
are as follows: 1995 through 1998 - $1,444,440, 1999 - $722,240.                

The terms of the Company's secured debt financing provide for certain stated    
events of default, which include, among other things, (i) failure to perform or 
meet certain covenants, such as maintaining a minimum working capital and net   
worth, as defined by the agreement, (ii) any change in the controlling ownership
of the Company, (iii) the failure of Seymour R. Cray to provide services to the 
Company substantially similar to those he currently provides, other than such   
failure by reason of death, disability, sickness, or injury, (iv) any material  
adverse change in the Company's business, assets, or prospects and (v) the      
filing of bankruptcy. If the Company were to default under the financing, the   
lender may take possession of the Company's assets, charge higher interest rates
on the outstanding debt, demand immediate repayment of all obligations and/or   
take other actions as specified in the loan agreement.                          

On April 24, 1995 the secured lender, as a result of the bankruptcy filing,     
called on the standby letters of credit (totalling $6 million) issued in their  
favor by Mr. Cray which reduces the amount owed by the Company on its line of   
credit to the secured lender. The Company now has an unsecured liability to Mr. 
Cray for an approximate amount of $6 million.                                   

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See Note 1 - Bankruptcy Filing and Basis of Financial Statement Presentation.   

The filing of bankruptcy is stated in the loan agreement to be an event of      
default.                                                                        

The term loan and the revolving line of credit bear interest at prime (as       
publicly announced by Philadelphia National Bank from time to time) plus 2 1/2  
percent and prime plus 1 1/2 percent, respectively. The Company must also pay a 
service fee of $50,000 for each year the loan agreement is effective and certain
other fees.                                                                     

Per the terms of the Loan and Security Agreement between the Company and        
Congress Financial Corporation, the Company must pay a success fee of $175,000  
on June 10, 1997 or, if sooner, upon termination of the loan. The success fee   
owed is recorded as a current liability at March 31, 1995.                      

(12) Commitments and Contingencies                                              
-----------------------------                                         

The Securities and Exchange Commission (the "Commission") has issued a formal   
order for a non-public investigation relating to trading in the Common Stock of 
the Company during the period from September 1, 1990 through January 31, 1992,  
which is the approximate period during which the Company was negotiating or had 
in effect a purchase order for a 16-processor CRAY-3 supercomputer system from  
the National Energy Research Supercomputer Center (NERSC) at Lawrence Livermore 
National Laboratory. The announced loss of this purchase order in December 1991 
caused a major drop in the market price of the Company's Common Stock. The      
formal order states that the Commission staff has information tending to show   
that during the period under investigation certain individuals and entities may 
have traded stock of the Company while in possession of material non-public     
information and that the Company and others may have made false and misleading  
statements in filings with the Commission or in other public documents          
concerning this purchase order or the progress of development of the CRAY-3,    
which allegations, if true, would result in possible violation of Section 17 (a)
of the Securities Act of 1933 and Sections 10 (b) and 13 (a) of the Securities  
Exchange Act of 1934. The staff of the Central Regional Office of the Commission
has notified the Company of its intention to recommend that the Commission seek 
permanent injunctions and civil penalties against the Company, Seymour R. Cray  
and a former officer of the Company for alleged violations of these Sections and
to seek similar relief against Terry Willkom, the President of the Company,     
under two of them. The staff of the Central Regional Office has informed the    
Company and the corporate officers that they may file a written statement       
("Wells Submission") to the Commission setting forth their positions and        
arguments concerning the proposed recommendation, and such a statement was filed
with the Central Regional Office on February 15, 1995. The staff has also       
indicated its willingness to consider a proposed compromise resolution of the   
issues. Management of the Company is actively seeking to resolve these matters  
and does not believe that the investigation has uncovered violations by the     
Company or any of its officers and directors of any of the cited provisions of  
law or that the investigation will result in a material adverse effect on the   
business, operating results, or financial position of the Company. However, the 
Company cannot predict whether a prompt resolution will be reached or what the  
ultimate outcome of the investigation will be.                                  

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The Company entered into two investment agreements with a foreign investor on   
January 11, 1995, pursuant to which two blocks of 2,500,000 shares each would be
issued at a 25 percent discount from the average market price of the Common     
Stock during two separate valuation periods. A provisional closing on the first 
of these transactions involving 2,500,000 shares was scheduled to occur no later
than January 13, 1995. The Company did not receive timely payment in compliance 
with the written terms of the first agreement, even with an oral extension of   
the first closing deadline. The Company immediately notified the investor of its
breach of the agreement and declared both of the investment agreements          
terminated. The investor has asserted that it attempted to wire timely payment  
within the orally extended deadline, but was prevented from completing the      
transfer through the fault of the Company's bank. The management of the Company 
has consulted with its bank and believes the payment terms were not met.        
Although the dispute remains unresolved, the Company's management believes that 
no timely payment was made within either the written or the orally extended     
deadline and that the investment agreements are no longer in effect. However, if
such shares were issued, such issuance could result in possible dilution of the 
percentage interest in the Company represented by outstanding shares of the     
Company's Common Stock.                                                         

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ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND       
RESULTS OF OPERATIONS                                                           

The following is a discussion of the historical results of operations and       
financial condition of Cray Computer Corporation.  This discussion should be    
read in conjunction with the discussions and historical financial statements and
notes thereto included in the Annual Report on Form 10-K for the year ended     
December 31, 1994 and the historical financial statements and notes thereto     
included elsewhere in this Form 10-Q.                                           

OVERVIEW                                                                        

On March 24, 1995 Cray Computer Corporation (the "Company") filed a voluntary   
petition under Chapter 11 of the United States Bankruptcy Code in the United    
States Bankruptcy Court for the District of Colorado (the "Court") after the    
Company determined it would be unable to complete a planned private placement   
financing of up to $25 million of Common Stock with foreign and United States   
institutional investors and the Company ceased to have sufficient liquid assets 
which would allow it to continue in operation. The Company terminated most of   
its employees and stopped work on its supercomputer systems on March 24, 1995.  
The Company's existing directors and officers have remained in possession of the
assets and business of the Company, but are subject to the supervision and      
orders of the Court.  The Company believes it is complying with the reporting   
requirements and operating guidelines for debtors-in-possession under Chapter 11
proceedings.                                                                    

Under Chapter 11 the Company may attempt to reorganize, enabling it to resume   
operations, or it may dispose of assets followed by distribution of the amount  
realized to creditors and, if any excess remains, to shareholders of the        
Company. If the assets of the Company are disposed of, that disposition may be  
accomplished by the management of the Company as Debtor-in-Possession or by an  
appointed trustee following conversion of the Chapter 11 proceeding to a        
liquidation under Chapter 7 of the United States Bankruptcy Code.               

Also, under Chapter 11, the Company as Debtor-in-Possession, has the exclusive  
right to file a plan during the 120 days from the initial bankruptcy filing     
date.  This plan may be to either reorganize or to liquidate the Companys       
assets.  This 120 day exclusive period ends by approximately July 21, 1995 and  
the Company currently anticipates filing its plan no later than that date.      

Management of the Company has commenced discussions with potential strategic    
partners which may result in the resumption of the Company's operation, either  
by the Company or a different entity.  Management of the Company does not know  
as of the date of this Report whether such discussions will result in a plan of 
reorganization permitting the Company to resume its operations.  Management     
intends to resolve, as soon as possible, whether a plan of reorganization is    
feasible.  If such a plan does prove feasible, it will be presented for         
approval, as required, to interested parties including the Bankruptcy Court by  
approximately July 21, 1995, subject to possible extension.                     

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The development of a new generation of high performance supercomputers is       
lengthy and a technically challenging process that requires substantial amounts 
of capital and talented personnel.  The amount of capital required to reorganize
and the fact that the Company has terminated most of its employees and may not  
be able to rehire or find suitable  replacements will be a major concern to any 
potential strategic corporate partner and thus to the Companys ability to       
reorganize.                                                                     

The Company, a development stage enterprise, had a net loss for the three months
ended March 31, 1995 of $8.7 million. The Company had accumulated losses of     
approximately $372 million from its inception through March 31, 1995.           
Approximately $123 million of its cumulative deficit was incurred while the     
Company was a division or wholly owned subsidiary of Cray Research, Inc. (CRI). 
Substantially all of the Company's funding since its incorporation in 1989 has  
come from CRI ($98,640,000) between October 1989 and October 1991, the sale of a
CRAY-2 supercomputer ($12,760,000) in December 1990, a public stock offering    
(net proceeds of approximately $61,088,000) in July 1991, ongoing maintenance   
revenues ($1,683,000) on the CRAY-2 supercomputer, a sale of shares of Common   
Stock to institutional and private investors (net proceeds of approximately     
$27,805,000) in June 1993, loan proceeds ($12,719,000), contract revenue        
($2,524,000) on the cost sharing development contract with the National Security
Agency (NSA) entered into in August 1994, sales of shares of Common Stock to    
private and foreign institutional investors (net proceeds of approximately      
$3,822,000) in the fourth quarter of 1994, and sales of shares of Common Stock  
to Seymour R. Cray, Chairman of the Board and Chief Executive Officer (1,165,501
shares) and to foreign institutional investors (3,200,000 shares) in the first  
quarter of 1995 (aggregate net proceeds of approximately $3,909,000).           

Until the date of its bankruptcy filing, the Company was engaged in the design, 
development, manufacture and marketing of the CRAY-3/Super Scalable System (SSS)
and CRAY-4 high-performance computer system and the marketing of the CRAY-3     
supercomputer system. The CRAY-3 and CRAY-4 are modular upgradeable general     
purpose supercomputers designed to provide balanced, high-performance computing 
for many types of scientific and engineering applications. The Company was      
addressing the high-performance, large-scale scientific and engineering segment 
of the supercomputer market. The number of potential customers in this market is
and always has been limited. The market for supercomputers has been             
characterized by continuing advancement of technology and the development of    
increasingly sophisticated and powerful systems which render existing systems   
obsolete within a few years.                                                    

The CRAY-3, CRAY-3/SSS, and CRAY-4 incorporate a modular or building-block      
architecture designed to allow customers to add processing and memory           
capability. The CRAY-4 configuration can range from 4 to 64 processors with base
prices in the approximate range of $3.5 million to $40 million. The CRAY-3/SSS  
is designed to utilize a 2-processor CRAY-3 in conjunction with Processor-in-   
Memory (PIM) chips developed and manufactured by a third party to provide vector
parallel processing, scalable parallel processing, and the combination of both. 
All of these systems are designed to incorporate advanced Gallium Arsenide      
(GaAs) logic circuits, fast semiconductor Static Random Access Memory (SRAM)    
circuits, advanced semiconductor packaging and interconnect technologies, and   
advanced liquid cooling techniques.                                             

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On August 17, 1994, the Company entered into a joint development contract with  
the National Security Agency (NSA), to produce a CRAY-3/SSS offering vector     
parallel processing, scalable parallel processing, and the combination of both. 
Under the NSA contract, the Company received revenues from NSA for a portion of 
the Company's costs of developing the system. The CRAY-3/SSS is designed to     
utilize a CRAY-3 and a large number of Processor-In-Memory (PIM) chips developed
by the Supercomputing Research Center of the Institute for Defense Analyses and 
manufactured by National Semiconductor Corporation. The system was to consist of
a dual processor 256 million word CRAY-3, and an array of 512,000 single bit    
processors, 128 million byte Single Instruction Multiple Data (SIMD) array. The 
Company successfully completed the first of a number of major tasks required    
under the development contract which consisted of the successful test and       
demonstration of an array of 256,000 single bit processors packaged using the   
Company's multi-chip-module technology. Upon filing of bankruptcy, the Company  
stopped work on the CRAY-3/SSS. The Company is reviewing the terms and          
conditions of the development contract to assess the ramifications of the       
bankruptcy filing.                                                              

Significant technical progress was made during 1994 and first quarter 1995 on   
the CRAY-4, which takes advantage of technologies and manufacturing processes   
developed during the design and manufacture of the CRAY-3. The Company announced
introduction of the CRAY-4 to the market on November 10, 1994. Several single   
processor CRAY-4 prototype systems, each with 64 megawords of memory, were      
undergoing diagnostic testing prior to the Company filing for bankruptcy. The   
Company began testing individual CRAY-4 modules at the start of 1994 and planned
to be able to deliver a 4-processor CRAY-4 prototype system by approximately the
end of the second quarter of 1995. Upon filing of bankruptcy, the Company       
stopped work on the CRAY-4.                                                     

Following expiration of certain restrictions in its license agreements from CRI 
on July 31, 1994, the Company began to engage in discussions with potential     
strategic partners. Any such partnership could include joint manufacturing      
and/or marketing activities, a commitment to provide funding to the Company in  
exchange for an interest in the Company's technology (which may include the     
licensing of hardware, software, know-how, patents, or marketing rights to      
certain products or technology), an equity or debt investment, or any           
combination of the above. The Company is continuing its efforts to secure a     
corporate strategic partnership. Any such relationship would require approval of
the Court and possibly the Company's lender under its secured debt financing    
agreement. Although these discussions are continuing while in bankruptcy, no    
agreements are currently pending. As of the date of this report no partnership  
discussions have progressed beyond the preliminary stage and there can be no    
assurance that a strategic partnership will be consummated, or if consummated,  
on terms that are favorable to the Company.                                     

On February 27, 1995, the stockholders of the Company approved an amendment to  
the Company's Restated Certificate of Incorporation increasing the number of    
authorized shares of Common Stock, $0.01 par value, from 60,000,000 to          
120,000,000 shares in order to have sufficient authorized unissued shares to    
permit additional equity financing.                                             

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As of the date of this report, the Company's Common Stock is listed and trading 
on the NASDAQ Stock Market--National Market. NASDAQ By-Laws state that "should  
an issuer file under any of the sections of the Bankruptcy Act or announce that 
liquidation has been authorized by its Board of Directors and that it is        
committed to proceed, the Association may suspend or terminate the issuers      
securities unless it is determined that the public interest and the protection  
of investors would be served by continued designation." Again, the Company has  
filed a voluntary petition under Chapter 11 of the United States Bankruptcy     
Code. No liquidation has been authorized by the Company's Board of Directors, as
of the date of this report, and Management has submitted information to the     
NASDAQ Stock Market supporting its position that the Company's Common Stock     
should continue to be listed. There can be no assurance that the Company's      
Common Stock will continue to be listed on the NASDAQ National Market or the    
NASDAQ SmallCap Market.                                                         

BANKRUPTCY STATUS                                                               

The Company believes it is complying with the reporting requirements and        
operating guidelines for Debtors-in-Possession under Chapter 11 proceedings.    
Management is having discussions with its secured lender and with the official  
Unsecured Creditors Committee regarding the possibility of the Company securing 
a strategic partner and reorganizing or if this is not feasible, the disposition
of its assets.  If the assets of the Company are disposed of, that disposition  
may be accomplished by the management of the Company as Debtor-in-Possession or 
by an appointed trustee following conversion of the Chapter 11 proceeding to a  
liquidation under Chapter 7 of the United States Bankruptcy Code.               

On May 5, 1995 the Company filed a motion for Bankruptcy Court authorization to 
use cash collateral consisting of the proceeds of the accounts receivable from  
the Companys Development Contract with the National Security Agency ($268,000). 
The collection and use of this cash is critical to the Companys ability to      
reorganize, and if this proves not to be feasible, to the orderly disposition of
its assets to maximize the amounts realized.  This motion has been set for      
hearing on May 23, 1995.  While the Company believes this motion should be      
approved by the Court, there can be no assurance that this will occur.  If it is
not approved, this will have a material adverse impact on the Companys ability  
to reorganize or to have an orderly disposition of its assets.                  

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RESULTS OF OPERATIONS                                                           

Revenue and cost of revenue:  Service fees revenue and cost of services relate  
to the maintenance of the CRAY-2 supercomputer installed at the National Energy 
Research Supercomputer Center (NERSC) in April 1990. Service fees revenue for   
the quarter ended March 31, 1995 totaled $90,000 compared with $80,000 for the  
first quarter of 1994. The $10,000 increase in service fees revenue results from
the terms of a new NERSC maintenance agreement which was signed in March 1994   
and renewed through March 31, 1995. The maintenance agreement was extended      
through April 30, 1995 and is currently being negotiated to be effective through
March 31, 1996. Services under the maintenance agreement are performed by Cray  
Research, Inc. as a subcontractor and have not been interrupted by the          
bankruptcy filing. The service fee revenues described herein are net of payments
to the subcontractor.                                                           

Development contract revenue relates to the joint development contract entered  
into between the Company and the NSA in August 1994. The contract provided that 
the Company would be paid up to $4,200,000 for development costs, and the       
Government would provide approximately $400,000 in software consulting services.
Development contract revenue for the quarter ended March 31, 1995 totaled       
$399,000.  As of March 31, 1995, the Company had cumulatively invoiced the NSA  
approximately $2,524,000 pursuant to the terms of the joint development contract
and had related outstanding accounts receivable of approximately $268,000.  The 
Company's asset based lender asserts a security interest in this outstanding    
accounts receivable.  The Company filed a motion requesting that the United     
States Bankruptcy Court for the District of Colorado provide an order           
authorizing the Company the use of this cash collateral.  The motion is pending 
as of the date of this report.                                                  

Other revenue of $24,000 for the quarter ended March 31, 1995 relates to GaAs   
wafer qualification work performed for a third party.                           

Cost of services for the quarter ended March 31, 1995 totaled $0 compared with  
$40,000 for the first quarter of 1994. The $40,000 decrease in cost of services 
results from maintenance spare parts that became fully depreciated in 1994.     

Research and development expenses:  Research and development expenses for the   
quarter ended March 31, 1995 relate primarily to the design and development of  
the CRAY-3/SSS and CRAY-4 high-performance computer systems, including costs    
associated with the manufacture of prototype systems, and depreciation expenses 
on facilities and equipment used in research and development activities.        

Research and development expenses for the quarter ended March 31, 1995 totaled  
$7,631,000 compared with $10,878,000 for the first quarter of 1994. The         
$3,247,000 decrease in research and development expenses is primarily due to    
decreases in depreciation of approximately $463,000 as a result of assets       
becoming fully depreciated in 1994, reduced material charges of approximately   
$1,617,000 due to decreased CRAY-3 manufacturing, reduced mask fabrication and  
PCB drill bits of approximately $483,000, and reduced employee labor and benefit
expenses of approximately $732,000.                                             

Research and development expenses include certain related party transactions.   
Related party expenses for the quarter ended March 31, 1995 totaled $60,000.    

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Marketing:   Marketing expenses for the quarter ended March 31, 1995 totaled    
$362,000 compared with $173,000 for the first quarter of 1994. The $189,000     
increase in marketing expenses was the result in part of increased labor and    
benefit expenses of approximately $127,000 and increased fixed charges for      
leased office space of approximately $12,000 associated with the addition of    
employees to the marketing staff. Additional increases were associated with     
increased marketing activities, such as travel expenses which increased         
approximately $17,000 and charges for consulting services which increased       
approximately $42,000.                                                          

General and administrative expenses:  General and administrative expenses for   
the quarter ended March 31, 1995 totaled $961,000 compared with $751,000 for the
first quarter of 1994. The $210,000 increase in general and administrative      
expenses was due primarily to the Company's efforts to acquire equity financing,
such as employee travel expenses which increased approximately $13,000 and other
business expenses which increased approximately $174,000.                       

Other income (deductions), net:   Other income (deductions), net for the quarter
ended March 31, 1995 totaled ($290,000) compared with $314,000 for the first    
quarter of 1994. The $604,000 decrease in other income, net is a result in part 
of reduced interest income of approximately $122,000 resulting from decreased   
cash and short-term investments. Interest expense increased approximately       
$337,000 as a result of acquiring the secured line of credit financing. (See    
"NOTES TO FINANCIAL STATEMENTS - (9) Bank Borrowings"). Other income decreased  
approximately $145,000 due to miscellaneous tax refunds received in 1994.       

LIQUIDITY AND CAPITAL RESOURCES                                                 

The Company's Independent Auditors in their report for the year ended December  
31, 1994, stated that because of the Company's recurring losses, continued      
utilization of cash flows, working capital deficit at December 31, 1994, and the
bankruptcy filing on March 24, 1995 by the Company, substantial doubt is raised 
about the Company's ability to continue as a going concern and that the         
Company's historical Financial Statements do not include any adjustments that   
might result from the outcome of this uncertainty. The Auditors' Report for the 
year ended December 31, 1993, and 1992 also stated there was substantial doubt  
about the Company's ability to continue as a going concern.                     

The Company utilized $5,646,000 for operating activities in the first quarter of
1995, and had a deficit in working capital at March 31, 1995 of $15,706,000, all
liabilities are classified as current. The Company needed substantial additional
funds to continue operations past March 1995, which it was unable to obtain.    

After the Company determined it would be unable to complete a planned private   
placement financing of up to $25 million of Common Stock with foreign and United
States institutional investors, and the Company ceased to have sufficient liquid
assets which would allow it to continue in operation on March 24, 1995 it filed 
a voluntary petition under Chapter 11 of the United States Bankruptcy Code in   
the United States Bankruptcy Court for the District of Colorado (the "Court").  
The Company's existing directors and officers have remained in possession of the
assets and business of the Company but are subject to the supervision and orders
of the Court.                                                                   

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The Company terminated on March 24, 1995 most of its employees and stopped work 
on its supercomputer systems. The Company's cash resources are very limited and 
it will incur continuing administrative expenses. The Company is operating      
within the requirements of the U.S. Bankruptcy Code and the Rules thereunder.   

In June 1994, the Company obtained a $17.5 million secured line of credit       
commitment from an asset-based lender, comprised of a $6.5 million term loan and
a revolving line of credit of up to $11.0 million. The amount advanced is       
secured by a senior security interest in all the assets of the Company,         
including the Company's plant, equipment, technology, and intellectual property 
rights. Additional collateral was provided by Seymour R. Cray, Chairman of the  
Board and Chief Executive Officer, in the form of a $5.0 million standby letter 
of credit in June 1994 and a $1.0 million standby letter of credit in December  
1994. The Company received the funds from the $6.5 million term loan upon       
closing of the transaction in June 1994. As of March 31, 1995, the Company had  
borrowed $5.9 million of the revolving line of credit, for a total of $12.4     
million borrowed against the available line of credit of $17.5 million. As of   
March 24, 1995, approximately $12.4 million was outstanding under the line of   
credit. The terms of the Company's secured debt financing provided for certain  
events of default. The Filing of Bankruptcy is stated to be an event of default.
The lender is subject under the U.S. Bankruptcy Code to an automatic stay       
against any action against the Company or its assets to collect its debt without
prior approval of the Bankruptcy Court. No additional debt financing is         
currently available under the secured line of credit.                           

On April 27, 1995 the secured lender drew down the standby letters of credit    
totaling $6,000,000 issued in its favor by Mr. Cray.  This drawing reduces the  
amount owed by the Company on its line of credit to the secured lender and      
creates an unsecured liability to Mr. Cray for an approximate amount of         
$6,000,000.                                                                     

On January 25, 1995, the Company completed a sale of 1,100,000 shares of its    
unregistered Common Stock to foreign institutional investors and 1,165,501      
shares of its unregistered Common Stock to Seymour R. Cray, Chairman of the     
Board and Chief Executive Officer (net proceeds of approximately $2,145,000).   
The sales of shares to the foreign institutional investors were made pursuant to
Regulation S of the Securities Act (the "Securities Act") of 1933, as amended.  
The sale of shares to Mr. Cray was made pursuant to Regulation D under the      
Securities Act.                                                                 

On February 27, 1995, the Company sold 2,100,000 shares of its unregistered     
Common Stock to a foreign institutional investor (net proceeds of approximately 
$1,764,000). This sale of shares was made pursuant to Regulation S under the    
Securities Act.On February 27, 1995, the stockholders of the Company approved an
amendment to the Company's Restated Certificate of Incorporation increasing the 
number of authorized shares of Common Stock, $0.01 par value, from 60,000,000 to
120,000,000 shares in order to have sufficient authorized unissued shares to    
have permitted additional equity financing. The Company had approximately 72    
million authorized shares of Common Stock remaining available for future        
issuance at March 31, 1995.                                                     

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Capital equipment expenditures for first quarter 1995 totaled $111,000 compared 
with $704,000 for first quarter 1994. The 1995 expenditures relate primarily to 
the purchase of test equipment, GaAs fabrication equipment and computer         
equipment.  If the Company had continued operations, it expected such capital   
and other expenditures to continue and expected continued losses at a rate of   
approximately $3 million per month unless the Company began to receive          
substantial revenue from the sale of supercomputers. As discussed above, the    
Company terminated most of its employees concurrent with the Filing on March 24,
1995. The Company currently has 8 full time and 5 part time employees.  In the  
event the Company were to resume operations, the extent of operations and       
related costs have not been determined. There can be no assurance that the      
Company will resume operations, even on a limited basis, and that it will not be
required to liquidate its assets to satisfy its liabilities.  In the event of   
liquidation, management has not determined if sufficient amounts will be        
realized to satisfy the Company's liabilities. Furthermore, it is not possible  
for management to determine whether there will be any distributions to          
shareholders of any residual values available in the event of liquidation.      

The Company has had no orders for or revenues from the sale of its products,    
although through March 31, 1995, $2.5 million of revenues had been generated    
from a development contract on the CRAY-3/SSS.                                  

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PART II.  OTHER INFORMATION                                                     
---------------------------                                                     

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

A Special Meeting of Stockholders was held on February 27, 1995.  The matter
voted on and approved at the Special Meeting was as follows:                    

(i) To approve an amendment to ARTICLE IV of the Company's Restated   
Certificate of Incorporation increasing the Company's authorized Common Stock   
from 60,000,000 to 120,000,000 shares.                                          

The following table summarizes the votes cast at the Special Meeting of       
Shareholders:                                                                   

                             VOTES
                 FOR         AGAINST   ABSTAIN
              ----------     -------   -------
Approval of the amendment     27,196,240     492,151   221,157                

ITEM 5. OTHER INFORMATION                                                       

None                                                                          

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                        

(a) Exhibits                                                                  
--------                                                              

The following Exhibits are filed as part of this Quarterly Report:              

None                                                                  

(b) Reports on Form 8-K                                                       
-------------------                                                   

Reports on Form 8-K filed during the quarter ended March 31, 1995.    

  (1) A report on Form 8-K dated January 25, 1995 was filed by the Company
which reported that on January 24, 1995 Cray Computer Corporation announced a   
private equity financing and the scheduling of a Special Meeting of             
Stockholders.                                                                   

   (2) A report on Form 8-K dated February 17, 1995 was filed by the Company
which reported other events, the current status of Securities and Exchange      
Commission Inquiry.                                                             

     (3) A report on Form 8-K dated March 1, 1995 was filed by the Company which
reported that on February 27, 1995 A Special Meeting of Stockholders of Cray    
Computer Corporation was held.  At the meeting, Stockholders approved an        
amendment to ARTICLE IV of the Company's Restated Certificate of Incorporation  
increasing the Company's authorized Common Stock from 60,000,000 to 120,000,000 
shares.  The Form 8-K also reported that on February 23, 1995 Cray Computer     
Corporation announced that CRAY-4 price/performance leadership affirmed by      
competitive announcement.                                                       

     (4) A report on Form 8-K dated April 4, 1995 was filed by the Company which
reported that on March 24, 1995 Cray Computer Corporation filed a voluntary     
petition under Chapter 11 of the United States Bankruptcy Code in the United    
States Bankruptcy Court for the District of Colorado.                           

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SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the    
Registrant has duly caused this report to be signed on its behalf by the        
undersigned thereunto duly authorized.                                          

             CRAY COMPUTER CORPORATION
            (A Development Stage Enterprise)

Date      May 22, 1995        by /s/  WILLIAM G. SKOLOUT                        
------------           ----------------------------         
              William G. Skolout
          Vice President
                   Chief Financial Officer

                    Signing on behalf of the
                       registrant and as principal
              financial officer.

24

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘10-Q’ Filing		Date		First		Last			Other Filings
		6/10/97		13
		3/31/96		19
		7/21/95		15
		5/23/95		11		18
Filed on:		5/22/95		24
		5/5/95		18
		4/30/95		19
		4/28/95		1
		4/27/95		21
		4/24/95		12
		4/4/95		23					8-K
For Period End:		3/31/95		1		23			NT 10-K,  NT 10-Q
		3/24/95		6		23
		3/1/95		23					8-K
		2/28/95		10
		2/27/95		8		23			DEF 14A
		2/23/95		23
		2/17/95		23					8-K
		2/15/95		13
		1/25/95		8		23
		1/24/95		23
		1/13/95		14
		1/11/95		14
		12/31/94		2		20			10-K,  NT 10-K
		11/10/94		17
		8/17/94		17
		7/31/94		17
		6/10/94		12
		5/10/94		10
		3/31/94		2
		1/5/94		9
		12/31/93		20
		1/1/93		11
		12/31/92		7		20
		1/31/92		13
									List all Filings